RedStateEclectic

Economic Illiteracy and Global Economic Worries

An economist used to be a person who was able to explain why the economy works well without interference by the state, and fares, indeed, much better without such meddling. Nowadays, an economist is a person who affirms that the economy can only work properly thanks to interventions by the state.

The economist – versed in knowledge about the invisible hand – has metamorphosed into a staunch proponent of economic policy, the politician’s advisor ambitious to steer the visible hand.

Steve Kates writes in his superb Free Market Economics. An Introduction to the General Reader:

The approach taken to teaching economics has become one in which the market mechanism is ... taught only so that there is a basis for explaining why markets ... [do] not operate properly. The market mechanism is seldom explained as what it is: the sole means to achieve prosperity and the basis for a continuing improvement in living standards for an entire population [p.284]. ... [F]ew are any longer taught that economies have major properties for self-adjustment and are able to recuperate on their own without major government involvement. [p.287]

One of the great dangers of a state monopoly in education is that it provides inordinate leverage for uniform patterns of thought.

The massive distortions in the leading modern economies do seem to be intimately related to the prevalence of the politically both subaltern and ambitious(-for-power-and-status) "economics" of market failure and dirigiste conceit.

See also 60 Years of Public Policy Hegemony.

Kyle Bass' presentation commences at time mark 7:47

 

Japan's problems are formidable, but there are many other heavy-weight countries in deep water, it would seem.

Next week we will be told by Wall Street stock peddlers that what are just having a healthy correction and that it will soon be time to “buy the dip”. Don’t believe them. We are perched precariously at the top of one of the greatest financial bubbles ever because it is global—-the handiwork of world-wide central bank driven credit expansion and drastic interest rate repression.

Just recall some of the numbers. At the turn of the century, the US had about $25 trillion of credit market debt outstanding; now it is pushing $60 trillion. About 14 years ago, China had debt of $1 trillion; now its nearly $25 trillion. And similar credit explosions occurred in much of the rest of the world. It was all central bank enabled, and it caused world wide investment booms and asset inflations which defy every law of sound money and economics, and which cannot be sustained indefinitely.

The bottom line of those destructive policies is that “cap rates” are artificially low and so their reciprocal, asset values, are enormously inflated. Likewise, nearly zero money market interest rates in virtually every major economy of the world have fueled the most fantastic expansion of “carry trades” ever imagined.

As I have frequently pointed out, the short-term market for repo and other wholesale funding represents the cost of goods (COGS) for financial gamblers; its what they use to fund their speculations in higher yielding currencies, corporate debt, equities, and every manner of derivatives and OTC concoctions that Wall Street trading desks can engineer.

So when the central banks drive the money market rates to just 5-50 bps, they are offering ZERO-COGS to speculators. This is a massive incentive to bid up the price of anything that has a yield north of 50 basis points or a short-run appreciation prospect of the same—in order to capture the spread. This is what has turned the so-called capital markets of the world into dangerous casinos. This is what led speculators this week to gorge on $4 billion in Greek debt carrying the lunatic coupon of just 4.75%.

The latter is not even a remotely plausible pricing of the risk of a government with a 170% debt to GDP ratio—- sitting atop an eviscerated economy that has shrunk by more than 20% and has nothing much left except tourism, yogurt plants and a 27% unemployment rate. Instead, it evidences the fast money traders who swooped in to buy a 475 bp coupon funded by free money from the central banks, and who did so in the confidence that the ECB will do “whatever it takes” to prop up the price of member country sovereign debt.

Needless to say, the minute that the millions of gamblers who have been enabled by the ZERO-COGS gift of central banks loose confidence in their ability to prop up asset values, the panic will set in. Then a great dumping stampede will start. It will be the mother of all margin calls—-a repeat of the dumping panic on Wall Street that occurred in September 2008 when toxic mortgage securities which had been funded by overnight repo were forced into fire sales by wholesale lenders refusing to roll their repo.

Only this one will be much grander because the carry trades have gone more global then ever before. Even pig farmers in China have their sties loaded with copper because through a roundabout trade it can be repo’d for cash.

Indeed, the global financial system is land-mined with time-bombs–some hidden and others transparent. But what is certain is that when huge distortions like the newly booming market for dollar-denominated junk bonds being issued by EM companies increasingly parched for cash craters, there will be a ricocheting chain reaction that will spread far and wide.

The source.

The Folly of Commmand and Control - Man's Rationalistic Addiction

Germany’s much ballyhooed Energiewende (transition to renewable energy) was supposed to show the whole world how switching over to green energy sources could reduce CO2 emissions, create hundreds of thousands of new jobs, provide cheap electricity to citizens, and heroically rescue the planet.

Ten years later, the very opposite has happened: Germany’s CO2 emissions have been increasing, electricity prices have skyrocketed, the green jobs bubble has popped, and tens of thousands of jobs have disappeared. Worse: tens of billions are being redistributed from the poor to the rich.

Other countries around the world have noticed and are thus having serious second thoughts about industrializing their landscapes with green energy systems like wind, solar and biogas. Germany has proven that green energy does not work well after all.

The source.

The methodological core of liberty-averse thinking is rationalism. The hallmark of rationalism is an exaggerated trust in the powers of reason to command and control human affairs.

Rationalism is probably the most popular intellectual attitude in the West - not surprisingly for it is thoroughly intuitive, and indeed useful and appropriate in many applications of everyday life and even in more arcane activities such as engineering or the natural sciences dealing with relatively simple types of order.

Rationalism is rooted in the tradition of anthropomorphic reasoning, which seeks to explain phenomena by analogising them to situations that man is used to and capable of handling successfully.

Instead of ascribing order to a transcendental creator, modern rationalism shifts responsibility for any kind of admissible order to the human mind.

There is an entire array of reasons enticing us to take this stance, which I will not go into here - but first and foremost, rationalism is a view point that is unacquainted with modern methods for comprehending orders of higher complexity. These methods could only be discovered when the evolutionary paradigm emerged, which opened the human mind to the possibility to self-creating order, i.e. the kind of orde that does not depend on personal authorship and synoptic mastery by a single intelligent originator.

The importance of cybernetic order is lost on most people, including, I'm afraid, most liberals.

Politics benefits hugely from our cerebral addiction for rationalistic linear causality. It's a great format to make things look intellectually clear cut, easy to comprehend and amenable to direct human control.

In fact, important strands of liberal thinking rely on rationalistic arguments, which Locke for instance takes over from Aquinas highly rationalistic thoughts on natural law. See Natural Ends and Prudential Judgement. The anarcho-capitalists wallow in the crudest rationalism, and the growing fringe of liberals (European sense) who have a hard time distinguishing themselves from anarchists tend to be of a rationalistic bend, unsurprisingly.

On the more mainstream front of rationalism, Keynesianism e.g. is a great relief for the popular mind (and, of course, politicians), because it divests the dismal science of uncomfortable, counter-intuitive features as epitomised in the invisible hand. The Keynesian mindset teaches us that the economy depends on only a few variables that can be handled by government and comprehended by any but the most obdurate minds.

Similarly, reducing the world climate to one factor - CO2 - is one of the great political feats that has been highly successful for a long time as it neatly panders to our rationalistic addiction.

Liberals make a big mistake in not arguing that theirs is the ecological world view. But even if they understood this all-important point, they are not likely to make much of a difference in a world with an insatiable demand for easy solutions geared to the control freak in us.

The folly of command and control is inextinguishable as it feeds on perhaps the most favourite among the patterns for which the human mind is on the lookout.

I have been arguing along these lines for years, and have never ever made a convert to my position. It is simply astounding how well insulated the rationalistic modern mind is against truly ecological thinking. So much for the age of ecological awareness.

See also Science Sick From Too Much Bad Politics, and The Myth Junkie Society.

Science Sick From Too Much Bad Politics

 

Make sure to read more on complex adaptive systems at the source of the above image.

As for this little chap, I couldn't agree more:

 

The global warming hype is a prime example of how bad politics is necessarily anti-ecological, and so is politicised science.

(I don't believe that the opposite of and the solutions to bad politics is no politics, but good politics).

Ecological systems are complex, their intricate manner of functioning does not lend itself to sensational story telling with mass impact. Hence, demagogic politics will almost certainly reduce genuinely ecological issues to simple, improperly mechanistic formulae. Our social democratic age - based on a denial of the ecological nature of modern human civilization - is of a distinctly unecological spirit.

Having discovered "the visible hand", i.e. self-generating order, the philosophy of freedom is asking us to treat human society as an ecological order. Inconveniently, however, orders of the self-generatig kind are counter-intuitive, hard to understand and hard to "sell". This is the root cause why liberty is generally rather unpopular, often laughed at or even despised. People like simple stories. People like to think about society, the economy, in fact, everything the way they think about most matters that concern them in their daily lives: that is, they expect simple causal relations easily mapped by ordinary deductive reasoning.

Thus, the greens - communists who've forgotten their origins - will tell the ordinary propaganda consumer that CO2 emissions, temperatures, and industrialisation have increased in tandem, insinuating a simple story line: capitalism creates catastrophic warming.

By contrast, consider some of the key facts that strip the thesis of catastrophic anthropogenic global warming of its credibility:

CO2 is following global temperatures, now and consistently since several hundred of thousand years.

96% of CO2 emissions are of non anthropogenic origin (volcanoes, animals, rotting vegetation, and especially oceans). Why should the tiny contingent of CO2 generated by humans be the culprit?

Most of the warming occurred well before industrial emissions began to skyrocket in the 1940s, after which temperatures, in fact, fell for 4 consecutive decades, starting to climb again only when global recession set in in the 1970s.

Most CO2 emissions are registered in areas without human populations or industrial activities - especially the oceans.

In the past, world climate has been much hotter with substantially more CO2 in the atmosphere than today. These much higher levels have elicited no catastrophic results - polar bears had a good time as well as the vikings who at the time had good grounds to call a certain land mass Greenland.

We still live in an ice age that has been in decline, i.e. warming, since the 1800s. The present warming trend is part of a perfectly normal climate cycle.

Only 1% of all species live in the Arctic zones - creatures thrive under warmer conditions.

Higher temperatures and more CO2 are beneficial to life on earth, not only to human life.

BUT:

Science changed dramatically in the 1970s, when the reward structure in the profession began to revolve around the acquisition of massive amounts of taxpayer funding that was external to the normal budgets of the universities and federal laboratories. In climate science, this meant portraying the issue in dire terms, often in alliance with environmental advocacy organizations. Predictably, scientists (and their institutions) became addicted to the wealth, fame, and travel in the front of the airplane (quoting Garth Paltridge, one of the world’s most respected atmospheric scientists):

“A new and rewarding research lifestyle emerged which involved the giving of advice to all types and levels of government, the broadcasting of unchallengeable opinion to the general public, and easy justification for attendance at international conferences—this last in some luxury by normal scientific experience, and at a frequency previously unheard of.”

Every incentive reinforced this behavior, as the self-selected community of climate boffins now began to speak for both science and in the service of drastic regulatory policies.

The source.

The view from the White House:

 

Broadening the picture:

 

Pouring it down the rat hole:

 

Man-Made CO2 Does Not Drive Climate Change

Beforehand, a brief and rather entertaining introduction to the broader issue:

 

Climate scientist Dr. Murry Salby [not the gentleman in the above video], Professor and Climate Chair at Macquarie University, Australia explains in a recent, highly-recommended lecture presented at Helmut Schmidt University, Hamburg, Germany, why man-made CO2 is not the driver of atmospheric CO2 or climate change. Dr. Salby demonstrates:

• CO2 lags temperature on both short [~1-2 year] and long [~1000 year] time scales
• The IPCC claim that "All of the increases [in CO2 concentrations since pre-industrial times] are caused by human activity" is impossible
• "Man-made emissions of CO2 are clearly not the source of atmospheric CO2 levels"

• Satellite observations show the highest levels of CO2 are present over non-industrialized regions, e.g. the Amazon, not over industrialized regions
• 96% of CO2 emissions are from natural sources, only 4% is man-made
• Net global emissions from all sources correlate almost perfectly with short-term temperature changes [R2=.93] rather than man-made emissions
• Methane levels are also controlled by temperature, not man-made emissions
• Climate model predictions track only a single independent variable - CO2 - and disregard all the other, much more important independent variables including clouds and water vapor.
• The 1% of the global energy budget controlled by CO2 cannot wag the other 99%
• Climate models have been falsified by observations over the past 15+ years
• Climate models have no predictive value
• Feynman's quote "It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with the data, it’s wrong" applies to the theory of man-made global warming.

The source.

One Hundred Years of Solitude

Gabriel José de la Concordia García Márquez, one of the greatest writers ever, explains in the below clip:

...the women who were ruled over by my grandmother were living in a supernatural world, a fantastic world, where everything was possible. The most unbelievable things were part of everyday life.

This is exactly what a good friend of mine told me about the years that she spent (in the 1990s) as a senior US diplomat in a Central American country.

 

See also Best Novels, and A Shout for Inclusion.

Classical Moderation - MLK and the Aftermath

The terms classical music and classical liberalism share an adjective that connotes moderation, the art of dosing, the greater efficacy and depth attained by restraint and fine-tuning - without loss of boldness, if that is intended.

Martin Luther King Jr. held his Nobel peace prize acceptance speech in the auditorium of the University of Oslo on 10 December 1964:

 

A contemporary reflection on the aftermath [ - starting at time mark 04:30]:

 

The Classical Liberal Constitution (2/2)

 

Tomorrow (15 minutes left not to be lying), I expect delivery of Richard Epstein's magisterial "The Classical Liberal Constitution" which will be one of the tomes that I shall engross myself in over the next half year to gain a deeper understanding of the nexus of law and liberty.

Writes CATO:

In his latest book, a wide-ranging tome covering vast areas of our law, Richard Epstein mounts a principled attack on modern Supreme Court jurisprudence and much of the legal scholarship that has grown up around it. The major disarray that infects every area of modern American life, he argues, from deficits and debt to health care, financial services, declining standards of living and more, could not have happened under the original constitutional structure, faithfully interpreted in light of changed circumstances. It arose from a profound progressive break with the classical liberal tradition that guided the drafting and interpretation of the Constitution.

 

For the full lecture click here.

See also The Classical Liberal Constitution (1/2).

Private Education for the Poor

Image credit.

Private education. I see this as a sector of huge growth potential - not only in the Third World. It might not be easy to launch developments that move us in that direction, especially in the richer countries which are sclerotic with state education. But I do not think that special interests and certain self-interested concerns of the state will necessarily preclude massive privatisation. Teachers might enjoy more fulfilling careers and even earn more in the private sector. Also, there may be political forces who champion improved social capital or simply adjust to unforeseen societal sea-change. After all, the state has not opposed the private computer and internet revolution, even though especially the latter has effectively created a realm of parallel education and independent intelligence.

However, I hope I am wrong in my impression that paying more to have a greater say in the quality of one's offspring's education seems to be a more common ambition in the Third World than in the richest nations.

 

Blaise Pascal and the Politics of Scepticism

Image credit.

Among the best books that I've read recently is a short one by Michael Oakeshott, "The Politics of Faith & the Politics of Scepticism".

The Politics of Faith stands for the totalitarian drive to shape man and his world ad libitum - and indeed to even determine what his faith should be - by the means of the state, a machinery of government immeasurably more powerful in its ability to interfere with everyone's life than any form of might known in Europe before the 16th century.

The Politics of Scepticism stands for the liberal disposition, the constrained vision in Sowellian terms, a modesty and even distrust in the face of grand schemes promising change and betterment by the agency of a central power.

Writes Oakeshott, on page 129 of the book referred to above:

And while the writers who belong to the great sceptical tradition (not all of them, of course, unabated sceptics - Augustine, Pascal, Hobbes, Locke, Halifax, Hume, Burke, Paine, Bentham, Coleridge, Burckhardt, de Tocqueville, Acton - though for a season they have been displaced in popular favour by the pundits of faith, wait only to be recalled and reinterpreted. None of these, perhaps, is able to speak directly to this generation [writing in the 1950s, G.T.], but in this respect they are better placed than the apostles of faith, who for two centuries have merely repeated themselves. And in my opinion, there is no better starting place for a renewed attempt to understand and to modernize the principles of the skeptical tradition in our politics than a study of Pascal and Hume.

See also Michael Oakeshott (1901 - 1990) - Teleocracy versus Nomocracy.

 

The Uncertain Science of Mathematics

This is how it was done - you had to offer the palms of your hands, being particularly susceptible to pain. If you withdrew, you were in for double the helping.

As a first grader I disliked maths, because I was bullied into it. There was no leeway for my imagination to unfold. Instead, I was aggressively pushed by my teacher to memorise and recite, to swallow spoon-fed helpings and to regurgitate. Math was a matter of unquestioning obedience. Inquisitiveness was a vice, the hallmark of an ill-behaved, odious brat. I was caned for my natural curiosity. My efforts at mental independence, to think for myself, trying to discover a subject by my own sincere input was something I learned to associate with a reaction of moral torture and sadist beating.

Mathematics was presented to me by my teacher(s) as almost a supernatural, divine phenomenon, the embodiment of truth and precisions, an exact, a godly science. When I failed to understand mathematics or when I made mathematical errors, I felt I was treated like a despicable sinner who has the nerve not to properly worship the god of mathematics.

Psychologically, this had the effect to tie together the inevitable impulse of thinking for myself with mortal fear. After all, the castigation proceeded in a spirit of sadism, and I was utterly at the mercy of the teacher, with no support from my parents, who tended to side with official authority and were at any rate too busy to appreciate my utter distress. The fear in turn blocked my thinking, and so I failed to learn mathematics properly, which only reinforced the entire tragedy. Soon I had learned that I could not learn. The teacher believed in it, and I did, learning it from her. At least traces remain with me to this day of that chief conviction derived from early schooling, namely that I cannot know things as well as other human beings.

Having been brutally exposed to this situation for more than three consecutive years - the teacher teaching other foundational subjects as well -, while no one knew it at the time, including me, I did suffer from severe depressions and had frequent visions of suicide at the age of seven.

See also the post by Triple Hash on The Origins of the American Public Education System, Sapere Aude, The Cult of Experts, and A Richard Feynman Quote.

Later in life, I have developed a certain alertness vis-à-vis signs of the this-worldliness of mathematics, thoroughly enjoying sources of insight such as Mathematics: The Loss of Certainty by Morris Kline.

Also, I have developed a similar alertness vis-à-vis signs in arguments that boast of access to absolute truth. In the work of Ludwig von Mises, I found a bizarre attempt at presenting mathematics as a magical road to absolute truth, and in that capacity, as a model and warranty for his own "science" of praxeology. I have written on this subject matter in Philosophical Weekend - the A Priori in Science and highly recommend (from the blogger at another - philosophically very sophisticated - blog) My Posts Refuting Misesian Apriorism and Praxelogy. 

To whom it may concern, Norman Wildberger offers a most interesting series of lectures on mathematics based on an un-dogmatic, this-worldly approach to the subject matter.

 

To get a little deeper into it all, try also the follow-up lecture on the decline of rigour in mathematics:

 

It's fun - go try the first lessons; I wish I had been introduced to mathematics in that way.