The Clueless Occupiers from La La Land

By Son of Bastiat

“I’m not the 1 %. I’m not the 99 %. I’m me” – Vinnie, a self-made art entrepreneur

One of these days, without wishing that fate on them, an Occupier, a pedestrian, a bystander along with scores of others will have their asses kicked, heads cracked, ribs broken, limbs severed or worse, in an orgy of violence that will erupt over issues that few of them have clearly grasped, and thus have little chance to influence: economic justice, income distribution, bankers’ greed, corporate power, welfare or whatever other causes of their disempowerment. Apart from providing critical mass and excitement that liberal media love to hype, they will end up as little more than cannon fodder for clever agitators with more focused and sinister agenda, the useful fools that revolutions since time immemorial have relied on for the dirty job of capturing mass movements that just as quickly fade into egoistic fantasies.

When it happens they will experience the imperfect, unforgiving world first hand. They will learn about the millions who, just like them aspire to better lives, but the pursuit of which result in making life less than ideal for themselves and everybody else. They will meet the legions who, day after day, suffer the cruel stings of unintended consequences, their best efforts and purest intentions notwithstanding. Maybe they’ll appreciate how sordid the “human condition” is, from which their efforts to escape embroil them in all sorts of transference problems. If they’re lucky they’ll learn how the complications in their lives grow in proportion to the degree they fantasize “how the world ought to be”, rather than “seeing it as it is”. They might conclude that much of their beef about life is delusion willfully indulged.

Parsing Egalitarian Entrails

They hate it that the world is too unequal? Well, so do I, but to get anywhere, a precise definition of “inequality” is needed. Time magazine offers one aspect of it: average incomes of $ 1.5 MM and $ 50,000 for the 1 % and 99 % of all Americans respectively. But do they really think that eliminating differences between two figures is all there is to it? Sadly it isn’t, because income (or wealth) gaps hide more things than are apparent on the surface. Just ask: will dragging the 1 % down and bringing the 99 % up make things better? The answer is no, because even if the latter are numerically superior, it punishes the few “heavy lifters” and rewards lots of underperformers, with the result that society as a whole ends up less productive.

And why should productivity matter? Because in the long run, redistributions that do not ensure wealth creation end up making things worse – just look at how farmers who receive land after land reform without provisions for making them productive promptly lose them, leaving agriculture worse off than before. Instead of bringing people down it would be better to create opportunities; taking away the fruits of work of the 1 % will lead to a capital strike that reduces those opportunities. Few Occupiers realize that this nasty “come back” is what causes their joblessness.

But what if perceptions of “just” differences are frivolous or subjective? If there is no objective basis for doing it, income and wealth will be redistributed with neither the support of givers nor the gratitude of recipients. It’ll not be easy but even assuming that it can be done, keeping it there will require constant infringements on every one’s freedom or expectations, which as Machiavelli pointed out, endears the egalitarian to neither. Thus redistributions don’t last long, especially if people are free to do what they
want, from refusing to create wealth to running away from it altogether (now rampant in the US and even China) . Instead of removing inequalities, they only end up making them worse and permanent.

Voluntary redistributions via taxes are only a tad less chaotic, requiring one to reconcile peoples’ differing needs for, and respective contributions to the creation of that which is sought to be equalized. Unless everyone yields to reason or sense of moral worth, disagreement will lead to discontentment. Redistribution even with volition means that one doesn’t care how motivations and capacity to generate wealth are affected; all that matters is less inequality at whatever the consequences. Coercion can effect and maintain it, but eventually egalitarians will have to make up for what is lost in the process, with the result that the 99 % will have less income and no jobs. Such are the calculations of fantasists.

This is why the most practical distribution policy (Rawls’) aims not at full equality, but the toleration of some of it in exchange for motivating those who contribute more towards wealth creation and income generation, provided that that those at the lower end of the distribution scale are not made worse off as a result of the policy. It admits that no human society – even the most truculently egalitarian - can avoid inequality; it is a matter of how well members can tolerate it, and of where they have a better chance at rectifying it if they can’t. If that approach still creates too much inequality, blame those who formulated policies that produced such outcome, even if they did it in error; make them pay dearly for such outrage especially if they did it with malice. Just don’t redistribute wealth or income arbitrarily as not only would it fail to solve that problem, but will likely end up worsening it. To Proudhon’s “Wealth is theft” must be added: “Punish the thief, suffer the loss of what he gives you”. Even bad men do produce a lot of good.

Do You Understand the Moral Roots of Greed?

As with inequality, much depends on what “greed” exactly means and whose vice it is. Unlike inequality which is retrospective and is not an absolute requirement of growth, greed is prospective and central to the achievement of that growth. This is why greed is a double edged sword that can do a lot of good (when used by the right folks) or evil, if otherwise. What one can’t simply do is judge those who indulge in it, without inquiring as to why and what their roles are. Like inequality, perceptions about greed tend to be colored by subjective understanding of what is required in such roles. This is why folks find greed by others offensive (but not as much if done by themselves) – it’s the resentment in being excluded from the benefits especially if they don’t know whether they deserve them, or whether they can deliver what’s expected in those roles. Like inequality, greed defies analysis using subjective, overt comparisons; greed goes beyond by being self-referential, never looking at what the other side needs.

If those perceptual problems are not bad enough, one will also be held hostage by moral baggage that he acquired in the society he grew up. Philosophers have pointed out how moral judgments arise from extending beliefs outside of their proper boundaries, while psychologists link them to the mysterious operations of the subconscious, but let’s skip those because they require making shaky assumptions about the purpose and meaning of life. Let us focus on how thinking processes are affected by language and word usage, largely without individual awareness. It turns out that a lot (not all) of moral judgments flow from nothing more than beliefs shaped by personal, family, tribal and community values. A lot of moral judgments (again not all) have little to back them up save for local values (e.g., fairness, justice, etc) that a community holds as sacrosanct. To make matters worse, this error of thought is compounded by carelessness in sentence construction and meaning of words. To Vaggini errors of moral judgment result from illogical transpositions of the subject and object in certain types of sentence structures. As astonishing as that sounds, what the above claims mean is that excessive concern for greed (and also inequality) are the products of self-awareness; anything beyond that is pure, unadulterated fluff.

At any rate there is no need for these uneasy assumptions for there is a simpler explanation for the mental aberration that disposes one to view everything that does not align with his personal ideas of what is just, as greed and “therefore” immoral: the arrogant belief premised in one’s having ALL the facts needed to make a particular moral judgment. In today’s volatile and extremely complex world, that assumption betrays irrational hubris. How else to explain why, in the aftermath of the financial crisis, the sanctimonious quickly and totally blamed it on “greedy bankers” when, in light of perfect hindsight, it turns out that their legitimate roles (as a class, for particular behaviors can never be explained by any general theory) as maximizers of gains were enabled by bad regulation and politically tainted policies which relaxed origination standards and encouraged leverage in pursuit of a policy goal (mass housing).

Unlike politicians, the bankers were performing what they were trained to do, which is to generate profits within silo-like environments that were bereft of sufficient information and understanding, thus amplifying unknown events occurring elsewhere. Save for a prescient few who “boasted” of being right early on, the character and severity of the crisis was generally not foreseeable even by economists who lacked market insights and experience to predict it, let alone prove conclusively that an emergent system could not “right” itself, especially that what finally pushed the system over the cliff are not these mistakes but the flawed decisions of the system’s liquidity managers who erred in dealing with, what else, a no-precedent crisis. Folks who blame greed for the crisis sans any qualifiers (e.g., errors of judgment or irresponsible behavior under complexity), are at best being naïve about human behavior in dynamic systems; at worst they are romanticists who can’t psychologically cope with uncomfortable causes for events that they can’t mentally grasp, so they default to the easier search for demons to exorcise. The fact that conflicted “greed”, if properly harnessed is vital to wealth and job creation should caution those inclined towards simplistic judgments, to ponder the risks of demonizing a vital part of economic life. An inability to entertain two opposed ideas without hiding psychic baggage is a sign of a weak, delusional mind ever seeking relief in transference. Moral outrage is a sop to a guilty conscience.

The Dilemmas of Corporations and the Welfare State

Let’s go right to the heart of issues that protesters are correct to raise even if they can’t quite articulate them well: the legitimacy of Corporations because of the unprecedented powers they have amassed, both outside the sphere of market operations and in their ability to corrupt society through their strong influence over the political process. Who in his or her right mind would question such motive, but it is also true that such ideal goals involve tradeoffs at a stiff price. But if that isn’t bad yet, Occupiers compound their woes by thinking that a non-market solution – the welfare state – can solve the problems they decry, namely slow economic and job growth. Like democracy, the corporation is far from being an ideal solution, save all other alternatives are worse – their tradeoffs are more expensive.

A little history should remind one that the modern corporation is a recent phenomenon, a caricature of the weak entity that it was in the last years of the 19th century or even up to the early years of the 20th. Massive needs for capital by technology, the imperative to diversify markets for stability of growth, and the centralization of authority to deal with efficiency issues and control the resulting complexity – all these led to the amassing of power (and thus its abuse) by those who lead these organizations. That most of them were self-appointed and not responsible to society or even to the corporation’s owners (who got castrated in the process) is not their fault; say what you want about the Law’s failure to come up with the proper legal safeguards or about regulators’ duties to properly enforce the rulings, the fact is that the corporation is the suboptimal solution that has successfully delivered on two of society’s most critical survival desiderata – employing the hundreds of thousands of its members who must earn a living at the least expenditure of time, money and effort; and effecting the efficient conversion of resources into sustainable growth. That many corporations have failed these tests or thwarted their attainment is no reason to reject all of them, unless one is sure that he has a superior alternative.

As one scans the landscape, he finds that few of those are worthwhile candidates to replace it. For the criteria boils down to what extent those vehicles’ decisions can take place within the influence of market discipline, especially as they undertake decisions that have non-market ramifications and “external” influences, such as is the character of social decisions today. The problem is that the boundaries delineating these decisions are booby-trapped with unknown costs and outcomes, which sets this back to the old nemesis, unanticipated consequences. Folks of a disposition akin to those we have met above – a moral repugnance for any inequality and the slightest hint of (unqualified) greed, prefer that non-market solutions predominate. What they claim little or no awareness of (or if they do, are uncomfortable to admit), is that such alternatives involve an explicit if seldom acknowledged tradeoff between two opposed ways of thinking about modern society: a market-responsive one typified by corporations (economically successful but rapacious if uncontrolled) and a non-market driven welfare state (inefficient, wasteful, unsustainable), its only tested alternative. The harsh reality is that one can only choose between two, imperfect solutions, but one of which tends to make the outcomes worse.

None of this defends (let alone excuses) the modern corporation’s hideous handiwork in vital concerns as environmental degradation, unsustainable exploitation of natural reserves, manufacture and exports of death-dealing weapons or drugs, aggressive lobbying to influence regulatory and electoral outcomes, all the way to outsourcing jobs that have no logic other than maintaining “competitive presence”. On the other hand, one has the welfare state, ostensibly set up to take care of those with neither the means nor the knowledge to protect themselves against the vagaries of nature or the rapacity of the markets. What it achieved instead was to siphon the resources that could have been used to get the economy to grow faster in order to lift those at the bottom of the social pyramid, which it diverted to politicians, bureaucrats and parties such as labor unions, with interests vested in perpetuating inefficiency and the sense of entitlements that resisted all reforms that threatened their hold over votes and sources of patronage. It is supreme irony the real threat to the world economy today comes not from the much excoriated “corporate greed” but from explosive public debt, a legacy of the welfare state. In matters that affect society the most – jobs and economic security- the corporate economy, warts and all, trumps the welfare state. To want to kill it while growing the welfare state is not only ludicrous but inane.

Hence the question is: what are Occupiers’ beef against corporations, and why their quixotic preference for such losers as the inept, inefficient and stodgy welfare state to deliver what is important to society? Could it be that the reason they condemn the corporate economy and praise the welfare state is that
they are psychologically insecure with competing in the marketplace where they can get their asses kicked in spite of a (academically indulged) pretense that they’re good. Well one is not THAT good if he must seek solace for his wounds from the womb-like comforts of a nanny, which the welfare state is. The tragedy is that Occupiers do not see that they are ditching imperfect solutions that work in favor of worse ones that have failed miserably, as close to the definition of delusion as one can have.

What Their Real Problem Is: Externalizing Inner Failures

Three years ago a young man asked to talk to me one on one. Thinking that it had to do with his long put off marriage plans, I braced for some unanticipated news: an unplanned wedding, or worse a split. As soon as he sat down gravely on the couch, I sensed that this was a devastating issue, and indeed it was: his job would not be renewed the very next year when he and his fiancé had planned to finally marry. I sat down silently as I listened to him detail the reason for the painful news: that despite being a talented art teacher, well-liked by peers and adored by his students, the artist in him just was not up to the administrative and routine demands of the job. As I observed his face turn grim and his eyes shed tears of anger, frustration and fear, I fought hard to explain and reassure him that being fired was not the end of the world; how I, too, once faced such a disaster, which I overcame by acquiring more expertise than my “firers”, which facilitated my foray into opportunities far beyond what I could find working for others. After going through this human moment we knew that there were serious things we had to do; none of those was about blaming our immigrant fates or the society that gave us our breaks. It was all about coping with life’s challenges as best as we can, as they unfolded in all of their stark harshness.

I wasn’t expecting to see how such an experience could be improved upon and surpassed by this young man who rose above this depressing episode, so well that in the span of less than three years, with a little less than a thousand dollars in seed money, he built a business that his peers now rate highly as an upcoming global sports art licensing and branding business, with fans from all corners of the world so rabid as to tattoo his art work on their bodies. Recently he capped this feat by co-branding and licensing his products to, and partnering as creative designer for, a leading US apparel firm that sells to 1,400 outlets. Looking at it now his dramatic turnaround owed mostly to personal discipline, adhesive-like perseverance, a refusal to get overwhelmed by lots of handicaps (we are outsiders), and a can-do spirit that drives him to excel amidst all odds. Instead of ending up as a loser he turned himself into a self-made entrepreneur who neither gave up nor depends on others for support, refusing to externalize his problems by blaming America for his share of life’s trials. Recently we had occasion to watch a rowdy O.W.S rally blaming the 1 % for their problems, and here is what he said: “I’m not the 1 %. I’m not the 99 %. I’m me, doing what I can to change the world”. I copyrighted and used it as the idea for this essay.

Other than the fact that terribly misguided can be useful in waking up society’s often moribund senses, there is not an iota of logic or fact to back up the O.W.S. positions, no matter how well meant and sincerely they are held. This is why they cannot come up with concrete proposals, and why they prefer to wallow in ambiguities, fearing that taking positions will force them to confront extremely painful realities, not the least being their conflicted inner selves. Why risk the embarrassment of a firm position when in vagueness one can indulge the airs of moral superiority? Could it be that this phenomenon called O.W.S. is the escapism of a bunch of badly raised losers who have succumbed to life’s vicissitudes and blamed America for their misfortunes?

Instead of wasting energy occupying idle real estate, why not build something concrete and useful on top of it?

Debating the Philippine Reproductive Health Bill: A Commentary

By Son of Bastiat

 “I humbly submit that the struggle for an RH bill to protect the health and quality of life of the mother and child in the context of unspeakable poverty is part of liberation theology” adding that Vatican II taught the "primacy of conscience." (Philippines Sen. Santiago’s remarks in a Sun Star 8/2/11 interview)

“There is enough hard evidence in other countries that followed the same path of population control, which shows that a contraceptive mentality inevitably leads to a significant rise in abortion, divorce, single mothers and mentally unbalanced adolescents”. (Dr. Villegas, Philippines’ economist in “Little Chance for RH Bill” Inquirer.net, 10/15/11)

Like the Occupy Wall Street protesters’ shouts reverberating 3.5 miles away from where this essay is being written, the above quotes read as if their respective positions are clear and sufficiently “joined” as to make a reasoned debate possible. In fact, that is far from being the case, if only because these quotes occurred at two different times and media sources (an online column and interview) and juxtaposed in a contrived debate to highlight the essence of two diametrically opposed positions on the RH Bill. They represent two radical opposed worldviews, neither one effectively articulated by their advocates. Is it due to the RH Bill’s intrinsic complexity, modern man’s intransigence, his pride? Or all of it combined?     

EVALUATING THE CORE POSITIONS

Begin with the Senator’s views, which her quote above succinctly summarizes:

a). Due to unspeakable poverty, an RH Bill will protect the health and quality of mother and child. She makes no reference to the widespread view that overpopulation promotes poverty, only that controlling it promotes human welfare. 

In claiming that an RH Bill will protect the health and quality of life of families, she sidesteps but does not avoid making the conclusion that overpopulation is a major cause of poverty. As a legislator she is no doubt aware that much of the government’s budget is appropriated for poverty amelioration; AND that scarce national resources (land, oceans, etc.) are preempted for basic survival by a predominantly poor and underproductive population. These factors are deemed to reduce the amount of resources that can be used to “grow the pie” or improve its quality. With fewer people, resources and income per capita are much higher. The correlation between population size, per capita income, quality of life and wellbeing in neighboring countries is cited “as proof” of the wisdom of population control policy. 

Bernie Villegas’ comments suggest that while he agrees with this view in the short term, it is fraught with major problems in the long run. He refrains from zeroing in on Santiago’s (and RH Bill advocates) views that overpopulation reduces future growth potential, by citing past research done by Clarke and more recently by Nobelist Gary Becker, to the effect that this redirection of resources from future to current use accounts for a much smaller impact on permanent growth than is being claimed based on “commonsensical observations” drawn from experience which are almost always biased. Assuming that it is huge, China’s situation should serve as a useful reminder of this one-dimensional fallacy: even if its “One-Child-Per Family” had allowed it to amass resources to bankroll its growth, how efficiently they were used, what they brought China’s poor in exchange and where the policies they encouraged are leading China today are far more important than the simplistic resource mobilization issue it addressed.  

These statements ought to caution those inclined towards casual empiricism (i.e., analyses drawn from random experiences) from extending their individual conclusions into the realm of aggregate and multi-generational policy making. This knowledge domain error (see le Compte de Nouy) is more fatal than many RH Bill advocates realize and yet is not pointed out to them by RH Bill opponents. It illustrates the incompleteness of the debate. But why be surprised when the more basic limitations of population-vs-growth models have not been recognized, despite the known shortcomings of statistical analyses when set against the broader context of scientific truth validation and theory of knowledge?    

   

Score this round for the Senator, but not because she out-argues Villegas on this false economic issue but for the latter’s hedging, in hopes that RH Bill advocates will see that short term tradeoffs between growth and population are not only spurious (“Even assuming, without granting, that population control can help in the important task of eradicating poverty. . .”) but nonsensical especially in the long run when more factors other than economic growth matter. But that’s going ahead of our essay.   

Let’s then go to her second argument:

b). “Liberation Theology” and Vatican II have struck at the roots of social inequality that an RH Bill is designed to mitigate, and the Church has a “mission that includes the struggle on behalf of justice, peace, and human rights." Humanae Vitae the encyclical on which the Church bases its opposition to birth control was based on a “minority’ view, adding that 80% of US Catholics do not follow it.

Let’s dispose of the easier part of her position – that the real reason the encyclical Humane Vitae got adopted by the Church despite being held or accepted only by a “minority” of Catholics, is that electors were railroaded into passing it during the feverish route to Vatican II.  Asserting that some encyclicals are passed over the wishes of the “majority” is mainly a case of verification but the more meaningful question is: can most matters of core importance to a Faith be vetted by its followers? If it is the way a faith’s central tenets are decided, then the crucial element of its unquestioned acceptance disappears; belief by consensus simply means an absence of Faith. The fact that 80 % of members profess to not follow a faith is not to be held against it; that simply means that such Faith does not exist no matter what its members believe. To see why this not solipsism or sophistry, consider what happened when Socialists began to deviate from the strict principles laid down by Marx and Lenin. In due time the socialist camp splintered into factions that ultimately got co-opted by their adversaries (China’s “market socialism” being the best example). The only reason Islam escaped this fate is because its coherence depends less on doctrinal homogeneity and more on coercion. Even so, it is split into two feuding sects. 

Because the Church would not countenance the temporal and totalitarian impulses that drive Socialism and Islam, that existential risk is more serious in the Church’s case since its doctrinal integrity depends on the acceptance of all individual tenets; reject one and the entire edifice falls flat on its face. Absence of members’ coherence, rather than a radical change in one or more core tenets, explains Santiago’s claim that “the absolute authority of the Church has grown weaker over the years”.     

This brings the second, major fallacy in the Senator’s position: Liberation Theology. Santiago claims that the RH Bill draws its legitimacy from the Church’ mission to help the poor but as a Theology specialist, does she believe this? Is it the Church’s stated central mission or merely one of the many avenues that it pursues while carrying out its primary mission (of saving souls)? It surely cannot be the primary one, if only because the Church is a transcendental institution that finds it must minister to the temporal needs of its members. For the Church to involve itself beyond this, even if not at the expense of its spiritual one, would be to risk diluting its primary mission, with all the potential for errors that involvement in social causes lead to. If this is not obvious to a theology scholar, all she has to do is to review the Church’ mixed record of advocating for social causes (e.g., the US bishops’ 70s disastrous position on economic equality or of Archbishop H. Camara’s amateurish dabbling in Latin American development). Suffice it to mention that some of the most spectacular welfare and social justice program failures began as well-meaning religious initiatives to help the poor. If in this fairly straightforward temporal area the Church did a less than fully creditable job, what more with complex, transcendental issues like birth control?    

To put it bluntly the Church has no excuse in involving itself in these debates for social justice reasons. Villegas did not highlight this in his article at all, but again this omission, just like the first above, is why RH Bill advocates, especially those carrying religious baggage end up losing sight of, and getting more confused about their primary position. I would score this at 0-0 as neither side floors the other down.

And finally their third bone of contention:

c). Conscience is what matters above all, being “inviolable” and that a Catholic has a right to follow her own conscience “even when it is erroneous” (ie., meaning it goes against some “objective” standard).

Of all the Senator’s quotes, this one is the most perplexing, both in point of logic and origin, coming as it does from someone educated in theology and law. In the first place, an erroneous conscience presupposes the existence of some kind of moral reference for otherwise there would be no basis for assessing blame, which is the rationale for that claim. But in using the term “erroneous” the Senator explicitly declares that the Church’ tenets are not the only standard by which to base such judgment. It leads her straight to the pre-modern era traps of infallibility and relativism, which have been argued, fought, warred over and resolved since medieval times, resulting in the outcome now known as the Great Separation (not between Church and State but between Man and his Creator).     

Here is where Villegas delivers the knock-out punch. Briefly, the debate between the RH Bill advocates revolves around whether Man’s wishes will prevail over God’s. Santiago herself starkly states it: “In the past, Catholics simply obeyed the bishops. But now, many Catholics are no longer willing to give blind obedience to the Church”. But as pointed earlier, real faith not being a matter of consensus, continued membership in it is a tacit admission that it speaks for God (unless believers are schizophrenic dualists who by definition are deniers of one truth). Villegas’ arguments center around the subtle point that going against God’s will would in the long run be dangerous for Man, even if man refuses to accept it as such. No Nobel economists are needed to prop this position up because it indeed is what happens when man denies accountability to an entity other than himself, regardless of whether it involves faith or not. It was the ultimate (but never admitted) cause of the recent financial crisis. It is the reason why the EU is now imploding into pieces, followed in due course by China. It is what will happen to the Philippines if the RH Bill is passed into law and the contraceptive mentality takes hold. Here’s what UK Prime Minister Cameron attributed the recent rioting in London and nearby cities to: “Irresponsibility. Selfishness. Behaving as if our choices have no consequences. Children without fathers. Schools without discipline. Reward without effort”. (The Financial Times, 8/16/11). These are the RH Bill’s longer term and secondary effects that one side ignores and another sidesteps hoping it will just sink in. But it won’t.

What Villegas says is that passing the RH Bill will perpetuate a cultural dependency and moral weakness that abets all the ills that afflict contemporary Philippine society, with zero assurance that the resources freed by controlling population growth can be turned into material, let alone intangible benefits. It is the existential risk, not the temporary trade-offs that make RH Bill’s passage disastrous. It is just amazing that an ancient debate that has long been clarified, manages to emerge in sophisticated raiment, revealing again that man’s pride doesn’t let him learn from the wisdom that has been learned for ages. The theologian Barth said. “Look around you. . .all you see is chaos, irrationality and downright perversity of the world man has made for himself. What was the mad carnage of the Great War but the predictable result of humanism, which modern theologians celebrated rather than judged? They have wished to experience the known god of this world”, Barth said, “Well! They have experienced him”.

CONCLUSION

This essay closes by quoting the final paragraph of an essay that the author wrote assessing J. Burnham’s classic 1964 book “The Suicide of the West” (Gateway Editions):

How Western Societies Really Die

“What they are saying to us today is that if you want to keep the Federal government open you have to throw women under the bus” is how Sen. P. Murray (D., Wash) depicted the contentious budget debates among Republicans and Democrats in which funding for Planned Parenthood (a pro-abortion group) came close to shutting down the US government. The terrible fact is that the economic future of the US is held hostage by an issue that doesn’t even represent 0.15 % of a budget that liberals have larded with entitlements so that 1-2 % cuts are “draconian” and sufficient to derail compromise. If the US economy implodes it will not be from wars or invasions but from decisions that made killing unborn babies kosher.

Far from stimulating the economy in the way it supposedly did for its neighbors, the RH Bill will unleash destructive values that will keep the Philippine economy from taking off. But don’t count on “modern” RH Bill advocates to supply the antidote, because their self-absorption and pride are too weak to detect it. Writing in Perspectives in Political Science, Summer 2009 Volume 8 Issue 3, Ralph Hancock cited Hans Blumenberg’s view “that the modern age emerged from a movement not of reason but of self-assertion, although the purity of this self-assertion was obscured by attempts to respond to now meaningless questions left over from the challenge of an essentially Gnostic nominalism”.  Understanding the RH Bill’s dangers calls for mastery of a difficult philosophical issue and tempering man’s exaggerated view of the self.   

 [Copyrights VRR@NYC2011, see http://SonofBastiat.blogspot.com for the rest of the other blogs]

"The Suicide of the West" by James Burnham

A Commentary by Son of Bastiat

“Its author maintains that western suicidal tendencies lie not so much in the lack of resources or military power, but through an erosion of intellectual, moral and spiritual factors abundant in modern western society and the mainstay of liberal psychology”   

[James Burnham’s 1964classic, SUICIDE OF THE WEST, remains a startling account on the nature of the modern era. It offers a profound, in depth analysis of what is happening in the world today by putting into focus the intangible, often vague doctrine of American liberalism. It parallels the loosely defined liberal ideology rampant in American government and institutions, with the ebb, flow, growth and climax and the eventual decline and death of both ancient and modern civilizations. Gateway Editions Review].

This essay, the second on the author’s research into societal decline and self-annihilation, expands the themes that were explored in his first essay on America’s welfare state catastrophe (“America’s Suicide Attempt by Paul Johnson”}. It broadens their application beyond America to include entire societies as well (“Suicide of the West by J. Burnham”). Why be preoccupied with morbid topics such as societies in decline? Answer: Because it turns out that a common theme permeates the largely unconscious act of terminating country and societal existence: moral cowardice and inner rot. The implosion of the Welfare State and the decay of Western societies are phenomena with deep moral roots. This essay argues that the RH Bill is but another manifestation of this deeply seated death wish that leads to societal suicide.    

  

Population Control as a Systems Error Tragedy 

Controlling population growth is societal suicide? But wait, aren’t the methods of population control (from contraception to abortion all the way down to euthanasia) precisely used to keep society from “eating its seed” in order to ensure its survival and progress, which is the antithesis of self-destruction? It isn’t paradoxical for a society to ensure survival by killing its own. Like the neutron bomb that can kill people while keeping their homes and buildings intact, survival decisions premised on resource intake and outgo calculations are based on a cynical and depraved view of human nature. What looks rational among non-living ecologies such as factories or cities does not apply to human populations and similar self-aware organisms which are at root, complex, dynamic and adaptive. This tragedy that lies at the root of all Malthusian-type analysis is also based on a flawed conceptual understanding of systems.

Complex systems are usually analyzed by simplifying their underlying structure, a process of successive reduction by taking away parts or relationships and variables that a systems analyst considers irrelevant to the goal at hand (in the case of population, some decision rule that maximizes utility under a resource constraint). There is nothing odd with organisms limiting the scope of their efforts to make sense of the complex world, if simplification is done to conserve energy. Where complications arise is when the basic reductive impulse comes from outside so that values external to the system primarily determine which factors are ”extraneous” or which variables are “irrelevant” to a goal that may not be compatible with the system’s own. Known as “the outside observer problem”, such arbitrary exclusions result in models wherein observers’ biases and not members’ values drive the system’s observed behavior. While all representations of reality reflect both the conscious or subconscious biases of their observers, models that are deliberately tweaked by policy incentives in specified directions will tend to reflect less perfect correspondence between internal behavior and external perceptions. The trouble arises when such flawed models are claimed to “objectively represent” reality and employed as basis for policy decisions, here a policy to control population. Few call out such travesty for the intellectual dishonesty that it is. 

Far from being mere intellectual dross, the “verifiability” of claims is the stuff of debate between logical positivists (extreme empiricists for whom naked claims that cannot be verified are meaningless); and the modern philosophers of science such as Kuhn (for whom scientific methods cannot verify the truth due to the observer bias and the fact that cultural and institutional factors influence perceptions of what is claimed as truth). Replace “scientific method” with “statistical tests” and one can grasp the enormity of this policy depravity that in the US now snuffs out the life of an unborn child every 100 seconds, at which rate an entire society turns over in less than five years. Ironically a policy promulgated to keep society from “wasting its seed” is self-annihilating itself.  

The Harmful Effects of Erroneous Policies 

If this is correct then propositions like “reducing population growth is a requisite of economic progress” or positive claims such as “population increases consumption and hence retards growth by reducing capital accumulation”; or “artificial methods of reproduction such as sterilization allows families to raise better quality offspring” all the way to the most sophisticated demographic models that are the basis of official population control policies have to be seen for what they are in essence – incomplete, inaccurate and simplistic expressions of very complex relationships that mostly reflect the biases of their advocates. They produce misleading conclusions about the impacts of population control policies on societies by exaggerating their positive effects on economic variables while underestimating or even omitting their negative long run influences on intangible factors crucial to societal balance and growth.  

If this is not devastating enough, the coup de grace is delivered by nonlinear dynamical systems theory: the fact is that statistical correlations are little more than exercises in ferreting out significant (p<0.05) reduced form relationships from historically sampled data. But live systems like human populations are not only dynamically reactive but anticipatory, meaning that they are capable of purposeful adjustment to varying stimulus in un-anticipatable (or even contrarian) ways that are rarely reflected in historical data used by correlation models. It is this adaptive behavior of dynamic living systems, especially their unpredictable non-linear responses to stimuli, that makes statistical models so woefully inadequate in establishing cause and effect relationships. The effects show up in “irrational” and “outlier” behaviors that are filtered out as atypical data: savings-poor families that find ways to send all children to school, rich taxpayers that bust up revenue forecasts as marginal tax rates rise; countries whose GDPs increase as their informal sectors expand, welfare programs that nurture low productivity and anti-social values. It is these “atypical” system behaviors caused by the arbitrary exclusion of unknown factors that renders ludicrous the claimed power of population control policy failures in explaining the relative disparities in economic performance between the Philippines and its neighbors; such simplistic models could never have foreseen the grave disaster that aggressive population control could have brought the Philippines to if 30 years later it had no skilled labor to export. Policy technicians are better served by reading less econometric books and more philosophical tracts by philosophers such as Popper who believed that rational methods cannot validate the truth value of models and propositions involving human beings whose decisions are intertwined with reason and motivations that can never be satisfactorily captured by such weak models. [Incidentally Popper also offered the same “falsifiability” thesis as basis for claim testing which econometrics deals poorly with, being about hypothesis testing but not about decisions].

The Ideology that Underpins this Intellectual Error   

Statistical methods that do not adequately capture the irrational quirks of dynamically adaptive systems merely probabilistically model traits that dispose individuals towards potential behavioral tendencies; as such they capture traits that dispose, but not sufficiently explain why they actualize specific behaviors. The set of beliefs, philosophies and world views that prime such observed behaviors is at its core an ideology that traces its roots to a fundamental way of thinking about reality that descended from Post Renaissance thought. It goes by the term Rationalism, and its modern offspring called Liberalism.  

In contrast to the traditional (Aristotelian/Thomistic/Augustinian) view of human nature which had a permanent and unchanging essence; where man is corrupt and limited in potential, so that his fate is tragic unless saved by Divine Intervention, Rationalism/Liberalism, (to quote Burnham) – “holds that there is nothing intrinsic to the nature of man that makes it impossible for human society to achieve the goals of peace, freedom, justice and well-being which liberals define as (the accoutrements) of a “good society”. Burnham elaborates on Liberalism by quoting Oakeshott – “Liberalism is confident that reason and rational science, without appeal to revelation, faith, custom or intuition can both comprehend the world and solve its problems”. . . “free from obligations to any authority save for the authority of reason . . He is at once skeptical (because there is almost no opinion, habit, belief, nothing so firmly rooted and so widely held that he hesitates to question; and optimistic (because the rationalist never doubts the power of his reason to determine the worth of a thing, the truth of an opinion or propriety of an action”.

What follows from such a mistaken view of human nature is obvious (again quoting Burnham) – “the peaceful, just, free, virtuous, prosperous society is inevitable or scheduled to come on condition that human beings behave rationally by accepting the liberal ideology, program and leadership” (emphasis and italics supplied by the author). Policies to keep population in check, whether through preventing conception, abortion, passive deprivation or euthanasia, are examples of programs that liberals want to impose on societies (especially its vulnerable members) as way to achieve the “good society” outcome. As explained above such conclusions are both methodologically flawed but epistemologically unsound, and now are shown to be the product of an ideology that seeks to remake societies in its own vision regardless of what the consequences to overall society are. Such is the death wish that ideology buys.    

How Western Societies Really Die

“What they are saying to us today is that if you want to keep the Federal government open you have to throw women under the bus” is how Sen. P. Murray (D., Wash) depicted the contentious budget debates among Republicans and Democrats in which funding for Planned Parenthood (a pro-abortion group) came close to shutting down the US government. The terrible fact is that the economic future of the US is held hostage by a flawed issue that doesn’t even represent 0.15 % of a budget that liberal policies have larded with entitlements so that cuts of 1-2 % are now called “draconian”. If the US economy does implode it will not be from wars or alien invasions, it will be from a tragic decision to kill unborn babies. 

When Jobs Disappear for Good

Work's Disappearance Signals the Start of a New Economy

By Son of Bastiat

Today September 5, millions of Americans take a day off in observance of Labor Day, the one day in in the year when they pause to think about the nature and prospects of the task that engages their time and attention more than any other. It will not be a positive assessment given the dreary facts and prospects pertaining to US employment; last Friday the government reported zero job growth. But as this essay will attempt to do, such introspection can also provide the perspective so necessary to survive this looming (and inevitable) tragedy so man can face a future wherein work finally disappears.

Some Dimensions of this Problem

While this essay focuses on American employment performance, its conclusions have universal applicability – some of the trends identified here have earlier been observed in the UK, then in Europe and Japan, and now in the US as well; it will also become the fate of China, Korea and the rest of the NIEs as their economies mature. One cause is demographics (“the quiet leveler of all proud peoples”); others are subtle changes in cultural attitudes towards work, as well as in the fundamental assumptions that underpin the market economy. While this conveys a flavor of inevitability to this problem, in fact the causes run deeper, all the way to metaphysical issues that sages have debated for the last 2000 yrs. 

For one, the US true unemployment rate is not the 14 million who are not working (for 9.1 %) that makes the news, but the 16.5 % that doesn’t. This higher figure includes 8.8 million part timers (5.7%) who report themselves as “actively looking for permanent work but can’t find one”, and a further 2.6 million (1.7 %) of frictionally unemployed folks who have stopped looking for work because they have given up or are sorting out problems that keep them from looking for either part or full time work. In the underdeveloped countries, reported unemployment rates usually hover between 10-15 %; unofficial rates that include under and frictionally employed could reach up to as high as 30-40 %. Dry statistics on unemployment describe but one aspect of this multi-faceted problem but not its meaning.

For another, absolute numbers of unemployed and unemployment rates omit what labor economists call the “growth elasticity of employment” meaning the responsiveness of job creation to the growth of the overall economy. The author has not calculated the post-recession values for the US but at the last time he did (back in early 2000s) this was less than 1.5 (ie, a percentage increase in GDP creates less than 1.5 % in new jobs); and more problematically, this has been on a secular decline from 2.6 to 2.2 and then 1.7 from the 80s to the late 1990s. This figure could only have worsened to perhaps less than 1.0 immediately after the onset of the financial crisis; with today’s 1.5 % GDP growth, employment could be growing at less than 1 % if not fairly close to zero.

Just like its capital-to-GDP counterpart, these statistics serve handily for sizing up the relative efficiencies of alternative job creation proposals. Had the Obama economists done their homework, they would have had second thoughts before pushing for the $ 787 billion stimulus that flopped miserably, in some instances spending $ 500,000 to $ 1 MM to create a single job. This stickiness of job creation has structural and institutional issues that underlie them. Why the Obama administration believes that another $ 250 billion of stimulus spending will finally nudge employment growth is a sign of their desperation, akin to throwing money to see if something sprouts.

The Negative Forces Behind Unemployment

In increasing orders of “controllability” the following are the principal causes of the current (and most recent) unemployment problems:

a). Recession. Naturally, the slump in economic activity should explain the largest and most recent drop in job creation performance. The post-crisis US economy which is now clocked as growing anemically between 1-2% is the dominant reason for its lackluster job creation performance (both due to real job losses and slow job growth relative to its long term norm), which are entirely two separate things even though they are caused by the same economic weakness. It is interesting to isolate though, how much of US’ dismal job creation is due to the recession, and how much is due to an apparent slowdown in the global economy as well – which based on Maddison’s secular studies have declined from 2-3 % prior to 1970s to less than 2 % since then. This latter phenomenon, seldom factored in job creation programs, underscores the even more intractable nature of job creation in today’s highly globalized economies.

b). Structural/Frictional. Many studies of long term job creation have identified a core amount of a country’s labor force that will never leave its “unemployed” or “underemployed’ workers’ ranks. In the post-recession US economy, this rate hovers at a high of 45 % of the total labor force, a figure likely to be skewed by the excessively bad economy, but in the past has stayed at around half that figure. This rate though has crept upwards from single digits (during the 60s boom) to the low double digits (12-15 %) of the 80s, to the middle 20%s range since late 90s. The main reason for this is globalization’s leveling effects on wages and benefits, wherein newly hired and lower paid (relative to developed nations’) workers in emerging and developing countries act as an overhang (a put option) on the latter countries’ abilities to hire workers at higher wage and benefit levels. A similar but difficult to quantify factor is the palpable deterioration in Western cultural values and attitudes towards work, which have tended to increase supervision and hiring costs (due to worker lifestyle and location choices). Together these propel the arbitraging of work offshore, and the trend towards contingent (part time) jobs domestically. 

c). Policy Errors and Hubris. A very odd but quite powerful contributor to long term unemployment is the predilection of politicians to design and emplace policies that adversely affect incentives to create jobs and/or maintain them. Mainly these policies inhibit hiring because of their impact on costs (of legal compliance and job compensation) but recently the uncertainties stoked by regulations and government interference in the private sector have outweighed even those costs, which are difficult to pass on to consumers. Obama’s recent policies exemplify this job destroying and job growth inhibiting tendencies: Obama Care which will greatly increase employers’ staffing costs; air quality standards that will saddle factories’ with higher operating costs and capital outlays; prohibition on oil drilling and transportation which will make the US hostage to extortionate oil prices; onerous reporting burdens and compliance costs in order to track cash transactions and implement a VAT type tax (both of which were fortunately abandoned). But of even more serious import to business are the current administration’s heavy handed and unprecedented interference in private business in such matters as: cramming down and brazenly eliminating creditors’ interest in the Chrysler restructuring; the forcible bearing by businesses and households of high energy costs in order to subsidize alternative energy; the decision to penalize Boeing for trying to take its aircraft assembly operation to a “right-to-work state” and lately suing to intimidate banks for alleged fraudulent sales of MBS to FHA and Fannie/Freddie, on top of earlier policies to control banks’ internal compensation policies and operations through restrictive laws like Dodd-Frank which along with SarBox have discouraged risk taking and innovation, and likely explains their reticence to lend to businesses. Few of these concerns seem to deter with the bureaucracies that push them aggressively.  

It must be frankly admitted that some of these policies have great merit in light of evidence showing that ineffective enforcement (of existing regulations) have contributed to the financial crises and the worsening of the environment. But sudden implementation and even more seriously, incorrectly timed and non-transparent (intimidating) enforcement calculated to please interest groups such as unions and environmentalists, have created so much uncertainty and hesitation among businesses to create jobs that further hampered the recovery of the US economy. It is seriously indicative of a severe dearth of experienced business hands in the Obama administration, a further indictment of its naivety and hubris if not delusiveness about the real prospects of reforming US society under the dire situation it is in.

These three negative forces conspire to artificially eliminate work before its naturally sanctioned time.

The Final (Positive) Destiny of Work is Its Disappearance

All the preceding factors can be viewed as “cyclical” in the sense that much of their adverse impacts on employment could quickly ease up once the global economy snaps out of its funk and leaps onto a higher growth trajectory. While this happens every now and then (“cyclical”) the chance of this event secularly persisting, while not zero, is not very high, as Angus Maddison’s long term (from 1000 AD) growth studies have shown. If this is correct, then a sustained growth of jobs is itself a chimera. The only task remaining is to explain why this is so, and the author believes that ultimately the reason is rooted in technological and metaphysical forces that are happening beyond anyone’s power to control:

       i. Dematerialization. The world has entered into a phase (of its evolution as a cosmic entity) whereby growth is no longer anchored on increasing consumption of material goods and processing of resources as had been its mode since the Industrial Revolution. It is too soon to say that this confirms what mystic writers have divined ten centuries ago, whereby increasing intelligence and not materiality will be the driving force towards the final destiny of the cosmos. As employment is but the tangible result and manifestation of materiality, it should thus be expected to decline and diminish in the long run future.

       ii. Speed and Mobility. The accelerating rate of change (that dematerialization makes possible) is nature’s way of coping with the complexity that poses as the ultimate challenge to human intelligence. Unfortunately, such speeds as are made possible by the internet also cut out the intermediation and value of information that provides the last refuge for job seekers (if they have not been eliminated by reducing the length of the work cycle and physical stocks that are essential for dealing with uncertainty).    
     
      iii. Automata. A culmination of the trend towards increasing complexity and intelligence it is the final process that will abolish work, and it occurs when most human activities are performed by robots and mind-machine interfaces so that the only labor needed will be that which is required to maintain these man-machine systems, health, artistic expression and entertainment (human creativity). There will be no other need for work and consequently work will not serve the same purpose as it has served man so far – the means for survival. Instead, work will serve as the creative vehicle for expressing man’s quest for perfection. At this stage after de-mass and velocity have eliminated work, only creativity remains.   

Since life did not endure eons of severe mutation and selection pressure only to vanish meaninglessly, there must be something superior that will make it possible for Man to survive after work disappears.  After all, Nature abhors a vacuum and perfection is an upward (never downward) moving spiral. What exactly is this ingredient the absence of which will mean that the 14.5 billon year Cosmic Experiment must have all been for naught, or at best a burst of randomness?  

The Natural Forces that Will Replace Work (After Jobs are Gone)

It all seems so far-fetched considering the problems sprouting all around him but if one thinks about it deep enough considering the above premises, there is only one logical outcome for modern Man: he can only go so far by dividing the remaining work to its even more basic elements (hoping to somehow “spread” it but at the cost of greater loss of satisfaction and meaning. Ultimately he will have no choice but to change himself and society’s (including the economy’s) basic foundations beginning from purpose to means, to make him survive in a dematerialized, volatile and uncertain world. He must do this because such a change is needed to offset the negative forces that made work disappear unnaturally.

The author has come to accept what seems strange to say especially in this Age of Separation (between Matter and the Spirit) but it is really nothing else but the transcendent values of love and concern for fellowmen that will let man survive the loss of employment and fill this huge void created as the cosmos hurtles towards its destiny. A society and economy restructured along transcendent lines will not only dispense of work but banish this materialistic concern for survival. Weird it sounds but quite very logical.

P. T. de Chardin called it Spirituality. Only a sense of wonder and utter amazement constrains the author from using this term lightly; despite all the flourish that came with it, it all refers to one and the same thing: God who made Man to work by the sweat of his brow if he wanted to survive, is now showing the path to perfection by eliminating that albatross around his neck called work.

Work, especially at meager wages, rather than liberating (“Arbeit macht Frei”) man, has actually condemned him to obscurity.    

Copyrights: VRR@NYC@2011

Why is European Civilization Collapsing?

By Son of Bastiat
  
“A culture of defeat and pessimism, abetted by faux compassion, brings the world down on its knees”

Scanning last week’s Time Magazine after this essay had been substantially written, after the Dow Jones Industrial average had again plunged down (at one point by as much as 528 points), and after parts of the smoldering city of London had quieted down into ashes and cinder, the author tried hard to discern what it will take for pundits to understand the reasons why civilizations explode violently with such suddenness.

Once again the economists blamed it on the effects of runaway sovereign debt and fiscal spending. The sociologists were blaming the withering effects of these cutbacks on the welfare state. There was recognition that something else more fundamental was at work, but few speculated on what it was. Slowing down economies and failing welfare programs are decades long phenomena no longer fit to report unless there is something new. . . like China’s impending societal collapse, though like Europe it eventually shows up as an economic one.

China’s collapse, a word that should no longer surprise considering what’s happening in Europe, is now increasingly suggested by decadal indicators showing marked slowdowns in export manufacturing, higher defaults among SOEs, steeply rising past dues of banks, increasing loans by local and provincial governments, and anemic consumer retail sales. These indicators have trended down for a while so “imminent” may still be warranted.

But unless China can quickly rev up its exports at a point when the global economy itself is in serious recession (by collapsing prices and letting its currency depreciate despite raging inflation), its only hope for growth is in ramping up public investments fueled by money creation or a drawdown of its reserves. With China’s capital to GDP ratio now at a precarious 5 x, more capital offers limited prospects. But these measures only tell the late, “economic” part of the story.   

After investing in big infrastructure projects to prop up demand, and cutting back on environmentally or technically flawed projects hastily implemented to boost GDP, China looks increasingly like chasing after a mirage. For the next few years China’s overinvestment will become an albatross to growth, further stressing out its already undercapitalized banking system, which in turn will then cut down on small and medium term loans that represent China’s last hope for growth, having for too long delayed the strategic restructuring needed to free up consumer spending.

A long period of slow growth is now the payback for China’s delayed exit from mercantilism, with all the ills (of degraded environment, extreme inequality, and limited consumer choices) attendant to that system. Command economies can always buck trends as China has done for the last two decades, but they can only delay the inevitable reckoning. File it under a materialist system that, well, fell short of delivering the materialist Shangri la.

The Skinny on Global Recessions

This extended reference to China’s economic woes is done not to criticize it (its economic and business managers must rate at the top given the problems they had to contend with) but to let the reader better appreciate the kinds of problems that are now hobbling the major economies, and why snapping out of the present global malaise is not a matter of revving up exports or ramping up capital spending.

For one, it highlights a key aspect about the present economic slowdown – that whereas previous global recessions could count on offsetting growth performances, the present recession is one where all three major economic engines (EU-US-China) are in 0,-1,2 (comatose-stalled-slowdown) mode. The other third of the global economy would have to miraculously double their share to nullify the losses from these 3. Second, whereas most past recessions were triggered by a collapse in effective demand, the most pernicious feature of the present slump is the compression of purchasing power as banks and households de-lever their massive debt accumulated during the prior decades of growth (added to fiscal irresponsibility).

For the first time in over a half century, psychological and institutional incapacity render the economy impervious to monetary and Keynesian stimulus. Pessimism over bankruptcy and lost net worth is driving the economy over the cliff, which deficit spending or liquidity infusions cannot easily reverse. 

The Strange Case of Europe and the EU

With China’s economy all but ready for major surgery, and the US badly gasping for sharper, bigger and targeted growth-oriented intravenous infusions, the Eurozone is the world’s last and only hope for recovery. But after months of indecisive deliberations and hectoring about the “evils” of Greece-type bail outs while doing little to reverse member country budgetary infirmities, the Eurozone is now about to reap the fruits of a peculiar “double barrel” approach to resolving conundrums: its two top economic workhorses all but technically in a recession – France which barely grew at 0.1 % Italy and Germany at 0.2 %. With lending in Western Europe and the former Eastern Bloc crimped by bad bank balance sheets, the chance of their picking up the slack opened by France and Germany is negligible if not zero.

So for all intents and purposes the “comatose” description for the EU is, or has not been, too far off the mark and with US and China heading to their respective gurneys, that can only bode ill for the prospects of global recovery within five years. The words “Europe” and “malaise” are synonymous in this regard.

In fairness to the Eurozone countries, their leeway for solving economic problems are lashed by a tight straightjacket that without careful thought they hastily rushed into – forming a common currency union without ascertaining its workability amidst differing taxation and spending regimes of 17 sovereign and disparate cultures. Eurozone banking practices and standards which were to have been harmonized for common monetary policy to work effectively could not accommodate the member countries’ different rates of growth, inflation and stages of financial development, causing lack of coordination and control right in the very heart of financial policy which is what a common currency tries to facilitate.

The result is the present ECB reduced to a de facto Central Bank unable to monetarily work with 17 separate fiscal entities all of whom are beholden to local constituencies and vested interests. For anyone who has lived and worked in Europe as the author did in the 80s, this is Europe at its classically, dysfunctional, worst.

But Is Lack of Policy Coordination THE Reason for EU’s Malaise?

Those folks who have monitored these broad trends for other than quarterly or year-end assessments cannot help but wonder whether there is anything more, other than the parochial and exclusionist mindsets that are the standard indictments of its culture that explains why Europe is what it is today. There is in fact an honest answer to this question, although it tends to be ignored if not violently ridiculed by the elites, an effete group of faux glitterati and pseudo-intelligentsia, children of the Enlightenment who have long been in denial but who now must confront it unless they wish to become even more irrelevant and parasitical than they are now.

The real answer is that Europe is what it is today because it has turned its back on the roots which for centuries have been the nurturers and anchors of its vibrant, optimistic and creative culture, supplanting them with a culture of death and despair that now turns most ordinary decisions into epic struggles for survival. It is called atheistic humanism.

There is nothing novel or even earth-shaking with this statement, being the underlying theme of the writings of perceptive men like George Weigel (“The Cube and the Cathedral”) and Niall Ferguson (“Eurabia?” and “War of the World: 20th C. Conflict and the Descent of the West”). In their view, Europeans’ contempt for religious and secular tradition pushes them to the cult of the contemporary (Brague) which prevents their drawing the most obvious conclusions about the impending bankruptcy of their economic culture. One sign of this pessimism is its refusal to provide for its own defense, and engage in the most fundamental duty of raising the next generation, with the result that “Europe’s biggest problem is senescence” (Ferguson).

Once thought to be a rejection of and withdrawal from the most shameful aspects of their history, it is now believed instead to result from a deliberate denial of the transcendent roots of its religious traditions. If the reader wants proof, just look at the EU Constitution that Europeans adapted in June 2004 – at 70,000 words (7 times longer than the US Constitution) and not one word or phrase acknowledging Europe’s Christian patrimony.

The inevitable culmination of such beliefs (and the policies they give rise to) is the demographic suicide and pessimism about the future that is so rampant everywhere in the Europe of today. That attitude is inimical to achievement, generating the growth-paralyzing confusion now so rife in that Continent.

The Modern Economy’s Cornerstone in Faith

One reason why Europeans who see themselves as modern in both outlook and intellect have so little regard for transcendent values, is their arrogant belief that anything that cannot be sensibly grasped or even only comprehended by the mind in the context of past or contemporary experience, has no valid standing in reality and should therefore be discarded as pure fictions or figments of imagination. This empirical and physical criterion for what is real flies in the face most ordinary phenomena which many people who call themselves “reasonable”, take to without much doubt or incredulousness, such as most hypotheses about people’s motives or expectations about near term events.

If this skepticism was a mere result of hidden complexes or repressed behaviors, the same intellectual elites would readily adapt to them without question. No, the problem is much deeper, and a useful insight to it is a dialogue between the followers of the medieval friars Aquinas and Ockham, whose views about reality would determine the course of modern philosophy over the next five hundred years. That debate concerned the question of whether Platonic universal concepts can exist outside the mind, with those who deny it (the “Nominalists”) saying that universal ideas only exist inside our minds, meaning that there are no such things as “human nature” or “freedom”, only particulars like persons and the choices they make.

Pushed to its ultimate conclusion it means that there are no objectively good or bad things, only events; it is the heart of the materialistic creed that in totalitarian form has caused so much evil and mayhem during the 20th C. If the reader needs proof of the power of bad ideas and their consequences, this is it.

Those deeply into philosophy see in nominalism (and its modern day offshoots) a vain attempt to put an objective spin to what in essence are transcendental matters, finding its highest expression in the harsh empiricism of Hume, Locke or Hobbes, to whom there are no such things as morality; in the Positivist ideas of Comte who taught that science was humanity’s only reliable beacon; all the way to the “usefulness” criterion of Pragmatists Mead and Dewey. The problem with these ideas is that their bold claims of logical validity all run smack against the upper limits of the scientific method, which insists on complete un-falsifiability as the only legitimate test of validity. But as Kuhn said, scientific paradigms at best reflect the “objective” views of parties with vested interest in its progress.

In spite of this, philosophers’ bent on denying the scientific existence of universals have fought hard to win the mantle of scientific objectivity, with little sympathy from scientists. This is a warrant against those who work in the social sciences and humanities, who keep aspiring to scientific objectivity when studying human beings and their institutions; science itself is, at bottom a conjectural and culturally suffused endeavor.

This detour into the innards of scientific philosophy and theory of knowledge is crucial because its gross misunderstanding is what lies at the heart of all the problems that bug the modern economy – the claim that a scientific or empirical approach without consideration of transcendental values can help derive the best solutions for improving society and perfecting man. In this deformed interpretation of reality, only a values free approach to economics (or indeed to social sciences) can guarantee objectivity and optimal results.

The results of that arrogant assumption are now seen in the grotesquely deformed global economy. How else to explain the durability of such views in modern endeavors (politics, economics, management, etc.) except as a rejection of universal, transcendent values? Why should it surprise us to see the sorts of behaviors that led to the financial crisis, or that poverty continues amidst so much plenty? Or, for that matter, why does Europe continue to meander despite its claims to cultural and scientific enlightenment? If the reader is wondering whether he’d ever see a day when not believing in transcendental values could actually cause material society to crumble, he is not without company.

Europe’s malaise, which ultimately is rooted in inordinately high pride, makes its reversion to spiritual redemption too difficult, deferring any prospect for a return to the origins of its civilization. If the greatest drag to recovery is now Europe’s disarray and its dispirited economy, isn’t this proof that atheistic humanism abetted by the faux liberal view of compassion is the greatest threat to world order? [If a humbled EU is the warning that the Apocalypse referred to, then China would be wise to listen]. 

This is why the Pope’s recent visit to Spain to bring the message of hope and renewal was directed at the young who are, after all, both the inheritors and fount of such values, sending the message that there is no hope in secular humanism and atheism that reek of the stench of death and pessimism.

Isn’t it sweet irony and comeuppance that Europe’s (and the world’s) only hope of material survival now lies in the transcendent values which they vehemently deny?

[http://sonofbastiat.blogspot.com; copyrights VRR@NYC2011]  

Is Warren Buffett Smart?

By Son of Bastiat

“Financial genius is before the Fall” - John Kenneth Galbraith

Almost by universal acclaim, the answer would have to be a resounding Yes! For how else would it be responded to except affirmatively, based on what “popular wisdom” knows and says about the man:

a.  The world’s second or third wealthiest man (only Slim and Gates are wealthier according to Forbes). Better yet he found his way there through patient value digging, not market rigging

b.  A lot of this wealth is in liquid form, being shares in large, established publicly traded companies

c.  Unlike Gates or Slim whose wealth are tied up in narrow sectors (telecom, software) Buffett’s wealth is diversified across sectors that the first two wealthiest men can only dream of.

So, from the narrow standpoint of investment quality, Buffet is not only smart but astute in ways that the other two aren’t. The real question is: How does his “smartness” fair outside of this narrow area?

Probably Not As Smart As Supposed

We’re not talking about his stock picking abilities which based on his mistakes in later years have not been as legendary or exceptional as the ten baggers (like Coke, W. Post or Geico) of his early years in the stock market. We are also not referring to his mediocre currency derivative bets that turned out poorly (disclosed in the Annual B-H Shareholders’ Letter) that luckily got offset by spectacular stock futures option trades (from hedge fund gossip) which tells those who know how these markets work, that his prowess is now based more on selecting the right stock options traders and managers than any innate value creating abilities unlike during his early stock picking career. In fairness to the man, he eschews esoteric investment ideas beyond the OPT so he does not invest and hence eats the kind of losses that reckless hedge fund traders do with loads of chutzpah. This Graham disciple remains so today despite the fact that very volatile markets are not kind to value investors.

No, we are here talking about the fact that outside of his stock-picking (and manager’s selecting) skills, the man is a complete novice, if not a dodo in the larger economic environment of which investing is a tiny part. This is based on only one, but a very central aspect of that reality, the question of what taxes ought to be paid by people like him. As explained below, it reveals a lot about whether his smarts are innate or merely of the acquired kind. None of this is to denigrate businessmen the way enemies do.

The First signs of Cluelessness

Buffett has for years been quoted as saying that the rich are getting off from their obligation to pay a fairer share of the nation’s tax burden. Last July 7, in a series of interviews that the liberal media quickly picked up and disseminated (for a reason), he said that “I think the rich have a responsibility to pay higher taxes” followed by a statement that his wealthy friends “are paying lower taxes than the people who are serving the food” after an earlier disclosure that his personal tax rate was a mere 17.7 % compared to that of his receptionist of 30 %.

All these populist sounding nonsense fitted in so well with one of the left’s most durable and cherished myths, which is a war among classes, down to the fact that they are mostly wrong:

a.  Effective Tax Rates. From 2008 data supplied by the IRS itself, the share of Federal taxes in household income after deductions and exemptions amounted to 23.3 % for the top 1 % of all household income earners (above $ 380,000); 19 % for the top 10 % of household income earners (above 114,000); and 22.7 % for the top 0.1 % of household income earners ($ 2 MM and above). Contrast this with the 4 % paid by median income households ($ 35,000 and above), or the high, negative effective taxes paid by almost 60 % of all households who either receive incomes too low to be taxed, and/or receive some form of public assistance and entitlement. Talk about equity.

b.  Total Federal Tax Rates. Based on CBO data, the share of total Federal taxes (not just on income but on Social Security and Medicare payroll taxes) paid by middle class families ($ 34-50 thousand bracket) was 14.3 % of income, versus the 27.9 % and 29.5 % paid by the top 1 % and 5 % of all tax payers. Or the 32 % of all Federal taxes paid by the highest income earners. The reader is invited to calculate Gini concentration coefficients to show that these tax rates are indeed progressive.

c.  Effective Tax Rates After Considering the Source. In a 2010 IRS limited study of the taxes paid by a sample of 400 of the nation’s richest personal tax payers, the effective share of taxes to reported- income came to about 18 %. This is the study that Buffett probably referred to, as he would most likely have been one of those 400. Except that most if not all of these tax payers derived their income from investments, meaning that they reported incomes that had been taxed twice, either at the level of dividends (35 % on ordinary income) and capital gains (15 %) for a total tax burden closer to 45 % and not the 18 % that came out from the simplistic division of two numbers. Quite definitely not the level of expertise expected from a seasoned financial analyst like Buffett.

d.  Shelters, Loopholes and Tax Base Reduction Gimmicks. Buffett’s claims would have been more morally defensible had he eschewed the usual gimmicks used by the wealthy to reduce their basis and not just the incomes they were free to report (or defer to a lower tax rate phase in their lives as is commonly done). Buffett is being facetious in comparing his after tax position vis a vis the middle income classes for three reasons: as a wealthy tax payer he is able to take advantage of the tax shielding allowed on donations to charitable causes; he is able to effectively reduce his taxable base by booking most of his income as “carried interest” 20 % of which he can later pay taxes on under a favorable 15 %; and most outrageously of all, with the bulk of his assets already donated to a foundation, he is able to shield them from the high taxes during distribution. These tax preferences for the wealthy the middle income classes can only drool of, but which of course Buffett neither mentions in the same interviews, nor corrects on his own, if he was that convinced of its injustice, by just quietly writing a check for the underpayment towards the right tax amount.

More Evidence of Poor Smarts

If Mr. Buffett was really that smart (not just an astute investor and businessman) he would have figured out in ten minutes why a tax policy based on such idiosyncratic assumptions (ie, provided they were empirically right, which they aren’t), would eventually to the destruction of the very wealth that he along with millions of entrepreneurs labored so hard to create:

a.  Taxes have behavioral, not just fiscal impacts as any simpleton understands. Regional tax data reveal that states with low taxes attract rich and even middle income tax payers away from the high tax states and indeed explains the erosion in tax bases of such states as California and Wisconsin and the surge in tax receipts in tax advantaged states like Texas and Florida

b.  Ditto, but with even worse consequences when US wide data about rich tax filers are taken to consideration. In a study recently released by the IRS, it was found out that the number of rich tax filers shrunk 39 % between 2009 and 2010, representing a 42 % decline in tax receipts over the same period. The favorite explanation is of course the recession, but the really “smart” folks know the true reason, unfortunately they will be apocryphal tales for now until proven otherwise.

c.  Not just that “billionaires and millionaires” ceased to exist, but that those who stayed put in their respective domiciles, apparently indulged in less economically rewarding activities just exactly as predicted by the famous Laffer Curve (a backward looping effort vs. tax rate curve posited by the Chicago economist A. Laffer). A sample of b respondents should easily verify this. These data are not harbingers of the business climate that nurture future successes like him unless he wants it.

Given this obvious conclusion, Buffett’s plea to be assessed a higher tax can’t be viewed any other way than that he is not being smart. As far as can be seen, he is not an ideologue, or a Democratic partisan, and because he is too mature to play the sort of political games indulged in by folks like Obama, he must be pretty dumb to entertain and spouse these views. Ironically it was Galbraith, a liberal economist, who said that smart (finance) people tend to get dumb before they fall. Could he been thinking of W. Buffett?

Concluding Comments

Which brings us to the core question: Why is the liberal class making hay out of these nonsensical ideas (which they have to be dumb to even consider, unless they haul their worn out pleas for fairness-at-all costs)? The answer, once again, is simply this: by shaming the rich into agreeing to pay a higher fraction of their incomes, the path is clear to coercing the middle classes into paying higher taxes.

The fact is that 3.2 million middle income households earning above $ 200,000 paid $434 billion in 2009 taxes, the rich revenue lode that liberals like Obama, checkmated in their borrowing plans by conservatives have been eyeing to grab at all costs. Read that again: At All Costs, meaning, no matter if these folks will flee and take jobs along with them, and regardless of whether the outcome is fair as they like to loudly proclaim.

It is the very imbecility of this idea that has turned off the author from the liberal agenda, realizing that what they are about is mostly Big Government programs that everywhere has bankrupted countries and states.

None of these excuse Americans from having to pay higher taxes eventually, if only because of the mistakes committed by the politicians they have elected previously. But such policy decisions have to be done smartly, or else automatically (like what the author has advocated along the lines of Miller’s The 2 % Solution idea wherein a set portion of the nation’s output is set aside from welfare and social spending) to eliminate these kinds of politically abhorrent decisions that turn folks like Buffett into big disappointments especially in their twilight years. [Copyrights: The Son of Bastiat, VRR@NYC2011]  

The Requiem for the Welfare State

By Son of Bastiat
 

“When great evils happen, I am in the habit of looking out for what good may arise from them as consolations to us; and Providence has in fact established the order of things so that most evils are the means of producing some good” by Thomas Jefferson

Events of the past few days are rattling not just a few individuals, among them being those who worry about what the markets may be signaling about their job prospects (most recent graduates); the 50 or more million senior citizens who depend on (fixed) pensions and nothing else for their daily survival; and most heartbreakingly, the 15 or so million “lost” children, many of whom are orphans who have fallen back into the maws of poverty, innocent casualties of the on-going recession with nobody else to turn to for succor. These are the true victims of a welfare state that is in its last death throes; those who are tempted to think of the gyrating and plummeting indexes as ‘comeuppance” for rich folks’ unmitigated greed, need to be reminded that those lines are merely the visible images of the deep seated fears and anxieties of millions of ordinary folks who are getting caught in this visceral contest of ideas. The markets may rebound but the pains and sorrows will remain with these folks throughout their lifetimes.

That these cathartic events are still viewed with shock (and alarm) as if they were totally unexpected, as if there was any outcome other than what is now unfolding, is the outrage behind these. One detects it from what the politicians of the left and right are saying, but since lying and prevaricating is what all of them do in order to remain in power, they cannot be expected to say anything else. One would expect better from the media, but instead they have become purveyors of silliness and inanity, blaming the very messengers (but not the message) they should have welcomed if they were true advocates of what’s good for society. Caught on the wrong side at exactly the moment when history turned against the welfare state, but too proud to recant the nonsense they have been peddling lest they get exposed for incompetence and bias, they are now unable to execute an honorable retreat and thus have to engage in name calling and blaming their fallen idols who were just as clueless about what’s going on.

What, it may be asked, was so ineluctable with the fall of the welfare state (which stands for a society that depends on government assistance for much of its own survival)? The only true and honest (if politically incorrect) answer is that it was never meant to function as the safety net for the poor that social theorists and welfare advocates have romanticized for it. The welfare state which in his cold, calculating fashion the Prussian Chancellor Otto von Bismarck created back in the mid-1880s to win the hearts and minds of industrial workers in a bid to preempt his political opponents (the Socialists) from thwarting his ambitious schemes to unify Europe under the Northern German alliance, became the grandiose solution to a problem that did not then exist (at least not in Germany) or if it did, should have required more careful thought. From its creation and up to now the welfare state has been used to secure power, and like all flawed births, their midwives will never grasp the depravity of their creation.

With the advent of the Progressive Era the passage of social legislation increased the heavy hand of government in the welfare state. A State heavily involved in social reform is neither foreordained nor the only option available to society in caring for its less fortunate. In the Europe of the late 19^th C. and America of the early 20^th C. private beneficence and charitable institutions took up most of the burden of caring for the poor. It is strange to read how, during the Guilded Age, the sick poor in America were cared for in private hospitals supported largely by wealthy families and religious houses just like it was during the medieval ages. Only when politicians realized the huge vote drawing power of limitless government largesse did the State become the principal provider of welfare assistance. Not surprisingly, this period also saw the expansion of government, and inevitably the first time that income taxes were levied in American history. Even Bismarck would have been appalled at what became of his handiwork.

The design of the welfare state unfortunately collides with three harsh realities. One is that social spending which is unrestrained by limits and accountabilities eventually turn into a state of commons beset by a tendency to spin out of control. A second is that benefits too generously dispensed create and nourish a culture of entitlement and dependence that view attempts at reform as “unfair, mean-spirited and unjust” which effectively prevents self-correction. Because they make up such a huge vote rich constituency that politicians dare not ignore, these programs just keep growing regardless of constraints elsewhere. The last is that the welfare society is a resource consuming sector, dependent on the productive one for sustenance. Expanding welfare faster than the productive sector saps the latter of resources it needs to grow; worse, extracting the wherewithal through coercive taxes and regulations tend to impair the latter’s health. 

The welfare economy’s unsustainability would have become a reality over time but three forces that came in with the 20^th Century accelerated its demise:

a). Internet and Web Technologies. These technologies leveled the playing field that used to be heavily dominated by big entities with capital, information and contacts. When opportunities can be found at the touch of a key, options multiply and the advantages and coercive policies quickly fade into nothing.

b). Globalization. When factors of production like knowhow and capital are free to move anywhere they are welcome, economic differences disappear, equilibrating towards the Law of One Price. There is no reason for US (or European) workers to be paid $ 45 per hour excluding benefits to do what laborers in emerging countries can do for a fifth of it, daily. Suddenly the rationale for a safety net is blown away.

c). Erosion of Work Ethic and Moral Values. There is no sense in denying what right thinking individuals have known but somehow glossed over for fear of being viewed as “woozy”: that societal deterioration usually follows a decline in its moral values. This is a view that is now finding confirmation in European and US work ethics that in part explains such dysfunctions as Medicare overuse and the housing crash.

When things as earth shaking as these do not register in the consciousness of a society and its leaders, the stage is pretty much set for a dramatic fall, usually after a series of warnings. One such warning was the crisis of 2008 which can be viewed as the denouement of a secular tendency towards economic volatility first manifested during the oil crisis of 1973. Another recent warning that has longer roots is the current debt crisis, a direct effect of the unsustainability of big public spending that began during the Great Society and New Frontier Eras and peaked with Obama. Soon the world will see the onset of the Great Contraction, itself a reprise of the Great Crash of 1930s. One would think that the politicians and thought leaders would have detected these warning signs and “connected the dots” especially in the wake of the Nov. 2010 elections which telegraphed that ordinary folks wanted a reset because the political economy was on an unsustainable path. Despite all these, how did they react to the recent crash that followed the US credit rating downgrade? Derision, name calling and blame gaming, with the odium reserved for groups that brought to the fore serious problems that nobody dared to raise.

None of this leaves conservatives off the hook. For their lack of sufficient social conscience and obsession with materialism, they have been just as guilty in exacerbating the social malaise that supplied liberals with the ammunition and passion to press for unbridled government spending. Most of their assistance comes in the form of superficial rather than meaningful programs to help the poor. But being the more pragmatic of the two camps, conservatives would, if they were incentivized, be more capable of helping at a scale and variety needed by the poor, with none of the liberals’ moral delusions and politicians’ manipulative-ness. By factoring in the cost of supporting social spending in their investment calculations, they can do a better job of designing sustainable welfare programs that run efficiently and without coercion, though this would still leave giving at their discretion, perhaps the price of freedom. The ideal is for such programs to be set at a percentage of economic benefits, in advance and automatically built in as a deliberate policy to support the poor. 

Until the revision of the economic structure takes place, the overriding problem of our times is how to help the poor without smothering their spirit and turning off that spark of innovation that makes charity a pleasant obligation to face instead of a burden to be evaded or imposed by fiat. Unless this is achieved, as Jefferson says in his quote, man has to suffer tremendously to figure out a reasonable way to do it. [VRR@NYC2011]