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America sees the world through a glass, darkly. Let’s drop the shades and see clearly!

25 October 2013

Summery: Much of the work on the FM website examines minutiae for clues and insights about the wider world.  Today we look at this strange but revealing article (revealing about us). It suggests what where we have gone wrong, and how we can still return to a better path.

Jesus with shades and gun

This is how we see ourselves

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Elites’ strange plot to take over the world“, By Matt Stoller,
Salon, 20 September 2013

“A few decades ago, politicians hatched a Tom Friedman-esque idea to unite U.S. and Western Europe.
Did it succeed?”

This fun article holds many lessons for us. It’s in Salon, one of the new breed of online magazines with a contrarian flavor (Slate being the exemplar), providing a well-written mixture of information and misinformation designed for maximum clicks.

The author, Matt Stoller, is a well-educated young journalist, almost certainly knows that much of this is nonsense. Journalists write to their audience, and Stoller understands our fantastic idea of how the world works. See his opening:

The idea of a country seems pretty simple. … But the way political decision-making around security issues ricochets around the world, from Western capital to Western capital, is making a mockery of commonly held conceptions of national sovereignty. In recent weeks, a British parliament vote on Syria forced the U.S. president to seek authorization from Congress, while leaked documents detailed extensive cooperation between the intelligence services of the U.S. and other nations. The president of Bolivia was forced to down his plane by Italy and France, just because he joked about having Edwards Snowden on board. And so on, and so forth.

This all demands the question: Why do we hold the conception that we live in separate nation-states?

Notice the sleight of hand. Stoller says the reality of separate nations requires that nations be unaffected, even unlimited, by the actions of other nations. This confuses “sovereign” — able to make their own decisions — with domination, able to do as they want without consideration or influence from neighbors. As if nations existed not on a crowded world, but on separate planets.

Much like teenagers discovery of sex and love in every new generation, Stoller’s discovery of yearnings for a world government after WW2 — a surprise to Americans now dreaming of world hegemony — is not new. It was not new in 1648, when European nations signed the Treaties of Westphalia and created the modern international order in crowded Europe. The limitations of sovereignty were not new when the Scythians, Hittites, Egyptians, and Israelites fought in the ancient Middle East.

These  “conceptions of national sovereignty” might be “commonly held” but are quite daft. “Our own history should teach us this.  From the start, America was largely defined by the actions of other nations.  To mention just a few:

Read more…

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The Republicans are winning, leaders in the building of a New America

24 October 2013

Summary: Many people believe the American political system has become some combination of rigid, dysfunctional, perhaps even stupid. All of these are false. The US political system is alive and evolving rapidly, as a New America rises on the ashes of the Republic-that-once-was, built to the designs of its plutocratic stakeholders. That so many remain blind to this reflects the quiet nature of the process, and the skill of its key actors. Today we examine some of the evidence.

GOP sunrise

GOP sunrise, from the “Right Truth” website

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After 30 years the shift of America has become obvious, along with the Republicans’ successful leadership. Especially after the events during Obama’s administration (aka Bush Jr’s 3rd and 4th terms).

Many social policies have become more liberal. But few of the 1% care who sleeps with whom, or the details of births and deaths among the proles.

What about the Democratic Party’s excitement over the debt crisis fiasco, and the resulting GOP dip in in the polls?  Even the most successful movement has reverses, often from over-confidence and excessive aggressiveness. Setbacks are not defeat. What matters is how they respond and adapt.

Consider instead the momentum of events, their intellectual and financial resources, their legion of shock troops in local communities, their powerful organizational support structure of think-tanks and advocacy groups. All they lack is skilled strong leadership — to replace their current collection of clowns and poseurs. When they have that missing piece, they can shift to a higher speed.

Let’s look at some articles of the past month, much like the news flow for the past few years. And the past three decades.

(1) Conservative Georgia District Urges G.O.P. to Keep Up the Fight“, New York Times, 6 October 2013 — Read the quotes!

(2) Take Back the House? Democrats Aren’t Even Ahead on Friendly Turf In 2014“, Nate Cohn, The New Republic, 7 October 2013 — Candidate selection is vital, and the GOP has the vital edge in enthusiasm.

(3) The mythical moderates?“, David Karol (Assoc Prof of Politics, U MD; bio here), blog of the Washington Post, 8 October 2013 — The GOP has stronger internal cohesion, giving them an edge in every conflict.

Read more…

Will 21st Century USA have a surprise boom, as did the 19th Century UK?

23 October 2013

Summary:  Today we have an essay by Andrew Odlyzko, one of the top polymaths and futurists writing today. He reminds us of the difficulty in accurately predicting the future, and the peril of relying on past successes to solve our problems. The industrial revolution relieved the UK’s crushing debt in the 19th century. As the post-WW2 boom relieved the US’s large war debt.  The future might not be so kind to us.

Industrial revolution

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Excerpt from
Crushing national debts, economic revolutions,
and extraordinary popular delusions

By Andrew Odlyzko
Professor of Mathematics. University of Minnesota)

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Introduction

A superpower with crippling debt, exorbitant taxes, glaring inequality, wages far exceeding those of competitors, high and persistent unemployment, lack of basic workplace skills, malnutrition, a rapidly growing rival across the ocean to the West, heated debates about the role of government in the economy, and widespread pessimism about the future. Could that be any country but the U.S. today, with China as the looming threat?

Toss in costly military misadventures in the Middle East, Greece unable to pay its debts, a sclerotic domestic legal system clogging up the economy, and the rising competitor flouting copyright and other property rights and relying on slave labor, and the case seems clinched. Yet this is also an accurate description of Britain around 1850, with the United States as the transatlantic rival. Surprisingly, what followed was an explosive acceleration of the Industrial Revolution that saw the UK sprint ahead of others during the “Great Victorian Boom” of the third quarter of the 19th century.

Britain in the 1840s

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The September jobs report: more too-slow growth, no signs of the expected acceleration

22 October 2013

Summary: Employment is the weak link in the recovery. The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed (jobs and wages growing only slowly) — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus (now fading). Here we look at the September report, which contains many useful insights. The key point: it gives no evidence that the widely expected second half growth acceleration has begun.

Economy

Contents

  1. The big picture
  2. Household survey
  3. Establishment survey
  4. Unemployment
  5. Other important metrics
  6. Other posts in this series
  7. For more information about US economy

(1) The big picture

Here we examine the September employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy.

The theme of this report, the words most often used, is little change. It paints a picture consistent with the many other streams of information about the economy: continued slow growth. No signs of the long-awaited acceleration back to average growth rates.  This is a major factor in the Fed’s decision when to taper.

We should also consider the price paid for this slow growth. Not just the $707 billion in debt the USA accumulated during the past 12 months (4.5% of GDP), but also the not-yet-known results of five years of zero-interest rates and three rounds of quantitative easing (the third and largest still running).   This does not show that economists know nothing, or that these stimulus programs do not work. It shows that the economy remains weak, or even sick.

(2) The Household survey

The Current Population survey is a simple survey of households. Compared to the survey of businesses it has large error bars; there are no revisions. It’s worth watching because it’s the basis for the headline unemployment rate, it gives useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.

Here are the numbers for September, in thousands, seasonally adjusted. Highlights:

  • Continued slow growth in employment; steady drop in the number unemployed.
  • Continued shift of employment from part-time to full-time (disproving one of the many false claims about ObamaCare).
  • No progress in the key ratio: employment is growing at the same rate as the population — so we’re not getting stronger, in this sense.
Description August 2013   September 2013   Change   Change
Employed 144,170 144,303 133 0.1%
…Employment-population ratio 58.6% 58.6% 0 0%
Full-time 116,208 116,899 691 0.6%
Part-time 27,999 27,405  -594 -2.1%
Unemployed 11,316 11,255  -61 -0.5%
…Unemployment rate 7.3% 7.2%  -0.1 -1.4%

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For the bigger picture here are the YoY numbers, in thousands, not seasonally adjusted. Slow but steady improvement.

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Let’s learn about hyperinflation. Who knows what the future holds for us?

21 October 2013

Summary:  What makes an experiment is uncertainty about the outcome, no matter how great people’s confidence. That applies to the great monetary experiments now in progress by China, Europe, America, and Japan. Europe since 2008, the USA since 1998, and Japan since 1988 all have common histories: confident leadership, unexpected crises, and repeatedly wrong forecasts.

After all that it will astonish historians how we worship the power of central bankers. But that power neither makes them omnipotent, nor their theories accurate. Today’s post by Nathan Lewis discusses one of the possible outcomes.

“Unless you expect the unexpected you will never find truth, for it is difficult to discover.”
— Heraclitus, the pre-Socratic “Weeping Philosopher” of Ionia

Today’s guest post:

What is “Hyperinflation”?
By Nathan Lewis at New World Economics, 13 October 2013
Reposted with his generous permission

Bernanke Green Lantern

Contents

  1. A history of hyperinflation
  2. Hyperinflation: not what you might think
  3. What hyperinflation looks like
  4. USA in the 1970s; Mexico in the 1980s
  5. Other lesser-known episodes
  6. Why not us? Or rather, why not us yet?
  7. About the author
  8. For More Information
  9. A Last Resort, if all else fails …

(1) A history of hyperinflation

The word is tossed around, and many have an opinion about it, without having any real clear idea of what it means.

We all probably have some mental picture of the “billion dollar banknote” or “price of coffee rises as you drink it” kind of hyperinflation, as happened in Germany especially in 1923.

Children - 1923 Germany

Children learning to manage money, Germany 1923

But, this is somewhat rare. Not as rare as you might think, but it constitutes only a small portion of those events which I think are legitimately labeled “hyperinflation.” This table lists fifty-three of the most intense hyperinflations in recent history:  The Hanke-Krus Hyperinflation Table.

The least intense hyperinflation listed on this table is a 55.5% increase in “prices” in a month in Kazakhstan in 1993, which works out to a doubling of prices every 47.8 days. However, this table leaves out many hundreds of events which are legitimately called “hyperinflation” in my opinion, and in the opinion of those who lived through them, and historians.

You see what I mean when I say that it is “not as rare as you might think.” Here’s Wikipedia on various hyperinflations.

(2) Hyperinflation: not what you might think

Extreme hyperinflations like these tend to grab people’s attention. However, I would suggest that they are actually less relevant than some milder cases.

Read more…

Dr Hunt explains the great monetary experiment. It will be historic, no matter what the result.

20 October 2013

Summary: On the FM website we have followed the evolution of the great monetary experiment. After four years we have mostly questions. What have been the beneficial effects, and how large? What have been the ill effects today and in the future? Does quantitative easing act like an addictive drug? Today’s post by Lacy Hunt gives one perspective on these answers. Only time will tell how the experiment ends; the result will change history.

Today’s guest post:
Federal Reserve Policy Failures Are Mounting
by Lacy H. Hunt, Economist for Casey Research
From The Testosterone Pit, posted with their generous permission
18 October 2013
Graphics and links have been added to Dr. Hunt’s article.

Calvinball

Modern monetary policy

Contents

  1. Introduction
  2. The near-term outlook
  3. The Fed does not understand
  4. Debt so high that Fed policies can’t gain traction
  5.  Velocity of money: outside Fed control
  6. Perhaps well intended, but ill advised
  7. Incriminating evidence: the money multiplier
  8. The near-term outlook
  9. About the Author
  10. More research about quantitative easing
  11. For More Information

(1)  Introduction

The Fed’s capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation; the Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. In the late 1970s and early 1980s, rampant inflation was again brought under control by a determined and persistent Federal Reserve.

However, when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.

Four considerations suggest the Fed will continue to be unsuccessful in engineering increasing growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases (LSAP):

  • First, the Fed’s forecasts have consistently been too optimistic, which indicates that their knowledge of how LSAP operates is flawed. LSAP obviously is not working in the way they had hoped, and they are unable to make needed course corrections.
  • Second, debt levels in the U.S. are so excessive that monetary policy’s traditional transmission mechanism is broken.
  • Third, recent scholarly studies, all employing different rigorous analytical methods, indicate LSAP is ineffective.
  • Fourth, the velocity of money has slumped, and that trend will continue — which deprives the Fed of the ability to have a measurable influence on aggregate economic activity and is an alternative way of confirming the validity of the aforementioned academic studies.

(2) The Fed does not understand how LSAP operates

If the Fed were consistently getting the economy right, then we could conclude that their understanding of current economic conditions is sound. However, if they regularly err, then it is valid to argue that they are misunderstanding the way their actions affect the economy.

Read more…

In “Network”, Howard Beale asks us to get mad and do something. He’s still waiting.

19 October 2013

Summary:  On 16 December 1773 angry patriots dumped tea into Boston harbor. Two centuries later, in the film “Network” Howard Beale yells that “he’s mad as hell, and not going to take it anymore.” But unlike the patriots of 1773 he’s unable to effectively apply his anger, and so becomes an exemplar for Americans today. Individual action does little; collective action can change the fate of nations. What is the first step to put us into motion? That is the question we’ve wrestled with so often on the FM website. Today we re-visit one of the answers.

“Anger is easy. Anger at the right person, at the right time, for the right reason, is difficult.”
— Aristotle, in the Nicomachean Ethics, book IV, chapter 5 (lightly paraphrased)

“Telemachus, now is the time to be angry.”
— Odysseus, when the time came to deal with the Suitors. From the movie The Odyssey (1997)

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Here we have three brilliant comments lifted from the comments to Occupy & Tea Party are alike, both saving America through cosplay. Here is the section that caught their interest.

FM: “This is what we need to be, from “Network” (1976)”

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Bluestocking

“Network” has become one of my favorite movies because it has proven to be so amazingly prophetic.

From my perspective, the most tragic thing about Howard Beale is that the same madness which gives him the ability and incentive (or rather the desperation) to say things that resonate with so many people also prevents him from seeing the ways in which he’s being used and manipulated by some of the very same people whom he’s speaking out against.

These people are only too willing to exploit him and profit from him as long as he continues to be useful to them. However, the moment Beale starts saying things which conflict with their own agenda, they pull him aside and take away the one thing which makes it possible for them to profit from him — and at that point, they ruthlessly do away with him.

It occurs to me that some of the people from the Tea Party could stand to watch this film and learn something from it — they have quite a bit more in common with Howard Beale than they themselves realize. One can only hope for their sake that they don’t end up dooming themselves to a fate similar to his.

Coises

First, a couple observations about the Boston Tea Party.

It was not a (merely) symbolic act. When the ships bearing taxed tea did not leave Boston, as ships in other ports had done, the entire shipment — at an estimated value equivalent to over one and a half million of today’s dollars * — was destroyed. The result was not to persuade the rulers to be more mindful the protesters’ grievances. The result was increased oppression.

Read more…

Occupy & Tea Party are alike, both saving America through cosplay

18 October 2013

Summary: Collective action is democracy in action, unrestrained by the machinery of the formal political parties. Does the surge in political action of the Occupy Wall Street and Tea Party Movement represent a new morning for America, appropriate at the start of a new millennium. Or are these peasants’ protests, venting steam while the 1% build a New America?

“And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.”
— Not every movement is a revolution, although you often do time in jail.

Captain America visits the Tea Party

Cosplay as political activism: too much fun?

Contents

  1. The Surge of Activism
  2. What we are. What we need to be.
  3. Conclusions
  4. For More Information
  5. The Boston Tea Party was not cosplay

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(1) The Surge of Activism

As a result of our increasing affluence and leisure time, plus more retirees, America has more activists than at most times in our history. Americans dedicated to making things better, often taking to the streets.

Some address tangible, local problems. Service clubs: saving stray animals, helping youth, cleaning up parks, organizing unions, etc. Some work to save the nation, like the Tea Party Movement and Occupy Wall Street. Those of the first type are serious, shown not just by the time and money they devote to their projects — but to their results.

What about the second type? It’s a difficult question to answer. How do we measure seriousness of people in political groups, outside the organized political parties? Especially those formed to transform the nation, rather than the limited political platform of established parties?

We can only guess at such things, but we can compare movements like Occupy and the Tea Party with past organizations. Consider the Revolutionary-era Committees of Correspondence, the abolitionist movement, building unions, the suffragette movement, the civil rights movement, and the Vietnam anti-war campaigns. What common elements that distinguish these very different groups, making them effective? Perhaps their…

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American Exceptionalism gives us a faith-based public policy. Our confidence might be our weakness.

17 October 2013

Summary: We have come to believe we are exceptional, not just morally, but also operationally. We act as if we are beyond the need to plan and prepare for possible problems. It is faith-based public policy. Here we review how we came by this delusional belief, and examine how it plays out on a potentially serious problem: the growing US debt.

What, Me Worry?

American Exceptionalism

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A brilliant insight, but likely to fail us if we depend upon it:

“Men and nations behave wisely when they have exhausted all other resources.”
— Abba Eban (Israel’s Minister of Foreign Affairs), quoted in the 19 March 1967 New York Times

Note how this aphorism about people has become one about us (It was not said by Winston Churchill; details here). Rather than assume success, we should take this advice:

“Success breeds complacency. Complacency breeds failure. Only the paranoid survive.”
— Andy Grove, CEO of Intel 1987 – 1998

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Two centuries of success have taught us complacency, confidence that we are not only exceptionally moral as the “city on a hill” in Matthew 5:14, but also exceptional in an operational sense. We assume success as our due, without the necessity for preparation, planning, or even effort. Energy, climate change, demographic challenges, underfunded pension plans, the next wave of automation, growing inequality – we assume success vs all problems, so take few precautions. It’s an odd kind of  faith-based public policy.

Success has brought us the “victory disease” (senshobyo in Japanese, a term coined in the 1930s by novelist-turned-strategist Chuko Ikezaki ).

A people more aware of cycles might prepare for a period of hard times, much as darkness follows light (and lean years follow the good ones). It could be painful yet not like the Long Depression of 1873-1879 or the Great Depression of 1929-1939.

Let’s look at one example: our high Federal debt load, destined to rise as the boomers retire. We are confident that growth will easily fix these, as growth solved the massive debts the UK accumulated from the Napoleonic Wars. As growth solved our massive debts from the Civil War and WW2.  This confidence is delusional.

Those debt loads were made manageable by several factors in the decades that followed the wars:

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Mechanics and consequences of America hitting the debt ceiling

16 October 2013

Summary: The debt crisis deserves attention not just as a potentially serious event, but also because it illuminates many aspects of America: the flaws in our political structure, weaknesses in the GOP, and our excessively credulity. This post, the sixth in this series, looks at the crisis, and why we have difficulty seeing it clearly.

Debt Ceiling

Contents

  1. Significance of this debate
  2. The SecTsy warns us
  3. An analysis of the problem
  4. How quickly will the Treasury hit the wall?
  5. Effects of hitting the debt ceiling
  6. Other posts in this series
  7. For More Information

(1)  Significance of this debate

A characteristic of Americans today is our credulity. We believe whatever our political leaders tell us. Much of the Left believes that humanity faces not just a crisis but doom, or even extinction, from climate change — no matter what the IPCC and major climate agencies say.

On the Right their authorities give them a similar mixture of fact an fiction, but perhaps are even more delusional — Rush on radio, Fox TV, National Review in print, and countless right-wing websites.  Let’s look at the one example, concerning the debt limit crisis: “The AP Misreports the Debt Ceiling“, John Hinderaker, Powerline, 14 October 2013 — He makes several valid points. But he grossly underestimates the mechanical difficulty (and hence risk) of rolling over hundreds of billions in debt without violating the debt ceiling, and his conclusion is incorrect.

Would a default on U.S. Treasury bonds be a disaster? Of course. No one denies that. But what does that have to do with spending on programs like Social Security? Social Security is not a debt obligation; and, in any event, it is discretionary spending that would be cut if the debt ceiling were reached, not entitlements.

… The Treasury says that without the ability to borrow more than the $17 trillion we already owe, the federal government won’t be able to “pay its bills.” What they mean by that is that spending will be cut: henceforward, it will have to equal revenue, just as though a balanced budget amendment had been enacted. When Democrats talk about “paying our bills,” they mean maintaining spending at ever-growing levels.

It’s a common opinion on the Right:

Read more…

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