Tuesday, March 31, 2009

The Spanish Inquisition

Recently, a Spanish court under judge Baltasar Garzon announced that it may “within days” issue arrest warrants for six former Bush administration officials for having provided legal justification for torture.

The ex-Bush officials are Alberto Gonzales; former undersecretary of defense for policy Douglas Feith; former Vice President Dick Cheney's chief of staff David Addington; Justice Department officials John Yoo and Jay S. Bybee; and Pentagon lawyer William Haynes.

A detailed AP Report can be read here

From The UN Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, Article 2(2):

"No exceptional circumstances whatsoever, whether a state of war or a threat or war, internal political instability or any other public emergency, may be invoked as a justification of torture"

The United States has signed this convention, and the abovementioned article should describe, categorically, what this country’s position on the issue of torture is.

During the presidency of George W. Bush, The United States became a country that tortured and broke the laws of international aggression (invading another country without legal justification).

The bottom line is that these two crimes make the United States, in these two respects, no different from countries that have been charged with international crimes in the past, including:

- Iraq when it illegally invaded Kuwait, and

- Augusto Pinochet in Chile when he had people tortured

The United States lost it’s moral high ground under Bush, and can no longer speak to the rest of the world with any amount of weight about legal issues. The world has simply stopped listening. Why? Because these crimes have not been dealt with, and the criminals are still at large, and in fact, one (Jay Bybee) is still sitting a federal judge.

Spain considers crimes such as torture to be punishable anywhere, wherever they occur. At the very least if the crimes are committed by countries that have signed the Convention Against Torture, like the United States.

The most interesting thing about the possible charges is that the Spanish court goes after officials that enabled torture to occur, and not the torturers themselves, who are also punishable under the convention. The possible charges mean that this process will only be one step away from charging former President Bush and former Vice President Cheney.

Obviously, all these people should be charged in the United States before they are charged in Spain! However, the Obama administration seems unwilling to actually deal with the crimes committed by the Bush administration.

A “Truth Commission” is definitely not the proper way to deal with such crimes, because such a commission gives criminals immunity, which is undemocratic and immoral.

In a country of laws, there is a very simple premise to how society functions: if you break the law, you will be punished. Does it make sense that some poor bastard who sells crack on the corner should get 10 years in jail while those who torture, invade and kill people should remain in their jobs as judges or drink beer on a cozy ranch in Texas?

That simplistic question is really the essence of the problem. We cannot move on until the Bush administration, including the former President, is charged with war crimes in court.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Thursday, March 26, 2009

Financial Minority Reports

Since taking office, Timothy Geithner has been an absolutely appalling Treasury Secretary with only one strategy: to pamper and protect Wall Street as much as possible with taxpayer money while opposing legislation that would hold Wall Street accountable for having run the economy into the ground.

I was thus highly surprised when he on Thursday came out with a sweeping program to deal with the deadly mess in the financial markets, a program that was meant to deal with both long and short term problems.

The most important suggestion in the program presented by Geithner is the creation of a single regulator, “with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities”.

This may not sound like much on the surface, but it actually deals with some of the central problems in the American financial system, as well as problems in the academic world of economics.

It is a well-known fact that the American economy is a so-called “boom-and-bust” economy. It cannot seriously be denied that this is a result of the fact that the U.S. has an essentially unregulated economy. The lack of a social safety net is also a significant contributing factor.

Geithner’s new, single, regulator would actually, according to him, continuously research the dynamics of boom and bust, and try to prevent the harmful results.

More specifically, the new regulator would try to find out when an asset bubble is building, such as the tech bubble in the 90s, or the housing bubble of today, and then try to stop it in its tracks.

This is critically important, and it is a strategy that can prevent financial crises, similar to the murder prevention strategy in the movie “Minority Report” with Tom Cruise.

In that movie, some type of psychic people called “pre-cogs” can see into the future, and they can see who will commit murders in the future. The would-be perpetrators of murder are then arrested and jailed in advance, so that the murder never actually takes place.

There is no ”pre-cog” needed for the new regulator, nor will anyone have to go to jail for crimes not yet committed, but studying emerging asset bubbles in the economy and acting on the findings will produce a functionally similar result: preventing pain and suffering in the future.

The way this could be done is rather simple. The new regulator would study anomalies in the market. If the price of an asset, say real estate in Florida, starts rising unusually quickly and without a clear reason, that would be a strong indication of a bubble.

This would then be made widely known, the public would be strongly cautioned, and perhaps some temporary legislation could be put into place in that region (temporary changes in zoning laws to prevent over-building maybe). The regulator would immediately look for evidence of predatory lending and other fraud in Florida, and act on anything it would find.

On the other hand, let’s say there were an area in Florida where new and profitable industries were being built. Jobs were being added and the population was growing. At a time like that, it would make perfect sense for real estate values to go up, so an instance like that would be ignored by the regulator after an investigation was done.

Unfortunately, asset bubbles are poorly understood among academic economists in the U.S. today, or at least they are said to be poorly understood. In reality, asset bubbles are products of simple, basic human behavior. To understand asset bubbles, you need to know only 2 things:

1. When everyone else is doing something, people in general will automatically think that it’s a good thing to do. It’s a basic function of being a pack animal.

2. When it seems that there exists a real possibility of making money quickly and easily, even the smartest people get sucked in to, for instance, a speculative bubble. This human tendency is the reason why some of the most successful investors on Wall Street invested their own money with Bernie Madoff.

However, these facts are rarely recognized by American economists because they defy free-market orthodoxy.

Hence, Geithner’s new program of establishing a single regulator is a big step away from the free market orthodoxy that is prevalent among the vast majority of public and academic officials in the United States.

I believe that the program could become an extremely important tool in a sustained economic recovery in the United States.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Tuesday, March 24, 2009

The Geithner Plan - Same Old Crap

Geithner’s new plan was presented with a complexity that seemed engineered to fool people into believing that it was not what it has always been: a direct continuation of Paulson’s original Wall Street give-away plan.

The CEO of an investment firm called “Fusion IQ”, Barry Ritholtz, said it best yesterday when he was commenting on the stock market rally:

“This is the free-money rally. Traders like the fact that there’s a boatload of cash headed their way”

At least he’s being honest about what’s going on. The “boat” is being loaded up with cash by docile American taxpayers, who have never stood up for themselves to claim their rights as citizens.

Now we're seeing the results. J.P. Morgan Chase is, again, planning to expand it's fleet of corporate jets while tent villages are growing across the country and the number of Americans without health insurance is nearing 100 million.

I would like to offer a condensed version of the plan for those who have not kept up with Geithner’s change of vocabulary (which is all it is). The plan has the following features:

- HUGE subsidies for hedge funds and other similar entities to buy toxic assets

- potential for these buyers to get almost all the gain if there eventually is one

- minimal potential for the taxpayers to get any gain if there eventually is one

- minimal risks for these investors if the investments don’t work out

- enormous risks for the taxpayers if the investments don’t work out

- borrowing from the FDIC to finance the hedge fund subsidies. This is a truly desperate move, and one which actually threatens the safety of money in everyone’s bank accounts. The FDIC is already under funded, and this move could be disastrous down the road

The government is really getting desperate. Borrowing from the FDIC is something I never imagined would happen.

By the same token, for the government to buy its own treasury bills, which was announced over the weekend, is a very desperate move, that has only happened in times of really severe crises before (like when the U.S. felt it was going to be attacked with nuclear warheads by the Soviet Union in the 60s).

I’ll make a few predictions: In a couple of years, we will have interest rates above 10%, housing prices 20% lower than today, a stagnant stock market, inflation above 5% and unemployment at sustained high levels.

Moreover, I advise that the winner-takes-all voting system should be destroyed

Thursday, March 19, 2009

Circular Looting

Please click on the image to see the model

“Looting” is a concept in economics developed by two American economists called George Åkerlöf and Paul Romer. This term was recently put into the framework of the current crisis by David Leonhardt of the New York Times, and I believe that it is very helpful to do so.

I also believe that there is more to the story than the original concept of financial looting, namely that of collaboration from politicians, which creates a type of perpetual motion of looting that I call Circular Looting.

The concept of looting in economics is rather simple:

It means that corporations that know that they will be bailed out by the government if they are at risk of going bankrupt, act irresponsibly in order to make as much short-term profit as possible, without regard to the long-term consequences.

In other words, corporations “loot” the economy instead of trying to make a profit with an investment strategy that they genuinely think will work. Corporations always know that the looting business strategy will fail eventually, but when it does, it’s the government’s problem.

What comes to mind first is obviously sub prime mortgages. In Vallejo, California, a man whose profession was to be a strawberry picker, was in 2006 approved for a $720,000 mortgage for a house. Needless to say, this man did not meet the traditional requirements for such a large mortgage, and defaulted on the mortgage rather quickly.

This particular mortgage makes for a good example of what has been happening over the last few years. As the strawberry picker signed up for the mortgage, there was a string of people who were given large fees, going all the way back to Wall Street itself.

These fees, and the overall profit from all the investments related to the sub prime market, are what constitutes the “loot” in the looting cycle that has been going on over the last decade or so.

Here’s what most likely happened in the Vallejo example:

- the bank received mortgage origination fees

- the bank sold the mortgage to an investment bank (like Lehman Brothers), and got a fee

- Lehman Brothers packaged the strawberry picker’s mortgage with others, created a “mortgage-backed security” and sold that to Wall Street, and received a fee

- Wall Street traders bought and sold the securities, and received large commissions

Obviously, everybody in the chain knew that a strawberry picker was not going to be able to pay this mortgage, but everyone was making money in the meantime, so the looting was a win-win situation, for a period of time.

This describes how looting is a good idea for corporations that engage in it, while being ready to run for the hills when everything comes falling down. Now we’ll move on to the political connection.

There are not that many companies in the United States that can depend on being bailed out by the government, but the exception to the rule is the financial sector. In other words, large banks, investment banks and any other financial institutions that are deemed to be important enough for the local or national economy, can usually count on being bailed out.

Bailouts don’t only concern the institutions that are considered “too big to fail”, which is evidenced by Åkerlöf and Romer’s report, “Looting”, which describes the looting behavior of smaller, local banks in Texas.

The financial industry in the United States donates enormous amounts of money to virtually all politicians in Congress and those running for President. This has been going on for so many years that it is now a Washington institution.

This behavior obviously creates a dependency on the part of politicians on the financial industry, without which they would not be able to become elected.

This, along with the promise of a bailout when the financial institutions are about to go under, creates an utterly symbiotic relationship between politicians and the financial industry.

This symbiotic relationship is described by the following four stages of the Circular Looting that you can see in the model at the beginning of the text:

1. Donations from the financial industry to every imaginable political campaign.

2. The donations force politicians to create and perpetuate a business friendly climate with low taxes, virtually no financial regulation or oversight, and the absence of labor rights.

3. In such a “business friendly” climate, corporations are free to engage in whatever kind of business they desire, because they are left alone, and because of extremely low taxes, they can reap all the rewards instantly. Looting is created on a massive scale.

4. There is only so much looting that can go on until the market is depleted. Eventually the bubble has to pop, either because of inflated values, or because of exposed fraud. It is then that the politicians come back and help their friends in the financial industry with bailouts.

If looting is to be successful in the end, individuals who are working for the financial institutions must be sure to not invest in their own companies too much, and cash bonuses are essential to the scheme.

What AIG recently did when executives were given bonuses after the bailout had already happened is remarkable. Even after the looting was done, the executives were able to extract bonuses directly from taxpayer money. This must surely be unprecedented prior to this crisis.

Looting, bailouts and political donations make American society eerily reminiscent of the feudal society of Europe during the middle ages, where most people were serfs, and everything and everyone was controlled by the aristocracy.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Tuesday, March 17, 2009

AIG Bankrupting Cities Across America?

Although the news about AIG bonuses yesterday was disturbing, it was not nearly as disturbing as some of the other news that came out at the same time.

Up until a few days ago, the names of the institutions that AIG had paid with bailout money were kept secret, but when we found out who they were, there was one category that stood out starkly: municipalities in California.

I decided to do some research on how much money belonging to cities and municipalities AIG is holding. What I found out was frightening.

Municipalities all over the country have evidently handed over money to AIG from their municipal bonds. This means that cities across America are at risk of losing billions of dollars, and risk going bankrupt if AIG does!

AIG states on its website that it directly manages $72 Billion of these assets that belong to cities across America.

At the end of the day, these assets are actually made up of schools, hospitals and libraries in towns everywhere. It is almost for certain that we’re talking about much more than $72 Billion being at risk, which is a staggering number to begin with.

In addition to handing over immense amounts of cash to AIG, cities have been making extremely risky financial bets through Credit Default Swaps, which is evidenced by the payments to municipalities in California, as I mentioned in the beginning.

AIG owes a lot of people money for these swaps and is like a bookmaker who can’t pay the people who all bet money on the winning horse that nobody thought was going to win. The difference here is that all those people who are supposed to be paid money by AIG have decided to keep quiet about it, presumably so as to not create a panic.

With respect to all the cash that was handed over, everyone may not know what the so-called “municipal bond market” is, or how that relates to AIG, but it works something like this:

- individuals or corporations give money to, for instance, the city of Los Angeles for the construction of a school

- Los Angeles promises to pay a 5% return on the money 10 years in the future. That is “the municipal bond”

- Los Angeles hands over the money to AIG, in order for AIG to make that 5% for the bond holders. The section of AIG that does this is called the “Fixed Income” unit

You may realize where I’m going with this: AIG hasn’t exactly been the best or wisest investor over the last few years. AIG is now a black hole of losses, and it almost doesn’t matter how much taxpayer money you put into the company, most people who are owed money by AIG will not be paid.

For now, AIG is on life support with taxpayer money and with the temporary illusion peddled by Washington and Wall Street that everything is going to be just fine. It won’t.

There is a strong possibility that problems with municipal bonds will add a whole new dimension to the crisis, and that cities across America will have to choose between closing schools or paying bond holders when AIG eventually files for bankruptcy.

I have argued before that the main difference between the United States and other industrialized countries is that the U.S. does not safeguard a standard of living for its citizens, and that basic services are, like everything else in this country, a gamble for everyone. If the gambles at 70 Pine Street in New York (the AIG building) don’t work out, kids in California may not go to school.

Moreover, I advise that the winner-takes-all voting system should be destroyed

Monday, March 16, 2009

AIG Can't Believe We're Letting Them Do This

As several newspapers have reported, AIG has as of Sunday, March 15, paid out an additional $165 Million in bonuses to its executives and other employees.

This money is obviously coming right out of the pockets of taxpayers, and the situation has now gone from ridiculous and criminal to something worthy of a march with flaming torches.

When will the American people wake up!!?? The United States is being robbed in the most real sense of the word. The executives of AIG have no intentions of cleaning the mess up, nor could they, nor would they ever even know where to begin.

What is happening now is pure and simple theft, and it is happening as the amount of unemployed Americans is nearing 15% (counting those who have given up looking for work, who are curiously not included in most official statistics), and the number of Americans without health insurance is nearing 100 Million.

America’s big corporations have been laughing working Americans in the face for decades, and are continuing to do so even as those Americans lose their jobs, their homes, their health insurance, their very way of life and hopes for the future.

How far are working and formerly working Americans willing to go in order to protect the incredible transfer of wealth to the top 1% of the population?

How far are they willing to go to stand up for the right of robber barons to rip everyone off by staving off regulation, labor rights and consumer rights?

Pretty far it seems, if you are to believe what the Obama administration is saying. Even though Obama received the strongest of mandates for change in decades, particularly with respect to social justice, he has apparently decided that that mandate meant something completely different.

Obama’s mandate apparently meant galvanizing the rights for robber barons to rob, not giving Americans an actual healthcare alternative (this can be solved by private means alone, according to Obama) and continuing bonus payments to bankers who brought the world economic system down (don’t even think about firing them, they must be retained with bonuses for their great skills…).

AIG has received $170 Billion in taxpayer money already, which is money that will definitely never be seen again. That money went to satisfy claims for a fraction of the speculation insurance payments called “credit default swaps”.

AIG could be on the hook for, literally, trillions of dollars for these swaps. What is important to understand is that AIG has, for a long time, not had any intention of running a successful business.

When you run a successful business, you carefully consider the pros and cons of a certain investment, and act accordingly. AIG, Lehman Brothers, Bear Sterns and many others had a different plan: shuffle money through the company, take a fee, and let the government hold the bag when the party’s over.

The largest banks and financial institutions in the U.S. knew that they would be bailed out when the shit inevitably hit the fan, and that is what Lehman Brothers was counting on, but didn’t receive.

These companies acted accordingly: they enriched themselves for as long as they could, and would run for the hills as soon as it all came crashing down.

AIG is still in the process of being bailed out, so naturally, the executives are still trying to enrich themselves until the very end. They probably can’t believe that we’re still going along with this.

What the hell is wrong with people? Is there nothing left of self-respect in Americans? Is there no sense of justice left? Is there no pride?

It is your duty to claim your right.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Friday, March 13, 2009

The Worst of Both Worlds

A conservative mantra is that “the government is inefficient”. By looking at government services currently being provided in the U.S., it’s hard not to agree. However, there are two different questions you have to ask yourself:

1. is the government inefficient?, and, 2. can the government ever be efficient?

I agree that the U.S. government is inefficient, but I don’t believe that the U.S. government can never be efficient. I believe that that depends on how the government is set up.

The U.S. system of government is crippled by the conflicts between state-level and federal power, and such conflicts tend to deteriorate a country more and more as time goes by. Two good current examples of this are Spain and Belgium, where regionalism takes away precious resources while sowing the seeds of division, further feeding the vicious cycle.

Sometimes there’s a legitimate case to be made for splitting a country into several parts, and a lot of times things can work out for the better, as they did when Czechoslovakia split.

In order to eliminate tensions between regional and national interests inside a country, there are traditionally two approaches: 1. create a unitary government with a centralized power structure, or 2. create a federation with independent member states.

In the United States, the member states are not exactly independent, most importantly not in the economic sense. In the current structure, individual states and their inhabitants are having to pay so much money to the federal government that they would be completely unable to provide for their individual needs without the federal government providing services.

To simplify a bit, in a unitary government, the central government has all the money and provides all the services. In a federation with independent member states, the individual member states have almost all the money and provide all government services for themselves.

I will provide three examples of three different governmental structures, and weigh pros and cons in terms of regional interests and the allocation of money at different levels of government.

The first example is Sweden, which has a unitary government. The central, national government, has virtually all the economic resources and provides almost all the government services. Some services are provided by regional authorities, but are still paid by the national government. A system like this one is highly efficient for creating things like national health care, national infrastructure, guaranteed pensions, free university education etc.

Pro: Efficient for achieving common, national goals

Con: Not enough economic resources in regions to achieve regional goals

The second example is the EU, which is a federation with independent member states (it’s called a “union”, but legally speaking it should be called a federation). The member states pay yearly fees to the EU in order to fund some common initiatives, such as border control, crisis funds and trade initiatives, but the vast majority of the member’s economic resources remain with the individual countries. Virtually all government services are still provided by the individual member states (of which Sweden is one).

Although there are many people and organizations across the EU who share common goals, the framework for achieving those goals are not there in the EU. For instance, there is no “EU tax”, which would be an obvious step towards achieving common goals across the federation.

Pro: Enough money remains in the individual member states for those states to be able to achieve their own, regional goals.

Con: The federation does not have enough economic resources to achieve goals that are shared across the EU.

The third example is the United States, which does not fit in to any of the descriptions above, and is hence a hybrid system where the federal government and the states share the economic resources, and also share the provision of various government services in the same way.

The EU does not have a federal income tax, but the U.S. does. Most unitary governments have no local tax (or the local tax is almost negligible), but the U.S. has sizeable state and local taxes.

So, in the U.S., the states don’t have enough money to be independent of the federal government, and the federal government does not have enough money to achieve goals shared by all states.

Con: Not enough economic resources in regions to achieve regional goals

Con: The federation does not have enough economic resources to achieve goals that are shared across the U.S.

The U.S. system picks only the cons in the two alternative forms of government, and is hence the worst of both worlds. There is simply not enough tax money coming in on either level of government for U.S. citizens in general to be able to enjoy a standard of living on par with that of other industrialized countries.

In addition to this, the U.S. has a non-progressive tax system, which means that taxes on low-income people are comparatively very high, and taxes on high-income people are comparatively very low.

High-income people do not need many government services, but because low-income people are taxed at such a high rate, these people are in need of even more government services than they would have been under a progressive tax system. However, they cannot receive such services because neither the federal government, nor the states have the money to pay for them.

I believe that the U.S. system of government is a recipe for inefficiency and division, and that is also how many U.S. citizens see their own country: as an inefficient and divided country.

The U.S. should seriously consider becoming more like one of the two first examples I gave: either a unitary government or a loose federation of truly independent states that can provide for their own needs as they see fit.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Tuesday, March 10, 2009

Gordon Brown's Proposals

Last Wednesday, the British Prime Minister Gordon Brown gave a speech to Congress, parts of which were very surprising to me. Brown expressed a need for countries to work together to solve the global crisis, and he also suggested two important new measures:

1. A “Global New Deal”, or “Economic Marshall Plan”, and

2. Making the “shadow banking system” illegal

These two suggestions are actually quite radical, but I have not come across many details of these two suggestions. I will nevertheless attempt to speculate around these ideas.

A Global New Deal is hard to imagine ever coming to fruition. What Brown means by this seems to be that countries should come together and inject vast amounts of money in markets, where needed, in order to save and re-build those markets. Brown also seems to be talking about more tangible investments in industries to spur future growth, hence the mention of the Marshall Plan.

I assume that it would involve many different countries putting large amounts of money into a big pot, and then trying to decide where the money would help the most. Alternatively, if the global new deal involves countries simply coordinating financial rescue actions, it’s a little less hard to imagine, but still unlikely.

The issue of “international bailouts” has come up recently in the EU. Eastern Europe has been attempting to free itself from the chains of communism by creating an entire “subprime economy”. They took loans in foreign currencies such as Euros, Swiss Francs and Swedish Crowns. As Easter European currencies plunged in value, the loans skyrocketed in value.

It was thought to be an understanding in the EU that Eastern Europe could act fiscally irresponsibly in order to re-join Europe as equals, and that Western Europe would help them in case they ran in to trouble. When a number of Eastern European countries, such as Hungary, Romania and Bulgaria asked for an actual bailout, Germany said no. Germany feels a lot of resentment for having given up its own financial stability in order to support stability in the Euro and EU zone, and the country has apparently had enough.

When it comes to trying to convince many different countries to act in solidaric ways during a crisis, I believe there must be a system set up in advance. Otherwise, a country will have to choose between international solidarity or feeding its own population, and the former will obviously take a back seat.

Making the shadow banking system illegal, is quite a radical proposal, especially for the economies of the UK and the U.S.. Brown did not specify what he meant by the “shadow banking system”, but it is clear that he was referring to entities such as hedge funds and investment banks that are providing capital for lending in the economy.

In a way, this is a strange proposal, considering the fact that governments around the world have actively been participating in creating the “shadow banking system”, setting up entities like Fannie Mae and Freddie Mac. Brown seems to be saying that the banking system needs to go back to basics, to the way it was before governments started subsidizing mortgage rates (back 60-70 years ago in most cases).

Whether or not you expressly make the shadow banking system illegal, it is in the process of disappearing anyway. Brown’s comments seem to stem from a newly found clarity in terms of the real role of various financial institutions in the U.K. and the U.S., a clarity that he, like U.S. politicians, did not have when he was Chancellor of the Exchequer.

What Brown is suggesting is, in my mind, sound. If entities other than banks would stop providing enormous amounts of capital for all types of speculation, societies would become less reliant on stock markets, and the housing market would experience less swings. Mortgage rates would definitely become higher. Mortgage rates of over 20% were not too uncommon a few decades ago.

With respect to mortgages, I have for a long time advocated a system of covered bonds for the banks, like the one Germany has. I also believe that the Federal Reserve needs to be made into a government-owned Central Bank with a single, inflation fighting, mandate.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Wednesday, March 4, 2009

Libertarianism and the Crisis

As the economic crisis continues to deepen, a lot of Americans are questioning the system that allowed it to happen, for good reasons. The writing was on the wall when Barack Obama was elected President, in a move that sent a very strong signal of the desire for political change in America.

As the U.S. government has struggled to deal with the economic crisis, the American public has grown more skeptical of the ability to solve it, when it seems that bailouts, stimulus packages and housing programs have little effect on economic recovery.

If an economic recovery is unattainable, then the only alternative is economic restructuring, meaning that current systems will have to be replaced by new ones. The Obama administration’s response has recently been to move left on the political spectrum, for instance by proposing national health care (as an eventual goal) instead of privately provided health care. This is actually a type of restructuring, as it amounts to the replacement of a system.

The response from Republicans has been confused and offered little else than calls to curb spending. With respect to the economic structure that allowed the crisis to build up, Republicans were the ones to create it (along with Clinton). As a result of that, the incumbent American right has little to say in terms of criticisms of the economic structure, and that is where Libertarians come in.

Voices from the Libertarian movement have grown stronger in recent months. the reason for that is simple: Libertarians advocate economic restructuring from the perspective of people on the right that is unrelated, and in some cases goes in contrast to, the views of traditional Republicans.

To sum up so far, Libertarians and Democrats currently claim to have economic solutions, whereas Republicans, in essence, don’t.

The Libertarian movement in The United States is multifaceted and sometimes confusing. The thinking behind the philosophy is always based on individual liberty, if you leave aside some more unusual philosophical currents such as “communist libertarianism”. The libertarian movement is by far the strongest in the U.S. out of any country, and perhaps as many as over 10% of the population describe themselves as libertarians.

Libertarians don’t like to be placed on the traditional political scale, but I would argue that there is no problem doing that, and that anything else would be philosophically incoherent. The political scale is rather simple: the more government intervention one supports, the further left one is, and the less government intervention one accepts, the further right one is. The furthest right is an anarchist, and the furthest left is a communist.

The reason that libertarianism in America is surrounded by confusion is that cultural issues have a much stronger position in politics than in most other countries. In the public consciousness, things like abortion, gay marriage and drug politics have been thrown into the traditional political scale. This however, is not philosophically coherent. The traditional political scale is based on notions of government intervention, or lack thereof.

Both Libertarians and Republicans support a hands-off approach to income distribution and the economy in general, but Republicans do not support a hands-off approach to cultural issues, which Libertarians do. That fact sometimes makes Libertarians appear, in the eyes of Americans, to be further to the left than Republicans. I argue that this cannot be so.

You cannot create a working political scale based on inherently different and complex issues such as abortion and gay marriage, which is why you must break such issues out of the political equation in order to reach philosophical coherence.

Libertarians support even less government intervention than Republicans, often dramatically so, which makes them further to the right than Republicans, and indeed further to the right of any other significant political movement in the world.

As I mentioned earlier, the reason that Libertarians have come into the spotlight more recently is that they have offered different ideas as solutions to the economic crisis. These ideas are meant to deal with the problem that there is an enormous mountain of debt in America, and that the current state of the economic system is unsustainable. The ideas are not without merit, considering how deep the crisis is, but I believe them to be far too dramatic, and very misguided.

A lot of Libertarians believe that the gold standard should be re-introduced, and that the Federal Reserve should be abolished. The results of doing that are very complex, but it has to do with the money supply.

By re-introducing the gold standard and getting rid of the Federal Reserve, the government would be much more constrained in its spending, and the size of government programs would have to be dramatically reduced. In other words, such a move is completely in line with the philosophy of as little government as possible.

Citizens would, for the most part, not rely on the government for the stability of their money, they would rely on gold itself. If the gold standard were introduced today, either the value of everything in society would have to go down dramatically, or the price of gold would have to go up dramatically. Either way, it would completely change the country.

Making these suggestions a reality would almost amount to a dismantling of the government as we know it. This in addition to the further and dramatic deregulation in most areas of economic, financial and private life that Libertarians support can only be described as anarchism. “Freedom of choice” can usually be translated as “every man for himself”, but that doesn’t sound as good.

It is therefore strange that Libertarians should come into the spotlight during this crisis, which was created to a large extent by deregulation, weak government oversight and a weak government in general.

Furthermore, Alan Greenspan, whom many today recognize as one of the major culprits of the crisis, is a life-long libertarian and follower of Ayn Rand’s philosophy. And although he was working within an institution that Libertarians wish to have abolished, he was doing so in the most Libertarian way he knew how: by deregulating and supporting an unfettered market in any way he could.

Moreover, I advise that the winner-takes-all voting system should be destroyed (which, by the way, would almost certainly lead to The Libertarian Party becoming much more influential in U.S. politics. But that’s OK, because all I care about is that every vote is counted!)

Tuesday, March 3, 2009

Decoupling America from Wall Street

Wall Street is a barometer for the health of the U.S. economy. Not because it has any credibility in predicting anything related to finances or the economy, but because Americans have allowed their fates to become inextricably shackled to that of Wall Street. All over the country, people are suffering, even starving and dying, as a direct result of the crisis and the societal structure in which Wall Street once flourished.

The commercial media is not reporting on it, but National Public Radio has been covering bread lines in Florida, fenced-in plots of land where people can live in their cars in California, and hundreds of people in the Midwest lining up to receive food packages from Save the Children. This is the reality of the crisis now.

We all know how it started by now. A long time ago, I wrote that institutions like AIG were like black holes, that the amount of debt in the U.S. exceeds the global GDP and so on and so on. Nothing can be done now to save the financial system as we know it, and that realization will come to everyone soon enough. America must start over. The country must be restructured.

The U.S. is not ready for this crisis, and this fact is intimately linked to the creation of the crisis 35 years ago, when America embarked on the road to anarchy under Nixon.

The real winners in the culture wars of the 60s were the libertarians. As cultural issues took over national politics, the traditional core of national politics: income distribution and societal economics, were swept aside, not to be seen again for a long time (at least not from the perspective of those who were not wealthy).

Somehow, the anarchistic libertarian way of organizing society became the norm for the U.S. government. “Every man for himself” and “the law of the jungle”, were not slogans in this process, but they might as well have been.

It was slowly decided that the U.S should follow its own route to prosperity, and one that entailed: no health care system, no elder- or childcare system, no real pension system, no real unemployment benefits, no labor rights, no consumer protection rights, no mass transit, no financial regulation, the world’s lowest taxes etc etc…

How could a country possibly make up for the lack of all these things that all other advanced countries have? The answer is: Wall Street. The free market was thought to be able to take care of all these things, which arguably make up the bulk of societal success and overall well-being of its people.

In other words, Americans didn’t just gamble their savings on Wall Street, they gambled everything. At this point, the country has only two choices: rely on Feed the Children or decouple from Wall Street.

Decoupling from Wall Street means purging the influence of speculation from the daily lives of everyone who does not actively seek it out. It means introducing stability and predictability for Americans who so direly need it. It means guaranteeing prosperity in the richest country in the wolrd. It means:

- providing national health care and collective bargaining for drugs, making private health insurance and expensive drugs obsolete. This would be a huge relief for both the public and corporations

- providing a good pension after a life of work through a national pension plan which is not subject to speculation

- heavily regulating the financial sector, and especially the mortgage sector, so that real estate price swings will be far less likely to occur in the future

- introducing much needed labor rights, including a much higher minimum wage and much stronger job security for everyone who is gainfully employed

- providing as close to free University education as possible, taking away the burden on families to save for college. (in most advanced countries, University is free, unbeknownst to most Americans)

The structural shift is absolutely inevitable. It is only a matter of time before the libertarian anarchy is a thing of the past.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

Monday, March 2, 2009

Promises and Ideology

The budget plan that was recently presented by the Obama administration is definitely more in line with Obama’s campaign promises as compared to the actions of the administration since the inauguration. Decoding Obama’s actions since he became president is a very puzzling exercise.

There are three major things that Obama has done since he became president, namely:

1. Appointing administration officials who don’t even remotely agree with his political ideals, and even oppose them vigorously in some cases

2. Stomping on his own ideals in dealing with the economic crisis, alienating progressives who helped him get elected, and

3. Presenting a budget proposal that represents a 180-degree turn from numbers 1 and 2 in this description. The budget proposal is completely in line with what Obama campaigned, and won, the election on

How do you explain this seemingly strange and incoherent behavior? There are two important factors at play: economic crisis management and bipartisanship.

Obama does not know very much about economics and finance, which is a bit of a problem during times like these. I believe that Obama has been manipulated by Geithner and his henchmen (who all stem from Wall Street), into believing that propping up Wall Street with taxpayer money is the only thing that can be done to solve to crisis.

With respect to Obama’s bipartisan efforts, it seems that he has some sort of historic hang-up with Lincoln’s “team of rivals”, which makes him want to go down the bipartisan path. However, I think that this is the most incongruous and strange political strife in recent history.

Even though Americans hate to talk about ideology, there is no escaping the existence of it. In reality, the issue of ideology is very simple: it begins and ends with income distribution. The distribution of money in society is the very reason that ideologies came about in the first place.

Americans like to think about ideology in terms of specific issues, such as abortion, budget deficits, the military or gay marriage. However, in the big scheme of things, these issues will always be mere distractions compared to income distribution. That is, unless politicians are able to convince voter that these “issues” are more important than income distribution, which American politicians have been able to do for 30 years.

A budget proposal like the one that Obama just presented is exactly what Republican politicians have been trying to avoid for 30 years. How can anyone with any amount of political clarity of vision think that Republicans would go along with Obama after that? Republicans know that if Americans get a taste of, among other things, free health insurance, they will never want to go back.

Obama’s budget is definitely not bipartisan, and it is highly ideological. The only thing that this means, is that the American political landscape has finally broken free of the fear mongering surrounding issues like abortion, and is now actually focusing on issues that concern everyone.

Obama promised to deliver change, and this budget proposal is it.

Moreover, I advise that the winner-takes-all voting system should be destroyed.