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Reblogged: Contradictions Plague GOP

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I didn't follow the elections this year, but I am hardly surprised that pundits are drawing two completely different wrong conclusions from yesterday's results. The highest profile results were (1) the landslide reelection of New Jersey's Republican governor, Chris Christie; (2) the squeaker win of Democrat Terry McAuliffe as governor of Virginia; and (3) the loss of New York City's Republican mayoral candidate. Errol Louis, although correct that there is a "civil war" going on in the Republican Party, sums up both wrong lessons in his post-mortem:

The Republican civil war, decades in the making, will come to a head in the next 36 months, as we begin the run-up to the next presidential election. Expect Christie and other moderate candidates to point to Virginia, New York and other losses as missed opportunities -- the price for choosing to win arguments instead of elections. And expect the tea party to respond that pursuing politics without principles is no way to lead a country.

The choice for the GOP isn't either sticking to principles or governing. There is plainly enough discontent with the leviathan state Presidents Bush and Obama have left us with that a message of individual economic freedom can gain traction and win elections.

Unfortunately, too many Republicans embrace principles that are at odds with this message. So what if we lower taxes or make parts of our economy freer if the government simply turns towards intruding more elsewhere, such as by preventing some consenting adults from enjoying the same legal protections as everyone else in committed relationships? There is a contradiction between arguing for economic freedom one moment -- and against sexual freedom the next. Democrats sense this on a level and happily associate the medieval religionists faction of the Republican Party with the "libertarian" wing whenever they get the chance, and scare voters into supporting them.

The problem with the GOP is not that it is a coalition between sell-outs who win and dogmatists who lose (as if principles have no objective basis or practical value), but that it includes both factions that value personal freedom and factions that actually oppose it. So long as the GOP message ends up being merely, "We'll control a different aspect of your lives", the electorate will see no real alternative and go with the devil it already knows. This last fact explains why selling out, and running on "competence" or "maturity" as Christie seems to have done might seem like a good strategy. But this will lead to freedom dying out in the long run, and is completely unnecessary, as our principled founders demonstrated over two centuries ago.

-- CAV

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The state of the economy is the major cause of a lot of this political debate, but I think it's unrealistic to think any policy is going to affect the actual causes. For example, a huge issue is wages and workers' share of capital.  The left would press firms; the right, if they even acknowledged the issue, would want deregulation, lower taxes, etc.

 

But neither of these would have a lasting effect. Worker's share of GDP is falling in countries with various states of regulation...in fact even more so last quarter in much of the EU. These are global economic issues. 

 

If there's going to be any policy it should really address the reality of globalisation and the need for more innovation. Despite fantasies objectivists might have of returning to a gold standard, there's no way that's happening...the results would be disastrous. The only way I can see to maintain this level of credit (175% of GDP now), is if we make a solid commitment to innovation, by spending say a trillion on biotechnology (stem cells, nanotech), spend a trillion on energy like solar, wind, etc. Not just dumping money, but making a full commitment to be competitive in these areas (like with the space program). 

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If there's going to be any policy it should really address the reality of globalisation and the need for more innovation. Despite fantasies objectivists might have of returning to a gold standard, there's no way that's happening...the results would be disastrous. The only way I can see to maintain this level of credit (175% of GDP now), is if we make a solid commitment to innovation, by spending say a trillion on biotechnology (stem cells, nanotech), spend a trillion on energy like solar, wind, etc. Not just dumping money, but making a full commitment to be competitive in these areas (like with the space program).

So, Solyndra is the answer! Gee, I never imagined innovation was so simple. Just create a State Science Institute and voila, innovation happens. "Disastrous" consequences ensue from sound money because we declare it so. Our only salvation is theft from the productive so that we can fund the unworthy. Wow, now I see. Stolen concepts, floating abstractions, non sequiturs, ... all we need is bad philosophy!

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"The only way I can see to maintain this level of credit (175% of GDP now), is if we make a solid commitment to innovation, by spending say a trillion..."

So, in order to get out of unsustainable debt, we must make that debt more unsustainable?

 

Welcome back, Mr. Keynes. You were not missed.

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Does anyone here really believe that going back to a gold-standard is an option? It will never happen in our lifetime, and if it did, you would not live long enough to see the end of a depression that severe (I think rome's lasted what...1000 years?)

 

We don't live in a capitalistic economy...it's fueled by credit. The Fed prints more money because it has to. So if we're going to spend money, why not at least try to put it into innovative technologies instead of blowing it on social policies? The US will spend trillions in the coming years...a trillion invested into any tech would give the US a way to stay competitive.

 

State science institute? Don't forget government investment is why we've got the erie canal,  the apollo program, the manhattan project , interstate highways, the internet, global military dominance.  

 

Unless you have any other, realistic ideas on policy, or plan on starting Galt island somewhere, I don't see many other alternatives. 

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State science institute? Don't forget government investment is why we've got the erie canal,  the apollo program, the manhattan project , interstate highways, the internet, global military dominance.

Have you read "Economics in One Lesson",by Hazlitt? You see (and have listed) what is, but ignore what would have been. Counterfactuals are difficult to grasp, and that's a big reason statists get away with bad arguments.

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State science institute? Don't forget government investment is why we've got the erie canal,  the apollo program, the manhattan project , interstate highways, the internet, global military dominance.  

 

Unless you have any other, realistic ideas on policy, or plan on starting Galt island somewhere, I don't see many other alternatives. 

 

It is going to take you a long time to unravel the tangled web that is your philosophy. You should start with the Law of Causality. Once you understand that, you should realize that the reason those on the left do not accept personal responsibility is their failure to accept the Law of Causality. Then you might begin to understand the evil of subverting causality by expending the trillions that you advocate. There is no causeless wealth.

 

Yes, only a government could create atomic bombs. Business is too pure for such horrors. And yes, you should read Hazlitt. Think of what could have been if the government had not pilfered so much money for the weapons you take so much pride in. One could go on, but you need basic help with metaphysics and epistemology. It is useless to banter with you until you learn some of the basics.

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The way to a better world is not by advocating to continue doing the same crap that is causing problems today. Saying that principles are not "realistic" is the same as saying that they are pointless.

The original point I was making in response to the OP was that much of the focus on the "crap" that is causing our problems, does not really focus on the broader issue that is affecting this global economy that we now live in. If we stick to strict objectivist principles would we then have to demand the US government abolish income taxes, public education, the US Postal Service, etc? 

 

What I think is unrealistic is pretending that we don't live with some sort of compromise. Just as Taggart and Rearden had to deal with the unions and media to get the galt line down, they got it done. Just as we have to pay income taxes, because though it goes against our principles, the compromise is (hopefully) worth it. 

 

If that's unacceptable, then what is the value of objectivism in politics today besides nitpicking and offering no long-term strategy? Yes, you can break down just about any decision made today with epistemology and show why it's wrong. You can point out the contradictions in policy, as above, and refer to how contradictions don't exist. But then what? 

 

There are valuable arguments on topics like abortion and gun laws on this forum , but really nothing that useful when it comes to global economics. In fact how capitalism is going to be applied on a global scale is a common subject of debate in economic forums and articles everywhere. I see plenty of arguments against the IMF and WTO, all backed up with sound reasoning...but few arguments for any solutions.

 

Rand certainly didn't say much about it. Adam Smith didn't say much about human rights or minimum wage either. Ricardo saw the doom of capitalism because he couldn't imagine our modern methods of agriculture. Marx envisioned large corporations well ahead of his time, but not anti-trust laws, and so on. I don't think it's a lack of farsight on their part...because how could they have a realistic concept of the economics of the future? What bothers me is the arrogance that some objectivists here have in thinking they have the absolute blueprint in the way the world ought to be. (or even more useless, what "could have been"). 

 

Pragmatism and flexibility may be necessary if you can admit at least some unknowns. In fact you could argue that those two things are what kept the United States from following the Marxist scenarios of capitalism's doom abroad in the 19th and 20th century. True those same things have given way to greater degrees of social responsiveness, but the US is still among the forefront of a capitalistic model.

 

So by realistic I mean, if you were in office , how could you apply your objectivist principles without some degree of compromise? Or would you hope the nation reads Rand and Hazlitt and see the value in what could have been?

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The original point I was making in response to the OP was that much of the focus on the "crap" that is causing our problems, does not really focus on the broader issue that is affecting this global economy that we now live in. If we stick to strict objectivist principles would we then have to demand the US government abolish income taxes, public education, the US Postal Service, etc?

Did someone suggest that it is the U.S post office? As for lower taxes. The OP actually talked *down* GOP attempts to lower taxes. Similarly, you mentioned the gold standard, but *you're* the one who raised it.

When you address points that nobody raised, that's a sign you're talking past people, addressing yourself to some hypothetical opponent who is not here.

You seem to claim that Objectivists want perfection or nothing. That's not true. If there is some tiny step that is ambiguously for the better, I will definitely be for it, and I assume most Objectivists will agree. If there is a step that is a mixture of good and bad, then too one has to evaluate it and decide what makes sense. Also, it is wrong to assume that everyone is going to turn pro free-market any time soon. So, who is assuming that?

All in all, you're arguing against arguments that are in your imagination.

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Did someone suggest that it is the U.S post office? As for lower taxes. The OP actually talked *down* GOP attempts to lower taxes. Similarly, you mentioned the gold standard, but *you're* the one who raised it.

 

I'm not trying to talk past people. The points I bring up are commonly ones I hear and read as response to ideas like spending a trillion on innovation. Things like "do more of what got us in this spot?" , or "state science institute", "welcome  back mr keyes". etc. It's the typical dismissive attitude I find.

 

My point towards the OP was that these small issues are symptoms of the larger economic problems which are rarely addressed. 

 

I don't think "tiny steps" will be enough, because our entire economic system has changed, and in such a way that I think we'll have to work with it. I suppose I should supply some data to avoid the "keyes" and related criticisms that were quickly thrown at me.  

 

With the US gov spending 23% of GDP, their role is far too involved to call this capitalism. It used to work that businesses would invest, accumulate capital, then repeat. Our current system is based on a cycle of credit creation and consumption. And it's created ridiculously rapid growth for the last 40-50 years (just look at China). But the private sector is straining under this debt...teetering really, which is why I don't think small measures should be taken. 

 

Because yes, the only thing we can rely on now is more credit growth, but where is that going to come from when we're at 70% consumption, with no significant industrial base or investment? The private sector obviously can't provide the growth, so that's why I suggest government. 

 

Since it's government policy, in this credit system, that drives asset prices and economic growth, the only optimistic option I can see is spending it on innovation. 

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Credit booms and busts have been around for at least a couple of centuries. It is very tempting to ask for more credit to keep a boom going. Only problem is that there's no end-game in that direction. Ironically, innovation is what has kept the world going to the dogs, but not government-funded innovation. The extended recession we are experiencing today is the direct result of the government's attempts to fight against credit deflation.

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Credit booms and busts have been around for at least a couple of centuries. It is very tempting to ask for more credit to keep a boom going. Only problem is that there's no end-game in that direction.

I agree that the end game is not favorable, but I think the alternative is a catastrophe. I also agree that booms and busts are part of normal economic cycles, however this particular state of credit–fueled economics is entirely unique to anything in the history of economics. 

 

If you look back to the end of WWII,...1952 I think, since then, if credit grew by less than 2%, we had a recession. And that's happened 9 times since then. And the recession wouldn't end until we had another large surge of credit expansion. But in those times it was easier to see which sector credit growth would come from. Since this debt crises started however, the only thing that's driven credit growth is government, which is what's unique about this. Since the 60s credit has increased almost 50 fold, where before it was increasing at a predictable rate. The rules for credit booms and busts are completely different from typical, capital driven economics. 

 

Japan's been going through this crises for 23 years now. They went from debt being 60% GDP to 250%. Abenomics is being adopted on a global scale. Many other countries are changing their policies to mimic it (the austrian model of credit economics, which is what our Fed subscribes to). So Japan is a perfect example of where we're headed with current policy. Because our government (like the Austrians),  believe that the bubble will eventually pop, and we'll have to recover, as in 2008. But I think they're underestimating how big this bubble has gotten, and how bad the recession would be. 

 

So instead of wasting money on consumption and war, why not a plan on how to invest these trillions that we're going to spend anyway. investing them in productive, capital assets that will generate a massive profit in the future. They could invest on such an aggressive scale that they could induce a technological revolution, and lock in some sort of american sanctuary. 

 

Unfortunately it would take leadership and vision that we're obviously short on. (the way our leadership reacted to 2008 is my reason for saying this)

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I agree that the end game is not favorable, but I think the alternative is a catastrophe.

No it is not. The american economy is very resilient, as are most others. Americans are wealthy. Even if one concedes we're in a recession, go to any Panera Bread store and see how the middle class spend, consider how freely people spend on Starbucks coffee, or even on the latest smart phone. The crisis is relative, not absolute. By depression-era standards, we're living a life of luxury.

Political hacks like Paul Krugman like people to believe that government spending is the answer since it is the only game in town. Professors who have studied theory but not history scratch their heads and wonder why more private credit is not created when interest rates are so low. Fact is that the low interest rates a major part of what is killing traditional private credit-creation, and pushing the supply of that capital into riskier assets instead.

You're on the right track when you say innovation is the solution. The biggest effect of innovation is in lowering real costs of production, and thus making everyone richer. The U.S. has automated so much already, but there's so much more that can be done. yet, when a Keystone pipeline is proposed, people don't think the lowered cost of gas is worth the fictitious environmental harm. When Boeing tries to relocate a factory to lower its costs, the government throws a spanner in the works. When banks fail some of the guiltiest are saved, and those that are relatively innocent and even step forward to help outy are then penalized and fined. When government mandates cause health care to be so expensive, both GOP and Democrats increase those mandates further. Every year, voters -- via their government -- put more regulations in the way of business. Most of this is neutralized by innovation and by the wit of businessmen, and one sees some growth: but, the unseen is the growth that could have been.

The solution is not to have the government make more decisions about how and where people should innovate. One motivated private innovator will usually come up with more productive work than a dozen university professors who have to spend their time pleasing bureaucrats, while filing grant applications; and the lone inventor will do more than the charlatan "private" companies who get government grants to innovate, based one their selling skills to bureaucrats.

The solution is not to have more government, but for government to get out of the way. I can understand the desire to double down, and to hell with the future. However, if there is any lesson to be learn from rational philosophy -- not just Objectivism -- it is that man ought to think long term: at least across the span of his life, and the lives of the ones he loves.

You're right to point to Japan's huge debt, and to the fact that every other country seems to be heading there too. It is a good thing that we have Japan as an example. If you had to hold a CD for 10 years -- unhedged -- would you bet on a dollar-denominated CD or one denominated in Yen?

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Some really great points you brought up there. And if my view of our present situation wasn't so pessimistic I'd agree with most of what you said.

 

I'm irritated by some of the same things that I've been reading about in the news, especially on how banks are forced to pay fines, without admitting any guilt (or getting any sense of justice or clear reason behind the fines). And this is because if they try to contest the fines, they'll simply be shut down during any investigations, which would be much more harmful to the banks. 

 

But I also mention the banks because I think that's where I differ in terms of where I see the country going and views on regulation. 

 

It's been about five years since the collapse of the Lehman brothers, which put the world at the brink of the next great depression. Since then US debt has gone up about 7 trillion, so 125%. The US mortgage market has essentially become nationalized, and the banks now are much more condensed and in control about 1/3 of all deposits in the US. Meanwhile derivatives are still as out of control as ever, and we have a new Fed chairman stepping in who's just as much as fan of quantitative easing as ol' Bernanke. Also since Lehman's kicked it, about 1.5 mill manufacturing jobs have up and vanished from the US. Medium household income is back to where it was in 1989, adjusted for inflation. Meanwhile, of course, home prices are skyrocketing (all time high of $70 trillion). So this is where I disagree with the 'life of luxury.'

 

But the point of all that is to show that banks are very  much in charge now, and banks are primarily federally run. Whereas in capitalism the heads of industry controlled political power, now the banks do. And what we're witnessing (and what's historically always been the case) is that whoever creates the wealth controls political power. While I agree on the lessons of the past, I think some of the errors our economic analysts are making, however, are by using policies of the past. (the big media attention and surprise yesterday, at reports of job growth despite "expert analysts" saying otherwise, is a good example). 

 

So I don't think the issue is regulation, as much as regulation annoys me when I open the papers, it's that the stock market, our economy (and by extension, the world's economy) will move in direct accordance to the Fed's policies. So we have to look to the Fed's policy and their intentions to see our fate. What most people don't seem to realize is how disastrous it would be if we defaulted on our debt. So I'm not saying to hell with the future...it's just that we are very close to either defaulting on our debt, or another recession as a result from cutbacks on government spending (similar to 2008, but nothing like the great depression that would follow a default). 

 

The reason a default would be a catastrophe is that the US is the only superpower right now, mainly because we can buy things globally on credit. This is based on faith in US bonds. So if congress causes a default, it  would shake that faith, and trigger this depression. Despite the 10 year US bonds only yielding 2.6%  (japan's at 0.7%), it's well below what the US pays to borrow, so we should have the ability to pay our debts for a long time (again look at Japan), as long as congress allows it. 

 

And it looks like it will...the IMF report from last week showed that debt is already contracting, in fact too sharply, which is why the economy is dragging right now. But any sort of recession is preferable to the god–awfulness of a default and lack of faith in US currency. 

 

If we default: 

 

1. no foreign funding = soaring interest rates...on everything. mortgages, credit

2. Exports would tank...since no one wants our IOUs, and can't support to keep their factories open from lack of buyers 

3. just like in the 30's unemployment would skyrocket, and globalisation would end

4. a viscous cycle would start with trade barriers up. cost of goods goes up, assets devalued, unemployment goes up, as with deflation and interest rates. 

5. banking globally would likely fail. economy would basically collapse, and the recovery could take lifetimes

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 If you had to hold a CD for 10 years -- unhedged -- would you bet on a dollar-denominated CD or one denominated in Yen?

 

Forgot about this. 10 years?? eek. This is a really tough question...neither really appeals to me. I'd rather put that money in stocks in the short term, silver in for the long term. Trading currencies is honestly a little confusing to me, especially ADRs...since the value is in US dollars, but the holdings are in the foreign currency...so you're actually gaining money if the dollar falls? I'm still trying to learn finance (the focus lately has been economics which is why I'm probably so idealistic about all this). Which would you choose? 

 

China's bonds are very appealing, or at least interesting right now simply because the government owns 80% of their enterprises, and is making billions just by exchanging its delinquent loans for equity in the companies. 

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I reckon I agree with most of what you say about the market looking to the Fed for more QE, etc.

So this is where I disagree with the 'life of luxury.'

The way I think of recession, we are still in this great recession, and are likely to remain here for a while. That does not change the fact that even the bottom is a very rich country, with a high standard of living. Think about the world of "Grapes of Wrath", and the world at the bottom of this recent recession. Relatively, things are really very good. No credit to government policy. Instead, private individuals have figured out all sorts of ways to create values at a much lower cost.

The broad policy mistake in the current recession has been not allowing things to get worse. Consequently, people have cut back, but nowhere near enough. People are paying up mortgages, and saving slightly more, but nowhere near what they ought to be doing.

 

The reason a default would be a catastrophe is that the US is the only superpower right now, ...

The U.S. will not default. There is no way the GOP will push for an actual default. And, if they were to reach there through some type of brinksmanship, there is no way the President whether GOP or Democrat will allow it to happen. Do you really think the U.S. will default on paying dollar-denominated debt, when it can pay it in full electronically at any time? You list various consequences of a default, but we're nowhere near that happening. Most of the market was yawning during all the buzz about default. The only impact was in very short term rates, where even a few days of delay could matter.

 

And it looks like it will...the IMF report from last week showed that debt is already contracting, in fact too sharply, which is why the economy is dragging right now. But any sort of recession is preferable to the god–awfulness of a default and lack of faith in US currency.

Unfortunately, with things the way they stand, further credit-deflation and a mini-recession would actually be a good thing right now. The bad side would be that the government will pump up credit again, coming to the rescue. Nevertheless, each recession does prune some bad investments, force the recognition of some bad-debts: a dose of reality.

 

Which would you choose?

Over a 10-year horizon, I would choose the dollar over the Yen, because Japan seems to be more committed to fiscal and monetary stimulus. To me, China is too risky and investment for a foreigner.

Despite everything, the U.S. still has a huge advantage in being a relative bastion of rule-of-law and stability. It is not just the U.S. dollar that foreigners want to hold. When they are rich, they look to putting some money into U.S. stocks, into U.S. real-estate (also Australia, Canada and U.K.).

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  • 3 months later...

The only way I can see to maintain this level of credit (175% of GDP now), is if we make a solid commitment to innovation, by spending say a trillion on biotechnology (stem cells, nanotech), spend a trillion on energy like solar, wind, etc. Not just dumping money, but making a full commitment to be competitive in these areas (like with the space program).

China is all set to bailout its solar panel manufacturers. Just a few years ago, talking heads on T.V. were wringing their hands because China was going to lead this suppsoedly promising industry.

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I know China uses a lot of coal energy so I can see solar being comparatively expensive. The technology is encouraging elsewhere in the world, though.

GALHj.jpg


Solar power in America is growing rapidly, albeit from a small base (see chart).Last year it represented 29% of new electricity
capacity, behind only natural gas at 46%. Solar output has more than doubled during Barack Obama’s time in office;
GTM, a research firm, reckons it will grow another 26% in 2014. The Department of Energy wants solar to provide 27% of
America’s electricity by 2050, up from less than 1% today.
 
excerpt from The Economist "Let the sun shine" March 8 issue 
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