Cracks in the wall of debt-delusion

Or in other words, Paul Krugman discovers debt. On May 12 of 2012, Paul Krugman confessed that he had no idea what Steve Keen was talking about with regards to how debt deflation reduces demand:

“Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.” (Minsky and Methodology (Wonkish), March 27, 2012)

However, it has become so obvious that without growing debt, people cannot afford to pay for things, (thereby reducing demand), that even Paul Krugman has finally noticed, Neo-Keynesian models of exogenous debt be damned. But, as is his wont, Krugman pretends to have known this all along:

“Start with the point I’ve raised several times, and others have raised as well: underneath the apparent stability of the Great Moderation lurked a rapid rise in debt that is now being unwound … Debt was rising by around 2 per cent of GDP annually; that’s not going to happen in future, which a naïve calculation suggests means a reduction in demand, other things equal, of around 2 percent of GDP.” (Secular Stagnation Arithmetic, December 7, 2013)

And notice his comment about debt rising by around two percent of GDP annually; is he finally paying attention to L1 only 11 years after I first warned about it? This is an astonishing development and may represent the first big cracks in the epic Keynesian wall of delusion concerning the exogenous, and therefore innocuous, nature of domestic debt.

In RGD, I demonstrated that debt not only effects demand, but prices as well. That’s why we can be certain that housing prices will not recover anytime soon and college tuitions cannot continue to rise, as their elevated price levels are almost entirely the result of the post-2001 explosion of easy credit. In fact, I even explained the connection between debt and demand in my proposed modification of the core mechanism of the Austrian Business Cycle on a post entitled The Limits of Demand back in June 2009:

“I suggest the cycle can be better understood if we broaden our
perspective when looking at the middle phase of the cycle and consider
how the expansion of bank credit will also lead to malinvestment for
reasons that are not dependent upon the shifting production ratio
between capital goods and consumer goods by utilizing a price-based
variant of the Keynesian acceleration principle. This begins with
recognizing the obvious causal connection between increased bank
credit and price distortions, since cheap credit permits consumers to
purchase goods at prices they could not otherwise have afforded; this is
what cheap credit is expected to do and is the reason loan
consolidations and other forms of consumer credit are advertised on
television. The easy availability of cheap credit permits the purchase
of houses, college tuitions, and cars by a much broader range of buyers
than would otherwise be the case, so as the law of supply and demand
dictates, an increase in the availability of debt will lead to an
increase in demand which will necessarily drive the price of those goods
being purchased by debt higher relative to the price of goods not being
purchased by debt.”

The converse of the bolded text is of course also true, hence my expectation of economic contraction following the debt-deflation as well as my observation of economic stagnation as a result of the current debt-disinflation. But then, I don’t have a Nobel Prize or anything.

Eco on the disappearance of the book

Umberto Eco considered a failed prophecy of Marshall McLuhan in light of recent developments in e-publishing in an article published on October 30, 2013 in L’Espresso.
At the start of the Seventies, Marshall
McLuhan announced some profound changes in our ways of thinking and
communication. One of his intuitions was that we were entering into a
global village, and in the universe of the Internet we have certainly
seen the verification of his vision. However, after analyzing the
influence of the printing press on the evolution of the culture and
our individual sensibilities in The Gutenberg Galaxy, McLuhan
announced, in Understanding Media and other works, the sunset
of alphabetic linearity and the newly arisen dominance of images. To
hypersimplify this, he anticipated that the masses “will no longer
read anymore, they will watch TV, (or the strobing lights of the
disco).”
McLuhan died
in 1980, just as we were entering the daily world of the personal
computer. (There appeared models that were more or less toys and
experimental objects at the end of the Seventies, but the mass market
began in 1981 with the IBM PC.) If McLuhan had lived
a few more years, he would
have had to admit that
even in a world apparently
dominated by images,
the personal computer was establishing a
new alphabetical civilization.
It may be true that the preschoolers of today use iPads, but all the
information we receive from the Internet, email, and SMS are based on
our knowledge of the
alphabet. Computers perfect the situation imagined in Hugo’s The
Hunchback of Notre Dame, in which the
archdeacon Frollo, indicating first a book, and then the cathedral
seen from the window, rich with images and other visual symbols,
says: “this will kill that”. With all its
multimedia links, the computer certainly
possesses the characteristics of being the instrument of the global
village, and it has the capacity to revive again the “that” of
the Gothic cathedral, but it still
fundamentally rests upon neo-gutenbergian
principles.

To return to the alphabet, the invention of
the ebook has provided the possibility to read alphabetic texts on
screens instead of paper. And on these screens one can expect to read
yet another series of auguries predicting the disappearance of the
book and of the newspaper, (in part suggested by some declines in
sales.) One of the favorite sports of every unimaginative journalist
over the years is to ask the men of letters how they see the coming
demise of the world of print. It is not enough to argue that the book
remains of fundamental importance to the transmission and
conservation of information, or that we have scientific proof that
books printed 500 years ago have survived wonderfully while we cannot
scientifically demonstrate that the magnetized storage systems
presently in use can survive for more than ten years. (Nor can we
verify this, since computers today cannot read a floppy disk from the
Eighties.)

Now, however, there are some
disconcerting occurrences that have caught the attention of
journalists, although we have not yet grasped their significance and
their eventual consequences. In August, Jeff Bezos of Amazon bought
the Washington Post, and while announcing the decline of the daily
newspaper, Warren Buffet recently acquired some 63 local newpapers. As
Federico Rampini observed in Repubblica the other day, Buffet is a giant
of the Old Economy and he is not an innovator, but he has a rare
acuity for discerning investment opportunities. And I suspect
that other sharks of Silicon Valley are also moving against the
newspapers.
Rampini asked if the final blow will
not be Bill Gates or Mark Zuckerberg purchasing the New York Times.
Even if this doesn’t happen, it is clear that the digital world is
overtaking print. What about commercial calculations, political
speculations, and the desire to preserve the press as a democratic
watchdog? I don’t feel that I have a sufficient grasp on the situation to
interpret these various facts correctly. However, I think it is interesting to
consider the possibility of the reversal of another famous prophecy. Perhaps
Mao had it wrong and one must take the paper tiger seriously.

Boycotting Israel

I have to admit, I’m of two minds concerning the various academic and corporate boycotts of Israel.

An American organization of professors on Monday announced a boycott of
Israeli academic institutions to protest Israel’s treatment of
Palestinians, signaling that a movement to isolate and pressure Israel
that is gaining ground in Europe has begun to make strides in the United
States.

On the one hand, it is egregiously unfair to single out Israel for its unfair treatment of the Palestinians. Israel does not treat its non-Jewish citizens as equals, but the Palestinians still have it better than many people in many other countries. I have absolutely no problem with Jews possessing a Jewish state and practicing an Israeli form of apartheid in order to maintain it.

On the other hand, it is fitting to see those who were anti-South African apartheid getting a taste of their own medicine. Despite the ties between the two so-called pariah countries, many Israelis were vociferously supportive of the South African boycotts and even of the ANC’s terrorist activities. For example, Arthur Goldreich was the head of the ANC’s logistics committee and provided weapons to the terrorist arm of the ANC. Since so many Jews have actively worked to undermine white apartheid, to deny the Boers a Boer state, and to end American segregation over the years, it’s hard to feel any pity for them when observing that the anti-apartheid machinery they helped create has now turned on them.

In war or in politics, the challenge is that the other side always learns from the successes of the other. And the effective strategist should never lose sight of the fact that he will eventually have to face whatever weapon he first directs against the opposition.

The unconstitutional NSA

It’s about time the violation of the 4th Amendment is addressed by the courts:

For the first time since the revelation of the National Security
Agency’s vast dragnet of all Americans’ telephone records, a federal
court has ruled that such surveillance is “significantly likely” to be unconstitutional. In a scathing 68-page opinion
peppered with exclamations of incredulity, United States District Judge
Richard Leon, of the Federal District Court of the District of
Columbia, found that the seven-year-old phone-data collection program —
which was established under the Patriot Act and has been repeatedly
reauthorized by a secret intelligence court — “almost certainly”
violates the Fourth Amendment’s prohibition against unreasonable
searches.

Reaching into the 18th century from the 21st, the judge wrote that James
Madison “would be aghast” at the degree of privacy invasion the data
sweep represents. The ruling by Judge Leon, who was nominated to the bench by President
George W. Bush on Sept. 10, 2001, was remarkable for many reasons, but
mainly because there were real people sitting in open court challenging
the government’s lawyers over the program’s constitutionality.

The plaintiffs, led by Larry Klayman, a conservative legal activist,
sued the government after the program came to light. A similar suit filed by the American Civil Liberties Union is in a federal court in New York. Judge Leon’s opinion took issue with the government’s reliance on a 1979
Supreme Court case, Smith v. Maryland, which upheld the police’s
warrantless capture of phone numbers dialed from the home of a robbery
suspect on grounds that the suspect had no reasonable expectation of
privacy in the numbers he dialed.

Don’t get me wrong, I fully expect the Roberts Supreme Court to decide that blanket surveillance is not an unreasonable search. After all, there is always an emanation or a penumbra out there somewhere to imagine and cite. But, in doing so, its actions will only underline the fact that the Constitution is now null and void.

And that will permit for the pro-Constitutional side to finally get in the game and start redefining the living, breathing version to its own liking.

Events in the East China Sea

Things still appear to be heating up between China and Japan:

Events in the East China Sea since 2009 have thrust to the forefront the following frightening question: will China and Japan imminently go to war? Conventional answers in the affirmative point to the deep level of historical mistrust and a certain level of “unfinished business” in East Asian international politics, stemming from the heyday of Showa Japan’s imperialism across Asia. Those on the negative often point to the astronomical economic costs that would follow from a war that pinned the world’s first and third largest economies against its second in a fight over a few measly islands, undersea hydrocarbon reserves be damned.

I can’t pretend to arbitrate between these two camps but I find that far too many observers sympathize with the second camp based on rational impulse. Of course China and Japan wouldn’t fight a war! That’d ruin their economies! I sympathize with the Clausewtizean notion of war being a continuation of politics “by other means,” and the problems caused by information asymmetries (effectively handicapping rational decision-making), but the situation over the Senkaku/Diaoyu islands can result in war even if the top leaders in Tokyo and Beijing are eminently rational.

Political scientist James D. Fearon’s path-breaking article “Rationalist Explanations for War” provides a still-relevant schema that’s wonderfully applicable to the contemporary situation between China and Japan in the East China Sea. Fearon’s paper was initially relevant because it challenged the overly simplistic rationalist’s dogma: if war is so costly, then there has to be some sort of diplomatic solution that is preferable to all parties involved — barring information asymmetries and communication deficits, such an agreement should and will be signed.

Of course, this doesn’t correspond to reality where we know that many incredibly costly wars have been fought (from the first World War to the Iran-Iraq War). So, if wars are costly — as one over the Senkaku/Diaoyu islands is likely to be — why do they still occur?

There are some interesting thoughts there, but no one who has even a modicum of familiarity with military history will find the idea that war cannot happen because the observer does not believe it to be in the best long-term economic interests of the two nations involved to be credible in any way.

The tolerance charade

As expected, the non-Christian groups who begged and pleaded for tolerance show none the moment they feel they are in power:

A girl guide group faces being thrown out of the national association after refusing to force members to drop God from the oath…. The Guiding Promise was altered earlier this year so that members now swear ‘to be true to myself and develop my beliefs’ rather than the original ‘to love my God’.

This is why it is always a massive mistake for Christians to give into the demands for tolerance from non-believers and other faiths in the first place. They inevitably refuse to grant the very same tolerance they demanded. If you don’t keep out the infiltrators, they will eventually take over your organization and pervert it. Tolerance is not a virtue, it is nothing more than weakness and self-inflicted vulnerability.

The secularists have made it abundantly clear that there is no room for Christianity in their godless society.

After 24 years of litigation, a federal court revealed in an emotional hearing that it has ordered the famous Mount Soledad Cross removed from a veterans memorial, holding it is a violation of the U.S. Constitution. Since 1913, a cross has stood as the centerpiece of the Mt. Soledad Veterans Memorial in San Diego, surrounded by nearly 3,000 granite plaques, individually honoring war heroes from every American war, from the Revolutionary War to Iraq and Afghanistan.

So be it. It is time for Christians to again begin constructing Christian civilization without the godless and the pagans as their society collapses into moral degradation and economic stagnation. We did it before. We can do it again.

25 Best Tweets of 2013

The Right Wing News puts a list of the year’s best political tweets together and one of them turns out to be mine:

I think this is what is described as “losing your base”. Bill Ayers: “Try Obama for War Crimes”.
    — Vox Day (@voxday) June 18, 2013

I also liked Joe Rogan’s:

Camille Paglia on the importance of men

La Paglia has little confidence in feminist civilization. Assuming, of course, that one can reasonably even call it that.

A peevish, grudging rancor against men has been one of the most unpalatable and unjust features of second- and third-wave feminism. Men’s faults, failings and foibles have been seized on and magnified into gruesome bills of indictment. Ideologue professors at our leading universities indoctrinate impressionable undergraduates with carelessly fact-free theories alleging that gender is an arbitrary, oppressive fiction with no basis in biology.

Is it any wonder that so many high-achieving young women, despite all the happy talk about their academic success, find themselves in the early stages of their careers in chronic uncertainty or anxiety about their prospects for an emotionally fulfilled private life? When an educated culture routinely denigrates masculinity and manhood, then women will be perpetually stuck with boys, who have no incentive to mature or to honor their commitments. And without strong men as models to either embrace or (for dissident lesbians) to resist, women will never attain a centered and profound sense of themselves as women….

After the next inevitable apocalypse, men will be desperately needed
again! Oh, sure, there will be the odd gun-toting Amazonian survivalist
gal, who can rustle game out of the bush and feed her flock, but most
women and children will be expecting men to scrounge for food and water
and to defend the home turf. Indeed, men are absolutely indispensable
right now, invisible as it is to most feminists, who seem blind to the
infrastructure that makes their own work lives possible.

TL;DR: viva la difference!

And they do have oil

If anyone is looking for an excuse for another Middle Eastern war, it appears their casus belli is buried in a presidentially censored 2002 report.

President Bush inexplicably censored 28 full pages of the 800-page report. Text isn’t just blacked-out here and there in this critical-yet-missing middle section. The pages are completely blank, except for dotted lines where an estimated 7,200 words once stood (this story by comparison is about 1,000 words).

A pair of lawmakers who recently read the redacted portion say they are “absolutely shocked” at the level of foreign state involvement in the attacks.

Reps. Walter Jones (R-NC) and Stephen Lynch (D-Mass.) can’t reveal the nation identified by it without violating federal law. So they’ve proposed Congress pass a resolution asking President Obama to declassify the entire 2002 report, “Joint Inquiry Into Intelligence Community Activities Before and After the Terrorist Attacks of September 11, 2001.”

Some information already has leaked from the classified section, which is based on both CIA and FBI documents, and it points back to Saudi Arabia, a presumed ally.

The Saudis deny any role in 9/11, but the CIA in one memo reportedly found “incontrovertible evidence” that Saudi government officials — not just wealthy Saudi hardliners, but high-level diplomats and intelligence officers employed by the kingdom — helped the hijackers both financially and logistically. The intelligence files cited in the report directly implicate the Saudi embassy in Washington and consulate in Los Angeles in the attacks, making 9/11 not just an act of terrorism, but an act of war.

Of course, there could be other reasons to hide known Saudi involvement in the events of 9/11 besides a desire to invade Iraq. Once it is admitted that the Saudis were involved, this can’t help but raise the question of who else might have been involved as well.

Big predators devouring the little ones

I simply can’t find it in my heart to feel any sympathy for the larval lawyers who are belatedly discovering that they, and not the common people upon whom they thought to feed parasitically, are the prey:

Law schools will lie to you. Do not believe a word that comes from law schools, law deans, or law professors. They are salesmen and they want you to hand them $200,000 in non-dischargeable law school loans. That’s all they are interested in. They will tell you about a glorious career that awaits you. They will tell you lawyers are in demand and new technology will open the gates for prosperous new practice areas (3d printing, drones, etc.).

It’s all a bunch of hogwash. They will tell you that society needs lawyers and tell you stories about saving the poor and doing public interest work. This is also hogwash. Because public interest jobs are eligible for a 10-year government repayment plan, the jobs have become intensely competitive – as have JAG jobs [jobs in the Army]. You will compete against students from top 5 schools for these jobs and unless you go to a top 5 school, it’s going to be difficult to land these jobs. The main point to take away is to appreciate the reality that law schools are trying to sell you a product (the law degree). Law degrees are not in demand in the market so they’re trying new tricks to lure in more consumers….

I think most people are hapless fools to attend law school today, except in extremely narrow circumstances…. If you go to law school, it’s not a remote possibility that you’ll end up
back with your parents, in huge debt, desperately searching for work,
and angry at yourself for wearing horse blinders and ignoring this
information.

Then again, this is merely a window into the much larger college education scam, as Karl Denninger notes a recent report from the St. Louis Fed:

If you elect to go to college there is only a one in four chance that (1) you will finish and (2) you will work in a job that actually renumerates you for having done so. In other words there is a three in four chance that you’d be better off not having gone to college at all, because (1) your earnings power is not enhanced by having attended and (2) you wouldn’t have the debt — or spent the funds — to go.

What this paper actually appears to argue is that a huge percentage — three in four — of people who go to college shouldn’t, because they don’t get economic benefit from doing so.  That the outcome for someone who doesn’t have a college degree is on-balance worse than for someone who does isn’t the question.  We know that to be true and it’s always been true.  The question is what are the money odds of going to school in improvement of your life.  That’s all that matters; potential outcome is immaterial if you don’t achieve it just as is the fact that you can win the lottery does not mean that, on a money odds basis, you should buy a ticket!

As such if you’re contemplating as a young person whether or not to go to college the decision point isn’t whether you will earn more money with a degree than not.  You will; that is a known factor.

Instead you need to make an honest personal assessment of both the odds you will complete the course of study you undertake and the odds of finding employment that uses that course of study and degree to enhance your earnings power.

Everyone thinks that they can beat the odds. Because Most People Are Idiots. The other problem is that even for the winners, college can come at a tremendous opportunity cost. Suppose Bill Gates had finished his degree at Harvard instead of starting Microsoft? That’s essentially the mistake I made; I went back to school for three semesters instead of selling my working stereo 16-channel 44Khz sound board at a time when Ad Lib was the dominant technology. By the time I finished, the engineer was gone and the VP of engineering wouldn’t give me any of the layout engineer’s time required to put it into production. But hey, they managed to crank out one trivial modification to their existing graphics cards after another instead! So I started a band….

Now, there are no guarantees. Maybe my sound board would have flopped. And even if it hadn’t, the sound board company that exploded onto the scene two years later with a board inferior to the one I’d had built managed to collapse entirely by 1995. On the other hand, it’s hard to argue that my expensive degrees were worth it. After all, my BS in Economics and BA in East Asian Studies don’t even permit me to win Internet arguments because bachelor’s degree in Philosophy of Language.