Free Markets, Free People

Daily Archives: May 29, 2009


Money? Or Receipts?

Recently, while listening to the Opie and Anthony show, I heard an interview with Loius CK, the comedian.  And he said something that struck me as quite profound.  And quite true.

Back in olden times–i.e., prior to the 1930s–our paper money wasn’t actually money, as such.  Instead, it was a receipt for the real money–gold, or silver–that we had stored in the bank.  And the amount of gold we had determined how many of those receipts we could get.  The gold or silver we held had an intrinsic value, and the paper currency we carried was simply a representation of that intrinsic value.

Then, in the 1930s, we simply got rid of the metal, and kept the receipts.  Ever since then, the paper money we carry around with us has no intrinsic value.  And the value of that receipt is worth whatever the government says it’s worth.  It is a medium of exchange, and nothing more.

You may have $1,000,000 in the bank.  And if the government says that it’s only worth a cup of coffee in exchange, then that’s exactly what it’s worth.  It doesn’t matter if acquiring that million bucks was the work of a lifetime.  The government can, if it wishes or is unwise, reduce the stored value of your life’s work to a trip to Starbucks.

Just something to think about.


Our Inordinate Fear of Inflation

That’s the subject Paul Krugman addresses in his NYT Op/Ed piece today.  In fact, he implies that even talking up the possibility of inflation comes solely from bad political motives, mostly from people who don’t grasp The Fierce Moral Urgency of Change™.

Why shouldn’t we worry about inflation, according to Prof. Krugman?

Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.

But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.

But, let’s grant that the current monetary moves aren’t immediately inflationary.  What happens when the economy recovers and the banks do begin to spnd those extra reserves?  Krugman attempts some sleight of hand, in an effort to make it appear that he addresses that concern.

Still, don’t such actions have to be inflationary sooner or later? No. The Bank of Japan, faced with economic difficulties not too different from those we face today, purchased debt on a huge scale between 1997 and 2003. What happened to consumer prices? They fell.

Yes, they did.  But since Japan hasn’t had a real economic recovery even today, and is entering its third “Lost Decade”, that really isn’t a compelling argument.  Since 1999, Japan’s rate of GDP growth has averaged 1.31%, which is less than half of the average GDP growth rate of 3% a mature economy should experience.  Indeed, over the last decade, Japan has experienced exactly 5 quarters where GDP growth was at 3% or more. In that same period, there have been 9 quarters when GDP contracted.  The highest annual rate of growth was in 2000, when the annual GDP growth was 2.85%.

So, let’s not pretend we know how the inflationary pressures fall out in Japan once a recovery hits…until there actually is a recovery.

ON the other hand, since our policymakers seem hell-bent on following the same path the Japanese did in the 1990s, the return of inflation when the economy recovers might turn out to be worry we can avoid until sometime in the relatively distant future.


Real Voter Intimidation – No Biggie!

Remember the uproar during the 2004 presidential election about supposed voter disenfranchisement and voter intimidation that allegedly took place in Florida. Reports of blacks being stopped at police roadblocks and turned away from voting places? The Civil Rights Commission as well as numerous media outlets descended on the state in an attempt to validate the rumors. The story remains an urban myth to this day despite the fact that no evidence of any of that taking place was found.

Fast forward to the 2008 election and these video tapes:

What you would expect to happen, at the time and given the video evidence, happened:

The incident – which gained national attention when it was captured on videotape and distributed on YouTube – had prompted the government to sue the men, saying they violated the 1965 Voting Rights Act by scaring would-be voters with the weapon, racial slurs and military-style uniforms.

Career lawyers pursued the case for months, including obtaining an affidavit from a prominent 1960s civil rights activist who witnessed the confrontation and described it as “the most blatant form of voter intimidation” that he had seen, even during the voting rights crisis in Mississippi a half-century ago.

What happened next, however, wasn’t expected, although for most it comes as no real surprise:

The career Justice lawyers were on the verge of securing sanctions against the men earlier this month when their superiors ordered them to reverse course, according to interviews and documents. The court had already entered a default judgment against the men on April 20.

Got that? A default judgment. A done deal. Guilty.

But they were ordered to drop the charges and case and settle for this:

A Justice Department spokesman on Thursday confirmed that the agency had dropped the case, dismissing two of the men from the lawsuit with no penalty and winning an order against the third man that simply prohibits him from bringing a weapon to a polling place in future elections.

Ed Morrisey asks the pertinent question:

Recall, please, that Democrats screamed about the supposed politicization at Justice during Alberto Gonzales’ tenure as Attorney General for replacing political appointees who serve at the pleasure of the President. They claimed that the replacement of nine US Attorneys was a plan by the Bush administration, supposedly through Karl Rove and Harriet Miers, to affect the outcome of investigations and prosecutions. It touched off a Constitutional fight over executive privilege that continues to this day, as the House and Senate Judiciary Committees are still conducting its “investigations” into this supposed politicization.

This looks significantly more like politicization of outcomes that anything alleged during the Bush administration, especially since the DoJ already won the case. In fact, the government had prepared arguments for penalties against the men as late as May 5th, before the political commissars under Attorney General Eric Holder ordered them to withdraw. Holder, during his confirmation hearing, had called career DoJ lawyers his “teachers” and the “backbone” of Justice. Apparently, the political leadership trumps teachers and backbone when it comes to voter intimidation on behalf of Barack Obama.

So will the same Congressional committees open an investigation into this reversal to benefit voter intimidation on behalf of the administration?

Just as important, will the same portion of the leftosphere which went berserk over Gonzo and made a cottage industry of the allegations treat this obvious politicization of justice the same way they treated the alleged politicization by the Bush administration?

Methinks probably not.  Let the spinning (or ignoring) begin.

~McQ


Spinning The China Climate Talk Failure

You really can’t blame her for trying to put – excuse the expression since it seems to have become cliche – lipstick on a pig, but Nancy Peolsi’s attempt to change China’s mind concerning curbing its CO2 seems to have been an abject failure.

Pelosi called them “hopeful”. That’s diplo-speak for “absolutely nothing substantial changed from the previously held position”. The fact that they even saw her would be deemed as “hopeful” but certainly not substantive.

Rep. James Sensenbrenner (R-WI) sums up the trip:

“It’s business as usual for China,” said Mr. Sensenbrenner, the ranking Republican on the House Select Committee for Energy Independence and Global Warming. “The message that I received was that China was going to do it their way regardless of what the rest of the world negotiates in Copenhagen.”

“Their way” consists of giving lip service to curbs while demanding the “rich nations” pay the freight for curbing such emissions in China (and the rest of the “emerging nations”). China refuses to jeopardize its economic growth for something it obviously believes is much less of a threat than others do.  And why should they when it appears the upcoming conference plans on exempting them anyway?

We, on the other hand, seem bound and determined to try to do what would be tantamount to the task of cleaning up the ocean up by putting economy wrecking filters only on our shore line. Little or no effect. China and India share similar philosophies on this question and are emerging as the number one and two emitters on the planet. I think they’re right. The threat, if there is one, is minimal at best. Wrecking one’s economy to hopefully make a less that one degree Celsius change at some distant point in the future (maybe) seems to me to be the height of folly.

But that’s certainly where our politicians seem to be headed. And, to compound the problem, they’ve adopted a “damn the torpedoes, full speed ahead” philosophy, ignoring the 10 year cooling trend torpedo as well as the “China and India” aren’t going to play along” torpedo.

No one wants dirty air or dirty water – no one. But this hysterical reaction to what seems to be a natural earth cycle and the human hubris which claims we both effect and can change that cycle is going to put us all in the poor house unless some sanity (like in China) prevails.

~McQ


The Upcoming Swing Through The Middle East

So what’s on the Middle Eastern agenda for the Obama administration?

Frankly that’s the question being asked by a lot of foreign policy watchers right now, especially since President Obama has added Saudi Arabia to his trip itinerary for an upcoming trip to the area. Originally scheduled to first make a stop in Cairo for a speech, he is now stopping in SA first. This, of course, has the Egyptians a bit miffed. Egypt was touting his trip and speech to Cairo as a sort of vindication of their foreign policy as well as their resurgent leadership role among Arabs in the area. Now that’s not quite as easy to claim.

So why is he adding Riyadh?

One group sees it as tied closely to the Israeli-Palestinian track, focusing on the Arab Peace Initiative and the coming unveiling of the Obama approach to Israeli-Arab relations. Another sees it as tied more closely to Iran, preparing the Saudis for the coming engagement (or confrontation) with Tehran.

I happen to think it is a little bit of both, but mostly tied to Iran. NoKo has popped a nuke (and we’re aware of the ties between Pyongyang and Tehran). Iran has fired a long range missile. Intelligence says Venezuela and Bolivia are providing Iran with uranium (which both deny). That requires a bit of a change in focus of the mission from one exclusively focused on Israel/Palestine. Iran has heated up and the Arabs are not friends of Iran, certainly feel threatened by them and darn sure don’t want to see Iran establish itself as a regional (and nuclear) power. SA would be a logical stop for discussions on that issue.

As to the Israel/Palestine question, Marc Lynch of Foreign Policy magazine wonders:

… will he reinforce or challenge the “moderates vs resistance” frame which he inherited from the Bush administration? The Arab leaders he has been meeting, like the Israelis, are perfectly comfortable with that approach, dividing the region between Israel and Arab “moderates” vs Iran and Arab “resistance” groups like Hamas and Hezbollah. That’s the easy path. If followed it is likely to fail badly, destroy the hopes for change which his engagement policy has raised, and leave the region right back where Bush left it.

I think there is no question he plans to shake up the status quo. But how he chooses to broker “change” in the engagement policy, his change may face the same risk of abysmal failure other policies have produced. The Hill is reporting that Obama plans on challenging Israel’s plan to continue to allow West bank settlements to grow.

“Each party has obligations under the road map,” Obama said after referencing his meeting last week with Israeli Prime Minister Benjamin Netanyahu. Obama said he has been “very clear” on the need to stop settlement and outpost activity, and he also said Israel has obligations to ensure a viable Palestinian state emerges from the peace process.

Israel has rejected that portion concerning the settlements on the West Bank. That rejection came after the Netanyahu/Obama meeting in Washington DC.

Netanyahu has set out the Israeli negotiating position:

“The government of Israel under my leadership is committed to the political and international agreements signed by the governments of Israel, and we expect others to honor their commitments as well,” Netanyahu told the Knesset. “We want an end to the conflict, and we want reciprocity in the claims on both sides and their implementation. Unfortunately, in this we are also being innovative. We should not have to innovate; it should have been obvious. However, when we are asked to recognize our international commitments, I say yes, and I want others to respect their commitments as well.

“We are prepared to act, and we will take concrete steps towards peace with the Palestinians,” Netanyahu continued. “We also expect the Palestinians to take such concrete steps on their side, and it would be good if the Arab countries joined in the effort towards peace, and take both concrete and symbolic steps towards normalization, and not later, but right now. They are asking us to act now, and so the Palestinians and the Arab countries should also be asked to act now.”

Or shorter Israeli stance – if we’re required to live up to international commitments, the same demand must be made of (and accepted by, and acted upon) by others included in these negotiations.

Right now, one of the major obstacles to any such negotiations is not with the Israelis, but among Palestinians:

The Palestinian Authority faces its own challenges in brokering a peace deal, namely the split between Hamas and Fatah — and, therefore, between Gaza and the West Bank — that essentially renders a two-state solution a three-state solution. Since the violent splinter between Hamas and Fatah in 2007, the U.S. has dealt only with Abbas.

So does the US change its policy and actively enter into negotiations with a terrorist group in hope of brokering a reconciliation? The chances of such a reconciliation seem remote. And of course, the splintering within the Palestinians makes the talk of a “two-state solution” an exercise in unachievable rhetoric for the time being. Why should Israel enter into serious negotiations about such a solution when they are unachievable as it stands today?

This will be an interesting trip to monitor.

More to come.

~McQ

Edit: Changed Ecuador to Bolivia – thanks for the catch, looker.