Friday, June 24, 2016

The Position of Intellectuals: "You're All Stupid! We're Not, So We'll Tell You What to Do!"

You’re Stupid, So We Are Going to Take Away Your Freedom: [emphasis is mine]
In a country based on the principle of liberty, should we really contemplate depriving people of freedom because they sometimes don’t make choices experts think are best for them? My title really understates the liberty-depriving philosophy of the nanny state. More accurately, it is: Some people make what we think are bad choices, so we are going to deprive everyone of liberty.

I’m thinking about this after reading Harvard Professor John Y. Campbell’s article in the May 2016 issue of the American Economic Review titled “Restoring Rational Choice: The Challenge of Rational Consumer Regulation.” Campbell reviews several bad financial decisions consumers tend to make, such as not refinancing their mortgages when it is financially beneficial to do so, and ultimately concludes, “The complexity of twenty-first century financial arrangements poses a daunting challenge to households managing their financial affairs” so “household financial mistakes create a new rationale for intervention in the economy.” People make financial decisions that Professor Campbell thinks are mistakes, so he wants government to intervene.
Professor Campbell has lots of company here. People argue that government should restrict consumer’s choices of what drugs to take (both recreational and pharmaceutical), force them to pay for safety equipment on their cars that that, as it turns out, can explode and kill them, force them to participate in a government retirement program, and even limit their ability to buy sugary carbonated beverages. In all these cases, the argument is that left to their own devices, people make “bad” choices, so the government should intervene to force them to act more (to use Campbell’s term) rationally.

Freedom has no meaning if people are only free to make the choices government experts think are rational.
The arrogance of this view of the appropriate role of government is striking. Progressive thinking from people like Professor Campbell and Michael Bloomberg concludes that they can make better decisions for you than you could make yourself; therefore, they will force you to do what they think is best. But ultimately, it won’t be Campbell or Bloomberg who will make those decisions for you, it will be a group of politicians who are more looking out for their own political futures than your welfare. Does government really make better choices for people than they can make themselves?
Campbell’s conclusion that “household financial mistakes create a new rationale for government intervention in the economy” overlooks long-standing government interventions into household financial affairs. One only has to look at the Social Security program, established because people make the “mistake” of not saving enough for their retirements. That system currently gives taxpayers a lower rate of return on their payroll taxes than they could get if they invested in the stock market. In theory, people make mistakes; in practice, government intervention into household financial affairs leaves many of them worse off. And that’s without noting the projections that the system soon will be broke.

The nanny state’s premise that people should be deprived of their freedoms because they might make bad choices attacks the political philosophy upon which this nation was founded. If Campbell wants to spread the word that people are making what he views as financial mistakes, I’m all in favor of that. But it strikes at the ideals of the American Founders to suggest that people’s financial mistakes offer a new rationale for government intervention in the economy.
There are people who actually think this way and see absolutely nothing wrong with it.

Wisdom from Walter E. Williams

Sorry, have been behind in reposting these superb items from Walter E. Williams:

You Are What You Say You Are

Elitist Arrogance

Elitist Arrogance, Part II

Money Going to Washington

Purification of America







An Economics Classic: What’s So Bad about the Trade Deficit?

With a HT to Don Boudreaux, here is economist David Glasner's NYT essay, from 1984, on this absurd fear of a 'trade deficit',  What’s So Bad about the Trade Deficit?:
The Much Maligned Trade Gap

No economic statistic is reported more dolefully these days than the country’s trade balance.

Ever on the alert for signs of impending economic disaster, the press routinely couples reports of record monthly trade deficits with warnings of experts and Government officials of the dangers of the deficit.

Just what is so dangerous about receiving more goods from foreigners than we give them back is never actually explained, but it is often suggested that that it causes a loss of American jobs.

News reports sometimes even provide estimates of the number of jobs lost owing to every billion dollar increase in the trade deficit. Heaven only knows how these estimates are made, but presumably they are based on the assumption that imports deprive Americans of jobs they could have had producing domestic substitutes for the imports.

It almost seems tedious to do so, but it apparently still needs to be pointed out that buying less from foreigners means that they will buy less from us for the simple reason that they will have fewer dollars with which to purchase our products.

Thus, even if reducing imports increases employment in industries that compete with imports, it must also reduce employment in export industries.

Moreover, the notion that the trade deficit destroys domestic jobs is contradicted by the tendency of the deficit to increase during economic expansions and to decrease during contractions.

The demand for imports rises with income, so imports normally tend to rise faster than exports when a country expands more rapidly than its trading partners. The trade deficit is a symptom or rising employment — not the cause of rising unemployment.

That balance-of-trade figures are misunderstood and misused is not surprising, since their function has never been to inform or to enlighten. Their real purpose is to provide spurious statistical and pseudo-scientific support to groups seeking protectionist legislation. These groups try to cloak their appeals to protection with an invocation of the general interest in a favorable balance of trade.

Anyone who has ever thought about it has probably wondered why a country that gives up more goods in trade than it gets back is said to have a favorable balance of trade.

If you have ever wondered about it and couldn’t think of an answer, don’t worry, because you are in good company. Adam Smith couldn’t either. “Nothing,” Smith once observed, “can be more absurd than this whole doctrine of the balance of trade, upon which . . . almost all the . . . regulations of commerce are founded.”

The absurdity of the doctrine ought now to be manifest owing to the current international debt crisis. The crisis, as we all know, arose because large numbers of developing countries are apparently unable to make the scheduled payment on loans to American banks from which they borrowed.

It is, I believe, just about universally acknowledged that it would be a bad thing if the debtor countries failed to repay their loans.

The debtor countries would suffer because they would be less able to borrow in the future, and thus less able to import the products they need to take care of their populations and to promote development.

Creditor countries would also suffer because default would impose huge losses on the banks and their shareholders. And since such losses might undermine the domestic and international banking systems, they would undoubtedly be made up, at least in part, by the Government and the taxpayers.

Yet it is remarkable how little, even now, the relationship between the ability of the debtor countries to repay their debts and the size of the American trade deficit is understood. For everyone continues to rail against the trade deficit even though reducing it would make the default of the debtor countries all the more likely.

A simple example will help to explain why that is so.

Suppose I borrow money from you and promise to repay you next year. And, for simplicity, suppose that neither of us engages in transactions with third parties. Thus, I produce goods, some of which I consume myself and the rest of which I sell to you, and you produce goods, some of which you consumer and the rest of which you sell to me.

Now the reason that I am borrowing from you is that the value of the goods I want from you this year exceeds the value of what I am willing to sell you this year. But next year I shall have to sell you enough not only to cover what I buy from you, I shall have to sell you enough to earn the money with which to repay you.

Thus, to avoid default, I must run a trade surplus with you next year. And if you want to be repaid, you have to reconcile yourself to the idea of running a trade deficit, because repayment consists in, and is equivalent to, my trade surplus and your trade deficit.

The debtor nations are faced with default because they haven’t enough dollars to repay the banks from whom they have borrowed. Why not? Because their trade surplus with the United States — our trade deficit with them — is too small for them to earn the dollars they need for repayment.

How could they earn more dollars? 1. They could reduce their imports from us. 2. They could increase their exports to us. 3. They could borrow more dollars from us. 4. We could give them the dollars.

The first two options both imply an increase in our trade deficit. That sounds bad only if you ignore the alternatives. The third option might have some attraction if the debtor countries could repay their existing debts. But since they can’t even do that, further lending seems inadvisable.

The fourth option, it goes without saying, is the economic equivalent of default.

Those who insist that the United States trade deficit must be reduced had better think through the implications. They should ask themselves whether they really want to drive the debtor countries to the wall and whether they are prepared to absorb the losses associated with a default by the debtor countries just to stop American consumers from buying as much of the products of debtor countries as they want.

Allowing unrestricted access of those products into our markets would not necessarily prevent default, but maintaining or tightening restrictions can only increase the likelihood and the severity of an eventual default.

And at a more fundamental level, isn’t there something perverse in first lending to someone, and then, after having refused to accept payment, hauling him into court because he won’t pay his debts?

This Should Scare Us All: 66 Million Americans Have Zero Savings

I try very hard to not use the word "should", however, I have failed miserably today, as this truly scares the sh*t out of me!  The implications of this are terrifying to consider, but, we must: 66 Million Americans Have Zero Savings:


Around 28% of U.S. adults have saved “zero dollars” for an emergency, according to a survey released Tuesday of 1,000 U.S. adults by personal savings website Bankrate.com carried out by Princeton Survey Research Associates International, a polling firm. When extrapolated for the entire 234.6 million U.S. adult population, that’s equivalent to 66 million people. That’s down from 29% last year, but up from 24% in five years ago. Another 28% of adults have saved enough money to last six months, up from 22% from last year and a six-year high; 18% had some emergency savings, but not enough for six months. Generation Xers are in the worst position of all generations: 33% of 36- to 51-year-olds haven’t saved anything for an emergency.

Millions of Americans are struggling with student loans, medical bills and other debts, experts say, and although Central bankers hiked their short-term interest rate target last December to a range of 0.25% to 0.50% from near-zero, that’s still a small return for savings left in bank accounts. Many investors are behaving like another imminent rate hike is highly unlikely, MarketWatch columnist Jeff Reeves wrote this month. “Expenses grow faster than many Americans can save during the home-buying, family-raising years,” says Greg McBride, chief financial analyst at Bankrate.com. “Accumulating emergency savings requires establishing the habit.”

Several previous studies also point to Americans living on the edge, due to their seeming inability to save during a time of stagnant wages and rising house prices. Among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released in 2014. Of course, paltry savings-account rates don’t encourage people to save either. This is supported by a similar survey by Bankrate.com last year, which also found that 62% of Americans have no savings for things such as a $1,000 emergency room visit or a $500 car repair.

Members of Generation X, more than any older generation, say they feel more hopeless about their ability to achieve retirement goals and about their overall financial situation, a recent survey by Allianz Life Insurance of 2,000 Gen Xers (born between 1965 and 1980) and baby boomers (born between 1946 and 1964) who had a minimum household income of $30,000 a year. Rising home prices helped build wealth for those who bought homes before the year 2000. But in the mid-2000s, at the height of the property bubble, many in Generation X bought their first home just in time for the collapse of that market.

The Federal Reserve: The Central Bank of Elites

David Stockman at his best:

The Fed’s Third Mandate And The Destruction Of Honest Finance, Part 1



The Fed Has Whiffed Again—–Massive Monetary Stimulus Has Not Helped Labor, Part 1

The Fed Has Whiffed Again—–Massive Monetary Stimulus Has Not Helped Labor, Part 2

Orwell's Laughing

Sadly, most Americans likely don't know who George Orwell was, nor do they know one of his most famous works, 1984.  What's worse, is that these same Americans fail to understand how their rights are being taken away, all in the name of security.  Even worse than all this, is that so few understand the implications of a recent ruling by a federal district court in Virginia, which "... ruled that a criminal defendant has no “reasonable expectation of privacy” in his personal computer, located inside his home. According to the court, the federal government does not need a warrant to hack into an individual's computer."  It's so easy to get caught up in the notion that surrendering rights is a necessary sacrifice to make in order to become more secure.  Worse, is the notion that this surrender is fine because "I have nothing to hide" which is utter nonsense.  What follows is some truly, truly scary sh*t:  Federal Court: The Fourth Amendment Does Not Protect Your Home Computer:
In a dangerously flawed decision unsealed today, a federal district court in Virginia ruled that a criminal defendant has no “reasonable expectation of privacy” in his personal computer, located inside his home. According to the court, the federal government does not need a warrant to hack into an individual's computer.

This decision is the latest in, and perhaps the culmination of, a series of troubling decisions in prosecutions stemming from the FBI’s investigation of Playpen—a Tor hidden services site hosting child pornography. The FBI seized the server hosting the site in 2014, but continued to operate the site and serve malware to thousands of visitors that logged into the site. The malware located certain identifying information (e.g., MAC address, operating system, the computer’s “Host name”; etc) on the attacked computer and sent that information back to the FBI. There are hundreds of prosecutions, pending across the country, stemming from this investigation.

Courts overseeing these cases have struggled to apply traditional rules of criminal procedure and constitutional law to the technology at issue. Recognizing this, we've been participating as amicus to educate judges on the significant legal issues these cases present. In fact, EFF filed an amicus brief in this very case, arguing that the FBI’s investigation ran afoul of the Fourth Amendment. The brief, unfortunately, did not have the intended effect.

The implications for the decision, if upheld, are staggering: law enforcement would be free to remotely search and seize information from your computer, without a warrant, without probable cause, or without any suspicion at all. To say the least, the decision is bad news for privacy. But it's also incorrect as a matter of law, and we expect there is little chance it would hold up on appeal. (It also was not the central component of the judge's decision, which also diminishes the likelihood that it will become reliable precedent.)

But the decision underscores a broader trend in these cases: courts across the country, faced with unfamiliar technology and unsympathetic defendants, are issuing decisions that threaten everyone's rights. As hundreds of these cases work their way through the federal court system, we'll be keeping a careful eye on these decisions, developing resources to help educate the defense bar, and doing all we can to ensure that the Fourth Amendment's protections for our electronic devices aren't eroded further. We'll be writing more about these cases in the upcoming days, too, so be sure to check back in for an in-depth look at the of the legal issues in these cases, and the problems with the way the FBI handled its investigation.

Must Read: The Economic and Financial Endgame

If you are to read just one thing today, make it this superb piece from Alasdair MacLeod entitled The Endgame: [emphasis is mine. This piece just blows my f'ing mind]

There is a growing fear in financial and monetary circles that there is something deeply wrong with the global economy. Publicly, officials and practitioners alike have become confused by policy failures, and privately, occasionally even downright pessimistic, at a loss to see a statist solution. It is hardly exaggerating to say there is a growing feeling of impending doom.

The reason this has happened is that today’s macro-economists are a failure on the one subject about which they profess to be experts: economics. Their policy recommendations have become the opposite from what logic and sound economic theory shows is the true path to economic progress. Progress is not even on their list of objectives, which fortunately for us all happens despite their interventions. The adaptability of humans in their actions has allowed progress to continue, despite all attempts to discredit markets, the clearing centres for the division of labour.

Ill-founded beliefs in the magic of unsound money have been shattered on the altar of experience. Macro-economists are discovering that the failure of monetary and fiscal planning are becoming a policy cul-de-sac that has generated a legacy of unsustainable debt. Those of us aware of a gathering financial crisis are discovering that governments have tamed only the statistics and not what they represent.

There is evidence that central bank intervention began to irrevocably distort markets from 1981, when Paul Volker raised interest rates to halt the slide in the dollar’s purchasing power. It was at that point the free market relationship between the price level and the cost of borrowing changed, evidenced by the failure of Gibson’s paradox. That was the point when central banks wrested control of prices from the market. This is explained more fully below.

The errors have been multiple. In this article I explain how and why they have arisen. This knowledge is the necessary background for an understanding of how the financial and economic crisis that increasing numbers of us expect, is likely to develop, and what action we must take as individuals to protect ourselves.

Markets versus governments

The starting point for today’s errors is the belief that markets sometimes fail, and that monetary and/or fiscal policies can steer markets towards a better outcome. The modern incarnation of this myth started with JM Keynes, who by the mid-thirties believed he had enough cause to overturn Say’s law, or the law of the markets. So the roots of today’s crisis go deep, and originate long before Volcker’s interest rate hike in 1981.

Say’s law states that we produce to consume. Therefore, production is bound tightly to consumption, including deferred consumption, otherwise known as savings. And if someone consumes without producing, someone else has to produce the wherewithal. The medium of exchange that translates wages and profits arising from production into consumption is money, so we can say without contradiction that money represents the temporary storage of the profit from production, or ordinary people’s labour. It is an iron law, which invites trouble for any attempt to stimulate consumption.

There can be no net stimulation into the private sector economy by the state, because everything has to be paid for, one way or another. For simplicity, we will disregard cross-border government subsidies, such as foreign aid. When a government pays benefits to a group of individuals, it either borrows the money from someone else, or alternatively it creates the money out of thin air. In the latter case, the benefit payments are covered by the debasement of the existing money stock, which is a hidden tax on everyone else’s money. To argue otherwise, as do those who deny Say’s law, is a fallacy that relies on a concept of financial perpetual motion.

Keynes’s motivation was partly driven by his belief in the honest intentions of democratic government, and as we can glean from his writings, his emotional dislike of savers, the usurious rentiers who rake in interest without soiling their hands through honest work. In his General Theory, the first major work after Keynes was confident he had dispatched Say’s law to oblivion, he expressed his hope for the gradual euthanasia of the rentier, and that capital would be increased by communal saving through the agency of the State, so that it would no longer be scarce. The term, rentier, is itself a put-down in English, suggesting usurious lending. Keynes hoped that entrepreneurs, “who are certainly so fond of their craft that their labour could be obtained much cheaper than at present”, would be harnessed to the service of the community on reasonable terms of reward.

His General Theory is proof that Keynes despised markets, and did not understand prices (see Chapter 21). With his ignorance of this most fundamental element of economics and all the other half-truths that follow, the true purpose of this propaganda is revealed: the justification for state intervention and the end of free markets. It is a thoroughly bad book, yet it has become the bedrock of mainstream economics today, even for those who deny being Keynesians.

Upon this unsound basis, layer upon layer of further untruths have been built. When an economist conjures up a course of action based on these fairy-tales, the honest critic is at a loss where to start, because the thread of errors leading to the economist’s judgement has become so long and convoluted. Few are prepared to listen to a lengthy critique on this matter, so it is far easier for the layman and politician alike to assume that a scion of Oxford and Harvard must know what he is talking about.

It’s both the line of least resistance, and a cop-out. The language of modern economics takes us in so completely, we often don’t realise we ourselves perpetuate the mistakes. It is time for those who wish to understand the seriousness of these cumulative errors to draw a line, and to face up to them, because to not do so could be very expensive for those with assets to protect.

The root of the problem is in a misunderstanding of the nature of economics itself, and in the application of modern analytics.

The analytical mistake

The misuse of statistical information is a great evil, which has become increasingly prevalent over the years, taking a great leap forward in its destructive force with the development of computers. Computers are a wonderful facility, but they have come to replace soundly reasoned theory by advancing the role of inappropriate statistics, and their supposed mathematical relationships.

Mathematics is appropriate for the physical sciences, but wholly inappropriate for social sciences, such as economics. Maths has an important role in business: there is an essential role in book-keeping as a means of measuring any enterprise’s progress. But it is another thing entirely to attempt to banish the uncertainties inherent in future human action by mathematical means. A businessman who fails to distinguish between mathematics as an accounting tool and its lack of predictive value will not remain in business for long. Yet there is no limitation, seemingly, on the employment of mathematics in the less certain world of a national economy.

The mistakes, while subtle, are at least threefold.

Even if the capture of economic activity is total and correct at a past moment in time (which it never can be), it cannot be valid thereafter, because economic activity continually evolves. No economy statically churns on an unchanging basis. The information gathered by econometricians is not only incorrect thereafter, but it misleads state planners into believing they have the evidence to manage economic activity. Misused aggregates such as gross domestic product are just accounting identities, and not the measure of progress that so many believe.

Statistics are continually amended to show monetary and fiscal policies in the best possible light. Price inflation and unemployment numbers have evolved to the point where they do not reflect reality, yet because they are issued by a government department, they retain credibility. The result is the statistics have themselves been tamed, not what they represent.

Meaningless averages are routinely invoked as evidence to support state intervention and planning. Thus, the CPI’s “basket of goods”, and an “average wage” are not connected to reality and conceal the fact that economic actors are individuals with diverse needs and wants. Averages should not be used as analytical tools upon which to base monetary and fiscal policy.

It was George Canning, nearly two centuries ago, who said he could prove anything with statistics, except the truth. The attraction statistics confers for the slow-witted analyst is they avoid him having to apply original thought. It means he or she never feels the need to consider the underlying motivations of economic actors.

A good example of this error is contained in the Barsky and Summers attempt, published in The Journal of Political Economy in 1988, to explain Gibson’s paradox . Gibson’s paradox is the observed correlation between the price level and wholesale borrowing costs, and the lack of correlation between borrowing costs and the rate of inflation. The relationship came to an end in the late seventies in the UK, where it was statistically observed from 1730 onwards. Barsky & Summers incorrectly assumed it was a phenomenon of the gold standard, and then used a mathematical model of their devising to arrive at a partial conclusion, which they admitted would require further research. In other words, their method led them into a blind alley.

To be fair to Barsky and Summers, they are not the only high-flying economists who have failed to explain Gibson’s paradox. It was so named by Keynes after an earlier economist, and he also failed to resolve it. The evidence was plain and simple, but being unresolved Keynes simply dismissed it and its important implications as well. Milton Friedman also failed.

By putting myself in the shoes of an entrepreneurial businessman looking to finance his production, I found the paradox was easy to resolve and explain. The businessman’s calculation is comprised of the difference between his costs of production and the selling price for his product. What does he know of the prospective selling price? He knows what similar items sell for in the current market, and it is that that sets the level of interest he is prepared to pay to finance his production. That is why interest rates correlated with the price level, and not the rate of inflation, for the two hundred years in the original study by Alfred Gibson.

Unfortunately, this cuts across the cherished beliefs of monetary economists, who believe in the control of economic activity by managing interest rates and the expansion of the quantity of money and bank credit. For monetary policy to be valid, there must be a positive correlation between price inflation and interest rates, which Gibson’s paradox demonstrated was not true. I would also postulate that Keynes was not temperamentally inclined to understand the solution to Gibson’s paradox, because he cherished the belief that it is idle rentiers who demand usurious rates of interest and set them, not the borrower with his calculation of an investment return.

This is why it is vital to understand the motivations of economic actors, and to not hide behind the sterile world of ivory-tower mathematics. But we have become so used to statistical modelling, that even some followers of Say’s law are subverted. The confusion of accounting identities such as GDP with the indeterminate concept of economic growth is a case in point. And many are the times we read the writings of economists, who take dodgy statistics, and use them as the basis for an equation between disparate elements to create a relationship where none actually exists. You cannot say apples are pears, but you can say they are different. You can turn apples equals pears into an equation, if you introduce a factor that always represents the difference between the two. Nonsense, of course, but this is what economists routinely do.

A prime example is the fallacy of the velocity of money. The assumption is that a change in the quantity of money will change the level of prices. So, ∆m~∆p. But, it was found to the inconvenience of monetarists from David Ricardo onwards that prices p varied independently from the money quantity m, particularly in periods of less than an indeterminate long run. Therefore, the equation was modified to include another variable, dubbed the velocity of circulation to give it meaning, and it became the basis of Irving Fisher’s equation of exchange,

M*V=P*Q

where M is the total amount of money in circulation, V is its velocity of circulation, P is the price level, and Q is an index of final expenditures. Presented like this, we are drawn into believing that the concept of money going round and round the economy is a concept with meaning. It is not. It has no more meaning than the interposition of a variable to make an equation between apples and pears balance.

Not once does the monetary economist stop to think that everything an individual makes from his production, besides a necessary cash float, is consumed, either today or at some time in the future. What matters is not the size of an individual’s cash balance, but the profit from his labour. That is the Say’s law relationship, denied by the monetarist.

Ignorance in academic circles over price theory, which after all is the bedrock of economics, is staggering. It is as if Carl Menger, who convincingly proved the full subjectivity of prices back in the 1870s, never existed. This is despite the fact that for all of us the exchange of the fruits of our labour, in the form of money, for the things we individually decide we want, is our most important daily activity.

We also ignore the fact that there are two variables in any price, changes that emanate from the goods or services being exchanged, and that of money itself. We are all aware of changes that emanate from goods and services. But few of us are aware that changes can also emanate from the money side as well. There is a reason for this. The role of money, traditionally sound money, is for it to be taken for granted. It allows us to value diverse products, and to account for our own production. It acts as the objective exchange value in a transaction. However, the purchasing power of money is never a constant and continually varies, the more so when it is unsound. So, the default assumption that all price moves come from the goods and services being bought and sold, is incorrect.

In the old days of sound money, when gold was freely exchangeable for paper currency, price movement from the currency side was fairly minor, even over prolonged periods of time. But in today’s paradigm of fiat monetary debasement, the movement can be considerable. Consider a situation where personal preferences for holding currency a shift towards zero. The price of a good which does not move when measured in a stable currency b, will shift so that the price measured in currency a tends towards infinity. We recognise this phenomenon when talking about Zimbabwean dollars, or Venezuelan bolivars, but our minds refuse to admit to the same dynamics operating for the dollar and the other major currencies used by advanced westerners.

Changing values for the currency may not be noticed much day-to-day, but they do interfere with annual comparisons, because the currency’s purchasing-power last year differs from this year’s. Neither does the law recognise any variance in a fiat currency’s purchasing power, a fact which central banks exploit to the full.

Central banks print money, and they license the banks to loan credit into existence. By ignoring Say’s law, they think they can stimulate demand by cheapening and expanding credit. For a time, this trick fools people, but repeated often enough they begin to lose confidence in the currency and alter their preferences against holding it, so its purchasing power declines.

The rate at which an inflating currency’s purchasing power declines varies from product to product, depending where the increase is applied. Since the financial crisis of 2007/08, it has been obvious that prices of financial assets have seen the bulk of monetary inflation applied to them, and prices of bonds and other securities have risen accordingly. The prices of ordinary goods and services have risen considerably less, but it is arguable how much. The officially tamed CPI has consistently recorded price inflation to be well below the Fed’s target in recent years, yet independent calculations, such as the Chapwood Index, records price inflation at about 9%. We cannot take any of these averages too seriously for the reasons mentioned above, other than to observe that price rises on Main Street appear to be significantly higher than state-sponsored econometricians tell us.

The monetary link between prices and the quantity of money is tenuous at best, and takes no account of intertemporal factors, such as where monetary expansion is initially applied. There is little attempt to understand the implications of changing preferences for money relative to goods. It is easy to see why not only the evidence, but also sound economic reasoning, warns us that modern macroeconomists, in their desire to do away with the law of the markets, have led us to the brink of financial ruin. What is surprising is economies have survived this persistent meddling based on inappropriate information for so long, but that is explained by the extraordinary capacity of human action to adjust to and accommodate government intervention.

The Consequences

The endgame is now shaping up. Central banks have progressively tightened their grip on markets since Paul Volcker took control of markets by jacking up interest rates in 1981. It was at about that time Gibson’s paradox failed. The result is that debt-driven activity, encouraged by falling nominal interest rates, replaced the market-driven activity demonstrated by Gibson’s paradox over the previous 250 years.

There are limits to excessive debt, and financial analysts are about to find out that the old adage, markets always win out in the end, is still true. The dominant market risk is over-valued government bonds, from which all other financial asset valuations flow. Therefore, a large enough rise in government bond yields is likely to create a systemic crisis in the banking system, which depends on these assets for loan collateral. The most vulnerable banks are in the Eurozone, where bond markets are at their most over-priced, and the banks most highly geared.

When yields on government bonds rise above an as yet unknown level, central banks will have a decision to take. Are they prepared to support the entire financial system at the ultimate expense of their currencies, or do they preserve the currency? The choice has become that binary, and any fudging of this choice is unlikely to prolong the survival of the global financial system.

When things have become this delicate, anything from Greece’s debt negotiations, Italian banking insolvencies, trouble in the physical gold market, or even just a bad statistic somewhere can act as a trigger. Brexit would certainly undermine European cohesion with potentially destabilising results, which doubtless is why all the great and the good are imploring the British electorate to vote to remain in. So far, central banks have been deferring all these problems successfully, so it will probably take something else to trigger the endgame.

A likely culprit is the accumulating effect of monetary debasement on the finances of ordinary people. Monetary inflation transfers wealth from savers to debtors, debtors who then generally invest it inefficiently. Government spending, financed by high taxes, also destroys private wealth. Monetary inflation reduces the purchasing power of ordinary people’s wages as well, an effect which limits their ability to consume. Governments of advanced nations are simply running out of their citizens’ wealth.

The transfer of wealth through monetary inflation is the unrecorded burden borne by the ordinary person. There is little doubt that it has affected the GDP number, which so far has shown disappointing growth in the majority of advanced nations. However, it has held up sufficiently to fool mathematical economists that there is no crisis, only disappointing growth. It bears repeating that GDP is only an accounting identity, which is increased by monetary inflation. Any offset by a price inflation deflator tends to lag the statistic, and given government desires to suppress recorded inflation, is calculated inadequately. Indeed, if one accepts that price inflation is actually far higher than that indicated by official measures of price inflation, adjusted GDP estimates in real terms have been contracting in most advanced nations ever since the financial crisis.

The situation in Japan and the Eurozone is worse than in the US, and the destruction of private wealth has been more aggressive. The paradox is that temporarily, the yen and the euro are strong, but that is unlikely to last. The reason the yen and the euro are strong is that liquidity in the shadow banking system is being squeezed by central bank purchases of government bonds, leading to an increase in cash demand as positions financed in these currencies are unwound.

The legacy of monetary and credit expansion since the financial crisis has actually led to a greater overall preference for holding money relative to buying goods. This is reflected in the increase in the level of bank deposits and checking accounts, the counterpart to the expansion of bank credit. In the US alone, bank deposits and checking accounts have increased from $2.33 trillion in July 2008, just before the Lehman collapse, to $10.17 trillion today, an increase of 336%, compared with an increase in official GDP of only 22% for the whole period.

The accumulation of this money is in fickle hands, being for the most part financial. It is what used to be called hot money. Having pumped up these hot money totals, central banks have been trying to bottle them up as bank deposits, so that in aggregate, there is no escape route from zero and negative interest rates, and also in the hope that financial stability will be maintained during the implementation of further “extraordinary measures”.

This raises a question, which no one appears to have seriously considered: what happens, when bank depositors stop increasing their preference for money relative to goods or assets, and begin to reduce it instead? The only outcome can be an unexpectedly sharp increase in the prices of whatever goods and assets the money is exchanged for, because sellers of currency will by far outweigh the buyers. In the past there has always been an escape route for investors from this problem, such as exchanging Argentinian pesos for dollars. This time it is the dollar itself, with all the other major currencies tied to it.

It is already leading to a financial move into commodities and raw materials, which started last December. Some key commodities, most notably oil, have risen in price substantially as a result. Sellers of dollars so far have been foreign governments, particularly the Chinese, and speculative traders. But the conditions driving relative preferences against currencies seem set to accelerate. Core inflation in America is already above the Fed’s target, and almost certain to go higher, so unless the Fed starts to raise the Fed funds rate soon and significantly, the pace of the fall in purchasing power for the dollar will almost certainly increase. That binary choice, to save the system or the currency, is looming.

Unfortunately, both the damage earlier monetary policies inflicted on the masses’ wealth, as well as the encouragement to the accumulation of unproductive debt by both private and public sectors, have between them eliminated the central banks’ room for manoeuvre. The introduction of a trend of rising interest rates, however moderate, will undermine overvalued bond markets, in turn triggering a new wave of debt liquidation by weaker borrowers. These are financial stresses that the Eurozone banks are particularly ill equipped to survive. They are so poorly capitalised and over-exposed to outrageously expensive Eurozone government bonds, it cannot be denied they are already an alarming systemic risk, even without a rise in interest rates.

The difference between today’s impending financial crisis and the last one is that the last one drove the ordinary public away from the uncertainty of financial commitments into a preference for monetary liquidity. This time, low wage earners and small savers will probably react the same way, at least initially. But the wealthier savers and speculators now dominate the system. They have been accumulating deposits and checking account balances since 2008, and are exposed to bank counterparty risk, a point which they will quickly understand if things start sliding. Therefore, fiat currency held in the banking system is the one asset corporations, investors and the rich will most likely seek to ditch in the coming months. Their preferences will work against not only the dollar, but all other currencies as well.

In short, growing evidence of price inflation and stagnant production can be expected to materially increase the risk of a global banking and currency meltdown. The best escape-route is ownership of anything other than purely financial assets and fiat currency deposits. No wonder the price of gold, which is the soundest of moneys, appears to have entered a new bull market.

There IS a Difference

Amazes me to this day how many people think 'democracy' and 'republic' are one in the same thing!  So, here's a nice summary for those that don't read ...


Wednesday, June 22, 2016

So True

So, I found myself somewhat of an outcast last weekend when I paraphrased Milton Friedman's classic quote from his book, Capitalism and Freedom, on the entire idea of eliminating the government's licensing of various trades, aka occupational licensing, including the practice of medicine.  Here's the actual quote:
I am myself persuaded that medical licensure has reduced both the quantity and quality of medical practice; that it has reduced the opportunities available to people who would like to be physicians, forcing them to pursue occupations they regard as less attractive; that it has forced the public to pay more for less satisfactory medical service, and that it has retarded technological development both in medicine itself and in the organization of medical practice. I conclude that licensure should be eliminated as a requirement for the practice of medicine.
What I found interesting is that I recalled a time when the parents of a particular high-school senior were so angry at how hard it was for their daughter to get into a medical school (and rightly so may I add).  However, they (and their daughter) changed their positions after she was accepted and now the parents rail against how easy it is for others to get in, and, "they" only accept Asians!  This is a small, but classic example of protectionism and cronyism.  So, when I raised the fact that there are not enough doctors on purpose, it made some eyebrows go up, but, I went too far when I said there weren't enough medical schools, also on purpose, and that anyone who passes the exams (MCATs) should be allowed to get into a school.  Let the curriculum sort out those that can from those that can't, and don't let a quota system be what stops someone from at least pursuing their dream.  Needless to say, it didn't go over too well.  

I, Pencil

Economics 101 at its very best.  This is a classic, from Leonard Read.





HT, and, for more on "I, Pencil" see Mark J. Perry's Time to Revisit the Classic 1958 essay 'I, Pencil' by Leonard Read.

As Good An Explanation As Any For ...

... not voting.  Here's Don Boudreaux' Why I Do Not Vote:
I do not vote because I despise politics. I’ve never met a politician, or even heard of one, who I regard to be fit to rule my life or the lives of any other people. So I refuse to cast a ballot for any such person seeking power that I believe that no one should possess.
I am active in the world of ideas – teaching economics and sharing my opinion. That’s an activity that I choose, because I am a free man, to do. I choose not to participate in electoral politics because I believe that it is a fraudulent, corrupt, and corrupting affair that attracts as candidates – with exceptions too few to matter – no one whom I could in good conscience help to gain the power that he or she seeks.
Think I'll start using this one ...

Tuesday, June 21, 2016

Yes, It Is

I agree 100% with Ron Paul on this one - Orlando: The New 9/11?:

Last week America was rocked by the cold-blooded murder of 49 people at the Pulse nightclub in Orlando, Florida. Unlike the terrorist attacks of September 11, 2001, the Orlando shooter appears to be a lone gunman who, while claiming allegiance to ISIS, was not actually working with a terrorist group. About the only thing Orlando has in common with 9/11 is the way power-hungry politicians and federal officials wasted no time using it to justify expanding government and restricting liberty.

Immediately following the shooting, we began to hear renewed calls for increased government surveillance of Muslims, including spying on Muslim religious services. Although the Orlando shooter was born in the US, some are using the shooting to renew the debate over Muslim immigration. While the government certainly should prevent terrorists from entering the country, singling out individuals for government surveillance and other violations of their rights because of religious faith violates the First Amendment and establishes a dangerous precedent that will be used against other groups. In addition, scapegoating all Muslims because of the act of one deranged individual strengthens groups like ISIS by making it appear that the US government is at war with Islam.

The Orlando shooting is being used to justify mass surveillance and warrantless wiretapping. For the past three years, the House of Representatives passed an amendment to the Defense Department appropriations bill limiting mass surveillance. But, last week, the same amendment was voted down. The only difference between this year’s debate and previous debates was that this year defenders of the surveillance state were able to claim that the Orlando shooting justifies shredding the Fourth Amendment.

The fact that the Orlando shooter had twice been investigated by the FBI shows that increased surveillance and wiretapping would not have prevented the shooting. Mass surveillance also creates a “needle in a haystack” problem that can make it difficult, or impossible, for law enforcement to identify real threats. Unfortunately, evidence that giving up liberty does not increase security has never deterred those who spread fear to gain support for increased government power.

The Orlando shooter successfully passed several background checks and was a licensed security guard. But, just like those who used Orlando to defend unconstitutional surveillance, authoritarian supporters of gun control are not allowing facts to stand in the way of using the Orlando shooting to advance their agenda. Second Amendment opponents are using Orlando to give the federal government new powers to violate individuals’ rights without due process. One pro-gun control senator actually said that “due process is what’s killing us.”

Ironically, if not surprisingly, one of those calling for new gun control laws is Hillary Clinton. When she was sectary of state, Clinton supported interventions in the Middle East that resulted in ISIS obtaining firearms paid for by US taxpayers!

Mass surveillance, gun control, and other restrictions on our liberty will not prevent future Orlandos. In fact, by preventing law-abiding Americans from defending themselves, gun control laws make us less safe from criminals. Similarly, mass surveillance and warrantless wiretapping erode our rights while making it more difficult for law enforcement to identify real threats.

If Congress really cared about our security and liberty, it would repeal all federal gun laws, end all unconstitutional surveillance, and end the hyper-interventionist foreign policy that causes many around the world to resent the US.

What, You're Surprised To Learn ...

.... the FBI has Millions of Our Photos in a Facial Recognition Database?!  Really?

Thursday, June 16, 2016

The War Clouds Gather

Straight out of the government playbook! NATO Says It Might Now Have Grounds To Attack Russia.
To think there are people, in high places, with WMDs at their disposal that actually think this and worse, they believe they represent the will of the people they purportedly "defend".

Tuesday, May 31, 2016

Sunday, May 22, 2016

They Should, But They Won't, Cause After All, They are THEY

Congress Should Subpoena White House Advisor Ben Rhodes by Andrew Napolitano:

Here is a quick pop quiz. What happens if we lie to the government? What happens if the government lies to us? Does it matter who does the lying?

Last year, the Obama administration negotiated an agreement with the government of Iran permitting Iran to obtain certain materials for the construction of nuclear facilities. It also permitted the release of tens of billions of dollars in Iranian assets that had been held in U.S. banks and that the courts had frozen, and it lifted trade sanctions. In exchange, certain inspections of Iranian nuclear facilities can occur under certain circumstances.
During the course of the negotiations, many critics made many allegations about whether the Obama administration was telling the truth to Congress and to the American people.
Was there a secret side deal? The administration said no. Were we really negotiating with moderates in the Iranian government, as opposed to the hard-liners depicted in the American media? The administration said yes. Can U.N. or U.S. inspectors examine Iranian nuclear facilities without notice and at any time? The administration said yes.
It appears that this deal is an executive agreement between President Barack Obama and whatever faction he believes is running the government of Iran. That means that it will expire if not renewed at noon on Jan. 20, 2017, when the president's term ends.
It is not a treaty, because it was not ratified by a two-thirds vote of the Senate, which the Constitution requires for treaties. Yet the Obama administration cut a deal with the Republican congressional leadership, unknown to the Constitution and unheard of in the modern era. That deal provided that the agreement would be valid unless two-thirds of those voting in both houses of Congress objected. They didn't.
Then last week, the president's deputy national security advisor for strategic communications, Ben Rhodes, who managed the negotiations with Iran, told The New York Times that he lied when he spoke to Congress and the press about the very issues critics were complaining about. He defended his lies as necessary to dull irrational congressional fears of the Iranian government.
I am not addressing the merits of the deal, though I think that the more Iran is re-accepted into the culture of civilized nations the more economic freedom will come about for Iranians. And where there is economic freedom, personal liberties cannot be far behind.
I am addressing the issue of lying. Rhodes' interview set off a firestorm of criticism and "I told you so" critiques in Capitol Hill, and the House Oversight and Government Reform Committee summoned him to explain his behavior. It wanted to know whether he told the truth to Congress and the public during the negotiations or whether he told the truth to The New York Times last week.
He apparently dreads answering that question, so he refused to appear and testify. One wonders how serious this congressional committee is, because it merely requested Rhodes' appearance; it did not subpoena him. A congressional subpoena has the force of law and requires either compliance or interference by a federal court. Rhodes' stated reason for not testifying is a claim of privilege.
What is a privilege? It is the ability under the law to hide the truth in order to preserve open communications. It is a judgment by lawmakers and judges that in certain narrowly defined circumstances, freedom of communication is a greater good than exposing the truth.
Hence the attorney/client and priest/penitent and physician/patient privileges have been written into the law so that people can freely tell their lawyers, priests and doctors what they need to tell them without fear that they will repeat what they have heard.
Executive privilege is the ability of the president and his aides to withhold from anyone testimony and documents that reflect military, diplomatic or sensitive national security secrets. This is the privilege that Rhodes has claimed.
Yet the defect in Rhodes' claim of privilege here is that he has waived it by speaking about the Iranian negotiations to The New York Times. Waiver — the knowing and intentional giving up of a privilege or a right — defeats the claim of privilege.
Thus, by speaking to the Times, Rhodes has admitted that the subject of his conversation — the Iranian negotiations — is not privileged. One cannot selectively assert executive privilege. Items are either privileged or  not, and a privilege, once voluntarily lifted, cannot thereafter successfully be asserted.
The House Oversight and Government Reform Committee should subpoena Rhodes, as well as the Times reporter to whom he spoke, to determine where the truth lies.
It is a crime to lie to the government when communicating to it in an official manner. Just ask Martha Stewart. One cannot lawfully lie under oath or when signing a document one is sending to the government or when answering questions from government agents. Just ask Roger Clemens. Stated differently, if Rhodes told the FBI either what he told Congress or what he told The New York Times — whichever version was untrue — he would be exposed to indictment.
Ben Rhodes is one of the president's closest advisers. They often work together on a several-times-a-day basis. Could he have lied about this Iranian deal without the president's knowing it?
Does anyone care any longer that the government lies to the American people with impunity and prosecutes people when it thinks they have lied to it? Does the government work for us, or do we work for the government?

Back Into the Valley Of Death

Sure, why not go back to a place this country mucked up a few times already?  U.S. Could Deploy Forces in Libya 'Any Day,' Joint Chiefs of Staff Chairman Says

When They Murdered JFK

Paul Craig Roberts says it all about JFK in When They Killed JFK They Killed America:

In the JFK administration I was a White House Fellow. In those days it was a much larger program than the small insider program it later became. President Kennedy’s intention was to involve many young Americans in government in order to keep idealism alive as a counter to the material interests of lobby groups. I don’t know if the program still exists. If it does, the idealism that was its purpose is long gone.

President John F. Kennedy was a classy president. In my lifetime there has not been another like him. Indeed, today he would be impossible.

Conservatives and Republicans did not like him, because he was thoughtful. Their favorite weapon against him was their account of his love life, which according to them involved Mafia molls and Marilyn Monroe. They must have worked themselves into fits of envy over Marilyn Monroe, the hottest woman of her time.

Unlike most presidents, Kennedy was able to break with the conventional thinking of the time.
From his experience with the Bay of Pigs, Cuban Missile Crisis, and the Joint Chiefs’ “Operaton Northwoods,” Kennedy concluded that CIA Director Allen Dulles and Chairman of the Joint Chiefs of Staff General Lemnitzer were both crazed by anti-communism and were a danger to Americans and the world.

Kennedy removed Dulles as CIA director, and he removed Lemnitzer as Chairman of the Joint Chiefs, thus setting in motion his own assassination. The CIA, the Joint Chiefs, and the Secret Service concluded that JFK was “soft on communism.” So did the Bill Buckley conservatives.

JFK was assassinated because of anti-communist hysteria in the military and security agencies.
The Warren Commission was well aware of this. The coverup was necessary because America was locked into a Cold War with the Soviet Union. To put US military, CIA, and Secret Service personnel on trial for murdering the President of the United States would have shaken the confidence of the American people in their own government.

Oswald had nothing whatsoever to do with JFK’s assassination. That is why Oswald was himself assassinated inside the Dallas jail before he could be questioned.

For those of you too young to have experienced John Kennedy and those of you who have forgot his greatness, do yourselves a favor and listen to this 5 minute, 23 second speech. Try
to imagine anyone among the current dolts giving a speech like this. Look how much is said so well in less than 5 and one-half minutes.

Kennedy intended to pull the US out of Vietnam once he was reelected. He intended to break up the CIA “into one thousand pieces” and curtail the military-security complex that was exploiting the US budget.

And that is why he was murdered. The evil that resides in Washington does not only kill foreign leaders who try to do the right thing, but also its own.


Quote of the Day

"No one ever heard of the truth being enforced by law. Whenever the secular arm is called in to sustain an idea, whether new or old, it is always a bad idea, and not infrequently it is downright idiotic." - H.L. Mencken

Friday, May 20, 2016

Socialism: Yeah, It Works ...

"It's Pure Chaos Now; There Is No Way Back" - Venezuela Hits Rock Bottom As Its Morgues Overflow.  It continues to amaze me that people still think socialism works.  Then again, after reading Thomas Sowell's Intellectuals and Society, I understand why: when either socialism or communism fails, there's always another set of intellectuals who believe the failure came about as a result of poor leadership and that they can, and will, do better when they're in charge.

More from that utopian paradise known as Venezuela: Venezuela Calls for Patriotism as It Plans to Ration Electricity.  'Cause you know, socialism works!  People, just remember, when politicians call for patriotism, hold onto your wallet and for those of military age, hold onto your life.

Of course, things are so great in the socialist paradise of Venezuela that now has five day weekends for public workers!

"All animals are equal, but some are more equal than others!" Rule of Law Collapses in Venezuela As Maduro Continues to Push Socialist Agenda.  Of course he can push it: he's protected from the devastation he's causing.  But that will change .... and soon ...

It Certainly Is Too ...

It’s legacy-burnishing time at the Obama White House, the New York Times reports, and the administration plans to make the president available for “articles that will allow Mr. Obama to showcase his major achievements.” In this brief interlude before the national party conventions rivet our attention on the fresh horrors to come, ’tis the season for “exit interviews” and think pieces about our 44th president’s place in history.

The Washington Post recently debuted a hagiographic “Virtual Museum” of Obama’s tenure, accompanied by “The Content of His Presidency,” a 3,000-word chin-puller by Obama biographer David Maraniss.

Maraniss writes that as an undergraduate, Obama developed “an intense sense of mission … sometimes bordering messianic,” and by the time he had the Oval Office in his sights, Obama had decided “his mission was to leave a legacy as a president of consequence.” Has he done that? Maraniss’s timid, triple-hedged answer is: “it is now becoming increasingly possible to argue that he has neared his goal.”

Seven years in, it’s clear that Obama has forged a legacy of enormous consequence. But the most transformational aspect of his presidency is something liberals never hoped for: as president, Barack Obama’s most far-reaching achievement has been to strip out any remaining legal limits on the president’s power to wage war.

Obama’s predecessor insisted that he didn’t need approval from Congress to launch a war; yet in the two major wars he fought, George W. Bush secured congressional authorization anyway. By the time Obama hit the dais at Oslo to accept the Nobel Peace Prize in 2009, our 44th president had already launched more drone strikes than “43” carried out during two full terms. Since then, he’s launched two undeclared wars, and—as Obama bragged in a speech last year defending the Iran deal—bombed no fewer than seven countries.

In 2011, what officials called “kinetic military action” in Libya completed the evisceration of the War Powers Resolution by successfully advancing the theory that if the U.S. bombs a country that can’t hit back, we’re not engaged in “hostilities” against them. In the drone campaign and the current war with ISIS, Obama has turned a 14-year-old congressional resolution targeting al-Qaeda and the Taliban into a blank check for endless war, anywhere in the world. Last year, the army chief of staff affirmed that finishing the fight against ISIS will take another “10 to 20 years.”

The issue that first animated Obama as an undergraduate was “the relentless, often silent spread of militarism in the country,” as he wrote in an article for the Columbia University Sundial as a college senior in 1983. In “Breaking the War Mentality,” Obama worried that the public’s distance from the costs of war made resisting it “a difficult task,” but a vital one of “shifting America off the dead-end track” and undoing “the twisted logic of which we are today a part.”

“It was his first expression of his views on any foreign policy subject,” James Mann writes in The Obamians, his 2012 account of national security decision-making in the Obama administration. “And years later, his aides felt it was deeply felt and lasting.”

Yet, as president, instead of “breaking the war mentality,” Obama has institutionalized it.

Will history judge Obama harshly because of that? Probably not. When it comes to presidential legacies, history has lousy judgment.

With the exception of Lyndon Johnson, whose presidential standing has suffered because of Vietnam, waging war rarely hurts a president’s historical reputation. In fact, it usually helps.

Obama needn’t fret too much about getting short shrift from historians. Not only has he been the sort of warrior president too many of them love, but by relentlessly expanding presidential war powers, he’s also empowered the presidents to come.

It Certainly Is ...

An article about Hillary Clinton’s foreign policy instincts in last week’s New York Times Magazine (“How Hillary Clinton Became a Hawk”) escaped widespread discussion on account of the New York and other Acela primaries last Tuesday. It deserves a second look in light of Clinton and Donald Trump’s resounding victories, and Trump’s foreign policy speech last week. Clinton is, according to the Times’ Mark Landler, “the last true hawk left in the race.” Why might that be?

Landler framed much of his analysis as a contrast between Barack Obama’s relative restraint vs. Hillary Clinton’s relative activism. He also emphasized the close ties that Clinton has cultivated with certain senior military officers, but especially those who affirm her faith in the military as an instrument of policy.

Clinton has, according to Landler, an “appetite for military engagement abroad” that far exceeds her few remaining GOP rivals, and that even surprised Defense Secretary Robert Gates and senior military officers during Obama’s first term. She was “a little more eager than they are,” explained Bruce Reidel, a long-time foreign policy hand, to get involved militarily around the world.

Clinton’s enthusiasm for military intervention was not shaken by the foreign policy debacles of the recent past. When consulting military officers for advice, she gravitated toward those urging the use of force and shied away from those who raised concerns.

For example, Clinton first met Gen. Buster Hagenbeck in October 2001, when he was the commander of the Army’s 10th Mountain Division based in upstate New York. The following year, he warned her that Bush’s plan to invade Iraq would be “like kicking over a bee’s nest.” Clinton didn’t listen, casting a vote in favor of the war that has haunted her ever since. She was similarly dismissive of former Army general Karl Eikenberry, who, as U.S. ambassador to Afghanistan in 2009, warned against a surge of U.S. troops there. Clinton also disliked Douglas Lute, another former general, who clashed often with Clinton confidante Richard Holbrooke over policy concerning Afghanistan and Pakistan.

Clinton preferred the counsel of men like David Petraeus and Jack Keane, “perhaps the greatest single influence on the way Hillary Clinton thinks about military issues.” Keane had tried but failed to convince Sen. Clinton of the need for a troop surge in Iraq in 2007. She later confided to Keane that he had been right about the surge, and she had been wrong.

They continued to confer regularly, and in 2009 she crucially influenced the debate over the Afghan surge. By wholeheartedly embracing Gen. Stanley McChrystal’s call for 40,000 additional troops, she “made it harder,” Landler writes, “for Obama to choose a lesser option.” “Hillary was adamant in her support for what Stan asked for,” Gates recalled. “She was, in a way, tougher on the numbers in the surge than I was.”

And that wasn’t the only time. In other foreign policy debates within the Obama administration— from leaving troops in Iraq after 2011, to arming anti-Assad rebels in the Syrian civil war, to extracting concessions from Russia as part of the vaunted reset (“I’m not giving up anything for nothing,” she said)—Clinton consistently adopted a hawkish line.

We know from other sources that Gates had grown tired of Clinton’s bellicosity by 2011. When she was pushing for action in Libya to overthrow Muammar Qaddafi, the then-Secretary of Defense complained that the military’s plate was already quite full. “Can I finish the two wars I’m already in before you guys go looking for a third one?” he recalled asking. The public, then and since, has seemed no more enthusiastic for starting new wars than Gates. But Clinton retains her interventionist biases.

In December 2015, Jake Sullivan, Clinton’s top foreign policy adviser, confided to Landler “There’s no doubt that Hillary Clinton’s more muscular brand of American foreign policy is better matched to 2016 than it was to 2008”; by February 2016, that claim seemed dubious, at best. An uptick in public support for the use of U.S. ground troops against ISIS had briefly spiked after the terrorist attacks in Paris and San Bernardino, but proved short-lived. Bernie Sanders’s repeated attacks on Clinton’s foreign policy views have earned the septuagenarian very strong support from millennials, the most war-averse generation in recent U.S. history.

Trump has gotten into the game, too. He declared last week that “the legacy of the Obama-Clinton interventions will be weakness, confusion and disarray.” In short, “a mess.” He’ll have many more opportunities to make that case over the next several months, but he’ll struggle to articulate a coherent worldview that can reliably be called less hawkish than Clinton’s. After all, while Trump scoffs at nation-building wars, or wars to implant Western-style democracy, his generally bellicose nature, enthusiasm for fights over trade, and chauvinistic nationalism, could lead him to stumble into foolish conflicts. If he did, his rhetoric during the course of this campaign suggests that he’d be anything but restrained as commander-in-chief.

Still, Trump has singled out the American foreign policy establishment for criticism. Elites are more inclined toward global activism than the public at large, and Hillary Clinton is more activist even than the establishment. That means that if Clinton wins in November, she will have been elected in spite of her foreign policy views, not because of them.

Elected officials tend not to parse voter sentiment so closely, however. If Clinton defeats a candidate who scorned her interventionist instincts, expect her to claim an electoral mandate to do more, in more places, than her predecessor. Expect her to generally lean toward acting abroad when others counsel caution, and to forcefully make the case for war when she meets public resistance. And expect the members of the foreign policy establishment to cheer her on.

Agreed! And Start With Every Base Outside America's Borders First

Couldn't agree more with Chris Preble on this latest, We Desperately Need to Close More Military Bases, however, while I certainly want to address those bases here in the U.S., what I really want closed first are all those bases outside America's own borders. 
Congress is poised to yet again deny the Pentagon’s request to reduce its excess overhead. Last month, Deputy Secretary of Defense Robert Work wrote the leaders of the relevant congressional committees making the case for a round of military base closures (also known as BRAC—Base Realignment and Closure). It was the fifth time that the Pentagon has asked Congress to approve another BRAC, the last of which occurred in 2005. Rep. Mac Thornberry (R-TX), the chairman of the House Armed Services Committee, was quick with an answer: no. The National Defense Authorization passed out of his committee late last month bans another BRAC. The versions under consideration on the Senate side would as well. Sen. Kelly Ayotte (R-NH), chair of the SASC’s Readiness subcommittee, explained ”I do not want to give the department the open-ended authority to pursue another BRAC round that will incur significant upfront costs.”

For his part, Thornberry dismissed the Pentagon’s claim that another BRAC was needed, saying that he was “interested in objective data that leads them to think there is too much infrastructure.” But, as the AP’s Robert Burns noted, “The data is fairly clear, even if Thornberry doesn’t believe it is objective.”

In a thoroughgoing review, the first of its kind in twelve years, the Pentagon concluded that the military will have twenty-two percent excess capacity as of 2019. The Army will be carrying the greatest excess overhead—thirty-three percent according to the DoD study—while the Air Force will have a thirty-two percent surplus. The Navy and Marine Corps combined will have seven percent surplus in 2019. These projections are not based primarily on expectations of a much smaller force. For example, the Pentagon estimates that the Army will have only one fewer active brigade combat team, and one fewer reserve brigade combat team (BCT), in 2019 than in 2016, while the Navy will have eighteen more ships, and the Air Force will have 47 more aircraft. Combined active duty and reserve end strength, meanwhile, will decline by a mere two percent between now and 2019 (from 2.09 to 1.97 million), with the Army accounting for more than eighty-three percent of the decline. Even if Congress or the next administration succeeds in slowing or reversing proposed personnel cuts, the Pentagon will still be saddled with considerable excess capacity well into the 2020s.

“Absent another BRAC round,” the report explained, “the Department will continue to operate some of its installations suboptimally as other efficiency measures, changing force structure, and technology reduce the number of missions and personnel.” Calling the BRAC process “the fairest approach for working with Congress and local elected officials to close installations,” the DoD noted that the alternative of “incremental reductions” “will have an economic impact on local communities without giving them the ability to plan effectively for the change.”

Work echoed these sentiments in his cover letter to congressional leaders:
Under current fiscal restraints, local communities will experience economic impacts regardless of a congressional decision regarding BRAC authorization. This has the harmful and unintended consequence of forcing the Military Departments to consider cuts at all installations, without regard to military value. A better alternative is to close or realign installations with the lowest military value. Without BRAC, local communities’ ability to plan and adapt to these changes is less robust and offers fewer protections than under BRAC law.
This is certainly correct, as I wrote last year. Work and other advocates for another BRAC round must not limit themselves to green-eyeshade talk of cost savings and greater efficiency. They must also show how former defense sites don’t all become vast, barren wastelands devoid of jobs and people.

This is actually rather easy to do. Most former military bases are converted to other uses, and some quite quickly. This is true for several of the cases that I’ve studied over the past five years, including Bergstrom Air Force Base in Austin, Texas; the Brunswick Naval Air Station in Maine; the Philadelphia Navy Yard; and Pease Air Force Base in Portsmouth, New Hampshire. Some of these stories are told in this edited volume, due out next month. The communities in and around these former defense facilities were blessed by favorable locations, but active community involvement substantially eased the transition.

Keep this in mind when you hear Ayotte and Thornberry and their colleagues solemnly proclaim their great concern for protecting the economic well-being of nearby defense communities. By blocking base closures, they are saddling the military with unnecessary costs, and preventing local communities from accessing potentially valuable land and infrastructure.

Creeping? Damn Ted, It's Been On a Friggin' Rampage for Decades!!

Ted Galen Carpenter nails it in his latest, The Creeping Militarization of American Culture:
In his 1961 farewell address, President Dwight D. Eisenhower warned of the growing influence of the “military-industrial complex” on American politics and policy.Interestingly, Eisenhower’s original formulation of the menace was the even more accurate “military-industrial-congressional complex.” (Emphasis added). Seeing how that network of special interests has worked its tentacles into so many aspects of American political and economic life in the intervening decades indicates just how prescient was Eisenhower’s warning.

But there has been an even more subtle and pervasive militarization of American culture. It has been evident since World War II, but it has been accelerating markedly in recent years. Perhaps the most corrosive domestic effect of the global interventionist foreign policy that Washington adopted after World War II has been on national attitudes. Americans have come to accept intrusions in the name of “national security” that they would have strongly resisted in previous decades. The various provisions of the Patriot Act and the surveillance regime and its abuses epitomized by the NSA are a case in point.

The trend toward a more intrusive, militaristic state has become decidedly more pronounced since the September 11 attacks and the government’s response, but there were unmistakable signs even before that terrible day. My colleagues at the Cato Institute have done an excellent job documenting the gradual militarization of America’s police forces, beginning in the 1980s, with the proliferation of SWAT teams and the equipping of police units with ever more lethal military hardware.The terrorism threat simply provides the latest, most convenient justification to intensify a trend that was already well underway. Most SWAT raids in fact have nothing to do with terrorism; they are used to serve search or arrest warrants in low-level drug cases.

Politicians learned early that the fastest way to overcome opposition to a pet initiative was to portray it as essential to national security. Thus, the statute that first involved the federal government in elementary and secondary education in the 1950s was fashioned the National Defense Education Act. Similarly, the legislation establishing the interstate highway system was officially the National Defense Highway Act. In retrospect, President George W. Bush probably missed an opportunity when he did not label his legislation for a Medicare prescription drug benefit the National Defense Elderly Care Act.

And then there is the overall militarization of language. The rise of America’s imperial era coincides with the popular use of the “war” metaphor. In recent decades, we’ve had “wars” on everything from cancer to poverty to illiteracy to obesity. And, of course, we still have the ever present war on illegal drugs that Richard Nixon declared more than four decades ago. Language matters, and the fondness for such rhetoric is a revealing and disturbing indicator of just how deeply the garrison state mentality has become embedded in American culture.

Yet another sign is the growing tendency to misapply the term “commander-in-chief.” The Constitution makes it clear that the president is commander-in-chiefof the armed forces. There were two reasons for that provision. One was to assure undisputed civilian control of the military. The other was to prevent congressional interference with the chain of command.

One thing, however, is abundantly clear. The Constitution did not make the president commander-in-chief of the country. Unfortunately, that is a distinction that is increasingly lost on politicians, pundits, and ordinary Americans The notion that the president is a national commander who can direct the country and it is our obligation as subordinates to salute and follow his lead is an alien and profoundly un-American concept. It also implicitly ratifies the perverse doctrine of the imperial presidency—that the president alone (our commander-in-chief) gets to decide when the nation goes to war. Both are thoroughly unconstitutional, ahistorical, and unhealthy attitudes. Yet they have become common, if not dominant, attitudes in late twentieth century and early twenty-first century America. And that is frightening. Viewing the president as the commander-in-chief of the nation is the epitome of a mentally militarized society.

At the dawn of the Cold War, social commentator Garet Garrett warned that America could not indefinitely remain a republic at home, enjoying the values of limited government and robust civil liberties, while taking on more and more trappings of empire abroad. Gradually, he predicted, the requirements of the latter would drastically alter and eventually eclipse the former. As in the case of Eisenhower’s Farewell Address, Garrett’s warning seems all too prescient.

Americans are rapidly approaching the point where they must make a stark choice. Either the United States adopts a more circumspect role in the world—in part to preserve what is left of its domestic liberties—or those liberties will continue to erode (perhaps beyond the point of recovery) in the name of national security. That choice will determine not only how the United States is defended in the future but whether this country retains the values and principles that make it worth defending.
I now refer to the "military-industrial complex" with Eisenhower's "congressional" plus "security" as MICS: the "military-industrial-congressional-security complex".