Nassim Taleb Slams “These Virtue-Signaling Open-Borders Imbeciles” In 3 Short Tweets

As liberals across America continue to attempt to one-up one another with the volume of virtue they can signal, specifically on the question of ‘open borders’ – especially since ‘jenny from the bronx’ victory over the weekend, none other than Nassim Nicholas Taleb unleashed a trite 3-tweet summary of how farcical this argument is…

What intellectuals don’t get about MIGRATION is the ethical notion of SYMMETRY:

1) OPEN BORDERS work if and only if the number of pple who want to go from EU/US to Africa/LatinAmer equals Africans/Latin Amer who want to move to EU/US

2) Controlled immigration is based on the symmetry that someone brings in at least as much as he/she gets out. And the ethics of the immigrant is to defend the system as payback, not mess it up.

Uncontrolled immigration has all the attributes of invasions.

3) As a Christian Lebanese, saw the nightmare of uncontrolled immigration of Palestinians which caused the the civil war & as a part-time resident of N. Lebanon, I am seeing the effect of Syrian migration on the place.

So I despise these virtue-signaling open-borders imbeciles.

Silver Rule in #SkinInTheGame

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“Words Fail Me. It’s Insanity”: Inside Tesla’s “Preposterous” Model 3 Production Tent

Bears and bulls alike following Tesla’s gripping nailbiter of a story – the company has until the end of the month to pump out 5,000 Model 3 sedans a week – both agree on one thing: the output of the company’s new “tent” structure which Musk erected recently to produce Model 3 vehicles is going to decide whether or not the company hits its production goal that it has touted over the last couple of months.

Photo Credits: Bloomberg

The tent was erected in just a matter of weeks, and came online in early June, to help the company produce more vehicles at a time when they are under the microscope. Until recently, we didn’t know the details as to when it was erected, what the timing looked like and what it is expected to produce. However, a Bloomberg article out today helped shed some light on the details of what is arguably the most important – if archaic – structure that Tesla has built yet.

Not surprisingly, opinions extend the whole gamut, with some manufacturing experts claiming the tent is “basically nuts”:

Elon Musk has six days to make good on his pledge that Tesla Inc. will be pumping out 5,000 Model 3 sedans a week by the end of the month. If he succeeds, it may be thanks to the curious structure outside the company’s factory. It’s a tent the size of two football fields that Musk calls “pretty sweet” and that manufacturing experts deride as, basically, nuts.

Inside the tent in Fremont, California, is an assembly line Musk hastily pulled together for the Model 3. That’s the electric car that is supposed to vault Tesla from niche player for the wealthy to high-volume automaker, bringing a more affordable electric vehicle to the masses.

Analysts at Bernstein are equally unimpressed. Here is a quote from Max Warburton who benchmarked auto assembly plants before his job as a financial analyst:  “Words fail me. It’s insanity,” said Max Warburton, who benchmarked auto-assembly plants around the world before becoming a financial analyst.

Ironically, Musk’s “Hail Mary” is the polar opposite of Tesla’s own vision for its future of state of the art robotics, hermetically sealed manufacturing facilities and millisecond efficiency.

To be sure, the tent is also a far cry from the automation that investors were promised during the early days of Tesla. The company‘s goal, which once was to have a state of the art factory producing vehicles, has now been reduced to a literal tent using manual labor and spare parts to put together cars. Worse, nobody seems to even know whether or not the line is up and running. Welcome to the future?

Musk announced it on Twitter on June 16, saying the company had put together an “entire new general assembly line” in three weeks with spare parts; the building permit was issued on June 13, though the company could have started working on aspects of the project before that.

Whether this new line is fully operational is unclear. Company officials declined to comment. The Tesla-obsessed users of Twitter and other internet forums have posted photos and videos and comments either praising or ridiculing the parking-lot big top. Apparently in response to the intense interest, the tent has recently been surrounded by very large trucks, which obstruct the view.

Predictably, the tent is being called a “hail mary” move by analysts, after the company finally admitted that its vision for automation and assembly – pitched as the “most sophisticated in the world” as recently as February 2018 -was  simply “not working”:

What gives manufacturing experts pause about Tesla’s tent is that it was pitched to shelter an assembly line cobbled together with scraps lying around the brick-and-mortar plant. It smacks of a Hail Mary move after months of stopping and starting production to make on-the-fly fixes to automated equipment, which Musk himself has said was a mistake.

The existing line isn’t functional, it can’t build cars as planned and there isn’t room to get people into work stations to replace the non-functioning robots,” Warburton said in an email. “So here we have it—build cars manually in the parking lot.”

As Bloomberg notes, an April admission that he erred by putting too many robots in Tesla’s plants was a humbling moment for Musk. The chief executive officer had boasted in the past that his company would build an “alien dreadnought,” sci-fi bro code for a factory so advanced and robotic, it would be incomprehensible to primitive earthlings.

During a February earnings call, Musk told analysts that Tesla had an automated-parts conveyance system that was “probably the most sophisticated in the world.” But by the spring, it had been ripped out of the factory.

“We had this crazy, complex network of conveyor belts,” Musk told CBS This Morning in April. “And it was not working, so we got rid of that whole thing.”

Analyst Dave Sullivan, who previously used to supervise Ford factories and now works at AutoPacific, chimed in: “To say that it’s more efficient to build this with scrap pieces laying around means that either somebody made really bad decisions with the parts in the plant inside, or there are a lot of other problems yet to be discovered with Tesla’s efficiency.”

The article concludes with what may be the most suitable epitaph for Tesla should Musk disappoint in a few days when he reports Q2 production figures.

“It’s preposterous,” Bernstein’s Warburton said.

“I don’t think anyone’s seen anything like this outside of the military trying to service vehicles in a war zone. I pity any customer taking delivery of one of these cars. The quality will be shocking.”

Preposterous or not, the clock is ticking on Tesla.

The company has just days before it has to update investors on the current state of production and how the business is running. If the tent is any indication, expect many to voice their disappointments out in the open…

Another Confesses The Impossible, We Might Not Have Known What Were Doing

When you go around claiming that central bankers don’t know the first thing about money, people tend to think you are crazy. It’s not really their (people’s) fault. Not only have we been conditioned to believe in a technocracy of sorts, it is raw human nature to immediately suspect such a radically contrarian view.

It would be one thing to say, well, central banks screwed up and were behind, making a few big mistakes along the way and we had the pay the price for it. Even that would be hard for some to really accept. But to make the indictment that they really don’t know what they are doing even on the most fundamental level just cuts way too deeply against convention. Your natural instinct is to believe there is no way that could possibly be true.

The Maestro, after all.

Yet, if you actually take the time to listen to what they say, and have said in the past, they do admit as much. It’s never summarized in that fashion, of course, and any potentially negative implications are downplayed or dismissed.

Since the Great Inflation monetary policy has been quite intentionally stripped of money. Banks evolved and there was really no easy way to define money beyond a certain point (in the sixties), so Economists just gave up trying. This is no small thing, but in Economics it is treated trivially.

Around the same time, Positive Economics, or econometrics, came into its own. It was widely accepted as one possible answer to a lot of academic problems. Rather than being forced to study incessantly the dizzying complexity of any economic system, econometrics offered a short cut. Define a few big correlations and that was all that was required.

But first, Economists had to solve markets. Before the seventies, most mainstream econometric models tried incorporating an “adaptive” expectations regime. This assumes that economic agents, including those operating in any financial markets, are always backward looking, forming their expectations from only past conditions and data.

Not only was it a theoretical problem, it was also a mathematical one leading to incomplete regressions and equations riddled with infinities. John Muth began the trend toward “rational” expectations, a journey ultimately completed by Robert Lucas (and Thomas Sergeant). The singularities disappeared from the math and efficient markets were born. No need to try and understand how markets form expectations and prices, Economists will just assume they use all available data and work themselves out efficiently to the best forward-looking position.

Once you’ve made such assumptions, what use to further study markets and therefore credit-based money? The modern central bank model was complete in its stunningly arrogant simplicity. It need only push around a single money rate and from there it actually expected to control the marginal variations for the entire economy. It didn’t know how or why, it just expected from that single input predictable outcomes would result.

What these neo-Keynesian DSGE models “knew” about money and finance was nothing other than simple maturity transformation: the central bank lowers (or raises) the money rate, that steepens (flattens) the asset yield curve as desired, making it more (less) profitable for depository institutions to make additional loans, therefore banks stimulate (retard) additional economic projects.

But what if the biggest source of credit doesn’t originate from depository institutions? And what if these other financial agents use very different sources of “money” and funding? Greenspan worried about the “proliferation of products” banks were substituting for traditional money, little did he know it was a proliferation of a proliferation.

In public, these questions appear to be all but forbidden. No Federal Reserve official has ever been made to answer them. In private, as noted so many times before, they did particularly Alan Greenspan who fretted about such grand ignorance, but for the rest of us we are supposed to be content with this shockingly incomplete basis for a purported technocratic enterprise of still some great esteem.

Mario Draghi, for example, says in 2018 there is no evidence that European inflation after years of QE is about to breakout, but he believes it will anyway because of QE and so his belief is written as truth at the direct expense of years upon years of contrary evidence.

As I’ve also written, what is so disheartening about these small economic upswings like the one we are experiencing now is that they all but erase the public’s curiosity about these big questions and more importantly the urgency to try to get someone to answer them. In 2015 and early 2016, in particular, the trend was very much in the right direction. Policymakers were openly nervous and uncertain; it was palpable at times. Everyone could see that “something” was missing, and that something was a big deal.

Now? Nobody cares (again) – at least until the next one.

FRBNY President Bill Dudley is retiring. In addition to holding the most important post at the most important branch, before that he was the head of the Open Market Desk during the most consequential nineteen months in modern economic history. There is a reason why I quote him most for the crisis period, the same reason he, like Bernanke, is already starting to try and reshape his legacy.

The revision to history, at least for Dudley, began Friday as an internal interview posted at FRBNY’s Liberty Street Economics blog. He begins by absurdly claiming Economists are truth seekers:

So economists may be a little bit more open-minded to the facts—not to say that lawyers aren’t, but a lawyer’s job is to do something, to advocate a position, to protect a positon [SIC]. So they’re starting with a very strong a priori view. I think economists start with a priori views, in the form of a hypothesis, but if the evidence is inconsistent then they start to change the theory and hypothesis, as opposed to arguing that the evidence is obviously not applicable.

You don’t get four QE’s if this was in any way true. You just don’t; one was enough of an experiment. Two maybe to test a different variable, but after what happened in 2011 the whole paradigm of bank reserves would have been tossed into the East River if these were anything like faithful scientific principles.

Dudley follows that up with some examples, casting himself in the role of the scientist though careful to construct his new narrative so that his evolving position is never anchored to any big, historic events in the recent past where such evolution might have instead proved beneficial. All you are supposed to know is the he is learning, not pay attention to when or how it might be way, way too late.

Historically macroeconomists imagined that changes in federal funds were transmitted directly from the Fed to the macroeconomy. But in my mind, the linkage between the federal funds rate and financial conditions is quite variable. So if you just focus on the federal funds rate, you’re going to, at times, make pretty bad forecasts about what’s actually going to happen in the real economy.

This is where the Fed’s push toward limited transparency is going to, ironically, haunt them for decades. He can claim what he does above, but it’s all there in the transcripts directly contradicting him. As head of the Open Market Desk, he truly believed, as the global monetary system came crashing down around him, that big cuts in the federal funds rate would make everything better. They all did because they just assumed it (maturity transformation) worked that way.

In addition to the above, Dudley makes another stunning admission because, again, he is retiring and transparently wants to start rehabilitating his reputation.

One of the challenges going into the financial crisis, for example, if you look at the big DSGE model—dynamic stochastic general equilibrium model—it didn’t include a finance sector. So the whole experience of what actually happened during the global financial crisis—the collapse of the financial system and that taking down the real economy—wasn’t an actual possibility within the major macro models that some economists were using to forecast the economy.

The problem with trying to claim “it’s the models fault” is, again, the transcripts. Starting with the association of “some economists were using”, we are supposed to believe that he isn’t included in that group. He most certainly was.

The FOMC followed the Greenbook and other modeled assessments as their forecasting gospel. It’s why as late as July and August 2008 they were still thinking that through their own skill in handling the crisis to that point, largely Bear Stearns, the US economy might even manage to steer clear of any recession – even though one had already begun the prior December (unbeknownst to rational expectations theory) and by that summer had already experienced the first rumblings of collapse.

The real issue is why Bill Dudley is talking about all this now rather than in, say, 2011. In January of that year, FRBSF researchers published a paper totally exposing the economic illiteracy this doctrine of shortcuts demands.

What you see above taken from that paper is exactly what policymakers expected to happen vs. what did happen that they thought was impossible (almost all the red lines in all the modeled runs were more than six standard deviations from projections). Bill Dudley, on the verge of retirement, admits to you now a decade later what could only have been helpful more than eleven years ago. They really don’t know what they are doing. They never have.

FRBNY’s outgoing president unintentionally highlights both of our major problems, each relating to Economics as an ideology rather than scientific pursuit. First is this rule of principled ignorance. In econometrics, the math is all that matters when instead there are very real circumstances where we might wish to understand why the math might not matter at all. Substituting statistical competence and comprehensiveness for on-the-ground understanding of, you know, an economy is a potentially fatal blindness. It sure was starting on August 9, 2007.

The second gets back to the first of Dudley’s quotes above. Economists never deviate from their models. These statistical constructions are treated like they are their children. They start with a hypothesis constructed from them and stick with it no matter what as if the models themselves can never, ever be wrong. Economists are irretrievably devoted to the math, or the economy that “should be.” These models made the biggest of all big mistakes and still they persist as if they are in any way useful.

Yet, it still sounds preposterous to most people when you write or speak about how there is no money in monetary policy and how Economists don’t know the first thing about the economy. It is important to pay attention to when they actually admit it and to broadcast the confession as far and as wide as possible especially during another limited upswing before one lost decade turns to a second and what then might happen as more of the impossible.

Italians Angry After ECB Admits It Slashed Purchases Of Italian Debt During Latest Crisis

Italians Angry After ECB Admits It Slashed Purchases Of Italian Debt During Latest Crisis

 Heading into the second half of May, just as the political turbulence in Italy was rising as investors took fright at 5-Star’s attempts to form a coalition government with the anti-immigrant League party, and what was initially a trickle of selling in Italian BTPs became a full-blown liquidation panic, some Italians wondered if the Mario Draghi wasn’t using a page from the Silvio Berlusconi playbook and allowing Italian bonds to tumble without ECB intervention, simply to “pressure” the domestic political process against the formation of a populist, Euroskeptic cabinet, something European Budget Commissioner, Guenther Oettinger scandalously suggested last week when he said that “the negative development of the markets will lead Italians not to vote much longer for the populists.”

 

Indeed, as we noted last week, several politicians suggested at the end of May that the ECB was exacerbating the sharp market moves: “It would be useful to know how much debt the Bank of Italy and the ECB have bought compared to the norm? Have purchases gone down?” tweeted Carla Ruocco, a Five Star MP, at the peak of the market turmoil last week.

 

Impennata dello #Spread: sarebbe interessante conoscere quanti #BTP #BCE e #Bankitalia hanno acquistato questa settimana rispetto al solito. Non saranno mica scesi? Qualcuno ci leva il dubbio?! pic.twitter.com/YgBmPOaOtW

— Carla Ruocco (@carlaruocco1) May 29, 2018

Elsewhere, Laura Castelli, another Five Star parliamentarian close to leader Luigi Di Maio said in an interview with Huffington Post that “the ECB and Italian banks have slowed up if not suspended their buying of BTP [Italian government bonds] . . . which is adding to pressure on spreads”. She also argued that “quantitative easing is being weakened at exactly the moment when we need it strengthened to secure the stability of the EU.”

As it turns out, skeptical Italians was proven right because as the ECB revealed when it disclosed its PSPP bond purchases for the month of May when “lo spread” between the yield on Italian and German government bonds blew out to its highest level for five years – leading some of the country’s politicians to hit out at perceived “bullying” from the bond markets – the central bank sharply scaled back the proportion of Italian purchases relative to all other bonds purchased under QE in the month of May, which according to the FT is an “admission that could fuel suspicions of the new Eurosceptic Italian government that the central bank is seeking to punish it.”

As shown below, in total less than 15% of ECB’s net May purchases were of Italian debt, the lowest proportional allocation to Italy since the bond-buying program began in March 2015.

And with relative Italian purchases tumbling, some other nation must have seen its bond purchases jump. It will come as no surprise to anyone, that someone was Germany, which as the chart below shows, saw its net ECB purchases of bonds as a % of total soar to the highest since the program began.

Of course, any hint the ECB is intervening in markets to push for a specific political outcome, even though it did precisely that in November 2011 when a crash in Italian bonds led to the ouster of then-PM Sylvio Berlusconi, would lead to a huge European scandal in which the “apolitical” central bank is seen as intervening in domestic politics, and the bank came out prepared with a statement “explaining” precisely why Italian purchases tumbled, and to deny  Castelli’s allegations that the ECB’s QE was being weakened “at exactly the moment when we need it strengthened to secure the stability of the EU” just to punish Italian voters who picked a populist government.

This is what the ECB said:

“Several countries including France, Austria, and Belgium saw their share in net purchases go down in May, not just Italy. This is the result of greed and communicated rules on the timing of re-investments.”

Yes, but no other nation saw its share drop as much as Italy; a plunge which certainly exacerbated the low liquidity liquidation that sent “lo spread” above 300bps.

Furthermore, as the ECB’s spokesman tried to explain, there was a high volume of German bond redemptions in April which could not all be reinvested in the market during that period, so “some of these re-investments were spread also to May to ensure a smooth implementation.”

Confused? The ECB just blamed the plunge in relative Italian bond purchases, and the surge in German, on a calendar quirk. The ECB continued:  “In absolute terms, the amount of net purchases for Italy in May (EUR 3.6 bln) was higher than, for example, in March (EUR 3.4 bn) and January (EUR 3.4 bn). Gross purchases for Italy were actually higher in May than in April (around 32% higher).”

Indeed, but again on a relative basis, they plunged, and that’s all that traders in Europe – where nations pretend to be at least relatively equal – cared about.

Incidentally, as we reported last week, the ECB said that it was watching political events in Italy but was unlikely to intervene by buying debt. Well, it clearly did intervene by purchasing debt… of Germany, much to Bill Gross’ chagrin, as the relative outperformance of Bunds over US Treasurys led to the biggest one day loss for Bill Gross’ unconstrained fund.

Finally, in light of the ECB’s sudden drop off in Italian bond purchases in May, it is hardly surprising that as we reported on May 31, the Italian Ministry of Finance announced it had unexpectedly repurchased €500 million in 2 Year BTPs…

urprising market watchers.

And while the Italian bond crash has been put on hold for now, the far bigger question remains: what happens to this artificially supported bond market, in which politicians scream bloody murder when the ECB tapers its purchases even modestly, when the ECB fully ends its QE and stops monetizing public debt as it is widely expected to do on January 1, 2019?

* * *

Following the news that the ECB had purchased fewer Italian bonds in May, the FTSE MIB slumped to session lows, with Italian banks following suit as Italians are given a stark reminder just how precarious the price of every single asset in the country is without the continued support of the ECB.

Needless to say, Italian politicians were not happy: Claudio Borghi, the League’s top economic adviser, said it was “no surprise” to discover the ECB had been buying more German bonds. “Since Draghi promised to do ‘whatever it takes’ the biggest players in the Italian bonds market has been the ECB and they fix the price,” he told the FT,  adding that  “it is necessary to clarify the storytelling about Italian debt.It is not general markets’ that have the greatest influence on the price but the ECB is by far the biggest factor.”

Borghi, is of course, correct – we first discussed this last December in “Italian Bonds Slide As Market Realizes ECB Has Been The Only Buyer“, but the obvious next question is: so what? Yes, Italian bonds are massively mispriced and they will plunge if and when the ECB stops supporting the market, in effect holding Italy hostage. As for the biggest question, it is what if anything, Rome has up its sleeve to avoid such a fate when Draghi’s QE finally ends.

 

Inspector General Finds FBI, DOJ Broke Law In Clinton Email Probe, Refers To Criminal Prosecutor

Inspector General Finds FBI, DOJ Broke Law In Clinton Email Probe, Refers To Criminal Prosecutor

As we reported earlier Thursday, a long-awaited report by the Department of Justice’s internal watchdog into the Hillary Clinton email investigation has moved into its final phase, as the DOJ notified multiple subjects mentioned in the document that they can privately review it by week’s end, and will have a “few days” to craft any response to criticism contained within the report, according to the Wall Street Journal.

Those invited to review the report were told they would have to sign nondisclosure agreements in order to read it, people familiar with the matter said. They are expected to have a few days to craft a response to any criticism in the report, which will then be incorporated in the final version to be released in coming weeks. –WSJ

Now, journalist Paul Sperry reports that “IG Horowitz has found “reasonable grounds” for believing there has been a violation of federal criminal law in the FBI/DOJ’s handling of the Clinton investigation/s and has referred his findings of potential criminal misconduct to Huber for possible criminal prosecution.”

Sperry also noted on Twitter that the FBI and DOJ had been targeting former National Security Advisor Mike Flynn before his December 2016 phone call with Russian Ambassador Sergey Kislyak, stemming from photos of Flynn at a December 2015 Moscow event with Vladimir Putin (and Jill Stein).

Who is Huber?

As we reported in March, Attorney General Jeff Sessions appointed John Huber – Utah’s top federal prosecutor, to be paired with IG Horowitz to investigate the multitude of accusations of FBI misconduct surrounding the 2016 U.S. presidential election. The announcement came one day after Inspector General Michael Horowitz confirmed that he will also be investigating allegations of FBI FISA abuse.

While Huber’s appointment fell short of the second special counsel demanded by Congressional investigators and concerned citizens alike, his appointment and subsequent pairing with Horowitz is notable – as many have pointed out that the Inspector General is significantly limited in his abilities to investigate. Rep. Bob Goodlatte (R-VA) noted in March “the IG’s office does not have authority to compel witness interviews, including from past employees, so its investigation will be limited in scope in comparison to a Special Counsel investigation,”

Sessions’ pairing of Horowitz with Huber keeps the investigation under the DOJ’s roof and out of the hands of an independent investigator.

***

Who is Horowitz?

In January, we profiled Michael Horowitz based on thorough research assembled by independent investigators. For those who think the upcoming OIG report is just going to be “all part of the show” – take pause; there’s a good chance this is an actual happening, so you may want to read up on the man whose year-long investigation may lead to criminal charges against those involved.

In short – Horowitz went to war with the Obama Administration to restore the OIG’s powers – and didn’t get them back until Trump took office.

Horowitz was appointed head of the Office of the Inspector General (OIG) in April, 2012 – after the Obama administration hobbled the OIG’s investigative powers in 2011 during the “Fast and Furious” scandal. The changes forced the various Inspectors General for all government agencies to request information while conducting investigations, as opposed to the authority to demand it. This allowed Holder (and other agency heads) to bog down OIG requests in bureaucratic red tape, and in some cases, deny them outright.

What did Horowitz do? As one twitter commentators puts it, he went to war

In March of 2015, Horowitz’s office prepared a report for Congress  titled Open and Unimplemented IG Recommendations. It laid the Obama Admin bare before Congress – illustrating among other things how the administration was wasting tens-of-billions of dollars by ignoring the recommendations made by the OIG.

After several attempts by Congress to restore the OIG’s investigative powers, Rep. Jason Chaffetz successfully introduced H.R.6450 – the Inspector General Empowerment Act of 2016 – signed by a defeated lame duck President Obama into law on December 16th, 2016cementing an alliance between Horowitz and both houses of Congress. 

1) Due to the Inspector General Empowerment Act of 2016, the OIG has access to all of the information that the target agency possesses. This not only includes their internal documentation and data, but also that which the agency externally collected and documented.

TrumpSoldier (@DaveNYviii) January 3, 2018

See here for a complete overview of the OIG’s new and restored powers. And while the public won’t get to see classified details of the OIG report, Mr. Horowitz is also big on public disclosure:

Horowitz’s efforts to roll back Eric Holder’s restrictions on the OIG sealed the working relationship between Congress and the Inspector General’s ofice, and they most certainly appear to be on the same page. Moreover, FBI Director Christopher Wray seems to be on the same page as well. Click here and keep scrolling for that and more insight into what’s going on behind the scenes.

Here’s a preview:

 

Which brings us back to the OIG report expected by Congress a week from Monday.

On January 12 of last year, Inspector Horowitz announced an OIG investigation based on “requests from numerous Chairmen and Ranking Members of Congressional oversight committees, various organizations (such as Judicial Watch?), and members of the public.”

The initial focus ranged from the FBI’s handling of the Clinton email investigation, to whether or not Deputy FBI Director Andrew McCabe should have been recused from the investigation (ostensibly over $700,000 his wife’s campaign took from Clinton crony Terry McAuliffe around the time of the email investigation), to potential collusion with the Clinton campaign and the timing of various FOIA releases.

Courtesy @DaveNYviii

On July 27, 2017 the House Judiciary Committee called on the DOJ to appoint a Special Counsel, detailing their concerns in 14 questions pertaining to “actions taken by previously public figures like Attorney General Loretta Lynch, FBI Director James Comey, and former Secretary of State Hillary Clinton.” 

The questions range from Loretta Lynch directing Mr. Comey to mislead the American people on the nature of the Clinton investigation, Secretary Clinton’s mishandling of classified information and the (mis)handling of her email investigation by the FBI, the DOJ’s failure to empanel a grand jury to investigate Clinton, and questions about the Clinton Foundation, Uranium One, and whether the FBI relied on the “Trump-Russia” dossier created by Fusion GPS. 

On September 26, 2017, The House Judiciary Committee repeated their call to the DOJ for a special counsel, pointing out that former FBI Director James Comey lied to Congress when he said that he decided not to recommend criminal charges against Hillary Clintonuntil after she was interviewed, when in fact Comey had drafted her exoneration before said interview.

And now, the OIG report can tie all of this together – as it will solidify requests by Congressional committees, while also satisfying a legal requirement for the Department of Justice to impartially appoint a Special Counsel.

As illustrated below by TrumpSoldier, the report will go from the Office of the Inspector General to both investigative committees of Congress, along with Attorney General Jeff Sessions, and is expected within weeks.

DOJ Flowchart, Courtesy TrumpSoldier (@DaveNYviii)

Once Congress has reviewed the OIG report, the House and Senate Judiciary Committees will use it to supplement their investigations, which will result in hearings with the end goal of requesting or demanding a Special Counsel investigation. The DOJ can appoint a Special Counsel at any point, or wait for Congress to demand one. If a request for a Special Counsel is ignored, Congress can pass legislation to force an the appointment.

And while the DOJ could act on the OIG report and investigate / prosecute themselves without a Special Counsel, it is highly unlikely that Congress would stand for that given the subjects of the investigation.

After the report’s completion, the DOJ will weigh in on it. Their comments are key. As TrumpSoldier points out in his analysis, the DOJ can take various actions regarding “Policy, personnel, procedures, and re-opening of investigations. In short, just about everything (Immunity agreements can also be rescinded).

Meanwhile, recent events appear to correspond with bullet points in both the original OIG investigation letter and the 7/27/2017 letter forwarded to the Inspector General: 

With the wheels set in motion last week seemingly align with Congressional requests and the OIG mandate, and the upcoming OIG report likely to serve as a foundational opinion, the DOJ will finally be empowered to move forward with an impartially appointed Special Counsel.

Here Is Trump’s Blueprint For Lowering Drug Prices

With Trump set to unveil his vision for lowering drug prices as part of his “American Patients First” initiative, moments ago the Department of Health and Human Services released a blueprint plan on drug prices.

Here is the summary of how Trump hopes to lower drug prices:

  • Increased Competition
  • Better Negotiation
  • Incentives for Lower List Prices
  • Lowering Out-of-Pocket Costs

A quick skim of the plan highlights the following section:

  • Considering fiduciary status for Pharmacy Benefit Managers (PBMs)

And some more details from the Plan:

Increased Competition: 

  • Immediate Actions
    • Steps to prevent manufacturer gaming of regulatory processes such as Risk Evaluation and Management Strategies (REMS)
    • Measures to promote innovation and competition for biologics
    • Developing proposals to stop Medicaid and Affordable Care Act programs from raising prices in the private market
  • Further Opportunities
    • Considering how to encourage sharing of samples needed for generic drug development
    • Additional efforts to promote the use of biosimilars

Better Negotiation

  • Immediate Actions
    • Experimenting with value-based purchasing in federal programs
    • Allowing more substitution in Medicare Part D to address price increases for single-source generics
    • Reforming Medicare Part D to give plan sponsors significantly more power when negotiating with manufacturers
    • Sending a report to the President on whether lower prices on some Medicare Part B drugs could be negotiated for by Part D plans
    • Leveraging the Competitive Acquisition Program in Part B.
    • Working across the Administration to assess the problem of foreign free-riding
  • Further Opportunities
    • Considering further use of value-based purchasing in federal programs, including indication-based pricing and long-term financing
    • Removing government impediments to value-based purchasing by private payers
    • Requiring site neutrality in payment
    • Evaluating the accuracy and usefulness of current national drug spending data
    • Investigating tools to address foreign government threats of compulsory licensing or IP theft that may be harming innovation and development, driving up U.S. drug prices

Incentives for Lower List Prices

  • Immediate Actions
    • FDA evaluation of requiring manufacturers to include list prices in advertising
    • Updating Medicare’s drug-pricing dashboard to make price increases and generic competition more transparent
  • Further Opportunities
    • Measures to restrict the use of rebates, including revisiting the safe harbor under the Anti-Kickback statute for drug rebates
    • Additional reforms to the rebating system
    • Using incentives to discourage manufacturer price increases for drugs used in Part B and Part D
    • Considering fiduciary status for Pharmacy Benefit Managers (PBMs)
    • Reforms to the Medicaid Drug Rebate Program
    • Reforms to the 340B Drug Discount Program
    • Considering changes to HHS regulations regarding drug copay discount cards

Lowering Out-of-Pocket Costs

  • Immediate Actions
    • Prohibiting Part D contracts from preventing pharmacists’ telling patients when they could pay less out-of-pocket
    • by not using insurance
    • Improving the usefulness of the Part D Explanation of Benefits statement by including information about drug price increases and lower cost alternatives
  • Further Opportunities
    • More measures to inform Medicare Part B and D beneficiaries about lower-cost alternatives
    • Providing better annual, or more frequent, information on costs to Part D beneficiaries

Of course, if Trump is indeed serious in his crackdown on pharma and drug companies, then the record IRR pharma companies reap through lobbying is about to crash.

Keep an eye on lobby spend to determine if Trump’s plan is just more fluff or has some hope of actually working.

Although judging by the market reaction, the plan does appear to have some bit:

  • BI NA HEALTHCARE SUPPLY CHAIN INDEX FALLS TO SESSION LOWS
  • CVS, EXPRESS SCRIPTS DIP TO SESSION LOWS ON PRICING BLUEPRINT
  • WALGREENS, CVS FALL TO SESSION LOWS AS TRUMP SPEAKS

CIA Whistleblower: Trump Is Doing What Kennedy Tried To

 

Former CIA Officer and whistleblower Kevin Shipp says what is going on with Donald J. Trump “is an ongoing coup to remove a duly elected President.” Shipp contends, “This is a huge constitutional crisis like the country has never seen before. This makes Watergate look like a Sunday school class.”

On Friday, Shipp and other retired top officials at the CIA, FBI, DOJ and NSA held a press conference and demanded Attorney General Jeff Sessions prosecute top Obama era officials for obvious crimes against the incoming Trump Administration. Shipp says,

We have a coup within our government right now at the senior levels at the CIA, DOJ and the FBI attempting to unseat a duly elected President who was elected by the American people and remove him from office…

This is, at worst, treason with senior officials in the shadow government or Deep State . . . to attack Donald Trump and remove him from office. . . . We have not seen anything like this since the Presidency of John F. Kennedy (JFK), when CIA Director Allen Dulles attacked him, and we saw what happened there…

There is crystal clear evidence that the CIA was, at least, involved with the cover-up of the JFK assassination.  Now, we have the same thing happening again…

Remember what Chuck Schumer said, and it was chilling.  He said, ‘If you cross the intelligence community, they can hit back at you six ways from Sunday.’  That’s what we are seeing now.  It’s collusion or a coup with senior officials at the FBI, DOJ and CIA along with Robert Mueller to unseat an elected president.”

Shipp goes on to explain, “There is essentially a civil war involving parts of senior management and upper parts of our government that is occurring in the United States. It’s between the ‘Dark’ side and the ‘Constitutional’ side.”

“There has never been anything like this in history.  It is extremely serious, and this is an extremely serious hour for our government and especially for our constitutional freedoms…

This essentially is a global criminal cabal that has penetrated into our government and now has senior level officials colluding and, I would argue, conspiring to unseat this president.

In closing, Shipp says, “People need to understand that the Democrat Party today is not the Democrat Party of John F. Kennedy.”

“The Democrat Party with Barack Obama and Hillary Clinton is more Marxist than anything else.  They think the Constitution should be a ‘progressive’ document.  In other words, the Constitution is outdated and should be redone.  They are both directly connected into George Soros, who wants to destroy the sovereignty of the U.S. government…

The Democrat Party is now made up of Marxists and leftists that have penetrated that entire organization. . . . Their entire goal is to change our form of government and destroy our sovereignty.

Join Greg Hunter as he goes One-on-One with CIA whistleblower Kevin Shipp, founder of the website ForTheLoveofFreedom.net.

Jeff Bezos Booed By Amazon Workers

Jeff Bezos, the world’s richest man, has made Amazon shareholders extremely wealthy and happy in recent years, but when it comes to Amazon’s 566,000 employees, it’s a vastly different matter. Last week, Amazon finally disclosed its workers’ median annual salary, which at a paltry $28,446 put Amazon on par with Hershey, slightly above retailer Home Depot, and almost ten times below the $240,430 median annual comp at Facebook, according to recent proxy filings.

This will hardly come as a surprise: after all, most of the roughly half-million blue-collar, part-time employees at Amazon don’t make six figures while spending their workdays writing code, and instead unload trucks, drive forklifts and walk miles collecting products to fill orders—all for around the same pay as workers in other companies’ warehouses. Due to their menial, repetitive task, they are also rapidly being replaced by robots.

Which explains why Amazon CEO Jeff Bezos was booed and received a hostile reception from his own workers, when he arrived in Berlin on April 24 to pick up an innovation award (mercifully, it wasn’t for making human workers obsolete.)

According to Bloomberg, around 350 Amazon workers, members of Germany’s powerful Ver.di trade union, gathered outside the office of tabloid publisher Axel Springer where the awards ceremony was taking place, carrying posters demanding to “Make Amazon Pay.”  The union has been pushing for higher pay for Amazon’s thousands of workers in the country for several years, claiming they receive lower wages than workers in other retail jobs. Amazon workers from other countries, including Poland and Italy, also traveled to Berlin to join the protest.

In a dramatic description of Amazon working conditions, Verdi boss Frank Bsirske said that “we have a boss who wants to impose American working conditions on the world and take us back to the 19th century.” Ver.di has for years been a constant thorn in Amazon’s side in Germany, organizing workers strikes to demand improved pay and working conditions according to Bloomberg.

One of the protesters at the event was Thomas Rigol, 37, who joined Amazon as a logistics worker in Leipzig in 2008. Rigol says he would like Bezos to give unions a say in the company, and increase profit sharing opportunities for workers.

“But mostly it’s about respect, which the simple workers aren’t getting from the upper management,” Rigol said. “Mr. Bezos is the richest man in the world and we are being patronized.”

The protest took a political turn, when Andrea Nahles, the new leader of Germany’s Social Democrats which is in coalition with the ruling CDU, turned up at the protest, and also had harsh words for Bezos, telling reporters that he didn’t deserve his prize since he treats his employees badly. Amazon employs some 16,000 people in Germany, its biggest market outside the US.

And confirming that Germany will do everything in its power to maximize Amazon’s tax receipts – if only in Germany – Nahles labeled Amazon, along with other big tech companies “world champions in tax avoidance” and told reporters that “this does not deserve a prize.”

Later, during a fireside chat with Axel Springer CEO Mathias Döpfner on Tuesday evening, Bezos defended Amazon saying he was “very proud of our working conditions, and I’m very proud of the wages we pay,” including in Germany. It was not immediately clear if he discussed his unstated desire to replace all low-paid warehouse workers with zero-paid robots over the next several years.

Separately, when asked a question about whether he was concerned Trump would try to break up Amazon Bezos said he expects to be scrutinized. “The big tech companies have become large enough that they’re going to be inspected,” Bezos said. “It’s fine.” In other words, the world’s richest man is not all worried about the actions of the world’s most powerful man.

Socialism, Privacy, & Charity For The Powerful. Capitalism, Surveillance, & Rugged Individualism For The Powerless.

TDB’s blog

Authored by Caitlin Johnstone via Steemit.com,

The crowning achievement in hypocrisy must go to those staunch Republicans and Democrats of the Midwest and West who were given land by our government when they came here as immigrants from Europe. They were given education through the land grant colleges. They were provided with agricultural agents to keep them abreast of forming trends. They were granted low interest loans to aid in the mechanization of their farms, and now that they have succeeded in becoming successful, they are paid not to farm. And these are the same people that now say to black people, whose ancestors were brought to this country in chains and who were emancipated in 1863 without being given land to cultivate or bread to eat, that they must pull themselves up by their own bootstraps. What they truly advocate is socialism for the rich and capitalism for the poor.”

~ Martin Luther King, Jr

“I gotta get rid of this stuff. Man, I don’t know what I’m gonna do with it. The more money you make, the more free shit they give you. It makes no sense.”

~ Adam Sandler, Funny People (2009)

A GoFundMe for former FBI Deputy Director Andrew McCabe, who was fired two weeks ago by Attorney General Jeff Sessions, has raised over $400,000 in less than a day.

Another way to say that would be that a former officer from the US intelligence community, who is married to a successful physician and will surely receive a book deal worth millions of dollars, just had a charity drive which in less than a day raised an amount of money it would take the average American years to earn.

Meanwhile, an impoverished American recently died because his GoFundMe failed to raise enough money for his insulin and an FBI whistleblower was just arrested for trying to bring transparency to the Bureau’s secret domestic surveillance practices while banks receive massive bailouts, global fossil fuel subsidies total trillions of dollars, and Amazon paid zero federal taxes last year despite earning billions.

Even leaving aside the reasons for McCabe’s firing and the shady dealings he was accused of, this is a very solid illustration of everything that is sick about the United States of America.

In America you have socialism for the rich and capitalism for the poor.

You have government secrecy for the powerful and surveillance for the powerless.

You have charity for wealthy establishment lackeys and rugged individualism for ordinary human beings.

Those at the top are uplifted even further, while those on the bottom are stomped through the floor.

Julian Assange is currently under siege in the Ecuadorian embassy, deprived of mobility, sunlight and healthcare, and now internet, phone calls and visitorsall because he dared to bring some transparency to the powerful. Meanwhile the intelligence and defense agencies who serve as the armed goon squad of the wealthy and the powerful are able to kill, destroy and pillage from behind the opaque walls of near-total government secrecy in the name of “national security”. And instead of defending the single defenseless man who speaks truth to power, mainstream media reporters around the world are spitting on him in near-unanimity because he hurts power’s feelings.

This is how we end up with John Bolton, people. This is the “kiss-up, kick-down” pathway to success that elevates bloodthirsty psychopaths like John Bolton, the worst of the worst, the ones willing to do the most killing on behalf of the powerful and the most stomping on the powerless to get to the top. This has become the unquestioned pathway in every sphere of public life. We have a situation now where the highest echelons of power are not the wisest among us, but the wiliest.

The fourth estate is full of everyday people who at one point presumably believed they were there to bring truth to power, stomping on the silvery head of one who does, while sucking up to the very power that he regularly embarrasses with his leak drops.

Speaking as an Australian, it sickens me to see my fellow Australians slip down this slope. Like many Australians, I was brought up to champion the underdog, cheer on the little Aussie battler, go into bat for the vulnerable and chop down tall poppies. My Australia wasn’t one that delighted in leaving one of our own to wither and die under siege in a “small camp” while making a parade of brown-nosing the establishment. It wasn’t a place where you used your gifts to help the powerful and hurt the vulnerable. It was the kind of place that created a man like Julian Assange, one that believed in constantly choosing the highest interest over self-interest. It wasn’t one where you used your gifts with the pen to turn a hero into someone everyone could feel okay about abandoning.

To all who work in the media:

…your selfish obsession with choosing your career over telling the truth when it counts, with choosing not to know rather than to dig and find out something you’d rather not know, with choosing getting along with your mates rather than standing up for what you know is right, that tiny little seemingly innocuous preference you have is what is driving our whole species towards extinction. That’s your copy of the mind virus that is killing us all. You are in a position of power and you are using it to kill us.

When you choose to masturbate some old mens’ desire for a final war with Russia rather than present the case for peace, you are killing us all. When you choose to roundly condemn a man for bringing truth to power rather than helping him do so, you are killing us all. When you choose to help Andrew bloody McCabe instead of the poor and the powerless, you are killing us all. Every time you suck up to power to get ahead a little, you are killing us all.

Do better, humans. Do the opposite of John Bolton, who kisses up to power and kicks down at the powerless.

Punch up at the most powerful, and to the powerless, extend a helping hand. Lift up the Julian Assanges and pull down the John Boltons. Give privacy to the people, not to power. Give bailouts to human beings, not banks. Give subsidies to the poor, not to the plutocrats. Give money to people who need it, not to Andrew McCabe.

*  *  *

Thanks for reading, clear-eyed rebel. My daily articles are entirely reader-funded, so if you enjoyed this piece please consider sharing it around, liking me on Facebook, following my antics on Twitter, bookmarking and getting on the mailing list for my website, checking out my podcast, throwing some money into my hat on Patreon or Paypalor buying my new book Woke: A Field Guide for Utopia Preppers.

The Grand Illusion 2.0

TAB

Introductory notethis is a very long epistle. But I think my point needs to be made fully and at length. Before you go further, in fairness here is the TL:DR version:

  • Advocates of free trade and globalization were taken aback a week ago by the assumption by China’s President Xi Jinping of rule for life.
  • This was because it runs completely contrary to their theory that free trade leads to economic liberalization, which in turn leads to political liberalization.
  • This theory has been repeatedly and thoroughly repudiated throughout history, most catastrophically be World War I.
  • That’s because autocrats will use the gains of economic trade for their own ends, typically the pursuit of further political and military power.
  • Historically middle classes do not revolt against autocracy when they are prospering, but rather only after a period of rising expectations has been dashed by an economic downturn in which the autocratic elite unfairly forces all of the burden onto them.
  • But since these historical facts are nowhere to be found in the economic models, they are ignored as if they do not exist. We can only hope they do not once again lead to catastrophe.

First, let me pose a thought experiment.  Country A and Country B propose to enter into Agreement X. We have no idea at all what Agreement X is, but we know that the result will be that both Country A and Country B will each be richer by $1 Trillion each and every year thereafter.

Country A, being an egalitarian paradise, is going to share out the proceeds equally among its population of 250 million, with each person getting $4,000 per year.

The dictator of Country B is going to do the same with 1/2 of its $1 Trillion gain, making his population very happy, but — because this is his personal aim — he is going to spend the other $500 Billion each and every year in building up its military so that it can challenge and eventually vanquish Country A, and then keep all of the gains of Agreement X to itself.

Should Country A enter into Agreement X?

*  *  *

A week ago The Economist opined that “The West’s Bet on China has Failed,” stating that:

Last week China stepped from autonomy into dictatorship. That was when Xi Jinping … let it be known that he will change China’s constitution so that he can rule as president for as long as he chooses …. This is not just a big change for China but also strong evidence that the West’s 25 year long bet on China has failed.

After the collapse of the Soviet Union, the West welcomed [China] into the global economic order. Western leaders believed that by giving China a stake in institutions such as the World Trade Organization would bind it into the rules based system … They hoped that economic integration would encourage China to evolve into a market economy and that, as its people grew wealthier, its people would come to yearn for democratic reforms ….

CNN’s Fareed Zakaria recoiled in horror, writing in the Washington Post that

[W]hat’s happening in China … is huge and consequential. China is making the most significant change to its political system in 35 years.

For decades, China seemed to be getting more institutionalized…. But that trend has now been turned on its head. If term limits are abolished, which is now almost certain, Xi Jinping could stay China’s president, general secretary of the Communist Party and chairman of the Central Military Commission for the rest of his life. And he is just 64.

… The real danger is that China is eliminating perhaps the central restraint in a system that provides staggering amounts of power to the country’s leaders. What will that do, over time, to the ambitions and appetites of leaders? “Power tends to corrupt,” Lord Acton famously wrote in 1887, “and absolute power corrupts absolutely.” Perhaps China will avoid this tendency, but it has been widespread throughout history.

If Zakaria felt blindsided, he should not have been. Because ten years ago, after he published “The Post-American World,” arguing that because the US had successfully spread the ideals of liberal democracy across the world, other countries were competing for economic, industrial, and  cultural – but not military – power, I confronted him at the former TPM Cafe.

For the truth is, the West’s bet on China, so ruefully mourned by The Economist and Zakaria, was always likely to fail. That free trade leads to economic and political liberalism and to peace – championed by neoliberal economists and their political retinue – has been a fantasy for over 100 years, and for 100 years it has been a lie. They would have known if their theories and equations could account for the likes of Kaiser Wilhelm II. But since their equations and theories are blind to the pursuit of power, they dismiss it — at horrible cost to the world.

In an interview with David Frum, Minxin Pei, who a decade ago dissented, predicting that China would not transition towards true economic and political freedom, said it well:

[M]any people were too dazzled by the superficial changes, especially economic changes, to realize that the Communist Party’s objective is to stay in power, not to reform itself out of existence. Economic reform or, to be more exact, adopting some capitalist practices and embracing market in some areas, is only a means to a political end…

W]hen China was forced to keep the door [to liberalization] more open, it was in a weaker position relative to the forces outside—the West in general and the U.S. in particular. But when the conservative forces inside China gain strength while the West appears to be in decline, those forces are far more likely and able to close the door again, as is happening right now. So, while the logic of irresistible liberalization appears to be reasonable on the surface, it overlooks the underlying reality of power.

I set set forth the fuller historical context a decade ago in my response to Zakaria,which I am taking the liberty of reposting in full immediately below.

*  *  *

Over at TPM Cafe, this week Fareed Zakaria’s new book, “The Post American World” is being discussed. In it, Zakaria repeats the theory of globalization’s most toxic and unproven claim: that countries which participate in trade together do not make war upon one another. So if you want to prevent war, just participate in deep and interwoven trade with the other country and everything will be hunky-dory.

It’s a lie.

Zakaria claims that We’re Living in Scarily Peaceful Times”:

The new and most dangerous twist to all this is that our great looming danger is Russia, China, and the rising oil dictatorships…. This is a worldview bereft of any historical perspective. Compared with any previous era, there is more economic integration and even comity among the world’s major powers. The imbalance between the West and the rest is large, not complete but large and in most areas increasing. The newly emerging states want to grow within the existing world order, which John Ikenberry has nicely described as “easy to join and hard to overturn.” The world is going our way, slowly and fitfully, with some detours. No great power has an alternative model of modern life that has any real attraction?

This is essentially the same argument that Thomas Friedman made in The Lexus and the Olive Tree’ and reiterated even a short time ago in this liveblog:

You know in Lexus I wrote that no two countries would fight a war so long as they both had McDonald’s. And I was really trying to give an example of how when a country gets a middle class big enough to sustain a McDonald’s network, they generally want to focus on economic development. That is a sort of tipping point, rather than fighting wars.

This argument, repeated over and over on both necoconservative and neoliberal sites, and all over the corporate media, that free trade leads to middle classes leads to democracy leads to kumbayah, is pretty simple, and it is dangerously wrong. Or as Zakaria reviewer David Rieff summarizes:

he reads too much into into two indisputable facts of the current moment — that there are fewer major wars taking place than in living memory and that there is a greater level of global economic integration than at any time in history.

The truth is, the free trade zealots also have spent too much of their careers seduced by neoclassical economics’ favorite mythical beast, Homo economicus, the Rational Man; and not enough time reading history.

For a start, contrary to the free trade zealots, this is not the first period in world history in which there has been relatively “free” trade, nor is it the first time in which there has been “globalization.” For example, as is pointed out in an article entitled European Social Security and Global Politics By Danny Pieters, European Institute for Social Security Conference

Globalisation is not a new phenomena. During the second part of the nineteenth century there was a strong move toward the liberalisation of international transactioins, and international trade expanded rapidly until the beginning of World War I

And just which country in Europe was undergoing the most rapid growth and industrialization during the perioed from 1870-1914? As this essay states, Germany

embarked upon an extensive education program; it specialised in technical ares and so there was a greater push in that direction. It produced more and better scientists, and so Germany began her industrial advance. Also, the French threat, even if it was superficial, spurred the Germans in authority into action, and made them make Germany stronger and superior.

German expansion was also helped by the expansion of the railway network, so that goods and mail could get from one place to another, and to more places, faster and more efficiently.

Needless to say,much like the mercantilist expanding autocracies now fawned over by so many of the free trade zealots, during this time Germany was a monarchy, ruled by the Kaiser.

Even worse, this isn’t just the first time that economies have experience “globalization”, it also isn’t the first time that this exact same argument has been made. In his 1910 best-seller, “The Great Illusion” Norman Angell wrote that:

the universal assumption that a nation, in order to find outlets for expanding population and increasing industry, or simply to ensure the best conditions possible for its people, is necessarily pushed to territorial expansion and the exercise of political force against others…. It is assumed that a nation’s relative prosperity is broadly determined by its political power; that nations being competing units, advantage in the last resort goes to the possessor of preponderant military force, the weaker goes to the wall, as in the other forms of the struggle for life.

The author challenges this whole doctrine. He attempts to show that it belongs to a stage of development out of which we have passed that the commerce and industry of a people no longer depend upon the expansion of its political frontiers; that a nation’s political and economic frontiers do not now necessarily coincide; that military power is socially and economically futile, and can have no relation to the prosperity of the people exercising it; that it is impossible for one nation to seize by force the wealth or trade of another — to enrich itself by subjugating, or imposing its will by force on another; that in short, war, even when victorious, can no longer achieve those aims for which people strive….

There is quite simply no difference at all between the theses of Angell a century ago, and Friedman and Zakaria now.

And what happened only 4 years after “The Great Illusion” was published? Well, another book that Zakaria and Friedman ought to read is Vera Brittain’s autobiography, “Testament of Youth”. Vera Brittain was a comfortable affuent middle class girl who was accepted to Oxford University shortly before World War I broke out. By the time it was over, her brother, Edward; her fiance Roland Leighton; and every other young man she had been close to, had been killed. Brittain’s book is a searing documentary about the utter destruction of an entire generation of British young men caused by the war.

Just how many people were killed by World War I?  One source puts just the number of military deaths at 10 million. Including the wounded, in some European countries over half of the entire generation of young men were casualties.  Another sourcesays:

the percentage of a country’s population directly afflicted. During the course of World War One, eleven percent (11%) of France’s entire population were killed or wounded! Eight percent (8%) of Great Britain’s population were killed or wounded, and nine percent (9%) of Germany’s pre-war population were killed or wounded! The United States, which did not enter the land war in strength until 1918, suffered one-third of one percent (0.37%) of its population killed or wounded.

Simply put, World War I is a thorough and devastating refutation of the argument that free trade leads to peace and democracy. Quite the contrary, had Zakaria and Friedman bothered to actually study history, they might have found out that revolutions typically do not occur in eras of increasing plenty. Rather, they occur in times where rising expectations have been dashed:

the “J-curve” theory says that when conditions improve for a relatively long period of time, — and this is followed by a short economic reversal — an intolerable gap occurs between the changes that the people expect (dashed line) and what they actually get (solid line). Davies predicts that this is when revolution will occur (arrow).

Support for this theory was found in a 1972 study of 84 nations. Researchers found a clear relationship between indications of political instability and economic frustration. “Frustrated countries” are those that had poor economic conditions — low economic growth, insufficient food, few telephones and physicians — while being acquainted with the higher living standards of industrialized, urbanized countries.

These studies show that frustration is more likely to develop from relative frustration — the gap between their expectations and the reality that does not live up to these expectations. People in poor countries isolated from the outside world do not realize how poor or frustrated they are. Their frustrations are accepted merely as part of living. In contrast, the people in poorer countries exposed to modern standards feel more “frustrated.” To top this off, deprived people who have experienced some recent progress are more frustrated than those who experienced poverty and oppression.

In short, just as Germans were hardly big agitators for democracy during the time the German state was expanding, and autocracy was resulting in greater prosperity, so we should not expect that any autocratic states today that are profiting mightily from economic growth are suddenly going to turn democratic. To the contrary, just like the Kaiser’s Germany, it is much easier to direct aggression elsewhere.

Democratic revolutions occur when previously rising expectations have been dashed, and the populace has no outlet for their anger and frustration. In democracies, governments can be changed (as in 1932); but in autocracies, the ruler’s cronies are protected from the privations, and with no alternative avenue of recourse, and seeing the manifest injustice of the benefits of the system, the populace revolts.

For example, Taiwan’s democratic reforms were sparked by the violence of the “Kaohsiung Incident” of 1979. Similarly, democracy finally came to South Korea in 1987 when workers finally rebelled against artificially low wages:

South Korea is hardly a model of a free economy. The hand of government planners in setting priorities and steering companies has been heavy. The low wages that helped fuel growth did not result from market forces. For 25 years, successive governments deliberately held down pay rates. They virtually barred strikes, jailed militant labor leaders, and decreed tough guidelines for wage increases. To block development of independent unions, companies created their own and installed leaders acceptable to the government. Says a Western diplomat in Seoul: ”Union leaders were practically appointed by the national security police.” With democratic winds sweeping South Korea this summer, workers were emboldened to push for higher pay, independent unions, and the right to strike,

[2018 update: Even the American Revolution had elements of this paradigm, as England reined in the colonist’s rising fortunes following the French and Indian War by taxing them for the costs, expanding the territory of Quebec to include all of what is now the American northern Midwest, and prohibiting expansion beyond the Appalachians.]

It is a disgrace that we see these same discredited theses, this same Great Illusion, embraced by corporate media pundits so often. That free trade inevitably leads to peace and democracy is a Big and Dangerous Lie, to which World War 1 is the most spectacular and unequivocal counter-evidence.

There is no guarantee, alas, that we are not now on that same catastrophic path.

*  *  *

In 2015, I reiterated this point more succinctly:

A more fundamental point is about human nature.  In any economic downturn, the powerful elites are going to try to deflect all of the suffering on the powerless masses.  In a representative democracy, eventually the majority will rebel at the ballot box and elect a party which promises to end their suffering.  [Update: It might be a left-wing party, like Syriza in Greece or FDR’s New Deal democrats in the US, or it might be from the right-wing like AfD in Germany or Donald Trump.  ]

In an authoritarian state, however, no such safety valve exists.  That’s why revolutions don’t happen in an era of rising expectations.  They happen when rising expectations are dashed.  So long as China’s economy continues to expand stoutly, expect no meaningful turbulence.  But someday China will have a recession, and then, dear reader, is when world history will get interesting.

So here we are a decade later, and the free-trade economists and their acolytes are gobsmacked by something that was not just predictable, but actually predicted,  because there is no place in their theories for actual human behavior as revealed in history. We can only hope that when the inevitable happens, China will not lash out as Kaiser Wilhelm did a century ago.