The Balooning Deficit

Obama has released his budget request. Its a humdinger:

The administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. That's a record in dollar terms and is the highest as a share of GDP since World War II.

This is actually worse than I had thought. This is only the budget request. Generally budgets get larger. I also suspect revenue will be far less than the administration estimates. The growth estimates which follow are completely absurd:

All estimates in the budget request are based on a set of economic assumptions made by Christina Romer, who heads the White House Council of Economic Advisers. She assumed real GDP would fall 1.2% this year -- with a significant drop in the first quarter. But she expects GDP growth of 3.2%, 4.0% and 4.6% over the next three years.

Not going to happen. The important thing to take away from this, though, is the debt that is being run up. A $1.7 trillion budget deficit will increase the present debt load by about 17%. As I pointed out before, it will only take a few years of these kinds of deficits, and a slight increase of interest rates before the government simply will not be able to pay its bills and will be forced to begin inflating to save its life. Or at least its balance sheet. Oh wait, the inflation has already begun. Whoever said the government doesn't have foresight? ----Update!---- Just had to include a link to this cartoon from The Economist. That says it all...

Asking the Wrong Questions

Once again, Gary North provides an insightful item, which I located on the web by googling it. It's a good read:

How did we go so far off the tracks? He offered a few nuggets that seemed to explain the credit bubble. To reiterate, there really was no adult supervision. The guys putting these packages together certainly had some sense that they were crazy but nobody said stop. Government regulators being paid $100k couldn't tell guys making $20 million to take a hike. The senior managers loved the money flows. Cubicles--millions of cubicles--were staffed with engineers, chemists, physicists, and mathematicians from the best colleges in the country with no knowledge of the history of markets, fat tails, and past human follies, only how to financially engineer.

This kind of commentary has the insight of somebody fairly intimate with the situation, but it also annoys the heck out of me, because it completely misses the point. Yes, a lot of "illegal" stuff went on, and "rules" were broken. Common sense got checked at the door and a lot of stupid things were done. Really?! You don't say... Newsflash everyone: politicians are crooks, regulators frequently fall down on the job, and Wall Streeters are out to make lots and lots of money any way they can. Who would have ever guessed? Not to mention the fact that the guys who write the rules, a.k.a. our illustrious politicians, were doing a full court press to get more money into subprime by strongarming lenders into lending to preferred demographics and passing out government guarantees on Fannie and Freddie debt. And the answer is supposed to be more regulation? So there will be more rules to ignore next time? Adult supervision? Where are the adults? I don't see any. All this garbage completely misses the point. We should not be asking how this crisis was allowed to occur. I should think that would be obvious at this point, and that there is really nothing that anybody can do about natural human tendencies, except beat on some humans, which isn't allowed and probably wouldn't work anyway, though it might releive some tension for a little while. We should be asking how it was able to occur. Such horrible investments as is guy is describing should have come unglued long, long, ago, yet the housing bubble has been 20 years in the making. Ask any newbie forex trader how long a 10,000x position is likely to look like a smart bet, even if it was one at the time it was made. How about the odds of several million such positions lasting for years? The entire mess was dependent on a continuous inflow of money, provided courtesy of the Federal Reserve. It could not have occurred otherwise. Rules, regulations, and depending on man's supposed innate goodness to keep markets working does not work. Actually losing money when you screw up, at about the time that you screw up or soon after, and not being able to foist your losses on others works only slightly better, but at least it is something. So far it is the best we've got. Providing a continual stream of new money into markets and blanket government guarantees isn't helpful. To be fair, later on in the letter the issue of excess money is addressed tangentially:

The money overwhelmed the system. It was like when the computers gained consciousness in Terminator. The money pushed all regulations aside. It bought deregulation, politicians, and anything else necessary to keep the money machine growing. Nobody dared yell stop because so damned much money was being made.

But this still misses the point. Which is: NO FED, NO EXPANDING MONEY SUPPLY, NO PROBLEM. Do we really want the government deciding what kinds of investments we are allowed to make, and enforcing rules willy-nilly? Do we really want politicians in charge of the money supply? It hasn't worked yet. I do not see why it ever should. Maybe its time to try something new. Or something old, rather... Gold, anyone?

Why Bernanke Cannot Keep Inflation at Bay

Ben Bernanke claims the Fed has plenty of tools to keep its recent and unprecedented monetary expansion from resulting in price inflation:

"We are quite confident that we can raise interest rates, reduce the money supply and do that all in a timely way to avoid any inflationary consequences," Bernanke told the House of Representatives Financial Services Committee in a second day of testimony on the Fed's monetary policy report.

Sounds reassuring, doesn't it? The problem is, the Fed is between a rock and a hard place. I do not think it can help but cause very, very high levels of inflation, and quite possibly destroy the dollar in the process at this point. I've already posted several times on the massive increase in the Adjusted Monetary Base since last September. The money, fortunately, is still sitting in the vaults of the Fed, thanks to a very fearful financial system which is unwilling to lend, coupled with the Fed beginning to offer interest for deposits held there. There are basically three ways the Fed can prevent price inflation at this point: sell assets, raise interest rates through market intervention, and offer interest on deposits it is holding. We'll go through all three. Selling Assets The lion's share of the increase in the AMB occurred when the Federal Reserve bought up mortgages and other shaky securities in the various "bailout" programs we've all been hearing about, especially TARP. When the Fed buys assets, it does so with money which did not exist before, essentially creating it out of thin air, thus expanding the monetary base. That money goes out and circulates in the economy just like any other money, thereby increasing the money supply. The Fed's assets represent the "backing" of the nation's currency. In a pinch, such as a crisis in confidence in the currency, the Fed can "defend" the dollar by selling these assets back into the market, drawing currency out of the market and into its vaults, reducing its supply and thus raising its value. This very situation recently occurred in Russia, and apparently there is some doubt that Russian reserves are sufficient to fend off the present crisis. In the old days, the Fed bought gold, as did most central banks around the world, so gold was the backing of the dollar. This was the essence of the "gold standard." Paper money could be "redeemed" for this gold by buying the gold back from the Fed with the very money the Fed had issued. This promise to redeem money for gold gave people confidence in the value of the dollar. Between abandoning the gold standard in 1971 and last September, 2008, the Fed mostly held US Treasury debt. So the currency issued by the Fed was backed by credit record of the United States of America and the governments ability to tax its citizens to pay the debt. Now the Treasury certificates are mostly gone, having been lent out in the TAF program to clean up the balance sheets of the ailing banking system. These were replaced by shaky mortgage paper and other questionable assets that banks wanted to "temporarily" get off their books. So, in summary, the US Treasuries are mostly gone, the gold is mostly gone, and these have been replaced, and augmented with, all the horrible loans we keep hearing about on the news. These are the assets presently backing the US dollar. You can see a graph of all of this here. The point of all this is to show that to reduce the money supply by selling assets, the Fed will either have to part with what is little left of its "good" assets, the gold and US Treasuries, or try to sell off all those bad loans. Obviously, it cannot sell the bad loans. The whole point of holding them was to cover up the fact that they are awful assets. If the Fed sold now, it would not be able to get anywhere near the price it paid for them, and the effect would be to deal a severe blow to the banking system without effectually reducing the money supply. We would actually be worse off than before with respect to the solvency of the US banking system. The Fed would not do this unless the crisis was already over and these assets assumed a more normal valuation. These assets will never have a normal valuation. If there were any possibility for this, the Fed would not have had to buy those assets in the first place. The only way for that to happen would be for all those mortgages to get paid off, or for housing prices to return to where they were, which would require the mass inflation the Fed is trying to prevent. The Fed is in a catch-22 with respect to its mortgage paper. I think the Fed is stuck with all of it. Selling US Treasuries would have the effect of increasing the interest rate paid by the Federal Government at a time that it is running up very, very large debts. In fact, the Fed has been mulling buying US Treasuries to help the government borrow at lower rates and push down long term interest rates, at the expense of dollar holders, of course, so it would seem bizarre to consider selling them to reduce the money supply. It would also probably trigger a worldwide selloff of US Treasuries, which would be catastrophic to the dollar. This solution is simply unthinkable. All that is left is gold. The government prices the gold it is holding at $42 per oz, which is positively foolish, but I suppose that is the price of pride. $42 per oz is what gold last traded while the US was still on the gold standard. At any rate, pricing the gold at market prices of nearly $1000 per oz substantially increases the value of the Fed's holding. But even if the Fed sold all of its gold at this price, it would fetch about $250 billion by my estimate, barely putting a dent in the monetary expansion that has occurred thus far (about $1 trillion). So this wouldn't work. Raising the Interest Rate Manipulation of the interest rate is what Fed watchers normally pay attention to. Normally, the Fed only intervenes to lower the rate. It does this by entering the market and lending when no other banks will, once again, using money that did not exist before. This increases the money supply. It could artificially raise the rate by entering into the market and borrowing money, driving up interest rates, soaking up dollars, and reducing the money supply. Theoretically, at least, this would work. However, politically the Fed cannot do this. The present economy is literally addicted to monetary expansion. Without continuous monetary expansion, and the low interest rates that expansionary policy produces, a vast swath of the US economy would not be profitable. Which, I suppose, technically means that it is not profitable now in real terms, but is being propped up by said government intervention. America had a stable money supply through late 2007 and most of 2008. It promptly tanked. To effect an actual reduction in the money supply, the Fed would have to raise rates above natural market rates. Basically, this policy would bring to bear very powerful recessionary forces on the economy. It would also induce real, actual deflation. Doing it would be the right thing to do of course, but it would ensure that the economy underwent a massive contraction, including persistent, very high unemployment for quite a long time. This would be very politically unpopular. It would also ensure the bankruptcy of the US government. The US government needs enormous tax revenue to pay off the debts it has incurred and is presently running up. Deflation, a contracting economy, and its consequences on tax revenue would be a death sentence. The Fed cannot do this. Paying Interest on Deposits Paying interest on deposits held at the Fed is really only a stopgap measure. It only prevents banks from using their money to make new loans, which temporarily keeps the money out of the marketplace, but it does nothing to reduce the money supply. In fact, because the interest payments are of newly created money, it actually expands the money supply slowly. So this is really not a solution at all. Conclusion The options available to the Fed to reduce the money supply appear at this point to be impotent. Ben Bernanke's only hope is for the economy to improve to the point that he can sell assets. But as we have seen, by the time that happens, the inflation will by necessity already have taken place, thanks to the economy's present addiction to an expanding money supply. There is one other option available: increase reserve requirements. This will prevent the banks from lending the money altogether. It will not reduce the money supply, but it will prevent that money supply from being used to bid up prices as it is multiplied by the fractional reserve system. However, to do so would be a repudiation of fractional reserve banking, anathema to the banking community, and a heresy to modern economic thought. It would be a step in the direction of a proper Austrian banking system. This step will likely not be taken. Inflation is virtually guaranteed.

George Soros' Depression

George Soros has weighed in on the severity of the present downturn:

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

If one has any understanding of what has led us to these dire straits, this statement smacks of considerable irony. For those who aren't all that familiar with George Soros, he is a very, very wealthy man who makes his money speculating in forex markets. Probably his greatest trading feat occurred when in a single day, he made $1 billion (yes, with a "b." That is not a typo or an exaggeration.) by shorting the British pound. Which is to say, he borrowed pounds to buy other currencies, and when the pound fell like a stone, he easily payed back his debt with only a fraction of the money he received in the initial trade. He is much more widely known, however, for his political activities. Probably his largest initiative is the Open Society Institute, an international NGO that pushes for democratic reforms and open, accountable government. Which all sounds very nice to most decent and well meaning people. The problem with the whole "open society" movement, which is the brainchild of philosopher Karl Popper (who, irony of ironies, happens to be from Austria), is its embrace of "piecemeal social engineering." Not utopianism, mind you, which is abrupt and disruptive and therefore typically unsuccessful, but incrementalism, which will apparently be successful. Gradually, I suppose. Apparently, this is an important distinction. In any event, the movement embraces "political experimentation," "scientifically" changing one variable at a time as a society democratically determines its future shape and form. The Open Society Institute claims to support rule-of-law, but it ought to be clear to anyone who understands rule-of-law that the so-called open society and social engineering in general are decidedly anti rule-of-law. Remember, way back when, law was spelled Law. It meant something, because it was from God. It was part and parcel with Truth, Right, and Wrong. It didn't change. It was a collection of timeless, imutable, irrefutable codes based on more than the momentary whims of the vulgar mob. One doesn't engineer The Law. Period. A society which has been engineered is not open. It is engineered. "Democratically" doesn't change a thing. Popper's "open society" is a contradiction. The Open Society and Its Enemies was written in 1945. For students of the Great Depression, these ideas ought to sound familiar:

Do not confuse objectives with methods. When the Nation becomes substantially united in favor of planning the broad objectives of civilization, then true leadership must unite thought behind definite methods.

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach.

-Franklin Roosevelt

(emphasis mine)

Planned societies. Planned by whom? Men. Experimentation in law and government, to acheive specified objectives. Haven't we been here before? Those who understand central banking and the Federal Reserve System, which should hopefully include any loyal readers at this point, will immediately understand that it was precisely this sort of planning and experimentation that led to this mess in the first place! The economy didn't just somehow derail; it was driven here by the social engineers and planners themselves! And George Soros, chief financier of the Open Society Institute, laments the demise of our system, a system of which he ought to approve, produced as it was a piece at a time, as we democratically chipped away at the Republic we were given to produce what we really wanted, a planned society. Planned by men like Ben Bernanke, Alan Greenspan, George Bush, and Barack Obama. We were goaded into the bliss of monetary expansion by the Federal Reserve, given to us by that friend and protector of all democrats, Woodrow Wilson. When the party was over, we turned to Franklin Roosevelt, who gave us Social Security and a New Deal, and who defeated the Nazi's and Imperial Japanese to make the world safe for democracy once again. Truman, Kennedy, and Johnson helped us fend off those awful Communists, who had the audacity to proclaim the superiority of a centrally planned system, under which their people suffered because, we were told, unlike in our centrally planned system, they didn't have democracy. Until just recently, we had George Bush, who did his best to bring democracy to the Middle East, which somehow protected our freedom here at home. We will soon have our savings destroyed by our Federal Reserve and be bankrupted by our Social Security debts. We will have been destroyed by our democracy, and enslaved by our centrally planned, socially-engineered Open Society. In my estimation, George Soros is correct, "the world financial system has effectively disintegrated." I hope he is happy.

Chickens Come Home to Roost

Awhile back, the question was raised as to what would be the effect of allowing banks to assume the losses of other banks which they had bought out in figuring income taxes, thereby reducing their tax burden. The roundabout (and poorly handled) answer from myself was: that it was an effort by the government to encourage consolidation within the banking industry, rather than having failing institutions become wards of the FDIC and the Fed. On the margin, more failing banks would be bought out than would otherwise have been the case, thanks to this tax incentive. Now we are seeing the fallout of such policies:

In a five-day period last week shares of two of the biggest and most vulnerable banks, Citigroup and Bank of America (BoA), fell by 44% and 32% respectively. Those of better capitalised institutions, such as JPMorgan Chase, fell by less.

Bank of America was not always a "vulnerable" bank. It had steered mostly clear of the mortgage and mortgage-derivatives insanity that had done in Lehman Bros. and Bear-Stearns. But then, once the whole meltdown had gotten fairly well underway, it decided to swallow up two particularly bad offenders who were already on the ropes: Merrill Lynch and Countrywide Financial. Now, with their bad numbers on the books, B of A looks to be in a world of hurt. This was completely avoidable. Of course, I'm sure the tax write-off was not the deal maker in every case, but by intervening in the economy and bailing out the losers with policies like this one, the government encourages this sort of behavior. Banks can afford to be overly aggressive in their lending and acquisitions; if it turns out well for them, they make a killing. If it turns out poorly, everybody foots the bill. Without intervention, the shareholders of several banks would have seen their holdings become worthless. Some other "bad stuff" would've happened, but then that would have been that. Those folks could've dusted themselves off, gotten back on their feet, and found a new place for themselves in an economy that still functioned, looking to get back in the game. Now there is no game to return to. We are all losers. Instead of shares and commercial paper taking the hit, its going to be the US dollar. Nobody can avoid this. Thanks to our fascist government-banking system, now we are all in for a world of hurt. And it will be much, much more hurt, since these actions will not only have placed one finite burden on all, they will have undermined the very foundations of our economy by destroying trust in our currency, property rights, and market ethics. As for the debts presently being run up, one shouldn't think that all this debt is a "burden that will be passed on to our children and grandchildren." I keep intending to write a post on this. This is a tremendous fallacy, and incredibly naive. Suffice it to say: those kids aren't fools, and they probably won't be nearly that honest; they'll simply pay back their debts in inflated money, stiffing their creditors, just as we are right now. It'll be no problem for them! Nope, I'm afraid that most of that burden will be falling right on top of all of us. In fact, it will probably be what does us in in the next few years, not the next 20. So they wouldn't have to pay the debt anyway! Deficits aren't about the future, they're about today. Here and now. The new money that enters the economy has its effects immediately. Government consumption competes with the private market, driving up prices for those unlucky enough not to have a money-printing press, and expanding the state's share of wealth at the expense of the private sphere. Real capital and resources are diverted from productive private enterprise to destructive consumption by state. Today. The state is expanded today. The economy contracts today. It is not stealing from our children, it is simply expanding the footprint of the state, without the need for pesky and politically unpopular tax increases. So don't worry, you can have a clean conscience about voting for the politicians who are now passing out bailouts like candy; our children won't have to pay for them. We will!

Lending Thaw in China

The Economist reports that lending is up in China:

Whereas most economies are being squeezed by a credit crunch, Chinese bank lending surged by 21% in the year to January. There are a few other hopeful signs. Are these the first green shoots of spring?...

Naturally, the Keynesians who write for The Economist interpret this as a positive development. Now, it is entirely possible that the 21% jump is an anomaly, as I have little doubt that lending has taken a beating there in the past few months. A jump of 21% may actually be relatively insignificant and within the realm of the reasonable for an economy in the shape that China's is in. But make no mistake: a meaningful resumption of lending will begin to stoke credit expansion as fractional reserve banking works its magic, and the dreaded specter of nosebleed-level price-inflation will begin terrorizing the poor folks of the Middle Kingdom. The excesses of three decades of raucous growth fueled by monetary expansion and mercantilism cannot possibly be cleared out in the span of six months. Monetary expansion is highly unlikely to touch off another boom at this point, as much as the government might like; rather the inflation will have an almost purely price increasing effect, with little positive effect on employment and possibly accelerating layoffs. This is the perfect setting for the dreaded Keynesian nemesis, stagflation. We need not ponder the question long. The Economist graciously confirms our price-inflation fears only a few paragraphs later:

One cheery sign is share prices, which have jumped by 30% since November—although they fell sharply this week. Some optimists have also pounced on the purchasing managers’ index, a gauge of manufacturing activity, which increased in January for the second month running... ...The expectation of increased spending on roads and railways has helped to lift raw-material prices. Chinese prices of steel have risen by 20% since November, and the Baltic Dry Index, a measure of shipping rates and hence the demand for commodities, has more than doubled, although it is still 84% below its 2008 peak. This suggests that firms are rebuilding stocks of raw materials.

Increasing stock and commodity prices are still inflation, whatever the immediate effect on consumer prices. It is only a matter of time, and probably not much time at that, before the effect is felt by consumers, especially and most painfully, by the unemployed. It is sometimes staggering just how bone-headed Keynesians can be, because immediately following these statements we read:

However, according to Stephen Green, at Standard Chartered, stocks of finished goods are still rising, which will curb production over the next few months.

The answer stares them in the face, yet they are blind. An increasing monetary base, credit expansion, coupled with backed up inventories means... wait, no, let me think here... no production, which means... no, it can't be price inflation... it must be:

Because of this, the economic numbers are likely to get worse before they get better. The first shoots of spring are often vulnerable to a frost.

Just a slow economy. No imminent recovery. We'll just have to wait a bit longer for the thaw, that's all. Pathetic. Not a word about price inflation or stagflation, the patently obvious answers. Supposing the present trend continues, let me tell you what to expect:

• price inflation
• accelerating unemployment
• political desperation and confusion
• price controls and other counterproductive measures
• further economic contraction
• possibly serious civil unrest

This requires, of course, that the increased lending is actually real and continues and that the government response is in typical Keynesian fashion, which is to say, the exact opposite of what needs to happen. China may have a rosy future on the horizon, but I see some serious bumps in the road before we get there.

Gary's Column Has Wings

I posted a brief comment (and a recommendation that you READ!) a column by Gary North which first appeared as a regular post on his website for subscribers only (where I got to read it first! hahaha!), and then later appeared on LRC, at which time I commented on it since it would be available for your viewing pleasure. It was then commented on by Vox Day, and now it has moved to one of the daily columns on Mises.org. The reason this particular essay has legs is BECAUSE IT IS IMPORTANT! What we are seeing probably is just as big as he says that it is. When historians are writing their history books two centuries from now, they will say that American power began its final collapse in October, 2008, just as Soviet communism began its collapse with the fall of the Berlin wall. It was the event that revealed the Empire had no clothes. The ability and willingness to project overwhelming force held the Soviet bloc together. The American financial system is what is holding the "American empire" together, such as it is. This is the means by which America funds its military operations, projects power across the globe, and maintains domestic tranquility between some very unhappily wed countrymen. Without it, the American government is impotent, both at home and abroad. Similarly, the USSR had been in dire financial straits prior to the civil unrest which brought it down. I have a Russian friend whose mother's factory had been paying her in alarm clocks in the months prior to collapse, because the domestic economy had become something of a joke. Nobody took the financial system seriously anymore. It is difficult for a government to project power when money and finance has become a laughingstock. How does one pay its soldiers and police? How does one ensure that they don't pick up "side work" to help pay the bills? I think this is one of the major problems Mexico has, and it seems to be getting worse lately. The money and lifestyle available from illicit activities simply overwhelms what legally legitimate activities can provide. The mismanagement and dysfunction with which their domestic affairs are handled has ensured that their economy cannot offer up substantial legitimate opportunity, while at the same time ensuring that the domestic government hasn't the resources to effectively dissuade illegal activity. Coupled with a northern neighbor whose citizens can afford to pay a fortune for certain substances that for some reason it is also intent on banning, and you have a recipe for, well, Mexico. This is an important lesson: the ability of a government to project power/maintain order is at its most fundamental level based upon its willingness to refrain from using that power, which entails tolerating a bit of liberty and that other players acquire a bit of power in their own right. Without a bit of liberty, economies simply don't function. When a government tries to control everything, in effect it is able to control nothing. In other words, for a society to function, it has to embrace a certain level of Austrian theory. This is because, simply, Austrian theory is true. Acting on what is true results in positive outcomes in a world governed by universal laws, both physical and ethical. "The truth shall set you free," as a very wise Man once said, at least to what is possible within the confines of this physical existence. An economist, politician, or civilization can no more do just as one pleases than an engineer can design an aircraft in the shape of a cube simply because he desires it. An engineer that ignores the truth of physical law will forever remain on the ground. An engineer that submits to them and takes them into account may one day fly among the clouds. So it is with civilizations. China appears to have learned this lesson to some degree, probably from the example of the USSR. America knew this lesson once, and seems to have forgotten. Of course, said future historians probably still won't understand economics, certainly not as well as Gary North does, and the collapse will just go down as the end of an excessively free financial system that was allowed to rum amok. At least that is how history has treated other such occurrences, as we perpetually hear the Great Depression being explained and we are currently being force-fed about the present crisis. Some truth we simply never accept.

I'll Be Watching You...

The Obama administration claims not to support a VMT:

In a written statement, the department said, "The policy of taxing motorists based on how many miles they have traveled is not and will not be Obama administration policy."

The idea -- which involves tracking drivers through Global Positioning System (GPS) units in their cars -- is gaining support in some states as a way of making up for a shortfall in highway funding. Oregon carried out a pilot program and deemed it "successful."

The powers-that-be claim that the information would never, ever be used to track the movements of citizens:

"Privacy is protected," the report argued, saying the pilot program included "engineering requirements to maintain as much privacy as practicable while still allowing a feasible way to audit and challenge billings."

"No specific vehicle point location or trip data could be stored or transmitted" in the pilot program, and "the only centrally stored data needed to assess mileage fees were vehicle identification, zone mileage totals for each vehicle and the amount of fuel purchased."

Yeah, right. I'm sure that there are enormous technical hurdles to collecting more specific information. We've gone from security cameras on private property, to photoenforcement of traffic intersections to biometrics in the school cafeteria? Where does it all end? In the internment camp, of course. I note that the cameras at intersections actually increased the number of accidents, and school cafeterias and the highway system seem to have performed perfectly well before any of this was implemented. Don't let the men in black fool you: this is not, and never was, about raising funds or public safety or the like. It's about power. Don't let anybody sell you any garbage about "we need a national ID card to enforce the border," or any of this other nonsense. Rome functioned without a national ID card. Seems to me they got along reasonably well, actually, for quite some time. The border is not enforced, and the budget is not balanced, and the banking system is in tatters etc., etc., etc., because there is not sufficient political will to change these things, and for no other reason. There will never be any "benefit," whatever is promised, only cost. Thankfully, even if such things do happen, our government will be bankrupt within a few years, so at least we might stand a fighting chance of avoiding 1984. Every cloud has a silver lining.

Not So Much Lazy...

...as busy as all heck. I'm sorry, but times are frantic around here. I can't even get to email. For your daily Austrian fix, I recommend you take a ride over to Vox's site where he proceeds to tear Paul Krugman, the Nobel prize winning/know-nothing economist (I mean, seriously, what's a Nobel prize mean when Al Gore and Yasser Arafat get one?) a new one over his criticism of the Austrian school of economics. Actually, Krugman deserves it. He is unbelievably dismissive and clearly doesn't know what he's talking about. Nobody who knows much about Austrian economic theory thinks that just because Joseph Schumpeter is from Austria that he belongs to the Austrian school. That's like saying every economist who lives in Chicago is Chicago school. He also clearly doesn't understand the Austrian claim that monetary expansion distorts the pricing structure, causing the "overinvestment," which ought to be called malinvestment. Like all Keynesians, he is blinded by the myth of neutral money. Anway, head over to Vox's site. He does a more thorough job. Kudos to him...

Since Scott is being lazy (really, 2 days and no blog? I hope he's feeling okay), I figure I'll post something. True to my nature, it will not be insightful, important, or noteworthy. It did, however, tickle my funny bone.

Neat Video About Government

Found a neat video about government at Zero Base Thinking: I'd heard the perspective about left and right before, though I have to say I like Hayek's version of things better in The Road to Serfdom, and the video does a fair bit of oversimplification. But I suppose you'd need to in order to make a convincing statement about government in 15 minutes or less. And it is a pretty important point. Anyway, it was worth 10 1/2 minutes of my time. Watch it if you've got the time. I won't ruin the ending/conclusion for you.

3CNB Poll

I stuck a poll up on our right hand column asking our readers to identify the kinds of things/changes they'd like to see at this site. Namely, I want to know what our scattered few readers would like to see more/less of, since there has been very scant feedback up to this point. So, if you could take a moment, I ask folks to please respond to the poll and let us know what you think. The poll will be up for a couple of weeks. Thanks a lot!

Let the Shortages Begin

Once again, an interesting link courtesy of Gary North. It seems the breakdown of international trade and the furloughing of capital is beginning to be felt by the consumer:

Maybe you thought that less trade with China would mean fewer choices of lawn gnomes at Walmart this summer. And since you've recently sworn off, who cares anyway. Turns out China is also a leading provider of the raw materials used to make critical pharmaceutical drugs. We'll have fewer of those too and, in some cases, none at all... ...The shortage of leucovorin, a generic used in the treatment of colon cancer, is so acute that many cancer patients are receiving lower-than-prescribed dosages or none at all. According to suppliers, the shortage is due to "manufacturing" delays. In an interview with Forbes, Michael Katz, chair of a committee of patients that advises the Eastern Cooperative Oncology Group (ECOG), said, "I've never heard of anything like it," nor had any of the doctors in the group. There is a fear that shortages will occur more frequently with generic drugs because the margins are so thin. Leucovorin is also called folinic acid, which is derived from vitamin B and, like most vitamins, vitamin B comes from China.

There is also a worldwide shortage of acetonitrile, a critical chemical ingredient used in the purification of pharmaceutical compounds. Acetonitrile is a by-product of the automotive industry and is in short supply due to the worldwide slowdown in that industry, which, in turn, has caused chemical production facilities around the world to close.

What?! You mean that the entire global economy is intricately tied together in ways that no single person could possibly understand in its entirety, and when central banks play fast and loose with the money supply, corrections tend to come all-of-a-sudden and nobody can possibly make the necessary adjustments? You mean, central banking does not actually smooth out the business cycle, but intensifies and exacerbates, and is a threat to our very existence and way of life? Folks, this is not just a temporary slowdown, this is a breakdown. I hope you're prepared. I know I'm not.

Sometimes They Shoot Back

A pretty neat story out of Tucson, AZ, with video. A guy with security cameras on his house becomes the target of an armed something-or-other, and 4 guys, one with an AR-15 come running in to attack. Homeowner returns fire, sending them scurrying away. One is hit, one windshield is toast. Thank goodness for the 2nd amendment.

China Plans to Substitute Rural Villagers for America

Eric deCarbonnel has another piece on the changing situation in China:

China’s efforts to boost domestic consumption are bad news for the US and the dollar. This is because China is likely to face a choice in the near future when domestic prices start spiraling out of control A) Give up on their efforts to boost rural spending and brutally suppress domestic demand to bring inflation under control. B) Give up on the dollar peg and aggressively sell off its dollar reserves to bring inflation under control. The solution China will choose is obvious. Its efforts to boost domestic spending are producing double digit growth in its service sector and are raising the standard of living for Chinese across the nation. Meanwhile, the cost of supporting American consumers is higher than ever, with China running record surpluses (around 40 billion each) in the last four months, and the benefits of supporting American consumers are disappearing faster than ever, with Chinese exports falling 17.5% this January.

This is as I had predicted some months ago, when China announced its big "stimulus package." (Of course, it really ought to be obvious to anyone who pays enough attention.) The question still remains: will it work? I'm still leaning towards "not so much." Certainly, it is better than trading with America, so it would be an improvement over the status quo. But the fact remains: China still has to subsidize these activities, and to no small degree, as Eric points out:

Beijing began its program to provide 13% subsidies to rural residents on purchases of electronic goods such as cellphones, washing machines and personal computers in 2007 in three provinces.

A good idea doesn't need a 13% subsidy. This fact says to me: this activity is probably running a 10% loss, so the government needs to pay people to do it. That foul stench you detect is the smell of burning capital. Burning capital doesn't make you more productive and more wealthy. Unfortunately, such trivial concerns don't seem to bother Eric:

The subsidy plan is working. Rural sales overtook urban sales for the first time in the company's history last year. Also, in the first 20 days of January, Chinese farmers bought more than 160,000 items of home appliances on government subsidies, 90 percent of the total in December.

Amazing! When the government pays people to buy things, my golly, they do! For some reason, Eric seems to buy into the bizarre, illogical, counter-intuitive, and completely irrational idea that Chinese people save too much and should spend more money if they want their economy to grow. Somehow this idea has managed to become prevailing wisdom among the mainstream financial talking heads, despite its arrant stupidity. Alas, Eric has the good sense to be skeptical of the dogma that China's economy is bound to go straight to the moon, just, you know, because it is China and it has been growing at 9+% for years and always will. He is certainly good with the raw data, facts, and details, and running through the low-down on manipulations by central bankers. But he is not able to tell that the Keynesians that he is listening to are full of garbage. He even regurgitates the old "consumer spending contribution" nonsense:

In 2008, domestic consumption contributed about 39% of China's gross domestic product for the first nine months of last year, compared to about 69% of GDP in the US.

I feel queasy... Chinese people save their money because their markets do not provide them with goods they would like to buy at a price they are willing to pay. Production is not an end in-and-of-itself. A massive GDP means nothing if the product so generated is not desired by anyone. Economics is about achieving human happiness, not crunching ever larger numbers. Activities that are not directed towards satisfying consumer demand, such as those that require government intervention and especially subsidy, therefore ought to be considered economic anathema, not "solutions" to some "problem." And it is a lot easier to sweep a fundamental economic failing under the rug by artificially shifting production towards cellphones and purses for Westerners than it is to make the fundamental changes necessary to achieve relatively honest, stable financial markets that support the kinds of financial instruments that all those savers would really probably prefer to buy with their saved funds. Like private health insurance and pension accounts that can stand on their own merit instead of state-sponsored "solutions." Furthermore, saving is not bad for an economy. It makes resources available to entrepreneurs and businesses at lower prices, both by reducing interest rates and by leaving a corresponding amount of goods in the marketplace unconsumed, thus lowering prices of those goods. This shifts the production structure towards capital assets and away from goods for immediate consumption. This is the classic "time preference" that Austrians are always harping about. By showing low time preference, the Chinese encourage investment in capital, a higher division of labor, and a deeper and more complex production structure. All of these increase per-capita productivity, reducing prices in the marketplace and making each worker more valuable. This is the true path to wealth. Of course, by inflating the money supply, the Chinese government does the opposite. It is, in effect, re-appropriating those saved funds and resources away from productive market activities, like satisfying real, open-market consumer demand, and towards capital-burning ventures, like government boondogles, lending money to the inflating US, politicians' private accounts, and paying farmers to buy appliances they otherwise wouldn't have. This doesn't make any sense. Most Austrians are full-tilt on the Chinese bandwagon. I have to respectfully disagree. The high savings rate everyone likes to site isn't so much a reflection of a hugely primed economy ready for blast-off, but an indication that something is very, very remiss in the Orient. They can't seem to satisfy their own wants, so they try to substitute satisfying the wants of others to keep themselves busy going somewhere and doing something. Or at least they have for the past 30 years or so, until that strategy was revealed as an illusion, and are now trying to "switch gears" by force. I do not think they can do so successfully. I don't think China is doomed, not by a long shot. They certainly face a major correction and tremendous currency woes in the short term, as Eric points out in such detail. But the real indicator of a destiny of wealth is culture. Not of saving and scrimping, though that is important, but of valuing ethical behavior, honesty, and respect for others. As I have said, the best kept secret of wealth generation is ethics. Capitalism can't survive without it. Freedom is expanding over there, despite what the China bashers want to tell you. This is a good sign, and China is certainly on a better trajectory culturally than the West is. But I still think we are very, very far apart. Until a proper ethical foundation is laid, I do not think they will be able to achieve what the West has. Rule of law, governmental transparency, and honesty in the marketplace are to me far better indicators of a bright future than simple savings rate. On this front, it seems to me there is still much to be desired. But at least they are in the process of building up their foundations, while we in the West are in the process of tearing ours down. I could be wrong, of course. Maybe China is headed straight for the top, as many of my Austrian brethren like to speculate. I am, alas, still just an amateur.

No More Fred...

Fred Reed has thrown in the towel:

I thank my readers over the years, including those who gave me hell. You are a bright and wacky group, no two alike. If a writer can be judged by his audience, I have done well indeed. Starting in perhaps four months, any who wish can check the site, and welcome.

Fred, out.

Very sad. I will miss him. Of course, he said the same thing a few years back, and came back anyway. For those of you who don't partake of the whole writing-for-fun thing: writing is never a profession. It's an addiction, an obsession. It sounds like this time it may be awhile, but I bet Fred's still got a lot more to say. He says he'll be back at full steam after his surgery in about 4 months. I'll certainly be waiting in anticipation.

Gasp! I Disagree with Vox

I'm a little scared to do so, as Vox has a way of being right an awful lot of the time, and a way of making people who disagree with him look really, really stupid. But I just don't agree with his analysis of women going to work:

1) If women should merely stay at home and take care of the children and do nothing else, how should such a family survive in the days when you need a dual income and the cost of everything is going up?

FS doesn't understand that the primary reason a dual income is required is because so many women are working now. This is basic supply and demand. If you double the work force, you halve the price of labor. Two incomes are now needed where one previously sufficed.

I don't think this is quite right. First of all, I would doubt the relationship would be perfectly linear (e.g. doubling and halving), mainly because putting the second person to work would not have the same effect as the first one being there. Probably the person not working is marginally less productive than the one already in the workforce. But that is really beside the point because I don't think that even if they were identical that this is the way things work. If we assume that the second person really is exactly as productive as the first, what we would end up with is an economy with twice the output (neglecting all niggling details, like childcare, as he is). So assuming a constant money supply, wages would indeed halve as workers underbid each other in price competition, but since output would double, prices would also halve. Materially, at least, the couple would be twice as "well off." (Again, to a first approximation that neglects a lot of important details.) So saying that two incomes would be needed where one would have sufficed is incorrect. Basically, same number of consumers, twice the output. (Once again, throwing the money out with the bathwater makes things easier.) Price competition occurs at both ends, not just on the wage curve. Doubling output will reduce prices at the consumption level in addition to the first effect. More workers competing for same dollars, more goods competing for same dollars. Of course, all those details we threw out are quite important, and I would still have to agree with the overall thrust of the column. In fact, I posted a video awhile back that looks at exactly the effect of women going off to work, and you can see for yourself where all that money/increased production went. The short answer: taxes (e.g. more government largesse), larger mortgages for bigger houses, a second car, and childcare. All this, in exchange for sending mom off to work. Not my idea of a good trade. Mom is worth an awful lot more than that. (Side remark: does this mean that I devalue women by saying so or that I value them highly? You decide...) It may not be so polite to say so, but the key to understanding FS's sentiment is ingratitude. Ask anyone who can remember the days when moms stayed at home, and I'm absolutely certain that they will tell you that families today have lots more material stuff than back then. Only part of that can be attributed to increased per capita productivity. It is perfectly possible to sustain yesteryear's lifestyle on a single income today; in fact, it's probably easier (or at least, has been in the recent past... I expect all that to change shortly). I know families that do so. We just have "higher standards" these days, and short memories. What FS doesn't understand is that today, the average American family actually is materially better off, doesn't appreciate it at all because the money gets wasted on superfluous possessions that are easily discounted and taken for granted, and is spiritually broken. Thanks to the final effect, the first will soon be unraveled, and all will have been lost. Both the American family and American women would have been better off if mom had stayed at home in the first place.

"You Can't Always Get What You Want..."

I have seen it speculated in many places that the field of healthcare is where all the action is going to be in the future. The argument always put forth is that the boomers will all be getting on in years, and since there are so many of them there will be a lot of demand for medical care. Sorry, I have to disagree. Now, I wouldn't argue that one was a fool to pursue medicine or nursing. It's never a bad idea to learn new things and acquire technical skills, even if the field doesn't pan out the way you had thought. Expanding your knowledge base is always a good idea, at least as long as the skills are somewhat relevant to some kind of pursuit. I wouldn't advocate memorizing the 1913 New York City phonebook, but you get the idea. And as long as there is any demand, there will be demand for medicine. So there will be some demand for these skills. But we need to make one thing clear, and just so the boomers understand this, I'll use the prophetic words of one of their greatest icons, the Rolling Stones:

You can't always get what you want.

The whole healthcare-is-the-future-of-everything line of thought seems to subscribe to the dogma that the boomers "always get what they want." Why? I want a lot of things. Lots of folks out there want a lot of things. There is always demand. There are people in Zimbabwe who want medical care, possibly more than said baby boomers. I'm sure they would like advanced western medicines to treat their ailments. They can't get that. Instead, they have to settle for shamans and witchdoctors, or whatever sparing care they can get, and that's just the way it is. Clearly, we don't always get what we want. Human beings satisfy their needs within an economy. Markets are where people meet to exchange goods and services. It's not just about money. That is only the intermediary. What we have to ask ourselves is: what are boomers going to trade for medical care? Why will the medical profession serve them? What do they have to offer, over and above those unfortunate Zimbabweans? Their 401(k) holdings? Give me a break. Retirement holdings will be wiped clean by the stock market crash and the following inflation. There will be nothing left. So, what are the boomers going to ante up? I suspect the future is going to look a lot different than most people expect. There are really two possibilities for the boomers: go back to work and produce something that people want, or demand that government fill in the gap to buy what boomers can't afford once their retirement accounts are wiped out, at the expense of everyone else. I suspect the outcome will be a little of both. This means that for most people, there is to be no retirement other than death. It also means ever greater government burdens on present workers, which means America begins to look more and more like the third world. And the medical profession in the third world is far from stellar. I suppose it beats rummaging through garbage by leaps and bounds, but the reality is that third world doctors do not live like kings. It's not a bad gig, all things considered; they get by better than most. But it's far from a prosperous life on easy street. What I'm trying to say is that getting a medical degree is probably not a stupid thing to do, (unless, of course, you pay too much for it) but it is not going to save you, either. Don't get your hopes up. As always, just my humble opinion. Of course, there is the possibility that the government goes completely tits-up, in which case we Americans get to see what freedom really looks like. I suspect most of us won't like it one bit. All of which begs the question: given these dire predictions, what is going to be the most lucrative profession going forward? That one is easy: Gangster. In closing, I leave the reader with the lyrics of that Rolling Stones anthem, which looks to be the most appropriate theme song for the new American century: You can't always get what you want You can't always get what you want You can't always get what you want But if you try sometimes you just might find You just might find You get what you need I hope that last line proves to be as true as the first three.

Gerard Jackson Doesn't Think Its a Depression

I was very surprised to find out that Gerard Jackson doesn't think what America faces is really that big of a deal:

Although I do not believe for one moment that America is on the brink of another 1930s economic catastrophe I do believe that Obama's ideologically motivated economic impulses will have serious consequences if they are not checked, which does not appear likely at this stage.

My prediction is that the US faces a massive surge in inflation and a run on the dollar if the fed insists on flooding the banks with monopoly money and underwriting Obama's economic illiteracy with colossal checks funded with credit expansion.

I think the world is "on the brink of another 1930's economic catastrophe!" I kinda wish he'd elaborate... A run on the dollar seems like a big deal to me, especially as it is what is backing the American trading empire at this point, and America itself is poorly situated to make the necessary adjustments, not just with respect to infrastructure and other physical factors, but especially politically, in my opinion. If the dollar becomes worthless, Americans would presumably have some trouble meeting basic needs as our economy has become fairly dependent on foreign manufacturing thanks to our relatively open trade laws and a relatively long history of running massive trade deficits. I'm not sure that the government, a la the populace, is really very open to making the big changes that will be coming down the pipeline. That is, after all, what has led to the current situation to begin with.

Gary North Blasts American Banking Fascism

Gary North gives fantastic perspective to the failure of fascist banking in America:

The American conspirators have lost the one thing that they thought they had: control over the nation and the nation's finances by means of the fractional reserve banking system. That system is coming unglued, just as Ludwig von Mises said it would, just as Murray Rothbard said it would, and just as those other Austrian economists who understand the enormous weakness of the fractional reserve system had said would eventually take place.

I wonder sometimes if there is anything coherent remaining in what is generally called the conservative movement. Do any of these people have a clue as to what has been taking place? We are seeing the disintegration of the fractional reserve banking system all over the world. It is being held together by bailouts, which are the government equivalent of bailing wire and chewing gum.

Basically, the economic laws of the universe are having their way with the backside of central banking. This is not the failure of the free market, it is the triumph of the free market over the fascist, government-directed system that has been suffocating it for nearly a century. The scrambling of central bankers and politicians all over the world is an attempt to sustain the conspiracy and the power it gives them just a little while longer. It won't work. Great, great read. Gary North is one of the select few who saw the whole crisis coming and predicted it almost to the day. Read everything you can find by him. It seems like very day I'm posting another "Must Read." This is another. I highly recommend you go read it.

Immigration, immigration, immigration

Having stirred up such a controversy with my immigration remarks, I'm seriously considering doing a whole series of posts on disagreements I have with the libertarian platform. The blog could use a little action, after all. That's what it's for. How would all you libertarians out there feel about my opposition to abortion (I'm pro-life), or -gasp!- democracy (at least, the universal franchise aspect of it)? I sense that Ben is tiring of the immigration debate. He's right, it could easily degenerate into the old pro/anti-debate, however, I do not intend to let it. He has again made some good points. I suspect he could make a lot more, as could I. (although I wonder, did Ben actually read carefully the posts he linked to?

Moreover, in the pages that follow, we show that on several of these issues the community is not only more liberal than commonly thought, but quite liberal in absolute terms as well.

Doesn't really seem to suport the overall thesis. Sure, they voted Republican (although I'm beginning to doubt that that counts for much), but it doesn't seem that they are exactly kindred spirits.) Anyway, it is certainly true that the Constitution ought to be iron-clad, but the fact is that in practice it is not. Words on paper don't mean much among heathen like ourselves. They certainly won't stop a bullet. Again, physical reality intervenes into the ideal, namely because we human beings are far from ideal ourselves. I wouldn't dream of defending the socialism of the California system. Perhaps it was a bad example. I meant it as an example of how an open culture can get wiped out/displaced by open borders. Ben is right, their system is badly, badly, flawed, and there are plenty of moochers to go around. But who created the system? It is a democracy, after all. If the system is flawed, what does it say of the people who made it? But I forget, Ben does not subscribe to my "government reflects culture" thesis, which leads him to believe that millions of people out there yearn to be free and that we ought to help them out, in this specific case, by letting them come here (or us go there) freely. Once again, it seems the debate centers around a point of contention that we've had between us for some time. Whereas I don't necessarily disagree that there are people out there who yearn to be free, I do very much doubt a) that their ideas are even remotely similar to ours, or even to what we might guess them to be b) that their ideas are compatible with a classical-liberal social order, and, supposing they did manage to satisfy these two, c) their capacity to stably propagate a classical-liberal social order due to issues of ethics and personal discipline. I know I'm not supposed to say things like that. But it is what I observe to be true, even, sadly, of myself and my fellow Americans. And what would a blog be worth if it didn't air ideas that stirred up the pot a bit? If you wanted PC gobbledygook, you should have turned on the TV. Pleasant sounding fiction isn't my gig. Maybe Oprah is the show for you. The reality is that these are actually very high barriers for fallen beings like ourselves. We're not angels; not even close. I forget, I'm not supposed to be arguing again...but it really is such a fascinating topic, and I just can't help myself! And I don't really think these are the tired arguments you see in the mainstream pro/anti-immigration debates you see all the time. Nobody has said anything about "jobs Americans won't do" or "welfare costs," "public school" or the like. (I intended my California reference to be with respect to cultural displacement. I probably should have picked a better link, but that was the first that came to mind. I could have just as easily talked about the Americans who came to Texas when it was still a part of Mexico and started a revolution! Or, for that matter, the British who colonized Hong Kong...) I have no interest in these as issues, as I consider them all to be problems of socialism (or economic ignorance in the jobs case), not immigration. So it is worthwhile, in my opinion. Many thanks to Ben! I'll leave it alone now...

Blogumacation

Every so often, I come across a blog post or other such internet publication that is so insightful, so profound, and so noteworthy, that it keeps me thinking for days. Or weeks. Or months. Sometimes, I'm even thinking about it years later.

"Choose my instruction rather than silver, and knowledge rather than pure gold. For wisdom is far more valuable than rubies. Nothing you desire can compare with it."

-- Proverbs 8:10-11

This is why I read. Below are links to the very best I've found online. I share them because I believe they have given me what is more more valuable than gold or rubies: wisdom. I hope you'll find them of value as well. Articles: Kim on Africa Fred on Cuba Fred on Asia F. Sanders on Capitalism, Socialism, Libertarianism, & God Fred on Democracy Books: Gary on Money Gary on Conspiracy Ben-Hur (the novel, in pdf) I will add more as I remember/find them.

"Let Africa Sink" - Kim du Toit

Ahh... So many post topics, so little time. I've had a mind to do a series of "compilation" posts which will contain lists of the very best stuff I come across while reading online. This will be the first. I shall call it "Blogumacation." It'll be on the bar on the right hand side. The present immigration debate with Ben has brought back to mind an old essay I read on what things are like in Africa and why it would be best for the West to simply leave the place alone. "Let Africa Sink" was written some years ago by Kim du Toit, a South African turned American turned fantastic blogger, who has since retired. In it, he explains that much of what goes on in the Dark Continent is a direct result of the mindeset and culture of the place, particularly the widely held philosophical outlook there that "life is cheap." It is a sobering essay, and not one to read or taken lightly. This essay, along with another of his that I can no longer find, were key in convincing me that style of government is almost purely a function of culture. The other (and by far the more persuasive, of course) has been my marriage and my experiences with my Chinese in-laws. Unfortunately, I can't share that with you. I can share with you Kim's essay. Go forth and read.

A Magnificent Essay on the Credit Crisis

Chris at Notablog has written an absolutely magnificent essay explaining the connections between the Austrian theory of monetary expansion and the state/banking nexus "conspiracy" that has been running the show for a century and is now on the ropes. Once again, courtesy of Vox. If you have any interest whatsoever in the present crisis, Austrian economic theory, or political economy of the 20th century, you absolutely must read this essay. It is masterfully written, thoroughly logical and well explained, and chock full of good links.

Immigration Re-Debuttal

Okay, so I can’t convince Scott based on internal consistency or adhering to strict libertarian principles.  That’s fine.  No one is 100% consistent.  Although, I would think it is prudent to strive to be consistent and adhere to a set of principles as much as possible. 

I am afraid this will turn into the age-old immigration debate that goes nowhere, so I’ll try to keep it simple and still add some interesting points. 

First, I’ll start with the California reference.  As Vox points out, California has become too socialist for its own good.  There simply aren’t enough productive businesses and individuals out there to keep up with all of the government programs, and that has caused the state to go bankrupt.  According to this logic, the problem is not immigration.  The problem is that there are too many incentives in California to be lazy and live off the government (i.e. taxes from the productive folks in society).  And I guarantee you there are plenty of hippy citizens over there mooching off the system, doing nothing.  And I’m sure there are plenty of lazy immigrants as well.  The point is the system is flawed, not the people in it, necessarily.

 Next, the idea that immigrants from unlibertarian states will whittle away at the libertarian values of the citizens.  There is some logic to that argument, but here is one counterexample.  Cuba:  Communist State.  Cuban-Americans:  staunch conservative Republicans (at least historically: article 1 and article 2).  Miami may be a little Havana, but just because they dance Salsa doesn’t mean they pledge allegiance to Castro.

 And that brings me to my next, related point.  I’m not sure what part of a particular culture makes it prone to freedom or non-freedom.  It seems to me that someone who is willing to navigate a raft from Cuba to Miami is pretty unhappy with his current situation and would be a pretty good candidate for endorsing freedom.  Anyone from any culture can be freedom-loving. 

In conclusion I would argue that the solution to many of the perceived societal ills of immigration is to stick to a libertarian philosophy and style of government.  The US Constitution is an iron-clad document that is not to be negotiated.  It should be strengthened whenever possible.  Socialism does not work as an economic system, and it should be eliminated whenever possible.

Immigration Debuttal

Note: this post grew especially long and rambling. I do not appologize; warn, yes, appologize, no. Actually, Ben makes a lot of good points, especially on the "practicality" front, but a few I think are not quite right. I'll start with those and then go on to the good points (and my debuttal). It is a bit of an oversimplification to group everybody as pro- or anti- freedom. I don't think that anybody, if asked, is anti-freedom. They just have different beliefs about how the world works, what they want out of life, and what freedom means. Some are constructive and accurate beliefs, some don't matter, some simply annoy they heck out of others, some are wrong and stupid, and some are downright dangerous. In any event, they can't possibly all be compatible, and human patience has its limits. I'm a libertarian, but that doesn't mean I believe in liberation from the laws of the universe. Some things just don't work. Period. Maybe its the scientist in me, but in my opinion, the more accurate your beliefs are about the universe, the more likely you are to act in a constructive way and achieve successful outcomes. The more ignorant or misled you are, the less likely it is that your actions will achieve the ends that you intend for them. "The truth shall set you free," that kind of thing. That just seems like common sense to me. A flood of non-assimilating people from a culture that largely "doesn't work" is not likely to improve your society. Sorry. That's just the way I see it. And they don't have to outnumber you. The influence is felt. The environment changes. Their kids grow up with your kids. They go to school together. Adults work with other adults. They hack eachother off. Ideas get passed around like a cold or the flu. People bicker and argue. Tensions flare. People resort to base tactics to "get their way." Eventually, laws get passed because people just can't handle it anymore. It just happens. That's the way people are. It doesn't do any good to say they shouldn't do so. They do. As for "the rest of the world going to hell," I think I can speak for us "pragmatic libertarians" in saying: look, that's just the way it is. If it is none of our business to tell eachother what to do, it is none of our business to tell eachother what to do. I would like folks all over the world to "choose freedom." I would love it if they did. But if they don't, well, what are you gonna do? Invade? Put a gun to their collective head and say "Be Free, dammit!"? That doesn't make sense, theoretically or practically or any which way. If they don't want it, or, more likely, aren't civilized enough to achieve it or handle it, what are you going to do about it? Change them? Can you? By what means? And is it any of your business to do so? I'm all for supporting liberty by acceptable means, but if the world chooses to go to hell, that's its choice. I recognize that I can't do anything about it, anyway. It's only my job to do the best I can, nothing more. And who ever said it was impractical to abolish the Fed? Politically, maybe, but functionally, it'd be a piece of cake! America functioned without a central bank for over a century! Better than it does today! But the pure argument against compromise due to practical considerations, apart from the bad examples, is actually quite a good argument. I am actually quite sympathetic to it. It is a pretty common failing to compromise one's principles on the basis of "practicality." I can just hear the little demon on my shoulder saying, "Oh come on, that can't work! You've gotta be practical," by which said devil means "Just go ahead and do the wrong thing. You've got a good excuse this time. Nobody will blame you." I think this must be one of the best arguments at a tempter's disposal. It's a pretty good point. I would have to place it at the top of the arguments Ben makes against my position. Fortunately for me, internal consistency is no longer all that high on my priority list. I can just feel the reader's teeth grinding. "Hypocrite, hypocrite!" has got to be the last argument our postmodern brainwashed world knows how to make. We've abandoned "right" and "wrong;" now all we can say is "logically inconsistent." But the charge doesn't bother me that much. I'm no sucker for postmodernism. I'm never gonna be perfect, and neither is anybody else, whether they know it or not. I'd rather be right as much as I can, and do the right thing as often as possible. I'm pretty sure I'll cross myself up sometimes, but hey, its better than never crossing myself up and being wrong every friggin' time, or sitting around doing and thinking nothing at all. Getting everything right all the time is just not an option. I hope everybody's mature enough to understand that. One more reason that you too should consider a little hypocrisy every now and again, and then I'll get on to my actual debuttal (and yes, I made that word up). Consistency is often a major play on vanity. Case in point: I once heard the argument made that so-and-so couldn't possibly counsel her daughter not to smoke, since she had smoked when she was her age. To try to convince her to stop would make her a hypocrite. Now, I don't care much one way or another on smoking; hey, they're your lungs. But I think it is very sad that someone who was concerned about her daughter getting cancer couldn't make the argument against her because it would ruin her perfect consistency on the subject. So, the implicit priority is: not contradicting myself first, daughter's life second. Not my priorities. So anyway, my debuttal for this argument would have to be "Who you gonna believe? Me or your lying eyes?" The open borders libertarian crowd may have all their perfectly polished, sterling silver ducks in a row as far as their theory is concerned, but I have one word for them: California. Actually, I could name quite a few others, but I won't. So for me it boils down to theory vs. empiricism. I tend to incline towards empiricism in my understanding of the world. Usually. In this case (and most others), empiricism wins. No, California wasn't all that inclined towards libertarianism in the first place, but this is like the communists arguing that communism has never failed because it has never been properly implemented. My argument against this usually goes something along the lines of: IT CAN'T BE YOU COMMIE NUMBSKULL! YOU SHOULD NOT BE ALLOWED TO REPRODUCE! And then I remember I'm not supposed to say things like that. It sometimes surprises me that folks like this don't somehow get sucked back into the parallel/inverted universe that spawned them, or nullify a real human out of existence when they shake hands with them, like wave functions of opposed sign bumping into one another or something. The USSR, China, etc. are as close as you're gonna get here in the real world, on planet earth, with the everday humans that are the only ones that exist (as far as I know). Capitalism has never been properly implemented, either. But actual human attempts have sure turned out better than actual human attempts at anything else. In any event, it would be difficult to argue on the basis of the Californication experience that it is feasible to keep one's culture largely intact in the face of mass immigration. So my hope is not high for maintaining libertarianism in the face of mass migration from a decidedly unlibertarian state. (Side note: what might such an argument say about so-called free-trade? Maybe we should call it real-trade instead.) As for the rest of Ben's post: all of that is perfectly true. But I would ask/dare Ben: try packing a little heat in any of the countries named. See how far down the street you get. Meanwhile, Texas allows concealed weapons to be carried (sadly, only with a license) and is now pushing for open carry. Several other states already permit this. In Singapore, prostitution is legal, but until recently, oral sex was illegal. (Tell me, just how does one enforce such a law, anyway?) There are also many very onerous laws with respect to a wide range of public conduct. Such pettiness seems to me to belie the image of Singaporean commitment to liberty. I could say the same of most of the other places, and of America as well. As a matter of fact, last time I think I did. Most places have their petty, meddlesome rules. To me, this is a reflection of the abandonment of the old liberal ideal and the embrace of neo-liberalism: an attempt to get the positive effects of liberty (especially wealth) without that whole repulsive liberty thing. People want to be wealthy, and free to do the specific things they enjoy, and control everything else, too. Most people know that; I don't think it's a particularly insightful observation. But it does put the lie to the idea that there are all these freedom lovers out there. Another couple of observations: most of those places (except Australia) are relatively small with fairly homogeneous cultures. There aren't too many geographically large, culturally diverse, free places. They are also all (except Estonia) former British territories. Which again says to me that there isn't all that much liberty-lovingness out there; most of it is cultural inertia inherited from a very unusual and uniquely liberty oriented civilization which is itself in decline. I don't see any replacements on the horizon. At the end of the day, I would still have to say that for all her warts, America is still the most committed to liberty, and the most unique in being able to maintain it in the face of such large social divisions for as long as she has. And it is being eroded, it seems to me, by ever deepening social fissures coupled with ever diminishing levels of tolerance for the differences that divide us, as well as a slow erosion of common sense with respect to how government and society can stably function. I can see a few ways that liberty might be maintained in the face of mass migration by third-worlders: primarily, abolishing the socialism that threatens us with bankruptcy, and, I'll just come out and say it, limiting the franchise. But both are anathema to the modern American conscience, and it simply won't happen. So I see no other way to handle the situation but to stop it in its tracks, and, as horrible as it sounds, reverse it. Barring that, its over for America. The so-called "grand experiment" will end in failure. In my opinion. But some very good arguments and links from Ben on the subject. And since we're all libertarians here, I still love him, and invite him to do his worst against my empirical anti-immigration onslaught.