Currency War

For the past few years the US and other nations have accused China of currency manipulation. What they are talking about is China buying US government debt (aka buying dollars) to prop up the value of the dollar and keep their currencies deflated. How does this work? When governments' buy US debt they do it in dollars. Since only the US government may print dollars, these governments must buy dollars with their own currency. This decreases the supply of dollars in global circulation and increases the amount of their currency in circulation. When demand increases and supply decreases, costs go up. In this case it is the cost of buying that currency, i.e. the exchange rate. Conversely, the value of the country's own currency (the currency used to buy dollars) decreases.

Why is this a problem? When a country devalues its own currency it makes its products relatively less expensive in foreign markets because it now costs fewer dollars to reach the purchase price in the foreign currency. This makes the foreign goods more attractive to the consumers in those countries. It instantly makes these foreign goods and services more competitive. Unfortunately, this also means that the citizens purchasing power of US made goods decreases, since their earnings are in the now devalued currency. So a currency manipulator lowers the purchasing power of its own citizens, but promotes local business and employment over foreign ones. Devaluing currency leads to inflation as foreign goods' values go up and local industries see they can raise prices without losing competitiveness with their foreign rivals. This is why economists refer to inflation as a hidden tax. Governments' intentionally lowering the purchasing power of their own citizens to promote local business and job growth is very similar to taxing citizens and giving that money to local businesses. The only difference is that in the case of currency manipulation you get the added benefit of hurting foreign competitors.

Sounds like a great way to promote local industry then doesn't it? That is why countries like China find it so attractive. Unfortunately, there is one drawback, it is exceedingly obvious when a country starts playing with its monetary supply to manipulate its exchange rates. The end result is that other countries will take retaliatory measures. This leads to a currency value war. Before international markets for currencies it was more common to accomplish these tasks by taxing foreign goods, so called tariffs. However, since the Great Depression tariffs are deeply unpopular among economists because of their role in worsening the Great Depression. The damage that was sparked by the Smoot Hawley Tariff Act of 1930, which caused our trading partners to pass retaliatory tariffs, crippled international trade. This is also why "free trade" deals have become so popular. We know the damage a trade war can do.

The problem is, with the global economy stagnating, it is becoming exceedingly popular for countries to manipulate their currencies to gain an advantage over their trading partners. This is leading to retaliatory measures. Example: China manipulates its currency, we print a ton of money swamping world markets with dollars. Second Example: Japan, a country with a relatively stable and strong currency has seen the value of their money increase, incentivising international investors to buy their currency, creating a self reinforcing spiral where the value of the currency keeps going up. This then causes deflation in Japan and leads to its economic stagnation (not the only reason for Japan's two decades of economic stagnation). Japan has now pledged to devalue their currency in response to regain their competitive edge.

Some Opinion pieces have recently asked if a global currency war is on the horizon. I would argue we have been in the midst of one since the beginning of the great recession of 2007 and 2008. This is likely also a factor in why the global economy is stagnating. Like Smoot Hawley in 1930, modern currency manipulation is harming international trade and competitiveness. It is too easy for a government to print money to pay its bills instead of cutting its budgets and harming its entitlements in economic downturns. That it acts as an invisible tax on its citizens doesn't bother politicians because the average citizen doesn't realize it. Because they don't have to pay their governments anything, they don't know they have any reason to complain. Meanwhile the damage to the international economy continues unabated.

More Gun Control Nonsense

So today we hear from the President announcing the results of his colloquium on gun control. He invokes the Newtown shooting and many others as justification for the curtailment of civil liberties involving guns. He essentially said, "THINK OF THE CHILDREN!" and proposed a series of gun control measures. It was pure appeal to emotion and not an appeal to reason. It is the sort of crap that the media and gun control liberals eat up, but infuriates opposition such as the NRA and its members. And while preventing another mass shooting tragedy is a laudable goal, I am not convinced that any of the president's proposals accomplish this. As I said earlier when I critiqued the Feinstein plan, blanket bans are not effective. The reason sounds pithy, but isn't. Namely, that criminals don't follow the laws and don't buy guns legally. Schools, movie theaters, malls and the like are targeted by psychopaths because they are typically "gun free" zones full of easy targets. Unless you do something to better protect these soft targets, you will see more mass shootings.

So what are the president's proposals you ask? They are as follows (note, since he just announced this, not all the details are known at this point):

Some of President Obama's Proposals • Requiring background checks for all gun buyers [needs congressional approval] • Ban certain semiautomatic rifles [needs congressional approval] • Require a 10-round limit on ammunition magazines [needs congressional approval] • Prohibit manufacturing, importation, possession and sale of armor-piercing bullets [needs congressional approval] • New gun trafficking laws with serious penalties [needs congressional approval] • Provide incentives for police departments to hire officers for schools and mental-health counselors [Something the NRA would likely support as it has called for armed guards in every school] • Require federal law enforcement to trace guns recovered in criminal investigations • Direct the Center for Disease Control to conduct research into the causes and prevention of gun violence • Asking Congress to provide $10 million for the CDC to conduct research on gun violence • Launch a national responsible gun ownership program • Nominating B. Todd Jones to be permanent director of the Bureau of Alcohol, Tobacco, Firearms and Explosives [needs Senate confirmation; he is currently acting director] Source: Wall Street Journal So let’s start from the top. Background checks. This proposal is not that bad honestly. If the goal is to get guns out of the hands of psychopaths, then doing some rudimentary background checks to make sure the person trying to buy a gun is not, in fact, a psychopath makes sense. My fear here is implementation. What will the government be monitoring, who will be black listed from buying guns? There is potential here for great abuse depending on how narrowly the government defines the category of people who can and cannot buy guns legally. Next, the ban on certain weapons. I have dealt with this before in the Feinstein bill. Banning guns based on their appearance is silly. It is one thing if these weapons were somehow more effective than standard hunting rifles, but they aren't. All guns are made for one purpose, shooting bullets. While they remain capable of doing this, they are deadly. But then, that's the purpose of a gun. If they fired NERF foam darts, they would be ineffective at their primary goals of hunting, home and personal protection. This is made even more laughable by the following ban on armor piecing rounds, bullets that are ACTUALLY more dangerous. Ten round limit on magazines. This also seems stupid to me. What exactly is the criterion that makes 11 bullets too deadly but 10 OK? The answer? There is none. The purpose is to make it hard for people to shoot a ton of rounds before having to stop and reload. Unfortunately, as recent tragedies have shown, people going on rampages carry multiple magazines, multiple weapons and sometimes (in the case of the CO shooter) bombs as well as guns (though his bombs were used to booby trap his apartment and not in his mass killing spree). So all this ban accomplishes is (assuming the offending clip sizes magically disappear if/when the ban is implemented) making psychopaths carry multiple clips or multiple weapons (things they already do anyway). Amor piercing bullet ban. This makes some sense. While victims of mass shootings typically are not wearing bullet proof vests when they are attacked, the police who respond to the shootings usually are. And while I have no illusions that this will stop the next tragedy from unfolding (because, as I said, victims don’t wear bullet proof clothing) it might help protect law enforcement. Moreover, it is a much harder argument to make that you need full metal jacket armor piercing rounds to hunt with. Possibly for home defense, if you assume someone invading your home will have the foresight to wear a vest… But still, highly unlikely that there is a legitimate reason to pack armor piercing rounds. As I said earlier, this provision is most interesting to me because it belies the idea that certain guns are more deadly than others. Gun trafficking laws. According to the press conference led by Mr. Biden and Mr. Obama, this is aimed at stiffening the penalties on people who buy guns legitimately in order to sell them to criminals. This, when coupled with the federal mandate to track weapons recovered in criminal investigations, seems like solid attempt at keeping guns out of the hands of criminals. The problem here is that we have no details on how this will be accomplished. There is great potential here for infractions to civil liberties and constitutional rights. I will reserve judgment on this until I know more details. Lastly, the incentives to hire more officers, money for the CDC to conduct studies on how to curb gun violence and programs to sponsor national responsible gun ownership. These programs could well be useful, or they could be a big pile of pork barrel spending with no purpose. It really depends on the details of how the President and Vice President plan on implementing these programs. So I will reserve judgment here as well. (Note, I am ignoring the aspect of asking congress to confirm a head to the ATF. Confirmation processes are complex and I know nothing about the person nominated. So I will leave it alone) So where does this leave us? With a whole lot of questions that remain unanswered. I remain skeptical of the assault weapons ban, and I remain fearful of the potential to curtail civil liberties contained in these proposals. The devil, as they say, is in the details. Details we don’t have yet.

Declining Birthrate Babble

One topic that keeps rearing its ugly head in the news is that of declining birth rates in Europe and the USA. The concern in these articles always seems to be economic. Essentially, the concern is that the USA and Europe will not be able to support their welfare states without enough new citizens being born. More over without new consumers, who will buy the products of the future? This annoys me on many levels. The rest of this post will be about why this annoys me.

Firstly, the complaint that the first world won't be able to support its welfare state if not enough new workers are born seems to let the cat out of the bag that the welfare state is really just a self perpetuating ponzi scheme. For those who are unaware, ponzi schemes are fraudulent investment plans that pay returns or interest with investors' own money or the investment principal of others. Social Security is a government program started during the great depressing designed to stave off the effects of poverty on the elderly. It is funded (now partially, but originally the intent was total funding) through a payroll tax on all earners. The money is then entrusted to the Social Security Trust Fund which, when revenues exceed expenditures, invests the money in government bonds. So, it is a fund run by the government that pays returns or interest out of investors' own money. I.E. a ponzi scheme. That any interest paid into the fund is off government bonds whose interest is also paid out of general government revenue, i.e. tax revenue, i.e. investors' (tax payers') money.

Second, the complaint implies that the only reason the government cares about their population not reproducing is that it will lower future tax revenue that it can use to buy votes from the elderly. It sounds like they are saying: "How can we be masters of the universe when our subjects choose extinction over living under our rules?" Never mind that it implies a deep level of dissatisfaction with the modern first world dystopia that we (first worlders who apparently don't want to reproduce) all live in. Never mind that it implies that society has made it too big a pain in the ass to have kids. And never mind that it implies a deep seated pessimism about the world's future. No, lets worry about the fact that our bloated government won't have a new set of slave labor to exploit and support the festering corpse that is first world government.

If government was really concerned about people reproducing it would provide government funded daycare so that working couples wouldn't be bankrupted with childcare costs. But no, instead we waste hundreds of billions of dollars supporting unproductive members of society with programs like social security and welfare. At least in Europe they allow for paternity care, time off and child tax credits/stipends so working people can have families if they want them. Though it is important to point out that birth rates are even lower in Europe than they are in the USA. In the USA though, we do nothing to support working parents and we wonder why people are opting not become parents. Once upon a time it was possible for a middle class family to live on one income so that one parent could stay home and raise children. But thanks to global competition this is no longer possible. How do you pay a living first world wage and benefits to a blue collar worker in the USA and not get killed in the marketplace by companies using third world forced labor in sweatshop conditions? The answer is you can't. So instead we have had 50 years of downward pressure on wages for the middle class. We like to blame "corporations" but the reality is that consumers won't support non-competitively priced products or the companies that make them. It's so bad that "fair trade" products are viewed as a gimmick. If "made in the USA" (or other first world country) didn't imply high prices, low quality and bad products, maybe we could still support a family of 4 or more on one income.

So the next time the news or some government think tank starts complaining about the falling US birthrate, note the resounding silence on the subject of what to do about it. Because what that means is that the forces that be are out of ideas and trying to simply guilt people into reproducing. Just another solid idea from our intellectually bankrupt leaders.

The Blindness of Nationalism

One thing that has bothered me for a while is our blind nationalism. Don't get me wrong, I think pride in our country and the good that we have achieved as a nation is a good thing. I do think however that our pride often blinds us to our many faults and leads to a complacency towards improving our country. It is when pride is coupled with our ignorance and unwillingness to objectively evaluate how we can improve that I think it becomes pernicious and actively works against us.

What do I mean? In politics it is a common rallying cry that America is "the greatest country in the world!" What is not said here is the basis on which this judgment is made. If we look at our country objectively, we are the largest single economic and military power in the world. But this is only true if we look at things in a vacuum on a country level. We as a nation are a collection of 50 states, the European Union is a collection of countries. Not so different. Yet the EU has a larger GDP than the USA. So are such claims really based on our economy?

Another area where we are not leading the world is in education. While we spend a large amount of money per pupil, our educational outcomes are below much of the rest of the first world, and even some members of the developing world. I will spare you all a recitation of the depressing facts, but suffice it to say, our claims of greatness are not based on our claims of educational superiority.

So what about our military strength? While we by far and away spend more money than any other country (we are first at $711 billion annually, China is second at $143 billion), we do not have the largest number of active military members (China has 2.3 million active to our 1.45 million). But here a solid argument can be made that we are the foremost military power on the planet today because we spend the most money on it.

But here is the crux of the issue, I do not think this sort of analysis is what is going on. After all, how many people would really agree that military strength is the sole basis on which to judge greatness? How many politicians? How many Republicans and how many Democrats? Yet they all make such claims around election time.

Instead, I suggest the claim is one to nationalism. A rallying cry to political forces that appeals to human needs beneath reason. After all, much of America will have trouble finding all the countries in the Group of 20 on a map. Yet ask any of these people which is the greatest country in the world, and odds are they will say the USA. When politicians ask it during a stump speech, people will chant it over and over again. Instead this is an appeal to people who WANT to believe this is true, that they are a part of something that is great. Unfortunately, politicians use this as a way to drum up support without their base thinking critically at that politician's record in office. When used as a political tool, it is an appeal to unreason.

This is where it gets pernicious. For in appealing not to political philosophy, track record, or even the candidate's own competence, but to blind nationalism, we skew national policy. Instead of shoring up our failing infrastructure, we are spending more on our military. Instead of simplifying the tax code we are waging class wars as a cover for raising taxes. Instead of shrinking our bloated government and focusing on necessary areas for government action, Washington has become a vehicle for political patronage. And while this is not solely a function of our nationalism, I think a little less knee jerk nationalism and a little more self knowledge would go a long way towards correcting many of the ills that plague our nation.