When Will Inflation Kick In?

Old hand Pat Buchanan chimes in today commending the president for tacking to the middle. Based on his record of bipartisan compromise since the election, including his Arizona speech, Pat rates the president "a survivor... with an almost Nixonian capacity for maneuver."

So that makes him a shoo-in for reelection, right?

Maybe not. The question is: when will inflation kick in after the enormous monetary stimulus of the last two years and the stimulus from "QE2" that began last fall? Jim Johnston from Investors Business Daily, quoting Milton Friedman, thinks that the president has got the calendar just right.

Six to nine months after an injection to the money supply, there is a short-term increase in economic activity. After 24 months, inflation appears and is persistent until money growth is slowed, another recession occurs, and 24 months pass before the inflation is abated.

If these lags are superimposed on the nation's political calendar, there is a disturbing conclusion.

A short-term increase in economic activity will occur before the 2012 presidential election, and a virulent inflation will occur after the votes are in.

Maybe. But I have a suspicion that the monetary easing already committed since the economy turned in early 2009 is going to get inflation going this year. So 2012 will be full of demands to know what the president is going to do about inflation.

All that means, of course, that making an inflation bet is not too late, even now. We are not yet well into a classic flight into real values. We are just in the early stages, where sophisticated people are still laughing at the stolid types that are buying coins and commodities.

Then there is real estate. I know, everyone "knows" that real estate is finished. But with the US government printing lots of dollars, it might not hurt to borrow some of them and pick up some deals. Remember Mr. Potter, the evil small-town banker. When everyone was losing their heads, crying sell, sell, sell, Mr. Potter was buying.

State Spending vs. Revenue

The Census Bureau is out with its data on state spending and revenue for FY 2009, the first year of the Great Recession. Now the numbers are up on usgovernmentspending.com. They make for pretty interesting reading. If you look at usgovernmentspending.com's 5-year chart of state spending, It looks like spending is heading on up, without a pause.

Actually, the numbers for 2009 are down from the usgovernmentspending.com "guesstimate", which shows that politicians are getting serious at last. Will we see significant spending cuts next year when the FY 2010 data come out? Will the politicians make usgovernmentspending's current "guesstimate" for 2010 look like reckless alarmism? We'll see.

The big story, of course, is in state revenue. Look at the following chart of state revenues.

What on earth is going on? How could state government revenue be cut in half in one year? I will tell you.

There is one number that dwarfs all the others. It is the $525 billion investment loss in state government retirement systems. That is what brings the state government revenue number down to $664 billion. Hopefully, of course, in 2010 the state government retirement systems will show a healthy investment gain. Hopefully.

If we discount the $0.5 trillion loss in state pensions, that means that the states were spending $1,330 billion against revenue of $1,189 billion. That's a deficit of a mere $141 billion. So that's all right.

The Liberal "Tell"

In poker, after you've mastered the odds, you graduate to "tells." That's the art of reading the emotional response of your opponents during the course of the game.

So that's why conservatives should thank liberals like Paul Krugman for the rather amateurish "tell" over the tragic Arizona shooting.

So you chaps really are scared by Sarah Palin and the Tea Party movement and the power of Fox News and talk radio. Why else would you chaps react like conspiracy theorists to the crazed outrage of a crazed mind?

But think of the opportunity that our liberal friends have given us. They have given conservative talk radio the chance to display the hypocrisy of the liberals, who use war metaphors all the time (why wouldn't they, given that politics is civil war by other means?). They have given Fox News the chance to present itself as measured and responsible. And they have given Sarah Palin a chance to broadcast a presidential fireside chat from her house in Wasilla, complete with a quote from Saint Ronald:

President Reagan said, “We must reject the idea that every time a law’s broken, society is guilty rather than the lawbreaker. It is time to restore the American precept that each individual is accountable for his actions.”

Yep, liberals are telling us that they are really, really worried by Sarah Palin, the Tea Party movement, and the conservative media. You can "tell" from the beads of sweat on their foreheads.

Now that it is becoming pretty clear that the alleged assailant Jared Lee Loughner is a paranoid schizophrenic, the whole episode is starting to move towards a national conversation on mental illness and institutionalization. It might move on to the whole liberal health metaphor that substitutes for a sensible and practical ethics.

My interest is moving to the larger question of the combination of politicians and experts. The problem with modern psychology is that it has gotten too close to politics and government. That is why we have had the scandals of lobotomy, forced sterilization, and forced institutionalization. Too many moral decisions have been abdicated to the legal system.

Our modern society is a differentiated society. We like to differentiate between politics, economics, and moral/cultural questions. The record of the last 200 years shows pretty clearly that when politics and economics get too close together you get crony capitalism and government using the credit system for political purposes. When the political and moral/cultural sectors get too close you get the expert-led central administrative state where people start to use the political system to legislate their morality in the faces of people that disagree with them.

The question of what to do about seriously disturbed people is partly a political question, where violence is the issue, and partly a moral question, where potential help is the issue.

Sooner or later we must stop delegating moral and cultural questions to the political sector and accept the sacrifice that comes with responsibility.

You'll know that we are making progress from the reckless ravings of our liberal friends.

Learning from Tragedy

When tragedy strikes, people go for their standard templates. If you are a liberal, the problem is thunder on the right and the answer is gun control. If you are a conservative, the problem is the welfare state and the answer is smaller government.

As as conservative, my template looks for a failure in the expert-led centralized bureaucratic administrative welfare state. Yeah! How come nobody did something to stop this kid Jared Lee Loughner before he killed? It's not as if he hadn't been a problem and hadn't became a person of interest to a number of government bureaucracies.

The chaps at The New York Times today are wittering on about experts-this and experts-that: "Red Flags at a College, but Tied Hands," writes Benedict Carey.

“It wasn’t a case of ‘Gee, no one saw this coming,’ ” Dr. Borum said. “People saw it. But the question then was what do you do about it? Who do you call? The whole thing speaks to the need for some coordinated way to detect such threats.”

See what's coming here? We need a new administrative system of experts to detect and deal with the threat of a paranoid killer. Fully funded and credentialed, of course. Not to say pensioned.

But I wonder. I wonder about the limits of government to solve social problems. We are talking about the whole question of freedom.

The meaning of freedom, if it means anything, is that people have a right to make mistakes. We say that there should be no prior restraint on the actions of normal humans just because, according to scientists, they might be a problem. Liberals are big on this, and rightly so. They point to the sorry record of lunatic asylums, psychiatric hospitals, electroshock, lobotomies, and psycho-active drugs. If you are going to restrain a dangerous person, where do you draw the line?

There's another thing. When a paranoid person kills a national politician it is national news. Everybody demands that something be done. But how often does a paranoid kill a non-public figure? What are the numbers on that? And what could we actually do to reduce the incidence of killings by people with mental illness?

Of course, my template is that the bureaucratic method is not a good way to deal with these issues, because they are not a question of rules and tests and procedure. They are a question of social relations, and that means that they are moral and cultural questions. I believe we need to rediscover and restore a moral community in our "little platoons" that can deal with people at the edge of sanity, and reclaim such people back into the human community. I think that the institutionalization of modern people, starting in kindergarten or before, is a big question mark. What does it do to a human being to be incarcerated in bureaucratic government institutions right through their childhood, and then delivered to big business bureaucracies when they are adults?

You could say that in the modern era we don't socialize people, we bureaucratize them.

Any ideas on that, you experts? I know. More research is needed.

Blame Conservatives First?

Of course, as a conservative, I'm enraged by the narrative out of the left that the Arizona shooting of Rep. Gabrielle Giffords and others was prompted by "hate speech" on the right and Sarah Palin in particular.

But I don't think that Democrats will be able to move their narrative.

Ever since liberals got sideswiped by an opportunist Sen. McCarthy (R-WI) in the 1950s they have been terrified that it could happen again. So they see right-wing extremism under every bed; they are determined that they will never be politically cornered as they were when it turned out that a lot of liberals had flirted with Communism in the 1930s and that some of them had even spied for the Soviet Union.

I suspect that liberals know that the average American doesn't really like liberalism, and so they are eternally afraid that some movement is about to erupt that will sweep their educated ruling class out of power forever. They project this fear onto any deranged gunman or pre-revolutionary right-wing group that erupts into the news. For years, every nice liberal lady was taught to be terrified of right-wing "militia" groups, whatever they were.

Of course, part of the drumbeat about "hate speech" is pure political opportunism. From a tactical point of view the heightened partisanship of the Bush years that was kept on a steady boil from the dead-heat 2000 election onwards was a great success. It helped the Democratic takeover of Congress in 2006 and helped elect Barack Obama in 2008.

But now we are back to normal, and the real issue before the American people is: how much big government can it digest? At what point does even the voter with the biggest stomach just upchuck the turgid mess of it all?

That's why I believe that we conservatives can safely discount the effect of the media and the Democratic activist base and their "hate speech" drumbeat. The Democrats are on defense, big government is in trouble, and the retreat is going to be long and painful.

The big Democratic problem is that they have more to lose. It is Democratic voters that depend on the big entitlement programs. Apart from income considerations it just stands to reason that single, secular, childless people are more vulnerable to life's problems than married, religious people that have children.

In my view, we aren't going to reform the welfare state until it crashes and burns; that's just the way politics works. So, if you want to reform the welfare state the best thing to do is to prepare for a world in which the government runs out of money.

There's only one thing to worry about. Many governments in trouble are raiding peoples' private pension accounts. For conservatives and Republicans, it might be worth while making it politically impossible for government to come calling for our IRA and 401(k) accounts.

But when liberals run around blaming conservatives for political violence I think they are missing the point, and they are wasting their energy. Liberals have much better things to do with their time than demonizing conservative crazies. But if they want to waste their energy, who would want to stop them?

Spirit Level Week: The Bourbon Left

It was famously said of the French Bourbon kings as they returned to France after the fall of Napoleon that they had learned nothing and forgotten nothing. It's tempting to say the same thing of our liberal friends.

Back to start: Equality Without Context

What did President Obama and the Reid/Pelosi Congress think they were doing? And what do Richard Wilkinson and Kate Pickett, authors of The Spirit Level: Why Greater Equality Makes Societies Stronger think they are doing, offering up the same-old same-old after a century of the centralized administrative welfare state?

The answer is that, in the absence of formal religious belief, our liberal friends collapse their moral and cultural beliefs into their politics. What began as a moral movement 150 years ago determined to do something about the horrible sufferings of the poor in the big industrial cities of Britain and the USA has developed into a broad established church. Slowly, over the years, the concern has changed.
Originally it was helping the poor, men and women that you could see suffering on the other side of the tracks in your home town. Then it became a more amorphous war on poverty--notice the abstract noun.

But now "poor" and "poverty" doesn't cut it. Not when "Overweight among the poor seems to be strongly associated with income inequality." You mean that the poorer someone is, the fatter?

Now the broad church of the educated ruling class wants to talk about "inequality." But the agenda is the same, and even the characters are the same, including the Rowntree trusts, that helped set up the agenda for the welfare state over a century ago.

When disaster strikes, it strikes harder in cities that lack a culture of trust. Thus, after Hurricane Katrina, Wilkinson and Pickett tell us, Governor Kathleen Blanco (D) warned looters that National Guard troops were locked and loaded. But 160 years ago Alexis de Tocqueville noted the "equality of conditions" in America; people trusted each other. And so it turns out, according to Wilkinson and Pickett, that opinion polls find that "most people can be trusted" in more equal societies. And that goes for the US. New Orleans is the most unequal city and has very little trust. North Dakota is equal and has high trust.

All things being equal, everyone wants a less unequal society. But the question is: how? The answer running through The Spirit Level is more of the same, more liberal top-down centralizing, social-science based programs. If you read through The Spirit Level there is no attempt at discussion about the effectiveness of the usual liberal nostrums. Anything that liberals like is good.

The one thing that Wilkinson and Pickett do not discuss is the possibility that it is welfare state policies that create inequality.

Back in the mid 19th century women like George Eliot and Elizabeth Gaskell were writing novels about life at the edge of poverty. The stock villain was the young man of good family who didn't have to make his way in the world, who had an income or an allowance from his parents, and couldn't think of anything better to do than run up debts and get working-class girls knocked up. In Middlemarch the great sub-plot grinding away off-stage from the lovely Dorothea and the awful Casaubon is the moral drama of Fred Vincy, wastrel son of the mayor and manufacturer Mr. Vincy. But Fred cannot get the sensible, practical Mary Garth to marry him until he gets his life together and gets a job. What a concept.

Of course, in the lives of the educated ruling class, this sort of culture is taken for granted. Nobody respects someone without a career. Today nobody respects a woman without a career.

But liberals keep insisting that these rules don't apply to the lower orders. We've got to treat the excluded and the deprived like 19th century cads, bailing them out of their messes, paying their debts, and excusing their debaucheries. They're depraved on account they're deprived, Officer Krupke.

The lesson of the mid-century moralists was that people needed to live in a moral community in which they really depended and relied upon the good conduct and the good will of their neighbors. Why won't our liberal friends extend the same respect to their political clients instead of treating them like moral imbeciles?

No they won't, because after a century of the welfare state they have learned nothing and forgotten nothing.

Spirit Level Week: What About Equality?

The hot new liberal book The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson and Kate Pickett argues that, since the more equal developed countries demonstrate lower health and social problems, we should implement more egalitarian initiatives, such as higher taxes on the rich and employee-owned companies. But can this politically compelled egalitarianism work in practice?

Back to start: Equality Without Context

Let us look at the question from a Marxian perspective. Marx maintained that laws and culture are a "superstructure" built upon the base of underlying "productive forces." Here is what he wrote:

[M]en inevitably enter Into definite relations, which are independent of their will, namely [the] relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure, and to which correspond definite forms of consciousness.

It is notable that hunter-gatherer society was usually extremely egalitarian. Men combined immediately against anyone who tried to become a powerful leader. Boasting, e.g., about hunting prowess, was verboten and food-sharing was widespread. In Marxian terms, we can say that the nature of hunter-gatherer life called for a strict egalitarianism.

But the agricultural revolution seems to have changed all that. It ran on different productive forces, and the superstructure was different. From our perspective, agricultural society was remarkably oppressive and hierarchical. It was a status society, in which the status of the people and the social hierarchy was fixed and inherited. A warrior landed class ruled over all. We can see that the peculiar nature of agricultural life required this exploitative superstructure, for the agricultural peasant is extremely vulnerable to plunder and piracy. He must store enough food to survive from one harvest to the next and save enough seed corn to grow the new crop as well. The peasant desperately needs defense from raiders, and the price in subjection and servitude was very high.

It seems clear that the industrial revolution changed the productive forces significantly. The productive forces that got us from $3/day two centuries ago to $100/day today require, according to Deirdre McCloskey in her Bourgeois Cycle, a bourgeoisie dignified and free. Bourgeois trading and bourgeois innovation are astonishingly productive, creating a free lunch of wealth in which all can participate. The social superstructure is egalitarian, in that anyone can trade and innovate, but it is also hierarchical, allowing successful upstarts to become very wealthy, lording it over their fellows with trophy wives and executive jets before they get religion and give all their money away in philanthropy.

Wilkinson and Pickett see an end to the economic growth and innovation of the bourgeois era. On the one hand, people in the developed countries no longer find improvement in their quality of life from income increases, and the search for material wealth increases anxiety rather than wellbeing. On the other hand, we need to transition to a sustainable lifestyle to deal with the "problems of global warming and the environmental limits to growth."

You can see what is going on here. Wilkinson and Pickett are proposing a return to a hunter-gatherer social system, where competition and innovation is self-consciously directed at combining "acceptable living standards with a sustainable economy".

Never mind whether this vision is desirable. Is it possible? If modern society is governed in order to return it to the steady state of the hunter-gatherer era, can we survive and thrive? On Marx's view of the productive forces, we are bound to wonder. And, to apply the Precautionary Principle, we would have to suggest that the burden of proof is on the egalitarians to prove that their egalitarian future will actually work.

One thing to keep in mind: the egalitarian countries admired by Wilkinson and Pickett are often
countries with a very low total fertility rate. Germany reports 1.36 children per woman and Japan reports 1.26 children per woman. However Sweden is up at 1.80. Maybe the problem will be solved when the egalitarian countries cease to exist.

Next: The Bourbon Left