Four Theories about the Great Depression


More than most people, libertarians have beliefs about the Great Depression. Having spent several years studying the matter, I have some conclusions about four such beliefs: first, that what caused the depression was the Federal Reserve allowing a drop in the money supply; second, that what made it terrible was the passage of the Smoot-Hawley Tariff, which collapsed America’s foreign trade; third, that the New Deal really began under Herbert Hoover; and fourth, that what lengthened the Depression was fear of what the New Deal government would do.

In addressing these questions, I am relying heavily on my hometown newspapers — the Seattle Times, Seattle Post-Intelligencer and Seattle Star — because newspapers are “the raw material of history.” They are not the only sources available, and they have their mistakes, omissions, and biases. But they are broader than politicians’ collected personal papers and broader, in a different sense, than the economists’ statistical tables. As sources for general research about a period, I like newspapers best. I know newspapers. I spent 37 years working for newspapers and magazines, about half that time on the business and financial pages.

The first of the four beliefs, associated with Milton Friedman and the Chicago School, is that the Federal Reserve was responsible for turning a recession into a depression — the deepest and longest in American history — by shrinking the money supply. It’s true that there was less money in people’s pockets, and that was a bad effect. But when economists talk about the Fed shrinking the money supply, they mean shrinking the money available to the banks — and during most of the Depression banks were loaded to the gunwales with money. With few willing and qualified borrowers, they simply parked depositors’ money in US Treasury bonds and local bonds and warrants (thereby helping to finance their local governments and the New Deal). Bankers talked about this on the business pages, and showed it in the year-end bank balance sheets presented in newspaper display ads. For those reasons I find it difficult to indict the Fed for starving the banking system of money.

Newspapers have their mistakes, omissions, and biases. But they are broader than politicians’ collected personal papers and broader, in a different sense, than the economists’ statistical tables.

A variant of this argument is that the Fed mistakenly turned a recession into a depression by raising interest rates.

Overall the Fed lowered interest rates in the depression. In the two years following the Crash of 1929, the Fed cut its rate on short-term loans to banks, going down from 6% to 1.5%. But to stop the outflow of the Treasury’s gold during the currency crisis of September 1931, the Fed temporarily raised the rate to 3.5%. This 2% bump is the “mistake” that the economists holler about. At the time the Fed did this, critics said it would retard recovery, and when recovery didn’t come, the critics pronounced themselves right. But at the time, the financial editor of the Seattle Times noted that the Fed’s supposedly stimulative 1.5% interest rate hadn’t done anything to stimulate recovery. (The Keynesians would later say the Fed was “pushing on a string.”) Investors weren’t holding back because of two percentage points. They were holding back because they were afraid to borrow at all.

I’m not a historian of the Fed, and am not claiming the Fed made no mistakes. But pinning the depression on the stinginess of the Fed to the banks doesn’t seem right. If it were true, the interest rates would have been higher. Also, there would have been furious complaints in the newspapers, even in Seattle. And I didn’t see it.

During most of the Depression banks were loaded to the gunwales with cash. With few willing and qualified borrowers, they simply parked depositors’ money.

The second belief is that the Smoot-Hawley Tariff caused the Depression by posting the highest taxes on imports in the 20th century. The figure usually cited is that the average tariff rate under Smoot-Hawley was 59% — a horrible rate. This, however, was the rate on dutiable goods, and excludes the many goods on the free list. The average rate on all goods was 19.8% — still bad, but something less than torture.

Free traders always reach for the Smoot-Hawley argument. I have heard it not only from libertarians but from supporters of the WTO, TPP, NAFTA, and the promoters of trade in my hometown. And politically, I am on free traders’ side. I agree that the Smoot-Hawley Tariff, signed in June 1930 by Herbert Hoover, was bad medicine. And in this case, there was protest in the newspapers, with voices saying it was a terrible, self-defeating law, and predicting that other countries would retaliate. The newspapers ran stories when the other countries did retaliate.

Smoot-Hawley was also a contributing cause of the collapse in the international bond market in 1931, because it made it more difficult for America’s debtors — Britain, France, Germany, Brazil, Bolivia, Peru, and others — to earn the dollars to repay their debts. But this one bad law cannot bear all the blame for the subsequent implosion of America’s imports and exports.

I can think of four reasons why. First, the Depression was already on, so that by June 1930 imports and exports were already headed downward. Second, if you want to blame tariffs, put two-thirds of the blame on the tariffs in place before Smoot-Hawley was signed, which were an average of 13.5% on all goods. Third, in 1930 exports made up only about 5% of US output (versus 12.5% today), so that the shrinkage in trade, though dramatic in itself, was only two or three percentage points of the overall economy.

This one bad law cannot bear all the blame for the subsequent implosion of America’s imports and exports.

Finally, in September 1931, the British Commonwealth went off the gold standard. The British, Australian, and Canadian currencies were immediately devalued by 15 to 20%. Austria, Germany, Japan, and Sweden also went off gold, effectively devaluing their own currencies. The products of these fiat-money countries immediately dropped in price relative to the products of the United States. One example: Swedish wood pulp pushed US pulp out of world markets, so that almost all the pulp mills in Washington state shut down.

When Franklin Roosevelt came into office in March 1933, he ended the convertibility of the dollar into gold at the old rate of $20.67 an ounce. The reason for doing this was not a shortage of gold; the Treasury had stacks of it. The reason was to match the foreign devaluations and make American goods competitive again. And it did. Trade, the stock market, and the real economy jumped immediately when the dollar went off gold. From April to July 1933 there was a kind of boom, even though Smoot-Hawley was still in effect. (The boom ended because of the National Recovery Act and some other things, but that is another story.)

If you focus on principles, which libertarians like to do, you can lose sight of magnitudes and proportions that matter more.

The third belief, that Herbert Hoover was an interventionist and implemented a kind of proto-New Deal, is a thesis of Murray Rothbard in America’s Great Depression. Rothbard recounts that after the Crash of 1929, Hoover called leaders of industry to the White House and made them promise not to cut wages. The theory at the time was that this would maintain “purchasing power” and thereby prevent a depression. That was a precedent for the New Deal. It was noted at the time by business columnist Merryle Rukeyser (father of Louis Rukeyser, host of PBS-TV’s “Wall Street Week” from 1970 to 2002). Merryle Rukeyser wrote in December 1929 of the Hoover meetings, “The old-fashioned idea of leaving such matters to the individualism of business leaders — known as the doctrine of laissez faire among economists — has been formally laid to rest and buried.”

So Rothbard had a point: in principle, Hoover was an interventionist. But if you focus on principles, which libertarians like to do, you can lose sight of magnitudes and proportions that matter more. The larger fact is that the Hoover and Roosevelt regimes were hugely different in what the federal government undertook to do, what constitutional precedents they set, how many people they employed, how much money they spent, and how much they affected the world we still live in.

The fourth belief, that the New Deal prolonged the depression by frightening investors, is the thesis of libertarian historian Robert Higgs in his essay, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War.” (Reprinted in Depression, War and Cold War, Independent Institute, 2006.) Higgs argues that the Depression lasted for more than ten years because of “a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns” during the later New Deal of 1935–1940.

I can’t comment on much past the beginning of 1935, because that’s where I am in my reading. But I can verify that “regime uncertainty” was real, and that I saw evidence of it beginning in mid-1933, when the initial Roosevelt boom faltered.

At first Forbes advised his business readers to swallow it and said he was loyally swallowing it himself.

In the newspapers I read, the best barometer of this is B.C. Forbes’ business-page column. Forbes — the founder of the eponymous magazine — was very much a pro-capitalist guy. (The magazine calls itself a “capitalist tool.”) Forbes once wrote that his job as a newspaper columnist was to explain the economy to ordinary readers by interviewing industrialists and bankers. Much of the time Forbes was a transmission belt of their doings, thoughts, and feelings along with his own.

It was predictable that Forbes would not like the New Deal. At first he advised his business readers to swallow it and said he was loyally swallowing it himself. But he quickly began choking on the two principal “recovery” programs, the Agricultural Adjustment Act (AAA) and the National Recovery Administration (NRA). The NRA’s boss, Gen. Hugh Johnson, was a loud, imperious man who had been President Wilson’s boss of military conscription during World War I. During the early New Deal, Johnson helped to popularize two expressions: to chisel, meaning to lower one’s price below the government minimum, and to crack down, meaning to punish. In July 1933, Johnson went right to work, cracking down on the chiselers in American industry.

General Johnson was the closest that peacetime American business ever had to a military dictator. In August 1933, Forbes called him “a Vesuvius, in epochal, thundering eruption . . . Not even Teddy Roosevelt in his most explosive days matched General Johnson’s Titanic energy and action — or his wielding of the big stick.”

And: “Mussolini has nothing on him in readiness to undertake multitudinous tasks and to swing the Big Stick.” (This was when Italy’s dictator, Benito Mussolini, was popular with many Americans.)

General Johnson was the closest that peacetime American business ever had to a military dictator.

In the fall of 1934, when Gen. Johnson was replaced by labor attorney Donald Richberg, Forbes wrote: “Reason is expected to replace ranting swashbucklerism.” Forbes loved to publicize good omens, but during these years he was repeatedly disappointed.

In March 1934, Forbes quoted an anonymous industrialist (probably Charles Schwab of Bethlehem Steel, whom he named elsewhere in the column): “No, don’t quote me as saying anything that would sound like criticism of the administration or any branch of it. It’s too dangerous. I don’t want to be cracked down on at this time when Washington has unlimited power to do what it likes.”

Later in the same month Forbes wrote, “The fear today is not of the law but of bureaucrats. Few employers regard themselves as in a position to stand up against dictation as Henry Ford has done.” (Ford had refused to accept the NRA’s “voluntary” price and production controls, and was not allowed to display the Blue Eagle and its motto “We Do Our Part.”)

One of Forbes’ October 1934 columns was an open letter to Franklin Roosevelt, titled in the Seattle Post-Intelligencer “Mr. President, All Employers Aren’t Crooks.”

Forbes loved to publicize good omens, but during these years he was repeatedly disappointed.

Forbes is not the only wellspring of business angst. Here is Merryle Rukeyser, a man more sympathetic to the New Deal than Forbes, in September 1934: “Business men are in a timid mood because of lack of assurance as to their tax liability and as to the attitude of the powers that be toward business profits.”

A doubter might argue that a handful of newspaper columns aren’t enough to prove Higgs’ thesis. I suppose so; but how would you prove it? It is about a state of mind — “confidence” — and how do you demonstrate that except by considering what people say and do? In fact, investors talked and acted as if they lacked confidence; statistics show a shortage of long-term investment. And in fact, there were statements by Roosevelt and by Hugh Johnson, Harold Ickes, Henry Wallace, Rexford Tugwell, and other New Dealers that might very well cause investors to lack confidence. And it was not only the New Dealers, but also their opponents on the left: Dr. Francis Townsend, who wanted every American over 60 to have $200 a month of government money (about $3000 in today’s terms); Upton Sinclair, the Democratic nominee for governor who wanted to set up a socialist economy in California; Father Coughlin, a radio priest who ranted against the rich; and Sen. Huey Long, the “Kingfish” of Louisiana who called his program “Share the Wealth,” and who was stopped only by an assassin’s bullet. This was a different time — and newspapers give you a flavor of it.

Of the four beliefs about the Depression I mentioned at the beginning, I think Robert Higgs’ “regime uncertainty” is most clearly verified. (Read his essay!) The crucial fact about the Depression of the 1930s is not that America got out of it; it always gets out. It’s that the getting out took more than ten years, which was longer any other depression in US history, and that Canada, Britain, Germany, and most other countries got out sooner, and that it took a worldwide war and the eclipse of the New Dealers for America to get all the way out.

Investors talked and acted as if they lacked confidence; statistics show a shortage of long-term investment.

But I don’t think the depression of the 1930s — the onset of it, the depth of it, the duration of it — was caused by any single thing. The commercial world is more complicated than that. I think the Austrian theory of overinvestment, or “mal-investment,” explains much of the setup of the crash, because in the late 1920s and into 1930 there were a lot of bad investments in real estate, commercial buildings, holding companies, and junky stocks. The Crash in 1929 shrank people’s assets and, more important, their confidence — for years. The Dow Jones Industrials went down almost 90%. The reparations owed by Germany to Britain and France, the sovereign debts owed to the United States by Germany, Britain, and France, as well as to Brazil and other South American republics, all had something to do with it, because in 1931 this grand edifice of debt went down in a heap. The bond market was so thoroughly wrecked that counties, cities, school districts, and corporations were locked out of long-term borrowing for several years. Smoot-Hawley and the whole movement toward economic nationalism had a bad effect. The gold standard deepened the Depression because it imposed a discipline on government finances — heavy spending cuts — at a time when they were painful, and when some countries freed themselves of that discipline it shifted the pain to the other ones. Finally, the anti-capitalist political currents and the ad hoc, experimental, extralegal character of the New Deal frightened investors, whose long-term commitments were needed for economic recovery.

That’s the best I can do. I’m still reading old newspapers.

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Bitcoin Blues


Enthusiasts expect bitcoin to become a new privatized money, perhaps even replacing government money. The system will keep track of cash balances and transactions in such a way as to prevent fraudulent double-spending of the same units. Operating without any centralized recordkeeping (as by a bank or government), it will enhance financial privacy. It will employ an advanced technology called blockchain. As the Federal Reserve Bank of St. Louis Review (first quarter 2018) said, to really understand bitcoin and its many imitators requires combined knowledge of cryptography, computer science, and economics.

I lack this knowledge. Some points, though, are clear enough. A workable monetary system requires a unit of account and a medium of exchange. Prices, values, debts, claims, and cash balances are expressed, and accounting is conducted in the unit. The medium is something routinely used for receiving and making payments; in the United States it is currency and bank accounts denominated in dollars. Each transactor needs to hold some of the medium of exchange because receipts and expenditures are uncertain in exact timing and amount and are not closely synchronized.

The bitcoin unit goes undefined by anything and lacks redeemablity.

A suitable unit of account has an at least roughly stable value, which may be achieved in either of two ways. First, the unit may be defined by a quantity of some good or basket of goods, with the definition kept operational by two-way convertibility between money and the defining good or basket. Under the gold standard the US dollar was defined as the value of 1.5046 grams of pure gold. Under such a system the money supply adjusts almost automatically to the defined value. Alternatively, the value of the unit may be managed by central control of the money supply. The price level then adjusts to rough proportionality with the money supply, as explained by the quantity theory of money.

The bitcoin unit goes undefined by anything and lacks redeemablity. Its quantity grows in a strange way called “mining.” As a reward for taking part in the system’s decentralized record-keeping and especially for solving increasingly difficult mathematical problems, miners obtain new bitcoins. Their final amount is limited to 21 million. Who knows what happens then? Meanwhile, bitcoin-mining destroys real wealth by consuming vast amounts of electricity to operate huge computers.

Wild fluctuations in bitcoin’s undefined value rule out its use as unit of account and so, almost completely, as medium of exchange. Who wants to hold amounts of such an unstable asset for receiving and making payments? The occasional business firm “accepting” bitcoin promptly sells it for standard money rather than adding it to its transactions cash balance. A video by a Wall Street Journal reporter shows the great effort and extra costs of buying a pizza with bitcoin in New York City.

The final amount of bitcoins is limited to 21 million. Who knows what happens then?

Why, then, does anyone hold bitcoin? Some libertarians hold it to express disgust with government money and a hope for some kind of private and privacy-preserving alternative. (But other and academically respectable proposals for privatized money are available.) Some enthusiasts buy it as an investment or speculation. (Saying so in no way denies that speculation generally serves sound economic functions and that the distinction between it and investment is fuzzy.)

Prudence recommends that anyone considering an investment should ask how the desired gain might come as a share of real wealth — desired goods and services — created by his own and others’ investment. Even a gambling casino creates wealth in the perhaps questionable form of hopes, excitement, and entertainment. Gain on an investment or speculation with no prospect of creating wealth must come as a transfer from losers.

Meanwhile, bitcoin-mining destroys real wealth by consuming vast amounts of electricity to operate huge computers.

How, then, might promoting bitcoin create wealth? The advantages of a sound nongovernmental monetary system could count as wealth, but as a “public good” in the technical sense of something whose benefits cannot be withheld from people not paying for it — such as national defense or policing. Furthermore, competition from bitcoin’s surviving imitators would dilute any profits. More optimistically, experience with bitcoin might spur profitable improvements in its blockchain technology, which is already being extended beyond monetary uses.

Bitcoin might even evolve, after all, into a workable privatized money, quite in contrast with our current system. But how? Ayn Rand would dismissively reply: “Somehow.”

A final comment may be unfair, but I cannot resist making it. Excitement over bitcoin reminds me of the dotcom boom of the 1990s and even more so of the British South Seas bubble of 1720. For little more reason than that stocks kept going up, speculators drove prices still higher — until the crash came. Meanwhile, stock in dubious new enterprises sold readily. Charles Mackay (Extraordinary Popular Delusions and the Madness of Crowds, 1848) writes of one promoter who disappeared with the proceeds of successfully issuing stock in something described as “A company for carrying on an undertaking of great advantage, but nobody to know what it is.”

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The Great Debaters


I feel that I should say something about the presidential debates. I don’t want to do it. Probably you don’t want to read it. But it’s as inevitable as someone going to a wake and saying, “Doesn’t he look natural?”

“Natural,” of course, would not be the right word for our current debaters. Most of them look deranged, and their talk confirms the impression. I think one sample will suffice. It’s the now-famous outburst from Bernie Sanders, standing next to his alleged opponent, Hillary Clinton, and screaming, “"The American people are sick and tired of hearing about your damn emails. . . . Enough of the emails. Let's talk about the real issues facing America.”

Can’t you just hear the Witch of the West cackling, “Helping the little lady along, are you, my fine gentleman?” In this case, the cackling was supplied by the little lady herself, who shrieked a series of those demented sounds that pass with her for laughter. But why would anybody say what Sanders said? It’s not the kind of thing you say if you actually want to beat your opponent.

Media speculation holds that Bernie wants a high position in a Clinton administration, and one can imagine many posts for which he would be qualified. As someone who doesn’t realize that the arguments for socialism were completely discredited over a hundred years ago, he’s suited to be Undersecretary for Historic Preservation. Maybe he could rise as far as Executive Director of the Steam Locomotive Bureau.

In this case, the cackling was supplied by the little lady herself, who shrieked a series of those demented sounds that pass with her for laughter.

My own speculation is that Sanders simply hates Republicans so much that he is willing to do anything to express contempt for them. Because that’s what his statement was — a mere declaration of contempt. No reasoning about the evidence, no consideration of the many problems that Clinton’s “damn emails” have brought up, and of course no interest in the, after all, very interesting question of why he thinks he can speak for “the American people.” The same populace that he pictures as alternately vomiting over the email scandal and trying to sleep it off (“sick and tired”) is depicted by the polls as actively concerned with the issue and actively engaged in revising its opinion of Hillary Clinton — downward. Why wouldn’t Sanders use this as a campaign talking point, or at least leave it lay, unless he was mastered by his vindictive spirit? The reason his campaign got traction is that even Democrats consider Clinton a hateful, dishonest person. But with his carefully plotted debate outburst, Sanders showed that for him, nothing is worth so much as reviling the Republicans. This is ordinary for Democrats. The family that reviles together, stays together.

But to do Sanders the justice he is never willing to do other people, we need to consider his own explanation of his motive — his belief that discussion of Hillary’s “damn emails” crowds out discussion of “the real issues facing America.”

(I like quoting “damn emails,” because it’s such a dumb thing to say. “Damn” is the default term of abuse. It’s what people say when they can’t think of anything else. It’s exactly what a dumb, befuddled, obnoxious old coot would say about any problem in daily life. “Damn junk mail! Why do they send me the damn stuff? Damn toaster! Burns the bread every damn time! Damn kids! I’m sick of the damn kids in this neighborhood!”)

As someone who doesn’t realize that the arguments for socialism were completely discredited over a hundred years ago, Sanders is well suited to be Undersecretary for Historic Preservation.

So let’s consider his belief. The essential idea is one he shares with most of the other candidates, Democratic or Republican — the notion that there is a giant pile of issues out there, as tall as Mt. Everest and just as gnarly, and that America has to face those issues,and would be busy doing so if Americans could only see them. The candidate’s mission is to reveal the existence of those issues, now cleverly concealed behind the opponents’ lying contemptible hateful hate-filled propaganda. No one else is willing to undertake this mission.

If this is true, it’s surprising that political candidates almost never initiate a dialogue about the issues that is remotely similar to anything that normal people do when they have a real issue to discuss. Normal people try to find the facts, and if the facts turn out not to be alarming, they are happy not to argue about solving a problem that no one can find. But if there is a problem, and it’s apparent enough to be a subject of debate, they try to sharpen their arguments and communicate them clearly and concisely. They entertain objections and attend to plausible counterarguments. And they present a clear plan of action. They don’t go on and on about how the door needs to be fixed; they say, “Tomorrow morning, I’ll call up Dave the Fixit Guy and see what he’ll charge to take care of that door.”

Political candidates address the issues in a different way. They declare, usually out of the blue, that they have discovered an issue that must be faced. Then they invent facts to support their statements, denounce anyone who takes a more optimistic view of the situation, declare that the problem must be solved instantaneously, and exclude any possibility of solving it except by taking all the money out of other people’s bank accounts. This is not what you or I mean when we urge other people to face an issue. Still stranger is the fact that the political discussion, or national dialogue, never reaches the level of argument. It’s all declarations and demands.

Sanders is a convenient, and hilarious, example. When, during the Democrats’ debate, Anderson Cooper asked him whether he was electable, given his history — he supported the Sandinistas, honeymooned in the Soviet Union, and bills himself as a socialist — Sanders replied by saying that in the last election “63% of the American people didn’t vote, Anderson. 80% of young people didn’t vote.” He implied that these people would vote for him. Some discussion.

As for his positive program, consider this masterpiece of argumentation:

And what democratic socialism is about is saying that it is immoral and wrong that the top one-tenth of 1% in this country own almost 90% — almost — own almost as much wealth as the bottom 90%. That it is wrong, today, in a rigged economy, that 57% of all new income is going to the top 1%.

That when you look around the world, you see every other major country providing health care to all people as a right, except the United States. You see every other major country saying to moms that, when you have a baby, we're not gonna separate you from your newborn baby, because we are going to have — we are gonna have medical and family paid leave, like every other country on Earth.

Sanders has a remarkable ability to make things up — remarkable for a human being, that is, but not for a presidential candidate. Their custom is just to say things, convinced that their audience won’t even take the trouble to check with Wikipedia. Very well. When you do subject yourself to that enormous task and find the Wiki article “Wealth in the United States,” you will not discover that one one-thousandth of the American population owns “almost as much wealth as the bottom 90%.” That’s just something that Sanders goes around saying, or yelling. He yells a lot.

But suppose you don’t care about piddling matters of fact. Suppose you care only about mighty matters of morality. What is the argument that allows Sanders to get from the existence of income inequality to the claim that income inequality is immoral? What is the argument that allows him to go, for instance, from the idea that people who receive $11,000 a year in Social Security benefits should be recompensed by taking 15% of incomes over $118,000 a year and giving it to them?

Moral lectures come strangely to the lips of a speaker who has no moral sense.

There is no argument. He never presents one. He just says things. To go back to the Wiki article, why shouldn’t Sanders demand that families headed by people between 65 and 74 years of age surrender huge amounts of money to households headed by people under 35 years of age? After all, the median net worth of the former is $232,100, and the median net worth of the latter is $10,460. And how about childless couples? They have a median net worth of $213,730, which is more than twice that of couples with children, and about 15 times that of single people with children, or single people under 55 years of age, without children. Shouldn’t these culprits, these viciously immoral childless couples, be compelled to give their wealth to those less fortunate?

Moral lectures come strangely to the lips of a speaker who has no moral sense. If he had any, wouldn’t he hesitate to tell one lie after another? Wouldn’t he hesitate to say, for instance, that “we are gonna have medical and family paid leave, like every other country on Earth”? Ah, Haiti — famous for its medical and family paid leave. Burma — a paradise for early childcare. Is Sanders so stupid that he doesn’t know what life on earth is like, or is he so cynical that he figures he can say anything at all, and an audience will lap it up?

In either case, he shouldn’t be shouting about morality. Even if he does believe that his visible audience consists of mindless oysters, why should he assume that everyone else is? “When you have a baby, we're not gonna separate you from your newborn baby” — as if mothers with newborns were as unwitting as Sanders’ followers, and simply allowed their offspring to be snatched away from their passive arms.

Most voters have something like free will. So if liberty and prosperity are snatched from them by the likes of Bernie Sanders, it’s their own fault. In the last sentence I originally typed “liberty and responsibility,” but “responsibility” may be the problem — that word is apparently so detestable to some of our fellow citizens that they’d rather hear Bernie Sanders bleating away, like the guy in the restaurant whom you ask not to be seated next to, than take a few moments to fulfill the duty of reflective thought.

Is Sanders so stupid that he doesn’t know what life on earth is like, or is he so cynical that he figures he can say anything at all, and an audience will lap it up?

Nevertheless, I doubt that many voters are as fearful of their own free will as are the media that attempted to fry Ben Carson for his answer to a question about what he would do if he were attacked by a mass murderer. He said he would try to take the guy down. He suggested that the targeted victims should act together to do that. In response, this headline appeared, typical of many:

2016 Contender Ben Carson Defends Remarks Criticizing Victims of Oregon Shooting

The preposterous idea was that Carson had criticized the victims for not having attacked the maniac who was assaulting them. He did no such thing. It seems that the media will settle for nothing short of “Carson Commends All Americans Who Plan to Cower and Be Killed.” Certainly the media were pleased enough when other presidential candidates suggested that the only acceptable options are (A) shivering like a sheep before any lunatic with a gun, and (B) keeping guns out of the hands of sane people.

I hope that if I am ever targeted by a lunatic, I will follow Dr. Carson’s advice. I know that if Carson happens to be with me, I can trust him to lead the charge. But I can never stand up to another Bernie Sanders debate. I’d rather be shot.

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World Government, or Smaller Countries?


Some believe that we are rapidly moving towards a world government. The European Union was one of the most visible expressions of this motion. NAFTA, ASEAN, and other trading blocks were seen as small moves in the same direction. The UN was the dream of the mushy-headed, those living on intellectual welfare with no real-life experience of how wealth is created.

A world government would be unsustainable if it ever came to pass, for the kind of people who work in governments always take pride at backstabbing one another, as well as their competitors in other governments. People’s lives have changed tremendously, given easy travel and high technology, but the structure of governments has not changed.

The world is becoming increasingly complex, but the institution of the state has remained mostly unchanged, making large governments very brittle.

Duty-free shopping exists in every country, for each of these governments competes to benefit itself by helping travelers avoid paying taxes to other governments. The US, the world's self-appointed chief policeman, is among the worst (or best) in this respect. While governments in the Caribbean islands and many smaller nations — mostly termed tax havens — get bad reputations for secrecy (and hence, my own respect), Miami, New York, and London are probably the world's capitals for secrecy and tax avoidance as long as you are not the milk-cow of the US or England.

One might even ask how is it that such a large number of properties are bought by Chinese, Ukrainians, and Russians in the US, Canada, Australia, and the UK. If these Western governments ensured that unaccounted money did not come from abroad, their hot property markets would crash.

The US makes almost no attempt to locate safety deposit lockers filled with US-dollar cash in jurisdictions outside the US. The government likes the convenience of interest-free loans in perpetuity from the cash holders. Using FACTA and all kinds of obnoxious enforcements on no other basis than American exceptionalism and its bullying power, the US gets the information it wants from other governments, but none dares to ask the US to reciprocate.

So far from world government being likely to happen, the future belongs to smaller states. But this will happen after a lot of turmoil.

Most banks comply with US bullying, although the cost of compliance is horrendous for financial institutions around the world. One day a breaking point will come and they will stop. Perhaps an alternative international currency will trigger this.

The US won’t be there forever

With every generation, glamour moves to a different jurisdiction. When I was growing up, it was France for fashion and snobbery, England for style, and Japan for the work ethic. A generation later, with all others having receded to the background, it became the US.

It is worth talking with today's teenagers in Asia. They follow Korean fashion, pop music, and soap operas. In sub-Saharan Africa, it is Indian music and movies. What the world looks up to will increasingly be Asia, while America recedes into the background.

If you find a Chinese girl with spectacles and no lenses in them amusing, you haven’t kept up with the fashion trends that originated in Korea or Japan. In Seoul, you will meet visiting teenagers from Malaysia who sing in Korean, and you can bet that they watch K-pop at home.

If you see girls wearing shorts that are a millimeter below the danger zone, but with the waist-band that does not end at the waist but much above the navel, you know where that fashion came from: from girls who worry about possibly having short legs. If you find men wearing tight pants, you know that the fashion is not from the West.

The bigger states will break

Before the world starts ignoring the diktats of the United States, America will become increasingly heavy-handed. Anything it doesn’t like will be considered "terrorism." For Americans, privacy will cease to exist. This is not based on prophecy, but on the history of how human civilizations have evolved and gone out of existence. The Roman Empire disappeared. So did the English and the French empires.

In other large countries — India, Brazil, France, the UK, etc. — the institution of government will come under huge amounts of stress, as heightened expectations of a populations hugely influenced by the modern-day welfare system can no longer be met. The world is becoming increasingly complex, with new technologies and cheap traveling, but the institution of the state has remained mostly unchanged, making large governments very brittle.

While all conventional religions are tribal in nature, they at least have elements of compassion, honesty, and other virtues. But statism thrives on hatred for other people.

To me the “Arab Spring” was the first visible sign of this. So was the democratic movement in Hong Kong. Behind the facade of higher vision and increased nationalism is indoctrination of a populace that is incapable of critical thinking, the kind of populace that in earlier generations would have stayed out of having an opinion on public policy. They have come to see democracy as a magic wand that delivers whatever one aspires for, merely through the vote. Nationalism is the emotional crutch for their failure to be self-dependent and their lack of self-confidence. None of these fake, irrational values can keep big nation-states glued together when the crunch time comes.

The result will be the possible breakup of many of the larger states. Would the US also break up? The irrational tribal slogan — “we are the biggest and the best” — can keep the US together for only so long. So far from world government being likely to happen, the future belongs to smaller states. But this will happen after a lot of turmoil, ironically made worse by the fact that in general, today’s populace is likely more statist and patriotic than the previous generations.

Central America: case studies on small countries

I have been very impressed with how well Hong Kong and Singapore are organized. In fact, I have become enamored with small countries.

I recently spent two months travelling in Central America, trying to understand its economy and people. I spent a fair amount of time in Boquete, Panama, a place where a large number of American expatriates live. When I was there, a girl with a flirtatious look (and from what I understood, based on my talks with the locals, her only competence) was elected as the local political representative. Alcohol was banned during the election days, but that did not stop restaurants from serving it, in coffee mugs.

The populace in Central America is not necessarily more awakened than that of the United States — perhaps much less. But does that matter? Mostly people are ambivalent about the existence of expatriates, if not grateful for their contribution to the economy. The state is alive and well there, but I hardly care about the state anymore. What I care about is how it affects me.

These small states recognize the economic importance of expatriates and mostly let them get on with their lives. Protecting property rights is their core competence. Nicaragua, for example, has become an attractive place for property investment, offering the cheapest options for those who can navigate this emerging country. In terms of expense, Panama is in between Costa Rica and Nicaragua.

Panama offers quality at a reasonable price. It also uses the US dollar, which is not the best way to run a monetary policy, for it is still dependent on a fiat currency, but this ensures that Panamanians cannot run their own printing press. Of course, they have no central bank of their own, and hence no cartel that comes with it.

Why is a place such as this, relatively conflict-free and wth enormous natural resources, not very rich?

Not only Americans and Canadians but also those from Ecuador, Venezuela, and other countries are finding safety in Panama. As a rule of thumb, small countries offer asset protection that big counties don't, for if these small countries stop respecting property rights, expatriates will fly away with their money.

Neither Costa Rica nor Panama has a military. This not only saves what would have been about 5% of the GDP in wastage but it sets a certain way of thinking among the citizenry. War is the health of the state, and statism is the worst religion. While all conventional religions are tribal in nature, they at least have elements of compassion, honesty, and other virtues. But statism thrives on hatred for other people. When you have the military solely for defence, narrowly defined (as is the case with Singapore and Switzerland) or have no military at all (as in Panama and Costa Rica), the social mindset is not about hatred for people who are different.

The repercussions are far-reaching. Less hatred also means fewer social conflicts within such societies, and hence a lack of civil wars within these countries. One must still be cautious about isolated crimes.

Incidentally, Central America is a unique place for nature lovers. This small piece of land separates two major oceans, the Pacific and the Atlantic, and hence is a channel for equalizing weather differences between the two oceans. I cannot think of another place where the forests change within minutes of walking, as you move from the area influenced by one kind of weather system to another, just on the other side of the ridge.

When traveling around in Costa Rica and Panama one must wonder — as I did — why a place that has been relatively conflict-free and has enormous natural resources is not a very rich place. Businesses tend to hire expatriates as much as they can. Locals are not known for their work ethic. Why this is the case, I am not sure. But that is why I travel, for it forces me to think about issues that would otherwise not occur to me. It hones my understanding of cultures, politics, and economics. Again, as an individualist, what I care about most is what affects me; and I doubt that the realm of One World Government would stimulate me much.

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Football? Why?


Me? I like tennis, a much more gentle and gentlemanly sport than the current favorite, football. Knocking people down takes little skill. Pounding a “down the line” passing shot that just ticks the line takes super hand-eye coordination. Notice that in football the home team fans are encouraged to hoot and scream like the lynch mob in front of the jailhouse, to drown out the quarterback’s signals. Contrast that with the silent courtesy given to the server even if you’ve got 50 bucks riding on the match against him.

So — a brief note on college football. I used to be a fan. (And the origin of that word, by the way, is not “fanatic,” but “fancier.” People arefanciers of the University of Alabama.) I used to enjoy the game, although I never saw a defensive tackle turn to the ref, shed a tear, and mumble, “I held No. 33.” But I’ve seen McEnroe overrule the ump: “No, his ball was in.”

Then I realized that while to me football is entertainment, to students it’s a distraction and corruption. Colleges are institutions supposedly dedicated to the education and maturation of youth. I assume that’s the wellspring of their nonprofit status. But football, in its current form, downplays sportsmanship. It recruits — in most cases — large, fast, violent young men who specialize in using their large, fast, violent bodies to knock down and inflict serious injury on opponents. This is not exactly a lesson in sportsmanship or human relationships. Our colleges accept this anomaly in their mission because a stultified public allows it. And in many cases a gang of alumni — who evidently got a lousy education — sponsor it. The G-d of mammon — not learning — reigns. The lure of reinforced endowments and bulging bank accounts is irresistible. Who said that colleges’ nonprofit status carries over to sports and other athletic activities? A courtroom full of lawyers could debate that for a semester or two.

Coaches make millions — much of it from my taxpayer pocket. It should be an optional item on my tax form. And after all, it seems only fair that if the school makes a profit, I should get a proportionate refund.

But money is not the main issue. (Most schools lose money on their athletic programs.) It’s the disproportionate emphasis on sports, which might involve 1 to 2% of the student body, versus the rest, who are purchasing the school’s educational products. If I’m going to be a drunken spendthrift with institutional money (and remember, nobody spends your money like it’s their own), I’d rather pay two million to the head of the engineering department than two million to the football coach.

Which skill is more important? Creating a bridge, a new concept of combustion engines, a new source of energy — or whacking an anonymous opponent, which sounds a lot like modern warfare? And don’t think that the coach tears up and shouts at the defensive tackle who breaks the leg of an enemy quarterback, “Oh, dear, you broke his leg. His incompetent backup will have to finish the game. I so wanted to go against their first team.” Such lines are never spoken on the gridiron battlefield. Sportsmanship is a rare commodity. And winning, as misspoken by some coaches, isn’t everything. You learn from losing, too. And life is full of losing as well as winning.

I only scratch the surface. But you get the idea. Why are colleges in the entertainment business? Certainly not for the benefit of their primary customers. It’s as though the municipal fire department held courses in arson, on the side.

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