voters never approved the euro — 4/06/17

Today’s encore selection — from War and Gold by Kwasi Kwarteng. European countries have high levels of trade with each other, so they needed currency exchange rates that are relatively stable. In the early twentieth century, having their currencies tied to gold provided that. After World War II, it was provided by the Bretton Woods agreement, which tied these major currencies to the dollar, which was in turn tied to gold. But after President Richard Nixon took the U.S. off the gold standard in 1971, the need reappeared and a number of European countries created a mechanism called the “snake,” which constrained fluctuations of currencies, and then the “exchange rate mechanism,” which did much the same thing. But the ultimate dream was to create a single currency — the euro — in one of the boldest monetary initiatives in history. For something so resolute and so laden with potential moral hazard, and for something that has in recent years contributed to so much European economic pain, it was surprisingly the creation of technocrats, and never taken to any country’s voters for their approval:
“The fiscal situation of the European countries which aspired to join the single currency [in 1997] did not inspire confidence. All through the late 1990s, the lack of preparedness of certain EU countries to join the euro was a subject of open debate. ‘There has, of course, been some sleight of hand,’ wrote Rupert Cornwell in the Independent in February 1998. ‘It remains mysterious quite how Italy, which for years regularly ran double-digit budget deficits, conveniently slashed last year’s to a mere 2.7 per cent of GDP.’ It was obvious, even before the euro was launched, that the single currency was an almost purely political project, which would be pursued without any real regard for the underlying economic reality. As the Frenchman Jacques Rueff had said, ‘Europe will make itself by money or not at all.’ The words of the Portuguese Prime Minister António Guterres at the Madrid summit in December 1995 were even more grandiose and emphatic: ‘When Jesus resolved to found a church, he said to Peter, “You are Peter, the rock, and upon this rock I will build my church.” You are the euro, and upon this new currency we will build our Europe.’

“There was never any idea that the people of Europe, the citizens of the individual states, would be consulted before this momentous step was taken. As [Otmar] Issing [the German economist who also served as a member of the European Central Bank’s first executive board], himself later admitted, it was ‘doubtless in Germany that resistance to EMU was the greatest’. The decision to ‘abandon the D-Mark required a great deal of political courage’, he remembered. In opinion polls conducted as late as the autumn of 1995, only 34 per cent of Germans were in favour of the single currency, while 45 per cent were against. Needless to say, these figures were reversed as the decade wore on and the single currency became more imminent. By the spring of 1999, some 55 per cent of Germans now supported the single currency while only 36 per cent continued their opposition.

“In the same poll from 1995, the Finns were shown to be the least in favour of the currency among the nations which eventually joined: 53 per cent of Finns were hostile to the currency, while only 33 per cent approved. It is important to grasp the extent to which Europe’s political elites were committed to the single currency. The reasons why numerous political figures and bankers became strong advocates of the euro differed. For the Germans, it was often as much a symbol of fiscal discipline as a badge of European unity. For Issing, the benefits of the euro were explicitly focused on the need for fiscal discipline. This was a view widely held in Germany and the Netherlands.
“The people of Europe, of course, had not been consulted before the single currency was officially launched on 1 January 1999. The euro was always conceived as an elite project, conjured up by technocrats, to be foisted upon a largely acquiescent and amorphous European public. There was as yet no European superstate, a fact which worried Germans, unsure of whether a monetary union was possible without a political union.”
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War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt

Publisher: PublicAffairs
Copyright 2014 Kwasi Kwarteng
Pages: 277-278

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benevolence only makes things worse — 10/27/15

Today’s selection — from Commodore: The Life of Cornelius Vanderbilt by Edward J. Renehan Jr.  The miraculous gains of the Industrial Revolution in the early 1800s brought untold new wealth to western societies, but simultaneously brought a new type of poverty and disruption among workers — equally unprecedented in its scale.

“The first few decades of the nineteenth century were a largely cynical and callous time in American history — a period of institutionalized harshness. It was in 1817 that a group of prominent New York merchants and professionals (many once having been the principal supports of such institutions as the New York Hospital and other worthy causes) officially and publicly began to rethink their charitable habits. Such previously generous philanthropists as DeWitt Clinton (now governor of the state), Thomas Eddy, and John Griscom took their cue in this from British reformers. In so doing, they succumbed to the rhetoric of several hard-nosed British social thinkers, most notably Thomas Robert Malthus, Jeremy Bentham, and the Scottish conservative Patrick Colquhoun.

“Twenty years earlier, all three of those gentleman had been instrumental in the founding of the London Society for Bettering the Condition and Increasing the Comforts of the Poor. Despite the burden of its long-winded name, the London Society did not distribute charity but specialized in cutting off funds for social welfare. Malthus, Bentham, and Colquhoun believed that a distinct line must be drawn between the ‘deserving poor’ (those facing hard times as a result of unfortunate histories) and ‘undeserving paupers,’ namely, the drunk, the lazy, and the whorish members of society for whom aid was considered a reprehensible act of facilitation. Another key underpinning the London Society’s logic was the presumption (for lack of a more accurate term) that paupers outnumbered the deserving poor by a factor of about nine to one. In reform meetings and from church pulpits, politicians and clerics repeatedly cited this astonishing though unverifiable statistic, which soon became accepted as fact. In time, the public mind became convinced that a mere 10 percent of London’s poor were the crippled and the orphaned, while 90 percent were degenerates. For every one person in London’s slums who genuinely needed aid, popular wisdom said there were nine who required something else entirely: intolerance, punishment, and correction. As a corollary to this line of thinking, logic dictated that 90 percent of the charitable aid previously offered was superfluous. In turn, wallets closed.

A group of children at Crumpsall Workhouse_ 1895_97

“For decades the London Society remained influential in the development and spread of such institutions as workhouses and debtors prisons. It was also influential, through its example, in New York and other American cities. By the end of 1817, Clinton, Eddy, and Griscom, joined by hundreds of other New Yorkers, had formed a clone organization on the banks of the Hudson: the Society for the Prevention of Pauperism (SPP).

“Several months before the founding of the SPP, New York’s Humane Society forlornly announced the startling result of recent research: no less than 15,000 men, women, and children — the equivalent of one-seventh of the city’s population — had been ‘supported by public or private bounty and munificence’ the previous winter. Historians Edwin Burrows and Mike Wallace have eloquently described the SPP’s point of view, expressed in response to the above data. In the London Society’s grand tradition, the SPP said it believed that ‘willy-nilly benevolence’ only made things worse. ‘Giving alms to the undeserving poor not only undermined their independence but also drove up taxes and sapped the prosperity of the entire community.’ Thus, ‘for their good as well as everyone else’s … the SPP recommended that all paupers in the city be cut off from all public assistance forthwith.’ Soon the Humane Society itself announced its intention to disband in the wake of its realization that the very act of giving charity had ‘a direct tendency to beget, among [the citizenry] habits of imprudence, indolence, dissipation and consequent pauperism.’

” ‘Tough love’ was in. Cruelty equaled kindness. Frugality equaled generosity. And all three were not only cheap, but easy.”

Author: Edward J. Renehan Jr.
Publisher: Basic Books
Copyright 2007 by Edward J. Renehan Jr.
Pages 48-49
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About Us is a brief daily email with an excerpt or quote we view as interesting or noteworthy, offered with commentary to provide context. There is no theme, except that most excerpts will come from a non-fiction work, mainly works of history, are occasionally controversial, and we hope will have a more universal relevance than simply the subject of the book from which they came.

finding things with crowds — 5/5/15

Today’s selection –from The Organized Mind by Daniel J. Levitin. Accomplishing the impossible through crowdsourcing:
“Crowdsourcing — outsourcing to a crowd — [is] the technique by which thousands or even millions of people help to solve problems that would be difficult or impossible to solve any other way. Crowdsourcing has been used for all kinds of things, including wildlife and bird counts, providing usage examples and quotes to the editors of the Oxford English Dictionary, and helping to decipher ambiguous text. …

“In December 2009, DARPA offered $40,000 to anyone who could locate ten balloons that they had placed in plain sight around the continental United States. DARPA is the Defense Advanced Research Projects Agency, an organization under the U.S. Department of Defense. DARPA created the Internet (more precisely, they designed and built the first computer network, ARPANET, on which the current World Wide Web is modeled). At issue was how the United States might solve large-scale problems of national security and defense, and to test the country’s capacity for mobilization during times of urgent crisis. Replace ‘balloons’ with ‘dirty bombs’ or other explosives, and the relevance of the problem is clear.

“On a predesignated day, DARPA hid ten large, red weather balloons, eight feet in diameter, in various places around the country. The $40,000 prize would be awarded to the first person or team anywhere in the world who could correctly identify the precise location of all ten balloons. When the contest was first announced, experts pointed out that the problem would be impossible to solve using traditional intelligence-gathering techniques.

“There was great speculation in the scientific community about how the problem would be solved — for weeks, it filled up lunchroom chatter at universities and research labs around the world. Most assumed the winning team would use satellite imagery, but that’s where the problem gets tricky. How would they divide up the United States into surveillable sections with a high-enough resolution to spot the balloons, but still be able to navigate the enormous number of photographs quickly? Would the satellite images be analyzed by rooms full of humans, or would the winning team perfect a computer-vision algorithm for distinguishing the red balloons from other balloons and from other round, red objects that were not the target? (Effectively solving the Where’s Waldo? problem, something that computer programs couldn’t do until 2011.)

“Further speculation revolved around the use of reconnaissance planes, telescopes, sonar, and radar. And what about spectrograms, chemical sensors, lasers? Tom Tombrello, physics professor at Caltech, favored a sneaky approach: ‘I would have figured out a way to get to the balloons before they were launched, and planted GPS tracking devices on them. Then finding them is trivial’.

“The contest was entered by 53 teams totaling 4,300 volunteers. The winning team, a group of researchers from MIT, solved the problem in just under nine hours. How did they do it? Not via the kinds of high-tech satellite imaging or reconnaissance that many imagined, but — as you may have guessed — by constructing a massive, ad hoc social network of collaborators and spotters — in short, by crowdsourcing. The MIT team allocated $4,000 to finding each balloon. If you happened to spot the balloon in your neighborhood and provided them with the correct location, you’d get $2,000. If a friend of yours whom you recruited found it, your friend would get the $2,000 and you’d get $1,000 simply for encouraging your friend to join the effort. If a friend of your friend found the balloon, you’d get $500 for this third-level referral, and so on. The likelihood of anyone person spotting a balloon is infinitesimally small. But if everyone you know recruits everyone they know, and each of them recruits everyone they know, you build a network of eyes on the ground that theoretically can cover the entire country. One of the interesting questions that social networking engineers and Department of Defense workers had wondered about is how many people it would take to cover the entire country in the event of a real national emergency, such as searching for an errant nuclear weapon. In the case of the DARPA balloons, it required only 4,665 people and fewer than nine hours.”

The Organized Mind: Thinking Straight in the Age of Information Overload

Author: Daniel J. Levitin
Publisher: Penguin Group
Copyright 2014 by Daniel J. Levin
Pages 114-116

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the president’s financial woes — 7/07/14 is a brief daily email with an excerpt or quote we view as interesting or noteworthy, offered with commentary to provide context.  There is no theme, except that most excerpts will come from a non-fiction work, mainly works of history, are occasionally controversial, and we hope will have a more universal relevance than simply the subject of the book from which they came. 
Today’s selection — from William McKinley by Kevin Phillips. In 1893, Ohio governor and Republican presidential hopeful William McKinley got into deep financial trouble. It was so bad that his plan was to resign and return to his law practice, but his political friends bailed him out instead. Though his Democratic opponents used this episode against him, the harm was less than it might have been — he received some sympathy because his distress came during one of the worst crises in U.S. history and because he himself had notably helped others in need earlier in his career:
“The great depression of 1893 to 1897, a political prop first to [William] McKinley’s rise to the presidency and then, through its timely finish, to his success in office, was one of the two or three deepest in U.S. history. Overextended railroads, weighed down by watered stocks and bonds, led the crash. Banks and farm prices followed. Farm destitution and general unemployment swelled enough that in 1893, the Populist governor of Kansas, Lorenzo Lewelling, issued his famous Tramp Circular, likening the jobless men on the roads to the social unrest of Tudor England and prerevolutionary France. …

“Ironically, [McKinley] had to survive his own brief brush with the economic downturn. He had endorsed notes for an old friend and schoolmate, Robert Walker, in the amount — or so McKinley thought — of some $17,000. Already successful, Walker was starting a tin-plate business. When he went bankrupt in 1893, supposedly with a liability of $25,000 or so, McKinley cut short a trip and returned to Ohio. His plan, he told assembled friends like Mark Hanna, William R. Day, Herman Kohlsaat, and banker Myron Herrick (himself later governor), was to resign the governorship and resume the practice of law. Within a day or two, as banks were contacted by his friends, McKinley’s obligation turned out to rise to $60,000 and finally $130,000 ($3.3 million in today’s dollars).

“Mrs. McKinley’s $70,000 estate from her father was in her name and not reachable, but she insisted on pledging it to help. Hanna, making the arrangements, allowed her to deed it to him in escrow ‘to be used if needed.’ The governor also insisted on turning over his properties to trustees. Convinced not to resign, for the moment, he rejected the suggestion of raising funds through a public subscription. He accepted the services of his friends as trustees in consolidating the debt, but told them that he expected to pay it himself. Instead, they raised the money from private contributors, mostly in Cleveland, Pittsburgh, and Chicago, and paid off the cosigned notes so that McKinley — by now, the probable next president — did not need to go back to practicing law. …

“In 1893, this did not do the damage it might have in another year. The public was sympathetic. Voluntary public offerings received at the governor’s office alone exceeded the $130,000 needed, although they were all returned. During that autumn’s gubernatorial campaign, the miners McKinley had defended without charge in 1876 came to see him; they wanted to help by paying the money he had earlier refused. Here is biographer Leech’s conclusion:
His trouble had awakened strong sympathy, not only for a kindly man whose trust had been betrayed, but for an honest politician who had not used public office for personal gain. The whole circumstance of McKinley’s bankruptcy and the liberality of his friends became, as the Democratic Brooklyn Eagle later commented, ‘a matter of hearthstone pleasure around the land.’ “