The China Bubble

Note from the author: This article was written in early 2010. It could take some editing for which I can’t spare the time, so I’ve decided to publish as is, because its thesis rings true, and could be received with interest today.

Thousands of students take part in a stunning display of kung fu choreography at the Tagou martial arts school in China

“We will bury you!”—One popular myth has Nikita Khrushchev banging the UN delegate desk with his shoe as he blurts out this infamous threat. Another one takes its gist to have been military, rather than … economic. This second myth is harder to dispel, owing to the difficulty of imagining today, decades since the spectacular failure of the Soviet Bloc economies, just how formidable their prospects had once seemed. Yet throughout the 50s and early 60s, their swift transformation from peasant societies into industrial powerhouses was generating much awe and panic.[ref]Paul Krugman, “The Myth of Asia’s Miracle,” (Foreign Affairs: 1994)[/ref] Poor and backward as they started out, these economies could boast growth rates of 6 to 8 percent—unheard of in the West—sustained like clockwork year after year and punctuated by stunning technological achievements, such as the launch of Sputnik 1 and the mission of Yuri Gagarin.

These early success stories inspired many attempts at an explanation, some of the most radical of which called into question the very soundness of liberal democracy, let alone that of the free market. Voter caprice in capitalist societies was thought to wanton without control, preventing long-term planning and derailing economic growth. Command economies, by contrast, let nothing stand in the way of progress—certainly not any scruples over the well-being or civil rights of their citizenry. Disciplined, farsighted, and unmolested by electoral upheavals, they pursued a deliberate course of industrialization that would surpass the uneven, unplanned, and disjointed performance of free enterprise. Such, at any rate, were the advantages imputed to the collectivist rising powers of the East by many puzzled intellectuals in the West. But as reliable data began to leak from the Iron Curtain, it it quickly undeceived those who could understand it.

Far from representing the inherent superiority of central planning, the performance of the Soviet Union and its satellite states turned out to be fully explicable by the large share of inputs they commanded.[ref]Ibid.[/ref] That an economy should grow faster when it employs more resources toward future production has always been understood: more input yields more output. Bringing women and rural dwellers into the workforce, uprooting illiteracy, enforcing compulsory schooling, and amassing physical capital into infrastructural and industrial projects can all lead to what economists term extensive growth.

That is what the economies of the Soviet Bloc experienced after adopting just such measures, what they owed their brief meteoric rise to, as well as their ultimate undoing.[ref]William Easterly and Stanley Fischer, “The Soviet Economic Decline,” (International Bank for Reconstruction and Development / The World Bank: 1995)[/ref] For even if the workforce could be thoroughly educated and gainfully employed, its growth must run into natural constraints. Not even the sustained accrual of physical capital, with all the sacrifices and deprivations it entails, can prevent extensive growth from drooping—for the simple reason that capital-intensive production is inevitably subject to diminishing returns. To expand forever it takes intensive growth—that is, increases in output for each unit of input—achievable through improvements in technology and ever more efficient use of resources. This is what the economies of the Soviet Bloc couldn’t do. In fact, by the 1960s they started deteriorating to an extent not fully comprehended until their dismal collapse.

Today the Communist experiment is nearly extinct. Only a few sad relics still linger—in Cuba, North Korea, Laos, and Vietnam. But there is one elephant in the room—one specimen bent on gainsaying everything the world has ever learnt from the Soviet breakdown. And that is the People’s Republic of China. As of this writing, its economy ranks the world’s fastest growing and third largest, not to mention its biggest exporter.

It was a comparative advantage in the manufacturing of cheap, labor-intensive goods that has dragged China out of the muck where it was stagnating since Mao’s days. That China ever harnessed it marks a monumental break with precedent for a Communist country: the Soviet Bloc could have tapped into the very same comparative advantage, but didn’t,  having decided on principle against trade with developed, capitalist countries. China broke the mold in the late 1970s with its debut in the global market and has since become the “workshop of the world.”

As evidenced by this economic miracle, Vladimir Lenin must have been ahead of his time when he urged the Politburo to relax its grip on agriculture and small businesses and to tighten it over “the commanding heights” of the economy instead. In China the Communist Party dictates top-down growth through currency manipulation, infrastructural undertakings, and demographic controls, while foreign investment, private or semi-private endeavors, and natural advantages in the manufacturing sector all contribute to bottom-up growth. If there’d ever been a golden mean between central planning and free enterprise, the Chinese must have come closest to striking it.

But how much higher will China rise as a Communist mongrel? Predictions differ, though evermore over when—rather than whether—it will overtake the U.S. as the world’s economic hegemon. Jim Rogers, hailed as a commodities-investment guru, recommends “Teach your children Mandarin” as the surest recipe for surviving not only the recent financial crisis but also others yet to storm, and is practicing what he preaches when it comes to his young daughters’ education. The late Nobel-laureate economist Paul Samuelson believed China’s supremacy to be just around the corner. In his last op-ed contribution[ref]Paul Samuelson, “Heed the Hopeful Science,” (New York Times: 2009)[/ref] to the New York Times, he wrote: “We begin now a new era in which China will increasingly make obsolete America’s 1950-2009 world leadership. Your children and my grandchildren will live in this new and challenging era. … [T]he day will come when China’s total real GDP will exceed America’s. Boohoo.”

Leading analysts from Deutsche Bank and PricewaterhouseCoopers have divined the early 2020s as the time when the scepter shall be passed. Unnerving as the prospect of quietly falling behind the Chinese may seem, some fear an even worse outcome: active sabotage by the Chinese authorities, who control the world’s largest pool of dollar reserves and could liquidate it at any point, thus bringing the U.S. dollar—and by extension, the U.S. economy—to its knees.

So should we all resign to our fate and get busy learning Mandarin?

Before deciding the question, Americans better take into account their long history of glamorizing foreign rivals. The alarm over Soviet superiority has already been adduced to establish some perspective, and can be readily supplanted by modern equivalents, should China enthusiasts dismiss it as either dated or too “ideologically charged” to be relevant. In the 1960s and 1970s it was West Germany—that indomitable arsenal of high-quality exports, whose disciplined workforce never tired or blundered—that surely would leave the U.S. economy in the dust. Close, but no cigar.

No sooner had one threat proved unworthy of much concern than the American public fixed its feverish imagination onto the next. At some point in the 1980s, Japanese buzzwords started haunting the lexicon of business management: kaitzen, tokkin funds, baburu, keiretsu, zaitech, etc. American students—needing no prompting by Jim Rogers—were taking crash-courses in Japanese so they could speak the language of their future bosses. American businessmen, for their part, if too old to learn the language, could—and often did—at least straighten out their hair and dye it black.[ref]2003, William Bonner and Addison Wiggin, “Financial Reckoning Day,” page 118[/ref] And who could blame them?

Japanese banks had become the biggest in the world. Japanese companies were wolfing market share in every sector they had their eye on. And adding insult to injury, Japanese tycoons were conspicuously hoarding trophy properties all over the United States—among them Hollywood studios in California and the Rockefeller Center and Exxon building in New York. The Japanese were clearly the smartest race among men; their regimented variant of Capitalism, manifestly superior; and their takeover of the world, inevitable … until 1989. That year the laws of physics broke down, leaving the stock market of Japan to crash and its economy to enter an unprecedented era of stagnation through which it is still plodding.

It looked as though Ezra Vogel’s bestselling prophecy Japan as Number One would not be fulfilled after all. Americans had scarcely heaved a sigh of relief when their anxieties rekindled, this time over the so-called Asian Tigers. That frenzy lasted well into the mid-to-late 90s, until put an end to by the Asian financial crisis. And now it’s China. But of course, this time, we are assured, it’s different.

So it is every time. The particulars are never the same. Yet all these cases of overblown alarm seem to share at least one trait. And that is the premise on the alarmists’ part that whichever up-and-coming economy is poised to take over the world will continue to enjoy nearly forever its outstanding growth rates of the moment. From this naive assumption the crudest, most unrealistic extrapolations often ensue. No predictions as to when or whether China’s economy will outdo America’s are worth taking seriously unless the growth rates they forecast for China stand a chance of reflecting reality. And for that future growth to be modeled realistically, its sources and constraints must first be understood.

The Past, Present, and Future of China’s Growth

Many forces are propelling China’s export-driven growth—the main two being a spring-back effect and a catch-up effect. The former denotes the gradual unwinding of the most debilitating policies and regulations from the Maoist past—as soon as they are rescinded, things get done less backwardly and growth bursts free. Short of removing themselves from power, the Chinese authorities cannot eliminate many more roadblocks to development than they already have. And so, the impetus of the spring-back effect is mostly exhausted. But to the more lasting benefit of China, it has precipitated a catch-up effect, which is what economists call the empirically observed tendency of poor countries to grow faster than developed ones.

For the most part, this economic convergence is a positive externality of globalization. China need not traverse the long and arduous learning curve attendant to the discovery of technologies that are now commonplace in the West. It need not devote time, capital, and manpower to the transition from the eight-bit to the 16-bit to the 32-bit to the 64-bit microprocessor. Everything the ingenuity of man has already produced, China can readily imitate, whereas technologically innovative countries must break their own records, so to speak, in order to grow. But if the Western look and feel of major Chinese cities is any indication, the country has run out of commonplace technologies to adopt.

International trade too works at bridging gaps in development. The poorer a country is, the cheaper its labor and the more attractive its exports. Yet the more China grows, the richer it gets. Workers’ wages begin to soar and so do production costs. Were it not for aggressive mercantilism, China’s comparative advantage in durable goods might soon peak—especially given fierce cost-competition from other big emerging markets such as India. Accordingly, the impetus of the catch-up effect is well on its way to teetering.

Manipulations of Labor

But Chinese authorities don’t just lubricate the export machine and leave the rest to God’s will. Rather, they do what central planners do best—that is, marshal resources on a grand scale to achieve fast industrialization.

Through sweeping educational reforms, they have slashed illiteracy and greatly improved the quality of higher learning. This ever more educated workforce has contributed a great deal to China’s growth so far. From now on, however, diminishing returns set in, as it is neither possible nor worthwhile for all Chinese youths to obtain Ph.D. degrees. Besides, the farther removed from the high-school level, the less of a commodity education becomes—and the less amenable to central planning.

Also thanks to Communist reforms, a good 45 percent of Chinese women now work—whereas almost none did before 1949. But although China can do better in this direction, it is at least halfway there. And since the 1980s, hundreds of millions of impoverished peasants have been encouraged to resettle from the countryside into the cities, where their hands can be put to industrial use. But the balance cannot be tipped much further, as today the Chinese population is split rather evenly between urban and rural.

In the 1940s, the Second Sino-Japanese War and the revolutionary turmoil that followed it had laid most of the country to waste. But as soon as China settled into Communist rule and began to enjoy some stability, a baby boom ensued, briefly interrupted only by the Great Leap famine. This population burst was at first considered a drag on economic development because it suddenly burdened families with a barrage of children—mouths to feed, too young to work.[ref]For a discussion of China’s demographics and policies, see H. Yuan Tien, et al. (1992). “China’s demographic dilemmas.” Population Bulletin 47; June.[/ref] To check this bothersome trend, the authorities resorted to draconian controls over people’s fertility—including but not limited to the notorious one-child policy—as a result of which, just as the baby-boomers came of working age there were fewer and fewer children to take care of. With such a surge in workers and slash in dependents, all the while the population was still growing, China’s dependency ratio fell drastically and its economy felt a staggering boost. In fact, official Chinese statistics credit this factor alone with over a quarter of the country’s economic growth between 1982 and 2000.[ref]“Demographic Dimensions of China’s Development,” Eduard B. Vermeer, Population and Development Review, Vol. 32, The Political Economy of Global Population Change, 1950-2050 (2006), pp. 116.[/ref]

But what looms ahead now is one catastrophic reversal. In traditionally patriarchal families, the restriction to one child has often led to the death by neglect of newborn girls. Aborting female fetuses when their sex becomes known is also common. In the upshot, Chinese young men are so prevalent today that a full 17 percent of them will never find wives. This lopsidedness, together with the low fertility rates, will whittle down the Chinese population soon and fast. Worse yet, as the baby boomers reach old age, there will be fewer and fewer young workers to support them. Here it is worth noting that for all its Communist pretensions, China lacks a social safety net. Rather, adult children are charged by the Chinese constitution with providing for their parents. Starting in the 2020s, the Chinese economy will be squeezed hard between a shrinking population and a deteriorating dependency ratio.

Of these many attempts at demographic engineering, some have borne fruit already and others are about to backfire. It is obvious that the Chinese authorities like to meddle with their country’s human capital but recently they have started to play with physical capital as well.

Manipulations of Capital

Notwithstanding its market reforms, China still remains a country ruled by the five-year plan. To exalt the Communist leaders and prevent civil unrest, GDP must grow by at least 9 percent every year. This is considered an end in itself, dictated by the central committee and taken to heart by the local officials, who hold considerable sway over the sources of credit, the real-estate market, and the workings of state-owned enterprises. In turn, these enterprises control nearly half the Chinese industrial output and, being exempt from most market pressures, ground their business decisions on quotas, bribes, political favors, and propaganda value. All these entities work in concert to make the GDP numbers add up.

One ever-tempting shortcut is, of course, to make them up. Chinese statistics often contain double counting, flawed, missing, or lagging data, and sometimes fly in the face of proxy measures of GDP growth, such as electric output. All of this suggests that Chinese growth might in fact be over-reckoned—but not by much. What they cannot fake, the authorities must bring about. And they do. How?

Of all resources, physical capital lends itself to central planning the best: it can be accumulated almost at will, substituted for brute force, and put to specific use. For this reason, command economies tend to drive it hard. China is no exception: fixed-asset investment—into factories, equipment, infrastructure, commercial and residential real estate, etc.—has made up well over 33 percent of its GDP growth for every year of the last nine. Such numbers are astonishing.

Although large developing countries can be expected to amass capital apace, what we are witnessing in China is an instance of force-feeding rather than healthy appetite. That much is betrayed by the trend of the Chinese economy, which has grown at a near constant rate—however high—over the past decade, in spite of more and more capital fueling it every year. The incremental capital-to-output ratio (ICOR) has risen steeply in China since the early 90s and now measures well above that of Japan, South Korea, and Taiwan at their heyday.[ref]John Wong, China’s Surging Economy, 2007, page 260[/ref] Diminishing marginal returns on capital must already be at work.

When their returns taper off, capital-intensive projects attract fewer and fewer private investors, leaving a vacuum for the government to fill. The well-known inadequacies of commend economies with respect to allocating resources profitably and efficiently get even more accentuated when fixed capital is their medium. For underused infrastructure, empty shopping malls, vacant office buildings, and idle factories must contend with the annual costs of upkeep to counter depreciation, in addition to their upfront costs. And that it to say nothing of the unseen, though all-too-real, opportunity costs—that is, the alternative uses of that capital, which free enterprise could have directed to fruitful ends. When approving such projects, central planners often forget about these strings attached. Once the true costs hit home, they are liable to throw good money after bad if by doing so they can prevent the man in the street from noticing that his leaders make expensive mistakes—skyscrapers, factories, malls, and even entire cities eaten by rust if left to their own devices.

Consider South China Mall, by far the largest shopping center in the world, twice as big as the previous record holder, built by a “local boy” undeterred by the absence of airports or freeways or bustling cities nearby. Here workers clean the water canals every day, janitors sweep the dust, shopkeepers read and listen to music, and teletubby mascots run around with no children to entertain, for the entire complex is eerily empty. Instead of filing for bankruptcy, the mall has merely changed hands and is now owned and run by the government.

Note also the splendid Potemkin villages dotting the mainland today. Huaxi, for example, right outside of Beijing, is the world’s “tallest village.” On its amenities and housing projects the government has squandered over $360 million in fixed assets. It boasts the 15th tallest skyscraper ever built, with an even taller one under construction, and bestows on each family—courtesy of the Village Committee—a brand-new Mercedes, BMW, or Cadillac; a luxurious house worth $150,000; a generous cash allowance; free education and health insurance; as well as complimentary cooking oil. Talk about idyllic bliss! The village song blaring out of the ubiquitous loudspeakers reminds the “peasants” of Huaxi that the skies above them are the skies of the Communist Party and that their land is the land of Socialism. For the benefit of stunned Western guests, a voice interrupts the music to ejaculate, in English, “Actually, we like this kind of Socialism!”

Huaxi Village, Jiangyin, China -
Huaxi Village, Jiangyin, China – “A model socialist village.”

In recent years, lavish experiments with steel and concrete have mushroomed all over China at a manic pace, which the stimulus program of 2008-2009 has only exacerbated. In proportion to the Chinese economy, this stimulus of $586 billion dwarfs even its American counterpart of $787 billion, a good $144 billion of which merely subsumes existing liabilities of the State and local governments. Not so in China, where far from receiving relief from the stimulus, provincial and local governments are borrowing afresh to finance it. At $150 billion, the current Chinese deficit bespeaks a rate of dissaving comparable to that of the U.S. government. This fiscal rush is exciting even more infrastructural development and construction projects—which is where Chinese capital and scarce resources seem to go to die.

Take for example the new municipal building somewhere in the remote province of Anhui—an exact replica of the U.S. Capitol. And in Inner Mongolia one can find New Ordos, a city built from scratch with government money to house over one million people, virtually none of whom have moved in yet. Anyone who has bought condos there is holding them “as an investment”—a telltale sign of real-estate speculation run amok.

In fact this trend of buying two to four condos and keeping all but one unoccupied is spreading like fire among the wealthy and upper-middle-class Chinese and evokes the same exuberant mentality common in the U.S. at the height of the recent housing bubble. Even in cities of red-hot economies such as Shanghai and Beijing, vacancy rates in new housing units and office buildings are crossing 25 percent. Yet the construction orgy continues. With prices of urban real estate inflating by as much as 80 percent and now claiming up to 20 times per capita income, major Chinese cities have become expensive places to live in, almost overnight. Innumerable families have tied up their multigenerational savings into steep down-payments for condos and apartments that will almost certainly turn out to be grossly overpriced. Out of a due consideration for them, it bears repeating that China has no social safety net. When this gigantic bubble bursts, rich and poor alike will be swept away.

Manipulations of Currency

China’s exports have long claimed a disproportionate share of its GDP—40 percent last year, doubled from a decade ago. Growing a colossal trade surplus requires excellent relations with trading partners from the First World, at which prospect the Chinese autocrats are not at all thrilled. Yet much as they begrudge this prickly dependence on the West and talk of boosting domestic consumption instead, they know that the export industry has been the main source of that wealth they love to squander on such grandiose projects as empty cities and picturesque skyscrapers.

Over the past couple of years, however, the global slump in demand has put the brakes on Chinese exports. To ease the twinge, the authorities have taken some ill-thought-out steps, such as building more factories even as existing ones either lay idle or cut production by at least half. This manufacturing boom is, of course, yet another outcropping of the stimulus program, as a result of which overcapacity now plagues many sectors of the export industry—in metalwork, textiles, chemicals, etc.—and commits China to more production and more exports in the future in order to keep these new costly workshops open.

This renewed need to promote exports breathes fresh vigor into the already thriving mercenary practices of Beijing. Currency manipulation, perhaps the favorite, is growing vehement. The Chinese resort to it to fatten the goose that lays the golden eggs. Formerly de jure and presently de facto, the yuan has been pegged to the dollar at an exchange rate that makes Chinese exports irresistibly cheap to Americans.

To keep the currency undervalued, the Chinese central bank must—and constantly does—buy dollars in exchange for yuan, so that the demand for the former can grow with the supply of the latter. As a result of such transactions carried out over many years, a mountain of dollars has accrued in the coffers of the People’s Bank of China, which, until recently, it could not but sit on or invest into U.S. government debt so as to earn a modest return. Thus it is crucial to understand that the largest pool of foreign exchange reserves the world has ever seen—$2.45 trillion and counting—belongs to the Chinese not because they deliberately set out to accumulate it for strategic purposes. Rather, it is the inevitable and increasingly unwelcome byproduct of their mercantilist policies.

One frightful fantasy which the American foreign-policy intelligentsia are prone to indulge is that, thanks to these reserves, the Chinese can wield all-powerful leverage over the U.S. economy—that they can dump all the dollars in their possession and thus debase the value of the American currency. In short, that they can wage economic warfare against the U.S. and win. These apprehensions spring from a fundamental misunderstanding of the subtle interdependence between China and America. True—the Chinese are our creditors and we are their debtors, but they hold no collateral: Over the years, they have sold us an endless stream of goods for less than those goods were worth. In return, they have accumulated inherently worthless paper currency—most held as Treasuries—whose only backing is the health of the U.S. economy.

These growing forex reserves cannot serve China as a “war chest” because its currency is, if anything, vastly undervalued, and its ability to repay international debts, unquestioned. They carry immense “potential energy,” as it were, while they sit idle, but are worth very little if used. For one thing, their sheer bulk is so tremendous that the liquidation of even a small portion would precipitate such a fast and sharp depreciation of the dollar as to decimate the value of the rest. The corresponding steep appreciation of the yuan would grind the Chinese export industry to a halt and put nearly half of China out of work—yet another reason why extreme dependence on exports is dangerous.

China's Currency Bubble
Source: “What the Renminbi Means for American Inflation” (url)

As for the repercussions in the U.S. economy, they wouldn’t be entirely dreadful. The dollar as a vehicle currency might be dealt a crippling blow, though that is far from certain, given the many past indignities, such as the collapse of the Bretton Woods system, from which it has rebounded more or less unscathed. The export and hospitality industries would flourish, and after the bad blood cleared with the bad loans, confidence in future American investments would soar, for the dollar can only appreciate from its lowest low. The rocky experience might even chasten the U.S. government into confining its spending to its means and forswearing runaway debt. On the whole, the Chinese can hurt no one but themselves by liquidating their dollar reserves. Though Americans may not believe this, the Chinese themselves do, and, resigned to the prospect of holding their dollar-denominated assets indefinitely, have taken measures unprecedented in the history of finance to protect their value against inflation.

Until recently, nearly all of these assets were held in the form of Treasury and agency debt, whose meager yield could not keep up with inflation and the other transactional costs to holding a foreign-exchange peg. But in May of 2007, in a move that garnered surprisingly little publicity abroad, China invested $3 billion of its dollar reserves into a 9.9 percent equity stake at Blackstone Group LP, a major American private-equity financier. This investment marks a breakthrough in the management of China’s forex reserves: the start of a shift away from U.S. government debt, which until recently was considered a safe however low-yielding investment, and into private equities and corporate debt, always risky but of potentially high return.

The trend continued, and by the end of 2007, the State Administration of Foreign Reserves (SAFE) of China had invested an estimated $100 billion into U.S. mortgage-backed securities. By 2008, its holdings included minor stakes at Rio Tinto, Royal Dutch Shell, BP, Barclays, Tesco, and RBS. According to Brad Setser, a member of the National Economic Council, “SAFE has built up one of the largest U.S. equity portfolios of any foreign government entity investing abroad, including the major sovereign wealth funds…. It appears [as though] SAFE began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy.” Such ill-timed speculative dabbling into equities and corporate debt ended sourly, with losses to SAFE estimated at $80 billion as of March 2009.

But this is not all, for in September 2007 a new sovereign wealth fund was established—China Investment Corporation (CIC)—specializing in the investment of over $200 billion of China’s forex reserves into the equity and credit markets. Its holdings include a 9.9 percent stake at Morgan Stanley and a minor percentage of VISA. The governance and operations of both CIC and SAFE, though shrouded in bureaucratic fog, seem firmly entrenched in the political establishment. Their forays into equities mark the latest stage in the evolution of central banks and their subsidiary institutions from lenders of last resort to monetary authorities to, now, portfolio managers.

If China’s experiments with its forex reserves end up subsidizing American businesses as opposed to the U.S. government, so much the better. But when Chinese bureaucrats playing venture capitalists, unconstrained by any accountability to their taxpayers, throw billions of dollars not their own at speculative ventures, dislocations and inefficiencies might develop across any markets in which they invest. Moreover, the trustworthiness of firms in contractual business with the U.S. government may be compromised if investors backed by the Chinese government have any say over their operations. But these are tepid concerns overall. Of far greater importance is the harm China is inflicting on itself with its policies.

A country committed to a fixed exchange-rate regime must sacrifice its independent monetary policy and submit to that of the country to whose currency it pegs its own. So too China has little to no control over its money supply, especially now that it seems to have given up on sterilized intervention, and must import whatever inflation the U.S. economy produces in order to keep the yuan pegged to the dollar. As measured by M1, the money supply of China has ballooned by 35 percent between the end of ‘08 and that of ‘09. As measured by M2, it has expanded by 25 percent since March of ‘09. Inflation too is creeping up.

All this liquidity has flushed the pockets of ordinary citizens with cheap credit, which ends up into speculative ventures in real estate, construction, and manufacturing. Bank lending in China all but doubled in 2009 from the year before. By comparison, U.S. banks swelled up their loan book by only 10 to 15 percent each year between 2005 and 2007—at the height of the frenzy. Such overflow of easy credit provides rich and abundant nourishment to asset bubbles. And though China has known its share of market bubbles throughout the 1990s, all fueled by the government and ultimately traceable to the side effects of currency manipulation, the magnitude of the one now ballooning is unprecedented, as is the recent growth of Chinese forex reserves, which graphed, mimic an exponential function. Unprecedented fiscal abandon is also fanning the flames of speculative folly nationwide.

Not if, but when…and then what?

There is no saying when this bubble will burst or how much destruction it will leave in its wake but the outlook is grim. Civil unrest and political disturbances are not out of the question, but how Chinese foreign policy will reflect the upcoming tumult is not to be guessed at. China could lean heavily on its military might to compensate for its eroding economic power. Or it could sober up and renounce or postpone its global ambitions. Economically, the fallout could signify the death of mercantilism—the root of most evil in China’s economy. Though it is just as likely that an autopsy performed by Keynesian scholars will implicate the high saving rate as the cause of the crash.

But one thing is certain: The “Chinese miracle” does not give the lie to the economic lessons of the 20th century after all. Without question, China is undergoing its own industrial revolution. The world’s fourth biggest and most populous country has lifted itself from abject poverty. Monumental changes must unravel. The momentum of transition may last for decades. The turbulent particulars can bewilder observers. Nevertheless, the overarching path of economic development happens to be schematically simple. If we look past its bells and whistles, the Chinese economy shows a core made of extensive growth, just like the Soviet Union in its heyday.

Sales people introduce properties to potential buyers at the 2010 Beijing Spring Real Estate Trade Fair on April 10, 2010 in Beijing, China.
Sales people introduce properties to potential buyers at the 2010 Beijing Spring Real Estate Trade Fair on April 10, 2010 in Beijing, China.

Slowly, steadily, and diligently, the country’s labor pool and capital base have been expanded as far as their natural limits allow. Friction is now getting uncomfortable: the demographic resources are depleted; inasmuch as education is a commodity, the workforce is already educated; and if the accumulation of capital accelerates, the economy will scarcely receive benefit but the environment will suffer such a strain as to make not only radical ecologists, but any men of common sensibility squirm.

Innovation—the Philosopher’s stone of economic growth—cannot be planned. Chinese authorities can choreograph rural migrations and erect skyscrapers to prettify city skylines. But that won’t do. It takes something very different to create a lively, self-sustaining modern economy capable of intensive growth: steady property rights, unrestricted labor mobility, developed credit markets, provisions for intellectual property, and limits on bureaucratic interference—all missing in China. Only under such conditions can Hayek’s economic calculation problem be solved, entrepreneurship thrive, and decentralized knowledge direct economic activity. But when all you have is a hammer, everything looks like a nail. So instead of setting the economy free, Chinese central planners continue to experiment with mercantilist schemes and boondoggles of fiscal largess because these are the only tools at their disposal.

Any fears that China can remain what it is and still continue to grow at a breathtaking pace are, to put it mildly, unfounded. In order to compete with America, China would have to become like America; but if it did, it would no longer be a country to fear—prone to aggression or supportive of rogue regimes the world over. Instead, it would join the ranks of peaceful capitalist democracies and cease to pose a threat to the West. Such a metamorphosis should be welcomed and encouraged, not dreaded and undermined. To this end, nothing is more important than one often overlooked sector of the American export industry—that of culture and ideas. So far, the U.S. has exported to China its recklessly loose monetary policy and its penchant for wasteful fiscal “stimulus”—neither thing worth sharing. By contrast, the spirit of laissez-faire and the appreciation of liberal institutions—these most quintessentially American concepts—lie dormant today. With the U.S. sliding toward statism itself, their supply is too scarce even for domestic consumption, let alone for export abroad. If only America could become more like itself, and China more like America, the world would be a much safer and more prosperous place.

Greece and Serbia FRIENDLY

This must be seen to be believed:


Some “friendly,” eh?

For his part in the brawl—you know, the chair-tossing and head-punching—Krstic was detained by police overnight, and has since been released. According to the Associated Press, Greece’s “sports violence squad” is examining the footage and deciding whether or not to press charges. I’m no expert in international sporting events, but I’d surmise that having to have a “sports violence squad” means things are a bit nutty.

Naturally, the Serbian coach is playing the old “half-naked Greek” card in Krstic’s defense. [Insert hilarious quote by Serbian coach here—ed.]

Classic legal defense, really. Blaming half-naked Greeks has been going on for centuries, dating back to, at least, the Battle of Thermopylae. I like Nenad’s chances, despite clear video evidence of him picking up a chair and throwing it at a crowd of people.

Well, one can only hope that this unfortunate diplomatic mishap between the great nations of Greece and Serbia does not upset their lofty plans of ruling the world together:

… One day …

A Lower Manhattanite’s Take on the Cordoba House

As a three-year resident of Lower Manhattan whose apartment is situated no farther from Ground Zero than the future Cordoba House—that is, a couple of blocks away—I might be expected to entertain no very tepid feelings toward this Islamic complex and the controversy it has provoked. As it happens, my take on the whole enterprise has undergone quite a bit of reassessment since I first heard of plans by Muslim developers of suspect financing to build a mega-mosque on Ground Zero. The phrasing of the last sentence alone should give some inkling as to the first corrections in order.

If built at all, the Cordoba House, or Park51, as it’s now being called, will be an Islamic cultural center hosting a library, auditorium, gym, swimming pool, day-care center, and culinary school—out of which some space for an indoor mosque shall be carved, true. But what a far cry from a mega-mosque of towering minarets, blaring out the calls of muezzins five times a day, summoning the faithful to prayer! And it wouldn’t stand on Ground Zero or even overlook it. As to the sources of the funds, the developers have so far raised only enough money to buy the old building on Park Place, which they intend to demolish. The rest, an estimated $100 million needed to actually build, furnish, and staff the 13-story Islamic complex, remains to be vouched for. No terror-tainted sources have been tied to the developers’ financing, nor any irregularities found with their assets. At this point, none are likely to surface either, at least not before more funds can be raised and their sources scrutinized.

And yet, even after the smoke cloud of misleading rhetoric is dispersed, a sour taste still lingers about this Cordoba initiative, which no profusion of goodwill can clear away. For one thing, there is the questionable symbolism of Cordoba, where Muslims, Catholics, and Jews admittedly lived in relative peace for a few centuries, but only as far as the former subjugated the latter two, at least nominally. However enlightened this Caliphate of the Middle Ages was, and whatever the merits of the arrangements that prevailed between its religious communities, none of them could be held up as a model for emulation in the 21st century.

Then there’s Imam Feisal Abdul-Rauf, the public face of the project. Though professing himself a moderate dedicated to improving relations between the West and the Muslim World—and taken as such at his word by the State Department, in whose employ he is currently journeying to the Middle East on a mission of “interfaith outreach”—he can supposedly reconcile said religious tolerance and liberality with the implications of the following statements (emphases mine):

I wouldn’t say that the United States deserved what happened [September 11, 2001]. But the United States’ policies were an accessory to the crime that happened. … Because we have been accessory to a lot of innocent lives dying in the world. In fact, in the most direct sense, Osama bin Laden is made in the U.S.A.

Asked whether Hamas meets the definition of terrorist group:

I’m not a politician. I try to avoid the issues. The issue of terrorism is a very complex question. … I am a peace builder. I will not allow anybody to put me in a position where I am seen by any party in the world as an adversary or as an enemy.

Is Feisal Abdul-Rauf a woolly cleric, well meaning but naïve, and perhaps somewhat scornful of consistency—moral and intellectual—that alleged hobgoblin of small minds? Or is he rather a subversive, astute fanatic, well versed in those formulaic platitudes that make a leftist’s heart melt but wholly unmoved by the charms of such things as Coexist bumper stickers? Of course, he might even be a mere career fundraiser, secretly indifferent to questions of theology or conscience, jealous of his professional reputation as bridge-builder extraordinaire, and too mindful of wealthy donors and patrons in the Middle East to risk stepping on their toes by damning their pet terrorist groups. In any case, Mr. Abdul-Rauf does not seem the kind of man anyone in his right mind would want to welcome into his neighborhood, especially as the head of his local Islamic community center.

Last and most important, although the most incensed critics of Park51 have shamelessly overstated the actual proximity of the complex to Ground Zero, I cannot but judge it in very poor taste to insist that this Islamic cultural center should be built nearly two blocks away from where the World Trade Center once stood. Even if the most honorable intentions could be imputed to the developers, demolishing a building damaged on September 11, 2001, by fragments of the hijacked planes, in order to erect in its place an Islamic center, is so obviously crass that they shouldn’t wonder why the majority of Americans—68 percent, by the latest count—oppose the undertaking.

That’s as far as I can sympathize with the opponents of the Cordoba House. And the American Center for Law and Justice could have obtained both my signature and my support had it organized a private petition for New Yorkers to civilly register their disapproval of Park51 instead of trying to block its construction through the courts. But, I should hope, the distinction between finding something distasteful and justifying coercive action against it cannot be so subtle as to elude most Americans. It is a hallmark of civilization—conspicuously wanting, by the way, in those Islamic societies whose young men seethed with rage and destroyed everything they could get their hands on because the portrayal of their prophet in certain Danish cartoons had mortally offended them.

It might have been possible to shame the developers of Park51 into reconsidering where to build their Islamic center, had their right to build it wherever they pleased not been called into question. But because most opponents started to conflate that matter with whether the mosque and Islamic center in Lower Manhattan were generally desirable or publicly acceptable, so, in turn, did some champions of the other side of the debate. In the process, the shady imam and his fellow developers have acquired the aura of noble “martyrs” to the cause of the First Amendment, bold visionaries molested by a growing mob of bigots—which is unfortunate and counterproductive. Of course, they must build near Ground Zero now, to prove that they can, their plight carrying such a high symbolic weight and what have you.

So we must contend with a thorny First Amendment case—and no, zoning laws cannot treat a mosque near Ground Zero as they might treat liquor stores near schools or strip malls in places where they offend local sensibilities, because neither liquor stores nor strip malls are expressly protected by the Constitution, whereas the free exercise of religion is. Therefore, no government interference with the developers’ property rights could be warranted. And this marks the first topic of public interest on which I fully agree with President Obama, who said:

Now, we must all recognize and respect the sensitivities surrounding the development of lower Manhattan. The 9/11 attacks were a deeply traumatic event for our country. The pain and suffering experienced by those who lost loved ones is unimaginable. So I understand the emotions that this issue engenders. Ground Zero is, indeed, hallowed ground.

But let me be clear: as a citizen, and as President, I believe that Muslims have the same right to practice their religion as anyone else in this country. That includes the right to build a place of worship and a community center on private property in lower Manhattan, in accordance with local laws and ordinances. This is America, and our commitment to religious freedom must be unshakable.

Neither did I find his subsequent clarification the least bit disingenuous; quite the contrary:

I was not commenting and I will not comment on the wisdom of making the decision to put a mosque there. I was commenting very specifically on the right people have that dates back to our founding. That’s what our country is about.

So there is no arguing on whose side the law is. As for decency, well, I wish I could say that decency, at least, were squarely on the side of Cordoba’s opponents, but their cause has been hijacked by the likes of Pamela Geller and Robert Spencer, bottom-feeding activists who, collectively, allege that Barack Obama is the love child of Malcolm X and extol Serbian war criminals indicted by the Hague Tribunal as valiant paladins of our civilization (for having slaughtered thousands of Muslims in the Balkans). Another leader of the opposition to Cordoba, John Joseph Jay, considers every single Muslim a legitimate target for murder. These three have founded the American Freedom Defense Initiative, which sponsors the anti-Cordoba ads now plastered over New York buses, and work closely with the aforementioned American Center for Law and Justice. Suffice it to say, such people do not represent me and should not represent anyone who understands what they are up to.

But leaving these anti-Muslim fanatics aside, the sane opponents of Cordoba—most of them staunch conservatives and champions of individual liberties—must still account for the unprincipled ease with which they propose to infringe the property rights of private developers. Hypocrisy, however, is a plague on both houses, conservative and liberal. For it is the latter, the usual proponents of Eminent Domain, most of whom have never heard of a Walmart or casino in their remotest vicinity whose construction they didn’t want to stop, but whose lips are now curling up in self-righteous indignation at the gross encroachment upon these Muslim developers’ property rights. Of the many counterfactual scenarios and thought experiments so popular with those pundits fond of reasoning by analogy, my favorite is by , from her excellent piece in RealClearPolitics:

Let us consider a hypothetical, leaving aside for a moment the usual examples involving Germans and Auschwitz or the Japanese and Pearl Harbor. Suppose a group of Christian anti-abortion fanatics bombed the offices of Planned Parenthood in New York, killing hundreds. Suppose that, 10 years later, a conservative Christian group, strongly pro-life though repudiating violence, wanted to build a 13-story community center and church next to the site of this tragedy.

Most likely, the roles in this debate would be reversed. Quite a few liberals would denounce the planned construction of the center as a slap in the face to the victims and their families; the likes of Sean Hannity and Sarah Palin would decry anti-Christian bias and voice outrage that the actions of a handful of extremists would be used to denigrate all Christians or all abortion opponents.

Indeed. Apparently, no ground is as hallowed as to deter some from exploiting the sentiments it commonly excites. But of the 68 percent of Americans opposed to the Cordoba House, I wonder what percentage concede that the developers have every right to build their mosque and Islamic complex near Ground Zero. And whatever our numbers be, I also wonder, who represents us in this debate?

Why We Went into Iraq, According to William F. Buckley, Jr.

Having failed in all my attempts to trim down this video into the interval of interest, that is, between its 9th and 14th minute, I’ll embed the whole thing and trust that you can make it through the boring claptrap until the conversation starts to get interesting. This is one of the last interviews William F. Buckley, Jr. ever gave—hence of some interest in that regard alone. In it, Charlie Rose comes across annoying and obtuse, interrupting the elderly Buckley with specious remarks and irrelevant questions. But, then again, that’s something he does to all his guests. Buckley sounds gloomy and exasperated, yet candid. This late in his life, there must have been little point to keeping on a mask. So the truth slips out. The war in Iraq, the politics around it, the nation building that goes on there—all of it is a Crusade to him. And he laments the failure of the Americans to match their jihadist antagonists in fervor and conviction toward this holy war. The transcript, as far as I can make out, goes something like this:

William F. Buckley, Jr.: “There are distinguished people of that faith [Muslim] who are … very reluctantly engaged in the Iraq-type offensive. However, in order to counteract that offensive, satisfactorily, it is required that we be enthusiastic about what it is that we are defending.”

Charlie Rose: “… that we are defending, and what values we represent.

William F. Buckley, Jr.: “And I don’t think we’re doing that.”

Charlie Rose: “I don’t either.”

William F. Buckley, Jr.: “The whole notion that Christian civilization is challenged, and therefore, ‘we regret it,’ …”

Charlie Rose: “But do you just say Christian or do you say Judeo-Christian civilization?”

William F. Buckley, Jr.: “Well,.. uh, I am sensitive to the point that you’re are making. I think it’s exaggerated, since there are only 5 or 6 million Jews in the area that we’re talking about. The civilization that we want to defend is, of course, Judeo-Christian, but in terms of enthusiasm for the enterprise, it’s the Christian alternative that we need to get enthusiastic about.”

Charlie Rose: “Since the campaign is run by George [W.] Bush and others, there’s been much criticism of religion in politics, and too much religion in too many political campaigns. Do you think that’s true? … [irrelevant gibberish cropped for brevity’s sake—ed.] What is absent is tolerance?”

William F. Buckley, Jr.: “I think it’s true that there are tendencies, as there always are, to cooptation. A lot of people who are against the movie Deep Throat will convert that into a crusade involving Christianity. But in answer to the specific question, I don’t think there is too much of it at all. I think there’s much too little of it.”

Charlie Rose: [interjects some more nonsense—ed.]

William F. Buckley, Jr.: “The animating thought of our love of country and our love of freedom is religious. By which I mean that it is scriptures which are religious in origin that impel us to believe, for instance, that all man are equal. That impel us to feel a responsibility for our brothers. And a weakening of our understanding of that mandate is translated into unconvincing activity. I don’t think that a lot of these people who are committing suicide in Iraq have any deep sense of the notion that America … that,.. the American offensive, is based on deeply religious principles, on deep conviction. That…”

Charlie Rose: “As you know, the most extreme opponents of the war would say that it wasn’t based on deeply religious principles. It was based on two things: one, whatever ideals of Wilsonian democracy. And if you can nation-build in the center of the Middle East, we’ll have some geo-political effect. And in addition to that, it was based on the principle of,.. er,.. on economic concern, about oil.”

William F. Buckley, Jr.: “Well, they certainly figure. …”

Charlie Rose: “It had nothing to do with religion.”

William F. Buckley, Jr., smiling: “Well, it does in a sense. By which I mean: we want oil because oil is a very useful natural substance. But we also want it because it permits us to live the kind of life we choose to lead. … I think our attachment to our freedom to live as we choose to live has very very deep roots in Christianity. And that to the extent that these roots are ignored, we tend to be less convincing as contenders than we have a right to be.”

I know not where to begin. But commentary would be superfluous here anyway. What can I say? William F. Buckley, Jr., good riddance. If among those of your political persuasion you were worthy of the highest esteem, one can only shudder at what notions your less enlightened fellow travelers might hold.

New Best Friends in the Balkans

Some news you might have missed last week: Serbia and Turkey have inaugurated a series of unprecedented initiatives of military and diplomatic intimacy, including joint aviation exercises and a mutual abolition of visas. The timing of these gallantries is rather ironic, as it coincides with the 15th anniversary of the Srebrenica massacre, which marks the extermination of more than 8,000 Bosnians, mostly boys and men, as well as the ethnic cleansing of some 25,000 to 30,000 more—which extermination and concomitant ethnic cleansing the Serb perpetrators justified in the name of “driving out the Turks” (i.e., the Bosnian Muslims).

This was the first year the Serbian government ever condemned the massacre—a humbling gesture aimed at smoothing its path toward EU membership. Some may consider this an occasion of which Serbia has availed itself in order to also mend fences with Turkey—a party its war slogans of 15 years ago had indirectly offended. But it is far more likely that the two developments bear no more relation to each other than did the Serbs’ genocide against the Bosnians and their animosity toward the Turks—which is to say, none at all.

What this newly forged friendship between Serbia and Turkey actually represents is a miniature replica of the trend in the relationship between their respective patrons, Russia and Iran, who have recently grown very close. For, of late, Turkey has become a firm node of the Iran-Syria-Venezuela axis, and as for Serbia, well—as an independent state, Serbia has not exercised any political free will of its own since the Middle Ages without first consulting Russia’s interests. And while under that whipped fluff of much-talked-about UN sanctions the ties between Iran and Russia continue to flourish, so do those of their proxies in the Balkans.

Read the rest at Commentary.

RE: The Problem of Economic Calculation

In this entry, I argued that the census is of little value to central planners. The cost of over $11 billion is one fact I cited against it, but on second thought, no critique on that front holds water, because the Constitution itself mandates the taking of the census—and for a purpose wholly unrelated to the gathering of economic intelligence. So if the government must take the census, the cost of doing so does not signify.

It seems to me, however, as though the government already possesses all the information the census is meant to collect and more—neatly tucked away in the IRS Individual Master File: name, income, spouse, dependents, residence, whether you own or rent the place where you dwell, what you ate for breakfast, etc. The only question on the census to which the IRS doesn’t already demand an answer—that I know of, at least—is that of race. “But … but … that’s not what the Constitution says. The founders meant for the census to…” Yeah, sure. … Indeed, that such an institution as the IRS should even exist in these united states would scandalize the founders if the poor devils were around to take note. No matter. The IRS is here to stay. So why not make the most of it? The government could query its database every year, instead of ten, by means of an electronic process, which would practically cost nothing. That’s over $1 billion of savings a year, which could, in turn, be wasted far more imaginatively over trifles less mundane.

Letters from Peter Brimelow’s VDARE Readers

Peter BrimelowPeter Brimelow flatters me with so much kind attention at VDARE, his White Nationalist website:

Gjermani (contact her), who describes herself as “an Albanian expatriate of Jewish descent living in Manhattan”, recently posted a very conventional blog in Commentary Magazine, full of the usual paranoid nonsense about Arizona’s SB1070. …

He even links to my blog and encourages his readers to write to me. And they do! Here are a couple of e-letters I recently had the pleasure to receive:

From: William <>

Subject: your globalist, Marxist, anti-Western Civilization

Get out of my country and any other White-Christian countries, you Christophobe ingrate ! No other civilization does 1/1000th of the charitible works of the Western Countries when contrasted with any other non-Western country/culture, why? They are not White or non-Christian or both! Write to the Turkish government about Israeli hospitality to humanitarian aid care givers or any other non-Jewish people since it’s inception in 1949 A.D. with the help of all the White-Christian countries, then, through the present. you hypocritical critic !

Wait. It gets better.

From: Jim <>

Subject: LOL

“….though, on second thought, I’d have little to fear”

You have a lot to fear, a whole lot to fear. When this country goes up in flames of civil war it will be very easy to pick jew traitors out from a crowd–don’t come running to us “redneck” Americans for help, you will be forced to go die in the chaos you helped to create.

You are a jew and you absolutely do not look European, don’t take false comfort in believing this farce, it may fool some; it still doesn’t fool many of us.

Take your jew babble and go back to your slime pit in Isrealhell you self chosen pile of shit.

Currently residing in Jew Langeles, Jim is also the sole proprietor of such lovely and informative websites as the Jew List and Real Hard Core Anti-Jewish Activism, as well as a prolific contributor to the now defunct Gentile Alliance, whose noble motto was “Anti-Semitism Is Obedience to God; USA and West.”

Thanks, Pete, for sending me such quality traffic. Your readers got your point across better than you yourself ever could have.

Republicans and Immigration—The Elephant in the Room

Jennifer Rubin draws attention to the elephant in the room—that is, the GOP’s unfortunate posturing toward immigration, of which John McCain has lately become the embodiment.

It should be of some consolation that before he could find someone to cast in the nativist role he sought, McCain had to do quite a bit of fruitless searching and, in the end, resort to “synthesizing” his ad from the scenery of a border town and the commentary of a sheriff from a different county. Indeed, the sheriff who enthusiastically confirms McCain’s bona fides as “one of us”—whatever that means—hails from Pinal county, not even on the border, while the ad is shot in Nogales, a border town in the county of Santa Cruz, whose sheriff, Antonio Estrada, has blasted the Arizona immigration bill in no uncertain terms:

“Local law enforcement has a great relationship with the Hispanic community, and something like this is really going to scare these people,” said [Sheriff] Estrada. “They’re going to look at us as immigration officers every time they see us.”

Clarence Dupnik, the sheriff of Pima—another county in Southern Arizona, which shares with Mexico the longest border in the state—has called the bill “disgusting,” “racist,” and “unnecessary.”

The ad merely reveals McCain to be a politician, evidently less principled than his supporters took him for in 2008. His presidential ambitions now thwarted, in order to at least not lose his Senate seat, he has gone to great lengths—as far as to endorse the anti-immigration bill of Arizona after having supported the pro-immigration bill of President Bush. But no matter that a politician should flip-flop. Most troubling is the fact that McCain judged this ad expedient because it can find a sympathetic audience among the GOP base.

Read the rest at Commentary.

Ass-Kicker in Chief

In an interview with NBC, President Obama sets the record straight with respect to his administration’s much-criticized handling of the oil-spill crisis. Far from flailing in his response to the environmental disaster, Obama has been way ahead of the curve all along. As early as a month ago, he assures us, he was facing the elements down in the Gulf, gaining first-hand intelligence from local fishermen on “whose a** to kick.”

Read the rest at Commentary.

Rand Paul’s Rocky Start

Rand Paul, son of Ron PaulJen, when you say of Rand Paul, “here’s some free advice: don’t trot out his father, Ron Paul, to defend him—it will give voters the sense that Rand is as wacky as his dad,” I am uncertain whether the advice goes far enough. Some of Ron Paul’s ideas and pronouncements are so disturbing and extremist that it may be incumbent upon Rand Paul not only to evade his father’s endorsement but also to distance himself from his unacceptable positions publicly.

Not only the Tea Party protests but also the silent rancor of the public at large seems fueled by outrage at this administration’s fiscal abandon—which tends to overshadow considerations of foreign policy or social issues. It is therefore unfortunate and possibly dangerous that some of the most ardent and sincere champions of fiscal sobriety hail from the Paulian circle and thus carry a lot of undesirable baggage. Voters must take or leave these controversial candidates as a whole—the good along with the bad and the ugly.

During the 2008 presidential race, I came across a great number of well-meaning people so taken with Ron Paul’s promises of fiscal constraint and economic laissez faire—as sorely wanting then as today—that they ignored, denied, or rationalized his noxious standpoint on social matters, his ridiculous prescriptions on foreign policy, his illiberal writings on race relations, and even his connections with anti-Semites. It is possible for the reverse of this phenomenon—that is, wholesale acceptance or rejection—to backfire now for Rand Paul: natural antipathy to his social conservatism (e.g., his advocacy for a complete ban on abortion), his isolationist foreign policy, and his controversial comments on the Civil Rights Act, might, by association, extend in the minds of undecided voters to his agenda of limited government and fiscal conservatism.

Read the rest in Commentary Magazine.

Cutting Angels’ Wings

Senator Chris DoddCongress has passed or contemplated so many blunders of late that I, for one, am finding it harder and harder to muster fresh outrage toward every new one. But this latest being cooked up by Chris Dodd deserves a special shout out:

First, Dodd’s bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing. A second provision raises the wealth requirements for an “accredited investor” who can invest in startups—if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.

All the prerogatives over private businesses; all the power over health care, now near absolute; all the dabbling in the inner workings of financial institutions; in short, all the regulation in the world, couldn’t satisfy this government. Are the Democrat legislators ever going to have enough? Or is their regulatory fetish feverishly looking for new, exotic objects?

Read the rest in Commentary Magazine.

The Missile-Defense Betrayal

It was not uncommon for a pharaoh to deface the monuments of his predecessors, insert his name in their inscriptions, or impose his likeness on the heads of their statues. The enterprising ruler—whoever he might have been—responsible for introducing this practice debased the respect traditionally accorded to a Pharaoh’s postmortem, opening the door of precedent for successors to usurp his monuments and achievements in turn. Fiddling with the permanence of the past in exchange for artificial boosts to a leader’s legacy tends to be self-defeating.

Today the Obama administration is behaving as if its mandate—conferred by a majority of voters frustrated with the Bush administration—carried sufficient authority not only to break with the past but also to undo it. The new man in the White House is bringing retroactive changes to foreign policy and showing no scruples about reneging on the long-term commitments of his country when they interfere with his own plans. On September 17, President Barack Obama officially announced that he would abandon the Eastern European missile-shield program, thus scrapping the treaties Gorge W. Bush had signed with Poland and the Czech Republic. The decision has drawn expressions of dismay from the governments of both countries.

“Catastrophic for Poland” is how a spokeswoman at the Polish Ministry of Defense described the suspension of the program. Mirek Topolanek, the former Czech prime minister who had gone out on a limb with his own electorate by signing the missile-defense treaty two years ago, interpreted the decision as another sign that “the Americans are not interested in this territory as they were before.” He added ruefully that “this is not good news for the Czech state, for Czech freedom and independence.” Lech Walesa, the former president of Poland and founder of Solidarity, observed with bitterness: “I can see what kind of policy the Obama administration is pursuing toward this part of Europe. The way we are being approached needs to change.”

Read the rest at Commentary magazine.

P.S. This is my first article for Commentary.

Robert Stacy McCain: Neo-Confede…what!

Robert Stacy McCain can’t make up his mind on whether I am a “Jihadist concern troll” or an atheist, “dogmatic Randian.” While he ponders the equally plausible alternatives, I dig through his past writings.

From the archives of The Other McCain emerges this nugget of information:

Snapshot of RS McCain's membership card
Snapshot of RS McCain's membership card

James M. McPherson—the renowned civil-war historian, former president of the American Historical Association, and editor of the Encyclopedia Britannica—designates the Sons of the Confederate Veterans as a Neo-Confederate organization:

I think, I agree a 100% … about the motives or the hidden agenda, not too, not too deeply hidden I think of such groups as the United Daughters of the Confederacy and the Sons of Confederate Veterans. They are dedicated to celebrating the Confederacy and rather thinly veiled support for white supremacy.

Meanwhile, from Stacy:

Kejda Gjermani, while keenly intelligent, is yet only 26 and deficient in the hard experience of life and long decades of study that might qualify her to dictate what are the appropriate “components of Americanism.”

Kejda Gjermani is only 23 years old, as one lesbian detective has recently uncovered, and she needs no more than common sense to feel qualified to name a few inappropriate components of Americanism—tribalism, religious supremacism, and white nationalism are among them.

The Other “Other McCain”

The Other McCain
The Other McCain

Unprovoked and unchallenged, Robert Stacy McCain has been harassing Charles Johnson of LittleGreenFootballs relentlessly over the past ten days—twenty posts and counting since September 15th and the archive of hatred and verbose distortions runs deeper. Yesterday, seemingly unsatisfied at the breadth and depth the coverage of Johnson’s evils had received from his own blog, he launched a new outlet for seething against him, carved out of HotAir with its administrators’ approval. From McCain’s inauguratorory remarks, we learn that creating the Green Room—as he colorfully calls it—had become necessary because both at his blog and at HotAir, “commenters have been hijacking every thread to discuss the disastrous self-immolation of Charles Johnson.” That HotAir and the Other McCain are plagued by hordes of commenters who care for nothing but trashing Johnson—to the point of needing a separate forum custom-made for this purpose—speaks more about these blogs’ readership and appeal than it does about Johnson.

But let me speak about Charles Johnson for a minute. He does not need me to defend him, but if I keep silent, a few facts may remain understated: For one thing, he never started a blog war with Robert Stacy McCain. All he did was note—in a discreet comment at his site—that Stephen Green of Vodkapundit was promoting McCain, whom Charles rightfully labeled a white supremacist. When Green responded with a passive-aggressive post making excuses for McCain, Charles provided sources to back his assertion. See that? Only two hyperlinks in the next-to-last sentence, because two posts, mainly consisting of outside sources and direct quotes—the most damning ones from McCain himself—were enough to establish McCain’s racist bona fides. Truth is succinct, truth is crisp. It does not seethe, it does not prevaricate, it is not affected.

What McCain has responded with are long-winded heaps of nothingness, shot through the ether in rapid succession. Does he ever address the direct quotes and facts Charles has laid out? No. Here is an example of what he does instead:

Johnson’s attack on me at LGF depends largely on convincing his readers that, because I am an obstreperous Southerner . . . well, nudge, nudge. You know how those people are.

Except when they aren’t.…People who hate the South—and I think Charles Johnson might fit that description—will not permit you the leisure of merely saying, “Well, we’re not all bad.”…

Charles Johnson was not [at the Tea Party]. I was. And so were lots of people from Virginia, North Carolina, Texas, Georgia… oh, wait. I forgot. All Southerners are ignorant racists, right, Charles?

One dull, pathetic lie that is…. Charles never said or suggested any of the above. He merely related a simple fact to his readers—that Robert Stacy McCain has been a member of the neo-confederate League of the South. Does McCain dispute this much? No. In fact, he digresses:

[T]he point is that I was pursuing my professional duty when I first came into contact with the League of the South, and of my subsequent involvement, there are many things that people think they know—on the basis of SPLC reports—which are not necessarily true. And there are many, many thinks [sic] that people do not know.

To what mysteries do you allude, Robert? Are you a member or not? Have you ever been? The League’s secessionist intentions are a matter of public record, as is her pro-slavery stance. One of her cofounders, Thomas Fleming, makes a cameo appearance in my exposé of Serge Trifkovic, where some of his blatantly racist pronouncements are quoted in full—no one can accuse me of taking him out of context when he openly defends the Klan and rejects the 14th Amendment to the U.S. Constitution. So, Robert, care to elaborate on that subsequent involvement of yours in the League? Neither do you deny being a member of it nor do you wish to utter anything unflattering about it. Then why the caveat when you link to fellow-Leaguers (emphasis mine)?

Meanwhile, keeping in mind that a link is not necessarily an endorsement, League of the South blogger Old Rebel offers his own idiosyncratic [sic] of Chronic Degenerative Lizardmania: [Deranged screed follows—ed.]

Do hedge your bets, Robert. Leave those modifiers dangling too—they make it easier to claim later that you’ve been misunderstood in whichever way it conveniences you to be misunderstood….

In response to my husband—the “an anonymous a—hole”—who calls him out on the friendship and business relation with Richard Spencer of TakiMagazine, McCain retorts:

Richard Spencer, as I have written before, is a young radical intellectual who has read too much Nietzsche. Should he be shunned therefore?

Oh dear…. I will gladly capitulate to Godwin’s Law if it means pointing out that Hitler started out as a young radical intellectual who had read too much Nietzsche (and Schopenhauer). Spencer, McCain’s friend and intermittent source of paychecks, is a notorious white nationalist—he will freely reveal himself as such if you meet him in person; at least he has to me and to MPH, the “anonymous a—hole.”

More evasions from McCain:

[Johnson’s] attack on me at LGF is a classic “ransom note method” attack—the assembling of this, that and the other to create a collage, like a kidnapper glueing [sic] together words clipped from magazines.

Pretty vivid imagery there… of a collage… stitched together from quotes and facts. The horror! But who would dare ransom this quote from McCain?

[T]he media now force interracial images into the public mind and a number of perfectly rational people react to these images with an altogether natural revulsion. The white person who does not mind transacting business with a black bank clerk may yet be averse to accepting the clerk as his sister-in-law, and THIS IS NOT RACISM, no matter what Madison Avenue, Hollywood and Washington tell us.

This, from someone who feels reluctant to shun Robert Spencer, Pamela Geller, and other assorted bigots, primarily out of strategic considerations:

You cannot build a successful political movement by a process of subtraction, and building a winning coalition is impossible if you organize on losing principles. Allowing your opposition to dictate the terms of acceptable discourse is a losing principle, as Jeff Goldstein has striven to explain. Ergo, Johnson manifests a defeatist tendency when he pronounces Geller and Spencer “untouchables” because they attended a European conference whose promoters included some unsavory characters.

Robert, I assure you: If only you could discriminate less against people of different skin color, you would safely afford to discriminate more against would-be allies of stained character or reputation. And on aggregate, the numbers in your winning coalition would not suffer one bit from this shift—trust me, I’ve done the math. McCain further writes:

The point is that, in attacking me as a “neo-Confederate,” Charles Johnson arrogantly supposes that the facts he knows (or rather, believes he knows, as there has been so much misinformation propagated over the years) are the only facts that matter, and that whatever facts he doesn’t know must be irrelevant.

This is where the Hayekian insight comes in handy. Friedrich Hayek understood that central economic planning could not work because the information contained in prices is too complex, diverse and localized to be supplanted by decisions made by “experts.”

In the same way, our individual opinions on subjects of controversy—including, but not limited to, public policy—are shaped by our personal experiences and knowledge.

Sir, I see your gratuitous invocation of Hayek’s information theory and I raise you Henry Hazlit’s elaboration of opportunity cost—from one Austrian economist to another:

A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge….

The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.

Take that, and apply it to your strategic reasons for tolerating fascists, white nationalists, and religious supremacists in polite company. Their presence in a movement is palpable—hey show up in a head count—but how many sane thinkers who might otherwise sympathize with a cause or idea will never join, out of sheer disgust with its co-optation by fascists and bigots? We’ll never know…. This consideration applies not only to the involvement of Robert Spencer, Pamela Geller, or Ann Coulter in the “conservative movement,” but also to your own trafficking in Austrian circles—Hayek is rolling in his grave as neo-confederate cranks twist his ideas in their defense.

Now, back to Charles Johnson… I may disagree with him on any number of issues and still find debating ideas with him a pleasure. He has never given me reason to doubt his integrity or his sanity, and for enduring—without so much as a flinch—the storm of excrement blowing his way from “conservative” quarters of the blogosphere, my hat goes off to him. Refusing to break bread with outspoken bigots should not constitute a tense moral dilemma. It’s basic decency—the kind we should safely take for granted in others and in ourselves. As Charles’s alter ego Lao Stinky put it, “Refusing to dive into a sewer doesn’t mean you’re cleaner than everyone else.” No one deserves a medal for refusing to descend into vitriol and bigotry, but basic virtues are becoming so hard to come by on the Right that they must be spelled out anew. And it’s embarrassing that it has come to this.

White nationalist Robert Stacy McCain now prominently blogrolls lgf2, a hate site run by a couple of dangerous whacks prone to physical violence—and encourages its commenters to congregate at Hot Air. He brings up the nicknames of commenters banned from LGF—apparently, they’re no longer “anonymous a—holes” when they play his game—and encourages them to seethe at his site. Could there be a move pettier than cultivating disgruntled ex-commenters banned for good reasons from another site? I mean, at least from “one of the top Hayekian public intellectuals in America”?

To all those “pundits” who should know better—Vodka, Allah, Insta, I am pointing at you—some candid advice: Get your neo-confederate protégée to shut up, because the more he talks, the deeper the hole he digs himself into, and the more uncomfortable you will feel when you come to his defense.

UPDATE: I’ve learned that Hot Air‘s “Green Room” was not created specifically for hosting Robert Stacy McCain’s diatribes against Charles Johnson. It’s rather a platform for all “outside bloggers” who contribute to Hot Air. I did not know this because I have not read Hot Air in a long time. What McCain did was use an existing platform to publish a thread exclusively dedicated to trashing Charles Johnson. There… is that better?

UPDATE: Over at “The Other McCain,” Stacy is already reacting by, you guessed it, weaseling his way around my arguments. He pretends to respond by quoting a sentence of mine—cherry-picked for its relative irrelevance to the charges against him:

White nationalist Robert Stacy McCain now prominently blogrolls lgf2, a hate site run by a couple of dangerous whacks prone to physical violence—and encourages its commenters to congregate at Hot Air.

Then he proceeds to “debunk” it by informing me that “there are these things called facts,… and there are witnesses to those facts.” These “facts” Stacy links to and their respective “witnesses” are nothing but photos of his son with his football teammates, of whom some are black and one is Asian. So his offspring has been caught on camera looking friendly among blacks, in front of witnesses. Stacy, you’ve humored me. If this is the best you can muster in your defense, I rest my case. The idea of having blacks for in-laws still repulses you. But to your credit, you have established that not only you don’t mind transacting business with a black bank clerk, but you will even tolerate your son playing with black kids. You are much more open-minded than I had realized and I am not above admitting it.

From another update:

Now we see where Kejda Gjermani is getting her misinformation. A commenter identifies her husband as software entrepreneur Michael P. Hussey…[so MPH was not an anonymous a—hole after all—ed.] Apparently “mph” encountered Richard Spencer—perhaps at a libertarian event? some sort of Paulista gathering?—in New York, where they both live, and words were exchanged…. Alas, “mph” has made serious mistakes by recycling materials of dubious credibility, and—if it is true that “mph” is Hussey—he has committed an even more serious error by involving Gjermani in what appears to be some sort of personal feud with Spencer.

Leaving aside the misogynistic presumption that it must have been my husband who fed me “misinformation” or “involved” me in anything, I must correct Stacy’s allegation that it was at a libertarian event or “Paulista gathering” that my husband and I met Richard Spencer. For someone so ostensibly committed to not jumping to conclusions without knowing “the facts,” Stacy is sure making up a lot of stuff from thin air. For the record, we met Spencer at a debate titled “Is Zionism Racism?” There was a show of hands, and guess which way Richard Spencer voted? To this day, I remain wholly confused as to what his vote revealed about his attitude to Israel, because he seems to consider racism a good thing.

To top it off, Stacy taunts us:

Pay close attention, idiots: Just because I haven’t bothered to deny something doesn’t mean it’s true. The burden of proof is on the accuser, and good luck proving some of the things you have so flatly asserted. There are facts. And there are witnesses.

He doesn’t bother denying any of the charges against him. But he does bother writing dozens of articles, each over 1,000 words long, to harass whomever brings up unflattering facts from his past. Facts that he doesn’t deny, but pleads with his readers not to believe…. I need some Advil….