Why is it so important?

Easy… because without being able to spend more money than we can realize in revenue through taxation, we’re all going to die.  Just look around, this theoretically historically unprecedented permanently damaging possibility is sure to end the Republic as we know it:

President who tells us our senior citizens and military members will not get paid….

Bernake warns of catostrophy…

For others, our national security is at stake…. in fact, Al Qaeda itself might attack just because of this!

& on and on….

 With all of that looming, it’s not wonder someone has to be at fault….

There are alternative answers to defaulting itself, for instance let’s get rid of the ceiling altogether.  Or maybe, since a five dollar treasury bond and a five dollar bill are virtually the equivalent, why not give out more IOUs in a different form thereby removing the need for the ceiling in the first place?

But those ideas are centrist, so largely ignored and with a problem this large… someone has to be to blame.

So who is at fault?

Maybe the Tea Party’s fault?  Or maybe, like much of everything else, it’s Bush’s fault?  How about Governor Norquist?!?!

Or maybe there is no maybe.  Ask the brilliant policy minds over at The Rolling Stones, and they’ll tell you, that without question it’s the GOP’s fault.

For the logic minded, one might contend that the President, who refused to pass this perfect budget a year ago when his party controlled both legislative houses shares some blame.

But what do I know…. according to some Barack supporters, his only problem is being too much like the Big Gipper, the famous “let’s raise taxes” President…

The issue is, when you push predictions of doom and gloom for some scenario, blame has to be affixed quickly and preferably without relation to actual facts as that just muddies the waters.  Nope, the goal for almost every writer, seems to be scare tactics followed by blame.

There are a couple who have offered advice.  HBR for one had an interesting post about needing a moderator, perhaps Adam Smith.  It’s not an unpleasant thought and certainly a brilliant economic mind serving as moderator cannot help, but what most struck me about their advice is the same thing that struck me about most of those pieces blaming this or that: it misses who is truly responsible.

For when HBR states the Debt Ceiling Debate needs a moderator, I have to stop and say, they already do: the American public.  Certainly one could make the argument that the current moderators are abdicating their responsibilities and I might agree, but as much as one can delegate tasks, authority and responsibility cannot be delegated.

So sure, the public collectively can give moderator powers to Adam Smith or someone similar but alive, however the responsibility for the consequences of that process will still be the American people.

So…. is there a debate crisis?

Maybe not… as while many of us individually and seemingly ever single writer might view this whole process as out of control; seeing the whole thing as a demonstration in nothing more than the problems with this country, these are just mere opinions.

In all honesty, I’m sympathetic to that view.  However, the market place of ideas is free.  & If you analyze politics like one does the market, with the idea being the result cannot be wrong as the market is not wrong…

Then I think based upon the current political result I would submit a large enough percentage of voters have already cast their vote to continue the political infighting, applaud Pyrrhic victories, and any number of other actions which are designed to benefit their collective and not the average individual.

As proof of this reality, see incumbency rates, or polls which say cut things, but say no to all questions about what to cut, the current press articles being created because people are buying them, and more.  But even without those facts, the logic is simple: the current debate has to be ok with society at large because a free people is watching it happen and doing nothing, in a concerted effort, to substantially change anything.

So by virtue of its mere existence, it is the correct debate needed at this time.

& if it’s not?

Well, as Lincoln stated <paraphrased here>  ”As a nation of free men, we will live forever, or die by suicide.”

QE3?  Really?

What has the Fed in QE1 & 2 already spent?

A couple trillion, right?  IIRC – 800 billion here, a trillion there I think.

They spent it buying toxic assets, clunkers (link below… but… only in America is destroying 2 billions dollars in real property combined with giving people money to buy cars when we’re going broke is argued openly to be considered a success), GM, Fannie, AIG…. etc, etc, etc, but they have yet to tell anyone exactly where any of it went.

They have actively resisted calls for auditing.  & they have done this even while they argue how much all this was needed.  While they go to the American public and claim with all sincerity that if it weren’t for this spending, we’d all be so much worse off.

& they do all of this so without as even a mention of what the hell they actually did…. other than spend a sh!t ton of money we had to borrow and will force future tax payers to deal with.

Strauss-Kahn,_Dominique_(official_portrait_2008)

So what did he say?  Well, as usual, his improvable opinion, has to wrapped up in provable facts; the “global imbalance” (whole thing here via International Business Times):

…while the recovery is underway, it is not the recovery we wanted. It is a recovery beset by tensions and strains—which could even sow the seeds of the next crisis.

True.  Not only true, but also the reason why Egypt can’t be obviously predicted, as even the protesters are fighting amongst themselves.

Why?

Because the protests were born out of economic conditions and not a desire for freedom or Sharia Law.  This is why you can see the same unrest in Yemen, Jordan, the Sudan, and other countries.

This isn’t to say that a small faction, even a weak faction in Egypt like the Muslim Brotherhood, could never end up in charge.  They could.  They could use the fractured protesters against themselves towards their own aims and possibly turn Egypt into an Islamic state much like Iran.

This is a real fear.  & combine this possibility with two major changes coming to the Middle East:

1.  Iran getting *nuclear weapons with little more than talk from the international community; demonstrating they believe they are in a comfortable position of strength.

*(in 2015 or  2012, whether you believe public reports from Israel or the UK respectively)

2.  *Possible withdrawal of US forces from Iraq, leaving Iran very strong militarily.  They will immediately become the largest and most capable military force than all others in the region (great article via Stratfor).

*(Iraq doesn’t wish to be controlled by Iran anymore than the US wants this to happen.  So it’s possible the Iraqi parliament votes to keep US troops in country for insurance.)

People are naturally worried.  Either one of these alone is reason enough to fear instable states might flow towards Iran’s ideology, but when combined with everything else, concern is warranted.

The media of course has done what they do best.  Put up a false dichotomy by breaking this into only two sides; Egypt is becoming either an Islamist State or a Free Paradise.  The facts on the ground don’t support any particular conclusion at this time, but it’s tougher to write about that.

Just remember when reading the press reports that just a few short years ago most of these people were telling all of us how great Iran would become after the Green Revolution…. but I digress.

Our IMF Chief continues, using the factual and obvious instability in many countries, by warning of global imbalances, specifically (speech cont’d):

Growth in economies with large external deficits, like the U.S., is still being driven by domestic demand. And growth in economies with large external surpluses, like China and Germany, is still being powered by exports. As the IMF warned in the years leading up to the crisis—and as the G-20 has emphasized—these global imbalances….

Which is another fact.  There are trade imbalances between many countries with respects to China and Germany.  But then his facts stop, even though his words do not.

He moves forward by acting as if the two countries are the same.  Both seen as part of this “problem” based upon one and only one factor, which he ultimately blames for the global recession.  Not just is it to blame for the current state of the global economy, but he also predicts this imbalance could (speech cont’d):

….put the sustainability of the recovery at risk.

His evidence for this is factual data that China’s recovery might be too overheated for long term sustained growth.  But by using the factor of trade imbalances as a primary filter, he erroneously conflates the two countries all while ignoring significant differences, such as freedom and rule of law.

Both of which we know and for which we can demonstrate, are the main sources of poverty, disease, and starvation in the world.

To name but one obvious example, it’s not that Zimbabwe’s citizens aren’t capable of producing the food and other products they need.  It’s the oppressive government system, with central control, built upon the premise of equality, actively prevents their own citizens from succeeding.

And the same goes with China, as the reason China will likely be stepping into economic troubles  very soon, even with their exports on the rise as other countries recover (including Germany), isn’t because of some Ghost of Magical Imbalance.  The true global imbalance is money; caused by governments like China propping up such economically and socially oppressive systems.

As their centrally controlled systems fail to provide stability and by design their corrupt government officials fail to provide security through consistent application of the rule of law,  even their own citizens don’t invest domestically (DA post here, source NBER here).

In a freer China, where the rule of law was followed, where property rights were secure, domestic investment would be an obvious.  With China currently however….

But all of this is seemingly ignored by the IMF Chief as he concludes all this evidence helps make his case.  This one-factor view of things allows him to not only ignore real differences, but also allows him to not have to argue his primary assertion.

Because if one wishes to argue about any imbalance, people listening would expect to hear reasons for the current imbalance, followed by reasons why that balance is wrong, and ending with some idea of what better balance would look like.

All relevant to his assertion, but all missing from his speech.  As the assertion is difficult to prove.

For example, contemplate deciding how to rate Germany’s exports of hand crafted automobiles against China’s exports of inexpensive tea – if both exports are roughly the same dollar value are they equal?  if not, why not?

Or contemplate the 1980′s US automobile & electronics markets which lost to Japan – should that imbalance have been fixed by force or through competition?

But then that’s the entire reason to use instability in the Middle East and North Africa, combined with some idea about the sameness of China’s & Germany’s economies, to give an unsustainable opinion.

Because it sounds good and it’s easy…. so long as you don’t actually contemplate the assertions made.

]]> http://detailedabstractions.com/2011/02/03/imf-chief-says-global-recession-caused-by-ghosts/feed/ 2 http://detailedabstractions.com/2011/01/27/infinite-monkey-theorems-3/?utm_source=rss&utm_medium=rss&utm_campaign=infinite-monkey-theorems-3 http://detailedabstractions.com/2011/01/27/infinite-monkey-theorems-3/#comments Thu, 27 Jan 2011 20:53:21 +0000 Michael S. Langston http://detailedabstractions.com/?p=2040

Infinite Monkey Theorems

Things worth reading…   

or at least pondering and forgetting quickly… 

So… how good is China’s new stealth fighter?  Not sure, but I’d start by asking this guy(here via MSNBC): 

HONOLULU — A former B-2 stealth bomber engineer was sentenced to 32 years in prison Monday for selling military secrets to China in the latest of several high-profile cases of Chinese espionage in the U.S.

US economics…

Businesses have not yet started hiring as UE claims are up.  Some of it is due to delays due to weather were people who would’ve claimed last week didn’t, but still not a good sign (here via BizTimes.com):

New applications for U.S. jobless benefits jumped by 51,000 to 454,000 last week, the U.S. Labor Department reported today, up from 403,000 during the previous week….

The four-week average of new claims, climbed 15,750 to 428,750, the highest level in two months, the Labor Department said. 

Additionally, the CBO reported this week, what all politicians have known for decades, but have consistently ignored…. social security is a looming and ever-growing problem (here via EpochTimes): 

In its Budget and Economic Outlook report for fiscal years 2011 to 2021, the CBO anticipates that the Social Security program will run a $45 billion deficit for 2011, and will be in the red for at least the next ten years. 

And…

According to the Associated Press, if present Social Security spending and funding levels are sustained and adjusted for the coming influx of Baby Boomers applying for and collecting Social Security checks, the program’s trust fund could be emptied by about 2037.

President Obama’s thoughts about this re: State of the union speech… no problems at all… full remarks here:

Starting in 2011, we are prepared to freeze government spending for three years.  (Applause.)  Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected.

Not “affected’?  I guess that doesn’t discount it from affecting us…. but why worry about that when we can spend more money on things we don’t need (speech cont’d):

Next, we can put Americans to work today building the infrastructure of tomorrow.  From the first railroads to the Interstate Highway System, our nation has always been built to compete.  There’s no reason Europe or China should have the fastest trains, or the new factories that manufacture clean energy products.

Tomorrow, I’ll visit Tampa, Florida, where workers will soon break ground on a new high-speed railroad funded by the Recovery Act.

That’s some vision there; to ignore the looming crisis and instead deflect to a new boondoggle.  & not just a boondoggle, but it seems this is the answer to so many of life’s troubles… the environment, traffic congestion, sprawl…. yes, this magical elixir that is so incredibly great, that it can’t possibly survive without federal government to operate.

But wait… it will create jobs!  (speech cont’d):

There are projects like that all across this country that will create jobs and help move our nation’s goods, services, and information. 

Of course if it’s a “jobs’ program” and not a new transportation program (look over here – shiny stuff)… well, let’s let Milton Friedman discuss jobs’ programs (here):

Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: ‘You don’t understand. This is a jobs program.’ To which Milton replied: ‘Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.’

Either way, here is a good response to the State of the Union from Cato.

Lastly, more great stuff from the Economist.  This time an Ideas Arena

As business leaders, politicians and journalists meet at the World Economic Forum’s annual summit in Davos to discuss the year ahead, The Economist will be inviting readers and guests to participate in a series of online debates questioning the future of global leadership. From now until February 18th, we’ll be examining the rapid emergence of a single global elite whose decisions, and opinions, affect us all.

From Mother Jones discussing income inequality between the rich and the poor, decides that those, in this case Matt Yglesias noting that when America sees economic growth, all income groups fair better, are completely wrong [emphasis added] (here):

This is a surprisingly hardy myth, and I’d like to help it die the grisly death it deserves and I’d like to help it die the grisly death it deserves. Here’s a chart showing real per capita GDP growth in the United States over the past century. I’ve helpfully added a straight red line for the period from 1950 to the present day:

US Per Capita Increase in GDP

The past 30 years simply haven’t been a low-growth period. In fact, economic growth has been about the same as it was in the 30 years before that. Our problem isn’t growth, our problem is that the returns to growth have increasingly been skewed in favor of the very rich.

& that’s it.  The article continues about how modern liberalism needs to fix this, yet they offer no proof that it’s actually happening other than a single statement.  In fact, the only thing in the article which might be used as evidence for something, the graph is about GDP trends, per capita.

So if you, like me, have been staying up late nights wondering just how much fame you might get in by answering the unsolvable question: how has the US economy fared over the past 100 years, I must say I’m sorry.  We lost.  MotherJones has beat us to it.  So if asked in the future, you can now safely say, the US economy has increased over the past 100 years.

If however you were searching for actual evidence to their assertion about income inequality, none is found, none is offered.

Which by itself might seem trivial, if you skip the tens of thousands of people who read MotherJones daily.  But even worse, respected economist Robert Shiller when discussing books pushes the MotherJone’s version of things too (article here):

….the politics that lead to rising inequality. That’s been a trend in recent years in most nations of the world. Inequality has been getting worse, particularly in the US, but also in Europe and Asia and many other places.

He even mentions the idea of having the government setup a “choice architectural” because of evidence demonstrating too many irrational decisions made on behalf individuals.  Which of course assumes the government and smart economists could ever replace the collective knowledge of the market, even with irrational actors, with their own ideas or some perfect formula.

But I digress.  The main issue is  they give no reason to believe their assertion is true, yet act like it.  Even with easily found research, with real numbers and everything, from a very reputable source, which as you likely guessed by now,  states otherwise (here via NBER):

Changes in labor’s share of income play no role in rising inequality of labor income: by one measure, labor’s income share was almost the same in 2007 as in 1950.

They go on to discuss reasons inequality exists and discuss things like life expectancy, the difference between the rich and the super rich (say high level executives versus CEOs), but of course when one is looking, it’s not hard to find other evidence MotherJone’s is wrong & they have a nice little graph too (here via Wiki):

US Income by Given Percentile from 1947 to 2007

Doesn’t seem all that “increasingly skewed” to me, but I have been told I see things differently before…

& certainly some may see this distribution as unfair even if it hasn’t been increasingly skewed recently, but they will fail in their attempts to solve this problem for the same reason Mr. Shiller’s belief in the idea of a “choice architecture” will fail.  They simply don’t have the knowledge required, regardless of intellect or brilliance, to supplant an answer supplied by countless independent actions taken freely (mostly) by countless individuals.  It’s simple arrogance.

As Hayek stated so brilliantly:

To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.