One of the same, government dependent, "private" credit rating agencies who rated mortgage backed securities as "Triple A" (because Barney Frank and Chris Dodd, and the rest, were determined that reason would not stop the "affordable housing policy" and the lenders had to dump the crazy mortgages somehow - and, besides, Alan Greenspan Federal Reserve was backing up the building of a pyramid of debt upon them in spite of complaining about it from time to time) is now saying that there is no threat to the "Triple A" rating of United States government debt.

No doubt questions as to the soundness of this judgement about United States government debt will be met with the same response as such questions as "are you sure these people will pay back their mortgages" were. Namely a look of contempt saying "you are so simplistic, you do not understand the first elements of these complex matters - it does not even matter who the mortgages are to, the financial instruments that important people deal in are only distantly related to such basic things".

However, please note the get out clause:

As long as the United States government takes action to reduce the national debt.

Both short term, "stimulus", action and long term, health care "reform", action is all about increasing the national debt. So when the house of cards finally collapses the credit rating agency will be able to say "what are you complaining about - we warned you".

Thanks to our vigilant commentariat, I read this excellent, pithy demolition of central banking by Jamie Whyte, the banker and writer on philosophy and other subjects. Good on the Times (of London) for running it. It's a healthy antidote to the flawed semi-Keynesian nonsense of Mr Kaletsky.

If [UK Government] spending since 1997 had risen no faster than inflation, we would be spending a third less than we do now, and could abolish income tax, VAT, and council tax entirely.

- Eamonn Butler, writing in the Daily Telegraph on what I am relieved to discover the Adam Smith Institute has renamed Cost of Government Day.

I do not intend to buy the book, but Sean Gabb's review of Kevin Carson's recent work is well worth reading. Carson is a sort of radical anarchist-libertarian who has interesting things to say. He is worth paying attention to; and Sean gives what looks like a very fair appraisal. And reading Sean's review got me thinking about one supposedly arcane issue: bankruptcy law.

I thought about this because Mr Gabb, whom I would consider to be a libertarian in the Rothbardian tradition - with a Burkean twist - and Mr Carson are opponents of limited liability laws. I am not so opposed, but I can certainly concede the force of the point, and I think a similar point applies to the bankruptcy codes of some western countries. I have come across several instances recently of the "pre-pack", in which a business goes into liquidation, the firm's assets are sold off to supposedly the highest bidder, and the firm is re-started, Phoenix-like, under the same management, often in exactly the same business and line of work. I know of at least one business rival of my firm who has done just that and has, as a result, been more or less given, for free, hundreds of thousands of pounds in credit, while his creditors get the shaft. In a pure free market order, a rather more drastic outcome might be felt by this debtor, not least, the blackening of his or her business reputation. Indeed, if I recall from history, debtors used to go to jail.

Now, there may be good reasons for bankruptcy protection laws: they ensure that the chances of creditors getting their money back are enhanced by continuing a business as a "going concern". But a balance needs to be struck, since if the law is too lax, it surely means that many borrowers get away scot-free with heavy debts and as a result, the average cost of credit goes up for the rest of us, good and bad risks alike. The law of unintended consequences strikes again.

Anyway, I am sure Carson's book, which covers a wide field, will get plenty of attention.

This might have made the grade as a Samizdata quote of the day, but we already have a superb one today. However, I wanted to post this by the regular commentator, IanB, as it was too good to leave at the bottom of a very long thread about the flawed idea that land, qua land, is special, and must be singled out for tax because of its supposed uniqueness, as distinct from say, income or consumption:

"Liberty is based on a different presumption which has the virtue of making sense, which is that people should own property and do with it as they wish, because it is their property. And, honestly, if I save up and buy some land and plant a big garden on it for my retirement, I don't care whether you think it would be better used for a glue factory because that would return you some externality that you can double charge for via your tax."

"This is why liberty and georgism are incompatible; you keep making claims on behalf of the community. Screw this "community" of yours. It has no rights or claims on me beyond the right to freely interact with me. The LVT is a crude social engineering plan. It attempts to maximise productivity of land. Liberty is not about maximising any statistical value- it is simply the principle that the person may do with themself and what is theirs what they wish. So long as they produce enough by whatever means to survive, there are no other demands upon their economic activity."

Exactly. Suffice to say, I doubt the LVT enthusiasts will give up (they are persistent, a bit like cockroaches that can apparently survive a nuclear blast). Question: why does this issue come up a lot on this site? Are we masochists? Well, libertarians obviously are against taxation, period, but there are grounds for debate on the least-worst form of tax; for what it is worth, some form of consumption tax is probably best in my view, not least because they tend to be fairly easy to collect, although there are still issues here. But in debating the pros and cons, let's not lose sight of the fact that it is tax, per se, that we want to grind down as far as possible (that leaves open debate between anarcho-capitalists and minarchists on how to fund "core" functions of law and defence). There is no such thing as a perfect tax, and use of tax to re-arrange some alleged fault in the economic order of things by punishing some presumed "unearned" surplus is not just morally wrong, it is almost always doomed to failure. So however tedious some readers might find the LVT debate, I make no apologies for giving it the occasional good kicking on this site, along with other taxes.

The debate has certainly encouraged me to read a bit more about Henry George, the thinker associated most often wiith the land tax idea. He was an interesting thinker in many ways. He was a good guy in many respects: a passionate defender of free trade, for example. And he hated other taxes besides LVT. He'd be far too free market for most of our current politicians. Here's a nice entry on him, which has some good but I think very fair criticisms.

Update: as part of our slugfest with these Georgists - they embrace a range of ideological stances, BTW - I thought to add some further points, having read a bit about their views. I don't know why Georgists should, for some reason, not give more weight to foolish central bank policy in causing asset price bubbles, or assume that property bubbles are bad, but other bubbles - like say, the dotcom one of the 1990s, are less so. One Georgist likes to raise the example of Hong Kong, which has a LVT. But that example won't fly as there have been big gyrations in the price of accomodation, which hardly suggests LVT did much to alleviate the situation, or by much. In fact I would say that proves pretty conclusively that LVT, on its own, cannot fix this sort of problem if monetary policy is deranged by Keynesian demand-management or other economic quackery.

There is another, even more fundamental problem with the Georgist position about land. The problem is that it does not distinguish between the fact that while land is, by definition, fixed, available land is not. This is why the likes of John Bates Clark, an economist of the late 19th Century, demolished the land value tax movement's arguments as did Murray Rothbard half a century later. Both men pointed out that the LVT argument ignores the fact that the price of land is driven by its marginal productivity, and in that sense is no different from labour or physical or human capital. To single out land for special tax treatment will lead to a misallocation of resources, encouraging more building density than is rational, etc. The total amount of land is fixed - obviously - but the total amount of sellable land is determined by the amount of marginal buyers and sellers, a very different thing. If demand is heavy enough, new land comes onstream. Just ask the Dutch.

Update: one commentator on the other long thread - it is so far down that I'd rather address it here - claims that Rothbard's critique has been "thoroughly demolished". Has it hell. Perhaps someone could explain to me why his point is mistaken. Consider this paragraph by the fellow:

"The selling-price of an asset on the market will be the capitalized value of its expected future rents: the capitalization to take place at the going rate of interest. The rate of interest is the price of “time,” and hence future earnings are discounted back to the present at this rate. A piece of land sells now at the discounted sum of its future rents. Similarly, any asset will sell at the capitalized value of its future earnings; and where these earnings accrue from hiring out, the rent selling-price relation will be the same. If Rembrandts are habitually rented out to museums, they will earn, say, per monthly rents; tuxedos will earn nightly rents, and so on. Admittedly, land differs from improvable capital because land is not replaceable, and therefore land earns ultimate rents."

And then this:

"The Georgist has a curious conception of the market; he considers that the market is independent of the actions of an important part of its constituent individuals: the suppliers. On the contrary, there is no entity “market” which will take care of finding correct rents. If the shell of ownership is left and its contents confiscated by the State, there will be no incentive for owners (whether of land or Rembrandts) to allocate the assets to the highest bidders and most productive uses. There is no inconsistency when I point out that everyone will rush to grab the best locations if land were free; it would be the same if Rembrandts were suddenly declared free by the government (or if there were a 100 percent tax on their value)."

Here is also a very detailed, and to my mind, devastating take on Georgism in its various forms, by the writer Paul Birch. It is pretty technical, but worth studying. He concludes that the "libertarian" Georgists are the least-bad, but also notes, as many Samizdata commenters have done, that Georgists tend to flick around between a sort of hatred of landlordism per se on the one hand, and a more pragmatic concern with efficiency, on the other. One commenter has referred to landowners as "parasites". That should tell us something about where these guys are coming from.

In boxing terms, the referee would have to stop the fight at this point to save Mr George's hide. And I am done here.

Tim Worstall - back in harness after running for office as a UKIP MEP - writes about the Labour government's stated desire to ensure that not a single tract of the UK is without broadband access. It is the sort of techie, practical measure that Mr Gordon Brown thinks will help win him a bit of respect in the traditional Tory and LibDem shires.

As Tim says, the logic of this idea is questionable. There are geographical, physical reasons why broadband access, or indeed other forms of communications, are not available everywhere, all the time. Also, as the comment thread attached to Tim's piece reveals, there is this argument, that I have raised before - also prompted by one of Tim's articles - about why people feel that because X or Y wants a road, canal, power cables, whatever, that therefore the state should be able to use compulsory purchase powers, and taxation, to pay for whatever it is that is wanted. I have referred to this mindset as "brute utilitarianism". Also, it is a cost of living in the countryside that one does not always have the same degree of speedy access to certain things that one has living in a town or city. That's life, so folk should deal with it. (One of the few arguments for land value taxes is that people living in such remote places would, other things being equal, pay less taxes also. However, there are other problems with LVT as the Austrian school of economics points out, attractive at first blush though the idea might be).

I pay more to live in my rabbit hutch apartment in Pimlico and for the same outlay I could live in a big place in the sticks. But for the benefit of living in SW1, I get quick access to airports (a short trip from Victoria to Gatwick); the Tube, buses, taxis, broadband access, etc. This is part of the cost "package", if you like, that comes with my locational choice. A person who lives in a remote area and who demands Pimlico or New York-style communcations is demanding that the citizens of a city should subsidize that preference. And yet many of the people who migrate from the towns to the country are quite well off; as I have noted in my native Suffolk, as soon as the townies settle in, they start demanding all kinds of amenities, not realising, or caring, that such things don't exist because they are relatively expensive to put in rural areas, which is precisely why Mr and Mrs Chartered Accountant can afford to live in their nice village cottages in the first place.

Sometimes such debates are as easy as this: if people want something, then damn well pay for it yourself, and do not use the robber powers of the state to grab it off someone else.

Rant over.

Er, not quite: my reference to LVT brought out a crop of Henry George "land-is-special!" types on the comment board. Several of us have responded to them, but I came across this nice essay by Jan Narveson, which I think is one of the best smackdowns for the land value tax mob that I have ever read. Excerpt:

Now, the point of this little essay is that that is basically all there is to it, and there doesn't need to be anything else. The idea that we all have an equal right to the land is amazingly arbitrary, and contrary to all human experience while it's at it. It's arbitrary in that it has no basis. The fact that we don't make the land is irrelevant, as already seen: we don't make the natural part of anything we have or own, no matter whether we have "made" it or not. But the point is, it doesn't matter. For things are just things: they do not come with labels saying that they "belong" to some people or that some people, somehow, have a "claim" on them, nor in turn that everybody has a claim on them, equal or otherwise.

The late Peter (Lord) Bauer, a Hungarian-born economist who lived for much of his life in the UK, did outstanding work in demonstrating why markets and trade are superior to overseas aid, and pointed out how aid, and the organisations that often get involved in delivering it, frequently make problems of poverty worse, not better. Even aid advocates like Sir Bob Geldof will readily concede, meanwhile, that aid delivery becomes next to impossible during conditions of war, and when countries are under the rule of armed thugs. So last night's Channel 4 programme on Somalia will have surprised few regulars at this blog.

What was interesting was how local traders were allegedly bribing some aid officials to take sacks of food and then sell it into the market. We were meant to be appalled by this, and part of me was. But also I also could not ignore the fact that this part of Africa seems to be buzzing with a sort of entrepreneurial class of men - one did not see many women - who trade in, and take great efforts to obtain, food and other stuff. That surely suggests that a market, of sorts, works in this part of the world. But what clearly does not work is the rule of law, or the enforcement of property rights. Without due protection for the latter, in particular, then the indestructible desire to "truck and barter" can all too easily degrade into a form of banditry. But let's be clear here: while one can be nauseated at foreign aid being filched by some of the locals, that desire to trade is not, in itself, the problem. It is, in fact, part of the solution to the poverty of Africa.

Meanwhile, I strongly recommend William Easterly's book on foreign aid and the mistakes that well-intentioned folk make about aid.

Some right-wing Americans got very upset when Jon Stewart, the TV comedy/news guy, monstered the CNBC "Mad Money" front-man Jim Cramer a few months ago. They had a point; it is clear that at least in some of his shows, Stewart tacks left. But whether unwittingly or otherwise, he was very fair in an interview recently with Peter Schiff - who by the way is possibly running for political office. Mr Schiff is a hard-money capitalist, an attacker of the Fed, of the bailouts of Bush/Obama. I wrote about him a while back. And Schiff used the platform of this very popular show to beat the drum for free markets, sound money, and getting rid of the Fed.

Good for Jon Stewart, at least on this occasion, for giving Schiff a platform.

My good friend in the US, Russell E. Whitaker, has plugged this excellent lecture in a Facebook posting (thanks Russell!). The lecture is delivered by the investor and commentator, Peter Schiff. It runs for one hour and 16 minutes, so you will want to find an appropriate time to brew up some coffee or pour your favourite tipple, relax and enjoy. He is an entertaining speaker, who makes the issues intelligible without dumbing down. He also has ideas on how to protect your money during the fallout.

It should be seen in conjunction with this book, by Thomas E. Woods, that I have mentioned a few times before. As these men observe, it is nonsense for policymakers like Gordon Brown, Alan Greenspan, etc, to blame what has happened on reckless private individuals, "greedy" Wall Street bankers, and so on. What happened was clearly predictable once one understands how incentives to save, borrow, invest and spend have been skewed by ultra-cheap central bank credit, the moral-hazard drivers of state regulations, bailouts, and the rest.

I rather liked Mr Schiff's idea that Bernard Madoff, the Ponzi fraudster, is ideally qualified to run the US Treasury Department, given his er, skills.

Update: After queries, I put another link on as there appear to have been some problems with it the first time around.

There is a Reuters story quoting a survey suggesting that the recession could trigger a general increase in violence around the world. As is always important in these kind of claims, we need to be sure that correlation between two things - violence and economic uncertainty - is not being conflated with causation. Consider: Saddam Hussein invaded Kuwait in the early 1990s when the world, in general, was quite prosperous, albeit coming out of a short recession in countries such as the US and UK, when the price of oil had also been falling. The violence that broke out in the MEast later in parts of Africa (think Sudan, think USS Cole) took place in the middle to late-1990s, a period when emerging market economies were generally on the rise. The exceptions may prove the rule: what I think is true is that places that are felt, rightly or wrongly, to be unfairly excluded from a global prosperity are often likely to be unstable, and quite violent, but not always.

In fact, it is even arguable that greater prosperity might even cause some forms of violence if reactionary/religious groups regard such wealth as a defilement of whatever it is they want to protect. (I happen to think that explains why some anti-globalisation folk are often, in essence, reactionary snobs). That in part explains the argument of those who said that the West was attacked on 9/11 not for its supposed transgressions in the Middle East, but for its wealth and freedom per se.

Where I think economics does play a more direct role is where you have regimes that are financially busted, with few remaining resources, and where they greedily, and desperately, eye other, resource-rich nations nearby. That explains some, but not all, military campaigns. As in the case of Japan during the 1930s, a hunger for raw materials, coupled with a militaristic ruling ideology and elite, led to the Japanese conquests in parts of East Asia and the Pacific Rim. The same happened with Argentina and its invasion of the Falklands Islands in 1982 (the islands are supposedly close to some very big oil reserves). Ceasar's conquest of Gaul had a partly economic incentive (all that gold, slaves, etc). And so on.

There may also be some evidence that the more prosperous we are, the more tolerant we are, too. In fact tolerance, which is allied to liberty, and prosperity, are faces of the same coin. In the minds of the great Victorian champions of free trade, such as Richard Cobden and John Bright, free trade and peace went hand in hand. A bit naive, maybe - trade routes need to be protected against thieves and thugs - but it is a view based on an essentially benign view of how most of us live our lives, given half a chance.

Even in Britain, the headlines this morning are full of the imminent bankruptcy filing of GM. It is, as one report points out, the biggest bankruptcy in US industrial history, setting an unenviable record. Several things stand out as I looked through the details but one immediately grabbed my attention: the US taxpayer could be on the hook for up to $60 billion on account of state assistance. $60 billion. I guess we all get so punch-drunk with the vast sums involved in bank bailouts and the like that the significance of these sums becomes a little fuzzy (or maybe it was that white wine I had at the BBQ yesterday). $60 billion of money that is being spent to rescue part of a veteran auto firm will be money that will not be available to fund, say, a new set of business startups in the US. GM has highly recognisable brands and a lot of well organised workers. Pretty much everyone has heard of it, has heard of Detroit's status as a car-making town. So, naturally, there is big media and political interest in what happens to GM. All those thousands of jobs on the line, etc. But the entrepreneurs, taxpayers and consumers who will see their wallets lifted, business plans stymied, or car purchases affected - who speaks for them? Taken as a whole, far more people will be affected by the cost of paying to sort out GM than the management and workers, but given the dynamics, it is usually far easier for politicians to portray themselves as "saving" a firm by spending or "investing" (sic) public money than it is to accept, however painfully, that a firm needs to be broken up and capital released for other, more productive things. (It needs to be remembered that GM's problems pre-date the credit crunch).

The French classical liberal economist, Frederic Bastiat, wrote a famous essay, "What is seen and what is not seen". He was attacking things like subsidies and tariffs. And not a word of his essay is out of date.

I suppose they deserve half a clap for trying, if not for the rigour of argumentation. Crooked Timber, a leftish blog I read occasionally, tries to deny that flexible, relatively lightly regulated labour markets have fared better, or are superior to, the more heavily regulated, European ones, such as in France and Germany. Oh really? Let me quote a couple of lines:

"According to the latest Eurostat data, the unemployment rate in the US was equal to that in the EU-15 in March, and is now likely to be higher. Writing in the NY Times, Floyd Norris refers to the conventional wisdom that flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries implies that unemployment should be lower (at any given point in the business cycle) in the US than in Europe."

It is "conventional wisdom" in the sense that it makes sense. Other things being equal - which they never are, of course - if you increase the cost, and hassle, of both hiring someone, and make it more expensive and difficult to fire someone if they fail to come up to scratch for any reason, then fewer people in general get hired. And it strikes me that that holds pretty robustly. Yes, unemployment may currently be as bad, percentage-wise, across the US as a whole as across the whole of the euro zone, although let it be noted that different parts of the US have differing rates of unemployment, as does the euro zone. But as the next paragraph demonstrates, it really will not do to try and claim that heaping labour markets with more costs and rules has few adverse effects:

Advocates of the US system make much of the deterrent to hiring associated with employment protection laws, but they ignore the other side of the coin. When the economy is contract, employment protection laws do in fact protect employment (if they did not, they would have no adverse effect on hiring either). On this basis there is nothing surprising in what we are seeing. EU unemployment rates should be higher in expansions and lower in contractions, which is exactly what is required for lower variance.

But - and it is a big but - if monetary policy is not run by idiots, thereby avoiding boom-bust cycles of great severity, then overall, the low-regulation labour market fares better, in the medium to long-run, than the alternative. If wage rates are allowed to fall in a recession, rather than be held up via artificial means, then yes, you will get, as America did in the early 1920s for example, a sharp, but short contraction, followed by a rapid recovery. But if you load lots of rules and regulations on, you get a 1930s-style decade of high, double-digit unemployment. And in measuring the impact of labour market laws, the duration of a period of high unemployment is as bad as, if not worse, than a period of high, but short-lived, unemployment.

And let's not forget that in France, for instance, the country had high unemployment rates for much of the 1990s and early 'Noughties, when much of the Western economy was booming on the back of cheap commodities, the rise of the BRICs, the dotcom boom, the Cold War "dividend", and impact of partial free market advances in the US, the UK and some other countries. And yet hundreds of thousands, even millions, of Frenchmen and women, let it not be forgotten, languished on the dole or make-work projects. In 2005, for example, French unemployment was above 10 per cent.

Here is quite a balanced account of the benefits of a supposedly flexible labour market, including the pros and cons. This extensive study comes down pretty firmly on the side of the view that flexible labour markets are good overall.

In a way, what this comes down to is the trade-off between security for those who have a job already versus the freedoms of those who want to get another one or any job at all. To pretend that things such as regulations and costs of firing people will not influence behaviour is to deny that incentives matter, or that they affect welfare.

"There is an almost universal assumption that the next government, of whatever stripe, will be imposing new taxes to avoid a junk-bond future. This easy option should not be allowed to run its course without challenge, because it ignores the risk of turning Britain into a junk economy of high taxes and low growth. It is no coincidence that the pressure to bring tax havens to heel has become intense over the past six months. So panicked were the finance ministers of the G20 nations about the risk of capital flight from the grabbing State that a campaign of bullying was launched against a small group of nations that refuse to accept that the State has the power to achieve absolute dominion over private wealth."

Carl Mortished. He is writing about California, and the lessons of that indebted US state for the euro zone and Britain.

I love the headline on this piece in the Spectator by Matthew Lynn. I don't think he is talking about our own Brian Micklethwait, but he could be.

Mr Lynn is talking about the risk, now rising, that the UK will have its sovereign debt ratings cut, a fact that means the UK government has to pay higher interest rates to investors wishing to hold UK gilts. I suspect the US could be headed for a similar fate.

Hopey-change!

Very smart article by Niall Ferguson on the lessons to be drawn from the financial crisis. As one would expect, many of the wrong lessons have been learned by policymakers. As he says, the 1970s was a period of relatively heavy financial regulation and state controls over part of the banking system, and yet it was a grim period economically (unless you happened to be an OPEC oil producer). He also picks up on the point that Canada, which operates a broadly free market banking system, has not suffered anything like so badly as its neighbour, or indeed the UK. That's mightily inconvenient for our own Gordon Brown in claiming that the crisis was like swine flu or a meteorite impact from outer space, rather than something that was caused in many cases right on his doorstep.

Thomas E Woods - whom I mentioned the other day - hits back most satisfyingly at Matthew Yglesias. The latter had some sniffy thoughts about Mr Woods' recent book on the financial crisis. For the sin of looking at the crisis through the perspective of Austrian economics, with its specific way of looking at the economic cycle and the role of banking, Mr Woods incurs a certain amount of sneering from Mr Yglesias.

Mr Woods gets the distinct impression that Yglesias has not read his book. I have no idea whether he has or not; but there does seem to be a recent pattern of leftists trashing the likes of FA Hayek, or whomever, in a way that suggests that they haven't the faintest idea of what or who they are talking about. You can just picture the thought process that goes through Mr Yglesias's mind: "Ah, these central Europeans with their funny names and their think tanks - who are they to question the great Keynes and his sensible ideas on demand management".

But I detect a sign that perhaps, just perhaps, the Yglesiases of this world are losing some of their Olympian self-confidence. At a City event the other night, listening to people talking about the economy, I did not get the impression from all the associated financial types that the idea of using the printing press to cure problems caused by underpriced credit was regarded as very brilliant. In fact quite a few folk are mentioning inflation as the issue that could hit Real Soon Now.

Thomas E. Woods is great value. Check out his website.

The first 10% off public spending could be painless for the public and popular.

- John Redwood

I have not written about the subject of the Chrysler bailout so far since, not being close to the action in the US, I did not feel I had much to say that was not already voiced by the US blogs. But it does occur to me that there is a general problem right now in the way that the US administration - and arguably the UK one as well - has been acting in respect of bailouts of certain industries, such as carmakers as well as banks. What do I mean? Well, this report (H/T: Instapundit) suggests there is real fear about the "Nixonian" tactics employed by Mr Obama's administration against bond-holders who have been angered by the expropriation of their capital via the Chrysler bailout.

For those who have not been following this story, bond-holders have been pushed to the back of the queue, as far as potential recovery of capital is concerned, with the auto union membership getting preferential treatment. Maybe Mr Obama figures that investors can be rained on right now because it is more important to get the votes and support of traditionally Democrat-leaning car workers. With mid-term Congressional elections a couple of years away, he will have his sly, Chicago machine-politics mind working out how to garner important support in the event that the US economy is still sluggish by that time. But pissing off investors - such as, let it be noted, pension funds - is not smart. The US requires large amounts of capital for any economic recovery that may take place. Ask yourself one of the most basic questions any investor should ask: can I get my money back if I need to? If the answer is no or only maybe, and if there is the threat of governments robbing investors, then less investment occurs. The problems of such behaviour explain why, for example, Africa has been such a bad investment bet for so many years.

It is an ugly business. Part of the trouble with the automakers is that even if they had been put into a Chapter 11 bankruptcy process, with the banks and bondholders put on a more even footing for any recovery of assets, there is still the issue of what to do about the enormous unfunded pension obligations that these heavy industrial companies have. It is the same with airlines and steel. I have heard it said of British Airways - to take a UK example - that is is a pension scheme that happens to have a lot of aircraft. The pension tail can wag the corporate dog. And that is a hideous issue to deal with against the background of an ageing population. So in fairness to US policymakers, running down Chrysler involves dealing with a lot of tricky contractual issues.

Even so, it strikes me that the Obama administration is showing a level of political ruthlessness and "bugger-the-investor" attitude that is hardly going to endear people towards investing in that economy. My fear is that Mr Obama is making the cynical calculation that memories will fade; after all, how many investors in the UK remember how the Blair government, in the form of the charmless Stephen Byers, the-then industry minister, shafted investors in Railtrack?

Like I said, an ugly business.

Regulars may have already come across this article, but if not, click on the link as this is a good item showing that the "Austrian" school of economics, in particular, did predict the credit crunch and the problems associated with it. It is just no good for folk to prattle that "no-one saw this coming" yadda yadda. (H/T: Adam Smith Institute Blog).

As an aside, the award-winning FT journalist, Gillian Tett, whom I once met many years ago, has a book out about making the argument that modern financial engineering has to bear much of the blame for the crisis. I have not seen many reviews of it - is it any good? My worry is that no analysis of the crunch makes sense if you ignore the broader issues of how financial systems become deranged in a world of fiat money in which central bankers start to believe in their own myths and where the rules create perverse incentives. Blaming derivatives for the crunch is a case of shooting the messenger, methinks. Even so, I'd be interested to see what Tett has to say. She holds a doctorate in anthropology, by the way, which gives her a bit of an insight into things like crowd behaviour - a very useful insight indeed.

One of the beauties of the blogs, I find, is that the link-rich medium enables you to fly off on all manner of tangents and think through issues that might otherwise not arise or come into one's head so fast. The recent posting on Samizdata about Ayn Rand - which seemed to trigger a rather bad-tempered and long comment thread - led me to a site put together by this fellow, who wrote a rather rude comment about Rand - nothing very new there - and I decided to take a look at his own blog. This is what I found. James Hooper is a socialist who once, apparently, was a "teenage libertarian". I guess one does not come across many libertarians who imbibed their Hayeks, Rands, or Rothbards and later decided that what the world really needed, in fact, was lots of collectivism, progressive taxes, and the rest of it. I suppose John Gray fits a similar path, although as Brian Micklethwait has noted, Gray is consistent in his pathological gloomsterism.

Anway, back to James Hooper. In his latest post, he writes this:

"Healthcare is an area where the market has proven utterly inadequate, indeed it’s hard to find any pure market approach outside of the Third World (company insurance is decided by CEO boards and unions, state insurance by governments), although I’d imagine that those who have died in America owing to lack of insurance didn’t rate the distinction that much."

Now it seems to me that there is something very wrong about this statement. Human beings require health care, just as they require food. Now, in the West, food is - mostly - produced by the free market, although as a libertarian I'd be the first to note that there is a lot of regulatory control over food production (ask any farmer, slaughterhouse owner, food retailer, etc) and a lot of subsidies, such as under the EU's Common Agricultural Policy. But by and large, the process by which we get our fruit, veg, meat and carbs is via capitalism. This seems to work tolerably well. It could work a heck of a lot better, of course, but in general, you don't see people, even the very poor, starving in the streets as happened under communism in Russia (1930s) or Mao's China (1950s, 60s), or see the sort of state-induced disasters in Zimbabwe, etc. So clearly, something as basic as food seems to work best when left to the market.

So what is so different about health care that it can only - according to various statists, including many right Tories - be provided by a mixture of private/public operations or even, only by state monopolies, such as the UK's National Health Service? For sure, some people, such as the very poor, will not be able to afford all the healthcare they want, but then the same issue applies to very poor people who cannot get all the food or housing that they want. Their problem is poverty, not something peculiar about food or housing. I understand that healthcare purchases tend to be less frequent than purchases of food; there may be inefficiencies or supply-demand issues that perhaps don't let a market in health care function as well as in say, baked beans. But even so, for a person to state as a bald fact that a market in health care does not work seems, well, to be a case of ideology trumping experience and elementary logic. This article by Ronald Bailey lays out a good argument for a free market in health.

Of course, if, like Marx, Mr Hooper believes that a socialist society will be based on the "From each according to his abilities, to each according to his needs", then that of course begs all kind of momentous questions of interest to defenders of liberty and prosperity. As I have pointed out before, if you say, for example, that I have a "right" to "free" healthcare, what that really means, in practice, is that I have a right to coerce someone who is able to work as a doctor/nurse/lab technician to give me what I want. In short, the Marxian "from each according to his abilities" presumably means that the state must have the power to decide what are the "abilities" that Johnathan Pearce, or James Hooper, etc, actually have, and then have the power to harness those abilities to fullfill the needs, as the state has defined them. In short, the Marxian formulation requires conscription of abilities.

There is a word for this state of affairs. It is called totalitarianism.

Mike Oliver (who blogs as 'Mr. Integrity'... currently off-line) spotted an interesting article over on National Review that for once does not try to give Rand a kicking.

BB&T - and its open defence of rational/individualist/objectivist philosophy, a credo that runs counter to 2000 years of Judea/Christian/subjectivist/marxist ethics and deeper subjectivist planks that link those categories. Explicit defense of reason - I say!

Yes, such businessmen do exist, they are not merely the stuff of a well-known novel. As opposed to at least a large plurality of "business leaders" who seek always to cultivate government/business linkages, contracts, and of course regulations that "rationalize" their sectors (with such government rules used to ossify the industry with them - the privileged businessmen- commanding a degree of non-market control over that business sector). In history classes the U.S. trends now massively underway was how Fascism was defined.

But modern lovers of the State seem to have conveniently blanked that out. Anyway BB&T stands out from the crowd. What is most curious on a meta-level about this online article is that it comes from NationalReviewOnline.

National Review has been and until now at least was always the most outspoken and spewing opponent of Rand & Objectivism. Denouncing Rand's rational philosophical base. NR has always been at its core, and explicity so - Buckley's first book was titled God and Man at Yale) a subjectivist, religiously-planked political credo, arguing that God and a belief therein is the basis of capitalism and individual rights, etc. No wonder over the decades so many young potentially-bright students have mistakenly linked (as their professors would have them do) capitalism, or such that we have had in the U.S. that is labeled "capitalism." with a religous or non-rational philosophical base.

Many of those students, not realizing the subjectivist, A-is-not-A base of Marxism, therefore sized-up the two choices - of an ethical code based on mysticism (the Buckley-type defence of "capitalism"... or Marxism... which to so many seemed a "scientific" or otherwise rational view of the world. And tended to opt for the later - either Marxism or many of its falsely-"humanist" variants.

Anyway, National Review was on the side of mysticism and held that banner high while viciously attacking Rand and her atheism - almost foaming in their attacks over the years. Well, perhaps even that changes with new blood at National Review? No, it's probably just the failure of one of their higher editors to notice that one of their writers slipped this article onto their online site. Well, in any case it is an interesting article about the current times and the role of ideas: ideas taken from reality then applied back to issues of dealing with reality.

Thomas E. Woods, who has a good book out about the recent financial turmoil and the bone-headed reactions to it, has this excellent piece on the sort of nonsense written about the supposed villains of this story. As he notes, when a leftist author cannot even be arsed to spell FA Hayek's name properly, you tend to suspect the author has never read the person he is attacking. Or maybe they think Salma Hayek is an economist. (Great excuse for a gratuitous link, Ed).

A great article on why the opposition Tories need to have the cojones to take on the flat-earth economics of confiscatory tax.

"As bad as things are at the moment, it seems a mite premature to write off policies in the 1980s as an abject failure. We have not lost 30 years of wealth, and living standards have increased for billions of people since the 1980s. Income inequality has increased, and that can be undesirable, but the welfare of many low-income people has dramatically improved."

The Economist.

The 1980s were only an "abject failure" in the eyes of those whose political ideas never developed beyond a sort of bastardised Marxism. They were not a failure for those who enjoyed, say, the ability to get a phoneline installed in 24 hours rather than six months, or not be forced to join a trade union, or no longer pay cripplingly high taxes, or be banned from taking more than a paltry sum of money abroad on holiday. The 1980s were a good decade in my view across a number of fronts with two main, glaring exceptions here in Britain: the-then Thatcher government did not truly uproot the Welfare State and the "enemy class" that ran it, and she did preside over what was later to become a relentless assault on the checks and balances of the English Common Law. But generally speaking, that decade goes down in my book as a good one.

Talking of Mrs T, it is now 30 years since she came to power.

There is an interesting feature article over at Reuters about how, as a result of the financial crisis and the rigid labour market laws of much of the continent, millions of young Europeans leaving school and college face a bleak future over the next few years. Even during the relatively prosperous period of the Nineties and much of the 'Noughties, youth unemployment in nations such as France was shockingly high, sometimes into double figures. Europe's failure to create a large number of private sector jobs remains one of the most damning facts about the continent's economic record over the past quarter of a century.

One of the few financial journalists who rumbled Gordon Brown years ago, Allister Heath, gives his verdict on yesterday's UK budget. Devastating detail all the way through.

Allister is also pretty scathing about UK Liberal-Democrat economics spokesman, Vincent Cable, who tends to be deferred to as the "politician who talks sense on the economy".

There is no doubt that - apart from some smart writers like Liam Halligan - not many people in the financial journalist profession saw the current crisis coming or predicted its full extent. Clive Davis, over at his blog, makes that point by linking to an article that goes into what is rather mysteriously called the "shadow banking" sector: ie, any institution that gets involved in trading in or holding credit, such as hedge fund. I wrote about misconceptions surrounding this issue the other day.

So why were financial journalists or many economists unaware of the gathering storms? Well, assuming that they were oblivious, my explanations are as follows. I'd be interested in the comments. Here goes:

First, over-specialisation in the economics profession. One of the great benefits to me in discovering those Austrian economists such as Ludwig von Mises and writers like Henry Hazlitt all those years ago as a callow youth was that it reintroduced me to the days when "political economy", as it was known in the 19th Century, was not hung up on mathematical models or big, wooly macro-economic systems, but addressed the incentives, laws, and actions of man. I had the benefit of getting a good grounding in microeconomics, in understanding an economy as a dynamic process that changes through time, not a set of artificial "games" with nonsense such as models of "perfect competition".

Second, I think that for many journalists who did learn economics, the sort of ideas that have given me and other classical liberals/libertarians some insight into the gathering storms are simply not on their intellectual radar, or if they are, they are led to believe that people with surnames such as Hayek, or von Mises, or Friedman, are somehow eccentric, even malevolent creatures. Most of them have either read their JK Galbraiths, or their Krugmans, and get their views from the still-powerful tradition of Keynesian economics. The idea that fiat, state-monopoly money and Big Government - the two are related issues - lie at the core of the issue just does not apply to a group of folk who generally tilt left in their politics (although this is far less the case than in other parts of journalism, in my experience).

Also, as a result of overspecialisation, a journalist who writes about, say, the government bond market may not always join the dots when it comes to information coming out in a different area of the economy. There is also the fact that as sectoral journalists covering their beats such as energy, retail, telecoms, etc, get involved in the day-to-day job of covering these things, that the broader trends get obscured because of the sheer volume of stuff that journalists deal with. Given how financial journalism has developed as a profession in the last two decades - I have some insight into this via my day job - I am not too sure how to deal with this. Part of the trouble may even be what I might call the "showbiz" trend in financial journalism: reporters at channels such as CNBC often talk about the market in a sort of sports-coverage way: who's up, who's down, etc.

There are reporters - the FT's Gillian Tett springs to mind - who have been very good at trying to keep on top of how the credit markets have evolved and some of the risks associated with that. And there are commentators and investors such as Jim Rogers, for instance, who have been pretty astute at seeing the disaster and warning about it. But a lot of people, as Clive Davis says, have not been aware of the magnitude of what has hit us. Maybe, however, Mr Davis has to remember the flip-side of this coin: we may now be blind to the chances of a pretty rapid recovery, at least in some parts of the world.

The title of this article written some months ago by noted US economist, Arthur Laffer, has never been more apt after I finished reading through the UK government's latest outrage, its annual budget statement.

A new, top rate of income tax of 50 per cent comes in from next year, applying to annual incomes of £150,000 and above. The government, which probably knows it is doomed anyway, has made the base calculation that the Tories won't dare to repeal it. I actually am not too sure about that: while £150,000 a year is a lot of money, for many self-employed folk with lumpy income streams, such a new tax band will hit them very hard in marginal terms, encourage further emigration from the UK, deter anyone with any entrepreneurial brio from entering the UK, and probably reduce, not raise, revenues. It is also a boon to the tax-planning and accountancy profession, since anyone who can restructure their affairs to convert income into a capital gain - CGT is just 18 per cent in the UK - will do so.

Update: I share Guido's reaction. No wonder, by the way, that the G20 nations - hypocritically - chose to attack "tax havens" and create a global tax cartel. If you are someone like Gordon Brown or The Community Organiser, the last thing you need is for your high earners to escape abroad. But I'd be willing to bet that there will be quite a rush now of people out of this country. Expect to read lots of stories about how "Mr X, who runs a small business in the Midlands, said he was heading off to Australia/Canada/wherever to get away from high-tax, high-crime Britain". Expect there to be a relentless, drip-drip of such stories in the months ahead. (Mr Jennings snorts about my mention of Australia: yes but at least there are other benefits to moving there).

Update: Madsen Pirie of the Adam Smith Institute and some top wealth management folk give the budget a thorough hammering over at CNBC. The guy from Denton Wilde Sapte is particularly good.

I am not terribly convinced by this:

“…after decades and decades of instability in the 1800s and early 1900s, followed by the massive bank failures of the early 1930s, regulations were imposed to stabilize the banking system. The result was sixty years of calm in the financial sector. That's hardly a failure of regulation. It wasn't until the shadow banking system began growing outside of the regulatory umbrella that problems began to re-emerge. A central theme of the posts this week has been that bringing about another decades long period of relative stability will require the regulatory umbrella to be extended to cover all firms within both the traditional and non-traditional (or shadow) banking system, hedge funds included.”

That does rather ignore the fact that, in the early 1970s – in the period of “calm” that this writer talks about, we had stagflation, the collapse of the Bretton Woods banking system, etc. Hardly very calm. And if the system was calm, as claimed, how come it collapsed? (Hint: it was not the fault of evil private bankers or tax havens).

In the absence of a return to sound money and an end to fiat monetary systems, there may be something to be said for rules to at least limit some of the damage that monetary mistakes can cause. This is a second-best solution, I would say. I have heard it argued, even by some pretty ardent free market types, that there is a case for splitting the roles of risk-taking investment banks from those of more utility-like retail banks, as under the old US Glass-Stegall rules in the US. But had Glass-Stegall been in force today – it was abolished in the late 1990s – it would not have been possible for investment firms such as Morgan Stanley and Goldman Sachs to remodel their businesses as full-service banks, as happened in the autumn of last year when those firms were partly bailed out by the taxpayer. The ironies abound.

On this issue of the “shadow banking” system, the author and others need to understand how the business of securitising debt and selling it off to investors started, as well as why hedge funds and other non-bank institutions developed. This market, and the fiendishly complex derivative products that drove it, was given much of its early impetus by a banking regulation system, known as the Basel system, that told banks they had to set aside a certain portion of capital to one side to protect against risk.

It was, if you like, a partial acceptance that fractional reserve banking, if it is allowed without any “safeguards”, is dangerous. But what happened? Banks took out tradable insurance policies, such as credit default swaps, and used this insurance to get a better credit rating, and hence, reduce the amount of capital they set aside. The “shadow” banking system, then, and the derivatives market that gets so much heat, was partly driven by regulations, as well as by the application of sophisticated – if flawed – mathematical and scientific techniques to the business of finance.

The article does at least, in a backhanded sort of way, recognise that not everyone is signed up to the narrative that “unregulated capitalism” has failed. I am glad that has been noted. After all, it is a myth that supporters of capitalism, such as yours truly, oppose regulations per se: what I oppose is state-imposed, one-size-fits-all regulations. For example, if a privately run stock market wants to create its own listing rules to build and develop a reputation for high standards, it will be in its self interest to do so, since a track record for honesty, transparency and efficiency reduces the costs of capital because investors are more willing to hold equities traded in honest places rather than dodgy ones, and so on.

If the state has a role, it is that of going after thieves and fraudsters. And as we have seen in the case of US Ponzi scheme conman Bernard Madoff, the powerful US Securities & Exchange Commission did not act, despite certain suspicions about him, for years. By focusing on the basics, rather than trying to regulate everything under the sun, the state might even do some good.

Via this website is a list of the ten most annoying taxes. I am not sure if I agree with the rankings, but still.

The website does seem to have many attractive features (absolutely! Ed).

One issue that does not appear to have provoked a lot of discussion, at least not yet, is how the government bailouts and encouragement of mega mergers between struggling banks has created a banking industry that is, if not monopolistic in its structure, then pretty damn close to so being. Now - as I once argued four years ago (gulp!) - the fact that a firm such as a computer software house or bank is big is not, by itself, harmful. One should not confuse bigness with control over the consumer. A lot of anti-trust laws - which I believe often create more harm than they supposedly solve - are based on the mistaken idea that a firm's being big is somehow proof of malign intent and that bigness, is, ipso facto, harmful. Well it all depends how the firm got to be big in the first place, and whether it retains its market size by continuing to offer good products that people want. For a firm to stay big at a time when barriers to entry in certain fields are being slashed by new technologies such as the internet, confusing bigness with lack of competition is a serious mistake.

Now turning to the banks, it is clear that the mergers between the likes of UK's Lloyds and HBOS, or Bank of America and Merrill, or Wells Fargo and Wachovia, have produced a number of large banking groups with the state acting very much as the encourager of such mergers, rather than, as might have been in the case when anti-trust lawyers were on the prowl, hostile to them or at the very least, skeptical. As free marketeers like to point out, monopolies that are supported by state powers and privileges are harmful, while those that arise out of a dynamic market process tend not to be, since state-backed monopolies are the least likely to fall prey to new, nimbler competitors. Without state support, even supposedly invincible big firms, such as IBM, Ford or for that matter, Microsoft, can find their market share eroded by a newcomer.

One of the reasons why I actually favour free banking and competition in money is that it might create more banks and give the established banking sector a much-needed dose of competitive pressure. I am pleased to see that the likes of Tesco's, the supermarket chain, is getting into banking. That is good news for the consumer, hopefully, although the haters of Big Retail might complain.

In the UK, for example, Lloyds Group, after its acquisition of HBOS, controls almost 45 per cent of the UK mortgage market. Any new entrants that can put that behemoth under pressure are to be welcomed.

I am not suggesting by any means that the gold standard was perfect, but if we judge it by its record, it achieved much better price stability than the disastrous inconvertible paper money standard that replaced it.

Unfortunately, in the twentieth century the gold standard came to be seen as a pointless constraint against the issue - or, rather, over-issue - of currency. Economists argued that the Bank of England should be free to issue whatever amount of currency it (or its political masters) wanted. The old idea that the gold standard imposed a useful discipline against the over-issue of currency was discarded as out of date. Keynes famously told us that the gold standard was a relic of a barbarous age, and reassured us that modern governments were much too sophisticated to debase the currency. Modern governments were not like impecunious Roman emperors or medieval kings.

The results were catastrophic, but Keynes was right about one thing. Modern governments were not like Roman emperors or medieval kings: they were much worse, and produced much greater inflation rates than their predecessors ever managed to achieve. There is a limit to how much inflation you can create by clipping the edges of your coins and putting them back into circulation, but the sky's the limit when you can just speed up the printing press or add additional zeroes to your notes.

- a characteristically forthright moment from Kevin Dowd's Chris Tame Memorial Lecture entitled Lessons from the Financial Crisis: A Libertarian Perspective, delivered on March 17th, already reported on here by Johnathan Pearce, now published by the Libertarian Alliance as Economic Notes No. 111, printable out as a .pdf but (more to the point for bloggers) copiable and pastable as an .html

The political atmosphere in Britain is rather peculiar just now. One of the more interesting things to ask of public opinion at any particular moment is: Who exactly does public opinion think are the people who are most blatantly and most undervedly robbing us. It was a decisive fact about the 1979 general election that public opinon's answer then was: The Unions. It was a decisive fact about the next big electoral upheaval, in 1997, that public opinion's answer then was: the Conservative Party. Now, public opinion seems to be arriving at another answer to the who-are-the-biggest-plunderers? question. It seems to be deciding that the answer now is: Members of Paliament of all parties. If this opinion solidifies in time for the next general election, it will be very interesting to see what it does to the Conservative vote in particular. What if all the major parties do worse? Since they have all done so badly, this would make sense, I think.

But surely the plunderings now being contrived and the further plunderings being attempted by the people who are politically well above the average MP in the plunder pecking order make the petty pilferings of our Members of Parliament look very petty indeed. Has any MP put in a claim for even so much as one billion pounds, to pay for a second West Indian island? If so, I missed the news. It's almost as if the powers that be want the mere MPs to take all the blame for everything. It's all a dastardly establishment plot, orchestrated by evil pseudo-libertarian Guido Fawkes!

Of course, it could just be that regular people can get a handle on the fraudulent expenses claims of MPs, because these are the kinds of amounts they deal with themselves, and sometimes even pilfer themselves with morally questionable expenses claims of their own. On the other hand, the sums of money being slung at dodgy banks and political-donation-wielding bankers, and now being further unleashed by "monetary easing", well, these are just way beyond all normal experience. Pile up all those bank notes and they reach far off into the Solar System, or deep into our own galaxy, or the next, or to some such unimaginable never-land. (Thus also does a council planning committee debate a patio extension for an hour and a half, before letting an oil refinery through without further discussion, that being another insight, to add to this one, that we owe to Professor C. Northcote Parkinson.)

Speaking of the really serious plunderings that are now being perpetrated, by those at the Obama/Brown level of operations, the other odd thing I have been reading lately, this time said by commentators like Peter Oborne and Fraser Nelson, is that Mr Brown is bad, because he is not stealing as much money as he is pretending to steal, in order to "stimulate" (the new word for wreck) the world economy. Oh Mr Brown claims to be stealing a thousand gazillion pounds! He would, wouldn't he? But in fact it's only a hundred gazillion pounds, because he has counted most of the gazillions in question twice or even three or four times. Most of the gazillions he is now promising to steal anew have either been stolen already or won't be stolen at all. Bad Mr Brown!

But surely this is a case where words on their own are greatly to be preferred to words followed by or accompanied by actions. Our best hope now is that, when Obama and Brown and the rest of them promise that they are now taking decisive, radical and above all very big and very expensive actions of various kinds to save the world, they are lying. Heaven help us all if they are telling the truth.

Last September, I went walking in the Scottish Highlands with a good friend. My friend and I were booked on different flights leaving Edinburgh airport for London on Sunday evening. My friend then had a connecting flight at Heathrow to Hong Kong and then on to Sydney, so he was particularly eager not to miss his flight. Therefore, I dropped him off at the airport terminal before I went looking for a petrol station to refuel the rental car before returning it to the airport and checking in for my own flight.

The "Where the expletive is the nearest petrol station" dance before returning a rental car to an airport car rental office is one I know well, but this one wasn't too bad. After driving a few kilometres down the M9 I saw a station on the other side of the road, so I exited the motorway at the next junction, crossed the bridge across the motorway, and found...

Well, I found myself myself in a new and better world, actually. It was an office park, but not just any office park. There was a big sign with an RBS logo, lots of gleaming buildings, water features (both active and passive), corporate sculpture, and the general sense of the intense self-regard held by the people who had had this place built. Clearly, RBS had decided that it needed a new, gleaming head office from which to run its überimportant global operations, and had had this Dr No like compound built near Edinburgh airport, where its highly sophisticated heart could beat, without any interruption or disturbance from reality. RBS's dedicated motorway junction made it easy for these great bankers to come and go to and from wherever their business now was. I am sure there were also fancy gyms, day care centres, cafes and Lord knows what in the complex.

Having worked in international finance myself, this kind of arrangement is not that unheard of, particularly for banks that are big fish in whichever smaller pond that they originate from. I can think of one or two Spanish banks that have even more Dr No-like headquarters on the outskirts of Madrid. Usually the offices of the same organisations in major financial centres are much more normal - RBS has its London offices in a rather boring but shiny block near Liverpool Street Station.

However, to enter such a complex in Madrid, one faces barbed wire fences, metal detectors, ID checks, men in overly fancy uniforms, and probably finger prints and Iris scans. In Scotland on a Sunday afternoon I was able to drive into the complex by accident, and get lost in the private roads between the fancy new buildings. There were a few security guards around, and I suspect that if I had got out of my car and walked near any of the buildings I may have been challenged, but driving around for a few minutes led to little interest. Eventually I found the entrance ramp to the motorway, which was on the other side of the complex to the exit, so it seemed it was not possible to use the RBS offices to turn around without driving through the private office park. I then refuelled my car and drove back to Edinburgh airport.

However, that of Micklethwait's laws that says that any company that builds a new and ultra-fancy office is doomed, whereas an important company that is still operating out of grimy offices in Basingstoke is probably okay very manifestly holds, I think.

So how long before not even the mainstream media can pretend this lunacy is not going to spread economic catastrophe far and wide? My guess is they will move from cheerleaders to tut tutting sages of rectitude seamlessly in a few years without the slightest sense of irony. This will probably happen about the same time the mainstream media more or less stops existing in any meaningful sense.

The collective democratically sanctified derangement on display sure does help harden the heart when people start complaining about the economic hardship they find themselves in. A friend of mine said "Ordinary people do not deserve what is happening to them".

"Sure, except for all the people who voted for any one of the main parties," was my reply.

They are getting exactly what they voted for, good and hard, and there is a trillion more of it coming down the pipeline that will wash away all our savings.

Let it not be said that the politicians gathering to celebrate an orgy (er, steady on, Ed) of Keynesian delinqency and transnational socialism are letting this current financial crisis go to waste. The G20 countries have agreed to a crackdown on those pestilential things, tax havens. I have defended them before and will do so again. What we are seeing is a determined effort to create a global tax cartel. Cartels, unless backed by brute force, tend to break down eventually. The G20 are making lots of blood-curdling threats about sanctions and so forth. What is Germany or Italy going to do - invade Switzerland? Good luck with that, gentlemen.

At the root of the hatred of tax havens is a hatred of freedom, pure and simple. If you believe a democratically elected government, say, can seize the wealth of a portion of its citizens, then you will believe that that minority can be more or less robbed, held hostage and prevented from going abroad. Socialists such as Richard Murphy believe that if 51 per cent of my fellow citizens want to help themselves to the contents of my bank account, then I am being "undemocratic" and a bad citizen if I choose to park my cash in the Caymans or wherever. Well, why not go the whole distance and require anyone who has an offshore bank account either to close it or be forced to get an exit visa if they wish to do so? We may be already reaching that point. If, on the other hand, you believe people are entitled to their property regardless of what their fellow electors think, then tax havens - "haven" is a place of safety, remember- are an important escape route and bulwark against looters. When politicians want to shut down places of safety in a time of crisis, it is well to be cynical about the motives of those involved. Especially if they happen to be such characters as Gordon Brown or Barack Obama.

The sheer cynicsm of it all is breathtaking. Whatever the cause of the current financial crisis, I think it is pretty fair to say that it did not originate in tax havens. Switzerland, in fact, has been hammered by the crisis; its biggest wealth manager, UBS, has lost an estimated $49 billion in write-downs connected to the US sub-prime disaster. The $50 billion Ponzi scheme fraud of Bernard Madoff happened onshore, right under the noses of the SEC, rather than in some far-flung island in the South Pacific. The huge losses incurred by banks have been nothing whatever to do with so-called "tax leakage". And in the US, there is already a tax haven, known as the state of Delaware. And the UK has been - well until recently - a tax haven on certain definitions. Ditto places such as Ireland or even Belgium.

Rant over. Thanks for your patience.

“The Federal Reserve...along with other central banks, is a legal counterfeiter."

Paul Kasriel, economist at Northern Trust, the US bank. He is in favour of all this "quantitative easing", by the way, but he is far too honest an economist not to identify what that euphemism actually stands for. And he predicts that it certainly will trigger inflation later on.

Two splendid snippets facing each other in today's print edition of the Times. First Chris Ayres's Los Angeles notebook:

California's decision not to ban black cars should by no means reassure anyone that the Golden State is now run by sane people.

And more substantially, Daniel Finkelstein on anti-capitalists:

I think that they have looked back at 5,000 years of human history - at pestilence and famine and disease and degradation, at genocide and civil war, at fear and loathing, at bigotry and ignorance, chauvinism and dictatorship - and concluded that our biggest problem is... shopping.

[...] I have struggled to get to grips with the idea - and maybe I am doing them a disservice - but I really think the notion that they are advancing, once stripped of all their posh words, is this. I go to the shop and buy a new television. The archbishops think that this impoverishes my soul, the G20 protesters think I am destroying the planet and exploiting the workers, and Oliver James thinks that I am making myself mentally ill.

He is really not doing them a disservice. The common motivation is a sort of snobbish distain about vulgar ways of enjoying the material world; and the same thing finds its head in the circles of power, too, as a sort of neo-puritan obsession with work, regulation and oversight of individuals to make sure that no-one is getting away with the sin of unapproved lifestyle.

My post below on the experience of Scottish banking before 1845 - when the rules were changed by the-then UK government of Robert Peel - elicited a lot of great comments. It turns out that the Lawrence White paper that I mentioned had been savaged fairly thoroughly by Murray Rothbard. Rothbard's paper is immensely detailed and shows what a thorough economic historian Rothbard was. Briefly put, he says that White has misinterpreted the Scottish banking experience by not distinguishing between free banks that operated 100 per cent reserve requirements linked to gold, and those that were simply free banks without such specie requirements. (Rothbard was an advocate of such metal-backed money). This inevitably raises that old friend of ours, fractional reserve banking, which Rothbard described as essentially a fraud. Now in trying to make up my mind on FRB, it seems to me that so long as the holder of bank notes is made aware that the note has been issued by an FRB, rather than a 100-percent reserves one, then what is the problem? It is a bit like the argument about limited liability corporations that vex some libertarians such as Sean Gabb of the Libertarian Alliance. Surely, if I transact with a LL company and knowingly do so, then such consent is what counts. LL companies could, conceivably, exist even without special government legislation, although they might not last as long as LL firms do now. (Here is a rejoinder to Gabb on LL). Same with FRB: if there is commercial deposit insurance and customers know the score, I fail to see why the existence of fractional banking should necessarily lead to disaster. Or is there something I am missing in this debate?

At first blush, some might consider all this to be a bit arcane. It is anything but. Explaining how banks work now, and how they can be made to work much better as a result of competition and basic rules, will go some way, I hope, to destroying misconceptions. Such misunderstandings that exist at the moment only play into the hands of those who want to bring the free market order down. Such as those folk protesting at the G20 summit in London today. I will be in the area on business. I might take some photos and post them up later if they are any good.

Update: I was in the Docklands area. Nothing much going on while I was there.

Those good people at the Institute of Economic Affairs have put this fine study of free banking, as it existed in Scotland until the middle of the 19th Century, back into print. It is examined in great detail, with lots of figures and examples of how these banks operated, how many bank failures there were, and so forth. There are a few equations but nothing that should faze all but the most mathematically challenged. Historical scholarship of this detail and depth is vital. It is as vital, in fact, as those studies that showed that in Victorian Britain, before the Welfare State came along, Britain already had an extensive network of mutual aid societies. Without this historical memory, it becomes easier for politicians to sell the lie that the solution to X or Y lies in ever bigger government.

Readers can either read the pdf for free or, if it is tough on the eyesight, as it is for me, readers can get a publication-on-demand sorted out for just £10.

I do not suggest that free banking is necessarily the panacea for the current troubles. But it seems to me that a point lost on the anti-globalistas as well as many of the other critics of the current financial system is that they fail to grasp how banking, as it is practised in most instances today, has deviated from a genuine example of laissez faire capitalism. What we need is sound money, administered by banks operating under the constant blast of competition in proving the soundness of that money. When you think about it, it is not very hard to grasp the idea, is it?

The President of France is threatening to walk out of the G20 gabfest this week if the countries cannot agree on stricter regulation of the world's financial markets. Of course, Mr Sarkozy buys into the fantasy that what has happened shows the failure of "unregulated capitalism". If only he would walk out of the conference, which is likely to involve further layers of largely useless and counter-productive rules and meaningless communiques, not to mention disrupt London, provide a focus point for tens of thousands of anti-globalistas, and cost Londoners a ton of money in policing and disruption.

Go on Sarko, do it for les enfants.

I would not want to get on the wrong side of this scribe when words don't fail him:

But this? This hole in the air encased in a suit of clunking verbal armour? This truck-load of clichéd grandiloquence in hopeless pursuit of anything that might count as the faintest apology for an idea? Words fail me.

Thus does Matthew Parris muse upon the oratical inadequacies of Prime Minister Gordon Brown. If Brown is now the main object of your rage and loathing, then read the whole thing. You will surely enjoy it greatly.

But what matters to me is not whether Brown is now a doomed and hopeless failure, for clearly he is. But how much more of my country will he quadruple-mortgage? How much more of my country's earth will he scorch? And, later, how much of the Labour Party as a whole will he take with him into the history books and nowhere else? Not that much more, not that much more, and the more the better, is what I am now hoping (against hope) for.

Now is as good a time as any to confess that I was one of those people who used once to accuse Samizdata sage Paul Marks of not "getting" New Labour.

My problem was that I did really believe (and do still believe) that when Blair said that he was not in favour of wrecking my country's finances, he did truly mean it. Time and again, Blair outfaced his party with that very proclamation. I don't believe in ruining Britain, he would shout at his massed ranks of idiot followers. So fire me, he kept saying. And the massed ranks of idiots, despite being enraged by this exasperatingly sensible talk, kept not firing him.

My problem was not that I was wrong to notice these protestations of fiscal virtue, or wrong to consider them significant. Where I went wrong was in understanding their actual impact.

I didn't think that Blair was ushering in any sort of libertarian nirvana, no way. Nor was I relaxed about the damage being done by Blair to the legal system and to the criminal law and to the regulatory regime. Europe was, as it remains, a continuing disaster. But at least, I thought, this time around Labour will not smash up everything economically. But actually, the whole Blair "political achievement" made it possible for Labour to break Britain with a ferocity and completeness that has no parallel in recent British history. The more we trusters trusted Labour not to scorch Britain's earth, the more earth they were able actually to scorch, and this scorching, of course, continues.

Old-style socialists were not trusted, and as soon as the danger signs appeared, as they inevitably did as soon as each successive attempt at a socialist-inclined government had got its flamethrowers working and scorching, voters and investors reacted accordingly. This time around, too many (me included) thought that it would be different, until such time as even we could not doubt the unique scale of this particular disaster. To the precise degree to which we thought things would be better this time, they were actually worse, and it was cause and effect.

Did Blair do this on purpose? As the catastrophe started to unfold, did he realise what he had done, sticking his killer grin on the front of the latest and greatest Labour assault on Britain's economic viability? Did he care? Does he care? Frankly, I don't care. I now, still, regard Blair more as a destructive force of nature rather than as a deliberately evil man, but in practice, what does it matter? What matters, as we have become used to hearing as other pettier disasters have unfolded in recent years, is to make sure that nothing like this can ever happen again.

The point is not just that Brown has been and is still a catastrophe. That's a given. The point to ram home, now and for as long as his name is ever remembered, is that Tony Blair was also a catastrophe, and arguably a much bigger one. For without Blair, there could have been no Brown. Burying the Labour Party for ever, as it deserves, does not merely mean keeping the horrid memory of Brown and his cloth-eared blunderings alive. It means remembering how Tony Blair made those blunderings possible.

So, let us learn the big political lesson of this catastrophe, to ensure that, indeed, the catastrophe can never happen again. And it is this. When the Labour Party sounds bad, it is bad. When it sounds good, it is even worse. Only the idiots in the Labour Party now can be blamed for Brown, and not even they really voted for him. But they did allow him to clamber unopposed into the driver's seat of the wrecking and burning machine, and for that they all deserve their particular places in hell. But many more Brits voted for Blair, because they thought that even if things were not automatically going to get any better (as the idiots were singing – remember that?) then at least, fiscally speaking, they wouldn't get that much worse.

Clearly Britain will never "vote Brown" in the future, any more than it did this time around for Brown himself. But Britain did "vote Blair", and this it must never do again.

Talking of protests - see Perry's post immedately under this one - there are a number of protests going on in London to coincide with the pointless and expensive Group of 20 meeting of major industrialised and developing countries next week. There could be some serious clashes. It makes me wonder, given the Tea Party anti-bailout protests in the US at the moment - which are starting to get more coverage from the MSM - as to whether there is any understanding on the part of the G20 protesters that they actually might share some common ground with the free marketeers of the Tea Partiers. After all, do the anti-globalistas understand the rage that many Tea Partiers feel at having their hard-earned cash used to bail out banks that were run by often quasi-state institutions and highly paid executives? Of course, a lot of the G20 protesters are Naomi Klein-type socialist buffoons who want to replace what they mistakenly think of as "unregulated capitalism" with central planning etc, but it seems to me that the might be a section of the protesters who might be open to understanding the real causes of the crisis and understand also the injustice of the prudent bailing out the imprudent.

Of course this may be unwisely optimstic and that all of the G20 protesters are statists of one sort of another, out to bash at a "system" that they do not comprehend. If there are ugly scenes in these protests and people working for banks are targeted and hurt, I hope that Gordon Brown, a prime minster of a government that once used to fete the City when it suited, feels suitably ashamed for pilloring those same bankers now that the credit crisis has hit. It is now another reason why my loathing of Gordon Brown and his brand of politics has reached hurricane-force level.

I will certainly not be the only one now pointing out the similarity between what this gang of counterfeiters got up to, and British government policy. The biggest difference between the two groups of transgressors is in the scale of it. Our government's currency printing binge will be on a far more grandiose and scale.

Some of his enthusiasm for commodities may have taken a bit of a hammering of late, but I always enjoy what this much-travelled man has to say. He's a free marketeer with a nice, engaging way of putting his argument across. Take a look at this interview if you have some time.

Does anybody know where the words of this can be copied and pasted? I would hate to have to type it all out - or maybe that should be 'in' - myself, but somebody definitely should, and if I or any commenter does find it, I will maybe add it to the bottom of this posting. As Peter Hoskin of the Spectator's Coffee House blog says, Dan Hannan "absolutely skewers" the PM. (Can you kick someone with a skewer? Never mind.) Guido also piles in.

As my fellow scribes here say from time to time: I love the internet. In fact I love it even more than I hate Gordon Brown, and that's saying something.

ADDENDUM Monday morning: Here it is. Thank you commenter Simon Collis, and blogger Stuart Sharpe.

Prime Minister, I see you’ve already mastered the essential craft of this Parliament – that being to say one thing in this chamber, and a very different thing to your home electorate. You’ve spoken here about free trade, and amen to that; who would have guessed, listening to you just now, that you were the author of the phrase ‘British Jobs for British Workers’, and that you have subsidised - where you have not nationalised outright - swathes of our economy, including the car industry and many of the banks.

Perhaps you would have more moral authority in this house if your actions matched your words. Perhaps you would have more legitimacy in the councils of the world if the United Kingdom were not going into this recession in the worst condition of any G20 country.

The truth, Prime Minister, is that you have run out of our money. The country as a whole is now in negative equity. Every British child is born owing around £20,000. Servicing the interest on that debt is going to cost more than educating the child.

Now once again today you tried to spread the blame around, you spoke about an international recession; an international crisis. Well, it is true that we are all sailing together into the squall – but not every vessel in the convoy is in the same dilapidated condition. Other ships used the good years to caulk their hulls and clear up their rigging – in other words, to pay off debt – but you used the good years to raise borrowing yet further. As a consequence, under your captaincy, our hull is pressed deep into the water line, under the accumulated weight of your debt. We are now running a deficit that touches almost 10% of GDP – an unbelievable figure. More than Pakistan, more than Hungary – countries where the IMF has already been called in.

Now, it’s not that you’re not apologising - like everyone else, I’ve long accepted that you’re pathologically incapable of accepting responsibility for these things these things - it’s that you’re carrying on, wilfully worsening the situation, wantonly spending what little we have left. Last year, in the last twelve months, 125,000 private sector jobs have been lost – and yet you’ve created 30,000 public sector jobs. Prime Minister you cannot go on forever squeezing the productive bit of the economy in order to fund an unprecedented engorging of the unproductive bit.

You cannot spend your way out of recession or borrow your way out of debt. And when you repeat, in that wooden and perfunctory way, that our situation is better than others, that we’re well place to weather the storm, I have to tell you, you sound like a Brezhnev-era Apparatchik giving the party line. You know, and we know, and you know that we know that it’s nonsense. Everyone knows that Britain is the worst placed to go into these hard times. The IMF has said so. The European Commission has said so. The markets have said so, which is why our currency has devalued by 30% – and soon the voters, too, will get their chance to say so.

They can see what the markets have already seen: that you are a devalued Prime Minister, of a devalued Government.

It will be interesting to see what Britain's mainstream media make of this. My guess is that the blogosphere will be all over this speech not just today but for a longish time, with constant links back, and that many newspapers will also refer to it during the next day or two. But how will the BBC respond? They are in a lose-lose situation, I think. Mention it, eventually, they lose. Ignore it, they look like Soviet-era buffoons, just as Hannan said Brown is. A bit like the US MSM and those tea parties.

Presumably, by the time the BBC do mention it, the story will be that the Conservatives are divided. Divided, that is to say, in that some of them think the Prime Minister is mad and evil and believe in saying so, while others merely think it.

We occasionally get some pretty nutty comments on the threads but I often think that this blog's comments are models of coolness and restraint compared with what else is out there. In response to a fairly decent article by Niall Ferguson, the historian, at the Daily Telegraph today, is this zinger from some character by the name of King O'Malley. Enjoy:

What a load of Tosh. Adam Smith is a discredited lackey of the Lord Shelburne camp who promoted the idea of a market based 'hidden hand' when in fact the 'hidden hand' was, as everyone at the time knew, the supranational elite banking/gold cartels that dictated policy to already indebted British governments. Smith lacked the moral courage and intellectual ability to address the control of money and its value, fractional reserve banking and fiat paper in his laughable diatribe 'Wealth of Nations'.

As far as I know from reading Adam Smith, the great Glasgow professor was in favour of some form of gold-backed currency, although the exact details escape me. But no matter; what this splendidly nutty comment shows is that its author has heard words such as "gold", "fiat money", and "fractional reserve banking", and is convinced that there was some dark conspiracy by the great economist and the UK establishment to obscure or suppress knowledge of these things, or that Mr Smith "lacked the moral and intellectual courage" to talk about them in his "diatribe" (WoN being in fact a calmly-argued piece, the very opposite of a rant).

The depressing thing is that is that is a bit of a debate - admittedly on the sidelines of the economics debate - about things such as the proper structure of banks, monetary systems, and the like. The danger is that if a person who has not heard of criticisms of fractional reserve banking, etc, encounters comments like the one before without first understanding a bit about the subject, they'll be put off for life. "These guys are crazy", he'll say, and move on back to the same old complacent, wrong-headed consensus view. All the more reason, then, for such gloriously normal characters like Kevin Dowd to set the pace in arguing for free banking.

By the way, I make no apology for keeping banging on about this free banking issue. It is a subject where a steady stream of blogging commentary can make a difference, I hope.

David Cameron, Tory leader, appears determined that it will not be just the current government that comes out with serious errors on policy. This refusal to not state that a new, higher tax band of 45 per cent "on the rich" will be repealed is a serious error. The error is to ignore the history of what happens when marginal tax rates are cut - these cuts lead to more, not less, revenue. Now of course, as small-government folk, we support tax cuts because we want taxes to fall, and not because we want higher revenues. But if it is revenues you are worried about, then raising taxes is dumb.

The UK and many other economies are falling down the wrong side of the Laffer Curve. It is profoundly depressing that the lessons I thought had been learned have been so totally lost. It makes me wonder whether any senior politician has a clue about economics whatever. On an earlier Samizdata discussion thread following on from my post about the Kevin Dowd lecture, was a long and very involved debate about the issue of fractional reserve banking, for example. You commenters are a smart bunch and I say, without false modesty, that we rate consistently above many other UK blogs in that respect. I wonder whether there is now a single major politician who has a clue about FRB, the arguments for or against, etc. Seriously, does anyone in the major parties understand even the most basic concepts of economics?

Maybe the most gloomy answer is that some do understand but are too frightened or cynical to do anything about it.

Maybe someone should put this on Mr Cameron's summer reading list.

The Cato Institute has the report.

Now that leftists at Harvard want to portray laissez-faire philosophy as being somewhat akin to a mental disorder, maybe the next step will be re-education camps for Cato staff? Maybe the next “stimulus” bill could include a few earmarks for such facilities? I’m keeping my fingers crossed that I get sent some place warm.

South Park could not even come up with these characters.

As promised, I have some thoughts following on from the talk given by Kevin Dowd, a professor at the Nottingham University Business School and a noted advocate of what is called “free banking”. He gave his talk at the annual Chris R. Tame Memorial Lecture as hosted by the Libertarian Alliance. (The LA was founded by Mr Tame, who died three years ago at a distressingly young age after losing a battle against cancer.)

Professor Dowd covered some territory that is already pretty well-trodden ground for Samizdata’s regular readers, so I will skim over the part of the lecture that focused on the damage done by unwisely loose monetary policy of state organisations such as central banks, or the moral-hazard engines of tax bailouts for banks.

Instead, I want to focus on those aspects of Professor Dowd’s talk in which he tried to sketch out what a laissez faire, free market banking system would actually look like. This is essential; a great deal of commentary so far – while it is very good – has mainly focused on how we got into this fix and why the fixes being attempted by Western governments are proving so stupid. As PJ Rourke said recently, the attempt by the Obama administration to flood the market with cheap money as a “solution” is a bit like the case of when your Dad has burned the dinner, so you ask the dog to cook it instead. No, what Professor Dowd did this week was lay out three broad areas for reform.

Firstly, he says we should remove many of the existing regulations, government-mandated deposit protection schemes, bank capital adequacy rules and other restrictions on what banks can do and how they work. For example, government support for depositors – who are also effectively creditors to their banks – means that there is a moral hazard problem; the banks have less incentive than they would otherwise have to act prudently if there is always the government, acting like a sort of 7th Cavalry, able to ride to the rescue. That has to go. Professor Dowd also wants to hack away at the morass of rules and regulations that violate client/banker confidentiality, or those rules that force banks to lend to people, as is the case in the US, where banks are forced to lend to certain groups or else violate laws about racial discrimination, etc.

Secondly, Professor Dowd addresses the issue of letting banks fail. At the present, policymakers adopt a sort of “too big to fail” doctrine; this doctrine, while not explicitly laid down in any form of statute or operating manual – as far as I know - is a rule that says that some institutions are so large, and the attendant systemic risks posed by their failure so catastrophic, that they should not be allowed to go out of business. The problem of course is that this rule of thumb is often arbitrary and subject to political horse-trading. To wit: the US government’s decision to let Lehman Brothers go down last September, followed shortly by the $85 billion bailout for AIG, showed a total lack of clear message to the markets, and to bankers, one way or the other.

Professor Dowd believes that banks should be allowed to fail and furthermore, if modern limited liability laws were weakened or abolished completely, then such massive conglomerates would be economically and legally unsustainable in the first place.

As a result, banks would probably be smaller, and there would be a lot more of them, so the failure of any individual bank, while unpleasant for some, would not wreck the system as could happen if a mega-bank goes wrong. Also, instead of wide-ranging and hideously expensive bailouts, Professor Dowd favours putting banks into administration, writing down, in full, the value of their loan books, and getting depositors to exchange their status as creditors for that of an equity holder.

This “debt for equity swap” arrangement, while it would anger depositors who lose money, would come with the promise, and hopefully the reality, of a rise in the capital value of their equity stake in a bank if confidence returns to a more robust banking sector, as the debt/equity swap recapitalisation is designed to achieve. And of course banks are entirely free, as are their clients, to take out deposit insurance in a commercial market.

The third leg of his solution is broader, and more long-term, although there are some immediate measures that could be taken. Professor Dowd is against fiat money – money not backed by actual commodities or real assets of any kind – and in moving to a commodity-based/asset-based system. He is not, by the way, necessarily arguing for the gold standard or some gold-based system, although he points out that in the 200 years up to the First World War, the UK enjoyed a remarkable period of stable prices, with the odd blip. What he is arguing, however, is that the message on a banknote that says “I promise to pay the bearer on demand the sum of X” should be an enforceable legal contract, not what amounts to the jeering joke that it now is.

In the subsequent Q&A session afterwards, one person made the excellent point that a simple reform would be to ban legal tender laws. Such laws currently require a person to accept as legal tender a currency that the state has mandated for a particular region. Instead, if a person wants to refuse to accept sterling and only wants to accept dollars, euros or Swiss francs instead, he can do so. He can also choose to trade in whatever medium of exchange he wants, and with whoever wants to accept it.

Inevitable questions arise. First of all, in thinking about free banking, private monetary systems and the like, the first objection will be is that this will be very messy; there has been no real experience of such monetary systems in the past, etc.

But this is incorrect. Free banking, as defined by Professor Dowd, in fact operated in Scotland, for example, up until legal changes in 1845. South of the River Tweed, the English system had operated under what amounted to state-controlled banking under the Bank of England, set up in 1692. In the 18th and 19th centuries, England saw a number of booms and recessions, such as the 1840s railway boom and the downturn of 1870s. One should remember that the BoE was established by the-then post-Glorious Revolution government as a way to raise money for wars without having to keep asking a fractious public for taxes, and without having to borrow at expensive rates in the money markets. N.A.M. Roger has explained this issue of financing for naval warfare brilliantly. Indeed, it reminds us that state monopoly money systems typically arose in order to finance wars, while the welfarist aspects came later.

There are also current, not just old, examples of banks that operate with unlimited liability partnership structures – Pictet, the Swiss bank, and Lombard Odier, are just two examples. There are dozens of such banks using these structures in Switzerland and by no coincidence; they have avoided the worst of the credit crunch. These banks are typically for the rich but it seems to me that there is no logical reason why such an approach could not be used more widely. So there are different ways of doing banking right now. And do not forget the humble UK mutual building society: they have their limitations, but as a business model they had a lot to recommend them.

Another objection might be that the debt-for-equity swap way of restructuring failed banks under bankruptcy protection laws would be politically unfeasible, since depositors would be hit. I understand that, but Professor Dowd is not trying to imagine what sort of reforms would appeal to David Cameron, say, but what sort of reforms would be workable. That is a rather massive difference, as I am sure readers will agree.

Another objection is that “real money”, as opposed to the state-arranged fiction that we have now, cannot work for as long as governments take such a large slice of GDP. That is probably correct. One of the reasons why so many advocates of Big Government regard “gold bugs” or free bankers as dangerous nutters is that they realise their welfare states would be unworkable under such monetary arrangements. The Ponzi schemes of most welfare states would not be able to function. Even so, as long as governments retain the ability to tax, they have the ability to raise debt in the financial markets in the knowledge that their collateral can be collected at the point of a gun. But a real-money system still hampers such activity considerably.

In the longest run, the best hope of avoiding such financial disasters in the future is to wean the public and policymakers off the seductive delusion that one can create wealth by turning on a printing press. Sooner or later, if you try to fake reality, it bites you hard in the arse. Of course, it is a mark of the kind of man Professor Dowd is that he is too polite to put it as bluntly as that.

I await comments!

"It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathised."

F.A. Hayek, Choice in Currency, a Way to Stop Inflation, Institute of Economic Affairs (1975), page 10.

Prof. Hayek was usually a restrained and polite demolisher of nonsense but in this quote, I think we get a sense of the rage that he must have felt at how Lord Keynes, with his easy charm and confident manner, could persuade politicians of what they wanted to hear anyway - that you can create wealth by spending other people's money. But even later on Hayek tries to argue that Keynes would have been alarmed at how his ideas have been used as cover for monetary insanity. I think that is a mark of how basically decent an intellectual opponent Hayek was.

Meanwhile, following on from Kevin Dowd's lecture last night - which I thought was very good - I will have more to say about his talk later on.

Tyler Cowen has an interesting post up about the whole business of pundits betting their own money on their views. Economics students may remember a particularly satisfying one involving the late, great Julian L. Simon and the alarmist writer Paul Ehrlich. Simon, who might be thought as a "cornucopian" writer, bet that the price of a basket of commodities would not, when adjusted for inflation, rise over a certain period. Erhlich had been claiming that commodities were running out at an alarming pace and their price would therefore skyrocket. He lost the bet. Simon suggested they have another go but Erhlich, being at least not totally stupid, decided not to accept the offer. The affair has not blunted his views, a fact that demonstrates the incorrigibility of some so-called academics.

I wonder if there controversies over which you'd be prepared to stake a few pounds, dollars or pints of beer?

Regular Samizdata commentator Ian B made a good point on this comment thread (scroll down) about the issue of economic cycles. As he says, many of the boom-bust cycles have been associated with new products and markets where there is scanty information about how large a market might be. For instance, the technology boom of the 1990s involved an area - the Web - which was still unknown territory to most of us. Yes, most of us now are familiar to the nth degree with the Internet but that is because a lot of bold, not necessarily reckless, investors, geeks and entrepreneurs took a punt. With hindsight, some of these investment propositions were pie in the sky. Well, without perfect knowledge of the future, malinvestments get made. The same can be said of the 1840s railway boom. There were shysters and boosters like the 19th Century financier George Hudson, but out of the inevitable mistakes and broken dreams came a country that was criss-crossed with railways. Out of the bust of the tech boom came the Googles, Yahoos, Amazons and Facebooks of today. These technologies, for instance, have changed how I can do my job in all manner of ways, almost all of them for the better. Out of the hundreds of automobile companies set up at the start of the last century came the motoring titans of today. The examples multiply.

As Ian put it, if people don't want these busts, then maybe they are expecting the impossible if they also want to get still all the good things that a boom can produce. For sure, it would be good to stop fuelling mad cycles with fiat money, and that is why I want genuine free market banking, and not the quasi-statist dog's breakfast, instead. But I am most certainly not in favour of the "calm" that comes when there is no change or disruptions at all. That is to demand the peace and quiet of the grave.

Update: via the National Review's Corner blog, I came across this in a similar mood to my point.

There are so many things to do these days, especially in a place like London, that often you make up your mind about what to do of an evening at the very last moment. So, maybe you have the coming Tuesday evening, tomorrow, March 17th, still free. If you do, I strongly recommend the Libertarian Alliance's 2nd Annual Chris R. Tame Memorial Lecture, which this year will be given by Professor Kevin Dowd.

Getting on for a hundred people have already signed up to attend this event, in other words quite a few more than showed up for last year's inaugural Chris Tame lecture given by David Myddleton. But there is room for more still. Attendance is free of charge. All the organisers ask is, if you want to be there, email them beforehand. Follow the link at the top of this for all the details of the event, and for the email to confirm attendance.

What excites me about this lecture is that Dowd is both an unswerving libertarian, and an expert on banking, on the history of banking and on the baleful effects over the decades of state monopoly fiat money and of banking regulation. This is a man who not only believes in the idea of a free market in currencies and in banking, but someone who can actually explain in detail why that would be a better arrangement than anything else now being proposed. He also has firm and positive views about what should immediately be done, right now, to alleviate the crisis. And because he is a Professor, he has some leverage for getting his ideas reported in the mainstream media.

Having been looking forward to this event for several months, I now realise that I have, infuriatingly, a teaching commitment set in concrete for that very same evening. But the good news for me, and for anyone else who won't be able to attend the lecture in person, is that it will be videoed, and video internetted just as soon as that can be contrived. You may depend upon me to have further things to say about this potentially very important lecture just as soon as that video is available and linkable to.

Can we win the ideological war that now swirls about the current financial catastrophes? Personally I remain optimistic about this possibility, but whether we can actually win or not, we should surely try to win. And those of us who conveniently can should surely support those people, like Kevin Dowd, who are making the biggest efforts to this end. Most of Samizdata's readers do not live in London and can't be at this lecture in person, although lots are Londoners and could. But, Londoners or not, I very much hope that a healthy proportion of us will at least give the video our closest attention. Meanwhile, I am sure that almost all of you will join with me in wishing Professor Dowd all the best for tomorrow evening.

It's like a parallel universe out there. Politicians, newspaper journalists and television presenters are running around like headless chickens with no clue as to how to deal with the economic crisis. But the truth is out there.

Things are quite different from the recession of the 1970's, which coincided with my discovery of libertarianism and Austrian School economics. Back then one had to be extraordinarily lucky to come across the likes of Mises, Hayek and Rothbard. Now correct explanations of why the crisis arose are just a few clicks away.

- David Farrer

This is a tremendous rebuttal of the claim that British manufacturing is in decline. Of course, there is nothing specifically wonderful in having a large or small manufacturing sector, but for those who care about such things, this article nails a lot of cliches about how Britain is supposedly losing the art of making stuff well. In fact, a lot of the manufacturing that goes on in the UK is first class. Take the aero-engine business, for example.

Well, it is nice to grasp at positive news that is going.

One of the recent themes of this blog's authors has been to challenge, and hopefully demolish, the "narrative" of how the current crisis proves the weaknesses of "unregulated capitalism" (I could be far ruder than that but I am not a swearblogger). Another, related theme that we try to plug away at is to show how previous acts of interventionism, with politicians playing the role of strong hero on a big white horse, have failed or if they have "worked", been by-products of massive state mobilisation for war.

Prime exhibit: the New Deal of Franklin Delano Roosevelt. When I was a child doing my O-Level history course in the early 1980s, I got this broad version: the New Deal demonstrated the success of Keynesian pump-priiming economics, therby proving also that support for fuddy-duddy things like the Gold Standard, or balanced budgets, or "sound money" was silly, reactionary and wrong. And some of my impressionable teenage brain agreed. I did rather sense that there was something fishy about this, but it was not until I was a bit older, and started reading all those wicked reactionary Austrians and Chicago economists that the issues began to clarify.

Recently, there have been moves by some writers to challenge the Roosevelt-As-Great-Man story more explicitly. One of the most recent examples is Amity Shlaes' book, The Forgotten Man (borrowing her title from a famous essay by Willam Henry Sumner). And Jonathan Chait, a leftist writer for the New Republic, is angry at Ms Shlaes' analysis. Reading his review, there are some points where I think he is being quite fair, but his article fails to deal with what I think is the most damning thing about FDR's record during the 1930s, namely, that unemployment, according to official US data, never fell below double percentage figures right up until the outbreak of WW2. However one slices and dices it, that is an appalling record. Chait tries to claim that unemployment roughly fell by half, in percentage terms, during FDR's period of office in the 1930s but that does not seem to be born out by the official statistics. Chait even tries to claim that FDR was not much of a consistent Keynesian anyway.

We then get this:

"Moreover, the classic right-wing critique fails to explain how the economy recovered at all. In one of his columns touting Shlaes, George Will observed that "the war, not the New Deal, defeated the Depression." Why, though, did the war defeat the Depression? Because it entailed a massive expansion of government spending. The Republicans who have been endlessly making the anti-stimulus case seem not to realize that, if you believe that the war ended the Depression, then you are a Keynesian."

Well it is undoubtedly correct that unemployment did fall dramatically at this point. Well, for a start, it is not very difficult to achieve full employment if your country ends up, by a terrible turn of events, to be the sole economic power that has not been invaded or otherwise been bombed heavily. And Mr Chait completely ignores the rather important fact that a large chunk of the US male workforce was put into uniform. And yes, when the war was over, and with oil prices at rock bottom, the momentum the US had built during the war years continued. But remember, Mr Chait, that the US had a recession in the late 1950s and JFK, let it not be forgotten, cut taxes - they were implemented after his murder, in 1964. That was a supply-side measure, although not advertised as such, since the language adopted by Arthur Laffer and his school had not yet become common currency in US public affairs

But the broader point Mr Chait makes is troubling: is Mr Chait saying that what the world, or at least the US needs right now is the economic equivalent of a war, or of some massive, government-led direction of all economic activity, complete with rationing, forced service to the nation, etc? He needs to argue why it was that Britain, for instance, had managed arguably to recover quicker from the Great Crash than the US. By the late 1930s, Britain, at least in the south and east, was actually quite prosperous, although unemployment in the traditional industrialised regions was still bad.

Mr Chait makes a number of valid points about Shlaes' book, which is not the most persuasive or rigorous demoltion job on Keyensianism that I have read. If you want to read such a book, this is a great place to start. And if one wants recent evidence of the problems with trying to reflate economies with cheap money, then the history of Japan over the last decade and a half is striking. Mr Chait will have a tough job trying to shrug that example off.

Following from my previous article about the alleged size of the role played by China/Asia in the current financial troubles, an eagle-eyed commenter by the name of Marc Sheffner pointed this excellent article out which clarifies a lot. My thanks to Mr Sheffner.

God but I love the internet.

Remember that email I got from Tim Evans flagging up this? Well someone called James Tyler responded to it, also sending his reply to all of us on Tim's list, with a link to this, which I likewise recommend. It's a piece in Portfolio.com called "The End of Wall Street", by the guy who wrote Liar's Poker. I'm still reading the piece, but this is my favourite bit so far, about the observations of a man called Eisner:

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. "The price was absurd, and they were giving her a low-down-payment option-ARM," says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. "She was this lovely woman from Jamaica," he says. "One day she calls me and says she and her sister own five townhouses in Queens. I said, 'How did that happen?'" It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. "By the time they were done," Eisman says, "they owned five of them, the market was falling, and they couldn’t make any of the payments."

Paragraphs like that make me optimistic that statists just will not be able to pass the catastrophe off as a mere failure of unregulated capitalism. Yes the whole Sub-Prime thing was aided and abetted by Wall Street, big time. But it was set in motion by Washington politicians, and in particular politicians of the Democrat persuasion. This was, as we cannot repeat too often, a failure of the mixed economy, not of the extreme free market of the sort we here favour.

The folly of the Republicans, which has already been electorally punished, deservedly, was that most of them didn't see it all coming and panicked when it did, and those that did smell the coffee were unable to do anything to soften the blows when the coffee exploded, or whatever. My guess is that there will soon be a cull of Washington Democrats as soon as the voters next get a culling opportunity - two years from now, right? And the big question is, what will the new intake's take be on it all? But, as I often say on my personal blog when discussing gadgetry of various kinds beyond my understanding, what do I know?

UPDATE: Although, I've now finished reading the piece, and it is clear that its author derives no such anti-statist moral from his wretched story. Wall Street is the villain, and Wall Street is being justly, although very insufficiently, punished. Not a word about Democrats, or for that matter Republicans.

Once every month until I get sick of it, I intend to remind anyone whose attention I can get of this...

PARTS of the United Kingdom have become so heavily dependent on government spending that the private sector is generating less than a third of the regional economy, a new analysis has found.

The study of “Soviet Britain” has found the government’s share of output and expenditure has now surged to more than 60% in some areas of England and over 70% elsewhere...

The state now looms far larger in many parts of Britain than it did in former Soviet satellite states such as Hungary and Slovakia as they emerged from communism in the 1990s, when state spending accounted for about 60% of their economies.

It was the redoubtable Thaddeus Tremayne who first mentioned this back on January 25th of this year in an article called 'Narrative narcosis'.

So next time some purblind fool tells you that our economic woes have been caused by 'capitalism' rather than 'regulatory statism' and 'big government', make a print out of that Times article on good high quality paper, roll it up tightly, and shove it very forcefully wherever your imagination and their complacency will allow.

Are you optimistic about the future? Several months ago I was not, but I am now. From what I can see, governments are walking down the path of their complete moral and financial bankruptcy far more quickly than I ever imagined they would. I thought that it would take our overmighty governments several slow, demoralising decades of decline and eventual collapse to completely discredit their authority and control in the eyes of the people. However, our governments appear to be going supernova right now and I suspect they will burn themselves out over a few painful and tumultuous years - destroying a great deal of wealth in the process, no doubt. However, as worrying as that prospect is, it was always going to be that way. And in spite of that, I feel particularly upbeat about the longer term future. Those who know nothing more (and expect nothing less) than widespread government authority and control over all aspects of our lives will have their imbecile - sorry, umbilical - cords to the State cut sooner than expected, thanks to the overwhelmingly reckless (but entirely predictable) government response to the current financial crisis. I really do believe that future historians will pinpoint this crisis as marking the beginning of the end of the big-government era.

Do you agree?

Government is an institution that has evolved along with we humans as our best means of applying violence. When you want to break things and kill people, there is no better institution for the job. The problem comes when we attempt to use it for other purposes. Its true skills will out even when the goal is entirely different, as with the current attempts of States to 'help' the economy.

What I see happening in the US and UK and other places with maximally 'helpful' governments is much like what happens when you accidentally spill Nitric Acid on the rug. It steams, bubbles, gets hots and makes a bit of sound and for a short while it appears that 'something is happening'. Then the smoke clears and you see that it has ruined your rug.

Government 'help' is like that.

Following on from this, is another theme that came out of that seminar with media/City luminaries I went to the other day. One point that Anthony Hilton mentioned was the "global imbalance" issue. This is all about how the West, which is in net terms, up to its eyes in debt, has been living high on the hog thanks to oodles of surplus savings generated by countries such as China and Japan. In looking to figure out how to play the "global financial crisis blame game", one argument goes like this: China, with its cheap exports, kept cheap by its artificially low and fixed exchange rate, earned huge amounts of money by selling this stuff to the West; in turn, the Chinese needed to reinvest the proceeds - there would be no point earning money you cannot spend - and they reinvested those proceeds in things like US government securities. As a result, long-term bond yields in the US fell, which enabled Mr and Mrs Westerner to renegotiate their long-term mortgages, release equity from their homes, and spend even more of their inflated wealth on - yes you guessed it - Chinese consumer goods. Result: a whacking great housing and consumer spending boom that inevitably crashed.

This argument sounds quite convincing. If it is true, then it also suggests that, contrary to what some of the critics of the Fed or other central banks might say, that there is not much that someone like Alan Greenspan could have actually done to curb domestic US monetary growth if there were such enormous inflows of hot money coming into the country's debt markets from abroad. Well up to a point, Lord Copper. Much depends, I think, on what proportion of monetary growth in the West was driven by Asian inflows, and what was basically driven by domestic factors. I haven't seen a lot of commentary on this.

If you buy the "Asian connection" argument, a problem, it seems to me, is that it would not have been realistic, for various reasons, for the US to have tried to curb these supposedly dangerous inflows of Asian money by protectionist measures such as capital controls or exchange controls. If one believes that capital and trade flows are good things, then imposing such controls would and could cause more damage than it solved. Exposure to capital flows has, in many ways, driven beneficial economic change.

But the argument about Asian money does suggest that had the Fed, etc, raised rates to curb inflationary pressures, all that would have achieved would have been to suck in even more Asian money from investors seeking a higher yield. But presumably, with higher rates, it would have curbed, and did eventually curb, US consumer spending, and hence dent the demand for Chinese and other non-US goods. China is now starting to feel the effects of the global slowdown rather sharply.

Even so, the "global imbalance" argument highlights the fact that in a world of fiat money without capital controls, it is now very hard for state central banks, even those with powers as wide as the Fed or the European Central Bank, to set interest rates effectively. Of course, the idea of a central bank setting rates for a complex economy is itself a version of state central planning. Globalisation has exposed its limitations.

One of the things I really want to ask Kevin Dowd at his Libertarian Alliance Chris R. Tame memorial lecture next week is how this sort of issue can be addressed. The "Asian dimension" to our current predicament could be the proverbial big gorilla in the living room. Or maybe it is just a small and rather distracting rodent.

Brian Micklethwait, over at his personal blog, links to a sentiment that states that it is wrong to blame the private sector banks for the current problems, given that the underlying cause of the credit/property bubble was cheap credit as supplied, ultimately, by central banks. Central banks are not creatures of the free market and would not exist in a world of pure laissez faire. So obvious to us, it hardly needs to be said. But outside our little intellectual bailiwick, you'd be be surprised - or perhaps not - to realise that saying such things still gets you a funny look.

As purely personal evidence, let me cite an experience last evening. I went along to a financial seminar in London's Bloomsbury district, where various folk, including Anthony Hilton of the London Evening Standard and Angela Knight of the British Bankers' Association were holding forth. Q&A ensued. Yours truly asked a question about what the panelists thought was the role of central banks and governments in causing the current SNAFU. You could almost smell the palpable relief on Knight's behalf that she had heard someone not try to pin the blame entirely on private banks. My god, she thought, here's a guy who has not bought the statist line that what is happening was caused by big, evil private banks. I have to say I found her answer on how the central banks mucked up was quite convincing although she by no means accepts the idea that the existence of central banks as such is a problem. As a lobbyist for the existing fractional reserve banking industry, she is certainly no Ludwig von Mises, but still.

I sense that some of the banking industry's more independent-minded figures are getting really angry at being pilloried for sins outside of their control. The banking industry, however, cannot win any battle for hearts and minds until they are absolutely transparent about their own financial affairs, and until some of the leaders of the banking industry begin to embrace genuine free banking rather than the quasi-statist mess that we have now. Let's face it, given the reputation of banks at the moment, what do they have to lose? The current option - hope for the best and take taxpayer's money - is not proving to be very successful.

Life for me is hectic right now - for all the right reasons - but I wanted to quickly put up this link to an excellent commentary by Dan Mitchell of the Cato Institute, concerning the current US government's drive against offshore tax havens, especially Switzerland. Governments such as that of the spendthrift US, UK and France are getting desperate for cash, and low-tax regimes which respect client confidentiality make for an easy target.

I can also recommend Dan's recent book, co-authored with Chris Edwards, as a fine study of the whole case for tax havens and why they are a thoroughly good thing. Whenever you read someone arguing for ending "unfair tax competition", what they really in fact want is to create a cartel. Most cartels, if not backed by states, tend to disintegrate in time, but are generally thought of as bad. Tax cartels are a prime example of cartels of the worst kind.

In an article in its present edition "In Knots Over Nationalization" (page 14) the Economist magazine writes the following about the many trillions of Dollars that President Barack Obama has pledged to spend over and above the wild spending of the hopeless incompetant President George Walker Bush.

...an honest attempt to put the recent stimulus in the context of a plausibly responsible medium term fiscal path

Of course the antics of President Obama are not "responsible" at all. If this increase in government spending, not just over this year but over the following years, is "responsible" what would the Economist consider "irresponsible"?

Of course there are other articles in the Economist in which the details of President Obama's tax and spend policies come in for criticism - but the position of general support for his Administration, in line with the endorsement of then candidate Obama last year, would seem to be incomprehensbile for a publication that claims to be a supporter of free market "capitalism".

However, the position of the Economist is not incomprehensible at all - but to understand their articles one must understand some other things first...

If I thought that it was a good idea for more money to be lent out than existed in real savings, i.e. all the complex things that are very loosely called "fractional reserve banking", how would I defend the practice?

Actually I do not it is a good idea, I think that all borrowing should be one hundred per cent from income that people have chosen not to consume (real savings), but let us say I did. I would defend the expansion of credit in something like the following way...

If the lending gets out of hand and becomes rash the banks concerned will go bankrupt and the credit/money bubble will self terminate.

I could go on to say that even the existence of a Central Bank or Federal Reserve sytem did not change this - that as long as banks that overextended themselves went bankrupt the system would be self correcting.

I repeat that I do not actually believe the above - but it is a plausible argument and the only way that someone can reasonably claim to be a free market person and a fractional reserve banking supporter, at the same time.

Whether one is a follower of the Austrian school of economics or an honest follower of the Chicago school of economics (and there are many such people - who totally oppose the present bailout and "stimulus" pig fests) this is the only way one can try and reconcile free markets and credit expansion via the banking system.

The great enemy of such a free market supporter of fractional reserve banking would be the political/financial establishment represented in Britain (and, to some extent, the United States) by the things like the Economist magazine. For such establishment entities are utterly opposed to allowing very big financial players to go bankrupt if they believe that such bankruptcies would put "the financial system" (i.e. the network of banks and politically connected corporations they represent) at risk.

In their defence such entities as the Economist point at the terrible consequences in terms of economic output and unemployment there are from a bust. But, of course, they never point out that their suggested policies for avoiding or mitagating such a bust delay or prevent recovery and produce even more suffering over time.

Whether one supports or opposes the various complex tactics to expand lending beyond real savings that go under the very loose heading of "fractional reserve banking", once the bust has started one must allow the banks concerned to go bankrupt and the mal-investments to be liquidated. Of course this means that many good enterprises are dragged down along with the bad, and that a lot of good people suffer for something that was none of their doing - but, once the credit/money bubble has been created the best, or rather least bad, thing to do is to allow it to be liquidated as quickly as possible.

Suffering can only be mitigated by general economic policy. By radically reducing government spending (and taxes - but reducing taxes on its own will do little good) and radical deregulation to help markets, especially labour markets, clear. All this aid to recovery was done, for example, by the Administration of Warren Harding in the face of the bust of the World War One credit/money bubble in 1921 - this is the real reason (not the corruption, that was no worse than in most Administrations) that the Harding Administration is hated by establishment historians.

None of the above will be accepted by the establishment - for it destroys their vested interests.

On the contrary to such entities as the Economist allowing the banks concerned to go bust is not even an option, the only options are either to subsidize the banks concerned (with sweetheart "loans" from the Central bank and so on) or to nationalize the banks - and then subsidize them, perhaps before selling them off again.

In the United States such banks as Citi Group and Bank of America can not be allowed to go bankrupt - just as in Britain such banks as the Royal Bank of Scotland and HBOS (and with it now Lloyds) can not be allowed to go bankrupt. Not because their bankruptcy would lead to the bankruptcy of many small and medium sized enterprises (although it would), but because of their own importance to the people who control such publications as the Economist. After all the cost of keeping such banks going, either in private or state hands, will cause far more bankruptcies of such small and medium sized enterprises over time, and these bankruptcies are already happening.

And far from cutting government spending, it must be increased in order to "stimulate" the economy in accordance with the doctrines of Lord Keynes.

This involves terrible contradictions, after all if subsidizing banking is good and increasing government spending in general is good (at least during a recession) then why not subsidize all industries? But that is clearly absurd, so such publications as the Economist must tie themselves into "knots" in order to support a general increase in government spending (especially for their friends) whilst opposing just everyone (for example me) being given money by the government.

All the above must be understood before one reads an article such as "In Knots Over Nationalization" on page 14 of the present edition of the Economist.

If it is not understood the article can not be fully understood. For example, why does the Economist refer to Alan Greenspan, a man whose response to every economic problem from 1987 onwards was to increase the government credit/money supply, as part of "the free market right".

This would have come as a surprise to the late Ayn Rand, who shoved a dinner plate in Alan Greenspan's face, but the Economist has to describe Alan Greenspan as a free market person, even if he suggesting the nationalization of the banks, because to discuss real free market people would be a threat to the interests the Economist represents.

This is why, during the present crises (not at less risky times), when the Economist feels compelled to mention alternative economists to Lord Keynes and his followers it does not mention the Austrian School tradition of opposition to Keynesianism or even such neoclassical opponents fo Lord Keynes as W.H. Hutt. Instead the Economist dredges up Irving Fisher from the 1920's - as it did in a recent issue. Why him? Because he to was an opponent of the evil "deflation", and a supporter of bailing out the "system". In short he is no alternative at all - and, therefore, a safe subject.

However, it does stop here. To maintain the vested interests (banking and nonbanking) that it represents the Economist must support those politicians who will support those interests - regardless of how much these politicians increase government spending.

Certainly details can be attacked - but the overall position of bailout and "stimulus" can not be. And, please remember, to the sort of creature that controls such corporations as General Electric even nationalization is preferable to bankruptcy.

And these creatures know perfectly well that if the big banks that are in trouble go down, their debt ridden overextended conglomerates go down with them.

Only about 75 banks (and financial institutions - such as Fannie Mae, Feddie Mac and AIG) in the United States have been given government aid - but they include most of the largest banks, the ones that the General Electric type of debt ridden, unprofitable, zombie corporation depend on.

And please remember that in spite of there, quite truthfully, pointing out that many small and medium sized enterprises would go bankrupt if certain big banks, and the politically connected corporations that depend on them, that is not the reason the Economist supports the bailouts and "stimulus" pig fests.

The people who write for the Economist are not morons, they know that costs have to be paid by someone, and they know that far more small and medium sized enterprises will go bankrupt to pay for the above than would have gone bust had it not been done.

But that is acceptable as long as the system of politically connected big banks and corporations (whether in formal private ownership of in open government ownership) is maintained.

The final irony is that if President Barack Obama is what his background and record suggest that he is, then he may prove to be far more of a threat to the various "businessmen" that such publications as the "Economist" represent than bankruptcy would be.

How to stop this bail-out madness? I think I have an idea that might help.

One of the most valuable things that the internet can do is state ideas of the sort that you definitely do want said, but which it would probably not be wise for heads of state or front bench politicians to be saying for definite, for fear of it all getting out of hand.

One of the most important memes that the internet has circulated during the last decade has been the extermination option, when it comes to Islam. Extermination of all muslims. Not now, you understand. Just if there continue to be serious muslim-perpetrated terrorist incidents (and especially if there are some much more serious muslim-perpetrated terrorist incidents), and if muslims continue to equivocate about whether they support them, and seriously try to conquer the world with a kind of good-muslim-bad-muslim routine. Which in a lesser way is what they are doing anyway, just not on a scale and with a degree of nastiness that elbows all other problems to one side. But, if you guys crank up the nastiness the way you say you want to and that we deserve, said certain voices on the internet, including certain voices commenting here on postings soon after 9/11 (including my voice), and you'll get the exact war of Us against You that you are spoiling for, and guess what, we'll fucking wipe you off the face of the earth. See: Dresden. Don't make us angry. You really wouldn't like that.

This is not the kind of thing you want Presidents and Prime Ministers to be saying, until such time as things like that actually have to be done. But I sincerely believe that having some people saying things like this, as and when the need arises (therefore including me), is a force for peace and harmony in the world. Seriously. I think the fact that the internet said this stuff to muslims – did a good-infidel-bad-infidel act right back at them – meant that since 9/11 most of the terrorist crap has been strictly amateur. The heavy hitting muslims have confined themselves to propaganda. Good. We can win that one. Certainly we can argue and low-level-fight them to a stand-still. Not everyone on our side believes that, I know, but I do.

One of the biggest reasons why major conflicts (and major catastrophes generally) happen is because the participants don't realise, until it is too late, what they are letting themselves in for.

This was one of the major causes of World War 1. They just didn't realise what horrors they would soon find themselves doing to one another, or (in that case) for how long the horrors would last. Maybe if they'd had the internet in those days, the few people who did realise might have been heard, and that might have caused the contestants to hold back.

These apocalyptic recollections have been prompted by the realisation that there is now another extreme meme which the internet now needs to circulate. I refer to the government default option.

It needs to be said that under certain circumstances easily now imaginable, many Western citizens would argue, strongly and vocally, that those idiot foreigners who are now lending money to Western governments should in due course be told: sorry sunshine, you ain't ever going to get it back. Our governments are bankrupt. Why the hell should we and our descendants in perpetuity be paying tribute to you? You knew that the money to pay you back would have to be stolen from us. You assumed we'd just cough up indefinitely. Well, we damn well won't. You are now a definite part of our problem, and telling you to take a hike is going to be part of our solution. Our thieving class is now "borrowing" money from your thieving class like there is no tomorrow, and we are not responsible for the actions of either gang. A plague on both your houses.

We want you foreign thieves to stop lending to our thieves, now. And the best way for us to convince you that you should indeed stop lending, is to tell you that you are extremely liable never to see most of your money back.

Which has the added virtue of probably, approximately, being true, already.

The usual way such threats are phrased is to talk only, and very vaguely, about how "nobody wants" and "nobody is recommending" the extreme scenario in question. It's all just too too frightful to think about with any clarity or seriousness. Well, I think that the internet should now aggregate all the voices of those who, like me, think that under certain thoroughly imaginable circumstances the default option would not only be highly likely to go into effect, but also highly desirable. We would support default, argue for default, now.

Just circulating this meme in an angry whisper (i.e. in postings in and comments on blogs) will raise the interest rate, a bit, for our thieves, as they frantically mortgage the future tax revenues that they still think they are going to get from us. And that's good, because it will bring the current craziness to an end that little bit sooner.

Reuters, last month:

LONDON, Jan 26 - British Prime Minister Gordon Brown warned on Monday against a retreat into financial protectionism as the global economic downturn gathers pace.

With sterling near record lows against the yen and 23-year lows against the dollar, Brown also reiterated that his government policy was not built around currency exchange rates.

"We have not yet seen the same protectionism in trade with beggar-thy-neighbour policies of the '30s," he told reporters, referring to the Great Depression. "And I will fight hard to ensure we do not. But we also need to ensure we do not exercise a new form of financial mercantilism of retreat into domestic lending and domestic financial markets.

Reuters, this month, from Berlin:

BERLIN, Feb 22 - European leaders meeting in Berlin on Sunday have backed oversight of all financial markets and products, including hedge funds, and urged that sanctions be drawn up to punish tax havens, according to a final statement seen by Reuters.

Where was Gordon? Apparently he was there. Perhaps he has changed his mind about financial mercantilism in the meantime.

TARP - Troubled Assets Relief Program - is not an acronym that has yet made its way across the Atlantic in a big way. But it surely won't be long coming because yesterday it reached me, in the form of an email from Michael Jennings, containing this, which is a pictorial explanation of what it means. Apparently, some of MJ's Aussie stockbroker mates have been circulating this amongst themselves. A few seconds of googling also got me to a TARP song.

Obviously sanity is losing all the policy battles at the moment, big time, but at least sanity is speaking - and singing - out, and may yet win the ideological war. As I said in a comment on a recent Johnathan Pearce posting here, this bodes well for our great grandchildren, if not for our children.

I see that the former BBC presenter of a programme about gardens and gardening, Monty Don, has recently argued that we should aim to be self-sufficient in food. The trouble with such calls for self-sufficiency is that the unit in which such activity should occur is not spelled out. Does Mr Don think trade should be confined to within Britain, or within a region of it, or a village? Has this character no idea of how starvation frequently accompanied those societies cut off from the benefits of trade? Has he no notion of the benefits of trade, division of labour, regional specialisation, etc?

Of course I have nothing against owners of land looking to grow their own food if they want - how could I? But of course I doubt that Mr Don or other self-sufficiency types want to adopt such a grass-roots policy, to excuse the pun. I grow most of my own herbs, for instance. People have at times brewed their own beer to avoid the insipid stuff on sale in the shops, and as a result, this encouraged the "micro-brewery" movement in the US and elsewhere. But that is an example of enterprise at its best. The trouble with Mr Don, I suspect, is that his approach tends to be accompanied by calls to restrict imports, and the like. I remember once watching a programme in which Mr Don went to Cuba, and presented a remarkably uncritical, almost fawning eulogy to the wonders of Cuban home-grown food. He is quoted gushingly by some Cuban website here. Ugh.

Talking of bad ideas, it does appear that Naomi Klein's argument that crises provide fok with an "excuse" to "impose" free markets seems to have been rather turned over. In fact, the current crisis seems to have provided politicians and their media supporters with a great excuse to bash free markets, trade and entrepreneurship. It may be that eventually, of course, the disastrous consequences of interventionism will cause a reaction back towards free markets, in which case Klein will be correct, but not in a way she realises.

David Boaz has a good article on this issue.

Pure genius this is...

Barney Frank, the Democratic chairman of the House Finance Committee, said Mr Geithner should not to repeat the mistakes of his predecessor Hank Paulson, who "lost sight of the rest of the country and pissed them off entirely," with his initial bank bailout.

Frank warned the Treasury Secretary that voters want to see fewer foreclosures and more bank lending to ordinary consumers before they support the rest of the financial rescue plan. "They understand the political need," Mr Frank said.

The plan will help distressed homeowners get modified loans, subsidising lenders who cut interest rates. Mr Frank said the plan would aim ensure that such householders need pay no more than 31 per cent of their income on their mortgage.

Voters want to see fewer foreclosures and more bank lending to ordinary consumers. No doubt they do. I assume they also want more sex, better cars, more holidays and yet another Rocky movie to be made. Or maybe a Caddyshack remake.

So the political and financial elites decided that if more and more people could be made home owners, that would benefit both sections of said elite, or as I like to call them collectively, the Political Looter Class... tax money and government guarantees (which are not cost free) and, when necessary, actual threats to financial institutions that were reluctant to loan money to people who might well not ever pay it back, pushed the number of homeowners ever higher as ever more money was borrowed by John Q. Public and invested in mortgages. The political looter class was happy and so were the millions upon millions of people who voted for them again and again and again.

And of course why should everyone not be happy? A loan is a bank asset, right? And banks with more assets can lend more money, and that means even more people, voting people, can buy houses.

Well yes loans are a bank's 'assets'... but only if there is a realistic chance of that loan ever being paid off, otherwise it is in fact a liability (or more accurately, a loss, although through the mystical political arts it does not actually get called that as often as it logically should when the 'loss' is incurred by a member of a voting block the likes of Barney Frank, or for that matter, George Bush, wish to pander to). I only state this obvious fact because it does not seem obvious to the political section of the looter class. It was of course always obvious to the financial sector of the looter class, which is why all those 'assets' (which were actually liabilities) were wrapped up in complex financial packages and splendidly 'securitized' with the open connivance, indeed encouragement, of the political elite... and whilst there is absolutely nothing wrong with securitization per se, it ain't quite so splendid when it is being used to spread what we now call 'toxic debt' throughout the entire financial system, making it enormously harder and often impossible to assess loan risk.

But to the entire political looter class, and I mean not just the elite elements but also including the millions and millions of people who took loans they could not repay and voted for the people whose regulations provided the perverse incentives for banks to loan money to them, the important things was to... keep lending. And this, boys and girls, is what we call a Credit Bubble. And why do we call it a bubble? Because when loans are given out at a rate greater than actual economic growth can support, the amount of loans (assets) that go bad increases because the increased lending was not supported by an increased ability to pay the loans back... and when that fact becomes clear, people with money suddenly stop lending... the 'bubble' bursts.

And when the state decides to fix that by motivating more people to borrow by reducing interest rates to almost zero, that of course makes no damn difference at all because lenders, not borrowers, are the ones suddenly back in touch with reality. And just because the government (i.e. central bank) says "the price of loans is 0.1%", that actually does not mean jack shit, because the genuine price of loans has to include the premiums needed to cover bad debts. Moreover if it cannot be determined how risky it may be to lend due to the poisonous spread of toxic debt, it is safer to just hold onto the money rather that flush it down the toxic debt toilet.

And how are the political looter class trying to remedy this situation? Well they are trying to re-inflate the bubble with the extra added spice of making the secured assets (property) even harder to repossess (in effect un-securing questionable loans either by fiat or with money plucked from the government's magic money tree). Pure genius.

And the next news item just around the corner? Think about US Treasuries... or 'Junk Bonds' as they will soon be known. 'Screwed' does not even begin to describe it.

In the current crisis, there is a lot of wisdom in the idea that the best thing for politicians and their appointed central bankers right now is to do absolutely nothing. Nada, zip, the square root of zero. To do nothing would be the gutsiest option of all. Of course, Mr "Hope and Change" Obama is unlikely to show that sort of courage, nor will Gordon Brown or, heaven help us, David Cameron.

I actually have a theory, that the amount of time that a politician talks about courage, audacity, vision, etc, is inversely related to the actual possession of those qualities. Not even Mrs Thatcher went on about her courage all the time: the most we ever got was the "resolute approach". And she delivered by taking genuinely brave stands on issues in the teeth of furious opposition from the chattering classes and the media establishments of the time. And in terms of telling folk what they did not want to hear and sticking to a tough policy, politicians such as former UK finance minister Geoffrey Howe in the early 1980s, wiped the floor with today's lot.

Here is a collection of good articles attacking the massive US stimulus plan. Fair play to Andrew Sullivan for linking to them. There's hope for him yet.

Clueless. The Independent has what it thinks is good news for employees:

The minimum amount of money that employers must pay staff they make redundant is set to be increased by the Government, The Independent has learnt. In another attempt to ease the pain of those worst affected by the recession, ministers have launched a review of the minimum payments to which people are entitled by law when they lose their job. With around 1,500 posts being axed each week, unemployment will soon pass the two million mark and could eventually rise to more than three million.

So, what is the predicatble effect of making redundancies more costly to employers? You at the back, there! A firm wants to stay in business. It needs to keep cash in hand in order to do so. Looking ahead it sees uncertainty as to whether it can afford the wage bill, and it has to balance the cost of keeping people on and maintaining capacity, with the cost of losing them, and its ability to continue in business after they have left.

Yes, Purnell minor, if the cash lost by making people redundant increases, they will be made redundant sooner, and firms will be more averse to taking the risk of hiring.

As a crude estimate, we might expect the cash constraint to require someone to be sacked sooner by the amount of time in which the cost of employing them would accrue to equal the increase in statutory redundancy they would be owed. (Which is the sort of 'linear programming' people could do before spreadsheets and Monte Carlo methods: the wisdom of the 1970s for a government that has worked so hard to return us to them.)

Those firms that do not make such precautionary sacrifices increase their risk of total failure, and none of their workers getting redundancy pay. So higher redundancy pay means more redundancies and more business failures, in an uncertain proportion.

What's worse, it is likely that such a change in the rules that is signalled in advance will mean large, well-informed and unsentimental corporations (which are typically more risk averse, and more capital intensive, anyway) reducing their headcounts to get under the wire. Even "a review" undertaken to give an impression of doing something, and as a sop to the trades unions, is likely to influence hiring and firing policies. And not in a good way.

Nicolas Chatfort calls foul on the absurd sense of moral superiority trumpeted by Paul Krugman when the man's own pronouncements are riddled with falsehoods

In a recent New York Times column, Paul Krugman wrote about what he called the bad faith of the opponents of President Obama's economic stimulus plan. Krugman is apparently labouring under the view that his side has a monopoly of virtue in the current debate and that the Obama plan can not possibly be attacked on the merits. It must be comforting to be allied with people of such beneficence and infallibility.

Perhaps Krugman, however, should examine the good faith of his own claims before casting aspersions against his opponents. At first glance his counter arguments appear cogent, but a closer look reveals that Krugman is a master of illusion, employing many tricks that would do any sideshow magician proud.

First, Krugman assails the criticism that the Obama plan will cost $275,000 per job created as being a bogus talking point. His reasoning is that this figure involves taking the multi-year cost of the program and divides it by the number of jobs created in just one year. Krugman claims that the true cost per job is closer to $100,000 - or even a net cost of only $60,000 if you take into account the higher taxes that would be generated from a stronger economy.

Let us examine this counter argument carefully as Krugman is employing some slight of hand here. He is pulling a switch by re-framing the costs from a total program basis to an annual basis. The critics of the plan never claimed that the $275,000 per job was an annual cost. By the way, the $275,000 per job estimate is generous as it cedes the point that the plan will create the 3 million new jobs claimed for it by President Obama. Not all economists believe that anywhere near this number of new jobs will be created under this plan.

What about Krugman's own estimate of $100,000 per job if you look at the program in a multi-year basis? He claims this cost from the extra millions of new jobs that would be created after the first year. As the cost of the program is $820 billion, this implies that he believes that the Obama plan will actually create over 8 million new jobs. If this is true, why is the White House claiming only 3 million new jobs from the plan? Making arguments based on the official claims of its government proponents, as the critics have done, are not deceitful as implied by Krugman. Well, not quite as deceitful as calculating costs based on an extra 5 million jobs that do not appear in the program.

As for Krugman's claim that the net cost will be only $60,000 per job due to higher tax revenues, it is nice to see that he has suddenly become a convert to dynamic scoring. I am sure we will see him be generous enough to allow tax cut advocates use dynamic scoring in their arguments.

The next card trick the Krugman dazzles us with is his counter argument about the relative benefits of tax cuts versus government spending. He stacks the deck by presenting a horrifying vision of airlines falling out of the sky if the government does not provide the air traffic control system. An honest contrast would have been between a government system versus a privatized one, not versus no system at all, but then again it does not appear the Krugman is really interested in having an honest debate.

Krugman claims that no one really believes that lower taxes are a better stimulus than government spending. He somehow must have missed the statement that the Cato Institute placed in major US newspapers, including the one for which he writes, that was signed by hundreds of economists, including Nobel laureates, taking just such a position.

His own argument in favour of government spending delivering "more bang for the buck" because a large share of any tax cut would be saved is also suspect. If the current economic problem was caused by a shift in preferences away from consumption and toward savings, then would not a large share of any income increase that is derived from new government spending also likely be diverted to savings?

One of the errors of the advocates of a Keynesian solution that increases demand is that they fail to recognize that it was an unsustainable level of demand the helped to get us into the current mess. We were consuming more than we were producing, relying on foreign lenders to make up the difference. A shift from consumption to savings is necessary for the long-term health of the US economy. Increased growth can be encouraged by taking permanent measures to increase the returns on production, but fiscal measures that try to artificially boost demand will only delay, and likely worsen, the correction in the structure of the economy that needs to take place.

Finally, Krugman ignores one of the most obvious criticisms of the Obama plan because he apparently does not have a convenient hat trick with which to dismiss it, that is the question of timing. According to the CBO's cost estimate, only 20 percent of the program will be spent this year and somewhat more than half in the first two years. If this massive stimulus program does not generate self-sustaining economic growth within two years, the clearly it will have to have been judged as a failure. Can spending that will not even take place until three or more years from now, when they may not be needed, really be considered as a stimulus to our current problems? A more likely explanation is that the Democrats in Congress had their own bad faith justifications for this spending. Krugman's warning against fraudulent arguments is perhaps the only point in his column with which I am in accord.

Roger Thornhill, an occasional commenter here who also has his own blog, asks what is all the fuss about a foreign firm in the UK hiring foreign workers? He points out that if a UK firm operating in say, Germany, were to bring over some of its own staff, it might cause outrage among the locals, but then UK unions would protest at their members being banned from working abroad.

The truth is that when Gordon Brown made his comment, "British jobs for British workers", he stoked the flames of a protectionist labour force doctrine that is now threatening to get out of hand. The disgrace of it is that even when the UK economy was growing relatively strongly, millions of able-bodied UK adults were not working and living off benefits. The tax, benefit and education system conspire to keep large numbers of the indigenous population out of the workforce. So naturally, firms turn to other sources of labour if they feel they can get a better deal.

In these tough times I feel sympathy for skilled workers who have felt themselves to be frozen out by a foreign employer doing business in the UK, but the brutal fact has to be faced that as far as many employers are concerned, some of the locals are just not as employable as foreigners. It is a terrible indictment of what has happened to the UK labour market under this administration. Untangling the mess is, or should be, a priority lest the situation fans the flames of protectionism, with disastrous consequences.

Update: The always cool-headed Chris Dillow puts up a feast of links explaining the impact of such foreign labour on local markets.

This is excellent. Brew up a coffee, give yourself a break, and read the whole thing.

Via Will Wilkinson's blog, a term I think is ideal for the crazed Keynesian policies now being applied: disaster dirigisme.

Dave Cameron, the head of the non-conservative Tory Party, has addressed the great and 'good' at Davos, and as usual he says things that actually mean the opposite of the words looked at in isolation:

He will say: "We must stand up for business because it's businesses, not governments or politicians, that create jobs, wealth and opportunity, it's businesses that drive innovation, and choice, and help families achieve a higher standard of living for a lower cost. But we must also stand up to business when the things that people value are at risk. So it's time to place the market within a moral framework - even if that means standing up to companies who make life harder for parents and families.

Translation: moral framework in fact means political control... whoever best has the ability to manipulate the political system can simply distort the market so suit their narrow needs. So when Dave Cameron says 'moral capitalism', he actually means 'regulatory statism' and 'political manipulation'... in other words he does not actually want to change a damn thing.

And political manipulation is exactly how we ended up where we are now with banks and car companies being handed vast quantities of other people's money: Neither moral nor capitalism, which sums up Dave Cameron's 'philosophy' perfectly.

Vladimir Putin slapped down Michael Dell at the World Economic Forum in Davos and hopefully some wisdom will come from this.

Then it was time for questions. First up: Dell. He praised Russia's technical and scientific prowess, and then asked: "How can we help" you to expand IT in Russia.

Big mistake. Russia has been allergic to offers of aid from the West ever since hundreds of overpaid consultants arrived in Moscow after the collapse of Communism, in 1991, and proceeded to hand out an array of advice that proved, at times, useless or dangerous.

Putin's withering reply to Dell: "We don't need help. We are not invalids. We don't have limited mental capacity."

Which demonstrates several things:

1. when a multinational company in effect offers to invest more in Russia (i.e "here are some assets, please confiscate them at your leisure like you did with those idiot western oil companies"), the kleptocrat-in-chief would rather pretend that his country is "not an invalid" in spite of copious evidence that Russia is an economic basket case. So yes, Vladimir Putin does indeed appear to have limited mental capacity even in his role as kleptocrat.

2. investors in Dell need to make sure that Michael Dell never ever has any say whatsoever is which places Dell invests the company's money. Russia? Michael, are you out of your fucking mind?

A friend of mine suggested the theory that Putin was angry that Dell purchased Alienware.

Mike Oliver has spent a great deal of time on the coalface of capitalism and has some interesting things to say about the current economic crisis.

In years gone by I was a radical libertarian/objectivist fomenter in the U.S. In fact in the mid-1970's when the late Chris Tame of the Libertarian Alliance spent a month or few crossing this once great land, he spent a few nights under my roof. He was a great guy and I miss him.

In any case in the years since my crusading lapsed (I used to be editor of The New Banner, perhaps the first widely read national objectivist/anarcho-capitalist periodical in the U.S.) I since went to ground. I became a futures market specialist and then a market analyst (for hire to major asset management entities such as multi-billion dollar mutual funds). I did my work and looked at the world from a market perspective.

In the summer of 2007 as a small hedge fund manager/analyst-for-hire I realized that the interventions of the U.S Fed under Bernanke were engineered to hold up/support the S&P500. I realized that if that persisted that the downside move that I had expected in the market 'correction' would turn into something other than a mere correction... as indeed it did.

The lovers of statism (and of we the people) decided to pull out all the plugs and defend the market at each and every low - to try to fake reality. Instead they super-charged the downside. What would have been a normal correction in the market ballooned into a disaster. Why?

Benanke allowed in summer of 2007 for an asset class never previously allowed to be used as collateral in fed borrowings by financial institutions, and even expanded what institutions could come to the Fed. In effect the Fed was "pricing" this debt (sub prime mortgages, etc.) at a level such that it would not have to hit the market and be priced openly and fairly.. The Fed was apparently afraid of the real consequences of seeing it priced openly. So they in effect took it off the market and froze it at the Fed window as "acceptable collateral" but as an unpriced asset. Hence from that point forward these sorts of assets on bank books were not "priced" in an open and market manner. Hence those who wanted to invest in the bank were uncertain as to the value of these assets. Hence uncertainty arose as to any and all bank valuations.

Uncertainty breeds doubt and fear and finally the collapse we saw in October and November. The lack of clarity of valuation - created by the Fed's motherly and smothering love of "the people" in effect created the doubt and uncertainty that cascaded into the spiral we later saw in October of 2008. Oh sure, the chain of statist actions that helped to build and blow-up these malevolent factors date from before Bernanke, but he was pivotal at his unique moment in time.

Well, for the record my small hedge fund was up nearly 10% in 2008 while the lovers of "trend following" and statism sank some 30-40%. Good riddance.

Then came the onslaught of statist bandages and programs etc. And therefore here comes the final wave of statism - fully open to "caring" for us all in the wake of the failure of "capitalism." And all the while many in the press and public accept the notion that the "market" failed and government has and will be our saviour. But reality ultimately will betray the fakery. There are already too many in the financial markets and in the financial press who realize the sequence of events, and who will not be fooled. The Charade has reached its zenith. The seemingly perpetual ascendancy of the State is in fact a paper tiger. Yes, the State will appear to rise as The Saviour, but its salvation and credibility will not weather the storm that it has itself created.

"The folly and immorality of the “stimulus” plan passed today can be attacked on many fronts. For one thing there’s the awe-inspiring irony of a Democrat-dominated Congress and a Democrat president spending taking nearly a trillion dollars from the hardworking middle class people of this country and giving it to corporations and businesses—and precisely as a result of the apparent improprieties in which those same businesses were engaged! Honest liberals who resent corporate welfare must really have a headache at this point."

- Timothy Sandefur.

A good friend of mine, the Norwegian journalist Kristine Lowe, reflects on a recent trip to Iceland, which has seen its government collapse amid the credit crunch. Iceland has, of course, benefited from sensible low-tax policies as well as being buoyed by what now appears to be some foolish banking lending policies.

I am not sure I would want to live there, mind. The long nights and expensive beer would drive me nuts.

[E]verything the government is doing now is going to make the situation much, much worse. They're trying to reflate this bubble. All along I knew that what would potentially be fatal wasn't the recession itself but the government's response. But what they've already done exceeds even my worst-case imagination.

- Peter Schiff

I know it is only January but this is a real contender for 'Samizdata quote of the year'.

Jonah Goldberg, who writes at the US conservative publication, National Review - and other places - is over in the UK next week talking about his recently-published book, Liberal Fascism. I have not read it but some of the readership might find it interesting. He's in London at venues like the London School of Economics.

Meanwhile, as our own Brian Micklethwait pointed out the other day on his own blog, Kevin Dowd, an economist very much in the free market camp and an authority of monetary economics, is delivering the annual Chris R. Tame memorial lecture of the Libertarian Alliance in March. Kevin Dowd is not just a very nice fellow and a sharp economist, he is also an advocate of free banking and a critic of state monopoly money. He and his colleagues have been doing important research on the topic up in his academic redoubt in Nottingham. I definitely recommend this lecture. It pays to book early.

Meanwhile, back in Britain, the markets are continuing to fret over the scale of the financial hole the country is in a day after the UK government stepped in and hosed the banks with yet further large amounts of public funds. According to the media pundit and investor, Jim Rogers, sterling is a sell and the country's economy is headed for further trouble. Even though Rogers' prediction of a 25-year commodity boom has not quite panned out - oil prices have crashed from $140+ to about $40 now in just four months - he did predict some of that boom and commodity investors who sold out at the right time would have made a killing in some of Rogers' funds. His take on the economic situation is worth studying.

I see no reason to buy sterling on speculative grounds until Mr Brown is removed from office along with his re-heated Keynesian colleagues. Even then, the return to sound money will be hard and unpleasant. It almost makes me wonder if the Tories would want to regain power with such a poisonous inheritance.

Thanks to Guido Fawkes for the Rogers quote. Guido has been a bear of sterling for some time. To stay with the lingo of the markets, investors should be shorting Brown stocks, a heavily touted investment based on no underlying merits whatsover.

First financial, then economic, finally political. The smaller countries will be followed by the larger. In one of his op-eds, Ambrose Evans-Pritchard writes an overview of Europe in which he opines that the outer rim: the post-communist states and Club Med are entering a 30s style depression due to the unwillingness of the European Commission or Central Bank to alleviate their woes.

Romania, Bulgaria and the Baltic States are now facing a 'spring of discontent' as austerity measures result in rioting and instability. Evans-Pritchard has noted that the European institutions are compunding the problem:

Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia. Such adjustments are crucial in IMF deals. They allow countries to claw their way back to health without suffering perma-slump.

This was blocked by Brussels – purportedly because mortgage debt in euros and Swiss francs precluded that option. IMF documents dispute this. A society is being sacrificed on the altar of the EMU project.

The political consequences of the credit crunch are coming to the fore in the fragile periphery of the European Union: how long before we begin to see the political expression of this discontent respond to the monopoly of the European class, a challenge that will arise outside the mainstream from the extremes.

A Politico/Allstate poll at the end of last year suggested 79% of Americans support his stimulus plan and he has a 63% approval rating.

A year from now, when those who saved see the value of those saving buying a great deal less, and those who did not save see the empty shops and find themselves out of a job, will they see the sheer folly of expecting the state to manipulate the economy back to health? Perhaps they will.

Classical liberals and libertarians are often accused of being 'utopian' because of our reliance of the self correcting mechanism of markets. "That assumes people act rationally!" our critics say.

Nothing could be further from the truth. We know people do not act rationally, oh good grief you statists have no idea how profoundly we know that, and that is exactly why we do not trust the state to have so much power over the domestic life of its subjects. Amongst other things, a strong state, far from protecting us from mean old Big Business, actually entrenches Big Business and lets them limit competition.

People are not particularly rational, even less so in large groups... and that includes people with great political power. They make mistakes and then repeat those mistakes again and again and again. The true utopians are those who think it is wise to give demonstrably fallible people vast legal backed power over civil society.

But hey, if you clever and oh so rational statists do not get the results you expect from the 'stimulus package', just strap in and do it again... and again... and again. Have fun. This is indeed the end of an era, just not the one you think.

Gordon thinks that banks have been wicked and they need to confess:

Gordon Brown told banks to come clean over the extent of their bad assets on Friday, admitting the scale of the banking crisis could threaten the global economy with a new phenomenon: “financial isolationism”.

"Tell me how bad it really is," is at best irrelevant, and, given we have a crisis of confidence, most likely damaging. But the quintessential moralitarian is not concerned about that. Nor about isolationism, merely because it means poverty and depression. The self-criticism of others must not stop, engagement with the global system must not stop, because otherwise there will be no one else left to blame. There is no chance of him confessing his faults. Our Great Helmsman will stand as a colossus of rectitude and the transparency he demands in others is not necessary for him, lest we be blinded by the light.

And yet mighty Oz, aware of his own illusion, thinks banking is a magic that will survive removal of the smoke and mirrors (he almost certainly believes in 'fair' prices too). The opposite is the truth. The obsession with stripping the mystery in case someone might be making money, has the predictable effect that making money is harder. Compliance and confession will crash the banks, not stabilise them. They are already doing so, as The Economist points out:

The Basel 2 international bank-capital regime and the global accounting standards known as IFRS—to say nothing of security analysts and rating agencies—are forcing banks to hoard more capital, anticipating that deepening recession will slash asset values further.

This is the modern equivalent of Keynes's "cross of gold". We are being wrecked by the rectitude of mark-to-market. But the governmentalist says the problem is not enough sinners have been whipped, and "orders" that they are.

'Bail-out fears hit banking shares' howls the BBC... "We know of no justification for the fall in share price. We are fully aware of our regulatory obligations and we have not said anything," said a Barclays spokesman in a statement.

Hehehe. Could it be that more and more people do not believe the shit that government and the mainstream media keep peddling any more? The 'bail outs' are consuming a larger and larger proportion of the world's ailing economies, with no end of 'bailing' in sight. Frankly why not bail out the porn industry? Why not 'bail out' every damn industry! Just print more money!

The system is devouring itself and no amount of manipulation can change that... because manipulation is why the system is collapsing. When the correcting mechanisms of markets are not permitted to work, it is like never allowing forest fires to clear out dead wood. In the end all you do it store up problems for later. Guess what? Later is now.

Let it burn.

One of the reasons why people get so cross about the cost of petrol is the knowledge that a high proportion of the price paid at the pumps is accounted for by tax, rather than the cost of extracting, refining and distributing the stuff. The same goes for a pack of cigarettes, pint of beer or a bottle of wine, to name a few. With a lot of grocery produce, such as your humble carrot, most people may not appreciate - yet - how much of the cost of getting those vital vitamins is accounted for by government-created production costs. Well, there have been a flurry of stories on the wires about a recent EU Parliamentary vote to ban dozens of pesticides that are deemed harmful. As a result, farming groups claim, output of crops will fall and presumably, if other things remain equal, prices will go up at a time when household budgets are under strain. It does not seem to have occured to policymakers that a simple option would be to put what chemicals are used to treat crops on a packet so that consumers can figure this out for themselves and take an informed decision.

The trouble with stories like this is that the votes to ban X or Y at the EU level rarely gain a lot of coverage for more than a day or so, and then the issue tends to fizzle out, of interest only to obsessives and geeks like yours truly. A busy populace, worried more about their jobs, mortgage or children, will hardly dwell on the issue. But when Mr and Mrs Briton wonder why on earth it costs so much to buy basic groceries, the temptation will be to imagine that it is the fault of big, evil supermarket chains, for example. Rarely will the cause of the cost be seen as stemming from bureaucrats and European MPs.

Of course, it may well be that the chemicals being banned are as harmful as is claimed, although given the way these things work, I doubt it. We are told that for a healthy diet, your average person requires several servings of fruit and veg a day; such things are considered good for warding off cancer. Even if there is a health risk from chemicals, the health risk of not eating enough vegetables because of high costs is even higher. These things involve a trade-off between one set of risks and another, rather than some imperfect and perfect state. If such chemicals are banned, resorting to grow-your-own is hardly a viable alternative, since modern farming can, through economies of scale, achieve better yields and lower costs-per-output than someone tending their vegetable patch. And importing fruit and veg from countries such as Spain via air transport, for example, is also becoming less attractive an option due to increased fuel prices and governments' taxes on air travel.

Once again, the Forgotten Man gets the shaft. This chemicals ban, like measures such as "employment rights", paternity leave or 35-hour weeks, impose costs on the populace without a government having to take the potentially visible and unpopular step of raising taxes. Joining the economic dots is hard. I just hope that some in the MSM try and do so occasionally so that the message gets through. We bloggers cannot do it all on our own.

Update: in the comments, one person argues that I have contradicted myself by pointing to public apathy or lack of time to scrutinise EU actions, on the one hand, and my stress on the ability of consumers to read packaging labels, on the other. There is no contradiction, though. People shop daily, weekly, monthly, etc. They constantly come up against labels, look at packaging, see advertisements, surf the Net looking at products, and so on. One of the great things about markets is that it is a constant provider of information. Not always accurate, of course. By contrast, once an EU directive has been imposed, that is usually the last that any ordinary member of the public will hear about it. As soon as a law is passed, the media and political wagon rolls on.

This gloomy Bloomberg article, talking of capitalism's global "winter of discontent", argues that the current troubles are the first globalized crisis for free enterprise. Well, when an article makes an error in the first paragraph it does rather dim one's enthusiasm for reading on. Arguably, we have had cross-border crises in markets dozens of times: the recession of 1870s, the Great Crash of the 1930s, the 1970s oil-shocks and stagflations in the US and UK, the early recession of the 1990s in countries as different as far apart as Japan, UK, Germany and US, etc. Maybe the sheer extent of the malaise now is what has struck the Bloomberg writer, but truth be told I think this is a matter of degree. According to this excellent book, markets were in fact more globalised 100 years ago than they are now.

To use one of my least favourite words, there is now a constant "narrative" as to how the recent turmoil somehow proves that unregulated capitalism has failed and too closely interlinked. Quite how anyone can, with a straight face, argue that financial markets have been unregulated in recent years is a joke. Here are some of the regulations financiers have been dealing with, often with counter-productive results:

• Markets in Financial Instruments Directive (known snappily as MiFID). This is designed to make EU financial markets more competitive, but as so often is the case, has been designed to raise barriers to entry in certain fields and has led to a rise in regulatory costs and loss of choice.
• Basel II bank capital adequacy rules. How's that working for ya?
• Patriot Act - the finance provisions
• Various anti-money laundering laws
• Tax information sharing treaties (various)
• UK capital adequacy regulations of financial advisers
• UK laws banning/controlling certain types of financial advertising. Apparently, we poor saps need protecting from crooks. Shame none of the big banks spotted Bernard Madoff then.
• Restrictions on sell-side analyst research. This is built on the quaint idea that analysts working for banks should be models of Corinthian virtue and not have a bias.
• Sarbanes-Oxley accounting laws - these have been a disaster, encouraging a flight of US businesses offshore, killing IPOs and squeezing new business formation.
• And last but not least: central banks. These are state institutions, issue monopoly money and have been behind much of the current trouble. Sometimes, when reading criticisms of "unregulated" capitalism, you might imagine these banks are purely commercial entities.

I am scratching the surface and I am sure readers can come up with more rules and regulations. Every time any of you good readers hears this canard about "unregulated capitalism", call them out gently for this and ask them in what field, apart perhaps from security or medicine, are activities more heavily regulated than finance?

Update: oh, I should have mentioned the US federal housing agencies such as Freddie Mac, and their contribution to creating a massive moral hazard problem in the house lending market.

Fraser Nelson over at Coffee House picks up on a point that has been obvious to yours truly for a while as well: the dystopian novel, Atlas Shrugged, by Ayn Rand, nicely charts the sort of demented statist economics that we are seeing back in fashion now. Rand's novel is more than 50 years' old and it focuses on the railroad industry, but its themes apply just as well to the world of modern banking or the internet.

Even if you decide to skip the enormous John Galt speech at the end of the 1950s novel, reading this book will help clarify a lot of the issues now swirling around. I can think of a few people in public life today who would qualify as the villains. Who, however, are the heroes? Where are the Dagny Taggarts, Hank Reardens or Francisco D'Anconas of today? There are mutterings about the book being made into a movie, starring the likes of Angelina Jolie (who is actually a lot smarter than some of her Hollywood peers), but I am not sure what the situation is with that. Hmm, let me speculate on the glory of an anti-statist movie winning an Oscar.

As a side observation, I cannot help but notice that ever since the UK government nationalised banks such as Royal Bank of Scotland, which owns Coutts, the private bank, there have been worries that wealthy clients of Coutts must be a bit nervous about having their finances run by folk beholden to the state. Indeed, as Instapundit's Glenn Reynolds might say. Those banks which have by luck or deliberate choice avoided state bailouts will benefit.

Talking to fellow contributor Brian Micklethwait last night, we somehow got on the subject of the recent property and debt market bubble, and what a total mess things were. And Brian pointed out that some market bubbles, like the infamous Dutch tulip bubble of the 17th Century, were based on almost a totally ridiculous notion, delivering nothing of value, whereas at least the tech bubble of the 1990s, for all of the associated craziness and subsequent pain of the crash, did at least propel a lot of useful innovation in the internet and associated world, just as the railway boom of the 1840s in the UK helped drive forward development of the railways, even though the industry had its fair share of crooks and incompetents. And for that matter, even the tulip bubble, as the Wikipedia entry I linked to suggests, did perhaps help to drive development of what is still a huge horticultural industry in the Low Countries.

The trouble with bubbles is that they pop. But it is too easy to forget, in our current fit of puritan disgust for speculative frenzy, that much, if not all of the energy that can drive prices for things higher is reflective of often dynamic and highly beneficial changes in the long run. I still believe that in a few years' time, unless we have reverted to statism completely, that the long boom of the 1990s and most of the 'Noughties will be seen as a generally good thing, even though part of it was driven by unwisely cheap money set by central banks - state institutions - rather than genuine economic rationale.

"Economists from across the political spectrum agree that if we don't act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment and the American dream slipping further and further out of reach," Mr Obama said.

Across the political spectrum eh? And which spectrum would that be? Let me guess... the spectrum that runs from Democrat regulatory statist to Republican regulatory statist? There is no 'spectrum' in front bench congressional politics in the USA (or the UK), just a groups of people who are arguing over how much deeper the same hole they are standing in should be dug in order to get out of said hole.

That is why the USA needs vastly less bipartisanship and a whole lot more disunity. The truth is that NOTHING the US government will do is going to prevent double digit unemployment and economic depression. Both parties were the authors of this situation and every time some jackanapes in Washington DC uses the term 'bipartisanship', it is worth pointing out the discreditable Republican role creating a vast edifice of state controls that prevent markets from actually working.

Outside the USA, explicit attacks on capitalism are perfectly acceptable by leading politicos, so it is unsurprising to see Britain's dismal prime minister Gordon Brown petulantly blaming 'unbridled capitalism' when Britain's regulation smothered and very much 'bridled' economy refuses to respond to his ever more pointless orders. But in truth politicians in the USA, the ones in both parties who have done equally absurd things to bury the US economy, in practice share much the same views about 'capitalism' as Gordon Brown does. The reasons for that are not hard to figure out.

They are trying to blame everyone other than the predatory political class and its army of tax funded clients and instead point at those pesky people who actually create wealth rather than destroy it as the problem. It is not so much that they are consciously lying about the nature of reality but rather their underpinning axioms within which they see everything simply cannot cope with a world view that does not place politics and regulation at the heart of absolutely everything and as the solution to everything. And if vast reams of regulations are a given then problems cannot be regulation per se but rather that the wrong regulation was tried this time and so 'we' need to try different ones. The notion that there is something systemically wrong with creating a massive impenetrably complex tower of (often contradictory) laws simply does not compute. Most politicians, and indeed most people generally, do not even see the teetering structure in totality, just the changes compared to the last time they looked. The tower of regulations simply is... the only 'sensible' discussion they will even entertain is how much more should 'we' pile on this year.

But then that is one of the major upsides of the massive global crash that is coming down upon us all... the tower that has been created has been struck by lightning and yet they want to save it by piling the structure higher even as it is tipping over... whereas the correct course of action is to get out from underneath it.

Now let us make sure that the people responsible from the largely interchangeable statist 'right' and 'left' are the ones who get the blame because the smarter ones are already trying to shift it to anyone else but themselves. Our job in the non-mainstream media is to make sure the political life gets crushed out of them as they so richly deserve.

The 'Crisis of Regulatory Statism' meme needs to spread.

I loved Liar's Poker, and Michael Lewis returns to his old stamping ground of Wall Street to write one of the best summations, in my view, of what happened in the markets leading up to the current woes. I do not buy into all of his analysis but as an entertaining version of events, it is pretty good.

Another good, if flawed account of the problems of the debt-driven economy came recently from Niall Ferguson, the historian. He has good things to say on how the understandable desire for home-ownership - encouraged by political leaders such as Margaret Thatcher in the 1980s - tipped into an attitude which stated that owning a home is almost some sort of "right". If you think about it, paying a mortgage where you own only, say, 10 per cent of the equity is not really ownership, but a form of lease agreement. But I think Ferguson under-plays the role of central banks in the 1990s and 'Noughties in getting complacent over the warning signs coming out of the housing and asset markets, such as gold. He had a recent television series on Channel 4 on this whole process - sponsored, I could not help noticing, by the Cayman Islands - and I was impressed by how Ferguson explained the often eye-watering complexities of derivatives and asset-backed products in simple ways without dumbing it down. Doing good-quality television shows on economics, where so much has to be conveyed by mood and picture, is hard. And Mr Ferguson's modulated Scottish accent is a damn sight easier on the ear than the bizarre inflections of Robert Peston.

Dominic Lawson writes a good deal of sense about proposals to to use public funds in the UK and US to rescue various stricken car manufacturers, such as Jaguar and GM. Like Mr Lawson, I cannot quite see how the average UK voter, who can barely afford a Jaguar car, feels about handing over money to ensure that these cars stay in business, and certainly not if a prize political creep such as Peter Mandelson is involved. Do not misunderstand me: I love the brand, but would it not be better to let the firm shrink to the status of specialist niche product for those who are willing to pay for it?

Anyway, finances permitting, I am upgrading to buy myself and the missus an Alpha Romeo., assuming I can get one second-hand in great condition. Discounts for cars are likely to be pretty generous over the next few months.

Evidence is only of use to the mind that is prepared for it.

Every time I see the government of Japan (or some other government) spending yet more money, in spite of the failure of all their previous government spending orgies, I am reminded of this.

Because, of course, to them there is no such thing as evidence that expanding government spending is not a "good thing", just as there is no such thing as evidence that trying to finance lending ("investment") via credit/money expansion, rather than solely by real savings, is not a "good thing".

On the contrary, any economic decline (perhaps even mass starvation) is interpreted as evidence that there should both be more government spending (an "expansionary fiscal policy") and more credit/money expansion (an "expansionary monetary policy").

This is due to the framework of ideas in the heads of the politicians, administrators, mainstream academics and media people - and, yes, many businessmen... What Perry would call the "metacontext".

Yet in the private sector, this sort of behaviour is called this a 'pyramid scheme' and people get thrown in jail for it.

Here is an interesting list of the worst economic notions or economy-related stories in 2008, from a mostly US perspective. My personal favourite is the one about "killer tomatoes".

(Hat tip: Andrew Ian Dodge).

A lot of people in the financial industry are trying to figure out the individual costs to them of the $50 billion Bernard Madoff hedge fund fraud. The allegation is that Mr Madoff operated a "Ponzi scheme" scam wherby hedge fund investors were paid money, not from the performance of the funds, but by money paid in by new clients. As soon as the inflows of new clients dried up - partly due to the credit crunch - the scam came to light.

As a result of this case, no doubt those who have been calling for much tighter regulation of financial markets will have yet another stick with which to hit the system, never mind that fraud is and should be prosecuted under the normal law of the land anyway. But what interests me, however, is that systems such as Social Security in the US or public sector pensions in the UK have been funded under what is, essentially, a Ponzi system, whereby retirees depend on future generations continuing to fund a system that is rapidly becoming broke. I do not see any stories about politicians, in different countries and different parties, facing indictment for scamming the electorate. Maybe, however, the ultimate problem is that in a Welfare state, the scam artists are us. We are all in on the heist.

I think I know best, too, of course. But what I know best is that the world is too complicated for me or anyone else to rule. Other people are generally better placed than I am to decide what is good for them. Even when they are not, nothing gives me in particular the right to impose my ideas.

Gordon Brown is one of the elect (not just the elected) who knows no such restraint.

The Prime Minister: The first point of recapitalisation was to save banks that would otherwise have collapsed. We not only saved the world— [Laughter . ]—saved the banks and led the way— [ Interruption. ] We not only saved the banks— [ Interruption. ]

Mr. Speaker: Order.

The Prime Minister: Not only did we work with other countries to save the world’s banking— [ Interruption. ] Not only did we work with other countries to save the world’s banking system, but not one depositor actually lost any money in Britain.* That is the first thing.

Having contented himself that he only saved world banking, Mr Brown has now set out to work on the rest of the job. He has started on a mission to create peace between Pakistan and India - two countries that have not had a war since 1971. Such is his supreme diplomatic tact that his approach after the Mumbai massacre is to visit the region in order to announce that “Three quarters of the most serious plots investigated by the British authorities have links to al-Qaeda in Pakistan.” A claim that is both occult (full in equal measure of secret authority and meaninglessness), and calculated to make people in India more hostile to Pakistan.

Maybe this is not a record breaking sprint to megalomania for a British Prime Minister. Perhaps it is that Mr Brown's nostalgia for the 1970s knows no bounds. Having destroyed the British economy in order to become its saviour, he is trying the same trick on the global village.

*[This is a lie: I know personally several depositors who between them lost many millions in Britain when Mr Brown decided to expropriate the Icelandic banks. Even those among them whom the Treasury has made a vague promise to compensate have yet to see a penny, and have had the huge cost, which is unlikely to be refunded, of arranging indefinite bridging finance in near-impossible borrowing conditions.]

Following on from my post below objecting to compulsory purchase laws - with the sole exception of where such laws are needed for things like defence or to save life - here is a great blog and resource for those interested in these issues. It is written mainly about the US but much of its insights carry weight over in the UK and other Common Law nations, or for that matter, other countries too. Recommended.

Via Tom Palmer's blog, here is an excellent picture summing up what I think of bailouts.

What caused the economic crises?

"Greedy bankers" says some people.

There is certainly a lot of greed about. For example, the people who trampled a part time Security Guard to death at a Walmart on Long Island (as he shielded a fallen pregnant women from them) were certainly greedy. Even after it was announced they had killed a man they still did not want to give up shopping for bargains in the sale and were very angry at being removed from the store. But I doubt there were any bankers in the Walmart sale crowd - although I am open to being proved wrong.

And the lawyers who are talking about "going after Walmart" over the death are greedy also - they are targeting Walmart, rather than the mob of shoppers, because Walmart has "deep pockets". But these lawyers are not bankers.

In fact I rather doubt that bankers are either more greedy than other people or more greedy than they used to be. Someone does not tend to go into banking as a vocation - it has always been a "for the money" job. Although (and this may shock people) I suspect a lot of bankers are rather more innocent minded than bankers, at least in Britain, were in the past. Many (although far from all) British bankers in past decades were very aware that banking (as practised in the modern world) was based on very "dodgy" foundations and limited themselves with some care - not out of lack of greed, but because they did not have a university education in progressive ideas of "economics" telling them there was nothing dangerous (for example) in lending out money that was not 100% from real savings - indeed modern bankers are taught, as students, that "savings" and "lending" (or "investment" - as all lending is considered "investment") are automatically the same whatever they do.

A certain Scotsman (an historian who does not thinks that fractional reserve banking in England came from copying Holland - even though the main bank in Holland, the Bank of Amsterdam, was famous at that time for not being a fractional reserve bank) blames the present crises on "Enron style practices" even though Enron was not a bank, and most of the bankers in trouble have not committed fraud in the way the Enron management did - whether fractional reserve banking is itself fraud is something the Scotsman does not consider.

No doubt some bankers were corrupt. Indeed on the board of Citigroup sat (indeed still sits) the disgusting Robert Rubin - one of the very people who was paid to help Enron cover up its debts, and who was listened to because of his high place in the Clinton Administration. Mr Rubin advised Citigroup to "invest" in securities based, credit bubble pyramid style, on home loans granted to people of whom Citigroup knew nothing - and by this advice and other advice Mr Rubin has helped Citigroup build up two trillion Dollars of "toxic assets".

Mr Rubin has now secured Citigroup a vast government bailout which will support politically connected shareholders and managers and which has so far allowed Citigroup to go on doing things like paying about half a billion Dollars to name the Mets new baseball field "Citifield" and to pay ten billion Dollars (as of Monday) to buy a road building company in Spain - a country where the construction boom went bust some time ago.

One could then talk about the corruption in the (Democrat dominated) Fannie Mae and Freddie Mac and their political cooperation with people in Congress (such as Senator Chris Countrywide Dodd and Congressman Barney I-was-just-helping-the-young-boys-out Frank) and the work on the ground of such organizations as ACORN (an alliance of groups specializing in extortion and election fraud, whose most powerful section appears to be in Chicago) and how it used the Communities Reinvestment Act to get banks and other such to make loans to people who could not pay them back - when these people really existed at all.

However, all the above could not have produced the present level of crises...

The size of the crises is vast - so vast that the human mind falls over trying to fully grasp the size of it. Already in the United States alone over seven trillion Dollars have been promised to aid various enterprises. Only some of this has been spent by the Treasury and by the Federal Reserve system - but the debt support pledges and other such are there if enterprises "really need them". For example, General Electric had been pledged 138 billion Dollars in debt support - no wonder the top managers there have long acted as if their unfocused conglomerate had a divine right to exist, and have treated the shareholders with utter contempt. Not only were the managers, like so many corporate managers, protected from the shareholders by the various regulations and statutes government has passed over the decades - but they were also certain in the knowledge that their political connections would declare them "too big to fail" a "risk to the whole financial system if they failed" and therefore bail them out.

Even fractional reserve banking, on its own, can not be held responsible for a crises of this size. Lending out money that is not from real savings (i.e. money that does not really exist) is self limiting in the end - although not in the way the early 19th century "Banking School" said it was. It is self limiting in the way that the credit boom quickly turns to bust, and the castles-in-the-air wealth of mal-investments is liquidated, a long with a lot of people's fortunes which depend upon the bubble.

A credit boom can only carry on if it is supported by a Central Bank - whatever this Central Bank is called.

This is why the credit-money bubble of the late 1920's was bigger than previous credit-money bubbles of American history. Because the Federal Reserve system, specifically New York Federal Reserve Bank Governor Ben Strong, had pushed it up and up.

Do people remember the newspaper headlines every so often between 1987 and 2007?

Specially the "Alan Greenspan saves the world" stories?

Ever wondered what the great Alan Greenspan, Chairman of the Federal Reserve, had actually done?

What he had done is as follows:

Every time the credit-money bubble looked like it was finally going to burst Alan Greenspan jumped in and increased the money supply to "save" things. And he did prevent the credit bubble bursting - but at the price of making it bigger and bigger. Without this increase in the money supply, ACORN and Chris Dodd and Barney Frank and Freddie Mac and Fannie Mae, and the private banks, insurance companies (like A.I.G.) and other such would have no funny money to work with. They could not have wreaked everything without the ammunition (the money) Alan Greenspan was indirectly giving them. Of course he did not work alone, for example the present head of the New York Fed (who will be Treasury Secretary soon) has been involved in almost every bailout since Mexico in 1995.

And nor was it confined just to United States - for example the Bank of England has been supporting the wild expansion of the credit money supply for years, and even if one is just talking about notes and coins (not bank credit) the money supply in Britain is still going up at a about 6% a year (last time I checked).

The Fed in the United States is desperate to prevent the "deflation" of the credit money balloon it has created, but the Bank of England is no less desperate - indeed the Governor of the Bank of England has talked about nationalizing banks (those who have not already been nationalized) that does not "resume normal lending" - i.e. keep up the All Fools Festival with the bailout money they have been given rather than using the money to try and bring some sanity to their balance sheets. We live in a country where everyone is connected to the credit bubble and it is considered normal and respectable (rather than a sign of desperation) for a business to borrow money even to cover normal expenses - such as payroll.

This is not a serious credit money bubble in an otherwise sound economic system (as were the credit-money banking boom-busts that occurred in the United States before the creation of the Federal Reserve System in 1913) this, in both United States and Britain, is a system that is rotten to the core.

However, of course, that can not be admitted. Already there is a search for scapegoats as I mentioned at the start of this bit of writing - greedy and corrupt bankers are top of the list, but there are others. Already former Senator Phil Gramm is under fire - because he led the charge to "deregulate banking".

I have no time for Phil Gramm as a monetary economist, he is a Chicago School man and I am a student of the Austrian School. And the two schools do not get on when the questions are about monetary policy. However, to say that allowing merchant banks to engage in retail banking and retail banks to engage in merchant banking is the primary cause of the present crises is, to use technical language, a load of dingos kidneys. But attacking "deregulation" like attacking "tax cuts" is always popular with such things as the mainstream media. And, at the margin, there is even a grain of truth in the charge against Gramm - as the deregulation made it more straightforward for the banks to play with the tidal wave of funny money that Alan Greenspan let lose on the world. But it is the tidal wave of new money (the increase in the money supply) that is the key.

Will the bailouts continue? Will the Federal Reserve Board continue to push the money supply up (according to some measures - I do not have any M3 statistics) 7.5% a year and direct it at the banks?

Will the official bailout number grow from 7 trillion to 9 (already the number of 700 billion is regarded as small) - are we really going to talk about tens or (perhaps) even hundreds of thousands of Dollars for every man women and child in the United States?

Actually it hardly matters any more, because the "financial system" is already broken. All the demented attempts to "save it" will achieve is to prolong and deepen the agony. However, as I hope I have made clear, if this system has anything to do with free enterprise "Capitalism" then I am a Communist.

Iain Martin is rapidly becoming one of my favourite columnists. This article explains why.

A recent book which looks at tensions between free markets and the short-term interests of incumbent businessmen, this book is great. It was written shortly before the credit crisis went into overdrive and its warnings about a stampede into regulatory overkill are very apt.

The Lakota Sioux have a number of long time libertarian supporters amongst them so I was not totally surprised to hear about the Free Lakota Bank. This new institution is issuing 100% backed currency and supplies many normal banking services.

Unlike the Liberty Dollar effort, the Lakota will not be a pushover for the Statists. As you may remember, the Liberty Dollar facility was invaded and assets stolen by the Feds. The Lakota, on the other hand, have armed warriors for local security and if Statists invade sovereign Indian lands, it would not be the first time they got their arses sent back across the reservation line with tails stuffed up their bungholes.

It is my understanding this effort has the full support of the Free State Project. I hope we will hear more from them in the comments section. I also extend a hearty welcome to anyone associated with the Lakota bank and an invitation to drop in and give us a sales pitch. I would particularly be interested in their privacy practices.

Reason TV has used a brilliantly educational Donald Duck cartoon as a starting point in a video on current monetary problems.

I think it is pitched at just about the right level to educate our politicians about economics. They may be able to print money but they have not yet figured out how to print value.

Andrew Sullivan, commenting on a remark about the enormous bailouts being put into place by Western governments, has this to say:

"The debt was so reckless and so immense that it now threatens to destroy the entire financial system. That's what electing George W Bush twice has done for us. But then we are told that this threat requires us to do even more of the borrowing and spending before we can begin to get ourselves back in balance again. The unchallenged doctrine of the day is that: doing nothing would provoke a worse collapse than necessary and so we have to make our fiscal situation much worse now in order to make it much better later. Why am I not convinced?"

Well, Sullivan is obviously right that the way to solve our debt addiction is not to go on the equivalent of yet another binge in the hope of relieving the hangover. Although his glib remark that re-electing Bush twice has added to the debt addiction does rather ignore, for example, the role of the Democrats, for example, in opposing Bush's attempts to constrain the US federal home mortgage agencies, Freddie Mac and Fannie Mae. He is right though to chide the Republicans for letting spendng soar, but then I fear that Sullivan has become such a victim of Bush Derangement Syndrome that even a good point now becomes distorted through his worship of Mr Obama. And if it is debt addiction Sullivan is worried about, I somehow do not expect the Community Organiser to be the one to decisively take us back to the days of small government.

I see the UK Chancellor, Alistair Darling, is making the point in the House of Commons that the financial crisis will not deflect the government from bringing about a low-carbon economy, despite the fact that such a change, by definition, will be costly. I am watching his statement in the House right now. He has also referred to the current economic climate as if it were an outbreak of a virus or a meteorite impact from outer space.

There is a risk that these people are sincere about all this. That, in fact, is the danger: not that such folk are liars and charlatans, but that they actually mean it.

The biographer of JM Keynes, Robert Skidelsky, writing in the Independent newspaper over the weekend, ponders what his economics hero might have done in the current environment. Not surprisingly, perhaps, Skidelsky argues that the economist would have advocated stimulating aggregate demand in some way, either through tax cuts, interest rate reductions or a combination of the two.

In the course of the article, he has a swipe at the "Austrian" school of free market economists who argued that Keynesian economics was - and is - quackery:

"However, his clinching argument in his 1930s debates with free market economists such as Friedrich Hayek was political. It was much too risky to allow economies to slide into deep depression. The example of Hitler was vivid in the minds of all democratic politicians. In 1928, at the height of Weimar Germany's prosperity, the Nazis got 2 per cent of the vote. By 1930 they were up to 18 per cent. In 1933 Hitler was in power."

The trouble with this argument is that when supposedly Keynesian stimulii were applied to economies in say, 1930s America, they did not work. Fact. As I pointed out here with reference to US official statistics, unemployment never fell much below the average levels for that decade until the outbreak of the Second World War. Paul Marks has also pointed out how FDR's achievements were largely mythical, if not in fact the opposite. This woman has argued in a recent book that FDR's policies made the situation worse. In the UK, the supposedly more fuddy-duddy governments of Baldwin and Chamberlain arguably presided over a less serious outcome by not adopting such "New Deal" policies. Meanwhile, in Japan during the 1990s and part of the 'Noughties, a number of stimulus packages failed to revive the world's second largest economy.

Now Mr Skidelsky presumably must be familiar with these statistics, and yet he argues that the reflationary policies of his hero, even though they have not been borne out by historical evidence, were somehow capitalism's best defence against political fanaticism. He may be making the case that governments have to be seen to be "doing something", even if it does not work much, to avoid the charge of callous neglect. But if policies don't work, how is this supposed to calm political agitation? The German example is instructive: I would at the very least have thought that the destruction of the German middle class via the hyper-inflation of the 1920s was a major part of why Germany was so easily tipped over into extremism when economic problems hit home. And that reflation was caused by government, not the private sector. I also think that Skidelsky underestimates the extent to which people do, at a gut level, understand that the governments in power in the West bear some, if not all, responsibility for the present mess.

Meanwhile, I see the UK Labour government is going to take Britain down the wrong side of the Laffer curve by making tax hikes on "the rich" - including entrepreneurs and other wealth creators - a campaign pledge. And this despite evidence, which the government must surely realise, that higher marginal tax rates are destructive of revenues. Update: Fraser Nelson has a splendid, bullet-point take-down of Gordon Brown's bare-faced lies on the economy and his supposed role in leading us to sunnier climes. It cannot be said too often what a complete shit the UK premier is.

There is a good article by Bloomberg columnist Mark Gilbert on why just transferring billions of taxpayers' money to America's embattled automakers is a bad idea, and he has thoughts who might be better equipped to run these firms.

As he says, long before the credit crisis hit, some, if not all of the carmakers were suffering from problems. There is a glut of cars on the world market and the spike in oil prices - admittedly now in reverse - has made a number of such vehicles uneconomic.

Talking of oil, the black stuff is now below $50 a barrel, down by about $100 from its peak. Wow.

Last night I was lucky enough to get invited to a smart awards ceremony in London marking achievements in the world of luxury goods and services. There were folk from various brands and companies such as Chanel, Aston Martin, and the like. Lots of nice expensive champagne, dishy women and impeccably dressed chaps. At the end of the event, an award was given to a certain Vivienne Westwood, one of Britain's most famous fashion designers. She started her career back in the 1970s in the world of punk, associating with Malcolm McClaren, who went on to manage the Sex Pistols, before moving on to other fields. To describe Ms Westwood as a gloriously bohemian figure is an understatement: she wore this amazing red dress, had bright orange hair and her face was painted a sort of white to create the impression of an eccentric 18th Century party-goer in the court of Versailles.

I was struck by two things. On the one hand, Ms Westwood is a great entrepreneur. She has a fashion business empire that stretches around the world, employing loads of people, creating jobs and income, not to mention fashions, for thousands of people. My wife adores some of her stuff. She has been heaped with honours and is the toast of Milan, Paris, London and New York.

And yet as soon as she opened her mouth in the ceremony last night, we were treated to meandering monologue about how how "Britain has far less culture than France"; how cheap labour is the evil that causes wars, how mankind is threatened with extinction in a few year's time; how the French were great because they had central planning back in the 17th Century to create a fashion industry, how she was soooooo glad that Obama was in the White House.....on and on it went, bringing together in one speech an amazingly concentrated collection of fatuity.

It keeps amazing me how people in business, even tremendously successful businesspeople, can hold views that would make any sixth-form pupil cringe with embarrassment. But part of me loves the free market precisely because even an eccentric like Ms Westwood, while decrying global capitalism, can make a mint out of it by selling people stuff that they want. Just don't ever take her views on world affairs seriously.

Oh well, at least she is more fun to watch that Polly Toynbee and like I said, she has created a great business.

Guido Fawkes, in a break from his usual occupation of digging up scandals on our political class, instead focuses a bit more on the underlying policies of the UK government and the opposition. He rightly notes that sterling's falls against the dollar undermine Gordon Brown's attempt to frame the crisis as something that has hit Britain from afar, like the impact of a meteorite or SARS virus. Many of Britain's problems are home-grown. Guido also reminds us of that little-noticed adjustment to the Bank of England's inflation target back in the early 'Noughties. Brown removed housing prices from the index of inflation that the BoE targets. Result: house prices no longer figured as a reason for setting interest rates. Brown, in a word, helped make the property price bubble worse than it might otherwise have been.

Now, I know some of us hardline defenders of free market banking will say that this is a quibble about how to run state monopoly money, and they have a strong point about that. But clearly, even the supposed wondrous Brownite creation of an independent central bank turned out to be an illusion. No wonder sterling is falling against the dollar and the euro. As I work for an export business, I guess I should be grateful.

Brown, in his current efforts to create a narrative as "Gordon the statesman who fixed the crisis" reminds me rather of the late Lord Louis Mountbatten, the UK Royal Family member and disastrous military commander and Indian Viceroy who managed, at least for many years, to create the idea of him being some kind of hero. Sooner or later, Brown is going to get, and deserve, the Andrew Roberts treatment. (Roberts helped to annihilate Mountbatten's reputation).

A lot of people are noticing the parallels between what happened in Japan when and since their bubble burst, and what Britain, and if our Prime Minister gets his way the entire world, is now doing to itself. About a month ago, I did a podcast, with Antoine Clarke and Michael Jennings, in which Michael J in particular gave Japan a big mention, as an illustration of what not to do.

This headline, which I snapped yesterday, reminded me of that conversation:

A zero percent interest rate has been a feature of Japanese life in recent years, as has almost total economic stagnation. In an October 29th article in the Independent, Hamish McRae noted this parallel. I got back to that piece thanks an ASI email, which flagged up this blog posting by Tom Clougherty. Said Clougherty:

The result is that average Japanese living standards have barely risen for 20 years, while inequality has risen sharply. And this is despite them adopting the policies our government are now touting: low interest rates, increased government borrowing, and higher public spending to "prime the pump". If it didn't work for Japan, are we really to believe it will work for us?

Indeed. McRae actually went on to say that we are not in as bad a pickle as Japan. Which is some comfort, but not very much.

Matt Welch - author of a recent fine study of John McCain - has this to say about the recent cave-in by so-called conservatives to calls for a massive bailout of failed businesses and banks:

In June I read what I thought I'd never see again: a mainstream column, by a mainstream columnist (The Washington Post's David Ignatius), arguing against the effects of airline deregulation, one of the most liberating government acts of the last four decades (see "40 Years of Free Minds and Free Markets," page 28). When reregulation is suddenly on the table even for an industry where market forces have cut prices in half while doubling the customer base, it's time to get back to first principles and fight like hell to secure victories we'd long thought won.

Indeed. Like a few other Samizdata contributors - such as carbon-footprint monster Michael Jennings - I am a big fan of the deregulated airline business. This business has been a huge boon in places like Europe. Thanks to the lower cost of flying around, I can see friends in Europe, see my family (and they, ahem, can visit me). The development of the cheap airline business model, notwithstanding some of its flaws, has done more to bring Europeans together than all the EU directives ever passed. Arguably, such directives have in fact been a hindrance, rather than a help, to such closeness.

On Matt's broader point, he is right that we are going to have to make the case for free markets, dispersed property rights, entrepreneurship and trade all over again. It is extraordinary to think that barely over a year ago, Conservative Party leader David Cameron was attacking cheap flights. He has allowed a Big Government, environmentalist message to overshadow what must always be a staunch support of freedom and property rights. He reminded me of the comment attributed to the Duke of Wellington in the 1820s about the railway train: he disapproved of them as they would encourage the common people to move around.

Thankfully, such nonsense has disappeared But just you wait: as and when the good times reappear, the inhabitants of Notting Hill, the Upper East Side and central Paris will be arguing for shackling the unwashed masses to living and holidaying within a few miles of where they live. It is vital, therefore, that the defence of the market order, and resistance to bailing out politically well connected firms like GM or RBS, be given a strong, populist image. Defending deregulated airlines strikes me as a good sort of issue to use in this respect. Keep your stinking, socialist hands off my Ryanairs, my Easyjets and my Southwests! Unleash the spirit of Richard Cobden!

"Unlike those excitable countries where the peasants overrun the presidential palace, settled democratic societies rarely vote to "go left." Yet oddly enough that's where they've all gone. In its assumptions about the size of the state and the role of government, almost every advanced nation is more left than it was, and getting lefter."

Mark Steyn. As he points out, the upcoming US government bailout of General Motors and god-knows-what-else should nail the idea that the US is the land of "unregulated capitalism".

Update: PJ O'Rourke writes in similar vein.

Tim Worstall, whom I read daily, has a good post dealing with the idea that it is somehow wicked for banks to charge a higher interest rate for a mortgage than the official base rate as set by the Bank of England (or any other central bank, come to that). It is, as he says, a matter of pricing for risk. Lending money to a person with a relatively small deposit - or collateral - relative to the total value of a loan is risky. I am going to have to renegotiate my mortgage in the next few weeks, and because the pricing of risk has risen dramatically, I can expect to pay more even though my loan-to-value ratio is quite low and I have a decent amount of equity, while both my wife and I earn a reasonable amount of money. It is not a great situation to be in, but it could be worse. For many years I chose to rent and stash up enough money to put down a good deposit, as did my wife. That, by the way, is one reason why there is a basic injustice when relatively prudent folk get taxed to bail out the imprudent, such as a person on a 100 per cent mortgage.

To be honest, had the price of risk not been artificially reduced by recklessly loose monetary policy over the past few years, we would not be in this pickle in the first place, but that's another story.

Politics trundles on and the more you pay attention to it the more depressed you are going to get, so what I like to do instead is look at gadgets. Gadgets aren't everything. An affordable mobile phone is scant consolation if your ludicrously unaffordable house has just been repossessed. Flat screen televisions are only as good as the stuff that's on them. Cool cars only provide escape from the cares of city life in car commercials, not in cities.

Nevertheless, gadgets are still being done well, and every now and again I like to pick out a new one and praise it on Samizdata, both for its own beautiful sake, and because doing this makes the point that life would be so much better if everything (not just gadgets) was done like that, by grasping capitalists in competition with one another instead of by tyrannically pompous bunglers who are clever only at winning elections or at sucking up to such people. The last such gadget that I got excited about here was the Asus Eee-PC, which I now happily possess, and am gradually finding more uses for. And now, I offer you the Panasonic Lumix DMC-G1, which is a digital camera, which looks like this:

It doesn't look anything very special, or very different, does it? And for many people it won't be. For all those Real Photographers squinting into their optical viewfinders to get the perfect shot with their brick-like Canon or Nikon DSLRs, the G1 would be a severe come-down, because the G1 doesn't have an optical viewfinder. But for that vast tribe of cheaper and more cheerful digital snappers who prefer cameras that don't weigh so much, the fact that the G1 has no optical viewfinder is exactly the point. We Billion Monkeys, as I like to call us, look at all those Real Photographers with their clunky black contraptions and we say to ourselves, yes, I'd love my pictures to be as good as theirs are, and it would certainly be nice to be able to use lots of different lenses the way they do, but really, does a camera have to be that big to be that good?

The thing is - from where we Billion Monkeys stand, sit or crouch - DSLRs look like a relic of the analog age, like those weird early steam ships that also had sails on them. DSLR stands for Digital Single Lens Reflex, and this refers to the fact - commenters will doubtless correct me to the degree to which I am, I am sure, somewhat-to-completely wrong – that in order for the optical viewfinder to be an accurate foretaste of the picture being attempted, the light that enters a DSLR has to be divided up and sent off to two different places, one of them being the optical viewfinder and the other being the magical electronic surface that turns the light into a digital picture. This process involves ... well, it involves a lot of space and a lot of complication.

So, the G1 does away with the the optical viewfinder. You can still squint through an eyepiece if you really want to, but what you see is a digital picture, not a merely optical one. More conveniently, you can see the digital picture beforehand on a small screen, which, as with the best little digital cameras, twiddles, and hence lets you take pictures that you can still see even when you are holding the camera way above your head or way down in front of your private parts. Most DSLRs still only show you the picture on their screens afterwards, but the latest ones also have these see-the-picture-beforehand screens, but this combining of optical and digital previewing all adds to the size and the expense. What the G1 does is put all its pre-viewing and post-viewing eggs in the one digital basket.

If the G1's screen were only as good as the kind of screen you already get on most small digital cameras now, such as the one on my current camera, that would not be a good decision. These small screens are now notorious for telling you that that is a fine picture while you are taking it and just after you took it, only for you later to discover, when you get home and see it on a real screen, that the picture is a blurry failure. Much effort has gone into making the image on the G1's screen, and the image you see through the G1's digital viewfinder, a lot better than such images have ever looked before. And the even better news is that the improvements already achieved in this department, being electronic rather than merely optical, are bound to be surpassed in the near future and surpassed again and again in the years to come.

Meanwhile, the G1 offers us digital amateurs all the things we really do want that only the SLR fraternity can do now. The picture quality will be far better, both because it just will be, involving as it does the exact same kind of picture making technology as happens in DSLRs now (only rather smaller), and because we will be able to use a growing choice of lenses instead of the one lens we are stuck with now. But, we won't have to lug a thing like a brick around with us to get all these delights.

All this is hearsay and conjecture, based on the reports of the lucky few who have already been allowed to actually see and play with this new camera. But the buzz that it has already stirred up around itself definitely reminds me of the buzz that buzzed around the first of those micro-laptops, of the Asus Eee-PC variety, a market that is now galloping ahead exuberantly. What this buzz already tells us is not that the G1 is definitely the wonder that its paid puffers and earliest reviewers are now claiming it to be. No, it tells us something more important than that. It tells us that this is what the market really really wants. I am most emphatically not the only cheap snapper who wants to trade up to something definitely better, without trading up to a big black brick that leaves little space in my life or bag for anything besides photography. If the G1 is what it promises to be, it will be a runaway hit. If its reach turns out to exceed its grasp, never mind. Rival capitalists will soon be delivering for real on the same clutch of promises that the G1 has merely advertised.

So I'm going to wait to see if the G1 really is this good, and I will also be waiting for the price of the G1, or of satisfactory rival facsimiles, to fall from the currently announced level of about £550. That's too rich for me. I'll also be waiting - although I don't think I'll have to wait long - to see if the G1, and the new market that it points towards, is the huge market that I think it will be, because only then will the lens-makers respond, in the way that they already have responded to the recent explosion of the DSLR market, which happened as it did because of already existing cameras that were merely SLR, without the D for digital bit. Not the least significant of the responses will be in the form of adapters, to make the small new G1 able to make use of the big old SLR lenses that lots have already invested in. Panasonic have already made such an adapter to allow the G1 to use their big old lenses.

You think that postings like this are frivolous, in these scary and portentous times? If so, I see what you mean, but I think you are wrong. Thank goodness that there are these frivolous things like little laptop computers and like small digital cameras, so frivolous that most politicians feel that it is beneath their dignity to take charge of them. That way we all get a chance to see how much better the world, all of it, would be, if the politicians could be persuaded to regard everything as too insignificant for them worry about. Think what a great world that would be, and think how rapidly it would, even now, be improving.

I must say that one of the few gratifying aspects of the current financial turmoil has been the way in which one of the UK's biggest banks, Barclays, has decided to spurn any offers of help from the UK government - ie, the UK taxpayer - and raise funds from mostly private investors. In its recent raising of about $12 billion of funds to improve its capital position, Barclays made it clear that it wanted to stick with funding via the commercial market because, if it had drawn on the UK state moneys that have been provided for the likes of Lloyds TSB and Royal Bank of Scotland, it would lose its freedom to set pay, among other things.

Now, free market purists may object that the Middle Eastern funds that have pumped cash into Barclays are not entirely private sector organisation and of course they have a point. But the fact is that as a taxpayer, I haven't been asked to write a checque to Barclays, in contrast to other UK banks. Barclays has also kept its affairs away from the hands of such characters as Alistair Darling, the UK finance minister. Those banks which have taken state aid face the risk that the confidentiality of their clients, especially in the wealth management area, could be compromised. Of course, even before 9/11, banks have been required to compromise on secrecy due to things like money laundering laws and the like. But there is no doubt that once a bank becomes an arm of the state, such erosions of client confidentiality that have already occurred will increase.

And the reaction of certain parts of the media has been interesting. On Friday evening, the BBC economics correspondent, Robert Peston, told us in that extraordinary voice of his how Barclays shareholders would be penalised by having to pay a higher amount to obtain funding than if they had, like good little corporatists, gone along to the UK Treasury. Peston, as a corporatist himself and creature of New Labour, cannot fathom why a bank wants to stay out of the public sector. Barclays' executive bonuses may be "obscene" as far as Peston is concerned, but at least Barclays avoided some of the worst excesses of the credit boom. It is, as a result, relatively strong as a bank. Barclays must be thankful that it lost a merger battle to buy ABN Amro last year. If its refusal to eat from the state table annoys BBC journalists - who of course are paid out of a tax - then the bank must have done something very right. One cannot exactly say that of a lot of banks these days.

During the recent LA/LI Conference, Sean Gabb, half of the two-man team that now runs the Libertarian Alliance (Tim Evans being the other half) sat himself down next to me and asked me to suggest good speakers for next year. My best two suggestions were two Michaels.

Michael Jennings will be well-known to regular readers here as an expert on technological trends and much else besides. He would be exactly the kind of second-tier speaker, and I mean this in no disrespectful way, who maybe isn't a superstar name who would cause dozens more attendees to sign up in the first place, but who would add greatly to the enjoyment and enlightenment of the event for all who did attend. Technology, I am sure you will agree, can be relied upon to keep on supplying interesting trends for someone like Michael to talk about.

And the other Michael I suggested was Michael O'Leary, the boss of Ryanair. Okay, definitely a first-tier speaker, but equally definitely a long shot. But what's the worst he can say? No, too busy running Britain's largest low fares airline, you can afford my air fares but not me but the best of luck anway being what he probably would say, if anything, if asked.

Ryanair press releases are actually fun to read (like some of Sean Gabb's, come to think of it). Here is a typically populist and opportunistic snippet from the latest one:

Ryanair, Britain's largest low fares airline, today (31st Oct) offered to rescue Jonathan Ross after he was 'Sent to Coventry' by the bigwigs at the BBC. Ryanair will help Ross jet off to much more exotic surrounds as it sent him free tickets to escape the media spotlight and sample how those who don’t earn £18million a year live.

Ryanair, called on the black sheep of the BBC, who will lose £1.5million over the next 12 weeks, to make his money go further by escaping the high cost of living in Mayfair and fly on one of Ryanair's over 350 UK routes where he can live cheaper, get a tan and gear himself up for his return to the beeb next year.

Does Coventry have an airport, I wonder?

O'Leary's open contempt for state monopolies of all kinds, but especially in the airline business (on the ground and in the air), is most pleasing. A growing trend in public opinion, especially since this latest wall-of-taxpayer-money bailout of dodgy banks, is the alignment of enthusiasm for free markets with populism, while statist solutions to problems are becoming regarded more and more as elitist manipulations, the rich helping themselves to public money on scale that the poor could never dream of. O'Leary feeds into that current, I think, especially in the way he bangs on about how much more you often have to pay the government, when you fly Ryanair, than you have to pay him.

Michael Jennings, constant globetrotter that he is, could doubtless tell libertarians about the impact of low fare airlines on the world, even if Michael O'Leary is otherwise engaged.

There's a rather comical culture clash now being played out in the West Indies, between new money and cricket:

Senior ECB officials, who almost bent over backwards to welcome Stanford and his millions at Lord's last summer, were also under fire with calls for them to stand down after failing to undertake adequate checks on Stanford. Rod Bransgrove, Hampshire's chairman, told the Daily Telegraph that the position of Giles Clarke, the ECB chairman, was in doubt. "I asked the ECB to do a lot more checking on Stanford and this competition. We made it very clear we that we should not enter into this agreement without proper checks but he [Clarke] had already done the deal. The board should resign collectively".

The ECB and Stanford agreed on an unprecedented US$100 million deal in the summer, spread over five years, but the inaugural competition this week in Antigua has attracted mounting criticism in England.

The flack really started to fly on Monday when Stanford was pictured with Matt Prior's wife on his knee and with his arms around two other girlfriends of members of the England team during a match the night before. It provoked a strong reaction from parts of the media, and in addition, one England player reportedly said: "If that was my wife he'd put on his lap I would have wanted to punch him".

Last night's planned cocktail party with the teams was cancelled at short notice, with officials rather unconvincingly claiming there were "logistical problems over a venue". One journalist was unconvinced. "As if Stanford would ever have trouble in securing a venue for anything in Antigua," he noted. "He owns most of them."

I recall boasting here a while ago that my grandfather was the captain of his local cricket team by virtue of the fact that he owned the pitch. This was in Dingestow, which is a small village in Monmouthshire. My cousin still lives there, in the biggest house there, which is called Dingestow Court. But that's old money. Old money pitch owners would make irrational bowling and field placing decisions, but they wouldn't mess with other cricketer's wives or 'girl friends', i.e. ladies whom other cricketers were courting.

All of this trouble in the West Indies now has arisen because of the rather sudden eruption of Twenty20 cricket. It turns out that, unlike so much of old school test cricket, people will pay large amounts of money to go and watch Twenty20, even between relatively moderate players. Suddenly cricket has become a very, very big, very twenty-first century business. And the cricket world is finding it tricky to adjust. It hit me the other day what a huge impact Twenty20 cricket is having when I half noticed (as you do when watching the telly) a TV advert for some kind of computerised or perhaps gambling-related version of soccer, which they were also calling "Twenty20". Cricket is now featured in the sports pages of the popular press in Britain in a way that it hasn't been for years, except during an Ashes series.

Here is some more Stanford grumbling. English cricket, says former England captain Mike Atherton, has become Stanford's WAG.

William Rees-Mogg has a nice, rather wistful account of the days of when bank managers actually knew their clients, knew their economic circumstances and were not in the business of lending money to folk with little or no credit history. Mr Rees-Mogg is a devotee of the gold standard. However, in talking about the changing nature of banks and the quality of their staff, he does not touch on an issue which struck me the other day: limited liability.

Under limited liability laws and with central bankers acting as lenders of last resort, there is an element of moral hazard. Some free marketeers like Sean Gabb - whom I mention below - think limited liability laws are a statist curse on the capitalist system, since they would not arise without active state adjustments of corporate law. I am not sure about whether limited liability would exist in a world of pure laissez faire. It might, I guess. Also, not everyone buys the idea that LL is a distortion of the market or would not exist without state action.

However, there are still some nooks and crannies of the banking world where unlimited liability still exists and works successfully. The Swiss private bank Pictet, founded in 1805 in that memorable Napoleonic battle year of Austerlitz and Trafalgar, operates a partnership system where the bank partners face unlimited liability. As a result, Pictet operates a very conservative lending and investment policy. During the fat years of the 'Noughties, Pictet may have seen some of its more aggressive competitors steal a march, but now the bank is attracting inflows from investors who appreciate the structure of the firm. At a time when Swiss banks have sometimes attracted bad headlines due to massive losses undertaken by over-confident people, the example of Pictet is an interesting contrast.

The IEA now has a blog, which is good. Good that it has one, and good in that it looks to be good.

Here are two characteristic quotes, from the two most recent posting at this blog. First, here is a recycled little something that John Meadowcroft contrived to get published by the Times yesterday, about Marx:

Sir - Marx's theory of the crises of capitalism is little more than a melodramatic description of the business cycle - standard fare in economic analysis. Every original contribution that Marx made to our understanding of capitalism is demonstrably false: the working class does not become increasingly immiserated; the class structure does not become increasingly polarised; no society has evolved from feudalism through capitalism to communism; the iron law of wages is fallacious; the State does not wither away when capitalism is abolished. Marx will continue to be neglected by serious scholars because he was wrong in every important respect.

And here is a the final paragraph of a summary of this publication:

Given the complex causes of the gender pay gap, it is clear that complete equality of pay is unlikely to be achieved without draconian measures that would restrict freedom of choice and damage the economic prospects of both men and women. Calls for new legislation on equal pay should therefore be resisted.

The IEA has always seemed to me to be the kind of organisation which should have a blog, but also as the kind of organisation which has been mindlessly prejudiced against having a blog on account of having nothing to say about kittens and sunsets and the personal dietary habits of its inmates, and on account of not liking the bark-at-the-moon style of current affairs commentary, as if that were all you were allowed to do, blogwise. This is like denouncing the whole idea of telephones merely because other people often chatter pointlessly to each other with them. Why should that bother you? Happily, the IEA has now overcome any such prejudices.

The Bailout Reader over on the Ludwig Von Mises Institute site is an essential reality based antidote to the crapulous ignorance on offer in the mainstream media on the current economic crisis. When it comes to economics at least, the Ludwig Von Mises Institute is hard to better.

If ever there was a 'Crisis of Regulatory Statism', look around you... this is it.

Read every word of it.

Spectator politics correspondent Fraser Nelson spots that Gordon "off balance sheet" Brown, as I will now continue to call this shit of a national leader, has devised an accounting wheeze to remove the tens of billions of public debt involved in the Northern Rock bailout from the public accounts. As a result, Brown can claim that the UK public finances are fine, nothing to look at here, please move along.

As Mr Nelson points out, Brown engages in practices that politicians are only too keen to condemn when applied by banks. But at least banks, if they try to remove certain default risks off their balance sheets, use forms of tradable insurance policies known as credit default swaps. I'd be interested to know how exactly Brown & Co. intend to hedge out the risk that Northern Rock does not return to any form of profit. This disconnect between the talk of prudence on the one hand and financial trickery on the other will, I hope, be the undoing of this overrated bullshitter from north of the border. Brown is damaging the age-old Scottish reputation for plain dealing. No wonder so many Scots want to cut loose from the UK. I don't blame them.

Now that banks are being forced back to their traditional model of being dull institutions, those chasers after excitement who have been shown the door might like to consider some career options. I rather like Matthew Lynn's list of suggested new ideas.

On a serious note, it is one thing to embrace risk-taking as a virtue of entrepreneurship, so long as the persons taking the risks carry responsibility for the bust. The problem with the investment banks, such as now-defunct Lehman Brothers and Bear Stearns, is that seldom happens. If the "Masters of the Universe" really do crave the high-wire, much better that they do so with money not given to them by the taxpayer.

On a separate but related point about state ownership of banks, one issue that has not yet been much discussed is that of political and business corruption. Under "public" ownership, what will count will be what Ayn Rand called "the politics of pull": the ability of governments to put their toadies onto bank boards to ensure that favoured groups get their loans and other benefits, while enriching those with the right connections. We saw that in countries like France, state-controlled banks such as Credit Lyonnais became engines of corruption on a huge scale. If ever there was an issue for enterprising journalists to go after, it is this one. They may probably do so once they have become bored describing Gordon "off balance sheet" Brown as some sort of economic superman.

The only other thing I would add is that I am in the advertising industry and most of the ads for sub-prime loans had dried up before the recent bail-out bill. As soon as that went through the volume for these ads went up 10 times. Whatever the government did to "fix" the problem ain't working because all they did was just give everyone who didn't make money the first time around another shot at the craps table.

- from a comment by "Ben Franklin" on this Belmont Club posting spotted by David Farrer

Poor naive George W. Bush! For all his shambolic presidency, his dreadful mistakes, and the horrors of aggressive imperialism, his last couple of months in office could end up being the most disastrous for the world.

Bloomberg reports:

The leaders of the U.S., France and the European Commission will ask other world leaders to join in a series of summits on the global financial crisis beginning in the U.S. soon after the Nov. 4 presidential election.

President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso said in a joint statement after meeting yesterday that they will continue pressing for coordination to address "the challenges facing the global economy.''

The initial summit will seek "agreement on principles of reform needed to avoid a repetition and assure global prosperity in the future,'' and later meetings "would be designed to implement agreement on specific steps to be taken to meet those principles,'' the statement said.

Just how bad this could be is already showing. The report continues:

Sarkozy and Barraso are pressing Bush for a G8 agenda that includes stiffer regulation and supervision for cross-border banks, a global "early warning'' system and an overhaul of the International Monetary Fund. Talks may also encompass tougher regulations on hedge funds, new rules for credit-rating companies, limits on executive pay and changing the treatment of tax havens such as the Cayman Islands and Monaco.

Just what has the continuation of the OECD nations' campaign to plunder smaller states and institute globally uniform (high) taxation got to do with the market crash? Nothing. Executive pay? Irrelevant, too, save in the politics of envy. Mainstream banks, not hedgies, were the ones that crashed after playing iffy games with CDOs, and governments helped pump-up house prices - with enthusiasm. Where this agenda comes in is as an opportunity to kick the resented "Anglo-Saxon" model of capitalism while it is down - even, and especially, in those places where it is not down yet. (Are we missing Commissioner Mandelson yet?)

Mr Bush has lost the thread entirely if he really thinks a transnational "reform" of the financial system can do other than damage "free markets, free enterprise and free trade". He may have a patchy record on liberty, and a bad record on limited government. His guests in November will have no interest in either. They will tempt him (have tempted him) with the mantle of world saviour, and will try to get him to bind his successors. We shall have to hope that his successor, either one of whom would be well to the economic right of the self-selected 'international community', depressingly enough, is more wily and far-sighted.

Meanwhile, where is there left to run?

...They would make Guido Fawkes an advisor on how to fight the next election. Of course Guido (aka Paul Staines), whom I know and like, prefers, as I and many other bloggers do, to give party politics a wide berth in professional terms. He is far more effective doing what he is doing now and obviously has a great time doing it. But as his example shows, the guy has more sense on how the Tories should go after the absurd notion of Gordon 'off-balance-sheet' Brown than any number of folk working in Tory HQ.

Think about it: the Tories should put up posters with the Brown comment on "no return to boom and bust" over, and over, and over. That this man, who has presided over deteriorating public finances during a relatively strong period of growth, sold our gold reserves at a fraction of their current value, raided pension funds and shafted taxpayers should be able to pose as some sort of economic Winston Churchill is a joke.

Jesse Walker at Reason magazine points out something very inconvenient for Naomi Klein, whom I discussed recently at this blog:

Let's just zero in on the contrast Klein draws between utopian theories and real-world practice. It's a fair argument if you apply it properly: that is, if you look at the consequences of Friedman's policy prescriptions where they are put in place. It makes sense, for example, to look at how Friedman's ideas about denationalization and free trade fared in Chile after they were put into effect. It doesn't make much sense to look at Blackwater's contracts in occupied Iraq, because -- try as Klein might to pretend otherwise -- they don't have anything to do with Friedman. (And of course, it's important to examine the ways Pinochet's Chile deviated from Friedman's economic ideas as well as the ways it embraced them.)

Exactly.

At the same time, you have to consider how Friedmanism fared everywhere some portion of it was applied, not just cherry-pick the most unappealing regimes that experimented with it. If the only place that adopted any of Friedman's economic ideas was Chile, then Klein might be onto something when she suggests there's a connection between libertarian economic policies and deeply un-libertarian ideas about torture, censorship, surveillance, and state-sanctioned murder. But the most sweeping free-market reforms of the last 40 years were not adopted in Pinochet's Chile, Thatcher's UK, or anyplace else addressed in Klein's book. They were enacted by the New Zealand Labour Party in the 1980s. Far from fusing economic liberalization with political repression, the Labour government expanded civil liberties: It adopted a bill of rights, decriminalized homosexuality, improved the treatment of the native Maori. And while Pinochet signed on to the CIA's war against the Latin American left, New Zealand strained its relations with Washington by making itself a nuclear-free zone, a policy that effectively barred the U.S. Navy from New Zealand ports. By Klein's logic, these are all effects of Friedmanomics.

One would not expect Ms Klein to respond to this other than with smears. It turns out that she more or less ignored the devastating review of her book by Johan Norberg at CATO recently, did not address his very serious accusations of widespread inaccuracy or misrepesentation. To repeat: it is not just her views that are a problem - I am sure some leftists argue in good faith - but her actual, repeated lying, fabrications and errors that are so easily corrected and yet she cannot be bothered to do so. That is one reason why I loathe so much of this sort of writer. It is a sort of contemptuous attitude towards simple fact-checking that I cannot abide. So Friedman did not support the Iraq war after all? Well, whatever, he might as well have done, seems to be her attitude.

The point that Jesse Walker makes about the varied effects of free market ideas is important. Yes, some repressive regimes around the world may have found it convenient, for whatever reason, to claim they had signed on to the package, as Chile did. But then remember that even former London mayor Ken "friend of Hugo Chavez" Livingstone once argued that he had borrowed the idea of road-charging from the great Chicago professor. In different times, very different types of political leader, such as Richard Nixon, claimed to be Keynesians, just as, right now, a lot of people are scurrying to claim to be in favour of tougher regulations (see Guy Herbert's comment immediately below this one).

Klein tries to draw an equivalence, in a muddied way, between those leftists who deny that Marx can be blamed for the horrors done in his name and those of us who point out it is absurd to try to blame free market thinkers from what is happening now. Well the reason, Ms Klein, why Friedman et al cannot be so blamed is that what is happening now is not an example of laissez faire capitalism. Re-read that slowly, Ms Klein: what is happening now is not a case of laissez faire. Just to spell it out for those who have not been following this debate: the central banks responsible for setting interest rates are state bodies; the US home loan agencies such as Freddie Mac that underwrote risky mortages are ultimately state bodies; the legislation forcing banks to lend to risky groups is state activity; the Basel and other bank capital rules that have arguably encouraged the irresponsible use of credit derivatives are state rules, and so on. With the exception of Lehman Brothers and some of the Icelandic banks, not a single large financial institution has been allowed to go bust, as a private company would in a free market. Not one.

Corporate industrialists are frequently not keen on free markets. They are fond of order, safety, and "fairness" or "a level playing-field" - which means everybody doing things the same way they do. They like a managed world, because management is what they do. So no good comes of appointing them as regulators. Technocracy joins with bureaucracy.

Here is Adair Turner interviewed by The Guardian (perhaps in itself a significant choice of forum):

There will be more people asking more questions and getting more information than we were getting before... . There is no doubt the touch will be heavier. We have to make sure it is intelligent and focused on where the risks really are.

Translation: "We have to destroy The City in order to save it." This is 'risk' as understood by a safety fanatic - one-sided, and totally unrelated to choice or to return.

We will have more people than before looking at the high-impact, systemically important firms with major knock-on effects than we did before. We will pay more than necessary to attract the correct quality of people from outside.

More than necessary? And who will pay for such artificial premiums? Whoever the FSA decides to tax or fine. It is a predatory organisation: a Self-Financing Regulatory Agency. So it wil have to find more occasions to punish and to license in order to fund more intervention, licensing and punishment.

There is no chance of a 1929-33 Depression. We know the lessons and we know how to stop it happening again.

A prime lesson of the Great Depression for most commentators has been that shutting down free trade in goods in order to protect industrial markets made the depression deeper and longer than anyone could have imagined. It stopped trade and industry recovering from the shock. That our Government is looking to blame foreign investors for our problems and is taking measures to frighten them off, and that Lord Adair is advocating, as the cure for a financial market crash, tight supervision of the surviving free markets in finance and commercial instruments, suggests the lessons have been rather badly understood. They risk stopping the financial markets recovering from the shock.

Thanks to the eagle-eyed Samizdata commentariat (Ian B), I read this article by Dominic Lawson, son of the former Chancellor of the Exchequer, Nigel Lawson. Lawson Jnr argues that the much-mocked notion of gold-backed currencies, which finally fell out of favour in the early 1970s during the Presidency of that economic ignoramus, Richard Nixon, is due for a comeback. He gives a rather quaint example of what is happening in Lewes, Sussex.

As an admirer of the writings of the Austrian economics school, I have a great deal of sympathy with this argument, although I do not think that gold per se needs to be the anchor of a currency. Given the vast gyrations in the price of gold in recent years, I do not see it as a very practical option for many, if not some, countries. What I do think, however, is that the idea that we can go on regarding money as a sort of metaphysical abstraction to be manipulated at will by Godlike central bankers needs serious reappraisal.

But remember that in times of massive stress - and inflation - gold, like silver and other relatively scarce substances of universally-recognised value, can win new friends. I will be keeping an eye out for stories of such "parallel currencies" in the next few weeks and months. If readers have examples, let me know. Surely this is an area for an enterprising economics PhD student to work on. Why not?

In the meantime, I see that Gordon Brown is now regarded as "statesmanlike" by spending gigantic sums of other folks' money. I'd be more impressed if he came out and urged a big reduction in UK public spending. He's also probably got some beachfront property in Arizona he wants to sell...........

The 'Paul Marks Plan' to save the world economy is inspired by President Bush and Tim Congdon. I can save the world economy on my own, all I need is the cooperation of the public authorities!

First interest rates must be reduced to a negative level (quite a moderate level, say -0.5% although I would settle for -0.1%) then I will borrow huge sums of money and use some of it to "buy cars" as President Bush has suggested. I will also "buy up every decent security in sight" every time the banks get into trouble - as Tim Congdon has pointed out must be done. But it is the "buy cars" suggestion that has really inspired me, and for a special reason. You see I can not drive - and so I would smash up the cars I bought in car crashes, thus meaning not only would I buy more cars, but the drivers of the cars I smashed into would buy more as well.

It would be a wonderful example of stimulating the economy via consumption. A point that the school of thought led by the late Lord Keynes and the school of thought led by the "monetarist" Tim Congdon are in full agreement upon. And whilst such Chicago School people as the late Milton Friedman might not be wildly happy with the direction of ever greater subsidies for the banks that Tim Congdon has taken "monetarism", the great Tim would be quick to point out that Milton Friedman would not be able to present clear economic principles showing any error in his conception of money and banking - so it must be okay then.

In case anyone think the above is, er, insane... I would point out that it is more moderate than what the British government has already announced, such as one third of the entire British economy (not the government budget - the entire economy) being pledged to back up the banks.

This goes beyond even what President Bush and Congress have done in the United States. Surely we are moving towards the glorious day, worked for so hard by Tim Congdon, when the entire economy (not just the government budget, but everything) is devoted to subsidising the financial services industry. Let us reject such reactionary nonsense as the principle that every Pound of lending must be from a Pound of real savings. And let us also reject the reactionary principle that if a business goes bust it goes bust - and that a bank is no more entitled to protection from "bankruptcy" than a coal mine is. And, most important of all, let us reject the rigid dogma that once money is lent out the lender does not have it any more - till when, and if, it is paid back.

With 'advanced banking methods', backed by government of course, one hundred Pounds of physical savings can be multiplied to vastly more than that in loans. One plus one need not equal two - it can equal any number clever people want it to. And with credit money expansion by the public authorities any problem can be overcome. Credit money expansion, under the control of wise and well paid 'experts' of course, can achieve anything and no petty thing like either logic or physical reality can stand in its way.

We can achieve a perpetual motion machine - accept that it will speed up.

Of course scientists might claim both that such a thing was 'impossible', and that even if it was not that it would destroy the universe. But so what? If we destroy the universe we can create other universes - by an act of will. After all the physical distance between Chicago and Cambridge already seems to have collapsed.

As President Bush and Tim Congdon have explained - prosperity will return, as long as we pump out enough credit money!

"In addition, one should not minimize the great economic achievements of the past 25 years in the form of rapid growth in world GDP, low world inflation, and low unemployment in most countries. Perhaps these achievements will be overshadowed by a deep world recession, but that remains to be seen. If the impact of this financial crisis on the real economy is not both very severe and very prolonged, and time will answer that question, the combination of the past 21/2 decades of remarkable achievement, and the economic turbulence that followed, may still look good when placed in full historical perspective."

- Gary Becker.

Like Professor Becker, I think fears of a repeat of a 1930s-style depression are unwarranted. What is a serious concern in my mind is the likely explosion of poorly thought-out regulation by politicians who seem to have forgotten how it was often such regulations, as well as lax monetary policy, that is at the crux of the current turmoil.

This, by Charles Spencer in the latest Spectator, made me smile:

"This is a time for making the most of small mercies. One of the greatest of these, as the financial system collapses around us, is the splendid joke that is Robert Peston of the BBC. His extraordinarily camp, over-emphatic delivery would be perfect for reporting glitzy Broadway first nights but seems hilariously at odds with worldwide economic catastrophe. Peston has all the glee of the callow cub reporter rejoicing in the size of his scoop while lacking the imagination to understand the anxiety his excitable tales of doom-and-gloom might be causing others."

I admire the scoop-getting skills of Mr Peston, if not always his analytical skills. Anyway, as Mr Spencer continues:

"Like poor Mr and Mrs Spencer of Claygate, Surrey, for instance, who somehow managed to commit themselves to £40,000 worth of home improvements (double glazing and a new kitchen) just before the current crisis went big time. As I do my lengths at the swimming pool, I sometimes experience a knot of fear forming in my guts. Mercifully, thinking of Peston, an egregious character both Jane Austen and P.G. Wodehouse would have been proud to have invented, makes me laugh and my panic disperses."

On a nicer note to Robert Peston, however, he has put economics at the top of the BBC news agenda in a way that would have been unthinkable a decade ago. Part of this is down to simple events, but part of it is due to Peston's skills in ferreting out the news, not to mention his status as a friendly journalist to NuLab. Whether this continues if the current bunch get kicked out of Westminster is a moot point.

Last night I attended a Libertarian Alliance talk/discussion evening at the Evans household, the talk being given by Antoine Clarke. Here is what Antoine said in an email about his talk beforehand. I learned several interesting things which smarter people than me doubtless already realised but which were new to me. The most interesting thing I learned, assuming Antoine was right about it, was that after the first mega-billion dollar bale-out package failed to be agreed by the politicians of the USA, the market immediately went up. But then, as soon as a revised bale-out package, containing more bribes, was agreed, the market went down. "We should do nothing" is a tough political sell, but the smart move, said Antoine. And McCain should have gone with what, according to Antoine, were apparently his instincts and torpedoed the whole damn bale-out operation, and thereby clung onto a chance of being the next President of the USA.

My take on this is that there is a crowding out effect going on here, big time. I trust we are all familiar with this idea. It says that big government plans of any kind not only do harm because the government plans fail and all the wealth it wastes on them is wasted, but, and arguably even worse, because people with better plans in the same line of business are frightened into inactivity. In this spirit, I recall the disgraced former Tory MP Neil Hamilton once saying at a meeting I attended long ago that the money that an earlier Labour government had spent on buying up and ruining the British motor industry would have done a great deal less harm if it had just been put into several thousand suitcases and chucked into the sea (I daresay this would have been good for inflation also). That way, saner motor car entrepreneurs could have gone to work making cars and car stuff in better ways than then prevailed, unimpeded by the fear of great walls of government "investment" screwing up their plans, bidding up the prices of all the people and all the things they wanted to hire and buy and put to good use.

Well, now, exactly the same thing seems to be happening in the banking industry. Were I one of the immensely rich and immensely sensible banking people who had (a) seen this crash coming and cashed out at roughly the right time, and who now (b) has plans to gobble up failed banks and reorganise them along more sensible lines, I would now, despite all my hopes of profitable new business, be sitting on my hands, waiting for all the government plans to do their immense damage before I went wading in and god chewed up too. Only when these government plans had become an obvious failure, and the politicians had just totally given up, would I be ready to move in and sort things out. Only when the politicians lapse into inactivity, which for a brief shining moment looked as if it might happen straight away, does economic optimism, among the people willing to back their optimism with money, reassert itself.

But, as I like to say from time to time when blogging, what do I know? I am no expert on the banking business, and as I say, I only realised this thing about the ups and downs of the world's stock exchanges when Antoine Clarke pointed it out to me last night. So, did Antoine get this story right? And have I explained this phenomenon, even part of it, even approximately right? Tomorrow afternoon, Antoine, I, and fellow Samizdatista Michael Jennings will be getting together to record a conversation about all this, so comments now would be especially welcome.

Economic historian Robert Higgs makes some interesting observations at the Liberty & Power group blog. I often disagree with some of its foreign policy views - it verges on outright pacifism - but its economics I like.

At least someone is enjoying themselves. The taxpayer has always paid his bills, except in his childhood, when God did. And now he gets to use unlimited power to seize whatever he likes and congratulate himself that he is punishing bad people for taking risks in the hope of making money for themselves.

pic hat-tip: Guido

This is a good, very fair-minded take on the current financial turmoil and all the more impressive for its insights precisely because the writer is not some sort of ultra-free market ideologue:

"The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks."

Absolutely. China, and the massive pool of savings that Asian economies have been able to provide to Western borrowers, is the 800 pound gorilla in the room in the current saga.

The author continues:

"That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan's Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous."

Yep, Mr Greenspan has a lot to explain.

"So the first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that. Moreover, the Fed's track record of cutting interest rates to clear up previous bubbles had created a seductive one-way bet. Financial engineers built huge mountains of debt partly because they expected to profit in good times -- and then be rescued by the Fed when they got into trouble."

"Of course, the financiers did create those piles of debt, and they certainly deserve some blame for today's crisis. But was the financiers' miscalculation caused by deregulation? Not really."

Try telling that to the likes of Will Hutton.

"So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis. Even before finance went haywire, the Doha trade negotiations had collapsed; wage stagnation for middle-class Americans had raised legitimate questions about whom the market system served; and the food-price spike had driven many emerging economies to give up on global agricultural markets as a source of food security. Coming on top of all these challenges, the financial turmoil is bound to intensify skepticism about markets. Framing the mess as the product of deregulation will make the backlash nastier."

Quite. In recent years, I have often heard fellow libertarians say something on the lines that "we've won the economic argument but lost the cultural one" sort of thing. I have never been entirely convinced about that. Yes, old-style central planning and crushingly high tax rates are unlikely to make a comback, but never underestimate the age-old hatred of financiers, of speculators and great wealth. Those of us who might imagine that the big battle of ideas fought after the war against socialism have been won may want to shake off some complacency. But maybe I am being gloomy. After all, much of the current round of government "rescues" are not quite of the same order as the nationalisations of the past. And in some cases, we might hope that eventually states will return banks they have nationalised into private hands.

As the French example of Credit Lyonnais shows - a corrupt bank if ever there was one - state-run banks are just as capable of making a mess of lending as any private one.

"Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people's money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from "Goldman Sachs" to "U.S. Treasury," and everything else continues as it was. It's just that it becomes a lot more difficult for ordinary people to opt out of using the elite's money management services."

- Arnold Kling. He is not exactly a fan of the US financial bailout.

William Rees-Mogg wonders, in his Times (of London) column today, whether Barack Obama has it in him to be the next FDR. I sincerely hope not. Let us consider the following data on unemployment rates during the 1930s:

1930: 8.7%
1931: 15.9%
1932: 23.6%
1933: 24.9%
1934: 21.7%
1935: 20.1.%
1936:16.9%
1937:14.3%
1938:19%
1939:17.2%
1940:14.6%

(Source: US Department of Commerce, Historical Statistics of the United States, as quoted by Thomas J. Lorenzo, in "How Capitalism Saved America, page 180-181),

With a set of figures like that, perhaps it is no wonder that hagiographers of FDR prefer to focus more on his record as a war leader these days. If Obama does share any of FDR's traits for sheer deviousness on the economic front, we have trouble on our hands.

It is amazing how certain myths persist. Back in the early 1980s, when I was doing my history A-levels, one of my teachers gave me the whole 'heroic' portrait of FDR. I suspect this is still the default position of most history textbooks today.

Peter Mandelson's re-appointment to Gordon Brown's cabinet is a potential disaster, and not just for Britain.

I have always liked Mandelson more than any other Labour politician. I ought to hate him, because his strategic genius gave us the New Labour revolution of the last decade. But his lucent unwillingness to pretend he is an imbecile, to conceal the fact of his cunning, or to act out