The present political system is clearly insane. It suffers from schizophrenia. Around the world, almost no one trusts the politicians, yet almost everyone votes for incumbent politicians who promise to reform the government.

Voters now suspect (correctly) that all Western governments are headed for bankruptcy because of the pension programs and government-funded medicine, yet these two programs are politically untouchable. Voters demand them.

For four decades, soft-core critics of the pension/Medicare systems have come to voters with this announcement: “The two systems can be reformed, but we must act now. If we delay, they will bankrupt the government.” Yet the systems are never reformed.

Then, a decade later, the next group of optimistic reformers comes forward with this same promise: “The systems can be reformed if we just act now.” Nobody believes them. Nobody should. If the programs really can be reformed “if we act now,” then the previous warnings were mere scaremongering. There really was no hurry. So, Congress asks rhetorically: “Why should we believe that we need to hurry now?” Result: the systems never get reformed. Congress kicks the can.

The Great Default

The federal government really is headed for default. The numbers don’t lie. This fact produces pessimism in some circles. People who look at the numbers conclude, accurately, that the federal government will not muddle through this crisis. All over the world, national governments will not muddle through. They will no longer be able to kick the can.

I have good news and bad news. The bad news first. If you are dependent on the government for your old age security, you have only one hope: an early death. The good news: when Washington’s checks bounce, the bureaucrats will have to go into another line of work. Millions of them. All over the world.

I am now going to present a scenario that is not widely shared. The process that undergirds it is not widely recognized. Yet this process is relentless.

If I am correct about it, judgment day is coming. Not the final judgment. A liberating judgment.

There are self-proclaimed optimists who say Medicare will muddle through. Similarly, there are self-proclaimed optimists who say the present Keynesian system will muddle through. These people are in fact pessimists. They argue that moral evil and economic irrationality can be made to work. That is a pessimistic message. Fortunately, they are wrong.

People will muddle through. The Keynesian system won’t. Neither will the finances of the people who have bet the farm on the Keynesian system’s ability to muddle through.

The Law of Empires

Empires disintegrate. This is a social law. There are no exceptions.

The first well-known social theorist to articulate this law was the prophet Daniel. He announced it to King Nebuchadnezzar. You can read his analysis in Daniel 2. Verses 44 and 45 are the key to understanding the law of empires.

The Roman Empire is the model. But there is a serious problem here. There are at least 210 theories of why it fell. There are so many that even my 1976 Ron Paul office colleague Bruce Bartlett gets credit for one of them – on Wikipedia, no less. He has made the big time! In any case, Rome did not collapse. It wasted away over several centuries, wasting the treasure of its citizens along with it.

I suppose there were highly educated people who came to the voters in the late Roman republic and said something like this: “Unless decisive action is taken now, Rome will go bankrupt.” If so, they were right. But it took a lot longer than they thought.

These days, it does not take nearly so long.

An empire grows at first almost unconsciously. No one goes to the powers that be and says, “Hey! Why don’t we create an empire?” It is more like the person who says this: “I’m not greedy. All I want is to control the land contiguous to mine.”

In military affairs, there are economies of scale. An army of warriors makes conquest cost-effective. There are also taxation advantages. An army of tax collectors makes tax collection cost-effective. “Hand over your money” is more effective. Pretty soon, you’ve got an empire.

But there is a law of bureaucracy that applies to empire. At some point, it costs more to administer the bureaucracy than the bureaucracy can generate through coercion. Then the empire begins to crack. It cannot enforce its claims.

So, the growth of empire has economics at its center: economies of scale. The fall of empire also has economics at its center: economies of scale.

I think this process is an application of the law of increasing returns. In the initial phase of the process, adding more of one factor increases total output. But, as more of it is added, another law takes over: the law of decreasing returns.

Example: water and land. Add some water to a desert, and you can grow more food. Add more water, and you can grow a lot more food. There is an accelerating rate of returns. The joint output is of greater value than the cost of adding water. But if you keep adding water, you will get a swamp. The law of decelerating returns takes over. Add more water, and the land is underwater. You might as well have a desert.

This law applies to power. Add power, and you generate more income. But if you keep adding power, expenses of the bureaucracy will begin to eat up revenues. Resistance will also increase: internal and external. The system either implodes or withers away.

With only one exception in history – the Soviet Union in 1991 – empires have not gone out of business without bloodshed.

In the case of the Soviet Union, the senior politicians privatized the whole system in December 1991. They handed over the assets to what immediately became the ultimate system of crony capitalism. They divvied up the Communist Party’s money and deposited it in individual Swiss bank accounts. The suicide of the USSR was “Vladimir Lenin meets David Copperfield.” Now you see it; now you don’t. In the history of Marxism, no event better illustrates Marx’s principle of the cash nexus. It seduced Lenin’s vanguard of the proletariat.

Notice the pattern of empire. It begins slowly, building over centuries: the Roman Empire, the Russian Empire, the French Empire. Then the empire either erodes or else it is captured by revolutionaries, as was the case in France (1789-94) and Russia (1917). But this only delays the reversal. It does not overcome it.

The Modern Nation-State

Economies of scale shaped the development of the modern nation-state. In 1450, the governments of Western Europe were small. They controlled little territory. They were remnants of the medieval world, which had been far more decentralized.

By 1550, this had begun to change. The beginnings of the modern nation-state were visible.

Tax revenues flowed into the centralizing kingships. Trade was growing. Revenues were increasing. Weaponry was advancing. All of this had been going on for half a millennium. But, like an exponential curve, the line began to move upward visibly around 1500.

Maritime empires grew: Spain, Portugal, England. They challenged each other on the seas. Then came the Netherlands and France. The fusion of naval power and trade monopolies lured nations into competition for trade zones. The idea of free trade was centuries away, except in the academic enclave of the school of Salamanca.

The law of increasing returns was evident in this process. It paid rulers to tax more and extend the jurisdiction of the nation-state at the expense of local governments internally and foreign governments externally. The benefits accrued mostly to the political hierarchy and its system of connected families.

Economies of scale drove the process. The division of labor favored centralization. Local units of civil government could not compete.

Let me give an example from the field of historiography. The historian of colonial America can write about lots of topics: immigration, technology, family structure, town planting, economic development, intellectual trends, and so forth. He writes about the issues of life that affected people’s daily lives. He cannot write about national politics until after May of 1754: the “battle” of Jumonville Glen.

The Battle of Jumonville Glen is unknown to all historians except specialists in colonial America. This is a pity, because that battle was the most important military event in the history of the modern world. It literally launched the modern world. It led to (1) the French & Indian War (Seven Years’ War), (2) the Stamp Act crisis, (3) the American Revolution, (4) the French Revolution, (5) Napoleon, (6) nationalism, (7) modern revolutionism, (8) Communism, (9) Fascism, and (10) the American Empire. It was started by Virginia militia Major George Washington, age 22.

Before the ratification of the U.S. Constitution, it is both possible and wise to write about America without tying the narrative to politics. After 1788, every textbook writer is drawn like a moth to the flame: Presidential elections. He cannot narrate the text without hinging everything on the outcome in the four-year system of national covenant renewal-ratification.

We are fast approaching a day of judgment. It has to do with economies of scale. It has to do with the law of decreasing returns.

The best account of this process is a book by Israeli military historian Martin van Creveld: The Rise and Decline of the State (Cambridge University Press, 1999). He traces the history of the Western nation-state from the late Renaissance until the late twentieth century. He argues that there will be a break-up of nation states and a return of decentralization. I have discussed this here.

Capitalist Production

Another manifestation of the economies of scale is the development of the factory system. In 1750, most production was home-based. Most people lived on farms. Most farms were close to self-sufficient.

Cities were few and far between. They were located on the coasts or along great waterways. They were based on trade. Perhaps 10% of the West’s population lived in cities.

This began to change around 1800 in Great Britain. It may have been in 1780. It may have been in 1820. But the economy began to change. No one has a plausible explanation for why it happened, but it changed the history of man’s lifestyle as nothing else ever has. The economy began to grow at 2% per annum, compounded.

This process soon spread to the United States. The world began to be overwhelmed by a wave of gadgets.

This process was driven by price competition. A few business owners got rich by serving the needs of the masses. The masses got richer. They got more productive.

The feature most hated by the older producers was capitalism’s relentless service of the poorer buying public. The division of labor is limited by the extent of the market, Adam Smith had correctly observed, and in order to use the newer, more specialized techniques of production, capitalists had to broaden their markets. The most efficient means of gaining access to new markets was price competition.

All of the British troops who marched off to India and the Far East in a quest for new markets in the day of England’s “glory” never matched the market-broadening effects of a 25% discount at home. The producer who could not match this discount steadily was forced out of the market, that is, was forced to give up control of scarce economic resources that could better be used to satisfy the demands of the public in the hands of more efficient producers.

How could poor, uneducated buyers compete against the entrenched wealth of the English landed aristocracy? How could their meager purchases compete against the wealthy man’s competition for the services of producers? How could some dust-covered miner hope to bid scarce economic resources away from the men of wealth? Simply because there were so many of them!

As capitalist techniques of production steadily increased the output of the laboring classes, the poor became slightly but steadily less poor. A few pennies here, a few yards of cloth there, multiplied a million times over: no aristocracy on earth was rich enough to withstand this relentless economic pressure of slightly less poor men, when so many of those men were being created by the labor markets of England.

As individuals they were poor, especially before 1840, but they were not so poor as they had been in 1780, and here was the new fact of life for producers using the older methods of production.

Men who could not afford fine wool suits could now afford a cheap cotton one, and very rapidly it became obvious to English entrepreneurs that it would pay more dividends to start producing hundreds of thousands of cotton garments than a few thousand high-priced wool or silk ones.

What served as the economic liberation of a whole class of people, anti-free market aristocrats saw as a form of bondage, the grinding servitude of the factory, with its time schedules, long hours, routinized production, and child labor. What they resolutely refused to see was what would have been the fate of these masses under the old system of production: famine and death. It was Ireland, not England and Scotland, that suffered the famine of 1848-50, and it was Ireland which had not seen the “plague” of factory production.

John Ruskin, the conservative literary critic of the mid-nineteenth century, summarized the case against capitalism. Ironically, his words were put on mass-produced cards and inserted into mass-produced picture frames for display on the walls of the highly popular Baskin-Robbins ice cream parlors (31 flavors): “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.” I saw this in a store in 1973. I have not seen one lately. I never go into a Baskin-Robbins store. The chain is nearly invisible today.

Conservative social critics saw not only the hard conditions of the factory system – hard in comparison with the life of social criticism, but not in comparison with low productivity subsistence (or less than subsistence) farming – but they also saw the initial effects of mass-produced goods. They were cheap in price and cheap in quality – again, in comparison to the quality standards of the educated social critic.

Those who did appreciate the new clothes, better housing, and preferable working conditions seldom wrote tracts; they simply went to work and spent their money. Undoubtedly, there was a standardization of production. However, as the productivity of laborers increased, and as their wages increased, this standardization was left behind for those coming up – Irish immigrants, for example – and variety began to be an economic possibility.

This indicates the nature of capitalism’s powers of social transformation. At first, price competition expands the market. New groups gain access to goods not previously available to them, either because prices were too high before, or because the products did not even exist.

As participants in the production process, workers add to other people’s wealth. Producers are buyers; step by step, as output per unit of input increases, as a result of the specialization of production, the wealth of all the participants increases. The initial expansion of buying alternatives itself expands as productivity increases. Some producers may specialize in producing for this newly improved buying public; others may branch out and aim at the still excluded buyers – the next level down.

Henry Ford’s Model T – “available in any color, as long as you want black” – made the automobile available to the masses. But as everyone’s wealth increased as a result of capitalist methods of production-distribution (the two are basically the same process), large numbers of men wanted some other color.

Ford failed to recognize this phenomenon of modern capitalism, and his resistance to change – in this case an upgrading of quality and choice – led to the triumph of General Motors in the 1920s. GM offered more brands and more choices within these brands.

GM’s dominance did not last. The company went bankrupt in 2009. It took a government bailout to save it – and the defrauding of bond holders.

The factory is scaling down in the United States, even as it is getting gigantic in China. Smaller, computerized specialized steel factories have replaced the old steel factories. The old factories are empty. They cannot compete.

We live on the cusp of a new era of manufacturing: 3D production. We will have factories on our desks.

Mass production reduces costs. Production initially is centralized. The era of the factory replaces the era of homespun. The economies of scale take over. This is phase one: the law of increasing returns to centralization.

This does not last. The law of decelerating returns takes over at the factory. The era of the factory is replaced. The economies of scale favor local production. I write this on a $500 computer using a $50 word processing program.

When you think “economies of scale,” think “Post Office.”

Conclusion

I could apply this analysis to the history of urbanization: from villages to towns to huge cities to the suburbs. Urban historian Jack Lessinger has chronicled this in a series of books.

The economies of scale no longer favor centralization. They favor decentralization: in manufacturing, in education, in urban development, in finance, in politics, and even in military affairs. Non-state resistance movements hold the advantage today. So does the terrorist cell. If the urban West is ever threatened by weaponry, it is more likely to be from a home-brew biological weapon than from a nuclear device.

Small may not be beautiful, but it surely is efficient. You don’t see a virus. You can see a mushroom cloud.

For those of us who dread the centralization of anything, our boats have begun to come in.

No ship will come in. Its model is the Titanic.

Regards,

Gary North

The Looming Reversal of Centralization was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

But first, the crisis in Greece didn’t come to a head over night but it can’t be far away. Rival political parties have been unable to form a government. New elections are scheduled for the second week in June. The financial has definitely become political. The people have run out of patience with unsound money and the world built on it.

All that said, the Greeks managed to make a €430 million payment to hold-out creditors last night. Nearly 97% of Greek creditors agreed to the restructuring of the country’s debt in March. That wiped off over €100 billion in Greek debt and resulted in 70% losses for some of the bondholders who accepted the deal. Not all of them did.

Yesterday, the bondholders who didn’t accept the deal got paid in full. There is still about €6 billion worth of debt owed to creditors who refused to participate in the restructuring. You can imagine that the Greek decision to pay the holdouts would anger the creditors who agreed to the deal. They look like schmucks now. Schmucks.

But in the current scheme of things, €430 million is chump change. The real issue is whether the Greeks are going to default on €150 billion worth of government debt. If those bonds are owned by foreign creditors – let’s call them other European banks – then the Greek crisis becomes a European crisis. We’ll come back to this issue of “containment” shortly.

For the Greek people, the most alarming aspect of what’s going on is that their life savings are at serious risk of a massive, overnight, non-voluntary devaluation. There are a lot of words for the magical process of turning one thing into something else: alchemy, transmutation, and transubstantiation come to mind. But to the Greeks it’s going to look a lot like highway robbery.

You’ll go to bed one night with your life savings denominated in euros. You’ll wake up the next day with them denominated in drachma. And your euro savings will be automatically converted to drachma at an exchange rate not of your choosing. For example, your 1,000 euros will become 100 drachma…or even 10,000 drachma. The nominal amount won’t matter. What matters is that the devaluation strips you of 70% or 80% of your purchasing power.

Most people would avoid that kind of value destruction if they could. Maybe that explains why €700 million was withdrawn from Greek banks on Monday, according to remarks made by Greek President Karolos Papoulias and reported in the Wall Street Journal. The Journal reports that between €2 and €3 billion in deposits have been withdrawn from the Greek banking system each month for the past two years. January was a high point, with €5 billion.

A bank run by any other name would look as desperate. And who wouldn’t be desperate now?

Leaving the euro, devaluing the drachma, and defaulting on debt owed to foreign creditors are Greece’s best long-term economic survival strategy. But the unavoidable side-effect is to destroy the savings of the people, not to mention usher in a period of lower standards of living.

That won’t win you many votes. It may start a revolution.

And how do you prevent the Greek precedent from being imitated by the Spanish and the Italians? To be candid, we don’t think it matters much now. Greece can’t afford to stay in the euro. The Spanish and the Italians can’t afford to leave it.

The economies and banking systems of Spain and Italy are indispensable to Europe. If they leave the euro, there is no euro. The Greeks can leave, devalue, default and use a weaker currency to claw their way back to economic competitiveness. If the Spanish and Italians leave, they lose access to private capital, they lose access to the ECB and they take down Europe’s banking system. They can’t leave. More importantly, they can’t be allowed to leave.

This makes the task of the European Central Bank (ECB) much easier. It simply has to guarantee Greek debt owed to all non-Greek creditors. Or, it could simply buy that debt. This would solve the problem of anyone outside Greece taking losses on Greek debt.

This is what corporatism looks like, when the Big State and Big Finance become the Big Power in the economy. Losses cannot be tolerated. Any loss results in lower equity capital at a financial firm would require selling assets. Since everyone owns a piece of everyone else, and owes to everyone else, any major loss in one place results in losses everywhere.

Of course it’s absurd that Europe is moving toward this kind of “extreme socialism”. The people most responsible for the crisis are not accountable and the people who have saved get punished. The elite are enriched and everyone else is enslaved.

This is why the financial crisis could so quickly become a political and social crisis. When people don’t think they can get justice from the courts or the cops, and when they think that cheating is the only way to get ahead in a system, the political and financial order is on borrowed time. The clock is ticking.

Regards,

Dan Denning

The Daily Reckoning Australia

Why Greece Can’t Afford to Stay in the Euro was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Whatever you want to call it, the libertarian push is the animating force behind today’s most-exciting business ventures, technological innovations, cultural movements and political trends. Where the so-called left is most successful today, it is due to the urge to end war and protect civil liberties against state encroachment. Where the so-called right is most successful, it is due to the emphasis on keeping what you earn and giving freedom to the entrepreneurial class.

And think about all the exciting technologies that are transforming our lives in the digital age. They are wonderful not because they are giving us greater access to the dubious offerings of the public sector, but precisely the opposite. They are allowing us to re-create civilization itself based on human volition, voluntary association, borderless economic exchange and choice as the driving agent of change.

What if there were a kind of intellectual exposition of the most wonderful ideas in the world of liberty? It turns out that there is one. It is called FreedomFest. This year, it is in Las Vegas, Nev., July 11-14, 2012. This year is particularly exciting because it promises to be the biggest yet and to feature all the key minds that are carving out a future for human liberty, despite the continuing push by leviathan to control our lives.

I time attended two years ago, and the whole experience blew my mind. I might even go further and say that it changed my outlook on life and the prospects for liberty in our time. There was a gigantic diversity of people and institutions represented. There were large sessions attended by everyone and hundreds of breakout sessions you could attend based on your personal interest in some particular cause.

Because the subject of human liberty is as big as life itself, there really are no limits on what is being discussed. The result is somewhere between an intellectual salon and a large-scale commercial bazaar. It is both very serious and very fun. The levity that exists here makes for a great learning environment because the mind stays constantly stimulated.

It makes sense to me that a conference on liberty should be fun, enjoyable, unpredictable. Nothing should come prepackaged. This is something that Mark Skousen intuited when he started this event. Let the socialists be the dreary ones, wallowing in depressing predictions about the plight of the workers and peasants. Let those who love liberty celebrate ideas in an atmosphere of reckless disregard for convention and approved ways of thinking! This is what is encouraged and what you get at FreedomFest.

Laissez Faire Books is not only serving as the official seller at the entire event. We are also holding our own panel. This panel will be competing against other panels, so I wanted to put together something completely different that would attract people and give attendees a new point of view.

The theme concerns new ways to live a happy and free life, and promote the right ideas, in these odd times when the leviathan rules the physical world and liberty is making gigantic advances in the digital world.

Here is what we came up with: “Liberty That Works: New Approaches in New Times.”

We are featuring six presentations.

• Robert Murphy, the economist who dared to eschew academia and set out on his own to become one of the great teachers and researchers of our times. He has a shy temperament, but he overcame it to use digital media to produce some of the greatest economic education tools you can find anywhere. He has written a leading text for high-school students, and he never misses an opportunity to teach, always with brilliance and wit. His topic is alternative educational institutions
• Wendy McElroy is a philosopher, historian and theorist whose work, dating back to the 1970s, seems incredibly prescient in the digital age. So far as anyone can tell, for example, she was the first to consistently apply the idea of liberty to the subject of intellectual property and publicly debate others who were waffling on the issue. She has a fabulous new book coming out from Laissez Faire called The Art of Being Free. It is brilliant, and I can tell you this: There are passages in here that had me nearly crying tears of joy. Her subject is simple, frugal, independent living
• Jacob Huebert is the young attorney who wrote the best primer on the topic of libertarianism. The audio version of his book is being released to members of the Laissez Faire Club. He is particularly enamored with finding practical ways to carve out large-scale zones of liberty in a statist world and has some unique thoughts on strategy as well. Example: He eschews political organizing completely. His topic is private forms of security and dispute management
• Chris Mayer is the author of World Right Side Up, a book that traces emerging markets around the world to show how we are transitioning to a post-American world economy. I’m particularly delighted with his participation because he has a nose for economic trends big and small. His book had my heart racing with excitement about the great trends for liberty in far-flung places. His topic is supporting capital and commerce globally through unconventional investing
• Stefan Molyneux needs no introduction to any liberty-loving student under the age of 30. He might be considered the philosopher king of the digital age. His audience is gigantic and his passion for liberty boundless. Yet he somehow manages to maintain a beautiful, service-oriented humility in the promotion and application of the ideas of the libertarian tradition. What’s particularly impressive to me is he has done this all on his own, without institutional support. His topic is redefining communities of peace and learning
• Finally, I’ll be speaking on the need to defy the plan through your own digital civilization. Yes, I’ll be speaking about the Laissez Faire Club, but also about many other ventures that are charting new paths toward building a global intellectual push for things that are most important in life.

A shocking diversity of people and ideas! This is the way it should be. I’m hoping to see what emerges when all these great minds come together in an atmosphere of freedom and learning. In the right kind of setting, with the right kind of encouragement, everyone can come away from an event like this with new, creative ideas for tackling the challenges ahead of us.

I hope to see you there.

Jeffrey Tucker

FreedomFest was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The word “austerity,” beginning with the Greek government’s debt crisis two years ago, has been used by the financial media in one sense, and only one sense: reductions in spending by national governments. The word is not used with respect to the economy as a whole.

More than this: the word has been used to explain the contracting economies of Europe. The reductions in government spending are said to have caused the contracting economies. This explanation is based on textbook Keynesianism.

Keynesians call for increased government spending. This is the heart of Keynesianism. Keynesianism rests on a mantra: “Government spending overcomes recessions.” All else is peripheral: monetary inflation, graduated taxation, and free trade. These peripheral issues will always be sacrificed to the supreme economic premise: “Government spending overcomes recessions.”

This is where every analysis of Keynesianism should begin. Any economic doctrine, any economic policy, any proposed solution to the present crisis should be assessed in terms of the mantra. Anything that does not begin and end with the mantra is not Keynesianism. Anything that does, is.

It is a mark of the supreme triumph of any ideology when the self-professed critics of the ideology adopt both its conclusions and its rhetoric, and do so unknowingly. This means that the promoters of the ideology have set the terms of public discourse. It is very difficult to replace an ideology or worldview, once its promoters have established the terms of discourse.

It can be done, of course. But to do this, the promoters of a rival outlook must expose both the errors of the existing system and the implicit agreement of its supposed critics. This wins no friends among the hapless troops who think they are scoring significant victories by arguing against peripheral aspects of the enemy ideology, while accepting its central presuppositions and main policy prescriptions lock, stock, and barrel. They have been taken in hook, line, and sinker.

PHARAOH AND THE FROGS

A recent example of a well-meaning but conceptually confused anti-Keynesian was published in Forbes. It had a powerful headline: “Keynesianism Is the New Black Death.” It suggested that the great tragedy of Europe today is “austerity.”

As I have already said, the financial media universally define austerity as cuts in government spending. I have never seen the word used in any other way over the last two years. Any author who uses the word in any other way owes it to his readers to explain this new usage. The Forbes article offered no such distinction or alternative definition. I therefore take it at its word: austerity.

If austerity is the great evil, then the implication is inescapable: that which restores government spending and therefore overcomes austerity is positive.

This reminds me of the Pharaoh who decided not to let the Israelites journey for a week to sacrifice to God. Moses and Aaron then attempted to persuade him by way of a series of plagues. One of them was frogs. The land filled up with frogs. Everywhere anyone walked, he stepped on frogs.

The court magicians had to do something about this. They responded by a public display of the power of their magic that matched what Moses and Aaron could do. “And the magicians did so with their enchantments, and brought up frogs upon the land of Egypt” (Exodus 8:7).

Somehow, I imagine Pharaoh screaming at them: “No, no, you blockheads: not more frogs! Fewer frogs!” But the text does not record this.

The solution to the frogs of European recession is not increased government spending. Rather, it is the opposite: reduced government spending. In short, the solution is greater austerity.

AUSTRIANISM’S MANTRA

The Austrian economists also have a mantra: “Reduced taxation increases liberty.” Liberty is necessary for economic growth.

If a contemporary government cannot reduce taxes without going bankrupt, then it must cut spending if it chooses not to go bankrupt.

Europe’s national governments are all going bankrupt. Japan’s is, too. So is America’s. The solution is to cut taxes and cut spending even more.

“Not more government spending. Less government spending!”

“Not larger government deficits. Reduced government deficits!”

“Not higher taxes. Lower taxes!”

“Not more fiat money. Reduced fiat money!”

In short: “Let my people go!”

With this in mind, let us examine an article that argues that austerity is the great threat to Europe’s prosperity.

A DEATH SPIRAL?

The article begins with a survey of European politics. It points out that voters are tossing out politicians in nation after nation. Sarkozy was number eight over the last year. Why is this happening? Here is the proposed answer:

The voters of Spain, Greece, France, etc., understand that their governing elites have pushed their economies into austerity death spirals, and they have been expressing their unhappiness at the ballot box.

The more fundamental question is this: Why did these elites push their respective economies into this supposed death spiral? Why would faithful Keynesian elites do such a thing?

Let us not be naive. The West has been run at the top by Keynesian elites, or politicians holding Keynesian ideas, ever since 1930 – six years before Keynes offered his unreadable justification of politicians’ policies: “The General Theory of Employment, Interest, and Money.”.

The Keynesian central bank pushed Europe’s economies into a boom, 2001 to 2007. The voters loved it. Interest rates were low. There was lots of money to buy houses. The economies of the south – “Club Med” – were booming. So was the honorary member of Club Med: Ireland. Ireland’s property values quadrupled. It was all going to last forever. The elites – especially the economists – issued no warnings, except for Austrian economists, who were dismissed, as always, as dinosaurs.

Then came the bust phase. What the European Central Bank did before 2007 – inflate – it has done more aggressively ever since 2008. Governments ran even larger deficits. They all implemented Keynesian stimuli. This did not work. Europe is falling back into a recession.

In the spring of 2010, investors in northern Europe caught on to the fact that Club Med residents could not compete economically. They kept running deficits with the North. Those easy-going populations were living on money borrowed from the North. So were their governments. They had no intention of ever paying back these loans.

Any why not? This is what Keynesianism teaches. Government loans will not be paid off. Ever. Government debt will grow. So will prosperity.

Two years ago, Greece’s Socialist Party found out just how far in the debt hole the government was. Interest rates then started to rise in PIIGS nations. PIIGS governments were trapped. They could not run ever-larger deficits, because the cost of loans were rising.

That was when the reality of Keynesianism hit: deficits do matter. Money is not free. Debts must be rolled over at market interest rates. The horror!

That was when governments in the South started cutting back on spending. Not much, you understand. The deficits are still unprecedented: above 6% of GDP.

Keynesians labeled this “austerity.”

It is not austerity. It is deficit spending on a massive scale. Austerity is where national governments run surpluses and use excess revenues to pay down the national debt.

There has not been austerity in Europe since approximately 1914.

The gold coin standard enforced austerity, 1815 to 1914. That was its chief function and its great service to mankind. It kept the West’s governments austere. This enabled the private sector to dine at an ever-expanding feast.

Keynesians hate the gold coin standard. That is because they believe that high government spending is the basis of high consumer spending, and consumer spending – not private thrift – is the foundation of prosperity.

The public, which prefers consumer spending to the austerity of thrift, cheers on the politics of Keynesianism. Deficits without end, borrowing without pain, growth without ceasing: Keynesians promise, and voters believe.

But the day of reckoning arrived in 2010. The free money got expensive. The party did not stop, but some of the guests were sent home, to join young adults, who have sat and watched TV, because there are no jobs.

The public feels betrayed. Voters believed in the Keynesian dream, which was articulated by the original Keynesian, who said, “If thou be the son of God, command that these stones be turned into bread” (Matthew 4:3). When the target of this challenge refused to rise to the bait, the Keynesian went looking for other takers. In the second half of the twentieth century, he found them. Lots of them. Millions of them. Politicians promised to accomplish the feat. Voters applauded.

But times have changed, the article tells us.

Unfortunately for Europe and the world right now, there are no pro-growth candidates and/or parties on the Continent to offer relief from the austerity programs that are grinding their economies to dust. With no one to vote for, all that European electorates have been able to do is to vote against. They have sought to register their protest by defeating incumbents.

The incumbents over-promised. They had long told the voters that deficits don’t matter. Deficits did not matter for as long as banks in northern Europe kept lending to PIIGS at rates associated with German frugality. But then came reality.

Europe as a whole is in recession, and Greece, Spain, and Portugal are in depressions. What are the people supposed to do if the economic chefs on both the political Left and the political Right are offering the same poisonous “austerity” menu?

Balanced budgets remain mirages a far as the eye can see. Token spending cuts, which are made in the name of reducing deficits to about 3% of GDP in ten years, are part of a “poisonous austerity menu.” Put in a more familiar terminology, there are too many stones and not enough bread. The voters will not tolerate this.

The reason why there are no economic chefs promoting growth is simple: somebody has to bankroll the growth of government spending. Who will that be? Who wants to trust PIIGS?
The louder the voters scream about austerity, the fewer the number of lenders, meaning lenders at rates under 10%.

PLAGUE!

The article eventually gets to the point.

So, what happened in Europe? The short answer is, “plague”. The Black Death of the 14th century was caused by the Yersinia pestis bacterium, which was spread by rats. Today’s plague is the result of Keynesianism, which is being spread by the economics departments of major universities and The New York Times. Unfortunately, unlike Yersinia pestis, Keynesianism does not respond to antibiotics.

How does the article define Keynesianism? Erroneously. It says that Keynesians favor tax increases and spending cuts.

Austerity, as currently being practiced in Europe, is based upon the Keynesian belief that tax increases and government spending cuts have the same effect upon both the government deficit and the economy. In fact, the most virulent strains of Keynesianism cause people to believe that raising top marginal tax rates and increasing government spending can actually boost GDP, because “the rich” have a higher “marginal propensity to save” than do the recipients of government handouts.

Fran‡ois Hollande, the winner of Sunday’s election in France, is a Keynesian. He believes that raising France’s top marginal tax rate to 75% while hiring 60,000 more unionized teachers will make things better.

Excuse me? What does an avowed socialist politician have to do with Keynesianism? Keynesianism is what Paul Krugman proclaims, which is greater deficit spending, plus sufficient central bank money expansion to finance this expansion.

Which Keynesian economist or politician has come out forthrightly for spending cuts, i.e., austerity? Austrian economists have. Ron Paul has. This is why Austrians and Ron Paul have been marginalized by the Keynesian media as cranks.

To a leader whose mind is infected by Keynesianism, it makes sense to try to close a budget deficit with a combination of tax increases and spending cuts, with the balance between them determined by some combination of political considerations and “fairness”.

There are many politicians in Europe who have imposed taxes on the rich. The voters have cheered them on, as always. The voters are outraged by the spending cuts. Spending cuts reduce the flow of funds to government bureaucrats and welfare state clients. This is why Greek union members riot.

Traditional Keynesianism calls for increased spending, more borrowing, and – if private lenders demand high rates of interest – monetary expansion by the central bank to purchase government debt. The article wisely rejects monetization. But it does not call for a gold coin standard. Rather, it defends the euro.

As damaging as tax increases are to an economy, monetary depredation is worse. Only a Keynesian could think that replacing the euro with a new drachma could be a solution for Greece. The result would be a new currency backed by the full faith and credit of a government in which no one has faith and to which no one will extend credit. In reality, the collapse of the Greek economy would not even wait for the introduction of the new currency. It would not be possible to keep preparations for a new drachma a secret, and even rumors of such a move would be enough to create a cataclysmic run on the Greek banking system. Capital, and people with capital, would flee.

The article suffers from an illusion: that the euro is not just another medium for inflation, that it is anything more than drachmas for Keynesians.

The Keynesian political hierarchy imposed the euro on the voters in 1999. The elite’s spokesmen have decried the departure of Greece from the eurozone. The unelected Greek technocrats, like technocrats all over Europe, were either former Goldman Sachs employees or wanna-be’s. They are now being tossed out by the voters. The voters are populists and socialists. They are fellow travelers of Keynesians only in the boom phase of the Keynesian welfare state. When the bills come due, they revert to locally issued fiat money, taxation of the rich, trade unionism, and increased government spending.

CONCLUSION

Keynesianism is in a death spiral. So is populist socialism. So is fiat money fascism. They are all in death spirals because they all reject this premise: “Lower taxes increase liberty.”

Liberty will prevail. This is an eschatological affirmation. One of the ways that it will prevail is through the bankruptcy of the Keynesian social order: high taxation, high regulation, high deficit spending, and high inflation.

Let’s put government on a diet. Let’s have austerity where it belongs: government spending.

That is what Europe’s voters do not want. That is what they are going to get.

“Not less austerity. More austerity!”

Regards,

Gary North

The Case for Austerity was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

After all, we have been predicting that people in the US and most of the western world will soon find themselves living in a Terminator-esque world where they will be tracked every moment of the day (US Government Builds World’s Biggest Domestic Spy Complex), 1 the US Government can jail indefinitely and even kill its own citizens (NDAA Bill Can Send Americans to Prison Indefinitely Without Trial), that the assets of westerners will be taken and consumed by their vampire overlords (France mulls 100% tax rate), they will be restricted in their ability to travel outside the country (Congress about to pass a bill that restricts travel and revokes passports with no trial) and it will be impossible to get your money outside of the country to protect it from confiscation (capital controls).

On the topic of capital controls we had predicted what is now happening. We’ve been writing about it for some time. The only thing that has surprised us is the speed in which it is all happening. We are rarely shocked but we have been surprised at the speed with which the world’s banks have stopped accepting US citizens as clients.

It was only a few weeks ago that we penned, “International Banking Options for Americans Closing Down Fast” and stated that our sources had notified us of at least one bank (in Latvia) which has stopped accepting US clients because of the rules put in place by the IRS in the Foreign Account Tax Compliance Act.

That was then, this is now. Here is just one man’s recent statement:

“I don’t open U.S. accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”

The phone has been ringing off the hook at TDV Media and Service’s headquarters. Nearly hourly word has come in of another bank that has stopped accepting US clients. Some have even started closing accounts for US clients… a trend we definitely expect to continue.

Don’t believe us? Check out this article from the San Francisco Chronicle. They only got one thing wrong. The title of the article is “U.S. Millionaires Shunned by Banks as Tax-Evasion Law Looms”. But, it’s not just millionaires. It’s all US citizens with a foreign bank account.

BLOODBATH

It’s a bloodbath. People who make their living off of helping US citizens set-up foreign bank accounts to diversify some of their assets outside of the country are closing shop… all in the last few weeks. They are walking away from their honest, often decades-old business like victims of a bomb blast… in shock.

We feel very bad for them but we knew this was coming and have been hiring people almost daily to help out with the demand. If you are a US citizen and have money in a foreign bank account that you would like to keep there, expect a call any moment. It’ll be the bank and they’ll tell you that you have 72 hours to close your account and to tell them where to send the funds. If you don’t want to send it back to the US where Barack O’Bomber already has grand plans for how to spend it then your options are seriously limited.

But, here’s the good news, there is still options. Here are just a few options that are still on the table:

• There is at least one bank in the Caribbean that is still willing to accept US clients. If you get a call from your bank that you must move funds immediately and do not want to repatriate them then you can open an account with them. We have already identified the bank and have set-up relationships to get your account opened and processed all via the internet within 24-48 hours . Contact info1@tdvoffshore.com for more information
• You may still have a few months before your bank contacts you. In that time, we have found a number of ways to get a second, foreign passport inside of 30-60 days. Once you have a passport other than a US passport you can then convert your foreign bank accounts to your new citizenship and avoid having your accounts closed or reported to the IRS. Contact info1@tdvpassports.com for a consultation on the best solution for you.
• You can also convert a significant portion of your cash into precious metals… which is a very smart move to begin with… you can easily buy and/or transport these assets to a number of international destinations where property rights are respected and the governments are not in massive debt and in need of confiscating your assets. This includes Singapore, Switzerland, Hong Kong, Uruguay and many more. See “Getting Your Gold Out Of Dodge” for specific, detailed actionable info on doing this.

Even if you don’t need any of these types of services at this time, but it is finally dawning on you that the fiscal cliff is approaching very quickly and want to be prepared for what is to come, all of this type of information is the main focus of The Dollar Vigilante newsletter. Subscribers are regularly updated with news, analysis and info for how to survive the coming western financial system collapse.

SELF INTERESTED SCARE MONGERING?

You may be thinking, “this guy just seems to be trying to scare us and promote his own products”. If you’ve followed my writing for any length of time you will know that I’ve been writing about these events for years. And, up until recently we didn’t even offer products. We began writing The Dollar Vigilante two years ago because the writing on the wall had become clear and we wanted to help as many as possible to survive the coming western nation-state and financial system collapse… but we were inundated with emails asking us, “Ok, we agree with your prognosis but what can we do to protect ourselves?”

It was then that we began scouring the world looking for second passport and offshore bank account services and found them lacking. We looked for other information such as is included in Getting Your Gold Out Of Dodge and came up empty. That’s when, as good entrepreneurs and capitalists, we decided to offer the products ourselves. That’s what good capitalism is about… finding ways to help people in need.

The monetary system that the world has lived under for the last 41 years, since the US went off the pseudo-gold standard in 1971, is entering the end game. And we are sorry if we need to be so abrupt in trying to wake you up to it. But, to show you the kind of brainwashing and psychological issues we are regularly up against, here is a conversation we recently had from a woman who had called us to see if she really needed to make her move to protect herself ASAP:

Jane: I just don’t believe it is that urgent. There is nothing on the nightly news about this… and my financial advisor says there are green shoots and we are in recovery.

TDV: What would it take you to realize that it was time to get out of the US?

Jane: I’m not leaving until they shut down the border.

We sat there speechless for about a minute after that one. She has normalcy bias. And, normalcy bias is very dangerous in times like these when everything is about to change.
We suggest you don’t wait until the borders close to get out. And, this is not just a US phenomenon. The entire west will follow in its footsteps… and other nationals as well, such as the Chinese, also should see the need to internationalize themselves (and they do, “China’s Millionaires Looking For Way Out”). There is already a wall around China, don’t wait until there is one around you before you start taking the steps necessary to protect yourself from leviathan.

Regards,

Jeff Berwick

Hear That? It’s The Sound Of The Doors Closing For Americans was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

As the European welfare state is officially in its death-throes none of us should be surprised if political strife gets cranked up to eleven. I firmly expect that we will see much more of this in the future. While I can understand the anger of the electorate and sympathize with the sense of desperation and foreboding, I cannot, however, consider the electoral choices of the weekend particularly enlightened. They do not reflect a coherent, let alone intelligent strategy as the Daily Telegraph headline seems to imply.

If those who ‘won’ the election deliver on their promises, economic disintegration will only accelerate. What is being offered in terms of ‘solutions’ is a dangerous assortment of economic poisons, more suitable to describe the European disease than provide a recipe for stronger growth.

Recovery through early retirement and infrastructure spending? – C’mon. Nobody can take that seriously.

But it seems that just because this heap of economic stupidity can neatly be swept under the wide tent of ‘anti-austerity’, the commentariat seems somehow willing to believe in the wisdom of the crowds and look for some deeper insights here.

I guess the reason for this is that the economic ideologies that are now being strenuously interpreted into the election results rhyme with the economic prejudices of most commentators. They, too, believe that state bankruptcy is best to be ignored or not to be taken too seriously so that we can spend our way out of this mess.

For a long time media pundits have treated us to the perceived wisdom that economic growth can only come from the actions of the government. Only devaluation through euro-exit, inflation through more money printing and more government deficit-spending, preferably by the still credit-worthy Germans and then fiscally-transferred to the maxed-out Greeks, can revive the economy because only this can lift aggregate demand, which is the magic cure-all of economic problems.

What is lost on these commentators is that the European mess is nothing but the inevitable result of government-stipulated aggregate demand. Easy money funded the Spanish and Irish real estate booms and bankrupted their banks and by extension their governments. Easy money allowed Greece’s political class to go on a borrowing binge that has now bankrupted the country and lured large parts of the population into zero-productivity, soon-to-be-eliminated public sector jobs.

Do you still want the state to ‘stimulate’ the economy? Be careful what you wish for.

The real culprit of high youth unemployment in Spain and Italy is not ‘austerity’, which hasn’t even started there, but a bizarrely overregulated and sclerotic labour market in which it is almost impossible for firms of a certain size to fire people. The incentives are thus stacked massively against hiring. Yet, in France one of Hollande’s election promises is not to deregulate the labour market. If I were unemployed in France I would not be counting my chances of getting a job over the next five years.

In France the state runs more than half the economy, yet Hollande promises not to privatize state-run industry. Where is the wisdom in that?

Yet, the statists and socialists are delighted. Paul Krugman, who never saw a debt crisis you could not borrow and spend your way out of, rejoices at such display of economic genius. We are all Keynesians now! Listening to Krugman you would think Greek and French voters were not using the ballot to cling desperately to some remnants of the welfare state but were in fact positively advertising the wisdom of government stimulus and the mystical ‘multiplier’.

Some of the commentators tried to argue that what happened over the weekend was also some kind of anti-establishment vote, a verdict against centralisation and the dominance of the deservedly despised bureaucratic elite in Brussels.

Nice try, but that is rubbish.

This was not an anti-establishment vote at all. It was not a vote for change but a desperate vote for the status quo. Of course, the old elite deserved the sack but they were largely booted out not because people got tired of the old policies but because the leadership now finally admitted that they could no longer deliver on the old promises.

The established parties lost because they could not continue upholding the false promise that had kept them in office for years or decades, the promise to make the “European model” work. They had to admit that the European welfare state was now bankrupt. Kicking the can down the road is increasingly not an option as the end of the road is now in sight.

And the election winners were those who had the chutzpah to maintain that drastic belt-tightening and painful reform were not required but that the people just had to ‘stick it to the man’, who is Angela Merkel and sits in Berlin. The tactic is straightforward. Shoot the messenger!

In France that meant voting for a charisma-free Socialist bureaucrat who will revive France with higher taxes, early retirement and a Hoover dam funded by Eurobonds and the ECB. In Greece, the big winner was an ex-Communist firebrand who admires Hugo Chavez, and who has raged against austerity measures and structural reform.

I guess we now know what the electorate is against. “Say no to cuts!” But what is it for? Over in Ireland, the deputy leader of Sinn Fein, Mary Lou MacDonald, had the answer: “A No vote (to the ‘Austerity Treaty’) in Ireland will strengthen those arguing for jobs and growth.”

Well, who could not love a politician who promises jobs and growth? But the relationship between politics and jobs and growth is a tenuous one. Politicians are not savers who fund the creation of a capital stock through saving, and they are not entrepreneurs who put that capital to productive use. Politicians are people who spend other people’s money. In Ireland the budget deficit runs at 13 percent of GDP per annum, which according to Krugman’s logic must be a fantastic recipe for jobs and growth. Let’s just sit back and watch how that economic miracle is going to unfold.

My guess is that many people in Europe still know, or at least instinctively sense, that the promises of jobs and growth through state spending and money printing are hollow. They know that the state is bust and cannot keep spending money it doesn’t have. The policy options are much more limited than the campaign rhetoric indicates. On trend, fiscal consolidation and structural reform will continue, and Germany’s negotiating position will remain strong.

Yet, on the margin this was an indication that Europe, and in particular France, remain in many areas unreformable, and that the pressure on the ECB to sustain the unsustainable with sizable money injections will, if anything, intensify.

Regards,

Detlev Schlichter

Europe’s Voters Say “No” to Economic Reality was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

An uncountable number of people have said this or something similar to me about Twitter. I’ve stopped responding. It’s the same kind of faux snobbery that causes people to look down on Facebook, YouTube, Angry Birds, smartphones and the whole of digital life generally.

Of course, these days, hardly anyone puts down the Internet in total, but this was common 10 years ago. Today, it is more common to put down popular applications of one sort or another, always with the message that my time is too valuable, I’m too serious for this kids’ stuff, I don’t go for the superficial fripperies that have enchanted Generation Mindless.

I’ve already discussed Facebook, LinkedIn and Pandora, and why their popularity is not only justified, but they have also made gigantic contributions to human well-being. They all use the power of individual volition and the self-organizing dynamic of free association to offer services, methods of learning and means of connecting with others that break through barriers that have existed since the beginning of time.

Let’s take on Twitter, the service that people love to hate the most. Among the nonusers, the word alone is almost always said with a sneer. It is the most transparently easy of all the popular social applications, but also the hardest one to integrate into your life if you are not already part of a set people using it.

Adults sign up to it and then sit and stare at it. Having no followers and following no one, the thing looks and feels as dead as Marley’s ghost. Of course, you could always send out news of the sandwich you ate for lunch, but what’s the point? In this sense, Facebook provides that much-more-immediate satisfaction that adults (ironically) demand from websites. Twitter is an application that has to be built by you.

But consider… when the unemployment numbers come out, I usually get an email from the Bureau of Labor Statistics. This most recent time, even before that email arrived, I knew the numbers before. I knew the grim truth behind the numbers. I had a sense of how several major newspapers were spinning the numbers. I had access to charts that were being posted, showing how labor trends interact with other trends. And I was able to react to the news myself by reposting what I appreciated and then adding my own thoughts. Then, finally, the email arrived from the Bureau.

This is an example of an everyday use of Twitter. But it is only one of an infinite number of possible uses. And once you start and get the hang of it, downloading the app and following things you care about, you begin to realize something absolutely astonishing about this seemingly superficial thing. Twitter has radically individuated, democratized and universalized the consumption and production of all forms of information, turning the whole world into a customizable communications bazaar like no generation in history has ever seen.

This customizability is what gives rise to the caricatures of the tweeter as a superficial twit, wasting time blabbing on about nothing to other similar types. But when you see people in revolutionary political situations organizing themselves, using tweets and evading the boot of the dictator by using Twitter to communicate, strategize and outmaneuver the most-powerful armies, it should make you stop and think.

As a means of producing of information, every user has potentially the same influence as every other user. The only possible difference concerns the number of followers you have (I have 700, while Lady Gaga has 20 million), but even that is not really a final determinant, since every message can be re-tweeted and a message sent to one person can turn into a message sent to 140 million people in a split second.

What this means that is The New York Times and White House have exactly the same technical power to influence as the person who just took my order for beer at the pizza shop. The difference in the reach of messages is entirely determined by other users of Twitter, thus resulting in a crazy meritocracy of distribution.

As a means of consuming information, you have access to the instant thoughts of every star, mogul, institution, official or whomever and to the exact same extent as the big-time reporters or other institutions. And it turns out that people like Lady Gaga really like this. Every public figure does, except perhaps the dictators threatened most by this powerful means of instantaneous truth telling.

Currently, Twitter is handling 1.6 billion search queries per day and being used to send some 340 million tweets in the same period. It’s consistently in the top 10 most-popular websites. The service is offered to every person on the planet at no charge. The revenue model is to charge companies for promoted tweets in search results, as well as to charge large Internet companies for the use of applications that display Twitter feeds on their websites.

There’s a rude awakening, however, for anyone who thinks he or she can jump onto Twitter and make a splash. You cannot invite others to follow you. People have to reach out to you, and therefore, in this sense, Twitter can be a more-difficult nut to crack than Facebook.

Your first step should be to follow institutions or people you care about. They will be notified that you have followed them. One hopes, then, that they will respond by following you, but there is no way to make them do so. If you seek followers, your best approach is to find someone who is already deeply embedded in this world to recommend you to their followers. But even then, it is a long haul to get to the point that you have a substantial number of people caring about what you are saying.

Why should you bother at all? There might be someone who has no interest in what anyone has to say and also has nothing to say himself, and plans to maintain this attitude from now until death. That person has no use for Twitter. For everyone else, it is great source for acquiring and relaying information on anything and everything, and therefore, there are few people on the planet who would not benefit.

For career builders, a war chest of Twitter followers is part of the personal capital that you accumulate and carry with you wherever you happen to live or work. In this sense, this can be an essential part of your freedom and personal empowerment. It reduces your reliance on institutions and helps you gain control of your life.

For public personalities, it is obviously rather indispensable. But the same is true for any business. If you assemble followers (I love to follow businesses!), you can immediately reach them with special deals and announcements and do so at zero cost. What could be better than that?

For any individual, there are always times when you need others and it becomes important to get information to them. You might be in danger. You might have amazing news. You might need to send for help. In those times, you will be glad that you have prepared by assembling a valuable network of people who care whether you live or die. Certainly, the state doesn’t much care, so it is up to us to form associations that do.

This is why I’m most interested in Twitter, in its uses of building a global movement for human liberty against the despotism of the state in every nation. Twitter disregards borders. It disregards states and their pretensions. It follows no one’s plan. It obeys no authority. It proves the capacity of free people to be self-ordering.

It enables individuals to be self-governing units with an important element of empowerment in their hands: the ability for one person to reach the globe in any instant in time with the most-valuable commodity in existence — namely, information.

That’s why Twitter is amazing.

Regards,

Jeffrey Tucker

Why Twitter Is Amazing was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Not to be outdone, Buffet’s partner in crime Charlie Munger recently declared “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939 but civilized people don’t buy gold – they invest in productive businesses.”

And now, Bill Gates went on CNBS today to try and explain the great error in investing in the barbarous relic. It’s like they’re trotting out the billionaire boys club to scare people back into Berkshire and Microsoft stock.

As they should. Bill’s Microsoft has been absolutely decimated vis-a-vis gold for 12 years straight and running.

Both Buffet and Gates concede that paper money will continue to be debased as long as central banks hold the legal monopoly to print it. What they won’t mention is that such blatant fraud is conducted to finance government deficits and prop up a virtually zombified banking sector.

Gates in particular tries to tie his bumbling rant together by declaring gold has a kind of psychological value to it. That those who buy it are motivated by it because “people in the future will think it’s worth more than it’s worth today.” Gates goes on to point out that as more people flood to the gold market, the more the gold mining sector will develop which will subsequently increase the supply and put downward pressure on prices.

Congratulations Bill, you have stumbled onto some of the most basic lessons of economics.
First, since the value of all goods and services are determined solely by the purely subjective perceptions of utility amongst market participants, gold is no different from any other investment. Many perceive it is a viable currency alternative to the current state of affairs.

Those who put their money in equities do so because they believe it will yield them a return. “Psychological” factors play just as much of a part in this thinking than they do in those who purchase precious metals.

Second, if an investor’s marginal profit is exceedingly high, this is a signal to other market participants that there is money to be made in whatever sector in paying out at such a rate. People move to where they can make a profit. They don’t sit idly by making negligible returns. Supplies increase, prices adjust, and so does the market.

None of that diminishes the purpose of gold which not only acts as an investment but a hedge against the profligacy of governments. The pressure on central banks to flood the world with liquidity is enormous. The practice of fractional reserve banking has left much of the world’s major financial institutions insolvent. Central bankers know of no other solution from their Keynesian instruction guide than “print, print, and print some more.”

If Gates really wants to speak to psychological factors, why not say a word on why inflationary monetary policies are employed to begin with? Indeed, if money printing actually created just one iota of wealth, then Emperor Diocletian (whom Paul Krugman looks to for policy advice) would have led Rome into a period of material abundance rather than wreak havoc on a once thriving market economy.

But of course inflation is purposefully resorted to in order to both aid the first receivers of money and create the perception of prosperity. With some prices boosted relative to others, there is the appearance of ‘feeling richer.” The overall supply of goods hasn’t increased; only the amount of pieces of paper with dead Presidents in circulation. The short term boost in confidence comes at the cost of long term stability as capital is consumed with little savings being accumulated for replenishment. The inevitable bust, as Ludwig von Mises showed, cannot be avoided.

THE END OF THE MONETARY SYSTEM AS WE KNOW IT (TEOTMSAWKI)

As governments continue to binge on endless servings of liquidity financing, there is little threat to gold’s price in the long term. Short term fluctuations are an inherent feature of a market system based on the ever-changing value judgments of billions. There is no conceivable end in sight to inflating currency supplies. If central banks were to stop inflating the house of cards that is the global banking system would collapse.

The question is where you put your trust? In the promises of highway robbers who climb their way into public office through lies and vicious personal attacks? Or in a commodity that has thousands of years of historical usage to prove its functionality as a means of exchange?

Bill Gates puts his faith in the goodness of scoundrels.

IMITATOR, FOLLOWER AND SEARCHING FOR A PURPOSE

The fact of the matter about Bill Gates is that he has never innovated. The only thing he has ever done that paid off incredibly well is this: he finagled his way decades ago into the position of being the sole accepted computer operating system at the very start of the personal computing revolution. Since then he has lived off of having that incredibly powerful position.

He was incredibly slow to realize the power of the internet, he was always second to the party with inferior products like Internet Exploder, Zune and countless other copycat, failed products. He installed a completely insane man to manage Microsoft after he left. And now that he has some extra time on his hands he has decided that

a) the planet needs to be depopulated and

b) he will use a significant amount of his time and power to help depopulate it.

He is pathetically searching for a purpose. And, since he has no idea how economics works, nor money, as he shows in his interview on gold above, he has decided to make depopulation his purpose as he shows in this awkward, ridiculous speech given at TED where he uses all kinds of incorrect premises such as manmade global warming being real to come up with this unbelievably absurd “mathematical” formula:

CO2 = People x Services x Energy Per Service x CO2 Per Energy Unit.

Then he adds that in order to get CO2 to zero, “probably one of these numbers is going to have to get pretty close to zero.” And given that he is spending much of his free time with famous misanthropes such as Ted “A total population of 250-300 million people, a 95% decline from present levels, would be ideal,” Turner, it is pretty clear which one will be the top priority.
It’s the most absurd premise based on the most absurd assumptions I think I have ever heard in my entire life. And his understanding of gold is just as flawed.

Bill Gates, Warren Buffet and Charlie Munger may have once had some sort of relevance. But, today they are globalist shills pathetically trying to keep an immoral and violence/theft based system alive by which their importance and life’s work are tied. The world is leaving them behind… and they will work to enslave it (the Buffet Rule) or genocidally kill it if they have to in order to maintain their sense of self-importance.

Buy gold, sell MSFT and Berkshire Hathaway and fiat dollars, sit tight and be right. The fact they are all running to CNBS in the last few days must mean they are getting desperate.

Regards,

Jeff Berwick

Stick to Depopulating the Planet, Bill Gates was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Sweet! Only one thing — this passenger car is for the U.K. You can’t drive this car in the United States. We have a Passat, but it gets nowhere near this excellent mileage. Even stranger, many of the engines in these, which are driven all over Europe, are actually built in the U.S. The trouble is that it can’t jump through the regulatory hoops in the land of the free.

This fact was first brought to my attention by a video blogger who had been driving a van version of this amazing car in the U.K. He came home to ask his Volkswagen dealer about it. The dealer quickly informed him that this model is not allowed on U.S. roads. The Passat in Europe runs on a 54.1-fluid ounce common-rail four-cylinder engine. The standard in the U.S. is a 67.6-fluid ounce engine. For this reason and a few others, the version you can drive here gets 45 miles per gallon.

The blogger was furious as he reported this, and he further explained the absurdity. It seems that the emissions regulations are calculated based on a per gallon basis. The U.K. Passat does not pass because its emissions pollutants are slightly over regulation.

The blogger further pointed out the silliness: The car goes much farther than the American version on a single gallon, resulting in less overall pollutants. But that doesn’t matter, given the manner in which fuel-efficiency happens to be calculated. In the U.S., a car with low emissions could get 1 mile per gallon and pass, but one with slightly higher emissions couldn’t get through, even if it went 100 miles on a gallon.

Infuriating, yes. But because the video was widely circulated, the revisionists started getting to work to debunk the claim. One blogger called Volkswagen. The spokesman made several salient points. A gallon in the U.K. is actually slightly larger than in the U.S., thereby reducing the mileage disparity between the U.K. and U.S. models. Further, these 54.1 engines are actually not that popular in the U.S. market because Americans don’t really care that much about mileage. Finally, mileage is actually calculated differently in the U.K., so the cars aren’t quite comparable in this sense.

Now, that’s all very interesting, and provides an interesting corrective, but it begs the critical question: Can this record-breaking, high-mileage car be sold in the U.S.? It would appear that the claim of the original video blogger stands: It cannot. You might want this car. VW might want to sell it. Europeans love it. But we, as Americans, are not permitted to buy it, and VW is not permitted to sell it. Regardless of the details, these are facts. The VW spokesman was really just talking around the point, as all corporations do when they are confronted with the awfulness of regulations.

The original blogger suggested conspiracy. But then, there is Hanlon’s razor: Never attribute to conspiracy what can easily be explained by stupidity. Regulations are inherently stupid because they presume the perpetuation of an existing technology and production model. They can never account for change or improvement.

No matter how you write them, no matter how smart you are, there will come a time when the intended results of all regulations will reverse themselves. They will inhibit, rather than advance, progress. They will degrade, rather than improve, products. They will block, rather than inspire, technological improvement. This is an unavoidable fate, no matter how smart the regulators are.

In a private market, rules and standards adapt to change. This is because private parties get that the point of a rule or standard isn’t the rule or standard but the results. The point is to achieve results. If the exact reverse of the point is observed, the rule is changed over time. In this way, private markets are flexible in ways that government regulations can never be.

Let’s raise a point about another incredible and wonderful thing: the flying car. It appears that the Terrafugia “roadable aircraft” is finally going into production and might be available for purchase sometime next year. It has recently been subjected to vast media attention, and that’s all to the good.

Now, one might suppose that the journalism on this car would focus on what an amazing thing this really is, how it takes us a step toward the Jetsons’ world, how it might make a contribution to unclogging highways and so on.

But no, that’s not what the stories have been about. It seems that the major “work” that has gone into the engineering behind this flying car has nothing to do with making it amazing for you and me. It is all about the endless government regulations that have stood in its way. The bureaucrats, not the consumers, rule the day.

Imagine: It’s hard enough to build a car that complies with regulatory bureaus. It’s hard enough to build an airplane that complies with the mandates of regulatory bureaus. It appears to be darn near impossible to make something that complies with both! It has to pass emissions tests, crash tests, navigation tests, design tests, mileage tests and a million other tests. Then there’s the problem of licenses for the drivers and fliers and the compliance with airport and road regulations. What a nightmare! It seems that the bulk of the energy of the company has been spent on this.

The actual reality of the flying car has been around since the 1930s. It keeps being revived again and again. What’s making it flounder? The problem is that this innovation is neither fish nor fowl from the point of view of government bureaucrats. Therefore, they don’t know what to do with it.

The results are, quite frankly, rather disappointing. The Terrafugia is a small plane with foldable wings so that you can drive it around. That’s it. There will be no levitating out of traffic. There will be no landing in your driveway. You have to drive it like a car to the airport, and then take off, fly, land and drive home again. That’s kind of cool, yet it raises the question: Why not just park your car and hop in your airplane?

You have to have a wild imagination to see the world that would exist were it not for government controls. These controls wreck innovation. They deny us access to seeming utopias. They kill the entrepreneurial spirit and set society back. They thwart progress and forbid us from working toward a future that is better than the past.

We will never know what we are missing so long as we continue to allow government to throw the whole of society into a regulatory thicket. Life is pretty amazing, true, but it could be far more so. Instead, we suffer in ways we don’t know. This is the big, horrible picture.

Regards,

Jeffrey Tucker

The Case of the Missing High-Mileage Car was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

You’ve been told that nation-states, democracy and socialism are good. You’ve been told our monetary system prevents instability. And — while the government and central banks put your unborn children or grandchildren into debt for life — they’ve been telling you that there will be a socialist safety net to protect you and that the “American dream” includes retiring in your 50s or 60s to a wonderful life of golf and lying on the beach.

As part and parcel with the bill of goods you’ve been sold telling you that you need to go to 16 years of indoctrination training (school and college), work forty years in a cubicle and not ask questions, they needed to come up with something that made it all seem worthwhile. That carrot is the concept of “retirement”.

You see, if you can get through the nearly 20 years of child slave camps and 40 years of slavery where the majority of your income is taken and the rest is eaten up in interest costs for mortgages and loans so you can have a house and car, then you need a reason to do it all.

It even appeared to work for a short while thanks to demographics and the greatest advances in human history.

The baby boom was ultimately caused by the nation-state (which created World War II). Central banking (which created the Great Depression and funded World War II) was truly a boom that created a once-in-a-lifetime chance to make it appear as though some of these inane socialist theories could actually work.

A look at the number of workers per retiree in the US shows this plainly.

And, with the advent of the internet, productivity also increased massively in the 1990s and 2000s, further obscuring the collapse to come. And it is coming. In fact, it’s already started. So, if you are basing your future retirement plans on what has happened in your living memory you better snap out of it.

SOCIALIST SECURITY – THE ULTIMATE PONZI SCHEME

A ponzi scheme is defined as “a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation”. By this definition, the Socialist Security system in the US is a ponzi scheme.

The end of a ponzi schemes always end when net payments outstrip net income. This occurred in 2010 and there is no end in sight even under the US Government’s own heavily massaged and always underguesstimated projections.

There is only one reason it and the US Government hasn’t gone bankrupt yet. It’s because they can still print dollars to cover all these deficits. But how much longer can that realistically last before hyperinflation sets in and the dollar becomes worthless? We can’t see any way it goes more than five more years from here… and that’s pushing it.

IF YOU DON’T HAVE TO PAY, DON’T

Obviously, you are forced at gunpoint to pay into the Socialist Security system so long as you are a worker (entrepreneurs can avoid payments) or live/work in your home country in the Western world. So, as long as you live and work in the West this is unavoidable.

Other tax-sheltered retirement plans can sometimes be avoided, however. IRA’s (Individual Retirement Accounts in the US) are usually optional. In Canada, plans called Registered Retirement Savings Plans (RRSPs) are also optional. If you have the option, do not bother paying into these type of plans.

Your government registered financial advisor (at least the great majority of them) will try to persuade you to do so. But he is running on the premise under which he was trained which states things like “stock markets always go up in the long run” and the belief that the current fiat monetary system is a permanent fixture for eternity. He is wrong.

Under his thinking it makes sense to shelter some of your income now to get a tax break in the present and to delay paying those taxes in the future. But, with the coming bankruptcy of socialist styled fascist democratic nation-states and the collapse of the entire fiat monetary system this plan makes no sense. In fact, what is the most likely thing to happen is that as western governments collapse they will look at funds in accounts like IRAs and RRSPs as lucrative spoils by which they can confiscate or tax to stay alive a little while longer.

As well, most retirement savings plans (not all, see below) restrict you on your choice of investments and so you are limited and not able to invest in things like gold or silver bullion held abroad… so by putting funds into these accounts you are often stuck with investing in asset classes that will collapse in the coming years, such as the entire bond market.

And, even in the off chance that somehow these nation-states and their currencies can stay alive for another decade or two until you “retire” they will be in such a tattered state of affairs that the tax rate will be extraordinarily higher than it is today… so paying less tax now at lower rates in order to pay a higher tax rate in the future also makes no sense.

So, if you have yet to contribute to these kind of funds and have the choice to not participate, don’t do it.

WHAT IF YOU ALREADY HAVE FUNDS IN IRA’S or RRSP’s?

Every country is different and has different plans and tax laws so it is difficult to get into exact details for each. But, let’s take the US as an example.

In the US there are two main types of tax-sheltered retirement plans: 401k’s and IRA’s. Often with a 401k there are severe penalties if you withdraw the money while you are still working for the company in which you were employed when the funds were contributed or before a certain age. Depending on the penalty, each individual needs to make their own decision on whether to withdraw the funds. Keep in mind that many of these funds are invested in assets that can and will go to zero so even a severe penalty may be worth getting the funds out and invested into something safer such as precious metals or other hard assets that will not become worthless in a fiat currency system collapse.

In the case you wish to keep the funds in the plan then sometimes there are options to have ownership and control over what the funds are invested in. In the US this is called a Self-Directed IRA (see TDV’s Self-Directed IRA here). This enables you to invest the funds in almost any asset on Earth so it is much better than the majority of IRA plans where you are severely restricted as to what asset class and what geopolitical region you can invest in. Once you have a self-directed IRA set-up you can get:

(a) your assets outside of your home country to make it difficult to seize them and

(b) can invest in asset classes like gold bullion which will survive your country’s financial and monetary system collapse.

A BETTER WAY

So ignore that mouldy carrot state propaganda has been using on you. Forget the idea that once you hit 65 you can stop going to work and can lie on the beach everyday. (Of course, most people soon find out that lying on the beach everyday is fairly boring… and the lifestyle change is so great that many people have heart attacks in the weeks and months after “retirement” anyway.)

A much better way to live is to realize that all of this apparatus built up around us is mostly false. So avoid public schools (home school or unschool) and socialist colleges (all info is freely available on the internet with no massive student debts or being pepper sprayed) as much as possible. Start up your own business or become an independent contractor – preferably in one of the dozens of countries that has no noticeable taxes, regulations, and licenses that squeeze the incentive out of everyone. And, with all the money you make and the millions you will save from not having to pay egregious amounts of tax in the Western world you can afford to do whatever you want whenever you want.

Here’s the thing. You’ll probably never want to “retire” because you’ll be having such an enjoyable time doing what you are doing.

Regards,

Jeff Berwick

Forget Retirement And Retirement Savings was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.