Saturday, May 14, 2016

Phisix 7,450: Intensifying Signs of Destabilizing Speculation (Blow off Phase)

Post-election euphoria has sent the Phisix to skyrocket by 6.4% over the week. 


While the bullish upsurge breached through the 7,400 psychological barrier erected in May of 2013, the character of the recent runup has been different from when the PSEi hit a new record at 8,127.48 in April 10, 2015 

In comparative numbers, the PSEi surged by 22.73% in the past 76 days from the nadir of January 21 2016 through Friday to average .29% gains a day. 

From the interim bottom of December 17 2014 through record April 10, 2015, the PSEi returned 16.67% in 70 days to average .24% a day. 

The slope of the recent rally should be a testament to the intensifying mania. Last week's 6.4% jump was vertical or 90 degree ripfest!

Today’s rally somewhat resembles the May 2013 episode when 7,400 threshold was first established. Then the PSEi generated a lesser 15.5% from the March 20 2013 bottom to the May 15 2013 record or an average of .43% in 35 trading days. Yet the outcome of the May 2013 peak was a quasi bear market.

Yet the nature of the rally today diverges from April 2015 or May 2013 when one examines the contribution of composite issues. 

Below are charts of issues that forged new frontiers last week, or trades within recently carved record heights.  

Pls note that the PSEi was last quoted at 7,436.79. The last time most of these issues reached their past record watermark was when the PSEi hit 8,127.48 last year. 

And importantly, current record highs have emerged mostly from the 'Viagra Effect'. 

SM (+7.34% week on week; ranked first in terms of market cap weight) 

SM subsidiary shopping mall-real estate firm SMPH (+5.08% week on week; ranked fourth in market cap) 

Ayala Corp (+12.65% week on week; fifth spot in market cap) 


Not even declining rate of PER growth has served as a hindrance to the desire to push the PSEi to new records. AEV (+10.11%; ninth place in market cap) stormed to another record.


AEV Subsidiary AP also run berserk! (+6.7% week on week; eighteenth place in market cap ranking) 


The King of the Viagra effect has been no other than JGS. 

JGS posted a shocking 16.2% return week on week and has now climbed to the third spot in terms market cap.  By the way, JGS has been a favorite issue for Team Viagra's streak of marking the close pumps.

Note that for the six charts, such vertical spikes or blow off actions have virtually been unparalleled or historic by their respective price action standards

Differently put, 'this time is different' for the above charts in the context of euphoria.

Two more issues (JFC and GTCAP) are at spitting distance to new records.

Yet the above turbocharged firms have largely been responsible for PSEi 7,450. 

Yes the desperate or frantic attempt to push the PSEi past 7,400 has been concentrated to mostly these biggest weighted market cap firms.

And please be aware that blow off tops are signs of manias at the extremes. 

Manias as described by historian Charles P Kindleberger and Robert Z. Aliber from their classic book "Manias, Panics and Crashes" Fifth Edition (p.41-42) [bold mine]
Manias are associated on occasion with general ‘irrationality’ or mob psychology. The relationship between rational individuals and an irrational group of individuals can be complex. A number of distinctions can be made. One assumption is mob psychology, a sort of ‘group thinking’ when virtually all of the participants in the market change their views at the same time and move as a ‘herd.’ Alternatively different individuals change their views about market developments at different stages as part of a continuing process; most start rationally and then more of them lose contact with reality, gradually at first and then more quickly. A third possible case is that rationality differs among different groups of traders, investors, and speculators, and that an increasing number of individuals in these groups succumb to the hysteria as asset prices increase. A fourth case is that all the market participants succumb to the ‘fallacy of composition,’ the view that from time to time the behavior of the group of individuals differs from the sum of the behaviors of each of the individuals in the group. The fifth is that there is a failure of a market with rational expectations as to the quality of a reaction to a given stimulus to estimate the appropriate quantity, especially when there are lags between the stimulus and the reaction. Finally irrationality may exist because investors and individuals choose the wrong model, or fail to consider a particular and crucial bit of information, or suppress information that does not conform to the model that they have implicitly adopted. 
G-R-O-W-T-H was once the rationalization behind the record ramp. Today it seems to have been replaced by C-H-A-N-G-E. 

It appears that anything now will be used to justify the hysteric bidding up of Philippine equities. 

It's now all about price chasing, valuations be damned!

Yet the obverse side of every credit fueled mania is a bust.

Here are some examples of manias which turned into panics and crashes. 




Charts from Robert Prechter (Lynn Coins



And don't forget the world's seventh largest firm in America which suddenly became bankrupt: Enron






Infographics: China's Debt 'Nuclear' Bomb

The Visual Capitalist has a nifty infographic on China's debt bomb:
NO ONE KNOWS IF ITS A HAND GRENADE OR A NUCLEAR EXPLOSION

The ramp up in Chinese debt accumulation has been a leading concern of investors for years. The average total debt of emerging market economies is 175% of GDP, and skyrocketing corporate non-financial debt has launched China far beyond that number.

The real question is: by how far?

The answer is disconcerting, because nobody really knows.

If the Chinese debt bomb is detonated, the impact on markets is anybody’s guess. Kyle Bass says the losses would be 5x that of the subprime mortgage crisis, while Moody’s says the bomb will be safely disarmed by authorities far before it goes off.

In today’s chart, we look at various estimates to the size of China’s debt bomb, its payload, and what might spark the fuse.

CHINA’S DEBT BOMB: THE PAYLOAD

Mckinsey came out with a widely-publicized estimate of China’s debt at the beginning of 2015. Using figures up to Q2 2014, they estimated that total Chinese debt was 282% of GDP, an increase from 158% in 2007.

Since then, various trusted organizations have come up with follow-up estimates.

On the low end, Goldman Sachs came out with an estimate in January 2016 of 216% total debt-to-GDP for 2015. (A few months later, they put out a separate report saying that total debt-to-GDP was estimated to be closer to 270% for 2016.)

On the high end, Macquarie analyst Viktor Shvets said that China’s debt was $35 trillion, or “nearly 350%” of GDP.

The truth is that it’s anybody’s guess. China’s official estimates are fairly useless, and the country has a massive and quickly evolving shadow banking sector that complicates these projections significantly.

EXPLOSIVE MATERIALS

Total debt is made up of various components, including government, corporate, banking, and household debts.

In the case of China, it is corporate debt that is particularly explosive. According to Mckinsey, the country’s corporate sector already has a higher debt-to-GDP than the United States, Canada, South Korea, or Germany, even while still being considered an “emerging market”.

S&P Global Ratings now figures that Chinese corporate debt is in the 160% range, up from 98% in 2008. The current number in the United States is a less ominous 70%.

China’s central bank is just as concerned as anyone else. Here’s what the Governor of the People’s Bank of China, Zhou Xiaochuan, had to say about a month ago:
Lending as a share of GDP, especially corporate lending as a share of GDP, is too high.
Xiaochuan also noted that a high leverage ratio is more prone to macroeconomic risk.

DEFUSING THE BOMB

If there’s something that can ignite the fuse of China’s debt bomb, it’s non-performing loans (NPLs).

An NPL is a sum of money borrowed upon which the debtor has not made scheduled payments. They are essentially loans that are either close to defaulting, or already in default territory.

China has an official estimate for this number, and it is a benign 1.7% of debt. Unfortunately, independent researchers peg it much higher.

Bullish analysts have the number pegged in the high single-digits, while bearish analysts put the range anywhere between 15% and 21%. Even the IMF says that loans “potentially at risk” would be equal to 15.5% of total commercial lending.

If there’s a place to start defusing the bomb, this is it.
My comment: 

Debt represents a symptom of an underlying disease. The question is what is the disease, or what has debt been used for? In China’s case, debt had been used to finance gigantic non productive, speculative investments in various sectors as industrial, infrastructure and property. This means that China’s debt explosion funded rampant excess capacity. And excess capacity represents another secondary symptom. Hence, China’s debt financed overcapacity can be construed as a massive misallocation of resources or malinvestments.

And much of the malinvestments emerged out of the Chinese government’s attempt to shield her economy from the Great Recession, mostly through financial repression via inflationism and government directed investments, the $586 stimulus, mostly channeled through the local government. And local governments circumvented rules on direct investments to use the private sector to deliver the political economic goodies which had been financed by the debt. Thus the corporate debt explosion.

While it has been speculated that debt may be controlled or “disarmed” by the government, debt is not just a number. As noted above, debt has been entwined to China’s severely maladjusted economy. This means that when the pool of real savings in the economy has been severely undermined or has been depleted from malinvestments, then the Chinese economy is headed for an economic slump. 

The Chinese government can act to delay the bust, as they have been doing today, but this comes at the cost of a deeper, and most likely violent market clearing process, which should lead to a coming depression.

In short, the obverse side of an inflationism fueled artificial boom is an inevitable crash.

As the great Austrian economist Ludwig von Mises once warned:
Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.
Sooner or later, credit expansion, through the creation of additional fiduciary media, must come to a standstill. Even if the banks wanted to, they could not carry on this policy indefinitely, not even if they were being forced to do so by the strongest pressure from outside. The continuing increase in the quantity of fiduciary media leads to continual price increases. Inflation can continue only so long as the opinion persists that it will stop in the foreseeable future. However, once the conviction gains a foothold that the inflation will not come to a halt, then a panic breaks out. In evaluating money and commodities, the public takes anticipated price increases into account in advance. As a consequence, prices race erratically upward out of all bounds. People turn away from using money which is compromised by the increase in fiduciary media. They "flee" to foreign money, metal bars, "real values," barter. In short, the currency breaks down.


Courtesy of: Visual Capitalist

Thursday, May 12, 2016

Charts of the Day: The Global Crony-Capitalism Index

The Economist featured their world Crony Capitalism Index last week. 


With 5 nations within the world's top 10, Southeast Asia appears to be the leader in crony capitalism. The Philippines ranked third.

The Economist on their methodology:
Using data from a list of the world's billionaires and their worth published by Forbes we label each individual as crony or not based on the source of their wealth. Industries that have a lot of interaction with the state are vulnerable to crony capitalism (a full list of industries is provided in the table below). These activities are often legal but always unfair (Donald Trump, a casino and property tycoon, earns the 104th spot in our individual crony ranking). We aggregate the billionaires by their home country and express the total wealth as percentage of GDP. The results are presented above for 22 economies: the five largest rich ones, the ten biggest for which reliable data are available and a selection of other countries where cronyism is a problem. 


Industries prone to cronyism.

Central bank 'trickle down' inspired economic boom? Only for cronies.


Wednesday, May 11, 2016

Quote of the Day:The Virtue of a Free System: The Consumer’s Plebiscite

The test of an economic system lies in the choices it offers, the alternatives that are open to the people living under it. When choices are limited by coercion of one sort or another, the system must fall short of meeting the test in greater or less degree. The virtue of a free system – i.e., competitive capitalism – is that it allows energy to flow uncoerced into a thousand-and-one different forms, expanding goods, services, and jobs in a myriad, unpredictable ways. Every day, under such a system, a consumer’s plebiscite (the phrase is [Ludwig] von Mises‘) is held, the vote being counted in whatever money unit is the handiest. With his votes the consumer directs production, forcing or luring energy, brains and capital to obey his will.
This excerpt is from John Chamberlain's1959 book, The Roots of Capitalism (page 221 of the 1976 Liberty Fund edition) (source Cafe Hayek)

Sunday, May 08, 2016

Philippine Presidential Elections: My Expected Outcome, “None of the above” Wins!

I’m supposed to be still in a vacation

Two major pollsters seem to have delivered their final estimates: the winning Presidential candidate will likely win by a margin double digit margin.

Curiously, both have it that the winning candidate will possibly snare 33% of the votes cast.

Although I have pointed out that election surveys can be unreliable measures of actual outcome, they occasionally hit jackpot.

So in this post, I will use their similar projections as baseline for my own back of the napkin estimates

News reports say that there are about 55 million (54.4 million) registered voters.

Given that the last two voter turnover were 74.4% (2010) and 76.34% (2004), I’ll use the high estimate of 80% of registered voters as base for my estimates

So for the winning candidate, I’ll round out the 33% to 35%. A side estimate of 40% will also be presented.

So the population of registered voters who cast their will likely be at 44 million.

On the other hand, non voting registered voters will likely number 11 million

To translate the winning vote of 35% into hard numbers we arrive at 15.4 million votes. (17.6 million at 40%)

35% will account for the second smallest winning plurality votes following Fidel Ramos’ 23.58% (in 1992). It is much lower than President Joseph Estrada whom had 39.86%, GMA 39.99% and Benigno Aquino III 42.08%

If realized, the double digit margin will be the third largest following Joseph Estrada’s rout of Jose de Venecia 39.86%-15.87% (23.99% margin) and PNoy-Erap 42.08%-26.25% (or 15.83%).

These are the margins of the other post Marcos presidential elections: FVR-Defensor Santiago 23.58%-19.72% and GMA-FPJ 39.99%-36.51%

Ironically, 2016’s winning vote of 15.4 million will be marginally higher (+1.2%) than PNoy’s 15.21 million in the face of a 7.2% growth in registered voters (from 51.292 million to 55 million; 6.05% to be exact using the 2016’s 54.4 million)

Now to the 'none of the aboves'.

Total population for the Philippines as of 2015 was 102 million.

If we apply the same 60% distribution share of the population as voting age qualified, then we get 61.2 million of voting age population.

Deduct the 61.2 million from 55 million registered voters we generate 6.2 million (non registered voters)

So add the 11 million (registered voters who didn't vote) with 6.2 million (non registered voters) we get 17.2 million votes or 1.8 million in excess of the winning votes. 

Yes this means the REAL PLURALITY is with the NONE of the ABOVE votes, or the group of people whom chose NOT to vote for whatever reasons. 

It will take the winning candidate a 40% share of the 80% votes cast to surpass the silent plural minority

Incidentally, population grew by 10.4% in the span of 5 years (2015-2010) while registered voters grew by only 6.05%. This comes even as the nation's fertility rate has been on a steady decline which should mean that the 60% distribution share of the population as voting age qualified could most likely be on the low side. This implies that more people appear to be opting out of the voting process

At 15.4 million, the winning candidates actual share of the voting population will account for only 25%.

The takeaway: The gross distortion of the Philippine electoral process shows that 25% of the population will impose to the 100%, an externality or unseen costs of electing a wrong leader.

Worst, should the political economic path of the elected administration veer to the left, such externalities will be vented through the peso’s downfall. The unseen ramifications of which would translate to vastly increased political, economic, legal, institutional and social stability risks.

Those who cannot remember the past are condemned to repeat it—George Santayana

Wednesday, May 04, 2016

Phisix 7,080: 100% of Today's .5 Advance Courtesy of Team Viagra!!


I'm in a rush so I'll just show the charts

Team Viagra pumped 44.79 points or .64% to push the PSEi which was down by .14% at pre market intervention phase to suddenly up by .5% at the runoff to the close. So 100% + of today's gains courtesy of Team Viagra.

Some of the issues which were used in the pump. Sorry it's not complete.

In nowhere else do we see this kind of  brazen rigging of the stock markets, except in the Philippines.

The mindset that impels the above resonates with political sentiment.

Diagrams from PSE, Bloomberg, colfinancial and technistock




Why the Election Winner Through Plurality Votes Is Not the Preferred Candidate

Elections function as an outlet for regime change through peaceful means. 

Yet democratic elections are supposed to "represent" people's choice. This would be true under a majoritarian vote. But under a plurality vote setting, this would hardly be the case. Reason? The outcome would most likely be different under a two way runoff elections.

Using the Kenneth Arrow's impossiblity theorem as previously posted here, Professor Don Boudreaux at the Cafe Hayek writes to the expound on the theory
(bold mine)
It’s a common (and understandable) mistake to read a vote cast for candidate A as being only a vote for candidate A. But a vote cast for candidate A might well be – and in practice certainly often is – motivated more by opposition to candidate B than one motivated by enthusiasm for candidate A. If candidate A wins an outright majority, this reality creates no problem under the rules of majoritarian democracy, for even if all votes cast for candidates B, C, … N are motivated exclusively by utter hatred of candidate A rather than as enthusiasm or support for the candidates who received those votes, the fact remains that a majority of the voters prefer candidate A over all other available candidates. But if candidate A wins only a plurality and not a majority of the votes, then – as students of collective decision-making have long known – there is no good reason to declare the plurality vote-getter as the winner. Again, the reason is that the chances are high enough that those who voted for the other candidates did so more to keep A out of office than to install in office one of the candidates B, C, … N. And given Trump’s huge negatives, this possibility is even more likely with him than with more quotidian candidates who win only pluralities.

Put more succinctly (and ignoring the countless other flaws that infect all collective-decision-making processes), a candidate who wins a majority of the votes can at least be said to be preferred over any of the other candidates by most of the voters. The same cannot be said of a candidate who wins only a plurality. Most of the voters might well prefer above all to keep that candidate (A) out of office even if most of the voters have no clear preference for which of the other candidates (B, C, … N) is the best option in place of A.

Here’s an example of ten voters and four candidates (A, B, C, & D). The example follows the rules of the method that many U.S. states use to choose governors. That method is the “general election, runoff election.” The rules are simple. If a candidate wins a majority of votes in the general election, that candidate wins the election. But if no candidate wins a majority of the votes, the plurality winner is pitted in a runoff election against the candidate who got the second-highest percentage of the votes in the general election.

Each voter’s preference is shown below in descending order. For example, voter 1 prefers candidate A above all, and she prefers D to C and C to B.

In the general election, candidate A will win 40 percent of the votes; candidate B will win 30 percent; candidate C will win 20 percent; and candidate D – seemingly a fringe candidate – will win only 10 percent.

So in the runoff election candidate A is pitted against candidate B. (Candidates C and D are ousted from the race.) Below is the very same preference ordering, but with candidates C and D excluded.

B wins the runoff with 60 percent of the votes.

But, just for kicks, let’s see what happens if that fringe candidate D were to be pitted in a runoff election against B. Surely D would get trounced, right? Wrong. If you look at the first preference table above (the one with all the candidates included), you’ll find that 60 percent of the voters prefer candidate D over candidate B! You’ll find also that 60 percent of the voters prefer candidate D over candidate A. (And, to continue a bit further with the exercise: 70 percent of the voters prefer candidate D over candidate C; 60 percent of the voters prefer candidate C over candidate B – the ultimate winner of the election; and 60 percent of the voters prefer candidate C over candidate A – the plurality winner in the general election.)

The main point of the above exercise – which involves a perfectly reasonable representative example of reality – is to reveal that a candidate who wins a plurality of the votes but who does not win a majority of the votes in fact is not at all clearly the most preferred candidate of all the voters. Trump very well might be the real-world equivalent of candidate A in this example.

And the supposed 'angry votes' have been reinforcement signs that the popular sentiment have been more about the 'opposition to candidate B' (for Philippines, the incumbent) than about motivation by enthusiasm for candidate A!

Quote of the Day: 'Angry Votes' and Populism: Will History Rhyme?

A short breadth of the past political leadership: (bold mine)
With the demise of the Marcos regime, oligarchical democracy was quickly restored in the Philippines, with a new Constitution and congressional elections in 1987 returning established provincial landowning and business families and major Manila-based corporate interests to positions of control over both houses of Congress (and, after the 1988 local elections, mayoral and gubernatorial positions across the archipelago). A US backed counter-insurgency campaign, featuring aggressive military operations against the NPA and anti-communist vigilante mobilization against activist in urban and rural areas alike, helped to decimate the left, even as the restoration of electoral competition and turnover prompted a broader demobilization of extra-electoral political participation among the population at large. By 1992, when presidential elections were held, Aquino’s anointed candidate, (Ret.) General Fidel Ramos, won a narrow plurality, in large measure thanks to the advantages of the incumbent administration backing and business support. The elevation to the presidency of a long time senior military officer from Marcos years signaled strongly the enduring conservative constraints on democracy in the Philippines.

Yet the restoration of the oligarchical democracy in the Philippines has not gone unchallenged. The 1998 presidential elections saw the landslide victory of Joseph “Erap” Estrada, an action film star whose Partido ng Masa (Party of the Masses) campaign enjoyed tremendous popular support across the archipelago and was inflected by decidedly populist undertones. Once in office, Estrada proceeded to alienate the establishment business community, the conservative Catholic Church hierarchy, and “respectable” elements of the middle classes, with increasing media attention and growing street demonstrations focusing colorful stories of corruption and abuse of power, alcohol consumption and incoherent policymaking, philandering and favoritism in the allocation of the public posts, patronage and power. By late 2000, the House of Representatives voted to impeach Estrada, as Estrada’s allies in the Senate engaged in stalling and subterfuge to sabotage further judicial proceedings, “People Power” once again mobilized on the streets of Manila, with strong business and Catholic backing as in early 1986 (Hedman 2006). In January 2001, Estrada was forced out of the office, arrested, and imprisoned to face a range of corruption charges against him, even as his vice president, Gloria Macapagal Arroyo, was sworn in as his successor, winning a second, full year (six year) term in 2004 of office in the elections of 2004.
This is from the Routledge Handbook of Southeast Asian History p.124-125. There is a lot to comment from this insight but I’ll leave it as it is.

Tuesday, May 03, 2016

Doug Casey: Top 5 Reasons Not to Vote

I will be out for the entire week to flee from the drama and hysteria of the coming Philippine national elections where the results will most likely be what Savoyard philosopher, writer and diplomat Joseph de Maistre once sardonically described as "In a democracy, people get the leaders they deserve" or might I say "be careful of what you wish for"

But before doing so, let me share of the splendid top 5 reasons not to vote as propounded by one of my favorite libertarian philosophers, author and investment guru, Doug Casey. 

While Mr Casey addresses this to US voters, I think this applicable universally.


From Doug Casey (thanks to the International Man) [bold mine]


Democracy is vastly overrated.

It's not like the consensus of a bunch of friends agreeing to see the same movie. Most often, it boils down to a kinder and gentler variety of mob rule, dressed in a coat and tie. The essence of positive values like personal liberty, wealth, opportunity, fraternity, and equality lies not in democracy, but in free minds and free markets where government becomes trivial. Democracy focuses people's thoughts on politics, not production; on the collective, not on their own lives.

Although democracy is just one way to structure a state, the concept has reached cult status; unassailable as political dogma. It is, as economist Joseph Schumpeter observed, "a surrogate faith for intellectuals deprived of religion." Most of the founders of America were more concerned with liberty than democracy. Tocqueville saw democracy and liberty as almost polar opposites.

Democracy can work when everyone concerned knows one another, shares the same values and goals, and abhors any form of coercion. It is the natural way of accomplishing things among small groups.

But once belief in democracy becomes a political ideology, it's necessarily transformed into majority rule. And, at that point, the majority (or even a plurality, a minority, or an individual) can enforce their will on everyone else by claiming to represent the will of the people.

The only form of democracy that suits a free society is economic democracy in the laissez-faire form, where each person votes with his money for what he wants in the marketplace. Only then can every individual obtain what he wants without compromising the interests of any other person. That's the polar opposite of the "economic democracy" of socialist pundits who have twisted the term to mean the political allocation of wealth.

But many terms in politics wind up with inverted meanings. "Liberal" is certainly one of them.

The Spectrum of Politics

The terms liberal (left) and conservative (right) define the conventional political spectrum; the terms are floating abstractions with meanings that change with every politician.

In the 19th century, a liberal was someone who believed in free speech, social mobility, limited government, and strict property rights. The term has since been appropriated by those who, although sometimes still believing in limited free speech, always support strong government and weak property rights, and who see everyone as a member of a class or group.

Conservatives have always tended to believe in strong government and nation­alism. Bismarck and Metternich were archetypes. Today's conservatives are some­times seen as defenders of economic liberty and free markets, although that is mostly true only when those concepts are perceived to coincide with the interests of big business and economic nationalism.

Bracketing political beliefs on an illogical scale, running only from left to right, results in constrained thinking. It is as if science were still attempting to define the elements with air, earth, water, and fire.

Politics is the theory and practice of government. It concerns itself with how force should be applied in controlling people, which is to say, in restricting their freedom. It should be analyzed on that basis. Since freedom is indivisible, it makes little sense to compartmentalize it; but there are two basic types of freedom: social and economic.

According to the current usage, liberals tend to allow social freedom, but restrict economic freedom, while conservatives tend to restrict social freedom and allow economic freedom. An authoritarian (they now sometimes class them­selves as "middle-of-the-roaders") is one who believes both types of freedom should be restricted.

But what do you call someone who believes in both types of freedom? Unfortunately, something without a name may get overlooked or, if the name is only known to a few, it may be ignored as unimportant. That may explain why so few people know they are libertarians.

A useful chart of the political spectrum would look like this:


A libertarian believes that individuals have a right to do anything that doesn't impinge on the common-law rights of others, namely force or fraud. Libertarians are the human equivalent of the Gamma rat, which bears a little explanation.

Some years ago, scientists experimenting with rats categorized the vast major­ity of their subjects as Beta rats. These are basically followers who get the Alpha rats' leftovers. The Alpha rats establish territories, claim the choicest mates, and generally lord it over the Betas. This pretty well-corresponded with the way the researchers thought the world worked.

But they were surprised to find a third type of rat as well: the Gamma. This creature staked out a territory and chose the pick of the litter for a mate, like the Alpha, but didn't attempt to dominate the Betas. A go-along-get-along rat. A libertarian rat, if you will.

My guess, mixed with a dollop of hope, is that as society becomes more repressive, more Gamma people will tune in to the problem and drop out as a solution. No, they won't turn into middle-aged hippies practicing basket weaving and bead stringing in remote communes. Rather, they will structure their lives so that the government—which is to say taxes, regulations, and inflation—is a non-factor. Suppose they gave a war and nobody came? Suppose they gave an election and nobody voted, gave a tax and nobody paid, or imposed a regulation and nobody obeyed it?

Libertarian beliefs have a strong following among Americans, but the Liber­tarian Party has never gained much prominence, possibly because the type of people who might support it have better things to do with their time than vote. And if they believe in voting, they tend to feel they are "wasting" their vote on someone who can't win. But voting is itself another part of the problem.

None of the Above

Until 1992, when many decided not to run, at least 98% of incumbents typically retained office. That is a higher proportion than in the Su­preme Soviet of the defunct USSR, and a lower turnover rate than in Britain's hereditary House of Lords where people lose their seats only by dying.

The political system in the United States has, like all systems which grow old and large, become moribund and corrupt.

The conventional wisdom holds a decline in voter turnout is a sign of apathy. But it may also be a sign of a renaissance in personal responsibility. It could be people saying, "I won't be fooled again, and I won't lend power to them."

Politics has always been a way of redistributing wealth from those who produce to those who are politically favored. As H.L. Mencken observed, every election amounts to no more than an advance auction on stolen goods, a process few would support if they saw its true nature.

Protesters in the 1960s had their flaws, but they were quite correct when they said, "If you're not part of the solution, you're part of the problem." If politics is the problem, what is the solution? I have an answer that may appeal to you.

The first step in solving the problem is to stop actively encouraging it.

Many Americans have intuitively recognized that government is the problem and have stopped voting. There are at least five reasons many people do not vote:

1 Voting in a political election is unethical. The political process is one of institutionalized coercion and force. If you disapprove of those things, then you shouldn't participate in them, even indirectly.

2 Voting compromises your privacy. It gets your name in another government computer database.

3 Voting, as well as registering, entails hanging around government offices and dealing with petty bureaucrats. Most people can find something more enjoyable or productive to do with their time.

4 Voting encourages politicians. A vote against one candidate—a major, and quite understandable, reason why many people vote—is always interpreted as a vote for his opponent. And even though you may be voting for the lesser of two evils, the lesser of two evils is still evil. It amounts to giving the candidate a tacit mandate to impose his will on society.

5 Your vote doesn't count. Politicians like to say it counts because it is to their advantage to get everyone into a busybody mode. But, statistically, one vote in scores of millions makes no more difference than a single grain of sand on a beach. That's entirely apart from the fact that officials manifestly do what they want, not what you want, once they are in office.

Some of these thoughts may impress you as vaguely "unpatriotic"; that is certainly not my intention. But, unfortunately, America isn't the place it once was, either. The United States has evolved from the land of the free and the home of the brave to something more closely resembling the land of entitlements and the home of whining lawsuit filers.

The founding ideas of the country, which were highly libertarian, have been thoroughly distorted. What passes for tradition today is something against which the Founding Fathers would have led a second revolution.

This sorry, scary state of affairs is one reason some people emphasize the importance of joining the process, "working within the system" and "making your voice heard," to ensure that "the bad guys" don't get in. They seem to think that increasing the number of voters will improve the quality of their choices.

This argument compels many sincere people, who otherwise wouldn't dream of coercing their neighbors, to take part in the political process. But it only feeds power to people in politics and government, validating their existence and making them more powerful in the process.

Of course, everybody involved gets something out of it, psychologically if not monetarily. Politics gives people a sense of belonging to something bigger than themselves and so has special appeal for those who cannot find satisfaction within themselves.

We cluck in amazement at the enthusiasm shown at Hitler's giant rallies but figure what goes on here, today, is different. Well, it's never quite the same. But the mindless sloganeering, the cult of the personality, and a certainty of the masses that "their" candidate will kiss their personal lives and make them better are identical.

And even if the favored candidate doesn't help them, then at least he'll keep others from getting too much. Politics is the institutionalization of envy, a vice which proclaims "You've got something I want, and if I can't get one, I'll take yours. And if I can't have yours, I'll destroy it so you can't have it either." Participating in politics is an act of ethical bankruptcy.

The key to getting "rubes" (i.e., voters) to vote and "marks" (i.e., contribu­tors) to give is to talk in generalities while sounding specific and looking sincere and thoughtful, yet decisive. Vapid, venal party hacks can be shaped, like Silly Putty, into salable candidates. People like to kid themselves that they are voting for either "the man" or "the ideas." But few "ideas" are more than slogans artfully packaged to push the right buttons. Voting for "the man" doesn't help much either since these guys are more diligently programmed, posed, and rehearsed than any actor.

This is probably more true today than it's ever been since elections are now won on television, and television is not a forum for expressing complex ideas and philosophies. It lends itself to slogans and glib people who look and talk like game show hosts. People with really "new ideas" wouldn't dream of introducing them to politics because they know ideas can't be explained in 60 seconds.

I'm not intimating, incidentally, that people disinvolve themselves from their communities, social groups, or other voluntary organizations; just the opposite since those relationships are the lifeblood of society. But the political process, or government, is not synonymous with society or even complementary to it. Government is a dead hand on society.