The Short-Sightedness You Get From Staring At A Single Number

Update 10/2/10: Some sloppy writing on my part led to me seeming to imply that the trade deficit added empty calories to the GDP—this of course isn’t the case: As everyone ought to know, the net of imports and exports are added to consumer spending, government spending, and gross investment, to arrive at the GDP figure. Therefore—obviously—the trade imbalance is factored into the GDP. Please excuse my error. 

  

Because of the need to repair this mistake, I decided to touch up a few other aspects of this post—specifically drawing attention to the fact that the private sector is just as guilty of the myopia that I describe as the public policy sector. GL. 

  

So: Revised gross domestic product numbers came out—the U.S. economy grew 1.7% (annualized) during the second quarter. 

  

Whoop-dee-fucking-doo—if this keeps up, does it mean that each person living in the United States will be 1.7% richer by the end of 2010? 

  

Richer how? Because most people won’t be feeling richer by the end of the year—they’ll likely be feeling poorer. With good reason. 

  

Over the last 40 years or so, “the growth in the GDP” has been the totem every politician, every economist, even most citizens hang their hat on—as if this percentage figure all by itself embodied all the goodness (if it was ≥4%) or evil (≤2%) there was in the world. 

  

High GDP?—America happy!!! 

  

Low GDP?—America sad! 

  

(God forbid) Negative GDP?

  

AAAaaaaahhhhhhhhh. . . . . . 

  

But all by itself, growth in the GDP number means absolutely nothing. The fact that so much of American industry has been demolished by the bulldozer of Globalization over the last thirty years—all while GDP steadily accreted—proves that growth in GDP means nothing. 

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Why I Despise Krugman

Recently, I wrote a take-down of Paul Krugman. 

  

I pointed out how, in some of his recent posts, Krugman was distorting facts in order to score points for his policy prescriptions. I showed how he was pulling sleight-of-hand with the numbers, so as to play on readers’ misconceptions, and thereby make his rather foolish policy prescriptions sound reasonable. 

  

In short, I showed how unreasonable his policy prescriptions really were, capping my read on him as follows: A man who would never tell the truth, when a lie would serve him just as well. 

  

But as I wrote my rebuttal to Krugman’s recent posts, I was surprised to feel a blazing anger towards the man—not towards his policies, or even towards his less-than-honest attempts to fudge facts in order to score points—

  

—I found that I despised Krugman: With a passion. 

  

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Weapons & Movies: The Consequences of Globalization

America’s industrial base is as ruined as an armadillo, splattered on the highway, its squashed and bloody carcass embedded with the tire tread of an 18-wheeler—an 18-wheeler carrying jobs south to Mexico, Asia, and points beyond. 

  

In fact, in America, there are only two industries that still consistently provide the country with a positive balance of trade: Weapons and movies. 

  

Everyone knows that Hollywood movies dominate the global marketplace—which is really surprising: Filmmaking is an almost pure value-added business. You need relatively little specialized equipment—the majority of the cost of a film production is labor. Because of this, you would think that a lot of other places—not just India—would have their own home-grown film industries, and that American movies would be just a small fraction of those markets. 

  

But films made in Hollywood, U.S.A., account for over half of worldwide ticket sales, both in dollars terms and in number of spectators—and this is excluding the U.S. domestic market. Insofar as films go, Hollywood California is where it’s at. 

  

Everyone also knows that America makes the best weapons—as well as the most. Estimates are that the United States accounts for 41% of the world’s foreign arms sales, $156 billion—dwarfing its closest competitor, Russia, which has 17% ($64 billion) of the pie, or France, with a mere 8% ($31 billion). (Source is here.) 

  

Apart from making the most—and selling the most—American weapons are the best: The most sophisticated, the most advanced—American weapons manufacturers are the Rolls Royces and Ferraris of death delivery systems. 

  

Why do these two industries dominate their respective global markets so completely? 

  

Industrial policy is the answer: The markeplace was not allowed to trample these industries. Flying directly in the face of the Globalization mantra, when it came to weapons and movies, their respective marketplaces were managed and cajoled, and directed so as to foment these two American industries. 

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What is “Modernism”? What is “Post-Modernism”?

Search far and wide, you won’t find an easy definition of “Modernism”—let alone of “Post-Modernism”. A lot of seemingly smart people have tried to deliver a handy definition of the two terms—tried and failed. 

  

The when of Modernism is not in much dispute: Starting roughly in the 1890’s, it was greatly affected and accelerated by the First World War, and had its apogee in the arts (Picasso, Braque) in the ‘teens and ‘20’s, in literature (Hemingway, Joyce, Faulkner) in the 1920’s and ‘30’s, in architecture (Lever House) the ‘30’s, ‘40’s and ‘50’s. 
  

The when of Post-Modernism also is not in dispute—simply put, Post-Modernism in each of the arts occurred after Modernism did. (Ha-ha.) Starting in the ‘50’s, and very self-consciously from the ‘80’s, Post-Modernism is still with us today. And works that are clearly “Post-Modern” from this period are easy to spot: Jeffrey Koons’ flower dogs are Post-Modern. So is David Foster Wallace’s Infinite Jest, as is Frank Gehry’s Bilbao Guggenheim Museum. 
  
But what is “Modernism”? What is ‘Post-Modernism”? 

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Stealth Monetization in the U.S.A.

Insofar as money is concerned, governments and central banks should be kept as far away from one another as a pedophile from Dakota Fanning. If ever the twain should meet, very bad things would happen. This is because of the disparate natures of government, on the one hand, and the central bank, on the other. 

  

Governments spend money. They spend money on social programs to keep the people docile and happy, wars to keep up the illusion of safety and security, and—almost as an afterthought—infrastructure. Ordinarily, they get the money for all of these things from taxes and other fees that the government collects. 

  

On the other hand, central banks print money. Most of the world’s economies depend on fiat currency—currency that has value because someone says it has value. The person who says it has value is the central bank. They are the custodians of the currency—they take care that it retains its value. 

  

Tons of people say that a fiat currency is unstable, and doomed to fail, and that we will all rue the day that we accepted that abomination into our lives!—and blah-blah-blah, rant-rant-rant. 

  

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JPN ≠ US: Japan Is Not Us

“Twins separated at birth”?

Really . . . 

   
Japan went through an equities and real estate boom during the 1980’s—a boom that was really a bubble. And like all bubbles, it eventually burst in 1990. 
  
Since then, Japan has been lost. Equities have never again reached the heights of 1990, nor have real estate prices. The Japanese government has spent a fabulous amount of money for domestic stimulus, creating the most modern infrastructure on earth—yet it hasn’t helped at all. GDP has been anemic, as the population slowly begins to shrink. Japan is in full-on deflation—in every sense of the word. 
  
Now that the United States has had its own real-estate bubble pricked, a lot of smart people have been selling the idea that the U.S. will experience what Japan has experienced: Persistently sluggish growth. Continued fiscal deficits, carried out by the Federal government in order to prop up aggregate demand by way of various stimulus programs. Slow and painful working out of the debt overhang. All of this happening within a deflationary environment, whereby the dollar—just like the yen in Japan—accrues value, as full-throttle deflation sets in. 
  
In other words, this camp believes America is set to begin its own version of Japan’s Lost Decades. 
  
This camp falls for what I call the “Japan Is Us” fallacy—and they are wrong. 

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Rape, Abortion, and Reproductive Violence

The other day, I watched Animal Planet. The episode showed lions in Africa, and how, when a new dominant male takes over a pride, he systematically kills all the cubs that are not self-sufficient or able to defend themselves. This automatically brings the female lions into heat. The lion then copulates with the females, replenishing the stock of cubs in a pride, and insuring that all of them are fathered by the dominant male. 

  

This is what I would term reproductive violence. It isn’t random or capricious violence, nor is it violence committed in order to secure food or some other resource. Rather, it is violence that has a clear reproductive objective: To make sure the pride’s focus and resources go to the upbringing of the dominant lion’s offspring, and none other. 

  

The rape of a woman by a man is similarly reproductive violence. 

  

A man ordinarily woos a woman, in order to convince her to have sex with him, get pregnant by him, and ultimately carry his child. But wooing—in all cultures—takes time, effort, expense. Resources.   

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Was Stagflation in ‘79 Really Hyperinflation?

If my best friend is the truth, then my next best friend is history. 

I’ve been writing about the possibility of hyperinflation, if there is ever a run on Treasury bonds. My argument has been, Treasuries are the New & Improved Toxic Assets, a termite-riddled house waiting to collapse. If and when there is a run on them, money will flow to a safe haven, which I am predicting will be commodities. As a byproduct of this sell off in Treasuries and buy up of commodities, consumer prices will rise catastrophically in a hyperinflationary event—and the dollar will be left dead on the highway like roadkill. 

  

This scenario got me thinking about the last time there was a panicked run-up in commodities: The stagflation of the 1970’s in the United States, specifically the period 1979–1983. Oil nearly doubled in price, gold and silver went hyperbolic. Gas shortages were rampant—the situation almost got to the point where the government considered rationing gasoline. In fact, ration cards were printed—that’s how bad things got. 
  
Because of the Oil Shock, the inflation index rose to a peak of 15%—yet unemployment also exploded, reaching almost 11%. This combination of unemployment and inflation was what gave the period its name—stagflation: “Stagnant inflation”. 

  

Thinking about this period, I asked myself a simple question: Could the ‘79 Oil Shock, and subsequent bout of stagflation, be better understood as a period of incipient hyperinflation? And if so, what lessons could it teach us about today? 

  

First, a bit of history:   

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Reprint: Wall Street’s Revenge On Hollywood

This post originally appeared in naked capitalism on April 18, 2010. At the time, debate was raging about a “futures market” for films, similar to the futures markets in other commodities. 

  

Traditionally, the way that the Wall Street-Hollywood relationship works is, Wall Street arrives in Hollywood with much pomp and circumstance, carrying boatloads of cash to invest in movies. Hollywood—delighted with this new money—steers Wall Street towards some “premiere” and “prestige” projects. Wall Street—like a wide-eyed rube—invests in these seemingly prestigious, supposedly top-tier project—and promptly loses all that fresh cash on these box office duds.

Wall Street screams and curses and moans and belly-aches, and finally gets back on the red-eye for JFK, broke and defeated. Hollywood, of course, stays behind in California, working on her tan as she waits for that sweet Arab money to come to town. Or maybe some shy German with a clever tax incentive will save the day. Or maybe some exotic Latin American cell-phone money will show up. Who knows who it will be—Hollywood doesn’t care. All Hollywood knows is, some new sucker will come to town, thinking he’s King of the World—another sucker just begging to be fleeced. 

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Reprint: “Systemic Contradictions”: The Eurozone De Facto Currency Peg, and the Death Spiral We Are Currently Witnessing

This originally appeared in naked capitalism on April 11, 2010—right smack in the middle of the Greek debt crisis. My basic point still stands: The euro is essentially a very complex currency peg among a group of disparate nations that happen to share a continent, but little else. And though the IMF and the EU put together a rescue package for Greece, the stresses and strains of that currency peg still remain.
  

Critics of free-market capitalism, especially of the Marxist persuasion, love talking about its “systemic contradictions”. Especially European critics—they adore using that steam-roller phrase: “systemic contradictions”. It sounds so thrillingly lapidary, so discussion-ending, so terminal. Nothing can escape its grasp, or the base indignity of it. “They will fail because of Systemic Contradictions!!”—like a cross between a nasty form of cancer, and some unmentionable venereal disease. And of course 100% fatal.

It’s ironic that European critics of free-market capitalism love that phrase—because it aptly describes the Europe of today, and the European monetary union that was hailed as the way of the future.

I would argue that, with the way things are going, it’s Europeans and their Eurozone which will soon be relegated to the dustbin of the past. Precisely because of its “systemic contradictions”.

The end of the Eurozone will be a tragedy—and I would argue, we are currently witnessing it.

Let’s review: 

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Why Paul Krugman Is An Imbecile—or a Fraud

Update I, below. Update II, below. 

  

There’s a saying in Spanish: Por la boca muere el pez. “A fish dies by its mouth.” Nobel economics laureate Paul Krugman has a recent op-ed piece in the New York Times which goes an awful long way to showing that he is a complete and utter imbecile—or the worst sort of cheap huckster imaginable. 

  

It is one or the other—there are no other alternatives. This wasn’t a casual blog where Krugman “misspoke”—this was a full-on editorial in the Sunday edition of the Times on Labor Day weekend. So what Krugman said was thought out, and dead serious—and so foolish or ridiculous (depending on your point of view) that he can no longer be taken seriously: 

  

In the piece, titled “1938 in 2010”, Krugman argues that 1938 was similar to 2010, in that the Federal governments’ stimulus program—then implemented by FDR—was insufficient to pull the country out of the Great Depression. Krugman argues that this is similar to what has happened to the Obama administration—Krugman has forever been arguing that the Obama stimulus package was “not enough”. 

  

This in itself is not objectionable—in fact, I think policy disagreements are a good thing. They lead to ultimately better solutions, if all sides of a policy debate allow that opposing sides might have very valid points. Krugman’s very valid point is, unemployment in the current Global Depression is severe—therefore, the quick-fix of fiscal stimulus might be best, in order to assuage people’s suffering. 

  

But then, in order to make his point that more stimulus is needed, Krugman crosses the line:

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Reprint: The Chilean Earthquake from a First Person Perspective

This post originally appeared on Zero Hedge on the morning of February 27, less than eight hours after the Great Chilean Quake of 2010. It certainly was a “Great Quake”—the second most intense earthquake ever in Chile, after the 1960 Valdivia Earthquake, which is acknowledged to have been the greatest earthquake in recorded history. 

Hello Gringos!

I've been under the weather for the last few days. So last night I went to sleep early, around 11pm.

Around 3:15am, I suddenly woke up, even though I usually sleep straight through until the dawn. There was no obvious reason to wake up at such an odd hour. Claire, my dog, was sound asleep. Out my window on the 15th floor of my building, all the buildings across from the Los Leones golf course were quiet.

But I was wide awake.

So finally, I decided to make the best of it—I got my laptop and surfed the net, wide awake, reading (of all things) about what the iPad might mean to newspaper publishing—when the earthquake hit.

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The Prosecution’s Case Against Alan Greenspan

Should Alan Greenspan, the former Chairman of the Federal Reserve Board (1987–2006), be tried for Crimes Against the Economy, put up against a concrete wall, handed a cigarette, offered a red blindfold, and then executed by firing squad?
  

“What, me worry?”

Yes—absolutely. No question. (And this coming from an anti-death penalty, anti-abortion Catholic.) Herewith, the case for the prosecution. 
  
There are four main charges against the so-called “Maestro”: 
  
One—Irresponsible Market Liquidity, Which Created Rampant Moral Hazard:
  
The Accused was instrumental in creating the pernicious policy mentality of “providing markets with necessary liquidity”—essentially, throwing money at every problem. 
  
This first started within days of Greenspan’s assuming the role of American central banker: The frenzy that caused the stock market crash of October 1987 was doused by Greenspan’s pledge to provide “all necessary liquidity, should the need arise”. This instantly soothed the markets as surely as a hit soothes a heroin junkie—within a few months, it was as if the panic had never happened. 

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