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I recently recorded a conversation with Toby Baxendale, who owns and runs a fish distribution empire, and who is the founder of the Cobden Centre. Listen to it by clicking here.

Our chat lasted about fifty minutes and a lot of interesting biographical and intellectual ground is covered. For the benefit of those for whom that is rather a long time to spend listening to talk, I have written at greater length about listening to and learning about this interesting and formidable man here.

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Via the Cobden Centre, a relatively new think tank that focuses on banking and money from the "Austrian" point of view, here is a nice article by James Tyler. He sets out how to avoid past problems and what to do about banking and money.

I still think that fractional reserve banking, so long as it is openly stated and so long as legal tender laws are scrapped, is not necessarily an evil. If a person deposits money in an FRB that advertises itself as such and if he takes out commercial insurance to cover a potential disaster, then in a free market based on consent, I am not sure that FRB should be made illegal. For sure, a bank that claimed to be a 100% reserve bank that was in fact, not fully covered, should be prosecuted for running a fraudulent business. But that is simply a case of obtaining money by deception, an offence covered in existing law.

As is so often the case, I think that some of our current woes could be ameliorated, if not solved, if we enforced the basic Common Law of this realm rather than endlessly creating new rules instead. But then I guess that would give politicians nothing much to do, would it?

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So how is Zimbabwe doing these days? According to this article, linked to yesterday by Patrick Crozier, things are actually improving. Patrick quotes this bit:

Price controls and foreign exchange regulations have been abandoned. Zimbabwe literally joined the real world at the stroke of a pen. Money now flows in and out of the country without restriction. Super market shelves, bare in January, are now bursting with products.

While reading this article, I could not shake the feeling that I was really reading a piece of libertarian science fiction. Could they really have done anything so very sensible, and could things really be improving so definitely? The piece does appear to be genuine, so far as I can tell, but if it turns out to be fantasy-fiction, this paragraph will get me off the credulity hook. File under maybe true but maybe too good to be true.

Meanwhile, if the piece really is true, the best bit of all in it is that there is now no "lender of last resort" in Zimbabwe. Could it be that libertarian economic policy - in particular libertarian banking policy - is about to get a serious test, which it will pass, and hence another serious showcase, highly pertinent given the world's current banking woes, to educate the world with? How will socialism and state-centralism get the credit for that I wonder?

If genuine, this piece reminds me of a vivid British recollection from way back. Someone on the telly asked a City commentator, just after Black Wednesday (the day in 1992 when John Major's economic policies collapsed in ruins), what the prospects were now for the British economy. Well, he said, now that the government has not got a policy, rather good.

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I find this horribly convincing:

Chang argues that inconsistencies in Chinese official statistics - like the surging numbers for car sales but flat statistics for gasoline consumption - indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.

Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.

This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.

The Pivot Capital report was extremely popular in Chanos’s office and concluded, "We believe the coming slowdown in China has the potential to be a similar watershed event for world markets as the reversal of the U.S. subprime and housing boom."

To me the moral of the last couple of decades of world economic history is clear. The world was indeed somewhat released from the dead hand of politics. In particular, the making of stuff was released into the wild. Consequently, during the last two decades, stuff has just got better and better.

But the world's financial systems remained under rigid political control, everywhere.

Stuff-making roared ahead. But then the financial systems started collapsing, and China looks like being next. Managed capitalism has indeed only been a very partial success, but which word in that phrase will get the blame?

I say that the stuff-makers, the truly honest capitalists of the last two decades, should not be blamed. They did, and continue to do, a fabulous job. On the contrary, the politician/financiers should, instead of trying to shift the blame and the burden onto them, be looking to the stuff-makers for lessons in how to make an honest living.

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The predicted insanity of "quantitative easing" (i.e. re-inflating the bubble) is laid bare:

Sharp increases in share prices have improved the outlook for pension funds in every major developed nation apart from the UK, according to research from the Organisation for Economic Co-operation and Development.

The news coincides with figures which reveal that the deficits in Britain's largest privately-sponsored defined benefit schemes have soared by £15bn to £77bn, wiping out almost all the gains achieved by market increases the previous month. [...] The deterioration is largely an unhappy consequence of quantitative easing (QE). Pension funds' deficits depend on two factors: the value of their assets, much of which are equities, but also the potential amounts they will have to pay out when people retire in the future. These future liabilities have been pushed higher as QE has depressed yields on gilts and other bonds

I would quite like to see the people responsible for one of the greatest rolling acts of theft in recent history hanging from lampposts. Bernie Madoff was a minor league player by comparison.

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So asks John McWhorter:

The main loss when a language dies is not cultural but aesthetic. The click sounds in certain African languages are magnificent to hear. In many Amazonian languages, when you say something you have to specify, with a suffix, where you got the information. The Ket language of Siberia is so awesomely irregular as to seem a work of art.

But let's remember that this aesthetic delight is mainly savored by the outside observer, often a professional savorer like myself. Professional linguists or anthropologists are part of a distinct human minority. Most people, in the West or anywhere else, find the fact that there are so many languages in the world no more interesting than I would find a list of all the makes of Toyota.  So our case for preserving the world's languages cannot be based on how fascinating their variegation appears to a few people in the world. The question is whether there is some urgent benefit to humanity from the fact that some people speak click languages, while others speak Ket or thousands of others, instead of everyone speaking in a universal tongue.

See also this article about Indians who write their novels in English rather than in one of the local Indian languages, partly because they just do, and partly in order to increase their potential readership around the world. The piece is by Chandrahas Choudhury, himself the author of a novel in English. He also blogs.

Both pieces were recently linked to by Arts & Letters Daily, to whom thanks.

I suppose a danger of everyone on earth speaking the same language, as was explained in The Hitchhiker's Guide to the Galaxy, is that we would all of us then understand each other's insults.

... the ... Babel fish, by effectively removing all barriers to communication between different races and cultures, has caused more and bloodier wars than anything else in the history of creation.

But this is to assume that hostility causes wars. I think it is at least as true to say that wars cause hostility.

Quite aside from the rights and wrongs of English conquering everyone and everything, there is the intriguing question of whether it in fact will so triumph, or whether any other potential universal language, like Spanish or Chinese, will triumph, in the nearish future. Perhaps English will triumph, but in the process it may itself fragment. If one language does triumph, it may well be English, but not necessarily English as I know it.

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“The Japanese government did absolutely everything the Austrian theory suggests it should not do in order to fight recession. It engaged in every single activity that Keynesians like Paul Krugman recommended. As a result, its slump went on for a decade and a half. Keynesians continue to recommend these very policies for the United States, as if the debacle in Japan never occurred. In late 2008 financial newspapers in the US actually began to speak of a revival of Keynesian thinking (claiming, absurdly enough, that the present crisis gave the ideas of Keynes, one of the twentieth century’s collection of inexplicably respected crackpots, a new lease of life) again with no mention of Japan.”

Thomas Woods, Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Page 84.

This book is full of great passages like this. I have already quoted a nice line from Mr Woods mocking the contention that the enormous expansion of government spending in WW2 helped “solve” the Great Depression. Incredibly, there were people who actually defended this absurd idea on our comment boards. It never fails to amaze me that people overlook a basic fact of economic life: we work to produce stuff that people want to consume. The kind of state domination of a country during war, with its rationing, government direction of labour, and of course, mass conscription, hardly sounds like the sort of policy that anyone interested in increased prosperity should favour.

There is one point where I disagree with Mr Woods. He says the veneration of Keynes is inexplicable. It is in fact pretty easy to understand: he had a sort of superficial plausibility, and of course his ideas were meat and drink to politicians looking for intellectual cover to expand their powers. Even so, I do kind of wonder if Keynes would be embarrassed by some of the people who claim his name as justification for their views.

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Yesterday I recorded a conversation with Paul Marks, a regular contributor here. My purpose was to enable all who are curious about who and what Paul Marks is to learn more. And the best way to learn more about Paul Marks is to listen to him talk not about himself (which we only did for about ten seconds) but about some of the things that he has been thinking about in recent years and in recent months.

In recent years, Paul has been brooding on the impending financial disaster which he saw coming. You know, the one that "nobody saw coming". Well, he did. How come? More recently he has been pondering the Marxist background and foreground of US President Barack Obama. What, Barack Obama as bad as Ho Chi Minh? Yes, he replied. He didn't just say it, he explained it and he justified it.

As I said at the end of the convsersation itself, and as I repeated in the posting I did about the conversation on my personal blog soon after it had been recorded, I think it went well. Since then, I have listened to it right through again, and I remain very content with it. If, on the basis of this plug, you feel inclined to have a listen yourself, this will occupy somewhat under half and hour of your time. Enjoy.

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Following on from this post about how technology can boost some businesses but later turn them over, I thought about a specific type of business that I use, as a result of one of the comments. Namely, the optician. I am one of those folk who wear glasses pretty much all day and I do not like bothering with contact lenses or laser eye surgery. I have a slight stigmatism in my right eye and contact lenses for such a thing are very pricey. Since I was a young boy I have worn specs, and after the usual phase of being teased as a "four-eyes", I got over that, and decided, "To hell with it, I am going to go for the intelligent preppy guy look instead". (It worked on the ladies, I find. Come to that, I find some women in glasses incredibly attractive).

But will modern technology and things like the internet put some opticians out of business? Possibly. If you know your prescription and the type of lenses you need, then I suppose that if you see a frame that suits, you can submit the order, and assuming the postal system is working, get the specs in a few days. In my case, though, I actually like to browse through a number of different frames and try them on first. There does not seem to be a substitute for doing it in the flesh, so to speak. It is the same, surely, for buying some kind of clothes, even off-the-peg ones where you know your size. Sometimes there is just no getting around the need to go to a store, go to the changing room and try stuff on.

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Patrick Crozier recently did a podcast interview with our own Michael Jennings, on the subject of businesses that are now failing, which I heartily recommend. Michael zeroed in, in particular, on bookshops, spectacles, newspapers and – very topically for today (although the conversation itself took place a short while ago) – postal services.

A particular point which Michael emphasised was how the same technology can start out by helping a particular business, but then turn round and smack it in the vital organs.

The dead tree press, for instance, thanks to the lead given by men like Rupert Murdoch, at first thrived on computer technology. Now look at it.

Computer technology also started out by making postal communication a better deal rather than a worse one. Junk mail, without the e- at the front, was, after all, an early bastard child of computers. And postal services the world over, like most businesses, have enthusiastically applied computer technology to their various activities, making old-school physical communication that much quicker and cheaper and thus more attractive to users than it would otherwise have been. But again, now look at the predicament of post offices, and in particular, today of all days, our own Royal Mail. Note how easily the Royal Mail itself is managing to communicate with us all, despite not being able to send out any letters.

I found particularly interesting what Michael said about the book-selling trade. Once again, the same pattern repeats itself. Early computer technology helps the old-school businesses, in this case the big book-selling chain stores like Borders, by making them more organised. But the big Borders expansion has now gone into reverse, with, for instance, the Oxford Street, London, manifestation of it having just now closed.

Book selling works well on the internet because books are a standard product that you don't necessarily need to smell, fondle, weigh in your hand, and so on, like you might want to do with something like a camera or a laptop computer. But a product doesn't have to be generic and standardised to work well as an internet purchase. It just has to be easy to describe with complete accuracy. Most pairs of spectacles are a bespoke product. You just have to know exactly what you want. But this is doable. So high street opticians are a good candidate for execution any year now. I am sure that the Samizdata commentariat will be able to suggest more candidates for imminent death.

Patrick and Michael ended their conversation by agreeing that they didn't think that the bad economic conditions we've been having lately are going to go away any time soon, which means, as Michael pointed out, that people are not going to stop being highly price-conscious, which is one of the big drivers of computerisation and internet-isation, and failure for all the businesses that can't adapt to these processes.

I'll end this by recycling an interesting comment that Michael has just added to Patrick's posting:

As Patrick said, we recorded this over Skype. I was in my home in South-East London talking into my laptop and Patrick was in his home in South-West London conversing with me and replying. This may be another example of what we were talking about. In the late 1990s the traditional former telco monopolies had a huge boom, due to their being seen as the companies that would provide this bold internet future. Now, where are they? BT is now a company that one barely notices, although they do admittedly own the copper that our conversation was going through between my flat and the exchange (although not the equipment in the exchange). Mobile carriers themselves are probably next in this regard.

Like I say, recommended.

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"There is no real evidence that any fewer UK banks would have gone bust had this separation been in place. It was not proprietary trading that brought down HBOS, it was bad lending to commercial property. Northern Rock, Bradford and Bingley and the Dunfermline did not own investment banks. RBS was brought to its knees as a result of a multitude of bad lending decisions, the over-priced takeover of ABN Amro and vast holdings of dodgy “assets”; its collapse was not caused by a giant investment banking bet gone wrong. In the US, it is likely that Citigroup would have required a bailout even had it not owned an investment bank. Generally, the same is true of all of virtually all the recipients of Tarp funds."

- Allister Heath, arguing against the idea, floated the other day by the Bank of England governor, that governments should force banks to split off their supposedly high-risk investment banking arms.

Of course, with the "too big to fail" doctrine now more or less entrenched, the danger is that politicians will feel - with some justification, arguably - that they do not want taxpayers to be held to ransom by the threat of having to bail out huge firms, so the "solution" is to prevent banks being so big in the first place. My own preference is that all state-backed deposit protection should be abolished, so that any bank operating on a fractional reserve basis would have to take its chances in a free market, with the only deposit protection coming from private insurance. But in the current policymaking environment, that does not appear very likely or politically palatable. But sooner or later, the idea of taxpayers' underwriting the losses of FRB banks has to be confronted.

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Nichola Pease, a top City executive, caused a stir last week when she said that state-enforced maternity leave "rights" for women - and for that matter, paternity leave - was a cost that had a bad consequence. If you tell a company that it must pay a woman her full salary for a year while she is not working and raising her child, say, then, other things being equal, fewer women will be employed in the first place, however hard one tries to enforce so-called equal opportunity hiring practices.

This is a simple fact. If you raise the cost to a company of employing a person or increase the risk that employing a woman will be more expensive than employing a man, say, then fewer women will be employed. It is a fact as undeniable as a the laws of gravity. Unfortunately, one of the driving characteristics of many politicians down the ages is a petulant hatred of such facts, and a desire that 2+2 could equal five rather than four. Consider this reaction to Ms Pease's comments by a Labour MP. It is not so much an argument as a tantrum:

"I am absolutely horrified to hear such an old-fashioned view expressed by someone who should know better."

In other words, a City executive has said something that this MP considers to be unsayable. There is no argument given, no attempt to explain how driving up costs will not have an adverse result. End of discussion.

What needs to be pointed out is that every time the government creates some new "right" to such things, such as paid long holidays, long periods of paid leave for child-rearing, or whatever, there is a cost of some kind, that is borne by someone, often those more vulnerable than the group intended for the original benefit. The honest answer is for such MPs to openly admit as much rather than to pretend otherwise. For example, it would be refreshing if defenders of minimum wage laws could state that they prefer a bit more unemployment to the sight of people working on very low wages. Of course the argument is still bad and involves coercively arranging affairs to benefit some groups at the expense of others, but it would at least be preferable to what we usually get.

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“If spending on munitions really makes a country wealthy, the United States and Japan should do the following: Each should seek to build the most spectacular naval fleet in history, an enormous armada of gigantic, powerful, technologically advanced ships. The two fleets should then meet in the Pacific. Naturally, since they would want to avoid loss of life that accompanies war, all naval personnel would be evacuated from the ships. At that point the US and Japan would sink each other’s fleets. Then they would celebrate how much richer they had made themselves by devoting labor, steel, and countless other inputs to the production of things that would wind up at the bottom of the ocean.”

- Thomas E. Woods Jnr, in Meltdown: A free market look at why the stock market collapsed, the economy tanked, and government bailouts will make things worse. (Page 105).

This is a marvellous, succinct and pretty devastating indictment of bailouts and an excellent little primer on the Austrian school’s analysis of the business cycle and the role of money. I thought I knew quite a lot about the subject but this book explains the idea of money, as a claim on resources, and the importance of understanding the balance of supply and demand for savings, quite beautifully. The book also highlights how the sharp recession of 1920-21 ended with no bailouts and is an episode that seems to baffle Keynesians.

Rather amusingly, this has been a New York Times best seller, much to the chagrin, no doubt, of NYT columnist Paul Krugman. Krugman, needless to say, believes that the sort of massive government spending seen during WW2 helped end depression. To think that he actually won a Nobel. Oh, wait a minute...

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More good sense on the current economic difficulties.

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At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.

- Ludwig Von Mises as quoted by Toby Baxendale

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Here is a nice little video, via the blog of Tom G. Palmer, singing the praises of free trade, ahead of the upcoming G-20 meeting in the US. Incidentally, the recent decision by The Community Organiser to slap tariffs on Chinese tyre imports - focusing particularly on China - looks to be especially dumb. Given that the Asian giant holds rather a lot of US debt, and has the ability to switch dollars for euros on a vast scale, making such a move seems almost reckless. About as clever as moving to switch off anti-missile defence over Poland on the 70th anniversary of Hitler's invasion of Poland. In the latter case, the decision may have been right on specific military grounds, but the timing was dumb. Was not part of the appeal of the chap from Chicago that he did not make such errors?

We were promised that Mr Obama would be all smooth and charming to other countries, unlike the terribly vulgar Mr Bush with his Texan drawl (sarcasm alert). But I am not really sure that Mr Obama is not as capable of making an even more dangerous mistake: he pisses off really important, or potentially important, allies and large economies in a position to act. Annoying the French, as Mr Bush wonderfully did, is hardly a mistake, but hitting China with a very public act of protectionism, most decidedly is.

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There is a nice article in the Daily Telegraph today talking of how humans, be they religious, pagan or unbeliever alike have celebrated the festival of the harvest, in this time of Keats' "season of mists and mellow fruitfulness". And as we remember the other day after the death of "Green Revolution" scientist Norman Borlaug, the harvest has been something that we not only take for granted these days, but have even reached the point where, in recent years, our political leaders have thought fit to actually pay farmers not to grow stuff. The idea of set-aside subsidies was, if I recall rightly, one of those many terrible ideas of Roosevelt in the Great Depression.

Some idea of how far we have travelled comes up in this nugget of information from David Carpenter's account of early Medieval Britain, The Struggle for Mastery. On page 36, we come across this:

"On the estates of the Bishop of Winchester yields of wheat remained around eight to twelve bushels per acre (a bushel is 36 litres), where on modern farms they are in the seventies."

Such a massive increase has a lot to do with why, despite the population increase since the 12th Century, Britain had a sufficient surplus of food production to embark on an Industrial Revolution several centuries later. For in the time of William the Conqueror and for some time thereafter, mass famine was a grim reality of life.

So I will be celebrating the harvest this year and salute the scientists, farmers and yes, the commodities speculators of Chicago and elsewhere for making our daily bread as plentiful as it is. Here's to them. Now, shall I go for wheat beer or the barley variety later this evening?

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From time to time, the Guardian, to its credit, likes to shake up its leftist readership with a dose of sanity. Here is a fine example.

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The other day, I criticised a short programme slot about how the Chicago school of economics - to use that rather loose term - might have to carry some responsibility for the credit crisis. The programme was put together by the Channel 4 news programme. Anyway, someone at the show noticed my comments, and the journalist who put the programme together, Faisal Islam, was kind enough to comment at some length in an email to our editors. Here goes:

"Hello Johnathan,"

"I saw your comments on the piece on economics that aired on C4 News last month. I thank you for your understanding of the limitations of television. Even C4 News would be hard-pushed to do a piece on the history of economic thought. It was really meant to be the entree for a main course of red-blooded economic debate, but that didn't quite come off. Anyway, clearly I would dispute the notion that it was 'propaganda'. I think it's a bit harsh when the main protagonist is a chicago professor who does a fairly good job of defending his position, yet also recognises that they did get some things wrong."

"Likewise we ran almost unchallenged a piece featuring Jim Rogers' Austrian-ish critique of Obama/ Brown's global stimuli. so I'd like to think we are more eclectic than you seem to indicate."

"Anyway, you'll be interested to see the rest of the Robert Lucas interview. I put it on the blog as a balance to the Paul Krugman NY Times magazine article. It's all here, I'm sure it might stimulate some debate on your excellent blog."

Here is Faisal's link.

Good for Channel 4 for its reponse to what was a fairly grumpy posting by me. I guess I should have mentioned its Jim Rogers interview. I actually did link to it a while ago on this site. Jim Rogers is great value.

Anyway, I think my original point still stands, although in the light of the reaction, I will be a bit easier on Mr Islam from now on. It is gratifying that we got a response, and that Mr Islam even understood the significance of why we are writing about this topic and get annoyed if schools of economic thought are presented in a seemingly unfair way. If parts of the MSM pick up on the idea that the credit crisis cannot be blamed on "greedy bankers" and derivatives - although these instruments can be aggravating factors - but has origins in erroneous ideas of printing money, "too big to fail" bailouts and the rest, then we might be making progress. By continuing to slog away at it, we can influence ideas that are held in the media/academy and even public affairs more broadly. And influencing a guy who presents economic and business news for a major UK news channel is a pretty big deal.

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US-based academic Stephen Hicks, whose excellent website I occasionally check in on, is taking part in a conference in Las Vegas on 11-13, April, next year. And he is raising the issue of what are the ethical issues stemming from the turmoil. As he rightly notes, a lot has been said and written about the economic, political, even legal sides of the drama. But the ethics? Not so much. If you want to mix a bit of food for the brain with a few sessions at the blackjack tables and the odd show, this might be a fun few days.

It is certainly like to be more intellectually and sensually stimulating than watching the latest offerings of Michael Moore or the Hugo Chavez fan, Oliver Stone. Update: talking of which, how interesting it is that Mr Stone should champion a regime that exercises media censorship.

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A commentariat has pointed out a very interesting Reason article on Ben Bernanke.

In the words of Ron Paul:

Paul, a libertarian like Schwartz and Friedman, worries that the Federal Reserve is bringing the pair's monetarist model into reality. In a phone interview, he noted, "In essence, Bernanke is following Friedman's advice. He's a Friedmanite when it comes to massively inflating. Bernanke was able to justify [his policies] by using Friedman."

Asked if Friedman's enthusiasm for inflation flouts libertarianism, Paul answered: "Absolutely. The monetarists said that you could overcome a natural market correction of a collapsing system by inflation—print money faster! Which contradicts Friedman's whole thesis. He wanted a steady, managed increase in the supply of money of about 3 percent." Here Paul is alluding to Money Mischief, Friedman's 1991 book in which he called on the Federal Reserve to grow the money supply at 3 percent annually, presumably forever. "Yet, at the same time, Friedman said the Depression could've been prevented by massively inflating."

Paul has kind words for Friedman, whom he praises as a staunch defender of economic liberty, but his final summation is damning: "Friedman's very, very libertarian—except on monetary issues."

I will be very interested to hear others impressions of this thesis.

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The US Securities & Exchange Commission, which regulates US-based financial institutions, has been blasted by a report for failing to act to stop the massive Ponzi scheme fraud of Bernard Madoff, who has been jailed after admitting his crimes. The SEC, like Britain's own Financial Services Authority, has not exactly covered itself with glory during the financial crisis.

A point worth making - since I doubt it will occur to much of the MSM to make it - is that this episode will hardly deflect policymakers from the idea of loading even heavier regulations on financial services. Our own Financial Services Authority, in the form of its chairman, Lord Adair Turner, recently reminded people of how bureacratic mindsets work by calling for a tax on financial services which he says have become "too big". Politicians and commentators routinely describe the crisis as somehow proving that "unregulated capitalism" has failed. And yet the SEC failure over Madoff proves a very different point: you can have all the regulations in the world, but if you don't enforce them, and financial watchdogs are run by people lacking a bit of common sense, then the regulations will be useless.

As I keep reminding people, the credit crisis and the subsequent fallout occured, primarily, right under the noses of the world's most powerful regulators and central banks, and not some obscure Caribbean tax haven or Alpine principality. And yet the impression given is that we have lived through a sort of re-run of a Wild West movie. The truth is very different.

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A few evenings ago I came across this graph. Some of you may also have seen it recently as it seems to be one of those things which is making the rounds:

The Fed and inflation.
TCSDaily

It shows inflation as we know it pretty much begins with the creation of the Fed. The buying power of a dollar slowly appreciated between the founding of the US and the start of the Fed; over the next century that value has plummeted. As we are wont to say here at Samizdata: "The State is not your friend."

You can read more about it here.

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The idea of the Enemy Class, to coin Sean Gabb's term, gains credibility by the hour. A distinguished member of this class is Lord (but of course!) Adair Turner, now chairman of the Financial Services Authority, the regulator of UK financial affairs. The FSA was set up by the current Labour administration in 1997, and among its many achievements is to have largely failed to warn of the catastrophic expansion of credit - driven by central banks - which created an asset bubble in the UK. It failed to warn sufficiently about the high-risk lending policies of mortgage lender Northern Rock. Undaunted, the FSA churns out reams of consultations and reviews on how to make financial services more efficient and professional. It would require the patience of a saint to point out that the best way to promote competitive, high-quality financial services is for regulators and other agents of the State to get out of the bloody way and ensure that firms have to build a solid reputation and for consumers to exercise the virtue of caveat emptor.

But the latest foray of the FSA into the issues surrounding the credit crunch may be its lowest point yet. Lord Turner argues that the UK banking sector is too large, so large in fact, that it is harmful to society. He does not, in the widely cited Prospect magazine interview, elucidate what he means by "too large", or whether it is possible for a civil servant, economist or other such person to figure out the optimum size of a specific sector. When Hayek talked of the "fatal conceit" of socialists imagining they can micro-manage the balance of human activities, this is the sort of hubristic thinking the great man was talking about.

I fear Lord Turner is also missing a crucial point, or just ignoring it. The point is that in a globalized economy such as we now have, financial centres such as London, Singapore, Zurich and New York are almost akin to nations in their own right; they dwarf the economies of their host nations because specialisation in finance has moved to a global arena. They rather resemble the old north European Hanseatic League of the Middle Ages. Take a different sector, such as telecoms. Finnish mobile phone firm Nokia is so large, as a percentage of Finnish GDP that a Finnish equivalent of Lord Turner would no doubt argue that the company should be punitively taxed, so that it shrinks and gives the reindeer industry in Lapland a greater share of GDP, or help those vodka retailers do so, or whatever. It is easy to laugh at such bizarre logic, but remember this: these guys have got where they are not by baldly stating their views in quite such terms, but by insinuating them through such question-begging terms as "excessively large", or by referring to a sector of an economy as "swollen".

Now it is true that as long as big banks can exert a sort of moral blackmail over taxpayers by stating that they are "too big to fail", and as long as we benighted taxpayers are told we have to bail these guys out, then Lord Turner's odd logic will gain a kind of ready audience. But he is looking at the problem the wrong way round: instead of making banking smaller and less profitable and simply driving it abroad, the better approach is to remove state-mandated deposit protection; to remove arbitrary and often counter-productive capital requirements and above all, to focus on the prime culprit in this business: the central bank as printer of funny money. But to do that will require the sort of analysis that does not give the FSA, or other bodies, the powers to tax and regulate. The FSA, like all regulators, is forever looking to increase its powers; it is hardly likely to consider the problem in such a way as to make itself redundant.

Perhaps we'll soon be hearing that the casino sector is "excessive" in Las Vegas, gold mining is a "swollen" part of the South African economy, and there is too much reliance on fishing in Norway. And as for those Arabs, they spend far too much of their time drilling for oil. Cannot those chappies do something less fwightfully vulgar?

Lord Turner, by the way, is a former director general of the Confederation of British Industry, a lobby group for big business; he has had a consultancy role for Merrill Lynch and has wiritten a long and quasi-statist paper on UK pensions reform. He's Enemy Class to the core. That he is, as I can attest, a thoroughly likeable guy does not alter that fact. It makes him actually quite dangerous.

Update: Tim Worstall points out how opposed to the notion of economic liberty this man actually is. When someone says that "an activity is socially useless", what he or she really means is that "I don't understand the use for it so it should be banned".

(14)

The journalists who produce the UK's Channel 4 news programme produced a rather sly piece of leftist propoganda last night (Quelle surprise? Ed). Faisal Islam - whom I have met - had a brief slot on last night's daily broadcast suggesting that the Chicago school of economics, most famously associated with the likes of Milton Friedman, is somehow partly to blame for the credit crunch. Yes, you read that right.

Mr Islam went on about the "complex models" that were used by these economists and somehow sought to draw a link between the Chicago School, and the decisions taken by banks, both central and private. That seems a bit rum. I don't recall Dr Friedman or his associates granting a sort of blanket blessing to financial engineering techniques of the kind associated with recent turmoil, suchas using derivatives to put bank liabilities off the balance sheet. That school has also hardly been in favour of encouraging sub-prime lending by legislation. After all, quite a lot of economists with conventional "soft Keyensian" views pretty much signed up to how banking has operated in the last few decades, and of course signed up to the idea that former Fed Chairman Alan Greenspan, and his successor, Ben Bernanke, did a spiffing job.

There was no apparent attempt - admittedly quite difficult in a short TV spot - to explain what the key arguments of the Chicago school of economics actually are. Nor was there any attempt to point out that this "school" is only one of the centres of free market economics. The Austrian viewpoint, which tends to eschew statistical formulae completely, went unmentioned. And yet it is the latter approach, as exemplified by the likes of Thomas Woods, that has been most active in pointing out the sheer folly of central bank activity in the past decade or so. And this central bank activity is what has been the prime culprit, a fact that Mr Islam's documentary left unmentioned.

The programme also failed to ask any questions of the Keynesian tradition, with its love of big, artificial aggregates such as "consumer demand" etc. If one is going to point to the hubris of statistical models of economic behaviour, then the Keynesian macroeconomic tradition is surely as much in the firing line as the Chicago one.

As propoganda, it was very effective on anyone who might not understand the issues. It might have been put together by that performance artist, Naomi Klein.

Maybe the problem is that these issues are often highly complex and difficult to portray intelligently in a 5-minute news slot. Well indeed.

(10)

David Gordon, a US writer, has a good review of a book called, unambiguously, The Case for Big Government by Jeff Madrick.

I liked Gordon's final paragraph, which is worth waiting for. Assuming his review is fairly based, it is amazing how lame, or downright thin, are the arguments for big government. It is a sort of backhanded compliment to the efforts of free marketeers that collectivists should still feel the need to write such works defending their views at all. Whenever we get grumpy and depressed about the way the world is going, it is good to remember that the other side cares enough about our views to want to try and deal with them, however shabbily.

Update: thanks to a reader for spotting my error in the name of the reviewer. My bad. Now fixed.

(26)

Jeffrey Rogers Hummel lays out a pretty solid case for saying that the US government will let down international borrowers, and fairly soon. This is not a new or original argument, but he does so with great aplomb. Definitely worth a read.

(9)

Arnold Kling has been debating - in a friendly way - with fellow US blogger Will Wilkinson on the relative power of exit, the ability to take oneself and one's business away from place A to B, for example, with "voice", such as voting. There is a good Wikipedia item on the forces of "voice" and "exit". Arnold is definitely an "exit" man and is in favour of things like creating new nations and the power to secede and emigrate. I need to think a bit more about the exchange between Will and Arnold before commenting at great length, but my two cents on this issue amounts to observing how the right of an individual to take his or her money out of reach of a country's tax net to a less oppressive place has come under a harsh spotlight because of the recent case of Swiss bank UBS.

As I keep saying, the current crackdown on certain so-called tax havens shows that some political leaders understand the power of "exit" only too well; they know that if folk can emigrate, take their money and affairs abroad, then that puts a monkey wrench into the wheels of Big Government. And so there is no wonder that such Transnational Progressive organisations as the OECD and the rest are kicking up a stink about the supposed evils of tax evasion, and putting huge pressure on such countries as Switzerland. It is, in my view, rather important that escape routes remain plentiful, and multiply.

Yes, that's three posts from me in a day. My holiday break in France seems to have done the trick.

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UBS has been closing the secret accounts of its American clients, forcing them into the cold, tax lawyers say. Many Americans with undeclared accounts have sought leniency by making voluntary disclosures to the IRS. Meanwhile, UBS has reported large outflows of deposits, which go beyond its American clientele.

Union Bank of Switzerland is haemorrhaging clients, not just American ones who have unwisely not stuffed their US passports in a shredder, but others too who no longer trust the bank with their privacy.

Frankly UBS was insane to do business in the USA in the first place, given the mafia-like behaviour of the American tax authorities, and the way I see it, this is just a very bad business decision being punished by clients voting with their feet money in favour of more discrete and less bombastic banks that cater to people with the quaint notion that their own money belongs to them and not the IRS... or any other rapacious state.

And any US nationals throwing themselves on the mercy of the thuggish IRS seriously need their heads examined. At the first sign of trouble, and this has been brewing a long time, they should have sold up and got the hell out of the USA for good. The weather in Costa Rica is really very nice, guys, trust me, and your money buys a whole lot more down here.

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As I read a recent issue of New Scientist this morning, I very nearly skipped over an article titled "Falling Out of Love With Market Myths" with a photo on the fold of Ronald Reagan walking with Margaret Thatcher. The title and presentation leads one to expect the sort of thing one would expect from British academic types, and ditto, check... the article was written by an Oxford educated academic named Terence Kealey, now a Vice-Chancellor at the University of Buckingham.

I plowed on any way and was rewarded by a very surprising statement:

In fact, the evidence shows otherwise. In 2003, the Organisation for Economic Co-operation and Development published The Sources of Economic Growth in OECD Countries, reporting on a comprehensive regression analysis of the factors that might explain the different growth rates of the world's 21 leading economies between 1971 and 1998. This indicated that only privately funded R&D led to economic growth, and that publicly funded R&D did not. Worse, the public funding of R&D crowded out private funding, and thus slowed economic growth.

Surprising, that is, in the sense of being a key element of an article in New Scientist by a member of academia. It is a very interesting article and well worth reading.

(13)

Brian Doherty has an article slamming the record and conduct of Federal Reserve chairman Ben Bernanke. It will not be news to the likes of us hard-money advocates, but still, well worth your time.

I like Doherty's recent book on the American libertarian movement, by the way.

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The next time Gordon Brown, or his counterparts mock free marketeer "Austrians" such as myself for our opposition to Keynesian monetary expansionism and huge state debt, perhaps they could explain why, after all the vast spending that there has been, we get figures such as this. Just asking.

For those unaware, Mr Kaletsky is an economics writer and supposed investment guru who fully supports the Keynesian view. I assume most readers have heard of Mr Krugman.

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The decision by the UK government a few months ago to use anti-terrorism powers over the case of Icelandic banks in trouble has caused deep resentment in Iceland. As this article suggests, such a tactic is hardly a way for Britain - now in deep debt - to make friends with foreign investors. Of course, Mr Brown may have made the calculation that he will be out of power in a few months so why care? But even so, the use of such powers represented a new low for UK diplomatic relations. It also proves the age-old truth that if governments acquire new powers, they will use them in ways far beyond their original scope.

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"Groupthink was a major factor in the buildup of risk in the financial system in the decade preceding the recent crisis. Top bank executives and regulators ignored dissenting voices from both ends of the political spectrum which were questioning the excesses that were building up in the system. What was once a comfortable consensus about the strength of our regulatory structure has now been replaced by an equally comfortable and equally flawed consensus about how to fix it."

Arnold Kling, libertarian-leaning economist, giving a long report on the problems with how the US administration has sought to deal with the crisis, and why he thinks those moves will make future problems more, not less likely. My fear is that for now, such warnings will continue to go unheeded not just in the US administration of The Community Organiser, but in the UK and parts of Europe, as well.

(4)

Apparently it is news that the UK is still in recession, or as the headline says Economic recovery in UK 'on hold'.

On hold? The government is debasing people's saving as quickly as possible and stripping money out of productive sectors and pumping it into unproductive sectors, and generally trying their damnedest to drive businesses and wealth creators out for years now... and the fact this is tearing a huge hole is surprising to who exactly?

(16)

Which is why you can't trust nature. Anatole Kaletsky is worried about stagflation. Can this be the same Anatole Kaletsky who only six month ago called for government to "punish savers"?

As I wrote at that time,

[Unsubbed original:] The purpose of banks used to be to make a profit by using the deposits in their care productively at second-hand. That is why they pay interest: to bring in funds to be lent. If they don't do either then they are no longer banks but state-sponsored rentiers.

Far from encouraging productive capital, Mr Kaletsky's prescription would have us reverting to a pre-capitalist economy where those with savings dare not recycle them. Their personal cash will end up converted to valuables, hoarded, and hidden to keep them safe from predatory tax farmers. Printing money is also a well-tested means of encouraging the same sort of behaviour.

For a recovery we need capitalism and the market to do their work. However painful, that is better than reversion to the Dark Ages because governments and their advisors want to be seen to be doing *something*. Doing nothing may be the best alternative.

Mr Kaletsky has got what he asked for and now finds he does not want it. Human, all too human.

(6)

I had to read the headline twice. Then I read the article twice. I still don't get it.

What I first thought it said was,

International development minister urges firms to pool HIV patients

Weird, obscure line, but no weirder than a lot of things that come out of the international development department, and potentially a lot more sensible. I suppose it might make sense for the big southern African companies, especially, to combine their employee health programmes. But if it were more effective, wouldn't they already be doing it? Wouldn't the South African government, in any case (now they have got rid of that barking health minister), be the one doing the urging?

What it actually said was,

International development minister urges firms to pool HIV patents

Now that makes a lot less sense. It is quite up to the standard we have come to expect from DFID, a real candidate for economic illiteracy of the day.

[Mike Foster MP] wants companies to contribute to a "patent pool", which the international drug-purchasing facility, Unitaid – set up by a number of donor countries, including the UK – is trying to establish.

"While it is absolutely vital that we work to reduce the human cost of HIV by focusing our efforts on preventing new infections, we must also face up to the stark reality of the treatment challenge we face. The pharmaceutical industry has an opportunity to act now to help prevent future human catastrophe. It is time for them to state their clear commitment to make new HIV medicines affordable to those who need them most."

According to the all-party report, if HIV patents are put in a pool, generics companies – which make the cheap combinations now used in Africa – will be permitted to make low-cost copies of newer drugs and devise new combinations in a single pill, which is important for people living in poverty.

What can this possibly mean? There's no real explanation here of how a 'patent pool' might work. It sounds like pharmaceuticals companies are being offered to the opportunity to swap an unstable legal monopoly for an internationally approved cartel, and to pose as humanitarians while doing so. Would that really lower the cost of HIV medication, and improve its effectiveness in general? It is far from obvious why that should be the case. Would medicines that are both cheaper and more effective be permitted to flow back to Western countries? I doubt it.

Which points up the weirdness of the whole exercise. In order to be economic in Western countries, HIV medicines have to be very expensive to buy there. That is not just because they are expensive to develop, but because the absolute numbers of people who need them are small. In the West, just as in poorer parts of the world almost no individual can afford to pay for their own treatment. So there's a different sort of cartel effect maintaining the oligopolistic market. Government protects the patentees; and government subsidies end up paying for the consequences.

You don't have to be a believer in the efficacy of beetroot and garlic as anti-virals to notice that the difference between the scale of the epidemic in parts of Africa and the richest parts of the world is not a consequence of the availabilty of drugs - or at least not the availabilty of anti-retrovirals. We have fewer people getting the disease in the first place. But we have fewer people with all sorts of infectious diseases. Malaria and dengue are not more treatable than they were when they were endemic in Europe, and the US, less than a century ago. The difference is better living conditions that everyone will work for if they have the chance.

Patent pooling, it seems to me, is no better than patent farming, in that it seeks to exploit artifical restrictions on innovation that just happen to be there for the benefit of a restricted interest group. It is an exercise in dinosaur husbandry, with little real relevance to improving the lives of us mammals. A reconfiguration of corporarate welfare, with its concentration on subsidising treatment of a particular disease, and bureaucrats swapping targets with bureaucrats, is a distraction from the less collectively 'manageable' task of avoiding the spread of infection, which is the invisible part of the virtuous circle of the people who are not sick getting better general health and more comfortable lives. That isn't going to come from government drug programmes. I suspect it might come from "people living in poverty" having a bit more access to the non-patent and never-patent - but still restricted - technologies of choosing their own priorities and exploiting their own comparative advantages.

(8)

There have been a few clashes between Switzerland and the US, and to a certain extent, Britain, in recent months over the fact that centuries-old Swiss bank secrecy laws prevent Swiss-based banks from divulging information about their clients to foreign governments that suspect people to be evading taxes. Evasion is not a crime in Swiss law, contrasting with the Anglo-Saxon legal distinction between avoidance (which is broadly ok), and evasion (which isn't). UBS, the Zurich-listed banking and wealth management giant, is currently embroiled in a case in the US in which the Department of Justice is demanding that the Swiss bank reveals details on up to 52,000 US clients. UBS is, so far, telling the American authorities to sod off. But the affair has cost UBS: the bank has stopped offering offshore banking to US clients and other non-US banks may also follow suit, or start to do so.

Meanwhile, countries such as Germany and the UK have been leaning on Switzerland to crack its secrecy laws, but that is not easy. To do so means that the Swiss electorate would have to approve primary domestic legislation and given that Swiss banks account for about 13 per cent of the country's GDP, I can hardly see the Swiss voters, unless they are very stupid, throwing away one of their economic ace cards.

And I have defended tax havens several times before, for those who want to see why I take my position in the way I do. In summary: I consider what some countries are doing to be nothing less than an attempt to create a global tax cartel, with jurisdictions such as Switzerland, Singapore or Monaco in the position of non-cartelised competitors. But as we have seen in the case of OPEC in the 1990s, when the oil price was low, cartels crumble eventually. I cannot see countries such as India, China, Russia or Brazil shunning the opportunity to provide low-tax attractions to investors who become fed up at the larceny of their home governments. Even though some taxes - such as sales taxes and land taxes - are quite hard to dodge, I think it is a mark of an open, free world that people can migrate to jurisdictions where the taxes are to their liking, rather than have all their options cut off at source, which the cartelisers would do. Unfortunately, the drive against tax havens is too good an opportunity for the current transnational progressive class to miss.

Of course, the US has a tax haven called Delaware, and the UK has its numerous offshore dependencies, such as the Isle of Man, Jersey, British Virgin Islands and the Caymans. There is an element of cant to the stance taken by the likes of say, Barack Obama on this.

So, drawing all this together from a symbolic point of view, I hope Roger Federer, the debonair Swiss tennis genius, overcomes the boom-boom serving machine, Andy Roddick. No offence Andy - who seems a nice guy - but I want the dude from the mountains to win.

(6)

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!"

(6)

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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"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.

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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!

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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.

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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.

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

- John Redwood

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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.

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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.

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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.

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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.

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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).

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

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"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.

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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.

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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".

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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.

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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.

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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.

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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).

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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.

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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.

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

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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.

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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.

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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.

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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.

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“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.

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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.

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.

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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.

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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?

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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.

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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.

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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.

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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.

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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.

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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.

(26)

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.

(22)

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.

(9)

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.

(56)

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!

(22)

"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.

(23)

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?

(20)

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.

(5)

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.

(26)

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

(27)

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.

(29)

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.

(5)

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.

(19)

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.

(17)

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.

(45)

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?

(7)

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.

(34)

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.

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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.

(16)

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.

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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 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.

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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.

(4)

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.

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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.

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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.

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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.

(10)

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.

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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.

(4)

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.

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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.

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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.

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

(10)

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

(15)

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.

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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.

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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.

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"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.

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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.

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[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'.

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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.

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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.

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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.

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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.

What 79% of Americans want apparently. Enjoy.

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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”.

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.

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'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.

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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.

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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.

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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.

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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.

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"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.

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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.

(5)

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.

(9)

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.

(2)

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).

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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.

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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.]

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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.

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

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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.

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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.

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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.

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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.

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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.

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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 a