Climate Change Alarmist James Lovelock Admits Mistake

One of the intellectual pillars of climate change alarmism admits that his predictions have failed.

The MSNBC.com reports (my tip of the hat to libertarian colleague Patrick Ella)

James Lovelock, the maverick scientist who became a guru to the environmental movement with his “Gaia” theory of the Earth as a single organism, has admitted to being “alarmist” about climate change and says other environmental commentators, such as Al Gore, were too.

Lovelock, 92, is writing a new book in which he will say climate change is still happening, but not as quickly as he once feared.

He previously painted some of the direst visions of the effects of climate change. In 2006, in an article in the U.K.’s Independent newspaper, he wrote that “before this century is over billions of us will die and the few breeding pairs of people that survive will be in the Arctic where the climate remains tolerable.”…

Mr. Lovelock acknowledges that his models didn’t work and that environmentalists have been overestimating on their understanding of nature.

More from the same article…

“The problem is we don’t know what the climate is doing. We thought we knew 20 years ago. That led to some alarmist books – mine included – because it looked clear-cut, but it hasn’t happened,” Lovelock said.

“The climate is doing its usual tricks. There’s nothing much really happening yet. We were supposed to be halfway toward a frying world now,” he said.

“The world has not warmed up very much since the millennium. Twelve years is a reasonable time… it (the temperature) has stayed almost constant, whereas it should have been rising -- carbon dioxide is rising, no question about that,” he added.

He pointed to Gore’s “An Inconvenient Truth” and Tim Flannery’s “The Weather Makers” as other examples of “alarmist” forecasts of the future…

His admission…

“We will have global warming, but it’s been deferred a bit,” Lovelock said.

'I made a mistake'

As “an independent and a loner,” he said he did not mind saying “All right, I made a mistake.” He claimed a university or government scientist might fear an admission of a mistake would lead to the loss of funding.

Just say what government wants and funding will follow. This epitomizes the politics of climate change.

At least Mr. Lovelock has been forthright enough to face up with reality. Although like doomsday diviner Harold Camping whose controversial forecasts in 2011 failed to materialize, Mr. Lovelock seems locked into a defensive posture to protect his work by pushing his forecasts to the indeterminate future.

Only when the tide goes out, said Warren Buffett, do you discover who’s been swimming naked.

Apparently the anthropomorphic climate change dogma has been swimming naked.

The Anatomy of Economic Fascism: Argentina Edition

Following the Repsol’s discovery of huge Shale oil and gas deposits under the "Vaca Muerta" ("Dead Cow") basin of Neuquen province, the cash strapped Kirchner regime decides to nationalize the embattled Spanish energy company.

Here is a graphic narrative of Argentina’s economic fascism from the ever eloquent Wall Street Journal columnist Mary O’Grady…

Nationalizations, particularly in the energy sector in Latin America, are nothing new. But the circumstances surrounding the Argentine grab of YPF may be. They demonstrate the special nature of kirchnerismo, an economic model that enriches friends of the government while driving the nation toward poverty.

Repsol won ownership of YPF in a 1999 privatization. It seemed like a good idea at the time. But then the 2001-2002 peso collapse hit. The economy contracted sharply and a political crisis followed. In 2003, Néstor Kirchner, husband of Cristina and a former governor of the province of Santa Cruz, was elected president—with a mere 22% plurality.

Kirchner needed to shore up support. He did so by demonizing business and promising to redistribute wealth to the have-nots, whose numbers had swelled due to the crisis. He denounced entrepreneurs, condemned profits and stirred up class warfare. To hold back inflation after the peso devaluation, he imposed price controls on food and fuel. Utilities got hit with rate freezes. But wages and taxes kept going up. Companies referred to the slow strangulation by government diktat as "asphyxia."

Repsol was trapped. The government set the price of a barrel of oil at $42 and mandated that YPF oil output could not be exported until Argentine demand was satisfied. The natural gas business was even more difficult. Repsol says that the price controls combined with subsidies drove demand through the roof, taxing the company's resources.

The relationship between the government and the Spanish company became strained. But having made a sizeable investment, Repsol did not want to exit. According to press reports supported by my own sources, the company agreed to allow Nestor Kirchner to broker a deal in 2008 to bring in an Argentine partner that he chose. That partner, the Petersen Group, was headed by banker and construction magnate Enrique Eskenazi, a long-time Kirchner ally.

According to published accounts in the Argentine press and in The Wall Street Journal, the Petersen acquisition of almost 25.5% of YPF was completed with almost no money down. Repsol agreed to finance the majority of the shares and loans from banks financed the balance. Repsol says that the Petersen Group still owes it $1.9 billion.

Repsol also agreed to increase YPF's dividend payout to 90% of earnings. Using those dividends Petersen was to pay back its loan to Repsol over time along with some $680 million in bank loans, according to Bloomberg. The company also paid one extraordinary dividend from retained earnings to help in paying down the loan.

Was this an attempt to avoid "asphyxia"? I asked Repsol why it agreed to such a deal and if it went along with the arrangement because Kirchner, who died in 2010, had been strong-arming the company. Repsol declined to comment.

Petersen's no-money-down acquisition was a sweet deal and some Argentines wonder if Kirchner set it up out of the goodness of his heart. This is a pertinent question since both Kirchner administrations have been notorious for a lack of transparency and have been plagued by corruption scandals. It is hard to answer because it is not clear who are the owners of the shares of Australian-based Petersen Energy. One Argentine source told me those shares are in bearer form, which would mean that there is no record of ownership. But when I asked Petersen if that is true and also how it financed the purchase of the YPF shares, it declined to comment. The Argentine government did not respond to requests for comment.

Read the rest here

At the end of the day, economic fascism is about cronyism and corruption through repressive laws.

Has the European Crisis been about the Welfare State?

Yes, according Fredrik Erixon, director of an independent think tank in Brussels, the European Centre for International Political Economy.

At the Bloomberg Mr. Erixon writes (hat tip Dan Mitchell)

When it comes to overspending on social welfare, though, Europe has no angels.

Even the “good” Scandinavians, and governments that appeared to be in sound fiscal shape in 2008, but were then undone by unsustainable private-sector debts, were spending too much and will have to restructure. The only question is whether this will be done gradually, or via shock therapy.

Take the four countries at the epicenter of the euro-area crisis: Greece, Ireland, Portugal and Spain. They are in many ways different, but they have three important characteristics in common.

First, total debt in these countries expanded rapidly throughout the past decade -- either because of increased government borrowing (Greece and Portugal) or through a rapid buildup of private debt (Ireland and Spain). Second, they all ran substantial current-account deficits in the years before the crisis. Third, government spending in those nations grew at remarkably high rates. In Greece and Spain, nominal spending by the state increased 50 percent to 55 percent in the five years before the crisis started, according to my calculations based on government data. In Portugal, public expenditure rose 35 percent; in Ireland, almost 75 percent. No other country in Western Europe came close to these rates.

Clearly, the welfare-state expansion in Greece and Portugal was part of the reason these two countries ended up as clients of Europe’s bailout mechanisms. But Ireland and Spain had problems with the rapid expansion of the state, too. A big part of rising affluence during the boom years was generated by escalating real-estate bubbles, which caused private debt to soar. They boosted the construction sectors and, more generally, pushed domestic consumption to the point where Spain had to borrow as much as 8 percent of gross domestic product every year to finance its current account deficit. Like other bubbles, they spearheaded economic growth, which allowed governments to expand the state rapidly.

Read the rest here.

Bottom line is that today’s euro crisis represents the cumulative impact of intertwined government policy failures.

This includes monetary ‘bubble’ policies, which pumped up malinvestments and incentivized state profligacy, as well as, increased political centralization through webs of regulations which resulted to the lack of competitiveness (most pronounced in the labor markets), and the unsustainable social welfare systems (which also had been boosted by the bubble).

Quote of the Day: Corruption is a Regular Effect of Interventionism

You can read thousands of academic papers on the problem of “corruption” in countries around the world and completely miss the central point. The way to eliminate the corruption is to eliminate the barriers to enterprise. Why is this not obvious? Because many people imagine a utopian ideal that does not now and never has existed: good government. They imagine that government rules can be enforced impartially based on science or the public good.

It’s sheer nonsense. As Ludwig von Mises wrote in Human Action in 1966:

“Unfortunately, the office-holders and their staffs are not angelic. They learn very soon that their decisions mean for the businessmen either considerable losses or — sometimes — considerable gains. Certainly, there are also bureaucrats who do not take bribes, but there are others who are anxious to take advantage of any ‘safe’ opportunity of ‘sharing’ with those whom their decisions favor… Corruption is a regular effect of interventionism.”

(bold emphasis added)

That’s from Jeffrey A. Tucker at the Laissez Faire Books.

Quote of the Day: Ideas as Cultural Currency

The monopoly currency of cultural evolution is ideas. Ideas can only be generated when an alert mind senses a further or more powerful meaning implicit in an already established idea or body of ideas. Once such an infant idea is broadcast out into the public square of reflection and debate it must be attacked, recast, or whatever to find acceptance or be overwhelmed. Only along this tortuous path may a new idea be widely accepted into the prevailing body of knowledge.

That’s from Richard Abel, author of The Gutenberg Revolution, as interviewed by Anthony Wile at the Daily Bell

Bullish Signal Confirmed as Phisix Sets New Record High

As I said last week, rising stock prices on a slew of internal and external bad news usually signifies as bullish indicators.

Here is what I wrote,

Foreign trades have also been sluggish with paltry changes over the last two weeks. Yet, despite the marginal actions by foreign investors, the Philippine Peso posted modest advances.

So essentially, last week’s action suggest of a rotation away from second and third tier issues back into the blue chips.

Yet I expect to see normalization of trading activities in terms of Peso volume which should undergird either the current consolidation phase or a fresh attempt to break away into new highs.

When the markets to defy the spate of bad news that signifies as a bullish signal.

Speaking of luck that’s exactly how it turned out the week!

First of all, the Phisix broke into fresh nominal record high even as the Scarborough issue has not been resolved.

As an aside, I would reiterate that for whatever innuendos about resources alluded by media, the Spratlys-Scarborough issue has not been about oil or commodities but more about unspecified political agenda which could be related to promoting arm exports or ploys to divert the public from festering real political issues or as justifications for inflationism.

I might add that the heated kerfuffle over territorial claims has expanded to cover the disputed Senkaku Islands, where Japanese authorities has jumped into the fray to announce of their acquisition of the island from the “owners”. This has resulted to a political backlash from Chinese authorities.

Given that politics in Japan seems to have been entangled with monetary policies, Japan’s recent provocative foreign policy posture could be portentous of Bank of Japan’s (BoJ) moves to expand its stimulus (via asset purchases), perhaps under the pretext of increasing military spending.

Going back to the Philippine stock market, given the record performance, we can’t discount the prospects of interim ‘profit taking’. But again I think momentum still favors the bulls.

Second, net foreign trade has turned significantly positive mostly bolstered by the GT Capital’s listing last Friday

Third market breadth also turned positive…

…as advancing issues took the driver’s seat anew.

If the positive momentum, which is likely to be reflected on the actions of the benchmark Phisix should persist, then we would see a broadening of gains over the broader market.

Most of the gains had been concentrated on the sectoral leaders since the start of the year, particularly, property, finance and holding companies or mother units of the former two.

I think that rotation will occur among the heavyweights as the current leaders may take a short reprieve.

Importantly the Peso volume DID normalize…

Daily traded Peso volume (averaged weekly) surged amidst as last week’s record breakout.

I see a continuity of the bullish or upside momentum of the financial markets which may last until the first semester of the year, where central bank steroids are due for expiration. While this may lead to an interim volatile phase perhaps backed by deteriorating economic or financial conditions in Europe or in China, we should expect downside volatility to be met by aggressive responses from central bankers. This feedback mechanism between markets and central bank interventions has not only been made to condition the markets, but has become the central bankers’ guiding policy of crisis management.

BSP’s Euthanasia of the Rentier

This dogmatic approach has been assimilated even by the local central bank, the Bangko Sentral ng Pilipinas (BSP).

Just last week, domestic interest rate policies have been kept at “historics” lows whose levels were justified as “sufficient to help boost economic activity and avoid potential spike in inflation amid volatile global oil prices”.

The BSP blames external factors as secondary variables of domestic inflation through a “likely rise in foreign portfolio investments and higher prices of electricity amid petitions for further power-rate increases.”

In reality, interest rates policies that has driven been to superficially “historic” lows that are financed by “money from thin” are the real cause of inflation

Austrian economist Dr. Frank Shostak explains,

The exchange of nothing for something that the expansion of money out of "thin air" sets in motion cannot be undone by an increase in the production of goods. The increase in money supply — i.e., the increase in inflation — is going to set in motion all the negative side effects that money printing does, including the menace of the boom-bust cycle, regardless of the increase in the production of goods.

And symptoms from BSP’s actions have been manifesting on the domestic credit markets. Notes the Inquirer.net

True enough, credit growth so far this year has been robust. As of February, data from the central bank showed that outstanding loans by universal and commercial banks grew by 18 percent year on year to P2.74 trillion. The BSP said the increase in bank lending benefited both individual and corporate borrowers.

A boost in bank lending is not “a one-size-fits-all” thing.

A boost in bank lending that has NOT been prompted by consumer preferences but from the skewing price signals due to political “money printing” policies designed to achieve quasi permanent booms leads to bubble cycles.

And what is deemed as “robust growth” by media are, in reality, signs of malinvestments and speculative diversion of productive capital. Some of these borrowed money will find their way to the local stock exchange, real estate properties, bond markets and much of which will be diverted into consumption spending or misallocated capital that leads to capital consumption.

And adding to the policies of the promotion of “aggregate demand” or “the euthanasia of the rentier” through “historic” low interest rates has been the announcement by the local version of the welfare state, the Social Security System (SSS), to lower interest rates and to increase loanable amount to members for housing loans.

Apparently, little has been learned by local political authorities of the lessons from the latest US centric political homeownership crisis that has diffused across the world and whose phantom continues to haunt the political economies of the developed world.

Noble intentions eventually get burned by politically instituted economically unfeasible projects.

Sell In May?

Fund manager David Kotok of Cumberland Advisors rightly points out the differences in the current environment from yesteryears, such that seasonal statistical patterns like Sell in May and Go Away may not be relevant to current conditions.

History shows that ‘Sell in May and go away’ has applied when the Federal Reserve was in a tightening mode during the six-month span from May to November. If the Fed was actively raising interest rates, withdrawing or constricting credit, imposing additional reserve requirements, or taking an action that was of a tightening mode, stock markets were usually punished in that six-month period.

When we did the study we examined what the Fed did, not what it said. We used actual changes in the Federal Funds rate to determine whether the Fed was tightening, easing, or neutral. Once the Fed took the interest rate to zero at the end of 2008, the historical data series lost its power for forecast purposes, since the Fed cannot take the rate below zero. However, we believe the concept is valid even if the present measurement problem exists.

It is human action and NOT charts (for example the failed death cross pattern of the S&P 500 of 2011) or seasonal patterns, based on either statistics or historical outcomes, that determines future outcomes.

The substantial impact of central bank policies on the markets has been through the manipulation of money. Since money is a medium of exchange which represents half of every transactions people make, tinkering with money has greater tendency to alter or reshape the incentives of people.

Manipulation of money through inflationism tend to narrow people’s time orientation or increases time preferences which has been and will be ventilated through several attendant actions, as higher inclination to take debt, misdirection of investments via distorted price signals, consumption based lifestyles or pejoratively known as “consumerism”, greater risk appetite or higher inclinations towards speculation.

So when major central banks combine to tamper with money, which among themselves account for about 85% of the capital markets of the world, we can expect participants of the marketplace to adjust accordingly to these newly implemented policies. Current policies have been engendering asset inflation, which in reality has been designed to keep the flagging banking system and the unsustainable welfare states afloat.

Even emerging market central banks, as the Philippines have employed the same policies which are often justified from “growth risk”. Yet despite the standardization of monetary policies, the differences in market outcomes have been resultant to variances of people’s actions relative to the idiosyncratic structural compositions of each political economy.

In addition, while monetary policies have significant effects on people’s incentives other policies also matters such as fiscal policies and tax regimes, rule of law and protection of property rights, trade and economic freedom, and regulatory policies.

The bottom line is all these policies would have a greater impact to people’s action than simply reading numbers and history as basis for predictions.

As the great Ludwig von Mises wrote in Theory and History

Historicism was right in stressing the fact that in order to know something in the field of human affairs one has to familiarize oneself with the way in which it developed. The historicists' fateful error consisted in the belief that this analysis of the past in itself conveys information about the course future action has to take. What the historical account provides is the description of the situation; the reaction depends on the meaning the actor gives it, on the ends he wants to attain, and on the means he chooses for their attainment...

The historical analysis gives a diagnosis. The reaction is determined, so far as the choice of ends is concerned, by judgments of value and, so far as the choice of means is concerned, by the whole body of teachings placed at man's disposal by praxeology and technology.

Along the lines of the Professor von Mises, my former idol the exemplary stock market guru but who now has been converted to a crony, Warren Buffett, once lashed out at the tendency of people to anchor or rely heavily on past performance. The ailing 81 year old billionaire Mr. Buffett said

If past history was all there was to the game, the richest people would be librarians.

Will France’s Elections Signify as Death Warrant of the Euro?

France holds its elections today with 10 candidates in contention. Currently all the leading candidates appear to be rabid interventionists and inflationists who appeals to class warfare, protectionism, anti-immigration and nationalist platforms,

Writes the Wall Street Journal, (bold emphasis mine)

Nicolas Sarkozy, the center-right incumbent, is proposing to shrink the budget deficit by raising taxes in the name of "solidarity." On top of his already-passed hikes in corporate and personal income taxes, and his 4% surcharge on high incomes, Mr. Sarkozy also promises an "exit tax" on French citizens who move abroad, presumably to make up for the revenue that goes missing when all those new levies impel high earners to leave the country.

As for the reforms on the lips of every other policy maker in Europe, Mr. Sarkozy makes some of the right noises but won't even go as far as the (mostly broken) promises he made in 2007. In a 32-point plan issued this month, he offers some labor reform but more proposals that are vague (creating a "youth bank" for enterprising young people) or off-point (promoting French language and the values of the Republic).

Mr. Sarkozy proposes reducing payroll charges paid by employers but would make up for it by increasing VAT and taxes on investment income. This assumes there will be investment income left in France once Mr. Sarkozy's financial-transactions tax goes into effect in August.

Mr. Sarkozy's campaign is particularly disappointing compared to the one five years ago. Promising a "rupture" with France's old ways, he told voters in 2007 that they could no longer afford a sprawling state that coddled its workers and drove away entrepreneurs. Yet this year he seems content to reinforce a French model that's even more broken than before. If Mr. Sarkozy retakes the Elysée next month, he will have done so by turning his back on the center-right resurgence that he once led to victory.

The President's Socialist rival is a throwback of a different sort. François Hollande's campaign has adopted a fiery old-left style that most had taken for dead after the Socialists' 2007 defeat. All of Mr. Hollande's major economic policy plans have roots in a punitive populism that would make U.S. Congressional class warriors blush. According to the latest polls, he leads Mr. Sarkozy 29%-24% in the first-round vote and by an even wider margin in the likely runoff.

Mr. Hollande says he's "not dangerous" to the wealthy—he merely wants to confiscate 75% of their income over €1 million, and 45% over €150,000. He is, however, a self-avowed "enemy" of the financial industry, and he plans to impose extra penalties on oil companies and financial firms. He'd also raise the dividends tax and impose a new, higher rate of VAT on luxury goods. All of this is necessary, Mr. Hollande says, to chop the massive debt that President Sarkozy has heaped upon France.

But swiping at Mr. Sarkozy's debt record hardly makes sense when Mr. Hollande's own spending plans would pile on still more borrowing. The Socialist candidate is playing Santa Claus, promising lavish new goodies to French voters while other euro-zone governments are pulling back.

Inside Mr. Hollande's gift bag: 60,000 new teaching jobs, new housing subsidies and rent controls, and increased public funding for small and medium enterprises. He would raise the minimum wage to €1,700 a month and enact a new law to prevent and fight layoffs. He also promises to reverse Mr. Sarkozy's most important domestic-policy victory: raising the retirement age to 62 from 60.

So national elections in France has the usual dynamics of prompting politicians to pander to the gullible masses especially to “free market hostile” voters.

Chart from the Economist

Among major economies, the French population has been most averse towards to the free market.

Nevertheless France’s major benchmark the CAC 40, as of Friday’s close, has largely given up its gains and has now been unchanged on a year to date basis, perhaps partly due to the lingering Euro crisis as well as uncertainties from the outcome of elections.

Such concern has likewise been manifested on Credit Default Swaps (CDS) or the cost to insure debt, where there has been recent amplified concerns over the credit quality of French debt papers.

In case the winning French politician actualizes rhetoric into interventionist policies, then we can expect lesser resources to be available for productive ends as more of these will be diverted towards political projects. This also means the likelihood of migration of capital out of the French economy (capital flight), as well as, a transition to a larger informal economy.

With a prospective French political spending binge amidst a debt crisis plagued Europe, this means policies of interventionism will need to be backed by inflationism. Yet if such actions becomes deeply entrenched, then today’s election may have sealed the fate of the Euro.

As the great Ludwig von Mises warned

An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.

Or as former British Prime Minister Margaret Thatcher once said,

The problem with socialism is that eventually you run out of other people's money [to spend].

Quote of the Day: Government Bonds as Instruments for Financial Repression

Fact: every dollar that goes into government debt is not going into the private sector. This is a major problem today. The U.S. government is borrowing and wasting an additional $1.2 trillion a year in on-budget (admitted) debt. Meanwhile, it must roll over existing debt as it matures.

The single most important economic factor in strengthening the growth of the modern state has been the development of government bonds. Governments have been able to sustain their growth because they have promised investors to pay interest on money lent to the government.

The government guarantees the payment of a specific rate of interest over a specific period of time. Investors, looking for safety, and looking also for a steady stream of income that is not subject to the risks of the free market, hand over their money to the government on the basis of their trust that the government will not default in any way on its obligations.

As mentioned, a major way that governments default is accomplished through mass inflation, or even hyperinflation. When governments, meaning central banks, increase the money supply, this has an effect on prices. Prices will begin to rise. Investors realize that the money that they will get back over the period of the loan will be worth less than today. So, they demand that the government promise to pay a higher rate of interest.

Those investors who accepted the government's promise when the rate of inflation was lower now suffer capital losses. They hold IOUs from the government to pay a particular rate of interest, and now the government is paying new investors a higher rate of interest. So, new investors are not going to buy bonds from the older investors at the old selling price, because those bonds pay a lower rate of interest than newer ones. They are going to demand that existing sellers of bonds take a lower price than the sellers paid when they bought the bonds from the government.

The ability of the government to extract wealth from rich people through taxation has always been limited. Rich people know how to hide their money. They know how to get it out of the country, and they know how to get it into markets that are less easily taxed.

So, politicians learned half a millennium ago to get their hands on rich people's money before rich people started hiding their money. They did this by promising to pay a rate of interest on the money. Government bonds are ways of extracting money in advance, especially from rich people, which politicians would have preferred to tax directly, but which they did not tax directly because they knew that rich people would hide the money.

The whole point of the bond market is to enable the government to expand its operations beyond what would be possible by collecting taxes today. Politicians are able to get more money to expand operations today, because they promise to repay lenders a specific rate of interest. But, of course, this does not promise that the government will not repay with debased money.

That’s from Professor Gary North. Read the rest here

How Bureaucracy Tarnishes Forensic Science

TV series like the CSI romanticizes the effectiveness of forensic science in solving criminal cases.

In reality, as the following Washington Post article reports, this has not been the case (bold emphasis mine)

Justice Department officials have known for years that flawed forensic work might have led to the convictions of potentially innocent people, but prosecutors failed to notify defendants or their attorneys even in many cases they knew were troubled.

Officials started reviewing the cases in the 1990s after reports that sloppy work by examiners at the FBI lab was producing unreliable forensic evidence in court trials. Instead of releasing those findings, they made them available only to the prosecutors in the affected cases, according to documents and interviews with dozens of officials.

In addition, the Justice Department reviewed only a limited number of cases and focused on the work of one scientist at the FBI lab, despite warnings that problems were far more widespread and could affect potentially thousands of cases in federal, state and local courts.

As a result, hundreds of defendants nationwide remain in prison or on parole for crimes that might merit exoneration, a retrial or a retesting of evidence using DNA because FBI hair and fiber experts may have misidentified them as suspects….

A review of the task force documents, as well as Post interviews, found that the Justice Department struggled to balance its roles as a law enforcer defending convictions, a minister of justice protecting the innocent, and a patron and practitioner of forensic science.

By excluding defense lawyers from the process and leaving it to prosecutors to decide case by case what to disclose, authorities waded into a legal and ethical morass that left some prisoners locked away for years longer than necessary. By adopting a secret process that limited accountability, documents show, the task force left the scope and nature of scientific problems unreported, obscuring issues from further study and permitting similar breakdowns.

That’s because the incentives guiding the actions of bureaucrats have innately been centered on politically based parameters (such as rules, regulations, codes and degrees) than from the discipline of profit and losses.

The above case fits exactly the predicaments of bureaucratic management as described by the great Ludwig von Mises in Bureaucracy p.49 (bold emphasis added)

There are, of course, in every country's public administration manifest shortcomings which strike the eye of every observer. People are sometimes shocked by the degree of maladministration. But if one tries to go to their roots, one often learns that they are not simply the result of culpable negligence or lack of competence. They sometimes turn out to be the result of special political and institutional conditions or of an attempt to come to an arrangement with a problem for which a more satisfactory solution could not be found.

Where there has been less incentive to become solutions to the problem (think “limited accountability”), bureaucratic shortcomings, operating mostly on legal technicalities (note “struggling to balance…”), are magnified.

The unfortunate realization from the above report is that two wrongs don't solve the problem of criminal justice, where criminals run scot free while the accused innocent remain incarcerated. Or differently put, injustice has been amplified by the bureaucratic or government failure.

Video: Earth Day Message Through George Carlin

Environmentalists will be celebrating their annual Earth Day festivities tomorrow, April 22nd. And a deluge of mainstream's politically correct and self righteous calls of "saving the planet", implicitly via social controls and the political distribution of resources, will surely hug or dominate the headlines again.

Yet the highly relevant, stirring, classic video from comedian George Carlin should serve as reminder of the folly of self-importance and of the delusions of grandeur from interventions from which the environmental politics of anthropomorphic climate change has been founded upon.

Quote of the Day: Moral Bankruptcy Leads to Economic Decadence

In essence, we're headed towards economic and financial bankruptcy. But that's mostly because society has been largely intellectually and morally bankrupt for some time. I don't believe a society can rise to real prosperity without a sound intellectual and moral foundation – that's why the US was so uniquely prosperous for so long, because it had such a foundation. And it's also why societies like Saudi Arabia will collapse as soon as the exogenous things that support them are pulled away. It's why the USSR collapsed. It's the reason why countries everywhere across time reach a peak (if they ever do), then stagnate and decline.

This isn't a matter of academic contemplation, for the same reason that it doesn't matter much if you're in a first-class cabin when the ship it's in is taking on water…

In any event, it's rare that anyone goes bankrupt because of a single bad decision. It takes many missteps, and consistently bad decisions aren't accidents. Consistently bad decisions are the product of a flawed moral philosophy. Moral philosophy guides you as to what is right or wrong.

That’s from investment guru and philosopher Doug Casey. You can read the rest of the trenchant article here.

Capital Markets in the Information Age: More Financial Innovations

The world does not operate in a vacuum. Given the trend of rapid increases in the imposition of strangulating bank and financial regulations, entrepreneurs have been exploring ways to sidestep or bypass the system, by harnessing advances in technology, where they can profit from serving the consumers.

I have earlier pointed out that the internet has spawned innovative ways of borrowing and lending, of payment systems, and of the financing of commercial projects via P2P Lending and Crowd Funding.

Jeffrey Tucker at the Laissez Faire Books shows us more

Squareup. This is an innovation by Jack Dorsey (Twitter fame) and his friends, and came about only in 2010. The first problem they were trying to overcome was there has to be an easier way for merchants to accept credit cards. They decided to give the hardware away for use on simple mobile phones, and then charge per transaction. Win!

In the course of developing the business, which is valued already at $1 billion, they solved an even stranger problem that all of us have but never really noticed that we have: If we don’t have our wallets with us, we can’t buy anything.

Now this is genius: Square allows you to pay by saying your name. The merchant matches a picture of your on the square system with your physical face. You look each other in the eye and the deal is done. Anyone can sign up. Yes, it is incredible. Simple and wonderful.

The Lending Club. Again, this is mind-blowing. The Lending Club matches up lenders and borrowers while bypassing the banking system altogether. The idea emerged in October 2008, just as the existing credit system seemed to be blowing up. Today, the company originates $1 million in loans per day.

Anyone can become a lender with a minimum investment of $25 per note. Lenders can choose specific borrowers or choose among many baskets and combinations of borrowers to reduce risk.

Any potential borrower can apply, but of course the company wants to keep default rates at the lowest possible level, and these are published daily (right now, they are running 3%). As a result, most applications to borrow are declined (this is good!).

The average rate of interest on the loans is 11%, cheaper than credit cards but more realistic than the Fed’s crazy push for zero. As a result, the average net annualized return is 9.6%.

The focus if of course on small loans for weddings, moving expenses, business startups, debt consolidation and the like. If you are an indebted country with large unfunded liabilities, you probably can’t get a loan. But if you are student with a job who needs upfront money to put down on an apartment, you might qualify.

Dwolla. This is a super-easy, super-slick online payment system that specializes in linking payments through social networks like Facebook and Twitter. Like most of these companies, the idea was hatched in 2008 in response to the crisis. The system was breaking down and needed new services that worked. Dwolla got off the ground in 2009, and today, it processes more than $1 million per week.

An easy way to understand Dwolla is to view it as the next generation of PayPal, but with a special focus on reducing the problem that vexed PayPal in its early years: getting rid of credit card fraud. Dwolla is focussing its product development on ways to pay that do not require sending credit card information over networks.

Dwolla has also taken a strong interest in the Internet payment system called Bitcoin, a digital unit of account that hopes to become an alternative to national monetary systems. It is a long way from becoming that, but it is hardly surprising that a young and innovative company would be interested in competition to failed paper money.

These are a few of the services, but there are hundreds more. None were created by the money masters in Washington. They are results of private innovation, individual entrepreneurs thinking their way through social and economic problems and coming up with solutions. They accept the risk of failure and enjoy the profit from success.

Indeed, as forces of decentralization deepens, we should expect more innovative technology based solutions to emerge and flourish in every industry; finance and money notwithstanding.

China’s Political System Reeks of Legal Plunder

Internal political schism in China, highlighted by recent rumors of a coup attempt, may have been one of the main factors that has incited China’s political authorities to dabble with the latest gunboat diplomacy with her neighbors. The unfolding controversy over disputed territorial claims at Scarborough Shoal and the Senkaku Islands has most likely been meant to divert or distract the public’s attention from real political issues developing in China.

Yet the tensions being manifested in China’s political system has been exposing on the festering rottenness of the perversion of the legal system, which the great Frédéric Bastiat warned centuries ago, directed at repression and plunder of the resources of the population for personal benefit of politicians and their favored allies. He called this “legal plunder”.

Sovereign Man’s Tim Staersmose gives us a terse but splendid narrative of the political events brewing at China

I’m convinced that history will one day show that corrupt Communist party officials, in cahoots with shady developers and construction moguls, systematically plundered the Chinese economy, getting rich off the hard work and savings of the average person.

It’s been happening on an unimaginable scale… and the fuse for the whole rotten mess to explode may have just been lit with this Bo Xilai scandal. To review, briefly:

- Bo Xilai, the former mayor of China’s largest city of Chongqing, was once one of the rising stars of the Communist party and being groomed for a top spot in the Politburo.

- Wang Lijun was his police chief and right hand man.

- Together, Bo and Wang waged a high profile campaign to stamp out organized crime in the region, jailing and even executing supposed underworld bosses and corrupt businessmen.

(As it appears now, they may have simply been eliminating their competition.)

- The two had an apparent falling out, allegedly over evidence that Bo’s wife was involved in the death of British expat Neil Heywood.

- Heywood had been a longtime confidant of the Bo family. His death late last year was originally ruled as a heart attack, however there is now so much conflicting evidence that many are suggesting Heywood was going to come forward with extensive records of Bo’s shady business dealings.

- After being stripped of his rank by Bo, Wang went to both the US consulate and British High Commission seeking asylum in exchange for information about Bo’s impropriety. He was politely rejected.

- Bo has now been relieved of his powers amid a flurry of evidence and allegations that he and Wang siphoned off hundreds of millions of dollars from Chongqing’s economic boom and secreted the funds out of the country.

- Meanwhile Bo’s wife is under arrest for suspicion of murdering Mr. Heywood. Mr. Wang is also in the custody of Chinese authorities.

- Bo’s son, a lavish partier who attends $90,000/year graduate school and drives around campus in European supercars, is hiding out in the United States.

The top echelons of the communist party are now working overtime to snuff out the scandal lest their own financial dealings and personal dirty linen be aired in public.

But, they’re fighting an uphill battle. The rapid spread in China of micro-blogging services (like Twitter) mean that the party’s censors have a real battle on their hands.

Again the wonders of technological advances in today’s deepening information age has been facilitating the divulgence of the reeking corruption operating behind China’s “communist party system” which in reality is no more than state (crony-fascist) capitalism.

As Frédéric Bastiat wrote in must read classic The Law,

The delusion of the day is to enrich all classes at the expense of each other; it is to generalize plunder under pretense of organizing it. Now, legal plunder may be exercised in an infinite multitude of ways. Hence come an infinite multitude of plans for organization; tariffs, protection, perquisites, gratuities, encouragements, progressive taxation, free public education, right to work, right to profit, right to wages, right to assistance, right to instruments of labor, gratuity of credit, etc., etc. And it is all these plans, taken as a whole, with what they have in common, legal plunder, that takes the name of socialism.

Pretentions to solve social ills via socialist redistributionist policies are simply unsustainable, and the gunboat diplomacy will not excise the truth from unraveling.

From Scarborough Shoal to Senkaku Islands

What’s all the ado over territorial claims these days?

The tensions over Scarborough Shoal have yet to be concluded and now Japanese politicians have jumped into a parallel controversy over the disputed Senkaku Islands to pique China.

Reports the Japan Times,

The central government will consider buying the disputed Senkaku Islands, Prime Minister Yoshihiko Noda said Wednesday, adding fuel to a fire already lit by Tokyo Gov. Shintaro Ishihara.

Noda's statement came after Ishihara dropped his bombshell Monday in Washington by revealing that the Tokyo Metropolitan Government is trying to buy the islands from its owner "to protect Japanese territory."

The hawkish governor said he was prompted to make the move as he could no longer stand the central government's "cowardice" for not taking any action against claims to the islands by China and Taiwan.

During a Lower House Budget Committee session on Wednesday morning, Noda stressed Japan's control over the islands in the East China Sea. The prime minister also explained that the government has been in contact with an island owner.

"It is as clear as day that the Senkaku Islands are an integral part of Japan's sovereign territory in light of international law and history, and Japan effectively controls them," Noda said.

And the natural response by China has been to rebuke and to apply partial gunboat diplomacy as with the Scarborough Shoal incident.

From another news report from Japan Times,

China warned Wednesday that Tokyo Gov. Shintaro Ishihara's plan to buy the disputed Senkaku Islands will not only harm Japan's ties with China but also its international standing.

"I want to reiterate that the Diaoyu Islands have been China's inherent territory since ancient times and China holds indisputable sovereignty over them," Foreign Ministry spokesman Liu Weimin told a regular news briefing, using the Chinese term for the Senkaku Islands.

"We do not wish such statements in Japan to encroach on China's sovereignty and harm China-Japan ties," Liu said. "A few politicians have repeatedly made such statements. I believe they not only damage the overall state of China-Japan relations but also harm Japan's international image."

Ishihara said in Washington on Monday that the Tokyo Metropolitan Government is negotiating with the owner of three major islands in the uninhabited chain.

On Tuesday, Ishihara added that Beijing's dispatch of fishery patrol boats to their vicinity is "halfway to a declaration of war" against Japan.

As I earlier postulated, the verbal joust over territorial claims could be about promoting the arms industry or the military industrial complex.

Last year, world military spending has been flat.

Notes the Economist,

WORLDWIDE military spending was flat in 2011 compared with the year before, according to data released by the Stockholm International Peace Research Institute, a think-tank, but this masks some significant changes. America, Western Europe and Latin America, which between them make up 65% of the global total of $1.634 trillion (at 2010 prices), all spent less than they had in 2010. This is the first time America made a year-on-year reduction since 1998, trimming its budget by 1.2% to $690 billion. To keep the total flat, there were some big rises elsewhere. Russia's spending increased by 9.3% to $64.1 billion, which may have had something to do with the build-up to the presidential election earlier this year. It is now the third biggest spender worldwide, ahead of both France and Britain. The chart below gives a sense of how much defence spending has changed relative to economic performance in the past decade for 116 countries and territories for which data are available. China, for instance, which spent $129 billion last year, has increased spending broadly in line with its GDP growth

And considering that Bank of Japan (BoJ) has aggressively been ramping up on monetary stimulus measures, a threat of war which could most likely translate to call for a domestic build up of arms that would justify more inflationist policies.

Wars has always been financed by monetary inflation, as the great Ludwig von Mises wrote in Nation, State and the Economy (p. 195)

In all great wars monetary calculation was disrupted by inflation. Earlier it was the debasement of coin; today it is paper-money inflation. The economic behavior of the belligerents was thereby led astray; the true consequences of the war were removed from their view. One can say without exaggeration that inflation is an indispensable intellectual means of militarism. Without it, the repercussions of war on welfare would become obvious much more quickly and penetratingly; war-weariness would set in much earlier.

So the blaring drumbeats of war may not only be about promoting arms sales and military spending, but about further justifications for monetary inflation.

Video: What can Economist Know? The Value of Heuristics in an Uncertain World

German psychologist and professor Gerd Gigerenzer argues that heuristics has an inbuilt or genetic value for us, therefore should not be treated as having secondary importance in our decision making process.

The science of heuristics even has vastly better predictive performance than mathematical models under an environment of uncertainty...which is the world we live in.

Mr. Gigerenzer's theories reminds me of Malcolm Galdwell's book "Blink" which deals with rapid cognition.

(hat tip Professor Pete Boettke)

Ron Paul’s Message: Hoard Coins

In a statement to the subcommittee on Domestic Monetary Policy Hearing on "The Future of Money: Coin Production," April 17, 2012, Congressman Ron Paul writes, (lewrockwell.com) [bold highlights mine]

There is an old German saying that goes, "whoever does not respect the penny is not worthy of the dollar." It expresses the sense that those who neglect or ignore the small things cannot be trusted with larger things, and fittingly describes the problems facing both the dollar and our nation today. For nearly a century monetary policy has been delegated to the Federal Reserve System. Congress has ignored the importance of monetary policy and relegated monetary oversight to the sidelines, considering it less important than such matters as welfare spending, warfare spending, and who to tax and how much they should be taxed. While Congress has dithered, the Federal Reserve has destroyed the value of the dollar, so much so that the metal value of our already much-debased token coinage now exceeds its face value

The cost to mint pennies and nickels is alleged to be more than double their face value, so that the Mint loses tens of millions of dollars every year by placing them into circulation. Inflation continues to erode the purchasing power of the penny and nickel, so that many consumers find it aggravating and time-consuming to fish around for small change. But changing the composition of the penny and nickel to steel fails to address the root cause behind currency debasement. It also fails to provide a viable solution both for the devalued dollar and for our circulating coinage.

If Congress were truly interested in the cost of coinage, it would begin by reining in and eventually abolishing the Federal Reserve System. The Fed alone is responsible for the devaluation of the dollar. The problem with the penny and nickel is not that the price of copper and nickel are rising, but that the purchasing power of the dollar is declining due to the Fed's currency debasement. The same pattern has been seen throughout history, as debased currency results in the value of the metal content of coins outstripping their face value. Coins disappear from circulation and only paper money circulates. Finally, the currency collapses. Coins will begin to reappear once the monetary unit is restabilized, usually with the introduction of an entirely new currency and after much economic hardship for the people.

Read the rest here.

The bottom line is that governments around the world will continue with rampant policies of inflationism through their respective central banks. And given the metallic content of coins in circulation, coins will serve as insurance against devalued money and will be hoarded by the public as the symptoms of inflationism deepens.

I have noted of this Gresham’s Law on my earlier post.

Nevertheless here is the breakdown of the metallic content of Philippine coins in circulation.

From Wikipedia.org

Perhaps we should start to hoard coins too. Thanks for the reminder, Congressman Paul.

Lessons from the Roman Era Socialism

Inflationism had only been part of the financial repression policies that led to the fall of the Roman empire. Surviving the Roman empire’s welfare-warfare state prompted for broader adaption of socialist policies

Writes Simon Black, (bold emphasis mine)

In the terminal collapse of the Roman Empire, there was perhaps no greater burden to the average citizen than the extreme taxes they were forced to pay.

The tax ‘reforms’ of Emperor Diocletian in the 3rd century were so rigid and unwavering that many people were driven to starvation and bankruptcy. The state went so far as to chase around widows and children to collect taxes owed.

By the 4th century, the Roman economy and tax structure were so dismal that many farmers abandoned their lands in order to receive public entitlements.

At this point, the imperial government was spending the majority of the funds it collected on either the military or public entitlements. For a time, according to historian Joseph Tainter, “those who lived off the treasury were more numerous than those paying into it.”

Sound familiar?

In the 5th century, tax riots and all-out rebellion were commonplace in the countryside among the few farmers who remained. The Roman government routinely had to dispatch its legions to stamp out peasant tax revolts.

But this did not stop their taxes from rising.

Valentinian III, who remarked in 444 AD that new taxes on landowners and merchants would be catastrophic, still imposed an additional 4% sales tax… and further decreed that all transactions be conducted in the presence of a tax collector.

Under such a debilitating regime, both rich and poor wished dearly that the barbarian hordes would deliver them from the burden of Roman taxation.

Zosimus, a late 5th century writer, quipped that “as a result of this exaction of taxes, city and countryside were full of laments and complaints, and all… sought the help of the barbarians.”

Many Roman peasants even fought alongside their invaders, as was the case when Balkan miners defected to the Visigoths en masse in 378. Others simply vacated the Empire altogether.

In his book Decadent Societies, historian Robert Adams wrote, “[B]y the fifth century, men were ready to abandon civilization itself in order to escape the fearful load of taxes.”

Perhaps 1,000 years hence, future historians will be writing the same thing about us. It’s not so far-fetched.

In the economic decline of any civilization, political elites routinely call on a very limited playbook: more debt, more regulation, more restriction on freedoms, more debasement of the currency, more taxation, and more insidious enforcement.

Further, the propaganda machine goes into high gear, ensuring the peasant class is too deluded by patriotic fervor to notice they’re being plundered by the state.

The lesson is simple: the loss of freedom leads to a collapse of civilization. Freedom is the essence of humanity.

As the great Ludwig von Mises wrote, (bold emphasis mine)

The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

Quote of the Day: Freedom is the Essence of Humanity

Oh they tell us that in a democratic system, we can vote and that this is our choice. We have nothing to complain about. If we don’t like the system, we can change it. But this is wholly illusory. The government completely owns the democratic system and administers it to generate the types of results that government wants. More and more people are catching on to this, which is why voter participation falls further in every election season.

The great thinkers of the libertarian tradition have always told us that freedom and the good life are absolutely inseparable. I think of Thomas Jefferson, Frederic Bastiat, Herbert Spencer, Albert Jay Nock, Ludwig von Mises, Murray Rothbard, F.A. Hayek and so many others. Even contemporary authors have addressed the theme. They had long warned that every step away from freedom would mean a diminution of the quality of life. We are seeing these prophecies come true.

Too often public policy debates take place on the wrong level. The core point is not to make the “system” work better or otherwise fine-tune the rules within a bureaucracy. We need to start talking about larger issues about the dignity of the human person, the moral status of freedom and the rights and liberties of the individual in society. The expansion of the state is not just wrong as a matter of “public policy”; it is wrong because it is dangerous to the good life and the quality of life.

To kill freedom is to kill the essence of what makes us human.

(bold emphasis mine)

The stirring excerpt is from the prolific Jeffrey A. Tucker at the Laissez Faire Books.

Again, the mainstream’s public policy debates can be summarized into the following alternatives 1) change the authority involved 2) throw money at the problem 3) control, restrain or prohibit activities of parties perceived as immoral and or 4) tax the alleged offenders.

And that’s why politics tend to become mostly personality oriented as policy debates have been premised on a system which is largely perceived as a “given”, and where the solution has been reduced to “saintliness” or “virtuosity” of those in power. The solution of which is like eternally Waiting for Godot who never comes.

Instead what truly matters is to debate the ethics, as well as, the feasibility from which the incumbent political system has been established. [Well anyway maybe economic realities would render the debate moot]

Unfortunately, all of which of mainstream’s way of solving social problems evolve around restricting people’s freedom.

Yet ironically and fortunately, many people find ways to circumvent or fight the repressive system—built to benefit and preserve the interests of the political insiders which thrive on patron-client relations or state (crony) capitalism—through the informal economy, black markets and corruption (as response to arbitrary regulations or statutes).

Bottom line: The battle for freedom continues.