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It's Time to Rise Up Against the Ignorant Masses!

Posted on Wednesday, June 29, 2016 3 comments
And so it’s on…

James Traub, at Foreign, has called for the “elites to rise up against the ignorant masses.”  In a spectacular display of the very ignorance against which he issues his call to arms, Traub shows how thoroughly infected the establishment is with their group-think.  God forbid the ‘fist shaking’ rabble would actually think for themselves and effect an “utter repudiation of the bankers and economists and Western heads of state who warned voters against the dangers of a split with the European Union.”  If there was a miscalculation on the part of David Cameron, it was “how utterly he misjudged his own people[‘s ability to think for themselves].”

Rise up against the ignorant masses? Be careful what you wish for, Mr. Traub… Your intellectual nakedness just might end up on full, public display.

The Foundational Issue: The Most Significant Unit of Society

Traub shows himself ignorant of both British and American history when he concludes: “[M]aybe we have become so inclined to celebrate the authenticity of all personal conviction that it is now elitist to believe in reason, expertise, and the lessons of history.”

Philosophically, ‘Scottish Common Sense Realism’ provides a framework for understanding how someone’s thinking would begin with ‘personal conviction’.  This framework lies at the heart of the thinking of authors like John Locke, on whom Thomas Jefferson depended heavily when writing the Declaration of Independence.

Locke’s philosophy of government and economics expresses this framework and stands in stark contrast to that of Thomas Hobbes. Between the two of them we can drive the difference down to a single question: What is the most significant unit of society?  The answer for those who would follow Hobbes is the State.  For those who would follow Locke it would be the individual.

Money and Monetary Policy: The Scaffolding of Society

At the heart of debates over economics, then, lies the matter of money.  If you are inclined to build on Hobbes’ premises, money is a tool of the State for ordering the affairs of society.  If you build on Locke’s foundation, money is a utility contrived first by individuals to facilitate commerce.  If we revisit the debate between Keynesian and Austrian economics, these two presumptions about the nature of money animate each philosophy.  Keynes presumed an essentially Progressive, statist understanding of human government.  His prescriptions for monetary policy follow quite logically.

The problem with Keynesian economics at this point in history (which Traub at least recognizes to be singular) is he could not have foreseen either the computer or how it has changed banking on the one hand and supply-chain management on the other.  Neither could he have entertained the deployment of massive amounts of capital to essentially speculative financial products – most of which would have been illegal in his time.  These two things have conspired to elevate what Keynes called the “Zero Level Boundary” to a point above zero where money has been made so cheap that the actual creation of new wealth (by improving things) cannot compete with speculation and stock buy-backs for available capital.  Or in other words: when the chips are free, who wouldn't gamble?

But putting that otherwise necessary debate aside, Traub believes the elites are on the side of Madame History, so let’s consult with her.

The First and Second Bishops Wars (late 1630s - early 1640s) revolved around church order and leadership.  Today it is hard to appreciate the degree to which social order broadly speaking depended on church order in this time.  Charles I tried to enforce ecclesiastical uniformity throughout his kingdom, but the Scots were not having it.  Charles assembled an army to impose his order despite difficulty raising the needed money.  The First Bishops War resulted in further negotiations.  The resulting repudiation of Anglican order resulted in the calling of a Parliament, which subsequently demanded redress for both ecclesiastical and economic (tax) grievances.

Charles responded by dissolving Parliament.  This time, to raise the needed funds to pay his soldiers, he confiscated the gold held in the Royal Mint as a forced loan.  This gold did not belong to the Crown but to English merchants.  While the loans were paid back, as a result of this monetary impunity merchants began depositing their gold with trusted goldsmiths.  They received a receipt in return.

These receipts then began to circulate in place of the gold as a medium of exchange for goods and services.  The goldsmiths also realized that not all receipts would be presented for redemption at once and began issuing ‘extra’ receipts, lending them out at interest.  ‘Fractional reserve banking’ was born and these receipts became a forerunner to paper money (e.g. the Federal Reserve Note).

There are two things about this history which are instructive for us today: The first is the confiscation of the money supply by a ‘sovereign’ to enforce his preferred order on society.  Those who understand Hobbes’ philosophy also understand that a ‘sovereign’ need not be a monarch.  A bureaucracy, or an assemblage of them such as the European Union, can wield the power of a sovereign just as can a monarch and its palace. And that bureaucratic sovereign can rule with the same impunity which eventually drove matters to the English Civil Wars. But that impunity is not possible without control of the money supply. Second, this history clearly validates the premise that money is (and always will be) first a utility contrived by individuals to engage in everyday commerce.

It also exposes the underlying problem of monetary policy we face today: It should be clear that those (Traub and his elites) who espouse a Hobbesian philosophy of government would view money as a tool of the State.  Too bad history is not on their side.  And those Traub so artfully calls ignorant ‘fist shakers’ – well, they just want their money back.

Money and ‘Globalization’

Traub believes ‘globalization’ to be the root of the problem and caricatures the ‘fist shakers’ as older, xenophobic rabble pining for the cultural homogeneity of the past. This is a convenient straw man, as it does not account for the underlying stream of Scottish Common Sense Realism that continues to animate the thinking of ordinary people and, rather inconveniently, undermines the superiority complex of the elites.

The arguments for globalization generally claim a net economic gain for ‘free trade’ agreements.  But let’s look at the underlying data: First, these claims require that we treat all jobs alike.  For those who work in close proximity to the money supply – controlled as it is by what I will call (deliberately evoking echoes of Dwight Eisenhower) the ‘political/financial complex’ – a service-sector job and a manufacturing job are counted the same.  But when counted separately we see a dramatic shift away from manufacturing jobs toward lower paying, service-sector jobs.  The problems with this are both social and economic.

Economically, we become further and further removed from the creation of wealth.  A manufacturing job is, by definition, a job in which raw materials – which by themselves would be useless – are turned into useful things.  The difference between the value of that useful thing and the value of the underlying raw materials is what wealth is.  A service sector job, on the other hand, merely provides a needed or desired service to a consumer and does not directly contribute to the creation of wealth.

As a result, socially, we become an economy of mansions, butlers and maids.  What is especially maddening about this is it reflects the very income inequality we constantly hear about from the elites.  But if equality were really what the elites were after, they would insist we bring the regular population back into closer proximity to the creation of wealth.

But this is not what is being demanded; the rabble is required to assent to the redistributionist wisdom of the elites who view government, and as a result money, in a way that is fundamentally opposite to the traditions of individual freedom which form the foundation of what it means to be American.  The elites are fundamentally demanding sovereign control over the social order.  Just as did King Charles I.

And the ‘fist shakers’ are saying no.  Just as did the Scots and the English merchants after them.

Money and the ‘Fabrication of Reality’

Traub’s claim that the ‘nativist’ forces on the right – both on the matter of Brexit and here in the United States – are ‘fabricating reality’ is especially rich.  The British population was apparently subject to lies about the dangers of immigration.  Yet in Germany, a citizens’ group is using Google Maps to tag by location the instances of sexual crimes reported as being committed by migrants from the Middle East.  With other parts of the ‘elite’ telling us that women claiming sexual abuse should be believed, Traub and his tribe have some explaining to do: Who, it might be asked, is doing the ‘fabricating’?

And that question only gets more pressing when we look at economic series here in the U.S..  Starting with unemployment: In the late 1970s the U.S. Congress was faced with the hot potato of high unemployment.  Instead of making tough fiscal choices to keep the government from consuming resources which would have been more efficiently deployed by the private sector, they tossed the hot potato over to the Federal Reserve.  The Humphrey-Hawkins Act of 1977 added “full employment” to the Federal Reserve’s original mandate of consumer price stability.

Now if we were to return to the calculation methodology for unemployment prior to the passage of Humphrey-Hawkins, and then plug in the data available from then until now, the utter failure of the Fed to foster full employment would become painfully obvious.  But this would also mean Congress would have to come to terms with a simple fact: the Federal Reserve does not have – and has never had – the necessary tools to foster full employment.  This has always been about Congress hiding from its fiscal responsibilities.  And the ‘reality’ of employment in America has been ‘fabricated’ ever since by changing the calculation methodologies to hide the truth.  Again, it must be asked, who is doing to fabricating?

Then we move to inflation. In the early 1990s the Clinton administration and the Republican Congress led by Newt Gingrich were faced – again – with having to make tough fiscal choices principally to keep Social Security solvent.  And, again, they copped out.  This time they decided to change the manner in which the Consumer Price Index was calculated in order to suppress the growth of government benefits and the costs of borrowing.  It is important here to understand that interest rates are a function of the rate of inflation, which is reported as the Consumer Price Index.  While that might seem arcane, the following is not: No one refinances a debt at a higher interest rate.

So, having copped out on making tough fiscal choices, Clinton-Gingrich sent us down an unsustainable path of borrowing to the point where the United States Treasury, after paying for government programs, does not have enough money to even make the ‘coupon payments’ (also known as interest) on its bonds, to say nothing of redeeming the maturing bonds – the very textbook definition of ‘bankrupt’.  As a result, the reported rate of inflation has to be ‘fabricated’ to support ever-lower interest rates and the ‘debt ceiling’ constantly raised to enable serial refinancing of the national debt.

Thus something as fundamental to consumer prices as rent – which is rising at around eight percent a year – is not counted in the CPI.  Prices such as food and energy – as if the consumer is not impacted by these either – are also not counted.  The ‘experts’ Traub thinks so highly of tell us this is because of the ‘volatility’ of these prices.  Yet even a rudimentary understanding of economics is enough to know that this same volatility is exactly the data which should be warning us of a problem with monetary policy.  But Congress does not want to hear the truth, and so the elites must ‘fabricate reality’.

Be Careful What You Wish For

Traub’s call is for the ‘elites’ to rise up against the ‘ignorant masses’.  Yes, indeed, please do.  But be careful what you wish for.  You just might discover that we are having the very same argument had between Thomas Jefferson and Alexander Hamilton at the beginning of the Republic.  Consider the following comment from Jefferson, especially in light of the last financial crisis and its wave of foreclosures:
If the American People ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the bankers and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.
What is happening today has been brewing for a long time.  The elites will be exposed for their fabrication of reality and the Scottish Common Sense Realism that forms the philosophical foundation of the American idea of self-government will be vindicated.  The British have struck the first blow in an epic battle that will return us to sound money and the creation of vast amounts of new wealth – and eventually to freedom itself over debt slavery.

And it will be this return to creating wealth measured by sound money that will return us to an economy where that wealth is broadly and justly enjoyed by a thriving and growing middle class who are actually making things again.

God Save the Bureaucrats?

Posted on Monday, June 20, 2016 5 comments
As an American, I have always been an ardent fan and student of our Founding Fathers.  Between us and Great Britain has evolved a fascinating relationship over the years.  One of the most interesting features is how we Americans sing "My Country, 'Tis of Thee" to the tune of "God Save the Queen" - the British National Anthem.  And it seems to me that this week - in the run-up to "Brexit/Bremain" - the fascination has flowered even more fully.

I watched with this fascination as those campaigning for Brexit narrate their case in "Brexit the Movie."  The first part is especially familiar to a student of American history, as it enumerates all of the outrages to Britain's self-determination.  We called these outrages "Intolerable Acts" in the days that led up to the American Declaration of Independence.

Only now, for the British, the Intolerable Acts are not the acts of a king, but of a bureaucracy beholden to a banking cartel.  It is important to note, however, that in the context of both British and American history, there is no substantial difference.  Whether the absolute power of a monarch be executed by the Crown or by an opaque bureaucracy, we are faced with a Hobbesian Leviathan which is the antithesis of both the Magna Carta and the Declaration of Independence.

It was said by Richard fitz Nigel (who died in 1198): "It is not for the king’s subjects to question or condemn his actions." This expresses the widely held (in that time) belief in the "Divine Right of Kings" that viewed the authority to govern as flowing from God to the Pope to the Monarch.  But the reign of King John (1199–1216) delivered an impunity which could not possibly be associated with any 'divine' right.

And so the Magna Carta, which every American child is taught lies at the heart of the American idea of our constitutional liberties - was born as a check against the impunity that is inescapable when no means is available for a people to judge its sovereign.

The question that lies at the heart of this debate, then (at least from how it would appear from across the pond) really runs to the heart of how a free people identify themselves.  It was largely because of the impunity of the Crown confiscating the gold of the English merchants in order to fight their latest religious war that our Founding Fathers eschewed monarchy entirely and forbade a state established church.  Without the monarch as the unifying symbol, we invested that same meaning in our flag.  Thus our national anthem became "The Star Spangled Banner."

So as you my British neighbors go to the polls on Thursday, it would seem the very significance of the Magna Carta itself is at stake.  Only now you find yourself subject to the impunity of an opaque bureaucracy in Brussels.  If the British are going to suffer the impunity of a monarch, it should at least be a British monarch!  If you allow the banking fraud that is the EU and the shackles that is its money to enslave you with others' debts, the Magna Carta itself has become a dead letter.

The doomsayers are those who have never produced a single thing in the British economy.  They have certainly talked and written a lot about it, but again, they have produced nothing.  They live in the bubble of financialisation where they mistake money for wealth.  And since they have never created a pence of wealth themselves, they are left merely to preserve their own ability to aggregate to themselves the wealth of their subjects. With impunity.

Let the bureaucrats and their bankers rot for their impunity.  God Save the Queen!  Vote Brexit.

Apple, the FBI and Civil Liberties

Posted on Wednesday, February 24, 2016 No comments
It is a scary day for freedom when the government can compel you to create something.

The back-and-forth between the FBI and Apple has been pretty amazing in its intensity, but also in what is being implied about the authority of our government.

It is important to note than the normal purpose of the law is to create boundaries around freedom.  We all understand why one cannot yell "fire" in a crowded theater, or drive a vehicle at 100 miles per hour on a residential street.  In this sense the law works negatively - telling us what we may not do, and what punishment will be meted out to those who disregard the law.

There are some instances where the law compels us affirmatively.  We are required, when summoned, to serve on a jury to afford our neighbor a fair trial.  If we are believed to have knowledge or evidence related to the commission of a crime, or even on a matter related to a civil case in court, we can be compelled to testify, and must do so truthfully.

But with this matter of Apple and the FBI it is very important to recognize that a line is being crossed, and how that line is being crossed.

First, what is the FBI asking of Apple?  Their "iOS" - the operating system for the iPhone - has been designed to destroy data on the phone if more than 10 unsuccessful attempts are made to provide the "key" by which its data can be "decrypted."  The intent is clear, and perfectly legal: to protect the customer's information from attempts to hack into the phone if it is lost or stolen. The FBI is demanding that Apple create what we in the IT world might call a "patch" or "hotfix" that disables the 10 attempt limit.  This will allow the FBI to use a hacking technique called "brute force."  This simply means you hook the phone up to a computer which will repeatedly try different keys until the right one is found.

I find myself - coming from a law enforcement family and generally being sympathetic toward law enforcement - rather shocked by what the FBI is claiming here.  Let's back up and ask ourselves the following questions:

Does Apple have knowledge related to the commission of a crime?  If it does, it clearly can be compelled to truthfully testify as to that knowledge.  Does Apple have evidence related to the commission of a crime?  If so, they can be compelled to turn such evidence over.  However, there is simply no way consistent with our civil liberties that the FBI can argue that Apple has such knowledge or evidence in this matter of the San Bernardino terrorists' phone.

The FBI is relying on a law called the All Writs Act, which states that the courts can issue "all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."  There are four conditions which must be present when this law is invoked, but I am not sure these even apply.  The FBI, it seems, would first have to show that compelling Apple to create something it has chosen not to create - for perfectly legitimate business reasons - is "agreeable to the usages and principles of law."

It is awfully hard to see how the FBI can do this.  If there already exists a way to circumvent the 10-attempt limit, Apple could rightly be compelled to at least employ this method to make the data on the phone available to the FBI.  But again, Apple has chosen for perfectly legal reasons not to create such a capability.

The most compelling reason is the global nature of Apple's market - and the obvious fact that Apple's products are sold in markets where no regard - at least in the American sense - for civil liberties exist.  If Apple is forced to create such a capability a reasonable person can easily infer that the capability will be subsequently ordered by these other governments, and at some point become generally available, gravely injuring Apple's business.

It seems utterly disagreeable to the usages and principles of law - and its underlying principles of civil liberties - to allow the government to compel any person to make any thing when no criminal intent can be otherwise established or inferred to that person.

Three cheers for Apple's stand for freedom.

San Bernardino - And the First AND Second Amendments

Posted on Friday, December 4, 2015 No comments
The mass shooting in San Bernardino has now brought us to a place where we have to take seriously the potential for our neighbors to be radicalized by the Islamic State, resulting in loosely connected “lone wolf” attacks on “soft targets.”

However, it has also brought us to a place where “rhetorical circumspection” is necessary to avoid fertilizing the ground for this radicalization.

For this reason I support the circumspection of our law enforcement professionals.  From their perspective, careless rhetoric runs the risk of gripping our communities with fear.  ISIS knows this well, and seeks to create and exploit an environment of fear to further radicalize our Muslim neighbors – with whom we have lived peaceably over the years.

It seems other conservative voices out there do not get this.

Make no mistake, the Obama administration is in an impossible bind.  Their reticence to use language that might inflame our communities is likely rooted in an understanding of ISIS' tactical goals.  Sow fear in our communities and use that fear to further radicalize the Muslim members of our communities. This circumspection is wise - unless it leaves us ignorant and defenseless.

They are in a bind because they actually think we can defend ourselves with pieces of paper.  We see this at every turn with this administration.  The movements of chemical weapons in Syria was a "red line" - until it wasn't.  And when it wasn't his red line all of a sudden, it was the "international community's" red line because of a treaty.  He apparently thinks Bashar al Assad retires in the evening to read treaties and the latest policy memos from team Obama.  Thousands of Syrians have found out that treaties cannot stop a shell loaded with chemical weapons.

Obama apparently thinks his policy fantasies of what the 21st century is supposed to look like is sufficient to defend the freedom of the people of the Ukraine while Vladimir Putin conducts diplomacy through the barrel of a gun.

And so he is in a bind because ideologically he cannot appeal to what is now the obvious and only way we can preserve our American ideals - by upholding both the First and Second Amendments to the United States Constitution.

Last week I declared my candidacy for California's 52nd Congressional District.  This means I am running to take an oath to "uphold and defend the Constitution of the United States."  In the context of today's news, that means this:

The First Amendment: I am obligated (whether I an running for office or not) to vocally and vigorously defend my Muslim neighbors' natural right to practice their religion peaceably, in public and in private.  This means I must support the effort to be circumspect in our rhetoric that we not play right into the hands of ISIS and end up contributing to the radicalization of a population among whom we have lived peaceably for many years.

The Second Amendment: I am obligated to vocally and vigorously defend our natural right to keep and bear arms.  There will always be a gap in time from when a threat emerges – be it an attack like San Bernardino or someone breaking into a home – and when police arrive to help.  The responsibility for public safety during that gap in time cannot be shouldered by the police; they cannot be everywhere at once.  The responsibility for public safety is first the responsibility of the public.  The gun culture is not a culture of violence; it is a culture of responsible self-reliance.

The President's repeated calls for more gun control is perfectly consistent with his policy fantasies elsewhere.  California's gun control laws are already some of the strictest in the nation.  We have now seen clearly that in the face of a determined individual or individuals what we already knew.  Laws written on paper do not make very good bullet proof vests.

We must defend the First Amendment rights of our Muslim neighbors, and must speak against any and all efforts to dehumanize them by painting them with the broad brush of terrorism.  But we must also insist on our Second Amendment rights to protect ourselves, our families and our neighbors from the few who have perverted Islam.

A citizenry properly vetted, trained and licensed to keep and bear arms is the best way to secure the freedoms we have peaceably enjoyed – both Muslim and non-Muslim – as Americans.

The Cloud in the Silver Lining?

Posted on Friday, November 6, 2015 No comments
The media was crowing today about the "best jobs report this year" (CBS Evening News).  Talk is starting to turn on whether this will be considered enough for the Federal Reserve to start raising interest rates in December.  But as one financial outlet put it:
It is difficult to find the cloud in the silver lining as economists are often wont to do. It leaves no doubt about the December meeting being live despite the year-end considerations that some had seen tying the Fed's hands.
Uh, actually not so difficult after all...

The blue line in this graph tracks the overall, seasonally adjusted Civilian Labor Force Participation Rate.  In creating the graph from the St. Louis Federal Reserve's web site, I chose to start at June 1977 because the rate then was the same as it is today (as shown on left side Y axis).

The blue line is often explained by appealing to the retirement of the Baby Boomers.  Unfortunately the red line blows that explanation right out of the water.  The red line is the Labor Force Participation Rate for those 55 and over.  If had been able to plot the Federal Funds Rate on this chart by norming the Y axis interest rate percentages to the labor force participation percentages, my hunch is that we would see a tight correlation between dropping interest rates and increasing labor force participation on the part of those over 55.  This should not be hard to understand: potential retirees know full well that their savings will not last at current interest rates.

It is the green line - Labor Force Participation Rate for those 25-54 - that explains the blue line.  Both track roughly together at their respective levels.

To gauge the overall trend, the numbers from the BLS can be plotted in a spreadsheet (I took only the 25-54 and 55+ age groups as a sample), totalled and then each year's percentage gain plotted as a series.  Here is the graph:

The yellow series on top is the percentage share of job growth among those 25-54 years old.  In January 2005 it was above 80%.  It has dropped to below 75% today.  The blue series is the same share of gains for those above 55.  It was below 20% in January 2005.  It is now above 25%.  This is not the trend of a healthy economy.  It is certainly not a silver lining without a cloud.
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