Friday, December 23, 2011
The End of the Bush-Cheney Disaster in Iraq
Friday, October 22, 2011
Financial Black Holes and Economic Stagnation: An Explanation
Monday, October 10, 2011
The Five Macro Crises of Our Times
Friday, September 9, 2011
A Few Important Causes of the Decline of the United States of America
Monday, August 15, 2011
The Aim Should be to Restore Confidence and Avoid a Global Economic Depression
Monday, July 18, 2011
Greece and the Euro: A Time of Excessive and Unproductive Debt and of Financial Implosion
Friday, April 1, 2011
The Danger of a Reform-Conservative Majority Government in Canada
Friday, March 18, 2011
For a Better Global Civilization
Thursday, February 17, 2011
The Fed's Policy of Creating Inflation: A Massive Wealth Transfer
Tuesday, January 11, 2011
The Gun Idolatry in Current American Culture
Tuesday, January 4, 2011
BIG BROTHER: The Police State Mentality in the Electronic Age
Friday, December 23, 2011
The End of the Bush-Cheney Disaster in Iraq
"Just think of what happened after 9/11. Immediately before there was any assessment there was glee in the [Bush-Cheney] administration because now we can invade Iraq."
Ron Paul, U.S. Congressman (R-Tex.) and 2012 Republican presidential candidate
“After the war [against Iraq] has ended, the United States will have to rebuild much more than the country of Iraq. We will have to rebuild America's image around the globe.”
Sen. Robert Byrd, (D-W.Va), March 19, 2003
“Let me say this as plainly as I can: by August 31, 2010, our combat mission in Iraq will end... Through this period of transition, we will carry out further redeployments. And under the Status of Forces Agreement with the Iraqi government, I intend to remove all U.S. troops from Iraq by the end of 2011.”
President Barack Obama, Friday, February 27, 2009
The Obama administration officially put an end to the Iraq waron Thursday December 15, 2011, close to nine years after the March 20, 2003 military invasion of Iraq, dubbed “shock-and-awe.”
I had not intended to comment on the end of this most unnecessary war, but since I wrote a book to explain how it all came about, I feel that I must say something.
Analysts have begun to describe this war, launched on false pretenses, as “the Biggest Mistake In American Military History.”
Indeed, beginning right after 9/11 and throughout 2002, the Bush-Cheney administration had its mind firmly set to invade Iraq military, and no fact, law or argument could deter it from doing so.
In that, it was following the blueprint that neocons and pro-Israel "Likudniks" under the leadership of Paul Wolfowitz (Bush's future deputy secretary of defense) and Lewis "Scooter" Libby (Cheney’s future chief of staff) had drafted in 2000 under the auspices of “The Project for the New American Century”, in a report entitled "Rebuilding America's Defenses, Strategy: Forces and Resources For a New Century".
This was a neo-conservative imperial project that became officially the “Bush Doctrine”. Its goal was to project, as far as possible into the future, the "unipolar advantageous position" that the United States inherited after the break-up of the Soviet Union, in December 1991.
It was really a hubristic and bare-knuckle strategy of world hegemony, based upon unilateral interventionism—militarily, economically and politically—by the U.S. It was an "America First" doctrine, based not upon modern international law, but rather on a solipsistic approach to American interests and the elementary principle of brute force. In fact, it was a giant step backward that could have consequences for decades to come.
In the book that I wrote in 2003 to denounce such a suicidal shift in American foreign policy (see: The New American Empire), I pointed out that “the 'Bush Doctrine' was a near identical reenactment of the infamous 1968 Soviet Union's 'Brezhnev Doctrine', which ...paved the way for the [Soviet] invasion Afghanistan in 1979.” Ultimately, it also led to the demise of the Soviet Union.
Contrary to what some still think, the war against Iraq did not arise from a generous desire to promote democracy around the world. In fact, “spreading democracy” was little more than a domestic war propaganda slogan.
After the events of 9/11, the policy was to divert the war against international terrorism and the al Qaeda network, and turn it towards the real big prize, i.e. Iraq, its armaments and its oil. In the spirit of the newly designed “Bush Doctrine”, it was obvious that the war against international terrorism offered a strategic opportunity to promote American interests around the world.
Nobody can understand why so many lies, so many distortions and so many artifices were used by the Bush-Cheney administration and its sycophants in the media to justify the illegal invasion of Iraq, a country that had no connection to 9/11 whatsoever, if one does not understand the policy that prepared it.
But here we are with that most unnecessary war and what are the results?
This is a war that destroyed a country, killed hundreds of thousands of its inhabitants and drove 4,500 American soldiers to their death and severely injured 30,000 more.
This was a war that did not improve U.S. National Security to any extent, because it has now made Islamist Iran the primary influence in the Middle East region.
Moreover, this is a war that seriously diminished the United States' global credibility and moral posture around the world.
Finally, this is a war that has also contributed in breaking the U.S. economy, because it caused the U.S. government's fiscal deficit to spiral out of control and because that deficit was mainly financed with foreign debt.
All considered, except for the war profiteers who filled their pockets, this so-called Iraq war was an unmitigated disaster.
Friday, October 22, 2011
Financial Black Holes and Economic Stagnation: An Explanation
“Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now.”
George Soros, international financier, ( Does the Euro Have a Future?, New York Review of Books, September 15, 2011.)
“The [financial] crisis was not a failure of the free market system and the answer is not to try to reinvent that system. ...Government intervention is not a cure-all."
President George W. Bush, Thursday November 13, 2008
"There is no cause to worry. The high tide of prosperity will continue."
Andrew W. Mellon, President Herbert Hoover's Secretary of the Treasury. September 1929
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."
Thomas Jefferson (1743-1826), 3rd U.S. President.
Presently, one has the net impression that today's governments, both in Europe and in the United States, have their fingers plugging the holes in the financial dike, but fear that that the entire dam could collapse in the not too distant future with dire economic consequences.
Let's see if we can make sense of it all.
Let's say to begin that most financial crises are the direct result of unsustainable debt levels relative to income that need to be wrung out of the economic system. It has happened in the past (notably in 1873, in 1907 and in 1931, for example), and numerous times in developing countries, and it will undoubtedly happen again in the future. The process is more often than not always the same: some large banks, corporations, consumers or governments take on too much risky debt that becomes unsustainable when economic conditions change, thus launching the entire economy into a devastating process of debt deflation.Sometimes, it may take decades to overcome such a debt deflation and it usually creates an environment of economic stagnation when aggregate demand collapses.
What makes the current financial crisis so troublesome is not only that debt levels are historically high for some countries, but also because the usual instruments and procedures to reduce the debt burden, while doing the least damage to the real economy, have been rendered inoperative, due to a large extent, to the poisonous so-called financial “innovations” that have taken place since 1999 in the general climate of wholesale financial deregulation. As a consequence, financial debt in many countries creates a sort of financial black hole that siphons off money income and prevents it from being re-circulated back into the economy. This creates a serious deficiency of demand (when consumers spend less, when corporations postpone investments and when governments adopt austerity programs) that translates into low output growth, economic stagnation and high unemployment.
In this short article, I will try to identify some of these financial “black holes” that starve the economy of the necessary funds to prosper. I will also attempt to explain why this financial crisis may turn out to be much more serious than previous ones and why governments should take drastic measures to avoid a devastating economic depression. —I have done this in the past, again, in 2006, and again, in 2007, and again and again in 2010, but obviously some politicians, both in Europe and in North America, don't seem to get. Instead, they seem to think that fiscal austerity and lower taxes is all that takes to stimulate the economy and lower unemployment. They cannot be more wrong in the current context. Such policies in an open economy are going to make things worse, much worse if they are applied over time.
Here is why.
Many governments had the imprudence of piling up debt upon debt over the last thirty years, but especially over the last ten years. There are four main causes for such a public binge of debt in many countries.
-First, in Europe, the creation of the Euro zone in 1999 induced some imprudent member countries to go deep into debt by taking advantage of the credibility of the euro and by issuing bonds in euros at favorable interest rates. There was, indeed, a widely held belief on the part of lenders and borrowers alike that the new monetary union provided an implicit guarantee of stability to the safety of the loans.
-Secondly, lenders were induced to lend large sums at low interest rates because borrowers could avail themselves of a newly created financial instrument, the Credit Default Swaps (CDS) that allowed them to take a low cost insurance against an eventual default on their bonds. (By the way, the financial crises on both sides of the Atlantic are closely linked due to the fact that some large U.S. banks are heavily exposed to the European sovereign debt crisis as sellers of credit default swaps.)
-Thirdly, the persistent large trade imbalances in the world meant that some countries, such as mainland China (which joined the World Trade Organization in December 2001), piled up tremendous external trade surpluses and their excess funds became available to foreign borrowers. Indeed, large international banks found it most profitable to channel these newly created funds to willing sovereign borrowers around the world.
-Fourthly, some central banks, especially the American Greenspan Fed, thought they were obliged to provide an environment of easy money after the events of September 11, 2001 in the U.S., and they kept interest rates unduly low for too long, thus providing an additional inducement to eager borrowers to go deeper into debt. Indeed, the housing bubble in the United States that led to thesubprime mortgage crisis was a creation of the Greenspan Fed with the encouragement of the Bush-Cheney administration.
A first conclusion, therefore, is that many institutional factors and policies contributed into encouraging some governments (and also some consumers and investors) to take on more debt than was prudent, often to finance unproductive spending such as military spending. Today, for example, there are dozens of countries whose gross general government debt stands above 100 percent of their gross domestic product (GDP). Moreover, when a high proportion of this debt is foreign-owned, money to service such debt flows out and this, of course, creates a drag on the domestic economy. Servicing an unproductive foreign debt is one of the financial “black holes” I have in mind here.
But what's even more important, the financial and banking systems have evolved in such a way over the last ten years or so that it has become very difficult, if not technically impossible, to solve a sovereign debt crisis through the traditional means used in the past.
How come? Because debt restructuring (a fancy term for reducing the capital owed by a debtor through debt write-downs that reflect actual market values and/or the extension of a debt's maturity and/or a lowering of interest rates) has been made most difficult by the fact that banks and other lenders have been “insured” against a debt default and are thus expecting to receive 100 percent of a loan and interests, no matter how risky their loans have turn out to be and how low their current value.
In the past, when a government faced a debt crisis, it usually did two things: 1- It petitioned its lenders for a restructuration of its debts if the latter wished to avoid a complete default; and, 2- it would devalue its currency to boost its economy's competitiveness and stimulate its economy after an unavoidable capital outflow.
For a country like Greece, a member of the European Union (EU) that is heavily in debt, these two options to alleviate its crushing debt burden are not easily available: -it cannot coerce large international banks and other lenders to voluntarily take a loss on its so-called “insured“ debt, and, -it cannot devalue the euro which is a common currency to sixteen other countries. The principal venue left is to keep borrowing at high costs from other members of the euro zone, the so-called the European financial stability fund, (N.B.: this is equivalent to borrowing from Peter to pay Paul!), and to impose a draconian fiscal austerity program on an economy that has been declining at more than five percent over the last two years.
The paradox is that the more austerity the government applies, the more the economy contracts and the higher is its fiscal deficit and its needs to borrow even more. This is a self-reinforcing spiral down. —That's really a true recipe to produce an economic depression. And, if many governments elsewhere follow the same foolish route for too long, this could lead to a worldwide economic depression.
There are two other major financial black holes that act to starve the economy of needed funds.
First, in the United States, it is the $1.5 trillion in excess reserves that banks hold at the Fed and find to their advantage not to lend to the economy. Some of that money came from American taxpayers when the Bush-Cheney administration put forward its TARP program to salvage large banks from bankruptcy in the fall of 2008. (N. B.: Part of it came also from the general public and from holders of U.S. dollars around the world when the Fed pushed short term interest rates to close to zero.) Secondly, also in the United States, it is another $1.5 trillion in cash that large U.S. corporations hold abroad in their subsidiary companies while parking it in tax havens where there are no taxes at all. They refuse to repatriate these funds for fear of paying taxes at home on their foreign earnings. (N. B.: The U.S. corporate income tax is imposed on all income no matter the country in which it was generated. However, the code allows for U.S. taxes to be deferred as long as the foreign earnings are kept abroad.)
So, don't look elsewhere to understand why there is so much economic stagnation around and why unemployment remains so high. It is because of all these financial black holes that suck money from the economy without putting it back. The correct policies would be to close these financial black holes, and the quicker the better. (The alternative would be even more massive government deficits!)
—But don't hold your breath before such appropriate policies are implemented. Too many politicians have been bought lock, stock and barrel by the same interests that profit greatly from the existence of these financial black holes.
Monday, October 10, 2011
The Five Macro Crises of Our Times
“Men accept change only when it is a necessity, and they see a necessity only in a crisis.”
Jean Monnet (1888-1979), French political economist and statesman
“I have two great enemies, the southern army in front of me and the financial institutions, in the rear. Of the two, the one in the rear is the greatest enemy….. I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country ... corporations have been enthroned and an era of corruption in high places will follow, and the money of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war."
Abraham Lincoln (1809-1865), 16th President of the United States (1861-65)
“The faster the present generation draws down the fossil energy legacy upon which persistently exuberant lifestyles now depend, the less opportunity posterity will have to live in anything like the same way or the same numbers. Yet most contemporary political proposals for solving problems of economic stagnation or inequity amount to plans for speeding up the rate of drawdown of non-renewable resources.”
William Catton, American environmental sociologist and population ecologist
"Societies characterized by enduring deep divisions of income and wealth, such as most third-world societies, are wounded societies with little sense of the common good... As America drifts in this direction, ending poverty and redistributing income should be at the top of the national agenda."
Charles Derber, Corporation Nation (p. 203)
[There are] “three ways to be influential in American politics: make donations to political parties, establish think tanks, and control media outlets.”
Haim Saban, Pro-Israel billionaire and major political contributor, (2009)
Our world has become very complex, and, as a consequence, it is increasingly open to macro crises of huge proportions.
Indeed, what makes our time such a dangerous period, I think, is the fact that we are facing simultaneously at least five intractable worldwide crises that it will take years to solve or to outlive. They are a financial crisis that it will take at least twenty years to jugulate, an energy crisis that's looming on the not too far horizon and which threatens the very foundation of the economic prosperity of the last half century, a double-barreled demographic crisis of a magnitude never encountered during the entire history of humankind, a political crisis that is related to the ingrained inability of governments most everywhere to solve society's problems, and, as a general background, a moral crisis that corrupts most institutions and makes them ineffective in promoting the common good.
I-The Financial Crisis
The misguided experiment with new synthetic financial instruments under the coat of hardly any government regulation is proving to be very disastrous to the world economy. They led to the near complete collapse of the banking and credit system in the fall of 2008, and are very much instrumental today in destabilizing the euro monetary zone and the European economy, the largest in the world. In fact, these new financial instruments play a central role in pushing down the American and European economies.
Indeed, these so called financial “innovations” have turned the world financial sector into a vast casino in which international bankers and speculators reign supreme. One may ask how was it possible to allow a casino-like financial capitalism to develop, especially after the hard lessons learned during the Great Depression of the 1930s?
When President Bill Clinton accepted the Republican proposal (GLBA) to gut the 1933 Glass-Steagall Act, that had regulated investment and commercial banking until then, he had no idea that his simple signature would herald, less than ten years later, a financial crisis of historical proportions. With this deregulation move and with the dismantling of other financial safeguards that had been in place for a long time, some since the financial panic of 1907, international bankers were allowed to merge their investment banking and commercial banking activities and discard many traditional banking rules. They adopted the new model of asset securitization, through which large banks de factoceased being banks to become brokers, that is they ceased being lenders to become sellers of the sophisticated but untested new synthetic financial securities. Their names are now well known if not yet fully understood by many: Asset-based security (ABS), "Collateralized Bond Obligations" (CBOs), "Collateralized Debt Obligations" (CDOs), and credit default swaps (CDS). — In financier Warren Buffett's words, they turned out to be true financial weapons of mass destruction, and they are still doing their ravages, because politicians have as yet refused to rein them in and put an end to excessive financial speculation.
II- The Energy Crisis
Economic prosperity and population growth over the last half century have been sustained in large part by the access to relatively cheap energy and by an elevated capacity to produce food. But, the age of cheap energy is about to end, and this basic source of economic growth will disappear, unless some untapped cheap oil discoveries come to the rescue.
If the age of cheap energy is coming to an end, can the world economy continue to support a fast rate of population growth? This is unlikely.
Already, we observe a reemergence of hegemonic wars for oil and resources in some parts of the world that can be explained, at least partly, by the looming energy crisis.
Not surprisingly, the United States, with less than five percent of the world population while consuming about 25 percent of the daily world oil output, is at the center of this crisis.
Nobody can deny that oil access under American control played an important role in the Bush-Cheney decision to launch an unprovoked war against Iraq in the spring of 2003. Similarly, the recent Anglo-French involvement in Libya, under the cover of NATO, had something to do with Libyan oil riches.
In a globalized and shrinking world, geopolitics and the approaching energy crisis are closely intertwined.
III- The Demographic Crisis
The world is about to have a population of 7-billion to feed and equip with the necessities of life. And a larger share of that population is going to be older as the 21st century unfolds.
Indeed, between now and 2050, the share of the population aged 60 and over is projected to increase in nearly every country in the world. All countries, both developed and developing, will be affected by this demographic shift, although in different ways. In the developing world, where fertility rates are still high (although declining), the crisis will come from too many young people without employment and too many old people living in poverty.
In advanced economies, the crisis will come from an onslaught of older citizens requiring more health care and social services at a time of economic stagnation and fiscal tightening.
The aging of the population will have a major impact on a society. For one, it will profoundly affect the economy during the next two decades, as the large contingent of baby boomers (USA: those born between 1946 and 1964; in Canada: 1946-1966) enters retirement and as mortality among the elderly continues to decline. In the U.S., 75 million people and close to one quarter of the population are baby boomers.
The retirement of baby boomers at the rate of between 3 and 4 million persons each year will redefine the basic economic structure and will create new economic, social and fiscal challenges.
Currently, in the United States, there are 3.3 workers to support each retiree, but by 2030, less than twenty years from now, this number will fall to only two. Consider also that twenty percent of Americans will be over 65 by 2050, up from 12 percent in 2005. As the consequence of the graying of America, payroll taxes and other taxes may have to be raised, which in turn will exert an important drag on economic growth. With so many retirees as a percentage of the working population, I would not be surprised to see a serious pension crisis developing in the coming years. It could arise either through uncontrolled inflation or through a general decline of the real return on capital. Either way, an erosion of pension income could ensue.
Secondly, it can be expected that some basic industries, such as manufacturing, will contract while those other industries related to health care and social services, like medicine and senior care, are destined to expand. The overall saving rate is also bound to decline, thus diminishing the pool of financing available to support new productive investments.
The result will be an economy that will become, even more than today, a service-based economy and also a more knowledge-based economy rather than being primarily a goods producing economy. With such a structural shift, unless per-worker productivity were to pick up substantially, considering that such productivity is lower in service industries, economic growth is bound to suffer and taper off.
In Canada, http://www.ic.gc.ca/eic/site/eas-aes.nsf/eng/ra02068.html for instance, average annual economic growth has registered 2.8 percent, between 1977 and 2010, but it is expected that between 2011 and 2086, mainly due to demographic shifts, economic growth could slowdown to a meager annual average of 1.6 percent. A slower economic growth means less government revenue at a time when demand for public services can be expected to increase.
That is why governments should prepare, fiscally speaking, for the expected onslaught of older citizens requiring more health care in the not too distant future.
IV-The Political Crisis
In many democratic countries, government has become the near exclusive tool of powerful private interests who use it at will to promote their narrow agendas. The cause is well known—the need to have tons of money to have access to the media, especially the electronic media, to get exposure. The result is everywhere to be seen: The people end up with the best politicians that money can buy.
The source of embedded corruption in politics is the overwhelming influence of money in politics. In the United States, things went from bad to worse on Thursday January 21, 2010, when the U.S. Supreme Court took upon itself to profoundly change the U.S. Constitution and American democracy in ruling that legal entities, such as corporations and labor unions, have the same purely personal rights to free speech as living individuals and can therefore use as much money as they wish to elect public officials of their liking.
In doing so, the U.S. Supreme Court severely devalued the individual's right to vote and made sure that the percentage of people who will bother to vote in the future will keep declining. Mind you, voter participation during the mid-term 2010 U.S. federal election, for example, was a meager 42 percent of registered voters. When a majority of the people don't even bother to vote, democracy is morbidly sick. Even though voter turnoutis generally higher in American presidential elections than for midterm contests, it was nevertheless as low as 49.1 percent in 1996 (Bill Clinton vs Bob Dole) after it had reached a high of 60.1 percent during the 1960 presidential election between Richard M. Nixon and John F. Kennedy.
A question must be raised: Who profits the most when democracy dies?
V- The Moral Crisis
Our times mark the triumph of Machiavellism, i.e. of the corrosive ideology that politics and business should not adhere to any moral principles but should only be guided by narrow political interests and by the ruthless pursuit of profits. In this endeavor, the only principle that counts is the one that says that“the end justifies the means” and that craft, deceit and greed are OK in the pursuit of political power or of economic resources. —It is against this very destructive ideology that I wrote my book “The Code for Global Ethics”. I have the deep conviction that many of our other macro crises are the result of this moral vacuum.
If we go back in history, we see that the big financial crises of the past, those of 1873-1880 and 1929-1939 for example, had pretty much the same type of causes as the one we are experiencing today: They were basically caused by a general collapse of public and private basic morality among a very small elite that pushed its exploitation of public institutions to the breaking limit. For such a small elite, there comes a time when all means justify the supreme goal of enriching itself at the expense of the rest of society. All combines, tricks and schemes become acceptable and justified by pious ideological slogans such as “the market always knows best”, the new “wealth (no matter how acquired) will trickle down”, or, for the more delusional ones among them, “God is placing all that money in my hands, therefore, I must be doing some good”!
When that frame of mind takes hold, a decline of civilization can be feared. Unfortunately, that's where we stand today.
Friday, September 9, 2011
A Few Important Causes of the Decline of the United States of America
“The deterioration of every government begins with the decay of the principles on which it was founded.”
Montesquieu, (Charles Louis de Secondat) (1689-1755)
“I am convinced that I am acting as the agent of our Creator. By fighting off the Jews, I am doing the Lord's work.”
Adolf Hitler (1889-1945), German politician and future German Chancellor, Mein Kampf, chap. 2, 1925
"I believe that God wants me to be president."
George W. Bush, American 43rd president, speech in Washington D.C., June 1, 2004
"This economy of ours is on a solid foundation."
George W. Bush, American 43rd president, January 4, 2008 (N.B.: the U.S. economy was about to enter into recession.)
"I believe that the Iraqi people will greet us as liberators."
Sen. John McCain, March 20, 2003
"We used to hustle over the border for health care we received in Canada. And I think now, isn't that ironic?"
Sarah Palin, American politician and former governor of Alaska, (admitting that her family used to get treatment in Canada's single-payer health care system, despite having demonized such government-run programs as socialized medicine that will lead to death-panel-like rationing, March 6, 2010)
“The Lord says be submissive. Wives, you are to be submissive to your husbands.”
Michele Bachmann, Rep. of Minnesota and 2012 Republican presidential candidate, (on the question of submitting to the authority of her husband, 2006). Rep. Bachmann is also a graduate of Oral Roberts University.
“Let the woman learn in silence with all subjection. But I suffer not a woman to teach, nor to usurp authority over the man, but to be in silence.”
The Bible (New Testament), 1 Timothy 2:11-12
"Think of the American economy as a large apartment block. A century ago—even 30 years ago—it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most."
Lawrence Katz, Harvard University economist, 2010
Around the world, many are baffled by what's happening to the United States. It seems that all at once the wheels are going off the cart. The American economy is in the doldrums, the American political system is dysfunctional and paralyzed, and a series of elective, far away foreign wars is ruining the country.
The U.S. economy used to be an engine of economic growth and the American political system used to be a well-oiled checks-and-balances machine that was geared toward progress and that could accommodate both leadership and compromise. Moreover, Americans can be proud that their constitution, at least on paper, is one the best in the world, having been crafted by enlightened founders who believed in individual and democratic freedom.
In this short article, I will identify what I think to be the two major causes of America's current decline. (I welcome comments.)
-The first cause is a moral one: it is related to the widespread corruption that permeates many institutions and sectors of the U.S. society, the most corrupt of them all being the political system and the corporate system. It is no accident that the epicenter where these two corrupt systems meet is at the Pentagon, an agency that reports upon reports picture as a cesspool of corruption.
The result of that widespread corruption is that the United States is now generating a sub-standard class of politicians to administer its affairs who are not the servants of the common good, but who rather serve happily the narrow money interests that finance them. The U.S. corporate elite, for the most part, has abandoned all loyalty to its country while it roams the world in order to make short-term profits at all costs and avoid paying taxes in its country of origin.
The result: wacky politicians and greedy business people are in charge.
The same can be said about the biased corporate media who have also abandoned all pretenses of neutrality and objectivity in informing the people and who have rather donned the mantle of unadulterated propaganda in order to cynically manipulate information and public opinion, to the delight of their money masters.
Things were never perfect in the past, but I would argue that the current level and scope of corruption in the U.S. society is unprecedented and is a root cause of the decline of the United States.
The second cause of American decline is more structural and more economic in nature. It is related to a widespread ignorance of the practical consequences of economic and financial globalization that began under the Nixon Republican administration (1969-1973) and which accelerated under the Republican administrations of Ronald Reagan (1981-1989) and of George H. Bush (1989-1993).
I shall tackle each of these causes separately.
I- The U. S. has abandoned its Democratic Ideals and the Quality of its Politicians is Sub-Standard
Let's talk first about the moral and political causes of American decline.
British Prime Minister Winston Churchill (1874-1965) once quipped that “democracy is the worst form of government, except for all the others.”! Indeed, democracy is a very fragile political system that can sometimes fail the very people it is designed to serve. American president Abraham Lincoln (1809-1865) defined it as “a government of the people, by the people, and for the people.”
But democracy is at its worst when an oligarchy takes control of a country's institutions and imposes its agenda. Such is the case with today's United States. Money interests, not the sovereign people, control the political system today; they control the corporate media system, they control the U.S. Supreme Courtand much of the judicial system and, I would argue, they control a large chunk of the academic system.
The results are everywhere to be seen. The United States has reached levels of inequality in wealth and income that used to be seen only in some backyard third-world countries.
Another form of political corruption and of intellectual decay is the widespread refusal nowadays to abide by article VI of the U.S. Constitution. Indeed, article VI expressly stipulates that “no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.” This would seem to me to be clear enough.
Some fifty years ago, in 1960, Sen. John F. Kennedy was elected president of the United States, stating that his religious beliefs were his own personal affair and that, as an elected official for all the people, he was going to use his best judgment in his public decisions, and not be obligated to follow the diktats of any established religion, not even of his own, the Roman Catholic Church, nor its foreign Pope.
As an indication of how much the United States has regressed on the question of separation of Church and State, consider that a presidential candidate of the quality of Sen. John F. Kennedy would most likely not be elected to office today with such a stand of intellectual independence. Mind you, most of the Fathers of the U.S. Constitution could not be elected either, a clear indication that the United States has strayed away from its founding principles.
Consider what President James Madison (1751-1836) had to say about religion in politics: “The number, the industry, and the morality of the priesthood, and the devotion of the people have been manifestly increased by the total separation of the Church from the State.” Do you really believe that President Madison could be elected today? Nowadays, in fact, religious zealots dominate the Republican party while some half of democrats think that a presidential candidate must have "strong religious beliefs" to be considered for public office. The only problem is that such a view is in direct conflict to what the U.S. Constitution says!
Mixing personal and official religion with democratic politics is a form of intellectual corruption. —It's dynamite. If the United States continues in the same destructive direction that many theocratic Muslim countries have followed for centuries, with disastrous results, I would not hesitate to predict that the U. S. will self-destruct.
II- The Widespread Confusion Between What Works in an Open Economy as Compared with a Closed Economy
Let's talk economics.
The U. S. economy, like most industrial economies, is an open economy. This means that goods and services can be exported and imported while facing a minimum of border taxes and other barriers to international trade. For a quarter of a century now, it has also meant that the U. S. economy is part of the economic globalization model. The latter goes much further than free trade: it means that corporations and banks can move their capital, technology and production plants around the world in search of the greatest profit and the best investment environment. I happen to believe that this globalization model has been pushed too far and has become a major cause of economic stagnation in the industrial economies.
When it comes to economic policies, what can work in a closed economy does not necessarily work in an open economy. Consider macroeconomic policies to stimulate a stagnant economy. In an open economy, keynesian-type stimulus policies of deficit government spending or of tax reduction do not work properly, essentially because stimulus policies of this type are the equivalent of heating a house in winter with the windows and doors wide open. The new deficit spending may help the world economy, since much of the new spending ends up abroad, but the domestic multiplier effect of such spending can be very low. This means that such an economic stimulus in an open economy may not be as effective in stimulating economic activity as hoped and, in some circumstances, it can do more harm than good.
Nevertheless, many politicians (and some economists!) cling to the old idea that lowering taxes for the rich when the government is in deficit or new non-infrastructure government deficit spending can stimulate the economy. This obviously does not work, at least not if the new deficit spending is not focused domestically. Spending deficit money in Afghanistan or in Iraq doesn't much stimulate the U.S. economy!
What works in an open economy are policies geared toward changing relative prices in order to encourage domestic production and employment. First of all, a lowering of the real exchange rate can encourage net exports and stimulate domestic production and employment, provided the government does not sustain excessive domestic absorption through unproductive large deficits.
Another approach to skew relative prices in favor of domestic production and employment is to use the tax system accordingly. Presently, many American corporations are hardly taxed at all on their profits when they operate abroad. Some appropriate taxation of these profits can encourage repatriation of capital and support additional domestic investments. It may be argued that the American political system is not flexible enough to allow for the use of tax policies to encourage domestic production and employment. If so, this would be another indication that the current state of the political system in the U. S. is inimical to economic progress.
These are only a few examples of public policies that can have a positive impact on the functioning of the economy.
In general, and that will be my conclusion, I would say that it is in the interest of any country to avoid giving power to idiots, ignoramuses, incompetents, devious and delusional characters or to demagogues. If not, watch out. —More countries are destroyed by their own politicians than by foreign armies.
Monday, August 15, 2011
The Aim Should be to Restore Confidence and Avoid a Global Economic Depression
“… if financial markets are skittish and don't have confidence in a country's fiscal soundness, that is also going to undermine our recovery."
President Barack Obama, June 27, 2011 (in a news conference at the conclusion of the Toronto G-20 summit)
"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone."
Xinhua, China's official state-run news agency, August 6, 2011
“Moderate inflation in the short run – say 6 per cent for two years ... inflation is an unfair way of effectively writing down all non-indexed debts in the economy. … But it would significantly ameliorate the problems, making other steps less costly and more effective.”
Kenneth Rogoff, Harvard economist (December 2008)
“A budget deficit is inflationary if, and only if, it is financed in considerable part by printing money.”
Milton Friedman (1912-2006), American economist
“Inflationism ... is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism.”
Ludwig von Mises (1881-1973), Austrian economist, On the Manipulation of Money and Credit, p. 48
“Inflation and credit expansion, the preferred methods of present day government openhandedness, do not add anything to the amount of resources available. They make some people more prosperous, but only to the extent that they make others poorer.”
Ludwig von Mises (1881-1973), Austrian economist, Bureaucracy p. 84
“Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism.”
Ludwig von Mises (1881-1973), Austrian economist, The Theory of Money and Credit, p. 468
"The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance."
John Maynard Keynes (1883-1946), British economist, (The Economic Consequences of the Peace, 1919)
Financial markets show signs that they have lost confidence in politicians both in the U.S. and in Europe. They have reached the conclusion that those presently in charge are not on top of things, and that either they don't understand the current economic problems their countries face or they lack the will or ability to bring forth the bold economic policies that would be required to solve them.
For one, the U.S. government looks like a ship in a storm without a captain, with President Obama and the Republican-influenced Congress stubbornly paralyzing each other. In Europe, politicians and central bankers seem to react to crisis and look like they are always behind a crisis when it occurs.
The trigger that may have persuaded many investors and consumers to adopt a more prudent approach took place on Friday August 5, 2011 when the credit agency Standard & Poor'sfinally downgraded the U.S. government long term debt from triple A to AA+, blaming the obvious incapacity of American politicians to come to grips with the government's fiscal crisis, let alone cure the nation's economic problems. Indeed, the previous week, American politicians had given the world a spectacle of rarely seen political buffoonery and confusion with some of them straight-jacketing themselves in signing ridiculous documents pledging to “never to raise taxes” while others were reverting to the primitive practice of using incantations to gods to solve the nation's economic problems. —That's nothing to inspire confidence.
All this has been seen before, as it was in Japan some ten years ago. Indeed, on Saturday February 24, 2001, Standard & Poor's downgraded the government of Japan's long term debt from its top rating of AAA down a notch to AA+, blaming the lack of needed structural reforms and rising public debt. The Japanese economy was then mired in a slow growth environment with an aging population, and was recovering from a real estate debacle, while the government's fiscal deficits were approaching 10 percent of gross domestic product and its public debt/GDP ratio was 135 percent and rising. Indeed, Japanese debt kept rising and it was downgraded many times afterwards.
Just as the United States today, Japan then had a growing public-sector debt, large fiscal deficits that its politicians seemed unable to control and to top it all off, Japan had a troubled banking sector that was also overburdened with bad debt. —The Japanese economy has languished in a relative economic stagnation ever since. Its main stock market, the Nikkei, peaked at 38,957 in December 1989 and it is still presently much lower, i.e. below 10,000. Contrary to the U.S. government, however, whose debt is 40 percent owned by foreigners, Japanese government bonds were largely held domestically, thus insulating somewhat the country from international financial markets .
It must be recognized that the present day U.S. economy never really dug itself out of the economic recession that began in 2008, with the subprime financial crisis. It is true that the National Bureau of Economic Research (NBER) has announced that the economic recession officially lasted from December 2007 to June 2009. However, with hindsight, this may have been a premature call.
Indeed, while NBER focuses on a variety of different measures of economic activity to establish its official recession dates for the whole economy, periods of recession in the labor market have recently had a tendency to last much longer than the fluctuations in national output. Presently, the U.S. official unemployment rate is still above 9 percent, as compared to 5 percent in early 2008, while the level of employment is some 6.8 million lower than it was in early 2008. (Of course, when considering discouraged unemployed workers and those forced to work part-time, the real unemployment rate in the U.S. is closer to 20 percent than to 10 percent.) Clearly therefore, from a labor market perspective, the U.S. economy is still in recession.
There is no other institution but the U.S. federal government that could, at least in theory, stir the economy from its current state of stagnation. Indeed, there is little that the central bank, the Fed, can do since it has already pushed short-term interest rates close to zero and has pumped into the economy all the liquidity it needs. Similarly, at the state level, most governments are very stressed fiscally speaking and they tend to lay off people, and thus they are contributing to the economic downfall.
Let's look briefly at the Fed's options.
Let's note that it is illusory to think that a central bank can solve a country's structural economic problems on its own through monetary means. This cannot be done. A central bank can facilitate economic growth, but it cannot create it.
For the time being, the Bernanke Fed has announced that it will keep short-term interest rates at near zero for at least another two years, after having pursued this very loose policy for the last three years, thus confirming in the minds of many investors that the ailing debt-ridden U.S. economy is dead in the water and that it resembles more and more the Japanese economy of the last twenty years.
In theory, of course, the Fed could keep printing new money, but this is unlikely to increase employment and economic growth, and may instead, in due time, have the reverse effect. In fact, the Bernanke Fed is already the largest holder of U.S. Treasury bonds ($1.6 trillion) after its numerous Quantitative Easing (QE) operations, ahead of foreign owners such as China ($1.2 trillion) and Japan ($0.9 trillion). This is equivalent to having lent new printed money to the Treasury or to have reimbursed other holders of Treasury bonds with newly printed money. Another way to look at this is to say that the Fed has been busy monetizing the US Treasury debt over the last two years, thus contributing to the demise of the U.S. dollar.
But, printing money above and beyond normal liquidity needs is a third-world recipe for disaster. This has been tried time and again with the same disastrous economic and political results, i.e. with inflation and even hyperinflation, with a drop in national savings and investments, with the destruction of people's pensions and economic security, with an outflow of capital and finally, with the impoverishment of a nation. Inflation and hyperinflation are also the bedrocks on which dictators begin their ascent.
A good example is the German Weimar Republic in the 1920s and its hyperinflation policy: It gave rise to Adolf Hitler. Those who propose inflation, instead of sound and vigorous economic policies, as a solution to the U.S.'s structural problems—and to Europe's structural problems for that matter—should think twice about the consequences of such a foolish approach.
A small additional step that the Bernanke Fed can take (a thing that it has refused to do until now) would be to stop subsidizing large banks by paying interest on the excess reserves that they keep deposited at the Fed, after ironically having borrowed the same money from the Fed itself at near zero interest rate. That should be an outrage, but American politicians seem to be asleep at the switch.
That leaves the U.S. government with the task of stabilizing the economy.
Unfortunately, it has become a cliché to observe that the U.S. government is currently more or less dysfunctional, being deadlocked into a partisan and ideological stalemate that pits a lame duck democratic President against a rudder-less Republican dominated House of Representatives. That is the source of thecrisis of confidence that has griped the markets recently. There is this uneasy feeling that nobody is in charge at a time when the economy is stagnating and could be teetering at the edge of an economic depression.
In the case cooler heads prevail, here are a few examples of reappraisals and bold policies that I alluded to before:
First of all, come to grips with the fact that the current fiscal deficit, besides the run-away cost of certain non-insurance based entitlements, can be attributed to three moves made over the last ten years:
1- The Bush-Cheney administration's tax cuts for the super rich in 2003 ($1 trillion);
2- The Bush-Paulson administration's and the Obama's administration gift to the largest banks (another $1 trillion);
3- The Bush-Cheney administrations' two wars in Afghanistan (since 2001) and in Iraq (since 2003) which have cost so far at least $1 trillion.
If ways could be found to curtail such unproductive expenditures, this would alleviate a lot of budget pressure and at least slowdown the rate of increase of the public debt.
Secondly, tax measures could be introduced to discourage American companies from exporting jobs abroad. Presently, through various schemes, most large American companies hardly pay any taxes on the earnings and profits they make by operating abroad. This put domestic job-creating investments at a big disadvantage. Non-repatriating profits, beyond a certain threshold, could be subject to a special assessment. Try it, and you will observe an inflow of job-creating capital into the U.S..
Thirdly, with aging social infrastructures crumbling, the government could embark on a ten-year Eisenhower-type infrastructure program. This would go a long way to rejuvenate the ailing construction industry.
A fourth avenue would be to reformulate immigration policies in the current context of free international trade and high domestic unemployment. In such an environment when labor-intensive goods can be imported, the need for imported cheap labor is greatly reduced and limited to very specific industries, such as agriculture.
These are only a few examples of feasible measures that a prudent government could adopt when faced with economic and fiscal structural problems.
If the economy languishes for many years, or worse, if a full-fledged economic depression ensues, the economic losses in unemployment and in lack of economic growth would be much larger than the few measures mentioned above.
Think about it.
Monday, July 18, 2011
Greece and the Euro: A Time of Excessive and Unproductive Debt and of Financial Implosion
“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”
Thomas Jefferson (1743-1826), 3rd President of the United States (1801-09)
"Having seen the people of all other nations bowed down to the earth under the wars and prodigalities of their rulers, I have cherished their opposites, peace, economy, and riddance of public debt, believing that these were the high road to public as well as private prosperity and happiness."
Thomas Jefferson (1743-1826), 3rd President of the United States (1801-09)
On the 4th of July, the credit agency Standard & Poor’s called the country of Greece for what it is, i.e. a country in de factofinancial bankruptcy. No slight of hand, no obfuscation, no debt reorganization and no “innovative” bailouts can hide the fact that the defective rules of the 17-member Eurozone have allowed some of its members to succumb to the siren calls of excessive and unproductive indebtedness, to be followed by a default on debt payments accompanied by crushingly higher borrowing costs.
Greece (11 million inhabitants), in fact, has abused the credibility that came with its membership in the Eurozone. In 2004, for instance, the Greek Government embarked upon a massive spending spree to host the 2004 Summer Olympic Games, which cost 7 billion euros ($12.08 billion). Then, from 2005 to 2008, the same government decided to go on a spending spree, this time purchasing all types of armaments that it hardly needed from foreign suppliers. —Piling up a gross foreign debt to the tune of $533 billion (2010) seemed the easy way out. But sooner or later, the piper has to be paid and the debt burden cannot be hidden anymore.
Greece's current financial predicaments (and those of other European countries such as Spain, Portugal, Ireland and even Italy) are not dissimilar to the ones Argentina had to go through some ten years ago. In each case, an unhealthy membership in a monetary union of some sort led to excessive foreign indebtedness, followed by a capital flight and a crushing and ruinous debt deflation. In the case of Argentina, the country had decided to adopt the U.S. dollar as its currency, even though productivity levels in Argentina were one third those in the United States. An artificially pegged exchange rate of one peso=one U.S. dollar held for close to ten years, before the inevitable collapse.
Indeed, membership in a monetary union and the adoption of a common currency for a group of countries can be a powerful instrument to stimulate economic and productivity growth, with low inflation, when such monetary unions are well designed structurally, but they can also turn into an economic nightmare when they are not.
Unfortunately for many poorer European members of the euro monetary union, the rules for a viable monetary union were not followed, and its unraveling in the coming years, although deplorable, should be of no great surprise to anyone knowledgeable in international finance.
What are these rules for a viable and stable monetary union with a common currency?
1- First and foremost, member countries should have economic structures and labor productivity levels that are comparable, in order for the common currency not to appear persistently overvalued or persistently undervalued depending on any particular member economy. An alternative is to have a high degree of labor mobility between regional economies so that unemployment levels do not remain unduly high in the least competitive regions.
2- Secondly, if either one of the two above conditions is not met (as is usually the case, since real life monetary unions are rarely “Optimum Currency Areas”), the monetary union must be headed by a strong political entity, possibly a federal system of government, that is capable of smoothly transferring fiscal funds from surplus economies to deficit economies through some form of centrally managed fiscal equalization payments.
This is to avoid the political strains and uncertainty when the standards of living rise in surplus regional economies and drop in regional deficit economies. Indeed, since the regional exchange rates cannot be adjusted upward or downward to redress each member country's balance of payments, and since the law of one price applies all over the monetary zone, this leaves fluctuations in income levels and employment levels as the main mechanism of adjustment to external imbalances. —This can turn out to be a harsh remedy.
Indeed, such a system of income or quantity adjustment rather than price adjustment is somewhat reminiscent of the way the 19thcentury gold standard used to work, albeit with a deflationary bias, except that it was expected to have price and income inflation in surplus countries and price and income deflation in deficit countries, caused by money supply expansions in surplus economies and money supply contractions in deficit economies. In a more or less formal monetary union, we are left with income inflation and deflation while the central bank holds the rein on the overall price level.
3- A third condition for a smoothly functioning monetary union is to have free movements of financial and banking capital within the zone. This is to insure that interest rates are coherent within the monetary zone, adjusted for a risk factor, and that productive projects have access to finance wherever they take place.
In the U.S., for instance, the highly liquid federal funds marketallows banks in temporary deficit in check clearing to borrow short-term funds from banks in a temporary surplus position. In Canada, large national banks have branches in all provinces and can easily transfer funds from surplus branches to deficit branches without affecting their credit or lending operations.
4- A fourth condition is to have a common central bank that can take account not only of inflation levels but also of real economic growth and employment levels in its monetary policy decisions. Such a central bank should be able to act as lender of last resort, not only to banks, but also to the governments of the zone.
Unfortunately for the Eurozone, it currently fails to meet some of the most fundamental conditions for a smoothly functioning monetary union.
Let's look at them one by one.
-First, labor productivity levels (production per hour worked) vary substantially between the member states. For example, in 2009, if the index of productivity level in Germany was 100, it was only 64.4 in Greece, nearly one third lower. In Portugal and Estonia, for instance, it was even lower at 58 and 47 respectively. What this means is that the euro, as a common currency, may appear undervalued for Germany but overvalued for many other members of the Eurozone, stimulating net exports in the first case but hurting badly the competitiveness of other member countries.
-Secondly, and possibly an even more important requirement, the Eurozone lacks the backing of a strong and stable political and fiscal union. This leaves fiscal transfers between member states to be left to ad hoc political decisions, and this creates uncertainty. In fact, there are no permanent mechanisms of equalization payments between strong and weak economies within the Eurozone. —For this reason, we can say that there is no permanent economic solidarity within the Eurozone.
-Thirdly, the designers of the Eurozone elected to limit the European Central Bank to a narrowly defined monetary role, its central obligation being to maintain price stability, while denying it any direct responsibility in stabilizing the overall macroeconomy of the zone and preventing it from lending directly to governments through money creation, if needs be. —For this reason, we can say that there is no statutory financial solidarity within the Eurozone.
Finally, even though capital and labor mobility within the Eurozone is fairly high, historically speaking, it is far less secured, for instance, than it is the case with the American monetary union.
In retrospect, it seems that the creation of the Eurozone in 1999 was more a political gamble than a well-thought-out economic and monetary project. This is most unfortunate, because once the most estranged members of the zone begin defaulting on their debts and possibly revert to their own national currencies, the financial shock will have real economic consequences, not only in Europe, but around the world.
Many economists think that the best option for Greece and the rest of the EU should be to engineer an “orderly default” on Greece’s public debt which would allow Athens to withdraw simultaneously from the Eurozone and to reintroduce its national currency, the drachma, at a debased rate. This would avoid a prolonged economic depression in Greece.
Refusing to accept the obvious, i.e. an orderly default, would please Greece's banking creditors but will badly hurt its economy, its workers and its citizens. That's what bankruptcy laws are for, i.e. to liberate debtors from impossible-to-repay debts.
Of course, the most debt-ridden nation on earth is not Greece, but the United States. Let me say this as a conclusion: If American politicians do not stop playing political games with the economy, a lot of Americans are going to suffer in the coming months and years, and this will spill over to other countries.
With Europe and the United States both in an economic turmoil, this is very bad news for the world economy.
Friday, April 1, 2011
The Danger of a Reform-Conservative Majority Government in Canada
N.B.: This is a blog for those of you who are interested in the coming general election in Canada, to be held on Monday, May 2, 2011.
“We respectfully point out that the opposition parties, who together constitute a majority in the House, have been in close consultation.”
Letter sent to the Governor-General and signed by Stephen Harper on September 9, 2004
“If Canadians do not vote for a majority [reform-conservative coalition] government, Michael Ignatieff will form a coaltion [government] with the Bloc and the NDP.”
Stephen Harper on Sunday, March 27, 2011
"There have always been two Harpers. ...The real Harper always comes out when he thinks he can't be heard."
Michael Ignatieff, liberal Leader
"As long as they work, parties will use [political attack ads], the only difference today being that the Harper party deploys more of them than any party in Canadian history."
Jeffrey Simpson, Globe & Mail national affairs columnist, March 11, 2011
“You know, there's two schools in economics on this. One is that there are some good taxes and the other is that no taxes are good taxes. I'm in the latter category. I don't believe that any taxes are good taxes.”
Stephen Harper, Canadian Prime Minister (July 10, 2009)
"I think all Canadians have to recognize that we have the smallest man on the world stage that it's possible to imagine, and that's Stephen Harper."
Bob Rae, Liberal foreign affairs critic (July 10, 2009)
I- A Majority Harper Government?
There will a general election in Canada on Monday, May 2, 2011. After a little more than five years (since February 2006) of a disastrous Harper-Reform-Conservative coalition minority government that was finally defeated on a motion of contempt of Parliament, the overriding central issue during this election is whether Canadians really want to elect a Harper-Reform-Conservative majority government.
Because of a weak and divided opposition and an obsolete electoral system, that may be the outcome of the coming election if Canadians do not wake up and consider the danger that would represent five years of a Harper-Reform-Conservative coalition majority government.
This blog will analyze the damage done by Harper's Reform-Conservative coalition and will conclude on practical means for avoiding a repetition of previous elections when the democratic wish of the majority of Canadians was denied by abstentionism and by vote splitting among candidates, thus contributing de facto to electing Reform-Conservative candidates with a minority of votes.
II- Harper's Cynicism and his Politics of Fear
Politics is a fertile land for hypocrites, where politicians may say one thing and do the contrary. This is especially true when a politician says something while in the opposition but sings another tune when he is in power.
On that score, Canadians have witnessed a lot of political hypocrisy recently. And Canadian politician Stephen Harper, head of a Reform-Conservative minority government in Canada for the last five years and an Evangelical Christian of the fundamentalist variety, has certainly shown a strong penchant for cynicism and hypocrisy.
For instance, when in the opposition, he was in favor of an open and accountable government; once in power, however, he ran one of the most secretive governments in Canadian history. Case in point, the Harper minority government has even gone as far as refusing to divulge to Parliament the cost of Canada's involvements in Afghanistan, pretending that it is a “state secret”!
On the whole, Harper and his reform-conservative coalition have been running a minority government in Canada with slightly more than one third of public support, but they did it as if they had a majority government and as if they had a democratic mandate to do so.
[Harper's Reform-Conservative coalition obtained 37.6% of the votes in the 2008 election and led a minority government with 143 seats out of 308. The other political parties represent 62.35% of Canadians and hold 163 seats.] —If there has ever been a denial of democracy, that's it.
In reality, close to two-thirds of Canadians disapproved of Harper's far-right extremist policies. But because of the splitting of votes among five different political parties, Harper and his rightist coalition have been able to form a minority government and govern nearly at will, essentially by pitting one opposition party against another. Harper's party has benefited greatly politically from the fact that his opposition is divided and from the fact that the current liberal leader, Michael Ignatieff, seems unable to articulate a coherent political message and, according to polls, is dead in the water. His opponents seem to have succeeded in framing him as an inexperienced, aloof and disconnected leader.
III- The Bogus Issue of Majority Rule through a Coalition
Stephen Harper, who is himself head of a Western-based Reform-Conservative coalition, has attacked his adversaries and accused them of hoping to form a coalition government along the lines of those presently in power in Great Britain and Germany, and in a host of other democratic countries (France, Australia, India, Israel, Italy, etc).
Besides the fact that there is nothing wrong or illegitimate with a coalition of elected political parties in a representative parliamentary democracy—quite the contrary—the outrage comes from the fact that Harper has ruled the country for five years with the support of a minority of voters and that he himself contemplated forming a coalition with other parties when he was in the opposition in 2004, after having merged his own Alliance party (formally the Canadian Reform Conservative Alliance) with the Progressive Conservative Party in 2003. (See the above quote.)
But today, Harper's strategy is tainted with hypocrisy and exploits the politics of fear. As Harper tries to present it, a government formed by excluding the party winning the largest number of seats, without gaining a majority, is anti democratic. —This is a complete fallacy. In saying so, he is trying to create confusion in the minds of voters and scare them into supporting his own coalition party, while demonizing the other political parties in the most undemocratic way, and all the while ignoring fundamental issues and problems.—This is shameful.
I happen to believe that the liberals and their current leader, Michael Ignatieff, a Harvard professor for thirty years, should logically imitate the Reform-Alliance and Progressive Conservative parties that merged and united the Canadian right. (Note that S. Harper dropped the word “progressive” from the new Conservative party!) At the very least, they should aim at not splitting the center-left vote between the Liberals, the New Democrats and the Green Party.
Structurally, the Liberal Party and the NDP (New Democratic Party) should probably also formally merge in order to present a more credible progressive alternative to Harper's rightist coalition. But Ignatieff's political inexperience recently showed when he fell head first into Harper's astute trap by ruling out in advance any coalition with other duly elected parties, even if only circumstantial. —Let's call it what it is: Ideological purity but political stupidity.
Ignatieff is not in power and could likely never be, unless he can stop Harper from bullying him, defaming him and framing the issues. For instance, he should have told Stephen Harper that it is not up to him to decide who among the elected parties is to form the Canadian government, but to the Canadian electorate. Unfortunately instead, he caved in to Harper.
He should also have taken the initiative in proposing to hold a referendum about adopting a system of proportional representation for Canada, in order to avoid the scandalously undemocratic outcome when a party with 30 percent of popular support ends up as the governing party for 100 percent of the population. That's the dictatorship of the minority; that's not a true democracy.
But let's move on and let's cast our sight on what the Canadian government under Stephen Harper has done.
IV- A Denial of Democracy
Domestically, the Harper reform-conservative coalition minority government has eroded democracy in numerous ways: It has been formally accused and has been found in contempt of Parliament.This is the first time in Canadian history that a minority government has been found in contempt of Parliament.
Moreover, this was not the first time that Harper has shown his disdain for democracy. In 2008, Harper went so far as having the Canadian Parliament prorogued in order to avoid a vote of non-confidence that would have paved the way for the Liberal party and the NDP to form a new government with the support of a majority of the House of Commons. Such a unilateral prorogation of Parliament had never been done during peace time (it was done only once before, in 1917, during World War I) and represents a very unhealthy precedent.
Domestically also, while pretending to be against crime, the Harper coalition minority government has done its utmost to make the ownership of dangerous firearms as widespread as possible, even in large urban areas. The Harper coalition is against gun control of any sort, just like their far-right counterparts to the South. This may bring comfort to some of its rural supporters, but it is a tragedy for people living in large urban areas whose life is threatened daily by the easy availability of guns.
V- Harper has Turned Canada into a Client State of the USA
On the international scene, nobody can deny that Harper, an avid admirer of American politician George W. Bush and a far out conservative, has done more than any other Canadian politician to destroy Canada's independent and peace-maker image around the world, while presenting Canada as a full-fledged American colony. Harper has also adopted a rigid support of the state of Israel, no matter the political cost to Canada, placing his own extremist religious ideology ahead of Canada's interests and the wishes of a majority of Canadians.
The consequences are all there to be observed: On October 12, 2010, for the first time ever, all Canadians were deeply humiliated when Canada lost a vote to become a member of the United Nations Security Council. Many countries, it seems, did not want the United States—which already has one of the five current vetoes at the Security Council—to have two automatic votes in this body. Canada has lost its international identity.
VI- Harper has Introduced Negative Campaigning and Attack Ads into Canadian Politics
Politically, Harper and his far-right coalition have sent Canadian politics into the gutter, by relying massively on negative campaigning rather than on raising issues and on persuading voters of the merits of their proposals, and by importing into Canada the despicable American practice of negative attack adsand of “ad hominem” attacks designed to assassinate the character of their political opponents. In a fascist and demagogic McCarthy-style way, Harper has stooped so low as to question Liberal Leader Michael Ignatieff’s patriotism.
Attack ads are certainly one of the main reasons why voter turnout in Canada on election day has gone from 61% in 2000, which was a record low, to an even lower 59% in 2008, reflecting the disgust and apathy of an increasing number of Canadians toward elections and politicians.
VII- Harper has Accelerated the Sell-Out of Canadian Companies and Placed Canada's sovereignty at risk
Regarding the economy, it is recognized that Canada has greatly benefited from the current commodity price boom because of its oil and natural resources. As a consequence, and because of the U.S. Fed's policy of devaluating the U.S. dollar as well as other factors, the Canadian dollar is presently at a 30-year high. This is good news for Canadian importers and consumers, but a mixed blessing for exporters.
While Canada is faring better economically than the United States, in great part because the structure and regulation of the Canadian banking system did not permit the type of speculative excesses that the U.S. allowed, the economic recession has been milder in Canada than in the United States. Nevertheless, the unemployment rate in the largest manufacturing province, Ontario, is still at 8.0%, which is above the national average of 7.8%. But since mid-2009, employment has been increasing in Canada, a factor that plays in favor of Harper's Conservatives through no merit of their own.
Nevertheless, Canadians have to be worried for some questionable economic policies that the Harper's minority government has pursued and which have the potential to create problems down the road.
–A glaring example is the cavalier attitude adopted by the Harper minority government toward the foreign control of Canadian natural resources companies to foreign interests.
Already two-thirds of the Canadian mining industry is under foreign control. Under Harper's Reform-Conservative coalition minority government, this trend has continued and has even accelerated. His minority government has adopted a policy of rubber-stamping the foreign takeover of some of the most basic Canadian resource industries.
As a consequence, here is a very partial list of large Canadian companies that Canadians cannot invest in because their control has moved abroad: Alcan, Stelco, Dofasco, Inco, Falconbridge, Nortel, Hudson's Bay Company, Molson... even the Montreal Canadiens. Renters in their own home, that's what Canadians are becoming under the misguided policies of Harper & Co who do not have the A-B-C of an industrial strategy for Canada.
And when the Harper government intervened, such as in the case of the impending foreign takeover of Saskatchewan-based Potash Corp., it was not as a matter of conviction and policy, but only because the Premier of Saskatchewan Brad Wall threatened Harper, an Albertan MP, with the political fight of his life if he did not block the foreign takeover.
But make no mistake about it; the Harper Reform-Conservative party has on its agenda to allow the sale of Canadian cultural industries, including Canadian communications and media companies, to foreign interests. This could include public and private cultural and communications industries such as the CBC, the National Arts Center, Bell Canada, etc., even though such a policy is overwhelmingly opposed by the Canadian people who believe cultural industries and communications industries are too important to Canada's national security and cultural sovereignty to be under foreign control.
Case in point: All Conservative MPs voted against a motion in the House of Commons on May 30, 2006, calling for the retention of current restrictions on foreign ownership in the cultural sector. Imagine what they would do if they were in charge of a majority government! They are firm believers in the god-market and for them, the cultural identity of a nation simply does not matter.
–Another example is the Harper government's fiscal policy that has been anything but conservative and prudent. Indeed, after eleven years of previous liberal balanced budgets, the Harper minority Conservative government has been the biggest deficit spender in Canadian history. Since taking office in 2006, it has piled up yearly deficits equal to $122.3 billion in five years, with the result that this has inflated the size of the federal government debt by some 26 percent.
One main reason for this fresh public borrowing was the need to finance a huge expansion in defense spending. Canadian military spending is now higher than it was during the Cold War or at any time since the end of the Second World War. The fact that Canada is spending more on military gear and less on diplomacy is a bad omen for the country's future and the future of the Planet.
The Harper minority Government’s recently announced plan to purchase a fleet of new F35 fighter jets, a type that cannot be used for defense but rather for military missions abroad, is indicative of the type of role it wants Canada to play in the world. That expenditure alone will cost about $29 billion, almost double what the government had initially accounted for, and is another sign that this trend to channel public spending toward the military will continue under a future Harper government, along with the possible neglect of such basic social needs as health and education.
VIII- Other Dubious Harper Policies
Harper's conservatives can be justly criticized for a host of other dubious policies that would be too long to elaborate. Let us mention just a few:
–Harper's pettiness and irresponsibility were amply demonstrated when his government gutted the mandatory long census formfor political and crassly partisan reasons, against the official protestations of Statistics Canada, most Canadian demographic and social researchers, and people from a wide range of sectors. Harper gave the impression that one does not need essential demographic information to govern.
–The Harper minority government has dragged its feet in the fight against global warming and against the degradation of the environment. In fact, it has positioned Canada as a fierce opponent of extending the greenhouse-gas reduction Kyoto treaty, thus undermining further Canada's reputation around the world. Canada ratified the Kyoto protocol in 2002, when Jean Chrétien's Liberals were in power. This is no longer the type of leadership that Harper wants Canada to play around the world. It's no wonder that Canada was unsuccessful in getting enough support to win a seat at the United Nations Security Council.
–Stephen Harper also has a very poor record on women’s rights. In 2006, soon after taking office, Stephen Harper broke a promise he had made during the 2006 election campaign to “take concrete and immediate measures... to ensure that Canada fully upholds its commitments to women.” Instead, Harper quickly removed 'the pursuit of equality' from the mandate of Status of Women Canada (SWC) and made it sure that SWC could no longer fund any organization that did research, advocacy or lobbying to promote women's equality. So much for protecting women's rights.
IX- A Far-Right Agenda
Let me say that when politician Stephen Harper professes that no taxation is legitimate in a democracy (see his July 10, 2009 quote above), he reveals how much he is a tea-party extremist. Only libertarian extremists and full-fledged anarchists believe that all taxes are bad and that a civilized society can get along without them.
Stephen Harper has amply demonstrated that he is a dangerous far-right ideologue, probably the most right-wing prime minister that Canada has ever had. Luckily, so far his right wing coalition has never gotten a majority of seats; but if he were to gain a majority, his campaign to destroy Canada by implementing his extreme political agenda would take a new twist and Canadians may live to rue that day.
IX- A Practical Conclusion
What does all this mean in practice?
It means that in a political system that does not have a proportional representation feature, such as the Canadian electoral system, a vote cast for a 3rd or 4th party candidate who has no chance of being elected is de facto a vote for the Harper-Reform-Conservative candidate. Such a vote indirectly can contribute a lot toward the election of a majority Harper-Reform-Conservative government.
In other words, when people abstain from voting or when they give their support to a candidate who has no hope of winning, they end up, whether they like it or not, contributing to electing the candidate, the party and the leader who may possibly be the most inimical to their interests and values.
The conclusion for this election seems clear: In many closely contested ridings, especially in British Columbia and in Ontario, the motto should be: “No Majority Victory for Harper and his Right-Wing Cohort”.
Every Canadian voter opposed to a majority Harper government should seriously consider voting his overall interests and values, even if that means not voting for his preferred candidate, but rather voting for the candidate who has the best chances of defeating Harper's candidate.
If not, you may wake up on May 3rd with a Harper-Reform-Conservative majority government that will impose on you their rigid far-right political agenda, even with a minority of votes. —Think about it.
Friday, March 18, 2011
For a Better Global Civilization*
"Sometimes people hold a core belief that is very strong. When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit in with the core belief."
Frantz Fanon (1925-1961), French psychiatrist, philosopher, revolutionary, and author, born in Martinique
“One must have a strong mind and a soft heart... The world is full of people who have a dry heart and a weak mind.”
Jacques Maritain (1882 – 1973), French philosopher
"The Seven Blunders of the World are:
1. Wealth without work;
2. Pleasure without conscience;
3. Knowledge without character;
4. Commerce without morality;
5. Science without humanity;
6. Worship without sacrifice;
7. Politics without principle.”
Mahatma Gandhi (1869-1948), Indian political leader, (“Mahatma”means “Great Soul”)
This year in 2011, we will be 7 billion people sharing Planet Earth, most of the recent increase in world population originating in the developing world, as has been the case since 1950. We were 3 billion people in 1960 and we will be three times that in 2050, i.e. 9 billion people. That's a lot of people who will have to learn how to live together, if they don't want to perish together.
To show you how big the number “7 billion” is, just consider that if you were today to begin counting 1, 2, 3, etc., (at the pace of one number a second), it would take you some 115 years to reach the number 7,000,000,000 (seven with nine zeros).
I- Economists and Ethics and Morality in General
Even though this may be a surprise to some, economists are very much concerned with the moral environment in which an efficient economy functions. That is because an environment of moral decay, corruption and savagery is not conducive to economic development, economic growth and economic progress in general. It is more a recipe for decadence, economic stagnation and poverty.
It has often been observed through history that economic and financial crises and widespread poverty are accompanied by moral decadence, excessive greed, widespread ignorance and by private and public corruption, as well as an unhealthy widening of the gap between rich and poor.
These are characteristics that can surely apply to our current environment. Unfortunately, I also think that things are getting progressively worse, not better, in the sense that I have the uneasy feeling that the world seems to be regressing morally, paradoxically at a time when economic development and education have reached a high level in many countries–and paradoxically also, at a time when religion in general seems to play a larger role in the politics of many countries, and that includes the United States–maybe above all, the United States.
This is what persuaded me to write a book about ethics on a global scale that only superficially seems to be unrelated to the nitty-gritty of economics, finance and the quest for prosperity. In fact, I believe that good ethics is the foundation of good economics.
I am very worried about the future prosperity of our nations, and I ask myself how we can avoid falling into moral regression and even to moral tribalism in this modern global age, and how on the contrary it could be possible to progress morally.
In the past, many well known economists have framed economics in similar moral terms.
For example, Adam Smith (1723-1790) wrote “A Theory of Moral Sentiments” some 20 years before he wrote “The Wealth of Nations” in 1776.
The same applies to David Hume, well known for his theory of the “Balance of Payments” (still relevant today) and who wrote “A Discourse about Natural Religion”, a book so critical of organized religion in his times that he arranged for the book to be published posthumously, for fear of severe reprisals.
II- The sources of our morality
Let me say a few words about the sources of our morality.
We often talk about our judeo-christian civilization. In fact, this expression is incomplete, and somewhat inaccurate and misleading. It would be more accurate to refer to our greek-babylonian-egyptian-arab-judeo-christian civilization. This is because many of our core moral values come from far away times, some going back 4, 5 or 6,000 years, when most people were illiterate and only a few leaders and priests could read and write.
I will mention rapidly only two important such sources from a historical point of view, which are both secular and religious in nature:
1- Code of Hammurabi (around 1750 BC): 6th King of Babylon
A few words about the Babylonian Hammurabi Code. It was the first written code of laws in human history. It is a Code inscribed in the Akkadian language, carved into stone, and which one can view today on display in the Louvre, in Paris. It can also be found on various clay tablets.
It is a Code that students of law, and I would hope of theology, are prescribed to study.
The Hammurabi Code was written by the 6th Babylonian king and it consists of 282 laws, rules and commandments, one of which is the well known Hebrew rule of "an eye for an eye, a tooth for a tooth" (lex talionis), which is much more Babylonian than Jewish, (it is rule # 200 in the Hammurabi Code), and it was written more than 500 years before Moses' Commandments (around 3750 years ago vs. 3200 years ago for Moses).
Some of today's harsh Islamic rules can be found among the 282 rules of the Hammurabi Code. For instance, the Hammurabi code states that “If a son strikes his father, his hands shall be cut off.” (rule #195 of the Hammurabi Code).
Or again (rule #205): “If the slave of a freed man strikes the body of a freed man, his ear shall be cut off.”
This is probably where the Islamic idea of cutting off a thief's hand comes from!
So, we can say that Judaism and Islam took many of their harsh moral rules from the Babylonians.
As for Christianity, and to a certain extent also Judaism, many of its moral rules seem to come directly from the Egyptians, especially from the Egyptian code in The Book of the Dead (Chap. 125), which was written on papyrus some 3,550 years ago.
That's where we find the inspiration for many of Moses' Hebrew 10 Commandments, written about 300 years later. (Keep in mind that Moses spent 40 years in Egypt and that he surely learned the Egyptian commandments by heart).
For example, we find these commandments in the Egyptian Code:
“Thou shalt not kill.”—“Thou shalt not commit adultery.” —“Thou shalt not steal.” —“Thou shalt not bear false witness against thy neighbor.”...etc.
There is even a prayer in the Egyptian Book of the Dead that strangely reads like the Christian “Our Father”:
PRAYER to the gods of the underworld:
“Hail, gods, who dwell in the house of the Two Truths. —I know you and I know your names. —Let me not fall under your slaughter-knives. —And do not bring my wickedness to Osiris, the god you serve. —Let no evil come to me from you. —Declare me right and true in the presence of Osiris, because I have done what is right and true in Egypt. —I have not cursed a god. —I have not suffered evil through the king who ruled my day.
Our moral rules are very ancient and they come from many sources, both secular and religious. Indeed, in ancient times, political leaders liked to dress as religious leaders because this gave them more legitimacy. But such rules were also designed for a social, political and economic environment that was quite different from the one in which we live today.
III- EMPATHY, TOLERANCE and SHARING
If we now concentrate on the present and the future, we may ask ourselves how we can go further than what these ancient moral codes dating from 3,000 or 4,000 years ago have taught us.
Since many of our problems did not exist 3,000 or 4,000 years ago, it would seem logical that we should design our moral rules in a more modern way.
Personally, I am very concerned about how civility and morality can help us to progress as human beings in a changing environment and, I believe, a more demanding environment today—but more realistically, in the coming decades and even centuries.
This motivated me in “The Code for Global Ethics,” to place a special emphasis on three interrelated moral imperatives that have always been sound moral values, but which I feel will become increasingly required for humanity to go forward and survive.
And I refer to:
– more human EMPATHY, – more interpersonal TOLERANCE, and – more interpersonal SHARING (altruism and generosity) as a foundation for a more harmonious, for a freer and for a more prosperous world. (In practical matters, if we think about it, both altruism and tolerance are really derived from our level of empathy toward others.)
Let me quickly define empathy:
To have empathy towards others is to have the capacity to feel for others by imagining ourselves to be in their place and to act accordingly.
This is simple in theory, but difficult in practice.
Indeed, I think that to have empathy for others and to see things from their perspective (not only our own) is the foundation of all human morality and the necessary ingredient for a more advanced global civilization.
Our understanding of the human brain and of its functioning (and the new field of “neurotheology” is most useful in this) is that morality and empathy are buried deep in our genes and even in some precise parts of the brain, as a consequence of human evolution and the requirement to live in groups for survival. However, so were other, anti-social and egoistical traits such as savagery and cruelty, also part of the requirement for survival in the distant past when survival was more a daily challenge than today.
And, it's here that I would hope that the world will adopt more readily what I call the Empathy Principle for the present, but especially for the future.
According to the empathy principle, one must aim at treating others as if one were in their place, and not necessarily expecting reciprocity as is the case in the traditional Golden rule of morality that one finds in virtually all moral systems (“Do to others as you would have them do to you”).
The empathy principle can thus be framed this way: "Do to others what you would wish to be done to you, if you were in their place."
That is why I say that empathy can be the solid foundation of a more civilized global society based on the solidarity of all human beings. It is the awareness that other people can suffer, be happy and flourish just as one does, and that one should treat others accordingly.
Therefore, what I call the Super Golden Rule of morality goes further than the traditional Golden Rule based on implied reciprocity, i.e.:
"Not only do to others as you would have them do to you”.
But also,“do to others what you would wish to be done to you, if you were in their place." The emphasis may seem subtle at first blush, but the consequences are considerable.
In practice, this moral principle requires that we judge whether an act is moral or not as if we did not know in advance if it would apply to us or to others. This is sort of a blind test of human justice that John Rawls (1921–2002) is famous for (See: A Theory of Justice).
What does that really mean in practice?
It means, for example,
—that racism is morally wrong because you would not want people to treat you badly if by chance of birth you were of another race;
—that sexism is wrong because you would not want to be treated disrespectfully if by chance of birth you were of the opposite sex;
—that torture is wrong because you would not want to be tortured if you became a prisoner at the mercy of prison guards;
—that wars of aggression are wrong because you would not want to have your country invaded militarily by another simply because it had invested less in armaments than another, —that our collective system of mutual help must apply to all, not knowing in advance who will be advantaged or disadvantaged.... etc. etc. etc.
It also means that the modern apologists of egocentrism, egoism and greed as the moral foundation of our society are wrong, morally wrong, (and I would add, economically wrong.)
As an economist but also as a humanist, I believe that collectively, we must aim at creating the greatest good for the greatest number of people, not the maximizing of purely selfish personal financial objectives.
Many economists, and I am one of them, believe along with British philosopher Jeremy Bentham (1748-1832) that the pursuit of money does not necessarily lead to personal happiness and to general well-being. Happiness is more than money and power.
Indeed, many studies have shown that while it is true that well-being tends to rise with income, it also tends to level off after reaching a certain level. Surveys show, for example, that many people often prefer to earn less rather than be deprived of sleep time, or rather than commute long distances, or rather than living away from friends. This is a reflection of the notion that economics and money are not everything in making people happy and satisfied. There are other values in the moral scale of things, and that's what I would like to emphasize.
It is said that no man is an island, and this is even more true today than ever as our world becomes more complex and more globalized.
As I said, this Super Golden Rule of human morality could indirectly encompass the idea of moral reciprocity, but it goes much further towards genuine altruism, compassion and human empathy. It truly defines our moral obligations to others in positive terms about what should be done—not in negative terms with the implied fear of retaliation for bad behavior (“Don't do to others what you would not like to be done to you, because they may do it to you if you mistreat them”).
I think that such an approach to morality is likely to impose itself in the future as human beings realize more and more that they are all living on the same small Planet, and that if they want to survive collectively (and not repeat the disastrous experience of the dinosaurs who became extinct some 65 million years ago, after roaming the Earth for close to 200 million years.)
Actually, however, in terms of longevity, the dinosaurs were a great success. It should be humbling to consider that the first humans appeared less than two million years ago, and our more recent ancestor, the homo sapiens sapiens, less than two hundred thousand years ago.
But, as I see it, the world today faces a fundamental moral dilemma.
—On the one hand, we live in an environment in which technology and scientific progress—as we would expect—have made survival somewhat easier for many populations.
—On the other hand, economically, this is done increasingly in a competitive global context, and this could have potentially perverse effects on our tendency to feel empathy for others.
Overall economic wealth is increasing at the same time as income and wealth inequalities are also sharply on the rise.
– Let me open a parenthesis to say that, as a matter of fact, income and wealth inequalities are as bad today as they were just before the Great Depression of the 1930's.
(In the U.S., for example, the top 1% of the richest Americans now own 40% of the nation’s total wealth. These devastating statistics give an indication of why this is so: The average CEO in the U.S. made 42 times the average worker’s pay in 1980, 85 times in 1990 and 531 times in 2000, that is a 12-fold relative increase in just 20 years.)
And the consequences are all there to be seen. Such a concentration of money in a few hands has tilted the American political process toward money and plutocracy as never before. It has reduced considerably the influence of the average citizen, and it has hurt democracy.
All this may have catastrophic effects in the long run.
IV- Troubling findings of A Recent Study
And some moral tendencies are also worrisome.
It is even possible that we have entered a period of moral regression, not of moral progress.
For example, the current generation of college students in the United States has been found to show an empathy index that is about 40 per cent lower than 20 or 30 years ago.
(See study by Ms. Sara Konrath, a researcher at the University of Michigan Institute for Social Research, of 72 different studies of American college students conducted between 1979 and 2009).
Compared to college students of the late 1970s, indeed, a recent study found that college students today are less likely to agree with statements such as:
"I sometimes try to understand my friends better by imagining how things look from their perspective"
"I often have tender, concerned feelings for people less fortunate than me."
There seems to be a growing emphasis on the self, self-centered goals, and on personal greed and on personal success at any cost, accompanied by a corresponding devaluation of other people and of their needs.
Moreover, it has been found that the biggest drop in empathy took place most recently, i.e. after the year 2000. In other words, the moral environment seems to have taken a turn for the worse at the beginning of the new century.
Because of these findings, it has been said—maybe with some exaggeration—that the current "Me Generation" is one of the most self-centered, narcissistic, competitive, confident and individualistic in recent history. One possible explanation could be that the current generation of college students grew up with a huge exposure to violent media and video games that tend to trivialize violence and to numb people to the pain of others.
And there is also the influence of television, which is a cold and passive medium, because it tends to isolate people from each other and predisposes them to be victim of propaganda.
The advent of economic globalization can also carry part of the blame. Global competition is more acute nowadays than before, global corporations playing one country against another, one government against another, in their quest for higher profits.
In such an economic environment of unfettered international and domestic competition, the nation-state has come to count less and less in economic decisions and as an instrument of social justice, so people may develop the feeling that their institutions, from schools to Congress to the Supreme Court to business, are failing them, are irresponsive to their interests, and are even turning against them. In the United States, the republic is less and less a nation-state and more and more an empire devoted to promote narrow corporate interests. (I even wrote a book about that and it is titled “The New American Empire”.)
People increasingly have the feeling that the world is being organized around powerful organizations and that individuals count less and less.
My own deep feeling is that economic globalization may have gone too far, too fast, with the unfettered international movements of capital and corporations alike being added to the free trade of goods, thus breaking the balance between capital and labor in the economico-social system.
Indeed, since labor is much less mobile internationally than capital and corporations, labor is now at a considerable disadvantage.
Add to that the fact that capital owners and corporations increasingly resort to outright corruption and use their access to money to set the political agenda and, more often than not, to influence and even control politicians and governments (for the reasons I have outlined), and you can understand the despair that many people face in such a degrading moral environment.
That could be another reason why young people tend to be more self-centered today than in the past. It is because the level of competition is higher today than in the past and because people feel somewhat abandoned by their institutions, even estranged from them, be they the business corporations, the governments or even families, which are disintegrating faster today than in the past.
At the moral level, if American college undergraduates are losing the ability to empathize with other people, this could be bad news for the future, because they will be the leaders of tomorrow. What type of world are they announcing? A world of “dog eats dog”, or a world of cooperation and mutual respect? Can such a dangerous trend be reversed? One would certainly hope so.
But wait: As if things are not bad enough, now we are told by paleontologists that the average human brain has been shrinkingover the last 20,000 years and that if things keep going in the same direction, the human brain may go back to the size it had in the age of homo erectus, some 500,000 years ago!
There is the unpleasant possibility, according to the “idiocracy or dumbing-down theory” that the decline in the human brain size can be a harbinger of a future dumbed-down planet with idiocracy on the rise.
It would seem that the brains that gave us the two world wars during the 20th century were not very advanced. Indeed, the 20th century was the most murderous and the most barbaric in the entire history of the human race.
V- Is More and Better Moral Education our Way Out?
What therefore about the future?
Perhaps, our best hope could be to better educate our shrinking brains!!! We would perhaps be less intelligent but we could possibly become more moral.
This is not necessarily counter-intuitive because one explanation for why humans and domesticated animals alike have a tendency to have smaller brains over time is because aggressiveness rises with brain size, and conversely, brain size seems to shrink as the need for aggressiveness declines.
All is not lost: If we build a world where aggressiveness is less admissible or less necessary, we could adapt to having smaller brains while being simultaneously more moral individuals.
One would think that we could achieve such a goal if we could transfer to the international scene the rule of law that most civilized countries have established within their borders.
As a matter of fact, it is the rule of the jungle that has operated in the past that is still, to a large extent, the rule today in international relations.
The central question is: Besides teaching science and general knowledge, can we also teach empathy, compassion and civility, especially to the young?
Studies show that only 20 percent of the population has empathy and spontaneous feelings for others. But empathy can be learned, especially if it is taught at a young age.
Of course, there is a small proportion of psychopaths and sociopaths in any society who do not feel any remorse when they hurt others. The least we can do for them is not place dangerous arms in their hands!!!
VI- What about Religion in the Quest for a more Moral World?
A question begs to be answered: Can religion, especially organized religions as human institutions, help us to survive in the future?
My short answer: Maybe; maybe not. —It depends. It depends if our numerous organized religions (there are some 5000 of them if you include all the sects and sub-sects!) can adapt to the new global environment and to our new global problems.
— If they feed division, exclusion and fanaticism, they may hasten our downfall.
— If they adapt and open their moral systems to the new global concerns, they may contribute positively to the solution of our global problems. I think that the jury is still out on this one.
At the individual level, I join economist Adam Smith who wrote more than 200 years ago (in the Theory of Moral Sentiments) that the truly virtuous person is not necessarily a religious person per se, but a person: –who does no harm to others;– who promotes the happiness of others through beneficence;– and, who follows his or her conscience, as a way to restrain his or her natural self-interest, rather than relying solely on an outside system of punishments and rewards.
Smith summarized these ideas by saying:
“To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature. ”
This brings me to the contentious issue of tolerance.
This is an issue that is much debated these days because it involves peace between individuals and between nations.
And here, I must open a parenthesis to make a clear distinction between the rule of tolerance, as I see it, toward other individuals that we should all adhere to, in an open and free society, and the tolerance of totalitarian principles or ideologies whose aims are to undermine and even destroy the very foundations of a free and open society.
Tolerance and respect of the individual and of his or her choices means that a society must recognize the rights and freedom of the individual. It doesn't mean, however, that an open, democratic, and just society has to accept officially the ideologies and beliefs of everyone, but rather that there must be equality of all citizens before the law.
Even though humans must live in society to survive, this does not mean that personal freedom has to be sacrificed in favor of social uniformity and general conformity.
Provided that society's survival and functioning are not threatened in a substantial way, individuals, whether they belong to a minority or to a majority, have the fundamental right to develop their own thoughts, their own philosophies, their own opinions, their own beliefs, their own religions and their own approaches to life and to living.
The first manifestation of tolerance is showing respect, empathy, and compassion for other people who happen to have different feelings, different philosophies, different interests, or different views of the world.
As a general rule, therefore, we should show tolerance to other people and to their choices. This is what I called the third humanist rule in my book.
In the book, I write a lot about sharing, both at the individual and collective levels, even at the international level.
Altruism and a willingness to share with others appear to be innate, even in other primates. In fact, Frans de Waal has shown that great apes share most of our more natural moral traits, including reciprocal altruism, reward and punishment, and friendship and cooperativeness. We are not the only moral species on earth.
Moreover, researchers, doctors, and patients say the act of giving and of helping others offers deep psychological and physical benefits. American scientists are finding that being big-hearted may trigger the brain’s pleasure centers. It would seem to be true that there is more pleasure in giving than in receiving!
The brain responds to cooperative behavior by releasing the feel-good chemical dopamine, so that helping someone else improve—or even just watching an improvement—makes us, as empathetic beings, feel better.
But there is more. It used to be said that "Nice guys finish last." New research now shows however that generous people tend to live longer. New research thus may say: “Nice guys die last”.
Indeed, it seems that Darwin's theory of evolution by natural selection has been misinterpreted and branded as a selfish theory of "every man for himself." In fact, Darwin thought just the contrary. He believed that humans have been successful as a species precisely because of their capacity for nurturing, for their basic altruistic and compassionate traits that allowed them to live in society.
In fact, our human capacity to care and to cooperate has been wired into our brains and nervous systems though our long evolution. Our capacity to share with others made us stronger, and it has allowed us to survive and to live longer. We will need more of this trait in the future; certainly not less.
And here we may have one additional reason why women live longer than men. It may be the case because they are more generous toward others and more caring!
Resources, population growth and poverty
My concern is not about the past, but about the future and how we are going to tackle and solve some fundamental human problems.
How are 7 to 9 billion human beings going to manage to live together on a shrinking planet, without destroying each other and without destroying the Planet? That's a central question that must be asked and that must be answered.
Consider the real problem of overpopulation and of poverty in some parts of the world.
We have to keep in mind that the phenomenon of fast population growth is a relatively recent phenomenon. It is less than 300 years old, only since the advent of the Industrial Revolution in the middle of the 18th century, while the acceleration of population growth that we have observed during the last century is directly connected with the discovery of cheap fossil fuel, oil and gas, in the middle of the 19th century. This has allowed for mechanization and the use of cheap fertilizers in agriculture, and for the international trade in cheap food products.
The end of the era of cheap fossil energy is upon us and potential replacements will be much more expensive in the future. This means that the cost of growing food and of transporting food products will increase, at a time that another essential resource in agriculture—I am referring to the supply of clean water—will also become scarcer. With food becoming more expensive in the coming decades, our view of unlimited population growth will also have to be modified, lest we enter of period of widespread famine, of wars of aggression for resources, of diseases and of fast population migrations.
(This has already begun, since I am convinced that the current wars in the Middle East and the Islamic terrorism that it has fed are closely related to the control of the oil resources in that region.)
It is my contention that the issue of overpopulation is going to become more acute, as we progress into the 21st century, and as the world will be facing a global food crisis caused by climate and economic factors, on top of a growing fossil fuel crisis.
This is because, in many countries, the prevalence of widespread poverty is directly linked to overpopulation, be it in Africa, Haiti or in Bangladesh, for example. Overpopulation and the lack of access to education and to birth control methods are the principal factors driving poverty in those lands. In those countries, life expectancy is even declining while it is increasing elsewhere. This is a real mess and a real tragedy.
In those parts of the world, I can see, as an economist, that the link between excessive population growth and widespread poverty is likely to become more acute, as the food crisis deepens, and as oil and gas become more expensive, as water and sanitation are even less available than today, not taking into account the devastating effect that the projected rise in sea levels can have on some populations as the polar ice caps melt.
My sad observation, (and that's why such a problem is connected to ethics and morality), is that in these same poor countries, the principal forces working against family planning, the spread of knowledge regarding birth control and population control are often the dominant religious establishments. The contrast between China, for example, and Africa is startling. China has faced squarely its population problem and has embarked upon a policy of family planning, industrialization and international trade and is well on its way to overcoming its problem of endemic poverty.
No such thinking is evident in Africa, however, which has the fastest growing population in the world and which is also the most religious and superstitious continent in the world, a continent where the terrible disease of HIV/AIDS is most widespread and is at the epidemic level, especially in sub-Sahara Africa. Many countries are still relying on foreign aid to survive; some are constantly involved in tribal warfare, while the young feel that they don't have any future, except maybe through emigration to Northern Europe or to North America.
Today, Africa accounts for about 15 percent of the world population, but has close to 90 percent of all the people infected by HIV and deaths from AIDS. Moreover, this terrible disease seems to be spreading faster in Africa than elsewhere. Indeed it is spreading as quickly as ever, because of a higher incidence there of other sexually transmitted infections and because of general poverty and lack of education. (See Emily Oster, Esquire, November 30, 2006 Three Things You Don't Know About AIDS in Africa).
With 15 percent of the world population, the proportion of the world's poor who live in Africa is also climbing and is expected to reach around 40 percent in 2020.
For example, in Sub-Saharan Africa, extreme poverty (the United Nations' definition of absolute poverty is a family living on less than $1 a day) went up from 41 percent in 1981 to 46 percent in 2001. This translates to the number of people living in extreme poverty going from 231 million to 318 million, with women carrying a disproportionate proportion of that burden.
—This is a huge social and economic problem, not only in Africa but also on the global stage.
The historic fact that the rich continent of Africa has been colonized by Islamic armies and by Christian armies, plus the fact that in many places people still rely on tribal cultures, has created a legacy of retrograde intellectual and religious dependence on the outside world that is still lingering today.
Indeed, as I say, contrast that with China, which has also been colonized by outside armies. In China, secular Confucius morality is still very strong and the outside colonizers' morality never really took hold. That may explain why China has been able to build on its own strong national and cultural heritage to solve its problems, while Africa has not. China has even been able to overcome the damage that the foreign ideology of communism did after the Maoist cultural revolution of 1966-76.
Both Islam and Christianity, which are the dominant religions in Africa, have imposed on that continent their paranoiac obsession with sex and reproduction. They are opposed to family planning and to population control, while the education of women, especially by Muslims, is officially opposed and vigorously fought. These are backward and counterproductive ideas, even destructive ideas.
Catholic Pope Benedict XVI recently opened, timidly, the door for the use of condoms, (probably in view of the AIDS disaster in Africa!) but this comes very late and is very limited, supposedly applying only to males (in the Pope's words, “male prostitutes”), and not to women, and only as a way to slow down the spread of AIDS, and not as a tool for family planning.
Well, Africa needs much more than that, and some religious leaders should recognize all the damage they have created with their antiquated ideas regarding sex and family planning. Africa especially needs a completely new approach to sexuality and family planning if it wants to extirpate itself from poverty and disease, and this requires educating and empowering women, a move that many religious leaders fight vehemently.
It must be admitted that the old judeo-christian religious texts are not very useful solving the problem of overpopulation. In the Bible, the Old Testament orders humans (in Genesis 1:27-28) “to...be fruitful and multiply and fill the earth...” This would seem to make it a virtue to overpopulate, just the reverse of what many parts of the world will need in the future.
In the New Testament, there are clear admonitions against establishing family life on a firm footing. For instance, it is written (Luke 14:25-33) that the only way to salvation is to abandon one's families, wives and children; and I quote:
"If any one comes to me without hating his father and mother, wife and children, brothers and sisters, and even his own life, he cannot be my disciple.”(Luke 14-26).
It would seem unfortunately that in Africa, but also elsewhere, many men take that commandment at heart and leave their families, leaving to illiterate women the harsh task of raising large families. This is an impossible task. And, this is surely no way to build a strong social fabric.
It is said that the Koran and the Bible cannot be amended because they are divinely inspired. I would say that it is high time that these many centuries-old texts be amended to reflect our new scientific knowledge and to be better adapted to the problems and solutions needed in today's world—not to those prevailing in small agricultural and illiterate societies of many centuries ago.
As to the future sources of economic development, I would add this:
In the coming new context of a worldwide energy crisis, our societies may not have any other choice but to embrace a transition from our current hydrocarbon-based economies to even more advanced knowledge-based economies. Countries and societies that do not adopt knowledge-based policies risk being left behind to suffer.
Well, no society should be left behind, and we should design a better way to share knowledge in a global way. This could be the best way to raise everybody's standard of living, to bridge cultures and to promote peace. That is the reason we should place additional emphasis on education, especially the education of women worldwide. And for that we should reform existing international institutions, such as the United Nations, which is presently moribund, (due essentially to the actions of two countries: The United States and Israel) and create new ones that could function without the veto of imperial powers. I have an entire section in my book about this new challenge.
Religious morality vs. humanist morality
In the book, I don't hesitate to criticize some ideas found in religious texts that appear to me to be contrary to logic, sound thinking and to the scientific breakthroughs that humanity has accomplished, especially over the last four centuries. Some of these ideas appear to be building fences between people rather than encouraging fraternity, cooperation and peace.
I hope that my criticism does not offend too many people because my objective is purely positive and constructive. Let me mention a few ideas that I think need to be revisited and reformed:
1-First, the idea that some people are “chosen” by some supernatural religious powers, while others are not, appears to me to be most anachronistic.
Historically, this has given rise to what I called “in-group” morality, certain things being forbidden when done to other members of the group, but perfectly acceptable when done to “outsiders”. As I see it, the challenge in the future is to extend in-group morality to achieve between-group morality, in a truly global context.
2- Another idea that is increasingly difficult to maintain in the face of new knowledge is that human beings are not only at the top of all living species, but that they happen to be the center and the masters of the Universe.
This egocentric and anthropomorphic vision of things has unfortunately separated humans from the rest of the physical world and from other living species. By separating man from nature, indeed, the theory of “man-center-of-the-Universe” has caused us to lose respect for all other forms of life, and has prevented us from perceiving our true place in the Cosmos. We must not only have respect for our fellow human beings, but we must also have respect for all forms of life and for the environment.
3- Another idea that needs to be revisited, since its introduction by St. Augustine of Hippo in the 5th century, is the subtle distinction that is often made between individual or private morality, and public or state morality. In the eyes of some, there would seem to be one morality for ordinary people in their daily lives, and another morality for leaders and government agents acting in their official capacity.
This idea and the moral dichotomy that it introduces may be responsible more than any other for the fact that humanity is still saddled with murderous wars of aggression.
4- Another idea that seems odd in our global age is the fiction of an eternal hell, not only to terrorize the faithful (especially children), but also to intimidate and demonize non-believers who refuse to submit to the dicta of specific religious authorities or dogmas. This would appear to condemn two-thirds of humankind to exclusion, and possibly, to persecutions, religious wars, and genocide. In 1995, the Anglican Church abolished the idea of “Hell”, and I would say “good riddance”!
5- Last, but not least, is the curious philosophical stance regarding an assumed hypothetical separation between the human mind and the human body. Much of the negative religious morality concerning the human body comes from this erroneous distinction that has no scientific basis whatsoever and is a legacy of times when nobody understood how the human brain functions.
In view of what has happened in the Middle East recently, I must stress how the value of having honest and democratic governments is also a fundamental humanist value that we should all endorse and cherish. In my book, I have an entire chapter on this issue.
Over the last thirty or so years, some 85 corrupt and repressive autocratic governments have been replaced around the world by more democratic governments. This is because democracy —civil society secular democracy, coming from the will of the people —is not only a fundamental human right; it is contagious, and given a chance, is the political regime that people around the world wish to have.
As President Abraham Lincoln framed it, it is a form of government that is “of the people, by the people, and for the people.” It is based on the concept of the equality and dignity of all human beings and on the fundamental humanist principle of equal rights among all human beings.
Albert Einstein (1879-1955) once said "We shall require a substantially new manner of thinking if mankind is to survive." I certainly agree. I would add that we should all hope that human beings, who, of all of the species that have ever existed on the Planet Earth, have evolved into a relatively high stage of intelligence and of conscience, would be intelligent enough to bring this evolution to a higher level of global morality.
I am not completely sure, but there are clear signs that justify our optimism.
Indeed, either we stand at the threshold of a major moral regression in the world with increasing conflicts and increasing disregard for international law and global responsibility. Or rather, more optimistically, I hope, we stand at the threshold of a new global morality—a new Global ethics, that will establish in theory and in practice the basic principles of dignity and equality for all human beings.
–increased tolerance of others;
–more voluntary sharing with others;
–less domination and more beneficial cooperation;
–more respect for our environment and for our Planet;
–fewer wars and waste of resources on destructive armaments;
–more democracy and citizen participation not only in public affairs, but also in economic affairs;
–and, above all, more education for all and especially for the children of this world.
To reach that new level of global ethics, we may need nothing less than a moral revolution in our thinking, a new moral norm, a global moral revolution, to fit the modern problems we are facing today and in the future. Such a moral revolution may even be needed for our own biological survival as a species.
In general terms, let me say that I firmly believe that we should adopt the simple but somewhat revolutionary idea that we are living on the same small planet and that we should attempt to survive on this planet as members of the same human race.
—This is my most cherished hope.
Thursday, February 17, 2011
The Fed's Policy of Creating Inflation: A Massive Wealth Transfer
"If once [the people] become inattentive to the public affairs, you and I, and Congress and Assemblies, Judges and Governors, shall all become wolves. It seems to be the law of our general nature, in spite of individual exceptions."
Thomas Jefferson (1743-1826), 3rd US President
"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson (1743-1826), 3rd US President
[Corruption in high places would follow as] “all wealth is aggregated in a few hands and the Republic is destroyed.”
Abraham Lincoln (1809-1865), American 16th US President (1861-65)
"When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it."
Frederic Bastiat (1801-1850), French economist
“Inflation made here in the United States is very, very low.”
Ben Bernanke, Fed Chairman, Thursday, February 10, 2011
Let us begin with some macroeconomic indicators of reference.
In October 2010, the world value of total production (all Gross Domestic Products or GDPs) was estimated to be $61.96 trillion U.S. dollars at current nominal prices. The U.S.GDP was estimated at $16.11 trillion or 26 % of world GDP.
The two largest financial markets in terms of trading values are the global foreign exchange market (all currency markets) that has an average daily turnover in global foreign exchange transactions of about $4 trillion per day, and the privately-traded and mostly unregulated world derivatives market (all the derivatives markets) whose total world outstanding contracts has been estimated by the Bank for International Settlements in Switzerland to have a notional or face value of about $791 trillion in 2010.
In terms of real wealth, however, the two most important financial markets are the world bond market and the world stock market. In 2009, for example, the global bond market had an outstanding value of $US 91 trillion, with the U.S. bond market, at a value of $US 35.5 trillion, being the largest domestic bond market. –In mid-2010, the global equity market capitalization on regulated exchanges was estimated at $US 54.9 trillion, with the U.S. stock market having a value of some $US 19.8 trillion.
With such a large amount of financial assets, it is understandable that shifts in prices and interest rates have important effects on each market. If long-term interest rates go up, the nominal value of bonds goes down, and conversely, when interest rates decline, bond prices go up. As for stocks, many factors, such as company earnings, future profit prospects and inflation expectations, as well as political and taxation considerations, can influence their value. However, in general, they tend to fare better when short-term interest rates are low rather than high.
Sometimes, these two important financial markets move up together, especially in an environment of general disinflation, when interest rates tend to decline. They also tend to decline in tandem when real interest rates are on the rise, both bond prices and stock prices are then falling.
Sometimes, however, they can move in different directions, especially in the early phase of an inflationary period, such unexpected inflation being good for the stock market but bad for the bond market. Since last fall, this has been case, with the bond market falling and the stock market rising. The question is how long this decoupling can last.
And how does the Fed's monetary policy fit into such an environment of oncoming inflation, and what should the Fed do?
Last November 3rd, the day after the 2010 mid-term elections, the Bernanke Fed announced that it will be embarking on a second round of quantitative easing (QE2), a fancy word for printing new money in exchange for government bonds—in other words, monetizing the public debt. It seems that Chairman Bernanke and the Fed board felt that months of lending to the large American banks trillions of dollars at close to zero interest rate, while paying them 0.25 percent to keep their excess reserves on its books, was not enough. They announced that the Fed would buy $600 billion-worth of additional Treasury bonds until June 2011, while reinvesting some $300 billion of principal payments from its portfolio holdings of mortgage-backed securities.
In doing so, the Fed professed to follow two somewhat interrelated objectives; 1- to lower long-term real interest rates in order to stimulate economic activity and create employment; and 2- to simultaneously raise inflation expectations in order to avoid the effect of deflation on the U.S. debt-leveraged economy. It should be remembered that from 1913 to 1977, the Fed had only one objective to pursue, i.e. price stability. Currently, however, the Fed has officially a double mandate. As a matter of fact, since 1977, the amended Federal Reserve Act of 1913 stipulates that the U.S. central bank should set its monetary policy in order to promote employment while maintaining price stability. It says that the Fed should promote “maximum employment, stable prices, and moderate long-term interest rates.”
Of course, a central bank in a fiat currency system can always create inflation through monetary policy and its printing press, but, in a market economy, it has little direct influence on job creation and on long-term interest rates. Employment depends on investments, innovation and market opportunities at home and abroad, while long-term interest rates depend on the amount of savings available, on investment demand and on long-term inflation expectations, all factors that are more or less out of the reach of a central bank. It is easy to delude oneself into thinking otherwise, but that's the reality.
What the Fed can do with certainty, however, is to create inflation by expanding the monetary base and the money supply; it can also reign in inflation by draining liquidity from the system. If it goes overboard one way or the other, it can also create asset price bubbles by maintaining its managed short-run interest rates too low for too long, or it can create a credit crunch by putting the brakes too hard on credit creation, usually in a haste to correct its previous mistake.
These short-term gyrations in monetary policy are very destabilizing to the real economy, sometimes creating a temporary boom; sometimes precipitating an economic downturn. They are also accompanied by massive shifts of wealth between creditors and debtors.
In the first instance, when the Fed (or any central bank for that matter) creates too much money by buying financial assets and writing checks on itself, inflation and inflation expectations ensue. This pushes short-term interest rates down and long-term interest rates up (a steepening of the yield curve) and the price of long bonds goes down, with the effect of imposing an inflation tax on all the holders of fiat dollars. This inflation tax results in a transfer of wealth between unsuspecting dollar holders and bond holders who see the real value of their holdings go down, while net debtors and stock owners see their real debt load being reduced by inflation and the value of most shares in the stock market going up.
In the second instance, the reverse can happen if the economy is starved of liquidity: the yield curve inverts with short-run interest rates moving way up as compared to long-term interest rates. A stock market crash and an economic recession generally follow.
—That's pretty much what the Fed has been doing over its nearly 100 years of existence, keeping short-run interest rates too low for too long, creating unsustainable asset bubbles, and then applying the monetary brakes to kill inflation expectations that it has created on its own. Sometimes, the Fed has maintained price stability and the value of the U.S. dollar; but at other times, it has willingly acted to destroy the purchasing power of the dollar by printing too much of it.
As a general principle, if inflation expectations increase faster than nominal long-term interest rates, real interest rates, i.e. the real cost of capital for investors and home buyers, would decline and this would, hopefully, stimulate economic activity and employment.
Unfortunately for the Fed, its Nov. 3rd announcement translated into an important loss of confidence in its ability to design and pursue an appropriate monetary policy and was immediately decried by other central banks and by America's biggest creditor, China, as a blatant attempt to generate and export inflation. Bond prices began immediately to fall and bond yields to rise. It seems that bondholders began selling longer-term Treasuries at a faster rate than the Fed could buy them.
Chairman Ben Bernanke and his board seem to have forgotten that the United States is now a debtor nation, not a creditor nation. A creditor nation could get away with an outspoken policy of creating inflation—but not a debtor nation. In 2010 alone, the U.S. registered another half a trillion-dollar trade deficit with the rest of the world. This has to be financed, and it is done with foreign borrowings. To a large extent, foreign creditors now decide the final outcome of American monetary policy.
The 10-year Treasury yield, which hit a low at 2.40 percent in October 2010, was at 2.63 percent the day before the Fed's announcement on November 2, 2010. As it turned out, it closed at 3.64 on Friday February 11, after hitting a high of 3.75 percent on February 8. The same is true of the 30-year Treasury yield that hit a high of 4.76 percent on February 8, thus approaching the dangerous threshold of 4.90 percent. The latter stood at 3.93 percent on Nov. 2, 2010.
Obviously, the Fed's ultra loose monetary policy has backfired. Its intended policy of printing money in excess of what the economy demands has resulted in raising real long-term interest rates, not lowering them. Indeed, with long-term nominal rates on the rise while inflation will take many months to surface, the immediate effect of the Fed's November announcement was to raise real long-term Treasury rates, not to lower them. Mortgage rates are also on the rise, threatening to postpone the long anticipated recovery in the housing market.
—It is certainly possible that we are entering a period when the already observed rise in real interest rates can derail the stock market rally that has been in force since early March 2009. Later on, however, a slowdown in the economy coupled with fiscal compressions can be expected to push long-term rates down again. Such a roller-coaster path for interest rates is not very helpful.
The current Fed board seems to believe that the Fed is more than a central bank, that it is a sort of a government unto itself that can both control monetary conditions and solve the structural problems in the real economy at the same time, irrespective of what the rest of the world thinks. This would seem to be most unrealistic. Perhaps a dose of humility would be salutary at this time, before irreparable damage is done.
Tuesday, January 11, 2011
The Gun Idolatry in Current American Culture
“We are devoted to creating an America free from gun violence, where all Americans are safe at home, at school, at work, and in our communities. As the Brady Campaign, we work to enact and enforce sensible gun laws, regulations, and public policies through grassroots activism, electing public officials who support gun laws, and increasing public awareness of gun violence.”
Brady Center to Prevent Gun Violence, Mission statement
Is the real American motto of the current American generation “In Guns We Trust”? This could surely be the impression one gets from the unfolding of recent events.
There exists currently in the United States an unhealthy obsession with guns, —a form of idolatry of the gun as a useful tool to settle differences between individuals. Increasingly, it seems, when someone feels slighted in any way, the reaction is often to rely on the gun to settle things. Instances of appalling gun-related incidents seem to multiply and to be occurring on a daily basis in the current American cultural climate.
A disgruntled employee is let go; the upset person goes home, takes a gun and comes back to the work site to set the score straight, killing many people in a shooting rampage. A deranged political extremist campaigns against a candidate who is nevertheless elected; the disappointed individual takes his easily available gun and shots at the politician and kills half a dozen other people. A devout religious fanatic feels that somehow his religion and its adepts are not well considered; he takes his gun and he assassinates at random everybody around. Frustrated students fail at school or are ostracized somewhat by classmates; they go home, take their parents' gun and kill teachers and scores of fellow students.
Even some disturbed ten-year olds now resort to the gun and turn it against their mother or father when they have been scolded, the gun being conveniently stashed in their room. It's a far cry from the commandment “Honor Thy Mother and Father”!
There would appear to be a firearms-related homicide crisis in the United States, but the idea that guns are required in the daily life of individuals is so well entrenched and propagated that a state of collective denial persists. Two hundred years ago, the vast majority of people lived on farms. Understandably, guns were then a necessity for hunting and for protection in a still wild and relatively lawless environment. Nowadays, the vast majority of people live in large urban areas where no hunting is allowed. What is then the need for large and small firearms, if not to shoot other people?
There is, of course, the persistent myth that Americans have the “right” to amass large quantity of firearms and to use them. Here again this seems to be a relic of bygone times when the young American republic was threatened by its former British masters and could lose its recently acquired independence through a British invasion. At that time, there was a perceived need to constitute rapidly a militia to defend the homeland, and armed farmers could provide such an instant army. That is the logical interpretation that can be given to the second amendment of the U.S Constitution of 1789 that says: “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.”
The most logical implication here is that some convenient precautions can be taken to defend the state with “well regulated” armed militias, at a time when the U.S. federal government was perceived to be weak and incapable of mounting a federal military response to an outside invasion or to a domestic armed uprising, and that it should not prevent the states from raising militias to maintain order. Such was the constitutional climate at the time. —This provision in the U.S. Constitution was hardly designed to be an open license for each and every individual to arm oneself, to use such arms at will, and to constitute a “non-regulated” one-man militia if he chooses to do so.
Such a wide and extravagant interpretation in a modern urban environment would seem to be a sure recipe for social and political anarchy. Moreover, nowadays, the U.S. federal government is in full control of a powerful U.S. military organization and has no need whatsoever of private militias to defend the territory. Also, today, the state national guards have de facto taken the place that quickly enrolled private militias could have occupied in the past. There is no need today for readily available private armed militias to defend the territory.
Nevertheless, some American judges have ruled, and some American politicians have agreed, that the centuries-old right to form “well regulated” militias and to carry arms to defend the homeland really means that anybody, in the current modern environment, has an absolute individual right to own dangerous firearms of the nature and quantity he chooses, including sophisticated assault weapons, and to use them, and that no elected government can interfere.
The most recent case on this issue has been the ruling on Parker v District of Columbia, in which the District of Columbia Circuit court of appeals ruled on March 9, 2007 that a D.C. ban on handgun ownership without a license violated individual rights under the U. S. Second Amendment. —And that's where things stand today... and the killing continues.
How many tragedies will be needed before mentalities change?
Tuesday, January 4, 2011
BIG BROTHER: The Police State Mentality in the Electronic Age
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety."
Benjamin Franklin (1706 - 1790), American inventor, journalist, printer, diplomat, and statesman (1775)
"Americans used to roar like lions for liberty; now we bleat like sheep for security."
"A Party member lives from birth to death under the eye of the Thought Police. Even when he is alone he can never be sure that he is alone. ...At the apex of the pyramid comes Big Brother. Big Brother is infallible and all-powerful. Every success, every achievement, every victory, every scientific discovery, all knowledge, all wisdom, all happiness, all virtue, are held to issue directly from his leadership and inspiration."
George Orwell (1903-1950) (Eric Arthur Blair), (book: 1984)
"Since information gives power, access to personal files can lead to unreasonable pressures, even blackmail, especially against those with the least resources, people who depend upon public programs, for example. Big Brother isn't a camera. Big Brother is a computer."
C.J. Howard, political novel "The Patriot Conspiracy".
In 2049, when the 100th anniversary of the publication of George Orwell political novel "1984"will be celebrated, it will be recalled that the immediate post September 11, 2001 period marked the beginning of a gradual decline in personal liberty and freedom, especially in the United States but also elsewhere, and the emergence of a great information-obsessed Leviathan. Freedom rarely disappears in one fell swoop. Its disappearance is rather the end result of a thousand encroachments.
Pushed to the extreme and without clear democratic oversight, it becomes the mark of a totalitarian state, when authorities feel that they never have enough information on the people. It is because information is power and state bureaucrats and politicians naturally like to be in control; on the one hand, releasing as little information about their own actions through an imposed secrecy, and on the other, accumulating as much information as possible about the citizens.
And today, modern governments have all the tools to transform their country into a creeping police state, more so now then ever before, in this electronic age. They have access to information technology that previous full-fledged ≥police state≤ governments could only have dreamed about.
Nowadays, with super computers and revolutionary new models to gather information and build databases, governments, i.e. bureaucrats and politicians, are in a position as never before to accumulate and correlate tremendous amounts of personal information on their citizens, from public (federal, state and local) as well as from a plethora of private sources. Government intelligence on each and every citizen is thus rendered much easier and, I would add, much more frightening. Indeed, the potential for abuse is enormous.
In 2002, for example, retired Vice Admiral John Poindexter proposed that the U.S. government create a tracking and monitoring system called "Total Information Awareness", in order for the U.S. government to gather information in a preventive way about individuals from widely varied sources, including tax records, telephone calling records, credit card charges, banking transactions, airline or ship reservations, and various biometric databases, without taking into consideration civil liberties or a citizens' right to privacy, the U.S. Privacy Act of 1974, or without having to request search warrants and without having to give prior notice to the persons involved. —The pretext was to allow the government to thwart possible terrorist activity, thus creating an unlimited appetite for information.
Well, there are clear signs that this massive data mining system on individuals is now solidly in place and is in full operation and can be expected to grow over time. George Orwell must be turning in his grave.
First, the U.S. Department of Homeland Securityπs network of fusion centers, launched in 2003, has allowed the government to centralize a host of previously disparate information about Americans and foreigners alike, whether related to personal and business records, drivers licenses, local taxes, local infractions, police records, etc., through a host of coordinated information-sharing networks. (N.B.: The U.S. Department of Homeland Security (DHS) was established on November 25, 2002 and is the domestic equivalent of the Department of Defense.)
Secondly, central provisions of the USA Patriot Act, signed into law by President George W. Bush on October 26, 2001, allow the government to operate roving wire taps, search any individualπs business, personal, and even library records upon presentation of a national security letter, and spy on so-called "lone wolf" suspects, i.e., foreign nationals who have no known links to groups designated as terrorist. On this, the current Obama administration, by extending those provisions, is scarcely different than the previous Bush administration.
Thirdly, since passports and tight intelligence screening have been made a requirement for most international travel by the U.S.Department of Homeland Security, since January 1, 2008, every individual traveling in and out of the United States has all his or her whereabouts and movements recorded so the government knows at all times his or her address and the places he or she has traveled to and from.
For instance, U.S. Transportation Security Administration'srecent decision to use full-body airport X-ray scanners and full body groping at airports is another example where so-called security procedures are applied blindly and indiscriminately. There is more to come, since it has been announced that such invasive intelligence screening is coming to hotels and shopping malls, as well as to trains, buses and ports, etc.
These are some of the main features of the new government apparatus to gather information on people. There are many others. —Take for instance the requirement, since 2002, that all American high schools must give Pentagon military recruitersthe names and contact information of all their juniors and seniors. Failure to comply on their part may result in the loss of government funding.
The logical next step for the U.S. government would be to follow a recent Italy's lead and outlaw outright the use of cash for most transactions, except for small ones, thus providing the government even more minute information about an individual's income, purchases and displacements. Nothing will escape the watching eye of the government in the electronic age. People will be filed, photographed and corralled.
Indeed, the way mass government surveillance systems are growing, by year 2020, chances are good that Americans will be living in a ≥Brave New World≤!
—CYBER BIG BROTHER would know it all and it will be watching you.