The Bear’s Lair: Globalization has become political poison

Since 1991, globalization has been touted as the solution to all the world’s problems, that will pull emerging markets out of poverty while making rich countries more efficient and competitive. Yet in the last few years, public opinion has soured on it; whenever new measures of globalization are proposed, voters oppose them vehemently. There are good reasons for this. Continue reading

The Bear’s Lair: Nearly time for a Gold Standard Referendum

On June 10, Switzerland will vote on a new system of “Vollgeld” that would abandon fractional reserve banking and centralize money creation in the central bank. It appears to be an improvement on the current system, making bank runs almost impossible and reducing leverage, but its opponents are correctly saying that by centralizing all money creation in the central bank it is essentially Socialist. However, there is a better topic for a referendum: a full Gold Standard, removing almost all power from the bureaucrats and restoring sound money once and for all. In an era of Brexit and Trump, it just might succeed. Continue reading

The Bear’s Lair: The world must learn to love root-canals

Senator Marco Rubio wants to tee up yet another set of tax cuts, not oriented towards economic growth, that will further widen the U.S. budget deficit. Argentina is about to borrow $30 billion from the IMF, since it is unable to get close to balancing a budget, based on spending that is 60% higher as a percentage of GDP than it was at the time of Argentina’s last default in 2002. The two facts are intimately connected as are similar political moves in other countries. If we follow the policies of Rubio and his Argentine contemporaries, global government default and economic ruin will follow. It’s time for “root canal” economics worldwide. Continue reading

The Bear’s Lair: The appalling seductiveness of Karl Marx

The 200th birthday of Karl Marx on May 5 passed with several indications, in both Europe and China that his appeal is not dead, and indeed showing considerable signs of revival. China has significantly reversed its move away from Marxism, whereas elements in the EU High Command seem to be recognizing that a centralized Marxist dictatorship is what they are aiming for. “Big Data” possibilities bring the frightening possibility that Marxism may work – better than it did, at any rate. How can a freedom-lover fight this apparently inexorable trend? Continue reading

The Bear’s Lair: The world’s greatest need is fewer people

While we are in a brief period of decent global growth, the underlying productivity trends in rich countries are disquieting. What’s more, it now seems likely that, except in the United States, we will not escape the zero-interest rate lunacy before the next downturn. Even more disquieting is a re-acceleration of global population growth, so that the United Nations’ 2100 projection has risen from 10.1 billion to 11.2 billion just in the few years since 2010. That vicious combination, of foolish policy, low productivity growth and rapid population growth, seems likely to push humanity back into poverty. Continue reading

The Bear’s Lair: Shadows deepen on EU economy

Most EU countries are rich and highly productive, with specialized industries other countries would die for. Yet the bloc’s economic track record has been mediocre in the past decade and looks likely to become considerably worse. In its 2021-27 Budget, the European Commission plans to tweak its “cohesion funds” away from Eastern Europe and towards Southern Europe and to include all kinds of political criteria rather than just poverty in determining them. Reinforcing failure through handouts is the Commission’s main raison’d’etre, but it is the European people who will get the reward that the Commission so richly deserves. Continue reading

The Bear’s Lair: Tumbril time for King Dollar

Larry Kudlow, the President’s new chairman of the National Economic Council, is a well known proponent of the idea of “King Dollar.” That concept states, basically, that the U.S. should aim for a strong dollar, even though it produces large trade deficits, because it allows the country to buy more foreign goods and services and increases its importance in the world economy. This is precisely the reverse of the optimal policy, given the world we live in. Continue reading

The Bear’s Lair: Balance the budget the McKinley way

Opponents of President Trump’s proposed tariffs obscure one important feature of them: they provide revenue for the Federal budget. President William McKinley financed the naval squadron that Admiral George Dewey sailed into Manila Bay to capture the Philippines entirely without an income tax. Looking at our budget today, he would be horrified by the trillion-dollar deficits but would point out that we had deliberately ignored several very substantial revenue sources, which could be used to alleviate the deficit problem. It is time we returned to McKinley-era budget policies, balancing both our tax system and the budget. Continue reading

The Bear’s Lair: Toothless FAANGs.

For several years, the stocks of the FAANGs (Facebook, Apple, Amazon, Netflix, Google) have been the way to make money. Over the five years to December 31, 2017, the FAANG stocks returned 41.6% annualized, compared with 18.6% for the S&P 500 Index, to trade at almost 70 times historic earnings by that point. Yet all five of the FAANG stocks have weaknesses in their business models that are becoming increasingly apparent, suggesting that they are just today’s equivalent of the 1999 dot-coms, the 1972 Nifty Fifty, the 1929 Investment Trusts or the 1720 South Sea Company. Continue reading

The Bear’s Lair: The Qing Dynasty approach to monetary management

Richard Clarida, heavily tipped to be the new Fed Vice-Chairman, has propounded an interest rate theory of the “new neutral.” This states that the Federal Funds rate at full employment, when policy is neither loose nor tight, should revolve around an interest rate of 2% instead of the previous 4% — in other words zero in real terms, since the Fed’s inflation target is also 2%. With zero real interest rates as a target, achieved only at the top of the cycle, capital will receive no risk-free real return, but simply sit there, in infinite stasis, producing economic stability but no real growth. This approach has been tried before, by the Qing Dynasty of Imperial China, in power from 1644 to 1912. Continue reading