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December 14, 2011

DOOM: Monty got a raw deal

DOOOOM

Paul Rahe: Is means-testing just? I’m reading Rahe’s magisterial Republics Ancient and Modern right now, so I was interested to see what his take on this issue would be. A particularly savory bit:

Along the way, next to no one on the left or right paused to consider whether policing the lives of ordinary citizens in this fashion is not a species of tyranny. Almost everyone thought that the end – getting all Americans on health insurance – justifies the means, for the unspoken presumption of our masters in Washington and in the state capitols is that ordinary people lack the capacity to assess the risks they encounter, make their own decisions, and pay the consequences.

And more:
I am no friend to any of the entitlement programs. All of them involve a stealthy transfer of wealth. All of them discourage diligence and industry. All of them reward sloth and punish success – and it seems to me that means-testing those not yet means-tested would serve only to take bad policy and make it worse, for it would transform what presents itself as a species of social insurance (and to some degree really serves as such) into an out-and-out welfare program.

It’s all great stuff (I wish I’d written it), but I’d respond to Rahe by saying that the time for a "fair" or "just" resolution is long past. There is no “fair” outcome possible at this point. No matter what happens, someone is going to get cheated. Maybe everyone. The ultimate villains here are the politicians who have been lying to their constituents for much of the past several decades about the sustainability of these programs. I can only repeat what I’ve said before: you know you’re in a crisis when all of your options suck.

This piece is less an argument in favor of a Eurozone bailout and more an argument for not letting things come to such a pass in the first place. "Moral hazard" can't just be a conveniently-ignored abstraction when the going gets tough because if you ignore it too long, the whole edifice will fall down around your ears. Supply and demand, action and consequence -- for an economy to function, it must be allowed to work naturally. The ECB and Eurozone bureaucrats have blown right past the "two wrongs make a right" phase and have gone into the "maybe fifteen or twenty wrongs might make a right, somehow" phase. (This article also trots out the fallacy that this is a liquidity crisis. It's not. It is at base a sovereign solvency crisis.)


Myths of the New Deal. In many ways, FDR’s New Deal is the “founding myth” of modern liberalism. In actual policy terms, the New Deal was an unmitigated disaster, but years of hagiography and sentimentalism have obscured the basic failures of FDR’s Depression-era policy. (Noted liberal tool Michael Hiltzik has contributed to this with his latest piece of FDR propaganda entitled The New Deal: A Modern History. Even the Socialist Realist cover art is a dead giveaway; stick a hammer-and-sickle flag behind the guy instead of Old Glory, and you’d have a dandy Lenin-era USSR bit of commie kitsch.)

If this is the “new poverty” that so enrages liberals, then maybe they need to be reacquainted with the old poverty -- you know, the kind where people dress in rags and die of starvation. On this issue as in so much else liberals are wrong about, a bit of historical knowledge would go a long way. For most of human history upon this earth, “poverty” was the normal state of existence (and still is for more than half the population of the earth). The way we live now is not normal; it is a dramatic aberration. Be thankful you were lucky enough to be born a citizen of the West in this age of the world, people: you won life’s lottery, whether you know it or not.

The Nobel Prize in Economics lectures of Thomas Sargent and Christopher Sims.

The Euro and the “two drunks” problem.

Eric Raymond (or ‘esr’ to us Unix geeks) on why he loves Wal-Mart despite never shopping there. I tend to agree. I don’t shop at Wal-Mart much myself -- I buy nearly everything that isn’t food from Amazon these days -- but I think on balance that it’s been a great force for good in poor and rural people’s lives. Much more so than any government program I can think of.

It’s as I expected: all the happy talk about rebounding retail sales was pretty much nonsense. Retailers are moving inventory, but only by making steep discounts that murder the bottom line. What’s the word, hummingbird? A measly 0.2% growth in November, and not much prospect of doing better in December. (Remember: you can sell everything you have on the shelves, but if you can’t do it at a profit, you’re still going to go broke.)

Rule of law and why it’s critical for a prosperous and free society.

Yet another state public-employee retirement system hits the skids. The newest LOTB inductee: Virginia! Funny how state finances went from “We’re fine!” to “Oh shit!” in the course of a year or two. It’s almost as if that river of “stimulus” money from Washington D.C. dried up and states didn’t bother actually fixing the underlying problems.

"Everyone is looking for the policy-making silver bullet. There really are none," Basu said. "The best is a balanced approach that sets aside more funds for pensions while adjusting benefits and retaining an economic environment good for growth."
(Emphasis mine.) Basu is singing from Obama’s favorite Democrat hymnal, I see.

So what can Greece do to get out of the fix they’re in? Not much. Sometimes all you can do is board up the windows and wait for the hurricane to hit.

Greece’s problems fall basically into four baskets. The first is the huge public and private debt that has been run up, the servicing of which is dependent on the good will of others. the second is the intractability of the public sector, including judiciary, not so much to reform (which is far too timid a word) as to total reinvention. The third basket is the current morphology of the Greek economy, imbalances one sees in the public/private sector relationship, the imbalances in investment/consumption/savings, export/imports, tax base and research/innovation. The fourth, which is not so much a basket as a world in itself, is the reshaping of the Greek civil mind set, the norms, ways of thinking, relation to civil society and the state, attitude towards ones fellow citizens, one’s civic obligations. My guess is the that second and third are impossible to take on, but even if possible, will take generations to improve.

Here’s the problem investors have with the promises made by the ECB and Eurozone governments: they are unlikely to be carried out, even if they are sincerely meant. The whole Euro project, from the start, has been predicated on the notion that there is some entity called “Europe”, and that a citizen of that entity is “European”. It turns out that this is not the case: you still the same collection of Frenchmen, Germans, Italians, Spaniards, Portuguese, Poles, Lithuanians, Norwegians, Swedes, and Greeks you had before the Euro project came into being. It turns out that there really is no such creature as “Europe”, so any promises made on this mythical creature’s behalf are not to be taken too seriously.

Also, remember this quote: “I fear German power less than I am beginning to fear German inactivity.” That’s coming from a Pole. You know that things have spiraled out of control when a Pole can say this about Germany.

No one wants the commemorative Presidential dollar coins. It always struck me as a waste of resources anyway -- make the coins out of specie (gold or silver) and they’d sell like the wind. But coins made of copper, zinc, manganese, and nickel? Not so much. And I’ve got to say: I don’t exactly thrill to the idea of owning a Chester A. Arthur commemorative coin. Maybe it’s just me.

The US House of Representatives: Here’s our payroll tax bill with the Keystone XL pipeline provision, Bammer. Go ahead and veto it! I double dog dare you! I triple dog dare you! (Boehner created a slight breach of etiquette by skipping the triple dare and going right for the throat!)

Senate to MF Global Execs: You guys find that missing money yet?
MF Global Execs to Senate: Er...no. We looked everywhere, too. Under the couch, under the car seats, behind the toilet in the bathroom, in the junk-drawer in the kitchen...everywhere. We did find a check for eight dollars and thirteen cents, but it was made out to some dude named Zublatmadar Hagrodimorg Polagibarbiderg, who according to our records doesn’t even work for the firm. We think he might have been that old guy who used to park his gyro food cart outside of MF Global HQ a couple of years ago. If we can locate him, we’ll be sure to get his eight dollars back to him. Because we’re all about honesty and customer service here at MF Global. Or, well, we used to be. You know, before we went bankrupt. And lost $1.2 billion dollars of our customers’ money.

It’s gonna get worse before it gets better.

More love for dividend stocks. I’m seeing a lot more interest in dividend stocks as other fixed-income streams dry up.

Europe’s political class doesn't much like free markets, but that’s not exactly news to anyone who’s followed European politics or economics for, oh, the past sixty years or so.

The European political class doesn’t understand markets, and doesn’t like markets. The[y] resent the pressure global financial markets are placing on them, which helps explain why they are lashing out at “London bankers.” (Apparently they have completely forgotten how Britain railed against the “gnomes of Zurich” during Britain’s currency crisis in 1964. What goes around comes around.)

Also:

Southern Europe believes that richer Northern Europe owes them a bailout. Solving the problem requires breaking the entitlement mentality of the weaker members of the EU. Moreover, wage levels in Southern Europe are too high by about 25 percent. Adjusting this problem ever over the long term is going to be extremely painful for the southern economies.

Southern Europe is in for a rude awakening, methinks.

Once again we suck less than everyone else! USA! USA! USA!

Without growth, the countries of the Eurozone can’t even begin to solve their economic problems...but cultural and demographic trends in most of Europe make growth a very dim proposition indeed. Investors are (finally) beginning to question how Europe plans to achieve the kind of growth they’re going to have to have to pay down their debt. And European leaders are basically just shrugging uncomfortably, because they haven’t got a clue.

I’ve always said that if you must place “economics” (especially macro) among the sciences, then it is properly placed with alchemy, divination, and astrology. It has pretty much the same level of empirical support, and pretty much the same predictive track-record. This is not to say that the study of economics is without value; simply that it should studied more as philosophy or a branch of psychology -- a study that should be explanatory rather than (attempt to be) predictive. I've always thought that economics should be a “why?” as well as a “how?” course of study. That’s why I gravitated towards the Austrian School of economics, I suppose. (I also think that there really is no such thing as "macro" economics, but that's a rant for another day.)

Euro banks need “tons of money”. And I think our interlocutor is speaking the literal truth: European banks need large truckloads of actual money. Maybe the ECB will take pity on them and print up a bunch of Euro notes, you think? (This is a case where a solvency crisis is giving rise to a liquidity crisis rather than the other way around.)

The problem that I have with the “Fed saved our economy” narrative in the wake of the Lehman collapse is this: we have no way of knowing what might have happened had the Fed simply let events unfold. Too many pundits (and most lefties) assert as fact many things that simply cannot be proved. The road not taken is a road forever unknown to the traveler. It’s possible that Fed inaction in the wake of Lehman’s collapse would have led to greater calamity; it’s equally possible that the Fed’s action actually prolonged and worsened the downturn.

The Occutards cost the longshoremen a day’s pay. Somehow I suspect the unions aren’t feeling much love for their ideological confreres out on the barricades. In fact, I suspect more than a few of them want to work out their frustrations by raising some lumps on some scabrous hippie noggins.

Copying versus creating. Innovation -- R&D, basic research, engineering -- is hard. It’s expensive. It often has long time-horizons with no guarantee of payoff at the end. And it requires a certain frame of mind: a combination of creativity, empirical knowledge, ambition, drive, and self-confidence. Time will tell if America can still produce sufficient numbers of people with these qualities.


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posted by Monty at 08:40 AM

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