Globalization & economics Archives

Tuesday, July 01, 2003

As part of my continuing vow to be as nice as humanly conceivable towards our neighbours in France, I refer the readers of this blog to the following news item, purely for the purposes of conveying information, and not out of any desire to gloat over, denigrate or otherwise annoy the French.

Harry Potter has cast such a spell over the French that they are snapping up JK Rowling's latest book in English, rather than waiting for the translation.

[...]

"It's not exactly going to please the anti-globalisation movement," noted literary magazine Livres Hebdo, which compiles and publishes the bestseller charts.

Heh.

"The truth about market liberalisation and economic growth is not that it increases inequality, nor that it hurts the poor: just the opposite. Rather, the truth is that some large parts of the poor world are pulling themselves out of poverty while others are not."
- The Economist

The quote is taken from an article in the Economist marking that publication's 160th birthday. The Economist, even though it occasionally annoys me with its smart-ass tone, has been a fairly consistent voice of pro-free market liberal good sense since it first went to print in the Victorian age. It is worth clicking on the link and looking at the related articles in a whole series which the Economist devotes to celebrating liberal ideas.

And by "liberal", I mean the word that would have been worn as a badge of pride by William Gladstone, Adam Smith or Milton Friedman, rather than those collectivists in drag in the U.S.

Happy Birthday, Economist!

Sunday, June 29, 2003

I really must try to set aside some time to further develop an idea I have for a 'Lefty Street Demo Reality Conversion Chart'. I have in mind a handy reference source can be used to translate ludicrously inflated attendance figures for lefty protests into actual numbers that the rest of us would recognise. For example, whenever you read of 'hundreds of people' at some lefty demo, simply look up the this figure on your handy conversion chart which will give the real figure of '50'. Similarly, 'thousands of people' converts as '150', 'tens of thousands' means '500' and so on.

I better get a move on with this project in order to answer the urgent market need because the buggers have been at it again this weekend:

Thousands of campaigners across the UK are taking part in a marathon lobby of MPs and a series of protests this weekend to call for a shake-up of global trade rules.

The mass demonstration Scale Up for Justice is calling on the government to put pressure on the World Trade Organisation to rewrite its laws in favour of poor countries.

Any idea what they mean, precisely? Well, the organisation behind this latest round of muddle-headed, sandalista squawking is something called the Trade Justice Movement and, if their website is anything to go by, they appear to be long on rhetoric but remarkably short on details.

According to the TJM:

Together, we are campaigning for trade justice - not free trade - with the rules weighted to benefit poor people and the environment.

No mention of what constitutes 'justice' nor what 'rules' they have in mind.

But they are calling on world leaders to:

stop forcing poor countries to open their markets; and champion their right to manage their own economies

In other words, keep our pet wogs in poverty.

regulate big business and their investments to ensure people and the environment come before profits

Employ fictional rubrics in order to stamp out wealth creation.

stop rich countries promoting the interests of big business through trade interventions that harm the poor and the environment

If they really wanted to help the poor they would campaign against trade interventions altogether.

ensure trade policy is made in a fair, transparent and democratic way

Complete political control over the all the means of production, distribution and exchange.

Reluctant as I am to say anything in their favour, they do seem to have the dead needle to organisations like the World Bank and the IMF which is fine by me. However, they see them as engines of global capitalism and people like me see them as facilitators of kleptocracy, corruption and fiscal mismanagement. Thus the enemy of my enemy is not always my friend.

I do believe that this is the latest incarnation of the ex-anti-globo movement and I use the prefix 'ex' because they have clearly decided that they cannot stop global trade so they might as well campaign for the right to control it. Doubtless the penny has dropped that deploying a small army of teenage maoist droolcretins to trash the local Starbucks is not the best way of getting their message across and that they need a more respectable front in order to be taken seriously.

But their real problem lies not with the tactics or the appearance but in the agenda because behind all the circa.1860 marxoid rhetoric and lofty monbiotic nostrums, what they really want is global socialism, a world-wide soviet, Cuba writ large. If I was given a choice, I'd stick the banker-crats of the IMF.

This is why they have to remain so silent on detail because the details are truly scarey. There is no way that a few eye-catching gimmicks and roped-in celebrities are going to make their bitter pills any easier to swallow.

Friday, June 27, 2003

When reading about the many and disparate anti-globalisation activists who protest against international trade, one often gets the impression that the writers discussing their antics think that what motivates these folks is a relatively new phenomenon.

Not so. The desire to replace free trade with politically controlled and above all, domestic trade has long been a central aspect of collectivism of all flavours.

Adolf did not much care for global trade either

At its root, all forms of collectivism have more in common than its supporters might be comfortable admitting.

Thursday, June 26, 2003

Johnathan Pierce did a piece on Tuesday about this book by Tyler Cowen. And if you follow that link to amazon.co.uk you find that paragraph one of review number one goes like this:

A Frenchman rents a Hollywood movie. A Thai schoolgirl mimics Madonna. Saddam Hussein chooses Frank Sinatra's "My Way" as the theme song for his fifty-fourth birthday. It is a commonplace that globalization is subverting local culture. But is it helping as much as it hurts? In this strikingly original treatment of a fiercely debated issue, Tyler Cowen makes a bold new case for a more sympathetic understanding of cross-cultural trade. Creative Destruction brings not stale suppositions but an economist's eye to bear on an age-old question: Are market exchange and aesthetic quality friends or foes? On the whole, argues Cowen in clear and vigorous prose, they are friends. Cultural "destruction" breeds not artistic demise but diversity.

So globalisation is good, culturally as well as economically. But the Saddam Hussein reference does rather make me want to rethink my attitude to My Way. This song may indeed be a hymn of praise to individualism and individual liberty, but Saddam Hussein wasn't (and still isn't?) averse to individualism and individual liberty – he was/is after all an extremely liberated individual – provided that it's his individualism and individual liberty he's singing about rather then anyone else's. The "My Way" critics would appear to be vindicated.

But although bad news for anyone who thinks that only Hayekian liberals sing this song, this is not exactly good news for collectivists either, for when someone like Saddam sings this song, he is ramming home the lesson that collectivism, rather than installing any sort of collective virtue into power, merely ensures the triumph of all the vices of one vicious individual, who ends up doing everyone in, and doing it "my way". You have to admit that the world's nastiest despotisms devise their own uniquely ghastly ways of killing and torturing people.

And now, the end is near;
And so I face the final curtain. …

Concerning Saddam, let's hope so.

Tuesday, June 24, 2003

Most defences of globalisation, as far as I have seen, have focussed on the essentially economic benefits of free trade, the free movement of goods, services and people. To date - and I may have missed something - there has not been much in the way of a cultural defence of globalisation. So I was delighted to come across this book a while back by noted culture and economics writer Tyler Cowen

He makes the important point that far from crushing local cultures and imposing a blanket of bland pap on us all, globalisation has often spawned a great deal of what we would think of as "traditional" culture. Using examples as varied as Navajo textiles to Caribbean music, Cowen nails the idea once and for all that globalisation means that the entire planet is going to turn into a MacDonalds fast-food joint.

What I particularly liked about this book was its positive, thoughtful tone. He spared us any tiresome ideological hominems about capitalism and the market. Instead, he shows how trade stirs up cultures worldwide, often producing marvellous and dazzling results.

A key theme also emerging from Cowen's study is that globalisation has in some ways vastly increased, not reduced, the diversity of cultural forms on this planet. When anti-globalistas like John Gray, for example, berate it, what I suspect they want is for the status quo to be preserved in the ways they like. They are often not all that interested in diverse cultures, more in a form of nationalism. What Cowen does is show the enormous benefits of modern fast communications, technology and speed of human contact.

I recommend this book very highly.

Monday, June 23, 2003

Amid the recent revival of the spectre of large tax increases, a simply splendid post by David Farrer pointing out exactly why the political classes need them:

The truth is that the welfare state is bankrupt and almost no one, not the Scotsman editorial writer and certainly not the Tories, is willing to say that the Emperor has no clothes.

And not just the British welfare state either. For all the robust free market rhetoric that frightens the piss out of European lefties, the American welfare state is in just as parlous a condition:

Are we really broke? The answer is clearly, YES, but living on borrowed time and money. A recent study was done by Jagadeesh Gokhale and Kent Smetters which measures our government’s current debts and projected debts based on the proposed federal budget and revenues for 2004. By extending the numbers in constant 2003 dollars, they have come to the conclusion that the Federal government is officially insolvent to the tune of $44 trillion.

According to Financial Sense Online (from whence the above quote is lifted) both Medicare and Social Security will be bankrupt by 2010 or 2011.

This is really the big, global, dirty, open secret: the 20th century welfare state constructs are lurching, creaking and on the verge of collapse. Yet, in polite circles, this looming disaster cannot even be discussed, let alone addressed. Such is the taboo status of the welfare state that most Western politicians would rather be seen to publicly champion child molestation than any serious reform agenda.

It is for this reason that the reactionaries are trying to float various methods for the state to plunder everything and anything they can in the desperate, febrile, frantic hope that they can put off the Day of Reckoning for just a few more precious years.

Friday, June 20, 2003

Andy Duncan has heard the voice of Metatron Peter Hain and he is pretty sure it may have been Hain's lips that were moving but it was Tony Blair's voice we were hearing

On the BBC Today program this morning, Labour Party Leader of the House of Commons, and Secretary of State for Wales, Peter Hain floated the idea of increased income taxes. As he's the semi-official Voice on Earth, for the internal workings of Prime Minister Tony Blair's mind, his attempt to start this 'debate' can be assumed to have been cleared by Downing Street.

Is this the last desperate throw, by an increasingly desperate Prime Minister?

In the interview, the BBC Radio 4 Presenter, John Humphrys, tried to press Mr Hain on this 'debate', but didn't get the minister further than saying the rich would be 'asked' to contribute more, for the common good of the public services.

Mr Hain refused to define what is 'rich', and refused to define how much income tax would be going up by, except to say it wouldn't be "punitive".

Mr Humphrys put forward the figures of £50,000 pounds a year as being the Labour Party's definition of rich, and 60% per cent income tax, as being a 'fair' contribution. Mr Hain did not refute these figures, merely avoided answering the questions in his self-styled 'debate'.

Given that Tony Blair hinted at more tax increases, earlier in the week in his Fabian Society speech, it seems he is ready to formally break his 1997 'pledge' to not increase income tax.

But does this really signal it's time up for Tony Blair?

Andy Duncan

Wednesday, June 18, 2003

The sharp eyed and attentive amongst you may have spotted the funky monkey that has appeared in the 'free market' section of our sidebar... we have acquired a sponsor!

But not just any sponsor.

The Gold Casino is an off-shore internet casino (obviously) in the most literal sense of the term. It is located on a server in the Principality of Sealand, a fully independent micro-state off the shore of Great Britain. Don't like the state? Go set up your own.

No I am not joking!

Well I did say micro-state, didn't I?

So take a peak at what our sponsor is offering by poking the funky monkey and check out their message via the link underneath the sidebar graphic. I assure you it is far more interesting that the usual marketing blather one is usually confronted with... you will see why we find them so ideologically agreeable!

It adds a whole new nuance to the term 'off-shore business'

Thursday, June 12, 2003

A new EU directive, that goes into effect on July 1, will require all Internet firms to account for value added tax, or VAT, on "digital sales." Computerworld reports how overseas Internet retailers may see their European profit push derailed by one of the oldest drags on business: tax.

The effect of the law will be an additional 15 to 25 percent levy on Internet transactions such as software and music downloads, monthly subscriptions to an Internet service provider and on any product purchased through an online auction anywhere in the EU.

The VAT tax is not new burden for European dot-coms that have been charging customers VAT since their inception. Their overseas rivals though have been exempt, making foreign firms an obvious choice for the bargain-hunting consumer. David Melville, general counsel of UK ISP Freeserve, a division of French ISP Wanadoo, rejoices:

It's a massive competitive disadvantage. It's good to see at last it being eroded.

Freeserve has lobbied furiously for the past two years to get the loophole closed, saying its chief rival AOL UK, the Internet unit of AOL Time Warner, saved 150 million pounds ($249.7 million) in tax payments over the years.

Shock, horror! How about lobbying the EU comissariat to abolish the internet sales VAT in the EU instead?! I thought not.

For example, on eBay, a UK seller will pay six pounds to list an automobile and 35 pounds for real estate, both 20 percent increases that include the UK's 17.5 percent VAT charge. Some analysts predict that the new tax will decreases sales in the short term, which will hurt American dot-coms such as eBay and Amazon, given their expectations of higher growth in their overseas business.

But European firms feel justice have been done.:

The old way certainly gave non-EU companies a leg up during a very crucial stage in the development of the market.

Please note the assumption that it is acceptable for governments to meddle with competitive markets and 'equalise the race'. The EU businesses behave in a way that is not surprising, they are happy to see their overseas competitors weakened, however, I fear their victory is rather Pyrrhic.

Wednesday, June 11, 2003

Last year I was annoyed when the government of Switzerland broke the last link between the Swiss Franc and gold.

I was annoyed as it was yet another defeat for tradition and decency in the world. Decay and collapse may be a process we have to go through to get to a position where people can rebuild - but that does not mean I have to like the process. But I thought the broken link would have little practical importance - as the Swiss Franc was (like all other currencies) basically a fiat (government command - token money) currency already.

It seems that I was quite wrong. The Swiss money supply (whether one measures narrow money or broad money) has been expanding like mad.

Not only are the Swiss powers-that-be expanding the money supply faster than the American powers are, but they are doing so faster than the British or even the European Union authorities. I have been watching the progress of the various money supply expansions via the back pages of The Economist for quite some time.

I wonder if the Swiss authorities are trying to get some temporary economic growth (via the standard credit bubble) in order to influence the elections in October?

Looking at reality (even the imperfectly measured expansion of money supplies) does make watching political debate quite a strange experience. For example, in Britain, virtually everyone talks of how the European Union Central Bank is following too 'tight' a policy - whereas in reality it is inflating the money supply more than the Americans or even the British are doing.

Both pro and anti Euro forces in this country are deeply ignorant of even the most basic facts.

I was just watching a report on early morning TV which was in itself a rather mundane piece about how the authorities in Britain are clamping (immobilising) cars which are stopped on the road and found to have unpaid vehicle tax. Yeah yeah, whatever.

But then came a remark which astonished me...

"Unpaid annual Vehicle Excise Duty costs the British economy millions of pounds per year"

Now without getting into the rights and wrongs of vehicle ownership taxes (as opposed to road use taxes), the implication is clear: money not paid to the state for the privilege of owning your own several property does not create wealth... only when that money is safely in the hands of the state does the British economy benefit. Note, the words use are not "costs the British state millions..." but rather "costs the British economy millions..."

And with that tax money taken out of private hands, the state creates a net gain in wealth how exactly? Hiring more wealth destroying bureaucrats? And of course that money you selfish tax dodgers have not paid to the state is going to be flushed down the toilet rather than being used for some alternative economic activity, right? Likewise immobilising people's transport because they have not paid an annual ownership tax, and thereby preventing those people making deliveries or getting to work, that does not British economy a penny, right?

Arrogance and ignorance in equal measure. The state is not your friend.

Wednesday, June 04, 2003

Although I am unlikely to be in a rush to join either of these organisations, today is a day a day I can say I am for once in agreement with their current campaigns.

Amnesty is campaigning against Castro's crackdown on dissidents. OK he might not change his ways just because you send a letter of complaint, but Amnesty also, rightly, reckons the US government embargo needs to go. More contact will weaken, not strengthen Castro. And anyway, if I want to go to Cuba, what business is it of the US government?

Oxfam has also been making some helpful noises on Trade for Africa, on CNBC in Evian one of their spokespeople rightly said aid did not matter any where as near as much as trade. The best thing for Africa would be an end to subsidies for American and European farmers. Their latest paper on the G8 summit has the usual nonsense about how poor taxpayers in the West should subsidise rich kleptocratic dictators in Africa through government-to-government aid, but also calls on G8 governments to...

Address the enourmous harm being done by the subsidies rich Western Countries pay their farm sectors to produce a glut of cheap food which is dumped on world markets, undercutting African farmers and robbing their livelihoods. To fight a war on unfair trade rules, the G8 countries should: Immediately stop using subsidies and export credits that cause over-production and dumping of surpluses in developing countries. Open their own markets to all products from Africa and other low-income countries.

Looks like the message is semi-seeping through to NGOs.

As for Bono and Oxfam's "Drop the debt" campaign, even a greedy capitalist like myself recognises that debts derived from old Cold War era geo-political bribes should not burden Africa's children. Time for a market-solution to the debt. Let the failed-states go bankrupt. Alternative, better, delivery mechanisms for education and healthcare can be created. Africa doesn't need corrupt governments and armies, it needs teachers and nurses.

Paul Staines

Tuesday, June 03, 2003

Those who look for symbolism as a guide to events might like to note that 'Evian' spelled backwards is 'Naive'. Whilst I would never suggest that that is anything except concidental I do reckon that even a casual observer of the latest G8 conference in that Southern French town would have noticed that idealism (to the extent that it ever existed at all) has given way to thorny realpolitik.

No amount of mutual backslapping and bonhomie can disguise the fact that this latest conference was little more than a cosmetic exercise in alleged unity of purpose where none, in fact, exists. Quite aside from the fact that US-EU tensions are hardly going to be settled by a couple of days of diplomatic chinwagging in the Alps, the early exit of George Bush illustrates pretty effectively where he feels his priorities lie:

President George W Bush was not present for the summit's final session on Tuesday, having left the previous day on the Middle Eastern leg of his foreign tour.

Nothing could illustrate more clearly that the Americans regard the Middle-East as a more pressing concern than the latest round of plaintiff appeals for 'international somethingorother' from the likes of Chirac and Shroeder. The former demands attention, the latter can be safely stacked in the pending tray.

But even aside from that, there are cracks which just cannot be papered over with reams of polite communiques. Even a left-of-centre and devoutly internationalist British PM is pressing for a different worldview than the one assiduously promoted from Paris. The result will be no single worldview at all.

I suspect that this G8 malarkey has had its day and not because of the travelling circus of the 'Great Unwashed' wreaking havoc and gutting town-centres in its wake, but rather because the reasons for its inception just no longer hold true. This annual round of global group-hugging was only important when it was felt (perhaps not unreasonably) that the interests of the world's great industrial powers were converging. They are not converging any longer and, if anything, they are diverging. This is not so much globalisation as polarisation.

This will likely not be the last G8 summit. There will probably be more in the future. But I suspect we have seen the last meaningful one and that the summits of tomorrow will be prove to be nothing more than an exercise in formality and politeness where the delegates exchange chit-chat whilst waiting for something bigger and more exciting to come along.

Thursday, May 29, 2003

I am all in favour of the recent decision by shareholders of European drugs giant GlaxoSmithKline to vote down a proposed 'golden parachute' payout to its chief executive in the event that he ever got the boot.

The payment would have been $36 million, and while I yield to no-body in my admiration for the capitalist system, it seems perfectly fair if the owners of the firm - the shareholders - felt such a proposal was going too far. A case of property owners using their property as they say fit. Of course, by 'too far' we are entering the field of subjective judgement. It seems a bit odd that in an age where few bat an eyelid at the sums earned by Formula One racing drivers or footballers, so many get riled at such payouts to company bosses.

In any event, we are going to see more examples of big groups of shareholders like pension funds getting upset about this sort of pay regime. One thing slightly bugs me in that some of these pension funds are increasingly being seen by anti-globalistas and similar-minded folk as ways of inflicting their views on the world. The buzzword out there is 'shareholder activism'. Let's be clear here. It is our retirement money at stake. By all means let's not vote in big pay rises for hopeless bosses, but tomorrow's pensioners need the wealth generated by good firms of today - and often that means hiring the best people.

And that sort of thing comes at a price.

Monday, May 19, 2003

It is becoming increasingly clear that Europe’s economic problems are a year or so away from becoming nightmarish.  The international economic establishment is getting worried, G7 finance ministers, the OECD and the IMF are making increasingly gloomy noises.  Deflation approaches like a glacier, slowly but almost impossible to stop without radical measures.  The ECB’s constitution is inadequate to deal with the problem. It is charged with holding down inflation and maintaining price stability, not with encouraging economic growth.

Inflation is not a threat, deflation is a real threat.  Japan has had 41 consecutive months with no inflation, Germany is going the same way pulling Europe with it. The US has abandoned the strong dollar policy in order to reflate, devalue its debt and cheapen exports. Consequently the Euro has now strengthed over 40% from its lows, adding to the woes of exporters.  Germany is mired in high taxes, social costs and rigid structural problems – Eurozone unemployment rates are nearly double that of the Anglosphere countries. Real interest rates (base rate – inflation) in the Eurozone are punishing compared to the US. Don’t even think about the unfunded pension problems.

So what does the ECB do? Nothing. Last year many people laughed when 90 year-old Milton Friedman joked that he would outlive the Euro. If the ECB does not re-invent itself as a growth orientated central bank, Milton may yet have the last laugh.

Paul Staines

Wednesday, May 07, 2003

Yesterday's post about the mean and stupid RIAA has created some debate in the comments section. And in the meantime, the RIAA has a few more nasty tricks up its sleeve. ZDNet reports:

Some of the world's largest record labels are quietly financing the creation of programs by small software firms that, if implemented, would sabotage the computers and Internet connections of people who download pirated music, according to a published report.

To those who argue that laws should be obeyed 'coz that's what they are there for:

Citing industry executives, The New York Times reported in an article that appeared on its Web site on Saturday, that the efforts bear varying degrees of legality including attacking a computer's Internet connection to slow or halt downloads and overwhelming distribution networks with programs that masquerade as music files. [Trojan horses and viruses]

To those who venerate the Constitution and let it inspire their opinions about the changing reality of copyright enforcement:

Last month a federal judge in Los Angeles ruled that file-sharing services Grokster and Morpheus were not guilty of copyright infringement.

If upheld, the ruling on Grokster and Morpheus could make it harder for the record industry to go after technology that allows people to trade files, provided the companies that offer such tools have no control over how their technology is used. As a result, record companies are going to have to find other targets for their legal wrath.

Perhaps legal intimidation, coupled with 'aggressive' technology may be effective for a while, but the 'problem' with technology is that somewhere, quite soon, one or more clever little buggers will find a way around it. Turning nasty to those who want to listen to music, i.e. record companies' actual markets, does not strike me as the best business strategy. Free markets mean that the players are able to freely satisfy the demand they identify. It does not mean violation of property rights and free-for-all but I cannot accept that is what the RIAA is fighting against. Their desperate efforts to recoup losses has far more to do with overpriced contracts with top chart artists, bloated marketing budgets and costly advertising wars about places in the very top charts that make the artists so expensive, than with any copyright infringements.

If you are a business in free markets and a new phenomenon emerges that may just jeopardise your distribution system (in this case, internet and P2P replacing CDs and other off-line media), you do not go around intimidating your current, former and potential customers. You find a way of accommodating that demand, adjusting your business model or finding an alternative way to satisfy it. That's free market to me!

As Michael Page, an attorney who represented the defendants in the Grokster and Morpheus case predicts:

It puts pressure on the labels to take seriously that the public wants electronic distribution. They're going to have to stop trying to figure out a way to make the Internet go away and figure out a way to use it.

Perhaps, unless you think you have enough muscle to try to curb the markets and customer behaviour and make sure that your oligopoly prevents any new entrants from making impact on the balance of power in the industry. Oh wait, that sounds just like the RIAA...

This debate is not exactly about copyright and intellectual property. The reason we are having it is that it is easier for the RIAA to go the route of legal intimidation and obstreperousness (the US is, after all, the land of lawyers) than giving in to more uncertain and painful pressures of market forces and customer demand. Oh, and of progress and technological development...

Note to our 'in-house' entertainment industry expert: Is this what you had in mind, Simon? Surely not.

Tuesday, April 22, 2003

There is no shortage of entrepreneurs who will assure you that the secret to business success lies in marketing. Who am I to argue? You may have a quality product but you won't make any money from it unless you sell it. Lots of it.

That is why I have a lot of respect for the people who devise marketing strategies. Producers can and do work hard to refine their product but the money doesn't go round nearly so well without the salesmen who tickle the fancy of potential buyers.

It is those strategies that I always find so intruiging. How do they identify the pople who might be interested in any given product and what things do they say to induce these people to actually part with their hard-earned? Oftentimes these strategies are subtle beyond subtle. Other times, though, they are screamingly obvious.

Whilst on a London Underground train coming home this evening, I noticed a poster campaign for a book by a man called Joseph Stiglitz which is called 'Globalization and its discontents'.

Now we all know that globalization does indeed have its discontents and they are mostly be found running around places like Genoa and Seattle waving 'Hammer & Sickle' flags. So I was unsurprised to note the sales strapline on the poster which read something like: "Will make you angry enough to want to march". How dreary, thought I. Here again we have yet another frothing-at-the-mouth marxoid rant designed to incite walnut-brained followers to throw incendiary devices through the window of the nearest Starbucks.

However, and interestingly enough, the book itself does not appear to live up to its firebrand sales pitch. If the Amazon editorial linked to above is anything to go by, the author actually appears to take a more (dare I say it?) nuanced approach to the entire global trade thing and he is even prepared to say good things about it:

"Those who vilify globalization too often overlook its benefits," Stiglitz writes, explaining how globalization, along with foreign aid, has improved the living standards of millions around the world.

Okay, I shall overlook the patent admiration for 'foreign aid' (transnational welfare) here. I said he was nuanced, I didn't say he was necessarily right.

But, the point is, that none of that comes across from the advertising which clearly seeks to pitch this as some sort of 'Nihilists Handbook' aimed at the smelly combat trousers/woolly cap brigade. Regardless of the fact that they might want their money back when they've read it, it is still a bit of a depressing insight for the rest of us.

After all, publishers want to make money (I assume) and advertising campaigns on the London Underground are quite expensive. The publishers (or the advertising executives) clearly take the view that there are enough of these people floating about to be considered a 'target audience' and hence provide them with a sufficient return on the investment.

Still, there is also a valuable lesson for anyone looking to earn some cash for themselves: get your marketing right, and there's a healthy profit to be made in the anti-capitalism business.

Saturday, April 12, 2003

Last night I saw pictures of the Iraqi Ministry of Economic Planning in Baghdad burning, set alight by 'looters'.

Memo to the Iraqi People:

If you want liberty, prosperity and a rational economic future, you now have a golden opportunity that you must not squander... DO NOT REBUILD THAT BUILDING!.

Thursday, April 10, 2003

I attended a conference on business ethics today. Interesting experience. The world's big investment houses, like the U.S. giant pension fund Calpers, are increasingly using their muscle to force firms to stop certain activities which they deem wrong - such as using child labour or wrecking the environment - and do more in other areas, such as cleaning up their accounting standards.

This is a big and growing area of business reporting and activity. I have mixed views about all this. On the one hand, I question some of the arguments used by folk to decry certain businesses as unethical, such as those which use child labour, for instance. If a shoe manufacturer hires 13-year-olds in Malaysia, for example, we rise up in horror. But the question that should be asked is, what else would these youngsters be doing if no such jobs existed? Would they be in school? In fact, when investors boycott firms which employ such youngsters, they may unwittingly be making life worse, not better.

Yet clearly, if people feel strongly about certain issues, such as preserving wetlands, avoiding pollution or boycotting the arms trade, for instance, there is nothing wrong at all in them using their economic power to do so. So long as they do not at the same time demand government coercion, one can have no complaints.

In fact, using the forces of the market to bring about outcomes which we favour is surely a good way for us gung-ho capitalists to show those often traditionally hostile to capitalism about how the market can be a force for good. A useful meme to spread, I'd have thought.

A lot of focus on corporate behaviour, of course, centres on how to avoid repeats of the collapse of firms like Enron and WorldCom. Avoiding fraud is, as several speakers at today's conference suggested, incredibly difficult. What is clear, however, is that in today's increasingly service-orientated economy, one of the most valuable things a firm has is its reputation. Reputations take a long time to build but can be destroyed in days. Take the collapse of accountancy giant Arthur Anderson, which fell soon after its involvement with Enron's accounting scams was disclosed.

And this surely rams home another good meme from the libertarian side - if you want to pursue self interest and achieve wealth, then being ethical about it is not a luxury which only the rich can afford - it is a brute necessity.

Maybe we all need the occasional Enron event to remind us of that fact.

Wednesday, April 09, 2003

After watching the thrilling news from Iraq... back down to earth with a thud:

Chancellor Gordon Brown's budget... the long version of Brown's 'New Labour' drivel can be found here.

The short form:

1. More money for defence and security (the state's only legitimate role)

2. More socialist 'social fairness' and less economic freedom

3. More regulation and a clamp down on theft-avoidance schemes

4. More wasteful public spending and a big injection into the idiotic NHS

5. More tax on sinful things because the state knows what is best for you

6. Britain's economy is growing and Gordon is going to continue chucking spanners into the machinery until it ain't

Oh joy.

Sunday, March 30, 2003

This is not a blog about whether the war was a good idea or not (for better or worse the choice has been made, and it is too soon for any historical analysis). Nor is it a blog about how the war should be fought - I do not have access to all the military information and I am not a soldier anyway.

My concern in this. Will the war get the blame for the coming economic downturn, thus diverting attention from the real cause?

For 30 years most newspapers, television and radio shows, economics textbooks and other such have blamed the failure of the Keynesian system in the 1970's on the "Oil Shock".

The fact that wage and price controls were introduced in the United States in 1971 and in Britain in 1972, whereas the 'Oil Shock' was in 1973 is overlooked. The idea that one can just pump up the money supply to hold down unemployment was clearly coming under strain (hence the effort to deal with the price rises, caused by the monetary growth, by direct controls), but then the "Oil Shock" came along to give the establishment an excuse for the failure of their system.

A similar thing could happen again. There is a vast credit bubble out there (in most Western nations) - the great majority of credit-money is not backed even by paper notes (let alone by anything else) and we are due for a big bust that will hit asset prices hard.

We have seen some of this already (with the decline in stock markets) - but there are a lot more problems to show up yet.

However, now the war has come - thus giving the establishment an excuse. "There is nothing basically wrong with the system, it was the war that messed things up".

I know that it is cold to write about such things when people are dying - but it still has to be thought about.

Friday, March 28, 2003

On March 28, 1797 Nathaniel Briggs patented a rotary clothes washing machine, thereby doing more for female liberation than any bunch of screeching, anti-male, feminist harpies you could name.

Thursday, March 06, 2003

On March 6, 1950 the first egg of Silly Putty was sold.

Wednesday, March 05, 2003

British taxpayers it seems, are not very clued up about the upcoming raids on their wallets, according to this article.

A recent survey showed a high number of ordinary investors do not know that dividends paid out on equity ISAs (tax-free plans which are a bit like 401K plans in the US) will be liable for tax from next April. Brilliant. The government launches a tax-free investment scheme to get us folk to save and hey presto! - whacks us for tax a few years' later!

The background to all this, of course, is the ongoing slow-motion car accident that Gordon Brown's stewardship of the British economy is beginning to resemble. Brown has enjoyed about four to five years of a relatively muted press, outside of the most partisan ranks, a flourishing economy coming off the back of the 1990s boom and the Tory reforms.

Now it is going horribly pear-shaped. It would of course be grossly unfair to pin all this on the dour-faced Scot, but his reckless jacking up of spending last year, even while stock markets were cratering, has proven a gross folly. His star is waning. My guess is that if PM Tony Blair does fall because of the Iraqi crisis - and I pray he doesn't - then it is far from certain that Brown will inherit the keys to 10 Downing Street.

But lest I be accused of partisanship (perish that thought), I should add that the Tory Party's MPs, such as shadow Chancellor Michael Howard, have not exactly raised the decibel count over such matters as the tax on savings or else. The party is still seemingly wedded to the idea that if they mention tax cuts they'll be accused of letting Granny starve in the streets.

If any Tory party readers off this blog want to correct me on the above, I'd be delighted to see it in the comments section.

Monday, March 03, 2003

The naval might of Switzerland has prevailed. A country with all the maritime traditions of Outer Mongolia, Iowa and Chad has prevailed where 152 years of British endeavour have failed. The America's Cup, a trophy given by Queen Victoria to promote yachting in the English Channel, and which has never been won by a British team has now changed hands from the USA (1851-1983 [No, that isn't a typo!], and 1988-1995), Australia (1983-1988), and New Zealand (1995-2003). And now Switzerland.

The main priviledge for the winner, apart from collecting a silver trophy named after its first winner, the schooner America is to get the right to host the next challenge, which is now expected to be in 2007. As this has to be on seawater, there is a little problem. Switzerland is about 450 miles from the nearest coastline. So the defence will probably take place in the Mediterranean or on the Altantic coastline of France.

It's all very jolly for Ernesto Bertarelli the Swiss owner of the Alinghi team, for Russell Coutts the New Zealander skipper hired to beat his former team mates. So why no British success. Until the 1970s, no one else but the British even challenged the New York Yacht Club. The explanation I offer explains why Italian and now Swiss challengers have emerged, despite no obvious historical tradition for this sort of contest.

In the first place, British ship design has been poor since the day that King Henry VIII watched his newly launched flagship the Mary Rose, capsize in Solent. Admiral Nelson is well known to have preferred a captured French frigate to the Admiralty's own designs. At the battle of Jutland in 1916, inferior ship design was responsible for the destruction from one hit each of two British battle cruisers and only the desperate (and dying) actions of a crew member saved the flagship from suffering the same fate moments later. At the same battle the only German loss was a cruiser which had taken over one hundred hits and was scuttled. During the pursuit of the Bismark in 1942, the largest British ship ever built (later overtaken by the Vanguard) HMS Hood took one hit from the German battleship. Three out of 1,300 crew survived as the Hood simply blew up. During the Falkands war (1982) it was discovered that the British frigate hulls were so thin that one Exocet missile would melt a whole section of it, and the anti-aircraft missiles didn't work.

Whenever a foreign government (Japan, Tsarist Russia etc.) has decided to build a navy, it has nearly always considered buying British. Yet having taken a look at what British shipyards had to offer, they almost invariably bought German, French or (before steam) Dutch. If the State Department will let them, they'll buy American.

Second, status. If one country could combine public money and individual talent to produce a succesful America's Cup challenge, it is France. Many of the yachting and long-distance windsufing records are held by French, especially Breton sailors. This is nothing new. Jean Cabot who landed in Newfoundland to secure the first English presence in the New World was French. Many of the place names hundreds of miles upstream in the US have curious names: Pierre, Des Moines, Boise to name but state capitals. The supreme British yachtswoman Ellen Macarthur is far better known in France than in the UK, indeed she seems to sail in French ships most of the time. When Macarthur completed a solo round the world trip a couple of years ago, the French president travelled 500 miles to welcome her ashore. I think the local British consul might have been on duty.

Third, taxes. Yachting is a rich man's toy. To compete in an America's Cup challenge, you need a cool $50 million to even think about taking part. You need a crew that's incredibly strong and intelligent, neither feature being the sort of thing a comprehensive education is designed to produce. You also need to be able to hire the best at top rates, again more money and dynamic management. The result is that only big corporations, very big family businesses and governments have the money for this sort of enterprise.

Britain has plenty of corporations and government, but not a lot of family businesses in the billionaire bracket. The main blame for this is taxation. 'Inheritance Tax' or 'Death Tax' as I prefer to call it, whacks 40 per cent of capital from one generation to the next. One of Britain's cutest institutions the National Trust was actually created to manage the property confiscated through taxation from Britain's wealthy families, hence all the stately homes one can visit. Luxembourg has no Death Tax, I imagine that Switzerland's can't be very high and the Italian situation can't be too harsh (one way or another).

Taxation also forces savings into distorted investment patterns, what the Austrian economists call "malinvestment". In Britain we have wonderful private and corporate pension funds able to provide a far higher proportion of our old age needs than any other European country. Of course this means that there are virtually no family businesses of large scale in the UK, unlike France, Italy, Germany, Switzerland. everything is owned by the funds and administered by fund managers.

It is obvious that board-room politics and being the skipper of a racing yacht don't mix, the best model on a ship is top-down autocracy. Politicians acting via bureaucrats also don't make very good skippers either, except perhaps in wartime. But a family business that can throw a hundred million away from time to time has exactly the right focus to make a success of a racing team. Witness the Grand Prix Formula One racing dominated by the late Gianni Agnelli's Ferrari team. Yachting is the same. So too was aeronautics before the 1950s.

So for land-lubbers like myself - and most Swiss people - the America's Cup has a curious function. It is a barometer of enterprise around the world. One of these years I expect to see a private challenge from Russia or China, now what an indicator of social change that would be.

Thursday, February 20, 2003

Do economists have much to tell us about war, terrorism, interventionism and the pros and cons? It strikes me that there is a bit of a dearth of stuff on this area from the libertarian-orientated economics camp, though I would be very happy to stand corrected.

After all, if we are going to invade Iraq as part of a grand strategy to bring liberalism, prosperity and free internet access to the Middle East, does this not in a way smack of the kind of hubristic utopianism which the likes of F.A. Hayek warned against when applied to socialism and central planning?. Do issues of defence and foreign policy inhabit seperate intellectual universes from business?

Discuss.

Sunday, January 26, 2003

The best known free market economist in Britain after World War II was not F.A. Hayek (who taught mainly in the United States and then Germany), but rather John Jewkes of Oxford.

John Jewkes was the main voice opposing government economic 'planning' and the endless taxes, spending programs and regulations of modern Britian.

Jewkes opposed statism in many ways - he tried to show students and fellow academics some of the errors of statist policy in his university work, he sat on official commissions (and tried to make their reports less insane), and he wrote a series of articles and books for the layman. Such books as Ordeal by Planning and The Sources of Invention.

John Jewkes was, in many ways, the best British economics had to offer in the post war world - and he shows that British economics was dying as a serious discipline. How can I say this? Well consider the following.

"It would be idle to deny that the White Paper was a 'Keynesian' document. Keynes was, after all, the major prophet of the idea that governments could, by increasing aggregate demand, reduce unemployment. Some of those who collaborated in the preparation of White Paper had been his pupils or had long been his followers. Those who resisted some of his ideas before the war had later gained an enormours respect for and confidence in him as they watched, and collaborated in, his superbly dextrous negotiations with the American Government and its economic officials. Those who had perhaps been most suspicious of the pre-war ideas of Keynes (I was among these) had seen at first hand the horrible consequences of the pre-war high rates of unemployment in the depressed areas, especially among juveniles and were only too ready to concede that, if the doctrine of the White Paper could be made to work, the post-war world might be a safer and more humane place".

The Government and Economic Policy: A Defence of the White Paper on Employment Policy 1944, page 42.

Essay Three of John Jewkes' A Return to Free Market Economics (Macmillan Press 1978).

My first concern here is not with the the idea that 'increasing aggregate demand" (government issuing more funny money) is a good idea (absurd though that is), but the total lack of interest in basic economic theory that John Jewkes shows.

'Theory' is not a dirty word, the basic concepts of a discipline (the theory) are its heart - to examine them, to debate them, to be interested in them are basic to a discipline. To leave theory aside and just be concerned with practical advice is to allow a discipline to decay and die.

Keynes as an economist can not be judged by his skill as an negotiator (even he had not been making deals about how best to rob the American tax payer), nor is the seriousness of a problem any guide as to whether we should follow a certain policy - "there is a lot of unemployment, so we must all go and stand on our heads - do not look at me like that, do you not care about the unemployed?"

There may be arguments for the policy that Keynes proposes (for example if government issues more money prices will be higher than they otherwise would have been and if wages do not increase real wage rates will decline and more people can be employed - of course people will want higher wages, but let us forget about this little problem) - but saying Keynes was a clever talker, or that being unemployed is very nasty is not presenting any arguments.

As I have said John Jewkes was about as good as post war British economics got. Lionel Robbins (for example) who had been a good economist before the war, became a degenerate hack (supporting the great Lord Keynes) and ended up arguing for yet more university subsidies (the infamous 'Robbins Report'). And it is true that as inflation in Britain eat away at economic strength Jewkes was critical of the policy of print and spend and gave some support to the 'monetarist' effort to limit (but never end) the policy of issuing more credit-money.

However, Jewkes never dealt with the basic issues of theory involved. He knew of the work of such economists as Hayek and Ludwig Von Mises, but never tackled the basic questions himself.

This neglect by Jewkes (and other people basically favourable to free markets) did not mean that theory openly died in British economics - for without theory (a basic body of ideas) there could be no discipline called 'economics'. But this 'opting out' (by Jewkes and others) simply meant that theory was taken over by developments of Keynesian doctrines - plus lots of mathematics and technical sounding language.

I am not saying that Jewkes approved of this, but he did nothing to fight it. Jewkes did a lot of fine empirical investigation (hence his interest in history) showing (for example) that most modern inventions of economic importance tended to be the work of individuals working with modest resources, and he gave lots of good economic advise against the absurdities of government policy.

However, British economics became more and more dominated by bad (false) theory. How could it be otherwise when men like Robbins and Jewkes either accepted Keynesian concepts or would do nothing to oppose those concepts (whatever their practical policy advice).

So young economists grow up with absurd concepts planted in the foundations of their thinking and the advice they gave and the knowledge of the general student body that they taught would be rotten.

In the United States most economists will argue that government should issue more money if there is an economic downturn, in Britain almost all academic economists will produce this absurdity. In America there was some resistance to rotten theory (some defence of basic economic thought) in Britain this tradition of resistance has vanished, there is not a university in the country were serious economics is taught.

Certainly there may be a few isolated individuals who oppose the madness (and to call them all 'Austrian' economists may well be a error - for example that old fighter W.H. Hutt did not go by this tag), but there are not enough of them to make up a tradition - some good economists went overseas (such as Hayek or Hutt) and some good men just let theory drift away - men such as John Jewkes.

The pass had been dropped, the tradition of economic thought had been broken - economics in Britain is dead.

I want to know what happened to 'going overland to India' to seek spiritual fulfilment and alternative lifestyles? Perhaps the Indians have decided to put a stop to all that. Can't say as I blame them.

However, that means that the Anti-Everything Brigade has been unleashed in droves all over the rest of the planet like deranged locusts. The Swarm du jour has now descended upon Porto Alegre in Brazil where this hotch-potch of losers, whiners, nutjobs and assorted marxoids, and which now dubs itself the (snigger) 'World Social Forum' is in a gigantic snit about not being taken seriously.

Mercifully, they are not taken seriously. Except by the BBC (sorry, the 'World Media Forum') which has published a glowing full-page tribute:

"As soon as you arrive your senses are overloaded with colourful causes and campaigns all competing for attention."

Especially your sense of smell.

"It does not aim to promote one view but celebrate diversity."

Great can we come along to sing the praises of capitalism, then?

"If the businessmen and political heavyweights from Davos were transported to Porto Alegre - slogan "another world is possible" - they really would believe they were on a different planet."

Yup.

"Where else would a gay rights march be followed moments afterwards by a pro-Palestinian protest?"

Not in Palestine that's for sure.

"Or landless people's movements from Latin American, Asia and Africa be able to sit round a table and compare notes?"

Landless but not flightless apparently. Exactly where do these starving peons get their travel money? And precisely what 'notes' do they compare?

"Hey, Miguel, do you have any land"?
"No"
"Neither do I. Okay, meeting adjourned."

"Of course, conflict and disagreement are inevitable but that is half the fun."

What's the other half of the fun?

"On the first day of the Forum the people took to the streets for an anti-war march.

As Brazilian government ministers walked with protesters there was an air of great hope spreading to campaigners from all across the globe."

Another feature of the reporting of all these events is this kind of semi-messianic euphoria. They're forever telling the world how excited and happy they are. Is it jet-lag, I wonder?

Tuesday, January 07, 2003

President Bush has announced a proposal to abolish the Federal tax on dividend payments.

This proposal is defended partly on the grounds that reducing taxation (i.e. letting people keep more more of their own money) is generally a good thing, and partly because taxing dividends is 'double taxation' (the money that companies make already being taxed via Federal Corporation tax - which is actually quite high in the United States).

However, there is another factor to be considered. Financial institutions such as Pension Funds do not tend to be taxed as highly on their share holdings as individuals are (if indeed such trusts are taxed at all), so the effect of taxing individuals on their share holdings (not just the dividend tax but capital gains tax) is to concentrate a higher and higher percentage of stock into the ownership of financial institutions.

In short a group of hired managers in financial instructions 'owning' corporations managed by another group of hired managers. This may well be unhealthy (with a 'magic circle' of managers having developed, who tend to sit on each other's 'remuneration committees' and lobby for State and Federal laws to make takeovers [if they are a threat to managers] more difficult and ...)

In Britain the government also considered the difference between the regime of personal and financial institution taxation a problem. However, here the government responded by increasing the taxes that the pension funds (etc) had to pay - thus undermining further people's incentive to save.

For all its many problems the United States is still a better country than Britain.

Saturday, December 28, 2002

The dependably clueless Prince Charles wants the state to require tax funded institutions like Britain's nationalised public health service and state schools to add insult to injury by not even attempting to get 'best value for your stolen money'... which is to say he wants such arms of the state to be required to buy British farm products even if foreign products are cheaper/better... not only does he say they 'should' buy British, but that the government should force them to.

Like most people with socialist & fascist understandings of economics, producers are all and consumers are nothing to Charles. Why will people like him not be more honest and just admit directly that they want productive taxpayers to be compelled by force to prop-up less efficient areas of the economy and they should not be given any choice in the matter.

The Royal Family usefully occupy the same seriocomical niche as the Flag and 'Hand-on-heart' pledge of allegiance do in the USA... and like that inanimate object and rote chant, are largely empty of real meaning beyond their warm-fuzzy-glow value. If only we could devise some means of permanently depriving Charles of speech, leaving him only with earnest looks and poses, then the British monarchy could have another couple centuries of seriocomical semi-usefulness ahead of them.

Thursday, December 19, 2002

Brian asked if Japan was only pretending to do badly. He seemed to think that there were some grounds for doubting the news of Japanese economic stagnation.

Looking at the World Economic Freedom report I discovered the following interesting figures.

1. Income Tax top rates as percentages:
   (1st figure 1990), (2nd 1995), 3rd 2000.

   Japan 65, 65, 50
   USA 33, 42, 42
   UK 40, 40, 40
   Ireland 58, 48, 42
   Sweden 72, 58, 51
   OECD average 53, 50, 47

2. Corporate Taxes (including regiuonal, state, local etc),
   also top rates as percentages: 1990, 1995, 2000

   Japan 42, 42, 42
   USA 40, 40, 40
   UK 30, 30, 30
   Ireland 24, 20, 16
   Sweden 28, 28, 28
   OECD average 34, 33, 31

Note that Japan is consistently higher than the OECD average. Note also that Sweden's business taxation always was low. The US corporate taxes may be close to Japan's, but the US economy hasn't needed tax cuts for the past ten years to stimulate growth.

My conclusion is that Japanese "stimulus packages" are clearly not addressing incentives to produce.

Finally, the overall ranking between 1990 and 2000 is highly revealing:

USA 3rd in 2000, 4th in 1990
UK 4th (2000), 6th (1990)
Ireland 7th (2000), 20th (1990)
Sweden 19th (2000), 26th (1990)
JAPAN 24th (2000), 7th (1990)

Before David Carr wonders how the heck a Labour government pushed the UK up 2 places: 1) independent Bank of England, 2) you should have seen what other governments were like...

A case example of (relative) economic freedom being a precondition for (relative) economic prosperity.

Tuesday, December 17, 2002

As I have previously, 'poverty' is a measure of envy and class hatred Here are some measures that could make poverty worse or better.

One might imagine that importing wealthy people into a country would help reduce poverty: Bill Gates turning up in the United Kingdom with £40,000,000 would increase the average wealth of British inhabitants. In fact this makes "poverty" worse according to poverty-campaigner logic.

Let us imagine a country with nine inhabitants: a, b, c, d, e, f, g, h and i. If a, b, and c have incomes of 100 per year, d has 90, e and f have 50, h has 30 and i has 20, then total income is 540, average income is 60 and the poverty line is 30 if calculated as 50 per cent of average, or 36 if calculated as 60 per cent of average.

The next year Bill Gates arrives with an income of 500. He employs h and i for an extra 20 per year (more than they were getting before). The result is: Bill Gates 460, a, b and c 100 each, d has 90, e and f have 50, h now also has 50 and i has 40. So everyone is out of the poverty level of the year before.

But this is where relativism kicks in: the new poverty line is 52 or 57.2 (depending on the 50 or 60 percent definition). So Bill Gates has not only 'failed' to lift h and i out of poverty by giving them jobs that paid better, he has impoverished e and f, who were previously not poor, even though neither e nor f has lost any income.

This tells us the first lesson of tackling "poverty": no wealthy immigrants must be allowed. In fact all inward investment is bad according to this reasoning. Now imagine that the 1,000 million poorest people in the world (average income 0.01) were to come and live in this country instead of Bill Gates. Also imagine that none of them become billionaires but remain objectively poor.

Total income becomes 10,000,540. Average income drops to 0.01000054 per year. So h with 30 and i with 20 are 3,000 and 2,000 times wealthier than the average, despite no increase in objective income. Also the billion paupers have incomes of 0.01 which is over 99.99 percent of the average, so none of them are "poor", even though they can't afford to buy a bread roll.

Note that if half of the billion paupers were to raise their income to the previous average (60), they would be "evil exploiters" of the poor, so would h and i, even if they were to lose 90 percent of their incomes (to 3 and 2 respectively). This means that immigrants who are below the poverty line must be kept there for the sake of "social justice"!

Therefore although all the billion immigrants will starve, they will not die in vain: they will have brought about social justice. A believer in immortal souls who suggested this policy, would be insane but sincere. The problem is that most socialists and social democrats are atheists...

In the British case executing all elderly people aged over 60 who live alone on less than average household incomes would statistically eliminate poverty: either they would be dead, or more likely they would choose to live in groups of two or three and therefore rise towards average household income levels. Executing all students would also have a similar effect. Slaughtering everyone who lives alone would be a guaranteed success in a "War on Want".

This may appear insanely evil. Yet I have just described the policies of the Cambodian holocaust: Pol Pot really was 'tackling poverty'.

Saturday, December 14, 2002

...about people living in miserable material conditions. It is a measure of relative poverty, or a difference in material goods. This is obviously most useful for the promotion of envy and class hatred. It also allows the glossing over of the twin Marxist errors of the "pauperization of the proletariat" in advanced capitalist economies, and the notion that people have no identity outside their membership of an economically determined class.

It is handy for promoters of class hatred to use 'poverty' as an issue. First the relative measure is easy to falsify. It is notorious that in the UK, satellite television dishes appeared disproportionately (in the late 1980s early 1990s) among low-income families before spreading to higher income brackets. On the other hand the only people I've ever met who didn't own television sets in the UK were both in the top 20 per cent of incomes.

What value does one put on television ownership? The price of the set? How does one measure the value of the service provided by broadcasting? What about foreign holidays? If a low-income family travels to Spain for the same relative price as their parents once went to Morecombe on the British coast, are they really no better off?

Taking the measure of a household 60 per cent below the average household I once discovered a cute fraud in the British Household Survey (I'm sorry I don't recall the year but it was in the early 1990s). "Household" is not the same thing as a house full of people. The bottom fifteen per cent households in the UK in the early 1990s had an average of 1.1 people living in them. The top fifteen percent had over four people living in them. The age distribution was equally revealing. I forget the exact figures, but elderly people and students were the bulk of the bottom fifteen percent of the population. This of course fits with what we know of individual people's incomes over a lifetime: low-income as a youth, rising income until retirement and a drop in income except where large capital savings have been made.

I calculated that the income per person of the top fifteen percent households was about five times that of the bottom fifteen percent per person households, after taxes and cash benefits were taken into account. Considering that students and elderly people aren't generally earning salaries, or of they are, these would often be part-time or seasonal, British "poverty" isn't all its cranked out to be by campaigners for class hatred.

This has intriguing consequences for ways of "tackling poverty"...

More on this subject tomorrow

Friday, December 13, 2002

David Goldstone has discovered that 'voodoo economics' is alive and well and living in Broadcasting House in Portland Place, London

Yesterday I discovered that:

The UK has the second highest rate of poverty in the European Union, with 22% in poverty compared to the EU average of 15%. Only Greece is higher. The Scandinavian countries and the Netherlands, with their highly-developed welfare states, have the lowest poverty rates.

Even worse...

The number of people living below the poverty line... is twice as high as it was 20 years ago.

How can this be? Have real incomes not risen in the last 20 years? Has trickle-down failed? Is capitalism not producing more capital? Should I take up socialism?

Well, it turns out that "poverty" BBC-style means anybody with an income below 60% of the median, regardless of the fact the purchasing power of that median has been almost constantly rising. How does the fact some people get richer (in fact most people over the last 20 years) actually make other people somehow poorer?

David Goldstone

Sunday, December 01, 2002

Paul Marks points out that it is the spending rather than the taxing which is the root of governments woe

People (not just us evil libertarians) often complain about taxation and there have been many attempts to reduce or at least limit it - these attempts have mostly been unsuccessful.

Few governments tax in order to create piles of money in their store houses - governments normally tax to spend. If we are to limit (let alone reduce) taxation it is government spending that we must fight. Limit one tax and the government will increase another - limit them all and government will borrow, ban borrowing and the fight come back to spending - i.e. (in the end) the fight is about government spending.

As far as I know there is only one State in the U.S. which shows (in its' laws) a clear understanding of this and that State is Colorado. Colorado has many problems and I would not claim it is the most free market State (although it is one of the smaller government States), but I think that its spending based version of a "Taxpayers Bill of Rights" has, over the few years of its' history, proved to be useful thing.

In Colorado government spending can only be increased in line with an increase in population or an increase in prices (yes I know there are all sorts of problems with the idea of a price index - but I will not go into that here). This would seem to a be a very moderate limitation - but (as far as I know) there is not another State in the Union that has such a limitations. Over the last few years Colorado has reduced the burden of taxation (i.e total taxes as a percentage of income - not reduced one tax and increased another) and balanced the budget.

The key really is government spending. To convince people that if they want some special benefit from government another benefit will have to be abolished (not just the total spending of the government increased).

In the end the fight has to be about spending. Whatever waffle either side comes out with about the "institutions of a just society" what matters is where the money goes. If we allow people to convince others that government spending is a "good thing" then all the anti tax and anti borrowing campaigns in the world will not save us.

Paul Marks

Saturday, November 30, 2002

Shop 'til you drop day!

Some who think poverty is a noble, exalted state would have you buy nothing today, calling it 'Buy nothing day'. But those who reject the Luddite anti-life call of atavistic collectivism know better.

Every November 30^th, we all need to remind ourselves that due to the creeping spread of global capitalism, more of humanity has been lifted above a subsistence level of existence than at any other time in the history of our species.

Plumbers, builders, postmen, farm workers, sailors... all owning technological marvels like motorcars, televisions, computers, all having unheard of life expectancies. This occurs not because of central planning, but rather in spite of it... yet somehow Paris gets fed.

So on November 30^th go out and turn your mundane daily participation in the capitalist system into a celebration of it! Make it special. Go out and buy the one you love a book they have wanted but is only available in hardback or maybe even a nice sheepskin coat for the winter. You know it makes sense.

Thursday, November 21, 2002

Sean Gabb has written a particularly interesting Free Life Commentary called Is There a Right in Ireland? In this he recounts the substance of a radio interview he gave for an Irish radio station.

I explained why foreign aid is a bad idea. It is the negation of charity for a government to take money from people and to give this to other people, no matter how hungry they are. Charity is by definition an act of choice: interpose the tax gatherer between doner and recipient, and there is no charity. Regardless of its moral status, it is also an unwise transfer of funds. As Peter Bauer once said, foreign aid is the process by which money is taken from poor people in rich countries and given to rich people in poor countries. Very little of the aid ever reaches the advertised recipients. At best, most of it is stolen by those in charge of distributing it. At worst, it becomes a cushion for corrupt and oppressive ruling classes. They can insulate themselves from the effects of their policies. Directly or indirectly, they can get the money to pay the security services on which their power rests. Much better than aid, I said, was free trade with poor countries. That does raise incomes.

But the part of it that particularly fascinated me is the amazed fury his comments caused to both the radio presenter and a charity worker present. Not just shock at the points he made but at the very notion that someone would make them. It seems such ideas were completely alien, unknown, unheard of apparently. It was as if Sean had suggested the world was spherical to people which accepted as axiomatic that the world was flat.

Yet this is not just a left/right matter. I have met a few dyed-in-the-wool Labour Party supporters in Britain who would nevertheless accept the truth of Sean Gabb's remarks about the true results of Foreign Aid (even if they might not be so comfortable with his equally correct moral analysis of the role of the state), rightly abominating the grotesque trade barriers that strangle third world economies.

In fact it is Labour supporters like these people that has long moved me to refuse to see all of libertarianism's breeding grounds and incubators as lying with disaffected elements on the right wing either in Britain or North America. What makes some nominal socialists (or American 'liberals') possible future libertarians is the combination of a correct moral basis for their views (e.g. they are not indifferent to people in the Third World, or anywhere else for that matter, living in abject poverty) plus a rational openness to both falsifying evidence and alternative theories explaining reality and of how best to achieve what are in fact laudable goals, for example, such as helping to make less people live in abject poverty.

Christopher Hitchens is a luminescent example of an eloquent former paladin of the left who, by sheer dint of his critically rational faculties, was able to see though the miasma of socialist theory when he realised that a socialist meta-context made otherwise intelligent people incapable of rational moral analysis of the events of September 11^th 2001. He now calls himself a libertarian and unlike his former confrere Noam Chomsky, Hitchens actually understands what the word means.

Yet the reality is that a significant proportion of people who follow any -ism, and I do not exclude libertarianism, do so primarily to satisfy personal emotional requirements. They do so for reasons that have more to do with the need for moral certainty and self-esteem than for any deductive analytical process centred on clear understandings of reality. Thus a charity worker whose motives are essentially wonderful and whose direct goal, say, bringing clean water to the people of Tanzania, is hard to fault, may well be emotionally incapable of understanding that all his hard work and all his sense of moral superiority is in fact contributing to the perpetuation of a kleptocratic ruling oligarchy who are a leading cause of the people in that country's continuing impoverishment. The reality that some of the aid money might make it to where it is intended is enough justification to support the aid process regardless of the fact the rest ends up funding the state's security apparatus, adding to bank accounts in Switzerland and providing state employees with the ubiquitous diesel-engined Mercedes limousines seen plying the dusty streets of most of Africa's hell holes.

That Sean Gabb's remarks were not just disagreed with but were regarded as shockingly beyond the pale, is just a consequence of the psychological underpinning of so many well meaning but intensely destructive ideologies. People who disregard the demonstrable truth that aid to third world countries actually kills more people than it saves in the long run, do so not because they are evil and actually do not care about Third World poverty, far from it in fact. What they do not do is actually think about the problem: why people in some parts of the world live in economically stagnant or contracting hell holes whilst an even larger number elsewhere in the world grow more and more prosperous, not just top-hatted cigar smoking fat cat stereotypes, but the ever expanding middle classes across the developed and developing world. They care about it because that makes them feel good about themselves and the actually effects of when they do, which is to say the effects beyond what happens directly in from of their concerned faces, do not matter very much to how they feel about themselves.

When confronted by the economic realities of largely capitalist and now democratic Taiwan, and nominally communist and but profoundly statist China, that people can still say that they support communist and socialist systems in order to alleviate poverty is almost beyond parody. Yet although our TV screens are about to be filled up with images of pitiable Ethiopians slowly starving to death yet again this year, and regardless of the fact untold rivers of appropriated and donated money have been diverted from the First World to the Third World for decades now, many will resolutely feel that people in the Western World must empty their pockets (or else have them emptied for them by the state) in order to fund the army of UN Agencies, NGOs and State Aid groups in order to 'save Africa' yet again. And again. And again. And again.

There is a well known expression that says "if you are digging a hole in the wrong place, you cannot solve that problem by just digging the same hole deeper". Yet for many, the enveloping sense of self-worth that comes from the labour of digging holes in worthy causes matters more than the fact the hole is being dug in the wrong place. Yet many a worthy hole has turned out to be someone else's grave.

Saturday, November 16, 2002

The England cricket team, having been utterly smashed in the first test match at Brisbane last week, is now being broken into even smaller pieces by the Australian second eleven, prior to heaven knows what humiliations in the rest of the test matches. England are also now being hammered by Australia in the rugby at Twickenham (oh, hang about, England have scored sixteen unanswered points and now lead by 32-31 with ten minutes left – so forget that) but, the Old Country – sorry, make that "Ancient Enemy" - is still the one dishing out the punishment where it really matters. Take a look at this:

• The Mont Pelerin Society is a secretive, elite group;

• It has less than 500 members worldwide;

• It was founded in 1947 as a cult which worships the free market.

• It designed the policies of financial deregulation, privatization, Competition and free trade. These policies have wrecked Australia and other countries around the world.

• Mont Pelerin is directed from the highest levels of British Intelligence.

Although whoever wrote all this tries hard to dress up the Mont Pelerin Society (whom we have listed on our links page for ages) as an ultra-secret conspiracy, he actually ends up describing how it has operated really quite well.

My favourite chapter heading is the one I use for the title of this posting, number 21. But I actually took a look in chapter 8, which is entitled "The end of nation states: Lord Harris SPILLS THE BEANS". In this, we learn about the modest Lord H, long time boss of the Institute of Economic Affairs and one of the world's leading experts in the ancient art of telling things in a way that no one believes a single single word you're saying.

"I don't claim to be controlling everything," Lord Harris continued, "but the only reason I got a peerage the year that Thatcher got into power, I have been Lord Harris since 1979, there is no question that that was her way of acknowledging that that group of thinkers, that "This is the group that I favour," and of course a lot of my pals are now "Sir Peter this," and "Sir John the other," Hayek himself became a Companion of Honor Which is amazing. The Queen makes one companion of honor. There are only 60 at any one time in the entire Kingdom.

Hayek, born in Viena [sic], a naturalised British subject in 1936 and 1937, suddenly made a Companion of Honor! That was Thatcher saying, "These are my people, they are one of us." Or, "We are one of them!"

Not that any of these gongs to Harris and his pals meant anything to him personally, you understand. The team is the thing.

Lord Harris then sketched the philosophical outlook of the Mont Pelerin Society and how that spread:

"So the Institute for Economic Affairs comes along with Adam Smith, and David Hume and David Ricardo, the great classical economists of the Eighteenth Century, who invented political economy, we draw on all that stuff.

So we revived all those old principles and we clothed them with modern examples and analogies of (the privatization of) the energy market, transport market, and all the rest of it. This created Thatcherism as an idea. I mean when I went to Australia back in 1990, I was greeted everywhere as a missionary from this new Thatcher idea, free markets, laissez-faire, and all that." ---

One day, idiot Australians will write stuff like this about us. Having spent the next twenty five years trying to get millions upon millions of people to read Samizdata, but having been carefully and relentlessly ignored by all our big-media-connected enemies, we will nevertheless get through to enough sensible, powerful, influencial people, quality people - people who know what's what and who's who – in short people like you dear reader, to alter the course of history in our preferred direction. Our enemies will then accuse us of not having told anybody about what we were doing. Well, I mean, a blog! That's not telling anyone, is it? That's "secretive" that is. That's an evil conspiracy. They will then solemnly "reveal" what we've been trying to get them to notice for the last quarter of a century, in a manner suggesting that we are still trying to stop them finding out about it.

Before someone else comments about it, the writers of this stuff do make some good points, about how privatisation is sometimes rather hard to distinguish from predation. But why is that? It is because the only way the free market can catch on is for some people to profit mightily from the switch. And why is that? It's because the existing Guardians of the Public Good won't give the free market the time of day, let alone introduce it themselves in a way that spreads the benefits and the costs around more evenly. They make the introduction of free market reforms into a bloody political battle, and then when they start to lose big time they blame their free market enemies for the casualties. Tossers.

And, England hung on to win 32-31 at Twickers. Hurrah!! Have a nice week end.

Thursday, November 07, 2002

There is an interesting interview with Frank Shostak over on the Ludwig von Mises Institute.

The US Federal Reserve discourages savings whilst at the same time encouraging mal-investment. Simple common sense would suggest that if interest rates of a mere 1.75 percent have not jolted the US economy out of its torpor, then 1.25 percent is not going to do it either. Interest rates are effectively at zero in Japan and that has produced little or nothing in terms of economic revival.

Yet again the state's capacity to do harm far outweighs its capacity to do good. The problem is not so much the policies of the Federal reserve, but that there is such a thing as 'The Federal Reserve'.

Alas so many people everywhere cannot seem to imagine the world continuing to spin on its axis without things like The Federal Reserve, The Department of 'Education', The Bundesbank, the BBC, The National Health Service, Income Tax etc. etc... they are just part of their fabric of reality. I have often found that any person who suggest they simply be abolished is treated as if they had suggested amputating a limb, rather than excising a tumour. The truth hurts and no one ever thanks you for hurting them.

Saturday, November 02, 2002

Paul Marks points out that there is no imposed structure can achieve what a real market can

Last Sunday there was a big storm in Britain, power was been cut off for a lot of people and some of these households are only now being reconnected.

There have been a lot of attacks on the power companies, but (as far as I know) no one in the media has pointed out that the present set up is not free enterprise at all - it is a government effort to create 'perfect competition'.

Now 'perfect competition' is something that exists in neoclassical economics textbooks - here lots of similar companies (similar assets, similar knowledge, similar just-about-everything) compete in a sort of mathematical game.

In real life enterprises build things and own them. For example a railway is built, or a gas line, or a telephone line, or an electricity line.

Complexity may evolve (with different people owning the track and the trains on a railway, or there being 'producers' and 'providers' in electricity supply), but any attempt to impose a complex scheme is likely to turn out to be a mess.

In transport the natural competitors for a railway are roads, canals and airlines. The endlessly complicated spiders web of regulations in Britain (to make sure that different people owned the track and ran the trains and that the train operators only ran the trains for a certain period of time, and so on and so on), just caused a mess.

Against electricity the main competitors are gas and (to a much lesser extent) home generation (by solar cells, open coal fires or  whatever). Again complexity may evolve (with different companies producing the electricity and supplying it and, perhaps, even different suppliers offering to supply the same household), but any attempt to impose a complex scheme (via endless regulations and administrators) is bound to cause problems - and it has.

In the end what matters is not 'perfect competition' but ownership - having a company that owns assets and is responsible if it fails to provide the power that people have paid for.

Paul Marks

Thursday, October 31, 2002

What so many of capitalism's defenders seem to miss is that just because a large company is doing something legally, that does not mean it is 'kosher' capitalism. In Germany in the 1930's and 1940's, companies like Krupp and Seimens remained under entrenched private management in spite of the National Socialist German Workers Party coming to power, or more accurately, because of the new overtly anti-capitalist government.

They did this by running their companies in such a manner as to support the objectives of the National Socialists. In return, the state ensured they maintained a privileged position, insulated from upstart new market entrants in their respective fields. These companies, working hand in glove with the state, could ensure that national laws would be adjusted as needed to support whatever business models the entrenched companies liked, and the state could be sure that company strategies would be based servicing the needs and objectives of the Nazi Party, not to mention paying backhanders to leading Party members.

Of course, one does not have to look as far back as National Socialist Germany of the 1940's to see examples of companies trying to manipulate the state to prop up an entrenched way of doing things: for the last few years the music industry in the United States has been trying to use the law of the land to crush challenges to its old physical media based business models. Rather than running their business in the interests of the state, nowadays in modern democratic statist political systems, large companies spend vast sums on lobbyists and on funding the election campaigns of politicians who might as well have an hourly rate for their services stamped on their foreheads.

Now in Australia, Microsoft looks ready to try and buy themselves some legislation for much the same reasons after an Australian court declined to stop people modifying XBox hardware:

Microsoft would be forced to reconsider selling the Xbox video game system in Australia, or seek changes to the law, following the acquittal in July of a Sydney man alleged to have sold chips that modify a Sony PlayStation 2 to play imported games, Microsoft chief executive Steve Ballmer said yesterday.
[...]
"Given the way the economic model works, and that is a subsidy followed, essentially, by fees for every piece of software sold, our licence framework has to do that," Mr Ballmer said. "If there are aspects that are not allowed, it would encourage us to require a change in the legal framework. Otherwise, it wouldn't make economic sense."

As usual a pure laissez-faire solution beckons: if Australia refuses to criminalize innovation and therefore Microsoft declines to sell its XBox Games Consols down under, then simply abolish all the idiotic import restrictions and tariffs currently clogging up Australia's economy and then... who gives a damn where Microsoft chooses to sell their products: if there is a demand for XBox in Oz, a 'grey market' will rapidly appear as capitalist importers across the world buy up XBoxs by the container load elsewhere (such as Taiwan, USA, India) and ship them in themselves.

If that busts MS's business model, so what? Let them find another one that actually works without the involvement of police around the world to make it succeed.

End of problem.

Wednesday, October 23, 2002

There's a little flurry of debate going on about oil, and what it's used for. Alex Knapp of Heretical Ideas (Tuesday Oct 22 - the direct link doesn't work) has just one word to say to us: plastics. His point is a good one: oil is not just for making cars and lorries go. Our entire economies now depend on it.

And here's another point about oil. It is said by some of its opponents that the war that GWB2 wants to start Real Soon Now is really only about oil, only about keeping western economies well supplied, only about economics. And it is agreed by almost everyone that the President is being so delicate with the Saudis, again only because of the vast amounts of oil that they dispose of.

Only? War is a matter of life and death, but so is economics. I'm not saying that this war is/will be only an oil war. (I don't think this at all as it happens, but that's not my argument here.) Nor am I saying that all oil wars are good wars. Nor am I saying that the Saudis should be allowed to get away with absolutely anything, and with paying for absolutely anything, for ever, because giving them a seeing to would be too costly, in oil. I'm merely saying this: that when economies flounder people die. They go out of business, get divorced, get stressed and die of heart attacks, commit suicide. They torment one another, beat their kids, the kids leave home, the kids rob people, the kids kill people, the kids die, …

How many gallons of oil are worth the life, by which I mean the death, of one young soldier? It's not a stupid or merely a rhetorical question. The serious answer cannot be that no amount of oil could possibly be worth any blood. No amount? Any? Just think about that.

All those studies proving that poverty is bad for you and can even kill you are true. They're wrong only when they say that the way to reduce poverty is to nationalise it.

If you are anything like me, then you missed out on the annual Socially Responsible Investors in the Rockies Conference, which commenced this past weekend. Luckily, Reuters told us all about it.

Socially Responsible Investing, as we will see shortly, has become a big business in and of itself. But what to make of this concept? You might expect me to ridicule the whole movement, but I am not going to. Libertarians believe that the "responsibilities" of a corporation boil down to maximizing shareholder value while complying with the law, but I can find a lot of common ground with the SRI crowd. The problem is that an investor who tries to incoporate SRI principles into his portfolio will be led down any number of blind alleys.

In theory, I think that SRI is a great idea. If progressive types feel the need to bathe themselves in self-congratulatory rhetoric before participating in the capitalist system, that is fine with me. We would all be better off if environmentalists and consumer advocates used their own actual money to try to make things better, rather than pester the rest of us with their demands for more burdensome regulatory restrictions. Under the right conditions, even the most avowed socialists are willing to play -- as his financial disclosure for the 2000 presidential race makes clear, Ralph Nader invests heavily in corporate equities (PDF file, requires Adobe Acrobat Reader or similar). (Heh heh, OpenSecrets.org strikes again!)

Unfortunately, determining which companies are "socially responsible" quickly degenerates into a Sisyphean task. What will be the next "politically incorrect" technology or product? Fast food? Cell phones? Tanning salons? Big Chocolate? What will be the next country to face a Chomsky-approved "divestment campaign" a la Israel? I have some very recent finance textbooks that celebrate the exemplary corporate citizenship of... Enron.

Another problem is that nobody seems quite sure what "responsible" corporate behavior is supposed to entail. Consider the results of this eye-opening Zogby poll from earlier this summer. When asked to prioritize a variety of ethical business practices, only 23% of college seniors (and only 43% of the business majors surveyed) placed "providing clear and accurate business statements to stockholders and creditors" at the head of a list dominated by loosely defined social and environmental goals.

To the extent that collegiate business ethics courses are sending a unified message, it seems to be: a socially responsible corporation hires and promotes women and minorities, sucks up to organized labo(u)r and keeps its products dolphin-safe. Actually telling the truth to the investment community is not part of the deal. Heck, investors and creditors deserve to be lied to -- they are just a bunch of greedy fat cats anyway.

Outside of academia, one of the most ambitious efforts at identifying "socially responsible" firms has come from guru Amy Domini. Her Domini 400 Social Index provides a diverse list of 400 American corporations that meet the "SRI" profile. But after scrolling down the list -- even much past the A's and B's -- one begins to wonder what principles, if any, guided the compilation of the list.

The Domini Index seems to accept a lot of compromises. Industrial giant Cummins makes the list because of their community involvement in the towns where their factories reside, and for their progressive profit-sharing plan. But Cummins makes Diesel engines, which are anathema to environmentalists. Tupperware makes the list because they have so many females in the upper ranks of the company -- but they sell stuff that is made of plastic.

The Domini Index also appears to create moral distinctions in areas where none should necessarily be drawn. Companies such as Detroit-based software giant Compuware have been recognized for their widespread distribution of stock options. Now, employee compensation can take on a huge variety of forms: straight pay, overtime, vacation benefits, subsidized optical and dental care, profit sharing, stock options, family leave, 401(k) matching, etc. Different employees have different pay preferences -- as a single, 27-year old, healthy male with an advanced degree, I would prefer a larger salary and more generous 401(k) matching to "family-based" benefits, while one of my middle-aged coworkers with three kids in college might have totally different priorities. Why are some forms of compensation more "socially responsible" than others? Labor costs are labor costs, except, it seems, in the Carrollian world of SRI.

Investors who do not wish to tackle such weighty ethical issues themselves can turn to the financial sector, where a variety of SRI-based mutual funds are willing to invest your cash. However, mutual funds that specialize in socially responsible investing, such as the Calvert family of funds, do not limit themselves to the securities of firms that make the Domini Index. As James Sheehan explains in a recent Mises Institute newsletter:

SRI funds also have some pretty strange names in them. The Calvert Social Index Fund owns shares in The Gap, which makes clothing in Third World nations. Also holding the Gap is Citizens Core Growth Fund, an SRI fund that invests 5% of its assets in Microsoft.

In practice, many SRI funds keep "bad" companies in their portfolio while they gradually try to influence the company's behavior through emails, management meetings, and shareholder resolutions. In practice, this gentle persuasion can go on for years with minimal effect, offering the SRI investor no assurance that his money isn't being used for "evil" capitalist purposes during the lengthy persuasion period.

In some cases, the SRI funds are so lax with their standards that offending companies merely have to pay lip service to "social responsibility" in order to remain in the fund manager's good graces.

A "hedge fund" is a sort of meta-fund that invests in other mutual funds. As this passage from Sheehan makes clear, SRI-oriented hedge fund couldn't invest in SRI funds! Not only are funds like Calvert misleading, some of them charge their investors unusually high "loads" and other fees. How socially responsible is that?

I believe that investment is an intrinsically moral endeavor. Without saving and investment, it is not possible to have an organized industrial society. For that reason, I am glad to see anyone, even fierce critics of capitalism, saving and investing. I just don't like it when they pretend that their investing is morally superior to mine.

Sunday, October 06, 2002

Paul Marks holds the line in his worthy ongoing mission to rubbish Keynesianism

Some time ago I sent in a blog claiming two things - first that many of the doctrines of Keynesianism were nonsense, and secondly that one did not need to be an Austrian economics person to see this.

I have had some replies to what I wrote. No one has claimed that one needs to be an Austrian school person to see there is something very wrong with Keynesianism (that no one claimed this surprised me - but then I am an Austrian school person myself).

Some people opposed my opinion that Keynesianism is nonsense (and opposed my strong language with strong language of their own). However, no one has produced any evidence in favour of Keynesianism - either directly or via the books they have suggested I read.

Such concepts as the 'multiplier' (presented in almost all basic economics text books) remain without argument in their defence. The idea that government can help the economy by (for example) issuing money and using this money to buy sand and hire people to shovel this sand into the sea, is absurd. To teach such doctrines someone must either be a knave (someone who teaches something he does not believe), or a fool (someone who believes nonsense).

Of course even if one insisted that government 'investment' actually be about buying capital goods (rather than 'investment' simply being another word for government spending) the idea would still make no sense - investment must be based on real saving (not credit money games).

It is tragic that fallacies refuted by such men as Bastiat almost two centuries ago (such as the fallacy of the broken window) are treated as 'scientific' by the vast majority of basic economics text books (often with lots of formulas and pseudo scientific language shoved in to try and hide the basic absurdities).

Even as I type this many nations in the world are undergoing rapidly rising prices (and prices rising at an increasing rate) whilst at the same time these nations have falling output and rising unemployment. If Keynesianism means anything the above should not be possible.

An Austrian economics person does not rely on empirical examples, but such examples are noteworthy. When one sees the rising inflation, falling output and rising unemployment of such nations as Venezuela and Argentina the concepts of Keynesianism fall apart. As some of these nations export oil and some import oil the idea that 'oil shocks' are a magic way out for the Keynesianism falls apart also.

When I see that most undergraduate textbooks that do not have concepts such as the various 'multiplier' in them (or treat such concepts with the contempt they deserve) then I will apologise for being too hard on the economics profession. I would apologise if even ONE textbook recommended at a British state university exposed such concepts as nonsense.

As far as I am aware no apology is in order at this time.

Paul Marks

Friday, September 27, 2002

Alan Greenspan, the chairman of the United States Federal Reserve, has delivered a rather splendid kick in the orbs to the pro-€uro/anti-sterling campaign. Greenspan said whilst speaking in the City of London (London's powerful financial district):

The City of London is thriving outside the eurozone and has not suffered from Britain’s decision not to join the single currency in the first wave [...] and was a sterling place to do business. London has stayed on top in the provision of financial services despite the euro...

Now I am no fan of the whole concept of central banking (and hence no fan of central bankers) but the fact is it would be bonkers to deny that Alan Greenspan is probably, hell, certainly, the most influential voice on the subject of economic affairs alive in the world today. His remarks are therefore going to cause some gnashing of teeth in certain circles, which has to be a good thing, as the pro-€uro campaign is predicated upon turning the abolition of sterling from a constitutional issue into a purely practical economic issue... and thus having Greenspan point out that Britain is managing just fine outside the eurozone is not what Brussels' fifth column in Britain want to see splashed across UK newspapers.

Ah, but you should have seen the size of the one that got away. It was this big I tell you!

Friday, September 06, 2002

Paul Marks points out that John Maynard Keynes' theories are not just wrong but are complete nonsense.

Libertarians tend to reject the economic doctrines of J.M. Keynes. Some people may argue (as Lady Thatcher once did) that Lord Keynes' thought was distorted by his followers, but most people (or most libertarians anyway) would accept that Lord Keynes and/or his follows were in error in regard to the understanding of political economy.

The trouble is that most libertarians think that showing the errors of Keynesianism is very complicated and that one needs a detailed knowledge of Austrian School economics to show these errors - this is not so.

Lord Keynes' 1936 book ("The General Theory of Employment, Interest and Money") implies that one can increase the money supply up to the "full employment level" without a trend of rising prices (as long as the new money is spent on such things as public works - rather than being hoarded or spent on imports). However, it does not matter if one interprets the "General Theory" to hold that Keynes accepted that his policy of money supply expansion would lead to a trend of rising prices (rather than, say,  just restoring the prices of goods to the level they were at before some fall in prices).

It does not matter because there is no long term trade off between unemployment and rising prices. In the 1950's and after Keynesians played with such concepts as the "Phillips Curve" to claim that there was such a trade off - but eventually no amount of moving the curve (to fit the fact that the unemployment and inflation numbers did not fit the curve) could hide the fact that such concepts would not save Keynesianism.

The final effort to save something from the "insights" of Lord Keynes was the claim that at least inflation and unemployment would not both rapidly rise at the same time. This effort broke down in the 1970's when in such nations as the United Kingdom inflation and unemployment both greatly increased.

Look at the world today. In Venezuela unemployment is increasing, output is falling and price inflation (the rate at which prices in the shops are going up) is rising. In Argentina unemployment is increasing, output is falling and price inflation is rising. As for those people who hold that the oil market is of magical importance and overrides all other matters - well Venezuela is a major oil exporter and Argentina is not.

Clearly the economic doctrines known as Keynesianism are rubbish - and we have not had to use any thinking from the Austrian School to show this.

So why is the economic language and concepts of Keynesianism still taught as basic economics in almost every University in the world? Well I choose to be blunt in reply to this question - either academic economists do not know that Keynesianism is rubbish (in which case they are fools), or they do not care (in which case they are knaves).

Those people interested in a page by page refutation of Keynes could do worse than read Henry Hazlitt's The Failure of the New Economics (1958). However, I hope I have shown that ignorance of Austrian School economic works is no excuse for believing in Keynesianism.

Keynesianism is rubbish - it really is as simple as that.

Paul Marks

Monday, September 02, 2002

Today in Johannesburg, the delegates at the Earth Conference moved onto the next important phase in the proceedings: water sports.

Having accepted the monumental challenge of solving the problems of poverty and environmental degradation, the delegates have maintained their unanimous opening day resolution, that they were all having far too much fun to worry about that sort of thing and that the world would be far better off if they all did as little as humanly possible during the ten-day Conference.

So, this morning, the Conference moved en masse to the Lakeside Pavilion where they will have a choice of jet-skiing, windsurfing, snorkelling or simply soaking up that radiant South African sunshine with a selection of cocktails and a trashy novel. All eyes, though, will be on the Head of the Brazilian Rainforest Foundation who is rumoured to be something of a dab-hand at Beach Volleyball.

But not all the delegates have been this proactive. Back at the hotel, Indian Development Minister Laxmi Ennerjee spent the entire day languishing in the Tropical Hothouse Spa Jacuzzi, together with his, erm, ‘Research Assistant’ Trudi. While the sparkly Trudi toyed with his greying chest hairs, the Minister lay motionless in the warm, herb-infused bubbles; his head occasionally lolling to one side in order to lick a dollop of tangerine-flavoured yoghurt from between Trudi’s quivering breasts. In an attempt to explain away this apparent lack of wordly concern, he said:

”Look, it’s really very simple. We were charged with the responsibility of ending poverty, saving the planet and maintaining an economic equilibrium between all nations and people of the entire world. But when we got right down to it,” he sighed heavily"it was all too much like hard work and we decided that we just couldn’t be bothered”.

Despite what some would regard as a refreshing candour, the delegates have, nevertheless, come under fierce criticism from Inactivists who accuse the delegates of being a part of the problem not a part of the solution. Daniel Le Thargy spokesperson for the Coalition Against Movement said:

”You just have to observe the furious vigour with which these guys play Canasta around the poolside to realise they are actually heating up our atmosphere. They should learn to do something much less productive, like sleeping. Sleeping is fun and involves no carbon emissions whatsoever.”

Denying accusations that he was simply a luddite, Mr.Le Thargy went onto to explain:

Our aim is get Third World farmers off of their knees, and put them flat on their backs”.

But the Conference has brushed aside these protests and, following the afternoon’s recreation by the waterside, the delegates then went into a delicate round of complex negotiations, wrangling and horse-trading before a resolution was passed calling for tonight’s dinner to consist of an open barbecue with a Thai & Vietnamese theme. Speaking to a Dutch correspondent, British Prime Minister Tony Blair expressed confidence that agreed targets for at least 80% attendance at tomorrow’s Bingo & Billiards party would be met.

Friday, August 30, 2002

Daniel Antal, who is a Strategic Economic Policy Advisor to the Secretary of State for Economic Affairs and Transport in Hungary, has spotted a fascinating article about some very different protesters in Johannesburg.

It has been a while since I posted comments to Samizdata. I would just like to draw readers attention to a very interesting Reuters articles.

At the Johannesburg Earth summit, besides to usual white middle class college dropouts typically supporting 'good causes' against globalization, libertarian policies and effective corporations, some poor third world farmers and street traders have been demonstrating for Free Trade.

The trade debate spilled onto the streets outside the tightly guarded conference center in the wealthy suburb of Sandton, where 200 poor farmers and local street traders from nearby shanty townships shouted slogans demanding freer trade.

"We want the freedom to grow what we want, when we want, with what technology we want, and without trade-distorting subsidies or tariffs," said Barun Mitra, an Indian farm activist leading about 30 farmers from his country.

Quite so!

Daniel Antal, Hungary

Tuesday, August 27, 2002

British academic John Gray, based at the London School of Economics, is well-known in Samizdata circles as the former 'Thatcherite' professor, author of interesting books about FA Hayek and John Stuart Mill who in the late 1980s turned sharply away from classical liberalism and embraced the doom-and-gloom agenda with the fervour of the convert. His depressing prose can be occasionally seen in such idiotarian enclaves as the New Statesman and the Guardian. OK, it's a shame to lose a potentially good guy to the Forces of Lunacy, but such is life.

But even I did not realise that the chap has pretty much decided that the planet would be better off if we all dropped dead. Really. His pessimism has attained heroic proportions. Check out this superb piece of Fisking of the guy by leftist writer Helene Guldberg. It surely points to something pretty chilling about what some folk who use the Green banner really believe in.

Update: link and attribution now corrected

Since curbing pollution seems to rank high among the aims of the delegates in Johannesburg they could start by dissolving back into their relatively harmless constituent parts and thereby avoid releasing into the atmosphere the several thousand tons of toxic gases that will result from the mixture of bureaucratic ambition, junk science and high-octane idiocy that is currently being manifested. Just let them mingle long enough to gobble down their ostrich canapes, give them their complimentary set of South African Airways in-flight cabin slippers and let them bugger off back to Absurdistan (or 'Europe' as its more commonly known) or wherever else it was they came from in the first place.

This Grand Conference for Solving All The Problems In The World should, on the fact of it, at least, prove to be a heaven-sent gift for bloggers. Over the next two weeks it will produce more Fiskable material than the Daily Wanker could produce in several lifespans.

Again, on the face of it, eye-watering, snot-inducing hilarity is just about all that will actually materialise from Johannesburg. The sheer scale of the ambitions leads me to believe that it is a project that almost seems destined to fail. However, since most people believe that the way to abolish poverty and all other problems is to gather together vast numbers of Well-Meaning People together in one big room to make grand pronouncements and write lots of impressive things on lots of bits of paper, there will be months of outrage, anguish, recriminations and accusations. Angry media pundits will turn their cynical (for the wrong reasons) indignation on caught-in-the-headlight politicians who will squirm off the hook by blaming their failure on those greedy Americans who 'steal all the world's resources'.

Sane people, however, will look around them and note that they still have their cars, washing machines, supermarkets and flushing toilets and breathe a sigh a relief that danger has passed.

That would be wrong.

Like all such conferences there is a primary public agenda and secondary real agenda. The real agenda is to be found among the brightest and best of Tranzi talent that is among the 65,000 or so delegates and for whom 'Sustainable Development' is a euphamism for a Global Economic Plan. These are the direct descendants of the people who once provided the intellectual tools for the Bolsheviks and, over the next two weeks, they will formulate their plans, cement their relationships, hammer out their various protocols and generally quicken each other. By the time the other delegates have applauded the final conference condemnation of US unilaterlism, the Tranzis will have welded together the skeleton of World Government.

At just about the same time as the rest of us are watching Baghdad light up like a Christmas Tree, various innocuous-sounding International Agreements will start materialising; this is the flesh on the bones. The process will continue step by stealthy step, away from the limelight and at a safe distance from anyone anywhere who might want to vote on any of it.

The first task in defeating an enemy is identifying the enemy and the second step is knowing how they operate. So warn your family, your friends and your neighbours and ring the village bell to warn the townsfolk. Tell them that the enemy is coming and be prepared to repel all borders.

Saturday, August 24, 2002

Paul Marks points out why the likes of Paul Krugman really dislike what we have to say.

Paul Krugman (the pet economist of the New York Times) is fond of sneering at the Austrian school theory of the boom-bust cycle as a 'moral theory'.

According to Professor Krugman, Austrian school economist believe the bust is a moral punishment for the degenerate luxury of the boom.

Of course to a 'liberal' like Paul Krugman moral and morality are 'boo words' to be sneered at (unless they are talking about George W. Bush – in which case it is quite all right to talk about lack of morality). However, Professor Krugman is (I believe) up to a bit more than this here. Ludwig Von Mises was insistent that economic science be "value free" – the methods of natural science were not suitable for economics (or so Von Mises taught), but economics (like natural science) must be kept distinct from ethics. As an economist one explained the consequences of a policy – and only then did one (as a human being) decide whether these consequences were good or bad.

So by claiming that Austrian school of economics is a moral school Professor Krugman is playing the same game that Marx and Engels played with Max Stirner – knowing he was obsessive atheist (even more so than they were) they insisted on calling him "Saint Max", "Our Saint" (and so on). Stirner had claimed that a communist society (which he opposed) would have to be based on the ethical ('religious') principle that equality was good (communism as an overgrown monastery) – so Marx and Engels were trying to get their own back on someone who had argued that communism was not 'scientific'.

There is clearly a long tradition in 'social science' of regarding the accusation of 'morality' as a deadly insult, so Professor Krugman clearly knows where to hit. However, is he totally wrong? Is there no connection between Austrian economics and morality?

Murray Rothbard often argued that there was a connection between the concept of economic law and the idea of natural law in ethics.

I will not examine Rothbardian Aristotelianism in this blog but I mention it in case any one supposes that I am the first person to try and explore the connections between economic law and moral law.

Von Mises (like Carl Menger before him) based his whole conception of economics on human choice - on the reasoning "I" which decides how to act and then acts. It is true that Hayek (being influenced by determinism) did not go along with the concept of agency (the choosing agent – the "I") but, in practice, Hayek accepted that people should be considered "as if" they were actually different from clock work toys so he need not be examined here (although I wonder who is doing the considering if Hayek himself was not an agent-subject – but simply a complex object like the rest of us supposed to be).

Mises himself was careful to never actually formally endorse the concept of free will (to do so would have been the ultimate horror in early 1900's Vienna) but clearly (as for the Aristotelian Menger) the whole of his thought depends on man being able to think – to consider, to make choices, to be "acting man" the agent. Agency may not be ethics but it is at least a doctrine of metaphysics. This is why both Mises and Karl Popper were amused when they were accused of being 'positivists'. The Vienna Circle would never accept any metaphysical doctrines – indeed that was the whole point of the Vienna Circle (circles with points? oh well "you know what I mean").

Still how does all this metaphysical stuff relate to practical 'policy issues'? Someone might accept that not allowing private ownership of the means of production and money prices derived from voluntary interaction will (eventually) lead to mass starvation, but still hold that mass starvation does not matter (the Cambridge economist Maurice Dobbs came close to this – he accepted that socialism was not as good at giving people what they wanted as capitalism was - but held that this was not relevant, as it did not matter what people wanted) surely then Mises' distinction between economics and morality still holds?

Perhaps. But consider this example: A man, in a society in which gold is the accepted money, finds some gold (purely by chance as he is having a walk in the wilderness), and another man, in a society in which their is a fiat currency, has the government (or central bank or other politically favoured institution) print him some money (or issue it via computer).

To the Austrian school man the effects of the two men's actions are quite different. The first man does not create a boom–bust cycle and a boom-bust cycle is exactly what the second man helps create. One can say (of course) that the first case is different because the man could use the gold for some other purpose that to make coins (he might make rings, or use the gold for an industrial process) – whereas in the second case we are dealing with an artificial made up money based on force (fiat – command).  It has been pointed out that a fiat money system need not produce a boom–bust cycle if there is no increase in the 'monetary base' and all financial institutions operate on the basis of 100% reserves – but this does not affect the current example.

But is not morality straining to get in here with every word? The made-up money has bad effects because it is based on coercion (i.e. the universe is structured in such a way that evil actions tend to have evil results overall). A man who finds gold may use it (to make things) or spend it to buy goods, or save it – none of these actions does any economic harm (as long as everything is voluntary), but a man who uses influence to have fiat money created for him will tend to produce horrible results – the relative share of resources in the process of voluntary interaction will fall, the relative share of resources in the process of involuntary interaction will rise – the golden rule that investment must be backed by real savings (not credit-money manipulation) may well be violated, 'mal-investment' – "distortion" will result and everything will be harmed. 

Certainly Mises argued that (unlike the physical universe) the world of human interaction was based on the human mind and therefore must make sense in terms of human thought (the universe may violate what seems sensible to the human mind – but human sense must make sense), but human logic (economics) and ethical thought do (at least to me) seem to be getting very close together in Austrian economics.

Is it not worthy of note that any violation of human freedom seems to reduce economic efficiency? Certainly one can say that is because economic efficiency (to the Austrian) is defined as what allows people to be as close as possible (which, of course, may not be very close at all – the physical universe limits how much we can satisfy our desires) to how they wish to live (what they wish to do, what things they wish to have and so on). Mises made it very clear that in strict economic science if people wished to have very few things having very few things was efficient and if people wished to have lots of things – well then having lots of things was efficient (as economic value was subjective).

But we can not see how all this irritates our enemies? We are building in the nonaggression principle to our basic economic laws and then saying "economic law (which is [supposedly] nothing to do with ethics) happens to vindicate our (ethical) non aggression principle" – "so you [the collectivists] are unscientific – and you are evil as well". The human universe may indeed be like this – but we should expect our enemies to be very upset with us for pointing it out.

Paul Marks

Wednesday, August 21, 2002

William Saletan continues to live up to my expectations, which I assure you is not a compliment, with a bizarre article in Slate that contends that if a law is passed in the USA to make the level at which capital losses can be written-off against income tax more generous, that would be, wait for it, "suburban socialism".

Fascinating. So lowering someone's tax burden is socialism. Let's run by that again...the state gets less of a businessman's money, which is to say, more of the 'means of production' currently in private hands remain in private hands... and that constitutes socialism?

Of course I do not expect someone like Saletan to have actually read and understood any serious books on political economy, but I would expect someone who opines on economic and political issues to have read some 'Idiots Guide to Political & Economic Systems' so that he has at least the vaguest inkling as to what the hell socialism actually means.

The plan in question is not the state socialistically redistributing wealth by taking it (via tax) from someone and giving it to someone else. No, they are just talking about reducing the amount of theft (i.e tax) the state appropriates for certain people who have run up losses: the loss making taxpayer is not getting other people's money, he is simply being allowed to keep more of his own money by off-setting losses. Duh.

Monday, August 19, 2002

Free marketeers in the U.S. are currently arguing in convincing terms that taxes on equity dividend payments should be scrapped. This, they argue, would end many of the pressures to inflate corporate accounts and the kind of shenanigans currently roiling the financial markets around the world. It is an interesting point, and made in great detail by blogger and economics writer Brink Lindsey.

Lindsey points out that the current problems in the financial system are a result of government intervention, such as restrictions on hostile takeovers, rather than laissez faire. Hostile takeovers, as he explains, actually keep management on their toes and can prevent, rather than cause, the kind of abuses that happened at Enron.

So perhaps we need more Gordon Gekkos and fewer Harvey Pitt's (head of the U.S. SEC). Not an argument one is likely to read in the New York Times.

Thursday, August 15, 2002

The cause of a free market in energy has been given a right bashing from the collapse of US energy trading firm Enron and the electricity blackouts in California. But it seems the guys and gals in Texas are showing that a properly deregulated energy market can really work. Here's a chunk of a report in the Financial Times (not availiable on FT website):

Critics warned that the state would face its biggest challenge in the heat of the summer, when power usage is greatest. Yet, already mid-way through August, Texas is still passing the test, boasting 30 percent more electricity than it needs.

I would contend that the key to this success is that Texas has gone for full deregulation, rather than the dog's breakfast of a mess created in California. In California, wholesale distributors of electricity were allowed to set their prices in a market but the retail distributors had their charges capped. When electricity prices went into hyperspace over a year ago, a lot of California's power retailers saw their balance sheets blow up. Ultimately, if the price mechanism is not allowed to work properly, how is rising consumer demand going to create the incentive to increase production?

Of course another problem in California has been the baleful influence of the Green movement, killing things like nuclear power, but that is another argument for another time.

Wednesday, August 14, 2002

Paul Marks is revealed to be the hard man of the blogosphere!

Now I have stopped writing as an unbiased person (at least as unbiased as I can be) in my blog Monetary Policy I can get on to a question that interests me as a hard money faction Austrian School man.

Those of you with the courage to read my last blog (I should have made it more plain - but I lack the wit to do so) will hopefully know that a Austrian school man of my type believes that money should be based entirely on one commodity and that institutions that issue paper money (bills of credit, whatever) should actually have enough of that commodity to cover all their notes. Traditionally people of my sort have supported the so called '100%' or 'real' gold standard (as opposed to the various statist frauds that have existed under the name of 'gold standard') - but actually any commodity might be used, and there might be competition between commodities - as there was (for example) in the Kingdom of Hanover before the mid 19th century. As long as only one commodity was used for each money and there were no fixed exchange rates between the commodities - if (for example) a certain amount of gold 'has' to buy a certain amount of silver then things are messed up.

Some people who read these blogs are well aware of the 'Austrian' arguments against Monetarists (that the concept of a 'price level' is too loose to be useful, that a price 'index' is a misunderstanding [even Hayek argued that himself at various times - but sometimes seemed to like the concept of a price index], and that the 'money supply' does not gush everywhere like water, but instead piles up like treacle - creating asset price bubbles, distorting relative prices and creating mal-investment).

However, I am not going to deal with all this here. My question is this - given that the world is not what I would wish it to be, just what will happen?

Traditionally a hard money man would say there will be a bust or a crack up boom. In a bust the government stops propping up the magic circle of 'private' financial institutions and other favoured business enterprises (by 'increasing the money supply') and the economy goes into slump. In a 'crack up boom' the government continues to increase the money supply (i.e. credit money) till there is vast open inflation (not just asset price inflation but 'prices in the shops') and a 'flight from money' occurs - and the thing comes to a terrible stop. The boom-bust cycle (with the crack up boom being far worse than a normal bust).

However, what happens if government continues to increase the credit-money supply, but not enough to create vast open 'in the shops' inflation? As the various speculations of the financial institutions and other favoured enterprises go wrong so the government increases its credit money supply to prop them up - but (by their very failures) the institutions' own credit paper ('broad money' if you like 'M3' etc) shrinks - so there is not much actual change in what people see as the 'price level'.

Well of course things become more and more inefficient as a greater and greater share of resources are devoted to propping up mal-investments - so there is general economic decline over time. But is there a formal big bust?

Readers of this should get to find out over the next few years - as governments seem determined to neither go for vast open inflation, or to allow the financial system to bust.

The economy will get worse - but in what way the process manifests itself will be very interesting.

Please take some time off from the simple process of survival, over the next few years, to observe and consider these matters. A bit of observation and thought will not reduce your survival chances (if survival is what interests you) - it may even help.

Paul Marks

Friday, August 09, 2002

There does seem to be a lot of confusion (even in libertarian circles) about monetary policy.

There are two points of view, on monetary policy, that libertarians might favour. The better known school of thought (at least better known to the media and other such) is the 'Monetarist' school of thought that holds that government should increase the money supply in line with increases in economic output in order to keep the rate of inflation at zero. And the 'Austrian' school of thought that holds that government should not increase the money supply at all.

The Monetarist school is most closely associated (in modern times) with Milton Friedman - although the situation is complicated by the fact that Dr Friedman (in recent years) has come out against a government being allowed to increase the money supply in line with the output of general goods - on the grounds that government can not be trusted with this power and that therefore the 'monetary base' (the notes, coins and other government produced money) should be 'frozen' - i.e. not increased.

The 'Austrian' school of thought is divided between those (such as F.A. Hayek) who have argued that money need not be linked to any particular commodity (hence Hayek's bringing back of the 1920's idea that money might be based on a 'basket' of different commodities held by banks in a sort of 'index money'), or at least that private institutions who issued paper money (or credit notes) need not be forced to actually have the exact amount of the commodity they claimed was backing their notes.  And the 'hard money' people who have argued that a bank (or other institution) that issues money should base it on one commodity and have enough of that commodity in its vaults to cover all its notes.

Actually the debate within the Austrian school has little political importance - as even the 'hard money' people (Ludwig Von Mises, Murray Rothbard and so on) formally agreed that a bank (or other private institution) did not have to base its notes on a commodity or have to back all its notes with this commodity - as long as it told people what it was doing. A private institution that did not base its notes on a commodity or did not have enough of that commodity to back its notes would only be guilty of fraud if it implied that it did.

The real matter of dispute was what would happen to institutions that issued unbacked paper money - with the hard money people arguing that such institutions would eventually go bust (or convince the government to bail them out).

These seemingly obscure matters of theory do matter. For example when a libertarian says that the government is increasing the money supply 'too much' he is talking as a Monetarist (whether he knows it or not) - as an Austrian school man (of whatever faction) would hold that government had no business being involved in increasing the money supply at all.

For the record I am Austrian school man - and of the 'hard money' faction. Any book choice I recommended might well be influenced by these facts - so I will stop here.

Paul Marks

Monday, August 05, 2002

Paul Marks reads what is generally said to be a 'pro-free market' newspaper and find a procession of writers who do not have the slightest idea what they are talking about

Page four of the Sunday Telegraph business supplement (4 August 2002) tells us quite a lot of the state of what passes for free market thought in Britain today - remember the 'Sunday Telegraph' is about as free market as mainstream Britain gets, the other newspapers (let alone radio and television programs) are far worse.

There are three articles on the page. The first article is by Jeff Randall of the BBC Mr Randall is one of several B.B.C. people who write in the Daily and Sunday Telegraph and such people are given as evidence that the B.B.C. is tolerant of free market thought. My own opinion is that the Telegraph is rather welcoming to anti free market thought - but I must deal with the article on its merits (not on basis that the author works for the BBC.)

Mr Randall writes about two topics in his article. The second topic is the stupidity of the Football League - a topic I know little about. However, Mr Randall starts his article by writing about the 1990's stock market bubble. Mr Randall blames the whole thing on stupid greedy people (businessmen, politicians, ordinary investors and so on) and gives several examples of stupid behaviour.

Mr Randall shows little sign of understanding that the bubble was created by an expansion of credit-money by the Federal Reserve Board and the other central banks. But why should Mr Randall understand this? The source of Mr Randall's understanding of economics is that "classic work" by J.K. Galbraith "The Great Crash". J.K. Galbraith (being a socialist) would hardly blame the great depression on government credit-money expansion - no, greedy businessmen and other silly people were the cause. Being mostly University graduates Sunday Telegraph readers are likely to have heard of Galbraith's work. However, it is very unlikely that the average reader (or even Mr Randall himself) has heard of Ludwig Von Mises' "Theory of Money and Credit" or Murray Rothbard's "America's Great Depression".

The basic truth that investment must be based on real savings and that trying to base investment on credit-money expansion via the central bank system MUST lead to a boom-bust cycle (whatever the moral character of businessmen) is not something that it is generally known. And how can Conservative "Telegraph" readers get to know about it? The socialists are not going to tell them - and anti-socialist establishment types such as Mr Alan Greenspan of the Federal Reserve Board are not going to tell them either. Even if the establishment types know what they have done (and I suspect that Mr Greenspan is one of the few people in the international finance "community" who actually does know what he has done) they are hardly going to say "look, we have created a boom-bust cycle", such a statement would not make them popular. It is far better to blame "greed".

The second article (on page four of the business supplement of the Sunday Telegraph) is by Evan Davis (another BBC man). Mr Davis notes that people in some Continental nations tend to save more than people in Britain or the United States. Mr Davis concludes from this that the E.U. central bank should cut interest rates - as this will encourage the people in Europe to spend and invest, rather than save.

Mr Davis is unaware that investment depends on saving (I suppose he thinks that "saving" means hiding money under the floor boards). Mr Davis is also unaware that people must produce before they can consume. All efforts to "stimulate the economy" by getting people to buy more things are putting the cart before the horse.

However, there is no reason why Mr Davis should know any of this - he could spend as much time as he wished in university economics departments without learning any of it. The business people who read the "Sunday Telegraph" are (no doubt) quite happy to think that all would be well if only people had more money to buy their products. Why should the business people not think like this? No one has ever told them anything different.

Mr Davis points out that there is less of a house price bubble in most continental nations and that the stock markets have not reached the heights seen in the United States. However, Mr Davis does not point out that there has in fact been vast money supply growth in most Continental nations and that presently the Euro money supply growth figures are higher than money supply growth figures for the United States - see the back pages of the "Economist" magazine for the figures.

The idea that the effects of the boom-bust cycle in Britain and the United States can be mitigated by further money supply expansion in the Euro Zone is insane - but there is no reason why Mr Davis (or his readers) should know that it is insane.

The last article (on page four of the business supplement of the Sunday Telegraph) is by Luke Johnson (chairman of Signature Restaurants). Mr Johnson is concerned about the rise of China and the relative decline of the West in manufacturing.

Mr Johnson knows little about "macro economic" matters - for example he thinks that the "relentless deflation now present in all economies" is due to China manufacturing cheap goods. Actually there is "deflation" (i.e. falling prices) in virtually no Western nations (apart from Japan) - and the falls in asset values that we have seen (and will see a lot more of next year) are due to the credit bubble (which is still being pumped up) nearing its terrible end. Mr Johnson does mention the credit bubble - but being a businessman he prefers to deal with something he can see in terms of physical goods (in this case the manufactured goods of China).

Mr Johnson is actually right to dismiss the idea that manufacturing does not matter - I know only to well that "service industries" normally do not mean flashy things (and when they do mean flashy things - they are often unstable credit bubble linked things such as "financial services"). Mostly "services" are things like the warehouses that have replaced the factories of the midlands (and much of the rest of Britain). And anyone who thinks that warehouse work, looking after goods imported from abroad, is a real substitute for actually making things is simply wrong.

Mr Johnson makes too much of China's low wages (there are nations with much lower wages than China that produce very little in terms of manufactured goods - and there is no reason why, with automation, "high wage" areas can not hold their own against "low wage" areas).

However, Mr Johnson is right to point out that depending on a hostile power (and China is deeply hostile to the west) for essential manufactured goods may be unwise. Although one should remember that a real market order can adapt very fast - for example the British military, to some extent, depended on goods produced in Germany in 1914 (even down to the dye for army uniforms) - but this did not prevent Britain fighting Germany (British firms filled the gaps).

But Mr Johnson's last but one paragraph makes his most important point (and shows there is some reason to read the 'Telegraph' papers, rather than reading the 'Guardian' or watching the BBC.).

"Fatuous E.U. bureaucrats legislate for more burdensome health and safety regulations, higher taxes, and more red tape for business, and insist that curing unemployment is a priority".

When they are dealing with "micro" economics (as opposed to the financial magic of "macro" economics) Telegraph business people have something to say. It is the taxes, spending and regulations of Western nations (E.U. or not E.U.) that is helping destroy Western industry - not a wicked Chinese plot. Of course Western industry is also being destroyed by the boom-bust cycle, the very demands for "lower interest rates" and "more consumer demand" that we hear from business people in every Western nation.

They are rich, they are well meaning, they are hard working - but (sadly) they are ignorant.

Paul Marks

Friday, August 02, 2002

It has long seemed to me that as interest rates have been forced to a ludicrous 40 year low, there is no real reason to keep money sitting in a bank as once the government appropriates a chunk of the pitiful interest on your cash, you might just as well have it stashed under your bed.

The rational view is that rather that seeing a bank as intermediary to invest your money for you, it is really just a glorified piggy bank... a supposedly safe place to invest your money. But then when you add in the fact retail banks go out of their way to pile on service costs and pull such 'fast ones' as taking up to four days to clear cheques (thereby pocketing a few days interest on the uncleared funds), when in reality they are capable of clearing the transaction before you have walked away from the counter, it is hardly surprising that retail banks are hearing the first rumblings of a consumer revolt.

I have always thought consumer boycotts were splendid things but quite why the inane Independent Banking Advisory Service (IBAS), a bank consumer group, is calling for a windfall tax (free registration required for link to ERisk Portal) on banks as a result is not so clear.

[Eddie Wetherill of the IBAS says] Nobody can understand how charges are calculated or precisely when they apply. The banks appear a law unto themselves.The Government has made fancy promises to be the consumer champion, but in reality it appears to have been in the pockets of the banks. We are calling for a windfall tax. They have ripped off the public and ought to be paying back £5-10 billion. We have seen ten years of plundering.

And as a consumer of retail banking services, exactly how do I benefit from having the government help itself to the bank's funds? Does Wetherill think the state is going to appropriate £5-10 billion from the banks and then dole it out to retail banking customers? How idiotic. The government already takes a great deal more of my money that my bank ever has and any 'windfall tax' is just going to make the bank a less solvent less secure piggy bank without helping me one iota. With 'friends' like the Independent Banking Advisory Service, who needs enemies?

Wednesday, July 31, 2002

Happy birthday, Professor Milton Friedman! Chicago's greatest academic passes the 90-year milestone today. Now there are many ways we Samizdatistas got to hold the views we do, but speaking for myself, Prof. Friedman was a key factor.

I recall reading his book Free to Choose when I must have been in my mid-teens, and found the clarity of his writing and often wry comments about the insanity of Big Government a compelling combination. As a youngster, I found his arguments easy to understand but they never patronised the reader. He surely ranks alongside Ludwig Mises, Murray Rothbard, Ayn Rand, F.A. Hayek and Robert Nozick as one of the giant figures in the libertarian counter-revolution after the Second World War.

Tuesday, July 30, 2002

Remember Clinton's "Don't Ask, Don't Tell" policy for admitting gays into the US military? It appears that Big Media has adopted a "Don't Know, Don't Care" approach to covering the tumultuous stock market. Cal-Berkeley journalism prof Orville Schell says that Big Media's obliviousness to the looming financial scandals stemmed in part from the fact that they are part of the corporate world too.

Maybe that's why Big Media failed on the investigative side, but that still doesn't explain how it is that the largest and most reputable media outlets in the world are simply at a loss to tell their readers what is happening in the financial markets. Instead of providing answers, they rely on pop-culture cliches, psychobabble and a Rolodex full of self-serving "experts." Here are three of the worst examples of the DK/DC mentality in recent days from three major news sources: MSNBC, the New York Times, and CNN.

Exhibit 1: MSNBC on Market timing

MSNBC wonders out loud whether it is possible to "time" the market -- that is, can investors count on making extra money in the stock market by picking the optimal times to buy and sell? This is hardly a controversial issue in the finance community -- the weakest version of the Efficient Market Hypothesis (EMH) says that you cannot forecast stock prices by extrapolating present trends or by overlaying historical cycles -- that "market timing" is fool's gold. Yet in an attempt to make the story "balanced," MSNBC gives disproportionate weight to the crankish opinions of a "stock cycle" fetishist named Peter Eliades. The author of the story is totally unable to critically assess Eliades' claims.

Never mind that stock cycle theory is the phrenology of the finance world -- Peter Eliades is telling us that he can make money timing stocks. His "proof": stock prices fluctuate, so it is critical to buy and sell at the right times. Gee, you mean I would make more money if I bought at a lower price and sold at a higher one? That is a tautology, not an argument; it is not proof that any valid strategy for forecasting the peaks and valleys of the market can be devised. The MSNBC author seems totally incapable of making this critical distinction.

As for Mr. Eliades, we are told that he "[has] his money in cash until the market shows clearer signs of its next move." So he essentially concedes that he doesn't know how to time the market either, but this point is also lost on the author of the piece. And why on earth is he in cash? Is cash the only alternative to corporate equities? But since MSNBC knows as much about securities markets as Mr. Eliades -- next to nothing -- he is their peer, and as such is taken at face value by clueless Big Media scribes.

If you are concerned about when to get out of the stock market, you can always hedge your bets by selling off your stock portfolio a little at a time, smoothing out the bumps in the ride. Market timing poses no crisis to smart, disciplined investors.

Exhibit 2: The NY Times on the recovery

I picked this next quote not because I felt like picking on the New York Times, but because I think that it is all too typical of pseudoscientific analysis of the stock market and the sheer pervasiveness of the DK/DC policy by Big Media in general. It could have come from any newspaper. This is how The Gray Lady attempts to explain Monday's stock market rally:

Emboldened by the broad market's ability last week to snap a three-week losing streak, investors jumped back into the market on Monday, scooping up stocks with beaten-down prices.

Stock prices rose because investors jumped back into the market? Hmmm ... how did these investors "jump into" the stock market? By purchasing stocks from the Stock Market Fairy, right? No, they bought shares from willing sellers who were already in the market and wanted to reduce their exposure to those particular securities. Every share of stock that is traded on the NYSE is simultaneously bought and sold, by definition. Duh!

And what is with this psychobabble? In an absurd anthropomorphosis, the Times tells us that the market had the "ability" to snap a losing streak. Markets don't have "abilities" -- markets do not "struggle" to "find their level" or "seek to reverse their losses" or whatever other characteristics journalists assign; markets simply calculate the prices needed to avoid surplus or shortage conditions. If the buyers were "emboldened," what does that say about the investors who sold their shares to the emboldened buyers? Are they wusses?

Exhibit 3: CNN on the scandals

This CNN piece is typical of the media's DK/DC attitude toward the
corporate earnings scandals. Investors, we are told over and over again, have been "alarmed" and "shaken" by various scandals in which senior management "cooked the books" to overstate profits. Well, maybe rank amateurs and ham-fisted day traders allow measures like "earnings per share" drive their investment decisions, but as they tell you in accounting courses -- profit is opinion, cash flow is fact.

If I am a CFO, which would I rather do: report higher earnings or lower earnings? Suppose that I have the option of valuing inventory in two ways, one of which would result in a higher cost of goods sold; or suppose that I can choose from two depreciation schedules for my fixed assets, one of which would cause me to take more depreciation expense sooner in the life of the asset. In either case, I'll take the option that depresses current earnings, thus minimizing current tax liability and giving me more cash sooner. Tax reforms such as accelerated depreciation and LIFO (last in, first out) inventory modelling would allow corporations to report LESS taxable income while INCREASING their cash flow by decreasing their tax liability. Investors value a stock for the company's ability to generate cash to pay dividends, not for its ability to enrich Uncle Sam.

A healthy firm is going to try to err on the low side when reporting earnings. For a struggling, nearly insolvent firm like MCI WorldCom or Enron, the incentives might be reversed if, for example, reporting very low or negative earnings would cause the firm's bond rating to fall substantially. WorldCom and Enron were highly leveraged, which means (1) that they are extremely sensitive to the cost of financing their debt and (2) that they are extremely sensitive to downturns in the business cycle. Firms that are fighting for survival, and management that is trying to hold on to power, might try anything. But it is fatuous to treat every business as the exception to the rule.

Here is something that Big Media is not going to tell you: the outright majority of the value of the US stock market is owned by financial institutions (e.g. investing intermediaries such as mutual funds, and contractual intermediaries such as pension funds and life insurance.) Households are net sellers of individual stocks, but they are net buyers of mutual funds. In other words, households are still heavily vested in the stock market, but they are investing indirectly through professionally managed mutual funds and pension funds, etc. A pension fund manager is not going to be swayed by a cash flow statement that tries to shift $4 billion from operating activities to financing activities (as WorldCom did) -- these people are just not duped that easily.

So is "shattered investor confidence" the reason the stock market is falling? Call me a heretic, but I think the scandals have relatively little to do with the declining US stock market. I think it has more to do with the EU Savings Tax Directive, which Perry has discussed below. The US stock market was fueled in the '90s by massive foreign investment in American equities (British Petroleum buying Amoco, Daimler-Benz buying Chrysler, etc.) Europeans prefer to set up American holding companies to invest in the US, earning income on their investments that is taxed at (comparably low) American corporate tax rates.

The US attracts massive amounts of foreign investment (another way to say this is that the US has a massive current account deficit) because the US has relatively low tax rates, and relatively light regulatory burdens. But the EU considers this "unfair tax competition" and is trying to establish a tax cartel that would tax receipts of income earned in the US by Europeans at higher European rates. To the extent that such a thing would make investment in the US less profitable, it has reduced the global demand for American corporate equities. It's just a theory, but at least it is a theory backed by some evidence, not just a bunch of tiresome cliches pastiched together into a jejune news story.

Monday, July 29, 2002

Call me an incurable optimist, but I can't help wonder whether the recent jarring fall in the price of gold to near the psychologically-key $300 per ounce level may be a sign that the worst is over in the global stock market.

Gold has shot up in recent months partly because it is seen as a safe store of value at a time of cratering equity markets, corporate scandals and worries about developments in the Middle East. Now that yellow stuff is getting cheaper again. A straw in the wind, perhaps. But without investing erroneous mystique in this metal, I think its recent fall from highs is the market's way of telling us that better times may be ahead.

On the other hand, if an when the U.S. goes after Iraq, gold may go into hyperspace for a while.

Thursday, July 25, 2002

The good news is that it looks like there is no significant support for the US joining what can only be described as a monstrous tax cartel with truly global reach being advocated by the high tax states of Europe.

This is truly splendid but do not for a moment think that this is the last we have heard of attempts to end the 'unfair' competitive advantages of lower tax economies.

Friday, July 19, 2002

There is an excellent, detailed and revealing interview in the July edition of techie magazine Wired with supply-side economics writer and computer enthusiast George Gilder. I missed it when the magazine came out but caught it on the net this morning.

Gilder is one of my favourite writers on economics. He can actually make the often-dry subject matter really sing, in a way few others can. His first major book, Wealth and Poverty, published in the early 1980s, helped to provide the intellectual ammunition for Reagan and Thatcher's supply-side tax cuts, the beneficial effects of which are - mostly - still with us. I recall an enjoyable evening, about 17 years ago (!) when Gilder came along to the now-defunct Alternative Bookshop in Convent Garden, central London, to talk about his following book, The Spirit of Enterprise. After that book was published he turned his attention almost full-time to writing about technology, especially the whole area surrounding computers and the Internet. He later became something of an investment guru, which initially made him a very wealthy man.

Gilder has taken a hard knock from the meltdown in technology stocks over the past two years, but his boyish enthusiasm for what the future can hold is undimmed. The man is a tonic, even when reflecting on the rough times he has endured over the past two years.

Now that our own British government seems bent upon wholesale reversal of some hard-won supply-side reforms, his message needs to be broadcast again.

Thursday, July 18, 2002

One of the threats to economic freedom is the state sponsored cartel, in which groups of economic agents can collude to fix prices with the aid of the state, crushing opportunities for lower prices from newcomers to the market. A particularly dangerous cartel is in the offing - the global tax cartel. Such a cartel is the aim of the European Union, which in the name of tax "harmonisation" wishes to prevent countries, especially the United States, from setting taxes at rates lower than those in the EU. The EU, dominated in recent years by leftist governments hostile to the market, resents the way in which the Anglosphere nations have been able to outperform the EU in terms of growth and job creation. The latest manifestation of this desire is enshrined in what is called the "savings tax directive".

One of the great things about global free markets has been the ability of financial capital to whizz around the planet, seeking out the best returns and the countries with the lowest tax rates. This financial freedom has forced many a government to give up tax-and-spend policies and follow a more market-friendly path. And that is precisely why the High Priests of Big Government at the EU wish for such a cartel. I am quietly optimistic, though, that American politicians will see this proposal for what it is, a desire to shaft American enterprise and hobble the global economy. (I may be wrong, of course) It comes at a time when there has been a lot of friction between America and Europe post September 11. Tthe threat of a tax cartel to throttle American enterprise will only deepen the rift.

With this in mind may I commend readers the freedomandprosperity.org website, which is a lobby group and publishing house giving a full list of articles spelling out the horrors of tax harmonisation. They also have email addresses so that people can contact Senators and Representatives about this crucial issue.

Wednesday, July 17, 2002

It is difficult to get one's mind around the vast sums of taxpayers' money that British finance minister Gordon Brown has planned to hurl at our public sector. The sums are mind-numbing. The spending plans are predicated on some pretty rosy forecasts for the British economy over the next few years, not to mention some fairly dubious accounting methods which reduce the potential bill to the taxpayer from infrastructure projects.

Those rosy forecasts could easily fail to materialise, particularly as mounting red tape, higher taxes and growing interference from the EU clogs the arteries of the UK economy. What is beyond doubt in my mind is that "New Labour", that strange political entity supposedly different from old tax-and-spend Labour, is dead. Central control of finance, big spending, handouts for the public sector unions - the whole unlovely mix is back. And of course Brown's announcement on Monday of this spending mania was accompanied by a sharp fall in British equities to the lowest levels in six years. Of course much of the damage to stocks stems from events in the U.S., mired as it is in accounting scandals. But one cannot help but conclude that Brown's charmed existence for the first five years of his time in the job is about to get a lot rougher.

There may be some upside to all this. Brown's attempt to improve our creaking health and education system may prove the futility of state monopoly as the ideal way to deliver good service and give the opposition Conservatives ammunition for the case for root and branch reform. But I would not bet the farm on it just yet.

Tuesday, July 16, 2002

Paul Staines thinks Alan Greenspan as a canny operator who requires some careful interpretation

Yep, the 80s are over, Gordon Gekko is dead and buried, Gordon Brown lives,
the stock market is going to the Antarctic, CEOs are going to jail and now the
high priest of central banking himself says greed got out of control in the
90s.

I admit to never understanding why Disney's Eisner would be motivated to
work Mickey Mouse harder if he had $300m in stock options instead of $100m,
but hey, I thought it was up to the shareholders to decide rather than the
readers of the New York Times. Enron was pretty bad, the accountants seem
to have been looking the other way and the CEOs were acting like robber
barons of yore.

Today the Federal Reserve chairman Alan Greenspan was giving his biannual
testimony to congress. Markets stop and listen, particularly when they are
in trouble - and boy are they trouble today - I had CNBC ("bubblevision")
playing him live whilst trying to figure out how not to lose money, I heard
him say "the latter part of the 1990s ... arguably engendered an outsized
increase in opportunities for avarice. An infectious greed seemed to grip
much of our business community.."

Guilty as charged. For a period in 1999 to 2001 whilst the NASDAQ got
gloriously irrationally exuberant, I was completely infected with greed, my
altruistic immunity system shutdown. Hot dot.com IPOs? "Gimme, gimme,
gimme" I cried. "Yahoo! Lets go Cisco!" I wasn't the only one, an old
friend is currently staying with me. He is a private banker, he grew his
family's nest egg 2000% in four years, then wiped it out in one year. His
wife is suing him, not for divorce, but for misadvising her in his capacity
as her broker. (Memo to self, never marry an American lawyer).

Greenspan has been very clever in his testimony, he has defended capitalism
whilst decrying capitalists and their avarice. He basically said the
bull market gold rush of the 90s overwhelmed the checks and balances of
American capitalism, but capitalism is good, just some capitalists are bad.
I could further summarize what he said but why not click to the Fed's own page for yourself.

Oh, one of the big insurance companies has just announced that it "is not a
forced seller of equities". Hmmm.

Wednesday, July 03, 2002

I spent a couple of torpid hours on Tuesday afternoon listening to the billionaire hedge fund king and now globetrotting philanthropist George Soros give a talk to a British parliamentary committee. Soros is the man who, to the everlasting gratitude of the British public, attacked the pound sterling in the foreign exchange markets during September 1992, ejecting this country out of the European Exchange Rate Mechanism (ERM), a move which allowed the pound to fall to a level that made it possible for British goods to be profitably sold abroad once more. So one might have thought that the Hungarian-born finance wizard would be a hero to this humble hack. Alas, the man has feet of clay, and very big lumps of clay at that.

Soros has spent the last few years ruminating about the many dangers of global capitalism, which is a bit like Formula One racing ace Michael Schumacher warning about the risks of high-speed motor racing. Soros thinks the globalisation of capitalism, while not without a few benefits, is full of dangers and problems, which require rules and international watchdogs to run things. Here are a few snippets:

"The major causes of poverty are bad governance and bad location."

Well, I agree bad governments contribute to poverty, and there are dozens of examples of how collectivist regimes of various stripes have beggared their populaces and retarded wealth creation down the centuries. Take the current miserable example of Zimbabwe, for example. But bad location? Does Soros think that unfortunate geography causes poverty? Then how does he explain why places like Hong Kong, with hardly any natural resources apart from good shipping links, are fabulously wealthy, while most of Africa, with huge mineral wealth, subsides in misery? The same goes for large chunks of Asia and parts of Latin America.

"Governments are less well situated to provide public goods than they were because they cannot tax capital as they used to. We need to strengthen international institutions for the provision of public goods."

Well, all I can say to that is - thank heaven for multinationals. By George, George has got it! International capital flows are cramping the ability of would-be socialist spend-it-like-water governments from doing what they used to do. The likes of British Prime Minister Tony Blair have been forced, through gritted teeth, to rein in old socialist habits on the knowledge that financial markets will punish those habits in a heartbeat.

George Soros is clearly a highly clever man when it comes to making dollops of money beyond most folks' wildest dreams, but I fear that like many in his case, he has almost rebelled against the free market order in which he made his billions out of guilt or perhaps more honorably, out of a desire to help mankind from his lofty vantage point. It bears out the point I have sometimes heard in libertarian circles that capitalists often make the worst advocates of the classical liberal order.

Friday, June 28, 2002

On June 18th I attended an IEA lecture addressed by the Peruvian property rights advocate and analyst Hernando de Soto, author of The Other Path and more recently The Mystery of Capital, and I promised a report. I apologise that this is a belated report, but this has also given me time to think. (I also said I hoped to get a picture of the great man, but he rushed away as soon as he'd given his talk and I didn't manage this.)

De Soto understands that property is a social fact. Property rights are triggered by ownership documents and written records and de Soto makes much of these triggers, often to the point of saying that they are the property. No, the property is the property. But the bits of paper make it clear to the world that this is what it is and who owns it.

De Soto's key insight is that poor countries are poor not because they don't contain enough potential property, but because the abundance of informal property that they do contain has mostly not yet been nailed down in writing. It therefore can't be traded, or used as collateral. There can't be a modern economy. De Soto's life's work is to try to set in motion the political and legal processes necessary to correct this. He lobbies politicians, he speechifies, he writes books. He gives lectures like the one I attended.

Most of what de Soto said at the lecture echoed things I'd already read in The Mystery of Capital. But the question and answer session contained what for me were novelties.

He said that the reason so many of the world's poor like growing "drugs" is that drugs offer a quick return, in a world of insecure property rights. Contrive more secure property rights, and the poor of, e.g., Columbia would have an incentive to go into more respectable businesses which take longer to yield a profit. Interesting.

How, someone asked do you persuade the existing powers-that-be that clearer property rights are good? How about the police? You have to look at things from their point of view, he said. It is easier to catch criminals if you have a property rights paper trail to follow. Property in other words, doesn't just attach my home to me, it attaches me to my home. It tells the police where to go if they want to talk to me. Interesting, and somewhat creepy.

He said that that if he wants to get the right things done, he has to let the politicians take the credit. Accordingly he no longer boasts about what "he" has been doing, which is why the website of his Institute for Liberty and Democracy has gone so quiet lately. (I'd wondered about why that was.) So, how much notice are governments actually taking of this man? That he was in a great rush after giving his IEA lecture suggested that he has vital business constantly on the go, but who knows? Not me.

I hope that powerful people are paying attention to this man, because what he says still sounds convincing. Indeed it is the best big idea about ending world poverty that I know of. But although I still think de Soto is a great man, under his influence I find myself seeing property - indeed the entire modern world - in a different and rather gloomier light, almost as a pact with the devil. We must have it, but we all know where "paper trails" can lead.

Saturday, June 22, 2002

Paul Marks casts a jaundiced eye at real voodoo economics.

The latest crackbrained theory to hit the media is the "Brazil must win for Wall Street" argument.

This argument holds that if Brazil wins the world cup "confidence" in Brazil will improve, an Argentina style collapse will be avoided, the 'Right' will win the election - and the money lent to Brazil by various 'Wall Street' institutions will be safe.

Of course if the term 'Right' means anti-statist the argument is out of touch with reality - as the government of Brazil are a bunch of social democrats and the opposition 'Workers Party' are worse.

However. the problem with the argument is rather more basic than this. The argument is really anther example of J.M. Keynes' theory that a change in 'confidence' ('animal spirits') creates slumps.

Actually government credit money expansions create the boom-bust cycle.

This may have been explained a long time ago (David Hume stated it in a basic way - and Mises explained it in detail many decades ago), but 'Wall Street' and the media do not have a clue.

Everyone reading this blog may be saying to themselves "why is Paul Marks telling us things we already know" - but the problem is that the powers that be in our world do NOT know these things. They are not evil - they are ignorant. Ignorant of the basic principles of political economy.

Of course if Brazil wins the World Cup its economy will still collapse, but will that lead the people of power in our world to do some real thinking? I doubt it.

Paul Marks

Thursday, June 20, 2002

The World Cup is a positive image of globalisation: it isn't a government project, it's racism free, it's about as capitalist as it gets and celebrates individual and team efforts. It also allows national hatreds to be acted out without anyone getting killed. Even the refereeing is generally better than some previous shockers.

Especially wonderful has been the willingness of Japanese spectators to 'adopt' teams and players regardless of national origin. The sight of Japanese supporters of Belgium against Brazil was surreal.

Wednesday, June 19, 2002

Actually, GBRI stands for Global Business Research Initiative, and to call it the brainchild of my good friend Syed Kamall somewhat exaggerates its current level of development. The enterprise is now hardly more than a strand of intellectual DNA.

Mission

- The GBRI exists to promote a greater public understanding of the role of business in spreading prosperity across the globe.

The GBRI’s Work

- Our initial work will concentrate on barriers to free trade.

- We will identify and expose human and cultural barriers to trade, as well as traditional barriers such as tariffs.

- We aim to educate people about different business cultures across the world.

- We will publish the work of leading businessmen, economists and policy thinkers from across the globe.

- We will also seek to promote new, young intellectual talent and fresh perspectives.

And so on. A few more bullet points follow. If all I knew of the GBRI was the small amount of verbiage currently on offer at its website, I'd be saying: could mean anything and probably means nothing. However, I had supper with Syed yesterday evening at his home and it all sounded decidedly promising. The Internet has massively reduced the costs in cash, office space, time and emotional wear-and-tear of running something like the GBRI, and Syed is not merely enthusiastic; he is also capable and not given to exaggeration. So I too am optimistic, and will keep you posted of developments, as and when.

Tuesday, June 18, 2002

Brian remarks that no one posts him advice about what to say about Third World poverty, but that he was relatively flooded with info about the US soccer team. This is a good sign. Worrying about the US soccer team is a relatively harmless past-time. (Revelling in their defeat of Mexico might be dangerous in some places however). The libertarian answer to what radio listeners should do about the Third World is basically "do nothing". The three main obstacles to enrichment of people in the Third World fifteen years ago were:

1) the skirmishing of the Cold War (which I think was justified by anti-Soviet forces)

2) the absence of the rule of law

3) trade barriers and a belief that socialism was better than capitalism for developing economies

The first is redundant.

The second can only come about by internal pressures or by the imposition of direct colonial rule from the only country whose constitution I would trust: Switzerland. Realistically this means, the Africans are going to have to sort it out for themselves.

The third is very simple. We oppose Bush's trade tarriffs. We want the European Union Common Agricultural Policy abolished immediately. We should also try to stop the IMF and the World Bank from financing welfare state programmes in countries that can't afford them (and never will afford them, if they try to leap from pre-industrial to welfare-underclass in one go).

BRING ON BRAZIL!!!!!!!!!

Friday, June 14, 2002

Doesn't sound like such a big deal does it? Portugal out? What's new? So are France. So are Argentina. No, the big story is that the USA are through to the last 16, despite being beaten 3-1 by Poland. Weird weird world (cup) or what?

On a more serious note, I'm doing a broadcast for BBC Radio Scotland this Sunday morning (at about 9.15 am) on the subject of what the Trade Justice Movement hopes will be a big demo by the Trade Justice Movement. What should I say? Their campaign seems to be big on waffle and weak on specifics, which I think is probably good because any specifics they favour would probably be bad. So what specifics (a particular identified tarriff barrier - a particular WTO procedure or rule or programme) should I talk about?

Please don't email me with why free market economics in general is better than statism in general for getting rid of world poverty. I already know that.

Thursday, June 13, 2002

A few days ago, I received through the post one of those half-book half-pamphlet things (only 85 pages long but with a readable spine) that have so abounded ever since the Institute of Economic Affairs got into its stride, this one being from the Social Affairs Unit. It is called Marketing The Revolution: The New Anti-Capitalism and The Attack Upon Corporate Brands. It's by Michael Mosbacher, who is a longish standing friend/acquaintance of mine. It's good.

There's a biographical note at the back which tells us that Mike, who is now the Deputy Director of the Social Affairs Unit, once upon a time "studied politics at Exeter University, writing his Master's dissertation on the impact of the collapse of communism in Eastern Europe and the Soviet Union upon the British Communist movement". This, or something pretty like it, was published by the Libertarian Alliance as Political Notes No. 127. This new piece is the logical successor of that earlier one. It describes some of the new globalised groups and campaigning methods and ideological themes that have elbowed their way forward to fill the void once occupied by those pathetic old Bolsheviks and all their massed ranks of useful and not so useful idiots.

Here's a chunk, not from the piece itself, but from the press release that arrived with it:

The broader message is an old, and rather tired one, hatred of capitalism, the belief that the world is diametrically and permanently divided between the exploiting corporate fat cat few and the exploited masses. What's changed is the way that message is now being marketed to a new, wider audience by piggy-backing on the corporations' own publicity. The activists do this, often via websites, by cleverly parodying corporate ads, organising media-friendly stunts at AGMs and launching boycotts.

That you can play games with a famous brand and get your joke bounced around the world at virtually no cost to yourself is a fact that Samizdata readers have several times also been invited to enjoy. Think of the logo adaptations we've featured of London Underground ("take a taxi"), and of Intel ("Big Brother inside").

Would that Mike Mosbacher's work was making equally clever use of the Internet. Alas, the Social Affairs Unit website makes that of my dear old Libertarian Alliance look downright advanced. That it doesn't refer in any way to this publication is peculiar (although technical difficulties have also prevented any reference to the LA's latest batch of paper yet finding its way onto our site). But far worse than that, the SAU website commits the basic old-school sin of using the internet only to try to sell paper, instead of also to distribute text free of charge. There's nowhere on the site from which you can download anything "published" by the SAU, other than short bits of sales blurb. If you actually want to read anything substantial that they've "published", you have to order it through the post. You have to pay money. (For all the difference it can make me saying it here, you can buy Marketing the Revolution by sending GBP9.95p plus GBP1 for postage and packing (blogspotbollocks won't do pound signs so please decypher that as best you can) to: Social Affairs Unit, 314-322 Regent Street, London, W1B 3BB. Or ring Mike Mosbacher himself on 020 7637 4356.)

You've got to make a living, and if you are in politics, "public affairs" etc., that tends to involve doing things that ignorant old people think will influence the young, rather than doing things that actually will influence them. I don't blame Mike Mosbacher for the foolishness of writing interesting things about the internet but then publishing them in an internet-hostile manner. Well, maybe I do, because like I say he doesn't just write for the SAU; he is its Deputy Director. Whatever. But let's be clear what the next step is: an internet presentation of Mike's stuff which actually deploys some of the good work that he's been doing in an internet-usable form.

Because it is good work. Mike is not overwhelmingly strong, for my taste, on analysis. His big picture is somewhat unpersuasive. He makes much, for example, of the fact that anti-capitalists make a living within the world of actually existing capitalism by having capitalist money of their own, and by accepting great lashings of it from others who do if they don't. So what? This is like moaning about Soviet dissidents who also had jobs as government scientists. What were they supposed to do? Starve? The case against these anti-capitalists isn't that they are taking money from capitalism to trash capitalism; it is that they are trashing capitalism.

But if the big picture is somewhat blurred, the small pictures are in exact focus again and again. Just as with PN127, Mike digs into just how this campaign operates, and what that bunch of lefty-capitalist self-haters actually say and do and ill-spend their well-gotten gains. Waffle it is not. And again as with PN127 (communists who reviewed that said it was very accurate), those it describes would recognise the details as accurate rather than the polemical and inaccurate waffle that is often presented as anti-anti-capitalist "analysis".

Mike is good on the way that capitalism appropriates the imagery of youthful rebellion and uses it to sell things to those same youths when they get a bit older. (While doing this I also noted a TV advert featuring the late Jimmy Hendricks emitting all manner of anti-establishmentarian vibrations via the latest psychedelic computer-graphical trickeries, in honour of the latest Audi.)

But one of the better bits of analysis comes not from the text itself, but from that same press release which I've already referred to. Just after the bit quoted above, it goes on to say:

Because its impulse is anti-capitalism rather than ameliorating the practice of corporations, the anti-corporate movement views progressive corporate policies as simply an attempt to mask the true nature of capitalism; which it is their mission to unmask. The harder an individual corporation seeks to show that it is doing good, the more important it becomes for these activists to seek to show that it is not. Progressive companies are attacked not in spite of, but because of their progressiveness.

I don't remember anything as bang-on-the-nail as that in the thing itself, although of course in Marketing the Revolution itself there's much more detail:

The TV stations of Turner and the skin care products and lotions of the Roddicks are, of course, themselves identified by the anti-branders with all the alleged sins of branding. They are, in fact, seen as especially heinous offenders by some: the mainstream media represented by Ted Turner is seen as the engine behind the construction of the branded world and Anita Roddick is the champion of what they see as the blind alley of 'ethical consumerism'. Hence, The Body Shop was a prominent target on the web-based hit list of corporations to be subject to 'anti-capitalist actions on Tuesday 1st May 2001'.

Here we have a principle that might enable the pro-capitalist movement to start making some waves of its own, by piggy-backing on the anti-capitalists. We can note which corporations are trying to be seriously "progressive" to the point of being actually anti- any capitalism but their own, and especially if they are doing this not just with their messages but with their money. We can point out to them not only that they are asking for trouble, but that, if they don't stop letting the capitalist side down, we will set the anti-capitalist dogs on them.

It's no use blaming anti-capitalists from getting money from whoever they can, but you damn well can blame capitalists for giving it to them.

Wednesday, June 12, 2002

Hard-line socialist journalist Paul Foot Paul Foot waxes indignant in the Guardian newspaper on Wednesday about what he sees as the systemic sickness of capitalism, as demonstrated in his view by the demise of such U.S. corporate behemoths as Enron Corp and conglomerate Tyco. Foot quotes the Goldman Sachs chief executive Hank Paulson, who warned last week that "Business has never been under so much scrutiny. To be blunt, much of it is deserved."

These words, which will hardly strike readers of this blog as controversial, come in for the following Foot broadside. Let's quote the man in full: "The problem with this argument is that it overlooks the central feature of capitalism: the division of the human race into those who profit from human endeavour and those who don't. This division demands freedom for employers, and discipline for workers; high pay and perks for bosses, low pay for the masses; riches for the few, poverty for the many."

In other words, life is a zero-sum game. If I profit from selling you a pair of shoes, a newspaper or a motor car, then you have "lost". If you are poor, your poverty must be caused by my wealth, and vice versa. No-where in Foot's mental universe is the idea entertained that both sides in a trade gain, since why else would they trade in the first place? In his world, no wealth is really ever created, just redistributed or grabbed by one group from another. His world is essentially closed. It is not surprising that a world fashioned according to such beliefs will be marked by stasis and decline. If we were to accept Foot's take on capitalism, the history of mankind and its staggering increase in wealth at all levels would be incomprehensible.

I have no quarrel with the many commentators who have blasted the U.S. financial system for the bad lapses in recent months. The demise of Enron, the faltering faith in the quality of corporate accounting and the shenanigans of analysts secretly trashing stocks while plugging them in public have damaged the U.S. economy. But surely what these sagas show is that capitalism, often with brutal power, punishes malefactors and ultimately puts a premium on honesty and fair dealing, and at the same time educates the masses into investing carefully. In short, capitalism works because it embraces a form of feedback, as mis-judgements and crooked behaviour get punished. This is something one won't readily find in the socialist world of which Paul Foot dreams.

Monday, June 10, 2002

In the recent Samizdata article American Perfidy it is claimed that "apart from the tax cut" Mr Bush has allowed his agenda to collapse.

Actually (as I and others have pointed out) "apart from the tax cut" Mr Bush did not have an agenda worth talking about (just a lot of waffle about being "compassionate" by handing out tax payers' money to religious charities). To be fair if Mr Bush had gone into the 2000 election with a decent agenda he would have lost. The "window of opportunity" that existed in Britain in 1979 and the United States in 1981 has gone. Just over 20 years ago most people would have accepted real budget cuts and deregulation, but this mood has past. The public (in both the Britain and the United States) are now obsessed with the "public services" and see new regulations as the correct response to any problem from Enron to hay fever.

Sadly the judgement on Mr Reagan and Mrs Thatcher must be that they had a chance but failed (in terms of regulations and welfare state programs government is bigger than ever now) - although in both cases one can produce a case for the defence (Mr Reagan faced a House of Reps controlled by the Democrats, Mrs Thatcher was surrounded by traitors from day one...). As for Mr Bush - he never had a chance. The media were against him, the "intellectuals" and their universities were against him, the Republicans did not have firm control of the Senate - all these things might have been overcome. However, Mr Bush faces a general public the majority of whom are statist - and against that what can he do?

Oh by the way - no Mr Clinton did not favour free trade. Mr Clinton liked trade agreements if they led to regulations being imposed on countries (especially "pro labour" union type regulations) and he especially liked trade deals if they helped build up the old dream of a world government (replacing G.A.T.T. with the W.T.O. was a fifty year old dream in certain circles in the U.S.) - one step at a time was Mr Clinton's way (after the health care defeat early on in his administration). However an actual free trade deal - no, Mr Clinton never very keen on them.

Paul Marks

Thursday, June 06, 2002

The recent massive U.S. government increase in subsidy to its domestic farmers comes in for a deserved and amusing mauling from Daily Telegraph journalist and Tory MP Boris Johnson. He is right to point out that by signing off the vast increase in aid to American farmers, Bush has compounded the damage to international free markets made when he agreed to steel and lumber tariffs earlier in the year.

On a broader point, this makes me wonder whether Bush is headed for going down in history as one of the most protectionist Presidents since the Second World War. On the domestic front his pre-election agenda seems to fallen apart with the exception of the tax cut. Instead, Bush is resorting to pork-barrel politics to shore up support in supposed key states for the Republicans ahead of the Congressional elections this autumn. Of course, we libertarians hold no illusions about politicians as a group, so I suppose Bush's slide into cynicism should not surprise us. But I never thought I could write the following words - I am beginning to miss Bill Clinton. At least he believed in free trade, if nothing else.

Friday, May 31, 2002

As everyone knows by now, US Treasury Secretary Paul O'Neill and U2 frontman Paul "Bono" Hewson just completed a week-long tour of Africa. While the unlikely pair seem to play off each each other well on stage, and seem to be getting along well offstage, it is not entirely clear how Mr. Bono has suddenly emerged as a power-broker. Several news sources attributed this quote to the man with the wraparound shades:

"[O'Neill] is the man in charge of America's wallet ... and it's true, I want to open that wallet."

None of the news sources I saw chose to elaborate on this comment's obvious falseness. The treasury cannot release any funds until the proper appropriation and authorization bills have made their way through Congress. (I will cut Mr. Hewson some slack because he is not an American; but if certain members of the press need a refresher course in this area, I would recommend that they review their Schoolhouse Rock.) At any rate, it makes you wonder why we should take anything else the guy says seriously.

Bono's cause is third-world debt relief. He argues that the heavy external debts of foreign governments are the principal obstacle to their emergence from poverty. We shall examine those claims briefly. How effective are official debt-relief programs in improving economic performance? Well, we can let history be the judge, since we have tried this before. In the late 1980s, the US treasury department began a debt-relief program called the Brady Plan, in which creditor banks were encouraged (through the stick / carrot of the federal tax code) to refinance debt at subsidized rates and reduce principal levels by allowing banks to replace severely discounted loans with new debt at levels closer to par value.

Was the Brady Plan a success? It depends on how you define success. If the objective was debt reduction as an end in itself, then the Brady Plan looked good -- more than $60 billion in foreign debt was forgiven, by one estimate. But did the Brady Plan succeed on a larger scale, i.e. did it promote economic growth and encourage more responsible borrowing by third world governments? Sorry, Bono, but the track record there is not so good.

In his book International Debt Reexamined (unfortunately no longer in print, though I have a copy from my grad-school days), economist William R. Cline demonstrates that the economies of Brady Plan participants did not outperform those of nonparticipants with similar debt levels in the 1990s. So much for the argument that debt relief is a sine qua non of future economic growth.

Moreover, there is evidence that the Brady Plan (and other official debt relief programs) merely crowded out private debt relief efforts such as debt-for-equity and debt-for-nature swaps, which had commendably been on the rise throughout the mid to late 1980s. The announcement of the Plan itself had the effect of encouraging further profligacy -- if your mortgage banker announced that it might be forgiving or substantially reducing your mortgage debt in the near future, wouldn't you think twice before mailing in your next payment?

Bono's line of reasoning on third-world debt would have found a favorable audience with economists a generation ago, but has long since fallen out of respectability. The new generation of development economists, spearheaded by the Peruvian economist and think-tank chairman Hernando de Soto, argues that the people of the third world already hold the solution to their poverty. This makes things difficult for would-be celebrity messiahs like Bono. Sorry, pal, but the world is ready to move on, with or without you.

Saturday, May 25, 2002

British Chancellor Gordon Brown's recent splurge on the National Health Service was supposed to be supported by a bouyant economy, but first quarter figures (just released) are terrible.

Manufacturing output tumbled by 1.5 per cent, leaving it 6.5 per cent down on the same time last year ÷ the biggest annual decline since the recession of the early Eighties. A further slump in exports, by nearly 7 per cent, also took a heavy toll.

On the plus side that means mortgage rates are very unlikely to rise near term, but taxes may be more likely to rise as the economy stagnates - unless you think New Labour would actually consider reducing state spending?

As the graphic shows we have slipped from first to last in the G7 growth league - as the other G7 countries voters all shifted rightwards.

Things are going to get more difficult for Brown, sooner rather than later.

Paul Staines

World trade could be a powerful motor to reduce poverty, and support economic growth, but that potential is being lost. The problem is not that international trade is inherently opposed to the needs and interests of the poor, but that the rules that govern it are rigged in favour of the rich.
-Oxfam, from the Introduction to their Report Rigged Rules and Double Standards: Trade, Globalisation, and the Fight Against Poverty. See their Make Trade Fair campaign website (but don't expect the rules to be any less rigged by the time they've finished with them).

Wednesday, May 22, 2002

No doubt anti-market commentators will be using the current troubles of U.S. broking giant Merrill Lynch to bash the capitalist system. But they would be wrong, just as wrong, in fact, as to say that the demise of U.S. energy titan Enron was a slap in the face for we free-market types.

Not so. What I think the Merrill saga shows is that in a dynamic marketplace where more and more wealth is attached to the realm of ideas rather than physical capital, it is crucial to ensure good behaviour. Merrill has suffered over doubts about the impartiality of the analyst advice given to clients. It shows how the brutal forces sweeping global capitalism can chasten the brashest of Wall Street players.

And it ought to show investors in stocks and bonds something else - let the buyer beware!

Saturday, May 11, 2002

One of the things that the blogosphere provides is stories, for the mainstream media. And I'm starting to believe that the multinational pharmaceuticals corporation Pfizer - best-known in the UK, if known of at all, for producing the world-renowned wrinkly recreational drug Viagra - is a story.

The thing is, Pfizer supports the free market, with arguments and with money. The magazine Prospect, for example, now contains, on the inside of each front cover, not mere adverts for Pfizer, but essays under the heading "Pfizer forum", frequently of a decidedly pro-free-market persuasion. In September of last year, for example, they had one by Milton Friedman.

Go to the Pfizer website. Look there under "public policy" and you get the Pfizer forum website. It turns out that one of those pro-free-market essays is by Johan Norberg and is called "In Defense of Global Capitalism". So they're not making much of a secret about being in favour of capitalism, are they?

I've already passed the question on through a mutual friend, of mine and of Pfizer. (He wrote one of the Pfizer forum essays.) I repeat the question here: What if the global anti-capitalist left decides to "expose" Pfizer? What if they try to turn them into corporate demons, the way they demonised Dow Chemicals (napalm, if I remember it right), and then Monsanto (genetic engineering)? What if anti-capitalist stirrers start showing up at Pfizer annual general meetings? Maybe this has been tried, but hasn't worked.

Pfizer must have thought about this because like I say they are not supporting capitalism in secret; they're advertising that they support it. Yet if you type "Pfizer" into Google, you have to wade through a ton of pro-Pfizer material before you encounter anything remotely critical. (The first anti-Pfizer thing I spotted was Oxfam complaining about Pfizer's attitude to their patents. I guess Pfizer believes that their patents are theirs.)

It's because most multinational corporations don't like the answers to questions like the one I'm asking that they don't support capitalism other than in apologetic whispers. How come Pfizer thinks it's good business to support it out loud? I'm delighted they do. Nevertheless, why? I'm sure some of this story has already been written, but not so I've noticed. And written or not, like I say, it is a story.

Tuesday, April 23, 2002

Cato Institute member, scourge of protectionist idiocy and blogger Brink Lindsey pays a fulsome and moving tribute to recently-deceased American steelmaker Ken Iverson, who tore up the script on how to make steel. Iverson reads like a character straight out of Ayn Rand's Atlas Shrugged. He founded the "mini-mill" model of steel production using scrap steel and smaller, less cumbersome production techniques, founding the North Carolina firm Nuccor.

Iverson consistently opposed tariffs and other protectionist measures, believing his style of business could flourish in a free market. His success as a businessman is a poke in the eye of deluded economists and vote-grabbing politicians who think that such key industries as steel can only survive under the umbrella of government support. Iverson proved the opposite. Ken Iverson was by all accounts very different from the sleek business figures of left-wing demonology. A down to earth character who took his own phone calls and motivated his staff. He surely will take his place in the Pantheon of real capitalist heroes. Reading his brief life story helped brighten my day.

Wednesday, April 17, 2002

Who would have thought it? Oxfam, the charity normally associated with a fairly leftist view of overseas poverty, has released a big document charting how the best hope for the world's poor lies in more free trade, not less. Not exactly an earth-shattering revelation to Samizdata writers or most of its readers, I am sure. Nonetheless, for such a well-known and prestigious body to have set its face against the anti-globalisation crowd is good news. It looks like this liberal (in the true sense of the word) meme of ours just keeps on spreading.

Monday, April 15, 2002

You might want to take some time today, of all days, to check out The Centre for Freedom and Prosperity. If you need to know why you should look into the idea of organising your life around off-shore banking and business, then might I suggest you need look no further than what today means for your personal wealth... or at least the part of it you are permitted to keep.

Avoiding tax all together can be difficult for most people but you owe it to yourself to try and minimise the extent to which you are financing your own repression (and mine too). It is quite possible to do it by using the law against itself, though frankly whatever means you have to use when dealing with the state is fine by me. Any oath or declaration extracted under the threat of force has no moral basis whatsoever and breaking it is just a matter of deciding based on risk/benefit analysis, not morality.

Friday, April 12, 2002

As Jason Pontin points out in his article on Red Herring, there is a bifurcation of inventiveness on the planet. A few places do all the entrepreneurial heavy lifting, the rest look on. It is not just circumstances but also cultural factors which produce innovation.

Thursday, April 11, 2002

Lloyd's of London has reported a record loss of £3.1 billion ($4.44 billion) directly related to the 11 September attacks. Similarly Swiss Re reported the largest loss in its 138-year history of 165 million Swiss francs (£69 million/$98.9 million).

This might be interpreted by some as a sign of the vulnerability of global capitalism but in fact it indicates quite the opposite. The fact that the effect of a huge capital loss in the USA can be spread around the world, rather than born entirely by the target of that loss is an impressive demonstration of the ability of modern networked capitalism systems to absorb losses and 'keep on ticking'.

And just incidentally, it also highlights that it was far more than just the United States which was attacked by the two aircraft which crashed into the WTC.

Wednesday, March 27, 2002

Is that the headline you saw all over the US media the other day when the US government imposed import tariffs on Canadian lumber? No? I wonder why that was?

A question to all those people who sent me e-mails following my claims after Bush's imposition of the steel quotas that his economic views were ludicrous. Many of you said he was just playing an inconsequential domestic political card and said George Bush was still a committed free trader. Given that:

1. A large number of US manufactured products involving steel and wood are about to become more expensive both domestically in the USA and compared to similar overseas products.

2. Other US produced goods and services are about to be made more expensive overseas due to retaliatory tariffs by the USA's major trading partners (i.e. the people who actually have the money to buy most of the huge quantity of goods America exports).

Are you still unconcerned about the economic and political damage being done to the US economy (not to mention the rest of the world's economy)?

Monday, March 25, 2002

Anyone opened a bank account of late? Transferred an account? Dealt in cash? Sent money abroad? Have you been sent half-insane by the form-filling and ID checking it involved?

If so, then please point an accusatory finger at people like Jonathan M. Winer a former US Deputy Assistant Secretary of State International Law Enforcement who has written a rather plaintiff article in the Financial Times exhorting the entire world to join him in his campaign against what he calls 'dirty money'.

The anti-money laundering regime, in which doubtless Mr. Winer was instrumental, sought to scupper international terrorists and drug-dealers by imposing a regulatory regime on all financial institutions requiring them to act as investigators and policemen on the state's behalf. I have witnessed the absurd results of this first-hand as lowly pensioners from Essex are told to hand over their passport when signing a loan agreement just in case they are really Osama Bin Laden in deep cover.

Added to the humiliation of treating people like criminals, the cost-burden on financial institutions are awesome and let us not forget the many small countries which have been bullied into surrendering their banking secrecy and legal safeguards of anonymity which are the only comparative advantages they possess.

After all that, it is more than a little galling to hear Mr. Winer say:

"Long before September 11, many other victims of wrongdoing have found that global evil-doers are better at taking advantage of the financial infrastructure of globalisation than the world's police and regulators are at catching them"

Is it just me, or does that sound suspiciously like an admission of failure? I cannot say that I am surprised. I (along with many others) predicted long ago that these regulations would do nothing to stop or even slow down determined terrorists or drug-runners. People who are ruthless enough to fly aeroplanes into buildings are hardly going to be phased by having to practice some sleight-of-hand with a bank teller or two.

Mr. Winer goes on to remind us of just how evil money-laundering can be but, rather hilariously, cites economic woes in countries such as Argentina, Mexico and Albania as proof, while forgetting to mention that these countries were hardly paragons of financial virtue to begin with. But, this aside, there is some refreshing frankness in the article. Mr. Winer admits:

"In practice, even the most sophisticated and best-regulated financial centres have proved incapable of adequately overseeing the global enterprises they license"

You'd think that Mr. Winer might have considered this beforehand because it is screamingly obvious. Asking bankers to become policemen is not only a good way to ensure that policemen get lazy but it is also an attempt to get banks engaged in an activity that is diametrically in conflict with their primary function, like asking a cat to bark.

Mr. Winer goes on to suggest a better method for bringing these terrible terrorists and drug-runners to their knees:

"But imagine instead a white list, to make compliance a profit centre, rather than a burden on a bank. A white list - and a reward for being on it."

This 'white list' is something which banks all over the world could apply to join once they have satisfied all the states criteria of compliance to the very highest degree. Then they could proudly advertise themselves as 'the best of the best' and all their competitiors would rush to join for the kudos it would give them. Mr.Winer expects this to be a 'race to the top'.

This is an idea born of hope rather than judgement and is likely to be as successful as his last good idea i.e. a total dud. Complying with the standards required to get on this 'white list' would cripple any bank with unendurable profit-eating costs and any that were stupid enough to try would slide dolefully into liquidation while their competitors died laughing.

I am quite pleased that the likes of Mr. Winer are pinning their hopes on this because it is further confirmation that they have lost. That's what the whole article smacks of really; an almost pathetic, desperate attempt to snatch victory from the jaws of defeat. This may be futile but it is, from Mr. Winer's point of view, understandable because the 'anti-money laundering regime' is not really about drugs or terrorists at all, it is a sordid attempt at self-preservation. The global movement of capital represents a grievous threat to national tax bases, particularly those that demand up to one-half of their citizens earnings. But that little game is up if the citizens in question can move their money beyond their local tax inspectors reach.

All this chaffe about drugs and terrorists is really a vehicle by which the public sector can try to defend itself against the vigour (or what they see as 'virulence') of the free market and, in doing so, they are quite happy, indeed almost compelled, into press-ganging every bank clerk and accountant into their fight. But no laws that Mr. Winer can pen will upend the immutable laws of physics and, sooner or later, the international money-laundering regime will be buried in the Graveyard of Grand Schemes.

Mr. Winer's article is not so much a helpful analysis or even a plea for help so much as notice of his intention to go down fighting.

Thursday, March 21, 2002

In this report in the Times of India, US reduces reward on Bin Laden, we see the strangest manifestation of the backward bending demand curve I have ever seen!

Update: As a couple people have ask me to simply explain what a 'backward bending demand curve' is, it is a strange and counter intuitive phenomenon in which sometimes as a product gets cheaper, people buy less of it or if a product gets more expensive, they buy more of it. This does not seem to make sense but it does occasionally happen.

Example 1: A high price designer 'name label' dress is offered at a reduced price... still out of reach of the 'woman in the street' buyer. Paradoxically the high end target market buy less of the dresses, presumably because the reduced price indicates it is probably 'last years design' (even if not true, the price is used as the primary source of information by the potential purchaser as to 'what is hot').

Example 2: Soviet made wristwatches, made to uncharacteristically high quality and standards were marketed in Britain in the early 1970's. They were every bit as good as other high quality wristwatches available at the time but were almost half the price. Even though Soviet products were a relative rarity in the UK, British buyers stayed away in droves, presumably taking the view that any watch that cheap had to be complete rubbish. The Soviets were baffled but on advice from a British consultant raised the price to just below the typical UK price and they stared to sell.

Thus, the US is lowering the price on the head on Osama bin Laden in the hope the new level of reward is something rural Afghans can actually relate to in the real world. In each case the specifics are different but price is just a form of information and sometimes if the price of something is unexpectedly high or low, the effects is the opposite of what one might normally expect. That is what I mean by a 'backward bending demand curve'!

Also on reflection, I was thinking of this in terms of the US doing the 'selling' of an outsourced service here (terrorist removal)... but I suppose one could argue that this is a backward bending supply curve: the US is offering money in the hope some impoverished Afghan will 'supply' a dead or bound-hand-and-foot Osama bin Laden

Sunday, March 17, 2002

All those people who greeted the inane steel tariffs with a yawn ("No one is interested in steel tariffs", "it is just a bit of politics") will be no doubt equally uninterested that the European Union, you know, the USA's largest trading partner, is now planning fast track retaliation against the USA that will specifically target US states that benefit from the US protectionist measures.

They join Russia, Australia and Brazil looking into setting up a splendid little self-reinforcing destructive anti-international trade harmonic that will hurt everyone.

If there is anyone out there who did NOT think that international retaliation against US goods and services was the guaranteed response to the new US steel tariff, can they please e-mail me to explain why they did not think that was going to happen?

Now what were you guys saying about it not being any big deal and just being about internal US politics? So what's next George? "Read my lips: No New Tariffs" perhaps?

Thursday, March 14, 2002

Given my long and strongly held reservations about the European Union (EU) and my enthusiasm for most things Internet and World Wide Web, I felt considerable discomfort reading an Accenture paper The euro and eCommerce: Bringing Europe closer to a single market. The reason for my discomfort, apart from the source of the paper, was its argument that ‘the interaction of a single currency and e-commerce will forge powerful synergies across the euro zone, enhance European competitiveness and accelerate the emergence of pan-European capital market’. So does Bad [EU] plus Good [e-commerce] equal an enhanced Good [capital market unification and its benefits]?

How is it possible that something as centralising and anti-competitive as the euro can provide such a fertile ground for e-commerce, a symbol of non-regulated and most free market business model? At first I could not fault the paper’s conclusion or even its argument, but then I realised that a dose of 'meta-context' analysis is needed to understand what are the underpinning 'world views' at work here.

The EU debate (a civilised term for the battle between the strongly opposing camps) seems to be conducted on a simplistic utilitarian level, an argument that cannot get beyond the second-tier logic and with a short to medium-term horizon. It consists, at least in the media, of collecting examples and anecdotes of beneficial or damaging effects the European project will or might have. The EU supporters put forward the positive results of their efforts and EU opponents strive to point out their negative impact. Although consequences are an important measure of success or failure, this approach rarely addresses the fundamental premises from which both sides launch their campaigns.

An EU supporter would use the paper’s conclusions to point out that the positive impact of the euro, as enhanced by e-commerce, makes the justification of monetary union more powerful. The euro together with e-commerce further breaks down the barriers between the nations and moves us closer and more rapidly towards the 'glorious day' of pan-European capital markets. This also:

(a) reduces currency exchange risk and cost,
(b) through the Growth and Stability Pact limits the size of public-sector deficits thus indirectly increasing private sector access to capital by reducing 'crowding out' by public-sector borrowers,
(c) encourages growth of the European corporate bond market that is now widely seen as being able to match the dollar market,
(d) in combination with information and communications technology enables more fluid and efficient payment processes and settlement systems,
(e) enhances competition and creates greater price transparency.

There you are – all of the above worthy of any libertarian, or indeed common sense, endorsement. Why would we want the UK to forgo such lovely things, which is what will happen, if we don’t join the €uro?

To me the issue is not about centralisation and efficiency versus free market and disorder. The successful coupling of the euro and e-commerce has a straightforward explanation – the euro provides, by default, a transparent standard for transactions. E-commerce, e-business or any e-prefixed interaction cannot reach its full potential without it. The issue is about the distinction between standards (good) and uniformity (bad) - uniformity as an objective, out of context and without regard for the long-term consequences (if we are to play the utilitarian game) does not sit comfortably with the pursuit of freedom. The distinction between inefficiency (bad) and variety (good) – although a certain degree of inefficiency may have to be the price we pay for variety. It seems to me that the EU has been designed and promoted by the kind of mind that does not value variety and freedom as much as it values uniformity and supposed efficiency.

I believe that the truth about the EU lies in understanding and exposing the true objectives and motivations of its supporters. An understanding of the unintended consequences of market and human interactions will have to play an important role. Therefore I call for a meta-context based examination of the EU debate that reveals the actual view of the world its supporters would have us accept instead of wasting our adrenaline on specific EU horror stories.

Paul Staines writes in with a rational explanation about how the advocates of flat-earth economics want to 'end poverty' by taxing the very mechanisms of trade.

Tom Burroughes wrote on Samizdata on Wednesday:

"This morning a contact of mine called up to say he was attending an event discussing the so-called Tobin Tax, which is a levy on foreign exchange transactions named after the Nobel Prize Winning Laureate of 1981, James Tobin."

Tom might admit its not so weird when you know that contact was myself, I took his advice and put on a pinstripe, garish shirt and clashing braces - if you are going to be an evil currency speculator, best look the part he said.

Bizarre gathering, left winger Shirley Williams was the keynote speaker, 'anti-poverty' campaigners, the Guardian's economics editor and a couple of economists who have never worked outside academia made up the panel. If you plan to tax foreign exchange transactions best not to involve anybody who has actually done an FX trade in the planning I guess. Besides myself, amongst a sea of 'anti-poverty' campaigners the only dissident voice was a journalist from the Financial Times and a pretty young student thing from London School of Economics. The cherub from the LSE asked the entirely logical question "won't this be a regressive tax on third world traders?"

For example I'm a gum farmer from Sudan, I sell my gum to Rowntrees Ltd. in the UK so they can make fruit pastilles. I want Sudanese dinars, Rowntrees pay pounds sterling, I sell the pounds for dollars (Tobin tax time), I sell the dollars for dinars (Tobin tax time). Minor currencies are always quoted against the dollar, so if you come from a small country you pay the tax twice - and this regressive tax helps the developing world?

War on Want reckon that $250 bn a year can be raised by taxing currency speculation at a mere 0.1%. Sounds like a cheap tax with great rewards. Lots of talk about how $1 trillion a day passes across the FX markets daily. You know how it is, I buy a $1m you sell ¥130m, I buy £1m you sell $1.6m next thing you know, by days end we've consummated $1bn in trade. And hopefully I'm up $10,000. Did you notice how the big numbers and the profits are very different? Banks also have their profits taxed by the way. I pointed out that if you add up the profits of all the investment banks this year, it probably doesn't even make $10bn. Its been a tough year. So where will this $250bn come from? Stand up row ensues, I don't care about the poor being the conclusion. They were, genuinely, quite shocked to realise the sums couldn't add up by a factor of 2500%. So much for ending world poverty next year.

Have you ever played poker for hours and ended up with the same money you started out with? Well these jokers think that we'd still play cards if the croupier stole a chip every deal. Obviously we'd play at a casino that didn't steal our chips, say the Bahamas, Zürich or cyberspace, but I suspect Chancellor Gordon Brown will continue to be the croupier for a free market City of London, home to nearly half the world's FX deals, he won't start stealing the chips any time soon.

Wednesday, March 13, 2002

This morning a contact of mine called up to say he was attending an event discussing the so-called Tobin Tax, which is a levy on foreign exchange transactions named after the Nobel Prize Winning Laureate of 1981, James Tobin. The tax is proposed by such politicians of usually leftist anti-market hue as French Prime Minister Lionel Jospin, who favour the tax as a way of reducing the massive flows of foreign exchange business and hence, they hope, in reducing the power of global markets. It is a vain hope. For starters, any attempt to tax foreign exchange deals would be a massive boost for the offshore tax-haven market, already booming as investors wisely choose to domicile their businesses there to avoid paying tax. It is an idea that has, in my view, very little chance of taking form. It would be a particular blow to the City of London, which boasts a vast foreign exchange market on which many jobs depend.

Anyway, on Monday Professor Tobin, a former adviser to President John F. Kennedy, passed away. One should not speak ill of the dead, and on the whole my impression of Tobin is that of a distinguished economist. But let us hope the foolish levy that bears his name passes away also to the great dustbin of bad ideas in the sky.

Sunday, March 10, 2002

David Carr in a post below seeks to reassure us Brits that the US steel tariffs do not matter because they will help rather than harm our economy. That's like being reassured that it is the house next door burning down, not one's own, and with a kindly additional word pointing out that all this nice warm air wafting over from the conflagration will reduce one's heating bills.

The tarriffs will (a) directly harm the economies of many other countries, to whom I am not indifferent; (b) allow the European Union the excuse they've been praying for to put tarriffs on the South Korean and Chinese steel you mention - so no, the British consumer will not benefit; (c) give strength to the yelps of half a hundred other US lobbies; (d) start another round of retaliation with all the effects above applied to some other randomly chosen commodity, thus screwing up another bunch of people's prosperity.

And they make Bush look weak and hypocritical, which the world could do without right now.

When I was a schoolboy some rather smug wag made me look utterly foolish by asking me which I thought would weigh more: a ton of steel or a ton of feathers? "Oh the steel, obviously" I said. Think about it.

Fast forward 25 years and the subject of steel is ruffling feathers in Britain and there must be something about this juxtaposition that makes an awful lot of people appear utterly foolish, most notably those that are spluttering with indignation about this 'slap in the face', 'kick in the shins', 'punch up the trousers' delivered to Britain by the US government's decision to raise tarrifs. So much for the 'Special Relationship', eh.

So much for superficial analysis. Take a pill, John and Jane Bull, for this English patriot is far from ruffled.

This is not to say that British steel production is not significant. It is. In fact, in 1995 it was Britain was the third largest producer in the world. What is insignificant is British exports to the US which account for less than 4% of our total exports. The vast majority of British sales go to the domestic market or Europe.

The really big players in the US market are producers in countries like China and South Korea who, faced with the tarrifs, will turn to Britain and Europe to sell their far more attractively priced steel. That means that prices will drop for the British consumer and British steel producers will have to get leaner, meaner and more innovative in order to remain competitive.

In other words, it is good news for the British economy for precisely the same reason that it is bad news for the US one and, whilst it would be a stretch to suggest that this was Mr.Bush's intention, it is his fellow Americans that he has 'slapped in the face' not us Brits.

Happy now?

Thursday, March 07, 2002

New blog Global Grumpy raises an interesting point about the surprising lack of reaction from the US media and muted reaction from conservative bloggers regarding the asinine steel tariffs. He also links to a somewhat pointless article on Slate on the legality of the subject, as if the problem was a legal one rather than an economic and political one. The fact left wing bloggers have little to say is hardly surprising but one can only speculate why the neo-con bloggers are not howling much louder.

Bush's action is clearly damaging to the US economy due to the inevitable knock-on effects it will have on international trade, not to mention the increased costs passed on directly as US steel becomes more expensive. I was expecting to hear people making much stronger remarks about 'The Bush Steel Tax on US consumers' (for that is what it is). The headlines I was expecting were:

 'Bush causes squeals of delight amongst anti-globalization advocates'

 'Is Bush trying to get France to award him the Legion d'Honneur for inconsistency?'

 'Bush encourages reduction in global trade'

 'Bush to World: please add tariff barriers against goods exported from USA'

 'Bush tells Russians: 'Yeah I know we are proping up your economy with aid on one hand and trying to wreck your steel industry with the other... so what? If you need money go sell nukes to Iran and stop bugging us'

I hope the reason for this is not the flip side of a phenomena I saw many times during the ghastly Clinton years: even when Clinton occasionally got something right (very occasionally), so great was the detestation of several otherwise analytical commentators (and friends) that they opposed policies which if conducted identically under any US president except Clinton, they would have supported without question. I wonder if 'wartime' admiration for Bush has not cause a similar blindness in the other direction towards a truly inane policy.

This is not a trivial issue and could have disastrous implications for the international trade system that are far more important than an industry which employs 150,000 people out of a population of 260 million.

[Note to 'Global Grumpy': the two e-mail addresses I have for you both bounce]

Wednesday, March 06, 2002

Perry's comments on George W. Bush's economically illiterate steel tariffs below are surely a reminder that conservatives (with a large or small c) are often the worst defenders of free enterprise.

How on earth can Dubya, for whom I have a fair amount of respect, talk about free markets any more with a straight face? Looks like the worst kind of vote-grubbing measure to me. Clearly bound to have an adverse impact on other sectors of the economy as well as sour relations with other parts of the world.

Bush has given the euro-weenies a stick to beat him with - and this time they have right on their side. Bush's move is clearly related to next November's Congressional elections. George, get a copy of Henry Hazlitt's "Economics in One Lesson" and wise up!

The recent trip by George Bush to Asia in which he preached the value of free trade and capitalism was of course widely reported in the media across the world. As a result, his remarks about the lowering of trade barriers are inevitably going to be thrown back in his face following the ludicrous imposition of 30% tariffs on steel imported into the USA.

Given that the underlying trend for steel imports into the USA has been downwards for years (down 30% over the last four) it is particularly bizarre that this politically motivated protectionism should have been allowed to happened. Of course this will also result in more expensive steel for the domestic US construction and manufacturing industry, it will cause retaliatory tariffs against US products overseas and most importantly, completely destroys the US ability to put political or moral pressure on other countries to lower tariffs against US goods.

So in order to protect some jobs in an inefficient sector, other US jobs are put at risk in not just steel consuming areas of the economy but also possibly the entire export sector once anti-US retaliatory measures are used to hit back by US trading partners.

Perhaps someone needs to point out to Dubya that compared to the value of liberalisation of the world trading system to a massive high tech external trading nation like the USA, the US steel industry is really not that important in the overall scheme of things. In any case, the whole idea that less competition will make the US steel industry more efficient, well, how does that work? It will just penalize the modern and the more competitive US steel producers in order to protect the less efficient unionised dinosaurs who will go bust in a few years anyway regardless. In the meantime overall competitiveness of US industry suffers versus overseas steel users who have access to steel at the regular non-'protected' price. Nice one George.

Tuesday, February 12, 2002

The music industry is a wonderful example of how established players in any market often feel they have a vested interest in stasis rather than dynamic change. Rather than see new technical innovations as potential boons, the industry has spent a fortune trying to use the state to defend its existing business models with an army of lobbyists and lawyers, attempting to un-invent the technologies that they (rightly) see as shattering the current structure of its multi-billion dollar industry. Steven Den Beste has a good article on the subject and makes an excellent point regarding the self-defeating culture in the boardrooms of the music industry majors:

As long as the industry doesn't see it from that point of view, they will continue to try to fight the future. No industry can ultimately survive if it thinks of its customers as enemies; ultimately the industry has to adopt the point of view of its customers and cater to their desires. You cannot sell someone what you want them to have. You have to sell them what they want to buy.

A classic case of this syndrome of 'customer-as-enemy' was provided by Steve Heckler a VP from Sony Pictures Entertainment in August 2000 who said:

The [music] industry will take whatever steps it needs to protect itself and protect its revenue streams," Heckler said. "It will not lose that revenue stream, no matter what. [...] Sony is going to take aggressive steps to stop this. We will develop technology that transcends the individual user. We will firewall Napster at source - we will block it at your cable company, we will block it at your phone company, we will block it at your [ISP]. We will firewall it at your PC.

Although Sony tried to apply some damage limitation spin to Heckler's remarks soon afterwards, this is clearly delusions of grandeur on a spectacular scale and is exactly the mentality to which Den Beste has alluded. The major players think they can translate their wealth into political muscle and use the state to crush would-be new entrants that seek to undermine their businesses. taking out Napster has only encouraged this flawed thinking. Additionally yet more money is being spent on technological fixes which are also doomed to fail due to the 'Swiss Watch Effect' (it is cheaper and easier to smash a Swiss Watch than it is to make one): they spend millions on copy protection that will be broken within months or weeks by the worldwide army of Internet linked 15 year old crackers who work for free.

Another indication of the scale of 'wrong-think' going on in boardrooms is that they do not seem to realise that many people's CD player is their computer. I might have purchase the new Natalie Imbruglia CD White Lilies Island but I have read that most computers gag on some of the tracks due to copy protection and I do tend to play a CD in my computer whilst I surf the Net. As a result I have not bought the CD. Well I suppose if the company strategy is to make it hard for me to rip any tracks into MP3s, one way of doing that is to discourage me from buying their products all together. Somehow I don't think that was quite the effect they were hoping for but that is the one they have got.

[Update: article amended with Steve Heckler of Sony's exact remarks thanks to the excellent input of readers Tino D'Amico and Joachim Klehe]

Monday, February 11, 2002

Matt Welch makes some excellent points about the reality of world trade but the following bit suggests he does not read the Samizdata very often.

If free traders spent as much time railing against rich-country protectionism as they do making fun of the anti-globalization kids, the pig-puppet audience would dwindle to a core of fog-headed Maoists, and more importantly, destitute people around the world could vault out of poverty much faster.

We are wounded Matt! You mean we are not your default page when you boot up the ol' box every morning? We often go though periods of railing against the immorality and stupidity of protectionism. Such as:

Stupidity beyond the measure of language by Natalija Radic on February 1^st:

Jospin is a man who is responsible more than any other political figure in the EU (and that is saying something) for people like me being fined and harassed by EU states for trying to do business within the EU because I am an outsider, just another Slavic white nigger girl. Naturally he takes much the same view of Africans and Asians who try to do business in the EU.

Comments worth repeating by Perry de Havilland on January 30^th:

To be "strongly against world trade" is to be in favour of poverty and against free association. It is to favour force over choice. It is to favour death and famine in the third world. Anyone who actually wants for the peoples of South America, Africa and Asia to prosper should be demanding not an end to world trade but the removal of all barriers to entry to the US and EU markets. At a stroke that would result in cheaper products for common working western people as cheaper African, South American and Asian goods become available. Immediately the economies of third world nations would improve as they could sell their products without immoral grotesque discriminatory tariff barriers.

What free trade actually means by Natalie Solent on December 18^th 2001:

So the European Union, having stopped Africans making a respectable living as producers and traders by denying them access to us, then bestows a lesser largesse via 'Third World Aid'. Adding insult to injury, the EU then expects gratitude from the very people they have discriminated against. Of course what happens is that Africans, now being dependent on largesse rather than their own efforts, take on the character of beggars, whiny when desperate and sullen when temporarily a little better fed. We in our turn take on the character of patronising social workers-cum-lords of the manor. What a pity, when we could be interacting as equals and fellow human beings.

... and those are just the ones I can be bothered to find. So you see, Matt, here on Samizdata this particular group of free traders really really doesn't like protectionism and we attack it on both economic and moral grounds quite often.

Saturday, February 09, 2002

Andrew Sullivan is pleased that Irish singer Bono is not slagging off drug companies. Well a word of advice, Andrew... don't get your hopes up that Bono's seeming conversion to the forces of reason is more than a fragile veneer. He does have this disheartening knack for seeming to make sense, only to dash your raised expectations on the rocks of reality a little further down the road, as I observed back on January 14^th 2002 in the article Teeth grinding illogic and grotesque conflation...or perhaps genius?. He is either a perverse genius or a jackass. You choose.

Friday, February 08, 2002

Suman Palit on the Kolkata Libertarian has some interesting links and commentary about hawala, a system of trust based independent networks for transferring money across borders completely outside 'official' financial systems. I have touched on the subject of hawala in previous articles and Suman points out the absurdity of US (and other) efforts to try and stamp it out

Criminalising such a large-scale human endeavour that is rooted so deeply in history is laughable and idiotic. Like the failed drug war which penalizes consensual behavior and therefore can never be effectively enforced, stigmatizing hawala simply drives it deeper underground.

The fact is that there are millions of people who simply do not see why the state, any state, should have oversight over their business. The usual demands that people must simply 'trust the authorities' is seen as fundamentally irrational in many communities. Too many people have both direct experience and deep societal folk memories that such contentions are simply foolish, leading to a whole culture of economic activity occurring under the radar. The very essence of hawala is that of an audit trail-less trust within a closed and multiply redundant distributed network.

Not only do I predict the US will fail utterly to regulate hawala, I expect that their actions will once again prove the law of unintended consequences is alive and well and living in a town near you. The very actions of the financial regulators will reinforce support for it by proving why hawala is still as needed as it ever was: to enable genuine free trade when princes and policemen try to restrict it, and to avoid confiscation of the proceeds of that legitimate trade by the same people.

Wednesday, February 06, 2002

Recent events in Argentina have helped drag quite a few things out into the light that would rather have remained skulking in the shadows.

One of the things that is now clear is that the idea a debtor nation can be 'too big to be allowed to fail' is revealed to be a myth. When Ecuador defaulted on $6 billion worth of bonds in 1999, people just shrugged it off as 'only Ecuador'. Yet now we see Argentina going the same way to the tune of $132 billion.

Another thing has become clear about the IMF. Anne Krueger, the IMF's deputy managing director, has let it be known that the fund is very keen to get out of the 'sovereign bailout business'. To this end the IMF has some fantastical plans for 'harmonising' international bankruptcy laws which will of course come to nothing. Yet the source of the impetus for restructuring the IMF's relations with debtor nations is quite revealing and not one you might think. Much of these 'new' ideas being floated come in almost whole cloth from Jubilee Plus, a leading anti-globalization pressure group whose very name you would think would be anathema within the hallowed halls of an ostensibly pro-capitalist organisation like the IMF purports to be. In fact what is clear is that Jubilee Plus and the IMF are just different sides of the same pro-stasis coin, profoundly hostile to dynamic free trade networks and in favour of state centred status rather than value based economics.

It says much about the inevitable evolution of the IMF from a supposed facilitator of the global capitalist economic order to being little more than the financial arm of a network of pro-stasis organisations underpinning almost every kleptocratic state on the planet. For as long as the IMF is not just happy to prop up heavily regulated force based value destroying economies of the sort favoured by Jubilee and its ilk, there is little motivation for financial institutions to tailor their lending to the economic realities of a nation's governance. Yet there is always the fond hope that while the IMF ponders its restructuring, a few really large international lenders will feel some serious pain.

What is really needed is for a few nice large international names to go belly up as there are few things that get the financial world's attention better than that. I am thinking of people like Citigroup, FleetBoston, Banco Bilbao Vizcaya and Santander Central Hispano, who are all massively exposed to the mess in Argentina... sadly this is probably not going to happen but if it did, what we would have is a clear causal link established between a willingness to lend to kleptocratic governments and disaster. This in turn would impose a real cost in terms of an inability to borrow on governments which pursue anti-economic statist/stasist policies.

Just as companies with bad ideas must be allowed to go broke, so must governments. Sovereign default can be very invigorating to the cause of liberty and advocates of true non-crony capitalism should oppose any institutions which seek to ameliorate the link between government actions and the consequences of those policies. And if those governments, such as in Argentina, are democratic then all the more reason for allowing the voters of that country to reap the bitter consequences of their theft-by-proxy mandates. Let the financial tumbrils roll and lets see whose heads get cut off without the Scarlet Pimpernel of the IMF to come to the rescue.

Saturday, February 02, 2002

Pakistan has a very large expatriate community scattered across the world, particularly in the UK and the USA. The peoples of the sub-continent also have a deeply engrained and entirely laudable distrust of governments poking around in their affairs, which is why the hawala system of moving money around globally is so popular with people from that part of the world.

In recent weeks there has been a huge inflow of capital from the Pakistani diaspora back to Pakistan due to the scrutiny of US investigators looking ostensibly for Al Qaeda funds. Of course there is widespread and quite justified belief amongst Pakistani businessmen that where the anti-terrorist investigators tread, the IRS will not be far behind looking to see what they can confiscate. Sub-continent businessmen have been on the receiving end of shakedowns like that from potentates, princes and nations for centuries and have well honed cultural reflexes in such matters. The simple solution: move your money where the US authorities cannot see it, by bank transfer if possible or via the invisible hawala system if not.

Networked distributed capitalist systems like this are extraordinarily resilient and are fueled by deep seated and entirely admirable non-deference to state authority. Just as the justified fight against Al Qaeda is also being used to fulfil an unjustified a wish list of civil liberties abridgements, so too are the statist enemies of free trade on both left and right using it to move against the sort of small scale (though large in aggregate) trans-border capitalism at which people from the Indian sub-continent so excel. It is for reasons of control that Big Capitalism and The State get on so well: bureaucrats can meet with a few hundred CEOs of vast companies and reach understandings to their 'mutual benefit' (though not to anyone else's). Hundreds of thousands of small scale truly capitalist ventures with trans-border cash flows however are impossible to even monitor, let alone control: which is of course why they are such a good thing.

Friday, February 01, 2002

French Prime Minister Lionel Jospin has demanded an end to free(ish) trade in favour of a global system of 'managed trade' called mastered globalization. In a typical stream of anti-life economics and adulation of force based resource allocation, Jospin states that he, and people like him, should have a say in what Americans or British or Japanese or Nigerian or Lebanese or Croatian people can trade with each other across borders and under what conditions. When he says "mastered globalization", no prize for guessing who he has in mind to be the 'master'.

Jospin is a man who is responsible more than any other political figure in the EU (and that is saying something) for people like me being fined and harassed by EU states for trying to do business within the EU because I am an outsider, just another Slavic white nigger girl. Naturally he takes much the same view of Africans and Asians who try to do business in the EU.

He called for donor countries at the Economic and Social Council in Paris to commit to "reduce poverty by 50 per cent until 2015". He could of course do this at a stroke by resigning from office along with all the other lying Socialists, Social Democrats (socialists), Democrats (socialists), Liberals (socialists) and Christian Democrats (socialists) across Europe who prevent so much of the world from making a living due to their trade barriers that discriminate against us. If that happened, I guarantee poverty would be reduced by 50 percent by 2015.

Wednesday, January 30, 2002

If you want a glimpse of the future, here is a truly astonishing article that I must say confirms many of my views about spontaneous networks.

The online fantasy game EverQuest lets players create and control characters - or avatars - within a fantasy world called Norrath. Characters gain skills and possessions that they can then trade with other players using the game's currency of "platinum pieces". However, many EverQuest players have found this process too complicated and have instead opted to sell their assets for real money though trading web sites such as eBay

Read the whole article, it is thought provoking stuff with real-world implications.

Over on Little Green Footballs (also see link under 'posh blogs' section in sidebar), there is a lengthy series of entries in the comments section under an article about globalization and the people who are heading to New York to protest against it. Someone called Michele stated that she was "strongly against world trade". This astonishing remark was something that had to be answered and so I will repeat my remarks here:

To be "strongly against world trade" is to be in favour of poverty and against free association. It is to favour force over choice. It is to favour death and famine in the third world. Anyone who actually wants for the peoples of South America, Africa and Asia to prosper should be demanding not an end to world trade but the removal of all barriers to entry to the US and EU markets. At a stroke that would result in cheaper products for common working western people as cheaper African, South American and Asian goods become available. Immediately the economies of third world nations would improve as they could sell their products without immoral grotesque discriminatory tariff barriers.

Also, as a laissez-faire capitalist libertarian, I am strongly opposed to the World Bank, the WTO and the IMF... these are institutions that support crony capitalism and big-government. They subsidise neo-national socialist stupidity like that in Argentina and despotic kleptocratic regimes across the globe.

I am in favour of true free association and therefore laissez-faire and true globalization. I reject collectivism in all its coercive left and right wing forms and the violence and poverty they always lead to. Individualism and laissez-faire capitalism without borders is the only moral option and the only option that can actually work at all in the long run.

Thursday, January 24, 2002

World domination, it seems, is all the rage these days. If it isn't self-immolating Islamic jihadists than its self-effacing Kofi Annan

And, once again, it looks like the US military that is taking the battle to the enemy in the shape of the formidable Colonel Oliver North who has rather brusquely told the United Nations exactly where they can stick their 'Global Tax'

Clearly feeling the need to pick up the ball that was dropped by the Soviet Union, these posturing pompadours in cheap suits are working overtime to impose global wealth redistribution. Not to mention global equality, social justice, environmental protection and just about every other canard of a typical 1960's student teach-in

Anyone who harbours misty-eyed romantic notions about the UN should disabuse themselves as a matter of the utmost urgency. It is not just an organisation that has long outlived its usefulness, it is the dystopic, despotic NWO-in-waiting

When George Bush has finished mopping up Al-Qaeda it might be prudent for him to unleash a few daisy-cutters on this lot. After all, it is always better to nip these things in the bud

Saturday, January 19, 2002

Over on Live from the WTC, blogger Megan McArdle writes in favour of the abolition of taxation on corporate income. It is a good albeit lengthy article that is well worth reading.

And Megan, the truth is "When the revolution comes, she'll be the first one with her back against soft silk sheets." Forget the empty threats of the left, the future belongs to the radical evolutionaries.

Thursday, January 17, 2002

I am in the process of moving, from my native Michigan to the western suburbs of Washington DC. When I closed on my current home in April 2000, I financed the loan at 7.75% apr for 30 years. I am currently qualified to borrow at 6.40% for 30 years. The yield on 30-year US treasury bonds has fallen by a similar amount.

Why do I bring this up? Remember, back in 2000, American politicians were talking up the surplus. Today, thanks to recession, a flat stock market and post-911 spending, the US will probably finish with a deficit in fiscal 2002. But according to a novel theory recently introduced by Senate Majority Leader Tom Daschle, federal deficits cause mortgage rates to rise! So see, tax cuts would increase the deficit, which would increase mortgage rates, which would make new home purchases more expensive, which would hurt working families. Well then, if that is true, why is my lending rate so much more favorable now than it was when the US budget was solidly in the black?

The US does not finance much of its debt with 30 year bonds. In fact, the duration of the national debt (a fancy way of saying the average time to maturity) is just under 5 years. The federal treasury does not contribute very much to the demand for long-term funds. So it should not be surprising to learn that there is essentially no historical relationship between federal borrowing and mortgage rates. In fact, the US did not start to aggressively work down the duration of the debt until the Democrats and Treasury Secretary Rubin came into power!

If Daschle wants to pay down the debt, why would he want to do it in a period in which yields on long-term debt were falling? As anyone who stayed awake in finance 101 knows, prices and yields move in opposite directions, so lower yields mean that it would cost more to retire long-term debt from bondholder' hands. This would amount to little more than a subsidy paid by US taxpayers to bondholders, who increasingly are foreign investors.

Politicians used to be smart enough to know that they aren't very smart about economics. Senator Daschle evidently does not feel constrained by his ignorance.

Tuesday, December 18, 2001

Some people ask:

"Why shouldn't our government keep out products from third world countries? We don't owe them a living.

That is right, we don't. What we owe to them, and to our own people too, is the ordinary right to buy and sell what they please, along with all the other ordinary rights to life and respect for property. Tariffs against African imports mean that we in Britain pay more than we ought and the people in Africa are arbitrarily forbidden from bringing their wares to our attention - it's up to British individuals whether they buy or not.

So the European Union, having stopped Africans making a respectable living as producers and traders by denying them access to us, then bestows a lesser largesse via 'Third World Aid'. Adding insult to injury, the EU then expects gratitude from the very people they have discriminated against. Of course what happens is that Africans, now being dependent on largesse rather than their own efforts, take on the character of beggars, whiny when desperate and sullen when temporarily a little better fed. We in our turn take on the character of patronising social workers-cum-lords of the manor. What a pity, when we could be interacting as equals and fellow human beings.

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