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Post Tagged with: Eurozone Crisis

Too Little Central Control in the EU?

Too Little Central Control in the EU?

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” – Alexis de Tocqueville, misattributed

I had the extreme displeasure of reading Paul Krugman’s latest excretion today. He begins by complimenting (nay, sucking up to) the Greek people and ends by making a specious claim about the relationship between a strong central government and the success of the dollar vs. the Euro. He’s clearly not even trying to make a cogent argument anymore. I am neither a Nobel laureate nor a syndicated New York Times columnist, but I will try to respond in kind, by frothing at the mouth and seeing what comes out.

First off, I am able to begrudgingly come to common ground with Mr. Krugman on some points: One, that the Euro is responsible for Greece’s woes. Mr. Krugman, like George Soros, is right that the Eurozone is a terrible idea in the way it’s currently constructed. As a friend of mine recently emailed me, “Where were all these people 15 years ago when the Maastricht Treaty was signed? How did ANYONE think a monetary union without a fiscal union could work?”  Two, Mr. Krugman is right that austerity has been devastating for Europe. He gets no points for making obvious statements. Where he gets me every time is his continued advocacy of democratic socialism and big government spending at a time when the consequences of decades of such rampant opportunism and irresponsibility are clearer than they have ever been.

When times are good, people routinely credit whatever proximate cause they can, and for Europe for the last three decades, the cause célèbre has been “democratic socialism.” It is that wonderful post-Stalin Marxist ideal that attempts to solve the historically failed experiment of socialism by putting a friendlier face on it: we’ll do it Marx-style, but make sure we vote for it first. Thus the people retain their political sovereignty and, fingers crossed, economic productivity as well. Although, of course, we know that the economic productivity part is a joke, since it is based on the notion that people are A) fiscally responsible, B) more fiscally responsible in larger groups and C) able to spend other people’s money better than they can spend their own. But we know that when times are good, there’s no problem.  Political parties coming to power promising to lower the retirement age, shorten the work week, fund hefty retirements and guarantee low cost loans are always going to win elections against those parties that tout the boring virtues of hard work, discipline and fiscal responsibility.

But then times get bad, and the bill comes due, and austerity hits. No one wants to blame themselves, of course, so they turn to the scapegoats. The most wealthy and productive are a favorite of the democratic socialists. Mr. Krugman gets in on it when he complains about “the arrogance of European officials, mostly from richer countries.” Of course, when Mr. Krugman proposes that European governments continue to spend money they don’t have on social programs and entitlements that don’t work, where does he suggest they get the money if not from richer countries like Germany, that have not only singlehandedly funded the entitlements and social programs Mr. Krugman supports and have prevented much worse austerity which he opposes, but have kept the entire Eurozone afloat?

Europe is not suffering because of a lack of strong central government that can coerce the German people to paying for Spanish mismangement. It’s suffering preciely because it has too much power centralized in the hands of too few, a large central monetary union that has done precisely what Mr. Krugman wants it to do: increase spending in poor countries at the expense and risk of rich countries. The problem is, bailouts don’t work in the long term, and now Europe is just staving off disaster one close call at a time. The markets know the danger of moral hazard and contagion, which is why bond yields in Spain shot up well before Spain was in crisis.  And that’s why no one is surprised when Spain’s banks fail, and then Spain has to borrow more money from the EU (read: Germany) to bail out the banks. And when Spain needs to pay off those debts, they will need to borrow more. It’s a pyramid scheme to the tune of hundreds of billions of dollars with the taxpayer money of productive Europeans, people who don’t deserve to have their lifestyles turned upside down by coercion into an economic and political union in which they have no voice. Why should an olive grower in Spain have to pay–dearly–when the Greeks vote for one party over another?

On Sunday, as you recall, there was an election in Greece, and perhaps no time in recent history has so much of the fate of the world economy hinged on one election in such a small country. If anything is needed to demonstrate the folly of this system, it is the idea that 50,000 votes swinging the other way in Greece could have created a global recession. Mr. Krugman wants a bigger political union–a stronger European central government–in order double down on this vulnerability. Why would anybody put power over the economy in the hands of so few? And why would Mr. Krugman, knowing full well the danger of economic collapse, advocate a system whereby economic power is further centralized making a greater collapse even more likely?

And yet Mr. Krugman wants more of that.

June 17, 2012Comments are DisabledRead More
Modern Psychohistory

Modern Psychohistory

I have been reading Isaac Asimov’s Foundation series and although it is a mediocre work of fiction with limited literary value (sorry fans), it does shift one’s perception of our own time; and, indeed, makes our age seem wholly insignificant.  The Galactic Empire of Foundation is a civilization that has existed for 12,000 years and according to the predictions of one scientist is doomed to fail for a 30,000 year interregnum, a prediction that has made the Empire squirm with unease.  The source of this apocalyptic prediction is the study of “psychohistory,” a science of Asimov’s own invention whereby large bodies of people have inertia and follow historical trends that can be calculated and predicted.  The larger the group of people, the larger the psychohistorical inertia.  Even with the small scale variance of chance, in the long run a civilization will follow a predictable path–so claims the school of psychohistory.

It is hard not to see our current world in the same light.  A world that had 800 years of Roman civilization, only to fall into a 1,000 year interregnum, emerging as it did in the 17th century with little knowledge, strength or civility which it has since had to learn.  Of course, the Romans were not a perfect civilization, and neither is ours, and neither were any of the civilizations that fall outside the traditional western historical sphere, but I think it can be said for our present civilization that the psychohistorical inertia of mankind has rendered it incapable of truly altering its course, and it is so that we tumble deeper and deeper into the abyss.  All through history we have feared the apocalypse, and looking back even 30 years we see the minutes of the Doomsday Clock tick ever closer to midnight as the Soviets played war games, and the surely predicted fall of civilization in the emergence of Islamic terror, financial catastrophe and skyrocketing prices in the stagflation of the 70’s.  And now we find ourselves precariously in an even worse position, with the institutional levers of our economy collapsing and seemingly nothing that can be done about it.

Why is this the case?  Psychohistory tells us that it is the responsibility of purely human emotion and instinct, for instance, fear.  Fear people have of losing what little stability they possess in order to gradually cede more power to rulers.  Fear rulers have of losing their power to the hungry and restless people.  Fear the intellectuals and the journalists and the artists have to stand up and tell the truth, no matter the consequences.  And fear of god: that almighty fear which has driven people to do stupid things and believe in them to the end.  I don’t often look to FDR for inspiration or guidance, but his ominous calling to be rid of fear of fear was prescient.  He of all people, a cripple with his own challenges, would know that people are not fallible.  That death is inevitable.  That we are always, always circling the drain.

In the lens of psychohistory, one sees not the European debt crisis as austerity vs. the Euro, or socialism vs. capitalism, or good vs. evil.  One only sees the inevitable decline of Europe as a great power due to the folly of mankind.  It is as sure as mathematics that the Eurozone will collapse, because its fate has been preordained from the beginning:  A monetary union backing several disparate political interests with a history of brutal warfare.  A fantasy of European socialism calling for borrowing a health and happy lifestyle at the expense of the working poor and the next generation, not to mention the immigrants whom Europeans spit upon.  The legacy of nationalism that makes Europeans immune to self criticism or introspection.

In the lens of psychohistory, one does not see the American politics as anything more than a page in a play of history.  We trade jabs about the relative power of corporations and unions, the responsibility of banks, the rights of the downtrodden, and of course, where our European and Chinese foes fit into the equation.  But the equation spits out the same answer:  We continue to borrow from our own prosperity and refuse to acknowledge our inevitable decline.  Although America has been luckier than most; insulated from the baggage of the past, tucked away in a forgotten corner of the world, with an imperfect constitution that Americans just happened to have respected and supported this last quarter millennium, we continue to put faith in our leadership to right the ship even though Americans feel the inevitable pull of fate.

In the lens of psychohistory, what is Iran, with its petty, fumbling dictator and its all-but-certain nuclear weapon?  Do we really think that the people of Iran have any less motivation, drive or ambition than the people of California?  Do we really think that Iranians have any interest in destroying Israel, or the US, or anywhere else, rather than proceed forward with mutual cooperation, trade and respect?  If the lesson of South Africa teaches us anything, it is never the people that are the problem, it is it the rulers.  And what of the rulers?  Why have we created democracies that ensure us that we empower rulers to cede the will of the minority to the tyranny of the majority?  Or, what is worse, cede the tyranny of the majority to the special interests of the entitled minority?  We have either dictators on thrones stolen at the point of a gun, or presidents on electoral thrones smoldering in their own hypocrisy.  These presidents give us a false sense of security and guard us against the barbarians at the gates, while they pick our pockets and promise us guarantees they don’t have the money to pay for.  Americans have it better than the Europeans, but how much worse are those false democracies elsewhere?

In the lens of psychohistory, all people are the same.  We do not have any differences that are not determined by birth or circumstance.  We all behave with the same motivations.  We all fall in love and get screwed by society’s pressure.  We all discover new things.  We all fail to get recognition for our accomplishments and get castigated for our failures.  We all don’t get what we deserve.  We all don’t deserve anything.  No one is special, and if there is anything I have learned in my travels, it is that people follow only one rule: Do by myself and my family.  If I have extra time, help others.  If I have a tender heart, go out of my way to do something nice for someone else.  But at the end of the day, every person will follow the same rule: Me and my family.  And when societies embrace that individual drive, they thrive.  And when they deny that, they destroy freedom, happiness and prosperity.  When a government provides an avenue to success through thuggery and murder, people will take that road.

Psychohistory tells us that we are hitting an inflection point, one which will push us over the abyss or lead us to the greatest period of wealth and prosperity the world has ever known.  We do not know when the inflection point will hit.  It could be with the Greek election on Sunday, or it could be at years end.  It could be when that first nuclear strike from North Korea backfires and lays waste to the desolate deathtrap of the miserable Kimtatorship.  It could be when Justin Bieber becomes elected president and, through momentous incompetence, fails to accomplish anything significant which might be the most productive thing he could do for our country.  It could be the rising of the oceans that swallow up our greatest cities.  Or, true to the mathematics of psychohistory, some unforeseen change in the human processing of external stimuli may occur, throwing off any and all predictions for better or for worse.  A larger-than-life figure may appear, altering the course of humanity by defying the natural bounds of human fear and consciousness.  Or an external alien force may puncture our self-contained system and introduce unknown variables of physics, science and culture that change our perceptions of ourselves and our humanity.

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Kicking the Can

Kicking the Can

Saw the news today on Spain’s bailout. The market seems to favor this news. I don’t see how it can. We’re about to see the biggest market correction since the 30’s. And you thought 2008 was bad.

There’s a very simple principle at play here. The more you borrow, the more you owe. If you borrow more to pay back your debts, you will end up owing more. Now that Spain has intermarried its bank debt and government debt, when it borrows $100bn to stay afloat, this isn’t just a bank bailout. The people of Spain wake up today in legitimately more trouble than they were in yesterday. Spain has officially entered the part of the Eurozone that’s beholden to the other members. This part–Greece, Spain, Ireland, Portugal–is growing, and the number of countries with money to bail out the others is shrinking.

At this point, we’re just kicking the can down the road. And one of these days, there isn’t going to be any bailout money left. Germans will put down their foot. And the country needing the bailout this time is going to be a big player like France or Italy. And no one’s going to be able to pay it.

Sound familiar? At this point we’re just waiting for a Lehman Brothers of Europe. That’s all it will take: one country that’s too big to fail, failing. And when that happens, it’s all over. The moral hazard will be broken. The markets will crash. Capital will fly to Switzerland, the US, the Caymans, or Canada (the rats have been fleeing the ship for a long time already). Debt ridden countries will have billions in liabilities with no way to pay them. Populations will be left without jobs, food or security. People will riot. Tyrants will come to power. What little capital is left will be divvied up by cannibals looking for scraps. The ironic twist is that the only country that will be stable and productive enough to weather the storm will be Germany.

So-called democratic socialists of the world beware: there is no such thing as a substitute for a productive society. Anyone can borrow their way into an easy lifestyle. But eventually the bill will come due.

June 11, 2012Comments are DisabledRead More