Another reason why "The American Conservative" isn't conservative

They didn't used to be "AmConMag.com" for nothing.

Seen here over the weekend:

"American democracy is rife with troubling inequalities, but calling it an oligarchy is a step too far."

This is the dingbat sort of stuff you expect people without any historical sense to say, not conservatives.

Alarums against oligarchy were already afoot in the debate over the constitution in 1787, whence these excerpts from Brutus to the New Yorkers:

[I]n reality there will be no part of the people represented, but the rich, even in that branch of the legislature, which is called the democratic. — The well born, and highest orders in life, as they term themselves, will be ignorant of the sentiments of the midling class of citizens, strangers to their ability, wants, and difficulties, and void of sympathy, and fellow feeling. This branch of the legislature will not only be an imperfect representation, but there will be no security in so small a body, against bribery, and corruption — It will consist at first, of sixty-five, and can never exceed one for every thirty thousand inhabitants; a majority of these, that is, thirty-three, are a quorum, and a majority of which, or seventeen, may pass any law — so that twenty-five men, will have the power to give away all the property of the citizens of these states — what security therefore can there be for the people, where their liberties and property are at the disposal of so few men?

It will literally be a government in the hands of the few to oppress and plunder the many. You may conclude with a great degree of certainty, that it, like all others of a similar nature, will be managed by influence and corruption, and that the period is not far distant, when this will be the case, if it should be adopted; for even now there are some among us, whose characters stand high in the public estimation, and who have had a principal agency in framing this constitution, who do not scruple to say, that this is the only practicable mode of governing a people, who think with that degree of freedom which the Americans do — this government will have in their gift a vast number of offices of great honor and emolument. The members of the legislature are not excluded from appointments; and twenty-five of them, as the case may be, being secured, any measure may be carried.

The rulers of this country must be composed of very different materials from those of any other, of which history gives us any account, if the majority of the legislature are not, before many years, entirely at the devotion of the executive — and these states will soon be under the absolute domination of one, or a few, with the fallacious appearance of being governed by men of their own election.

The more I reflect on this subject, the more firmly am I persuaded, that the representation is merely nominal — a mere burlesque; and that no security is provided against corruption and undue influence. No free people on earth, who have elected persons to legislate for them, ever reposed that confidence in so small a number. The British house of commons consists of five hundred and fifty-eight members; the number of inhabitants in Great-Britain, is computed at eight millions — this gives one member for a little more than fourteen thousand, which exceeds double the proportion this country can ever have: and yet we require a larger representation in proportion to our numbers, than Great-Britain, because this country is much more extensive, and differs more in its productions, interests, manners, and habits. The democratic branch of the legislatures of the several states in the union consists, I believe at present, of near two thousand; and this number was not thought too large for the security of liberty by the framers of our state constitutions: some of the states may have erred in this respect, but the difference between two thousand, and sixty-five, is so very great, that it will bear no comparison.

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Can anyone today deny that Brutus' warnings were wrong? He has been entirely vindicated by subsequent events, which we call a precious American history but he would have called a mockery of the original vision they had for the country. Yet Brutus, already horrified in 1787, would no doubt have been struck dead on the spot were he still alive in the 1920s to have witnessed this long-standing paltry representation further prohibited from growing and frozen at 435, the number we still have today. And instead of the 10,000 representatives we should have in Congress, we have 10,000 registered lobbyists instead.

No, the seeds of our present discontents were sown at the founding, but today conservatism is so unthinking and emotionally reflexive that it only means to preserve the baby in its dirty bath water while chiding the nursemaid for sensibly wanting to drain it.

A little satire on French economist Thomas Piketty, by yours truly

Thomas Piketty has written a big book,

whose thesis is rickety says Bloomberg's Clive Crook,

mistaken about wages both minimum and higher,

for which Diana Furchtgott-Roth says he's a liar.

Entitled Capital in the Twenty-First Century,

its accumulators he'd put in a penitentiary,

while millions now equal (in the theory of this novel),

would no doubt end-up together in a hovel.

We petits rentiers are his "fairly disturbing" problem,

the progeny of capitalism (for Marxists the hobgoblin),

successfully multiplying left and right like rabbits,

Oui! because of our unequal work ethic and habits.

Bank Failure Friday April 25th 2014: The 6th Of 2014

Allendale County Bank, Fairfax, South Carolina, failed on Friday costing the FDIC $17.1 million.

It was the sixth bank failure of 2014, and the 498th since February 2007.

FDIC insured institutions number 6,812 through 12/31/13.

Calculated Risk reports on the unofficial problem bank list and statistics here:

For the week, there were nine removals and one addition that leave the list at 513 institutions with assets of $167.3 billion. A year ago, the list held 775 institutions with assets of $285.3 billion.

One reason why Americans have lost their passion and don't seem to care about very much

One reason why Americans have lost their passion and don't seem to care about very much is that they are taking large quantities of psychotropic drugs, many of which level their moods so that they are not too happy and not too sad.

In 2011 the top 25 psychiatric medication prescriptions numbered a staggering 391 million. Most of these prescriptions are for drugs such as SSRIs, SARIs, SNRIs or NDRIs for depression, anxiety and other mental disorders, with just 33 million of the prescriptions intended solely for attention deficit disorder.

Data here.

Real Median Annual Household Income Remains In Depression Measured Since Both 2007 And 2000

The report from Sentier Research is here:

The March 2014 [real] median [annual household income of $53,043] was 5.7 percent lower than the median of $56,271 in December 2007, the beginning month of the recession that occurred over six years ago. And the March 2014 median was 6.9 percent lower than the median of $56,950 in January 2000, the beginning of this statistical series.

Nothing Else Is Working, So The US Federal Reserve Should Be QEing Gold Instead Of Treasuries

So said Christopher T. Mahoney, a former Vice Chairman at Moody's, for Project-Syndicate last June, here, just not in so many words:

It may be that when rates are at the zero bound and the banking system is broken, the appropriate policy instrument may not be to buy bonds from banks, since buying them doesn’t seem to affect the price level. Bernanke was certainly correct that the Fed could create inflation by dropping money on citizens from helicopters, but that would be a rather blunt instrument.

It seems to me that the Fed needs to buy something besides Treasury and agency bonds. The obvious alternative to Treasuries would be foreign government bonds, or gold. Since the former would constitute a “currency war”, that would seem to leave gold.

I have no doubt that if the Fed were to announce that it will buy gold until it has achieved 2% inflation and 6.5% unemployment, it would get there. It would disrupt the gold market (and enrich some of the wrong people) but that is a small price to pay. No foreign government could object to the Fed buying gold; it’s been doing it for 100 years.

But I said it more or less three times a year ago this month, here, here and especially here:

The United States at present is in the throes of a deflationary collapse of monetarist making, not of dollar currency but of credit money, and it is the principal reason for the collapse of GDP. One of the largest sources of the "currency" of credit money in recent years has been mortgages, which are now effectively unacceptable as collateral because of the rot permeating the system in the form of defaults and underwaters.

Federal Reserve policy has actually been removing such collateral from circulation, along with US Treasuries, by placing it on its balance sheet. But since there is nothing "real" behind the dollars the Fed replaces this collateral with, there is no corresponding expansion of credit in size to match the former vigor of the process.

So perhaps the Fed should QE gold instead of MBS and Treasuries to provide something real behind the money created which would give that money a surer basis in collateral.

Central banks around the world have been buying gold in quantities not seen in 30 years in order to fill the collateral gap. The Fed should join them.

Housing is a store of value, not an investment

Catherine Rampell for WaPo puts the long term real compound annual gain from housing at 0.3%. For the 100 years up to 1990, i.e. before the housing bubble, Robert Shiller has put it at 0.2% per annum, 33% less!

Here is Rampell:

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

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Housing's ability to retain its value has made it an attractive target for securitization as mortgage-backed securities which have been highly liquid and trade in large denominations just like US Treasury securities, facilitating transactions.

The rapid rise of income inequality in the US dates from the close of the gold window

From The New York Sun, here:

The top decile's share of income went from something like 33% in 1971 to above 47% by 2010.

Hmmm. What could account for that? ...

Before this date, unemployment was, by today’s standards, low. ... From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money? ...

It doesn’t take a Ph.D. from MIT or Princeton, however, to imagine that in an age of fiat money, the top decile would have an easier time making hay than would the denizens of the other nine deciles, who aren’t trained in the art of swaps and derivatives. ...

[H]onest money ... works out better for more people. And there is a moral dimension to the question of honest money. This was a matter that was understood — and keenly felt — by the Founders of America, who almost to a man (Benjamin Franklin, a printer of paper notes, was a holdout), cringed with humiliation at the thought of fiat paper money. They’d tried it in the revolution, and it had been the one embarrassment of the struggle. They eventually gave us a Constitution that they hoped would bar us from ever making the same mistake.

As for all good Marxists, Thomas Piketty's biggest problem is eliminating the middle class

From The Wall Street Journal here:

While America's corporate executives are his special bête noire, Mr. Piketty is also deeply troubled by the tens of millions of working people—a group he disparagingly calls "petits rentiers"—whose income puts them nowhere near the "one percent" but who still have savings, retirement accounts and other assets. That this very large demographic group will get larger, grow wealthier and pass on assets via inheritance is "a fairly disturbing form of inequality." He laments that it is difficult to "correct" because it involves a broad segment of the population, not a small elite that is easily demonized.

So what is to be done? Mr. Piketty urges an 80% tax rate on incomes starting at "$500,000 or $1 million." This is not to raise money for education or to increase unemployment benefits. Quite the contrary, he does not expect such a tax to bring in much revenue, because its purpose is simply "to put an end to such incomes." It will also be necessary to impose a 50%-60% tax rate on incomes as low as $200,000 to develop "the meager US social state." There must be an annual wealth tax as high as 10% on the largest fortunes and a one-time assessment as high as 20% on much lower levels of existing wealth. He breezily assures us that none of this would reduce economic growth, productivity, entrepreneurship or innovation.

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"[T]he lower middle class attitude — attachment to the idea of private property, more or less open striving to uphold credit, terror of every fundamental social disturbance — is in practice the greatest internal enemy of the proletariat and the proletarian revolution."

-- Bela Kun, 1918

And you thought I was kidding when I called Thomas Piketty's new book a novel

Diana Furchtgott-Roth for Real Clear Markets, here, eviscerates Thomas Piketty's presentation on the minimum wage:

One might overlook one isolated error as sloppiness to which we are all susceptible. But Professor Piketty's supposed history of changes in the minimum wage is not tarnished by a single error, but by a vast array of systematic errors.

His history is pure revisionist fiction, and revisionist fiction with a political purpose: making Democratic presidents look magnanimous and Republican presidents look uncaring. Yet, over the past quarter century, the period Piketty describes as showing a dramatic increase in inequality, Republican presidents signed into law larger percentage increases in the minimum wage than did Democratic presidents.

Don't blame QE for the decline of the dollar, blame Bush or Greenspan or global warming or war

The decline of the dollar under QE has been nothing when compared with its decline from 2002 to 2008.

Between high water marks in early 2002 and a low beneath 70 in March 2008 the trade weighted dollar sank a whopping 36% in just six short years, 6 times more than the 6% it fell since TARP passed on October 3, 2008 and QE began in late November 2008 until now.

Say what you will about QE, but it's just dumb to blame it for a decline of the dollar.

The dollar was already dead! The dollar declined 36% during the wars in Iraq and Afghanistan. Overall the dollar is down 6% since the emergency measures of 2008, but is recovering somewhat.

Quelle Surprise: Clive Crook Reads Thomas Piketty And Comes Out For Capital Accumulation

Here he is at Bloomberg View having read Thomas Piketty's new . . . um . . . novel, Capital in the 21st Century, and found it wanting:

There's a persistent tension between the limits of the data he presents and the grandiosity of the conclusions he draws. At times this borders on schizophrenia. ... Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might cause the ratio of capital to output to rise, which would worsen inequality. ... In Piketty's view of the world, where inequality is all that counts, capital accumulation is almost a sin in its own right. ...

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As much as I love the rest of what Clive Crook has to say on behalf of capital accumulation, I think that's it right there. More than anything else, Thomas Piketty is an anti-Calvinist of the French type, an heir of Jacobinism who is more interested in leveling society than in lifting it.

The One Chart Which Best Explains The Reason For The Growth Of Income Inequality In The US

The chart comes from The Motley Fool, here, and has nothing to do per se with the subject of the current debate about income inequality occasioned by the US tour of French economist Thomas Piketty promoting his new book Capital in English translation.

But the chart offers a little appreciated explanation for why income inequality has grown in the United States: the tax code of the United States itself treats income unequally, giving preference to long term capital gains. Key here isn't just that rates increase progressively and are unequal, but that capital gains income is at all levels taxed unequally compared to ordinary income, at lower rates. Is it a surprise then that one form of income would tend to grow more than the other in order to take advantage of the lower rates?

Ordinary income has been taxed at extraordinarily high rates off and on since the First World War while long term capital gains have been taxed at comparatively much lower rates off and on just about as long, as a favor to the few who have historically been able to play in that sandbox. It shouldn't surprise us though that the half of the nation which over time has joined the investor class has benefited disproportionately from this arrangement.

It has been a principle of conservative economics from the time of Reagan that if you want less of something, tax it. Well that's what has happened to ordinary income, where wages have been stagnating for some time while gains from investments have soared. You push here, it comes out there. Ordinary income tax rates have come down and stayed down since Reagan's revolution, it is true, but the differential between ordinary income tax rates and long term capital gains taxes has remained, favoring the returns from capital.

Cullen Roche here takes the view that we should raise taxes on long term capital gains, especially for the top 0.1% where he believes most of the inequality shows up:

The solution, in my opinion, is simple and based on a relatively widespread misunderstanding. We currently tax “investment income” favorably. The rationale for this is that we want to incentivize “investment”. That makes sense except for the fact that very few of the people transacting on secondary markets or obtaining dividend payments are actually promoting investment. In fact, one could argue that dividends disincentivize firms from using profits in a more innovative manner. And transactions on secondary exchanges only finance investment in the case of secondary offerings. Otherwise, buying stocks and bonds is a simple allocation of savings and does not remotely resemble the financing of investment. Why these forms of income are tax advantaged makes very little sense in my view. So a higher tax rate on dividends and secondary market transactions seems to make a lot of sense in my view.

I beg to differ. The tax code as it stands is doubly offensive in that it not only favors one form of income over another but that it also discriminates against income as it grows. To make the tax code "fair", it should treat all income the same way. If we equalized all tax rates to 10% irrespective of level or source or time, there would be so much opportunity to make money in this country that yours truly, Cullen Roche and Thomas Piketty would all have something far better to do than write about this, and you something far better to do than read about it.

Princeton/Northwestern study concludes business has representation but Americans do not

Here, where however there isn't the slightest suggestion that increasing representation for the majority of citizens by restoring the size of US House to its constitutionally intended proportions might help mitigate the problem:

The US government does not represent the interests of the majority of the country's citizens, but is instead ruled by those of the rich and powerful, a new study from Princeton and Northwestern Universities has concluded. ... Researchers concluded that US government policies rarely align with the the preferences of the majority of Americans, but do favour special interests and lobbying organisations: "When a majority of citizens disagrees with economic elites and/or with organised interests, they generally lose. Moreover, because of the strong status quo bias built into the US political system, even when fairly large majorities of Americans favour policy change, they generally do not get it." ... The theory of "biased pluralism" that the Princeton and Northwestern researchers believe the US system fits holds that policy outcomes "tend to tilt towards the wishes of corporations and business and professional associations."

h/t Business Insider

The expansion of NATO into former Warsaw Pact countries under Bill Clinton was a huge mistake

Jack F. Matlock Jr., former US ambassador to the USSR, in the Washington Post, here:

President Bill Clinton supported NATO’s bombing of Serbia without U.N. Security Council approval and the expansion of NATO to include former Warsaw Pact countries. Those moves seemed to violate the understanding that the United States would not take advantage of the Soviet retreat from Eastern Europe. The effect on Russians’ trust in the United States was devastating. In 1991, polls indicated that about 80 percent of Russian citizens had a favorable view of the United States; in 1999, nearly the same percentage had an unfavorable view.

Dear Rag-Headed Heathen Bastards: Our Markets Are Closed For Good Friday

New Gallup Poll of 20,000 Estimates ObamaCare Has Fallen Far Short Of Insuring The Uninsured

The story is here:

Overall, 11.8% of U.S. adults say they got a new health insurance policy in 2014. One-third of this group, or 4% nationally, say they did not have insurance in 2013. Another 7.5% got a new policy this year that replaced a previous policy. The rest either did not respond or were uncertain about their previous insurance status.

The key figure is the 4% who are newly insured in 2014, which most likely represents Americans' response to the individual mandate requirement the Affordable Care Act (ACA). This estimate of the newly insured broadly aligns with the reduction Gallup has seen in the national uninsured rate from 2013 to the first days of April 2014. However, the calculation of the newly insured does not take into account those who may have been insured in 2013 but not in 2014.

The ACA envisioned that the new healthcare exchanges would be the main place where uninsured Americans would get their insurance this year, but it appears that a sizable segment of the newly insured Americans used another mechanism. These sources presumably include employee policies, Medicaid, and other private policies not arranged through exchanges.

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If the adult population is presently about 247 million, 11.8% with new insurance in 2014 is 29 million adults.

If 33% of them had no insurance in 2013 (or 4% of the adult population), that's about only 9.6 million to 9.9 million newly insured who weren't previously, leaving 20 million uninsured yet to sign up. Estimates of the total uninsured previously had been widely estimated at 30-40 million Americans.

If the whole point of ObamaCare was to provide insurance to those who didn't have it or couldn't get it, so far ObamaCare is therefore not much of a success, especially since it has caused an upheaval for everyone else who has had insurance, which Obama told us we could keep if we liked it.

Replacement policies going to an additional 7.5% of the adult population who were previously insured means 18.5 million people have had to replace their insurance or wanted to replace their insurance because of ObamaCare, three times as many as the 6 million widely reported to have had their policies canceled because of ObamaCare late in 2013.

That leaves less than a million in the category who were uncertain about their previous insurance status.

It remains to be seen how many saying they have new insurance simply signed up for Medicaid because they didn't qualify for a health insurance subsidy because their income was too low. In Michigan a family of three that doesn't make at least $20,000 a year typically gets forced into Medicaid under ObamaCare if that family wants coverage and hopes to avoid a "tax" for failing to obtain coverage.

Evidently even such a family could avoid the tax, and Medicaid, by making a "hardship" claim.

h/t Chris

Lloyd's of London wouldn't insure half of the power grid

From the LA Times here:

Some members of Congress want to empower regulators to force specific security upgrades at utilities. Others are attacking whistle-blowers and the media, demanding an investigation into disclosures of how easily the country's power grid could be shut down.

The magnitude of the problem is underscored by concerns raised by insurance giant Lloyds of London, which is known for a willingness to insure pretty much everything.

Lloyds' appraisers have been making a lot of visits lately to power companies seeking protection against the risk of cyberattack. Their takeaway: Security at about half the companies they visit is too weak for Lloyds to offer a policy.

"When Lloyds won't insure you, you know you've got a problem," said Patrick Miller, founder of the Energy Sector Security Consortium, a Washington-based nonprofit that advocates tougher cybersecurity measures for the electricity industry.

Janet Yellen's Fool's Errand: Finding A Way To Fix What's Supposedly Fixed

Everybody believes the financial crisis is over, but apparently Janet Yellen does not. She's more right than she knows, but that's a sign of something into which angels fear to look. This could be rough.

Quoted here:

Yellen said regulators must focus on ways to prevent another financial crisis. She spoke via video to a financial markets conference sponsored by the Fed's Atlanta regional bank.

"In 2007 and 2008, short-term creditors ran from firms such as Northern Rock, Bear Stearns and Lehman Brothers and from money market mutual funds and asset-backed commercial paper programs," she said. "Together, these runs were the primary engine of a financial crisis from which the United States and the global economy have yet to fully recover."

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Regulators specialize in keeping capitalism from cleansing itself through failure. According to this line of thinking, recessions are personae non gratae, and depression doesn't even exist as a conceptual category of the contemporary period. If one occurs, they call it something, anything, else, as in "The Great Recession". Bankruptcy? Fuhgeddaboutit. Until these are welcomed once again, that is, until reality penetrates into the penumbra of the reigning ideology, the zombie economics of the last 14 years are here to stay, or perhaps worse, and we shall continue to walk in the darkness.

Why Obama Should Not Be President: Even Recreational Pot Use Alters The Brain, Emotions and Motivation

It took Obama three days to respond to the Christmas Day bombing attempt by Abdulmutallab over Detroit. The New York Times noted his odd unresponsiveness several times in the article cited below. If you wonder why Obama's done nothing about the jobs and GDP crises, perhaps now you do.

The pot study story is here:

The 20 pot users in the study, ages 18 to 25, said they smoked marijuana an average of about four days a week, for an average total of about 11 joints. Half of them smoked fewer than six joints a week. Researchers scanned their brains and compared the results to those of 20 non-users who were matched for age, sex and other traits.

The results showed differences in two brain areas associated with emotion and motivation - the amygdala and the nucleus accumbens. Users showed higher density than non-users, as well as differences in shape of those areas. Both differences were more pronounced in those who reported smoking more marijuana.

See here for the New York Times report on December 28, 2009, three days after the bombing attempt on the Christmas Day flight bound for Detroit:

Mr. Obama, making his first public comments since the episode, said he had ordered his national security team “to keep up the pressure” on terrorists. ... Although he had been out of sight for three days, he assured Americans he was on top of the situation. ... The visual contrast of a president on vacation while there was anxiety about air travel also drew fire. Although aides issued statements describing conference calls with counterterrorism advisers, pictures of passengers enduring tougher airport screening were juxtaposed with reports of the president picnicking at the beach and playing sports. Representative Peter T. King of New York, the ranking Republican on the House Homeland Security Committee, criticized Mr. Obama’s silence Monday before the president’s statement. “We’re now, what, 72 hours into this and the president’s not spoken, the vice president’s not spoken, the attorney general’s not spoken and Janet Napolitano has now told two different stories in two days,” he said on Fox News. “First, she said everything worked; now she said it didn’t.”