Yesterday Greece said “no” to the EU in an election in which “yes” was not an option and the world treats the vote as news. It is not news. It is “olds” as it is long since past the time that there was ever any hope of Greece regaining solvency and paying its debts.
Now we have the spectacle of both sides yelling past each other. Thomas Piketty takes the Hellenic side that Germany should forgive Greece’s debt while Stephen Moore says that Greece should just declare bankruptcy. Bankruptcy is debt relief. Whatever you call it, the creditor isn’t getting all of his money back. But neither is the debtor going to get any further infusions of cash.
So let’s look past all the hyperventilation and see where all this is likely to lead:
1. Greece is euphoric today about yesterday’s vote, but soon Greece is going to find what real austerity looks like. What it called austerity before was really just not getting as much free money as it wanted. Now it will get none. Greece basically is the adult child without a job who rebels against his German parents, even as the child is totally reliant on an allowance. Yelling, “You can’t tell me what to do!” may have felt good yesterday, but without access to the parents’ trust fund, they don’t have anything else to live on.
2. Greece can’t leave the Euro. Sure it can exit the Eurozone and go back to printing the drachma, but its past debts and future purchases are not denominated in drachmas. Gasoline is not sold in drachmas. Neither is natural gas, iron, timber, or anything else. Aside from some agricultural products, Greeks must import most everything they need and pay for it in a currency not of their own creation. This is why the “let’s just devalue” crowd is always wrong about devaluation being a path to plenty. If it were, Argentina would be a booming paradise. (Foreboding warning to Greece: Argentina has a lot more natural resources than does Greece.)
3. Socialism doesn’t die until it kills off everything else first. Fresh off its “victory” the Tsirpas government will not bow to realists in his own country and instead will steal everything they can from Greece’s upper class. The result will be a flight of capital and talent until there is none left. So while ultimately it didn’t matter how Greece voted yesterday, the resounding “no” vote was the worst possible outcome since it emboldens Syriza, a party whose platform apparently is to oppose math.
4. The EU is stronger without Greece. This is true not necessarily because Europe would be without the dead weight of Greece, but because Greece’s exit will be a cautionary tale to the other PIGS. When the reality sets in about how desperately out of money Greece is, when the country no longer has cheap credit available to it, when devaluation after devaluation takes its toll on the country, none of the remainder of the EU will soon seek a similar fate. Greece is about to find that it is the bum on the street corner holding the “will work for food” sign. (And just like the real bum on the corner, by “work” it doesn’t mean actual work until it has ran out of every other option.)
5. There will be no rush of new EU members. Countries on the fence about joining the common currency will see from Greece’s plight that it is much more difficult to unwind from the euro than it is to never join it in the first place. And Europe has seen that it better be careful about whom it lets into its club. Croatia, the Czech Republic, and Poland may soon become strong enough to become full fledged members of the Eurozone, but will Europe want them? Britain and Sweden already are strong enough, but neither is silly enough to want it. Bosnia, Bulgaria, Kosovo, and Montenegro are in even worse shape than Greece. And Hungary and Romania, in addition to having economic difficulties, are beset with internal political problems–which goes without saying since internal political problems always have an adverse economic effect. In other words, the EU is about as big as it is ever going to get.
6. Relations between Germany and Greece aren’t nearly as bad now as they are going to get. Starved for hard currency, Greeks, who already hate Germany, now will have to get used to being subservient to individual German tourists who are drawn there for cheap vacations while they feast inexpensively on delights that the Greeks themselves no longer can afford. Meanwhile, the Germans are about to have even more reason to be mad at the Greeks when Athens refuses to reimburse Germany for its 2010 and 2012 bailouts that most rank-and-file German never supported in the first place. Ironically, relations between the two countries would have been much better had Germans never bailed them out five years ago.
In the current hysteria to purge all things Confederate from modern America, historian Jamie Malanowski opines that the next logical step is that, “President Obama and the Congress should rename military bases that honor rebels and terrorists.” Malanowski claims that since “about a sixth of our armed forces are people of African-American origin . . . when we dispatch them to fight for freedom from camps named after slaveholders, racists, and terrorists, the irony reaches an offensive level.”
The dictionary defines irony as “the use of words to convey a meaning that is the opposite of its literal meaning.” And that is exactly what the United States did when it chose which Confederate leaders to “honor” when it named new Army bases in the South in the early part of the 20th century.
Consider the wartime records of those eponymous Confederates. Louisiana’s Fort Polk, as Malanowski pointed out, is named for the very “mediocre” Leonidas Polk. North Carolina’s Fort Bragg “honors” Braxton Bragg who, again according to Malanowski, was “vain”, “irascible”, and “indecisive”. John Bell Hood, for whom Fort Hood, Texas is named, was so reckless and foolhardy in his decisions that his subordinate, Nathan Bedford Forrest, reportedly said to his face at the Battle of Franklin, “If you were a whole man [by then Hood had lost an arm and a leg in separate battles], I’d whip you to within an inch of your life.”
Foolhardy was the mark common to most of the Confederate leaders “honored” with names on Army posts across the South. Henry Benning lost half his brigade attacking uphill against snipers hidden in the unforgiving terrain of Gettysburg’s Devil’s Den. (In another ironic twist, Benning, who was a delegate from Muscogee County–home of Fort Benning–addressed the Virginia secession convention saying that he would rather Georgia face “pestilence and famine” than remain in the Union. Thanks to Sherman’s “March to the Sea”, Georgia got both.) With Benning at Gettysburg was John Brown Gordon (Fort Gordon, Georgia). Injured at Malvern Hill, again at Shepherdstown, and four times at Antietam, Gordon too was a foolhardy man more adept at getting shot than he was at winning battles. Virginia’s George Pickett infamously marched his division across a mile-and-a-quarter of open ground against dug in cannon occupying the high ground of Cemetery Ridge.
The one rational Confederate general at Gettybsurg, General James Longstreet, argued to Robert E Lee that Pickett’s Charge was impossible. But the senile and strategically clueless Lee ordered it anyway. Lee, by the way, is “honored” at Fort Lee, Virginia. As for Robert E Lee’s wartime reputation, it is undeservedly earned early in the war, as it came mainly as a result of repeatedly besting George B. McClellan, who perhaps is the worst wartime general in the history of the United States. (Yet another irony is that one of the few Southern posts named for a Union general is Fort McClellan, Alabama.)
Absent among the names of Southern military bases are the Confederacy’s greatest leaders. James Longstreet, who a half-century before World War I understood that modern rifles made Napoleonic tactics obsolete, observed that the South both tactically and strategically benefited from defensive battles in a war of attrition. And when Lee wasn’t around and Longstreet could fight the way he wanted, he usually won. There is no Fort Longstreet. Nathan Bedford Forrest, who understood better than any American cavalrymen prior to Patton how to use mounted forces to overwhelm the enemy with speed and surprise, has no Camp Forrest named for him.* Fort Stewart is named for a Revolutionary War general Daniel Stewart and not for another successful Confederate cavalryman, “Jeb” Stuart. Fort Jackson isn’t in honor of “Stonewall” Jackson, but America’s seventh president, Andrew Jackson.
Taken as a whole, the names of modern Southern military bases is a list of those Confederate leaders most responsible for the Confederacy’s defeat. So when black Americans today train at Forts Benning, Hood, Polk, and the like, they can console themselves with the knowledge that they are “honoring” those Confederate generals whose greatest contribution to America was that they were in charge, thus ensuring that the Confederacy would lose the Civil War. That’s what irony really looks like.
* There was a Camp Forrest, Tennessee but it was so named only from 1941 to 1946. Incidentally, Maj Gen George S. Patton was among those who trained there.
** These opinions are my own and are not necessarily those of the Department of Defense.
Imagine this scenario: The United States, in an effort to spur exports and boost domestic producers, institutes a tax on foreign imports, some of the proceeds of which go indirectly to exporters to make their goods more affordable in international markets. Most of Europe then retaliates with tariffs on American exports that raises the cost of American exports in Europe. Japan does the same, erecting some of the highest tariffs in the world. Most of China follows suit. Britain tried to stay aloof of the customs war, but eventually caves, building its own economic borders.
Of course, I’m talking about the interwar period, when in the aftermath of the Great War, the world’s major economies played a game of tariff-one-upsmanship until global trade collapsed and the world entered the Great Depression.
But I’m also talking about today. Let’s consider what actually happens when a country devalues its currency. Switzerland, as we discussed last week, by pegging the franc to the dwindling euro, essentially devalued Swiss money 20%. Swiss consumers and Swiss businesses paid 20% more on imported goods and raw materials. Swiss exporters weren’t subject to that tax, effectively receiving a 20% subsidy for Swiss items sold domestically and being able to export at a lower cost. In other words, Switzerland’s attempt at currency devaluation yielded the exact effect of a 20% protective tariff on imports.
Switzerland wasn’t the only major economy doing this. In fact, the Swiss are the only major economy to have stopped devaluing its currency–to have stopped building a de facto protective tariff around its borders. The United States has gone through three rounds of quantitative easing, and there are increasing calls for a fourth. All signs point to Europe doing the same as early as next week. Japan has been devaluing its currency for twenty years with the same predictable result.
This is what doesn’t make sense: virtually every economist agrees that protective tariffs are almost always bad. Virtually every politician knows that protective tariffs beget even more protective tariffs in retaliation. In fact, the World Trade Organization was created to discourage trade protectionism after the mess of the Great Depression made this painfully obvious to all. Currency devaluations and protective tariffs are exactly the same in effect. And yet, there are still economists of all stripes who argue that currency devaluation is a means to lifting an economy out of its depths.
Actually, they are not exactly the same in one significant aspect. When a country devalues its currency it devalues itself. It devalues the worth of its labor. It devalues the strength of its reserves. It removes incentives for savings and investments, and encourages the export of capital. Currency devaluation creates a worse outcome even than a protective tariff.
So where does today’s spiral currency devaluation end? If the 1920s rush to protective tariffs is any indication, the answer is: not well.
Then, deflation was the result. Years of forcibly escalating prices to prop up exports and subsidize domestic producers ultimately resulted in a collapse causing prices to fall to where they really should have been all along. The price of agricultural goods was the most obvious indicator of this effect. Advances in mechanization, refrigeration, transportation, hybridization, and chemistry resulted in a surplus of agricultural goods worldwide. Too many people were engaged in direct and indirect agricultural work around the world as a result of the worldwide subsidy effect of protective tariffs. When it collapsed, so too did prices. All that the years of protective tariffs did was to take what should have been a gradual de-agriculturalization of the world’s economy and delay it long enough that it became a catastrophic global shock. In other words: deflation wasn’t the cause of the Great Depression; deflation was the logical effect of years of misbegotten economic policies practiced by every major economy in the world. To blame the Depression on deflation, therefore, is as ludicrous as blaming the mercury in a thermometer for causing a heatwave.
Central bankers today fear deflation unnecessarily. So much so that the world’s bankers are doing exactly what they know the world’s politicians did 90 years ago that led to the last Great Depression. This won’t end well.
Because we always must heed the law of unintended consequences, Americans–particularly Republicans–probably should be more circumspect in their calls for the government to erect a border fence.
We live in a time when the American economy no longer is a beacon to the world’s entrepreneurs and when members of both parties want to implement laws inhibiting American companies from relocating overseas.
It would be a shame if a border fence, once built, wasn’t necessary to keep foreigners out, but instead became a convenient means of keeping Americans in.
Thursday the Swiss National Bank gave the world a quick lesson about why a strong currency is almost always better for an economy.
It is not uncommon for economic populists to attempt to demonstrate that a falling currency benefits an economy by helping exports and by claiming that devaluation is the “normal way countries emerge from financial crisis.” Neglected by that line of thinking is that an economy’s imports necessarily increase in price as a result of that same currency devaluation. But even if we analyze both sides of the equation, it would seem that the two should balance out.
However, lower import costs as a result of a stronger currency are almost always better for both consumer and producer. Here is why this is the case: while in a global market, only a few people’s livelihoods are dependent on exports, everyone depends on imports. Even the exporters depend on imported raw materials. This sets up a situation where the individual costs of a bad economic policy–currency devaluation–are relatively small and diffused across the entire population, while the benefactors are fewer in number but have large visible gains.
But just how “small” are those costs? On Wednesday a hundred Swiss francs bought about 83 Euros. By the end of the next trading day it bought a hundred euros. As a result, everything priced in Euros fell in real terms for the Swiss consumer: Italian vegetables, German cars, French wine. And as the franc increased by a similar amount against the dollar once Switzerland removed its artificial peg to the euro, the cost of oil, metals, and most commodities likewise plummeted. It takes a lot of export losses to make up for the fact that the cost of almost everything Swiss consumers buy fell nearly 20% in a single day.
Under normal circumstances currency interventions are incremental and thus difficult to tie to precise costs. That’s what makes them fun targets for government interventionists. When gains are concentrated and losses are dispersed, it is the perfect scenario for central bankers and politicians to embark on policies that are decidedly not in the interest of the general welfare, but are in the specific interests of organized benefactors. But the SNB’s surprise move demonstrated just how big the costs of currency manipulation really are when governments and central bankers conspire to devalue money.
Unfortunately, consumers don’t have well organized and vocal advocates, so you’re not likely to hear from most quarters that what happened Thursday is good news in the long run. (“In the long run” being defined as the amount of time it takes for the Swiss economy to readjust to an unsubsidized natural state). Instead you’ll hear plenty from groups like Swiss watchmakers, who by the way, are an anachronism tethered to a technology made obsolescent 50 years ago by quartz crystals.
And that’s the point. The Swiss watch industry has much to lose only because the SNB’s artificial intervention in the currency market subsidized a larger existence these last four years than their business model deserved.
Just how large the subsidy had been is evident in today’s currency climb. Effectively, Swiss citizens were paying a 20% sales tax on almost everything they bought so that Swatch could still churn out cheap watches for overseas markets.
Mayor Michael Bloomberg promised New York City a war on smoking. War is what they got.
While it didn’t do so explicitly, New York’s progressive government decided that smoking was so bad that it was worth killing over. You may accuse me of hyperbole, but consider that when government passes and enforces any law, it has taken the decision to use the State’s coercive powers against the non-compliant. Above is a picture of what the law’s coercive powers look like, what a war on smoking looks like. The “war” in this picture does not look like hyperbole to me.
The law that led to Eric Garner’s death was a prohibition on the selling of loose, untaxed cigarettes. In other words, Eric Garner was a bootlegger.
Any time that government restricts a willing buyer and a willing seller from agreeing upon a price, a black market will develop. It is a rule as old as mankind. During the first Progressive era, the rule was Prohibition and the black market was big.
Eighty-eight Christmases ago sixty New Yorkers lay violently ill in the hospital. Eight already had died. The culprit was poisoned alcohol. But the criminal mind behind the culprit was the government itself.
During Prohibition, alcohol still could be produced. It was needed in the manufacture of paints and solvents. So to legally produce it, the government required it to be “denatured”. Usually that was done with the addition of poisonous methyl alcohol. But it was a simple chemist’s trick to turn methyl alcohol into ethyl alcohol, which could then be drunk. By 1926, thousands of amateur chemists were performing that trick and thereby skirting Prohibition’s rules. They had to be stopped. It was the law, after all, and the law had to be enforced. So the federal government required the addition of toxic chemicals in industrial alcohol. The additives included kerosene, strychnine, and formaldehyde. All are highly poisonous if ingested. By Prohibition’s end an estimated ten-thousand drinkers were dead.
The ten-thousand were collateral damage. Nay, they were actively violating the law. They weren’t just innocent bystanders, but were enemy combatants in the war on drink. They deserved to die. After all, they were violating the law. And if we shrink from enforcing the law, people will cease to have respect for it.
Over the last dozen years, New York City was the central front in the second progressive era’s war on smoking. Mayor Bloomberg was that front’s field marshal. He raised the legal age to purchase cigarettes to 21, prohibited smoking in all restaurants, attempted to prohibit it in parks and even apartments, and both he and his successor increased taxes step by step to an absurdly high$5.85 per pack. At that price the black market is big. But all this was necessary, Bloomberg and Deblasio have said, because 6,000 New Yorkers die every year from the effects of smoking.
In the war on smoking Eric Garner was an enemy combatant. And for that offense, the supporters of New York’s war on smoking determined that he deserved to die. I trust they’re happy with the result.
Jonathan Gruber, a paid White House Obamacare consultant, said that “Seniors do a terrible job choosing health care plans.” A slide deck he circulated in 2013 claimed “12 percent of seniors allegedly picked the lowest-cost Medicare Part D plan and could on average save up to 30 percent more.”
Gruber seems to be saying that if one-in-eight adults make (what he perceives to be) a bad choice, then the government should step in and dictate what eight out of eight adults should choose.
Shorter version: You’re too stupid to know what’s best for you.
Jonathan Gruber is right. The American people are stupid. But not all Americans.
Take the President’s much recently heralded “climate change” agreement with China as an example.
Al Gore says that the joint announcement “demonstrates a serious commitment” to combating global warming.
Brad Plumer at Vox says, ”This is a significant shift in climate politics — and possibly a first step toward a broader global climate agreement.”
James West at Mother Jones enthusiastically announces, “The announcement between the two biggest emitters deals a blow to the oft-stated rhetoric that the US must wait for China before bringing domestic climate legislation.”
The Washington Post’s Stephen Stromberg gushes, that this “landmark agreement . . . does not merely commit the countries to trajectories they are already taking. It will require both nations to push harder toward cleaner energy.
According to these reports, the agreement with China was, what one Vox headline writer called, a BFD.
But was it? What exactly was agreed to?
Nothing actually. The United States and China both made non-binding pledges to reduce greenhouse gasses. However, neither side agreed to an enforcement mechanism. There is no treaty agreeement to be submitted to the Senate for ratification. There are no laws that Congress will consider. There are not even any proposed steps that the EPA could take.
Not everyone was fooled by the Administration’s announcement and the breathless fawning of his media sycophants. RedState’s Erick Erickson nailed it: ”Like so much of President Obama’s decisions over the past six years, this is another photo-op with a compliant press that does not matter and will do little.” David Harsanyi says that “there are two problems with treating the deal as big news. 1) We’re not really doing anything we weren’t going to do anyway. 2) Neither is China.” Senator James Inhofe (R-OK) called it a “non-binding charade”.
If you understand anything about the American Constitutional system and have any inkling about the current political situation in Washington you must conclude that Inhofe is right. This entire hullabaloo is a charade. International agreements can only receive the imprimatur of law by being subjected to Senate ratification requiring a two-thirds agreement. Now that the new Senate will contain only 46 Democrats, this would require that 21 Republicans join all Democrats. In fact, there isn’t even a treaty for submission to the ratification process. And the last one (Kyoto) was never submitted, because then-President Clinton knew it would fail. Laws restricting carbon consumption must go through the House that is more Republican than at any time since Calvin Coolidge was still alive. The Supreme Court has already limited what the EPA can do without additional authorizations from Congress–which is not going to happen at least before the end of the Obama Presidency.
So any objective reading of the recently announced agreement between China and the United States should be met with no more than a shrug. President Obama can announce anything he likes, but without a valid enforcement mechanism, it’s just words.
But let us get back to Gruber who called it “the stupidity of the American voter” who could easily be misled by promises grounded in economic lies and obscured by a lack of civics knowledge. That worked to get Obamacare passed, and it apparently is working in getting the Left thrilled about the President’s war on carbon. But it is not all of the American voters who are so easily duped. It apparently is only the stupidity of the President’s supporters who are so easily misled by words without substance.
In other words, the Left might want to keep in mind that Jonathan Gruber wasn’t calling all Americans stupid. He was calling the President’s supporters stupid.
Ron Fournier doesn’t like being lied to:
Appearing on an academic panel a year ago, [Jonathan Gruber] argued that the law never would have passed if the administration had been honest about the fact that the so-called penalty for noncompliance with the mandate was actually a tax.
“And, basically, call it ‘the stupidity of the American voter,’ or whatever, but basically that was really, really critical to getting the thing to pass,” Gruber said.
He called you stupid. He admitted that the White House lied to you. Its officials lied to all of us—Republicans, Democrats, and independents; rich and poor; white and brown; men and women.
Liberals should be the angriest. Not only were they personally deceived, but the administration’s dishonest approach to health care reform has helped make Obamacare unpopular while undermining the public’s faith in an activist government. A double blow to progressives.
Right up to the last sentence I made the same point in March of this year:
Progressives believe that they know better than others how others should live their lives. That makes Progressivism inherently anti-democratic and requires that its adherents subvert truths and manipulate rules to advance their ends.
Democratic governments follow where their people lead. Progressive governments—those led by people who see popular opinion as wrong—lead their people in a direction that they do not want to go. When the subterfuge is discovered, or when the unpopular project spectacularly fails, popular opinion turns viciously against the Progressive.
What Fournier gets wrong is that he de-links the lying from progressivism. They can’t be separated. That is because progressivism cannot survive without the lies–at least not in a democratic society.
Definitionally, progressivism is the belief that an enlightened elite knows better how people should live their lives than the people know themselves. The progressive views government as a tool for leading the populace toward change, whereas the democrat (small “d”) views government as responsive to what the people want. In other words: a democratic government does what the people want it to do, while the progressive government demands that the people do what it wants them to do, whether they want it or not.
When a minority wants the government to do what a majority does not wish to do, the minority has a choice: it can make the case to persuade, or it can lie. Since progressivism requires that the majority subvert its will to what its leaders want, its only option, if progressivism is to succeed, is to lie.
Even as he supported the intent of the law, Fournier finally admits “Obamacare was built and sold on a foundation of lies.” If he takes a step back, he will have to see that it is not just Obamacare that is built on a foundation of lies; it is progressivism itself.
So, contra Fournier’s assertion, the progressive will not be bothered at all by Gruber’s lying–except for his having been caught. The question facing Ron Fournier going into the future, is that now that he has found himself duped by the Administration and its allies’ lies, will he allow himself to play the part of the useful idiot the next time?
Here’s another “Kinsley Gaffe” from Herr Gruber:
Obamacare was “a very clever, you know, basically [sic] exploitation of the lack of economic understanding of the American voter.”
Poll: 39% of Democrats want Obama to run for a third term.