Americans Choose Greater Depression

It has been interesting watching and listening to the commentary on the US budget stand-off, which has been resolved, at least for another few months. Democrats and Republicans have blamed each other, naturally enough, and the overwhelmingly left-wing mainstream media have blamed the Republicans, also naturally enough. But an interesting fact arose during the debate, which the media did not play up because it shows perhaps where the weight of blame really lies.  The US Senate has not passed a budget resolution since 2009.  Every budget appropriation bill since then has been what is called a "continuing resolution," in effect an emergency measure to keep the government running for a short period, as indeed is the case with the latest funding bill (which only funds the government until January 2014).  

The real blame for the lack of a proper budget does not lie with Congress, however.  The reason there has not been a proper budget bill since 2009 is that President Obama's Office of Management and Budget has not proposed one.  The United States follows the procedures of its Westminister origins in the executive branch putting up a budget, which the legislative branch votes on. So you can't blame the Republican-controlled House of Representatives or the Democrat-controlled Senate for failing to pass a budget, because there hasn't been one to vote on for the last four years.  The blame lies fairly and squarely with President Obama.  This article, from the (liberal, pro-Obama) Washington Post, tells why.

Irrespective of the blame, there is a lack of political will to address what is actually an expenditure crisis.  The US Government spends around a third more every year than its takes in revenue and without expenditure cuts, massive tax increases, or a significant surge in economic growth, this will continue to grow.  The federal debt stood at a little over $10 trillion when President Obama took office and he has now increased it by two-thirds to over $17 trillion.  It will almost certainly have doubled by the time he leaves office in 2017. Democrats say George W Bush was just as bad but this is not true - the debt rose 38% under Bush (and 34% under Clinton).  

How is the US federal debt funded?  For the most part, new debt is funded by issuing Treasury Bonds. Who buys the Treasuries?  Well, last year 70% of them were bought by the Federal Reserve. And where does the Federal Reserve gets its funds from?  It creates the money out of thin air through entries in its accounting systems. This is the modern-day equivalent of rolling the printing presses to create more money. We all know what happens when you do that - there are plenty of examples such as Germany in the 1920s and Zimbabwe in recent years.

So why is the US not suffering from hyperinflation? The answer is twofold.  Firstly, actual inflation is not as low as the US Government claims it to be.  If we use the same methodology to calculate inflation as in 1980, current US inflation would be nearly 10% rather than the official rate of 1.5%. Secondly, prices are being held down by a combination of consumer behaviour, which is to pay off debt rather than increase spending, plus artificially low interest rates (ordinarily the latter would discourage the former).  Interest rates are being held down by precisely the situation discussed above - the Federal Reserve buying Treasury Bonds at the low interest rates.  The reason the Federal Reserve is buying most of the T-bonds is that no one else will take them at such low rates.  Chinese investors, for example, who were the main purchasers of T-Bonds up until a couple of years ago, are no longer interested in buying them at the current coupon rate of 1.9% because they believe the risk premium is a lot higher than that.  To get some idea of how the market views the risk of US government bonds, one only has to look at the longer term yields, which are up to 4%.

The US Government can get away with this 'borrowing from Peter to pay Paul' scenario just as long as the US Dollar continues to be regarded as the world's primary exchange currency.  In other words, it can continue to 'print' Dollars to lend to itself because other countries still regard the Dollar as sound. But under this scenario the US Dollar must start to fall, as indeed it is has been doing for the last few years against more stable currencies such as the New Zealand Dollar.  Many commentators believe there will come a tipping point at which confidence in the US Dollar will be eroded sufficiently to see it plummet, and when that happens US inflation will rise and US interest rates will soar.  Of course, that will mean the US deficit will increase even further as the interest on Federal debt rises and the whole vicious circle will send the US economy back into significant decline, a scenario that some commentators are calling the 'Greater Depression'.

The US is unlikely to grow its way out of its current economic situation through more of the same policies. Government borrowing to drive consumer spending has not worked. The alternative is encourage greater capital investment to grow production, jobs and incomes, and the way to do this is to lower taxes, reduce disincentives to investment such as government regulations, and to significantly decrease government spending to balance the Federal budget. Unfortunately, we have a socialist in the White House, who would rather see his country suffer further economic decline rather than free up the economy.  A proper budget that showed the true state of the government's finances, would be a good start.

Wellington voters choose economic decline

The New Zealand local body election results are in, and here in Wellington we now have a slew of Green Party councillors on the city and regional councils as well as our Green mayor re-elected.  This is not entirely surprising. Wellington is the capital and many of its workforce are public servants.  They tend to hold left-wing political views and unsurprising support more government in the lives of citizens, not less.  The Green Party is, like most similar political groups worldwide, hard-left on economic matters.

Wellington as an economic centre is dying.  Even our Prime Minister, John Key, a man you would think would be sensitive to making such criticism of his seat of government, recently said so.  Wellington's problems started in the 1980s with the decline of its manufacturing base due to the (much-needed) reforms of the Lange-Douglas Government including the removal of protectionist trade policies.  The trend was exacerbated with a significant migration of corporate head offices and supporting service businesses to Auckland.   

The economic decline of the capital was disguised throughout the term of the Clark Labour Government in the 2000s because of the vast expansion of the public service with core employees increasing by about 40%. The majority of the increase was in Wellington and the spending of these public sector employees in the region drove up economic activity (and most notably property prices) during the nine years Labour was in power.  The Key National Government has stopped the expansion by limiting departmental budget increases and has even required some retrenchment of numbers.  This has meant Wellington's non-public-sector decline cannot be disguised any longer.

The Greens' policies, which are about socialistic redistribution of wealth and increasing compliance costs for development in pursuit of their environment agenda, are not likely to help matters.  Wellington can't afford the profligate, anti-growth economic policies of the Greens.  The city needs new businesses to generate employment and wealth to stem the decline of the past three decades.  The Greens offer only offer more economic blood-letting at a time when the patient needs vitamins.

If you want an example of what can happen at a local level after years of ill-advised policies you only need look at Detroit - a city that, like Wellington, once had the highest per capita income of any in the country, which has now filed for bankruptcy.  If Wellington is to avoid becoming another Detroit, its voters are going to have to choose politicians who value economic growth over fanciful socialist and environmental aims. Unfortunately I hold out little prospect of the capital's large public employee electorate making such a choice.

1984 is coming

I'm going through a George Orwell phase at the moment, rediscovering his books that I first read as a high school student. Perhaps it is the fact that I am re-reading them with an additional 30 years of experience of the world, or perhaps it is that the world has changed considerably since the first reading, but Orwell's books now resonate with a prescience that they did not back then. 1984, in particular, is scary in its parallels to life in the Western world today.

We have all heard of the comparison of Newspeak, the redacted language of the fictitious state of Oceania, with modern politically-correct language and its euphemistic elimination of any words considered to be insensitive or too permissive (e.g. "differently-abled" for disabled, "Afro-American" for Negro, etc.) But this is the least of the similarities.

The constant electronic surveillance by which Big Brother watches his subjects is reality today.  In the book the surveillance is conducted by the somewhat primitive means of two-way television sets, whereas today it is conducted much more surreptitiously by the likes of the US National Security Agency (which surely would be part of the antonymically named Ministry of Love in the book) simply by demanding all the telephone and internet records of every American be handed over for scrutiny. The fact that the NSA does this it in complete disregard of the law (as indeed did New Zealand's own Government Communications Security Bureau did in the Kim Dotcom case) is, again, portended in the book when the protanganist Winston Smith points out, "nothing was illegal, since there were no longer any laws".

The scariest part of the absolute totalitarianism portrayed in the book is Big Brother's ability to not only rewrite history but to recreate the "truth" by erasing any information that is contrary to its view of the world.  In New Zealand we have an obvious example of this in Treaty of Waitangi settlements for historic Maori grievances that include the government's agreement to issue an official version of the historical facts in issue that suit the claimants' version of events.  Government bureaucrats decide what history should be and then attempt to create an accepted version.  Anyone who tries to maintain a contrary version is branded a racist, just as in 1984 anyone who contradicts the official version of events is guilty of thoughtcrime.

Fortunately, we still live in a world that is at worst a very diluted version of 1984, but the trend in most Western countries is very much towards a more concentrated version of Orwell's distopia.

Spending Taxpayer Dollars on America's Cup is Immoral [UPDATE]

I have followed the fortunes of Emirates Team New Zealand in their bid for America's Cup with mild interest.  At the time of writing, the match score is 8-8, so I don't know whether we have won or lost it.  Oracle Team USA has staged a remarkable comeback from being 6-1 down after the first week of racing and whoever wins the next race will take the trophy.

I don't care very much who wins but I do care that $36 million of New Zealand taxpayers' money has gone to fund this sporting equivalent of tilting at windmills.  The argument that it will benefit New Zealand greatly in terms of tourism and other economic activity is dubious at best and, in any event, does not justify the government using money it has extorted from hardworking New Zealanders on such a frivolous cause.  It is hard enough to accept one's taxes going as involuntary contributions to "worthy" causes such as health and welfare, but seeing them go to a bloody yacht race is outrageous.  Who the hell do the Prime Minister and Finance Minister think they are taking money off low income earners who might be struggling to pay their winter heating bills at this time to spend it on what is a billionaires folly?

Even if we win the Cup (perhaps especially if we win it), this disgraceful abuse of taxpayers' goodwill should end.

UPDATE: Having lost the Cup in this morning's final race, Team NZ head Grant Dalton casts doubt on whether New Zealand will mount another campaign.  However, that hasn't stopped our Prime Minister, John Key saying it is likely he will continue to spend taxpayers' money on this folly.  He goes on to say "New Zealanders work hard to pay their taxes and they expect the Government to be serious and careful about the way they spend their money." If only.

UPDATE2: One final comment - I have lambasted the New Zealand media in the past and in particular the worst offender - the Fairfax Group newspapers such as The Dominion Post and its website Stuff. This morning Fairfax Group plumbed the depths with their "Choke on This Team New Zealand" headline.  I would urge anyone reading this who subscribes to Fairfax Group publications to cancel their subscription immediately. They do not deserve your business.

Inside Every Socialist is Napoleon the Pig

I see the New Zealand Labour Party has elected a new leader, David Cunliffe, its third in two years. The reason for the instability at the top of New Zealand's major centre-left party is the traditional animosity between the hard-left and more moderate factions of the party.  Helen Clark, who was leader from 1993 to 2008 (and NZ prime minister from 1999 and 2008) managed to keep the two sides from each other's throats, undoubtedly because those on both sides feared her than they feared each other.

One of the candidates in the recent tussle for the leadership turned up last week to my daughter's school to talk to the senior girls.  This is the second time the school has invited a Labour MP in the last twelve months and it has not extended the invitation to anyone from any other party, so it is pretty obvious where the political inclinations of the teachers lie. The majority of them are raving left-wingers who take every opportunity to ram their facile political beliefs into the impressionable minds of their students and I have blogged about this before.  However, I am grateful for this propagandising visit because it gave me the opportunity to discuss the MP's Socialist philosophy with my daughter and to use it as the theme of this blog.

The MP, according to my daughter's account of his speech, made three main points to the students:

1. You should live your life for the benefit of others
2. Government needs to be bigger to deliver more benefits to those in need
3. He will support you if you have good ideas just so long as they are consistent with his philosophy.

Let us deal with each of these in turn.

In saying that you should live your life for the benefit of others, Socialists not only believe that people should be charitable, but that everyone should be forced to be altruistic. They believe the state should use its legal monopoly on violence to force you to live a proportion of your working life for the benefit of others by taking the product of your work through taxation.  You are forced to pay your taxes under the threat of imprisonment or worse.

Once the Socialist has decided that you should work some of your life in slavery for others, there is no logical or moral limit to how much of your life he should take - thirty percent, fifty percent or ninety-eighty percent - the only limit is a pragmatic one, i.e. how much can he take without undermining your will to work at all?  There is no limit to the demands on behalf of "those in need" and Socialists differ from Communists only in where they draw the line.

Whenever Socialists advocate enforced sacrifice in favour of those in need there is an unspoken question that always has an obvious answer.  The question is, who gets to decide? Who determines who is needy, and who defines what needy really means?  The answer, of course, is the Socialist proposing the sacrifice.  

The Labour MP's last point is telling.  He is making it clear it should be he that determines what is a "good idea" and who deserves to receive the product of work confiscated by the state.  His philosophy is not so much "from each according to his ability, to each according to his need", as "- to each according to what I determine."  It is no surprise that Socialist parties have brutal leadership contests - the lure of being the one who decides is too great for well-mannered successions.

In his novel, Animal Farm, George Orwell showed that enforced equality requires an enforcer.  This is the fatal flaw with all collectivist philosophy, whether it is modern, milk-toast democratic Socialism or hard-line Marxist-Leninism.  You cannot have an Animal Farm without a Napoleon the Pig.  Scratch the surface of any Socialist and you will find a Napoleon trying to get out. 

US Intervention in Syria Will Fail

You would think the US Government would learn. Just when they are finally managing to extract themselves from Iraq and Afghanistan, they are doing their best to involve themselves in another insoluble conflict in the Middle East. You would think that they would have learned from the events in Libya and Egypt, where the best hopes of the Obama regime for peaceful transitions to democratically elected governments have become completely unstuck, resulting in a great deal of bloodshed and misery for the people of those countries.

America's ill-judged foreign policy produces the most deliciously ironic unintended consequences.

It was recently revealed, for example, that the Central Intelligence Agency orchestrated the 1953 military coup that overthrew the government of Iranian Prime Minister Mohammad Mosaddeq.  Of course, that really worked out well for the Americans when, a quarter-century later, Ayatollah Khomeini overthrew the US puppet regime of Mohammad Reza Pahlavi and ensured Iran became America's arch enemy for the next three decades.

One could also look to the earlier example of US support for Ibn Saud's conquest of the Arabian peninsular that resulted in the establishment in 1932 of Saudi Arabia. The Saudis are the proponents of the particularly extremist Wahhabi form of Islam that inspired the brutal Taliban government in Afghanistan, which gave sanctuary to the Al Qaeda leadership that was responsible for the 9/11 attacks.  Long before 9/11, America funded, armed and trained the Afghan Mujahideen during the Soviet occupation of Afghanistan and it was these rebels that eventually seized control and became the Taliban government.

Perhaps the greatest irony is that America's good intentions to promote its founding principles of individual freedom and human rights around the world has led to the abrogation of those principles at home. Anyone who has been to America in recent years will have seen the deterioration of personal freedom in that country. America has become a surveillance state that in many ways would be the envy of Soviet bloc governments, all in the name of protecting its people from attack by the very people it has armed.

Which brings us to Syria. The Obama administration is planning to bomb Syrian government targets in retaliation for President Bashar al-Assad's alleged use of chemical weapons. I say "alleged" because at the time of writing the Americans cannot say with absolute certainty that Assad was responsible. Some commentators have speculated that the Islamist rebels could have used the weapons to provoke exactly the response against Assad that Obama is contemplating. One should not forget that these rebels have admitted committing appalling outrages of their own.  Another scenario, perhaps more likely, is that Assad has lost control of his own military leaders, one of whom chose to use the chemical weapons.

What is clear is that the situation in Syria not clear. If Obama orders cruise missiles launched at Syria, he will be throwing gasoline onto an already incendiary situation. He has admitted that he doesn't have an objective in mind for such a strike against the Assad regime. That being the case, he should not be surprised if the outcome turns out to be very much to the detriment of America's interests in the region and at home. America has done some dumb things around the world but this will surely be one of the dumbest.

New Zealanders to get it good and hard

So, the New Zealand Parliament has passed into law the odious GCSB Amendment Bill that allows the government free reign to spy on its innocent citizens.  In today's political environment, where vague threats of terrorism justify almost any repressive act of government (such as kidnapping people off the streets of friendly nations, summary executions of individuals anywhere in the world with unmanned drones, and torture to obtain confessions), it does not surprise me that the New Zealand Government wants to join in all the fun. What surprised me about the debate leading up to this law passing is the depth of support that Prime Minister John Key has for these dictatorial spying powers.  I guess it just goes to prove what I've always suspected - most New Zealanders are more interested in feeling secure (not matter how much of an illusion that might be) than freedom.  That is, of course, why we have one of the world's most extensive welfare states.

H L Mencken said, "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."  Well, New Zealanders are going to get it good and hard.  As the vacuous waiter said, "Enjoy!"