World Economic Trend: Mercantilism or Globalization?

To paraphrase a recent comment I received from a mercantilist: Because of the US dollar standard, mercantilism have been more prevalent today.

It is easy to dismiss such an argument as post hoc fallacy since two distinctive variables have been made to function as causally related. Nevertheless let us see from a few charts and graphs whether this claim has validity, even if we exclude the role of the US dollar.

To rephrase the issue: Has the world economic trend been more about mercantilism or globalization?

According to Google’s Public Data World merchandise trade as % of GDP has ballooned from a little less than 20% in 1960s to about nearly half of the world's economy today.

Even trade balance of services, again from Google Public Data, based on OECD economies volume has leapt sixfold since 1996.

Above is the breakdown of global trade per sector in 2010 (World Trade Organization)

Add to the current dynamic the dominance of intra-region trade

One major reason for the surge in global trading activities has been due to major moves to LIBERALIZE trade via substantial reductions tariffs which came from Regional Trade Agreement (RTA), Multilateral Trade Negotiations (MTN) and or even unilateralism (WTO)

Bilateral investment treaties peaked in 1995 but the effects of these are still being felt today through massive growth in cross border investments

While there have been some protectionist pressures as consequence to the financial crisis of 2008, generally speaking trade liberalization has been minimally affected.

From IMF Finance 

The number of new protectionist actions peaked in the first quarter of 2009 and bottomed in the third quarter of 2010. However, recent GTA data suggest that protectionist measures are increasing again; protectionist actions in the third quarter of 2011 alone were as high as in the worst periods of 2009 (Evenett, 2011).

The Group of 20 (G20) advanced and emerging economies account for most of the trade measures, most of which did not involve tariffs, imposed since 2008. There has been no significant increase in the overall use of tariffs or temporary trade barriers, such as antidumping measures, aimed at assisting local firms injured by import competition (Bown, 2011). Such measures affected only about 2 percent of world trade (Kee, Neagu, and Nicita, 2010; WTO, 2011). The trend of gradual tariff liberalization observed since the mid-1990s has not been affected

The World Trade Organization (WTO) notes of the recent increases in Non-Tariff Measures (NTM). But these have been based on technical barriers to trade (TBT) regarding standards for manufactured goods and sanitary and phytosanitary (SPS) or measures concerning food safety and animal/plant health, and partly domestic regulation in services which have hardly been about restricting competition.

From the WTO,

“I think it is a good time for the WTO to have a closer look at non-tariff measures (NTMs)”, said WTO Director-General Pascal Lamy, at the launch of the Report. “A clear trend has emerged in which NTMs are less about shielding producers from import competition and more about the attainment of a broad range of public policy objectives. The new NTMs, typically SPS and TBT measures but also domestic regulation in services, address concerns over health, safety, environmental quality and other social imperatives. The challenge is to manage a wider set of policy preferences without undermining those preferences or allowing them to become competitiveness concerns that unnecessarily frustrate trade.”

The above trends seems quite clear. Globalization has been the dominant theme of the world economy over the past decades, regardless or in spite of the role of the US dollar.

Now of course, events of the past may not extrapolate to the future. 

Bottom line: The religion of politics makes many people see fantasies as self constructed reality.

Quote of the Day: The False Doctrine of Altruism

Altruism is a code of ethics which hold the welfare of others as the standard of "good", and self-sacrifice as the only moral action. The unstated premise of the doctrine of altruism is that all relationships among men involve sacrifice. This leaves one with the false choice between maliciously exploiting the other person (forcing them to be sacrificed) or being "moral" and offering oneself up as the sacrificial victim.

This is from Jeff Landauer and Joseph Rowland at the ImportanceofPhilosophy.com

Ron Paul: Government Dependency Will End in Chaos

The distinguished Ron Paul on why the welfare dependency culture will end in chaos 

The media insists on characterizing statements about dependency on government handouts as controversial, but in truth such statements are absolutely correct.  It's not that nearly half of Americans are dependent on government; it's actually more than half.  If one includes not just people on food stamps and welfare, but also seniors on Medicare, Social Security and people employed by the government directly, the number is more like 165 million out of 308 million, which is 53%.

Some argue that Social Security and Medicare benefits are a right because people pay into these programs their whole lives, or that we need a government safety net in place for people who fall on hard times.  However, this all becomes a moot point when the funds people depend on become worthless due to government default or rampant inflation.

This is less an issue of dignity or dependence on government, and more about the deceitfulness of government promises.

The Fed recently announced that it plans to keep interest rates near zero and keep buying near worthless assets from banks indefinitely.  This enables Congress to spend without having to take deficits or the debt seriously and there is every indication they intend to spend with impunity until the system collapses.  There are no brakes on the runaway train.  The federal debt ceiling law does nothing to limit spending. The ceiling will have to be raised yet again perhaps before the year is out.  What is happening in Greece with austerity measures and riots in the street will happen here within a decade according to some realistic estimates if we do not find some way to fiscally restrain our government.

There is little point in a debate about being entitled to healthcare or food or shelter from fellow taxpayers if the whole system has collapsed.  And, with the way our politicians have taken over and mismanaged vast amounts of resources, collapse seems almost unavoidable.  Yet the number of Americans who have significant dependency on government is dangerously high, and I honestly fear for them.

Worse, corporate welfare is also at an all time high with no signs of diminishing.  Though it is hard to quantify, Tad Dehaven at Cato has estimated that the government spends nearly twice as much on corporate welfare than on social welfare.  Both parties are equally guilty.  More and more, the business sector is learning to rely on taxpayer largesse in one form or another.  They used to be solely concerned with providing a better product to the consumer at a better price.  Now, success on Wall Street depends entirely too much on having the best lobbyists on K Street.  If one includes the employees of "private" businesses who depend on government contracts, grants or bailouts, there are even more people dependent on government in some way.

Read the rest here

This is a lesson isn't just for Americans but for all society. 

Bottom line: The Santa Claus fund has limits.

Video: George Carlin on Politically Correct Terminlogies

The inimitable comedian the late George Carlin on politically correct terminologies.  (hat tip Lew Rockwell Blog)

Loved that punchline at 3: 42 

This poor people have been bullshited by the system into believing that if you change the name of the condition somehow you change the condition...

  

Mr. Carline's much missed stint reminds me of a gem of a quote from author individualist feminist anarchist and senior associate of Laissez Faire Books, Ms. Wendy McElroy: (bold emphasis mine)

The deepest form of social control is to govern what a human being believes is true and false, right and wrong. When you short-circuit a person’s critical faculty and moral sense, he will obey authority with no need for force because authority has defined who he is. 

Such control requires the monopolization of information. That is why totalitarian states establish compulsory state schools, throttle freedom of speech and the press, broadcast propaganda, legislate the Internet, and obsessively monitor what people say to each other. They need to eliminate any competition in the ‘truth business’. And, so, those who know the “Emperor has no clothes” are silenced by various means. 

The control of what is true and false can be called the democratization of reality. ‘Facts’ are manufactured by those who control information and, then, they are broadcast widely to unquestioning people who believe them because the ‘facts’ spew from authorities or the media. If enough people believe the heavily gerrymandered stats on unemployment and inflation, then the economy is not so bad. If the media is upbeat about the economy, then consumer confidence will turn things around. If enough people believe the police “serve and protect,” then those who cry ‘brutality!’ become troublemakers. If politicians are viewed as “public servants,” then they cease to be masters. Thus, what is reality becomes established by consensus.

What is reality becomes established by the consensus is exactly the message imparted by by Mr. Carlin

Graphic of the Day: Voting Doesn’t Make You Free

While this graphic is targeted to American audience, amidst the coming US presidential elections,this message is relevant to all.

(source Lew Rockwell Blog)

Tom Woods and Bob Murphy Refutes HuffPo’s 11 Myths about the Fed

Austrian economists Tom Woods and Bob Murphy turns the table on an apologist for the FED at the Huffington Post with a terrific smackdown

From Messrs. Woods and Murphy [bold original]

The other day the Huffington Post ran an article by a Bonnie Kavoussi called “11 Lies About the Federal Reserve.” And you’ll never guess: these aren’t lies or myths spread in the financial press by Fed apologists. These are “lies” being told by you and me, opponents of the Fed. Bonnie Kavoussi calls us “Fed-haters.” So she, a Fed-lover, is at pains to correct these alleged misconceptions. She must stop us stupid ingrates from poisoning our countrymen’s minds against this benevolent array of experts innocently pursuing economic stability.

Here are the 11 so-called lies (she calls them “myths” in the actual rendering), and our responses.

HuffPo’s Myth #1: “The Fed actually prints money.”

She leads off with this? As if this is some big discovery that will refute the end-the-Fed people? When we talk about Fed money-printing, we are speaking in shorthand. We’re pretty certain someone like Ron Paul knows the Fed doesn’t actually print money. But he, along with pretty much the whole financial world, speaks of the Fed as printing money. You know why? Because it’s a teensy bit more convenient than saying, “We need the Fed to credit some banks’ accounts with increased balances, which it does by means of a computer, though if these balances are lent out and the borrowers prefer to use some of this lent money as cash, the Treasury will go ahead and print the cash.”

HuffPo’s Myth #2: “The Federal Reserve is spending money wastefully.”

You may think the Federal Reserve is throwing around money like crazy, just like the federal government. But you’re wrong! As Kavoussi explains, the Fed doesn’t spend money like the federal government does; it creates money! That’s just totally different! And so we read, “Both CNN anchor Erin Burnett and Republican vice presidential nominee Paul Ryan have compared the Federal Reserve’s quantitative easing to government spending. But the Federal Reserve actually has created new money by expanding its balance sheet.”

She then points out that hey, the Fed earned a profit of $77.4 billion last year. We are supposed to be impressed. But if you can create money out of thin air and buy bonds with it, and then earn interest on those bonds, wouldn’t it be pretty hard to lose money? (But they just might, if interest rates should spike.)

HuffPo’s Myth #3: “The Fed is causing hyperinflation.”

Is it just us, or does Bonnie Kavoussi word things awkwardly? Do you know of anyone who says the Fed is causing – as in present progressive tense — hyperinflation?

Kavoussi then goes on to tell us that the CPI is showing low price inflation — again, as if she’s reporting some extraordinary revelation that will put all Fed critics to shame. There is no hyperinflation because the banks are holding the newly created money as excess reserves with the Fed. If the banks begin lending and the money multiplier is enacted, an inflationary spiral could easily occur — trillions of dollars of high-powered money would expand via the fractional-reserve banking system into tens of trillions of dollars. The only way for the government to stay ahead of the curve would be for the Fed to keep creating boatloads of new money — which is how hyperinflation happens, after all. If that were to happen, we rather doubt Kavoussi would want to come tell us how the CPI is doing.

HuffPo’s Myth #4: “The amount of cash available has grown tremendously.”

“Some Federal Reserve critics claim that the Fed has devalued the U.S. dollar through a massive expansion of the amount of currency in circulation,” says Kavoussi. “But not only is inflation low; currency growth also has not really changed since the Fed started its stimulus measures, as noted by Business Insider’s Joe Weisenthal.”

This looks like another silly gotcha with definitions, like the “printing money” canard. The graph below shows that the currency component of M1 hasn’t shot up like a rocket, it’s true; but M1 itself (which consists of not just physical paper but also checking account deposits) has indeed risen sharply, notwithstanding the insights of Business Insider’s Joe Weisenthal.

HuffPo’s Myth #5: “The gold standard would make prices more stable.” 

Kavoussi writes, “Rep. Ron Paul (R-Tex.) has claimed that bringing back the gold standard would make prices more stable. But prices actually were much less stable under the gold standard than they are today, as The Atlantic’s Matthew O’Brien and Business Insider’s Joe Weisenthal have noted.”

Does our critic even read the things she links to? Her two authors’ blog posts depict a very brief period in the twentieth century, after the classical gold standard had already given way to the gold exchange standard. What is that supposed to prove?

So against Bonnie Kavoussi’s two blog posts that examine the gold exchange standard and only for a period of about 15 years at that, all we have in reply is only the most meticulous study of gold and its purchasing power ever written, Roy Jastram’s The Golden Constant: The English and American Experience 1560-2007, which finds gold to be extraordinarily stable over four and a half centuries.

Even John Kenneth Galbraith, not exactly gold’s biggest fan, conceded that once someone had gold, there was little uncertainty about what he would be able to get with it. “In the last [19th] century in the industrial countries there was much uncertainty as to whether a man could get money but very little as to what it would do for him once he had it. In this [20th] century the problem of getting money, though it remains considerable, has diminished. In its place has come a new uncertainty as to what money, however acquired and accumulated, will be worth. Once, to have an income reliably denominated in money was thought…to be very comfortable. Of late, to have a fixed income is to be thought liable to impoverishment that may not be slow. What has happened to money?”

Of course, gold standard advocates, at least in the Austrian tradition, are not fixated on price stability in the first place.

Read the rest here

How True is it that the BSP Refuses to Print Money?

My colleagues recently posted a report which says that the BSP has been hesitant to print money.

From the Inquirer  

The Bangko Sentral ng Pilipinas has ignored proposals for it to print more money so that the peso will become weaker than it is now against the US dollar.

Although the BSP admitted that it has been buying dollars from the market to help temper the appreciation of the local currency, it stressed that it would not increase its dollar-buying activities just so the peso would become artificially weak.

According to BSP Governor Amando Tetangco Jr., the act of printing more money to significantly weaken the peso will have serious and adverse effects on the economy.

“A few have encouraged the BSP to ‘print more money’ instead of sterilizing as a response to capital inflows. They would like the BSP to be more ‘resolute’ in influencing the exchange rate,” Tetangco said in a speech during an economic forum Friday.

“My response to this is that doing so would be inflationary. [It] would lead to a tremendous expansion in domestic liquidity that would fan price pressures,” Tetangco explained.

While I should be the first to rush in to applaud and to embrace Mr. Tetangco for such supposed gallant stand against political pressure, I would first inquire if such assertions has been true.

Just to show some charts: 

The BSP, as well as other, ASEAN peers as I pointed out earlier has been expanding their balance sheets like everyone else.

M3 Growth from tradingeconomics.com 

From Trading Economics: (bold emphasis mine)

Money Supply M3 in Philippines decreased to 4607662 PHP MIL in July of 2012 from 4738239 PHP MIL in June of 2012, according to a report released by the Bangko Sentral Ng Pilipinas. Historically, from 1980 until 2012, Philippines Money Supply M3 averaged 1276131.0 PHP MIL reaching an all time high of 4738239.0 PHP MIL in June of 2012 and a record low of 56544.0 PHP MIL in January of 1980. 

Broad money—defined by tradingeconomics as the sum of currency outside banks; demand deposits other than those of the central government; the time; savings; and foreign currency deposits of resident sectors other than the central government; bank and traveler’s checks; and other securities such as certificates of deposit and commercial paper

Quasi Money –-defined by tradingeconomics.com as time, savings, and foreign currency deposits of resident sectors other than the central government.

Money and Quasi Money Growth Rate 

Tradingeconomics.com: 

The Money and quasi money growth (annual %) in Philippines was last reported at 5.31 in 2011, according to a World Bank report published in 2012. Average annual growth rate in money and quasi money. Money and quasi money comprise the sum of currency outside banks, demand deposits other than those of the central government, and the time, savings, and foreign currency deposits of resident sectors other than the central government. This definition is frequently called M2; it corresponds to lines 34 and 35 in the International Monetary Fund's (IMF) International Financial Statistics (IFS).

Although money and quasi money growth has declined in 2011, they are still far above from the GDP 3.7% growth rate of 2011.

The BSP have NOT been printing money? Perhaps in the future, but certainly NOT from the past and recent past evidences shown above. 

But I would certainly bet against such "heroic" iconoclastic idea, given that money printing has been the new dogma for central banking. If global central banking is a cartel, then Mr. Tetangco with his supposed "sound banking" approach will surely lose his job.

Video: The Robot Chefs are Coming

A Chinese entrepreneur has invented the "robot chef" to do his noodle bars. 

I believe this is just an ice breaker, along with 3D printing, I think robots or the automation of parts of kitchen chores will become part of the commerce first, then the household soon. (hat tip Professor Mark Perry)

Argentina's Government Openly Promotes Poverty

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

From Nasdaq.com 

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

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

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

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

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

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

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

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

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

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

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

Europe’s ESM Activated, Expect ECB to Rev Up on the Printing Press

Europe’s permanent bailout fund has been activated. This means that ECB’s “unlimited” bond purchasing program which the ESM serves as part of the conditionality for bailouts of crisis stricken member states will go into full throttle.

From the Bloomberg,

European governments set up a full- time 500 billion-euro ($648 billion) fund to aid debt-swamped countries and, not for the first time in the three-year crisis, expressed confidence that the extra financial muscle won’t be needed anytime soon.

Finance ministers from the 17 euro countries declared the European Stability Mechanism operational, while saying that Spain, its biggest potential near-term customer, isn’t on the verge of tapping it. Decisions were also put off on Greece’s next aid payment and on an assistance program for Cyprus.

Creation of the ESM “makes the strategy of member states credible and equips the euro area with much better tools to appropriately respond to future crises,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Luxembourg today before a meeting of euro finance chiefs that began at 5 p.m.

The fund’s birth was eased by the European Central Bank’s offer in August to buy bonds of fiscally struggling countries, which has driven down interest rates in Spain and Italy and bought European governments time to address the root causes of the crisis.

The ESM will replace the temporary European Financial Stability Facility, which has spent 192 billion euros of its 440 billion euros on loans to Ireland, Portugal and Greece. The two funds will run in parallel until the EFSF is phased out in mid- 2013.

Oh you may ignore the propaganda about "financial muscles won't be needed anytime soon".

This marks the path towards further centralization of the EU. Again from the same article.

Controlled by euro finance ministers, the ESM can lend directly to governments, intervene on bond markets, offer credit lines and provide loans that can be used to recapitalize banks. It would be authorized to pump capital into banks directly only once the euro zone sets up a central supervisor, possibly in 2013.

The ESM inherited those powers from the temporary fund. For now, it will go without two other EFSF tools that have yet to be used: debt-insurance certificates and co-investment vehicles that were designed to use leverage to multiply their impact.

With the ESM in place, expect the ECB to rev up on the presses.

Sri Lanka Joins Global Money Printing Contest

I have been saying that global central banks have embraced Bernanke’s approach as a newfound doctrine (here and here) such that ALL central banks have practically been engaged in money printing in one form or another.

Sri Lanka reportedly joins the money printing bandwagon via forex intervention.

From Lanka Business online 

Sri Lanka's central bank has sterilized a foreign exchange sale injecting 8.0 billion rupees in one-month money into the banking system, ending several weeks of monetary policy that has been favourable of a stronger exchange rate.

On Friday the central bank printed 8.0 billion rupees for one month at 9.81 percent, slightly above the 9.75 percent reverse repo rate at which overnight liquidity is injected into the banking system for 31 days.

Until Thursday the monetary authority was injecting cash overnight in to the banking system, following a large liquidity shortage that occurred in late September. In a pegged exchange rate system, a large liquidity shortage occurs through an unsterilized foreign exchange sale.

While overnight rupee injections also generate demand in the economy, it can be less damaging than longer term cash injections, since bank managers will not try to grow the loan book while funding the balance sheet with overnight liquidity.

Instead they will try to cover the positions by curbing loan growth or raising more deposits or both.

But central bank liquidity injections through term Treasury bill purchases allow banks to focus on loans again, preventing the adjustment of the economy to the outflow of money through the central bank foreign exchange sales and triggering balance of payments trouble.

Here is the 6 month chart of Sri Lanka’s Colombo Stock Exchange

Central banks worldwide have been blowing bubbles.

Regime Uncertainty and US Employment Woes

Dr. Ed Yardeni’s noteworthy perspective on the recent ‘conspiracy theory’ controversy over US employment data: (bold added) 

The employment gain was attributable to an increase of 838,000 in full-time employment, while part-time employment fell 26,000. What’s odd is that among those working part-time (which edged down slightly), there was a 582,000 increase in those working part-time for economic reasons. In other words, lots of people found full-time jobs, and lots of people who wanted to work full time could only find part-time jobs. Got that? Even odder is that the payroll survey showed that employment in the temporary help industry edged down by 2,000 in September.

While I doubt that anyone at BLS tampered with the household data for political motives, I’m certain no one even thought to bother with the payroll employment numbers. September’s increase was a measly 114,000. I give much more weight to the revisions to the previous two months, which tend to be upwards when the economy is expanding. They totaled 86,000 during July and August, raising their monthly average gain to 161,500. The oddity here was that upward revisions occurred at the local-government level--mainly the hiring of school teachers (up 77,000)--which nearly matched the revision to overall payrolls…

The debatable question is whether the Obama administration’s policies are creating jobs. The answer, of course, is they didn’t create them. Mitt Romney says he’ll create 12 million jobs if he is elected to be the next president. Presidents don’t create jobs. Profitable companies expand and create jobs, especially small ones that turn into big ones.

So politics could have played a sleight of hand trick in the statistical improvements of US employment conditions.

Well, the real reason for the sluggish job conditions can be traced to concerns of small business which makes up the kernel of employment: growing political uncertainty, as I earlier pointed out here.

Sluggish hiring has been an outcome of lethargic business fixed investment…

…which can be traced to REGIME UNCERTAINTY

As Professor Robert Higgs writes, 

I have argued for years that this anemic investment recovery evinces, at least in part, the prevailing regime uncertainty brought about by the Fed’s and the Bush and Obama administrations’ massive, ill-advised, and counter-productive interventions in the economy during the past five years. These interventions are continuing, however, and continuing to prolong the recovery. The idea that these actions will ultimately succeed if only the authorities persist in them long enough and on a sufficiently great scale was a bad idea from the start, and its bankruptcy became fairly evident a long time ago even to many observers wedded to mainstream economics and conventional economic policy making.

Policy makers have cost the U.S. economy a decade or more of normal economic growth. How long will people in their capacities as political and financial actors continue to tolerate this foolish, destructive policy making? I do not know, but I believe I know what the result of these misguided ongoing experiments will be—economic stagnation at best, relapse or another bust at worst.

The bottom line is that in contrast to the quack idea that Presidents "create" jobs, the reality is Presidents “unmake” or “destroy” jobs from repeated interventionism-inflationism which only engenders regime uncertainties or from a political environment which have been antagonistic or hostile to businesses.

Arts: How Socialism Sapped Creativity and Innovation

From Humanities Professor Camille Paglia on an OpEd on "How Capitalism Can Save Art" at the Wall Street Journal (hat tip Cato's David Boaz)

Capitalism has its weaknesses. But it is capitalism that ended the stranglehold of the hereditary aristocracies, raised the standard of living for most of the world and enabled the emancipation of women. The routine defamation of capitalism by armchair leftists in academe and the mainstream media has cut young artists and thinkers off from the authentic cultural energies of our time.

Over the past century, industrial design has steadily gained on the fine arts and has now surpassed them in cultural impact. In the age of travel and speed that began just before World War I, machines became smaller and sleeker. Streamlining, developed for race cars, trains, airplanes and ocean liners, was extended in the 1920s to appliances like vacuum cleaners and washing machines. The smooth white towers of electric refrigerators (replacing clunky iceboxes) embodied the elegant new minimalism.

"Form ever follows function," said Louis Sullivan, the visionary Chicago architect who was a forefather of the Bauhaus. That maxim was a rubric for the boom in stylish interior décor, office machines and electronics following World War II: Olivetti typewriters, hi-fi amplifiers, portable transistor radios, space-age TVs, baby-blue Princess telephones. With the digital revolution came miniaturization. The Apple desktop computer bore no resemblance to the gigantic mainframes that once took up whole rooms. Hand-held cellphones became pocket-size. 

Young people today are avidly immersed in this hyper-technological environment, where their primary aesthetic experiences are derived from beautifully engineered industrial design. Personalized hand-held devices are their letters, diaries, telephones and newspapers, as well as their round-the-clock conduits for music, videos and movies. But there is no spiritual dimension to an iPhone, as there is to great works of art.

Thus we live in a strange and contradictory culture, where the most talented college students are ideologically indoctrinated with contempt for the economic system that made their freedom, comforts and privileges possible. In the realm of arts and letters, religion is dismissed as reactionary and unhip. The spiritual language even of major abstract artists like Piet Mondrian, Jackson Pollock and Mark Rothko is ignored or suppressed.

Thus young artists have been betrayed and stunted by their elders before their careers have even begun. Is it any wonder that our fine arts have become a wasteland?

Bottom line: Economic ideology and policies affect people’s behavior, and thereby all attendant actions. It’s only laissez faire capitalism that brings on the ‘pareto optimal’ on creativity and innovation even in the realm of arts.

Quote of the Day: An Empirical Law Lacks the Guarantee of Absolute Validity a Priori

Among economists the opinion often prevails that the empirical laws, ‘because they are based on experience,’ offer better guarantees of truth than those results of exact research which are obtained, as is assumed, only deductively from a priori axioms …

Testing the exact theory of economy by the full empirical method is simply a methodological absurdity, a failure to recognize the bases and presuppositions of exact research. At the same time it is a failure to recognize the particular aims which the exact sciences serve. To want to test the pure theory of economy by experience in its full reality is a process analogous to that of the mathematician who wants to correct the principles of geometry by measuring real objects. . . .

An empirical law lacks the guarantee of absolute validity a priori, i.e., simply according to its methodological presuppositions …

To want to transfer [the empirical method] to the results of exact research is, however, an absurdity, a failure to recognize the important difference between exact and realistic research. To combat this is the chief task of the preceding investigations.”

This is from founder of Austrian School of Economics Carl Menger, in Investigations into the Method of the Social Sciences  whom echoes on Professor Ludwig von Mises’ Methodological Individualism 

(hat tip Daniel Sanchez at the Mises Blog)

Bastiat on the Political Religion of Mercantilism

What I call as political religion is a deeply held or entrenched belief in theory which is in reality signifies as massive self-contradiction, impractical, unrealistic or virtually utopian.

Yet such ideas have been popularly embraced by the vulnerable public primarily because of its “feel good” effects from what seems as “noble sounding” but spurious rhetoric.

Alternatively, what seems plausible—which are principally based on economic ignorance or self-interest from political redistribution or the interests of tax consumers (e.g. beneficiaries from welfare-warfare state,  political agents, captured interest such as private sector funded directly or indirectly by the state and etc…) or personal biases shaped by political ideology—does not square with  economic reality.

The great French classical liberal Frédéric Bastiat explodes on supposed moral high grounds of mercantilism (from Mises Institute) [bold emphasis mine]

The advocates of monopoly maintain that the facts are on their side, and that we have on our side only theory.

They flatter themselves that this long series of public acts, this old experience of Europe, which they invoke, has presented itself as something very formidable to the mind of Mr. Say; and I grant that he has not refuted it with his characteristic sagacity. For my own part, I am not disposed to concede to the monopolists the domain of facts, for they have only in their favor facts that are forced and exceptional; and we oppose to these, facts that are universal, the free and voluntary acts of mankind at large.

What do we say; and what do they say?

We say, "You should buy from others what you cannot make for yourself but at a greater expense."

And they say, "It is better to make things for yourself, although they cost you more than the price at which you could buy them from others."

Now, gentlemen, throwing aside theory, argument, demonstration — all which seem to affect you with nausea — which of these two assertions has on its side the sanction of universal practice? 

Visit your fields, your workshops, your forges, your warehouses; look above, below, and around you; look at what takes place in your own houses; note your own everyday acts; and say what is the principle that guides these laborers, artisans, and merchants; say what is your own personal practice.

Does the farmer make his own clothes? Does the tailor produce the corn he consumes? Does your housekeeper continue to have your bread made at home, after she finds she can buy it cheaper from the baker? Do you resign the pen for the brush to save your paying tribute to the shoeblack? Does the entire economy of society not rest upon the separation of employments, the division of labor — in a word, upon exchange? And what is exchange but a calculation which we make with a view to discontinuing direct production in every case in which we find that possible, and in which indirect acquisition enables us to effect a saving in time and in effort?

It is not you, therefore, who are the men of practice, since you cannot point to a single human being who acts upon your principle.

But you will say, we never intended to make our principle a rule for individual relations. We perfectly understand that this would be to break up the bond of society, and would force men to live like snails, each in his own shell. All that we contend is that our principle regulates de facto the relations that obtain between the different agglomerations of the human family.

Well, I affirm that this principle is still erroneous. The family, the commune, the canton, the department, the province, are so many agglomerations, which all, without any exception, reject practically your principle, and have never dreamt of acting on it. All procure themselves, by means of exchange, those things that it would cost them dearer to procure by means of production. And nations would do the same, did you not hinder them by force.

We, then, are the men of practice and of experience; for we oppose to the restriction you have placed exceptionally on certain international exchanges the practice and experience of all individuals and of all agglomerations of individuals, whose acts are voluntary and can consequently be adduced as evidence. But you begin by constraining, by hindering, and then you lay hold of acts that are forced or prohibited, as warranting you to exclaim, "We have practice and experience on our side!"

You inveigh against our theory, and even against theories in general. But when you lay down a principle in opposition to ours you perhaps imagine you are not proceeding on theory. Clear your heads of that idea. You, in fact, form a theory as we do; but between your theory and ours there is this difference:

Our theory consists merely in observing universal facts, universal opinions, calculations, and ways of proceeding that universally prevail; and in classifying these and rendering them coordinate, with a view to their being more easily understood.

Our theory is so little opposed to practice that it is nothing else but practice explained. We observe men acting as they are moved by the instinct of self-preservation and a desire for progress, and what they thus do freely and voluntarily we denominate political or social economy. We can never help repeating that each individual man is practically an excellent economist, producing or exchanging according as he finds it more to his interest to produce or to exchange. Each, by experience, educates himself in this science; or, rather, the science itself is only this same experience accurately observed and methodically explained.

But on your side you construct a theory in the worst sense of the word. You imagine, you invent, a course of proceeding that is not sanctioned by the practice of any living man under the canopy of heaven; and then you invoke the aid of constraint and prohibition. It is quite necessary that you should have recourse to force, for you desire that men should be made to produce those things that they find it more advantageous to buy; you desire that they should renounce this advantage, and act upon a doctrine that implies a contradiction in terms.

I defy you to take the doctrine, which you acknowledge would be absurd in the relations of individuals, and extend it, even in speculation, to transactions between families, communities, or provinces. By your own admission it is only applicable to international relations.

This is the reason why you are forced to keep repeating, "There are no absolute principles, no inflexible rules. What is good for an individual, a family, a province, is bad for a nation. What is good in detail — namely, to purchase rather than produce, when purchasing is more advantageous than producing — that same is bad in the gross. The political economy of individuals is not that of nations" — and other nonsense of the same kind.

And to what does all this tend? Look at it a little closer. The intention is to prove that we, the consumers, are your property! — that we are yours body and soul! — that you have an exclusive right over our stomachs and our limbs! — that it belongs to you to feed and clothe us on your own terms, whatever be your ignorance, incapacity or rapacity!

No, you are not men of practice; you are men of abstraction — and of extortion.

The path to hell is paved with good intentions. This so applies to the nirvana fallacy based doctrine called mercantilism, which in reality represents an instrument for political and economic repression.

Will the US Military Be Used Against Tea Parties and Americans?

Are “tea parties” and the average Americans target of the coming political repression?

From the Offthegrid.com (source Charleston Voice) [bold original]

A theoretical report about the future use of the military as a police force within the United States is causing a firestorm of controversy. The report, Full Spectrum Operations in the Homeland: A “Vision” of the Future, was written by a retired Army Colonel and describes how future warfare will be conducted on American soil. The report depicts a scenario where the U.S.  Military will have to use its power against the American public. 

The study begins by laying out how the U.S. Army’s Operating Concept 2016-2028 will include military operations throughout the United States. The outrageous report goes on to describe a theoretical situation where the U.S. Army is sent in to a city that has been taken over by Tea Party “insurrectionists”. 

The report starts in an eerie almost prophetic tone and then goes on to demonize tea party members and “immigrant-bashing by right-wing demagogues”… 

“The Great Recession of the early twenty-first century lasts far longer than anyone anticipated.  After a change in control of the White House and Congress in 2012, the governing party cuts off all funding that had been dedicated to boosting the economy or toward relief…” “…. By 2016, the economy shows signs of reawakening, but the middle and lower-middle classes have yet to experience much in the way of job growth or pay raises.  Unemployment continues to hover perilously close to double digits, small businesses cannot meet bankers’ terms to borrow money, and taxes on the middle class remain relatively high.  A high-profile and vocal minority has directed the public’s fear and frustration at nonwhites and immigrants.  After almost ten years of race-baiting and immigrant-bashing by right-wing demagogues, nearly one in five Americans reports being vehemently opposed to immigration, legal or illegal, and even U.S.-born nonwhites have become occasional targets for mobs of angry whites.”

Read the rest here

If the above account is accurate, then this represents signs of paranoia by the political class.

In 1792, Coin Debasement was Punishable by Death

Based on the Coinage Act of 1792 counterfeiting, or coin debasement was punishable by death. [Hat tip Charleston Voice] 

And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death

Ironically, today coin debasement's variant—money printing—is seen by the mainstream as a doctrine of economic salvation. 

Possible Complications from Turkey-Syria Clash

Politicians easily indulge in war without understanding the possible complications from their actions.

Turkey’s recent border clashes with Syria risks opening open of the old wounds which could further sow fissures and destabilize the region. The skirmishes could be used as casus belli or a prelude to a broader theater of conflict which includes the US and Israel.

Historian Eric Margolis explains,  

Turkey's neighborly love-fest ended soon after Syria erupted in civil war. For reasons that still remain murky, Erdogan dropped his "love-thy-neighbor"policy and began actively supporting Syria's insurgents.

Until the Syrian uprising, Turkey had enjoyed good trade and political relations with Damascus. Syria had more or less dropped its claims to Turkish-ruled Hatay province, and told its Kurdish minority not to make trouble for the Turks. Hatay, and its strategic port of Iskenderun, were part of historic Syria (as was Lebanon and Palestine), but passed with French help to Turkish rule in the last century. If relations between Ankara and Damascus continue to worsen, this thorny issue may again heat up.

Turkey blundered into Syria's civil war soon after it erupted in March, 2011. Ankara allowed Syrian insurgent groups, funded and armed by Saudi Arabia, France, Britain, the US and Qatar, to operate from its soil. CIA established an important logistics and communications base for the insurgents at the US air base at Incirlik, Turkey. US, British and French special forces based in Turkey discreetly joined in the war to overthrow the Assad regime in Damascus – all part of Washington's undeclared but very real and intensifying multi-dimensional war against Iran, Syria's closest ally.

Each passing day of Syria's brutal civil war raises the risk that Turkey will send its armed forces into Syria, either to create so-called "civilian corridors"or no-fly zones to ground the Assad regime's air force. All-out NATO intervention led by the US could occur after American presidential elections.

Meanwhile, the besieged Assad regime in Damascus has lost control of a northern border region inhabited by 2 million ethnic Kurds who have become autonomous. Ankara, which faces a virtual independent Kurdish state in northern Iraq and its own long-simmering uprising by its Kurdish minority, is deeply alarmed by the specter of Kurdish nationalism.

The war in Syria has accentuated Turkey's serious Kurdish problem. This writer covered the Turkish – Kurdish conflict in eastern Anatolia a decade ago, in which over 40,000 had died by 1992 alone. Turkey thought it had put an end to the Kurdish PKK insurgency by capturing its leader, Abdullah Ocalan, in 1999. The PKK's main base was in Syria.

Ocalan remains in prison. But the Kurdish independence movement has sprung again to life. Syria will very likely resume aiding Kurdish PKK fighters to exact revenge on Turkey for abetting anti-regime guerillas. This is a huge problem for Turkey as Kurds make up 15-20% of its population.

By fueling Syria's civil war, Erdogan has kicked the Kurdish hornet's nest.

The conflict in Syria is pitting its minority Alawites (an offshoot of Shia Islam), who dominate the Assad regime, against the long-repressed Sunni majority. As Syria's Alawites fight for what some believe is their lives, their struggle is reverberating in Lebanon, where Shiites make up the largest religious community. Turkey's long-marginalized Alevis, who are another distant offshoot of Shia Islam and close to Syria's Alawis, and who are looked down on by the Sunni majority as heretics, are also feeling the reverberations of the Syrian conflict. Alevis may make up as much as 15% of Turkey's population of some 74 million.

Recent revelations of a massacre of Alevis in 1938 at the end of the era of Turkish strongman Ataturk has inflamed Alevi emotions in Turkey and deepened their sense of persecution and historic injustice.

So the Syrian conflict is reopening some of the deep fissures in Turkey's body politics just at a time when its zesty economy was enjoying a 7% growth rate – not far from China's – and Turkey had become the Mideast's cock of the walk.

Now, Syria bodes ill for all involved.

Read the rest here.  

If domestic political situation in Turkey deteriorates due to its present belligerent acts against Syria, then it is not that history repeats itself, but rather the impetuous acts by politicians reignites hostile relationships which had been long buried in the past.

As Prof Joseph Salernon points out, 

As a human endeavor like any other, war making is the product of reason, purpose and choice.

Quote of the Day: Spending Isn’t Production

If we take a step back and think about it, it’s obvious that spending per se isn’t the source of economic benefits. It’s easy to spend. If that were really the only thing holding back economies in recession, then one wonders why humans still suffer from recessions, in so many countries and so repeatedly throughout history.

No, the real difficulty in economic life is production, in turning scarce resources into goods and services that the consumers value. This takes judgment on the part of entrepreneurs directing the process, and it takes hard work from their employees.

In addition to inventions as well as commercial innovations in business operations, a major source of economic growth is saving and investment. Even with a fixed amount of technological know-how, people can gradually increase their standard of living over the years if they defer immediate gratification. By saving out of present income—by living below their means—people “free up” scarce resources that no longer need to be used up to make burgers, iPods, and sports cars. Instead, these resources can be redirected into making tractors, drill presses, and microscopes for drug researchers. Rather than making consumer goods for present wants, the economy cranks out capital goods to cater to future wants. This is the physical analog of how the economy as a whole grows, just as an individual household’s bank balance grows with constant saving.

It should be clear that spending per se doesn’t drive economic growth. It’s true, in a modern economy money plays a crucial role in coordinating our activities, and in that sense spending is an integral part of the story. But from this truism it hardly follows that government spending is all we need right now to “boost the economy.” On the contrary, government spending simply siphons real resources away from the private sector and into politically-chosen channels, where they will be used in inefficient ways.

(bold emphasis mine)

This is from Professor Robert P. Murphy at the American Conservative