The Phisix in the Shadow of the US Fiscal Cliff

People like to assume that we are voting on issues. The media hector politicians to “stick to the issues.” We are supposed to do our civic duty and bone up on the “issues.” But when you get to the voting booth, there are no issues on the ballot on the federal level. There are only people’s names. That’s what we are voting for: person x or person y. All the rest is guesswork based on fleeting, gassy words in the air. All the talk about issues only distracts from this devastating reality that no one has a clue what this or that elected official is going to do in reality. Jeffrey A. Tucker

History has been etched on the stone. The US will endure four more years under Barack Obama.

Last week I wrote[1]

So whether Obama or Romney, there will unlikely be any radical changes in the political structure to headoff the looming debt crisis.

This goes to show that elections have mainly been used to justify policies which benefit many entrenched power blocs operating behind the scenes.

Given the above conditions, the pricing dynamics of the markets will, thus, represent expectations from the feedback loop mechanism between policies and market responses to them.

President Obama’s Regime Uncertainty Factor

Optimism exuded by the mainstream media on the US electorate’s decision to award another term for President Obama does not seem to be shared by the US and global equity markets. 

This week, developed market economies suffered heavy losses which rippled through the world. Except for the Philippines, ASEAN contemporaries had also been marginally affected by the selloff.

From the big picture, one can observe that this week’s hefty losses by the S&P 500 represents a two-month old downtrend (vertical blue trend line).

As of Friday’s close, the S&P 500 have fallen by 5.8% from its peak in September 14^th, incidentally a day after US Federal Reserve chairman Ben Bernanke announced QE 3.0[2] or QE forever. 

In total, nearly 42% of the overall decline—from September 14^th until Friday—came from this week.

Some claim that Obama’s victory barely played a role in the current correction phase. For me, this seems foolhardy and politically bigoted. That’s because Obama’s lead in the prediction markets as shown by Intrade.com[3] culminated in mid-September (red ellipse). Again this coincides with the unlimited QE announcement from Ben Bernanke, giving more credence to my thesis that Mr. Bernanke’s policies had partly been designed to improve on or advance the chances of Mr. Obama’s electoral victory from which Bernanke’s career has been tied to[4].

Moreover as I recently pointed out a significant jump in terms of defense (13%) and all levels of government—federal, state and local—spending (3.7%) which accrued to an increase in the real federal spending (9.6%) over the past quarter[5] also bolstered US statistical economic growth which appears to have been part of the Obama’s electoral strategy.

As I also wrote last week

In a close battle, the incumbent have the edge. This is because they hold the political machinery which can be used to their advantage through whatever means

While I earlier stated that the current correction phase may have mostly been a “buy on rumor, sell on news dynamic”[6], there seems to be increasing evidences where political risks or regime uncertainty from Obama’s post re-election policies may have become a significant factor which has contributed to the current sluggishness in US equities.

I may further add that instead of a generalized Risk Off environment, or a broad selloff in risk assets, global financial markets have exhibited some signs of diversified actions but not meaningful enough to draw conspicuous divergences.

For instance, gold prices recently bounced off strongly on Obama’s re-election (see window below S&P 500). This implies of an extension of Bernanke’s credit easing policies. Although gold’s sharp rebound has hardly been reflected on the movements of the overall commodity markets (see CRB window).

The jury is out whether gold’s bounce will be sustained and which may spearhead and be accompanied by a general rally in prices of commodities, or if the financial market selloffs will broaden and accelerate to pose as hurdle or become a drag to gold’s recent rebound.

The important thing to point out is that the S&P 500, global equity markets (see MSWORLD on third window), gold and commodities prices have floated or sank based almost in tandem over the past year.

This exhibits high correlationship among risk assets. While the statistical correlations may vary among asset markets, tight correlations of trend undulations reveals of the risk ON (asset inflation) or risk OFF (asset deflation) nature of the current markets. 

Besides, the S&P 500 moves almost uniformly along with gold relative to the volatility (fear) index seen in both new (VIX) and old (VXO) measurements over the past 3 years. 

Rising gold over volatility conformed with higher S&P and vice versa.

Thus any deeply held idea that gold is about or represents as hedge against “fear” has largely been unfounded. Rather, gold has been a hedge against inflationism or currency debasement policies.

Greed and fear alone are symptoms and not sufficient forces enough to drive gold and stock market prices. Instead, emotional excesses account for as volatility from policy induced boom bust cycles

This means that an environment of rising prices gold and commodities amidst falling stock markets suggests of a transition towards stagflation.

Last week’s selloff has hardly shown any significant moves toward such direction, yet.

I would further input that it may be a mistake to interpret relative low statistical correlations by ASEAN markets[7] relative to developed economies as indicative of a “decoupling” landscape.

Statistical relationships can change overnight depending on how markets move. There is nothing constant except change in the marketplace.

This means that ASEAN outperformance may likely remain for as long as the US does not fall into a recession

But it would be a different story when a full blown US recession is in motion, and of course, the reactions of policymakers, particularly the central bankers, will matter under such setting.

Given the uncharted territory which current markets operate, assumptions based on past episodes could prove to be dicey.

The Fiscal Cliff’s Influence on the Recent US Equity Market Selloff

Going back to the global market’s selloff on anxiety over Obama’s policies.

Media has put a spotlight on newly re-elected President Obama to resolve the stalemate over the so-called fiscal cliff[8].

Markets supposedly disdain uncertainty. However the deepening and intensifying politicization of the financial markets imply of more uncertainties as people’s incentives have been skewered or redirected from consumer desires, which almost always goes in conflict with, the pronounced or latent objectives of political agents. 

For instance, instead of locking money through interest rate dividends from savings account in the financial institutions, zero bound regime or negative real rates which are part of financial repression have been forcing people to chase on yields and gamble in order to generate returns. So the public have become more of a “risk taker” and take on “greedy” activities in response to such policies. Some would even fall or become victims to Ponzi schemes which I expect to mushroom. 

Yet it is mostly the individual’s behavior rather than the cause—the policies that encourage such behavioral deviances—which mainstream media and politicians focuses on.

Recently many blamed the recent market carnage on political gridlock. Where political risks is concerned, I think that the prospects of more regulatory and policy obstacles or regime uncertainty, and perhaps an arbitrage on prospective policy transitions have been the culprit.

Unless there will be an agreement reached by the bi-partisan controlled legislative branches, the fiscal cliff[9] means the end of the Bush tax cuts, which translates to tax increases to the tune of $532 billion, as against automatic sequestration or spending cuts to the tune of $136 billion[10] under Budget Control Act of 2011.

Note that the balance of spending cuts (.8% of GDP) and tax increases (3.1% of GDP) has been tilted in favor of tax increases.

Nonetheless any deal reached by the two houses of Congress will likely be cosmetically in favor of increasing taxes, as against farcical spending cuts where the latter will likely be premised on growth rates rather than real cuts.

Also, spending cuts on defense will likely be subject to US foreign military engagements. A new war may disable such provisions.

According to New York University Economics Professor Mario Rizzo[11],

There will probably be defense cuts for now. But should the US encounter “unexpected” expenses, including any new war, they will be quickly eliminated. Unexpected events that increase the defense budget will definitely occur. The only thing that is uncertain is the precise events that will arise.

So spending cuts may not hold for long.

Importantly, while there is little to expect from legislation which may arise from the current politically deadlocked setting, most of the damage to US businesses will likely emanate from executive orders or regulations particularly centered on (as per University of Chicago Professor John H Cochrane[12]):

-Obamacare. Affordable Care Act regulations should include the expansion of Medicaid, health insurance “exchanges”, mandate to buy insurance, the ban on discriminatory charges on preexisting conditions and “accountable care organizations”.

-Dodd-Frank. Financial regulations will cover the expiration date for CEA exemption for swaps, broadened leverage and risk based capital requirements, FDIC Investment grade definition, Final rule OCC credit rating alternatives, Joint final rule Market risk capital, OCC lending limit rule compliance, Supervision of consumer debt collectors, Incorporating swaps, Clearing agency standards and more…

-US Environmental Protection Agency EPA regulations may cover tighter fracking regulations, much higher ozone standards, Cut sulfur in gas from 30 ppm to 10 ppm EPA: $90 billion a year, Temperature standards to protect fish in powerplant cooling ponds, tighter standards for farm dust, farms have to submit mediation plans, Water quality control for every body of water in the country, strict regulation of industrial boilers ($10-20 billion) formaldehyde emissions from plywood and more.

The recent bludgeoning of Utility stocks, which suffered most this week[13], can be traced to forthcoming environmental regulations from the Obama regime.

For instance tighter regulatory limits on mercury, sulphur dioxide and other pollutants may be used against the coal industry[14] as part of President Obama’s campaign to promote his beloved renewable energy sector which has been heavily subsidized by US taxpayers[15].

Tax increases on dividends could have also been a factor.

Writes Growth Stock Wire’s Small Stock Specialist editor Frank Curzio[16] (italics original)

Today, the tax rate on dividend income is 15%. If this expires, the tax rate on dividends would jump to 39.6%. That would significantly reduce the rate of return on dividend-paying stocks like utilities….

…But we're talking about a potential 25% tax hike on dividends. We've never seen anything like this before.

Current market pressures may have also been from policy arbitrage

Market participants expecting the fiscal cliff could be selling to take advantage of the transitions from the current to next year’s tax regime.

The end of the Bush tax cuts would mean a reversion of capital gains taxes to 20% from 15%. Adding the PPACA Obamacare provisions, capital gains will increase by 3.8% on high income individuals which should take effect in 2013, according to Tax Foundation.org[17]

As a tax analyst recently recommended[18]

If a taxpayer owns appreciated stock outright –– not through a tax-deferred retirement account –– that the individual has owned for more than a year and wants to lock in the 0 percent to 15 percent tax rate on the gain, but thinks the stock still has plenty of room to grow, he or she should consider selling the stock and then repurchasing it

So yes, material changes in the Obama’s largely anti-business regime have had material influences to the current pressures experienced by the US markets.

While the odds may seem small for a recession to occur, this cannot be discounted. The distortionary effects from the transition to a heavily regulated, compounded by higher tax environment, may become strong and self-fulling enough to heighten the risk premium and the hurdle rates to dissuade investment spending, as well as, to dampen the market’s favorite “animal spirits”.

Of course, given the increased political risks, President Obama seems to be relying more on the US Federal Reserve’s Ben Bernanke to do the economic weightlifting (well, in terms statistical figures).

There have been more chatters, possibly as part of policy signaling channel by the FED, of expanding unlimited QE 3.0 from $600 billion now to $ 1 trillion[19]. Federal Reserve Bank of St. Louis President James Bullard has even floated on the possibility of the replacement of Operation Twist with an expanded QE 3.0[20]. I have been saying that the FED-ECB program will reach $2 trillion or more. 

So President Obama’s proposed solutions to the nation’s economic predicament will be to continue with trillion dollar annual deficits through more government spending (but perhaps at a slightly reduced growth rate), which will likely be financed by more debt and by the US Federal Reserve’s monetization of such debts.

At same time, President Obama plans to strangle businesses with supposedly ‘class warfare’ policies of higher taxes—which in reality will cover even taxpayers of the middle class—and promote cronyism with a maze of EO’s and regulations. So appeasing the political class to generate more hiring opportunities should mean hiring more lobbyists and lawyers.

President Obama surely knows how to kill the goose that lays the golden egg.

It’s only in politics where bad or mediocre performance gets rewarded. That’s relative to the perceived worst option: the political opposition. 

And this why, despite the seeming exuberance from media, the search for “renouncing citizenship” in Google trend has been on a material upswing since 2012.

Perhaps increased searches for a second passport[21] have not only been a US dynamic but also in the Eurozone where more people could be looking at the exit or migration option or Tiebout Model[22] given the growing etatism (socialism and interventionism) practised by these economies.

What the US Fiscal Cliff Means to the Phisix

What has all these to do with Philippine stocks?

One, the prices of my neighborhood sari sari retail store’s San Miguel Beer Pale Pilsen have increased from 21 pesos (USD 51 cents at 41) per bottle to 23 pesos (USD .56 cents) or a 9.5% beer price inflation. This has not merely been due to sin taxes but through negative real rates regime as food prices and gasul, in the sphere of my operations have sizably risen.

The idea that domestic price inflation has been contained through supposed “good governance” has been arrant political canard[23] and represents statistical manipulation which eventually will lead to Argentina like political protests[24] overtime.

Yet there will be more pressure from domestic stock market participants to chase prices out of the growing evidence of the inflation tax from the Bangko Sentral ng Pilipinas’ (BSP) negative real rates regime. This means we should expect more bubble movements of specific issues within the Philippine Stock Exchange, many of which will be blamed on “manipulation”.

Nonetheless price inflation pressures will become more evident in 2013 and all the blarney about the “Asian Tiger” will be exposed as nothing more than a credit driven bubble.

I am not suggesting of a bear market, although stocks will likely come under pressure from tightening conditions. I am saying that we should expect price inflation to transform into street rallies and a drop in approval ratings.

Two, for as long as the selloff in US stocks moderates and in the condition that US will not fall into a recession, the year-end rally for ASEAN and the Phisix markets should continue.

However if the selling pressure does not abate, and if the risk of a US recession gets amplified, then these will eventually be transmitted to the Phisix and to the ASEAN markets. And all the low correlations will likely be transformed into high correlations similar to 2008.

Three, watch the actions of FED which will increasingly become President Obama’s major instrument for obtaining statistical economic growth, as well as, the actions of the Fed’s major collaborator, the ECB. Both of whom will likely aggressively employ balance sheet expansions that may get reflected on gold and other commodity prices.

The Phisix has vastly outpaced gold in terms of returns over the past year (lower window PSEC/Gold where rising trend means PSE outperforming gold in nominal terms). Year-to-date, nominal returns exhibit that gold has been up by only 10.49% while the Phisix has been up by a robust 25.09%. Since the Peso have risen by 6% against the USD, the equivalent US dollar returns on the Phisix translates to over 31%

Nevertheless gold and Phisix have shown some important correlations. A fall in gold prices eventually meant a similar fall in the Phisix, although the timing has not been synchronous. Yet under consolidation or on a rally mode gold prices have shown the Phisix the path higher although at a faster pace.

This demonstrates of the RISK ON or OFF environment where both gold and the Phisix operates.

Should gold breach above the 50-day moving averages, and backed by a rebound in other commodity prices, the Phisix should follow suit.

As usual, heightened volatility remains the order of politicized markets. So do expect sharp swings on both directions with an upside bias strictly based on the abovementioned conditions.

---

[1] see The Likely Impact of US Presidential Elections on the Stock Markets November 4, 2012

[2] The Telegraph Federal Reserve announces QE3 to aid US recovery September 13 2012

[3] Intrade.com Barack Obama to be re-elected President in 2012

[4] See Phisix: The Correction Cycle is in Motion August 27, 2012

[5] See Obama’s Potemkin Economy November 6, 2012

[6] See Dealing with Today’s Uncertainty: Patience is the Better Part of Valor June 17, 2012

[7] DBS Research Economics Markets Strategy p.55 September 13, 2012

[8] Bloomberg.com Obama Faces Pressure to Lead on ‘Fiscal Cliff’ After Win, November 8, 2012

[9] Wikipedia.org United States fiscal cliff

[10] Wall Street Journal Blog What Is the Fiscal Cliff? November 8, 2012

[11] Mario Rizzo Fiscal Cliff: Sense and Nonsense Thinkmarkets November 9, 2012

[12] John H. Cochrane Predictions November 7, 2012

[13] US Global Investors Investor Alert, November 9, 2012

[14] SeattlePI.com Coal stocks plunge after Obama victory November 7, 2012

[15] See CFR: US President Obama’s Renewable Energy Jobs Comes at High Cost to Taxpayers November 3, 2012

[16] Frank Curzio It's Time to Exit This "Safe" Sector The Growth Stock Wire, November 9, 2012

[17] Tax Foundation.org The Fiscal Cliff: A Primer, November 8, 2012. The tax on long-term capital gains would rise from a maximum of 15 percent to a maximum of 20 percent. Additionally, a 3.8 percent capital gains tax on high-income individuals, enacted as part of PPACA (Obamacare), takes effect in 2013. The top capital gains tax rate would thus be 23.8 percent (20 percent plus 3.8 percent). President Obama’s budgets have recommended retaining the 15 percent preferential rate for taxpayers whose income is below $200,000 ($250,000 for couples).

[18] Businessinsider.com Capital Gains Taxes Will Skyrocket In The New Year––Here's How To Cope November 9, 2012

[19] see US Equity Markets Welcomes Obama Re-election with a Thud! November 8, 2012

[20] Wall Street Journal Blog Fed’s Bullard Sees Twist End, More QE3 on the Table November 9, 2012

[21] Simon Black “Renounce citizenship” is now one of the fastest growing search terms in Google Sovereign Man, November 9, 2012

[22] Wikipedia.org Tiebout model

[23] see Philippine Economy: Lower Inflation Rates from Good Governance? November 7, 2012

[24] See Argentina Politics: Biggest Protest Rally in Decades November 11, 2012

Argentina Politics: Biggest Protest Rally in Decades

The president of Argentina’s Central Bank (BCRA), Mercedes Marcó del Pont, recently declared

it is totally false to say that printing more money generates inflation, price increases are generated by other phenomena like supply and external sector’s behaviour

Add to this the Argentine government’s statistical manipulation to suppress inflation measures, currency controls (banning of the US dollars), and other political controls (such as ban on imported books), as well as cronyism, the result has not only been intensifying capital flight but growing social instability which has been ominous of mounting social crisis.

Writes the London Evening Standard, (hat tip Bob Wenzel)

Tens of thousands of Argentinians blocked the streets of Buenos Aires in the country’s largest anti-government protests in more than a decade.

Demonstrators marched against rising inflation, crime and corruption under President Cristina Fernandez de Kirchner, whose popularity has plummeted since she was re-elected last year as the economy wobbles.

Argentina’s etatism or a combination of both socialism and interventionism (fascism) only validates the admonitions of the great late Professor Ludwig von Mises,

State interference in economic life, which calls itself "economic policy," has done nothing but destroy economic life. Prohibitions and regulations have by their general obstructive tendency fostered the growth of the spirit of wastefulness. Already during the war period this policy had gained so much ground that practically all economic action of the entrepreneur was branded as violation of the law. That production is still being carried on, even semi-rationally, is to be ascribed only to the fact that destructionist laws and measures have not yet been able to operate completely and effectively. Were they more effective, hunger and mass extinction would be the lot of all civilized nations today.

Our whole life is so given over to destructionism that one can name hardly a field into which it has not penetrated. "Social" art preaches it, schools teach it, the churches disseminate it.

The consequences of destructionism has now become evident in the streets of Buenos Aires.

Zimbabwe’s Economic Recovery Prompted by Spontaneous Dollarization

Here are some very interesting developments in post-hyperinflation Zimbabwe.

Hyperinflation has prompted the average Zimbabweans to junk the domestic currency [the defunct 'Zimbabwe Dollar'] while simultaneously gravitating spontaneously to dollarize their economy. This has resulted to a rebound in economic growth.

Writes Professor Steve Hanke at the Cato Institute

So how did Zimbabwe go from economic ruin to an annual GDP growth rate of 9.32 percent in 2011, with estimates of relatively strong growth rates through 2013?  As I predicted in early 2008, the answer is simple: spontaneous dollarization brought an end to the horrors of hyperinflation.

The important point to emphasize is that the average Zimbabweans responded to failed and repressive regulations and edicts through their own spontaneous initiative (and exactly the OPPOSITE from government imposition) which eventually became the nation’s informal ‘standard’.

Yet the informal dollarized money standard has been reflected on the economy as the informal economy dominates Zimbabwe which accounts for nearly 84% of employment (and could be more).

Yet Zimbabwe’s government continues to force its way on a society which has already rebelled on them economically

Again Mr. Hanke (bold mine)

While these achievements are cause for celebration, there are still problems in paradise: Robert Mugabe continues to hold the reins of power; Zimbabwe’s “Ease of Doing Business” ranking is a dismal 172nd out of 185; and “change” is, in short, hard to come by. In addition, the government’s external debt is now close to $12.5 billion and lending rates between Zimbabwe’s embattled banks are as high as 25 percent. To top it off, the Zimbabwean government is attempting to force banks to buy its treasury bills at significantly discounted rates, after its debt auction flopped in early October. Talk about ruling with an iron fist.

Also the Zimbabwean government, notes Mr. Hanke, continues to manipulate statistics “Lying statistics remain the order of the day” to embellish what has been a monumental government failure.

It’s amazing that the average Zimbabweans, who seemingly remain submissive and tolerant with the incumbent abusive and oppressive government, apparently live in a paradox or in a parallel universe.

Perhaps the Zimbabwean political economy could be a seminal manifestation of Étienne de La Boétie’s nonviolent political resistance and civil disobedience through the starvation of the beast.

Quote of the Day: Big Government Destroys Systems of Interaction and Help

I want collective action that is voluntary not coerced. I want people to have the incentive to come together and help others. Government takes my money and gives it to other people. Sometimes it’s good people. But sometimes it’s not. So it doesn’t just replicate what I would have done already. It distorts it. But more importantly it discourages the deeply human ways we help one another as friends and family. I don’t want to romanticize private charity or the way families work. They’re both deeply flawed and imperfect. But big government destroys those systems of interaction and help. Big government makes it cheaper to be on our own. It makes it cheaper to avoid helping others because the government is doing it already.

This is from Professor Russ Roberts at the Café Hayek, discussing a comment  skeptical of the Road to Serfdom.

A Father’s Lesson to a Communist Son

The illusions of communism exposed in practical applications.

 

Written by an anonymous commenter at the Nation State:

My stepson is 16. He posted on his FB that he is now a communist. He is just doing it because he knows it pisses me off. I acted like I didn't care and posted the following (below). Then I changed his password. He had no idea I knew his password. It is still there for all his friends to see. He is really pissed off. I took the door off his bedroom. He has no privacy now.

I took all his video games and stuff and set them up in the sun room for his 8 year old sister to use. Instead of giving him his weekly allowance, I split it up between him and his sisters. Then I took him down to Lucky's supermarket and made him apply for a job. They hired him the next day. But I told him he has to bring home his paycheck every Thursday so I can split it up amongst everybody. He is not very happy. His mother is backing me up 100%. His work load is almost unbearable for a 16 year old.

com·mu·nism (kmy-nzm) - NOUN: A theoretical economic system characterized by the collective ownership of property and by the organization of labor for the common advantage of all members.

... Garrett, since you into communism-I will support you. To keep things at home in the spirit of things, all of your possessions are now shared with your sisters. You will now have to share in the workload of chores at home. All of them.
 

Since your mother and I are Capitalists we are exempt. Since you are the only communist at home, you get to do ALL the chores.

Sourced from Economic Policy Journal

Uh Oh. China’s New Set of Policymakers could be Harvard Trained Keynesians

Wonder why China’s economic policies have transitioned into boom bust cycles? Well that’s because China’s policymakers has increasingly been influenced by the Keynesianism

Now Harvard trained Chinese politicians are vying for power.

From Bloomberg,

Li Yuanchao serves the Chinese Communist Party as head of its organization department. For a few months in 2002 he had a different overseer: Larry Summers.

Li controls the patronage system of the 82 million-member party that this month is unveiling its next generation of leaders, overseeing an apparatus that names cadres to posts in state-owned companies including China Mobile Ltd. (941) and acting as career manager for thousands of rising officials. He took part in an executive training program at Harvard University when former U.S. Treasury Secretary Summers was the school’s president. Li reminded Summers of that when the two met in 2010 in Beijing.

Li is the most prominent graduate of a program that has brought rising Chinese leaders to Harvard’s Cambridge, Massachusetts campus for more than a decade. The initiative underscores the fact that even as the U.S. and China are at odds over issues ranging from the value of the yuan to Syria, top politicians in China are increasingly drawing on their U.S. experiences in setting policy for the world’s second-biggest economy, said Anthony Saich, a professor at Harvard’s Kennedy School of Government who oversees the program.

And further evidence suggests that the relationship of US-China leadership have been joined to hip through the Harvard channel.

This bolsters my postulation that territorial disputes in Southeast Asia seem more of a false flag to shield other political agenda:

Other graduates of the program at the Kennedy School’s Ash Center for Democratic Governance and Innovation include Commerce Minister Chen Deming and Zhao Zhengyong, the governor of Shaanxi province. They get face time with some of Harvard’s most famous professors. In one program, officials attend a series of seminars Saich calls “star turn.”

Want to learn about how a country uses soft power? Joseph Nye, the political scientist who coined the term, holds a seminar on that. What about the U.S. presidency? Roger Porter, who served in three U.S. administrations, including as assistant to the president for economic policy under George H.W. Bush, meets with the students. Economics? Summers will lecture on the U.S. or global economy “or whatever’s on Larry’s mind at any particular time,” Saich said.

Harvard’s Kennedy School has been expanding its offerings to Chinese officials and executives at state-owned enterprises since the first program -- for senior leaders at the vice- minister level -- began in 1998, sponsored by Hong Kong’s New World Development Co. About 150 officials have been through the program since its inception, with 20 each year at most, Saich said.

And one can also guess that cronyism and nepotism could have been part of the Harvard-China leadership program

Harvard also attracts other relatives of China’s top leaders. Chen Xiaodan, the granddaughter of top planning official Chen Yun and daughter of China Development Bank Corp. Chairman Chen Yuan, graduated from the business school with an MBA this year, school records show. Xi Mingze, Xi Jinping’s daughter, is an undergraduate at Harvard College…

And it has dawned on me from this report that Harvard has become the most influential policy think tank on China albeit masquerading as school.

There are 686 full-time students from China enrolled at Harvard for the 2012-2013 academic year, more than from any other foreign country, and almost half of them, 331, are in the Graduate School of Arts and Sciences, according to the Harvard International Office website. The Harvard Kennedy School of Government, where Li and Bo attended, has 32 Chinese students, according to the site.

Harvard’s links to China go back at least to 1879, when Ko Kun-Hua, a Chinese language teacher, was hired, according to the university website. Ko died of pneumonia less than three years after arriving and his books became part of the Harvard Yenching Library, which now has more than 1 million volumes.

The above simply reveals of the pivotal role played by the Harvard connection in shaping China’s domestic and geopolitical policies.

Importantly if Harvard trained policymakers captures the top echelon of China’s state hierarchy, then we should expect more macro "demand management" measures such as stimulus, welfare and military Keynesianism to dominate China's policies. This means boom bust cycles will also commonplace feature in China.

And this also implies that the same political economic formula that has been a drag to the US (debt based consumption system) will likewise be the strategy used on China: a seemingly crafty move by US politicians through the Harvard nexus.

I am reminded by the snarky remark made by the late conservative William F. Buckley Jr. on Harvard:

I am obliged to confess I should sooner live in a society governed by the first two thousand names in the Boston telephone directory than in a society governed by the two thousand faculty members of Harvard University.

The Supposed Virtue of Romney’s Conceding

Over the radio, I heard a local bureaucrat pontificate over the supposed “virtue” of defeated US presidential candidate Mitt Romney on conceding the race to re-elected President Obama as worthy of emulation by local politicians.

From Breitbart.com (bold mine)

Speaking to a large but dispirited crowd at the Boston Convention and Exhibition Center, Romney began his speech on a gracious note:

 "Thank you, my friends. Thank you so very much."

"I have just called President Obama to congratulate him on his victory." 

With only the state of Florida's 29 electoral college votes undecided, President Obama held an insurmountable 303 to 200 electoral college lead over Governor Romney.

The act of conceding, could in the surface, seem as sportsmanship or as gentleman’s behavior.  Yes, political agents love to draw people's attention towards superficial abstractions by pinning the blame or conflicts on people's behavior rather than from systemic flaws.

But my point is that Mr. Romney’s loss has already been an established fact or a reality when he made the concession.

So being a politician, Mr. Romney opted to save face by being gracious in the face of defeat than become a sour grape—the latter would have put at risk his political career or future political actions.

In other words, US electoral conditions vary from Philippine elections such that the former’s electronic platform which produced immediate results,  supposedly removed the stigma of cheating or electoral fraud that has been the key source of acrimony in the local setting.

Of course, we can never really say how clean the US elections had been since any electoral cheating in the digital age would have meant largely untraceable systematic manipulation.

As former assistant secretary of US Treasury and former associate editor of Wall Street Journal Paul Craig Roberts duly noted

With electronic voting machines, which leave no paper trail and are programmed with proprietary software, the count can be decided before the vote. Those who control the electronics can simply program voting machines to elect the candidate they want to win. Electronic voting is not transparent. When you vote electronically, you do not know for whom you are voting. Only the machine knows.

According to most polls, the race for the White House is too-close-to-call. History has shown that when an election is close and there’s no expectation of a clear winner, these are the easiest ones to steal. Even more important, the divergence between exit polls, perhaps indicating the real winner, and the stolen result, if not overdone, can be very small. Those who stole the election can easily put enough experts on TV to explain that the divergence between the exit polls and the vote count is not statistically significant or is it because women or racial minorities or members of one party were disproportionately questioned in exit polls.

The world does not operate in a vacuum. People act based on incentives. Laws, regulations and social or political economic systems have material influences on people's behavior and actions.

An Emergent Trend on the War on Drugs? Mexico Considers Legalization

The recent electoral victory to legalize drugs in parts of the US may have set the trend towards the decline to the war on drugs worldwide.

From Washington Post

The decision by voters in Colorado and Washington state to legalize the recreational use of marijuana has left Mexican President-elect Enrique Peña Nieto and his team scrambling to reformulate their anti-drug strategies in light of what one senior aide said was a referendum that “changes the rules of the game.”

It is too early to know what Mexico’s response to the successful ballot measures will be, but a top aide said Peña Nieto and members of his incoming administration will discuss the issue with President Obama and congressional leaders in Washington this month. The legalization votes, however, are expected to spark a broad debate in Mexico about the direction and costs of the U.S.-backed drug war here.

Mexico spends billions of dollars each year confronting violent trafficking organizations that threaten the security of the country but whose main market is the United States, the largest consumer of drugs in the world.

Prohibition laws against all forms of vices (i.e. drugs, gambling, prostitution, smoking, drinking et. al.), have not just been immoral and  counterproductive, but also ineffective, impractical and repressive.

Sin taxes are another form of prohibition which has exhibited similar results.

Such ‘feel good’ noble sounding regulations signifies as the proverbial cure that is worse than the disease, where in reality, the populist moral crusade through mandated organized coercion (badges and guns or the government) usually serves as masquerade for politicians and the bureaucracy to expand power (at the expense of civil liberties) and access to the public’s purses e.g. “spends billions of dollars”.

The drug menace should be approached with the reinforcement of the individual’s moral fiber through solidification of familial and communal ties, through education and through therapy or rehabilitation, out of the ambit of taxpayers and the use of force.

If in case Mexico decides to follow the footsteps of Colorado and Washington to legalize drugs, which should also mean a wider tolerance on more states in the US, then this could possibly translate to a ripple effect worldwide.

Video: Milton Friedman on the Path to Totalitarianism

In the following video, the distinguished Milton Friedman channels on the great F. A. Hayek's The Road to Serfdom

Comments Professor Don Boudreaux at the Cafe Hayek

The fantasy that the democratic act of centralizing and concentrating decision-making authority and responsibility in the state ensures that decisions are made better and more wisely and more ‘scientifically’ and in ways likely to promote greater human flourishing is the most absurd and dangerous – yet widespread – fantasy that afflicts modern humanity. It is a fantasy to which academics, along with Hollywood celebrities, cling with special and remarkably steadfast faith.

EU Proposes To Ban the Family

From the Daily Mail

Books which portray ‘traditional’ images of mothers caring for their children or fathers going out to work could be barred from schools under proposals from Brussels.

An EU report claims that ‘gender stereotyping’ in schools influences the perception of the way boys and girls should behave and damages women’s career opportunities in the future.

Critics said the proposals for ‘study materials’ to be amended so that men and women are no longer depicted in their traditional roles would mean the withdrawal of children’s classics, such as Enid Blyton’s The Famous Five series, Paddington Bear or Peter Pan.

The document, prepared by the European Parliament’s Committee on Women’s Rights and Gender Equality, also suggests EU-wide legislation is needed to tackle the way women are depicted in advertising during children’s television programmes.

It further complains about the number of women in EU parliaments, and floats the idea of fixed quotas on a minimum proportion of female MPs.

The report says: ‘Children are confronted with gender stereotypes at a very young age through television series, television advertisements, study materials and educational programmes, influencing their perception of how male and female characters should behave.

‘Special educational programmes and study materials should therefore be introduced in which men and women are no longer used in examples in their ‘traditional roles’, with the male as the breadwinner of the family and the female as the one who takes care of the children.’

The proposal to regulate the ‘traditional’ family values which have been used as justification for gender equality legislation signifies an Orwellian dystopia where the state hopes to subsume family values for state values, impose state control over the citizenry to the individual level via indoctrination or through the control of people’s thought and speech, substitute dependency on the state and the disintegration of the family and the individual, and importantly, the worship of the state. 

[This resonates with the local version of ‘I am the start of change’ being subliminally impressed upon by politically controlled mainstream media to inculcate docility and conformity to the government through the abstract virtues of supposed ‘selflessness’ and through nationalism]

Yet these are signs of desperation from EU’s political elites whom have been groping for the preservation of their privileges and entitlements amidst the rapid deterioration of the incumbent parasitical political economic institutions.

Quote of the Day: Business Advise: Get Lawyers and Lobbyists

If you run a business, get a lot of lawyers and lobbysists. He who writes the regulations will make a lot of money. He who does not will lose.  Make sure you make the right political contributions and don't say anything critical of those in power. You will need a discretionary waiver of something, and these rules are so huge and so vague, the regulators can do what they want with you. Don't be the one to get "crucified" (EPA). We live in the crony-capitalist system that Luigi Zingales describes so well. Live with it. Political freedom requires economic freedom, taught us Milton Friedman. You don't have the latter, don't expect the former.

This snarky but relevant and realistic advice is from University of Chicago Professor John H. Cochrane who writes that there won’t be much legislation due to a divided Congress, but that big or major changes will emanate from a labyrinth of executive orders and from the “metastatic expansion of regulation, let by ACA, Dodd-Frank, and EPA” which he explains in detail here

Video: Marc Faber Says President Obama is a Disaster for the US, Recommends Buying Machine Guns

In the following Bloomberg interview Dr. Marc Faber rants on Obama's re-election which comes with several interesting insights

My notes from his interview

-Obama is a disaster but less bad for the world than Romney. Both deserve to lose

 -Markets will drop by at least 20% in 6-9 months, may drop 50%

-Obama's regime: more regulations, higher taxes

-Bernanke's money printing led to high corporate earnings but has been coming down 

-Global slowdown may counter the effect of money printing [For me, global central banks are doing the same as Bernanke's Fed, so these would have consequences to the markets and the economy, which ensures volatility but not necessarily an asset slump]

-It is difficult to tell where the markets will go because of so much manipulation

-Congress will solve Fiscal Cliff standoff with Obama by cosmetically raising taxes and cutting spending which will be backloaded 10 years.

-trading year end rally until January before selling pressure.

-GDP is not a very relevant figure

-Dr. Faber also cites of the entitlement mentality of the markets where a decline of 2% is seen as a big deal when markets have had a "huge bull market" over the past decades    

-China's economy is growing a maximum 4% at present time

-Asia not in a recession but off the peak of business activities from nine month ago. 

-Dr. Faber jokingly recommends buying guns and machine guns, he quips of his need to buy a tank.

-Whenever you manipulate the market you willget unintended consequences

-The re-election of Mr. Obama is an unintended consequence is an unintended consequence from money printing. [For me, money printing was a political strategy by Bernanke in to the political goals of Obama, thus was hardly an unintended effect]

-Mr. Bernanke enabled the "wealthy fat cats" profiteers [which Democrats used effectively as part of their political campaign]

-Dr. Faber doubts if Mr. Obama stay at the presidency for the another four years as in "there will be many scandals".

-standards of living in the western world will continue to decline because of the cost of living increase will exceed income gains, cost of living will also go up because of all types of taxes will be increased 

 

US Elections Hobbled by Low Voter Turnout

Obama’s triumph comes amidst low voter turnout.

According to the Daily Mail,

With 99 percent of precincts reporting, The Associated Press' figures showed about 119.5 million people had voted in the White House race, but that number will increase as more votes are counted. In 2008, 131 million people cast ballots for president, according to the Federal Election Commission.

Hurricane Sandy could be a factor. Growing indifference may have also been a factor.

Again from the same article

In other areas not affected by the storm, a host of factors could have contributed to waning voter enthusiasm, Gans said. The 2012 race was one of the nastiest in recent memory, leaving many voters feeling turned off. With Democrats weary from a difficult four years and Republicans splintered by a divisive primary, neither party was particularly enthused about their own candidate. Stricter voting restrictions adopted by many states may also have kept some voters away from the polls.

"Beyond the people with passion, we have a disengaged electorate," Gans said. "This was a very tight race, there were serious things to be decided."

But perhaps the no vote camp may have been gaining some ground

As the late libertarian businessman Robert Lefevre wrote (lewrockwell.com)

When we express a preference politically, we do so precisely because we intend to bind others to our will. Political voting is the legal method we have adopted and extolled for obtaining monopolies of power. Political voting is nothing more than the assumption that might makes right. There is a presumption that any decision wanted by the majority of those expressing a preference must be desirable, and the inference even goes so far as to presume that anyone who differs from a majority view is wrong or possibly immoral

US Equity Markets Welcomes Obama Re-election with a Thud!

What a celebration for the re-elected President.

From Bloomberg,

Stocks tumbled as Obama’s re-election set up a showdown with the Republican-controlled House over the budget, with the so-called fiscal cliff of more than $600 billion in tax increases and spending cuts slated to start in January unless Congress acts before then.

The Standard & Poor’s 500 Index (SPX) lost the most since June, tumbling 2.4 percent to close at 1,394.53. The retreat wiped out roughly $370 billion in market value from U.S. equities, according to data compiled by Bloomberg.

Don’t worry, for the Obama apologists the US Federal Reserve will ride to the rescue.

A day ago, Federal Reserve Bank of San Francisco President John Williams said that he expected the revitalized asset purchasing program or QE 30 (forever) to reach $600 billion into next year.

After yesterday’s elections, the ante seems to have been upped, where many expects the Fed’s program to exceed $1 trillion (I have been saying that both the FED and the ECB will be buying over $2 trillion)

From the same Bloomberg article,

A fiscal boost to the economy is probably off the table as President Barack Obama negotiates tax increases and spending cuts with leaders of a Democratic-controlled Senate and a House of Representatives led by Republicans, Edelstein said. That may leave only the Fed in the position of trying to boost the economy, and its third round of quantitative easing may extend through next year and climb past $1 trillion, said economists at JPMorgan Chase & Co. and Pierpont Securities LLC.

Supposedly political gridlock is there to blame, but this is simply a smokescreen for what in reality has been President Obama’s anti-business policies, which have only increased the risk profile and the cost of doing business and which will be reflected on higher hurdle rate for investors and entrepreneurs.

Economic freedom in the US has been on a marked decline.

From Fraser Institute: US ranking fell to 18th in 2010

From Heritage Foundation: US fell to 10^th place in the 2012 index

The distinguished Professor and author Thomas Sowell elaborates,

The media misconception today is that what we need to speed up economic recovery is to end gridlock in Washington and have bipartisan intervention in the economy. However plausible that may sound, it is contradicted repeatedly by history.

Unemployment was never in double digits in any of the twelve months following the stock-market crash of 1929. Only after politicians started intervening did unemployment reach double digits — and it stayed there throughout the rest of the 1930s.

There is nothing mysterious about an economy’s recovering on its own. Employers usually have incentives to employ and workers have incentives to look for jobs. Lenders have incentives to lend and borrowers have incentives to borrow — if politicians do not create needless complications and uncertainties.

The Obama administration is in its glory creating complications and uncertainties for business, ranging from runaway regulations to the unknowable future costs of Obamacare and taxes. Record amounts of idle cash held by businesses and financial institutions are a monument to the counterproductive effects of Barack Obama’s anti-business policies and rhetoric. That idle money could create lots of jobs — net jobs — if politics did not make it risky to invest.

So President Obama’s increasing reliance on the FED (most likely on Bernanke) will only lead to more volatile markets.

And volatile days have been a common feature since 2007.

The Bespoke Invest notes of the increasing “All or Nothing days” or advance decline breadth index “where the net daily A/D reading in the S&P 500 exceeds plus or minus 400”.

In other words, since the FED began intervening in the markets, stock market movements either floated or sank in tides. Such tidal motion is a symptom of the monetary policy influenced inflation (boom)-deflation (bust) volatilities.

Finally, Sovereign Man’s Simon Black succinctly illuminates on what to expect from the extension of Obama’s presidency

One point that I absolutely must make is this– after December 31st,

- Income tax rates are going up

- Capital gains rates are going up

- Rates on dividends are going up

- Estate and gift tax exclusions are going down. Dramatically.

Eventually the US government will run out of savings or wealth generators to tax and a crisis will emerge. And the US will default on its obligations.

Perhaps the markets has signaled what the great libertarian H. L Mencken wrote [A Little Book in C major (1916); later published in A Mencken Crestomathy (1949)].

Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

Quote of the Day: Democracy Never Lasts Long

Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide. It is in vain to say that democracy is less vain, less proud, less selfish, less ambitious, or less avaricious than aristocracy or monarchy. It is not true, in fact, and nowhere appears in history. Those passions are the same in all men, under all forms of simple government, and when unchecked, produce the same effects of fraud, violence, and cruelty.

This is from second US President US John Adams in his letters to John Taylor (1814)

Why Short Selling has been at the Losing End

Short sellers have been at the losing end.

Notes the Economist

THE long-short ratio of global equities, a gauge of market sentiment, is at a five-year high. The ratio, which measures the value of stocks available for short-selling to what is actually on loan, shows longs outnumber shorts by a factor of more than 12, suggesting investors are increasingly bullish. Higher stockmarkets are driving the ratio upwards, as the amount on loan has not changed significantly in the last few years. The appetite for short-selling has been affected by uncertainty over regulation, and by a change of strategy from hedge funds (big short-sellers), which have been less leveraged since the financial crisis. But while the long-short ratio of American and European equities has increased, bears are far from extinct: between 7% and 8% of lendable value is still on loan to short-sellers.

The “appetite for short-selling has been affected by uncertainty over regulation” has been true, but the significance of the role of policies influencing the marketplace seems to have been downplayed.

It must be remembered that markets respond to policies even as many of the current policies has been instituted to affect or influence the markets. 

The fact is that numerous countries have resorted to directly banning of equity and bond short sales despite the questionable efficacy of such measures. 

Inflationism employed by global central banks led by the US Federal Reserve and the European Central Banks have explicitly been targeted to shore up asset prices which means an assault on equity short sellers and bond vigilantes too. 

Bank capital standards have also influenced preferences and the distribution of asset ownerships held by mainstream institutions. 

The US crisis of 2008 reveals that tax and administrative policies had influences to the housing bubble. 

I hardly see any material changes on these.

The point is that current supposed “wealth effect” policies meant to promote asset bubbles signifies as an onslaught against short selling. Or policies have been designed to discriminate against equity short sellers and the bond vigilantes.

The real reason for such policies has hardly about “wealth effect” but to prop up the balance sheets of many insolvent political economic systems (banking-central banking-welfare and warfare state).

Short sellers and bond vigilantes will resurface in the fullness of time.

As a side note: In the Philippines, regulations on short sales have rendered short selling basically impractical. Thus, financial institutions have been incented to see a one directional market: up or a boom. 

Yet reality tells us that policies that shapes a boom will eventually lead to a bust.

Barack Obama Re-Elected

From Marketwatch.com

Barack Obama on Tuesday night was re-elected U.S. president, defeating Republican opponent Mitt Romney after an intensely close race for the White House. Obama has promised to invest in clean energy and education in a second term, as well as raise taxes on wealthy Americans to help pay down the deficit. Victory in the key state of Ohio helped Obama win on Tuesday night

Here is what I earlier wrote

In a close battle, the incumbent have the edge. This is because they hold the political machinery which can be used to their advantage through whatever means

So President Obama’s behind the scenes election stratagem through the US Federal Reserve or team Ben Bernanke’s QE forever and government spending boosted statistical growth worked.

In a choice between two statists, the snookered American electoral system fell for the status quo.

As I previously noted

At the end of the day, regardless of whoever wins, US policies will remain embedded to the interests of the political economic establishment. Changing personalities who runs the same show hardly accounts for a change in the system.

Plus ça change, plus c'est la même chose

Philippine Economy: Lower Inflation Rates from Good Governance?

Reports the Inquirer.net 

Inflation further eased in October, with the inflation rate slowing to 3.1 percent, from 3.6 percent in September and 3.8 percent in August, marking a four-month low in the consumer price index (CPI).

Malacañang attributed the improvement to good governance and equitable and inclusive economic growth.

“We have always maintained that good governance results in good economics. The effects of our reforms have already manifested in the lives of our countrymen,” said deputy presidential spokesperson Abigail Valte.

“This is reflected in the exceptional public trust, satisfaction and support for the President and his administration,” she said.

So how exactly did the government bring down "inflation" (price inflation)? How does “good governance” translate to lower inflation? Did the government liberalize economic activities to generate surpluses via increased productivity which has pressured prices downwards? Or have government’s selective application of price controls been working? 

What then is “good economics”? Does interventionism translate to more productivity? Does picking winners and losers or politicizing the marketplace equate to good economics?

Or could it be that the informal economy has been generating these surpluses? Or could this be signs of bursting bubbles (here or abroad)?

Maybe applied in the political sense, “good economics” is for the beneficiaries, particularly the political economic elites, and of not society.

From an anecdotal perspective, my favorite hangout just raised prices across the board by 5-10%. My gasul which I bought yesterday was up 10%. Could these instances been isolated?

Or has statistical inflation data been fudged to promote political agenda?

Yet does a negative real interest rate regime reflect “good governance”?

Does inflationism also represent “good economics”?

(charts above from tradingeconomics.com)

Does the Philippine government consider stealth redistribution of resources from society to the political class, the promotion of asset bubbles and the gambling culture (via the shortening of time preferences or orientation) as representing good governance and good economics?

Let me end this terse critic with a quote from the great Henry Hazlitt,

Inflation, to sum up, is the increase in the volume of money and bank credit in relation to the volume of goods. It is harmful because it depreciates the value of the monetary unit, raises everybody's cost of living, imposes what is in effect a tax on the poorest (without exemptions) at as high a rate as the tax on the richest, wipes out the value of past savings, discourages future savings, redistributes wealth and income wantonly, encourages and rewards speculation and gambling at the expense of thrift and work, undermines confidence in the justice of a free enterprise system, and corrupts public and private morals.

Next year when price inflation (stagflation) becomes a real economic and market risks, will the Philippine government own up to their mess or will they simply pass the blame on the markets for these?

Obama’s Potemkin Economy

I have been saying here that asset markets have subject to intense political interventions since so much has been at stake for the career of politicians.

For instance, US Federal Reserve chief Ben Bernanke’s "QE Forever" could be construed as having been connected or linked to his tenure under the President Obama presidency.

I guess even the recent statistical economic growth of the US economy may have been propped up for election reasons.

Writes Professor Shawn Ritenour at visionsandvalues.org (bold mine, hat tip Mises blog)

The main reason GDP increased at a rate larger than forecast was a large increase in government spending. As hard to believe as it may be, government spending’s contribution to real GDP had actually decreased since the second quarter of 2010. Anyone who understands the economic consequences of government spending knows that this was a good trend if we want to promote long-term economic expansion.

Alas, this trend underwent a dramatic reversal over the past three months. Real federal government expenditures increased 9.6 percent. National defense spending alone increased 13 percent over the third quarter. These increases at the national level contributed to an overall increase in all government spending (federal, state, and local) of 3.7 percent. Government spending is what drove the increase in real GDP. Unfortunately, we cannot rely on government spending to generate sustainable economic expansion. The economy is not a machine that is ailing from a dead battery. Yet modern macroeconomists and policymakers often talk and act like it is. They speak of “jump-starting” the economy with a little government spending or monetary inflation or both. Such actions, however, do not generate real wealth. They surely do cause a redistribution of wealth, benefiting some while harming others, but they do not provide any general social benefit. Neither government spending nor monetary inflation results in more production of more goods that are able to satisfy the subjective ends of people in our social economy…

The bottom line is that increases in GDP statistics caused by monetary and fiscal stimulus signals an economic expansion that is more apparent than real. Any economic expansion that does not result from increased voluntary saving and investment cannot be sustained. The minute the government slows the rate of government spending or the Federal Reserve slows the rate of growth in the money supply, the economic lie is exposed and economic law once again asserts its authority. Capital malinvestment and the misallocation of factors of production no longer can be covered over as official statistics catch up with reality.

President Obama seem to have employed a deft win-win political strategy. A simulacrum of economic growth may work in favor of his re-election. Otherwise a loss should translate to a 'graceful' exit.

Nonetheless, artificially stimulated growth simply means blowing bubbles which eventually gets to be pricked. Unfortunately, society suffers from the eventual bubble bust, which had been implemented for the self serving interests of politicians.

Quote of the Day: Participatory Fascism

For thirty years or so, I have used the term “participatory fascism,” which I borrowed from my old friend and former Ph.D. student Charlotte Twight. This is a descriptively precise term in that it recognizes the fascistic organization of resource ownership and control in our system, despite the preservation of nominal private ownership, and the variety of ways in which the state employs political ceremonies, proceedings, and engagements—most important, voting—in which the general public participates. Such participation engenders the sense that somehow the people control the government. Even though this sense of control is for the most part an illusion, rather than a perception well founded in reality, it is important because it causes people to accept government regulations, taxes, and other insults against which they might rebel if they believed that such impositions had simply been forced on them by dictators or other leaders wholly beyond their influence.

For the rulers, participatory fascism is the perfect solution toward which they have been groping for generations, and virtually all of the world’s politico-economic orders are now gravitating toward this system. Outright socialism is a recipe for widespread poverty and for the ultimate dissolution of the economy and the disavowal of its political leadership. Socialism is the wave of the past; everywhere it has been tried seriously, it has failed miserably. Participatory fascism, in contrast, has two decisive advantages over socialism.

The first is that it allows the nominal private owners of resources and firms enough room for maneuver that they can still innovate, prosper, and hence propel the system toward higher levels of living for the masses. If the government’s intervention is pushed too far, this progress slows, and it may eventually cease or even turn into economic regress. However, when such untoward conditions occur, the rulers tend to rein in their plunder and intervention enough to allow a revitalization of the economy. Of course, such fettered economies cannot grow as fast as completely free economies can grow, but the latter system would preclude the plunder and control that the political leaders now enjoy in the fettered system, and hence they greatly prefer the slower-growing, great-plunder system to the faster-growing, no-plunder one.

Meanwhile, most people are placated by the economic progress that does occur and by their participation in political and legal proceedings that give them the illusion of control and fair treatment. Although the political system is rigged in countless ways to favor incumbent rulers and their key supporters, it is far from dictatorial in the way that Stalin’s Russia or Hitler’s Germany was dictatorial. People therefore continue to believe that they are free, notwithstanding the death of their liberties by a thousand cuts that continues day by day.

Participatory fascism’s second great advantage over socialism is that when serious economic problems do arise, as they have during the past five years, the rulers and their key supporters in the “private” sector can blame residual elements of the market system, and especially the richest people who operate in that system, for the perceived ills. No matter how much the problems arise from government intervention, it is always possible to lay the blame on actors and institutions in the remaining “free enterprises,” especially the biggest bankers and other apparent top dogs. Thus, fascistic rulers have build-in protection against popular reaction that the rulers in a socialist system lack. (Rulers under socialism tend to designate foreign governments and capitalists and domestic “wreckers” as the scapegoats for their mismanagement and inability to conduct economic affairs productively and fairly.)

(bold emphasis mine)

This is from Austrian economist Robert Higgs at the Independent Institute

Quote of the Day: Pollsters Find Comfort in a Crowd

Pollsters don’t like being very different from their competitors so they often fudge the turnout numbers so they don’t go out on a limb. Going out on a limb is great if you’re right. If you’re wrong, you look like an idiot. If you want to have an ongoing business, you don’t want to go out on a limb too often. So what looks like a consensus–an average of independent results, can actually represent, groupthink But that’s true of the national results, too.

This is from Professor Russ Roberts at the Cafe Hayek. This serves as another reason to look at surveys or polling trends with a skeptical eye.

Video: Post Hurricane Sandy Price Controls Leads to Black Markets

Whether regulations, edicts or decrees are feasible, practical or moral or not, people respond to them. And price controls brings about the typical consequence: black markets. 

It has been no different in the Hurricane Sandy affected areas in the US. 

From ReasonTV (hat tip Bob Wenzel)