Krugman about US debt

Paul Krugman on the US national debt: 
"And you don’t have to be a right-winger to acknowledge that yes, very high marginal tax rates act as a disincentive to productive activity. So real GDP may well fall significantly.

This is what I mean when I say that the burden of debt is about incentives, not about having to deliver resources to other people.

Private debt, by the way, creates a different kind of problem: again, it doesn’t directly make us poorer, but it increases our macroeconomic vulnerability.

The general point is that the analogy with a family that owes too much is all wrong. Unfortunately, this dumb analogy dominates our national discourse."

The cost of Obama's friendship... ($3)

By making a $3 contribution to the Obama's campaign Americans can enter the lottery, which will choose three of them to dine with the President and his family. There are a couple of paragraphs in this article that I found interesting:

1. The President's letter apparently says:
"We don’t take a dime from D.C. lobbyists or special-interest PACs -- never have and never will. Instead, we believe in the kind of politics that gives everyone a seat at the table -- so we’re literally offering these seats at dinner to folks who are willing to step forward and be a part of it."

A report by the Washington Post however provides a different picture of the reality:
"Despite frosty relations with the titans of Wall Street, President Obama has still managed to raise far more money this year from the financial and banking sector than Mitt Romney or any other Republican presidential candidate, according to new fundraising data."

2. Here is an interesting accounting trick:
"Now click the line that reads, “Chip in $3 or whatever you can today -- and you’ll automatically be entered to be one of our dinner guests.” You’ll immediately be entered into the real dynamics of campaign contributions. They’re no longer talking $3 contributions. They are now talking $5,000 contributions. Yes, I know, you thought that $2,500 was the maximum you could give. But, you see, there are two stages to the Obama campaign: the primary elections and the general elections. What primary elections? you ask. Well, that’s the neatness of the trick. Obama won’t spend a dime on the primaries anywhere. Still, you can give $2,500 twice."

You've just made a choice... (Or supported someone who has made it for you)

While the consolidation of power by the new North Korean dictator is an entertaining to watch political chess game, the West has already made its most important decision. (By "the West" I mean America, Europe, Japan, South Korea - all the countries that may benefit from the democratization in the North Korea, and who take  pride in their commitment to defending human rights.):
The North Korean weakness that resulted from the death of Kim change of the regime presented a unique choice of seizing the moment to force a regime change - militarily, like in Afghanistan, Iraq, and Libya, or by using political pressure, in Pakistan (forcing the departure of Pervez Musharraf), as the early Obama administration attempted to do in Honduras, and finally as it happened when the West refused to support its long-term ally in Egypt.

Please note that I am not advocating the use of force, but pointing that there was a clear choice (albeit complicated by the spectacular intelligence failures): use the weakness of the power transition in North Korea to topple the regime, or wait till the regime consolidates its power in order to negotiate with the new dictator.
The world, weary of the wars in Afghanistan and Iraq, immediately chose the second option. We can now only wait and see whether the future negotiations with the new Korean dictator will succeed in helping Korean people and reducing the danger that the dictatorship poses to its neighbors. But every choice implies a share of responsibility for its consequences...

Nothing personal - just business

A new package of financial agreements between Japan and China is suprizing in two ways:

1. There is an argument to be made against the possibility that the Chinese yuan will supplant anytime soon the US dollar as the principal international currency - the main ones are the political uncertainty resulting from the nature of the Chinese political system. However, the agreement shows that neither yuan nor yen need to become the major reserve currency in order to make the dollar less relevant:
"The agreements include a plan for a Japanese government-backed entity to sell yuan-denominated bonds in China, a boost to Beijing's campaign to deepen its domestic capital markets. Other measures are designed to make it easier for companies to convert the Chinese and Japanese currencies directly into the other, without requiring an intermediate conversion into dollars, the current common practice. About 60% of all Japan-China trade is currently settled in American dollars, according to a Japanese government official who briefed reporters on the agreements."

2. It is remarkable that Japan is willing to overlook its political disagreements with and the military danger posed by China for the sake of business. This may be just another indication that the traditional Japanese reliance on the military American protection is diminishing - it sees more security in having better relations with its neighbors:

"Still, the accords were striking, given recent tensions between China and Japan, including a prolonged diplomatic standoff just over a year ago in a territorial dispute, and hawkish comments by Mr. Noda and aides earlier this year about their concerns of a Chinese military threat. While China has reached agreements with other countries to encourage investment in its bond market and to encourage convertibility from the yuan into other currencies, this appears to be the most comprehensive such bilateral package. The moves suggest the two leaders may now see the need to downplay political differences and focus on reinforcing their economies, particularly at a time when Europe's debt turmoil and flagging global growth threaten Asian growth."

What causes instability in the Middle East?

Rather usual criticism of Israeli settlement activity meets unusually forceful response:
"The Europeans called for an immediate halt to settlement activity, adding that they hoped the government would follow through on its promises to bring settlers guilty of violence to justice.

"If instead of contributing to the stability of the Middle East, they invest efforts in inappropriately bickering with a country with a law and justice system that knows how to deal with lawbreakers, then they are losing their credibility and making themselves irrelevant," the Foreign Ministry stated in response to the European criticism."

A few comments:

Lust for oil?

An interesting article about some deeps social reasons behind the American invasion of Iraq.

Brief summary: In the wake of the spectacular collapse of the Soviet Union, Americans (and perhaps most of the World) became convinced in the superiority of the American social and economic systems. The benefits of the globalization/international trade were obvious, as well as the fact that “[T]he hidden hand of the market will never work without a hidden fist,” - the hidden fist being the powerful and highly moral American military:
"Americans took it for granted that their own approach to democracy should and would apply universally. They believed themselves better positioned than any would-be competitor to capitalize on the promise of globalization. As for high-tech military power, Desert Storm had already testified to American prowess; what some were calling the Revolution in Military Affairs would translate a clear edge into permanent supremacy."

These beliefs were shared equally by the Democrats and the Republicans - for example, by Bill Clinton and his contemporary speaker of the House Newt Gingrich (this should not come as a surprise, if you have a good enough memory to remember the bi-partisan support for the Iraq invasion.)

9/11 came as a shock, which was quickly followed by denial in the form of an attempt to re-assert the American power. Saddam Husein was just a natural target:
"From this perspective, designating Saddam Hussein as Enemy No. 1 made a great deal of sense. Granted, Iraq was not involved in the terrorist attacks of Sept. 11. Hussein’s regime had only the most negligible links to al-Qaeda. And, of course, Iraq’s stockpile of nuclear and biological weapons turned out to be a figment of fevered imaginations. But critics who employed such facts to charge the Bush administration with deception or incompetence missed a larger point: The real aim of Operation Iraqi Freedom was to demonstrate that the United States still called the tune to which history marched. For such purposes, Hussein’s ramshackle regime presented an ideal target."

The rest is history. I suspect that the more the smoke clears, the clearer we will see that the reasons for the invasion of Iraq were deeper (although not necessarily more morally justifiable) than merely George Bush's animosity towards Saddam Hussein or the American lust for oil.

Keynes vs. Hayek (stimulus vs. austerity)

A summary of Hayek's work, in case you are interested in the Keynes vs. Hayek debate (aka stimulus vs. austerity) (my previous posts in the subject here, here, here, and here)
"The discussion was very similar to the modern austerity versus stimulus debate, although at the time the major players were still busy fully developing their theories.  Keynes favored temporary and limited government socialization of investment as a means of using unspent money to recover the “gap” in aggregate demand, as well as general monetary stimulus.  He believed that banks do not do an adequate or complete job in financial intermediation through the loanable funds market — a form of disconnect between savings and consumption.  More specifically, he did not see a reason as to why savings are necessarily invested, seeing this as a natural fault in the capitalist system.

Hayek essentially agreed that the business cycle was characterized by a massive loss in investment and productive capabilities.  It was in his identification of the causes for this loss where he differed with Keynes.  The differences in business cycle theory also led Hayek to radically different ideas on the nature of the recovery.

In short, Hayek borrowed from Mises the idea that an increase in the supply of money distributed through the loanable funds market could distort the prices of capital goods relative to consumer goods. This would lead to an investment boom which would gradually spread up the structure of production — this facet formed the crux of Hayek’s work on business cycle theory in Prices and Production.  However, investments require capital goods, and by distorting prices what occurs is an increase in the quantity demanded without a previous increase in their supply.  The insufficient quantity of capital goods leads to the necessary liquidation of impossible investments, once prices increase enough to reveal their unprofitability — what Mises and Hayek term “malinvestments.”

While the recession is characterized by the mass liquidation of malinvestment, what this really entails is a capital restructuring.  The different processes of production that make up an economy must be reorganized in accordance with consumer preferences, including intertemporal preferences (the relationship between savings and consumption).  This process of reorganization is carried about by the individual capital-controlling entrepreneurs, each of which uses her best judgment in economizing her stock of capital goods.

Mises and Hayek saw government expenditure as counter-productive, because it negatively intervenes in the process of economization.  In other words, on average, government socialization of investment — whether it manifests through forced wealth redistribution or actual public investment (e.g. public works) — leads to less productive outcomes than what the alternative would have been had those resources been only been economized in the market process.  More elementarily, since government acts outside of the profit and loss jurisdiction, government cannot accurately calculate the net (un)profitability of its investments."

No, they are not 99%

An interesting review of several recent Gallup surveys (you may want to visit the Gallup site for the original statistics):

Less and less Americans think that they are poor ("have nots"):
"Let me start with a Gallup survey released on December 15, which showed that the number of Americans who see American society as divided into haves and have-nots has decreased significantly since the 2008 election. Back then, 49 percent saw the country as divided along those lines, and 49 percent didn’t. As of this week, only 41 percent see the country as divided between haves and have-nots, while 58 percent do not. (The share of Americans who consider themselves to be “haves” hasn’t budged: 59 percent in 2008, 58 percent today.)"

Most Americans do not think that the inequality gap is the major problem facing their country:
"Now consider another Gallup survey, this one released on the 16th. Respondents were asked to categorize three economic objectives as extremely important, very important, somewhat important, or not important. Here’s what they said:
                                                Extremely/very important          Somewhat/not important
Grow and expand
the economy                                         82                                            18
Increase equality of
opportunity for people to
get ahead                                               70                                            30
Reduce the income and
wealth gap between the
rich and the poor                                  46                                            54
 
Regardless of partisanship, substantial majorities of Americans saw expanding the economy and increasing equality of opportunity as extremely or very important. Not so for reducing income and wealth gaps—21 percent of Republicans and 43 percent of independents. Only Democrats gave this goal a high priority, by a margin of 72 to 27."

Majority of Americans think that "Big Business" is a lesser evil than the "Bog Government":
"A third Gallup survey asked Americans to state whether they saw big business, big government, or big labor as the biggest threat to the country in the future. In March of 2009, 55 percent felt most threatened by big government, and 32 percent by big business.  As of December 2011, a near-record 64 percent saw big government as the greatest threat, versus on 26 percent for big business. As Obama nears the end of his third year in office, the people are more likely to fear government, and less likely to fear business, than they were at the beginning of his administration."

"Either/or" vs. "both/and"

A typical figure of speech, which, in my opinion, displays the very root of the European economic problems:
"The package, which aims to generate €20 billion ($26 billion) in cost savings through a combination of tax increases and spending cuts, is designed by the government to reassure European authorities that Italy is serious about shoring up its finances and restoring investor confidence in the country."

In short, most of the economic measures nowadays are directed at "reassuring" and "restoring investor confidence" rather than on actually shoring up the finances. Politicians naturally evade undertaking the real austerity measures, which are bound to be unpopular among their voters (reducing benefits, raising retirement age, cutting the number of state employees, etc.). Yet, I doubt that any investors are encouraged by such a half-hearted approach. 

This is a clear example of Thatcher-esque "either/or" situation:
"Optimism had always been part of Mrs. Thatcher's appeal, too, but it was of a more rigorist kind. Gain comes because of pain, she believed. Nothing can be done without personal effort. Hard truths must be told, dragons slain. Hers was the politics of "either/or." As Peter Mandelson, Mr. Blair's chief strategist, liked to put it, theirs was the politics of "both/and.""


One will not be able to keep both investors and voters happy.

A case for austerity: Margaret Thatcher

Wall Street Journal reviews the political life of Margaret Thatcher. If we are to learn from the history, she is one of the main figures to look at in connection to the European debt crisis: on the one hand, she successfully championed the austerity policies, which the Europe is trying to adopt nowadays... on the other hand, she vehemently opposed the European integration. (Also, I posted earlier this video where she expresses her views on the socialist welfare.)
 
Thatcher on fiscal discipline:
"What did she tell them? In essence, Margaret Thatcher's views about the relationship between money and politics are simple—her critics would say reductive. In 1949, when, as a 23-year-old, unmarried woman, Margaret Roberts was adopted as a Conservative parliamentary candidate for the first time, she said: "In wartime there was a slogan 'It all depends on me.' People seem to have forgotten that, and they think it all depends on the other person."

"Don't be scared by the high language of economists and Cabinet ministers," she went on, "but think of politics at our own household level."
She wasn't scared, and she never really deviated from such doctrines. They acquired great resonance in the 1970s, when inflation and excessive government borrowing and spending had become the norm. Indeed, they won her the general election of 1979. She preached that a household—and, most particularly, the woman who runs its weekly budget—knows that you cannot ultimately spend more than you earn and that you must "provide for a rainy day.

The same mythical housewife, Mrs. Thatcher asserted, also knows that if you do not provide you cannot be certain that anyone else will. Living beyond your means leads to dependency instead of independence, and dependency leads to degradation."

Thatcher on Keynes and "Keynesians"
"This was as true for nations, Mrs. Thatcher maintained, as for individuals. She was quite sophisticated enough to understand that nations can and sometimes must borrow and spend on a huge scale. She respected the teachings of John Maynard Keynes, while being highly suspicious of the subsequent generations of left-wing "Keynesians.""

Thatcher on the role of the government
"It would be hard to deny that Mrs. Thatcher succeeded in bringing some of this about. The top rate of income tax was 98% in 1979 and 40% by 1988. In 1979, Britain lost 29.5 million working days to strikes; by 1986, the figure was 1.9 million. When she started, Mrs. Thatcher had to deal with the most deficit-laden nationalized industries in the developed world. When she finished, the idea of privatization had become the most profitable piece of intellectual property ever exported by a politician."

Thatcher against European Union:
"Her most controversial remark was her attack on both statism and super-statism: "We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European super-state exercising a new dominance from Brussels." She was fiercely opposed to European economic and monetary union.

Last week's summit in Brussels took place exactly 20 years after the Maastricht Treaty, by which the EU agreed to establish a single currency (with Britain securing an opt-out). Today, the answer in Brussels to the problems caused by centralization is to centralize some more."

Francois Hollande enters austerity vs. ECB intervention debate

Francois Hollande, the candidate for the French presidency from the Socialist party, is among the highest pofile Europeans calling for the European Central Bank intervention:
"Speaking in an interview at his campaign's headquarters in central Paris, Mr. Hollande, 57 years old, said only the ECB has enough credibility and financial firepower to restore investor confidence and unravel the debt crisis that has been roiling the euro zone for two years."

As I said previously, my opposition to such proposals, first of all, from the impossibility to realize them in practice over the opposition of German chancellor Angela Merkel and the ECB head Mario Draghi. This means that any talk about the ECB intervention, the Eurobonds and printing of more money has everything to do with politics and nothing to do with reality.

 Mr. Holland, however, may be excused: he is running for the French presidency against Nicholas Sarkozy, who so far has teamed with Merkel and Draghi. In addition, Hollande's position is consistent with the general socialist views that he is supposed to represent, and he is honest about the low likelihood of such policies being implemented:
"Mr. Hollande said he was well aware that Germany would staunchly oppose any attempt to amend the ECB's core mandate: to keep inflation in check. He said that were he to be elected president next year, however, he would still ask that the ECB play a bigger role in stemming the crisis within the framework of current bylaws."

Krugman about inflation and the liquidity trap

Some food for thought about inflation from the Paul Krugman's column:
"OK, strictly speaking the time hasn’t run out — we could, I guess, see an explosion of inflation next year. But with commodity prices down, wages going nowhere, and the dollar actually strengthening against other currencies, it’s kind of hard to see where that’s supposed to come from.

Look, the Austrian/Ron Paul types made some very strong predictions about inflation — and rightly, given their model of how the world works. In their version of reality, it really isn’t possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that’s not only possible but what the model predicts in a liquidity trap.

So since we did indeed triple the monetary base with nothing much happening to inflation, the right lesson to draw is that their model is all wrong. Unfortunately, I see no hint that anyone in that camp is prepared to consider that possibility."

Neuroscience versus Psychology

Here is an article about Neuroeconomcis - the mixture of neuroscience and economics. Neuroscience is becoming increasingly popular nowadays, although this term is frequently used as a politically correct substitute for "psychology" - the subject that is inevitably associated with Sigmund Freud, sexuality, and the dark forces in our mind.

A few words about Freud - subject that I have been interested in for some time, but has not written about so far at length. (although by saying "Freud" I will refer not only to him, but to the host of people who worked in the same time with him, as well as to those who have developed the psychology throughout the XXth century.)

Sexuality
People feel wary at the only mentioning of the Freud's name - allegedly because our impluses obviously cannot be reduced to sexuality only. In my opinion, the word "obviously" should make a scientist shrug his/her shoulders, and Freud himself later added "aggression" as another driving force for our behavior - he was motivated to do so by witnessing the mass slaughter during the World War 1 - something that we still attribute to the faulty actions of a few people, but what Freud himself saw as millions of people voluntarily taking part in these actions.

More than sexuality
In reality, the opposition to Freud stems from more than just the displeasure with his ideas about sexuality. His research showed too conclusively the dark side of the human nature. He exposed how we use the pretenses of "goodness", "morality", "social justice", "fairness", etc. to achieve our selfish goals. He did not shy from directly attacking the religion, the state and the society - no surprise that nowadays, a hundred years later, he still has so many enemies.

Subconscious
Some of the breakthroughs made by Freud and co-workers have been so firmly internalized by the modern culture that they are not anymore attributed to him. For example, we freely and casually speak of subconscious. However, a hundred years ago the idea, that our thinking is not limited by our consciousness and that our decisions are not always rational, met a lot of opposition and scepticism. Freud would be greatly amused by the fact that in the beginning of the XXI irrationality of human behavior comes as a surprize to some very educated people: here is the statement from the article that I linked above

"Much of modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximize their own happiness, or as economists call it, their “utility.” When Samuelson took on the subject in his 1947 book, he did not look into the brain, but relied instead on “revealed preference.” People’s objectives are revealed only by observing their economic activities. Under Samuelson’s guidance, generations of economists have based their research not on any physical structure underlying thought and behavior, but only on the assumption of rationality."

However, Keynes, who himself lived in the times of Freud and was possibly familiar with the Freud's ideas, was more cautious:
"John Maynard Keynes thought that most economic decision-making occurs in ambiguous situations in which probabilities are not known. He concluded that much of our business cycle is driven by fluctuations in “animal spirits,” something in the mind – and not understood by economists."

Neurology versus psychology
The ideas about suconscious and other features of the mind functioning were however grounded in a much more basic fact demonstrated by Freud: many psychological conditions resulted from the "software" rather than from the "hardware" mulfunctioning. The evidence of that was totally scientific - one of the examples, studied by Freud himself, was that of the "glove amnesia" - the complete loss of sensation from the wrist down. Freud, who himself was trained as a neurologist, was quick to point out that this phenomenon could not be explained as a physical mulfunctioning of the brain, since the receptors of the neuron cells extend all the way from the brain to the wrist, and the mechanical damage somwehere in between would paralize the whole arm, rather than only the wrist. Another example was the heavy psychological conditions common during World War 1 among the people who survived a shock, but were physically unharmed.

You can now imagine with how much dismay would he learn that in XXI century we are still trying to explain our complex behaviors and motivations by comparing our brain cells to transistors and discussing how these transistors are "wired":
"Yet it is likely that one day we will know much more about how economies work – or fail to work – by understanding better the physical structures that underlie brain functioning. Those structures – networks of neurons that communicate with each other via axons and dendrites – underlie the familiar analogy of the brain to a computer – networks of transistors that communicate with each other via electric wires. The economy is the next analogy: a network of people who communicate with each other via electronic and other connections.
The brain, the computer, and the economy: all three are devices whose purpose is to solve fundamental information problems in coordinating the activities of individual units – the neurons, the transistors, or individual people. As we improve our understanding of the problems that any one of these devices solves – and how it overcomes obstacles in doing so – we learn something valuable about all three." 


Disclaimer: I am not aware of how much Paul Glimcher, whose research is described in the article, and Robert Schiller, who wrote it, know about psychology. It might be that they know it much better than me, but the article is deliberately written for the benefit of the average reader... or with the goal of not mentioning the toxic words "Freud" and "psychology". It is the lack of knowledge among the average public that bothers me.

Economics Nobel lectures

This year Economy Nobel prize lectures (action begins at about 10:00)
The lecture by Thomas Sargent is particularly interesting in connection to the sovereign debt crisis and the analogy between the European Union today and the United States in its beginning. Nicely, Sargent goes into great pains in order to distance himself from either Republican or Democrat ideology when discussing the role of the government debt and the bailouts of states and companies by the Federal government.

The lecture by Christopher Sims is more technical, but will probably ring a few bells with those who are familiar with statistics or Monte-Carlo methods.

Eurobonds and ECB intervention

I pointed recenly the strange logic of the advocates of creating eurobonds and the European Central Bank direct intervention - they keep having this discussion, despite its total irrelevance in view of the strong opposition from Germany and perhaps from some economically smaller contries that are still doing well (such as Austria, Finland, Netherlands.) (And Britain has just demonstrated that how one country's opposition can block any initiatives.)
Yet, they insist:
"The ECB has a strong rationale to act: to ensure the smooth transmission of monetary policy, to prevent a depression that would lead to deflation, and to avoid the breakup of the euro. Yet it has so far refused to do so, hiding behind a legal fig leaf.

Granted, Article 123 of the Lisbon Treaty prohibits the ECB from purchasing bonds directly from public bodies, but intervening in the secondary market is permitted. The ECB has long been doing so through its Securities Market Program. Where in the treaty does it say that extending the SMP is prohibited? Indeed, a credible open-ended commitment to contain interest-rate spreads would actually require fewer purchases than the ECB’s current limited and temporary program does."

and also:
"Eurozone leaders could also set out a roadmap towards Eurobonds, subject to strict conditionality, and tied to a credible mechanism for ensuring fiscal prudence. This would provide an additional incentive for governments that wish to qualify to introduce the necessary reforms, while reassuring the ECB and markets that governments remain committed to making the euro work."

Strangest of all is lecturing to Germans why their understanding of their own history is incorrect:
"Unfortunately, many Germans, notably at the Bundesbank, loathe the idea of central-bank intervention, because it conjures up memories of 1923, when the Reichsbank printed money to fund government borrowing, the resulting hyperinflation destroyed middle-class savings, and a decade later Hitler came to power. Yet Germans ought to remember that it was in fact the financial panic provoked by the collapse of the Austrian bank Creditanstalt, the resulting slump, and misjudgment by the German political establishment that cleared the Nazis’ path.

Far from precluding action, history justifies it. Besides, there is no reason to panic about inflation when monetary growth is low, bank credit is contracting, and people are hoarding money rather than spending it. Moreover, any ECB purchases could continue to be sterilized."

This might be true... but one also ought to remember that the above-mentioned "misjudgment by the German political establishment that cleared the Nazis’ path" was in fact the mijudgement by the Weimar Socialist Democrats, not so different from the socialists governments, whose misjudgement has brought about the European debt crisis.

Washington Post's political cartoons

Since my random selection of old Soviet political cartoons turned out unexpectedly  and undeservingly popular - here are more of the modern American ones (admittedly with anti-Republican bias - just count how many of them make fun of GOP - but still funny.)

Why socialism is so popular?

Von Mises Blog on socialism:
"One may wonder whether Sir William Harcourt was right when, more than 60 years ago, he proclaimed: We are all socialists now. But today governments, political parties, teachers and writers, militant antitheists as well as Christian theologians are almost unanimous in passionately rejecting the market economy and praising the alleged benefits of state omnipotence. The rising generation is brought up in an environment that is engrossed in socialist ideas.

The influence of the pro-socialist ideology comes to light in the way in which public opinion, almost without any exception, explains the reasons that induce people to join the socialist or communist parties. In dealing with domestic politics, one assumes that, "naturally and necessarily," those who are not rich favor the radical programs — planning, socialism, communism — while only the rich have reason to vote for the preservation of the market economy. This assumption takes for granted the fundamental socialist idea that the economic interests of the masses are hurt by the operation of capitalism for the sole benefit of the "exploiters" and that socialism will improve the common man's standard of living.

However, people do not ask for socialism because they know that socialism will improve their conditions, and they do not reject capitalism because they know that it is a system prejudicial to their interests. They are socialists because they believe that socialism will improve their conditions, and they hate capitalism because they believe that it harms them. They are socialists because they are blinded by envy and ignorance. They stubbornly refuse to study economics and spurn the economists' devastating critique of the socialist plans because, in their eyes, economics, being an abstract theory, is simply nonsense. They pretend to trust only in experience. But they no less stubbornly refuse to take cognizance of the undeniable facts of experience, viz., that the common man's standard of living is incomparably higher in capitalistic American than in the socialist paradise of the Soviets."

Mugrabi Bridge

There is a passionate debate about the closure for repairs of the wooden bridge, connecting the Old City of Jerusalem and the al-Aqsa mosque on the Temple mountain.

The related statement by Hamas clearly belongs to my "Theatre of the absurd" section, even though the Muslim riots in Jerusalem are often more dangerous than absurd jokes:
"Hamas warned Monday that the Israeli closure of the Mugrabi Bridge is tantamount to a "declaration of war" on Muslim holy sites. “This is a serious step that shows the Zionist scheme of aggression against the al-Aqsa mosque,” said Hamas spokesman Fawzi Barhum in an interview with AFP. “This is a violent act that amounts to a declaration of religious war on the Muslim holy places in Jerusalem.”"
 

Middle-East re-alighnment

Alain Juppe has made some strong statements about Syria and Hezbollah:
"French foreign minister says he believes roadside bomb which injured 5 French UNIFIL peacekeepers in southern Lebanon carried out by Hezbollah at Syria's urging."

There are two reasons why traditionally pro-Arab French come forward with such sharp criticism:
1. They believe that the Assad's days are counted and prepare the ground for military or, at least, diplomatic (for example, in the form of strong sanctions and recognizing alternative government) intervention a la Libya, which would guarantee France a greater diplomatic and economic role in post-Assad Syria.

2. This is part of the re-alignment in the Middle East that I believe has been happening for some time: the Arab-Israeli conflict is superseded by pro-Iranian and anti-Iranian coalitions. The pro-Iranian force has been already well defined: Iran, Syria, Hamas, Hezbollah, enabled by political backing from Russia and China. On the other hand, the anti-Iranian force is forming slowly due to the traditional antagonism among its partners: Israel and Saudi Arabia with other oil-rich states wary of the Iranian interference. In addition, the anti-Iranian coalition lacks the necessary political backing from the nowadays passive United States. The last circumstance gives France and other European states a good opportunity for a greater role in the Middle East (such as: cheaper and more secure oil supply, more contracts for oil-exploring European companies, broader markets for European companies, particularly where it comes to the arms sales... and more arms sales. All of these, by the way, are very useful for overcoming the economic crisis.)

UPDATE 12/12/11: No less harsh condemnation of Syria from the German foreign minister:
""I am really shocked about what I heard about the atrocities in Syria. Five thousand people were killed, civilians, people who ask for their freedom and civil and human rights," he told reporters."

European debt crisis for... Americans

Apparently "European debt crisis for dummies" is a very popular search keyword nowadays, since my post with the same name scored at least eighty hits. At this link you will find a real analysis of the European debt crisis and its possible impact on the American economy. I abstain from quoting, since this is a serious and informative article - if you are interested in this problem, you would prefer to read it in full anyway.

Anti-social protests

Yet another "social protest" is planned in Israel:
"The march is being organized for the third year in a row by the Association for Civil Rights in Israel (ACRI) in collaboration with dozens of other local human rights organizations. Organizers say the recent social justice movement that swept the country over the summer, bringing hundreds of thousands of Israelis into the streets, will give the march added relevance."

I do agree that human rights is an important cause. However, these protests are made completely irrelevant to actually improving human rights by their organizers and participants absolving themselves from any responsibility and demanding that the solutions come from the government:
“Despite the fact that the public voted with its feet for social justice last summer, the government continues to focus on legislation assaulting democratic values. This year at the Human Rights March, we will remind the government that it has forgotten to listen to us, the people. We will march for social justice, freedom of expression and protest, for human rights for all of us, Israelis and Palestinians,” ACRI director Hagai El-Ad said in a press release issued this week."

There are several reasons why blaming the government and demanding that it must solve all the protesters's problems is ridiculous:
1. This is a democratically elected government. On the one hand, this may mean that the government reflects the will of the majority of the Israelis, in which case the protesters are trying to impose the will of the minority on the rest of the country - a very kind of human rights violation that they protests against. On the other hand, if the protesters believe that they represent the majority, there is only one way to check it and to implement the majority demands -  by differently voting in the next election or possibly forming a "social protests" party that will run for the parliament.

2. Government is the main source of human rights abuses. Hoping that the government will correct itself, without voters themselves doing anything more than marching once in a faceless crowd is silly. Lest my opposition to too much governmental power seems to you too libertarian, let me quote the protesters themselves, blaming this very government for the very abuses that they ask the government to correct:
"Lenkinski said she believed the march was coming at a time when “Israel’s democratic principles are increasingly being called into question,” citing what she referred to as “anti-democratic trends in legislation in the Knesset [as well as] a public atmosphere that is hostile toward civil society organizations and human rights organizations in general.”

She said anti-democratic legislation was broken down into four categories: legislation like the Nakba Law and the loyalty oath, which target the country’s Arab minority; laws like the boycott and foreign funding laws that target civil society and NGOs; legislation to limit the power of the High Court of Justice; and legislation to limit freedom of speech."

3. As a democratic country Israel possesses the appropriate system of checks and balances to control the over-reaching by any branch of the government. The fact that mentioned above "un-democratic" legislation have been repeatedly turned down by the Israeli Supreme Court is a proof of that. The protesters however have a tendency over-emphasize any unsuccessful attempt at minor human rights violation in Israel, while remaining completely mute at the atrocities that happen elsewhere - for example, across the border in Syria.

Euro and Hayek

A curious point of view that introducing the single European currency was not merely the matter of convenience, but a departure from the millenniums old tradition of governments controlling this important economic tool:
"But the euro was not just the outcome of an idiosyncratic quest to reduce the wear on pockets stuffed with odd national coins, or to facilitate intra-European trade. The bold European experiment reflected a new attitude about what money should do, as well as how it should be managed. In opting for a “pure” form of money, created by a central bank independent of national authority, Europeans self-consciously flew in the face of what had become the dominant monetary tradition. 


In the twentieth century, the creation of money – paper money – was usually thought to be the domain of the state. Money could be issued because governments had the power to define the unit of account in which taxes should be paid. This tradition went back well before paper, or fiat, currencies. For many centuries, even while metallic money circulated, the task of defining units of account – livres tournois, marks, gulden, florins, or dollars – remained a task of the state (or of those with political power)."

Also quite interesting note about the views of Hayek having actually found a place in modern economic decision-making:
"The makers of modern Europe saw that unstable and politically abused money would be a European nightmare, and lead to destructive national animosities and antagonisms. They were supported by the twentieth century’s two most influential economists, Friedrich von Hayek and John Maynard Keynes.

Hayek was the most consistent critic of state-produced money. His proposal, competitive currencies produced by “free banking” in which numerous private authorities would issue their own money, was more radical than the solution adopted by Europeans in the 1990’s. But the Hayekian element of a money-issuing authority that was extensively protected against political pressures, and consequently against political opprobrium, was a key part of the European Union’s Maastricht Treaty. Keynes, too, in planning for the postwar order, proposed a synthetic global currency that would guarantee stability and prevent deflation.

The vision of central-bank independence as a necessary part of the constitution of a sound and stable political order was not simply a European construct in the 1990’s. It was also reflected in legislative changes affecting other central banks, and in central bankers’ growing prestige."

Economics Nobel prize: Christopher Sims and Thomas Sargent

The New York Times provides the profile of this year Economics Nobel Prize winners - Christopher A. Sims and Thomas J. Sargent. The article touches on many interesting related subjects:


Attempts by both Conservatives and Progressives to claim the prize winners as their own (naturally The New York Times stresses their Democratic credentials):
"So it comes as a surprise, not least to Mr. Sims and Mr. Sargent, that these two now find themselves thrust into an uncomfortable spotlight. Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentators say.

It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent."

Essence of their work (if one can trust at all a popular-science article like this):
"Mr. Sims developed a statistical approach called vector autoregression, or V.A.R. It enables the testing of cause and effect — whether, for example, the money supply is affecting interest rates, or vice versa. That is a crucial determination if economic models are to have any accuracy, as the Nobel committee has noted.

V.A.R. has become a tool, albeit a highly specialized one, in financial analysis. It’s used in some models run by central banks, and, as Aaron Gurwitz, the chief investment officer at Barclays Wealth, says, it has been useful in “helping us understand the patterns in market volatility over time.”"

and (somewhat too general)
"GOOGLE “Thomas Sargent” and “rational expectations” and you’ll get hundreds of hits. Along with Robert E. Lucas Jr. of the University of Chicago, who won the Nobel in 1995, Mr. Sargent is widely considered one of the founders of the theory, though he says it had many earlier proponents, including Keynes.
...
Put simply, the idea of rational expectations is that in many economic situations, the outcome depends on what people expect to happen. That might sound obvious today, but in the ’70s and ’80s, many economic models, based on aspects of Keynesian theory, didn’t take expectations into account. Policies informed by those old models may have helped cause the stagflation of the ’70s. In 1977, Mr. Sargent wrote a paper, “Is Keynesian Economics a Dead End?”, which highlighted such models’ flaws."

Some economic outlook at the situation in Europe and the United States:
"In a prescient paper more than a decade ago, Mr. Sims warned of disaster to come in the euro zone if a new central bank wasn’t accompanied by a unified fiscal authority. To avoid disaster now, he says, the European Central Bank must show a willingness “to act as a lender of last resort” in Europe. If that happens, he says, markets may be able to stabilize long enough for Europeans to study a long “menu” of accompanying fiscal and political arrangements. 

Mr. Sargent has also written extensively about “budget constraints” and monetary policy. One influential study, “Some Unpleasant Monetarist Arithmetic,” written with Neil Wallace of Penn State, says a central bank will eventually run out of ammunition if the government fails to manage its debt. That analysis applies to the United States today, Mr. Sargent says."

Finally, interesting note on the analogy between the European debt crisis and the history of the United States, which I discussed in a recent post:
"Mr. Sargent notes that the United States moved from loose confederation to federal union — the arrangement embodied in the Constitution — in large part because of a crippling debt crisis. The parallels with Europe seem clear. Is he calling for a federal Europe? "

Keynes and Lenin on inflation

An interesting quote from Keynes's "The Economic Consequences of the Peace":
"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. – As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

Though I encountered this (apparently well-known to the economists) quote in no connection to the current economic crisis, the context is very relevant. In his book "The Economic Consequences of the Peace" Keynes analyses the likely consequences of the peace treaty, imposed on Germany in the aftermath of the World War 1, and correctly predicts the rise of the extremist forces. The extreme inflation that followed the War indeed had contributed to the coming of Nazis to power. The knowledge of the impoverishing caused by the inflation and of its the disastrous political consequences is the the underlying basis for the anti-inflation stance so popular today in Germany.

Why Europe matters for America

Interestingly, the economic developments in Europe might have serious consequences for the American politics:
"If I understand the news coming out of Europe correctly, the new head of the European Central Bank is offering a simple deal: If fiscal policy becomes hawkish, monetary policy will be dovish.  In other words, as government spending is cut to put European governments on a sounder financial footing, monetary policy will do its best to ensure that any adverse impact on aggregate demand is kept to a minimum."

In simpler American English: Europe votes Republican. If this European policy succeeds, the American voters will have a reasonable question to Obama, as to why he advocates more stimulus spending. If, however, the policy fails - Obama's insistence on more spending will be effectively vindicated.

United States of Europe

In their recent speeches by Angela Merkel and Nicholas Sarkozy indicated that the only way to solving European debt crisis is deeper mutual integration of the European states - both economically and politically:
"German Chancellor Angela Merkel on Friday made an urgent appeal for decisive political action—including quick changes to the European treaty—to fix the root causes of the euro-zone debt crisis that threatens to unravel Europe's single currency and plunge the global economy into recession.

...

Ms. Merkel's much anticipated speech follows a landmark address by Mr. Sarkozy on Thursday evening in the southern French city of Toulon. Echoing positions long advocated by Ms. Merkel, Mr. Sarkozy said euro-zone countries should allow European review of national budgets, and introduce "more automatic and more severe sanctions" on budget sinners.

"There cannot be a single currency without economic convergence," Mr. Sarkozy said in the one-hour address. "Or the euro zone will explode."

The French president declared France's willingness to side with Germany and sacrifice a degree of national sovereignty in order to better align economic policies. Ms. Merkel continued on this theme, saying the aim of the European Union summit next week is to change the European treaty to allow fiscal policy coordination.

"We are going to Brussels with the intention to change the EU treaty," Ms. Merkel said. "The goal is a fiscal union that enforces both fiscal discipline in its members and has the necessary instruments to effectively handle a crisis.""

This supports the idea that the European crisis may have deeper roots than merely the mismanagement fo the economy by "deceptive politicians and greedy bankers": Indeed, the situation resembles the one that the United States experienced a century and a half ago, when dozens of politically autonomous states could not agree on a common economic policy, which put at risk the integrity of the Union. The result was the American Civil War. Yet, the centralization of the power to the extent that we see today, took a few more decades, and was completed perhaps only during the Great Depression.

This analogy gives us a hint that the European economic problems may be the inevitable consequence of the yet incomplete European integration. One may reasonably expect that they will be partially alleviated, if the European leaders undertake serious steps towards giving up part of their political and economic sovereignty. Yet, as full European integration cannot be achieved within a period of a few days, or a few years, the problems are likely to reappear for the following decades, till European Union becoms a single centralized state... or collapses. Hopefully, we will not see cataclisms comparable with the American Civil War and teh Great Depression.

What is totalitarianism?

There is a meaningful talk-back to the article mentioned in one of my recent posts, where I argued that in a democratic society the government has no right to make decisions regarding the utility of money for different groups of the population. If you are interested in this problem, I recommend reading the whole talk-back - it presents various points of view, and contains many grains of wisdom.

I would like to point out only the exchange regarding my definition of totalitarianism as a system, which suppresses the rights of an individual for the sake of the well-being of the nation (the corresponding decisions inevitably made by somebody in the government):

Me: "At best, taking someone's property against his/her will is simple robbery... at worst it defines the difference between a democratic society that protects the rights of an individual and a totalitarian one."

Someone called "Modicum":
"No. I think you'll find that the difference between a totalitarian state and democracy has to do with, you know, the absence of elections and independent courts, secret police, imprisonment without trial, torture chambers, genocide, etc. It has nothing whatsoever to do with the marginal tax rates paid by high earners or with providing healthcare to poor folk. The suggestion is frivilous and insulting to the memory of the victims of genuine oppression."

My reply to this:
"This is confusing the reason and the consequence. Totalitarianism puts the good of the nation above the rights of an individual. How far it will go in suppressing these rights is a matter of quantity, not quality.

Nazis, for example, started with merely restricting the rights of the Jews to own property and it took for them more than 10 years to arrive to gas chambers. On the other hand, communists in Russia began right away with exterminating those, whose "utility" for the future society they deemed too low. Yet, several decades later USSR had all the visible attributes of a democratic state - elections, courts, no imprisonment without trial etc." 

Some food for thought regarding the race issues (if you dare to think about them)

An interesting article on the issues of race and the affirmative action. It is a touchy subject and many would prefer to ignore it or pretend that we live in a post-racial/post-sexist world. Yet, the reality remains as complicated as ever:

Here is the rationale for the affirmative action (since the author is right-wing, his language is not impartial - I don't quite share his sentiment in this case.):
"Preferences as recompense for past discrimination must eventually become implausible, but the diversity rationale for preferences never expires. 

Liberals would never stoop to stereotyping, but they say minorities necessarily make distinctive — stereotypical? — contributions to viewpoint diversity, conferring benefits on campus culture forever. And minorities admitted to elite universities and professional schools supposedly serve the compelling goal of enlarging the minority component of the middle class and professions."

But here is the problem:
"“Academic mismatch” causes many students who are admitted under a substantial preference based on race, but who possess weaker academic skills, to fall behind. The consequences include especially high attrition rates from the sciences, and self-segregation in less-demanding classes, thereby reducing classroom diversity. Blacks are significantly more integrated across the University of California system than they were before the state eliminated racial preferences in 1996, thereby discouraging enrollment of underprepared minorities in the more elite institutions."

And this is an interesting paragraph regarding the situation in sciences:
"There are fewer minorities entering high-prestige careers than there would be if preferences were not placing many talented minority students in inappropriate, and discouraging, academic situations: “Many would be honor students elsewhere. But they are subtly being made to feel as if they are less talented than they really are.” This is particularly so regarding science and engineering, which are, as Heriot, Kirsanow and Gaziano say, “ruthlessly cumulative”: Students who struggle in entry-level classes will find their difficulties cascading as the academic ascent becomes steeper. Hence the high attrition rates."

European debt crisis for dummies

This article tries to explain the European debt crisis on children's level. I recommend reading it - if not for new information than for useful insights. Of course, pointing the "bad guys" is something that belongs only to a story for children...
"But then deceptive politicians and greedy bankers created a fatal mess by borrowing too much money.

Politicians in places like Greece found they could stay in office by giving people public-sector jobs or by letting workers retire at 50 with hefty pensions, while not collecting enough taxes to pay for this. They spent lots more than they took in, borrowed the rest and lied about it. Government debt went through the roof without anyone knowing.

Meanwhile, Europe’s top bankers found they could get really rich if they ran their banks with as little “capital” as possible. That means that for every dollar they lent or bought in assets, they only put up a few pennies in hard cash themselves. The other 97 cents they borrowed. So if the value of the things they bought or the loans they made dropped even slightly, it would wipe out their investment, and the bank would go bust."

What the grown-up people reading this article probably realize is that there are no dragons and witches: the "greedy bankers" were merely maximizing profits of their banks - something that is natural to expect from a successful private business. Whereas "the deceptive politicians" were democratically elected by the very angry voters, who did not at all mind retiring at 50 and getting hefty pensions. And, certainly, the situation is not very different in America, who has its own "greedy bankers" and the elected politicians, eager to expand the entitlement programs.

Unsustainability of the socialist welfare

Thinking about the unsustainability of the socialist welfare, demonstrated by the economic crisis in Eurozone, led me to come up with this simple equation (see the figure). I am pretty sure that there are more developed economic models (that I am ignorant of), describing the same thing. I post this however for the benefit of those who still think that the existing opposition to overtaxing the rich and growing inequality gaps is the issue of morality rather than something based on logical approach to reality.

The model in the photo describes a progressive tax system, which has only two tax rates - the one applied to the richest group of the population (say, the richest 1%) and the one for everybody else (99%). I first show that a meaningful welfare system cannot exist without a progressive tax system - indeed, if the two tax rates are taken equal, the amount of the welfare benefits per person is given simply by the fraction of the average income taken by the taxation. This means that a person earning average income does not really need welfare system - one can simply get the same benefits by saving a fraction of the one's income. (And I ignore the expenses on the government bureaucrats, who take care of tax collecting and welfare distribution.)

To be fair, this would still work in a society without middle class - the society where the number of the individuals with the income around average is very small, compared to the number of those, whose income is much lower than the average. We know, however, that this is not the case in the Western democracies.

The conclusion: middle class wants a welfare system which gives us more than we pay in taxes! And this is exactly the welfare system that exists in most of the developed countries (Europe, Israel and likely even US.) In short, most of welfare that we enjoy in terms of pensions, healthcare benefits, unemployment payments etc. is already paid for by "the rich"!

I further re-write my very first equation in a slightly different form, in order to show that the increase in the  welfare (the demand of the Occupy movement and other western social protest movements) can be achieved only through increasing the part of revenue coming from the rich - either by increasing the tax rates or by increasing the income of this group of people.

Pay attention that the increase in the welfare includes not only the increase in the size of the monthly/yearly payments per individual - it should also account for the increase in the population, receiving the welfare. Depending on how you count, the increasing longevity after the retirement should be included either as an increase of the individual welfare or the increase of the population (eligible for the certain pension and health benefits).

It seems that increasing the tax rates is what the popular demand is. This demand is however unsustainable, given that the tax rate cannot exceed 100%. In fact, regardless of whether one subscribes to the "supply-side economy" or not, one probably agrees that raising the tax rates will destroy the insensitive for high earners well before they reach 100%.

The other solution is allowing the share of the income of the highest earners to grow... but this means growing inequality gap! Thus, the social protest's simultaneous demands for reducing the inequality gap and greater state-provided benefits are incompatible! We really have to choose one of these! 


In fact, the sad conclusion is that the growth of the demand for the benefits, due to the population increase and higher longevity, means that the welfare states will be eventually forced to reduce the amount of the benefits per person - either by the reducing the nominal size of the benefits, or by raising the retirement age and other benefit eligibility requirements.

What Milton Friedman might say to the Occupy movement

A couple of videos of Milton Friedman have been circulating in the Internet, in connection to the question posed in the headline of this post. In my opinion they are not directly relevant to Occupy Wall St., yet the contain very valuable points:

1. How family values curiously contribute to the welfare

2. How government creates poverty. In this one he touches upon the important misconception - whether it is governments responsibility to take care of the poor. Given that most protest movements are directed against the  governments, it is worth reminding that in a democratic society the particular people in the governments are merely our elected representatives. It is our responsibility, via democratic channels, to improve our society.

Evil capitalists destroy democracy! (Just kidding)

Here is an article which is a worthy addition to my "theatre of the absurd" collection. The author comes with a thesis that capitalism and democracy cannot co-exist. Here is his reasoning of how the advance of capitalism has eroded the democratic system:

"Over the past year, in fact, capitalism has fairly rolled over democracy.[1] Nowhere is this more apparent than in Europe, where financial institutions and large investors have gone to war under the banner of austerity,[2] and governments of nations with not-very-productive or overextended economies have found that they could not satisfy those demands and still cling to power.[3] The elected governments of Greece and Italy have been deposed; financial technocrats are now at the helm of both nations.[4,5] With interest rates on Spanish bonds rising sharply in recent weeks, Spain’s socialist government was unseated last weekend by a center-right party that has offered no solutions to that country’s growing crisis.[6] Now the Sarkozy government in France is threatened by rising interest rates on its bonds.[7] It’s as though the markets throughout Europe have had enough with this democratic sovereignty nonsense."

Let us consider these arguments one by one:
[1]. "Over the past year, in fact, capitalism has fairly rolled over democracy." - If the author implies that the measures undertaken in order to fight the recession and the debt crises in Europe are contradicting the democracy, then it is certainly not sufficient to go one year back: the present economic problems began in 2008, and the economic developments that led to these problems had spanned at least two previous decades.

[2]. " in Europe, where financial institutions and large investors have gone to war under the banner of austerity" Austerity is cutting government spending and deficit, and thus curbing the government control over the population and business. This can hardly be called anti-democratic.

[3] "and governments of nations with not-very-productive or overextended economies have found that they could not satisfy those demands and still cling to power" "Clinging to power" rather than taking care of teh concerns of the populations is certainly not what a democratic government should do. 

[4] "The elected governments of Greece and Italy have been deposed; financial technocrats are now at the helm of both nations." Both Greek and Italian governments were replaced in a democratic manner - in both cases at the suggestion and acceptance by the democratically elected representatives (parliaments).

[5] The departure of Silvio Berlusconi is certainly a win of democracy over the interests of the big business, which Berlusconi represented. It is quite a rare occasion when a left-wing author seriously mourns the demise of the right-wing figure, such as Berlusconi... but just wait...

[6] "Spain’s socialist government was unseated last weekend by a center-right party that has offered no solutions to that country’s growing crisis" Obviously, the socialist Spanish government lost elections precisely because it could not offer solutions to the crisis. In addition, the weak government is now replaced by the one, that ahs a parliamentary majority and can actually deal with the economic problems. The emphasis on the badness of the rightist government is at odds with the affection for Berlusconi displayed just a sentence before... but just wait...

[7] "Now the Sarkozy government in France is threatened by rising interest rates on its bonds" - the author is again friend of the right, this time represented by Sarkozy...

Symbolism of social protests

A highly problematic graffity in one of the major European Universities. The portrait resembling Che Guevara and inscription: "No, to the fascism! Yes, to the revolution." This kind of graffity is as a part of the youth protest movements sweeping through the wealthy Western countries, and reflects the basic flaws of these protests:

1. Protesting for the sake of protesting - indeed the sign specifies what is opposed (fascism), but does not set any goals that should be achieved by the revolution. Apparently, the revolution, i.e. the process of destroying the existing social and economic order, is already sufficient to satisfy the authors of the graffity.

2. Inability to distinguish between democratic and totalitarian systems: indeed, more often than not, revolutions brought to power regimes no less opressive than fascism. To give just a few examples, one may recall the Communist revolutions in Russia, China, Vietnam, Cambodia, North Korea and Cuba, the Islamic revolution in Iran, the Arab revolutions of the 60s and 70s that brought to power Gaddafi and other Middle Eastern dictators.

3. Symbolism of Che Guevara, reflecting basic ignorance. Indeed, despite the heroic image in the popular culture, Che Guevara was an active participant of the repressions carried out by Castro regime. Unlike Castro, however, he was an active proponent in exporting revolution to other countries and participated in many bloodlettings beyond Cuba. Ignoring Che Guevara's crimes out of admiration for his "coolness" is similar to collecting "cool" Nazi memorabilia - a hobby which would make many people feel sick.

Is Eurozone break up inevitable?

In Paul Krugman's opinion Eurozone break-up is already decided... at least decided by the markets. While he might be right on this one, I would take his statements with a bit of scepticism - he has too often subjected his economic opinions to his political baises (at least when writing on his New York Times page.)

"Progressive" crown prince of Saudi Arabia

An informative article about Nayef bin Abdul-Aziz, the new crown prince of the Saudi Arabia. I am posting this as an example of a common journalistic trick - you read such an article and get a positive impression about its hero, who is "wise", "progressive" and a "good guy" in general. What the article omits, however, is that Saudi Arabia is a highly oppressive regime, which does not tolerate opposition, prohibits religious freedom, and, above all, denigrates women. And, all his positive sides notwithstanding, Nayef bin Abdul-Aziz will be just more of the same...

Addition:
A nice example of a similar, but more spectacular story is the Vogue's profile of Asma al-Assad and ger gentle husband (the dictator of Syria)... but the profile has been wisely removed by Vogue awhile ago.

State-provided "Social justice" as the road to totalitarianism?

A transcript from Henry Hazlitt's essay "The Road to Totalitarianism" - still timely today, as many young people seem to naively believe that one can give the government more economical power, particularly in terms of collecting taxes and regulating prices, and yet not endanger the basic personal liberties:
"Now I should describe this failure to grant tolerance to other parties not as the essence of totalitarianism, but rather as one of its consequences or corollaries. The essence of totalitarianism is that the group in power must exercise total control. Its original purpose (as in communism) may be merely to exercise total control over "the economy." But "the state" (the imposing name for the clique in power) can exercise total control over the economy only if it exercises complete control over imports and exports, over prices and interest rates and wages, over production and consumption, over buying and selling, over the earning and spending of income, over jobs, over occupations, over workers — over what they do and what they get and where they go — and finally, over what they say and even what they think.

If total control over the economy must in the end mean total control over what people do, say, and think, then it is only spelling out details or pointing out corollaries to say that totalitarianism suppresses freedom of the press, freedom of religion, freedom of assembly, freedom of immigration and emigration, freedom to form or to keep any political party in opposition, and freedom to vote against the government. These suppressions are merely the end-products of totalitarianism."

Income inequality: an intelligent look from the left

Here is a relatively balanced article on the growing income inequality. The author is left-leaning (you will agree with me , if you look into his recommendations), but he provides a fair analysis. If you want an intelligent look from the left rather than the usual "beat the rich/tax the corporate jets" stuff, then I recommend reading it.

I quote only one paragraph (that should make an intelligent liberal to think):
"The market system distributes rewards increasingly inequitably. On one side, the debate is framed in zero-sum terms, and the disappointing lack of income growth for middle-class workers is blamed on the success of the wealthy. Those with this view should consider whether it would be better if the United States had more, or fewer, entrepreneurs like those who founded Apple, Google, Microsoft and Facebook. Each did contribute significantly to rising inequality. It is easy to resent the level and extent of the increase in CEO salaries, but firms that have a single owner, such as private equity firms, pay successful chief executives more than public companies do. And for all their problems, American global companies have done very well compared with those headquartered in more egalitarian societies over the past two decades. Where great fortunes are earned by providing great products or services that benefit large numbers of people, they should not be denigrated."

At least two points that the authors omits:
1. There is no discussion of how the economic growth, prompted by reducing taxes on the highest earners could reduce the income inequality.
2. More importantly, he frames discussion as if "the rich" are only the 1% of the higher earners, whereas for the tax purposes they still remain all those who earn more than $250,000 a year, i.e. small business.

He does however stress the that the reason for the growing inequality might be precisely too much government interference into the free market:
"First, government must not facilitate increases in inequality by rewarding the wealthy with special concessions. Where governments dispose of assets or allocate licenses, preference should be on the use of auctions to which all have access. Where government provides implicit or explicit insurance, premiums should be based on the market rather than in consultation with the affected industry. Government’s general posture should be standing up for capitalism rather than for well-connected capitalists."

While the US sleep... Pacific countries prepare for wars

It was a subject of my recent post, (also here, here and here) that the unreliability of the alliances with the United States under the Obama Administration, has prompted many Middle Eastern countries (particularly Saudi Arabia) to change their defense policy - purchasing more arms and building closer alliances with their neighbors.

Apparently a very similar thing is taking place in the Pacific region, where the traditional wariness of the Japanese influence has been replaced by the fear of China, which prompts formation of new alliances (between Japan and Singapore, India, Vietnam and Philippines):
"Following decades of near-isolation under the American security umbrella, Japan had in recent years been gradually expanding its ties with neighbors, including many—such as Vietnam and the Philippines—that it invaded and occupied during World War II.

Japan signed its first defense memorandum in Southeast Asia with Singapore in 2009. The moves appear to have accelerated after a September 2010 standoff with Beijing over the contested archipelago known as Senkaku in Japan and Diaoyu in China."

Legacy of the Tahrir square

A quote:
"The [Occupy Wall St.] movement’s true origins, however, go back to the revolutions in Tunisia and Egypt. That was when the world witnessed how intransigent regimes can be toppled by leaderless democratic crowds, brought together by social media, that stand firm and courageously refuse to go home until their demands for change are met. Our shared epiphany was that America, too, needs its Tahrir Square moment and its own kind of regime change. Perhaps not the hard regime change of Tunisia and Egypt, but certainly a soft one."

The saying is that "people learn from mistakes... but smart people learn from the mistakes of others." Most people however do not learn at all, even from the mistakes of their own.
The "protests", from the Arab Spring to Occupy Wall St., unfortunately have shown the truth of this conjecture. One could understand why frustrated (and usually young) people went into the streets and demanded changes - whatever changes, coming from anywhere, and anyhow. But, as the quote above shows, most of these people are likely to miss the main lesson of the protest movements - the protests lacking leadership and clear goals change nothing. They merely allow the protesters to vent off their anger, no more than that.

- Revolution in Tunisia brought to power Islamists. Rather moderate ones, but quite intent on limiting the civil rights of women. You call this social justice?

- Much celebrated revolution in Egypt removed Mubarak, but hasn't changed anything else. The country is run by the same people, the protests continue, the people demand resignation of the head of the ruling army council. Moreover, the only clearly formulated demands turned out to be not for equality, democrayc or economic reforms - but for the abrogating the Egypt's peace treaty with Israel. Is potential war and cessation of economic ties with Egypt's neighbor the kind of social justice that everyone has in mind?

- Revolution in Libya is rarely mentioned as an example of successful protests - no wonder, it was a bloodbath. Yet, so far it was the example of the most organized resistance. It is not clear whether it will bring democracy and justice though.

- Protests in Bahrain were suppressed. Protests in Jordan dissolved after a few meaningless concessions by the King.

- "Tent city" in Israel faded away - its only legacy being the boost that it may (or may not) give in the next elections to the Labor party.

- Protests in Syria look like a massacre. The protests seem to realize that the only way out for them is to get organized - much to the displeasure of the US Secretary of the State.

- "Occupy Wall St.", after several incidents of rape and robberies, was dismantled from the US parks by police.

While the US sleep, Middle East arms to its teeth

A very informative article about the military build-up in Saudi Arabia, prompted by teh weakness of teh American policy in the Middle East and the United States's reluctance to confront the soon-to-be-nuclear Iran:
"Over this year of Arab Spring revolt, Saudi Arabia has increasingly replaced the United States as the key status-quo power in the Middle East — a role that seems likely to expand even more in coming years as the Saudis boost their military and economic spending. 

Saudis describe the kingdom’s growing role as a reaction, in part, to the diminished clout of the United States. They still regard the U.S.- Saudi relationship as valuable, but it’s no longer seen as a guarantor of their security. For that, the Saudis have decided they must rely more on themselves — and, down the road, on a wider set of friends that includes their military partner, Pakistan, and their largest oil customer, China."

The article is worth reading in a whole. Here is one of the most interesting paragraphs:
"The Saudi shopping list is a bonanza for U.S. and European arms merchants. That’s especially true of the air force procurement, with the Saudis planning to buy 72 “Eurofighters” from EADS and 84 new F-15s from Boeing. The rationale is containing Iran, whose nuclear ambitions the Saudis strongly oppose. But Riyadh has an instant deterrent ready, too, in the form of the Pakistani nuclear arsenal that the Saudis are widely believed to have helped finance. "

Europe: fatalism and reliance on government

Here is an interesting poll. Too many things come to mind when looking at the tables, so I limit discussion to quoting only the first two tables.

It is truly striking how much the population of the socialist countries relies on the state to solve their problems at the expense of their personal freedom.

The level of fatalism demonstrated by the table below, is less sharp, although surprizingly high in Germany.

Objective reality vs. subjective views

Paul Krugman, a Nobel prize winner, engages in a silly game of tying economic ideas to political ideologies:
"First things first: The attempt to create a common European currency was one of those ideas that cut across the usual ideological lines. It was cheered on by American right-wingers, who saw it as the next best thing to a revived gold standard, and by Britain’s left, which saw it as a big step toward a social-democratic Europe. But it was opposed by British conservatives, who also saw it as a step toward a social-democratic Europe. And it was questioned by American liberals, who worried — rightly, I’d say (but then I would, wouldn’t I?) — about what would happen if countries couldn’t use monetary and fiscal policy to fight recessions."

One may argue whether Economics is a science or not - it is certainly not a science in the same ways as physicists and mathematics are, but the argument will essentially boil down to what you define as a science, and how you call a field of knowledge which, although falling short of the precision provided by physics/math, is nevertheless capable of logical analysis and predictions in the areas where the "sciences" are powerless.

Yet, anything with a claim for being a kind of knowledge should be objective - which is independent on the subjective (conservative or progressive) views of the person presented with such knowledge. Otherwise, it would not worth a Nobel prize.

A stand for the abused 1%

Serious article addressing the absurd notion that all the social problems can be solved by taxing the richest 1%

A few quotes:
"It is amazing how the “one percent” epithet, a reference to the top 1% of earners, has caught on in the United States and elsewhere in the developed world. In the United States, this 1% includes all those with a 2006 household income of at least $386,000. In the popular narrative, the 1% is thickly populated with unscrupulous corporate titans, greedy bankers, and insider-trading hedge-fund managers. Reading some progressive economists, it might seem that the answer to all of America’s current problems is to tax the 1% and redistribute to everyone else."

Inconvenient truth:
"But what might be the most important overlooked fact is that the rise in income inequality is not just at the very top, though it is most pronounced there. Academic studies suggest that the top tenth percentile of income distribution in the US, and elsewhere, is also moving farther away from the median earner. This is an inconvenient fact for the progressive economist. “We are the 90%,” sounds less dramatic than “we are the 99%.” And, for some of the protesters, it may not even be true."
Before dismissing this paragraph, please check the statistics  - you might well turn out to be among the 10% of the highest earners in your country, particularly, if you have an advanced university degree.

Social mobility and the value of education:
"Perhaps most problematic, though, is that something other than plutocrat-friendly policies is largely responsible for the growing inequality. That something is education and skills. True, not every degree is a passport to a job. Freshly-minted degree holders, especially from lower-quality programs, are finding it particularly hard to get a job nowadays, because they are competing with experienced workers who are also jobless. Nevertheless, the unemployment rate for those with degrees is one-third the unemployment rate for those without a high school diploma.

Close examination suggests that the single biggest difference between those at or above the top tenth percentile of the income distribution and those below the 50th percentile is that the former have a degree or two while the latter, typically, do not. Technological change and global competition have made it impossible for American workers to get good jobs without strong skills. As Harvard professors Claudia Golden and Larry Katz put it, in the race between technology and education, education is falling behind."

The real problem:
"To acknowledge the fact that the broken educational and skills-building system is responsible for much of the growing inequality that ordinary people experience would, however, detract from the larger populist agenda of rallying the masses against the very rich. It has the inconvenient implication that the poor have a role in pulling themselves out of the morass. There are no easy and quick fixes to education – every US president since Gerald Ford in the mid-1970’s has called for educational reforms, with little effect. In contrast, blaming the undeserving 1% offers a redistributive policy agenda with immediate effects."