Archive for May, 2012

Stop The Insane War on Drugs

May 30, 2012

America banned booze in 1920, and repealed the ban in 1933, realizing that Prohibition didn’t solve the drunkenness problem but compounded it. Why can’t we see the same truth about other drugs?

Of course, we don’t criminalize all drugs. We do permit alcohol, and tobacco too – a powerfully addictive drug that reduces the average smoker’s life by ten years – yet we outlaw marijuana, only mildly addictive, with minor health effects (and some valid medical uses). This is the real “reefer madness.”*

Some drugs do cause serious harm. If the drug war actually reduced that harm, it might have a point. But while in certain categories drug use has lately declined, nobody seriously credits the drug war, as opposed to demographic, cultural, and other factors. Nor would legalization materially increase usage. While prices would fall, so would the “forbidden fruit” attraction. No drug user is really stopped by the illegality. And who might start using drugs just because they became legal? (The Netherlands has essentially legalized marijuana, without noticeably higher usage than in nations where it’s banned.)

Curbing the supply has proven futile, when drugs are easily smuggled from poor countries with a street value a hundred times the production cost. Incarceration for drug offenses actually rose about tenfold after 1980, but that didn’t slow the trade; in fact, real prices for hard drugs fell by half, indicative of oversupply. Why imagine we can somehow keep drugs out of America when we can’t even keep them out of prisons? Yet we continue wasting $40 billion a year trying.

The drug war certainly doesn’t protect the public; it’s catastrophic for public order and safety. Just like Prohibition, drugs’ illegality raises their street value, engendering violent gangsterism with countless innocent victims, destroying neighborhoods, and furthermore corroding our police and justice systems with corruption.

Meantime, again because illegality inflates drug prices, many users resort to crime to raise the cash, accounting for a high percentage of muggings, robberies, burglaries, etc. Much of that crime would disappear if drugs were legal. And, obviously, all the police resources spent on that petty crime – and being squandered on the drug war itself – could be redirected against other types of criminality.

It’s also turned into a war on civil liberties. Prominent casualties are the Fourth Amendment’s bar on “unreasonable searches and seizures,” and the Fourteenth’s requirement of due process before deprivation of property. Both have become practically dead letters wherever drugs are concerned. Police have gained free reign to confiscate any property with an alleged drug connection, no proof needed. People have lost homes because someone smoked pot there. This has become a vile police racket. Claiming possible “drug money,” cops even seized a generous tip left for a waitress. (She had to sue to get it back.) George Will recently wrote of cops trying to steal an elderly couple’s motel because some drug dealers visited there. (Click here.)

And people don’t lose only property. The drug war has metastasized into a virtual civil war in Mexico, with about 50,000 dead since 2006. Governments throughout Latin America are beginning to rebel at the human price America’s drug war imposes on them. Here at home, much of our prison population is there because of non-violent drug offenses. Shamefully, America has the world’s highest incarceration rate relative to population. Far too many inmates are just ordinary people unluckily caught up in the drug war’s meat grinder. The cost is huge – not just the costs of running a gigantic prison system, but the human cost, the loss to society, the ruined lives.

Drug use by itself is a victimless crime. You might argue that drug trafficking is not; but we don’t criminalize alcohol or tobacco sales, which harm users at least comparably. Moralism is misplaced here. A free society lets people make such choices for themselves. Anyhow, the drug war doesn’t protect anybody from anything, and causes vastly more harm than it seeks to prevent.

This insanity must stop. Billions could be put to better uses; civil liberties would be restored; crime would plummet; untold lives would be saved instead of wrecked. We’d all be richer, happier, healthier, safer, and freer.

* For my younger readers, “reefer” was an old term for a marijuana cigarette. “Reefer Madness” was a 1936 film whose theme was that marijuana makes people immoral and crazy.

The Bain Capital Attack Ads

May 26, 2012

It’s depressingly predictable that Obama TV ads slash Romney as some corporate vampire ravaging victim companies and their workers. Romney’s Bain Capital firm invested in hundreds of companies, so it’s easy to find a few that failed, with workers losing jobs, who will whine on camera. It’s a cheap shot. It’s disgusting.

Worse, the one story picked out for Obama’s ad is told with cynical dishonesty. GST, a steel firm, was not healthy, but already sinking, having lost 80% of employees, when Bain bought it, hoping to turn it around. Bain arranged fresh bank loans and poured $100 million into modernization. But after eight years (and after Romney left Bain), GST nevertheless went belly-up, like many other old-line steel firms. (Click here for details. Meantime, another firm Bain backed was Steel Dynamics, which used Bain money to build a new plant now employing 6,000 people.)

Private equity firms like Bain are not in the business of making investments that fail. Their profit model is to find underperforming companies that can be made more successful. Not all businesses are equally well run; there are huge disparities between the gazelles and the donkeys. Private equity seeks to turn donkeys into gazelles. And, over recent decades, they’ve made an awful lot of donkeys into gazelles, with great benefit to the overall economy. This has revitalized American business, making it much better able to compete against foreign rivals.

 Often this does involve closing excess facilities, and layoffs. Now here’s a shocker: firing workers can be good for employment. Because a bloated inefficient firm that is uncompetitive will fail, so all its employees lose their jobs. Whereas if the company is streamlined and made more efficient, with fewer employees, it can regain competitiveness, and survive, and thrive, and even expand, to ultimately provide even more jobs.

The same applies among companies themselves. Capitalism’s “creative destruction” means that businesses are in a Darwinian struggle with each other, with the less productive weeded out while the most productive survive and grow. That too is good for the whole economy, and ultimately for jobs.

This is what liberals never seem to grasp: for high employment, you need businesses that are competitive in the global market. Preserving jobs at all cost in weak businesses (by protectionism, for example) is precisely the wrong thing to do and ultimately means fewer jobs.

Critics say private equity firms load up victim companies with debt while looting them. That makes no sense if you think a moment. Debt means borrowing from somebody. Who would lend to a company being looted? No – a business can borrow only if its prospects for success are good, so it can repay the loans. So again, the private equity model is not looting or blood-sucking, but making businesses more productive and successful. Of course there are exceptions, even horror stories. But overall, private equity does far more good than harm.

Bain Capital has also made many investments in start-ups. One was the Staples chain of business-supply stores that now employs 90,000 people. Others include the Sports Authority chain, and Bright Horizons that now manages child-care centers for more than 700 other companies around the world. Of course, not every investment pans out. It’s easy for critics to single out the failures. But without willingness to take risks, no investments would ever be made, and our economy would be dead in the water.

Private equity firms like Romney’s Bain Capital have thusly been major catalysts in the process of improving the quality of our businesses, to make them more competitive in the global economy. Unquestionably, this means more and better jobs.

Obama’s lying attack ads about Bain are the kind of thing that corrodes American public life. How sad that a President of the United States would stoop this low.

Pakistan: The F**ked-Up Country

May 23, 2012

Pakistan, half a year after closing a supply route for NATO’s Afghan mission, in petulance over the accidental killing of 24 soldiers, may now be willing to reopen it. But for a fee, estimated to reach $1 million per day.

That’s on top of billions of annual U.S. aid,* a bribe to keep Pakistan friendly. But, as the old saying goes, “with friends like this ….”

Pakistan is a nation with a major birth defect: hived off from India at independence in 1948 as a “Muslim homeland,” like separating conjoined twins; much blood was spilled. Making matters worse, Kashmir was left in limbo between the two, an ever festering sore of conflict.

And as if one bloody separation wasn’t enough, Pakistan suffered another in 1971 when its eastern part broke away to become Bangladesh, again amid great carnage. Only India’s military intervention saved Bangladesh. Pakistan was displeased.

So this is a traumatized country, in the grip of an over-mighty army together with the secretive and sinister ISI (Inter-Services Intelligence), whose whole raison d’etre is enmity with India. To sustain that, Pakistan has repeatedly sponsored provocations, including the horrific 2008 Mumbai terrorist attack. Given that India is hugely bigger, with nuclear weapons, this deliberate Pakistani policy of twisting that tiger’s tail is completely deranged. Thank goodness India is more sane.**

Pakistan has been an on-and-off democracy, governed more by generals than elected governments. Just as well, perhaps; the political parties are mere feudalistic patronage machines, maximally feckless and corrupt.

Zia Ul-Haq

It gets worse. One military ruler, Zia Ul-Haq (1977-88), was (or posed as) a Muslim zealot and infected the country with a bad case of the religious extremism virus. How bad? Non-Muslims are routinely massacred. Apostasy and blasphemy get the death penalty. One academic, Dr. Younus Sheikh, was sentenced to death for “blaspheming” that before his vision Mohammed was not a Muslim. We managed to save Sheikh’s life. But not that of state governor Salmaan Taseer, gunned down by one of his own bodyguards in 2011 because Taseer advocated moderating the blasphemy law. The killer was hailed as a hero and showered with flower petals.

In Pakistan, rape also carries the death penalty – for the victim. A thirteen year old was stoned to death. And when a man was convicted of adultery, the sentence was gang rape for his sister.

This is a f**ked-up country.

It did produce one politician who may have had the vision and courage to change things. Benazir Bhutto too was murdered by Islamic extremists, whom the government made a point of not trying to catch.

Pakistan is plagued by such armed fanatics and their bloody mayhem. This is Pakistan’s real enemy – not India (which is actually no threat at all). But the army is schizophrenically divided between fighting the insurgents and playing footsie with them. And as to the similar baddies we’re fighting in Afghanistan, it’s mainly footsie. Pakistan sees Afghanistan’s Karzai government as aligned with India, while a putative friendly Taliban regime would provide “strategic depth” against India. (Again Pakistan’s myopic craziness vis-à-vis India.) So our supposed ally Pakistan is really trying to make us fail in Afghanistan. (And the Obama administration acts like it’s trying to oblige.)

There is no smoking gun that Pakistan connived to protect bin Laden. But Pakistani officialdom certainly didn’t help us get him; and all those Pakistani individuals who did help have been jailed. (One, a doctor who helped with DNA identification, has just been sentenced to 33 years, for treason.)***

This is the nation we try to keep sweet with billions in aid (more than any other country bar Afghanistan itself). Yet nevertheless, polls show Pakistanis to be among the world’s most rabid America-haters.

We should tell Pakistan: F**k you. I say this in absolute seriousness. If Pakistan is our enemy – which it certainly is – at least let’s have moral clarity, so we can deal squarely with their perfidy. Bribery may make sense when you get what you pay for, but not when you keep getting the finger. What little we actually get from our relationship with Pakistan is not worth soiling ourselves, pandering to these %&!#s. If Pakistanis hate America so much, let them try life without our support and our billions. Maybe they’d come to their senses.

Though I wouldn’t bet on it.

* You might think it would be simple to google the exact number. It is not. But we have given Pakistan a total of about $30 billion in all.

** India distrusts Pakistan too, obviously with more justification. But when Pakistan suffered devastating floods, I thought India missed a golden opportunity to change the dynamic by mounting a big relief operation. However, Pakistan probably would have refused the help.

*** UPDATE (JUNE 3) — When criticism erupted, Pakistan changed its story, now saying Dr. Afridi was actually convicted for involvement with a terrorist group. But no details are offered; these Pakistani courts are secretive. And if Dr. Afridi was pro-terrorist, why would he have helped the U.S.? It isn’t credible. (Meantime Pakistan, also in murky trials, has acquitted four men charged with complicity in New York’s Times Square bombing attempt.) We should deploy Seal Team 6 to rescue Dr. Afridi. Seriously. It would send an important message that America takes care of its brave collaborators.

 

Netsuke, and Why I Fly the Flag

May 18, 2012

My mother-in-law wanted me to read Edmund de Waal’s book, The Hare With Amber Eyes. It had great personal resonance for me.

De Waal is a London ceramicist. The book is about a collection of 264 Japanese netsuke and, mainly, the family history bound up with it. It’s about memory, loss, and human life.

Oddly, de Waal never exactly explains what netsuke are (miniature carvings in ivory, wood, etc., originating as toggles for garment drawstrings), nor notes the unobvious pronunciation (“net-skay”).

The collection was assembled in 1870s Paris, during a rage for japonisme, by Charles Ephrussi, rich young scion of a family of Jewish bankers and commodities traders from Odessa, Russia. Charles, with unlimited money, was able to make a career of aestheticism.

netsuke

In 1899, he sends the collection, in its massive glass display cabinet, as a wedding gift for his cousin Viktor Ephrussi, in Vienna, the family’s financial headquarters. The Ephrussis occupy a colossal marble Palais, built by Viktor’s father, filled with art works, porcelain, silver, fine books, elegant furniture, and so forth. Viktor is Edmund de Waal’s great-grandfather.

Comes World War I. We can fathom the wave of nationalist fervor; no one foresaw the horror. Patriotically, Viktor puts a large chunk of Ephrussi money into imperial war bonds – Vienna was capital of the Austro-Hungarian Empire, allied with Germany. With the defeat, the Empire is kaput, and so are the bonds. Ephrussi holdings in Paris and London are confiscated by Allied governments. Those in ancestral Russia disappear in the Bolshevik conflagration. Then comes postwar inflation and economic meltdown.

Yet, though diminished, the Ephrussis aren’t ruined. The bank endures; so does rich life in the Palais.

 

Viktor, aged 22

My grandfather, Otto Dreyfuss, like Viktor a highly assimilated Jew, was similarly a patriotic German, who fought for his country in the war. We still have the notification that he was missing-in-action. Shot through the leg, he was carried off as a prisoner by the Brits, and surprisingly turned up alive at war’s end. I remember him lifting his pants leg to show me the bullet scar.

Otto was an up-and-comer who secured his ascendance in the Theilheimer family’s thriving Nurnberg metals business by marrying the boss’s daughter in 1919. It was no love match. But, like the Ephrussis, the family lived the good life. I don’t really know just how palatial their digs were, but they were definitely very comfortable.

The Ephrussi Palais

Families like the Ephrussis, Theilheimers and Dreyfusses could not have been oblivious to anti-semitism, yet must have felt secure living in Vienna or Germany, after all the world capitals of civilization, of philosophy, literature, arts and sciences, of modernity. These sophisticated and successful Jews had a place in these highly advanced societies. Jew-baiting was vulgar, ignorant; this wasn’t the shtetl any more. But, reading de Waal’s account of rising Viennese anti-semitic agitation, complaining about Jews owning everything, so many doctors, lawyers, professors being Jews, and on and on – I couldn’t help wondering, didn’t any of those knuckleheads ever stop and think – how come Jews are so successful? Could they just possibly be doing something right?

In March 1938, the Austrian nation enthusiastically throws itself into Hitler’s lap. I’ve said the 1914 fervor was understandable because they didn’t know better. But now they knew how that had turned out, so going down the same road again was surely madness – doubly madness, in respect to the military adventurism, now compounded by the madness of the pogrom.

The Nazis justified their treatment of Jews by calling them animals. But what the Nazis did would have been monstrous even if done to animals.

In March 1938 a gang marauds into the Ephrussi Palais to rough the place up and terrorize the inhabitants. By now, that includes only Viktor, his wife, son Rudolf, and one last servant, Anna. The army of other servants had all deserted; the other three children were gone.

Soon after, the Gestapo arrives in earnest, searching for “evidence” of anti-Nazism to arrest Viktor and Rudolf. In typical bureaucratic SS fashion, they methodically inventory all the valuables not smashed in the prior home invasion. Then it’s all packed up and carted off.

Viktor, 78, is marched to the bank office to sign away its ownership. He actually gets a little money. But being one of Vienna’s leading citizens doesn’t protect him from being humiliated and brutalized. Indeed, such is the point. Thus was Viktor thanked for his patriotic behavior.

The book notes that a lot of seized Jewish possessions were sold off by the venerable Austrian national auction house, Dorotheum. Another resonance for me – Dorotheum still exists. I’ve bought many coins from them. I have their latest invoice right here.

Elisabeth

Viktor’s daughter Elisabeth had gone to University, become a lawyer, and married a Dutchman, de Waal. Now, she risks a return to Vienna (would her Dutch passport protect her?) and with great efforts battling the Nazi bureaucracy, manages to get her parents out of Austria – to their country estate, in Czechoslovakia. Finally, in 1939, with little more than the clothes on his back, Viktor reaches safety in England. Rudolf had gotten himself to America. Viktor’s wife meanwhile, unable to endure more, had killed herself.

The book has a 1937 photo of Viktor. He looks just like Otto Dreyfuss. Things in Nurnberg are no better than in Vienna; indeed, Nurnberg is the epicenter of the Nazi race cult. A lot of thanks Otto got for taking a bullet for his country in the war. He was not as rich as Viktor had been, but must have been a shrewd operator. In 1938, the family arrives in America (a couple of Theilheimers in 1941), passing by that lady in the harbor lofting a torch. Unlike Viktor Ephrussi, Otto even manages somehow to bring out an amazing amount of furniture, paintings, silver, and bric-a-brac. But his mother dies in a concentration camp.

In 1945, Viktor has died, and Elisabeth visits liberated Vienna. The Palais had been used by Germans through the war as offices; now the Americans are there. And there’s still an old woman – Anna. She had remained, working for the Germans. Anna had noticed the cabinet of netsuke, strangely overlooked in all the pillaging. Perhaps the tiny sculptures had seemed inconsequential. Anna sneaked them out two or three at a time, in her pockets, and hid them in her mattress.

Elisabeth gives them to her brother Ignace, who has turned up as an American intelligence officer. The netsuke tip his decision to accept a posting to Japan, where he winds up spending the rest of his long life.

Through the years, Elisabeth doggedly manages to recover a small fraction of the objects looted from the Palais. Eventually, she actually regains title to the building itself. But in depressed postwar Vienna, it’s a white elephant, and is sold off for a pittance.

Otto Dreyfuss succeeds in crafting a new life of sorts in America, though a shadow of his former status. He winds up working as some kind of export-import broker, involving much foreign travel. From overseas he sent me a sailor suit; we had to go to LaGuardia airport to pick it up. After Otto’s death, in the mid-50s his widow Else follows Elisabeth’s path and travels back to Germany, hiring a lawyer to pursue the issue of their old family building, grabbed by an “Aryan.” She gets a settlement.

Ignace Ephrussi dies in 1994 and his great-nephew Edmund de Waal inherits the netsuke collection.

My home flies the American flag. People sometimes ask in puzzlement why I do it; they think it’s gauche. Must I really explain? I kiss the ground. I kiss the ground.

J. P. Morgan Loses $2 Billion! Call Out the Regulators!

May 15, 2012

You’ve heard the big shocking news: J. P. Morgan bank lost $2 billion on some financial bets!! Holy Cow! Enthusiasts for government regulation are dancing in the streets, to the tune of “We told you so,” and the Dodd-Frank law, aimed at these things, is vindicated and sanctified.

This Morgan story is big news only because some people (see above) want it to be. They want it to seem like “too big to fail” all over again, with Wall Street yet again threatening to devour Main Street.

Some facts: Morgan’s annual revenues are about $100 billion; annual earnings about $12 billion; total assets believed to be around $2 trillion. In that context, a $2 billion loss is piddling. I repeat: piddling. It does not threaten Morgan’s financial viability, and certainly does not impinge on the larger economy. (Note, if Morgan lost a $2 billion bet, some other financial players gained $2 billion.)

Morgan is a private company and, given the foregoing, while the loss may be of concern to its shareholders, it is of no concern to the broader public.

 

Morgan’s Houston Headquarters

The way any bank makes money is basically by parlaying its assets into other investments. It’s in the nature of investments – all investments – that there is risk, and some don’t pan out. On this one, Morgan bet wrong and lost money. But amid all the hysteria about the $2 billion loss, has anyone thought to inquire how many other such bets Morgan has made that entailed gains? What’s important is not how one investment turns out, but how they perform in the aggregate. (I certainly wouldn’t want to be judged on my one worst stock pick.)

Nevertheless, we’re told this Morgan episode proves the need for Dodd-Frank’s regulatory scheme; this is exactly what Dodd-Frank was supposed to prevent. So why wasn’t it prevented? Because Morgan’s bet slipped through a loophole in Dodd-Frank. Now there’s a shocker! Who could imagine a 2400 page law with loopholes its legislators failed to foresee?

The tragedy of Dodd-Frank is that while it ostensibly targets the “too big to fail” Wall Street behemoths (whose screw-ups really did harm the whole economy), there is immense collateral damage to thousands of smaller financial institutions all across the country that simply lack the armies of lawyers and accountants and other resources to cope with the law’s highly complex and burdensome regulatory requirements. Further, it makes all financial institutions overly cautious lest they inadvertently run afoul of Dodd-Frank’s labyrinthine restrictions. Innovation and enterprise are stifled. All of this greatly harms our economy.

 That might be a price worth paying if we actually got the intended benefits, of preventing the kinds of abuses that were so damaging in 2008. Conceivably, a simple, clean, straightforward, carefully targeted law might have done it. But Congress felt that the vast complexity of the world of finance called for a regulatory scheme of equivalent complexity. That was doomed from the start, because the law’s very convolutedness guaranteed its ineffectuality, not to say dysfunctionality – as, once again, the Morgan episode sadly demonstrates.

So what this actually proves is not the need for regulation like Dodd-Frank, but the folly of it.

You can stop dancing in the streets now.

The American Taliban

May 12, 2012

Lugar

People say they hate “politicians.” Senator Richard Lugar was one of the last who could truly be labeled statesman and public servant, who rose above politics. He was one of the good guys. He was certainly on the conservative end of the political spectrum. But, apparently, not at the bitter end.

So he lost the Republican primary 61% to 39%. The inmates have taken over the asylum

This will surely be mentioned when a future Gibbon writes The Decline and Fall of America.

The Republicans are turning themselves into an American Taliban, a bunch of Savonarolas, scourges of ideological purity. They seem oblivious that this is a democracy, with majority rule – and they ain’t no majority. The more extreme a corner they paint themselves into, the less likely they can achieve something.

Lugar’s primary opponent, Mourdock, sounds like an altogether typical politician, saying whatever will get him elected, and saying it in that phony stentorian politician voice. He says that what we need is not Lugar-type bipartisanship but, instead, “principle.”

Uh, no. That’s just the problem with American politics.

I’m not against having principles. But you don’t have them to yourself. The other guys have them too. In fact, we live in a nation where half of us have one set of principles and the other half has principles diametrically opposite. If everyone immovably stands on principle, we’re going to stand still.

And such principles. The House Republicans passed a budget bill to protect defense spending from any cuts whatever, while paying for it by slashing social programs for the most vulnerable. Of course, this budget cannot possibly be enacted; it’s just political posturing. But is this really the political position Republicans want to go into this election defending? It’s just handing the Democrats their favorite demagogic posture on a silver platter, letting them wrap themselves in virtue as champions of compassion.

Savonarola

But the dirty secret of federal domestic spending is that the great bulk goes to relatively affluent middle class people, not the poor and needy. When you hear Democrats prattling about compassion, it’s really a ruse to avoid any hard decisions about largesse for the truly non-needy. We could afford ample help for the worst off, if welfare for corporations and the rich were trimmed. By taking the opposite tack, the Republican budget is disgraceful.

These Republicans may make a Democrat of me yet.

Good Guys and Bad Guys

May 10, 2012

Sometimes an event reminds us – as if we’d forget – who the good guys and bad guys are. Only the bad guys don’t know it. Which is why they’re bad.

 In letting Cheng Guangcheng out of their custody without adequate guarantees, without even any Americans accompanying him, U.S. diplomats appear to have muffed it. They naively imagined that China is a nation of laws, at least sort of, and its regime minions have some scruples. Neither is true.

Chen’s story illustrates that the rights and legal protections of Chinese citizens are merely theoretical, always subject to the regime’s arbitrary dictates. Chen had already spent four years in prison for the “crime” of trying to get China to follow its own laws. For the past 19 months he was under a house arrest which not even the regime could pretend was legal. Though Chen was now in theory a free citizen charged with no crime, authorities built a floodlit concrete wall around his home, jammed his phone, and deployed dozens of thugs to rough up anyone attempting to reach him.

Somehow the blind activist managed to escape and reach the Beijing U.S. embassy. He says that afterward, his wife spent two days tied to a chair by the local goons, who stood around with sticks threatening to beat her to death.

While Chen’s newly high international profile may deter officials from further brutalizing him and his immediate family, not so regarding other activists associated with him. At least one who tried to visit him in the Beijing hospital has disappeared into police custody. Indeed, the regime seems to see the Chen affair as reason to crack down even harder against dissent, including pervasive internet blockages to prevent Chinese citizens from even discussing the case.

That China’s rulers actually had the chutzpah to demand an apology from the U.S. reveals their mindset – so arrogant and imbued with the false authority of their power that they are incapable of realizing how they look to anyone else – that they are the bad guys.

 We believe power comes from a ballot box. Mao said it comes from the barrel of a gun, and meant it. His successors adhered to this dictum too, when they used guns to see off a perceived challenge to their rule at Tiananmen Square in 1989. It’s still the same regime; never forget it.

Economics 101 – Pass the Hollandaise Sauce

May 7, 2012

Predictably, Socialist Francois Hollande has beaten incumbent Nicolas Sarkozy for France’s presidency.

 

Francois Hollande (unflattering photo)

This reflects the French understanding of what an economy should be: everyone working for the government, unsackable, for 35 hours a week, with 6 weeks vacation, and retirement at 60 with a generous pension. How to pay for it? Tax the “rich” of course. Industry, business and commerce are at best necessary evils; in fact, leave out “necessary.”

Sarkozy, when first running, seemed to actually get it, promising a “rupture” with such noodleism. And he did manage a few timid reforms, notably raising the retirement age to 62. But then he too succumbed to French disease, and the only “rupture” was between his promise and his performance. In the end, trying to save himself with crude immigrant-bashing, he deserved to lose.

Hollande promises to roll back the retirement age to 60, expand the 35 hour week, increase government spending (already over 50% of GDP), raise taxes even more (including a 75% tax, on top of other levies, on the highest incomes); and his enemy, he says, is “finance.”

This man should be sent not to the Elysee Palace, but to a lunatic asylum.

 

Eden (Whitemountainarts.com)

In the Garden of Eden, inhabitants could have everything they wanted, at no cost. In the actual world, nobody can; and that, my friends, is what economics is about. It concerns how we deal with scarcity. This entails two fundamental problems: (1) how scarce resources get distributed, and (2) how to relieve scarcity in favor of abundance.

The Left, and the French, see only Problem 1, and seem blind to Problem 2 and, indeed, to how their responses to Problem 1 have consequences for Problem 2. The French seem to think they still inhabit Eden.

A good example of how this plays out is rent control, a classic Problem 1 response aimed at making housing affordable by simply capping the price. Perfectly logical – if you ignore Problem 2. Of course, the result of capping rents below market prices is underinvestment and increased scarcity. Developers have no economic incentive to build new apartments or even maintain existing ones. Only luxury apartments not subject to rent control get built. The result is that average rents in rent-control cities are actually higher than without rent control. Most beneficiaries of rent control are not poor but affluent. Meantime, many apartment buildings in the supposedly “affordable” category become uneconomic and are simply abandoned by their owners. In New York and San Francisco, two major rent control bastions, legions of deteriorating, boarded-up buildings are in city hands, uninhabitable, while thousands of homeless sleep on the streets in winter. A Swedish socialist who studied the matter concluded that the two most effective ways to destroy a city are bombing and rent control.

This is hardly rocket science. But God forbid any politician dare to propose touching rent control – after all, we have to keep greedy landlords from gouging poor tenants, right?

In general, any politically-based governmental economic intervention tends to be Problem 1 oriented to the detriment of Problem 2, and hence dysfunctional for the welfare of society as a whole.

Load up on that tempting Hollandaise sauce.

The Land of the Free – Mostly

May 5, 2012

America is The Land of the Free. It says so right in our national anthem.

Since 1995, the Heritage Foundation has been quantitatively measuring the degree of economic freedom across countries, in four areas:

1)    Rule of law and corruption

2)    Regulatory efficiency and economic stability

3)    Restraint on government spending and taxes

4)    Open competitive markets

 Yes, Heritage is considered a “conservative” think tank, and promotes an agenda in all four areas. And certainly these four are not the only components of freedom. But again, Heritage is talking here only about economic liberty, and it’s hard to deny that the four criteria are very important. And if Heritage is biased, the aim is merely to track how countries stack up on these measures – so which way might the bias cut (if at all)?

In the latest (2012) survey, the U.S. scored 76.3 out of 100, placing it tenth among all 184 countries. Not too shabby, you might say. But to be categorized as a “fully free” country requires a score of 80. Only five nations made the grade this year — Australia, New Zealand, Switzerland, Hong Kong, and Singapore. (Again, this is economic freedom; the last two countries have some big issues in other aspects of liberty.)

So, tough luck, Uncle Sam. We did make 80 as recently as 2009, but we’ve declined since. So now we’re relegated to the “mostly free” category.

What caused this fall from grace? Government spending now gobbles up 42.2% of GDP, and debt exceeds 100%, with no glimmer of hope for getting this under control. Another factor is taxes – not so much high as ill-structured to be a drag on the economy. And a real biggie is the ballooning of costly government regulation like Dodd-Frank, stifling economic activity.

 But if we are no longer the land of the (fully) free, are we still the home of the brave? A 2012 survey by Canada’s Dudley Dooright Institute gave the U.S. a bravery score of 68.8, ranking it 32nd in the world, in the “somewhat squeamish” category. Though individual Americans did still score impressively, the nation’s overall performance was dragged down by that of the political class. And while we did rack up points by killing bin Laden and helping to nail Qaddafi, we lost quite a few by doing nothing substantively to stop the Syrian carnage. (Syria’s populace ranked #1 on bravery.)


Follow

Get every new post delivered to your Inbox.

Join 3,148 other followers