The Gold Bull Market Is Over

I tweeted on Friday morning:

Unfortunately, I didn’t start writing immediately. But between then and now, the market fell to a new recent-low:

gold_30_day_o_b_usd

So, what’s up with gold?

Well, gold tends to really do well when real interest rates are heavily negative:

fredgraph (20)

Right now they’re higher than they’ve been since 2011.

And a lot of gold buying has been based on the assumption that massive inflation is coming. Now inflation could really take off in the coming years. But the predictions that quantitative easing would heavily raise inflation (and thus lower the real interest rate) haven’t come true yet. That may well be because most of the quantitative easing money hasn’t really found its way into the wider financial system — banks are sitting on massive excess reserves. Or it may be because of the innate deflationary bias in the economy due to deleveraging effects. Eventually, so long as excess reserves are sitting there the chance of it multiplying out into the wider financial system and generating some significant inflation approaches 1. But for now, people who bought gold for inflation (or more accurately negative real interest rate) protection bought insurance against something that hasn’t happened yet. So nobody should be surprised to see a pretty significant selloff.

Of course, gold is lots of other things to purchasers. It’s a shiny tangible semi-liquid asset, and insurance against counterparty, financial system risks. BRIC central banks are still buying it, because they claim to want to insure against counterparty and financial system risks. Maybe in a few years if there’s another systemic financial crisis (something which is more likely than not) all that gold people were buying in the $1400s, and maybe $1300s or $1200s may end up looking super-cheap. But that would be a whole new bull market from the bull market that took gold from less than $300 in 1999 to over $1900 in 2011. The run is over. The price floor for gold in the medium-term without some intervening event like a massive financial crisis or a war or a global catastrophe is production cost. And right now, that’s just over $900.

And if there was a stock market crash or systemic crisis today (as some indicators are implying) gold’s price would almost certainly go down and not up as it did during the crisis in 2008 as gold-holders (e.g. hedge funds, investment banks) liquidate to cash to  settle other liabilities. Only afterward could we see significant gains.

Now, I think gold is an important part of the global financial system. The fact that it has retained its status as a store of purchasing power and as a kind of reserve currency for over 5,000 years is pretty amazing. That doesn’t mean that it’s immune to bear markets, though.

There were signs in 2011 that there was a psychological bubble in gold when a plurality of Americans named it the safest investment type.

For people holding physical gold as a long-term investment or insurance policy, all of this may be irrelevant. If your plan is to hold it until there’s a seismic shift in the global financial system, then this is totally irrelevant. An ounce of gold is an ounce of gold. On the other hand for people trading for dollar-denominated gains, the jig is up.

Judge, Jury & Executioner

061912-png

I’ve criticised Rand Paul in the past on a few issues, but none of my previous doubts and nitpicks can dilute the sheer brilliance of his almost-thirteen-hour filibuster.

06paul-blog480

The absurdity of the legal framework built up by the Bush and Obama administrations was a house of cards for Paul to poke at and watch crumble. Paul’s key question is does Obama believe he can order the killing of an American citizen, on American soil, based on nothing more than his own judgment that the person is a threat?

Under the Fifth Amendment, suspects are entitled to the due process of law:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

And how can any President claim that his own judgment, or that of his Attorney General counts as the due process of law? The targeted drone killings that have occurred in foreign lands — and which Holder admits could theoretically occur on American soil — are very simply extrajudicial killings. And extrajudicial killings are utterly barbaric, incompatible with modern civilisation, incompatible with any notion of human rights or due process, and incompatible with the Constitution.

The status quo evolved very much out of post-9/11 paranoia, as exemplified by Dick Durbin’s Cheneyesque questions aimed at Paul toward the end of the Filibuster, and by Eric Holder’s initial written response referencing Pearl Harbour and 9/11:

EricHolder

Neither Rand Paul nor myself are suggesting that an attempted violent attack should not be stopped using necessary means (although not excessive means). But if an act of terror has not commenced (and even in many cases where an act of terror has commenced) it should be possible to arrest and question a suspect, rather than killing them. If a suspect can be arrested, charged and tried, there should be no reason why that should not happen.  And unless an act of terror has actively commenced, or unless a suspect can be convicted beyond reasonable doubt in a court of law the government’s suspicion is only a suspicion, and the government has absolutely no business detaining or punishing a suspect.

After 9/11, due process was effectively suspended, and for all of Obama’s lip-service to “change”, this mindset prevailed through his first and into his second administration. Rand Paul’s dogged, tireless questioning — as well as the work of questioners in the media such as Glenn Greenwald, Conor Friedersdorf, Spencer Ackerman, and Micah Zenko —  is acting as a catalyst to break the public and governmental mindset that allowed for the suspension of due process. Due process matters. If it hasn’t been proven that someone has broken the law why should they be punished for it? As humans we have inalienable rights. The fear of terrorism does not trump the right to be tried under the presumption of innocence.

The strength of Rand Paul’s argument means that defenders of the status quo have had to resort to spurious or ad hominem arguments to mount a defence of the President’s position — attacking Paul’s positions on other issues, for example. It was encouraging to see Rand Paul questioning the entire notion of targeted killings and signature strikes altogether, and not just worrying about the prospect of such affairs on American soil. Due process is preferable in all circumstances.  I would have preferred to see Osama bin Laden captured and tried, rather than killed.  Due process is not a sign of moral weakness, but a sign of cultural strength, of sanity, of civilisation.

The Obama administration must eventually understand that their position is untenable. Large swathes of the mainstream media are coming around to the idea that Rand Paul is asking important questions and that due process is more important than national security panic and threat inflation. Paul has struck a blow for the Constitution at the right moment, and to a judicial edifice that has become bloated and corrupt, treating too-big-to-fail bankers with impunity, while coming down like a tonne of bricks on minor intellectual property infractions. He has harnessed the image of a lone filibustering Senator standing up to the machine of the establishment to strike a blow to those who are trying to defend the indefensible. At the very least, Rand Paul has made real oversight of the drone program possible. Hopefully, the days of signature strikes and of targeted killings are numbered. Hopefully, the Constitution and Bill of Rights will reign supreme again in Washington D.C.

Do Creditors Exploit Debtors, or Vice Versa?

I’m asking this question because I think a proper understanding of the answer is a giant leap toward grasping the geopolitical realities of the relationship between America and China.

This discussion was triggered by Noah Smith’s discussion of David Graeber’s ideas on debt, and particularly his idea that debt is a means to “extract wealth” out of others.

Noah Smith on David Graeber:

“Debt,” says Graeber, “is how the rich extract wealth from the rest of us.” But sometimes he seems to claim that creditors are extracting wealth from debtors, and sometimes he seems to claim that debtors extract wealth from creditors.

For example, in the Nation article, Graeber tells that The 1% are creditors. We, the people, have had our wealth extracted from us by the lenders. But in his book, Graeber writes that empires extract tribute from less powerful nations by forcing them to lend the empires money. In the last chapter of Debt, Graeber gives the example of the U.S. and China, and claims that the vast sums owed to China by America are, in fact, China’s wealth being extracted as tribute. And in this Businessweek article, Graeber explains that “throughout history, debt has served as a way for states to control their subjects and extract resources from them (usually to finance wars).”

But in both of these latter cases, the “extractor” is the debtor, not the creditor. Governments do not lend to finance wars; they borrow. And the U.S. does not lend to China; we borrow.

So is debt a means by which creditors extract wealth from debtors? Or a means by which debtors extract wealth from creditors? (Can it be both? Does it depend? If so, what does it depend on? How do we look at a debtor-creditor-relationship and decide who extracted wealth from whom?) Graeber seems to view the debtor/creditor relationship as clearly, obviously skewed toward the lender in some sentences, and then clearly, obviously skewed toward the borrower in other sentences.

But these can’t both be clear and obvious.

What Graeber means by “extracting wealth” in the context of a relationship between, say a mortgager and a mortgagee seems to mean the net transfer of interest. It is certainly true on the surface that there is a transfer of wealth from the debtor to the creditor (or from the creditor to the debtor if the debtor defaults).

However, between nations Graeber sees the relationship reversed — that China is being heavily and forcefully encouraged to reinvest its newly-amassed wealth in American debt (something that some Chinese government sources have suggested to be true). But if the flow of interest payments — i.e. from America to China — is the same debtor-to-creditor direction as between any creditor and debtor, then is the relationship really reversed? If China is being forced to amass American debt by the American government, is America effectively forcing China into “extracting its wealth”?

The thing Graeber seems to miss is that the transfer of interest is the payment for a service. That is, the money upfront, with the risk of non-repayment, the risk that the borrower will run off with the money. That risk has existed for eternity. In this context, the debtor-creditor relationship is a double-edged sword. Potentially, a debtor-creditor relationship could be a vehicle for both parties to get something that benefits them — in the case of the debtor, access to capital, and in the case of the creditor, a return on capital.

In the case of China and America, America may choose to pay off the debt in massively devalued currency, or repudiate the debt outright. That’s the risk China takes for the interest payments. (And the counter-risk of course being that if America chooses to repudiate its debt, it risks a war, which could be called the interstate equivalent of debtors’ prison).

Of course, the early signs are that China’s lending will be worth it. Why? Because sustained American demand provided by Chinese liquidity has allowed China to grow into the world’s greatest industrial base, and the world’s biggest trading nation. And it can’t be said that these benefits are not trickling down to the Chinese working class — China’s industrial strength has fuelled serious wage growth in the last few years. Yes — the Chinese central bank is worried about their American dollar holdings being devalued. But I think an inevitable devaluation of their dollar-denominated assets is a small price for the Chinese to pay for becoming a global trading hub, and the world’s greatest industrial base. Similarly, if American firms and governments use cheap Chinese liquidity to strengthen America, for example funding a transition to energy independence, then the cost of interest payments to China are probably worth it. And that is a principle that extends to other debtors — if the credit funds something productive that otherwise could not have been funded, then that is hardly “wealth extraction”. There is the potential for both parties to benefit from the relationship, and the opportunity costs of a world without debt-based funding would seem to be massive.

But what if tensions over debt lead to conflict? It would be foolish to rule out those kinds of possibilities, given the superficial similarities in the relationship between China-America and that of Britain-Germany prior to World War I. It is more than possible for an international creditor-debtor relationship to lead to conflict, perhaps beginning with a trade war, and escalating —  in fact, it has happened multiple times in history.

It is certainly true that devious creditors and debtors can extract wealth from each other, but so can any devious economic agent — used car salesmen, stockbrokers, etc. The actual danger of creditor-debtor relationships, is not so much wealth extraction as it is conflict arising from the competition inherent to a creditor-debtor relationship. Creditors want their pound of flesh plus interest. Debtors often prefer to be able to shirk their debts, and monetary sovereign debtors have the ability to subtly shirk their debts via the printing press. That is potentially a recipe for instability and conflict.

There is also the problem of counter-party risk. The more interconnected different parties become financially, the greater the systemic risks from a default. As we saw in 2008 following the breakdown of Lehman Brothers, systemic interconnectivity can potentially lead to default cascades. In that case, debt can be seen as a mutual incendiary device. 

So the debtor-creditor relationship is very much a double-edged sword. On the one hand, if all parties act honestly and responsibly debt can be beneficial, allowing debtors access to capital, and allowing creditors a return on capital — a mutual benefit. In the real world things are often a lot messier than that.

Humanities Scholars Baffled By Math

Via the Wall Street Journal:

In the latest study, Kimmo Eriksson, a mathematician and researcher of social psychology at Sweden’s Mälardalen University, chose two abstracts from papers published in research journals, one in evolutionary anthropology and one in sociology. He gave them to 200 people to rate for quality—with one twist. At random, one of the two abstracts received an additional sentence, the one above with the math equation, which he pulled from an unrelated paper in psychology. The study’s 200 participants all had master’s or doctoral degrees. Those with degrees in math, science or technology rated the abstract with the tacked-on sentence as slightly lower-quality than the other. But participants with degrees in humanities, social science or other fields preferred the one with the bogus math, with some rating it much more highly on a scale of 0 to 100.

Specifically, 62% of humanities and social science scholars preferred the paper with the irrelevant equation, compared with 46% from a background of mathematics, science and technology.

This is a significant result, and I hope the experiment is repeated and replicated. It is all well and good for humanities and social science scholars to mostly eschew the use of mathematics in their work. But if humanities scholars begin to take work more seriously simply for the inclusion of (faux-) mathematics without themselves understanding the mathematics, then maybe it’s time for humanities and social science scholars to increase their mathematical and statistical literacy so as not to be so easily tricked by faux-mathematical rigour.

And this isn’t just a case of not understanding the equation — it seems like a nontrivial chunk of humanities and social science scholars have quite an inferiority complex. That should be a great embarrassment; there is nothing inherently inferior about the study of the human condition, or its (mostly non-mathematical) tools.

Last year, I wrote:

Well-written work — whether in plain language or mathematics — requires comprehensible explanations and definitions, so that a non-specialist with a moderate interest in the subject can quickly and easily grasp the gist of the concepts, the theory, the reasoning, and the predictions. Researchers can use as complex methods as they like — but if they cannot explain them clearly in plain language then there is a transparency problem. Without transparency, academia — whether cultural studies, or mathematics, or economics — has sometimes produced self-serving ambiguous sludge. Bad models and theories produce bad predictions that can inform bad policy and bad investment decisions.  It is so crucial that ideas are expressed in a comprehensible way, and that theories and the thought-process behind them are not hidden behind opaque or poorly-defined words or mathematics.

But in this case, I think the only real solution is mathematical and scientific literacy.

On the other hand, prestigious mathematics journals have also recently been conned into publishing papers of (literally) incomprehensible gibberish, so it is not like only humanities and social science scholars have the capacity to be baffled by bullshit.

FBI Labels Occupy As Terrorists

It’s disturbing enough that the FBI and Department of Homeland Security determined to investigated Occupy Wall Street as a “domestic terrorist” group. But the reality is even more absurd than that.

Via Digital Journal:

The Federal Bureau of Investigation knew of a plot to assassinate members of the Occupy Wall Street at protests around the United States but did not inform the potential victims of the threats to their lives.

The shocking revelation was buried deep within documents released to the Partnership for Civil Justice Fund (PCJF), a human and civil rights advocacy organization, after the group filed a Freedom of Information Act (FOIA) request.

Last week, Digital Journal reported that the documents obtained by PCJF detailed how the FBI cooperated with the Department of Homeland Security, US military and private corporations to monitor and investigate Occupy Wall Street protesters as “domestic terrorists” and “criminals.” The documents prove that federal agencies are “functioning as a de facto intelligence arm of Wall Street and corporate America,” PCJF said.

Seems like the FBI needs a reality check. Who are the domestic terrorists, the banks who blew up the American economy with their absurd shadow banking and derivatives bubbles, whose business models were so fragile and interconnected that they required multiple bailouts just to stay afloat, or the overwhelmingly peaceful protestors who are angry at those banks who through greed and incompetence blew up the economy?

Don’t be on the wrong side of history…

Why Modern Monetary Theory is Wrong About Government Debt

I’ve taken some criticism — particularly from advocates of modern monetary theory and sectoral balances and all that — for using total debt rather than just private debt in my work.

The modern monetary theory line (in one sentence, and also in video form) is that government debt levels are nothing to worry about, because governments are the issuer of the currency, and can always print more.

This evokes the words of Alan Greenspan:

The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.

Of course, the point I am trying to make in worrying about total debt levels is not the danger of mass default (although certainly default cascades a la Lehman are a concern in any interconnective financial system), but that large debt loads can lead to painful spells of deleveraging and economic depression as has occurred in Japan for most of the last twenty years:

Japan-Debt-Hoisington-27

Of course, before the crisis in America (as was the case in Japan at the beginning of their crisis) government debt was not really a great contributor to the total debt level, meaning that the total debt graph looks far more similar to the private debt line than the public debt line, which means that when I talk about the dangers of growing total debt I am talking much more about private debt than public debt:

010212_2140_TheDebtwatc1

But what Japan empirically illustrates is the fact that all debt matters. Japan’s private debt levels have reset to below the pre-crisis norm, yet the economy remains depressed while public debt continues to climb (both in absolute terms, and as a percentage of GDP). If excessive private debt was the sole factor in Japan’s depression, Japan would have recovered long ago. What we have seen in Japan has been the transfer of the debt load from the private sector to the public, with only a relative small level of net deleveraging.

And high and growing public sector deficits often lead to contractionary tax hikes and spending cuts. This happened time and again during Japan’s lost decades. Peter Tasker of the Financial Times writes:

When Japan’s bubble economy imploded in the early 1990s, public finances were in surplus and government debt was a mere 20 per cent of gross domestic product. Twenty years on, the government is running a yawning deficit and gross public debt has swollen to a sumo-sized 200 per cent of GDP.

How did it get from there to here? Not by lavish public spending, as is sometimes assumed. Japan’s experiment with Keynesian-style public works programmes ended in 1997. True, they had failed to trigger durable economic recovery. But the alternative hypothesis – that fiscal and monetary virtue would be enough – proved woefully mistaken. Economic growth had been positive in the first half of the “lost decade”, but after the government raised consumption tax in 1998 any momentum vanished. Today Japan’s nominal GDP is lower than in 1992.

The real cause of fiscal deterioration was the damage done to tax revenues by this protracted slump. Central government outlays as a percentage of GDP are no higher now than in the early 1980s, but the tax take has fallen by 5 per cent of GDP since 1989, the year that consumption taxes were introduced.

A rise in debt relative to income has historically tended to lead to contractionary deleveraging irrespective of whether the debt is public or private.

The notion at the heart of modern monetary theory that governments that control their own currency do not have to engage in contractionary deleveraging remains largely ignored. Just because nations can (in a worst case scenario) always print money to pay their debt, doesn’t mean that they will always print money to pay their debt. They will often choose to adopt an austerity program (as is often mandated by the IMF), or default outright instead (as happened in Russia in the 1990s).

And what governments cannot guarantee is that the money they print will have value. This is determined by market participants. In the real economy people in general and creditors (and Germans) in particular are very afraid of inflation and increases in the money supply. History is littered with currency collapses, where citizens have lost confidence in the currency (although in truth most hyperinflations have occurred after some great shock to the real economy like a war or famine, and not solely as a result of excessive money printing).

And there has always been a significant danger of currency, trade and political retaliations by creditors and creditor nations, as a result of the perception of “money printing”. Many, many wars have been fought over national debts, and over currencies and their devaluation. One only has to look at China’s frustrated rhetoric regarding America’s various monetary expansions, the fact that many Eurasian creditor nations are moving away from the dollar as a reserve currency, as well as the growth of American-Chinese trade measures and retaliations, to see how policy of a far lesser order than the sort of thing advocated in modern monetary theory can exacerbate frictions in the global currency system (although nothing bad has come to pass yet).

Governments controlling their own currencies are likely to continue to defy the prescriptions of the modern monetary theorists for years to come. And that means that expansionary increases in government debt relative to the underlying economy will continue to be a prelude to contractionary deleveraging, just as is the case with the private sector. All debt matters.

The Growing Probability of a One State Solution

The unstoppable force of Israel’s settlement movement is about to hit the immovable object of Israel’s desire to be a Jewish-majority democracy.

Israeli politicians may have paid a whole lot of lip-service to the notion of a two-state solution over the years, but they continue to carve up and settle the very land that that Palestinian state would be founded upon.

Mahmoud Abbas is calling their bet. He is now threatening to disband the Palestinian authority and hand over control of the West Bank to Israel in retaliation for Israel’s ongoing settlement building activities:

Palestinian president, Mahmoud Abbas, said he will hand over responsibilty for the West Bank to Israel if peace talks are not renewed after Israel’s elections, Haaretz newspaper reported on Thursday.

In an interview with the Israeli newspaper, Abbas said he would relinquish control and disband the Palestinian authority if there was no progress after January 22.

This — if carried through — is quite literally the single smartest thing any Palestinian leader has ever done. As Jeffrey Goldberg noted back in November:

There is a strategy the Palestinians could implement immediately that would help move them toward independence: They could give up their dream of independence.

It’s a very simple idea. When Abbas goes before the UN, he shouldn’t ask for recognition of an independent state. Instead, he should say the following: “Israel occupied the West Bank and Gaza 45 years ago, and shows no interest in letting go of the West Bank, in particular.We, the Palestinian people, recognize two things: The first is that we are not strong enough to push the Israelis out. Armed resistance is a path to nowhere. The second is that the occupation is permanent. The Israelis are here to stay. So we are giving up our demand for independence. Instead, we are simply asking for the vote. Israel rules our lives. We should be allowed to help pick Israel’s rulers.”

Reaction would be seismic and instantaneous. The demand for voting rights would resonate with people around the world, in particular with American Jews, who pride themselves on support for both Israel and for civil rights at home. Such a demand would also force Israel into an untenable position; if it accedes to such a demand, it would very quickly cease to be the world’s only Jewish-majority state, and instead become the world’s 23rd Arab-majority state. If it were to refuse this demand, Israel would very quickly be painted by former friends as an apartheid state.

Israel’s response, then, can be reasonably predicted: Israeli leaders eager to prevent their country from becoming a pariah would move to negotiate the independence, with security caveats, of a Palestinian state on the West Bank, and later in Gaza, as well. Israel would simply have no choice.

This is the very best chance that the Palestinians have of getting a state, and if not a state at least equal democratic rights and some kind of peace. By accepting Israeli rule, Israel would be forced to choose between offering citizenship to the millions of Arabs living in the land it controls (endangering Israel’s status as a Jewish-majority state), or losing its status as a democracy (by denying West Bank Arabs votes) which has brought it significant international support and millions of dollars of aid. Goldberg’s theory is that Israel would choose to remain Jewish-majority, bring the settlement movement under control and relinquish land to the West Bank Arabs to found a Palestinian state.

But I don’t think that Israelis will overwhelmingly choose to abandon the settlements and retreat to the ’67 borders. The growth of Naftali Bennett’s Jewish Home party which advocates for a one state solution where West Bank Arabs are left without voting rights illustrates this very well. So too does Likud’s recent transformation into a party largely opposed to the two-state solution, under the control of hardliners like Moshe Feiglin and Danny Danon.

Indeed, the religious right in Israel appears wholly committed to the idea of not giving up an inch of the biblical land of Israel:

510px-Early-Historical-Israel-Dan-Beersheba-Judea-Corrected

The interesting thing is that Gaza is not part of that historic territory. It is often said that including the entirety of the Palestinian territories, Jews and Arabs are very close in population — according to 2007 data, there are 5,300,000 Arabs, and 6,000,000 Jews. However discluding Gaza, Jews retain a large majority — 6,000,000 against just 3,700,000 Arabs. What this means is that by withdrawing from Gaza as Sharon did, Israel could in theory annex the West Bank, grant full-citizenship to the Arab residents (and so remain a democracy), and remain heavily Jewish-majority for the foreseeable future.

This simple fact means that the likeliest compromise between Israel’s settlement movement and its desire to portray itself as a Jewish-majority democracy is the annexation of only the West Bank, leaving Gaza to either merge with Egypt — increasingly likely given the well-known ties between Hamas and the Muslim Brotherhood — or to exist as the Palestinian state.

While some like Naftali Bennett may push to keep West Bank Arabs from getting Knesset votes, Israel’s Jewish-majority status would not be threatened by every single West Bank Arab receiving a Knesset vote. This may very well be the best that West Bank Arabs can hope for — they are already under Israeli rule backed by overwhelming Israeli military superiority, and a diehard settlement movement, and have been for almost fifty years. And although there is significant discrimination against Arabs under Israeli rule — indeed, a majority of Israeli Jews openly advocate it —  a larger Arab voting bloc would minimise this.

Mahmoud Abbas’ threat is a wise acceptance of this reality. Israeli settlements are not going anywhere. The two state solution is effectively dead. Palestinians in the West Bank can either continue fighting futilely against an overwhelming enemy, or work toward equal rights in the state in which they now live.

Too Big To Jail

What’s worse than unjust and ineffective laws like the failed War on Drugs and the failed sanctions on Iran?

Unjust and ineffective laws that apply to ordinary folks, but not to banksters:

When the Justice Department announced its record $1.9 billion settlement against British bank HSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico’s murderous drug cartels.

But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.

They say it sounds a lot like the “too big to fail” meme that kept big but sickly banks alive on the support of taxpayer-funded bailouts. In these cases, they call it, “Too big to jail.”

This stings. It should sting anyone who cares about the idea of equality in front of the law, anyone who cares about the basic rule of law, anyone who doesn’t want to see their society devolve into a festering pool of feudalism.

According to the most recent data, there were 197,050 sentenced prisoners under federal jurisdiction of which 94,600 were serving time for drug offenses.There were 1,362,028 sentenced prisoners under state jurisdiction of which 237,000 were serving time for drug offenses. That’s over 300,000 individuals serving time currently for drugs offenses, in addition to over one million currently on probation. Now I don’t agree with the War on Drugs at all. But big banks are deemed too “systemically important” to be held to the same standard as the huge and disproportionately black population of low-level drug users.

BlackPrisoners

If the Drug War laws don’t apply to the big banks — if Wall Street bankers who have broken the law can’t go to prison too — then how is incarcerating low-level drug users really much different to chattel slavery?

And not only do private prison companies pocket massive profits from the taxpayers’ purse for running the prisons, but prisoners are a pool of ultra-cheap indentured labour.

As Todd Curl notes:

Prisons in the United States used to be institutions of actual reform and rehabilitation. Men who entered a prison, would often learn a trade and have a usable skill to earn a legitimate living upon release. The recidivism rates have sharply increased as job and education programs within prisons–especially private prisons–have steadily declined. This is not to say that skills are not acquired in these private prisons, quite the contrary. In many of these private prisons, inmates are contracted as telemarketers, among other things, for many large corporations. These prisoners can earn as much as 75 cents an hour for their job–sometimes under 40 cents. What’s the payoff one might ask? For one, corporations get very cheap—third world cheap—labor that cannot unionize, cannot call in sick and cannot complain without fear of time added to their sentence or retaliation from guards who overworked and underpaid themselves, and risk losing their livelihood if an “uppity” prisoner refuses their indentured corporate servitude.

The War on Drugs is descending from tragedy into farce. Poor black drug users are fair game for the slave labour business. Rich Wall Street bankers who launder drug money? Nope.

In May I asked:

Have the 2008 bailouts cemented a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to fund the excesses of the financial and corporate elite?

Only time will tell.

Time is telling.

Once a certain segment of society becomes protected from criminal liability, that society has travelled a long way down the road to feudalism, to a caste system, to serfdom.

Gun Control? No, Drone Control

The terrible massacre committed by a mentally-disturbed man in Newtown, Connecticut last Friday has prompted lots and lots of calls for gun control in the United States, as well as some calls for more help for the mentally ill.

There are some problems with both suggestions. First of all, the evidence shows that certain “treatments” for the mentally ill — specifically, SSRI antidepressants — are associated with shooting sprees. A 2006 study in the UK showed that antidepressants can cause severe violence in a small number of individuals. It is possible that increasing the screening and “treatment” for mental illness may result in more incidences of severe violence due to adverse reactions to antidepressants. (On the other hand some therapies like psychotherapy, music therapy, and art therapy might help certain individuals, but these are almost certainly less profitable for big pharma…)

But what about gun control? There is little doubt that in the coming years the gun-show loophole will be closed and Canadian-style longer waiting periods will be introduced. Semi-automatic weapons may well be banned. Buyback programs may be attempted. The Supreme Court might well even be stacked to achieve a majority that interprets away individual gun rights.

But America already has huge quantities of guns, far more than anywhere in the world:

total-gun-ownership

The vast majority of America’s 285 million guns are in Republican states, which are unlikely to be disarmed easily, even with an overwhelming Federal consensus. Some might even try to secede from the Union.

And as the experience of many other countries including Britain and Australia shows, criminals and those with violent intent will still be able to get guns (the only people who will be disarmed are the law-abiding majority).

This trend is only likely to grow in coming years as technologies such as 3D printing make it possible for anyone with a 3D printer and an internet connection to potentially print a gun (and eventually, bullets):

Imagine an America in which anyone can download and print a gun in their own home. They wouldn’t need a license, a background check, or much technical knowledge, just a 3D printer. That’s the vision a cadre of industrious libertarians are determined to turn into reality.

Last week, Wiki Weapon, a project to create the first fully printable plastic gun received the $20,000 in funding it needed to get off the ground. The project’s goal is not to develop and sell a working gun, but rather to create an open-source schematic (or blueprint) that individuals could download and use to print their own weapons at home.

The technology that makes this possible is 3D printing, a process during which plastic resin is deposited layer by layer to create a three dimensional object. In the past few years 3D printers have become increasingly affordable, and just last week the first two retail stores selling 3D printers opened in the United States with models ranging from $600 to $2,199.

How is it possible to regulate that away? Ban 3D printing? Ban the distribution of gun schematics? Costly, damaging to liberty, and ineffective. The failed war on drugs makes this very clear — prohibition doesn’t work. Guns — like drugs — are a reality that society cannot just eradicate by passing laws. The mood has changed — America will try gun control. It won’t work — and may just make things worse. I wish we lived in a world without guns, but we don’t.

But there is a way forward. Very many of the mass shooters in the last two decades have a history of antidepressant use. If we want to stop mass shootings, maybe we should look at that.

And if we value life and are opposed to violence against innocents, why do we demand action when 27 innocent Americans die, but not when larger numbers of innocent Pakistanis, or Afghanis or Yemenis die?  One drone strike in Pakistan killed 69 children, dwarfing the impact of the Newtown massacre. With predator drones now in American skies, how long until the “collateral damage” (remember — the NDAA declared the entirety of America as a battlefield) eclipses the Newtown massacre? Or how long until a foreign power or terrorist group hacks into a predator drone (technically feasible) over America and uses it as a flying bomb?  And how many more terrorist attacks against America will be fuelled by anger derived from the civilian casualties of the drone wars?

Obama might cry for Americans in Newtown, but where are his tears for the Pakistani and Yemeni children he has slaughtered? And what about for the many victims who died as a result of thousands guns shipped by the US government to the Mexican drug cartels via Fast and Furious?

America might be ready to implement gun control. I wish America was ready to implement drone control.

Who Should Be Giving Thanks This Thanksgiving?

Not the wider public.

Our financial system is broken. Our political system is broken. Oligarchs and their cronies reap easy rewards — bailouts, crony capitalism, corporate handouts, liquidity injections, favourable “regulation” (that puts oligarchs’ competition out of a business) — while taxpayers pay the bill.

But no such thing lasts forever.

Thanksgiving is very much the day of the black swan. Nassim Taleb used the example of a turkey fattened up for Thanksgiving as an example of a black swan phenomenon. The turkey sees itself being fed every day by the turkey farmer and assumes based on past behaviour that this will continued indefinitely until the day comes when the farmer kills the turkey. Nothing in the turkey’s limited experiential dataset suggested such an event.

But Thanksgiving also commemorates the end of pre-Columbian America, a huge earth-shattering black swan for the people of the Americas. The day before the first European immigrants landed in North America, very little in the Native Americans’ dataset suggested what was to come.

In a globalised and hyper-connected world, drastic systemic change can occur faster than ever before.

All it takes is the first spark.