Charts of the Day: Obamacare Enrollment–3.9 Million

The goal of Obamancare (Affordable Care Act), according to Wikipedia.org, is to increase the quality and affordability of health insurance, lower the uninsured rate by expanding public and private insurance coverage, and reduce the costs of healthcare for individuals and the government. (bold added)

Here is what Obamacare has done so far…

4.02 million Americans has had their insurance policy cancelled….

….while 106,185 people has enrolled. Net enrollment –3.9 million (hat tip Zero Hedge/Wall Street Journal) 

Upon realizing this, President Obama backtracks and said “insurers can extend by one year those policies they had canceled for failing to meet the law's requirements” (WSJ)

And in response, the House of Representatives just passed a bill "to let insurance companies sell health plans that had previously been canceled due to ObamaCare regulations" (Fox).

Obamacare’s monumental failure serves as vindication of the great Austrian economist Friedrich August von Hayek who warned of the adverse effects from the Fatal Conceit of central planners:(bold added)

If we had deliberately built, or were consciously shaping, the structure of human action, we would merely have to ask individuals why they had interacted with any particular structure. Whereas, in fact, specialised students, even after generations of effort, find it exceedingly difficult to explain such matters, and cannot agree on what are the causes or what will be the effects of particular events. The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Typhoon Yolanda and the Phisix

The fatalities from the wide swathe of devastation from Typhoon Hainan (Yolanda) reportedly “one of the strongest tropical cyclone ever recorded[1]” keeps mounting. Earlier today, death toll estimates have reached 1,200[2], a few hours later this has swelled to an horrific 10,000[3]. 

How sad and depressing. My sympathies to the victims of the recent calamity

The Three Fatal Factors in the Face of a Natural Calamity

Typhoon Yolanda was reportedly the 24^th tropical storm to hit the Philippines in 2013. While this has been the highest in decades, the most number of storms in record has been in 1993 which then registered 32 typhoons[4].

The tropical location of the Philippine Islands has made her vulnerable to natural calamities. The Philippines has been susceptible not only to earthquakes and volcanic activity as she sits on the Pacific Ring of Fire, but also to typhoons, floods and drought.

Cyclical atmospheric idiosyncrasy known as the Siberian Highs[5]—the massive collection of cold or very cold dry air that accumulates on the northeastern part of Eurasian terrain for the cold part of the year, roughly from September till April—has been mainly responsible for the Philippine susceptibility to severe atmospheric volatilities.

Notes the Wall Street Journal[6]:

Weather forecasters explain that tropical cyclones that form in the Pacific Ocean during the last few months of the year usually hit land because of the Siberian High, the prevailing high pressure system over Asia during the winter months.  The Siberian High prevents cyclones from moving upwards, which why they make landfall in the central and southern Philippines, said  Glaiza Escullar, a weather forecaster at PAG-ASA.

Ironically, days before the typhoon struck, the Philippine government trumpeted their supposed catastrophe preparedness noting of “implementing precautionary measures” with the aim for "zero casualty"[7]. At present estimates, “zero casualty” means 4 zeroes before the ‘one’, or if such assessments have been accurate then “zero casualty” seems on trajectory towards replacing the 1991 Typhoon Thelma (Uring)[8] as the deadliest Philippine typhoon in history. Coincidentally, Typhoon Uring also menaced Leyte (Ormoc City) with an estimated 5,081 to 8,165 casualties.

Yet unfortunately, despite government assurances, in the wake of Yolanda’s revolting destruction, widespread ‘organized’ looting[9] has been the immediate response as the whole government apparatus in the critically affected areas, particularly in Tacloban City, Leyte, appears to have broken down

Incidentally, Tacloban Leyte and Samar, which bore the brunt of Typhoon Yolanda’s havoc, have been part of Region VIII, the third most depressed region in the country after ARMM and Region XII.

As of 2012, Region 8 has a poverty incidence level of 37.2% compared to the nationwide level of 22.3% according to the NSCB[10]. The same areas have also been governed by entrenched political dynasties[11]. These regional plutocracies seemed to have corralled economic opportunities using the political route as “barriers to entry” at the expense of their constituents.

And such economic deprivation, which means lack of savings and or access to savings, dispossesses individuals or families or communities the wherewithal to undertake measures necessary to protect themselves from natural calamities without government assistance.

And following the regrettable tragedy, the incumbent administration seems to have resorted to a Pontius Pilate tack of hand washing; the Philippine president reportedly “stopped short of criticizing local officials in Tacloban for being unprepared for the coming of Super Typhoon”[12]

When the populace become heavily dependent on a supposedly ‘paternal’ government to look after their welfare in the face of natural calamities, then big casualty numbers would seem as the natural outcome. That’s because, not only has government’s interests been different from individual interests (politicians have mainly been focused on short-term vote-generating populist politics), importantly, government knowledge—of the uniqueness of the environment and of distinctiveness of people’s thoughts and reactions—have severely been limited as with all the rest.

Such dearth of knowledge, as well as, the follies of short term orientation which has been the predisposition of political agents, gets only revealed in the aftermath of natural disasters. And the mechanical political reaction has been to point fingers—again symptom of populist politics.

Leyte’s natural disaster tragedies (Typhoon Uring 1991, Typhoon Yolanda 2013 and 2006 Southern Leyte mudslide[13]) have hardly been random: Destitution, steep cultural dependency on political solutions and geographic vulnerabilities account for as a deadly cocktail mix when confronted with Mother Earth’s tantrums.

Typhoon Yolanda as Post Hoc Rationalizations

In the coming days, I expect mainstream experts to use the catastrophic events from Typhoon Yolanda as post hoc rationalization on the actions of domestic financial markets.

If the said markets experience downside volatility, then Yolanda will be attributed as contributing to negative fundamentals and sentiment. However, if the market goes up, then experts will likely impute on positive side of the reconstruction impact from post-Yolanda (Broken Window fallacy).

The above tables from Wikipedia.org denotes of the rankings of the deadliest (in terms of lives lost-left) and most destructive (in terms of currency damage-right) of Tropical cyclones to have hit the Philippines[14].

Post Typhoon Ondoy in 2009, I remarked that previous large destructive and fatal typhoons (like Typhoon Uring) hardly impacted the stock markets as seen in the Phisix[15]

the typhoon’s impact to the stock market has largely been immaterial over all timeframes considered and tends to reflect on the major trends from which undergirds the stock market cycle.

Four years later, my observations appear to have been validated.

The flow of stock price movements during post-Typhoon episodes largely reflected on the pre-established interim and general trend of the Phisix.

For instance, the Phisix rose by .6% a day after the Bohol intensity 7.2 earthquake of October 15, 2013[16] which claimed 222 lives. With domestic stocks on a rebound from the August lows, the Phisix ended the Bohol earthquake week sharply up (1.82% October 18^th).

This means that natural disasters have mostly been a non-event, especially today when stock price movement have become highly sensitive to central bank policies.

And it would be a mistake for the mainstream to interpret reconstruction activities as positive ‘demand based’ growth. This would be a prime example of mistaking statistics and accounting identities with real human activities. Lost lives are irreplaceable. They represent human capital losses. Importantly, expenditures for replacements should not be mistaken as value added.

Also need must not be confused with demand. As the great Austrian economist and journalist Henry Hazlitt wrote[17], “Effective economic demand requires not merely need but corresponding purchasing power”. And the channeling of resources and efforts towards rebuilding means a diversion of demand and consequently a loss of purchasing power for other ventures,

Wherever business is increased in one direction, it must (except insofar as productive energies may be generally stimulated by a sense of want and urgency) be correspondingly reduced in another.

Yet the mainstream’s obsession with numbers foregoes the qualitative functions of human lives, as the late American financial historian Peter L. Bernstein warned[18]

Our lives teem with numbers, but we sometimes forget that numbers are only tools. They have no soul; they may indeed become fetishes.

Despite the aforementioned shortcomings, the innate human quest or desire for survival and man’s intrinsic social nature for cooperation[19] means after all the tears and grieving, lives of people from calamity stricken areas of Leyte, Samar, Bohol and others will learn to pick up the pieces and move on. 

---

[1] Wikipedia.org Typhoon Haiyan

[2] Guardian.com Typhoon Haiyan death toll in Philippines estimated at 1,200 November 9, 2013

[3] Guardian.com Typhoon Haiyan: at least 10,000 reported dead in Philippine province, November 10, 2013

[4] Wall Street Journal SEA Real Time Why is the Philippines So Prone to Typhoons? November 8, 2013

[5] Wikipedia.org Siberian High

[6] Wall Street Journal Loc. Cit.

[7] ABS-CBNNews.com Government agencies brace for super typhoon Yolanda November 7, 2013

[8] Wikipedia.org Tropical Storm Thelma

[9] GMAnetwork.com Looting reported in Tacloban in aftermath of Yolanda November 9, 2013. ‘Organized looting’ was the phrase used by an ABS-CBN reporter on a TV report.

[10] National Statistical Coordination Board, Poverty incidence unchanged, as of first semester 2012—NSCB April 23, 2013

[11] Wikipedia.org List of political families in the Philippines

[12] Yahoo.com PNoy: Tacloban seemed unprepared for Yolanda November 9, 2013

[13] Wikipedia.org 2006 Southern Leyte mudslide

[14] Wikipedia.org Typhoons in the Philippines

[15] See Typhoon Ondoy: Market Fallacies and Risks October 4, 2009

[16] Wikipedia.org 2013 Bohol earthquake

[17] Henry Hazlitt The Blessings of Destruction Chapter 3 Economics in One Lesson Mises.org

[18] Peter L. Bernstein Introduction Against the Gods: The Remarkable Story of Risk p.7 John Wiley & Sons

[19] Phys.org Humans naturally cooperative, altruistic, social September 28, 2011

Quotes from Peter Drucker’s The Sickness of Government

The late management guru Peter Drucker bewailed the public’s dependence on government from a practical standpoint in a chapter called the Sickness of Government in his 1969 book The Age of Discontinuity

Tip of the hat to Cato’s Chris Edwards. Mr. Edward’s blog post is the source of the following quotes which I cross checked with Mr. Drucker’s essay (bold mine)

Government surely has never been more prominent than today. The most despotic government of 1900 would not have dared probe into the private affairs of its citizens as income tax collectors now do routinely in the freest society. Even the tsar’s secret police did not go in for the security investigations we now take for granted.” p.3

…

For seventy years or so – from the 1890’s to the 1960’s – mankind, especially in the developed countries, was hypnotized by government. We were in love with it and saw no limits to its abilities, or to its good intentions. p.4

…

This belief has been, in effect, only one facet of a much more general illusion from which the educated and the intellectuals in particular have suffered: that by turning tasks over to government, conflict and decision would be made to go away. Once the “wicked private interests” had been eliminated, a decision as to the right course of action would be rational and automatic. There would be neither selfishness nor political passion. Belief in government was thus largely a romantic escape from politics and from responsibility.” p.5

…

The greatest factor in the disenchantment with government is that government has not performed. The record over these last thirty or forty years has been dismal. Government has proven itself capable of doing only two things with great effectiveness. It can wage war. And it can inflate the currency.” p.7 (I would add spending and borrowing too—benson)

…

The best we get from government in the welfare state is competent mediocrity. More often we do not even get that; we get incompetence such as we would not tolerate in an insurance company. In every country, there are big areas of government administration where there is no performance whatever – only costs. p.7

…

Modern government has become ungovernable. There is no government today that can still claim control of its bureaucracy and of its various agencies. Government agencies are all becoming autonomous, ends in themselves, and directed by their own desire for power, their own narrow vision rather than by national policy. p.8

…

We are very good at creating administrative agencies. But no sooner are they called into being than they become ends in themselves, acquire their own constituency as well as a “vested right” to grants from the treasury, continuing support by the taxpayer, and immunity to political direction. No sooner, in other words, are they born than they defy public will and public policy. p.9

…

Nothing in history, for instance, can compare in futility with those prize activities of the American government, its welfare policies and its farm policies. Both policies are largely responsible for the disease that they are supposed to cure. p.13

Philippine Politics: As Predicted, Cigarette Sin Taxes Backfires, Tax Revenues Fall as Smuggling Explodes

As I have repeatedly been saying, people’s actions are guided by incentives. Raising taxes, such as the Sin Tax, reshape people’s incentives. And people respond to a change in the tax environment based on the elastic relationship between rates of taxes and the levels of revenues from such rates (Laffer Curve). Such variability in people's reactions usually goes in the opposite direction from the expectations of the government and their favorite ‘tax, economic and finance’ experts, as well as, the consensus who thinks in linear terms.

And because taxes don’t have “neutral” effects on people’s behavior, the result has been a policy boomerang.

I have noted incumbent domestic politicians have used the moral platform (supposedly to prevent or reduce vice) as pretentious cover to justify “Sin taxes” on what truly has been political greed—insatiable deficit spending.

Part of the linear thinking expert advisory group has been the IMF whom has endorsed such repressive taxes.

I have pointed to the US experience where 'Sin Taxes' caused widespread smuggling. Not only in the US, in the United Kingdom, alcohol sin taxes has prompted for increased health problems and a booming informal or shadow economy.

Yet like all prohibition laws, quasi prohibition decrees like the sin taxes fail to reduce alcohol or cigarette consumption. 

One might add as a way to get around such regulations, sin taxes promote corruption

Now the unintended effects of the Philippine version ‘sin tax’, from the Inquirer:

Blame it on the law of unintended consequences.

When the Aquino administration pushed Congress to raise the level of “sin taxes” on tobacco products last year, cigarette manufacturers argued that higher levies would create new problems for the government, like smuggling.

According to them, the resulting increase in cigarette prices would give more incentives to unscrupulous parties to smuggle in cheaper brands and meet the demand from less affluent buyers.

Today—almost one year into the effectivity of the Sin Tax Reform Law—their warnings have proved almost prescient.

Information provided by the country’s largest tobacco manufacturer showed that the government may have lost as much as P4.4 billion in tobacco excise taxes in the first semester of the 2013 alone.

The first series of the two part article puts the blame of the tax loss burden to a single company. And as usual, the mainstream excuse has been one of regulatory lapse (and scheming entrepreneurs) rather treating such as a political economic phenomenon. 

As a side note, the mainstream's solutions to social problems can be simplified in 4 ways: throw money at the problem, replace the perceived delinquent authority/ies, and for the politically incorrect entities, apply or increase regulations or impose prohibitions and lastly implement taxes for the other groups. There hardly has been the perspective where these solutions can be or have earlier been the source of the problem.

Yet another article suggests that there has been an explosion of cigarette smuggling. Recently, Php 18 billion pesos worth of Marlboro cigarettes has reportedly been seized by officials. In addition, according to the same report sales of tobacco companies plummeted by 40% during the 1st quarter of 2013 resulting to a decline in tax collections

And all the above symptoms—shadow economy, smuggling, lower revenues, failure to stem vice/s, greater health hazard (from counterfeit or low quality products)—of sin taxes captured by this opinion column from the Inquirer

The high tax regime has been in force since January. Has it forced smokers to quit? No. Has it pushed street prices of cigarettes high enough to make smokers quit? No. Has the government been able to collect more taxes? Still no.

Worse, what Filipinos are smoking now is much more harmful to their health than what they used to smoke. What happened?

Smuggling. When the “sin tax” was being crafted, this column warned that cigarette smuggling would flourish, as had happened here before and in other cities when taxes were raised drastically. It is happening now.

Smuggled cigarettes sell for P1 per stick, less if you buy by the pack. They are sold out in the streets, in sari-sari and convenience stores everywhere with posters that scream “low prices!” at every passing man, woman, and child.

Unfortunately, smokers who can buy cheap cigarettes tend to smoke more and are not financially motivated to quit. Already, 25 percent of Filipino smokers of higher-priced premium and subpremium brands have shifted to the smuggled P1 brands.

In the Philippines’ 100-billion-stick market, that translates to 25 billion sticks or 1.25 billion packs that should have been taxed at a higher rate of P25 per pack, instead of just P12. The government is losing about P16.3 billion in taxes per year.

Statistics show that contrary to expectations, the smoking rate among Filipinos has not subsided since Republic Act No. 10351 was implemented.

It has gone up instead. The average daily consumption has grown from 13.5 sticks per smoker in the first quarter of the year to 14.1 sticks per smoker in the second quarter.

The increment may be slight but it is certainly puzzling. The reason is the raging popularity of cheap smuggled cigarettes.

Philosopher George Santayana once warned about people who don’t learn from past as doomed to repeat the same errors.

Obviously politicians and their apologists can hardly ever grasp that populist feel-good noble-sounding repressive policies such as the sin taxes (which really have been engineered to generate votes or approval ratings) have been bound for failure from its inception.

This reminds of me of the fatal conceit by politicians who believe that they can subvert the basic laws of economics. 

Even in the 18th century Scottish philosopher Adam Smith recognized this which he branded as the "man of the system" (Theory of Moral Sentiments, Part VI Of the Character of Virtues)

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

At the end of the day, it is society who carries the load or who pays for the costs of failed experiments by political authorities. This is why the same errors have been recycled through time.

Quote of the Day: The Difference between a Politican and a Private sector CEO

Some of the president’s most central and important claims about Obamacare are revealed now – and widely admitted – to be wrong.  If he were the CEO of a private company he would be sued, publicly lambasted by all the major media, perhaps hauled before an admittedly grandstanding Congressional committee, and possibly prosecuted, convicted, fined, or even imprisoned for fraudulent misrepresentation.  But because Obama is a politician, his misrepresentations are excused as simplifying descriptions aimed at persuading the doofus public to fall for legislation that they would not have fallen for had the president described that legislation honestly and accurately.

This is from Café Hayek Blogger and Professor Don Boudreaux on the unraveling Obamacare. 

Politicians typically use noble sounding rhetoric (e.g. "change", "equality") to push for political agendas that serves their interests. Yet they rarely have been accountable for their actions, even in the face of flagrant failures. This gambling away of society's civil liberties, financial and economic resources and social order has largely been a product of the lack of skin in the game. 

And in the face of failures, politicians would usually resort to propaganda blitz by shifting the blame elsewhere, hoping that fickle voters will forget. And for as long as politicians can get away with this, they will keep on gambling away society's treasures.

Iceland Recovery? Capital Controls and Devaluation Backfires…

Well Iceland’s supposed recovery seems to have been truncated as policies of capital controls and devaluation appears to have backfired.

From the Bloomberg:

Iceland’s private sector is running out of cash to repay its foreign currency debt, according to the nation’s central bank.

Non-krona debt owed by entities besides the Treasury and the central bank due through 2018 totals about 700 billion kronur ($5.8 billion), the bank said yesterday. The projected current account surpluses over the next five years aren’t estimated to reach even half of that and will equal a shortfall of about 20 percent of gross domestic product.

Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf defaulted on a combined $85 billion in October 2008 after running out of cash to sustain their debt-funded expansions. The collapse plunged the economy into its worst recession in six decades, forcing the government to seek an International Monetary Fund bailout to stay afloat.

For now, the controls are still helping Iceland manage its debts by rationing payments. That means the largest foreign refinancing risk, which stems from repayments on two Landsbankinn hf bonds totaling 296 billion kronur, won’t destabilize the economy.

“Repayment of this debt is currently under capital controls,” said Benediktsdottir. “So we can use the capital controls to actually manage the outflow of those repayments. By doing so, we can keep both financial and currency stability.”

If Iceland capital controls have been "helping" manage debts then the private sector won't be running the risks of non-payment of foreign currency debt.

 

Iceland reportedly allowed her insolvent banks to go bankrupt, the Iceland’s President even bragged about this as I earlier showed. 

But the reality is that Iceland’s government bailed out the central bank by raising the amount of debt 5 fold where the latter has been heavily exposed to foreign creditors. 

The USD-Icelandic krona

The central bank bailout has been implemented with rigorous capital controls and devaluation, which mainstream mercantilists cheered as the magic wand for Iceland’s recovery.

Unfortunately for devaluation proponents, inflationism’s magic works only over the interim or the short term, where long term costs have now become apparent.

At the Geo-Graphics Blog of the Coucil of Foreign Relation (CFR). Benn Steil and Dinah Walker shows of the boom-bust cycle and the economic backlash (via relative underperformance with her peers) from a supposed devaluation based miracle…

Here it is, folks: Iceland, whose currency lost half its value against the euro in 2008, vs. Estonia, Latvia, and Ireland, all of which were euroized or pegged to the euro over the entire period . . .

 

In the updated figure, Estonia comes out on top, by a lot – well above Iceland, which performed no better than Latvia or Ireland, even using a starting date chosen by Krugman to make Iceland look as good as possible.

Yet Iceland “success story” now comes with a likely imitation of the Cyprus bailin model as the Iceland government mulls to remove its blanket authority for large depositors as well as depositor haircuts.

Notes the Zero Hedge, (bold original)

Following the crisis in October 2008, Iceland's government declared all deposits in domestic financial institutions were 'blanket' guaranteed - an Emergency Act that was reafrmed twice since. However, according to RUV, the finance minister is proposing to restrict this guarantee to only deposits less-than-EUR100,000. While some might see the removal of an 'emergency' measure as a positive, it is of course sadly reminiscent of the European Union "template" to haircut large depositors. This is coincidental (threatening) timing given the current stagnation of talks between Iceland bank creditors and the government over haircuts and lifting capital controls - which have restricted the outflows of around $8 billion.

Interventionism and inflationism only works to the benefit of the political class and their favored constituencies, while the rest of the society suffers…

Yet this has been to be the global trend

Video: How a Romanian Internet Campaign Undermined a UK Anti Immigration Propaganda

Cool stuff demonstrative of epic government blunder.

The British government launches a ridiculous discriminatory anti immigration campaign against Romanians and Bulgarians. In response, a Romanian company ingeniously used the internet to turn the tables on the UK government until the latter capitulates. Amusing

(hat tip Gary North) You tube GMP Bucharest link

Quote of the Day: The Myth of “Failed” Policies

Many people, for good reason, have concluded that the surest test of whether a politician or public official is lying is to ask, Are his lips moving? An equally simple test may be proposed to determine whether a seemingly failed policy is actually a success for the movers and shakers of the political class. This test requires only that we ask, Does the policy remain in effect? If it does, we can be sure that it continues to serve the interests of those who are actually decisive in determining the sorts of policy the government establishes and implements. Now, as before, “failed” policies are a myth in regard to all policies that persist beyond the short run. The people who effectively run the government, whether from inside or outside the beast, do not run it for the purpose of hampering the attainment of their own interests; on the contrary. Everything else in the policy process is, as Macbeth would put it, “a tale told by an idiot [augmented by economists, lawyers, and public-relations flacks], full of sound and fury signifying nothing.”

(bold mine)

This is from Austrian economist Robert Higgs at the Independent Institute Blog

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

How the Welfare State Bankrupts: French Edition

It is widely or popularly held that “safety nets” provide “social justice” and “compassion” to underprivileged people.  On the surface this looks valid. 

But in reality or by looking deeper, the welfare system provides perverse incentives that accomplishes the opposite. 

Such includes dependency, sloth, reduction of the incentive to save, promotes reckless behavior via the moral hazard, incites social conflict via class warfare policies brought about by envy and the entitlement “something for nothing” mentality and fosters economic instability which raises the risks of crises via chronic deficits, huge debts and inflationism. 

All these undermines productivity, prosperity, peace and social harmony, and most importantly, civil liberties.

GoldMoney’s Alasdair Macleod  talks about the decadent French welfare state as example (bold mine)

However, the financial press is less familiar with the enormous future commitments of European governments, which are truly alarming. And these figures do not even fully expose the difficulties for governments to deliver their welfare obligations.

Eurozone unemployment is over 10% on average. This means that 10% of tax contributors are out of the picture and become a welfare burden, so Spain and Greece where unemployment is at 26% are in immediate trouble with their welfare budgets. Another unfavourable factor is the dominance of the state.

Take France, whose general government is 57% of GDP. Her working population is 28 million out of a total population of 66 million; 3 million are unemployed, which leaves 25 million, of which 8 million are employed by government. We can disregard government employees, since they are a net government liability, not a source of revenue.

That leaves only 17 million productive taxpayers who have to pay for the welfare and pensions for 66 million in a heavily state-controlled economy. Furthermore, a significant proportion of private sector employees are working in nationalised or government-supported industries, so the true figure of real taxpayers is significantly less than 17 million.

We can draw two conclusions about the European states: their welfare, health and social service liabilities are, unless they ditch the majority of their welfare commitments, going to bankrupt them; and because their true taxpaying base to fund this largess is smaller than generally realised, taxes are going to have to rise to the point where it is not worth genuinely productive people working.

When unproductive sectors takes more from what the productive sectors can give, such parasitical nature of relationship only means one thing: bankruptcy, as the Santa Claus (free lunch) principle eventually liquidates itself, and a coming social chaos. In short, feel good short term economically unfeasible policies eventually unravels.

Yet the seduction of welfare systems emanates from the lies founded and peddled for by politicians. As the great libertarian author Henry Hazlitt warned (Man versus the Welfare State p.34).

THE WELFARE STATE CAN ARISE AND PERSIST ONLY by cultivating and living on a set of economic delusions in the minds of the voters

At the end of the day, the welfare state epitomizes the axiom "the road to hell is paved with good intentions".

Fed’s Beige Book: Government IS the Problem

The late former US President Ronald Reagan in his first inaugural address said that 

government is not the solution to our problem; government is the problem

The US Federal Reserve recently conducted a survey and discovered of President Reagan’s pearl of wisdom.

From Marketwatch.com

The government is getting in the way of a sustainable economic recovery, according to a Federal Reserve survey of business contacts compiled for the Beige Book report released Wednesday.

Business contacts in several of the Fed’s 12 districts reported that fiscal and health-care policies are holding back private spending and hiring…

Employers in several districts also cited “unknown effects” of the Affordable Care Act as reasons for planned layoffs and a reluctance to hire more staff, the Fed said.

Violence from Prohibition Laws: Atimonan Killing

I have been repeatedly pointing out here that prohibition statutes engender unnecessary violence. Worst, violence have always been arbitrary instituted by political authorities in the name of supposed moral uprightness. 

Today’s headlines shows of a good example, from the Inquirer.net

The gun battle in Atimonan town, Quezon province, that left 13 people dead on Sunday was the culmination of a three-month police operation approved by the Presidential Anti-Organized Crime Commission (PAOCC) headed by Executive Secretary Paquito Ochoa Jr.

But Ochoa denied there was any mission order from the commission authorizing the police-military operation in Atimonan.

The operation, code-named “Coplan Armado,” had only one target: Victor “Vic” Siman, operator of the numbers racket “jueteng” disguised as government-sanctioned Small Town Lottery (STL) in Laguna and Batangas provinces in southern Luzon…

A Philippine Daily Inquirer source in the Philippine National Police described the 12 others killed  in the alleged shootout between security forces and Siman’s group as “collateral damage.”

Such violence has been exercised against alleged crimes based on “vices” or what American individualist and anarchist Lysander Spooner calls as “Vices are not crimes”

It is a maxim of the law that there can be no crime without a criminal intent; that is, without the intent to invade the person or property of another. But no one ever practices a vice with any such criminal intent. He practices his vice for his own happiness solely, and not from any malice toward others.

Unless this clear distinction between vices and crimes be made and recognized by the laws, there can be on earth no such thing as individual right, liberty, or property — no such things as the right of one man to the control of his own person and property, and the corresponding and coequal rights of another man to the control of his own person and property.

For a government to declare a vice to be a crime, and to punish it as such, is an attempt to falsify the very nature of things. It is as absurd as it would be to declare truth to be falsehood, or falsehood truth.

Jueteng is about gambling and personal vice. The ban on this has created a shadow industry, like all others, prostitution, drugs and etc... Ironically, on the other hand, the Philippine government promotes the "casino" industry.

Yet the war on jueteng has been an endless crusade by the Philippine government that has hardly attained proximity to its stated political ‘moral’ goals.

As pointed out in the past, the downfall of the ousted administration in EDSA II, has been tied to this. The difference is that because the involved had been the top political brass, then “no killing” had been dispensed with.

But of course, application of laws has been different with people with lower levels of political power.  I call this political inequality.

Unfortunately, the public has been benumbed or inured to “collateral damage”, which echoes on the my edited version of Stalin’s axiom “one death is a tragedy, one million dozen is a statistic”, or that “collateral damage” has been perceived as “reasonable” for as long as government does it, or has been carried out with good intentions, and or for as long as this happens to the others (and not to them)

The tragedy here is that the public doesn’t realize which has been more immoral: violence as a means to a (questionable) end or personal vices.

Yet the above example exhibits the institutional violence inherent in all governments, as the great Austrian economist Ludwig von Mises once pointed out (bold mine)

It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

To draw attention to this fact does not imply any reflection upon government activities. In stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals. One must take exception to the often-repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God.

In upholding an unjust populist edict, the recourse to violence means that government creates more victims via repression than attaining its political goal. It also means the government has hardly been about the fiction of social justice but about the preservation, expansion and the showcase of political power.

Austrian Bureaucrat Loses $439 million of Taxpayers Money on Derivatives Gamble

This is a prime example of negative externalities (or cost of a mistake to the society) derived from centralized institutions has far more damaging effect than errors incurred by entrepreneurs or so called "market failures".

A mistaken decision from political authorities extrapolates to greater tax burden for the citizenry.

From Reuters (hat tip Zero Hedge)

Austria said it planned stricter controls over regional finances after a Salzburg civil servant gambled hundreds of millions of euros of taxpayers' money on high-risk derivatives.

Finance Minister Maria Fekter said on Tuesday she was preparing new national legislation to impose stricter conditions on how regional administrations could use money borrowed at preferential rates from the Federal Financing Agency (BFA).

Salzburg officials said last week they had sacked a finance director after determining she used doctored documents and false signatures to hide a trail of losses from deals that started more than a decade ago, causing a book loss of 340 million euros ($439 million).

The incident has sparked calls for fresh elections in Salzburg state and for regional financing rules to be reformed. Austrian states have 8.2 billion euros of debt, or 8.1 percent of the country's public debt.

"It can't go on that one keeps getting cheap money from the BFA and then starts gambling with it," Fekter told journalists, adding that the states could save 150 million euros per year by using the BFA for all their financing needs.

The above is another great example of knowledge problem. This shows that political agents are also human beings who possesses or embodies the same set of shortcomings as everyone else. Except that they command resources and privileges via mandated budges and guns.

Losses from “gambling” is actually fait accompli or a side issue. If the gamble paid off then this won’t have been in the news.

But even if we presume the noble intentions have guided the actions of bureaucrats, the real issue is why governments are given the latitude to put taxpayer resources at risk and why their losses means greater tax burdens instead of reducing them.

The irony of politics is that political errors have always been rewarded-- although the culprits does get sacked, the system remains in place--instead of being punished, all these comes at the expense of taxypayers—in terms of opportunity costs via resources and time, as well as, civil liberties.

Japan’s Announces Fiscal Stimulus: 1 trillion Yen (US 12.3 B)

Not content with the previous rounds of QEs by the Bank of Japan (BoJ), Japan’s politicians has taken interventionism to the the next level through the announcement of more fiscal spending. 

From Bloomberg,

The Japanese government will spend 1 trillion yen ($12.3 billion) on a second round of fiscal stimulus as it tries to revive an economy at risk of sliding into recession.

The government will tap reserve funds from this fiscal year’s budget, Chief Cabinet Secretary Osamu Fujimura told reporters in Tokyo today. The latest measures follow the announcement of 750 billion yen of stimulus last month.

Ironically, the BoJ held off or refrained from further easing today, perhaps awaiting the results of the December elections, where the leading candidate Shinzo Abe has expressed preference for the BoJ to adapt the FED’s policy of unlimited QE

From another Bloomberg,

Opposition leader Shinzo Abe, the leading contender to become prime minister after a Dec. 16 election, has called for unlimited easing and an increase in the central bank’s inflation goal to as much as 3 percent from 1 percent. His comments last week triggered the biggest two-day decline in the yen against the dollar in a year as investors speculated that more aggressive monetary loosening is looming.

Never mind that the Japanese government had engaged in a string of major stimulus packages during the bubble bust from 1992 to 1999, yet got mired into what has been known as the “lost decade” or economic stagnation brought about by the Japan's bubble cycle.  

In reality, Japan's economic stagnation has two decades old (chart from tradingeconomics.com).

As economist Veronique de Rugy at the Reason Magazine explains,

Between 1992 and 1999, Japan passed eight stimulus packages, totaling roughly $840 billion in today's dollars. During that time, the debt-to-Gross Domestic Product (GDP) ratio skyrocketed, the country was rocked by massive corruption scandals, and the economy never recovered. All Japan had to show for it was a mountain of debt and some public works projects that look suspiciously like bridges to nowhere.

Japan’s latest pump priming will only worsen her already precarious fiscal conditions. 

Yet the new spending package by Japan’s government would lead to increasing dependency on the BoJ as chief financier of their government’s profligacy, as demand for Japanese Government Bonds (JGB) by retail investors has been on the wane.

The BoJ now holds 10% of JGB. The new or recent QEs means that the BoJ's share of JGBs will balloon.

It has been said that desperate times calls for desperate measures, but such measures of desperation are likely to speed up the coming government induced train wreck for the Japanese.

Talk about doing the same thing over and over again and expecting different results and not learning from the lessons of history.