Americans Voted for Oblivion

The 2012 US elections were more than just a choice of candidates for President, Congress and state houses, they were a referendum on America's future. They were like the last fork in the road, with one sign pointing to "Oblivion" and the other one saying "Long Road Back". The American people chose to follow the first sign. Of course, the sign didn't say "Oblivion", it actually said "More Hope and Change". It was a seductive slogan when it was first seen four years ago, but this time no one should have been fooled. The past four years have seen the Obama administration borrow an additional six trillion dollars to fund spending that resulted in $905 billion in economic growth. The federal debt increased by around 15% per year during Obama's first term and the Democratic Senate Majority Leader, Harry Reid, has already announced plans to extend the federal debt ceiling by another $2.4 trillion before Christmas. At this rate the US federal government debt will reach $30 trillion before Obama leaves office. If that doesn't strike you as a rather excessive amount, consider that the entire world's GDP is only about $70 trillion.

The President appeared on Letterman during the election campaign and claimed he couldn't remember how much he'd borrowed during his first term, which made him look either very stupid or very dishonest, but that didn't seem to matter to the American voters. They wanted more of the good stuff and, like the Greeks, they didn't care who pays for it.

The problem with comparing the United States to Greece is that the similarities extend only to the nature of the problem, not the scale of it. Greece has an economy not much bigger than New Zealand's and that means it can be bailed out by its larger neighbours like Germany (should the German taxpayers choose to do so). No one can bail out America. Forget China - that country has already stopped lending to America at the levels it had previously. In fact, the biggest lender to the US Government today is...the US Government! Over 60% of US Treasury bonds last year were bought by the US Federal Reserve.  Where does the Federal Reserve get the money from? It creates it at the stroke of a computer keyboard. This is what they used to call printing money.

When a government prints money at the rates the US Government is now doing so, sooner or later it starts to significantly devalue its own currency - that's why the US Dollar has fallen against other currencies like the New Zealand Dollar. And sooner or later that translates into inflation, which pushes up interest rates, and that means the government has to print even more money to repay its loans. The end game of all this is the sort of hyperinflation they had in Germany in the 1920s and in Zimbabwe today.

This cannot end well for the United States, but Americans have made their choice - they have chosen to ignore reality and carry on snorting the fiscal crystal - and they will have to live with the consequences.  Those consequences can be seen again and again throughout history - from the fall of the Roman Empire through to Britain's decline in the first half of the 20th Century.  Great nations are sustained by great economies and are destroyed by economic decline.  I greatly admire the idea of America - a republic of the people where individual aspirations and liberty are enshrined in its founding documents - and I am saddened by its decline.  Perhaps the American people still have time to change course and avoid oblivion, but I suspect that after another four years of the Obama administration it will be too late.

Government's only legitimate function...and it can't even get that right

Every now and then we see a criminal case that it so utterly appalling that it stands out even amongst the murders, assaults, rapes and burglaries that are all-too-common in our smug little "God's own country" down here in the South Pacific.  Such a case was the killing of Christie Marceau by Askay Chand.

These are the raw facts of the case.  In September 2011, Askay Chand kidnapped and threatened to rape Christie Marceau, who lived nearby.  Chand was imprisoned on remand for those offences but was released on bail after he wrote a letter to the judge expressing his remorse, despite the police and prosecutor strongly opposing his release.  Two months later he returned to Christie Marceau's house and stabbed her to death in front of her mother.  Yesterday in the Auckland High Court Chand was found not guilty by reason of insanity.

As a parent of two daughters, this case horrifies me.  After the first attack, Christie and her mother must have been living in abject fear that Chand would be released and would return to attack again.  They would have put their faith in the criminal justice system to protect them.  In New Zealand we have no choice but to trust that system - we are not allowed to possess the means of our own defence (even pepper spray is illegal).  Chand's return must have been like living through the worst nightmare for Christie and her mother - a nightmare from which that neither of them awoke.

I believe the state has one legitimate role - that of protecting its citizens from the initiation of violence against person and property.  Whether or not you believe that the state has other legitimate roles such as redistributing income to the poor,  you probably believe that the role of protecting citizens against violence is paramount.  If the state can't  get even this right, then there is something seriously wrong with our form of government.  Sure, people make mistakes, but there is no excuse for what happened to Christie Marceau after the signs were so obvious in the first attack by Askay.

At the very least, the judge who granted Askay bail should resign.  Under the doctrine of ministerial responsibility, the minister of justice should also resign.  There has been a call for a "Christie's Law" to tighten bail requirements by criminal justice campaigners, and Christie's mother has appeared at a Parliamentary select committee to speak in favour of this.  While I am seldom in favour of knee-jerk legislative responses to social issues, I think tighter bail laws is the least we can do as a society to ensure Christie's death was not in vain.

The Economic Outlook for New Zealand

This morning I went to a breakfast lecture given by ANZ Bank chief economist, Cameron Bagrie.  The high point of the morning was the excellent buffet breakfast, which is not to say Bagrie didn't speak very well - it was just that his message was very downbeat.  That makes him an unusual beast in the economist herd at the moment, with many of his profession both here and overseas being little more than mouthpieces for their profligate governments.

The message was simple: New Zealand is one of the most indebted nations in the world (when public and private debt is included), up there with Spain and Greece.  While New Zealand is enjoying economic growth in the 1 - 2 % range, even that modest level growth is built on record high commodity prices in recent years, which are now heading south very quickly.  Add to that the very slow recovery of our second largest city, Christchurch, from its devastating earthquakes and the fact that all our key export markets are in a worse economic state than ourselves, and you have solid evidence for a poor economic outlook.

Bagrie saw the solution as being conservative economic management combined with growth from natural resource-based industries such as mining, water and energy.  He said that finance markets saw both Finance Minister Bill English and opposition finance spokesman David Cunliffe as fiscally conservative and I suppose when you compare them with Ben-$400Bn-QE-per-month-Bernancke in the United States and the new President of France who wants to increase the government's share of GDP from 50% to 60%, they do look pretty conservative. Personally, I see Bill English's expectation of a balanced NZ government budget by 2014/15 (on the condition that we achieve 4 - 5 % economic growth) as a long odds gamble, but it's all relative, I suppose.

The problem with Bagrie's solution to our grim economic outlook is that he was preaching to the choir.  The audience was made up of ANZ Bank's business banking customers.  These are predominantly owners and managers of small to medium sized businesses.  I imagine that almost everyone in the audience agreed with Bagrie - let's exploit our natural resources to drive economic growth.  But New Zealanders in general, and the National Government in particular, do not seem to really care about economic growth and would rather be dictated to by minority interest groups to whom exploiting natural resources is heresy.  In the past three years that it has been in power, John Key's Government has:

• Backed down on opening up even very small areas of our national parks to mining
• Allowed various interest groups to hold up the partial privatisation of energy companies, thereby stymying new investment in the sector
• Brought in an emissions trading scheme that has made investment in the energy sector far less attractive
• Got into a fight with Maori tribes about ownership of water rights.

If this type of political incompetence and spinelessness is any indication, New Zealand has as much chance of building economic growth through exploitation of natural resources as has the entire country of suddenly floating to the equator. 

So, where does this leave us?  I don't think there is much doubt that Bagrie's prognosis, in the absence of a radical increase in political courage by our leaders and a sudden Road to Damascus economic enlightenment on the part of the New Zealand voting public, is correct.  We are a train headed for a broken bridge - an economic wreck in the making.  And the problem with economic wrecks, as the likes of Greece, Spain and Portugual are discovering (or re-discovering in the case of all three countries), is that they quickly become social and political wrecks too, with riots on the streets and the rise of opportunistic political despots.

New Zealanders are complacent.  We think we're immune to the economic 'flu that ails the rest of the world.  You don't need to be a noted economist to know that we're not.  We are going to catch a very serious cold at least, and we are very poorly prepared to deal with it. 

Inspiring speech, Paul, shame about the religious claptrap

Paul Ryan gave his acceptance speech for the US Vice-Presidential nomination to the Republican National Convention today. And what a speech it was! You can read the whole thing here but I'll provide a few of the choice tidbits, if you can't be bothered reading the whole thing:

• On the incumbent administration: "I have never seen opponents so silent about their record, and so desperate to keep their power."
• The key question for American voters: "Without a change in leadership, why would the next four years be any different from the last four years?"
• On Obama's economic policies: "The stimulus...cost $831 billion – the largest one-time expenditure ever by our federal government. It went to companies like Solyndra, with their gold-plated connections, subsidized jobs, and make-believe markets. The stimulus was a case of political patronage, corporate welfare, and cronyism at their worst."
• More on Obama's economic policies: "What did the taxpayers get out of the Obama stimulus?  More debt.  That money wasn’t just spent and wasted – it was borrowed, spent, and wasted."
• On Obamacare: "[It] comes to more than two thousand pages of rules, mandates, taxes, fees, and fines that have no place in a free country."
• On Obama's political legacy: "It began with a financial crisis; it ends with a job crisis. It began with a housing crisis they alone didn’t cause; it ends with a housing crisis they didn’t correct. It began with a perfect Triple-A credit rating for the United States; it ends with a downgraded America. It all started off with stirring speeches, Greek columns, the thrill of something new. Now all that’s left is a presidency adrift, surviving on slogans that already seem tired, grasping at a moment that has already passed, like a ship trying to sail on yesterday’s wind. 
• On Obama's tendency to blame his predecessor for everything: "The man assumed office almost four years ago – isn’t it about time he assumed responsibility?"
• His answer to America's economic problems: "We need to stop spending money we don’t have."
• His response to Obama's "you didn't build that" philosophy: "If small businesspeople say they made it on their own, all they are saying is that nobody else worked seven days a week in their place.  Nobody showed up in their place to open the door at five in the morning.  Nobody did their thinking, and worrying, and sweating for them.  After all that work, and in a bad economy, it sure doesn’t help to hear from their president that government gets the credit.  What they deserve to hear is the truth: Yes, you did build that."

Stirring stuff, indeed.  Makes me want to want to emigrate to America just so I can vote for him.  Only, there was a dark side to his speech that wasn't so appealing.  Witness the following words:

• "The man who will accept your nomination tomorrow is prayerful and faithful and honorable. Not only a defender of marriage, he offers an example of marriage at its best."
• "[Mitt Romney and I believe that] each one of us was made for a reason, bearing the image and likeness of the Lord of Life."
• "Our rights come from...God."

The contrast illustrates the dilemma voters face in supporting the Romney-Ryan ticket: rational and necessary economic policies are coloured by medieval superstition and illiberal social policies.  Is the great economic stuff worth a little of the religious conservative mumbo-jumbo?  Is economic freedom that produces job opportunities worth it if you can't marry the person you love?  I'm not sure of the answer to the question.  But what I do know is that American can't survive another four years of Obama with what's left of its freedom intact.

On balance, if I had a vote in the November presidential election, I think I would cast it for Romney-Ryan.

8 Best Aspects of the Olympics

The 30th Olympiad has ended and having earlier set out the 8 worst aspects of the Games, I'd like to close my blogging on the subject on a more positive note - the 8 best aspects:

1. The superlative personal efforts of the athletes
2. The keen interest and sportsmanship of the largely British crowd towards all competitors
3. Handball - what a great game!
4. Usain Bolt - for his strutting, immodest joy at winning
5. Lisa Carrington - for her gracious, modest joy at winning
6. The British medal tally - a sterling effort from a country that used to be joke for its constant sporting failures
7. The volunteers that carried out all manner of menial support tasks
8. The unabashed celebration of the best at time that Western society tries to pretend we are all equal.

8 Worst Aspects of the Olympics

Let me make one thing clear - I love sport and have thoroughly enjoyed watching the best of human physical achievement over the last two weeks. But there are some things about the London 2012 Olympics that will make me relieved to see the back of them. Here are 8 of them, in no particular order:

1. The London 2012 logo
2. The inane and ill-informed television commentary on Sky TV New Zealand
3. The endless coverage of table tennis - surely this is the most unwatchable sport ever with each rally over before you can make out what has happened
4. The tedious Chariots of Fire theme song played at every medal ceremony
5. The long celebration of Britain's National Health Service during the open ceremony - there has not been such a politicised opening since Moscow 1980
6. The use of pompous, minor IOC functionaries to present almost all medals - the use of past successful athletes would be more creditable
7. The jingoistic and self-indulgent nationalism ("didn't we do well?" - actually YOU didn't do anything)
8. China's success - this is a dictatorship using the odious, near-child-slavery practices of the Soviet block to build its national image through sporting achievement, and therefore nothing to celebrate.

Ethics in Business - A Little Case Study

You might have noticed that I'm a staunch defender of the free enterprise system and the right of individuals to pursue their self-interests unconstrained by government. I think private enterprise provides almost all goods and services better, more efficiently and cheaper than government does and I think that governments should get out of economic affairs, confining their role mainly to maintenance of law and order and defence.

I accept that business can get it wrong and that some people in business are unethical and even grossly dishonest. That doesn't make the free enterprise system bad any more than corrupt leaders make government inherently bad. But it also doesn't mean that I will sit by and watch businesses rip off their customers, especially when I have personal experience of their unethical behaviour.

Insurance companies, like banks, have had a bad rap recently. International bail-outs like AIG and the response of some insurers to natural disasters such as the Canterbury earthquake have provided plenty of material for those who would rather see insurance services provided by the state.

This morning I had a disagreement with my insurer, Tower Insurance, with whom we have all our insurances - cars, houses, contents, life, etc. It was a minor matter but it illustrates an ethical issue I have experienced with a number of large organisations - whether they are obliged to provide the customer with all information related to their pricing so that that the customer pays the minimal amount needed for the service.

We are entitled to a discount on all of our premiums because we have all of our insurance with the one company. One of our car policies, for some obscure bureaucratic reason, was not receiving the correct discount. This was a matter we had become aware of in the past and we had asked Tower to correct. Last week we had to make a small claim on this car policy and learned Tower were still not applying the discount. When I raised the matter with a Tower customer service representative this morning, he advised that it was my responsibility to check the premium statement every year to ensure I was getting the correct discount (despite the fact that there is no information on the premium statement to indicate whether this is the case). When I asked him whether he thought his company had an obligation to ensure the correct pricing applied without the customer having to double check, his response was "no". Of course, he was wrong both in law and in ethics.

This is not a case of 'caveat emptor' because we were aware of the previous error and had asked Tower to correct it, assuming in good faith that future premium statements would be correct. It is not the continued error that irks me, but the young man's attitude that the company had done no wrong.

I do not hold the young man responsible for his attitude. His views are clearly part of Tower's culture. This is a company that seems to teach its customer service representatives that if the company can get away with overcharging customers, well and good.  If the customer does not spot the error, that's the customer's hard luck.

It is this lack of ethics and integrity in some businesses that leads to the resentment we see in the Occupy Wall Street Movement. One of the reasons I defend the free enterprise system is that I see it as inherently moral compared to the inherently corrupt Socialist alternative. My incident was a trifling affair and does not change my view, but it indicative of an attitude I see in many, particularly larger, companies - an ethical elasticity that ultimately leads to Enron.