Archive for June 2010

Krugman’s Depression!!

June 29, 2010

Paul Krugman

Well, it’s finally happened.  Nobel prize winning economist, Paul Krugman, is throwing in the towel on the current crop of top politicians.  He has called the start of the Third Depression.  The hyper-rational Krugman has concluded that the G8 and G20 leaders are not about trying to save their countries or citizens through a frugal reappraisal of their economies.  Oh no, he judges that Merkel, Harper, et al., are marching to a different drummer and an anti-social one at that:

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

Although I am not a genius like Krugman, I believe that Keynesianism’s strength is that it addresses the economy as a dynamic whole.  The idea is that the more money that is moved (spent), the higher the incomes of the people.  Hence, in recessions and depressions Keynes prescribes a policy of forcing money to move. The problem is that when you move borrowed money through the system in a way which does not result in an increase in real wealth, you have wasted the money.  And the taxpayers still have to pay it back.  How much of the money increases real wealth?  I’m thinking that the $700 Billion stimulus bill, put together in a matter of months, probably has a lot more boondoggles than wealth creating projects in it.

It’s like the difference between borrowing $100 to buy a business tool and borrowing the same $100 to eat out.  The former increases your wealth, you are demonstrably better at making money.  The latter only makes you better off to the same extent that a patio grilled hamburger,  which would have fed you just as well, would have made you better off.  If you spent $100 to eat out and you could have served hamburgers on the grill for $10, you’re $100 in debt but only $10 better off.  Surely, the restauranteur and the waiter and the chef are better off but you’re still left in debt from the extravagance.  Keynes assumes that you’ll be better off in the long run when the money goes around.  Perhaps this is so but we’re all still in debt even though we made some money in the coming around going around merry go round. 

It can only be true that the political leaders of the largest economies on earth are sadistic ideologues if they believe that their borrowing money today is without negative economic consequences in the future and still they refuse to do it?  Are we really to believe Krugman cares more about their electorates than they do?  Is this refusal to accept purely rational Keynesianism just another example of populist anti-intellectual backlash ?  Being willing to allow “unnecessary” pain to be visited upon current voters in order to benefit those not yet alive or at least not old enough to vote is without a doubt politically difficult.  After all, it is not a political coincidence that Keynesianism, which minimizes short term pain, is the very ‘ism’ we in the US have been following since Bush and the Democratically controlled congress passed a $152 stimulus in 2007.   Krugman the intellectual simply denies even the possibility that the willingness to accept current pain is simultaneously the patriotic and responsible thing to do.  

Mr. Krugman, is it possible that the G8 and G20 leaders believe in the “new orthodoxy” of frugality because they have lost faith in the long term benefits of following Keynes?  We started with Keynesian policies in the 1930’s so it seems it’s fair to say we’re in the long run now. Keynes didn’t theoretically address the long term outcomes of continuously following his proposals over a long period since he suggested that in the good times which followed the bad ones we’d pay back the debt.  It should also be remembered that Keynes coined the phrase, “In the long run we are all dead.”   What’s happening right now in the Keynes driven economy?  Not much good that I can see other than an increased propensity to save.  The political leaders of much of the rest of the world, personally disdained by Krugman, seem to agree with my assessment of the situation. 

Keynes is Krugman’s intellectual hero.  A rejection of Keynes is in a real sense a rejection of Krugman.  Krugman obviously believes that rejecting Keynes and therefore Krugman is irrational.  The rejection of Krugman may be what he really has in mind when he calls the G8 leaders sadistic.

A Rise in Civil Libertarianism on the Right?

June 26, 2010

On June 24 Rasumussen reported the following poll results:

Nearly half of American Adults see the government today as a threat to individual rights rather than a protector of those rights.

United States Supreme Court

That is, according to Rasmussen, 48% of American adults believe that government is a threat to individual rights. 

Additionally, most Americans (52%) say it is more important for the government to protect individual rights than to promote economic growth.

One final and interesting point made by Rasmussen about this poll is the breakdown in opinion between self identified Republicans, Democrats and Independents.

Most Republicans (74%) and unaffiliateds (51%) consider the government to be a threat to individual rights. Most Democrats (64%) regard the government as a protector of rights.

The polling represents a point of view that the more conservative among us are becoming more interested in our civil liberties.  To see these poll results in practice before the US Supreme Court we have Thursday’s opinion in Skilling v. United States.  Skilling was formerly the CEO of Enron.  The justices, in striking down Skilling’s conviction, lined up in a very interesting way.  In this so called “right to honest services” case the Court unanimously agreed that, as it applied to Skilling, this criminal statute was too vague and Skilling had been deprived of his constitutional due process rights.  The author of the Court’s main opinion, Justice Ruth Bader Ginsburg, is the former general counsel for the ACLU.  She concludes for the majority that the “honest services” statute is vague and this vagueness is overcome only in those cases involving bribes or kickbacks.  Limited to such cases she finds the law constitutional but, because Skilling had not participated in bribery or kickbacks, the statute was defective as to him.

In a separate opinion Justice Scalia joined by Justice Thomas, certainly the most conservative members of the  Court, joined by Justice Kennedy, argues that the reasoning of Justice Ginsburg is insufficiently broad.  Justice Scalia concludes that any conviction under this statute would be defective on due process grounds since nowhere in the statute is there a limitation to those cases involving kickbacks and bribery. Hence, Scalia says, the statute is overbroad, ambiguous and fundamentally defective and future opinions should invalidate any convictions under it on this basis.   

The juxtaposition of these two opinions and their authoring jurists is fascinating.  The so-called conservative would flatly invalidate  all convictions under this statute while the former general counsel for the ACLU would uphold convictions in certain circumstances which are unnamed in the statute.  Who is the civil libertarian here?  Why the divergence?  Is there something in the way each of them see the world which makes them break down this way?  Are the results of the Rasmussen poll playing out on the stage of the highest court in the land? 

Of course you may say that this is just like medieval theologians arguing over how many angels may dance on the head of a pin.  Why, you may ask, is this anything more than a simple academic disagreement between extremely intelligent justices?  Why is this a civil liberties case?

My answer: the Skilling case is rightly understood as a political rather than a law enforcement case.  Why do I believe that the prosecution of Mr. Skilling was political?  I think we can all agree that there was considerable pressure on the Bush justice department to convict Skilling as well as Ken Lay and other higher ups at Enron as well as the accountants at Arthur Andersen (another prosecution which failed at the Supreme Court level in 2005) of something, given the high profile of this largest bankruptcy in US history.  There simply can’t, in our modern America, be such a thing without criminal charges, can there?  Somebody must be made to pay and pay dearly.  Our federal government cannot be seen to be passive here because people would start to wonder if the federal government’s “protection” of the public is really all that valuable if there is no criminal violation associated with Enron’s fall.   [Note: The justice department  publicly began looking at BP for criminal violations associated with the oil leak several weeks ago prior to the agreement by BP, under pressure from the White House, to fund an independently administered $20 Billion compensation fund.]

In the end, the government charged Skilling with both a violation of the “right to honest services” law and insider trading violations.  Lacking a strong insider trading case against Skilling, evidence of this fact being conclusive since a local Houston jury acquitted on all nine such counts, the government used it’s “go to” statute, the “right to honest services” law, to “get him.”  At trial the government gained a conviction but it did so only through the use of a criminal statute which was, as to Skilling, unconstitutionally vague according to a unanimous Court.  From the point of view of the executive branch, however, the justice department was vindicated by a jury which convicted, even though Skilling was eventually let off on a legal loophole.  It was plainly just a political prosecution.

The Courts are there to protect us from being crushed under the overbearing weight of the federal government.  It is laudable that all of the justices stepped up to agree that Skilling, an unpopular and much villified character, was subjected to prosecution under an unconstitutionally vague law.  It is interesting, I think, in light of the Rasmussen poll, that the more conservative justices were willing to go further than the reputed “civil libertarians” to restrict the power of the feds.       

[See also:  Fox News Judge Andrew Napolitano attacking the Patriot Act as blatantly abominable, unconstitutional and hateful from the stand point of civil liberties.]  

WHY PROGRESSIVES EXPECT BUT DON’T FEAR VIOLENCE

June 22, 2010

Many are aware of this quote from George Washington:

Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master.

If, as Washington believed, government is just force and if, as many American’s believe, a focus of the current administration is “redistribution of wealth” through government action, then the redistribution of wealth by force is a focus of the current administration along with their allies in both houses of Congress. What makes this “redistribution” logically different than a burglary or a car jacking or armed robbery? Implied violence is certainly not a distinction because it is present in both situations.  Supporters of the redistribution would say that the difference is the fact that it is accomplished by means of law which was arrived at through our representative government. Is this a principled distinction?

What law is this that permits forceful reassigning of wealth? The tax law? The health care law? Social Securityand Medicare?  The $800 billion stimulus law? The previous $152 stimulus law? The TARP law?  The incipient new laws on Financial Regulation and Cap and Trade?  Is there a distinction between burglary/robbery and “redistribution” other than that the political system has decided to give what some people own to different people?  In whose eyes is this a fundamental distinction?  Isn’t it like changing the rules after the game has been played?  Like the proverbial two wolves and a sheep voting about what’s for dinner?  Even if it is a good idea economically and government policy wise, is taking something and giving it to someone else without even the appearance of compensation morally okay?  Is it principled?  Can principled and moral resistance to this aspect of the political system be rightfully characterized as mere ideological claptrap?

Says Al Sharpton:

Is Sharpton alone?  President Obama gave a radio interview in 2001 in which he addresses forcible redistribution of wealth.  See  http://www.youtube.com/watch?v=iivL4c_3pck

How do we analyze this?  Let’s say that there is a new law. That law states that poor or unemployed persons or investment bankers are permitted to let themselves into your house and remove your property up to a certain amount. Should this be considered as proper “redistribution under law” or criminal activity? Is there a moral difference between this new law and the current laws of “redistribution?”  What if the law requires us to leave a certain amount of designated property on our front lawns for later pick up by the beneficiaries of government largesse avoiding the unpleasantness of  actual entry?  Is such a system justifiable under traditional morality?

I believe that passing a law does not lessen the moral failing of a policy of  governmentally enforced redistribution.  This, however, is the reason that progressives expect a violent backlash to the redoubling of redistribution policy under the leadership triumvirate of Obama-Pelosi-Reid. They understand that fundamentally there is no difference between theft under law and “redistribution” of wealth through taxing and spending. This is equally true whether the redistribution is accomplished by means of the income tax or inflation or through some other governmental means. Progressives, however, reject the very idea of a morality which transcends the rule of the majority.  They are well aware that their aim is to make some people poorer and some richer by means of the law and they want to to accomplish this, in part, to demonstrate their rejection of any idea of a transcendent morality.  They challenge this morality!  They want a reaction from those who accept it. 

Right now there is no easily perceptible connection between the manna being conferred upon the beneficiaries of redistribution and the source of that redistribution. This is because taxes have not really gone up yet and governmentally measured inflation is limited. The current source of  redistribution is borrowed money which taxpayers are on the hook for. People are being given benefits and we are simply promising to pay for them in the future.

How will we pay? The payment will come in at least three ways. First, taxes will go up. Second, the value of the dollars we hold will be eroded through inflation. Finally, we will all pay for the current transfer of wealth through a future of less, possibly much less, because the debt will act as a drag upon the productiveness of our economy and everyone will be worse off than they otherwise would have been.

Progressives know that some people will resist this, feeling that the law is being used to mask what is essentially theft. Given their aim to demonstrate rejection of a principled morality, they expect people to resist and to resist this taking by force. Resistance by force is a right under law when someone enters your home to take your property unless you welcome them and invite them to do so. The fundamental reason that this redistribution by law cannot be resisted by force, however, is that the government has sanctioned this taking. In fact government is the one acting as the intermediary and doing the taking.  We cannot forcibly resist the government taking because it is at once the repository of “lawful” force and the source of the political law which creates the redistribution.

Why no violence yet? Is it because the “resisters” have a deeply ingrained respect for government whether acting morally or not or is it because the loss of property has not really been felt yet? I don’t know for certain but I believe and hope it is the former. Nonviolent resistance and protest through the political process is the only way to maintain what is left of our limited government constitutional republic.  Any violent opposition will be violently put down by the lawfully instituted authorities. Those violently asserting moral rights to their own property will lose their legal credibility as well as their moral superiority. 

A reinvigoration of the principles and self discipline of Americans to refrain from looking to government to take property from others is necessary. In fact, it seems that an example of self discipline is necessary.  We must start with ourselves before we look to others to relinquish their redistribution “benefits.” Violent resistance to this “theft under law” can result only in losing our constitution and our right to insist upon its principled limits on government.  Through resistance by force we will enter a free for all in which might makes right.  Progressives are not really afraid of this since theirs is a world where the majority may freely trample on the rights of a minority through government action, i.e. redistribution under law. We cannot allow ourselves or those who see the world in a similar way to go there.

AN OPEN LETTER ABOUT GOLD

June 10, 2010
Gold US Eagle Coins

John Schoen, a columnist for MSNBC’s personal finance site, writes about gold. gold bugs and gold values in an article titled “Gold Bugs Fly High As Values Soar.”  This article features prominent quotations from an “investment strategist” at Barclay’s Wealth, Michael Crook,  http://www.msnbc.msn.com/id/37490761/ns/business-personal_finance/.  Says Crook: 

As the market realizes that the events that it’s working though are not the end game, the selling from the ETFs creates source of downward momentum that we actually haven’t seen before,” . . . .  Investment demand has become a much a larger source of demand than it used to be. So the question is that a true shift in preference or it is it a bubble? We’re wagering it’s the latter.

As indicated by this quote, Crook and Schoen’s article generally take the view that the current run up in gold is just another bubble not unlike the bubble in the early 1980s when gold rose in price to over $800 per ounce.  If so, this bubble could mimic the tech stock bubble or the oil bubble or even the housing bubble which is still in the process of popping.

I wrote a response to Mr. Schoen.  I would like to share with you the gist of that response.

John:

Do you have any bullion gold yourself?  If not, I would be interested  in an article about why you’ve decided to avoid bullion.  Is it because you see that in the last century the fiat dollar has never collapsed therefore it is not possible that it will collapse?  Do you think it is impossible for the fiat dollar to become worthless or nearly so?  If not impossible, how ‘unlikely’ is it do you think?  If it is merely ‘unlikely’ and not impossible how do you quantify the likelihood of the occurrence of that unlikely eventuality?  Have you read or do you know of Nicholas Taleb’s book, “The Black Swan” which concerns the impact of the highly unlikely event or non-event? 

I consider it unlikely that gold will lose half of its dollar value over the next twelve months but it appears to me that the difference between you and me is that I don’t consider it impossible that this will happen or that it may double again.  If an event such as these were considered impossible by some, I would have to understand why they believed it was impossible before I would believe in its impossibility.  Crook simply opines that markets are discovering that this period is not the “end game.” 

The destruction of gold’s current valuation or the doubling of it is not impossible at the very least because Congress could conceivably pass a law deeming the value of gold at $600 per ounce or there could be rampant deflation when the Bush tax cuts expire in 2011 or the Fed could successfully reduce the size of the money supply when velocity returns to a more normal value and in any of these events and a million more I could think of, gold would lose much of its market value.  Likewise war and hyperinflation might push the value quickly higher. Virtually anything is possible, even the election of an honest government at some point in the future is possible, but that’s another subject. 

It seems to me, however, that holding some gold is a reasonable hedge against a Talebian Black Swan event, hyperinflation, loss of the dollar’s reserve currency status in favor of gold, or world war, whatever.  Not likely events, and events too terrible to contemplate to be sure, but not impossible ones either.  

I should also have included this but I didn’t think of it until later.

No more than 5% of net financial assets held in gold though, is that a good idea John?  For me and apparently for you, diversification is important.  For others, with the US government apparently ready to step in to take care of them in their dotage although they haven’t provided for it themselves, why not?  They could end up mega-rich.   If they win great, if not, it would sort of be like the Wall Streeters who were bailed out by the government too.   

You also cite Congressman Anthony Weiner and his public crusade against gold companies supporting conservative talk show hosts.  Weiner has criticized at least one prominent coin dealer for a “mark up” of either two or three times (208%) the melt value of some gold coins they offered for sale. Does Weiner understand the numismatic value of gold?   There are pennies and a few other coins which I have owned which are worth hundreds of times their base metal value?  Is Weiner simply saying that there are rare coin dealers who are sharks?  Duh!!  Who doesn’t know that?  However, are the people who are buying that type of gold betting on the Talebian Black Swan of government confiscation of non-numismatic gold?  Wouldn’t this action very likely send the price of the remaining gold, the numismatic gold, that much higher?  I just wonder?  Is the public as stupid as the intelligentsia think?  Do we all need to be protected from ourselves and from the evil,  racist Glenn Beck? 

 P.S.  Your point about exchange value is a good one John.  Perhaps some silver coins then as well? 

In the end, who knows what will happen.  The Boy Scout motto should ever be our watchword whether young or old, “Be Prepared.”

Congressman Weiner’s report on Goldline, the offending coin merchant, can be found at http://weiner.house.gov/Reports/GoldlineReport.pdf

MICHAEL YON AND CENSORSHIP BY EXCLUSION

June 5, 2010

Yon in Iraq

Michael Yon, a former Green Beret, went to Iraq and Afghanistan in order to discover the story of our wars from the point of view of those fighting them. In his own words:

 

. . . [W]hat spurred me to drop what I was doing, get on a plane and fly halfway around the world, to a war zone, was a growing sense that what I was seeing reported on television, as well as in newspapers and magazines, was inconsistent with the reality my friends were describing. I wanted to see the truth, first hand, for myself.

For more than five years Yon has been issuing his Dispatches from embeds with American and UK units both in Iraq and Afghanistan. He has spoken often and powerfully about his experiences and observations. He has shown directness and even bluntness in his assessments, often including implied and explicit criticism of the US and UK upper echelon. He jumped into the political hornet’s nest when he observed that the war in Iraq had morphed into a civil war but did so because he felt it was necessary to be accurate about events on the ground. He has also been particularly direct when talking about the military and police forces of the two host nations. He has always told it like it was and, notwithstanding his sometimes impolitic opinions, for the most part was welcomed by the allied military at all levels.

Last month, despite the terms of a written understanding with the army, Yon was abruptly dis-embedded from his unit, the 5th Stryker Brigade, 2nd Infantry Division in Aghanistan. There is significant evidence that this action was taken from the level of and at the direction of Gen. McChrystal and staff. D.B. Grady explains the context of the order to dis-embed Yon in the Atlantic, http://www.theatlantic.com/politics/archive/2010/06/michael-yons-war/57483/.

Despite early optimism, Yon has clearly expressed his lack of confidence in Gen. McChrystal’s capacity to lead the US to a successful outcome in Afghanistan. He has also leveled substantial criticism against the actions of a Canadian General who was subsequently relieved of command. The specifics of these episodes are all beside the point however. The point I am making is that dis-embedding Yon was a form of censorship and a threat.

Let’s ask ourselves some pertinent questions. Is controlling access to non-secret information a form of censorship? When is such access-censorship permissible in a country whose press is supposedly free? Does access-censorship become more permissible when you are in a war and you, as the authority, believe people’s lives may be lost if your war aims are made more difficult to accomplish by reason of the publication of non-secret information or even uncomfortable opinions? Are there written guidelines which are to be applied by the party making the decision to limit access to non-secret information? Isn’t the censorship of Michael Yon worthy of substantial news coverage especially when it acts as an implied threat to others? After all the remainder of the press rallied around Fox News when the White House was trying to isolate and marginalize it. Why is D.B. Grady, a freelance writer, the only one even mildly interested in it? I truly hesitate to make this political connection, but did the fact that President Obama made himself, until very recently, virtually unavailable for press corps questions set the tone in which this action was acceptable? Would the press have pursued the story if Bush’s army had cut off Yon’s embed when he went public saying that the war in Iraq had become a civil war when that conclusion contradicted the Bush party line?

Long before his dis-embed, Yon made this important statement about access to information:

The longer I stayed, the better I understood things. And I began to realize that Americans need to see these things in order to understand what is happening here and come to a more informed judgment of whether this struggle is “worth” the cost, in money and lives. No one can make that determination without a balanced set of facts.

How do we, the American people, reach a reasoned conclusion about the war in Afghanistan without Yon and others like him giving us the raw data? Is a man like Yon, whose embeds are at the discretion of the army, entitled to express opinions about the leadership of the war without losing his observation post thus cutting off his access to information and ours along with him? Is this another issue which must be injected into the political process if the press itself turns away?

 
Note: It should be disclosed that the author of this post has read Yon’s Dispatches for years and has made voluntary financial contributions to help keep him in place.