Keynesian thought is utopian

Credible economists like Hayek, even von Mises and Milton Friedman knew the limits of positivism in economic models.  It isn’t that they eschewed them outright, they knew the margins of their discipline, spending their time more on exposition in defense of certain public policies than outright theoretical speculation.  For them and those like them, they enjoyed articulating a polemic that destroyed illusions; none harbored more than Keynes and his cohorts.

Keynes loved his multiplier, but he saved his hatred for gold-bugs and rentier capitalists throughout the British Empire who he openly sought to disenfranchise through confiscatory taxation and fiat money.

That story is well told, what isn’t is how economics behaves more like an ideology than science.  That is why First Things author Richard Spady titled his article Economics as ideology.  

Economists and central bankers throughout the world have openly coveted for a utopian ideal that is purely theoretical than empirical or real.  Their looking for a dynamic threshold at which social components in the economy are in balance; balance here refers to inflation statistically calculated as NAIRU or Non-accelerating Inflation Rate of Unemployment, denoted as r*.

The difficulty is this:  no one has ever measured it.  Its really a moving target.  Because NAIRU is tethered strongly to a contested ideological foundation of Keynesian thought called the Phillips curve, its always dependent on other variables.  For definition, the Phillips curve embodies a belief that the central bank controls the informing relations between employment, output and inflation.  (For simplicity sake, they don’t.)

Nevertheless, NAIRU rests on contentious estimates that falling unemployment pushes prices and wages up.  That relationship has broken down and hasn’t be replaced with anything credible.

Here’s the good news, those who haven’t spent a lifetime of time and money credentialing into a flailing discipline like Keynesian thought should know that political norms like limited enumerated government and sound fiscal policy remain the guardrails that central bankers loath to acknowledge.

The re-ascendancy of the moral bonds of liberty are returning to the commanding heights of our national political economy.  They really cannot be captured in positivist models.

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The Mullah’s go mum

Watching President Trump manhandle the Iranian president on twitter was worth it.  Having publicly declared that he should never again threaten the United States was tempered with a credible disinformation campaign aiming at threatening the regime.  The Australians are reporting that they will assist in identifying targets within Iran was released yesterday; the fiction of hitting Iran is working to American advantage.

Team Trump will not directly confront Iran, they will instead, provide untold resources to bring about regime collapse in the form of open containment.  For Iranian handlers like Reuel Marc Gerecht and Ray Takeyh, its a credible policy.

Iran today resembles characteristics of domestic China.  Near permanent tension exists between Beijing and its peripheries.  Today its bond maturities and zombie companies, for Iran its a convulsive struggle between mullah’s in Tehran who wish to maintain power and the ruled seeking freedom.

Iran never really had a problem with modernity.  The very first Pahlavi monarch named Reza Shah resolved tensions between these competing camps, having abdicated in ’41, constitutional rule gained a near permanent advantage for the Iranian people.  It was Prime Minister Mohammed Mossadegh who tried to derail Iran’s democratic evolution.  We should never forget that what happened in ’53 was an Iranian initiative.

1953 saw Mossadegh squander everything leading to a coup in ’53.  Having lost the support of the public in his management of Parliament nationalizing Anglo-Persian Oil Company, the Iranian regime turned inward with Mohammed Reza leading to the return of the Ayatollah’s in ’79.

By ’99 the hope of witnessing the Ayatollah’s reform themselves was gone, fraudulent elections and decrepit economics has discredited the regime.

Enter Rouhani, who believed that the JCOPA nuclear deal would generate enough revenue to placate public discontent has failed.  The Iranian’s know rank corruption when they see it.  A failed banking system untethered to the rule of law has locked a morally bankrupt regime into turbulence that frightens foreign direct investment.  Its the Soviet Union all over again.

Absolutely no one should fear regime change in Iran.

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Digital mediums & the wrought return of the nation state

Call it the Washington consensus.  It was ushered in with the demise of Soviet Marxism. By 1995 the US turned inward creating NAFTA and other multinational trade relations upon the orthodox belief that international trade mattered.  We forget the backdrop that accompanied this wild revelation that decrepit, autocratic and ethnically based polities would shed provincialism and produce for the global commons.  It all worked, then two hinge movements sundered it.

The first was the 2008 depression, the second revolution was digitization and its consequent with the arrival of social media.  Having harnessed the new reigns of autonomy, apps delivered an inverted pyramid that solidified an ascendant ideal of personalism.

The Washington consensus really signified an initial movement toward digitization, but that could never be foreseen. Having opened ones borders to globalization, even fragile nation states in Asia lowered real wage costs with soaring productivity gains. Global trade took off and crashed with the Asian monetary crisis of parity.  Having tied their currencies to king dollar, Asian polities eschewed consumption, refashioning their economies toward large export platforms.  This global ocean of excess savings found its way to the US in grotesquely favorable credit for housing.  The whole damned enterprise fell in late 2008. The US, having a lost decade under team Obama has now come full circle.

What team Trump openly acknowledges is less well recognized or even accepted; namely that globalization was never about political liberalization or transparency.  The foundation of the world’s rules based order was actually fragile nation states gaming the system. South Korea has a name for this:  chaebol.

The hide bound backside of multinational capitalist companies must now reckon with nationalism.  Just as govmint became a brutal competitor destroying hedge funds with quantitative easing, an unleashed burgeoning nation state will wreck foreign competitors. Just ask Xi Jinping.

Not everyone will make the cut as foreign competitors grapple with the ground moving underneath them; look at Germany after Brexit.  Berlin feared that with England out of the E.U. it would remain permanently isolated.  This is why it befriends Putin.  Having never settled its own history, Germany now fights off a weakened, wounded mercantilist Brussels.  These free market technocrats from hybrid socialist regimes are easy to tame. Witness the frontal assault perfected by the Don.

Because China and other mercantilist regimes throughout the world have no constitutive relation to market demands; because their overt political foundation obscures, eliminates market signals.  They’re doomed to grapple with falling demand.

The global order is over.  Witness the return of the nation state.


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Nawaz Sharif’s dynasty in Pakistan halted

This is the third time he’s been Pakistan’s Prime Minister.  Its also the third time the Army has orchestrated his demise.  Army leadership is threatened by Sharif’s willingness to make peace with India, close down Kashmir and normalize trade relations with New Delhi.  These are fault lines the Army uses in the maintenance of its political power.

Sharif returned to Lahore from England where his wife is dying of cancer.  Arrested with his daughter upon arrival throws the entire nation state into turmoil.  With elections on July 26, Sharif is gambling big.

The gamble is to deny Army leadership the sanctity of elections.  Sharif can no longer reside outside of Pakistan.  Having been previously exiled to Saudi Arabia, he’s determined to harness the up-coming elections threatening to undermine whatever the Army rigs on July 26.

My guess is the Army will continue to thwart anyone who wishes to check the Citadel.


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Lenin: storm chaser

Lenin was truly Satanic.  Unlike Marx, he was a man of total action.  Like a Satanist, he loved humanity, he objectified progress by eliminating the notion of ethics from progress. Having arrived as a German agent from Basil, Germany hoped to soften up its rear front against Russia, in the hope of alleviating resources for the western front tied up and paralyzed in France.  It worked.  All to well.

2018 is the centenary of the Russian Revolution.  By far the best account is Yale Universities Laura Engelstein’s Russia in Flames:  War, Revolution and Civil War 1914-1921.

Engelstein’s account covers not just world war, but two revolutions, their prelude and the civil war that followed.  A civil war that the Bolsheviks wanted to foment.  Lenin calculated that a great sorting, a process of clarification would leave the Bolsheviks alone on top.  As Lenin often said, the worse, the better.  The war turned out to be more terrible than even Lenin envisaged.  In the end, it served his and Germany’s purpose.

The Bolshevik’s were storm-chasers, struggling to keep up with events they could not control, only socially-politically harness.  The successive iterations of the provisional government, the best known of which was led by Alexander Kerensky, were actually rent from the crisis of revolution.

Kerensky failed to feed the cities, he couldn’t satisfy the demand by both workers and peasants that Lenin’s fomentation aroused.  Finally, it was democratic principles and a justified fear of political radicals keep Kerensky from gambling on a more authoritarian mien until it was far too late.

Even by this time, the Bolshevik’s didn’t take the helm.  Lenin waited this out. Like a true totalitarian revolutionary, everything was used to strengthen his appeal.

April, June, and July all saw powerful eruptions of popular discontent which were beyond any government to control.  Lenin saw those at the political center exhaust themselves and their political credit.

According to Nikolai Sukhanov, Lenin was aiming to create social, political conditions that made it favorable for him to seize power.  The Bolshevik’s built their base, patiently gathering support among the population, in factories and throughout the military.  Then they mobilized a disciplined mass in a manner designed to invite disorder to topple the reigning, exhausted, ameliorated provisional government.  This was performed under the guise of imposing order.  In October of 1918, Lenin seized this scheme upon the Russian people.

What Lenin did was create the social base for governance (read Muslim Brotherhood in Egypt).  He sought to openly handle, even wrestle the maintenance of the state from Kerensky by running the successor to Russia’s failed autocracy.  He simple transformed the excitement of social revolution and liberty into an exercise of raw autocratic power.  Something only Tocqueville expected.  With Lenin, we witness the return of political tribalism that constituted premodern life.  An old gnostic cult of leadership re-emerged (Eric Voegelin).

Its over now, and we’ve got hundreds of millions of dead to prove why the criminalization of political differences is the harbinger for demise.


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How to read the Mexican election

The arrival of Andres Manuel Lopez Obrador shouldn’t have surprised anyone familiar with the state of Mexico’s political economy.  The return of PRI (Institutional Revolutionary Party) after having lost power in 2000 from a 71 year rule didn’t change much; that’s the primary reason explaining Obrado’s win.  His election destroyed both the political center and duopoly between PRI & PAN (National Action Party), Mexico’s twin leading parties.

By any reckoning, he’ll fail, if the Mexican Congress can’t get a serious reform agenda moving again.  Having won control of Congress with majorities, the capital, Obrador can muster serious reform IF he can translate his electoral gains legislatively.

The problem rests with chief characteristics that dominated his campaign, namely a belief in a combination of moral rectitude, good intentions and populism can fix Mexico. It can’t.  Only by building strong political governing institutions can Mexico reform itself.  A tall order.

How does he achieve this?

By seeking defections in the Mexican Congress, he can pick up a two-thirds majority making it easier to amend the Constitution. That means he must muster ruling majorities over the 92 seats that PAN has; see the chart below on the ideological make up of 500 member Chamber of Deputies.

A brief look at the constitutive ideological components of Obrador’s ruling coalition (named Moreno) reveals a lot.  A mix of anti-capitalists (Workers Party-PT), the conservatives (Social Encounter Party) reveals irreconcilable components that more closely resembles Germany’s current crisis. However, many are self-identified as radicals along with those who’ve never had political experience. I expect Obrador to move to placate his radical wing early on by overturning education & petrol reform.

We should note that Obrador’s ruling coalition does not control Mexico’s 32 gubernatorial seats; this may be the only bulwark against his populism.

Once in office, leaders change.  And this may happen to Obrador.  I expect him to play a leading role in three important regional initiatives, the Lima-Merosur Group and Pacific Alliance.  Lima is responsible for openly promoting Democratic change in Venezuela while Pacific Alliance and Merosur aims for regional macro-regulatory symmetry throughout Latin America. This is significant for Mexico continues to export most of his gains abroad.  For Mexico to receive any gains in the current structure of his political economy it must export more to Asia with seeking intra-regional trade.

Morena needs an opening salvo, it should seek a stronger economy with trade diversification, closer regional alignment and new markets in Asia.



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The African continent & the state of capitalism

Africa has been termed the dark continent, the term isn’t racial but refers to inhabitable characteristics that threaten economic and social development.  Weak governance and weaker infrastructure have sealed the continent from development since the defeat of European imperialism.  That may be changing, especially given the status of China.  Even still, manufacturing growth and productivity gains remain for African nations that have history with mercantile England; the others have turned inward and never really broke from their socialist mien.  What we’re witnessing throughout the continent is the stagnation of weak nation states while others are coalescing to form strong national identities.

As a whole, African political economies remain the fastest growing in the world.  What confuses economists is exactly where the growth comes from.  It is understood that development and growth originates when labor enhancing productivity shifts from unproductive, labor intensive subsistence farming to modern capital intensive service and knowledge based service sectors.

Their remain two distinct ways to distinguish between competing versions of the African political economy.  The first focuses on growing labor productivity within distinct sectors while the other stresses structural change aggregated as workers moving between competing sectors.  Interestingly, throughout the 1990’s structural change in sub-Saharan Africa went into reverse.  These trends decimated growth in Zambia, Ethiopia, Malawi and Tanzania.

Compared to east Asia, both kinds of growth happened at once.  Workers moved to littoral regions while those already in urban environments changed into service sectors.  Both experienced intense labor productivity during strong structural change.  The puzzle for Africa is to explain why productivity fell during structural change.

The only viable answers are those that address intra-African exchange and socialist domestic policies that inhibit strong exports. Automation isn’t helping, especially given how Africa competes with low wage Bangladesh and a rapidly automating Asia. What’s closing is waiting for nation states to do what China did, move from agriculture to labor intensive manufacturing and then change again toward service based, knowledge intensive industries.

As of this writing, the African continent has one capitalist option left:  find its slot in global supply chains instead of producing finished products that are exported. It means developing and immediately changing into tradable productive sectors that are easy to scale.

Aside from tourism and heavily dependent infrastructure ploys that depend on viable social institutions, Africa can learn from the success of the east Asian tigers.

Its not too late.


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Trump & Iran: presage to permanent emnity

The mess team Trump inherited equals what was bequeathed to Obama economically.  My guess is that team Trump has the fortitude to look at the world realistically and venture what’s possible.  First step Iran.

The May 21st approach laid out by Secretary of State Pompeo at the Heritage Foundation was significant, it was a rebuke to previous administrations who refused to identify the moral status of regimes.  Having articulated a 12 step program for Iran, it qualified how best to measure any workable format between the two nations.

Better yet, no one in Trump’s cabinet can guess what the President’s bottom line on Iran is.  This resembles a Reaganite grasp of moving geopolitical components that aren’t grasped by intellectuals at State.  The President himself may not know in advance his own negotiating position.  For those aping for policy clarity, they need to acknowledge the supremacy of adjudicating while moving forward.

Not even a repose articulating Trump’s evisceration of the neoconservative legacy provides policy clarity going forward.  My view is that skepticism is the foundation of team Trump’s governing instincts.  The optimism that shaped previous Presidents has been tempered by Mesopotamia.

So, where do we stand today with Iran.

Trump is likely to govern his applied policy practically not ideologically.  Why is this a superior posture?

Statesman must anticipate the impact of their framework and approach while simultaeneouly adjusting the shape of public policy.  Yes, Iran is very vulnerable, but U.S. exploits can strengthen the regime in a way that mutes US efforts.  That means addressing Iran’s core interests deep in its periphery.  It means preventing Iran from escalating its nuclear ambitions while possibly driving destabilization efforts against US regional allies.

Where should Team Trump begin?

Yemen, Syria, and Iraq!

Raising the price for any movement by Tehran is phase one.  Additional phases would optimally seek the collapse of the regime.  This policy gamble will upset Moscow because it cannot have any destabilizing trends in its southern tier.  This too can be used to our advantage.

The medium and long term policy is clear:  a strong posture enveloping multiple regional allies exhausting every adventure Tehran seeks abroad.


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The Moral, Strategic Bankruptcy of Arafat

Israel remains the only democracy in the middle east.  Is is surrounded by militant, terror driven petro-monarchies devoted to keeping Israel in a permanent state of siege.

The peace process is a nomenclature, born within unelected fiefdoms of bureaucracy throughout western political life.  How can peace be brokered between belligerents when peace means the extinction of Israel.

This process must be exposed for the sham it has become, especially after Arab refusal to acknowledge Israels near suicidal accommodation to Arab demands under the tenure of Ehud Barack.  Barack’s objective was to maintain strong relations with Israel’s only partner, the U.S.  The impact of accommodation killed the Israeli left.  Israeli self-flagellation is over.  Arab ambition continues to resonate around weakening Israel’s bilateral relation with other nation states.

Arab ambition is to weaken Israeli-American relations by internationalizing the conflict. This perpetual campaign is primarily twofold:  damage or weaken American resolve toward Israel and drive Israeli self-consciousness inward.

Arab geopolitical and ideological ambitions have failed.

The key to resolving this conflict is to look forward to further indigenous development of Arab political culture along western frameworks that resemble human rights.  Only then can agreements be brokered within mutually shared interests.

For the best historical summary of the Israeli-Palestinian conflict and the moral, strategic bankruptcy of Arafat, please see Commentary magazine article from Seth Mandel ‘The Palestinian Authority Loses Its Authority:  the last remnant of Oslo crumbles.”


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