MVP-Ateneo Rift: The Politicization of Education

In reaction to Mogul and PNoy favorite Manny Pangilinan’s severance of ties with his alma mater due to political differences somewhere I read a paraphrased comment that out of MVP's actions

Children should be spared of politics

Putting the blame on MVP alone is an example of misreading effects as the cause. The reason for the sensational split in the relationship is because the heated political divergences hasn’t just been between MVP and Ateneo, but instead this involves Ateneo official’s moral and political stand to inculcate into their professors and students.

I am NOT here to defend any political position by both camps, but to underscore the point of the vicious politicization of education, which in this case, has been through the imposition of political preferences by school authorities and church leaders on members of the academe and students. 

Essentially this controversial schism validates my views on why elite schools have been inclined towards statism.

To highlight the point of the dictatorial tendencies of the church-school cabal is the recent threat to purge by excommunication 159 Ateneo professors who sided with Philippine government’s RH Bill.

[As a side note, I am against any coercive imposition of “values” on the family: This means I am against the RH Bill and am equally against church strictures aimed at the interdiction of their moral stand on their constituents.]

Church influence on politics has had nasty social outcomes, as the great Professor Murray Rothbard wrote, (bold emphasis mine)

Historically, the union of church and state has been in many instances a mutually reinforcing coalition for tyranny. The state used the church to sanctify and preach obedience to its supposedly divinely sanctioned rule; the church used the state to gain income and privilege.

The Anabaptists collectivized and tyrannized Münster in the name of the Christian religion.

And, closer to our century, Christian socialism and the social gospel have played a major role in the drive toward statism, and the apologetic role of the Orthodox Church in Soviet Russia has been all too clear. Some Catholic bishops in Latin America have even proclaimed that the only route to the kingdom of heaven is through Marxism, and if I wished to be nasty, I could point out that the Reverend Jim Jones, in addition to being a Leninist, also proclaimed himself the reincarnation of Jesus.

Moreover, now that socialism has manifestly failed, politically and economically, socialists have fallen back on the "moral" and the "spiritual" as the final argument for their cause.

For the mainstream, coercion, as along as it is committed by the state, is seen as moral. Thus, the desperate attempts by competing interests (represented by diverse power blocs, church, schools, environmentalists, and others) to influence policymaking which thereby results to the attendant social frictions.

Yet education must be free of politics and of government interventions, as Professor Tibor Machan argues (bold emphasis mine)

When a country tries to combine freedom of thought and speech with government-administered education, there will be irresolvable conflict. In a system of private education competition among schools would take care of philosophical correctness. In some schools certain books will be featured in the library, in others they will not, and students and their parents will be able to select which they want to be exposed to. Biology will be taught as creationists wish or as Darwinians do.  No official doctrine will be imposed, period.

But when government delivers a coercive system of "education"--actually mostly indoctrination, since no alternative is available to the bulk of us who have to pay for and use such a system--any selection of books, magazines, films shown in classes and so forth will amount to censorship of the materials not chosen. They will be deemed as having been banned--whereas in a private system selection by the administrators of some schools, library officials, or teachers will not preclude exclusion by others. It is government's nearly one-size-fits-all approach to education that stands in the way of free inquiry.

Unfortunately, in many societies people want to mix elements of liberty with elements of coercion, as if that were something trouble free—health food with some poison! It isn't--the courts will struggle forever with trying to square that circle and politicians will engage in varieties of demagoguery to gain the power over the “educational” turf.

Only by getting government out of education can that matter be made consistent with the principles of a free society and fit for human beings whose minds must forever be free to think.

The MVP-Ateneo rift only confirms the symptoms of irresolvable social conflict brought upon by the politicization of education and of government interventions.

Updated to add: Because I was in a hurry and had something things to do, I was unable to edit this post at the time of the publication. Thus I made belated grammatical changes on the first three sentences about 4 hours after.
  

Quote of the Day: Real Deleveraging

No stock market commentary for today.

Here is a brilliant objective analysis of the current bubble conditions from Doug Noland of the Credit Bubble Bulletin at the PrudentBear.com (bold emphasis mine)

Our economic structure certainly enjoys unmatched capacity to absorb Credit excess without engendering traditional consumer price inflation.  Yet there is indeed a huge problem that no one seems to want to recognize:  Our system also has an unprecedented capacity to expand Credit that is backed by little in the way of wealth-creating capacity.  Our government literally injects Trillions into the economy – Credit that inflates incomes and sustains consumption and elevates asset prices.  The downside of this economic miracle is that, at the end of the day, there’s little left to show for the whole exercise except for an ever-expanding mountain of suspect financial claims.  Moreover, market values of these claims are sustained only by the unrelenting expansion of additional claims/Credit concurrent with increasingly radical monetary management.  This is Minsky’s “Ponzi Finance” at a systemic level.

A real deleveraging would see the economy and financial markets weaned off of rampant Credit growth.  Non-financial Credit growth averaged about $700bn annually during the nineties.  This inflated to about $2.4 TN at the Mortgage Finance Bubble pinnacle in 2007.  As I noted above, we’re currently running at an annualized Credit growth rate of nearly $2.0 TN.  This is posing great unappreciated risk to system stability.

A real deleveraging would see price levels (and market-based incentives) adjust throughout the economy in a manner that would spur business investment – in the process incentivizing sound investment-based lending and resulting job growth.  Real deleveraging would see a shift in the economic structure from Credit-fueled consumption to savings and productive investment.  Real deleveraging would give rise to our endemic trade deficits shifting to surplus.  Real deleveraging would see a meaningful reduction in non-productive debt.  Real deleveraging would see market prices dictated by fundamentals rather than governmental intervention, manipulation and inflationism.

The “raging” debate is whether recent elevated unemployment is a “cyclical” or “structural” phenomenon.  Academic “white papers” not required.  After all, find a system that doubles mortgage Credit in about six years and then proceeds to double federal debt in four - and you'll no doubt locate a deeply maladjusted economic structure.  Such gross financial imbalance ensures economic imbalance.  And, importantly, the longer such imbalances are accommodated/incentivized by loose fiscal and monetary policies the deeper the structural impairment.  Throw massive fiscal stimulus and monetize Trillions and such a structure will surely demonstrate historic deficiencies and fragilities.

Deleveraging – the process of unwinding the economic damage wrought from years of excess - will be a quite arduous economic process; one that will commence at some unknown date in the future.  Oh, I guess I failed to mention that total (financial and non-financial) Credit ended Q2 at a record $55.031 TN, or 353% of GDP.  And Rest of World holdings of our financial assets ended the quarter at a record $19.100 TN, a $3.860 TN increase from the end of 2008.

Deleveraging, which has been the mainstream tautology, has been promoted by cherry-picking evidences in support of this view.

Yet while it may be true that some sectors have been enduring salutary deleveraging, the big picture reveals that systemic debt has been intensifying not only in the US but on a global scale most of which has been borne by the governments.

And much like austerity, deleveraging has been a maligned and distorted term and uttered like an incantation which has been used to justify more government interventions. 

All these only adds up to have a compounding effect on systemic fragility. 

Brazil and China Governments Slam the FED’s QE Forever

The US Federal Reserve’s QE ‘forever’ hasn’t been welcomed by some of the major emerging market central banking peers.

Brazil’s Finance Minister Guido Mantega, according to a Nasdaq/ Dow Jones report, accuses the Fed’s third-round of quantitative easing as "stimulating currency wars”.  Mr. Mantega, thus, will “continue to take whatever action is necessary to prevent speculative flows from flooding into the country” through currency interventions that will prevent Brazil’s currency, the real, from appreciating.

Brazil’s central bank, according to Mr. Mantega, “is going to buy more reserves” through the “use of the so-called reverse swap auctions that remove U.S. dollar-hedging contracts from the futures market”

Mr. Mantega will also adopt other measures including higher taxes on investment inflows.

China’s head of the Central Bank also rebuked the Fed's quantitative easing policies.

According to Sydney Morning Herald 

THE head of China's central bank, Zhou Xiaochuan, says quantitative easing is not working and more targeted measures are required to channel credit into areas where they are needed the most.

Mr Zhou made the call in a speech delivered in April but not published on the website of the People's Bank of China until this week, as the chairman of the US Federal Reserve, Ben Bernanke, announced a new round of quantitative easing - an injection of cheap credit into the financial sector - aimed at resuscitating the sluggish US economy.

Mr Zhou criticised the flood of cheap money as an inflexible and orthodox approach, although he stopped short of naming the Fed. Chinese authorities have long expressed their displeasure at US quantitative easing policy measures, which have eroded the value of the Chinese holding of US dollar-denominated assets such as Treasury bonds. Beijing is the largest holder of US government debts.

In reality all these signify as the proverbial pot calling the kettle black.

Both Chinese Central Bank and Brazil’s central bank have engaged in the same policies of waging war against interest rates although through more subtle means.

For instance I pointed out last week of the leakage from the sterilization measures by Brazil central bank’s foreign reserve accumulation have led to a bank credit boom which a Financial Times analyst sees as credit (QE) driven economic boom.

Chart from Mao Money, Mao Problems

And given the huge foreign reserves of $3.3 trillion during the first quarter held by China, the same policy dynamic may have been implemented by the People's Bank of China (PBoC). Evidence says that the PBoC's balance sheet continues to swell.

The world of politics is like a game of the hot potato, where some entity would have to take the blame to cover for one’s malfeasance.

Quote of the Day: The Fallacy of Redistribution

Those who talk glibly about redistribution often act as if people are just inert objects that can be placed here and there, like pieces on a chess board, to carry out some grand design. But if human beings have their own responses to government policies, then we cannot blithely assume that government policies will have the effect intended.

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. The communist nations were a classic example, but by no means the only example.

In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler's Holocaust in the 1940s.

How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth -- and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops, when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally keep tending and feeding while raising them to maturity.

People in industry are not inert objects either. Moreover, unlike farmers, industrialists are not tied to the land in a particular country.

Russian aviation pioneer Igor Sikorsky could take his expertise to America and produce his planes and helicopters thousands of miles away from his native land. Financiers are even less tied down, especially today, when vast sums of money can be dispatched electronically to any part of the world.

If confiscatory policies can produce counterproductive repercussions in a dictatorship, they are even harder to carry out in a democracy. A dictatorship can suddenly swoop down and grab whatever it wants. But a democracy must first have public discussions and debates. Those who are targeted for confiscation can see the handwriting on the wall, and act accordingly.

Among the most valuable assets in any nation are the knowledge, skills and productive experience that economists call "human capital." When successful people with much human capital leave the country, either voluntarily or because of hostile governments or hostile mobs whipped up by demagogues exploiting envy, lasting damage can be done to the economy they leave behind.

 This is from author Thomas Sowell. Read the rest here

Senkaku Islands Dispute: Chinese Government Behind Anti-Japan Protest

It seems that the Chinese government may have a hand in the agitation, mobilization and organization of the nationwide protest against the Japanese over the disputed Senkaku Islands.

From the LA Times,

The last week's anti-Japan demonstrations in China have been a spectacular display of just how easily the ruling Communist Party can harness the power of protest.

In the aftermath of nationwide protests, in which mobs trashed Japanese-owned businesses and set fire to Japanese model cars, critics are questioning the degree to which the Chinese government fanned the flames as part of its dispute with Japan over an island chain both nations claim.

"It is obvious that this was planned," said Ai Weiwei, the dissident artist, who videotaped some of the protests. The 1989 pro-democracy demonstrations in Tiananmen Square were "the last time that the people themselves organized a real protest and then the government sent in tanks to crush them," he said.

Although there has been no evidence that police officers participated in the violence, in many cities they directed the public on where to protest and cleared streets to allow tens of thousands to mass. Many protesters interviewed Tuesday said they had been given the day off by employers to demonstrate. Sept. 18 is a traditional day of protest, marking the anniversary of the Japanese invasion of Manchuria in 1931.

These organized demonstrations, which in the Philippines is known as the “hakot” crowd, as I previously pointed out have merely been camouflages.

In reality these are most likely smokescreens to the worsening internal problems experienced by both countries and to the mounting interventionism being applied by the increasingly desperate political authorities.

The war rhetoric, expressed through nationalism, has been used to divert people’s attention, to suppress political opposition and to justify inflationism, as well as other interventionists measures being imposed on China and Japan's economy. 

QE Forever and Obama’s Re-election

I earlier wrote that the direction of the stock markets significantly influences the outcome of US presidential elections—where the incumbent has the edge when stock markets are on the rise.

Mitt Romney, Republican presidential candidate, lately announced that should he win the presidency this November, according to a Bloomberg article, “he wouldn’t reappoint Bernanke, raising questions about the succession more than a year before Bernanke’s term expires in January 2014.”…

In the knowledge that the Fed can tweak policies to favor the stock markets, and in the prospects that Mr. Bernanke will be out of work from a Romney presidency, then the most likely guiding incentive for Mr. Bernanke will be to work to retain his tenure by promoting the re-election of President Obama through “stock market friendly” policies in September or October.

Earlier, expectations from Bernanke’s repeated signaling of QE 3.0 prompted US stock markets to surge.

The realization of QE forever accelerated this bullish momentum where the S&P 500 has reached a milestone (December 2007) high.

As of Friday’s close, marginally off the highs, the S&P posted a substantial 16% year to date returns 

And since the announcement of the QE ‘Forever’…

…the surge in the US stock markets has now been reflected on Obama’s reelection: nearly 70% chance to win (!!!), that’s according to the prediction markets of Intrade.com 

This is one example of how policies have been used to promote the self-interests of political agents.

Donald Trump: I Loved Inflation, But Don’t Like it For the Country

Nice to hear some candidness from real estate mogul Donald Trump

From CNBC.com

Echoing comments made by Dallas Fed President Richard Fisher that an open-ended quantitative easing, or QE3, would do little to help revive the economy, Trump said only stocks, real estate, and the investors who owned them would benefit from the move. 

“Everything is artificial, there’s nothing that’s real,” the mogul said on CNBC’s “Squawk Box.” 

Stock markets — which recently surged to multi-year peaks — are on the rise less because of fundamentals, and more because of the expected liquidity from the Fed that will filter into asset markets. 

Trump warned that the Fed’s $40 billion a month mortgage-backed security buying program would lead to inflation. He also suggested wealthy asset owners would be the biggest beneficiaries of a potential surge in prices. 

“I should be very happy about [inflation] in theory … but I’m not happy because ultimately it will come home to roost, and it’s going to be very, very unfortunate in the form of [higher] interest rates and some very severe things happening later on with the economy,” said Trump… 

“Inflation is a great friend at a certain level of real estate. I’ve loved inflation, but I don’t like it for the country. But as an individual, inflation has made me very rich,” he said.

This just goes to show how inflationism promotes the politically privileged class or inequality (in terms of social, wealth and political categories) at the expense of society

Quote of the Day: Economic Calculation

Without private ownership in the means of production, there will not be a market in the means of production. Without a market for the means of production, there will not be monetary prices established on the market (which reflect the exchange ratios, or relative trade-offs people are wiling to make). And, without monetary prices, reflecting the relative scarcities of different goods and services, there will be no way for economic decision-makers to engage in rational economic calculation. Rational economic calculation is impossible in a world without private-property rights and the monetary prices that emerge within the competitive market process. By definition, socialism eliminates the basis of the market economy, i.e., private property in the means of production; the system must find some other mechanism to serve the role that economic calculation plays in the market process. Without the ability to engage in rational economic calculation, economic decision-makers will be stumbling and bumbling in the dark. As Mises puts it, without economic calculation, "all production by lengthy and roundabout processes would be so many steps in the dark”

This is from Professor Peter Boettke’s wonderful book review of Professor Ludwig von Mises’ classic Socialism at the Laissez Faire Books

The Welfare State Benefits the Better Off

You might be wondering how I am doing lots of posting this day, well my mom is out with some of her friends.

Anyway, in the Buttonwood column of the Economist, Philip Coggan points out that the welfare state benefits the well off more than the intended. (bold emphasis mine)

All this is well illustrated in Suzanne Mettler's book "The Submerged State", which shows how these hidden subsidies can distort voters' view of the way that government policy works; a 2008 poll found that 57% of Americans denied ever using a government programme. But when shown a list of 21 actual programmes, including student loans and home-mortgage interest deduction, 94% of the deniers turned out to have benefited after all.

Some of these programmes are heavily skewed towards the better-off. According to Ms Mettler, 69% of the benefits of the mortgage interest deduction went to those who earned $100,000 or more; 55% of the benefits from employer-provided retirement benefits* went to those earning $100,000 or more. Only 16% of workers in the lowest income quintile had employer-sponsored (and tax deductible) health insurance compared to 85% of those in the top quintile.

In cash terms, the average subsidy for those earning $200,000 to $500,000 is three times that for those earning $10,000 to $20,000.

And these programmes are large; mortgage-interest tax relief cost $104.5 billion in 2010 while the tax subsidy for retirement benefits was $67 billion. But these programmes are politically very hard to get rid of…

Universal benefits are very expensive. But targeting benefits requires means-testing, an instrusive process that causes hard cases at the margin. And restricting benefits to the poorest may weaken political support for the whole system, along the lines highlighted by Mr Romney; people may believe that the hard-working "us" are subsidising the feckless "them".

This just shows how the current system has been gamed by entrenched power blocs and through complicit political authorities/political class. 

Ever wonder why the welfare state is headed for a collapse?

China’s Manufacturing falls for the 11th month, Shanghai Index Plunges

China remains as the X-factor amidst all the inflationism deployed by global central banks.

China’s manufacturing continues to go downhill.

From Reuters:

Manufacturing in China contracted for the 11th month in a row in September, according to a private sector survey of factory managers that indicated the world's second largest economy remains on track for a seventh quarter of slowing growth.

The HSBC Flash China manufacturing purchasing managers' index (PMI) showed activity stabilized in September after hitting a nine-month low in August, with the headline reading ticking up to 47.8 from 47.6 last month.

But while the economy may not have worsened, there were few signs of a fast turnaround. Rather, the PMI, which provides the first glimpse of September's conditions for Chinese industry, pointed to a month in which a slide was halted but not reversed.

September's reading extends the longest period that the PMI has been below 50 - the value that separates contraction from expansion - since HSBC began compiling the survey in 2004.

There was a broad steadying across the sub-indexes in the survey, released on Thursday, with the exception of output, which dipped to its lowest level in 10 months.

"China's manufacturing growth is still slowing, but the pace of slowdown is stabilizing. Manufacturing activities remain lackluster, thanks to weak new business flows and a longer than expected destocking process," Qu Hongbin, chief economist for China at HSBC, said in a statement accompanying the survey.

"This is adding more pressure to the labor market and has prompted Beijing to step up easing over the past weeks. The recent easing measures should be working to lead to a modest improvement from Q4 onwards."

Not enough steroids? Again from the same article:

China unveiled a series of measures last week to help stabilize export growth, including faster payment of export tax rebates and boosting loans to exporters.

That was on top of a series of approvals for infrastructure projects worth more than $150 billion, two earlier cuts to interest rates, the easing of bank reserve requirements that freed about 1.2 trillion yuan ($190 billion) for lending and a steady series of liquidity injections into money markets.

Still, purchasing managers in the survey had little cause for premature cheer. A sub-index that measures output fell to 47.0, its lowest level since November 2011.

After spending several months bumping just beneath the crucial 50 mark, the overall PMI index is now at a level rarely seen since the 2008-2009 global financial crisis.

Asian markets have not seen this as anything to cheer about

China’s equity markets continue to hemorrhage with the Shanghai Index sharply down today by 2.08%  (table from Bloomberg)

Today’s steep decline means that the recent lows of around 2040+s will be tested (chart from stockcharts.com)

These developments brings some questions to mind:

Will Chinese political authorities up the ante of policy bailouts through fiscal and monetary channels or will they allow the markets to clear? My bet is on the former.

Will developments in China weigh on global markets or will inflationism eventually diffuse to China.  This is something to be yet determined.

Bastiat on Mercantalism: The Candle Maker's Petition

Many intellectually incapacitated or practitioners of political religion frequently use pretentious economic arguments on what they perceive as threat of competition posed by anything foreign on the local economy: be it immigrants, trade, investments, capital flows, education, jobs and etc…

Xenophobia thus calls for the government to institute protectionist measures (mercantilism) to supposedly achieve their brand of utopia. Never mind if history keeps proving that closed economies leads to a path of poverty.

In reality, these xenophobes apply the fallacy of reductio ad absurdum when they oversimplify what truly is a complex world, and forget or deliberately ignore or discount the large influences of technology, globalization, inflationism (boom bust cycles) that reduces capital thereby jobs, as well as other forms of interventionism via regulations and taxes that all affect people’s incentives and time preferences on allocation of capital.

The great Frédéric Bastiat exposes on the absurdity and ridiculosity of the mercantilist argument through the classic The Candle Maker’s Petition (From Mises.org) [bold emphasis mine]

Petition of the Manufacturers of Candles, Waxlights, Lamps, Candlelights, Street Lamps, Snuffers, Extinguishers, and the Producers of Oil, Tallow, Resin, Alcohol, and, Generally, of Everything Connected with Lighting

To the Members of the Chamber of Deputies.

Gentlemen:

You are on the right road. You reject abstract theories, and have little consideration for cheapness and plenty. Your chief care is the interest of the producer. You desire to protect him from foreign competition and reserve the national market for national industry.

We are about to offer you an admirable opportunity of applying your — what shall we call it? — your theory? No; nothing is more deceptive than theory — your doctrine? your system? your principle? But you dislike doctrines, you abhor systems, and as for principles you deny that there are any in social economy. We shall say, then, your practice — your practice without theory and without principle.

We are suffering from the intolerable competition of a foreign rival, placed, it would seem, in a condition so far superior to ours for the production of light that he absolutely inundates our national market with it at a price fabulously reduced. The moment he shows himself, our trade leaves us — all consumers apply to him; and a branch of native industry, having countless ramifications, is all at once rendered completely stagnant. This rival, who is none other than the sun, wages war mercilessly against us, and we suspect that he has been raised up by perfidious Albion (good policy nowadays), inasmuch as he displays toward that haughty island a circumspection with which he dispenses in our case.

What we pray for is that it may please you to pass a law ordering the shutting up of all windows, skylights, dormer-windows, outside and inside shutters, curtains, blinds, bull's-eyes; in a word, of all openings, holes, chinks, clefts, and fissures, by or through which the light of the sun has been in use to enter houses, to the prejudice of the meritorious manufactures with which we flatter ourselves that we have accommodated our country — a country that, in gratitude, ought not to abandon us now to a strife so unequal.

We trust, gentlemen, that you will not regard this our request as a satire, or refuse it without at least first hearing the reasons which we have to urge in its support.

And, first, if you shut up as much as possible all access to natural light, and create a demand for artificial light, which of our French manufactures will not be encouraged by it?

If more tallow is consumed, then there must be more oxen and sheep; and, consequently, we shall behold the multiplication of meadows, meat, wool, hides, and above all, manure, which is the basis and foundation of all agricultural wealth.

If more oil is consumed, then we shall have an extended cultivation of the poppy, of the olive, and of rape. These rich and soil-exhausting plants will come at the right time to enable us to avail ourselves of the increased fertility that the rearing of additional cattle will impart to our lands.

Our heaths will be covered with resinous trees. Numerous swarms of bees will, on the mountains, gather perfumed treasures, now wasting their fragrance on the desert air, like the flowers from which they emanate. Thus, there is no branch of agriculture that shall not greatly develop.

The same remark applies to navigation. Thousands of vessels will proceed to the whale fishery; and in a short time, we shall possess a navy capable of maintaining the honor of France, and gratifying the patriotic aspirations of your petitioners, the undersigned candlemakers and others.

But what shall we say of the manufacture of articles de Paris? Henceforth, you will behold gildings, bronzes, crystals in candlesticks, in lamps, in lustres, in candelabra, shining forth in spacious showrooms, compared with which, those of the present day can be regarded but as mere shops.

No poor resinier from his heights on the seacoast, no coal miner from the depth of his sable gallery, but will rejoice in higher wages and increased prosperity.

Only have the goodness to reflect, gentlemen, and you will be convinced that there is perhaps no Frenchman, from the wealthy coalmaster to the humblest vendor of lucifer matches, whose lot will not be ameliorated by the success of this our petition.

We foresee your objections, gentlemen, but we know that you can oppose to us none but such as you have picked up from the effete works of the partisans of Free Trade. We defy you to utter a single word against us which will not instantly rebound against yourselves and your entire policy.

You will tell us that, if we gain by the protection we seek, the country will lose by it, because the consumer must bear the loss.

We answer: 

You have ceased to have any right to invoke the interest of the consumer; for, whenever his interest is found opposed to that of the producer, you sacrifice the former. You have done so for the purpose of encouraging labor and increasing employment. For the same reason you should do so again.

You have yourselves obviated this objection. When you are told that the consumer is interested in the free importation of iron, coal, corn, textile fabrics — yes, you reply, but the producer is interested in their exclusion. Well, be it so; if consumers are interested in the free admission of natural light, the producers of artificial light are equally interested in its prohibition.

But, again, you may say that the producer and consumer are identical. If the manufacturer gains by protection, he will make the agriculturist also a gainer; and if agriculture prospers, it will open a vent to manufactures.

Very well! If you confer upon us the monopoly of furnishing light during the day, first of all we shall purchase quantities of tallow, coals, oils, resinous substances, wax, alcohol — besides silver, iron, bronze, crystal — to carry on our manufactures; and then we, and those who furnish us with such commodities, having become rich will consume a great deal and impart prosperity to all the other branches of our national industry.

If you urge that the light of the sun is a gratuitous gift of nature, and that to reject such gifts is to reject wealth itself under pretense of encouraging the means of acquiring it, we would caution you against giving a death-blow to your own policy. 

Remember that hitherto you have always repelled foreign products, because they approximate more nearly than home products the character of gratuitous gifts. To comply with the exactions of other monopolists, you have only half a motive; and to repulse us simply because we stand on a stronger vantage-ground than others would be to adopt the equation + × + = − ; in other words, it would be to heap absurdity upon absurdity. 

Nature and human labor cooperate in various proportions (depending on countries and climates) in the production of commodities. The part nature executes is always gratuitous; it is the part executed by human labor that constitutes value and is paid for. 

If a Lisbon orange sells for half the price of a Paris orange, it is because natural, and consequently gratuitous, heat does for one what artificial, and therefore expensive, heat must do for the other.

When an orange comes to us from Portugal, we may conclude that it is furnished in part gratuitously, in part for an onerous consideration; in other words, it comes to us at half price as compared with those of Paris.

Now, it is precisely this semigratuity (pardon the word) that we contend should be excluded. You say, How can national labor sustain competition with foreign labor, when the former has all the work to do, and the latter only does one-half, the sun supplying the remainder?

But if this half, being gratuitous, determines you to exclude competition, how should the whole, being gratuitous, induce you to admit competition? If you were consistent, you would, while excluding as hurtful to native industry what is half gratuitous, exclude a fortiori and with double zeal that which is altogether gratuitous.

Once more, when products such as coal, iron, corn, or textile fabrics are sent us from abroad, and we can acquire them with less labor than if we made them ourselves, the difference is a free gift conferred upon us. The gift is more or less considerable in proportion as the difference is more or less great.

It amounts to a quarter, a half, or three-quarters of the value of the product, when the foreigner only asks us for three-fourths, a half, or a quarter of the price we should otherwise pay. It is as perfect and complete as it can be when the donor (like the sun in furnishing us with light) asks us for nothing.

The question, and we ask it formally, is this: Do you desire for our country the benefit of gratuitous consumption or the pretended advantages of onerous production? Make your choice, but be logical; for as long as you exclude, as you do, coal, iron, corn, foreign fabrics, in proportion as their price approximates to zero, what inconsistency it would be to admit the light of the sun, the price of which is already at zero during the entire day!

At the end of the day, in the world of politics, logic and the basic law of demand and supply gets swallowed by the black hole of preposterous political correctness.

As Julius Caesar once said,

Men in general are quick to believe that which they wish to be true

Quote of the Day: China’s Territorial Disputes: Distractions from Homegrown Problems

Well I have been saying that ‘the brouhaha over Asia’s territorial disputes have really been smokescreens.  

Dr. Ed Yardeni sees the same:

The Chinese government is picking fights with some of its neighbors over several islands in the South China Sea. These issues have been simmering for a very long time. Why are they coming to a boil now? One possibility is that the Chinese government is stirring up nationalist sentiments to distract the locals from some serious homegrown problems, and doesn't believe that the US will side with Japan and other Asian nations disputing China's territorial claims.

China’s Communist leadership change isn’t going smoothly at the same time that the economy is slowing significantly. For example, electricity output during the three months through August rose only 1.4% y/y. Crude oil demand has flattened out around 9.5mbd over the past six months through August. Fred Smith, the head of FedEx, warned on Tuesday that China watchers may be “completely underestimating” that the export slowdown is more than offsetting attempts by the government to boost growth.

The recent widespread protests in China against Japan’s claims to some of the disputed islands in the South China Sea are already harming the economy. Japanese companies are temporarily closing their manufacturing facilities and retail outlets in China. Trade between China and Japan totaled $323 billion (saar) during August, with China’s exports to Japan at $147 billion and imports from Japan at $176 billion.

China’s Shanghai-Shenzhen 300 stock price index rallied late last week, but now seems to be resuming the downward trend of the past year. The price of copper rebounded smartly last week on news that China will spend to build subways and roads, but could weaken if tensions between China and Japan don’t abate soon. Japan’s Nikkei is also vulnerable to the dispute between the two countries.

The sad part is that the smoke and mirror’s game only worsens the problems

Bank of Japan Joins ECB-FED: Increases Quantitative Easing by 10 Trillion Yen ($697 Billion)

Having just pointed out how inflationism by both Bank of Japan and China’s PBOC has functioned as a principal unseen causal factor behind Senkaku Islands dispute, here comes another round of easing from Bank of Japan (BoJ)

From Bloomberg,

The Bank of Japan expanded its easing program in an effort to prevent a rising yen from undermining an economic recovery, following measures from the U.S. Federal Reserve last week to stimulate growth.

The central bank increased its asset-purchase fund to 55 trillion yen ($697 billion) from 45 trillion yen and its lending facility was kept at 25 trillion yen, according to a statement released in Tokyotoday. Five of 21 analysts surveyed by Bloomberg News predicted easing while 11 forecast the action by October.

Here is what I recently wrote,

Yet the huge amount of coming infusions from the FED-ECB will likely be complimented by the Bank of England, and Bank of Japan, as well as the Swiss National Bank whom has been the quasi-pioneer implementer of the unlimited option via the Swiss-Franc Euro price cap

This has not been about the rising yen, this has been about political desperation to survive the current crumbling debt based political order.

Inflationism and the Senkaku Islands Dispute

At the Minyanville Jonah Loeb postulates 5 factors behind the intensifying Senkaku Island dispute between Japan and China, particularly history, resources (vast oil reserves), economic stakes, provocation by both governments and impact on US presidential elections.

First below is the an abbreviated timeline of the Senkaku Dispute, the complete timeline can be seen at the Globe and Mail here

-1996: The nationalist group builds another lighthouse on another of the islands. Several activists from Hong Kong dive into waters off the islands on a protest journey. One of them drowns.

- 2002: The Japanese ministry of internal affairs starts renting three of the four Kurihara-owned islands. The other is rented by the defence ministry.

- 2004: A group of Chinese activists lands on one of the disputed islands. The then prime minister Junichiro Koizumi orders their deportation after two days.

- September, 2010: A Chinese fishing boat rams two Japanese coastguard patrol boats off the islands. Its captain is arrested but freed around two weeks later amid a heated diplomatic row that affects trade and political ties.

- April 16, 2012: Tokyo governor Shintaro Ishihara announces he has reached a basic agreement to buy the Kurihara-owned islands.

- July 7, 2012: Japanese Prime Minister Yoshihiko Noda says his government is considering buying the islands.

- August 15, 2012: Japanese police arrest 14 pro-China activists, five of them on one of the islands.

- August 17, 2012: All 14 are deported.

- August 19, 2012: Japanese nationalists land on the islands without permission.

It is important to point out the current geopolitical troubles on Senkaku essentially got resurrected in 2010-2012 when Japan’s fragile post-Lehman economy got slammed by the triple whammy natural disaster (earthquake, tsunami and nuclear power meltdown) and as China’s economy has turned south in response to the diminishing returns of the 2008-2009 stimulus as shield to the post Lehman crisis.

Meanwhile, the Bank of Japan has resorted to ever increasing amounts of quantitative easing to save the beleaguered crony banking and finance, the nuclear industry and other zombie crony firms.

Yet like the Scarborough-Spratly’s island dispute I do not believe that this has been about history nor has this been about resources, but both ideas have been peddled as popular rationalizations for the standoff.

Jonah Loeb writes,

4. Both countries' governments are being provocative. Tokyo Governor Shoharo Ishihara, an outspoken character with a long history of anti-Chinese comments, sparked the dispute by launching a public fundraiser to buy the islands from their private owners, forcing the Japanese government’s hand as China fought back against Ishihara’s bid…

5. It could have a major effect on the US presidential race. More and more American politicians, especially those on the right, have been spinning some pretty harsh anti-Chinese rhetoric for a while, and that’s only increased since this dispute started. Mitt Romney claims that he will declare China a “currency manipulator” if he’s elected, and China is therefore as suspicious of the United States as it is angry at Japan.

It is true that politicians have been stoking inflammatory statements; a Chinese general recently said that China’s military should “prepare for combat”.

In reality these are most likely smokescreens to the worsening internal problems experienced by both countries and to the mounting interventionism being applied by the increasingly desperate political authorities.

In a speech Professor Joseph T. Salerno made this very important point. (bold highlights mine)

War has a number of advantages for the ruling class. First and foremost, war against a foreign enemy obscures the class conflict that is going on domestically in which the minority ruling class coercively siphons off the resources and lowers the living standards of the majority of the population, who produce and pay taxes. Convinced that their lives and property are being secured against a foreign threat, the exploited taxpayers develop a "false consciousness" of political and economic solidarity with their domestic rulers…

The war rhetoric have been used as opportunity to deflect public opinions to a foreign bogeyman as greater interventionism are being applied to the economy

Again from Professor Salerno

A second advantage of war is that it provides the ruling class with an extraordinary opportunity to intensify its economic exploitation of the domestic producers through emergency war taxes, monetary inflation, conscripted labor, and the like. The productive class generally succumbs to these increased depredations on its income and wealth with some grumbling but little real resistance because it is persuaded that its interests are one with the war makers.

The point being:

We thus arrive at a universal, praxeological truth about war. War is the outcome of class conflict inherent in the political relationship — the relationship between ruler and ruled, parasite and producer, tax-consumer and taxpayer. The parasitic class makes war with purpose and deliberation in order to conceal and ratchet up their exploitation of the much larger productive class. It may also resort to war making to suppress growing dissension among members of the productive class (libertarians, anarchists, etc.) who have become aware of the fundamentally exploitative nature of the political relationship and become a greater threat to propagate this insight to the masses as the means of communication become cheaper and more accessible, e.g., desktop publishing, AM radio, cable television, the Internet, etc. Furthermore, the conflict between ruler and ruled is a permanent condition. This truth is reflected — perhaps half consciously — in the old saying that equates death and taxes as the two unavoidable features of the human condition.

This leads us to central banking inflationism. Today’s interventionism has become more pronounced through central bank inflationism. And war financing has intrinsically been tied with inflationism.

As Mises Institute's founder Lew Rockwell recently wrote

Through this convoluted process – a process, not coincidentally, that the general public is unlikely to know about or understand – the federal government is in fact able to do the equivalent of printing money and spending it. While everyone else has to acquire resources by spending money they earned in a productive enterprise – in other words, they first have to produce something for society, and then they may consume – government may acquire resources without first having produced anything. Money creation via government monopoly thus becomes another mechanism whereby the exploitative relationship between government and the public is perpetuated.

Now because the central bank allows the government to conceal the cost of everything it does, it provides an incentive for governments to engage in additional spending in all kinds of areas, not just war. But because war is enormously expensive and because the sacrifices that accompany it place such a strain on the public, it is wartime expenditures for which the assistance of the central bank is especially welcome for any government.

In short war gives political cover for authorities to inflate the system.

Of course, again as I previously argued, the territorial disputes could be used as an election campaign propaganda.

War has always been used as opportunities to exploit society (through financial repression) and suppress internal political opposition in order to advance the interests of the ruling political class whose interest are interlinked with the politically favored banking class, the welfare and the warfare class.

The Senkaku Island dispute has been no different.

Personal Message: Blogging Lite

Time is gold. That’s because time is the scarcest resource for us. Money can be lost and regained but never for time. Time spent or consumed is sunk cost.

Since my beloved mom and step dad is in town for a vacation and to celebrate birthdays in the family, I will be attending and sharing precious golden moments with them until their vacation schedule ends.

This means less sitting in front of the computer, less research work and importantly less blog posts.

I am unsure if I can make my regular weekly stock market outlook for the next 2 weeks. But it would be best for me to inform you so as you would know what to expect from me.

Thank you for understanding and patronage.

In Liberty,

Benson

Quotes of the Day: How QE ‘Forever’ Represents Regulatory Capture and Crony Capitalism

Both quotes from Randall Holcombe at the Independent Institute

On regulatory capture

The basic logic behind the capture theory of regulation is that while the general public is largely ignorant of the regulator’s activities, those in the regulated industries are well-informed, and pressure regulators for favorable regulation. Furthermore, information about regulated industries is largely under the control of those in the industry, and personal connections between regulators and the regulated also influence regulatory outcomes. The result is that regulatory agencies act as agents for those they regulate, not the general public.

The Federal Reserve Bank’s recent QE3 announcement that they will be buying $40 billion in mortgage-backed securities a month for an indefinite period of time is an excellent example of regulatory capture. Under Chairman Bernanke, the Fed has successfully pushed to increase its regulatory role over the financial industry, and Stigler’s capture theory would predict that the Fed, as a financial regulator, would act to benefit the financial industry it regulates…

Just like the government’s purchase of Chevy Volts, the Fed is creating demand for a product (morgtage-backed securities) that is in weak demand, for the benefit of the industry it regulates.

On Cronyism

The Fed is buying the products of the financial industry—the mortgage-backed securities—just like the Defense Department is buying Volts that are the product of GM. In both cases, the purchases are designed to increase the demand for a product the government wants to support, for the benefit of the producers of the product.

If there are any differences, they are (1) that, as I noted above, the Defense Department may actually have a use for automobiles, but the Fed has no use for mortgage-backed securities, and (2) the scale of the operation. There’s a big difference between a purchase of $60 million in total and on-going purchases of $40 billion a month. So, looking at these two examples, QE3 is much more clearly an example of crony capitalism—designed to benefit cronies in the real estate and financial industries—and QE3 is crony capitalism on a much more massive scale.

Quote of the Day: Economic Value of Politicians

By what insane calculation is a congressional candidate more representative of society than an entrepreneur, a corporate director, or a taxicab driver?

I am sharing Cafe Hayek's Professor Don Boudreaux quote of Steve Landsburg’s 1997 book, Fair Play (original emphasis) page 35

This quote reminds me of a popular and controversial media personality who recently said in a radio show that for a particular case, he only helps retired public officials because they have done “public service” to society and won’t do the same for civilians.

The announcer seem to have forgotten that that the food he eats comes from the private sector, the clothes he wears comes from the private sector, the car he drives comes from the private sector, the mobile phone he uses comes from the private sector, the microphone and sound system he uses to air his self-righteous junk comes from the private sector, the bed he sleeps on comes from the private sector…practically everything he does (directly and indirectly—even government roads may have been subcontracted to the private sector or at least sources their raw materials from the private sector) comes from the private sector which he so belittles.

And what of public officials? Public officials live off from the resources generated by the private sector to supposedly do some “public service” which in reality the private sector can provide. In short, public officials exists because of the private sector from whom the former forcibly extracts resources from the latter.

In the world of politics, what is self-evident can hardly be seen. Moreover, people are seduced to noble sounding economic naiveté themes, as well as, to morally bankrupt idea of collectivism (nationalism) or to the servitude to the state.

India to Open Retail Business

With bad news proliferating out there, this has been a refreshing development: India will open more segment of her economy.

From Bloomberg,

Indian Prime Minister Manmohan Singh has embarked on the biggest gamble of his second term, pushing through policy changes opposed by members of his own coalition as he seeks to revive the economy and the fortunes of his embattled party.

After two years of stalled policy making and amid slumping support, Singh’s Congress party-led cabinet Sept. 14 allowed overseas retailers to enter India, and said foreign airlines can own minority stakes in local carriers. While the second-largest party in the alliance, Trinamool Congress, vowed to take a “drastic step” if Singh, 79, doesn’t abandon the laws and roll back a diesel price increase, opposition lawmakers called for a nationwide strike over policies they say will trigger job losses and hurt the poor.

“Congress has been committing harakiri by doing nothing,” Satish Misra, a political analyst at the Observer Research Foundation in New Delhi, said by phone yesterday. “They have been pushed around so much that it was time to fight back.”

The architect as finance minister of India’s 1990s economic opening and recently the object of media ridicule, Singh may have judged that rivals unprepared for elections are not likely to try to topple the government, Misra said.

His administration has 18 months until the next election to ease gridlock in Parliament over corruption allegations and restore confidence in its management of an economy growing at near its slowest pace in three years. Warnings of a ratings downgrade to junk status and a 67-percent drop in foreign direct investment in the last quarter are spurring the boldest policy initiatives of a government re-elected in 2009.

Since India joined China to open her economy in the 90s, India’s GDP per capita has ballooned (chart from tradingeconomics.com)

So it’s really not a gamble for Mr. Singh. He recognizes the powers of economic liberalization. Instead resistance to change emanates from those entrenched political forces who doesn’t want to lose their privileges through protectionism and cronyism.

They are the same forces whom has been blaming gold imports for so-called trade deficits where in reality gold has become a fall guy for insatiable spending by politicians.

Economic liberalization is the only antidote to vicious central banking policies.

Is a War in the Middle East War Imminent?

Warmongers have thrown up all sorts of excuses to justify military actions in the Middle East. These includes the recent religious bullying (through manipulation of public opinion) that has prompted for a wave of anti-US protests. The US government has reportedly even allied with Al-Qaeda to foment war in Syria, an ally of Iran.

Now drumbeats of war seems to be getting louder.

From the Telegraph,

Battleships, aircraft carriers, minesweepers and submarines from 25 nations are converging on the strategically important Strait of Hormuz in an unprecedented show of force as Israel and Iran move towards the brink of war.

Western leaders are convinced that Iran will retaliate to any attack by attempting to mine or blockade the shipping lane through which passes around 18 million barrels of oil every day, approximately 35 per cent of the world’s petroleum traded by sea.

A blockade would have a catastrophic effect on the fragile economies of Britain, Europe the United States and Japan, all of which rely heavily on oil and gas supplies from the Gulf.

The Strait of Hormuz is one of the world’s most congested international waterways. It is only 21 miles wide at its narrowest point and is bordered by the Iranian coast to the north and the United Arab Emirates to the south.

In preparation for any pre-emptive or retaliatory action by Iran, warships from more than 25 countries, including the United States, Britain, France, Saudi Arabia and the UAE, will today begin an annual 12-day exercise.

As American musician and composer Frank Zappa said,

Government is the Entertainment division of the military-industrial complex

Parallel Universe: Singapore Exports Fall, Stock Market Surges

It’s a bizarre world. We seem to live in a “parallel universe” or a separate reality coexisting with one’s own (Wikipedia.org)

On the one hand, you have soaring financial markets.

On the other hand, signs of a staggering real economy have become more evident.

Singapore’s self-contradicting financial markets and the real economy seem like a good example.

From Bloomberg,

Singapore’s exports fell more than economists estimated in August as shipments of electronics dropped and companies sold fewer goods to Europe.

Non-oil domestic exports slid 10.6 percent from a year earlier, after a revised 5.7 percent increase in July, the trade promotion agency said in a statement today. The decline exceeded all 15 estimates in a Bloomberg News survey, where the median was for a 4 percent drop…

Singapore’s electronics shipments by companies such as Venture Corp. fell 11 percent in August from a year earlier, after climbing 2 percent the previous month.

Non-electronics shipments, which include petrochemicals and pharmaceuticals, decreased 10.4 percent. Petrochemicals exports gained 1.3 percent, while pharmaceutical shipments slid 3.2 percent after rising 1.3 percent in July.

Singapore’s non-oil exports fell a seasonally adjusted 9.1 percent last month from July, when they dropped 3.6 percent, today’s report showed.

Who says economic growth drives stock market prices? Singapore’s STI has been up an amazing 16.02% year-to-date as of Friday’s close, even as annual economic growth rate has been faltering. (chart from tradingeconomics.com)

Central bank policies have nurtured a parallel universe.