At their most basic, lawyers are necessary, as is the law. Civilization would be impossible without the rule of law, and modern industrial civilization even more impossible. Fans of Christopher Nolan’s “Odyssey” movie would mostly not claim to be capitalists, but one of the many unhistorical features of that movie, as I gather from the reviews, is that it updates the Bronze Age ethical world about which Homer sang to a late mediaeval Christian world, in which one can imagine Shakespeare’s Merchants of Venice doing good if risky business. Odysseus is burdened with a conscience, not something known in the Homeric era, where misdeeds were punished by the Gods, not internally.

Technologically, it is true, there was not much difference between the two eras, but in outlook there was a huge difference; life in the real Bronze Age was nasty, brutish and short, in Thomas Hobbes’ memorable phrase. Conversely, the merchants of Shakespeare’s and Hobbes’ time had the protection of established legal systems, with lawyers to protect both their contracts and if necessary, their physical existence by deterring the thugs that infest every age. Dick the Butcher who wanted to “kill all the lawyers” in Henry VI Part II was supposedly a ringleader in the 1450 Jack Cade’s Rebellion and represented a more primitive social view. At an Early Modern level, therefore, we need lawyers and should be grateful for their existence.

The English legal system under the great Lord Chancellor Earl of Eldon worked well, despite innumerable complaints of the law’s delays and costs. Criminal law trials were quick and simple, generally over in a morning, with the parties involved knowing their fate immediately. The death penalty and transportation to Australia were available as punishments to deter miscreants (though as Liverpool said in 1819, New South Wales was becoming so pleasant that transportation to it was no longer a sufficient deterrent – there were cases of savvy London rogues committing crimes so they could be sent there free of charge).

Eldon’s legal system had lengthy and economically damaging civil trials, notably that of Jennens vs Jennens, arguing the claim to William Jennens’ 1798 fortune of £1.5 million, serious money in those days, which ran until 1915, a total of 117 years, by which time the fortune was (of course) exhausted – Jennens had prepared a valid will, but being 97 when he died, had forgotten to sign it. However, these cases were prompted simply by the need for lawyers to make a living; they had no significant economic effect beyond the unfortunate parties concerned and the lucky or greedy lawyers.

In Eldon’s legal system, the law did not attempt to come after citizens who said things the authorities did not like. Even though there were fanatic Whig judges and clever and unscrupulous Whig lawyers like Henry Brougham, they had no power to block the Liverpool government’s laws simply because they did not like them – although they did delay George IV’s Coronation for a year because his estranged wife insisted on being present. Eldon’s legal system did not invent fresh constitutional rights to flood the country with “birthright” immigrants. The British constitution was what the Earl of Eldon said it was; he was a 1-man Supreme Court, greatly simplifying the appeals and law writing processes.

Eldon’s legal system did not impose massive delays on new infrastructure; you had to get an Act of Parliament to build a railway, because of the Eminent Domain it needed over landowners’ property, but even Eldon himself objecting in a memorable speech did not significantly delay the construction of Brunel’s Great Western Railway. There were no “trial lawyers” seeking to sue business for imagined transgressions against woke regulations or environmental fads – any such lawsuits would have been thrown out of court. Medicine was primitive, but its costs were not inflated by fanciful lawsuits seeking to prove that some medical procedure undertaken in good faith had been mistaken.

In short, the Eldon legal system worked. The railway from London to Manchester was completed in eight years from its first Parliamentary authorization (in two parts, joined at Birmingham) and cost a total of £7.1 million, equivalent to about £2.13 billion today, despite all work being carried out without any kind of power digging equipment, and with the inefficiencies (substantial on the London-Birmingham portion) of its being the world’s first major railway project. Compare that with the projected cost of the HS2 railway over the same route of at least £87.7 billion without the extension to Manchester and its projected completion time of 23 years from final Parliamentary authorization in 2020. That 41-fold plus increase in real construction costs, despite massive new technology, is almost entirely caused by lawyers and their pernicious allies in the environmental movement and the NIMBY NGOs.

Not only do lawyers and their nefarious non-profit allies make infrastructure inordinately expensive, but they often prevent it altogether. The state of New York does not allow fracking, despite having a major shale deposit south of Binghamton, in a very depressed region of the state, and it has now placed a 1-year moratorium on data centers — which could end up looking clever, as the data center bubble may well burst before then. However, the fracking ban has done huge damage to New York’s economy and the unfortunate mostly welfare-recipient inhabitants of Binghamton, while a parallel ban on gas pipelines may well cause the state’s electric utilities to cease operating, some hot or cold day.

There are worse crimes to attribute to lawyers than merely adding delays and costs. During the Biden administration in the U.S., and more seriously in quasi-democratic leftist countries such as Brazil, Ukraine and possibly now Hungary and Poland, lawyers have sought to imprison or ruin their political opponents, and given the number of politically extreme, unscrupulous judges on the Bench, they are quite often successful. This undermines the central pillars of democracy or any other kind of legitimate state, because it undermines the rule of objective law, on which that legitimacy is based. The damage wrought by such legal shenanigans cannot be quantified as can cost overruns in railway projects; it is essentially infinite. Judges who provide gigantic quantities of glue in the works to any administration whose policies they dislike are another pure cost center in the economy. Naturally, the worst legal excesses are seen in institutions that have no democratic control and consist entirely of the worst lawyers, such as the EU, the UN, the International Criminal Court and other supranational bodies.

Lawyers at the early modern Eldon-period level of simple criminal trials (by all means enhanced today with DNA and other modern evidence, so the false conviction rate would be lower) are unquestionably valuable and should be counted positively in output. Lawyers to squabble in the innumerable lucrative private disputes that are inevitable in a rich society are not adding economic value but are probably necessary in a world not entirely inhabited by rational men and women. However, the lawyer/regulator/environmentalist/nonprofit nexus is wholly damaging, has grown grotesquely in the last century, and subtracts both from the wealth of society and its economic dynamism. If Britain was not spending £87 billion on HS2, it could buy something useful with the money, though under its current management, it would probably merely find an alternative way to waste it.

Let’s not “Kill all the lawyers” – but let’s send the younger ones to welding or plumbing school, where they can learn skills that are genuinely useful!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Lawyers Subtract Economic Value appeared first on True Blue Will Never Stain.

For the last 35 years, the world has been operating on Whiggish assumptions, that the optimal tariff policy is free trade and that tolls on narrow bodies of water, being impediments to free trade, were illegitimate. This idea gained currency in the early 19th century, when economists such as Friedrich List were faced with the remnants of the Holy Roman Empire, with 1,800 independent states, each of which imposed their own tariffs and tolls, so that there were 32 separate tolls on the Rhine from the Swiss border to the mouth. List came up in 1819 with the idea of a Zollverein (customs union) covering as much as possible of Germany to solve this problem.

However, as List pointed out himself in his 1841 masterpiece National System of Political Economy: “Gradually, I satisfied myself that the whole (free trade) doctrine was applicable and sound only when adopted by all nations. Thus, I was led to the idea of nationality; I found that the theorists kept always in view mankind and man, never separate nations.” List’s idea, adopted by Bismarck, became the foundation of Wilhelmine Germany, the most successful economy of the 19th and early 20th centuries.

The time has come again for the United States, run by the German-ancestry Donald Trump, to take its economics from the Kaisers. With China Communist and Russia and Iran hostile, all of them significant players in the world economy, we clearly do not live in the globalist dreamworld postulated by Whiggish and other free trade fanatic economists. Furthermore, the EU’s tendency to impose ever more damaging regulations, for “climate change” and other idiocies, which destroy those countries’ own economies but are increasingly aimed at damaging U.S. interests, brings a new factor into the equation undreamed of in traditional free-trade ideology.

Regulations and embargoes are the most damaging possible interference with free trade, because they impose an infinite cost on it, making it not merely expensive but impossible. Probably the only useful global body would be a “Deregulatory Commission” whose sole purpose was to shoot down national and supranational regulations that immiserate the world’s people – the Commission should not have the power to impose any regulations of its own, of course.

In this light, Trump’s proposed (and subsequently withdrawn) 20% levy on shipping through the Straits of Hormuz is well considered. The United States is being forced to devote huge resources to keeping the Straits open and should be paid for doing so. The U.S. does not need Middle East oil and has little need for anything else that transits through the Straits of Hormuz. Conversely, the EU, China and India have an existential need for Middle East oil, yet pay nothing to protect the Straits, even interfering to obstruct and damage the U.S. work in protecting them.

That is not to say that the Iran War was well conceived; it was not, any more than were the other U.S. interventions in the Middle East that have littered history in the past quarter-century. The Middle East has always been a backward and hostile region, in which the U.S. lacked sufficient understanding to “regime change” successfully, and where every U.S. intervention has ended and is likely to end in a quagmire. The U.S. had some need for Middle East oil between roughly 1970 and 2020, but the invention of “fracking” and the U.S.’s general acquiescence in it (with some utterly foolish exceptions like New York and California, as always) has removed that need. The EU, conversely, is utterly dependent on the Middle East, because of its bigoted regulatory refusal to tolerate fracking in, for example, the Polish/Galicia oil/gas fields, the world’s first, whose development preceded by half a decade Colonel Drake’s activities in Pennsylvania.

One understands the need to defend Israel, but that should be done by supplying arms and defensive support if needed, entirely without offensive operations. Otherwise, Israel far from being America’s “greatest ally,” becomes a highly equivocal one, constantly dragging the U.S. into trouble in a region where it has no interests, without contributing anything at all to solving U.S. problems in other regions.

The most effective way of paying the U.S. for its work in keeping the Straits of Hormuz open is through a toll, which can be shared with Iran and the other Hormuz-bordering states once the cost of the war has been recouped and peace has broken out. This will encourage initiatives such as Dubai’s opening a port outside the bottleneck and other states building pipelines, etc., which is all to the good, removing an economic bottleneck/vulnerability. There is no reason why the oil consumers in the EU, India and China should not bear the cost of assuring their own supply, especially when, as in the EU’s case, the need for Middle East oil is through sheer leftist witlessness.

Tariffs are also an excellent means of recouping costs of military operations, and indeed are better in this respect than embargoes, especially partially-enforced embargoes such as those on Russia. The current ineffectual embargo imposes huge costs on Russia without doing anything to recoup the costs to the West of supporting Ukraine; it would be much more economically efficient to impose a high tariff on both sides, which could be reduced once military costs had been reimbursed. Russia, as a primarily free-market economy with abundant natural resources, should be re-integrated as soon as possible into the global economic system; the sanctions have gone on far too long.

Economic sanctions have shown themselves always ineffectual and politically damaging ever since in 1936 an emotional speech by Emperor Haile Selassie caused the League of Nations to impose sanctions on Mussolini’s Italy, thereby driving him into the arms of the much more dangerous Hitler. When imposed for decades at a time, as on Iran since 1979, they prevent the possible openings to the regime that could have caused it to move in a more Western-friendly direction, greatly improving the lives of 90 million Iranians. I wrote this opinion as a lone voice in August 2001, when the U.S. Iran-Libya Sanctions Act had just been renewed and Iran had the reformist Mohammad Khatami as President. Needless to say a freak terrorist attack shortly thereafter sent U.S. policy idiotically in the opposite direction for what is now a quarter of a century.

The U.S. Supreme Court therefore needs to butt out of the tariff argument, on which it has no expertise (also that on birthright citizenship, on which the Founding Fathers, seeing today’s circumstances, would undoubtedly vote the opposite way to the Justices). The President needs to set tariffs, which are an important tool of foreign policy and a moderately important source of revenue (only not dominant because the Federal government has grown so bloated).

The one control on the President, ideally imposed by Congress, is that he should not be able to grant exemptions to his buddies and the Fortune 500 – such exemptions bias the U.S. economic system even further in favor of large corporate bureaucracies than it is already, damaging the ever-beleaguered entrepreneurship.

With full tariff powers, an economically competent and enlightened administration (and after the last quarter century, let us pray that we get no more examples of the opposite) can manage the world’s difficulties, deploy U.S. forces where they are most needed and apply useful economic pressure to dragoon the world’s bad actors into behaving themselves.

Friedrich List pointed out the idiocies of free trade Whiggery almost two centuries ago. It is time to apply the lessons he taught us, in the intelligent tradition of Otto von Bismarck and the ever to be revered Kaiser Wilhelm I (his grandson, alas was less enlightened).

Hoch der Kaiser! Hoch der Drumpf!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Global Policing Fees Make Sense appeared first on True Blue Will Never Stain.

This column looks closely at Latin America about once a year. Its attitude depends crucially on Latin American electoral trends; the continent is like many countries in the 2020s in having a very wide ideological spread between its better governments, who are competent and occasionally more, and its worst governments, who are destructive Marxists, with a tendency to cement themselves in power indefinitely (see Chavez, Hugo). In 2023, the run of elections had been so bad (and I was dispirited by the Biden administration) that I seriously suggested we might see a Latin American Comecon, an association of Communist countries that blocked any democratic impulse to escape and cemented the continent in utter Stalinist poverty, albeit with less efficient secret police with more colorful uniforms.

Then last summer, I was more optimistic, seeing the chances for electoral change ahead and wondering whether Latin America could make history run backwards, towards a destiny of small governments and free markets.

Intellectually, there have been two leaders of the recent rightist Latin American renaissance, Javier Milei of Argentina, elected in December 2023, a year ahead of other rightist successes and Nayib Bukele of El Salvador, in office since 2019 and bidding next year for a third term in power. They have followed different paths, so much so that many supporters of one object to the other, but in the complex situations of Latin America a mix of both approaches seems optimal.

Bukele has concentrated on reducing the appallingly high crime and homicide rates in El Salvador, due to the prevalence of drug gangs and the tendency of previous administrations to be on the drug gangs’ payroll. By building prisons, increasing police forces and disrupting gang finances he appears to have conquered El Salvador’s crime problem, making the country one of the safest in the hemisphere. His economic policy has been less notable, pursuing a moderate free market policy, notable for adopting Bitcoin as the Salvadoran currency (the country has been dollarized since 2001). Internationally, he supports the reunification of Central America, which was united in the Federal Republic of Central America from 1823 to 1841; he also refuses to recognize Communist regimes, such as the Maduro regime in Venezuela but also in Nicaragua and Peru.

Javier Milei in Argentina has governed with free market even Austrian principles more rigorous than any other leader of recent years, even President Reagan – not since Calvin Coolidge and Neville Chamberlain has there been a leader so fully committed to free markets. In economic principles, he is the reincarnation of Ludwig von Mises, not just the wimpy partial sellouts Milton Friedman and Friedrich Hayek. Milei’s “Long Live Freedom, dammit” is a breath of fresh air the world has long needed, particularly at the time of his inauguration, when it appeared that the dead hands of President Biden and the EU bureaucracy were subjecting the world to authoritarian socialism, under the heel of China on calm, cloudy days when the windmills did not work.

In practice, Milei has no secure majority in Congress, so cannot reliably pass his preferred policies into law. Nevertheless, in his time in office, he has cut Argentine government spending by 30% in real terms, the most important reform that was needed on his advent to power. He has also achieved important macroeconomic victories by abolishing rent controls, and has seen the real price of Buenos Aires apartment rents substantially decline. He is now attempting to move to a U.S.-type system in which the government shuts down if no agreement is reached on a budget, instead of the current Argentine system whereby last year’s budget is extended. The latter is a recipe for continued government bloat once inflation has been reduced to moderate levels, which is by far Milei’s greatest success, in the eyes of the Argentine public.

Most of the new Latin American governments need to adopt a mixture of Milei and Bukele policies, with the mixture varying. In Chile, where leftist unrest is only moderate, Jose Antonio Kast should follow Milei fairly closely – Chile of course has its own proud tradition of imposing free market Austrian economic policies, in 1973-90. Conversely in Colombia, Abelardo de la Espriella faces a situation in which economic policy has deviated only modestly from Colombia’s tradition of fairly small government, but the security situation is truly dire, with drug gangs and a revitalized leftist guerrilla movement, supported by the outgoing President Gustavo Petro. Consequently, Espriella must cut back the bloat in Petro’s budget, which will be difficult since he does not control a solid Congressional majority, but the most important issue is restoring Colombia’s internal security, which will require a strong Bukele-like approach.

Peru’s situation is less difficult than Colombia’s, though drug gangs are strong also, but Keiko Fujimori has the example of her admirable late father’s Presidency in the 1990s to guide her. Alberto Fujimori in 1990-2000 won a civil war and set Peru on the road to free market growth before he was ousted; his policies were more Bukele than Milei, but they worked. His daughter should follow him, ideally with help from an Argentine economic mentor where necessary.

Some other Latin American countries got decent election results but are not yet fully secure. Bolivia elected the moderate rather than the out-and-out rightist last year and is now finding the downside of that approach in that the hard left under former President Evo Morales, are attempting to remove him by force. Ecuador also has a strong revanchist movement from former President Rafael Correa. If Colombia and Peru can be secured, this will hopefully stabilize the positions in Bolivia and Ecuador, which are situated between the two.

That leaves, Brazil, Mexico, Venezuela and Nicaragua, the continent’s basket cases, in all of which it seems unlikely that a sufficiently free election will be allowed for the right to regain supremacy. The most urgent of these is Brazil, because of its economic and demographic size, in which elections are due later this year. Hopefully the U.S. will work as hard to produce a right-wing victory in 2026 as it did to restore the loathsome Lula to power in 2022, an election that was clearly rigged.

The most important thing the U.S. can do to help the process is to defund as far as possible the innumerable subversive Western-funded agencies, NGOs and supranational organizations that do their utmost to destabilize and de-legitimize right-wing governments and entrench left-wing ones. The Trump administration made a substantial move in this direction when it defunded USAID, which had been financially supporting all kinds of subversive Marxist NGOs whose main purpose was to block the right in Latin America – you can see the result of their efforts in Brazil’s 2022 election, after which U.S. funded lawfare has been used to imprison both the main opposition candidate Jair Bolsonaro and his son.

There is much more to be done in this direction. A really rigorous IRS audit of George and Alex Soros and their network of “charities” and NGOs would undoubtedly turn up much of interest, hopefully enough for indictments to be brought. The U.S. should also work to defund the World Bank, the International Monetary Fund and the Inter-American Development Bank. Those organizations were always basically on the side of the Left, but with the radicalization of the worldwide Ivy League equivalent colleges and their graduates in recent years, they have become fanatically anti-capitalist, anti-free market and supportive of all kinds of leftist subversion and wreckage.

The IMF in particular has been run since 2019 by a Communist-trained Bulgarian with good Party connections Kristalina Georgieva. Its new Chief Economist Silvana Tenreyro was on the dovish leftist side at the Bank of England, which of course has form in de-stabilizing rightist governments in the form of the unfortunate Liz Truss. Since the IMF was historically the least manically leftist of the three Washington institutions financing Latin America, we can bet that the World Bank and the IADB are worse.

Supranational institutions are structurally both socialist and authoritarian, as they seek to accrue more power to themselves – they are the clinching argument against a world government, which would be a universal tyranny that would undo the Industrial Revolution and plunge us back into impoverished perpetual warfare. The U.S. taxpayer needs to stop paying for the subversion of the economic system on which the country depends.

Much of Latin America is currently enjoying a new morning of hope, partly because of the superior policies of the Trump administration and its example. Let us help its recovering economic alcoholics to work together, preserve economic and social sobriety and finally lead their people into the prosperous future that they deserve but for so long have been denied.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Time for Latin American Capitalism appeared first on True Blue Will Never Stain.

The win of the quasi-Communist Darializa Chevalier in the Democrat primary for NY-13, for example, was not caused by the oppressed rising up against the capitalist system. Her opponent Adriano Espaillat, the incumbent Democrat, won majority Hispanic precincts by 17 points, and lower-income areas by 9.5 points and broke even in majority Black precincts, but Chevalier won majority college-educated areas (mostly in very affluent Manhattan) by almost 25 points. To be fair, even Espaillat is a thorough leftie whom you wouldn’t want even as a Democrat President, but the fact remains that the vote for pure Marxism was from the over-educated rich, doubtless with massive college debt but also with million-dollar trust funds or incomes far into six figures.

The problem of welfare recipients voting to grant themselves more welfare is well known. Less studied has been the problem of the over-educated deliberately voting for candidates who want to bring down the economic system. But consider: what stake do many of them have in that system? If they rent in New York, they may well live in a rent-controlled apartment (on which the New York Rent Guidelines Board has just voted to freeze rents for two years despite substantial inflation). Many of them derive their income from their parents or student loans which they are unlikely to repay (like Ms. Chevalier, in her 7th year of a PhD at the age of 32) or from jobs at “nonprofit” political or charitable institutions whose very existence is an affront to free market principles, being based largely on charitable tax deductions and exemptions.

Of course, there are always some who work at Goldman Sachs and whose Marxist vote derives from youthful rebellion or sheer eccentricity. However, given that the rest of our welfare depends on a sound economy, such frivolity ought also to be discouraged. The lady who lost her diversity job at J.P. Morgan for stealing a filthy used New York City trash can with a Knicks logo on it was symptomatic of their worldview and their ability to survive usefully in the modern world.

A property franchise, whereby the ownership of a modest property was required to have the right to vote, was used in all the countries that industrialized rapidly in the 19th century. Britain, famously, had the “40-shilling freehold” franchise before the Whig gerrymandering 1832 Reform Act raised the property qualification to £10, a rampant act of class legislation that over time reduced the quality of Britain’s government, causing it to lose its initial industrial lead. Bismarck’s Germany had a property franchise in the Prussian Landtag, far more important in his time than the pan-German Reichstag, which was made constitutionally impotent. Most significantly, the Meiji government of Japan, home of the most impressive march to industrialization of the 19th century, also had a property franchise for almost 40 years from 1889 – the abolition of the property qualification in 1925 turned Japan’s governments towards militarism and folly.

A property franchise gets the incentives right. Welfare recipients who own no property are unable to vote themselves additional welfare. Ideologues who cannot hold down a proper job or buy a property are reduced to waving placards at us, rather than being able to vote their nonsense into Congress. With congressional districts based on eligible voters, not population, the biggest cities, with their excess of welfare recipients and ideologues and where property is excessively expensive get a lower representation relatively than outer suburban and rural areas where property is cheap and most people own their dwelling. To the extent that the franchise encourages renters to buy their own property, this is a good thing; by owning their dwelling they become more stable members of society, more secure in their old age and in the long run happier.

The other much needed reform is to remove all the nonprofit tax loopholes, both on the donors and the charities themselves. Nonprofits consume around 6% of US GDP and are increasing their relative size rapidly, which is not surprising as they do not have to pay any of the taxes from which the rest of us suffer. The revelation this week that Mackenzie Scott (formerly Bezos) has spent $26.3 billion of her divorce-court fortune, not on helping the homeless or alleviating world hunger, but on funding a huge number of subversive leftist NGOs is unsurprising and indicates the rot in the system. Ms. Scott of course should be able to spend her money however she likes (you can argue whether it should really have been hers under a sensible divorce court system) but she should not receive a subsidy of about 40% of the amount she spends on her subversive leftist fantasies; both she and the fantasies should be taxed at the full normal tax rate, like ordinary citizens and businesses.

This should apply also to subversion routed from China through tax havens, like that of Neville Singham. If Singham’s money is given to U.S. organizations, whether directly or indirectly, it should be fully taxed at the recipient level, whether or not Singham has paid tax in China, the U.S. or anywhere else. Of course, it should also be registered as foreign-sourced subversion, under the appropriate laws; if our adversaries wish to subvert us, they should at least disclose their activity and pay tax to the U.S. fisc for doing so. Overall, the status of “non-profit” should be abolished, so that at both the donor and organization level, those entities pay full U.S. taxes. Only in that way can their inexorable growth be stymied; otherwise in a decade or two they will represent 20% of U.S. GDP, with consequent permanent unbalancing of the budget and turbocharged subversion. With full taxability, nonprofits or the for-profit corporations that succeed them after their death will contribute some 2% of GDP ($700 billion annually) towards closing the U.S. Budget deficit, help it very much needs.

It may be argued that genuine charities, which today represent only a small percentage of “non-profits” would be grievously harmed by this tax change, but consider the reality. The local dogs’ home, surviving on charitable donations from those who adopt dogs and others, generally operates at close to break-even, so would pay little or no tax if it were fully taxable. While its donors would be disadvantaged by the tax changes, that could be solved by putting a low cap on charitable tax deductions, so that middle class donations to their churches and dogs’ homes would remain tax-deductible. The dogs’ homes could also apply for modest grants from their states, whose income would be swollen by the abolition of charitable tax-deductibility, thereby receiving state tax payments from their local nonprofits.

It would not hurt to tax Harvard and its endowment; if Ivy League colleges are going to devote themselves full-time to subversion rather than education, as currently, they should at least pay full tax for doing so.

There are other reforms that are badly needed. Birthright citizenship has to go, as in almost all other countries – it is a relic of 18th century travel times and costs. The Senate filibuster and the U.S. budget process both need root-and-branch reform, to remove the damage done by the pernicious 1970s. Overall, immigration policy needs iron-clad Constitutional protection against the policy of Vortigern, the 5th century British King who invited a few Saxons to stay and triggered an overwhelming tsunami of foreign immigrants who massacred his countrymen and sent them fleeing into the Welsh hills. Hopefully President Biden-Vortigern has finally retired from U.S. politics.

However, the two reforms proposed above: a property franchise and full taxability for the nonprofit sector, are most fundamental. With them, the incentives to bad policy will be eliminated, the Budget will be closer to balance and other reforms will follow in due course.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: How to stabilize the political system appeared first on True Blue Will Never Stain.

Gordon and Ryu’s figures are a little dodgy; they suffer from the typical academics’ delusion that official inflation figures overstate true inflation, when it is painfully obvious to any careful observer that they understate them. Without their spurious “price correction” (which makes productivity growth rates entirely implausible in the earlier period – even Japan in 1890 was not getting prolonged 5% productivity growth) manufacturing productivity growth has slowed from 3.6% annually in 1987-2010 to minus 0.3% annually in 2010-23 – they have an entirely reasonable point that 2009 was a funny year, distorting the figures, but don’t give unadjusted productivity growth with a 2005 break.

Given the God-awful U.S. economic management of 2010-23, Bernanke, Obama, Biden and all, I would be very surprised if annual manufacturing productivity growth was as high as minus 0.3%, even accounting for Trump’s blessed first term. A blizzard of idiotic “climate change” and other regulations were combining with Ben Bernanke’s ziggurat-encouraging negative real interest rates to make it very difficult to do anything productive at all.

Gordon and Ryu outline several mechanisms by which outsourcing can reduce productivity. Invasions of imports produce stagnation in domestic industry growth, which reduces its margins and starves it of the investment funding needed to modernize and retain its customers. A second mechanism is the outright closure of domestic producers, whose survival is made impossible by foreign competition. A third is the compounding negative effect of reduced investment in firms being subjected to increased foreign competition. Finally, offshoring renders domestic engineers unfamiliar with the manufacturing process, hugely reducing their ability to make improvements through a process about which they lack knowledge.

The Gordon/Ryu thesis makes perfect sense and exposes the fallacy of several myths we have been sold for the last quarter-century. The “Apple Strategy” proclaimed by Tim Cook in 2015 of offshoring all manufacturing, while keeping product development in California is completely idiotic. Once manufacturing is offshore, the product developers in California will know nothing about how products are made or what changes are practical, and so will spend abundantly paid person-centuries debating the color of the next model and dreaming up epic surges of wokery to inflict on the unfortunate buyers of their products. It would make much more sense to return the actual manufacturing to the U.S. and outsource the product developers to some idyllic spot like Democratic Republic of Congo, where they could learn a little about the strictures of real life.

Another disastrous free trade effect, which Gordon/Ryu have not covered, has occurred in the rapidly expanding field of software, which is mostly excluded from manufacturing statistics, being “research and development.” Around 2000, we were told that IBM and other large users of U.S. software could outsource the less complex lower tiers of software development to Bangalore, while keeping the more skilled levels entirely in the U.S. Much was made of David Ricardo’s 1817 Comparative Advantage principle, whereby low-wage countries should produce goods and services for which their comparative advantage was greatest – in Ricardo’s example, Portugal should produce port wine, while Britain should produce cloth, in which its already mechanized industry was more efficient. The example gained additional force from the respective quality of the goods exchanged – have you ever TASTED British port?

We know what happened. Far from low-skill software being confined to India, the Indians both in India and through the damaging H1B visa program in the U.S., swarmed up the value chain and ate American software companies’ breakfast, depressing wages for highly-skilled U.S. computer scientists to a Third World level. This caused all the brightest U.S. students to head to law school, to enter a career where legal barriers made such competition impossible. The result has been a massive U.S. shortage of STEM graduates, caused entirely by insane government policies and the actions of dopey corporate behemoths. Of course, the H1B low-wage-lobby scammers now want to increase the number of H1B visas, to make the problem even worse.

This miserable chain of events has happened before – in 19th century Britain, which abolished tariffs unilaterally in 1846-60 and to everyone’s surprise watched Britain’s industrial lead disappear as if by evil magic, while the British workforce after 1870 or so watched its wages steadily descend down the international comparisons. Also like today, late 19th century Britons were subjected to spurious environmental homilies from William Jevons about how their coal was about to run out and unpleasant moral lectures from William Gladstone and others claiming that, however damaging free trade appeared to be to their welfare, it was for Britons’ moral good.

The fact that this has happened twice, in two different countries more than a century apart, indicates that these are not random examples, but represent a firm economic law, one of the many so far undiscovered by the conformist and socialist-oriented economics profession. Free trade only works between countries of roughly similar wage and technological levels; outsourcing large portions of manufacture, software or any other high-skill activities to countries with much lower labor costs, risks losing one’s technological lead and even the capability to perform the activity at all, as students retrain to enter other activities and the low-wage country acquires mastery of the value-chain tidbits one had attempted to keep for oneself.

Today the disadvantage of free trade is seen in AI; as I remarked three weeks ago, China has acquired a highly competitive position, mostly through the United States outsourcing most of its capabilities relating to this new field, which bids fair to resemble electric power in its contribution to human welfare. Now the U.S. is lumbered with a gigantic collection of regulatory detritus that leftist governments have imposed on it, which makes it very difficult for the U.S. to compete even in this new field that it invented, since it cannot build new data centers without fighting crazed NIMBYism and cannot build new power stations in less than a decade or two.

Again, we have been here before. Britain’s Locomotives on Highways Act 1865, passed in response to the noble Goldsworthy Gurney’s steam road carriages, already thirty years in the past, provided that any such device must move at no more than 4 mph, with a man with a red flag walking in front to ensure compliance. As a result, despite Britain having invented the steam engine, being the world’s leader in textile machinery through Platt Brothers, and inventing the turbine in 1884, the German Benz/Daimler invention of automobiles produced no British response. Ten long years were allowed to pass before the 1865 Act was repealed, at which point a typical witless stock market bubble ensured that innumerable British automobile companies were financed, nearly all of them scams devised by the swindler Henry John Lawson, who satiated the market’s thirst for automobile companies through his worthless promotions. Regulation likewise delayed and restricted Britain’s entry into electric power, electric lighting and telephony.

The solution to the productivity decline and to China’s competitive threat is a mass bonfire of regulations, at Federal, state and local levels – local regulations such as California’s electric vehicle mandate that regulate imports to the state are attempts to police Interstate commerce; a wise Supreme Court would declare them unconstitutional. Repealing no more than four especially foolish pieces of 19th century British legislation in the economic sphere – even without bringing back the Corn Laws — would have allowed Britain to compete effectively in electric power/light, telephony (they only got radio because Guglielmo Marconi ignored the Telegraph Act of 1868 and did a quick IPO to gain public investors and supporters) and automobiles, in all of which the country should have held a premier position. Similarly in the United States today, repealing regulations that can delay construction for a decade and multiply its cost fivefold would enable it to regain the productivity growth levels of 1987-2005 and thereby assure its citizens a permanently brighter future.

Free Trade is a demonic Pied Piper, leading to perdition. Don’t follow it!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: The Whig Free Trade Myth is Baloney appeared first on True Blue Will Never Stain.

Fifty years ago, the 1973 Arab oil crisis awakened the world to the importance of the Middle East. Previously, colonial regimes had installed puppet monarchies in the region, although even by 1973 those puppet monarchies were in the process of being ousted by leftist or military coups. Israel had been installed in 1948, arbitrarily for the Palestinians already living there, and that had already caused a succession of wars, notably in 1973 itself, but there seemed no reason why the West should get involved, beyond supplying Israel with enough arms to defend itself.

This changed because U.S. oil production had gradually been declining, and the environmentalists inserting glue in the works of Alaskan and other oil development made the U.S. and the West in general dangerously dependent on Middle East oil – by 1979 less than half the oil consumed by the United States was produced there. Had the Middle East been a reliable supplier, there would have been no need for oil prices to rise as much as they did, but by 1980 the oil market only cleared at a dollar price roughly ten times that of 1972 (though inflation and the dollar’s decline had eroded some of that gain).

With their additional market leverage, the oil producing Middle Eastern countries started asserting themselves, while the non-oil producing Middle Eastern populations developed a resentment of the West that led many of them into terrorist groups. The first and most damaging change was the rebellion against the Shah of Iran’s rule – the Iranian population thought oil wealth was so automatic that even the rule of fanatic Islamist mediaeval clerics could not stop it. How wrong they were! Those clerics began by fighting an impoverishing eight-year war against an equally oil-producing neighbor, Iraq, ruled by a secular despot and carried on squandering oil money without the slightest regard to the welfare of the people they ruled.

Meanwhile the neocons had been trending politically rightwards – only a few of them lived past 90, but the hereditary element in their leadership allows us to treat them as one movement, despite its 80-year duration. The 1948 Progressive Presidential candidate Henry Wallace emerged from the same American left milieu as many of the neocons’ intellectual forebears; at that time many of them were not merely socialist but Communist-adjacent. Wallace himself was more interesting. Not so much politically – he had never really understood capitalism and as Agriculture Secretary was responsible for the expensive and economically damaging agriculture subsidy programs that still disfigure the U.S. economy and fiscal position. Then as Vice President he had been seduced by a visit to the Soviet Union in 1944 into believing that Communism worked, a belief he foisted on the U.S. public, whether it wanted it or not, for the next five years. As a politician, he was both a failure and thoroughly pernicious, as is well brought out by Benn Steil in his excellent 2024 biography “The World That Wasn’t.”

Wallace, however, had a life beyond politics, as few politicians do. As a young man, he had edited “Wallace’s Farmer” a family-owned journal for the agricultural community and had become interested in the possibilities of breeding hybrid corn varieties. He founded a hybrid seeds company “Pioneer Hi-Bred” which eventually became a Fortune 500 corporation. Then as Vice President he had visited Mexico in 1943, taking hybrid seeds with him and explaining how Mexico could raise the yield of their maize crop using hybrids. Since he was Vice President of their northern neighbor and a man with whom the socialist Mexican government felt comfortable, they took his advice and planted Wallace’s seeds widely. The following year Norman Borlaug arrived in Mexico, spent the next two decades spreading hybrid seed technology there, and from the middle 1960s took it worldwide as the “Green Revolution.” Wallace meanwhile was not done; in retirement he revolutionized the breeding of U.S. hybrid chickens.

The neocons, alas, did not follow Wallace into plant or chicken genetics. Instead after the 1956 Hungarian uprising they turned against Communism and became especially militant in pushing U.S. attempts to overthrow it, calling themselves “neo-Conservatives” — to distinguish themselves from those lonely souls who had been Conservative all along — and remaining leftist Big Government supporters on domestic policy. President Reagan’s U.N. Ambassador Jeane Kirkpatrick was a notable acolyte. Once Soviet Communism fell in 1989-91 (almost completely independently of any neocon efforts) they looked around for other wars to start and found the Middle East.

Initially, the neocons had only moderate influence on U.S. policy, but the 9/11 attacks and George W. Bush’s hysterical over-reaction to them gave the neocons essential control of much of the U.S. government, especially the security services. Any attempt to reduce the size of the U.S. government was abandoned, and instead legislation such as the Patriot Act was passed to increase the neocons’ reach. Unsuccessful and very prolonged wars in Iraq and Afghanistan, neither with a comprehensible casus belli, gave them control of the U.S. government, whether Republican or Democrat, for the next 15 years.

Two factors combined to dent their control. First, from around 2000 fracking became feasible to extract oil and gas, of which the U.S. became an exporter in LNG form. The Left tried hard to forbid it (and succeeded in some of their “rotten borough” jurisdictions such as New York state) but by 2020 it had made the U.S. self-sufficient in oil. The Biden administration threw all the roadblocks in its way that it could think of, but once Trump was re-elected in 2025, U.S. self-sufficiency in oil was assured and it was able to supply LNG to the Europeans whose Russian supplies had been cut off.

Second, much to the neocons’ horror, a Republican maverick candidate appeared, Donald Trump, smashing the neocon favorites Jeb Bush, Marco Rubio or in emergency Ted Cruz. Initially, this was not too much problem; the neocons were able to control Trump’s cabinet appointments (since he knew nobody in Washington) and, aided by a great deal of chicanery, thereby ensure that his first term made little dent in their overall control, even if no new wars could be started.

With their two impeachments, the first materially aided by the new Ukrainian President Volodymyr Zelenskyy, the neocons thought they had got rid of Trump, aided by the Democrat shenanigans in the 2020 election. Then a new playground opened up for them with Russia’s invasion of eastern Ukraine in 2022. Since their advent to power in 2001-02, the neocons had demonized President Putin, treating him as if the Soviet Union had never fallen and Russia was still Communist. During the Obama administration they had expelled Russia from the G7 group of leading nations, while their inexorable eastward expansion of NATO threatened Putin in the same way it would have threatened Tsar Nicholas I, the previous Russian ruler whom Putin most resembles. With their EU bureaucracy allies and the help of the Castroite dictator Zelenskyy, the neocons have been able to prop up Ukraine and prevent any kind of peace with Russia from being concluded.

The neocons’ latest stunt was to embroil the U.S. in war with Iran, despite President Trump’s base voters’ deep antipathy to yet another futile war in the Middle East. Israel’s Benjamin Netanyahu assisted with this, presumably seeing it as a unique opportunity to remove Iran as a threat to Israel; I would guess he now realizes his mistake. With no plan to restore the Shah, the only possible genuine governmental improvement in Iran, there was no upside to the war and very severe “tail risk” downsides for both the U.S. and Israel — one for Israel possibly being that U.S. public support of Israel could deteriorate from unwavering to equivocal.

The United States was unable to defeat either Iraq or Afghanistan, though it spent decades trying; Iran has a population larger than that of both those countries put together and terrain with the difficulties of both. Fortunately, President Trump and his advisors had the sense to realize that a ground invasion of Iran for an attempted “regime change” might very well not succeed, even given a decade, and that the American public’s patience would wear out years before victory was even conceivable.

The Middle East is now condemned to market a commodity that is in global surplus, given the possibilities of fracking, and that a large political faction in the West wants to taper out of using. They have wasted their wealth on conspicuous consumption of flashy, pointless monstrosities like the Burj Dubai, and have glutted their population with unwanted immigrants of two types: Third World helots to do the actual work and the sillier type of Brit, who think paying zero income tax and suffering through the occasional Iranian drone attack will make them rich. While Europe needs either the Middle East or Russia, the United States does not, and Vladimir Putin’s Russia is in any case a great deal easier to deal with.

With a bit of luck, it will soon be not merely twilight for the neocons, but the dead of night, and they can go back to being unheeded Communists, a political direction in which many of them appear to be heading. For the rest of us, long may President Trump and his rational advisors rule!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Nighttime for the Neocons appeared first on True Blue Will Never Stain.

Index funds currently own about 20% of the U.S. stock market and “passive” fund managers who track stock indices currently own about another 15% — most of these fund managers adjust their holdings at the end of each day to reflect the index they track, so are effectively also index trackers. (You may well ask why anyone would pay for that service – well, institutional investors are a fairly dopey lot!) We are therefore reaching the point where the index funds themselves affect the overall level of stock prices. In such a case, the index fund can become detached from the stocks it supposedly covers and index fund buying can itself affect the price of the underlying stocks, thus creating an upward price spiral that is fun for all concerned – until it isn’t.

To illustrate what I mean, suppose the world had already invented index funds in 1720, and one had been constructed on 1st January of that year to cover the major European Stock Exchanges in London, Paris and Amsterdam. The dominant holdings in that fund would have been the South Sea Company, with a market capitalization of £7 million at its share price of 125, the Bank of England with a market capitalization of £8 million at its share price of 150, the East India Company with a market capitalization of £7.5 million at its share price of 200, the Dutch East India Company, with a market capitalization of about 60 million guilders (£6 million) and the French Mississippi Company, which had reached a peak value of 10,000 livres per share and had a capitalization of 6 billion livres (about £240 million – three times France’s GDP.)

Thus, an index fund across the stock exchanges of London, Paris and Amsterdam at that date would have had some percentage, perhaps 10% of the total market capitalization of the three markets of £280 million, or £30 million of which £24 million would have been Mississippi Company, £800,000 Bank of England, £700,000 South Sea Company, £750,000 East India Company, £600,000 Dutch East India Company and about £3.15 million a combination of all other shares in the London, Paris and Amsterdam markets. With 80% of the fund in the Mississippi Company, the portfolio would have been thoroughly unbalanced.

On July 1, 1720 Bank of England shares were trading at 230, for a market capitalization of about £13 million, East India Company shares were at 420, for a market capitalization of about £16 million while South Sea Company had exploded to 760 and in addition increased its capitalization massively by issuing new shares and by swapping its shares for public debt; its market capitalization was about £300 million – it reached a peak of £420 million in late July. The Dutch East India Company peaked in July 1720 at about £7.5 million. The Mississippi Company, on the other hand was trading at 4,800 livres and the livre had halved in value, so had a market capitalization of £58 million. Add in perhaps £5 million for the bull market value 10% of all the other shares in London, Paris and Amsterdam, and you have a total fund value of £44.5 million, up from £30 million in January. A very satisfactory performance, it would appear, but now the South Sea Company represents just over two thirds of the fund.

However, go forward another 6 months and the picture is very different. The Bank of England’s share price is 140, so market capitalization is £7.5 million. East India Company is at 150, so market capitalization about £5.5 million, and Dutch East India Company is down to about £5 million. South Sea Company has collapsed to 150, so a market capitalization of £50 million, though most of that represents about £30 million of government bonds the company now owns. As for Mississippi Company, its shares were now trading at 1,000 livres and the livre had halved again, so its market capitalization was £6 million. Add £2.5 million for all the other shares in the three markets, and you have a total value of £9.9 million – one third of its value a year earlier and 22.5% of its peak. The South Sea Company still represents more than half of the fund, but three fifths of the South Sea Company (roughly 30% of the fund) is represented by government bond holdings.

That value would decline further in 1721, bottoming out around £6 million and would then remain around that level for more than a century, with mild fluctuations, as the 1720 Bubble Act prohibited further company flotations in Britain and the Dutch East India Company lost ground to its English rival. In other words, an index fund constructed in early 1720 would, because of its holdings in the South Sea and Mississippi bubble companies, lose about 80% of its value within two years and would then stay depressed, although it would pay out dividends of a fluctuating 4%-5% on its lower capital from its Bank of England, South Sea Company, East India Company and Dutch East India Company holdings. By indexing a bubble, index-tracking investors in 1720 would have done far worse than more selective investors, even though Sir Isaac Newton is reputed to have lost £20,000 in the crash, presumably without indexing, since constructing an index required mere arithmetic, not his fancy fluxions.

If indexed investors would have lost money in 1720 by being forced to buy overpriced bubbles, the same must be true of index fund investors today. The three forthcoming trillion-dollar IPOs for SpaceX, Anthropic and OpenAI have all the South Sea Company characteristics, which were also shared by the dot-com promotions of 1999-2000, although none of them dared come to market at these kinds of valuations.

Anthropic for example, is a perfectly fine company, whose product Claude I sometimes use, but there is very little in the way of a “moat” to stop other companies, especially Chinese ones, from producing a better product, the cost of which is more than can be financed from a garage, but no more than about $10 billion (excluding the data centers, which in the long run are a commodity that can be rented). In other words, Anthropic (and OpenAI) are like the pioneering search engine AskJeeves in 1996, a brilliant new tool that at any time can be made obsolete by a couple of greedy Googlers.

As for SpaceX, part of it is another Anthropic; the rest is an attempt to send humankind to Mars, probably not a profitable endeavor in the first century or so since there is nobody on Mars to sell stuff to – it’s not like the Venetian merchant Marco Polo discovering China! If we were heading to C.S. Lewis’s Malacandra instead of boring old Mars, there would clearly be a market among the eldils for our AI technology, but alas as always, the dull rock-strewn reality snuffs out the charming Art Deco fantasy. Interstellar exploration would be a different story, but not even SpaceX’s $1.8 trillion will get us that.

For index fund investors, the lesson is that indices that accept bubble companies too quickly risk severe underperformance in future years as the bubbles burst or merely deflate. The Standard & Poor’s 500 Index has the right approach, making the trillion-dollar wonders wait a year before entering, though bubbles often last much longer than that before reality returns.

Indeed, I would suggest an attractive investment alternative would be a new index the “Economic Solidity Index” that made new companies doing IPOs wait for five years before joining, thus weeding out bubbles and preventing insiders from selling their rubbishy stock into an index fund that is forced to buy after the IPO. A fund linked to such an index would have a great deal of attraction for investors who wish to profit steadily from the long-term growth of the U.S. or international economy, without losing sleep over fashionable ephemera. It would almost certainly outperform conventional index funds over the long run, because the new issues market is inevitably a cauldron of lies, dishonesty and hype, inflated by financial used-car salesmen.

Investing in bubbles is dangerous, which is why John Bogle gave us index funds. Putting all your money in index funds that invest in bubbles is however just as dangerous, and without the thrill of buying Elon Musk’s brainstorms directly.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Bubbles Break Index Funds appeared first on True Blue Will Never Stain.

Relatively few technologies have required a major increase in power availability to deploy them fully. Steam engines obviously were one such and the railways after them – both required sources of coal that initially were readily available only in Britain. Later steel, when the Bessemer and Siemens-Martin processes had changed it from a specialty item to a product produced in bulk, required huge new sources of energy (initially mostly coal) to produce it. Aluminum also after the Hall-Héroult process had been invented in 1886 was impossibly energy-intensive until Alcoa, with Andrew Mellon’s capital, hit upon the idea of generating electric power for its production from Niagara Falls. Later, electric appliances required a huge scaling up of electricity production from the original application of light bulbs, and the automobile industry required a colossal expansion of the petroleum industry to supply it.

Since around 1960, as the U.S. and global economies expanded into electronics from “drop-it-on-your-foot” heavy technologies, the additional energy requirements for each new technology have been much smaller. That is why the last U.S. oil refinery was built in 1976 and the last nuclear power station until very recently went into operation in 1996, despite continued population and economic growth since then. Regulatory and “NIMBY” opposition have hugely increased the cost and delayed the completion of these assets, but only in an era of very slow increase in power demand could the idiot left have been indulged in this way.

We used to be a country! On November 7, 1973, in response to the first Arab oil embargo, the great President Richard Nixon unveiled Project Independence, which reaffirmed the Atomic Energy Commission’s 1967 goal of building 1,000 nuclear plants by 2000 (86 were actually built, with two more recently) and announced a goal of full U.S. energy independence by 1980, through Alaskan drilling and pipelines, as well as stepping up research on nuclear fusion power. Alas, Nixon succumbed to the media/Democrat Watergate conspiracy the following year, and by 1979 the U.S. was dependent on foreign imports for almost 50% of its oil. Only through fracking, a technology that the left tried incessantly to block, was U.S. self-sufficiency in oil finally achieved under President Trump. However, the environmentalist and NIMBY blockages on refineries and nuclear power were never removed.

We have always had environmentalist fruitcakes. The celebrated economist William S. Jevons, the father of econometric mathematical modelling, in his 1865 “The Coal Question” calculated that British coal output had grown at a compound rate of 3.5% for the previous 80 years, so would grow at a similar rate to 2.6 billion tons annually in 1965, exhausting Britain’s coal reserves of 90 billion tons. (In reality, British coal production peaked in 1913 at 292 million tons, barely a tenth of his projected 1965 production.) Technological advances substituted other energy sources for coal, while the efficiency of coal usage also increased. Thus, Jevons’ crude and simplistic projections were hopelessly erroneous.

Had Jevons been taken seriously – he was after all a much more eminent academic than most proponents of the “climate change” fantasy – regulations might have been passed banning the Bessemer and Siemens-Martin processes for producing steel, on the grounds that they threatened to deplete Britain’s coal reserves. If that had happened, the burgeoning Industrial Revolution would have been brought to a juddering halt.

The derailment fatality rate on railways as speeds and distances continued to increase while rails remained the softer wrought iron rather than steel would have been appalling. Electric power would have been stopped in its tracks, because the initial power stations were fired by supposedly scarce coal. Aluminium smelting, even more energy intensive than steel making, would have been prevented altogether. With these intermediate technologies blocked, there would have been no automobiles or aircraft, even though those transportation alternatives are powered by petroleum rather than coal. Agriculture would have remained powered by human muscle, with no steam-powered tractors or harvesters.

By 1900, the Industrial Revolution would have been winding down, with the pressure of increasing population subjecting the unfortunate urban working classes to a level of poverty worse than their grandfathers because of the increased urbanization. Only military conflicts would have overcome the universal technological blight, with machine guns and some heavy artillery invented on schedule, making World War I even more unpleasant than it was in reality, as the war’s disruption of unmechanized unfertilized agriculture would have driven the civilian population into starvation.

AI has started slowly, as new technologies always do (the Wright Brothers’ first flyer flew only 852 feet, at a height of less than 20 feet). Allowing idle students to turn in plausible essays (albeit with a few factual howlers if examined closely) is very far from being the ultimate case for the technology. Like aircraft in 1908-14, the technology will improve miraculously in capability, with the equivalents of speeds and heights soaring beyond anybody’s belief. Moreover, wailing predictions that it will put everybody out of work are already proving false; U.S. employment data are strong and AI’s reduction of programming costs to a tenth of their previous level has greatly increased the demand for AI-assisted programmers, as new applications appear. Yes, sociology and journalism graduates will have to retrain, but that was also true of buggy-whip manufacturers and crossing-sweeper horse-dung removers as the automobile took hold.

All we must do is remove the dead hand of regulation at all levels, Federal, state and local. It takes the Chinese about 4 years to bring a new nuclear plant into operation; the U.S. is unable to do it within a decade. The pathetic farce of California’s High Speed Rail system demonstrates that, with its post-1970 level of regulation, the U.S. is unable to build anything remotely complicated in a finite time or at a finite cost. We need oil refineries and nuclear power stations, and the latter need is extremely urgent – we need Nixon’s 1,000 nuclear power stations NOW, which will still be about 30 years late for 912 of them.

New York state has banned fracking, despite huge Marcellus gas shale deposits south of Binghamton, which has been given a casino license instead of its inhabitants being allowed to take fracking jobs. The state government is now proposing to put a 3-year moratorium on data center construction, despite the vast area beyond Albany having had no discernible economic function since the Great Depression hit. California is worse, and the country as a whole not hugely better. Climate Change be damned – AI will tell us the extent (minor) to which it is happening and how to re-train the lunatics who have made their career expounding it.

Apart from a global tragedy, it would be an appalling constitutional irony if the United States, given its history of freedom, lost the future to China through being Commier than the Commies. Though, while we’re at it, we might as well demonstrate the incredible joyful creative and artistic spirit of U.S. capitalism by putting tail-fins on the data centers we build!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: U.S. risks losing the AI Cold War appeared first on True Blue Will Never Stain.

The previous finance “gipsy’s warning” was made close to the nadir of the 2002 bear market and so failed to see how much money could be made in the brief liquidity-fueled upturn that followed. However, it looked altogether more sensible after 2006, when almost all the major investment banks went bankrupt or had to be bailed out by a stronger partner. In the still longer term, if young Ms. Worthington after losing her job in 2008, had caught on somewhere else in 2009, she would have done very well in the next decade, probably with enough money to retire early by 2021. That’s what artificially low interest rates can do for the finance sector!

My crystal ball was especially clouded in that 2002 piece by its total failure to mention private equity or hedge funds. Both were still fairly modest in size and at a nadir then; private equity had invested in innumerable dopey dot-coms, all of which had failed, while hedge funds were still rightly tarnished by the failure of the non-genius Long-Term Capital Management only four years before. In another piece, I had been critical of that operation. In this one, I criticized the quality of big bank managements that had bought investment banking operations at the top of the 1999-2000 bull market and watched their value melt into nothingness. As I remarked to young Ms. Worthington: “Nobody wants to work for idiots” – a problem perpetually present in financial services, where greed and aggression are thought an adequate substitute for intelligence.

My second experiment in career advice was largely correct. Written in 2005, it told Mrs. Worthington to avoid putting her daughter in engineering school, because manufacturing and many IT jobs were being rapidly outsourced. With the feeble governments of 2005-24, that prediction was largely justified, as more and more U.S. manufacturing disappeared offshore. Only recently, with the advent of AI and protectionism, has manufacturing begun to move back within the United States. One mistake the column made, however, through relying on a McKinsey Global Institute study (yes, I was young and gullible in those days) was to forecast that sectors such as insurance would be invulnerable to outsourcing because of regulation. As we have discovered from all the Indian call centers, those sectors can be outsourced just as well as anything else, and AI claims processing is an additional threat to the remaining U.S. jobs done by humans.

Turning to today’s job market, there are some clear pointers for young Ms. Worthington to follow. First, she should avoid at all costs heading for one of the behemoth consultancy firms. Even 20 years ago, their judgements were suspect, and their strategy of using low-level consultants to generate massive billable hours of grunt work to justify their partner-salesmen’s salaries is in the process of disappearing. AI will be able to do the grunt 200-page report full of charts and drivel without the use of junior consultants at all. This will empower smaller, more nimble consultants who can use AI to replace the grunts, but it will hollow out the biggest “Russian Army” consultants in a very few years.

The opposite is true in software creation. AI will be able to create routine software fast and cheaply, but by reducing the cost of software this will massively increase the range of applications where it can be used. With the cost of creating software reduced to a tenth of its previous level or less, the ability to use AI to create software to solve problems or manage machinery has already become more valuable – the market for good programmers, which had been weak in the previous couple of years, partly because of the infinite supply of H1B drones from the Indian subcontinent, has now turned around, and programmers who truly know what they are doing and can manage AI to help them do it are in huge demand. Young Ms. Worthington would do very well to acquire this set of skills, if she is capable of it.

As for banking, it must inevitably suffer a lengthy period of recession and job losses, probably more severe than in 2007-09, because asset prices have once again run far ahead of reality, and banks and other credit and investment institutions have poured capital into the fantasy. The current market assumption is that financial markets will be bailed out by yet more money-printing and subsidies, but the new Fed chairman Kevin Warsh is not Ben Bernanke; indeed during his term as Fed Governor in 2006-11, he was the most prominent opponent of Bernanke’s shenanigans.

With inflation having resurged, and likely to continue doing so as long as the idiotic “Iran War” remains unsettled, there is no chance of interest rate reductions; indeed it is likely that rates will be forced to rise to get a handle on the inflation surge. Further, if Warsh follows through on his promise to reduce the Fed balance sheet, as he should, the gigantic subsidized banking system deposits with the Fed that have distorted financial markets for nearly two decades will be forced to shrink. Indeed, Warsh has already suggested that a sharp reduction in the interest rate paid by the Fed on those deposits would be thoroughly beneficial. With the banks, grossly over-regulated since the 2010 Dodd-Frank Act, being forced to lend to small business, as they should, the private credit system will be deprived of its funding, and the inevitable collapse of its poorly thought-out lending will be swift and destructive.

All over the global economy, there are assets whose values will collapse in the necessary period of tight money that Warsh is likely to institute. Private equity has suffered low returns for over a decade, and no amount of “pass the parcel” flipping the investments from one fund to another will solve the problem. Indeed, the “fast buck” approach of most private equity managers will almost certainly have left their investee companies as hollow shells, with their capability wrecked by destructive maintenance-deferring and research-ignoring management.

Private debt is likely to be in an even worse condition; the decades of “funny money” since 2008 have caused far too much investment to be allocated to these sectors. University endowments have also been abominably managed, with the “Yale model” forcing them into funds that dissipate the endowment in grotesque fees, while “woke” decisions such as Harvard’s “divestment” from fossil fuels in 2021, at the bottom of the market, have devastated their long term returns, which have been far below a simple investment in the S&P 500 Index. Finally, derivatives businesses have done well because investors like to speculate, but a period of tighter money should cure this irrational urge.

If the next decade is likely to resemble the 1930s, then young Ms. Worthington should steer clear of financial services – Merrill Lynch, the largest brokerage house, made a loss over that decade and was only kept alive by Charles Merrill’s mother’s trust fund. But contrary to legend, the 1930s even in the United States were overall an economically successful decade, with high productivity growth – unemployment only remained high because of incompetent government policy. The Hollywood film industry did famously well, so young Ms. Worthington, if she has the talent, should perhaps consider some version of the screen, or even the stage – with AI ubiquitous, audiences will want more humanity in their entertainment. Other successful industries in the 1930s were oil and chemicals, electrical machinery, and distribution/retailing, so updating that list to today’s technology gives her a wide range of options to consider.

Noel Coward’s advice to Mrs. Worthington was based on her daughter’s unsuitability for a theatrical career. My advice herein is rather different; young Ms. Worthington may be a walking Black-Scholes Equation with the sales ability of Phineas T. Barnum; nevertheless, the path to success in finance today is a stony and unprofitable one, and she should avoid it.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

The post The Bear’s Lair: Don’t put your daughter into finance, Mrs. Worthington! appeared first on True Blue Will Never Stain.

There is no question that women as a whole are investing a lot of their energy in the university system. Overall, according to Education Department statistics, the Class of 2026 at colleges skews 61.3% female. The greatest skew is at the Associate’s and Master’s levels, where 64.6% and 63.4% respectively of the Class are female. This suggests that women are especially vulnerable to the social pressure of college, with a high percentage of marginal students going to college for an Associate’s degree rather than taking vocational training and a high percentage of women with Bachelor’s degrees incurring massively more student debt, probably at a level they will never be able to repay, to obtain a Master’s degree that may well be economically worthless. The degrees with the greatest value in the real world, Bachelor’s for basic college skills or Doctorates for academia and the highest scientific posts, skew much less heavily female.

Alex Karp, founder and CEO of Palantir Technologies, has made the same point (well, I can’t be startlingly original every time!) In a recent interview with CNBC, he said AI would lessen the power of

“highly educated, often female voters, who vote mostly Democrat. This technology disrupts humanities trained – largely Democratic – voters and makes their economic power less. And increases the power of vocationally trained, working class, often male voters.”

In another interview with the podcast TBPN, he elaborated:

“There are basically two ways to know you have a future. One, you have some vocational training. Or two, you’re neurodivergent.”

Well first, this column has always been neuro-divergent; that was the inspiration for its inception in 2000 when everything one read was bullish on the hopelessly over-inflated dot-com stock market. Neuro-divergence has been its guiding star over the 25 years plus since then. So, it is very good that the column will have an economic future in the brave new world of AI, despite it being written in a bizarre kind of humanities-major English rather than in mathematical formulae (most weeks!) The column’s neuro-divergence is also very fortunate, as on Karp’s alternative qualification, being utterly ham-fisted I could never make it as a plumber or electrician!

But Karp’s view appears to be a common-sense assessment of where AI will lead, by one who as founder of Palantir has presumably thought about that question longer and more deeply than almost anyone else. Certainly, it is not wishful thinking – Karp is a major mainstream Democrat donor and appears to have voted against President Trump in each of the last three Presidential elections, so presumably regrets that new technology is hurting his political side’s prospects. So, Karp’s wisdom leads one to speculate: why are so many women of this generation immersing themselves in abominable amounts of student debt to get an education at a fancy college in liberal arts that is of almost no monetary value, and will make them almost unemployable in the new AI world?

One can understand previous generations; they were left-leaning (as women have been since the middle 1980s), socialized further left by their schools and believed deeply in careers for women. Therefore, they attempted to get the “best” possible college qualifications in the largest possible quantity for their chosen career despite the appalling financial cost of that choice. But believing in 1996, before the Internet started to hollow out journalism, that a liberal arts degree would provide comfortable employment for the rest of one’s career was rational; believing the same in 2026 is not.

That uncomfortable fact may explain much of the political opposition to data centers, especially in suburban areas where expensively educated arts-major women proliferate. Loudoun County is the quintessential example of such an area, home not to the younger graduates, but to those who have established a successful career in government or more lucratively one of the lobbyist or non-profit groups that infest Washington. Twenty years ago it was solidly Republican, now it is equally solidly Democrat. Since it was the closest area to Washington where there was still spare land and its local government appeared to be friendly, it became home to almost 50 million square feet of data centers, which now pay nearly half Loudoun County’s taxes.

I can reliably forecast that trouble is coming to Loudoun County’s data center paradise. The state government is no longer headed by the reliably corporatist Glenn Youngkin, but by the leftist wolf in centrist sheep’s clothing Abigail Spanberger, and the state Assembly and Senate both have Democrat majorities. Thus, Loudoun County’s ladies, facing extinction of their comfortable liberal-arts-major existence, have the chance to wreak political havoc against the evil powers of AI, that threatens their cozy existence and bids fair to replace them with male plumbers, people they only deal with when they absolutely have to and whose bills always appear to them exorbitant.

They don’t know any such people socially. A recent study by Verdant Laboratories of the political affiliations of the most Democrat and most Republican occupations found that arts administrators, English professors, film editors, History professors, psychotherapists, psychoanalysts and museum curators, the sort of people the Loudoun ladies would be happy to have as neighbors, all skewed more than 95% Democrat. Conversely, roofers, mechanical contractors, car salesmen, and home builders, the most Republican groups, and the sort of people they would rarely meet socially, were no more than 80% Republican, thus a much more diverse and tolerant group. Incidentally, if the ladies of Loudoun had the sense to live in a neighborhood with lots of plumbers, like Poughkeepsie, they would find their plumbing bills much more reasonable. Supply and demand, lady, a concept you didn’t come across in your Sociology class!

The Dominion/NextEra merger will provide opportunities for lots of people the Loudoun ladies don’t know socially, whose work is remarkably valuable. The 30,000 employees of Dominion/NextEra combined, the great majority of which will fall into one or other of Karp’s favored groups, appear to be producing $420 billion in value, judging by the merger size. Unlike many tech mergers, this valuation is not unduly inflated by anticipation of the future; the component parts of Dominion and NextEra have been around for a century or more. Yet their value is an amazing $14 million per employee, far more than your average sociology PhD is worth! While I am generally against mergers, this one seems to have the unquestionable advantage of reducing the ability of the Loudoun ladies to mess up the business, either by prohibiting the construction of more data centers or by forcing the companies concerned to install expensive and ineffective windmills.

As for the data centers, they can be installed in deeply rural parts of North Carolina, the parts where FEMA under the Biden administration did not bother answering phone calls. Asheville, NC would I am sure be happy to have some data centers that reliably paid large amounts of local taxes. And yes, it’s further from Washington, so much so that Loudoun ladies probably couldn’t find it on a map. But does it really matter that Federal bureaucrats must wait 0.00252 seconds for their data to travel the 469 miles from Asheville rather than 0.00017 seconds to cover the 32 miles to Leesburg? (Yes, I could have put that in scientific notation 1.7 E-04, but I wanted the Loudoun ladies to understand the point!)

In the unpleasant world in which we live, political games get played in much of the country; for example New York State, a vast area with huge AI potential, has a proposed three-year moratorium on data center construction because of dozy opposition to them by Governor Kathy Hochul and the New York State legislature. While I oppose mergers in general, that between Dominion and NextEra allows providers of data centers in the southeastern United States, the region served by those companies, to choose between several states and regions, few of which will be as expensive and hostile as the ladies of Loudoun. This neuro-divergent column thus welcomes it!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

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