Question time on the FM website – chapter 10

Ask any question about geopolitics, broadly defined. We’ll attempt to answer it in the comments.   Like Jeopardy, your comments must be in the form of a question!

Questions received so far (click on the link to go directly to that thread):

  1. Will the decline of the US dollar spark rising US inflation?
  2. Is the Euro still in jeopardy after the no-go on the Greek referendum and the Papandreous still holding power?
  3. How awesome was the movie 300?
  4. Beyond narrow self interest, what is it about America that makes it worth the blood sweat and tears that will be required to achieve reform?
  5. Response by reader to #4
  6. What is the difference between command, leadership and management? Are they adequately taught to officers of the US military?
  7. Do you feel that either an Israeli or US strike on Iran is imminent?
  8. What has been the economic effect on the Icelandic people since they chose not to bail out their banks?
  9. Do you have any thoughts on Modern Monetary Theory?
  10. What’s your take on Ron Paul’s positions on the big issues?
  11. What’s your favorite novel of all time?
  12. Do you think China’s centrally managed economy is prone to mis-allocation of capital and as a result a crash?

Before we get to the answers, here are some articles to start a conversation.

Some interesting reading

  1. The most historically illuminating article of the week (history is that which shapes our actions today): “The Politically Correct Confederacy” by Ta-Nehisi Coates
  2. A provocative article about patriotism: “Gibson’s patriot is Sonny Corleone, not Sgt. York“, Michael Lind
  3. Matt Taibbi holds mirror up to America, showing what we are by our choice of leaders: “Mike Bloomberg’s Marie Antoinette Moment
  4. A clear example of why China is a rising power, and America a nation in decline

Today’s foreshadowing of the tyranney to come

A stark statement from one of our leading legal advocates of tyranney (for whom every problem provides an excuse to shred the Constiution):

Our argument is not based on some obscure provision of the 14th amendment, but on the necessities of state, and on the president’s role as the ultimate guardian of the constitutional order, charged with taking care that the laws be faithfully executed.
— “Obama Should Raise the Debt Ceiling on His Own“, Eric A. Posner (Prof Law, Chicago) and Adrian Vermeule (Prof Law, Harvard), New York Times, 22 July 20111

Quote of the day

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
— Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

26 thoughts on “Question time on the FM website – chapter 10”

  1. Will the decline of the US dollar spark rising US inflation?

    The US dollar must decline so that US goods are again competitive on world markets (eliminating the trade deficit), and we can generate foreign income to pay our foreign debts.

    From Merrill Lynch, Neil Dutta and Ethan S. Harris, 6 May 2011 — Excerpt:

    Is the recent dollar weakness hurting the economy? We make three main points.

    1. The decline in the dollar has a relatively small impact on inflation and living standards.
    2. It makes US firms more competitive, encouraging hiring; and
    3. the dollar decline is a relatively small factor in the increase in commodity prices.

    Consider the pass-through into consumer price inflation. the exchange rate only impacts the cost of living for Americans to the extent that products are imported and to the extent that currency swings are passed through to the end buyer. it may seem like everything is imported these days, but in fact imports account for about 15% of the cost of consumer goods.

    There are two reasons for this low share:

    1. about 60% of the cost of consumption is in the heavily domestic service sector, and
    2. more than half of the cost of imported goods is aid to US companies and workers in the form of mark-ups, transportation, advertising, etc.

    In practice the pass through from the dollar to import prices is very low. … big bouts of dollar depreciation in the last decade — the broad-trade-weighted fell more than 30% from 2002 to 2008.– only boosted consumer import prices to a peak of about 3%. Doing the math, it added about 0.45% to overall consumer price inflation.

    Today, consumer import prices are runnign below 1% and with the dollar down a less dramatic 17% from 2010 peak, a much smaller accelleration of 0.2% in consumer prices is likely.

    For more information see:
    The falling US dollar – bane or boon?

  2. Is the Euro still in jeopardy after the no-go on the Greek referendum and the Papandreous still holding power?

    1. Despite the hysteria in the news media, these side-show games in Greece are irrelevant to the larger questions whose answers will determine if Europe unifys or fragments.

      The larger questions are

      1. Will Europe continue sliding into a recession, which would wreck the rescue plans.?
      2. Will Italy’s government find the strength to implement the austerity programs imposed by Germany?
      3. Will Germany and France find the wisdom to change the structural flaws in the EMU which caused this crisis, and will eventually wreck the EMU?

      This little crisis in Greece was significant, like a milestone on a road. Not for itself, but as a marker on a path (in this case leading to great changes in Europe’s political structure).

      (a) For the first time Europe’s leaders admitted that the EMU could be broken (which they have adamantly denied until now).

      (b) It revealed that the unification of Europe is a project not of the left (a tale told by conservatives in America), but of its elites. The ruling conservative coalition in Germany and opposition conservatives in Greece are unified on this project. The horror of Europe’s elites at the idea of a referendum shows that they see their people as the project’s enemy.

    1. My favorite scene from the movie 300:

      {Spartan King concludes rousing speech about freedom being the essence of Greek civilization}: “And that’s why we must go to war!”

      {Spartan noble enters} “Sorry I missed the speech. I was whipping my slaves.”

  3. Beyond narrow self interest, what is it about America that makes it worth the blood sweat and tears that will be required to achieve reform?

    I know this comes across as massively disrespectful. It’s not intended to be. The essay on patriotism got me thinking about when it does and does not make sense to have loyalty to a nation rather than to a family and a tribe.

    1. The foundation of western life from the 16th century (eg, Machiavelli) and 17th century (eg, Hobbes) onwards has been narrow self-interest. That is why it has been so successful.

      But, like the Roman Republic, our political regime makes requirements on its citizens. Failing that, we will revert to simpler forms, which more narrowly distribute the profits of society.

  4. What is the difference between command, leadership and management? Are all of these (if they are separate elements) adequately taught to officers of the US military?

    1. There are no special meanings to management and leadership beyond the dictionary’s. For technical terms the FM website uses those in the DoD Dictionary (JP1-02).


      The authority that a commander in the armed forces lawfully exercises over subordinates by virtue of rank or assignment. Command includes the authority and responsibility for effectively using available resources and for planning the employment of, organizing, directing, coordinating, and controlling military forces for the accomplishment of assigned missions. It also includes responsibility for health, welfare, morale, and discipline of assigned personnel.

      The short version: Command = Responsibility.

      Are these things taught well in the US military? I’ll leave that to others to answer, although I’d recommend that one not expect too much from a large, rigid institution.

  5. Do you feel that either an Israeli or US strike on Iran is imminent? With the Israeli prime minister calling for a stike on Iran in the Knesset and their military testing their Jericho missile it sure seems that way. Also the US strategic realignment seems to be geared toward Iran.

    1. (1) The US will not attack Iran at this time. The fake (almost a false flag) operation in Washington was designed to maintain America’s war-fever — large budgets for DoD, intel, and internal security services, plus continued erosion of civil liberties. Not as a prelude to an attack.

      (2) Will Israel attack Iran? I don’t know. It would be insane. But their policies since 1973 have been irrational, certain to lose over a long time period. On the other hand, such rumors have ciruclated since early 2008! For more information see these posts:

      1. Will Israel commit suicide? More rumors of a strike at Iran , 22 December 2007
      2. A new story about a possible war with Iran, 21 May 2008 — About the 20 May Jerusalem Post story, originally reported by Army Radio (see below).
      3. “As things look, Israel may well attack Iran soon”. 3 June 2008 — About the Fischer story in the 30 May Daily Star.
      4. “Attacking Iran, in order to stop its nuclear plans, will be unavoidable” . 8 June 2008 — War-talk by a former Defense Minster of Israel.
      5. Der Spiegel: “Israeli Ministers Mull Plans for Military Strike against Iran”. 17 June 2008 — Rumors in Der Spiegel of a strike by Israel on Iran.
      6. More rumors of a strike at Iran by Israel, 1 July 2008 — More rumors.
      7. Leaks about a possible strike at Iran (this is a hot issue), 7 July 2008 — Leaks of concerns about the effectiveness of a strike by Israel, and the consequences.
      8. ISIS: “Can Military Strikes Destroy Iran’s Gas Centrifuge Program? Probably Not.”, 8 August 2008
      9. Hot news about a possible strike at Iran!, 3 July 2010
      10. Warning of an imminent strike at Iran by Israel, 4 August 2010
      11. Are Israel’s leaders insane? Jeffrey Goldberg thinks so., 1 August 2010
  6. What has been the economic effect on the Icelandic people since they chose not to bail out their banks?

    1. Iceland’s bounce-back looks excellent (considering the circumstances), esp. compared with Ireland (which took the opposite course) It was a bold and wise decision. Here’s a summary by Paul Krugman, from Iceland Exits, 21 September 2011:

      Iceland is no longer under an IMF program; here’s the IMF report (pdf) pronouncing the adjustment program successful. Indeed. Iceland still has high unemployment and is a long way from a full recovery; but it’s no longer in crisis, it has regained access to international capital markets, and has done all that with its society intact.

      And it has done all that with very heterodox policies — debt repudiation, capital controls, and currency depreciation. It was as close as you can get to the polar opposite of the gold standard. And it has worked.

      For more information see these articles by Paul Krugman:

      1. Why Not The Worst?, 21 October 2011
      2. Debt And Devaluation, 24 October 2011
      3. Don’t Blame The Krona, 28 October 2011
  7. Do you have any thoughts on Modern Monetary Theory (e.g., see Billy Blog by Bill Mitchell)?

    It’s unclear to me whether this represents an important set of insights into post-Bretton Woods macroeconomics that has been overlooked by mainstream economists (and politicians) still clinging to more familiar concepts; or much ado about nothing.
    FM notes: Bill Mitchell is the Research Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW Australia.

    1. In times of social stress weird theories arise which offer an easy way out. Afterwards, when the seas are calm again (as they will be, however horrific the storm), people look upon these as symptoms of the madness caused by the stress. But they seem logical at the time.

      Here are two clear explanation by Paul Krugman:

      1. Deficits and the Printing Press (Somewhat Wonkish)
      2. MMT, Again

      For a clear if somewhat long and technical explanation of Modern Monetary Theory, see “Understanding The Modern Monetary System” by Cullen O. Roche (professional money manager). It’s a complex theory.

    1. Clueless ignorance based on a rigid ideology drives Ron Paul’s views on his signature issue — economics. So his other positions are probably also products of his ideology. Hence of academic interest only in a fringe candidate.

      Some of his beliefs are too stupid to believe, such as paying the President a salary equal to the US median (now aprox $40 thousand). Perhaps he is a communist, believing that everybody should work only for the common good. It is a sad day when they have infiltrated even the GOP!

    2. Based on reply, it seems you are the one with rigid ideology!

      I would have thought FM should appreciate his foreign policy. Same too with drug policy. He seems like the only candidate willing to make changes and challenge popular beliefs. I mean he’s an anti-war candidate in the republican party. There’s something to appreciate about that.

      He is also the only big name politician I know of that consistently challenges the military-industrial complex..

      This is FM bread and butter… why the hate? Keynes or bust?

      1. Process matters. People who have a rigid ideology like Paul are IMO part of the problem, not the solution. No matter if there are some overlaps between my positions and his. Especially when so many of his views are beyond “crackpot”.

        BTW — are you seriously disputing that Paul’s positions result from a rigid ideology? If so, whatever. Opinions differ about the shape of the world.

    3. “BTW — are you seriously disputing that Paul’s positions result from a rigid ideology?”

      No, I am not. Like I said, I am just surprised since Paul seems like he’d be in good company re FM because of things like being one of few to make a yap about Anwar al-Awlaki being killed.

      “Process matters. ”

      What is the process you’re referring to and are you saying Paul threatens that process?

      1. “Process matters”

        I was not clear. By “process” I meant two things.

        1. The way we choose a President. IMO it’s not a matter of picking a candidate based on a few policies one likes — ignoring that his views are on the whole nuts.
        2. The way a candidate chooses his positions. A rigid idelogoy is IMO as bad as a weather-vane (adopting the policies that are at the moment the most popular).
    1. This is not geopolitics, but FWIW here are some that quickly come to mind as my favorite novels.

      1. Pride and Prejudice by Jane Austin
      2. Funeral in Berlin by Len Deighton
      3. Lord of the Rings by Tolkien

      Some authors’ work are, in a sense, extended novels. My favorites:

      1. The future history stories of Robert Heinlein
      2. The pulp westerns of Louis L’Amour (eg, The Daybreakers)
      3. The Perry Mason pulps by Erle Stanley Gardner (esp those from the 1930s, like The Case of the Howling Dog)
  8. Do you think China’s top down politburo (centrally managed) economy is prone to mis-allocation of capital and as a result a crash?

    1. No, I do not believe that China’s system has mis-allocated china’s resources on a historically unusual scale. Probably no worse than has the US, WHO HAS builT an expensive but profitless empire while our domestic infrastructure rots.

      Overinvestment booms and busts are a ones able part of free market systems, and have been seen in the est for centuries. Even under gold-backed monetary systems, such as the UK railroad booms and buts during the 9th century. Also, busts are not crashes (magnitudes matter).

      I believe China will be benefiting from their supertrains longer than the US does from it’s hundreds of military bases around the world.


      (1) This is another expample of the many odd parallels between China’s situation and our own, where statements about China’s weakness also apply to America.

      (2) For an excellent introduction to the history of bubbles see “Charles Mackay’s own extraordinary popular delusions and the Railway Mania“, Andrew Odlyzko (U MI), 14 September 2011. He shows how they make sense at the time, until their underlying assumptions prove wrong over the short-term — even if they prove to be correct over the long-term.

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