The High Cost of Ocean Decline

Andrés Velasco

14 October 2013
SANTIAGO – The world’s oceans are in trouble. In late September, the Intergovernmental Panel on Climate Change reported that the oceans are warming, seawater is acidifying, and oxygen concentrations are dropping. Last week, another initiative, the International Program on the State of the Ocean, outlined the toll that these and other factors, such as destructive fishing and pollution, are having on marine life.
Ocean degradation is not as visible as deforestation, but it is at least as dangerous. The oceans provide at least half of the oxygen we breathe. They absorb more carbon dioxide than forests do. Harm to the oceans can have a tremendous global impact.
Degradation is particularly serious in the one substantial part of the world that is governed internationally – the high seas. These waters are outside maritime states’ exclusive economic zones; they comprise two-thirds of the oceans’ area, covering fully 45% of the earth’s surface.
The Global Ocean Commission, an independent initiative that I joined earlier this year, is reviewing the condition of the high seas. Next year, it will produce a set of recommendations concerning how to restore our oceans to full health and ecological productivity.
One of the first tasks is to quantify the economic losses caused by ocean degradation. Back in 1997, a pioneering paper by Robert Costanza and his colleagues put the overall value of marine ecosystem services at $21 trillion. Others have estimated that illegal fishing costs the global economy $10-23.5 billion per year, and poor management of fisheries $50 billion per year. But these figures are nearly a decade old; the Commission will update these estimates and make them more precise.
It is not enough to document that the losses are big. Obviously, the next question is what to do about it. No single official body has overall responsibility for the high seas. So, even if the economic losses turn out to be much higher than previous estimates, there are currently few effective mechanisms to bring about change. The basic pillar of ocean governance, the United Nations Convention on the Law of the Sea, was established 30 years ago. Since then, huge technological advances have occurred, and demand for resources has increased massively.
So stopping and reversing the degradation of the world’s oceans requires improved governance mechanisms, which must be used to enforce economically sensible and innovative solutions.
Here the experience of countries fighting against deforestation is helpful. Costa Rica arguably started a trend in the early 1990’s, when it began levying taxes on fossil fuels and using the revenue to protect forests. The net result was a reversal of deforestation. The economy has benefited directly through a growth in tourism, and indirectly by preserving ecosystem services such as pollination.
The concept of payment for ecosystem services is currently receiving attention from governments around the world. Costa Rica and Colombia have both signed up to a program funded by donor governments. Brazil has schemes that pay for protecting watercourses. An initiative called REDD(Reducing Emissions from Deforestation and Forest Degradation) would pay for ecosystem services on a global scale by rewarding forest conservation, thereby regulating climate change. These ideas should receive more attention in the future, as our supplies of non-renewable resources dwindle.
When the Global Ocean Commission issues its recommendations for reform next year, economics will be at their heart. Once we have more accurate data on the value of the ocean, we must decide how we use this information. Payment for ecosystem services could be a solution, though there are likely to be simpler options. But whichever mechanism is eventually adopted, we must also address the governance question: today’s inadequate system allows both economic and ecological losses to persist.
The Commission will share its recommendations with governments. There are tremendous costs associated with allowing the current laissez-faire regime to continue. We hope leaders understand that the world’s oceans – and the ecosystem services they provide – are too important to be allowed to fail.

Shutdowns, Smackdowns, and Touchdowns

Louis James, Chief Metals & Mining Investment Strategist

October 14, 2013 3:45

Let's start by calling a spade a spade: the so-called US government shutdown is anything but. As Doug Casey told me in a recent interview:

"It's Orwellian doublespeak to call it a 'shutdown,' when all they do is furlough a few nonessential personnel and then hire many of them back again the next week—with pay for the time off.

"The so-called shutdown is nothing more than a paid holiday for many federal employees. It's business as usual in Washington, DC. They close the Washington Monument and actually go out of their way to prevent people from even seeing Mt. Rushmore from the highway. It's strange that there still seem to be plenty of park police around to arrest you if you disregard the signs they posted saying everything is closed."

Even smart people who understand this may regard the impending "debt ceiling" deadline with some alarm. Congress itself seems to take the matter more seriously than the phony shutdown.

However, the reality is that none of these theatrics matters in the least; the deficit remains over $1 trillion, and neither party in Washington is even considering the drastic spending cuts needed for the government to live within its means. The nomination of Yellen to chair the Federal Reserve is certainly evidence of this. Whatever compromise the politicians come up with, it will simply be one variation or another on the theme of "more of the same."

Don't be distracted by the fiery rhetoric generated by the Obamacare debate—it's like the Wizard of Oz saying, "Pay no attention to the man behind the curtain." Mind you, I'm no fan of Obamacare, which has just forced me to make changes in my own health insurance coverage that I did not want.

The point is that the debate makes it appear as if the two faces of our one-party system have deep and far-reaching differences. The reality is that one is the "tax and spend party," while the other is the "spend and tax party."

In practical terms, what this means is that regardless of whatever minor tinkering around the edges the politicians in Washington achieve, the government will continue spending with abandon, with ruinous consequences for the economy.

What's the alternative? The US has painted itself into a corner from which there is no way out that doesn't involve serious economic pain. Doug's suggestion is that the US should default:

"What should happen is an orderly unwinding, including an auction of government assets to pay for the necessary transition. As we've discussed before, I'd start with defaulting on the national debt. This would punish those who enabled it, free younger generations from indentured servitude and make it impossible for the state to borrow more.

"We could move forward from there, seeing how much of the useless and counterproductive superstructure in Washington we can dismantle, while the market moves in to supply those services that people actually want and are willing to pay for. It would cause a financial collapse, but most of the real wealth—buildings, fields, technologies, skills—would still be there."

That's not going to happen; it's a political impossibility for the US to embrace the pain from such a controlled self-demolition. Of course, the logical alternative to a controlled demolition of structures that no longer work is an unplanned crash and much ensuing chaos.

This all sounds pretty grim. The cost in human suffering I see along the path today's world "leaders" are following boggles the imagination. It's unthinkable— so most people don't. But if you do think about it, face the future with your eyes wide open, and see what's coming, you can prepare for it, survive it, and even profit from it.

That may seem unethical, but someone needs to be left standing to help pick up the pieces. It may not be necessary to retreat from the world to a Galt's Gulch, but it will be necessary to have the resources to make a difference after the crash—or at least to help by not being part of the problem. Far from being heartless profiteers, successful speculators in the years ahead will be the foundations of a better future.

In my view, this is nothing less than heroic.

The Smackdowns

Enough philosophy. An interesting aspect of the current shutdown shenanigans are the gold smackdowns we've seen this year, including very recently during the budget debates. The last time the US government was about to smash through its debt ceiling, gold shot up $300 in a month, to reach its nominal peak of over $1,900 an ounce in September of 2011. This time, gold is selling off.
Why? What's different?

Based on fundamentals, the situation for gold and silver is more bullish than ever; major governments around the world continue debasing their currencies in panicked attempts to revive their faltering economies, and the commodity supercycle has years to run.

This prompts many gold enthusiasts to embrace theories of market manipulation. There certainly have been days this year when some entities dumped large amounts of gold onto the market with clear disregard for getting a good selling price. It's hard to see that as normal market behavior, but it does not prove that governments are suppressing the price of gold; it's just as plausible that major players with short positions acted to profit from the ensuing extreme fluctuations.

We may never know the true motives of the parties involved in gold's big selloffs this year, but we do know that bearish sentiment has set in—hard.

Mainstream analysts say that gold peaked in 2011 and that the bull cycle is over. Even many diehard gold enthusiasts who see the current correction as something to endure, like the deep correction in the middle of the great 1970s' bull market for gold, are growing disgusted with the gold stocks.

And no wonder:
  • Governments around the world—even in the best mining jurisdictions—are raising taxes and regulatory burdens on extractive industries.
  • Metals producers are experiencing high costs and lower profits than forecast.
  • The difficulty of obtaining project financing has slowed or stopped development on many projects.
  • Many small companies have run out of cash and are close to becoming shell companies or simply going bankrupt.

We can't blame investors for their concerns, and even pessimism, given these realities. But they shouldn't lose sight of the bigger picture; mining has always been a lousy business—risky, dangerous, and subject to unpredictable fluctuations such that Messrs. Graham and Dodd would never have touched these stocks.

On the other hand, our civilization is built on metals, and when you go from having nothing but a geological theory and an obligation to pour money into holes in the ground to having a deposit with bankable mining reserves, the difference in value is literally infinite. Getting ahead of market revaluations when such changes occur is how sharp speculators make spectacular gains.

Similarly, the change in value from a company that has made a mineral discovery to a company producing cash flow from a profitable mine is similarly huge. There's a lot of value added along the way.

None of this matters if gold and the larger commodity supercycle have in fact peaked. For gold at least, this is the mainstream view, and that's certainly a major driver for the pervasive bearishness in the sector today. If these people are right, it's time to bail on gold and go buy Wall Street.

Here at Casey Research, we take the opposite view. We've seen this kind of correction before; it's just a fluctuation in a much larger megatrend that still has years to run. That makes our current market circumstances a terrific buying opportunity—perhaps the best chance to "buy low" since the beginning of the cycle back around the year 2000.

The Touchdowns

As I said above, I do see the current situation in the metals and mining markets around the world as a huge opportunity. Whatever happens to the global economy in the near term, the world population continues to grow, and growing affluence in emerging economies has already created a large global middle class approximately two billion strong.

That trend shows no signs of abating, and it's extremely bullish for all commodities.

With precious metals, which are commodities as well as unique financial instruments, you get the added benefit of an investable asset class that has intrinsic value and is not some counterparty's liability. This is particularly important at a time when Chinese officials, Russians, and many others around the world are calling for an end of the US dollar as the world's reserve currency. This is all extremely bullish for assets of tangible value in general, and precious metals in particular.

Now for the touchdowns. Here's the key: our markets have become so bearish that even companies with extraordinarily rich discoveries are sitting neglected on the same bargain discount shelf where you normally find the dreck that has nothing and never will.
  • One company has the biggest bonanza-grade deposit in the world, outside of kleptocratic banana republics—and it's on sale for less than before it made its discovery, even lower than at its IPO.
  • Several companies that have made world-class discoveries are currently selling at market valuations lower than companies with absolutely nothing in hand reselling in early 2011.
  • Companies with top management and good projects are selling for less than cash in the bank.

In short, the extreme bearishness in the precious metals sector has made it possible for speculators to pick up companies that have already made touchdowns on the field of mineral exploration at prices similar to those paid recently for companies that had barely begun to play.
It's like being able to go back in time and buy Apple before the invention of the iPod or iPhone—not on a guess, but knowing the value already achieved.

Such companies, as long as they have the cash in hand to see the current correction through, offer both terrific potential gains and an unusually high degree of certainty regarding the outcome of the investment. This is an opportunity we very rarely see in our infamously volatile market sector.

Of course, I like to think that Doug and I have a talent for separating the truly undervalued companies from those that deserve to be on the discount rack, but any sufficiently diligent investor can search for and find these opportunities on his or her own.
But you do need to take action now:
  • First, assess the global political and economic situation—and yourself. Make sure you believe that the commodity supercycle is indeed far from over and that precious metals offer excellent leverage to government stupidity today. If you don't feel fully confident of this view, then it's better to step aside. You won't have the stomach to buy what's on sale, and buy more if prices go lower.
  • Second, if you do believe that precious metals still have far to go, you should then take the time to educate yourself about our market sector. Read our free offerings in this weekly column and the other free resources available on the Casey Research website, or take matters in your own hand and search online—there's plenty of material out there.
  • Third, don't be fooled by stories of elephant deposits that lack the grade to be economic with today's high mining costs. Be equally suspicious of exciting, high-grade numbers from projects in remote or expensive-to-work-in places, or that are located in inhospitable mining jurisdictions where investors are more likely to be plundered than to see profits.

The key is not grade, but margin. You want to look for the highest-margin projects you can find in the most mining-friendly jurisdictions you can find. This applies equally to exploration-stage companies, development companies building mines, and production companies pouring gold, silver, and platinum.

That's what I'm doing. And for the record, yes, I've been putting my money where my mouth is and have been buying during this downturn. I just made three of my largest stock speculations ever last week.

If you follow the steps that I've outlined above, you have a good chance to become a successful resource speculator.

Remember: fortune favors the bold.

Civilizing the Marketplace of Ideas

Niall Ferguson

14 October 2013
CAMBRIDGE – “When men have realized that time has upset many fighting faiths,” US Supreme Court Justice Oliver Wendell Holmes wrote in a famous dissenting opinion in 1919, “they may come to believe…that the ultimate good desired is better reached by free trade in ideas – that the best test of truth is the power of the thought to get itself accepted in the competition of the market, and that truth is the only ground upon which their wishes safely can be carried out.”
Like any market, however, the marketplace of ideas needs regulation: in particular, its participants should be bound by norms of honesty, humility, and civility. Moreover, every idea-trader should adhere to these principles.
Of course, politicians through the ages have polluted the marketplace of ideas with invective. But in American politics, surprisingly, there has been progress. According to a study by the Annenberg Public Policy Center, there has been less incivility in Congress in recent years than in the 1990’s or the 1940’s. Republican Senator Ted Cruz was widely condemned for his aggressive questioning of incoming Defense Secretary Chuck Hagel back in January. But casting aspersions on a nominee’s patriotism was the norm in the McCarthy era; it is less common today.
Academia, by contrast, appears to be moving in the opposite direction. A “social science” like economics is supposed to be free of partisan vitriol. Yet economists now routinely stoop to ad hominemattacks and inflammatory polemics.
As economists go, they do not come much mightier or more influential than Paul Krugman. A Nobel laureate who teaches at Princeton University, Krugman is also a columnist for the New York Times, whose commentaries and blog, “The Conscience of a Liberal,” are read with an almost religious fervor by liberal (in the American sense) economists and journalists around the world. He is a Twitter superstar, with more than a million followers. A dozen ardent epigones blog in sync with him, re-posting the wisdom of the master.
Many people today naively believe that the Internet is an unmitigated boon for free speech. They underestimate the extent to which such a concentration of online power corrupts, just as surely as all forms of power corrupt.
Since Krugman and I began debating fiscal and monetary policy back in 2009, I have become increasingly alarmed by the way he abuses his power. Last week, I resolved to speak out in a three-article series, published squarely in the heart of the liberal blogosphere, the Huffington Post.
As historians are trained to do, I based my argument on the archives. By quoting his past writings, I showed, first, that Krugman’s repeated claims to have been “right about everything” in his economic commentary are false. Although (like many others) he identified a housing bubble in 2006, he did not foresee the financial chain reaction that would fuel a global crisis. Having failed to predict the US crisis, he then incorrectly predicted the imminent disintegration of Europe’s monetary union, publishing more than 20 statements on that subject in 2011 and 2012. He has never admitted these errors; on the contrary, he has retrospectively exaggerated his own prescience.
Second, Krugman’s claim that a vastly larger fiscal stimulus would have generated a more rapid economic recovery in the US depends entirely on conjecture. But the macroeconomic model on which he bases his claim can hardly be called reliable, given its manifest failures to predict either the crisis or the euro’s survival. Moreover, at least one of his pre-crisis columns flatly contradicts his view today that current – or even higher – levels of federal debt carry no risk whatsoever. So he has no right to claim, as he has, “a stunning victory” in “an epic intellectual debate.”
Finally – and most important – even if Krugman had been “right about everything,” there would still be no justification for the numerous crude and often personal attacks he has made on those who disagree with him. Words like “cockroach,” “delusional,” “derp,” “dope,” “fool,” “knave,” “mendacious idiot,” and “zombie” have no place in civilized debate. I consider myself lucky that he has called me only a “poseur,” a “whiner,” “inane” – and, last week, a “troll.”
Far from engaging in Holmes’s free trade in ideas, Krugman has been the intellectual equivalent of a robber baron, exploiting his power to the point of driving decent people away from the public sphere – particularly younger scholars, who understandably dread a “takedown” by the “Invincible Krugtron.”
My preferred solution would be accountability. But I have given up hope that the New York Times will perform its proper editorial function. So, instead, I would suggest the intellectual equivalent of an antitrust law. For every word that Krugman publishes, he must henceforth commit to having first read at least a hundred words by other writers. I cannot guarantee that reading more widely will teach him honesty, humility, and civility. But it will at least reduce his unjustifiably large share of the marketplace of economic ideas.
As a Supreme Court justice, of course, Holmes opposed antitrust regulations. But his arguments in this area failed his own “test of truth,” for they lacked “the power…to get…accepted in the competition of the market.” Holmes accepted defeat with his customary grace. It is high time that Krugman – right or wrong – learned to behave that way, too.

lunes, octubre 14, 2013



Disclosure: I am long SGOLGGGOLDAG(More...)
We saw a little more activity at the COMEX last week with one medium-sized deposit (around 33,000 ounces) at the HSBC warehouse. Interestingly enough, this was similar to a deposit made exactly one week earlier of another 33,000 ounces. Other than that we saw registered stocks losing about half their gain from the prior week, but nothing too exciting this week. We'll also take a brief look at COMEX interest, which has been declining over the last few weeks. Finally, we'll briefly put it all into perspective as we analyze Friday's huge gold market sell order and compare it to total COMEX gold inventories.
Keeping track of COMEX inventories is something that is recommended for all serious investors who own physical gold and the gold ETFs (SPDR Gold Shares (GLD), PHYS, and CEF) because any abnormal inventory declines may signify extraordinary events behind the scenes that would ultimately affect the gold price.
(click to enlarge)
We will take a closer look at these numbers, but let us first explain the COMEX a little more for investors who are unfamiliar with it.
Introduction to COMEX Warehousing
COMEX is an exchange that offers metal warehousing and storage options for its clients. The list of their silver warehouses can be found here and their gold warehouses can be found here. In the case of silver and gold, the metal is stored at these official warehouses on behalf of banks and their clients and can be used to settle futures contracts, transferred between clients, or withdrawn from the warehouse. This offers large holders of precious metals a convenient way to store their metal with minimal storage fees - very convenient indeed if you hold large amounts of gold or silver and you don't want to store them in your basement.
Silver and gold stored in these warehouses can fall into two categories: Eligible and Registered.
Eligible metals are those that conform to the exchange's requirements of size (1000 ounce bars for silver and 100 ounce bars for gold), purity, and refined by an exchange approved refiner. Eligible metals are stored at COMEX warehouses on behalf of banks or private parties, but are not available for delivery for a futures contract.
Registered metals are similar to eligible metals except that these metals are also available for delivery to settle a futures contract. COMEX issues a daily report on gold, silver, copper, platinum, and palladium stocks, which lists all the metal that is currently stored in COMEX warehouses and how much eligible and registered metal is present.
This information allows investors insight into how much metal is currently backing COMEX futures contracts, what large gold and silver owners are doing with their metals, and how many clients are requesting delivery of their metals. There is a lot more to glean from this information but for the purpose of this article we will focus on the gold drawdown.
This Week's Changes: Increase in Eligible Gold but Registered Gold Loses Half of Last Week's Gains
Let us now take a deeper look at the gold draw-downs being seen in the COMEX warehouses.
(click to enlarge)
As investors can see, last week we saw a 43,188 decline in registered gold which was primarily a change of status of registered gold to eligible gold from HSBC's and JPMorgan's warehouses. Eligible gold increased on the week by 97,740 ounces which pretty much neutralized last week's change, which was also the largest increase in registered gold in quite some time.
COMEX Gold Open Interest and Registered Gold Owners per Ounce
Finally, let us take a look at possibly the most important number when it comes to COMEX gold inventories - the registered gold cover ratio. We've discussed this in-depth in a previous article, so please refer to that article for details, but in a nutshell it is the amount of investors owning a claim to each registered gold ounce (i.e. owner per registered gold ounce).
(click to enlarge)
As investors can see, owners-per-registered ounce declined over the last month to approximately 51 owners-per-registered ounce from a high of around 58 a few weeks ago. This decline was primarily due to declining COMEX open interest, but is still close to all-time highs especially since before this year we've never seen above 40 owners-per-registered ounce - even during the spike in gold in 2011.
Friday's Huge Gold Trade
For investors who haven't heard yet, Friday's (10/11/13) huge drop in gold was essentially due to one tremendously large market sell order, which was an attempt to sell 5,000 gold futures (500,000 gold ounces or about $650 million dollars) at market price and was so large it tripped the stop logic for the exchange and caused gold to stop trading for about ten seconds. We aren't going to get into the motives behind this trade other than saying no seller trying to get a fair price for their gold would sell in such a way, so it looks to be an attempt to ignite negative momentum - which it didn't seem to do.
But what we want to point investor attention to is that the size of this trade compared to the size of COMEX gold registered inventories, was tremendous. In fact, it represents almost 70% of gold registered for delivery and would be almost impossible to actually fill if entities asked for delivery.
Oh! and investors shouldn't forget that this was all done in less than one minute - essentially all of the COMEX gold eligible for delivery was sold by one trader in less than one minute. If that doesn't raise an investor's eyebrows, then they really don't understand or are the ones making that sell order.
What does this Mean for Gold Investors
In short the story hasn't changed for gold investors in terms of the bullishness seen in the extremely low levels of COMEX gold inventories. But what investors should realize is that the electronic volumes that are being traded are so much greater than COMEX gold available for delivery. They should also note that there is an obvious attempt to push the price lower by entities with short positions - after all how else can you explain a 5,000 market sell order with no news during relatively thinly traded hours other than an attempt to ignite negative momentum?
So extremely low physical gold stocks available for delivery and entities with large short positions trying to push the price lower with huge market sell orders is not a recipe for a stable market. At some point we're going to have a scramble for the physical gold as either someone decides to call the bluff of these large shorts trying to push prices lower (think Icahn versus Bill Ackman), or the physical demand from Asia (Hong Kong reported tremendous gold import numbers during August from the US and Switzerland) is going to overwhelm the paper traders and force a cover. Either way we believe that the instability in the gold market is going to cause a sharp, sudden, disorderly rise in the gold price.
Thus we see no reason to change our bullish stance on gold based on COMEX gold inventories, and we recommend investors continue to accumulate physical gold and the gold ETFs (GLD, PHYS, CEF) while the physical gold supply continues to drop. For investors looking for higher leverage to the gold price, they may want to consider miners such as Goldcorp (GG), Yamana Gold (AUY), Randgold (GOLD), or even some of the explorers and silver miners such as First Majestic (AG). Finally, investors who own shares in some of the market ETFs (like SPDR S&P 500 (SPY), PowerShares QQQ (QQQ), and SPDR Dow Jones Industrial Average (DIA)) may want to consider buying gold as a hedge for these positionsbecause the fundamentals are still very strong for gold.
With gold physical inventories available for delivery at such low levels, and entities actively trying to push the prices lower without the ability to back up their trades, gold still offers investors terrific potential. At this point, even the traditional investment crowd may take a keen interest in calling the bluff of some of these shorts especially as the investments like SPY are close to all-time highs.
We believe in the near future investors will look back and wonder why they didn't see the gold price rise coming, but all the signs are in place and it is simply a matter of patience.

October 13, 2013

The Dixiecrat Solution

So you have this neighbor who has been making your life hell. First he tied you up with a spurious lawsuit; you’re both suffering from huge legal bills. Then he threatened bodily harm to your family. Now, however, he says he’s willing to compromise: He’ll call off the lawsuit, which is to his advantage as well as yours. But in return you must give him your car. Oh, and he’ll stop threatening your family — but only for a week, after which the threats will resume.
Not much of an offer, is it? But here’s the kicker: Your neighbor’s relatives, who have been egging him on, are furious that he didn’t also demand that you kill your dog.
And now you understand the current state of budget negotiations.
Stocks surged last Friday in the belief that House Republicans were getting ready to back down on their ransom demands over the government shutdown and the debt ceiling. But what Republicans were actually offering, it seems, was the “compromise” Paul Ryan, the chairman of the House Budget Committee, laid out in a Wall Street Journal op-ed article: rolling back some of the “sequester” budget cuts — which both parties dislike; cuts in Medicare, but with no quid pro quo in the form of higher revenue; and only a temporary fix on the debt ceiling, so that we would soon find ourselves in crisis again.
I do not think that word “compromise” means what Mr. Ryan thinks it means. Above all, he failed to offer the one thing the White House won’t, can’t bend on: an end to extortion over the debt ceiling. Yet even this ludicrously unbalanced offer was too much for conservative activists, who lambasted Mr. Ryan for basically leaving health reform intact.
Does this mean that we’re going to hit the debt ceiling? Quite possibly; nobody really knows, but careful observers are giving no better than even odds that any kind of deal will be reached before the money runs out. Beyond that, however, our current state of dysfunction looks like a chronic condition, not a one-time event. Even if the debt ceiling is raised enough to avoid immediate default, even if the government shutdown is somehow brought to an end, it will only be a temporary reprieve. Conservative activists are simply not willing to give up on the idea of ruling through extortion, and the Obama administration has decided, wisely, that it will not give in to extortion.
So how does this end? How does America become governable again?
One answer might be that we somehow stumble through the next 13 months, and voters punish Republican tactics by returning the House to Democratic control. Recent polls do show a large Democratic advantage on the generic House ballot. But remember, Democratic House candidates already “won” in 2012, in the sense that they received more votes in total than Republicans. Yet the vagaries of district boundaries — partly, but not entirely, the result of gerrymandering — meant that the Republican majority in seats remained, and it would probably take a really huge Democratic sweep to dislodge G.O.P. control.
There is, however, another solution, and everyone knows what it is. Call it Dixiecrats in reverse.
Here’s the precedent: For a long time, starting as early as 1938, Democrats generally controlled Congress on paper, but actual control often rested with an alliance between Republicans and conservative Southerners who were Democrats in name only. You may not like what this alliance did — among other things, it killed universal health insurance, which we might otherwise have had 65 years ago. But at least America had a functioning government, untroubled by the kind of craziness that now afflicts us.
And right now we have all the necessary ingredients for a comparable alliance, with roles reversed. Despite denials from Republican leaders, everyone I talk to believes that it would be easy to pass both a continuing resolution, reopening the government, and an increase in the debt ceiling, averting default, if only such measures were brought to the House floor. How? The answer is, they would get support from just about all Democrats plus some Republicans, mainly relatively moderate non-Southerners. As I said, Dixiecrats in reverse.
The problem is that John Boehner, the speaker of the House, won’t allow such votes, because he’s afraid of the backlash from his party’s radicals. Which points to a broader conclusion: The biggest problem we as a nation face right now is not the extremism of Republican radicals, which is a given, but the cowardice of Republican non-extremists (it would be stretching to call them moderates).
The question for the next few days is whether plunging markets and urgent appeals from big business will stiffen the non-extremists’ spines. For as far as I can tell, the reverse-Dixiecrat solution is the only way out of this mess.


October 13, 2013, 9:06 p

But starting around the fall of Communism in the late 1980s, economic globalization accelerated and the gap between nations began to shrink. The period from 1988 to 2008 “might have witnessed the first decline in global inequality between world citizens since the Industrial Revolution,” Mr. Milanovic, who was born in the former Yugoslavia and is the author of “The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality,” wrote in a paper published last November. While the gap between some regions has markedly narrowed — namely, between Asia and the advanced economies of the West — huge gaps remain. Average global incomes, by country, have moved closer together over the last several decades, particularly on the strength of the growth of China and India. But overall equality across humanity, considered as individuals, has improved very little. (The Gini coefficient, a measurement of inequality, improved by just 1.4 points from 2002 to 2008.)
Javier Jaén
So while nations in Asia, the Middle East and Latin America, as a whole, might be catching up with the West, the poor everywhere are left behind, even in places like China where they’ve benefited somewhat from rising living standards.
From 1988 to 2008, Mr. Milanovic found, people in the world’s top 1 percent saw their incomes increase by 60 percent, while those in the bottom 5 percent had no change in their income. And while median incomes have greatly improved in recent decades, there are still enormous imbalances: 8 percent of humanity takes home 50 percent of global income; the top 1 percent alone takes home 15 percent. Income gains have been greatest among the global elite — financial and corporate executives in rich countries — and the great “emerging middle classes” of China, India, Indonesia and Brazil. Who lost out? Africans, some Latin Americans, and people in post-Communist Eastern Europe and the former Soviet Union, Mr. Milanovic found.
The United States provides a particularly grim example for the world. And because, in so many ways, America often “leads the world,” if others follow America’s example, it does not portend well for the future.
On the one hand, widening income and wealth inequality in America is part of a trend seen across the Western world. A 2011 study by the Organization for Economic Cooperation and Development found that income inequality first started to rise in the late ’70s and early ’80s in America and Britain (and also in Israel). The trend became more widespread starting in the late ’80s. Within the last decade, income inequality grew even in traditionally egalitarian countries like Germany, Sweden and Denmark. With a few exceptions — France, Japan, Spain — the top 10 percent of earners in most advanced economies raced ahead, while the bottom 10 percent fell further behind.
But the trend was not universal, or inevitable. Over these same years, countries like Chile, Mexico, Greece, Turkey and Hungary managed to reduce (in some cases very high) income inequality significantly, suggesting that inequality is a product of political and not merely macroeconomic forces. It is not true that inequality is an inevitable byproduct of globalization, the free movement of labor, capital, goods and services, and technological change that favors better-skilled and better-educated employees.
Of the advanced economies, America has some of the worst disparities in incomes and opportunities, with devastating macroeconomic consequences. The gross domestic product of the United States has more than quadrupled in the last 40 years and nearly doubled in the last 25, but as is now well known, the benefits have gone to the top — and increasingly to the very, very top.
Last year, the top 1 percent of Americans took home 22 percent of the nation’s income; the top 0.1 percent, 11 percent. Ninety-five percent of all income gains since 2009 have gone to the top 1 percent. Recently released census figures show that median income in America hasn’t budged in almost a quarter-century. The typical American man makes less than he did 45 years ago (after adjusting for inflation); men who graduated from high school but don’t have four-year college degrees make almost 40 percent less than they did four decades ago.
American inequality began its upswing 30 years ago, along with tax decreases for the rich and the easing of regulations on the financial sector. That’s no coincidence. It has worsened as we have under-invested in our infrastructure, education and health care systems, and social safety nets. Rising inequality reinforces itself by corroding our political system and our democratic governance.
And Europe seems all too eager to follow America’s bad example. The embrace of austerity, from Britain to Germany, is leading to high unemployment, falling wages and increasing inequality. Officials like Angela Merkel, the newly re-elected German chancellor, and Mario Draghi, president of the European Central Bank, argue that Europe’s problems are a result of a bloated welfare spending. But that line of thinking has only taken Europe into recession (and even depression). That things may have bottomed out — that the recession may be “officially” over — is little comfort to the 27 million out of a job in the E.U. On both sides of the Atlantic, the austerity fanatics say, march on: these are the bitter pills that we need to take to achieve prosperity. But prosperity for whom?
Excessive financialization — which helps explain Britain’s dubious status as the second-most-unequal country, after the United States, among the world’s most advanced economies — also helps explain the soaring inequality. In many countries, weak corporate governance and eroding social cohesion have led to increasing gaps between the pay of chief executives and that of ordinary workers — not yet approaching the 500-to-1 level for America’s biggest companies (as estimated by the International Labor Organization) but still greater than pre-recession levels. (Japan, which has curbed executive pay, is a notable exception.) American innovations in rent-seeking — enriching oneself not by making the size of the economic pie bigger but by manipulating the system to seize a larger slice — have gone global.
Asymmetric globalization has also exerted its toll around the globe. Mobile capital has demanded that workers make wage concessions and governments make tax concessions. The result is a race to the bottom. Wages and working conditions are being threatened. Pioneering firms like Apple, whose work relies on enormous advances in science and technology, many of them financed by government, have also shown great dexterity in avoiding taxes. They are willing to take, but not to give back.
Inequality and poverty among children are a special moral disgrace. They flout right-wing suggestions that poverty is a result of laziness and poor choices; children can’t choose their parents. In America, nearly one in four children lives in poverty; in Spain and Greece, about one in six; in Australia, Britain and Canada, more than one in 10. None of this is inevitable. Some countries have made the choice to create more equitable economies: South Korea, where a half-century ago just one in 10 people attained a college degree, today has one of the world’s highest university completion rates.
For these reasons, I see us entering a world divided not just between the haves and have-nots, but also between those countries that do nothing about it, and those that do. Some countries will be successful in creating shared prosperity — the only kind of prosperity that I believe is truly sustainable. Others will let inequality run amok. In these divided societies, the rich will hunker in gated communities, almost completely separated from the poor, whose lives will be almost unfathomable to them, and vice versa. I’ve visited societies that seem to have chosen this path. They are not places in which most of us would want to live, whether in their cloistered enclaves or their desperate shantytowns.