Canadian Cincinnatus

Finally, a mainstream economist who agrees with me that Greece must leave the Eurozone

In Friday’s edition of Slate, an article by economist Nouriel Roubini appeared with the title, Greece Must Go: The nation is likely to leave the eurozone sooner or later. Sooner is better. Thank you. I had been saying the same thing from at least July of last year, when I stated:

The important thing for the EU is not to save Greece – it is all but lost – but to teach the other PIIGS (Portugal, Ireland, Italy and Spain) a lesson. The EU can do without Greece. 

Some sample quotes from Roubini’s Slate column:

Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression.

A return to a national currency and a sharp depreciation would quickly restore competitiveness and growth.

Economics teaches us that the worst way for a government to interfere with its economy is to set prices. With the Euro, the EU is manipulating the most important price of all – the price of money. The price of the Euro is appropriate for Germany; it is too high for the siesta culture of the Mediterranean. At some point, the resulting imbalance has to balance. That point is now.

Of course, the process would be traumatic, and not just for Greece. The most significant problem would be capital losses for core eurozone financial institutions. Overnight, the foreign euro liabilities of Greece’s government, banks, and companies would surge. Yet these problems can be overcome. Argentina did so in 2001, when it “peso-fied” its dollar debts.

Some argue that Greece’s real GDP would be much lower in an exit scenario than it would be during the hard slog of deflation. But that is logically flawed: Even with deflation, real purchasing power would fall, and the real value of debts would rise (debt deflation), as the real depreciation occurs. More importantly, the exit path would restore growth right away, via nominal and real depreciation, avoiding a decade-long depression. And trade losses imposed on the eurozone by the drachma depreciation would be modest, given that Greece accounts for only 2 percent of eurozone GDP.

Bankruptcy is an essential part of the healing process in a free market system. Bad debts can’t be allowed to fester. By preventing bankruptcy, all you do is to prolong the recession. This is why Japan’s ‘lost decade’ is entering its third decade. The TARP bailout has played a similar role in the Great Recession. By preventing bad banks from going under, the federal government has ensured that the US economy has flat-lined for over 3 years.

Those who claim that contagion from a Greek exit would drag others into the crisis are also in denial. Other peripheral countries already have Greek-style problems of debt sustainability and eroded competitiveness.

As the Rev Jeremiah Wright is fond of saying, “the chickens are coming home to roost.”

The experience of Iceland and many emerging markets over the past 20 years shows that nominal depreciation and orderly restructuring and reduction of foreign debts can restore debt sustainability, competitiveness, and growth. As in these cases, the collateral damage to Greece of a euro exit will be significant, but it can be contained.

Another example is the US recession of 1920. President Warren Harding’s policy was to do nothing. The result was an intense but short recession. Why was that depression short-lived? Because the bad debts were allowed to clear.

But hey, who needs free market solutions when we have access to Keynesian pump priming? Sure worked well to keep the Great Depression going for a decade. 

 

The Democrat’s war on low prices

Economists Iain Murray and David Bier make the following case about ivory tower intellectuals and other Democratic elitists:

“What is to blame for Americans' economic woes? Why, Americans' selfish desires, according to a school of thought that appears to be currently dominant in the White House. An excellent example of this line of thinking is former presidential economic advisor Robert Reich's recent article in the Financial Times, in which he claims America's ‘insatiable consumers’ have destroyed the economy and the ‘hubs of our communities’ with their relentless pursuit of ‘great deals.’ The ‘lure of the bargain,’ suggests Reich, is a destructive force.

Well that's rich -- Berkeley professor Reich, clearly a member of the 1 percent, attacking the 99. While Reich consider low prices a great evil, he ignores what they actually mean. Low prices indicate that a good or service has become more abundant -- that is, more available. This availability of goods and services is the very definition prosperity. The pursuit of low prices, which so offends Reich, is just the pursuit of prosperity -- the pursuit of happiness that the Declaration of Independence called ‘unalienable.’" 

“It's easy for rich liberals to ask for higher taxes and higher prices, but these policies dramatically damage Americans' standard of living. President Obama's cap and trade bill would have cost each American family $1,761 per year, according to the White House's own figures. While that bill failed, Obama's anti-drilling, anti-pipeline, anti-energy agenda is already forcing Americans to spend more on gas as a percentage of their income last year than at any point in the last three decades. Higher prices can and do kill the American dream.”

“Low prices mean abundance and prosperity. High prices mean scarcity and privation. The dynamic capitalism that works to drive prices ever lower has helped make America the most prosperous nation on Earth. The high price economy the Obama administration and its supporters want will benefit no one -- except, ironically, some of the 1 percent.”

This hostility to bargains is certainly not confined to the White House or to energy policy. Witness the widespread hostility to Wal-Mart and indeed any other store (usually a nationwide chain) that features low prices. How much respect does Ronald McDonald get? And what do the liberals like instead? Why boutique specialty stores and farmer’s markets: upscale places with the highest prices where poor people cannot be seen, except among the help. Molson’s and Coors bad, yuppie brew pubs good!

In reality, Wal-Mart has done far more for the plight of poor people in North America than all the bleeding heart, do-gooders combined. All the latter have to offer is moral preening and handouts – i.e. more dependency. Wal-Mart offers them something rich latte liberals can barely comprehend: a break on their grocery bill.

Of course, if socialism actually produced wealth instead of misery, then you wouldn’t hear a peep about concepts like ‘sustainable living’. Instead, leftists would be saying things like: “Look comrades, hot and cold running water! Ivan never had it so good.”

But socialism doesn’t produce prosperity. It produces misery, so all the socialists have left is to denigrate the prosperity that capitalism produces and that the real ‘proletariat’ enjoys.

 

Ambrose Evans-Pritchard’s optimism an antidote to Mark Steyn’s pessimism

I have just finished reading Mark Steyn’s latest doom-and-gloom tome, After America, whose thesis is that America is as finished, or almost as finished, as Europe. Therefore, Ambrose Evans-Prichard’s article in the Telegraph is most reassuring:

"’The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d),’ said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is ‘set to expand dramatically’ as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.

The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.”

"’Made in America, Again’ - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A ‘tipping point’ is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

‘A surprising amount of work that rushed to China over the past decade could soon start to come back,’ said BCG's Harold Sirkin.

The gap in ‘productivity-adjusted wages’ will narrow from 22pc of US levels in 2005 to 43pc (61pc for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The list of ‘repatriates’ is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total. This would take some sting out of the Long Slump.”

This alternate viewpoint illustrates a serious problem that every forecaster faces. What determines the future is not one particular set of physical tendencies but the vector sum of all of them. While Mark Steyn listed many trends in his book, he did not mention the increased competetiveness of American manufacturing or the US’s increasing energy self-sufficiency. These are important factors that should not have been left out.

The problem I have with Steyn is not in any of his particular concerns. In fact, most of them are my concerns. I also agree with most of the solutions he suggests. The problem I have is that his examples are biased almost entirely towards the negative. Few positive developments (such as the ones cited by Evans-Pritchard) are ever mentioned. The cumulative effect is a very distorted picture of reality. What’s worse, Steyn dresses his book up as a prediction of America’s fate.

Let me tell you something as somebody whose profession life for a long time involved making accurate and specific predictions about the future: it’s hard to do. Developing a forecast requires one to take into account every physical trend in existence, not just those that are occupying your thoughts or the headlines at the moment, but all the little things that have the potential to grow into world-shaping trends, like the proverbial butterfly in India that creates a hurricane two weeks down the road in the Carribean by flapping its wings. For instance, take Deng Xiaoping’s economic liberalization in China. In the late 1970’s, he allowed Chinese peasants to sell their own wares at local markets. Who at the time would have though that 30 years on, a process designed to relieve the hunger of Chinese peasants would accumulate enough economic power to bankroll America’s deficit? This example illustrates that our ability to predict the future is very limited and degrades very quickly as the forecast date recedes. This means that any forecast of human affairs 20 years out is likely almost totally worthless, except in very general terms. Mark Steyn seems unaware of any such limits on human reasoning.

Which is a pity, because After America is an otherwise a good book that shines a light on many of today’s problems and offers constructive solutions. It’s just not a credible prophesy.

 

Fortune Magazine: “Europe should embrace failure”

Daryl Jones, in Fortune magazine argues that the way out of Europe’s debt crisis is for indebted banks and countries to be allowed to fail: 

“Failure is not a bad thing. Sure, losing or failing doesn't give you the warm fuzzies inside, but failing and adapting ultimately sets you up for greater success.”

“As it relates to Europe sovereign debt, the one solution that has not been seriously considered is failure. Instead, the key solution from almost every Eurocrat and talking head, is to continue to support and promote a broken banking system and failed monetary union. There are other possibilities: let Greece fail, let other sovereigns fail if they can't get their house in order, and let heavily exposed banks fail.

The validation of the failure strategy at least partially comes in comparing the credit default swaps of Italy, Portugal and Ireland from July 1, 2011 to today. Respectively, Italian swaps are up 140%, Portuguese up 38.2%, and Irish down 3.2%. Now to be fair, Ireland hasn't failed, but three of its largest banks, Allied Irish, Irish Life & Permanent, and Bank of Ireland have experienced ‘credit events’ and, as a result, Ireland's credit worthiness has improved, on the margin.”

Add to Ireland my homeland of Estonia. It had a massive real estate bubble that burst in 2008. But because the country is so small and unimportant, it received no bail-out, everything was allowed to fail that couldn’t survive on its own, and as a result, it currently has the highest growth rate in Europe – 8.2% - with the only budget surplus of any EU government. Another example is Iceland. Early on in the crisis you heard a lot about it and its credit bubble. But because it wasn’t plugged into the Euro, nobody bailed Iceland out. As a result, what needed to fail, failed and Iceland is now doing fine.

A counterexample is Japan, which is has been stagnating for almost two decades after its real estate bubble burst. Why is it stagnating? Because nothing has been allowed to go under. Zombie banks lumber on like Frankenstein’s monster, kept alive by the IV drip of Keynesian spending. Oh yeah... Japan has racked up a public debt to GDP ratio of almost 200%.

I think because it is a painful thing, the regenerative powers of bankruptcy are often underestimated. Bankruptcy has an important role to play in the marketplace, particularly in helping an economy recover from a crash. One key ingredient in any economy is capital. How healthy an economy is, is determined at least partially by how well capital is allocated. Crashes often happen because of capital misallocation. Think of all the money sunk into subprime mortgages in the US. The money sitting in these mortgages was unproductive because a large percentage of the people who took out those mortgages had no hope of paying them back. The Eurozone equivalent of the subprime mortgage is the Greek government. Money sitting in Greek bonds is simply wasted because it could be better spent on other things.

How do you get out of this problem? The first rule of getting out of a hole is to stopping digging it deeper. When Germany approved a 350 billion Euro bailout to Greece earlier this summer, that meant 350 billion more Euros are now unavailable for productive investments. What could be accomplished with 350 billion Euros? I bet Steve Jobs would have had some interesting ideas.

One of the advantages of a crash-induced wave of bankruptcies is that it resets the bad debt counters to zero. People with subprime mortgages have no home; people who own Greek debt or Lehman Brothers stock or GM stock get a haricut. But the flip side is that money is only an indicator of wealth. It is not wealth itself. All that has happened is that the monetary value of individuals and corporations has now been better matched with their actual worth. The information content of money has increased because money becomes more correlated with value. Thus investments can be made more intelligently. 

Except when everything that should fail is bailed out. When governments prop up teetering enterprises and failing governments, the transfer of wealth from productive activities to unproductive activities accelerates and the information content of money degrades further. Thrifty and productive Germans get poorer while the lumbering Greek leviathan consumes ever more resources; productive American citizens (and American citizens not yet born) get hobbled by yet more government debt in order to keep wealth-consuming Wall Street zombie banks staggering along. As the productive are increasingly hobbled - so are the unproductive, who are trapped in a spiral of onerous debt repayments. The result is universal stagnation.

In Obama’s America… and in Eutopia… and in Japan. 

 

How Obama is short-changing the middle class and how the GOP could benefit from it, if they were smart

One mistake that free market proponents often make is that they conflate free markets with the capitalists who run the free markets. The two are not the same thing, especially with regard to business leaders at the high end. Plutocrats like Warren Buffet and GE’s Gerry Immelt are almost as political as they are business.

The dirty little secret of big business is that it doesn’t much like free enterprise. Why would they? When you are at the top, competition is bad for business. They can’t rise too much further but they sure have a long way to drop if a leaner, hungrier and smarter competitor comes along. As a result, from the perspective of their self-interest, it is much easier (and safer) for them to use their influence to pass laws that kneecap their competitors more than they kneecap them. If you are smart, you can also get showered with taxpayer money. This is why big business is often in bed with socialist politicians (cf GE and Obama). The baby they produce is called crony capitalism. 

GE doesn’t mind anti-free market legislation like cap and trade because they will get all kinds of perks such as windmill contracts, and a ban on cheap light bulbs (which forces the public to replace them with more expensive substitutes). For Goldman Sachs, things are even better. The Fed loans them money at almost 0% interest, and they turn around and loan it to Tim Geithner for a percent more. No effort, guaranteed results and - because the sums are so huge - so are the profits. And best of all, the government implicitly insures them against failure because they are ‘too big to fail’.

The problem is, as Joel Kotkin points out, that the middle class in the US is really hurting. That is because the anti-business climate Obama has fostered has hit hard the upstart competitors that provide most of the new jobs.

This should be a golden opportunity for Republicans because the interests of the middle class are almost perfectly aligned with the GOP’s free market principles. But only if GOP’s overall theme is insiders vs. outsiders, not government vs. private sector. Such a message would allow them to point out all the cushy connections between the big banks and the Obama administration. And when Obama talks about taxing “millionaires and billionaires” they should point out that this group of people includes not just Paris Hilton but almost every employer. Why is there persistent high unemployment? Answer: because the President is at war with the people who might otherwise be hiring them. When Obama talks about outsourcing jobs overseas, they should point out something Thomas Sowell said: 

President Obama's rhetoric deplores such "outsourcing," but his administration's policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.

In other words, every law and regulation Obama has added has helped push jobs away from America’s shores.

For a concrete example, take the aircraft plant Boeing built in South Carolina that might employ 2,000. Obama’s National Labor Relations Board is burning the midnight oil to make sure those people stay out of work.

The unemployment will continue as long as the populist anti-business bombast continues.

 

How to balance the US budget painlessly

When writing about pressing problems in current events, pundits have a tendency towards the apocalyptic. We see serious issues and assume they will end very badly or that the situation will be resolved by a paradigm-shifting Gotterdammerung that will change everything. 

Normally, what transpires is that a few things change - some for the better and some for the worse – and humanity just muddles on through to the next catastrophe.

The current US debt crisis is such a crisis. We think the US budget will blow up and change everything (just like we thought 9/11 would change everything) but I think people are overreacting. If you look at current budget situation: yes, it is serious; but no, it isn’t world changing. The reason is that the impediments to the solution are almost entirely artificial, i.e. political. In reality, balancing the US budget can be done with these changes, none of which are gut wrenching to the average American:

1. Reduce discretionary spending to 2008 levels. As 2008 was the last year of the George W Bush spending spree, 2008 was hardly a year of frugality. In reality, the budget could cut to 2004 levels with little pain felt on Main Street. But all that needs to be done is to reduce discretionary spending to 2008 levels and keep it there for a decade (i.e. discretionary spending increases kept to below GDP growth). This is not privation, political howls of dooma and gloom notwithstanding.

2. Implement pro-growth tax policies. Much of the current deficit is caused by a combination of a loss of income tax revenue corresponding with an increase in social spending due to the Great Recession. Medicare, AFDC, Section 8 vouchers, food stamps, unemployment insurance: all of these programs have grown by 50% or more in the past 3 years.

As Arthur Laffer once pointed out, you can’t balance the budget on the unemployed. To get the US out of the recession you must stimulate growth. You can do that by cutting income taxes for employers (i.e. the millionaires and billionaires who make more than $250K a year), slashing the corporate tax rate in half, slashing capital gains taxes in half and eliminating the estate tax.

The trick here is to not wimp out with populist anti-rich measures. When the liberals assert that the Bush tax cuts reduced federal revenue, they are half right. The Bush tax cuts to the middle class did indeed reduce revenue. In contrast, the Bush tax cuts to wealth creators was a spectacular revenue generator. Right now, the bottom 50% of Americans pays no income tax. They don’t need a tax cut (in fact, they need to start paying some income tax). It is the employers who need to be unshackled.

Do that and the unemployment rate will drop while tax revenues soar. As a bonus, mandated spending on the aforementioned welfare programs will plummet.

3. Deregulate as much as possible. There are so many counterproductive regulations on the books (Dodd-Frank, Community Reinvestment Act, etc.) that this is really fertile ground. Deregulation cuts government spending (enforcement costs) while simultaneously unshackling the economy. Another win-win.

4. Eliminate Obamacare.

5. To tame social security, take a page from the Paul Ryan plan and increase the retirement age by 1 month every year until the retirement age is 68. This change of 3 years will take 36 years to phase in but it will single-handedly make social security solvent again. How much will a 64 year old suffer if he as to wait an extra month for his first social security cheque. 

Answer: very little.

6. Introduce medical savings accounts, means tests and other market reforms to provide downwards pressure on the cost of medical services.

None of these steps, taken individually or together would cause much pain to the average American. In fact, they will relieve a lot of pain because the unemployment rate will drop. They will not fundamentally change the nature of American government or society, except to close a $1.5 trillion gap in the federal budget.

Not that implementing these things will be simple. It will be anything but simple and it will require an iron will among some of America’s leaders. It is just that the pain inflicted will be largely confined to those of America’s ruling class who rely on pork payoffs to stay in office.

Which is of course why none of these sensible reforms have been enacted yet.

How Obama is short-changing the middle class and how the GOP could benefit from it, if they were smart

One mistake that free market proponents often make is that they conflate free markets with capitalist. The two are not necessarily the same thing, especially with capitalists at the high end. Companies like General Electric and Goldman Sachs are almost as much political organizations as they are business entities.

The dirty little secret of these outfits is that they don’t much like free enterprise. Why would they? They are at the top. Free markets mean competition and competition means potential competitors. From the perspective of their self interest, once you have reached the high ranks, it is much easier (and safer) to use your influence to get laws passed that kneecap your competitors more than they kneecap you. As a bonus, you also get showered with taxpayer money. This is why big business is often in bed with socialist politicians. The baby they produce is called crony capitalism.

Which is why a big government guy like Obama is in cahoots with people like Gerry Immelt of GE. GE doesn’t mind anti-free market legislation like cap and trade because they will get all kinds of perks such as windmill contracts, and a ban on cheap light bulbs (which forces the public to buy more expensive substitutes). For Goldman Sachs, things are even better. The Fed loans them money at almost 0% interest, and they turn around and loan it to Tim Geithner for a percent more. No effort, guaranteed results and - because the sums are so huge - so are the profits. And best of all, the government implicitly insures them against failure because they are ‘too big to fail’.

The problem is, as Joel Kotkin points out, that the middle class in the US is really hurting. That is because the anti-business climate Obama has fostered has hit hard the upstart companies that provide most of the new jobs. 

This should be a golden opportunity for Republicans because the interests of the middle class are aligned with their free market principles. The GOP’s overall theme should not be government vs. private sector but insiders vs. outsiders. This message will allow them to point out all the cushy connections between the big banks and the Obama administration. And when Obama talks about taxing “millionaires and billionaires” they should point out that this group of people includes not just Paris Hilton but almost every employer. Why is there persistent high unemployment? Answer: because the President is at war with employers. When Obama talks about outsourcing jobs overseas, they should point out something Thomas Sowell said:

President Obama's rhetoric deplores such "outsourcing," but his administration's policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.

In other words, every law and regulation Obama has added, has helped to push jobs away from America. For a concrete example, take the aircraft plant Boeing built in South Carolina that would have employed 2,000. Obama’s National Labor Relations Board was working hard to stop that.

 

David Frum: the nervous Nellie of the conservative punditocracy

Moments of crisis are good at separating the reliable from the ‘wobbly’. After reading David Frum’s column in yesterday’s Post, where he excoriated conservative columnists south of the border for being “in denial over impact of debt default”, we can safely put Frum into the camp of unreliables.

His article was in reaction to columns such as the one he cited from the Washington Examiner. The quote he used as his jumping off point was:

“As the Bipartisan Policy Center has confirmed, Geithner could pay: the interest on the debt, all Social Security obligations, all Medicare and Medicaid obligations, all Defense contractor bills, all Veterans payments, and all active duty troops; and still have almost $7 billion left over for other items.

Yes, Geithner would still have to cut overall federal spending by 44%, and that would have economic consequences. But those consequences would not be as bad as defaulting on the debt. ...

Not raising the debt limit would cause a limited government shutdown, not default, as Obama has been claiming.”

The basic gist of Frum’s argument is that even if the Examiner’s accounting is true, a sudden cutback of US federal government spending by 44% would be too catastrophic for the economy to contemplate. This is how Frum makes his case:

“Suppose the government had to cut 44% from its budget on two weeks notice? How sharp a shock would that be to the world economy. 

Here’s a comparative. In the worst quarter of 2009, American consumers cut their spending by … not 44%, not even 4.4%, but 1.2%. That 1.2% drop in consumer spending helped tumble the economy into the worst collapse since the 1930s.

The U.S. consumer sector is even larger than the federal government sector. But it’s not unimaginably larger. U.S. consumers spend about $10 trillion a year. The federal government spends about $3.4 trillion.

If a cut of 1.2% from $10 trillion was an economic shock, a cut of 44% from $3.4 trillion will be a much, much, much bigger shock.”

Where to begin?

First of all, has David Frum ever heard of Say’s Law? In the words of Jean-Baptiste Say:

“The mere circumstance of creation of one product immediately opens a vent for other products.”

In other words, it is production not consumption that determines the size of a country’s GDP. Say’s Law formed the foundation of supply side economics developed by the Nobel prize winning Canadian economist, Robert Mundell that was successfully implemented by Ronald Reagan. You want an economy to grow, you must encourage savings and work (which are the key ingredients in production). If you do that, the consumption will take care of itself. The reason Say’s Law works is because our appetites are always greater than our desire to work.

To put all of this in the context of the current American budget debate, excess government spending can only have limited effect on economic growth because every dollar the government spends it has to tax, borrow or print. This is why the explosion of federal spending that has occurred under Obama (and, to be fair, also under the last year of Frum’s former employer, George W Bush, as well) has had no discernable positive effect on the economy. So here is my question to David Frum: if increasing federal spending has done so little to stimulate the US economy, why would you think cutting this spending off would hurt it?

What David Frum overlooks in his prediction of doom on Aug 2, is that a partial federal government shutdown will have positive effects (like an overnight elimination of the federal deficit) as well as negative effects (such as unpaid government workers and contractors). Though the borrowing respite will be temporary, for a while at least there will be no need for Tim Geithner to find new borrowers for T-bills or for the Fed to print more money. These are huge and immediate economic gains.

Second, the Great Recession was caused by a drop in consumer spending of 1.2%? Really? You mean it wasn’t caused by a collapse in the US financial system due to a surfeit of bad mortgages? So I guess all those business writers talking about subprime mortgages and asset backed securities were all blowing smoke. Who knew? I suppose the fact that the economy crashed on the same day as the Lehman Brothers bankruptcy was just a coincidence.

And third, at the current pace of spending, the US federal government is borrowing an additional $1.5 trillion every year. That can’t continue for much longer and when it must stop, that’s when the real economic consequences will be felt. It will be a fiscal inferno that will make a controlled, limited shutdown look like an ashcan fire. Most important of all, the longer a real solution is pushed back into the future, the bigger the consequences will be.

Like it or not Mr. Frum, Americans are living in interesting times. There are no longer any easy options. Every choice is fraught with peril but some contain real solutions. A cowardly compromise might provide temporarily political relief to John Boehner and Mitch McConnell, but cowardice has a way of coming back to haunt weak politicians. A good example is what happened to George H W Bush when he broke his “read my lips, no new taxes” promise in a similar confrontation with congressional Democrats.

Now is the time for bold, principled action, not mealy-mouthed appeasement to the forces that caused the problem in the first place. 

 

The next tech boom – 3D printing – may save North American manufacturing, at the expense of China

According to Mark Mills, of Forbes:

“The factory of the future is a fully-automated building filled with robotic systems and software. Purified raw materials and power go in, and a massive stream of customized products comes out. It is an incredibly efficient machine with nary an ounce of waste.”

“The poster child of the factory-of-the-future is visible in a hot new trend in the techno-dweeb sphere, so-called 3D Printing. These machines literally ‘print’ from computer images entire finished parts or simple products, ‘assembling’ from raw metal powders using powerful lasers or electron beams. They work much the same way much your computer’s laser printer does, though in the latter case using much less powerful lasers to print text using powdered inks. One guy, a computer, and a 3D ‘printer’ … presto a desktop factory.” 

“The future of manufacturing will be largely determined by the combination of two inexorable facts: technology gets cheaper over time, while labor gets more expensive. At the macro economic level, this trend is favorable to economies that are technology-advancing (i.e., the U.S.), not cheap-labor-centric (i.e., for now, China).”

“If the future of manufacturing is information-centric — from materials innovation, to 3D printing, to disruptive business models — is that a field where China necessarily dominates? Could be, but there is no guarantee. Creativity, innovation, flexibility, flexible education, entrepreneurship are the characteristics needed to foster the new era of manufacturing. These are the hallmarks of the American enterprise.”

Though, as Mills’ article points out, manufacturing based on nascent 3D printing technology is already here, who knows at this point how far this will go, and in what precise direction. Who, in 1990, predicted the internet revolution of the late 1990’s? Not-yet-invented technology is a very hard thing to pin down.

What this article does tell us however - and the reason I bring it up - is that all the doomsayers of America and the worshippers of New China (cf Thomas Freidman) are premature in their prognostications of Chinese hegemony. 

In spite of the two horrendous years of damage caused by Obama, Reid and Pelosi, the US still remains the friendliest place in the world for small, start-up business - the kind of organization that pioneers new technology the best. Replace Obama with minimal government President who understands that it is free markets and not crony capitalism that causes real economic growth and America’s best years could yet be ahead for her.

 

P.S. Embedded in the article is an interesting factoid for all you Mark Steyn-influenced demographers out there:

“Add to this formulation the demographic fact that, by about 2025 America will be a younger country than China.”

Iceland shows the way out of a financial meltdown: the government should do nothing

Iceland was one of the countries that was hit hardest by the Great Recession but since then, it seems to have recovered well. What did it do? Let's find out…

"Iceland didn’t rescue its banks.  It couldn’t afford to do it.  So, they went bust. Iceland looked like it was going down a path of permanent financial armageddon. However, Iceland is in better financial shape than the rest of Europe today.

'Europe’s bailout path has only diverted ever-more resources to failing enterprises, postponing and deepening the problem. Iceland’s restructuring was both painful and costly for the population, but the government did not throw good money after bad, and the taxpayers were spared a nationalization of private debts. Is it any wonder that forward-looking financial markets are now betting on the Icelandic recovery?'

No Dodd-Frank. No super heroics. Just a level headed, clear eyed administration of bankruptcy law."

This reminds me of the depression of 1920, which many say was more severe than the Great Depression, even though it lasted barely a year. The President at that time, Warren Harding (the one professional historians always place near the bottom of great President rankings), approached that crisis with the same laissez faire policy of today’s Icelanders. As a result, the depression ended just as quickly.

The lesson for Obama here is that if you don’t know your history, you are doomed to repeat it.