Who’s the Communist Now?

I’d like to draw readers’ attention to a statistic I flagged up a few weeks ago that I don’t think I emphasised sufficiently. I was writing about America’s current tax burden, its deficit, and the stark choice that Americans — and also the rest of the people of the world — face:

America spends 24% 39% of its GDP as government spending. Other nations spend far more than America, but they also tax more. 52% of French GDP, 37% of Japanese GDP, 47% of British GDP, 18% of Thai GDP, 32% of Swiss GDP, 78% of Cuban GDP, 27% of Indian GDP and 17% of Singaporean GDP is government spending.

Most interesting by far is “communist” China. Only 20% of Chinese GDP is government spending. 

Nihao, Capitalists!

That’s right: “communist” China is now less statist — at least in economic terms — than “free” America.

Meanwhile at Davos, the West’s “economic leaders” pillory capitalism as worsening inequality.

From the BBC:

Growing inequality should now be the priority for leaders after the economic crisis, senior economic figures at the World Economic Forum have said.

They insisted that more needed to be done to tackle excessive pay, poverty and unemployment.

The discussion, hosted by BBC World in the Swiss ski resort of Davos, was held as figures showed almost half of young Spanish people are out of work.

Economist Nouriel Roubini warned inequality threatened social stability.

“We are in a very fragile world,” said the economist, dubbed Doctor Doom because of his predictions leading up to the 2008 financial crisis.

“The issue of distorted pay is not being addressed, banks that were deemed too big to fail now becoming even bigger,” he said.

I think there is a very strange psychological trend occurring here, and it’s actually one I recognise in my younger self. I was born in 1987, and grew up in the shadow of the 1990s, long after Deng Xiaoping, long after the “End of History”, long after the end of the “Red Menace” that was the Soviet Union. Long after the West really felt any need to differentiate itself as “capitalist” against a background of growing statism. Instead, the growing statism was in the West, even in spite of the legacy of Reagan and Thatcher — two leaders who both managed to spew a great deal of pro-freedom rhetoric, while at once greatly expanding the scope and shade of government.

This psychological trend can be summed up as the idea that the first recourse for social and economic problems is more government action. Too much inequality? Regulate against it. Too little innovation? Legislate for it. Too little demand? Stimulate it. Too much bad government? Elect a better one, who will do more of the things we “love”, and less of those we “hate”.

The idea, in the simplest terms, is that changes to society should come from the great overhanging monolith, and not from the little individuals on the ground. No, we are just fish swimming in an ocean of dialectical chaos. We are just flecks of paint on the great canvas of humanity. No, let us not agitate or gravitate. Instead, we must “co-ordinate” and “unite” under the aegis of government; the blind painter.

The climax of this bizarre psychological trend was the election of Barack H. Obama. After all the misdeeds of Bush and Cheney, he would be the one to restore government to its “proper” role: “helping the people”, “creating a better America”, “investing in tomorrow”, etc, etc, etc, blah, blah, blah.

This is a licence for more central planning and more government largesse. There are two problems here:

  1. Regulatory Capture: As David Rothkopf has argued: “Geography, pedigree, networking and luck unite a superclass of 6000 individuals that possess unparalleled power over world affairs.” Obama’s top contributors are the same old people. Obama appointed more ex-Wall Street figures to his administration than anyone before him. Ultimately, the people chosen as central planners have a track record of enacting policies that enrich themselves more than everybody else. The people lining up at Davos calling for a new system, i.e. more government, are the same elite who have ruined the old one. As Jonathan Weill writes: “It’s becoming hard not to suspect that the annual gathering in Davos has become a conclave for global elites to promote crony capitalism and state-backed enterprise, ensuring that national coffers remain available to be tapped for private gain.”
  2. Unintended, and Unexpected Consequences: Central planners are often pretty bad at the job. Bernanke and Yellen failed to predict the end of the housing bubble (that their predecessor Alan Greenspan helped create) with terrible consequences. Tim Geithner lashed that there was “no chance of a downgrade” right before S&P downgraded US Treasuries. Angela Merkel demands austerity from a frail and ailing Greek economy suffering from a severe contraction that is only worsened by austerity. The Iraq and Afghani wars created more terrorists than they killed, and added a multi-trillion dollar shackle of debt to the American government. America’s deindustrialisation (in the name of cheaper Chinese goods) has created huge unemployment in America, as well as making the American economy ever more dependent on the fragile flow of trade for components and energy. History is dominated by black swans — and the history of  central planning is dominated by unintended consequences. We just don’t understand reality well enough to centrally plan it.

Of course there is a bigger concern here, and one that I have written about before: central planning kills the market mechanism. It kills market evolution and creative destruction, and gives life to absurdities — like the current global financial sector — that could never live under pure market conditions:

Capitalism means both successes and failures. It is a fundamentally experimental system, with a continuous feedback mechanism — the market, and ultimately profit and loss. Ideas that work are rewarded with financial success, and ideas that don’t are punished with failure. With capitalism, systems, ideas and firms that fail to produce what the market wants fail. They go bankrupt. Their assets, and their debt is liquidated.

When that mechanism is suspended by a government or central bank that thinks it knows best — and that a system that is too interconnected to fail is worth saving at any cost — the result is almost always stagnation. This is for a number of reasons — most obviously that bailouts sustain crippling debt levels, and are paid for through contractionary austerity, which is what Salmon was getting at. But it is larger than just that.

In nature, ideas and schemes that work are rewarded — and ideas and schemes that don’t work are punished. Our ancestors who correctly judged the climate, soil and rainfall and planted crops that flourished were rewarded with a bumper harvest. Those who planted the wrong crops did not get a bailout — they got a lean harvest, and were forced to either learn from their mistakes, or perish.

These bailouts have tried to turn nature on its head — bailed out bankers and institutions have not been forced by failure to learn from their mistakes, because governments and regulators protected them from failure.

The darkest side to this zombification is that it takes resources from the productive, the young, the creative, and the needy and channels them to the zombies. Vast sums spent on rescue packages to keep the zombie system alive might have been available to increase the intellectual capabilities of the youth, or to support basic research and development, or to build better physical infrastructure, or to create new and innovative companies and products.

Zombification kills competition, too: when companies fail, it leaves a gap in the market that has to be filled, either by an expanding competitor, or by a new business. With failures now being kept on life-support, gaps in the market are fewer.

Japan has experienced twenty hellish years of zombification, all because they suspended capitalism in favour of systemic stability and creditors getting their pound of flesh. America did virtually the same thing, and the result has been three years of stagnation.

That, is more or less why I believe government should stay out of central planning altogether, and instead should stick to the role intended for it by U.S. Constitution — protecting life, and liberty, administering the due process of law, and undertaking great projects like the Apollo missions beyond the reach of private enterprise. Will the central planning addicts at Davos get the message? I doubt it. After all, their entire worldview is predicated on the notion that they “know better”.

The irony is that — at least in terms of economic affairs — the Chinese “communists” seem to have gotten it.  After the awful experience of huge famines, they finally accepted that they did not “know better”. Perhaps it would take a cataclysm of similar magnitude for the West for us to realise that we do not “know better” than nature either…

UPDATE: It seems like I was wrong about US government spending. It’s actually 39% of GDP, not 24% as I first reported. That’s higher than the 34% of Vladimir Putin’s Russia.

64 thoughts on “Who’s the Communist Now?

  1. I agree with the general message, but I don’t think the alternative (smaller state) leads to guaranteed freedom/peace/stability/robustness/etc. especially when we’re talking about “unintended consequences”. For example, what about the “America’s deindustrialisation (in the name of cheaper Chinese goods)”? Was that a result of statism? You could say that it’s the result of deregulation insisted upon by crony capitalists, but isn’t a deregulated and left-alone world the dream of libertarians? I think that freely deciding fully-capitalist firms in a free capitalist environment would have chosen to outsource to China anyway.

    As this guy put it: http://blog.asmartbear.com/free-markets-bad.html

    “But the market isn’t wise. It seeks immediate gratification over long-term utility. It seeks profit for the few instead of optimizing for the many. The market has a child’s proclivities, not an adult’s wisdom.”

    • “But the market isn’t wise. It seeks immediate gratification over long-term utility. It seeks profit for the few instead of optimizing for the many. The market has a child’s proclivities, not an adult’s wisdom.”

      That statement suggests very strongly that the person who made it thinks he “knows better” than nature. I don’t actively disagree with the words he used, but I think it’s a useless statement unless he can propose a solution that really addresses my thoughts (and by extension, Hayek) on both the problem of regulatory capture and the problem of unintended consequences.

      For example, what about the “America’s deindustrialisation (in the name of cheaper Chinese goods)”? Was that a result of statism? You could say that it’s the result of deregulation insisted upon by crony capitalists, but isn’t a deregulated and left-alone world the dream of libertarians?

      Is a world where America spends billions upon trillions policing the world “deregulated”? It’s not “deregulated” at all — and I’ve explained in the past some mechanisms by which this has directly led to American uncompetitiveness. The two biggest problems have been artificially lowered shipping costs, as well as American paralysis in the face of Eurasian protectionism & subsidies. Unfortunately in recent years America has felt too dependent on the flow of global trade to ever go full-blown protectionist. I don’t advocate protectionism as an ideological end, but as a negotiating tactic so as to ensure that other nations do not abuse America’s position, and so that American enterprise is not at an automatic and huge disadvantage.

      • “I don’t actively disagree with the words he used, but I think it’s a useless statement unless he can propose a solution that really addresses my thoughts (and by extension, Hayek) on both the problem of regulatory capture and the problem of unintended consequences.”

        That guy is definitely a capitalist and is against central planning. But he senses that there are problems even with the alternative to central planning. Sensing that there are problems without having solutions does not render his statements useless. There can be no ultimate solutions for anything. I don’t have ultimate solutions myself, but that does not mean that I should not raise my concerns even though I don’t have solutions.

      • PS:

        I don’t see the fact that deindustrialisation to China and globalization would have played out (very) differently in a purely free-market world (whatever that may be) as a clear cut fact. The degree of security brought about by the US military and the impact on shipping costs (as an alternative to free-market-type ships that arm themselves, and global free-market-cooperation to secure the world) and the impact of state subsidies are entirely debatable (What are state subsidies? Weren’t plenty of those in the US as well? If China builds a road to a factory, is that a subsidy?).

        So what I’m trying to say is that while I’m against central planning, simply saying that: “Oh! There’s the problem and there’s the clear solution, if we could only do that and everyone would be happy” is too simplistic.

        And no, I don’t have solutions, but I certainly don’t let that prevent me from having concerns.

        • Yeah, I understand the problems with utopian thought (John N. Gray, etc) that’s why I end up advocating some kinds of protectionism as a negotiating tactic to prevent abuse. There’s no such thing as a “perfect system”, and there’s not such thing as an entirely free market.

          I’m not trying to lay out my plan for a world without any government or planning at all. What I’m reacting against here is really the knee-jerk big government Davos view that problem X exists, let’s enact regulations Y and Z and that will fix it. We’ve been chasing that mirage for too long. Sometimes an answer to big social problems, e.g. inequality, is not in government at all, but can be found through regular people doing things of their own volition at a local level.

          Certainly, given the levels of regulatory capture today we need to look at that possibility.

        • Yes, if we are to tilt the boat in the other direction today, that other direction would be a smaller state apparatus.

          As for the large trade imbalances, indeed, the mercantilist countries (China – globally, Germany – intra-EMU) need to assume responsibility and understand the basic fact that one cannot ever expect to be paid back if all the others are importers. The problem is that globally and intra-EMU there are no simple and politically-feasible solutions to resolve these imbalances.

        • PS: Of course, I’m oversimplifying here myself. China could say in her defense that they wanted to purchase/invest in American goods/companies but were restricted by the US (protectionist moves) and could only buy US debt. Even in this case, the fault does not lie squarely on one side.

        • Why buy American goods and companies when instead you can buy the US naval fleet?

          As Pluto pointed out yesterday, China has in fact done something ingenious.

  2. It’s a convincing argument and I agree with the spirit. But how would it work out in practice? Do we let banks fail and the system unravel? A plunge into depression so we can have a fresh start? Hence the counter-argument, which takes into consideration the human costs. A way forward is obscured, to say the least.

    • The good thing about modernity is that it doesn’t take three months for a crash or credit contraction to happen. It can happen in microseconds. The entire global financial system could come crashing down in a day or a week, as might have happened had the system not been TARPedoed after Lehman.

      That’s painful and scary, sure, but the road after that is astonishingly clear: bail out account holders, and recapitalise the strong banks and entities that survived so they can immediately start lending again. Huge amounts of debt and derivatives exposure erased, bad institutions failed, good parts of bad institutions sold off, and functional lending system again (hopefully with a much lower reserve requirement).

      • That’s painful and scary, sure, but the road after that is astonishingly clear: bail out account holders, and recapitalise the strong banks and entities that survived so they can immediately start lending again.

        It seems to me that immediate nationalization is a much better deal. At least for the people and their government. The banks are feral at the point they fail. They need to be captured, wormed, and tamed before they are turned loose again. Might as well give them a bath, too. And slap on some rules and regulations to prevent them from making the same dumb “mistakes.”

        Nationalization, even very temporarily, has had a much better outcome in recent years. Unless, that’s what you meant. Catch and release recapitalisation, IMHO, would create a “moral hazard” for the bankers. (If that is even possible, anymore.)

        • Well, only the very few banks that survived — i.e., banks that weren’t hooked into the web of bad debt, or whose non-toxic assets (e.g. physical gold, equities, real estate, etc) outweighed their toxic ones, or who had ready access to capital to shore up their balance sheets (e.g. Barclays bailout by Abu Dhabi) would be recapitalised.

          Nationalising banks is not necessary. Certainly, it is better than things like TARP, but I want to have my cake and eat it. I want the bad banks to go through bankruptcy and have their assets auctioned off. But I want banks that weren’t exposed to the huge contagion to be rewarded for their effective balance sheet management, and the chance to grow their businesses with new capital. The real reason for encouraging monetary authorities to send additional capital to non-failing banks is that a huge chunk of the monetary base would be put out of use by the failure of the failing banks, which is more or less what happened during the Great Depression.

          The great benefit here is debt erasure. The main side-effect of the bailouts was huge residual debt overhang, which has been empirically demonstrated by Carmen Reinhart & Ken Rogoff to be a huge constraint on new growth. The main aim here is to get the benefits of avoiding a global financial freeze, while at the same time allowing the bad assets and positions to liquidate. For, as Ludwig von Mises put it:

          There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final or total catastrophe of the currency system involved.

  3. I don’t know if you guys have worked in large organisations (Private or Public) but from my experience the planning is so slow, with endless meetings and discussions with other departments, stakeholders and the like, and relies on “Reports” White Papers” “Dosiers” from subordinate staff.

    I have seen business fail, and bailed out by parent entities, because these “bureaucrat” Managers thought they knew better, but if they understood the business, would know the consequence of their actions.

    This is what John is referring to in Capitalism with dynamic feedback loops at the firm level that specialises in a particular good or service. Usually the owner “Capitalist” is so atune to the market, that decisions are made on “Gut feel”.

    I think the biggest problem is we have a Democracy in the West, but our Politicians lie to us to get a vote. From the lower classes to the middle classes, voters ask “What is in it for me?”

    Looking back from the French Revolution, to the rise of Socialism, Communism, Nazism, Statism, it involves players assuming power through popular appeal. Cheap slogans rule the masses.

    No longer can a poor refugee, set up a sidewalk/footpath stand and sell food, or peddle goods, which then expands into a worldwide chain. They would be shut up by the “Bureucrats” or the Chain stores will report them to the local bylaws officer.

    How many goods or services are we missing, that will never see the light of day. That amaxing recipe of 13 spices and herbs! Or those shoes that improve your posture, or hand made cookware that cooks pefectly.

    I feel sick from the article, because even in my home town, the Super Grocer is stocking “Home Brand”, non label food, to “Cut the cost of living”. They would never stock “Grandmas Jams”.

    This was the economic concept of a Communist command economy.

    I think it is too late. The future for Capitalism lies in the African nations. The only hope is the masses in Africa are educated on the perils of Statism. However humans being humans, I feel the Politicians with cheap slogans will win the day.

    Perhaps the early Socialist writers were correct, that enlightened people will gravitate to Socialism. The powerful knew they could not fight Democracy so set about in consolidating their grip. Instead of a Yugoslav style of Communism where the workers owned shares in their production, the few oligarchs own the share. Communism with Freedom!

    • I hope the future of capitalism lies in decentralization, and technologies like 3D printing. Entrepreneurs can do so much more with the new tools that the internet has given them, but local manufacture and 3D printing will bring a whole new revolution. 3D printers cost a lot of money but hopefully the costs will fall in the near future.

  4. Well, you might be a candidate for the tea party. I would be, except I don’t join anything. But I’m with them on small government, abiding by the Constitution, and exercising fiscal responsibility. And I am well aware that tea party politics draws a number of unsavory types including a share of racists, bigots, homophobes, etc.,as well as some whose most important political issues are classed as social conservatism, but it’s not my sense that these types of issues are controlling the tea party agenda.

    I do think that most serious tea party types recognize that big business is just as big a problem as big government. I conclude that many of our biggest problems arise from the confluence of these two, what we frequently refer to as ‘crony capitalism’. Most big corporations don’t believe in capitalism in the free enterprise sense, for they don’t really believe in level playing field competition and they have long been aided and abetted in this by ‘Wall St’ and Washington.

    The Republican primary contest reflects much of the tea party influence with their support of Gingrich and their disdain for the Republican establishment preference, Romney. And it is certainly not because they like Gingrich. They don’t like any of the candidates who are in the race. Ron Paul probably comes the closest, but many tea partiers have not yet been won over to his views on military and foreign affairs nor to his views on illegal drugs. I think he is making progress on these issues.

    Here in Utah, we got rid of long-time establishment crony Robert Bennett 2 years ago and replaced him with Mike Lee, who at least is conversant with the Constitution. This year we will see what we can do about Orrin Hatch. You should see Hatch scurrying to gain favor with the tea party types so he can go back for a seventh term. Just to give some context, Mike Lee voted with Rand Paul, and I believe Mike Kirk, against the recent National Defense Authorization Act amendment to allow the military to indefinitely detain terrorists suspects (including American citizens on American soil). But Hatch voted for the provision. As a Utah voter, I scratch my head trying to figure out how one senator can vote ‘no’ on this and the other vote ‘yes’.

    So, the tea party position is that we have ceded most of our freedom to Washington and it is perhaps our very last chance to regain some of what has been lost. We really believe that most of life’s decisions can be handled locally or individually without Washington’s help.

    • How difficult is it for a State to secede?

      I think the Tea Party needs to mobilise its voters to reside in a Strategic State. Perhaps the West Coast so they can trade with China & Asia easily.

      I for one would apply for FS “Free State” Citizenship. I have a lot of ideas for goods and services.

      • I was looking at a US map the other day, with the Confederacy overlaid. I had no idea it extended all the way west, basically bisecting the country. Objectively speaking, it seems rather a shame that the nation didn’t divide at that time. People would be so much happier today, and the north and south would be strong allies, I imagine. Especially nice would be the opportunity to watch folks live with the consequences of their ideology.

        • Well, it was the South that decided to attack the North. The two powers were headed irreversibly toward war, mostly due to the consequences of slaving: escaped slaves, slave catchers, Bleeding Kansas, and the Confederacy’s desire to carve out a slaving empire westwards, and even south into Latin America and the Caribbean. South Carolina even wanted to restart the Atlantic slave trade. All of this, as well as the North’s growing abolitionism, meant huge tension that finally came to a head at Fort Sumter.

          While the North certainly didn’t get into the war to end slavery, I think that on balance I think it was better the North and South’s tense relationship came to a head, because of the happy accident of ending slavery, which might have continued until tensions came to a head anyway, with ongoing problems on the border. That could have meant 50 more years of slavery, slave catchers, naval conflict. Even though slavery was becoming less economically viable due to technological progress, the South was very ideologically committed to it, especially after Calhoun, to the extent where they were willing to start a war not merely to defend it against abolitionists, but because they were concerned the North would limit their ability to expand slavery.

          At the same time, it’s very frustrating that the outcome of the war was increased federalism, and a precedent of increased executive power. However, I suppose that this precedent is really the fault of the South who cowered behind — and, sadly, thereby discredited — States’ rights and localism as an excuse to practice and expand slavery. They were the ones who were least true to the Declaration of Independence.

          However, now that slavery has been abolished, and now that it is not just the Confederacy but the entire nation of America that believes in imperialism, I think that a future split would, broadly, be a good thing.

          There was an excellent series of articles on Bloomberg last year (http://www.bloomberg.com/news/2011-10-05/the-real-u-s-map-a-country-of-regions-part-5-colin-woodard.html) that detailed this:

          The U.S. is wracked by internal discord between two blocs formed by seven of its 11 regional nations — the conservative bloc that includes the Deep South, Tidewater and much of greater Appalachia, pitted against the more liberal alliance of Yankeedom, New Netherland, the Midlands and the Left Coast. Increasingly, through American history, the conflict between these two blocs has been driving the nation apart.

          The country has been exhibiting the classic symptoms of an empire in decline. Kevin Phillips — the political strategist who, back in 1969, used regional ethnography to accurately predict the ensuing 40 years of American political development — has pointed out parallels with late imperial Holland and Britain. Like its superpower predecessors, the U.S. has built up a staggering trade deficit and sovereign debt while overreaching militarily. As financial services have come to account for a larger and larger share of national output, religious extremists have come to play a bigger and bigger role in political life.

          Once a great exporter of innovations, products and financial capital, the U.S. is now deeply indebted to China, on which America relies for much of what it consumes and, increasingly, for the scientists and engineers who are needed by research and development firms and institutions. The U.S. citizenry is divided along regional lines. The country’s military has been mired in expensive and frustrating counterinsurgency wars in Mesopotamia and Central Asia, while barbarians have stormed the gates of Washington and Wall Street, killing thousands in the surprise attacks of September 2001.

          Add in the damage to public confidence in the electoral system caused by the 2000 election, the near-total meltdown of the financial sector in 2008, and extreme political dysfunction in the capital, and it’s clear the U.S. hasn’t started the 21st century auspiciously.

          I think ultimately the split will come from financial breakdown. We shall see.

        • Let me start with slavery was a very bad institution and needed very much to go. You used ideologically committed, but I think the economic commitment was of greater influence, abetted by every effort of the North to prevent the South from any industrial progress to balance its commitment to cotton and other agriculture. Although you are technically correct that that the South fired the first shots, this takes special construction to be interpreted as an invasion of the North, since Fort Sumter is in South Carolina and The United States had been made aware of the need to remove its military forces from South Carolina.

          My U.S. roots are in Georgia and I lost my gg grandfather as well as numerous other relatives in this conflict. Since Scots and Scots-irish have a long fighting tradition, most able-bodied age-relevant male ancestors of mine were involved, some probably with the North, as well, since prior to the migration to the South, they were in Cumberland County, Pennsylvania where many stayed.

          Any move away from slavery was going to have a very deeply felt economic impact on the South. Don’t read any defense of the institution itself here or of those in power who were interested in expanding it to other territories. Slavery’s days were numbered under any projected scenario.

          But much of the South’s energy and enthusiasm for the conflict derived from their view of Washington as overbearing and intrusive and not true to the concept of Federalism (States Rights) as expressed in the Constitution. My use of Federalism here differs from what it appears you take the term to mean.

          Efforts today to reduce the range and costs of the ‘entitlement society’ we are growing illustrates very well the difficulty in dealing with and dislodging institutions to which people are accustomed and committed. Slavery, in addition to being morally reprehensible, was deeply embedded as a Southern economic institution and not easy to undo.

        • Well the issue I have with certain interpretations of States’ rights is that the South believed that the Bill of Rights did not apply to them, but only to the Federal government. I agree with virtually everything in the Bill of Rights, and I think the Federal government should be able to force the States to adhere to it, just as individuals and the States should be able to force the Federal government to adhere to it. I think the main anti-slavery points of the Bill of Rights are the 4th and 8th Amendments, and there’s nothing in the text to suggest that these do not apply to the States, as there is in the 1st Amendment regarding freedom of religion.

          I am certainly not accusing the average Southerner of ideological adherence to slavery. Nor am I accusing the average Northerner of ideological opposition to slaving. And, having looked deeply into Ron Paul’s claim that slavery could be ended by compensated emancipation (technically and financially it could have been, especially if the North and South had the benefit of hindsight — the value of the slaves was $3 billion, and the cost of the Civil War was $6 billion) I have found that the biggest stumbling block — and the biggest cause for the South’s secession — was a deeply held ideological commitment to slavery by the Southern establishment, even in the face of the growing costs and inefficiencies of such a system.

          A friend of mine flagged up the first paragraphs of the Mississippi Declaration of the Causes of Secession:

          A Declaration of the Immediate Causes which Induce and Justify the Secession of the State of Mississippi from the Federal Union.

          In the momentous step which our State has taken of dissolving its connection with the government of which we so long formed a part, it is but just that we should declare the prominent reasons which have induced our course.

          Our position is thoroughly identified with the institution of slavery– the greatest material interest of the world. Its labor supplies the product which constitutes by far the largest and most important portions of commerce of the earth. These products are peculiar to the climate verging on the tropical regions, and by an imperious law of nature, none but the black race can bear exposure to the tropical sun. These products have become necessities of the world, and a blow at slavery is a blow at commerce and civilization. That blow has been long aimed at the institution, and was at the point of reaching its consummation. There was no choice left us but submission to the mandates of abolition, or a dissolution of the Union, whose principles had been subverted to work out our ruin.

          This theme runs through all of the Secession texts (http://sunsite.utk.edu/civil-war/reasons.html)

          Now, to some extent we can say that they are making excuses for an economic system had been particularly profitable in the century beforehand, and an institution that had existed throughout human history, and which was condoned by the Bible. But I think it would have been very difficult to reach a settlement that ended slavery and averted the Civil War. Let us not forget that Lincoln unsuccessfully tried for compensated emancipation in Delaware, a state with far fewer slaves than any of the Southern ones.

          Of course, this does not excuse the post-bellum accumulation of Federal power, which — beyond enforcing the Bill of Rights — I consider to be unconstitutional. It doesn’t excuse the precedent of huge executive power that Lincoln set — that fact is directly related to Obama’s actions regarding Libya.

        • How could Confederacy leave foreign (and potentially hostile) forts on it’s soil? It would lower their legitimacy, as it would seem that they are not so much of an independent country. Also would be terrible if events led to a war, giving a head start for the enemy. North was definitely the aggressor here, even if they didn’t fire the first shot. I don’t know the details concerning slavery, but consider how the rest of the world managed to dissolve it without this kind of bloodshed! North tried to dominate South, first by tariffs and economic policy, later by force. This objective makes it’s actions reasonable. If it was about the slaves they would let them secede and later give safe heaven to escaped slaves, driving efficiency even lower. If it was about legal preservation of the Union they would withdraw troops from the forts. I think slavery as the cause is overblown, consider how much of an issue there is in the USA with race. Defeated racists slavers are just the perfect target to be painted black.

          Anyway, Wikipedia gives different number for govt spending in USA – 38.9%.

        • Anyway, Wikipedia gives different number for govt spending in USA – 38.9%.

          That makes my argument about China vs America even stronger!

          As for the Civil War, the motivations for secession based on the actual documents of secession are clearly and unambiguously identified as the South’s desire to maintain and expand slavery Westwards. The most worrying thing about this is that the North was not even abolitionist and the South stil seceded: their main concerns were that North did not want to return escaped slaves, nor allow the South expand slavery into the West or into Latin America (see Bleeding Kansas) and instead wanted to tax the South as if that could compensate the slaves for their loss of liberty.

          As for Paul’s point that slavery was stopped nonviolently everywhere but America, well, it isn’t true. Certainly there was nothing on the scale of the Civil War, but Haiti is another very clear example of violent emancipation.

          The fact that Lincoln unsuccessfully tried compensated emancipation in Delaware — that had less than 5% of the slaves of Mississippi — where he was rebuffed proves that had compensated emancipation been offered to the South, it is very unlikely they would have accepted it, and would almost certainly have seceded, considering that in reality they seceded for far less. Not to mention the fact that raising the capital to compensate slavers would have involved huge taxation, and not to mention the fact that slavery itself was contra to the Bill of Rights, as well as contra to Jefferson’s and Madison’s definition of a Republic (as demanded by the Constitution itself).

          In light of all that, I wish the Civil War had been a war of Northern Aggression to free the slaves and uphold the DoI, Constitution and Bill of Rights, but sadly it was not.

        • I would have to get some ammunition to continue my point. For the texts of causes of secession I would need texts of abolitionists suggesting/implying kicking south out of the Union (as means of ending slavery) and on how south felt in the USA regardless of slavery issues. I don’t have them on hand😉 so I guess I can’t really write anything to convince you here.
          Regardless of the slavery being main or additional cause, it still was an aggression. “We the people” was substituted for “We the States…” only on formal grounds (how could some state be already listed, while it didn’t even ratify yet? quite presumptuous). Also the spirit of the document was clearly protective of the rights of member states, while it granted only limited power to the federation. Not to forget about how some of the states at the beginnings held periodical votes on weather to remain in the Union. Lincoln did what every other king in history, he crushed the rebels. Leaving loyal knights in the castles overlooking rebellious lands is almost the same as attacking. And this was supposed to be a different kind of Union.

        • The spirit of the document was clearly protective of the rights of member states, while it granted only limited power to the federation.

          The entire point here I think is that while all powers not enumerated in the Constitution were (and are) reserved for the States, and while they were entitled to leave, the Constitution denied the States the right to enact laws to deny slaves their protections under the Constitution. Now, I do think the South were within their rights to leave, but they could have expected nothing other than a war by attacking the remaining Union forts on Confederate soil.

        • I agree. When I visited the USA I concluded it was more than economics than slavery. The irony is the black people still reside in the Southern States. Why, when they can migrate to more RACE FRIENDLY STATES is beyond me.

    • Bob — While I am sympathetic to the original intent of the Tea Party, it is frustrating that at the national level it was very quickly corrupted. Here’s an article I wrote a while back that looked at this problem. It’s really embarrassing to those of us who are interested in debt reduction, and it gets into your point about a lot of Tea Party types not understanding that the spending problem comes as much if not more from warfare than welfare:

      https://azizonomics.com/2011/08/07/teabagging-for-the-military-industrial-complex/

  5. From Zero Hedge contributor Sam Clemons

    http://www.zerohedge.com/news/its-official-german-economy-minister-demands-surrender-greek-budget-policy-says-it-first-many-s

    To borrow from George Orwell even though it is about war, I think it still applies.

    “The primary aim of modern warfare is to use up the products of the machine without raising the general standard of living. Ever since the end of the nineteenth century, the problem of what to do with the surplus of consumption goods has been latent in industrial society. From the moment when the machine first made its appearance it was clear to all thinking people that the need for human drudgery, and therefore to a great extent for human inequality, had disappeared. If the machine were used deliberately for that end, hunger, overwork, dirt, illiteracy, and disease could be eliminated within a few generations. And in fact, without being used for any such purpose, but by a sort of automatic process — by producing wealth which it was sometimes impossible not to distribute — the machine did raise the living standards of the average humand being very greatly over a period of about fifty years at the end of the nineteenth and the beginning of the twentieth centuries. But it was also clear that an all-round increase in wealth threatened the destruction — indeed, in some sense was the destruction — of a hierarchical society. In a world in which everyone worked short hours, had enough to eat, lived in a house with a bathroom and a refrigerator, and possessed a motor-car or even an aeroplane, the most obvious and perhaps the most important form of inequality would already have disappeared. If it once became general, wealth would confer no distinction. It was possible, no doubt, to imagine a society in which wealth, in the sense of personal possessions and luxuries, should be evenly distributed, while power remained in the hands of a small privileged caste. But in practice such a society could not long remain stable. For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realize that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance.

    To return to the agricultural past, as some thinkers about the beginning of the twentieth century dreamed of doing, was not a practicable solution. It conflicted with the tendency towards mechanization which had become quasi-instinctive throughout almost the whole world, and moreover, any country which remained industrially backward was helpless in a military sense and was bound to be dominated, directly or indirectly, by its more advanced rivals. Nor was it a satisfactory solution to keep the masses in poverty by restricting the output of goods. This happened to a great extent during the final phase of capitalism, roughly between 1920 and 1940. The economy of many countries was allowed to stagnate, land went out of cultivation, capital equipment was not added to, great blocks of the population were prevented from working and kept half alive by State charity. But this, too, entailed military weakness, and since the privations it inflicted were obviously unnecessary, it made opposition inevitable. The problem was how to keep the wheels of industry turning without increasing the real wealth of the world. Goods must be produced, but they must not be distributed. And in practice the only way of achieving this was by continuous warfare. The essential act of war is destruction, not necessarily of human lives, but of the products of human labour. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent. Even when weapons of war are not actually destroyed, their manufacture is still a convenient way of expending labour power without producing anything that can be consumed. A Floating Fortress, for example, has locked up in it the labour that would build several hundred cargo-ships. Ultimately it is scrapped as obsolete, never having brought any material benefit to anybody, and with further enormous labours another Floating Fortress is built.

    In principle the war effort is always so planned as to eat up any surplus that might exist after meeting the bare needs of the population. In practice the needs of the population are always underestimated, with the result that there is a chronic shortage of half the necessities of life; but this is looked on as an advantage. It is deliberate policy to keep even the favoured groups somewhere near the brink of hardship, because a general state of scarcity increases the importance of small privileges and thus magnifies the distinction between one group and another. By the standards of the early twentieth century, even a member of the Inner Party lives an austere, laborious kind of life. Nevertheless, the few luxuries that he does enjoy his large, well-appointed flat, the better texture of his clothes, the better quality of his food and drink and tobacco, his two or three servants, his private motor-car or helicopter—set him in a different world from a member of the Outer Party, and the members of the Outer Party have a similar advantage in comparison with the submerged masses whom we call ’the proles’. The social atmosphere is that of a besieged city, where the possession of a lump of horseflesh makes the difference between wealth and poverty. And at the same time the consciousness of being at war, and therefore in danger, makes the handing-over of all power to a small caste seem the natural, unavoidable condition of survival.”

  6. I think the missing ingredient in your (correct) analysis is power. Power enables the corruption of free markets, or for that matter, anything else. Power corrupts, and absolute power corrupts absolutely. Free markets assume equality of power, which does not exist. That’s not to deride free markets, however it is this characteristic of markets which hints as to the correct role of government – to legislate/regulate to make markets as even as possible in order to optimize the positive externalities of free markets.

    After all, free markets are simply the extension of ideas, in which the best survive to the benefit of all, providing a constant evolution in technology, parallel to biology as simply another aspect of nature.

    The problem is power. The answer is obvious. The dissemination of power equates to the advancement of the human condition. The problem with democracy is that is does not disseminate power sufficiently, and it is the best form of government because it disseminates power more than any other form. In this context, the left / right divide is moot, as it incorrectly defines the game as public (government) vs private (corporations), where the real issue is power. After all, who has control is irrelevant, as all power corrupts.

    Wealth is not a zero-sum game, but power certainly is.

    • Free markets assume equality of power, which does not exist.

      Not sure about this. I assume free markets include due process of law, which prevent the unconstrained exercise of brute force and violence. There is no assumed equality of power, but there are certainly assumed constraints on its misuse, which after what Taibbi has revealed, are not being properly enforced.

  7. The supposed ideological conflict between East and West in the post WW2 years were simply a constructed dialectic to get us to where we are now. It can be argued that WW2 was started just so Stalin could rule half of Europe and so Germany could be reduced in power. There was trade between the East and the West which allowed Soviet Russia to continue longer, and the conflict allowed both sides to increase State Power. After the Soviet collapse (which should have happened much earlier like in the 1950s given the inherent flawed way it was socially and economically organized), the world was being planned to be a global level playing field. A small global elite, the rest of us may live in pockets of wealth in India for example, but the great majority of Indians would simply compete against workers in the UK.

    Welfare will be cut back, British workers will need to adjust to workers conditions offered in India. The ‘enemy’ function provided by the Soviets is now assigned to Terrorists. The percentage of GDP spent on welfare to the poor in the UK and the US will be reduced drastically in the coming years, welfare to the corporations will be maintained or increased. A giant global slave society is being built with no way out. All will simply obey the State, pay their taxes and debt, they will be able to get drugs to reduce depression and to get lost in the use and consumption of gadgets.

  8. What a crock. The Chinese keep government spending down by letting the state participate in the marketplace. The military helps pay for itself by being a very large commercial enterprise. Do you really want to be competing with the government?

    • The Chinese keep government spending down by letting the state participate in the marketplace

      Yes, state-owned enterprises do make the Chinese figure a little misleading. But the US does a lot of the same things. Freddie Mac, anyone? USPS? In-Q-Tel? Not to mention all the partly state-owned banks as a result of TARP. State capitalism is alive and well in America, too.

      The military helps pay for itself by being a very large commercial enterprise. Do you really want to be competing with the government?

      Could you expand on that? I understand the idea that a strong national defence pays for itself, but most of the military spending has nothing to do with defence — it has to do with defending other countries: Japan, Korea, Germany, Iraq, Pakistan, Saudi Arabia, Israel, and policing the high seas, which at least for America (certainly not China) has been a very mixed bag.

  9. This is all too hard!

    I am going to the beach for a surf and a beer. Enjoy my Australian citizenship while I can.

    When there is a real organised protest, with genuine concepts and a “New Manifesto” that the leaders of the revolution will STICK TO, I will read it and decide whether it offers an alternative to the opiate of beer and surfing.

    See you in Davos next year. I hear the snowboarding and Schnapps are terrific!

      • If you and your partner are under 30 then get a working holiday Visa and work your way around the country.

        Post an ad on Gumtree.com.au like all the other backpackers working their way around.

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      • Yeah, I keep hearing some people saying how much worse EU is than US w.r.t. debt. But while certainly there may be a lot of debt hidden in the EU, the structure of the EU – with all other countries suspicious (in a good sense here) about the others, I think it’s much more likely statistics coming out of EU are more reliable. In the US we can’t trust even the most basic statistics like inflation and GDP (GDP deflator).

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  17. We will never solve anything until we collectively come to the realization that Capitalism is ANTITHETICAL to free markets.

    I am still developing my essay to explain this, but in short, free markets and capitalism have conflicting goals. i.e. free markets seek to optimize the ALLOCATION of capital, and capitalism seeks first and foremost to PRESERVE capital.

    These goals are mutually exclusive in a dynamic evolving (i.e. wealth creating) environment. Or to say it a different way, capitalism only succeeds in PRESERVING capital in a petrified market. As soon as the market is disrupted by new technology or innovation, if the market is free and efficient, capital will be re-allocated, however, there will be capital losses in this re-allocation (because there will be UN-amortized plant and equipment that needs to be written down).

    Hence the need preservation of capital forces the owners of capital to seek to intervene in markets to slow down the rate of change. i.e. the owners of capital seek legislative relief from the RISKS of their investments, while maximizing their return on capital. In other words, the socialize the risks and privatize the returns. This process is NOT possible if the barriers to entry of a market are not made impossibly high by legislation.

    Ergo, in a truly free and efficient market, capital is quickly and efficiently re-allocated, but not preserved, making free markets antithetical to capitalism. Once it is clear that capitalists are anti-free-market, we can easily solve the problems created by capitalists by making markets for goods, services and even capital free and efficient.

    To directly address your article. Capitalism IS Statism. The owners of capital petrify markets by increasing the power of Governments to intervene in them, and hence put up barriers to entry for entrepreneurs and other risk takers.

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  19. When I read this in Wikipedia, I realised that there is no way the Western mind can compete with the Sino mind.

    FRom Wikipedia:

    http://en.wikipedia.org/wiki/Chinese_language

    “A well-educated Chinese reader today recognizes approximately 5,000–7,000 characters; approximately 3,000 characters are required to read a Mainland newspaper. The PRC government defines literacy amongst workers as a knowledge of 2,000 characters, though this would be only functional literacy. A large unabridged dictionary, like the Kangxi Dictionary, contains over 40,000 characters, including obscure, variant, rare, and archaic characters; fewer than a quarter of these characters are now commonly used.”

    And we teach our Children the ABC’s. We are so kind to them?

    • Heh.

      I’d say that our simple alphabet was actually an advantage for a long time. We can express the same ideas much more simply. The difference is social structure. China failed once because of its rigid and traditionalist paternalism. Now the West has adopted much of the same thing.

      • Related to this, I can’t find the article right now, but the Chinese can squeeze much more information in the 140 characters limit imposed by Twitter (not far from Arabic).

        • A picture speaks a thousand words and I think the Chinese language is an advanced form of hieroglyphics.

        • I think their language is pretty regular (if I’m not mistaken), the surprises come with the script they chose to have it written down on paper (or papyrus).

          Or maybe even their script is the actual natural one. Maybe this is what a normal human brain would think of when asked to represent words in writing. Maybe they use it even now because they’re one of the oldest continuously surviving civilizations (as opposed to us westerners who’ve suffered through multiple “civilizational resets” and lost the connection with our initial instincts).

    • To touch on the biological side of things, it is said the Chinese have an average IQ of 105-110 (i.e. higher than the usual average of 100 or even lower). Of course, there’s a lot of controversy and many sensitivities here, so this isn’t a topic one should mention in politically correct circles (though I’m open to any investigations concerning the true face of reality).

      • I have read the same thing.

        The West only rose because the Seafaring expansionist Chinese Dynasty was curtailed by poor bureacratic/mandarin advice. Much like the West today.

      • PS: I’m usually not comfortable with depictions in the style of us vs. them because the paranoia behind this worldview then usually tends to materialize at some time in the future (e.g. on the battlefield) – akin to a vicious cycle in economics.

  20. @ Andrew “Or maybe even their script is the actual natural one. Maybe this is what a normal human brain would think of when asked to represent words in writing. Maybe they use it even now because they’re one of the oldest continuously surviving civilizations (as opposed to us westerners who’ve suffered through multiple “civilizational resets” and lost the connection with our initial instincts).”

    Compelling.

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