Stress a source of strength:

A Nation of Wimps: Parents are going to ludicrous lengths to take the bumps out of life for their children. However, parental hyperconcern has the net effect of making kids more fragile; that may be why they’re breaking down in record numbers.

Nassim Taleb’s antifragility strikes again:

Fragile things break under stress. But, according to Nassim Nicholas Taleb, there’s an entire class of other things that don’t simply resist stress but actually grow, strengthen, or otherwise gain from unforeseen and otherwise unwelcome stimuli. Taleb sees degrees of antifragility everywhere, from fasting, mythology, and urban planning to economic, technological, cultural, and biological systems.

A 20 min Nassim Nicholas Taleb youtube discussion is worth listening to here

Antifragility highlights yet again how we tend to create that which we most fear. In trying to protect our children from harm now, we cause them harm later. Preventing short term harm can cause long term problems. Unfortunately short run gains are often readily apparent, while the long term harm is hidden. Keynesian economics is the classic example, as is the welfare state.

The purported goal of the welfare state, to help people, is noble. But once a society creates a welfare state its people have different expectations about their possible futures. They therefore make different choices and their behavior changes. This changes people, and the society which they in aggregate form. Over time it changes the values their children grow up with. People and society fundamentally diverge from what would have eventuated absent the welfare state. At the individual level this is epitomized by the saying:

Watch your thoughts; they become words.
Watch your words; they become actions.
Watch your actions; they become habit.
Watch your habits; they become character.
Watch your character; it becomes your destiny

Thus a strong sovereign people and vigorous society can be transformed into something far weaker and more fragile. Truly the road to hell is paved with good intentions.

The left have a habit of taking over institutions and perverting them. It’s Orwellian news speak “Cold is warm. Peaceful is violent. We’ve always been at war with Eastasia” applied to institutions:

• San Diego cop smashes phone & beats up suspect
• Texas Soldier Arrested for ‘Rudely Displaying’ Weapon

Legacy media speculation that the Boston bombing was the work of the tea party fits this mold.  The legacy media have long succumbed:

• Media assumptions that violence is right-wing are routine — and routinely wrong

This despite the fact that the Tea Party does not just protest peacefully, but tend to leave the protest areas cleaner than when they arrived:

• Do Liberals or Conservatives Leave Their Protest Sites Cleaner?
• Please someone post a video of tea party violence

Tea Party participants are the bedrock of bourgeois society. Inheritors and holders of values which were the core creators of wealth and well-being in the world today. No wonder the the left demonizes them. Until they are undermined the left will not be able to fully impose their violent dis-empowering policies. Something we should all be grateful for:

• The Black Book of Communism: Crimes, Terror, Repression

We will not even go to global warming and the destructive lefty policies applied in that area. Granny killers. Spreaders of misery and impoverishment. Global warming vested interests have got fat on the cold and misery of the poor. They deserve nothing but contempt. And their willing enablers should hang their heads in shame, recant and be less gullible in future. More is at stake than most realize.

As for the banksters. Useful tools? Who cares, the consequences of policies transferring our wealth to them will be dire for almost all:

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (or fairness) of the existing distribution of wealth.

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Click here for a discussion on the source of the quote:

It’s time to see the truth and face the future in freedom and with love. Orwell wrote 1984 as a warning, not a how to manual. We can make use of it for its intended purpose.

Posted this at Law of Markets – a site to keep an eye on.

The problem is how to embed these in a democratic framework. Politicians have incentives to break these rules in order to buy votes from their vested interests/supporters. They may also tend to have a natural instinct to want to “do something” (or simply think doing something will increase the chance of more votes later).

Capitalism works because it accepts people as they are “warts and all” and creates a system in which people improve their wellbeing through improving that of others, rather than at their expense.

However, modern western democracies seem to be undermining this life enhancing core of capitalism. In a world of government regulations, bailouts and other subsidies the path with the best expected return for individuals and entities is increasingly through the political/regulatory market rather than the commercial one. Thus talent and energy are directed at grabbing more of the existing cake via the political marketplace, rather than creating new cake in the commercial one. Eventually the amount of cake shrinks – someone has to actually produce stuff of “market value”.

I suspect democracies are compatible with capitalism over time, but only if people have appropriate value systems. There are a range of value combinations compatible with the with persistent productivity gains. But the Western educational system and its “cultural leaders” are not disseminating one of them. Our societies will therefore fail to sustain their level of wealth through time. Basically not enough people recoil at measures which will undermine the life enhancing capitalist core of our societies.

We and our children will be the poorer for this failure to sustain life enhancing values. Without broadly held life enhancing values we will lose our wealth, security and liberty. Poverty, despotism and tyranny will reign in the lands of the formally wealthy and free. Can we turn it around? Can we create a culture which will recoil at suggested breaches of your formula?

Do you applaud the BIS for acknowledging financial cycles or to shake your head that such an article should be thought necessary?

Understanding in economics does not proceed cumulatively. We do not necessarily know more today than we did yesterday, tempting as it may be to believe otherwise. So-called

“lessons” are learnt, forgotten, re-learnt and forgotten again. Concepts rise to prominence and fall into oblivion before possibly resurrecting. They do so because the economic

environment changes, sometimes slowly but profoundly, at other times suddenly and violently. But they do so also because the discipline is not immune to fashions and fads. After

all, no walk of life is. The notion of the financial cycle, and its role in macroeconomics, is no exception.

No s**t Shirlock

This in all probability means moving away from equilibrium settings and tackling disequilibrium explicitly. In many respects, all this takes us back to previous economic intellectual traditions that have been progressively abandoned in recent decades.

You mean those classical economists had something sensible to say after all. Well I never.

If policy is unable to constrain the boom sufficiently and the financial bust generates a serious balance sheet recession, policies need to address balance sheet repair head-on. The overarching priority is to structure them

so as to encourage and support the underlying balance sheet adjustment, rather than unwittingly delaying it.

Take that Krugman, Bernanke et al. Your policy prescriptions have not and can not work. Reality always wins and your policies fly in the face of reality.

In an advert for the latest series of The Simpsons, Mr Burns tries to explain the fiscal cliff issue that is worrying politicians and economists throughout the US.

Hat tip: The Daily Telegraph

Watch the video, and be in awe of the man’s understanding:

Zerohedge sums it up well:

If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: “The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn’t intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea.” Priceless.

Hat tip: John “Dinkum” Wagner

We examined the parasitoid nature of much of our privileged elite here. This post does the same for much of the financial sector. Money quotes being:

Here, instead, is the fable we’ve been offered: Sad as it might be for some workers, towns, cities, and regions, the end of industry is the unfortunate, yet necessary, prelude to a happier future pioneered by “financial engineers.” Equipped with the mathematical and technological know-how that can turn money into more money (while bypassing the messiness of producing anything), they are our new wizards of prosperity!

Unfortunately, this uplifting tale rests on a categorical misapprehension. The ascendancy of high finance didn’t just replace an industrial heartland in the process of being gutted; it initiated that gutting and then lived off it, particularly during its formative decades. The FIRE sector, that is, not only supplanted industry, but grew at its expense — and at the expense of the high wages it used to pay and the capital that used to flow into it.

and

For more than a quarter of a century the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. Between 1980 and 2005, profits in the financial sector increased by 800 percent, more than three times the growth in non-financial sectors.

In those years, new creations of financial ingenuity, rare or never seen before, bred like rabbits. In the early 1990s, for example, there were a couple of hundred hedge funds; by 2007, 10,000 of them… Fifty thousand mortgage brokerages employed 400,000 brokers, more than the whole U.S. textile industry. A hedge fund manager put it bluntly, “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.”

Wealth comes from production, not its taxation – by government or the financial sector. If money printing dilutes the existing stock of money in relation to goods, effectively “taxing” and devaluing existing money, then the creation of credit money by the financial sector has the same effect. If one is bad, then so is the other. Government might be a poor allocator of capital, but aggregating ever more resources to the financial sector is just as destructive.

The fact the finance can pay so well implies that its rampant growth may be even more damaging than that of government. Finance is more likely to attract the truly talented, who ought to be founding new Microsoft’s, Apples, Fords or curing cancer. Some of them are more likely to pursue such a socially beneficial path if the other option is to become a bureaucrat rather than a stinking rich financier.

Of course the rampant growth of the financial sector is facilitated by the blurring of money with different types of assets. This is an inevitable function of the lived experience of people during a period in the economic cycle. Those who live a different experience during a different part of the economic cycle form a different view. During depressions and crashes the true value of real “money” shines forth. Assets that appeared to be money, even ones as “safe as houses” become worth less, or even worthless.

Those who have recently lived through deflation are likely to instinctively hoard their fiat currency and behave quite differently to those who have recently experienced hyperinflation. Ditto for those with other “lived” experience. “Never a lender or borrower be” can seem obvious or stupid, depending on where people sit in the economic cycle.

Truly to know where we are going and how people and markets are likely to behave it is necessary to know where we have come from. Most economic and financial commentary completely ignores this. Is it any wonder it is so often wrong?

Jesse nails it:

A credibility trap is when the regulatory, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform or even honestly address the situation without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even relatively honest reformers within the power structure are susceptible to various forms of soft blackmail and coercion.

And so a failed policy and its support system are almost self-sustaining, long after it is seen by the people to have failed. In its failure it becomes counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for those who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious hypocrisy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

I could not put it better myself. This further explains the move by our governing elite to constrain free speech. A tendency recognized by denizens of the opposite ends of the political spectrum, such as Goebbels and Hayek :

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
Joseph Goebbels

“Everything which might cause doubt about the wisdom of the government or create discontent will be kept from the people. The basis of unfavorable comparisons with elsewhere, the knowledge of possible alternatives to the course actually taken, information which might suggest failure on the part of the government to live up to its promises or to take advantage of opportunities to improve conditions–all will be suppressed. There is consequently no field where the systematic control of information will not be practiced and uniformity of views not enforced.”
Friedrich A. von Hayek, The Road to Serfdom

It’s little wonder the governing class across the English speaking world are so determined to remove not just the right, but the expectation of free speech. If they get their way, we know where we will end up:

“When any government, or any church for that matter, undertakes to say to its subjects, ‘This you may not read, this you must not see, this you are forbidden to know,’ the end result is tyranny and oppression, no matter how holy the motives. Mighty little force is needed to control a man whose mind has been hoodwinked; contrariwise, no amount of force can control a free man, a man whose mind is free. No, not the rack, not fission bombs, not anything—you can’t conquer a free man; the most you can do is kill him.”
Robert A. Heinlein, If This Goes On, 1940

George Orwell wrote 1984 as a warning, not a how to manual. Something we need to recognize if we are to resist big brother and the thought police’s propaganda.

It’s the kids I feel sorriest for. Governments will lose the ability to maintain their big lie. Much of the governing class will try to resort to tyranny to maintain their relatively privileged position. This process and the overthrow of the big lie will tear core societal assumptions and structures asunder.  It’ll be as traumatic for us as was the ending Communism and the defeat of Nazis for Nazis and communists. Most have no idea what they will lose:

“It is worthy of remark that a belief constantly inculcated during the early years of life, whilst the brain is impressible, appears to acquire almost the nature of an instinct; and the very essence of an instinct is that it is followed independently of reason.” Charles Darwin, The Descent of Man, 1871

Reality always wins.

Gotta love the Darth Vader Cameo

It’s a great video that gets the big question right – is more consumption or production the path to prosperity? I know that sounds stupid, but economists tends to obsess over the former and pay lip service to the latter.This distorted thinking flows through to government policy, resulting in the current debt induced macro mess.

While it’s a shame much of the profession did not watch such a witty clip in first year, it would profit from an even greater emphasis on production. Having your savings squandered by someone else on more “toys” is not a path to prosperity. It matters little if our bankers bonuses go on ferraris,  yachts or more homes. They will not generate a sufficient future income stream to reward the saver.

It’s productive investment which is the key. Or more precisely, attempted active productive investment. Look around, are your savings being invested in income producing assets which will fund your future comfort? Or are they being squandered on government white elephants and crony capitalist excesses?

But this is all too long and serious for an excellent video clip. Watch it, have a laugh and possibly even learn something

Hat tip Steve Kates