The facts are unambiguous: despite public perceptions to the contrary, extreme poverty has declined significantly, to the point where its end may actually be in sight. So next time you hear someone bemoaning a supposed rise in world poverty, encourage them to have a look at the evidence for themselves.
– Chelsea Follet
Debt is the Fed’s basic problem, and it doesn’t know how high rates can go without triggering a financial crisis. And even if the Fed could make an assessment for America, there is the knock-on effect of the Fed’s interest rate policy on foreign dollar borrowers, as well as on the Eurozone and Japan. China has indirectly added to the West’s problems by being the largest component of global economic growth. Her massive credit expansion is contributing to higher interest rates elsewhere by financing imports, commodity stockpiles and driving up prices. It is the lack of ability of the ECB and the Fed to raise interest rates sufficiently to counter higher rates of price inflation that’s becoming the most pressing challenge.
– Alasdair MacLeod
I like those elongated cakes with raisins in them referred to on the package as “finger madeleines with raisins”. A few days ago I purchased another stash of them, from the Afghan-run corner shop nearest to me.
They looked like this:
Sorry about the strange blue reflections of something blue in the transparent but shiny packaging, but it is important that you realise that this is a photo of these finger madeleines before I opened them.
Same sized package. Same price. But, six empty spaces where there used to be six finger madeleines. Twenty four finger madeleines instead of thirty finger madeleines.
We are seeing quite a lot of this in the UK just now. Soon the packages and/or the prices will change, but meanwhile, the quickest way to adapt in the short run is just to reduce the amount in the package.
Brexit is not proving to be an economic catastrophe, and I remain very optimistic about it in the longer run, that being why I voted for it. But it is proving something of a dislocation in the short run, if only because the sort of people whose job it was to foresee it mostly did not foresee it. I don’t blame them for this. I did not foresee Brexit either. I merely voted for it.
For decades, often in word but always in deed, politicians have told voters that government debt didn’t matter. We, and many economists, disagree. Yet even if the politicians were right, the absence of available creditors would be an insurmountable problem—were it not for the Federal Reserve. But when the Federal Reserve acts as the lender of last resort, unpleasant realities follow. Because, as everyone should be keenly aware, the Fed simply prints the money it loans.
A century of arguing about how much to increase spending has left us with a debt that dwarfs the annual economic output of the planet.
A Fed loan devalues every dollar already in circulation, from those in people’s savings accounts to those in their pockets. The result is inflation, which is, in essence, a tax on frugal savers to fund a spendthrift government.
– Antony Davies & James Harrigan
If you haven’t already partaken of this bit of video, then you really should. It lasts just under twenty minutes.
Tim Harford is speaking, in 2011, at some gathering of the clever and the smug, but it’s better than that. The name H. R. McMaster comes up several times, and this is, among other things, a very good quick way to learn why McMaster’s appointment by President Trump as his National Security Adviser might turn out to be such a very good one. It certainly explains why this appointment is already so very popular. You don’t have to believe that the USA rearranging matters in faraway countries is always or even ever a wise policy to get the points that Harford is making.
Harford also mentions, in passing, Hayek. From this, you may guess that this is a talk about decentralised decision making, and how on the spot knowledge, again and again, trumps the wisdom of the Central Committee or the High Command. If that is your guess, you would not be wrong.
The story that Harford tells reminds me of another transformation of policy that happened in China, and gave rise to what is now called the Chinese economic miracle. This miracle is now starting to look rather less miraculous, but it was still a massive improvement over what preceded it. That change too is usually attributed to a change of top leadership and of its top-down policies, but that policy also, I seem to recall reading, began at the bottom of the chain of command and in spite of the chain of command.
I even seem to recall having linked to stuff about that from here. Yes, here is that posting, about teeth of all things, and here is the article at Planet Money that the posting linked to. It’s the same story as Harford tells in the above-linked-to video.
The result of [the ‘sharing economy] is that in many ways, private tech companies have ended subsidising new forms of public services, for the public good.
That ought to make them the darlings of the Left. Yet unfortunately, the Left just can’t rid itself of its urge to regulate, legislate and tax. And in their efforts to thwart consumer freedom, they have a useful ally in the shape of a legal framework which was developed for the analogue age.
Uber, for example, is the poster child of the sharing economy. Yet 2017 is make or break year for its European ambitions – and at its core is an age-old political battle of Left versus Right.
This battle isn’t on the streets of San Francisco or London; Uber has already won over consumers. Instead, the fight is moving to a soulless courtroom in Luxembourg. The question is whether the company is a technology or a transport company; and the answer is incredibly complex.
– Daniel Dalton
Below is an interesting riposte to the idea, entertained even by pro-market folk such as Kevin Dowd in a recent study of the 2008 banking crash, that a way to make banks more prudent in lending and savings policy would include weakening limited liability of the shareholders and even removing, in whole or in part, banks from listed markets, returning them to more like partnerships, so that we come back to some purer, saner age. It is not quite so simple. The article is from Tim Worstall:
But we can go one level deeper into this as well. It’s common enough to hear that the crash of 2008 was all about the quite despicable idea of shareholder capitalism. That the hunger for profits among the capitalists is what drove us all off the cliff. This is not so. Just as many, if not more, building societies went bust in the crash as did banks. The Derbyshire Building Society, Chesham, Cheshire, Barnsley, Scarborough….
Capitalists have a use. As shareholders, they provide the capital. And if things go kaboom then it’s they who lose their money. Plus, in the case of a banking organisation, what tends to drive it off the cliff is not the capitalist lust for profits: it’s bad banking.
In the US, meanwhile, Donald Trump has won some free market points – for now – by promising to reform, and hopefully roll back, the monstrosity that is the Dodd-Frank legislation of 2011.
When I was a teenager doing GCSE Science we had a guest speaker come in and talk about what I now know to be The Limits to Growth. We were told about peak oil and how oil production doubles every n years and blah blah blah and it sounded pretty convincing at the time. Fortunately I did not pay it much heed, much as I instinctively did not really care about acid rain or the hole in the ozone layer which were the subject of geography lessons around the same time. It was not until years later I found out about the Club of Rome. I still do not know how, exactly, that guest speaker came to be in that science class, but in retrospect it sounds pretty sinister.
I like the band Muse. Their
latest 2012 album is called Thermodynamics The 2nd Law and includes the song “Unsustainable”. It is really annoying when the creator of art you enjoy starts spouting crappy nonsense politics. Anyway, the song contains a recording of someone saying:
The fundamental laws of thermodynamics will place fixed limits on technological innovation and human advancement
In an isolated system the entropy can only increase. A species set on endless growth is
Of course, as someone at genius.com points out, we have the sun, which should last long enough.
I was reminded of all this in an instant messenger chat with Perry Metzger today. He was talking optimistically about solar power. I did a search to check that I was not just imagining that anyone ever took second law arguments about economics seriously. I found a paper.
…we shall examine some challenges which have been made to the limits to growth (Limitationist) position by those criticizing the scope and application of the second law of thermodynamics and we shall in turn defend Limitationism against these criticisms.
Perry M said, “if all else fails, we can always use the hot air produced by leftists as a power source indefinitely.” I shared that link. He replied, “that paper alone, Rob, could power London for a month.”
An argument I have come up against recently, in this apocalyptic book by James Rickards, is that free trade, as classically defended by David Ricardo with his famous Law of Comparative Advantage, only works in theory because the freedom to move capital and factors of production around means the “playing field” of the market is never “fair”, hence tariffs/other controls are just to re-set the game. Straight off, this sounds bunk to me, not least because free movement of capital is part of what capitalism (clue is in the word) is all about. Capital, both in its physical and human form, goes to places where it can earn the highest rate of return. This is how, to summarise massively, we got from the caves to the skyscraper. If a businessman cannot use his capital where it works most effectively, it would render much investment pointless.
And if it is wrong for capital to move around because it somehow undermines some sort of “fair” trade, then this applies not just to between nations, but inside them, too. Ah, but I hear the Trumpistas cry, what about those evil currency manipulators gaming the system in their favour? The answer is that if the Chinese or others want to send us cheap stuff, made even more dastardly cheaper by currency manipulation, it means consumers don’t have to earn so much to buy imports. True, in the short-term it means that some jobs will be lost because of the cheap imports, but then again the pay packages of millions of consumers stretch a bit further. The pain of the affected industries is easy to see and makes for great TV and campaign spots for a Donald Trump or Bernie Sanders (whose views on trade are identical); the costs to consumers from protectionism is not easy to visualise. Also, if China, for example, sells or “dumps” cheap steel on the world market, manufacturers in the West who use steel will see their costs fall. It is worth nothing that when in the early Noughties George W. Bush slapped tariffs on steel, it “saved” some US steelmaker jobs, but cost many jobs in sectors where steel is a factor of production.
Finally, here are more thoughts on the idea that free capital movement somehow dents the case for trade trade, via Gene Callahan over a decade ago:
An honest advocate of free trade must admit that there will often be people who are made worse off, at least in the short run, by the freedom to trade internationally. But the same is true of trade within the borders of a country: If you open a restaurant near to and better than mine, my business will suffer.
It might be pleasant to live in a world of unlimited resources, where everyone who wanted to run a restaurant could do so without having to compete for customers’ scarce dollars. But since we don’t, the fact that my situation might worsen because of your business activities is an unavoidable consequence of the freedom to buy from and sell to whomever one wishes. If we try to prevent all such unpleasant outcomes, we will eliminate the market economy and regress to a hand-to-mouth existence.
Sometimes I observe a public discussion and notice that each side is talking across the other and neither side is understanding. I wonder if a change to the language of the debate might be constructive.
When Donald Trumps talks about making Mexico pay for the wall by imposing a 20% tariff on imports from Mexico, the left rightly point out that this means that Americans will pay for the wall. Similarly, those who want the UK to remain in European Union talk about the importance of trade. Nearly everyone agrees that tariffs are bad and trade is good. But dig a little deeper and soon it becomes clear that people are not talking about free trade at all. They are talking about the kind of trade that involves hugely complicated and interventionist multilateral treaties between governments.
I often try to explain that I am in favour of free trade and that we do not need people in government to make complicated deals: we just need to leave people alone and they will trade with each other. I am met with various objections. Exporters will suffer because foreign governments will increase tariffs and people in foreign countries will find it too expensive to buy British goods. Foreign governments will subsidise production and people in foreign countries will be able to sell things cheaply to British people; so cheaply that British people will stop buying things from British companies until those companies go out of business. At this point the foreign people might put up their prices and if they time it right the prices might never go down again because skills required to restart British companies might be lost.
My answer to these objections is that people are clever and they will find ways to make the most of the new situation. But it will be a situation in which people are, on the whole, richer than they were before. Cheap foreign goods make us richer. Not exporting things frees up labour to do other useful things.
But I can not deny that in the short term people will lose jobs and will struggle to find new things to do. My arguments are all about how people can get richer in the end. People who think the government can help with trade want to help the man who works in the widget factory and wants to be still working in the widget factory tomorrow.
Some Trump supporters and some people in favour of the UK leaving the European Union want to reduce immigration. I am in principle in favour of freedom of movement. I would argue that the ability of people to move to where there is demand for their labour makes production cheaper and everyone richer. But I can not deny that people moving around can make life uncomfortable for people staying still if the people staying still find their wages going down as a result. It is certainly not helpful to make accusations of bigotry in the face of such concerns as people on the left often do.
It might turn out that we all agree about what happens when people are free to move and trade, we just have different time preferences.
Interestingly, some of the same people who object to unilateral free trade are also in favour of freedom of movement, even though it is equivalent to unilateral free trade in labour.
“Economies are dynamic, complex systems. They are most strong and productive over time when they are free to adapt to new realities, circumstances and changing patterns of supply and demand. Was UK mining truly protected by overt government decisions to buy domestic coal in the late 1970s or early 1980s? Or was that protection merely insulating the industry from the competition of cheap natural gas, meaning that when the protection was withdrawn, the industry collapsed?”
– Ryan Bourne.
Ruth Potts, writing in the Guardian with a quill pen, says that,
…a deeper understanding of humankind’s place in a living world of materials suggests the need and opportunity for a different kind of love affair with “stuff” – a long-term relationship of appreciation, slow pleasures, care and respect.
Instead of abstinence and austerity, embracing the New Materialism could have profoundly positive effects. Inverting classic expectations of productivity in which fewer people produce more stuff for consumption, the New Materialism points to an economy in which, in effect, more people produce less stuff for consumption.
There are other steps we can take to accelerate this healthier relationship with stuff: a minimum 10-year guarantee would help end the scourge of built-in obsolescence. Community Supported Agriculture reconnects communities with the people who grow food. The same approach could be applied to more of the objects we use: Community-supported potteries could deliver tableware, gradually, by subscription. The same could apply to clothing and furniture. A culture of repair and re-imagining would create ample skilled employment; high street making and mending hubs could bring life back to the hearts of our towns and cities.
Speaking as the last woman in England who can properly darn a sock, I know well the pleasure to be had from “make do and mend”. Darning is quite satisfying. By plying my darning needle I have kept going heirloom socks knitted by deceased great aunts. I have been known to darn a hole in a beloved Fair Isle jumper in multiple colours of antique darning wool, which I acquired from an eBay seller in France. Don’t think I don’t see the appeal of caring for a dear old thing rather than buying a rubbishy new thing.
But that appeal is strictly contingent on it being a hobby not a necessity. For generations of women, darning was the most wretched of tasks, ruining their eyes and wasting their lives trying to eke out a little more use from a garment that was certain to “go” again almost on the next wearing. Men had it no better. George Orwell wrote in Homage to Catalonia of seeing the type of tools in use in 1930s Spain:
A broken ploughshare, for instance, was patched, and then patched again, till sometimes it was mainly patches. Rakes and pitchforks were made of wood. Spades, among a people who seldom possessed boots, were unknown; they did their digging with a clumsy hoe like those used in India. There was a kind of harrow that took one straight back to the later Stone Age. It was made of boards joined together, to about the size of a kitchen table; in the boards hundreds of holes were morticed, and into each hole was jammed a piece of flint which had been chipped into shape exactly as men used to chip them ten thousand years ago. I remember my feelings almost of horror when I first came upon one of these things in a derelict hut in no man’s land. I had to puzzle over it for a long while before grasping that it was a harrow. It made me sick to think of the work that must go into the making of such a thing, and the poverty that was obliged to use flint in place of steel. I have felt more kindly towards industrialism ever since
That’s because Orwell, though a Socialist, had trained himself to the habit of opening the door when reality came knocking. Ms Potts has not. Every pretty vision she describes, the minimum ten year guarantee, the “Community supported agriculture”, the idea that “Community-supported potteries could deliver tableware, gradually, by subscription” (sounds lovely, all the family sharing one plate while waiting for the rest to arrive); they all boil down to deliberately making things more expensive and people poorer.