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.
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.”
Carl DeMaio is a Republican former San Diego city councilman. Among his many “conservative” proposals, he supported pension reforms that would eliminate defined benefits for public employees. In California where defined benefit pensions burden the state with huge amounts of looming debt, this kind of reform is absolutely necessary in order to avoid a fiscal crisis that is sure to come. DeMaio had a viable plan to fix San Diego’s pension problems by reducing spending elsewhere in the city’s budget. Two years ago he narrowly lost the race to be San Diego’s mayor. It wasn’t his pension reform plans that got him; he was weathering that assault by fiercely opposed teacher and public employee unions. No, what kept him from getting more than 47.5% of the vote was the fact that DeMaio is gay.
DeMaio is now locked in a toss-up race for the US House seat held by one one-term incumbent Scott Peters. One week before election day the National Organization for Marriage endorsed the Democrat Peters.
There is nothing odd about an advocacy group endorsing candidates from the party it usually opposes. The National Rifle Association endorsed several pro-gun Senate Democrats in 2010 who then went on to win, including Max Baucus, Mark Begich, and Harry Reid. Successful advocacy groups advocate positions, not parties, thus enabling the groups to have allies no matter who wins control.
That is not what NOM has done. DeMaio’s Democratic opponent is very pro-gay marriage.
In the case where both party’s candidates are on the same side of an issue, a successful advocacy group supporting the other side would either have saved its political capital for another race and declined to endorse, or it would have asked its supporters to hold their noses and vote for the candidate from the party it usually supports in order that it would have a vote with the leadership of the party in control of the chamber.
What NOM has done is to demonstrate that it doesn’t want a vote at the Republican table; it wants a veto over the GOP.
If it hasn’t already, gay marriage is coming to a town near you. You can’t stop it. And over time, you’re going to look like a fool for having tried. Here is why: At most, no more than one-percent of the American people will ever want to enter into a gay marriage. One percent.
A jobs crisis that has reduced the percentage of Americans working to its lowest level in three decades, sixteen-trillion dollars of unsustainable debt, a sabre-rattling Russia, a European Union that is one shock away from setting off a fiscal calamity, an anti-entrepreneur and freedom-crushing federal bureaucratic apparatus that is simultaneously omnipresent and incompetent . . . and in the face of all that you’re going to vote on the basis that one percent of the population might be enjoying the horizontal mambo with someone you don’t approve of? If that’s really your highest priority, you’re an idiot.
If that’s you, you’re also not on the side of freedom. That is because you stand opposed to the small businessman stymied by bureaucratic cronyism. You stand opposed to Europeans who have struggled for decades to get out from under the Soviet shadow. You stand opposed to your own children and grandchildren who deserve to be born without soul-crushing debt that will forever limit their futures. That you would deny all that freedom just to impose your will on those with whom you disagree makes you a totalitarian no better than the “progressive” who gleefully would do the same to you.
You don’t have to support gay marriage. But you do have to tolerate it. Of course, that’s what freedom really means: allowing someone to do something with which you disagree so that in return someone can’t stop you from doing what they disagree with.
There has never been a more intolerant movement than the progressive movement that in the name of “tolerance” forces you to bend to their will. If you want to take a gay marriage position that you can win, then support the freedom to opt out of it instead of having the government force you to participate. Even many gay-marriage supporters balked when Coeur d’Alene, Idaho tried to force a wedding chapel to perform gay weddings. No lover of freedom could ever support such a rule, but that is what progressives want.
And that is what the National Organization for Marriage wants. They want to force the Republican Party to bend to its will. If Republican candidates in close races demonstrate that they can win without NOM’s support, then NOM has no power at all.
Which, come to think of it, is a pretty good reason for a gay marriage supporter to cross the aisle and support a gay Republican, thus putting an end to NOM once and for all.
I remember when I was a young Soldier in Germany and America stood against the idea of countries erecting walls to keep people from leaving.
There are two consensus opinions that have formed about Obamacare:
1. The website will not work this year. Every “fix” of known flaws is going to expose (and perhaps even worsen) underlying flaws that haven’t yet been discovered because few people have gotten far enough into the website to discover them.
2. The Obamacare law itself will need significant surgery and Democrats in particular are going to need for that surgery to have to happen very, very soon.
Not yet the consensus opinion, but soon will be, is that the second item is very much like the first: attempts to “patch” flaws in the law, just like patching flaws in the code, will expose huge problems lurking beneath the surface. When Nancy Pelosi said that we had to pass the 2,000+ page bill to see what was in it, what she could have said is that we’re going to have to actually implement it to really learn what is in there. It won’t be pretty.
Now here’s some added Washington reality. Between Thanksgiving and the New Year, nothing significant will happen in Congress. Nothing. Even as millions of Americans get Blue Cross pink slips, that won’t get in the way of Congressional Christmas parties and taxpayer-funded vacations to warmer climes. Oh, sure, there will be the usual press conferences and photo ops; that never stops. But real work–the kind that is done by armies of staffers and lobbyists who write these bills–that won’t happen. This means that whatever can be done before or shortly after the fecal matter hits the rotary device on 1 January is going to have to be short and sweet.
Going back to the status quo ante bellum is not possible. The plans that are dropping people by the millions no longer exist. They can’t exist under the current law and the new laws under which they could exist, won’t be written by Congress and then implemented by the insurance companies for months. Many months. At this point there are only bad options and worse options. Nothing government can do will forestall this problem. In fact, every attempt will just make the overall problem worse and further entrench the disarray.
There is only one institution in the world, only one power, that has the ability to quickly react, and that is the free market. Forget about Washington being able to solve the problem; they have neither the time nor the cognitive ability to diagnose the problem, much less, to fix it. Instead all Washington should do is to default to the States. Each of the states already has on their individual state codes, health care laws. That’s how the bulk of the health care industry was regulated in the past–a past that was only six weeks ago. With one exception, the Federal government should just get out of the way. And that exception is that it should allow for cross-state portability. That will do more than anything else to spur the market to provide health care solutions. No minimum coverage requirements, no maternity care for 80-year old men, no 26-year old children on their parents’ plans. Nothing. Let people shop in any state to find the plan that fits them. The market will quickly move in to meet most customers’ needs. And while that won’t insure everyone, it will insure most of those who have been recently dropped or who physically can’t buy coverage now.
Will it happen? Not a chance. You see, there’s another Washington reality at work: Never let a crisis go to waste. And Democrats, as well as Republicans, adhere to that ideal. Nothing so simple could disguise the payoffs and graft that Congress can’t wait to attach to the Omnibus package to “fix” Obamacare. And that means that the fix will be long in coming and will only make matters worse.
Now go and have a Merry Christmas! (Too bad it’s going to feel more like a Groundhog Day version of Halloween.)
Washington Post columnist Richard Cohen is in a bit of trouble for making this statement in his Monday column:
People with conventional views must repress a gag reflex when considering the mayor-elect of New York — a white man married to a black woman and with two biracial children. (Should I mention that Bill de Blasio’s wife, Chirlane McCray, used to be a lesbian?) This family represents the cultural changes that have enveloped parts — but not all — of America. To cultural conservatives, this doesn’t look like their country at all.
While there is some, surprisingly, the bulk of the criticism does not come from the Right for having been portrayed as knuckle-dragging dinosaurs whose acceptance of Justice Clarence Thomas’ biracial marriage and former VP Dick Cheney’s lesbian daughter belie Cohen’s stereotype un-updated since the Archie Bunker era.
No, it’s actually the Left that has most criticized Cohen. The Huffington Post said, “Dear Washington Post: Please fire this man.” Esquire put Cohen in the “Newspaper Stupid Top 40.” Paul Farhi catalogues some of the others who voice umbrage at Cohen’s remarks, including Gawker, Slate, Salon, and MSNBC. All this “venom-spewing” as Farhi said, from ”people who should be [Cohen's] allies.”
Sadly, this is normal for the Left. Who could forget their outrage directed toward radio host Bill Bennett when he was asked about a statistic from the then recently-published Freakonomics that said that crime has gone down because of abortion:
BENNETT: All right, well, I mean, I just don’t know. I would not argue for the pro-life position based on this, because you don’t know. I mean, it cuts both – you know, one of the arguments in this book Freakonomics that they make is that the declining crime rate, you know, they deal with this hypothesis, that one of the reasons crime is down is that abortion is up. Well –
CALLER: Well, I don’t think that statistic is accurate.
BENNETT: Well, I don’t think it is either, I don’t think it is either, because first of all, there is just too much that you don’t know. But I do know that it’s true that if you wanted to reduce crime, you could — if that were your sole purpose, you could abort every black baby in this country, and your crime rate would go down. That would be an impossible, ridiculous, and morally reprehensible thing to do, but your crime rate would go down. So these far-out, these far-reaching, extensive extrapolations are, I think, tricky.
The Leftists at Media Matters had a field day with Bennett’s comments even when their excerpts clearly exhonerated (highlighted above) him of the thought-crime of advocating the racial infanticide that they say Bennett advocated.
Bennett was engaging in the logical device known as reductio ad absurdum, whereby an argument is reduced to an absurdity so as to demonstrate the fallacy of the premise. It just so happens that last night I mentioned to my seventh-grade son the classic reductio ad absurdum: A Modest Proposal, wherein Jonathan Swift argues that to eliminate the surplus population of beggars, the Irish should be allowed to sell their unweaned children to be used as stew meat.
In 1729 Swift’s reader’s quickly recognized the essay as satire. Sadly, I don’t think that American Leftists today would be able to understand the argument. If their umbrage toward Cohen–who clearly was not advocating discrimination against biracial and gay couples—is any indicator, were Swift to write his classic today, MSNBC would surely charge him with cannibalism.
Prior to this week I could have dismissed Leftist outrage directed at Bennett as political fanaticism akin to the fanatic football fan who, even upon seeing the slow-motion replay, yells at the referee for blowing a call that he clearly called correctly. Heretofore, I could have accepted that Bennett’s detractors understood his argument but purposefully misconstrued it so as to appeal to Low-Information Voters who might have heard only an edited version of the exchange. Now as a result of the outrage that the Left directs against its own Richard Cohen, it is obvious that the Left isn’t trying to appeal to Low-Information Voters, but is instead made up of a large swath of Low-Intelligence Voters.
How else could one explain Obamacare? Many of the people who are incapable of understanding Cohen’s argument are the same ones who are logically incapable of understanding that Obamacare could not work the way the President promised. Unless you believed, as one commenter noted, that Obamacare was powered by “unicorn farts and pixie dust,” it was always completely illogical to believe that more people could get more health coverage without some people paying higher prices or being kicked off of their existing plans.
Another Cohen, Michael Cohen (I don’t know if he is a relation), buttresses that point (hat tip: David Henderson).
But, of course, this means that some Americans would not only lose their plans and access to their doctor, but in the case of particularly healthy individuals, reform could yield higher premiums. Beyond that, reforming such a huge chunk of the U.S. economy necessarily leads to often unanticipated changes for millions of Americans.
Acknowledging that reality would have been the honest thing to do. So would asking healthier and wealthier Americans to sacrifice for the greater good of ensuring every American have health-care coverage.
But doing so would have opened Obama and his democratic allies up to the charge that Obamacare would lead to widespread dislocations — and made the path to reform that much politically harder to traverse.
Indeed, this is precisely the argument that was made by Republicans . . .
In other words: Everything Republicans told you about Obamacare was true, but–and these are Michael Cohen’s words–you “can’t handle the truth.” What he didn’t say but is clearly implied and could have appended: “And we know that you are too stupid and too illogical to figure out the truth on your own.” Logical fallacy abounds on the Left, and this Cohen actually celebrates it.
This is where the modern Left is today: at the head of an easily manipulable cadre of useful idiots. To be sure, the Right has its share of blind adherents as well. To some, the words “abortion” and “homosexual” are like red herrings to a dog: they quickly distract. But I’m hard-pressed to find so glaring an example as Obamacare to demonstrate how easy it was to dupe millions of people who should have been smart enough to know otherwise.
For years it has been fashionable in some segments of the Right to complain that America’s public schools are engaged in indoctrination instead of education. But the Left’s slander of Richard Cohen might point at a reality far worse. It’s not that millions of Americans have been taught the wrong things–bad lessons can be unlearned. Much worse is the possibility that many millions of Americans have never been taught how to critically read and to logically think. If this is true, it does not bode well for the nation’s future.