Fiscal tightness and monetary looseness - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 6 December 2011
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Baltimore, Maryland

A New Theory of Government...

Not much to report from yesterday. Dow up 78 points. Gold bouncing around.

All eyes are on Europe. If the Europeans can pull off a save...well, we're all saved. At least for a few weeks. Maybe through the holiday season.

The euro has been remarkably stable. It has never collapsed - despite all the talk of Europe falling apart. Apparently, people with money don't think it is in real danger. They think it is too important to let go. They may be right. And the more people talk about the 'end of Europe' the more it doesn't end. Instead of letting it go, the authorities become more and more stubborn in trying to hold it together.

It's hard to know how this will play out. But we feel we know how it this week will go. Frau Merkel and Monsieur Sarkozy will put together a new plan... It will include promises of fiscal tightness along with monetary looseness. The EZ money is expected to put short-term investors' fears at ease. The fiscal austerity, it is hoped, will help long-term investors sleep better at night.

Governments will pretend to tighten up. The ECB will lower interest rates and print up some new ersatz money. What could go wrong? The combination of mendacity and counterfeiting should do the trick...for a while. The liquidity from the central bank will come like Christmas pudding, or perhaps more like spiked eggnog. It will put some cheer into the markets during this 'dark passage' of the winter solstice. And then, the promises of austerity will allow everyone to think that thing will be fine in the long run too.

So...keep your eyes on Europe...and your hands on your wallet.

Meanwhile, the US is keeping its eyes on football games and the race for president. Newt Gingrich has pulled ahead in the Republican field. According to the papers, he's the only candidate that seems to know what he was talking about.

That is probably true. A man like Herman Cain was out earning a living...building a business...creating jobs. He didn't have the time to keep his eyes on every flimflam coming out of Washington. How could he be expected to know about every disastrous piece of legislation, wrongheaded policy initiative, regulatory meddle, and military boondoggle that has come down the pike in the last 30 years? Newt on the other hand, had not only his eyes...but his finger prints.. on practically every one of them!

That makes Newt the leader of the pack. Americans don't want a leader who admits that he has no idea of what is going on. They don't want a honest president who will offers to 'learn on the job.' They much prefer a professorial blow-hard who claims to have all the answers in advance... All he has to do is to speak with authority and confidence, even if he is saying absurd and obnoxious things.

And they can love a scalawag, too. But can they love one as un-loveable as Newt Gingrich?

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*** How about this? A new theory of government.

"I can't lead. And I don't want to follow."
- Martin Clark

Yes, dear reader, we've been thinking.

We have been disappointed with political ideas and theories of government. They are nothing but scams, justifications, and puffery. One tries to put something over on the common man...the other claims it was for his own good...and the third pretends that he'd be lost without it. Most are not really 'theories' at all...but prescriptions, blueprints for creating the kind of government the 'theorist' would like to have. Not surprisingly, it is a blueprint that flatters his intellect and engages his imagination.

But it does not answer the critical questions: Why do we let other people tell us what to do; are we not all equal? What is the purpose of government? What does it cost and what benefits does it confer?

You may find these questions have drifted far afield from our usually Daily Reckoning fare. But they've been on our mind. We're coming up on a major election in the US. Several men have come forward offering to take charge of the US government. Maybe it would be worth wondering what it is that they are taking charge of. And since the Daily Reckoning is free, we feel entitled to write whatever we damned well please.

Government is a fact. It exists. It is as common as stomach gas. It is as ubiquitous as lice and as inescapable as vanity. But what is it? Why is it? And what has it become?

We know very little about the actual origins of government. All we know, and this from the archeological records, is that one group often conquered another. There are skeletons more than 100,000 years old, showing the kind of head wounds that you get from fighting. We presume this meant that 'government' changed. Whoever had been in charge was chased out or murdered. Then, someone else was in charge.

Tribal groups, or even family groups for that matter, probably had "chiefs." They could have been little more than bullies...or perhaps respected elders. Over the millennia there were probably as many different examples of primitive 'government' as there were tribes. Some elected their leaders. Some may have chosen them randomly, for all we know. Many probably simply conferred leadership by consensus. Some probably had no identifiable leaders at all. But it seems to be a characteristic of the human race that some people want to be in charge...and many people want someone to be in charge of them.

In adversity, there was probably an advantage to having a leader. Hunts were often collective enterprises. There were also group decisions to be made...about how food was stored up or rationed out, for example, that would affect the survival of the whole group. Under attack from another group, a strong, able leader would make the difference between life and death.

We can guess that people enter into leader/follower roles today because they are programmed for it by evolution. Those who can't or won't...perhaps they died out many millennia ago.

We don't have to look back to the Last Glacial Period to see what happens in small political units. We can see them today. They are all around us. Every church has its governing board. Every community has some form of government. Every corporation...group...club...every place where humans get together seems to develop a political/social order. Rules evolve. Leadership arises. Informal groups typically yield to the strong personality. Juries try to control it. Families resist it. Dinner parties try to avoid it.

But that's just the way it is. Some people seek to dominate. Others like being dominated.

Trouble is, there is usually more than one person or one group that wants to do the dominating. This leads to conflict. Treachery. Murder. Rivalry. And elections. But let's not get ahead of ourselves. We're talking about the origins of government and trying to guess what they were like. On a small scale, we conclude, they were both extremely variable in form...and extremely limited in scope. That is, how much governing can you get away with in a small group? Not much. You can boss people around, but they won't take too much bossing. And there is always a rival bosser who is ready to topple the big boss if he should lose his popular support. In a tribal setting, we imagine that the strongest, fiercest warrior might have been able to set himself up as the governing authority. But he could be stabbed in the back as he slept...or even shot with an arrow in a hunting accident. Even in the best of circumstances, his reign wouldn't last much longer than his own strength.

In a small town, government proceeds tolerably well. There is not much distance between governors and the governed. The latter know where the former live...and how they live...and how little difference there is between them. If the governors over-reach, they are likely to find themselves beaten in the next election...or in the middle of the street.

But as the scale increases...as the distance between the governed and the governors increases...and as the institutional setting grows and ages...government becomes a bigger deal. More formal. More powerful. It can begin governing more effectively.

The first large scale, long-term government we know about was in Egypt. After the unification of the upper and lower kingdoms in about 3,150 the dynastic period began. It continued for two millennia, not ending until the Romans conquered Egypt in 30 BC. We don't know exactly how government worked during those many centuries, but we know that a theory of government arose out of them. At the time, it was not considered a theory at all, but a fact. The ruler was divine. A god.

As a theory it is a good one. It answers the question: why should you take orders from another human being? In Ancient Egypt, the question didn't arise. Because Pharaoh was not another human being. He was something else. Precisely what he was ...or what people thought he was...is not clear. But the archeological record shows that he was treated as though he was at least a step or two higher up on the ladder than the rest of us. If not a full god, he was at least a demi-god...a missing link between man and the heavens.

If that was so...and who are we to doubt it?...the theory holds together perfectly well. The divine authority is transmitted from heaven to man via his intermediary...the pharaoh.

You might think that would be the end of the story. It was not. There were Asiatic settlers moving in the delta area - the Hyskos - who apparently had a different idea. And the Thebans. And the Nubian. And the Assyrians. And the Hittites. And hundreds of years of internal warfare against dozens of different groups...not to mention the struggles within the divine families themselves.

If God had wanted his man on the throne, you'd think he would have done more to help him. Or at least you'd think he would have been a little clearer about who His man was. Why let people guess and rumble, trying to decide who is really God's choice? But who can figure the mind of God? Maybe the whole divinity hypothesis was just a lie. Maybe God liked to see His man get a workout. We can't know.

Pharaohs may have lived like lords. They may have governed like gods. But they died just like everyone else. And after the 30 dynasties, as counted by Menes, the whole system was kaput. Cleopatra Ptlolemy got herself rolled up in a carpet so she could spin out at the feet of Julius Caesar. She had a child by him...but then went over to Marc Antony's side. That proved a mistake. Caesar's nephew, Octavian, was better organized and a shrewder politician. Antony's army was beaten at Actium.

But the idea of a divine ruler survived. Antony had already begun to feel the blood of divinty pumping in his veins. And then, after he was out of the way, hardly had the half-god pharaohs gone to their graves in Egypt than the half-mad caesars in Rome started to sprout wings...

More to come....

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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4 Responses to "Fiscal tightness and monetary looseness"

Varghese

Dec 7, 2011

AJ
"Now the human race is waiting for something new to evolve"
I remember reading an article about some experiment conducted in a Zoo in Russia. In the experiment one deer was kept in a fence for a long time. Naturally even when in runs at great speed it suddently stops at the fence since it has learned that it cannot go further. One day the keepers removed the fence. But the deer continued the habit of stopping at the marks of the original fence.
Majority of the population does not have the ambition to control or manipulate the lives of others and would be happy to be controlled by others. This they consider as goodness. Unfortunately this is not the case. Indirectly they are the ones who precipitates a situation where an ambitious minority can manipulate the whole world for everybodys peril.
To put it differently, you and me expect that good leaders should come and change the world. At the same time expect our children (at least the intelligent and the morally upright) to keep away from the politics and in most of the cases from business also.
From where will the change come?
I believe that there is only one way for change - organisation of the ordinary people.
The most basic unit for such organisation will come in the form of customers of a particular organisation/service.

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varghese

Dec 7, 2011

You have come to the core of the problem.

Majority of the people do not want to share their responsibility. They want Governments/bigger companies acting like gods to handle everything for them. The bigger the Companies, the individuals are absolved of thier guilt in their role since they themselves consider as ponies in the hands of big organisations/Govts.
As rightly pointed out in the article, the bigger the organisation, the lessor the ordinary people have a say in their administration and they allow the big corporates to manipulate them
I believe that this is the beginning of the end of "Modern Times". People are about to take a steps towards real civilization by organising themselves.

For example if somebody wants to avail the services of an Insurance Firm, instead of going to the Official website of the Firm, they will be going to an un-official website which shares all the relevant official information (which may be of very interest to the customer but is not clearly revealed by in Insurer till he is parted with his money). The contents of this site will be provided by the custemers of the firm as well as its employees.

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AJ

Dec 7, 2011

The new theory of government made a good reading and looking forward for the next one to come. The forms of government started with feudalism to autocracy (aristocracy that sounds more subtle) and to democracy (again aristocrats wearing hats instead of crowns). Now the human race is waiting for something new to evolve. As we find miserably failing especially with the current crisis.

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saby chacko

Dec 6, 2011

It was real bore to read this article. What was the point he wanted to empasize upon or highlight, just could not understand?

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