Wednesday
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(53)There is a lot of stuff about Dubai at the moment. The issue of Dubai Ports' purchase of P&O and the reaction by certain American Democrat and Republican politicians is a massive story Stateside, though it has not registered much in the UK, unless you are a reader of the business sections. There is a smell of protectionism in the air in Europe too, with a number of European states scratching each other's eyes out about merger and acquisitions involving banks and utilities. Plus ca change..
Dubai is now a major story on a number of fronts. The BBC recently ran a series of programmes about the incredible amount of construction happening there and the local magnates and immigrants who are driving the economy forward. A vast artificial archipelago of homes and estates has been built into the Gulf. Dubai is also a major business and media centre, a place where a lot of sporting and cultural events goes on. Dubai is also becoming one of the major venues for business conferences in areas such as finance.
So it seems to me that even with all the reservations one might have about that part of the world and the islamist threats not far away, Dubai's vibrancy is a sort of Good Thing. The place has, potentially, the capacity to exert the same impact on parts of the Middle East as Hong Kong did on mainland China. Perhaps it is all a bubble and will go up in smoke, as the Eyeores out there might think, but on the whole I am optimistic. Let's face it, pessimism is a sort of cop-out.
May the meme of liberty spread out from its borders and confound the naysayers. Meanwhile, this man is doing something highly admirable.
Sunday
The Oscars are nearly upon us. (Okay, please try to keep reading) One thought prompted by this circus and what goes on in films is how films can carry messages very different from the intentions of the film-maker. A classic example is the 1987 film, Wall Street, in which Michael Douglas gave what I thought was his greatest performance as Gordon Gekko. Gekko is what your average lefty Hollywood producer imagines is a capitalist: incredibly greedy, callous and crooked, stamping the lives of good honest hardworking people, blah, blah, blah. And yet we know that in the course of the speech, Gekko gives his tremendous "greed is good" speech, which I sometimes think reads like Ayn Rand on acid.
A friend of mine, Libertarian Alliance founder Chris Tame, once told me that during this stage of the movie, he burst into applause, much to the surprise of the other cinema-goers. I wonder how many other folk have had the same reaction to a speech or line in a film where without realising it, a pro-capitalist point has been made in a way the director probably had not intended? Has anyone got any examples?
Saturday
The ideal gift idea for that collectivist friend in need of enlightenment and help in doing maths. (Thanks to those clever folk at the von Mises Institute.)
Tuesday
Clive Davis approvingly quotes a book by a fellow called Rod Dreher, a "crunchy conservative" (whatever that is) who is, we are told, a passionate environmentalist, a disliker of suburban sprawl, shopping malls (oh, the vulgarity!), television (ditto), McMansions (huh?) and other regrettable features of consumerist, dollar-obsessed America. Instead, this fellow, who sounds rather like an American Roger Scruton (of whom I am an admirer, at least in parts) is a fan of government restrictions and regulations, and mentions the case of the U.S. Pacific Highway, left pristine and free of crass development by land-use regulations.
There is nothing actually all that new in conservatives embracing controls on development. The very word, conservative, is based on the desire to conserve and protect what exists from the new. During the Industrial Revolution, conservatives like the Poet Robert Southey railed against what they saw as the ugliness of industrialism and the associated sprawl. (Some of the dislike was also based on snobbery and fear of an pwardly mobile and undeferential middle class). The trend has continued. It was that perfect symbol of cuddly English fogeyism, Sir John Betjeman, who took potshots at suburbia, penning one of his most famous verses about that place to the west of London known as Slough. (The former Poet Laureate asked Hitler to bomb it).
What is so striking is how unoriginal and old-hat all this sort of thing is. More interesting to me, however, are those writers who do not imagine that shopping malls or mock-Tudor mansions in Surbiton deserve our scorn. Virginia Postrel has recently written approvingly of a book actually describing sprawl rather than automatically condemning it.
And let's face it, most of us, particularly those with children, live in suburbs or are moving there. It is a conceit, I reckon, of people who have no children, and who do not need the space, to take potshots at those who have decided to leave the supposedly hip inner city. It remains a mystery to me why the desire of people to live in a bit of space and comfort drives certain intellectuals nuts. Maybe it is the garden gnomes.
Wednesday
"There were Eastern men in felt hats with giant rims of rich gleaming fur, talking to long-bearded Jews about racks of animal pelts - the faces of small nasty critters gaping blankly at the sky. Chinese carrying crates of what he had to assume was China, coopers repairing busted casks, bakers hawking loaves, blonde maidens with piles of oranges, musicians everywhere, grinding hurdy-gurdys or plucking at mutant lutes with huge cantilevers projecting asymmetrically from their necks to support thumping bass halyards. Armenian coffee-sellers carrying bright steaming copper and brass tanks on their persons, bored guards with pikes or halberds, turbaned Turks attempting to buy back strange goods that (Jack realised with a shock) had also been looted from the Vienna siege-camp..."Quicksilver, by Neal Stephenson, page 420.
The above passage relates to when one of the central figures in Stephenson's marvellous Baroque Trilogy enters the-then famous Leipzig fair. What struck me about this section of the book was Stephenson's brilliant description of the sheer fun that markets can involve. (Yes, the curmudgeons out there will start muttering about the triviality of reducing market economics to fun, good heavens). His description even reminded me of a more modern market: the futures exchange in London's Cannon Street. I used to visit the LIFFE building and would look down from the gallery to look at the sea of men - not many women - trading odd-sounding things like short-sterling futures and options, gesticulating at each other in small groups, more often resembling folk on the verge of a pub brawl than a place where gazillions of pounds, dollars and euros were being transacted.
We are so used to critiques of capitalism from people who decry the supposed coldness and soulnessness of markets, unlike the supposedly warmer and more fulfilling communal lifestyles they claim to favour. And yet as Stephenson has reminded me, the market is that supreme example of social interaction and co-operation, often gaudy and loud, alarming even, but never dull.
Wednesday
One of the advantages of having a comments section is providing me with new ideas to write about, even when the comment in question is so flat-out wrong that it makes me gape with amazement at the screen. In my recent post about the economic fallacies surrounding immigration, a commenter opined that Indian immigrants into the UK were leeching money out of this country by not re-investing it in new businesses but merely writing cheques to "inactive" folks back in the old homeland.
It is a lousy argument on a number of levels, and I am not even going to dwell long on the obvious dangers of inciting distrust and hostility towards economically successful immigrant groups and accusing them of not being sufficiently "patriotic" by not spending all their profits in Britain. The argument also fails because it ignores the subjectivity of economic value. If a businessman earns a million pounds in profit from a drycleaning business in Birmingham and sends the odd cheque back to his aged relatives in Bombay, then how is economic value being destroyed? In the eyes of the businessman, helping his loved ones is worth more to him than investing that money in something else, even though other people might disagree with that decision and think him to be deluded. It is none of my business to force a change in that decision.
Also, that businessman is doing something that supporters of a liberal civil society have traditionally supported: philanthropy. How can it be wrong for a man to steer a portion of his wealth to his dependants, educate them, feed and house them? Who gives any entity the right, least of all the State, the power to say yay or nay to that decision? The argument that such transfers are wrong is an echo of the old Bethamite notion that the State is entitled to seize wealth if that maximises the "greatest happiness of the greatest number".
A final point. No doubt large sums of money are paid by immigrants and migrant workers back to the points of origin all the time. This has happened for centuries. These transfer often sustained people in great hardship.
I have come across some dubious economic arguments in my time, but the idea that immigrants paying money to their folks is some sort of parasitical waste has to be one of the weakest.
Saturday
Anthony Browne, writing the main feature article in this week's Spectator, says policymakers have underestimated, or quite possibly fibbed, about the scale of immigration into the United Kingdom from Eastern Europe. I do not want to get into all the cultural arguments that have been aired a lot here in recent months. Suffice to say that Browne makes some good, if slightly alarmist, points about the ability of a small crowded island like Britain to go on taking more and more people, never mind from often very different cultures.
He seems to make the mistake, however, when discussing the impact of immigration on wage rates, of what is known as the "lump of labour fallacy": the notion that there is a fixed amount of work to be performed in an economy. It seems a bit odd that Browne, who calls himself an economic liberal, should fall prey to this fallacy. After all, as surely the late economist Julian L. Simon pointed out, every additional person is not just another mouth to be fed, but another brain and pair of hands to create wealth.
Wednesday
Which British individual has done the most good for the world during the last half century or more since the Second World War? I nominate Sir John Cowperthwaite, Financial Secretary of Hong Kong from 1961 to 1971, who died last Saturday.
By applying laissez faire ideology to Hong Kong with greater inflexibility than anyone else was at that time even attempting, anywhere, he became, in Patrick Crozier's words, the father of Hong Kong's economic boom.
And that, if you think about it, makes Cowperthwaite the grandfather of the Chinese economic boom.
Without the shining example of Hong Kong, and the economically benign influence that Hong Kong has for a long time now had on nearby places still governed by Beijing, who knows what economic – and political – state China would be in now?
Cowperthwaite was criticised during his time in office for not taxing the people of Hong Kong more, and for ignoring, in particular, education. But has there ever been a more stupendous exercise in business education and everything-else-you-can-think-of education than Hong Kong? Hong Kong has been a University of How To Do It for millions upon millions of Chinese, Chinese who are now struggling to turn China itself from a suicidal and murderous world threat into a creative contributor to the world. The productive and trading templates now being followed in China were mostly devised in Hong Kong, and Hong Kong still provides a huge connection between China and the rest of the world.
So, there is at least a decent chance that China will emerge onto the world stage not as a belligerent superpower in the Soviet mold, but as a creative superpower more like nineteenth century Britain or nineteenth century USA.
Of course China still faces severe problems, as has been well explained here. It could all, and quite soon, go horribly wrong. China's creatively earned wealth and strength might yet – following some kind of economic melt-down – be cashed in to pay for the means to make only mischief on a huge scale.
But China's economic strength is not a total illusion, any more (well, maybe a bit more) than the USA's economic strength was wholly illusory in the late 1920s. (The worry about that comparison being that the USA proved that it could be the engine of world economic growth only after a huge depression and a huge world war.) And if, in a hundred years time, historians are able to look back on a century of (mostly) Chinese creativity and progress rather than of Chinese chaos and ghastliness, Sir John Cowperthwaite will arguably deserve more credit for that happy outcome than any other single individual.
The nightmare always was that the Chinese people would feel that they had to fight and to destroy to get the world's respect. Cowperthwaite's Hong Kong showed the Chinese people that they were capable of unleashing a better and more creative way to be respected, a way that the whole world is already benefiting from.
Patrick Crozier, to whom thanks for the link, picks out this particularly choice quote from the Telegraph obituary of the great man:
As for the paucity of economic statistics for the colony, Cowperthwaite explained that he resisted requests to provide any, lest they be used as ammunition by those who wanted more government intervention.
The state is not your friend. The less it knows, the better.
Tuesday
"We've taken the biggest surge in national income in years and squandered it. The punters are spending every cent they can and Canberra is encouraging that by handing back its share of the commodity price loot as tax cuts."
Who would say such a thing? Sounds like the rantings of some bleeding heart welfarist think tank, rather than Australia's leading economics consultancy, as Access Economics likes to describe itself.
Yes, Keynesian wannabes Access Economics released a report fretting about interest rate hikes, and it feels the answer is to remove the financial options of individuals and ensure that the government collects and hoards ever more of the people's income. I suppose one should look at it this way; some day soon you might benefit if you find yourself in a geographic or demographic sweet spot that the government needs to court come election time.
Talking about rum plans, this proposal from Deloitte floats an admirable (though not particularly original) idea - swapping tax deductions on work expenses for across-the-board tax cuts. Liberals will start to choke when they see Deloitte's adjustment of the progressive income tax rates:
The poorest tax payers would see their rate cut from 15 per cent to 4 per cent, with the 42 per cent tax rate paid by people earning $75,001-$125,000 falling to 33 per cent. The top 47 per cent rate paid by those earning more than $125,000 could be cut to 44 per cent.
Deloitte would surely have access to the masses of theoretical and empirical evidence showing the superior economic benefits of shrinking the gap between top marginal rates of income tax and the lower rates, not to mention the moral argument. Why this EC (and I do not mean European Community, though maybe I do...) drivel, then? Why do Deloitte believe they need to field a taxation proposal that is going to win elections?
Thankfully, the political party that prides itself on its fiscal responsibility and economic liberalism holds government in Australia. Yet we have a curmudgeonly treasurer (chancellor of the exchequer) who steadfastly refuses to budge over our absurdly high top marginal tax rate of 47%. He is more than happy to ladle out benefits to politically useful groups, however. Oddly named, the Liberal Party of Australia, when one considers it is run by big government conservatives.
Couple these few good men with the leading economics consultancies, who seem to be trying to outdo each other in the social crusading stakes.
Have these people never heard of the Chicago school? I despair.
Saturday
Jamie Whyte in The Times is a paragon of rational liberalism. Today he neatly skewers the fallacious thinking of those who impose their own heirarchy of values and risk aversion on the rest of us.
Doctors, he points out, will tend to overvalue health relative to other goods, such as pleasure. They "confound what is good for us with what is good for our health." And this analysis is readily applicable to the army of experts who struggle to control us and get use of our taxes to pursue their own preferences. They all fail to accept that other people have different tastes that in conditions of liberty are traded-off by those people.
Jamie Whyte again:
Politicians always claim that their safety regulations are motivated by concern for people in dangerous jobs. Yet the beneficiaries are always people who do not do dangerous jobs. Workplace health and safety meansures are a zero-sum game in which wealth is transferred from the brave to the timid.
And yet, I think Whyte here simplifies and understates the case. He concentrates on the loss of 'danger money' to workers if the market price of the safer jobs falls. That, adding in workplace costs, might look like a zero-sum game, but a business is not a closed isolated system linking effectively infinite reservoirs of labour and capital.
The cost of complying with regulations is not transferred between internal costs and neatly compensated by changes in the labour market. The costs must be borne by customers and workers and capital in an uncertain proportion, and may force the business to shrink or restructure. And some of those costs are transfers of wealth to new players: regulators, inspectors, compliance officers, policemen, lawyers, prison officers, and the businesses that spring up to sell advice, form-filling guides and special stationery to all of the other new players and the businesses trying to minimise their attentions.
I think Whyte is mistaken when he asserts later in the same article that "left to his own devices a profit-seeking employer would get workplace safety exactly right". Employers are often irrationally optimistic—in the modern world they need to be to become employers. But that does not change the fact that the imposition of any new form of compliance on an industry makes all its existing workers, businesses and customers collectively financially worse off, though it may change the balance between them.
The quantity of inspection, regulation and statutory record-keeping is a measure of how much worse off, in financial terms, we are than otherwise we would be. State intervention is never costless, never self-financing, though differing people may end up paying. A would be regulator ought therefore to adduce non-material benefits for what he wants to do sufficient to convince the people affected. Unfortunately it is more likely, as Whyte points out, that his choices will reflect his own preferences. And worse, his preferences when someone else is paying.
Tuesday
It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest the most comfortable. It is hard in the stationary, and miserable in the declining state.
- Adam Smith, The Wealth of Nations.
Friday
The article by one of our contributors yesterday about Russian on-line music business allofmp3.com raises all manner of fascinating issue that I think should be pondered.
It has been argued by some of the commentariat that "whether you approve of the morality of the western music business or not, the goods belong to them and the artists" and thus as "one of the driving principles of this site [Samizdata.net] is respect for property rights, not glorifying those who steal, whether it be the state or someone else", presumably we should be more critical of this. These are reasonable positions to take and certainly I would not want anyone to think Samizdata has anything less than complete enthusiasm for private property rights. However I also think with regard to this (which is to say the sale of music on-line in a manner which is against the wishes of the businesses who own/created the music) the view that property rights are being violated is not correct.
In fact I would say that notion is exactly the wrong way around. Like it or not, music is now a commodity that is traded by weight in an international market and therefore the creator has only residual rights to how that commodity is subsequently resold. The model allofmp3 uses does indeed pay something to the creators of the music and refusing to acknowledge that things have changed and that recorded music is no long a physical good is pointless.
It may not be the business model originally envisaged by the music creators but that is the only viable one that remains to them. The market price for their product is now about 12¢ a track and if that (or their cut of that) is not enough for the music's creators, well I guess they should stop producing music and go find something else more profitable to do, just as if the price of diamonds falls too low, De Beers should feel free to stop digging them up in Namibia. What they (and De Beers) should not feel free to do is demand governments force the price of music (or diamonds) up by insisting they can only be sold a certain way via approved technologies at higher prices. One of the driving principles behind Samizdata.net is trying to develop theories about the world that reflect reality. I am willing to hear other theories but it seems to me that the market has spoken (loudly) and using the state to prop up a business model that technology has made nonsensical is not really serving the cause of liberty.
Another issue raised by the commentariat is that companies like allofmp3.com are all involved with the 'Russian Mafia'. As no evidence has been offered, clearly that is baseless supposition. However it does raise some other interesting issues: I would say even if it was true that allofmp3 is paying 'protection' to the Russian Mafia and/or using their political influence to shield their business model, the Russian Mafia fulfils certain roles that in other countries are filled by governments and lobbyists to much the same effect, thus I am not sure it makes a company like allofmp3 any different to a company (say Sony) using the force of the state to enforce its business model.
There is really not that much difference and if you do not believe me, I suggest you try telling the state you no longer wish to follow their regulations and wish to make your own arrangements for 'protection' and therefore intend to withhold a portion of your taxes... and then see what happens to you.
Thursday
I have been wandering through the fascinating nation of China of late, so I have not had much time to peruse the blogosphere - I guess this means that for a month I had a life. I was fortunate enough to spend a few days in the beautiful city of Lijiang in Yun'nan province. This mid-sized Chinese town is famed for its wonderfully restored 'old city', a cobbled and confusing maze of shops, traditional inns with gorgeous courtyards and a grid of small canals filled with luminous fish and gushing clean water. A beautiful place to while away a few days, but Lijiang is not really known for its nightlife. So on the evening of the 25th of December, I got trawling through some of the past articles on Samizdata. Reading through the comments section on this post, I noticed that an article I wrote early in 2005 got a mention. It was a pity I was not around a computer regularly, because a debate raged in the comments section that I would have very much liked to have been a part of. For all my appreciation of China, I am one of the few Sino sceptics.
I should explain. I am not a sceptic of the aspirations of the billions of Chinese people who sense greatness in the Chinese identity. After all, I'm mentioning a deeply rich culture backed up by a vast talent pool on the mainland and in the diaspora that has the capacity to change the world radically in the future. I am, however, deeply pessimistic about China in its current nominally Communist incarnation, for reasons I have outlined in a previous post. I will not go into specifics; if you're curious, please read my rationale here.
Some interesting developments have taken place between now and then, however. These merit further analysis. One or two of the commenters in the mentioned Samizdata piece stated that they were keeping abreast of banking developments in the Middle Kingdom. In 2002, Chinese officials admitted that 25% of the loans written by the state owned banks were non-performing. Standard and Poors and a number of others said it was closer to 50%, and possibly more. Within the space of four years, the Chinese administration has revised its estimation of the rate of non-performing loans down to an average of about 12%. How can this be done so fast? I'm not really sure. We are, of course, talking about the writing down or otherwise accounting for of many hundreds of billions of dollars of bad loans. I assume that it's due to the fact that most or all of the bad loans have been transferred to special "asset management" companies set up by the government. I suspect that the banks have been able to revise their non-performing loans (NPL) ratio down so quickly by performing a debt-to-equity swap with these holding companies. The article linked to immediately above believes the asset management companies have taken a chunk of the banks' loans and issued them with 10 year bonds in return.
This solution is clearly economic sophistry. At the end of the day, someone has to pay the tab - at some stage depositors are going to want their money. The equity in these holding companies is effectively (if not nominally for the time being) worthless - after all, their assets consist of a bunch of loans that will never be repaid. What is being done about the essentially state-owned industrial sector, which was - and most likely still is - the major recipient of these loans? There's a saying in China that goes something like "The mountains are high and the Emperor is far away". I have no doubt that this thinking pervades China's provincial administration and its state-owned industrial sector, and it explains the pervasive corruption that is, contrary to official publications, as rampant as ever. For every high-profile trial and execution of an apparently "senior" official on corruption charges, there are hundreds of thousands more who not only escape undetected, but are also politically untouchable into the bargain. Quite simply, the central government cannot be everywhere at once, and its reach is frequently limited by local powerbrokers. Consider this case in Guangdong, one of China's more prosperous provinces, where the central government could not exercise its will due to local political considerations, even though humiliating international media attention was beaming down. And who is to say that the central government is not as corrupt as its provincial counterparts? It is hardly unreasonable to say that corruption probes have a definite glass ceiling when it comes to the powers that be in Beijing.
I believe that the Chinese banking sector's dire straits constitute the gravest threat to global stability in the coming years. The Chinese government is always harping on about its "deepening" banking and state-owned industrial enterprise reforms, and this is a mantra is being repeated across the world. Unfortunately, the Chinese state is so opaque that it's impossible to verify the veracity of such claims, and the unrealistic numbers being thrown at us by the Communist party (like the drop of NPLs from 25% to 12% in less than five years) and the shonky juggling of bad debt from one insolvent bank to another woefully undercapitalised holding company do not inspire much confidence in the nature of the reforms. Frankly, I believe the banking sector is too far gone to reform without collapse. In international terms, the crisis in the Chinese banks and SOEs is an elephant that stands in the middle of the room, but everyone is either perceiving it as a mouse or trying to pass it off as a mouse. I believe the Australian government is in the latter category, as are a great many others around the world.
I speculate that governments like Australia's are acting as they are because they realise the Chinese state is very brittle and unlikely to withstand economic collapse. The massively stimulating US$50 billion or thereabouts annual injection of foreign direct investment is holding the Chinese state together for the time being. Thus, a number of states such as Australia have an interest in talking up Chinese economic reforms - and concealing the parlous nature of the Chinese economy - in the hope that investor confidence will not flag and the Chinese will trade and consume their way out of their problems. Our current economic health is due to huge demand in booming and resource-hungry China. Thus we see documents like this (pdf) that echo the "deepening reforms" mantra consistently spouted by the Chinese administration. Puff pieces like this create and sustain the irrational exuberance that swirls around the legend of the Chinese economic miracle, and inevitably amplifies economic pain when the collapse eventuates. The strategy of our governments may work, but it is an extremely high-risk gamble. The more investment in and commercial intertwinement with China increases, the more outsiders will suffer if the system unravels.
And perhaps the cracks are already becoming evident even to the man on the street. When I was in China in late 2005, ATMs were frequently out of order. I work in the banking sector in Australia, and when an ATM is out of order this nearly always means the machine has dispensed all its money. This was not a problem in late 2004 during my previous Chinese visit - ATM operations at that time were indiscernible to those in Australia. I am speculating here, because I'm not really an expert on this kind of money velocity issue, but perhaps the sudden patchiness of the ATM network is a sentinel of a solvency crisis.
And the collapse could come sooner than we think. In 2007, as per the agreement China entered into upon joining the WTO, it must open up its retail banking sector to foreign banks. This is a potential tripwire. Even if only a small number of Chinese are concerned about the health of their local banks (and thus their savings), when Citibank opens up next door the run on Chinese banks could easily spin out of control. I am assuming that the government is trying to spread the notion of confidence and stability in the retail banking sector. If the Chinese do not panic come 2007 or any time in the subsequent 20 years or so, the banks should be able to reduce their NPL rate to a "more manageable 5%". It wouldn't be the first time that people have left their money in a bank that is essentially insolvent because they believe the government will cover any losses incurred. This is a questionable assumption, however, and if I was Chinese I probably would not run the risk.
I am concerned by the consequences of a Chinese economic collapse, and these concerns reach far beyond any short to medium term economic pain. I fear a worldwide economic slump prompted by the collapse of China and its supposedly free market will provoke a popular backlash against globalisation and the liberal market reforms carried out in the 80s in the most successful economies of the West. Capitalism and liberalism will be blamed if people create a nexus between China's collapse, its market reforms and its intertwining with the greater world economy. There is no shortage of people who will quickly jump to the fallacious conclusion that the free market sunk China - those who protested in Hong Kong and other places would grab plenty of (misguided) ammunition from such a catastrophic event. Ask any one of those economic curmudgeons about post communist Russia's economy, and I will bet you penny to a pound that their standard response would be "capitalism failed Russia". This is about as sensible as saying that modesty failed Paris Hilton, for anyone who knows anything about post-Soviet "free market reforms" will know that they were in fact nothing of the sort. This type of thinking could very well gain traction because it makes sense prima facie. Policy reversals may follow and suddenly we're staring down the barrel of a neo-Keynesian revolution. Consider what the average person knows about China's economy. We're all told about China's free market reforms and its burgeoning capitalist class in the mainstream media - we're not told about the Chinese government's meddling in the economy and its mandating of compulsory totalitarian-style imposts on big private companies like internal "political cells", its retention of control over huge swathes of industry, its equity market (there is currently a ban on IPOs on Mainland bourses) which is stuffed with companies who are controlled by local governments and even the military, rather than shareholder, the board and a CEO. Most importantly, we're not told about the largely intractable problems with China's banking sector. Most people truly think China operates under a free market economic system. If the dog's breakfast that is China Inc fails with all the accompanying pain and fallout, there's a real danger that free market liberalism will be made the scapegoat internationally.
As I speculated above and in my previous article, Chinese economic collapse will probably preface political revolution. This is in itself an interesting, though disturbing proposition. What would post-communist China look like? Firstly, I should mention that a democratic revolution seems fanciful at best. There is no ANC-type shadow opposition waiting in the wings. The Party is the State, and the Party brooks no opposition. Here are what I consider to be the two most likely outcomes:
1) The military will overthrow the Party. If the banking sector collapses, so too will large chunks of the state-owned industrial sector that are afloat solely due to loans from the state-owned banks. Millions upon millions will be out of work - millions more will lose their pensions and benefits. Many tens - perhaps hundreds - of millions of people will pour onto the street to vigorously and violently protest their loss of savings and/or employment. In its death throes, the Communist Party will order a brutal military crackdown. Trouble is, a military is made up by people with aspirations, families, hopes etc. People who would have lost their savings, too. People whose parents, family and friends are suddenly out of work and without benefits. Most of the officers and soldiers will have no end of sympathy for their countrymen under such circumstances, and it's difficult to imagine the chain of command will survive under such conditions. The Communist top brass will lose control of the military, which will regroup under a new command. The old political order will be drawn and quartered, Mao will be evicted from his mausoleum and his portrait ripped down from the gate of the Forbidden City. There is no democratic tradition in China, however the country is steeped in a history of rule-by-decree. Expect this for many years to come. Perhaps the best outcome would be highly imperfect democratic elections in several years time.
2) The country breaks up along the lines of regional powerbrokers. Along with rule-by-decree, China also has a long history of warlordism and disunity. Due to the lack of any credible and widespread opposition movement in China, the possibility of a complete breakdown of central control is high if the Communists depart the scene and the military doesn't fill the vacuum. Hong Kong would almost certainly go its own way. Those provinces with large populations of non-Han citizens like Tibet and Xinjiang may declare their independence - perhaps bloodily ejecting the old order. Inner Mongolia may reunite with Mongolia. There is scope for large-scale dismemberment of the modern Chinese state. That left over will be fractured and ruled perhaps by the old regional party bosses reincarnated as warlords or whoever is able to wrest power from them and maintain it.
Some mention Taiwan as a wildcard that could be used as a distraction by the Central government. I think this unlikely. If the economy collapses, a war with Taiwan is not likely to distract anyone from their sudden poverty. Militarily, it seems unrealistic, too. The military will be stretched to breaking point in an attempt to reign in the chaos on the Mainland, so a massive invasion or attack on Taiwan looks unfeasible.
I truly hope that I am wrong about my bleak assessment, mainly due to the turmoil and potentially massive loss of life that would undoubtedly accompany such an event. I am also deeply concerned about the potential illiberal and protectionist measures that may be enacted in the West and elsewhere in the wake of a Chinese meltdown. The world has made a grave error of judgement in heavily backing an economy designed, constructed and administered by a group of ostensibly reformed Communists. This fact alone should have cooled the foreigners' ardour. As it stands, the potential for unprecedented economic losses from Chinese investments is enormous. I think we could be facing a very painful depression, which may very well be "cured" with a protectionist, welfarist New Deal-like solution. Scary times ahead.
Wednesday
The Swedish city of Stockholm - in which I spent an enjoyable short stay last year - has introduced congestion charges, much like those which now operate in central London. The supposed aim (supposed being the key word) is to reduce car use and get people to use public transport. Public transport is said to be very good in Sweden and I found it to be so, though it comes with a heavy tax bill.
The congestion charge issue is an interesting one because on one level, free marketeers can see a lot of merit in the idea of treating use of a road just like any other commodity. However, in today's world, road tolls tend to be more of a revenue-raising device than part of a free market approach to transport. Roads are not built with the consent of other property owners, but mostly built at the behest of public authorities using compulsory purchase powers (what is called eminent domain in the United States). So the idea of road pricing, nice though it may sound in some sort of capitalist utopia, is in reality bound to operate in a monopolistic environment.
And as the British police have found, the C-Charge has brought certain unintended consequences. Not a great surprise.
Monday
Putin is sending shivers through the world with his attempts to strong-arm the Ukraine back into the Kremlin's zone of influence and no doubt more and more column inches are going to be directed at this emerging crisis.
Yet it seems to me pretty obvious that that Russia, circa 2006, is almost hilariously weak to be throwing its weight around. The Russian economy is pathetic for a would-be imperial seat of power, running about half the size of India based on purchasing power. Its GDP per capita is about the same as such mighty global players as South Africa, Mexico and Trinidad. The antics of its kleptocratic and economically illiterate former KGB leadership makes the place less attractive to investors by the day. Frankly you would have to be crazy to put your money in Moscow. Even its military has repeatedly demonstrated that it is inept and corrupt in equal measure. All this talk of Russia's importance is vastly over-stated. In short, Russia needs to be treated with respect, but only the sort of respect you give a drunk with a knife as he staggers down the street.
The price of gas sold to the Ukraine is currently below market levels but the cackhanded way Russia has handled this makes it pretty obvious that markets are the last thing on Putin's mind. But perhaps he is to be applauded for massively strengthening the hand of pro-nuclear power advocates with his preposterous posturing. Even the turgid political class of western and eastern Europe can now have few illusions that it makes sense to rely on an unstable place with delusions of grandeur for their energy supplies. Methinks it might be time for those with some spare dosh to invest some of it in nuclear energy stocks.
Friday
As 2005 draws to its close it is customary to make some predictions about the following year. I won't do so. The world's stock markets are ending the year in better shape than I would have expected a year before, notwithstanding the impact of higher oil prices and the devastating hurricanes that hit the U.S. gulf coast. What is interesting to me though is how the market in making predictions has continued to accelerate, spawining exotic derivatives connected even to the weather.
More than two years ago in the United States, some policymakers toyed with the idea of a predictions market to help figure out terrorist threats. The idea was killed off, partly, so it was argued, due to some terrible PR for the idea as well as a cowardly refusal to embrace controversial ideas. Lawrence Lessig takes a different view here.
The market in making predictions has, of course, been around for decades, if one thinks about the commodity futures markets such as the great wheat futures markets in Chicago, for instance. This Wikipedia entry I linked to shows just how broad the prediction market now goes, such as people taking bets on future scientific innovations, and so on. And these markets can be harnessed to garner useful knowledge about where certain things may be headed as well as fund valuable research.
That's my prediction, anyway.
(Wikipedia link fixed. Thanks to a commenter for pointing out the error).
Thursday
As I sit in the Coffee&Co café in Bratislava (a town I am rather fond of visiting) taking advantage of its offer of free wireless broadband (ah, no more OWLS for me)...
...I am yet again struck by what changes are being wrought by the internet, and what amazing possibilities it opens up.
Although I studied Russian many years ago when the Cold War was steering me in certain directions, that knowledge has long since been flushed by my brain. Yet the other night just before I left London for Slovakia, I was exchanging e-mails with a chap in Moscow, translating (or more accurately transliterating) my Latin script English into Cyrillic Russian via a free on-line system and similarly translating his replies into English.
The results were rather crude and took a bit of smarts to interpret but we were able to conclude our business most satisfactorily. It really did bring home to me that even though we are only at the very start of the communications revolution (and revolution it is), the ways the internet will change everything are incalculable. The social, scientific, economic and political implications are so far reaching that I am sure the world twenty years from now will be hard to recognise.
Perhaps that is just stating the obvious but for me at least it is the very fact I am now so blasé about all the things the internet makes possible for me that makes it is useful to sometimes stand back and marvel at what an astonishing thing it is. Of course just as we take electric light as a given and only appreciate it when the power goes out, I might be unusually appreciative because at the moment I do not have my usual 24/7 broadband access and there is nothing like withdrawal to make you value getting a 'fix'.
Tuesday
The Chinese economy is set to be bigger in GDP terms than that of Britain by the end of this year, according to this report. Of course, raw statistics, such as aggregate economic numbers, do not tell the entire story, such as the degree of upward mobility, quality of life, extent of personal opportunity and so forth, but even so, China's growth remains for me the most compelling economic story of the past year. It is interesting to speculate just what the world economy would be like without the dynamo of China.
What remains to be seen, of course, is whether China's economic dynamism is eventually reflected in greater individual liberty. The jury is well and truly out on that question. Meanwhile, this article in Forbes is worth a look.
Monday
Tom Peters, who presumably found it in this piece, reports:
This banner, in Chinese, hangs in each room of the Hua Xin Li Dress Co., Ltd., amidst the Rongcheng Industry Zone, 100 miles from Beijing:"THE CUSTOMER IS GOD AND THE MARKET DECIDES EVERYTHING"
People say things like this from time to time, but they seldom mean them, and they never mean them when at all severely challenged
I mean, suppose you were to ring up the Hua Xin Li Dress Co., Ltd. and to say: "Hello, God speaking. I want you to design my daughter's wedding dress. It must be genuine silk, with genuine gold fiddly bits sewn into it, with miniature iPods for buttons, and must win numerous design awards. However, being God, I don't want to pay more than 50 pence. Got that did you? Fine. Tomorrow morning then. The wedding's tomorrow afternoon." I know, I know, God has no daughter, and if He did have a daughter, she would probably not get married. She would do altogether more dramatic things than that. Not my point. Which is: would the Hua Xin Li Dress Co., Ltd. knuckle under to such a demand? Would they obey God, the customer, you, and supply an expensive product at less than it costs them to produce it? I think not. They would surely respond instead with something more along the lines of: "Not quite our kind of job. If you want lots of cheap dresses to sell in your shop, maybe we can do business. Take a look at our website, and see if there is anything there that you like." God might not be satisfied with an answer like that, but you, a mere customer, would have to settle for that, or something like it.
Or to put all of the above another way, "the market" includes everyone, and everyone's desires and plans, consumers and producers. Customers are indeed sovereign, over themselves and what is rightfully theirs, but so are producers. Customers do not have to pay for things they do not want, and producers do not have to produce things they do not want to produce. The market is not some ghastly new tyrant who tells you what you must do, regardless of your rights or wishes. The market is not some hideous and only slightly nicer collective reincarnation of Chairman Mao. The market is the outcome of everyone's rights counting for something, and nobody's rights counting for everything.
So yes, the market does decide a lot of things, but the customer is not God.
This is an exaggeration for the sake of effect. The effect may, in a business sense, be good, but it is still an exaggeration, and that is putting mildly.
Tuesday
In search of things to write about for the Globalisation Institute blog, I came across this report, itself about a report issued by the International Labour Organisation.
Global economic growth is increasingly failing to translate into new and better jobs to reduce poverty, the International Labour Organisation (ILO) said in a report Friday.
As a summary of what follows in this report of the report, this turns out to be severely misleading. Globalisation, according to what follows, is cranking out new jobs, and it is cranking out better jobs. True, it is not cranking out "new and better" jobs, all in one go, if by that is meant people in dirt poor countries now being able to leap in their thousands from having no jobs to having nice jobs, but that is hardly surprising.
Half of the world's workers still do not earn enough to lift themselves and their families above the $2 a day poverty line, the fourth edition of Key Indicators of the Labour Market (KILM), said.
There is still a lot of poverty in the world, in other words. So?
"The key message is that up to now better jobs and income for the world's workers has not been a priority in policy-making", ILO Director-General Juan Somavia said.
This is, at best, thoughtless bluster, and probably a flat lie. If he thought at all about this claim, Juan Somavia would realise that it is false, but he makes it anyway. I believe that he assumes that only the spending of tax money in explicitly labelled better job creation schemes would count as the intention to create better jobs. But I support globalisation, and write regular contributions for the Globalisation Institute blog, because I believe that globalisation is creating and will continue to create "better jobs and income for people" all over the world. This is a big part of why I do this. And I am definitely not the only one who thinks thus. Does Juan Somavia sincerely believe that all of us who enthusiastically support globalisation are indifferent to "better jobs and income for people"? Maybe he really is that ignorant, but I doubt it.
"Globalisation has so far not led to the creation of sufficient and sustainable decent work opportunities around the world. That has to change, and as many leaders have already said, we must make decent work a central objective of all economic and social policies."
Once again, bad policies to achieve "decent work" - making indecent work illegal, and making it obligatory to perpetuate all decent work ("sustainable") indefinitely, I assume - are confused with wanting lots of decent work. I do want lots of decent work for people, but believe that making indecent work illegal, and all firing of people from decent work illegal, is the absolute worst possible way to achieve that outcome. Making indecent work illegal hurts the very poorest people in a downright lethal way, by taking away even the crap jobs that they do now have and can now get, and it kicks away a vital rung in the ladder from no work to indecent work to decent work, which guarantees that the lethality will continue indefinitely. Charming. Demanding that all decent work be "sustainable" is to demand the impossible, and to guarantee idleness for all.
The other thing to say about that weasely paragraph is that all that it really says is that poverty is not being got rid of as fast as it might be, and as fast as would be nice. My interpretation of that truism being that globalisation is not working as fast as it might to make all that decent work (some of it perhaps even somewhat sustainable), all that "better jobs and income for people", and my conclusion is that globalisation should be intensified, and that Juan Somavia and his ilk should get out the way and let that happen.
Coming ahead of the WTO talks in Hong Kong next week, the report said that while in some areas of Asia, economic expansion is fostering solid growth in jobs and improving living conditions, Africa and parts of Latin America are seeing increasing numbers of people working in less favourable conditions, especially in the agricultural zone.
Globalisation is working well in some areas, and not so well in others. How could it be otherwise? Some parts of the world are better at it than others. Astonishing. Once again, this absolutely does not show that globalisation should cease, anywhere, still less everywhere.
For millions of workers, new jobs often provide barely enough income to lift them above the poverty line, or are far below any adequate measure of satisfying and productive work, the KILM said.
What a revelation. Lots of jobs in the world are very badly paid, and are crap. Who would have guessed it? But what are you and your mates saying should be done about this, Juan? You imply, but dare not spell out: less globalisation. I say: more.
The total number of working women and men living on less than $2 a day has not fallen over the past decade although at 1.38 billion it is a smaller share of global employment at just below 50 percent, a decline from 57 percent in 1994.
The best take on that being that the population of the world is increasing quite fast, and the number of not totally crap jobs (jobs above $2 a day) is also rising quite fast. The number of crap jobs, paying less than $2 per day is static, but presumably with much coming and going. A mixed picture, but more good news than bad there, I would say.
The report emphasises that in many developing economies the problem is mainly lack of decent and productive work opportunities rather than outright unemployment.
In other words, there are now lots of jobs out there, but lots of them are crap. Again, a mixed picture, with the good news being just as clear there as the bad. And I repeat, what do you guys think should be done to make the news better? I say: more globalisation. What do you say?
Women and men are working long and hard for very little because their only alternative is to have no income at all.
Indeed. Which is why making long and hard work illegal would be so lethal. Are you proposing that? If you are not proposing it, what are you proposing?
The report points out that in recent years there has been a weakening relationship between economic growth and employment growth, meaning that growth is not automatically translating into new jobs.
But there still is such a relationship, right? Or has it vanished, and do you think growth does not matter, and should be done away with?
The biennial study found that for every percentage point of additional GDP growth, total global employment grew by only 0.30 percentage points between 1999 and 2003, a drop from 0.38 percentage points between 1995 and 1999.
Which is precisely the kind of thing I would expect if I thought, as I do think, that globalisation, having created crap jobs for lots of people, is now switching to making crap jobs a bit less crap, rather than just thrashing out more equally crap jobs for people who already have crap jobs.
With employment growing between 0.5 and 0.9 percentage points for each additional percentage point of GDP growth, the most employment-intensive growth has taken place in the Middle East and in northern and sub-Saharan Africa.
And your problem is? Again, the creation of crap jobs is going on faster in some places – the poorest places, the places where there used to be no jobs at all, even crap jobs – than in the places where they already have crap jobs and would like nicer ones. This is just what I would expect of a world heading in exactly the right direction.
A review of other indicators, however, . . .
Oh to hell with it. Read the whole thing, if you can be bothered.
What this report of a report shows is that our side is winning the argument about globalisation and winning it handsomely. The Juan Somavias of this world hate globalisation, but since they do not say why, we can only guess. My strongly held opinion is that Juan Somavia hates globalisation because it takes jobs away from his members, in rather small numbers, and gives jobs to millions of people who are not his members, in very big numbers, and he hates that. Plus he probably hates capitalism. He dare not say this, because it is too nasty and too stupid, but he thinks it.
However, hating globalisation as he does, he still cannot find anything really bad to say about it. Poverty is widespread, and is not nice. Poor people have crap jobs, which they do because they prefer having crap jobs to starving. In some places, crap jobs are being created fast, in others the crap jobs they already have are being improved. Blah blah blah, etc. etc. etc.., moan moan moan.
At no time did Juan Somavia, or the writers of this report, judging by this report of their report, say that globalisation is worse than their proposed alternative, for they propose no such alternative. Had they done so, and if they did do so without the report of the report mentioning this, that alternative would presumably be (presumably was) non-globalisation. More or less big gobs of: tariff barriers, laws against importing and exporting, subsidies for existing industries, etc. etc.., the whole discredited panoply of command-and-control, national socialist, bugger-the-damn-foreigners economic policy which, the last time it was seriously imposed, caused the Great Depression.
Juan Somavia and his cohorts moan about globalisation in the same feeble and pointless way that others moan about the price of beer or the bulkiness of SLR cameras or the noisiness of washing machines. Should beer be done away with? Should big clunky SLR cameras be illegal? Should laws be passed demanding silence of washing machines? Well, no, but, but, but, … it's just … not good enough!!! Idiots. Others may still be saying semi-plausible but stupid things against globalisation, but Juan Somavia and his mates have lost this argument. But because of all their futile grumbling, and because of the prominence that their futile grumbling still gets in news reports by people who would prefer them not to have lost, this defeat may only be clear to the practised eye, but a defeat it nevertheless is. They have lost, and we are winning.
Winning a mere argument does not automatically translate itself into immediately getting the right policies and dumping the wrong ones. It may well be, for example, that this report that this report reports on contains many detailed and evil anti-globalisation proposals, which the report of the report dares not mention because these anti-globalisation proposals are just too obviously evil, but which are still there, and which for all manner of less obviously evil reasons may still be acted upon. People may have no good reasons for opposing globalisation, but they still have plenty of bad ones. Like: wanting to keep their own non-crap jobs and to hell with the world. And like: wanting capitalism - which they took against in their youth - to be mucked up, and then wanting capitalism to get the blame for the resulting ruin, instead of accepting it themselves. Overcoming such ignoble interests and intellectually corrupt positions is tough work. But, at any rate if this particular report of this particular report is anything at all to go by, the argument about whether these interests and positions ought to be overcome is now over.
Tuesday
It is nice to see that a compatriot of mine is presently making the case for free trade at the WTO summit in Hong Kong, at which the usual bunch of vested interest and anti-globalisation protestors have shown up.
Seriously, that anyone can go to Hong Kong and then attempt to argue that free trade is against the interests of the poor just boggles the mind. But they do.
(link once again via Tim Blair).
Monday
Those smart fellows at the Marginal Revolution economics blog like to track all manner of strange and innovative ways in which Man engages in the age-old routine of truck and barter. Sport has spawned all manner of new business enterprises in recent years and now it is possible for investors to build assets by investing in the future market value of footballers.
Makes sense, really. These days football players, even quite mediocre ones - never mind great talents like Pele or George Best (RIP) - are paid enormous amounts of money in their careers. Rather like the bloodstock trade, I think. The idea of getting a financial stake in a player is also likely to bring investor pressure on players to be monitored off the field as well as on it (do we really want a potentially lucrative asset to be carousing down the pub?)
Personally, I am sticking to equities, bonds, cash and a bit of brick and mortar.
Friday
My first posting on the Globalization Institute's blog is about the almost hidden but massive transfers of cash by migrants workers to their families in under-developed countries. The following quote comes from Time magazine:
Mass migration has produced a giant worldwide economy all its own, which has accelerated so fast during the past few years that the figures have astounded the experts. This year, remittances - the cash that migrants send home - is set to exceed $232 billion, nearly 60% higher than the number just four years ago, according to the World Bank, which tracks the figures. Of that, about $166.9 billion goes to poor countries, nearly double the amount in 2000. In many of those countries, the money from migrants has now overshot exports, and exceeds direct foreign aid from other governments. "The way these numbers have increased is mind-boggling," says Dilip Ratha, a senior economist for the World Bank and co-author of a new Bank report on remittances. Ratha says he was so struck by the figures that he rechecked his research several times, wondering if he might have miscalculated. Indeed, he believes the true figure for remittances this year is probably closer to $350 billion, since migrants are estimated to send one-third of their money using unofficial methods, including taking it home by hand.
There are two things I especially like about this growing trend. One is that unlike other forms of aid (including private giving by Westerners), the money tends to be better spent, because the donor is immediately related to the recipient. The second is I think unique to migrant workers. Normally there is a dependency trap: the money coming in is for a set term and will only be renewed if the recipient pleads continuing poverty. But migrant workers who leave their families behind have a strong incentive to watch out for improving economic conditions back home. As families achieve a tolerable standard of living they tend to reduce the amount of migration. The whole bureaucracy of aid is bypassed.
Thinking about it, perhaps giving a Christmas bonus of £100 to the office cleaner from Ghana or the Ukraine does more to make the world a better place than £200 given to an aid charity. We often hear about the benefits of cutting taxes, but here's a new one. For each pound in taxes saved by low-income migrant workers, up to 40p will be transferred to a family in the developing world. That's got to be a better return than the government makes of our money.
Tuesday
The price of gold on the world commodities market is at the highest level since December 1987 (god that seems a long time ago). A number of reasons are given for why it is so strong, such as being a default resting place for investors who are shy of holding stocks, bonds or cash. Gold is also strong because commodity prices in general, such as nickel, zinc, iron ore and bauxite are being driven higher by the voracious appetite for metals and other goods by China.
There may be another factor, though, which ought to set off a few red lights in the central banks. Gold is often a hedge for people against inflation. It seems a long time ago when Britain endured double-digit inflation, but inflation is creeping higher, although that may be simply due to the temporary effects of higher oil prices. Anyway, the gold stuff may be issuing a gentle warning. Let's hope the Bank of England takes note of it.
Friday
From David Tebbutt:
This is the promise: "The Habitat JAM will gather your input and add it to thousands of others to identify actionable ideas for the Vancouver World Urban Forum agenda and influence the Forum's content. It will start conversations and build new networks that bring enormous potential to global problem solving."
It sounds more like a threat to me. At best, manipulated bullshit. Problem solving is a fine thing, but the fewer conversations and networks devoted to "global" problem solving, the better, I would say. This is, I think, because "global" bundles together lots of difficulties into one huge impossibility, which you then blame on global capitalism. But the way to actually solve problems is to do what actual capitalists actually do, which is break the problems up into solluble particles.
Still, "actionable" means that someone will at least be able to sue these people, yes? No. Non-responsibility for resulting chaos is of the essence of gatherings like this.
Wednesday
I have devoured pretty much most of John Le Carre's spy stories, such as The Spy Who Came in From the Cold, Tinker, Tailor, Soldier, Spy, A Small Town in Germany and Smiley's People. His novels have a chilly, grittily believable quality that stands in contrast to the sophisticated romps of Ian Fleming (Who is actually a pretty good read, as Anthony Burgess once said). More recently, Le Carre, bereft of a Cold War to provide his theme, has turned his attention in a different direction. He has turned it towards the supposed evil of global capitalism and big drug firms.
The Constant Gardener, a film which hammers the allegedly rapacious activities of drug companies, has now been turned into a film starring the British actor Ralph Fiennes (whom I once saw live giving a somewhat histrionic performance in London in the Ibsen play, Brand). The Social Affairs Blog, has a fine demolition job of the book and film here by UK academic Kenneth Minogue. Minogue's treatment of the film is brutal.
Now I can see why, as pointed out on this blog concerning the firm Pfizer, some drug companies get a deserved hammering. But what I don't quite understand is the sheer venom directed at drug firms in general by people who presumably must realise that developing and researching drugs can be highly expensive. If drug firms cannot be sure that their products won't be instantly copied by other manufacturers, who can be sure that drugs to combat AIDSand other killers would make it to the marketplace? The issue of intellectual property rights does of course remain a very tricky issue among libertarians, but do the opponents of any such property rights imagine that we can or should leave drug development to the State, given the experience of our own Soviet model of national health care? It seems as if the attacks on drug firms stems from a desire to seize the hard work and graft of others because one has a "right" to curative drugs.
But if, as Le Carre and others contend, we should give drugs to the poor of the Third World for nothing, the bill for this could be enormous. I don't really like the idea that the wealth creating capabilities of people should be held in partial ransom by the open-ended needs of billions of other people.
On the subject of AIDS, it is always worth reading Andrew Sullivan, who has HIV, on why he loves drug companies.
Thursday
Those strange-sounding financial entities known as hedge funds, which are sometimes depicted as the Darth Vaders of the modern market, often have rather odd or dull names. So I was glad to come across a firm in the United States with a name that proudly celebrates the free market with unabashed gusto.
The firm has a great merchandise selection, too.
Thursday
Hollywood Director James Orr points out some interesting factoids about how megacorporate movieland is seeing the game shifting before their very eyes.
The internet changes everything... we just do not know precisely how yet.
Sunday
It is often said by libertarians, or "radicals for capitalism", to coin Ayn Rand's phrase, that Big Business is often lousy at defending the market and in fact is only too happy to co-opt the State to make life hard for competitors. I was reminded of this fact when noted Libertarian Alliance author, Sean Gabb, made much of this point in a talk on Friday evening. It appears that the U.S. retailing giant WalMart may be guilty of this by lobbying for a rise in the U.S. minimum wage.
Debate continues as to what exactly is the impact of a minimum wage on the unemployment rate in a country, but in theory at any rate, raising the marginal cost of hiring a worker presumably makes it less likely that said persons will be hired, other things being equal. Marginal Revolution, the U.S. economics blog, has a take on the issue here. Other useful discussions at the Von Mises Institute here, and taking a more supportive view of such laws, is this paper here.
Even if one takes the assumption that minimum wage laws don't always raise unemployment overall, the businesses that lobby for them may think they do, or think that by raising their would-be competitors' costs, that it will strengthen their own market position. In short, there is nothing very altruistic about it.
And Walmart, to take this firm as an example, is also renowned as a beneficiary of eminent domain land-grabs. Funnily enough, this has become something of a cause celebre for parts of the left, who ironically, are relying on the same sorts of defences of property rights that I referred to a few days back on this site. It would be nice if the left embraced property rights as a cause. Stranger things have happened.
Tuesday
I went from Instapundit to this this presumably not-so-instant pundidtry by Glenn Reynolds called The old industrial state, and from there, via an eBay reference, to another Glenn Reynolds piece called Is small the new big?.
The idea here is that that new big businesses - eBay, Amazon – are getting big by helping the small guy to do his thing, unlike the old big business, which was an economically deluded tyrant.
But did not the big, bad old industrial system - which only became a "state" in the years of its dotage - also empower people? For as long as it was properly run, it did.
The Model T and the Sears Roebuck Catalogue empowered the little guy, just like eBay and Amazon now. The Model T was the basis of many a small business. Sears Roebuck made it possible for smaller operators outside the big cities to function on level terms with the city folks by letting them buy the same stuff and get their money back if not satisfied, just as if they were buying it from a big city store. Most of the USA still lives in small towns, I am constantly told. The old industrial "state" is what enabled them to do so, comfortably.
More recently, the personal computer industry - now dominated by big, bad, old Intel and Microsoft - has empowered millions of individuals, and made possible the growth of enterprises like eBay and Amazon. Empowering the little guy is not a new idea. I can still remember the thrill of empowerment that I felt from my first computer, an Osborne 1.
There are two quite distinct ideas rubbing together here. One is bigness, and its alleged badness. The other is the genuinely bad idea that it is both smart to try to - and actually possible to - insulate huge numbers of people from market pressures, indefinitely. J. K. Galbraith, quoted by Reynolds, thought that this could happen, and his big idea, if you can call it that, was that business bigness meant being above and beyond market realities. The truth is that a big business that ignores market realities is heading for a big fall.
But the little guy is just as prone to economic delusion as the big guy. That is often why he is so little. Like the guy making a small fortune in sport, he started out with a large fortune.
The ultimate embodiment of the Galbraith delusion was of course the USSR, which copied the bigness of US business without copying any of the market responsiveness that brought the USA's business bigness into being in the first place. The USSR just stole bigness from others, and eventually the loot ran out.
What is true is that formerly successful and still established ways of doing things can get into serious trouble, and because they once were so successful, they can last way beyond their days of success. There is a lot of ruin in them. Big and successful businesses become Galbraithian. They become, on a tiny scale, economically speaking, the USSR. But they cannot last, any longer than the USSR could. Not being able to murder all their rivals and critics, they last a lot less long.
Business bigness is the consequence of a new business idea becoming thoroughly understood by a few exceptional people, who proceed to organise it, and then to triumph over almost all of their rivals. Then, times change, and that kind of bigness needs to change too, but by then millions have got used to it and cling to it. That is the problem of the old "industrial state". What we are living through is neither the end of bigness nor the beginning of individual empowerment by bigness. It is a transitional period, between one lot of bignesses and other sorts of bigness. And these new bignesses will be just as like to give rise to new Galbraithian delusions as the earlier ones were.
And let us also give credit where credit is still due. Those big old businesses got big in the first place by doing lots of empowering of the little guy. To put it in Reynolds-ese: the old big also did small.
Saturday
Just over a year ago I spent a very happy few days in northern California, spending one very long and pleasant day in the state's Napa Valley wine region. The region boasts some of the best wines in the world, including the now-famous wineries of Robert Mondavi. Mondavi's wines caused a global sensation in the trade when, during a "blind tasting" in the early 1970s, wine critics rated his produce a notch above the competition from more exalted premises in Bordeaux and Burgundy. The horror!
This article very nicely draws out how the challenge of New World wines from California, Chile, Argentina (a magnificent producer of wine), South Africa, New Zealand and Australia has led to a fairly grumpy response from the traditional centres. This is perhaps understandable. The French produced some of the finest wines of all time, with only a bit of competition from the flowery Hocks and Moselles from Germany and the likeable Riojas in Spain and a few good ones from Italy. About 20-plus years ago, you could walk into a supermarket and choose from only a relatively limited range of wines, much of it fairly basic plonk. Globalisation has put some of the world's most far-flung wine producers into the reach of Joe Public.
All we need now is a similar global "race to the top" in the production of effective hangover cures.
Thursday
"It is a irresistible to note that nearly everyone, including the wealth creator, is inclined to see the world of inner being, of the heart and soul, as being at odds with the commercial. Wealth creators seem shy of their success. It is often said that the Englishman has always preferred to be seen as a gentleman than as a creative, industrious or commercial person."
Richard D. North, Rich is Beautiful, (page 199).
Monday
I have long defended an American corporation, much hated by anti-globalisation types, greens, leftists, even many conservatives. While many seem to think that the mission of said corporation is to destroy all that is good in the world and to act as a back door through which America can destroy local colour and local traditions, I have found it hard to fault a company that sells hamburgers to people who voluntarily choose to consume them, that has introduced the concept of the public toilet to many parts of the world where the idea was lacking, and generally provides excellent customer service to go with its slightly questionable food. I have found it hard to see anything sinister in that.
But alas, in the Praça da Liberdade in Porto on Saturday, I discovered that those brave battlers against corporate domination of the world were right. For the era of concealment is over. McDonald's restaurants are now established in most of the world, and they can finally allow their true ambitions and the true scope of their mission to become clear. The time for hiding is now, clearly, over.
I will confess that despite their obvious sinister ambitions, I quite like the new logo.
Friday
Well, I can not say this bad story came as a total surprise, given the near-total lack of respect for property rights and the rule of law in Africa:
South Africa says it will for the first time force a white farmer to sell his land under a redistribution plan.
The story goes on to say that the seizure is part of a drive to "redistribute" land to people who lost what was rightfully theirs as a result of the 20th Century apartheid regime. Hmmm. It seems to me that on an abstract level relating to rectification of previous injustices, there is some credibility to this idea. However, the big problem is that the people who will get chunks of this land are unlikely to have much to do with the people who were allegedly robbed of said land in the first place, assuming that such a claim can be validated. (Of course if there are people who could claim that they or their ancestors were robbed of what was rightly theirs, then I have no objection in principle to some restitution).
In practice, as we have seen all too clearly in nearby Zimbabwe, the spoils of any assault on white-owned farmland will go to the political hacks and cronies of the governing regime, and likely bring about a serious, possibly catastrophic loss of economic wealth and food in a part of the world, that is not, to put it mildly, greatly endowed with such things.
Perhaps the president of South Africa should put this book on his reading list. Or perhaps he should remember to heed his own words.
More than anything else, Africa needs stable, enforceable property rights, period, if it is clamber out of its current state. Sir Bob Geldolf and friends, please note.
Thursday
Allan M.R. MacRae of Calgary, Canada points out something rather interesting that seems to have gone largely unreported in the mainstream media.
Here are verbatim quotes by Tony Blair from the September 15, 2005 Plenary Session of the Clinton Global Initiative Conference.
Tony Blair seems to have let the cat out of the bag on his new energy policy at the Clinton Global Initiative Conference last week. Blair said:
"I would say probably I'm changing my thinking about this [Kyoto treaty] in the past two or three years......The truth is no country is going to cut its growth or consumption substantially in the light of a long-term environmental problem...
...There is no way we are going to tackle this problem unless we develop the science and technology...
...Some people have signed Kyoto, some people haven't signed Kyoto, right. That is a disagreement. It's there. It's not going to be resolved...
...I don't think people are going, at least in the short term, going to start negotiating another major treaty like Kyoto."
This must be a major disappointment to Kyoto enthusiasts, who say ten more Kyotos are needed for effective reduction of atmospheric CO2.
On July 12, 2005, on the subject of the Gleneagles Summit, I wrote the following to a number of colleagues:
"...we may now be at a point where many Euro politicians are realizing the science of Kyoto is bogus, but they are reluctant to admit they have been duped about global warming and have misled their public with scary stories for which there was no evidence - their new approach suggests a politically-correct "quiet exit" from Kyoto. We'll see..."
Allan M.R. MacRae
Wednesday
I love the internet. I went from this, which I posted here, to this, to this, to this, to this:
. . . to this:
. . . . which is the work of Ha Qiongwen. Of this particular poster, Stefan Landsberger says:
The design reproduced above was at the root of Ha's problems: why had he depicted a bourgeois woman instead of a female proletarian? Where was Chairman Mao? Why didn't the poster praise the Chairman more explicitly? Every time the literature and arts world held a criticism session, he was dragged out as an object of public abuse. As a result, Ha was publicly beaten and humiliated more than thirty times.
Personally I think the Red Guards were on to something. I think these delightful and amazing Chinese propaganda posters and China's current, rampantly aspirational and bourgeois rise towards superpowerdom are cause and effect.
I offered further thoughts along these lines in this ASI blog posting . This is the bit that is relevant:
I recently encountered, in a remainder shop, a big book containing hundreds of Chinese Communist propaganda posters, much like these ones. They depict a vivid and colourful fantasy world of industrial excellence and economic triumph, of collective progress and personal fulfilment, of joy. The people who now preside over China’s current economic miracle were teenagers when posters like these were at the height of their influence, and I think this is no coincidence. It makes perfect sense to me that the more imaginative and impressionable people brought up on imagery like this would turn away in disgust from the lumbering state centralism that these posters were intended to sell, once they realized that state centralism could never deliver such wonders, and instead switch to being enthusiastic pro-capitalists and even capitalist entrepreneurs. After all, only if China switched to capitalism could a real future like this be even hoped for, let alone rationally anticipated.
If you follow the link in that and scroll down to the bottom, you get to this:
Red Guards eat your hearts out.
(I now possess that book.)
Did Ayn Rand have anything to say about these Chinese posters? She should have.
Thursday
Well, sort of...
Actually I have long taken a similar view that without the distortions of the Common Agricultural Policy, many farm would and should go out of business or at least change what they do. My guess is that it would mostly be those who concentrate on the high end 'premium' end of the market (such as pandering to the demand for 'organic' food) who would survive.
Remove the barriers to trade and let the agricultural economies of less developed parts of the world feed us. Does it really make sense to artificially keep so much of the First World under cultivation?
Sunday
I have just moved into a new flat. As I am now living alone, and in my last arrangement I was not, I find that there are a lot of basic odds and ends that I need but which I don’t have already. I particularly need items for the kitchen.
One thing I needed was a microwave oven. While I did technically own a microwave oven already, that one is in Australia. So I went my local large Asda store, and looked for microwaves. They had a good, basic model of microwave oven on sale for £24.41. That is right, £24.41. (Excluding the VAT tax imposed by the British government, the price is even less - £20.77. That is well under 40 dollars). The prices of a great many electrical and electronic goods have collapsed over the last four or five years, but I still find it amazing. I can only have a modest meal in a London restaurant for that price, but somehow it is possible to make a microwave oven in China, ship it halfway round the world, bring it into a large London store, and sell it to me, while still making a profit, for such a miniscule price. The microwave oven I own that is still in Australia and that I bought in 1999 cost me more than three times as much. And through lower prices I am therefore more than $100 better off than I was in 1999, just through that one purchase.
There is not much to be said, other than:
Three cheers for free trade.
Three cheers for globalization.
Three cheers for the internet and other international communications networks, and the global supply chains and massive economies of scale that they bring.
Three cheers for container shipping, and the amazing logistical work that goes with it.
Three cheers for the industrialization of large swathes of Asia.
And, finally
Three cheers for Wal-Mart.
Sunday
Surfing the cable television channel briefly on Friday lunchtime, I came across a CNBC programme about oil prices, in which a couple of analysts fielded email questions from the public about why prices are so high. One guy claimed that the price of oil - currently about 70 dollars a barrel - was grossly inflated by those evil speculators and the "real" price of oil was more like 40 dollars.
Okaaay, said one of the analysts. If that is the case, maybe the emailer should quit his or her day job and take up oil speculation if the "real" price of oil was far lower. Armed with this insight, the correspondent would make a killing, said the clearly rather bemused analyst. It is rare on television to see this sort of nonsense smashed out of the park in such a fashion. Certainly not likely on the BBC.
While on the subject of nonsense about the role of speculators and prices, this is worth a read.
Friday
Gordon Brown has written an excellent article in today's Financial Times explaining why the old European Social Model is a relic of the past. He says that a new European Social Model needs to be created, one which is centred around free trade and flexible labour markets. He says that globalization is a race to the top and Europe has to be part of that race. Mr Brown's comments follow a speech given by Peter Mandelson earlier in the week in which Mandelson mocked the French economy. Mandelson said the French government was engaged in a futile effort to build an economic "Maginot Line".
It is great to have figures so associated with the Labour Party saying such good stuff, especially while the British have the Presidency of European Union.
Wednesday
Oh. My. God. I logged on to ePolitix.com this this morning and found this:
The Adam Smith Institute is working its magic yet again with the flat tax. Only last year it introduced the idea of a flat into the Westminster political sphere with the launch of Flat Tax: The British Case by Andrei Grecu, followed up by Flat tax for the UK. All the major parties have been looking at it: the Treasury censored their findings about the flat tax; the original said it would create a "mini-economic boom". Flat tax may be the most radical think tank proposal for a decade, but I have a distinct feeling this is going to be on the statute books quite soon.
Monday
The European Union has agreed an "equitable" outcome with China over the vexed issue of whether the Chinese should be allowed to sell textiles to us at those oh-so unfair low prices. It looks like a pretty fudged deal to me, possibly not as draconian as the original quotas demanded by protectionist lobbies in Europe, but still a slap in the face for principled free trade.
While I have my concerns about China - it has a lousy record on human rights for starters - the development of the country's economy along hopefully free market lines is surely one of the most positive developments of its kind in the world at the moment. Europe's economy can only benefit in the long run if China becomes prosperous and hence generates a large middle class with a keen appetite for consumer goods and services.
And some of the poorest people in Europe surely stand to gain if they can buy garments for far less than the amount they would otherwise pay. If the case for free trade is to succeed, it is vital that this point is rammed home time and again.
Let Adam Smith have the last word on this from his Wealth of Nations:
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce
Wednesday
Drieu Godefridi, the Director of the Institut Hayek, looks at plans for a "new Marshall Plan" for a region of Belgium with incredulity
Politicians in Wallonia, the southern part of Belgium, think their region needs "a new Marshall Plan". Excuse me? The Marshall Plan was designed to help Europe rise from the ashes of World War II. Surely there has not been any war in Belgium since then. So what is the point?
This plan would benefit the socialists who govern Wallonia by helping their lagging economy to recover. But to recover from what? Basically, from sixty years of socialist governance.
Truth be told, Wallonia does need an urgent boost to its economy. With an unemployment rate of 18% and almost nil growth for years, Wallonia is now on the verge of being outclassed by Poland and Slovakia, countries that started from zero in terms of their economies just 15 years ago.
This "Marshall Plan" consists of massive public investments in some parts of the Walloon economy duly selected by the government. But it will not work any better than other plans the socialists have come up with over the last three decades. (Some years ago, the same socialists said that one of their plans at that time would turn Wallonia into a "Wallifornia").
What is comforting to learn is that the main goal of the Walloon government is now to encourage the creation of new businesses and to help to develop existing ones.
But these socialists need to understand that the creation and growth of companies are not only a question of political will. For businesses to be created and to grow, some basic conditions have to be put in place.
Probably the most important two conditions sine qua non for economic vitality currently do not exist in Wallonia: reasonable taxes and a reasonable level of regulation.
Belgian taxes are among the highest in the world, second only to France. Not every tax can be lowered by the Walloon government, but many of them could be. Unfortunately, Walloon politicians do not seem to understand the link between low taxes and economic prosperity. The Cour d’arbitrage, Belgium’s Supreme Court, recently struck down a Wallon law raising the rate of the inheritance tax at 90%.
The amount of regulation in Wallonia is ridiculously high. In every jurisdiction that it has inherited from the Belgian federal state, be it urbanism or environment, the Walloon Parliament and government have enacted several new regulations to restrict business, often developing new controls in new areas. The idea that the burden of such regulations should be measured, and compared with their merits, is foreign to the socialist elites.
That the politicians of French-speaking Belgium understand the need to create new businesses for their economy to thrive is good news. But to expect that anything like would happen without a plan that entails the drastic lowering of taxes and the abrogation of complete areas of nonsensical environmental and city planning regulations? That is just another Belgian joke.
Wednesday
Longevity in an office is no automatic guarantee of worth. So the fact that Dr Alan Greenspan, chairman of the U.S. Federal Reserve, has been in the post for 18 years and is shortly to step down, does not mean he must qualify for greatness. But even a sceptic of the need for central banking like me believes that Greenspan, who is nearly 80 years old, is a remarkable man. His career spans the financial crash of 1987, the recession of the early 90s, the long stock market boom, the Asian financial crisis, the Russian debt default and the rescue of hedge fund Long Term Capital Management, and of course, 9/11 and its aftermath.
I am not going to chart every nip and tuck of his tenure to state whether he was a monetary policy genius, a wise man who realised his limitations and that of his office, or just very lucky. I suspect that luck played a part but what jumps out at me, from reading articles like this, or this fine biography by Jerome Tuccille, is that Greenspan was a very wise operator indeed. America, and indeed most of the western industrialised world, has enjoyed a relatively long period of economic growth and low inflation. The United States has certainly done so. And Greenspan, being at heart a classical liberal, had the intelligence and humility to chalk up 99 percent of the credit to entrepreneurs and their employees rather than to the supposed fine arts of macro-economic policy.
I remain a sceptic, though, of the need for central banking. Greenspan has left no ideological or operative legacy that could be enshrined in doctrine and used as a clear guide to future policy. Although determined to protect price stability, he could be daring and flexible when required, far more so than the more conventionally monetarist European Central Bank. The problem though is that Greenspan's replacement could be made in a far different mould.
America, and indeed the world, has been very lucky to have a man as wise as Greenspan at the helm. But it is surely dangerous that an economy as big as that of the United States should allow so much economic power to be held, ultimately, in the hands of one man - even if he does have very smart folk working with him. Of course, the business of "doing monetary policy" has become better over the past decades. Britain's own central bank runs monetary policy with a studied approach unimaginable in the horror years of the 1970s when money was treated as a metaphysical abstraction. But things could go wrong. Sooner or later the men with the interest rate levers are going to make a big mistake and the results could last a while.
Meanwhile, this article scans possible successors to the clarinet-playing former disciple of Ayn Rand and gold-backed currency.
Tuesday
Brian recently wrote a piece about the importance and usefulness of mobile phones in poor countries, particularly in Africa. I couldn’t agree with him more, but there is another interesting story in just where the expertise and money to build these African networks are coming on, and it is an oddly positive story.
But first, a seeming digression. When mobile phones came along in the early to mid 1980s, there were generally two patterns of licensing. Firstly, there were countries (eg Australia) where the incumbent telephone monopoly was given a monopoly on the new technology. Secondly, there were countries (eg Britain) where two mobile companies were licensed. One of these was usually the incumbent telephone monopoly, and the second was usually a new company that was brought into being to provide the new service. It is worth remembering that few people at this point expected that there would be a large market for mobile phones, so often these second players were small start up companies that paid very little for the licences. (The US issued no national licences and instituted called party pays pricing, and its market thus evolved differently from the rest of the world. Discussing this is an article in its own right, and I won’t go into it further here). In both instances additional networks were licensed when second generation digital services came into being in around 1993. Even in 1993 nobody realised what a big deal mobile phones would be, and although it generally took pre-existing companies to raise the necessary capital, it was still possible for relatively small players to enter the market at this stage. In some instances the companies that took out these licenses were mobile companies that already had networks in other countries, but usually these were companies new to mobile telephony.
However, the market share of companies in various markets seems to depend very much on which choice was made in the early 1980s. In cases where the existing telecoms monopoly was given a mobile monopoly, that company is usually to this day the dominant player in that national market. In most such instances, that player has a market share of around 50%. Other players can be more profitable, have most of the premium customers, or be perceived as providing better service, but it has been difficult in such markets for the later players to gain large amounts of market share. (Australia is a good example of such a market. Telstra (formerly Telecom Australia) has a market share of around 50%, and Optus and Vodafone (which entered the market with 2G licences in around 1992) have about 30% and 15% respectively).
In markets where there were two operators licensed from the start, the incumbent was usually unable to entrench a large market share in this way. Often, although the start up competitor had much less in terms of resources, it made up for this by having a nimbleness and a better cost structure than the incumbent. When additional competitors entered the market in the early 1990s with the introduction of 2G phones, they were often able to challenge the incumbents more effectively than was the cases in markets that were previously monopolies. The classic example of this is the British market, from which Vodafone initially became the strongest player, but in which the later entrants were able to grow to similar sizes to the existing players. There are four networks in the UK, and all four presently have about 25% market share. (Although a powerful but dominant player in the UK, Vodafone was able to expand internationally to become the biggest player in Europe and the world).
In about 1999-2001, the strongest players in the various European markets went on an acquisition binge, generally buying the weaker operators in other European countries (and further afield), leading to cross-border brands in Europe. The three dominant players that came out of this were Vodafone (originally the second operator in the UK), T-Mobile (former German telecoms monopoly) and Orange (former French telecoms monopoly), all three of who own networks in many European countries, and elsewhere. Sadly, these companies have not grown into pan-European networks in a way that would be good for consumers. Although there might be a Vodafone network in Germany, it still costs a huge amount for a Vodafone customer from Britain to use it. International roaming is so expensive, and such a profit source for the mobile networks, that it is not in their interests to break it down and leave us with networks that appear international in scope to their users. This will happen eventually, but not until cellular networks face competition from vastly more operators or from other technologies. This may be happening - I have a PDA that runs the Voice over IP client Skype and from which I can make free calls whenever I can find a WiFi hotspot in a foreign country - but it is going to take a few years to really happen.
So that is where we are. We have brands that are international, and it is a truly miraculous thing that I can turn my mobile phone on almost anywhere in the world and it will just work, but pricing mechanisms and a regulatory environment that is are sadly far too subject to national borders.
But what does this have to do with Africa?
Well, as a general rule the big European mobile companies have not been terribly interested in African markets, due to the fact that African markets often have peculiar regulatory requirements (ie African governments and bureaucracies are horrible), the potential profits have been seen as small compared with developed world and Asian markets, and these companies just generally are not very imaginative. So where has the expertise and capital for these African mobile networks come from?
Well, there is one mobile phone market in Africa which did follow the European model, sort of. South Africa did not have analogue mobile phone services, due no doubt to a combination of the general incompetence of the apartheid regime and a lack of desire to introduce a technology that that very paranoid regime likely saw as potentially subversive. As it happened, the first mobile phone networks did not come into existence until 1993. The powers that be licensed two digital GSM licences - one was essentially given to the telecoms monopoly Telkom (which imported expertise and some capital from Vodafone, and ultimately launched a network under the name Vodacom), and one of those new startup mobile phone companies typical of Europe sprung up. This company was (and is) named MTN.
Like many of its counterparts, MTN was better run and nimbler than its monopoly owned counterpart, but in the South African market itself the monolithic advantages of Telkom won out in market share. Vodacom quickly gained and retains to this day the largest market share in South Africa - presently a little over 50 percent. MTN has a little under 40 percent, and a third operator that was licensed about ten years later now has around 10 percent.
While MTN was not quite as successful as Vodacom in the domestic market, where it did become aggressive was in other African markets. South African firms in consumer businesses usually do not try to compete in other developed markets- they are generally too small, too lacking in capital, and in truth levels of customer service in South Africa are often not high enough for the product to be good enough to succeed in America or Europe. There are exceptions (for instance the "Nandos" fast food chain) but not many.
The foreign markets South African companies can succeed in are other African markets. South Africans have experience in dealing with other African countries, customers are not as sophisticated as in America or Europe, and foreign competitors with better customer service are largely absent. In addition, there is one other crucial skill that South African companies have that is quite important and valuable. In the days of apartheid, many foreign companies would not do business in South Africa. Some South African businessmen became quite skilled at looking at successful businesses in the developed world, cloning them reasonably well, and then selling the resultant product in South Africa. In those days the resultant businesses could not be exported to the rest of Africa, but since the end of apartheid they have been able to do so. And in many cases they have done so.
Mobile telephony is not perhaps a perfect example, but it is one. MTN has expanded into various other African markets - Nigeria, Rwanda, Swaziland, Cameroon and Uganda - and has been very successful in these markets. Nigeria and Uganda I am told are particularly profitable. The company has at times been a darling of the Johannesburg stock market, and it is for its African exposure that it gains a lot of its stock price. MTN has become sort of a pan-African Vodafone - powerful but not dominant at home, but the biggest player in Africa as a whole. Its domestic competitor Vodacom has been far less aggressive at expanding into Africa, being more content to take rich pickings in its home market. Vodacom does have one important network elsewhere in Africa, in Tanzania. (This does have the interesting distinction of providing the highest mobile phone service in the world. Alex will no doubt be delighted to know that his Blackberry will work on top of Mt. Kilimanjaro).
South Africa is a conduit for developed world skills and technologies to find their way into Africa, and this is good. South Africa is also a conduit for developed world market structures and business models to work their way into Africa, and this is also good. The present South African government is not a good government - it has an urge to tax and regulate everything, and puts far too strong an ideological bent on what it says and does - but there is quite a bit of entrepreneurial spirit of the right kind in the country. (The apartheid governments of South Africa were also dreadful, vile, protectionist things too, to be fair). This is an example. It is not the only South African company expanding into other African markets, but more are needed.
Obscure correction: A commenter on this article nitpicked and stated that South Africa did have a very small scale and unsuccessful analogue mobile phone system prior to 1993. This gave me enough information to do some research, in which I discovered that South Africa did have a small network using a technical standard that was unique to South Africa called C-450. (When I was researching the article I couldn't find South Africa on lists of countries that used any of the main analogue standards, which is why I assumed there was no network). This is not as unusual as it sounds - there were a multitude of different analogue mobile phone standards in use in the world, and one reason why Europe came up with a singe 2G standard (GSM) was because analogue mobile telephony in Europe had been a disaster due to there being a large number of incompatible standards in use - but clearly the reason that first generation analogue mobile phones failed in South Africa was because of a terrible technology choice, mixed in with a questionable regulatory choice in using the 450MHz band rather than the 850MHz band used in most places. (That said, quite a few other countries - many in Scandinavia and Eastern Europe - allocated 450MHz and produced networks that succeeded). The legacy of such a total failure when going it alone might explain why Telkom partnered with Vodafone for 2G, too.
So in fact South Africa corresponded to the Australian model - a monopoly in analogue technology, and then multiple licences for digital from 1993 - but the incumbent telco was even worse, which didn't stop it from still being able to use its size to gain a majority market share in 2G. Interesting.
Sunday
I do not really believe this, but it makes a good story:
The man who sparked the flat tax revolution is former Estonian Prime Minister Mart Laar. He governed his country from 1992 to 1995 and from 1999 to 2002. When the historian became Prime Minister in 1992 at the age of 32 he knew nothing about economy. Laar's area of expertise were Europe's 19th-century national movements. "It is very fortunate that I was not an economist," he says. "I had read only one book on economics – Milton Friedman’s "Free to Choose." I was so ignorant at the time that I thought that what Friedman wrote about the benefits of privatisation, the flat tax and the abolition of all customs rights, was the result of economic reforms that had been put into practice in the West. It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible."
Shrewd politicians often pretend to be dumber than they are, if only so that they can look well-meaningly sheepish instead of thoroughly ridiculous when things go wrong. So, I take Laar's claim to ignorance of economics and of economic policy outside Estonia with a pinch of salt. But what does not seem to be in doubt is the importance that a good book can have, and good ideas in general. If only the same did not apply to bad books and bad ideas.
I visited Estonia briefly in 1991, for a Libertarian International gathering in Tallin. I am not surprised that the Estonians are now doing well. They struck me as very level-headed and efficient people. They of course have a long mercantile tradition as a result of their proximity to and seaborne trade with Scandinavia. Those places are not called the "Baltic" states for nothing.
Friday
Is there anything, anything, now going on in what used to be called, either with delicate euphemism or with a sneer, the "developing world", but which now really is the developing world, that is more encouraging than the rapid spread throughout said world of portable telephones?
I have just done a piece for the ASI blog about this process in Africa, linking to this New York Times article. And the Private Sector Development blog (whom I have just added to my personal blogroll here), in addition to supplying the same link today, have also linked to of a recent Economist piece on the same subject. Pablo Halkyard also links to this Wall Street Journal piece.
It is not all good news. It never is. Governments all over the place are now demanding extortionate connection taxes, to the point where the tax bill is starting seriously to outweigh what would have been the regular cost. Sounds like those cheap European air tickets that I sometimes buy on the internet for peanuts, where the government then charges me peanuts times four. Nevertheless, even there the news is partly good, because at least some governments are learning that if they cut connection taxes down to something more in line with the extreme cheapness of the service itself, people are more ready to pay such taxes. That is because illegal phones are more likely to go wrong and harder to get mended if they do go wrong. Is the unwillingness of people to pay big taxes good news or is their willingness to pay small taxes bad news? You decide.
The portable phone quote that made me smile the most this morning was this, from the Economist piece:
(Oh, and the "digital divide" vanishes, too.)
I especially like the brackets.
Wednesday
Uber-blogger Andrew Sullivan, fresh back from his holidays, rages against Americans who drive big SUVs on the grounds that by doing so, they help swell the coffers of terror sponsoring states in the Middle East. Patriotic Americans, says the ahem, British Mr Sullivan, should drive smaller, more fuel-efficient vehicles. He does not like the habit of "soccer moms" driving their kids around in such vast vehicles, full of clobber he thinks is a waste of space and money.
Well Andrew, maybe. I would have thought that with the price of crude oil hitting the region of around $66 per barrel, that even the dimmest motorist is going to see the impact on a bank statement eventually and wonder about trading in the Hummer for something a tad smaller. I know it is crazy ideological talk but people do actually take account of prices.
If oil prices stay on their current trajectory, it won't need a scold like Sullivan to remind Americans, or indeed anyone else, to adjust their consumption. All it takes is the operation of prices. Some Scottish geezer called Adam Smith once wrote about this about 230 years ago, I think. It is such a shame that even bright folk like Andrew Sullivan take all this time to catch on.
Tuesday
Cameron Carswell discusses the role of the World Trade Organization in promoting free trade.
The World Trade Organization (WTO) draws wrath from people of all sides of the political spectrum. There are those supporters of globalization who oppose it on principle, saying that while free trade is a desirable goal such an organization implies it needs to be "managed". It makes sense to be sceptical of the idea that economic liberalism and free trade can be imposed from the top down - for an excellent and balanced view of this by Dr. Razeen Sally see here.
There are those who oppose globalization and see the WTO as advancing the very process others see it as hampering. The question is, does the WTO genuinely advance free trade (with all the associated benefits), or is it merely a vehicle for special interests and rent seeking?
There are some elements of the WTO rules which do seem at odds with the goal of free trade - Chinese clothing exports are currently limited under special WTO rules. However it could equally be argued that this was merely a practical measure to prevent further trade barriers being set up.
The WTO is designed to promote free trade but by its nature as an international organization is open to politicisation. If it is the case that trade barriers are reduced as a result of the pressure it exerts then all the better. On the other hand, unilateral moves toward freer trade are invariably good things, and it would appear that this is the most likely route for the goal of free trade, once again with China leading the way.
Tuesday
Via the Global Growth blog comes news of the recently (June of this year) launched Private Sector Development blog.
Says the Global Growth blog:
Its great to see that market approaches to development thinking are gaining traction, yet more evidence that a new paradigm is forming.
Indeed.
Although, I have already spotted one error in this new blog. In his June 29th posting, Pablo Halkyard says that Bill Nighy played the Chancellor of the Exchequer in The Girl in the Café (my opinion of The Girl in the Café is to be found here). No. Nighy played a mere civil servant. The Chancellor was played by the appropriately Scottish Ken Stott.
This is a small error. That the private sector is the way to go for enriching countries that are now poor is a great truth.
Tuesday
Anatole Kaletsky, the economics journalist who, despite a fondness for Keynsianism, is one of my favourite columnists, believes Italy's departure from the euro and possible re-creation of the lira is a real possibility, one that needs to be taken with deadly seriousness by financial markets. He says the financial fallout from an Italian divorce could be disastrous:
While detailed consideration of these arguments is probably premature, the practical implication is clear: If the possibility of an Italian withdrawal were ever taken seriously by the markets, foreign holders of Italy’s €1.5 trillion public debt would face enormous losses, big enough to endanger the solvency of many non-Italian banks. In other words, the Italian Government is now in a position to kill the euro and wreck the European banking system merely by threatening to withdraw.
I think he is correct. As I said in my last posting about Hayek's idea of competing currencies operating inside the same country, it is folly to imagine that the cult of the all-wise central banker will not come a cropper some time or later. Many Italian entrepreuneurs might be very glad indeed of an alternate store of value if that country does indeed pull the plug on the euro.
Some scare stories deserve to be ridiculed but I think Kaletsky is on to something. Between now and the Italian national polls next year, it would be smart to keep a very close eye on the euro zone financial markets indeed.
(Thanks to the Adam Smith Institute blog for the pointer. It reaches pretty similar conclusions).
Tuesday
Paul Staines says Sony should welcome Brits buying Playstations before their UK release.
European video-gamers who buy the Sony Playstation Portable (PSP) will be surprised to find out that Sony is suing the retailers who sold it to them.
Not yet formally launched in Europe, the eagerly awaited PSP can be bought online from Hong Kong dealer Lik-Sang.com, a leading online retailer for videogame systems. Sony, in an aggressive tactic borrowed from Big Pharma's lawyers, is suing the parallel trader for breach of trade mark and seeks a court order that would prevent Lik-Sang.com from selling or offering systems, games and accessories to customers in the UK and the European Economic Area (EEA). Sony claims "Lik-Sang's sales are an unlawful interference with Sony's economic interests."
Pascal Clarysse, Marketing Manager for Lik-Sang.com says:
This is the most aggressive move against its own customers that a console manufacturer has ever taken in the 30 year history of videogames. Sony wants to completely cut hardcore gamers away from items released in Japan or anywhere else outside their own country. A very active part of the gaming community has been enjoying Japanese gaming culture for over two decades, and that's what the Empire is now willing to destroy.
The lawsuit comes as a total surprise to Lik-Sang.com, given that the laws of Hong Kong are clear when it comes to parallel trade. Hong Kong's legislation is based on the fact that allowing parallel and free trade will restore natural competition and benefit consumers with lower prices. Hong Kong, one of the pioneering countries respecting worldwide exhaustion of trademark rights, allows free trade once an item has entered the market for sale.
Sony wants to control its products even after it has sold them, but that is not how the globalized world works today. Sony should be pleased that the demand from UK customers is so great. Instead of acting against its fans' interests, they should welcome the early demand.
Tuesday
Arnold Kling has brief thoughts here about the phenomenon of air miles. The "bonus" miles one accumulates due to air travel now equate to about $700 billion of value, according to a study that Kling cites. That is a lot of money. He is not very keen on air miles, largely it seems because he dislikes the way that dinner table companions go on about them. I know how he feels. An acquaintance of mine, who shall remain nameless, would constantly brag about how many air miles he got via Virgin or whatever... zzzzzz
On a more serious note however, one can see how some people might want to treat the air miles market as a sort of parallel currency. $700 billion dollars worth of air miles could buy one a lot of goods and services, conceivably, if exchanged by barter. Clearly they are highly restricted in terms of liquidity, the key advantage of money. But during a period of high inflationary stress, I could see how air miles could become quite popular as a medium of exchange.
The idea of competitive currencies is often rightly associated with the late F.A. Hayek. The idea seems to have gone rather quiet of late. Perhaps because we currently live in a period of relatively low inflation, the fears about the dangers of monopoly money and hubristic central banks have faded. It would be highly complacent, however, to assume that the current benign low-inflation environment will last forever. These things seldom do. Hayek's idea may be ready for a comeback.
Monday
I suppose most readers around these parts would reckon that actors should stick to acting, and keep their political opinions to themselves.
But what about these opinions?
"People think more aid will help, but it won't," said Ms. Driver, an actress who is working on her second music CD. "Trade is the surest way of decreasing the savage amount of poverty in our world. These countries have got to be able to trade fairly."
And the point is, by "fairly", she does not mean being paid artificially high prices; she means getting rid of agricultural subsidies in the rich countries.
It was never a practical project to silence the acting profession. These people are famous. Having acquired their fame, they then want to use their fame to do good, and in the process to become even more famous. This is only natural, especially when you consider that doing good and being heroic is what, according to the entertainments these people spend their lives making and acting in, life is all about. Trying to stop famous actors from expressing what they consider to be virtuous and heroic opinions in public is like trying to stop the wind from blowing or the sea from being wet.
No, the task that faces us is not to silence the acting profession from ever opining about goodness. That would be impossible, to say nothing of censorious and unpleasant. Rather is our task to change the definition of goodness that actors of sufficient fame to care about such things reach for when they get to the public virtue stage in their careers, and to make goodness really mean goodness.
Ms. Driver's pronouncements concerning the superiority of trade over aid as a means of rescuing the world's poorest people is evidence that some progress is being made along these lines.
Many actors surely already believe such things, on the quiet. But it is still a fine step forward when one of them feels able to say such things in public.
Wednesday
Anthony Batty asks if we really need the Competition Commission to promote competition between UK supermarkets.
In the news recently, the UK's Competition Commission has been flexing its muscles in the area of supermarkets. Somerfield may have to sell stores, after buying what Morrson's did not want after acquiring Safeway (a one-time subsidiary of the American supermarket company).
Do these people really feel that by virtue of the fact a supermarket has two stores within some arbitrary distance they have a monopoly? Or are able to raise prices and earn large profits? For starters the barriers to entry for say Iceland to open a new store are simply planning permission. If they feel customers would use the shop I am sure at least one of the major players would open up a store. Not to mention continuous competition from supermarket home delivery, local shops and the fact people may just drive another few miles if they do not like the selection they are offered. Supermarkets are one of the most competitive areas in the modern economy, if a company does not keep pace with the efficient supply chain, changing demand (such as the low carb craze that swept through the UK) it will find itself the target of a takeover bid, or in administration. This is not because of the work of government departments; rather it is the free market at work. Only through this competition can we find which stores give us what we want, at a price we are prepared to pay. If one firm is not performing we go elsewhere, if prices are too high we use an alternative retailer. There simply is no need for bureaucrats to be in charge.
I do agree however, with the basic premise of more competition. For this reason I find myself reverting to a point made by the late Screaming Lord Sutch, why is there only one Competition Commission? (In his day, the Monopolies and Mergers Commission.) Surely in the interests of competition we should have several. By allowing new entrants and getting rid of the protected monopoly that exists at present, firms can choose between different conclusions and suggestions. Lower administration costs and fewer worries about whether or not an action will be allowed, means lower prices for consumers. In that way we will have free and fair trade, without the diktats that are not in the interests of firms or consumers.
Saturday
It is easy, with all the terrible events going on in London at the moment, to let other significant stories slip under the radar. However, last week the UK senior finance minister, Chancellor of the Exchequer Gordon Brown, tweaked the rules of UK budget policy in an offhand manner that takes the breath away for sheer barefaced cheek.
Brown has a so-called "Golden Rule" that stipulates that the government's books must be in balance over the course of the economic cycle. The books are currently seriously in the red at the moment, which would appear alarming given that we have had a relatively decent period of economic growth recently. So what does the gloomy Scot do? He shifts the year in which a key part of the economic cycle is supposed to have started by two years, the effect of which is supposed to show that the Golden Rule has not been broken. This sleight of hand produced fairly scant coverage outside the business sections, but in its own little way illustrates the utter contempt this government has for the financial markets, or the general public.
Brown has done this sort of thing before. And it makes one wonder just how long Brown can go on before the economy, supposedly Labour's strongest card in the last election, turns south.
I never bought the argument that Brown was a great Chancellor, as, with all his faults, was Nigel Lawson, for example. Brown has been enormously lucky to inherit an economy left in fine fettle by the previous Conservative government, and apart from his wise move of making the Bank of England independent, has done precious little right since. He is an ardent meddler and micro-manager, making the tax code into a hideously complex morass that does precious little for growth apart from make lots of jobs for tax accountants.
How the world changes. A few weeks ago the political trainspotters were wondering how soon Brown would take over from Blair. I suspect the likelihood of that happening has been pushed away by quite a distance.
Wednesday
I attended the GI launch last night, and Alex Singleton turned me loose as the kind of semi-official photographer of the event, and has used some crowd shots I took, and also pictures I did of Bill Emmott and Alan Beattie (who is also quoted here).
Glad to be of use. But what really got my attention last night was the number of nice looking women who were present. Johnathan Pearce is fond of mentioning P. J. O'Rourke's Law of Babes, or whatever it is called, which goes something like: Wheresoever the Babes are, there shall also the Action be. Tom Wolfe's description of how the Babes managed to track down the men test flying jets in the top secret desert of western USA in the early 1950s, in The Right Stuff, is an earlier exposition of the same law.
Judged by this standard, the GI Institute is doing pretty well. Here are eight nice looking ladies, and one genuine baby type babe just for good luck, and because he/she was there. (Cranking out more of those being a lot of what this is all about, after all.)
And those are only the ones I got reasonably good photos of. I can recall at least two more ladies who only missed the cut because I did not get good photos of them. So if you are a fully certified Gorgeous Babe and you were there, please do not be offended. You just came out all blurry in all my photos, on account of my chin hanging down and hitting the focussing nob.
Click to get bigger pictures, some of which include extraneous males of the species. Cropping such photos is always a controversial matter.
Sunday
The pharmaceutical industry has been running an ad campaign in the United States saying that reimportation of drugs from Canada were allowed, those drugs might be counterfeit, unregulated and unsafe. This is simple propaganda and nothing more.
Pfizer's Chief Executive Officer Dr Hank McKinnell has come out and contradicted his industry's advertising. On page 69 of his new book, he says that: "Drugs from Canadian pharmacies are as safe as drugs from pharmacies in the United States." Pfizer vice-president Dr Peter Rost says that drug company lobbyists "know full well" that drug reimportation has "been done safely and cost-effectively... in Europe, for over twenty years... The German Federal Health Ministry has verified that not one single confirmed case of a counterfeit medicine has ever come through the parallel trade chain. The UK regulatory authority has described the level of pharmaceutical counterfeiting as 'virtually undetectable'."
They were not speaking on behalf of their employer.
Dr Rost's view is confirmed by Donald MacArthur of the European Association of Euro-Pharmaceutical Companies who in November 2003 testified at a US Senate committee. MacArthur said: "As far as can be ascertained there has never been a single, proven case of a counterfeit medicine leaving the parallel trade supply chain in Europe. Certainly, none has been reported in the two largest markets for incoming parallel trade - the UK and Germany; in the case of the latter, the government has recently verified this fact".
In the US, where reimportation is illegal, counterfeiting is on the rise. The ban on reimportation has led many people who cannot afford the cost of drugs from their local pharmacy to use online shops they have never heard of to illegally get cheap drugs. Some of these websites, which are marketed through spam e-mail, claim to be in Canada but are based in developing countries and fail to deliver anything or supply counterfeit drugs.
If the US wants to fight counterfeit drugs, it should follow the European model and let legitimate, properly-regulated businesses, which consumers can trust, safely and securely reimport pharmaceuticals. That way, the drugs get imported from legitimate wholesalers in Canada and Europe. Contrary to claims of pharma's lobbyists, it is America's ban on reimportation that promotes counterfeiting. The US government should adopt free trade in pharmaceuticals not just to reduce prices but to reduce counterfeiting, too.
Crossposted from the Globalisation Institute Blog.
Wednesday
In the comments here, Andrew Duffin asserts that:
It's a lucky Pharma company indeed that gets seven years to recover the R&D costs of a successful product. Two or three is more like the real world figure.
But Chicago professor Richard Posner writes:
...I am skeptical about the length of the patent term for pharmaceuticals. Congress has tacked on to the normal 20-year patent term (which until 1995 was only 17 years) an additional term of up to 5 years for the time it takes a pharmaceutical manufacturer to get a new drug approved by the Food and Drug Administration. In addition, the expiration of a pharmaceutical patent does not extinguish the patentee's ability to obtain a higher price than the generic substitutes that come on line when his patent expires, because there may be substantial consumer and physician goodwill attached to the trademark of the patented drug...
Dr Marcia Angell, the former editor-in-chief of the New England Journal of Medicine, says in this book:
...the effective patent life of brand-name drugs increased from about eight years in 1980 to about fourteen years in 2000.
Sunday
The original Live Aid back in 1985 was something I supported. I watched it, gave them my money and continued to vote for Margaret Thatcher in the next election because, just like in Africa, extreme statism needed to be opposed in the country I lived in too. Back in those days the Tory party had at least some intellectual coherence.
Live Aid was a very specifically targeted project: there was a catastrophic famine in Ethiopia and regardless of the fact that it was the result of a war vastly exacerbating the effects of a drought, I felt at the time that specifically aiding civilians with emergency assistance was neither going to destroy the local economy (it had already collapsed to less that subsistence) nor would it significantly enrich the Marxists at the top who were in no small way responsible for that state of affairs. Most importantly, Live Aid was asking for private money, and as it was mine to give, I gave some.
This time things are rather different and far less straightforward. It is not all bad, mind you. The Live 8 extravaganza has quite a few people associated with it making demands for the developed world (of which Russia is not truly a member, it should be noted) to open their markets to the Third World... and this is rightly targeted at the G-8 leaders. Quite so. What the hellholes of the world need is more globalization, not less, if they are to lift themselves out of their dire conditions.
But alas the main thrust of what Live 8 seems to be about is to induce the governments of the G-8 to take money from their taxpayers and assign it to nebulous and frequently counter-productive projects in Africa, often in effect propping up the regimes who are the single biggest cause of their own nation's problems and directly responsible for local poverty.
As with any large gathering of the music illiterati, coherence and cogency are going to be as rare as pelicans in Perthshire. Yet some of the people listening to the streams of babble at this event will come away with the simple idea lodged in their brains that making trade freer is one of those things that would make the world a better place. So whilst I have no interest in supporting Live 8 myself and I had better things to do than watch it yesterday, perhaps some good will come from it in spite of the toxic statist message at this event's core.
Sunday
Next time you see a starving African child on the television, remember the culpability of Make Poverty History. MPH's will cause more poverty and more deaths than would otherwise have occurred.
Socialism is killing the third world and Make Poverty History is going to make it worse. In a report by the Globalization Institute called More Aid, Less Growth, we learn that "for every 1% increase in aid received by a developing country, there is a 3.65% drop in real GDP growth per person. Contrary to the conventional wisdom in the aid industry, the study finds that even where recipients have good governance, the effect is also negative."
So there you have it. The increase in aid prompted by Make Poverty History is going make things worse, not better.
Saturday
At Hyde Park, Dido just introduced as the "African Ambassador for Music from Senegal", Youssou N'Dour*, who she was "in awe" of, "not just because he has a wonderful voice, but because of his wonderful beliefs". He came on stage to say:
"The debt cancellation is OK. The aid is OK. But, please, open your markets."
There will be an awful lot of well-intentioned nonsense given unquestioning, reverential coverage today, with ignorance and platitudes dressed up as profundity. Maybe, however, for perhaps the first time at an event of this type and on this scale, a kernel of truth will wriggle its way onto TV.
I consider this a small but notable victory for the notion that, if you permit free speech and are prepared to tolerate every misguided and moronic idea, eventually the truth will out.
* [edit]: add correct spelling and link.
Friday
I have already mentioned the guy's robust views about the upcoming Live8 musical event about to hit central London and I make no apologies for following up by plugging a fine book by Richard D. North in which he defends affluence and modern industrial society in his book, Rich Is Beautiful. Written in a deliberately provocative tone of voice, North crushes one modern shibboleth after another in a style reminiscent of a British P.J. O'Rourke. First class.
Monday
It is good to see that some dissenting voices are being heard amidst the babble that is surrounding the G8 event.
I find it interesting to see that a moderate voice for the free market like Alex Singleton (who, unlike me, supports Third World debt cancellation) is being attacked by a neo-communist who describe him as a 'dangerous extremist', even though Alex's views on these particular issues are little different from the Department for International Development or that paragon of Thatcherite virtues, Clare Short. Well who knows, perhaps some of Alex's critics have pecuniary ties to large pharmaceutical companies? It is amazing the enemies you make when you stand up for free trade and against vested interests.
Alex is a splendid chap but frankly I do not find him nearly extreme enough when it comes to Africa, but perhaps that is my job.
Tuesday
Richard B. North has a terrific set of articles about the current focus on Africa, debt-relief and poverty brought about partly by the efforts of Sir Bob "keep it off eBay" Geldof. It is fair to summarise that North is not totally blown away with admiration by the scruffy former lead singer of the Boomtown Rats, or indeed with the grandstanding of our own wonderful PM, Tony Blair.
Definitely not the sort of articles one would expect to get on a college degree reading list. How I wish the weblog existed when studying for my degree back in the 80s.
Sunday
"I think that maybe -- just maybe -- anti-Wal Mart sentiment has more to do with an aversion to the white, rural ethnology the store sometimes represents than its labor practices. We can't have our Ethiopian restuarants and esoteric bookstores blighted by NASCAR culture."
- The always good American blogger Radley Balko, telling it like it is.
Friday
It was written as...
The US taxman, the internal revenue service, argues that KPMG's tax shelters between 1996 and 2002 cost the government $1.4bn in lost revenues.
But I prefer to see it as... "KPMG's tax shelters between 1996 and 2002 saved the public $1.4bn which was used to generate productive economic activity"
Wednesday
As I remarked in my previous post, Sir Bob Geldof is an annoying gentleman but capable of moments of lucidity. (I was a bit rude about him in my previous post. Sorry Bob). As an act of charity to the fellow, here is a quotation he might like to ponder:
"I see in the free trade principle that which will act on the moral world as the principle of gravitation in the universe- drawing men together, thrusting aside the antagonisms of race, and creeds and language, and uniting us in the bonds of eternal peace... I believe the effect will be to change the face of the world, so as to introduce a system of government entirely distinct from that which now prevails. I believe the desire and the motive for large and mighty empires and gigantic armies and great navies... will die away... when man becomes one family, and freely exchanges the fruits of his labor with his brother Man."
Those words were uttered by Richard Cobden about 150 years ago, a man who saw a congruence between the ideals of personal liberty, concern for the welfare of one's fellows, and the free market order. For him, like his great Victorian contemporaries like Sir Robert Peel, free trade was a progressive cause to be championed in the interests of the little guy, and not the cause of big powerful interests. It is a message that urgently needs to be understood by those who, no doubt from fine motives in a few cases, rail against global capitalism.
If the case for the free market is to be more widely advanced, we have to appeal to the sense of idealism and concern for the downtrodden that animated our ancestors and could still appeal to the decent folk on the left. It is worth a try, anyway.
Tuesday
Sir Bob "Make Poverty History" Geldof is getting the vapours over the fact that tickets for his various supposed poverty-relief events have been put up for sale on that symbol of dark, rampant capitalism, eBay. In particular, he seems all upset that a big corporation like eBay should make any money from such a highminded event.
Horsefeathers, is all I can say. eBay, in my view, contributes vastly more to the sum total of human happiness and welfare than that preening stage army of hasbeens, wannabees and well-intentioned nitwits that have clustered around Sir Bob. As has already been recounted in detail here, Sir Bob Geldof is a man of infuriating contradictions, able to talk with piercing clarity and lack of cant about the corruption of African governments and yet also willing and able to spout the cheap pieties that seem to accompany many a post-colonial guiltfest such as Live8.
If Africa's economy were run with the same brio, dash and entrepreneurial brilliance of eBay, Sir Bob and his ilk would have to spend a little more time on what they supposedly do best.
UPDATE: thinking this through in the light of watching Geldof on the television, I can certainly applaud his desire to steer as much revenue to the poor of the world as possible but there seems no awareness on the part of the Live 8 crowd that what Africa needs is precisely the sort of business acumen of which eBay is a modern example.
UPDATE 1: eBay has blocked sales of such tickets on its pages, according to the BBC.
Tuesday
Moeletsi Mbeki, the brother of South Africa's President, says that the private sector is key to modern economic development in Africa. But, he says, African leaders and Western donors are holding it back. On the website of his organization, the South African Institute of International Affairs, he argues that:
foreign donors could play a more constructive role than they are doing at present through their current efforts to sustain the political elites and African states with budgetary support and the like.
Instead of giving more money to African governments, Mbeki says donors should providing the expertise to help establish independent financial institutions like credit unions and savings banks and help shield them from political elites.
Moreover, African governments need less power and the private sector more:
Africa's private sector is predominantly made up of peasants and secondly, of subsidiaries of foreign-owned multinational corporations. Neither of these two groups have the complete freedom to operate in the market place because they are both politically dominated by others - non-producers who control the state. Herein lay the weakness of the private sector in Africa that explains its inability to become the engine of economic development. Africa's private sector lacks political power and is therefore not free to operate to maximize its objectives. Above all, it is not free to decide what happens to its savings.
African elites have prevented peasants from reinvesting their earnings in machinery to improve their productivity:
Fundamentally, the political elite uses its control of the state to extract the surplus or savings that if the peasant were free to retain they would have invested in improving their production techniques or to diversify into other economic activities. Through marketing boards, taxation systems and the like, the political elite diverts these savings to finance its own consumption and the strengthening of the repressive instruments of the state.
The economic looting of multinational companies after independence means that international investors are wary of investing in Africa:
When the colonialists retreated from the 1950s onwards, these colonial subsidiaries [Western companies] lost their key protector, the colonial state. Before long they, like the peasants, fell prey to the appetites and whims of the new African political elites who controlled the newly independent African states. The lucky ones were nationalized and their owners were therefore paid compensation; the not so lucky ones were 'privatized' [confiscated by individual politicians without compensation.]
Moeletsi Mbeki's comments are in stark contrast to those of Gordon Brown who thinks that simply throwing more at African governments is going to bring prosperity. Mbeki recognises that the West should be helping get more private investment into African and helping improve the institutions that enable business to thrive.
Crossposted from the Globalisation Institute Blog.
Saturday
The decision to write off billions of dollars in debt for various Third World nations is in effect a subsidy for bad governance. Oh sure, the debt relief is tied to various conditions aimed at improving the kleptocratic ways that are the norm in the world's various hellholes, but it is still just a way of saying that in the final analysis it is western taxpayers yet again who will be the ones picking up bill for the actions of various corrupt WaBenz bureaucrats.
And what of those poor nations who actually do repay their loans? What of those who keep corruption under control and who have a ruling class that does not see private businesses as a personal piggy bank to be raided as needed? What message is sent to them when they see the incompetent and corrupt rewarded with free money so that some celebrity activists can make economic illiterates feel good about themselves?
Which brings me to Geldof. I just cannot figure out this guy; on one hand he says self-evident sensible things like (emphasis added):
Bob Geldof admitted today no amount of aid to Africa could eradicate poverty on the continent while its Governments remain corrupt. The former singer was launching a 170-page compact summary of the Africa Commission's report which will be presented to the G8 summit this July.And the maverick Irishman repeated his call for 'hundreds of thousands' to converge on Edinburgh to coincide with the summit at Gleneagles. He said: "The issue governance is at the forefront of this compact. You can't give aid to countries when they return it to us in debt payment, especially if you don't allow them to trade with us. None of that will function unless there is a decent Government."
But then says something as preposterous as:
Fears over corrupt African regimes should not be used to delay aid to the poverty-stricken continent, Bob Geldof said yesterday. Less than 48 hours after both Tony Blair and George W Bush insisted that corrupt regimes had to be tackled to ensure that aid was not wasted, the Live 8 organiser told them to "get off the corruption thing" and deliver the promised help.
So what is one to make of that? By his own admission, Africa's appalling governance is a huge contributing factor to poverty and woe (not to mention the continent's horrific record regarding civil liberties) yet we are urged to "get off the corruption thing". So to use Geldof's sort of language... what the fuck?
If governance is perhaps the single biggest factor (amongst several) that makes the Third World so damn poor, surely the Western taxpayers whose money Geldof is to keen to give away should indeed be asking if they really want their money to end up in someone else's Swiss bank accounts via Kinshasa or Freetown.
Sadly for Africa, most of the things written about the causes and solutions of poverty in the Third World, or at least the articles that get serious column inches, are drivel by 'celebrity activists' who are ill-informed and arrogant in equal measure. A prime example being the mind numbingly ignorant Chris Martin for example, who thinks 'shareholders', the people who provide the capital to wealth creating businesses, which are the "great evil of this modern world" rather than, say, the governments of North Korea, Cuba and Burma. But then such folks do not concern themselves with actual benefits to poor people in various far off places but rather with pithy soundbites and causing emotional surges brought on by 'doing something', regardless of whether or not it actually improves anything for anyone other that a few Mercedes Benz dealers in sub-Saharan Africa and some portfolio managers in Zürich.
No, none of this really has anything to do with helping common people in the Third World.
Friday
Jonathan Wilde of the admirable libertarian group blog, Catallarchy, argues that poverty, rather than wealth, is "unnatural", in as much as it is the stupidity of governments, rather than some ineradicable feature of our world, that prevents humans from attaining the opulence (to use that lovely 18th Century word) that we are capable of attaining in co-operation with our fellows.
I am not so sure that Wilde is entirely right. Is it only the state that has in the past blocked the path to wealth? Surely the lack of scientific knowledge, limited division of labour and so forth played a part in poverty.
Don't misunderstand me - I think that Wilde makes a good point, but to say that wealth and happiness is the natural state of mankind begs as many questions as it may answer. All the more reason, of course, to ram home the fact that our capitalist civilisation should be regarded as a marvel to be celebrated and defended.
Tuesday
The usual collection of fabulously rich but economically illiterate show biz twits are going to assemble for Bob Geldof's Live 8 event timed to coincide with the impending G8 conference in Scotland on 6-8 July. Now God knows lampooning rock 'n' roll's A-list 'idiocracy' is fun and easy sport, but I must confess that I have always regarded Geldof as an intellectual cut above your typical gormless entertainer, so perhaps a closer look at what is going on is in order.
Live8 is going to be a freak show, that is for sure, surrounded by pro-poverty activists (by which I mean people who argue for a world structured in a way in which more people will be a great deal poorer) such as identity obsessed feminists, pro-Saddam communists, eco-luddites and all manner of other folks with very strange ideas about the nature of reality.
Yet unlike Live Aid, the objective of which was to raise money to mitigate a clear and present humanitarian disaster in Africa, Live 8 aims to raise political awareness on African poverty. Well that sounds like a splendid idea to me. Clearly the overwhelmingly largest cause of the destitution of large areas of sub-Saharan Africa is cause directly by corrupt African governments. So it would be fair to say that as the main obstacle to African prosperity and liberty is political, then the solution too will need to be political.
To his credit, Tony Blair has often said that it makes little sense to send aid money to corrupt regimes (which makes his infatuation with the UN all the more bizarre, given that it is an institution whose job it is to disburse money which mitigates the political cost of tyranny the world over) and so perhaps if the aim of Live8 is to work up support for the disintermediation of African government from the process of solving African problems, well, that is an idea I could certainly get behind, at least in principle.
Likewise I am all in favour of gathering political support for an end to all trade barriers that keep African products out of First World markets, empowering people at both ends of the trade relationship. Now this is something calculated to split the left in an interesting way as lefties who actually do care about doing something effective for the Third World inevitably succumb to the logic of Free Trade as opposed to the current system of subsidized Western agriculture and discriminated against Third World agriculture.
So it seems to me that although the din of idiotarian drum banging will be deafening, there is actually a fairly laudable message that might, just might, come out of this whole process. Perhaps it is time for some anti-idiotarian meme hacks? I certainly hope Bureaucrash are going to put in an appearance or two in Scotland...
Tuesday
And since we are on the subject of 'Star Wars' this evening, it appears that Our Glorious Leader has finally been seduced by the 'Dork Side':
They are the must-have fashion accessory for the socially aware - and now Tony Blair has got in on the craze.Whether worn to highlight racism, cancer research or poverty, coloured bands are a familiar sight on the wrists of footballers and pop stars.
Now the prime minister has been photographed wearing a white Make Poverty History wristband during a trip to a hospital in Edgware, north London.
Perhaps he wants to be in a filmy-wilmy with Gwynnie and Braddie?
[Furthermore, for a polished and forensic debunking of this cloth-headed, celebrity-driven codswallop, I recommend Stephen Pollard]
Monday
Last week, my friend Jonathan Pearce made some observations on the impending takeover of the Manchester United football club by Malcolm Glazer. This led to a lengthy comments thread that I was going to add to, but the comment in question got a little long, so I thought I would turn it into a post. In particular, I wanted to address the key question, which is simply is there any way Mr Glazer can get enough revenue from the club to pay of the large debt that has been accrued, and if so, how.
As I see it there are two sources of value in the club that the present management is not presently allowed to exploit, and to make a success of his bid Glazer needs to gain control of at least one of them. One is that television rights are sold collectively, and as a consequence the share of television money that is going to Manchester United as not comensurate with their popularity and fan base. The other is that Asian and particularly Chinese television markets are not presently competitive and as a consequence Asian television companies are paying far less for the right to show football than the matches are actually worth. I will address these two issues in turn.
Manchester United gets a far smaller percentage of total TV rights money than it would be entitled to merely by the level of its popularity. Of the various competitions that Manchester United play in, the governing bodies of the two that matter (The Premier League and the UEFA Champions League) sell the television rights of the competitions collectively. The Premier League sells the rights to all its matches in bulk and then shares the money amongst its clubs. So does UEFA. If Manchester United were able to sell the television rights to its own home matches directly to television companies, the club would receive a lot more money than it does now. There have been some mentions in the press that Glazer might try to have this happen, but I chances of this happening strikes me as relatively low.
There have been lots of suggestions over the years that the biggest clubs in Europe might break away from their national leagues and form a super league where they control their own TV rights (and there have been more in recent weeks as the bid for Man U has gone on), but this is always a non-starter. National leagues have too much history and are too important to fans. It might be possible to argue that collective selling of TV rights is anti-competitive, but I don't think the courts would agree. (Membership of the Premier League is voluntary). And I think a court would probably be susceptible to the argument that the three or four top clubs in England are dominant enough already (whether or not this would have much to do with what the actual law says) . If clubs in the Premier League could sell their own rights, then I believe that about 75% of the total television money would go to the top four clubs, and I tend to think there would be legal and political objections to that, regardless of their merit. (Seriously, think about it. You are a television company. Once you have the rights to the home matches of Manchester United, Chelsea, Arsenal, and Liverpool, what else do you need?)
One might be able to make this argument more strongly in the case of the Champions League, but it wouldn't help quite as much, mainly because Manchester United aren't dominant in that competition, having only won it twice and only once in recent years, and not having looked like winning it in any other recent year. Of the 32 teams that play in that competition every year, probably ten have claims to be as big or nearly as big as Manchester United, and another ten are good enough to win it if things go their way. (And Manchester United's recent record of making the later stages of the tournament isn't that great). Inevitably, the television money of this competition would have to be divided up in more ways than for domestic football, even in a situation where clubs were permitted to sell their own television rights. (And in any event, bigger and more successful clubs get more money than smaller and less successful ones do now, although the means for dividing the money is perhaps a little eccentric, depending as it does on performance in national leagues).
Which is not to say that Manchester United's share would not increase considerably if they could sell their own television rights. It would, but not as much as it would if they could sell the rights to their own home matches in the Premier League. But in any event, once again I think the political and legal objections are likely to be too great for there to really be much chance of that happening. UEFA gains its power in the labyrinthine world of football politics largely through the television revenues of the Champions League,and saying it wouldn't give this up without a fight is a vast understatement. Of course, one possibility would be for the top European clubs to break away from the Champions League and instead form their own international competition, but if they did that UEFA would try very hard to prevent them from playing in national leagues as well. While I think if UEFA tried to do this and the clubs challenged it in court the clubs would win, it would be a dreadful fight, and at least ten of the top European clubs would have to act in concert in the first place for this to happen. And I think many of them would shy away from trying it because of the size of the fight that would be involved.
So, while I do see hidden value in England and Europe for Manchester United, I can't see any great way for Malcolm Glazer to extract it. My Samizdata and ubersportingpundit colleague Scott Wickstein commented on the Glazer takeover of Manchester United a week or so ago, and he observed that he thought that the takeover would have worked a decade ago, but that now is too late. His argument there was essentially that European television changed in the 1980s and 1990s with the rise of private television companies (particularly pay television companies) in competition with the traditional cozy state owned and state regulated television stations, which meant suddenly that football leagues and clubs could extract something like the fair value of their television rights, whereas previously they had been in markets where little money was paid for television rights due to a lack of competition due to state ownership and state regulation. (At the same time, football clubs and teams got a lot of media and marketing related expertise from the television companies in general, and this led to them marketing themselves better in other ways, such as getting more money from merchandising replica shirts and the like).
Scott's point is that there was lots of hidden value in Europe in 1985, and that there was money to be made by people who noticed this, but that this is now being extracted and this is priced in. And after considering the sort of stuff above, I tend to think that he is pretty much right.
But Europe isn't the whole world. The question is whether there is value outside Europe that can also be extracted. And that is the second point that I want to discuss. The popularity of football in East Asia (especially Japan and China) is often commented on, and it is certainly true that diehard fans in Manchester often do not realise this. As someone who is (a) a Manchester United supporter, although not a very avid one and (b) an Australian, I found myself discussing this with a few locals in a pub in Manchester last year. In particular they had no idea that a major reason why Manchester United games often kick off
around midday is that this is peak television viewing time in east Asia. (In the case of Saturdays, this also has to do with the FAs rules about what time live television broadcasts of matches are allowed in Britain).
So the Asian following is real, but the question that needs to be asked is whether clubs are actually making any or much money from fans in these markets. And the truthful answer to this, perhaps surprising given the level of exposure of the clubs in this markets, is actually "Not much". In terms of merchandising, the Asian market is far smaller than that of Europe, at least partly due to tremendous amount of counterfeit goods being in circulation. (This will change as certain markets get richer, but this will be over a longer timescale than Mr Glazer’s). In terms of media rights, things may happen faster. lack of competition in the Chinese TV market means that although lots of people watch Premier League football there, the rights are bought by state controlled television networks that do not face competition in bidding for the rights, and so which get them for close to nothing. The rights are probably worth quite a lot in terms of advertising that they generate - the Chinese middle class is at this point in the hundreds of millions, depending on how you measure it - but little of this is flowing through to the clubs. The question is whether it is possible to make some of it do so within a relatively small number of years. That means competitive auctions for rights in China.
This doesn't strike me as impossible. In India, multiple bidders now bid huge amounts of money for the rights to cricket matches. India is still a lot poorer than China. (Of course, India is also a lot freer than China, which means that the Chinese government is rather more concerned with controlling the media than is the Indian government). But in financial terms, if it can happen in India, then it can surely happen in China. And if it does, the money is potentially a lot more. But "a lot more" is still relative. The Chinese middle class is still a lot poorer on average than the population of Europe. The total amount of television money that could come from China in the immediate future, even in a free market, is a lot less than can come from Europe. Probably if the television rights were sold collectively in China and Asia, Manchester United's share would still not be enough to pay for Mr Glazer's debts, even if the rights were sold in a free auction.
But there is still another side to this. If we had a free market in television rights in China and Asia, and Manchester United and other British clubs were allowed to sell their television rights individually rather than collectively, then the total amount of money that Manchester United could gain might just compare favourably with their television income in Britain. There are quite a few big ifs in there, but if all this were to happen then I could see Manchester United's income increasing dramatically and the club being worth what Mr Glazer has paid and more. This does strike me as more feasible than the various other possibilities. The Premiership is more likely to be willing to give up collective selling of TV rights for Asian markets, because firstly it doesn't make much money now and it doesn't really know how much they are worth. Secondly, there is scope for competition between European Leagues here. If Real Madrid are free to sell their TV rights individually in China, then Manchester United can plead disadvantages against its European rivals as an argument as to why it should have similar freedom. There are relatively few short term losers in making such a change, which is why it is more possible.
But the question is whether this can all happen in a short period, that is within five years. If it can, Mr Glazer might make money - conceivably even a lot of money. He needs help from someone to free up the Chinese television market. The obvious person is actually Rupert Murdoch, who has extensive Hong Kong based Asian satellite television interests, and who has been sucking up to the butchers of Beijing for years now. Murdoch himself attempted to buy Manchester United a few years back but was foiled by British competition authorities. It may not be that Glazer and Murdoch like or even know each other, but now that Glazer owns the most valuable football club in the world, they certainly do have common interests.
Saturday
The United States has imposed new quotas on textile imports in order to protect American textiles manufacturers from competition. The move is bad news for American consumers and it is also bad news for the world's poorest. Some of the blame must be apportioned to the campaigns of protectionists like Britain's Christian Aid which have been claiming - incorrectly - that textiles liberalization is not in the interests of the poor. They have helped create a worldwide feeling of unease about the end of quotas.
The result is that America has now taken action, not to help producers in developing countries, but to protect uncompetitive American producers. America's move is unwarranted and unjustified. The former European trade commissioner and future WTO boss, Pascal Lamy, has attacked the new quotas:
Mr. Lamy said that the global trade body [WTO] had been easing out the quota system over the last decade and that all countries had been given ample opportunity to prepare for the changes."It is not the law of the jungle, and the W.T.O. rules were clearly set," he said. "Why are some politicians now not recognizing that fact?"
Fortunately, the new quotas will have to go by 2008. But in the meantime, America's move means that developing countries will have worse jobs, less wealth creation and less trade. Is this really what Christian Aid was aiming for?
Crossposted from the Globalisation Institute Blog.
Sunday
These are difficult times in Western car industry. The Economist magazine reports that dark clouds are gathering in parts of the world economy, pointing to a slowing of consumer spending, higher interest rates and large government budget deficits (facts which may start to really hit the re-elected UK Labour government). I hope the Economist is wrong since I have a mortgage to pay and bills to meet, but its arguments are quite convicing. And one possible harbinger of trouble right now is the car industry.
The recent demise of British carmmaker Rover is well known. Across the pond, however, two even bigger auto firms have hit trouble, and yet caused surprisingly scant news coverage outside the serious parts of the MsM and the business news pages: General Motors and Ford. GM and Ford have been downgraded to "junk" status by international credit rating agency Standard & Poor's. That means that as far as S&P is concerned, GM and Ford are risky debtors, and there is a relatively high chance that the rustbelt companies could default on their debt. The downgrade has sent shockwaves through the financial markets, forcing many big investors, like pension funds, to wonder about the wisdom of holding corporate bonds at all.
The problem may be confined to these firms. GM, for example, make a lot of the big SUVs that environmentalists get steamed about, and these monsters of the road are now proving more difficult to afford in a world of high oil prices. There is also a glut of cars on the world market and the industrial growth of China and India, and indeed of parts of Latin America, are a growing threat to GM and Ford's home market.
Britain's car industry has been through a torrid period since the 1960s, but even in the world's largest economy, making cars is proving increasingly tough.
Thursday
German's leftwing SPD politicians have been bashing those symbols of hated capitalist activity, private equity buyout funds which look out for distressed firms, sell off some of the assets and reconstruct the remainder in the hope of turning a business around, before selling it at a profit. How shameful. Such people are "locusts" destroying Germany's economy, scream the politicians (who of course have been doing a tremendous job on that score).
In fact, I find all this abuse rather encouraging. If entrepreneurs see value in the German economic landscape, and perceive there are rich profits to be made in turning around businesses and then flogging them off, it is very good news indeed for the country's economy. By releasing capital from uneconomic areas and focussing it on lucrative new bits, the overall pie gets bigger, jobs get created, and productivity is also increased.
In fact, one could almost create a new economic law: the amount of abuse raining down on entrepreneurs is directly proportional to the good they do. I haven't seen much reason to doubt this law yet.
Sunday
Globalisation does funny things:
Former Baywatch star David Hasselhoff has been named international star of the year at the Bollywood movie awards in Atlantic City in the US.He received the award because his shows, including Knight Rider, are among the most popular on Indian TV.
That is the BBC story. I also recommend this Reuters report on the event, which packs a lot of information into a small space. Such as, that:
Rani Mukherjee won the best actress award for her role "Hum Tum."
What does Hum Tum mean? Is it a medical condition? Or is that the name of Rani Mukherjee's character?
And I did not know that they have Bollywood awards in Atlantic City. What is that about?
Says Reuters:
The event was held in the old U.S. East Coast gambling resort of Atlantic City as part of Bollywood's bid to be a global force in cinema.
Interesting. And I did not know this either:
Bollywood churns out around 1,000 movies a year but despite a fan base that extends to the Middle East, Europe and Asia, few movies make money and the industry is under financial pressure. Bollywood films have not had much commercial success in America.But Shammi Kapoor, who was given a lifetime achievement award, said better technology was leading to more and better films. "They're getting to be more topical," he added. "They aren't the happy, happy movies of yesteryear."
Indians will soon be complaining that Bollywood is becoming a fifth column Frankenstein's laboratory Trojan Horse turncoat snakepit of anti-Indianism that panders to the global market and apes its worst excesses.
Tuesday
I am delighted to see that the Archbishop of Canterbury, Rowan Williams, has taken the time to read the GI's report, Trade Justice or Free Trade? and chose to discuss it in a sermon today at St Paul's Cathedral.
We have recently seen the publication of a very interesting report from the Globalisation Institute which is highly critical of the language of 'fair trade', arguing powerfully for free trade as the real engine of prosperity. There is a serious economic argument here - though it is worth mentioning that professional economists have expressed their scepticism about free trade as a mantra: it isn't only starry eyed religious activists. But surely the real issue is what the word 'free' means. Universal trade liberalisation may offer fresh markets and promise overall increases in wealth. It also forces choices on vulnerable countries, whose effects may be - in the short to medium term - very costly indeed to a whole generation of workers, to the environment, to political stability. As a number of economic surveys have made plain, you can have statistics that show a spectacular increase in national wealth alongside a reality of instability, increasing poverty in many areas and a loss of social cohesion. The Dutch development economist and politician Jan Pronk wrote recently that in the move to a liberalised economy, 'the losses are widely spread and cut deeply into the existence of people while the initial concrete benefits are concentrated in the hands of a new class'. His judgement is that in the long term 'free trade' promises greater benefits, but in the middle term its costs are immense unless there are clear mechanisms for compensation - unless the benefits are put to work for all. 'Freedom' in this context turns out to be a more complex matter than we might have thought.
I would like to make five points about his speech:
Firstly, I welcome his willingness to engage with both sides of the debate on trade. It is notable that he appears to accept the economic concept that trade is not simply about cutting up an existing pie differently, but about increasing the overall size of the pie.
Secondly, he was a lot more moderate than he could have been, and was presumably being sensitive to increasing concerns within the Church itself that a one-sided approach to trade justice is being put forward. He also, usefully, avoided the demonization of the term 'free trade' as practiced by some others.
Thirdly, he talks of the problems facing people when liberalization first happens. In the short term, of course, those who have to adapt may need help. But while transitions should be handled as smoothly as possible, the transition should not be used as an excuse for non-action. India's experience after independence shows that non-action on liberalization is totally opposed to the needs of the poorest. While protected companies benefited, the population as a whole got poorer, and many starved.
Fourthly, the Archbishop says: "As a number of economic surveys have made plain, you can have statistics that show a spectacular increase in national wealth alongside a reality of instability, increasing poverty in many areas and a loss of social cohesion."
The sermon was given at a service celebrating 60 years of Christian Aid, and Christian Aid is keen to refer to Ghana, so I am going to take it as my example. The graph below (which you can see in full size by clicking on it) shows what has happened. When they were not following World Bank advice in favour of liberalization, their economy was massively unstable. But, since 1983, they have pursued liberalization. Guess what? Their real GDP has increased every year since 1983. Not even Britain has such a stable economic record. And poverty, though high, has decreased.
Fifthly, he says: "Does a nation, a society, work for all its citizens? If pressure for trade liberalisation creates a situation where this looks more remote, there is a clear problem from the Christian perspective."
The whole point about free trade is that it treats all sections of society equally. As Richard Cobden said: "the inalienable right of every man freely to exchange the result of his labour for the productions of other people, and maintaining the practice of protecting one part of the community at the expense of all other classes to be unsound and unjustifiable". The losers from globalization are specific interests who previously were able to force others to buy expensive products, while the winners are societies as a whole.
As the British government has pointed out, Ghana over all benefits from cheap imports of food because it enables people to eat more. Britain faced the same issue in the 19th Century. The population found food too expensive as a result of the Corn Laws which aimed to protect farmers from unfair foreign competition. Farmers complained that they would not be able to survive without protection. But the repeal of the Corn Laws was a great victory, and profoundly pro-poor.
In conclusion, I think the Archbishop's speech was an encouraging move for the Church of England. It is good that the debate has moved beyond slogans and it will be interesting to see how things progress in the coming months.
Crossposted from the Globalisation Institute Blog.
Tuesday
This Friday, Michael Jennings will be doing my last-Friday-of-the-month talk, about China. Emergence of, economic miracle, impact on rest of world, and so on.
And, as if determined to assist me in my efforts to publicise this event, the European Union, in the person of Euro-Panjandrum Peter Mandelson, has been uttering anti-Chinese fatuities:
The European Union has called on China to reduce its clothing exports to Europe or else face enforced limits.That was the warning given by EU trade commissioner Peter Mandelson, as he launched an EU probe into nine categories of Chinese textile exports.
Exports of certain Chinese clothing items to Europe have surged by more than 500% since an international quota system came to an end on 1 January.
Heaven forbid that the people of Europe should be allowed to buy really cheap clothes, as much as they want. Clearly this is a retrograde step, and must be resisted.
"Europe" still lectures places like China as if places like China are the Third World, and Europe, obviously, is the first. But this has a very eighteenth century Asia feel to it, to me. Europe can no more prevent itself being swamped by, flooded with, etc. (although "sold" would be a better word) cheap clothes now than Asia could then prevent the incoming tide of pots and pans, cups and plates, and shirts, made in what was then the English workshop of the world.
This nonsense seems all to be based on some Agreement that was signed a few years ago. And it perfectly illustrates the folly of such agreements, which serve only to allow the supposedly protected industries to remain somnolent for a few more precious years, thereby to lose all touch with economic reality beyond the protections behind which they briefly shelter, to the point where the pressure of economic reality becomes so immense that it is impossible to resist, at which point the protection collapses and economic melt-down duly happens.
It also illustrates Public Choice Theory rather nicely. You can be sure that hundreds of desperate European shirt and trouser makers are even now busily conspiring to explain that Mandelson is talking sense rather than nonsense. Meanwhile the people whom Mandelson is trying to harm (everyone else in Europe plus many thousands of poor workers in China) will be too busy with other things to object very loudly. After all, each of us will only suffer a bit, and anyway, what can any of us do if the EU/Peter Mandelson has decided to harm us all, a bit. That is not news. That is Euro-business as usual.
In due course, the benefits to all of us of free trade with China will be concentrated into the hands of a few illegal clothes importers. But the clothes will not be quite so good or quite so cheap.
Reuters reports on the Chinese response here. My thanks to Alex Singleton of the Globalization Institute for the links, via this, which continues to happen at the ungodly hour that was originally promised. Tim Worstall comments on the same story at the Globalization Institute blog, making similar points to mine about the concentration of the (temporary) benefits associated with protection, but the dispersed nature of the costs, and about how previous restrictions have only stored up trouble.
Meanwhile, how else is "Europe" responding to the menace of people working too hard? By having a law against it.
Wednesday
I am due for a fascinating teleconference in 10 minutes, but I thought this Glenn Reynold's post nicely illustrated a real blind spot for libertarians. We tend to be market- and economics-oriented, and any concentration of attention in one area creates blind spots in others. One of those blind spots has to do with the economically irrational but irreducibly human craving for non-material benefits in the form of status, recognition, etc.
My historian-brother often says that one of the most interesting phenomena that he's observed is the cross-cultural willingness of people to trade away economic benefits for status. I suspect that this is one example of that. So, in a surprisingly similar way, is being a politician. That's an obviously poor economic move for most folks. But one of the drug dealers in Price's book talks about how he likes the way he becomes the center of attention when he enters a room full of junkies. Politicians, I think, get the same thing, especially in the bubble-environments of Washington, or state capitals. I suspect, in fact, that people are, to varying degrees, hardwired to get an endorphin rush from that sort of attention, just as they're hardwired in varying degrees to respond to drugs.As I say, I don't know if Levitt talks about that or not, but I think it's one possible explanation for a lot of stuff that looks economically counterproductive.
I have a niggling sense that there is a lot more to be said on this subject, but duty calls. Go read the Instapundit post, and as always, be sure to click the concluding "Indeed."
Tuesday
Yesterday I was out and about and spotted multiple front cover display of the latest Economist, with a headline which went: The flat-tax revolution.
I liked this, and took a photo of it, but it came out blurry, and before I could take a decent number to make blurriness less likely I was chased away by a security guard mumbling about copyright, etc. So here is the Economist version:
Final paragraph of the story:
It is true that the flat-tax revolutionaries of central and eastern Europe are more inclined to radicalism than their politically maturer neighbours to the west and across the Atlantic. Mobilising support for sensible change is far harder in those more advanced places – but not impossible. In tax reform, as 1986 showed, the radical programme can suddenly look easier to implement than the timid package of piecemeal changes. Now and then, the bigger the idea, and the simpler the idea, the easier it is to roll over the opposition. The flat-tax idea is big enough and simple enough to be worth taking seriously.
Portillo was wittering on yet again, on the telly last night, about how the Conservatives had to go for the "middle ground", and electorally speaking that may well now be true, if getting votes for whatever will get votes is all that you care about. Accordingly, I look forward to the time when a flat tax is middle of the road, and when flattening the damn tax into the road so that there is nothing left of it is the "extremism" that Portillo et al will then be warning us all against.
Tuesday
Sean Gabb now has a report up about his efforts to knock some freeness into the heads of those self-styled fair traders. And in Alex Singleton's Globalization Institute email this morning was a link to a write-up of the Globalization Institute in the Church press, although how significant this particular example of the Church press is I do not know. Still, it all helps. See also this posting.
In the comments on that earlier posting that flagged up the meeting in the Church last Friday night, puzzlement was expressed about why so many of these Fair Traders are in favour of free trade for the rich countries, especially in things like agriculture, yet opposed to free trade for poor countries. How come? Are they not being inconsistent?
I can suggest a possible answer that makes sense of such an apparent contradiction. Suppose that (a) you are an egalitarian, and that (b) you think free trade is harmful to whoever has it imposed upon them. That would explain it, I think. Trade freedom makes rich countries poorer, and trade unfreedom makes poor countries richer. Total bollocks of course. Egalitarianism is stupid, and the claim that trade freedom makes countries poorer and that trade unfreedom rescues poor countries is the opposite of the truth. But if that is what you are and what you think, it becomes reasonable. As in: a madman is someone who has lost everything except his reason. Impeccable logic, based on false axioms.
The result of such agitation is actually to make rich countries richer, and to keep the poor countries poor, which is the very thing these self-righteous morons spend their lives saying they object to. But there you go. There's one born every time a celebrity clicks his/her moronic finger on the telly.
For some further thoughts on these and related matters from me from way back, see this.
Monday
It seems a bit odd that the construction industry is going on a spending campaign to persuade smart young graduates to go into the trade. I am surprised that young people really need persuading. In this age of job offshoring, redundancies in the City and suchlike, it actually makes a lot of sense to get a skill in an area that cannot be easily outsourced. Many people in the construction, plumbing and electrical trades seem to be well off, far more so in fact than some young graduate toiling away in an office job. And thanks to new British regulations designed to prevent homeowners from performing any DIY activity more complex than install a shelf or rewire a plug - for their own good! - demand for construction and home maintenance professionals looks set to go on rising into the distance.
Anyone with a supposedly "secure" job ought to think about adding another, non-outsourceable, skill. One thing I always notice about British plumbers, for example, is that they all drive Jaguars or Mercedes. It is not rocket science to figure out why.
Saturday
Today I went for a wander around Camden in London, visiting Camden Market, Camden Lock and The Stables, contiguous areas filled to overflowing with small shops and open air stalls selling exotic Goth clothing, lampshades made out of old computer motherboards, Tibetan jackets, New Age crystals, Latex fetishware, fur-lined handcuffs, AC Milan supporters posters, weird furniture made out of tree stumps, flashing clothes with fibreoptic weaving, magic mushrooms to go, bongs, 'No one knows I'm a Lesbian!' tee-shirts, and food from West Africa, Morocco, Japan, Indonesia, Lebanon, Korea, Venezuela, France, Italy, China, Jamaica, Thailand, Holland, Scotland and even England.
The political content was endless racks of tee-shirts emblazoned with Che Guevara, Bush=Hitler and McShit Hamburger logos and stands owned the Socialist Worker's Party and various other fringe folk manned by quixotic and very earnest folks handing out "Bush is the biggest terrorist!" posters.
Now my guess is that 75% of the people who thronged around Camden (the crowds were dense over a very large area indeed) are more or less completely indifferent to those particular the messages and certainly 95% of the stalls and shops were not selling politically oriented things at all. Yet what was available was entirely of the left and almost all of it was either Communist (Che Guevara's image was widely seen) and/or anti-American.
Right in the centre of the large shopping area called The Stables is a Cuban Restaurant called rather unambiguously The Cuban. Giving it the benefit of the doubt, I stuck my head inside as for all I knew the place was owned by some Cuban refugee who had fled Castro's communist dictatorship. But no. The first thing I see is a large image of Che Guevara. The outside of the building has a sign saying this place brings "The Spirit of Havana in the heart of Camden"...
...which presumably means that criticizing the restaurant gets you dragged off to jail by uniformed thugs as that is truly the spirit of Havana.
Now if someone wants to portray a benign fantasy version of Cuba ("Castro chicken tenders!"), well that is entirely up to them. But the moment I see that Che image up on the walls, The Cuban takes a position on who 'the good guys' are and it becomes more than just a Cuban restaurant. Too harsh? Well imagine a German restaurant. Now put a picture of Himmler on the wall of that restaurant and suddenly the entire context of the place changes. I wonder how people would react to a Cambodian restaurant which offered a "Pol Pot Roast" or a "Killing Fields Kocktails!" whilst a smiling image of Pol Pot looked down on the gorging clientele. My goodness what fun that would be. Still, perhaps a closer examination of The Cuban's menu may reveal such dishes as "Jailed Journalist Jambalyah" or "Dead Dissident Daquiris" whereupon my views of the place would have to change somewhat. I have not looked but somehow I doubt it.
But it got me pondering. I wonder how many of the anti-globalisation activists who probably regard areas like Camden as 'home turf' and perhaps even eat at The Cuban realise how the area only looks the way it does because of the global movement of goods within a market economy. Do they seriously think that there is a place like Camden anywhere in Cuba? Do they think the new Age crystals, the fetish shops, the Goth gear purveyors, the mountain bike shops and, hell, even the clothes they wear, the mobile phones they all carry, the iPods they listen to, would all be available in a politically directed command economy? Please, show me such a place.
The thing is, their own lifestyles and environments are examples of the benefits of what they profess to reject. Quite funny really if you think about it.
Saturday
This "trade and cheap labour for manufacturing is the rich world exploiting the poor" argument is not precisely new to my ears. When I was a kid in the 1970s I heard the same thing about how we were taking advantage of poor world sweatshops. The only thing that has changed since then is the location of the sweatshops. In those days people talked about Taiwan, South Korea, Hong Kong, those kinds of places. And what do these places have in common? Well, today they are the rich world. Ten years ago we started seeing "Made in China" on our cheap imports. A lot of this stuff then came from Shenzhen, just over the border from Hong Kong. Well, today Shenzhen is for practical purposes a developed world city. The manufacturing has now moved inland. The process is getting faster, and the more of the world is rich, then it gets faster still for the rest.
- Michael Jennings, getting enraged at Christian Aid yesterday evening.
Friday
So that's it then. As Mark Steyn says at the start of this, the surprise is how long it lasted.
Here is how this guy sees it:
Thanks to Patrick for spotting this, but only in the original immobile version.
Friday
Mark Steyn with an extended meditation in the Spectator on globalization. Just go read it, already. Its worth the registration and annoying pop-ups.
Thursday
Paul Staines writes:
New data shows that the developing world's share of global trade has surged to a 50-year peak. Rising oil and commodity prices coupled with vigorous global trade growth meant developing countries saw their share in world merchandise trade rise sharply in 2004 to 31%, the highest since 1950, according to WTO figures released this morning.The data provides clear evidence that trade liberalisation continues to play a growing role in economic activity and is increasingly important for development and poverty alleviation. More countries are engaging in international trade and participating more actively in setting and negotiating trade rules.
Just like with India and Hong Kong, trade liberalisation is key to African prosperity. If we truly want to Make Poverty History, the world needs free trade - not protectionism.
Wednesday
I have started producing an early morning e-mail. Samizdata writers are not known for rising much before noon, so I know how shocking this may be to you. Nevertheless, before 8am each weekday, I send out a 'Daily Digest'. It features a minimum of five and a maximum of ten top articles from the world's news media. Each article featured is on the subject of globalization. It is an entirely opt-in list, but it is already read by top people at the BBC, The Business, The Guardian, The Independent and so on.
Today, for example, the e-mail featured a Kenyan newspaper's report that the head of Africa's Nepad Council had called for foreign aid to Africa to be stopped. Intead of aid, those wanting to help should "encourage their company and business leaders to invest in Africa". People on the Daily Digest list get the most interesting stories in their inboxes each day.
The e-mail is not long. Each article featured has a few lines quoted from it and a link. It is entirely free and you can unsubscribe at any time. This is a useful resource for bloggers and anyone interested in economic development. If you would like to receive the e-mail, just drop me a note at digest at globalizationinstitute dot org.
Monday
This week is the "Global Week of Action for Trade Justice". Not the best week for it in the UK given the General Election campaign. Apparently there are going to be thousands of people out on the streets of Westminster throughout the night on Friday doing a candelnight vigil against free trade (Christian Aid reckons that the Common Agricultural Policy is an example of free trade).
Not liking the debate to be one-sided, I have written a new Globalisation Institute report called Trade Justice or Free Trade?. It argues that supporters of trade justice are confused and mistaken. Instead of encouraging poor countries to keep their high tariffs, these tariffs should be lowered. The report points to how, in India, protectionism merely enabled the rich to profit at the expense of the poor. The report says that poor Chinese have as much right to sell textiles on the world markets and that the anti-China stance of Christian Aid is unfair. Finally, the report is critical of the way that the church - despite a diversity of views about Christian Economics - presents a one-sided approach to economic issues.
Saturday
I attended a one-day conference on the EU Constitution today, drawing together an eclectic mixture of people from all parts of the political spectrum, both British and foreign, and all united on the need to get a decisive No vote in the event that Mr Blair decides to hold a referendum on one (let's pray it is not done by postal vote, god help us). I attended the morning session and drifted home for lunch with my head still ringing with one of the best speeches by a politician I have heard for years.
The politician's name is Steve Radford and he is a Liberal Party councillor in England. His party is the bit that refused to merge with the old Social Democrats and decided to keep the flame of Gladstone, Richard Cobden and Joe Grimmond burning bright. Well, if Mr Radford's performance was a guide, the Liberal Party is a very interesting outfit indeed. He denounced the European Union's economic tariffs most effectively by holding up a bag of sugar and pointed out that the price of the bag is inflated fourfold by tariffs. He denounced the rampant corruption, cronyism and lack of democratic accountability of the EU, a situation which will get only worse if the EU Constitution becomes a fact. He was passionate in making the free market case - all too rare these days, and frequently very funny.
It is refreshing to hear an actual big-L Liberal refer to the anti-Corn Law League and the great campaign to promote free trade by the likes of Richard Cobden. I don't know about all his views on other subjects, but if every member of the Liberal Party were like this man, I'd very seriously consider voting for it.
I hope we haven't heard the last of this gentleman.
Friday
How long Economics in One Lesson has been available to read free, online, I have no idea, but since she only just heard about this, I feel entitled to say with similar lack of shame (unless of course a fellow Samizdatista has already flagged this up and I missed it) that her posting was how I finally found out about this myself.
It has been a while since I read this book. The bit I recall with the greatest vividness concerned the broken window fallacy. This fallacy says, fallaciously, that broken windows are good for the economy because they are good for the window-mending business. What the broken window fallacy neglects to mention is that broken windows are bad for all the businesses that the window mending money might have gone to instead, but now cannot.
The most extreme statement of this fallacy is the claim that the ultimate window breaker, war, is good for the economy, because that way lots of work is "created" in all the industries that subsequently set to work to repair the destruction. When Keynesian economics was in its pomp, you did hear people actually saying this. Maybe, if those are the kind of circles you still move in, you still do.
Yet war is creative, in a back-handed way, and provided that you lose. It destroys wealth, but it can also destroy certain impediments to future wealth creation. Mancur Olsen, in his book (alas not available on line so far as I know) The Rise and Decline of Nations (lots of five stars out of five reviews here), says that, yes of course, losing a war does destroy wealth, but that it also destroys what he calls "distributional coalitions". In plainer language, losing a war breaks up politically well-connected rackets, like state-enforced cartels and trade-unions. Thus the post-WW2 economic miracles of Germany and Japan.
This is what you would call a high risk strategy for achieving economic dynamism. I mean, just for starters, be careful who you lose your war to. Pick the wrong country to surrender to and you are liable to end up with an even huger, politically even better connected racket, in the form of your rapacious conquerors. In other words, broken windows followed by more broken windows, and nobody ever mending them.
Tuesday
My good friends who run the Big Blog Company do not like to use Samizdata to promote the Big Blog Company as much as they might, because this is not cool. It is not good blogging practice. But I am only doing this incidentally when I link to the latest posting on their blog. My main purpose is to promote myself, which I suppose is not all that cool either, but there you go.
Said I, here:
A new market is chaotic, and (and this is the point) ignorant. People do not, e.g., know how to spot cowboy operators, or bad products made in all sincerity but badly. Ignorance and foolishness abound, and so to start with, down goes the graph of achievement. . . .And, back from her tBBC promotional trip to LA, Jackie D said, this very morning, this:
Unfortunately, I wasn't making it up when I recounted to her how one PR flack we met in LA boasted of how his firm lies to big corporations and promises them good coverage on their "big traffic," fake blog. The blog itself has been set up by the PR company for the express purpose of scamming companies into paying out substantial amounts of cash for positive postings on it. Looking at the blog, it seems to be authored by an anonymous nobody . . . who just so happens to pepper his commentary with glowing mentions of the PR company's clients, and negative remarks about their competition.
That is a classic description of how a genuinely new market (as opposed to a made-to-sound-like-a-market governmental rearrangement of a non-market) starts out by working – i.e. not working.
Stay with it guys. In the long run, you will get rich. If you can still be there when the long run starts to run. Eventually all those corporations will start to really understand blogging, and to want help to do the real thing.
To continue my own quote:
. . . But then, if this really is a true market, things bottom out and start to improve and in the longer run the result is a market that is orders of magnitude better . . .
Or, to put it another way:
Tuesday
Anti-liberal NGOs like War on Want and the World Development Movement are using World Water Day (today) to campaign against private investment in water infrastructure. The World Development Movement says that water privatization is: "making it less likely that clean water will ever get to the poorest people."
Unfortunately the World Development Movement is mistaken. As Global Growth's development economist, Paul Staines, says (pdf file):
Practical and technological requirements for huge sanitation projects on a metropolis-wide scale require the resources of big enterprises to implement them, the private sector can not only provide the capability but also the capital required. 2 billion people thirst for clean water, Western antiglobalisation NGOs who arrogantly put their ideological interest ahead of the interests of the developing world are full of **it, and if they succeed in their campaign the fast growing cities of the developing world will be as well.
Private investment in water is expanding access to clean, running water. It contrasts strongly with nationalized water systems where politically-favoured groups receive below-cost water, starving off future investment so that unfavoured groups go without. Private investment offers the best plan for increasing access to water.
Crossposted from the Globalisation Institute Blog.
Tuesday
When a specific industry comes and puts itself forward as a special exception, the alarms bells should ring. Most industries - if they thought they could get away with it - would put the case for corporate welfare.
One industry claiming to be a special exception is the drug industry. They acknowledge that grey imports are good in general. It is just that in the drug industry, free trade is a bad idea. They have R&D costs, don't you know, and they would not be able to develop new drugs if, for example, Americans could buy drugs from Canada. For good measure, they say that drug reimportation is a bad idea because of safety. This argument is mere scaremongering.
Drug companies do invest a good amount of money on R&D, about 10% of their turnover. Then again, Microsoft invests 17.3% of its turnover on R&D. Drug companies enjoy the highest profit margins of any industry in the US, nearly four times the Fortune 500 average. The fact is that drug reimportation would not hinder drug companies' ability to invest in new drugs. Its effect would be to push drug companies to ensure they sell to rich countries at a price that happily covers R&D.
Being against drug reimportation is the easy option for drug companies. In reality, it lets them charge consumers in each market as much as they can get away with. Free trade threatens their market power. Here, the interests of drug companies are directly opposite the interests of the sick. Blocking drug reimportation is corporate welfare at its worst.
Readers may be interested in a Cato Institute report: Drug Reimportation: The Free Market Solution.
Crossposted from the Globalisation Institute Blog.
Sunday
So, on the one hand, you have cheap microwave ovens from Szechuan province. Wonderful.
But, on the other hand, you get this:
The world's first global health treaty - the Framework Convention on Tobacco Control - comes into force on Sunday.The anti-smoking pact has been signed by 168 countries, and ratified by 57 of them, which will now have to tighten their anti-tobacco laws.
Not so wonderful. Welcome to the globalized world.
Friday
My February last Friday has just ended, and it was definitely one of the better ones. Patrick Crozier spoke about libertarianism and private road ownership. Excellent talk, excellent discussion. The result of Patrick's time writing for and bossing the now only archived Transport Blog, which he has now ended. (He now writes this.)
Among those present was Alex Singleton, and he naturally talked about his newly launched Globalization Institute, which, of course, has a new blog.
It occurs to me that you might expect the word itself, 'globalisation' (I prefer an 's' in the middle there), to be the equivalent, at the global level, of 'nationalisation' at the national level. Yet, while nationalisation means the national government stealing things, globalisation means something quite different and much nicer. If globalisation was the same at the global level as nationalisation is at the national level, globalisation would mean a World Government stealing things.
Does this matter? Well, maybe it does, because we surely do need a word to describe the equivalent of nationalisation, but at the global level. I have been drinking and may have forgotten the obvious, but my impression is: we do not have such a word.
Surely the existence of the word 'nationalisation' made it far easier to oppose the thing itself. Not having a word for this other form of 'globalisation', predation by the government of the globe, makes it harder to oppose, I think.
Tuesday
Well it seems that today, short little link-pieces are okay, so here is a short little link piece, with links to these mealy-mouthed trimmers, arguing for a flat tax, and to me, arguing that mere flatness is not the point. Just having a flat roof to the graph is a hideous compromise. It must be flattened until it is zero-height roadkill. (Metaphor muddle there, but I hope you get the picture.) Seriously, this is one of my best diatribes ("THE TOP RATE OF INCOME TAX SHOULD BE CUT TO ZERO") from my time as a Libertarian Alliance pulpit banger, and I recommend that you read the whole thing, even if it is only a .pdf.
When the world in due course sees the wisdom of this proposal and enacts in universally, the result will be that there will remain a top rate of income tax, but that whatever money you earn above the level at which the top rate of income tax kicks in, you keep. All of it. These flat-raters say that it should be fifteen percent or whatever for everything you earn. I say, once you have paid your share of the rent, you should keep the lot.
Sorry, I went on a bit there.
Monday
Alex Singleton says that this is good news:
The Royal Mail will lose its monopoly on delivering Britain's letters on Jan. 1, an industry regulator announced Friday - 15 months earlier than originally planned.Regulator Postcomm said that from the beginning of 2006 private companies will be able to bid for licenses to deliver letters, previously the sole preserve of the state-backed Royal Mail Group PLC.
Postcomm chairman Nigel Stapleton said more competition would create "a more innovative and efficient postal industry."
"This is only the first step in a process which the commission hopes will eventually see market forces replace regulation as the main driver of an efficient and effective mail industry," he said.
Bulk mail delivery is already open to competition, but domestic letter services are the exclusive domain of the Royal Mail.
I agree. I have no problem with the principle that postal services ought to be competitive rather than monopolistic, and most of the arguments I hear which allegedly defend that monopoly strike me as misguided. For instance, I have never understood why sending a letter to people living at the far end of beyond in the deep, deep countryside, should cost no more than sending a letter from a dweller in a city to another dweller in the same city. If a competitive postal delivery service wants to have a one-price-fits-all policy, as many do, for simplicity's sake, fine. If it wants to deliver non-urgent packages sent by me to someone half a mile from me by sending them to Birmingham and back, again: their problem (and their solution) rather than mine. But if other postal services want to 'skim', that is, do only easy deliveries (and maybe do them really, really quickly), and thereby force a little product differentiation into this market, well, again, why not? Making a bicycle is easier and cheaper than making a luxury car, and bikes accordingly change hands for far less. Where is the problem with that? Why should both cost the same?
Add all the obvious advantages associated with competitors competing with each other to establish reputations for reliable, efficient and really clever service, and you get a compelling case for a free market.
There is also the point, which I was only reminded of when deciding whether to label this as being about "globalization", that postal services these days cry out to be global, rather than merely national with global stuff treated as a bolted-on afterthought.
However, I believe that I do see one problem with this particular exercise in demonopolisation.
I recall a few years ago getting one of those cards through my letter box, saying that some non-governmental, acronymic, postal delivery service had tried, but failed, to deliver to me a package. There was a phone number on the card, and although I did not feel in any way obliged to, I did ring it.
I was told that I would have to make my way to Battersea to collect the package.
Excuse me, I said. You have promised someone else that you will deliver a package to me, and I am somehow obligated to go to Battersea to collect it? Who is it from? I mean, if it sounds good, I might come and get it. Oh, no, they said, we could not possibly reveal that over the phone. Well then forget it, I said. You can try to redeliver the thing, if you want to, but I do not promise to be in when you call again. Or, you can tell the person who gave you the package that you have failed to deliver it, and it will then be between you and them.
They were amazed. Such insubordination from non-customers was apparently unheard of.
(I think I may have told this story here before. If I have then my apologies to all those irritated by the repetition.)
The problem here is that final bit of the journey, people's front doors. As more and more people go out to work, and at more and more unpredictable hours, fewer and fewer households can conveniently guarantee to have anyone present all the time to receive incoming clobber.
Is the answer to give every postal service that wants it a key to the front door of my block of flats, and of every other block of flats in Britain, such as the monopoly Royal Mail now seems to have? Somehow, I think that might be a bad idea.
But meanwhile, does the Royal Mail retain its privileged ability to open the front door that I share with my neighbours? There is a lot to be said for someone having this right.
This is one of the big reasons why 'offices' still exist. An 'office' is a place that is, among other things, sort of definitely, going to be open from 9 to 5, to receive incoming stuff. And phone calls, and visitors of all kinds.
Maybe the answer for incoming mail is to have an 'office' which specialises not in fronting for all the work done by a particular business, but which instead specialises in receiving incoming clobber for lots of businesses, and more especially for lots of people, people who live near enough to be able to drop round whenever anything shows up for them. What might such places be called? 'Post offices' perhaps? Maybe the combined urges of the newly liberated private sector in postal delivery will come together to create such places.
But what if some people are unable to make even this small journey? This is where privileged access to front doors might still be a good thing. But, I suppose I give privileged access to my bank card details to Amazon (and to many other enterprises) such as I would not give to just anyone. (And with regard to Amazon, see also the afterthought about globalization, above.)
Maybe the Royal Mail will decide to specialise in being the universally trusted British deliverer of last resort, so to speak, trusted to open shared front doors, and achieve final delivery of all mail, both its own stuff and everyone else's, should the need arise.
The problem with that being that during the last few years, and this is one of the more depressing things to have happened to Britain during the last few years, the Royal Mail has become, in many areas and in many ways, seriously unreliable. The worry must be that if this demonopolisation goes ahead, the Royal Mail's descent into criminality and chaos will become vertiginous, before the private sector has learned to sort out all the problems which the Royal Mail used to solve, re front doors and re everything else.
By the way, let no one claim that in the age of email, internets, blah blah blah, that postal services no longer really matter. Why, that most modern and internet-blah-blah-blah-based business, Amazon, depends for its very existence on efficient postal services to deliver the stuff you have ordered by such modern means.
Well, I dare say the private sector will solve this and similar problems if it sincerely wants to, which I think it will. One should never regard one's own failure to solve a problem in twenty minutes as proof that capitalism will never solve the problem ever.
In particular, there are no doubt places beyond Britain where they faced all such problems and solved them decades ago, perhaps because their version of the Royal Mail has been run by corrupt thieves from the start, and they have always had a free market in postal delivery.
Nevertheless, I do foresee some, let us say, transitional difficulties, with this particular exercise in demonopolisation.
To generalise, the move out of politics and towards commerce is a political process as well as a commercial process, and we all know that political processes can go very wrong.
Or, in other words, see also this hockey stick posting.. This explains that the current decline in the quality of service offered by the Royal Mail was probably a precondition for the decision to demonopolise postal delivery in the first place.
Friday
We all knew that, of course. But when the Manolo puts the evil eye on you, well, time to update your will, launder your cash, gas up the Lear, and oil the hinges on the back door.
Beautiful shoes for everyone! Death to the tyrant who would deny the peoples the beautiful shoes! This it is the political philosophy of the Manolo.
The Cuban embargo should be lifted, not for ideological libertarian reasons, but for pragmatic ones. Doing so will unleash a tide of cash and goods into Cuba, not to mention Americans, and nothing could be more corrosive of the tyrannical regime there.
Much as I love cigars, I won't buy Cuban cigars, because that is a state-controlled industry and I choose not to do business with the Cuban state. (Plus, I think they are overrated). I would go to Cuba, though, after the embargo is lifted because doing so would allow me to circumvent the state, meet real Cubans, and undermine a Stalinist bastard in my own small way.
Thursday
Back in May last year here on Samizdata I published a copy of a letter I sent to a church magazine debunking one of their articles about 'trade justice'. In the comments, someone wrote:
You expect the church magazine to publish that?
Rather belatedly, I am happy to report that they did indeed publish the letter. It was given a full A4 page in the next issue, published in a rather large font size. The editor added a short note to the end saying that the article I was responding to had been supplied by Christian Aid and that the church was not reponsible for its content.
Monday
Sarah, after her first day (as an intern?) at the Fairtrade Foundation:
I don't suppose trade can ever be fair. Someone always has to lose. It's just they lose less with fair trade than with the regular variety.
Adam Smith's key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange can take place unless both parties do benefit.
Saturday
A few weeks ago, I attended one of the talks that are hosted in London by Brian Micklethwait on the last Friday of every month. The speaker was fellow Samizdatista Alex Singleton, and was essentially on the subject of why globalisation is good (and was incidentally about Alex's new think tank devoted to this very issue).
In the discussion after the talk, one thing that came up was the benefits of global economies of scale and global competition in manufacturing, retailing and the supply chains in between. A point made was that although it is certainly the case that prices on many goods (clothes and electronics being the examples brought up) have dropped due to retailers being able to easily shop throughout the whole world for products to sell, we do not really yet see customers buying goods directly from foreign retailers. Internet commerce is becoming large, but mostly it is domestic in nature.
However, something happened to me this week that made me think that perhaps more international commerce is happening than we realise, and that a lot of it is happening under the radar.
My present mobile phone is a Motorola v500, which is a lovely phone. (Motorola has always had great engineering. Five years ago they were losing badly to Nokia, who had inferior engineering but better industrial design and better user interfaces, but in recent times they have caught up in both regards). However, it has a small external antenna, which is removable and screws into the phone. As it happened, the thread on the antenna became damaged, and I needed a new antenna.
I went into the Carphone Warehouse store from which I had bought the phone, and they were sympathetic but not very helpful. They were more interested in selling new phones and high mark up accessories than tiny replacement antennas. (They suggested that I visit their repair centre in a different part of London or check the Motorola website). I went to a couple of other mobile phone shops with similar results. Checking the Motorola website led to similar results.
So what to do. Well, I checked on ebay, found that there were plenty of people selling replacement antennas for my phone, put in a bid, and purchased an antenna, online, for £2.77 including postage. Although an antenna probably costs 5 cents to make, I suspect that if I had gone to a "repair centre", I would have been charged considerably more than £2.70 for a new one, and the other advantage of buying on ebay is that the new one would arrive in the mail in a couple of days.
Just as I was logging out of ebay, I noticed something else, which was "Location of Seller: Singapore". So it turned out that it was easier and cheaper for me to obtain a new antenna from some guy in Singapore than from a local retailer in London.
Thinking about it some more, I suspect that a lot of this is typical. If you set up a "shop", then there are still restrictions on where you can obtain goods from and who you can sell to. The producers of branded goods still try very hard to make sure that retailers only sell goods that have been bought from the "authorised distributor" of their brand in a particular country, and that they only sell to people in the same market. In a world where every buyer is also potentially a seller, and where goods can be sold on to people elsewhere in the world, though, this is hard to enforce. And what we do have now are large, trusted companies that act as brokers of goods of all kind. Ebay is the classic example, but as I have discussed before, more and more of Amazon's business is of this kind too, acting as a broker for third party sellers. I haven't seen any statistics in the percentage of this kind of trade that is cross border, but I suspect it is growing. (I also buy large numbers of DVDs from the US and Canada through third party sellers via Amazon).
Quite sadly, there is also another obstacle to the growth in this kind of cross border commerce. If you send something through the mail, it is subject to cross border bureaucratic interference in the terms of customs duties and local taxes. (In the case of importing most goods into Britain, the issue is the payment of VAT). If you receive a package and HM Customs and Excise decides to charge you VAT on it, then rather than receiving the goods through the mail, you receive a card explaining the situation. You then have to visit the local post office, and pay the VAT plus an "administration charge" before receiving your goods. The inconvenience and the administration charge can between them make it no longer worth your while to buy from overseas in the first place, which is irritating. Ultimatelly it isn't so much the tax as the inconvenience that goes with it.
But of course there is a loophole. The VAT is waived if the total value of the goods is less than £18. This regulation was presumably brought in some time in the past to avoid the inconvenience of having to charge tax on every small gift sent throught the mail, but it has now grown into being an examption widely used by customers of internet commerce. You learn not to order multiple DVDs in the same package but to order them one at a time. The additional postage costs are often as much or greater than the tax would be, but this way you avoid the bureaucracy. This doesn't precisely improve the economic efficiency of the whole process, but the exemption is great enough to allow a large global economy to exist in goods under about £18, whereas there are substantial restrictions on trade in goods of higher value. None the less, some stores have set up specifically in order to take advantage of this tax advantage (Amazon Jersey for instance).
One would hope that someday this exemption would be so widely used that it will lead governments to remove the taxes in resignation, but this is sadly much too hopeful. More likely are attempts to charge taxes on all goods, however small, and much more government intrusion into commerce. And it is the intrusion and bureaucracy that is likely to really be economically destructive, even more so than the taxes themselves.
Wednesday
"This is why all goods must have a price set on them; for then there will always be exchange and, if so, association of man with man."
Aristotle, quoted in Nicomanchean Ethics.
Friday
A truly bizarre article has appeared in the American Prospect arguing that President Bush's proposed social security privatization should be opposed. Why? Because social security privatization has happened in Britain and has been a disaster.
How odd. I live in Britain and work in an economic think tank, and I never knew that Britain had privatized social security. Indeed, the Inland Revenue (Britain's equivalent of the Internal Revenue Service) wrote to me recently on the subject of my state pension.
Social Security Privatization was floated as an idea after Labour came to power, but it has never become government policy. It was advocated by Frank Field MP, then the Minister for Welfare Reform, who soon after left the Cabinet.
The Prospect article is, frankly, drivel. Social security privatization has not happened in Britain.
Dr Eamonn Butler has more on the UK's pensions on the ASI Blog.
Thursday
He may not be the sort of man who gets the attention of the ordinary citizen, or the sort of man one talks about down the Dog and Duck on a Friday night, but New York Attorney General Eliot Spitzer, wannabe Democrat politician and formidable lawyer, is making quite a name for himself as a legal terror of big Wall Street businesses, launching a flood of suits against insurers, brokerages, fund management companies and banks.
Some of his suits may have an element of justice behind them and no doubt he has calculated that bashing the Gordon Gekko classes makes for good copy and will no doubt endear him to the sort of folk who regard Michael Moore as a political seer. To the rest of us, however, who make a living in the financial markets, his zeal is troubling. Take the recent so-called "scandal" surrounding the case of mutual fund firms which allowed certain types of quick-fire trades to happen in and out of their funds. The activity, while not illegal, is considered harmful because it can damage the long term investments of ordinary investors. Well maybe, maybe not. I find it worrying, however, that the cumulative impact of Spitzer's energies will be to push up the costs of doing business in the U.S. capital markets, and drive many smart would-be financiers into other fields.
We tend to forget that despite high-level scandals such as the collapse of energy giant Enron, the world economy has greatly benefitted from the efficiencies and new products driven by the entrepreneurs of the modern age. My worry about the whole raft of laws spawned in recent years, such as Sarbanes-Oxley or even the awful Patriot Act, is that financial innovation will be curbed. And as a result, many businesses will shun the public listed stock market and choose to go private instead if that is the way to avoid the glare of the Eliot Spitzers of this world.
Regulatory growth is not a sexy subject, I admit, but let's not forget that the destruction of wealth and entrepreneurial morale will end up biting us in the economic behind if we don't take a full regard to the effects.
Thursday
I like airplanes, but am rather suspicious of this huge new Airbus that they have just rolled out, handsome though it does look and useful though it will surely be in many circumstances. In particular, I suspect that the A380 is costing Europe a whole lot more than is being officially suggested, and that Boeing decided not to build a similar aircraft for good, loss-avoiding reasons.
Well, I still do not know very much about Airbus finances, but this story certainly backs up the costing-more-than-they-are-admitting aspect:
TSUNAMI-struck Thailand has been told by the European Commission that it must buy six A380 Airbus aircraft if it wants to escape the tariffs against its fishing industry.
I realise that it is carrying the search for a silver lining to absurd lengths to say such a thing, but one good thing about this whole Tsunami horror is that it has brought this EU vileness rather more out into the open than would have happened otherwise. As it is, the combination of nastiness and lack of political sensitivity being shown by the EU is extraordinary even by their low standards. Do they not see that the Tsunami has somewhat changed things?
The Thai trade negotiators, not unreasonably, seem to betting that things are indeed now rather different. They seem to be calculating that, if they simply expose the nature of the deal they are now being faced with by the EU, the EU will back down in the face of worldwide disgust, not least within Europe itself. The Thais will get their aid. They will be allowed to sell their keenly priced fish products without punitive tariffs being slapped on them. And they will not have to buy six of these damned great airplanes unless they decide that they want to. All of which is a lot to hope for, but at least they may get more of what they want than they would have done if the Tsunami had no struck.
The EU Referendum Blog has more on this whole sordid episode:
The aircraft will cost Thailand some £1.3 billion – nearly the amount that all 25 EU members states have pledged in tsunami aid to the whole affected region.
Richard North also points out that Thailand was being shafted before the Tsunami in a similar manner. This is not about the EU getting nasty; it is about it remaining nasty.
But that is the EU, naked in tooth and claw. While workers from across world are on the ground, helping to rebuild the Thai economy, EU officials are also right in there – undermining the basis of any recovery.
And according to North, Thailand is not the only country that is being "encouraged" to buy Airbuses with EU trade policy concessions.
The irony is that by swapping a bit of freer trade for aircraft orders, the EU is agreeing, reluctantly, to do itself a favour. It is agreeing to impose the terrible burden of cheaper goods upon itself. But even when it does good things, it cannot seem to help stirring in bad things, like flogging unwanted airplanes.
Tuesday
I was so struck by the hostility expressed inthe comments section of my previous post about Virgin airline boss and entrepreneur Richard Branson, in some cases for quite valid reasons, that it got me thinking of whether there is, in today's business world, any entrepreneur who would pass the kind of harsh ideological standards we libertarians might want to set and be able to become a major business player.
I doubt it, sadly. If I am wrong about that, comment away.
Thursday
With all the understandable attention being focused on the dreadful situation in the lands skirting the Indian Ocean, there is always a danger that disasters of a different, more Man-made kind, get overlooked. Well this week the German statistics office reported a dreadful set of unemployment figures, showing the number of jobless in Europe's biggest economy to be at the highest level for seven years
A Bloomberg report on the story contains the following passage:
New measures cutting benefits for the long-term unemployed took effect on Jan. 1. Those without a job, including people previously registered as social-welfare recipients rather than as jobless, will also face increased pressure to accept job offers or risk losing benefits. The changes will add an as yet undetermined number of people to the January jobless total.
But it is clear that the German authorities are still tinkering with the issue. That 10.8 percent of the working age population of such an important country should be out of a job is a disgrace. What I find odd though is how little outraged commentary in the economics part of the press there is about this. It is almost as if the European chattering classes have come regard this problem in Germany, and also France, with an air of sullen resignation. Of course, dealing with it will involve lots of vulgar, Reaganite actions such as deregulation, tax cuts to spur business formation and the like, which of course goes against the grain of Germany's 'managed' form of business so beloved of leftist commentators like Britain's own Will Hutton.
Germany needs to get its act together. Some 15 years since reunification with the eastern part of the country, Germany has failed to live up its early promise. With so many young people, including those from immigrant backgrounds, on the dole, no wonder commentators wonder about the social fabric of that country. They should.
Wednesday
Entrepreneurship does not seem to get a very fair run on our main terrestrial television channels, as far as I can tell. The BBC is a particular offender. So credit is due to the BBC for a programme that shows how contestants with business ideas compete for money and interest from a panel of venture capitalists.
I watched the programme on Tuesday evening, and after my initial reservations about the format I became pretty engrossed. At the end, the final contestant, who eventually negotiated a deal where the others had failed, came across as such a smart fellow that I would have invested my own meagre funds in his idea.
The impression I got was that the producers asked the panel of VCs to play the role of flint-faced, capitalist bastard. They certainly succeeded. I disliked all of them intensely. No doubt that was the goal of the producers, but despite all that, I could not fail to be impressed by the enthusiasm of the wanna-be entrepreneurs.
The BBC may not fully realise it, but it is spreading the entrepreneurial meme.
Thursday
As regulators impose more onerous capital adequacy and reporting requirements on the Western world's banks, investment firms and brokerages, demand surges for increasingly sophisticated computer infrastructure to keep track of all the new systems deemed necessary to make the regulations work. As a result, demand is rising, according to this Financial Times article, for graduates with science degrees, especially in the field of physics. And it does not come as much of a surprise to learn that Britain's mostly state-run education system is not doing a very good job at churning out young physics students. I am shocked, shocked to hear this!
I would greatly prefer it if clever folk with scientific knowledge were engaged in the potentially fruitful areas of nanotechnology, biotech, aviation and civil engineering, all fields likely to see continued rapid growth, than working to make increasingly Byzantine bank regulations work better. It looks like a waste to me. We want our budding Isaac Newtons and Richard Feynmans working on spacecraft, not greasing the wheels of the latest EU banking directive.
Thursday
"We are not gods. We cannot create wealth out of thin air. Western wealth is just a function of colonialism or, in its current form, neo-liberalism - of taking resources from countries like Ethiopia. Neo-liberals then try to justify this by pretending that they have 'created' the wealth they have."
- Left-thinker
Friday
Walking past a newsstand near my office yesterday, I saw the banner headline "Tube Bosses Buy Parts on eBay". The accompanying story told us, in faintly mocking tones, how engineers working on the London Underground system have resorted to using the online auction firm because the parts they need are so old that they cannot get the pieces they need from regular stock.
Now it may at first appear a terrible thing that our metro systems are so old that the folk running them have to resort to an online auction set up by those vulgar American geeks from their Silicon Valley offices to get the stuff they need. But (drums roll!) I have a certain admiration for the Tube staff who had the entrepreneurial savvy to make use of the amazingly successful eBay platform. If the power of the internet can make my journey to work a bit smoother, I ain't complaining.
It makes me wonder how many other major businesses are resorting to services like eBay to solve their inventory supply needs. I think it is still not yet possible for an airline to buy jet engines that way, though you never know. Is capitalism great or what?
Monday
"The flat tax makes sense" says The Daily Telegraph this morning, in an editorial which coincides with the release of the Adam Smith Institute report on this. In the US, President Bush has identified tax reform as one of his top three priorities - along with pension and court reform - for his second term. And many of his advisers are keen for him to tear up the thousands of pages of the federal tax code and replace it with a single tax rate of 17 per cent, and even that payable only on incomes over $36,000. Every time in the past that the US has slashed its tax rates - under Coolidge, Kennedy, and Reagan - it has enjoyed a boom, and the US Treasury has actually raked in more taxes, and with the richest taxpayers contributing a far greater proportion. So this idea seems like an all-round winner.
Bush must be cheered by what he sees in other countries, too. A number of the EU's new members, like Slovakia and Estonia, have gone for the flat tax. So has Russia and the Ukraine. Hong Kong too. Even China is thinking about it.
There's a good deal of interest here in Britain too. That's partly because our clever Chancellor of the Exchequer has made the tax code so complicated that nobody understands it. Tolley's Yellow Tax Guide, the professionals' bible on the UK tax system, now runs to an unliftable 7000+ pages across four volumes. People are hungry for the change. And so, in both the UK and US, it's worth pushing for.
Monday
Anti-globalizers fail to look at the world in an aggregate way. Instead, they base their beliefs on anecdotal evidence. They find a worker in a factory who has been badly treated and blame this on globalization, and label all factories producing for Western companies as sweatshops. But they turn a blind eye to the big picture. They do not see the effect of inward investment in creating competition for labour, which pushes up wages and conditions. They do not know why the Asian Tigers are now rich. They do not see the economic growth rates of those countries - like India - who have liberalized, believing that globalization simply produces poverty. Indeed, they tend not to use any aggregate data at all. Because the big picture does not fit in their worldview, they junk it. They stick their fingers in their ears and then continue to argue against globalization with anecdotes.
The anti-globalizers are very good at confusing capitalism with absence of capitalism. They point to countries which have not liberalized and are therefore poor, and then blame this poverty on globalization. Because the facts do not fit their worldview, the facts must be wrong.
They want those in poor countries to become rich but without making the same 'mistakes' as Western countries. To the extent they support trade, it is a very odd form of trade. It involves people doing exactly the same type of work as their ancestors did, but with the wages being higher. They regard trade as a redistributive process rather than as a way of creating wealth. They do not see how wealth creation is anything more than a capitalist myth - after all, they say, we live in a finite world. All the evidence for the existence of wealth creation is ignored, because their worldview is trapped by the Fixed Quantity of Wealth Fallacy.
The anti-globalizers claim that the environment is getting worse. But the facts are not on their side. They look at the roads in London, see lots of cars and say that air pollution is getting worse and worse. They fail to look at the data - they do not need to because their worldview tells them that the environment is getting worse. The data however shows that the air quality in London is the cleanest since records began in 1585. On most measures, the environment is getting better.
Nevertheless, in the name of helping the environment, they promote the idea of a future Britain where we all live simpler lives, use local currencies, work locally and buy from local organic farmers. They have a romantic image of the Middle Ages economy, with people all happier, picking buttercups in the fields. They completely ignore that the economy of the Middle Ages was nasty and oppressive for the majority of those living under it, where people died at a young age. They fail to grasp that with wealth comes the ability to solve environmental problems. Instead they prefer to oppose the creation of wealth.
The anti-globalization movement is intellectually bankrupt. It is capable of shouting slogans and protesting international meetings. But in terms of providing solutions to the world's problems, it has nothing to offer.
Monday
This list is getting quite a bit of attention. It is a report of some of the many things that Jay Rosen talked about when being interviewed by a guy from the BBC:
- Political attacks seeking to discredit the press and why they're intensifying- Scandals in the news business and the damage they are sowing
- The era of greater transparency and what it's doing to modern journalism
- Trust in the mainstream media and what's happening to it
- Bloggers, their role in politics, their effect on the press: their significance
- How the Net explosion is changing the relationship between people and news
- The collapse of traditional authority in journalism and what replaces it
- Amateurs vs. professionals; distributed knowledge vs. credentialed expertise
- The entrance of new players of all kinds in presidential campaigning
- The producer revolution underway among former consumers of media
- Jon Stewart and why he seems to be more credible to so many
- "He said, she said, we said" and why it's such an issue this year
- The "reality-based community" thesis and the Bush Administration
- The political divide and the passions it has unleashed this year
- Why the culture war keeps going, this year reaching the mainstream press
- Why periods of intense partisanship coincide with high involvement
- The problem of propaganda and the intensity of its practice in 2004
- Why argument journalism is more involving than the informational kind
- Assaults on the very idea of a neutral observer, a disinterested account
- And then there's this: the separate realities of Bush and Kerry supporters
I think that there is one huge thought missing from this list, so huge, and so completely in the faces of both the people having this conversation that they both missed it. Jay Rosen did anyway. This is: that these two people were talking to each other from opposite sides of an ocean.
The internet has taken politics global. The row about the Guardian trying to influence the US election by getting Guardian-readers to send pontificatory emails to the voters of Ohio is only so visible because it was so funny, but in a quieter way, the Guardian is now influencing US elections, by the simple fact of it publishing its stuff online, and Americans (and everyone else) being able to read it all, quickly and cheaply.
Another version of this same fact is the way that the Bush supporters in the USA took great heart from, and accused their local mainstream media of downplaying, the result of the recent Australian election.
The elites of the world have long been globalised. They have inhabited a world of instant, free international communication for many decades now. But because the everyday experiences of their massed ranks of supporters had not been globalised, they have had to present themselves as nationalists when talking in public. Even Joe Stalin, on that one occasion when he actually depended on the support (as opposed to the mere terrified obedience) of his people (World War 2), suddenly mutated, in public, from a globalist into a nationalist.
Churchill, Roosevelt and Hitler all have in common that they too presented themselves to their peoples as devoted nationalists, but were also accused by the more thoughtful among their enemies of having distinct non-national agendas that might be termed 'personal/global' (i.e. their own personal, preferred, and no doubt nationally conditioned take on the interests of mankind as a whole), on the basis of which they dragged their nations into wars that did not, so their critics said and still say, serve their nations' best interests. Bush and Blair are doing the exact same thing now. Their enemies curse them for ignoring their mere nations' national interests, ab=nd thrust forward their own contrasting personal/global agendas. But why would they want to confine themselves to something so parochial as the mere interests of one nation? Even the USA, measured for example by the size of its population, is quite a small thing, looked at globally. It is enough to occupy US politicians pretty much full time, but someone like Michael Moore is bound to look beyond the USA for influence, and books sales. Why would he not? The Internet and all the debates that rage in it do his advance publicity for him.
What is happening to the world now is that every politically engaged person is now becoming 'personal/global', the way only the elite used to be because only the elite could afford to be. Every politically engaged person is now using the Internet to create communities based on shared global agendas, rather than local national agendas.
As Rosen himself says, this is a colossal subject, up there with and comparable to the impact of the printing press, and one mere blog posting cannot possible cover everything. This was exactly Rosen's original point ("Too much reality"!). But it was the urge to make this one next point that provoked me into doing this posting, which is about how Stephen Waters responded to one in particular of the items on Rosen's list. What got me gesticulating at my screen was his casual dismissal of (in his chart about it all) of "the separate realities of Bush and Kerry supporters". He has just two words to say about this: "red" and "herring". I could not disagree more. This "separate reality" effect is one of the most important and portentous, and potentially disruptive (i.e. potentially global civil war provoking) effects of the Internet. What the Internet supplies to people who inhabit "different realities" is untold thousands, and in some cases untold millions, of fellow believers in the same reality. I know. I am a libertarian. When I was only a London libertarian, I could not help noticing London was full of people who are not libertarians of my particular sort. Now, with the Internet, if I wanted to, I could swim in an ocean of libertarianism of exactly my preferred sort and spend my entire life agreeing with and being agreed with by thousands of other people, and never noticing that anyone else existed. The Internet is a terrific reinforcer of "different realities". The Internet makes the opinion-peddlers of the world far less dependent for their personal validation on the opinions of locals, and far more able to whistle up support from around the world for their particular personal/global agenda. To note, therefore, the increased tendency of people nowadays to live in separate little (global) opinion pods, and no longer in a locally unified community of 'national common sense' is absolutely not to be sailing after a red herring. This effect is central to the way the Internet works. I believe, to tangent off again, that this is a big reason why the 'Mainstream Media' of the USA are now having such difficulties. They are the practitioners of a skill that has now become superfluous. Their stock in trade is wrapping up whatever is their preferred personal/global agenda in the language of National Common Sense. (Hence the National Common Sense suits and hairpieces and voices.) But such wrapping is now waste and nonsense. Nobody needs it any more, or responds to it any more, with other than derision. Each global/personal agenda team has its specialists who unmask the various National Common Sense pretences of the various Mainstream Media organs (like CBS News or the New York Times or for that matter Fox News), and reveal the global/personal agendas that are really being peddled. (See also: the BBC. The British print media are on the whole less apologetic and duplicitous about their biases than the US mainstream media, but the BBC is the big exception. What may save it is that it is more flexible, adaptable and cunning than Dan Rather and his ilk. My problem with criticising the BBC is that I share so many of its global/personal biases.) What got CBS into such a bind over its forgery arguments a few weeks back was not that it had no sources to back up its deeply held belief that George W. Bush is a worthless, spoilt rich boy who only pretended, when younger, to be a patriotic warrior. Its problem was that those sources, although in their own way fairly reputable and serious, are quite clearly not talking the language of National Common Sense, but instead of CBS's preferred personal/global agenda. To reveal these sources would blow CBS's gaff. Thus was CBS trapped in front of the headlights of the Internet. From everything I have read since, they remain trapped. For political opinions, read also: hobbies, personal enthusiasms, hobby products, work, play, you name it. Nowadays, thanks to the Internet, everyone with an Internet connection is now a member of the Global Community of …..ers. Fill in the blanks half a dozen times for every person on the planet who is literate and who is past worrying about where the next meal is to come from. That is a lot of people now, and the number grows all the time. These things are all tendencies of course. I am not saying that until 1990 most people had never heard of abroad, or that since 2000 nobody gives a damn about their next door neighbours (any more than I believe that the printing press immediately turned everyone into rabid nationalists). But that is one of the big ways in which the world is now heading.
Monday
I was at the University of Paisley last week debating the subject of free trade. One of the other speakers was Martin Meteyard, Chair of CafeDirect plc, a corporation which sells 'fair trade' coffee. He had brought with him a packet of Mexican 'fair trade' coffee which he proudly showed to the audience.
I was a bit surprised that he had chosen Mexican coffee. After all, compared with other coffee producers, Mexico is a rich country. Granted, Mexico's wealth is not at British levels. But with a per capita GDP of $8900, the country is considerably better off that other coffee producers like Kenya ($1100), Uganda ($1200) and Tanzania ($600).
Mexico also has much better trading terms than other coffee producers. It is part of the North American Free Trade Area and has a free-trade agreement with the European Free Trade Area (and thus the EU). Industry accounts for 36% of the economy and services 69%. Only 5% of Mexico's economy is agricultural.
The fundamental problem in the coffee industry worldwide is that there is too much production. This means that the price is low. What is needed is for people to exit the market, and in Mexico it is easier than anywhere else to turn your back on coffee - after all, agriculture accounts for only 5% of the economy. (Yet, according to CafeDirect, 25% of 'fair trade' coffee comes from Mexico.) Is CafeDirect really engaging in a great moral act by helping Mexicans stay in the market?
Paying a few pence extra for a cup of 'fair trade' Mexican coffee might make you feel like a better person. Unfortunately, how you feel does not make the world a better place.
Thursday
Tonight I attended a very interesting event hosted by the Adam Smith Institute which commemorated the 25th anniversary of the abolition of exchange controls. Speaking at this dinner were Lord Howe and Lord Lawson, the people actually responsible for the action which set off a cascade of events not just in Britain but across the world. This in no small measure led to the second age of globalisation in which we live today. The third speaker, acting as the warm up act and comic relief, was yours truly.
Tuesday
So Kofi 'Food-for-Oil Scandal' Annan has met with Tony Blair to discuss an eight point programme for setting the world to rights.
I am appealing to the Chancellor and the UK government to use the upcoming UK presidencies of the G8 and the EU to work for the necessary political breakthrough and the additional resources needed to achieve those goals.
The only way political breakthroughs are going to lead to an end to poverty is when political leaders do a great deal... less.
Friday
Catching up with Croziervision, the other day, as you do, I came across this posting, which contained a kind reference to something I had said, which on further investigation proved to be an essay by me, attached as a comment to something Patrick himself had written earlier. There is nothing like the blogosphere for prodding you into writing, roughly and readily but as best you can, That Thing You Are Always Talking About.
Patrick did this to me by himself sketching out the Hockey Stick Theory thus:
What the hockey-stick model says is that often when the state intervenes whether by nationalisation, subsidy, taxation or regulation it will, every now and then, for a short time, improve matters. Then things start to deteriorate and eventually they end up even worse than they were in the first place. And the hockey stick? Imagine an (ice) hockey stick standing on a level surface. The blade represents the short up swing of state intervention and the handle the long subsequent down swing. I suppose to get the model just right you have to imagine the handle burying itself into the ground.
Or to put it another way, the state does this:
And, thus prodded, I then amplified, in the manner that follows. At the end, I even said that I ought to copy and paste this stuff into a Samizdata posting, but then I forgot about that. Now here it is. What follows is basically what I originally put in that comment, but I have changed a few things and added another hockey stick, so no italics.
The shape of the graph you have clearly, but the reason for its shape could use a bit more clarification. It is essentially a matter of knowledge. Markets enable knowledge to be found. Price signals enable lots of people to discover what punters want, and it is this knowledge that the politicians begin their reign by making big use of. As a result, lots of punters get what they knew they wanted, but just had to pay less for it. This applies both to producers and consumers.
Although, whether this is a straightforward improvement for all concerned (such as the millions of taxpayers who together pay for this massive improvement for a few thousand) is open to doubt, but it definitely is improvement for the few thousand.
But then, the knowledge flow supplied by price signals gradually dries up, and eventually the government operation stops doing anything that anyone wants except the people in the government operation and in due course not even they. That's an exaggeration, but only somewhat. By the end of a truly awful nationalised industry, nobody has any clue about what constitutes an improvement. The only result is that money, more and more of it, gets spent.
The other application of the hockey stick curve is that when a market truly opens up, there is an equal and opposite tendency.
A new market is chaotic, and (and this is the point) ignorant. People do not, e.g., know how to spot cowboy operators, or bad products made in all sincerity but badly. Ignorance and foolishness abound, and so to start with, down goes the graph of achievement. But then, if this really is a true market, things bottom out and start to improve and in the longer run the result is a market that is orders of magnitude better than the government could ever have managed.
Or to put it another way, free markets do this:
This helps to explain the (to many libertarians) baffling popularity of statism and baffling unpopularity of markets.
In the short run, for those in the immediate vicinity of the decision, state action really can be better and markets really can be very bad. And people with problems (regular people who get active in politics always have problems) do not have time to endure short run chaos so that they can later benefit from longer term excellence. So even if people fully understand the long term benefits of markets, they may still oppose them because of the short term costs.
However, often people find themselves living in the long term decline phase of government activity and then, even though markets will not immediately improve things, they will still favour markets because their only choice is: more misery now and even more misery later (government), or more misery now and the prospect of improvement later (market). The graph of goodness is going down now so fast that even the initial further downward movement of a new market (sticking hockey stick two on the end of hockey stick one, with the hook at the bottom of hockey stick 2 starting where the handle of hockey stick 1 ends) is worth living with, because long term benefit is all there is in the way of good future news. Things will either get worse before they get better, or, in David Carr's wonderful phrase from I forget where, they will get worse, before getting even worse than that. Those are the choices. In that world, it is the statists who are liable to be baffled by the mysterious willingness of people to tolerate free market reforms, as people pretty much have in the luckier parts of Eastern Europe. This was a classic illustration of people preferring (to switch metaphors from sports to food) jam tomorrow to no jam tomorrow, with no jam today being offered by anybody.
Something rather similar happened in Britain in the early nineteen eighties. In Britain at that time it was universally 'known' that Thatcher's refusal to keep on bankrolling failed industries was an unendurable horror. Yet so many voters saw the point of such an attitude that this is now the new orthodoxy.
I am grateful to Patrick for having stirred me into writing this down, and further grateful to him for having reminded me about having done so. Sorry about the weird shapes of the illustrations pictures. There are things I know how to do with Photoshop, and there are things like this. It was important to get the hockey sticks at the correct angles.
Thursday
The socialist charity and political lobbying group Christian Aid, has a new campaign called Vote for Trade Justice.
Free Trade: some people love it.
Imagine getting mugged after a tough day's work.
Every. Single.Day.
By the same muggers.
Grind you down, wouldn't it
That’s what it’s like for people struggling to make a living in the world’s poorest countries. Why?
So called Free Trade. Our government claims Free Trade is the solution to the world's problems. But that's exactly what you'd expect them to say. Why? Because it allows the world's richest countries and their fat cat companies to profit.
Ok, so let me get this straight... Western farmers, their operations subsidised with other western taxpayer's money and their own domestic markets distorted by 'protective' tariff barriers which increase the price of imports, sell to African countries and that is... Free trade? FREE TRADE?
What the hell is free about it?
Western agricultural producers are a nightmarish mix of tax subsidy and production quotas, with bizarrely priced surpluses that are occasionally and erratically dumped on Third World markets... and at the same time western consumers are denied access to both First and Third World products at their true economic cost by a vast raft of arcane state and super-state imposed regulations. Please explain who exactly is engaging in laissez faire here. The only intelligent bit is calling it "so called" free trade.
The problem is that vested economic interests (big business and big labour) have zero interest in free trade. They do not give a damn about the Third World, all they see is the extremely low labour costs in the developing countries and what that implies for their own narrow sectional interests... and they have the state to protect those interests with laws.
So is Christian 'Aid' screaming "Remove all tariffs to imports NOW"?
Of course not. They are calling for an end to "Free Trade". What is needed is not democratically sanctified politically managed trade (which we have now) but real, genuine, non-government regulated free trade. The fact that Kenya actually does manage to sell significant quantities of very high quality green beans in Britain is a testament to how some people will succeed in spite of western regulatory systems which would rather their producers just lived in abject poverty and that westerners pay more for their food than they need to.
If Christian Aid really cared about people in the Third World rather than just posturing for their own self-important gratification, they would be demanding true laissez faire free trade in which low labour cost agricultural nations could take on the western open air industrial chemical factories, sorry I mean farms, without having the state/super-state controlling access to the target market tilt the scales against them.
Demand for more 'organic' produce increases by the year and many Third World countries are well suited to serve that premium high margin market. That is where the foolish self-appointed Paladins of the Oppressed should be directing their attention rather than calling for mere tinkering with the statist system of trade controls that is so integral to the problem in the first place.
With friends like Christian Aid, people in the developing world do not need enemies.
Monday
Perhaps it is just sloppy editing or slipshod reporting that turns what is supposed to be a serious news article into an exercise in bladder-evacuation. Or perhaps it is meant to be funny?
Who knows? Just enjoy the results:
The leading showbiz lights of the anti-globalisation movement descended on Venice this weekend, amid complaints that the world's oldest film festival has sold out to the Hollywood glamour industry.
Surely, if they wanted to oppose globalisation they would be better off staying put?
Actor Tim Robbins and author Naomi Klein will tomorrow launch the Global Beach, an alternative "festival" down the road from the main event, which is expected to get the backing of actor-director Spike Lee and gay indie-punk star Gregg Araki.
Oh, that Gregg Araki. Illustrious star of such notable films as...er, give me a minute here...
Both Robbins and Klein are noted critics of Hollywood mores and of the failure of actors to criticise their corporate bosses.
That may have something to do with the lear jets and limos provided by those corporate bosses.
Naomi Klein flew in yesterday morning to promote her film The Take, an account of a co-operative business set up by Argentine workers after the 2001 economic collapse, directed by radical Canadian journalist Avi Lewis.
With action, adventure, thrills, spills, ingenious plot twists, dazzling special effects and a stellar cast, 'The Take' is set to be the blockbuster hit of 2004. A total sell-out everywhere. Queues of film-lovers round the block. Get your tickets now!
Supporters of the Global Beach project caused disturbances at the premiere of The Terminal, directed by Stephen Spielberg and starring Tom Hanks, which opened the festival on Wednesday. Members of the group parked a car disguised as a pirate ship near the red carpet, a protest, one of them claimed, against "ostentatious show of Hollywood wealth and power".
Wow! A car disguised as a pirate ship. That is so...significant: a devastating critique of crass commercialism that will really force people to sit up and take notice.
They are not actors, they are clowns.
Thursday
Recently the IEA sent me a flier about this book in praise of globalisation, and I went round there and bought a copy from them (at an enticingly reduced price – thank you Adam). That second link is to an IEA review of the book. So far I have only read the Introduction, so I cannot offer you a review of my own, but already I am impressed.
I found especially interesting what the book's author Martin Wolf had to say about the World Bank, and about its boss at the time that he worked for it, Robert McNamara.
For some reason I have never really paid proper attention to the World Bank. I knew that I was vaguely against it. I suspected it of doing too many of the things that the globalisers who are the target of Wolf's book still complain about it not doing. But I had never really got to grips with the story. So this bit of Wolf's Introduction really struck home to me:
By the late 1970s, I had concluded that, for all the good intentions and abilities of its staff, the Bank was a fatally flawed institution. The most important source of its failures was its commitment to lending, almost regardless of what was happening in the country it was lending to. This was an inevitable flaw since the institution could hardly admit that what it could offer - money - would often make little difference. But this flaw was magnified by the personality of Robert McNamara, former US Defence Secretary, who was a dominating president from 1967 to 1981. McNamara was a man of ferocious will, personal commitment to alleviating poverty and frighteningly little common sense. By instinct, he was a planner and quantifier. Supported by his chief economic adviser, the late Hollis Chenery, he put into effect a Stalinist vision of development: faster growth would follow a rise in investment and an increase in availability of foreign exchange; both would require additional resources from outside; and much of these needed resources would come from the Bank. Under his management, the Bank and Bank lending grew enormously. But every division also found itself under great pressure to lend money, virtually regardless of the quality of the projects on offer or of the development programmes of the countries. This undermined the professional integrity of the staff and encouraged borrowers to pile up debt, no matter what the likely returns. This could not last – and did not do so...
Wolf's next paragraph starts predictably:
By that time I had had enough...
But then Wolf goes into a bit of detail, on the subject of India.
... I had worked on India as senior divisional economist for three years. During that time, my chief function, so far as the Bank was concerned, was to justify the provision of significant quantities of aid, even though this money was helping the government of India avoid desperately needed policy changes. As it turned out, those changes were made in a midst of a deep foreign exchange crisis in 1991, almost two wasted decades later...
And then Wolf hammers home the further point that his Indian experiences illustrate:
Unfortunately, lending too much was not the Bank's only fault. It also had to lend to governments. This had two undesirable consequences: it had to assume that the government represented the interests of the country; and it reinforced an unjustifiably collectivist view of that national interest. Bank lending made it easier for corrupt and occasionally vicious governments to ignore the interests and wishes of their peoples. By the end of my time at the Bank, I came to the conclusion that its borrowers fell into three categories - those that did not need the help; those that would not use the help; and those that needed the help and would use it. The Bank was constitutionally incapable of concentrating its efforts on this third, often quite small group. As a result, its efforts were often either unnecessary or wasteful. I therefore came to agree with most of the criticisms of aid that had long been made by the late Peter (Lord) Bauer.
Who he? (As the IEA's former editorial supremo Arthur Seldon would say.) He.
Wolf continues:
The realization that the institutions designed to oversee aspects of the global economy might fail, even though integration was an important element in successful development, has stayed with me to this day. To defend a liberal world economy is not to defend the International Monetary Fund, the World Bank, the World Trade Organization or any specific institution. These must be judged - and reformed or discarded - on their merits...
The important thing to understand about foreign aid (which is what stupidly soft loans are) is that they do not merely fail to do good. They do active harm. They help to keep in place destructive policies and to keep in office vicious and destructive politicians and officials which and who might otherwise have been done away with. They do bad.
And the World Bank is all part of that sad story, and a very big one I should imagine.
Apologies if I am the last person who writes for or who reads Samizdata.net to have heard this item of news. But no apologies for posting what Wolf says about it, because he is not just saying it, on a blog or something. He is saying it in a big and important book which has the air of establishment-think about it. So the news here is not just that the World Bank is harmful and dangerous, but that People Who Matter are starting seriously to realise it. This is very good news indeed.
Wednesday
It would be fair to say Conrad Black's spectacular and much publicised difficulties are being presented by him as a struggle between a capitalist libertarian (yay!) versus evil regulatory statists (boo!)...
The name-calling between the parties has been ugly, however, with Lord Black filing a libel suit in Canada against Mr Breeden and other Hollinger International directors, accusing them of waging a "campaign of defamation". He was being persecuted by "truly evil people", among them "Breeden and his fascists", who represent "a menace to capitalism as any sane and civilised person would define it", he complained in court documents.
But is that indeed the case? I am in no position to judge the truth or otherwise of the specific allegations but it seems to me what is at issue here is did Black (et al) fail in their fiduciary responsibility to the shareholders for whom they were actually working? Moreover, did were those shareholders actively defrauded by Black and his colleagues?
Again, I have no idea but I would be very leery of assuming this matter has any first order ideological dimensions at all.
Thursday
The one thing I know government is good for is countervailing against monopoly. It's not great at that either, but it is the only force I know that is fairly reliable. But if you've got a truly free market you only have a free market for a while before it becomes completely regulated by those aspects of it that have employed power laws to gain a complete monopoly.
The above paragraph appears in the latest edition of libertarian magazine Reason, one of the best and most thought-provoking mags out there in my opinion. The quote is taken from John Perry Barlow, veteran campaigner for civil liberties issues, scourge of government attempts to invade privacy, and a writer of lyrics for none other than the Grateful Dead.
And yet the above quotation is to my mind a piece of economic illiteracy so bad that I was rather surprised that the Reason interviewer, Brian Doherty, let him get away with his assertion about the free market so easily. However, where Reason failed, Samizdata can step in.
First off, when Barlow talks of 'power laws', what exactly does he mean? If he means stuff like draconian copyright laws, or licencing privileges to shaft potential competitors, then surely such things are the creation of governments and not a feature of a 'free market'! Most of the restrictions on competition which bar entrepreneurs from entering a field were created by governments in response to business lobbying. That is clearly a bad thing, but it is weird for Barlow to suggest that the remedy to such abuse of power is to 're-regulate' the market to somehow make it freer. The solution to the problem is surely to cut the state down to size so that it cannot disburse such corporate welfare privileges to vested interests in the first place.
In holding this view, Barlow makes the classic mistake of so many folk who think they have discovered a fatal flaw in capitalism in that some sectors of an economy get to be dominated by one or two major businesses such as Microsoft or the aluminium firm Alcoa. "Monopoly!", they cry, before demanding anti-trust style laws to break up businesses into smaller, supposedly more 'perfectly' competing bits. (Yes, I know Microsoft's particular circumstances are open to many legitimate attacks - I am not an apologist for them, in case commenters bring this up). This view is based on the failure to grasp that just because a firm has X percent of a market share and is very big, it is therefore somehow able to coerce folk into buying its products. However inconvenient it may be for me to avoid using the products of Bill Gates, say, I can do so. Microsoft or General Motors do not force me to buy their services at the point of a gun.
Another mistake linked to this confusion about monopoly is the failure to see that competition is not a state of affairs desirable for its own sake, but rather a dynamic process in which economic actors like businessmen are trying to figure out new and better ways to satisfy demands and also to come up with goods and services previously unthought of. At any one freeze-frame of an economy, there will be big, mature businesses fighting to hold their ground and operating on thin profit margins; medium-scale firms still posting sharp growth, and embryonic small fry waiting to burst into the scene. If a big firm with a large market share takes its eye off the ball for a second, it quickly can be overtaken by a previously unkown upstart, as indeed happened to IBM and other firms once thought to be invincible by critics like Barlow.
Big businesses are often the worst defenders of free markets, and are often only too keen on spending millions of their shareholders' money in lobbying for tariffs and other cushy deals from the State. But to expect the State, given its terrible track record, to make the market more "free" is one of the dumbest delusions there is.
Addendum: Thomas Sowell's excellent Basic Economics is a good place to clear up the sort of economic fallacies such as Barlow's.
Thursday
Michael Hardt and Antonio Negri (a sympathiser of Italian terrorist organisations in the 1970s and imprisoned as such) wrote Empire, a book that purported to demonstrate a new concept of Empire sans imperialism, engaging with the ongoing march of globalisation. This book came to my attention at its publication when Hardt was interviewed on Radio 3; since the BBC viewed post-Marxist critiques and other explorations of jargon as vital contributions to high culture. It was theory-laden and empirically light, a strange attempt on the part of the Left to accept a 'theory of globalisation' by condemning all nationalism as reactionary. Even the Marxists found this theoristic verbiage too much to take.
Still, old Reds have never lost their airbrush, as this quote demonstrates:
The legacy of modernity is a legacy of fratricidal wars, devastating "development", cruel "civilization" and previously unimagined violence. Erich Auerbach once wrote that tragedy is the only genre that can properly claim realism in Western literature, and perhaps this is true precisely because of the tragedy Western modernity has imposed on the world. Concentration camps, nuclear weapons, genocidal wars, slavery, apartheid; it is not difficult to enumerate the various scenes of the tragedy....Modern negativity is located not in any transcendant realm but in the hard reality before us: the fields of patriotic battles in the First and Second World wars, from the killing fields at Verdun to the Nazi furnaces and the swift annihilation of thousands in Hiroshima and Nagasaki, the carpet bombing of Vietnam and Cambodia, the massacres of Setif and Soweto to Sabra and Shatila, and the list goes on and on. There is no Job who can sustain such suffering!
Can you see the "hard reality" that they missed?
Wednesday
Over on the Adam Smith Institute blog, there is another article on why outsourcing ends up actually creates job in the country doing the outsourcing. The author makes the obvious statement that:
Machine diggers took the jobs of workmen with spades. At the time, there were people who objected. But on that basis, should we create jobs by replacing each man with a spade with 50 men using teaspoons? Despite specific jobs being lost, the total number of jobs has increased.
Quite! This seems an emotive subject for those who fear their jobs will end up in India but as the comments on this blog have demonstrated when we have discussed outsourcing in the past, it is hard to make a convincing argument that outsourcing is anything other than a positive thing for an advanced western economy.
Tuesday
One of the interesting but un-noticed thing about world affairs is that, for all the wealth that traffic in oil is able to generate, the nations that produce it are not high up on the list of nice places to be. Not many people consider Saudi Arabia, Iran, Nigeria, or Russia to be desirable places to go for a holiday, never mind live. In an odd twist to the old folks tale that 'money won't make you happy', it is pretty clear that oil wealth is not particularly useful in solving the problems of a nation.
Nancy Birdsall and Arvind Subramanian did notice it however and wrote a 5,000 word essay on the subject, with Iraq in mind, for Foreign Affairs magazine (preview here) What they noted was that oil wealth tends to corrupt the state, and since it has an easy stream of revenue at its disposal, it does not have to work so hard at gouging its citizens. So it also has no incentive to promote property rights as a way of creating wealth. And those that control the state, control the wealth.
Therefore, you get the distressing sight of the President of Chad spending the first instalment of his country's oil wealth on a new Presidential jet for example. More recently, in Russia we see President Putin using state power to attack the oil-enriched oligarchs. And Nigeria seems to have been actively impoverished by its oil wealth, as the 'Pirates in Power' have skimmed $100 billion over the years. Oil wealth is not particularly healthy for democracies, either.
How to escape the curse? Merely privatising the oil sector does not work very well in states where the concept of 'property rights' is a shaky one at best (see Russia). Another attempt has been to create special 'oil funds' with constitutional restrictions on the way the money is used. This has been used in many different places. But again, the strength of the rule of law is the decisive thing. Chad had a 'oil fund' but the President still got his airplane.
Birdsall and Subramanian instead advocate the novel idea of distributing the oil wealth directly to the citizens. This means that every citizen of the nation gets an annual cheque from the oil company. For Iraq, this idea has many wonderful features. In the first place, Iraqi citizens get a real stake in their government, and will be not inclined to support Islamist or separatist groups who wish to smash the state for their own nefarious purposes.
Secondly, all Iraqis get the same cut. A struggling farmer, a Mad Mullah, or an educated doctor- each of them get the same thing. No complaints about the system getting rorted in favour of one ethnic group or another.
And best of all, ordinary Iraqis will get prosperous at the expense of the government. There will not be rivers of gold for a class of local 'social planners' to waste, and the government will have to work hard to sell the need for tax increases to fund their operations. This means that citizens can look the state in the eye. And tell it where to get off, too.
Monday
Keynesian economics may have gone out of fashion, but it is still here with us today in a different form. That is the theory of ASI president Madsen Pirie, who writes that Keynesianism has been privatized by the current UK government.
Keynesian economics used to be about government spending being used to flatten the business cycle. Now the privatized Keynesianism is about pushing private citizens into doing it. As Pirie writes:
They make saving less worthwhile by burdening companies with taxes and regulations, depressing share prices. They make spending easier with lower interest rates and by measures which boost house prices and encourage people to borrow.The privatized Keynesianism builds up indebtedness and inflated house prices, and cuts into investment and pension provision. Government hopes that the boom part of the cycle will come to the rescue, and that rising wealth and prosperity will solve these problems.
Or will the privatized Keynesianism inflict the same long-term damage on the economy that the old Keynesianism did?
Tuesday
How slow can an object in motion be?
A special interest group returning taxpayers money?
A bureaucrat accounting for his travel expenses?
International trade negotiations?
There has actually been progress in the latest round of WTO talks, as serial offenders the EU and the US have finally agreed to remove export subsidies on agricultural products, and to lower domestic subsidies as well. Not too much can be read into this- the Economist report states:
The agreement leaves much of the detail to further negotiating sessions, and trade wonks are greeting it as only a minor success that takes negotiators perhaps halfway towards a final Doha-round deal. But it is progress.
There is still so much to be done. Japan, for example, maintains a 490% tariff on rice imports.
Nations which have already woken up to the fact that free trade is a good thing have been more proactive. Australia, for example, has signed a free trade agreement with the US, which goes with similar agreements with New Zealand, Singapore, and Thailand. There is no doubt that these agreements, while useful, are a poor substitute for genuine international trade liberalisation, but they are still progress, at least for those willing to give Free Trade a chance.
Monday
One of Spain's top banks, Santander, is making a bid to buy the British banking firm Abbey plc, the mortgage lending firm which used to be a building society (what Americans would know as a Savings and Loan).
I do not have much to say about the specifics of the deal. It is all a part of the merger, acquision and disposal process which is a healthy part of capitalism and the efficient allocation of scarce capital. Maybe the shareholders of either firm have strong views on the matter but I do not. However, what is interesting to me is what this deal says about Spain's development as an economic power.
Spain is one of the success stories of the past few years. When I went to the glorious city of Barcelona last year I was struck by how prosperous and dynamic the place was. I hear and read similar impressions from other sources. Much of this has to do with the determination of Spanish entrepreneurs to throw off the shackles of former failed socialist policies and embrace a more liberal economic culture, which former centre-right premier Aznar helped spawn. Let us hope the new socialist government elected earlier this year in rather shameful circumstances after the Madrid bombings does not mess it up.
It would be a grave error to infer too much from the acquisitive activities of a Spanish bank in Britain. But I get the feeling that this grand old nation is flexing its economic muscles again, and who knows, making a distinct improvement to the quality of Britain's economy while getting richer as well. Good. It feels appropriate somehow. There are hundreds of thousands of British expatriates living in Spain so it perhaps fitting that Spain's biggest companies are trying to get a piece of the action in the UK.
(As an aside, I would like to know what the Spanish-based blog Iberian Notes makes of this).
Wednesday
Now where did that come from?
Japan's economy is actually growing at more than a statistically obvious rate for the first time properly since the 1980s. The fact that a heatwave is being credited with boosting business leads to the obvious conclusion.
Global warming is Good for Capitalism. Light those brown coal fires now! Chop down those hedgerows! Hunt those whales! Bring back leaded gasoline!
Friday
There is a tax strike in Lebanon against government levies on mobile phone charges.
This is pure supply-side economics coming from Zuheir Berro, the president of Consumers Lebanon:
Berro also refuted allegations that the government needed to charge high fees to insure more income. "This is a random policy which will get us nowhere," he said. We still have a very high capacity for subscriptions and if they lower the fees, then subscriptions will multiply," he added.Lebanon has a 24 percent level of subscribers, compared to over 80 percent in industrialized countries, according to Berro.
The high subscription and communication fees, according to the group, are hindering the country's development and investments.
Meanwhile British MPs are demanding extra local taxes, in addition to the existing local property and business taxes because it is the key to 'democracy'.
Thursday
It is always refreshing to read an article trashing state intervention only to read in the by-line at the end that the author is a candidate for the State of Massachusetts' Senate.
Going back to look up James D. Miller's bio details, I see that he is 'Assistant Professor of Economics, Smith College'. My ignorance of the American education system is profound. Yet it seems to me that this is not the profile I would expect for a British economics professor. A candidate for political office who publicly calls for less state intervention, and does not even ask for more tax money in education! We used to have one or two or those.
I am especially intrigued by Mr Miller's references (linking to Thomas Sowell) to the two earthquakes in California and Iran during 2003. The reason fewer than 10 people were killed in a Californian earthquake measuring 6.5 on the Richter scale, whereas 28,000 were killed by a 6.6 Richter earthquake in Iran? One word: wealth.
I really must read more Sowell. And thank you James D. Miller for an educational article.
Friday
It takes a lot to make me doubt the benefits of the free movement of people, money, ideas, goods and services. But a new report published by the Centre for the New Europe raises some questions about parallel trade in the European Union.
In today's Wall Street Journal, Stephen Pollard explains the harm that can be caused by the re-exporting of pharmaceuticals from a country such as Spain, where regulated prices are low, sometimes under different labels and with inaccurate expiry dates, to countries where prices are regulated higher, such as Germany and the UK.
Until now my own view has been so what?
If a company sells products in two countries at different prices then an entrepreneurial opportunity may exist for traders to exploit. Demand in the cheaper country goes up, pushing up prices there, and supply increases in the more expensive country, pushing prices down. We may not see equal prices everywhere because there may be other factors affecting costs: land prices, distance, demographic differences, even the cultural acceptability of using medication. But with price controls in the various countries, the market process is subverted: increased demand in Spain does not lead to higher prices and increased supply does not produce lower prices in Germany (except possibly in the 'informal sector').
The EU appears to be promoting the compulsion to sell the same product everywhere in the EU, which is a violation of a person's right to choose to sell or not. So what I would at first glance dismiss as special pleading by a corporate lobby turns out to be an anomaly. The CNE estimates that more than 3 people could be dying every two hours as a result of these regulations.
If the EU really wants freer trade, it should start by challenging the price control systems of its own member states.
Sunday
David Smith, the economics editor for the Sunday Times, has a splendid article on his personal blog, Economics UK, about why the Eurosceptic approach is the economically rational one.
Britain’s unemployment rate, on a comparable basis, is 4.8%, against 9.4% in France and 9.8% in Germany. Unemployment stands at under half the EU average. Per capita gross domestic product in Britain, according to a new report from Capital Economics, is higher at $30,200 (£16,440), than Germany’s $29,200 or France’s $28,500.The economic momentum is with us. Britain has been growing continuously for 12 years, during which time other EU countries have suffered at least one recession and in some cases two. The sick man of Europe has made a remarkable recovery.
Of course the economic argument for Britain being in the EU (as opposed to some EFTA-like agreement) was always tosh. Switzerland anyone? It is now highly visible tosh.
Here on Samizdata.net we may decry the regulatory idiocy of the Labour government but clearly things are even worse in Euroland, and at least if more sovereignty is maintained at the UK level, more of the damage can be undone at the UK level rather than locked in by remote stasis oriented Europe wide institutions. All the EU has to offer is corruption, stagnation and regulation. No thanks.
Friday
I recommend this article about the Organization for Economic Cooperation and Development (OECD).
It reminds us here, if any of us need reminding, that even if we do manage to shake our country loose from the EU, there is still a ghastly alphabet soup of international organisations lying in wait for us.
Representing mostly high-tax European nations, the OECD thinks it is unfair when jobs and investment move from high-tax to low-tax nations. The bureaucrats are particularly upset that so-called tax havens provide a refuge for oppressed taxpayers from welfare states like France, Germany, and Sweden. As part of its anti-tax competition project, the OECD met in Berlin for a two-day conference during the first week of this month, hoping to bully tax havens into helping high-tax nations track and tax flight capital.Using various threats, the OECD is pushing low-tax countries into providing information about nonresident investors to foreign tax authorities, meaning that any benefit of investing elsewhere disappears once European tax collectors can impose taxes on money invested outside their borders.
Acting as the Gambino family of the tax world, the OECD has pressured places like Anguilla and Panama to sign "commitment letters" pledging to participate in something called "information exchange" – an odd term for a one-way flow of data from "tax havens" to high-tax governments.
The writer of this, Joel Mowbray, focuses on the US contribution of $50 million per annum to this evil enterprise. But what this makes me think of is the fact that, following their recent electoral success, Britain's UKIP is now being challenged by its enemies to work out some other policies, besides merely saying a big NO to the EU. And I say to such challengers, be careful what you wish for.
Monday
To think that I was one of those deeply ill-informed people who thought that 'resistance' was merely the the ratio of the potential difference across an electric component to the current passing through it.
Mea culpa. Mea maxima culpa. I was so wrong:
RESISTANCE means saying no. No to contempt, arrogance and economic bullying. No to the new masters of the world: high finance, the countries of the G8, the Washington consensus, the dictatorship of the market and unchecked free trade. No to the quartet of the World Bank, International Monetary Fund, World Trade Organisation and the Organisation for Economic Cooperation and Development. No to hyper-production. To genetically modified crops. To permanent privatisations. To the relentless spread of the private sector. No to exclusion. No to sexism. No to social regression, poverty, inequality and the dismantling of the welfare state.No to the abandonment of the South. No to the daily deaths of 30,000 poor children. No to the destruction of the environment. No to the military hegemony of a sole superpower. No to "preventive" war, to invasion, to terrorism and to attacks on civilians. No to racism, anti-semitism and islamophobia. No to draconian security measures. No to a police state mentality. No to dumbing-down. To censorship. To media lies. To manipulative media.
Resistance also means saying yes. Yes to solidarity between the six billion inhabitants of this planet. Yes to the rights of women. Yes to a renewed United Nations. Yes to a new Marshall plan to help Africa. Yes to the total elimination of illiteracy. Yes to an international campaign against a technology gap. Yes to an international moratorium that will preserve drinking water.
Yes also to generic medicines for all. To decisive action against Aids. To the preservation of minority cultures. And to the rights of indigenous peoples.
Yes to social and economic justice. And a less market-dominated Europe. Yes to the Porto Alegre Consensus. Yes to a Tobin tax that will benefit citizens. Yes to taxing arms sales. Yes to writing off the debt of the poor nations. Yes to banning tax havens.
To resist is to dream that another world is possible. And to help build it.
Got that? Good. Excellent. Carry on.
Saturday
...3 days later than last year. The Adam Smith Institute has announced that this year's Tax Freedom Day will be tomorrow, 30th May 2004.
The ASI calculates this every year, providing a useful measure of one of the ways in which the state reduces liberty, destroys wealth and lowers overall living standards.
As usual, Tax Freedom Day attracts quite a lot of media coverage from the usual suspects. I wonder if any voters are actually noticing?
Sunday
My local church magazine, Connections, has taken to promoting economic illiteracy in every issue. So when a copy of the magazine landed in my house today, I decided to write a letter to the editor:
I am afraid the coverage of 'trade justice' in the May issue of Connections was based on economic illiteracy. The fact is that it is not in poor countries' economic interests to do what is preached in the name of 'trade justice'. The protectionism that the Connections article advocates does only one thing: prevent poor countries from getting richer.
Import barriers make it more expensive for poor people to afford to buy new machines that will enable them to increase production; they decrease access to medicines; and they raise living costs. When poor countries have tariffs, they reduce the purchasing power of their citizens' money, making them poorer. How is it just for governments to make poor people buy more expensive products?
When 19th century Britain unilaterally cut tariffs, we experienced unknown levels of economic growth. When post-WW2 Hong Kong unilaterally abolished all imports barriers, it speedily became rich despite having virtually no natural resources. All countries that have adopted free trade and free markets have become rich. But those countries - like Chad, Bhutan and Burundi - which adopted the ideas of 'trade justice' have remained some of the poorest and most unpleasant countries in the world to live in.
The article suggested poor countries should regard exports as good but imports as bad. This is known as mercantilism, and was a popular view among the educated in the Middle Ages. However, two economic breakthroughs in the 18th century debunked this view. The first was the law of absolute advantage, discovered by Adam Smith. This was later developed by David Ricardo into the law of comparative advantage. It is truly incredulous that Christian Aid is still promoting mercantilism in the 21st century.
The supporters of 'trade justice' may have the best of intentions, but far from helping the plight of the poor and needy, it makes them worse off. They are right that international trade is unfair, but this is not due to free trade, but lack of it. We need the European Union to abolish the Common Agricultural Policy, because it both makes us poorer, and also those overseas. But if poor countries want to experience decent economic growth, they need to liberalise too.
Monday
I spent a couple of hours at Tokyo Narita airport yesterday morning, changing planes on the way back from Sydney to London. Like many geeks people, I like to check frequently to check my e-mail / check the news / see if anyone has insulted me in the Samizdata comments section, so I wandered around the terminal looking for an internet terminal on which to do so. Narita is well served with such terminals, so I was quickly satisfied.
What is interesting here is that there are internet terminals provided by two separate companies here. The ones on the left are provided by a local ISP, and users are charged ¥100 (about £0.50) for ten minutes of use. The ones to the right are provided by Intel, and are free to use. The photograph illustrates that the usage patterns are indeed what would be predicted by the laws of economics.
It is actually quite common now to find free internet terminals for use in airport terminals, particularly in airside transit lounges where passengers may spend a few hours between flights. This is a relatively simple and cheap amenity for airports to provide to their customers, so they do. Often though, the airport does not even need to provide it: some technology company will set it up for free, in the belief that the sorts of people changing planes at major airports are the sorts of people they want to advertise their services to. As well as free internet terminals provided by Intel, I have also seen free internet terminals provided by Yahoo at Tokyo airport. (I have seen free internet terminals provided by Samsung at Sydney airport which never seem to be working - probably not a good way for the company to advertise itself). The good thing at Tokyo is that they seem to be willing to allow competition between various organisations that want to set up such terminals, and they apparently don't have to be free.
Which when you think about it makes a certain amount of sense. If you provide a good for less than the market price, access to the good will normally end up being regulated by queues and quotas (ie willingness to wait, and restrictions on the amount of the good you consume, regardless of how much you want) rather than by ability or willingness to pay for it. (The public health systems of the world, which are full of people waiting endlessly for medical care, are prime illustrations of this). In busy periods, queues are likely to form for the free terminals, and at that point people who really need to access the internet quickly are still likely to be able to do so if they are willing to spend money. And such people can then use the terminals for as long as they like, whereas time restrictions are normally placed on free terminals. (From this we can also conclude that the health system of Australia, in which people who are willing to pay more can jump the queues of the public system and have their healthcare done privately, is better than the situation in Canada, where private provision of healthcare is essentially illegal).
In practice though, I doubt the providers of the for pay terminals at Narita are making much money, simply because the provision of free terminals there is so good. Putting them behind security restricts their use to passengers, and therefore demand cannot grow in the way it does for many free goods. They may get some use at busy times, but I suspect not much. However, in certain other airports (for instance Singapore) where there are free terminals but not many of them, for pay terminals could (and do) also get a lot of use.
And in the case of healthcare, where demand is capable of growing completely out of hand if you eliminate price sensitivity completely, private provision that people pay for directly is the only way that anyone will end up with reasonable access to healthcare. Given that (unlike with free internet terminals) people are paying for the public health system out of their own taxes in the first place, the argument for eliminating most public health care and having proper price sensitivity from the start is pretty strong.
Sunday
I think I smell another variant of the real-work-unreal-work fallacy. You know the one I mean. It said, a few centuries ago, that making real, edible food was real work, but fiddling about with bits of metal was unreal. Then when fiddling about with metal starting to move to faraway places, fiddling about with metal (especially if it was heavy enough or hot enough to do you serious damage if you mishandled it) was real, but shovelling paper this way and that was unreal.
But now, hear this, a comment from Neal of Margate on a BBC report about the rise in Britain of working at home, made possible by the rise of broadband. I have already commented on this report at my Education Blog, because it will surely make home education easier, but that is another story. Here is Neal of Margate:
This infuriating subject is back, is it? Please do tell me, how should dustmen work from home? Street sweepers, can they work from home? Factory workers? District nurses? Casualty department staff?The only people who can work from home are those who do an unnecessary job. Can surgeons work from home? Ambulance drivers? Firemen? If you can work from home full time, you have a pointless job.
Maybe not, yet. (Although, give it a century or two …) But an offshore banker can work for the whole world from a West Indian island, on the beach, let alone at his mere home. But according to Neal, pure information manipulation counts for nothing. It has to be combined with, you know, doing something.
This Neal character has just got to be rabidly anti-capitalist. You couldn't believe in the benefits of markets and of the division of labour and believe stuff as daft as this.
So, it is good to know that something as seemingly benign as some people being able to get a day's work done without spending a couple of hours of what is left of the day stuck in traffic jams or crammed into metal tubes makes this particular anti-capitalist's brain hurt.
Friday
Nigel Meek draws the attention of readers of the Libertarian Alliance Forum to this leader in yesterday's Guardian. He is right to do so. It is short enough and good enough to be worth reproducing in full, which he does for LAF, and which I do for Samizdata now:
It is difficult to find anything in the European Union more perverse than its continuing subsidy of sugar. It fails every test miserably. It is economic madness since the EU is shelling out hundreds of millions of taxpayers' money - that could be used to reduce its growing budget deficit - to grow crops at a loss that could be better grown elsewhere. It is immoral because subsidies prevent poor countries from growing sugar that would create hundreds of thousands of jobs. It is also unhealthy because it is encouraging the subsidised output of a product that the World Health Organisation, courageously - in view of the vested interests attacking it - says we should be cutting back on.If the figures - published in a new Oxfam report, Dumping on the World, this week - were applied to any other industry, they would be laughed out of court. Oxfam claims the EU is spending €3.30 to export sugar worth €1, an almost unbelievable support of more than 300% - and that is only part of the elaborate welfare package bestowed on the industry. These hugely subsidised exports are dumped on developing countries, snuffing out potential economic growth that could enable them to work their way out of poverty. All they want is a level playing field. Is that too much to ask for? Oxfam - quoting World Bank figures - also claims that sugar costs 25 cents per pound weight to produce in the EU compared with 8 cents in India, 5.5 cents in Malawi and 4 cents in Brazil. The world price for raw sugar is 6 cents a pound. It is bizarre that European governments reconciled, albeit reluctantly, to call centres being subcontracted elsewhere will not let go of sugar output which, left to market forces, would long ago have migrated to the third world. Sugar producers, with twisted logic, use Brazil's low cost of output as a reason for retaining subsidies on the grounds that it will not be really poor countries benefiting, only the medium poor.
The simplest solution would be to abolish all agriculture subsidies, even though it would, in the short term, hurt a minority of poor countries that might lose out to the likes of Brazil. Once exceptions are granted, then everything is up for grabs, and trade and talks would be dragged down by interminable bargaining. If complete abolition is deemed impracticable in the short term, then at the very least Europe should commit itself at once to the complete abolition of all export subsidies, direct and indirect. Apart from the huge relief it would bring to poor countries, it would also restore Europe's long-lost moral leadership.
It would take more than one measure of this sort to "restore Europe's long-lost moral leadership", but if such an unattractive delusion is what it takes to get rid of these vile and murderous subsidies – yes murderous, because economic failure is a matter of life and death, especially when inflicted upon the very poor, then so be it. Apart from that, I see nothing here to disagree with.
I posted here last summer about this blog. It is still going strong, and the ideas embodied in it still seem to be having an impact.
A cynical attempt to reach out to the pro-free-trade blogosphere, which has to get a nod from the real operation, the Guardian itself, otherwise it just looks ridiculous? Maybe, but who cares? And I am sure that Mr kick-AAS means every word of it. Ancient proverb say: window dressing often take over shop. What matters is that this kind of thing is being said, right across the political spectrum.
Friday
One of the great things about blogging is that you can make a very small and modest point about a very large and immodest matter. Maybe X has something to do with Y, possibly. Maybe a large truth could be found by combining P and Q. I don't know what that something is, nor what that large truth might be. I'm just saying: maybe something, maybe some truth.
In that spirit, and provoked by this article about the rights and wrongs of genetic cloning, may I offer the thought here that the elaborate and highly developed tradition of thinking associated with the notion that the central planning of a national or even a global economy is not such a good idea as it once seemed to intelligent people, because of … all the usual reasons that readers and writers here are familiar with, might have something to say about the wisdom, and in particular the unwisdom, of genetic engineering.
Michael J. Sandel senses that there is something dodgy about going beyond the elimination of specific genetically inherited badnesses, that is to say illnesses, and into the territory of genetically programmed goodnesses, in the form of such things as greatly enhanced musical ability or much stronger muscles. I think he may well be right. Genetic goodness may turn out to be a lot more tricky – a lot more problematic, as modern parlance has it, to induce than many perhaps now assume.
I have always thought that genetic engineering will enable us to learn a lot. I now suspect however, that much of what we learn will of the sort that goes: "Well, that we should not have done!"
This distinction between genetically induced badness and angenetically induced goodness reminds me strongly of the distinction, familiar to most of us here, between the idea that government is okay when it sticks to removing or restraining obvious badnesses from society, such as crimes or foreign aggressions, but a lot less okay when it moves into the territory of encouraging goodnesses, in the form of such things as economic success, and (the big one now) health (by which I mean "public" health, a general disposition to be healthy in the whole population). Encouraging goodness in individual human bodies and minds by genetic means seems to me likely to be a process which will turn out to be illuminated by rather similar intellectual categories.
In short, our books about political philosophy may turn out to be great not just on the subject of political philosophy, but also to have a great and rather unexpected future in the area of "genetic philosophy".
Please do not misunderstand this as the claim that individuals do not have the right to genetically engineer their own genes. It is not that sort of statement. What I am getting at is that certain sorts of genetic alteration may prove to be extremely unwise, in the same kind of way that 'positive' planning of the economy has proved unwise. Economies are too complicated to be planned. Individual human bodies (and minds), I surmise, might, for genetic engineering purposes, prove similarly complex and intractable.
(As far as individual rights are concerned, one of the reasons I favour the right to genetically engineer is precisely to enable the world to discover the dangers of genetic engineering on a small scale, rather than on the kind of scale that might result from centralised government control of the process. Positive government planning, of societal goodness, plus genetic engineering done in a similarly optimistic spirit, strikes me as a uniquely toxic combination of policies, and "toxic" might not even be a metaphor there. The usual argument nowadays is that genetic engineering is too dangerous to be left to individuals. I say it may be too dangerous not to be.)
In my head, this is not even a half-baked idea. Insofar as it has merit, I am sure that others have had the same sort of idea. Insofar as it does not, I say in my defence: it was just a thought.
Tuesday
It is not often I quote Nikita Khrushchev in any context, but Al Qaeda is quite correct that western civilization poses a clear and present danger to their cherished notions of a universal social life centred on submission to God. An economically successful western civilisation underpinned by severalty and free intellectual enquiry is caustic to a civilisation based on the submission to non-rational ideas which are propagated by force. To put it bluntly, we will enervate them and eventually destroy them by gradual assimilation.
The best and brightest muslims are already hard pressed to not see the glaring practical and intellectual flaws in their societies and want better for themselves, and as a result there is already a small but fairly well integrated middle class of secularized American and Euro-Muslims who can be observed in the markets, cinemas, offices, pubs and bars of the west. But far more dangerous to the broader Islamist project is the example not of western thought but of western affluence and the ease and secular self-direction it yields.
The sheer material wealth of the more advanced west is almost guaranteed to subvert the broad masses who come in contact with it. The current difficulties in assimilating the lower parts of the socio-economic western muslim population should not blind us to the fact that western culture's corrosive effects on the Islamic world view really counts far more when they are felt in Peshawar, Ankara and Cairo than in Marseilles, London and Chicago. In that theatre of the war of civilisations our truly effective weapons are not the gunship helicopters, laser guided bombs and 5.56mm small arms being used in Iraq right now, but rather our cheap DVD players, Internet connections, music/porn/action videos and smorgasbord of good, accessible but inexpensive Tex-Mex, Thai, Italian and Lebanese foods that globalisation has brought us, etc. etc. I have made this point before but as we concentrate on the more local and violent issues being resolved in the streets of Iraq, it does not hurt to put it all in the broader context within which our enemies certainly see things.
It is the horror of this viral characteristic of western consumer culture which really lies at the heart of the antipathy of the Islamists to the west: as secular society and severalty is the true heart of our civilisation, by our very nature we cannot and will not just 'leave them alone'. It is not a matter of what western governments want to do, because western businesses and cultural influences will go wherever there are receptive markets and audiences. It is not a western 'conspiracy' to subvert Islam, merely the very nature of western civilisation at work. Short of turning the entire Islamic world into a hermit empire like North Korea writ large, the mullahs and ayatollahs cannot avoid their flocks hearing our siren songs.
Our weapons are varied and effective
Wednesday
How international trade works has always been a difficult sell for promoters of economics. Explaining Comparative Advantage is easy if you are holding a lecture, but less easy if you have only a sentence or two. I am reminded of the catchphrase of my economics teacher who would say: "Not everything in economics is intuitively obvious."
This is unfortunate. Mercantilism - and the neo-mercantilism put forward today by many NGOs - is deeply damaging, especially to the world's poorest who are "protected" by high import tariffs.
The current buzz-word in trade policy is "offshoring". Many people in Britain and America think it bad for their country. Yet offshoring jobs is nothing new. It is merely the specific jobs that are moving abroad is different. In the past, the jobs moving abroad were always changing. There is nothing new now. And each time people campaigned against losing jobs to overseas countries, Britain and America kept on increasing the total number of jobs in their economies. Opponents of offshoring do not have the evidence of history on their side.
Saturday
No doubt many readers of this site are of the libertarian persuasion after reading scholarly tomes by Ayn Rand, or Karl Popper.
Not me, though. I simply observed governments in action, and compared them to the workings of the free market.
One interesting thing I have observed over the years is that even governments who present themselves as 'friends' of the free market get the political urge to regulate, with the purest of motives, to 'help' the market along.
Markets aren't like that, though. Even the best intentioned meddling by governments have consequences that are undesirable. Consider the Australian government's well intentioned meddling in the Australian property market...
Australians, it must be said, have a long standing tradition of investing in property, rather then equities in private companies. It is a bit of a chicken-and-egg riddle as to whether or not investors were reacting to the tax code, or the tax code evolved to suit property investment.
The tax code in Australia has a provision known as 'negative gearing'. What this basically means is that if I go to the bank and borrow money to invest, the interest on that loan is tax deductible.
In practice, banks much prefer to lend to people who use that money to invest on property rather then shares.
Hillary Bray takes up the story
Negative gearing is not being driven by the investment return on rental property. Returns are better in both the share market, and also in sticking the money in an investment bank account. Rental property investment is entirely driven by its beneficial tax treatment.Having some method to encourage investment in housing is a good thing. However, the problem in Australia at the moment is that rental property investment is a consequence of the high rates of tax elsewhere in the system. The existence of a housing price bubble is evidence that the market is being driven by tax returns – not investment returns.
Negative gearing is tax effective because it allows people to lower their income to get below the top rate of tax threshold at the same time as they benefit from a capital gains tax levied at only half the top marginal rate.
The current housing price surge began almost as soon as the capital gains tax was lowered three years ago. ...
As the Reserve Bank pointed out, these two incentives are being made even more extravagant by the treatment of depreciation for rental housing. As the bank asked out loud, why are there depreciation allowances for appreciating assets?
The Reserve Bank’s submission to the Productivity Commission’s inquiry into house prices is basically saying that the extraordinary increases in house prices are in fact being driven by the Government’s fiscal policy – by the current structure of the taxation system.
So as a result of successive Australian governments tinkering to help the property market along, the result has been to send housing prices through the roof; to the point where it is now difficult for ordinary wage and salary earners (read voters) to afford a house in Melbourne and Sydney.
No doubt if the government had abolished the negative gearing provisions of the tax code when it halved the capital gains tax there still would have been substantial rises in the property market; that is the natural result of cutting the taxation of appreciating assets. The effect of leaving negative gearing intact is the market's self correcting mechanisms aren't able to kick in.
I would quibble, though, with Hillary Bray's contention that "Having some method to encourage investment in housing is a good thing." I do not believe that the state should favour one form of investment over another- all it should do is provide a climate suitable for all sort of investment and let the market decide the best place for capital to go.
The State is NOT your friend, even when it's trying to help you.
Thursday
It would appear from yesterday's UK budget, before my accountant gets through the smallprint, that Gordon Brown has decided one million small UK businesses hold just too many awkward voters to browbeat in one go. So he has only smacked us with a light tap rather than the full hammer of state retribution he was muttering about earlier in the month.
There is still a Section 660 court case, with a judgement due in June, where he may yet succeed in fully wrecking the small business sector, just as he managed to do recently with the UK film industry, and the IT contractor sector several years ago, with his IR35 measure, but I'll cross that bridge when we get to it.
What really puzzles me, however, is why whenever he deliberately introduces tax loopholes, to apparently encourage small businesses, instead of financial journalists just praising him in newspapers the damned small businesses actually take advantage of his faux largesse. Which means he has to get all moody and pompous before closing his own damned loopholes down again.
And of course, if it is so wonderful to sack 40,000 civil servants, or should I say re-badge 40,000 rent-seeking deadbeats as outside agency staff, just why was it so wonderful to take them all on in the first place, at the rate of 500 anti-smoking awareness counsellors a week, for a full seven years?
And just to round off this triplet of Keynesian fact-changing stupidity, if everything is going so well with the British economy, just why is it the Red King of Scotland is borrowing so much? I know I could live off caviar and Krug champagne if I possessed the ability to make the British taxpayer pay off my credit card bills, but I would certainly avoid bragging about it if I was morally bankrupt enough to try it. Somebody, somewhere, is going to have to pay the piper at some point, even if some in the private sector are currently working overtime to supply the government with goods and services paid for with money borrowed off future taxpayers. This gives Gordon apparent economic growth without the tax revenues you would normally associate with such growth, which is why he is reaching for the overdraft facility like Craggy Island's Father Jack would reach for the Black Bush whiskey after the end of Lent.
The difference between these two sons of the cloth is that Father Jack just gets drunk, whereas Gordon Brown gets drunk on the power of spending and wasting other people's money.
In conclusion, there are two answers to my general doublethink questions above. Gordon Brown is either the cleverest man in the world. Or, as Eric Morecambe might have once put it, the man's a fool.
I'll spare you the trouble of asking you to guess the direction in which my own opinion lies.
BTW, for any wavering Gordon Brown worshippers reading this, who are beginning to suspect it might just be the Eric Morecambe option, if you want to know why it is all going so horribly wrong for New Labour, read the Murray Rothbard article entitled The Myth of Efficient Government Service, where the whole shooting match is revealed with Uncle Murray's usual sure-footed conciseness and shattering clarity.
Spanking.
Thursday
You may not have noticed, but in the UK this week is Fairtrade Fortnight - that time of the year when we are encouraged to buy 'fair trade' coffee and other 'fairly priced' products. I spent Monday going on TV and radio shows explaining why the scheme is counter-productive, much to the fury of its supporters.
For a start, we should be realistic about the scheme's potential. In Britain, despite ten years of advertising, 97% of coffee sold is not on the scheme. Most consumers are likely to continue buying coffee according to cost and quality. Its potential for increasing wealth among coffee producers is thus extremely limited. Some argue that the scheme is taking us away from thinking about more radical solutions to poverty.
Secondly, the real problem with 'fair trade' is that it is based on economic illiteracy. The low price of coffee is caused by production increasing by 15% since 1990, and supply is bigger than demand. This cannot be blamed on multinational buyers of coffee. There are simply too many people employed in coffee production. With new technology, the price may well decline further. In Brazil, five people and a machine can do the work of 500 people in Guatemala. The low coffee prices are a signal to exit the market, or switch up to higher valye coffee.
'Fair trade' - though it helps some farmers - encourages people to stay in the coffee market and gives them confidence to increase production. That is all very well, but this has a downside. More supply means a lower price on the world markets. Perversely, 'fair trade' makes matters worse for the vast majority coffee producers.
Criticism of the multinational buyers of coffee abounds, but these people have probably done more to help the lives of coffee producers than 'fair trade' has - by promoting coffee drinking to members of the public, and putting trendy coffee shops everywhere.
Instead of 'fair trade', we should concentrate on real solutions. Like getting rid of the Common Agricultural Policy and EU tariffs, which limit the goods overseas producers can diversify into. And coffee producing countries need to make the economic reforms that enable enterprise to flourish. 'Fair' pricing schemes may sound like a good idea, but they fail the market test.
Monday
Equitable Life is a mess, that is for sure. The responsibility of making sure the people who look after your money can be trusted ultimately lies with the owner of the money... the pensioners, the beneficiaries of what Equitable Life actually does. However if fraud or other gross misrepresentation is involved, and not just incompetence, ineptitude or misfortune, then things do change somewhat as it becomes a criminal matter.
However Equitable Life is massively regulated, so many of its weird business decisions must be seen within the context of the weird distorted environment within which it operates...
So yes, there is an argument that as the state should therefore also be liable for the mess. But then if you accept that, given that the British economy grows more regulated by the day, that would suggest investors should be lining up to claim tax money from the state every time anything goes bust. After all, what makes Equitable Life's casualties any different from the casualties of any other business cock up?
Sunday
Occasional Samizdatista Malcolm Hutty recently emailed me thus:
Re your post on Samizdata a little while back about the fixed quantity of programming fallacy: if you're interested in an intelligent discussion amongst programmers about whether outsourcing programming to India is actually a successful commercial strategy (and under what conditions it might work or not work) look here.
Sample quote:
In my opinion you rarely can separate design and implementation, especially if it's not a totally standard system that you are going to implement, e.g. when your customers don't know exactly what they want. You have to have a very clear and quality design in order to be able to send the specs overseas for implementation. Most of the time you have a half-baked design when you start coding. You make a prototype, you try out this and you try out that, and you correct your design in the process. After a while you get confident in your design, and then you start coding full-speed. At this point you have stable specs, and you can outsourse things but it's too much of a hassle and overhead at this point, and maybe not worth the trouble at all. Most of the software projects have this kind of loosely structured overlapping design and implementation processes. It's not automated yet, we are still too chaotic.
As someone unburdened by much detailed knowledge of these matters, I say that a reduction in price will always have consequences. Pile it high and sell it cheap, and you will be amazed by the number of new purchasers who come forward, seemingly out of nowhere. Remember the days when there would only be demand for six mainframe computers. As cheaper computers materialised, people thought of steadily more things to do with them. And it will be the same with outsourcing. My guess is that outsourcing will not so much make certain already familiar types of software cheaper, but will make new kinds of software possible. The big impact will come not from the people asking: how can we do our stuff more cheaply? It will come from those asking: what software can we now do that will make use of outsourcing, which we could not do before?
But what do I know? Meanwhile, I am quite prepared to believe that making profitable use of outsourcing is a skill that has to be learned, and that outsourcing definitely has its pitfalls.
Sunday
Scott Wickstein takes a look at how farmers in so many parts of the First World get away with distorting trade at other people's expense, both via pocketing taxes and inflating prices in the supermarkets of Australia, Britain, Europe and North America
To the list of certainties in life, such as death and taxes, we can add the fact that farmers will clamour for protection and subsidies. That is not surprising, but what is surprising is that around the globe, governments of all persuasions, whatever their nature, are willing to obey the demands of their farm lobbies.
A typical example of this is the recently concluded free trade agreement between Australia and the United States. Much of the agreement is actually devoted to excluding certain products from free trade. One such product is sugar, which was excluded at the behest of the US sugar producers lobby. That exclusion, in turn, provoked such an outcry by Australian sugar producers that the Australian government felt obliged to provide subsidies for the Australian sugar farmers.
From these actions, one can conclude that the political clout of the US sugar producers is much greater then that of sugar consumers, such as confectionery manufacturers. And yet, this is but a manifestation of a trend which is global. All over the world, governments are all too willing to knuckle down and obey the demands of their farm lobbies. That politicians do this, and run the risk of enraging urban electorates, speaks volumes about the organization of farm lobbies, and, indeed, it also shows how disorganised free trade proponents are.
These guys know all the tricks. In Japan, the rice farmers are especially well organised, and Japan is famous for expensive food. French farmers are famous for rioting to get their way. American sugar producers have the ear of Congress; and US cattle farmers know that one of their own is in the White House. In Australia, most tariffs are gone but the farm lobbies have become adept at using the quarantine regulations to keep competition away.
How happy are people in Japan that they have to pay $120 per mellon?
Farmers are also adept at getting governments to distort the free market for their benefit. One of the more outrageous distortions is in water, essential for irrigation, which farmers are getting clever at getting their hands on at dirt cheap, and manipulated, prices. This is a big issue in southern California, and in Australia, where excessive irrigation is having a negative impact on the health of the Murray River, at the expense of urban consumers. No one seems game to tell the farmers to pay their way. In Australia, at least, this stinks of hypocrisy, as the local farmers lobby has been very loud in shouting for free market efficiency for everyone else. The farmer's federation was very active in the waterfront dispute of 1998, which saw market competition make Australia's ports competitive for the first time, to the benefit of farmers.
How do farmers get away with this? One has to admit that they have worked herd to get into the strong position that they are in. I am sure that they realise that it does not matter that the intellectual case for protection is puerile, as long as the political case for protection is unarguable. This cause is helped by cultural arguments about the place of the farmer in the life of the nation. This argument strikes a chord all over the world.
This does not change the fact that farming is a business and the rule in business is generally that the prizes go to the smartest and the best run. Nations that mollycoddle their farmers with tariffs do themselves no favours in the long run. I actually heard an Australian farmer admit this on the radio in about 2000, talking about a US farm subsidy bill. He agreed it was bad for Australian farmers that were trying to break into US markets, but he felt it was good for Australian farmers in a global sense, as it kept US farmers from restructuring the way they farmed. Alas, this remains very much a minority view.
How can free trade advocates make headways in these protectionist times? I think it is important to keep making the intellectual case for free trade in food, easy as that is. However, it is also important to make the political case to. It might be time, perhaps, to revive the Anti-Corn Law League, and make it a global organization. It seems to me that the only way to get through to legislators is to defeat them at the ballot box. However once this has been done a few times, the others will fall into line. So that is the political challenge we face - to make it clear to legislators that they will pay an electoral price for their protectionist views.
Scott Wickstein
1 = with apologies to the Rev. John Knox.
Monday
The Office of Fair Trading (the name being a splendid example of British irony in action) has ordered 60 private schools in the UK to hand over documents for an inquiry into alleged fee-fixing in violation of the 1998 Competition Act.
The OFT's move provoked protests from the Independent Schools Council, which said it had "serious concerns about the protracted nature of this investigation and the effect it may have on schools".However, the ISC appeared to acknowledge that some schools may have fallen foul of a change in the law, but blamed the Government for failing to keep them informed.
Yet again we see that the scope and burden of state regulation is such that it is almost impossible for businesses to avoid breaking some laws unless they employ a ruinously huge staff of lawyers and 'compliance officers'. Of course the very notion that the state, which imposes vast distorting pressures throughout the economy, can be an arbiter of 'Fair Trading' is almost beyond parody. As the Angry Economist said the other day:
Now, I would be the last person to claim that markets always produce good results. Some problems are hard for markets to solve simply because they are hard problems. Pointing to a problem which is hard for markets to solve doesn't automatically mean that solution-by-government will be better. It may turn out to be that government interference will produce a better result (pareto optimal) than peaceful cooperation. I allow that as a possibility at the same time that I doubt it will ever happen, once all costs are accounted for.
The trouble is, as economies are complex networked systems, that it is not always obvious how this law over here buggers up that market over there. The distortions are often not a single causal step away and thus might as well be completely unrelated unless you are willing to take the time to really look at why things happen the way they do... and in most political systems, it is usually easier to just pass another law.
Friday
It is a well-worn aphorism that you should avoid meeting your heroes, because up close and personal they will often disappoint you with their inevitable human foibles, as compared to their superhuman attributes as witnessed from a worshipful distance, often spilling tomato juice down the tie of your admiration. But although I have personally found this to be true, with an old Sheffield Wednesday sporting hero of mine who I once discovered sneakily chatting up a girl I was after, the cad, I still feel one must gather one's rosebuds from life. So despite the aphorism above I always take the risk of meeting heroes, however briefly, on the rare occasions when I get the opportunity to do so.
And last night, when I met one of them, alas very briefly, it proved no risk at all. For not only was my hero just as good in the flesh as he is as a picture on the Internet, he was even better. Far better, a true heroic star, a man of penetrating intelligence with a hint of self-deprecatory humour, a man of sparkling West Coast eloquence with an ability to make uninteresting questions put to him seem vital and imaginative, and a man of such devastating rhetorical ability that in just half an hour he managed to destroy a New Left edifice, constructed out of glue and matchsticks over three decades, to leave it as a dusty pile of splinters on the floor.
He was outstanding. He was inspirational. He was magnificent.
And no, I'm not talking about David Carr. Because I met him last year. I am, of course, talking about Bjørn Lomborg, author of The Skeptical Environmentalist. Michael Jennings, below, details Mr Lomborg's short talk for the Adam Smith Institute, last night, so I'll break my usual habit and keep this short. First, you must buy the book, if you haven't done so already you naughty person. Second, we're not going to run out of Shale Oil until about the year 5000. Third, that won't matter, because we'll be off fossil fuels by the end of the 21st century. Fourth, I was the first one to get my book signed last night because I'm one of those sorts of people. Fifth, if you ever get the chance to hear Bjørn Lomborg speak, yourself, just stop everything. Take that opportunity!
My greatest hero of all, Ludwig von Mises, once stood alone to take on the entire world before he then beat it. Bjørn Lomborg is a man in that vein. Almost alone, and despite copious icebergs of abuse, he has dragged the gun down from our heads that Greenpeace eco-warriors were gleefully pointing at us and wiped the imminent smile of success from their faces. Think Agent Smith. Think Mr Anderson. He is the one.
The book is available on all good websites everywhere. It's a no-brainer. Just buy it.
[BTW, for all Lomborg groupies, such as myself, there is another great review of the event here, by Andrew Medworth of the ASI]
Monday
The week's edition of the Economist is a rather good one. It is a publication which although generally on the side of the angels, often infuriates me with its statist meta-contextual inconsistencies. Likewise they are at their worst when describing broader civil liberties issues, particularly self-defence. That said it is a magazine which is often a bloody good read.
The leader article is called The new jobs migration and discusses a subject dear to my heart: free trade and outsourcing.
The fact that foreign competition now impinges on services as well as manufacturing raises no new issues of principle whatever. If a car can be made more cheaply in Mexico, it should be. If a telephone enquiry can be processed more cheaply in India, it should be. All such transactions raise real incomes on both sides, as resources are advantageously redeployed, with added investment and growth in the exporting country, and lower prices in the importing country. Yes, trade is a positive-sum game. (Adam Smith did think of that.)
Great stuff. When people argue that they just want to 'protect American (or British/French/Japanese) jobs', what they are really demanding is that force be used to ensure that other people's purchasing power within their own nation not be allowed to grow because of their own sectional interests.
When people look at cases of folks loosing their jobs in the USA or UK because an Indian or Philippine call centre can do it cheaper, and then call for this to stop, they are not looking beyond the first causal link of costs and benefits. Moreover, they are ignoring that we live in an extended and (largely) capitalist society which is extraordinarily good at dealing with such problems when the 'invisible hand' is free to work its 'magic'. Some people are losing their jobs, ergo, this is bad and must be stopped... this rather like concluding as the world seems intuitively to be flat, therefore it must be flat. By this logic all labour saving devices should have been declared 'employment destroying devices' and banned long ago.
There is also another splendid article in the United States section called The Great Hollowing-out Myth which roundly rubbishes the notion that outsourcing damages the US (or other) economy and overall employment prospects (alas that article is available only via on-line subscription or in the print version):
Contrary to what John Edwards, John Kerry and George Bush seem to think, outsourcing actually sustains American jobs[...]
Yes, individuals will be hurt in the process, and the focus on public policy should be directed towards providing a safety net for them, as well as ensuring that Americans have education to match jobs being created. By contrast, regarding globalisation as the enemy, as Mr Edwards does often and Messrs Kerry and Bush both do by default, is a much greater threat to America's economic health that any Indian software programmer.
Run, do not walk, to your nearest newsstand.
Friday
Arnold Kling makes an excellent point about Doc Searl's 'statement of geekonomics' dating back to 2000.
There is a classic line attributed to John Gilmore that "The Internet interprets censorship as damage and routes around it." Economists might say that markets try to route around the damage caused by monopolists or government regulators. I view Searls as saying that with the Internet and markets, consumers do not need their paternalistic advocate so much.To me, Searlsian Geekonomics sounds more like Hayekian libertarianism than Deanian re-regulationism. I don't think that the Dean campaign deserved such a strong Geekbone. To me, the logic of Geekonomics is to lead one to be skeptical of the Democratic Wing of the Democratic Party.
I find Doc Searls very sound on almost all issues other than his support for Dean's campaign. I am glad that someone pointed out the contradiction in his position.
Friday
The daft furor over the outsourcing of job to India (and other places) is just another example of how amazingly primitive the understanding of economics is which prevails amongst the media and political elites in the USA (though no worse than elsewhere I might add).
The same troglodyte notions that lead people to think that cheaper foreign steel being imported into the USA is a bad thing (which is just another way of saying that manufacturing cheaper cars, homes and ships in the USA are a bad thing), lead the same people to in effect say that allowing Americans to purchase cheaper computer programs and requiring them to pay more for call center services is also a bad thing.
President Bush went on the defensive Thursday on the issue of outsourcing after a firestorm erupted over an aide's contention that free flow of jobs, including the migration of services to India, benefited the US economy in the long run.Although the aide, White House economic adviser Greg Mankiw, was merely echoing what was stated in Bush's economic report to Congress, Washington's political class came down on him like a ton of bricks.
Lawmakers from both parties, including Republican House Speaker Dennis Hastert, demanded he be fired. The criticism forced Mankiw, a Harvard economist, to clarify that he did not mean to support or praise loss shifting of US jobs overseas.
Sure, if your IT or helpdesk job as just been outsourced to Bombay, it might seem like A Bad Thing for you personally... but then that is just as true if your job in New Jersey has just been taken by someone in Biloxi, Mississippi because your company has just relocated to where costs (and taxes) are cheaper... the overall effect is that companies, and outsourcable functions of companies, will go wherever it makes sense for them to go... and so they should!
However notion that India has such a comparative advantage just because they have produced a reasonable pool of IT and call centre people who will work for far less than their counterparts in California does rather miss the obvious fact that India is far from suitable for all or even most IT or call centre jobs. Troubleshooting a network in Texas is rather hard to do from New Delhi and to think people in Asia will have such a deep understanding of American (or British or European) cultural mores that all help desks and call centres will end up there is rather bizarre. Companies who out-source unsuitable jobs will end up being punished by the market if their quality falls below the point which lower costs can offset such a fall, and some jobs are very quality sensitive indeed.
It should be screamingly obvious that stopping people in India (and elsewhere) from exploiting their competitive advantages does not only hurt them, it hurts everyone who is a customer for those products. Rather than engaging in unbecoming grovelling, George 'Steel & Lumber Tariff' Bush should redeem himself by responding to the Troglodyte faction by pugnaciously asking them "So, what exactly did the American consumer do to you to make you hate them so much, guys?"
If a company is not free to run their business and the location of the people who make it work, to best suit the company's interests, who pays in the end? The company's customers do, of course. And that means you.
Thursday
Two decades ago I used to love arguing about the rights and wrongs of capitalism, socialism, social democracy, collectivism, communism, etc. Now, I don't have the adrenalin for it. Now I prefer to offer observations, big or small, and let others fight about them while I cook up my next observations. Thank God (by which I of course mean Perry de Havilland and his editorial confreres – thank goodness might be a better way of putting it) for Samizdata.net, because here I can do just that.
But if you want a good old libertarians-versus-collectivists row to join in on, this Chris Bertram post together with all the comments it has provoked could be just your ticket.
Chris Bertram says this about the Morecambe tragedy in which nineteen Chinese cockle pickers perished:
But one thing that needs saying is that such tragedies are a normal and predictable consequence of capitalism and not simply the result of coercion and abuse by a few criminals.
Bertram's piece is a classic example of what one might term Implied Collectivism. Capitalism, says Bertram, regularly causes violent deaths. The clear implication is that therefore "capitalism" needs in some way to be severely hobbled, if not done away with altogether, and that if that happened, poverty would likewise be diminished or even done away with too. But he doesn't dare come out flat with the claim that capitalism ought to be cut back, still less got rid of, on poverty relief grounds, because that would be too daft. He doesn't even think this, because he does have more than a trace of intellectual efficacy and moral sanity in that befuddled head of his. Nevertheless he allows the implication to float in the air, because he wants it to be true, or seems to. Not admirable. He ends his piece thus:
But we mustn’t forget that the root cause of many such tragedies is that poor people need to risk themselves in order that they and those they love may live. Unless they cease to be poor, and cease to face such unpalatable choices, such events will happen again and again.
There is as much truth in that bit of writing as in any where the words "root" and "cause" are to be found next to each other and in that order, but so what? Why blame "capitalism" for that? This is like blaming oxygen for forest fires.
And if poor people are to cease to be poor, what they need is more capitalism, different bits of capitalism to choose between, not less of it. If those wretched cockle pickers had had more and consequently better choices, they might not have chosen the risk of drowning for the sake of £1 a day. And … oh, but I've said all this, argued all that.
If you want to read more denunciations of Bertram, as I say, read the comments, of which this one from Steve Carr (any relation I wonder?) is one of the better ones:
Forgive the naivete of this question, but how is poverty "a consequence of the normal operation of capitalism"? Chris argues that capitalism "creates great poverty," which in turn presumes that there is a pre-poverty state that capitalism transforms. Where is the evidence for this? Have there ever been any non-capitalist socities in which the vast majority of people were not poor?It won't do to answer this question by pointing to the enormous wealth that capitalism generates for those at the top, or invoking the question of exploitation. To say capitalism "creates poverty" means that it makes things worse, in absolute terms, for poor people, who would be better off had capitalism never existed.
Exactly.
I'm also baffled by the assertion that in a non-capitalist society mineworkers would be paid more for their labor than other workers. Certainly one of the defining characteristics of most socialist societies has been relatively equal pay across fields of labor. And pace Ophelia, I have a very hard time believing Cuba or Tanzania ever paid its farmworkers hazard pay.
Capitalism is doing well. There are now people called things like Ophelia arguing for it.
I also don't understand Chris' point about Sweden. If "not all capitalisms" are red in tooth and claw, then we can’t say that what happened to the cocklers was a "normal and predictable consequence of capitalism." It's what happened under a particular variant of capitalism, and in fact I think it probably has a great deal to do with "coercion and abuse." It also has to do with the still-desperate condition of rural China, which is in no small part the result of thirty years of complete economic destruction wreaked by Mao’s policies.
And my only objection to that is that Steve Carr tosses the misery of China in almost as an afterthought. Britain is not Sweden (Sweden's answer to the poverty of the world's poor being to shut them all out completely, because, I guess, that way, your teeth and your claws get to stay white). Oh and "also": China is China. If you want a "root cause" of the Morecambe horror, China's Chinaness seems to me a far better bet than Britain's alleged insufficiency of Swedenness.
Wednesday
Ever since I struck the chords of some of my libertarian friends with my Libertarian Alliance piece entitled The Fixed Quantity of Wealth Fallacy, I and several of the friends have been on the lookout for new uses for the phrase "fixed quantity of [insert new something whose quantity is not fixed] fallacy". Well, here is another. See title above.
The beauty of the FQ?F is that all you have to do is state it. Much of the argument is made simply with the phrase. Jobs. Happiness. Travel. Linoleum. Blogging …
The point is that simply altering the price of something massively increases the demand for it. And when economists talk about demand, they are not merely discussing potential consumers standing about with stupid plackards and stamping their feet and getting in a rage – as in political 'demand' – they mean actual 'effective' demand, demand that counts for something, demand with cash to back it up.
Just to get the linking thing out of the way, I here give thanks to two recent articles which stirred me into saying what follows, one the already much linked-to Wired piece about how Indian programmers are now turning Silicon Valley into a dust bowl, and the other being a piece in today's New York Times in which you can see the beginnings of the dawning light in the Western Official Mind that this might not all be entirely bad news after all.
So, let us think about this Fixed Quantity of Programming Fallacy. It applies, of course, to the row now raging about the way that those sneaky Indians are stealing all our – I use the words "sneaky", "stealing" and "our" ironically – computer programming jobs.
Now I do not doubt that there are many computer programmers in the West who will, in the short run and maybe if they can find nothing else to do in the longer run as well, suffer severely. But it is also true that the availability to the West of much cheaper Indian programming power will create massive new economic opportunities in the West, and everywhere else.
Basically, what it means is that Western computer experts will have to stop writing programmes and start, well, demanding them. In less florid language, they will have to switch from writing programmes to writing specifications for programmes, from making programmes to saying what a new programme must do.
At the moment it is simply assumed that 'writing a computer programme' is something that only someone very rich can afford to finance.
Suppose you have an idea for a computer programme, for something you want your computer to do, which you would think it could do, but which it now, apparently, cannot do. Well, your first step will be to check if a programme along the lines you envisage already exists, so you ask around. On the internet. At parties. You ask your nine-year-old daughter if you are lucky enough to have one. But what if the programme you want does not exist? What if it does exist, but will cost you half a million quid to get anywhere near? Or what if there is a regular programme which ought to include the feature you want, but does not, and you want someone to cobble it together for you and stick it on the original programme, and then not only use this thing yourself but also sell it (or sell your knowledge of it Linux style) to anyone else you can interest in it?
But what if you are a regular person, rather than some 'venture capitalist' with more money than God? As of about one year ago, you then hit a blank wall. Could you hire a programmer and tell him what you want? Good luck mate. Chances are your programmer would say something like: "[noise made by car engine mender contemplating malfunctioning car engine] … well it might work, I suppose. But I really can't be sure." Plus, of course, inevitably: "And it'll cost you." You want a programme? It will cost you but it will not work.
But now all that changes. As I say, as soon as you read the heading of this posting you probably started thinking along the lines I am just about to argue, but bear with me, while I spell out what now happens, just to make the point unmistakably, to those who are not now as keen to get all this as you are.
You announce your new programme which you have 'invented' (i.e. you say what you want it to do) and instead of a silent chorus of contemptuous and happily employed Ferrari drivers all saying: "[noisy intake of breath, malfunctioning car engine etc.]", you get an instant queue of a thousand Indians at your virtual door, all saying they will do it for less than all the other guys, and quicker, and better. Instead of a bunch of arseholes in expensive suits wanting fifty grand upfront, you've got this crazed guy from Mumbai of whatever they call it now saying he will have it on your desk by next Friday for fifty single solitary separate pounds. Well, he's probably deluding himself, and it will end up costing nearer a hundred and will have bugs in it at first, and even the bug-ridden version 1.0 won't be ready until the following Tuesday afternoon (damn these duplicitous good-for-nothing Indians), but what the hell? What have you got to lose? And a whole new industry is born.
Okay, this will all take a bit of organising. The usual cowboys and fantasists will have to be weeded out, as happens with all new-born markets. But basically what we are talking about here is a whole new Golden Age of computerised creativity. And if you are one of those Ferrari guys, you can get in on it all, not by going to Washington to 'defend' your now non-existent existing job (if you get my drift), but by making a new job for yourself thinking of new things for computers to do, and by finding out who the really smart, good, cheap Indians are, as opposed to the incompetent fantasists. Maybe you could go over there and get in on all this by setting up shop in Mumbai, making use of your knowledge of Western Culture. You know better than other people what the 'next' programmes ought to consist of, if only the cost of writing the damn things could be a bit less. Well, guess what, it just got a lot less. So get thinking, and get organising.
The point about the Fixed Quantity of [fill in the blank] Fallacy is that people facing a price plummet spot one consequence immediately which is a very definite win-lose situation, but they fail utterly to spot the other massively more huge benefit, which is an equally definite and far bigger win-win situation. Yes, it is true, a lot of programming jobs are already disappearing in places like Silicon Valley, which is nasty. And yes it is true that the costs of existing programming activities, the ones that were going to happen anyway only more expensively, will go down, which is nice. But think of all the fantastic things which are now becoming possible, which before would not have been possible at all, for anyone, thanks to those clever and industrious Indians. Many, many more specifying, inventing, imagining jobs are going to become viable as a result of the Indian Programming Miracle, not just in the temporarily depressed parts of high-tech USA, but everywhere.
And, as we already know, the 'economic impact' of computers is absolutely not confined to the mere job of building and programming them and the money that changes hands during all that. Just imagine what computers, thanks to these wonderful Indians, are now going to do?
Friday
Mathematician John Allen Paulos, in his most recent book (A Mathematician Plays the Stock Market, Basic Books, 2003) coined a term which I had hoped would catch on throughout the finance community. He describes under-researched puff pieces on personal finance (e.g. Five Hot Stocks to Pump Up your 401k NOW!) as "financial pornography."
One of the biggest purveyors of financial pornography online is the MSN.com website, and this column doesn't disappoint: Seven Signs a Stock is Ready to Soar. The author purports to explain how to locate 'hot' stocks, those that are about to appreciate rapidly in price, by reviewing some research on what types of conditions most often preceded (notice I did not say caused, and neither did the research) a price increase.
It should not take a Wharton MBA to figure out what is wrong with the premise of the article. The cited research identifies the seven conditions that most often preceded a big run-up in the price of a particular stock, but nowhere does it suggest that these conditions were sufficient (or even necessary) to cause a stock price to take off.
Obviously, all of the conditions that make up the 'CANSLIM' acronym are desirable things for a corporation -- for its management and for its ownership. But that doesn't mean that the stock in question is about to outperform the market. I'm not a hard-and-fast believer in the semi-strong efficient market hypothesis -- I think a few super-stud investors can outperform the market -- but for the average investor reading MSN's Money Insight column, the CANSLIM approach is not going to turn those people into super-stud investors. EMH is still going to apply to those investors; there are just too many other investors who have the same type of information and insights at their fingertips.
In his 1974 commencement address to Cal Tech, the late Richard Feynman described what he called "cargo cult science:"
In the South Seas there is a cargo cult of people. During [World War II] they saw airplanes with lots of good materials, and they want the same thing to happen now. So they've arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head to headphones and bars of bamboo sticking out like antennas -- he's the controller -- and they wait for the airplanes to land.
Feynman (about whom I will have much more to say in an upcoming post) was using the term to deride psychics and 'paranormal' advocates like Uri Geller. But the MSN piece is urging investors to do exactly what Feynman describes the naive south island natives as doing: falling hook, line and sinker for a post hoc fallacy.
Monday
I happened to catch the BBC Radio 5 sports punditry show Fighting Talk on Saturday. One topic under discussion was whether soccer's FA Premier League should "do something" about dominance of the current top three teams in the league, it being alleged that their success made the rest of the league boring. One of the pundits was against this notion, making the point that, as little as 15 years ago, there were different dominant teams. Those who celebrated Liverpool's invulnerability in the mid 1980s could hardly have imagined that that club's place would be taken by Manchester United in the 1990s. Indeed, barely six months ago, nobody could have predicted the emergence of oligarch-funded Chelsea as title contenders. She argued that the league had evolved "organically" - any problems would tend to correct themselves - and lamented the prospect of a "genetically engineered" league with structures designed to hobble the successful teams and boost the mediocre.
I thought it was interesting to hear those specific terms used to support a laissez faire position and it struck me that there is a paradox about environmentalism. That is that, while it holds that organic processes are desirable in food production and any kind of "artificial engineering" is bad, it holds that the reverse applies to society and the economy. Capitalism has developed without a plan. Nobody had to sit down and design civil society. Yet these natural phenomena are scorned by the likes of the Green party whose underlying premise is that society should be re-engineered so that it can become "more natural".
Saturday
This week's Economist has an article on online retailing in the UK. The basic gist of the story is simply that in the last six months it has really taken off. Online sales in November-December were 60 percent greater than in the lead in to Christmas 2002. Forrester Research forecasts that 5.7% of the British retail market will be online sales in 2004, compared to 5.6% in the US. (Actually, the difference is greater than this, as the US number includes travel and auctions, and the British number does not).
This is entirely consistent with my own impressions of the situation, and indeed my own behaviour in the last six months. I have been buying certain things (most prominently books) online for quite a few years now, but the number and more importantly the diversity of the things I have been buying has exploded in the last twelve months. Okay, my personal tastes in shopping perhaps aren't that of the average consumer - I buy too many electronic products, no doubt - but I have found that the number of websites I can find selling almost any of the things I want to buy has increased enormously.
Whereas in the insane dot com boom years there were lots of large capitalised businesses without that good an idea of their business model and with few customers, a second wave of internet retailers seem to have come into being that are small, focused, and lean. For electronics there suddenly seem to be lots of little garage based stores, selling a good selection of one very specialist type of product. The credit card handling is outsourced to a company that specialises in handling credit card transactions for small internet retailers, off the shelf software is used to run the website and keep track of inventory, suppliers have to be found, orders have to be packed and presumably the post office has to be asked to send a truck round once a day to collect the filled orders. No expensive retail premises have to be rented, and there are no losses to shoplifting. The honesty of such retailers is generally not an issue. The level of consumer protection given to credit card holders is such that the retailer will be dropped instantly by the company to which it outsources its credit card processing if it fails to deliver what it promises. And in any event other web sites exist that provide feedback on online retailers.
What does all this mean?
Well, when I wanted a new memory card for my digital camera, I discovered that I could buy it for less than £30 from a small internet retailer, when from a typical high street electronics chain (you know the one) it would have cost £69.99. When the difference in price is that great, there is no way I am going to buy it on the high street. High street stores will often offer competitive prices for very popular products, particularly when they hold a sale, but for anything more obscure the prices are high and the selection of goods is generally poor. Plus they try to make up the low margins on such products by selling very high margin and overpriced cables and other accessories along with their cheaper products. Internet retailers don't seem to be able to get away with this trick. The level of competition is too high and there is too much transparency.
Now that is small internet retailers: more competition, more transparent markets, and lower prices. What of bigger companies? These seem to be doing well too. Let's look first at the largest: Amazon. The nature of this company has changed considerably in the last couple of years as well. Most simply, Amazon have increased the range of goods they sell, although they are more competitive in some sectors than others. (In electronics their prices are often excellent, whereas their DVD prices seem less competitive). Amazon retain their traditional advantage of selling virtually every book, CD, and DVD in print, and they have expanded even further by stocking a larger range of imported (usually American) editions of books and DVDs as well. However, there has been an even more important change than this.
A few years ago, Amazon started listing used books on their website. Initially, this didn't work very well compared to specialists such as Abebooks, but ultimately they ended up with a situation where used booksellers could list their books on Amazon next to the same new book on Amazon. But why stop with used books? This has since evolved to a situation where new books from other sellers are advertised on the same page as the same book directly from Amazon. And of course it has also evolved into far more fields than simply books. There are now lots of products being offered by other sellers on Amazon. This has dramatically improved availability. In a lot of instances when a product is out of print or out of stock, there will still be a seller or two advertising on Amazon who has one or two available, even if Amazon themselves do not. (Before Christmas, i was able to find an otherwise unavailable toy for the spoiled son of a friend of mine this way). American retailers are advertising lots of products on Amazon UK that are not otherwise available in the UK (and are undercutting Amazon US's shipping charges in the process).
What does Amazon get out of this? Well, for one thing, it is good for Amazon's brand. Lots more goods appear to be available from Amazon, and fewer goods appear to be out of stock for people who want to buy them. (I suspect that many buyers are only barely aware that they are not buying directly from Amazon). This makes Amazon more likely to be the first stop for people buying all manner of goods.
Secondly, of course, it means that Amazon is at least partly evolving from being a retailer into being a broker, bringing together buyers and sellers. Amazon provides the credit card handling facilities, and provides a guarantee of sorts to the buyer. (They state to customers that the quality of service received from third party sellers should be the same as received directly from Amazon. I would assume that sellers that don't provide this are not permitted to sell using Amazon for very long). In return they charge a commission. This is probably more profitable than providing goods directly, as they have nothing further to do once they have provided this broking service. Third party sales require nothing in the way of logistics. One of the most profitable internet companies has long been internet auction company eBay, which is essentially providing a broking service. In recent years, more and more of eBay's business has become retailers selling things at fixed or quasi-fixed prices, rather than auctions directly. Amazon's third party sales appears to have evolved into much the same thing. Many many organisations tried to steal eBay's business by copying their business model more directly, but eBay's first mover advantage turned out to be too large. But now, Amazon has evolved into something quite similar. Which is interesting, and I think a very good sign with respect to future profitability of the company.
But the trend is interesting. There are lots of small players. There is lots of competition between these small players. There is lots of specialisation amongst these small players. The big players are turning more into brokers, guarantors, hosting services, etc. A lot of the actual buying and selling is better down by small specialists (or individual people) than large organisations.
And all this is very good for British consumers. Almost uniquely so. Britain has high rates of computer ownership, and internet usage. Most British people have credit cards. Britain has a traditional retail sector with notoriously high prices and low levels of competition, which can be relatively easily undercut in terms of price. However, this lack of competition largely comes from real estate and planning related issues, but other obstacles to setting up a business are relatively low. Britain has a reasonably large but dense population, so the distances over which purchases have to be delivered are relatively small. Many British people (especially in London) do not have cars, and are used to having to have goods delivered already. For British people who do have cars, the cost of using them is sufficiently high that shopping around in bricks and mortar stores is expensive and, given the levels of traffic congestion, time consuming. All this means that internet retailers are relatively more attractive to British consumers than they are, say, in the USA.
Business sections of British newspapers have also been stating one interesting thing post-Christmas. Most traditional retailers did badly in the run up to Christmas. It didn't seem to be so much that people were spending less, but that they were far more concerned with value for money than was the case in the past. The fashion industry did badly, and although what may be called the "gadget industry" did well in terms of sales, they did relatively badly in terms of margins and profits. The general press has blamed this partly on the fact that supermarkets (particularly the stunningly efficient Tesco) have been selling a much greater range of goods than in the past, which has meant that competition has increased in a whole range of areas, but the other key factor seems to clearly be that the higher efficiency of the internet retailing sector is having an impact. It may well be that the traditional inefficient British high street is going to really find itself in trouble, and much sooner than it expected.
Obviously some market segments are more vulnerable to this than others. For a lot of goods, customers want to handle merchandise and see what it looks and feels like, how big it is, and various other things about it before buying. But if the difference price is great enough, customers will go online for most things (particularly in an age of mass customisation). Occasionally somebody who is a little overenthusiastic about buying things over the internet will miscalculate (such as Gabriel Syme did with his new refrigerator, which is somewhat larger than he realised when he ordered it over the internet) but people will get better at this sort of thing. It may be that in some cases shops will evolve into showrooms specifically designed for looking and not buying, as already happens in parts of the automobile industry for instance.
But the basic trend is overwhelmingly good. It is much easier to compare goods and prices from a large number of sources. Retail markets are becoming much, much more efficient. It is happening much faster than most people realised. Especially in Britain.
Saturday
Bruce Bartlett has one of the most thought-provoking columns on economic history that I've seen in a while. In recent months, we've seen a number of lame attempts to compare Bush to Hitler. (Blogger Stephen Green is doing a good job of documenting these things.) I've seen a number of sites that display a series of Bush photos, each juxtaposed with a photo of Hitler in a similar pose ... Bush is seen here eating a ham sandwich, and here's Hitler eating a ham sandwich in 1937. Here's Bush talking to some children, and here's Hitler doing the same. See? Bush = Hitler! QED. Self-indulgent celebrities and hard-left ideologues have picked up on this tiresome Bush = Hitler meme, and the wave of moral equivalence crested with the recent controversy over MoveOn.org's anti-Bush ad contest.
Meanwhile, Bartlett is seizing on this theme to take issue with some, both on the left and on the right, who want to compare Keynes to Hitler. He starts with Alexander Cockburn, quoting his most recent effort in The Nation:
Hitler, genocidal monster that he was, was also the first practicing Keynesian leader. ... There were vast public works, such as the autobahns. He paid little attention to the deficit or to the protests of the bankers about his policies. ... By 1936, unemployment had sunk to 1 percent ...
Then, to pick an example from the opposite end of the spectrum, he points to an August 2003 column by Llewellyn Rockwell, longtime chairman of the Mises Institute. Here is the full text of the Rockwell piece that Bartlett is citing.
While I admire the Mises Institute and enjoyed the time that I spent at the Mises annual seminar in '96, my take on Rockwell is that his writing style often loses focus due to its underlying anger. This is a classic example. And note that even he can't help but juxtapose images of Keynes and Hitler, striking similar poses, just as those sophomoric "Bush = Hitler" websites do.
The money quote from the Rockwell piece, which Bartlett cites in his column, is this non sequitur:
Keynes himself admired the Nazi economic program, writing in the foreword to the German edition to the General Theory: "[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under the conditions of free competition and a large measure of laissez-faire."
I don't see how the quote from Keynes is tantamount to "admiration of the Nazi economic program." Taken in full context, Keynes is just pointing out that it would be much easier to implement an activist fiscal policy in a state that is already centralized and forceful than in a state that was characterized by decentralization and federalism, a point that I would take to be obviously true. How this is supposed to represent Keynes' "admiration" of the Third Reich is not clear.
Yes, Nazi Germany, in a roundabout way, did employ policies that Keynes would have prescribed if he had been running Germany at the time. This does NOT mean that Keynes' idea of "public works" was building prison camps. Bartlett is correct in concluding that there are enough substantive problems with Keynesianism that we don't need to resort to ad hominem criticisms of the man himself -- just as there are plenty of ways that one can oppose the policies of Bush without resorting to the same. I disagree with a lot of the policies of the Bush administration (campaign finance reform, Medicare "reform", on and on) but I have better things to do than try to fit this opposition into some tortured "Bush = Hitler" framework.
To put the shoe on the other foot -- Rockwell was against the war in Iraq, and so was Noam Chomsky, but that doesn't mean that "Rockwell = Chomsky!" or anything close to it. It doesn't mean that Rockwell "is an admirer of" Chomsky, or that Rockwell also agrees with Chomsky's denial of the holocaust, or even that Rockwell would use his brakes if Chomsky was crossing the street in front of his car.
Now, when are we going to see the article that says, "Bush used Keynesian fiscal policy, and so did Hitler, therefore Bush = Hitler!"
Saturday
Given the global prominence of this brand, I find it quite surprising that only now are Starbucks about to open their first branch in Paris:
When Disney arrived with its theme park they called it a cultural Chernobyl. Many Parisians will view as an even bigger disaster the opening today of the city's first branch of Starbucks.Six years after it served up the first decaf cappucino in Europe, the Seattle-based global coffee giant is ready to take on the nation that invented café society.
They better hire some burly security guards as well. If they manage to get through the first month without succumbing to a Jose Bove-led sit-in protest they will be able to consider themselves fortunate.
Despite the global success, purists are predicting that in France, where ordering an express (often consumed with a cigarette) is a sacred tradition, the brand will flop. Bernard Quartier, spokesman for the organisation that represents French café owners said: "I don't believe this concept is going to work because nothing can replace the conviviality and sociability of the French café."
Now this is a different matter. If Starbucks fails to ignite the interest of the Parisians then so be it. The market rules and, in as much as he is basing his dismissal on his understanding of local market conditions, then Monsieur Quartier has got a point.
After all, if your idea of a good night out is lashings of Sartre and dollops of Foucault washed down with litres of bitter café noir and a lungful of Gitanes then the child-friendly play areas and sanitised chirpiness of Starbucks is probably not for you.
I must say, though, that I like Starbucks coffee and, yes, I do buy it from time to time and I also support their right to conduct their business in any way that see fit. But, let's face it, it is a very uncafé-like operation. If you were a morose left-bank intellectual would you really want to spend an evening gazing into the abyss under a blanket no-smoking ban and bright, shiny lights?
This is a part of what I find so irritating about Starbucks. I certainly do not begrudge them their success because they have earned it by giving the public what the public wants and doing it with sufficient consistency to make a lot of money and grow bigger than the Holy Roman Empire. But what I do find so tiresome is the goody-two-shoes sanctimony that they have draped over themselves in the process.
The last time I patronised a Starbucks outlet (in West London) I was struck by the number of leaflets there were dotted around the store containing feelgood PC homilies about 'fair trade' and 'environmental concerns'. Does this really mean that their customers want their coffee and Italian biscotti served up with a generous helping of middle-class guilt?
A quick perusal of the Starbucks UK website throws up acres of this kind of mummery, contained mostly in their 'Social Responsibility Statement' from which we can rest assured that:
By making investments that benefit coffee producers, their families and communities, and the natural environment, Starbucks is helping to promote a sustainable model for the worldwide production and trade of high-quality coffee.
That word 'sustainable' again! What does it mean, for chrissakes?
We strive to be a responsible neighbour and active contributor in the communities where our partners and customers live, work and play.
What are they, coffee vendors or boy scouts? Do they mean that they send their staff out onto the streets to be busybodies and pests?
Do the Grand Poobahs of Starbucks actually believe in all this modish claptrap? If so, why? Surely their own success serves as a standing refutation to the kind of anti-globo drivel that they appear to want to wallow in? Surely they, of all people, would have learned that the way to make the world a better place is for lots and lots of people to go out and do precisely what they have done, not posture uselessly with policies of mandatory, trendy niceness.
Or perhaps it is really all part of a cunning tactic on their part to shield themselves from the anti-globo morlocks. Perhaps, by slapping their entire operation over with this kind of Monbiotic boilerplate they hope to wrongfoot their sworn enemies. "Look guys, there is no need to trash our outlets. We may be playing the capitalist game but really deep, down we're with you". Perhaps paying lip-service is a lot cheaper than a shakedown by crusading politicans. If it is really all a talisman to keep the vampires at bay, then I suppose I cannot blame them.
But that doesn't mean I have to like it any more than those Parisian left-bankers will (although in the case of the latter they will recoil in disgust because all this managerial anti-globo cant is a poor substitute for the real thing).
If the owners of Starbucks really mean what they say then I do wish they would wake up and smell the coffee, preferably their own. If not, then I sort of understand, but I think it a shame that they feel obliged to submit intellectually to the enemies of progress in order to avoid having to submit to them in practice.
Either way, when I do go into a Starbucks, I want a cup of coffee, not lectures.
Sunday
Just before Christmas I rang up a friend of mine and asked if she had taped a television program that I had missed, and if she had whether she could send me the tape. She had, but she was due to fly off to Italy the next morning and I hadn't realised this. I told her to worry about it when she got back, but she decided to be nice to me and send it anyway. There is no post office in the terminal at Stansted airport but there are a couple of post boxes, and she put what she thought was correct postage (from the limited selection of stamps she had) on the package and posted it to me. As it happened she made a mistake. She put stamps worth 68 pence on the package. Correct 2nd class postage was 69 pence.
Now, what did the post office do? They actually noticed that the postage was one penny short. Rather than receiving the package I received a card on December 30 saying that insufficient postage had been paid on a package for me and that I had to come to the local post office parcels office to pick it up. I attempted to pick it up on December 31, but the office in question was closed due to it being New Year's Eve (not actually a holiday, but a good enough reason to close the post office parcels office). I came back on the second of January, and the office was open. I took the card to the counter, and the man behind the counter took close to ten minutes to find the package. I was then charged one penny additional postage and a £1.00 "handling charge". Total wasted time for me due to two trips to the parcels office: a couple of hours. Total wasted time for post office staff: probably about 15 minutes. Plus I was inconvenienced by not receiving my video tape until three days after it should have arrived.
And this is all about a single penny not paid, which was clearly a mistake and not a genuine attempt to defraud anyone. I tend to think a certain amount of flexibility could be shown in cases like this. In fact I think I would prefer to send my mail via one of the Royal Mail's competitors that is more concerned with providing good service to customers and less concerned with inconveniencing both customers and themselves with idiotic bureaucratic inflexibility.
However, I can't. Such competition is illegal.
The Royal Mail has a monopoly on mail in the UK for which postage is less than £1.00. Other companies such as Federal Express can carry any packages or letters anywhere they like, but they may not charge less than that minimum amount. This is designed to protect the Royal Mail's monopoly, because it is feared (by Guardianistas at least) that without the monopoly they will not be able to maintain their universal (crappy) service throughout the UK. And of course, the Royal Mail has not been privatised (although the Major government did flirt with the idea for a while) and resistance to privatisation is high. Somehow the same Guardianistas believe that this would corrupt the Royal Mail, and it would only be concerned with profits, and that this would prevent it from providing a proper service to poor people.
Or something.
Compare this with the customer service I received from another organisation a few days earlier - in this case a private company that is only concerned with profit. I was out doing some last minute Christmas shopping, and I was hungry and in a hurry. I popped into the local McDonald's for lunch. I ordered a Quarter Pounder Extra Value Meal, and the girl behind the counter went to get it for me. I took out my wallet and realised that I could not find the £5.00 note that I had thought that I had. I looked at the coins in my pocket, and realised that I had just over two pounds. (My food should have cost £3.19).
I explained this and apologised to the girl behind the counter. She asked me how short I was. I explained that it was about a pound. She said she was allowed to still give me the food in such circumstances if I was a little short, but not if I was that much short, but that as I had enough money for the Quarter Pounder on its own, why didn't I have that? I said fine. She said that it wasn't ready but that if I sat down she would bring it over to me when it was. I waited about five minutes, and then she did bring me the burger. She then told me that she apologised for the wait, and that she was allowed to give me a free fries and drink as a way of apologising for the delay, and she did so. (I have had this happen to me before when there was a delay, so I know that McDonald's staff manual does allow for this). So I got the full amount of food I had ordered initially, despite having been about a pound short.
But I was quite amused by this outcome. McDonald's really do encourage their employees to provide the best possible service to customers. They really want to make a good impression so that customers return. This will increase their profits, oddly enough. In this instance an employee was so determined to provide me with good service that she found a way within the company's rules to give me my food, even though it was my fault that I did not have enough money with me, and although the rules didn't initially appear to allow it, and even though I wasn't even remotely upset, it being my fault after all. I was impressed.
If only McDonald's ran the postal service.
Saturday
It was recently announced that after talks between the British and Hong Kong governments, Richard Branson's Virgin Atlantic Airways had won its long desired rights to fly from London to Sydney, Australia. In return for this, Hong Kong's Cathay Pacific Airways were given the right to fly from London Heathrow to New York and other cities in the United States. Various observations were made about how an additional competitor on each route would increase competition and give passengers lower fares and more options.
While this is true as far as it goes, this is a pretty bizarre paragraph if you think about it. Why does the British government have to negotiate with the Hong Kong government before a private company can fly to Australia? In what parallel universe is the quid pro quo you must offer to get your airline permission to fly to Australia the permission for another airline from a third country to fly to New York?
And if additional competitors are good on routes, why were these airlines not allowed to fly on them already? And why did Singapore Airlines, Delta Airlines, and Continental amongst others object strenuously to the deal?
To answer these questions, we have to look at just how international aviation is regulated. This is bizarrely anachronistic. This most global of industries is regulated by a web of bilateral treaties between nations that dramatically limits competition. And to find this out, we have to look back into the dim depths of the past, to 1944.
In the late days of the Second World War, it was widely recognised that international air travel was going to be a much bigger deal after the war than it had been before, and the instincts that created the new framework were, to put it mildly, protectionist.
The basic principal of the Chicago convention was that treaties allowing airlines to fly between countries would be bilateral in nature, negotiated between governments, and that airlines would generally only to allowed to fly either from or to their home country.
That is, flights between countries A and B would only be provided by airlines from countries A and B. In most instances each of these countries would have a single state owned airline licensed to operate on international routes. These two airlines could operate the route in peace, without there being any pesky competition. (Under the auspices of the IATA, they were generally required to charge the same fares as each other, too). Even countries that had private airlines (for instance the United States) generally gave favoured regulatory treatment to certain designated “international” carriers (in the case of the US, mostly Pan Am and TWA). So airline seats were expensive and regulated.
However, things were a little different for extremely long haul routes. You see, aircraft could (and can) only fly so far. Every now and then they have to stop to refuel. And if they are stopping to refuel anyway, why can’t they pick up and put down passengers at the airports where they stop? If an airline based in country A is flying to country C but has to stop on the way in country B, then there are almost always treaties between A and B and also between A and C that apply. If such an airline flies from A to C via B, then it is almost always allowed to put down passengers who got on at A at country B, and on the return leg it can carry passengers from B to A. And it can carry passengers all the way from A to C and on the way back it can carry passengers from C to A. What it cannot do is pick up passengers in B and carry then to C to replace the passengers from A who got off at B. Therefore, in such circumstances an airline tends to have full planes on the leg from A to B, but half empty planes on the leg from B to C. It is not allowed to sell tickets to fill these empty seats.
Such an airline is at a serious commercial disadvantage to airlines that are actually based in country B. Airlines based in B will likely have treaties with A and C. They are allowed to fly passengers in both directions between A and B, and they are also allowed to fly passengers in both directions between B and C. Because flying passengers from A to C is just a combination of these two journeys, both of which are permitted, it can also carry passengers from A to C. Therefore, an airline based in country B can fill its planes with all three types of passenger, and is at a commercial advantage compared to the first airline.
Unsurprisingly, airlines in country A have never been very keen on this kind of arrangement. Therefore, they have always looked for stopover countries willing to grant them so called “fifth freedom” rights. (Also sometimes called "beyond" rights. Freedoms one to four, and the unofficial freedoms six to eight are listed here, although fifth freedom is by far the one the most discussed). Fifth freedom rights are the right to pick up passengers in one foreign destination and carry them on to another foreign destination. Given that it is surely in the interests of a country to have as many connecting flights to the rest of the world as possible, one would hope that lots of countries would offer such rights. On the other hand, those who have studied how governments actually work would be less likely to conclude this. Unsurprisingly, local airlines hate having foreign airlines that actually compete with them, and nationalised (and private but protected) airlines tend to have the ear of the government to a greater extent than do genuinely competitive market based airlines. So there is usually more reluctance to grant fifth freedom rights than there should be.
Just to repeat the key definition: A fifth freedom right allows an airline to carry passengers between two countries, neither of which are the home country of the airline.
But none the less, one or two countries in useful places have consistently offerered fifth freedom rights to most foreign airlines. One such country is Singapore, which had (and has) a government that smart enough to realise that it is in the country's influence to be an aviation hub. Most airlines were and are permitted to fly into Singapore to put down and pick up as many passengers as they like, and then continue on their way. (This hasn’t hindered Singapore from developing a large and successful airline of its on - in fact it has probably helped). Thailand has always been fairly liberal, too, which is why most flights from Australia to Europe go via either Singapore or Bangkok.
And, in the aftermath of the second world war, there was another approach, which was that the country that won the war (ie the United States of America) could force the defeated powers to agree to unequal treaties with it. In particular, the United States signed a very one sided aviation treaty with Japan, which gives two US airlines (originally Pan Am and TWA, but now United and Northwest) essentially unlimited fifth freedom rights from Japanese airports. The US also signed a treaty with Germany, which was also quite one sided, and gave rights to Pan Am in particular that allowed them to create a hub in Frankfurt.
However with the other victorious powers the US was not able to obtain equally favourable treatment. In particular, the treaty signed with Britain (Known as Bermuda II) was quite restrictive for US carriers. Initially, it only allowed 2 US airlines, and two British carriers to fly from the US to Britain. Once again, these were initially Pan Am and TWA.. (They are now United and American). On the British side, for a long time only one airline (BOAC, the predecessor airline to British Airways) made use of the rights in a significant way. Other airlines used the rights occasionally but nobody was big enough to make a go of it until the emergence of Richard Branson's Virgin Atlantic as a major competitor to BA in the 1990s. The most important impact of the treaty was to prevent the large number of American airlines that would like to compete with BOAC/BA on the all important trans-Atlantic routes from doing so.
In a series of negotiations, the Bermuda II treaty was modified in little ways. Most importantly, other US airlines were allowed to land at Gatwick and eventually Stansted, but the all important rights to land at Heathrow continued to be restricted to four airlines. By preventing airlines from flying into Heathrow, the present treaty restricts airlines other than the "big four" from gaining anything other than marginal profitability on routes to the UK. The reason for this is that business class passengers are responsible for an inordinate portion of the profitability of long haul airlines, and business class passengers tend to avoid London airports other than Heathrow. An aircraft with few business class passengers can be full, but not especially profitable. At the moment, Continental, Northwest, US Airways and Delta all have flghts from the US to Gatwick, and all would like to be able to fly to Heathrow, but none of them can. (American Airlines and Continental have at times offered trans-Atlantic flights from Stansted, but both have ultimately withdrawn the services). On the other side of the treaty, British Midland Airways (which has an extensive series of domestic and European routes out of Heathrow) would also like to be able to fly between Heathrow and the US.
At the end of the cold war, the post war aviation treaty between the US and (formerly West) Germany was clearly anachronistic and needed to be renegotiated. In addition, the prevailing opinion amongst the bodies negotiating these things had shifted (slightly) in favour of more liberal policy. Starting with Germany, the US started negotiating what it referred to as "Open Skies" agreements with European countries. These were agreements allowing any US airline to fly from any US airport to any airport in the foreign country, and which also granted full fifth freedom rights to airlines of both countries. US carriers could (for instance) fly to Frankfurt, pick up and put down passengers, and then fly on to Moscow. Or, if they had signed these agreements with both Italy and Germany, they could fly from New York to Frankfurt and then on to Rome, essentially flying internal routes within the European Union. Which is another problem comes from.
You see, fifth freedom rights de facto mean something different in the case of the US to what they do in the case of Europe, because Europe consists of lots of little countries and most flights are international. A series of these "open skies" agreements within Europe would allow US carriers to fly internal flights within Europe. As the US is a big country, internal flights within it qualify as domestic flights, and granting fifth freedom rights to foreign carriers does allow them to fly to foreign destinations from the US, but not to fly internal flights within the US. In the case of Germany, accepting such a deal led them to gain quite a bit - increased access to US airports - but did not cost them much, as the existing treaty was heavily biased towards American interests anyway.
In the case of the UK, however, there was quite a strong objection to granting such fifth freedom rights. The UK was not willing to grant US carriers permission to fly to London, then pick up passengers to fly on to Paris or Frankfurt unless in return British airlines (notably British Airways) could pick up passengers in New York and then fly them on to Los Angeles or San Francisco.
So we have had an impasse. US and UK authorities have met with each other a number of times in recent years to attempt to negotiate a more liberal agreement than Bermuda II. The US has been absolutely insistent that any new agreement must allow an unrestricted number of US airlines to fly to the UK. The UK has been absolutely insistent that any new agreement must allow British airlines some domestic rights in the US (notably the right to pick up passengers on the east coast and put them down on the west coast, and vice versa). A new agreement making things even slightly more liberal would be vastly in the interests of consumers, but no progress has been made whatsoever. The US negotiators are unable to put what the British negotiators want on the table, for two reasons. Firstly, US airlines are highly unionised, in most instances financially quite precarious, and have considerable political influence, and for this reason allowing foreign carriers to carry domestic passengers is something considered unacceptable to these political interests. Secondarily, when it negotiated the "open skies" agreements with other countries, the US gave these countries the right to renegotiate their deals if the US concluded a more favourable deal with any other country.
British negotiators have slightly more flexibility, but it doesn't seem to matter. Although British Airways are no longer a state owned company, they might as well be to the extent that the UK Transport ministry negotiates on their behalf. In the eyes of the ministry BA's interests are paramount. It would certainly be in the interests of consumers and the British economy as a whole to simply open access to Heathrow without any concessions from the US, but negotiators are not willing to do this. Therefore, the last several attempts to negotiate a new British-American aviation deal have ended acrimoniously after a couple of days with nothing resolved.
But, there is one other way that additional airlines can enter the Heathrow-US market. This is for some airline from a third country with landing rights in the US to be granted fifth freedom rights by Britain. If this happens then that airline can start flying between Heathrow and the US without the US-UK treaty being renegotiated. And this is what has just happened with Cathay Pacific. But as to why, we need to look at the Australia-UK market.
There are three airlines that compete for the premium traffic between the UK and Australia. These are Qantas, British Airways, and Singapore Airlines. British Airways owns a substantial equity stake in Qantas, and the two airlines have coordinated their schedules and do not compete with each other on the route. (When this coordination occurred a few years back, various concessions were made, one of which was that other Australian and British airlines would be given the right to operate the route if the issue came up). Singapore Airlines has the rights to fly to both Australia and London, and has coordinated its schedules so that the layover in Singapore is very short, and passengers can get from Australia to London and vice versa is the shortest possible time.
There are many other airlines that sell tickets from London to Australia, but these do not generally compete for the premium traffic. Generally the schedules of their flights from Australia to Britain are not coordinated, and passengers have to spend a few hours in the terminal in Asia or the Middle East somewhere. This is fine for passengers who either don’t mind spending a few hours in a terminal in return for a cheaper fare or who like to break the journey for a day or two in an Asian city, but this does not generally appeal to business passengers who are generally trying to make the journey in the shortest possible time. For these airlines, carrying Australia-London traffic is about filling empty seats rather than using it as a core business.
However, for some time Richard Branson’s Virgin Atlantic has been interested in entering the Australia-London market in a serious way, to compete with Qantas/BA and Singapore Airlines. It has had no difficulty in obtaining the right to land in Australia, but it has had significantly more difficulty finding somewhere along the way to stop that would be willing to offer the necessary fifth freedom rights. Ideally, Virgin wanted to extend flights from one it its existing Asian destinations, the most suitable being Hong Kong. (Singapore was out, partly because Virgin did not fly there already, and partly because Singapore Airlines is a shareholder in Virgin Atlantic and competing this directly would cause problems in the relationship between the airlines). However, Hong Kong has not traditionally granted fifth freedom rights with as much willingness as has Singapore. Therefore, the British negotiators had to put something on the table in return for Hong Kong granting these rights to Virgin. And the thing that Cathay Pacific wanted was fifth freedom rights from London in order to fly America-London routes.
So that is what happened. Hong Kong and Britain did a deal, and as a consequence Virgin Atlantic can fly from London to Australia, and Cathay Pacific can fly from London to New York.
However, lots of other airlines are upset with this. United, American, and BA are mildly annoyed because they will face another transatlantic competitor. Northwest, US Airways, Continental, Delta and British Midland are more annoyed than this, because they really don’t like it when they are not permitted on a route from their own country when an airline from an entirely neutral country is allowed on it. And Singapore Airlines are absolutely livid. They have long coveted Heathrow-US routes at least as much as Cathay Pacific have. Traditionally, Singapore has been far more unilateral than Hong Kong in offering rights to other airlines, and in return for this they are now locked out of a route that a traditionally less liberal rival is allowed into. The arguments will go on for a while, but while the deadlock in negotiations between the US and UK goes on, none of these complaining parties are going to get much satisfaction.
And so here we have a demonstration (in gruesome detail) of what happens when bilateralism rules. It isn’t pretty. One would hope that blind Freddy could see that consumers and economies would be far better off if every airline that wants to fly across the Atlantic or from England to Australia could do so. Regulation has harmed consumers horribly, and has only helped a few vested interests (and it may not have done that). What is needed is for the whole bilateral framework to be thrown out and replaced with a new multilateral framework.
However, I am not holding my breath.
That said, a decade ago international telecommunications was regulated with a bilateral framework very similar to that of airlines, and that is now largely gone. That is a very different industry that has undergone much more technological change, but the example perhaps gives us reason to hope.
Tuesday
Taxation is in the news just now in Britain, because the word is that Middle England is finally getting fed up with Gordon Brown and his relentless drizzle of sneaky tax increases and failure or refusal – it doesn't really matter which, does it? – to keep a lid on public spending. Which is perhaps why, when I supped last night with Alex Singleton, we fell to talking about Tax Freedom Day. And I heard myself saying, the way you do, that there is another way to dramatise the scope and nature of the British tax burden, which is to ask: How many taxes does Britain now have?
Frankly I have almost no idea at all of what the answer to this question is, for Britain. But to ask it might achieve many benefits, I surmise.
The Adam Smith Institute, curators of Tax Freedom Day, have themselves gone a long way towards dramatising this issue with their killer meme "stealth tax". But that often refers to sneaky increases in obscure taxes which are already in place, rather than to the introduction of entire new taxes.
With taxation, size matters, but a big part of the burden of taxation is the sweat of sorting it all out, both on paper and in your own mind, or the cost of getting someone else to do that for you, and of the sheer confusion that complicated tax laws create in the minds of potential wealth creators. With taxation, there is not only the punishment of the simple and the known burden. There is also the vague dread of unknown horrors to come if one attempts to embark upon a different and more lucrative life. This is not a fact of modern life nearly as much spoken about as it might be, because it usually involves admitting that one is personally scared into non-productivity by one's own failure to understand and deep desire not to have to understand the tax system. Yet it must be that if the government piles up enough complications, even if each complication on its own is not all that complicated, the combined effect is just as debilitating as a large percentage tax increase imposed in a clear and brutal but more understandable way.
I guess it's likely that a popular answer to the question about how many taxes we labour under will be that it is impossible to say, every approximately, because it all depends what exactly you mean by a different tax. Well, such a discussion would further serve to illustrate what an immensely complicated matter taxation can be.
Besides which, in the event that any organisation does fix on a number, then even if the manner of how it was arrived at was controversial, it would still mean a lot if the number goes up, or down. Up would still mean more complicated and sneaky. Down would still mean more honest and simple, even if no less burdensome in total. The same applies to Tax Freedom Day. That too is a controversial calculation. But if the Adam Smith Institute says that Tax Freedom day has advanced by a week in the last seven years, or whatever, that still counts for something, even if you think that the advance should really have been announced as having taken place in a slightly different part of the calendar. Even if you can't agree where you are, the way you are going is still worth talking about. Number of taxes would be like that, I think.
Again, just as with Tax Freedom Day, the How-Many-Taxes? question would be a standing challenge to politicians to improve matters by saying, for example, that they will immediately get rid of ten or twenty easy and stupid taxes, and then get stuck into another fifty or a hundred slightly less stupid and harder to remove ones, which could nevertheless be got rid of over a period of months or years.
How Many Taxes? would also, again just like Tax Freedom Day, invite an excellent discussion based on international comparisons. A nice by-product of such comparisons might be that countries which usually do rather badly in international league tables might do rather well in this one. Something tells me that the country with the fewest separate taxes is not going to be the USA, and who knows, it may even come bottom on this one.
I should add that the last thing I want to do is to replace all the other ways that people use to complain about the tax burden. Tax Freedom Day was a brilliant idea, as Michael Howard's recent pronouncements concerning it prove. I'm trying to add to our rhetorical armoury, not chuck out any existing weapons.
Final point: it may well be that none of the comments on this will get anywhere close to answering my question. If that happens, no problem. My purpose is to plant the thought in a few minds, not necessarily to harvest the result straight away. Of course, if anyone has already thought about this question in detail, then I'm sure we'd all be delighted to hear about that, and about any answers that have been supplied.
Sunday
I am in Antwerp. As well as being a city of great economic importance as one of Europe's largest ports, and also one of those great Dutch trading cities in which modern capitalism was invented in the sixteenth and seventeenth centuries, Antwerp is today a very cool city: full of great bars, interesting shops, jazz clubs, assorted types of cafe, you name it. This afternoon, after drinking two or three glasses of fine Belgian beer while listening to a piano and bass jazz duo, I got on the metro to go back to my hotel. (The Belgians are the first people I have encountered who have managed to make a single line metro system confusing to use, but I digress). I found myself sitting in a seat on the metro platform, waiting for a train.
Suddenly, quite softly, I heard a familiar song being sung. It was one of the songs from the famous musical epsiode of Buffy, The Vampire Slayer. As I do happen to count knowing the lyrics (and far too much dialogue) of Buffy amongst my many skills, I paused for a moment or two and (perhaps it was the beer) joined in. After a few seconds, the girl noticed that there was somebody else singing and stopped, and seemed slightly embarrassed to be caught doing this. However, I mentioned that as someone who personally owned six seasons of Buffy on DVD, I was unlikely to think less of her for singing songs from Buffy. (There is also the minor matter that she was quite beautiful, and few guys mind it if a beautiful girl is a little embarassed).
She said that she was still waiting for the DVDs of season 5, as she is buying the US versions. (It is a point of dispute amongst Buffy fans as to whether the US or European DVDs are better. The European ones have been released first and are in widescreen, but the US ones are cheaper and have more special features, including a particularly hilarious commentary track on one episode from Seth Green. So we discussed this briefly. But once again I digress).
She expressed her surprise about the whole thing: she said that she sings that song when walking the dog, but that nobody had ever recognised it before. She said this in an accent I couldn't quite place: it sounded sort of posh English, but it wasn't quite that. So I asked her. She said that she was Argentine, but that she had lived in England for a time, and also had spent a while in Germany. I could sense that there was more to the story than this, But that was as much as I got.
If I was writing this in a film script, this would have been a wonderful example of what Roger Ebert calls a "meet cute", and I would have no doubt used the whole episode as an excuse to invite her back to the jazz club, and it would have ended up being a wonderfully amusing story to tell our grandchildren.
But, sadly, there is something that I have left out of this story, which is that the girl in question was not alone. She was with a young Belgian man, obviously a boyfriend. So, I chatted with them a little until my train came, wished them goodbye and boarded my train.
I am not sure that there is a point to this story, other than that a globalised world in which I, an Australian who lives in London, can spontaneously start singing a song from a musical episode of a television series of light gothic horror set in a Californian high school with a beautiful somewhat anglicised Argentine woman in an underground train station in Antwerp is something I like immensely. And also, Joss Whedon is a genius.
Tuesday
Just how long will the European Union last? Unarguably it is well dug in. Will it hang in there just long enough to condemn an entire continent to a painful and lingering death?
Few people are prepared to confront such a possibility or even entertain any such notion. Fortunately, one of those few is Ruth Lea:
The tectonic plates of the global economy are shifting. After a gap of several centuries, India and China are re-establishing themselves as major economic heavyweights. China, in particular, is becoming the "workshop of the world" and its economic rise will be as significant as the USA's arrival on the global scene in the 19th century.We may complain as jobs are "exported" to these emerging colossi but, whether we complain or not, this seismic shift is occurring and we cannot ignore it. The need to remain internationally competitive is becoming ever more critical for all the "western" economies.
I have little doubt that the US, with its "can-do" entrepreneurial attitudes and enormous economic power will continue to make the grade. But I am increasingly unsure that this can be said about the major euro-zone economies or even, in my darkest moments, Britain. After all, over the past five to six years, Britain has been slipping down the competitiveness league tables compiled by the World Economic Forum and the International Institute for Management Development reflecting higher taxes, heavier regulations and poor public services.
Government policymakers, while singing the praises of enterprise, competitiveness and high productivity, have undermined them all. The EU's regulatory zeal has undoubtedly played a significant role in damaging British competitiveness. Over the past six years, one of British business's greatest complaints about Government policy has been the rapid increase in the number and complexity of employment regulations.
And, as if right on cue, yet another set of Brussels-mandated employment regulations comes into effect in the UK today.
I like to think of myself as a reasonably articulate man but even I am struggling to find the language sufficient to convey the bone-headed stupidity of this:
From 1 December, employers will be liable for tackling discrimination against employees, agency and other workers on grounds of sexual orientation (whether heterosexual, gay or lesbian or bisexual).From 2 December it will also be unlawful to discriminate on the grounds of religion, religious belief or similar philosophical belief.
Why the one-day delay? Did they think it would provide an opportunity for everyone to shout "You Buddhist bastard" across the office one last time before such uncharitable sentiments become actionable?
And just what are 'similar philsophical beliefs' supposed to be? Atheism? Satanism? Communism? I bet capitalism is excluded.
Indirect discrimination can arise if the employer operates working practices or policies or rules which have the effect of disadvantaging people of a particular sexual orientation or religion or belief, unless they can justify them.Employers who have yet to consider the implications of this new legislation should do so without delay.
They will need to review a range of policies and internal processes (ranging from recruitment through to the provision of remuneration and benefits packages and the conduct of disciplinary and grievance procedures).
Just as important will be to look at the often unwritten rules and arrangements which govern the day to day conduct and management of staff within the workplace.
For example, do catering and social arrangements create any disadvantage for those with special dietary requirements or who do not consume alcohol on religious grounds?
Do holiday arrangements adequately cater for those wishing to take annual leave to coincide with religious festivals and how are these to be dealt with when they clash with business needs?
It will not be enough for employers to pay lip service to these new regulations, by adding references to religion, belief and sexual orientation, in their equal opportunities policies.
Employers should give active consideration to the impact their workplace practices may have on their staff and encourage openness so that concerns may be raised and addressed.
Is that all? Anything else? Are they quite sure they haven't left anything to chance? As if our commercials concerns aren't already creaking to breaking point under the weight of bureaucratic red-tape, this whole, heaping, helping of adult babysitting has been shovelled into their laps as well.
If neurotic, hyper-sensitive, mischievous, gold-digging employees are already a ticking bomb in any organisation then the EU has just lit the fuse. Not only have such people been given pretty much carte blanche to wreak their worst but employers (who will, not unreasonably, fear the worst) will have to exercise such despotic control over their own employees words, actions and thoughts that every workplace is going to resemble a re-education camp. And they have they eye-popping nerve to say:
The spirit of the legislation is to encourage tolerance and consideration amongst work colleagues.
Deliberately and wantonly engineered fear and paranoia is much closer to the mark. Which will be followed by poverty and rapid decline as exhausted employers, staring ruin in the face, decide to up sticks and piss off to Asia where they will not be slowly asphyxiated by a permanent ruling class who will sorely miss them once they have gone.
Or perhaps they won't. Perhaps their myopia is so advanced and deep-rooted that, even while the economy crumbles around them, they will furrow their brows, scratch their heads, shrug Gallically and spend their dying days huddled around candlelight, eating dry biscuits and wondering how on earth it all went so wrong.
But, over to Ms Lea again:
Unless attitudes change, regulatory burdens are lifted and more free market policies are adopted, Europe's future is bleak, especially when the demographic factors are considered.
A change of attitude?! Don't anybody hold their breath. The kind of people who cooked up this latest regulatory loon-fest are unlikely to be persuaded by anything as unsophisticated as merciless reality. I do honestly believe that they will go sailing gently into the eternal darkness of oblivion, wailing pathetically about the unfairness of it all and blaming their predicament on capitalism, George Bush and the Jews.
Over to Ms.Lea, finally:
In a recent report, the Paris-based Institut Franais des Relations Internationales concluded that, unless the EU changed its policies, it "will weigh less heavily on the process of globalisation and a slow but inexorable movement on to 'history's exit ramp' is foreseeable." And the constitution will help it on its way. It really is no laughing matter.
It is for the Chinese and the Indians. They will be laughing all the way to the bank.
Thursday
Here's a quiz. The UK government is squandering money all over the place. That's what governments do, after all. Just look at National Rail, The Dome, Government Department IT projects... If you could choose one government project that was the most appalling of all, what would it be? Are there ones that we don't know about?
Tuesday
I bought the paper version of the December 2003 issue of Prospect yesterday, and was all set to quote from the two pieces I've already been reading with particular interest, while apologising for not supplying any links. Well, I can, but in the case of the longer article only to an introductory excerpt. How long even these links will last, I cannot say.
From Michael Lind's review of D. B. C. Pierre's Vernon God Little, which won the Booker Prize.
At one point Pierre's cartoon Texas sheriff says: "How many offices does a girl have that you can get more'n one finger into?" The comic malapropisms of pompous black characters were a staple of racist minstrel-show humour of the Amos 'n' Andy kind. If Pierre, purporting to unveil the reality of black America, had depicted a leering, sex-obsessed African-American police officer unable to distinguish the words "office" and "orifice," would jury members like AC Grayling – a distinguished philosopher whose work I have long admired – have voted to award such bigoted trash the Booker prize?But I don't want to be too hard on the Booker jury. They've democratised literature by proving that a book doesn't have to be any good to win a prize, so long as it exploits socially acceptable national and ethnic stereotypes. ...
Assuming Lind is right about the crassness of this book, and although I've not read it I have no particular reason to doubt him, the next question is: why? What gives? Why this animus against Americans, and especially against those most American of Americans, the Texans.
In another article ("Vengeful majorities") in the same issue, Amy Chua writes about (as it says on the cover of the issue) "The global backlash against successful ethnic minorities":
Market-dominant minorities are the Achilles heel of free market democracy. In societies with such a minority, markets and democracy favour not just different people or different classes but different ethnic groups. Markets concentrate wealth, often spectacular wealth, in the hands of the market-dominant minority, while democracy increases the political power of the impoverished majority. In these circumstances, the pursuit of free market democracy becomes an engine of potentially catastrophic ethnonationalism, pitting a frustrated indigenous majority, easily aroused by opportunistic politicians, against a resented, wealthy ethnic minority. This conflict is playing out in country after country today, from Bolivia to Sierra Leone, from Indonesia to Zimbabwe, from Russia to the middle east.Since 11th September, the conflict has been brought home to the US. Americans are not an ethnic minority. But Americans are perceived as the world's market-dominant minority, wielding disproportionate economic power. As a result, they have become the object of the same kind of popular resentment that afflicts the Chinese of southeast Asia, the whites of Zimbabwe, and the Jews of Russia.
That makes a lot of sense to me. Americans as kind of global white Zimbabweans. It certainly fits everything I read and see around me.
And it leads me to think that it is among these "market-dominant minorities" that what is variously called (by the bosses of this blog) the Samizdata meta-context, or (by me, for these purposes) libertarianism, is likely to catch on most enthusiastically. Here, unlike how it is at most intellectual addresses, we both (a) note the conflict between liberty and democracy, and (b) pick a side without any waffling or muddling of the two together, namely: liberty. Hurrah liberty, screw democracy. Accordingly, we side unequivocally with the market-dominant minorities and against the vengeful majorities who now torment them, as and when they can. I warmly recommend reading all of Chua's piece.
It so happens that, in between reading Amy Chua's piece last night, I also participated in an LSE Hayek Society discussion, on the subject of free market education. This turned out to be a pretty accurate summary of the themes we talked about, despite it only being a guess/preparation for the event rather than a report. A minority said have a complete free market. A majority said: no, education has to be a little bit state funded, otherwise the poor and potentially uneducated would suffer too much.
But my point here is not about education. It is that the feeling I got was that there were basically two types of people in the room with me. There were Brits. And there were members of the world's various market-dominant minorities, including a couple of Americans. And I guess you could say that we Brits are members of the "American" minority ourselves, for these purposes. If you do include us Brits in this category, practically all those present were ethnically on the liberty side of the liberty/democracy divide that Amy Chua writes about.
Although - big caveat which complicates things a lot - many of the most ferocious 'anti-Americans' are also Brits, and Americans. A lot of them don't like anyone being "market-dominant" either.
It is, as the Anglo-American example illustrates, a lot more complicated than slabs of ethnically uniform opinion. Nevertheless, these market-dominant minorities are a big part of the human territory where, you feel, our stuff is now catching on most strongly. It's not just Americans. It's not just the Anglosphere. It's not just the Anglosphere plus the Jews. There are lots more people involved than this. What the consequences of this global, albeit still selective, spread of our ideas will be is very hard to guess. But I bet you anything that, given the resources, talents and sheer numbers of these people, consequences there will be.
Wednesday
George Monbiot has had a revelation... a few decades later than it should have been, but hey, better late than never. Having had the rare pleasure of meeting George Monbiot in the flesh, I was somewhat incredulous to read of his sudden insight that the only plausible way to end capitalism is with totalitarianism rather than caring sharing 'democracy':
Whenever anyone in Paris announced that capitalism in all its forms should be overthrown, everyone cheered. But is this really what we want? And, if so, with what do we hope to replace it? And could that other system be established without violent repression? In Paris, some of us tried to tackle this question in a session called "life after capitalism". By the end of it, I was as unconvinced by my own answers as I was by everyone else's. While I was speaking, the words died in my mouth, as it struck me with horrible clarity that as long as incentives to cheat exist (and they always will) none of our alternatives could be applied universally without totalitarianism.
Of course the choking weed of 'democratic' regulatory statism will continue to bugger up that great impersonal global capitalist wealth generation machine for quite a while yet. However in the long run Monbiot is quite right that the only way to actually kill off that protean virus-like thing called capitalism is to kill 20 or 30 million people in the developed world... and that ain't gonna happen. Nevertheless, do not expect Monbiot to abandon his attempt to replace as many several social interactions as possible with collective political interactions any time soon (euphemistically called 'making the world more democratic'). In many ways, his sudden realisation that he cannot wish capitalism out of existence by calling for a show of hands will make him more keen on gaming the system to achieve his ends, much the same way Ralph Nader holds himself up to be a 'consumer advocate' (and what could be more 'capitalist' that a 'consumer', right?) and speaking outside the tradition left wing meta-context.
Tuesday
This, which I got to via the Mises Economics Blog (such is the world these days), is not good. It is from today's London Evening Standard:
GEORGE Bush's administration has called on US companies in Britain to relocate jobs to America in an astonishing move that could trigger a major trade war.US-based multinationals have been told they will receive compensation from American trade authorities if they cancel contracts in Britain and take jobs home, according to CBI director-general Digby Jones.
The allegations come only a day before Bush arrives in London for his controversial State visit and escalate the storm of protest he has already caused by slapping big protectionist tariffs on European steel imports.
Speaking at the CBI's annual conference in Birmingham, Jones said: 'Three chief executives of American companies investing in Britain have told me to my face that they have been told to close down, bring their stuff home and make it in the US.'
For as long as I can remember, I have been telling myself and anyone else who will listen that the very existence and widespread use of the phrase 'trade war' – as opposed to the cuddly version: protection – is evidence that the world now understands how deeply dangerous trade wars can be. Now I am not so sure. Not only is Bush provoking a 'trade war', but people on this side of the Atlantic seem keen to make the absolute most of this that they can. This is just want Europe in the worst sense wants, and Britain in the best sense does not.
No wonder the CBI (Confederation of British Industry) – which loves big business and hates small business, which thus favours regulation of the sort that big business can live with and small business can not, and which thus favours Britain being locked into the EU – is flagging up this stuff. It is grist to their EUro-mill, a multi-coloured EU rag to all their fat cat bulls. I hope they do not get anywhere with it. I fear they will.
I have also tended to resist the idea that the current President of the Unites States is a fool. Do fools get elected President? I am starting to have doubts about that as well. On the other hand, maybe Bush wants a trade war with Europe. It certainly seems that way. And it also seems that he does not mind making maximum bad vibes for his former best friend, Tony Blair.
Friday
Fresh British data shows corporate Britain suffered a 10-year record level of bankruptcies in the third quarter of this year, as this article explains. However, before assuming the worst, a good question to always ask when reading stories like this is - how many new business starts were there over the same period? And you know what, after a lot of searching around on Google and elsewhere, it is mighty hard to come up with reliable data. (I would be grateful for help thereon).
But it matters in knowing what the figures are. Because, as the American business writer George Gilder noted more than a decade ago in his excellent book, Wealth and Poverty, if a country has a lot of bankruptcies, it does not necessarily mean an economy is in trouble. So long as bankrutpcies do not outstrip new company formation, there is no problem. In fact, having a lot of bankrupticies is, paradoxically at first sight, a healthy sign. It means folk are taking risks, trying ideas. Some of those gambles will go splat. But even then the sounds of firms hitting the ground with a thud generates knowledge for the rest of the economy. Or to borrow from Karl Popper, bankruptcies are like falsifying a theory in science. You still learn from when an idea is challenged and proven not to work.
So, the latest figures maybe cause for concern. What we really need to know is whether, in Blair's corporatist and ever more highly-taxed Britain, the animal spirits of entrepreneurs are given full rein.
And I can guess what you good readers out there think of that!
Friday
Puff Daddy, or P. Diddy, or whatever, has a clothing line that he was shocked, shocked! to discover was being made in a "sweatshop" in the Honduras. Clearly, this was intolerable, so Puff did the only (politically) correct thing, and said he would terminate the contract if conditions at the factory were substandard.
So lemme get this straight. To show his solidarity with the oppressed Honduran workers making 90 cents an hour, he threatens to fire them all. I understand that this makes Puff feel better, but how is it supposed to help the workers?
To make it worse, Puff's sweatshop was actually paying well above the Honduran average wage. I'm not quite clear on how moving a relatively high-wage job from a poor country to a more developed country with a higher-wage workforce is supposed to advance social justice, but obviously the Puffster's grasp of ethical ephemera exceeds my own.
Monday
A friend of Alice Bachini's has been buying a fridge. The two most interesting obvservations are that an aesthetically different but otherwise identical fridge cost 50% more than the one that was purchased, and that it was possible to obtain a substantial discount by finding an internet retailer that offered the same fridge for substantially less than the high street retailer, and taking up the high street retailer's offer to match any competitor's price.
As for the first issue, I am presently reading Virginia Postrel's The Substance of Style which is to a large extent about the first question (ie about why people care about fridges with different aesthetics, and why they are willing to pay a lot more for the right aesthetics). I will review the book when I finish reading it.
As for the second issue, well it brings up a big annoyance of mine about this country (which is a country that in most ways I rather like), which is that in some ways it isn't that sophisticated as a retail market. In a lot of areas the high street is just horribly uncompetitive and anticompetitive.
Electrical goods are a very bad example of this. High street retailers simply do not compete with one another on price. They will give you discount finance sometimes (which doesn't help if you want to pay cash) and they will sometimes make the "We will not be undersold" type argument, which has traditionally been on the understanding that most of their competitors charge the same as they do, and that the British anyway are too embarassed to take advantage of such offers. However, the simple strategy of "Here is 1500 pounds in crisp 50 pound notes. Can I have a discount?" just doesn't seem to work here. This is entirely different to what I am used to in Australia, where the electrical retailers are about as competitive as it possible for them to be.
A lot of this lack of competition in Britain actually has to do with planning regulations. In America (and Australia) discount retailers have been able to build large stores in large out of town shopping malls. In Britain this has not generally been allowed, in the name of preserving the high street. As a social goal this may have been at least partly successful - city centres may well have been hollowed out more if out of town shopping malls had been allowed in larger numbers - but we are paying for it. And we are paying a lot for it. Every time you pay too much for something in Dixons (which is most of the times you buy something in Dixons) you are paying for it.
Of course, a consequence of this is that a parallel retail business has sprung up alongside the high street, in which you can buy things at competitve prices. This is why London is full of things like Sunday markets in Shoreditch selling mobile phone parts, and guys on street corners selling batteries, and discount stores run by immigrants that sell lots and lots of telephone accessories and video cables, and computer fairs and things like that. This is one of the things that gives the city its charm, but it is also annoying if you just want to walk into the nearest electrical goods store and buy a fair priced telephone cable. Using this parallel retail business is a hassle, which is why the uncompetitive high street retailers continue to dominate in the way they do.
Thankfully, though, the advent of internet retailing is changing things. It is possible to buy fair priced electrical goods over the internet, and I am finding myself doing this more and more. And this is slowly turning into competition that the existing high street retailers are acknowledging, as Alice's friend found out. "We will match any competitor's price" deals are starting to mean something. (Still, however, Alice's friend had to find a price on the internet before the high street retailer would lower the price, rather than just negotiating a discount. There is an extremely strong antipathy amongst most electrical retailers to simply being willing to negotiate their best price).
However, even this isn't perfect. The disadvantage of this is that when you buy stuff on the internet you have to wait a day or two to receive it. Right now I am sitting here hoping that a memory card for my digital camera arrives before I leave for Australia on Wednesday. Given that it was 40% cheaper on the internet, though, I didn't see buying it on the high street as a realistic option. (Of course, it goes without saying that the fact that I can obtain such a good price from an internet retailer when ten years ago this was impossible is a huge step forward). Hopefully, someday, the competition will mean that the high street is more price sensitive.
Or perhaps the British government will institute some laws that are genuinely in the interests of consumers, namely dereglation that makes it easier for new entrants to build and open large shops wherever they want to. A few years ago an investigation was actually held into price fixing in electrical goods on the high street. It determined that although different retail chains usually charged exactly the same prices as each other, there was no actual collusion between them, and therefore they weren't breaking any laws. What would have been nice would have been an acknowledgement that the problem was that there was not enough competition, and that this was because regulatory barriers to new entrants to the business were too high. Red tape is too great in other ways. The government spends a lot of time introducing new regulations that supposedly increase consumer rights and protections, but the most important consumer right of all, the right to obtain the best possible price, is far too often ignored.
Thursday
Over on the Adam Smith Institute blog, Madsen Pirie makes an excellent point about the joys of borders and the competition they bring:
In the US I like to cross state lines to go for the lower sales taxes and duties. It is reckoned that 'leakage' (cross border shopping) will be a significant factor if there is a 3 percentage point tax differential. And it's not only competition in sales and purchase taxes which works. I love French food and wine, and the priority they are given, but I don't feel the same way about their income tax and social insurance. The Danes do pickled fish on rye bread superbly, but there's no way I want to pay Danish taxes. I enjoy the Swedish forests and lakes, but not their government.
Which is of course why so much of the USA's political class have supported the steady march towards ever more federal power and why the EU's political classes love 'harmonization' to prevent 'unfair' tax competition. The Adam Smith Institute is often seen as just being about the life of homo-economicus but as Madsen's remarks show, they are in fact concerned about the impact of liberty on culture and society and not just the Dow Jones Index.
One of the reasons so many French families can be found living in Kensington ('Frog Valley') is that there is a two way exchange going on between Britain and France: a 'brain drain' in which French entrepreneurs, executives and high tax bracket individuals are moving to relatively less regulated more dynamic Britain to escape the deadening (and grasping) hand of the French state, whilst at the same time retired British people who do not actually have to work for a living, and are thus unlikely to have to deal with the nightmarish French state, are buying up property in the Dordogne to experience the cheese, fois gras and claret idylls of bucolic France.
Yes, there is something to be said for borders.
Monday
Much is being made, rightly, of China's growing economic importance in the world, following China's recent and very newsworthy space mission.
But now here's a really interesting and encouraging New York Times article about the rapid and highly visible economic progress now being made in India. The most encouraging thing about the piece for me is that not only is this progress described, it is also explained:
This is no longer the India of Gandhi, among history's most famous ascetics.The change in values, habits and options in India – not just from his day, but from a mere decade ago – is undeniable, and so is the sense of optimism about India's economic prospects.
Much of India is still mired in poverty, but just over a decade after the Indian economy began shaking off its statist shackles and opening to the outside world, it is booming. The surge is based on strong industry and agriculture, rising Indian and foreign investment and American-style consumer spending by a growing middle class, including the people under age 25 who now make up half the country's population.
The lesson – and being taught in the New York Times, please note, rather than merely in some free market Think Tank think piece – is that if you want rapid economic progress and a sense of optimism, you have to shake off your "statist shackles" and open up to the outside world.
The use of the word "statist" I find especially interesting. I could be wrong, but I don't believe that's a very common usage over here, and for that matter how common is it in the USA's mainstream media? It makes the point perfectly that the important divide now is not between different factions wanting to use state power to do this or alternatively that, but rather between all of those who want their country or state to be or to remain bound by statist shackles, and all those who want those statist shackles shaken off. (You may need to slow down a bit when you try to say things like this out loud.)
For the sake of the entire world, I hope that the Indians themselves draw this same lesson from their own emerging success, and then teach that lesson to the rest of the world. Combine them doing that with the Chinese having so visibly retreated from their own far more horrific statist mania unleashed by the lunatic Mao-Tse-Tung and as a result also emerging into economic superpower status, and the twenty first century could end up being a very good one. It already looks like being a very prosperous one.
Thursday
Bet that title grabbed you... not! I don't normally ponder the business section of the newspaper either, being a non-earning radical unschooling parent with barely a couple of ha'pennies to rub together for heating at this time of year. However, as one of Samizdata's resident optimists, I couldn't help but notice this Telegraph headline warming the cockles of my heart:
FTSE rides wave of global optimism
So what? I hear you all demand. Aren’t markets notoriously fickle? Don’t share indexes go up and down like yo-yos from one moment to the next?
Well, not exactly, no. They do react over-sensitively sometimes, including to mistaken theories and red-herrings and suchlike. But they do also tell us something about how economies are doing, in a general sense. And there are few things more important to a country’s success than its economy. And free-markets succeed where controlled markets never can, which is why Eastern Europe is still hobbling its way towards the 1980’s while in the West we enjoy Gameboy Advance, ever-improving standards of living and quite a few more Wonderbras per capita than you will still find in rural Transyllvania.
And also why looking at the economic news can actually tell us something about how free our country is. If things are booming, then of course lower taxes would help them boom even more: but something else is definitely still going right regardless (probably many things, in fact).
Freedom is about more than legislation. It’s also about how the state enforces its legislation, what methods for criticising and changing the legislation are in place (democracy being the best one anyone seems to have achieved so far, definitely more efficient for spreading ideas than fascist dictatorship), and how effective people are at doing this criticising and changing. Here on Samizdata, I’d say we’re pretty good. But it would be wrong to assume that everyone is as knowledgeable (or interested) as we are in the political process and evolutionary growth: interpreting widespread disagreement with our own ideas as hard evidence that evil Marxist brainwashing plots have tainted the Nation That Once Was Great is a big logic error (file under "conspiracy theory").
Apart from anything else, if we’d really gone Marxist, that would be reflected in our shopping centres. Ever been shopping in a Communist state? I spent two hours searching for a supermarket in Krakow once. All I found was a single grocery store stocked with tins, sausages, Wodka and a small selection of slightly mouldy vegetables in one corner. And you still had to queue up separately for each item. And that was ten years after the fall of Communism. (Change takes a while, but no doubt they’ll get there in the end.)
Bad governments make for bad markets which means bad shopping. In Baghdad, as I noticed Salam Pax writing in the Guardian, (read down a bit, past the Nazi/US comparisons), things are picking up:
I spent hours lovingly patting expensive pocket PCs. The shops in that street are so crowded you have to be really tough to get to the front.
And if good governments make for good markets, then good markets indicate that despite being wrong on many many things, the UK government has not actually sold the Greatness That Was Britain down some River of Stalinist Blood yet. And it will take more than the fact that Brits are mean enough to spend hours and months queuing for free (at source) medical treatment to convince me that we’ve transmogrified into Communist Russia. Disneyland is full of queues as well, remember, and that’s not an authoritarian state. (Although their song “Following the leader” does take on rather sinister undertones when sung in German, as a friend of mine with kids once mentioned).
To sum up, I would like to offer the following as a few indicators of the state of a nation, and suggest that they constitute harder evidence than the latest set of government and/or EU proposals that may or may not ever make it into the statute books and/or anybody’s real life in any kind of enforced or real sense.
- How many varieties of apple one can buy in the supermarket,
- How many expensive designer clothes shops natives can afford to go in, and, how many bargain-rails the cheap-and-cheerful shops have, all year round,
- How much force the government actually uses on the media to get it to say what they want it to say- whether the major newspapers are all of one party line, or diametrically disagree,
- Whether those newspapers perceive economic growth or otherwise (of course, most front-page news will be bad, but that’s the nature of news; good news isn’t any),
- Whether elections demonstrate that people change their opinions from time to time,
- How long it takes for cutting-edge technology to become a) available, and b) available at cheap prices.
That’s a random selection, not any attempt at a comprehensive overview. Samizdata readers can no doubt come up with various other capitalist freedom-indicators (how about; whether a country respects the rights of its minority groups, including their right to march against said country's government).
And yes, I know economists get things wrong. We all get things wrong- human beings are fallible- but these days, in my view, you just can’t call a spade a spade without taking a look inside a hardware store first to see just how many sizes and colours of spades are available. Go capitalism!
Friday
In Defence of Global Capitalism
Johan Norberg
Cato Institute, 2003
Another welcome book in the Simon, Lomborg line, this time from Sweden, an auspicious sign. The Preface was reprinted in Liberty, where I first read it and where it makes a good summary of the argument of the book. In 1988 when the author was 16, his party – the Anarchists – got the largest percentage of votes, 25%, in the school mock-election, running an agin-the-government campaign. His position has changed somewhat – capitalism has difficulty working without a legal system and transparency in transactions – but is basically the same.
He starts by insisting that over the past three or four decades things have got better, particularly in the poorer "developing" countries. Income per capita has increased and mortality been reduced. This he ascribes to opening of the countries concerned to "the market", both internal and external. He is, moreover, strongly against national barriers, not merely to trade, but also to migration, though here he doesn't take into account our xenophobia. The case against tariffs is succinctly put by the quotation: "Either a branch of enterprise is profitable, in which case it deserves no tariff protection; or else it is unprofitable, in which case it deserves no tariff protection (p. 152)."
Although not explicitly against the EU as such, his analysis of its CAP agricultural subsidies and protectionism (pp. 148-) is damning, and it is even more shaming that so-called pro-Third World anti-globalisation protesters do not target them.
There is a separate chapter on "The African Morass" (p. 98-) where per capita GDP has actually decreased since the '60s, though I think the statement that "The African countries have inherited a hierarchic, repressive political structure from the colonial powers" needs to be modified: what they did inherit, according to Bauer, was a late move to a command economy and a socialist intellectual outlook. The situation has been exacerbated by international aid, and debt cancellation would only be an encouragement of the behaviour that brought the bankruptcy about
The author refutes the prevalent belief that world inequality is growing, either between (p. 53) or within countries. He also points out that social mobility means that "the poor" are not the same people from one year to the next (p. 76). This, incidentally, is the factor most frequently, in fact always, omitted from discussions on poverty, whether absolute or relative; in fact, only 4% of the US population remain in the "poor" bracket (20%) for as long as two years, though some will remain longer.
Saturday
A Life Against the Grain: The Autobiography of an Unconventional Economist
Julian L. Simon
Transaction, 2002, hardback
This is a posthumously published work:
Julian Simon died suddenly and, according to the doctor's report, instantly of his first and only heart attack on February 8th, 1998. He had just returned from a trip to Spain where he had been awarded an honorary degree from the University of Navarre. He was in very good spirits and showed no signs of fatigue or illness.
So runs the initial "Comment" by his widow, Rita J. Simon. I had wondered how he died, having learnt, with regret, the fact from the mention in a Laissez-Faire Books Catalogue, and even feared that, given his history of depression, he might have committed suicide, a fear justified by his admission in this book that he had contemplated doing so while in depression, being prevented by thoughts of his family responsibilities.
The Autobiography of an Unconventional Economist, as the work is subtitled, had been finished, apparently over a year before, in a much longer form (900 pages – though whether they are equivalent to the page size of this 359 page book is not indicated) and has been edited by his widow, with acknowledged support. There may have been a misprint or two I have forgotten, but the only obvious textual fault is not filling in internal references to other chapters, which are left as 00, awaiting specification in the final revision. There is an unfulfilled promise of a bibliography of JLS's publications in the text, but not even a normal list of previous titles at the beginning. His death date is not given on the reverse of the title page, with the usual guff there. All this said (at perhaps unnecessary length) I must say that the book is a very interesting one, less so perhaps for its ideas – these are in his other books – than for information on the personality of its author, though even here there is a possibly involuntary veil of reticence. I hasten to add that I don't just mean about sex, a rather welcome exclusion, but rather why he feels dissatisfied with himself. He obviously had a happy marriage and his three children grew up satisfactorily (Ch 17); he had no money troubles and always did the job he liked or, if it wasn't suitable, changed it.
Although his reassuring ideas about world resources and the environment had not gained widespread acceptance by the time he died, he does not seem to bear ill will to anyone. He may have thought that he didn't manage his life effectively – but this would conflict with his propensity to work at whatever took his interest. This gives an episodic feel to about the first two thirds or so of the book; when is the action really going to start?
Julian Simon was born in Newark, NJ, 12/2/32 of Jewish immigrant stock – he was the third generation – and an only child. He could not respect his father; his feelings for his mother were warmer; love is not mentioned. He claims to have been no more than competent at school, with nothing unusual about him but there seemed to be no problem about getting into Harvard. This was combined, in a way I seem to have missed, with service (presumably the draft) in the Navy. After this he did a stint in advertising and then went to Chicago's Business School, where he realised that he was at ease with economic concepts. After that he set up a mail order business; after writing a book about it, he realised that he liked writing and teaching and got a University job. It is not too clear from the book when Simon's career of "alarmabater" began. He started studying demographic economics in 1966, taking the orthodox view that rapid population growth was a menace (Ch. 20). He changed his views rather gradually during the 1970s, but had great difficulty in getting his work published. By the 1980s he could claim that his views on population – that its growth is a benefit, not a drawback, to human progress – were prevailing, though he's not given much credit for the change (p. 257). Ben Wattenberg's Foreword to Simon's Hoodwinking the Nation, testifies to how Simon underestimated his own influence. On the other hand, he came in for a lot of vilification and, which he found almost as bad, a refusal to listen to his message. However, in March 1981, he received the letter of which he is the most proud, from Hayek, beginning "I have never before written a fan letter..." (p. 268)
Chapter 25 is a rather tantalising account of his 13 year long battle with depression (early 1962 to early 1975). He had – and probably continued to have after the depression lifted – an extremely self-critical personality, and was obsessively concerned with his shortcomings and errors; the long period began with guilt engendered by some unspecified peccadillo. A critical mother didn't help – a Jewish phenomenon? His diagnosis and treatment of his own malady is entirely psychological, rather than metabolic; he may have been unaware of such an approach and certainly took no drugs to alleviate it – this was before the development of modern tranquillizers, so they would be either narcotics or alcohol. He seems rather to have reasoned himself out of it, in this being greatly helped by his Jewish culture: I use this somewhat weasel-word, because "faith" seems too strong a word for his ideology; he calls himself "a radical atheist along the lines of Buddha", in contrast to his wife who "has a fairly traditional Jewish religious belief (p. 315)." He and his family observe Jewish practices, and the start of his recovery seems to have come about from the injunction that a person should not be sad on the Sabbath; indeed, "Judaism also imposes an obligation upon the individual to enjoy his or her life … not to waste your life in unhappiness or to make your life a burden;" in short, it enjoins one to be cheerful. It is of course impossible to say whether his recovery was due to his working this out through his system, fighting off the load of self-criticism (by saying, for one thing, to himself: "Lay off. Don't criticise."), or whether the depression was moving off anyway, or because his work was beginning to receive recognition and make an impact. He has written a book, which he says has helped some – not all – those he has given it to, Good Mood: The New Psychology of Overcoming Depression. The last Chapter (28) is entitled This I Believe: Values and Attitudes. A great man, who underestimated himself.
Wednesday
A couple of weeks ago, non-resident Samizdatista Alice Bachini pointed to this Telegraph piece in praise of supermarkets in general and the Tesco chain in particular, which explains that supermarkets help us to save time and money, make life easier (particularly for women), and provide a tremendous range of stuff much easier to buy at all sorts of odd hours if necessary, that Tesco provide a fine online service for people who want it, and that all round these are really good things and should be applauded. (Oddly enough, my fellow Samizdatista Jonathan Pearce wrote a similar piece between my starting and finishing this piece). Now this is a good article - it even takes a brief time out to denounce the Common Agricultural policy as evil - and on the whole I couldn't agree more. However, there is one important issue that the author (Alice Thomson) missed. Midway through the article, she says the following
Supermarkets are always accused of sacrificing quality for quantity. Actually, because they buy in bulk and have a rapid turnover, it often means that their fruit is fresher than their competitors'. At Tesco yesterday, I counted six varieties of autumn apples, four from Britain.Because they have such huge buying power, they can also take a gamble on exotic produce. The old corner shops were great for a packet of cigarettes, but they'd never have sold fresh basil. Supermarkets have made us more rather than less adventurous.
The result is entirely true. Supermarkets today contain a great many more lines than was the case a couple of decades ago, particularly fresh foods. But she is wrong about the reason. The reason why supermarkets are able to provide so much better products is not about buying power. It is instead almost entirely about the benefits that have been obtained by supermarket chains developing complicated computer systems to handle their logistics.
I will return to this, but for now a digression into economics.
Economists in recent decades have often talked about something called the productivity paradox. Essentially, this notes that in recent decades businesses have been spending more and more money on computer systems, and statistics that measure national and personal wealth have not shown any improvement due to this equipment. There have been various speculations as to why this is so, but as the computer revolution has become more and more pervasive in all aspects of life, the idea that we do not gain any economic benefits due to computers becomes steadily more ridiculous.
To be fair, some benefits have started to show up even in the statistics in the last five years or so, but still these seem way too small, given that the world actually has been revolutionised. It seems that the numbers are wrong, but the question is how.
So we get to how the statistics are actually calculated. Basically, the statistics show an increase in prosperity if one of two things happen: incomes go up or prices go down.
When they are measuing just how much better off people are this year compared to how they were last year, economists generally look at GDP per capita. Essentially they look at the average income per person this year, see how it has grown compared to last year, subtract the inflation rate, and what is left is real growth in GDP per capita. For real GDP per capita to grow, incomes have to increase faster than the inflation rate, and for this to happen, workers have to become more productive - that is, they have to produce more goods and services per hour. Therefore, figuring out how best to encourage productivity growth is in essence the key task of economic management. (By the way, one great cause for uncertainty in economic statistics comes from the measurement of the inflation rate. Do this incorrectly, and stated numbers for GDP growth can be and often are wrong. Most economists believe that this has been happening for the last couple of decades, which is one reason why claims that "real wages have stagnated for blue collar workers since 1970" and the like are largely bunkum. But I digress).
The key point is that where new technology causes prices to drop, the statistics are good at showing it. However, where new technology changes the nature of the product, but the price remains the same, the statistics have much more difficulty showing it. And yet, the benefits are still real.
And that is where we get back to supermarkets. What the computer revolution has done for supermarkets is to allow them to create much more complex supply and distribution chains. This means that they are able to use a far greater number of suppliers, and that their stores can carry a far greater number of different lines, and that transport from suppliers to warehouses to shops has become far more efficient. (This leads to the biggest change in supermarkets over the last 20 years. The number of different lines they carry has increased by a factor of ten or more). They can keep track of approximately how many of each item is on the shelves of the supermarket at any one time. It is not necessary for people to look at how long perishable foodstuffs have been on the shelves, because the computers can keep track of this, too. If there is sudden demand for any particular item, then the store can be restocked extremely quickly in this item. Thus the supermarket has a far better idea of what customers want to buy, and it can improve its offerings. It is possible to stock 12 different types of apricot because detailed facts are known about how fast each type moves off the shelves. Because they know this they can make sure that the produce all remains fresh. Tesco's computer systems have allowed them to increase the complexity of their stores dramatically, to the benefits of customers.
However, what they have not done very much is drop their prices. They offer a product that is much more tailored to their customers wants, and they provide customers with products that they may never have been able to buy in supermarkets (or anywhere) before, and they provide an all in one shopping experience, and customers are willing to pay for these benefits by paying higher prices than they might be able to get elsewhere.
Now, when quantifying the economic benefits of this, traditional ways of measuring look for lower prices. Tesco don't provide lower prices, they provide a more complex product. Because people are paying about the same amount (or more) on groceries, and because Tesco are using about the same number of staff to provide it, the economic statistics do not demonstrate that anyone is better off, when obviously they are. People are buying things of the same value that they did before, but are buying much more complicated combinations of things. The economic statistics do not pick this up. But if you can see the value, one aspect of the productivity paradox is explained.
(This is one instance of a general effect of the computer revolution: the presence of computers allows companies to runs systems that are more complex in lots of ways. Another place this is evident is in the realm of design. Products design contains a low more style, a lot more choice, and a lot more complexity than was the case in the past, again largely due to the presence of computers. Virginia Postrel noted this fact a couple of years ago, and found it so fascinating she ended up writing an entire book about it).
Another different model for running supermarkets is the low cost supermarket model, in which a company offers a small number of lines as before, and no fancy service, but simply uses the improved logistics due to the computer revolution to track down and purchase from really low cost suppliers. This is the model of the two German chains Aldi and Lidl. In this case, prices drop and this does show up in productivity statistics. This is also a successful model, but most people seem willing to pay more for the more complicated service of the likes of Tesco.
In recent years, the retailers with the best computer systems have been able to expand their businesses in a way that other retailers can't, and have had their stockmarket value expand dramatically. Once you have a really complicated computer system keeping track of all aspects of your business, you can do a huge amount with it. For instance, Tesco's highly successful internet grocery business was relatively easy for them to set up, as it just piggybacked on the existing system. Britain has peculiar Sunday trading laws that only allows stores to open for more than six hours if they have a floor area of less than 280 square metres. Tesco have been able to fit full service supermarkets on that floor area, but could not do so without their highly complex inventory and logistics systems. Supermarket chains with good computer systems have been able to buy stores from chains with bad computer systems and have been able to change unprofitable stores into profitable ones just by changing the logistics and supply chains. (The takeover in Australia of many of Franklins stores by Woolworths is a classic example).
In fact, Tesco are so good at this that it is almost frightening. The British government is threatening to introduce compulsory ID cards, which will threaten our privacy and civil liberties in a wide assortment of ways. However, this is only the government. The government lacks the competence of a really good private sector concern with profits on the line. If Tesco were running the national ID card scheme, that would really be scary.
Except, of course, Tesco do run such a scheme. They call it a loyalty scheme, and give me a card to track my purchases, create a large customer database of my preferences and supposedly make special offers specially catered to me. I don't have one of these because I value my privacy. (On the other hand, Tesco could still no doubt track me if they really wanted to, because I usually pay with the same credit card). However, this does illustrate the central dilemma of this type of technology. The benefits are potentially great, but the privacy implications are potentially great also. (We are also starting to see trials of systems in which every item in a store carries an individual radio identification tag. Once again this will help make supermarkets more efficient, and will no doubt help them minimise theft, but once again the privacy implications are troubling).
And computer systems aren't everything. Britain's number 2 supermarket chain is Sainsbury's. And I have to confess I like Sainsbury's more than Tesco. This is because they do really well for nice gourmet stuff (great cheeses for instance) and their wine and beer sections are full of really interesting stuff. Tesco are constantly praised in the business press and Sainsbury's constantly criticised for not getting their logistics right, but they are still actually not my favourite place to shop. In my mind, Sainsbury's do slightly better with respect to human things like differentiating between a good wine and a really good wine. Tesco's computer systems are wonderful with the large scale stuff, but sometimes fall down slightly on the very small scale stuff.
This is all relative though. Sainsbury's actually do all the computer stuff very well too. It's just that Tesco do it better. Or perhaps I am just a snob.
Wednesday
A new Sainsbury's supermarket has opened near where I live in Pimlico, central London. Very good it is indeed. Just about every food obtainable that I would ever want plus lots more. I made my first trip the other day and it triggered off some thoughts about what these big food chains represent in our culture.
First off, the customers looked genuinely excited, cheerful. It may seem weird that in an age of abundance where we take such things for granted, but the opening of this store seems to have created quite a buzz in the area, rather like the opening of a multi-plex cinema. Shopping for many people is an extension of leisure activity rather than just about the utilitarian business of buying food for the table.
The neo-Luddites in our midst claim to despise all this. Supermarkets, they say, force smaller shops out of business and these big stores' buying power squeezes the margins of suppliers. To the first charge, I say that if small stores are indeed being forced under, it has more to do with the burdens of regulation and tax which necessarily weigh more heavily on small firms than on larger, more established ones. And secondly, the increased buying power of large stores is indeed a fact, but that also means the consumer gets to benefit. And a big store's brand-name visibility means the owners of the business have to fret constantly - and they do - about product quality. Let's face it, if you buy a tin of beans from Megastore Inc and it turns out to poisonous, then think multi-zillion quid lawsuit. If it is bought from Uncle Fred Cornershop, probably not.
And a final point. Supermarkets, it seems to me, have played a considerable part in the liberation of women from traditional household chores, and hence made it easier for women to leave the home and go into work. If we had no superstores and only small stores, then shoppinig would take much, much longer, and hence put even more of a strain on family life where most couples have to be earners out of financial necessity.
Of course the anti-globalistas are none too keen to focus on the essentially conservative, dare I say, reactionary nature of what their hatred of big business means. No reason for us to be shy, however.
Right, off to explore the wine counter.
Wednesday
With David Willetts blowing yet another unsolicited Kiss of Death into the rapidly fading twilight of the UK Conservative Party, it was interesting to hear Polly Toynbee say Willetts had been using the thoughts of our old friend, John Maynard Keynes, to push forward the increasing statism of his latest ideas, such as using coerced taxpayers' money to subsidise working mothers.
No wonder Ms Toynbee has been so taken with Mr "Two Brains" Willetts' recently published pamphlet. What it contains used to be called social engineering, of the most crude kind, but now it has been re-labelled as compassionate conservatism, and even arch-socialist Ms Toynbee has declared her guarded support. I therefore thought we'd better examine the roots of Mr Willett's new philosophy, and get an Austrian view on the Keynesianism underlying it.
And what better place could we start than Mises.org?
Good old Murray N. Rothbard doesn't let me down, having written a seminal piece on Keynes, originally published in 1992. There is a PDF version, and you may also be able to see an HTML version of this 35 page piece Keynes, the Man.
From the outset Mr Rothbard jumps straight into Keynes's birth into the imperial purple of British Victorian aristocracy, his membership of the secretive Apostles' club at Cambridge, and his nepotistic relationship with one of the world's most dominant economists, Alfred Marshall. Following this Rothbard dissects Keynes's lifelong confrontation with 'bourgeois' values, moving towards Keynes's quote that:
I remain and always will remain an immoralist
Splendid.
But the fun has just begun. Rothbard is severely critical of a review Keynes did, in 1912, of Ludwig von Mises' early German language work, Treatise on Money and Credit. The upshot of this is that Keynes criticised it for being unoriginal, but then a decade and a half later admitted that his knowledge of German was insufficient to understand original ideas in this foreign tongue. Rothbard is scathing:
Such unmitigated gall. This was Keynes to the hilt: to review a book in a language where he was incapable of grasping new ideas, and then to attack that book for not containing anything new, is the height of arrogance and irresponsibility.
As this book came out before World War I, even Hayek, whom Rothbard criticises for having been swayed too much by the charisma of Keynes, later said:
The world might have been saved much suffering if Lord Keynes's German had been a little better
Rothbard then moves onto Keynes's time as an investor, where he made much money in the London markets. This ability to make money, which greatly funded the quasi-socialist Bloomsbury group, was often used later to justify Keynes's financial reputation. But Rothbard questions Keynes's very close links with the British Establishment, via his civil service work for the India Office:
Whether Keynes used inside Treasury information to make such [good] investment decisions is still unproven, though suspicions certainly remain. Even if we cannot prove the charge of swindling against Keynes, we must consider his behavior in the light of his own bitter condemnation of financial markets as "gambling casinos" in The General Theory
Rothbard moves on relentlessly to Keynes's key role in the destruction of the gold standard (which as fellow proto-Rothbardites will know, Mr Rothbard was less than keen on.) And then Murray N. arrives at The General Theory, the seminal work of the Great Man. Here's a few of the more choice phrases Rothbard uses to describe the book:
And yet The General Theory was not truly revolutionary at all but merely old and oft-refuted mercantilist and inflationist fallacies dressed up in shiny new garb, replete with newly constructed and largely incomprehensible jargon...indeed it took ten to fifteen years of countless hours of manpower to figure out the Keynesian system...the more obscure the content the more successful the book, as younger scholars flock to it, becoming acolytes
The book itself, Rothbard says, divides the world into several types of people. First of all robotic consumers, whose actions are entirely predictable, then a second rentier class of insufferably bourgeois savers, who practice virtues of thrift and farsightedness, a group Keynes despised, and the root group of all problems. A third group followed, of intelligent wise investors, ruled by mood swings and 'animal spirits'. Because of these psychological impediments, this third group could not be trusted to always do the right thing.
Therefore, to place a hand on the tiller of society Keynes presented a fourth group, full of free will, activism, and knowledge of economic affairs, just like the third group of hapless investors, but lacking their mood swings of irrationality. Of course this supremely rational group is 'the government', led of course by Platonic philosopher-economics kings (themselves led, inevitably, though without the necessity of saying it, by John Maynard Keynes.)
And so the state is necessary to 'help along' the consumers and the investors, and to remove the need for the bourgeois rentiers. Does this pattern look familiar? No wonder so many marxists and socialists took to Keynes in such a big way. But there is a difference from traditional socialist collectivism, and that is the praise for the third group of investors.
So government controls investment, while the investors own the means of production. Hmmm...
Have we seen this somewhere before, too? Yes, says Rothbard, in the practice of straightforward undiluted fascism. Murray N. then goes on to point out the special foreword Keynes wrote for the German edition of The General Theory, published in 1936, hinting at Keynes's attraction to this particularly aggressive form of collectivism.
To sum up Rothbard's conclusion on Keynes, Murray N. thinks the economic champion of the Left was a fallacious buccaneer driven by an arrogance bordering on egomania. Keynes derived his influence from his enormous charisma, which even threw Hayek into a swoon. But above all, Keynes was a pernicious malignant Machiavelli, and a power-driven statist, though one full of charm, embodying the most malevolent trends of the twentieth century.
And can anyone say any fairer than that? Give this 35 page document a read, if you want to get to the Austrian truth behind the socialist pump-prime myth of John Maynard Keynes.
Hang on a minute? Didn't that description above also cover Tony Blair? Funny that. It must be a 'Spawn of Satan' thing.
Sunday
I would love to open a current account with the World Bank. Imagine having those portentious words printed all over your cheques. I wonder what rate of interest they would give me on my savings? Do they do mortgages? How about financial planning?
I would truly be tempted to make such enquiries were it not the fact that the 'World Bank' seem to regard themselves as being way above all that kind of vulgar, selfish, money-grubbing. Much better to channel their energies into pious waffle:
The real curse of world poverty is the lack of access to crucial services such as education and healthcare, the World Bank has warned.
Poverty is indeed a curse but it is a curse that can be so easily banished by the application of capitalism and property rights. Embrace those two pillars of civilisation and good education and healthcare will follow as naturally as night follows day.
One would have thought that, being 'bankers' and all, the paladins of the World Bank would know that. If they do, they are keeping it very quiet. I wonder why?
And I also wonder why they appear to be so obsessed with tradeable services such as education and healthcare? Is that because their true constituents are the Western bureaucrats who hold a monopoly control over just those services? I don't suppose they would be at all interested in expanding their empires? No, of course not. Heaven forfend.
I don't think that the World Bank is interested in offering me a savings account. Nor are they interested in ending world poverty. Not when the wealth and status of the privileged class they belong to is sustained on the back of it.
Saturday
A couple of weeks ago I made a brief visit to Germany. As detailed on my personal blog, I at one point looked sadly across the river Oder, unhappy that I could not walk across the bridge into Poland, but unable to do so due to the requirement that people travelling on Australian passports (such as myself) require a visa to enter Poland. There is no good reason for preventing Australians from entering Poland without a visa - we don't actually pose any kind of threat to their country - at least certainly not any more than Britons, Americans, or Frenchmen (all of who do not require visas), but none the less we are required to get them. Thus we enter the weird world of visa requirements, which has a lot to do with ridiculous bureaucracy, governments that are on the take, and wounded national pride, but very little to do with actual common sense and little to do with governments acting in ways that would most benefit their citizens. (I am here only discussing visa requirements for tourism and other short visits. The issues that come into play for longer and working visits are something I could write a book on, so I will ignore them for now).
In terms of immigration the world can normally be divided into two groups of countries: rich and poor. "Rich" consists of the United States, Canada, Australia, New Zealand, the EU and other countries in Europe that either could have joined the EU but haven't (ie Iceland, Norway, and Switzerland) or are too small to do so (Andorra, Monaco, San Marino, Liechtenstein, etc), Japan, South Korea, Hong Kong, Singapore, and Taiwan. "Poor" is everyone else. (There are a few countries in Asia, South America and Eastern Europe (for instance Malaysia, Chile, and Hungary) that have almost but not quite made it into "rich", and heaven knows how you categorise South Africa).
If you come from a poor country, you generally need a visa to visit any other country, although sometimes exceptions are made for countries adjacent to where you live. If people are going backwards and forwards over a border all day long, bureaucratic obstacles become truly idiotic, and are sometimes removed. (Sometimes they are not. However, in the case I was dealing with - Poles visiting Germany - they have been removed). Generally, though, rich countries want to check out visitors from poor countries before they come. That's tough. Travelling on a poor country passport is a nuisance.
On the other hand, if you have a passport from a "rich" country there is generally no good reason to stop you from travelling anywhere. Nobody actually wants to check you out. But, sometimes the government of the country you visit will require a visa of you anyway. There are two reasons for this. National pride, and simple extortion.
Both of these make governments happy, but do not actually help individual travellers.
If you have a rich country passport, it is generally easy to travel to any other rich country with just a passport. The exceptions come when the government of one country is trying to make a point to the government of some other country. For instance, Taiwanese people sometimes have difficulty because nobody actually recognises their country. People from Hong Kong get inconsistent treatment, coming from a very rich city within a generally poor country.
Australia technically requires visas of all foreign nationals except New Zealanders. This policy came into being because Australia was trying to distance itself from its past racist immigration policies (the so called "White Australia Policy"). Basing visa requirements on rich versus poor (which is done almost everywhere) would have 30 years ago meant requiring visas for essentially all Asians and no Europeans, and this looked bad, so visa requirements were imposed on everyone. This is a policy that is more enforceable in Australia than in some places, because Australia is an island. Nobody makes a spur of the minute decision to walk across the border into Australia, because it has no borders. Pretty much everyone visiting the country plans it in advance, and thus has time to get a visa in advance.
However, it was a foolish thing for Australia's government to do, because it had strongly negative effects on Australian citizens when they were travelling abroad. Certain countries have policies of strict reciprocity in visa requirements, including the United States, France, and Japan. Australians needed visas to visit these places, not for any sensible reason, but just because we required visas of them. As an Australian who liked to travel, I found this a nuisance. (Just as an observation, of the countries that did require visas of Australians, the United States hassled us the least, normally issuing five year multiple entry visas at no charge by post. France hassled us the most, normally issuing single entry visas valid only for a few months, for a substantial fee, and requiring a visit to a consulate. Japan was in the middle).
Australia has not technically loosened its visa policy, but if you are a citizen of a rich country, getting one no longer requires an application to a consulate: your travel agent simply types your passport number into his computer terminal, the passport number is checked against a watchlist, and the visa is normally issued automatically if you are not on the watchlist. (The Australian government does not charge a fee for this if you do it through a travel agent. They do charge if you do it over the internet, which I would prefer they didn't, but I suppose this is the way things go). Most importantly, the visa can be issued instantly. If you present your passport when you buy a ticket to Australia, there is nothing else to do. As virtually every person visiting Australia has to buy a ticket to do so, this is as good as not requiring a visa.
At least, this is the argument that Australia has used to try to convince other countries to drop their visa requirement for Australians, and in general the rich countries of the world have done so. I no longer need a visa to visit any of the countries I listed above. I can be thankful for that.
Of course, none of this answers the question as to just why I require a visa to enter Poland. The third case, which is what happens when a citizen of a rich country visits a poor country, is the one that applies here. There is usually no practical reason to require visas, but some countries do just the same, for two reasons. The first is the same issue of pride as for rich countries. Citizens of poor countries require visas to visit the rich world, and as their pride is hurt, they require visas in reverse. The second is a financial issue. Poor countries like to set up embassies and consulates in rich countries, and these are expensive and cost hard currency. Charging for visas brings in hard currency, and the embassies and consulates become (sort of) self funding. This may not be sensible if it discourages tourists from coming to the country and spending more money there, but it is commonly done. (The most absurd instance of this occurred when I visited Tanzania. I enquired with the Tanzanian consulate in London, and they assured me that I did require a visa and they charged me a substantial fee for one. Upon getting to the border, I discovered it was not actually necessary. The consulate in London actually lied to potential tourists about the visa requirement purely as a revenue raising exercise).
Poor countries can be divided into three categories, generally. The first is those that don't require visas of the normal list of rich countries, and travelling to these is easy. (Indonesia and Thailand are two examples). The second is those that make some exceptions, normally for citizens of the United States of America (as good relations with the US are considered important by most poor countries), and for any rich countries that happen to be nearby and in particular have adjacent borders with the country in question. Visas are required of everyone else, generally as a revenue raising exercise. (Poland is an example of this, which is what I started this post by complaining about). The third category is countries that require visas of essentially everybody. (Russia, China, and India are examples). Generally countries do this because they are full of obsessive bureaucrats.
None of this is to say that there are not, sometimes, good reasons to require visas of people. It's perfectly reasonable to require visas of people who come from countries from where there is a terrorist threat or from countries from which people have a history of overstaying and working illegally. However, such reasons only account for a small portion of the visa requirements of the world.
The fact is that in many cases visa requirements have become just another example of how governments to impose excessive bureaucracy, impose excessive fees, and generally obstruct the lives of people who simply want to go about their lives. If governments cared more about individuals and less about nebulous concepts like national pride, if governments were less inherently bureaucratic, and if governments were more transparent about their motives, the lives of travellers would be a lot simpler.
For the government of any country, regardless of the level of wealth of that country, the visa policy that makes the most sense is actually very simple.
If there is a good practical reason to require visas of foreigners that will protect local citizens from some kind of potential harm, then it is reasonable to require visas. However, imposing them in any other circumstances harms individuals - both foreigners wishing to visit your country for peaceful and lawful means, and your own citizens, who will encounter increased obstacles abroad in retaliation for excessive requirements at home.
The rights of individuals are not small things. Freedom of movement is not a small thing, and it should only be hindered when absolutely necessary. But many governments in the world treat this right with contempt.
Thursday
Two problems in subdeveloped countries: dumping of subsidised argicultural produce in local markets which destroys local agriculture, and in Iraq, I am told the big bottleneck in getting electric power services restored is the looting of power cables.
I wonder how expensive this problem is in financial terms, we certainly know that power outages are a powerful symbol of the failings of the coalition forces. I wonder if we could employ one of the EU's most wicked weapons for a good cause?
I propose the dumping of a massive copper wire mountain in Iraq and neighbouring countires. Basically troops should hand out 500 yards of copper wire to every Iraqi who asks for it, in exchange for the price of a cup of coffee. For reasons which would be obvious to any British healthcare user, there had better be a price, or demand will be unlimited. The result of such a Cable Dumping Plan would be the destruction of the black market in wire theft from power lines as there would be no effective market to sell the looted product: the looters would find undercutting the subsidized rates very hard. Even if all the looters start saving their coffee money to buy miles of cable, they are not disconnecting the power supply.
We are left with the problem of deliberate sabotage, but this can be solved by normal occupying power policing techniques. The equation is: political cost of failing to get the power working versus the economic cost of a cable dumping policy.
Friday
Eugene Volokh, the head Volokh Conspirator, has a thoughtful post on the conceptual validity of intellectual property.
Long, but worth a read if you are interested in the topic. I confess I haven't fully digested it myself, but it seems pretty sound (his stuff generally is).
Thursday
I will never again allow it to be said that reading the Guardian is a depressing experience. Not after reading the most eye-wateringly hilarious column in the entire history of British print journalism.
The alleged author (because there is a fair chance that he was invented for comic effect) is someone called 'Subcomandante Marcos'. No, I kid you not. Go and check the link yourselves if you don't believe me. Apparently he is the 'is the leading voice of the Zapatista movement' and not a character from a Woody Allen film at all.
Anyway, 'El Subcomandante' has a tub-thumping message for all us globalista gringos:
Brothers and sisters of Mexico and the world, who are gathered in Cancun in a mobilisation against neo-liberalism, greetings from the men, women, children and elderly of the Zapatista National Liberation Army.
Hey, what about the transgendered?
It is an honour for us that, amid your meetings, agreements and mobilisations, you have found time and place to hear our words.
They must have told him this was going to be read out at a student sit-in.
The world movement against the globalisation of death and destruction is experiencing one of its brightest moments in Cancun today. Not far from where you are meeting, a handful of slaves to money are negotiating the ways and means of continuing the crime of globalisation.
Nuanced. Balanced. Sophisticated. Definitely food for thought.
The difference between them and all of us is not in the pockets of one or the other, although their pockets overflow with money while ours overflow with hope.
Mixed in with a dash of neurosis, a dollop of resentment and liberal sprinkling of schtoopidity.
No, the difference is not in the wallet, but in the heart. You and we have in our hearts a future to build. They only have the past which they want to repeat eternally. We have hope. They have death. We have liberty. They want to enslave us.
Dead slaves are no good to us. We want live ones.
That is what this is all about. It is war. A war against humanity. The globalisation of those who are above us is nothing more than a global machine that feeds on blood and defecates in dollars.
Stop laughing! I'll have you know that the Guardian is a serious and highly-respected journal of record.
In the complex equation that turns death into money...
No, it's very simple. You die and a gravedigger gets paid to bury you. What's so complex about that?
...there is a group of humans who command a very low price in the global slaughterhouse.
Yes, Guardian journalists mostly.
We are the indigenous, the young, the women, the children, the elderly, the homosexuals, the migrants, all those who are different. That is to say, the immense majority of humanity.
But what about the rights of the monolithic minority? And you still haven't included the transgendered. El Subcomandante is just a hate-speech spewing bigot.
This is a world war of the powerful who want to turn the planet into a private club that reserves the right to refuse admission. The exclusive luxury zone where they meet is a microcosm of their project for the planet, a complex of hotels, restaurants, and recreation zones protected by armies and police forces.
I'm booking myself a fortnight in Cancun right now. This isn't a political statement, it's a travel guide.
Brothers and sisters, there is dissent over the projects of globalisation all over the world. Those above, who globalise conformism, cynicism, stupidity, war, destruction and death. And those below who globalise rebellion, hope, creativity, intelligence, imagination, life, memory and the construction of a world that we can all fit in, a world with democracy, liberty and justice.
Question for El Subcomandante: if you have all the creativity, intelligence and imagination then how come 'they' are above and you are below? Comprendez?
Okay, I'll admit it. I've been took, I've been had. This is actually a parody cooked up by some impish scribblers in the sub-editors department to catch the unwary and take some of their less regular readers for a ride. All I can say is, guys, well done. The trip was worth it.
Sunday
Dot com. The phrase is synonymous with failure and self-delusion. But some people are making money out of the internet, even if it is only the city slickers who set up this deal.
Lastminute.com announced yesterday it had raised €103m (£74.6m) through a placing in convertible bonds which the online travel agent will use to continue its acquisition spree and develop products.The rapidly expanding company said last month that it expects to post its first net profit by 2005. It has spent about £98m in the last two years on purchases, including the acquisition of the travel company Holiday Autos.
The bonds, which will mature in 2008, will convert into shares of Lastminute.com at 364.5p, 28 per cent more than Monday's closing price, the company said in a statement.
Well I don't know what all that means, but it sounds to me like someone reckons that lastminute is doing some real business.
My reaction to the story was to go myself to the lastminute.com website itself, which I'd never got around to doing before. A tenner for a theatre ticket? Hey, these guys are ticket touts! (Of the nice kind, who lost their bet.) I might have some of that myself, and then maybe I could write about it and double my theatre-going pleasure. Normally London theatre is nearer thirty quid, which is beyond what I'll pay for something that only might be excellent.
The internet continues to work its economic magic. It isn't just for give-it-away pulpiteers like us.
Friday
As mentioned by R. C. Dean in an earlier article, the fact that EU policy is a major contributor to poverty in the Third World is finally starting to attract the attention it deserves. Many of Samizdata.net's contributors have written in the past about the true price of protectionism and just who pays it.
Well now the The Centre for the New Europe has released a devastating paper that shows the claims of the Euro-statist elite to care for the world's 'have-nots' for what they are: complete lies
- Key Findings
- 6,600 people die every day in the world because of the trading rules of the EU. That is 275 people every hour.
- In other words, one person dies every 13 seconds somewhere in the world - mainly in Africa - because the European Union does not act on trade as it talks.
- If Africa could increase its share of world trade by just one per cent, it would earn an additional £49 billion a year. This would be enough to lift 128 million people out of extreme poverty. The EU's trade barriers are directly responsible for Africa's inability to increase its trade and thus for keeping Africa in poverty.
- If the poorest countries as a whole could increase their share of world exports by five per cent, that would generate £248 billion or $350 billion, raising millions more out of extreme poverty.
The complete paper can be downloaded from the main CNE site
Friday
The Grauniad (of all papers) continues its libertarian crusade for free trade, slamming the EU's continued protectionism of ag markets:
The European commission yesterday launched a ferocious attack on poor countries and development campaigners when it dismissed calls for big cuts in Europe's farm protection regime as extreme demands couched in "cheap propaganda".In a move that threatens to shatter the fragile peace ahead of next week's trade talks in Cancun, Mexico, Franz Fischler, the EU agriculture commissioner, said Brussels would strongly defend its farmers.
Note the condescending tone of the EUnik leading the charge on this one. Is it something they actually screen for? Is it in the water in Brussels?
"If I look at the recent extreme proposal co-sponsored by Brazil, China, India and others, I cannot help [getting] the impression that they are circling in a different orbit," Mr Fischler reporters."If they want to do business, they should come back to mother earth. If they choose to continue their space odyssey they will not get the stars, they will not get the moon, they will end up with empty hands."
Perhaps the big plus for free traders in all this is that this issue is not being posed as multinational corporations v. defenseless working class slobs (as antiglobalism is usually set up in the US), or as noble social democracies v. the evil capitalist US, but rather is put forth as poor and starving people v. coddled and protected industry.
Still, its a shame that it looks like the Doha round of negotiations will wither on the vine.
Friday
The Grauniad (of all papers) continues its libertarian crusade for free trade, slamming the EU's continued protectionism of ag markets:
The European commission yesterday launched a ferocious attack on poor countries and development campaigners when it dismissed calls for big cuts in Europe's farm protection regime as extreme demands couched in "cheap propaganda".In a move that threatens to shatter the fragile peace ahead of next week's trade talks in Cancun, Mexico, Franz Fischler, the EU agriculture commissioner, said Brussels would strongly defend its farmers.
Note the condescending tone of the EUnik leading the charge on this one. Is it something they actually screen for? Is it in the water in Brussels?
"If I look at the recent extreme proposal co-sponsored by Brazil, China, India and others, I cannot help [getting] the impression that they are circling in a different orbit," Mr Fischler reporters."If they want to do business, they should come back to mother earth. If they choose to continue their space odyssey they will not get the stars, they will not get the moon, they will end up with empty hands."
Perhaps the big plus for free traders in all this is that this issue is not being posed as multinational corporations v. defenseless working class slobs (as antiglobalism is usually set up in the US), or as noble social democracies v. the evil capitalist US, but rather is put forth as poor and starving people v. coddled and protected industry.
Still, its a shame that it looks like the Doha round of negotiations will wither on the vine.
Friday
Earlier in the week I heard Harry Binswanger of the Ayn Rand Institute on the radio argue that Labor Day in the US should celebrate the achievements of man's mind, rather than main's muscles. For me, the most interesting bit of the show was when Binswanger pointed out that free trade benefits everyone. The interviewer jumped on this and pointed to the US's huge "trade deficit" with China. Binswanger started to debunk this, but was cut off by a break for the adverts.
Now he has an article up on Capitalism Magazine explaining his position, entitled: 'Buy American' is UN-American. He writes:
The lucrative workings of free markets do not depend upon lines drawn on a map. The economic advantages of international commerce are the same as those of interstate, intercity, and crosstown commerce. And if we kept crosstown trade accounts, the "trade deficits" that would appear would be as meaningless as are our international "trade deficits." Fact confirms theory: the U.S. ran a trade "deficit" practically every year of the nineteenth century, the time of our most rapid economic progress.
If you are still worried about America's "trade deficit", here's something you should get your head around: each year, America exports exactly the same value as it imports. The "trade deficit" merely refers to part of trade – the current account of the balance of payments. It ignores completely the capital account of the balance of payments. Because successful countries tend to get a lot of investment coming into the country – which is recorded on the capital account – it looks superficially as though these countries have "deficits", despite the fact that they continue to get richer. In short, a "trade deficit" is a meaningless term.
Sunday
Just over a decade ago, the US and the EU conspired to conduct what has proved to be a very successful war against low-tax jurisdictions and banking secrecy. Under a fig-leaf of a campaign to eradicate 'drug-dealing' and 'terrorism' (but truthfully to maintain the integrity of their various state-welfare arranagements) they employed a combination of legislation, diplomacy and outright bullying to effectively hobble (and, in some cases, shut down) the Western offshore-investment industry.
As expected, the EU went further in this war than the US where the 'anti-money laundering' regime metastasised into a ludicrous campaign against what they called 'unfair tax competition'.
Well, now the chicks are coming home to roost. Or, more accurately, they are flying the nest:
The world's major private banks are beefing up operations in Singapore, anticipating that up to a trillion US dollars worth of offshore assets in Europe may be looking for a new home in the next couple of years.Changes in banking secrecy and tax laws due to take effect in the European Union from 2005 are expected to encourage offshore investors in traditional havens like Switzerland and Luxembourg to start moving their money to other centres.
Singapore, with its stable political system and excellent infrastructure, is seen getting a big share of this money.
"We have estimated that from Europe about a trillion plus could be highly movable without too much difficulty," said Roman Scott, vice-president at the Boston Consulting Group (BCG). "Some of those guys are going to say; 'I need an offshore centre that's not going to be squeezed down'.
All the European places are being squeezed. You can't go into the US, so you suddenly start to look at Asia as attractive," he said.
Western political elites are rather like heroin-addicts. No amount of argument, persuasion or reason will do anything to deter them from their narcotic fix.
Lessons generally have to be learned the hard way.
[My thanks to Dr.Chris Tame who posted this article to the Libertarian Alliance Forum.]
Monday
Here's an interesting titbit of news, which I just got from following a trackback to something else to this guy (and his blog).
The Guardian is starting a blog devoted to the single issue of abolishing agricultural subsidies.
Today (Monday, August 18, 2003) with only a few weeks to go before the World Trade Organisation meets in Cancun the Guardian is launching a new website with a single aim:Help the poorest countries by kicking into oblivion All Agricultural Subsidies
(kickAAS)
This is, you might say, lefties giving leftism a libertarian hook, to refashion one of Perry de Havilland's most favoured memes. I say, good for them.
I've always felt that in the long run (okay, the very long run), if libertarianism (okay, the Samizdata meta-context) were ever to triumph in the UK, it would be via the Guardian and by outflanking the traditional right, which has always had a lively sense of the revolutionary and hence to them regrettable nature of the free market. Guardianistas are trouble-makers first and only socialist centralists second and because this makes trouble for smug establishmentarians. If there's libertarian (Samizdata meta … etc.) trouble to be made, they'll make that too.
The message is bound to get spread around in some very unlikely places, many of them very angry and hostile places for such a message, that state spending doesn't work at achieving its publicly stated goals and most especially doesn't work at making poor people richer.
I expect a lot of regular Guardian readers to be angry about this. Good.
Thursday
The Financial Times in an editorial chastises the U.S. Federal Reserve bank chairman Alan Greenspan for encouraging speculators, such as those mysterious bodies called hedge funds, to snaffle up bonds recently by cutting interest rates to ward off deflation, only to find that bond prices dropped sharply once it appeared the economic situation in the U.S. was improving. (It is too early to say for sure that things are getting better in the world economy though. Certainly not in Continental Europe).
I do not really have a quick way of picking through the rights and wrongs of the FT's position. I think it is plainly daft that Greenspan, who remains one of the sharpest economic brains around, would have deliberately set out to con investors. What I do think this episode does, however, is reinforce in my mind the enormous risks of entrusting great economic powers to folk like Dr. Greenspan. In fact, the more highly regarded such men and women are, the more lethal the consequences when they slip up.
Even many folk who consider themselves to be ardent free marketeers can get caught up in near religious reverence for the great central banker. Financial speculators hang on every word. The most bland of statements are parsed for some deeper meaning. I have spent too many hours than I care to remember trying to work out if the statement of X or Y actually suggests that inflation is likely to up, down, or whatever.
The cult of the central banker is one of those belief systems of surprisingly short duration, by historical standards. Maybe in decades to come, we will look back on the era of Alan Greenspan and his ilk rather as we would that of the Medieval Popes. And we will be even more struck when we recall that Greenspan, when a young economics student and friend of Ayn Rand, urged a return to old-style private banking and the unfairly maligned Gold Standard.
Tuesday
Communist leaders plan to amend China's constitution to formally enshrine the ideology of Jiang Zemin, the recently retired leader who invited capitalists to join the Communist Party. Despite sweeping economic and social changes, the political status of China's entrepreneurs is still ambiguous.
There have been no details of the possible changes although foreign analysts say they include the communist era's first guarantee of property rights. Certain amendments are still needed to promote economic and social development, said the party newspaper People's Daily. It said the changes were meant to cope with accelerating globalization and advances in science and technology.
Jiang's theory, the awkwardly named "Three Represents," calls for the 67 million-member party to embrace capitalists, updating its traditional role as a "vanguard of the working class" and for the constitution to formally uphold property rights and the rights of entrepreneurs.
As someone who has more than passing acquaintance with communism, I see this is as a big change indeed. Even under most dire oppression you cannot entirely stop people exchanging goods and services. And so it was in the countries of the former Communist bloc, although the private sector was not officially recognised, there were shades of grey in the 'socialist worker economy'. Former Yugoslavia, for example, ventured furthest in its recognition of private enterprise and some semblance of property rights and in return relatively prospered. Also in practice, Poland and Hungary were kinder to their small landowners and tradesmen than the communist ideologues allowed.
Nevertheless, there was no question of formally acknowledging property rights and any form of private enterprise by governments whose grasp of economics was based entirely on Marxism. It was one thing to tolerate existence of non-state markets and even benefit from them, but changing their opposition to individual's property rights, so firmly embedded in political systems that were barely surviving, would have been a political, ideological and social suicide. (As a matter of fact, not changing it amounted to the same, just by other means: No, no, no, comrade, let's not play with this (freedom of the press, speech, travel, association, trade, property rights etc) it has sharp edges and will cut your wrists, let's just circle round the drain together, holding hands and singing the Internationale...)
China's development has been very different to that of Eastern Europe, politically and economically, although both were waving the Red Flag. The proposed change to the China's constitution may amount to a symbolic amendment given that China's entrepreneurs have driven its two-decade-old economic boom. But then, symbols can be very powerful.
Monday
One of the more annoying things about modern large bookshops is that they divide the non-fiction books into a vast number of over-defined categories. This is not a huge difficulty if you are looking for a cookbook, or a book about trains, or a travel guidebook, as it is pretty clear what sections those books belong in. However, when we get to the social sciences things get hazy. If I am looking for (say) one of Ian Buruma's books on Asia (which are all worth a read, by the way), it is impossible to know whether the book in question will be on the shelves in "Asian History", "Eastern culture", "Travel writing", "Sociology", "Chinese History", or one several other categories, even though if you look at all his books together they are clearly all have a very similar theme. It just does not fit into bookshop categorisation.
This is fine if you are looking for a particular book. You just ask at the information counter, they look it up in the computer and they tell you where it is and whether they have any copies. However, if you are trying to find it without help it can be close to impossible.
In any event, when I was wandering through my local branch of Books etc the other day, I found myself walking past a section I hadn't noticed before, labelled "anti-globalisation". That's right, they had a section devoted to the works of Michael Moore, Noam Chomksy and the like. People who wanted to read such books can go straight to that section without having to be exposed to anything else. I'm sure they find this very convenient.
Even better, the bookshop encourages its staff to recommend books to customers. They even go to the trouble of giving their staff members little cards on which they can write down their recommendations and attach them to the shelves in the store. This is a good practice, as it may help readers find books and it also makes it clear that the booksellers are people who like to read themselves. But, even so, I had personal issues with the anti-globalisation recommendations.
Ugh.
Save me.
Seriously, I suspect that the number of people who have read Michael Moore and are not already aware of the existence of John Pilger and Noam Chomsky already is small (or perhaps I overestimate them). I think recommendations like this are better when they refer people who have read something well known to something that is both rather more obscure and also good. And Pilger and Chomsky are not especially obscure, however much I might wish it were so.
However, in the chance that there might be anyone walking through the bookshop who might have discovered Michael Moore but not Pilger or Chomsky, I thought I had a duty to save them from this (and also there was a Samizdata post in it). Therefore, although it was a bit naughty of me I removed the little cards from the shelf and walked out with them. (Yes, okay, technically I stole them. However, sometimes the ends do justify the means).
As I was walking out of the shop, it struck me that it would be kind of cool to get a few of the blank cards, write out a few book recommendations of my own, and then attach them to the shelves. However, when I thought about it some more, I realised I didn't need anyone to supply me with a stock of blank cards. For I have the miracles of modern technology at my disposal, and I could produce some of my own. I could go back into the bookshop and leave something like this.
Or perhaps this.
The fun could be never ending.
Perhaps I could attempt to send people to little sections of the bookshop they hadn't found before. "If you have enjoyed Michael Moore, then try Brink Lindsey. He'll help you get over it". "If you have enjoyed Paul Erlich, then we have many equally enjoyable books in the humor section". The potential fun is endless.
The nice irony about all this is that Borders, the American owned chain of bookstores, likes to operate a dual brand strategy. It reserves the Borders name only for its very large book megastores, and uses other brand names for smaller stores, mostly in malls. In the US, its smaller stores make up the Waldenbooks chain. In the UK, its smaller stores are called, you guessed it, Books etc. What this means is that the salaries of the people recommending the anti-globalisation books are being paid by a rapacious global bookshop brand, that is ravaging and homogenising the world (or at least the Anglosphere), destroying local cultures as they do so. Seriously, how can you possibly overstate the damage done by large, globally minded bookstore chains that provide foreign countries with far better stocked bookshops than anything they had before, in which local people can sit in nice comfortable chairs as they browse books and sip excellent espresso based coffee from the very pleasant in-store cafes. It's clearly another cultural Chernobyl.
I mean, how can these people live with themselves?
Sunday
Aristocracy [Late Latin aristocratia, government by the best, from Greek aristokrati : aristos, best; see ar- in Indo-European Roots + kratos, power; see -cracy.]. An aristocracy is a form of government in which rulership is in the hands of an "upper class" known as aristocrats. (The Greek origins of the word aristocracy imply the meaning of "rule by the best".)
People like David Attenborough or almost anyone connected with Population Connection (a group which used to be rather more directly called 'Zero Population Growth'), are technocrats at heart. Problems are identified, analyzed by experts and their solutions to those problems are imposed via political interaction. It is simply 'rule by expert' and there is quite literally no limit to the areas of life which is beyond the overarching gaze of the men and woman with letters after their names. When such people are given access to political power, no limits to what they can make you do or not do. The experts are, after all, the best and thus know best, and if people will not be swayed by their words spoken from the position of superior knowledge, then they must be forced to comply via the political system. They are the new would-be aristocracy in the literal Greek sense of the word.
In today's Times of London (we do not link directly to The Times), David Attenborough, speaking for the Optimum Population Trust, demanded that the British state work to halve Britain's population by establishing a 'population policy'.
He said: "The human population can no longer be allowed to grow in the same old uncontrolled way. If we do not take charge of our population size, then nature will do it for us and it is the poor people of the world who will suffer most."[...]
[the Optimum Population Trust] believes that Britain should seek to reduce its population from its present 59m to about 30m by 2130 — about the same as the population in 1870. It wants economic incentives for women to stay childless, free contraception, a balanced approach to immigration and a government population reduction policy.
Indira Gandhi and Deng Xiaoping shared such views and enacted policies based on the realization that gentle prods will not stop people having children. Their views were based on crude pragmatism married with an honest understanding of the efficacy of coercive violence.
People like David Attenborough however take a rather more lyrical utopian view of nature and 'sustainable economics' (which in fact has nothing whatsoever to do with economics) and thus are rather more grandiose in their objectives. They seek to limit people's right to have children or to travel the world or engage in 'wasteful' or 'harmful' economic activity generally that is not approved of by...well, them, of course. They wish to restore balance and harmony. This sort of idealized view of nature and man's place in it (or lack thereof) was something that would have gained approving nods not just from idyllic ruralist 18th and 19th century poets but also Heinrich Himmler.
For these people there are no 'market' solutions caused by the social interaction of free people, because that would allow the possibility that free people may simply ignore the 'wise words' of The Best. In a political system, rather than a social system, there are only a few people who must be convinced and manipulated, and thus it through coercive collectivist politics that the new technocratic aristocracy seek to apply their 'wisdom'.
At least the Voluntary Human Extinction Movement are not trying to use the violence of state to make people comply. The same cannot be said of Sir David Attenborough and his collectivist ilk.
Wednesday
A debate is currently raging in libertarian as well as in less refined political circles about whether the USA should allow 'reimportation' of prescription drugs. Basically, the problem is that patented drugs in the US are sold at prices much higher than they are available overseas. Patented drugs are the newer drugs for which no generic equivalents are available, giving the patent-holder a monopoly on that drug while the patent endures.
The drugs are available more cheaply in other countries for a variety of reasons, but in large part because the governments of those other countries have intervened in the drug markets to set prices. Canada, in particular, has 'negotiated' some sweet deals for high-demand drugs, and Americans have flocked across the border to get some of that cheap drug action. With prescription drug prices soaring in the USA, legislation has surfaced to allow drugs to be 'reimported' from these socialist havens at the prices that prevail.
On the one side, many libertarians see lifting the ban on reimporting as a simple case of freeing up the market to let it do its magic. Probably the best case that I have seen for this side of the ledger is Conservative Drug Split at National Review Online.
However, it seems to me that this approach overlooks some pretty major issues. Leaving aside the safety issue, which my clients in the drug industry assure me is no straw argument, I do not believe that the cause of free markets is well-served by allowing reimportation.
To cut a long and sordid story short, prices are so cheap in other countries because the governments of those countries demand that the drugs be sold at slightly above their production cost. They can do this because (a) in many countries the government is a monopsonist via the national health system and/or (b) the government simply threatens to break the patent and start manufacturing the drug itself (or allowing someone else to manufacture the drug).
To claim that the sale or reimportation of drugs that are priced under this system has anything to do with the free market strikes me as delusional. First, of course, the prices now obtaining in these markets are not market prices, but are monopsonist prices extracted by threatening to break the patent. Keeping these drugs out of the relatively free US market is no more of a barrier to free trade than keeping the local fence from selling stolen TVs out of the back of a truck.
Proponents of reimportation seem to assume that, when reimportation is allowed, the drug companies will go to these nations and threaten to either cut them off or raise their prices, and the governments will meekly go along. This in turn assumes that these governments will not simply break the patents, as they have repeatedly threatened to do and in fact have occasionally done in the past. Nor am I convinced that breaking the patents will result in any real consequences for the nations that do so. The only hammer over these nations would be the WTO or other treaties, and I do not believe that the government of the US would go to the mattresses to protect Big Pharma's patents. It never has in the past, and there is no reason to believe that it would in the future. With reimportation allowed, in fact, the US government would have to be crazy to do so, as protecting the patents overseas would dry up sources of cheap drugs that reimportation allows back into the US.
Sadly, the lure of cheap drugs is too much for your average politico to resist, so I think we can look forward to the corruption of the US drug market by overseas socialism.
Monday
On his culture blog, Brian Micklethwait provides a reference to a preview of an American television program about the reactions of the muslim world to a perceived onslaught of American television and movies, and how they are perceived by many as "overt propaganda created to undermine their religious and cultural identity", and yet that at the same time, people love to watch them.
Brian has some has some wise thoughts on the subject himself, and concludes by observing that inevitably the culture must move in two directions.
But all will eventually be well. They'll make their own shows, that satisfy their young, but deflect the complaints of the complainers.And then we'll watch their shows too.
This all invites questions about just how cultural programming - television and movies - propagates around the modern globalised world, which is ultimately much more interesting than simply "America is trying to dominate the world with its propaganda". It's both simpler and much more complex. For one thing, American programs are not meant as overt propaganda, and they are certainly not aimed at the Muslim world. Hollywood is trying to make money, and that is all. The Muslim world is such a small market that Hollywood is essentially not paying attention at all, and this is even more so in the case of television than in the case of movies.
For there is a huge difference in the overseas reception of American television and American movies. American movies dominate the box office everywhere pretty much without exception. Local movies have a much smaller market share than American movies virtually everywhere, and Hollywood is selling the same movies to the entire world. Hollywood movies today make more money outside the US than they do inside the US (almost all of which comes from Europe and East Asia), so Hollywood is very conscious of what foreign audiences will want to see when making movies. Often this leads to what may be described as "lowest common denominator" film-making. Movies containing lots of explosions are popular everywhere. (Comedies travel far less well, which is why Hollywood makes fewer of them than it used to, and is why they have smaller budgets). However, rather than turning movies into "overt propaganda", this tends to make movies bland. American film production does interact with the rest of the world, but in a slightly less direct way. Hollywood has a ferocious appetite for talent. Anything good that is done by filmmakers in the rest of the world tends to get co-opted by Hollywood. If audiences like Hong Kong style action sequences, then these will find their way into American film. The people making the films in America will often be the same people who made the ones in Hong Kong, working in Los Angeles and being paid far more (and working shorter hours) than was ever the case on the other side of the Pacific. When a film financed by a Hollywood studio but made by a Hong Kong filmmaker and filmed in Canada is shown in Spain, it's a bit hard to tell just whose culture is being influenced by what. (I will be intrigued to see what happens when Iran becomes less oppressive, and some of the country's many talented film-makers get the opportunity to make films in Hollywood. The thing stopping this is the political situation in Iran and certainly not that in Hollywood.)
The propagation of American television is totally different, although the final conclusion is perhaps the same.
When a television market first becomes open to the world, American and other foreign programming typically dominates for a year or two. After that, locally made programming consistently rates higher than American programming, and American programming tends to fade from view, ending up confined to minor channels, the middle of the night and other off peak times. Local programming completely dominates. However, it is local programming that has been influenced by American and other foreign programming. For instance, the people of Eastern Europe spent much of 1990 watching old episodes of Dallas, but after that they went back to watching eastern European programming, only containing much less propaganda and with much higher production values than before. Similarly, American satellite television companies in the early 1990s started broadcasting American programming to Asia. They rapidly discovered that they could only compete with local broadcasters with local programming: Rupert Murdoch's Star TV network (based in Hong Kong but broadcasting to most of Asia) today churns out an enormous amount of original Hindi language programming. (ESPN Asia also devotes a large portion of its programming time to showing cricket, which is hugely popular with Indian audiences.)
To gain large television ratings anywhere, it is necessary (as a minimum) for programs to contain local faces and be made in the local language. The local programming in question may be cloned versions of foreign programming, but, at least for what Hollywood refers to as "scripted programs" (ie drama) such clones are usually made with local values and local aesthetic judgements. Such programming tends to reflect local attitudes to feminism, homosexuality, and other "moral" issues. Local culture isn't necessarily left behind, but, as competition does everywhere, the contact with the outside world improves the quality of the programming.
What are the consequences of this? Well, for one thing, the richer the country, the less likely it is that American television programs will form a significant part of the prime-time schedule. They are sold to "emerging" markets in larger quantities, but because these countries are poorer the studios don't make huge amounts of money from such sales. The total amount of money made from selling American television programs abroad is tiny compared to that made from selling them domestically, so essentially no attention is paid to international markets when American networks and studios create and produce programs. Any effect that "Will and Grace" has on Saudi Arabia is not only not "overt propaganda" but is entirely unintended.
The situation is different with "non-scripted programs", which basically means game shows and reality television, the programs are often made to precisely the same recipe in a vast number of different places. "Big Brother" is exactly the same in Australia as in Britain, and "Who Wants to Be a Millionaire" is utterly identical (even down to the sets and the music) in all 106 countries (yes, really) that have produced a local version of the show. The creators of shows this successful do tend to make money from foreign versions of the show (although this is small compared to the amount made by local crews, local networks, local talent and the like), but I think it is debatable whether such shows are perceived as part of a foreign cultural onslaught. On the contrary, they tend to feature local everyday people, which may make them seem more local and immediate than drama program from any origin. And once again it isn't clear that this is necessary an invasion of American culture. For the formats of these sorts of programs have not necessarily been invented in America. Neither of the programs I mentioned above were invented in America: "Big Brother" was originally Dutch and "Who Wants to be a Millionaire" British. These sorts of programs work internationally because human nature is much the same everywhere. Some formats work better than others. If someone somewhere invents a successful format for a show, it will affect television throughout the world very rapidly. But it isn't a matter of America broadcasting its culture in a massive propaganda onslaught. It is much more complicated than that, and in some ways America is as much of a consumer as a producer. Once again though, the question of which culture is influencing which other is not simple.
And eventually, the Muslim world will discover this. The tragedy is that large portions of this part of the world have been cut off from this process. The worldview that results from this cutting off process makes the global cultural landscape look simpler and less complex and chaotic (and rich) than it really is. And that is the real shame.
Sunday
Phil Bradley observes a nasty combination: voodoo science allied to voodoo economics
The European Parliament's adoption last week, of 'the world's first Kyoto Protocol mandated multi-national emissions trading scheme (ETS) covering greenhouse gases' gives me an opportunity to rail against the biggest government instigated boondoggle in the history of the world - namely the Kyoto Climate Change Protocol. Yes, it still rumbles along, destroying prodigious amounts of wealth without producing any measurable benefit. 117 countries are now signatories, although it has no material effect on most of them, except to funnel some money from rich countries into projects of dubious value. The latest signatory is Switzerland, who, reading between the lines, did so under pressure from the EU.
No one really knows how much Kyoto is costing, or how much it would cost were it to be fully implemented, which it never will be. All we do know is that it both reduces growth and diverts resources into economically pointless activities. This link estimates that by 2010, Kyoto will cost the UK around US$35 billion a year, and result in the permanent loss of half a million jobs. Reams of left-wing econo-babble has been written on how Kyoto will actually increase investment in windmills or whatever and stimulate economies. The simple fact remains that any increase in resources to produce the same result necessarily makes us poorer.
The Kyoto Protocol is an object lesson in what happens when you combine agenda-driven leftists with some dodgy science, a media that is mostly ignorant about most things, and politicians who want to be moral and righteous irrespective of the cost to the taxpayer. Bring them together in a UN sponsored framework that is not accountable to anyone, and you have the right formula for this madness.
Climate change is something I have been interested in for long time. In part, it probably stemmed from spending my childhood playing in the woods and fields situated on a glacial terminal moraine that marked the southern limit of last great ice advance across England. I recall being suitably awestruck when someone explained to me that 10,000 years earlier, where I was standing was the edge of a great ice sheet that stretched all the way to the North Pole.
Climate changes, has always changed and will always change. While we have an imperfect understanding of the mechanisms underlying the changes, we do have accurate data on the climate cycles themselves. These cycles vary from a few years to many thousands of years, and perhaps millions of years. To take England as an example, since the Norman Conquest, the climate has varied from about as warm as the south of France, to about as cold as south central Sweden. The last century has been more or less in the middle of the range for the last thousand years.
The weather is something people can relate to. It is immediate - they can see and feel it, and it affects their lives. In particular, extreme weather can be very disruptive to people's lives. The Left is always on the lookout for anti-capitalist issues. When some scientists started to suggest that man-made increases in carbon dioxide levels in the atmosphere were causing a warming trend in the climate, then it did not take long for the media to start publishing alarmist stories of super-hurricanes, floods and droughts of biblical proportions, rising sea levels flooding whole countries, and wholesale extinctions of animal and bird species. It made great copy on a subject people were interested in, and was written by self-styled environmental correspondents. Most of whom graduated in media studies or similar and could not pass a basic high school science exam.
A number of unusually hot summers in North America have now given way to a number of unusually cold winters, in line with a well-understood short-term climate cycle. It also appears that much of the widely publicized increase in global temperatures over the 20th century was a measuring artifact due to most measurement points being in urban areas that are getting warmer for reasons that have nothing to do with global warming. Anyone interested can find more information here.
In the mean time, global warming was 'clearly' a problem for the whole world and of course that well-known fixer of the world's problems, the United Nations, got into the act, resulting in Kyoto. Even if the world were facing a global catastrophe (and don't imagine for a moment that it is), Kyoto doesn't fix the problem. All it does, in line with left-wing agendas, is hobble developed countries with huge costs, it does nothing to limit the fastest growing carbon emitters - the developing world, and picks a ludicrously arbitrary target of some percentage of carbon emissions in a particular year for a country, and for which there has never been any scientific justification. If atmospheric CO2 really were a problem, then probably the only way to fix it would be to build a massive infrastructure to scrub CO2 from the atmosphere. Of course, it is not a real problem and Kyoto is not a real solution.
Of the countries that are affected by the Kyoto Protocols (and most are not), the USA has, as usual, taken the most rational approach, and rejected it outright. Japan has decided that compliance will be voluntary - what ever that means. In both Canada and Australia, Kyoto remains deeply controversial. Australia has yet to ratify it, and while Canada has, there is still substantial resistance from the provinces (you would think Canada would be in favour of some climate warming). Which leaves Europe left holding the UN's baby, valiantly trying to save the world by implementing Kyoto, and in the process impoverishing its citizens. As usual!
Phil Bradley
Friday
Cobden Bright posted a comment in an earlier article that deserves the prominence of full posting, slightly edited. This follows on from The Anglosphere and Economic Freedom
The fact that a country taxing over 40% of GDP from its populace can be considered the 5th most "economically free" country in the world is rather depressing. Let's face it, most countries on that list are not economically free at all - they are just slightly less bad than most of the others.
The people at Cato also seem to have forgotten about tax rates. A person paying 0% tax is in most respects an economically free man - someone paying 50% per year is a slave for half their working life. So they should have included tax havens like Monaco, Bermuda, the Bahamas, Cayman Islands etc, and low tax larger countries like Russia.
Also, as noted by a previous poster, it is actions, not written laws or words, which achieve freedom. A backward country with repressive laws may be freer for you personally if those laws are not enforced, or avoidable at low cost via bribes or cunning. So a corrupt backwater may be relatively free in real terms, whereas a "free" country like America will tax you ruthlessly even if you move to live on the other side of the world, and will exact severe penalties for certain voluntary economic exchanges (e.g. buying a joint or a Cuban cigar).
Which raises the final question - is there any meaningful distinction between economic and personal liberty? I would say no. How free are Hong Kong, Singaporean, UK or US citizens to buy and sell firearms, narcotics, or sexual entertainment?
Finally, there is a bizarre tendency for everyone to take GDP figures at face value. Remember who makes these up? Yes, that's right folks, it's our old friend the government. So take GDP figures with a pinch of salt. Firstly, much government spending, most of which is highly wasteful, is regarded as a positive contribution to GDP. So employing someone on $30k per annum to build bridges to nowhere is seen as economically just as "good" in GDP terms as paying someone $30k per year to build a house, or work as a doctor or shopkeeper. Yet obviously the latter activities are productive, and the former destructive or at best worthless. This focus on production per se, rather than useful production, means utterly worthless projects drive a country up the GDP ranks. Thus countries with large amounts of state spending get an artificially high GDP rating.
The only real way to measure economic prosperity is to visit a place for a while and see what kind of real living standards prevail. What kind of cars do people drive, what clothes do they wear, how nice are their houses, are the streets clean, how good are the restaurants, how long does it take to get from A to B?
Cobden Bright
Wednesday
I've just watched the film Wall Street for the very first time. I know I'm a few years late, but c'est la vie. The movie subjects viewers to the economic fallacy that asset stripping does not create wealth.
When financiers asset strip a company, they do something very useful. They take assets that are not being used efficiently, and change their use to something more valuable. It may not be nice for those employed by the company, but the country as a whole is better off as a result.
Wednesday
"But it may be that I shall leave a name sometimes remembered with expressions of goodwill in the abodes of those whose lot it is to labour, and to earn their daily bread by the sweat of their brow, when they shall recuit their exhausted strength with abundant and untaxed food, the sweeter because it is no longer leavened by a sense of injustice".
- Sir Robert Peel, British statesman (1788-1850)
The quote by Peel above, coming as it does from one of the greatest of British statesmen and a free-trader who paid a high political price for his convictions, ought to be remembered as we contemplate the recent trip by President George W. Bush to Africa, and indeed the trips by numerous western leaders to the poorer parts of the world.
We live in times when we are constantly told that it is the duty of the prosperous industrial nations to help lift their poorer peers, such as in Africa, to a wealthier state. And yet nothing could be more useful in that aim than if governments, such as those which support the EU and U.S. farm subsidies, chose the path of genuine laissez faire.
Sir Robert Peel may not be a name familiar to many people today - more's the pity. He may be mainly known as the man who established London's Metropolitan Police (which is why our police are still sometimes called "bobbies").
When one considers how he put the industrial future and prosperity of the masses before the vested interests of the land by embracing free trade, the dimwits who inhabit our government today look very small indeed.
Wednesday
Phil Bradley asks us to spot the common thread here
The Cato institute has just released its annual Economic Freedom of the World Report and interesting reading it makes.
The top 10 rankings of economic freedom - 1. being the most free - are as follows:
- Hong Kong
- Singapore
- United States
- New Zealand
- United Kingdom
- Canada
- Switzerland
- Ireland
- Australia
- Netherlands
The report itself analyses how over the long term differences in economic freedom results in large differences in economic growth and prosperity. If you are interested in the details you can read the report.
What struck me is that every significant anglophone country makes the top ten and only a single continental EU country (Holland) sneaks in at last place. The list is rounded out by Britain's last colony of any size (Hong Kong), another ex-british colony that has 100% anglophone middle class (Singapore), and the last continental EU hold-out (Switzerland).
France comes far down the list at number 44, Italy and German do a little better, ranked at 35th and 20th respectively.
Most people think of the Anglosphere in terms of political alignment in world affairs. The Cato report identifies something more important, which is a common understanding of how economic freedoms are integral to society, our economic well-being and personal liberty. Those in continental Europe who wonder why Britain is so sceptical of the EU and its attempts to 'harmonize', have only to read this report to see that harmonization would unavoidably result in the erosion of freedoms in Britain.
Phil Bradley
Monday
After recovering from the revelries at the blogger bash, there was no better way to unwind than enjoy a trip down to Greenwich, east London, and wander around the superb clipper sailing ship in dry dock, the Cutty Sark.
This three-masted, square-rigged jewel of 19th century sailing technology was built to carry goods like Chinese tea, Australian wool and other products at high speed to London. The vessel that could moor up at the great port of London ahead of the competition would get the best prices for its produce. These great beasts of the high seas were sailed with the kind of white-knuckle speed and skill that would put a modern America's Cup yacht race to shame. They often frequently would beat steam-driven vessels over comparable distances.
When we think about today's rows about globalisation it is easy to assume that so many aspects of economic life are new. They are not. Our Victorian forbears already conducted trade on a vast scale. Ships such as the Cutty Sark commonly had cosmopolitan crews from countries across the world. There were very few regulations governing who could join up as a merchant seaman.
Of course, many aspects of life have improved since then. I dread to think what it must have been like to climb aloft the Cutty Sark's mainmast in a gale to reef in a sail with the ship rolling about - and you can forget anything like safety harnesses. But these men enjoyed an enterprising life which at times makes yours truly almost feel quite jealous.
Tuesday
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. 
Tuesday
"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
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
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
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
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
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
Andy Duncan has heard the voice ofMetatronPeter 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
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
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
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.
Wednesday
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
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
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
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
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
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
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
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
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
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:
- More money for defence and security (the state's only legitimate role)
- More socialist 'social fairness' and less economic freedom
- More regulation and a clamp down on theft-avoidance schemes
- More wasteful public spending and a big injection into the idiotic NHS
- More tax on sinful things because the state knows what is best for you
- Britain's economy is growing and Gordon is going to continue chucking spanners into the machinery until it ain't
Oh joy.
Sunday
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
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
On March 6, 1950 the first egg of Silly Putty was sold.
Wednesday
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
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
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
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.
Sunday
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
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
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
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.
- 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 - Corporate Taxes (including regiuonal, state, local etc),
also top rates as percentages: 1990, 1995, 2000Japan 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
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
...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
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
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
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 30th, 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 30th 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
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 11th 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
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
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
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
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
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.
Wednesday
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
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
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
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.
Monday
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
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
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
Tuesday
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
Paul Staines
Wednesday
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
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
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
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
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
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
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
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
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
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
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
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
... Paul Staines does not think so!
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.
Saturday
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
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
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 have 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 are 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 is because most multinational corporations do not like the answers to questions like the one I am asking that they do not support capitalism other than in apologetic whispers. How come Pfizer thinks it's good business to support it out loud? I am delighted they do. Nevertheless, why? I am sure some of this story has already been written, but not so I have noticed. And written or not, like I say, it is a story.
Tuesday
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
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
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
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
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
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
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
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
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
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:
- reduces currency exchange risk and cost.
- 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,
- encourages growth of the European corporate bond market that is now widely seen as being able to match the dollar market,
- in combination with information and communications technology enables more fluid and efficient payment processes and settlement systems,
- 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.
Thursday
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
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
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.
Sunday
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
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
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!
Wednesday
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
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
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 1st:
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 30th:
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 18th 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
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 14th 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
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
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
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
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
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.
Wednesday
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
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
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
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.
Wednesday
Brian Linse has responded to my remarks, sort of, about capitalism and the reality of monopoly on AintNoBadDude, though he does not appear to have actually read the article I wrote, or if he did, he obviously did not understand it.
Speaking of Team Sami, Perry has a post on global capitalism or something... Ok, I'll just admit that I have no idea what the fuck Perry is talking about. I think I may have inadvertantly triggered some primordial proto-libertarian confluence of meta-contextual rhetorical lilliputianisms when I mentioned turn of the century railroad monopolies. Or not. Anyway, just a reminder: E N R O N.
Brian's obsession with Enron is revealed for what it is: political rather than economic.
My remarks were about the nature of markets and how the effect of regulations is often to cause the very problems they are intended to alleviate, such as monopoly and unsustainable bloated entities like Enron. One does not have to agree with my views but I think they were pretty easy to understand. But clearly Brian is only interested in how Enron's collapse can be used to hurt the Republicans and thus his eyes glaze over when people like myself, who care nothing for either his precious Democrats nor his detested Republicans, wants to talk about economics.
Fine, no problem Brian. Feel free to continue to opine about Enron without having a clue how real world economics work if that is what excites you, but I think I will decline to get involved in that sort of 'mass-debate'.
Friday
It is simple really... less, not more, public sending helps the economy. What is so hard to grasp about that? When the government taxes, it allocates resources in a way that would not have otherwise have occurred (and if it would have occurred like that, then why is that aspect of what government does being done by government at all?). If the government had not taken those resources and allocated them, the capital would not have just sat under a mattress... it would have gone elsewhere: that is what capital does.
So when the government proudly points to some wonderful things it has built and the alleged economic benefits they will bring, what you do not see is what that self same capital would have done if the state had not appropriated it from its previous owners... what they would have done, what they would have built.
So when Gerard Baker at the Financial Times says Bush may have harmed the US economy with his tax cuts, rather than saying he may have harmed the economy by not reducing spending, he is in effect saying that it is only deficits, rather than government spending itself, that hurts economies. By saying High-Tax-Tom Daschle has better economic policies, that must mean that government spending is actually better for an economy than private spending. How does that work? That must be why the many nations whose governments appropriate more of their national resources for spending are wealthier than the United States, you know, nations like...er...um...ah...
Thursday
...when it was never actually operating in a free market? Over on AintNoBadDude, the indomitable Brian quotes part of an e-mail of mine but also takes the view regarding the Enron fiasco.
I still maintain my position that Enron is a failure of free markets, but I'm more concerned with the bad impression something like this leaves in people's minds. If nothing much happens in the way of prosecution, the case for open markets will be harder to make in these industries.
Well I certainly agree that incidents like Enron crashing and burning does not help the case for free markets, but the reason for that is folks do not seem to understand that heavily regulated markets, whilst they are certainly a form of capitalism, they are in fact not free markets, they are (obviously) regulated markets.
Thus what Enron's failure suggests is not that free markets do not work but rather regulating a market sector like energy in the way it is currently regulated is a failure. Here is a novel idea: how about actually completely deregulating the power sector (for starters) and make the market, er, free. What is the worst that can happen? Maybe Enron will go broke if subjected to the full force of market pressures... oh, I forgot, it already did.
California's power industry provides us with another lovely example of what happens when heavily regulated markets are required to respond to dynamic circumstances... and it ain't pretty. Either abandon the pretence that the market is 'free' and in effect nationalise the power sector, or let the market do what it does best and stay the hell out of the way. The alternative, like so many half way measures, is to get the worst of both worlds: bloated corporations who do not fully control their own businesses and who are also not fully vulnerable to more agile corporate predators and new market entrants.
Regulating fixed infrastructure sectors of an economy because they are said to either be 'natural monopolies' or because they are 'strategic industries' rather misses the point: they are actually not natural monopolies if you have a large (preferably global) market of power companies. Functioning fixed infrastructure for which there is a demand does not just vaporise if the owning company goes belly up in the fish tank... other people will most certainly leap into the breach and take over the assets (plus the associated revenue streams from users), hopefully at fire sale prices, and thus life goes on. That might not be the case in Nigeria or Romania or Myanmar, but in a sophisticated and well developed Western economy it most certainly is.
If it is indeed a 'strategic' industry, then why encourage a few fat sluggish players to develop who, if they cock things up, fall with rather a big crash (i.e. Enron). Surely it is better to allow full global competition to ensure no player can get so damn important.
Enron in the USA and RailTrack in the UK are two classic cases in point not of 'free market failures', but rather of regulated market failures. If all you have to do to make things work better is to impose layers of cunningly crafted regulations, then I suppose that explains the longevity of the Soviet Union and why China is the world's wealthiest country... oops, sorry, wrong parallel universe.
Tuesday
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.
Thursday
There is a splendid little article about Frédéric Bastiat (1801-1850) by Gary M. Galles which give a good overview of what the man was all about.
I have always though modern anti-statists would do well to emulate Bastiat, because as well as being extremely coherent, he was a very witty satirist (for example his Petition of the Candlemakers for state protection against the unfair competition of the sun). Nobel Laureate F.A. Hayek called him a "publicist of genius."
Wednesday
...is not so completely wonderful as all that. As I understand it arbitrage is a zero sum game. As I never tire of pointing out - um, no, as I'm sick and tired of pointing out but keep doing it anyway - the wider world of laissez faire is a win-win game. Warm. Loving. Huggy. Capitalism. It's a metacontext thing, Perry, like in your opening essay.
