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Archive for May, 2010

I was talking to one of my graduate students on Friday about the European economic crisis and the inevitable collapse of socialism. He had an interesting reaction: “Well, of course, a welfare state in Greece, or Italy, or Spain is a really bad idea. But Germany is doing fine. Economists don’t appreciate the importance of culture. There’s nothing intrinsically wrong with the welfare state; it just requires a culture of hard work and orientation toward the future.”

That prompts the thought: Maybe socialism can work in the right set of cultural circumstances. Maybe, if the people do work hard; have children; save and invest for the future; and take advantage of the benefits of the welfare state only when they truly need to, a socialist economy can succeed. I’ve argued before that the welfare state is a pyramid scheme and is therefore ultimately unsustainable. But population growth could provide the exponential growth in the base that a pyramid scheme needs.

Is socialism sustainable, given an appropriate culture? For a while, surely. But how does one sustain that culture? How long can Germany remain Germany under a socialist system of economic organization? The empirical evidence from all across Europe is that socialism undermines the desire to work hard, have children, and save and invest for the future. In 1960, Europeans worked just as many hours as Americans; now they work far fewer. That represents a significant cultural shift. The welfare state, I think, is responsible for much of it.

Max Weber saw the Protestant Ethic as underlying the growth of capitalism. The growth of capitalism may underlie the growth of the welfare state, as prosperous people believe that they can afford to help those in need. Needs expand into wants, and the welfare state undermines both prosperity and the culture that made it possible.

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Five hundred fifty-seven years ago today, Constantinople fell, ending the Eastern Roman Empire and subjecting Greece and the Balkans (including many of my own ancestors) to more than 400 years of Islamic oppression.

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More confirmation that the problem of terrorists entering the country through Mexico are real:

2009 Apprehensions

That’s 162 people in one year! And presumably those apprehended are a small percentage of those making it through.

And now there’s a terror watch for the Texas-Mexico border.

The Department of Homeland Security is alerting Texas authorities to be on the lookout for a suspected member of the Somalia-based Al Shabaab terrorist group who might be attempting to travel to the U.S. through Mexico, a security expert who has seen the memo tells FOXNews.com.

The warning follows an indictment unsealed this month in Texas federal court that accuses a Somali man in Texas of running a “large-scale smuggling enterprise” responsible for bringing hundreds of Somalis from Brazil through South America and eventually across the Mexican border. Many of the illegal immigrants, who court records say were given fake IDs, are alleged to have ties to other now-defunct Somalian terror organizations that have merged with active organizations like Al Shabaab, al-Barakat and Al-Ittihad Al-Islami.

In 2008, the U.S. government designated Al Shabaab a terrorist organization. Al Shabaab has said its priority is to impose Sharia, or Islamic law, on Somalia; the group has aligned itself with Al Qaeda and has made statements about its intent to harm the United States….

Security experts tell FOXNews.com that the influx of hundreds of Somalis over the U.S. border who allegedly have ties to suspected terror cells is evidence of a porous and unsecured border being exploited by groups intent on wrecking deadly havoc on American soil….

In addition to the Somali immigration issue, Mexican smugglers are coaching some Middle Eastern immigrants before they cross the border – schooling them on how to dress and giving them phrases to help them look and sound like Latinos, law enforcement sources told FoxNews.com.

“There have been a number of certain communities that have noticed this, villages in northern Mexico where Middle Easterners try to move into town and learn Spanish,” Neuhaus Schaan said. “People were changing there names from Middle Eastern names to Hispanic names.”

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M3 is plunging at a rate not seen since the Great Depression. The Obama administration shrugs; the Keynesians inhabiting it have never read Friedman and Schwartz’s Monetary History of the United States, and don’t think money supply is interesting enough even to report. They pile on debt at unprecedented rates, and are now contemplating further “stimulus,” since earlier attempts, though dwarfing all previous deficit spending, seem to have accomplished nothing.

This suggests a nightmare scenario, in which the United States accumulates a massive amount of debt only to find that it must pay the money back in dollars more valuable than those it borrowed. A lot of people have thought the Obama administration’s plan was to inflate their way out of the debt, and have been buying gold, stocks, etc., as a result. But what if the opposite happens? What if deflation occurs, and the debt, not just here, but across the world, becomes much worse than it now appears? It now appears oppressive and, for Greece, for example, unsustainable. What if it becomes unsustainable for everyone?

I’ve been puzzled for a while now by the inflation numbers, which have been well-behaved in the face of ridiculously large deficits, with more of the same projected over the next decade. Maybe their benign appearance despite indicators that would normally be inflationary is a sign that the underlying economic forces are actually deflationary.

I’m not asserting anything here. But I am worried. There is a possibility that things could get very bad very quickly.

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Taking a brief time out from the workaday quotidien-ness of the crisisblur that is the Obama Presidency, Barry, a.k.a. Whiner-in-Chief, joined Barbara Boxer for a fundraiser in San Francisco, a city that seems to bring out the best, or at least the most honest, of our Dear Leader’s Vaunted Rhetorical Skills:

“Let’s face it this has been the toughest year and a half since any year and a half since the 1930s,” he said.

Oh, uh huh.  I think JFK might disagree with you: he had a year and a half that ended really, really badly.  LBJ didn’t have it so easy, I mean, it’s hard to imagine this but there was violence in the streets in 1968 even before the Tea Partiers started their campaign of chaos and distruction.  Maybe Truman had a hard year and a half, two. I don’t think the ’40’s were a cakewalk for FDR, either.  Huh- maybe even George Bush could weigh in with a “Shucks, that’s nothin'” , if he were as devoid of dignity as our current president.

Psssst, Barry: Yeah, these problems you’re facing, that we’re all facing, they’re terrible.  What’s worse, far, far worse, is that you have handled every last one of them incompetently and with a partisanship that is paralysing the country.

Let’s take another look at your to-do list, shall we?  Biggest ecological disaster ever brewing in the Gulf Coast.  Oh, that’s right: you have to give an interview to Marv Albert and talk about basketball.  NoKo and SoKo on the verge of war, but you have time to play the links.  Iran merrily speeding toward nuclear status, and Hezbollah acquiring missiles: time to get your knickers in a twist over an apartment building in Jerusalem.   And Memorial Day, the laying of the wreath? Whoops- time for a Chi-town fix with Michelle and the girls.

I know, Barry, reminding you of your Most Megalomaniacal Moment would be mean, but that’s how I roll.  So, hey, when do the Sooper Dooper Earth Healing Powers kick in?

File under “Great Minds Think Alike”: this is the reference for the title of this post, and here is the visual, h/t MoonBattery and America is an Obamanation!

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Walter Russell Mead lists ten lessons from the economic crisis:

Aristotle1.  The American Century isn’t over.

2.  Liberal capitalism works.

3.  The rogue states are parasites.

4.  The old left is dead.

5.  Nobody really understands the world economy.

6.  That goes double for financial markets.

7.  The Battle of Financial Markets is over; the Battle of State Finance has begun.

8. The demographic crunch time is here.

9.  Culture matters.

10.  The politicization of economic governance is dangerous business.

Our chief problem, as I see it, is that our President and the Democratic Party in general have not learned even a single one of these lessons. They believe that the American Century is over; that liberal capitalism is a failure, and must yield to some form of socialism; that rogue states ought to be engaged and appeased; that the old left was essentially correct; that they understand the economy and financial markets well enough to direct them better than the marketplace; that the chief problem with State Finance is that we haven’t been spending enough on social programs; that the demographic crunch can be resolved with massive borrowing; that the culture of the English-speaking world must be apologized for and abandoned; and that politicians rather than economic agents should be making economic decisions. In fact, that strikes me as a fairly concise summary of Obama’s foreign and domestic impulses.

Mead analyzes the dangers, which run deep, and echoes Aristotle in his worry that democracy would eventually destroy itself:

The rise in the economic importance of the state during the twentieth century–however necessary and in many ways benign this role may have been at various points along the way–inevitably brings politicized governance and regulation in its wake in ways that make bubbles, panics and crashes both more destructive and more likely.

To take one important example, when government workers make up a substantial portion of the electorate, they can influence their own wages and pensions by voting as a bloc. They can — and they do.  California, Illinois and Greece have a lot in common.

But even this is just the tip of the iceberg.  The increased economic role of the state naturally and inevitably multiplies conflicts of interest and creates moral hazard.

Texas Dust BowlAfter discussing the farm bubble induced by the Homestead Act that culminated in the Dust Bowl, and the housing incentives that culminated in our recent difficulties, he generalizes:

Yet it is clear that the mix of democracy and capitalism is a dangerous if necessary brew; after decades in which we failed to think the costs and risks through, we are now suffering the consequences of policies that create dangerously perverse incentives in both political and economic spheres.  Reducing damaging but popular forms of state intervention in the economy while ensuring the state retains the authority and the ability to provide the effective legal and regulatory frameworks without which no modern economy can flourish is the fiendishly difficult and delicate task which Europeans and Americans alike must now undertake.

This is the problem Aristotle held to be insoluble. In the past, we managed it by way of Constitutional protections against redistributive policies. Since 1937, however, those Constitutional protections have largely been overthrown, and Obama’s court picks seem designed to gut them further or even turn them into mandates for redistribution. I don’t mean to be pessimistic; I think the problem does have a solution. My worry is that, maybe, we can’t get there from here.

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William A. Jacobson points out that ‘little noticed’ is the new ‘unexpected.’ It’s not just the law of unintended consequences; it’s the law of unintended law. He lists twenty recent examples concerning the Obama health care bill alone. That’s what happens when people vote on bills they can’t be bothered to read.

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