Canadian Cincinnatus

What are the West’s choices in Egypt?

Egypt is one of the most important countries in the Middle East and the Arab state the US has the closest ties to - thanks to Jimmy Carter’s Camp David Peace Accord, so what happens there is important to the US and the West. As I see it there are 3 possible outcomes:

1. The Hosni Mubarak regime hangs on and nothing much changes.

2. A more-or-less secular democracy takes over from Mubarak. Clearly this is the best option.

3. Islamic fundamentalists take over the Egyptian government. This is much more likely than option #2 because revolutionary groups like the Muslim Brotherhood have a clear advantage over their amorphous secular rivals because of their mature organizational structure (the Muslim Brotherhood was founded in 1928), clarity of vision (an Islamic Caliphate) and sheer ruthlessness.

Even though the US likely cannot exert much influence over the events there, it is nevertheless faced with a choice: support Mubarak or push for change. Since the outcome is far from certain, there is no cut and dry answer.

In my opinion, the best option for the Americans is to support change, even though chances for an Islamic Republic are high.

Why?

First of all Hosni Mubarak is 82 years old. He has achieved nothing in his thirty years of power. By the early 90’s, it was clear that the Chinese Communist mix of economic liberalization coupled with authoritarian rule was viable, but Mubarak did nothing. As a result, all he can offer his people is more status quo, which they clearly don’t want. And worst of all, his groomed heir - his son, has left the country. Mubarak is not the future. He is barely the present. He is toast and it is futile to tie your horse to him any longer. 

Second, the only possibility for a good outcome is if there is change but the change results in a democratic and not insane government.

Third, even if things go completely south and the Islamists take over, there is a sliver lining even to this dark cloud. To see how, remember what Machiavelli said about political diseases: if a political ill gets past a certain point, the fastest way to the cure is to let it run its course. 

Take Iran. Right now, the average Iranian hate Islamic fundamentalism. Because of 30 years of Islamic rule, Islamic fundamentalism is the past in Iran - not the future. I believe that in the near future, Iran will be America’s strongest ally in the Islamic world. The disease might have to run its course in Egypt too. The sooner Mubarak-style authoritarianism is over, the sooner Islamism will be over too.

The cause of Islamic fundamentalism in Egypt - and its anti-American - is the frustration average Egyptians feel over the rotten state of their country and their economy. The cause is not that postage stamp sized plot of land called Israel. Speaking of which, one of the reason for Egypt’s virulent anti-Semitism is the anti-Israeli and anti-American propaganda pushed by Egypt’s state-run media as a ‘safety valve’. Nice. This should be another factor when America considers whether it should drop its support of its ‘ally.’ If Mubarak were smart, his safety valve would have been Chinese-style double-digit economic growth, but he isn’t smart. He is just another squalid, two-faced, tin-pot dictator.

For added measure, supporting Mubarak against the gale force of public opinion undermines America’s campaign for democracy elsewhere around the world.

For all these reasons, the US should disown Mubarak as soon as possible. Of course, it should also work with its contacts in the Egyptian military (which we are constantly told has the respect of the people), in order to do what it can to make sure that Islamists don’t gain control.

On the other hand, there is this opposite analysis, which I also find persuasive. While I am sympathetic to a lot of what Miller says, my gut tells me that the fastest way to triumph over Islamic fundamentalism is to work against it dynamically rather than statically. I believe that the strategy of containment was a major mistake during the Cold War that undercut the West’s promise of freedom. It was only when containment was abandoned by Ronald Reagan in favour of subverting the Soviet Union from within that we won the Cold War. For this reason, I believe that not supporting last summer’s Green Revolution in Iran was a major strategic blunder. A grand opportunity to strike a decisive blow against Islamic fundamentalism at little cost presented itself and was left unsiezed.

 

Barack Obama ponders more gun control

So much for channeling Bill Clinton’s triangulation strategy.

According to this article, President Obama is considering cracking down on America’s ‘loose’ gun control laws in the wake of the Tucson, Arizona shooting.

Up until this point, Obama had succeeding in arousing every giant on America’s right against him but one – gun owners. Due to the lack of anti-gun legislative activity in the past number of years, gun owners were not a factor in the 2010 elections, so much so that the NRA endorsed pro-gun Democrat Harry Reid over Republican Sharon Angle in the Nevada Senate race, this to prevent the anti-gun extremist Chuck Schumer from becoming the new Senate majority leader.

Bill Clinton has publicly stated several times that he now considers that the biggest mistake of his Presidency was the assault rifle ban in the 1994 Crime Bill. This because it mobilized his opposition to such an extent that the congressional Democrats got shellacked in the 1994 mid-terms, which in turn meant that President Clinton spent the remaining 6 years of his Presidency playing defense. But I guess President Obama did not read those admissions.

Considering that the Republicans have an overwhelming majority in the House, there is not the tiniest chance of any gun control legislation passing. All that Obama did was to create for himself another set of determined enemies.

Unlike Clinton, Obama’s reelection bid will go down in flames.

 

Bill Clinton’s advisor cautions Congressional Republicans against ‘meeting Obama in the middle’

Dick Morris - a Republican - was Bill Clinton’s top political aide and was the architect of Clinton’s successful triangulation strategy. Therefore, with all the free advice given by MSM commentators to President Obama about how he can save his presidency by adopting the same course, it would be wise to see what the man who invented the technique has to say about Obama’s prospects of doing the same.

In last week’s blog post, Dick Morris says that Obama can win only if the Republicans “meet him in the middle” but if the Republicans stand firm they will surely defeat him.

“If the Republican Party wimps out and embraces a moderate agenda, trying to meet him in the middle, Obama will succeed and will be with us for six more years. But if the GOP defines itself in stark contrasts and pushes conservative policies, we will beat him. The key is to test Obama’s centrism by confronting him with bold demands to rollback health reform, undo his massive spending, deregulate community banks, enable state bankruptcies, and block pending executive orders to impose carbon taxes, card check unionization, and FCC regulation of talk radio and the Internet.”

“The key to winning the election of 2012 is to force Obama to defend his agenda of 2009-2010 by demanding its repeal and rollback. Republicans need to make him spend 2011 and 2012 defending the programs that brought him down in 2010.”

In yesterday’s blog post, Dick Morris discusses the effect that Obama’s State of the Union speech will likely have:

“He will have a national audience that will see him for one hour doing what he does best – giving a speech. State of the Union addresses are not to be taken lightly. In the Clinton Administration, I compared them to the towers of a suspension bridge. When the speech was given, the president’s ratings would rise only to fall gradually until they perked up again at the next State of the Union speech.

Obama will, doubtless, be the soul of moderation, bipartisanship, and compromise in his speech and may well see his ratings soar further upward.”

What can be done by the Republicans to counter this? Here is Morris’s advice:

“Obama has to begin to take real positions on real issues posed by the Republican Congress. Will he cut spending sharply when the debt limit is increased? Will he agree to defunding Obamacare? ... [etc.] 

On these issues, there really is no center. If Obama wants to cut spending by only a moderate amount, that is not centrism. Half of too much is still too much.

If the Republicans pose these choices starkly, Obama’s so-called move to the center will be exposed as the fraud that it is.”

“But the Republicans must do their part. To call Obama’s bluff, they will have to pass serious alternatives to his policies – big cuts in spending, defunding of Obamacare and of his administrative orders, and a procedure for state bankruptcies. On the rocks of these issues, Obama’s centrism will smash to pieces and he will be revealed for the radical that he really is.

There will be some Republicans who will want to meet him in the middle and agree to some cosmetic changes in Obamacare and some peripheral cuts in spending. We must not listen to these voices. It is only by posing sharp issues and manifestly different paths that Obama will be forced to choose and, in the process, be exposed.”

Emphasis mine. Keep in mind this comes straight from the mouth of the man who successfully rebranded President Clinton as a moderate.

There is an important lesson here - and not only for American conservatives. With so many Red Tories counseling the soft approach of meeting the Liberal agenda halfway in order to triumph in Liberal bastions like Toronto, it must be understood that there is a reason why Rob Ford and Mike Harris were able to win elections in Toronto. And John Tory, Ernie Eves and, yes, Stephen Harper were not.

 

 

New York performance artist Ann Liv Young apparently didn’t get Obama’s memo on civility

According to the New York Daily News:

“Intergenerational hipster warfare broke out Sunday night after artist Ann Liv Young performed at the Delancey Lounge as part of the American Realness festival. When Young mocked pioneering gay activist Jim Fouratt (whom she did not recognize) about his age, downtown doyenne Penny Arcade gave the younger performance artist a piece of her mind. So Young started to throw things at the stage, eventually hitting photographer (and New York Press columnist) Gerry Visco in the head with a heavy ceramic necklace.

"It's fine if you want to do crazy things. But don't hurl hard objects at people," says Visco, who says she filed a police report afterward — because she was "furious" and wanted to make sure insurance will cover any injuries.

Young, 29, who has performed at PS1, has included masturbation, urination and defecation in her work, and has both devotees and detractors.”

Here is a video showcasing Miss Young’s art.

Hat tip to the nice folks at diehipster.com for this material. Just don’t ask me what a ‘downtown doyenne’ is. 

 

 

Political ‘civility’ during the George W. Bush administration

I apologize for being a bit late to comment on the ‘civility’ craze – i.e. the newfound enthusiasm for civility by MSM commentators in the US that has ostensibly been prompted by the crazed shooting spree in Tucson, Arizona where a Congresswoman was nearly shot to death. To me, the reaction of the MSM talking heads brought to mind the 2006 ‘mockumentary’ that chronicled the imagined assassination of George W Bush. In looking back over society’s reaction to the release of that film, I can’t help but conclude that a lot of those who are earnestly extolling the virtues of good manners in politics today were as pleased as punch about this cinematic effort back then.

So does this mean that ‘mockumentaries’ about presidential assassinations falls under the commentators’ definition of civility (and does that mean that they would be just as ‘cool’ if a similar mockumentary about Barack Obama were made now), or does this mean that when these people counsel conservatives about the need for civility, they are full of it?

Flaherty does the right thing with consumer debt

Yesterday, Finance Minister Jim Flaherty announced new rules designed to reign in consumer debt. According to the Globe and Mail, “the maximum amortization period for government-backed insured mortgages will drop to 30 years from 35. The government will also lower the maximum amount Canadians can borrow in refinancing their mortgages, to 85 per cent of the value of their homes from 90 per cent, and in April will pull government guarantees on lines of credit secured by homes.”

As I have been saying repeatedly on these pages (here and here), tightening up consumer lending is the course for the Conservatives to take, both politically and policy-wise. It is the right policy because it was out-of-control consumer debt that caused the financial collapse in the US in 2008. Everybody agrees that the reason Canada came through this crisis so much better is because we have better banking regulations than the Americans. While this is true, it is important to understand what it is about our banking laws that makes them good. It is not, as was widely reported in the MSM, that we simply had more pages of banking regulations than the ‘reckless’ ‘freewheeling’ US, where presumably there was little or no regulatory oversight. This is nonsense. The problem in the US originated from the fact that their banking laws encouraged and even enforced reckless borrowing, while our banking laws restrict themselves to the ho-hum matters like minimum reserve requirements. All those below-prime, teaser-rate mortgages for NINJAs (No Income, No Job Applications) were mandated for minorities by quotas found in the Community Reinvestment Act and enforced by the Equal Rights division of the Justice Department. To throw more gasoline on the fire, income tax deductions for mortgage payments have long encouraged Americans to use their home as an ATM with home equity loans. Canada has never indulged in such populist ‘solutions’.

Flaherty’s rules are good politics because, since 2008, Canada and the US have gone through a role reversal on the consumer debt issue. After being bitten hard in 2009, Americans are saving and repaying loans like never before. In contrast, Canadians are on a borrowing binge that has been enabled by the low interest rates required to fight the US recession. Not having been burned, Canadians aren’t scared. This is a ticking time bomb because helicopter Ben is printing money like crazy to finance Obama’s trillion dollar deficits. Down the line, this will create stagflation. To fix that, a Volcker recession will have to be induced, as was done in the early 1980’s. This means very high interest rates. Remember 20% mortgages? Not many Canadians do. As a result, they feel comfortable loading up on debt without taking the time to calculate what their interest payments might be if the Bank of Canada has to jack up its prime rate to match the Federal Reserve Board.

If Canadians aren’t actively discouraged from excessive borrowing now, the second dip in the W recession could hurt Canadians a lot more than Americans. The Conservatives have to do something about this and be seen doing something about this. An ounce of prevention is worth a pound of cure. 

 

 

 

The Left Strikes Back in Toronto

It didn't take long for the left to start striking back in Toronto against the popularly elected right wing mayor, Rob Ford.

First, the Toronto Public Library stated in a widely publicized press release that they'd have to close the city hall branch of the library if Ford forced them to accept a budget cut of 2%.  This is a typical bureaucratic response to cut backs.  Don't cut back on waste, unnecessary overtime or excess staff.  Cut back on something very public, the meaner the better, and blame the government.

The TTC struck next, hiring over forty new managers for everything from new customer service managers (yeah, like that's going to help) to "track walkers" for the subway to hunt out things to repair.  Yet, the TTC wanted a fare increase and wanted to cut back on bus schedules.  The Toronto Star was livid.  Mean old Ford.  And when Ford said no to the TTC, the Star slyly suggested it was all a plot by Ford, who must've tricked TTC officials into their fare hike and cut back announcement so that Ford could look good when he reversed it.  Funny, the Star spent most of the election portraying Ford as barely able to add.

The truth of course is that these bureaucrats and the Toronto Star are ruthlessly doing everything they can to sabotage Ford's agenda.  The bureaucrats are all Millerites who hate Ford and will need to be replaced if anything is to work.

Here's what I would do if I were Rob Ford: I'd say to the TTC fair enough.  If you feel it's not worth it to run a bus up and down Davenport Road after10 pm or on Sundays and holidays because there are rarely more than two passengers on the bus, then lets contract the route to a private company--the smaller the better.  In fact, why not just run a 15 passenger van up and down the street late at night?

Of course the unions will have a fit at the thought that even one TTC route goes out to competition, especially lean competition, maybe even run by just a guy with a van and a garage.

Ford won't even have to follow through on this threat.  TTC management and the Amalgamated Transit Workers Union will suddenly find all kinds of savings that will allow for a lower budget and maintenance of under-used routes--anything to prevent even the slightest crack in the TTC monopoly on public transit in Toronto.

As for the library: Aren't e-books all the rage these days?  Maybe it's time for the library to improve its pathetic and technically flawed attempts at e-book loans.  I'm not suggesting that we close branches and replace them with e-books.  I just want the unions to be uncomfortable, to worry about new technology, to feel like maybe it's better to make concessions than face major changes.

The public service unions proved to be intractable under Bob Rae's Ontario NDP, and Miller's Toronto, but those two men owed the unions and everybody on both sides knew it.  Ford owes the unions nothing and knows he will get zero support from them in the next election no matter what he does.  That's why they fear him.  That's why they'll deal.

Mike Downtown

Our economic crisis and its solution

On the one hand, a free economy and the fractional reserve banking system underlying it are inherently unstable. It is unstable in a chaos theory kind of way. That is, while an economy's behaviour is deterministic, its forward trajectory in state space is unpredictable due to the sensitivity-of-initial-conditions problem. This means that it is almost impossible to predict the future behaviour of today’s financial crisis.

But while this is true about out economy, it is not all that is true about our economy.

What I am getting at is best described through analogy with physics. Most physical systems are chaotic in the same way. For instance, take the 'three body problem' in classical gravitation. There is no analytic solution that describes perfectly the motion of three bodies that takes into account their gravitational attraction to each other. This means that the forward trajectory of these bodies is unpredictable – and for the very same reason that our financial system cannot be predicted. But this does not mean that the system spins out of control. 

Why not? 

Because those three bodies are also governed by various conservation laws (mass, energy, momentum, angular momentum) that provide powerful constraints on what the system can do.

In the same way, there are similar constraints governing our financial system. Two of them are: 1) that in the long run, savings and investment must equal; and 2) that at any given time, the sum total of the wealth in our society is finite and equal to the amount of goods and services the economy produces. Let us look at each in turn to see how they constrain the economy in beneficial ways. 

1. Savings must equal investment. 

What does this mean? Savings are the money that you put away in the bank (or other financial vehicles) for future use. Investment is the concrete activity pursued for long-term profit. For instance, we build houses, factories, do R&D that will only pay off many years down the road, etc. These two things must equal, or there is trouble.

The best way to explain this is via another analogy. Consider an electrical grid. In a power grid, generation and load must be balanced at all times. And if they are not balanced, they will balance each other in ways that are undesirable. The same is true for investment and savings. If they are not balanced, then an unpleasant financial crisis will happen that will balance the two. This is where we are at now. This means that the only way forward is to balance savings and investment. This is why bankruptcies are healthy. They clear off bad, unproductive debt. As long as zombie companies like GM remain solvent, they will continue to burn through precious capital that could be used productively elsewhere and the economy will remain mired. 

The S & L crisis of the early 90's was resolved when failed banks were processed through the Resolution Trust Company. Through the RTC, the government temporarily took over bad banks, consolidated and wrote off the bad debt and resold the banks that were left over - banks that were healthy, strong and capable of supporting constructive economic activity. Savings and investment were equaled. The result was the roaring 90's.

This explains why Keynsian pump priming is such a bad thing. The bubble is caused by savings and investment not equaling. The bubble bursting is savings and investment equaling in an unpleasant way. Government stimulus is essentially an attempt to reinflate the bubble -i.e. recreate the inequality that caused the problem in the first place. Bad private debt is replaced, or rather compounded, by government debt and money created from nothing by the central bank. The result is more savings redirected to unproductive ends. A real world example is Japan in the 1990's. Instead of letting bad banks fail  - and letting bankruptcy courts sort out the good debt from the bad so that new and stronger financial institutions could replace them, they spent huge amounts of money on government programs in a vain attempt to reinflate the economy. The result was a lost decade and a public debt that currently equals over 190% (190!) of GDP, the highest in the developed world (only Zimbabwe is worse).

An example where the opposite was done was the depression of 1920-1921. The laissez faire policy of the Harding-Coolidge administrations and their excellent Treasury Secretary, Andrew Mellon, was to let everything fail that was going to fail. The result was a depression that was much sharper and more severe than the Great Depression, but one that was over in a year and a half. At the end of it, the bad debt was gone and the rest of the twenties roared. 

2. At any given time, the sum total of the wealth in our society is finite and equal to the amount of goods and services the economy produces. This fact operates on the economy like the conservation of energy operates on a physical system. It restricts the severity of what can happen. A corollary is that money isn't wealth. So if the financial system creates highly leveraged financial products (such as derivatives and credit default swap) whose total dollar value ends up being greater than the total GDP of the country, it doesn't mean that the country’s net worth is less than zero. The net wealth of a country will always be the sum total of the goods and services it produces. Those goods and services are real. Money is merely a form of information. When the financial system is healthy, this information is an accurate reflection of real wealth. When the system is unhealthy, as is the case when there is a credit bubble, it is not. A bubble is really only an unevenly distributed bout of inflation. And inflation is when money fails to transmit information about wealth over time. 

To understand this, it is important to remember that the primary function of banks is to allocate productive resources between direct consumption and long-term capital. (I.e. if you take $10 out of your pocket and buy a CD, you allocate productive resources to direct consumption. When you put that same $10 in the bank, that money is loaned out to the CD manufacturer to modernize his factory.) Because inflation interferes with the flow of information over time, it skews this allocation towards short-term production so that long-term investment suffers. In the long run, the economy slowly winds down as the factories wear out. Take the Weimer Republic, when people rushed to buy a loaf of bread before their money became worthless. In this environment, long-term investment is impossible. This is why inflation is bad. This is stagflation.

When financiers end up holding derivatives valued more than the economy, all that has happened is that a bunch of people think they are richer than they really are. The solution? Let them go bankrupt - as soon as possible. The longer they - and everybody else - labours under the illusion that they are rich, the more opportunity they have to misallocate precious capital. In order to minimize total damage, speed is of the essence. 

The moral of the story is that the sooner bankruptcy is allowed to work its healing magic, the sooner we can put the recession behind us and the less total damage the recession will have caused. The flip side is short-term pain, a'la 1921. 

Which is why everybody is avoiding the solution.

Conservative pessimism

Personally, I am sick of all the gloom and doom heard in conservative circles of late: exploding government debt, the ever expanding welfare state, the ratchet effect, demographic decline, the impossibility of cutting back middle-class entitlements, yada, yada, yada. Yes all of those are big problems. Yes, all of those are very big problems. I agree.

But what the pessimists don’t see is that the glory days of conservatism are NOW. On precisely the issues enumerated above.

I know, I know. According to historical evidence, government spending will keep going up, middle-class entitlements will never stop and government debt will accumulate until the crack of doom. But as the economist Herb Stein once put it, “if something can’t go on forever, it will stop.”

And right now, we are at the point in history when it can’t go on. The welfare state first made its appearance in the late 19th century when Otto von Bismarck created old age pensions for German citizens. For a long time it was a great deal. But as entitlements expanded, longevity rose, retirement ages went down, the age when people entered the workforce went up, the family unit broke down and, most importantly, fertility went down, the system became unaffordable. Right now it is broke. Not only in North America but in Japan and the European Union as well (where things are far worse in this regard than here). So instead of grumbling about the triumph of socialism, conservatives should be realizing that we are at a pivot point in history.

In a crisis, things that used to be impossible become not just possible but inevitable. When it is all sorted out we will have private, defined-contribution pension plans (as they do in Chile), government budgets will be balanced, middle-class entitlements will be chopped and people will be relying much more on their family and themselves. The latter will mean that the family unit - which suffered so much damage in the 60’s with the adoption of the New Morality - will begin to heal itself.

Will this transition be a good time? No. Especially for our elected officials - regardless of party.

But we must remember that the time Winston Churchill correctly called Britain’s Finest Hour wasn’t all that fine for Britons at the time. It was, properly speaking, terrifying - with almost all of continental Europe under the grasp of totalitarianism. Nazi Germany had just destroyed France in less than a month - a nation that was able to field over 100 divisions on the first day of the war! And when Churchill was giving his speech, Nazi Germany was right across the channel, bombing London every day. But it was still Britain’s finest hour. 

In the same way, this will be conservatism’s finest hour. And like Great Britain, we will win. Entitlements will be privatized, deficits will be tamed, debts will be paid off, people will become self reliant, the family unit will be repaired, and - as a result of the latter development - the fertility rate will climb to replacement rate and beyond.

So buck up, and get ready for the scary ride to victory!

Spontaneously Formed Militia Foils Hijacking Attempt…Again

Story here.

As Glenn Reynolds said in his must-read book, An Army of Davids, they’re a pack not a herd. As Mark Steyn remarked, the only things that worked on 9/11 were ordinary citizens taking matters into their own hands, or local authorities. The big-budget, fancy-pants, three-letter-acronym agencies all fell down on the job.