On University of Chicago’s Raghuram Rajan as India’s Central Bank Governor

Austrian economist Peter Klein cheers the appointment of University of Chicago’s finance and banking professor as the Governor of the central bank of India, noting of Mr. Rajan’s familiarity of the Austrian Business Cycle.

Writes Professor Klein at the Mises Blog

Raghu Rajan is a very good neoclassical economist who has made important contributions to banking, finance, the theory of the firm, corporate governance, economic development, and other fields. He is also taking over as head of India’s central bank. Rajan is no Austrian, but he has a quasi-Austrian take on the financial crisis, and far greater appreciation for free markets in general than any of the key US or European policymakers. As I tweeted this morning, Rajan is about 1,000,000 times better than either Summers or Yellen. I’d gladly trade him for any US central banker.

Consider, for example, Rajan’s take on the financial crisis:

The key then to understanding the recent crisis is to see why markets offered inordinate rewards for poor and risky decisions. Irrational exuberance played a part, but perhaps more important were the political forces distorting the markets. The tsunami of money directed by a US Congress, worried about growing income inequality, towards expanding low income housing, joined with the flood of foreign capital inflows to remove any discipline on home loans. And the willingness of the Fed to stay on hold until jobs came back, and indeed to infuse plentiful liquidity if ever the system got into trouble, eliminated any perceived cost to having an illiquid balance sheet.

As I wrote before, I’d reverse the order of emphasis — credit expansion first, housing policy second — but Rajan is right that government intervention gets the blame all around.

Rajan also wrote an interesting theoretical paper with Peter Diamond that echoes the Austrian theory of the business cycle: “[W]hen household needs for funds are high, interest rates will rise sharply, debtors will have to shut down illiquid projects, and in extremis, will face more damaging [bank] runs. Authorities may want to push down interest rates to maintain economic activity in the face of such illiquidity, but intervention may not always be feasible, and when feasible, could encourage banks to increase leverage or fund even more illiquid projects up front. This could make all parties worse off.”

Read the rest here

Having a free market proponent in the belly of the beast can both be a blessing or a curse. Although like Mr. Klein, one side of me wishes Mr. Rajan all the luck, another side of me tells me not to expect anything substantial.

While it may be true that Mr. Rajan has a magnificent track record of understanding central banks and the entwined interests of the banking system coming from the free market perspective, in my view, it is one thing to operate as an ‘outsider’, and another thing to operate as a political ‘insider’ in command of power.

Mr. Rajan will be dealing, not only conflicting interests of deeply entrenched political groups, but any potential radical free market reforms are likely to run in deep contradiction with the existing statutes or legal framework from which promotes the interests of the former.

Moreover, other political agencies, whose interests has been to promote the status quo, may run roughshod with Mr. Rajan perspective of reforms.

It would be interesting to see how Mr. Rajan will deal with  the present repressive “war on gold” policies by the Prime Minister’s Economic Advisory Council (PMEAC) whose interventionists actions has expanded to cover not only gold imports, but on gold transactions at every distribution level of the Indian economy.

In short, assuming the central bank governorship won’t just be about monetary, or banking policies but about the politics of bureaucracy, the welfare state and crony capitalism. 

Mr. Rajan will also have to deal with the huge resistance-to-change attitude from these groups.

In addition, in assuming the role of the proverbial hammer, where everything would look like a nail, the allure of the possession of the extraordinary power of political control over society risks overwhelming Mr. Rajan’s principles.

A great precedent would be former Fed Chair Alan Greenspan. Dr, Greenspan used to be an ardent Ayn Rand fan and a Ms. Rand influenced objectivist who embraced free market principles. Mr. Greenspan even authored the splendid, Gold and Economic Freedom in 1966. 

However upon assuming the Fed Chairmanship, Mr. Greenspan eventually abandoned free market principles to become a rabid inflationist or a serial bubble blower. Yet today’s lingering problems have, in effect, been a legacy of Greenspan-Bernanke actions.

True Mr. Rajan may not be Dr. Greenspan. But with the manifold challenging tasks ahead coming from different fronts, Mr. Rajan may want to take heed of Yoda’s advice to Anakin Skywalker: The fear of loss is a path to the dark side.

Detroit: US Largest City to File for Bankruptcy

As US stock markets soar to record highs, Michigan’s most populous city of Detroit once the cradle of the US automobile industry files for bankruptcy

From the BBC:

The US city of Detroit in Michigan has become the largest American city ever to file for bankruptcy, with debts of at least $15bn (£10bn).

State-appointed emergency manager Kevyn Orr asked a federal judge to place the city into bankruptcy protection.

If it is approved, he would be allowed to liquidate city assets to satisfy creditors and pensions.

Detroit stopped unsecured-debt payments last month to keep the city running as Mr Orr negotiated with creditors.

He proposed a deal last month in which creditors would accept 10 cents for every dollar they were owed.

But two pension funds representing retired city workers resisted the plan. Thursday's bankruptcy filing comes days ahead of a hearing that would have tried to stop the city from making such a move.

A Wall Street Journal report estimates “Municipal-worker retirees are set to get less than 10% of what they are owed under the plan.” Ouch.

Detroit's riches to rags synopsis from the same BBC article:

The city, once renowned as a manufacturing powerhouse, has struggled with its finances for some time, driven by a number of factors, including a steep population loss.

The murder rate is at a 40-year high and only one third of the its ambulances were in service in early 2013.

Declining investment in street lights and emergency services have made it difficult to police the city.

And Detroit's government has been hit by a string of corruption scandals over the years.

Between 2000-10, the number of residents declined by 250,000 as residents moved away.

Detroit is only the latest US city to file for bankruptcy in recent years.

In 2012, three California cities - Stockton, Mammoth Lakes and San Bernardino - took the step.

In 2011, Harrisburg, Pennsylvania tried to file for bankruptcy but the move was ruled illegal.

But Thursday's move in Detroit is significantly larger than any of the earlier filings.

Detroit ranks 9th in terms of highest taxes based on US cities according to the Marketwatch.com. On the obverse side of high taxes has been unsustainable government spending from bureaucracy to welfare.

From Reuters:

Detroit's state and local tax burden as a percentage of annual family income surpassed the average for other large U.S. cities. For example, the tax burden at the $25,000 income level was 13.1 percent in Detroit versus an average of 12.3 percent.

Buss said that Detroit has seen a significant expansion in deficit spending over the last two years, reaching an accumulated $326.6 million at the end of fiscal 2012 from an accumulated deficit of $196.6 million in fiscal 2011. The city has had a budget deficit every year since 2003…

Total revenue in Detroit has fallen sharply over the last 10 years by over $400 million or 22 percent, according to the analysis. State revenue sharing has also been cut, although the city, which accounts for 7 percent of the state's residents, gets by far the biggest amount on a per capita basis -- $335 per resident -- far more than other Michigan cities with populations over 50,000.

Half of Detroit's top 10 employers are governmental entities, led by the city itself with nearly 11,400 workers, down from 20,800 in 2003, followed by the Detroit Public Schools at 10,951, the report said. Two health care systems and the federal government round out the top five. Chrysler, the only automaker in the group, ranks eighth, employing 4,150 workers, a drop of more than a half from 2003.

Also part of the decline of Detroit has attributed to “raced based” policies which sparked a “White Flight” according to economist Walter Williams.

Local politics shaped by labor activism or labor unions likewise compounded on the loss of competitiveness.

So Detroit seems as the US version of Greece: declining economy predicated on the lack of competitiveness shaped by repressive social policies and by excess political baggage via the welfare and bureaucratic state.

Detroit signifies a harbinger for a world addicted to debt based 'political' consumption spending.

Nonetheless The USA Today lays out “What happens next” or the possible legal steps on the Detroit Bankruptcy 

And furthermore, while Detroit represents the largest city or the largest municipal bankruptcy in history, there are yet other local troubled spots (graphic from New York Times).

Yet if the current inflationary boom in the US morphs into a bust, then we will see even more candidates similar to Detroit. 

Worse, even the US government is at the risk of becoming a Detroit, especially if interest rates (as expressed by the bond markets or of the return of the bond vigilantes) continue with its upside trek.

The Hunt for Snowden US Foreign Policy Fiasco

Fatal conceit unmasked as exhibited by the US government’s hunt for the whistleblower Edward Snowden

From Austrian economist Gary North at his website: (hat tip lewrockwell.com) [bold mine]

Last week, some bonehead in the Obama administration -- the media did not bother to find out who -- decided that he would issue an order to France, Italy, Spain, and Portugal to forbid the overflight of the presidential jet the President of Bolivia.

Did he do this on his own authority? Bureaucrats do not put their careers on the line because some low-level political hack tells them to. They want orders from the top.

They got these orders.

That forced the pilot of the plane to land in Vienna. At that point, the next phase of the bonehead's plan involved the use of Austrian officials, meaning either the police or the military, to board the plane and search it to find Edward Snowden. The problem was, Edward Snowden was not on the plane.

That immediately caused a sensation around the world. Especially in Latin America, heads of state criticized the U.S. government's interference with the presidential jet of the Bolivian President. At that point, Venezuela's President finally jumped off the fence, and offered Snowden asylum. He had resisted doing this prior to the decision of the bonehead to interfere with the Bolivian jet. Not to be outdone, the President of Bolivia then offered him asylum, and then the President of Nicaragua did the same. The President of Nicaragua is Danny Ortega, the Sandinista.

So, before the bonehead made his decision, no country was willing to offer Snowden asylum. But, because the bonehead decided to risk making a fool of the United States government, Snowden now has three places he can flee to.

This is a classic political mistake. The hack had almost no understanding of the potential fallout from his decision. This particular hack never bothered to consider the fallout in Latin America from the decision of the United States to pressure its toadies in Europe to forbid the jet from flying over their air space. Next, the toadies in Europe were exposed as exactly what they are, namely, toadies of the United States, so they are much less likely to cooperate in any further interference with Snowden's travel plans. Third, the Austrian government looks even worse than the other four governments, because it sent armed officials onto the plane in a fruitless search for a man who was not there.

This makes leftists in Latin American look like courageous heroes, because they are standing up to the United States government. But they decided to do this only because of the bonehead's decision to make the United States government look bad in front of the whole world. Now they can present themselves as standing tall. But they only stood up because of the bonehead.

The bonehead should have been fired within hours. But that was not done. This indicates that the decision was made by a political advisor in the Obama administration. He is not some low-level twerp. He is somebody close to the President, which means close enough to have gotten official approval from Obama for what is now obviously a bonehead move.

The decision had to be implemented by the bureaucracy. No one is saying which one.

Once again, we see how power makes operational idiots out of smart people. They do not count the full costs of their decisions. They are protected by the system, and they make decisions throughout their careers in terms of these protections. Then, without warning, the protections collapse in the face of public reaction against the bonehead decision.

Read the rest here

Obama’s Push for Gun Prohibition

US President Obama pushes for a radical overhaul of gun laws.

From Bloomberg,

President Barack Obama unveiled the most ambitious gun-control agenda in decades today, announcing a $500 million package of legislative proposals and executive actions aimed at curbing firearms violence, from mass shootings to street crime.

The president, counting on a shift in public opinion since the shooting rampage at a Connecticut elementary school last month, challenged Congress to mandate background checks for all gun buyers, ban high-capacity ammunition clips, and reinstate a ban on sales of assault weapons

Obama signed 23 executive actions aimed at circumventing congressional opposition to new gun restrictions, including several designed to maximize prosecution of gun crimes and improve access to government data for background checks.

Couched in social morality, Obama’s proposal, which has been psychologically anchored on spur of the moment public impulse (availability heuristic), resonates of his predilection for the expansion of government, and importantly, for a spending $500 million blitz.

Again from the same article:

The administration also plans to address legal barriers that may prevent states from sharing relevant medical information, to review standards for gun locks, require federal authorities to trace firearms recovered in criminal investigations and direct the Centers for Disease Control to research the causes of gun violence.

The new spending would go mostly for training and data- collection programs. Obama wants $10 million for the CDC to conduct further research, “including investigating the relationship between video games, media images, and violence.”

Another $20 million would expand a reporting system to gather data when firearms are used in violent deaths, whether homicides or suicides. To encourage states to share criminal and mental health records for the federal background database, Obama proposes spending $20 million this year and $50 million next year.

School districts and police departments would get $150 million to hire school resource officers, psychologists and social workers and another $65 million for teacher training.

Obama again urged lawmakers to approve an existing request for $4 billion to help communities keep 15,000 police officers on duty.

So gun control looks like stimulus camouflaged mostly for the bureaucracy.

Yet like almost all prohibition laws once this gun control comes into effect the likelihood is to bring the assault weapon and sporting rifle ban into the underground (shadow economy).  And along with the other typical consequences: greater fraud, corruption, and higher risks of violence.

This reminds me of a quote attributed to Russian revolutionary and USSR Premier Vladimir I Lenin

A system of licensing and registration is the perfect device to deny gun ownership to the bourgeoisie.

Incidentally, Lenin’s Russian Civil War resulted to a death toll of 8 million people where only 2 million were from combat deaths according to eNotes.com.

Of course, Lenin introduced the infamous concentration camps or the Gulag

So like all aspiring tyrants, gun control has been the traditional recourse for assuming total social control.

Further, Obama’s thrust to use of “mental health” as checks on gun ownership represents the assumption that bureaucrats know better and have better moral standings than the citizenry have been premised on statolatry or the fiction of the puritanical or deifed state.

Additionally, the gun control regulation opens the portals of public censorship via "investigating the relationship between video games, media images, and violence.” 

The psychiatric treatment approach through social policies has been used as a prominent tool to attain total social control—the therapeutic state

Writes Professor Thomas Szasz at the Citizens Commission on Human Rights International: (hat tip Bob Wenzel) [bold and italics original]

“Although we may not know it, we have, in our day, witnessed the birth of the Therapeutic State. This is perhaps the major implication of psychiatry as an institution of social control.”

“When I use the term therapeutic state, I use it ironically, it’s therapeutic for the people who are doing the locking up, who are doing the therapy, it’s not therapeutic for the victims, for the patients.”

“In the therapeutic state, treatment is contingent on, and justified by, the diagnosis of the patient’s illness and the physician’s prescription of the proper remedy for it… Today, the therapeutic state exercises authority and uses force in the name of health.” The Founding Fathers “could not have anticipated…that an alliance between medicine and the state would then threaten personal liberty and responsibility exactly as they had been threatened by an alliance between church and state.”

“Inasmuch as we have words to describe medicine as a healing art, but have none to describe it as a method of social control or political rule, we must first give it a name. I propose that we call it pharmacracy, from the Greek roots pharmakon, for ‘medicine’ or ‘drug,’ and kratein, for ‘to rule’ or ‘to control.’”

“Formerly, people rushed to embrace totalitarian states. Now they rush to embrace the therapeutic state. When they discover that the therapeutic state is about tyranny, not therapy, it will be too late.”

“This phenomenon illustrates what I call the creeping therapeutic state. I see it as insidious, especially given the cooperation between the government and the media. This is allowed on television. But advertising Scotch, a legal drink, is not allowed. This subtly undermines the rule of law, the principle that if something is legal, then it’s legal, and if it’s illegal, then it’s illegal. A prescription drug is illegal; pharmacists cannot sell it to you unless you have a prescription. These are illegal drugs, but nobody calls them illegal drugs. So I see this as pernicious, as an example of what F.A. Hayek and Ludwig von Mises talked about—that the opposite of freedom is not brutal tyranny but capriciousness.”

The US has been in a transition to the land of the UNfree or what I call as the Philippinization of the US, and the consequences that goes along with it.

As I previously noted,

F. A. Hayek once warned that Americans are headed towards the road to serfdom. His admonitions appear as becoming a reality with the deepening of America’s police state aside from snowballing political and economic fascism, signs of which the US could be in a slippery slope towards dictatorship.

Quote of the Day: Government Redistribution Tends to Bring Out the Worst in Us

the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game.

As such, we might as well have the government do the dividing.

Small wonder why our politics have become increasingly about who you are for rather than what you are for.

(italics mine)

This spectacular quote is from University of Missouri-St. Louis Professor of economics David C. Rose at the letters section of the Wall Street Journal (hat tip Prof Don Boudreaux)

Direct or indirect beneficiaries of government programs will staunchly defend on what they perceive as unalienable entitlements, even if such programs are economically unsustainable and immoral, to the point of bringing out the worst in us.

Such political apportionment programs are mainly channeled through inflationism (for instance participants in the financial markets as bankers, stock market participants, bond holders and etc…), welfarism (welfare beneficiaries), bureaucratic politics (political appointees via mandates, regulations, prohibitions), warfare state (defense contractors and related interests) and cronyism (politically distributed economic opportunities).

In defending the status quo, these politicized agents resort to more than just stridently deceptive denunciations on those who question them, but to the recourse of violence ala the unfolding events in Greece. 

Politics does tend to bring out the worst in people.

Gary North on How to Gum Up Any Institutions

Well if governments can make a mess of society through immoral  statutes and regulations, people can reciprocate by goofing up the system through non-violent means.

Austrian economist and author Gary North offers how to gum up any institutions, not limited to the government.

Rules are about redirecting people’s behavior to assure compliance. And institutions rely on sets of rules for it to thrive.

Economist Gary North explains:

First, every institution assumes voluntary compliance in at least 95% of all cases. This may be a low-ball estimate. Most people comply, either out of fear or lack of concern or strong belief in the system and its goals.

Second, every institution has more rules than it can follow, let alone enforce. Some of these rules are self-contradictory. The more rules, the larger the number of contradictions. (There is probably a statistical pattern here – some variant of Parkinson's law.)

Third, every institution is built on this assumption: partial compliance. Not everyone will comply with any given procedural rule. There are negative sanctions to enforce compliance on the few who resist. They serve as examples to force compliance. Conversely, very few people under the institution's jurisdiction will attempt to force the institution to comply exactly with any procedural rule.

These three laws of institutions – and they really are laws – offer any resistance movement an opportunity to shut down any system.

Economist North provides an example of how Vladimir Bukovsky jammed the Soviet Union Gulag, along with other inmates, by sending daily letter of protests to the Soviet bureaucracy from which the latter had to legally respond. The result was bureaucratic chaos.

As the 75,000 complaints became part of the statistical record, the statistical record of the prison camp and the regional camps was spoiled. All bureaucrats suffered. There went the prizes, pennants, and other benefits. "The workers start seething with discontent, there is panic in the regional Party headquarters, and a senior commission of inquiry is dispatched to the prison."…

Finally, in 1977, they capitulated to several specific demands of the prisoners to improve the conditions of the camps. The governor of the prison was removed and pensioned off. Their ability to inflict death-producing punishments did them little good, once the prisoners learned of the Achilles' heel of the bureaucracy: paperwork.. The leaders of the Soviet Union could bear it no longer: they deported Bukovsky.

Economist North further discusses on American community organizer Saul Alinsky’s improvisation of Mahatma Gandhi’s non-violent means of protests:

Alinksy realized early that very few people will pay the price that Gandhi paid. So, he devised a system of resistance that lowered the risk, thereby lowering the cost. He understood the economists' law: "When the cost of producing anything falls, more will be supplied." More of what? Resistance.

His system involved at least one of two tactics: (1) violating a rule to which only a minimal negative sanction was attached, (2) follow the organization's procedural rules to the letter in a Bukovsky-like manner.

He tested his non-violent strategy and tactics in the 1960s in Chicago. He wrote a book on his system, Rules For Radicals (1972). He wrote this.

Let us in the name of radical pragmatism not forget that in our system with all its repressions we can still speak out and denounce the administration, attack its policies, work to build an opposition political base. True, there is still government harassment, but there still is that relative freedom to fight. I can attack my government, try to organize to change it. That's more than I can do in Moscow, Peking, or Havana. Remember the reaction of the Red Guard to the "cultural revolution" and the fate of the Chinese college students. Just a few of the violent episodes of bombings or a courtroom shootout that we have experienced here would have resulted in a sweeping purge and mass executions in Russia, China, or Cuba. Let us keep some perspective.

We will start with the system because there is no other place to start from except political lunacy. It is most important for those of us who want revolutionary change to understand that revolution must be preceded by reformation. To assume that a political revolution can survive without a supporting base of popular reformation is to ask for the impossible in politics. Men don't like to step abruptly out of the security of familiar experience; they need a bridge to cross from their own experience to a new way. A revolutionary organizer must shake up the prevailing patterns of their lives – agitate, create disenchantment and discontent with the current values, to produce, if not a passion for change, at least a passive, affirmative, non-challenging climate. "The revolution was effected before the war commenced; John Adams wrote. "The Revolution was in the hearts and minds of the people. . . . This radical change in the principles, opinions, sentiments and affections of the people was the real American Revolution." A revolution without a prior reformation would collapse or become a totalitarian tyranny.

Read the rest here 

Mr. Alinsky then devised of 13 tactical guidelines for the “gummit” model, again Mr. North:

1. Power is not only what you have but what the enemy thinks you have.
2. Never go outside the experience of your people.
3. Wherever possible go outside the experience of the enemy.
4. Make the enemy live up to their own book of rules.
5. Ridicule is man's most potent weapon.
6. A good tactic is one your people enjoy.
7. A tactic that drags on too long is a drag.
8. Keep the pressure on.
9. The threat is usually more terrifying than the thing itself.
10. The major premise for tactics is the development of operations that will maintain a constant pressure upon the opposition.
11. If you push a negative hard and deep enough it will break through into its counter side.
12. The price of a successful attack is a constructive alternative.
13. Pick the target, freeze it, personalize and polarize it.

The Gandhi Alinsky disobedience model reminds me of Etienne de la Boetie, French judge, writer and founder of modern philosophy and one of the early advocates of civil disobedience, who once wrote 

Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break into pieces

Gumming up a tyrannical institution is a way to re-establish or win back freedom.

War on Terror: Inflation of Security Bureaucracy and Spending

Either terrorism has brought upon government paranoia or terrorism has been a product of foreign policies to justify the expansion security institutions, none the less war on terror has brought one sure thing: inflation in security expenditures.

Writes Tom Engelhardt at the Asia Times, (hat tip Sovereign Man)

Are you, for instance, worried about the safety of America's "secrets"? Then you should breathe a sigh of relief and consider this headline from a recent article on the inside pages of my hometown paper: "Cost to Protect US Secrets Doubles to Over $11 Billion."

A government outfit few of us knew existed, the Information Security Oversight Office or ISOO, just released its "Report on Cost Estimates for Security Classification Activities for Fiscal Year 2011" (no price tag given, however, on producing the report or maintaining ISOO). Unclassified portions, written in classic bureaucratese, offer this precise figure for protecting our secrets, vetting our secrets' protectors (no leakers please), and ensuring the safety of the whole shebang: US$11.37 billion in 2011.

That's up (and get used to the word "up") by 12% from 2010, and double the 2002 figure of $5.8 billion. For those willing to step back into what once seemed like a highly classified past but was clearly an age of innocence, it's more than quadruple the 1995 figure of $2.7 billion.

And let me emphasize that we're only talking about the unclassified part of what it costs for secrets protection in the National Security Complex. The bills from six agencies, monsters in the intelligence world - the Central Intelligence Agency, the Defense Intelligence Agency, the National Security Agency, the National Reconnaissance Office, the National Geospatial-Intelligence Agency, and the Office of the Director of National Intelligence - are classified. The New York Times estimates that the real cost lies in the range of $13 billion, but who knows?

To put things in perspective, the transmission letter from Director John P Fitzpatrick that came with the report makes it utterly clear why your taxpayer dollars, all $13 billion of them, are being spent this way: "Sustaining and increasing investment in classification and security measures is both necessary to maintaining the classification system and fundamental to the principles of transparency, participation, and collaboration." It's all to ensure transparency. George Orwell take that! Pow!

Now let's try the line again, this time with more gusto: That makes no sense!

On the other hand, maybe it helps to think of this as the Complex's version of inflation. Security protection, it turns out, only goes in one direction. And no wonder, since every year there's so much more precious material written by people in an expanding Complex to protect from the prying eyes of spies, terrorists, and, well, you.
The official figure for documents classified by the US government last year is - hold your hats on this one - 92,064,862. And as WikiLeaks managed to release hundreds of thousands of them online a couple of years ago, that's meant a bonanza of even more money for yet more rigorous protection.

You have to feel at least some dollop of pity for protection bureaucrats like Fitzgerald. While back in 1995 the US government classified a mere 5,685,462 documents - in those days, we were practically a secret-less nation - today, of those 92 million sequestered documents, 26,058,678 were given a "top secret" classification. There are today almost five times as many "top secret" documents as total classified documents back then.
Here's another kind of inflation (disguised as deflation): in 1996, the government declassified 196 million pages of documents. In 2011, that figure was 26.7 million. In other words, these days what becomes secret remains ever more inflatedly secret. That's what qualifies as "transparency, participation, and collaboration" inside the Complex and in an administration that came into office proclaiming "sunshine" policies. (All of the above info thanks to another of those ISOO reports.) And keep in mind that the National Security Complex is proud of such figures!

So, today, the "people's" government (your government) produces 92 million documents that no one except the nearly one million people with some kind of security clearance, including hundreds of thousands of private contractors, have access to. Don't think of this as "overclassification," which is a problem. Think of it as a way of life, and one that has ever less to do with you.

Now, honestly, don't you feel that urge welling up? Go ahead. Don't hold back: That makes no sense!

How about another form of security-protection inflation: polygraph tests within the Complex. A recent McClatchy investigation of the National Reconnaissance Office (NRO), which oversees US spy satellites, found that lie-detector tests of employees and others had "spiked" in the last decade and had also grown far more intrusive, "pushing ethical and possibly legal limits." In a program designed to catch spies and terrorists, the NRO's polygraphers were, in fact, being given cash bonuses for "personal confessions" of "intimate details of the private lives of thousands of job applicants and employees ... including drug use ... suicide attempts, depression, and sexual deviancy." The agency, which has 3,000 employees, conducted 8,000 polygraph tests last year.

McClatchy adds: "In 2002, the National Academies, the nonprofit institute that includes the National Academy of Sciences, concluded that the federal government shouldn't use polygraph screening because it was too unreliable. Yet since then, in the Defense Department alone, the number of national-security polygraph tests has increased fivefold, to almost 46,000 annually."

Now, think about those 46,000 lie-detector tests and can't you just sense it creeping up on you? Go ahead. Don't be shy! That makes no sense!

Or talking about security inflation, what about the "explosion of cell phone surveillance" recently reported by the New York Times - a staggering 1.3 million demands in 2011 "for subscriber information ... from law enforcement agencies seeking text messages, caller locations and other information in the course of investigations"?

From the Complex to local police departments, such requests are increasing by 12%-16% annually. One of the companies getting the requests, AT&T, says that the numbers have tripled since 2007. And lest you think that 1.3 million is a mind-blowingly definitive figure, the Times adds that it's only partial, and that the real one is "much higher." In addition, some of those 1.3 million demands, sometimes not accompanied by court orders, are for multiple (or even masses of) customers, and so could be several times higher in terms of individuals surveilled. In other words, while those in the National Security Complex - and following their example, state and local law enforcement - are working hard to make themselves ever more opaque to us, we are meant to be ever more "transparent" to them.
These are only examples of a larger trend. Everywhere you see evidence of such numbers inflation in the Complex. And there's another trend involved as well. Let's call it by its name: paranoia. In the years since the 9/11 attacks, the Complex has made itself, if nothing else, utterly secure, and paranoia has been its closest companion. Thanks to its embrace of a paranoid worldview, it's no longer the sort of place that experiences job cuts, nor is lack of infrastructure investment an issue, nor budget slashing a reality, nor prosecution for illegal acts a possibility.

A superstructure of "security" has been endlessly expanded based largely on the fear that terrorists will do you harm. As it happens, you're no less in danger from avalanches (34 dead in the US since November) or tunneling at the beach (12 dead between 1990 and 2006), not to speak of real perils like job loss, foreclosure, having your college debts follow you to the grave, and so many other things. But it matters little. The promise of safety from terror has worked. It's been a money-maker, a stimulus-program creator, a job generator - for the Complex.

The above only reminds me of the great H.L. Mencken whose prescient warnings seem relevant today…

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.

Quote of the Day: The Salad Days of the Keynesian public sector economy are over

The salad days of the Keynesian public sector economy are over, so argues author Patrick Buchanan at the Lewrockwell.com

In the Reagan-Clinton prosperity, officials earned popularity by making commitments that could be met only if the good times lasted forever. They added new beneficiaries to old programs and launched new ones. They hired more bureaucrats, aides, teachers, firemen, cops.

Government's share of the labor force soared to 22.5 million. This is almost three times the number in the public sector when JFK took the oath of office. These employees were guaranteed job security and high salaries, given subsidized health care, and promised early retirement and pensions that the private sector could not match.

The balance between the private and public sectors shifted. As a share of the U.S. population, the number of taxpayers fell, as tax consumers – the beneficiaries of government programs and government employees who run those programs – rose.

The top 1 percent now pays 40 percent of the income tax. The top 10 percent pays 70 percent. The bottom half, scores of millions of workers, pay nothing. They ride free.

This could not go on forever. And when something cannot go on forever it will, by Stein's Law, stop. The Great Recession brought it to a stop. We have come to the end of the line.

U.S. cities depend on property and sales taxes. But property tax revenue has fallen with the collapse of the housing market. Sales tax revenue has fallen as a result of the recession that has kept the consumers out of the malls.

Revenues down, cities and counties face a choice. Raise taxes, or cut payrolls and services. But if taxes rise or workers are laid off and services decline, Americans in our mobile society move across city and state lines, as they are moving from California to Colorado, Nevada and Arizona.

This does not end the crisis, it exacerbates it.

Bankruptcy not only offers cities relief from paying interest to bondholders, it enables mayors to break contracts with public service unions. Since the recession began, 650,000 government workers, almost all city, county or state employees, have lost their jobs. Millions have seen pay and benefits cut.

The salad days of the public sector are over. From San Joaquin Valley to Spain, its numbers have begun to shrink and its benefits to be cut.

A declaration of bankruptcy by a few cities, however, has an impact upon all – for it usually involves a default on debts. This terrifies investors, who then demand a higher rate of interest for the increased risk they take when they buy the new municipal bonds that fund the educational and infrastructure projects of the solvent cities.

Cities and counties have no way out of the vicious cycle. Rising deficits and debts force new tax hikes and new cuts in schools, cops and firemen. Residents see the town going down, and pack and leave.

This further reduces the tax base and further enlarges the deficit.

Then the process begins anew.

This is what is happening in Spain and Greece, which have reached the early 1930s stage of rioting and the rise of radical parties.

Since the New Deal, Keynesianism has been our answer to recession. As the private sector shrinks, the pubic sector expands to fill the void until the private sector returns to health. Only Keynesianism is not working.

How Militarization Diminishes Economic Competitiveness

Some industries in the US have become significantly less competitive, NOT because of globalization or China or the Chinese yuan or the immanent bubble policies but because of the enormous influence of her gargantuan militarized economy.

From Armscontrol.org

From Google Public data

A militarized economy has not only distorted pricing and resource distribution but also negatively affected the political economic structure of industries that depended on it.

A good example is the machine tool industries.

The following is an excerpt of the enlightening and excellent discourse by Thomas E. Woods Jr. on this. (published at the American Conservative) [bold highlights mine]

Measurements of “economic growth” can be misleading if they do not differentiate between productive growth and parasitic growth. Productive growth improves people’s standard of living and/or contributes to future production. Parasitic growth merely depletes manpower and existing stocks of goods without accomplishing either of these ends.

Military spending constitutes the classic example of parasitic growth. Melman believed that military spending, up to a point, could be not only legitimate but also economically valuable. But astronomical military budgets, surpassing the combined military spending of the rest of the world, and exceeding many times over the amount of destructive power needed to annihilate every enemy city, were clearly parasitic...

The American machine-tool industry can tell a sorry tale of its own. Once highly competitive and committed to cost-containment and innovation, the machine-tool industry suffered a sustained decline in the decades following World War II. During the wartime period, from 1939 to 1947, machine-tool prices increased by only 39 percent at a time when the average hourly earnings of American industrial workers rose by 95 percent. Since machine tools increase an economy’s productivity, making it possible to produce a greater quantity of output with a smaller input, the industry’s conscientious cost-cutting had a disproportionately positive effect on the American industrial system as a whole.

But between 1971 and 1978, machine-tool prices rose 85 percent while U.S. industrial workers’ average hourly earnings increased only 72 percent. The corresponding figures in Japan were 51 percent and 177 percent, respectively.

These problems can be accounted for in part by the American machine-tool industry’s relationship with the Defense Department. Once the Pentagon became the American machine-tool industry’s largest customer, the industry felt far less pressure to hold prices down than it had in the past. That decreased pressure undoubtedly contributed to the negligible investment by the machine-tool industry in modern production techniques of a kind used routinely in Europe. No longer under traditional market pressure to innovate and lower costs, the machine-tool industry saw a considerable drop in productivity.

In the short run, the American machine-tool industry’s woes affected U.S. productivity at large. Firms were now much more likely to maintain their existing stock of machines rather than to purchase additional equipment or upgrade what they already possessed. By 1968, nearly two-thirds of all metalworking machinery in American factories was at least ten years old. The aging stock of production equipment contributed to a decline in manufacturing productivity growth after 1965.

Why Americans couldn’t have switched to lower-cost imported machine tools as soon as prices began to rise involves the reluctance of machinery buyers to change their suppliers. Not only do they prefer to deal with established firms with good reputations, but they also want to avoid unnecessary and costly downtime, so they patronize suppliers who can perform repairs and supply spare parts on short notice. In the long run, American firms did indeed begin to shift into imported machine tools, and by 1967 the United States for the first time imported more machine tools than it exported.

The military-induced distortion of the American machine-tool industry, and the industry’s correspondingly decreased global competitiveness, is not confined to the perverse incentives created by the Pentagon’s cost-maximization approach to procurement. Another factor is at work as well: the more an industry caters to the Pentagon, the less it makes production decisions with the civilian economy in mind. Thus in the late 1950s the Air Force teamed up with the machine-tool industry to produce numerical-control machine-tool technology, a technique for the programmable automation of machine tools that yields fast, efficient, and accurate results. The resulting technology was so costly that private metalworking firms could not even consider using it. The machine-tool firms involved in this research thereby placed themselves in a situation in which their only real customer was the aerospace industry.

Some 20 years later, only 2 percent of all American machine tools belonged to the numerical-control line. It was Western European and Japanese firms, which operated without these incentives, that finally managed to produce numerical-control machine tools at affordable prices for smaller businesses.

The distortion of business decisions and strategy that contributed to the decreasing competitiveness of the machine-tool industry is at work in thousands of American firms in rough proportion to their reliance on Pentagon contracts.

Read the rest here.

There are other unintended consequences from the military economic-corporatist framework, such as corruption.

This seems very relevant today in Philippine politics, where an ongoing expose over a supposed payola has triggered a former top military officer to suicide.

According to Carlos Conde of the Asia Times Online [emphasis added]

To be sure, corruption in the military is nothing new. In fact, the slush fund had existed even before the time of Reyes, as Rabusa himself admitted. A questionable practice in the armed forces called "conversion" - funds or budgets allotted for a specific purpose being used on something else, thus making it vulnerable to manipulation and kickbacks - has for years practically been the norm.

The practice allows commanding officers to bypass the military's slow-moving bureaucracy and deal directly with the suppliers of urgently needed equipment and weaponry, according to a military official familiar with the practice. Military officials, in turn, often ask for the cash equivalent of the equipment and then allow the supplier to process the papers and deal with the bureaucracy. The supplier often pads the cost of the equipment and gets approval from the comptroller, who will only sign if a kickback is assured, according to the official.

At the end of the day, a nation’s lack of competitiveness has almost always been a result of the many forms or faces of government interventionism, and this includes the military aspects—whether it is the US, the Philippines or elsewhere.

Yet the public or the mainstream only goes for oversimplified and superficial explanations rather than examining the roots of the issues.

With public ignorance of the structural issues, hence the vicious cycle.

The Bloodbath At Rizal Park Hostage Drama Demonstrates The Pathology of Government

I am greatly saddened by the news that the Rizal Park hostage drama, which involved innocent foreigners as victims, had ended violently and at the cost of precious lives.

Yet it wasn’t long that we’ve written that government can’t prevent man-made disasters. It’s sad to say this view has again been validated- government can’t stop a self-inflicted mayhem.

As usual, it’s only the visible things that are always seen by the mainstream. For instance, there has been a big misplaced focus on the botched attempt to conduct a bloodless rescue.

And as we always say, governments are merely human beings and subject to the same follies (mostly emotional) like anyone else. [Haven’t noticed how the “large number” of police had been seemingly afraid to enter the bus to take upon a lone ‘wolf’ assailant?]

So the gruesome event essentials reveal how inefficient governments are.

The moral is—the emperor had been caught apparently NAKED!

Again, this primarily had NOT been because of the lack of funding or preparation, but because the problem always is FUNDAMENTALLY PREDICATED ON KNOWLEDGE.

Yet, this isn’t the first time where a bus-hijack occurred (the last bus hijack occurred in 2007).

The problem is, in contrast to past, is that this time the assailant had been part of the government- a former police captain!

So fundamentally the ambit of possible government operations is one that is familiar to the felon, such that he probably knew how to make countervailing moves.

In other words, the government fought against part of her own shadow, which has probably prompted the conspicuous hesitance by the police to undertake forceful operations (aside from the fear of collateral damage which has always been the excuse).

Of course, the other factor is that the aggressor was also a fellow man in uniform.

So again, one shouldn’t always dismiss the human factor among the participants in the unfolding of political events.

But there is more.

News reveals that the antagonist justified his provocations because of perceived injustice committed by the government on him.

This from the Inquirer,

The Office of the Ombudsman said that Mendoza was among five officers charged with robbery, extortion and grave threats and dismissed after a Manila hotel chef filed a complaint alleging the policemen falsely accused him of using drugs to extort money...

Gregorio earlier told a local TV station that his brother was upset by his treatment and dismissal from the force.

“His problem was he was unjustly removed from service. There was no due process, no hearing, no complaint,” he said.

Two important factors here:

One, government actions are ALWAYS POLITICAL. Whether his dismissal was valid or not (which we aren’t qualified to make any judgments), the adverse relationship developed with perhaps some of the citizenry which probably resulted to alleged lack of “due process” reveals that government actions are almost always arbitrary.

Two entrenched sense of political entitlement. The assailant felt that he deserved a permanent place as part of the bureaucracy, regardless of what the institution or what political leaders thought of him.

While it is true that the aggressor could signify as one of the extremes (fat tail), the point is that political power is always addictive. The addiction comes in different degrees. And in the case of the hostage taker, he felt the need to be a part of it. (Lord of the Rings, anyone?)

Bottom line: Almost every facet of this sordid episode represents the innate pathology of government actions.