Ever have one of those days when your quotidian tasks don’t seem to be clicking into place like they should, and then the world goes mad on top of it, and then you find a roomful of college students inexplicably immune to your self-effacing humor? (Thus do I explain the late posting of this column.)
I don’t know where to begin or to what to give subheads.
Foreign Policy on the Domestic Front
Can this be true?
According to senior diplomatic sources, the US State Department had credible information 48 hours before mobs charged the consulate in Benghazi, and the embassy in Cairo, that American missions may be targeted, but no warnings were given for diplomats to go on high alert and “lockdown”, under which movement is severely restricted.
Shouldn’t 9/11 be a high-alert day generally, around the Middle East, even more so when intelligence services are picking up scary noises? And shouldn’t intelligence briefings be elevated, not skipped, if only to foster a sense of engagement among the folks who are responsible?
And I have to agree with Dan from RiehlWorldView, who asks, “What country did I just wake up in?” He’s responding to a story about the Justice Department’s possible investigation of the man who might have made some amateur movie that might have been used as a tool by organized terrorists to incite violence.
Federal authorities have identified a southern California man once convicted of financial crimes as the key figure behind the anti-Muslim film that ignited mob violence against U.S. embassies across the Mideast, a U.S. law enforcement official said Thursday.
Attorney General Eric Holder said that Justice Department officials had opened a criminal investigation into the deaths of the U.S. ambassador to Libya and three other diplomats killed during an attack on the American mission in Benghazi. It was not immediately clear whether authorities were focusing on the California filmmaker as part of that probe.
My complaint isn’t that they’re following a lead, but that they’ve announced it to the media, including probably unrelated details from his past. This is madness. I can understand the media interest, though. The suspect (or whatever he is) is a Coptic Christian (a group mainly known as a religious minority in Egypt), which puts the mainstream folks in their comfort zone of investigating the faith-group that they really find disconcerting.
Economics Without Consequences
The other bit of madness in the news today comes courtesy of Ben Bernanke and the Federal Reserve. The Fed has decided to embark on another wave of quantitative easing, this one declared indefinite, pending the revival of employment:
The Fed said it will buy $40 billion of mortgage-backed securities per month in an attempt to foster a nascent recovery in the real estate market.
The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
It takes some explaining, but I’ve come across two key statements related to this move, today. The first comes from Bernanke’s announcement:
In the short term, the Fed purchases are likely to lift stocks and increase housing sales and prices, boosting the net worth of many Americans. “To the extent that home prices begin to rise, consumers will feel wealthier, they’ll feel more disposed to spend,” Fed Chairman Ben Bernanke said.
The second comes from the first link of this section:
Two previous rounds of QE had uneven effects on economic growth though they did manage to levitate stock prices by more than 100 percent from their March 2009 lows.
Here’s the two-drinks-in-at-a-cocktail-party version of the explanation of the objection: The housing boom and derivative speculation essentially created money that was premised on people paying back high mortgages on homes they really couldn’t afford to buy. When the manic music stopped, the people left without seats were those who had not sold their promises of future payments for cash in the present. A lot of the money that investors thought they possessed turned out not to exist; to the extent that it did exist, it was going to come out of their projected income. (Leave bailouts out of it, for now.)
The various rounds of massive quantitative easing (essentially making money appear from nowhere in the economy) might have been expected to cause inflation, as people with more cash felt like they were richer in absolute terms and began spending money, thus allowing sellers to increase their prices. People with found cash are willing to spend more for items that they would have bought anyway. Ultimately, this dynamic filters through the marketplace, and everybody is just handing over more paper dollars for the same things they could afford previously.
This hasn’t happened, with the earlier rounds of easing, and neither has productive activity increased substantially, because the investment class has used the found money to inflate their investments. That doesn’t make them worth more, in the long run, but it does ensure that when the cash-money bill comes due for the housing bust, it’s spread across the economy.
Right now, the inflation is of the stock market. It will translate into the usual measures of inflation when people begin trying to spend it on actual goods and services that aren’t so ephemeral. That is, in Bernanke’s words, when people “feel more disposed to spend.” Right now, they’re only feeling more disposed to spend when they’re buying stocks and other financial vehicles.
The money won’t have come from work or the creation of anything of value, though, so that tolerance will just allow prices to go up. It’s possible, in other words, that the worst thing that could happen as a result of the Fed’s QE3 would be that it accomplishes what QE1 and QE2 did not.
Likewise, the Growth in Federal Spending
Nick Gillespie is terrified about the historical and historic growth in federal spending:
This is no way to run a country. But it might a great way to wreck the economy. Because government spending crowds out private investment and the “debt overhang” inevitably used to pay for open-ended government spending reduces future economic growth. At least in the 21st century, neither the Republican Party nor the Democratic Party has shown the slightest interest in actually reining in government spending. They’ve got slightly different reasons for keeping the cash flowing, but it will absolutely end with the same result: a broke-down and bruised body politic with a rotten future.
I don’t disagree with Gillespie’s prediction or his feelings about it, but I don’t think he’s quite right in his reasoning. Government spending only crowds out the private sector when its increase is premised on a decrease of money in the private economy via taxation. The reason we have a “debt overhang,” though, is that the government has been borrowing money.
From a certain perspective (certainly the perspective of those who look at boom times during the Reagan and W. eras), the increase in government spending is really just a way to disperse money created through national debt. Clinton didn’t have to follow this pattern, because his policies created money by expanding mortgage borrowing and easing the path to speculative derivative markets.
It may be that Democrats in power tend to clamp down on the policies that turn the debt windfall into productive activity, which has two separate but compatible results:
- Reducing public willingness to watch the government spend more money (Clinton)
- Allowing new wealth to go to inflation (Carter)
That’s not by any means an exhaustive list, although the topic is exhausting.
When Outrage Is Fun
Have you watched this video of Chicago teachers’ having a blast while on strike (and promoting Che Guevara as a role model)? I thought of it when I read a David Pepin report on labor disputes in the Chariho School District:
The marchers carried lit candles, which they extinguished before entering the building; they then displayed images of burning candles on their cellphones.
An air of festivity permeated the pre-march rally, which featured speeches by NEA Chariho President Robert Mayne, and Larry Purtill, National Education Association Rhode Island president. The marchers’ mood turned darker once the group entered the auditorium. The School Committee’s entrance following an executive session was greeted with dead silence by audience members, who eventually spent roughly 75 minutes expressing their frustration as speakers addressed the board in tones ranging from sadness to anger.
For public consumption, there’s an air of consternation and grievance at these meetings, but underneath it all, the whole process is a bit of a performance. That’s especially true when dealing with the organizers and any outside folks whom the union brings in to swell their numbers.
It may be that there’s an element of showmanship to all negotiations, but the level to which our government-related employment relationships have risen is a disservice in a system that is meant to encourage public participation. Of course, the fact that the public isn’t often in on the script is probably a large part of the point.