Japan is currently in the process of monetising its vast debt (in plain English, printing money). To get some scale of the issue, check out this following news report from the Japan Times.
Japan’s national debt hit a record-high ¥1.025 quadrillion at the end of March, up ¥33 trillion from a year earlier, the Finance Ministry said on Friday. The central government debt, which increased ¥7 trillion from the end of December last year, kept rising mainly due to ballooning social security costs in line with the aging population. The balance of government bonds, financing bills and other borrowings crossed the ¥1 quadrillion mark for the first time ever at the end of June 2013.
Here is a definition of what is a Quadrillion. Even at the dollar-yen exchange rate of one dollar buying 101 yen, this is a scary, but also barely comprehensible, sum of money. That leads me to the view that the public no longer can really get to grips with how massive debt, both in funded and unfunded, forms is, and indeed with the very notion that a lot of this debt is not even “on the balance sheet”.
“Indeed, it would be helpful if the climate scientists would tell us what weather pattern would not be consistent with the current climate orthodoxy. If they cannot do so, then we would do well to recall the important insight of Karl Popper — that any theory that is incapable of falsification cannot be considered scientific.”
- Nigel Lawson
For years, those of us who have supported mass migration, and believed in the social and economic benefits its brings, deluded ourselves. We conned ourselves into thinking we represented the majority viewpoint, and reacted with visceral anger towards anyone who dared challenge our cosy world view. And it was a disaster. We did shut down debate, which in turn created a political vacuum. One that was filled initially by the BNP, and is currently being filled by Ukip. But now the pendulum has swung back. With a vengeance. Where once everything was decried as racist, suddenly nothing is racist. Where every legitimate question about immigration was ritualistically dismissed as base prejudice, now every overt and coded racial, homophobic or misogynistic slur is deconstructed, and rationalised and legitimised.
- Dan Hodges.
He deserves credit for recognising that at one stage, a lot of supposedly right-thinking people wanted to regard anyone who challenged unfettered immigration as bigots, when they emphatically weren’t. And he’s also right that when genuinely vile sentiments are expressed, there is a sort of knee-jerk reaction from those who think of themselves as anti-Politically Correct to make excuses for such remarks. (We forget that there is a sort of right-wing version of PC group-think).
As a libertarian, I think it is always good to point out the following: Bigotry that is not backed up by state coercion (as in the apartheid regime in South Africa, Jim Crow in the US etc) is a cost to the bigot; the racist employer who refuses to hire those from certain groups imposes a cost on that business, and in a vigorous free market economy, bigotry gets weeded out over time as a result. Capitalism, and a widely dispersed system of private property, is arguably the greatest force against such attitudes that has ever existed. But I also don’t – unlike some libertarians perhaps – think it is enough to just follow the non-initiation of force principle and leave it at that. I do think that a healthy society, of the sort I want to be a part of, needs to have a critical mass of its population to be rational, tolerant and civilised. If, on the other hand, you have a society in which, say, the majority are none of those things, then even if such a society observes some of the forms of a liberal order, in practice it will be a pretty shitty place in which to live. In other words, culture, or call it what you will, does matter. A lot.
(Health warning: my quoting Hodges, who is a man of the Left, does not imply I agree with all of his views in the article I linked to.)
“Saving is mostly just delayed consumption, as generations of economists have taught, and the only way for capital to grow exactly at the interest rate is for nobody to consume it. Every bit of consumption pushes down the growth rate of capital.”
Garrett Jones, who has written a gently devastating review of a much-heralded book, Capital in the 21st Century, by someone called Thomas Piketty. The reason it is worth drawing attention to it is that this is the sort of book that you just know is going to get bandied about in the usual quarters as a source of supposed wisdom, when in fact its central contention is based on sand. In some ways, the claim that the rich get so proportionately rich that they gobble up the rest of us, so to speak, is hardly a new assertion. Piketty has repackaged it and added in new supposed facts to make the case.
Over to Jones:
There’s an extra reason to think that capital isn’t going to permanently grow at a faster rate than the overall economy: Piketty says it won’t. He places great weight on the mainstream economic idea that in the long run the natural tendency of market economies is for capital and the economy to both grow at the same rate, whatever that rate turns out to be. That “twin growth rate” might be high if population and technology are advancing quickly, or it might be low if both are in the doldrums, but there’s no inherent tendency for capital to outpace the economy forever, even when Piketty’s “central contradiction” of high interest rates holds.
The reason is simple. If the first machine is more productive than the second (i.e., diminishing returns), and if machines wear out and fall apart at a fairly predictable rate—a depreciation rate, in accounting-speak—then it’s a safe bet that in the long run capital and the economy will grow at about the same rate. Double the machines mean double the machines wearing out, so at some point you have so many machines (and houses and outdated software and office buildings) wearing out each year that a nation spends an enormous economic effort just replacing them. And of course if interest rates are high, business owners look for alternatives to capital (such as workers); private demand for capital thus shrinks. So growing replacement costs and the quest for cheaper alternatives both make it hard to imagine capital growing as far as the eye can see. I’ll spare you the math, but it’s getting harder all the time to see a central contradiction.
And then there is this paragraph, containing a nice little nugget:
But while Piketty’s contradiction is less an iron law and more a chalkboard speculation, there’s still plenty of room for class warfare in our future. A final way to see if capitalists are going to exercise unprecedented influence in the economy is to see whether their share of the economy is at unprecedented levels. Here, Piketty’s arduous historical research pays off. For the two countries for which he has data going back more than a century—Britain and France—the answer is clear: Capitalists are claiming a substantially smaller share of the economic pie today than they did in the mid-19th century. Back then capital income was a bit more than 40 percent of total national income. Now it’s a bit under 30 percent. So if capitalists—savers, landowners, entrepreneurs, and all the rest—are going to become a bigger deal in the future, they’ve got a long way to go before they’re at 19th-century levels. (Emphasis added to original.)
The author is fair in pointing out that there are useful insights in the book, although given that its central contention appears to be a crock, that is not a lot of praise.
A few days ago I had a bit of a rant about a UK-based academic, Danny Dorling, who among other things seems to be scathing about those academics who have the effrontery to challenge egalitarianism, at least of the sort enforced by the coercive power of the state. Dorling is that rather perplexing example of a certain intellectual: penetratingly sharp and illuminating on some issues (he is marvellous about population control characters and some of his statistics are very interesting) but flat-out bloody awful in his political economy. (He describes David Ricardo’s crucial Law of Comparative Advantage insight as “infamous”.)
As example of the latter, he writes about the implications of a decelerating population growth rate for retirement systems, such as tax-funded pensions and retirement ages:
“Retirement ages may have to rise, although if far more of us did useful work rather than working simply for the profit of a few others, retirement age need not be raised much, but we are going to have to learn to share better.” (Page 327).
When someone works to obtain something of value by providing something/service to another, it is called trade. Both sides are better off than they would otherwise be from doing this – they profit – since otherwise there would be no point in doing so. So, Professor Dorling writes a paragraph about “useful work” as if it is opposition to the notion of profit, not perhaps stopping to wonder whether the word “useful” is question-begging. Useful to whom? If I can write a news article, mend a fence, take packages to firms as a courier or work in a metal-bashing factory, all of these things might be useful to someone so much that they are willing to pay me enough to be worth my time and trouble, and profit me to that extent, and so on. It might be more useful for me, perhaps, to spend my time writing books about population, about how we should “share better”, and so on, but since these things might be thought of as totally bloody useless to others, I might have an issue in being able to make a living out of this unless I am lucky enough to not to have to earn a living with the free consent of my fellows. Luckily for Professor Dorling, who is paid a salary as an academic by the taxpayer, and who might also make a few quid selling his books and doing lecture circuits and so on, he can make a living, although we taxpayers might suggest that some of that money spent on supporting the lifestyles of this man might be more “usefully” employed on something else.
And that is the craziness of it. When a significant portion of the UK electorate is supported by the coercively funded payments of others who toil in the evil capitalist system, the former will contain people who, even if they happen to look and sound clever with their academic honorifics, be utterly ignorant of the most basic facts of economic life.
Discussion point: one of the Professor’s contentions is that highly unequal societies are far more environmentally destructive than egalitarian ones, although I find his reasoning a bit odd. (Correlation is also not causation). Surely, if you have a society where wealth is relatively evenly spread, but where people consume lots of stuff, that could be more destructive than a less equal one where people nevertheless had to be careful about the environmental costs of their actions. What Prof Dorling seems to be saying is that it is high levels of consumption that is the issue; some of his attacks on the mega-rich seem to be as much aesthetic as driven by environmental concerns. He also claims that unequal societies have higher birth rates than egalitarian ones – he may be right about that – but again, his contention begs the question as to why this is a bad thing so long as production is able to keep pace and if the standard of living of even the poorest person improves at a healthy clip. I cannot help but wonder whether Prof. Dorling is an egalitarian first and who wants to use the Green argument to bolster it. In other words, he is very much the face of the modern Left and different in many respects from old-style Marxists. What he has in common with such people is the unspoken – or even spoken – belief in the need for the supposed chaos and venality of the market to be replaced by the rule of people such as themselves.
I decided to pick up a copy of a book by Leftist academic Danny Dorling, called Population 10 Billion: The Coming Demographic Crisis And How To Survive It, while I was at the Hay book festival towards the end of last May. I wangled a corporate invite to the event and must say that I thoroughly enjoyed it.
Professor Dorling (Professor of Human Geography at the University of Sheffield, a former government advisor, Honorary President of the Society of Cartographers, etc, etc.) is eminent, although I hadn’t previously heard of him. And what intrigued me enough to buy his 438-page book is that the message, at least at first glance, seemed to be a refreshingly non-doomongerish one.
But… and there is a big “but”. Professor Dorling is perhaps sufficiently aware that being an anti-gloomster has its costs if you want to get on in academic circles, and certainly if you want to get lots of jobs advising policymakers about this or that disaster that has to be avoided by lots of state activity. And the ultimate nightmare for such a person is to be dubbed a “denier” and be put in the same bracket as the sort of lowlifes who deny mass murders of Jews in Europe and so on. And he certainly doesn’t want to be mistaken for any kind of apologist for capitalism and liberal free market economics. Oh good god, no! So rather than calling himself an “optimist” (terribly out of fashion) or a pessimist, he is a “possibilist”.
Now, Samizdata readers, you might think the preceding paragraph is a bit unkind. How dare I suggest that Prof Dorling says what he does due to worrying about his academic career and bank balance? Well, I might have been gentler on him had I not seen plenty of evidence from him about his desire to play the man, not the ball, so to speak.
To give some flavour of where he comes from, consider this:
“People who doubt that social inequality is a great problem can become exasperated when they cannot convince others of their views. When they find that their opinions are generally regarded as abhorrent and they cannot publish them in refereed journals, some turn to writing for right-wing think tanks and discover that they could in just a few weeks `knock out reports that would be presented at high-level meetings… and earnestly discussed in the press and in radio interviews. [They say] It was exhilarating to find an audience.’ Although it might be exhilarating for the former academic involved, it can be highly confusing for those who have to listen to half-formed ideas knocked out in a couple of weeks by someone who does not understand when their peers repeatedly tell them that there is a problem with what they are proposing.” (Page 130).
Prof. Dorling quotes Peter Saunders, who is has moved rightwards from the Left; he has committed the thought crime of casting doubt on aspects of British egalitarian post-war policy, and has ruffled feathers by a critique of a recent book in this area, called The Spirit Level. (You see Saunders’ website here to get a handle on just how much of a serious academic he is. His career has been every bit as distinguished as Dorling’s, if not more so.) There is something particularly nasty about Dorling’s words: the lazy, supercilious tone; the jeering claim that Saunders’ views and those like his are just blown together in a few days, and the assumption that anyone who challenges egalitarian ideas is “abhorrent” and therefore unfit to have their views published in peer-reviewed journals. It perhaps does not cross this man’s mind that because so much of modern academia has become an echo-chamber of the Left, that any academic with an ounce of independence of mind must go and write for some alternative institution in the hope of entering debate (as Peter Saunders did and explains in an account here of what happened to him.)
His book is full of ex-cathedra statements about equality. Much of his argument is that unequal societies are more wasteful than egalitarian, more tightly planned ones. He is very much a “watermelon” – green and red. Above all, Professor Dorling likes to get personal: For example, on page 5 he launches into the “Rational Optimist”, Matt Ridley, sneering that due to Ridley’s posh background and former chairmanship of the near-bankrupted Northern Rock, “it is not hard to mock his views”, but then goes on hastily to state “that they need to be taken seriously because they are part of the current mantra of many at the top of the tree.” Oh how jolly noble of him. If it were really the case that Ridley’s “rational optimism” is the dominant mentality of our government and its advisors, rather than the mishmash we have in the UK coalition government, I’d be much happier.
The ironies abound. Professor Dorling likes to play the high-level academic, but he also wants to take on views he disagrees with often by recourse to argument from motive. He wants to make out that he is an ultra-serious academic, but the book (which is a good read in some ways, if you can stand the bias) is full of such ad hominem digs at those he disagrees with; his discussion of nuclear energy, for example, includes suggestions that those who favour it are just motivated by money.
In other words, Professor Dorling is a bit of an arse. I want my money back.
Putin cracked jokes and the audience roared and applauded when an old lady asked him whether Russia would be taking Alaska back from America. Just imagine, though, how Russians would react if German Chancellor Angela Merkel did the same at during a German broadcast when asked about taking back the former German enclave of Kaliningrad from Russia, and then you’ll get a sense of how horrifying the exchange with Putin really was.
- Kim Zigfeld.
Creating more value in an economy would do more than wealth redistribution to combat the harmful effects of inequality.
- Tyler Cowen, in a review about a much-discussed book by Tom Piketty on the subject of inequality. Piketty favours a lot of heavy state activity to control and reduce said inequality. Now, it is easy to just default to the standard libertarian line and say that fretting about such inequalities is just an excuse for a statist power grab. The fact is that the sheer gap in wealth we can see today is a reason why, however mistakenly, idealistic, smart people are fearful of, and hostile towards, laissez-faire capitalism. So it is worthwhile to keep making the economic, philosophic, and political case for why coercive measures to reduce inequality is bad and dangerous.
I could not resist adding in this paragraph from Cowen:
The simple fact is that large wealth taxes do not mesh well with the norms and practices required by a successful and prosperous capitalist democracy. It is hard to find well-functioning societies based on anything other than strong legal, political, and institutional respect and support for their most successful citizens. Therein lies the most fundamental problem with Piketty’s policy proposals: the best parts of his book argue that, left unchecked, capital and capitalists inevitably accrue too much power — and yet Piketty seems to believe that governments and politicians are somehow exempt from the same dynamic.
Money buys success in football and several clubs now have more money than United. From 1997 through 2004, United topped the consultancy Deloitte’s “rich list” of European football clubs ranked by revenues. In 2012-13, United dropped out of the top three for the first time since Deloitte began compiling the list. Real Madrid, Barcelona and Bayern Munich now have higher revenues. Moreover, Chelsea, Manchester City and Paris Saint-Germain have oil-rich owners who pump money in rather than sucking it out. By the logic of the market that means there are six clubs in Europe more likely to win the Champions League than United. In the domestic league, by the same logic, the club’s natural position is now third behind Chelsea and Manchester City. (Less wealthy Liverpool will probably win this season’s Premier League, but their overachievement is probably unique in recent English history.) United’s biggest problem isn’t David Moyes. It’s money.
- Simon Kuper, writing about the sacking by Manchester United today of David Moyes, manager since last July. Kuper, who writes in the Financial Times, has also co-authored a study examining the linkages and correlations between success on the field and money in the bank. Short summary: the link is very strong but not totally bomb-proof. (In other words, if you support a relative minnow as I do, you can still live in hope.)
Assuming this data is accurate and sustained (a big assumption, and the usual caveats must apply), this sort of item is going to make the nanny statists out there feel very uncomfortable:
In recent history, the UK has liberalized its rules concerning the hours that pubs can operate. For example, the Licensing Act of 1988 expanded Sunday hours and no longer required pubs to close for two and a half hours in the afternoon. In 2005, the law in England and Wales was further liberalized such that pubs could remain open until 5 am instead of closing at 11 pm. An article in the latest issue of the Journal of Health Economics claims that the 2005 liberalization of pub hours actually decreased the number of traffic accidents.
So writes James Schneider, over at the Econlog economics group blog.
Here is another excerpt:
The reduction in traffic accidents for England and Wales are plausibly related to the change in pub hours because the largest reductions occurred during weekend nights and early mornings. The impact on young drinkers was particularly strong. Accidents involving young people on Friday and Saturday nights decreased by an estimated 32.5 percent.
So there is evidence, perhaps, to confirm a general, common-sense sort of view that if you treat adults like adults, they behave accordingly. It is interesting that the message of this article is as troubling for the paternalist Right as it is for the Fabians on the left. I remember reading some time ago the author Theodore Dalrymple, who has made something of a name by lamenting the alleged ghastliness of modern life in the UK, reticent past, having a pop at liberalised pub hours. The Daily Mail, for example, regularly has a go and rarely fails to write stories about how we Brits are living in a sea of booze.
And yet it turns out that there has been a coincident sharp fall in road accidents on one hand, and looser licensing laws, on the other. It should be borne in mind, though, that recent years have seen a continued strong enforcement of drink-drive laws; police are pretty tough on speeding in general; there may be, for demographic reasons, just fewer tearaways on the roads in general. On the other hand, our island is more crowded than it used to be and our roads are busier, so you might think there would be more risk of accidents, not less. And yet the number of accidents, including fatal ones, has fallen.
Correlation is not causation. It is, however, worth noting that had the number of road accidents risen significantly at around the same time as our drinking laws had changed, I think I can imagine how organisations such the British Medical Association, The Lancet, and other campaigners would have used such sets of data.
Nicholas Dykes, someone I have known for many years, and who is the author of several excellent novels - as well as essays such as this pugnacious and scholarly piece about Karl Popper - emailed me the other day to make it clear that his absence from the airwaves did not mean that he was no more.
Over to you, Nick:
Sorry I haven’t been in touch. I had something called a subarachnoid haemorrhage, a rarish kind of stroke, at 6.30 am on Sunday 24 November, falling on the floor in front of my wife and making horrible noises in my throat. Happily she’s good in a crisis and with the help of a kindly neighbour had me in an ambulance pdq. I was taken first to Hereford, then to a new Hospital in Birmingham, the Queen Elizabeth, where I was operated on next day. The NHS has its moments.
I had 2 operations. Then I got pneumonia. Then I got an infection of the brain called ventriculitis. Some cheery medic said at one point I’m lucky still to be here. I was in and out of Intensive Care, five weeks in hospital altogether, then had to go back in again with a mini stroke called a TIA just a few days after being let out.
Anyhow, I’m home again now and recovering slowly. I was weak as a kitten to begin with, slept a lot, and had great difficulty with my balance — very wobbly walking. Things are better now but my short-term memory is not too good. Happily, my speech is alright and I have not been left with any physical disabilities other than weakness, which should improve. I do have a handsome scar on my forehead however, it looks as though someone hit me with a axe.
My poor wife Rachel had a miserable time for weeks, not knowing how I’d be from day to day and with tubes sprouting all over my body. As for me, I was largely unconscious and remember very little! When I first woke up and was told what had happened, all I said was: ‘what a bugger!’
The best of recoveries to you, Nick.
This is from that haven of supercilious argumentation, the Financial Times:
Only The Ignorant Live In Fear of Hyperinflation. (Paywall protected). The article is by Martin Wolf, whose confidence in the benign force of central banking remains undimmed, nay, is enhanced, by the events leading up to and after 2008.
Here are a couple of paragraphs that I can extract for you:
Understanding the monetary system is essential. One reason is that it would eliminate unjustified fears of hyperinflation. That might occur if the central bank created too much money. But in recent years the growth of money held by the public has been too slow not too fast. In the absence of a money multiplier, there is no reason for this to change.
In other words, if the ignorant masses can be told about how spiffing modern fiat money systems are and how they are managed, we’d be all a lot happier.
A still stronger reason is that subcontracting the job of creating money to private profit-seeking businesses is not the only possible monetary system. It may not be even the best one. Indeed, there is a case for letting the state create money directly.
Put the state in charge of increasing/cutting the volume of money in the system. I am sure that will work like a charm. What could possibly go wrong?
Okay, enough of my sarcasm. Now, it may well be that fears of hyperinflation are unwarranted. It is entirely possible that in the West, we face a Japan-style multi-decade period of stagnation rather than hyperinflation. The structure of the economy, even demography, can have an effect on how quickly/slowly money moves around the system. Despite various central banks – particularly in the case of Japan – printing money in vast amounts, it may be that we should not be concerned about what the State is doing, and continues to do, to money.
But it is worth noting that since 1971, when Nixon severed the gold link to the dollar, although that link had been dead in all practical terms for a while, the dollar has lost about 85 per cent of its purchasing power. And much the same can be said of the fiat money systems in force around the world. No doubt the FT thinks this is nothing to bother about. Weimar? No chance of that happening again, old boy. Too many clever people working in the central banks to let that happen again. Trust us, stop worrying and it will all come out in the end.
The irony, of course, is that people who tell us to stop fretting about the central bank buggeration of money and the need to put even more State control over all this are the same as those who say it is folly not to be scared witless by AGW, or by whatever fashionable panic happens to be out there (particularly when it is associated with calls for governments to “do something”). But if people are fearful of something caused by states with their monopoly powers, then the FT’s reaction is a typical example of what we get.