(23)

I was struck by this graphic, produced by the money printers at the Bank of England and reproduced in the Telegraph:

We are told (not least by the Bank of England) that deflation is the greatest threat to our well-being. But look at the Nineteenth Century. There's no end of deflation there. And yet in this time they managed to build almost all of Britain's railways (including three routes from London to Manchester), the Great Eastern, Crystal Palace, most of London, bring clean water and sewerage to the cities, introduce street lighting, make huge advances in science and medicine. and establish just about all the industries (coal, shipbuilding, steel etc) whose loss is so lamented, especially by people on the left.

OK, so I suspect a lot of those industries would have closed anyway but I fail to see how anyone could look at this graph and honestly claim that deflation was something to fear.

PS I now notice that the BoE does indeed talk about "Years of Deflation" between 1921 and 1931 and my understanding is that it was a pretty grim time. I would be interested to know if there's a response to the implied claim that deflation is or was a bad thing.

(18)

‘“Quantitative Easing is a transfer of wealth from the poor to the rich,” he says, “It floods banks with money, which they use to pay themselves bonuses. The banks have money, and assets, so they can borrow easily. The poor guy, who is unemployed and can't borrow, is not going to benefit from it.” The QE process pushes asset prices up, he says, which is great for those who own stocks, shares and expensive houses. “But the state is subsidising the rich. It is the top 1 per cent who benefit from Quantitative Easing, not the 99 per cent.”’

- Nassim Taleb, quoted on the Spectator's Coffee House blog.

(15)

Jay Maynard posted a link to an advert from Moveon.org that illustrates how our children will have to pay off the government's debt.

The trouble with this argument is that it concentrates on the movement of money instead of the movement of resources. This way of thinking can lead to all sorts of mistakes. If the government borrows a trillion dollars, the argument goes, that is a trillion dollars of taxes our children will have to pay in the future. We are borrowing from the future. Except that we are not, because only Doctor Who can transfer resources from the future, and he is busy with other things.

When the government borrows money it increases its bidding power for resources in the present. Resources move from private control to government control. It is the other bidders for resources who are really paying the price.

The children will not pay back the money because the government will never raise enough taxes to pay it off. Individual bonds mature, but they are replaced with yet more bonds. This will continue as long as there are enough people willing to join the bottom of the pyramid.

(18)

"And as to neoliberalism laid bare. Yes, the industrial revolution is the only way we humans have found of improving the living standards of the average guy in the street. I, as a liberal (even if neo) would like the living standards of the average guy to increase. Thus I support the industrial revolution. Yes, in all its mess and clamour: for it is making things better. I’m out and I’m proud. As a neoliberal I buy things made by poor people in poor countries. For that’s how poor people and poor countries get rich."

- Tim Worstall.

I think I can formulate a new "Johnathan Pearce law". Namely, the presence of the word "neoliberal" in a piece mocking markets and capitalism is almost always evidence that the author of said piece either does not understand what he or she is attacking, or is misrepresenting it, and also regards such ideas as being promoted by some sinister, all-powerful cabal, as suggested by that rather creepy use of the term "neo" in front of something else, such as "liberal".

(3)

Madsen Pirie's latest video is about mass production, but I want to talk about mass distribution. The first of his series, released just over a week ago, has, according to YouTube, been viewed 9,493 times. That seems quite encouraging, especially when you look at the viewing figures of some of Britain's public-service television. According to The Telegraph last year:

"S4C, which gets more than £100m of subsidy from taxpayers, officially attracted zero viewers on 196 out of its 890 programmes... A zero rating means that the 196 shows were watched by fewer than 1,000 people."

What this means is that not only can libertarian videos be produced at low cost - under £1000 for a really good set up with lighting, a camcorder and good mic - and not only can they be edited easily and cheaply (with iMovie or MAGIX Movie Edit Pro), but they can also get more viewers than expensive state-funded programmes. I'm told that the Adam Smith Institute is doubling the speed of production. Given the resourcefulness, creativity and work ethic of libertarians, I suspect that YouTube is a medium in which libertarians can win.

(17)

I have lost count of the number of opinion pieces written by finance commentators and journalists who complain that the austerity programmes of Europe are doomed to fail, because they cause perpetual economic contraction, resulting in shrinking government revenues, curtailing the ability to pay down debt - which was why the austerity programmes were embarked upon in the first place. And this will go hand-in-hand with a widespread, precipitous and neverending decline in living standards, which raises the spectre of social and/or political collapse. The alternative solution they generally propose comes from our good friend Baron Keynes. Naturally.

This is utterly wrong-headed. Naturally. I do not take much issue with the consequences of European austerity that have been identified, however austerity is not the cause of these. Austerity works just fine if governments do not implement it alongside tax increases. Which is what pretty much every austerity programme (either real or imagined) in Europe is either proposing or enacting. It's the tax increases that will cause the vicious cycle mentioned above - not the austerity, stupid. Austerity alone redirects capital from government programmes to more productive areas of the economy, resulting in growth. But austerity plus tax hikes decreases the size of one part of the economy (the public sector, and this on its own is of course a good thing), whilst putting a yoke on the private sector by preventing individuals and companies from stepping into the breach, with punitive taxes discouraging investment or making it unaffordable. Of course this is a recipe for limitless economic contraction and social misery.

Citizens of a nation that requires a genuine period of austerity must be aware that there will be pain as structural adjustments take place whilst private sector investment slowly and surely crowds out a throttled and atrophying civil service. But pain is and was always going to be inevitable when the almighty spending binge so many governments have embarked upon over the last couple of decades unavoidably draws to a close, either through substantial policy shifts or sovereign default. The former is much less painful than the latter, but more politically difficult, so it seems. And, in dealing with the current debt crisis, Keynesians have never seen a can they haven't wanted to kick down the road.

(11)

As regular readers here know, immigration is an issue that even people who are libertarians with a strong hostility to state barriers to movement disagree about. The nub of the issue can be expressed thus: immigration+welfare state+weak indigenous culture = social discord. Or: immigration+free market capitalism+strong sense of civil society = strong, dynamic country.

Over at the CATO think tank in Washington DC, a number of writers, such as Bryan Caplan, Daniel Griswold, Richard K Vedder and Joel Kotkin argue that immigration, particularly without the distortions and false incentives of a big welfare state, is a force for good and an expression of the desire of people to better their condition not just materially, but in other ways, and that believers in liberty ought to be on their side. In as much as immigration, legal or otherwise, causes certain costs, then there are ways of dealing with this other than a simple blanket ban, which is what some people, mostly, but not exclusively on the right, are calling for.

This is an impressive collection of essays and provides a bit of a counterweight to cultural pessimists, some of whom, ironically, are immigrants themselves.

Another good thing about this collection of essays is that with the exception of Caplan, I had not heard about any of these authors before, so I was pleased to find a large assembly of such insightful writers to follow in the future.

Here is a paragraph from one of the essays, by Joshua C. Hall, Benjamin J. VanMetre, and Richard K. Vedder:

When examining these various views on immigration it’s important not to fall subject to the all too common misperception that one’s immigrant status dictates one’s position in the debate, viewing immigrants as pro-immigration and nonimmigrants as anti-immigration. This is clearly not the case as Brimelow (1999), Hoppe (1998) and Borjas (1999) are some of the most prominent skeptics of immigration and are immigrants themselves - anti-immigrant immigrants.

In fact, the anti-immigrant immigrant is not a new phenomenon. It stems from the growing instinct for individuals to think that their generation is the Great Generation and that those who follow are somehow inferior. So it goes with immigration. One can speculate that the individuals who arrived on the Mayflower lamented newcomers arriving to Massachusetts on subsequent boats in the 1620s as lacking the motivation, the ingenuity, or some other positive attribute allegedly possessed in abundance by those arriving earlier.

In the 18th century, Benjamin Franklin lamented the allegedly deleterious effects of new German arrivals to Philadelphia by disparagingly speaking of how Pennsylvania was being “Germanized.”

In the mid-19th century, the great American inventor Samuel F. B. Morse denounced new arrivals from Ireland and spoke of the dangers to America arising from the Roman Catholic faith of the newcomers. A half-century later, Woodrow Wilson pronounced that new arrivals from Italy and eastern Europe were of an inferior stock compared with those coming earlier from the northwestern part of the same continent. So it is not surprising when Borjas (1999) and Brimelow (1999) lament the arrivals to America after 1965 as inferior to those coming in the 1950s or early 1960s. The question that ultimately arises then is, if conventional political ideology does not explain differences in opinion on immigration then what does?

I should add that these essays have a strongly American flavour, but some if not all of the arguments the authors make apply to certain other countries as well.

(4)

I really liked that first Madsen Pirie short economics video, about the subjectivity of value, flagged up here. Now number 2 has emerged, on the closely related topic of price control. I happened upon this second video here, which would suggest that these things are getting around and being noticed. They should.

The short video lecture is the perfect medium for Madsen. Many is the time that I have had a short lecture on this or that topic bestowed upon me, by Madsen in person. From most others this would be intolerable. From him, it was welcome, because you had the feeling he had really thought it through, having bestowed it also on many others, each time slightly better. He has been working on these little videos for years, maybe realising it, maybe not. Almost always, when technologically enhanced things emerge that are really good, the person doing them has been doing them for quite a while by hand, as it were, before the technology came along to make the thing even better.

If the rest of these little videos are as good as the first two, they could add up to a classic set.

(8)

Mark Wallace, recently "seen elsewhere" by Guido, makes a good point, in response to a piece by Tim Leunig in the Guardian, about the nature of the mixed housing economy:

Leunig’s Guardian piece claims to calculate that the benefits cap would leave people living on 62p a day. The most crucial element of his workings is that a 4-bedroom house in Tolworth costs £400 a week. That’s true right now, but it wouldn’t be the case once a cap has been brought in.

The truth is that some of the main beneficiaries of overly high benefits are private landlords. They may not get payments from the DWP direct, but they reap the cash anyway through inflated rents, secure in the knowledge that every time they put the price up, benefits levels are raised to pay them. This is a racket, exploiting the foolishness of officials in pumping more and more money out and the absence of taxpayer power to rein in this behaviour.

Tim Leunig is right that if rents were fixed as they are now then his hypothetical family would pay £400 a week. But rents aren’t fixed, they are fluid. If you remove a large amount of cash from the system then prices will fall. By arguing for the system to remain as it currently is, rather than accept a cap, this supposed "progressive" is effectively fighting the corner of benefit-farming landlords.

Government hand-outs to "the poor" enriching the not-so-poor is a familiar story. It explains a lot about the current state of politics. In fact politics generally, down the ages.

(9)

One example of a speculative bubble that gets mentioned sometimes is the Dutch Tulip Bubble of the 17th Century. I have occasionally come across the argument that says that this bubble, like some others, cannot be blamed on expansion of the money supply, ergo, those hairshirt Austrians banging on about the evils of elastic money are wrong, there are sometimes bad things that happen in capitalism and we need laws against it, etc, etc.

But according to this guy at the Mises Institute, even the mania for tulip bulbs in the Netherlands had a monetary cause. So that's that issue settled then.

(7)

"On the basis of economic theory and historical experience, the life expectancy of a societal model with 50 percent or more government control over the economy does therefore not look promising. The taxing, resources-consuming state-parasite must constantly weaken and sooner or later kill the productive and wealth-creating market-host. When does this happen? Well, we are about to find out, as we are now all part of some gigantic real-life experiment, bravely conducted by the current policy establishment in Europe and elsewhere at our own expense and that of our children. Across the EU, the share of government spending in the economy is already around 50 percent, depending whose numbers you believe. If we could account for regulation and interventionist legislation, the state’s grip on economic decision-making is certainly larger. To call such an economy capitalist is a joke, albeit perhaps not as cruel a joke as the one the economy itself, with its persistently anaemic performance, is playing on the Keynesian economists and their ridiculous clamour for ever more government spending to boost ‘aggregate demand’."

- Detlev Schlichter, making a point that needs hammering home. What we have in the West, right now, is a million miles from laissez faire capitalism.

(22)

Is this video the 21st century version of a photocopied 1980s Libertarian Alliance pamphlet? It contains Madsen Pirie explaining an economics concept in under three minutes. He tells me that he is going to do 20 videos, one a week.

Strangely, outside of lectures held by the ASI and IEA, there isn't much video coming out of the UK libertarian scene. Over in the States, all sorts of organisations, especially Reason.tv, have done sterling work with online video. My instinct is that the returns on time for British libertarians doing video could be significant - and that Madsen's videos will have quite an effect among young people exploring economics.

(10)

The recent debates about the US Stop Online Piracy Act, or SOPA, has reignited interest in the subject of intellectual property. As regulars here know, people who defend free markets take very different views of IP, often clashing sharply about what the purpose of property rights as such is. So to help form my views about this, I recently ordered and received this book, Justifying Intellectual Property, by Robert P Merges. From a fast skim-read, it bases its arguments around the ideas of three thinkers: Kant, Locke and Rawls. A strange mix in some ways, I think. There is a huge bibliography, and the book notes - without rudeness or dismissal - those writers who dispute the case for IP, such as Stephan Kinsella and Tom G Palmer.

Definitely an interesting read, I think. Naturally, it is under copyright.

Update: this is an interesting observation from a man, D Halling, who is a fierce proponent of IP and yet regards the SOPA and related legislation as "power politics at its worst". So if the IP crowd hate these bills, why bother?

Another update: here is a very rigorous explanation by Stan Liebowitz of the issues as to why IP exists, and does so very much from an economics point of view, rather than say, arguing that IP is about "free speech".

(4)

"In retrospect, there are some obvious questions an Icelander living through the past five years might have asked himself. For example: Why should Iceland suddenly be so seemingly essential to global finance? Or: Why do giant countries that invented modern banking suddenly need Icelandic banks to stand between their depositors and their borrowers - to decide who gets capital and who does not? And if Icelanders have this incredible natural gift for finance, how did they keep it so well hidden for 1,100 years?"

Michael Lewis, Boomerang, page 36.

And I liked this line (page 37): "Leverage buys you a glimpse of a prosperity you haven't really earned."

(29)

Tom Clougherty has an interesting graph up at the ASI blog, taken from this McKinsey report, of the movement in combined public and private debt for the ten biggest of the world's developed national economies, from 1990 until now. Follow either of the above two links to get a bigger and more legible version of this graph:

Since 2007, of course, all have lurched upwards from wherever they were to quite a bit more.

To me the interesting bits are those between 1990 and 2007. The general trend was a general increase in debt, from somewhat troubling to somewhat more troubling. But three countries bucked this trend: Japan started very bad and merely stayed very bad; Canada started okay-ish and stayed okay-ish; Britain started okay-ish but became very bad. In terms of the direction things went in, Canada has the best graph of them all, and Britain has the worst. Between them, these three graphs, the grey one along the top (Japan), the green one in the pack towards the bottom (Canada), and the dark one moving most determinedly upwards (Britain), make a kind of big and elongated Z.

One other deviation from the norm worth noting is that just before 2007, Germany, unlike any other country, went (see the yellow graph) definitely downwards. It did what Keynes said, in other words, and paid down its debts when times were good, or at least when they seemed good. In Britain, the "Keynesians", public and private, just carried on running up more debt.

I know that as a fan of Austrianism I am not supposed to get too excited about national economic aggregates. But this set of aggregates and aggregate movements looks to me quite telling. Make of it all what you will. For me, it confirms the sense that many now have that Tony Blair's government was one of the worse ones that we've ever had.

(5)

This article over at the Foreign Policy website, by Helen Mees, dusts off an argument that I have mentioned here on Samizdata before, (in relation to a comment by the US investor and commentator Peter Schiff) namely, that China, by using its vast foreign exchange reserves to buy Western government debt, thereby pushed down long-term interest rates and encouraged the kind of reckless lending that ended up going ker-boom! in 2007-2008. And if only the Chinese had not flogged us all those artificially cheap computer parts and children's toys (made cheap by that naughty fixed exchange rate regime for the yuan), they would not have made so much money to then lend to us Westerners to blow on housing we cannot really afford. (Here is another old post of mine on the same subject of debt/savings imbalances between the West and China.)

The problem with this line of reasoning is that if, say, a country has earned genuine income by selling something valuable and useful (like toys, cars, electronic components or whatnot), and invested the proceeds abroad in things that can generate new wealth in the future, what is the problem? The problem is not that China invested huge savings and other surpluses into the West - after all, in the 19th Century, the UK invested large capital surpluses in places such as the US, Canada and Argentina (now there's an irony, Ed). And there was nothing "imbalanced" about that. If real savings - not central bank funny money created out of thin air - gets lent to people to invest, that's hardly bad. The problem is if the money is lent to people buying homes as part of a broader speculative bubble in real estate, say. And there is no doubt that domestic policy in the West, most definitely in the US, encouraged unwise lending and borrowing for property, consumer goods and so on, rather than investment in new technologies and industries.

The comment thread on the FP item are interesting, where it is contested that subprime borrowing made up only a tiny fraction of the US mortgage market. It did not, since one of the issues with the sub-prime market and the huge losses sustained by banks was how sub-prime debt was mixed up with better quality stuff and then sold to investors as if it is was all investment-grade, when it was wasn't. For example, here is a comment from a person called "RRAFAY":

"Actually, 5% of Subprime is enough to cause a crash. Especially, when no mention is made of how these mortgages were leveraged. Secondly, Alt-A is not mentioned either. When both are taken together, they represent roughly 15% of the US mortgage market. Secondly, the idea that Chinese surplus capital led to an excess supply of money is so weak, that it is mind boggling that someone would even suggest this. China only holds 7% of total US debt. Each country mentioned had a housing crisis, Ireland, Spain, and the US."

In my view, it is certainly true that in a world of free capital movements, if a country A can export a vast amount of its capital into country B, and people in the latter country are not constrained by proper market disciplines and there is already a full-blown encouragement of high borrowing and lax lending, then the added money will pour fuel on the fire. But in the main, I think it is a pretty silly line of argument to say that it is the fault of the Chinese for having earned so much money and then reinvested it. There's something just not quite right about that argument on so many levels.

(8)

Comment just attached, by "Malcolm", to my posting here a while back entitled Austrianism as Number Two:

Newsnight has just introduced its story on Ed Milliband's decision today to back the government's pay freeze by playing the Keynes v Hayek video from Econstories.tv

The narrator even described it as a "fabulous" video that is "easily the most entertaining explanation of the issues" - as closely as I can remember the wording, anyway.

I realise I'm commenting on a posting that's six months old, but I'm hoping Brian, as the original author, gets automatically notified of comments. That the video is being used to give context to a now-current news item is certainly consonant with Brian's original theory about Austrianism as the new #2 (with apologies to The Prisoner).

I did get automatically notified of this comment. Many thanks for the kind thought. However, I also clocked this Newsnight snippet myself, and added an off topic bit in a comment I also added to the earlier posting today about SOPA, which Newsnight is also reporting on, thanks to the Wikipedia black-out that Rob Fisher noted.

The more I ponder those Keynes v Hayek videos, the more of a stroke of total genius I believe them to be. They play especially well with the BBC, because the BBC is never happier than when explaining an issue in terms of competing arguments. Yes, the BBC is often "biased", in the sense that you get a definite idea of which team they may prefer (which may not be yours), and which team they choose to give the last word to. But the "other" team often gets a more than fair crack of the whip.

As I made clear in that earlier posting of mine, the real sufferers from this kind of bias are the "other other" teams, so to speak, the ones who don't even get a look in, the ones who are shown as being not even wrong, on account of not even existing.

To quote Rob Fisher in the posting immediately below, about Detlev Schlichter's performance on the BBC's "Start The Week" show yesterday morning:

All in all not a bad day for the spreading of Austrian ideas.

Which adds up to two consecutive not bad days for the spreading of Austrian ideas.

(14)

As Brian Micklethwait informed us ahead of time, Detlev Schlichter appeared on the BBC Radio 4 programme Start The Week on Monday. A podcast of the programme can be downloaded. Remember that all of this is being talked about on the BBC, on Radio 4, which I imagine is listened to by lots of Guardian and Independent readers. Austrian economics is now Being Talked About, as Brian might point out.

The programme opens with Economist columnist Philip Coggan talking about the supposed conflict between money as a store of value and money as a medium of exchange. Creditors will always want a fixed supply of money and debtors will want an expanding supply of money, and this seems true enough, up to a point. Coggan goes on to point out that the biggest debtor is government and governments have always been very keen on expanding the money supply. He also explains how banks' interests are aligned with the governments because the expanding money supply props up asset prices. There is no way out except by defaulting or inflation.

Angela Knight of the British Bankers Association is worried about more immediate matters like tomorrow and the Eurozone crisis.

Detlev Schlichter is up next. He says that paper money systems have been tried throughout history and have always failed; have always been implemented to fund the state. The failure mode is either a return to commodity money or hyperinflation. He clarifies Coggan's point about conflict between debtors and creditors by pointing out that in a voluntary contract both expect to benefit. They would both like a means to honour that contract with money that they can trust. This makes sense because if debtors routinely get the expanding money supply they want, this ultimately will get factored into the price of the loan.

Coggan says that the trouble with the gold standard is that it imposes more austerity on governments than the voters will stand. I think Schlichter agrees, which is why he is predicting hyperinflation.

Maurice Glasman says that capitalism requires 'exploitation' of humans and their environment and short term returns. Detlev is ignoring the imbalance of power between the debtor and creditor. After that I couldn't follow what he was on about.

Schlichter responds to Marr's questions by saying that expanding money supply is right now being done to stimulate the economy rather than just to fund governments. Furthermore he is not suggesting that we walk around with little sacks of gold; payment technologies do not depend on state fiat currency. The BBC listeners are reminded that money is not backed by gold and that it's just an invention of the state. Schlichter advocates removing the state entirely from money. Consumers should control what is produced in the economy by sending price signals, but this does not work because of the expanding money supply. If we went back to gold, as has been done before in Britain, markets would correct. Andrew Marr is incredulous: interest rates shooting up!? In this day and age? Yes, says Schlichter, calmly, it is essential that savings and investments are coordinated by interest rates.

Philip Coggan says going back to gold is possible but very unlikely, but could arise from complete collapse of the system, Zimbabwe-style, but this is not imminent in the next two or three years. Schlichter agrees that politicians are unlikely to take that decision. Over the last 40 years, since the whole world has been on paper money, we have had unprecedented money expansion and, surprise surprise, the whole world is in a mess. If we suddenly went back to hard money now it would cause a sharp correction and a recession. So Politicians will avoid this and in so doing cause a worse outcome.

Angela Knight is asked whether bankers are failing savers by getting into league with the government and she avoids the question, but agrees that banks should not be protected and should be allowed to fail. But there are a lot of Buts that I didn't follow.

Philip Coggan says bankers have become so important because of the credit money expansion of the last 40 years. For some reason he brings international trade into the conversation. Knight starts waffling about ATM machines and the disruption to people's lives that a move to gold would entail. Schlichter says that gold works fine in an international economy (after all, gold is gold wherever you are). When he talks about disruption he is talking about the correction of the accumulated imbalances in the economy. It's clear he doesn't know what Knight is on about, either.

Maurice Glasman makes a distinction between… oh I give up. The man is completely incomprehensible.

Coggan and Knight dignify him far too much by conversing on his terms, which wastes most of the last 15 minutes of the programme. Schlichter disagrees with him completely and gets in a point about how Germany's success after WWII is a result of its relatively hard currency which encourages savings and avoids asset bubbles.

So there we have it. Coggan and Schlichter have their differences but would have appeared very close to each other to the BBC listeners. Knight didn't really say anything, and Glasman was the token lefty who only other committed lefties would have been cheering along with. All in all not a bad day for the spreading of Austrian ideas.

(2)

"Certainly there is a need for free-market economics to be rescued from those who distort and discredit it, but that is the argument that must be made: that this system has delivered mass prosperity (and the self-determination that comes with it) on a scale unprecedented in human history, and that it deserves to be saved from the spoilers."

Janet Daley, writing with justified scorn about those people who have been bashing Mitt Romney for his career in venture capital at Bain. To be honest, his background in this area is one of the few things going for him. It would be quite refreshing to have a president of the United States who can actually read a balance sheet.

For those who have not come across the "creative destruction" line before and how it applies to sometimes wrenching change in business, check out the great Joseph Schumpeter.

As a caveat, I should add that some - but no means most - private equity buyouts of firms have been made possible by cheap credit, and therefore might not have occurred in the way they did had interest rates not been how they were in the past decade or so. On a related point, here is what I wrote in defence of private equity at Samizdata several years ago. Excerpt:

"In the main, what these firms do is target cash-rich firms that are run by often lazy executives who have presided over crappy business decisions. Take the meltdown of Marconi a few years ago, one of Britain's most famous companies. That was a listed company. The destruction of value and jobs in that company remains, in my mind, one of the most disgraceful episodes in British corporate history and who knows, it might have been saved from making big errors had a private equity fund been in charge, rather than deluded executives. Private equity firms helped stymie Deutsche Börse's foolish bid for the London Stock Exchange 2 years ago, and have turned around businesses. They typically buy and hold a firm for 5 years or more, take a hands-on approach to running firms before spinning them off to another buyer or floating them in an IPO. So Will Hutton should spare us sentimental guff about how limited liability firms floated on the stock exchange represent the perfect model of doing business or something that Adam Smith or Voltaire would exalt. They are merely one of the many ways in which economic activity manifests itself. As interest rates rise and the economic cycle turns, some of the excesses of leveraged buyouts will fade and private equity transactions will decline."

(24)

Austrian economic theory describes how purposive action by fallible human beings unintentionally generates a grand, complex, and orderly market process. An additional ethical step is required to pronounce the market process good. Economic theory per se cannot recommend but only explain markets. This is what Ludwig von Mises meant when he insisted that Austrian economics is value-free. Anyone of any persuasion ought to be able to acknowledge that economic logic indicates that imposing a price ceiling on milk will, other things equal, create a shortage of milk. But that in itself is not an argument against the policy. Mises assumed the policymaker would have thought that result bad, but the economist qua economist cannot declare it such. As Israel Kirzner likes to say, the economist’s job in the policy realm is merely to point out that you cannot catch a northbound train from the southbound platform.

- Sheldon Richman writes about How Liberals Distort Austrian Economics

(4)

Incoming from Detlev Schlichter:

Just a heads-up in case you are interested, I will be one of four guests on Andrew Marr's show Start the Week on BBC Radio Four on Monday, 16th January. The program starts at 9 am but there are various 'listen again' facilities, and it will also be published as a podcast. The topic is the financial crisis, and the other guests are The Economist's Philip Coggan (author recently of Paper Promises), Angela Knight, chief executive of the British Bankers' Association, and the Labour life peer Maurice Glasman.

I am interested.

(4)

If we immerse ourselves wholly in day-to-day affairs, we cease making fundamental distinctions, or asking the really basic questions. Soon, basic issues are forgotten, and aimless drift is substituted for firm adherence to principle. Often we need to gain perspective, to stand aside from our everyday affairs in order to understand them more fully. This is particularly true in our economy, where interrelations are so intricate that we must isolate a few important factors, analyze them, and then trace their operations in the complex world.

- from the Introduction of What Has Government Done To Our Money? by Murray Rothbard. To read the whole thing, go here.

(6)

I link a lot to the sayings and doings of Steve Baker MP (that being the last time I mentioned him here), so this time I will be brief, and only say that I like the phrase "new money being loaned into existence". The piece this phrase appears in is entitled Could this be a second crisis of state socialism? If you are already saying to yourself something along the lines of: "yes I rather think it could be", you will, you will be unamazed to learn, find yourself in agreement with Mr Baker.

(15)

"American economist Scott Sumner has recently argued that the Fed cannot be blamed for the inflation that led to the Wall Street Crash because the money supply measures that reveal the inflation were not publicly available at the time. As Robert Murphy has responded, the fact that doctors of the time didn’t understand bacteria does not affect the cause of deaths during the bubonic plague. Whether we “blame” central bankers or not is really a secondary consideration to our attempts to understand what happened and why. By assigning blame we suggest that the Fed should have done better. It encourages us to think “if only it did X everything would be ok”. But the problem isn’t that individuals focused on the wrong targets, and the solution isn’t to work out how they can improve. The lesson should be that the nature of central banking – the attempt to centrally plan the monetary system – imposes an epistemic burden on policymakers that they cannot possibly ever fulfil. The Fed wasn’t to blame for the crisis, because any argument for what it “should” have done is insincere. We should absolve it from culpability, and remove the shackles of expectation that we place upon it. It did the best it could be expected to do. And that wasn’t enough."

- Antony J Evans, economist and what I would call a "sensible-shoes Austrian".

(6)

“One of the more unexpected things I discovered as CEO of a pharmaceutical company was that I had to think as much or more about the federal government than I did about our competition. I had known on an intellectual level that government was involved in the private sector in a great many ways, but it was only when I was actually in business that I felt the full impact.”

Donald Rumsfeld, Known and Unknown, page 253. He is describing his time in the private sector during the late 70s and 80s, and emerges as quite a firebrand for supply-side economics (he got to know Arthur Laffer).

Whatever you think of Rummy as a defense secretary (under the Ford and George W. Bush administrations), he comes across as a formidable man of US public and commercial life.

Here is something that I wrote about the FDA and associated drug regulation issues a while ago here.

(8)

"Open-source intelligence has always been crucial, but for most of the cold war it was neglected by western intelligence agencies," says Calder Walton, a research associate at Cambridge University and author of the book Empire of Secrets, to be published in 2013. "That was the archetypal intelligence war: intelligence necessarily involved information that couldn't be gained from any other source -- human agents or telephone tapping." That doesn't mean covert intelligence was more effective, though: Daniel Moynihan, a former US senator, compared CIA reports gathered from secret sources with Soviet documents recovered after the fall of the Berlin Wall and found they significantly overestimated Soviet capabilities. But he discovered that western think tanks using publicly available material, such as the RAND Corporation, were much more accurate. US diplomat George Kennan estimated in 1997 that "95 per cent of what we need to know about foreign countries could very well be obtained by the careful and competent study of perfectly legitimate sources of information open and available to us".

Excerpt from an article in Wired, the tech and futurism magazine, about a Swedish investment firm, Recorded Future, that is taking the use of social networks and other systems to new heights in its attempt to get a jump on the market. In the process, it sheds new light on how the intelligence-gathering process works.

Here's another couple of paragraphs:

The 20 employees of Recorded Future aren't foreign-policy experts. They aren't traders either, but if you'd started using Recorded Future's predictions to buy US stocks on January 1, 2009, you would have made an annual return of 56.69 per cent. (The S&P 500 had an annualised return of 17.22 per cent over the same period.) Between May 13 and August 5 this year, as markets behaved with vertiginous abandon, their strategy returned 10.4 per cent; in contrast, the S&P 500 lost 9.9 per cent of its value. They're data experts: computer scientists, statisticians and experts in linguistics. And in the data, they think, lies the future.

All Recorded Future's predictions, whatever the field, are based on publicly available information -- news articles, government sites, financial reports, tweets -- fed into the company's own algorithms. The result, it claims, is a "new tool that allows you to visualise the future" -- one that is changing how government intelligence agencies gather information and how giant hedge funds place bets. On its website, Recorded Future states: "We don't grant interviews and we don't issue press releases." But behind closed doors, the company is developing the technology that has been described be one tech blog as an "information weapon".

The businesses was founded by a chap called Christopher Ahlberg, a former member of Sweden's special forces and a serious entrepreneur. In its own way, this article is just another example of how Sweden is not quite the socialist nation that it is sometimes said to be, either by its starry-eyed admirers or detractors. There is a lot of entrepreneurial zest up there in the frozen north, it seems.

(4)

When I heard Gordon Kerr speak in the House of Commons a week ago, I wished that he had done so with a microphone attached. Very early this morning he spoke in public again and this time he did have a microphone attached, because he was on Bloomberg Television. Turn up the volume on your computer and you'll find it a lot easier to hear what he said this morning than I did last week.

Kerr confirmed my definite impression that the Austrianist team is now starting to win this argument. (By "this argument", I mean, approximately speaking, this argument.)

Whereas regular academic economists talked about how this banking crisis was all over bar the recovery in 2008, the Austrianists have consistently predicted further disasters. As these disasters have duly occurred, the books and writers and ideas that the Austrianists keep referring to in their increasingly frequent public performances (Kerr mentions Hayek in this performance) are now breaking out of their academic-stroke-hobbyist ghetto and reaching the mainstream.

My favourite moment in this quiet little early morning Bloomberg TV conversation was when the man whom Kerr was arguing with said: "But if banks told the truth about the value of their assets, that would cause chaos." His argument being that therefore making the banks tell the truth is a disastrous policy. Which it sort of is. But Kerr's point, the point made by all Austrianists, is that disaster can't now be avoided. The decisions that have made disaster inevitable have all now been made. By postponing the recognition of disaster, you only make it all the greater when it finally erupts.

Intellectual self-confidence is hugely important in a battle of ideas, such as we are witnessing now. The Keynesians, anti-capitalists, the more-of-the-samists, the borrowers-and-spenders and the rest of them, all want to believe that capitalism has to be managed by them if it is to work properly, in approximately the manner in which these people manage it now and have been managing it for the last few decades. Some of them still want to believe that capitalism itself ought to be smashed up, and entirely replaced by a planned economy. But how many people really think that this kind of thing would actually make the world more prosperous? The point is: the hatred of truly liberated, untramelled, uncontrolled, un-managed capitalism is all still there. But, the conviction that there is a superior statist alternative, not strong before this crisis became evident but briefly puffed up by the early stages of the crisis, is now fading away in front of our eyes.

Passionate and sincere belief in a viable, partly or wholly statist alternative to capitalism used to exist, in the early part of the twentieth century. Then, Marxists really believed that capitalism was colossally wasteful and inefficient, as well as colossally cruel and unjust and unfair, and that replacing it with a world run by small clumps of smart people with dictatorial powers, based in small but dictatorially powerful offices, would genuinely be a colossal improvement. They really and truly thought this. They believed it with the same certainty that naval tacticians, then and since, have believed (rightly) that vulnerable merchant ships are safer, during a merchant shipping war, if they all sail together in a convoy, rather than if every merchant ship sails alone. That being one of the arguments they used. This colossal Marxist and statist intellectual self-confidence was contagious and, when crisis hit Russia during World War 1 and the West at the end of the 1920s, it was hard to resist.

Now it is the Austrianists and only the Austrianists who have any genuine confidence in the correctness of their own ideas. Tiny in number but growing in number by the day, we Austrianists (I count myself a very junior member of this team - a fan rather than any sort of player) truly believe that we are right about how the world works, and about how it could eventually be made to work a lot better. This is why we are winning.

By winning, I don't just mean convincing of our rightness third parties with no stake in how things are being done now and no power to make any difference, although that also will happen, in the fullness of time. I mean making our now hugely powerful opponents (powerful in the sense of having the power to go on doing huge damage) realise that they themselves are entirely wrong, and that we Austrianists, who until recently they had never even heard of, are right. I mean especially them. The bewildered onlooker tendency, vastly more numerous than any of the intellectual teams directly involved in this debate, is likely to remain confused about all this for a much longer time. They'll only hear about this argument after we have won it. But the powerful people who presided over this long catastrophe, and who made and continue to make it ever worse with their ever more panic-stricken decisions, are mostly going to emerge from the wreckage with no doubt in their minds that their Austrianist critics understood everything far better than they did. They may not admit it out loud, still less formally surrender, although there will probably be some very public changes of mind. But most of these people will know in the privacy of their own minds that they were utterly defeated, by events, and by those who proved with their prophecies, observations and post mortems, that they understood these events, as they did not begin to until it was far too late.

It was like this with that earlier collapse of statist power, the fall of the USSR. The people who presided over that collapse had no doubt concerning the inferiority of their own economic arrangements, which was a big part of why those arrangements collapsed. It wasn't merely that Soviet communism collapsed because it was hopeless. It collapsed because the Soviet communists who ran Soviet communism themselves came to realise that Soviet communism was hopeless.

Perhaps this is why Gordon Kerr talks so quietly. He is right. He knows he is right. He feels no need to shout.

Allow me also to remind you about Jamie Whyte's recent radio performance. He also spoke with utter certainty in the rightness of what he was saying, and he never once felt the need to raise his voice either.

LATER: Steve Baker MP comments.

(37)

Immigrants are incoming assets … in a global economy, their labour is vital both to tackle severe skills shortages and to fill long-term vacancies. Immigrants are not taking jobs that British workers could fill, but jobs which British workers are unable or unwilling to do … the idea that immigration is an intolerable burden on the taxpayer and the welfare state is baloney. Immigrants give far more than they take. It is estimated that they make a net contribution to the economy of £2.5bn …

- House of Commons Speaker John Bercow in an article in the Independent in 2005, quoted by Henry Oliver today in Adam Smith Institute's Pin Factory Blog.

(9)

Since Detlev Schlichter is discussed frequently around here, I thought it might be interesting to write a summary of some of the arguments from his book, Paper Money Collapse. Of course I am summarising my understanding of the arguments, so caveats about my fallibility apply; errors and omissions are mine.

He begins with a description of money. It is the medium of exchange. It needs to be something people agree on. Ideally there will be a fixed supply which is infinitely divisible. Precious metals fit the bill. Schlichter distinguishes between exchange value and use value. It is possible to use gold for jewelery and electronic components, so it has use value. But as soon as it is used as the medium of exchange it is the exchange value that dominates. Money has value because it can be exchanged for goods and services.

When people say they want more money, what they usually mean is that they want more goods and services. Nevertheless there is a demand for money as a store of readiness to exchange, in preparation for near-future purchases or unexpected needs. Within the limits of his means, a person can hold exactly the money he wants at any time. If he wants more money, he stops buying stuff and perhaps starts selling it. If he wants less money, he buys goods and services.

If demand for money falls, then more people want to buy goods and services, so prices go up and the purchasing power of a unit of money goes down. This continues until the reduced purchasing power of money causes people to want more money. If the demand for money increases, then more people want to sell goods and services, so prices go down and the purchasing power of a unit of money goes up. This continues until the demand for money is met. In this way, the purchasing power of money changes almost instantly, so the demand for money is met almost instantly. There is no need to create money to meet the demand for money.

Does this cause prices to be volatile? Perhaps, but Schlichter argues that it is impossible for a central authority to control the supply of money quickly enough to counter changes in demand for it. The only way they can measure these changes is by observing prices. By the time the price has changed so that it can be observed, it is too late. He also points to empirical evidence that suggests that prices are more volatile when central banks control the supply of money.

While commodity money has a remarkable record of stability, state fiat monies have, without exception, led to rising inflation and frequently ended in total inflationary meltdown.

In his study Monetary Regimes and Inflation, Peter Bernholz looks at long-run statistics of the cost of living in Britain, Switzerland, France, and the United States. No upward or downward trends are discernible at all from 1750 to 1914. Clear upward trends in the cost of living materialised after 1914, when some governments left the Classical Gold Standard to allow for inflationary war financing. These trends become more marked after 1933 and in particular 1971 , when the United States took the dollar off gold internationally and a complete paper money system was established globally.

And there is the question of what price should be stabilised; what measure of prices should be used? Any average price does not reflect relative prices, so any attempt to stabilize the average price must also change prices relative to one another. So the statistics might look good but an individual will not experience stable prices.

If anything, with commodity money prices will go down as the economy grows because there are more goods and services available and the same amount of money. Isn't deflation bad? Not this kind of deflation. Nobody complains when high definition TVs or computer hard drives get cheaper. Someone who does not want to take investment risks could simply store money and enjoy getting richer as the economy grows. This is an advantage of commodity money.

Now that we understand money, Schlichter goes on to describe the effects of money injection. How might this be done? Money could be injected evenly, instantly and transparently. Everyone's bank balance could be increased by 10% overnight. Because everyone holds exactly the amount of money they want at any time, prices have to increase by 10% to make everybody equally content with their money holding. And so they do, and the money injection simply decreases the value of a unit of money by 10%.

Money could be injected evenly and instantly, but without telling anyone. Consumers will spend the extra money on new goods and services thinking themselves to be richer. Producers won't know whether the new demand is genuine or simply the result of money creation, so they may invest in capital to increase production. All this activity will increase GDP and make the government look good. But as prices start to rise due to the extra money, consumers will stop buying the new goods and services. The new capital is wasted. This is what Schlichter calls a dislocation.

Finally, we can imagine a situation closer to the real one. Money is injected unevenly and without telling anyone. People who get the new money are in luck: they can spend it on shiny things. Shiny thing producers also do very well for a while. Lots of new transactions occur and again there is a temporary spike in GDP. But as the new money disperses, prices will rise, demand for shiny things will decrease, and shiny thing producers will go bust because they have wasted their money on shiny thing making machinery. Some people will see only rising prices and not get any shiny things at all.

To make the model even more realistic, Schlichter introduces savings and interest rates. Left to its own devices, interest rates reflect people's time preference. If people want goods and services now, they are less inclined to lend out their money so interest rates are high. If their immediate needs are met, they look to the future, lend out their money, and interest rates are low. When interest rates are low, producers are more likely to borrow money to spend on capital creation to increase production capacity. The new production is likely to find demand as people spend their savings.

Now, let us imagine we want to create money by making it available on the loan market. To get people to take out the loans we offer them at low interest rates. This encourages producers to borrow money to spend on capital goods such as new tools and machinery. But the money does not come from people who have decided to save. Those people still want consumer goods today, and are still buying them; the resources used to make them have not been freed up. Some producers of consumer goods switch to making tools and machinery to satisfy the increased demand. Production of consumer goods decreases so prices go up. Now people are paying more for what they do want, consumer goods today, and there is a lot of new machinery making things that people don't want. The creation of money has not just increased prices but it has changed prices relative to each other. That is a dislocation. In fact, it is a complete mess.

What should happen next is that producers discover that there is no demand for their increased production capacity, and their projects fail. That would be the market correction. But this looks like a recession, so governments encourage even more money creation to postpone the correction. Each time around, larger and larger money injections are needed.

Now all this money creation got started in the first place so that states could spend more, and this reason has not gone away. Much of the newly created money is used to buy government bonds. When the government borrows money, it is not borrowing from future generations as is often said. It is diverting present day resources to be controlled by the government. This weakens the productive capacity of the economy which again is countered with lowered interest rates and GDP-boosting money injections.

None of this is likely to end any time soon, partly because no government wants to be in charge when the almighty correction does happen, and partly because governments need money to be created so that they can borrow increasing amounts of it to make up for their decreasing tax revenues.

I have missed out lots: historical examples; a whole section on fractional reserve banking and the relationship between banks and the state; the role of professional economists; rebuttals to opposing arguments; and so on. But this is a flavour of the gist of it.

(5)

A few minutes back I was glancing through Chinese trade statistics, in an attempt to put together the hopefully reasonably detailed post on what is going on in China that Brian has been nagging me to write.

With respect to Europe, the stat that pops out is that Germany runs a significant trade surplus with China, but that the eurozone as a whole and even more the EU as a whole runs a large deficit. Trade patterns with China are responsible for part of the immense stresses that now exist on the €uro. The German surplus puts upward pressure on the currency at the same time that the southern deficits put strong downwards pressure on it.

One thing that comes up is the "Hong Kong Problem" in the statistics. Many containers of Chinese exports from the factories of Shenzhen and Dongguan are carried over the border into Hong Kong, and are then shipped from the port of Hong Kong. Others are carried to the port of Shenzhen and then exported from China directly. Which port is chosen determines whether the export shows up in China's trade surplus with America or whether it shows up in Hong Kong's trade surplus with America. It is not difficult to simply consolidate the numbers, but this is not always done, and figures are sometimes misleading because of this. The two ports of Hong Kong and Shenzhen are only a few miles away from each other, and are at present third and fourth in the list of busiest container ports in the world, but would be the busiest by far if counted together. I had seen the port of Hong Kong many times prior to my last visit to the area in 2008, but I was curious about the port of Shenzhen, so I visited the Yantian district of Shenzhen.

After I wandered down the roads between warehouses and goods yards full of containers for a time, and took many photographs through gates, a man in a uniform gestured to me to stop and went of to consult with someone else in a more impressive uniform. At this point I thought it would be good to make myself scarce, so I departed rapidly down the road and out of the container port. (I sent a text message to a private equity fund manager friend of mine in South Africa, who urged me to keep taking photographs, as he was interested in seeing them, and because "Mike, your safety is something I am entirely willing to risk").

But anyway, I made myself scarce. A half hour later I found myself walking along the shore past a rusting Russian aircraft carrier, which was apparently the centrepiece of a bankrupt, cold war themed theme park named "Minsk World". After a while of this, I departed for a different area of Shenzhen, and somehow managed to end the day drinking a weissbier served to me by a young Chinese woman wearing a dirndl, while sitting on the deck of a boat that had once been Charles de Gaulle's private yacht.

However, it was a good day. It is only on very special occasions that life gets this weird.

When buying two old Soviet aircraft carriers from the Ukrainians, the Chinese claimed that their reason for doing this was to convert them into tourist attractions. Reputedly, the actual situation was that they hoped to learn as much about aircraft carriers from them as possible, and then refit them as actual aircraft carriers. Upon discovering that they were in fact large and immense floating pieces of rust that had actually not been very good aircraft carriers in the first place, in a possible attempt to save face, the Chinese did attempt to convert them into tourist attractions after all. Thus the two Soviet military theme parks, one in Shenzhen based around the Minsk and the other in Tianjin based around the Kiev.

Both subsequently went bankrupt, a day out while looking at rusting remnants of the Soviet Union not apparently being a big attraction for the young Chinese. The Kiev carrier in Tianjin has apparently been subsequently converted into a hotel. The Minsk in Shenzhen continues to rust.). The Chinese in 1998 purchased the incomplete Admiral Kuznetsov class carrier the Varyag, which was at that point floating somewhere in the Ukrainian waters of the Black Sea. The carrier was officially bought by a Macau based tourist venture, with the pretext being that it would be converted into a casino. In this case, though, it remains in the hands of the Chinese military. After a (very) lengthy refit, it may one day enter into service in the Chinese navy.

All evidence is that the Chinese did in fact purchase Charles de Gaulle's yacht with the intention of turning it into a floating Bavarian beer bar, however.

(7)

The pessimism expressed here for some time about China is now being expressed more widely.

Yesterday, via one of my favourite blogs, that of Mick Hartley (I especially like Hartley's own photos), I found my way to some other photos by David Gray, of China and its newly minted ruins of the last decade and more. My favourite of these is the very first in the set displayed at the end of that link, which has what it takes to become "the" Chinese picture for right now.

It looks very impressive from a distance …

… but if you look at it closer up, it turns out to be a structure constructed by an idiot, full of steel and concrete, accomplishing nothing.

A few weeks ago, Samizdata's travel and much else besides correspondent Michael Jennings, who has (of course) recently been in China (he has recently been everywhere), was talking of doing a piece about the mad building spree now, still, going on in China. I'd still love to read such a piece, but I fear that Michael may have missed that particular boat, in terms of revealing anything very shocking.

Happily, he did comment at length on an earlier short Samizdata posting about the Chinese construction bubble.

(1)

"All corporate taxes fall on households in the end. Companies might be convenient places to get cash from but they are not the people actually carrying the economic burden. It is some combination of shareholders, workers and consumers that are carrying the burden: those getting the social services which they are unable to fund."

- Tim Worstall, dealing with yet another piece of nonsense from that over-blown socialist buffoon, Richard Murphy. I have to admire Tim's stamina in how he relentlessly mocks and refutes the rubbish from Murphy. But someone has to do it.

(2)

This afternoon I visited the office of The Real Asset Co, and talked with Ralph Hazell (CEO), William Bancroft (Head of operations), and Jan Skoyles (Economist). I have hardly begun to digest the lessons I learned from what they told me. But in the meantime, let me at least supply a link to this video interview that Jan Skoyles did with Steve Baker MP, our favourite politician by some distance here at Samizdata. Jan Skoyles is living proof that you can earn a living as an "economist" without knowing an enormous pile of things which are not so.

More and more, I find myself fearing that Baker is just too good to be true, and that some frightful skeleton will one day soon come tumbling out of his closet. I have absolutely no rational basis for such fears. It is just that the man is a politician.

I recall sitting next to Baker at a Cobden Centre dinner about a year ago, and rather rudely telling him that I expect from him: absolutely nothing, on account of him being a politician. He has already far surpassed my wildest fantasies. This video interview once again had me blinking in disbelief at the sheer uncompromising sensibleness of what he was saying. I did take a nap earlier this evening. Was I dreaming again? Apparently not.

(7)

This afternoon I attended an event in the House of Commons organised by the Adam Smith Institute, to launch their publication (published in partnership with the Cobden Centre) entitled The Law of Opposites: Illusory profits in the financial sector, by Gordon Kerr. Kerr himself spoke.

Alas, Gordon Kerr is a rather quiet speaker, and he did not use a microphone. Worse, after the talk had begun, I realised that right there next to me was some kind of air conditioning machine whirring away, in a way that made following Kerr's talk difficult. Live and learn.

But I got the rough idea. Bad accountancy rules make disastrously unprofitable banks seem like triumphantly profitable banks, and those presiding over these banks are paid accordingly, even as their banks crash around them. And much more. The ASI's Blog Editor offers further detail.

Good news though. I, like everyone else present, was given a free copy of The Law of Opposites. See if you can spot why I am reproducing the cover here. I am sure this will not take you long. I was interested to see if the effect in question would survive my rather primitive scanning skills. It does:

This publication is quite short, less than a hundred pages in length. Even better news. You don't have to buy a paper copy like the one I now possess if you don't want to. You can read the whole thing on line.

(4)

I am on the Cobden Centre email list, and I have to be careful about confidentiality with regard to many of the emails I read. However, the one I just got today from Jamie Whyte is presumably intended to get around:

I'm on BBC's Radio 4's PM programme tonight, discussing the report on the FSA's failure to notice that RBS was about to fail - up against some former official of the FSA. I am afraid they are going to edit what I said (fingers crossed on that) and also that I cannot tell you the exact time my item will come on the programme, which starts at 5pm, I think.

The FSA is the British financial regulator. RBS is the Royal Bank of Scotland. According to the man from the FSA, the Royal Bank of Scotland's woes were caused by poor decisions.

I'm guessing that Jamie Whyte will be a bit more informative than that. I am out and about this evening, but it looks like there'll be a recording available, for a while. If nothing else, this is further evidence that the Cobden Centre gang are putting themselves about.

LATER: I managed to listen to Jamie Whyte's performance, and better, to record it. Here is what he said in his opening statement:

[The FSA] did fail. But I don't blame it on the individuals of the FSA. I think that they have an impossible task. What's happened in banking is that because of government guarantees to those people who lend money to banks, explicitly in the case of retail depositors – you and me with our ordinary money in the bank, and implicitly and pretty reliably in the case of wholesale lenders to banks, because they're government guaranteed, there is no price mechanism any longer in the banking market for risk. So banks can take as much risk as they like and without paying a price for it. Normally what would happen in a free market is that it would become more expensive for banks to borrow money. And that doesn't happen. There's no risk premium for banks taking larger risks, because the people lending the money realise that the government will bail them out.

Now the effect of this is that basically the government is subsidising bank risk taking on a massive scale. And the job of the FSA is to counteract that. There are these rules – the Basel rules and so on about capital requirements. And then there are supervisors, regulators, people who go into the banks and check they're complying, and their job is to counteract the massive incentive towards risk taking that the government has already provided. Now the question is: can they do it? They obviously failed to do it. Can they, if they do a better job? And I think they can't.

And the reason they can't is that there are almost infinitely many ways that banks can take risks. The rules will always specify some particular ways, and regulators will go in, looking at that stuff. Are they doing this or that? But the bankers are very clever and they can always come up with other ways of taking risks, and I just think it's a hopeless task that they've been given.

Whyte's opponent in the debate, a Mr Jackson, got off on the wrong foot at the start of his reply:

I think it's very easy to blame the regulators.

Which many are indeed doing, but not Jamie Whyte. His point was that their task is impossible.

Mr Jackson went on to say that he thought that the regulators could do better, by, you know, doing better. And the BBC gave him the last word. Which was him saying that the regulators could indeed … do better.

But Jackson never really said why he thought this. There was talk of cats and mice, and of how the mice are very numerous and very incentivised and the cats unable to cope. The general idea was aired of making regulators less numerous, better paid and above all "better trained", and of having these few regulatory titans apply only one simple all-embracing regulation, rather than lots of regulations (with lots of omissions), namely: Banks must behave well! Putting the regulators entirely in charge of banking, basically, although that was not quite spelt out. It was classic Road to Serfdom stroke Economic Calculation stuff, with one guy saying that calculation is screwed and should be unscrewed by the state retreating rather than advancing, and the other guy saying: we can still regulate better in the future (despite the evidence of the recent past), by making the arbitrary power of the state even more arbitrary and even more powerful (and hence even more likely to screw things up on an even grander scale in the future).

Just who "won" this argument is anybody's bet. I think that Whyte made a much stronger case than his opponent, but I would, wouldn't I?

More to the point, anyone generally inclined to favour free markets, capitalism, etc., to favour rational economic calculation and to oppose serfdom, would definitely have scored it a win for Whyte on points. Such a person might even want to dig further into the argument with some internet searching. At which point the fact that Whyte is spelt with a "y", and that Whyte was introduced only as a "financial commentator" (rather than being from, say, the Cobden Centre) won't have helped any.

Perhaps this posting will help such searchers after truth rather more.

(13)

I cannot claim to grasp much of the detail of all the drama now surrounding the EUro. This photo, taken by me yesterday, captures the feeling of it all quite well:

Click to get that bigger and more legible.

Is all this drama being cranked up to enable Cameron to take the credit from us Brits for bollocking up the Euro, and simultaneously to enable everyone else in EUrope to blame us? Just, as Americans say, askin'.

One little titbit of news that does strike me as particularly interesting is this, in the Wall Street Journal, about how various governments are quietly pondering EUro-alternatives. At the very least, someone at the Wall Street Journal is asking about alternatives.

It all makes me think of those bridges that Julius Caesar burned, so that his army then knew that they would either fight and win, or perish. Except that this time, various parts of the army are nipping back to the various rivers that they just might be wanting soon to be retreating across, and are quietly building bridges. Just as burning bridges changes the game, so does building them. Even thinking about building them changes things.

(14)

I greatly enjoyed this article by Kevin D. Williamson about Thomas Sowell. Sowell is now in his eighties. When somewhat younger, he looked like this:

Here is what is probably the key paragraph in Williamson's Sowell piece:

Because he is black, his opinions about race are controversial. If he were white, they probably would be unpublishable. This is a rare case in which we are all beneficiaries of American racial hypocrisy. That he works in the special bubble of permissiveness extended by the liberal establishment to some conservatives who are black (in exchange for their being regarded as inauthentic, self-loathing, soulless race traitors) must be maddening to Sowell, even more so than it is for other notable black conservatives. It is plain that the core of his identity, his heart of hearts, is not that of a man who is black. It is that of a man who knows a whole lot more about things than you do and is intent on setting you straight, at length if necessary, if you’d only listen. Take a look at those glasses, that awkward grin, those sweater-vests, and consider his deep interest in Albert Einstein and other geniuses: Thomas Sowell is less an African American than a Nerd American.

My strong is Williamson's italics.

I'd never thought of Sowell as being anything like this guy …

But yes, I guess maybe there is a resemblance. Here is link to a brief snatch of video of Moss saying something very Sowellish, about the importance of getting a good education.

By the way, I am not calling the actor and director Richard Ayoade a nerd. I don't know about that. But I do know, as do all who enjoy The IT Crowd, that Ayoade's TV creation, Moss, most definitely is a nerd, and a nerd first and a black man way down the list, just as Williamson says of Sowell.

Although, as a commenter said of this bit of video: "Richard has a bit of Moss in him." A bit, yes. But what has really happened is, surely, that Ayoade was a nerdy kid, and has kept hold of it for comic purposes.

I suspect Sowell did something similar, and, as Williamson suggests in his article, in a more courageous and significant way. He too was a genuinely nerdy kid, who could understand truth better than he understood the demands of fashion. Then, when he got older and started to tune into the zeitgeist, he had to decide if he was going to shape up and get with the liberal (in the American sense) fashions of his time or stick with that truth stuff he had got to like so much. He stuck with the truth.

Also, I don't believe Sowell would ever remove a water tank (see the second of the two video links above) and then be surprised that his plumbing no longer worked properly.

(17)

By the end, we may see profligate politicians hanging from lampposts. But there’ll be a lot of bad stuff, too.

- Instapundit

LATER:

But all joking aside, if the current profligacy continues, and America winds up in a Greece-style (or worse) collapse, politicians may not wind up hanging from lampposts (we don’t really do that here), but they will at the very least likely face the kind of investigations, prosecutions, and social opprobrium normally reserved for child molesters and Bernie Madoff types. I don’t think they fully appreciate that. If they did, they’d be acting differently.

(4)

Indeed. Press release from these guys:

Good luck with that.

Seriously, good luck with that.

I will try to be there.

(6)

Legitimately self-made African billionaires are harbingers of hope. Though few in number, they are growing more common. They exemplify how far Africa has come and give reason to believe that its recent high growth rates may continue. The politics of the continent’s Mediterranean shore may have dominated headlines this year, but the new boom south of the Sahara will affect more lives.

From Ghana in the west to Mozambique in the south, Africa’s economies are consistently growing faster than those of almost any other region of the world. At least half a dozen have expanded by more than 6 per cent a year for six or more years.

The Economist, 3 December, page 77. (Behind the magazine's paywall, so thank me for typing it out for you). The magazine has a nice study of the continent, laying out the continued problems but also the many bright spots. There is a handy map showing which countries have the fastest and slowest GDP growth rates, with the fastest rates in black (Ethiopia, at 7.5 per cent), then red, lighter red, all the way down to the deadbeats, in white. Of course, in looking at percentage rises or falls in growth, it pays to remember that statistics can be highly misleading (hardly a surprise to any skeptics of government, of course) and it is easy to rise fast from a low base. But still, these numbers are indicative of a more positive picture.

Needless top say, Zimbabwe came at the bottom of the growth league. It remains a grim lesson in how collectivism, cronyism and debauchery of money spell disaster. If parts of Africa are beginning to understand the follies of this and start to make serious money, that is excellent news. For a start, refugees from the hellholes of the continent might, instead of entering sclerotic Europe, choose to make a life in a more congenial place elsewhere.

Of course, there have been false dawns before. But with the flood of money entering the continent from China (after all that commodity wealth), I have a feeling that the rise of Africa has some staying power, particularly given the young demographics. Of course, it could all be messed up from things such as a rise of global protectionism.

(13)

There is something about this story about bank debt buybacks that I don't quite understand, although I have only had two cups of coffee as of the time of writing:

"European banks are turning to buying back their own debt in order to raise some of the billions in extra capital required by regulators. At least six major banks have launched debt buybacks in the last two weeks and investment bankers say more are likely."

Okay, so if a bank has debt - ie, others are lending it money - and the bank buys back, or in other words, pays off some of that debt, like paying off a credit card, say, how is this raising capital? The bank is presumably paying the debt off with, er, what? Fairy dust?

"In Lloyds’ case, it will exchange bonds previously issued for new instruments that are compatible with new regulations. The move allows lenders to book profits and reduce the stock of non Basel III capital on their books without issuing new equity or offloading assets."

This is not very clear. What is the defining characteristic of "Basel III capital" in this case?

Finally we get a glimmer of how this actually works:

"The capital raised in this way is likely to be in the hundreds of millions. It boosts earnings by realising “own credit” gains that are otherwise purely theoretical. The market price of banks’ debt has fallen dramatically in recent weeks, which enables banks to buy back their debt for an amount above the market price but below the cash they raised by selling the instruments, booking a profit."

Now I understand - I think.

As usual, the CityAM publication has a blisteringly good item on the Eurozone's latest absurdities today. It is become my daily morning read. The fact that several of its writers are friends and acquaintances is, of course, purely coincidental.

(13)

Incoming email from newly signed up Samizdatista Rob Fisher (who can only do emails right now) about how Oxfam is proposing a global shipping tax. Watts Up With That? has the story.

Says Rob:

This is extraordinary. Read the whole thing but in particular the money flowchart diagram.

Bishop Hill calls this Oxfam creating famine.

Says Anthony Watts:

These people have no business writing tax law proposals, especially when it appears part of the larder goes back to them. This is so wrong on so many levels.

Says Bishop Hill commenter ScientistForTruth:

These [snip - please tone down the language] are in principle no different from the pirates operating out of Somalia, wanting to skive money off international shipping. And just as Oxfam would be solicitous to ensure that no-one gets their hands on the dosh unless they sign up to an eco-fascist agenda, so the pirates will be sure to share the booty only with their mates.

I do enjoy those Bishop's Gaff Bishop's Rules bits in his comments section. Perhaps "what a bunch of total snips" will catch on as an insult.

(8)

Paul Mason, BBC Newsnight's economics editor (and the guy who fronted that Keynes v Hayek radio show we've blogged about here), picks Detlev Schlichter's Paper Money Collapse as one of his five economics books to give people for Christmas.

Mason begins his Guardian piece thus:

Two questions predominate in this year's slew of books on economics. The first is the most obvious: how do we get out of this mess? It's a question that has set authors along many roads but they all lead to the same destination: a bigger role for the state and the need for renewed international co-operation.

Which, alas, explains why Detlev Schlichter is so pessimistic about good sense prevailing in financial policy before ruin engulfs us all. The world's rulers have pushed the world slowly but surely into a huge hole, and all that Mason's authors (aside from Schlichter) can recommend is digging the hole ever deeper.

A "bigger role for the state" is not the solution to the world's problems just now. That is the problem, and it has been for many decades.

At least Schlichter's kind of thinking is getting around, and, as this piece by Mason proves, in some somewhat surprising places. Mason may not fully understand Austrian economics to the point of actually agreeing with it, but he does seem (as I said towards the end of this earlier posting) to respect it. He knows it is saying something important.

Schlichter has been unwavering in his pessimism about the world getting "out of this mess" and he is being proved more right with every week that passes. When total ruin does arrive, we can only hope that he and people with similar opinions to his will then be listened to rather more.

(16)

Reading this piece, linked to by Instapundit today, we see that politics in the USA, and in fact everywhere, is a trialogue rather than a dialogue. All parties to the trialogue (definitely including me) believe that the other two camps are wrong, and many in each camp believe that the other two camps are actually one camp.

The three camps are:

Camp 1: Capitalism is fine, so long as the government stays in charge of it and does a few more of the right things and a few less of the wrong things. The mixed economy is fine, if only we can just mix it right, and meanwhile preserve confidence that all will be well. No need for radical change. Trust us. No, we're not convinced that'll work either. Camp 1 is very powerful, very clever, very unwise. For now.

Camp 2: Capitalism is an evil mess. This crisis was caused by capitalism - naked, unregulated, unrestrained - being let loose by neo-liberal fanatics. What should be a poodle has become a wolf. Do whatever it takes to make capitalism a poodle again. Yeah, yeah, we need a bit of capitalism, to make stuff, but not nearly as much as we've been having lately. Anyone who gets in the way … boo! We hate you! No, we don't think that'll really work either, even if the people were willing to give it a go. They won't, so boo! And if they did, it would fail horribly, and we'd have to blame capitalism even more. So … boooooo. Camp 2 is very stupid, but horribly numerous.

Camp 3: Capitalism would be great, but what we've had has not been capitalism - unregulated, unrestrained, as hoped for by us neo-liberal fanatics - but capitalism mixed with statism in a truly horrible way. What we've seen in the last few decades has been crony capitalism, capitalism with politicians in its pocket, so that whenever a big chunk of capitalism looks like failing, most notably a big bank, the politicians squirt more money at it. Which ain't proper capitalism. Meanwhile, capitalism even of the crony sort makes better stuff. Capitalism, the real thing, should also be allowed to make better money, the kind that is allowed to fail if it does fail. The adjustment process will be horrific. No, we're not sure that will work either. If we could do it, it would work great. But will we ever be allowed to do it? Camp 3 is right. But maybe not numerous enough or clever enough (maybe not wise enough) to win, and prove itself right.

Like all such glib divisions of reality into this, this, and this, this is an oversimplification. Many swither from one camp to another, and quite a few, I surmise, find themselves in all three camps in one day, depending only on their mood and on the last thing they read. Those who do know which camp they're in still swither about which of the other two is more stupid and more evil, and therefore how to handle the other two. Try to smash them both? Or join with the less worst to smash the most worst, and then win the victorious coalition spat with the less worst? But if the latter, which is the less worst and which the most worst? Or maybe combine with the most worst against the less worst, because that might work better? Pardon my grammar but these are grammar-straining times.

President Obama, as described in the piece linked to above, is a classic Camp 2-er, who is using Camp 1 to try to contrive a victory for Camp 2 which he could not contrive if he merely did Camp 2 stuff over and over again. Camp 1 uses Camp 2 all the time, and no doubt still reckons that it is using Camp 2 man Obama. It may well be right.

My inclination is to shout as loud as I can for my camp, Camp 3, and bugger the other two. They are both wrong, and will both fail. Camp 1 is creating a catastrophe, which it has no idea how to even stop creating let alone clean up after. Camp 2 is catastrophe pure and simple. But, catastrophically, it may well soon combine more publicly with Camp 1 to ruin everything and keep it ruined.

Camp 3 is the right one. It has to win. How it can win, I don't fully understand. But we have to contrive that. My method for contriving victory will be to shout as loud as I can that Camp 3 is right right right. Luckily, others in Camp 3 are cleverer and more subtle than me. They are good Obamas, you might say, adept at using Camps 1 and 2 to contrive steps in the right direction for Camp 3. But are my righteous Obamas numerous enough and cunning enough? It doesn't now feel like it. But maybe they may yet prevail.

(7)

People who know me are most likely sick of my ranting against the Economist magazine, but an article in the present edition deserves to be noted - as example of establishment statist folly.

Under the title of "Poor By Definition" we are told that the Chinese government has adopted an international measure of poverty (support for international government, European-world-whatever, is one of the defining features of the establishment to which Economist magazine writers belong) which will mean that one hundred million extra people will get various forms of government benefit. This is "good news" - "for them" and "for the economy".

Let us leave the World Government (world definition of poverty, claim of entitlement...) stuff aside - like its support for the European Union, the international statism of the Economist is too demented (and too unpopular - outside a narrow international elite) to be worth further comment. I will just comment upon the social and economic claim being made in the article.

One hundred million MORE (not less) people getting various forms of government benefit is a "good thing". Someone can only suppose it is "good for them" if they have ignored all the careful examination of what welfare dependence does, to individuals, families and whole communities. Works such as "Losing Ground" have been out for some time - but if the Economist magazine writers have not yet got up to speed with Aristotle and Cicero (who made similar points about the Greek and Roman worlds) it is perhaps too much to hope they would have read and understood more recent studies on how just handing out benefits undermines people - destroys families, undermines communities by destroying self help and mutual aid. And on and on - the growth of the "underclass" and the destruction of such institutions as the family among large segments of the population (the poor) all over the Western world, has been a central element of the history over the last 40 to 50 years - but the Economist magazine writers have totally missed it.

As for "good for the economy" this is the spend-our-way-to-prosperity fallacy that the Classical Economists (such as J.B. Say and Bastiat) thought they had killed off - but got a zombie rebirth with the influence of the late Lord Keynes. As Hunter Lewis points out in his "Where Keynes Went Wrong", what we call "Keynesianism" (all the central fallacies) had been refuted long before Keynes was even born - even Karl Marx (not known as a hard core "right winger") laughed at the absurdities of what is now called "fiscal and monetary stimulus". However, neither the works of the Classical Economists or more recent works (such as those by W.H. Hutt.., Henry Hazlitt, Ludwig Von Mises and many others) have had any effects on the minds of the international elite - because they have never read such writers. Their education is confined to nonsense and, being intelligent (but not wise) and hard working people, they absorb the nonsense and it remains with them for the rest of their lives. They base all their policy opinions and proposals on a foundation of nonsense - which they learned (with great attention) in their early years. They are (falsely) taught that rejecting common sense is the mark of the "intellectual" (putting them above the common herd of humanity) - and so they reject common sense (basic human reason) with a passion, embracing the absurdities they are taught, perhaps, because what they are taught is absurd.

Lastly the Economist magazine article declares that the money is better spent on expanding welfare schemes than on Chinese banks. An odd statement considering that the Economist magazine has been the leading defender, in the English speaking world, of credit bubble banking and government bailouts. From the rather limited interventionism (corporate welfare) suggested by Walter Bagehot (third editor of the Economist and enemy of then Governor of the Bank of England who, quite rightly, thought that Bagehot's suggestions would encourage all that was bad in banking) to the "unlimited" (their word - used repeatedly in articles) money creation (money creation from NOTHING) that the Economist magazine has supported in relation to bank bailouts in the United States and for bank, and national government, bailouts in the European Union. Again for the Economist magazine to attack money being thrown at the banks (anywhere) is very odd. The last demented spit of a demented article - the product of an intellectually bankrupt elite who are pushing the world towards bankruptcy. Not just economic bankruptcy - but social, cultural and moral bankruptcy also.

(16)

Paul Krugman:

"Although Europe’s leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole."

Let us fisk this:

"The story so far: In the years leading up to the 2008 crisis, Europe, like America, had a runaway banking system and a rapid buildup of debt. In Europe’s case, however, much of the lending was across borders, as funds from Germany flowed into southern Europe. This lending was perceived as low risk. Hey, the recipients were all on the euro, so what could go wrong?"

Nice piece of snark, which I do not demur from.

"For the most part, by the way, this lending went to the private sector, not to governments. Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis."

That may be true. I have not checked. However, the fact that Spain's public finances went down the toilet so fast does not quite suggest that the Spanish public sector was a model of mean-minded prudence.

"Then the bubble burst. Private spending in the debtor nations fell sharply. And the question European leaders should have been asking was how to keep those spending cuts from causing a Europe-wide downturn."

No, they should have been facing up to the fact that a vast number of mal-investments were caused by a decade of under-priced credit, and that there was no way that such a build-up of bad investments can be unwound painlessly. Seeking to hold off the pain by increasing public spending (and hence scaring the hell out of the global bond market) is hardly likely to achieve the desired effect.

"During the years of easy money, wages and prices in southern Europe rose substantially faster than in northern Europe. This divergence now needs to be reversed, either through falling prices in the south or through rising prices in the north. And it matters which: If southern Europe is forced to deflate its way to competitiveness, it will both pay a heavy price in employment and worsen its debt problems. The chances of success would be much greater if the gap were closed via rising prices in the north."

That may be true in crudely political terms; after having enjoyed the fat years, those who have done so are not likely to enjoy a lean period. However...

"But to close the gap through rising prices in the north, policy makers would have to accept temporarily higher inflation for the euro area as a whole. And they’ve made it clear that they won’t. Last April, in fact, the European Central Bank began raising interest rates, even though it was obvious to most observers that underlying inflation was, if anything, too low."

Well, it seems a bit glib to assume, as Keynesians like Professor Krugman do, that the inflation will prove to be temporary... Riiiight... One key problem for the eurozone, as he ought to know, is that labour markets in much of the region are so heavily regulated that getting a meaningful adjustment in wages and prices is hard, and yet this has to happen if countries such as Greece and Germany are to co-exist under the same currency area without strife. The same issue, of course, would apply if the whole region were to adopt, say, an inelastic system of real money instead of fiat money issued by a central bank or banks.

Another point for Professor Krugman to remember is that in some member nations, such as France, there has been double-digit percent unemployment for the young long before anyone had heard about sub-prime or credit crunches. And Europe's record for wealth and job creation, compared to that of the US prior to the crunch, has been and remains lamentable.

(8)

James Taranto quotes Thomas Edsall, saying (among other things) this, about the kinds of votes that Democrats are now trying to get, and other votes that they are no longer bothering to try to get:

All pretense of trying to win a majority of the white working class has been effectively jettisoned in favor of cementing a center-left coalition made up, on the one hand, of voters who have gotten ahead on the basis of educational attainment - professors, artists, designers, editors, human resources managers, lawyers, librarians, social workers, teachers and therapists -

Edsall goes on to say that the whereas the Dems have now given up on the white workers, they are still eager to get all the non-white workers to vote for them.

One of the ways to understand the libertarian movement, it seems to me, is that it is an attempt to convert from their present foolishness all those "professors, artists, designers, editors, human resources managers, lawyers, librarians, social workers, teachers and therapists" whom Edsall so takes for granted. It gives them the "social libertarianism" that they are so wedded to (even if they often don't get what this actually means), but it insists on the necessity of at least some – and in the current circumstances of economic crisis – a lot more - libertarianism in economic matters. Okay, libertarianism will never conquer these groups completely, but it threatens to at least divide them, into quite a few libertarians or libertarian-inclined folks and not quite so many idiots.

Also, demography is not destiny, when it comes to voting. People's "interests" are not necessarily what many party political strategists assume them to be.

The thing is, it is entirely rational to vote for more government jobs and more government hand-outs (a) if you are at the front of the queue for such things, and (b) if the supply of such things is potentially abundant, or not, depending on how you and everyone else votes. But, if the world changes, and you find yourself at the top of the list to have your job or your hand-outs taken away from you, in a world which is going to take these things away from a lot of people no matter how anybody votes, it makes sense to ask yourself different questions, and to consider voting for entirely different things. Like: lots of government cuts, so that you aren't the only one who suffers them, and so that the economy has a chance of getting back into shape in the future, soon enough for you to enjoy it.

The far side of the Laffer Curve is a rather strange place. Different rules apply.

Quite a lot of unemployed British people voted for Margaret Thatcher in the 1980s, because they reckoned that Thatcher was a better bet to create the kind of country that might give them - and their children and their grandchildren - jobs in the future and a better life generally. (Whether or not they were right to vote for Thatcher is a different argument. My point is, this is what they did, and they were not being irrational.)

There is also the fact that how you vote in such circumstances of national and global crisis will be influenced, far more than in kinder and gentler times, by how you think. For a start, how bad do you think that the national or global crisis actually is? If you think it's bad, what policies do you think will get that economy back motoring again, in a way which has a decent chance of lasting? How you vote depends on how you think the world works. And how you think can change.

(21)

The concept of property is fundamental to our society, probably to any workable society. Operationally, it is understood by every child above the age of three. Intellectually, it is understood by almost no one.

But property rights are not the rights of property; they are the rights of humans with regard to property.

- from The Machinery of Freedom (1973) by David Friedman, Part 1, "In defense of property".

(12)

This is an attempt to get an Instalanche, so he will probably ignore it just to make the point that he doesn't do Instalanches for anything that flat out asks for it. Although, on the other hand …

Either way, two recent objects of linkage at Instapundit in recent times have been Climategate and Goldman Sachs. Well, this Climategate email, spotted by Bishop Hill commenter "GS" (3:27pm), concerns Goldman Sachs, so the Prof ought at least to be interested:

Goldman Sachs #4092

date: Mon, 18 May 1998 10:00:38 +0100
from: Trevor Davies
subject: goldman-sachs
to: REDACTED,REDACTED,REDACTED

Jean,

We (Mike H) have done a modest amount of work on degree-days for G-S. They now want to extend this. They are involved in dealing in the developing
energy futures market.

G-S is the sort of company that we might be looking for a 'strategic alliance' with. I suggest the four of us meet with ?? (forgotten his name) for an hour on the afternoon of Friday 12 June (best guess for Phil & Jean - he needs a date from us). Thanks.

Trevor

Instapundit has also long been interested by the BBC, as a phenomenon of more than local interest. So I would also recommend to him, and to people generally, a read through of the Bishop Hill comment two down from that one above, this time from "ThinkingScientist" (3:41pm). He copies and pastes an email from a BBC Producer to Keith Briffa, about how Briffa must "prove" (the BBC Producer's inverted commas) in a BBC TV show that there is something very extreme about the supposed current warming spurt. In other words, Briffa must put the C (for catastrophic) in CAGW.

GW for global warming has clearly been happening, although it is not nearly so clear that it is still happening now. (Anyone who denies the second is routinely accused of denying the first.) A for anthropogenic GW is widely believed in, but its scale and even existence are matters of fierce controversy. It's that C for catastrophic on the front of AGW that this is all about. For a power grab this big, there has to be a C in there.

LATER: And, we have our Instalanche. Many thanks sir. (And thanks to the commenter who corrected my earlier wrong spelling of Instalanche.)

(3)

Last Tuesday Detlev Schlichter gave another talk, one of several that he is doing around now in various parts of the world, on Paper Money Collapse. Last Tuesday's talk was organised by the Adam Smith Institute. I attended this talk and can vouch for the fact that the audience was such that it was standing room only by the time it started, partly thanks (or so I was told the following day) to this City AM report of an interview that they recently did with Schlichter.

This talk is now available for viewing on video, a fact which I learned at Libertarian Home, thanks to a posting there by Andy Janes, who describes it as having been "very impressive, if terrifying". Indeed. You can watch it there. It lasts just under fifty minutes.

(3)

The Daily Telegraph has an article defending the idea that general practitioners can and sometimes do out-earn the banking business. Of course, people have not traditionally gone into the medical field looking to make millions, although some innovators of medical patents, for instance, may have done just that. Generally speaking, I take the view that so long as doctors are operating in a free market, then what they receive is a matter of indifference to me. Good luck to those who do well, I say. If we had a genuine market in healthcare, then the high salaries paid to the best doctors would, in time, attract bright people to become doctors rather than say, derivatives traders, or whatever.

Of course, this is not the present situation. With many doctors, their pay is partly driven by their membership of a restricted profession and in the case of the UK, by the money spent by the taxpayer. And as for bankers, or at least some of them, they too benefit from the privileged access to central banking funding of their employers, from bailouts, from barriers to entry erected by regulators, and so on. So if people in Wall Street and the City do get sniffy about how much the men and women in white coats sometimes get paid, remember, they are not quite operating in a free market world, either.

(7)

Yes, I know that there might be some room for doubt here, but an example I came across in the news pages of CityAM today clearly highlights how so-called environmental taxes are hurting the economy and costing jobs, often in areas already in dire straits:

RIO TINTO yesterday said new environmental taxes and red tape were partly to blame for the closure of its Lynemouth aluminium smelter in Northumberland, risking 600 jobs.

The mining giant said the smelter “is no longer a sustainable business because its energy costs are increasing significantly, due largely to emerging legislation.

It is thought that the coalition’s controversial plans for a carbon price floor, announced in the 2011 Budget, are being blamed alongside EU emissions trading and large combustible plant rules.

Earlier this month, the lobby group Energy Intensive Users Group said Rio Tinto was among dozens of firms asking the government for some relief from the carbon price rules.

An agreement has not been made in time for Lynemouth to remain open, though a government “support package” is due before the end of the year.

The government recognises the need to support energy-intensive industry,” said a Treasury spokesperson yesterday.

Personally, I think risking 600 jobs is pathetic. If the AGW alarmists are really that good, they should be looking to risk millions. They need to raise their game.

Sorry for the sarcasm, but you can see why this blog, along with others, gets angry about the lying and bad faith of those "scientists" who exaggerate their doomongering, and the politicians who embrace their ideas. It has consequences for actual lives.

(7)

This evening I dined with a friend, and on my way there took this snap of an Evening Standard headline. A couple of years ago I thought that the Evening Standard itself - never mind these billboards - would soon be extinct. But although diminished in number, these headlines are still a familiar part of the London scene, now as then usually telling of catastrophe of one kind or another, public or personal. This evening's offering was no exception:

Here's the story. Depending on your preferred explanation for this sad circumstance, you'll pick out a different bit of the story. I pick this:

The shocking new total was published today as Bank of England governor Sir Mervyn King warned Britain is in danger of sliding back into recession.

He downgraded his growth forecasts again, saying the economy will expand by one per cent this year and next, a fraction of the hoped-for rate.

As Instpundit would say: Unexpectedly! It would appear that quantitative easing is proving less than completely stimulating. We here are not shocked by this bad unemployment news.

For a little light relief, here's a snap I took later, on my way home:

The advertising trade was bound to take advantage sooner or later of the wave of health and safety signage that is such a feature of British life just now. This is the first time I've noticed it, but I'm sure others have seen such things many times already.

(9)

In London right now, it is an hour or more past 9 am. But in Cape Town, South Africa, just over an hour ago, it was 11:11 am, on the 11/11/11 (November 11th 2011), and South Africa needed 111 runs to win the international cricket match that they were playing against Australia. South Africa, sadly, were not 111-1, chasing 222. They were 126-1, chasing 236. So, time and date oddities aside, a cricket match is drawing to a calm, even predictable end. Right? Well, yes. But yesterday, 10/11/11 or 11/10/11 or whatever you call yesterday, it was very different.

Those baffled and/or repulsed by cricket and its arithmetically obsessed followers like me should probably skip the next few paragraphs. Summary: this has been one weird test match. But now, skip down to where it says: "Okay, here is my serious Samizdata-type point."

Okay cricket nutters, on we go with the story. Here is the sort of thing that was happening in Cape Town yesterday:

W W . 4 . . | W . . . . . | . . W . . . | . . . 4 . W | 1 1 . W

At the end of the first day of this test match, Australia had reached a rather meagre 214-8, but on the morning of the second day, yesterday, they did better, getting to 284 all out, thanks to more excellent batting by their new captain, Michael Clarke, who was last out for 151. South Africa then progressed to 49-1 at lunch. So far so normal.

About an hour later South Africa were all out for 96 having only just avoided the follow-on, the above WW stuff being a slice of that action. Australia then went into bat, and at the tea interval were themselves struggling on 13-3. Then, in no time at all after tea, they had slumped to a truly catastrophic 21-9. They then recovered, if that's the right word, to the dizzy heights of 47 all out. Another action slice:

W . . 3 . . | . . . W . . | . W . W

The South African Vernon Philander, playing in his first test, took five wickets for fifteen runs, bringing his total for the match to eight. Quite a start. Earlier Shane Watson had taken five for seventeen for Australia.

A Cricinfo commenter suggested that Australia should declare at tea time, setting South Africa two hundred to win in very adverse conditions. He didn't say, an hour later, that Australia should have declared at tea time. He said it at tea time, when Australia were 13-3. And they probably should have! Australia having batted successfully in the morning, South Africa began their second innings and ended this bizarre day with similar batting success, reaching 81-1 by the close. Today, they began needing only a further 155 to win. If South Africa do win, they'll be thanking their last wicket pair, Dale Steyn and Imran Tahir, who added thirteen and saved that follow-on. Take away that stand, and South Africa might have lost by an innings by now. As it now stands, and given that they have made a fine start this morning, South Africa now look sure to win.

If, despite being a cricketphobe, you read all that and would like to know approximately what it means, think of it as the cricketing equivalent of a world cup soccer quarter-final match between, say, Italy and Germany, where the scorecard after half and hour was 0-0, but by half time it was Italy 6 Germany 0, and then about fifteen minutes later it was Germany 8 Italy 6, followed by twenty entirely goalless minutes with Germany looking favourites to play out time and win it, 8-6. Calm, mayhem, even greater mayhem in the opposite direction, calm. Bizarre, right? I'll say.

Okay, here is my serious Samizdata-type point. (Welcome back, normals.)

My point is that the internet is uniting the world into one huge ultra-high-density global super-city. Not a global village, because that would suggest that everyone knows what everyone else is talking about, and, as the above few paragraphs illustrate very adequately, that is not at all what is happening. Most of us are baffled by most of what goes on in our Global Super-City, most of the time. But the thing is, cricket fans like me can now tune into the fine detail of matches which we would never before have been able to find out about. And you can likewise easliy tune into the fine detail of whatever it is that gets you excited and has you interrupting your normal daily routine.

When I was a kid, the British mainstream media (the only media we had so we didn't then call them "mainstream") enabled me only to pay attention to local cricket games between English counties, and international games between England and whoever England were playing. Following games like this one that is finishing up today, between South Africa and Australia, was something I could not do, in earlier decades. And when cricket got pushed off the British sports pages by soccer (as I had better call it here), life got even harder for what we would now call a "virtual" cricket fan like me. But then, the internet changed everything. It took me a while to realise how much things had changed, but now, I lend a fraction of an eye and ear to pretty much all international cricket matches, and sometimes, as yesterday, my day is severely deranged by events that just demand to be attended to.

Now, like I say, search and destroy the word "cricket" from the above couple of paragraphs, insert instead whatever you care about that happens all over the world, often involving total foreigners on both or all sides. Replace my incomprehensible cricket blather with your own preferred incomprehensible blather. You can now pay attention to that, in a way that you probably never could before. We can all now do this.

This results in a world not so much of geographically separated national cultures, but of globe-spanning and intersecting communities, uniting people from all over the planet into a tightly woven ball made of countless different strands of different coloured and different textured string and wool and twine.

That is an exaggeration. All prophecies of the death of the nation state for as long as the nation state has existed have been exaggerations, and this one is no different. As far as cricket is concerned, the internet doesn't just plug me into faraway international matches between Not-England and Not-England; it also enables me to track English county cricket in far greater detail than I ever could in earlier decades, even when I was a kid and cricket still vied with soccer as our national game. Nevertheless, the biggest change of the last decade, for me as a cricket nut, has not been that I see my local cricket foreground better, although I definitely do. It is that I see the once far distant world beyond my own country, which in the past I couldn't not ignore, in the exact same detail.

Similar things have happened in politics. More and more, our various "national" political rulers now also have their own globe-spanning communities of shared interest, and they now increasingly seem to feel more fondness and loyalty towards one another than they do to anyone who merely lives in their country, whom they merely "lead" or "represent", and it is a different world. Am I the only one who now regards David Cameron not so much as our Prime Minister, but as the local District Commissioner? For part of his day he represents Us to Them, but from where we sit, he seems to spend a great deal more of his time and energy representing Them (he being one of Them) to Us, imposing Their interests on top of Our interests. To me, it all feels rather Medieval, by which I mean that local considerations still matter, but that our rulers are not really members of our various local clubs. They merely own them. They have their own club.

And actually, this has been going on for quite a while, because unlike the rest of us, the world's rulers have for many decades now had their own email and internet equivalents. They have long been able to afford international phone calls and international telegrams. They flitted around the world, before the rest of us did. The internet has changed the politics of the world not by turning it global, but by causing the rest of us finally to notice that it has been global for quite some time.

That, in my opinion, is a pretty good way to understand the Twentieth Century and its numerous dramas and disasters and mysteries. This was not just a time of national war and national contention. It was a time of global civil war, hot and then cold, in which members of that global club wrestled with one another, using the rest of us as their cannons and cannon fodder, to determine what sort of global club they would all end up members of, and which of them would be the senior members of it. Then, our parents and grandparents found it hard to see this. Now, we can all see it. (Don't forget that the internet also contains lots of history, much of it different from the national histories that dominated the past.)

South Africa now coasting. 214-1, needing only another 22 runs. Hashim Amla finally out for 112. South Africa 222-2, still needing another 14. Not long to go now. And … South Africa win by eight wickets, with their captain Smith reaching his century off the last ball of the game? It looks that way. Dot. Dot. Dot. One. No, Smith 100, but scores even and South Africa still need another one. Dot. New over. Dot. One, and that's it.

(16)

Incoming email from an acquaintance:

I just saw Robert Peston on the BBC 1 News at 10pm. He was recommending that the ECB come to the rescue of Italy and Greece on the ground that it is the only EU institution "capable of creating unlimited resources". Not unlimited money; unlimited resources! It's magic.

Somebody should Occupy the BBC.

A BIT LATER: I just googled "ecb unlimited resources". Alas, plenty of hits. Try it. Peston is only expressing a general mood. A general mood of complete insanity, but a general mood.

(16)

The world's financial system, run by institutions that were a few short years ago considered to be too big to fail but which are now too big to bail, is collapsing. But, the making of mere things, not now nearly so fatally deranged by government imposed regulations or corrupted by government supplied moral hazards, continues to flourish. Will thing-making survive the financial turmoil of the next few years? Who knows? Meanwhile, it has been and it remains a good time to be alive and thing-using.

A thing I particularly enjoy using is my digital camera. However, my current camera feels a bit ancient, and I believe I could now get a better one. But which? In this posting I solicit advice on the matter.

Very roughly, there are now three types of digital camera. There are the little ones like face powder cases which people carry for fun, such cameras often nowadays being included in mobile phones. At the other extreme, there are the SLRs with a small mountain of lenses you can attach to them, for people who, facing the choice between life and photography, have chosen photography. And then there are cameras for people like me, who adore photography but who also want lives. What we want is the absolute best camera we can have, without having to swap lenses all the time.

Well, that's how it sometimes seems to me. To be more polite to the SLR crowd, it may be more a matter of how they like to photograph, compared to how I like to. They photograph slowly and carefully and infrequently. I photograph voraciously and opportunistically, one moment snapping something right under my nose (like a mad safety notice), and the next moment wanting to capture something I spot in the far distance (like a big new tower with something else amusing in the shot between it and me - often involving a trick of the light which may vanish at any moment), and I never know which it will be until I see it. You can surely appreciate how annoying swapping lenses back and forth would be for me. What I want is one super-versatile lens, which I can either make erect or flaccid depending on distance, within about one second. For the SLR fraternity, artistic impression and precision of image is all. For me, those are good, but the point of the snap is what is being snapped. So long as you can see that okay, usually in a photo that I include in a blog posting, good enough, technically speaking, is, for me, good enough.

For several years now I have had a Canon S5 IS, and very satisfactory it has been. But now, things have moved on, and I can now get a technically much improved camera, with does much better pictures and has massively more zoom, hardly any bigger and while still not having to faff about with those lenses.

Those who think I am wrong and that I should get an SLR can comment away to that effect all they like, but I will pay no attention. What I want is comments about what I am now looking at. And what I am now looking at is two cameras of the sort that I have just described, the Panasonic Lumix DMC-FZ150 and the Canon SX40 HS.

   

There are already an abundance of reviews of these two beasts on line, including even reviews like this, which compare the two head to head. But, I would love to know what our commentariat is able to tell me about this choice, before I go ahead and make it.

Both the above cameras have twiddly screens, like the one demonstrated by the Canon in the above photo. My current Canon S5 has this feature, and I would hate to be without it. Last Saturday, for instance, I was absolutely not the only one photo-ing those veteran cars, and I often had to hold my camera up above the heads of the crowd in front of me to get any sort of shot. Contrariwise, you often want to put the camera right down on the floor, to get (e.g.) the exact dramatic cityscape background that you want, for something like an outdoor portrait. In each of the above cases, only a twiddly screen will tell you what you are getting. There are also quite a few circumstances when I am taking snaps but would much rather that the snappees don't realise it. A twiddly screen is very handy for that too.

Both the above cameras do good picture quality, compared to all other comparable cameras. Picture quality does matter to me, in the sense that I want the best picture quality I can get without lens swapping. The earlier versions of the two cameras mentioned above (the Canon SX30 and the Lumix FZ100) both seemed to embody the idea that if people like me got a twiddly screen and lots of zoom, we would be willing to relax on the picture quality front. Not so. We want all those features, but given all of them, we also want the best possible pictures that are compatible with all that, and what is more we are willing to pay quite a bit extra for that picture quality. Lots of us said this on the internet, about the SX30 and the FZ100, to the effect that we'd prefer better pictures and would be willing to pay extra for them, or, just as threateningly, that we would be prepared to wait for them, in the meantime making do with whatever cameras we already had. Canon and Panasonic have now responded accordingly. Good for them.

However, there are some quite significant differences between the Canon SX40 and the Lumix FZ150, and these differences mean that I cannot now decide which would, for me, be the best. This is where I would really appreciate whatever Samizdata commentariat input that commenters are willing and able to offer.

First, both have huge zoom lenses, but the Canon's is (significantly?) huger. The Lumix is x24. The Canon is x35. I would be interested to learn, from anyone with an opinion on the subject, just how much difference there is between those two lenses. Would I, for instance, merely get a far distant London skyscraper a bit bigger, and a bit more detailed, with a x35 lens? Or would it feel more like twice as big, and twice as detailed. If the latter, then it's the Canon for me.

Then there is the matter of "RAW". The Lumix does this. The Canon does not. RAW files are uncompressed, and enable you to do a lot more post-production tinkering and improving, such as bringing out details hidden in shadow, but without turning the sky entirely white. All the Canon offers is JPG files, which are compressed, and less susceptible to later Photoshop-type tweaking. But would that really matter to me? I suspect that RAW is for the few-but-perfect-shots fraternity, rather than for me, a snap-early-snap-often photographer. Also RAW files are huge compared to JPGs, so I'd probably run out of card space if I used RAW a lot, and of hard disc space if I wanted to store all my RAWs. Plus, I've never been keen on post-production manipulation anyway, beyond a bit of cropping and sharpening, which only takes seconds. I suspect if I had the ability to take RAW pictures, all I would do would be to fret about whether to take RAWs or make do with JPGs, and not do any actual RAW processing. So, both cameras would be okay, including the Canon. But, comments? Was anybody reading this at first not attracted by RAW, but then got a camera which could do RAW, and found that RAW was great?

Finally, the Lumix is said to be quicker in things like focussing and rapid-fire shots. I imagine my current camera is probably much like the new Canon SX40 in this respect, and I do sometimes find myself shouting at it to get a move on. So for this, I say to myself: Lumix. Again, comments?

Best of all might be comments from people who have zeroed in on the exact same choice that I am now facing, and who have made their choice and can now report on it.

Maybe I should do what I did when pondering the Lumix FZ100 and the Canon SX30, namely wait for something better. Or, now, even better.

When it comes to digital cameras, there is nothing so wonderful as having the exact camera you want, and nothing sillier than spending a hundred and fifty quid less on a camera that is not what you really want. Nevertheless, all other things being approximately equal, price might decide this particular camera contest, for me. The Canon is significantly cheaper than the Lumix, so maybe, all other considerations having failed to tell me the winner, price will settle the decision in favour of the Canon.

I will end where I began, with a reference to the big bad world we are now living in, and are most of us worrying about living in. It may seem rather frivolous, on the day that the news channels are all now discussing the next big financial domino that is about to fall (Italy), to be writing here about digital cameras (although I note that Johnathan Pearce didn't have any worries writing about wristwatches in an earlier posting today). But there is nevertheless a pertinent point to be made about the Big Picture that we are now facing so fearfully, based on choosing between things like digital cameras. The last few decades, we can now see, have offered us a major contrast, between the excellence of the arrangements that have cranked out digital cameras, and all the other brilliant toys we've lately been blessed with, and the non-excellence of the arrangements that have now given us … Italy. And I like to at least now hope that this contrast may be getting through to a wider audience, right about now. There does indeed seem to be quite widespread agreement, first, that the banking system is an unholy mess, but, second, that capitalism as a whole should not be done away with. If that's what the public does feel, then I believe the public is getting two out of two.

Put it like this. When the Panasonic Lumix FZ100 had a huge zoom lens and a superb twiddly screen, and took pictures with great rapidity and great ease, but when these pictures turned out to be of a rather disappointing quality, nobody said that the government should step in to ensure better picture quality. We just yelled at Panasonic to do better, which they duly did. Panasonic, we shouted, you may be big, but you are not too big to fail. Make a better camera or we'll go elsewhere, or just buy nothing at all. Panasonic duly made a better camera. Ditto Canon. And people like me can now choose which is the very best.

I trust that my point - which Perry de Havilland might want to refer to as my "meta-point" - is clear.

It's far too late to prevent global financial catastrophe now. We are now living through Keynes' long run. But after Keynes' long run (and our present) has crashed down in ruins and has become our immediate past, then what? I like to at least hope that the lesson embodied in my previous paragraph but one might have been learned, in enough minds if not all, and in enough significant and influential minds, to make a significantly beneficial difference to our longer run.

What I would like would be a world in which we are all induced to take as much care choosing between banks – by being significantly rewarded if we do that and significantly punished if we don't - as I am now able to take in choosing my next camera. I would like a world in which choosing between banks is choosing between different versions of really quite predictable excellence, rather than like choosing with a pin between different versions of … Italy. The camera-choice I am now enjoying says to me that the bank-choice I can only now dream of is at least a theoretical possibility.

(13)

Most politicians don’t know any better. They certainly don’t know any economics. So the same toxic policy mix of Keynesian deficit spending and Monetarist money printing has been implemented around the world since this crisis started four years ago. Just like in any other recession of the past forty years, ever since Nixon cut the last link to gold and fulfilled every interventionist’s wildest fantasy: unlimited paper money under full control of the state! Yeah, baby, no more recessions!

Alas, no. The academically trained Keynesian economist is too committed to his or her beliefs to let the facts get in the way. Why has policy not worked? Because, wait for it, we have been too timid. We need the same policy. We just need more of it. A lot more.

- from the latest Schlichter File, posted today.

LATER: See also this recent interview with Schlichter.

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Guido Fawkes, aka Paul Staines, takes time out from his usual regime of dishing the dirt on our unlovely Political Class and goes into a more reflective tone of voice with a good piece about one of the lessons of the financial crisis: the problem that the people who run banks often have no financial liability for losses. He's not the first person to state this, of course: Kevin Dowd, who gets regular plugs on Samizdata, has been writing about this issue for years.

The issue of whether publicly listed, limited liability banks are a problem or not is one that often puts classical free marketeers at odds. Some self-styled free market purists argue that limited liability, inasmuch as it is created by statutory law rather than an emergent phenomenon arising from private contracts, is bad. Others might argue that LL is valuable in making it possible to have large-scale investment projects. Even so, there does appear to be some case, in my view, in looking at the rules under which banks operate. With our current fiat money system, fractional reserve banking, deposit protection and the rest, it seems anomalous that bank shareholders and bondholders, in addition to the cozy protections thus described, have the additional protection of limited liability. One idea, as Dowd has argued, is to increase the total liability that any owners of banks have. So if a shareholder owns, say, £100 of stock in Fred Smith Bank Corp, then his or her liability can be double that amount, or treble that amount. This may not satisfy the purists, but it would, in part, curb some of the more foolish risk-takers.

It should be remembered that in countries such as Switzerland, its collection of genuine private banks (not listed behemoths such as UBS) are private partnerships, and family members - as at Pictet - have unlimited liability for losses. It tends to focus the mind. Exploring how bankers and owners of banks can be made to take a more prudent view on risk-taking makes more sense, in my view, than creating daft and draconian rules on bonuses and salaries for senior staff.

By the way, when Guido Fawkes writes a strong piece like this, it seems to traumatise his less intelligent commenters.

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Beijing is full of empty shopping malls and empty apartment buildings. There are at least 60 million empty housing units in China, and probably a great many more than that. The absurd construction boom that continues to go on here is many times bigger than the rest of the world combined, and the Chinese banks are many times more bankrupt than those anywhere else

- Michael Jennings (currently in Beijing)

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What will happen to the Euro? I am not asking "what should happen", but what will happen. Take this opportunity to put your predictions on the internet, and later be hailed as a true prophet or derided as a false one.

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For any of you who may be feeling particularly depressed about the state of the economy, politics and the regulatory leviathan in general, this will cheer you up greatly. It certainly improved my overall outlook.

Although this trend is very much a good thing, I do have some concerns. One of them is for intellectual property protection. All advances in technology and the arts are the result of intellectual endeavors, and assuring the rewards and return on investment of those endeavors is essential to continue the advances. Another concern I have is for 'real' property rights. I would very much like to hear from any of the Samizdata commentariat who have access to, and perhaps even do business in "l'economie de la débrouillardise."

As the dollar and the Euro flare off into nothingness like the methane from a decomposing landfill, I presume System 'D' is Plan 'B' for advanced Western societies as well. How will that unfold?

(9)

Whether the issues are terrorism, AGW, contagious diseases, the movies of Charlie Sheen (that was a joke), today's advocates of Big Government often look to the Transnational solution. Let's have one government! No more hiding places for bad people!

As readers might recall, I have written a few times about tax havens and the importance of the freedom of people to migrate not just their physical selves, but their money. Now, depending on your point of view, tax havens are either refuges of scoundrels who refuse to pay whatever levels of tax are imposed on them by their fellows, or, in a more classical liberal vein, places for people who want to avoid double-taxation and where people can exercise their proper freedom to acquire, transmit and enjoy their private property as they see fit. This is not, I hasten to add, always a black-and-white issue. Some tax havens have been bolt-holes for crooks. And if you believe that even the smallest of governments need to tax to pay for basic services, then people who try to not pay anything for services they use by using offshore banking deserve a degree of censure. Governments could do a lot to put some of the shadier havens out of business by just reducing their own taxes, of course.

It is clear, in my view however, that the current campaign against tax havens as waged by groups such as the Tax Justice Network goes way beyond this sort of legitimate concern about criminal moneys. These guys want world government. Tax competition - which is another way of saying that countries should be free to set different taxes - is something they detest.

And now the Tax Justice Network argues that the Organisation for Economic Co-operation and Development, which is basically a club of rich nations (staff there pay no tax, by the way), is ineffective, because the tax treaties signed by various countries using OECD standards don't allow revenue departments to automatically seize information from other countries in a hunt for tax "cheats". Oh no, the OECD is a toothless tiger, and what is needed is a fiercer animal: the United Nations! Yes, the same UN that, let's not forget, did a splendid job in the Balkans during the 1990s, and which has prevented many a massacre in Africa, and which, as we know, was so fierce in its imposition of arms controls and sanctions vs the government of the late, unlamented Saddam Hussein of Iraq.

Forgive my sarcasm, but if there is anything more deluded than the oppressive idea of putting tax policy in the hands of an unaccountable body with such members as Russia and Iran, never mind good old Britain and the US, it is the idea that such a body could possibly be relied upon to deal fairly, impartially and thoroughly with the always-sensitive issue of tax.

Meanwhile, other people, such as Wendy McElroy, are waking up to my recent concerns about US foreign over-reach on the issue of tax.

(6)

(via Small Dead Animals)

(29)

Last night, when flicking through the TV channels, I watched the "documentary" film-maker, Michael Moore, talk about his own views on the Occupy Wall Street/wherever people. And he adopted that seductively reasonable tone of voice, although the general effect is spoilt by that annoying baseball cap he insists on wearing (who is he trying to fool, exactly?). The questions from the Channel Four interviewer were fairly softball stuff. At no point did the interviewer say something like: "So, given what you have said about greedy bankers and corporations, can we take it that you oppose the multi-billion bailouts of Wall Street banks, Mr Moore?"

I suspect that some of the OWS might indeed think that bailouts for banks are wrong, although if they follow their views through to a logical conclusion, it leads to laissez-faire, not the socialist nonsense of the film-maker from Flint. We need to keep making this point.

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Prudent savers hit by 'excessive' hidden fees on pensions

... sayeth the Telegraph...

The National Association of Pension Funds says that fees are too high and that consumers face an “eye wateringly complex” system of hidden levies. Last year, The Daily Telegraph exposed how pension charges could strip pensioners of up to three quarters of their income.

Well ok, that is entirely possible.

But does the fees that 'prudent savers' get charged not pale into insignificance compared to year after year of what artificially (i.e. politically driven) low interest rates has done to the very notion of being a 'prudent saver'?

Indeed if you simply save your money in some safe low yield instrument, in such an environment as we find ourselves today you are not being a 'prudent saver' at all. There is nothing prudent about it as your money is very unlikely to maintain its value vis a vis inflation... and that is exactly the intention behind the policies of the Fed and Bank of England. They want you to spend in order to appease the animal spirits that drive the economy, rather than be a 'prudent saver'.

That is who would-be 'prudent savers' should be railing against.

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Snapped by me earlier this evening:

One of the key arguments in Detlev Schlichter's Paper Money Collapse concerns the oft-repeated claim that the world's central bankers won't allow inflation to get out of control, because they are fully aware of what a very bad thing it is. But what if they also fear something else that they regard as even worse? Like the monster economic correction that a decades-long policy of easy money is now demanding, from the entire world?

The huge pile of paper next to this Evening Standard billboard seems rather appropriate, I think.

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I was responding to a comment under this article... when it struck me: why do so many people find this screamingly obvious fact so bloody hard to figure out?

"The banks stole our money. If you are not banker, that includes you. The banks stole from everyone - businesses, countries, citizens."

No, the politicians who bailed them out with taxpayer money stole 'our' money after they created the moral hazard that led to the banks doing the things that they were given the incentives to do.

In a sane world, said bankers should have simply been allowed to go bust... so the problem is not 'bankers', it is the people who refused to let the bastards go broke by giving them third party... taxpayer... money.

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Andy Janes has just bought one of these:

He paid £1.70. Not bad. But how many pounds will such a thing cost in a few years time?

Have a nice weekend.

(6)

I came across this good collection of messages via Tim Sandefur. "We are the 53 per cent" puts my sentiments across exactly.

I don't want to sound overly harsh; some of the Occupy Wall Street people, as Brian Mickelthwait notes, might have some decent views and with a bit of outreach, could be helped to understand the statist dimension to our current problems. But I am afraid that with a lot of them, I tend to share the scornful analysis of George Will.

Talking of those who feel they work too hard to spend their time protesting, there are echoes of Sumner's "Forgotten Man".

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Instapundit chooses the first few sentences of this piece about the Occupy Wall Street … thing, to recycle. But my favourite bit is where George Will summarises the OWS position:

Washington is grotesquely corrupt and insufficiently powerful.

I also agree with the following comment, which was attached to this:

The reason why these occupiers are getting so much attention is that the mainstream media think they're not idiots and are advertising them, and the right wing alternative media know that they are idiots and are advertising them.

Which says part of what George Will said, and which I agree with because I wrote it.

It is, when you think about it, easier to write about something that is rather small. When you encounter an OWS event, you can listen to anyone there who wants to say anything in about ten minutes. Compare that with working out what the hell everyone thinks at a Tea Party get-together. To do an honest job on that you have to be there for hours.

But then again, these protesters are not, perhaps, all of them, complete idiots. They are very right that things have gone very wrong.

We're due an OWS copycat demo here in London this weekend. Someone called Peter Hodgson, of UK Uncut, is calling for, among other things, "an end to austerity", by which he means him and his friends keeping their useless jobs for ever. Good luck with that, mate.

There is actually some overlap between what some of these Occupy London characters may or may not be saying this weekend, and what my team says about it all.

Laura Taylor, a supporter of the so-called OccupyLSX, said: "Why are we paying for a crisis the banks caused? More than a million people have lost their jobs and tens of thousands of homes have been repossessed, while small businesses are struggling to survive.

"Yet bankers continue to make billions in profit and pay themselves enormous bonuses, even after we bailed them out with £850 billion."

It's like the Tea Party in Britain is too small, and has to climb aboard Occupy London. Well, maybe not, because Laura Taylor neglects to mention the role of the world's governments in setting the various trains in this giant train-wreck in motion. Who caused the banks to cause this crisis? That's what my team wants to add. The banks were only doing what the politicians had long been incentivising them to do, and the banks are doing that still. The banks are only to blame for this mess in the sense that they are now paying the politicians to keep it going. But that is quite a big blame, I do agree.

So anyway, the British government, like the US government, is now also grotesquely corrupt, and it should jolly well pull its socks up, its finger out and itself together. And then be hung from lamp posts.

Seriously, I remember back at Essex University in the early 1970s how the Lenin-with-hair tendency thought that the answer to every problem in the world then was to occupy something, fill it with rubbish and then bugger off and plan their next stupid occupation. They were tossers then, and they, their children and their grandchildren are tossers now. Farce repeating itself as farce.

Maybe I'll dress up (as in: down) in shabby clothes and sandals with no socks (which I would never dream of doing normally) and join in, with a camera. Although, I promise nothing, because this weekend there is also the Rugby World Cup semi-finals to be attending to.

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Somehow, this man, Eoin, appears to be so thick (he's a Doctor, apparently) that I fear he should be banned from handling heavy machinery:

"We are taught by Cameron to regard small businesses as the engine room of entrepreneurial spirit in the UK. We are led to believe that their inventions, wealth creation and profits lead to employment and growth. But this is the stuff of fantasy. Three quarters of the 4.5million businesses in the UK employ no one. Their wealth creation serves their own ends. They create no jobs and do nothing to solve youth unemployment. The vast majority of small businessmen are in business for themselves. Evidence of civic virtue or a desire to create jobs is in preciously short supply and thus Cameron was wrong to shrug off record rises in youth unemployment as something that could readily be solved by small business."

So my wife, for example, who set up her own business (marketing for SMEs) has done nothing to reduce unemployment. So all those people who, for example, lost a job at a firm and who set up on their own are not doing anything to reduce unemployment unless they employ someone? Is this man for real?

Of course, given the job-destroying impact of red tape, employment protections on full-time and part-time staff, taxes, and so on, it sometimes is a marvel that anyone ever gets a paid job at all. I am a minority owner, and employee, of a small business in wealth management/media sector and every decision on hiring someone is taken with the utmost care, since it is difficult to fire someone if they are not up to scratch.

There are times when I fear that some people out there are so fucking stupid that Darwinian ideas of natural selection are in need of revision.

Thanks to Tim Worstall for spotting this piece of lunacy.

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Yesterday afternoon, I attended the meeting at the House of Commons that I flagged up here a few days earlier. It was a fairly low key affair, attended by about thirty people or more. Not being a regular attender of such events, I can't really be sure what it all amounted to. Things happen at meetings that you don't see. Minds get changed, in silence. Connections are made, afterwards. You do not see everything.

But what I think I saw was this.

The first thing to clarify is that this was the Detlev Schlichter show. Steve Baker MP was a nearly silent chairman. Tim Evans was a brief warm-up act. Schlichter's pessimism about the world economy was the heart of the matter. He did almost all the talking, and I believe he did it very well.

It's not deliberate on his part. Schlichter just talks the way he talks. But his manner is just right for politicians, because he doesn't shout, and because he so obviously knows what he is talking about, what with his considerable City of London experience, and that flawless English vocabulary spoken in perfect English but with that intellectually imposing German accent. He foresees monetary catastrophe, but although he has plenty to say about politics, and about how politics has politicised money, he is not trying to be any sort of politician himself. Basically, he thinks they're boxed in, and when asked for advice about how to change that, he can do nothing beyond repeating that they are boxed in and that monetary catastrophe does indeed loom. But what all this means, for his demeanour at events like this one, is that he doesn't nag the politicians or preach at them or get in any way excited, because he expects nothing of them; he merely answers whatever questions they may want to ask him. He regards them not as stage villains but as fellow victims of an historic upheaval. Despite the horror of what he is saying, they seem to like that. He didn't spend the last two months cajoling his way into the House of Commons. He was simply asked in, and he said yes, I'll do my best.

Present at the meeting were about five MPs, besides Steve Baker MP I mean, which is a lot less than all of them, but a lot more than none.

One, a certain Mark Garnier MP, seemed to be quite disturbed by what he was hearing, as in disturbed because he very much feared that what he was hearing might be true. Mark Garnier MP is a member of the Treasury Select Committee, which I am told is very significant.

Another MP present, John Redwood, was only partially in agreement with Shlichter. He agrees that there is a debt crisis, but doesn't follow Schlichter to the point of seeing this as a currency crisis. In other words, Redwood thinks we have a big problem, but Schlichter thinks the problem is massively bigger than big.

Redwood was also confused by Schlichter's use of the phrase "paper money", by which Redwood thought Schlichter meant, well, paper money. Redwood pointed out, quite correctly, that paper money that has hundred percent honest promises written on it, to swap the paper money in question for actual gold, is very different from the paper money we now have, which promises nothing. Redwood also pointed out that most of the "elastic" (the other and probably better description of junk money that Schlichter supplies in the title of his book) money that we now have is mostly purely virtual additions to electronically stored bank balances. We don't, said Redwood, want to go back to a world without credit cards or internet trading! All of which was immediately conceded by Schlichter, and none of which makes a dime of difference to the rightness or wrongness of what Schlichter is actually saying; these are mere complaints about how he says it. Such complaints may be justified, given how inexactly "paper money" corresponds to the kind of money that Schlichter is actually complaining about. But Redwood seemed to imagine that what he said about what he took "paper money" to mean refuted the substance of what Schlichter said. Odd.

For me, the most interesting person present was James Delingpole. (It was while looking to see if Delingpole had said anything about this meeting himself that earlier today got me noticing this.) The mere possibility that Delingpole might now dig into what Schlichter, and all the other Austrianists before him, have been saying about money and banking was enough to make me highly delighted to see him there, insofar as anything about this deeply scary story can be said to be delightful. But it got better. I introduced myself to Delingpole afterwards, and he immediately told me that he considered this the biggest story now happening in the world. So, following his book and before that his blogging about red greenery, Delingpole's next Big Thing may well prove to be world-wide monetary melt-down. I would love to read a money book by Delingpole as good and as accessible as Watermelons. If Delingpole's red greenery stuff is anything to go by, the consequences in terms of public understanding and public debate of him becoming a money blogger and a money book writer could be considerable. So, no pressure Mr D, but I do hope you will at least consider such a project.

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Do you think that the people occupying Wall Street are all idiots, parasitical permanent students, studying nothing of value, and demanding everything in exchange for that nothing? See also the previous posting, and its reference to "the zombie youth of the Big Sloth movement".

Maybe most of the occupiers are like that, but this guy seems to have grabbed the chance to say something much more sensible. Fractional reserve banking (evils of). Gold standard (superiority of). Bale-outs (wickedness of). Watch and enjoy.

What a laugh (in addition to being profoundly good) it would be if the biggest winners from these stupid demos were Ron Paul, and the Austrian Theory of Money and Banking.

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I submitted a comment to this blog, "From Poverty To Power", by Duncan Green, who is involved with the Oxfam International website. Oxfam International, I should point out, is a highly political non-government organisation that promotes what seems to be a distinctly anti-trade, anti-capitalist agenda. He supports the idea of a tax on global financial transactions, that has sometimes been dubbed a "Robin Hood tax" (rob the rich and give to the poor, geddit?). Samizdata readers will know the blogger, Tim Worstall, well, who leaves a typically well-argued comment on the piece I link to. I decided to have a pop myself. I have no idea if my comment made it on (I used a different ID). Here it is:

"I love the way that some here dismiss Tim. For those who don’t know, he is an entrepreneur and I suspect, knows more about economics and business than most of the folk on this board. His point seems to be unanswerable: taxes are a cost. Indeed, that is often their point."

"For instance, we tax alcohol and tobacco, for example, to drive down consumption for health reasons. Policymakers support imposing tax “costs” on certain items of consumption to reduce turnover. Sometimes, it is argued by people that property should be taxed more to discourage speculation in property, etc."

"So it seems fairly clear that taxing financial transactions will mean there will be fewer transactions overall, and that the volume will decline. This will, as Tim Worstall states, reduce liquidity, widen the bid-offer spreads in financial markets for things such as currencies, bonds, equities, commodities and so on. It will therefore be more expensive for people to obtain mortgages, buy currencies when on holiday, and so on. Of course, the tax will affect groups differently – that is another issue. But there will be considerable knock-on effects."

"Alan Doran: It is no doubt true that some funds will migrate to “rogue” tax havens where FTT does not hold sway. Well, a less negative way of putting it is that people do business where it is cheaper to do so, ie, where there are lower taxes. That is what is meant by economic freedom."

"An example of this is when, in the very late 60s, a change to the US tax treatment of bonds encouraged the development of an offshore eurodollar market in London. Capital migrates. If people want to stop or cut financial transactions and prevent trade, they should be more honest about it."

The idea of a financial transaction tax, or "Tobin Tax" (named after the economist, James Tobin) has been knocking around for some time. The Economist had a good item on it back in 2001.

Separately, Oxfam's socialist tilt has been noted for a long time.

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Yes, on Tuesday 11th, at around teatime, at the House of Commons, Steve Baker MP, Tim Evans and Detlev Schlichter (the links because both of the gents in the bold and blue lettering have had recent (favourable) mentions here) will be asking: Is the global economy heading for monetary breakdown?

I'm guessing the answer is going to be: yes. Although, I'm already imagining a comedy sketch where the first two say, actually, we've changed our minds, the answer is no. The world's currencies are all absolutely in the pink. Quantitative Easing is working a treat. We can all relax. And Speaker number three finds himself forced to agree with the first two. "Guys, you're right. My book is rubbish." If only.

Please spread the word about this event, not just so that people in the London area who are able to attend it may be persuaded to do that, but so that people all over the world may learn that ideas of monetary sanity are being argued for inside the House of Commons.

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Peter Thiel, the founding CEO of PayPal, has an essay up that makes the contention that the pace of technological innovation in the West, for various reasons, has slowed. He argues that this paradoxically may explain why, in the absence of serious tech change, investors are instead drawn to the dangerous finangling of asset markets such as property, and have fallen prey to the easy charms of high leverage. It is quite an interesting idea.

Here is an interesting couple of paragraphs:

"The most common name for a misplaced emphasis on macroeconomic policy is “Keynesianism.” Despite his brilliance, John Maynard Keynes was always a bit of a fraud, and there is always a bit of clever trickery in massive fiscal stimulus and the related printing of paper money. But we must acknowledge that this fraud strangely seemed to work for many decades. (The great scientific and technological tailwind of the 20th century powered many economically delusional ideas.) Even during the Great Depression of the 1930s, innovation expanded new and emerging fields as divergent as radio, movies, aeronautics, household appliances, polymer chemistry, and secondary oil recovery. In spite of their many mistakes, the New Dealers pushed technological innovation very hard."

"The New Deal deficits, however misguided, were easily repaid by the growth of subsequent decades. During the Great Recession of the 2010s, by contrast, our policy leaders narrowly debate fiscal and monetary questions with much greater erudition, but have adopted a cargo-cult mentality with respect to the question of future innovation. As the years pass and the cargo fails to arrive, we eventually may doubt whether it will ever return. The age of monetary bubbles naturally ends in real austerity."

It does rather go against the ideas of Matt Ridley about whom Brian Micklethwait writes below on this blog. Ridley's take on the pace of events is far more optimistic: he does not, for instance, share the gloomy outlook on food production that Thiel makes.

This rather gloomy "are the easy economic gains gone for good?" theme was also made recently in the Tyler Cowen book, called The Great Stagnation. Here is a somewhat critical review by Brink Lindsey.

Dale Halling, an entrepreneur and scourge of things such as the Sarbanes-Oxley Act and anti-patent campaigners, has his own take on why the pace of innovation in the US may have slowed.

I can see why a certain gloom might set in. Many of the innovations we see today, especially in things such as consumer electronics and mobile phones, don't have the majestic appeal of a space rocket, tall building or breakthrough in medicine. But these things are continuing: materials science, for example, which is an area that is not very "sexy" (to use one of my least favourite epithets) is full of innovation. And there are the developments in biotech and nanotechnology, to take other cases. And let's not forget that even in the midst of the Industrial Revolution, some people claimed that all that could be invented had been.

And here is another example of the sort of concern that gets aired about where all the big inventions have gone, taken from The Money Illusion blog:

"My grandmother died at age 79 on the very week they landed on the moon. I believe that when she was young she lived in a small town or farm in Wisconsin. There was probably no indoor plumbing, car, home appliances, TV, radio, electric lights, telephone, etc. Her life saw more change than any other generation in world history, before or since. I’m already almost 55, and by comparison have seen only trivial changes during my life. That’s not to say I haven’t seen significant changes, but relative to my grandma, my life has been fairly static. Even when I was a small boy we had a car, indoor plumbing, appliances, telephone, TV, modern medicine, and occasional trips in airplanes."

The worry is, of course, that in a world of low innovation and weak genuine economic growth, political fighting over the economic pie becomes nastier, and certain groups find life becomes very uncomfortable. Not a happy thought.

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Johnathan Pearce regularly mentions here the Rational Optimist himself, Matt Ridley, very admiringly, most recently in this posting. For those who share JP's admiration, there's a video of his recent Hayek Lecture, which everyone who wins the Manhattan Institute's Hayek Prize, for the year's best book promoting the ideas of individual liberty, gets to give.

Videos are also very handy for people like me, who only learn things half decently if told them several times, in different media, in different voices, so to speak.

I'm now watching this video at Bishop Hill, to whom thanks because this is where I learned of it.

Here's a quote from the lecture (of the SQotD sort that we like here) that has already stood out, as I concoct this little posting:

Self-sufficiency is another word for poverty.

Maybe that's two words. But: indeed.

As the man introducing him said, one of the things that makes Ridley particularly special as a writer is the enormous range of evidence that he brings to bear on the matter of why trade and trade networks work so fabulously well, compared to isolated individuals or isolated local communities.

The lecture lasts nearly an hour, but shows every sign so far of being very well worth it.

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It would (will?) be interesting to hear what our own Paul Marks has to say to in answer to this, from Ambrose Evans-Pritchard:

Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes".

This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events.

The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy - as well as the escalating costs of the EU rescue machinery - has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.

Clearly, Evans-Pritchard had in mind commentary like this (Paul Marks yesterday):

It is the end - not just the end of any prospect that people will really face up to their problems (rather than scream for endless bailouts), but also the end for any pretence that modern government is in any real sense "democratic". It is not a sudden emotional whim of the people that has been ignored - it is the settled opinion (conviction) of the people, which has been held (in spite of intense propaganda against it) for a long period of time, that has been spat upon.

Evans-Pritchard, however, says this:

Something profound has changed. Germans have begun to sense that the preservation of their own democracy and rule of law is in conflict with demands from Europe. They must choose one or the other.

Yet Europe and the world are so used to German self-abnegation for the EU Project – so used to the teleological destiny of ever-closer Union – that they cannot seem to grasp the fact. It reminds me of 1989 and the establishment failure to understand the Soviet game was up.

So, have things changed, or have they not?

I agree about the USSR parallels in all this. But Evans-Pritchard's reportage also reminds me rather of that vote of confidence that they had in the House of Commons, which Neville Chamberlain "won" in 1940, but actually lost.

I remember once speculating, here, there or somewhere, that one of the many things that could reasonably be said to have caused Word War 2 was the failure of any sort of German Parliament to meet - circa 1939, and say, in the manner of a British Parliament: No! No more of this! That time, the idea was for Germany to conquer Europe (and much else besides) with armies. Now the plan is and has long been for Germany to buy Europe, and give it to … EUrope. But the price is again proving ruinous and the object being purchased is a crock.

This time, the means are surely still in place, as they were not in 1939, for Germany to say: No! But, did they? And if not, will they? Over to you, Paul Marks.

LATER: Detlev Schlichter agrees with Paul, using the word Götterdämmerung. Germany, he says, is finished.

He also says this:

And one final word to my English friends. No gloating please about the clever decision to stay out of the euro-mess. You have the same thing coming your way without the euro. The coalition’s consolidation course is apparently so ruthless that every month the state has to borrow MORE, not less. Even official inflation is already 5% but pressure is growing on the Bank of England to print more money. See the comical Vince Cable yesterday, or Martin Wolf, the man with the bazooka, in the FT today. Since 1971 the paper money system has been global. Its endgame will be global, too.

Indeed.

(5)

Europe on the Brink, a Policy Brief published by the Petersen Institute for International Economics, makes for grim reading. My favourite quote from it is this subheading:

This potential break-up of the euro area is exactly what happened in the ruble zone when the Soviet Union broke apart.

"Potential"? Also, I think, for "euro area" read state-backed but not gold-backed currencies everywhere.

But the USSR comparison is spot on. When the USSR disintegrated, this was rightly hailed as a triumph for capitalism, but not rightly hailed as the triumph of capitalism. There were other walls yet to fall, other statist follies yet to be destroyed. The commanding heights of the economy used to be thought of as big companies that did physical stuff to physical stuff. 1991 was the date when the idea that governments should micro-manage such enterprises got its comeuppance, and the torrent of high quality stuff that has gushed forth ever since continues, as yet, unabated. But the real commanding heights, the loftiest and most commanding of all, the politically (mis-)managed currencies of the world, are only now collapsing.

Think of our current travails as the unfinished business of the twentieth century.

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As has been widely reported, Standard and Poor's (S&P) credit rating agency is under criminal investigation for the "crime" of rating various financial instruments as low risk ("triple A") when, in fact, these financial instruments were based on worthless mortgages (worthless as the original home loans were paid to people who had very little chance of ever paying them back).

No doubt S&P did not do their job of rating risk very well. After all S&P is part of a de facto government established cartel of ratings agencies (the vast level of regulation makes very difficult for new companies to compete in the credit rating business) and the government wanted its "affordable housing" policy to continue and part of that was for the original lenders (the banks and other such who had made loans to people who could not pay them back - partly to avoid legal action under the Community Reinvestment Act and partly because the Federal Reserve system was making lots and lots of cheap credit money available and it had to go somewhere) to be able to pass on the loans as securities and other financial products.

Also, of course, S&P (like the other ratings agencies) is paid by the people it is rating (not the people who want to check credit worthiness) so it has a perverted incentive to not look too closely at the financial products it rates - and the mortgage backed financial products (i.e. the pass-the-parcel-before-it-blows-up products) paid very well - especially as financial people (as financial people are apt to do) were using the mortgage based financial products as the basis for pyramid schemes - building vast constructions of debt upon them.

However, every single word of the above could be applied to the larger "Moody's" Credit Ratings agency. For example, it was the credit rating enterprise that rated the (utterly demented) government backed (and government created) "Fannie Mae" and "Freddie Mac" (the organizations that own most American home loans) as perfectly safe.

Yet Moody's is not under criminal investigation - why not?

By an odd coincidence S&P downgraded American government debt about a month ago - and (after observing the hostile reaction of the American government) Moody's chose not to. Could this (as some have claimed) be the latest example of the "Chicago Way" where commercial "friends" get rewarded politically - and "enemies" get punished?

The existing regulations already gave the government (via such agencies as the SEC) vast (and, to a great extent, arbitrary) power. But the passing of "Dodd/Frank" (an Act of Congress named after, arguably, the most corrupt members of the Senate and the House of Representatives at the time) completed the process of turning the American financial system and markets it a political toy - totally under the control of the government. And presently it is a very corrupt government - dominated by Chicago Machine people (from the President down).

However, it is hard to have much sympathy for the financial companies and traders - they are, after all, addicted to government subsidies and have long stopped being anything to do with "free enterprise".

For example, whenever a vast new government subsidy orgy is announced (such as a new round of funny money creation by the Federal Reserve - or a promise of a vast bailout for European banks) the markets go up not down. The long term is of no interest to most players on the market - they care only about the new money that government creates (from nothing) and their personal chances of getting some of it.

They (most of the financial elite) and the governments (for the other governments are much the same as the American one) are made for each other - it is just a shame that the rest of humanity has to live on the same planet as these people.

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"The great problem of recycling anything is that whatever it is that you’re after might be extremely dispersed. You can end up epending more energy, more labour, in trying to oncentrate it enough to recycle it than you would expend by simply digging up some new stuff."

Tim Worstall on the issue of recycling rare metals. The point he makes very well, in my view, is the issue about the scarcity of time. It takes oodles of time for people, even in their own households, to recycle stuff and sort it out, as opposed to acquiring material elsewhere. Now, if the value of the recycled stuff rises sufficiently to make it worth the while of people to recycle it, or the availability of dumping grounds for unwanted stuff declines sharply, the of course recycling will increase.

Everything has a cost. And time is one of the costs that legislators frequently don't stop to address.

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My only surprise is that an article as justifiably angry as this has not been written sooner. Here are Peter Oborne and Frances Weaver, in the latest edition of the Spectator. They have also penned an item called Guilty Men, published by the Centre for Policy Studies.

There are several institutions that are targeted. And I almost wonder if the authors of the article have been channelling our own Paul Marks on the subject of the Financial Times. Paul has written about the Economist also with venom. An example of what annoyed Paul about the Economist, is linked to here.

Here are the paragraphs that stood out for me in the Spectator article:

“Meanwhile the pro-Europeans find themselves in the same situation as appeasers in 1940, or communists after the fall of the Berlin Wall. They are utterly busted. Let’s examine the case of the Financial Times, which claims to be Britain’s premier economic publication. About 25 years ago something went very wrong with the FT. It ceased to be the dry, rigorous journal of economic record that was so respected under its great postwar editor Sir Gordon Newton.”

“Turning its back on its readers, it was captured by a clique of left-wing journalists. An early sign that something was going wrong came when the FT came out against the Falklands invasion. Naturally it supported Britain’s entry to the Exchange Rate Mechanism in 1990. In 1992, under the slow-witted editorship of Richard Lambert (in a later incarnation, as director general of the Confederation of British Industry, Sir Richard was to become one of the most sycophantic apologists for Gordon Brown’s premiership), it endorsed Neil Kinnock as prime minister. It has been wrong on every single major economic judgment over the past quarter century.”

“The central historical error of the modern Financial Times concerns the euro. The FT flung itself headlong into the pro-euro camp, embracing the cause with an almost religious passion. Doubts were dismissed. Here is the paper’s supposedly sceptical and contrarian Lex column on 8 January 2001, on the subject of Greek entry to the eurozone. ‘With Greece now trading in euros,’ reflected Lex, ‘few will mourn the death of the drachma. Membership of the eurozone offers the prospect of long-term economic stability.’ The FT offered a similar warm welcome to Ireland.”

“The paper waged a vendetta against those who warned that the euro would not work. Its chief political columnist Philip Stephens consistently mocked the Eurosceptics. ‘Immaturity is the kind explanation,’ sneered Stephens as Tory leader William Hague came out against the single currency. Even as late as May 2008, when the fatal booms in Ireland and elsewhere were very obviously beginning to falter, the paper retained its faith: ‘European monetary union is a bumble bee that has taken flight,’ asserted the newspaper’s leader column. ‘However improbable the celestial design, it has succeeded in real life.’ For a paper with the FT’s pretensions to authority in financial matters, its coverage of the single currency can be regarded as nothing short of a disaster.”

An interesting side point is that the authors seem to take it as read that individual countries should, as matters of sovereignty, have their own currencies. What the authors don’t state – and I don’t know their views on this – are their opinions on fiat money per se. It is, after all, not much consolation to supporters of free markets to replace one dud monopoly money system with a network of national monopoly fiat moneys instead. What we need is actual competition between and even more crucially, within countries. Remember the old idea of a hard money “parallel currency” that the likes of Nigel Lawson, former UK Chancellor of the Exchequer, toyed with?

Transnational currencies such as the euro may indeed be disasters waiting to happen. But national currencies can often blow up too, or devalue slowly but insidiously. That point needs to be made loud and clear. The end of the euro may be cause for grim satisfaction in some corners but that is not the only kind of economic folly out there.

(2)

I enjoyed listening to this Mark Steyn radio interview the other day. He gets seriously worked up and he's very effective in that medium, as well as in print. The show that I link to here has its advertisement segments. One ad, for some sort of investment trading product, talks about all kinds of clever trading ideas, but it had this jarring note, if I remember: "You don't get rich by saving money".

That's the current financial disaster in a nutshell. Saving money, accumulating wealth and investing it in productive assets such as businesses, is for saps. And with negative real interest rates (thanks to Messrs Bernanke, Greenspan and chums), saving money in the traditional way is a mug's game.

When the culture of steady wealth accumulation and savings is mocked like this, it adds up over time.

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Recently a friend told me something about kibbutzes (kibbutzim?) in Israel, which got me into speculation mode. My friend had, he told me, met quite a few people in the course of his various globetrottings who, attracted by the aura of idealism and general world-savingness that kibbutzes radiate, had spent time in a kibbutz. Such pilgrims, said my friend, had quite soon left, all of them disgusted by the experience. Far from being havens of a higher form of humanity, kibbutzes are incubators of nastiness and personal backbiting and unpleasantness of all kinds. Kibbutz life, said these people, had cured them of socialism for ever. Which makes me speculate that kibbutzes are, for this reason, a spectacularly good thing, for the people thus inoculated, and for the world, in more ways than I can count in a short blog posting.

The only kind of people said my friend, who live well in kibbutzes are, well, the kind of people who live well in kibbutzes. People who thrive under totalitarian socialism, basically. Good at politics, good at screwing people without appearing too obviously to screw them, in accordance with the rules of rigid egalitarianism. There are lots of rules, to suppress individualism, getting ahead, getting richer, and so on, and the individuals who understand these rules use them ruthlessly to get ahead, and even, if you are flexible about how you measure wealth, to get wealthy.

These "alpha personalities", as my friend described them, stick around, ruling the kibbutz with a rod of egalitarian iron. Many of the people lower down the Greek alphabet, without whom these alphas would presumably be rather helpless, are the transients, some of whom my friend had talked with. Young idealists, for whom life on a kibbutz is some kind of rite of Jewish passage. They arrive, serve their time until they can stand it no longer, and leave, taking with them an education in the realities of egalitarian collectivism that is given to few others in what is basically, still, a moderately free world. They experience such a regime good and hard, in a form that they can contrast with a life outside that kibbutz that is still massively freer, and then leave, taking that knowledge with them.

So, in addition to being one of the great new hubs of technological innovation in the world, the state of Israel, by permitting with its laws (including, presumably, a law which says that kibbutzes may not imprison those who no longer consent to being there), and encouraging with its ideological traditions, master classes in the realities of collectivism, is doing the world another huge favour. Kibbutzes are, you might say, re-education camps for precisely the sort of people who most require such re-education, and at a time in their lives soon enough to make a huge difference, to them and to the world.

I am a huge admirer of that human semi-collectivity called Jews, and pretty much an uncritical supporter of the state of Israel in its ongoing struggle to stay in existence and to flourish. But, and please do not misunderstand this next bit, I sort of agree with some of the more admiring bits in the ravings of the world's many anti-semites, present and past. Jews are rather special. A century ago or so, Jews did have an influence on the world that was far greater than their mere numbers would seem to have allowed. (I am a classical music fan, and the sheer scale of the Jewish presence in that world has been and remains extraordinary.) It did not follow from the super-achievements of Jews that therefore the Jews were evil and should all be murdered, and it does not follow now. But, they were a group of people very much to be reckoned with, and they surely still are, again way beyond their mere numbers in the world.

I therefore now surmise that an ongoing education programme, which turns energetic, adventurous and idealistic young Jews from devotees of collectivism in devotees of something more like the opposite, has got to be one of the very best things now going on in the world.

But, this is pretty much all speculation on my part. The question mark at the end of my heading is no mere afterthought. I admire Israel from afar, but have never been there, nor have I travelled very much in the world. (Maybe if I spent more time in Isreal, I would admire it less.) So I end with all the usual questions which thinking-aloud, but-what-do-I-know?, guess postings of this kind generally do and always should end with. Does any of the above make sense to any of our commentariat? In particular, how do the above speculations strike any readers of this who have pertinent knowledge of the matters I speculate about, of the sort which I do not have, beyond that small item of chat from a friend?

I can well imagine that kibbutzes might indeed do a bit of the good I describe, but be doing a lot more harm in other ways. Also, my friend, being of a strongly anti-collectivist inclination himself, could have been suffering from severe selection error. Maybe the world is full of Jews who have lived in a kibbutz and would like nothing less than to kibbutzise the entire world. But, I like to think not.

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“But even if there had been no march, the Okies would have been made obsolete by the depression. The histories of depressions show that a period of economic chaos is invariably followed by a period of extremely rigid economic controls – during which all the variables, the only partially controllable factors like commodity speculation, unlimited credit, free marketing, and competitive wages will get shut out.”

Cities In Flight, by James Blish, pages 421-422. From the multi-edition book published by Gollancz. Copyright 1970.

The book has many interesting themes for science fiction fans and interestingly, commodity-based money is a key plot device. The date of the copyright is interesting – it is just a year before Richard Nixon finally severed any link between the dollar and gold, to his everlasting shame.

Here is a nice appreciation of Blish over at "Templeton Gate 3.0".

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Corporatism in finance has brought ruin onto the world. Letting banks fail is messy, disruptive and ugly (though not as much as people think). But bailing them out creates moral hazard - it gives a blank cheque to reckless banks. Unless bad banks are allowed to fail, good ones cannot take their place. Preventing failure is good for established banks, but bad for everybody else.

Somebody needs to speak up for the freedoms of the many against the protections of the few. Corporatism - not capitalism - was at the root of the last crisis and it will be at the root of the next one. Britain needs to reject protections for businesses. It needs a free market revolution.

- Sam Bowman

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I have just posted the following review on Amazon.com of Paper Money Collapse. I only learned last night that the review embargo date had now arrived and that the time to be talking this book up is now, so this review was somewhat hastily written, although it is the result of quite a lot of thought. This was my very first review of any book on Amazon, and it shows, I'm afraid, particularly in my blundering attempts to italicise, which work here by those methods, but not there. Also, although I said I liked it, I didn't tick the box saying that I liked it. Can I do anything about any of that? Probably not. (LATER: actually, I now learn that you can edit these reviews. The italics thing now makes no sense!) Oh well, blog and learn, review on Amazon and learn. I will be amazed if I don't find myself wanting to say lots more about this book, but what follows is my first best shot.

An effort but definitely worth the effort - could be huge

I agree with the bit on the cover of this book where it says that this is not an easy read. For me, it has not been, and not just because the truths Schlichter spells out and explains are so not-easy to take. I am a huge fan of his, and have been ever since I first heard him talk about the analysis in this book in London about a year ago, but he makes me work hard. This book is heavy on logical exposition, much lighter on diverting anecdote. For the latter sort of Schlichter stuff, you must read his blog. 

One way to describe Paper Money Collapse might be to say that it is the sort of book that the great Austrian School economist and economic historian Murray Rothbard might have written, had he lived a bit longer. Last year I read Rothbard's Man, Economy and State. While doing this, I kept hoping that I would read a theoretical analysis of our current financial woes, as opposed merely to Rothbard's general take on Austrian Economics as a whole. I realise that this was a lot to ask of a book published several decades ago, and not surprisingly I was, although in general much educated, largely disappointed on that particular count. Well, what I was only hoping to read in that Rothbard book was what I did read in Detlev Schlichter's much shorter book, which I heartily recommend to anyone willing to really get stuck into it. Here is a conceptual analysis, in very much the painstaking Rothbard manner, of how non-commodity-backed currencies behave when they collapse, and why they do collapse, always, inevitably. In other words it is about the times we now live in. 

I learned a lot from reading Paper Money Collapse. In particular, Schlichter has convinced me of the wrongness of the argument that since we want economic activity in the world to increase indefinitely, but gold is, barring a few trivial further discoveries, fixed in quantity, gold won't work as the basis of currency. But non-elasticity is exactly why gold is such a good basis for currency. Totally elastic money, on the other hand, inevitably collapses, always and everywhere. Why should our elastic money be any different? 

Schlichter is not pointing the finger at individuals. This is not a detective story, where in the final chapter all the suspects are rounded up and Herr Schlichter points the finger at the guilty man. President Nixon's decision to break the final link between the dollar and gold is deplored, and Ben Bernanke's recent pronouncements are likewise disapproved of, but many of the decisions that lead to our current mess were made many, many decades ago, and by their nature they are the kind of decisions which are far easier to make than they are to reverse and clean up after. 

Nor does Schlichter believe that hyper-inflation now threatens us all because central bankers are unaware of the badness of hyper-inflation. They know that hyper-inflation is bad. Unfortunately, they also know that if the collapse that Schlichter describes occurs while they are in office, then that, for them, will be even worse than a bit more inflation or even quite a lot more inflation. So, they carry on printing money and postponing the resolution of the problem, which means that when nemesis does finally arrive, it will be all the worse. But, says Schlichter, they know what they are doing; they just don't know how to stop. Schlichter telling them to stop will accomplish nothing. 

I suspect that Schlichter may be being rather kind about just how plain stupid some even quite high ranking central bankers now are, but clever or stupid, these people are now thoroughly boxed in by their previous decisions and by the decisions of their predecessors of earlier years and decades. 

I have been using the phrase "paper money", as Schlichter himself does in his title. But as we all know, when central bankers now create yet more money, they are mostly putting numbers in electronically managed bank accounts. It is not the printing of bank notes that is the problem; it is the lack of a commodity base to control the process. By the same token, paper bank notes that refer to a currency that is solidly based on something like gold would be fine. But I am sure that Schlichter has thought long and hard about this phrase, and I gladly defer to his decision to call it "paper currency" in his title. I certainly don't know a better way of putting it. "Fiat" money? "Elastic" money? (That's the phrase that Schlichter switches to in the subtitle, also prominently displayed on the front cover.) Both are a bit more accurate than "paper" money, but are also a bit less attention-grabbing for the kind of intelligent and educated everyman whom Schlichter is trying to reach. "Paper" gets over the gist of the problem pretty well, I think. And you start learning what that means as soon as you read the sub-title. 

When it comes to Schlichter's pessimism about him personally having any influence on the conduct of public policy, I agree with him, in the short run. But I think he may be proved wrong, in the longer run. I agree with him that there is nothing much he can say to the people now in charge of financial policy that will persuade them to do the right thing now, which basically means getting the collapse over and done with as soon as possible. But when this collapse starts seriously happening anyway, in just the manner and for precisely the reasons that Schlichter says, he could then become a very Big Cheese, as we say in my native England. In fact, if this book does half as well as I suspect it may, Schlichter will probably be accused, by various paper (fiat, elastic) money idiots who know only the title of this book but nothing of what it says, of having precipitated the catastrophe he describes. But other people, including politicians and central bankers, could also then be asking him: So, Schlichter, what the hell do we do now? I urge Schlichter to be ready for this moment. Suggested title for his next book: Now What? (Presumed answer: Let non-state controlled and non-state backed bankers supply currency, which they will back with gold. Get out of their way and let them get on with it.) 

Meanwhile, I urge anyone who thinks that he might find this book enlightening, and helpful for personally navigating through the mess, to go ahead and be enlightened. I think this book may become very big. It certainly deserves to.

(8)

Yes, Kevin Dowd's Monday night tour de force for the Adam Smith Institute, which I wrote about here (and then some more here) has now been released into society in video form. Having attended the event itself I have not yet watched much of the video so I cannot vouch for its sound quality (what with all the extraneous mechanical noises on the night), but I hope and presume that it suffices.

The ASI's Sam Bowman says that Dowd's speech is …:

... essential viewing to anybody who thinks the worst is behind us.

Indeed. Looking back on it, the weirdest thing about that BBC Radio 4 Keynes v Hayek debate, which I attended and which Jonathan Pearce also wrote about here, is that the Keynesians at that debate were all assuming exactly this, that the worst was behind us, and that the argument was merely about which team would manage the recovery, assumed to be under way either now or Real Soon Now, in the nicest way. I don't recall the Hayek team ever explicitly challenging this assumption. If that's right, I think the reason was that the assumption was just there, but never spelled out. It was just being assumed that the worst was behind us.

I think that, literally within the last few weeks, in other words since that debate happened, that assumption has collapsed. I don't think it's just Kevin Dowd, Sam Bowman and I (and Paul Marks of course) who are now thinking this way.

(4)

Earlier this evening I attended a talk given by Kevin Dowd, organised by the Adam Smith Institute. It was being videoed, and although it may be of rather dubious technical quality (an air conditioning machine was making very strange noises), a video will, I was assured, be appearing on line. [LATER: Now available, here.]

In the past I have suspected Dowd of failing to do justice to the gravity of the world's financial circumstances, by being a little too precise in his reform proposals, but there was not even that sort of optimism in Dowd's speech this evening, which spelt out in some detail the truly horrible scale of the catastrophe. There was a bit at the end about rejigging the banks, but there was no suggestion that this on its own would suffice. Dowd's central message was that the economic life of the West is now well and truly eff you sea kayed. Currencies tanking, banks bust, governments bust, current policies hastening the stampede towards the abyss. (Our own Johnathan Pearce was also present, so maybe he will tell us a bit more of the details of the doom we are all staring at.)

The odd thing was that Dowd's speech made me strangely happy, and judging by the mood of the gratifyingly considerable throng that had gathered to hear Dowd's prophecies of doom, I wasn't the only one who was cheered up. Dowd himself understands this link between facing the truth in all its ghastliness and the strange elation that this can provoke. He even quoted a Noel Coward song which immortalises this sentiment: "There are bad times just around the corner. ... Hurray! Hurray! Hurray!"

The thing is, when your world is staring catastrophe in the face, the people you want to listen to, because you want them to exist, are people who seem to have a serious and really quite detailed understanding of the nature of the catastrophe in question, all of it. You don't want to be told that things are fine and will sort themselves out with only a little bit of grief, because you know that's nonsense and who wants to waste time listening to an idiot saying things like that?

It is also necessary, if their audiences are to be made truly happy, for prophets of doom of the Dowd variety not to be total nutters, in the sense of being entirely disconnected from anything resembling polite society. Prophets of doom need at least some influence on events. Someone who is someone needs to be listening.

Steve Baker MP has already been chosen by the fickle finger of fate, by history, or by whatever else you want to call it, as one of the tiny handful of British public figures who are going to tell Britain what the true nature of the problem now is, and what Britain must do about it, rather in the way that Winston Churchill warned Britain about Hitler in the 1930s. And guess what, Steve Baker MP was present in Dowd's audience this evening. He even asked a couple of questions.

After Dowd's talk had finished I asked Dowd: Are you in fairly regular personal contact with Steve Baker MP? Is he getting his head around all this stuff, in the way that you already have? Yes, Dowd replied. We have had several meetings, Cobden Centre, de dum de dum. This made me even happier.

LATER (Tuesday morning): More from me, with a photo, about Dowd and his performance last night here.

(2)

Zerohedge has noted that the IMF is reactivating its New Arrangements to Borrow facility. This is a backdoor channel for bailing out an insolvent Eurozone. It is time for Great Britain to leave the IMF as it injects money into failure.

As the whole of the international architecture for finance is becoming a byword for bailouts, why stop at the IMF?

(21)

I get all sorts of emails, and this one, from a fairly well known money manager in the UK by the name of Terry Smith, is worth reading in full. It is the text of a letter he has sent to the Financial Times newspaper. The FT is behind a paywall so I reproduce it in full:

From Mr Terry Smith.

Sir, I refer to the debate being conducted in the pages of the Financial Times between those who propose further Keynesian measures, such as Martin Wolf ("Struggling with a great contraction", August 31), and those who do not accept that they will work, such as Wolfgang Schäuble ("Austerity is the only cure for the eurozone", September 6).

Such so-called Keynesian measures as advocated by, among others, Ed Balls, Samuel Brittan, Paul Krugman, George Magnus and Barack Obama as well as Mr Wolf have not worked to date, and they will not work. Their advocates seem to assume that their repeated failure to solve our economic problems just means that the medicine must be repeated, which reminds me of Richard Nixon's motto that "if two wrongs don't make a right, try three".

I say "so-called" Keynesians because these advocates seem not to realise that Keynes' theories did not rescue us from the Great Depression. They are also asymmetric in their application of his theories - calling for ever larger deficit spending, having overlooked the bit about running a surplus in a boom. But above all, they do not seem to realise that they cannot work in a period of debt deflation in which a recession is preceded by the collapse of the banking system, as their current failure is demonstrating.

To the ordinary person in the street, the idea that we can rescue ourselves from a crisis caused by excessive borrowing by borrowing even more must seem mad. In this respect they are possessed of far more common sense than those who are currently advocating just such a course of action and purport to be our leaders.

The first step in rectifying this situation should be to make a clear and unambiguous statement about the actual debt the UK is carrying.

To give a lead to this, today we have circulated to every member of parliament a tin can emblazoned with the UK debt figure - £3,589bn including commitments for public sector pension commitments, private finance initiative and banking sector guarantees, so that they can see what it is they are metaphorically "kicking down the road" with their present policies. This, ahead of the party conference season, I hope might spur some considered and honest debate on this issue.

It is time for those who wish to lead us out of this crisis to tell people how bad the current situation really is and the painful remedies which will be needed to remedy it.

Terry Smith, Chief Executive, Tullett Prebon, London EC2, UK

I get the impression that this man is not looking to be elevated to the peerage. Good.

(13)

To the ordinary person in the street, the idea that we can rescue ourselves from a crisis caused by excessive borrowing by borrowing even more must seem mad. In this respect they are [he/she is] possessed of far more common sense than those who are currently advocating just such a course of action and purport to be our leaders.

- Terry Smith

(15)

Just when we [have] the strongest possible proof that Keynsianism doesn't work, someone yells for an encore

- Commenter "J Cuttance" on the Telegraph

(26)

One of the self-criticisms I hear a lot from Austrian economics devotees is that Austrianists don't say what should now be done. They write book after book expounding what should not have been done, but most of their responses to the current mess consist of variations on the theme of: not that. Shouldn't be starting from here.

So, when I read a report like this one, I get interested. Quote:

Within the next few weeks, signatures will be collected to launch an initial referendum that would require the Swiss National Bank to repatriate all of its gold holdings to within the borders of Switzerland, prohibit it from selling any more of its gold, and require a minimum 20% of its assets be gold.

This initiative is likely to be very popular.  The Swiss remember that during World War II, the United States refused to provide access to their gold reserves. More important, since 2000, the SNB has sold 1550 tons of gold – more than a half of its total holdings – mostly at prices below $500 an ounce, and bought European government bonds that have plummeted in value by SF40 billion, compared to a total federal budget of SF60 billion.

This referendum will put the issue of gold as money on the political agenda.  The next step is to offer a follow-on initiative permitting the free-coinage of GSF.

The creation of a Gold Swiss franc and the free coinage thereof, along with the repeal of taxation by the U.S. of gold and silver coins used as legal tender, would liberate market participants to generate spontaneously a new monetary order. With government barriers removed, people all over the world will find ways to use gold-backed money to facilitate the exchange of goods and services with their counterparts anywhere in the world, and to engage in saving and investing, lending and borrowing using monies whose value would be anchored in the remarkably stable and trustworthy purchasing power of gold.

Initially, such efforts would have little economic consequence.  However, in a world of voluntary exchange, good money chases out bad money, turning Gresham’s law upside down.  That is why when the dollar’s value was stable, it was the currency of choice throughout the world.

No one can forecast how this process will evolve. However, we can anticipate that the creation of a Gold Swiss franc and the repeal of tax and legal barriers to the use of gold and silver coins as legal tender will be the antecedent to the reform of today’s paper money system – in the U.S and throughout the world.

Assuming that enough Swiss folks vote for such arrangements, will they do any good? Or does such politicking merely flag up the problem, without going any way towards solving it? No doubt the current Rulers of the World will disapprove of such contrivings and do all they can to abort them, but this kind of thing at least might give the rest of us something to vote for, i.e. against the current Rulers of the World. Mightn't it?

Something Must Be Done This Is Something Therefore We Should Do It is a powerful force in politics. Schemes like this partake of this force. At the very least, they challenge others to do better.

My thanks to Steven Baker MP for the email that alerted me to this. It's good to know that he is keeping an eye out for such things, don't you think?

(52)

This piece, about how people are moving from states in the USA governed according to lefty principles, towards states governed by somewhat less lefty principles, reminded me of this piece I recently did here, about people moving from country to country in the world. As in the world as a whole, so in the USA.

Come the next round of elections, the numbers of Americans on the move, and the unmistakable direction in which they are moving, will be hard for the lefties to explain away.

In the emerging presidential campaign, it’s easy to see a version of these questions dominating the debate. Why should anyone choose to endorse liberal, Democratic policies when a single year (2009-10) saw 880,000 residents packing up their belongings to place Barack Obama’s Illinois in their rear-view mirror, while 782,000 new arrivals helped drive the robust economy in Rick Perry’s Texas?

California, so the piece says, lost two million people in the years 2009 and 2010. The promised land no more, it would seem.

I'd be interested to hear what American readers make of Governor Rick Perry. Will I like him, as and when I learn more about him? I've read people saying that Perry sounds too much like President Bush Junior. But I'm thinking that people are in the mood to listen to what is actually being said, next time around, rather than fussing about the mere manner in which it is said. Or is that being too optimistic?

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The Chairman of the Federal Reserve, Ben Bernanke, is due to speak in Jackson Hole, Wyoming, later today and according to some of the investment notes that I receive, he is expected to commit that central bank to a third round of credit creation from thin air, otherwise known in these mealy-mouthed days as "quantitative easing." There are doubters out there about the wisdom, or lack thereof, of this. We can of course expect the usual devotees of hard money to scoff at this, but what intrigues me is how some economists in the commercial world are hostile. Take this from Steen Jakobsen , chief economist at Denmark-based Saxo Bank:

"When talking about the impact from Quantitative Easing (QE) one has to realise that most academic studies show that the biggest “impact” from QE on markets comes from the actual announcement of it rather than the execution of it. An analysis of the two prior QE introductions point to a 50 to 100 basis point reduction on bond yields and subsequent inflation of equities via “a feel good” factor – the so-called wealth effect."

"But realistically, what has been the net impact of QE1 and QE2? Chairman Bernanke has used 3,000 billion US Dollars to create what? Nothing! Unemployment is still above 9.0 per cent, the housing market is still in a slump, and now the only successful thing going for the Fed is the stock market's rise from the floor at 666.00 in March 2009. But now there's talk of an interbank funding crisis and unrealised losses. It certainly smells like 2008, doesn't it? Or what about August 2010? – Yes! It is almost a 100 per cent analogy to last year. It’s actually like watching the movie Groundhog Day."

I like his final paragraph:

"There is another political theory stating that the best environment to create growth in is one in which politicians have no power to pass legislation (similar to the U.S. situation for now until the U.S. elections). Think about Clinton: he had a major “programme” coming in as President, yet failed to get anything whatsoever done in his eight years in the White House which then led to the biggest growth period in U.S. history. What does this tell us? Total radio silence works as the micro-economy - investors, consumers and companies - adjust their behaviour and consumption to the new reality and then start moving forward. The last thing that we need is “political noise” and promises of better days ahead with nothing to back them up."

I can think of a good book on the collapse of paper money that I can send this man.

(3)

A graph on the growth of the regulatory state, courtesy of the National Review Corner blog.

(49)

This person at the Daily Caller appears - with some justification I might add - to take a dim view of Ron Paul, the US congressman and Republican primary contender for the presidential ticket known as "Dr No" on account of his saying no to various government measures and enterprises. He is, famously or infamously, a hardline anti-interventionist in foreign affairs, so much so that his views might be dubbed as almost pacifist. He has called for accountability by the Federal Reserve, and argues that institution ought to be closed down. But he has feet of clay, and this article I link to, which is written in a sort of furious burst of anger, focuses on those flaws and makes light of Paul's merits. In particular, the article unfairly misrepresents the Austrian school of economics and its methodology. It also seems to smear libertarianism on issues like legalising prostitution and drugs, ignoring the obvious arguments that criminalising consensual acts has created huge costs for society.

All the way down at the bottom of a comment thread prompted by this article, is large item by commenter Michael P. Ivy. It is so good that I reproduce it here. There is the odd typo, but it is worth quoting in the raw:

I am always amused by wannabe economists, who call themselves capitalists, but, are unable to embrace or understand the true axioms of capitalism when push comes to shove. Austrian economics spins on essentially to axioms: (1) that there is no free lunch, and (2) all human action is purposeful action motivated by the individual's (not society's) desire to move from a less to a more desired state. These are self evident truths, much like the "more is preferred to less" axiom of the neoclassical school. You butcher Rothbard without understanding his work and particularly his crititique of the neo classical school of wackjob indifference curve analysis and welfare economics. The notion that an individual can be indifferent between two different states of the world without ever actually exercising choice is not a reliable basis for recommending redistribution measures of the Kaldor/Hicks kind. Even Samuelson so much as admitted that it is impossible to derive a social welfare function without making assumptions about the marginal utility of money et al (1951).

The problem with Keynes' economics, is that it must rob resources from one sector of the economy to furnish another and it consumes resources in the process. Moreover, in doing so, the government does so without the knowledge of the benefits that those resources procure that only those individuals holding those resources...know. This is the problem with any measure of government involvement in economics. That they suffer from fiscal illusion (not my money so it don't matter) is one thing, but, they effectively create an environment of uncertainty by destroying productive incentives. Incentives do matter after all and I have yet to see the mathematical models of the neo-classicals actually recognize this and quantify them. The fact is, is that you can't unless you invoke a value judgement of the Keynesian/Samuelson kind.

Welfare economics has never worked and it never will work, for as M. Thatcher so plainly points out, "Socialism is a great idea until you run out of other people's money". The statement captures two notions: (1) if their actually was a multiplier effect on GDP from government spending, don't you think this would be a permanent line item of the government's income/expense statement?, and (2) the No Free Lunch axiom is underscored by the fact that since government is an unproductive entity that consumes resources for its existence without actually creating anything of value is that eventually the productivity of the market is unable to keep up with and compensate for the unproductive actions of government. True capitalists understand this.

And if you think the market is unable to coordinate itself with respect to defense, innovation, policing of private property, mass transit, health, education, indeed all the things you think we require a central planner for, then you obviously have not bothered to school yourself on the opportunities that can and will present themselves if productive individuals are left alone and allowed to participate. Finally, I see that your article is riddled throughout with incorrect and obnoxious assertions about economic theory presented by Rothbard, Mises et al. (semi-autistic dogmatism). The fact is, is that there is nothing dogmatic about the Austrian school. Its core tenet is that the best production, exchange, and coordination of resources occurs when individuals are left free and unfettered to choose. And by whatever math you might care to invoke, given the level of debt ($16T) incurred by the Welfare State, I'd say you're pointing the dogmatic finger in the entirely wrong direction. THAT is what is dogmatic....doing the same illogical, nonsensical thing over and over again (at the people's expense), and expecting a different result every time. So before you decide to write another diatribe on someting you don't know much about, I'd recommend that you review Rothbard...again, and in particular his piece on "Towards a Reconstruction of Utility and Welfare Economics". There is nothing dogmatic, hairy scary or offensive about it.

Very good.

Ron Paul is very much a mixed bag, and I would not vote for him, and I am troubled by some of his views. But the fact has to be faced that almost unique in Western politics, he has put forward a classical liberal agenda on certain issues, and done so consistently. And he has managed, despite his age, to touch a lot of young people. There is a lesson here somewhere.

(6)

As has been noted before, the disaster of the eurozone is, in the eyes of some policymakers, as much an opportunity for further pan-European empire-building as it is an occasion for shame and embarrassment. This week, Angela Merkel, German Chancellor, and Nicolas Sarkozy (remember him? He's the one who married one of Mick Jagger's old flames), came up with this barnstormer of an idea, in the form of a European-style "Tobin tax" and a form of increased economic central government. It has the ring of inevitability about it.

The problem for the UK is that said tax, which has been assailed by the likes of Tim Worstall before, would apply not just to the eurozone, but to the UK, which is not in the euro. And given the relative size of London as a financial centre compared to Paris, Frankfurt or Milan, guess which place takes the biggest relative hit? You guessed: London. Never mind, of course, that banks that can do so will put some of their activities outside the EU, or that the costs of the tax will be borne by savers, borrowers and users of financial services generally, in the form of lower rates of savings interest - already negative in real terms - more expensive costs of hedging forex transactions, and the like. This is what is known as tax incidence. Politicians are not, as we know, in the business of understanding the Law of Unintended Consequences. Indeed, we might even define today's political class as people who defy this law.

Of course, Cameron, Osborne and others (but not their LibDem allies) will protest about such a tax on London's financial sector, but look how far such protests got us before concerning sovereign debt bailouts by the UK. And such men have shamefully pandered to such anti-capitalist sentiment in the past, so there is a sort of brute justice if they fail to prevent this latest move now. Such men, of course, have enjoyed the fruits of financial wheeler-dealing when the going was good, such as financing of the Tory party by the likes of Michael Spencer, the founder of derivatives powerhouse ICAP. (As an aside, I see that the odious Vincent Cable, Business Secretary, wants to slap capital gains tax on housing transactions of wealthy properties if the Tories decide to ditch the top 50 per cent rate of income tax. Even a land value tax is better than CGT, although not by very much. There is no such thing as a benign tax.)

Alas, banker bashing has reached such heights of hysteria that some might even try and argue that such a tax on the evils of speculation is a jolly good idea. It pained me to see that even that otherwise fine book on the recent market disaster by Kevin Dowd and Martin Hutchinson, floated the idea.

Allister Heath weighs on the latest eurozone wheeze. He's unimpressed, not surprisingly.

Update: Here is a twist on the issue of tax incidence and taxes on companies. Milton Friedman is magnificent.

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"The global paper standard has lasted 40 years but evidence is accumulating daily that its endgame is now fast approaching. The world economy is caught in a deepening financial crisis caused by excessive levels of debt, severe asset price bubbles and overextended banks—all imbalances that are the direct consequence of four decades of unprecedented fiat money creation, of artificially low interest rates and of "lender-of-last-resort" central banking. Monetary policy today—whether by the U.S. Federal Reserve, the ECB or the Bank of Japan—is not much more than an increasingly desperate attempt to postpone via super-low interest rates and periodic debt monetization the painful but unavoidable liquidation of these imbalances. This will not only ultimately prove futile, but will lead to a complete currency catastrophe if pursued further."

- Detlev Schlichter, writing in the Wall Street Journal. The fact that he is now gigging at the mighty WSJ is, of itself, a great thing.

Update: today is the 40th anniversary of Richard Nixon's decision to kill off the link between the dollar and gold, although in reality the old gold standard had been dead for much longer.

(15)

Instapundit, whom I revere for his relentless, industrial strength linkage (happy tenth anniversary Professor), has been in the habit, in recent times, of linking to pieces about how Americans are getting ever more disappointed by President Obama. But, as I am sure that Instapundit himself appreciates, the disappointment with Obama coming from Obama's own former supporters is not because Obama's preferred economic policies are now correctly understood by those ex-supporters to be disastrously destructive, but rather because Obama seems insufficiently determined and skilful in imposing these policies upon Americans who would prefer relatively sensible economic policies.

Obama's leftist critics are not disappointed with Obama because they have come, reluctantly and through bitter experience, to share the opinion of his policies held by the Tea Party. Rather are such critics disappointed with Obama because he is not crushing the Tea Party, but instead haggling with them, and doing so, as these critics see it, with insufficient skill and nastiness.

Yes, Obama still seems to believe in the same daft policies that these leftist critics favour. But where is the passionate commitment to folly that he persuaded them he felt when he was getting elected, and that they still yearn for? Perhaps someone else (Hillary Clinton?), with greater energy, industriousness and human warmth, could lead America over the cliff with the proper amount of dash and determination, instead of Obama just leading the herd from somewhere in among it.

One should not, in short, confuse the fact - if fact it be - that President Obama is now being thought by ever more Americans to be doing a bad job, with the claim that all of America is coming to its senses in the matter of what it should do about its current economic woes, or what will happen to it, and to the world, if it does not do what it should do.

(7)

Today I learned, from someone who was involved in the making of it, that:

The Radio 4 bosses liked the Keynes v Hayek debate so much that they are going to repeat it at 9 am on Wednesday 24th August. This sort of thing is very very unusual. This is probably going to add around 1.5 million listeners to the estimated 1 million radio listeners the programme has already had. (I haven't looked at the podcast stats yet but it was in the iTunes News and Politics top 5 in the UK.)

My own personal reaction to the debate was that a true clash of archetypes was too often, for my taste, dragged off into nitpicking about who said what, when, and just what Keynes would have made of Q(antitative) E(asing), when the real point is that he wouldn't have started from there. But then again, the show was flagged up as "Keynes v Hayek", rather than as "Mainstream Economics v Austrian Economics", so I probably shouldn't grumble but should instead be counting blessings.

Which are numerous. Far more to the point, the above news makes me think, again, more so, this, which said that we are at least, at last, having this argument, beyond the confines of the Austrian Economics tribe and of the tiny few others who had until recently actually heard of it. Austrianism is now emerging from the great gaggle of alternatives to the present disastrous economic policies to take pride of place, at least in the heads of a great many of those who think seriously about economic policy, as The Leading Contender.

This is, in short, very good news, which puts an interesting slant on the ever ongoing argument about whether and how the BBC is biased.

(6)

Taking a break from life in riot-torn London, I came across this item at the FT about some of the implications of longer lifespans. It is a mixed situation. Excerpt:

"Maxmin admits there are no miraculous solutions to the problems of a fast-ageing society. We will all have to work longer, save more and pay more in tax to cover the costs of a world with a greyer population. Even so, he thinks models like Elder Power can have a much wider application. Perhaps moments like the collapse of Southern Cross, he tells me, could (in the right hands) become moments of opportunity. More generally, models like Beacon Hill Village, ITNAmerica and Elder Power show glimpses of a future in which more elderly people can stay in their homes for longer. All three use innovative technology, make use of assets in their local community and bring together the resources of local businesses, volunteers and the state to solve problems none could have solved individually, at reasonable cost."

How we deal with ageing, and the issue of longer lifespans, is of course intertwined with the current fiscal breakdown of many developed economies. Healthcare costs are skyrocketing. And in that Greg Lindsay and John Kasarda book I have been linking to lately, about the impact of mass aviation, there is a segment on how said aviation can be used to dramatically reshape healthcare, such as by flying people with problems to cheaper, but arguably better run, hospitals in Asia. It struck me while reading this book that while automobiles and consumer electronics have been propelled by their Henry Fords, Michael Dells and Steve Jobses, we haven't really had, in healthcare, a similar set of individuals to drive innovation and push things sharply down the price curve. The dynamics of Silicon Valley, allied with cheap Chinese manufacturing and just-in-time stock inventory systems, hardly touches healthcare at all, although this is starting to change, perhaps. Of course, much of this is caused by how healthcare is seen, wrongly in my view, as somehow "different" from such vulgar things as selling flatscreen TVs or cars. Healthcare is political. That's the problem.

(19)

"The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone" [...] In the Xinhua commentary, China scorned the United States for its “debt addiction” and “short sighted” political wrangling. “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” it said. It urged the United States to cut military and social welfare expenditure.

- Xinhua News Agency.

No kidding but hey, when a state run by a communist party tells the USA to spend less on... welfare, you start to get some idea just how strange the world has become and just how screwed the US actually is.

(6)

“Flowers begin arriving past night and bidding starts before dawn. To ensure their lilies and hyacinths are ready for the auction block, growers move them from cold storage onto carts in the early morning, or else rush them from Schiphol after overnight flights from Quito, Nairobi, and Tel Aviv. It’s impossible to see, much less make sense of, the Aalsmeer at eye level, as the floor of its central warehouse is a thicket of carts bearing blooms, all waiting their turn. This is the world’s largest commercial building at ten million square feet, more than twice the size of Chicago’s Willis Tower or Merchandise Mart….” (Page213).

“From a catwalk running above, you can study the crazy quilt of tulips, sunflowers, azaleas and hydrangeas bleeding into daubs of orange or pink on the horizon. The quilt constantly changes colors and patterns as burly Dutchmen at the wheel of one-man tugs trail daisy chains behind them.” (Page 213)

What is interesting about these passages, concerning the marvels of the vast flower-auction market in Holland, and the global reach of this business made possible now due to aviation and refrigeration, is that the author does not fall into the usual stale bromides about how all this aviation-led trade is killing the planet. I liked this passage, on page 232-3:

“Food miles cannot begin to compare in toxicity with flatulent cattle. Anyone who’s read the Omnivore’s Dilemma can recite chapter and verse on the perils of force-feeding corn to livestock in feedlots. Cows produce methane, a greenhouse gas thirty times more potent than carbon, as a by-product of digestion…..A breakdown of the Big Mac revealed that nearly a third of its [carbon] footprint stems from feed production, another third from storage, and much of the rest from slaughtering, frying, and baking. Food miles contribute 3 per cent.”

Aerotropolis: The Way We’ll Live Next, Greg Lindsay and John Kasarda. 2011.

(4)

Tonight,BBC Radio 4, 8pm:

I'm told that it will sound a lot more coherent than it did on the night it was recorded.

More pre-publicity from the BBC here.

(14)

American government spending will be higher in 2011 than it was in 2010.

The deal is one great big shining lie.

- Paul Marks

(2)

The first match fixture to be drawn for the 2014 soccer world cup. One of the manifestations of globalization that will go largely unnoticed for a couple of years.

UPDATE: With North Korea and Syria in the same qualifying group of four teams, it looked like we could have a different sort of "Group of Death" than usual, but FIFA chickened out and put Iran and China in other groups.

MORE: Guatemala and Belize. The former's government claims ownership of the latter. Football correspondent with war zone reporting experience required?

On a more pleasant note, the job I want is covering CONCACAF Group B: Trinidad & Tobago, Guyana, Barbados and the Bahamas. Well, someone has got to go there and report on the beaches, I mean football matches...

EVEN MORE: "In consideration of the delicate political situation between Russia and Georgia, FIFA has agreed to a UEFA request that these two teams not be drawn together." [From the news feed here]

(77)

I hate to disagree with other libertarians. But there's a group of them who are getting the banking system really wrong, and their superficially attractive thesis is causing all manner of confusion. These are the Rothbardian campaigners who claim that fractional-reserve banking is theft. They say that this evil and sinister system must be wiped off the planet.

So what exactly do they oppose? At present, when you deposit £1000 into your current account, the bank lends some of that money. The cash is used, for example, to provide a mortgage to a first-time buyer or give finance to a small business wanting to expand. The Rothbardians claim that this is fraudulent. Actually, this is a perfectly reasonable thing for banks to do. It creates economic growth by giving businesses and individuals access to finance. And, frankly, everyone knows that banks lend out deposits: there is no fraud involved at all.

What the Rothbardians want is for a bank to take your money and leave it untouched in a vault. But banks already offer this: they rent safe deposit boxes - not that many people use them, and those who do tend to put jewelry and other valuables in them.

Instead of supporting a free market, the campaigners demand the criminalisation of fractional-reserve banking - they want to strip consumers of a choice over where they deposit their cash. This is a breathtakingly unlibertarian position for a bunch of supposed libertarians.

In fact, fractional-reserve banking is just a result of market forces, going back to the bankers in of Genoa and Venice in the 12th century, who lend out their deposits.

Conversely, according to the Austrian economist Prof George Selgin, every significant bank in history that just sat on deposits "was a government-sponsored enterprise, which depended for its existence on some combination of direct government subsidies, compulsory patronage, or laws suppressing rival (fractional reserve) institutions."

We already have enough financial socialism. Do we really want to ban a banking custom that consumers, through history, have chosen?

(6)

The good news: those polars bears killed by "global warming," were not.

From the AP:

Charles Monnett, an Anchorage-based scientist with the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement, or BOEMRE, was told July 18 that he was being put on leave, pending results of an investigation into "integrity issues."

... observations suggested the bears drowned in rough seas and high winds and "suggest that drowning-related deaths of polar bears may increase in the future if the observed trend of regression of pack ice and/or longer open water periods continues."

Bad news for some, I reckon.

(10)

A few years back, I proposed an alternative budget for the UK. IIRC, it involved cutting taxes by a quarter, spending by a third. Even assuming no increase in economic growth (that would boost sales tax revenue), this would have created a massive budget surplus that could have cut the UK national debt by over 10%.

I opposed default then for what I still think were good reasons: first, many private individuals and institutions bought bonds in good faith; but second, because the UK nearly had to surrender to Nazi Germany in 1940, and had refused to confront Hitler when war was still not necessary partly because of the consequences of a partial default on war bonds from the First World War. In essence, appeasement was the necessary policy of 1930s British governments because they could not expect to borrow so had to pay in gold and whatever the British public could be persuade/forced to raise (yes I know pacifism was big too, but the financial imperative meant that it was the only option).

Whether we take an interventionist view or not, the re-militarization of the Rhineland in 1936 was the moment when, without firing a shot, Hitler could have been stopped.

What does this have to with events in Europe and the USA today? In short, I think the financial situation is so dire, and the political solutions on offer so inadequate, that default is now the only credible outcome. I therefore conclude that it needs to happen very soon, rather than after wasting more resources on more "bail-outs."

We will just have to take our chances that no one decides to, invade the Falklands, or grab Gibraltar, or build nuclear weapons and give them to terrorists, or blow up US embassies. I explain why below.

The US debate on "raising the debt ceiling" misses an essential point. The credit ratings of many governments are on the brink of being downgraded unless there is an improvement in the debt/asset ratio or there is clear evidence of economic recovery without inflation. Neither of these outcomes is clearly at hand.

To increase the debt ceiling by any amount merely worsens the over-borrowing of the past two decades. If anything, the debt ceiling should be cut not raised. There are exactly four ways of doing this: default, print "money," cut spending or raise taxes.

As Barack Obama put it so eloquently during his US presidential election campaign: "raising taxes in a recession is stupid." Putting up rates will probably not raise revenue because the people and businesses that are driven to bankruptcy will more than offset any marginal increase in revenue.

Cuts is spending are almost impossible: contractual obligations have been made, any cuts to public sector pension payments will be challenged and, judges being so-to-retire-public-sector-persons, they might not interpret the law the way spending cutters would like. The sad truth is that the commitments cannot be met, but only a default will prove the legal way for governments to stop spending.

Printing "money," is actually the current strategy, and it looks OK, until inflation kicks in. When it takes a wheelbarrow of banknotes to buy a loaf of bread and cash registers have to count pounds by the hundred million, such a policy could lead to political instability and revolution.

I've outlined two problems with defaulting: bondholders are punished and in a real emergency, the government would not be able to raise money. There is a third problem, which is an opportunity: once a default has been called, the interest rates for government bonds have to go up, a lot.

This normally bad thing means that entire government programs will simply have to stop because the money to pay for it cannot be raised. It means that private borrowing becomes harder too, at least for those whose credit ratings are not good. But it also means people quickly have incentives to sort out their own over-borrowing and to start saving: those savings accounts offering 10% suddenly look quite attractive.

It is by cutting excessive debt and re-building deposits that the financial system can re-build itself.

I'm therefore praying for the most childish behaviour from the American politicians and for someone to say "No" in Europe to propping up the Greek welfare state.

(6)

I see that, no doubt under the influence of the same editorial prodding as I received this afternoon, Johnathan Pearce has already done a posting here (see below) about the debate last night (also attended by John Phelan) at the London School of Economics. What I have to say is really just an expanded version of what Johnathan Pearce has already said, but I'll say it anyway, partly because I do have one distinct advantage over him in this matter. Unlike Johnathan but like John Phelan, I was actually there.

I took photos, including one that does quite a bit of further event describing, which saves me having to:

Click to make that more legible.

Here are the two bad guys, Skidelsky and Weldon:

And here are the two guys on our side, Selgin and Whyte:

Click on the good guys to get them bigger. (The bad guys are quite big enough already.) As you can probably deduce from my pictures, the lighting on the stage was what you might call excellent for radio.

As for what was said, my overriding impression was that the Hayekians won, but not in quite the sense that John Phelan means when he says that they won, i.e. (a) that the Hayekians were more numerous and shouted louder and (b) that the Hayekians included John Phelan. They were, they did and they do. The "Hayekians" included me as well, for whatever difference that makes to anything. No, this was a more significant victory for Austrianism in the broader sense than merely that some Keynesians were, in the opinion of one of the anti-Keynesians who attended, out-argued on the radio. The really important point is that Austrianism is being put up there beside the broadly Keynesian macro-economics orthodoxy, as the alternative. The alternative.

I recall in my youth reading a book by someone called Robert Townsend. Townsend was the boss of a car hire company called Avis, and it was on his watch that a go-ahead new advertising agency (a bit like the ones in Mad Men), urged on and applauded by Townsend and his underlings, coined the Avis advertising slogan: "We're Number Two and We Try Harder". Number One being the car rental company Hertz.

The point of the slogan wasn't that it caused very much immediate hurt to Hertz. On the contrary, it acknowledged Hertz as Number One, which got everyone's attention. Who are these guys calling themselves Number Two? Wow. The regular advertising thing in those days would have been for Number Two to scratch around until it had found some more or less implausible excuse to call itself Number One. Most of the hurts (pardon the pun) unleashed by this slogan were inflicted upon car hire companies Number Three, Four, Five and the rest of them. What the slogan about Avis being Number Two but trying harder did was separate Avis from the huge pack of "other" car hire companies. It turned Avis from nothing into Pepsi-Cola, you might say. Hertz continued to be Coke (whether Coke itself is still Coke is another argument), but Avis itself lept ahead, patronised by anyone who fancied trying a try-harder, less smug alternative to Hertz. The others, who were presumably trying just as hard as Avis, fell away.

That, I believe, is the significance of events like that debate last night. It puts Austrianism on the map as the "other" way of looking at all that financial turmoil we've been having lately. No Keynesians present at this debate will have been very discomforted by anything that was said during it. They had their guys up there on the platform and they clapped and laughed and cheered when their guys spoke with any eloquence, just as we (John Phelan, I and the rest of our team in the audience) clapped when our guys waxed eloquent.

For you see, this was a classic BBC event. Built into the DNA of the BBC is in order to "do" anything that is opinion rather than mere news, you have to argue about it, and to argue about it, you have to have two sides. Not three sides or five sides. Two.

And the big trick, if you aren't Number One in a BBC debate is somehow to wangle yourself the Number Two spot, and what's more to get that spot entirely for your team. Austrianism, judging by last night's show, is well on the way to accomplishing precisely that status. And this despite, as Lord Skidelsky himself quite rightly said, having a numerically tiny academic presence compared to the (approximately speaking) Keynesian orthodoxy.

The big point here is not, e.g., whether Lord Skidelsky said nice things about how the Chinese government goes about its Keynesian business (although he did), or whether Selgin spoke eloquently (he did in my biased opinion, eventually, and despite his rather comical reliance on waving minute and totally illegible graphs around, which don't exactly go over a storm on the radio, as everyone except him seemed to realise). The point is that this debate was "Keynes v Hayek", rather than "Keynes and his critics". The speakers were two Keynesians and two Hayekians, rather than merely two Keynesians and then a pathetic queue of anti-Keynesian pygmies of about ten different varieties (several of them complaining that the Keynesian headliner acts weren't being Keynesian enough) taking it in turns to be humiliated.

I agree with Phelan that Skidelsky's open admiration for Chinese "investment" in "infrastructure", in answer to a question about China from the floor (and huge kudos to whoever it was who asked it), was both an illustration of the inherently bossy nature of Keynesianism, just as Hayek said, and that this might have been seized on more eagerly by Whyte or Selgin than it was, which was hardly at all. Skidelsky's answer was also a horrendous hostage to fortune. If Chinese infrastructure "investment" in recent years becomes famous for being as wasteful as some here already suspect, Skidelsky should be reminded of this pronouncement.

Speaking very much for myself, I was delighted when Skidelsky spelt out, with admirable clarity, that we Austrianists believe that President Roosevelt prolonged the Great Depression. At this point I shouted out words to effect of "quite right" and "he did". Skidelsky then said, glancing contemptuously in the general direction of my heckling, that anyone who thought that was living in cloud cuckoo land. Fine. He was on the platform and was entitled to the last word on the matter. On the night.

The point being not to win arguments like this, but to have them, to let everyone listening know that, when it comes to things like whether Roosevelt had a good Great Depression or a bad Great Depression, there is an argument.

When it turns out (this was not really talked about last night) that actually, far from having calmed down, our new version of the Great Depression is still at the you-ain't-see-nothin'-yet stage, arguments like that one in particular about Roosevelt making the Great Depression worse, and in general about Keynes versus Hayek, could result in the Number One team in this bunfight being deposed. Guess who I think might - just might - be invited to step forward to replace that Number One team. I agree with Johnathan Pearce that "wallowing in despair" (see below) is, in times like these, a cop-out.

A final point, concerning the BBC master of ceremonies, Paul Mason. Mason had a lot to contend with, what with urging speakers to cool it with the paper flapping, organising the re-recording of bits when microphones fell off or when there was a big noise interrupting things or when the audience wasn't quiet enough during the first attempt at a re-run, or when he himself had some intros to do but fluffed his lines, for instance by giggling. Also, from time to time, it was Mason's rather undignified duty to get us all to yell either "Yo Keynes!" or "Yo Hayek!", according to taste. Nevertheless, in among all that, I got the distinct impression that, if not actually on our side, Paul Mason is highly sympathetic to the case that the Hayek team were making. At the very least, he has taken the time to become thoroughly acquainted with what that case is.

An edited version of all this intellectual mud-slinging will be broadcast by Radio Four on August 3rd.

See also the latest Keynes v Hayek rap video. They played that at the beginning, to get everyone in the mood. Genius. If you want to know why I think it's genius, you must be one of those people who skips to the end of blog postings without actually reading them. Which is fine, but: see all of the above.

(4)

I have been reading this book, Aerotropolis: The Way We’ll Live Next, by Greg Lindsay and John Kasarda, and it is full of gems. We take the ability to order a book or other item online and have it delivered in days for granted, and perhaps tend to forget how much we have got used to this unless, that is, such services are disrupted by things such as security clampdowns or Icelandic volcanic eruptions.

Here's a couple of paragraphs:

“Despite its handicaps, LAX has been the catalyst for the city’s metamorphosis into America’s premier trade entrepôt over the last 30 years. It was during those decades that the industrial fulcrum of California first shifted north – out of the hangars of Hughes Aircraft and into Silicon Valley – and then west, all the way to China. We have LAX to thank for our iPhones and iPods being `designed by Apple in California, assembled in China,’ as they advertise on their backs. Not just Apple, but every Valley company that began life combining transistors there – think Intel, Hewlett Packard, Sun, and Cisco – long ago began outsourcing work from its messy, depreciating factories to ones across the Pacific. Now they wait for airborne freighers to land in Los Angeles with the first samples of their latest holiday smash in the hold.”

“Anyone lucky enough to have hitched a ride aboard a freighter or been taken under the wings of the `freight dogs’ who pilot them could tell ou enough stories to pass the eighteen hours to LA from Singapore. At any given moment, there are aloft `incomprehensible quantities of the mundane,’ in the words of one such witness: 160,000 pounds of roses leaving Amsterdam, 25,000 wiring harnesses bound for auto plants around the Detroit, or 5,000 pounds of Grand Theft Auto games inbound for LAX. Another writer babysat a stableful of horses in transit between O’Hare and Tokyo, including a dozen Appaloosas bound for a Hokkaido ranch. One pilot recounted the tale of a mysterious ice chest, insured for millions, which he later learned was the vessel for the first HIV drug cocktail.”

(5)

Given enough time, the primary function of any bureaucracy becomes the employment of its employees.

- Daniel Hannan ruminates on the gap between what people think that NGOs do, and what NGOs do.

(3)

A reminder, the problem isn’t the debt ceiling - it’s the debt, ...

- Rand Simberg

(9)

Guido reports that various opposition unworthies were at Lord's today, watching England v India, "while Rome burns", as he put it. Ed Balls, Charlie Whelan, and someone equally important called Kevin whom I do recognise from the picture and whose name I do know but have forgotten. MacGuire, is it?

But it was far worse than that in the fiddling while Rome burns department. As soon as it started raining, they had no less a personage than Sir Mervyn King, Governor of the Bank of England, talking on the radio, with BBC cricket commentating supremo Jonathan Agnew. I know this, because I was listening. Is this not, I thought, rather an odd day for Governor King not to be at his desk?

Sir Mervyn talked a lot about the Chance to Shine initiative which encourages school kids to play cricket. He has an interest in cricket and its organisation that goes way back, it would seem. It all sounded very encouraging for England cricket fans like me, provided we were able to set aside details like the world's financial system going into melt-down.

Sure enough, towards the end of their chat Aggers asked King about "events in Europe today". Had he not done this it would have been even more surreal. King blocked all these queries with straight-batted cliches about how he and his various banking opposite numbers were in constant touch with each other, getting on top of the crisis, blah blah. If only.

Geoff Boycott (scroll down here (17:23) for a report) had a go at King for bailing out failed banks. Boycott didn't talk to King face to face, which I am sure they took very good care to prevent. But he did send a note, which Aggers read out:

Free enterprise doesn't work when private companies take the profits yet we the public pay for their loses. How is that right? I say put them all in jail. Geoff Boycott

King didn't lose his cool, but he definitely sounded rather ambushed. Basically, his answer was: "When you are the BBC's economic correspondent, I'll answer your questions. I'm here to talk about cricket."

Was King doing that central banker thing of deliberately not cancelling irrelevant engagements, to give the impression of business as usual, no panic, steady as she goes and all that? If so, does he seriously think anyone will be fooled?

Come to think of it, do you suppose that this is what the Emperor Nero himself thought he was doing, when he played on his instrument all those years ago? Fire? What fire? No no, just a little local difficulty. Soon blow over. Relax. Everything under control.

Maybe Nero was just doing music so he could ignore awkward incoming phone calls.

England are 127-2, this having been the somewhat disappointing (because cut short by rain) first day of a potentially very absorbing four match series. I'm watching the highlights now on the telly. India and England are, in that order, now to two top ranked test playing international cricket teams. If England can win this four match series by a margin of two matches or more, they will go top. England have a definite chance of doing that.

As for the chance that Mervyn King and his various opposite numbers will manage to stop that financial crisis from getting any worse, well, that I wouldn't rate quite so highly.

(17)

There is an interesting discussion at the Cafe Hayek blog about how much it matters that Americans don't currently save very much. Well, given that real interest rates (taking into account inflation) are negative, and that holding cash means real wealth declines, it is not surprising that real savings have been steadily eroded. The blog's author is certainly right about this point, however:

"If saving is good for Americans, the nationality or place of residence of the savers whose saved resources are invested in the American economy is irrelevant. If saving is good for Americans, then given Americans’ saving rate, savings invested in the American economy by non-Americans are a blessing – a blessing that is bigger the greater is the amount of this foreign savings and investment in the American economy."

"Yes, we Americans would be even wealthier materially if we Americans saved even more – wealthier materially both as a product of many or all of us having larger financial portfolios, and as a product of the economy of which we are a part having an even greater volume of total output. But for this very reason we Americans are made wealthier also when foreigners save more and invest their savings here, regardless of how much or how little Americans save and invest."

Of course if I can nit-pick, I would make the point that when, say, Chinese investors bought oodles of US government bonds in the years leading up to the credit crunch of 2008, it helped drive US long-term interest rates even lower, hence encouraging even more US domestic consumer spending and borrowing, a process we know went horribly wrong. (The main culprit in all this was the Federal Reserve, not China, I should point out). Of course, if non-domestic savers are channeling those savings into investments that yield a positive future return, such as investments in technological innovations, new products and services, then that's all to the good.

If we were to move away from fiat money to a commodity-based monetary system and 100 per cent reserve banking for demand deposits, then a savings culture would be encouraged considerably. At present, persuading people to save is understandably hard because people, even if they are not hard-money zealots like me, smell that there is something rotten with our money.

In some ways, I see parallels between the loss of faith in paper money and the declining credibility of the AGW crowd. I think it was Brian Micklethwait of this blog who said something along the lines that we have had junk science, and now junk money. There is only so much junk that human civilization can stand.

(5)

Even by his standards, Detlev Schlichter's latest blog posting is quite a read. Quote:

Evil and dumb people can be dealt with. The deeply-convinced do-gooders in positions of almost unchecked power, those are the ones we should worry about, those who are full of good intentions but suffer from tunnel-vision, incurably in awe of their own theories and incapable of even beginning to grasp how what they are doing could make things worse.

Schlichter seems to me also to be rather worried about something else. What if, in the words of one of our recent commenters (on this), Lee Moore, "the roof falls in" before Schlichter's book comes out? Given what Paper Money Collapse says, Schlichter will never be an entirely happy man until the world is back on the gold standard, but he won't be at all a happy man until his book sees the light of day, on both sides of the Atlantic, given the current state of the world's financial system. If all hell breaks loose before the book even goes on sale, he will merely look like he is analysing the catastrophe, but with the juicy details stripped out. But, if doomsday obliges by not happening quite yet, he will, when doomsday does come, be a prophet of doom proved right. Far better.

Given that timing with books, especially books about soon-to-be-current affairs, can be so important, I am puzzled as to why Schlichter's book is due out on August 31 2011 here in the UK, but not until October 4th 2011 in the USA. Its American publisher confirms this date discrepancy, although they only talk about August and October (I did the comparison by using this page). Can anyone talk me through this? I know nothing of what the rules are for publishing books on both sides of the Atlantic at nearly but not exactly the same time. Maybe this kind of gap is routine. Maybe, for instance, they figure that what with Schlichter being based in London, London should get to read it first, because maybe London will be particularly friendly. Or, maybe it's something to do with local book the markets.

More specifically, can any Samizdata reader advise me about what exact date it would make sense for me (given that I am already reading an advance pdf of it) to publish my review of this book? I have already emailed the publishers about this, but they were rather vague. I said "early September" and they said fine. But exactly when would make the most sense? If, now that I have gone public with this question, they want to tell me a more precise date, that would be most helpful.

(15)

When I first began to read that David Cameron could soon be toppled by all this News of the World stuff, I was amazed, just as I was amazed when I first heard about the News of the World itself being shut. I still don't know how badly Cameron is threatened, but if he is threatened, he has only himself to blame.

Cameron got the job of leading the Conservatives because enough of them thought that he would make a satisfactory Blair the Second, to replace the original. The question was, remember, during the Blair years: How shall we spend all this money? The answer was: nicely. Blair is the answer to the question: What sort of chap do you want your daughter marrying? A nice one, that's what sort.

But well before Cameron became (only just) the Prime Minister, the questions had all changed, from being about niceness to being about what the hell was happening and what the hell should be done about it. Yet Cameron exudes no sense of crisis. On the contrary, he makes a point of not doing so, of suggesting that all will be well provided we don't panic and just carry on carrying on, when in reality the situation is very troubling and getting worse and worse by the day. It's as if Stanley Baldwin was still the Prime Minister in 1939.

I have a friend whose take on Britain's political party leaders has been an infallible guide to their success or failure, during the last two decades or so. Blair? Nice one. Major? No. Hague? Thumbs down. The next bald Conservative chap, ditto. The next Conservative bloke - Howard was it? - ditto again. Brown? A definite thumbs down. But Cameron? I remember particularly asking her about Cameron. What do you make of him?

Shrug.

Nothing. Not nasty. Not especially nice. Just, you know, not the answer. Only the answer if the question is: Brown or anybody? - and the answer is: anybody. Which, by a whisker, it was.

Cameron seems to have few passionate enemies, but few friends either. Speaking for myself, I am unable to remember anything - anything - that David Cameron has ever said, beyond that ridiculous Rorschach test verbal blob: "big society". To me he comes across only as perpetually calculating how to triangulate himself into perpetual occupation of Ten Downing Street, while remaining sublimely unaware that things might have to be … decided. Friends rallied, enemies made, irrevocable steps taken, Gadarene rushes halted, cudgels taken up. Liberal Democrats, and many Conservatives, maltreated and betrayed. If Cameron is aware of the need to do such things, then he is daily proving himself utterly incapable of it.

As Perry de Havilland has repeatedly pointed out here, if you actually read Cameron's speeches you will detect absolutely no such awareness – none whatsoever, merely the calm, dignified conviction that as we meander towards the precipice we must all remain calm and dignified.

Any hope I had that Cameron would be an improvement on his predecessor depended on the hope that Cameron was lying about how feeble his policies would be, and I do indeed believe that lies are not unreasonable to at least hope for, from a front bench politician. Alas, it turned out that Cameron was telling the truth.

Douglas Carswell describes the things that now do and do not matter quite well:

Forget about which politicians hang out with which media people for a moment. Our closest trading partners are in grave trouble. A number of European countries are on the verge of bankruptcy, their governments having borrowed beyond their means to fund unsustainable welfare programmes. In perhaps weeks, rather than months, the credit carousel will come to a stop, with various EU governments simply unable to pay their bills by borrowing more.

Across the Atlantic, something like $800 Billion has been squandered in an effort to stimulate the US economy, with little besides a credit ratings downgrade to show for it.

Far from saving the world, Western policy-makers have compounded the mistakes they made in the run up to the 2007 credit crunch with a catastrophic borrow-and-bailout splurge. It was supposed to stimulate the economy and allow us to grow our way out of this mess. It was, they told us, necessary to bolster the banks and buy them time to recover. On both counts, it has failed. Entire governments, not just banks, are now on the brink. Some economic cure it's been. ...

And Cameron's response to all this has been, what?

Carswell again:

Being outside the Eurozone has spared us from quite the feckless public spending seen in parts of Euroland. Not having Obama as leader means we've not yet managed to blow several years budgets in one. But in more ways than many care to consider, Britain’s economic policy has changed little from the approach that got us into such a mess to start with.

Monetary policy has remained entirely unaltered. Nothing has been done to change the course charted by the Monetary Policy Committee, with their ruinously low interest rates and inflationary print-more-money agenda. We should tighten monetary policy and create incentives for people to save.

Fiscal policy has been adjusted very little, with tax and spending following much the same trajectories that were set by the previous administration. Despite the talk of deficit reduction and cuts, UK public spending, borrowing and taxation are all up. Indeed, the Coalition spent more money in its first year than Gordon Brown did in his last. We should cut public spending and borrowing, rather than just talk about it.

When it comes to bailing out banks and the Eurozone, the current administration has more or less carried on with the policy it inherited. ...

Prime Ministers who bob about like corks on the ocean of events are vulnerable to scandal. A Prime Minister who is visibly battling a crisis, the nature of which and cure for which he himself repeatedly proclaims in a way that approximately convinces, generally gets to carry on with his battle, whatever people think of his mere morals or his friends or his accent or his taste in suits and ties. A Prime Minister who is leading the charge against an enemy can turn on carpers who moan about such things as unsavoury newspaper friends and cry: Okay, okay, I get it, you don't like my friends. But keep on about it and I will soon suspect you of being another enemy yourself.

Thatcher, in the days of her pomp, defined her great enemy as inflation. Anyone who flung the same piece of mud at her for too many days running was accused by her of being in favour of inflation, and it worked like a charm, not least because the accusation was quite often true. But what evils are the people who are now complaining about Cameron's newspaper friends going to be accused of, by Cameron or by anyone else? Undermining Britain's foreign aid programme? Being anti-Eton? Opposing wind farms?

Like Carswell, I thought that Cameron was at least a better bet than Gordon Brown. Brown had definite plans, all of them catastrophic, and I would have voted for a hamster in a wheel rather than him. Now that the catastrophe has got bigger, and Cameron's plans, insofar as they exist, are proving equally catastrophic, I now feel the same about Cameron. Would Ed Milliband, or Nick Clegg, or William Hague, be any worse? Very possibly, a bit. Might they be better? Most unlikely, but you never know your luck. Better the devil you don't know, than the futile waste of space that you do.

I don't find that I now hate Cameron, the way I hated Brown. What's to hate? But I really would quite like it if another Prime Minister now took over, picked with whatever constitutional pin or random cabal of parliamentary beasts would do the picking. Such an upheaval would almost certainly fail to accomplish anything positive, but it would at least add to the sense of a crisis. Since we do actually face a crisis, that would be something.

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Liam Halligan has written a not unreasonable article called We should have listened to Zhu Min years ago – don’t ignore him now:

The “twin pillars” of the world economy continue to totter. Global investors, politicians and the financially-literate general public are wringing their hands about two previously “unthinkable” disasters – the US Congress “closing down” the government of the world’s largest economy and the break-up of the eurozone.

American lawmakers may do a deal this weekend, so managing to raise the US debt-ceiling prior to the August 2 deadline. Europe’s monetary union may, for now, be held together with a bucket-load of political fudge. If so, we would avoid both a US default and a “euroquake”, so averting another “Lehman moment”. I certainly hope we do.

[...]

“It’s no use throwing dollars out of a helicopter,” Guido Mantegna, the Brazilian finance minister, has commented.

“QE amounts to economic hooliganism,” the Russian prime minister, Vladimir Putin, observed last week.

Mantegna and Putin are right. We Westerners won’t admit it.

'We' westerners? To hijack an old joke about the Lone Ranger and Tonto, Who is "we", Pale Face? What he is saying is just what Austrian school economist have been pointing out for years.

But he is wrong about sovereign default being a 'disaster'. On the contrary...the sooner the better, I say. The only cure for the absurdity of bloated state borrowing is for it to become a great deal harder for states to do it... and as there is clearly no political will to tell all the vested interest with their snouts in the trough that the binge is over, not just for the well connected bankers but for the 'innocent' voters who are state funded parasites, then the only solution is for lenders to learn that sovereign risk is now actually... risky.

Let even one of the Big National Players default and the money states borrow will dry up like morning dew... and that is a good thing, not a bad thing.

(2)

Step by step, the world is edging towards a revived Gold Standard …

- Ambrose Evans-Pritchard. My thanks to Detlev Schlichter for alerting me to this piece. Schlichter's forthcoming book would appear to have been timed to perfection. I am reading an advance pdf of it now. If you want a copy I recommend you advance-order it now, or you just might have a rather long wait.

(27)

I love David Thompson's ephemera postings, which he does every Friday. Buried in among the fun and games are often things with a bit of a message, in favour of Thompsonism and against horribleness.

So, today, for instance, there is a link to three lists, of top migrant destinations, top emigration countries, and top "migration corridors", migration corridors being country pairs, from and to. List one says how many people in each country were not born there, and the second list says how many people who were born there have now gone.

I have always believed that how people have been voting with their feet is one of the most potent judgements there can be at any particular moment in history, on the varying merits and demerits of different countries and different political and economic systems. The USSR bombarded the world with high decibel claims about the wonderfulness of itself and of its various national possessions, but could not explain why so many people wanted out, and so desperately, and so few in. How come the Berlin Wall only pointed in one particular direction? How come they were the ones who built it?

Contrariwise, the world's anti-Thompsonists of an earlier time cursed the hideous exploitation of the emerging sweatshop (then) economies of South East Asia, but could not explain why people would swim through shark-infested waters, in order to be hideously exploited.

Such numbers also register how welcoming or unwelcoming different countries are towards being "flooded" with incomers. The USA, of course, is the country that positively defines itself as the country of migrants. That the USA, now as always, is by far the top migrant destination, leaving the rest in a clump far behind, says it all about the continuing vitality of the USA as the go-to superpower of the world, still, despite all the blunders its rulers are now making and which the USA itself is so good at drawing everyone's attention to.

Russia and Saudi Arabia must also be doing something right, despite the stories you hear, and at least compared to the alternatives for those flooding in. Money plus labour shortages would be my guesses, in both cases.

The UK features in the top ten both for migration in and emigration out. That is a telling fact, is it not? India and Russia are also on both lists.

The biggest upheavals are surely the big numbers that pertain to countries with small populations. When you talk percentages, Australia looks to me positively USA-like in its eagerness to attract newcomers. That China, despite its colossal size and formidable recent economic vitality, is not on the top destination list is also quite telling, is it not?

These numbers are more than just ephemeral curiosities, I would say.

(13)

In this, which is about some guys from Loughborough who have decided to mark cities (scroll down a bit) like they are undergraduate essays (Alpha+, Beta+, Beta-, etc.), NickM waxes lyrical about Prague:

The coolest city is Prague. Prague is just mental. I’d happily move there tomorrow but for the language which is something else. Just super-cool. On the Charles Bridge there was a rodent balancer. Some bloke in a monk’s cowl was balancing rodents on a labrador for change. And then you just walk past where Kepler lived and customer service is spot-on and it was about a quid a pint for most excellent beer right in the city centre and the food was good quality and good value. Went to a steak house run by former firemen who donned the hats when they put the heat to the meat. Bloody good steak that was. And then down by the river and a load of blokes ride past me in Edwardian garb astride penny-farthings. Prague is just ineffably cool. Just wandering around is wonderful. Just doing that brought me by chance to the church where the killers of Reinhardt Heydrich had holed-up. That was poignant. And then there is the Museum of Communism. This is not a free museum. It makes a point of being a for profit enterprise. It advertised, when I was there, with a Russian doll with fangs. It gives it’s address as, “Above McDonalds and opposite Benetton.”. It didn’t need to add, “And fuck off Lenin”. A joy to behold.

Here endeth the broadcast from the Czech tourism bureau.

But he adds a warning:

But catch it while you can and before EU membership fucks it.

Well, EU membership doesn't seem to have fucked London yet, despite decades of the EU trying everything they can think of to accomplish that. London, according to the Loughborough guys, is equal top (Apha++) with New York. NickM goes further. He reckons New York is overrated and has London top on its own, as the greatest city in the world "bar none". He doesn't say why, however.

Personally, I love London, because I live here and I just do. But I do not know where I think it ranks in the great city stakes because I seldom leave it, and hence can't compare it with other urban greatness contenders.

I have been to Prague, which I thought was pretty good. The middle is amazing, wall-to-wall listed buildings, as we would say in London. As I assume is the case in Prague too, i.e. you may not smash it down and replace it with a concrete blockhouse, just because you "own" it. Which I understand. But the uninterruptedly historic nature of the centre means that nothing new can now be built. In other words, the centre of Prague feels like a film set, and will feel more and more like one as time passes. See also: Paris.

(7)

Steve Baker, the MP whom we here actually rather like, has a piece in the latest Jewish Chronicle, which makes what seems to me like a very important point. I have this point alluded to vaguely, but never spelled out. It is that the outrageous behaviour of the merchant banking fraternity in recent years is as much a product of bad bank regulations as it is of mere capitalistic greed.

It being the Jewish Chronicle he's contributing to, Baker alludes to some scales that are criticised at the beginning of the Book of Proverbs, Chapter 11 (which American readers may consider rather appropriate, what with the times we (and they) are now living in).

The particular rules that Baker zeroes in on are the accounting rules that define profit:

Among other problems, IFRS accounting rules incentivise trading in derivatives by enabling unrealised, perhaps fake, profits to be booked up-front, leading to large but unjustified bonuses and dividends. They grossly inflate profits and capital and discourage banks from making prudent provision for expected loan losses. They also discard the time-honoured principle of prudence embodied in UK company law. In doing so, IFRS gravely weakens the audit function and the vital check it imposes on bank management. This undermines effective corporate governance in banking. The upshot is that IFRS makes bank accounts highly unreliable; no-one has a true view of our banks' financial strength. All this contributed greatly to the financial collapse. IFRS made banks appear more profitable than they were. This led them to imprudent expansion, to payments of bonuses they could ill afford to make and to inadequate provisioning for likely losses.

I am not qualified to second guess Baker on this. But I do know, as a general principle, that when one observes something going wrong with the world, one should not immediately assume that yet more laws and regulations are needed to curb whatever it may be. Rather, one should ask what laws or regulations - laws or regulations already in place - are causing or at the very least greatly exacerbating the problem in question, and should accordingly be got rid of.

(9)

I came across the following in a research paper about the benefits of "clustering" of financial services and other industries:

"Singapore is a country, which, 40 years ago had the same GDP per head as Uganda. Now, it is the richest country in the world, with GDP per head of $57,238 I 2010, according to the IMF, putting it ahead of the US, Japan, Hong Kong and Switzerland."

Seems like a classic example of how some places are actually blessed by a dearth of natural resources.

(28)

The headline says 'Europe declares war on rating agencies':

Wolfgang Schauble, German finance minister, said there was no justification for the four-notch downgrade or for warnings that Portugal might need a second bail-out. "We must break the oligopoly of the rating agencies," he said.

Heiner Flassbeck, director of the UN Office for World Trade and Development, said the agencies should be "dissolved" before they can do any more damage, or at least banned from rating countries.

Now ponder that for a moment... what is a 'rating agency'? It is a company that states an opinion regarding credit worthiness. And those opinions are only significant if people who make investment decisions think the opinions in question actually reflect reality, i.e. the opinion has some credibility.

So what these quoted members of the political class are calling for is banning credible opinions about the consequences of decisions by, er, people like themselves.

Astonishing. And in reality rating agencies have a history of excessive optimism, only downgrading ratings long after the dots were joined by anyone who has been paying attention.

(5)

Yesterday, there was a mini-rebellion in Parliament, to be precise in one of its Committee Rooms. Britain's (increased) IMF subscription was being discussed, and although it got through, there was a little flurry of excitement, as Guido reported:

Something very rare happened in what is usually the dullest of committees. A dozen or so Tory non-members of the committee came and spoke against affirming the instrument. Government whips cajoled the pliant Tory and LibDem members of the committee to vote to affirm the instrument while Tory MPs spoke from the floor against it. Promising new boy Steve Baker and backbench eurosceptic Douglas Carswell were among those who spoke against affirming the instrument.

You can now read what was said in Hansard.

When these kinds of things are argued about, everything depends on whether the contrariness on show is a genuine argument that we should switch to an alternative and better policy, or merely grumbling. If all that is happening is that people don't like whatever it is, what with them not having created the problems (or so they say) with their decisions, and what with all the cuts they are having to put up with now, well, frankly, that doesn't count for very much. If the powers that be are able to say: Well, what would you do that would be any better? - and if you don't then have an answer, you might as well not have bothered. All you are saying is: This hurts. And all that the government has to say in reply is: Yes, we hear you, we feel your pain, but we are going to do it anyway, because despite all the pain, we remain convinced that this is the best thing to do.

Scroll down at Hansard and you can read, in particular, what Steve Baker MP had to say. The thing about Baker is that he really is arguing for a paradigm shift in economic policy thinking. He even quoted a chunk out of Human Action, which I think I will quote here, again:

The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” (Human Action, p. 572)

Baker is not just saying: this is a crisis. Everyone knows that. He is also saying: and we need to have the crisis, now, all of it and get it over with as soon as we can.

Hayek also got a mention, as did Jesus Huerta de Soto, who gave the Hayek Memorial Lecture last October.

This is the kind of politicking that is capable of having actual impact. Not now, and certainly not right away, but … in the longer run. In the longer run, ideas can change.

LATER: The Cobden Centre blog now has a more user friendly version of Steve Baker's words, here.

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Sport, especially when it gets big and successful and financially significant, is incurably political. This is because, when it gets big and successful and financially significant, it can't be run like the car industry or the computer chip industry. If you think the current range of cars or computer chips on sale are rubbish, you can go into business on your own, and make better cars or computer chips, or you can import better cars or computer chips, or you can make what you reckon to be better car components or better chip designs and then try to sell them to the various car or chip companies, and if one car or chip company won't buy them, you can try the others.

Car and computer chip companies can also get very political, but at least there is a decent chance that they will be run approximately like real businesses, competing with each other, and in a form which allows malcontents to express their discontents commercially rather than politically.

But, if you don't like how your sport is run, you and your friends walking out of the AGM in a huff and starting your own version of that same sport is not any sort of solution. That, actually, is a pretty good one line description of the fundamental problem. (Consider what happened to rugby, when it split into rugby league and rugby "union" (hah!). Think what rugby, league and union, now is. Think what it might have been.)

Everyone who wants to be part of running their favourite sport is stuck with each other. All must somehow agree on the same set of detailed rules. All must cooperate to contrive competitions of the kind they all want, or at least are all ready to live with. All must submit to the same "governing" body. When a car company competes with another car company, they don't need to communicate at all. When a sports team competes, in the sporting sense, with a rival sports team, there has to be a minimum of civility involved, otherwise they'd never be able to fix a time, a place, or officials to adjudicate. Sporting fixtures need fixing, cooperatively.

Sports only compete in the purely commercial sense, uncontaminated by the need for any "politics", in that an entire sport competes with other entire sports. In new and small sports, everyone is in a very basic sense on the same side. But when things start to go really well, there start to be fights within the sport, about the rules and for the spoils. Small sports tend to be run well and amicably. It's only when they get big that the trouble starts.

My particular favourite sport happens to be cricket, and cricket, now as always, is riddled with political problems.

In the course of giving a lecture recently at Lord's, the highly respected former captain and still current Sri Lankan player Kumar Sangakkara, identified the moment when things started to go wrong for cricket administration in his country:

Sangakkara pinpointed the country's most powerful moment of national unity - the World Cup final victory over Australia in 1996 - as the moment the sport's administration changed "from a volunteer-led organisation run by well-meaning men of integrity into a multimillion-dollar organisation that has been in turmoil ever since".

Precisely.

The other way that sports administration can go horribly wrong is when the politics of the country itself goes so horribly wrong that it screws up everything in the country, sport included. This happened in recent years in Zimbabwe, and Pakistan cricket is a constant source of worry to cricket people everywhere for those kinds of reasons.

It would be tempting, then, for a devotedly anti-politics libertarian like me to crow with joy at a report like this, which is about how the world governing body of cricket is telling national governing bodies of cricket that they must be free from political interference.

However, in this report, we read this:

The change is something the ICC has been keen on for some time, to try and bring governance of cricket in line with other global sporting bodies such as FIFA and the IOC.

The ICC is the cricket governing body, FIFA the soccer governing body, and the IOC the Olympic Games governing body. The latter two are constantly in the news because of political turmoil and because of thoroughly well-founded allegations of corruption. And yet here are cricket administrators, without any apparent sense of irony, putting these two bodies forward as models to be emulated, to create a cricket world free from "politics". Where, as a Samizdata commenter might say, do you start?

I'll start with that horrible word "governance", a euphemism regularly perpetrated nowadays by politicians to describe politics, but without calling it "politics" because politics sounds too sordid and nasty. Talk of "governance" at once tells us that global cricket administration remains what it has always been, a zone of political bullshit rather than any kind of new nirvana of enitrely prudent and totally stress-free sports administration. Only the nature of the bullshit changes. It used to be imperial and British-flavoured; now, as the new money of the Indian middle classes floods into cricket, the bullshit is more Indian-flavoured and commercialised. (See, for instance, what another former international cricket captain, Ian Chappell, has to say about the ICC.)

The truth is that this is not an argument about whether cricket should be political, merely about what sort of politics, national or global, should make the running, in the running of cricket.

In this respect, cricket resembles the world, I think.

(10)

As briefly mentioned in a post below, people - a lot of them who seemed to be classical liberal stirrers like yours truly - gathered in the sun-lit gardens in front of the US Embassy, Grosvenor Square, to witness the unveiling of a statue of Ronald Reagan. I like this editorial in CityAM by Allister Heath, who signs off with these two paragraphs. His comment about JF Kennedy is very much on point:

"In fact, Reagan wasn’t even that original. The best exposition of how tax cuts can reinvigorate an economy remains Democratic president John F Kennedy’s spectacular 1964 reforms, which reduced the top rate from 94 per cent to 70 per cent (Kennedy was assassinated in 1963, of course, but his tax cuts were agreed prior to his death). Two years later, the federal tax haul was 11 per cent higher than forecast: more people made more money and their taxable efforts more than compensated for the reduced tax rate. Kennedy had been proved spectacularly right when he had argued that “an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

"In 1981, Reagan reduced the top rate of income tax to 50 per cent. In 1986, he cut it again to 28 per cent. Of course, this benefited the richest disproportionately – but they nevertheless ended up shouldering a greater tax burden and paying for a greater proportion of public spending. The share of tax raised from the best-paid 1 per cent jumped from 19 per cent in 1980 to 25.6 per cent in 1990. The moral: to squeeze more tax out of the rich, lower the top tax thresholds. We learnt that in Britain starting in 1979 – but with top earners now taxed at 52 per cent and millions paying 42 per cent, the lessons have been forgotten again. Britain needs to discover its very own Ronald Reagan, a hopeful, optimistic, pro-individual liberty, pro-growth politician with an uncanny ability to communicate. Any takers?"

Well said. In a spirit of fairness, though, I link to an interview with Reagan's former budget director, David Stockman, who is a fierce critic of the deficits (he also strikes me as somewhat embittered). I am not sure if his call for tax rises in the absence of any serious spending cuts is going to find any welcoming audience. I also think Stockman is far too dismissive of the fact that because of the Reagan supply-side tax cuts, revenues boomed.

As Heath says, hero-worship is something any genuine liberal should avoid. The list of heroes in public affairs is, as far as I can judge, short. Reagan is one of them.

(5)

"Will militant unions derail big fat Greek sell-offs on the rocky route to recovery?" sayeth the Telegraph.

Well anyone buying Greek infrastructures with private money deserves everything they will get... it would be easier and probably less stressful to just flush the money down the toilet and call it 'performance art'.

Leave Greece to circle the drain as a prime example of Mencken's observation "Democracy is the theory that the common people know what they want and deserve to get it good and hard".

Greece will just be the first of ma