Friday, 15 March 2013

Beer O’Clock: Kauri Invalid Stout


As a thank you to all  the beer historians who passed on information about Woodville’s Kauri Brewery and its Kauri Pale Ale, my painter friend Mark Woollerwho was particularly interested in the Gauguin connection—has painted a bottle for us, which now hangs proudly on my wall.


Sadly, however, it’s empty.

Still, since my photos of the small paintings are a bit lacklustre, by the magic of technology I can immediately double the number of bottles. Take your pick.


Thursday, 14 March 2013

“And Pontiff, pretty Pontiff, can anyone shake your hand?” [updated]

[UPDATE:  Since writing this post, the Guardian newspaper, on which the post relied, has redacted its story by Hugh O'Shaughnessy saying “This article was amended on 14 March 2013. The original article, published in 2011, wrongly suggested that Argentinian journalist Horacio Verbitsky claimed that Cardinal Jorge Bergoglio connived with the Argentinian navy to hide political prisoners on an island called El Silencio during an inspection by human rights monitors. Although Verbitsky makes other allegations about Bergoglio’s complicity in human rights abuses, he does not make this claim. The original article also wrongly described El Silencio as Bergoglio’s ‘holiday home’. This has been corrected.” 
    Chris Trotter’s post Mea Culpa – The Pope Is Not A Fascist explains. And like Trotter, I too offer my Mea Culpa.]

“And Pontiff, pretty Pontiff
can anyone shake your hand ?
Or is it just that you like uniforms
and someone kissing your hand…”

- Lou Reed, “Good Evening, Mr. Waldheim

From one Pope with a seedy history behind him, to another.

The last, now retired, Pontiff was part of the team covering up his church’s flagrant child abuse, and he stepped down midst rumours that he could face arrest for it if he leaves the Holy See.

The new Pontiff, just appointed, was part of the Argentine clergy’s collaboration with the the Argentinian military regime—in which it “was complicit in dreadful crimes for which not one word of regret has been heard from any senior member of the Argentine clergy”—and it looks like Bergoglio himself, the new Pope Francis I, helped to hide the crimes.

It’s said that in taking the name Francis, “he is drawing connections to the 13th century St. Francis of Assisi, who saw his calling as trying to rebuild the church in a time of turmoil.” The turmoil is richly deserved.

Writing in the Guardian in January, Hugh O'Shaughnessy tells a story that after this new pope’s appointment looks even more grim for the church:

The extent of the church's [and the new pope’s] complicity in the dark deeds was excellently set out by Horacio Verbitsky, one of Argentina's most notable journalists, in his book El Silencio (Silence). He recounts how the Argentine navy with the connivance of Cardinal Jorge Bergoglio, [then] the Jesuit archbishop of Buenos Aires [and now the pope], hid from a visiting delegation of the Inter-American Human Rights Commission the dictatorship's political prisoners. Bergoglio was hiding them in nothing less than his holiday home in an island called El Silencio in the River Plate. The most shaming thing for the church is that in such circumstances Bergoglio's name was allowed to go forward in the ballot to chose the successor of John Paul II. What scandal would not have ensued if the first pope ever to be elected from the continent of America had been revealed as an accessory to murder and false imprisonment…

What scandal will now?

Fact is, the more one sees of this church’s hierarchy, the more one realises they are barely human.

Bear in mind that this is a church that thinks itself fit to make judgement on what is and is not moral; to bestow upon others either shame or praise for acts it deems to be good; to hold itself up as a model—sorry, the model—of virtue and rectitude; to give moral guidance to you and I.

Moral guidance from moral pygmies. What could be more uplifting!

And every good catholic knows, or should know, that it doesn’t matter at all what you think on any moral issue: the whole point of the catholic church is to tell you what to think.  Perhaps it takes an atheist to point this out

[Hat tip History News Network]

Wednesday, 13 March 2013

Quantitative easing in a nutshell

Just in case you haven’t seen it for a while …

Pyongyang be buggered, we’re all going to get wet!

Comforting to know that American military monitoring of threats from North Korea and China is in the competent hands of General Bran Flake:

America's top military officer in charge of monitoring hostile actions by North Korea, escalating tensions between China and Japan, and a spike in computer attacks traced to China provides an unexpected answer when asked what is the biggest long-term security threat in the Pacific region: climate change.
    “The ice is melting and sea is getting higher…”

Yes, strap on your snorkels and head ye for the hills, for lo, the threat of seawater rising at 2 inches per century is greater than all the threats and nuclear missiles emanating from Pyongyang and Beijing.

[Hat tip Small Dead Animals]

The term: 'Political Correctness'

There’s said to be an annual contest at Griffith University, Queensland, calling for the most appropriate definition of a contemporary term.

The term this year: 'Political Correctness'

The winning student wrote:

Political correctness is a doctrine fostered by a delusional, illogical minority and rapidly promoted by mainstream media, holding forth the proposition that it is entirely possible to pick up a piece of shit by the clean end.


Here’s the update for this Thursday’s econ session from our friends at the Auckland Uni Economics Group:

Hi all,
This week we’ll be talking about the most prevalent fallacy in economics, which (when committed) leads to the biggest economic errors, and (when spotted) starts you thinking like a real economist.
We’re talking about what is seen and what is not seen—most popularly known as The Broken Window Fallacy.
       Date: Thursday, March 14
       Time: 6pm-7pm
       Location: Case Room 3, Level Zero, Auckland University Business School, Grafton Rd, Auckland
As always, all are welcome to attend.
Look forward to seeing you there.

Persistent lying about housing land supply

_hugh-pavletich-smlGuest poster Hugh Pavletich asks why people such as Mayor Len Brown of Auckland are persistently lying about housing issues, and points out however you want to measure the amount of immediately available building land, the only true measure of scarcity or abundance is price.

Supplying affordable new homes today is a very formulaic business indeed – and has been since Bill and Alfred Levitt created the modern production housing construction industry soon after World War 2.

This was a remarkable entrepreneurial feat, as the Levitts and many others had tried for decades prior to emulate Henry Ford’s production methods with respect to automobiles – and failed.  Bill Levitt finally “cracked it” by splitting the housing production process into specialist components, at a stroke advancing home construction from the realm of the “jack of all trades” (and master of none) cottage-building culture, bringing it into the modern industrial world.

Importantly, with the sub-specialization he encouraged, this allowed low and semi-skilled workers into the residential construction industry.

1101500703_400The “Levitt methods” were rapidly emulated throughout the rest of the developed world at the time, helping trigger the “democratization of prosperity” following World War 2.

The Levitts supplied new 80 square metre homes on 700 square metre lots for $US8,000 – about $US100 per square metre all up (land and services included). They supplied these homes to families outside New York with an annual household income of $US3,800—a ratio of just 2.1 to 1! ( The median household income at the time in the United States was about $US2,500.)

Generally speaking, in a culture in which social pressure was on the male to financially provide for the family, these houses were bought by folk on a single annual household income, allowing the mother to focus on the care of the children and fulfil the role of “home executive. The male was socially considered a loser if he couldn’t financially provide for his family.

Rather “quaint” thinking in today’s world of course, where, rather amusingly, women have since become “liberated.” Liberated in reality to become “mortgage slaves” because of the grossly excessive costs of housing.

Following in the tradition of the Levitts who supplied new starter housing at $US100 per square metre all up (land and services included) today, some 60+ years later, new starter housing is being supplied on the fringes of the affordable United States housing markets for about $US600 through $US700 per square metre all up.  In contrast, here in New Zealand, due to gross political and urban planning incompetence and persistent lying, the productivity and pricing performance of our residential construction sector has been wrecked.

imageIt currently costs in excess of $NZ2,500 + all up per square metre for new starter  housing on the fringes of Christchurch—and a stratospheric $NZ3,500 + all up per square metre on the fringes of Auckland!

No wonder so many would-be first-home buyers are renting instead.

Year after year, the Annual Demographia International Housing Affordability Surveys  (there have been 9 to date) illustrates with the standard Median Multiple method, that median house prices in normal housing markets do not exceed 3 times annual household incomes. Yet in Auckland and Christchurch, median house prices are well over six times the median annual income! (Auckland has a Median Multiple of 6.7, Christchurch 6.6, Tauranga-Western Bay of Plenty 5.9, Wellington 5.4, and Dunedin 5.1.)

A “crystal clear” Definition of an Affordable Housing Market is incorporated within this year’s Survey and on the front page of this writer’s archival website Performance Urban Planning:

For metropolitan areas to rate as 'affordable' and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).
    The critically important Development Ratio for this new fringe starter housing should be that the serviced sections cost about 17 - 23%  of the actual house construction.
     Ideally—to ensure maximum stability and optimal medium and long term performance of the residential construction sector—through a normal building cycle the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7...

So …  the only question that needs to be asked, as this morning’s New Zealand Herald article illustrates, is why are people such as Mayor Len Brown of Auckland, persistently lying about housing issues:

imageMayor does U-Turn on available housing land
Auckland has 2000 new sections ready to build houses on, says Mayor Len Brown, who last month claimed there was enough land for 15,000 homes.
    As debate grows about housing and land supply in Auckland, Mr Brown is no longer claiming the city has enough new land to build 15,000 houses "right now"…
        Councillor Dick Quax said Mr Brown had proclaimed to all who would listen that Auckland had 15,000 sections ready for houses to be built on "right now."
    "The mayor is now having a big helping of humble pie as he acknowledges that there are just 2000 sections ready for construction to begin.”

Brown should know the “years of supply” measure is misleading as well. He has now conceded there are only an appallingly low 2,000 “construction ready” lots available on the fringes of Auckland.

The only true measure of scarcity or abundance is price.

The evidence is “staring us in the face” that if New Zealand had normal housing markets, new starter housing would be available on the fringes of our cities for at or below $NZ1,000 per square metre all up. This would allow young families to buy 150 square-metre new homes for about $NZ150,000 … 200 square metre new homes for $NZ200,000 … and so forth … with sensible mortgage loads too.

A pipe dream? Not at all.

While the persistent incompetence and lying by politicians and planners on housing issues is often amusing, it is past time they started to “wake up” to the serious social and economic consequences.

The solutions are simple and are clearly outlined within Section 4 of  Christchurch: The Way Forward (see below).

The lesson is the same for every New Zealand city.

* * * *

Christchurch: The Way Forward (excerpt)
To allow the belated recovery to finally start (some 21 months later), the following 5 steps must get underway as soon as possible…
Section 4: The urban land use and building regulatory environments have degenerated into a “sick joke” – creating massive social and economic harm.
    Local Authorities must not have any control of land supply, as it is an invitation for them to become incompetent and plunder the people they are paid to serve. Further to this, they must be required to finance infrastructure appropriately as well.
    With its small population of just 4.4 million, New Zealand has abundant land supply with just 0.70% of its land area urbanized. The land area in the United Kingdom is much the same with near 62 million people.
    There needs to be open fringe land supply with post development zoning and “no go” areas clearly identified for solid environmental and other robust reasons. Internally – flexi zoning is required where zones can expand or contract as required – provided property owners along a zone fringe obtain the consent of neighbours a further 50 metres out.
    This is particularly important for Christchurch, as it is endeavouring to move abruptly to the north, west and south – where there is abundant good quality land for construction.
    Artificially inflating land costs unnecessarily triggering housing bubbles and decimating the performance of the residential development / construction sectors must not be tolerated.
    Housing is a basic human need. A need that must be respected – particularly by public employees properly trained in public service ethics.
    With the smaller Community Council Units of Local Government, it will be possible to have their Regulatory Units led by engineers and sound and simple performance standards instilled in to the regulatory staff. If staff as individuals fail to process consents efficiently and/or lack enabling attitudes and the capacity to solve problems, they must be replaced.
    The current degenerate and infantile culture of impunity within the Local Government sector must be stamped out and replaced with a culture of consequences.
    It needs to be noted that working for Local Government is generally regarded as “default employment” for those who fail to secure employment in the private sector. It is therefore critically important the roles and requirements for those employed within the Local Government sector are simplified as much as possible.

Tuesday, 12 March 2013

The Errors of Keynes's Critics

Guest post by Steven Kates

An important understanding is taking hold, that the road to unwind Keynesian economics travels through Say’s Law. Keynes himself could not have been clearer about the significance of Say’s Law to the entire structure of his argument. Keynes emphasized, over and over again, in The General Theory (TGT) that he was reversing the conclusions of those who believed Say’s Law to be true.* Thus, there are two things that need to be done if you are going to refute Keynes. First, you have to know what Say’s Law is. Then you have to show it is valid.

keynes_stupid_buttonThere is a huge problem that must be overcome in order to make any headway in refuting Keynes and revitalizing Say’s Law. All economists are brought up on Keynesian demand side theory and, unless corrected, it infuses every aspect of their thought. Even while recognizing that it is the structure of demand that is key, they still hang onto the level of demand as an integral part of how they approach economic problems.

Classical economists have explained Say’s Law by arguing that “a general glut is impossible”; there can never be a deficiency of demand. This is axiomatic, you must know it in your bones if you are to understand the Classical theory of the trade cycle. Hoarding never causes a recession. Too much saving is never the problem. An economy never suffers from demand deficiency. After a recession begins people become tentative because of a lack of confidence, this is a common view everywhere on the Classical side of the Keynes-Classical divide, but that was not the point being made by Keynes. He was trying to prove that demand deficiency was, of itself, the nature of the recessionary problem and that public spending was the necessary answer to bring recessions to an end.

With this in mind, let me take you to a book review discussing Say’s Law, and criticising Keynes, that gets it wrong:

Let’s have a look of some of [the book’s] arguments, beginning with Keynes’s famous critique of Say’s Law. Keynes’s distorted version of Say’s Law in his General Theory states that supply creates its own demand. [The book’s author, Juan Ramón Rallo] vindicates Say’s Law in its original version: In the long run, the supply of a good adjusts to its demand. Ultimately, goods are offered to buy other goods (money included). One produces in order to demand, which implies that a general overproduction is impossible [in the long run].
    Say’s Laws leads us straight forward to the most innovative argument in Rallo’s book that addresses the old argument against hoarding. Even harsh critics of Keynes, for example from the monetarist or neoclassical camp, admit that Keynes was at least right in that hoarding is a destabilizing and dangerous activity.
    Rallo however proves and emphasizes the social function of hoarding. To demand money is not to demand nothing from the market. Hoarding is the natural response of savers and consumers to a structure of production that does not adjust to their needs. It is a signal of protest to entrepreneurs: “Please offer different consumer and capital goods! Change the structure of production, since the composition of offered goods is not appropriate.” [Emphasis and additional text by Kates]

The book, and the review, thus attempts to controvert Keynes by confirming everything he wrote. People really do hoard, the book argues, and store money rather than spend; there really is a deficiency of demand in the short-to-medium term that may finally work itself out in the long run, in three-to-five years perhaps; overproduction is impossible, but only “ultimately,” and in the meantime it can occur; involuntary unemployment does apparently occur because of some problem on the demand side of the economy due to hoarding. However, rather than this “deficiency of demand” being a bad thing, it’s a good thing, since the hoarding allows business to think about what to do next. But if you are Keynesian such as Krugman, it also licenses the government to come to the rescue with a stimulus package that will short-circuit this delay. Here is the example from the review to show how hoarding can work:

Hazlitt, Henry

In a situation of great uncertainty, it is even prudent to hoard and not immobilize funds for the long run. [The book] provides us a visual example. Let’s assume that uncertainty increases because people expect an earthquake. They start to hoard, i.e., they increase their cash balance, which gives them more flexibility. This is completely rational and beneficial from the point of view of market participants. The alternative is to immobilize funds through government spending. The public production of skyscrapers is not only against the will of the more prudent people; it will also prove disastrous if the earthquake is realized.

A government should not build skyscrapers when everyone expects an earthquake! Does one need economic theory to make such an argument? But if the economy has gone quiet and there are useful things a government can do—perhaps reinforcing existing buildings against future earthquake damage—why wouldn’t that make sense within the terms of this argument? It’s a metaphor that doesn’t hold up, it doesn’t explain why Keynes is wrong, and it would certainly never convince a Keynesian.

Let me get to the problem expressed in this paragraph in the review:

As [the book’s author] points out in contrast to The General Theory, it is not aggregate supply or aggregate demand that is important, but their composition. If, in a depression with a distorted structure of production, in a liquidity trap situation, aggregate demand is boosted by government spending, the existing structure cannot produce the goods that consumers want most urgently. The solution is not more spending and more debts, but debt reduction and the liquidation of malinvestments to make new and sustainable investments feasible. [Emphasis mine]

I absolutely agree with him that the solution is to leave recovery to the private sector as they find their way toward profitable outcomes. But to use “aggregate demand” in the same sentence as “structure of production” must leave the argument confused. Even more certainly, to include mention of “a liquidity trap” will bar entry to the world of Classical economics. Demand is constituted by supply; according to Say’s Law, supply is demand. Aggregate demand and aggregate supply are not two separate entities. There is no such thing as an independent force that can be described as aggregate demand.

If you want to get to the essence of Say’s Law you must never think in terms of aggregate demand and aggregate supply. Just drop it from all conceptual discussions of the economy and I think, although I can’t be sure, you will find yourself necessarily thinking about issues in the same way as the Classical economists. As I have argued in my Say’s Law and the Keynesian Revolution (Elgar 1998), if you want to defeat Keynesian economics, you need to wage war on the very notion of aggregate demand. Nothing else will do.

* * * *

Photo of Steven    KatesDr Steven Kates currently teaches economics at the RMIT University in Melbourne, but spent most of his working career as the Chief Economist for Australia’s national employer association, the Australian Chamber of Commerce and Industry, and as a participant on Australia’s Productivity Commission. If he has a mission in life, it is to see Keynesian economic theory disappear from our textbooks and the return of the classical theory of the cycle as the guide to economic policy. He is the author of Free Market Economics: an Introduction for the General Reader which explains what economic theory looks like if the entrepreneur is placed at the centre of microeconomic analysis and in which Say’s Law is brought back as the core of macro; Says Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way, arguing that Keynes was not simply wrong about the classics, but in making legitimate the concept of aggregate demand failure—and quite parentless Say’s law of markets—the consequence of Mr Keynes has been ruinous for theory and policy alike..

* * * *

* Keynesian follower Paul Sweezy declared in 1947 about Keynes and his General Theory … that the “Keynesian attacks, though they appear to be directed against a variety of specific theories, all fall to the ground if the validity of Say’s Law is assumed” (p. 105). Thus, it was important that Keynes and his followers “discredit” Say’s Law.

Keynes’s “refutation” of Say’s Law was the most influential of the twentieth century. Yet as Henry Hazlitt (1959) points out, Keynes “refuted” Say’s Law by taking a passage from Mill in which he states that
the means of payment for commodities is simply commodities. . . .

Could we suddenly double the productive powers of the country, we should double the supply of commodities in every in every market; but we should, by the same stroke, double the purchasing power. (Quoted in Hazlitt, 1959, p. 34)

Keynes targets that passage as being false on its face because it allegedly declares that every good produced automatically will find a buyer and, thus, recessions are impossible, writing:

Thus Say’s Law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment. If, however, this is not the true law relating the aggregate demand and supply functions, there is a vitally important chapter of economic theory which remains to be written and without which all discussion concerning the volume of aggregate employment are futile. (Keynes, p. 26 )

Harrington also makes a similar statement, declaring, “Say’s Law maintains that if business can produce products, it can sell them. The Great Depression discredited Say’s Law” (p. 31). Thus, Mill’s chapter that was written to explain what did not cause business recessions has been turned into something that was not written at all: that classical economists claimed “full employment” always was the norm.

Yet, as Hazlitt points out, Mill (1848) himself in the very next passage explains the context of his previous statement in which he says, “It is probable, indeed, that there would now be a superfluity of certain things” (Hazlitt, 1959, p. 35). Thomas Sowell (1974, p. 43) quotes Mill (1844) elsewhere saying that “production is not excessive, but merely ill-assorted.” Likewise, on that same page, Sowell quotes Ricardo who says that “it is at all times the bad adaptation of the commodities produced to the wants of mankind which is the specific evil, and not the abundance of commodities.” Ricardo added,

Men err in their productions (but) there is no deficiency of demand.

In other words, the same people who recognized and agreed with Say’s logic also recognized that business recessions were a possibility and that they themselves had observed them. As Hazlitt (1959) puts it:

If you had presented the classical economists with “the Keynesian case”—if you had asked them, in other words, what they thought would happen in the event of a fall in the price of commodities, if money wage-rates, as a result of union monopoly protected and insured by law, remained rigid or rising—they would have
undoubtedly replied that sufficient markets could not be found for goods produced at such economically unjustified costs of production and that great and prolonged unemployment would result. (p. 36)

Thus, the critics of Say’s Law have claimed that it is absurd on its face, and that it denies something that has been observed many times in history: the business recession. Yet, as those who support Say’s Law might ask, “How could a chapter that acknowledges the presence of a business recession then deny that such a recession actually was taking

Indeed, Say’s Law is not about the denial of recessions or even a partial overproduction of goods relative to demand; it is about dealing with the claims that a recession occurs because of a general overproduction of

[Footnote adapted from William L. Anderson’s “Say’s Law and the Austrian Theory of the Business Cycle”]

Sagrada Familia, by Antoni Gaudi

Construction on the Sagrada Familia began in 1883, when famed architect Antoni Gaudi first laid the blueprint for his now-iconic Barcelona church. Gaudi devoted his last years to the project, and 130 years later, it's widely regarded as one of the most stunningly unique buildings on Earth. It also has yet to be completed…

But it will be:

Using advanced aeronautical design software, [New Zealand born architect] Mark Burry* and other architects have been able to reverse engineer Gaudi's models from leftover shards. Today, Burry is among a group of architects leading construction on the church's central tower, which, when completed, will stand 566 feet above the ground, making it the tallest church on Earth.
    But the fact that they had to use 21st century software to realize a 19th century vision stands as testament to Gaudi's avant garde design language.
    "We had to look to other professions who've actually tackled the complexities of the Família," [says Burry]. The only equivalents, he added, are the initiatives undertaken by today's car, plane, and ship designers. "They've been grappling for decades with the very same issues that Gaudí was putting up as architectural challenges."
    It also speaks to Gaudi's breathtaking ambition. According to biographer Gijs van Hensenberg, Gaudi envisioned the Sagrada Familia as an encapsulation of the entire Catholic history — a "Bible written in stone" that radically blends Gothic tradition with modernist sensibilities. "He's someone who reinvented the language of architecture," van Hensenberg said.

*Interested in this? Then you might like to know that Mark Burry will be lecturing around the country next week as this year’s Futuna Lecture:

Professor Mark Burry is a New Zealand born architect and was a lecturer at Victoria University before moving to Australia and is now Professor of Innovation and Director of the Spatial Information Architecture Laboratory at RMIT University, Melbourne.
    Mark will speak about his ongoing work with the construction of Antonio Gaudi's Catholic Basilica 'Sagrada Familia' in Barcelona Spain as well as his continuing spatial design research at the Design research Institute (DRI) in Melbourne.

Monday, 11 March 2013

‘Climate of Freedom’ Tour

In just under three weeks from now, Christopher Monckton will begin traveling the country to knock over the many manufactured myths of the warmist “consensus.”  His method: identifying errors by the climate mainstream that, he says, always and invariably fall in the direction of “undue alarmism and flagrant exaggeration.”

Monckton is much bashed by his enemies, probably because instead of offering blancmange he takes the battle to his enemies—like he did earlier this year, for example, when he suggested the newly-inaugurated President Obama

has been taken in, hook, line and sinker, by catastrophic anthropogenic climate alarm [and would] continue to inflict crippling taxes and regulations in the name of saving the planet from 'global warming.'

One isn’t supposed to say these things.

Nor is one supposed to point out in plain English, as he did in two Open Letters to John Key (Letter One, Letter Two), what our Prime Minister’s ridiculous ’50 by 50’ policy on “emissions reduction” means  ….

This means that within 41 years - the working lifetime of a high-school graduate today - the policies which you propose to introduce will have shut down, deliberately, consciously, and to no environmental benefit whatsoever, more than one-half of the entire New Zealand economy. You propose to throw your nation back in the direction of the Stone Age - electricity one day a week if that, automobiles replaced by horses and carts, elevators replaced by stairs, all aircraft grounded, the conquest of space abandoned, factories silent, several hundred thousand jobs destroyed and transferred to China, the machine-press and combine-harvester replaced by the hammer and sickle.

… and, again, on the plain meaning of the the Emissions Tax Scam by which the Prime Minister hopes to bring this about:

your proposal to command the reshaping of the economy from the centre has no merit, not merely because there is no scientific or economic need for it, but because, even if there were, it cannot and will not work.
    By any definition, emissions trading is not really trade – it’s rationing. The government puts a limit on the amount of carbon dioxide industry is allowed to emit (a “cap”). and then unused quotas can be sold. It is certainly not a market operation because the key feature is not the buying and selling but the government limit.
    This is not a cap-and-trade system: it is more accurately called a “cap-in-hand” system; the important feature of the system is that productive people have to go cap-in-hand to people who have never done a day’s work in their lives to ask for permission to be productive. The truly bizarre part is that these finger-wagging clipboard-wielding people who have never raised a cow, laid a brick, or drilled for gas – who have done nothing except get in the way of those who have – still expect society to provide them with food and a warm house. Presumably by magic… 
    We can no longer afford the luxury of over-extended, over-ambitious, centralized government. The call for “action” in the face of climate change is overwhelmingly for government action to place limits on private action.
    Since this will of necessity concentrate vast additional powers in the hands of government it is not merely doomed to ignominious failure; it is not merely guaranteed to increase your nation's "carbon footprint" under the guise of taking steps to reduce it; it is an explicit and abject abandonment of the individual freedom for which the National party is supposed to stand.

No wonder his enemies don’t like him.

Catch up with from 1st April to 23rd April, anywhere from Whangarei to Invercargill.

‘Summer Lemons,’ by Jesper Sundwall

One of my favourite local artists, Jesper Sundwall, has a new piece in the window at the Artsight gallery.

Check out the lemons up close, he told me a lovely story about how he had painted them first with store bought lemons but wasn’t satisfied until he repainted them using some old fashioned lemons from a friend’s tree.

QUOTE OF THE DAY: On patriotism

“Each of you, for himself, by himself and on his own responsibility, must … for himself
alone decide what is right and what is wrong, and which course is patriotic and which
isn't. You cannot shirk this and be a man. To decide it against your convictions is to be
an unqualified and inexcusable traitor, both to yourself and to your country…”
            - Mark Twain

Another tax

The more expensive governments make it for employers to hire people, the fewer people will be hired.

Enter, stage left, the grey ones, bearing with them an opinion that Fringe Benefit Tax should ne now be levied on every employers providing car parks for their staff—car parks that for most senior staff is absolutely necessary in any city with the parking problems of, say, the country’s biggest city.

So we have another tax. Another fringe benefit tax. Another tax on employment—at a time when offering employment is increasingly hard to afford.

Thank goodness for the revenue collectors, eh.

PS: The fringe benefit tax—a tax on having staff—is a relatively recent abscess on the body of business. Can you guess which bright spark Minister of Finance introduced it?

Friday, 8 March 2013

"Libertarian Porn”

Guest post by Jeffrey Tucker

    Twitter began by calling it "libertarian porn" -- the longest and most sustained attack on the State leviathan from the U.S. Senate floor in modern history. But then it became more. And more. It went on for 13 hours. It was about halfway through when the junior senator leaned over to an aide and whispered: "Can I get a candy bar?"
    He deserved it. Before the end of the night, the significance of what he was doing was being described as "epic." What began as a surprise political move became a bipartisan cry against all the evils of our times, which somehow all come down to the egregious power of the executive state and its omnipotent power over our lives and property. It became political theatre unlike any we've seen in many years. The target: all terrible things.
In short, it was a beautiful day on Capitol Hill.
    It all came courtesy of Senator Randall Paul, the man who has brought truth, excitement, fun, and the appearance of real-life morality back to the Senate.

    We aren't used to this. What normal person pays attention to politics, much less to the Senate? Here was something that actually happened -- for once. Something important. Something even... epic.
    This is a story about one man who decided to say, "Enough." It's a so-called "talking filibuster," a last-ditch effort that stops legislative action completely. Something undertaken only in an epic case, a time when there is a hinge of history. Is this that hinge?

Alice in Wonderland? Nicely played, Senator.

    Senator Paul's action began just before noon. He started by standing alone against the nomination of John Brennan for the head of the CIA. This Brennan guy is the top advocate of the drone program and the White House's super-creepy claim of the right to kill American citizens on American soil using unmanned aircraft.
    The White House that wants him appointed refuses to rule out killing you and me if dear leader thinks it is necessary. The policy as fact has been in place for a long time, but this administration wants it formalized.
    Are civil liberties at stake? It's a no-brainer. Well, why is there any controversy about this at all? How much despotism can the American people stand? How did we come to this point? How long will the politicians in Washington pretend like this isn't happening?
    There is an elephant in the living room. That elephant has been nominated to head an agency that has been up to no good since its inception after World War II. An agency that operates in secrecy and embodies everything that is wrong with the whole institution of government. And now some guy who favours the right to kill you and me on a whim has been tagged to head the agency.
Something's gotta give.
    Sen. Paul seemed to break the taboo. He finally said it: This winner of the Nobel Peace Prize is asserting the right to kill citizens right here, without any recourse to courts or law or anything related to the dead letter called the Constitution. His appointee is ready to do the deed.
    In his first hours, Sen. Paul said:

When I asked the president, can you kill an American on American soil, it should have been an easy answer. It's an easy question. It should have been a resounding and unequivocal, 'No.' The president's response? He hasn't killed anyone yet. We're supposed to be comforted by that.

    Again, his one question: Why won't the president say that he won't kill non-combatants with drones on American soil? The White House pretended none of this was happening.
    Just before noon yesterday, Rand Paul stood alone. Then others joined him. Still others. Rand talked and talked. He went on and on. The online crowd began to grow. And grow. The tweets grew and grew. Facebook went nuts. It went on all day. The Senate chamber filled up by the evening. The fracas became frenzy and then became a mania. Hashtag #StandWithRand became the Internet meme of the night.
    Here is how the global Twitter map looked a few hours before the filibuster ended, with #StandWithRand as the top hashtag used around the world (the larger the hashtag, reflects a larger number of tweets emanating from that area.)

    Everyone else is talking about what this means for the senator's political career. I have high respect for him, but truly, this is not the point. It is not about who is up and who is down. It is about the power of the government over the individual. It's been growing egregiously for a century. It's become absurd to the point that the "peace president" claims the right to kill us. When do we say no?
    Sen. Paul spoke for the multitudes. And he continued. And continued. It was brilliant. It stopped only once biological needs called.
    It's pathetic that it had to come to this to see some meaningful protest. Still. It's thrilling that this protest has finally come. That The Wall Street Journal and The New York Times heaped disdain on the Senator confirms that he was on the right track.
    I have my own theory about the meaning of all of this. I think it is about the digital revolution finally reaching the most impenetrable apparatus on the planet. Sen. Paul was the instrument, but the tune is made of technology.
I must invoke the memory of the prophet of our age Aaron Swartz. He is dead due to horrible hounding by the government. But before he died, he was working on a new software package that was extremely powerful. It offers a way to apply digital media to the cause of politics. He showed the power of his model with the 2012 attack on SOPA.  Pretty much working alone, he defeated this cursed legislation that would have disabled the Internet.
    Like most people, I long ago lost faith in the political process. It is a waste of time. It is a game for suckers and fools.  The government owns the system, and it will always be so, no matter who is ostensibly in charge.
    Yet... I respect Swartz. He might have been on to something. He posited that there is power when the people can swarm the state apparatus with digital communications: emails, petitions, tweets, memes, digital protests. This is different from regular politics. It is turning the machine upside-down and inside out, bypassing the lobbying, rallies, voting, and electing entirely in favour of direct confrontation between the ruled and the rulers.
    Remember that government is the most paranoid institution on the planet. It is extremely jumpy for that reason.  You know how the petty thief is always watching his back, worried that he is going to get caught? Government is like that. It is always and everywhere engaged in criminal activity. It mainly worries about being found out. It fears discovery. Digital media permit every American to say, "You have been found out!"
    Is that what's going on? It has made a difference in this case. The drone issue has been one that has sent a powerful signal to the power elite.
    Sen. Paul is a great political entrepreneur. He stepped out in front -- alone at first, but with the whole body behind him eventually, and today a large whole of the people too.
    Government should fear the people. Today, at least some sectors of the government are a bit more afraid than they used to be. My friends, that's victory. It is not about who will gain power next. It is about dismantling power completely, one step at a time.
    "Can I get a candy bar?"
    Someday, that candy will be freedom itself. It's coming. It's going to happen -- with or without our political leaders.
Jeffrey Tucker
Laissez Faire Club

Jeffrey Tucker is the publisher and executive editor of Laissez-Faire Books, the Primus inter pares of the Laissez Faire Club, and the author of Bourbon for Breakfast: Living Outside the Statist Quo, It's a Jetsons World: Private Miracles and Public Crimes, and A Beautiful Anarchy: How to Build Your Own Civilization in the Digital Age, among thousands of articles,

Thursday, 7 March 2013

ECONOMICS FOR REAL PEOPLE: First meetup for 2013!


Our friends at the Auckland Uni Economics Group kick off for the year tonight at Auckland Uni Business School with free pizza and book giveaways.

You’d be a fool not to join them. Here’s their invitation:

Hi all,
Hopefully you had a good break and are ready for another great year. We sure are.
With global economies and financial markets still in turmoil, what better time  to discuss the importance of economic ideas.
So, come along tonight to the first Economics Group event of the year and hear economic ideas and economic thinkers kicked around.
We will also be discussing some of the upcoming events taking place this year.
If you have seen us on Facebook, or stopped by our stall at O-week, and would like to find out more, then tomorrow's meeting is definitely a great opportunity.
        Where: Case Room 3, Level Zero, Business School Building
        Date: Thursday, March 7th
        Time: 6pm
We look forward to seeing you there
PS: Did we mention there will be pizza and some book giveaways?

The mystery of China’s “missing province”

There is a “missing province” in China that explodes the myth about China’s strong economic growth.

You see, China’s political leadership is nominally communist, but in every important respect is the same as Chinese political leadership since the time of Confucius: they have the “Mandate from Heaven” to live off the backs of others, just as long as they deliver the national goals, be they national pride, military success, and/or economic growth and prosperity.

Succeed in delivering the goals, with or without bloodshed, and the leadership has a job for generations—the makings of a dynasty. Fail, and the people will be at your throats faster than you can say “peasant uprising.” 

For the last two decades, the national goal has been delivering economic growth and prosperity—blessedly, for the rest of us, but as times get tougher and the populace gets restive, different goals might emerge which will be less of a blessing.

And times are getting tougher—not that you’d know it from Chinese GDP figures, which regularly show growth figures rocketing at over 7% every year, even while manufacturing surpluses pile up and ghost cities abound. But, as Li Keqiang, then-party secretary of Liaoning and now soon-to-be premier, said in 2007: GDP statistics were “for reference only” and “man-made.”  Completely man-made, especially when its imperative to maintain the illusion of continuing prosperity :

Early this year, China found a missing province, one doing very well for itself.  The total GDP for 2012, according to the National Bureau of Statistics, was 51.9 trillion yuan.  The total GDP figures of China’s 31 provinces for 2012 added up to 57.6 trillion yuan, giving the phantom 32nd province an annual GDP of 5.7 trillion yuan.  For many economists, this was just a shining example of what they have believed for years: that China’s GDP numbers are questionable at best, and often exaggerate China’s growth, largely for political reasons.

Note that the soon-to-be Chinese Premier did not say this publicly, “rather, his statements (reflecting what many officials surely believe) came to light in 2010 in a U.S. government cable released by Wikileaks.”

There are a number of reasons for doubts about the accuracy of China’s GDP, as Eve Cary notes at’ The Diplomat’:

  • .To begin, there are structural political disincentives to reporting accurate GDP figures at the local level.  Local officials are promoted almost entirely on the basis of their locality’s growth rates, giving them a huge incentive to report increasing GDP figures, no matter if they are or not.
  • At the central level [where the Mandate of Heaven bears most ominously], it is politically imperative that GDP continues to rise, primarily because the central government has erected a system on the promise of economic success, and fears instability should growth decline and unemployment rise.
  • There are also questions about the mechanics of compiling and calculating the GDP figures, including how much inflation is accounted for.
  • Economists also doubt China’s GDP numbers because they seem to be compiled unnaturally fast: the NBS takes 2 weeks to collect its data, compared to 6 weeks for the much, much smaller Hong Kong, and 8 weeks for the United States.  This year, 2012 GDP figures were published on January 18th.
  • Finally, economists are concerned about the sampling methods of the NBS … officials still “rely heavily on an old-fashioned input-output model of industrial value-added derived from the era of Soviet-style central planning” that is able to measure government investment, but not other sectors, such as household spending.

Take Chinese figures with a pinch of salt.  They’re not as inaccurate as Soviet-style figures. But they’re not far off it.

Wednesday, 6 March 2013

Hugo Chavez as dead as Venezuelan freedom [updated]

_ChavezPennHugo Chavez, the socialist who was celebrated by idiots while engineering Venezuela's rapid mass pauperisation, is dead.

The only thing about which to mourn is what he did to his country.

UPDATE: Here’s what Jeff Perren and I wrote for The Free Radical magazine back in 2007:

A challenge for socialists under thirty
by Peter Cresswell

What do you do when reality confronts your most cherished beliefs with unwelcome facts? "When the facts change," said economist John Maynard Keynes, "I change my mind. What do you do, sir?"
clip_image002[4]I ask because any socialist under thirty who is reading this will, if they're honest, be looking at the collapse of petro-socialist Venezuela and asking themselves some serious questions about socialism in practice. Venezuela's agony is not unique -- anyone over forty who's ever seen a news broadcast has seen it all before. Her fate was shared by every single country anywhere that ever adopted the destructive principles of More Socialism, More Government and the demonisation of capitalism and wealth production.
Both the collapse and the spiral into totalitarianism are the inevitable results of those ideals.
Peter Schwartz suggested back in 1995 that anyone over forty who had watched the collapse of the Berlin Wall and didn't draw the necessary conclusions about the abject failure of socialism as an ideology was either deluded, dishonest or braindead.

Those too young then but who share those same ideals now should have been watching current events in Venezuela with the same interest, and hopefully with your brains switched on. Those of us old enough to have watched the crumbling, the penury, the totalitarianism, and the eventual collapse of every socialist regime known to man know what socialism looks like when implemented. This is your generation's opportunity to watch and to learn.
clip_image004    The process is the same everywhere: First they nationalise industry, then they censor all opposition, and then slowly the people starve -- and by that stage there's no one left to speak out. For those with eyes to see, Venezuela is just the latest tragic lesson.
Chavez's nationalisation of Venezuela's energy and telecommunications industries, of oil fields, banks and steel producers, these were just his first steps. His recent ham-fisted closure of the only remaining opposition TV station is the next. In the socialist gulag, free speech is not to be trusted, as Yahoo News reported:

President Hugo Chavez's clampdown on opposition television stations widened Monday as police used rubber bullets and tear gas on demonstrators protesting what they called an attack on free speech. [The protests followed the] shutting-down of the country's oldest television station, the openly anti-government Radio Caracas Television network (RTC). On Monday several people were injured as police in Caracas fired rubber bullets and tear gas to put down a demonstration against the RCTV shutdown, following the fifth straight day of protests... RCTV was replaced by TVes, a state-backed "socialist" station...

Events such as these make the news.. The slow, stale stagnation of life (and death) under Chavez doesn't. Author Jeff Perren describes life under Chavez in the article below.

clip_image006Like I say, to those of who saw the heyday of socialism, we look at the destruction of yet another country by the failed ideology of socialism this with the benefit of hindsight. If we're honest about what we've seen, none of this is either unfamiliar or unpredictable. Those productive Venezuelans, for example, who went on nationwide strike four years ago to protest the imminent liquidation of their property rights and themselves under Chavez's communist revolution knew what they were about, and knew exactly what was afoot. Jonathan Hoenig makes their point:

As Ayn Rand wrote, "without property rights, no other rights are possible." Chavez’s socialism, under which private property does not exist, is bringing this once-promising country back to the third world. He might have called Bush “El Diablo”, but it doesn’t take much to see the effect of Chavez’s benevolent populism.

Simply put, he is leading his people down a pathway to hell.

And note well: It's the same pathway down which every single socialist country before them has gone. Make no mistake: this is socialism's inevitable result. As Jeff Perren sadly concludes, “Given the country’s current trajectory, it’s almost inevitable that many people will have to suffer and die, needlessly, before Chavez’s increasingly harsh and unworkable socialist policies are discarded.”

I urge any young socialist reading this not to let this suffering and despotism happen with your sanction. Socialism is a bacillus as destructive as smallpox. I implore you to learn from the suffering and dying in Venezuela; to refuse to sanction it; and to help wipe the bacillus that caused it from the face of the earth, just as smallpox itself was once eradicated.
    Leo Tolstoy said once that everyone thinks about changing the world, but no one thinks of changing himself. I'd like to turn that around. Changing yourself and your own ideals for the better is precisely where changing the world actually starts. That's where positive change begins. The battle against the destruction and human misery brought about by the ideals of socialism begins by rejecting those same ideals in yourself, and then by ensuring that what's being done to Venezuelans in the name of "people power" isn't done to you, or done in your name.
    "When the facts change, I change my mind. What do you do?"

Venezuela, Your Three Minutes Are Up
by Jeffrey Perren

By now, anyone following the news even slightly is aware that Venezuela has been speeding toward full socialism for the past few years, picking up speed with every passing month. Abstract debates of the value and validity of socialism versus capitalism are worthwhile. But, it's possible for those living under the latter to lose sight of the very real, everyday effects on those suffering under the former. A few words in her second language from a college student in Venezuela should help bring the issue closer to home.

Before I turn 18, I was already went to several manifestations [political demonstrations], run from the military, smell the tear gas..., seen people die not only because of political violence but also for poverty, hungry and common delinquency.
[Posted by ‘Corina’ at

Her English may be flawed, but her thinking is perfect. She goes on to say

Chavez supporters screamed 'larga vida al socialismo' [long life to socialism] know that if the democracy was in danger before, now it was killed for sure... in a very legal way. Of course, people should understand that not all things legal are democratic or fair. The law it’s a tool, [it] depends on how do you use it.

Shades of Atlas Shrugged.

History sometimes repeats itself with depressing similarity. In January 1969, Ayn Rand published an essay in the magazine The Objectivist entitled ‘The 'Inexplicable Personal Alchemy.’ In it, she discussed an editorial in The New York Times that reported on a Soviet trial of several young dissidents. After being sentenced for merely speaking his mind about the then-recent invasion and suppression of Czechoslovakia, a young man stated "For three minutes in Red Square, I felt free. For that, I'm happy to take your three years."

imageDuring the same historical period, pay phones were common around New York City, mobile phones being largely limited to limousines. A user could insert a quarter and receive in exchange three minutes of talk-time. When the time expired a recording would come on the line to inform the caller that "Your three minutes are up." At that point they could deposit more money to continue the conversation.

Sadly, some citizens of Venezuela will not be allowed to deposit another quarter in the near future, nor even to have quarters. President Hugo Chavez and his supporters (which, judging by recent election results there, is a large percentage of the country) will make sure of that. Those who would be willing to pay a quarter — for a phone call, a slice of meat, or other things we take for granted — will simply find that those things are not there.

But goods and services are not the only victim of the Venezuelan government's socialist policies. Chavez and his socialist government has been steadily nationalizing the telecommunications business in Venezuela. Seizing material goods isn't the be all and end all of socialist-inspired tyranny. No one must be allowed to criticize the plan, for that might expose it to uncomfortable facts.

The de facto nationalisation of TV and other media began some time ago. For example, when Chavez gives a speech, all stations are required to interrupt programming to carry it live in its entirety. That entirety sometimes lasts hours.

The recent shutting down of the popular Radio Caracas Television and its replacement by a state-funded channel -- by the simple expedient of refusing to renew its broadcast license -- completes a now-familiar pattern.

RCTV was the only channel still critical of Chavez that had an audience of any significant size. Chavez ripped their broadcast license, claiming that the channel “poisoned” Venezuelans with programming that promoted capitalism. One thing Chavez knows well -- as does many a socialist dictator -- is that socialist ideas can't compete freely with those of capitalism. That is, they can't both compete and at the same time hope to rationally persuade the general public who just wants a better life. Hence, force must be used to shut off debate.

But in at least one instance, there was an opposing voice. As Corina puts it so eloquently:

Suddenly there’s a line in the middle of the TV screen and the rebels’ TV Channels shows in the right side Chávez speaking and in the left side, a familiar street of Caracas downtown, some smoke and confusion and some letters that says "1 muerto..2 muertos" [1 death, 2 death]. And then no TV at all, no Chavez, no streets, like the TV were damaged or something.

Venezuela could use a John Galt to ensure that the opposing voice isn't silenced. But, alas, no such thing is likely there anytime soon. Very soon, no one in Venezuela will be allowed to say anything the government might disapprove of, even were they able to obtain the means. To guarantee that, the National Assembly recently passed by a simple majority the "Law on the Social Responsibility of Radio and Television".

Shades of Soviet Russia. Or, the FCC in the U.S. under JFK circa 1962.

(The title of the Act alone should tell you all you need to know, but if you wish to know the full line-by-line horror, details can be found here: RethinkVenezuela.Com/Downloads/MediaLaw.htm. In any case, legislation of this sort is familiar to those who have paid any attention at all to the actions of the FCC in the United States for the past fifty years. The difference is that Venezuela takes such things more seriously.)

Many people in Venezuela, however, have little time to think about their loss of free speech given the loss of simple food items. Reports are becoming more frequent that, in true 1960s Soviet style, grocery stores are no longer stocking the basic foods normally taken for granted — sugar or black beans, for example.

These have long been staples in the average Venezuelan diet. But because Chavez is so determined to "help the poor" in the socialist way, soon neither rich nor poor will be able to find them in Venezuelan grocery stores, and Chavez will have made everyone poor, and everyone hungry.

Chavez' price controls are having the same effects they've had everywhere else in the past 200 years. The Venezuelan President's moral purity — he excoriates George Bush while cosying up to Iran's glove-puppet dictator Ahmadinejad — apparently is matched by an equal understanding (or lack thereof) of the basics of economics.

The effects have already been felt in economic terms. Compare some statistics for the region. The GDP per capita of Chile is $12,600, that of Argentina $15,000. Even in Mexico, not exactly a rich country as measured by the life of the average person there, it's $10,600. In Venezuela however, the figure is $6,900, behind even the Dominican Republic at $8,000.

This in a country that supplies a full eleven per cent of U.S. oil imports, and who received over $46 billion last year in oil receipts. Of course, as oil production continues to decline, those numbers will worsen. The lack of investment and innovation that is part of the state-dominated Venezuelan oil business will see to that.

But to make matters worse, Chavez has recently completed the takeover of the oil business in Venezuela. Abrogating contracts and ignoring non-Venezuelan company rights is just socialist 'business as usual.’ After all, if individual property rights are chimera, and private properties are anathema why shouldn't he act 'in the name of the people' to take what belongs to 'the people.’ La gente? “Ése es yo.”

All this should come as no surprise to observers of events there of the past few years. Just as Hitler was plain for seven years or more before he was elected, so too Chavez has made no secret of his goals and plans. The comparisons don’t ends there. As the new law granting Chavez sweeping powers was enacted, National Assembly President Cilia Flores declared, "Fatherland, socialism or death. We will prevail!" Citizens of Nazi Germany would have found the rallying cry familiar. The Nazis, fortunately, did not prevail – taking the third of the three options espoused -- but many others died seeing that they did fail. Let's hope Corina in Caracas isn't one of them who dies as part of today’s opposition.

There is a point here that extends beyond Venezuela, and that is this: After decades of real-life experience in dozens of countries all across the world, anyone who still believes that applied socialism can have any other result than what we are now seeing in Venezuela simply doesn't believe in scientific induction. No matter how 'scientific' or 'rational' they may claim Marxism to be, it's the same old fantasy wherever it thrives.

That telephone operator phrase from the 1960s mentioned above rapidly became a euphemism for someone whose life was about to end abruptly. Venezuela's three minutes are just about up.

Jeff Perren is a professional writer with a background in philosophy and physics.

Cartoons by Cox and Forkum

Addicted to Asset Bubbles

Photo of Joseph T.    SalernoGuest post by Joseph Salerno, based on the recent adventures of ‘Helicopter Ben’ Bernanke

Helicopter Ben Runs Out of Ideas for Creating Money
Circle Bastiat, January 15, 2013

U.s. Federal Reserve Board chairman Ben Bernanke confided on January 14 that he is unaware of any new method of stimulating American economic growth. Bernanke said: “As far as I’m aware, there’s no completely new method that we haven’t [already tapped].” So Helicopter Ben has run out of innovative and unconventional ways to create new money.
_bernanke-helicopter    Lest you be tempted to breathe a bit easier, however, rest assured that the now conventional method of quantitative easing, involving the Fed’s monthly purchase of $85 billion worth of mortgage-backed and U.S. government securities, seems to be working just fine according to Bernanke and he foresees its continuation. Noting the stubbornly high unemployment rate combined with the low inflation rate in the U.S. economy, Bernanke stated, “That is the case for being aggressive, which we are trying to do.” Although he is “cautiously optimistic,” he does promise to closely monitor the risks, efficacy, costs, and benefits of this inflationary policy.
    I guess the rapid asset price run-up in stock and commodities markets, which are nearly back to financial bubble levels, and booming farmland prices do not count in Bernanke’s benefit-cost calculus. More likely, Bernanke accounts them as a benefit, which, via the “wealth effect” [whereby folk spend more when they’re wealthier, or think they are], will induce another debt-driven consumption spree on the part of the American public that will stimulate economic growth, i.e., create another bubble economy.

Recreating the Asset Bubble: The Fed’s Plan for Economic Recovery
Circle Bastiat, February 11, 2013

While Keynesians continue to sing that lame old song about insufficient aggregate demand stimulus and the horrors of austerity and “market” monetarists prattle on about deficient growth in nominal GDP, the signs of an incipient American asset bubble become more evident every day. In fact, it would not be overstating the case to say that the U.S.Federal Reserve is deliberately aiming at recreating an asset bubble as a means of rekindling the historically unprecedented consumption booms of the latter half of the 1990s and the first part of the last decade. These consumption manias were driven by the “wealth” or “net worth” effect, pithily described in the metaphor “using one’s home as an ATM machine.”
    As the following graphs show, Fed monetary policy is succeeding in pumping up total net worth, which consists mainly of financial assets plus real estate owned by households (and non-profit organisations) minus household debt.

total net worth

What the above graph shows is that total American net worth peaked at $67.3 trillion in Q3 2007 and fell precipitously to $51.1 trillion in Q1 2009. This $16.1 trillion decline in U.S. household wealth exceeded the combined annual GDP of Great Britain, Germany, and Japan. The Fed has since succeeded in pumping up net worth, to $64.8 trillion by Q3 2012, which is only $2.5 trillion below its level at the peak of the bubble. Although the value of household real estate remained $5.5 trillion below its bubble peak for Q3 2012 and has been slowly increasing, the Fed has been wildly successful in pushing up the value of U.S. financial assets. This is revealed in the the Wilshire 5000 Total Market Index. This index tracks the total dollar value of all U.S.-headquartered equity securities with readily available price data and includes more than 6,000 firms.

Wilshire 5000 TMI

Note in the graph above that the index reached its peak of 15,244 in December 2007, then went crashing to its trough of 6,800 by March 2009. By January 2013 the Fed’s inflationary policies drove it past its previous peak, reflating the index by 2,000 points in 2012 alone. But perhaps the most telling graph is the ratio of household net worth to GDP.

This graph shows that for over 40 years, from 1952 until the dot-com boom began in the mid-1990s, the household net worth to GDP ratio fluctuated in a band between 300 percent and 350 percent. After falling back toward this range after the recession of 2001, the Fed’s monetary expansion interrupted the correction and sharply drove the ratio up by 100 percentage points in a matter of three years. The financial crisis set another needed asset price readjustment in train, but it was once again reversed by the Fed, which was desperate to re-inflate asset prices in order to first prevent a financial collapse and then to start another consumption boom. The ratio now sits at 400 percent—a level it first reached midway through the dot-com bubble—and is headed inexorably upward. Once housing markets in general begin to follow the lead of New York City’s and Washington, D.C.’s overheated residential real estate markets, we will be well on our way to another unsustainable asset bubble.

The Fed is Blowing More Bubbles
Circle Bastiat, February 15, 2013

As if any more evidence were needed that the Fed has succeeded, either through ignorance or design, in igniting new asset bubbles throughout the American economy, the Federal Reserve Bank of Kansas City just released a survey of bankers that confirms a continuing rise in U.S. farmland prices. The following chart shows the stratospheric year-over-year rise in non-irrigated cropland prices for 3Q 2012.

U.S. farmland prices

As reported by TheBlaze, one analyst noted, “If this trend continues . . . these agricultural areas may very well become ‘New Manhattans’ (as far as wealth is concerned).” The chart below from the report by the Kansas City Fed puts this stunning trend in temporal perspective and reveals that it extends across all farmland, including irrigated cropland and ranchland.

all farmland prices

Bernanke the Comedian
Circle Bastiat, February 27, 2013

Dr. Brendan Brown is an eminent financial economist in the City of London and the author of The Global Curse of the Federal Reserve, initially published in 2011 and just released in its second revised edition. In his book, Brown is critical of Milton Friedman and the monetarists for ignoring the effects of monetary expansion on interest rates and asset prices and for assuming that a stable price level indicates an absence of inflation. Brown adopts Rothbard’s view that the 1920s were an inflationary decade, because, despite the rough price-level stability that obtained, asset and commodities markets were “overheated.”
    Brown also rejects the monetarist argument that price-level stabilization is the sine qua non of economic stability. He argues that price stabilization policy is one of the “dangerous features of Friedmanite monetarism” which “Austrian critics have long highlighted” and “which in hindsight may have played a role in the growth in Bernanke-ism.” Finally, and most insightfully, Brown also maintains that deflation is effective—and indeed, necessary—to extricate an economy from the depths of a recession or depression.
    Needless to say, Dr. Brown is no fan of Chairman Bernanke. In fact, in a memo today, Brown perceptively identifies the comedic aspect of Bernanke’s testimony on the first day of his semiannual monetary policy report to Congress. Writes Brown:

Comedy according to the theorists of drama is based on inflexibility of character. The lead role cannot in any way bend his stereotyped behaviour even when this would avoid an accident or disaster which is looming. And so Don Juan byMolière is a comedy. Even when the ghostly statue of his slain victim threatens to take Don Juan on a fiery descent into hell, the lead character cannot show remorse and desist from his life of debauchery. Chekhov listed his Cherry Orchard as a comedy because the lead characters could not shake themselves out of their nonchalance and avoid bankruptcy by selling the cherry orchard of their villa to a property developer on which he would build bungalows.
And so we come to the monetary comedy which played out in Washington yesterday. Professor Bernanke, adamant as always that the road to economic prosperity and stability takes the form of a rigorous targeting of inflation and supremely confident in a good outcome to his massive monetary experimentation tells his Congressional questioners that he sees no signs of asset price inflation which would justify changing his present policies. This is the same professor who largely repudiates any concept of asset price inflation and believes totally that any such dangers can be avoided well ahead of time by skilful action on the part of an army of regulators following the recently expanded book of rules. And this is the same professor who denies that monetary disequilibrium played any role in the giant asset and credit market inflations of the last two decades.
There is another element in the monetary comedy under the title of “Fed chair’s semi-annual testimony to Congress.” This is the failure of congressional questioners to hold the professor to account. When he declared that there is no asset price inflation, there was no follow on question such as “but professor you still say there was no asset price inflation in the last great bubble and bust and deny that the Fed of which you were a leading policy maker was in any way responsible: why should we believe you now?”
    That there should be no such question is part of the comedy, in its literal sense.

* * * *

Joseph Salerno is academic vice president of the Mises Institute, professor of economics at Pace University, and editor of the Quarterly Journal of Austrian Economics. He has been interviewed in the Austrian Economics Newsletter and on