CableGate & ClimateGate: double standards…?

Left-leaning media pundits decried the release of eMails “stolen” from the Climatic Research Unit at the University of East Anglia exposing misbehavior by warming alarmists.

Now, many of the same talking heads applaud release of sensitive information by WikiLeaks.

Demands for transparency of government activities should be the norm & not driven by partisan leanings.

In all events, the agenda of WikiLeaks is quite transparent in focusing only on malpractice by US government officials. Surely some other regimes have nastier secrets…?

Taxation & the “Class Struggle”

Besides the State or those that seek largess from it, individuals & groups that are not criminals receive income as voluntarily transfers. Either they produce & engage in voluntary exchange of goods or services or they receive voluntary gifts.

But the State & its sycophants obtain funds through a process of coercion involving threats against those that might refuse its demands in the form of compulsory taxation.

Just as repressive, imperialistic regimes relied upon “tribute” from vassals, modern States depend upon compulsory taxation or property seizures. In both instances, these involuntary transfers constitute a form of theft that exceeds the combined efforts of crime syndicates like drug cartels, Cosa Nostra or Chinese Triads or Japanese Yakuza.

Thus, the State creates a “class struggle” pitting an expropriating “Ruling Class” against a “Productive Class” of workers & entrepreneurs whose wealth is expropriated for redistributive purposes.

The Productive Class depends upon “economic means” & market transaction to create wealth while the Ruling Class relies upon “political means” to acquire income. As such, one group or class is looted to promote the interests of other groups, including public-sector workers & members of rent seeking special-interest groups.

Thoughts on Democracy

“Many forms of Government have been tried & will be tried in this world of sin & woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.”
~Winston Churchill~ Speech in the House of Commons, November 1947

Support from the past for the Bush Doctrine…?

“Terror is not a new weapon. “Throughout history, it has been used by those who could not prevail either by persuasion or example. But inevitably, they fail either because men are not afraid to die for a life worth living, or because the terrorists themselves came to realize that free men cannot be frightened by threats & that aggression would meet its own response. And it is in the light of that history that every nation today should know; be he friend or foe, that the United States has both the will & the weapons to join free men in standing up to their responsibilities.”
~John F Kennedy~ Addressing the UN, September 1961

THE DEFLATION CANARD: Somebody needs to kill that duck!

Monetary policy makers in the US & Japan are using a bugaboo about “deflation” as an excuse to engage in either novel or exceptional courses of action, including quantitative easing (QE).

A reality check, especially when undertaken by non-economists that are not blinded by conventional wisdom, will see that there is little to fear about falling price levels, per se.

Harking back to the miseries of the Great Depression is used to conjure up exaggerated impacts of deflation. At that time, the destructive effects of a general decline in prices was driven by a rapidly shrinking money supply, a condition that is unlikely ever to be repeated.

But in the current context, falling prices for some items or assets in some places is a retreat from wildly-overstated valuations that is a necessary adjustment after the demise of “bubbles”.

Japan’s experience with “deflation” from the mid-1990s to early 2000s was that the rate of change of average prices was never greater than negative 1%. Then after a brief respite when the price level rose slightly until 2 years ago, it began falling but was never more than a tad over 1%.

This hardly suggests that falling prices is a “scourge” or is necessarily problematic. Indeed, it seems unlikely that are such small price falls are inducing consumers to forego spending or that the dimensions are the main issue behind business investment decisions.

Clearly, Japan’s economy suffers from bigger problems. In particular, the financial sector suffers from obscenely-low interest rates that do not sufficiently cover risks of lending to start-up businesses.

In the US, central bankers merely claim that “inflation” is too low for their tastes. But even this conclusion only holds by keeping sharp hikes in food and energy prices out of the measures of price levels.

Any consumer considers a general decline in prices not a bad thing but a good thing nor will generally fally prices inevitably lead to economic disaster. If prices decline in the wake of productivity gains from advances in technology or capital improvements, everyone holding money will be able to buy more and their living standards will rise.

This is surely a good thing. And even if they decide to delay some purchases in anticipation of prices moving downward, they will not stop consuming altogether.

In all events, deflation has also been coincidental with high economic growth & was common in the early days of the Industrial Revolution. And during the second half of the 19th Century when declining prices were rampant, economic growth was exceptionally high.

So, why all the hubbub about “deflation”…? Fugidaboudit!

Musing on the State

“The State is the great fiction by which everyone endeavors to live at the expense of everyone else.”

(“L’État, c’est la grande fiction à travers laquelle Tout Le Monde s’efforce de vivre aux dépens de Tout Le Monde.”)

~Frédéric Bastiat~ The State (1848)

Claude Frédéric Bastiat (1801 -- 1850)

Mark Twain’s Classical Liberal Wisdom

“The mania for giving the Government power to meddle with the private affairs of cities or citizens is likely to cause endless trouble … & there is great danger that our people will lose that independence of thought & action which is the cause of much of our greatness, & sink into the helplessness of the Frenchman or German who expects his government to feed him when hungry, clothe him when naked … &, in time, to regulate every act of humanity from the cradle to the tomb, including the manner in which he may seek future admission to paradise.”

~Mark Twain~

Keeping interest rates so low for so long is so wrong in so many ways!

Let’ count just a few!

First, artificially low interest rates encourage governments to borrow more since they gain from lower costs of debt servicing. (When do politicians ever need an excuse to spend more of other people’s money!)

Second, net-creditor governments with rising debts have an inducement to debase their currency since it reduces their debt burden.

Third, artificially-low interest rates undermine the notion of risks & encourages search for riskier but higher-yielding assets.

Fourth, the search for riskier but higher-yielding assets will tend to send funds offshore.

Fifth, sending domestic capital offshore either as “carry trade” to exploit interest arbitrage or to purchase financial assets will tend to pump air into “bubbles” in emerging markets.

Sixth, artificially-low interest rates allow weak business plans with low yields to be temporarily viable. When interest rates inevitably rise, these investments go kerplunk! This is an avoidable waste of capital.

Seventh, artificially-low interest rates tend to lead to rising consumer prices that harm the weak & poor the most. Commodity prices also tend to rise, curbing profitability & leading to less new job formation.

Eighth, these measures can only create temporary, artificial economic growth (IF at all!) that tends to lead to permanently-higher price levels that undermine the value of incomes & saving.

Enough said for now…send in your own objections…?

What’s so great about central banks?

America’s central bankers celebrated the centennial formation of the Federal Reserve System at a beach resort where it was conceived. Given its lousy track record, the only thing to celebrate is their high salaries & increased power over the destiny of the global economy.

For the rest of us, the financial & economy history of the past 100 years suggests that most people have been made worse off!

For example, the US dollar was worth over 22 times more when the Federal Reserve System was created than it is worth today. By contrast, the dollar’s value remained constant due to its link to gold before there was a FED.

Consider that the price of gold under the FED’s watchful eye moved from $35 in 1971 an ounce to $1,400 an ounce, its highest level in real terms since the late 1970s, & silver is flirting with $40 an ounce.

It is clear that investors believe they need to hedge against the risk of higher future price inflation, a vote of no-confidence on the actions of America’s central bankers.

And there is incoherence in the macroeconomic logic behind monetary policy. For example, central bankers believe that buying government bonds to drive down long-term interest rates is a good thing since that will supposedly boost economic growth.

Incongruously, the same logic insists that higher saving rates are bad since consumption will be lower. But, this ignores the fact that increased saving tends to cause interest rates to fall! Then, why ain’t this good for economic growth…?

While the artificial lowering of interest rates subsidizes government borrowing so politicians can spend more and acquire greater powers, it tends to debase the currency. But it also causes distortions in capital flows and fosters asset bubbles.

New York District Bank of Federal Reserve