Riots & Rallies: RT picks biggest events of 2011

With the hours counting down to the New Year, and with celebrations gearing up in all corners of the world, we remember what made 2011. It was a year of rallies and uprisings, as people around the globe went out onto the streets to demand justice, freedom and economic equality.

Riots & Rallies: RT picks biggest events of 2011

The History of Austrian Economics | Dr. Israel Kirzner

The History of Austrian Economics, Part 1 | Dr. Israel Kirzner

The History of Austrian Economics, Part 2 | Dr. Israel Kirzner

Others

Competition and Entrepreneurship | Dr. Israel Kirzner

Beyond Efficiency | Dr. Israel Kirzner

Why Ron Paul Matters

The controversy surrounding decades-old newsletters to which GOP presidential aspirant Ron Paul lent his name is regrettable. First, it is regrettable because the sometimes bigoted, intolerant content of those newsletters is inconsistent with the views of the congressman as understood by those of us who know him. Yet, while Mr. Paul disavows supporting those ideas, he refuses to repudiate his close association with their likely source, Lew Rockwell, head of the Alabama-based Mises Institute.

Second, the New York Times editorialized recently that these unsavory writings "will leave a lasting stain on . . . the libertarian movement." That is wishful thinking on the part of the Times, but it adds to the background noise surrounding Mr. Paul's candidacy, obscuring the real libertarian policy initiatives that have made his candidacy the most remarkable development of the 2012 campaign.

Ron Paul's libertarian campaign has traction because so many Americans respond to his messages:

• Tax and spending. If ever there were sound and fury signifying nothing, it has to be the recent "debate" over the budget. Covered by the media as though it was negotiations on the Treaty of Versailles, the wrestling match between Republicans and Democrats centered on the nearly trivial question of whether the $12 trillion increase in the national debt over the next decade should be reduced by 3% or 2%.

Mr. Paul would cut the federal budget by $1 trillion immediately. He can't do it, of course, but voters sense he really wants to. As Milton Friedman once explained, the true tax on the American people is the level of spending—the resources taken from the private sector and employed in the public sector. Whether financed from direct taxation, inflation or borrowing, spending is the burden.

• Foreign policy and military spending. As the only candidate other than Jon Huntsman who says it is past time to bring the troops home from Afghanistan, Mr. Paul has tapped into a stirring recognition by limited-government Republicans and independents that an overreaching military presence around the world is inconsistent with small, constitutional government at home.

The massive cost of these interventions, in treasure and blood, highlights what a mistake they are, as sensible people on the left and right recognized from the beginning. Of course we want a strong military capable of defending the United States, but our current expenditures equal what the rest of the world spends, which makes little sense. It is futile to try to be the world's policeman—to try to create an American Empire as so many neoconservatives promote. And we can't afford it.

• Austrian economics. Mr. Paul is often criticized for references to what some consider obscure economists of the so-called Austrian School. People should read them before criticizing. Nobel laureate Friedrich von Hayek and his mentor Ludwig von Mises were two of the greatest economists and social scientists ever to live.

Modern Austrian School economists such as Lawrence H. White, now at George Mason University, and Fred Foldvary at Santa Clara University predicted the housing bubble and the recession that followed the massive, multitrillion-dollar malinvestment caused by government redirection of capital into housing. Mr. Paul, like Austrian School economists, understands that we would be better off with a gold standard, competing currencies or a monetary rule than with the arbitrary and discretionary powers of our out-of-control Federal Reserve.

Mr. Paul should be given credit for his efforts to promote these ideas and other libertarian policies, all of which would make America better off. He'd be the first to admit he's not the most erudite candidate to make the case, but surely part of his appeal is his very genuine persona.

Which is not to say that Mr. Paul is always in sync with mainstream libertarians. His seeming indifference to attempts to prevent Iran from obtaining nuclear weapons, his support for a constitutional amendment to deny birthright citizenship to children of illegal aliens, and his opposition to the Nafta and Cafta free trade agreements in the name of doctrinal purity are at odds with most libertarians.

As for the Ron Paul newsletters, the best response was by my colleague David Boaz when the subject was raised publicly in 2008. About them he wrote in the Cato Institute's blog:

"Those words are not libertarian words. Maybe they reflect 'paleoconservative' ideas, though they're not the language of Burke or even Kirk. But libertarianism is a philosophy of individualism, tolerance, and liberty. As Ayn Rand wrote, 'Racism is the lowest, most crudely primitive form of collectivism.' Making sweeping, bigoted claims about all blacks, all homosexuals, or any other group is indeed a crudely primitive collectivism. Libertarians should make it clear that the people who wrote those things are not our comrades, not part of our movement, not part of the tradition of John Locke, Adam Smith, John Stuart Mill, William Lloyd Garrison, Frederick Douglass, Ludwig von Mises, F. A. Hayek, Ayn Rand, Milton Friedman, and Robert Nozick. Shame on them."

Support for dynamic market capitalism (as opposed to crony capitalism), social tolerance, and a healthy skepticism of foreign military adventurism is a combination of views held by a plurality of Americans. It is why the 21st century is likely to be a libertarian century. It is why the focus should be on Ron Paul's philosophy and his policy proposals in 2012.

Continue reading - WSJ - Why Ron Paul Matters

GREAT INTERVIEW: 'Money Needs Laws' with Former Deutsche Bank CEO

As the former head of Deutsche Bank, Hilmar Kopper was once the most powerful banker in Germany. In an interview with SPIEGEL, the 76-year-old takes stock of his career and the current crisis shaking Europe. The three main constants he has seen in the world, he says, are "money, avarice and greed."

SPIEGEL: Mr. Kopper, to this day, you are still viewed as one of Germany's most accomplished financial professionals. When was the last time you were berated as a banker?

Kopper: Oh, it happens all the time. But sometimes people also ask for explanations. At any rate, I try to grapple with their accusations, even though they are often irrational, full of resentment and almost devoid of any knowledge about the subject. I am an old man and no longer have to worry about offending people. Of course, that doesn't mean that I have become the apologist of my profession. After all, I've been a banker for more than 55 years, and I still like doing it!

SPIEGEL: Then you ought to be worried, because resentment toward your industry now extends into the upper classes.

Kopper: Since when is the upper class a benchmark of judgment? I admit that banks haven't done everything well and correctly. There were excesses, like unnecessary financial products and false incentives. In short, mistakes were made, the kinds of mistakes that have been inherent in every innovation and every bubble from time immemorial, and that emerge when the bubble bursts. Everything has its price.

SPIEGEL: National lawmakers can hardly keep up with the pace of monetary transactions. And there are hardly any international controls.

Kopper: There was a promise of better international regulation. But this promise hasn't been kept, at least not until now. I certainly find fault with that. We mustn't forget that regulators, custodians and rating agencies also bear some responsibility.

SPIEGEL: Many of your active colleagues tend to duck away whenever someone asks for an explanation or even an opinion.

Kopper: I can understand the reluctance of my younger colleagues. The level of discussion is simply too flat. And then they're afraid of being asked the question: What have you yourself done? It resembles the question that my generation still asked its fathers: Where were you in this war?

SPIEGEL: People don't die in the financial crisis ...

Kopper: ... but values do -- in every sense of the word.

SPIEGEL: A letter bomb addressed to your successor, Josef Ackermann, was recently received at Deutsche Bank. That too is an expression of anger.

Kopper: Such actions have also taken place in the past. One shouldn't take this sort of thing so seriously, particularly as the people pulling the strings are apparently always willing to sacrifice the "wrong ones": secretaries, messengers, postal workers. But it also shows where the hatred that has been stirred up can lead. And besides, "the banker" as such doesn't really exist.

SPIEGEL: There's one sitting in front of us.

Kopper: I'm old school, so to speak. Often, when people are berating "the banks," they're really talking about completely different things: derivatives, commodities trading, foreign currency.

SPIEGEL: These are all businesses in which banks are involved.

Kopper: But usually just on behalf of pension funds, very large hedge and sovereign funds and wealthy investors. Never in the history of mankind has there been so much money in circulation, and never before was it possible to trade with it so quickly. And never before has this money used the entire planet as a playing field, as is the case today in the era of globalization. That's the way it is and the way it will remain. There can be no turning back the clock. How shortsighted people must be when they hold bankers responsible for this development!

SPIEGEL: Who do you think is primarily responsible for the crises?

Kopper: We're dealing with multi-causal failure. It didn't just start with the American central bank, the Federal Reserve, which permanently made money cheap after the attacks of Sept. 11, 2011. It was the declared goal of American policy, under Presidents Bill Clinton and George W. Bush, that every American was to own his own home. Many poor people, in particular, were lured in, people who couldn't afford this dream at all. The banks turned this into a huge business, the rating agencies provided incorrect ratings, and many countries -- both the United States and in Europe -- did not have their debt under control before the financial crisis erupted.

SPIEGEL: Do you have any sympathy for the new Occupy movement?

Kopper: Forgive me for being so direct, but I've hardly heard it utter a single reasonable sentence so far. It's all vague criticism of capitalism, markets and the market economy in general. I'm not interested in political correctness and I'm not about to pretend to have any sympathy for this movement now. It isn't just politicians of all stripes who have been doing this lately. No, I really don't understand the Occupy people.

SPIEGEL: It seems to us that the main problem is that many people don't even understand what the issues are that concern the European Central Bank (ECB), the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF) in the fight against swaps and bonds, and for bailout funds and leverage.

Kopper: Well, I can easily explain the leverage for increasing the size of the EFSF: What does a mother do when the doorbell rings and the relatives are standing outside? She goes into the kitchen, and you hear the sound of the water she is adding to the soup to make it last longer. That's how leverage works. It makes the soup thinner.

SPIEGEL: Comprehensibility would also create confidence.

Kopper: You know, I still receive a very small pension from the British government. I was a member of various boards of directors there, which meant I was automatically included in the social security system. It comes to about seven pounds a week. And whenever the amount is adjusted, I receive a wonderfully short and clear letter from the British government agency. We have to return to that in all respects. To comprehensibility. Then people will be enthusiastic.

SPIEGEL: There is actually money available to finance goods and services. But nowadays, it often simply generates more money.

Kopper: Whether you like it or not, the goal, everywhere and always, is to turn money into more money. What other purpose do foreign currency reserves have? In the past, they were truly intended to collateralize currencies like the deutsche mark. But today? The Bundesbank's gold is nothing more than a slice of the nation's assets and, at the same time, the basis for speculation. That's why politicians always want to get their hands on it.

SPIEGEL: Every year, real goods and services worth about $70 trillion (€54 trillion) are created worldwide. In the same time period, turnover on the foreign currency markets amounts to $1.007 quadrillion. The virtual world is completely disconnecting itself from reality.

Kopper: Of course this is seen as a discrepancy, which some like to connect to the demand that banks become more involved in the real economy and issue commercial loans. But that is precisely what they do, most of all.

Continue reading - SPIEGEL - Former Deutsche Bank CEO Hilmar Kopper: 'Money Needs Laws'

The Federal Reserve's Covert Bailout of Europe

America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.

The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.

Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.

The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.

The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.

The Fed's support is in addition to the ECB's €489 billion ($638 billion) low-interest loans to 523 euro-zone banks last week. And if 2008 is any guide, the dollar swaps will again balloon to supplement the ECB's euro lending.

This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.

The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)

No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement.

First, the Fed has no authority for a bailout of Europe. My source for that judgment? Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have "the intention or the authority" to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.

Second, these Federal Reserve swap arrangements foster the moral hazards and distortions that government credit allocation entails. Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better.

Third, the nontransparency of the swap arrangements is troublesome in a democracy. To his credit, Mr. Bernanke has promised more openness and better communication of the Fed's monetary policy goals. The swap arrangements are at odds with his promise. It is time for the Fed chairman to provide an honest accounting to Congress of what is going on.

Mr. O'Driscoll, a senior fellow at the Cato Institute, was vice president at the Federal Reserve Bank of Dallas and later at Citigroup.

Source: WSJ - The Federal Reserve's Covert Bailout of Europe

Iowa State Senator Kent Sorenson Endorses Ron Paul for President

Former Iowa chairman for U.S. Rep. Michele Bachmann pivots to Paul camp citing, “Ron Paul has established himself as the clear choice.”

ANKENY, Iowa – 2012 Republican Presidential candidate Ron Paul was endorsed today by Iowa State Senator Kent Sorenson (R-Indianola) in a major pivot that promises to give Paul extra momentum in the run-up to the January 3, 2012 Iowa Caucus.

In making his endorsement Sen. Sorenson is leaving his post as Iowa chairman for U.S. Rep. Michele Bachmann’s presidential campaign here. The resignation and endorsement take effect immediately.

“Congressman Paul is delighted to accept the endorsement of Senator Kent Sorenson, whose blessing and assistance carry a great deal weight in Iowa. The fact that he doesn’t take this decision lightly tells a great deal about the Senator and Ron Paul. This endorsement is a rare find and we hope it pushes us nearer to our goal of a strong top-three finish at the January caucus,” said Ron Paul 2012 National Campaign Chairman Jesse Benton.

Kent Sorenson was elected to the Iowa Senate in 2011 and represents District 37 after serving in the Iowa House of Representatives from 2009 to 2011, representing District 74. The senator is a member of several committees including the Judiciary, Natural Resources and Environment, and State Government committees. He is also the ranking member of both the Senate and Joint Oversight Committees and a member of the Advisory Council for Agricultural Education, the Family Development and Self-Sufficiency Council, and the Human Rights Board.

Senator Sorenson has been leader in the fight in defense of traditional family values, the sanctity of life, and a restoration of Second Amendment rights.

The full endorsement statement from Senator Sorenson follows.

Sorenson Statement

The decision I am making today is one of the most difficult I have made in my life. But given what's at stake for our country, I have decided I must take this action.

Today, I am switching my support from Michele Bachmann to Ron Paul for the 2012 Iowa Caucuses and the presidency of the United States.

I still maintain an immense amount of respect for Michele. The reasons are many. She’s never betrayed conservatives on issues like taxes, the Right to Life, and the Second Amendment. So over the past few months, I have been saddened at the dismissive way she's been treated among some conservatives especially after winning the Iowa Straw Poll.

But the fact is, there is a clear top tier in the race for the Republican nomination for President, both here in Iowa and nationally. Ron Paul is easily the most conservative of this group.

The truth is, it was an excruciatingly difficult decision for me to decide between supporting Michele Bachmann and Ron Paul at the beginning of this campaign. Dr. Paul and his supporters were a major help in my successful campaigns for Iowa House and Senate even when I couldn’t count on the support of the Republican establishment here in Iowa.

Of course, battling the establishment is nothing new for Dr. Paul or for myself. During my time in the General Assembly, I’ve established myself as a leader in the fights for traditional marriage, the Right to Life, and the protection of the Second Amendment – sometimes even against the wishes of my own party.

Since my election, I’ve learned that doing the right thing isn’t always easy. It’s easy to see why so many legislators “sell out” once elected. The pressure to do so is immense.

But what America needs now is a President who will not just “go along to get along.” Instead, we must send someone who puts doing what is right above all else to the White House. That candidate is Ron Paul.

Ron Paul is the only candidate to predict the current mess we find ourselves in economically, and he's the only candidate to offer a true plan to cut spending and balance our budget.

He's also consistently spoken out against government spending, assaults on individual liberties, and unnecessary trillion-dollar military adventurism for over 30 years. Polls show he is the Republican candidate that can take on and defeat President Obama in November 2012.

Like all true conservatives, I wholeheartedly agree with Ron Paul that government is too big, and both parties share in the blame. We agree that it is immoral to print money and pass on mounds of debt to the next generation. We agree that life begins at conception and must be protected. We both believe that the Second Amendment must be defended unwaveringly, and that there are too many wars being fought with no end in sight and no obvious path to a defined victory.

Of course, as a state legislator, I recognize that Dr. Paul's strong views on the 10th Amendment will enable me to fight for what I believe in right in my own backyard instead of having to constantly wait on one-size-fits-all "solutions" from Washington, D.C.

With the entire Republican establishment intent on smearing Ron Paul and his dedicated supporters, I understand this decision could impact the way people see me and my entire political career. But this is the right decision, and one in which I proudly stand behind.

To the truly wonderful people I met on the Bachmann campaign, I look forward to working with them in the future as we further the fights for the Right to Life, traditional marriage, and the restoration of our Second Amendment rights here in Iowa. I personally wish her all the best as she continues to battle in Congress.

As for conservatives who are rightly concerned with defeating establishment Republicans Mitt Romney, Newt Gingrich and – even more importantly – Barack Obama in 2012, Ron Paul has established himself as the clear choice.

If you are as frustrated as I am with what's been done by the ruling class, I urge you to join me in supporting Dr. Paul. We can send the national big government political establishment a message they will never forget by voting for Ron Paul for President in the January 3 Iowa Caucuses.

Source: TIME - Iowa State Senator Kent Sorenson Endorses Ron Paul for President

Kent Sorenson on CNN discussing his switch from Bachmann to Paul

Mitt Romney: I’ll Vote For Ron Paul if He’s the Nominee – Dec 28 2011

Ron Paul Ad - Washington Machine

The Compassion of Dr. Ron Paul

Survival Guide For Citizens In A Revolution 1.0 | Anonymous

Anonymous Survival Guide for Citizens in a Revolution

Tim Harford: Trial, error and the God complex

Economics writer Tim Harford studies complex systems -- and finds a surprising link among the successful ones: they were built through trial and error. In this sparkling talk from TEDGlobal 2011, he asks us to embrace our randomness and start making better mistakes.

Tim Harford: Trial, error and the God complex

Ron Paul: The Movie

In an age of shameless hypocrisy
where all still swear allegiance to a Constitution
they have no intention to obey...

One man has stood for decades
against the tides of corruption...
Often he has stood alone...
No more.

Ron Paul: The Movie

How Physics Got Weird

Quantum physics has never been more topical. Schrödinger's "dead and alive" cat has entered popular lore, parallel universes have emerged from science fiction to become part of serious scientific speculation, and quantum computers offer the prospect of a leap forward as great again as the leap from the abacus to the classical computer itself. Quantum physicists have even achieved teleportation—although as yet only of photons, not people. So the time is very much ripe for a collection pulling together many of the great scientific papers of the 20th century that comprised the quantum revolution. There have been similar collections before (notably John Wheeler and Wojciech Zurek's 1983 "Quantum Theory and Measurement"), but with Stephen Hawking's name attached, the latest version is likely to reach a much wider audience than its predecessors.

Prospective readers should be warned, though, that the contents are not for the faint-hearted. They are the real thing, written by such luminaries as Max Planck, Albert Einstein, Werner Heisenberg and Erwin Schrödinger, and presented more or less as they were originally published, though with the benefit of introductions setting each section in context. There has been some judicious editing (and some I regard as injudicious, such as the savage cutting of the paper in which Schrödinger published his famous puzzle, in which an unseen cat is paradoxically both alive and dead), but there is very little here that would be an easy read for anyone without a degree in physics. But if you have either the stamina to plow through the whole story, or the inclination to dip in for favorite nuggets, this is the place to find the history behind much of the research making headlines today.

The story starts with Planck's discovery at the beginning of the 20th century of the mathematical law that describes the nature of the radiation emitted by an object as it is heated (bizarrely known as "black body" radiation)—a result that also established that light and other forms of energy came in discrete units (the "quanta" from which the subject takes its name). The collection proceeds through Einstein's 1905 proof that "particles of light"—later dubbed photons—were real, to the application of these ideas to atomic physics and the revelation in the 1920s that the quantum world is stranger than anything that had been imagined.

The discovery of wave-particle duality in 1924 (by Louis de Broglie) and quantum uncertainty in 1927 (by Heisenberg) made quantum physics as much a branch of philosophy as science, stirring arguments that continue to the present day about how to interpret what the equations are telling us. Is it really possible that quantum systems—perhaps even cats—exist in a state of unreality until we look at them and force them to take on one configuration or another? Or are there many, perhaps infinitely many, different realities, in which all possible outcomes of quantum choices are played out simultaneously (the so-called "many worlds" hypothesis)? Is it possible that instantaneous communications link quantum entities across vast spaces, so that actions affecting one particle also instantaneously change the characteristics of a distant counterpart? (Though Einstein called this unsettling prospect "spooky action at a distance," the answer is "yes"; experiments have proved it.)

Against this philosophical debating, hard-core physicists such as Richard Feynman (who is represented here not just by a paper on the work for which he received the Nobel Prize but by his science-fiction-like suggestion that the particles known as positrons are electrons traveling backward in time), Sin-Itiro Tomonaga and Julian Schwinger ignored the philosophy and got on with solving the equations—after they had found the right ones to solve—coming up with a complete, unified description of everything in the universe except gravity. Bringing gravity into the quantum fold remains the Holy Grail of physicists.

There are two serious omissions from the book, which shows signs of having been put together hastily, and one bizarre inclusion. Louis de Broglie's paper introducing the idea that electrons could be treated as waves (which impressed Einstein and led Schrödinger to his Nobel-winning work on quantum theory) is conspicuous by its absence, as is the 1957 paper by Hugh Everett that made the "many worlds" idea, which remains the best resolution of the Schrödinger's cat puzzle, part of mainstream science.

Of course, something has to give, even in a volume this size, but space for these ideas could be found by leaving out the extract from a popular book by George Gamow, which no more deserves a place here than an extract from, say, Mr. Hawking's "A Brief History of Time." It is also inexcusable in a book of this kind to have no index or guide to further reading. And I may be a pedant, but if you are going to use a Shakespeare quotation in the title of a book, you should get it right: The words Shakespeare put in the mouth of Prospero at the end of "The Tempest" are actually "We are such stuff as dreams are made on; and our little life is rounded with a sleep."

That said, on balance "The Dreams That Stuff Is Made Of" is a welcome addition to the quantum library. At $30, it is remarkably good value; but do not be sucked in by the publisher's claim that it "introduces the nonscientific reader to the mind-bending world of quantum physics." Approach this with no knowledge of science and your mind may well get bent, but you are unlikely to get much insight into what is going on.

Source: WSJ - Book Review: The Dreams That Stuff Is Made Of

Fed’s Once-Secret Data Released to Public

Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form.

To download a zip file of the spreadsheets, go to http://bit.ly/Bloomberg-Fed-Data. For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”

The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history.

“Scholars can now examine the data and continue the analysis of the Fed’s crisis management,” said Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh and the author of three books on the history of the U.S. central bank.

The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO.

Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information, Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data.

Additional Data

The Fed later supplied additional data to fill in gaps in its initial response. Bloomberg News is updating an interactive graphic it first published in August to add the new information.

Congress required the Fed to post data to its website in December 2010 on six broad-based programs, its assistance to Bear Stearns Cos. and American International Group Inc. (AIG) and more general information on its mortgage-backed securities purchases and so-called foreign-currency liquidity swaps. Those data were presented in spreadsheets that made it difficult to gauge how much individual banks were borrowing from the various programs on any given day.

Some reported totals from media outlets and government studies varied widely. In connection with today’s release, here’s a by-the-numbers explanation of the variations:

$1.2 trillion -- The Fed’s actual lending to banks and financial companies at its single-day peak, Dec. 5, 2008, through the seven programs Bloomberg News studied in depth.

Emergency measures that targeted specific companies -- Bear Stearns, AIG, Citigroup Inc. and Bank of America Corp. -- were excluded from Bloomberg’s analysis because they were previously disclosed. Loans to these companies from the other seven programs were included.

Bloomberg excluded foreign-currency liquidity swaps because names of commercial banks that borrowed under the program haven’t been disclosed to the public.

Continue reading - Bloomberg - Fed’s Once-Secret Data Released to Public

China's Real Estate Bubble May Have Just Popped

For years analysts have warned of a looming real estate bubble in China, but the predicted downturn, the bursting of that bubble, never occurred -- that is, until now. In a telling scene two months ago, Shanghai property developers started slashing prices on their latest luxury condos by up to one-third. Crowds of owners who had recently bought apartments at full price converged on sales offices throughout the city, demanding refunds. Some angry investors went on a rampage, breaking windows and smashing showrooms.

Shanghai homeowners are hardly the only ones getting nervous. Sudden, steep price reductions are upending real estate markets across China. According to the property agency Homelink, new home prices in Beijing dropped 35 percent in November alone. And the free fall may continue for some time. Centaline, another leading property agency, estimates that developers have built up 22 months' worth of unsold inventory in Beijing and 21 months' worth in Shanghai. Everyone from local landowners to Chinese speculators and international investors are now worrying that these discounts indicate that "the biggest bubble of the century," as it was called earlier this year, has just popped, with serious consequences not only for one of the world's most promising economies -- but internationally as well.

What makes the future look particularly bleak is the lack of escape routes. If Chinese investors panic and rush for the exits, they will discover that in a market awash with developer discounts, buyers are very hard to find. The next three months will be a watershed moment for a Chinese investor class that has been flush with cash for years but lacking a place to put it. Instead of developing a more balanced, consumer-based economy, an entire regime of Beijing technocrats -- drunk on investment-led growth -- let the real estate market run red hot for too long and, when forced to act, lacked the credibility to cool the sector down. That failure threatens to undermine the country's continued economic rise.

Real estate woes are already sending shockwaves through China's broader economy. Chinese steel production -- driven in large part by construction -- is down 15 percent from June, and nearly one-third of Chinese steelmakers are now losing money. Chinese radio reports that half of all real estate agents in the southern city of Shenzhen have closed up shop. According to Centaline, more than 100 local government land auctions failed last month, and land sale revenues in Beijing are down 15 percent this year. Without them, local governments have no way to repay the heavy loans they have taken out to fund ambitious infrastructure projects, or the additional loans they will need to keep driving GDP growth next year.

In a few cities, such as coastal Wenzhou and coal-rich Ordos, the collapse in property prices has sparked a full-blown credit crisis, with reports of ruined businessmen leaping off building rooftops; some are fleeing the country. The central bank's decision on December 5 to lower the reserve requirement ratio for the first time in three years signaled a broader move to pump money into the economy. Beijing has directed banks in Wenzhou to extend emergency loans to troubled borrowers. Of course, officials could halt the sell-off simply by handing developers enough cheap loans to allow them to carry their inventory. But such a strategy risks re-inflating the bubble.

The impact of a housing downturn would have a significant impact globally. International suppliers who have been fueling China's construction boom -- iron-ore miners in Australia and Brazil, copper miners in Chile, lumber mills in Canada and Russia, and multinational equipment makers such as Caterpillar and Komatsu -- could be hard hit. Heavy losses on real estate and related lending could damage investment and consumer confidence, undermining the rising tide of Chinese demand that has been a much-needed growth engine for everything from Boeing airplanes to Volkswagen and GM automobiles to KFC and McDonald's fast food.

Understanding how this came to pass means parsing the host of distortions and mind games that characterize China's real estate market. Residential real estate construction now accounts for nearly ten percent of the country's total GDP -- four percentage points higher than it did at the peak of the U.S. housing bubble in 2005. Bullish analysts have long argued that large-scale urbanization and rapidly rising incomes warrant such an extraordinary boom.

But new urban residents are not the immediate drivers of China's recent run-up in real estate. Chinese investors, large and small, are the ones creating the market. For more than a decade, they have bet on longer-term demand trends by buying up multiple units -- often dozens at a time -- which they then leave empty with the belief that prices will rise. Estimates of such idle holdings range anywhere from 10 million to 65 million homes; no one really knows the exact number, but the visual impression created by vast "ghost" districts, filled with row upon row of uninhabited villas and apartment complexes, leaves one with a sense of investments with, literally, nothing inside.

The craze for vacant real estate is due in large part to a lack of attractive alternatives. Strict controls on capital outflows prevent most Chinese citizens from investing any real money abroad. Chinese bank deposits earn very low interest rates -- lower, for the past year now, than the rate of consumer inflation. The public sees the country's domestic stock exchanges, which have endured volatile ups and downs over the last few years, as little more than high-risk casinos. In contrast, real estate, which has not seen a sustained downturn since China first converted to private homeownership in the 1990s, has long looked like a sure bet.

Beijing's response to the global financial crisis added jet fuel to the fire. To maintain GDP growth of nearly ten percent during a massive downturn in global demand, China's leaders engineered a lending boom that expanded the country's money supply by roughly two-thirds. Real estate was already the preferred place for the Chinese to stash cash; now, investors had that much more cash to stash. Prices rose accordingly: In many locations, the cost of prime new properties doubled in just two years.

But this run of speculation has bid up the price of housing and left people who actually need a place to live in the lurch. Given the prices prevailing earlier this spring, the average wage earner in Beijing would have had to work 36 years to pay for an average home, compared to 18 years in Singapore, 12 in New York, and five in Frankfurt. The bidding war has further pushed developers to build ever more costly luxury properties that investors crave but few ordinary people can afford.

By the spring of 2010, China's leaders were growing increasingly worried that skyrocketing prices were sowing the seeds of social unrest. In response, Beijing imposed a series of cooling measures to rein in speculative demand. These included a stipulation for larger down payments, tougher qualifications for mortgages, residency requirements for home purchasers, and limits on the number of units a family could buy. Although these restrictions were mainly confined to Beijing and Shanghai, where central authorities hold the greatest sway, they were meant to send a clear signal that China's leaders wanted property prices to level off.

Real estate developers, however, believed they had seen this movie before. They had witnessed earlier cooling campaigns, as recently as early 2008. Each lasted a few months before reverting back to business as usual. Local governments depend on a healthy real estate market to generate revenue from land sales (as the state owns the land), and property development has long been a key driver of the GDP growth that the central government both demanded and prized. Let them see the effects of a slowdown, developers figured, and China's leaders would rush back in to support the sector. They always had before.

So the property developers bet against cooling. They continued borrowing and building, even in the face of a relatively soft and uncertain market. Until that point, Chinese developers had been able to move everything they built, usually pre-selling it before it was finished. But starting in the late spring of 2010, they began piling up substantial stocks of unsold inventory, for the day when the government would, so they thought, relent and demand would come surging back.

Because the industry kept on building, there has been no negative impact on GDP. Real estate investment has continued growing at nearly 30 percent annually. But inflation began to rise from 1.5 percent in January 2010 to a peak of 6.5 percent in July 2011, and authorities began to sweat. They broadened their cooling efforts. The central bank tightened credit expansion, and China's economy began to slow. As 2011 progressed, developers scrambled for new lines of financing to keep their overstocked inventories. They first relied on bank loans (until they were cut off), then high-yield bonds in Hong Kong (until the market soured), then private investment vehicles (sponsored by banks as an end run around lending constraints), and finally, in some cases, loan sharks. By the end of last summer, many Chinese developers had run out of options and were forced to begin liquidating inventory. Hence, the price slashing: 30, 40, and even 50 percent discounts.

The biggest unanswered question is whether existing investors -- the people holding all those sold but empty "ghost" condos and villas -- will join in the sell-off, which could turn the market's retreat into a rout. So far, that has not materialized. Unlike highly leveraged developers, most multi-home buyers invested their own money and do not face the same immediate pressures to sell. However, their willingness to hold idle properties depends on real estate's reliability as a store of value -- a rationale that seems to be disintegrating before home buyers' eyes. While pre-owned home prices in Beijing fell only three percent last month, transaction volumes there and in other cities have plummeted (down 50 percent year on year in Shenzhen, 57 percent in Tianjin, and 79 percent in Changsha), suggesting that many owners would like to sell -- so long as it is not at a loss -- but are having trouble finding buyers. Would-be residents, who once felt pressured to buy before prices rose even further, now prefer to wait and look around for a better deal.

In recent weeks, a growing chorus has called on the government to lift restrictions on multiple home purchases -- revealing, when push comes to shove, just how much the market has come to depend on investor, rather than end-user, demand. But both types of demand depend, in their own way, on the assumption of ever-rising prices. Unless that assumption can somehow be restored, neither looser regulation nor looser lending will persuade the Chinese to pile back into property. Just as elsewhere, China's monetary authorities may find themselves, as it's said, pushing on a string of unwilling demand.

Ironically, as Chinese investors start pulling their money out of property, many are putting it into bank- and trust-sponsored "private wealth management" vehicles that promise high fixed rates of return but channel the proceeds into investments -- like real estate developers and local government bonds -- whose returns are themselves predicated on ever rising property prices. Many fear this repackaging of real estate risk is laying the foundation for a follow-on crisis that some are labeling the Chinese equivalent of Wall Street's collateralized-debt-obligation mess.

While frightening, the popping of China's real estate bubble is not all bad news. Cheaper, more affordable housing could also unlock the savings of China's working-class families, unleashing greater consumer demand and helping to rebalance the global economy. Investment long bottled up in idle real estate could flow to more productive pursuits. These adjustments have been put off too long. This is why at least some of China's leaders appear determined to force a correction despite the risks. But they know they are walking a razor's edge.

Source: China's Real Estate Bubble May Have Just Popped

Apart from Universes | David Deutsch

An excerpt contained in Many Worlds? Everett, Quantum Theory, and Reality

Apart from Universes - David Deutsch
Apart from universes - David Deutsch from Philosophy of Physics on Vimeo.

What Would John Maynard Keynes Tell Us To Do Now?

Half a decade has passed since the bursting of a huge asset-price bubble, and the U.S. economy is still depressed. More than ten million Americans are jobless, and many more are working part time. The gross domestic product has yet to recover its pre-bust level. In Florida and other areas where the speculative frenzy ran hot, vast developments stand empty. Overseas, things are no better, and in some places they’re worse. Britain looks much like America. In Continental Europe, a debt crisis is wreaking havoc. Democratically elected governments appear powerless to turn things around. Political extremism is on the rise.

So conditions are grim when, on New Year’s Day, 1935, the English economist John Maynard Keynes mails a letter to George Bernard Shaw. “I believe myself to be writing a book on economic theory which will largely revolutionize—not, I suppose, at once but in the course of the next ten years—the way the world thinks about economic problems,” Keynes tells his friend. “I can’t expect you, or anyone else, to believe this at the present stage. But for myself I don’t merely hope what I say,—in my own mind, I’m quite sure.” Keynes is right. When “The General Theory of Employment, Interest and Money” appears, in February, 1936, it provides an intellectual justification for the large-scale public-works programs that Keynes has been advocating for years, and that F.D.R.’s Administration has recently launched as part of the New Deal. Keynes argues against the idea that the economy will recover on its own, and in favor of active measures—the manipulation of public expenditures, taxes, and interest rates—to spur growth and employment. His theory will become the keynote of a new era of economic policymaking. The main impediment to such policies, Keynes writes, is the lingering influence of outmoded theories:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

Today, some regard Keynes himself as that academic scribbler, entrancing a generation of mindless followers. For many others, he’s the economist whose sweeping theory, shaped by a Great Depression, remains the surest guide out of our current woes. In the wake of the global financial crisis of 2007-09, President George W. Bush and President Barack Obama both launched tax-relief and spending initiatives designed to stimulate growth. Nicolas Sarkozy, in France, and Gordon Brown, in Britain, proclaimed the end of the free-market era. We were all Keynesians, and knew it—for about five minutes.

In 2010, Britain’s new government turned away from expansionary policies and introduced major budget cuts, making arguments that harked back to Keynes’s opponents in the nineteen-thirties, such as Friedrich Hayek, an Austrian economist who taught at the London School of Economics. Soon Greece, Ireland, and other debt-burdened European countries were launching ever more Draconian austerity programs. On this side of the Atlantic, with unemployment remaining stubbornly high, conservative economists insisted that the Keynesian medicine had failed to cure the patient and had perhaps even worsened the disease—an argument seized upon by Republican politicians.

“Keynesian policy and Keynesian theory is now done,” Governor Rick Perry, of Texas, declared during a Republican Presidential candidates’ debate last month. “We’ll never have that experiment on America again.” The following night, however, President Obama proposed what, in all but name, was another Keynesian stimulus package: a four-hundred-and-fifty-billion-dollar jobs program, consisting of tax cuts and increases in federal spending.

Seventy-five years after the publication of “The General Theory,” there is a fierce and consequential argument about what, in Keynes’s economic theory, is living and what, as Perry would have it, is “done.” Has the global economy’s stuttering progress since 2008 demonstrated the limitations of Keynesian policies—or the dangers of abandoning them prematurely?

The publishing industry, at least, has been bullish on Keynes in the past few years. Robert Skidelsky, the author of a monumental three-volume Keynes biography, responded to the financial crisis with a new primer titled “Keynes: The Return of the Master.” Another eminent English historian, Peter Clarke, followed up with “Keynes: The Rise, Fall and Return of the 20th Century’s Most Influential Economist,” while new collections on Keynes and Keynesianism have appeared from Cambridge University and M.I.T. This fall, there is “Capitalist Revolutionary: John Maynard Keynes,” by Roger E. Backhouse, an economic historian at the University of Birmingham, and Bradley W. Bateman, an economist at Denison University; “Keynes Hayek: The Clash That Defined Modern Economics,” by the British journalist Nicholas Wapshott; and “Grand Pursuit,” a history of economics by Sylvia Nasar, the author of “A Beautiful Mind,” which devotes many pages to Keynes and his contemporaries.

So what was the core of his message? Before the Great Depression, most economists adhered to a Newtonian conception of the economy as a self-correcting system. When the economy entered a slump, businesses laid off workers and shut down factories—but these negative trends contained their own remedy. The trick was to look at price changes. Unemployment drove down wages (the price of labor) until firms found it profitable to start hiring again. Idling factories drove down interest rates (the price of borrowing) until entrepreneurs found it worthwhile to take out loans and re-start production. Before very long, prosperity would be restored. Attempts to hasten this process were liable to interfere with the natural forces of adjustment and make things worse. As Hayek wrote in “Prices and Production” (1931), “The only way permanently to ‘mobilize’ all available resources is . . . not to use artificial stimulants—whether during a crisis or thereafter—but to leave it to time to effect a permanent cure.”

In “The General Theory,” Keynes took aim at this view of the world. His central insight was that the economy was driven not by prices but by what he called “effective demand”—the over-all level of demand for goods and services, whether cars or meals in fancy restaurants. If car manufacturers perceived that the demand for their products was lagging, they wouldn’t hire new workers, however low wages fell. If a restaurateur had vacant tables night after night, he would have no incentive to borrow money and open a new venture, even if his bank was offering him cheap loans. In such a situation, the economy could easily remain stuck in a rut, until some outside agency—the government was Keynes’s favored candidate—intervened and spurred spending. Only then would private businesses be emboldened to expand production and hire workers.

Nasar, in her capacious and absorbing book, makes the key point well:

What made the General Theory so radical was Keynes’s proof that it was possible for a free market economy to settle into states in which workers and machines remained idle for prolonged periods of time. . . . The only way to revive business confidence and get the private sector spending again was by cutting taxes and letting business and individuals keep more of their income so they could spend it. Or, better yet, having the government spend more money directly, since that would guarantee that 100 percent of it would be spent rather than saved. If the private sector couldn’t or wouldn’t spend, the government would have to do it. For Keynes, the government had to be prepared to act as the spender of last resort, just as the central bank acted as the lender of last resort.

For three decades after the Second World War, Keynes’s theory provided the framework for policymaking on both sides of the Atlantic. The West enjoyed a time of rapid growth and rising standards of living, and although it would be simplistic to ascribe these trends solely to the prescriptions of policymakers, economists who balked at Keynesian doctrine were often cast aside.

Three-quarters of a century later, Keynes’s notion of “effective demand,” now usually called “aggregate demand,” is still a mainstay of policymaking around the world. Whenever the economy stumbles and unemployment starts climbing, discussion inevitably centers on what can be done to boost spending and investment. Few economists, on the left or the right, seriously advise the government to sit on its hands and let the price system work its magic. Rather, the conversation turns on what methods the authorities should use to stimulate the economy, besides cutting interest rates. Liberal economists, like Paul Krugman and Joseph Stiglitz, usually favor infrastructure spending. Conservative economists, like Greg Mankiw and Glenn Hubbard, tend to prefer tax cuts. But neither group questions the need for the government to step in and bolster demand.

In the course of his career, Keynes advocated tax cuts and interest-rate cuts, but he didn’t limit himself to those measures. During the nineteen-twenties, when the unemployment rate reached double figures, and British monetary policy was hamstrung by the gold standard, Keynes called for additional spending on public housing, roadworks, and other civic projects. “Let us be up and doing, using our idle resources to increase our wealth,” he wrote in 1928. “With men and plants unemployed, it is ridiculous to say that we cannot afford these new developments. It is precisely with these plants and these men that we shall afford them.”

With the onset of the Great Depression, Keynes stepped up his calls for action. But, as outlays on unemployment benefits increased and tax revenues declined, the budget deficit ballooned, generating alarm at His Majesty’s Treasury. In the summer of 1931, the government made deep spending cuts, intending to restore confidence in government finances. Keynes warned that the effect would be to worsen the slump, throwing more people out of work. He said that budget deficits were a by-product of recessions, and that they served a useful purpose: “For Government borrowing of one kind or another is nature’s remedy, so to speak, for preventing business losses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill.”

As the Depression deepened, seeming to confirm his warnings, Keynes sharpened his theoretical arguments. In 1933, drawing on an article by his student Richard Kahn, he made the case that one dollar of additional government spending—on a new railway station, say—could ultimately generate two dollars, or even more, in additional output and income. This was the so-called “multiplier” effect. As the unemployed were set to work on public projects, he reasoned, they would spend their wages on other goods and services, which would prompt businesses to take on more workers. Those workers, in turn, would spend more, leading to further hiring, and so on. What’s more, all of these newly employed workers would be paying taxes, which would bring down the budget deficit. “It is a complete mistake to believe that there is a dilemma between schemes for increasing employment and schemes for balancing the Budget,” Keynes wrote. “There is no possibility of balancing the Budget except by increasing the national income, which is much the same thing as increasing employment.”

In Keynes’s day, many people—including politicians sympathetic to Keynes—were suspicious of the multiplier. The whole thing smacked of sophistry. Wapshott, in a long overdue and well-researched book that usefully gathers together much hitherto scattered information, recounts Keynes’s 1934 visit to the White House, where he expounded the logic of the multiplier to F.D.R. After he left, Roosevelt remarked to Frances Perkins, his Labor Secretary, “I saw your friend Keynes. He left a whole rigmarole of figures. He must be a mathematician rather than a political economist.” Despite the enormous public-works projects of the New Deal, F.D.R. didn’t formally adopt deficit spending as a policy tool. Indeed, he kept a keen eye on the red ink. In 1937, with the economy on the mend, he ordered tax hikes and spending cuts, which caused the economy to crater again. President Truman was even more suspicious of Keynesian theorizing. “Nobody can ever convince me that Government can spend a dollar that it’s not got,” he told Leon Keyserling, a Keynesian economist who chaired his Council of Economic Advisers. “I’m just a country boy.”

The multiplier continues to spark controversy. Echoing the arguments that Keynes’s opponents at the Treasury made during the nineteen-thirties, conservative economists like Robert Barro, at Harvard, argue that it is close to zero: for every dollar the government borrows and spends, spending elsewhere in the economy falls by almost the same amount. Whenever individuals see the government boosting spending or cutting taxes on a temporary basis, Barro maintains, they figure that these policies will eventually have to be paid for in the form of higher taxes. As a result, they set aside extra money in savings, which cancels out the stimulus.

Barro’s caution may apply in certain conditions—say, a highly indebted economy with close to full employment. It’s certainly true that the Keynesian multiplier varies according to how stimulus funds are spent; how the central bank reacts to higher government spending (if it raises interest rates, interest-sensitive spending will fall, reducing the multiplier); and, most important, whether workers and machinery are lying idle. But Keynes didn’t advocate deficit spending for an economy at full employment. It was only when the economy was in a deep slump, he thought, that higher output “could be provided without much change of price by home resources which are at present unemployed.”

This jibes with history. Immediately before and during the Second World War, the U.S. government borrowed unprecedented sums to finance the military buildup, and the economy finally recovered from the Great Depression. In 1937, one in seven American workers was jobless; in 1944, one in a hundred was. A wartime economy may present a special case, but a recent working paper published by the National Bureau of Economic Research looked at data going back to 1980 and found that government investments in infrastructure and civic projects had a multiplier of 1.8—pretty close to Keynes’s estimate.

So why didn’t the Obama Administration’s 2009 stimulus package usher in a true recovery? Keynes would have pointed out that, with households and firms intent on paying down debts and building up their savings in the aftermath of a credit binge, large-scale deficit spending is needed merely to prevent a recession from turning into a depression. With interest rates already close to zero, Keynes would have argued that the economy was stuck in a “liquidity trap,” greatly limiting the Federal Reserve’s scope for further action. He would also have noted that the stimulus was—especially compared with the devastation it meant to address—rather small: equivalent to less than two per cent of G.D.P. a year for three years. Even this overstates its magnitude, given that much of the increase in federal spending was offset by budget cuts at the state and local levels. In its totality, government spending didn’t increase much at all. Between 2007 and the first half of this year, it rose by about three per cent in real dollars.

Besides, recovering from a financial meltdown requires more than government spending: the banking system has to be recapitalized (in the nineteen-nineties, Japan’s cash-hoarding “zombie banks” were a drag on its stimulus programs); bad debts have to be written down; sector-specific problems must be addressed. Following the crisis of 2008, both the Bush and the Obama Administrations moved promptly to shore up the banking system, but they neglected to deal with the housing debacle. A more effective mortgage-modification program for homeowners who are under water on their loans would have helped. In 2009, when the Obama Administration launched a refinancing program, it predicted that between three and four million people would get some relief, but so far fewer than one million mortgages have been modified. The lingering effects of the housing crisis continue to weigh down the rest of the economy.

Finally, Keynes would have directed our attention to international problems. A confirmed internationalist, Keynes would undoubtedly have supported the head of the Chinese central bank’s call, in 2009, for the creation of a new global reserve currency to be issued and controlled by the International Monetary Fund. (Keynes proposed almost precisely the same thing in 1944, at Bretton Woods, where he helped design a new international economic system, but the Americans ruled it out.) The rationale is that if the issuer of the reserve currency acts irresponsibly, the rest of the world is at its mercy, so it might be better to have an international currency that no single country controls. For now, the Chinese proposal has gone nowhere; the world’s focus is elsewhere. But, as the Asian economies continue their rise, it is sure to come back onto the agenda.

And Keynes would have had strong views about the European sovereign-debt crisis. The U.K. economy of his day, like the current U.S. economy, was dependent on global capital flows, and Keynes knew what excessive government debts could do to an economy. In 1919, he was an adviser to the British delegation at the peace talks in Paris, which saddled Germany and Austria with crushing debts. Outraged by this Carthaginian settlement, he wrote his first best-seller, “The Economic Consequences of the Peace,” warning that the Versailles Treaty would prove disastrous for the victors as well as for the defeated. Today, he would be advocating major debt write-downs for countries like Greece and Portugal. The so-called “rescue packages” that these nations have received in recent years have barely reduced their debt, while the austerity policies imposed on them have plunged their economies deeper into the abyss, exactly as Keynesian theory would predict.

Indeed, these days the strongest evidence for Keynesianism has been negative. The recent slowdown in the U.S. economy occurred just as Obama’s 2009 stimulus package was running dry. The U.K. economy provides an even more striking case study. As in this country, the authorities reacted to the 2008 financial crisis by cutting interest rates, boosting public expenditure, and allowing the budget deficit to rise sharply. In 2009 and in the first part of 2010, the economy began to recover. But since the middle of last year, when the Conservative-Liberal coalition announced substantial budget cuts to balance the budget, growth has virtually disappeared. “The reason the current strategy will fail was succinctly stated by John Maynard Keynes,” Robert Skidelsky and the economist Felix Martin wrote in the Financial Times recently. “Growth depends on aggregate demand. If you reduce aggregate demand, you reduce growth.”

Continue reading - What Would John Maynard Keynes Tell Us To Do Now?

CHINA REVOLT - Inside Wukan: the Chinese village that fought back

For the first time on record, the Chinese Communist party has lost all control, with the population of 20,000 in this southern fishing village now in open revolt.

The last of Wukan’s dozen party officials fled on Monday after thousands of people blocked armed police from retaking the village, standing firm against tear gas and water cannons.

Since then, the police have retreated to a roadblock, some three miles away, in order to prevent food and water from entering, and villagers from leaving. Wukan’s fishing fleet, its main source of income, has also been stopped from leaving harbour.

The plan appears to be to lay siege to Wukan and choke a rebellion which began three months ago when an angry mob, incensed at having the village’s land sold off, rampaged through the streets and overturned cars.

Although China suffers an estimated 180,000 “mass incidents” a year, it is unheard of for the Party to sound a retreat.

But on Tuesday The Daily Telegraph managed to gain access through a tight security cordon and witnessed the new reality in this coastal village.

Thousands of Wukan’s residents, incensed at the death of one of their leaders in police custody, gathered for a second day in front of a triple-roofed pagoda that serves as the village hall.

For five hours they sat on long benches, chanting, punching the air in unison and working themselves into a fury.

At the end of the day, a fifteen minute period of mourning for their fallen villager saw the crowd convulsed in sobs and wailing for revenge against the local government.

“Return the body! Return our brother! Return our farmland! Wukan has been wronged! Blood debt must be paid! Where is justice?” the crowd screamed out.

Wukan’s troubles began in September, when the villagers’ collective patience snapped at an attempt to take away their land and sell it to property developers.

“Almost all of our land has been taken away from us since the 1990s but we were relaxed about it before because we made our money from fishing,” said Yang Semao, one of the village elders. “Now, with inflation rising, we realise we should grow more food and that the land has a high value.”

Continue reading - Telegraph - Inside Wukan: the Chinese village that fought back