Friday, February 29, 2008
Bernanke before Congress
I’m starting to be alarmed. Fed Chairman Ben Bernanke spoke to Congress on Wednesday (27 February). I’ve read Bernanke’s testimony. I’ve heard some of the questioning and his answers. Bernanke is a highly trained economist. Yet much of what he said is nonsense, not so much because it’s factually incorrect, but because his interpretation is out of touch with economics (i.e. reality).
Consider this: "And, as a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets, and corporate leverage near historical lows."
Commerce Department announced earlier the same day that its measures of durable goods orders declined 5.3%. And the Conference Board announced its measure of consumer confidence fell for the second straight month, and is at a 17 year low. Did these wonderfully "liquid balance sheets" take into account that demand is collapsing? Will "strong profits" continue, when consumers (who have $1.35 in debt for every $1.00 of income, on average) find they can’t make their minimum credit card payments?
Inflation? Bernanke: "Consumer price inflation has increased since our previous report, in substantial part because of the steep run-up in the price of oil. Last year, food prices also increased significantly, and the dollar depreciated."
But don’t worry, he continues, because "core inflation in the first half of 2007 was damped by a number of transitory factors -- notably, unusually soft prices for apparel and for financial services -- which subsequently reversed. For the year as a whole, however, core PCE prices increased 2.1 percent, down slightly from 2006."
In other words, a cooked-up figure "core personal consumption expenditures" indicates inflation really isn’t a problem. Someone who doesn’t eat or use energy, and only buys new clothes and services of mortgage bankers will find unusually low prices! Great news! (Point of clarification: "core inflation" excludes food and energy prices.)
In his questioning, Bernanke’s answers seemed crazy. He seems to think higher oil prices cause inflation. He doesn’t seem to think his expansionary monetary policy does. Go figure.
His main point: "The incoming information since our January meeting continues to suggest sluggish economic activity in the near term.
The risks to this outlook remain to the downside. The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further."
Good grief. Let’s put this all together. Bernanke’s main worry is recession. But why shouldn’t the bad investments in housing, in commercial real estate, in credit card loans, etc., be liquidated? Shouldn’t banks, lenders, and borrowers who made bad financial decisions have to face the consequences of their decisions? Bernanke’s Principles textbook says so. But Bernanke himself apparently doesn’t, and my guess is that it’s simply because the magnitude of the problem is so large. The banking system must be on the verge of a real breakdown. Nouriel Roubini is now estimating that the costs to Americans of fixing this could go as high as nearly 1/5th of U.S. GDP... that's, (gulp) $2.7 trillion. Martin Feldstein outlines a scenario in which the financial system breaks down, and Fed monetary policy is powerless to stimulate it. Nightmare stuff.
Mr. Bernanke is willing expand the money supply to help try to avoid this nightmare. It won’t work, but it will generate inflation. It will cause further collapse of the dollar against other currencies. Pump out new money all you like, the problem is that Americans don’t save, and have been living on borrowed funds from abroad and easy credit from the Fed. Artificially low interest rates, speculative demand and artificially high housing prices aren’t cured by continued expansion of the money supply. I don’t believe recession is avoidable, and more stimulus isn’t the cure for what ails us. "Stimulus" is just Keynesian AD nonsense. The problem here isn’t insufficient aggregate demand, the problem is the Austrian story: bad investments and structural imbalance caused by central bankers.
I understand why Bernanke is fixated on averting a recession, since "liquidation of bad investments" in this case involves families losing their homes, and maybe jobs. (And even worse, from the policymakers’ perspective, think of the losses to financiers!) Well, the losses are already there, and this is all simply a game of figuring out how to distribute them among hapless consumers and taxpayers so as to minimize the dislocations. Inflation is just one of the tools for doing this: "privatize the profits, socialize the losses," as they say. I don’t count on a soft landing, though. The problem is too big.
Yes, it's alarming. We have recession ahead, and this "stimulus" Bernanke is promoting will not fix it, but will wreck the dollar, making things worse.
I also understand why Bernanke doesn't want to acknowledge the extent of the mess. But back to his speech to Congress: when Greenspan spoke, he at least would pay lip service to fiscal, monetary, and financial responsibility, things which are, in fact, the only real way out of this mess. Bernanke didn’t even mention these.
Say, that has me wondering, just what is Greenspan saying these days? Uh-oh... He’s telling the Gulf States to drop their dollar pegs. It’s probably good advice. Just wait until they really take it to heart and stop using the dollar for oil contracts. Imagine: oil at 66 euros per barrel (esentially its present price), and the dollar at 0.5 euros (instead of its current 0.66).
I wonder what Bernanke will say to Congress when that happens.
(Note: Pretty bleak, huh? To cheer yourself up, click on the $10 note at the top of this post.)
Saturday, February 16, 2008
This might as well become an annual holiday. Radical muslims are rioting over the Danish cartoons again. The consensus here at Unforeseen Contingencies is that most people in the West don't take this islamist intimidation sufficiently seriously. Don't forget that last time around, Bill Clinton, Louise Arbor (UN "Human Rights" commissioner) and the U.S. Dept. of State all spoke out - against the freedom of the Danish press.
It's a twisted and sick definition of "tolerance" that regards criticism of religion to be "intolerant," and tolerates violent reprisals by religious kooks against peaceful critics. I think it would be a good thing to reprint the cartoons annually, as a sort of celebration of freedom, a good way to remind us that freedom must be defended against violent intimidation.
So as part of what seems like it might well become a regular event, let me point out that Mohammed was not a prophet, the Quran is not the word of god, and Islam is not truth but mythology. It's all false. People have every right to believe otherwise, but no right at all to permit themselves to lose their minds over it, and cease to be civilized human beings.
Friday, February 15, 2008
Nobel for Wal-Mart?
Fazil Mihlar in the Vancouver Sun proposes the Nobel Peace Prize for Wal-Mart, and sainthood to boot. Well worth reading.
Friday, February 08, 2008
I Love Wal-Mart!
Until now, nothing even remotely resembling commercial advertising has appeared on Unforeseen Contingencies. But it’s time to make an exception. A great breakthrough in affordable health care is underway! Wal-Mart plans to open 400 walk-in clinics in its stores by 2010.
The walk-in clinic concept is an excellent idea. I used to go to one in Great Falls, Montana, the Front Range Medical Center. It was begun by a surgeon, Jake Allen, who was fed up with the local Benefice Hospital and Great Falls Clinic (both bureaucratic monstrosities that battle each other for monopoly rights, and try to drive independent practitioners out of business). He staffed his clinics with M.D.s and nurses who, for one reason or another, were interested in relatively temporary positions. The service was great: fast, friendly, very competent, and notably less expensive than the "mainstream" alternatives. If you needed treatment they couldn't provide, they knew where to send you next. I loved them. I suspect it requires real devotion to customer satisfaction to make the walk-in concept work, and Front Range had it. So does Wal-Mart.
Wal-Mart is a place where the poor shop (or maybe the "near poor," in today’s lexicon); these clinics would allow them easy access to low cost, basic medical care, including preventive care. What a great thing! This would do far more to reduce costs and improve access for the poor than any of the inane schemes of the presidential candidates. The article notes that in a pilot run, Wal-Mart found that over half of the customers using the clinic were uninsured. Well, here's a partial solution to that problem: insurance is much less important when basic care is inexpensive and available. Wal-Mart is also launching a line of budget generic pharmaceuticals. They’d probably develop inexpensive health insurance, too, if only government would allow it.
Unfortunately, Wal-Mart is the target of utterly irrational hatred on the part of "consumer" advocates and government officials. Look for them to try to block Wal-Mart’s wonderful project. The Front Range clinics don’t exist any more. Dr. Allen was hounded by the scoundrels at the Great Falls Clinic until he eventually gave up, sold his operations (the GF Clinic has the facilities now), and quit medicine - he’s now in law school. We’ll see how serious "consumer" groups and government officials are about improving access to affordable health care; I’ll bet good money they’ll similarly try to kill Wal-Mart’s project, because their real interest in health care isn't improving health, it's in getting control over the fastest growing sector of the economy for personal power and wealth. They’d happily kill a good project, since it reduces demand for their poisonous remedies. If I’m right, and they succeed, they’ll be killing people along with it, since basic and preventive care demonstrably saves lives.
I love Wal-Mart for doing this. I hope they succeed beyond their wildest dreams, and make big profits in doing so. And I look forward to trying out one of their clinics myself, should the need arise.
Thursday, February 07, 2008
Another one bites the dust...
Mitt Romney has quit. Good. Romney’s approach was classic big government: everything should either be mandatory or outlawed. For example
"There’s a big problem - some people don’t have health insurance. It’s too expensive. How can we fix this?"
"Hey, I know. Let’s just make it illegal. If they don’t buy health insurance, will prosecute ‘em, garnishee their wages, and make’em buy it!"
This was Mitt Romney’s Massachusetts solution to the problem of insurance. The genius of the idea is, of course, that since everyone must buy, there can be no adverse selection problems. Hence insurance will be affordable, and the system will be financially sound (the plan has incurred only $250,000,000 in debt to date).
Mitt Romney did more than anyone else to promote universal mandatory health insurance. He’s done a great deal of harm to America with his socialized medicine nonsense. He might possibly have been the best of the "serious" candidates running, but that’s hard to say, since no one knows what his fundamental principles really are.
So good riddance to Romney. And to Ron Paul: it’s time to get to work. You have a big war chest. Opponents of big government hate McCain. Huckabee has exposed himself as a dangerous religious fanatic. Put everything you can into your libertarian message. This is a rare opportunity for liberty. Make the most of it.
Libertarianism and War
But is war ever justified from a libertarian standpoint?
The affirmative answer is based on application of the law of self-defense. There are two confounding factors that I will address - the role of the state and the need to avoid thinking in terms of collectives and aggregate terms.
How can war be justified? Violence is justified for defense of individual rights, and only for this. War is justified when it is waged for this reason. Consider the basics of the common law regarding use of deadly force in self defense - a clear application of the concept of individual rights. The general framing of this law holds that three conditions must be satisfied before deadly force may legitimately be used:
1. The aggressor must have intent to inflict serious harm.
2. The aggressor must have ability to inflict serious harm.
3. The defender must have no reasonable, less drastic alternative defense.
These conditions are quite sensible applications of a "reasonable man" standard. Deadly force is extremely serious and ought not be engaged in readily nor for "light and transient causes." This three step test is applicable to any situation, whether one is confronted by an individual, a mob, or an organized group. This last is relevant to the question of war - George III’s Britain, Hitler’s Germany, and Hezbollah are all examples of organized aggressors whose actions resulted in justifiable war.
Two confounding factors: first, since war is almost always waged by states, and the state itself is based on violations of individual rights (it’s funded by taxes), doesn’t that automatically render war (or any other state action) illegitimate?
No, it doesn’t - to argue that it does is simply poor reasoning. Whether a particular action itself is justified is a different question from whether the means used to pursue that action were obtained legitimately. If a police officer were to stop a lunatic from raping and murdering an honest citizen, only a sociopath would object that the police officer’s action was wrong because it was funded by taxes. (An especially twisted sociopath would even hail the would-be rapist as a hero, just as some pseudo-libertarians hail Lukashenka or Hezbollah as heroes). An action needs to be judged on its own merits, and also contrasted with real alternatives. To simply selectively dismiss actions because they didn’t originate from a hypothetical ideal is at best a pointless exercise in the Nirvana fallacy. We cannot sensibly aggregate the actions. It's wrong to steal, even for a good cause. But the good cause does not become bad because one stole for it.
The second confounding factor - doesn’t war necessarily depend on thinking in terms of collective guilt and innocence, a fallacious misuse of concepts applicable only to individuals? Again, no it doesn’t. It is important that we avoid the fallacy, that we distinguish between combatants and non-combatants, between the guilty and the bystanders, and be careful in applying the three rules above when deciding who is a legitimate target. But careful application of the law of self defense addresses the issue.
Then what about the question of "collateral damage" - inadvertent harm to those who are not legitimate targets? It’s never certain that such collateral damage won’t result from a legitimate act of self defense, and to make such certainty a requirement would simply make self defense impossible. Non-aggressors aren’t proper targets, and pains should be taken to avoid inflicting harm on them. But this doesn’t require us to give up self defense. A "reasonable man" standard applies here as well.
So there is such a thing as war that is justified from a libertarian standpoint. Of course, none of this will satisfy armchair purists who insist that every action undertaken be unobjectionable in every way they can imagine, ex ante and ex post. But that’s a standard that is literally impossible to satisfy, and hence belongs in the realm of theology. Such fantasies are completely irrelevant to making choices in the real world.
Saturday, February 02, 2008
Cato for Tyranny?
Knowledge is Power (motto of the U.S. Information Awareness Office).
On Friday, Congress gave the "Protect America Act" a fifteen-day extension. This is a terrible piece of legislation, totalitarian in nature. It’s part of an effort that, if successful, will eventually ensure that the federal government intercepts and monitors all electronic communications. (Yes all electronic communications.) The average American seems to be unfamiliar with things like IAO, TIA (Total Information Awareness), and ADVISE (Analysis, Dissemination, Visualization, Insight, and Semantic Enhancement), unfortunately.
But at least one would hope those with a special regard for liberty and limits on government power would be in the fight to stop the total information state. Unfortunately, Cato Institute V.P. for Legal Affairs, Roger Pilon, has written a dreadful editorial in favor of the PAA, as well as legislation that would remove from the courts citizen lawsuits against telecoms who knowingly and willingly helped the NSA (National Security Agency) to intercept and monitor millions of private communications of citizens, without warrant, probable cause or suspicion, judicial oversight, or anything other than a mere wish to do so. Pilon’s editorial appeared in the Wall Street Journal on the day of the vote, and was obviously timed to influence the vote.
Cato ought to expel Pilon from its ranks. If Vladimir Putin argued that he ought to have the power to intercept and read the personal communications of all Russians, we’d all agree this was his KGB training in action, and lament the return of the Soviet police state. Pilon’s position is equally totalitarian. His claim that this is all a matter of foreign policy is complete nonsense. Foreign policy is the conduct of relations with foreign governments, while this concerns the police powers to intercept and monitor citizens’ communications. These powers are quite limited, including by the Fourth Amendment to the U.S. Constitution. It’s not the case, incidentally, that only communications with abroad have been swept up. There’s evidence that NSA was intercepting entirely domestic communications en masse. But if these court cases are shut down, as Pilon wants, no citizen will have recourse to the courts in these matters, and we’ll have no way to establish this.
This legislation is a real nightmare. For an excellent discussion of the dangers see the short op-ed by Dennis Fisher of Information Security magazine.
The EFF (Electronic Frontier Foundation) has excellent resources on NSA’s warrantless spying and the amnesty proposals for telecoms who happily participated. For those interested in the damning technical details, see in particular the testimony of AT&T whistleblower Mark Klein. And there’s a good discussion of ADVISE at FindLaw.
Tom Palmer documents that most people at Cato are opposed to Pilon’s view, but for Cato to have allowed this editorial to go out under its name, on the day of a key vote, is too much. The message: look, PAA must be OK, even the libertarians at Cato approve of it.
This is not some small difference of opinion over difficult issue with good arguments on either side. This is limited government under law vs. the unrestricted total information state. Cato needs to correct this, and now.
P.S. The IAO symbol portrayed here appears to be something the Federal Government itself developed and and actually used. And if it didn't, it should have.