Mercantilist Politics: Making a Mountain Out of a Molehill

A common maneuver applied by the advocates of protectionism is to tunnel or fixate on specific imbalances which they use as basis to call for trade restrictions (otherwise known as the fallacy of composition).

Take for instance the debate over China’s role in the US economy, where Chinese imports have been alleged as ‘stealing’ US jobs.

From Walter E. Williams

Let's look at the magnitude of our trade with China. An excellent place to start is a recent publication (8/8/2011) by Galina Hale and Bart Hobijn, two economists at the Federal Reserve Bank of San Francisco, titled "The U.S. Content of 'Made in China.'" One of the several questions they ask is: What is the fraction of U.S. consumer spending for goods made in China? Their data sources are the U.S. Census Bureau, the Bureau of Labor Statistics and the Commerce Department's Bureau of Economic Analysis.

Hale and Hobijn find that the vast majority of goods and services sold in the United States are produced here. In 2010, total imports were about 16 percent of U.S. gross domestic product, and of that, 2.5 percent came from China. A total of 88.5 percent of U.S. consumer spending is on items made in the United States, the bulk of which are domestically produced services – such as medical care, housing, transportation, etc. – which make up about two-thirds of spending. Chinese goods account for 2.7 percent of U.S. personal consumption expenditures, about one-quarter of the 11.5 percent foreign share. Chinese imported goods consist mainly of furniture and household equipment; other durables; and clothing and shoes. In the clothing and shoes category, 35.6 percent of U.S. consumer purchases in 2010 were items with the "Made in China" label.

Much of what China sells us has considerable "local content." Hale and Hobijn give the example of sneakers that might sell for $70. They point out that most of that price goes for transportation in the U.S., rent for the store where they are sold, profits for shareholders of the U.S. retailer, and marketing costs, which include the salaries, wages and benefits paid to the U.S. workers and managers responsible for getting sneakers to consumers. On average, 55 cents of every dollar spent on goods made in China goes for marketing services produced in the U.S.

Charts from the abovementioned FRBSF study

Mercantilists have been arguing from China’s niggardly 2.5% share which makes their entirely ridiculous.

And as pointed out earlier, despite the deepening trend of globalization, the US economy, whom supposedly represents the vanguard of free market capitalism, remains virtually a closed economy.

Yet such argument shouldn’t be seen in the light of merely the share of imports but rather from the social, economical and ethical merits.

As the great Ludwig von Mises wrote,

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.

Fruits of Capitalism: Welcoming the Industrial Internet

I have been repeatedly saying that the information age will radically change our lifestyles.

We are getting some signs of confirmation

From the New York Times (bold emphasize mine)

the Internet is growing up and lifting its gaze to the wider world. To be sure, the economy of Internet self-gratification is thriving. Web start-ups for the consumer market still sprout at a torrid pace. And young corporate stars seeking to cash in for billions by selling shares to the public are consumer services — the online game company Zynga last week, and the social network giant Facebook, whose stock offering is scheduled for next year.

As this is happening, though, the protean Internet technologies of computing and communications are rapidly spreading beyond the lucrative consumer bailiwick. Low-cost sensors, clever software and advancing computer firepower are opening the door to new uses in energy conservation, transportation, health care and food distribution. The consumer Internet can be seen as the warm-up act for these technologies.

The concept has been around for years, sometimes called the Internet of Things or the Industrial Internet. Yet it takes time for the economics and engineering to catch up with the predictions. And that moment is upon us.

More…

From the same article…

Across many industries, products and practices are being transformed by communicating sensors and computing intelligence. The smart industrial gear includes jet engines, bridges and oil rigs that alert their human minders when they need repairs, before equipment failures occur. Computers track sensor data on operating performance of a jet engine, or slight structural changes in an oil rig, looking for telltale patterns that signal coming trouble.

SENSORS on fruit and vegetable cartons can track location and sniff the produce, warning in advance of spoilage, so shipments can be rerouted or rescheduled. Computers pull GPS data from railway locomotives, taking into account the weight and length of trains, the terrain and turns, to reduce unnecessary braking and curb fuel consumption by up to 10 percent.

Thanks to capitalism, the world has been turning immensely smarter and a far better place to live in.

Typhoon Sendong Exposes the Myth of Good Government

From the MSN.com

President Benigno Aquino on Monday fought off accusations that he was partying with starlets as the Philippines was mourning hundreds of people killed by a storm.

The presidential palace said Aquino briefly stopped by the traditional Christmas party of his elite security group at their compound on Sunday to show gratitude for their services.

"The president stayed for a little over 30 minutes. But he did not go up on stage, he did not sing, he did not dance. There was no partying," the head of the presidential security group, Colonel Ramon Dizon, said in a statement.

Tropical storm Washi hit the southern island of Mindanao at the weekend, spawning swollen rivers, flash floods and landslides which left 652 dead with hundreds other missing, according to Philippine Red Cross figures.

Reports of Aquino's alleged partying spread after a local TV actress and show host, Valerie Concepcion, said in her Twitter account that she met Aquino at the party, where she performed for the troops and their families.

Concepcion said Aquino laughed at her jokes and enjoyed her performance, triggering a wave of criticism directed at both.

The 51-year-old bachelor president, who comes from one of the country's richest landowning clans, had previously been linked to female celebrities and was once criticised for buying a Porsche sports car, which he has since sold.

My comments:

1. I told you so.

2. While I am very sympathetic to the unfortunate victims of the disaster, mainstream media foolishly makes it appear that events like this function as the only political priority. They make the public expect of excessive maudlinness or overreaction from officials. Policymaking for them, thus, has mechanically been demonstrated as perpetually attempting to please public sentiment reactively.

That’s why many Filipinos end up chasing their own tail—many, if not most, don’t really know what to expect from politicians except for political melodramatics which ultimately ends up frustrating them.

Understand that politicians will HARDLY deliver us from the terrible toll of natural calamities; to the contrary more interventionism, which have been the key cause, will likely worsen such conditions.

Notes the Inquirer,

The absence of a flood warning, high tide, darkness and a false sense of security proved disastrous for people of northern Mindanao when Tropical Storm “Sendong” came over the weekend.

Add illegal logging, rapid urbanization and mining, and the result was deadly for residents of Cagayan de Oro and Iligan cities, government and Red Cross officials said.

This represents as very naïve ex-post account of what has happened.

This assumes that had been none of the above activities occurred, the current fatalities and damages wouldn’t have happened. This is simplistic and sloppy thinking. In reality, this simply isn’t so.

Unknown to the author is that illegal logging activities globally, for instance, have been mainly caused by poverty and by the tragedy of the commons where effected arbitrary laws in response to such problems, has exacerbated the incidences of these activities and engendered other untoward consequences such as more corruption, organized crimes, human rights abuses and etc….

The application of conventional prohibition laws, which tramples on property rights, represents as typical example of applying a cure which is worst than the disease.

In other words, poverty brought about by excessive regulations, the lack of trade opportunities, and or the politicization of local economics has spawned these “illegal” activities and thereby the ensuing environmental degradation.

Poor people care about their day to day survival and not the environment.

Thus the said effects has flagrantly been misread by media as the cause, and thus dumbing down their gullible audiences.

So if the political reactive response will be to curb on these activities, we eventually end up with more of what we least desire. This would represent as the law of unintended consequences.

Instead, as seen in other countries, economic freedom has vastly mitigated the destructive effects of natural calamities. Wealthier people are likely to undertake protective measures for themselves, their families and the community regardless of government actions.

Bottom line: Keeping people poor and politically dependent is a guaranteed recipe for prospective victims of natural catastrophes.

Next as I have argued before, ALL public officials are HUMAN BEINGS. This means that as humans (and not a quasi-deity whose popular delusions has been promoted by media), their actions will be dictated by personal values and preferences.

Alternatively this exposes the myth about good government. There is no such thing as good government whose employment of organized violence will always be politically motivated benefiting a few at the expense of the rest. Despite all the idealistic blarney by media, politics has not been about serving the public (hahaha!) but of the self-interest of the political leaders and their allies, followers and cronies (insider-outsider dynamics).

Lastly, more “compassionate” overreactions actions by political authorities will extrapolate to more corruption and inefficient use of resources which leads to massive wastage and higher taxes and or inflation in the future.

This subsequently translates to more poverty and the same set of troubles in the future.

Does the politically connected mainstream media ever account for why, after all these years and all the changes in political stewardship, we get the same set of problems?

Good government? Duh!

Chart of the Day: Kim Jong il’s Heritage: North Korea’s Earth Hour from Poverty

North Korea has been one country that has practiced what environmentalists celebrate as “Earth Hour”. I have earlier posted this.

Seen from a satellite photo, while South Korea has been prominently lighted at night (lower portion), North Korea stands in the dark (upper portion) where the only place lit is that of the palace of Mr. Kim. [yeah equality]

But there is a fundamental difference.

The North Korean exercise has not been designed to fulfill environmental preservation goals but has been driven by dire poverty…

This can be seen by the above chart from Reason and Washington Post

Writes the Washington Post

During the early 1970s, North Korea’s economy stagnated, with GDP per capita flatlining until Kim Il Sung’s death. Then, in 1994, after Kim Jong Il took over, the economy started shrinking noticeably, per capita incomes fell, and the country became dependent on emergency U.N. food aid to stave off famines that had already killed as many as 3 million people. North Korea became, as Eberstadt puts it, “the world’s first and only industrialized economy to lose the capacity to feed itself.” (That said, there’s evidence that North Koreaw as growing weakly in the last few years of Kim Jong Il’s rule).

At the moment, North Korea’s per capita income is less than 5 percent of the South’s. As the Atlantic Council’s Peter Beck puts it, “Each year the dollar value of South Korea’s GDP expansion equals the entire North Korean economy.”

Overall I see several lessons

The thrust of most environmental politics has been directed at atavistic policies, or attempts to retrogress world conditions similar to the medieval times or to one of absolute poverty (ala North Korea).

Second, there is no exemplary way to achieve atavism than to adapt the paragon of statism/socialism/communism—Kim Jong il version. In North Korea almost everyone is equally poor and equally without lights, except the political leaders.

Third, the concrete evidence of attaining economic prosperity can be seen in the diametric paths of governance undertaken by two Koreas: South Korea’s capitalism or market economy vis-à-vis Kim Jong il’s brand of statism/socialism/communism.

Yet bizarrely, many fantasize about having successful economic development by the taking on the latter’s path.

Signs of Emergent Classical Liberalism Revolution: Ron Paul tops Iowa Polls

From Christian Science Monitor,

Rep. Ron Paul of Texas is now leading the pack in Iowa as Newt Gingrich's support fades.

Paul now has the vote of 23 percent of 597 likely Republican caucus voters, according to Public Policy Polling, in a survey taken from Dec. 16-18. Mitt Romneyis close behind at 20 percent, while Gingrich as slipped dramatically to 14 percent. Fourth place is a dead heat between Rick Santorum, Michele Bachmann, and Rick Perry at 10 percent. While Jon Huntsman is gaining traction in New Hampshire, in Iowa he's only got 4 percent of the likely voters. Gary Johnson comes in at 2 percent.

I still don’t expect Ron Paul to win the GOP nominations as I have said earlier here.

But there is always the black swan phenomenon—low probability high impact event—which has been a conventional feature of human action dynamics, where even some distinguished mathematicians acknowledge or admit as a key source of randomness or uncertainty or unpredictability.

Importantly, my hope is that my earlier expectations have vastly been misplaced.

Nevertheless, Ron Paul’s amazing performance can be construed as signs of the progressing diffusion of the classical liberal creed.

And despite all the attempts by mainstream media to censor and dismiss Ron Paul as a credible candidate, current developments seem to show how Mr. Paul has been incredibly defying the odds.

Perhaps signs of these seem evident in Ron Paul’s warm reception at an interview with Jay Leno

When Jay Leno asked about Ron Paul’s remarkable drawing of the young voters given Mr. Paul’s platform and despite his age, I would add to Mr. Paul’s answer—freedom represents an everlasting principle with fresh applications.

Video: Propoaganda Amidst Kim Jong il's Death

In watching the video below, you would wonder if all the mawkishness shown are for real or are representative of hired/professional mourners (moirologists) meant for propaganda. Maybe both. (hat tip: Tom Palmer)

Yet the above only exhibits North Korea's cult like political management or political zealotry. Importantly, the lobotomization of a society.

And as I have been saying, it is likely that we are already witnessing the transitional downfall of North Korea's withering communist regime in process.

And unless the successor (yet to be named) would be insane enough to gamble their privileges away, starving North Korea, who has been also poorly equip or armed, can't afford a war and won't likely take the military conflict route, but will continue with foreign policy based on brinkmanship to gain aid (for the benefit of the leaders).

Nevertheless, I do hope the average North Koreans will awaken from their hypnotic trance soon.

China Bubble: Ballooning Debt for Grand Projects

More signs of China’s ballooning bubble.

From the Bloomberg,

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt.

The fact so few of the companies have accumulated that much debt suggests a bigger problem, says Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system.

“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.

“You know how this story ends -- badly,” he said.

The boom from opening up of China’s economy is one thing, but a boom fuelled by government intervention is another—they are artificial and spent on projects fancied by politicians and not by the marketplace.

More from the same article,

A building boom by thousands of local governments became the backbone of the country’s stimulus program started in November 2008 -- on borrowed money. The financing companies were created starting in the 1990s and enabled provinces, cities, counties and townships to bypass rules barring most of them from directly selling bonds.

Projects undertaken include a stadium, which resembles Beijing’s iconic Bird’s Nest Olympic venue, in Jinan, the capital of eastern China’s Shandong province; and a superhighway in the country’s second-poorest province of Yunnan that stretches into the foothills of the Himalayas, where there are no cities of more than 1 million people.

China has been reversing the sustainable boom from burgeoning entrepreneurship paradigm, by transferring and squandering taxpayers money and reversing the entrepreneurship role for political goals—the preservation of the status quo for the political leadership.

Nevertheless delusions of grandeur projects represent as commonplace indicators of bubble cycles.

Austrian economists label this as the ‘skyscraper index’.

As Professor Mark Thornton writes

the cause of skyscrapers reaching new heights and severe business cycles are related to instability in debt financing and that the institutions that regulate debt financing should be reevaluated, if not replaced with more efficient and stabilizing institutions.

And yes I agree, this story ends—badly.

The Libertarian Legacy in the Philippines

A libertarian friend posted this wonderful and stirring write up on our egroup dealing with the largely unseen influence of libertarianism on Philippines** which prompted me to request his permission for publication on this blog.

[Let me note that the article serves a prologue to his forthcoming paper/book.]

For those of you who aren't really interested in history, please remember 21 January 1899. This is a date of triumph for libertarians during what I call the "First Epoch" (1812 - 1903).

Flashback. In 1812, classical liberals in Spain sign the Constitution of Cádiz bringing the ideas of (European) liberty to the Spanish Empire. It is the fourth charter from the Age of Enlightenment, the first three being the US, France, and Poland. The 1812 Spanish charter is the grandfather of almost a third of the planet's laws and a model for other liberal constitutions in Europe, Latin America, the Caribbean, Florida (then under Spanish rule), and Asia (Philippines, Guam, Palau, Marianas are still one country). It remains in force until 1816 when absolutist factions realize that they are losing the empire and take control of the government. From then on, it is a swing between liberals, socialists, and autocrats and this spills out across the Empire.

In 1868, liberals once again have control of the empire and a year later a new liberal charter is written, the Constitución de la Monarquía española de 1869. Carlos María de la Torre y Nava Cerrada is appointed governor-general to the Philippines and together with his wife abolishes censorship and extends to Filipinos the rights of free speech and assembly contained in the new Spanish constitution.

He was our version of Ron Paul and his actions inspired future generations of Filipino liberals (and socialists) including José Rizal. de la Torre reigns until 1871 when the political pendulum of Spain once more swings back towards absolutism. His successor Rafael de Izquierdo y Gutiérrez works to undo all the liberal reforms taking away the political freedoms from the Filipinos, without understanding that liberty cannot just be taste-tested. Once a man has liberty, he cannot not have it. The Cavite Mutiny happens ten months later.

Ten years later, José Rizal decides to pick up where de la Torre left off. After another ten years studying Spanish liberty (and unfortunately European socialism), Rizal organises La Liga Filipina to promote peaceful reform. It is crushed and the liberals and socialists split into two organizations, the Andres Bonifacio's Katipunan (which advocates revolution) and Apolinario Mabini's Cuerpo de Compromisarios (which understands that we are still socially and politically immature and continues faithfully the objectives of the Liga Filipina.

The Cuerpo de Compromisarios are regarded as traitors for sticking to peace in a time of blood-lust. Membership dwindles and they attach themselves as administrators to Aguinaldo's Magdalo faction, knowing that Magdiwang plans genocide. These liberals take their time and wait for an opportunity to save the country from the mess that is the War for Independence.

23 June 1898, the Cuerpo de Compromisarios (now known in the school history books as the Constitutionalists) quietly nudge Aguinaldo to abolish the military dictatorship and plan for civilian rule. By this time, the Cuerpo de Compromisarios is the quiet influence in the administration of the government and acknowledge that it is the Filipino military (particularly the 'showbiz personalities' AKA national heroes) that is the greatest threat to Filipino liberty, much more than Spain and the US combined.

One 21 January 1899, the Malolos Constitution is promulgated. After seven months of wrangling, Felipe Gonzáles Calderón y Roca of the Cuerpo de Compromisarios single-handedly writes this charter. Calderón is pragmatic and understands the idea of "liberty with Filipino characteristics". Rather than imposing some abstract ideal, he takes into account not only what Filipinos want in a government, but what they will accept, and how they understand things. For example, Calderón was a Freemason, and yet he refused to place Masonic ideals into the Constitution and even championed the society's chief enemy, the Catholic Church simply because most Filipinos were Catholic and were quite comfortable with it and Freemasonry was at the time both a fringe group and viewed with suspicion. Practical workability was preferred to strict adherence to ideology.

He also has 86 years of watching how the children of the 1812 Constitution have grown on his side and begins to cherry pick the best features from them all.

From Florida and the American allies, the notion that democracy and republicanism are two different forms of government. The word democracy is not found anywhere in the republican document. The ordinary Filipinos want a gigantic list of rights guaranteed by the government because they know that the government has a tendency to do whatever as long as there is nothing specifically prohibiting them from doing so. Calderón gets this from the Constitución de la Monarquía española de 1869 which de la Torre brought with him.

From the Central American republics Calderón sees many South American presidencies becoming dictatorships in all but name since there is so much power attached to the office and wants to nip that in the bud so he comes up with the idea of a President who is constrained by another agency from unilateral action. The president also has no power to call for martial rule even in emergencies. It didn't work well in the Roman Republic so why would it work here? 1972 Calderón proved right.

Actual executive power lies in the collegial Consejo de Gobierno, taken from the Swiss Bundesrat. The Swiss structure is role model for Filipinos particularly in the South where the Republic of Negros uses it as the model of government.

Most may not be aware of it, but libertarianism has vital links to our present state. It is a heritage that deserves not only recognition, but requires revivalism.

I earlier posted Jose Rizal’s Libertarian Roots here

[Thanks dude]

**partial list of references

Calderón, F. (1907). Mis memorias sobre la revolución filipina: segunda etapa, 1898 á 1901. Manila: Imp. de el Renacimiento

Payne, S. (1973). A History of Spain and Portugal, v. 2. Wisconsin: University of Wisconsin Press.

Fruits of Capitalism: The Arrival of Commercial Space Travel (Fly me to the moon!)

It won’t be far when the moon will just be another tourist destination (and perhaps property rights will also be applied).

Commercial Space travel will soon be accessible to the public.

From the Wall Street Journal,

Fast forward to this October, when Mr. Branson and his children Sam and Holly christened Spaceport America, which advertises itself as "the world's first purpose built commercial spaceport" and is located about 55 miles north of Las Cruces, New Mexico. In typical outsize Branson fashion, the 61-year-old rappelled from the ceiling of the hangar—now called the "Virgin Galactic Gateway to Space"—and, while dangling in midair, chugged from a bottle of champagne in front of a large crowd to celebrate.

Mr. Branson is still radiating enthusiasm. "We've got just short of 500 people now signed up to go, which is actually more people than have been up to space in the history of space travel, and we hope to put those up in our first year of operation," he says, predicting the first commercial flight by "about next Christmas," although he acknowledges that there have been many delays.

He hopes "to get the price down so that hundreds of thousands of people out there will have the chance to become astronauts; not just, you know, a very, very few wealthy people." Tickets today cost $200,000, with deposits starting at $20,000. The Virgin Galactic website enjoins interested parties to "contact one of our Accredited Space Agents around the world."

What's so important about an expensive, suborbital joy ride, I ask? "If it was just about the joy ride, that would be exciting enough in itself," Mr. Branson says, leaning forward in his chair. "But the fascinating thing about adventures like that" is that when people "push the limits" and see "what they're capable of, other byproducts come that they hadn't even thought of at the time." He proceeds to tick off an impressive list.

And the prospective space travel industry has shown signs of being driven by competition which will likely drive prices down…

From the same article

Mr. Branson isn't the only businessman exploring private spaceflight. California's XCOR Aerospace, for instance, is building the Lynx rocket plane, which will also carry passengers and payloads. Test flights are scheduled for late 2012. Unlike SpaceShip Two, the Lynx takes off from a runway and doesn't depend on a carrier ship, so it has lower operating costs. Tickets start at $95,000 and the company may even beat Mr. Branson into suborbital space, if Virgin Galactic continues to have delays.

Yet exotic travel in the future might also include deep sea travel…

Space isn't the only frontier Mr. Branson is exploring. Virgin Oceanic plans to launch a one-person submarine in 2012 to "journey to the deepest part of each of Earth's five oceans." And "we hope to be going 10,000 foot further down than Everest is high. So it's going to be quite an eerie, six- to seven-hour trip heading down. But scientists are frothing at the mouth with the possibilities of what we could discover," Mr. Branson says. "In the history of mankind," only two people have ever been below 18,000 feet and the ocean is "twice as deep" as that.

The beauty of capitalism isn’t just because of these wondrous technological innovations, but for these products and services to be made available for a broader spectrum of people.

As Joseph Schumpeter once wrote,

Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.

Once space travel goes online, prices one day will get low enough to cater to people like me or the middle class.

Capitalism has made living in this world exciting.

Russia’s Entry to World Trade Organization will have Political Repercussions

Two major positive developments emanating from Russia.

One, Russians may have come to realize that state or crony capitalism has been doing them more than enough harm.

Signs of these have become evident with the latest election results (where Putin’s Party has lost the majority) and the unfolding street protests (over the election results) which could be portentous of a ‘Russian Spring’.

While displeasure over Vladimir Putin’s autocracy has led to a surge in communist followers, I’d say that this represents a default position for many, when seen from the perspective of Russia’s history, whom has traipsed from autocracy to communism and back to autocracy.

The Western concept of classical liberalism has hardly any influence to the Russians. Thus, free markets and economic freedom may seem as an alien concept.

But this is about to change dramatically, in my opinion.

As compliment to education, one way to introduce classical liberalism is to get people to feel the benefits from its exposure. Put differently, once people come to realize the benefits of freer domestic and external trade, then more will be demanded. And this will be manifested via political actions or policies.

And changes happens on the margins.

chart from tradingeconomics.com

The deepening of globalization trends in the 1990s accompanied by the collapse of the USSR (1991) has already been boosting Russian exports and imports.

Russia’s external trade consists of exports mostly dependent on natural resources and defense equipment (80% of total) while imports have been machinery, transport equipment, plastics, medicines, iron and steel, consumer goods, meat.

Since the transition away from USSR model and the desire to tap world markets, Russia has applied for WTO in 1993.

Timeline below of Russia’s WTO application from the BBC.

Also it is important to note that benefits accrued from Russia’s gradual opening of trade with the world has led them to pursue the WTO membership.

Thus, the approval of Russia’s membership to the World Trade Organization functions as the second and most important positive change.

Writes the China Daily,

Russia finally joined the World Trade Organization (WTO) on Friday, after 18 years of effort.

The world's 11th biggest economy is the last of the G20 countries to join the WTO and became its 154th member. Russia's entry means the BRICS countries (Brazil, Russia, India, China and South Africa) are now fully represented in the WTO.

Nigerian Trade Minister Olusegun Olutoyin Aganga struck a gavel to announce that the 8thWTO ministerial meeting here had agreed to accept the bid. Russia had to first reach bilateral agreements with 57 of its current 153 members to secure their support.

Like China, there will be mounting pressures from the collision of political forces from the escalating bottom-up forces vis-à-vis those currently benefiting from top-down political institutions.

Again like in China, an inevitable decisive choice would have to be made to tailorfit the politics with the economy: Either a return to communism to reinforce current political institutional arrangements along with the closing of their economies, or an evolution to a more representative form of government that would flow along with greater economic freedom.

And technology will play a crucial role in ascertaining the path to the resolution of these transitional conflicts.

Also, if the evolving trends will flow to the latter, then the important geopolitical implications would mean lesser risk of military confrontations, as political priorities will shift towards enforcing trade activities than to engage in brinkmanship politics which are premised on the politics of plunder that has encouraged conflicts.

When goods don’t cross the border, warned the great Frédéric Bastiat, armies will.

Apparently, the world seems to exhibit more signs in the acknowledgment of Bastiat’s wisdom, thus should be applauded and welcomed.

Overtime, if political economic trends persist on the path of economic freedom then Russia should be a prospective buy.

Chart of the Day: More Crony Capitalism

More diagrams showing revolving door crony capitalism in the US (hat tip: Bob Wenzel) Part 1 here.

Update:

I'd like to add (or forgot to say earlier) that I hope to see the revolving door relationship between the US Federal Reserve and Wall Street. The previous chart exhibited relationship between the US Federal government and Goldman Sachs.

Also, I hope that Filipinos will get the idea and try to establish the same revolving door crony relationship with today's big firms and the incumbent (or past) government.

Finally, all these goes to show how governments have been "captured" by special interests groups and how public choice theory have been very relevant in today's political environment.

Chart of the Day: Economic Freedom, Corruption and the European Debt Crisis

From Gallup (including chart)

Residents in wealthier EU countries with the most unsustainable debt burdens -- including Greece, Italy, Spain, and Ireland -- are also among the most likely to say their government makes it hard to start and manage a business. The climate for entrepreneurs is most inhospitable in Greece, where more than 8 in 10 residents see their government as an obstacle…

The widespread perception in Greece, Italy, and other debt-laden countries that government makes starting and running businesses difficult may discourage entrepreneurial ambition in places that need it the most. Gallup's data correspond with other international measures of business regulation; for example, of the 25 EU countries ranked for the World Bank's 2012 Ease of Doing Business Index, Greece and Italy were furthest down on the list. Turning those perceptions around will require reforms in key areas to reduce administrative burdens and improve transparency in government procedures.

Cutting through the red tape will be no easy task, however. Administrative hurdles create opportunities for local officials to abuse their status as gatekeepers, often by awarding licenses or contracts to business owners who pay kickbacks. The issue is particularly severe in Greece, which maintains a huge, patronage-driven bureaucracy. But Gallup data reveal that among all EU member countries, the view that the government makes it easy to start and manage a business falls sharply as perceptions of widespread corruption rise.

Corruption are symptoms of arbitrary and repressive laws and the politicization of the distribution of resources. And political economic systems founded on the unnatural or artificially derived factors as the above will eventually meet their destiny as we are witnessing in Europe today.

Selection Bias in Reporting Inflation

From Bloomberg’s Caroline Baum,

When statisticians use the term "sample selection bias," they are referring to a flaw in the selection process that influences the outcome of a study and produces distorted results…

When energy prices boost headline inflation in any given month, the commentary focuses on the usually tame core to support the conclusion that there is no inflation. When energy prices depress the CPI, somehow the focus shifts to the headline CPI -- once again to show there is no inflation. That's what made me think of selection bias, at least in terms of what we choose to see.

The Federal Reserve has an implicit inflation target of 1.5 percent to 2 percent. With the CPI up 3.4 percent in the past year and the core up 2.2 percent and climbing, policymakers better hope those inflation expectations are well anchored.

In my earlier post, I wrote

Statistics can be manipulated to suit one’s dogmatic perspective.

I might add, statistics can be manipulated or interpreted to tailor fit the interests of political authorities.

Global Equity Market Performance Update: Philippine Phisix Ranks 6th among the Best

Of the 78 countries in the list of Bespoke Invests’ global equity benchmarks, the Philippine Phisix ranks 6^th among the best performers!

Chart from Bespoke Invest

Venezuela whose economy has been suffering from escalating inflation has taken the top spot…

Chart from Tradingeconomics.com

…but real returns appears to have been eroded by resurgent inflation

A brewing symptom of hyperinflation is when surging rates of inflation drives people into stock markets as with the Weimar or Zimbabwe experience.

chart from goldonomic,com

With only 10 nations posting positive returns (among the 78 or 12%) on a year-to-date basis, the US remains in the top 15 down by only 3% and has outperformed her peers. In contrast 25 nations (or 32%)mostly in the Eurozone are in bear market territory.

Aside from the outperformance of the Phisix, ASEAN bourses have been among the top 15.

Indonesia whose gains have been slightly below the Phisix has ranked 7^th whereas Thailand placed 10^th and Malaysia at 15^th.

I expect the rankings of ASEAN bourses to improve by the yearend.

On Facebook Friends

Recently I have been receiving some friend requests on my Facebook account from persons whom I am not familiar with or from outside the groups where I am part of. [Mutual friends is an indicator of this.]

While I used to accept anyone, now at least I want to get to know a little about who my prospective online friends are. I don’t like to pad up on my friends list just for the sake of a numbers game to generate ‘status’ or for mass 'networking'. [As an aside, Dunbar's number or the number of friends a typical person can have is 150 according to Seth Godin]

Particularly, I want to know who referred them or if they are readers of this blog or from the stock forum (Stock Market Pilipinas) where some of my articles have been cross posted or elsewhere.

I am open and would be glad to have new online friends, most especially if they belong to a tribe—a group with shared interests—which I am part of.

But at least I would like to get some introduction.

US CPI Inflation’s Smoke and Mirror Statistics, Part 2

In defense of their interventionist bias, the conventional question framed by mainstream statists goes around this context, “given the FED’s printing of money, where is inflation?”

So I will be updating my earlier post questioning the reliability of US CPI Inflation as an accurate or dependable measure of inflation.

The magnificent charts below are from dshort.com, here, here and here

First, the breakdown of the CPI basket…

Next, the changes of inflation rate for each of the components from 2000 as shown by the line chart below…

The histogram perspective of the same rate of change over the same period….

What has weighed on the CPI inflation index has been the housing component which represents 42% of the basket. Apparel, recreation and communication which constitutes a 16.5% share has also had a downside influence on both indices (CPI and CORE CPI). Meanwhile inflation rates of energy, tuition fee and medical care have skyrocketed.

Yet energy’s impact on the basket appears to have been suppressed or muted.

Writes Doug Short

The BLS does not lump energy costs into an expenditure category, but it does include energy subcategories in Housing in addition to the fuel subcategory in Transportation. Also, energy costs are indirectly reflected in expenditure changes for goods and services across the CPI.

The BLS does track Energy as a separate aggregate index, which in recent years has been assigned a relative importance of 8.553 out of 100. In other words, Uncle Sam calculates inflation on the assumption that energy in one form or another constitutes about 8.55% of total expenditures, about half of which (4.53%) goes to transportation fuels — mostly gasoline.

Finally, below is the long term inflation chart which includes

“the alternative look at inflation *without* the calculation modifications the 1980s and 1990s”

In short, the current methodological construct of the US CPI inflation vastly understates the genuine rate of inflation, which appears to be accelerating (green arrow)—even when measured without current CPI modifications.

And contrary to the mainstream arguments, deflation seems nowhere in sight. This only implies that those dismissing the presence of inflation seem to be engaged in sophism anchored on political bias rather from reality.

Statistics can be manipulated to suit one’s dogmatic perspective.

While much of the money created and parked at the FED will pose as an inflationary problem ahead, the dilemma would be in the timing or that when these will enter the market.

Besides the US Federal Reserve appears to be in an undeclared QE 3.0 mode, as the Fed’s balance sheet has began to swell anew, with notable increases in lending to financial institutions, growth in liquidity to key credit markets and purchases of the Fed agency debt mortgage-backed securities (chart from the Cleveland Federal Reserve).

Applying Austrian economics means to explain how future events will transpire rather than to make exact predictions.

In other words, we don’t know when the tipping point would occur, which would result to rapid escalation of inflation rates that will be increasingly visible to the public. Instead we do know that if the present trend of policymaking continues, the subsequent outcome would be a ramped up rate of inflation.

As the great Ludwig von Mises wrote,

Economics can only tell us that a boom engendered by credit expansion will not last. It cannot tell us after what amount of credit expansion the slump will start or when this event will occur. All that economists and other people say about these quantitative and calendar problems partakes of neither economics nor any other science. What they say in the attempt to anticipate future events makes use of specific "understanding," the same method which is practiced by everybody in all dealings with his fellow man.

In the fullness of time, surging inflation will explode on the nonsensical or absurd arguments peddled by statist-inflationists.

Hurricanes are Not Linked to Global Warming

A popular myth exposed.

From John Ransom

One of the of the most popularized predicted effects of global warming from the models given us by the climate change clowns, increased hurricane and tropical storm activity, has recently been shown to be without merit according to the science and operations officer of the National Hurricane Center, Dr. Chris Landsea.

In a work published in late November and carefully labeled an “opinion” piece on the site for the National Oceanic and Atmospheric Administration - which is quick to distance itself from the conclusions reached by Landsea, who makes very clear that he subscribes to the theory man of man-made global warming- concludes that “the overall impact of global warming on hurricanes is currently negligible and likely to remain quite tiny even a century from now.”

In the rarefied atmosphere of climate politics this is enough to get you labled as a "climate skeptic," perhaps enough to get you excommunicated as a "climate denier." Landsea resigned from the UN's Intergovernmental Panel on Climate Change in 2005 because he felt it had become politicized and was ignoring the science.

Yet somehow he remains the leading hurricane expert in the US, despite his "shoddy" science.

Landsea attacked three specific datasets that are often used by global warming alarmists to show that the warming of the earth will have terrible consequences for human-kind: 1) the frequency of storms; 2) the intensity of storms and; 3) the economic damage of storms.

Read the rest here.

Heard at a discussion last night, “We cannot predict the impact of hurricanes but we can predict global warming because of melting ice caps”

Woa. So aside from the post hoc fallacy, such a comment implies that storms are not part of, or are isolated from, the atmosphere or weather. This just goes to show how environmentalism, thanks to complicit mainstream media, has mangled people’s logic and transformed the public’s mentality into a political religion.

Philippine Phisix: From Death Cross to the Golden Cross

I have been validated!

Video: Anthology of 2011 Movies

At the VIMEO, Matt Shapiro compiles numerous films of 2011 into this splendid video montage. (original link here).

2011: The Cinescape from Matt Shapiro on Vimeo.

It dawned on me that I have missed much of last year's best movies.

Video: Predictive Value of Austrian Economics versus Keynesian Economics

To kick off my vacation blogging, the following video shows of the predictive value of Austrian Economics versus mainstream mostly Keynesian economics (hat tip Bob Wenzel).

Notice the intense pressures Austrians face when confronted by usually hostile mainstream crowd. I know how this feels.

And this is where Mahatma Ganhi's rule applies

First they ignore you, then they laugh at you, then they fight you, then you win

Vacation Blogging

Well, holiday season is upon us.

I will be preparing to spend this year’s holidays with my mom who resides overseas. My family and I will be leaving by the coming week. So in the interim, I will be doing some light blogging. This also that means that my weekend analysis of the stock market will resume in 2012.

Thank you for your patronage. Happy holidays.

As psychologist Elias Porter said

Love generously, praise loudly, live fully

Chart of the Day: Regime Uncertainty

Concludes the editor of the Wall Street Journal

The evidence is overwhelming that the Obama regulatory surge is one reason the current economic recovery has been so lackluster by historical standards. Rather than nurture an economy trying to rebuild confidence after a financial heart attack, the Administration pushed through its now-famous blitz of liberal policies on health care, financial services, energy, housing, education and student loans, telecom, labor relations, transportation and probably some other industries we've forgotten. Anyone who thinks this has only minimal impact on business has never been in business.

Regime Uncertainty as defined by economist Robert Higgs

To narrow the concept of business confidence, I adopt the interpretation that businesspeople may be more or less “uncertain about the regime,” by which I mean, distressed that investors’ private property rights in their capital and the income it yields will be attenuated further by government action.

Such attenuations can arise from many sources, ranging from simple tax-rate increases to the imposition of new kinds of taxes to outright confiscation of private property. Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces,or threatens, presumptive rights.

(hat tip John Cochran Mises Blog)

Quote of the Day: Insider-Outsider Government Theory

Bill Bonner’s theory of government.

Every theory of government we’ve come across is a scam. So we offer a better theory: government is just a way for the insiders to take advantage of the outsiders…

Insiders always use government to transfer power and money from the outsiders to themselves…

There never is one fixed group of people who are always insiders. Instead, the insider group has a porous membrane separating it from the rest of the population. Some people enter. Some are expelled. The group swells. And shrinks. Sometimes, a military defeat brings a whole new group of insiders sweeping into power. Elections change the make-up of the core group.

But the genius of modern representative government is that it cons the masses into believing that they are insiders too. They are encouraged to vote…and to believe that their vote really matters. Of course, it matters not at all. Generally, the voters have no idea what or whom they are voting for. Often, they get the opposite of what they thought they had voted for anyway.