Quote of the Day: Colonial Nationalism and Anti Colonial Nationalism

If nationalism inspired two incompatible movements, how should we evaluate it?  You might just call it a wash: Nationalism giveth, and nationalism taketh away.  But this shoulder shrug overlooks two mountains of bodies.  The first mountain: All the people killed to establish colonial rule.  The second mountain: All the people killed to overthrow colonial rule.  It is perfectly fair to blame nationalism for both"transition costs." 

Surprising implication: Regardless of the relative merits of colonial versus indigenous rule, the history of colonialism makes nationalism look very bad indeed.  Why?  Because colonial rule didn't last!  So if you're pro-colonial, nationalism led to a high transition cost, followed by ephemeral wonders, followed by another high transition cost.  And if you're anti-colonial, nationalism led to a high transition cost, followed by ephemeral horrors, followed by another high transition cost.  Two dreadful deals, however you slice it.

But don't you either have to be pro-colonial or anti-colonial?  No.  You can take the cynical view that foreign and native rule are about equally bad.  You can take the pacifist view that the difference between foreign and native rule isn't worth a war.  Or, like me, you can merge these positions into cynical pacifism.  On this view, fighting wars to start colonial rule was one monstrous crime - and fighting wars to end colonial rule was another.  Nationalism is intellectually guilty on both counts, because it is nationalism that convinced people around the world that squares of multi-colored cloth are worth killing for.

(italics original)

This is from economics professor,  prolific blogger and author Bryan Caplan at the Library of Economics and Liberty

China Buys Record US Treasuries; Keeps Financing US military

The Chinese government and the private sector bought record amounts of US treasuries last October.

From the Wall Street Real Time Economic Blog

China scooped up more Treasury debt in October than any other foreign investor, a sign recent U.S. fiscal troubles haven’t tainted the Treasury bond market’s status as a global safe harbor.

China boosted its Treasury debt holdings by $10.7 billion in October to $1.3045 trillion, according to the latest monthly capital flows data released by the Treasury Department on Monday. Foreign investors overall added $24.4 billion in Treasury debt holdings in October. China primarily bought T-bills due in one year or less, known as T-bills with $8.4 billion added in October.

China’s overall holdings of Treasurys at the end of October marks the second highest level following a record high of $1.3149 trillion set in July 2011, according to Ian Lyngen, senior government bond strategist at CRT Capital Group LLC. China is the largest foreign owner of Treasury debt.

The Chinese accumulation of USTs has now reached $1.3045 trillion. 

The US government has earmarked $633 billion for her defense budget in 2014. This can be as interpreted as the Chinese government partially financing the US military.

Here is the 2012 global budget on military spending

US defense budget has been projected to keep rising.

Question is why does the Chinese government continue to finance America’s budget (or military spending) if both countries have been really at odds with each other?

Of course, the report is as of October, which is prior to the PBoC’s announcement last November that their accumulation of USTs may be put on hold.

Could the PBoC’s threat to decrease funding of the US debt be reason behind the recent political brinkmanship by the US on China’s declared Air Zone?

Chinese buying of USTs has also helped in keeping the bond vigilantes at bay last October. Yields of 10 year UST notes fell in October.

So the American government significantly depends on the foreign buying, particularly from China and Japan, to keep her debt musical chairs ongoing, yet media and politicians try to camouflage on these.

This becomes even more accentuated as US banks have been reported to have been reducing their holdings of USTs. 

And in the absence of US banks and foreign buying, USTs will become almost entirely a US Federal Reserve dynamic.  The FED now owns 33% of the outstanding 10 year USTs, according to the Zero Hedge. Fed holdings of USTs will significantly affect the capital standards required for the banking and financial system

So it has been a Dr.Jekyll and Mr. Hyde when it comes to the bilateral relationship between China and the US, as geopolitics and financing appear to be worlds apart.

As I have been saying, the theatrics in arguing and posturing over uninhabited islands seem to be meant at justifying more military spending (through inflationism) by the incitation of nationalism.

And nationalism based rationalization of defense spending it has been. The Japanese government recently approved an increase to her military spending budget… 

From Reuters:

Japan will boost its military spending in coming years, buying early-warning planes, beach-assault vehicles and troop-carrying aircraft, while seeking closer ties with Asian partners to counter a more militarily assertive China.

The planned 2.6 percent increase over five years, announced on Tuesday, reverses a decade of decline and marks the clearest sign since Prime Minister Shinzo Abe took office a year ago that he wants a bigger military role for Japan as tension flares with China over islands they both claim…

The policies, including a five-year military buildup and a 10-year defense guideline, call for stronger air and maritime surveillance capabilities and improved ability to defend far-flung islands through such steps as setting up a marine unit, buying unarmed surveillance drones and putting a unit of E-2C early-warning aircraft on Okinawa island in the south.

Japan will budget 23.97 trillion yen ($232.4 billion) over the coming five years for defense, up from 23.37 trillion yen from the previous five years.

Who will benefit?  No other than the US military complex…

U.S. contractors would be major beneficiaries of Abe's increased spending. These include V22 Osprey maker Boeing Co, lead F-35 fighter-jet contractor Lockheed Martin Corp, missile-fabricator Raytheon Corp, and Northrop Grumman Corp, which builds the Global Hawk unarmed drone.

Another corporate winner could be Britain's BAE Systems PLC, which through its American subsidiary, U.S. Combat Systems, is a major supplier of "amtrack" assault amphibious vehicles to the U.S. Marines.

You see, wars signify as good business, particularly for the politicians and their private sector allies. All that is needed is public approval. And to do this governments drum up nationalism by creating conflicts.

Of course governments also use wars as diversion from economic malaise.

The risk is that when the pantomine transmogrify into reality.

Senkaku Islands Dispute: The Risks from Political Brinkmanship

The US, Japan and China appears to be playing a dangerous geopolitical brinkmanship game.

From today’s headlines at the Inquirer.net

Days after China asserted greater military control over a swath of the East China Sea to bolster claims to a cluster of disputed islands, the US defied the move Tuesday as it flew two B-52 bombers through the area.

China, however, insisted Wednesday it has the capacity to enforce its controversial newly declared air zone over islands disputed with Japan, despite Beijing’s reluctance to intervene after American B-52 bombers flouted its rules.

The US said what it described as a training mission was not flown to respond to China’s latest military maneuver, yet the dramatic flights made clear that the US will not recognize the new territorial claims that Beijing laid out over the weekend.

There are several angles I see here

One these nations have been attempting to promote “nationalism” in order to justify government spending in their respective military industry, to “pump prime” their fragile economies.

If this is true then, then all these has been a smokescreen in favor of pushing the interests of the military industrial complex. (charts above from the Economist)

Second, since China’s central bank recently signaled that they may be scaling back on purchases of US treasuries (euphemism for financing of the US government which includes the military) because these “does not benefit any more from increases in its foreign-currency holdings”, the US taunting of China’s government at the disputed Senkaku islands could have been implicit threat on the Chinese to sustain such such financing arrangement or else…

As one would note, both Japan and China has been providing support to the US government by cushioning the impact of the bond vigilantes through record UST accumulations.

Based on the US Treasury’s TIC September data, Japan holdings of USTs has spiked to record levels while China’s drifts at record levels

So while we see these countries posture and debate on media, behind the scenes Japan and China appear as coordinating their support to the US government via the bond markets against the bond vigilantes.

So we have a strange case of Dr. Jekyll and Mr. Hyde.

Third, the three crisis prone governments have earnestly been trying to divert the public’s attention from the real issue.

As shown above (via the Zero Hedge) despite the so-called 7+% economic growth in China, the PBoC has been rapidly expanding her balance sheet faster than the US.

And with unfulfilled expectations for real economic growth, despite the huge ballooning of central bank assets, governments need schemes to distract the public. And geopolitical brinkmanship with major political economies looks like a convenient way to achieve this.

Of course, it could all be a combination of the above

And we understand that all wars have been financed by inflationism.  

The problem is when games transform into reality.

Philippine Politics: South Korean War Jets Means Bigger Taxes and More Financial Repression

From Today’s Inquirer headlines

Move over. The big boys are coming.

President Benigno Aquino III said the Philippines was close to finalizing a deal with a state-owned Korean aerospace firm to buy a squadron of FA-50 fighter jets worth P18.9 billion—a move seen to bolster the country’s aerial power and defend its territory in the disputed West Philippine Sea (South China Sea).

Mr. Aquino said he discussed the procurement of 12 brand-new multirole combat aircraft from the Korea Aerospace Industries Inc. (KAI) when he met with South Korean President Park Geun-hye at the Blue House, South Korea’s seat of power.

He said it was part of the commitment of both countries to improve their military cooperation, in line with a memorandum of understanding they entered into on Thursday.

The first statement should have read 

Filipino taxpayers beware. The big taxes are coming

Funny how media glamorizes what has been sold by political agents to the public as patriotic mirage of defending domestic territories. In reality, the territorial dispute has served as smoke screen for expansionist government via bigger deficit spending, more political control (lesser civil liberties), promoting US bases and the military industrial complex (here and abroad)

As the recent Zamboanga City crisis has revealed, superiority and capability plays little in the way the Philippine military operates. The sordid Zamboanga episode exhibits how the much 'superior' Philippine military bungled their operations relative to a much ill equipped, inferior in numbers and in training insurgents (Wikipedia note; MNLF participants 500, Philippines army participants 5,000 with tanks personnel carriers, and air support—attack aircraft, helicopters). 

Yet it took 16 days for the military to crush the insurgents (casualties Philippine military: 25 dead 184 wounded, MNLF: 183 dead, 292 captured). This is hardly an example to justify the government's claim to increase defense spending.

And it seems no more than wishful thinking for anyone to believe that new ‘modern’ armaments will serve to neutralize the far superior nuclear and drone equipped Chinese army. A chart comparing the US and Chinese military in Asia, I have previously posted here.

The reality is that invoking nationalism to defend “insignificant scrubby rocks” (John Keller) which supposed ‘rich’ resource reserves will only be beneficial to politically connected allies (cronies) via service contract permits issued by the government.

Societies hardly get rich from resources, they get rich from free trade, the market economy or economic freedom. 

Natural resources have in fact been a blight to many countries. This has been known as the resource curse. Resource revenues tend to cover up on government's mismanagement. Also the ruling elite who control these resources tend to pushback on economic reforms.

Yet politicians have been agitating for war, whose benefits will accrue to a few and whose costs will be distributed and paid for by the productive agents of the Philippine society.

Spurious nationalism will be funded by bigger taxes and by more financial repression (inflationism, negative rates, deposit caps and other capital controls)

Of course in case of actual shooting encounters, it won’t be the politicians life whom will be at stake but the lowly foot soldier, who either earnestly believe they are fighting for a righteous cause or out of the lack economic opportunities. Unfortunately they serve as unwitting pawns of grandstanding politicians.

But the best way to resolve such impasse will be to deepen trade and commercial relationships that will promote deeper social interactions that would empower the citizenry rather than brinkmanship politics from politicians.

As I have been saying, all these has partly been about promoting the return of the US military bases—a legacy the incumbent administration wishes to fulfill which had been terminated in 1992 during the incumbent’s mother’s administration. 

Despite denials by the US to seek permanent presence, the US wants extended access to Philippine bases. The rehashed US-Philippine military relationship has been framed in the context to become palatable to public opinion.

The Left has alleged that the Philippine government has spent Php 500 million in building base infrastructure in Palawan to accommodate US military. If true, then this has been foreordained as popularity ratings will be used to formally bring back US bases. Except of course, the pork barrel scam has frayed into these populist ratings.

While it is true that Philippines will be buying these jets from a Korean state defense industry, what has not been revealed is that the FA-50 has essentially been powered, equipped and armed by mostly the US-Israel military industrial complex 

From the Wikipedia (bold mine)

The FA-50 is the most advanced version of the T-50. It is equipped with a modified Israeli EL/M-2032 pulse-Doppler radar with further Korean-specific modifications by LIG Nex1, and has more internal fuel capacity, enhanced avionics, a longer radome and a tactical datalink The radar selected for the FA-50 has a range two-thirds greater than the TA-50's radar. The EL/M-2032 was initially chosen over Lockheed Martin's preferred AN/APG-67(V)4 and SELEX Vixen 500E AESA radars. Other AESA radars such as Raytheon Advanced Combat Radar and Northrop Grumman's Scalable Agile Beam Radar are options for future production, and will likely be shared with the same AESA radar chosen for the USAF and ROKAF F-16 fighters. Samsung Thales is also independently developing a domestic multi-mode AESA radar for FA-50/ In December 2008, South Korea awarded a contract to Korea Aerospace Industries to convert four T-50s to FA-50 standards by 2012. In 2012, The Republic of Korea Air Force has ordered 20 FA-50 fighters to be delivered by the end of 2014 The maiden flight of FA-50 multirole fighter variant took place in 2011. The 60 FA-50 aircraft are to be produced from 2013 to 2016. Korea Aerospace Industries (KAI) received a 1.1 trillion won ($1 billion) order for FA-50 fighter aircraft in May 2013.

The T-50 is the proposed base for the more advanced F-50 fighter with strengthened wings, AESA radar, more internal fuel, enhanced electronic warfare capability, and a more powerful engine. The proposal is designated as T-50 Phase 3 program by KAI. Wing strengthening is required to support three underwing weapons pylons, compared to two underwing pylons on the TA-50 or FA-50. The AESA radar was expected to be RACR, which has 90% commonality with the AESA radar of the Super Hornet, or SABR, both of which are competing for KF-16's AESA radar upgrade program. Samsung Thales' AESA radar is also a possible option. The aircraft was altered to a single-seat configuration to allow more space for internal fuel and electronic warfare equipment. The engine could be either Eurojet EJ200 or General Electric F414, upgraded to 20,000 lb or 22,000 lb thrust, which is about 12-25% higher than the F404's thrust. The engines are already being offered for the baseline T-50 for future customers. A similar Korean-led international fighter program exists named the KAI KF-X.

TA-50/FA-50 armaments again from Wikipedia

The TA-50 version mounts a three-barrel cannon version of the M61 Vulcan internally behind the cockpit, which fires linkless 20 mm ammunition. Wingtip rails can accommodate the AIM-9 Sidewinders missile, a variety of additional weapons can be mounted to underwing hardpoints. Compatible air-to-surface weapons include the AGM-65 Maverick missile, Hydra 70 and LOGIR rocket launchers, CBU-58 and Mk-20 cluster bombs, and Mk-82, −83, and −84 general purpose bombs.

FA-50 can be externally fitted with Rafael's Sky Shield or LIG Nex1's ALQ-200K ECM pods, Sniper or LITENING targeting pods, and Condor 2 reconnaissance pods to further improve the fighter's electronic warfare, reconnaissance, and targeting capabilities. Other improved weapon systems over TA-50 include SPICE multifunctional guidance kits, Textron CBU-97/105 Sensor Fuzed Weapon with WCMD tail kits, JDAM, and JDAM-ER for more comprehensive air-to-ground operations, and AIM-120 missiles for BVR air-to-air operations. FA-50 has provisions for, but does not yet integrate, Python and Derby missiles, also produced by Rafael, and other anti-ship missiles, stand-off weapons, and sensors to be domestically developed by Korea

The South Korean army has also essentially been supported (28,000 troops) by the US, as well as armed and equipped (from army, navy, air force to marine corps mostly by the US military and US defense contractors. 

So the Korean defense industry represents a token of real defense spending $31.7 billion (2013), where according to Wikipedia arms exports totaled $183 million (2012) compared to imports at $1.131 billion (2010). 

In July 2013, the South Korean military appealed to the Parliament for an increase 13.7% of the military budget which translates to $38.5 billion to beef up the nation's missile defense. 

The point is South Korean defense industry has been deeply tied with the US military complex. So this reflects on the dynamics behind the Philippine government's proposed buying of South Korean jets.

Bottom line: The fantasy of arming for defense by the Philippine government to protect against the far more powerful China serves as economic privileges for the US-Israel defense industry (also Korea’s KAI), the Philippine bureaucracy and the Philippine military as well as the US military. 

The first three will be charged to us, the Philippine taxpayers. The US military base/s will be charged to the American taxpayers but whose subsequent social and environmental costs will a burden to local communities in the Philippines who will serve as host/s to the base/s.

Americans Are Ditching Citizenship in Record Numbers, Part 2

As I noted last May, the rate of wealthy Americans renouncing on their citizenship due to deepening political repression and the prospect of higher taxes, has been accelerating. Facebook co-founder Eduardo Saverin and celebrity Tina Turner embodies this hastening trend. 

Amazingly, despite the stiff or the punitive exit tax or expatriation tax, the rate exodus has nearly doubled from 670 from the first quarter to last quarter's 1,131.

Sovereign Man’s Simon Black explains:

A massive 1,131 individuals renounced their US citizenship last quarter, according to data that has yet to be officially released (though I was able to procure an advanced copy).

This is a HUGE jump.

Compared to the same quarter last year in which 188 people renounced their US citizenship, this year’s number is over SIX TIMES higher.

Not to mention, it’s 66.5% higher than last quarter’s 679 renunciations.

This brings the total number of renunciations so far this year to 1,810.

While still embryonic, it’s difficult to ignore this trend– more and more people are starting to renounce their US citizenship.

After all, the number of people who renounced citizenship this past quarter is roughly the same as the number of people who renounced for the previous four quarters COMBINED.

"Nationalism" losing its luster… Again from Mr. Black

This movement shouldn’t be that surprising for a species that began as nomadic hunter gatherers, or for a society that was founded by foreigner settlers in search of a better life.

Yet, in a rather anomalous twist, the emotional ties we have for our passports are incredibly strong.

It doesn’t matter where you’re from– the United States, Sweden, New Zealand, or Venezuela… many people all over the world are inculcated from birth with a sense that their country is ‘better’ than all the others.

We grow up with the songs, the flag waving, and the parades until the concept of motherland becomes deeply rooted in our emotional cores.

Not to mention, when so many of our friends and neighbors unquestionably fall in line, it’s a powerful social reinforcement that only strengthens the bond.

We come to view our nationalities rather ironically as a big piece of our core individuality. I am an American. I am a Canadian. I am an Austrian. Instead of– I am a human being.

It has taken decades… centuries even… to reach this point. So the fact that more and more people are making the gut-wrenching decision to ditch their US passports is truly a powerful trend.

Indeed, we are all human beings regardless of the supposed social divisions caused by race or geographic boundaries.

And if we are to talk about “race”, as I earlier pointed out, we are all “Africans” by genetic origins (mtDNA and paternal Y-chromosome). 

To quote National Geographic’s lead scientist Spencer Wells on the National Geographic-IBM’s Genographic Project

You and I, in fact everyone all over the world, we’re literally African under the skin; brothers and sisters separated by a mere two thousand generations. Old-fashioned concepts of race are not only socially divisive, but scientifically wrong.

(italics mine)

The mental concept of nationalism signifies a legacy of the tribal hunter-gatherer age. Then, the dearth of division of labor and trade made man’s survival entirely dependent on the limited scope of land which sustained them, thus, social bonds among tribes and neighbors were forged to resist against intrusions by marauders. Tribalism set stage for the 'nationalist' order.

Yet as trade or voluntary exchange or markets expanded, the importance of territorial boundaries has vastly been diminished. In essence, trade knows of no boundaries. It is the politicians who create such borders and barriers to trade.

And in the understanding of the potential loss of usufruct and privileges from wangling resources from the citizenry, the political class resists such dynamic by selling "nationalism" as a way to maintain the status quo by curbing people’s ability to freely transact with each other.

Modern day nationalism represents no more than the populist justifications that bequeaths to the political class the power to tax and the power to extend political control over their respective constituents in the name of “feel good” pseudo- social belongingness.

And why are Americans are exiting? Back to Mr. Black:

So what’s driving it? Taxes… and the search for liberty.

For many, their tax bills constitute a financial breaking point. Particularly for people who spend most of their time outside of the United States and are constantly hamstrung by worldwide taxation and information disclosures, the burden for many of them has just become too much to bear.

The US government figured this out some years ago and began charging an exit tax to certain high income / high net worth expatriates seeking to renounce.

This applies to anyone whose average US tax liability over the last five years was about $150,000 (the equivalent of roughly $500,000 in taxable income in 2012 dollars), and/or has a net worth of at least $2 million on the date of expatriation. Curiously this net worth figure does not adjust with inflation.

The ironic thing is that in the “Act of July 27, 1868″, the United States Congress declared that “the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.”

Yet I would expect that as the number of expatriates continue to grow, this exit tax will become more and more onerous as the government tries to trap people, and their wealth, in the country.

I would like to add that aside from taxation and political repression, financial intrusion has been compounding to the incentives of Americans to exit.

The US is the only country who taxes her citizens on a worldwide basis. This means offshore Americans are taxed twice—one in the country where they operate, and second by the US government.

Yet the US government will expand the dragnet of taxation and of the intrusion of financial privacy via the Foreign Account Tax Compliance Act (FACTA).

FACTA will force Americans to disclose to the US government all foreign held financial accounts and will force domestic banks operating under the FACTA framework to share information with the US Internal Revenue Services (IRS)

So FACTA essentially will undermine the supposed 'sovereignty' of other governments as US policies now dictate (by virtue of what seems as a foreign policy erected on the premise of 'might is right') on domestic politics.

The jurisdictions covered by FACTA has now expanded to include about 83 countries, which includes, Germany, Israel, Singapore, Malaysia, Taiwan, Thailand and the Philippines.

So far only the Swiss government appear to be resisting the US overlord's FACTA framework and where Swiss banks have reportedly been shunning accounts of American citizens.

So deepening political interventions, the prospects of bigger taxes and loss of financial privacy, as well as, economic uncertainty via monetary policies, appear to motivate wealthy Americans to opt out. 

And as the taxpayer base of the US erode, the fragile fiscal balance of the US will increasingly operate under duress from the growing mismatch between revenues and expenditures. A looming debt based welfare crisis will further this trend.

Despite heavy exit taxes, the growing 'opt out' option is increasingly a disturbing sign, not only for the US political economy which should have a leash effect on the world, but importantly for the US dollar standard.

The Politics of Territorial Dispute: Moral Suasion through Populist Nationalism

One of the wonderful example of the use of moral suasion to implement social policies is through populist nationalism.

Take the tough talk by the Philippine president on yesterday’s holiday celebration where he mentioned that the Philippines “will not back down from any challenge” on territorial dispute, or in the previous occasion, to defend against “bullies in our backyard” 

The nationalist meme essentially justifies the government’s defense military spending which according to an official, is “at levels never before seen”. [This administration seems enamored with “new order” sloganeering]

According to GMA Network, 

President Benigno Aquino III signed the new Armed Forces of the Philippines Modernization Act, which will have an allocation of around P75 billion in its first five years.

The Aquino administration has spent more than P28 billion for the AFP modernization program, compared to around P33 billion spent for the same purpose 15 years before his term.

And a few days back, the $15.5 million refurbished decommissioned US Coast Guard ship became part of the Philippine military’s inventory to supposedly defend the nation’s territorial boundaries.

Anyone with an iota of commonsense would realize that no matter how the Philippines government spends on defense, she can hardly match China’s military capabilities. 

In naval warship inventories alone China has 972 as against 110 for the Philippines from (globalfire.com). Yet numbers are not enough. One must  note that the Philippine government hardly has any new hardware, as against generically developed weaponry from China.

From the Wired.com

Two new models of stealthy jet fighter. A new(ish) aircraft carrier. Separate ballistic missiles for targeting orbital satellites and ships at sea. A host of cyberespionage tools. Everybody's already heard about China's main new weapon systems, developed and deployed in alternating fits of secrecy and pageantry over the past decade of the Middle Kingdom's explosive economic and military growth.

And as pointed out in the past China has drones and nuclear weapons. This means that such nationalist mantra represents nothing more than bravado.

Rather, populist politics has been an instrument used to expand control over society. For instance, despite the so-called booming economy, this administration appears to be in desperation to tax and squeeze the productive segments of society.

In addition, as I pointed out in the past the territorial disputes seems more and more like smokescreens to promote the military industrial complex as well as to expand US military presence here. 

Such conflict could also have been used as pretext to divert people’s attention from real economic problems as well as to justify inflating the system. 

The nationalism bluster justifying the defense buildup looks like Indiana Jones versus the sword master, in the Raiders of the Lost Ark

At the end of the day, promoting free trade would be the best way to attain regional or global cooperation.

China’s “Power Market” Political Economy

A Friedrich von Hayek influenced Chinese journalist Yang Jisheng recently discussed about China’s history and current political economy.

Here’s Austrian economist Joseph Salerno at the Mises Blog

In an interview with the Wall Street Journal Mr Yang now reveals that he was greatly influenced by Friedrich A. Hayek’s classic work The Road to Serfdom , a heavily redacted version of which was translated into Chinese in 1997. Indeed Hayek had presciently written in this book, “In a country where the sole employer is the state, opposition means death by slow starvation.” Not only did Hayek’s book provide Mr. Yang with an explanation of the tragic events of his youth, it also explains the current Chinese system, which he maintains, has been completely misunderstood. The Wall Street Journal summarized Mr. Yang’s position as follows:

“China’s economy is not what [Party leaders] claim as the ‘socialist-market economy,’ ” he says. “It’s a ‘power-market’ economy.”

What does that mean?

“It means the market is controlled by the power. . . . For example, the land: Any permit to enter any sector, to do any business has to be approved by the government. Even local government, down to the county level. So every county operates like an enterprise, a company. The party secretary of the county is the CEO, the president.”

Put another way, the conventional notion that the modern Chinese system combines political authoritarianism with economic liberalism is mistaken: A more accurate description of the recipe is dictatorship and cronyism, with the results showing up in rampant corruption, environmental degradation and wide inequalities between the politically well-connected and everyone else. “There are two major forms of hatred” in China today, Mr. Yang explains. “Hatred toward the rich; hatred toward the powerful, the officials.” As often as not they are one and the same.

(bold mine)

Well, “a more accurate description of the recipe is dictatorship and cronyism” is really about fascism. And this has not just been about China.

Fascism, as traditional conservative and an outspoken critic of the Roosevelt administration's domestic and foreign policy decision, John Thomas Flynn wrote, is

a system of social organization in which the political state is a dictatorship supported by a political elite and in which the economic society is an autarchic capitalism, enclosed and planned, in which the government assumes responsibility for creating adequate purchasing power through the instrumentality of national debt and in which militarism is adopted as a great economic project for creating work as well as a great romantic project in the service of the imperialist state.

(bold mine)

Fascism via "instrumentality of national debt" or vastly increased public non-military spending as evident in ballooning budget deficits, and militarism's "great romantic project" such as "to defend the territory from bullies". 

Sounds familiar?

Quote of the Day: Evil fueled by Nationalism

Café Hayek’s Professor Don Boudreaux in a takedown of a book advocating immigration restrictions based on nationalism describes the “evil fueled by nationalism”:  

...the evil powered by anthropomorphizing collectives – to the evil born of the mental practice of aggregating thousands or millions of individuals into one lump, calling the imaginary lump a “nation,” and then cavalierly assuming that that lump has moral standing on par with – nay, superior to – that of flesh-and-blood men and women and children…

No concept has been responsible for more bloodshed and tyranny than has that of nationalism.  In its frightful name individuals have been restricted, restrained, regulated, subsidized, brainwashed, taxed, and sacrificed.  And let there be no mistake: nationalism that comes clothed as something more merciful or modern than Nazism is no less the evil because the garb it wears is superficially different from the garb worn in Germany 80 years ago by those who professed concern with protecting the “national identity.”

Nationalism, which indeed signifies as a feel good groupthink, has been promoted by governments and their institutional apologists to justify political control and taxation, for the purpose of preserving and expanding the privileges of the political elites, in the name of public weal.

Charts of the Day: World Military Spending and Arms Trade

Two related charts of the day

First world defense spending

The Economist speculates that if the current rate of growth persists, China will surpass the US in terms of military budget. 

AMERICA still spends over four times as much on defence as China, the world’s second-biggest military spender. But it has been clear for some time that on current trends China’s defence spending will overtake America’s sooner than most people think. What is less clear is when that date will be reached. It all depends on the underlying assumptions. The 2013 edition of the Military Balance published by the London-based International Institute for Strategic Studies (IISS) shows convergence could come as soon as 2023. That is based on extrapolating the rate of Chinese military spending since 2001—a 15.6% annual growth rate—and assuming that the cuts in the America's defence budget required under sequestration are not modified. The latter is more likely than the former. The latest Chinese defence budget is based on spending increasing by a more modest 10.7% annually. That would mean that China overtakes America in 2032.

However, if China’s headlong economic growth stalls or if more money is needed to serve the health and social needs of rapidly-ageing population, China might slow spending on its military by something like half its current projection. If that happens, the crossover point could be delayed by up to a decade. It is also possible (though at present America’s fiscal travails suggest otherwise), that as China rises, America will feel forced to start spending more if the security guarantees it currently makes to allies such as Japan, South Korea and Taiwan are to retain their credibility into the third decade of the century. Already, China spends more on defence than all of those three together. It is all very well for America to talk about a strategic rebalancing towards Asia, but if the money is not there to buy the ships, the aircraft and all the expensive systems that go with them, it will eventually sound hollow.

The Economist is right to suggest that this trend may not continue as this will likely depend on the state of the China's economy. Of course this will really depend on priorities of the Chinese government.

But what they sorely missed is of the real nature of “strategic rebalancing”, which is not supposed to be about military buildup but about trade.

They forget about Bastiat’s wisdom where “if goods don’t cross borders, armies will”

Second chart global arms trade.

The Reuters notes that China has taken the fifth spot in arms exports with Pakistan being the main recipient.

An arms race serves as dangerous signal for world peace. Such also functions as a thermometer of the desperate state of welfare-warfare governments, who by resorting to inflationism, attempts to divert domestic political economic problems towards geopolitics. And they do this primarily through nationalist overtones.

The sad part is that instead of the remedy of channeling resources into productive uses, an arms race means more economic hardship for society, aside from greater risk of war.

As the illustrious American author Ernest Hemingway rightly admonished,

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists

Unfortunately people hardly ever learn.

Chart of the Day: First Non European Pope in Nearly 1,300 Years

Chart from Reuters

Short non-related personal opinions

From the way headlines on the domestic mainstream media looked, it would seem that the Philippine candidate, Cardinal Luis Tagle, was shoo-in for the Papacy. [Sorry I didn't dwell on the articles] But this has hardly been the case from the perspective of international media.

Domestic media’s elaborate drumming up of the local cardinal represents no more than the sustained indoctrination of “nationalism”, which comes at the exclusion of the minority religions practiced locally.

Nevertheless, like his predecessor, the new Pope, Argentine Cardinal Jorge Mario Bergoglio, now Pope Francis I, has been said to be another anti-free market or pro-big government activist. [The Pope should see what big government has been doing to his homeland.]

We shall soon see.

Patriotism is the last refuge of a scoundrel: Senkaku Islands Dispute Edition

“Patriotism is the last refuge of a scoundrel” has been a popular quote attributed to English writer Samuel Johnson. 

Well, in desiring to prop up unsustainable political economic systems, politicians have resorted to the use of “patriotism” or “nationalism” to mask internally generated entropic policies.

Such seem to apply to the recent territorial dispute covering the Senkaku Islands.

Writes author and editor of the American conservative Patrick Buchanan at the LewRockwell.com (bold mine)

With victory in the civil war with the Nationalists in 1949, Mao claimed to have liberated China from both Japanese imperialists and Western colonialists, and restored her dignity. "China has stood up!" he said.

His party's claim to absolute power was rooted in what it had done, and also what it must do. Only a party with total power could lead a world revolution. Only an all-powerful party could abolish inequality in a way that made the French Revolution look like a rebellion at Berkeley.

Xi Jinping's problem? The Cold War is over. China is herself in the capitalist camp, a member of the G-8, and inequality in the People's Republic resembles that of America in the Gilded Age.

How does the Chinese Communist Party justify control of all of China's institutions today – economic, political, military and cultural?

If Marxism is mocked behind closed doors by a new economic elite and tens of millions of Chinese young, what can cause the nation to continue to respect and obey a Communist Party and its leaders, besides the gun?

The answer of Europe in the 1930s is China's answer today.

Nationalism, tribalism, patriotic war if necessary, will bring the masses back. If the Chinese nation is being insulted, if ancestral lands are occupied by foreigners as in olden times, the people will rally around a regime that stands up for China. Nationalism will keep Chinese society "under control while you go forward."

Japan's Prime Minister Shinzo Abe traces the aggressiveness of Beijing in the Senkaku Islands dispute to a "deeply ingrained" need to appeal to Chinese nationalism in the form of anti-Japanese sentiment dating to the Sino-Japanese War of 1937-1945.

Chinese nationalism, says Abe, is also behind China's quarrels with Vietnam and other nations over islands of the South China Sea.

If Beijing is unable to deliver economic growth, "it will not be able to control the 1.3 billion people ... under the one-party rule," Abe told The Washington Post. He is now denying those quotes.

But China is not alone in stoking the flames of nationalism to maintain legitimacy.

Abe has himself taken a firm stand against China in the Senkakus and is moving rightward on patriotism, security and a defense of Japan's history in the 20th century, and he is rising in the polls. The apologetic and pacifist Japan of yesterday is no more.

As I previously wrote, when the nations engage in massive inflationism, the risk of war increases.

Why? Because as the great Ludwig von Mises warned,

The most important economic element in this war ideology was inflationism.

Inflationism have not been a standalone policy. Accompanying these includes all sorts of social or commercial restrictions—foreign exchange or currency controls, trade controls, price and wage controls, migration and border controls and others—mostly or usually justified in the name of "nationalism" These of course, increases geopolitical tensions and the risks of war.

So from the above, nationalism signifies a tool used by politicians to divert people’s attention from real problems, as well as, to promote their self-interests.

Quote of the Day: The Folly of All for One

And is not this the point that we have now reached? What is the cry going up everywhere, from all ranks and classes? All for one! When we say the word one, we think of ourselves, and what we demand is to receive an unearned share in the fruits of the labor of all. In other words, we are creating an organized system of plunder. 

Unquestionably, simple out-and-out plunder is so clearly unjust as to be repugnant to us; but, thanks to the motto, all for one, we can allay our qualms of conscience. We impose on others the duty of working for us. Then, we arrogate to ourselves the right to enjoy the fruits of other men's labor. We call upon the state, the law, to enforce our so-called duty, to protect our so-called right, and we end in the fantastic situation of robbing one another in the name of brotherhood. We live at other men's expense, and then call ourselves heroically self-sacrificing for so doing.

(italics original)

This is stirring quote, posted by Café Hayek’s Prof Don Boudreaux, is from Frederic Bastiat‘s 1850 treatise, Economic Harmonies  based on 1964 W. Hayden Boyers translation. Chapter 12, paragraph 21

How Foreign Interventionism Has Incited West Africa’s Political Woes

Government operation to free hostages ensnared by an al-Qaeda-linked group in a natural gas plant in a remote area in Southeastern Algeria apparently ended up in a fiasco: most hostages were slain along with their captors.(Bloomberg)

Historian Eric Margolis at the LewRockwell.com sheds us  insightful historical compendium of the recent revival of the political turmoil at West Africa.

I categorized his essay into different headings

1. Not an endemic Islam Story

Western governments and media have done the public a major disservice by trumpeting warnings of an "Islamist threat" in Mali. It’s as if Osama bin Laden has popped up on the Niger River. Our newest crisis in Africa is not driven primarily by religion but by a spreading uprising against profoundly corrupt, western-backed oligarchic governments and endemic poverty.

2. The Repercussions of Libya War and the French Client States

Mali’s troubles began last year when it shaky government was overthrown. Meanwhile, heavily-armed nomadic Tuareg tribesmen, who had served Libya’s late Col. Gadaffi as mercenaries until he was overthrown by French and US intervention, poured back into their homeland in Mali’s north. A major unexpected consequence. Fierce Tuareg warriors, who battled French colonial rule for over a century, were fighting for an independent homeland, known as Azawad.

They, a small, violent jihadist group, Ansar Din, and another handful of obscure Islamists drove central government troops out of the north, which they proclaimed independent, and began marching on the fly-blown capital, Bamako.

France, the colonial ruler of most of West Africa until 1960, has overthrown and imposed client regimes there ever since. French political, financial and military advisors and intelligence services ran West Africa from behind a façade of supposedly independent governments. Disobedient regimes were quickly booted out by elite French troops and Foreign Legionnaires based in West Africa that guarded France’s mining and oil interests in what was known as "FrancAfrique."

3. Contagion and Diversion from Domestic Political-Economic Affairs.

Overthrowing African regimes was OK for France, but not for locals. When Mali’s French-backed regime was challenged, France feared its other West African clients might face similar fate, and began sending troops to back the Bamako regime. President Francois Hollande, who had vowed only weeks ago not to intervene in West Africa, said some 2,500 French troops would intervene in Mali. But only on a "temporary basis" claimed Hollande, forgetting de la Rochfoucauld’s dictum "there is nothing as permanent as the temporary!"

Other shaky western-backed West African governments took fright at events in Mali, fearing they too might face overthrow at the hands of angry Islamists calling for stern justice and an end to corruption. Nigeria, the region’s big power, vowed to send troops to Mali. Nigeria has been beset by its own revolutionary jihadist movement, Boko Haram, which claims Muslim Nigerians have been denied a fair share of the nation’s vast oil wealth, most of which has been stolen by corrupt officials.

France’s overheated claim that it faces a dire Islamic threat in obscure Mali could attract the attention of numbers of free-lance jihadists, many who are now busy tearing up Syria. Paris was better off when it claimed its troops were to protect ancient Muslim shrines in Timbuktu. Or it could have quietly sent in the Foreign Legion, as in the past.

Instead, Mali has become a crisis with the US, Britain, West African states and the UN involved in this tempest in an African teapot. A nice diversion from budget crisis.

4. Hostage taking in Algeria and the Expansion of the Theater of War by Interventionists.

Another Algerian jihadist group just attacked an important state gas installation in revenge for France’s assault on Mali. This bloody action has awoken Algeria’s hitherto quiescent Islamic resistance groups. They waged a ten year war against Algeria’s US and French backed military regime, one of the continent’s most repressive regimes, after Algeria’s armed forces crushed Islamists after they won a fair election in 1991.

Over 250,000 Algerians died in a long, bloody civil war. The Algiers government often used gangs of its soldiers disguised as rebel fighters to commit gruesome massacres to blacken the name of the opposition. Algeria may again be headed for a new bloodbath, this time with minority Berber people calling for their independent state.

US air forces and small numbers of Special Forces from its new Africa Command are now entering action in Mali and Algeria. More are sure to follow as West Africa smolders

My comments

As diversionary ploy to distract the public’s attention, wars has usually been the recourse of economically strained nations to drum up political support (via nationalism), as well as, to “suppress dissension among members of the productive class” (Salerno)

Wars has been typically used as justification for further inflationism and for expansionary government or the “opportunity to intensify economic exploitation” (Salerno)

Wars have been used to promote the financial and political interests of vested interested groups represented by military industrial complex “the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex” (President Eisenhower), as well as, the neoconservative cabal through the ideological role of “global policeman” which formerly had been based on “global struggle against communism” (Gordon) and neocon goals of “continuing privileged hierarchical rule, and to continue to worship the nation-state and its war-making machine” (Rothbard).

Most likely today’s imperial foreign policies as evidenced by West Africa’s conflicts signify as cauldron of the factors above.