Tanzania: A Case of Democracy Destroying Itself?

The great Austrian Economist Friedrich von Hayek once warned about the perils of democratic government,

And if a democratic people comes under the sway of an anti-capitalistic creed, this means that democracy will inevitably destroy itself.

Could this be the evolving case in Tanzania? 

Writes Lauren Bishop at the NYU Development Research

Tanzania looks an awful lot like a democracy. The East African nation has been holding multi-party elections since 1995, which international observers have deemed free and competitive. In Tanzania, votes are not miscounted, opposition parties compete actively, and the ruling party—the Chama Cha Mapinduzi (CCM), which has controlled the government since independence—seems to play by the rules.

But according to Bruce Bueno de Mesquita, NYU politics professor and DRI affiliated faculty member, Tanzania is in fact sliding down a slippery slope to autocracy, even as it maintains the trappings of a “transitioning” democracy. A working paper with Alastair Smith describes how Tanzania’s completely legal and institutionalized electoral laws are placing power in the hands of a small and increasingly entrenched elite.

Read the rest here.

Democracy has ushered in various despots like Adolf Hitler, the Philippines’ Ferdinand Marcos, or even modern day contemporaries as Hugo Chavez of Venezuela as well as Argentina’s Cristina Elisabet Fernández de Kirchner.

The populist idea that the "majority knows best" has simply been a fraud.

Overciminalization from Environmental Laws

In the US, the rapid escalation of arbitrary environmental regulations has been prompting for growing accounts of needless political persecutions.

From Foxnews.com

The growing web of laws that can land unwitting violators in jail is commonly referred to as "overcriminalization." These are not laws prohibiting fundamentally wrong behavior like murder or rape. Critics say these laws create offenses that violators often don't realize are illegal until it's too late.

Punishment can range from a few hundred dollars in fees to lengthy prison terms. Some say the extraordinary expansion of the criminal code on federal, state and local levels leaves the public exposed to abuse at the hands of officials.

'You take away the incentive for somebody to do something bit by bit by bit. It’s like peeling the layers off an onion. You can only peel so much and then you don’t have any onion left'- FIshing boat Capt. Terrell Gould

When it comes to environmental laws, the states getting hit the hardest are the five that border the Gulf of Mexico -- Texas, Louisiana, Mississippi, Alabama and Florida. Among them, nearly 1,000 laws criminalizing activities along the coast have been put on the books, Texas Public Policy Foundation analyst Vikrant Reddy said. 

While there is no concrete figure, there are an estimated 300,000-400,000 environmental laws, statutes and mandates believed to be in circulation nationally. Many can land a person in prison, regardless of whether another person, plant or animal is harmed.

Gosh 300-400K laws! 

More steps towards the scenario forewarned by the great F. A. Hayek in his classic book, the Road to Serfdom, here is a snippet (p.86).

By giving the government unlimited powers the most arbitrary rule can be made legal: and in this way a democracy may set up the most complete despotism imaginable.

IMF’s Christine Lagarde Inflationist Delusions

From the Deutsche Borse Group: (bold added)

International Monetary Fund Managing Director Christine Lagarde praised monetary stimulus efforts of the world's major central banks Thursday, but said non-monetary authorities in Europe, the United States and elsewhere need to build on those steps to improve growth in a slowing world economy.

Lagarde, at a press conference ahead of the annual meetings of the IMF and World Bank, said she "expects courageous, cooperative action" at the meetings.

She also aimed criticism at China, whose top economic policymakers declined to attend the meetings because of territorial disputes with host Japan. China needs to be more of a global partner and increase demand for foreign products, not just concentrate on exporting its own products, she said, after pointedly noting its officials' absence.

Lagarde vowed the IMF "will spare no time and effort" to help Greece, but said the objective is to ultimately free that country from dependence on outside assistance.

Noting that the IMF has downgraded its projections of global growth, Lagarde said, "we are not expecting a very strong recovery." Indeed, she called high unemployment rates in advanced countries "terrifying and unacceptable."

The Federal Reserve, the European Central Bank and the Bank of Japan have all adopted additional easing measures, and she praised their moves, but said that by themselves those actions are "not sufficient." 

The "momentum" imparted by monetary easing "should be seized as an opportunity," she said.

Ms, Lagarde’s “momentum” remarks essentially echoes former President Obama’s chief of staff and current Mayor of Chicago Emanuel Rahm’s infamous sly quote on establishing political controls over society…

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 emerging market central banks have fawningly embraced Ms. Lagarde’s recommendations.

This from Reuters:

Emerging market central banks have clearly taken to heart the recent IMF warning that there is “an alarmingly high risk”  of a deeper global growth slump.

Two central banks have cut interest rates in the past 24 hours: Brazil  extended its year-long policy easing campaign with a quarter point cut to bring interest rates to a record low 7.25 percent and the Bank of Korea (BoK) also delivered a 25 basis point cut to 2.75 percent.  All eyes now are on Singapore which is expected to ease monetary policy on Friday while Turkey could do so next week and a Polish rate cut is looking a foregone conclusion for November.

South Africa, Hungary, Colombia, China and Turkey have eased policy in recent months while India has cut bank reserve ratios to spur lending.

The BoK’s explanation for its move shows how alarmed policymakers are becoming by the gloom  all around them. Its decision did not surprise markets but its (extremely dovish) post-meeting rhetoric did.  The bank said both exports and domestic demand were “lacklustre”.  (A change from July when it admitted exports were flagging but said domestic demand was resilient) But consumption has clearly failed to pick up after July’s surprise rate cut — retail sales disappointed even during September’s festival season.  BoK clearly expects things to get worse: it noted that ” a cut now is better than later to help the economy”.

Ms. Lagarde’s comments, which gives emphasis on the short term at greater costs of the future, can be summed up into two types of casuistry: 

The delusion of central planning: 

From the great Ludwig von Mises (Omnipotent Government),

It is a delusion to believe that planning and free enterprise can be reconciled. No compromise is possible between the two methods. Where the various enterprises are free to decide what to produce and how, there is capitalism. Where, on the other hand, the government authorities do the directing, there is socialist planning. Then the various firms are no longer capitalist enterprises; they are subordinate state organs bound to obey orders. The former en­trepreneur becomes a shop manager like the Betriebsführer in Nazi Germany.

As well as the delusions of the elixir of inflationism or perhaps a stealth scheme being employed by the cabal of central bankers to demolish what remains of laissez faire capitalism 

From the deity or icon of inflationism, Lord John Maynard Keynes (PBS.org) [bold added]

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

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

Inflationists are either aware of the evils their policies create but nevertheless insidiously impose them for covert political reasons, or have been too blinded by their possession of power.

Argentina's Government Openly Promotes Poverty

Poor Argentinians. The Argentine government does not only want to subtly confiscate savings of ordinary folks through inflationism, their government openly promotes poverty for the Argentina’s population through economic fascism and political repression.

From Nasdaq.com 

The president of Argentina's central bank has affirmed the government's policy of eliminating the U.S. dollar as a transaction and savings medium in the South American economy.

"De-dollarizing the economy is a challenge" and Argentines "have to save in local currency like [people] do everywhere else in the world," Mercedes Marco del Pont said in a speech late Friday night.

Argentines have long viewed the U.S. currency as a haven in times of economic uncertainty because of their country's long history of high inflation and periodic devaluations.

Mrs. Marco del Pont wants Argentines to save in pesos amid a backdrop of one of the highest rates of inflation in the Americas.

Annual inflation, which most economists say hovers around 25%, has eroded faith in the peso and fueled demand for dollars. The interest rates banks pay on deposits are well below inflation.

The government's data--which has been widely criticized by economists and the International Monetary Fund--put 12- month inflation at 10% in August.

Inflationism has only been part of the overall strategy of financial repression which has been coursed through fascist policies of nationalization, currency controls, strangulating regulations, civil liberty proscriptions (e.g ban on imported books) and more…

Since late October 2011, the government has severely restricted the public's access to the foreign-exchange market to stop capital flight that was slowly draining the central bank's international reserves.

The currency controls have dented economic activity, especially in the real estate sector where most transactions were done overwhelmingly in dollars.

Property sales in the capital city Bueno Aires plunged 35% on the year in August.

Argentina, aside from Venezuela, are likely or potential candidates to join Iran as models for modern day hyperinflation.

Quote of the Day: The Perils of Unlimited Democracy

Of course there is something very wrong with unlimited democracies. There is simply no justification for the majority of the population in a country imposing its will on everyone. The idea is completely misguided. Why on earth should a great number of people have the authority to force a small number to obey them? There is no argument anywhere in the history of political philosophy and theory that would make out the case for this? If it were a valid point, it would imply that a large number of thugs somehow have the right to subdue other people to serve them. The famous example of the lynch mob that hangs an accused person make the point without difficulty. Expanding the will of vicious people doesn’t make it virtuous. And even if what the larger group wants is actually virtuous, forcing it on others is still not justified since they would have to make the free choice to be virtuous. Human virtue must be a matter of free choice. Only in self-defense may force be applied to others!

The election process in so called democratic countries is anything but justified or moral. Even when it hides behind the term “we” as it tries to do in too many instances--just listen to politicians anywhere around the globe and notice how often they pretend to be speaking for and acting in behalf of everyone--the will of the majority simply has no moral authority, none! Anyone who can dodge it successfully is perfectly justified to do so!

This is from Philosophy Professor Tibor R. Machan at weblogbahamas.com

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

Quote of the Day: Overrated Sincerity, Incorruptibly Evil

Another reason when corruption seems a better option…

As far as I know, Robespierre, Lenin, Stalin, Mao, and Pol Pot were indeed unusually incorruptible, and I do hate them for this trait. 

Why?  Because when your goal is mass murder, corruption saves lives.  Corruption leads you to take the easy way out, to compromise, to go along to get along.  Corruption isn't a poison that makes everything worse.  It's a diluting agent like water.  Corruption makes good policies less good, and evil policies less evil.

I've read thousands of pages about Hitler.  I can't recall the slightest hint of "corruption" on his record.  Like Robespierre, Lenin, Stalin, Mao, and Pol Pot, Hitler was a sincerely murderous fanatic.  The same goes for many of history's leading villains - see Eric Hoffer's classic The True Believer.  Sincerity is so overrated.  If only these self-righteous monsters had been corrupt hypocrites, millions of their victims could have bargained and bribed their way out of hell.

This stirring excerpt is from George Mason University economics professor, Econolog blogger and author Bryan Caplan. [Source: Library of Economics and Liberty]

MVP-Ateneo Rift: The Politicization of Education

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

Children should be spared of politics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Big Brother now a Reality in the US

The Philippines has a popular reality TV program, called the Pinoy Big Brother (PBB) which is a local version of a foreign reality show.

The basic concept of which is that a select number of participants, who are called “housemates”, live in a camera ubiquitous house and strictly according to the "entertaining" rules of ‘Big Brother’. These housemates competes to survive through elimination rounds, as nominated by Big Brother, where audiences determine the victor, who receives material prizes. Of course, the other implied goal for these participants is to be "discovered" as celebrities.

PBB, according to Wikipedia.org, follows the same premise as its many foreign counterparts around the world: twelve Philippine residents are forced to live with each other inside a house for about 3 months or at least 100 days. (italics mine)

So the sublime message of these shows has been one of generating social acceptability for people to forcibly live under the dictates of a “big brother”, a.k.a despot or a tyrant.

Once people are seduced to the idea of condescension and submission, then the implementation of social policies under a 'compassionate' “big brother” regime becomes easier.

In the US, the city of San Francisco has reportedly started using cameras to supposedly prevent crimes

From the New American,

The United States continues its slow morphing into Big Brotherdom, this time through the use of cameras that predict crimes before they take place based on “suspicious” behavior. The cameras will then summon law enforcement to help pre-empt the crime from taking place.

The Daily Mail (Britain) reports, “Using a range of in-built parameters of what is ‘normal’ the cameras then send a text message to a human guard to issue an alert-or call them.” They can track up to 150 people at a time and will build up a “memory” of suspicious behavior to begin determining what is inappropriate.

BRS Labs, the company behind the camera, indicates that the cameras “have the capability to learn from what they observe.”

BRS Labs President John Frazzini said that the technology involves 11 patents that deal with the camera’s ability to learn.

They are also equipped with the technology to adjust for poor light or shaky imagery, and have a series of “trip wires” that become activated and then alert a human supervisor. The footage is then sent over the Internet to employees with a text message summarizing the details.

“The video surveillance technology we have invented is distinctly and materially different from the simple recognition capabilities found in video analytics solutions currently available from a number of vendors in the physical security market,” Frazzini said in astatement. “Generally speaking, video analytics software receives video data from cameras, and issues alerts based on very specific and narrowly defined human programmed rules that have failed to provide operational value in the video surveillance market. In strong contrast to those limited and deteriorating solutions, the patented technology of BRS Labs does not require any human pre-programmed rules, thereby providing an inherently scalable enterprise class software platform to the video surveillance market.”

The cameras have already been installed in prime tourist attractions, government buildings and military bases, and are now being prepared to be installed throughout the transportation system in San Francisco, including buses, trams, and subways.

According to the company, the cameras will eventually be placed in 12 San Francisco stations, 22 cameras per station, totaling nearly 300 cameras in all.

The San Francisco cameras include a special feature that turns the footage into code before they are analyzed.

The reality is that such measures are designed not really to prevent crimes or terrorism, where policies have always been marketed under the cover of some pretentious public good, but about the slippery slope towards the establishment Big government, if not totalitarianism, for the benefit of the political class and their cronies. Shades of George Orwell's dystopian society of 1984.

Fighting the Curse of Despotism

Terrific advice from Sovereign Man’s Simon Black

When you step back and look at the big picture, the writing on the wall seems so clear, so obvious. In Western Europe and the United States in particular, bankrupt, insolvent governments will resort to any means necessary in order to maintain the status quo: keeping them in power at our expense.

This means continuing to reduce personal liberty, eliminate economic freedom, vanquish privacy, debase the currency, stifle innovation, eradicate financial opportunity, and destroy the savings and livelihoods of millions of people.

These tactics are not new, this time is not different. Empires on the slide have always resorted to cannibalism– feeding off the productive class in order to keep the party going a little while longer.

In the fourth and fifth centuries (AD), for example, the Western Roman empire resorted to centrally planned labor allocation, price fixing, rapid currency devaluation, capital controls, civil asset forfeiture, and tax rates that were so high that the few citizens who remained welcomed the invading barbarian hordes with open arms.

Most of the smart, productive Romans had already moved on to greener pastures long before. As the situation worsened, more and more people began to leave until there was a mass Exodus of over 90% of western Rome’s population in its final decades.

Similarly, the Ottoman Empire, having reached the zenith of its expansion in the 16th century, established a massive, unsustainable bureaucracy that was far more costly than any other administrative hierarchy in history, including Rome’s.

Soon Ottoman bureacrats began to see the people as existing to provide them with position… rather than their position existing to support the people. Sound familiar?

Huge spending in the Ottoman Empire gave way to a massive public debt (on which they defaulted in 1875), which eventually begat currency debasement, inflation, an absurd tax system, and a substantial reduction in civil liberties.

History shows that freedom is almost always the price that societies pay to maintain the status quo and keep their rulers in power. When the system finally collapses under its own weight, though, things can go from bad to worse as the people cry out for CHANGE.

The French, for example, traded an absolute monarch in Louis XVI for an absolute dictator in Robespierre. Similarly, the Russians traded the empire of ‘Bloody’ Tsar Nicholas II for the Red Terror of Soviet Russia.

As the Russian Marxist revolutionary Leon Trotsky said in 1937, “The old principle of ‘who does not work shall not eat’ has been replaced by a new one– who does not obey shall not eat.”

Two words: Screw that.

Everybody has a choice to make. On one hand, we can either bury our heads in the sand, pretend that everything is OK, and continue being the boiling frog in the pot… just like the poor schmucks who stuck around Rome until the 5th century getting taxed out of their minds and watching their livelihoods inflate away.

On the other, we can recognize that the rise and fall of empires is part of history’s normal cycle… that it’s been happening for millennia, and this time is no different. We can look to the rest of the world and understand that, for all of the turmoil, this is one of the most exciting times to be alive and that the world is full of incredible opportunities.

Just like the Romans who left for Byzantium, the Ottomans who left for Europe, the Europeans who left for North America, there are always regions in the world that are rising while others are falling.

It’s the people who get there first after acknowledging reality and basic historical truth that can reap the greatest reward.

“Freedom is almost always the price that societies pay to maintain the status quo and keep their rulers in power” has been a reality then and today, and not limited to Western Europe and the United States. This has been a cycle.

That’s because people hardly learn from the past. People have been constantly duped, indoctrinated and manipulated by political authorities along with their followers and cronies, whom has succeeded to suppress on or adulterate the meaning of freedom, thus, the repeated condemnation of societies.

Yet enlightenment from education serves as the only preventive antidote from such decadence.

As the great Ludwig von Mises wrote,

Society lives and acts only in individuals; it is nothing more than a certain attitude on their part. Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.

The bright side is that the information age has facilitated the intellectual struggle for the cause of liberty to a broader spectrum of audience.

Yet transitions may not be smooth, for the simple reason that there have been many entrenched interests who will resist such changes. Besides, the unviable nature of despotism will lead to its natural collapse.

Nonetheless, as more people get to learn about freedom, the curse of despotism diminishes.

North Korea’s Failed Missile Launch Reflects on Dire Economic Status

So it appears that I’ve partly been validated on my view that the much hyped threat from North Korea’s military might has been no less than media bubble that has apparently been pricked.

From USA Today

North Korea's much-touted satellite launch ended in a nearly $1 billion failure, bringing humiliation to the country's new young leader and condemnation from a host of nations. The United Nations Security Council deplored the launch but stopped short of imposing new penalties in response.

The rocket's disintegration Friday over the Yellow Sea brought a rare public acknowledgment of failure from Pyongyang, which had hailed the launch as a show of strength amid North Korea's persistent economic hardship.

For the 20-something Kim Jong Un it was to have been a highlight of the celebratory events surrounding his ascension to top political power. It was timed to coincide with the country's biggest holiday in decades, the 100th birthday of North Korean founder Kim Il Sung, the young leader's grandfather.

The United States and South Korea declared the early morning launch a failure minutes after the rocket shot out from the North's west coast. North Korea acknowledged its demise four hours later in an announcement broadcast on state TV, saying the satellite the rocket was carrying did not enter orbit.

The launch brought swift international condemnation, including the suspension of U.S. food aid, and raised concerns that the North's next move could be even more provocative — a nuclear test, the country's third

It would seem that the actions of North Korea’s political leadership deserves more the ridicule “for nearly $1 billion failure” than ‘condemnation’.

$1 billion lost on unproductive military spending from an impoverished nation is simply suicidal!

Here is what I wrote earlier,

Such totalitarian state has engendered massive poverty represented by rampant shortages of many goods and services which includes the rationing of electricity that has personified what “earth hour” truly means.

And in spite of the North Korea’s vaunted war machinery, wherein much of the misallocation of the nation’s resources had been directed, the North Korean army is in a state of dilapidation and obsolescence: they seem ostensibly good for parades and for taunting, but not for real combat.

The North Korean political economy has been so immersed in abject poverty such that the country has functioned as real life paradigm of the essence of the environmental politics of “earth hour”.

North Korea’s command and control political economy cannot even afford to provide basic lighting services to their citizenry! (satellite images from my earlier post)

And this only implies that for most of North Korea’s army—except for Presidential units—have not only been poorly equipped, but they are famished, insufficiently trained and most importantly they could be mentally or psychologically unfit for any prolonged military skirmishes.

And in case the freshly installed North Korean political leadership of Kim Jong Un becomes whacko enough to openly engage in military conflagration, the administration's downfall will be underwritten by a coup d'état or a massive defections of North Koreans (both from the army and from the citizenry) more than from foreign military interventions.

A clue from Salon.com

Yet more and more North Koreans are prepared to take such risks as they flee hunger and oppression in search of a new life in South Korea, where their newfound freedom is clouded by discrimination, mental health problems and financial hardship.

At around 12 percent, the unemployment rate among defectors is far higher than the 3.4 percent among South Koreans. Those working earn significantly less than their southern counterparts, despite government subsidies and three months of mandatory resettlement training, according to the government-affiliated North Korean Refugees Foundation.

Even so, a recent government survey showed that seven out of 10 adult defectors are satisfied with life in the South; only 4.8 percent said they were dissatisfied or very dissatisfied, according to the unification ministry poll.

About half of those questioned left the North due to food shortages, while 31 percent said they came to the South in search of freedom. Just over a quarter fled because of the North’s political system.

They are among more than 23,000 North Koreans who have defected to the South since the Korean War ended in a truce — not a peace agreement — in 1953. The trickle of defectors through the 1990s rose dramatically about 10 years ago, the result of a prolonged famine in which more than 1 million people may have died.

Last year 2,737 people — one of the highest figures on record — defected to the South.

And the botched missile launch was apparently timed with the unveilment of the statues of Kim Il Sung (left) and Kim Jong Il. (from Business Insider)

And all these attention grabbing destabilization moves are most likely representative of attempts to diversify the public’s attention from the real rapidly deteriorating state of North Korea's economy, as well as, use these events as leverage to hand wring concessions from her neighbors, allies and other patrons or the geopolitics of blackmail.

North Korea should instead follow Myanmar’s reforms of gradually adapting economic freedom. Myanmar is slated to open a stock exchange by 2015, with the help of Tokyo Stock Exchange.

And reforms towards economic liberalization by closed economies has usually been initiated with the symbolical opening of stock exchanges.

For North Korea's despotism, what is unsustainable will not last.

Will A War Break Out In The Korean Peninsula?

``The market economy involves peaceful cooperation and bursts asunder when people, instead of exchanging commodities and services, are fighting one another.”- Ludwig von Mises

I doubt so.

Not unless the North Korean political leadership have gone bonkers and take upon a suicide mission that would put to risk their political privileges.

Yet the Kim Jong-il regime is a prime example of what mercantilism and protectionism leads to—absolute despotism. A centrally planned economy led by a tyrant, who sees the nation as his personal fiefdom.

Such totalitarian state has engendered massive poverty represented by rampant shortages of many goods and services which includes the rationing of electricity that has personified what “earth hour” truly means[1].

And in spite of the North Korea’s vaunted war machinery, wherein much of the misallocation of the nation’s resources had been directed, the North Korean army is in a state of dilapidation and obsolescence: they seem ostensibly good for parades and for taunting, but not for real combat.

A clue from CNN[2],

The main weakness of the North's military is a chronic shortage of computers, modern command and control and electronic warfare assets -- in other words, much of what makes up the 21st-century battlefield. At the same time, South Korea has used its economic strength to modernize its armed forces: for example, building three $1 billion Aegis-class destroyers to counter ballistic missiles...

To compensate for obsolescence, the North deploys boots on the ground in great numbers. Jane's estimates that its standing army numbers just over 1 million personnel, with reserves estimated at more than 7 million. But North Korean soldiers are poorly fed, according to analysts and reports from defectors, and rarely train due to scarcity of fuel and ammunition.

Thus, based on socio- political-economic and military calculations, the North Koreans are unlikely to pursue a path of war, because the odds are greatly against them. And their political leadership is aware of this.

The NoKors can only use political brinkmanship as leverage to extract economic concessions from other countries for the benefit of the ruling political class. This essentially is the geopolitics of blackmail[3]—the desire to extend the politics of plunder channelled through the taxpayers of other nations.

Yet there may be other possible reasons for such showcase of aggression.

This could be a diversion from internal troubles.

Recently, to arrest growth of the underground ‘capitalist’ economy, the Kim regime massively devalued her currency that reportedly triggered widespread political unrest[4]. And one way to rally public support or ease political discontent could be to divert the public’s attention via a strawman: conjuring a phony threat and an enemy as seen through the military provocation of her South Korean neighbour in the name of defence.

Another related factor could be the succession of Kim Jong-il’s son, according to the English Chosun[5],

The North's uranium enrichment program and provocations are part of efforts to puff up the image of North Korean leader Kim Jong-il's son Jong-un in line with the Songun or military-first doctrine.

Other reasons reportedly included a supposed power struggle among factions in the ruling class or an attempt by the Kim regime to intervene in South Korean politics so as to “gain control over inter-Korean relations”[6].

Vetting On China’s Role

So aside from derangement, the only likely way for Kim Jong-il’s North Korea to pursue an all out war would be under the consent or the prodding of its patron and ally China.

Much have been said about the strategic position of the Korean peninsula as historical staging point for expansionism and for North Korea’s role as a buffer against a ‘policy of encirclement’ against perceived enemies of the West. But such an argument misleads when applied today.

While it is true that China and the North Korea has shared political experiences such as in the Korean War[7], where the two nations (along with USSR) engaged a common enemy—the Allied forces led by the US, China then was led by communist Mao Zedong’s People’s Liberation Army.

Today, China remains an avowed ‘communist’ but dons the ‘capitalist’ clothes. This means that the governing political economic framework which drives geopolitical or foreign policymaking considerations are far distinct than during the olden days.

While China may lend vocal support for her ally, she would be less interested to promote geopolitical antagonism that may undermine her interests.

One must be reminded that the success of China has been in the opening of her economy to the world. And this arises partly out of the politics carved from China’s idiosyncratic geographic landscape, which according to Stratfor’s George Friedman[8],

China is an island. We do not mean it is surrounded by water; we mean China is surrounded by territory that is difficult to traverse. Therefore, China is hard to invade; given its size and population, it is even harder to occupy. This also makes it hard for the Chinese to invade others; not utterly impossible, but quite difficult. Containing a fifth of the world’s population, China can wall itself off from the world, as it did prior to the United Kingdom’s forced entry in the 19th century and under Mao Zedong. All of this means China is a great power, but one that has to behave very differently than other great powers.

In other words, the geographic limitations of China have led to the experiment with communist isolationism which apparently ended as a grand failure, and thus, the epiphany by the present leadership to adapt an alternative option—globalization.

This also only implies that it isn’t in China interest to see world trade stymied by militant or belligerent foreign policies. Hence, in my view, the chances that China would support North Korea’s tantrums would seem small.

Bottom line: In my view, Korea’s stock markets could be accurately reflecting on the assessment that a broad based deterioration in the geopolitical conditions in the Korean Peninsula could be contained.

Said differently, though we can’t rule out fatuousness from hubris, the odds are against this.

Tenuous Relationship Between Wars And Market Collapses

Yet wars don’t necessarily lead to collapsing markets.

Figure 2: S & P 500 and The Invasion of Iraq

The Invasion of Iraq in March 20 to May 1, 2003 didn’t cause a downside collapse, instead the Gulf War of the new millennium coincided with inflating markets (red circle Figure 2). One might be tempted to link the war as having a positive effect, but this would be misguided, because it was the US Federal Reserve’s low interest rate policies that fuelled the inflation of the marketplace.

Nevertheless, past performance may have not lead to the same outcome.

Should a war occur, such event risk would depend on the participants involved and their degree of involvement. And given the above circumstance, and the deepening world acceptance of globalization, it is less likely that a war at the Korean Peninsula would escalate into a world war.

So for bears selling the war as an excuse to allege for, or predict, a market collapse, they are likely misreading and misdiagnosing the events and are most likely wrong.

---

[1] See Earth Hour: North Korean Version March 31, 2010

[2] CNN.com North Korea's military aging but sizable, November 25, 2010

[3] See North Korea: The Geopolitics of Blackmail, November 24,2010

[4] See The Road To Serfdom In North Korea, June 21, 2010

[5] English Chosun, Why Did N.Korea Attack?, November 28, 2010

[6] Ibid

[7] Wikipedia.org Korean War

[8] Friedman, George Chinese Geopolitics and the Significance of Tibet, Stratfor.com April 15, 2008

North Korea: The Geopolitics of Blackmail

Forbes columnist Gady Epstein writes, (bold emphasis mine)

North Korea’s shelling today of a South Korean island has reminded the world again of the perennial problem of what to do about the nuclear-armed state. This comes just days after we hear that North Korea has shown off an advanced uranium-enrichment facility, a reminder, too, of how dangerously resourceful this regime can be even as its people face another winter of food and electricity shortages.

In totalitarian states where society have been enslaved by the ruling political class and the bureaucracy, the state can only survive by predation.

Lacking the resources to plunder from its own, totalitarian states resort to expanding the sphere of the politics of predation, through belligerent actions, with its more prosperous neighbors.

As libertarian journalist Frank Chodorov once wrote,

But, since the State thrives on what it expropriates, the general decline in production that it induces by its avarice foretells its own doom. Its source of income dries up. Thus, in pulling Society down it pulls itself down. Its ultimate collapse is usually occasioned by a disastrous war, but preceding that event is a history of increasing and discouraging levies on the marketplace, causing a decline in the aspirations, hopes, and self-esteem of its victims.

North Korea simply fits the bill. She simply wants to live off on a free lunch through the politics of blackmail even if the desperately poor nation knowingly can’t win a full scale war.

And only through poltical brinkmanship can she be able to extract concessions.

As the Wall Street Journal writes,

The purpose is transparently to frighten the West into concluding that there is no alternative to paying off Pyongyang, lest it sell a bomb to al Qaeda or Iran. A far better policy would be a united international effort to further isolate the Kim dynasty with a goal of regime change. Only changing the government will end the North's nuclear threat and liberate its citizens from that prison state.

Of course desperate situations can lead to desperate outcomes, something which Mr. Chodorov predicted.

Nonetheless, Bastiat was right, if goods don’t cross borders armies will. Totalitarian (or despotic) states who do not respect property rights and the rule of law will eventually collapse either from internal political strife (as a consequence of economic cataclysm) or through war.

Bottom line: North Korea is a great example how closed economies (protectionism and mercantilism) through an absolutist predatory state (totalitarianism, communism and fascism) can lead to societal failure or dystopia.

No To Price Controls! No To Despotism!

Here’s a letter I sent to the editor in chief of the Inquirer7.net.

It’s a modified version of my earlier blog post: Price Freeze Policies Will Hurt Consumers

While I don’t expect to have my longish letter published, my intent is to nudge mainstream media of government’s creeping attempt to utilize today’s calamity via the declaration of the State of Calamity as an opportunity to expand despotism.

Mainstream media's fear appears misdirected, it is less likely about having to "raise funds for next year’s general election". But the worst possible risk is to use today's calamity as an opportunity to extend their political tenure.

Ergo, the right question that needs to be asked is: could the Presidential 2010 elections be in jeopardy?

Permit me to express my disenchantment over our government’s thrust to resolve today’s crisis in the face of Typhoon Ondoy’s calamity via the repeatedly failed age-old political tool of price controls. As an old saw goes, ``the road to hell is paved with good intentions.”

In mainstream media, entrepreneurs or business entities have been predominantly depicted as generally "greedy" while government portrayed as “equitable”.

This isn’t generally true; some indiscreetness by capitalists doesn’t apply to all. Beside, consumers are inherently empowered to render discipline to errant entrepreneurs via competition.

In contrast our government had been ranked as one of the worst in corruption in Asia, which would make our government relatively “greedier”.

Yet the important difference largely unappreciated by the public is that given the police power derived monopolistic function of governments, greedy entrepreneurs would have less of an impact to undermine society than a greedy official…unless the entrepreneur have been mandated by government privileges via state capitalism.

Next, officials try to make the public believe that they can subvert the natural laws of economics and allocate resources better than the marketplace.

They refuse to admit that governments are the least effective way to direct resources for its optimal use. They should learn from the recent lessons of Cuba's failed collective agricultural policies or from forty centuries history on price controls.

Price controls or "anti price gouging regulations" in contrast to popular wisdom worsens, and does not enhance, society's predicament.

How?

One, these regulations are likely to serve as disincentive for producers or providers of goods and services to sell. Probably, they would rather hoard their stuff instead.

Two, it prevents pricing signals to spur production or supply side responses to changes in demand. This would lead to more shortages.

Three, when prices of goods or services are legally constrained to sell below market levels, the tendency is to induce significant increases in demand.

As Henry Hazlitt explains in Economics in One Lesson,

``Now we cannot hold the price of any commodity below its market level without in time bringing about two consequences. The first is to increase the demand for that commodity. Because the commodity is cheaper, people are both tempted to buy, and can afford to buy, more of it. The second consequence is to reduce the supply of that commodity. Because people buy more, the accumulated supply is more quickly taken from the shelves of merchants. But in addition to this, production of that commodity is discouraged. Profit margins are reduced or wiped out. The marginal producers are driven out of business. Even the most efficient producers may be called upon to turn out their product at a loss.

``If we did nothing else, therefore, the consequence of fixing a maximum price for a particular commodity would be to bring about a shortage of that commodity. But this is precisely the opposite of what the government regulators originally wanted to do. For it is the very commodities selected for maximum price-fixing that the regulators most want to keep in abundant supply."

Fourth, since demand and supply balance can’t respond through pricing signals, black markets are likely to emerge out of the shortages.

Fifth, more regulations will breed more corruption. Some officials will probably keep a blind eye on entities selling at "high" prices but with a "take", or by themselves undertake such actions, directly or indirectly.

Lastly, restrictions in the marketplace will even lead to further restrictions, distortions and shortages in the economy.

This means that a feedback loop mechanism will arise from existing price controls as the shortages exacerbates.

And this would lead to expanding more government controls over production, via rationing, subsidies, cost-controls and or universal price fixing, all at the expense of entrepreneurs and capitalists, the latter of which understands how resources should be better allocated from their “local knowledge” through the marketplace.

Importantly, all these economic distortions will compound to translate to inflation, a concealed tax to the population.

Now when governments own and control the factors of production this is known as socialism.

It is unfortunate that while we would like to believe that our society operates under the political process known as “democracy”, we seem to deceive ourselves into believing that economic freedom function disparately from our political “democratic” process.

Worst, the raft of economic controls signifies our incremental retrogression into the morass of despotism, placing our fragile democracy at heightened risk. What’s next, martial law?

Lastly, such knee jerk regulatory responses may not even be targeted at attaining the enhancement of our economic weal, but as political advertisement for the coming elections.

In analyzing government policies, noble motives must always be matched with economic reality, failing to do so, we should go for reality.

I say NO to Price controls.

Benson J. Te

Update: Email address to the editor I sent has expired.