The problem is not confined to the U.S. Britain’s problem is almost as bad; gross debt there increased from 51.9% of GDP in 2008 to a projected 82.1% of GDP, an increase of 30.2 percentage points, or 6.2 percentage points a year – again double the increase in nominal GDP, which in Britain has consisted almost entirely of inflation. This is not due to British “austerity” – policies since May 2010 have slowed the debt increase somewhat, but killed the economy, since they involved heavy tax rises and very few genuine spending cuts.
- Martin Hutchinson. Read the whole thing.
Allison thinks the [bank risk] models are doomed from the get-go because they are based on fundamentally incorrect notions. “They always assume normal curves, and they try to manage things to a 99 percent probability. That means there’s only a 1 percent probability that certain bad things can happen. Well, there’s an interesting thing with a 1 percent probability: Give it long enough, and it becomes certain.”
- Former BB&T chief executive officer John Allison, quoted on page 84 of I Am John Galt, by Donald L Luskin and Andrew Greta. (The chapter on Paul Krugman is gruesome reading.)
I heard Allison speak in London about a year ago, and he’s very good.
Venezuela food shortages: ‘No one can explain why a rich country has no food’
I know you all want to jump in and offer your suggestions. Do not, however, be too scathing. Seriously, the clue train shows signs of having made an unscheduled stop at the Guardian station. The article mentions, albeit in a hurried way and sandwiched between irrelevancies, price controls as a possible explanation for the mystery. And this is downright subversive:
For Oliveros, an additional cause for the shortage of basic food staples is the decrease in agricultural production resulting from seized companies and land expropriations.
From the way that is phrased one could almost think that a decrease in agricultural production was a result of seized companies and land expropriation. I am beginning to wonder if the “No one can explain it” title was selected by either the writer or the mole among the Guardian‘s sub editors in order to call forth the responses it did get.
The idea that we are living in a period that in retrospect we might call “The Crazy Years” gets an airing in this long, essay by John C. Wright. He takes the term from Robert A Heinlein’s “Future History” series of stories, written decades ago when the Grand Master of Science Fiction was not yet fully famous. (Thanks to Charles N Steele’s excellent blog for the pointer).
Steele, in his own ruminations on this, says:
Robert A. Heinlein explored a possible future history for homo sapiens. One of things he foresaw was a period at the end of the 20th Century and beginning of the 21st that he called “the Crazy Years,” in which cultural fragmentation and decay in advanced countries generates political and economic decline and social disruption. He was prescient in recognizing what happens when commonly accepted principles such as an individual’s responsibility for self are forgotten and political correctness and multiculturalism run amok. As advancing technology places increasing power in human hands, human ethics fail to keep pace. In Heinlein’s world, humans do manage to navigate these shoals without destroying themselves and eventually do settle on a MYOB sort of libertarian ethic…but only narrowly averting nuclear self-destruction and environmental self-destruction, and not without going through periods of dictatorship as well as societal chaos.
Steele then lays out a number of areas where signs of our descent into the Crazy Years might be evident:
Iranian or Al Qaeda religious fanatics obtaining nuclear weapons…
An American federal government — especially the executive branch — working to acquire unlimited power, and already apparently having the power to spy on essentially all communications, everywhere…
A growing segment of the population — some poor and some very rich (think Goldman Sachs) – who live as parasites on the productivity of others while creating nothing of values themselves…
An intelligentsia that cannot bring itself to condemn Islamism for fear of being seen as insensitive or racist or ethnocentric, but which regularly denounces, in the most hateful terms, anyone who opposes the continued expansion of state power…
An intelligentsia that praises socialism, hunter-gatherer economies, massive interventionism, anything but the one system that actually works, free market capitalism, a system they bitterly condemn…
A “press,” our mainstream media, that sees its job as promoting political positions and readily lies when lies serve this goal better than truth, and spouts nonsense the remainder of the time, apparently because reasoned analysis is too hard.
He then goes on to argue – and I hope he is right – that reasons for pessimism are perhaps overdone. For instance, who would have predicted that, after 1945, the continent of Europe (albeit apart from the Balkans in the early 90s) was free of any serious armed conflict of the sort that has routinely ravaged the region for centuries, and that the Cold War came to an end without the Soviets or NATO firing hardly a shot at one another on the continent?
I would add that in the confines of the UK, signs of craziness are evident, for example, from the political classes. Take the recent UK Labour Party conference. Labour leader Ed Milliband wants to impose a freeze on the prices that electricity companies charge their customers, while simultaneously demanding that they invest more in things such as renewable energy; his reversion to the idea of draconian price controls is pure demagoguery. Remember, dear Samizdata readers, that the Millibands of this world are quite popular with large chunks of the electorate. Labour is leading – just – the other main party – the Tories – in the opinion polls. This is what happens when, in such a crazy period as ours, that people are encouraged to think blatantly contradictory things: electricity firms must charge less but do more and invest more; banks must hold more capital in reserve but lend more; we must intervene in foreign lands but only with “surgical strikes” and nothing else; that everyone must be given access to health insurance but that the cost mustn’t rise; that we must ban opinions and notions because someone might be offended, and so on and so on.
Of course, thinking nonsense such as this is hardly new. Big business, for example, has been demonised as long as big business has existed, and political targeting of this has been almost the norm, rather than the exception. But what makes me want to think of this issue within the broader “crazy years” context is that I doubt that Milliband and his fellow socialists would be so confident of pushing these notions were it not for the rather batty political climate in which we now operate. Part of the cause for this may be a temporary reaction to the credit crunch, and the false narrative that quickly took root. But then the willingness of people to believe this narrative (which leaves out the role of central banks and government and blames it on “bankers”) is itself a sign that something is very wrong and cannot be quickly put right.
Robert Heinlein’s “future history” stories certainly do pay a re-visit. Come to that, so do pretty much all of his writings right now.
(Addendum: in case anyone brings this up, Steele could have mentioned any of the big banks as “parasites” in his list of examples. He chose Goldman Sachs, but he’s not picking on it specifically.)
Which is better? A technically superb photo of something you’ve seen many times before, like a wonderful still life oil painting? Or, a technically very average photo of something remarkable, that you never thought you’d live to see?
If you are in the mood for the second sort of photo, and you are someone who likes the kind of ideas that Samizdata seeks to spread, you should definitely take a look at this:
This is a group of Chinese people to whom Tim Evans of the Cobden Centre, seated proudly in their midst, was speaking, on Friday September 20th, about … Austrian Economics. And yes that is people from China China, not from some already strongly capitalistic outlying fragment of China.
My thanks to Simon Gibbs of Libertarian Home for telling me about this. Gibbs writes:
Tim Evans of the Austrianist Cobden Centre shared this image on Facebook. It is unclear who is visiting who but he is depicted front and centre with a delegation of Chinese officials as if he was an honoured guest or leader. Tim has been training the group in the details of Austrianism. The group worked with the Chinese State Council and the Central Committee of the Chinese Communist Party.
Of this exercise, Tim Evans writes:
Spent a great day on Friday lecturing key academic and economic advisers to the Chinese State Council and the Central Committee of the Chinese Communist Party. I regularly work with senior Chinese officials and find many of them to be increasingly well versed in the ideas of the Austrian School of Economics.
Austrian Economics is very persuasive to a certain sort of economically curious person, because it is basically a statement of how things are. It describes a world of realities which are true whether you care about or accept their truth or not. This stuff is true no matter what else you choose merely to believe. You can, in principle, understand that Austrian Economics describes how the world is, yet still believe that the world ought to be a centralised despotism or a socialist nirvana, or maybe even some combination of the two.
But, it is rather difficult to stick with such beliefs on a permanent basis. Once you accept the truths that Austrian Economics tells you, it is difficult not to find yourself believing that the world ought to be different from the tyrannical way that a lot of it still is.
I was reading an article about the creation of the Federal Reserve Bank (boo, hiss) in 1913 and I came across this:
Faced with the supreme necessity of sustaining the national credit and providing a market for Government securities, the Secretary of the Treasury in 1863 passed a National Bank Act basing the issue of currency by the banks upon the purchase of an equal amount of Government bonds. That was a cardinal error which still remains uncorrected. It has entailed a vast locking-up of banking capital in Government bonds as security for notes, and it has made impossible a normal and elastic currency system based on commercial paper and similar assets and automatically adapting itself to the daily needs of business.
Cue utter confusion. For starters, why would a bank want to issue currency? Surely, a bank has all the money it wishes to lend out in the form of deposits. And what is meant here by currency? notes and coins or money in general?
…it has made impossible a normal and elastic currency system based on commercial paper and similar assets and automatically adapting itself to the daily needs of business.
This is really confusing. I can understand how notes work in a goldsmith system. Briefly, a depositor deposits some gold with the goldsmith and in return receives a receipt for that gold. The receipt, or note, is then capable of being used as money because it is literally “as good as gold”. I can see how government bonds might replace gold but it requires a depositor. And surely, once a depositor has deposited his bond the bank can issue its own receipts/notes rather than having anything to do with the government. Or maybe that’s illegal. Or maybe depositors would prefer to use government notes as they are accepted in more places.
“…a normal and elastic currency system”. What do they mean by “elastic”? Do they mean what modern-day Austrian economists mean i.e. inflationary? I doubt it because at the time the UK was on a gold standard which tends to be anti-inflationary [notwithstanding comments I have made about how there was some inflation at the time].
And what’s all this about commercial paper? The modern meaning is short-term business debt. I can kind of see how that would replace government bonds although presumably it would have to be extremely homogenous and what happens when the term is up?
And where, if anywhere, is the link with gold which, as I understand it, was one of the main issues in the 1896 presidential election?
Whatever the case may be it seems clear that the US monetary system was far from being a free market before the Fed came along.
One last thought: there are times when I think the confusion that monetary matters generate is deliberate rather than accidental.
The Times 10 September 1913 page 8
I just got an email from the End of the World Club, about their next meeting. This will be at 6.30pm on Monday September 30th, at the Institute of Economic Affairs, London SW1.
Corrie Chipps will talk about “Lessons from Zimbabwe: A Broke Billionaire’s Survival Guide”, discussing her personal experience of watching a prosperous economy spiral into total collapse and how Zimbabweans have adapted.
Email me (click top left here, where it says “Contact”) if you are interested in this, or other EotWC meetings, and I’ll put you in touch.
I have the feeling that there might be rather more than the usual EotWC turnout for this one. Here is a case where the political and the personal overlap, big time. I for one will definitely be attending, barring disaster or memory failure, and I expect to learn a great deal.
Further to yesterday’s SQotD, which was an MP dissing the Climate Change Act, I spotted this propaganda, on the big expensive greenhouse type front door, in Victoria Street near where I live, of the governmental organ that now calls itself the Department for Business Innovation & Skills:
Those wanting to say that my title for this posting is nonsense won’t have to go very far to prove themselves right, in their own eyes. All they need to do is go to the Department for Business Innovation & Skills website, where they will find no prominent mentions of anything about Energising Britain with such things as oil or gas, but plenty of mentions of things like Offshore wind industrial strategy and Multi-million pound investment in offshore wind industry to unlock billions in UK economy. Unlock billions from the UK economy, more like.
I agree, sort of, in other words, with a commenter on that SQotD, who said:
Too late, the scam has been running long enough that there are now too many snouts in the trough.
The above piece of propaganda that I photoed may not be an actual lie, in the trivial sense that 13.5 billion quid may indeed be being invested in Britain this year in oil and gas, despite everything that the Department for Business Innovation & Skills may have done to discourage such investment by instead prattling on about wind farms for the last decade or more. But as an exercise in saying what the Department for Business Innovation & Skills is now concentrating on, it is a lie. The racket continues.
But this is often the way with big government bureaucracies. The truth, and a consequent forthcoming shift of policy emphasis (that later cascades into a truly new and totally different policy), often first impinges in the form of public lies about what they are now doing, even as they persist behind the scenes with the old discredited nonsense.
Never underestimate the reverse-impact of public relations departments, in the form of them telling the other people in the building what they now all ought to be doing. The collapse of the USSR, no less, began as a big old Soviet lie about how the USSR was going to start being efficient and nice and good, by doing something called “Glaznost”. It was wall-to-wall bullshit, but it was wall-to-wall bullshit that helped to change the course of history. The USSR, like “green energy”, “climate change” and so on, was another huge scam that went on for far, far too long, and by the end snouts in the trough was all it was. And the snouts only changed things when the trough was getting seriously near to totally empty. But change things they did. Millions had already died, and millions more had endured lives of utter misery, and in this sense, the change came too late, far too late. But change like that is never not worth doing. There is still a future worth improving, for many millions more.
Suppose you were a green fanatic who had weaselled your way into the Department for Business Innovation & Skills, and got yourself a job giving money stolen from British taxpayers to friends of yours who construct wind farms for a living, and emitting Niagaras of lies about how that was going to “energise Britain”. How would you feel about walking past all this stuff about oil and gas, every time you went into work in the morning?
You might think that all that lovely oil and gas tax revenue would perhaps enable you and your lying friends to keep the wind farm scam going that little bit longer, and if you did feel that, you might well be right. But I don’t think, on the whole, you’d like what you were seeing every morning. Just keeping your little scam going for a few more years until you are safely retired is hardly what you had in mind when you began it. Then, it was a cause, and you and your pals would be all over the history books, in a nice way. Now, history is looking like it might be taking a somewhat different turn.
For starters, there is no mention in this big lump of verbiage, of green, either as a word or in the form of the actual colour green. There is only a rather garish, shamelessly industrial, orange. “BRITAIN” in big letters also has a nasty, nationalistic taste to it. Whatever happened to saving the world?
More fundamentally, “oil and gas” is everything you hate. Oil and gas is vast, clunky metal structures noisily gouging dirty old energy to set fire to out of defenceless Mother Earth like it’s 1925, or if it now isn’t that, you still think it is, as do millions of others who also think: Hurrah! It’s a whole generation of people saying: Bollocks to wind farms, let’s get rich, again. It’s the whole world saying: “Climate catastrophe? Let’s not worry about that when it doesn’t happen, okay?” Despite all the wind farm idiocy that the Department for Business Innovation & Skills is still shovelling out, I think I smell change here, and for the better.
LATER: Green bloodbath in Australia.
SEE ALSO: Alex Singleton, at the ASI blog, says that Parliament’s cushy consensus over climate change is dead.
What follows is based on a talk I gave at the end of August at one of Brian’s Fridays. See also Parts I, III, IV, V & VI.
Little is said about the economy – not that that was a term in common use at the time. Unemployment – known as idleness – seems non-existent but there is some inflation – referred to as an “advance in prices” or “an increase in living costs”. Seeing as the pound was tied to gold at a rate of about £4 per troy ounce this seems surprising although the enormous gold finds in South Africa may have had something to do with it. Inflation may have been the cause of the many strikes at the time and it may have been the effect. The tax take is about 10%. Today it is over 40%. Northerners are better off than Southerners.
In 1912 the Titanic, the largest moving object in the world, set sail on its maiden voyage. Most people are aware that it sank, which is notable enough. But the really amazing part is that it got out of port at all. There had been a month-long national coal strike immediately beforehand and supplies were extremely low. Strikes are extremely common. In addition to the national coal strike, recent years have seen a national rail strike, a London dock strike and a Hull dock strike. London is currently undergoing a painters and decorators’ strike and Dublin a tramworkers’ strike.
In a previous coal strike, in 1910 in South Wales, troops had been used to put down a riot. At about the same time troops were also used to put down a riot in Liverpool.
The state is starting to nationalise things. In 1911 it nationalised the National Telephone Company. I should explain that this isn’t quite as dramatic as it sounds. The state already owned the trunk lines. The National Telephone Company owned everything else and operated them under licence. In 1911 the licence simply wasn’t renewed. In London, the County Council, late in the day, built an electric tram network. It was completed just in time for motor buses to take their market away from them.
It is difficult to detect any class, race or sex prejudice in the pages of the Times.
In 1913, the world is undergoing a transportational revolution. The horse is being swept from the streets of London to be replaced by electric trams, motor buses, motor lorries and motor cars. Below the streets, the deep-level, electrified tube lines are being built while steam trains are being replaced by electric ones on the older cut and cover lines. We are seeing the beginnings of surburban electrification.
Buses, in particular, are allowing people to travel much further to work and to shop. The only downside is that a lot of people are getting killed on the road.
Talking of buses, this is still a time when entrepreneurs are able to think big. Flushed from their success in London, the London General Ominbus Company, which incidentally bought up most of the Underground in 1911, is selling shares in a planned national bus company.
Quite rightly, Ronald H Coase, the Nobel Prize winner in economics, who died a few days ago at the remarkable age of 102, is being remembered as an exceptional thinker in economics. He is probably best known for this analysis – which seems obvious to us now – about why firms exist in the first place.
The University of Chicago Law School, with which he was associated for many years, has this nice appreciation of him. And here is the final paragraph:
Coase said in 2012 that his main scholarly talent was to identify solutions that were in plain sight. “I’ve never done anything that wasn’t obvious, and I didn’t know why other people didn’t do it,” he said. “I’ve never thought the things I did were so extraordinary.”
As is now a familiar theme, many people oppose immigration into the UK because they fear the social and cultural effects (eg, from Muslim parts of the world) more than they do for the economic impact (supposed negative/positive effects on low-skilled wage rates, effects on productivity, and so on). In general, the classical liberal “open borders” approach states that the issue, in as much as it is an issue at all, is immigration+state welfare. The problem is the state welfare.
An argument that has got an airing today in the Daily Telegraph, via Jeremy Warner, is that immigration, of the “low-skilled” sort, hits productivity. The argument goes something like this: firms have less of an incentive to invest in improved methods of producing goods and services if they can hire cheap labour instead. This is a simple issue of factors of production (labour/capital) being substituted for one another depending on the relative costs of each. Now of course we want higher productivity in the medium to long run so that the whole pie expands; but that is not just a function of increasing output per hour by some restriction on the number of people in a workforce – there is also the increase in the division of labour that one can get with a larger number of people, at least potentially. And even if people are seeing wages for low-skilled labour hold steady rather than rise, it is better that people are in work rather than sitting idle. (Again, one has to consider the welfare impact here in shaping the incentives to take or not to take certain types of job.)
In any event, the supply of people able/willing to perform types of labour is not infinite (let’s not forget that a large number of people have also emigrated from the UK). History also does not seem to back up Warner’s fears: In the 19th Century, there was a population explosion in the industrialising West, for all sorts of reasons (lower infant mortality, better nutrition, health care, and so on), and yet by the turn of the century, real wages, when adjusted for inflation were higher than it was in 1800. (That is hardly a controversial statement. Data by the likes of Jeffrey Williamson and Peter Lindert, in “English Workers’ Living Standards During the Industrial Revolution: A New Look, The Economic History Review, 1978, clearly backs up this point.)
But what Warner seems to overlook is that if an influx of immigrants can be blamed for holding down productivity, cannot the same be said if, say, a significant number of British citizens move from one part of the country to another, as indeed happened in the early parts of the Industrial Revolution when people moved from farm-based jobs to factories and offices? Warner says he favours a sort of levy on employers who use “cheap labour”:
“No free market liberal would argue the case for preventing employers from hiring foreign labour but there are other forms of state intervention that might indeed be appropriate were it not for the fact that the European Union makes them unlawful – for instance, imposing levies on use of cheap foreign labour. By making low skill employment more expensive, the levy system would provide a powerful incentive for productivity gain in construction, retail, social care and other largely domestically bound industries. These levies could then be channelled back into tax incentives for training and other forms of business investment.”
Warner is damn right that no free market liberal would touch such regulation with a bargepole. The levy idea is also foolish, in my view, since how does Warner know how high/low to set it? What is the supposed ideal rate of productivity growth that he thinks should be the target, and in any event, should there be any target at all?
Ultimately, Warner’s analysis involves an unconscious assumption that there is a “UK plc” where we are all working towards a single, or fixed, set of ends, rather than an open society in which people transact and enter voluntary exchanges with others for things/services they wish to buy and sell. Of course, that leaves open other issues surrounding the proper role, if any, of a state, of welfare, of the need to protect borders against those who would enter this territory to do its inhabitants harm. But on the economic point of view, Warner’s argument makes no sense to me. He also ignores the rather basic fact that with a larger population entering an already advanced economy, that increases the potential division of labour, which increases overall productivity. If a person can now afford to hire a cleaner for his home, a child-minder to care for the children, or a gardener, or any other “low-skilled” job, that frees up that person to do something else, and possibly, increase the whole economic pie. And of course these “low-skilled” people can get more skills, develop a track record of reliability and diligence, and become more valuable and productive themselves than they would have been had they been forced to stay in presumably less favourable places where they moved from – since why did they move in the first place?
As a response to Warner’s kind of thinking, I can recommend this article from Daniel Kuehn.
Last night I attended a meeting of the End of the World Club, and by the end – of the meeting, not the world – the conversation had turned uncharacteristically optimistic. Oh, there were the usual prophecies of doom, and it is hoped that the next meeting will be someone talking about what it was like living through the Zimbabwe hyper-inflation. But the second of the two speakers last night was Rory Broomfield, speaking about the Better Off Out campaign, as in: Britain would be better off out of the European Union. That is an argument where at least some headway is now being made. How big the chances are that Britain might either leave or be kicked out of the European Union some time in the next few years, I do not know, but those chances have surely been improving. I can remember when the fantasy that “Europe” was going to cohere into one splendidly perfect union and lead the world was really quite plausible, if you were the sort already inclined to believe such things. EUrope, in those days, was a boat that Britain needed not to miss. Now, EUrope is more like a swamp into which Britain would be unwise to go on immersing itself, and should instead be concentrating on climbing or being spat out of.
Mention was made of shipping containers, i.e. of the story told in this fascinating book. Compared to the arrangements it replaced, containerisation has damn near abolished the cost of transporting stuff by sea, which means that the economic significance of mere geographical proximity has now been, if not abolished, at least radically diminished. Regional trading blocks like EUrope now look like relics from that bygone age when it would take a week to unload a ship, and when Scotch whiskey could not be profitably exported from Scotland because half of it would be stolen by dock labourers.
Containerisation also exaggerates how much business Britain does with Europe, because much of this supposed trade with EUrope is just containers being driven in lorries to and from Rotterdam, and shipped to and from the world. The huge new container port now nearing completion in the Thames Estuary is presumably about to put a demoralising (for a EUrophile) dent in these pseudo-EUropean trade numbers.
Mention was also made of a recently published map (scroll down to Number 29 of these maps). This map shows the economic centre of gravity of the world, at various times in history. A thousand years ago, this notional spot was somewhere near China. And the point strongly made by this map is that this centre of economic gravity is now moving, faster than it has moved ever before in history, from northern Europe (it was in the north Atlantic in 1950), right back to where it came from, leaving Europe behind.
Broomfield talked about how you convince people of such notions. For younger audiences, he said, just moaning on about how terrible EUrope is doesn’t do it. You have to be positive. But the trick, said Broomfield, is to be positive about the world. The important thing is that Britain, and you young guys, should not held back by EUrope from making your way in that big world.
The actual End of the World is not nigh any time soon, but the world is changing.