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Friday, April 28, 2006
Gasoline Price-Gouging?
Oil companies are not, as angry consumers believe, generating higher profits by gouging at the gasoline pump. Demanding that your political representatives impose windfall taxes or price controls will guarantee even higher pump prices long into the future.
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One legacy of New Deal socialism is the now unquestioning assumption that the Federal government can and ought to fix whatever problems come our way, rather than allowing the ingenuity of millions of individuals to find accommodations and solutions.
Liberal Republicans and Democrats have proposed windfall taxes on oil companies and have presumed to exercise business judgment by instructing oil companies how to invest their money. Surveying the handiwork of Federal bureaus, under both Republican and Democratic administrations, will convince a disinterested and non-ideological observer that the Feds are about as effective as a blind ape performing brain surgery with a sledge hammer.
Price controls and windfall taxes can be crippling to consumers as well as oil companies. President Nixon, proclaiming “we are all Keynesians [socialists] now,” imposed price controls from 1971 to 1974. OPEC responded to Nixon’s price controls with the 1973 oil embargo. Spot market oil prices immediately doubled and began a sustained climb to an inflation-adjusted price of $95 per barrel in 1980 at the end of the Carter administration. And we had to sit for hours in lines at service stations to get a few gallons of fuel.
Because of its recent record-high quarterly profits, ExxonMobil has been the maximum-visibility target for angry consumers of all political persuasions. But those record profits, by themselves, do not prove gasoline price gouging.
1. Most of ExxonMobil’s profits are made from international oil and gas ventures, not from gasoline sales in the United States. Those profits accrue from consistent investments of billions of dollars over many decades, in places like Chad and offshore Angola.
2. A significant part of ExxonMobil’s profit increases have resulted from year-by-year increases in operating efficiency. Worldwide sales increased 72% from 2001 to 2005, while the total number of worldwide employees dropped from 98,000 to 84,000. Additionally, ExxonMobil has the industry’s largest and most highly integrated refineries, which has made it more efficient than most other major oil companies.
3. Oil companies like ExxonMobil exhibit what is called operating leverage. A high portion of their operating costs is fixed; that is, those costs do not change much if at all when sales rise or fall.
Pumping more oil and gas from existing wells and processing petroleum in refineries doesn’t require hiring more employees or running additional shifts, in contrast to manufacturing in the automobile industry. Oil company operations run 24/7 with no shutdowns, except for periodic maintenance. Refineries, wells, and pipelines are closed systems through which oil, natural gas, and refined products flow, with relatively little human intervention. Because of their enormous capital investment and fixed operating costs, refineries are particularly vulnerable to fluctuations in oil prices, their profits bobbing up and down. Many major oil companies, as a result, have sold their refining operations.
Operating leverage means that changes in sales volumes disproportionately affect net income. When world oil prices rise, sales volumes go up more than operating costs, and a large portion of the price-driven volume increases flow to the bottom line net income. Operating leverage also means that when oil prices fall, operating costs don’t decline much, and net profits drop more than proportionally.
In 2003 when oil prices increased 78%, ExxonMobil’s net income as a percentage of sales jumped 59%. But in 1999, when oil prices dropped 8%, ExxonMobil’s net income to sales percentage declined 19%. Oil prices have declined in three of the past ten years. But ExxonMobil’s net income percentage dropped, as much as 87%, in five of those ten years.
Angry consumers look only at ExxonMobil’s profits in recent quarters and are unaware that, over long time spans, the company is as much vulnerable to low oil prices as it is the beneficiary of current high prices.
Over the past decade, ExxonMobil’s net income as a percentage of sales has averaged a relatively modest 7.3%, with the high point in 2005 at 10%. This pales in comparison to the operating leverage of Microsoft, where software development costs are analogous to oil companies’ fixed costs, and duplicating and distribution costs are a small fraction of sales prices. Microsoft’s net income to sales has not been less than 25% in the past decade and has gone as high as 41%.
4. 68% of ExxonMobil’s net income over the past five years has been plowed back into finding and developing new energy sources, which is part of a continuing effort that has been markedly effective over many decades. Liberals in Congress, however, wish to supplant management’s authority and require that capital funds be diverted to a repeat of the 1970s Federal synfuels fiasco.
Apparently inescapably, liberals suffer the socialistic state-planning delusion that they merely have to conceive an idea and pass a law to make it reality. In the words of a CNNMoney.com article, “Jimmy Carter’s synfuel project flopped in the 1970s. In the 1980s the government poured billions into the black hole of fusion. In the 1990s solar energy amounted to little more than an expensive toy for tree huggers.”
Windfall taxes or price controls will reduce the amount of funds available for finding new sources of energy, thereby curtailing future supplies of oil and guaranteeing higher gasoline prices here. Finding new energy sources has become hugely expensive as off shore drilling operations have moved from 600 foot depths fifteen years ago to as much as 7,500 feet under water today. Future production from difficult sources like tar sands will require much larger investments than past drilling ventures.
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Thursday, April 27, 2006
Socialism Corrupts Human Nature
The welfare-state brings out the worst in people, making society into a selfish, every-man-for-himself scramble to get “entitlements.” As government intervention depresses incomes toward equality, economic production declines, and people become equally poor.
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Many readers have expressed sentiments from outrage to distress at my characterization of liberal Republicans and Democrats as advocates of fascist corporatism. Fascism, of course, is simply a nationalistic version of socialism, as opposed to the world-government impulse of the Socialist International reflected in utopian boondoggles like the UN.
Readers’ unhappiness is the result of ignorance which is not their fault, but the fault of our socialistic, progressive doctrines of education introduced early in the 20th century and placed firmly in the saddle in the 1960s. Most people, having no historical perspective on economic and political affairs, assume that what is has always been so, because that is all they have been told.
No one having even a minor acquaintance with the history of the 20th century can deny that the role of Federal and state governments changed radically (in the literal and political senses) in the 1930s. Before the New Deal, however much they favored labor unions and cooperatives, along with city and state government planning, not even the Progressives believed that the Federal government could manage the entire economy as if it were a private corporation. Since the time of President Franklin Roosevelt, generations of Americans have come to the mindless faith that The Great Father in the White House is responsible personally for every up and down in the economy.
Elsewhere, I wrote that the basic dividing line between sociopolitical outlooks in the Western world is regulation and control vs. limits and balances, collectivism vs. individualism. This can be understood more easily if one looks at the underlying conceptions of human nature.
In the Western world, two views of human nature are dominant.
One is the classical economic understanding described by Adam Smith in his 1776 “Wealth of Nations,” in which people as a whole, at least those with any common sense, look for ways to improve their own and their families’ economic well-being. Smith’s keen observations of economic activity in his time, and historically, led him to the view that such activity is spontaneous and part of the natural order, to the extent not impeded by government intervention.
From this understanding comes the idea of the law of supply and demand: when goods desired by people are in short supply, prices rise, and producers are led to increase production of the desired articles, thereby pushing market prices down toward their former level. This insight led him to his celebrated “invisible hand” idea that, while each individual is motivated by his personal interests, those motivations lead people to become more productive and thrifty, thereby increasing the aggregate well-being of society. While, at any given time, some people are suffering hardship from economic conditions, a free market offers most of them the opportunity to improve their status in the future by dint of hard work and frugality. And human nature leads most of them to take advantage of their opportunities.
None of this is to say that individuals and religious groups ought not aid the poor, elderly, and disabled. Smith was first and foremost a moral philosopher who elevated individuals’ sympathy and empathy for their fellows to the pinnacle of morality.
This conception of human nature made England, then the United States, the greatest economic powers in world history while producing unprecedented improvements in standards of living for people in all income levels.
The other conception of human nature, in contrast to Adam Smith’s pragmatic analysis of actually observed conditions, is the abstract, theoretical, French, socialistic conception espoused by American liberals (our sect of the socialist religion).
In this theory, people are by nature altruistic, freely contributing to the best of their abilities, while selflessly consuming as little as possible, provided they do not live in a market-oriented economy that induces greed.
The effect of the liberal socialist theory, everywhere it has been implemented, has been to reduce the overall wealth of the nation employing it, tending to make everybody equally poor. The reason for the detrimental effect of socialist theory was described by Alexis de Tocqueville in the 1850s after observing the effect of half a century of socialism in his native France: in the welfare-state, people’s motivation is corrupted to envy of those with more than themselves, which leads them to clamor for government confiscation of property owned by people with higher incomes.
People concerned primarily with getting their entitlements take to the streets in organized demonstrations, riots, looting and property destruction, as we are witnessing in the case French students and labor unions demanding regulations assuring unaccountable jobs-for-life security.
The Soviet Union, based squarely upon this conception of human nature, reduced people to standing in lines for hours for basic needs, often finding nothing left when they reached the head of the line. The artificiality and cruel destructiveness of liberals’ theory of human nature led to the complete collapse of the Soviet Union, shortly after President Johnson’s Great Society entitlements had all but destroyed American society.
Socialist nations like France and Germany, historically the most powerful in Continental Western Europe, are slowly sinking under the weight of their increasingly unsustainable promises to make welfare payments exceeding their economies’ productive capacities. The United States is unfortunately following in their footsteps.
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Tuesday, April 25, 2006
Fascism vs. Economic Liberty
Readers who object to characterizing liberal Republicans and Democrats as fascists simply don’t understand the meaning of the term.
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Our debased educational system teaches students to apply the term fascist indiscriminately to any object of loathing. I am instead using the term to describe the specific characteristics of a class of economic and political thought.
The most basic dividing line between sociopolitical outlooks in the Western world is regulation and control vs. limits and balances, collectivism vs. individualism. American liberalism is based on the former. Our Constitution, on the latter, expressed by Jefferson’s aphorism that the best government governs the least.
Fascism is not a unique phenomenon. It is a logical conclusion to one of the two basic conceptions of social order. If one believes that, without the guidance of government, most people are incapable of knowing their own best interests and of doing the right thing to further their interests, then he is already moving in the direction of Fascism, albeit with the best of intentions.
Hence the liberal social-welfare, nanny-state, summed up by President Clinton’s press secretary Dee Dee Myers, who said that only the Federal government has the power to improve people?s lives.
Liberals believe that individual economic liberty, under the original Constitution, produces a society of greed, one in which there is too great a gap between the wealthiest and the poorest, a society in which true freedom therefore cannot exist. Unequal distribution of income is ipso facto suppression of the poor by the rich. For liberal icons like Michael Walzer freedom means that every individual, without regard to personal merit or productive work, has free access to all of society’s goods and services.
To attain that end, liberal government must assume increasingly dictatorial powers to redistribute income and become the provider of people’s basic needs.
It is important to understand that all regulation-and-control forms of government are fundamentally the same, ranging from American liberalism to present-day socialism in France and Germany, as well as the Soviet Union and fascist regimes in Italy and Nazi Germany. Since the beginning of the 19th century all of these systems have been classified as socialism, and bear the same relationship to socialism as do the many different Protestant denominations to the whole of Christianity. There are doctrinal differences, but at bottom all varieties of socialism are the same.
Fascism can be traced to the writings of Joseph de Maistre immediately after the French Revolution. His conception of human nature led to the conclusion that people must be constrained by government to do whatever the authorities decided was in the national interest.
Even de Maistre and French revolutionary philosophers conceded, however, that in England a very different and strikingly fruitful theory of government held sway. Its root was in the restraints upon monarchial power that English barons imposed upon King John in 1215 with Magna Carta. There was to be a constitutional form of government that limited royal powers and created structural balances. The king could not arbitrarily impose taxes nor seize property to fund his campaigns; only the English people represented in Parliament could do so. Our own Constitution came straight out of that tradition.
De Maistre’s conception led directly to all-powerful government of the sort that prevailed in his day in the feudal system of Czarist Russia. The will of the sovereign was to be the will of the nation.
Fascism acquired its name in Italy of the 1920s after Mussolini’s Black Shirts marched on Rome, with widespread public support, and seized control of the government. Contrary to what students are told today, Mussolini and Hitler were immensely popular, just as was our own fascist President Franklin Roosevelt.
While there was plenty of arbitrary and repressive regulation in fascist Italy and National Socialist Germany, the vast majority of the people welcomed Mussolini and Hitler as their saviors from the unsettled economic conditions following World War I. Their popularity arose also from the intense nationalism that characterized Fascism. Both Mussolini and Hitler repeatedly spoke of the history and traditions of the Italian and German peoples and of their aim to restore former greatness.
Mussolini and Hitler pursued nearly identical economic policies, under the rubric of state-corporatism, that were aimed at “harmonizing” the competing economic interests of private businesses, labor unions, farmers, and the fascist government. Italian and German regulatory councils were essentially the same as the New Deal’s NRA industry-group codes of prices, production, and wages and its Agricultural Adjustment Administration, which controlled farm production and prices.
The primary divergence between the New Deal and Italian and German Fascism was their expression of nationalism. Mussolini and Hitler believed that to protect national interests it was necessary to become as nearly self-sufficient as possible. The question did not arise in the United States because of its vast store of natural resources and its geographic isolation.
Inherent in the fascist drive toward economic self-sufficiency was the imperative to acquire the natural resources they lacked via territorial conquest. Amplifying that dynamic was the fascist glorification of Roman and German history and mythology and the belief that the national will was to be realized via militarism, by Bismarck’s “blood and iron.” Hitler’s variant of fascist nationalism was the racist Holocaust.
In both President Roosevelt’s New Deal manifesto and Italian and German Fascism the populace are divided into economic classes and dealt with as groups, not as individuals. Mussolini and Hitler were scathingly contemptuous of English individualism. Individuals had meaning only as constituents of the national state, rather like bricks in a wall.
President Roosevelt rejected our original constitutional individualism in his January 1944 annual message to Congress:
?The one supreme objective for the future?can be summed up in one word: Security.?This Republic had its beginning, and grew to its present strength, under the protection of of certain inalienable rights ? among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty. As our nation has grown in size and stature, however ? as our industrial economy expanded ? these political rights proved inadequate to assure us equality in the pursuit of happiness.?
“We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all?Among these are: the right to a useful and remunerative job?The right to earn enough to provide adequate food and clothing and recreation.?The right of every family to a decent home; The right to adequate medical care?The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment; The right to a good education. All these rights spell security.?
This is fascist state-corporatism, pure and simple. Individuals must surrender their Bill-of-Rights protections against the tyranny of the majority and entrust their futures to the President’s socialist Brain Trusters. As Roosevelt said in his 1933 inaugural speech, ” ?if we are to go forward we must move as a trained and loyal army willing to sacrifice for the good of the common discipline, because, without such discipline, no progress is made??
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Sunday, April 23, 2006
Hillary Wants Fascist Corporatism
In her recent address to the Economic Club of Chicago, Senator Hillary Clinton advocated a version of the New Deal’s state-corporatism that was patterned on Mussolini’s fascist Italy of the 1920s.
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State-corporatism, as practiced by Mussolini and Hitler, was the economic aspect of Fascism. What the New Deal termed “saving capitalism from itself” and liberals today call “industrial policy” is just fascist state-corporatism under different names.
Fascism’s essential economic feature is centralized planning, euphemistically called “harmonizing.” Activities of businesses and labor unions are to be coordinated by government planning boards. Individual economic liberty must be subordinated to the national interests as defined by the ruling party.
President Roosevelt said in his first inaugural speech in 1933 that only the Federal government is capable of making sound economic decisions, and that power to control those decisions must be collectivized at the national level: “...[capitalist businessmen] have failed through their own stubbornness and their own incompetence?It can be helped by national planning for and supervision of all forms of transportation and of communications and other utilities which have a definite public character?if we are to go forward we must move as a trained and loyal army willing to sacrifice for the good of the common discipline, because, without such discipline, no progress is made?”
When put to the test, however, New Deal corporatism failed to end the Depression. The median annual unemployment rate from 1934 to 1940 was 17.2%, and at no time did it drop below 14%, almost triple today’s rate.
Most of Senator Clinton’s speech was platitudes such as “...sticking with fiscal discipline, rewarding hard work, investing in our people, growing a strong middle class by giving everyone a chance to succeed.” Her prescription to accomplish those ends, however, is straight out of New Deal corporatism.
The core of her speech was its reference to a proposal by Felix Rohatyn and Warren Rudman. They recommend creation of a National Investment Corporation (NIC) modeled on the 1932 Reconstruction Finance Corporation (RFC).
Of the NIC, they write: “Today state and local governments spend at least three times as much on infrastructure as the federal government does. In the 1960s the shares for both were even. Even so, increases in state spending have not been enough to check the decline in many of our public assets. A new type of federal involvement would be a powerful initiative and would require a new focus. Rebuilding America is a historic task; we have the means to do it.
“The shortfall in investment is aggravated by the fact that most infrastructure money is given out by formulas that do not force all projects to be evaluated on consistent or rational terms. The solution to both issues could begin with a national investment corporation (NIC) that would be the window through which states and groups of states and localities would request financing or grants for all infrastructure projects requiring federal participation.
“The NIC could use its financial power to bring about improvements in policy. Funds for new highways, airports or water projects would not be granted unless modern technology, appropriate user fees and other non-structural solutions had been brought to bear. Capital grants to individual school districts would be contingent on adopting management and human resource practices that would improve school performance.
“The NIC should have the authority to issue bonds with maturities of up to 50 years to finance infrastructure projects. The bonds would be guaranteed by the federal government.”
This same independent borrowing power enabled the RFC to expand its activities unchecked by Congress. The NIC may be expected to follow the same course.
Like the proposed NIC, the RFC’s proclaimed focus was public works projects. Soon, however, it became President Roosevelt’s mechanism for Enron-style off-balance-sheet funding for thousands of projects never contemplated by authorizing legislation. It was Roosevelt’s principal dispenser of vote-buying political pork.
Congress had essentially no control over the RFC’s activities. It became the behind-the-scenes funder of quasi-governmental corporations operating businesses in Canada and Mexico, as well as in the United States, bypassing the Constitution’s Article I, Section 7 requirement that all revenue bills originate in the House of Representatives. In effect, the RFC gave President Roosevelt the monarchial and unconstitutional spending powers that English barons had curbed in 1215 with Magna Carta.
The NIC could be used to fund a re-run of Senator Clinton’s National Socialist Health Care project, as well as other planning ideas of Bill Clinton’s gurus in the late 1980s. Liberal intellectuals then believed that only by copying Japan, Inc. (the tight coordination among big Japanese corporations, banks, and government agencies) could the United States survive Japanese economic competition.
Thomas J. DiLorenzo described the NIC state-plannning mentality in his 1994 article “Economic Fascism”:
“These exact sentiments were expressed by Robert Reich ([1990s] U.S. Secretary of Labor) and Ira Magaziner ([Hillary’s] federal government’s health care reform “Czar”) in their book “Minding America’s Business.” In order to counteract the “untidy marketplace,” an interventionist industrial policy “must strive to integrate the full range of targeted government policies-procurement, research and development, trade, antitrust, tax credits, and subsidies-into a coherent strategy . . . .”
“Current industrial policy interventions, Reich and Magaziner bemoaned, are “the product of fragmented and uncoordinated decisions made by [many different] executive agencies, the Congress, and independent regulatory agencies . . . There is no integrated strategy to use these programs to improve the . . . U.S. economy.”
In Mussolini’s words, Fascist state-corporatism was intended to “secure collaboration . . . between the various categories of producers in each particular trade or branch of productive activity.” Government-orchestrated “collaboration” was necessary because “the principle of private initiative” could only be useful “in the service of the national interest” as defined by government bureaucrats.
Welcome to Hillary’s proposed NIC.
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Saturday, April 22, 2006
Gasoline-Price Dishonesty
High gasoline prices are painful. But liberal Republicans and Democrats making an economics problem into a political issue won’t change the underlying realities that drive prices higher.
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According to an April 22, 2006, article posted on CNN.com politicians are again talking economic nonsense:
“Consumer gasoline prices continue to soar as the Bush administration places too much emphasis on drilling reserves and not enough on alternative fuels, Democrats said Saturday.
“In his party’s weekly radio address, Sen. Bill Nelson of Florida noted that Brazil has announced it will achieve energy independence this year, something the United States has sought since the country’s first oil crisis in the 1970s.
“In Brazil, drivers are filling up their cars with ethanol instead of gasoline,” Nelson said. “And today in America, President Bush says, ‘We have a serious problem. America is addicted to oil.”
Let’s again review a few facts:
1. The price of gasoline at the pump fluctuates the same as that of other products. When demand increases and supplies can’t expand, the price will rise. Even in the fully-managed, price-controlled socialist-corporatist economy so ardently desired by liberals, if oil and gasoline are subjected to price controls, less oil will be delivered to the United States and more will be sold by foreign producers to buyers in other countries who are willing to pay market prices. Price controls might keep the price of gasoline down, but, as we found with a vengeance during the Nixon-Carter period, the supply will be drastically reduced. If politicians impose windfall taxes or price controls, you can expect to wait in service station lines for hours just to get a few gallons of gasoline.
2. No matter what we may do in the United States, worldwide demand for oil will continue to force prices upward. The giant economies of China and India are growing rapidly and consuming ever more petroleum products. Both have actively pursued long-term supply deals with Middle Eastern producers like Iran, which has every incentive to direct more oil to China and India, and less to the United States.
3. Russia, a major oil producer, is increasingly using its oil and natural gas as a political and diplomatic weapon, deliberately curtailing supplies and raising prices to European customers. Those customers will, from time to time, buy more from producers now shipping to the United States, thus raising spot market prices.
4. Within the United States environmentalist policies jack up gasoline prices.
First, environmentalists have prevented the construction of new oil refineries in the United States for more than 30 years. Refineries have a fixed capacity at any given time. Inevitably, gasoline prices will rise when demand exceeds refineries’ production capacities. And don’t forget that Hurricanes Katrina and Rita put the nation’s largest concentrations of refineries, in Louisiana and Texas, out of commission for an extended period, curtailing already tight stockpiles for summer driving.
Second, environmentalists have mandated special blends of gasoline for sale in most states. This requires refineries to produce smaller batches of tailor-made gasoline, which raises their costs and pushes up the delivered price at the service station pump. Adding this to environmental limitations on refining, storage, and transportation capacities causes local shortages and price spikes.
5. Ethanol is little better than a fraud perpetrated by connivance between farm-state Congressmen and environmentalists. Among other things, ethanol mileage per gallon is lower than gasoline’s.
According to a Wall Street Journal editorial dated May 20, 2002:
“A study last year by Cornell University agricultural scientist David Pimentel shows that it takes so much fossil fuel to create ethanol, that we end up with a net energy loss.
“The numbers go like this: It takes 131,000 BTUs to grow and convert enough corn for one gallon of ethanol. A gallon of ethanol, however, has an energy value of just 77,000 BTUs. In other words, it takes about 70% more energy (which comes from fossil fuels, by the way) to produce ethanol than the energy ethanol creates. It’d be easier—and less costly—for consumers to pour most of every gallon of gas they buy down a sinkhole.
“Professor Pimentel also looked at the cost of making ethanol. He found that ethanol costs $1.74 a gallon to produce, compared with 95 cents to produce a gallon of gas. That’s why “fossil fuels—not ethanol—are used to produce ethanol,” he says.”
Senator Nelson’s reference to Brazil’s use of ethanol is disingenuous. Brazil’s ethanol is made from sugar, which is chemically a more efficient source than the corn used here. Production costs of ethanol in the United States are about 30 percent higher per gallon than Brazil’s ethanol production costs. Ethanol costs Brazilian drivers about 19 percent less per gallon than gasoline. The opposite is true in the United States.
We can’t follow Brazil’s lead, because sugar prices in the United States are artificially held far above world prices by the fascist-corporatist agricultural price and production controls introduced by President Roosevelt’s New Deal.
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Saturday, April 15, 2006
Iranian Hard-Rock Realities
We may be between a rock and a hard place in confronting Iran’s acquisition of nuclear weapons.
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Reader Robert Stapler emailed the following cogent analysis of our limited options for dealing with Iran. He is responding to an earlier posting titled Iranian Specifics.
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I fully agree with the assessment that Iran?s current regime is anti-Israel.? I also agree the regime is oppressive of its own people, is unpopular, and that Iranians desire a relaxation of religious and economic controls.? I don?t see, however, that anti-Iranian Kurds are friends of the Iranian people or that radical Iranian students are pro-democracy in the western sense.? Nor do I see that the average Iranian is unreservedly enamored of America or the adoption of American cultural values in place of Persian ones.? From what I have so far read, most Iranian ?progressives? follow the socialist model of democracy.? A regime change that puts a pro??democracy? Iranian faction in charge might, therefore, simply trade a theocratic oppression for a socialist one not much different from the Iraqi/Syrian Baathist model of democratic progress.? This would have very little impact on Iran?s position regarding Israel beyond alienating one terrorist network in favor of red brigades; and would change the defamatory rhetoric only from a religious to a socialist based screed.?? I?m not saying there aren?t plenty of Iranians who want to be freed from the current oppression.? There are.? But I also have a pretty good idea they know, just as we do, that the power struggle is in the hands of two groups of opposed extremists.
Supposing Kurds were successful toppling the Iranian theocracy, what would they install in its place?? They?d have little reason to love either Persian intellectuals or moderate Muslims.? More likely they would slaughter both in reprisal for centuries of Muslim oppression of Kurds.? Were the progressives to gain power and purge the clericals, they?d probably have to act quickly to disarm the Kurds to prevent a Balkan style fragmenting of the northern territories and consequent slaughter of Persians living nearby.? Therefore, the present alliance between anti-clerical progressives and Kurdish nationalists is a shaky one predicated on mutual hatred of the clericals, but also in mutual suspicion and rivalry.
As for the Bush Administration?s non-violent support of ?pro-Western? factions, this is hardly likely to do much that would prevent an Iranian acquisition of nuclear and other WMD?s.? It does provide our government with intelligence resources it uses to track Iran?s progress in acquiring WMD?s and funneling of terrorists into Iraq.? But, it is fantasy thinking it can do more than monitor what?s going on.? Bush cannot use such information publicly without revealing sources; which would likely result in the slaughter of those sources.? It has taken many years to reestablish human intelligence in this region, making any assets we have too valuable to risk lightly.? Politically, it may keep the current regime focused on internal security to the extent it is less focused on supporting terrorists in Iraq, but it is hardly likely to precipitate a democratic revolution that does not involve American troops and a widening of the conflict.?
After the difficulties convincing the American public that Iraq really was a threat, post-2004, Bush would have a very hard-sell convincing Congress an invasion of Iran is necessary or, even, in our interests.?? Supposing Bush could convince Congress and get the authorization, would he want to or would it serve our interests in fighting terrorism??? It would make it easier to suppress insurgency in Iraq, but only by widening the area of operation.? Terrorists will move back to some new line we can?t cross and go on as before.? Iran would no longer be a threat of WMD?s, but everything else would be as before.? On the other hand, an additional invasion might be seen as fueling pan-Islamic solidarity that would result in less cooperation from ?friendly? Muslim countries fearing America has greater ambitions than suppressing WMD?s or terrorism.? I do not say these are the realities, only the perceptions.? We saw the same thing in Vietnam when the NVA used Laos and Cambodia as a backdoor and our forces were denied pursuit. ?Bush is likely to tread lightly, and will be considering options other than war.? It is unlikely information from these sources will be used to petition Congress for authorization to invade Iran, unless or until the danger of significant WMD?s becomes both self-evident and intolerable.? Anything less than an invasion is unlikely to cause more than a nuisance to the regime now in power.
The article?s final paragraph promises ?The Republican Party?s position of non-violent financial and moral support for the pro-American people of Iran is the best option available to stop these Iranian policies from further damaging the world. ... Taking the non-violent approach advocated by the Republican Party can be effective in stopping the nuclear threat ? Choosing non-violent action will help preserve stability in the region and lead to the peaceful elimination of an oppressive and unjust regime.?? This is patently absurd and seems to have the object of encouraging continued financial backing of the anti-clerical factions.? Support that is merely financial and moral will not topple a regime in power, and the money recipients (as political outsiders) will have little direct impact on stopping WMD development.? If that is the objective, it is money wasted and does not warrant the complimentary interpretation the author is lending it.? It is more likely this is promotion for our continued support while concealing more limited but realistic objectives; and for our consumption as pro-Bush, pro-war policy conservatives.? Otherwise, it sounds an awful lot like the anti-war rant of the left for giving sanctions more time to work.
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The Fed, Campaign Finance Reform, and Budget Deficits
Federal budgets will not be balanced and campaign finance reform will remain a sham so long as the Federal Reserve is free to manufacture money at the whim of politicians.
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Stopping the influence of big money in politics will remain impossible so long as the Federal Reserve has the power to create money to fund Federal deficits. People like George Soros always will discover ingenious ways to circumvent the latest legal strictures and spend literally billions of dollars to elect or to defeat candidates and to influence candidates’ votes on legislation.
The only possible way to foreclose such manipulation, short of totalitarian dictatorship, is to reduce the incentives to big money. And the only way to do that is to reduce the scale and scope of Federal spending to such low levels that Mr. Soros et al will have little to gain by purchasing politicians.
The surest way to accomplish that end is to put our currency back on a gold standard, so that there are fixed limits on the money supply at any given time. Under the gold standard that prevailed before the creation of the Federal Reserve, it was possible for excess bank credit temporarily to induce excess demand for production, but that condition could not persist for long. A short recession would clear the decks and put business back on a sound footing.
Most importantly, the Federal government couldn’t take advantage of excess bank credit to business by open-ended funding of ever-larger welfare-state spending programs. If the Treasury sold bonds here or abroad, it had to be prepared to make interest and principal payments in gold, should the dollar’s value decline because of inflation.
Congress was restrained by the absence of today’s money-creation capacities of the Fed. The beginning assessment in every budget debate was determining the amount of tax revenues available to fund the government. Congress members were generally reluctant to confront angry voters after imposing additional taxes to fund new programs. Consequently the Federal government grew no faster than the total of the nation’s economic activity. And, apart from wartimes, there were very few years of budget deficits.
Liberals will argue that President Clinton brought the budget into balance, even with the Fed free to pump artificial credit into the economy. This overlooks a couple of unique circumstances, the most important of which was the huge cuts made in defense spending. At the same time, business began to boom in response to Republican action in the House to reduce taxes, generating a huge, temporary surge in tax revenues. Even Democrats agreed privately that projections of future years’ budget surpluses were pure fiction, based on assumptions of continuous and unprecedented growth rates in GDP, every year for decades into the future.
Looming in our future today is the cancerous growth of Medicaid, Medicare, and Social Security retirement entitlements. In no way can we escape the fact that the government has promised us welfare-state payments that are growing at a rate many times faster than even the most optimistic projections of GDP growth. No matter which path we follow ? higher taxes or deficit funding via the Fed’s inflationary expansion of the money supply ? we are heading toward the national decline now experienced by France and Germany, and here, on a micro level, by General Motors and Ford.
It’s no surprise that the big money boys are actively fighting efforts to change the Social Security and Medicare-Medicaid program entitlements, because they want the ever-growing supply of spending sloshing around in the economy. Big business wants the government to pick up the tab for its own health care and retirement benefits. Unions want the security and comfort of Big Brother’s arms securely wrapped around them, with his hands squeezing the non-union taxpayers’ throats.
Knowing where the big money is to be had for their re-election campaigns, members of Congress are happy to accommodate these and other special-interest groups.
Meanwhile, the supposedly independent Federal Reserve board will keep pumping up the money supply to fund it all, hoping that it will be able to avoid the “fine-tuning” disaster of the Great Society’s stagflation.
Don’t bet on it. Put some of your savings into counter-inflationary commodity-based mutual funds and ETFs, with gold and oil part of the mix.
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Thursday, April 13, 2006
Las Vegas and the Fed
Prudent investors planning for the long term don’t gamble by putting every penny in the stock market. Why then are we willing to gamble the nation’s future on speculative monetary policy?
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Managed money, artificially controlled by the Federal Reserve, has been around for three generations. Most people never think about it, or they assume that it has always been so.
The unpleasant fact is that the Federal Reserve cannot be trusted to prevent inflation by guessing correctly, even when it ardently wishes to do so. Alan Greenspan, while he was Fed chairman, never stated an interest rate goal, but always spoke of finding a balance that could be known only after the fact.
An article in the April 13, 2006, edition of the Wall Street Journal underlines the degree of speculative guessing in Fed manipulation:
“Federal Reserve Governor Donald Kohn said Thursday that he’s unsure how much monetary policy tightening will be needed to keep inflation low, but with resource utilization at levels that in the past generated inflation, he’s staying focused on keeping price pressures well anchored….
“A tendency for inflation to move higher would put economic stability and the long-term performance of the economy at risk,” he said.”
President Roosevelt’s New Deal took our currency out of the free market and placed it in the hands of a collectivist cabal of intellectuals. Whether intent upon controlling inflation or aiming to inflate the currency to benefit labor unions or farmers, they are in the same position as you are when you try to out-guess the stock market.
In contrast, under the McKinley administration’s 1900 Gold Standard Act there was far less leeway for guessing and manipulation. If the dollar became inflated by excessive bank credit that falsely stimulated demand for products, foreign exchange dealers and central banks around the world would exchange their dollars for gold from the United States Treasury. Unlike today’s money manufactured by Fed bookkeeping, only a fixed quantity of gold was available at any given time. Excessive credit had to be curtailed immediately to stem the gold outflow.
In the 19th century, while the Bank of England drifted from gold standard orthodoxy from time to time, the Pound Sterling was convertible into gold. Politicians then understood that London’s position as the world’s monetary center depended upon maintenance of a sound currency. The result was the greatest commercial empire the world has ever seen and a century, without major wars, in which people’s living standards improved more than at any other time in history.
When I was in high school and college in the late 1940s and early 1950s we were told that President Roosevelt had ended the Depression with his brilliant barrage of Federal agencies and welfare-state programs. And we were taught that the New Deal had solved the problem of managing the economy so that there would never again be a Depression. It was all so simple: monetary policy would provide adequate credit and keep banks from failing, while fiscal policy would roll out big government construction projects to employ people whenever business activity turned down.
Unfortunately, none of this was true, either in the 1930s, or subsequently.
As Jim Powell reports in “FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression,” the median annual unemployment rate from 1934 to 1940 was 17.2%, and at no time did it drop below 14%. (Compare that to today’s 4.7% number, which liberals castigate as the failure of tax cuts to revive the economy.)
Roosevelt in 1933 deliberately instituted a policy of inflating prices, propagandizing it as an effective way to revive business activity and to increase employment, despite the fact that historically such policies always were counterproductive.
What was propagandized as the brilliant socialistic materialism of the President’s Brain Trusters was no more than old fashioned politics. FDR wanted votes from farmers and labor unions Since the Populist days of the 1890s, farmers had agitated for cheap money and high farm prices. Labor unions demanded high wages in the face of depressed production levels.
Cheap money, however, has other consequences. Banks are loath to lend when they anticipate being repaid in money worth less than what was lent. Inflation’s short-term stimulation soon becomes an economic drag. All sorts of dislocations follow.
Businessmen were lambasted in the 1970s and 80s for the failure of S & Ls and for the leveraged-buyout boom. Neither phenomenon would have occurred absent President Johnson’s Great Society stagflation.
S & Ls lent money with maturities of five to twenty five or thirty years, at fixed interest rates. Portfolios of loans made at 5% interest rates were worth only 45 cents on the dollar when market interest rates soared to 12% and people took their money out of savings accounts that legally could pay only 4.5%. S & Ls typically having only about 2% capital and reserves, they were all bankrupt when their assets had to be sold to meet depositor withdrawals. Crooked businessmen didn’t cause the S & L meltdown; President Johnson’s Great society did.
When inflation prowls the land, investors dump common stocks and put their money into tangible assets ? every thing from gold bullion to jewelry and works of art. The Dow Jones Index dropped 45% from its high in 1973. By the late 1970s, the price to buy control of a company via acquiring all of its stock in a leveraged buyout was a fraction of the underlying productive value of its assets. Leveraged-buyout operators could borrow all of the money need to acquire a company’s stock in a tender offer, sell off some of the company’s assets to repay the acquisition debt, and end up owning the remaining assets with little if any cash invested.
Unfortunately, employees in dismembered companies often lost their jobs, not because of Hollywood’s “greed is good”, but because of President Johnson’s Great Society inflation.
So long as we permit our money to be managed by politicians via the Federal Reserve, we remain vulnerable to a reprise of those savage times.
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Wednesday, April 12, 2006
Easter: Time for Anti-Christian Propaganda
The news splash about the Gospel of Judas is another example of the mainstream liberal media’s carefully timing front-page “news” that is years old in order to achieve maximum anti-Christian public opinion impact.
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Steve Kellmeyer’s article dissects the latest anti-Christian hoop-la from the high priests of atheistic materialism in the New York Times editorial board. In Mr. Kellmeyer’s analysis, this manufactured PR event arises from misunderstanding the nature of gnosticism, both by Christians and by atheistic materialists.
While gnosticism may seem nothing more than an unimportant abstraction, it is a phenomenon that recurs throughout history. Its most recent irruption, one of major importance in the world, was the doctrine that produced the Soviet Union, Mao’s Red China, and Castro’s Cuba. French philosophers after the 1789 Revolution revived gnosticism with the theory that they alone had penetrated the mysteries of history and had discovered the immutable and inevitable laws of history that were propelling the modern world toward the atheistic materialism of socialism.
The best known of these French philosophers, Auguste Comte, even created his own gnostic religion, which he called the Religion of Humanity. Twenty years later Karl Marx picked up his work and transformed it into the Communist Manifesto.
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STEVE KELLMEYER’S COMMENTS
Many Catholic commentators are all a-twitter about the Easter special on the Gospel of Judas.
The Gospel of Judas, for those not in the know, is a Gnostic Gospel that was discovered about thirty years ago. The MSM has decided to dust it off and make it a centerpiece for the Easter season, since it contains distinctly weird theological statements.
Take the New York Times’ discussion as an example of the nuttiness contained therein:
“The [Gospel of Judas] goes on to relate that Jesus refers to the other disciples, telling Judas “you will exceed all of them. For you will sacrifice the man that clothes me.” By that, scholars familiar with Gnostic thinking said, Jesus meant that by helping him get rid of his physical flesh, Judas will act to liberate the true spiritual self or divine being within Jesus.”
Now, why is such a silly document getting so much press coverage? Because a bunch of Christians - especially a bunch of orthodox Catholics - made sure it would.
For the last two years, the people who took on the role of official debunkers to Dan Brown’s novel, The Da Vinci Code, have been insisting that Brown’s work is a Gnostic heresy.
It is nothing of the sort.
Gnostics said sex is evil and marriage is sinful.
The Da Vinci Code said sex is holy and marriage is sacred.
Gnostics said men are closer to divinity than women, women can only be saved if they become like men.
The Da Vinci Code says women are closer to divinity then men, men are saved by worshipping the sacred feminine.
Gnostics said salvation can only be attained if you acquire special knowledge which allows you to overcome the creator of the material universe, who is not god.
The Da Vinci Code said nothing at all about salvation or the creator of the material universe. The only point of contact here is that the Gnostic creation account had a god-like being named Sophia, whose errors were responsible for the material world being created. In contrast, the Da Vinci Code’s protagonist, Sophie Nevue, turns out to be responsible for preserving the link to the divine. Her role is exactly the opposite of the role played by the Gnostic “Sophia.”
Finally, and most important, the central aspect of Gnostic theology insisted Jesus did not have a real body and was not a real man. His crucifixion was fake if only because he had no body to crucify - his body was an illusion he clothed himself in to prevent us mortal men from taking fright and running from him.
The Da Vinci Code insists that Jesus was NOTHING BUT A MAN, who had a wife and kids.
There is nothing at all Gnostic about the Da Vinci Code novel.
True, the book quotes a few of the Gnostic gospels, but that’s hardly relevant. Not only does he take all the quotes out of context, his argument doesn’t really rest on the Gnostic gospels at all. He uses them as a throw-away opening salvo against Christianity, quoting them for roughly six pages and then never returning to them again.
In short, if any Gnostics were alive today, they would be debunking Dan Brown’s novel right along with the Christians, since he screws up Gnostic theology and history as thoroughly as he screws up Catholic-Christian theology and history.
But the constant drumbeat from Christian apologists who don’t know history or Gnostic theology has incorrectly painted the Da Vinci Code as a Gnostic heresy, thereby raising interest in a train of thought that had been shown up for a farce over 1800 years ago.
Because the Christians kept incoherently insisting Brown’s book was Gnostic when it was nothing of the sort, the Gnostic Gospel of Judas is now news.
And now Christian apologists are complaining about the MSM’s attention to the newest unveiling of a Gnostic Gospel.
No wonder the world laughs at Christians.
If these people had only bothered to learn a bit about Gnosticism first, or - better yet - had bought copies of Fact and Fiction in the Da Vinci Code on sale for just $5 at the Bridegroom Press website.
Steve Kellmeyer
Bridegroom Press
PO Box 96, Peoria, IL 61650
.(JavaScript must be enabled to view this email address)
http://www.bridegroompress.com
Phone: 309-685-4085
Fax: 630-689-9037
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Tuesday, April 11, 2006
An Extraordinary Acknowledgment
Sunday’s editorial in the Washington Post, a liberal, mainstream-media journal, actually supports President Bush’s case.
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A GOOD LEAK
President Bush declassified some of the intelligence he used to decide on war in Iraq.
Is that a scandal?
Sunday, April 9, 2006; B06
PRESIDENT BUSH was right to approve the declassification of parts of a National Intelligence Estimate about Iraq three years ago in order to make clear why he had believed that Saddam Hussein was seeking nuclear weapons. Presidents are authorized to declassify sensitive material, and the public benefits when they do. But the administration handled the release clumsily, exposing Mr. Bush to the hyperbolic charges of misconduct and hypocrisy that Democrats are leveling.
Rather than follow the usual declassification procedures and then invite reporters to a briefing—as the White House eventually did—Vice President Cheney initially chose to be secretive, ordering his chief of staff at the time, I. Lewis Libby, to leak the information to a favorite New York Times reporter. The full public disclosure followed 10 days later. There was nothing illegal or even particularly unusual about that; nor is this presidentially authorized leak necessarily comparable to other, unauthorized disclosures that the president believes, rightly or wrongly, compromise national security. Nevertheless, Mr. Cheney’s tactics make Mr. Bush look foolish for having subsequently denounced a different leak in the same controversy and vowing to “get to the bottom” of it.
The affair concerns, once again, former ambassador Joseph C. Wilson IV and his absurdly over-examined visit to the African country of Niger in 2002. Each time the case surfaces, opponents of the war in Iraq use it to raise a different set of charges, so it’s worth recalling the previous iterations. Mr. Wilson originally claimed in a 2003 New York Times op-ed and in conversations with numerous reporters that he had debunked a report that Iraq was seeking to purchase uranium from Niger and that Mr. Bush’s subsequent inclusion of that allegation in his State of the Union address showed that he had deliberately “twisted” intelligence “to exaggerate the Iraq threat.” The material that Mr. Bush ordered declassified established, as have several subsequent investigations, that Mr. Wilson was the one guilty of twisting the truth. In fact, his report supported the conclusion that Iraq had sought uranium.
Mr. Wilson subsequently claimed that the White House set out to punish him for his supposed whistle-blowing by deliberately blowing the cover of his wife, Valerie Plame, who he said was an undercover CIA operative. This prompted the investigation by Special Counsel Patrick J. Fitzgerald. After more than 2 1/2 years of investigation, Mr. Fitzgerald has reported no evidence to support Mr. Wilson’s charge. In last week’s court filings, he stated that Mr. Bush did not authorize the leak of Ms. Plame’s identity. Mr. Libby’s motive in allegedly disclosing her name to reporters, Mr. Fitzgerald said, was to disprove yet another false assertion, that Mr. Wilson had been dispatched to Niger by Mr. Cheney. In fact Mr. Wilson was recommended for the trip by his wife. Mr. Libby is charged with perjury, for having lied about his discussions with two reporters. Yet neither the columnist who published Ms. Plame’s name, Robert D. Novak, nor Mr. Novak’s two sources have been charged with any wrongdoing.
As Mr. Fitzgerald pointed out at the time of Mr. Libby’s indictment last fall, none of this is particularly relevant to the question of whether the grounds for war in Iraq were sound or bogus. It’s unfortunate that those who seek to prove the latter would now claim that Mr. Bush did something wrong by releasing for public review some of the intelligence he used in making his most momentous decision.
??2006?The Washington Post Company
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