Saturday 29 June 2013

SURVEILLANCE STATE: Shot or hung?

From Simon Black’s newsletter this morning…

Ron Paul recently said on his Facebook page:
 
   My understanding is that espionage means giving secret or classified information to the enemy.
    Since   Snowden shared information with the American people, his indictment for espionage could reveal
    (or confirm) that the US Government views you and me as the enemy.
He's right. If nothing else, the way this has played out tells you everything you really need to know about the Land of the Free right now.
   
imageSnowden has been demonised by just about every government official on record. US Secretary of State John Kerry called Snowden's actions "despicable and beyond description," while US Senator Lindsey Graham said, "I hope we'll chase him to the ends of the earth..."
   
Words like "hanging" and "treason" are floating around the mainstream media. It's incredible. The issue no longer has anything to do with the criminality of the government spying programs. But whether Snowden should be shot or hung.
   
Yet amazingly enough, many polls show that roughly half of Americans think that Snowden is a traitor and should be prosecuted. And among the Twittering classes, the discussion quickly turned to Snowden's 'hot or not' status as a potential sex symbol.
  
Such data is truly profound. Roughly half of Americans don't give a rat's eye about their own liberty.
   
And it's obvious that the US government has every intention to continue these programs full speed ahead.

And not just the US government. Documenting some of the NZ government's involvement in this morning's Otago Daily Times,  Bruce Munro writes,

This month's revelations by former US National Security Agency employee Edward Snowden have thrown a rare light on the international intelligence community. It is a worldwide web in which New Zealand appears to be an inextricable but willing player.

Peggy Noonan makes the wider argument:

The U.S. surveillance state as outlined and explained by Edward Snowden is not worth the price. Its size, scope and intrusiveness, its ability to target and monitor American [and foreign] citizens, its essential unaccountability—all these things are extreme. 
    The purpose of the surveillance is enhanced security, a necessary goal to say the least. The price is a now formal and agreed-upon acceptance of the end of the last vestiges of [any] sense of individual distance and privacy from the government. The price too is a knowledge, based on human experience and held by all but fools and children, that the gleanings of the surveillance state will eventually be used by the mischievous, the malicious and the ignorant in ways the creators of the system did not intend. For all we know that's already happened. But of course we don't know: It's secret. Only the intelligence officials know, and they say everything's A-OK.
    The end of human confidence in a zone of individual privacy from the government, plus the very real presence of a system that can harm, harass or invade the everyday liberties .... This is a recipe for democratic disaster.

Friday 28 June 2013

“There are ‘big changes’ on the way in terms of how we are governed…”

After reading the Draft Auckland Unitary Plan, guest poster Christopher Lee now understands what Tipene O’Regan meant when he said there are “big changes” ahead on the way in terms of how we are governed.

At a meeting last week I listened to Professor John Burrows and Tipene O’Regan talk about the government’s Constitutional Review, on which they are panellists, where I was unsettled to hear O’Regan announce there are “big changes” ahead in terms of how we are governed.   (This was the same week he announced that all those opposing continued further Maori influence are next door to Nazi sympathisers.)

imageI have also been watching with particular interest the debate going on about the Draft-Auckland Unitary Plan.  An article by Michael Coote from the NBR on 31st May (and his submission to the Council on the Plan), brought my attention to several issues of which I had previously been blissfully unaware. Maybe you’re also unaware of the passages in the Unitary Plan concerning issues of significance to those the plan dubs “Mana Whenua.” * Coote writes he is

concerned about the Maori racial supremacy bias that Auckland Council is attempting to embed permanently into its public policy through the Draft-Auckland Unitary Plan via Treaty of Waitangi-related clauses of legislation such as the Resource Management Act and various court decisions, and through additional political decisions Auckland Council has made off its own bat.
    This bias is particularly evident around, but not limited to, issues concerning … “Sites of significance to Mana Whenua” …

I’ve since had a read through the passages pertaining to Mana Whenua in the Plan, and I am very disturbed by the extent of the rights that would be granted to iwi over and above rights as Auckland citizens. Embedded throughout this plan are proposals which I believe attack the very heart of our democratic system and the property rights of ratepayers and citizens. In my opinion, if these are adopted it will create two classes of citizen, Mana Whenua and others.

Maybe this was what Sir Tipene O’Reagan was alluding to in his speech.

Our democratic and property rights are very important to me, as I imagine they are to the vast majority of fellow Aucklanders. It appears that here, as elsewhere, the terms ‘partnership’ and ‘principles’ of the Treaty are being used by local iwi to claim ‘co-governance’ of major resources.

imageCo-governance would establish a political system where the power and authority of one party, iwi, is unchallengeable by every other party.

This party is not appointed by the people, and therefore not accountable to the people. The Council’s ‘commitment’ to the Treaty therefore, as explained in the draft Unitary Plan, comes directly up against the principles of democracy.

There are two areas I have identified as being particularly concerning. These are:

  • Mana Whenua having an “equal partnership” with Council in the management and governance of our natural resources would fundamentally undermine both the principle of equality of citizenship, and the democratic system it supports. Precedents have already been set here with the steering group set up for the Hauraki Gulf Marine Spatial Plan—the governance structure consisting of 8 representatives of our democratically elected governing bodies, and 8 Mana Whenua members. The justification for this 50/50 co-governance being “This structure provides equality of representation consistent with the principle of partnership within the Treaty of Waitangi.”
  • The scale and extent of the Mana Whenua significant sites, which if they choose to do so, as it appears in the plan, would enable iwi to inflict their wishes upon the property rights of other citizens; imposed on the say-so of iwi authorities, unaccountable to anyone else in Auckland.

I believe it is abundantly clear that Mana Whenua influence would not be confined to environmental governance and resource management. Precedent here has been set under section 85 of the Local Government (Auckland Council) Act 2009, which allowed the Independent Maori Statutory Board to appoint a maximum of two persons to sit as members on each of the Council's committees that deal with the management and stewardship of natural and physical resources.

These members are unelected, with full voting rights alongside our democratically elected councillors.

imageHowever, the Independent Maori Statutory Board's legal advice suggested that the entitlement to appoint representatives are even more extensive than many probably anticipated. Consequently, unelected Independent Maori Statutory Board members sit on 16 Auckland Council committees and forums, and nominated members also sit on a range of hearings panels and working parties. Most of these bodies have no obvious link to the stewardship of physical and natural resources.

The Unitary Plan clauses that give me most concern are outlined below:

In Section 2.1.4 under the heading Decision making, environmental governance, partnerships and participation:

  • “Mana Whenua seek greater participation in resource management decision making. They want co management, joint management and co governance arrangements concerning shared decision making”; and
  • “Building stable and equal partnerships is an important process for Mana Whenua to enable active and meaningful participation in the management of natural resources.”

There is even provision for Mana Whenua to take full control in some instances, for example:

“The full transfer of powers in accordance with s. 33 of the RMA is an option Mana Whenua would like to pursue for particular resource management activities”.

And again in Section 2.5.1 it is shown just how wide ranging these powers could be:

“Objective no. 4 [under the heading “Recognition of Te Tiriti o Waitangi partnerships and participation”]
‘Enable the transfer of powers and/or establishment of joint management agreements for certain functions relating to the development and management of ancestral lands, water, air, coastal sites, wāhi tapu and other taonga, and the sustainable management of natural and physical resources, where an iwi authority:
           a. has an ancestral connection or mana over a resource 
           b. has a clear mandate to represent the interests of that iwi or hapū
          
c. can demonstrate the ability to fulfil the requirements of the RMA, whether directly 
                or by  outsourcing.”

The scale and extent of policy regarding Sites of Significance to Mana Whenua is also wide ranging, not only numerically, but also in scope, i.e. not just confined to sites but to include whole areas. If these proposals were to be adopted there is the likelihood that the property rights of many citizens would be impacted upon. These sites are to be nominated on the say-so of Mana Whenua. I see nothing in the Unitary Plan allowing any such such assertions to be challenged by any affected parties.  See if you can:

Section 3.1.2 Māori cultural heritage
There are thousands of areas, features and sites within Auckland where there is a high likelihood of Māori cultural heritage being discovered or affected.

Māori cultural landscapes (areas of significance to Mana Whenua)
Māori cultural heritage extends beyond individual sites of significance and includes wider ‘areas’ of historic occupation, where Mana Whenua values and associations with the landscape are reflected through landmarks, place names, portages, areas of seasonal occupation and historical transport routes that are also of importance to Mana Whenua.
    Mana Whenua liken their cultural landscape to their cultural footprint/tapuwae – which is of Maori cultural heritage in its own right. It is not site-specific; rather it is the context of the landscape, the volcanic maunga fields, and the numerous waterways and tributaries overlaid by layers of Maori history. Maori cultural landscapes provide the context and identify relationships within which areas, features and sites of significance to Mana Whenua exist, recognising that sites do not exist in isolation.....................................”

Section 3.1.2 Information management
Maori knowledge is traditionally passed down orally from one generation to the next. Tohunga and kaumatua are repositories of knowledge and are highly regarded for their knowledge of the spiritual and physical realms. These customs are still commonplace in Maori culture and it is important that sensitive information is managed in accordance with protocols that have been agreed with Mana Whenua.

Section 3.3.5.2 - Sites of significance to Mana Whenua
Where there is sensitive information regarding the significance of the sites special protocols agreed with Mana Whenua will outline the management of this information.
    Mana Whenua are aware of many other areas, features and sites that may be equally or more significant, and acknowledge there may be shared interests over scheduled locations. It is intended to identify further areas, features and sites nominated by Mana Whenua through future plan changes including those identified through other legislation.

imageObjective

  1. The tangible and intangible values of scheduled sites and features of significance to Mana Whenua are protected and enhanced.

Policies

  1. Avoid adverse effects on the values of scheduled areas, features and sites of significance to Mana Whenua.
  2. Require subdivision, use and development to:
    a. enhance the values of the area, feature or site of significance and the relationship of Mana Whenua with their tāonga, commensurate with the scale and nature of the planning application
    b. incorporate mātauranga, tikanga and Mana Whenua values, including spiritual values
    c. incorporate the outcomes articulated by Mana Whenua through consultation and within iwi planning documents
    d. demonstrate consideration of practicable alternative methods, locations or designs which would avoid or reduce the impact on the values of sites of significance to Mana Whenua
    e. include mitigation that is compatible with Mana Whenua values and is commensurate with the extent of the effects.
    g. demonstrate consideration of practical mechanisms to maintain or enhance the ability to access and use the area, feature, site for karakia, monitoring, customary purposes and ahikā roa by Mana Whenua.”
  3. […]
  4. […]
  5. […]
  6. Manage subdivision so that areas features or sites of significance to Mana Whenua are not split into multiple land parcels.

4.1.16.1 Treaty of Waitangi and Mana Whenua and also 4.1.16.1.1 Consultation and engagement

1. The provisions below provide guidance as to when consultation and engagement is required with Mana Whenua for resource consent applications, applications for public and private plan changes and notices of requirement.
2. Engagement with Mana Whenua is required for resource consent applications, applications for public and private plan changes and notices of requirement which involve any activity that is on, adjacent to, or likely to impact on Mana Whenua values and interests in relation to:
   
a. ancestral lands, water, air, coastal sites, wāhi tapu and other tāonga, for example:
       
i. any areas, features or sites of significance to Mana Whenua including Māori cultural
           landscapes identified within iwi planning documents
       
ii. any sites of cultural, historical or spiritual significance to Mana Whenua identified within the
            Sites of Significance to Mana Whenua overlay
       
iii. where Māori cultural heritage is present or there is a high likelihood of Māori cultural heritage
            being present…
   
c. the exercise of kaitiakitanga [guardianship] over resources of particular interest to Mana Whenua, for example, coastal areas, waterways, geothermal, ecological areas and matters relating to the mauri [life force]of natural and physical resources associated with freshwater, ecosystems and the coast. In particular, when applications are required for the following:
       
i. discharges of waste water
       
ii. discharges of to air
       
iii. take or use of surface water, ground water or geothermal resources
       
iv. the construction of a dam
       
v. damming of water
       
vi. drilling to construct a bore
       
vii. structures affecting river beds and the [Coastal and Marine Area]
       
viii. disturbance to river bed and the [Coastal and Marine Area]
       
ix. reclamations.”

That’s a fairly comprehensive range of private places, properties, plans and projects over which the Draft-Auckland Unitary Plan proposes granting unelected Maori representatives virtual veto power.

If you are not already aware of the issues raised, I suggest that you take a look at the unitary plan found at: http://unitaryplan.aucklandcouncil.govt.nz/pages/xc.enquire/UnitaryPlanElectronicPrint.aspx

I refer particularly to the proposed rules in these sections:

1.2; 2.1.4 ; 2.5; 2.5.1; 2.5.2; 2.5.4; 3.1.2; 3.3.5.2 ; 4.1.16.1.1; and 4.4.5.1 (2) Notification.

I can understand and appreciate the desirability of governance arrangements that value Maori knowledge and participation. However we cannot ignore the fact that iwi, wishing to realise their economic potential following treaty settlements, are developing commercial arms which are at the start of a growth phase. This being so there is a high likelihood of potential conflicts of interest in iwi being both regulatory decision makers and also commercial developers.

You may share my concerns and if so it would be great if you could alert others by raising this with associates, friends and family.

* * * * *

* Defined by Te Puni Kokiri as “the exercise of traditional authority over an area of land [whenua].”

End of QE? I Don’t Buy It

Guest post by Detlev Schlicter

imageA new meme is spreading in financial markets: The U.S. Federal Reserve is about to turn off the monetary spigot. American Printmaster General Ben Bernanke announced that he might start reducing the monthly debt monetisation program called “quantitative easing” (QE) as early as autumn 2013, and maybe stop it entirely by the middle of next year.

He reassured markets that “The Fed” will keep the key policy rate (the Fed funds rate) at near zero all the way into 2015. Still, the end of QE is seen as the beginning of the end of super-easy policy and potentially the first step toward normalisation—as if anybody still has any idea of what “normal” was.

Fearing that the flow of nourishing mother’s milk from The Fed could dry up, a resolutely un-weaned Wall Street threw a hissy fit.

So far, so good. There is only one problem: It won’t happen.

Now, I am the first to declare that the Fed SHOULD abolish QE. Not in autumn of this year or summer of next, but right now. Pronto. Why? Because a policy of QE and zero interest rates is complete madness. It distorts markets, sabotages the liquidation of imbalances, prohibits the correct pricing of risk, and encourages renewed debt accumulation. It numbs the market’s healing powers by enabling more “pretend and extend” in the financial industry. And it adds new imbalances to the old ones that it also helps to maintain.

This policy may have prevented, for now, debt deflation. But maybe debt deflation is what’s needed.

[Ed. note: Debt deflation is the idea that the market contracts and corrects itself as the overall level of debt decreases.]

QE on the other hand is nothing but heavy-handed market intervention. It is destructive. It doesn’t solve the underlying problems. It creates new ones.

Larry Summers’ Getaway Car

However, none of these objections even registers at The Fed. The Fed has a completely different perspective: This policy was a roaring success, and as it has worked so well, it can now be faded out. Soon there will be no need for it.

Larry Summers’ dreadful phrase captures that thinking probably best: The economy will soon achieve “escape velocity.”

Most analogies are somewhat poor, but this one is particularly inept. Ironically, though, the reference to mechanics captures beautifully the logic of Keynesians and other interventionists: The economy to them is like a physical object moving through space and is occasionally in need of a little push to get moving again at an appropriate speed. Policy provides the push.

imageBernanke doesn’t use these terms, but his thinking is similar. He explained QE to the American public in 2010 by announcing that his job was to to encourage lending, borrowing, spending, shopping, and other healthy economic activities by occasionally manipulating interest rates and asset prices. Once his machinations had stimulated enough of those activities, the economy would again enter a virtuous cycle (his words) of self-sustained growth. Escape velocity restored.

However appealing it may sound to many laypersons, I think this is nonsense. The economy is not an object that needs a push, a machine that needs to be jump-started, nor a lazy mule that needs a gentle slap on its behind to get going again. An economy is a complex process of coordination. An elaborate tool that allows an extensive and diverse group of actors with different and frequently conflicting goals and interests to cooperate with one another peacefully toward the best possible realisation of their own material aims.

A crisis is a failure of that coordination process. It is a cluster of errors. The only explanation for the occurrence of such a cluster of errors is a systematic distortion of the market’s coordinating properties. This occurs when monetary expansion distorts interest rates and other relative prices and leads to imbalances that unhinge the economy.

The economy went into recession because of massive financial deformations. Easy money led to excessive indebtedness, a housing bubble, and dangerous levels of leverage. The problems were these distortions, not the lack of “momentum.”  S0 the real question now isn’t whether the GDP statistics exhibit the right “velocity.” Rather it’s whether the underlying dislocations, which cannot be easily ascertained from the macro data, have now dissolved.

No Escape

The Fed believes it’s healed an economy that was sick from easy money by prescribing and delivering even more easy money. They believe the patient is feeling better and can soon be released from intensive care.

In my view, the patient is still sick and now suffers from a dangerous addiction to boot. The “feeling better” is just a lingering drug high from Dr. Bernanke’s generous medication. Withdrawal symptoms may surface soon. And when they do, Dr. Bernanke will simply open the medicine cupboard again. Don’t forget only a few weeks ago, the man appeared on TV and tried to talk up the Russell 3000 stock index.

imageI do not doubt that, if measured by overall GDP, the U.S. economy is presently doing better. I would be foolish to take on the Fed regarding this point. The Fed has a staff of 200-plus economists, most of them, I assume, from America’s finest universities. This doesn’t mean they are good economists, but they are, at any rate, probably good statisticians. If they say there are signs of life in the economy [as measured by the GDP], that’s good enough for me.

Where I disagree is on the narrative. The dislocations and deformations are largely still there. How can they not be, given the enormous policy effort to suppress the very market forces that would have exposed and liquidated these deformations in a free market?

The dislocations are still visible, among other indicators, in high degrees of indebtedness. And they matter. That is why I am distrustful of the Fed’s projections.

Their theories compel them to believe in virtuous cycles and “escape velocity,” and to disregard imbalances and distortions. Any sustained removal of super-easy money will allow these deformations to resurface and immediately cloud the short-term cyclical outlook.

According to my worldview, this should be allowed to happen because it is part of the essential healing process. But it runs counter to The Fed’s worldview and The Fed’s view of its mission.

The one institution that lacks “escape velocity” is the U.S. Federal Reserve. It will remain hostage to the financial monsters it created and the dangerous misconception of its own grandeur.

Sincerely,
Detlev Schlichter

Detlev Schlichter is the author of Paper Money Collapse—an Austrian School economist who has spent nearly twenty years working in international finance, including for Merrill Lynch, J.P. Morgan, and Wester Asset Management. Article originally posted here at his website, and reposted at Laissez Faire Books.

Let them eat monuments

With grand announcements coming thick and fast about bridges, tunnels and stadiums, it looks like this Government might have found a bag full of money under its couch. Good for them.

And with Christchurch and Auckland Council leaders sitting around nodding as the grand announcements are made, it looks like they have too.

Isn’t that nice for them.

It’s obviously a big bag –a bag chock full with more than $25 billion—enough to buy $4.8 billion dollars worth of monuments in Christchurch, and $2.86 billion (plus cockups) to buy Len Brown’s train set. That’s on top of the $4 billion already being spent to complete the Western Ring Route, and around $3 to $4 billion for a second harbour crossing.   And on top of the $4.1 billion in debt the Auckland Council already holds on our behalf.

So that’s nearly$20 billion altogether on new monuments, adding to an existing $5 billion of Auckland and Christchurch council debt. (Not to mention the massive $58 billion the government already owes on our behalf.)

And of course, they won’t be paid for with a bag full of money they found under the couch.  They will be paid for with bags full of money they’re going to extract from your pocket.

And with just 1 million taxpayers in the country (virtually all of them outside Wellington) that’s a tab of around $20,000 each.

What could you have done with your $20,000? 

Or with all the engorgement of construction materials that this monumental spend-up is going to suck out of building other things—like houses?

You might think all the monuments are worth it. You might think they will make the cities more liveable (which is the argument being made about the Auckland Monuments). You might think it will add to cities’ prestige (which is virtually all the argument that exists about the build-them-and-they-will-come Christchurch monuments). But whatever you think, for or against, you’re going to be paying for them anyway. And the “prestige” of the projects will fall like manna from heaven on the head and shoulders of your autocratic leaders.

So it has always been.

One may see in certain biblical movies [writes Ayn Rand] a graphic image of the meaning of public monument building: the building of the pyramids. Hordes of starved, ragged, emaciated men straining the last effort of their inadequate muscles at the inhuman task of pulling the ropes that drag large chunks of stone, straining like tortured beasts of burden under the whips of overseers, collapsing on the job and dying in the desert sands—that a dead Pharaoh might lie in an imposingly senseless structure and thus gain eternal "prestige" in the eyes of the unborn of future generations.
Temples and palaces are the only monuments left of mankind's early civilizations. They were created by the same means and at the same price—a price not justified by the fact that primitive peoples undoubtedly believed, while dying of starvation and exhaustion, that the "prestige" of their tribe, their rulers or their gods was of value to them somehow.
Rome fell, bankrupted by statist controls and taxation, while its emperors were building coliseums [ to deliver bread and circuses]. Louis XIV of France taxed his people into a state of indigence, while he built the palace of Versailles for his contemporary monarchs to envy and for modern tourists to visit. [Meanwhile, as the bread in the kingdom dwindled, his queen Antoinette was advising her subjects’ rulers to “Let them eat cake.”]

And now, in a New Zealand already mired in debt, we’re going to tax ourselves further into penury to make ourselves believe we’re making our cities liveable.

Do any of these political leaders really believe anything they say about making cities affordable?

PS: Want affordable local councils? Consider supporting the Affordable ticket: http://www.affordable.org.nz/join-donate

Thursday 27 June 2013

“There will be no carbon tax under the government I lead.” [updated]

Julia Gillard seems to have forgotten the moment the wheels came off, and why.

Julia, they didn’t dislike you as Prime Minister because you are a woman.  They didn’t like you because you are a liar.

This is when the honesty wheels came off. Here’s Julia before the Federal election…

And after…

This was her “read my lips” moment. 

Hard to reconcile the two statements. Which is once reason no-one could trust a word she said thereafter.

Here were four more:

UPDATE: Not that new PM Krudd has boasting rights on honesty. Apparently this phrase, uttered in March:

“there are no circumstances under which he will return to the Labor Party leadership in the future”.

Actually means:

“I will knife Julia in the back, first chance I get.”

Observes the MacDoctor: “Excellent. Now we have Rudd’s ‘Rosetta Phrase’ we can apply it to all of his pronouncements henceforth.”

Ruddsmoking

[Image from VexNews]

SURVEILLANCE STATE: Why has the media ignored the message?

The Auckland Banner airs a reasonable question about events further afield:

Why is it that [the media are] following every single detail about Snowden, but not really talking about the substance of this huge privacy scandal?

Fair question. RT Journalist Anastasia Churkina has a crack at answering it with Wikileaks spokesman Kristinn Hrafnsson.  As Hrafnsson says, “this is a test of proper journalism.”

What do David Bain and Kevin Rudd have in common?

So, a lot happened overnight, while I was otherwise engaged.

The wildest day ever ended at Wimbledon with favourites knocked out, honest journeymen injured on slippery grass and a spate of retirements right in the midst of games. Events never seen before in  London SW17.

One of the wildest days in recent memory ended in Canberra with the ALP shooting itself in the foot while stabbing itself in the back.1 And Gillard went, bewailing her fate as a woman (“infamy, infamy, every misogynist had it in for me”) but gratifyingly just in time for everyone to switch over to Origin—a game where the enemy comes in from the front.

And back here at home? While Len Brown was probably out celebrating the National Party conceding him the election2, it seems everyone else was glued to TV3 watching another wild theory about the Bain murders. A wild theory based on everyone having forgotten all that Robin Bain would have had to do to kill his family and yet be found clean and neat3 with just two dark lines on his thumb to show for it, right next to a rifle magazine in the most unlikely position possible.4

Danyl’s suggestion that debate about the case reminds him of the story of  The Umbrella Man is a good one.

So a lot happened.

Meanwhile, over in South Africa, a man who ended an apartheid state without bloodshed is slipping away as peacefully as the transition he inspired. The world was a better place for his existence.

So, in answer to my headline what do David Bain and Kevin Rudd have in common apart from everyone wanting to talk about them today?

Kevin Rudd wants compensation from voters for the wrong done to him (in his mind) by Julia Gillard, in the form of another long kick at a job he’s already been evicted from. And David Bain wants compensation from taxpayers for the wrong done to him by the courts in having found him guilty several times before releasing him.

Does either deserve it?5

UPDATE: Brendan O'Neill reckons the remarkable Rudd/Gillard bitch-fight tells a bigger story about the death of Labourism.

The deposing of Gillard by the substanceless, personality-free Rudd should worry us all, for it suggests that the managerial wing of modern politics, with its grey, autocue-reading, principle-dodging spouters of bland platitudes, is truly in the ascendant. They're now even launching coups…
    Anyone who cares to look closely at what has happened … might see more than a story of two Labor politicians at loggerheads; they might also see that the entire project of Labourism is now gasping for breath, dying slowly, finished off by the loss of purpose and growth of bitchiness in these old parties of the working man.

1. Yes, in the absence of anything more intelligent to say myself, I pinched the line from Barclay Anstiss. Thanks Barclay.
2. Not a U-turn but a loop, says Brownlee. And yes, this line was pinched from
Tim Selwyn.
3. Summarised at
The Dim Post: “I’ve always thought that David Bain was guilty – mostly because the defence counter-factual in which Robin Bain killed his family, took off all his blood-stained clothes, put them in the wash, put on some different clothes then committed suicide – didn’t really make any sense…”  Not to mention the contortions Robin would have to pull to shoot himself in the back of the head with a rifle.
4.
Best summarised by Tim Selwyn: “Problem is the same photo that shows the correspondence does so as if it were posed for the purpose, as if it were staged by someone especially to demonstrate the marks go with the magazine clip. The magazine is on edge about a centimetre from the fingers of the hand with the marks outward… A clip sits on edge and on carpet only 1cm away from the hand of an adult male who has fallen dead to the floor (from shooting himself). Wouldn't the thud jolt the clip over, esp. on carpet? The chances of that happening like that in the photo are so remote. In the scenario I paint the planted clip is pressed into his hand by David and stood on edge to complete the story as a sure alibi…”
5. Whatever your view of David’s guilt or innocence or taste in woolly jumpers, a jury finally found him innocent not guilty—and the way justice is supposed to work after that decision is that compensation for the injustice committed by being wrongly locked up is then paid. Justice wouldn’t be served if it wasn’t. 
But there is nothing in justice that Kevin deserves more than a decent kick in his arse sending him out the door he came in. I expect Australian voters will give that to him swiftly, and deservedly.

Auckland Quote of the Day:

“98% of Aucklanders surveyed think that other people should take public transport.”

Discuss.

Wednesday 26 June 2013

LA Mid-Century Modern

image

More than anywhere else, mid-century modern architecture grew up in Los Angeles, in harmony with Californian industrial base and the Southern Californian climate.

Unique domestic forms emerged through the implementation of new fabrication techniques and materials, which had been rigorously tested by industrial research labs during World War II. From the tract houses of Lakewood and the towers of Park La Brea to the Case Study and experimental homes of the Hollywood Hills, designers and developers employed pioneering methods to create communities that sustained L.A.'s diverse and burgeoning population.

Check out this page with info on the Getty Museum’s exhibit of the many innovative designs and forms of this place and style—along with videos and commentary about the varying housing styles, forms, communities and suburbs that first saw the light of day here.

Like the two beauties shown here.

image

Obama jumps the warmist shark [updated]

Obama jumps the sharkWith most US businesses still struggling to make a profit, the US economy struggles to fire. So Obama has chosen to pour more cold water on the still weak and sporadic flames.

With the globe simply failing to do what the global warming models say it will, the global warming “science” has arrived at a failed dead end. So he’s declared the debate over the science “obsolete.” (That’ll do it.)

And so called “green jobs” have been costing the US taxpayer up to $2 million per job in subsidies. So he’s elected to “create” many more.

He calls it his Climate Action Plan of June 25 2013This can’t fail to end badly.

(Is he really this desperate to get Edward Snowden off the front pages?)

[Cartoon is Blunt, by Knutz]

QUOTE OF THE DAY: On ending global poverty

Economist Jeffrey Sachs dazzled the development world with his plan to end global poverty with aid. Sachs's aid program has not worked. But economic liberty has.

“After several decades that saw the largest poverty reduction in history -- with the number of "extremely poor individuals" falling most spectacularly in China, from 683 million in 1990 to 156 million in 2010 …, and not because of foreign aid and well-intentioned foreigners but because of booming economic growth -- some analysts now argue that the best medicine for poverty is reforms to scale back the role of the state in the economy and to open sheltered markets to global investors.”
                           - Paul Starobin, “Does It Take a Village?” – FOREIGN POLICY

[Hat tip Stephen Hicks]

SURVEILLANCE STATE: Let’s recap [updated]

imageTake your eye off the flight of Edward Snowden, advises Forbes writer Andy Greenberg, and put it back where it belongs.

The world has become so caught up in the suspense and intrigue of the Snowden Affair–practically a ready-made Robert Ludlum title–that it seems to have almost forgotten the massive National Security Agency surveillance controversy that he’s risked his future to bring to light…
    is as good a time as any to take an intermission from the drama and recall the real story: the biggest global privacy scandal of the decade.
Here’s a recap of Snowden’s leaked documents published so far, in my own highly subjective order of importance.

While his successful flight from America has so far indicated that the US can’t always lay a finger on you (so far, at least), what’s been revealed in the information he’s released indicates that they can listen to you wherever you are in the world, and no matter who you are in the world.

And add to that the further revelation that to spy on one’s own citizens “legally,” all that is necessary is a reciprocal deal with another country’s spooks—and everyone outside the US needs to worry about the NSA as much as those within.

John Lennon auditions on The Voice

Yes, true story (well, sort of).

PS: Wonder how Bob Dylan would do?

[Hat tip Skills and RocKwiz]

Inflation: Robbing You Since the 10th Century

Monetary inflation has always been with us. Dan Steinhart from The Casey Report shares a couple of the stories.

Watching from afar as inflation in Argentina grows worse – officially 11%, realistically around 25% – it's tempting to think of the scourge of fiat money as a modern phenomenon; tempting to think that if only US President Franklin Roosevelt hadn't confiscated US citizens' gold to usher in the beginning of the current era of paper money—or if only Richard Nixon hadn’t abandoned the last link with gold—we could be living in a precious metals paradise, as all our ancestors before us did.

That narrative, of course, is utterly false. Humans have been screwing up money for centuries, beginning with China's printing of jiaozi in the 10th century. History is littered with episodes of hyperinflation, but my favourite is that of revolutionary France as told by Andrew Dickson White in the short and chatty Fiat Money Inflation in France. It contains the most vivid description I've seen of how easily overspending becomes inflation and transforms into hyperinflation, and how far governments will go to maintain their power in the face of a dying currency.

France's hyperinflation began as all hyperinflations do: the state printed too many assignats (pictured below), and they rapidly lost their purchasing power. As the value of their paper money plummeted, French citizens hurriedly sought alternative stores of value like real assets, and alternative mediums of exchange like gold—as any intelligent person would.

Correctly perceiving this as a threat to its financial hegemony, the French government reacted violently. I'll let three short passages from the book explain. Note in particular the rapid progression (all emphasis mine):

August 1793:

"Couthon had proposed and carried a law punishing any person who should sell assignats at less than their [face]value with imprisonment for twenty years in chains, and later carrieda law making investments in foreign countries by Frenchmen punishable with death."

September 1793:

"The Convention decreed that any person selling gold or silver coin, or making any difference in any transaction between paper and specie, should be imprisoned in irons for six years: – that anyone who refused to accept a payment in assignats, or accepted assignats at a discount, should pay a fine of three thousand francs … Later, the penalty for such offences was made death, with the confiscation of the criminal's property, and a reward was offered to any person informing the authorities regarding any such criminal transaction."

May 1794:

"The Convention decreed that the death penalty should be inflicted on any person convicted of having asked, before a bargain was concluded, in what money payment was to be made."

Yikes. Fiat currency isn't just a contemporary problem, that's for sure. Are Argentines headed for the guillotines, too?

Probably not. The Argentinian government has made a virtual decennial ritual of inflating its currency out of existence. As a result, Argentines have earned their black belts in navigating through hyperinflations. That, combined with the Argentine government's lack of resources to enforce its edicts, ensures that most Argentines won't suffer the gruesome fate that many poor 18th-century Frenchmen did.

Importantly too, although hyperinflations – or even just double-digit inflations – decimate much of the wealth of a populace, they also create massive distortions. Or, as we like to call them at Casey Research, opportunities…

Dan Steinhart
Managing Editor of
The Casey Report

SURVEILLANCE STATE: How to Give the NSA (and GCSB) the Finger

Your government is listening to you—but not in the way you hoped for. Simon Black from the Sovereign Man website offers you a few tips to keep your private communications private.

NSA Black PaperOn March 10, 1975, a group of US diplomatic and national security officials gathered at the office of the Turkish foreign minister's office in Ankara. Henry Kissinger was among them.

The discussion turned to foreign aid and supply of parts for military equipment, at which point Kissinger (Secretary of State at the time) suggested something that violated the law.

William Macomber, the US Ambassador to Turkey, said, "That is illegal."

Kissinger didn't miss a beat, replying,

"Before the Freedom of Information Act, I used to say at meetings, 'The illegal we do immediately; the unconstitutional takes a little longer."

Then, in an almost cartoon-like reaction, the room filled with laughter. You can practically see the rising cigar smoke and fatcats slapping each other on the back as they stick it to the little guy.

But that one quote, probably more than anything else, sums up the US government's attitude: they will do whatever they want, legal or not, Constitutional or not. Most government in the western world follow the same principle.

Just in the last few months, the US government has been found using its tax authorities to bully political opposition groups. They've confiscated phone records of the so-called 'free press'. And they've been caught, very publicly, spying on... everyone.

It's a sad state of affairs when NSA Whistleblower Edward Snowden has been forced to flee to the governments of China, Russia, Venezuela, and Ecuador in order to avoid rotting away in a US prison, simply for publicizing the government's very unconstitutional crimes.

Now they've revoked his passport-- something typically reserved exclusively for international paedophiles according to Chapter 4, Title 22 of the US Code.

It's as if the government is happy to continue bending or breaking the law in order to destroy someone who blew the whistle on them breaking the law. Very strange indeed.

Back in the Land of the Free, attention seems to have shifted. The discussion in Congress is not "let's shut down these programs," but rather, "how do we crucify Snowden?"

Make no mistake, these spying programs have been around for a long time. And they're here to stay. Which means we all have a choice to make.

Either we can (a) simply accept that the government is spying on us, or (b) we can take some very simple steps to take back some of our privacy. And freedom.

The good news is that it's fairly simple to do this in the digital world. There are a number of tools, many of them free and open source, to help you safeguard your privacy.

Over the last two weeks, my team and I have put together a special report about digital privacy and security; it covers everything from email to text messaging to VOIP. And we're giving it away absolutely free, no strings attached.

There's a lot of really important information in here, and many of these steps are very, very simple to implement. You don't need to be a techie. You just need to care about your own freedom.

You can download it here. And, please do share it with friends and family.

Signature
Simon Black
Senior Editor,
SovereignMan.com

Tuesday 25 June 2013

"The Shape of Affordability in the Modern City"

I've spent the last couple of days in the company of Nick Smith, Penny Hulse, Phil Twyford, and around 300 architects and planners at a conference with the above title.

I'll post later on some interesting observations from the conference--including comment on Phil Twyford's recognition that if the industry can't deliver houses at less than $300,000 each then the Labour Party's Kiwibuild policy "will quickly run out of money"--and on Penny Hulse's promise on the things the council must do to improve housing affordability, none of which involved land supply--but for now just let me share an observation made yesterday by an architect colleague, reinforced again in the opening remarks of the current presentation.

Essentially, the problem is this: it's unniversally recognised that a crisis of housing affordabilty exists, and here we are in a room of expert architects, planners and a developer or two to talk about solutions to the problem, yet every single expert presenter has said the only way they can deliver anything close to affordable is by having everyone involved donate their time.

So that's where the problem is at.

In just ten years or so, we have had dropped on us a system in which while the sale prices of houses has climbed, the delivery price of houses has rocketed--for all sorts of very bad reasons. So much so that to deliver affordable housing in the present context, simple ingenuity simply isn't enough.

In the words of Australian architect Eli Giannini, who's done plenty of award-winning "social housing" (and as she recognises, Australia shares many similar unaffordability problems to NZ), the way things are at present, it's not possible to deliver affordable housing by design, however cunning your design might be. "Affordability," she says, "can only be delivered through the policies of government."

Another way of saying that is this: Every "affordable housing" project delived at present is political. Not affordable.

Think about that.

 

US pharmaceutical regulations have killed millions

Guest Poster Doug French summarises Dr Mary Ruwart's recent explanation of how US pharmaceutical regulations have killed millions.

Physician Mary Ruwart told a crowd at the famous New Hampshire 'Porcupie Festival' over the weekend just how badly government has mucked up health care in her talk, titled The ONLY Solution to the Health Care Crisis. Dr. Ruwart worked for pharmaceutical company Upjohn for 19 years. Her talk focused on how costs have accelerated due to government regulation. In her view, regulations are 50-90% of costs in the pharmaceutical area.

The nation's collective health took a turn for the worst with the Kefauver-Harris Amendment in 1962. Before then, drugmakers had to prove only that their products were safe. With the passage of Kefauver-Harris, drugmakers had to prove their drugs were not only safe, but that the drugs worked.

This might not sound major, but Ruwart says what this did was expand the window to gain approval from the Federal Drug Administration (FDA) from an average of 4.5 years to 14-15 years. This tripling of approval time has forced drugmakers to shift costs from innovation to development.

How many people have died because companies don't create new lifesaving drugs? Who knows? As Frederic Bastiat explained in his "broken window fallacy" and Henry Hazlitt made clear in Economics in One Lesson, there are costs that are incurred and distortions created by government policies that are impossible to quantify, but should never be ignored. However, Dr. Ruwart takes a stab at what the 1962 amendment has wrought. She says it has killed 100 times more people than it has saved.

In a 2005 piece for LewRockwell.com, Dr. Ruwart estimated, "The amendments might have saved, at best, 7,000 lives. In contrast, many more died waiting the extra 10 years for lifesaving drugs. According to my calculations, about 4.7 million people died over the last 40 years while the lifesaving drug they needed was tied up in regulatory red tape!"

Eighty-five percent of pharmaceutical costs are due to Kefauver-Harris, she said. Which means that prescription you're now paying $100 for would be $15 if not for the amendment. The good Dr. Ruwart says it has single-handedly doubled total health care costs and has made treatment, instead of prevention, the norm.

If a drug isn't a slam-dunk, like, say, Viagra, it won't be developed. When a new drug is developed, a patent is obtained and then approval from the FDA is sought. But in many cases, the timeline for approval is too long, and the patent window will close before costs can be recovered.

Just like everything else, life and death is an economic matter. While government thinks it is saving sick people from deadly drugs, many, many more are dying because breakthrough drugs are being kept from the market. Only government bureaucrats would think it makes sense to keep a potential lifesaving treatment from a sick person for fear the drug might kill them instead of the disease.

Dr. Ruwart related a personal story about a drug she filed a patent on to treat fibrotic liver disease with prostaglandins. An FDA examiner called her personally. "You must encourage your company to develop this product," he insisted. "We lose 100,000 people each year to fibrotic liver disease, and we have absolutely nothing to offer."

However, the Kefauver-Harris Amendment demanded especially long, difficult, and expensive studies. As she said, "If we guessed wrong the first time and had to repeat years and years of studies, our patent would run out and we'd never recoup our investment. In spite of the FDA's support, we had to abandon this potentially lifesaving drug."

The health care crisis can be solved only with deregulation. Instead, 906 pages of Patient Protection and Affordable Care Act regulations are being thrust upon the US ...

Mary Ruwart

Mary J. Ruwart, PhD, is a research scientist and libertarian speaker, writer, and activist. She was a leading candidate for the 2008 Libertarian Party presidential nomination and is the author of the award-winning international bestseller "Healing Our World."

Monday 24 June 2013

Unshackling ‘The Fed’: Richard Nixon, Milton Friedman and the rise of the floating dollar

Photo of David    StockmanSince the end of World War II, the US Federal Reserve Bank has set the tone for all the world’s central banks.  From then until 1971, the US Dollar (under the “management” of the US Federal Reserve*) was the world’s reserve currency and the last official link between money and gold—the “gold-exchange standard” for which it was the buttress forming the “anchor” that “fixed” exchange rates between all the world’s currencies, and provided some last discipline on their spending.

In 1971, after a quarter-century of indiscipline, this “Bretton Woods” system collapsed when Richard Nixon and his advisers defaulted spectacularly on US promises. David Stockman describes the world we’ve been living in ever since.

(Excerpt from THE GREAT DEFORMATION: The Corruption of Capitalism in America by David A. Stockman. Published by PublicAffairs.)

[In 1971, after a quarter-century of Fed-driven inflation,] the stage was … set for the final “run” on the dollar and for a spectacular default by the designated “reserve currency” provider under the gold exchange standard’s second outing. And as it happened, the American people saw fit to install in the White House in January 1969 just the man to crush what remained of gold-based money and the financial discipline that it enabled.

Richard M. Nixon, as we know, possessed numerous and notable flaws. Foremost was his capacity to carry a grudge against anyone whom he believed had caused him to lose an election, especially any economist, policy maker, or bystander who could be pinned with accountability for the mild 1960 recession that he believed responsible for his loss to John F. Kennedy.

Stockman, David A.Nixon’s vendetta on the matter of the 1960 election literally knew no limits. For example, he insisted that a mid-level career bureaucrat named Jack Goldstein, who headed the Bureau of Labor Statistics (BLS), had deliberately spun the monthly unemployment report issued on the eve of the 1960 election so as to damage his campaign. Eight years later, Nixon informed the White House staff that job one was to determine if Goldstein was still at the BLS, and to get him fired if he was.

It is not surprising, therefore, that Nixon rolled into the Oval Office obsessed with replacing Federal Reserve Chairman William McChesney Martin [who he blamed for tanking the economy when then-Vice President Nixon was beginning his electioneering], and bringing the Fed to heel. To be sure, his only real interest in monetary policy consisted of ensuring that the one great threat to Republican success, a rising unemployment rate, did not happen again in the vicinity of an election.

Yet it was that very cynicism which made him prey to Milton Friedman’s alluring doctrine of floating paper money. As has been seen, Nixon wanted absolute freedom to cause the domestic economy to boom during his 1972 re-election campaign. Friedman’s disciples at Camp David served up exactly that gift, and wrapped it in the monetary doctrine of the nation’s leading conservative intellectual.

Friedman’s Rule of Fixed Money Supply Growth Was Academic Poppycock

Those adhering to traditional monetary doctrine always and properly feared the inflationary threat of state-issued fiat money. So when the Consumer Price Index reached the unheard of peacetime level of 6.3 percent by January 1969, it was a warning that the tottering structure of Bretton Woods was reaching a dangerous turning point and that the monetary foundation of the post-war world was in peril.

But not according to Professor Milton Friedman. As was typical of the Chicago school conservatives, he simply brushed off the gathering inflationary crisis as the product of dimwits at the Fed. Martin’s “mistake” in succumbing to pressure to open up the monetary spigot to fund LBJ’s deficits, Friedman insisted, could be easily fixed. Literally, with the flick of a switch.

NixonAccording to Professor Friedman’s vast archive of historic data, inflation would be rapidly extinguished if money supply was harnessed to a fixed and unwavering rate of growth, such as 3 percent per annum. If that discipline was adhered to consistently, nothing more was needed to unleash capitalist prosperity—not gold convertibility, fixed exchange rates, currency swap lines, or any of the other accoutrements of central banking which had grown up around the Bretton Woods system.

Indeed, once the central bank got the money supply growth rate into a fixed and reliable groove, the free market would take care of everything else, including determination of the correct exchange rate between the dollar and every other currency on the planet. Under Friedman’s monetary deus ex machina, for example, the unseen hand would silently and efficiently mete out rewards for success and punishments for failure in the banking and securities markets. The need for clumsy and inefficient regulation of financial institutions would be eliminated.

Friedman’s “fixed rule” monetary theory was fundamentally flawed, however, for reasons Martin had long ago discovered down in the trenches of the financial markets. The killer was that the Federal Reserve couldn’t control Friedman’s single variable, which is to say, the “money supply” as measured by the sum of demand deposits and currency (M1).

During nearly two decades at the helm, Martin learned that the only thing the Fed could roughly gauge was the level of bank reserves in the system. Beyond that there simply weren’t any fixed arithmetic ratios, starting with the “money multiplier.”

The latter measured the ratio between bank reserves, which are potential money, and bank deposits, which are actual money. Commercial banks don’t create actual money (checking account deposits) directly; they make loans and then credit the proceeds to customer accounts. So the transmission process between bank reserves and money supply wends through bank lending departments and the credit creation process.

Needless to say, the Fed couldn’t control the animal spirits of either lenders or borrowers; that was the job of free market interest rates. Accordingly, banks would utilize their reserves aggressively during periods of robust loan demand until borrower exuberance was choked off by high interest rates. By contrast, bank reserves would lie fallow during times of slumping loan demand and low free market rates. The “money multiplier” therefore varied enormously, depending upon economic and financial conditions.

Furthermore, even if the resulting “money supply” could be accurately measured and controlled, which was not the case, it did not have a fixed “velocity” or relationship to economic activity or GDP, either. In fact, during  times of weak credit expansion, this “velocity” tended to fall, meaning less new GDP for each new dollar of M1. On the other hand, during more inflationary times of rapid bank credit expansion it would tend to rise, resulting in higher GDP gains per dollar of M1 growth.

So the chain of causation was long and opaque. The linkages from open market operations (adding to bank reserves) to commercial bank credit creation (adding to the money supply) to credit-fuelled additional spending (adding to GDP) resembled nothing so much as the loose steering gear on an old jalopy: turning the steering wheel did not necessarily mean the ditch would be avoided.

Most certainly there was no possible reason to believe that M1 could be managed to an unerring 3 percent growth rate, and that, in any event, keeping M1 growth on the straight and narrow would lead to any predictable rate of economic activity or mix of real growth and inflation. In short, Friedman’s single variable–fixed money supply growth rule was basically academic poppycock.

The monetarists, of course, had a ready answer to all of these disabilities; namely, that there were “leads and lags” in the transmission of monetary policy, and that given sufficient time the money multipliers and velocity would regress to a standard rate. Yet that “sufficient time” caveat had two insurmountable flaws: it meant that Friedman’s fixed rule could not be implemented in the real day-to-day world of fast-moving financial markets; and more importantly, it betrayed the deep, hopeless political naïveté of the monetarists and Professor Friedman especially.

The Monetarist Cone: Silly Putty on the White House Graphs

As to practicality, I had a real-time encounter with it later, during the Reagan years, when the Treasury’s monetary policy post was held by a religious disciple of Friedman: Beryl Wayne Sprinkel. Week after week at White House economic briefings he presented a graph based on the patented “monetarist cone.” The graph consisted of two upward-sloping dotted lines from a common starting date which showed where the money supply would be if it had been growing at an upper boundary of, say, 4 percent and a lower boundary of, say, 2 percent.

The implication was that if the Fed were following Professor Friedman’s rule, the path of the actual money supply would fall snugly inside the “cone” as it extended out over months and quarters, thereby indicating that all was well on the monetary front, the only thing which mattered. Except the solid line on the graph tracking the actual week-to-week growth of money supply gyrated wildly and was almost always outside the cone, sometimes on the high side and other times on the low.

In other words, the greatest central banker of modern times, Paul Volcker [the Fed chairman who ended the Nixon stagflation], was flunking the monetarists’ test week after week, causing Sprinkel to engage in alternating bouts of table pounding because the Fed was either dangerously too tight or too loose. Fortunately, Sprinkel’s graphs didn’t lead to much: President Reagan would look puzzled, Jim Baker, the chief of staff, would yawn, and domestic policy advisor Ed Meese would suggest moving on to the next topic.

More importantly, Volcker could easily explain the manifold complexities and anomalies in the short-term movement of the reported money supply numbers, and that on an “adjusted” basis he was actually inside the cone. Besides that, credit growth was slowing sharply, from a rate of 12 percent in 1979 to 7 percent in 1981 and 3 percent in 1982. That caused the economy to temporarily buckle and inflation to plunge from double digits to under 4 percent in less than twenty-four months. Volcker was getting the job done, in compliance with the monetarist cone or not.

In fact, the monetarist cone was just a Silly Putty numbers exercise, representing annualized rates of change from an arbitrary starting date that kept getting reset owing to one alleged anomaly or another. The far more relevant imperative was to slow the perilous expansion of the Fed’s balance sheet. It had doubled from $60 billion to $125 billion in the nine years before Volcker’s arrival at the Eccles Building, thereby saturating the banking system with newly minted reserves and the wherewithal for inflationary credit growth.

FriedmanVolcker accomplished this true anti-inflation objective with alacrity. By curtailing the Fed’s balance sheet growth rate to less than 5 percent by 1982, Volcker convinced the markets that the Fed would not continue to passively validate inflation, as Burns and Miller had done, and that speculating on rising prices was no longer a one-way bet. Volcker thus cracked the inflation spiral through a display of central bank resolve, not through a single-variable focus on a rubbery monetary statistic called M1.

Volcker also demonstrated that the short-run growth rate of M1 was largely irrelevant and impossible to manage, but that the Fed could nevertheless contain the inflationary furies by tough-minded discipline of its own balance sheet. Yet that very success went straight to an even more fatal flaw in the monetarist fixed money growth rule: Friedman never explained how the Fed, once liberated from the external discipline of the Bretton Woods gold exchange standard, would be continuously populated with iron-willed statesmen like Volcker, and how they would even remain in office when push came to shove like it did during the monetary crunch of 1982.

In fact, Volcker’s reappointment the next year was a close call because most of the White House staff and the Senate Republican leadership wanted to take him down, owing to the considerable political inconvenience of the recessionary trauma his policies had induced. Senate leader Howard Baker, for example, angrily demanded that Volcker “get his foot off the neck of American business now.”

Volcker survived only because of Ronald Reagan’s stubborn (and correct) belief that the Fed’s long bout of profligacy had caused inflation and that only a period of painful monetary parsimony could cure it. The next several decades would prove decisively, however, that the process of American governance produces few Reagans and even fewer Volckers.

So Friedman unleashed the demon of floating-rate money based on the naïve view that the inhabitants of the Eccles Building could and would follow his monetary rules. That was a surprising posture because Friedman’s splendid scholarship on the free market, going all the way back to his pioneering critique of New York City rent controls in the late 1940s, was infused in almost every other case with an abiding skepticism of politicians and all of their mischievous works.

Yet by unshackling the Fed from the constraints of fixed exchange rates and the redemption of dollar liabilities for gold, Friedman’s monetary doctrine actually handed politicians a stupendous new prize. It rendered trivial by comparison the ills owing to garden variety insults to the free market, such as rent control or the regulation of interstate trucking.

Implicit Rule by Monetary Eunuchs

The Friedman monetary theory actually placed the nation’s stock of bank reserves, money, and credit under the unfettered sway of what amounted to a twelve-member monetary politburo. Once relieved of the gold standard’s external discipline, the central banking branch of the state thus had unlimited scope to extend its mission to plenary management of the nation’s entire GDP and for deep, persistent, and ultimately suffocating intervention in the money and capital markets.

It goes without saying, of course, that the libertarian professor was not peddling a statist scheme. So the implication was that the Fed would be run by self-abnegating monetary eunuchs who would never be tempted to deviate from the fixed money growth rule or by any other manifestation of mission creep. Needless to say, Friedman never sought a franchise to train and appoint such governors, nor did he propose any significant reforms with respect to the Fed’s selection process or of the manner in which its normal operations were conducted.

This glaring omission, however, is what made Friedman’s monetarism all the more dangerous. His monetary opus, A Monetary History of the United States, was published only four years before his disciples, led by George Shultz, filled the ranks of the Nixon White House in 1969.

Possessed with the zeal of recent converts, they soon caused a real-world experiment in Friedman’s grand theory. In so doing, they were also implicitly betting on an improbable proposition: that monetarism would work because the run-of-the-mill political appointees—bankers, economists, businessmen, and ex-politicians who then sat on the Federal Open Market Committee (FOMC), along with their successors—would be forever smitten with the logic of 3 percent annual money supply growth.

Friedman’s Great Gift to Wall Street

The very idea that the FOMC would function as faithful monetary eunuchs, keeping their eyes on the M1 gauge and deftly adjusting the dial in either direction upon any deviation from the 3 percent target, was sheer fantasy. And not only because of its political naïveté, something Nixon’s brutalization of the hapless Fed Chairman Arthur Burns aptly conveyed.

Friedman’s austere, rule-bound version of discretionary central banking also completely ignored the Fed’s susceptibility to capture by the Wall Street bond dealers and the vast network of member banks, large and small, which maintained their cash reserves on deposit there. Yet once the Fed no longer had to worry about protecting the dollar’s foreign exchange value and the US gold reserve, it had a much wider scope to pursue financial repression policies, such as low interest rates and a steep yield curve, that inherently fuel Wall Street prosperity.

As it happened, the Fed’s drift into these Wall Street–pleasing policies was temporarily stalled by Volcker’s epic campaign against the Great Inflation. Dousing inflation the hard way, through brutal tightening of money market conditions, Volcker had produced the singular nightmare that Wall Street and the banking system loathe; namely, a violent and unprecedented inversion of the yield curve.

With short-term interest rates at 20 percent or more and way above long-term bond yields (12–15 percent), it meant that speculators and banks could not make money on the “carry trade,” and that the value of dealer stock and bond inventories got clobbered: high and rising interest rates mean low and falling financial asset values. Accordingly, the Volcker Fed did not even dream of levitating the economy through the “wealth effects” or by coddling Wall Street speculators.

Yet once Volcker scored an initial success and was unceremoniously dumped by the Baker Treasury Department (in 1987), the anti-inflation brief passed on to a more congenial mechanism; that is, Mr. Deng’s industrial army and the “China price” deflation that rolled across the US economy in the 1990s and after. With inflation-fighting stringency no longer having such immediate urgency, it did not take long for the Greenspan Fed to adopt a prosperity promotion agenda.

First, however, it had to rid itself of any vestigial restraints owing to the Friedman fixed money-growth rule. The latter was dispatched easily by a regulatory change in the early 1990s which allowed banks to offer “sweep” accounts; that is, checking accounts by day which turned into savings accounts overnight. Accordingly, Professor Friedman’s M1 could no longer be measured accurately.

Out of sight was apparently out of mind: for the last two decades, the central bank that Friedman caused to be liberated from the alleged tyranny of Bretton Woods so that it could swear an oath of fixed money supply growth has not even bothered to review or mention money supply. Indeed, the Greenspan and Bernanke Fed have been wholly preoccupied with manipulation of the price of money, that is, interest rates, and have relegated Friedman’s entire quantity theory of money to the dustbin of history. And Bernanke claims to have been a disciple!

Constrained neither by gold nor a fixed money growth rule, the Fed in due course declared itself to be the open market committee for the management and planning of the nation’s entire GDP. In this Brobdingnagian endeavor, of course, the Wall Street bond dealers were the vital transmission belt which brought credit-fuelled short-term prosperity to Main Street, and delivered the elixir of asset price inflation to the speculative classes. Consequently, when it came to Wall Street, the Fed became solicitous at first, and craven in the end.

Apologists might claim that Milton Friedman could not have foreseen that the great experiment in discretionary central banking unleashed by his disciples in the Nixon White House would result in the abject capitulation to Wall Street which emerged during the Greenspan era and became a noxious, unyielding reality under Bernanke. But financial statesmen of an earlier era had embraced the gold standard for good reason: it was the ultimate bulwark against the pretensions and follies of central bankers.

David Stockman was director of the Office of Management and Budget under President Ronald Reagan, serving from 1981 until August 1985. He was the youngest cabinet member in the 20th century.
This post first appeared at Mises Daily, with the author’s permission.

* “Management” that saw the dollar devalued to around one-sixty-fifth of its value in just over half a century!