Quote of the Day: The Government Can Not Only Evoke Fear But Also Superstitious Reverence

The government can not only evoke fear in its victims; it can also evoke a sort of superstitious reverence. It is thus both an army and a church, and with sharp weapons in both hands it is virtually irresistible. Its personnel, true enough, may be changed, and so may the external forms of the fraud it practises, but its inner nature is immutable.

This quote is from page 182 of H.L. Mencken’s essay “On Government,” as reprinted in the 1996 Johns Hopkins University Press collection of some of Mencken’s essays, Prejudices: A Selection

tip of the hat to Cafe Hayek

Remembering H.L. Mencken

Yesterday was the 57th death anniversary of the great libertarian and one of the prolific writers of his time Henry Louis “HL” Mencken.(hat tip Mises blog)

In memory of Mr. Mencken, this stirring quote from his book Minority Report : H.L. Mencken's Notebooks (1956)

Moral certainty is always a sign of cultural inferiority. The more uncivilized the man, the surer he is that he knows precisely what is right and what is wrong. All human progress, even in morals, has been the work of men who have doubted the current moral values, not of men who have whooped them up and tried to enforce them. The truly civilized man is always skeptical and tolerant, in this field as in all others. His culture is based on "I am not too sure."

How Argentina’s Class Warfare Policies Promotes Poverty

Argentina’s politics serves as an example of how the minority (political class) exploits the majority (voting poor) to perpetuate themselves into power.

In the attempt to redistribute wealth, Argentina’s government has engaged in the tightening of currency controls that has only exacerbated capital flight.

First the unintended consequences

From the Telegraph, (bold emphasis mine)

The new regulations required anyone wanting to change Argentine pesos into another currency to submit an online request for permission to AFIP, the Argentine equivalent of HM Revenue & Customs. To submit the request, however, you first needed to get a PIN number from AFIP, either online or in person. Having finally obtained your number, submitted your online request and printed out your permission slip, you could then present it at the bank or official cambio and buy your dollars. Well, that was the theory.

In practice, the result was chaos. The online system quickly folded under the onslaught of applications, while a personal visit to an AFIP district office meant bringing a camp bed and picnic hamper.

The reason for this tidal wave of requests, and indeed for the introduction of the restrictions in the first place, was the ferocious rate of capital flight from the Argentine economy that had started in 2010, when many could already see the writing on the wall. Which brings us to that thumping electoral victory in October.

Argentina’s politicians implemented class warfare policies to gain hold of political power.

Again from the same article,

When Mrs Kirchner first came to power in 2007 she inherited the social reform programme of her predecessor (also her husband), Nestor Kirchner. Hefty tax demands on the country’s wealth base were liberally redistributed to the disadvantaged, but with little investment in longer-term projects that would deal with the causes of poverty.

From the point of view of the middle-classes, the Kirchners were using taxpayers’ money to buy themselves a constituency of dependents that would keep them in power, a tactic vindicated by that 54 per cent majority last October. Anyone with moveable assets started shifting them out of her reach by transferring them abroad or converting them into dollars.

The nasty economic effects from despotic redistributive policies and a culture of dependency: capital flight, inflation and economic stagnation as investors scamper for safety elsewhere.

In 2010 the flight of capital started gathering speed, totalling $11 billion by the end of the year. In 2011, as the election approached and signs of a probable Kirchner win emerged, this figure more than doubled to $23 billion. Hence the great slamming of the fire exits as soon as her victory was in the bag.

The months since then have seen an almost weekly tightening of restrictions to close any remaining loopholes, to the extent that it has now become almost impossible to buy foreign currency anywhere apart from the black market.

Which is, of course, exactly what the government hoped for, and in that respect at least the policy has been a success. In the first six months of this year dollar flight has been reduced to $3.5 billion. But damming the flood has come at a huge cost to the economy, especially since the currency restrictions were coupled with another set of regulations that effectively imposed a near-total ban on any imported goods. 

Apart from the minor inconveniences this has caused to shoppers, such as no longer being able to buy breakfast cereal not composed of shredded carpet, the measure has also backfired on Argentine industry itself because so many of the products manufactured in Argentina still need component parts and raw materials from elsewhere. Hence, for example, the 1,600 workers laid-off from the Renault car plant in Cordoba last June, while the parts they needed to finish the job languished in a container on a Buenos Aires quayside. But you do not need to be an economist to imagine the consequences when a G20 nation suddenly adopts North Korean-style siege-economy tactics, which does make you wonder about the quality of advice the government is getting.

Eventually there will be no one else to squeeze but the gullible and manipulated poor, and signs are becoming evident…

It’s not that significant, but set alongside the downwardly spiralling prospects and the upwardly spiralling inflation (25 per cent), the frantic hunt for hard currency and the bland ministerial assurances that there is nothing to worry about, it is just another little ripple of déjà vu permeating life in Argentina.

This reminds me of all the free stuffs given by local governments in the Philippines which most people think are without costs.

Nevertheless Argentina’s politics serves as a grim reminder of the evils of democracy.

As the great libertarian Henry Louis H.L. Mencken once warned,

The state — or, to make matters more concrete, the government — consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting ‘A’ to satisfy ‘B’. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods.

Bottom line: There is no such thing as a free lunch

Will French Politics Swing from Socialism to Fascism?

Far right Marine Le Pen’s strong showing at the recent Presidential runoff in France may have opened the door for politics of the extreme right.

Writes historian Eric Margolis at the Lewrockwell.com

Talk about déjà vu. Such a sweeping change would return France to its pre-war political landscape, when hard Left and hard Right were locked in bitter confrontation. Marine Le Pen could well emerge as the angry voice of many Europeans – a prospect that causes shudders across conservative-ruled Europe.

She could also prove the nemesis of the European Union. Le Pen has vowed to oppose austerity pacts, quit the Euro, restore the franc, and follow economic mercantilism. Her anti-EU, anti-free trade policies are attracting many people across Europe and even in Russia.

Fortunately, Francois Holland could prove a counter-balance to the ascendant Right. He is a moderate, cautious centrist politician given to pragmatism rather than ideology. His popularity and image of geniality and caring about people will help him withstand the forces of both Left and Right trying to pull him in different directions.

Even so, Marine Le Pen and her aggressive rightists are likely to become an ever-increasing threat to the French Republic as economic conditions worsen. It seems only a matter of time before fascism rears its head again in Spain, Italy, and Portugal. Greece is already on the way. Failure to implement austerity plans will bring economic convulsions and with them the bully boys in black

Mr. Francois Holland's victory has been negative enough for domestic entrepreneurs. Many of whom have reportedly been looking for refuge overseas from the prospects of punitive tax increases, if not from asset forfeitures, by the incoming socialist government, whom has openly declared war against the wealthy.

Yet if the prognosis of Mr. Margolis becomes a reality, then the rise of fascism (based on economic nationalism or mercantilism) elevates the risk of regional war.

As the great Ludwig von Mises once admonished,

What generates war is the economic philosophy almost universally espoused today by governments and political parties. As this philosophy sees it, there prevail within the unhampered market economy irreconcilable conflicts between the interests of various nations. Free trade harms a nation; it brings about impoverishment. It is the duty of government to prevent the evils of free trade by trade barriers. We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. It is an illusion to assume that those injured will tolerate other nations' protectionism if they believe that they are strong enough to brush it away by the use of arms. The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.

The current trend of French politics seems locked into a wretched choice between the proverbial devil and the deep blue sea. Beautiful France may not be as beautiful as she is today in the future.

Democracy, as the great libertarian H.L. Mencken said, is the theory that the common people know what they want, and deserve to get it good and hard.

The Unraveling Global ‘Earth Hour’ Energy Industry Bubble

Like the welfare state, the supposedly politically correct environmental position represented by green energy projects are being exposed for what they truly are—delusions of grandeur.

Political support for green ‘renewable’ energy has been diminishing in Western nations.

From the Wall Street Journal, (bold emphasis mine)

The green economy strikes again, or shall we say strikes out. Oakland-based Solar Trust of America filed for bankruptcy this week, leaving its planned multibillion-dollar plant in California on ice. The company declared itself insolvent after its parent—Germany's Solar Millennium—filed for bankruptcy in December, and Solar Trust realized it wouldn't be able to pay a $1 million rent check due April 1.

Solar Millennium, in turn, had been hoping to sell a controlling stake in Solar Trust to the German company, solarhybrid, until solarhybrid also filed for bankruptcy in March. Then there's Q-Cells, another German solar company, which also filed for bankruptcy this week, sharing that fate with Solon, the Berlin-headquartered photovoltaic firm that went bust in December.

This cascade of insolvencies comes after Germany decided last year to slash the above-market prices it forces utilities to pay for renewable energy sources and to cut the subsidies that have locked German taxpayers into €100 billion in handouts to the solar industry. Even before the subsidy cut, German solar manufacturers were struggling under price pressure from China, which has responded to Western subsidies by ramping up its own production, undercutting higher-cost European and American producers in the process.

Greens in Germany and beyond are protesting that if only governments would continue soaking taxpayers to prop up solar, wind and other low-carbon favorites, these technologies would be viable. But even that is far from clear. Q-Cells and others had responded to Chinese competition by outsourcing some of their own production to Asia to cut costs. That wasn't enough to save them.

The real story is that green manufacturing, which was supposed to be the planet's salvation and Europe's new industrial base, proved to be as vulnerable to low-cost competition as many other industries. Far from creating a sustainable comparative advantage, German subsidies sparked the very rivalry now putting its home-grown industry out of business.

The Italian government appears to have taken note of these economic realities and last weekend said it would slash "excessive" subsidies for solar and wind power. Industry Minister Corrado Passera uttered the obligatory promise that Rome remains committed to generating a carbon-free, wind- and sun-powered economy, but that "we need to do so without overreliance on taxpayer resources."

So economic reality has been prevailing over mass hysteria.

Aside from gross mismanagement, mainly due to the moral hazard of political support which has been wasting taxpayers money, competition from Asia has added to the industry’s woes.

Of course, the most important factor is that there is no such thing as a free lunch, or the Santa Claus Principle, as most political zealots believe.

And considering the tremendous financial pressures to survive the welfare state, politicians see the latter as more of a priority than sustaining the economically unviable green industry, which ironically, has been contributing to the welfare state’s financial burden.

Under fiscal pressure from the ongoing debt crisis ordeal, Spain has also cut subsidies to unfeasible political pet projects.

From Bloomberg, (bold emphasis mine)

Spain halted subsidies for renewable energy projects to help curb its budget deficit and rein in power-system borrowings backed by the state that reached 24 billion euros ($31 billion) at the end of 2011.

“What is today an energy problem could become a financial problem,” Industry Minister Jose Manuel Soria said in Madrid. The government passed a decree today stopping subsidies for new wind, solar, co-generation or waste incineration plants.

The system’s debts were racked up as revenue from state- controlled prices failed to cover the cost of delivering power. Costs have swollen in the past five years because of an increase in regulated payments for the power grid, support for Spanish coal mines and subsidies for renewable energy plants…

Spain’s decision is a “first step” to rein in debts, and officials are working on a broader package of measures, Soria said. The nation isn’t planning a levy on hydropower or nuclear plants, nor will it take on power-system liabilities, he said.

The Spanish action follows Germany’s announcement last week that it would phase out support for solar panels by 2017 and the U.K.’s legal battle to reduce its subsidies for the industry.

Spain was an early mover in developing renewables plants, and support for wind energy helped Iberdrola become the world’s biggest producer of clean power, with plants in the U.S. and Brazil. The industry sustains about 110,000 Spanish jobs, according to the Renewable Energy Producers Association.

The government is wrestling with competing priorities as it struggles to convince investors it can meet a target to cut the budget deficit to 4.4 percent of gross domestic product this year, from 8 percent last year, while trying to create jobs in a country where 23 percent of workers are unemployed.

Oooooh that ought to hurt.

A relevant quote from Warren Buffett on bubbles,

Only when the tide goes out do you discover who's been swimming naked.

Apparently green energy has been caught swimming naked and whose bubble seems to have been pricked.

Yet those proposing to promote green energy in the Philippines through the same political route of subsidies (whether consumer or supplier based) ought to open their eyes and see what has been happening abroad.

Any industry that cannot survive on its own [because the consumers don’t want them] and which requires political fiat to thrive extrapolates to a redistribution of resources from the economy to the political privileged groups. This is rank crony capitalism.

And crony capitalism results to huge wastages, economic inefficiency, discoordination of the economy and corruption among the many other nasty side effects. And this accounts for as the reverse Robin Hood where the poor and the middle class subsidizes the rich cronies (through taxes and inflation).

Worst is that the underlying (feel good) dogma of such environmental political religion has been founded on supposed infallibility and omniscience of computer based models.

As the great H.L. Mencken wrote,

Civilization, in fact, grows more and more maudlin and hysterical; especially under democracy it tends to degenerate into a mere combat of crazes; the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.

Politicians Spend Government’s Money to their Benefit

In the Philippines these are called Pork Barrel. In the US, these are known as earmarks.

From an investigative report by the Washington Post

A U.S. senator from Alabama directed more than $100 million in federal earmarks to renovate downtown Tuscaloosa near his own commercial office building. A congressman from Georgia secured $6.3 million in taxpayer funds to replenish the beach about 900 feet from his island vacation cottage. A representative from Michigan earmarked $486,000 to add a bike lane to a bridge within walking distance of her home.

Thirty-three members of Congress have directed more than $300 million in earmarks and other spending provisions to dozens of public projects that are next to or within about two miles of the lawmakers’ own property, according to a Washington Post investigation.

Under the ethics rules Congress has written for itself, this is both legal and undisclosed.

The Post analyzed public records on the holdings of all 535 members and compared them with earmarks members had sought for pet projects, most of them since 2008. The process uncovered appropriations for work in close proximity to commercial and residential real estate owned by the lawmakers or their family members. The review also found 16 lawmakers who sent tax dollars to companies, colleges or community programs where their spouses, children or parents work as salaried employees or serve on boards.

In recent weeks, lawmakers have acknowledged the public’s growing concern that they appeared to be using their positions to enrich themselves. In response, the Senate last week passed legislation that would require lawmakers to disclose mortgages for their residences. The bill, known as the Stop Trading on Congressional Knowledge (Stock) Act, would also require lawmakers and executive branch officials to disclose securities trades of more than $1,000 every 30 days. At the same time, the Senate defeated an amendment, 59-40, that would have permanently outlawed earmarks.

The House is scheduled to vote on the Stock Act on Thursday.

Read the rest here (hat tip Russ Roberts)

Whether in the Philippines or in the US or elsewhere we get the same behavioral dynamics by politicians within the political spectrum.

Most if not all of the decisions made by politicians and bureaucrats have (concealed or indirect) self-serving interest within the ambit of circumstances adjudicated.

The above represents legal but subtle (immoral) ways of using political means to wangle for personal economic benefit. In short, use laws for personal benefits or discreet corruption.

Lofty ideals where governments are seen as supposedly selfless and moral or virtuous represent a popular myth meant to promote the welfare state. People hardly realize that governments are populated by humans who are perpetually vulnerable to mortal influences.

I am reminded by this stirring quote by the great libertarian H. L. Mencken in Notes on Democracy

His business is never what it pretends to be. Ostensibly he is an altruist devoted whole-heartedly to the service of his fellow-men, and so abjectly public-spirited that his private interest is nothing to him. Actually he is a sturdy rogue whose principal, and often sole aim in life is to butter his parsnips. His technical equipment consists simply of an armamentarium of deceits. It is his business to get and hold his job at all costs. If he can hold it by lying he will hold it by lying; if lying peters out he will try to hold it by embracing new truths.

UK Prepares for Euro Collapse

From the Telegraph

As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.

The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.

A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.

Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.

Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses.

Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.

I don’t trust how politicians and bureaucrats assess and analyze events. Usually more planning extrapolates to the extension of political control over the citizenry under the guise of sundry crises.

In the memorable words of the great Libertarian H.L. Mencken

Civilization, in fact, grows more and more maudlin and hysterical; especially under democracy it tends to degenerate into a mere combat of crazes; the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.

On the other hand, could this signify as more signs of a crowded trade?

Iranian Terror Plot: US Government’s Imaginary Hobgoblins

From Judge Andrew P. Napolitano (bold emphasis mine)

Since the tragedy of 9/11, numerous crazies and low-level copy-cats have engaged in criminal behavior which they hoped would result in the deaths of innocent Americans and somehow advance the cause of jihad. If you ask the leadership of the FBI, most of whose field agents are tireless, dedicated, Constitution-supporting professionals, it will tell you that it has foiled about seventeen plots to kill Americans during the past ten years. What it will not tell you is that there have been twenty foiled plots; and of them, three were interrupted by members of the public. The seventeen that were interrupted by the feds were created by them.

We all remember the three that were foiled by diligent Americans: The shoe bomber, the underwear bomber, and the Times Square bomber. In all of these cases, the crimes charged were those of attempting to kill and conspiring with others to do so. In all three of those cases, alert Americans on transcontinental flights on or the streets of New York told authorities of bizarre behavior, or actually subdued the threats themselves. There was no foiling by the FBI. The plotters were – thankfully – bumbling fools who had poorly planned their criminal behavior, and who ended up harming no one. All three are serving life terms.

But the more curious cases are the remaining seventeen for which the federal government has taken credit. They all have a common and reprehensible thread. They were planned, plotted, controlled, and carried out by the federal government itself. In all of these seventeen cases – from the Ft. Dix Six to the Lackawanna Seven to the Portland Parade Bomber – the feds found young men of Muslim backgrounds; loners who were bitter at America. They befriended them, cajoled them, and persuaded them that they could change the world by killing Americans. In all these cases, agents worked undercover and portrayed themselves to the targets as Arabs of like un-American mind. In some cases, the federal agents used third parties to act as middlemen. The third parties are typically persons who have been convicted of crimes and who, in return for leniency at their sentencings, were willing to work with the same feds who prosecuted them in order to help entrap whomever else those feds are pursuing.

Thus, in all seventeen of these cases, because of the command and control of federal agents, no one was ever in danger, no one was harmed, no bomb went off, and no property was damaged. But in all those cases, the losers whom the feds targeted each believed that they were interacting with real plotters who would really bring them cash and bombs. As we know, sometimes the cash arrived, but the bombs never did. The defendants were essentially charged and convicted for playing a game with federal agents.

The most recent of those government-generated plots was revealed yesterday. It has a new twist as it allegedly involves agents of the intelligence apparatus of the government of Iran. It, too, was destined to go nowhere, as the feds monitored and taped every move made by the target as he interacted with federal agents whom he stupidly believed to be drug dealers and co-conspirators. Today, the feds themselves revealed that high officials of Iran's government knew nothing of this. Of course, the neocons have demanded bombs on Tehran, no matter what the government there knew. And this plot came to light the day before the Attorney General himself was subpoenaed by Congress in the Fast and Furious case.

Read the rest here

Creating something from nothing isn’t just about the money printing; essentially this represents the fundamental precept guiding today’s modern political institutions. It’s the politics of free lunch.

So in order to justify the existence, the continued funding and the expansion of the warfare-anti terror state, credits on political ‘achievement’ targets has to be demonstrated. Hence if there have been no actual terror threats, then, as shown above, just engineer one.

With the help of mainstream media and the sundry apologists for the establishment, our civil liberties would then be diminished in the name of the security.

The great libertarian H. L. Mencken was darned right,

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

President Aquino’s First Term Speech: Everything to get Applause

President Aquino's speech on his first year in office, as excerpted by the Inquirer,

“Before, there was resignation, dejection and apathy,” the President told reporters.

“If you remember at the time, you were writing about the people’s apathy and numbness, as if they did not expect anything from their government. They were blasé to scandals that were being unearthed,” he said.

“Now, more people are expectant that their lives are changing for the better,” Mr. Aquino said.

He said growing demands for change from the people were a good thing.

And these are the cited accomplishments of the administration

Again from the same article,

These include the 21,800 families of policemen and soldiers who will have decent homes before the year ends, the 2 million poor families set to benefit from the conditional cash transfer program and the 240,000 farmers who will benefit from 2,000-kilometer farm-to-market roads finished in just one year, Mr. Aquino said.

“Isn’t it clear that there is change?” he said.

He said that because of reforms in the government financial system, the government was able to save funds more than the amounts allocated by the General Appropriations Act to implement programs, the President said.

These include providing P12 billion for the “Pantawid Pasada” for transport workers affected by high oil prices, he said.

“Housing, rice, security, salaries, roads, Pantawid Pasada and other lifeguards for the people drowning from poverty. These are the changes that we are reaping now,” he said.

It’s another vindication for me as economic reality has been unmasking all the illusions of deliverance from our over dependency on political distribution as a way to success.

Also, this justifies why I have not and will not exercise the so-called the rights to suffrage which only buttresses this perpetual charade.

People hardly realize that there are only TWO ways to attain people’s needs: this is by production (economic means) or by plunder (political means--forcibly taking other’s resources through political mandates) [Franz Oppenheimer].

The political route is a non-market process of distributing resources ‘legally’ expropriated from society. The choices made by political leaders are premised according to their biases, ambitions, interests, value preferences, ideology, networks, comfort zones, cultural, educational or religious orientation and other personal attributes.

Remember, political leaders are not gods but humans. So they suffer from the same frailties as anyone else. Most importantly they suffer from the knowledge problem.

The only difference is that they are backed by the power of organized violence through the state.

And since all economies are highly complex and dynamic, political distributions means taking or assuming choices for the benefit of a few groups from among the widely diversified and competing sectors.

Because various interests groups will jockey for such privilege, the societal interactions by these competing groups would translate to the employment of patronage, horse trading, shady deals, bribery and many other morally unscrupulous actions.

Politics is a zero sum game. Thus, the actions of these competing groups along with the respective political entities involved will be predicated on or revolve around attaining political goals by guiltism, covetism, envyism angerism and villainism (to borrow from libertarian Robert Ringer) which always leads to “resignation, dejection and apathy” and most importantly to perennial conflict.

So it never changes.

Yet it is naive, seemingly insensitive and supercilious to suggest that there has been "growing demands for change", as if Filipinos have been chronic dolts and have been blindly satisfied with the status quo despite their dire condtions.

The reason people act is to fulfill their uneasiness, thus, always strive for change.

The apparent passivity of the Philippine populace to political misconducts is NOT because of the lack of desire for change, but because most appear to have succumbed to the frustrations of the failed glamorized heroism of the state. Repeated government failures have jaded the Filipino’s vim.

And it is because of too much expectations founded from the grave misunderstanding on the role and limits of the state that has signified as the country’s main blight or the nation's Achilles Heels'.

Importantly, such delusions extends to the elitist academia (which serves as the recruitment pool for bureaucrats and private sector patrons of political actions) and well into the business sector, whom all look for patronage, anti-competition, and doleout as virtuous and a necessary condition for economic development.

If there have been any changes during the first year of President Aquino’s term these accounts for changes on the beneficiaries of redistribution.

Essentially, President Aquino has been no different from the actions of the predecessors, which is what I have been saying even prior to the last elections.

Yet most of the incumbent’s reported accomplishments have been designed as “feel good” noble intended redistribution programs (“Pantawid Pasada” or cash transfers to farmers) and to cosset groups that assures their hold on to power (policemen and soldiers).

This reminds me of the great H.L. Mencken’s description of former US President T.R. Roosevelt, whom Professor Don Boudreaux quotes from A Mencken Chrestomathy

What ailed him was the fact that his lust for glory, when it came to a struggle, was always vastly more powerful than his lust for the eternal verities. Tempted sufficiently, he would sacrifice anything and everything to get applause.

As a general rule, political self-interests signify as the most important priority for political actors. Apparently, President Aquino has not been an exception.

US Midterm Elections: Rebalancing Political Power And Possible Implications To The Financial Markets

``The most enthusiastic supporters of such unlimited powers of the majority are often those very administrators who know best that, once such powers are assumed, it will be they and not the majority who will in fact exercise them." Friedrich von Hayek, The Constitution of Liberty

Trick or treat.

The way we celebrate Halloween will similarly be parlayed into the political sphere next week.

One of which would have an important bearing in the global financial markets.

While everyone will likely be focused on the US Midterm elections, what would seem crucial would be the US Federal Reserves’ formal announcement of its next phase of ‘credit easing’ policies: Quantitative Easing 2.0.

But we will deal with both.

US Midterm Elections: A Rebalancing Act

We shouldn’t expect much from the US Midterm elections. From our perspective, what is likely to change will only be the redistribution of the political power, from a lopsided stranglehold of Congress by the Democratic party into a more balanced exposure with that of the Republicans, that should serve as a control from an abuse of political power.

As political analyst Stratfor’s George Friedman rightly describes[1],

The Democrats will lose their ability to impose cloture in the Senate and thereby shut off debate. Whether they lose the House or not, the Democrats will lose the ability to pass legislation at the will of the House Democratic leadership. The large majority held by the Democrats will be gone, and party discipline will not be strong enough (it never is) to prevent some defections.

In other words, Democrats would likely lose their capability to highhandedly ram down the throats, or railroad unpopular ‘socialist’ policies to the American public, similar to the Obamacare, where polls say that a majority, or 53% of the public, has favoured its repeal[2]. And obviously such a backlash is likely to get translated into votes.

Figure 1: Every Action Has A Consequence; A Likely Political Comeuppance (chart from Danske Bank)

Apparently, the Democrats haughtily put into motion President Obama’s former Chief of Staff Rahm Emmanuel inglorious advise[3],

``You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before”.

And since every action has consequences, the unintended ramifications from these unilateral political actions, perhaps construed as an abuse of power, could likely be a political comeuppance next week. Moreover, there are many signs where public sentiment appears to have shifted incrementally towards accepting more libertarianism[4].

And another very important setback for the incumbent party has been the failed effects of the cumulative stimulus programs in bolstering the US economy, which has been predicated on mainstream economics.

And one of the repercussions from this failure has been the spontaneous emergence of Tea Party Movement groups[5] in 2009, which amazingly has expanded swiftly and now accounts for anywhere 15-25% of the US population according to some estimates[6].

Tea Party groups basically protest on the burgeoning role of government interventionism in the US political economy.

Yet like anywhere else, under a democracy, people will likely be voting, not for idealism or ideology or platform, but against what they would perceive as either proponents of injustice or fear. In short, elections are mostly about symbolisms based on sentiment or voter emotions.

So whether it is the Philippines or in the US, journalist Franklin Pierce Adams (1881-1960) observations should resonate emphatically ``Elections are won by men and women chiefly because most people vote against somebody rather than for somebody.”

And one reason why I think there wouldn’t be much change even with a prospective rebalancing of political power, or political gridlock as many have labelled them, is that many who run for office only piggyback on so-called principles only when public sentiment supports them.

Eventually once elected into office, these principles usually get sloughed off when personal conveniences weigh in.

And recent history has shown this.

The passage of the Emergency Economic Stabilization Act of 2008[7] should serve as a good example. The bill was initially rebuffed at the first vote at the US House of Congress on September 29^th, but following the paroxysm in the financial markets possibly in response to this, the House reversed and ratified it, on October 3^rd, in a bipartisan support. Ironically, this law serves as one of the main anchors for today’s monumental swing in political sentiment.

Also, political competition represents mostly a zero sum game where one gains at the expense of another. As Henry Louis Mencken rightly pointed out ``Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule - and both commonly succeed, and are right.”

The implication is that a house divided could translate to more political horse trading and backroom dealing, where the administration may either lean towards more a centrist stance or risk a political impasse from maintaining the present hardcore path of left leaning policymaking.

And unlike the past, where both the Congress and the Executive branch had been controlled by a single party, which seem to have made the Democrats think that they had a blanket mandate to foist laws as they see fit, the reconfiguration of power will likely make prospective policies more public sentiment sensitive.

And I’d like add that those who think that political ‘pragmatism’ equates to politics as operating in a fixed state will likely be been proven wrong again, if current polls will be actualized into votes, this Tuesday.

People’s dependence on government isn’t a constant for the simple reason that economic laws ultimately shape politics.

And where redistributive policies or programs would have reached its limits or to paraphrase Milton Friedman, there is no such thing as a free lunch, politics will have to come home to roost to face the new reality.

The recent lifting of the legal retirement age in France, in spite of the crippling protests and riots[8], should serve as a vivid example of the unsoundness of the welfare state system. Eventually, unsustainable systems crumble under their own weight, regardless of what people think.

Pragmatism isn’t about the false belief of sustained public’s acceptability of free lunch policies, on the contrary, pragmatism is about understanding the limits of redistribution operating under the ambit of the natural laws of economics.

Political Gridlock And The Financial Markets

And how should a divided government fare for the financial markets?

Based on past performance, they would seem favourable.

According to Danske Bank research team writes[9], (bold emphasis mine)

Interestingly, periods with the White House controlled by a Democrat and Congress controlled by the Republicans – a situation that is likely to be in place from 20 January 2011 - have seen the best average equity market performance. One important caveat is, however, that this result is heavily influenced by the fact that the period 1995-99, during which President Clinton faced a Republican-controlled Congress, coincided with the technology equity market boom.

When looking solely at the party controlling Congress, equities have performed better during periods of Republican control than in periods of Democratic Congress majority. This could indicate that from the point of view of investors, a Republican-controlled Congress is generally seen as less likely to put through legislation that is hostile to business, both in terms of tax policies, but also in terms of regulation issues. In the current situation, with financial sector regulation issues likely to remain high on the agenda in 2011-12, a Republican-controlled Congress could be seen as less likely to enact further measures to tighten regulation.

We can only conclude that the financial market conditions and the economic environment will likely be dependent on the kind of relationship that would emerge and cultivated from political diversity.

Nevertheless our caveat remains, past performance are not reliable indicators of the future, and that many other factors may influence the hue of US politics.

But if the chances of reduced government intervention in the economy are increased from a political gridlock, then the new political arrangement would likely boost business confidence, and thus becomes a positive influence, rather than undermine it.

And only the politically blind and those addicted to unsustainable inflationary big government would see this as some fictitious horror tale.

And as before, they will always miss out being right.

---

[1] Friedman, George U.S. Midterm Elections, Obama and Iran Stratfor.com October 26, 2010

[2] Rasmussen Reports, Health Care Law, October 25, 2010;

thehill.com POLL: Dislike of healthcare law crosses party lines, 1 in 4 Dems want repeal, October 6, 2010

[3] Wall Street Journal OpEd, A 40-Year Wish List, January 28, 2009

[4] See US Politics: A Libertarian Renascence?, October 29, 2010

[5] Wikipedia.org Tea Party Movement

[6] Examiner.com Video: Tea Party struggling in its efforts to find leadership, April 12, 2010

[7] Wikipedia.org Emergency Economic Stabilization Act of 2008

[8] Wall Street Journal Editorial, Dissecting French Schizophrenia, October 29, 2010

[9] Danske Bank, Much ado in the week ahead, Weekly Focus October 29, 2010

President Obama's Popularity Falling Back To Reality

In our January post US Politics: Extrapolating Hope and Change to Presidential Term Realities here is what we said,

``Yet high approval ratings tend to be followed by a collapse over the years."

This from Gallup

This from Pew ResearchFrom RassmussenReports.com

"Change we believe in" appears turning out to be-"the more things change the more they remain the same".

As H.L Mencken presciently wrote of politicians, ``These men, in point of fact, are seldom if ever moved by anything rationally describable as public spirit; there is actually no more public spirit among them than among so many burglars or street-walkers. Their purpose, first, last and all the time, is to promote their private advantage, and to that end, and that end alone, they exercise all the vast powers that are in their hands … Whatever it is they seek, whether security, greater ease, more money or more power, it has to come out of the common stock, and so it diminishes the shares of all other men. Putting a new job-holder to work decreases the wages of every wage-earner in the land … Giving a job-holder more power takes something away from the liberty of all of us .…" (emphasis added)

Americans seem to be waking up to the harsh realities of life.

Yet the higher the expectations, the greater fall.

Although with the rate the above has been going, it doesn't seem to take years-after all it's been only about 7 months!