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Hail, Trump! God-Emperor of the Alt.Right

And Let’s be honest, he’s ghastly and despite brown-nosing by Nigel Farage, he’s no friend of the UK’s, because he doesn’t value anything the UK brings to the table. Rumour has it, he asked Farage to intervene in an offshore windfarm decision affecting his Scottish interests, which suggests he doesn’t understand the concept of ‘conflicts of interests’ when in elected office.
This further suggests Trump will attempt to use the office of President to enrich himself, rather than doing so after leaving office, as is accepted. All this is rather feudal; the office holder as gold-giver, distributing patronage and receiving tribute. He’s an entertainer and showman, which hails to an even older tradition of politics: that of Imperial Rome, where emperors used state coffers to enrich themselves and their clients,while keeping the mob quiet with bread and circuses.
Donald J. Trump is psychologically unsuited to office in a mature democracy. He is thin-skinned, autocratic, insecure, ignorant, and completely without any understanding of the levers of power he now wields. Much like (later caricatures of?) Nero, Commodus or Caligula.
Despite (or perhaps because of) this, the adolescent losers of Alt.Right see Trump as a God-Emperor (no, really they do. Video surfaced today of people making Roman Salutes, saying “Hail Trump”, and distribute Memes based on Games Workshop’s futuristic figure-based tabletop wargame, Warhammer 40,000 where humanity is defended from Chaos by a psychic God Emperor). If Trump is Imperator, then the Secret Service is a Praetorian Guard. And how did the Praetorian serve Commodus, to pick one example?
Trump might, were he capable of reading a book, muse on the fact he’s surrounded by armed men sworn to uphold the Constitution of the United States of America, and defend it from Enemies DOMESTIC and foreign. Thankfully, the USA is a mature democracy. Where once armed men acted as kingmaker, courts now do. For the simple reason Ignorance is no defence, and the fact that Trump’s loathing of ‘Washington’ is fully reciprocated, I find it unlikely that Trump will survive his term alive and unimpeached. Unfortunately I cannot find odds on a Trump impeachment before 2020. Perhaps it’s a racing certainty.
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Slavery

Perhaps slavery would have been abolished in the Americas nearly a century earlier, had the Colonists lost the war of Independence?

Most wars are about economic matters, and it’s difficult to over-state how central slavery was to the economy of early America. Yet in 1772, the Somersett Case brought before the King’s Bench which concerned a slave brought to England by a Customs official, and concluded that chattel slavery was unsupported by common law. “The air of England“, as was argued by Somersett’s council “is too pure for a slave to breathe“. Hundreds of American slaves attempted to make the passage to England and freedom following this ruling. Just four years later, the Colonists declared independence. I do not believe these facts are unrelated. George Washington was a major slave-owner as was Thomas Jefferson. Both men appeared to know the institution was wrong, but felt unable to do all that much about it.

The war of Independence was, as the US Civil War a century later, at least in part about slavery. Washington resisted free blacks in the Continental army in which around 500 served for fear of the principle it would set to slaves. America’s first Emancipation proclamation (in reality, a fairly desperate last throw of the dice by someone hoping a slave rebellion would carry the day for the Crown) was issued by the Governor of Virginia, Lord Dunmore in 1775. Thousands of freed slaves fought for the British side against the colonists. While the Dunmore proclamation may have hastened the end of slavery in the American colonies had the British won, the abolition of slave trade (1806) and the abolition of slavery in the British Empire (1833) may have had a much harder run. The abolitionists would have faced a greater array of more powerful economic interests.

It’s a comforting Narrative for the Englishman therefore that slavery was abolished in the British Empire before it was in most other European and American powers, and that having done so, the might of the Royal Navy was deployed in suppressing the trade. This does not absolve the UK, or the British Empire of the stain of slavery. While the British may have been the first power to end slavery, while the slave trade was legal, and for some time while it wasn’t, the British economy was enormously boosted by the trade in humans, which ceased when it was becoming less economically viable. The British and Portuguese were by far the biggest slave traders for over 200 years.

Around 11m (estimates vary hugely) Africans were forcibly removed over the 300 years of the triangular Atlantic trading route, of which slaves from West Africa to the Americas formed the “middle passage”. This devastated the societies and economies of the entire continent, and left much of Africa, even into the interior, a low-trust society to this day. Unlike the Black Death in Western Europe, an equivalent tragedy, which left the remaining people richer, the slave trade left societies in which people could not invest in land or technology because of the ever-present risk of kidnap. There is evidence that many tribes actually regressed, abandoning technologies such as crop-rotation and the plough in response to this onslaught. Much of West Africa is corrupt, violent and poor as a direct legacy of the Slave trade.

The societies which escaped the worst excesses colonialism and slavery, notably Namibia and Botswana, are doing much better than the rest of Africa to this day probably because their tribal institutions and societies weren’t ruptured by grotesque incentives of the slave trade. The south was poorer and remains poorer than the rest of the USA because of slavery and Jim Crow. The “special institution” has devastated Africa and left America uncomfortable in its soul following centuries of Race-laws, hate, fear and torture in the Southern states. It’s a special kind of evil that poisoned everything it touched and does so to this day.

And that’s before we consider the individual human cost. Millions of lives lost to sickness, violence, warfare and simply being thrown overboard should the middle passage prove longer than counted for in supplies. Think about that for a minute.

This may not have happened on the Tecora, on the voyage depicted in Amistad, but it did happen.

It’s not an exaggeration to conclude the industrial trade in Humans, at which the British once excelled, is a historic crime of an equivalent magnitude to the Holocaust. This is why I do not get angry when politicians talk about reparations for slavery. I am rich and free and many Africans poor, in part because of the enduring legacy of slavery.

Why am I writing this now? I read ’12 years a slave’ by Solomon Northup the movie of which is to be released in the UK shortly. The more I read, the more fascinating I find the entire grotesque, horrifying business. It’s a short book, and one I urge you to read before you go see the movie.

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Government as a Tool.

Government is not inherently evil. Indeed it is necessary – anarchy is not a happy state of affairs. This is the difference between Anarchism, and Libertarianism: Somalia is not a standing retort to the principles of the latter. Nor are things like progressive taxes, welfare states or redistribution necessarily bad.

Even (or even especially) in meritocratic societies, much of one’s station in life is overwhelmingly predicted by what your parents do. If they’re smack-addled self-arguers, you’re unlikely to become Prime-Minister. So, redistribution fulfils a fairness function – mitigating the gross dice-roll of fate which decided which womb bore you. Redistribution also reduces the risk of starting businesses – if you fail, you’re not going to starve, so  as a minimum standard of living can be guaranteed, people can on take more entrepreneurial risks. And as much business success is down to luck, this too is fair. There is an economic function to welfare. Welfare can also be seen as an insurance policy, preventing the rich ending up on a gibbet when the revolution comes.

The trick is to help the needy and unlucky while not damaging the incentive to work. Unfortunately, the British welfare state, with its vast bureaucracy of 72 separate benefits is a massive disincentive to work. Simplifying the benefits system, and aligning it with the tax system and make it simpler to claim, reducing the risk of lost benefits, when taking on short-term work. The Government’s plans for a universal Credit are a step in the right direction.

Government has a role in infrastructure. It is naive to imagine a comprehensive network of Metalled roads would be provided by the private sector. Paths form naturally, but for them to be in decent condition, this is best provided collectively. A road on its own is worth less than the same road in a network.

The realm must be defended. Most countries don’t have a handy English Channel, and whilst Britain Eschewed a standing army long after the rest of Europe had started conscripting, she did always have a big Navy and almost no states do without some form of military, even tiny Lichtenstein has paramilitary police. No-one would argue that private armies are a good idea. This is what made Medieval England so hard to Govern.

Defence morphs into law enforcement. A strong, central state through British history has tended to act as a protector of the peasants against their local potentates. The Royal Boroughs became wealthy for example because their liberties were guaranteed by the crown against the often rapacious demands of local barons. Where monarchies became defenders of the people against the barons in this manner – The UK, Scandinavia and much of Northern Europe, they tended to survive. It’s clear therefore enforcing rules, especially on behalf of the weak against the powerful is a key role of the state.

A strong, effective state therefore is good for all except the most powerful. Economically, the benefits of a state listed above are demonstrated in the concept of the Rahn curve. If the state doesn’t exist, you don’t get much economy, let alone economic growth. But just as libertarians are wont to abuse the Laffer Curve to suggest that tax-cuts always bring more revenue, leftists are currently pretending more state spending will always generate growth. It doesn’t, and here’s why.

An efficient package of tools

Having got some measure of control of the state, and having used it to deliver a more equitable society, the temptation arises in democracies especially to use this powerful tool called the state to solve problems to which it is not suited. Politicians get called “complacent” if they say “not my problem”. A limited state, focused on what it does well is wealth enhancing. Take the state into areas to which it is not suited, the result is a state which takes too much, and as a result gets captured by vested interests in public-sector unions, who agitate for more spending on their priorities (mainly wages for their members) forgetting that this must be paid for out of everyone else’s surplus production. The result is a state providing Health, Education and social services, over which the people who are supposed to use them, have no control. You take what you’re given and like it. You get substandard services, delivered by people who know they’re going to get paid, whatever you think.

It also means the costs lead to over taxation. The rich are mobile, and while they might enjoy London or Paris’ cultural riches, there comes a point when they will bugger off, as Francois Hollande is likely to find out soon. It is tempting to blame ‘the rich’ because they are few in number and democracy can become the tyranny of the majority. If the rich “avoid” taxes, a problem existing mostly in the fevered minds of left-wing activists, it’s because a ridiculously complicated tax-code allows them to. Simple, fair, progressive taxation is rarely avoided. Gordon Brown tried to use the Tax system as a control on the economy. He failed.

Trying to do too much

The problem causing the ratchet upwards in the cost of government is the costs of state inaction are easy to picture – you’ve pissed off individuals making noise. But the costs of state over-action are spread equally amongst millions, but it takes a crisis to make people aware of it.

The answer is to use the state as an enabling tool, funding rather than providing. And this is the key to the success of the Nordic states, despite their high (eye-wateringly so) tax rates. I’ve no problem with state funded services. I’ve no problem with progressive taxation, and a welfare safety net. But these have limits. And we’re at or beyond them now. The tool of the state has become unwieldy and inefficient because it tries to do too much.

Few would have a problem paying high taxes if the services delivered were up to scratch. And if they are not up to scratch, if there’s a choice between competing providers, you still don’t mind paying. You just take your tax-funded business elsewhere. This is why Sweden’s state schools are so much better than ours – they aren’t run by the state, and so don’t have the bureaucracy to stifle good ideas, and are not completely captured by the producer interest.

Ultimately the standard of living, that we’re trying to improve for as many as possible, equates to a measure of free income after tax, non-tax health and education costs, and transport. All of which government can influence. The USA may have low headline federal taxes, and variable state taxes but its citizens are expected to pay out the majority of the difference into a bloated private health system (the US health industry is as obscene as it is in part of ridiculous laws like those banning the sale of insurance across state lines, but that’s another subject, for another day). So despite their low taxes, Americans are not greatly better off than western Europeans. It’s not just about money.

It’s impossible to live cheek-by-jowl without some collective decision making. So long as this is under democratic control, and uncorrupt, State action can mitigate certain behaviours which only become individually optimal in the absence of a collective alternative. For example, America rejected public transport almost entirely, in favour of the car facilitating (along with a large, underpopulated land-mass) urban sprawl which means Americans spend longer commuting than almost anyone else on the planet, something at the top of the list of misery-making habits. So a rejection of state action in favour of rugged individualism has forced Americans into a sub-optimal status quo and sitting in queues of traffic on the freeway, but feeling like they have no choice.  Monopolies, like the near monopoly of car infrastructure in Los Angeles, are anywhere and always a problem.

So the idiot ‘Libertarian’ battle cry of “cut taxes now” is likely to mean people spend the savings from taxes on things that used to be provided by taxes and being forced into sub-optimal behaviour by the abandonment of some collective action. Inevitably taxes would also be spent on subsidising the poor’s access to goods and services, so few are really any better off despite lower headline tax rates.

The trick therefore is to maximise everyone’s utiltiy at minimum cost, and to do so whilst increasing everyone’s freedom of action. And the best drivers of efficiency are markets. Free schools would create choice, whilst still being free at the point of delivery. There is no reason (apart from producer interest) to oppose privatised bits within the NHS. The internal market was abandoned, then resurrected by Labour, not for ideological reasons, but because it worked.

I’ve no problem with health care free (or free-ish) at the point of delivery funded from taxation because no-one has shown me any evidence that private insurance is more efficient. After-all insurance pools risk. Tax-funding pools risk better. However I do not believe the state, or any other monopoly to be any good at delivery. So break the NHS up, and let the patients choose where to be treated, whom to see as their GP, and let the funds follow those choices accordingly. All the regulator (NICE?) needs to do is say which treatments are available for free, and which need to be paid for out of your pocket, and then check they’re up to a standard. The market can do the rest.

Where the real cuts need to come is in the vast, expensive bureaucracies managing and regulating our lives. Big business lobbies for tight regulation because this protects incumbents. Look at banking – a ridiculously tightly regulated industry from which innovation has been frozen by a cartel of self-interested Giants. These Giants are egged on by a regulator which encourages scale in the belief that big is better, and who do business according to the regulators idea of risk. And look where that go us. Deregulation cannot be the reason for the crisis because it’s never been tried. A free market in banking (with a state guarantee for depositors, but not investors) would let a thousand flowers bloom. Bank failures need not be disruptive and would cause the banking industry to join the 21st century as crappy customer service would be punished by people moving. At present, I can’t e-mail my bank and they still take 3 days to clear a cheque.

If you want to cut costs in Government, don’t look at the transfer payments of the Education and NHS. The delivery of these is going to improve as markets penetrate industries which were once monopolies. If a state bureaucracy replaces an insurance bureaucracy, is that really worse? Look at the vast regulatory raj, with fingers in big business, local Government and cut that out. Focus remaining regulation on competition, not consumer outcomes (that’s what a market’s for…)- don’t let anyone get a monopoly anywhere. Bust cosy cartels. Enable choices, stop protecting us from ourselves, and leave the results alone.

Ultimately the state needs to stop doing quite a lot of things its got used to doing. Why is there a public bureaucracy around sport? What is the DTI for except a conduit to Government for big business? Why are there laws demanding I wear a helmet on a motorbike or a seat-belt in a car? Why is there a ‘War on Drugs’? Why can I not have a cigarette with a pint? Because our elected representatives decided to use an inappropriate tool to solve problems which are none of their business. The result is a state delivering shoddy services, yet which cost 50% of everyone’s income.

This has become unsustainable. Much as I want taxes cut, I still want good public services and we need a balanced budget. However instead of cutting the Army to 82,000, why not cut the bureaucracy of the MoD? Instead of pruning branches, why not cut down the whole tree of the DTI? How about Stopping giving money to “charity” on  our behalf? Why not Roll DfID back into the FCO? The list of unnecessary stuff the Government does is nearly endless. Slash the areas of the state whose sole purpose is to provide jobs for life for Unite members, and create markets in most of the rest. You may not see the tax burden go down much in the short-term, there are too many pensioners for that, but you may get more for your taxes and your children might be rich enough to be taxed less. In final analysis, Gordon Brown’s spending splurge wrecked the rest of your economic life. It might not wreck your children’s.

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The American Culture Wars.

I fear for the United States of America. Their politics is becoming increasingly polarised, and neither tribe is anywhere close to the right answer.
Let’s look at the Democrats first. They are broadly anti free-trade, pro-union and increasingly collectivist. This is broadly the economic and social dead end that most of Europe is running down. The party sounds a lot like the Labour party on tax issues. They are absolutely convinced all the problems could be solved by extending taxes on ‘the Rich’, who are to blame for substantially all the economic problems of the country. They have the same punk Keynesian headbangers as over here, and the activists are just as prone to the same PC idiocies. They are, however misguided, sane when compared to the Republican party.

The Republican party is currently choosing someone to lose against Obama. The one guy plausible enough to stand a chance was deemed “unamerican” for speaking mandarin Chinese. There is a savage proletarian mentality which goes beyond anti-intellectualism and strays into an open hatred of learning. Ignorance is ‘American’. Being fat is ‘American’. Wasting fuel in enormous trucks is ‘American’. The very science which has made America pre-eminent is utterly rejected. There isn’t a sensible rejection of climate change, for example. It’s a rejection of something that might make those big, gas-guzzling trucks uneconomic, which comes from the same place as the rejection of the “theory” of Evilution. The fact that anyone could consider Rick Santorum, or Sarah Palin a potential POTUS is ridiculous.

A serious contender for the Republican nomination suggested that letting gays serve openly in the military (something that has caused no problems in the far more heavily committed British or Israeli armies) is part of a “war on christianity”. He said this apparently after thinking, aloud and in public. The fact that the obviously flawed Mitt Romney is basically the shit that stinks the least indicates that this party is really only interested in talking to itself. The Rot set in with Bush Jr. but the God nuts have the GOP by the short ‘n Curlies.

Neither party elites are willing to sell globalisation to their supporters, for example. The fact that the Americans are the principal beneficiary of this process is neither here nor there. Americans think the Chinese are Taking ‘their’ jobs, that their culture is under threat (from what depends on which tribe you’re in); that there is a terminal decline (though once again, the cause of that decline depends upon which tribe you’re in).

But it’s not Immigrants, the 1%, Chinese, the UN, goddamn eviloutionists or whatever who are destroying America. It’s the US political culture. The bureaucracy is rampant. Companies are fleeing the US. Capital markets round the world are closing to US capital, because of the sheer arrogance of the US tax authorities which make it just too much trouble to have an American as a client. And going to America, with the TSA who verge between dangerously paranoid and actually insane, is becoming unpleasant if not down-right dangerous. The DEA has destabilised an entire continent, South America; and the War on Terror is in danger of doing the same to Central Asia. The USA has been betraying its history and ethos with rendition, torture and support for less-than savoury regimes. America has been resting on its laurels for some time, and will lose allies fast when it’s no longer the biggest boy on the block if it continues in this vein.

The fact is both political tribes are wrong, in different ways on more or less everything. This is extremely worrying. The Democrats think the Bush-era tax-cuts are to blame for everything. Republicans want to blame everything on discretionary spending. The Republicans won’t touch the bloated American Military, the Democrats won’t touch Entitlements. Both sides are getting what they want and the result is an almost Brownian deficit, as both sides are talking to themselves. Neither side is interested in the rest of the world.

This is a car-crash waiting to happen.

There are free-trade, balanced budget Democrats. There are socially liberal, fiscally sound Republicans. There are people interested in the world in both parties. They are not setting the tone of debate. The recent brinksmanship over the Budget ceiling may have caused the parties to re-examine their shibboleths or face a US default on its debt, but it was a dispute between headbangers. The only hope is this dialogue filters through to the parties’ activists and they re-examine their ideas, because at the moment, The USA looks a lot like a richer version of Britain in the 1970s. Ungovernable, as the tribes are just not willing to talk to each other, and I see no Thatcher on the Horizon. The Americans I know, which includes a range from London ExPats to West-coast software engineers and deep-red-state soldiers, are being failed by their political culture. Yes, a political failure worse than Europe’s. At least Sarkozy and Merkel are trying to address the issues, and someone sane might replace them.

The hope is the sheer variety of the USA, and it’s endless capacity for re-invention, might see the Republicans reject theocracy, and Democrats reject punk Keynesian “economics”. Both parties need to rein in the Bureaucracy, embrace free trade, basic social liberalism, and balanced budgets, because the world’s demand for T-Bills will not last forever, as one day soon a billion Chinese or Indians will be as rich and more powerful than 300m Americans.

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That S&P Downgrade. The Music’s stopped.

It’s important to understand exactly what the ratings agencies do. Their ratings are merely opinions. They are not regulators, though regulators take their work rather too seriously. They do not set rates – the market sets rates – though they take rather too seriously the ratings agencies’ opinions, mainly because it allows lazy traders to price the risk of a given security according to their rating without doing that boring maths stuff, or any tedious analysis.

The USA is not about to go bust, but the deficit is rising, the debt is rising, and rising at an increasing rate. This is President Obama’s “stimulus” program, and it has failed utterly, just as every other stimulus program everywhere has failed during this crisis. The problem is that of decades of Governmental overspend. In the USA the benefits of relatively low tax-rates are eaten almost entirely on increase health care costs, something Obamacare does almost nothing to address; it just moves the burden a bit from private to public. So the western world entered the financial crisis with Government spending between 40% and 50%, as Governments found it easier to deliver jobs by borrowing to build a bloated state bureaucracy and generous but inefficient state services.

During the cheap-money boom running from the late 90’s to 2008 economic growth was accelerated by the money borrowed by Governments, and the money borrowed by people against the rising value of their homes. Public and private debt across the western world grew as Governments and home-owners spent cheap credit. It was the household debt, sliced and diced by ex-ratings-agency employees in ways to game the algorithms to generate the necessary grades to allow investors, who don’t look too closely under the bonnet, to buy them.

House-price inflation is just inflation, but this was not captured in statistics used by the central banks to set interest rates. Gordon Brown chose CPI, which excludes most housing costs, instead of the far more appropriate RPI, which doesn’t when setting the central bank free to set rates. As a result, British interest rates were too low during the 90’s or 00’s. Similar sleights of hand happened in the USA. Of course it was the private sector credit which went pop first – and the web of debt, and the financial instruments secured upon it fell apart and banks went bust. Ireland and Iceland were bankrupted by the cost of bailing out the banks.

A chunk, but not the lion’s share of the UK’s public debt is the cost of bailing out the banks. But the UK was running a deficit BEFORE the crisis, as was the USA. Governments were trying to keep the party running by borrowing money. Eventually the music stopped. The size of the UK’s and Ireland’s deficit is partially due to the collapse in Bank’s tax-bills which had underpinned public spending. In the USA, the Bush-era tax-cuts (and discretionary war-fighting) are the main reasons for the deficits. the Bank bail-outs (and that of motor manufacturers!!!) were the main reasons in the US. Governments desperately trying to keep the music playing by pulling the “stimulus” levers on their monetary (low interest rates) and fiscal (excessive state spending) levers.

So the wheel came off the financial system, leading to lower tax receipts from that sector. The correct response would have been to cut spending to reflect the new reality. But for the last 2 years, countries with open economies and floating exchange rates, whose policy makers surely knew that the fiscal multipliers were probably less than one, sought to “support” the economy with continued state spending.

This attempt to keep the party going was doomed to failure. Now for the good news. The US and UK political systems and indeed democracy, are mature enough to call “enough”. The Tea Party caucus stopped Obama’s lunatic stimulus program and demanded a return to balanced budgets, and crucially they called for the majority of this fiscal contraction to come from spending cuts, not tax rises. In the UK the electorate was persuaded that ever more spending was not the answer and elected a Conservative-led coalition which had not shied away from the need for spending cuts. In the UK spending cuts are about to start, or “bite” as the BBC keeps telling us. This may be expansionary, if it means that confidence in money and the economy returns.

The UK and USA are going to be Okay. Our public finances will be brought under control. The USA will regain its AAA rating in time, and we may even experience growth while doing it. (This will surprise the Keynesian and the BBC).

The economies of Southern Europe don’t have the excuse of bailing out banks for their crisis. That can be laid squarely at the door of the Euro, a political vanity project which is now destroying economies and lives, because sharing a currency doesn’t make Greeks or Italians into Germans. The ultimate cause though is the same. Decades of cheap money artificially boosted the economy leading to an asset price boom. Governments unshackled from the constraints of the markets were able to borrow to buy votes, until bond traders noticed that the Greeks and Italians were not behaving like those parsimonious Germans and started to drive down the price of their bonds. The music has stopped, the money must be paid back, and Governments MUST cut their cloth according to their means.

Who’s going to spend more to close the gap? Well that’s obvious. The Japanese people have to start spending their savings (while their government reins in its spending). The Chinese government will find the returns available on its surplus heading to zero if it continues to buy dollars to keep the Yuan down. They will have to start running surpluses and let their currency appreciate.

It ain’t all bad. The world has plenty of demand – 2 Billion south and east Asians are getting richer faster than ever before in the greatest expansion of wealth in history. Why aren’t we celebrating this, and seeing it as an opportunity? What we need is Governments to realise they can’t and shouldn’t run deficits or surpluses for ever, and the less they manage the economy, the better that economy functions in the long-term. Indeed neither should people run surpluses for ever: You can’t take it with you. The world’s financial crisis are simply shocks which change behaviour to iron out these imbalances. It works, eventually.Link

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The Debt Ceiling. What Politicians Say vs What they mean.

What Barack Obama says

“Spending cuts would not come too quickly to hurt the fragile U.S. economic recovery”

Of course, he KNOWS that state spending, in an indebted country with an open economy with a floating exchange rate, like the USA, doesn’t support the economy, and quite possibly slows the recovery, the fiscal multiplier probably being somewhere below 1.

What Barack Obama Means

“Spending cuts will be talked about just loud enough to keep the punters buying our debt, but not loud enough to provoke strikes amongst the Democrats’ clients in the public sector”

We have similar problems in the UK. There are few economic problems which couldn’t be solved by firing 10% of the public sector, the vast majority of whom push paper around or whose job it is to interfere. The problem is that this will cause the entire public sector (probably including the 50% whose work is absolutely vital) to start shouting and breaking things. It may be obvious that half the public sector is useless, but the useless bit is the bureaucracy which is what decides what to cut, & bureaucracies’ function is their own perpetuation. We’re gutting the forces, releasing criminals and cutting police. Why are we not firing civil servants too?

In the USA as in the UK, “the cuts” fall on those without ‘agency’, the ability to influence the outcome. The problem is these are usually people doing something people value. Money is shaved off waste collection, resulting in outsourced bin-men getting the sack instead of tightly contracted, unionised council prod-noses. This results in the utterly ridiculous sight of the pen-pushers in the MoD outnumbering Soldiers in the Army, who are too busy getting their legs blown off in Afghanistan to fight back. Bureaucrats don’t cut themselves. Police numbers fall, whilst ministry of justice headcount remains the same.

The other reason apart from bloated, self-serving public sector bureaucracy, for the deficits in are “entitlements” (US-speak) or “Benefits” (UK-speak). Naturally, just like in the UK, the Left won’t wear ANY cuts to these. In the US, because red-state America is much poorer than Blue, the Republican base won’t wear any cuts to entitlements either. Neither will the republican extremists consider any tax rises, even the removal of loopholes & tax breaks. Nor will the party of supposedly small government (yeah, right) countenance cuts to farm subsidies (Iowa has disproportionate influence in the presidential primary season) or defence, spending on which is running higher than during the height of the Cold War.

In the UK, even the Labour party’s position (though it is never stated as such) is for significant cuts, albeit slightly slower than the Conservatives, who are considering FURTHER amalgamations of storied regiments, cuts to policing, prisons, the Royal navy, RAF. (Some) Labour politicians are thinking seriously about changes to benefits, agreeing with the Tories (in principle) on a Universal Credit. Ignore Ed Balls’ partisan Keynesian headbangery, the debate is rather grown-up compared to most countries. However despite, all the agreement, without cuts to benefits, we cannot balance the budget, here or in the USA.

It’s not just about where the cuts must fall. Politicians have to stop making the excuse that this is a demand-led recession. We’ve had the biggest fiscal and monetary stimulus EVER, and it has not produced growth. You can argue that the stimulus has prevented worse; Obama or even the Guy who looked like Baron Greenback who used to live at 10 Downing St. are occasionally credited with “preventing a great depression”, but that assumes this is about demand.

Gordon Brown

This recession isn’t about people not buying enough. This is about an economy that is operating near its productive capacity (unemployment is relatively high, it’s just many of the long-term unemployed are effectively unemployable, which is also why jobs go to immigrants), it’s just that productive capacity needs to be retooled away from shoving paper around between Whitehall departments or poking your nose into people’s sleeping arrangements for the council, and towards doing and making things people actually value. Because the economy is running at near capacity, extra stimulus merely creates inflation. What’s that – lots of inflation in the economy? So we can’t and shouldn’t “stimulate” any more.

WHEN all those diversity mongs have been fired, and they’ve found jobs in the private sector THEN we will get growth, and not before. It’s the moving of people from useless to useful jobs. But politicians rely on the bureaucracy to implement their grand ideas for the rest of us. So there will not be the savage assault on the public sector bureaucracy that’s needed, here or in the US. The easy listening of Keynesian demand management is drowning out the supply-side reforms which will allow growth, and creating nothing but inflation. Interest rates need to go up, and bureaucrats (not soldiers, police, bin-men or road-menders) need to be fired, en-mass.

Of course, it won’t happen.

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Heroes and Anti-Heroes.

In previous generations, Americans have enjoyed mafia anti-heroes, morally questionable wild-west lawmen & outlaws. They’ve celebrated the guy running from the law, they’ve thrilled at rule-breakers and loners who get the job done. Investigative journalists were once a staple hero of film and TV as they uncovered the truth about what those in power did to those without. Authority was always suspect.


America’s cool new fascism

What does the current output of america’s TV studios say about the country now there are more shows about people WITH power, doing unto those without. There seem to be a lot of shows about law-enforcement. From the sinister conflation of Policing and entertainment of Police! Stop! Kill! (or whatever), reaching it’s apotheosis with Steven Segal actually becoming a Lawman and the even more ridiculous Dog the bounty hunter which feature real-life shoot-outs.

Policing as entertainment is troubling enough, but it is the raft of interchangeable shows showcasing the myth of an alphabet soup of ultra-competent hi-tech law-enforcement agencies which trouble me the most. Does anyone imagine the world’s forensic labs are staffed by genius savants with a thirst for the truth a-la CSI? Or are they banging out DNA matches to order on a production line? ‘The Mentalist’ and ‘Lie to Me’ at least have interestingly flawed characters at the centre, but still essentially support the authoritarian submission to law-enforcers, who are ultra-competent, all-seeing and incorruptible. Then you have the deeply creepy NCIS, a spin-off from the equally suspect JAG in which military legal people are trying to be cool, whereas everyone knows everyone hates the monkeys. Even court-room drama, like Shark, is now more likely to see the prosecutor as the hero, not the defence lawyer, nor the guy uncovering mal-practice against the wishes of those in power. The investigative journalist is just as likely to be portrayed as a traitor than a hero these days. Finally you have the 192 episodes of 24, which serve together as an apology for the Bush/Obama policy of extra-judicial execution, rendition, torture and extra-legal detention. The metaphor of the ticking bomb made into highly a watchable televisual torture-fest.

The myth of the the ultra-competent, all-seeing intelligence agency able to swoop on “terrorists” who in these shows are rarely anything like the terrorists in real-life, and are instead generally painted as “the guy next door” serve to make people watching them comfortable with the idea of surveillance being for our own good because it helps the good guys catch the bad, who could be anyone, anywhere. This is a comforting myth to hideously overweight middle America that there are young, good-looking people protecting them while they sleep amongst their fast-food cartons in front of the telly.

The reality is a different. Forensic labs are understaffed, by underpaid biology graduates. Police are more interested in performance targets, overtime and the location of the nearest doughnut emporium than they are in ‘justice’. They are more than happy to fix-up the usual suspects if it means they get home in time for 24 on the telly. Intelligence agencies rely on guess-work and hearsay and certainly don’t have access to all the nation’s cctv from one central control room with inexplicable cool-blue underfloor lighting. Have you ever beein in a Government building that looks like CTC/LA from 24?. Intelligence operatives are not cool, they’re civil servants who are 43% fatter & uglier than the national average*. No-one ever, in any public-secotr organisation anywhere, has ever used a fucking Mac, let alone an iPad.

America is sleepwalking into facism. They already lock up 1% of their adult population, mostly for possession of small amounts of drugs, mainly of the kinds used by poor people. They are developing a surveillance culture as bad as our own, and as for bureaucracy – well you think Her Majesty’s Revenue & Customs is bad? Wait till you try dealing with the US equivalent. This is all OK because thanks to the Black Propaganda of NCIS, 24 and the like, all that oppressive apparatus of the state is deployed for people’s “security”. If you can persuade them of the existence of bogeymen, they will pay and suffer intrusive surveillance to protect themselves from bogeymen.

Western power comes from wealth; our wealth comes directly from our liberty. Our freedom to think “how can I do this better” and freedom to apply those insights leads directly to economic growth. Freedom to question the Government’s policies and those acting in it’s name means an absence of piles of corpses in western political discourse. How long can this last? Timid and cowed people, brainwashed into not rocking the boat, not questioning why that camera is looking at me, nor why there’s armed men at the airport, are less likely to question their boss’s stupid man-management or the government’s latest plan to lock up ever more ‘bad people’, and shoot in the head those it can’t catch. Not only is everyone a’frit to go out but everyone’s doing as they’re told. No-one’s happy. And we get poorer. As we get poorer, we get weaker, magnifying the threats and yielding more excuses for repression.

The price of liberty is eternal vigilance, but it seems everyone’s watching the wrong shows.

*Some statistics may have been made up.

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Obama’s Limo on Irish Roads

Obama’s Limo is massively over-engineered, and is in theory able to operate as a Mobile life-support system and armoured cell capable of withstanding all but the most well-equipped and determined attack. (via)

the vehicle is fitted with military grade armor at least five inches thick, and the wheels are fitted with run flat tires … The doors weigh as much as a Boeing 757 airplane cabin door. The engine is equipped with a Eaton Twin Vortices Series 1900 supercharger system. The vehicle’s fuel tank is leak-proof and is invulnerable to explosions. The car is perfectly sealed against biochemical attacks and has its own oxygen supply and firefighting system built into the trunk. … two holes hidden inside the lower part of the vehicle’s front bumper … are able to emit tear gas The vehicle can also fire a salvo of multi-spectrum infrared smoke grenades as a countermeasure to an Rocket-propelled grenade (RPG) or Anti-tank missile (ATGM) attack and to act as a visual obscurant to operator guided missiles. … The limo is equipped wit
h a driver’s enhanced video system which allows the driver to operate in an infrared smoke environment. This driver’s enhanced video system also contains bumper mounted night vision cameras for operation in pitch black conditions. Kept in the trunk is a blood bank of the President’s blood type.[citation needed] Interestingly, there is no key hole in the doors. A special trick, known only to Secret Service agents, is required to gain access to the passenger area. Furthermore, the entire limo can be locked like a bank vault.

They’ve thought of everything? No? Millions of dollars worth of high security hardware were defeated by nothing more complicated than a speed-hump or pothole. (via)

The president’s fucked when he comes to the UK then, if he hopes to drive around central London in “the Beast”. If the designers of the vehicle had any sense (of course they don’t, they’re American & American cars are all badly-designed crap, even it seems, the President’s), they’d have taken a leaf out of the Soviet book. In order to avoid such “beachings”, inevitable in a long-wheelbase vehicle, some variants of the BRDM series of Scout cars in service with light motor rifle units had a pair of ‘belly wheels’ to aid, in this instance in trench crossing, but they’d help negotiate a speed-bump too.


BRDM-2 in service with the Peruvian Military, with chain-driven drop-down belly wheels clearly visible.

Such a simple system would help the limo get round narrow, potholed or steep European roads without beaching, and without leaving its occupant looking like a dick.

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The Bush-Era Tax Cuts Stay. Wrong Call.

When the Guardian reports on President Obama’s cave-in over the Bush-era tax cuts by saying…

Paul Krugman, the Nobel economics prize winner, called on Obama to stand firm against the Republicans’ “tax-cut blackmail” which will cost the US treasury $4 trillion in revenue over the next decade and prompt a “major fiscal crisis”.

they’re quoting an “economist” whose long-since abandoned serious research and become instead a parody of himself. The fact is, Krugman has worked out that there are an awful lot of people for whom no taxes are high enough (especially when applied to someone else, usually “the rich”) and neither can spending ever be high enough, and having a Nobel Laureate pander to their prejudices pays rather well. As he recently argued that the deficit was not big enough, to suggest that NOT RAISING TAXES which is what not allowing the Bush cuts to expire amounts to, is fiscally catastrophic when you’ve been arguing for a far higher level of Government spending funded by borrowing, Krugman is dishonest at best. The reality is more complex.

The jury is still out on whether “Fiscal stimulus”, using government spending to kick-start the economy by boosting demand, is possible at all outside the “automatic stabilisers” of welfare provision. But because most people are utterly ignorant of economics, they think state borrowing is a magic money-tree, which means you don’t have to tax in order to spend, this allows politicians who should know better to call state spending over and above that received in tax “investment” in the boom and “stimulus” in the bust. These are big, important-sounding words that make it seem that insane profligacy is backed by some proper economic thought.

Such “stimulus” can take two forms tax-cuts and state spending on services. Whilst keynes argued for the state to use slack demand in the economy to build roads and public works (a position close to coalition policy…) in practice, the neo Keynsians argue that it’s the borrowing that puts money into the economy, by increasing demand. This frees them to spend on their priorities unconstrained by tax reciepts which are rarely roads and public works which actually benefit joe ordinary, and instead consist of make-work schemes for a client state. Because this spending is of marginal utility, people are not better off in the long-run.

The arguments in favour of tax-cuts as stimulus are slightly stronger: by leaving the money in peoples pockets, some is spent on things people find worthwhile (ie NOT TSA Crotch-Fondlers and Diversity Outreach Coordinators), generating VAT and sales taxes and cycling through businesses leading to an increase in corporation tax. Some of it is invested (actually invested in the hope of an above inflation return as opposed to “invested” in public services) in businesses leading to extra employment, raising income tax receipts, stamp duty and CGT receipts, should the investmet go well. Some will be invested in Government bonds, which has the effect of lowering the interest rate paid by the Government. Of course, whether this increase in other taxes as a result of the tax-cut is greater than the “cost to the exchequer” is moot. I suspect, in the long run generally a well-designed tax-cut (ie not the ones Obama has just extended) may pay for itself in extra growth generated as explained above, in the short, run they just increase the deficit, with exactly the same effects as extra spending.

The absolute size of “the state” is not important here (even if I generally favour a smaller one), nor does the form the stimulus takes, extra spending or tax-cuts matter a great deal. What IS important, however is what Krugman himself once derided as “the old-time religion of sound-money”. Something the Republican right has abandoned with unfunded tax-cuts, and the British Left has never thought about in the first place with its insanely profligate love of ever-higher state spending.

Politicians risk stagflationary catastrophe (if they’re lucky…) by running these huge deficits, and it matters not whether it’s spending or tax-cuts which did it. The effect of deficits is the same – inflation as money is printed, high interest rates as the bond markets lose confidence; high intereset rates potentially cause the economy to stagnate, leading to currency weakness, raising the price of imports and effectively making people poorer. Furthermore, people save to offset future tax-rises and use artificially low short-term interest rates to pay off debt, negating much of the effect of the “stimulus”. So there’s not much if any extra growth in the economy for a great deal more debt hanging around the tax-payer’s neck. The way Governments spend money in practice means the tax-payer hasn’t even got good infrastructure for all that debt, which MIGHT have led to higher growth because extra state spending is often, in effect, like paying men to dig holes and fill them in: work of no utility at best. Leftists like this because they like lots of lovely government spending, and because, in the UK at least the neo-keynsians and leftists are the same people, the “stimulus money” gets spent on diversity outreach coordinators and assorted prod-noses, who actually hold back economic growth in a sea of red tape. In the US the punk-keynsians are on the right so the stimulus money is spent on more prisons, TSA crotch gropers, expeditionary warfare and the “war on drugs”, crippling the country in pointless security theater. Does any grown-up think this spending increases utility in the economy?

Whether it’s tax-cuts or spending increases, deficit spending doesn’t work to stimulate the economy beyond the Automatic stabilizers, especially in the long-run. The message to politicians is simple: Don’t cut taxes if you’re not going to cut spending. Don’t raise spending if you’re not going to raise taxes. In economics, there is no such thing as a free-lunch. Whether you favour a big state or a small spending MUST be paid for. Small deficits in a recession are fine – no-one’s suggesting that the budget be in balance every year, but deficit must be matched by surplus in the good times. And that happened under those much derided and much under-rated politicians: John Major (and Gordon Brown, for a couple of years, until he abandoned TORY spending plans, which is why I don’t give him credit) and Bill Clinton (how clever of him to hide unpopular fiscal sanity by shagging a fat lass)

So last night, Obama took the easy option and gave into the Republicans over Bush’s tax-cuts, and already American debt is falling sharply on the news, heralding higher interest rates for all, which will negate much of the stimulus effect, as millions pay more on their mortgages. Obama wasted all his political capital on futile Health care reform, and had none left to fight the Republicans where it matters. He seems to neither know, nor care about the danger of a big deficit. Indeed, he’s unwilling to cut spending, and appears to welcome a deficit as “stimulus” so he’s as much of a stupid Punk Keynsian as Ed Balls. He wants to Spend, Spend, Spend on Government programs. But like all politicians, he won’t ask the voter to pay for it – he may be able to blame the Republicans for half of the problem, but that’s a political call; he’s demonstrated his priorities. If you beleive in “stimulus” why not cut taxes as you raise spending? Politically, it makes sense: The voter’s kids, the poor dupes who are going to pay for it all eventually, don’t have a say. Of course America is a big, rich economy so the wheel will come off a long time after he (and Bush, who it must be remembered caused the problem in the first place) have left office.

Obama, the politician who entered office on a wave of Optimism not seen since JFK has failed to stand up to a recalcitrant congress and within two years become, fiscally at least, a nightmare love-child of Bush Junior and Gordon Brown. It is debasement of the currency caused ultimately by unfunded “bread and circuses” for the mob which eventually did for the Roman Empire. Unless we return to “the old-time religion of sound money”, and stop taking listening to that dishonest purveyor of pretty lies, Paul Krugman, western civilisation is doomed.

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“Casino” Banking

There’s an idea, not a new one by any means, doing the rounds that investment banking and retail banking should not done by the same firm because the risky “Casino” bank could pull under a “safe ‘n boring” retail bank, and this is the main objection to Bob Diamond’s promotion from running BarCap to running Barclays PLC. Never mind that Bob Diamond’s business kept Barclays out of the grubby maw of Government – he’s the “Unnacceptable face of the Bonus culture”.

It may seem obvious that investment banking is risky, but the evidence does not back this analysis up at all. Nowhere did investment banking losses pull a retail bank down, or requrire one to take government bail-out money: let’s look at the UK banking sector:

Lloyds TSB: Safe, solvent, straighthforward Retail bank, until it was persuaded to buy HBoS by Economic Jonah, Gordon Brown.
HBoS (Halifax, Bank of Scotland): mainly retail, Large Mortgage Business, which went belly-up and took Lloyds TSB with it too.
Royal Bank of Scotland, very small investment bank, Largest UK retail operation, big Corporate loan book, whose purchase of ING ABN Amro strained its balance sheet to breaking point. It’s failure was hubris, not Investment banking.
HSBC: Universal Bank, large global retail and investment banking operations, now trading at the same shareprice it was before the crisis, and is still paying dividends.
Barclays: Large UK retail bank, overseas operations, buccaneering and ambitious investment bank, who were raised funds from private investors and just managed to keep out of Government hands.
Standard Chartered: International corporate and retail bank, mainly Asia and Africa – no problem at all.
Northern Rock: Ex Building society turned Mortgage and Retail, bailed out by a Labour government because they couldn’t bear to see anyone make money and wanted to save jobs in key marginals.
Bradford & Bingley: See Northern Rock. Eventually bought by Spanish banking group, Santander.

Let’s look at the evidence: Of the two “universal banks” listed in the UK, neither had to touch the UK taxpayer for money. HSBC was able to cope with the crash on it’s own resources and Barclays was able to use its contacts from the investment bank to touch sovereign wealth investors, who have now been paid back. The banks which had got into trouble were either Mortgage banks without a large retail business from which the Mortgages were funded: Northern Rock and Bradford and Bingley, or they were banks who sailed close to the minimum Capital adequacy ratio like Royal Bank of Scotland. Or, like HBoS, Both.

In the USA, the all but Lehman Brothers and Merril Lynch of the Large investment banks survived. Small savings and loans have gone bust all over the place, and only one Universal banks, Citi got into real difficulty, and it was its massive retail operation which pulled it under. The evidence that the “casino” banking is a bigger risk than lending to Joe Sixpack to buy his grotty suburban semi, is just not there, and anyone who uses the phrase “casino” banking can therefore be ignored on any economic subject, unless you take the view that in the economic casino, investment banks are ‘the House’, which is very good, safe and profitable business indeed. But I don’t think this is what ex-Labour MP Vince Cable means by “Casino Banking”.

The fact of the matter is that Governments in the UK, USA and elsewhere have been stoking the money supply for 30 years. They have been encouraging banks to lend “innovatively” to enable “ordinary people” to “get on the housing ladder”, which in practice meant encouraging, or compelling, banks to lend large sums at great multiples of earnings with small deposits to people who were expecting house-price inflation to do the work of paying off the loan. There is a banking phrase to describe these people: “poor credit risks”. Some banks in the UK became dependent on wholesale markets to fund their loan books, and when this dried up, the banks collapsed.

It’s interesting that much maligned buy-to-let investors allowed Paragon, an entirely wholesale financed mortgage business to survive because they lent to good credit risks with big deposits. The old rules of banking still hold. If you’ve a low income, you can’t have a loan, sorry. It’s not the bank’s job to fund a life-style.

The banks that collapsed because the merry-go-round of phantom money could not go on for ever because house-prices couldn’t go up for ever. Eventually the money to fund the bubble was pulled away, and those with unsustainable business models fell over. The proximate cause of this failure was the failure of the wholesale market, but the ultimate cause was a belief, encouraged by politicians for two generations, on both sides of the Atlantic, that the house-market would be a better source of wealth than anything else.

House prices are further away from sustainable multiples of earnings than at any time in history. The Baby-Boomers who own them are going to sell as they’re herded into care homes or move down into bungalows, and their children will fund their retirement buy buying those overpriced assets which will return precicesly nothing over the next decade or more, if we’re lucky. Anyone who thinks they’re going to make money on mortgaged property is a loon.

Which leads us to Banks. They too are not going to make money from lending to people to buy houses that are going to fall in value, so we’d all better get used to bigger deposits and higher rates. Or we can encourage another bubble by forcing the banks to lend to poor credit risks again. Anyone think that’s a good idea? There is no difference, fundamentally, between lending to a person to buy a house and lending to a company to fund its operations. If the bank thinks the company or person is going to struggle to repay, the bank takes action so that it recovers as much of possible of its money. Which is why the left’s whinge about Connaught going bust is just. It makes no difference that it’s “State owned” RBS that did it, Connaught was loss-making with dishonest management, and went bust. It happens, and given that it’s in property services, the market will not improve enough to change things. The truth is that banks were too willing to lend to speculative companies in the good times, and they’re probably a little too risk averse now. No-one said the market’s perfect (just better than economic planning).

So, companies will be denied debt finance. So what options does a good, viable company have when denied bank finance? The other sort of finance: Equity, either private or public, and here investment banks come into their own. If they’re unwilling to lend to you, maybe they will, for a fee find someone who will invest who has a greater risk appetite. That too is a banking service, and there is no reason why Banks shouldn’t do both. And why should retail deposits be invested ONLY in mortgage loan books? Couldn’t banks invest in equity and company debt through an investment banking arm? I thought lefties were against debt and funny money, and liked “investment” in businesses?

The unholy alliance between the left and the ignorant daily-mail right can bleat all it likes about “casino” banking. The truth is that the investment banks did a lot better than both Governments and retail banking during the crisis because of the idiocy of Governments and the Public in buying assets they couldnt’ afford and spending more than they earned. Investment banks like BarCap and Goldman Sachs didn’t do this, and were able to pick up quality assets in the firesale caused by the inevitable crash. And surely spreading risks in different business areas is a good thing?

Punishing the winner looks a lot to me like sour grapes.

It seems that Clegg ran on this today at PMQs, and wants to seperate Retail and Investment banking. Let’s hope grown-ups point out evidence shall we? Too big to fail is too big, it doesn’t matter what businesses they’re in.

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