After writing two books and dozens of articles, and giving hundreds of radio and television interviews and public presentations on the subject of Lincoln and the political economy of the American "Civil War"over the past fifteen years, I have realized that the only thing the average American knows about the subject is a few slogans that we are all subjected to in elementary school. I was taught in public elementary school in Pennsylvania that Abe was so honest that he once walked six miles to return a penny to a merchant who undercharged him (and six miles back home). He was supposedly so tendered hearted that he cried after witnessing the death of a turkey. He suffered in silence his entire life after witnessing slavery as a teenager (While everyone else in the country was screaming over the issue). And of course he was "a champion of democracy, an apostle of racial equality, and a paragon of social justice," Joseph Fallon writes in his important new, must-read book, Lincoln Uncensored.This view of Lincoln, writes Fallon, is only true "in official histories or in Hollywood movies" but not in reality. The reason for this historical disconnect is that "this myth of Lincoln, not the Constitution . . . now confers legitimacy on the political system of the United States." Despite being mostly a bundle of lies, it is nevertheless the ideological cornerstone of statism in America and has been for nearly 150 years.The real Lincoln was a dictator and a tyrant who shredded the Constitution, fiendishly orchestrated the mass murder of hundreds of thousands of fellow citizens, and did it all for the economic benefit of the special interests who funded the Republican Party (and his own political career). But don’t take Joseph Fallon’s or Thomas DiLorenzo’s word for it. Read the words of Abe Lincoln himself. That is what Fallon allows everyone to do in his great work of scholarship, Lincoln Uncensored. No longer do Americans need to rely on politically-correct, heavily state-censored textbooks or movies made by communistic-minded Hollywood hedonists to learn about this part of their own country’s history.Each of the twenty-three chaptes of Lincoln Uncensored explains the real Lincoln in Lincoln’s own words by quoting him directly from The Collected Works of Abraham Lincoln (CW), complete with specific citations for every single quotation. The following is an abbreviated sampling of what you will learn upon readingLincoln Uncensored.LINCOLN WAS AN OBSESSIVE WHITE SUPREMACIST"Free them [blacks] and make them politically and socially our equals? My own feelings will not admit of this . . . . We can not then make them equals." (CW, Vol. II, p. 256)."There is a natural disgust in the minds of nearly all white people, to the idea of an indiscriminate amalgamation of the white and black races" (CW, Vol. II, p. 405)."What I would most desire would be the separation of the white and black races" (CW, Vol. II, p. 521)."I have no purpose to introduce political and social equality between the white and black races . . . . I, as well as Judge Douglas, am in favor of the race to which I belong, having the superior position. I have never said anything to the contrary." (CW, Vol. III, p. 16)."I am not, nor ever have been in favor of bringing about in any way the social and political equality of the white and black races . . . . I am not nor ever have been in favor of making voters or jurors of negroes, nor of qualifying them to hold office, nor to intermarry with white people . . ." (CW, Vol, III, pp. 145-146)."I will to the very last stand by the law of this state, which forbids the marrying of white people with negroes." (CW, Vol. III, p. 146)."Senator Douglas remarked . . that . . . this government was made for the white people and not for negroes. Why, in point of mere fact, I think so too." (CW, Vol. II, p. 281).Until His Dying Day, Lincoln Plotted to Deport all the Black People Out of America"I have said that the separation of the races is the only perfect preventive of amalgamation . . . . Such separation . . . must be effected by colonization" [to Liberia, Central America, anywhere]. (CW, Vol. II, p. 409)."Let us be brought to believe it is morally right , and . . . favorable to . . . our interest, to transfer the African to his native clime . . ." (CW, Vol. II, p. 409)."The place I am thinking about having for a colony [for the deportation of all American blacks] is in Central America. It is nearer to us than Liberia." (CW, Vol. V, pp. 373, 374).LINCOLN ONLY RHETORICALLY OPPOSED SOUTHERN SLAVERY. IN PRACTICE, HE STRENGTHENED IT" I think no wise man has perceived, how it [slavery] could be at once eradicated, without producing a greater evil, even to the cause of human liberty himself." (CW, Vol. II, p. 130)."I meant not to ask for the abolition of slavery in the District of Columbia." (CW, Vol., II, p. 260)."I believe there is no right, and ought to be no inclination I the people of the free states to enter into the slave states and interfere with the question of slavery at all." (CW, Vol. II, p. 492)."I have no purpose directly or indirectly to interfere with the institution of slavery in the States where it exists." (CW, Vol. III, p. 16)."I say that we must not interfere with the institution of slavery . . . because the constitution forbids it, and the general welfare does not require us to do so." (CW, Vol. III, p. 460).LINCOLN CHAMPIONED THE FUGITIVE SLAVE ACT"I do not now, nor ever did, stand in favor of the unconditional repeal of the fugitive slave law." (CW, Vol., III., p. 40)."[T]he people of the Southern states are entitled to a Congressional Fugitive Slave Law." (CW, Vol. III, p. 41).Lincoln Advocated Secession When it Could Advance His Political Career"Any people anywhere, being inclined and having the power, have the right to rise up, and shake off the existing government, and form a new one that suits them better." (CW, Vol. 1, p. 438).LINCOLN VIEWED FORT SUMTER AS AN IMPORTANT TAX COLLECTION POINT AND WENT TO WAR OVER IT"I think we should hold the forts, or retake them, as the case may be, and collect the revenue." (CW, Vol. IV, p. 164).
The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups—Henry Hazlitt
Wednesday, June 05, 2013
Thomas DiLorenzo: The Real Lincoln in His Own Words
Friday, March 22, 2013
Graphic of the Day: Fatalities Count from the Iraq War
According to a study released last week, the U.S. war in Iraq has cost $1.7 trillion with an additional $490 billion in benefits owed to war veterans. The war has killed at least 134,000 Iraqi civilians and may have contributed to the deaths of as many as four times that number. When security forces, insurgents, journalists and humanitarian workers were included, the war’s death toll rose to an estimated 176,000 to 189,000
Mehdi Hasan, writing in the New Statesman:“Between 2003-06, according to a peer-reviewed study in The Lancet medical journal, 601,000 more people died in Iraq as a result of violence — that is, bombed, burned, stabbed, shot, and tortured to death — than would have died had the invasion not happened. Proportionately, that is the equivalent of 1.2 million Britons, or 6 million Americans, being killed over the same period.“…31% of the excess deaths in Iraq can be attributed to coalition forces — about 186,000 people between 2003-06. Second, most studies show that only a minority of Iraqi insurgents were card-carrying members of AQI [al-Qaeda Iraq]. The insurgency kicked off in Fallujah on April 28, 2003, as a nationalist campaign, long before the arrival of foreign jihadists, but only after U.S. troops opened fire on, and killed, 17 unarmed Iraqi protesters.“Third, there were no jihadists operating in Iraq before our Mesopotamian misadventure; Iraq had no history of suicide bombings. Between 2003-08, however, 1,100 suicide bombers blew themselves up inside the country. The war made Iraq, in the approving words of the U.S. general Ricardo Sanchez, ‘a terrorist magnet… a target of opportunity.’“‘Let me clear it up for any moron with lingering doubts,’ wrote the Iraqi blogger known by the pseudonym Riverbend on her blog Baghdad Burning in February 2007. ‘It’s worse. It’s over. You lost…You lost every sane, red-blooded Iraqi when the Abu Ghraib pictures came out…You lost when you brought murderers, looters, gangsters and militia heads to power…’“In September 2011, a Zogby poll found that 42% of Iraqis thought they were ‘worse off’ as a result of the Anglo-American invasion of their country, compared with only 30% of Iraqis who said ‘better off.’ An earlier poll conducted for the BBC in November 2005 found a slim majority of Iraqis (50.3%) saying the Iraq war was ‘somewhat’ or ‘absolutely’ wrong.”In terms of the financial cost, we estimated that the war in Iraq would cost $1 trillion when it was launched. Dear readers wrote to say we were crazy. It was a cakewalk, they said. They said it could be accomplished for pennies.But even $1 trillion was far too low. Nobel Prize winner Joseph Stiglitz may be an idiot, but he can add. And he puts the cost at over $5 trillion, perhaps $6 trillion, when the final bill for missing limbs and lifelong psychological care is tallied.
Saturday, March 02, 2013
Patriotism is the last refuge of a scoundrel: Senkaku Islands Dispute Edition
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.
The most important economic element in this war ideology was inflationism.
Saturday, February 09, 2013
Will Territorial Claims Dispute Lead to World War III?
On 30 January, a Chinese Jiangwei II-class frigate entered the disputed waters around the Senkaku Islands, a cluster of uninhabited rocks in the East China Sea claimed by China as the Diaoyu Islands. A Japanese destroyer was waiting.When the two warships were only 3 km apart, the Chinese frigate turned on its fire control radar that aims its 100mm gun and C-802 anti-ship missiles and "painted" the Japanese vessel. The Japanese destroyer went to battle stations and targeted its weapons on the Chinese intruder.Fortunately, both sides backed down. But this was the most dangerous confrontation to date over the disputed Senkakus. Japan and China were a button push from war.Soon after, a Japanese naval helicopter was again "painted’ by Chinese fire control radar. Earlier, Chinese aircraft made a clear intrusion over waters claimed by Japan.China’s Peoples Liberation Army HQ ordered the armed forces onto high alert and reportedly moved large numbers of warplanes and missile batteries to the East China Sea coast.A US AWACS radar aircraft went on station to monitor the Senkaku/Diaoyus – a reminder that under the 1951 US-Japan mutual defense treaty, Washington recognized the Senkaku Islands as part of Japan and pledged to defend them if attacked. Japan seized the Senkakus as a prize of its 1894-95 war with Imperial China.China’s state-run media claimed the US was pushing Japan into a confrontation with Beijing to keep China on the strategic defensive.Japan’s newly elected government led by conservative PM Shinzo Abe vowed to face down with China. Spasms of angry nationalism erupted in both feuding nations. The Philippines, Taiwan and Vietnam, who also claim the Senkakus, chimed in with their territorial demands.A special Chinese crisis group led by new President Xi Jinping has been set up to deal with the Senkakus – meaning any clash there may be more likely to become a major crisis.Shades of August, 1914, when swaggering, breast-beating, and a bloody incident triggered World War I, a conflict few wanted but none could avoid.
Rational economy first became possible when mankind became accustomed to the use of money, for economic calculation cannot dispense with reducing all values to one common denominator. In all great wars monetary calculation was disrupted by inflation. Earlier it was the debasement of coin; today it is paper-money inflation. The economic behavior of the belligerents was thereby led astray; the true consequences of the war were removed from their view. One can say without exaggeration that inflation is an indispensable intellectual means of militarism. Without it, the repercussions of war on welfare would become obvious much more quickly and penetratingly; war-weariness would set in much earlier.
Tuesday, January 22, 2013
Bank of Japan Goes Unlimited QE; Will Abenomics Be a Replay of the Takahasi-Model?
The Bank of Japan (8301) set a 2 percent inflation target and said it will shift to Federal Reserve-style open-ended asset purchases in its strongest commitment yet to ending two decades of deflation.The central bank will buy about 13 trillion yen ($145 billion) in assets per month from January 2014, including about 2 trillion in Japanese government bonds and about 10 trillion yen in treasury bills. The BOJ previously said it would ease until 1 percent inflation is “in sight.”
Premier Shinzo Abe has vowed an all-out assault on deflation, going for broke on multiple fronts with fiscal, monetary, and exchange stimulus.This is a near copy of the remarkable experiment in the early 1930s under Korekiyo Takahasi, described by Ben Bernanke as the man who "brilliantly rescued" his country from the Great Depression.Takahasi was the first of his era to tear up rule book completely. He took Japan off gold in December 1931. He ran "Keynesian" budget deficits deliberately, launching a New Deal blitz before Franklin Roosevelt took office.He compelled the Bank of Japan to monetise debt until the economy was back on its feet. The bonds were later sold to banks to drain liquidity.He devalued the yen by 60pc against the dollar, and 40pc on a trade-weighted basis. Japan's textile, machinery, and chemical exports swept Asia, ultimately causing the British Empire and India to retaliate with Imperial Preference and all that was to follow -- and there lies the rub, you might say.Takahasi was assassinated by army officers in 1936 when he tried to tighten by cutting military costs. Policy degenerated. Japan later lurched into hyperinflation.
Saturday, January 19, 2013
How Foreign Interventionism Has Incited West Africa’s Political Woes
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.
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."
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.
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
Wednesday, November 21, 2012
US Military Suicides at New Record High
US troop suicides are still maintaining high levels despite years of tracking the effects of mental trauma on soldiers.With 2012 coming to an end. US officials report that the Army and Navy are already reporting record numbers of suicides.Similar record numbers are being recorded in the Air Force and Marine Corps--making 2012 the worst year for military suicides since diligent tracking began in 2001. The traumatic effects are war are lasting say experts.As researchers study the causes of suicides in the military, doctors are evaluating the ratio of suicide rates and frequent deployments.According to latest estimates, suicides are happening faster than the rate of one per day. Last week, suicides among active military personnel reached 323, breaking the Pentagon's previous high of 310 suicides set in 2009.
Clausewitz wrote that war is politics with other means. I say that war is the quintessence of politics. All politics leads to war. War is the ultimate fulfillment of politics. In order to abolish war we must abolish politics. The question is how.
Saturday, October 06, 2012
Senkaku Dispute Controversy: News versus On the Ground Observation
It’s no wonder some pundits began calculating the potential economic impact that strained China-Japan relations may have on Japanese firms. But during my recent week-long visit in Shanghai, my on-the-ground observations following the protests left me feeling as if the concerns might be overstated. An executive of a Japanese restaurant chain operator told me that physical damage to the firm’s stores during the protest was actually quite limited compared to the impact that followed anti-Japan protests in 2005, which were sparked by controversies surrounding a shrine for Japan’s war dead. I also visited a popular Japanese retail store where customers were picking through the season’s new arrivals with no obvious concern for politics. In this globalized economy, boycotting Japanese business interests is no small feat as so many firms are intertwined. One Taiwanese leasing company I met with, which provides much-needed funding for small businesses in China, actually counts a Japanese financial institution as a strategic shareholder. These types of partnerships and joint ventures exist in nearly every sector in China, spanning food and beverage to auto manufacturing.At the end of my trip, I noticed one last bit of encouragement—a wedding ceremony held at my Shanghai hotel. Seeing the photograph of a happy union between a Japanese bride and her Chinese groom on a television monitor in the hotel lobby gave me some hope for greater harmony between the people of China and Japan.
Saturday, September 22, 2012
Senkaku Islands Dispute: Chinese Government Behind Anti-Japan Protest
The last week's anti-Japan demonstrations in China have been a spectacular display of just how easily the ruling Communist Party can harness the power of protest.In the aftermath of nationwide protests, in which mobs trashed Japanese-owned businesses and set fire to Japanese model cars, critics are questioning the degree to which the Chinese government fanned the flames as part of its dispute with Japan over an island chain both nations claim."It is obvious that this was planned," said Ai Weiwei, the dissident artist, who videotaped some of the protests. The 1989 pro-democracy demonstrations in Tiananmen Square were "the last time that the people themselves organized a real protest and then the government sent in tanks to crush them," he said.Although there has been no evidence that police officers participated in the violence, in many cities they directed the public on where to protest and cleared streets to allow tens of thousands to mass. Many protesters interviewed Tuesday said they had been given the day off by employers to demonstrate. Sept. 18 is a traditional day of protest, marking the anniversary of the Japanese invasion of Manchuria in 1931.
In reality these are most likely smokescreens to the worsening internal problems experienced by both countries and to the mounting interventionism being applied by the increasingly desperate political authorities.
Thursday, September 20, 2012
Quote of the Day: China’s Territorial Disputes: Distractions from Homegrown Problems
Dr. Ed Yardeni sees the same:
The Chinese government is picking fights with some of its neighbors over several islands in the South China Sea. These issues have been simmering for a very long time. Why are they coming to a boil now? One possibility is that the Chinese government is stirring up nationalist sentiments to distract the locals from some serious homegrown problems, and doesn't believe that the US will side with Japan and other Asian nations disputing China's territorial claims.
China’s Communist leadership change isn’t going smoothly at the same time that the economy is slowing significantly. For example, electricity output during the three months through August rose only 1.4% y/y. Crude oil demand has flattened out around 9.5mbd over the past six months through August. Fred Smith, the head of FedEx, warned on Tuesday that China watchers may be “completely underestimating” that the export slowdown is more than offsetting attempts by the government to boost growth.
The recent widespread protests in China against Japan’s claims to some of the disputed islands in the South China Sea are already harming the economy. Japanese companies are temporarily closing their manufacturing facilities and retail outlets in China. Trade between China and Japan totaled $323 billion (saar) during August, with China’s exports to Japan at $147 billion and imports from Japan at $176 billion.
China’s Shanghai-Shenzhen 300 stock price index rallied late last week, but now seems to be resuming the downward trend of the past year. The price of copper rebounded smartly last week on news that China will spend to build subways and roads, but could weaken if tensions between China and Japan don’t abate soon. Japan’s Nikkei is also vulnerable to the dispute between the two countries.
Saturday, August 11, 2012
The Major Risk from Currency Union Breakups: Hyperinflation
At the Peterson Institute for International Economics, Mr. Anders Aslund has an interesting paper on the historical aftermaths of the dissolution of currency unions.
Mr. Aslund opens with a refutation of the Nirvana fallacy of the Keynesian prescription on the currency devaluation elixir. Here Mr. Aslund rebuts Nouriel Roubini. (all bold highlights mine)
While beneficial in some cases, devaluation is by no means necessary for crisis resolution. About half the countries in the world have pegged or fixed exchange rates. During the East Asian crisis in 1998, Hong Kong held its own with a fixed exchange rate, thanks to a highly flexible labor market. The cure for the South European dilemma is available in the European Union. In the last three decades, several EU members have addressed severe financial crises by undertaking serious fiscal austerity and reforms of labor markets, thus enhancing their competitiveness, notably Denmark in 1982, Holland in the late 1980s, Sweden and Finland in the early 1990s, all the ten post communist members in the early 1990s, and Germany in the early 2000s. Remember that as late as 1999, the Economist referred to Germany as “the sick man of the euro.”
More recently, the three Baltic countries, Estonia, Latvia, and Lithuania, as well as Bulgaria have all repeated this feat (Ã…slund 2010, Ã…slund and Dombrovskis 2011). Among these many crisis countries, only Sweden and Finland devalued, showing that devaluation was not a necessary part of the solution. The peripheral European countries suffer in various proportions from poor fiscal discipline, overly regulated markets, especially labor markets, a busted bank and real estate bubble, and poor education, which have led to declining competitiveness and low growth. All these ailments can be cured by means other than devaluation.
Mr. Aslund on the currency union dissolution during the gold standard eon.
It was rather easy to dissolve a currency zone under the gold standard when countries maintained separate central banks and payments systems. Two prominent examples are the Latin Monetary Union and the Scandinavian Monetary Union. The Latin Monetary Union was formed first with France, Belgium, Italy, and Switzerland and later included Spain, Greece, Romania, Bulgaria, Serbia, and Venezuela. It lasted from 1865 to 1927. It failed because of misaligned exchange rates, the abandonment of the gold standard, and the debasement by some central banks of the currency. The similar Scandinavian Monetary Union among Sweden, Denmark, and Norway existed from 1873 until 1914. It was easily dissolved when Sweden abandoned the gold standard. These two currency zones were hardly real, because they did not involve a common central bank or a centralized payments system. They amounted to little but pegs to the gold standard. Therefore, they are not very relevant to the EMU.
“Abandonment of gold standard” simply suggests that some members of these defunct unions wantonly engaged in inflationism which were most likely made in breach of the union’s pact that had led to their dissolution.
Mr Aslund tersely describes on one account of “successful” post gold standard breakup…
Europe offers one recent example of a successful breakup of a currency zone. The split of Czechoslovakia into two countries was peacefully agreed upon in 1992 to occur on January 1, 1993. The original intention was to divide the currency on June 1, 1993. However, an immediate run on the currency led to a separation of the Czech and Slovak korunas in mid-February, and the Slovak koruna was devalued moderately in relation to the Czech koruna. Thanks to this early division of the currencies, monetary stability was maintained in both countries, although inflation rose somewhat and minor trade disruption occurred (Nuti 1996; Ã…slund 2002, 203). This currency union was real, but thanks to the limited financial depth just after the end of communism, dissolution was far easier than will be the case in the future. In particular, no financial instruments were available with which investors could speculate against the Slovak koruna
It seems unclear why the Czech and Slovak experience had been the least worse or had the least disruption compared to the others.
Yet considering that inflation is a monetary phenomenon with political objectives, “limited financial depth” seems unlikely a significant factor the “success”. Instead it may have been that political authorities of the Czech and Slovak experience, aside from the “early division of currencies” which may have given a transitional time window, may have likely implemented some form of monetary discipline which lessened the impact.
Mr Aslund finds that the the incumbent European Union seems more relevant with three recent accounts of currency disintegration which had cataclysmic results.
The situation of the EMU is very different from these three cases. It has no external norm, such as the gold standard, and it is a real currency union with a common payments mechanism and central bank. The payments mechanism is centralized to the ECB and would fall asunder if the EMU broke up because of the large uncleared balances that have been accumulated. The more countries that are involved in a monetary union, the messier a disruption is likely to be.
The EMU, with its 17 members, is a very complex currency union. When things fall apart, clearly defined policymaking institutions are vital, but the absence of any legislation about an EMU breakup lies at the heart of the problem in the euro area. It is bound to make the mess all the greater. Finally, the proven incompetence and slowness of the European policymakers in crisis resolution will complicate matters further.
The three other European examples of breakups in the last century are of the Habsburg Empire, the Soviet Union, and Yugoslavia. They are ominous indeed. All three ended in major disasters, each with hyperinflation in several countries. In the Habsburg Empire, Austria and Hungary faced hyperinflation.
Yugoslavia experienced hyperinflation twice. In the former Soviet Union, 10 out of 15 republics had hyperinflation. The combined output falls were horrendous, though poorly documented because of the chaos. Officially, the average output fall in the former Soviet Union was 52 percent, and in the Baltics it amounted to 42 percent (Ã…slund 2007, 60).
According to the World Bank, in 2010, 5 out of 12 post-Soviet countries—Ukraine, Moldova, Georgia, Kyrgyzstan, and Tajikistan—had still not reached their 1990 GDP per capita levels in purchasing power parities. Similarly, out of seven Yugoslav successor states, at least Serbia and Montenegro, and probably Kosovo and Bosnia-Herzegovina, had not exceeded their 1990 GDP per capita levels in purchasing power parities two decades later (World Bank 2011).
Arguably, Austria and Hungary did not recover from their hyperinflations in the early 1920s until the mid-1950s. Thus the historical record is that half the countries in a currency zone that breaks up experience hyperinflation and do not reach their prior GDP per capita as measured in purchasing power parities until about a quarter of a century later, which is far more than the lost decade in Latin America in the 1980s.
The causes of these large output falls were multiple: systemic change, competitive monetary emission leading to hyperinflation, collapse of the payments system, defaults, exclusion from international finance, trade disruption, and wars. Such a combination of disasters is characteristic of the collapse of monetary unions.
Why hyperinflation poses as the greatest risk for the disintegration of the fiat money based currency unions?
A common reflex to these cases is to say that it was a long time ago, that things are very diferent now, and that other factors matter. First of all, it was not all that long ago. Two of these economic disasters occurred only two decades ago. Second, hyperinflation was probably the most harmful economic factor, and it is part and parcel of the collapse of a currency zone, regardless of the time period. About half of the hyperinflations in world history occurred in connection with the breakup of these three currency zones. The cause was competitive credit emission by competing central banks before the breakup. Third, monetary indiscipline and war are closely connected. The best illustration is Slovenia versus Yugoslavia. In the first half of 1991, the National Bank of Yugoslavia started excessive monetary emission to the benefit of Serbia. On June 25, 1991, Slovenia declared full sovereignty not least to defend its finances. Two days later, the Yugoslav armed forces attacked Slovenia (Pleskovic and Sachs 1994, 198). Fortunately, that war did not last long and Slovenia could exit Yugoslavia and proved successful both politically and economically
Again since inflationism essentially represents monetary means to attain political ends, previous accounts of hyperinflation in post currency union dissolution may have been a result of policy miscalculations from political leaders trying to attain the illusory positive effects from devaluation.
Or most importantly or which I think is the more relevant is that in absence of access to local and foreign savings through banking or financial markets, political authorities in pursuit of their survival have resorted to massive money printing operations.
Also since hyperinflation means the destruction of division of labor or free trade, one major consequences have been to seek political survival through plunder, thus the attendant war. Inflationism, according to great Ludwig von Mises has been “the most important economic element in this war ideology”.
Looking at history has always been deterministic. We look at the past in the account of how narrators describes the connections of the facts in them. But we must not forget of the importance of theory in examining these facts.
As Austrian economist Hans Hermann Hoppe explains,
There must also be a realm of theory — theory that is empirically meaningful — which is categorically different from the only idea of theory empiricism admits to having existence. There must also be a priori theories, and the relationship between theory and history then must be different and more complicated than empiricism would have us believe.
I concur that hyperinflation could likely be the outcome for many European countries once a breakup of the Eurozone becomes a reality. This will not happen because history will merely repeat itself, but because the preferred recourse by politicians has been to resort to inflationism. Theory and history have only meshed to exhibit the likelihood of such path dependent political actions.
Sunday, July 29, 2012
Fighting the Last War: Can the Philippines Beat China?
A video circulating in the cyberspace tries to whip up nationalist sentiment by using the Korean war experience to suggest that “the Philippines can beat China” should any military conflict arise from the recent territorial dispute.
Heard of the axiom “Generals are always prepared to fight the last war”?
Such expression applies to the video. The video has been framed in the assumption that future wars will be waged in the conventional sense and thus the vaunted Filipino mettle will matter.
Well this would not only be a big mistake but is patently myopic.
We are not only in the information age but in the age of weapons of mass destruction (WMD), not limited to nuclear warfare (but also to various types of chemical, biological and other evolving warfare such as computer, robotics and etc..).
[As a side note, I will not deal here with the moral issue of whether Filipino lives lost and taxpayer expenditures in the Korean war had been justified or not].
And China has been part of the states armed with substantial nuclear armaments (from Wikipedia.org)
China has also in possession of chemical and biological weapons. I will skip on the military tale of the tape, nevertheless I have shown them here earlier
This simply means that the risks of the employment of these dreadful killing machines or instruments increases once a shooting war have been initiated.
For many, getting social acceptance means to make a big issue out of things they hardly understand.
Political correctness also means stirring up nationalist fervor when they know that someone else will get to do the bloody part of the political violence, whose major beneficiaries will accrue to politicians at society’s expense. Of course this assumes a limited shooting war.
And in case of a full scale war, this will like result to mass destruction of the society (whose families and friends of these agitators will also suffer). Of course these people can’t think through their emotions enough to understand the consequences of their advocacies or are shills for the politicos.
I am reminded by distinguished historian Arnold Toynbee who claimed that people whom have not experienced the horrors of war have the tendency to become provocateurs (or the generational war cycle).
The survivors of a generation that has been of military age during a bout of war will be shy, for the rest of their lives, of bringing a repetition of this tragic experience either upon themselves or upon their children, and... therefore the psychological resistance of any move towards the breaking of a peace ....is likely to be prohibitively strong until a new generation.... has had the time to grow up and to come into power. On the same showing, a bout of war, once precipitated, is likely to persist until the peace-bred generation that has been lightheartedly run into war has been replaced, in its turn, by a war-worn generation.
And it is why agitators of war should get themselves enlisted in the military and request to get assigned in the frontlines so they can practice on what they preach.
[Updated to add: Here is a list of the death toll of 20th century wars, given the capacity of destruction of modern weaponry--assume the worst for the new age warfare]
Of course I am not convinced that the regional territorial controversy has solely been about superficial claims to property or about resources but more about the concealed political agenda such as the advancement of the military industrial complex, and or even perhaps a smoke and mirror encirclement strategy against Russia as China’s regional economic and military policies seem like Dr. Jekyll and Mr. Hyde.
The more important way to promote peace and social cooperation is none other than through expanded trade.
As the great Claude Frederic Bastiat once warned
if goods don’t cross borders, armies will
Friday, June 15, 2012
More Wall of Worry: Rising Accounts of Protectionism
Another area to be concerned with is the reemergence of protectionism.
Writes the Wall Street Journal Blog,
As worries rise about an economic slowdown, major nations around the world are ramping up measures to protect their economies from trade threats.
Global Trade Alert, an independent monitoring group, says in a new report today that at least 110 new protectionist measures were implemented around the world since the Group of 20 advanced and developing economies met in France last November. Of those 110, 89 were by G-20 members, who meet again next week in Mexico.
Protectionist measures such as export restrictions and higher tariffs spiked after the 2008 financial crisis but didn’t subside afterward. Since then, nations have been pursuing stealthier measures — “murky protectionism” — to circumvent international trade rules, the group says.
The latest updated tally names the 27-member European Union as the leading culprit since November 2008, with 302 discriminatory measures, followed by Russia and Argentina with about half that number each. China ranked at the top of a list of “number of trading partners affected” — with 193, or nearly all of them, followed by the European Union at 187.
Bailout policies are a form of protectionism. And they protect certain domestic politically privileged interest groups at the expense of the consumer.
It has been the G-20 or developed nations (mostly the EU) that has initiated most or about 80% of protectionist measures.
This reveals of the state of their government’s growing desperation which aside from protectionism has resorted to various financial repression measures such as raising taxes, imposing capital controls, inflationism, negative interest rates, price controls and various regulatory proscriptions.
In addition, Russia and Argentina’s deepening slide to statism has also contributed to rising incidences protectionism.
China, as the report said, is likely to suffer most from the reversal of globalization or deglobalization. In reality, the whole world will suffer as economic doors close.
Unknown to many, the resurgence of protectionism is likely to provoke retaliatory responses which should lead to a deterioration in geopolitical relationships that increases the risks of military conflagration. The great depression of the 1930s paved way for World War II.
As the great Ludwig von Mises warned,
What is needed to make peace durable is a change in ideologies. What generates war is the economic philosophy almost universally espoused today by governments and political parties. As this philosophy sees it, there prevail within the unhampered market economy irreconcilable conflicts between the interests of various nations. Free trade harms a nation; it brings about impoverishment. It is the duty of government to prevent the evils of free trade by trade barriers. We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. It is an illusion to assume that those injured will tolerate other nations' protectionism if they believe that they are strong enough to brush it away by the use of arms. The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.
Desperate politicians and their cronies would use every trick on their books to preserve their privileges, mostly in the cover of nationalism, that comes at the expense of long term interest of their constituents.
Nationalism serves no more than a ruse conjured by politicians and those of the political order to justify social controls.
I hope and pray that the growing trend of protectionism will be curbed and that wars will be avoided.