The New Power Play

Something I have often said as a joke is that Germany realized after World War II that it could never take over Europe militarily, so it switched to trying to take over monetarily. Somehow, that joke always slipped into conversations regarding the European Union and the Euro. I made the joke initially because the Euro was so heavily backed be the German economy and banking system. As it stands now, to join the Euro community, a country must meet the "Maastricht Criteria." These conditions (which include domestic price stability, measurements of responsible public finances, exchange rate, and others) were put in place to insure financial stability amongst the nations involved with the single European currency. Basically, a country subordinates its economic and monetary policy to the wisdom and wishes of the European Central Bank.

While the purpose of the ECB is to maintain stable growth throughout the EU, policy will always favor the major players, in this case, the two largest players in the European economy are Germany and France, with Germany typically leading (of the $18.85 trillion dollar Gross Domestic Product, $3.82 trillion is Germany and $2.98 trillion if France.) Germany and France are also two of the countries that do not follow the economic and public finance guidelines set down as requirements of the member states, specifically the percentage of public deficit and debt allowable(60.7% and 67% public debt respective of GDP, respectively, with the maximum allowed by the ECB set at 60%.) For those interested, or in need of reading material as sleep aids, here is the Maastricht Treaty.

Why do I find it interesting to point all of this out? Russia recently tossed out the idea of proposing a global currency at the next G20 summit. With the Gross World Product at $78.36 trillion and the US economy running a Gross Domestic Product of $14.33 trillion, that puts the United States at 18.3% of the world's economy. Would Russia (GDP of $1.76 trillion, or 2.25% of the world's economy) be willing to subordinate itself to the needs of the largest segment of a globalized economy, or would this proposal turn into a device to institute "parity" in the world's economic systems? With some of the other recent moves by Russia, I would think motivations need to be carefully considered.

Economic Policy or Economic Paradigm?

This article on Yahoo News was brought to my attention today. President Obama's desire for stable economic growth is understandable, laudable even. However, wanting economic growth in a free market without accepting the fact that free markets have downturns as well as growth is something of a pipe dream. As I have said before, one of the fundamental features of a free market is the unstable nature of growth. To change that would be to change the economic system which we live with and, as has been shown numerous times by the countries that try centralized economic planning and heavy price regulation, the chaotic nature of capitalism tends to promote growth best.

Now, I understand the President says he doesn't wish to supplant the private sector, merely to regulate it in such a manner as to prevent the “reckless speculation and spending beyond our means; on bad credit and inflated home prices and over leveraged banks.” He also said, “Such activity isn’t the creation of lasting wealth. It’s the illusion of prosperity, and it hurts us all in the end.” Which is, of course, why his spending plan calls for the US government to borrow heavily so that the government can spend beyond its means and create the illusion as economic growth.

However, is government action the correct answer to a market crisis (in this case a crisis precipitated by the financial markets)? Is the answer to regulate the market until it, supposedly, cannot fluctuate so drastically? Or is the answer to allow the fluctuation to amputate the non-functioning segments? To allow economic Darwinism (by which I mean profitability, aka, greed) streamline the market until it flows smoothly again seems like a painful alternative to the easy way out of letting the government handle our mistakes.

As a warning against a greater degree of government intervention, I present the findings of the Cato Institute relating to the relationship between financial deregulation and financial crises. According to the study, financial deregulation in itself does not lead to financial instability, as half of the countries in the study that deregulated their financial systems experienced market instability and half did not. The findings point to the size of the country's government as the pivotal factor in whether or not the country will experience a financial crisis: the larger the government, the more likely the market will not self adjust without crisis.

What does all of this mean? It means that continued government interference and "help" is more likely to maintain economic instability rather than promote economic growth. As further evidence of this claim I put forward the theory, increasingly popular as economists study it, that the New Deal prolonged the Great Depression. Also, there is the claim that the government's intervention in the financial market increased the market drop last year. As it is, I wonder how long it will be before the people of this country remember that economic trouble means a shift in the economy as well as economic opportunity to those brave enough to take personal risks. This economy became the world's largest through risk and perseverance rather than cowardice and government control.

"You and I are told we must choose between a left or right, but I suggest there is no such thing as a left or right. There is only an up or down. Up to man's age-old dream -- the maximum of individual freedom consistent with order - or down to the ant heap of totalitarianism. Regardless of their sincerity, their humanitarian motives, those who would sacrifice freedom for security have embarked on this downward path. Plutarch warned, 'The real destroyer of the liberties of the people is he who spreads among them bounties, donations and benefits.' " -- Ronald Reagan, October 27, 1964

Food for Thought

While I have been lax in my postings here the world has moved quickly onward. It has moved onward, but not necessarily upward (fans of the Narnia books, you know the reference.) I have not had the time to find the subject for a complete post... so I have a question instead. Food for thought, as some would say.

Can true advocates for personal freedom and personal responsibility be found in the rank and file of formalized and institutional government? Can anyone who has the desire to work as a lawmaker and a leader of a country actually believe that the people are better off doing things on their own, without interference from the powers that be?

In partial answer to my own questions, I present the statement of the statesman Daniel Webster, "Good intentions will always be pleaded for every assumption of power. It is hardly too strong to say that the Constitution was made to guard the people against the dangers of good intentions. There are men in all ages who mean to govern well, but they mean to govern. They promise to be good masters, but they mean to be masters." Webster, himself a leader, recognized the subverting influence power has over man. It goes along with the old adage "The road to Hell is paved with good intentions." When people can sit back and abdicate personal responsibility to the promise of a being given a better life, they may in the end be given the "better life," but is it actually theirs? Does a man possess that which is not earned or does the man become the servant of those who can provide for him?

Finally, the last little bit to think over is another quotation from one of the great men who shaped the United States, Samuel Adams. All I ask is that people read this and think about what the ideals this country was founded upon mean for us today: "If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; and may posterity forget that ye were our countrymen."

Merry Christmas

From the frozen lands of New England, I would like to say "Merry Christmas" and to steal a little bit of the liturgy, "The Peace of the Lord be with you."

I Meant to Do This Yesterday

So now I'm one day too late to remind everyone to commemorate Pearl Harbor Day.
But I can still give my thoughts on it. I am a member of what may be the last generation to have an opportunity to know some of the sailors who were at Pearl Harbor on December 7, 1941. To have heard from their lips the vivid memories they carry from that day is a powerful thing. I cannot do their story justice and will not even try to convey the weight of what that day and its repercussions meant for the history of the world.

Would the United States have been drawn into World War II? That I can answer as a certain yes. Would the war have had the same end result? Probably, but it may have lasted longer and caused more suffering, or not, had we been more prepared to enter. We will never know. What we do know is that we must never let the loss of the members of our Armed Forces ever be forgotten or marginalized. For without those willing to fight for their country and against tyranny and the inspiration of those who have done so in the past, we will crush ourselves with an inability to act when it is necessary and even when it is hopeless but there is no other option.

As Winston Churchill once said,

Still, if you will not fight for the right when you can easily win without
bloodshed, if you will not fight when your victory will be sure and not so
costly, you may come to the moment when you will have to fight with all the odds
against you and only a precarious chance for survival. There may be a worse
case. You may have to fight when there is no chance of victory, because it is
better to perish than to live as slaves.

Finally, I would like to leave you with a transcript of the speech by Franklin Roosevelt from this day sixty-seven years ago.

Mr. Vice President, Mr. Speaker, Members of the Senate, and of the House of
Representatives:
Yesterday, December 7th, 1941 -- a date which will live in infamy -- the United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan.The United States was at peace with that nation and, at the solicitation of Japan, was still in conversation with its government and its emperor looking toward the maintenance of peace in the Pacific.

Indeed, one hour after Japanese air squadrons had commenced bombing in the American island of Oahu, the Japanese ambassador to the United States and his colleague delivered to our Secretary of State a formal reply to a recent American message. And while this reply stated that it seemed useless to continue the existing diplomatic negotiations, it contained no threat or hint of war or of armed attack.

It will be recorded that the distance of Hawaii from Japan makes it obvious that the attack was deliberately planned many days or even weeks ago. During the intervening time, the Japanese government has deliberately sought to deceive the United States by false statements and expressions of hope for continued peace.

The attack yesterday on the Hawaiian islands has caused severe damage to American naval and military forces. I regret to tell you that very many American lives have been lost. In addition, American ships have been reported torpedoed on the high seas between San Francisco and Honolulu.

Yesterday, the Japanese government also launched an attack against Malaya.
Last night, Japanese forces attacked Hong Kong.
Last night, Japanese forces attacked Guam.
Last night, Japanese forces attacked the Philippine Islands.
Last night, the Japanese attacked Wake Island.
And this morning, the Japanese attacked Midway Island.

Japan has, therefore, undertaken a surprise offensive extending throughout the Pacific area. The facts of yesterday and today speak for themselves. The people of the United States have already formed their opinions and well understand the implications to the very life and safety of our nation.

As commander in chief of the Army and Navy, I have directed that all measures be taken for our defense. But always will our whole nation remember the character of the onslaught against us. No matter how long it may take us to overcome this premeditated invasion, the American people in their righteous might will win through to absolute victory.

I believe that I interpret the will of the Congress and of the people when I assert that we will not only defend ourselves to the uttermost, but will make it very certain that this form of treachery shall never again endanger us.

Hostilities exist. There is no blinking at the fact that our people, our territory, and our interests are in grave danger.

With confidence in our armed forces, with the unbounding determination of our people, we will gain the inevitable triumph -- so help us God.

I ask that the Congress declare that since the unprovoked and dastardly attack by Japan on Sunday, December 7th, 1941, a state of war has existed between the United States and the Japanese empire.

International Reaction

I was asked last week if I knew what the reaction of the international community has been to the election of Barack Obama. Since I haven't been following international papers too closely, I thought it was a good time to take a look. The Huffington Post compiled a short list of reactions here. From the looks of things, I'm not surprised to see the general reaction from more socially liberal countries like England and Australia as a positive change in American politics. What strikes me as a telling undertone is the impression that the new President will lead America in a new effort of global partnership with Europe. The only problem is the new administration is already talking about protecting American industry to jump-start our economy. Protectionism won't help the global economy. So that also tells me the other nations are not as concerned with their economic well-being as they are with protecting their ideological demagoguery.

As an aside, I just noticed this little aspect of Obama's plan.

A New American Jobs Tax Credit: Obama and Biden will provide a new temporary tax
credit to companies that add jobs here in the United States. During 2009 and
2010, existing businesses will receive a $3,000 refundable tax credit for each
additional full-time employee hired. For example, if a company that currently
has 10 U.S. employees increases its domestic full time employment to 20
employees, this company would get a $30,000 tax credit -- enough to offset the
entire added payroll tax costs to the company for the first $50,000 of income
for the new employees. The tax credit will benefit all companies creating net
new jobs, even those struggling to make a profit.

Basically, what he's saying is that he'll relieve taxes on struggling businesses so that they will hire more people and put even more of a strain on their budgets. What? How does that make sense? A business will only hire more people if they are making enough money to cover the cost and need another person to do work that is getting over looked without enough employees.

However, there is at least one country somewhat concerned by the election's results: Israel. Israel's concern is probably well founded. While the Jewish state does not rely on the US for protection, it is certainly comforted by the knowledge that it has our support in its struggle against neighboring states who would like nothing more than the dissolution of Israel. The case for Israel's existence has been heated and the conflict is well documented. If the US is seen as supporting the enemies of Israel, then I'm afraid I assume the Israeli military will be fully prepared to do what it sees fit to defend the continued integrity of the county. Whether or not we might get dragged into it.

Overall, the international reaction reflects a belief that the US has shifted to a mindset more in line with European schools of thought. I believe that the answer to whether or not that sort of shift would be good for the people of the United States lies in an examination of the collective economies of the European Union. (The CIA has a pretty good run down in public domain.) I know that mere numbers and economic output cannot measure the well-being of a population, but it is a good indicator of the way of life and that has direct impact on well-being.

Edit to Add: Al-Quida has made their opinion clear. I'm not surprised, but I do wonder if they will try to push Obama's buttons more than they would have another leader's.

The Economy of Coercion

John Stossel's latest column at Town Hall echoes some of my latest reading material. Stossel makes his point far more eloquently than I would, but it won't prevent me from trying to expand on what he wrote. Von Hayek wrote about why government cannot run an economy better than the Invisible Hand made famous by Adam Smith. A government run economy depends on experts in their field to plan the best route for production and, through that, the best route for consumption. The major flaw with this is that experts have a very narrow scope of vision, primarily the field in which they have studied. What happens then is they all vie for the important aspects of their division to be paramount while not being able to comprehend the total interaction of all aspects of the economy.

If the experts can't put it all together, how can the average citizen, you ask? Simple, the average citizen merely has to concentrate on that which is pertinent to his or her life. When you have an entire populace looking out for number One, the invisible hand appears. Market forces shape the flow of commodities by making the most used products and industries buy more and industries and products that aren't economical fall off the map or become a specialty and niche market. It makes for a very fluid and sometimes unpredictable economy. However, it also creates something of a market Darwinism, an evolution of production. Those companies that are useful and have a working business model profit and continue be useful in the economy; those that lack those things fail and remove the excess fat and chaff from the market.

Yes, a free market makes uncertainty a part of life, but it also drives innovation and development. The liberal ideas that sparked the explosive growth of the past three- hundred years still work but they also mean that we must be able to understand that sometimes things must change to continue that growth. This brings me to my next point: What will happen if we bail out the Detroit automakers? What happens when we artificially prop up failed business models? In the short run, a bail out may allow the companies to free up and divert capitol to projects that make them more competitive. Or it might give them the illusion of a cushion against the current push of the markets and make them even more sluggish in response to changing consumer needs, merely prolonging the death throws of a dieing business model which other companies have already left behind (including the continued leaching by the UAW.) The biggest hurdle the American automakers face in becoming competitive is the cost difference in production compared to their foreign brethren. GM has hourly labor costs (including benefits) of $78 per hour, while Toyota has a mere $35 per cost. At half the cost of labor, the non-union model is more streamlined and can cut consumer cost further. Add to this the perception that Toyota has higher quality cars and you get a compelling reason to cut the chaff that is GM from the economy.

The above is one example where a free market would cause fluctuation and uncertainty, but the economy would come out stronger. What worries me the most about the auto bailout currently proposed would pave the way for nationalization of the auto industry. If the government already owns a portion of the company, how big of a step would it be to buy the rest of it in the name of helping direct the company to more effectively aid the economy? Why does nationalization worry me? If my opening paragraph doesn't paint a clear enough picture, let us examine what happens to any industry when it gets taken over. First, it is important to note that most countries that at one time nationalized various industries re-privatized them later. It seems that the main effect of nationalization is to remove the incentive to innovate: profit for the individual (or group of investors.) Without that drive to innovate the economy stagnates and flounders, see the example of the "progress" experienced by the ultimate example of state control, the Soviet Union. The USSR did increase production under state control with a mandated shift away from agriculture to industry, but it also increased the cost of such development (including the human cost of producing less food,) resulting in the lowering of the standard of living. I suppose that is one way of achieving equality, and perhaps the only way. To make everyone equal you must bring everyone to a common denominator, usually down.