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A teachable moment for the UK media?

One thought that occurred to me when thinking about reaction to the Leveson Report - which calls for statutory regulation of the UK press – is that those journalists frightened of such regulation, and concerned – rightly – about the dangerous consequences have had a very sharp lesson in the problems of regulation. (Here is the official Leveson website for those who have the stamina).

Consider the following: After the recent financial crisis of 2008, almost the entire media, political world and associated industry put up a chorus that what the world needed or still needs is “more regulation”. The fact that the banking industry already is subject to the laws against fraud and force, that it operates under rules about capital (the Basel system), has to lend to certain groups (US legislation to help minorities), or that central banks set interest rates like Soviet planners, seemed not to matter one jot to those arguing that we need even more rules. And rules enforced by such paragons of wisdom and omniscience as the Financial Services Authority or Bank of England.

Yet this time, when the media itself is in the cross-hairs, we see journalists from across the spectrum arguing about the dangers of quangos, of unelected boards of governors running the show, of the dangers of moral hazard, of the problems of losing freedom of action. It is as if George Monbiot had morphed into FA Hayek.

As I say in the title, maybe this is a teachable moment for the British media. Of course, the state-supported BBC and, for that matter, the partly state-subsidised Guardian (all those public sector ads) might be more amenable to state controls, although in the case of the Guardian, even those guys might understand the dangers. (Would, for example, the Guardian be able to use the likes of Wikileaks in future under a statutory regime?).

I might be optimistic here, but when people find their own livelihoods and freedoms come under attack, it can make them understand the value of liberty and rule of law more generally. Let’s hope that the next time a journalist writes an article which calls for more regulation of X or Y, that they see the irony, and think again.

28 comments to A teachable moment for the UK media?

  • Bruce

    And this would be the same media mavens that spent decades defaming and criminally vilifying firearm owners.

    Not just in Britain but in Australia, Canada, the US etc.

    Scum, all of them

  • Lee Moore

    JP is way too optimistic. Big business loves regulation, because it squishes the competition. Competition is far worse for profits than taxes or regulation. OK the media is a funny sort of business that isn’t really about maximising profits, but that doesn’t mean that the established private operations want any more competition. Regulation of everybody, maybe with a few loosened straps for the official “press” as a nod to press freedom would be fine. (Look out for a “compromise” that has a draconian anti free speech law, with a “freedom of the press” carve out. From the press’s point of view that would be perfect. Plod can spend his time bothering Samizdata rather than the Graun.)

    The BBC, though it’s not in the commercial sector, still hates competition for political reasons. Look how hard they’ve tried to get Murdoch closed down.

    The press is just temporarily alarmed because press regulation is unfamiliar, just like the doctors were alarmed by the NHS when it first came in. Once journalists get used to the idea of regulation, they’ll love it.

    Still, the larger point is true. You find out what people really think when there is a threat to what they truly cherish – when the goolies on which the large hairy hand of the state begins to close, are their own. All those progressive criminal justice types, who affect to believe in rehabilitative penal policy and the dangers of excessive imprisonment turn into enraged Daily Mail types when the crime is something they actually disapprove of, like “hate crime”, fox hunting or tax evasion.

  • Rob

    “(Would, for example, the Guardian be able to use the likes of Wikileaks in future under a statutory regime?).

    Yes, because the people who will run the regime will read the Guardian.

  • TDK

    You are being unduly optimistic. These are people who say: I can control what I eat and drink but you can’t so we need laws.

    The core principle is “other people” need to be controlled or if you like nudged. They all assume they will be the ones doing the controlling or nudging. They are not upset at the principle, only that they are not the ones in control.

  • G.

    fact that the banking industry already is subject to the laws against fraud and force

    No they aren’t, since fractional reserve banking is fraud.

  • G.

    … and government deposit “insurance” is force.

  • Johnathan Pearce

    G. FRB isn’t fraud since this fractional point is not concealed from the public, although many people are clueless about how banks work. Sorry, but I am not one of those who claim that FRB should be made illegal (which would be odd in a free market where I could consent to deposit in a FRB). A far more serious problem is that people are forced to accept a currency as legal tender even though they have good reason to distrust it. Now THAT is worth getting upset about.

  • G.

    It is fraudulent to legally pledge to do something you are completely incapable of doing. A bank is completely incapable of honouring the withdrawals it has made on its deposits, therefore it is fraudulent. If someone is dumb and greedy enough to put their money in a FRB bank despite knowing what they are up to (around 10% of the UK population at most), then all they have done is sign a legally null and meaningless contract (I will give your money to other people, whilst keeping it there for you to redeem on demand).

    Conversely, wheras legal tender laws were once important in replacing gold with BoE paper, the reason people use paper money now is simply because everyone else uses it (as standard Mengerian theory explains).

    FRB banking is the weak link in capitalism and until defenders of capitalism stop defending it and aiming their fire at relative trivitalities, statists will win every time. De Soto has completely exploded the myths of the FRB free banking school and even the more sane members of the Chicago School wanted a 100% reserve requirement, so unless you are a defender of Tim Congdon’s fairlyland market monetarism or something, there’s nothing left for a defender of a free society to talk about. FRB has to go.

  • RainerK

    Time is ripening.
    The media are getting a first real taste of the inevitable future: “You will be Pravda or else line up against the wall and to the gulags!”
    Who could have seen this coming? or to steal from the Instapundit: Everything is proceeding as I predicted.

  • Paul Marks

    Most business enterprises (inluding large ones) certainly do NOT like modern levels of regualtions.

    This extreme level of regulation may reduce competition(although is simply not true to say that it gets rid of competition), but the costs imposed on most business enterprises (including the largest) are vastly greater than any gain they may have.

    Yet most journalists still think “!more regulation” or “better enforcement of regulations” are answer to any problem – and never the CAUSE of the problem.

    As with the Sky News ads blaming (in passing) both the Wall Street Crash of 1929 and the current growing crises on lack-of-regulation and lack-of-enforcement of regulations – this is not even the point of the ads (the point is simply to get people to watch Sky News) the people who make the ads just say these things in passing because they ASSUME them to be true.

    Not some conspiracy to boast their company by crushing competition – but the (far more serious problem) of the IDEOLOGY (the “metacontext”) the journalists were taught at school and university.

    Another Sky News ad I watched today said “will George Osborne manage to reflate the economy”.

    Note NOT “is reflating the economy (i.e. the bubble) a good thing” – that was automatically ASSUMED to be true.

    “Then why do journalists support freedom of speech”.

    Well some do not.

    But those who do (and, therefore, oppose government regulation of speech) draw a sharp distinction between economic matters and civil liberties.

    This goes all the way back to J.S. Mill (one of those thinkers that libertarians love – because they tend not to carefully read what he actually wrote, just taking a few high sounding statments here and there).

    J.S. Mill taught (in “On Liberty” and so on) that regulations on what people can sell and how they sell it were NOT part of the moral principle of liberty.

    The regulations might be a bad idea – but it was not a moral matter.

    At that mid 19th century point (with J.S. Mill – and “concede whatever is safe to concede” Walter bailout-the-banks Bagehot) 19th century British liberalism was crippled.

    And it is still is crippled.

    Remember – most journalists (in the Western world) would consider themselves “liberals” and hold that they are in favour of “freedom” and “liberty”.

    But, to them, this has nothing to do with keeping down government spending – or with opposing regulations on “big business”.

    So freedom dies.

  • Johnathan Pearce

    It is fraudulent to legally pledge to do something you are completely incapable of doing.

    Well of course. Which is why, in a free market, a bank that operated on a fractional reserve basis, without state-backing and the benefit of legal tender laws, would have to be honest about that fact. Any person would still deposited money in such a bank would have no grounds for subsequent complaint if there were a crash. As I said, so long as the FRB status is openly advertised, and the risks explained, I see no fraud if it takes money from consenting parties. To ban such a thing is just a form of paternalism.

  • Paul Marks

    In practice I do not think it matters J.P.

    Franctional reserve banks demand such things as a ban on discounting their debt paper (as with the National Banking Acts of the 1860s in the United States).

    “Suspensions of cash payments” – backed by government courts (in defiance of contracts).

    And, of course, lots of lovely (and often hidden) bailouts…..

    As pushed (in his pathetic “moderate” way, for the man was not even clear in his wickedness) by Walter Bagehot.

    Deny them these things…..

    And have a government that has a balanced budget (a real one) and takes in money into an independent treasury and pays it out in direct spending (REAL “pay as you go”) as President Martin Van Buren (the only professional banker to ever be President of the United States – and the President who was most oppsed to getting EITHER a “national bank” or State level “pet banks” involved with government) enforced………

    And the problem will take care of its self…..

    “What do you mean – the problem will take care of its self….”?

    Simply the Fractional Reserve Banks will all go “bankrupt” and one will not need to ban them.

    “But that will cause utter horror”.

    Of course it will – with a financial system (and economy) as twisted as ours is.

    But that is going to come anyway.

    After all the “Shadow Banking” sector alone is 370% of GDP in the case of the United Kingdom.

    Translation for people who do not quite understand what that statistic means.

    You do not have to worry about the future of the British economy.

    Because it does not have a future.

  • Paul Marks

    A few hours after a I wrote the above comment, I read a book review in you-know-what.

    The book review noted (with approval) that the author of the book proved that banks do not have to pay what they have CONTRACTED to pay (in this case gold – but it could be anything), because a government court in New York in the 1850s.

    That is the menality we are dealing with.

    A mentality that says that banks can create credit bubbles and break contracts.

    And everything is O.K. – if a government appointed court says it is.

    Not only is this system going to collapse.

    I am not even sure that I care.

  • Alisa

    This extreme level of regulation may reduce competition(although is simply not true to say that it gets rid of competition), but the costs imposed on most business enterprises (including the largest) are vastly greater than any gain they may have.

    It does get rid of competition, Paul. Competition does not consist of other existing players in a certain industry or sector of the economy. Rather, the essence of competition is the possibility of new players entering that industry or sector. An industry can have a number – often a very large number – of players, and yet lack competition due to high levels of regulation, while another industry can have very few players and yet be very competitive, because the lack of regulation keeps the existing players on their toes at all times, for fear of entry by potential new competitors.

    Yes, the overt material costs imposed on businesses by regulation are great and may even outweigh the overt material gain of lack of competition – but there’s another gain that is more covert: relative predictability, which can be very much difficult to come by in a truly free market. It is much easier for most businessmen to deal with government officials than with unknown, dynamic and hungry new entrepreneurs who may out-smart, out-innovate and out-bid you at any time without any prior notice.

  • Paul Marks

    New companies can enter the market Alisa – and they do. The regulations make it harder – but they do not (yet) make it impossible.

    Nor do the “libertarian” left really want to get rid of the regulations – on the contrary, they want to increase them

    They march in the same demonstrations as the rest of the left – demanding more regulations on ….. (well just about everything).

    Taking us back to press freedom.

    Demonstrations IN FAVOUR of censorship (for this is what this is really about – things like “hacking” are already illegal).

    But no demonstrations in favour of freedom.

    The sort of people who “take to the streets” do not tend to be pro freedom types – although, of course, they shout the word “freedom”.

    How do they resolve the contradiction?

    The contradiction between what they demand and their supposed devotion to freedom.

    Easy.

    They say the existing world only offers “freedom for press barons and vast corporations”.

    Whereas they (although they do not admit this – not even to themselves) want freedom for, no one at all.

    Of course what they say IS NOT TRUE.

    Paul Staines (Guido) set up his website without being a “vast corporation”.

    Indeed it is exactly those regulations that are supposed to “protect competition against the vast corporations” that would prevent him doing so in future.

    Not only are we dealing with something that is not true (government action is needed to fight the “monopoly” or “cartel” of the “vast corporations”) we are dealing with something that is very close to being the exact opposite of the truth.

  • Alisa

    New companies can enter the market Alisa – and they do.

    I am not informed enough about the US specifically, but even there I imagine it would depend on the industry. For example, how easy is it – or is it even practically possible – to open a new bank in the US?

  • Laird

    I can answer that Alisa: impossible without government approval, which is very difficult to get. For some reason our regulators go out of their way to prevent new capital from entering the banking system. One would think they’d like to attract new capital (most of our banks are undercapitalized, and enhancing their capital base would help protect the deposit insurance fund), but their actions are quite the opposite. Go figure.

  • Paul Marks

    Banking is special – although not for the reasons the establishment say it is.

    For example, when I heard that Mr Branson was going into banking in Britain my first thought was not “good more competition” it was “oh no – another enterprise signing up for the Bank of England gravy train”.

    It is much like “deregulation” in the financial services context.

    Deregulation of the “Thrifts” in the United States just meant more demented enterprises doing crazy things (indeed HAVING TO DO CRAZY THINGS – because if they did not they would be outcompeted) because if they did the banks (backed by the government) would outcompete them.

    Then (under Clinton) the banks were “deregulated” – which meant they could engage in even wilder antics than did before.

    “Deregulation” is not a good thing if the government gives your customers a promise that it will protect them from losses.

    That means you have to engage in wild speculation – or you lose those customers to those who will engage in wild speculation.

    “Does that mean that those who supported first the deregulation of the Thrifts and then, some years later, the banks were mistaken?”

    IN THE CONTEXT OF GOVERNMENT SUPPORT – yes.

    And government support includes support (open and hidden) by the Federal Reserve.

    It is a bit like deregulation of the roads – whilst keep them under government ownership.

    Think about it.

    No government rules – but no real private ownership either.

    Drive while drunk or stoned – the owner will not care (because the government is the owner – and it says it does not care).

    Drive on the wrong side of the road – ditto.

    Drive at a hundred miles an hour on the wrong side of the road – ditto.

    Drive at a hundred miles an hour, in a built up area next to a school, on the wrong side of the road, whilst drunk and stoned – ditto.

    “But no one would support such insanity”.

    Actually the de facto controller of the British “Libertarian Alliance” did – get rid of all government regulations even if the roads were NOT privately owned.

    And this is the same as the finacial services industry being “free” without true private ownership – i.e. without the government Central Banks (and so on) being got rid of.

    Freedom only works if people have to take the consequences of their actions.

    Not if the government prevents these consequences (such as bankruptcy – REAL bankruptcy) taking place.

    In a “profit and loss” system – the “loss” bit is at least as important as the “profit” bit.

  • Paul Marks

    Tim Congdon.

    I remember him.

    Many years ago we dicussed fiat money.

    He accused me supporting the stagnation of China under the Ming.

    His chain of reasoning was as followers……..

    The Ming broke with fiat money – and China stagnated.

    This is all true.

    However, it breaks the legal oath thing of “the truth, the WHOLE truth, and nothing but the truth”

    By the “whole” truth is meant all the relevant truth.

    Prof Congdon left a few things in his attack.

    For example, that the Ming banned overseas trade.

    That they destroyed or de facto took over all large scale private enterprises.

    And they destroyed the market in land.

    My contention is that it was these moves (not the move away from fiat money) that led to the stagation of China.

    However, which ever one of us is correct……

    Most people know Tim Congdon better from the case of “Northern Rock”.

    The British bank that Prof Congdom insisted was “solid” even as it was falling apart. Very Irving Fisher 1921 (or 1929) – the “mainstream economist” denying both reason (the much despised “theory” of the Austrian School) and the evidence before his own eyes (i.e. the very “empirical reality” that such “practical economists” put up against the “abstract theory” they despise so much).

    Tim Congdon still insists that the only real problem with Northern Rock was that it did not get enough support (read corporate welfare) from the Bank of England.

    If that is “capitalism” then I can understand why people turn into Kevins – waving black flags and seeking to drink the blood of the “fat cat capitalists”.

  • Alisa

    That’s what I imagined, Laird. And there are many banks in the US – even after all the “consolidations” and “acquisitions”. Does that make for real competition? I don’t think so. OTOH, everyone likes to bitch about the “monopoly” Microsoft supposedly has, and yet the software (and, for that matter, hardware) market is nothing if not competitive – and not surprisingly, it is not regulated by any government. (Not yet, that is).

  • G.

    It is true that in a free market FRB banks would always go bankrupt, it is also true that the chaos this causes invariably leads to overwhelming political pressure to destroy the free market (shockingly enough most people do not like losing their money in a failing bank and their job in a busting economy). But that is not the point.

    If you put your money in a FRB bank they have contracted with you to redeem 100% of your deposit on demand; they also enter into the contract with the intention of lending your deposited money to someone else. These are the following possiblities:

    a) The bank has deliberately concealed this fact from the depositer, in which case this is a case of simple fraud, no different from any conman.

    b) The depositor knows, but still expects his withdrawal demands to met, as do other customers. In this case the parties have contracted to do something both metaphysically and physically impossible, involving two incompatible contracts (a deposit and a loan). The contract is thus meaningless and void, no transfer of property has occurred and the bank is guilty of embezzling.

    c) The depositor knows what is going and is aware that the bank cannot, in fact, meet its withdrawal demands. In this case the banker and depositor are engaged in a conspiracy to defraud the public by creating unbacked deposits (or banknotes before the Peel Act prohibited them). Both parties are guilty of countefeiting.

    Hence FRB should be illegal.

    Practically speaking, it is also fantasy land stuff to think that after 250 years of governments systematically promoting FRB, we can just go to “free banking” and wait for the public to learn its lesson. After 10 years of bank runs and short lived boom and bust, the demand for a return to central banking and monetary socialism would be irresistible.

    It’s a bit like the Libertarian argument for free immigration. On the one hand, as Hoppe has demonstrated, it’s theoretically unsound. More importantly, though, in the real world, the cause of liberty is not advanced by importing millions of people to give left wing parties permanent electoral majorities.

  • Johnathan Pearce

    It is true that in a free market FRB banks would always go bankrupt,

    Always? Want to bet on that? Seriously, is it really true that they would always, without fail, be bust at some point? That rather depends on the state of the economy, I should have thought.

    To repeat for the umpteenth time, if an FRB is honest about what it is and there is no deception, it is hard to see any more reason for banning FRB than banning someone from visiting a private casino.

    As for your argument on immigration, it rather depends on where the immigrants are from and their reasons for entry. And we have debated enough times about the issue that what counts is whether you have an extensive welfare state or not.

  • Laird

    G, all you’re doing is demonstrating that you don’t understand what free market FRB is. As JP says, there is no conflict if both parties understand what the terms of the contract are. If properly disclosed, people don’t have an absolute right to their funds back on demand; the bank merely has to promise to use its best efforts to repay it on request. But if the cash isn’t available because it’s tied up in longer-term assets there’s no breach. It’s important to keep in mind that deposits in a bank are not held in safe-keeping, as in a vault, but rather are loans to the bank, to be paid back in accordance with the contract terms. Those terms don’t have to include repayment on demand, and (if you read the fine print) generally don’t.

    The reason FRB works is that most people don’t want their money all at the same time. It’s pretty easy to determine what the cash requirements are, on average, then add some cushion and the bank will be solvent almost all of the time. The only time it won’t is if the depositors are concerned about the quality of its investments and all begin clamoring for their money at at the same time. And if the investments are sound it still isn’t a problem, as the bank can borrow against them from other institutions. It’s only if the investments are unsound (as with the last banking crisis) that things come to a head. Which is as it should be. That risk (especially if there is personal liability involved) keeps bankers sharply focused on credit quality. That’s how banking used to be, before essentially unlimited government deposit insurance, and how it should be again. The core problem isn’t FRB, it’s deposit insurance.

    If you want a custodian to safeguard your cash, that’s fine, but you should expect to pay for the service. But if you want interest on your money there’s always some element of risk involved. Your choice. But there’s certainly room for both types of transaction accounts in a free market.

  • Laird

    Sigh. Smited again. I guess I’m going to have to stop using certain words in my posts.

  • Laird: I wouldn’t do that. Change is coming very soon, so only a tiny bit more patience is necessary.

  • Laird

    Don’t worry, Michael, I wouldn’t know which words to eliminate anyway.

  • G.

    The reason FRB works is that most people don’t want their money all at the same time.

    Since FRB has never worked it seems a waste of effort to demonstrate why it works. In 19th century America (presumably what you are referring to) a reasonably free market in FRB just caused numerous short-lived boom and busts, in the end leading to unstoppable popular pressure for a central bank.

    De Soto deals with the law of large numbers argument that you adduce. Since FRB always and everywhere causes a boom-bust cycle there will inevitably be a periods when demands for cash withdrawals far excede the banks’ reserve ratios set for normal economic circumstances. Every single time this has happened without any exceptions banks have clamoured for bailouts and special legal privileges (“suspension of species payments”) and almost every single time they have got them. Dealing with FRB defenders is like dealing with unreconciled communists: it will work this time I’ve got a theory!.

    On the legal side of things, almost no-one has ever made a deposit in a bank on the understanding that the bank will pay them if it can. This is not the nature of the contract now, it wasn’t the nature of the contract in the 19th century or at any time. When people deposit money in the bank they do so on the understanding that they will be paid when they ask for it, period. I don’t see the point in debating an imaginary situation described by FRB theorists that has never existed and never will.

    Imgaine I make a contract with you with the following provisions:

    1) You will safeguard my cake
    2) You will eat my cake

    Quite clearly all we have done is sign a meaningless uneforcable contract and, quite rightly, if one of us brought the other to court over it, the judge would simply inform us that no contract recognised in law had taken place. This is all FRB is in the about 20% of cases where people know what the bank is doing but still expect redemption of demand.

    In the, say, 1% of cases where people don’t expect reputation on demand they are guilty of conspiring with the bank to counterfeit money every time they take their banknotes or debit card to a shop. The shopowner (unless he is just as much of a greedy fool as you) only acccepts your money substitute because he thinks it is redeemable on demand.

    In short, if you want interest on your money you have to exchange present goods for future goods, that is to say, you don’t have access to any of that money until whoever is loaned it pays it back. If you prefer, instead, to invest your money in an inflationary ponzi scheme then that is between you and your maker, but it is not something you can justify to others.

    Since currently it is illegal to bank with an institution that is not a member of the Fed, BoE, ECB etc. you have an excuse for keeping your money in a FRB bank, though if you were honest and sensible you’d withdraw it all and put it in a safe (excepting those moneys you want to actually invest or loan out). But trying to justify this appalling enterprise in principle is impossible.

  • Johnathan Pearce

    “If you want a custodian to safeguard your cash, that’s fine, but you should expect to pay for the service. But if you want interest on your money there’s always some element of risk involved. Your choice. But there’s certainly room for both types of transaction accounts in a free market.”

    Absolutely. In fact, in thinking through the sort of objections G is making here, it sounds similar to those who want to ban other consensual, if possibly unwise, transactions because there could be a broader impact on “society”, for example. (Consider how a lot of paternalists attack the right of consensual adults to take drugs, or watch naughty films, or drink to excess, pursue dangerous sports, etc.)

    And of course the response is, well, we don’t live in a pure free market so things such as FRB and immigration should be banned. If we operate on the basis that our society is less than fully libertarian, then of course you could justify banning practically anything.

    And this gets us back on topic: for all that the media itself is full of hypocrites and charlatans, that is no more reason for state regulation than the fact that any other walk of life contains its share of rogues and fools.