Posts Tagged ‘Capitalism’
Rule of law no more

One of the bedrocks of our affluent way of life is the rule of law. Absent that I suspect we would not have had  the massive increase in living standards and length of life over the last couple of hundred years. Without it we will not maintain our current lifestyle or average length of life, let alone improve it.

Make no mistake, our actual life as well as way of life is threatened whenever the rule of law is abrogated. When a cavalier attitude to the removal of rights becomes established, we will soon have no rights. Having no rights we will soon have nothing. Not even our health.

Our rights and the rule of law are being undermined as never before, at least without armed conquest. There is an international tide to the affairs of man. No nation is an island, just as no man stands truly alone. We are all embedded within a world, within geographic, social and economic systems. There is a physical reality to our existence. Changes in one area flow to others. To know what may come to be in your country look at what as and is happening elsewhere.

A Russian aware of the French Revolution may not have been so surprised at the blood baths entailed in his own progressive revolution. Similarly someone in China aware of the millions killed in the Russian revolution may have had an inkling of that millions could be killed in their own great leap forward. Similarly a Cambodian knowing what happened under Mao could have guessed at the possibility of Cambodian killing fields under Pol Pot. Be aware of what has and is happening around you. It may not just save your wealth, but your life.

Do not be insular in your outlook. Even in liberal Western democracies the tides of socialism, fascism and political correctness flow across countries. Activist judges cite international precedent. Governments sign international treaties and then legislate for them without adequate consultation. Vested interests bribe, flatter or otherwise charm politicians into removing some of your rights to increase their wealth and power. It has always been thus. Accept it, so you can fight it. It’s time for some of that eternal vigilance to come into play.

That’s why this type of report from the US is so alarming:

Mr. Ernest Perce V., was assaulted by a Muslim while participating in a Halloween parade. Along with a Zombie Pope, Ernest was costumed as Zombie Muhammad. The assault was caught on video, the Muslim man admitted to his crime and charges were filed in what should have been an open-and-shut case. That’s not what happened, though…. What transpired next was surreal. The (Muslim) Judge not only ruled in favor of the defendant, but called Mr. Perce a name and told him that if he were in a Muslim country, he’d be put to death.

The linked report also notes that the judge refused to allow the video to be admitted and that a Police Officer who was at the scene also testified on Mr. Perce’s behalf, which the Judge also dismissed.

With precedents like that, can we be so sure this chap in the UK is wrong:

Extremist Mohammed Abdin Jailed for Eight Months Over Threat to Machine Gun Police “In 10 or 15 years time when we rule, I’m going to hunt you down and then I’m going to kill you.

“I’m going to burn you to death ……. you are going to die”.

This is not a post on the demographic death spiral of much of the Western world. Everyone can extrapolate what happens if one cultural population segment has lots of children and the others do not. At least in a multicultural rather than assimilation framework. Multiculturalism being one of those ideologies that flowed across much of the Western world.   The results have been fairly consistent. Areas where non-Muslims go at their peril, where firemen and ambulance officers are stoned.

As for the rule of law, what was once inconceivable and would have been viewed with horror becomes commonplace:

  • Sharia courts operating in Britain: Five sharia courts have been set up in London, Birmingham, Bradford and Manchester and Nuneaton, Warwickshire. The government has quietly sanctioned that their rulings are enforceable with the full power of the judicial system, through the county courts or High Court.
  • EU judges want Sharia law applied in British courts: Judges could be forced to bow to Sharia law in some divorce cases heard in Britain. An EU plan calls for family courts across Europe to hear cases using the laws of whichever country the couple involved have close links to.

The law like the police can switch from protecting our way of life to persecuting it. That’s one of the reasons to prefer conservative to progressive judges. A glance at history is more than enough to demonstrate this:

While the part played by the Ministry of Justice in the extermination of Poles and Jews was small compared to the mass extermination of millions by the SS and Gestapo in concentration camps, nevertheless the courts contributed greatly to the “final solution” of the problem.

Posner is a wise man:

Perhaps in the fullness of time the growing of marijuana plants, the “manipulation” of financial markets, the bribery of foreign government officials, the facilitating of the suicide by the terminally ill, and the violation of arcane regulations governing the financing of political campaigns will come to be no more appropriate objects of criminal punishment than “dishonoring the race.” Perhaps not; but [the story of the German judges] can in any event help us to see that judges should not be eager enlisters in popular movements of the day, or allow themselves to become so immersed in a professional culture that they are oblivious to the human consequences of their decisions.”

Well if prosecutions are anything to go by “manipulating” the markets is already not viewed as an appropriate object of criminal punishment. But selective application of the law is a tool of tyranny. The little person, who is not sufficiently well connected or has not hired the right lobbyists or donated to the right campaigns gets prosecuted. The too big to fail banks get government backstops while its executives reap their bonuses and salaries vastly in excess of their contribution to the economies value-add. What will this do for our commonweal?

What will it do for our national wealth is a silly question. Perhaps I should ask if you are feeling wealthy? Are you confident you can look after yourself and your loved ones? Or are you now dependent on noblesse oblige by our political masters? What will happen to you when reality intrudes and your government is forced to live within its means, perhaps cutting expenditure in half? This may happen before or after an inflationary episode. It may happen while financial repression is in full force  – mandating returns on savings at less than the rate of inflation.

We have seen how strongly our governments will fight to maintain the fiction that they are solvent, that their citizens will get what they have been promised. They are lying. The only way this will happen is if there are technological black swans. We will post more on the potential of 3D printing, biotechnology and nanotechnology to radically change our and our governments finances. The Singularity may happen. But it is not sensible to bet the farm on a hope and a prayer. Especially not while undermining the core components of capitalism. Capitalism being our only hope of maintaining the exponential rate of technological progress necessary to generate the productivity increases required to maintain our lifestyles while reducing total debt.

Overriding established rights through bailouts, be they of General Motors or Greece is inimical to capitalism. Bond holders should wear the risks, for both good and ill. It is illegitimate to create a special class of bondholder, just because you can. The European central bank is undermining the very markets it needs if Europe is to prosper.

The people of Greece will experience an unpleasant enough time as reality punctuates the great lie, without also being looted by international financiers first. European banks made bad investments in Greek bonds. They should suffer the associated losses. These losses can flow through to bondholders and shareholders in those banks. They should wear the cost before taxpayers and those living off their more prudently invested savings.

Only in this way can the legitimacy of our system be demonstrated. The unintended consequence of all the quantitative easing and interventions is to strip our system of its legitimacy. This will be used to attack the legitimacy of capitalism. Desperate times will make people more susceptible to the siren song of the potential despot. Frustration will create more true believers. Many of us will suffer and die as a consequence. It must be stopped. We must return a more truthful, free way of life. We must do it with love and compassion, but without the compulsion of the socialist state. Only that way can we reap the way of life we want.

Unexpected consequences

The complex nature of reality makes unforeseen consequences inevitable. The manifest excesses associated with the financialization of the economy and transfer of national wealth to financial vested interests is repugnant to all right thinking people. As it sinks in the reality of what has happened and its implications for what will happen will engender rage. The fuel is laid, the right spark will create a raging inferno that will consume all in its path.

In retrospect the spark will seem so clear and there will be an apparent inevitability to the overall thrust of what follows. But in truth the exact spark and path is not predictable:

CERTAIN complex systems, under certain circumstances, have been discovered to behave in mathematically simple, similar ways. In ‘critical states’, there is no reason to look for specific causes of great events. The smallest force can have gigantic effects and sudden upheavals can strike seemingly out of nowhere. The approximate frequency of such upheavals can be predicted, but not when they will happen or what size they will be.

Nassim Taleb correctly points out that much of the news cycle is meaningless noise. Media commentary and analysis often is effectively messing around in the error term of reality. It provides narratives that appeal to the human mind, but are of no true explanatory power. It does not illuminate, but does feed the perception that we understand what is happening now and know what will happen in the future.

But somewhere in today’s noise is tomorrows “explanatory” event. A seemingly trifling matter to all but those directly involved, such as the assassination of Archduke Franz Ferdinand, is noise until it is not. Mighty oaks from little acorns grow. But we know not in advance which seed will germinate or exactly how tall it will grow, how long a life it will have and what seedlings it will in turn give rise to.

We can not predict exactly how the world will react to the rage, but react it will. It is already manifesting itself around the developed world. In the US we have the Tea Party and the Occupy Wall Street (OWS):

  • The Tea Party movement manifested itself from the mainstream of American society. The bourgeois middle class who normally work hard, obey the law and form the backbone of America. They were polite, clean, law abiding and tolerant. They even picked up their own litter. They were of course demonised by the mainstream media. I suspect they were also largely co-opted by the Republican Party.
  • The Occupy Wall Street (OWS) protest sprang more from the left of society. Normally the dirty unwashed bludgers of the western world. But even a stopped clock is right twice a day. In highlighting that something was wrong, and that Wall Street and finance were at the heart of the rottenness they are right. Crony capitalism is not the answer to the inequities of American society. But neither is anarchy or socialism.

What the Tea Party and OWS reveal is that the tectonic plates of US political life are ripe for realignment. Either the status quo changes or the status quo will be changed.

The beauty of Western democracies is that their revolutions can be both glorious and relatively free of bloodshed. Through the ballot box one can effect change. Not just change you can believe in, but change you can experience. Change is not just a promise, but a reality. Something all Western political parties will need to remember, if they do not want to go the way of the Canadian Progressive Conservatives:

The Progressive Conservatives went from being the majority party to holding only two seats in the House of Commons, which was not enough to maintain official party status

Change through the ballot box can make effecting change through violent revolution unnecessary. No prizes for guessing what initiatives such as this would make more likely:

Democrat Governor Calls for Suspending Elections

“You have to have more ability from Congress, I think, to work together and to get over the partisan bickering and focus on fixing things. I think we ought to suspend, perhaps, elections for Congress for two years and just tell them we won’t hold it against them, whatever decisions they make, to just let them help this country recover. I really hope that someone can agree with me on that. The one good thing about Raleigh is that for so many years we worked across party lines. It’s a little bit more contentious now but it’s not impossible to try to do what’s right in this state. You want people who don’t worry about the next election.”

What happens if elections are suspended is unclear. But that it would create a reaction is clear. Already we can see strange bedfellows. Who would have thought that members of a right wing militia keen on securing US borders would make common cause with the OWS?

Occupy Phoenix Veteran Protesters with AR-15’s protecting the other protesters

It might be that they always would have seized the opportunity to demonstrate the importance of the right to bear arms. It is also possible that the initiative was a reaction to the police use of excessive force:

Occupy Oakland – Flashbangs USED on protesters OPD LIES hat tip Market Ticker


Occupy Oakland Rubber Bullet Bruise [Raw Vid] hat tip Market Ticker

When authorities charged with protecting the people instead assault them it can have unfortunate and unforeseen consequences.

Our forebears had to fight for our freedoms, for our countries, for our government, for our leaders and for one another. The net result of their efforts was our Western way of life. We inherited a socioeconomic system that empowered and enriched the masses. Not just the nobles or other entrenched elites. We owe it to ourselves and all who have gone before us to pass it on intact to our offspring.

Nothing in life is free. Our culture and society exist because of our forebears. Because of the decisions they made. Because of the sacrifices they made. Our children and grandchildren will include us in the pantheon of the past that made their present possible. The calibre of their life depends in part on what we do right here, right now.

Creating a better tomorrow from where we are today requires facing reality. Creating a better tomorrow imposes costs on the here and now. We have to sacrifice present personal consumption for the ability to produce more tomorrow. Positive interest rates are one of the mechanisms capitalism rewards us for this. In undermining this the abomination that is quantative easing strikes at the heart of our hopes for a better future:

USA, UK: following Zimbabwe’s lead

Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multi-lateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what’s good for goose is not good for the gander….

As Monetary Authorities, we commend those of our peers, the world over, who have now seen the light on the need for the adoption of flexible and practical interventions and support to key sectors of the economy when faced with unusual circumstances.

Facing reality and setting off on the right path will in the short term cost time, money, blood, toil, tears and sweat. All many of us can hope for is the opportunity to go to our graves knowing we did what was right. That we started building a better future for ourselves and our children. Doing so requires that we rise above vested interests and on occasion personal gain. That we restore capitalist incentives to the heart, body and soul of our system.

We must constrain our baser instincts with customs, laws and regulations to make it so that when working for personal gain, we add to the public good.

Bailouts and the socialization of losses play no part in this. Political connections need to be irrelevant to personal success. Our brightest and best need to be engaged in creating value. They should not be focused on expropriating it from entrepreneurs, industrialists, workers and all who actually produce things that satisfy our body and soul.

Good government is not the normal state of affairs. There are always those seeking money and power. Under capitalism they tend to get those through giving people what they want for less than they are willing to pay for it. Under other systems they tend to get it from government concessions or brute force.

The bailouts, the funding for pet politically connected causes and the willingness to ride roughshod over the law and common decency shows we are moving from one system to another.

The path to power or a life of ease is increasingly through the political rather than economic marketplace.

It has ever been such throughout most of the world. Which is why material progress has historically been so slow. Until a few hundred years ago life was short and brutish in all lands. We need to act now to ensure that this does not again become the norm throughout the Western world. We know what we need. We need to restore the workings of our essentially free market capitalist system. Big government and big corporations are too often working against the interests of society as a whole.

Competition is such a hard task master. Life is so much easier when at the top of the pile if you pull the ladder up after yourself. It’s much easier to have a cozy relationship between big business and big government. If the cost of that is an end to progress, then so be it. But the opposite of progress is not a continuation of existing comfort. It is stagnation and death. We go forward or we sink back into squalor.

Destroying Cultural Capital

It is always flattering when a “noble prize” winning economist agrees with you. Stiglitz has noticed the implications of the foreclosure crisis for the rule of law and property rights:

“The mortgage debacle in the United States has raised deep questions about “the rule of law,” the universally accepted hallmark of an advanced, civilized society. The rule of law is supposed to protect the weak against the strong, and ensure that everyone is treated fairly. In America in the wake of the sub-prime mortgage crisis, it has done neither.

Part of the rule of law is security of property rights” (Stiglitz, November 2010)

Once Stiglitz pursues this line of enquiry further he will be in agreement with USA destroying cultural intangibles:

“The fault at the heart of the MBS security market is further evidence that the US is in the process of destroying the cultural intangible capital that enabled them to grow wealthy. Gone are accounting standards, the rule of law and the certainty of property title. What next?” (Rob, October 2010)

He may then come to agree with Stock markets, they win we lose :

“Let’s add the stock market to the list of cultural intangibles being undermined – accounting standards, the rule of law, property. Talk about wrecking your cultural inheritance. Like the justice system, free market exchange does not just have to be fair. It has to be seen to be fair. With bailouts followed by bonuses and government endorsing or actively participating in the rigging of markets there will be a crisis of legitimacy.” (Rob, October 2010)

Trust is also a cultural intangible that enabled the West to become wealthy. Even if you don’t agree with much of Francis Fukiyama’s Trust, it contains an element of truth. Like many he takes a good idea and pushes it too far. But trust is central. Hence the problem highlighted in TARP damaging trust:

“When Treasury refuses for more than a year to require TARP recipients to account for the use of TARP funds, or claims that Capital Purchase Program participants were “healthy, viable” institutions knowing full well that some are not, or when it provides hundreds of billions of dollars in TARP assistance to institutions, and then relies on those same institutions to self-report any violations of their obligations to TARP, it damages the public’s trust to a degree that is difficult to repair.” (Neil Barofsky).

If you have any doubts at all about the seriousness of what is happening in America then read Hernando De Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else:

In the West, standardized laws allow us to mortgage a house to raise money for a new venture, permit the worth of a company to be broken up into so many publicly tradable stocks, and make it possible to govern and appraise property with agreed-upon rules that hold across neighborhoods, towns, or regions. This invisible infrastructure of “asset management”–so taken for granted in the West, even though it has only fully existed in the United States for the past 100 years–is the missing ingredient to success with capitalism, insists de Soto. But even though that link is primarily a legal one, he argues that the process of making it a normalized component of a society is more a political–or attitude-changing–challenge than anything else.

With a fleet of researchers, de Soto has sought out detailed evidence from struggling economies around the world to back up his claims. The result is a fascinating and solidly supported look at the one component that’s holding much of the world back from developing healthy free markets (Timothy Murphy).

Like Fukiyama I suspect De Soto has focused on only one of the reasons for Western growth. There can be multiple supporting factors behind the success of a society or civilization. It does not have to be an either or situation.

But what is quite clear is that as a society the US is eating its cultural seed corn. If the requirements for economic success are removed there will be no economic success. The US is at the risk of validating John Sinclair (1754-1835):

If we go on at this rate, the nation must be ruined. Smith replied: “Be assured, my young friend, that there is a great deal of ruin in a nation” (Adam Smith, Correspondence of Adam Smith, 1977): p 262, note 3, from Sinclair, Corr., i. 390-1).

Residents of Western Civilization must be thankful that Adam Smith was right in this as well as much else. But while there may be a great deal of ruin in a nation, there is a great deal of debt in the US and other developed countries. Everything has its limits.