We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Jamie Whyte’s Analysis of the financial crisis

Incoming from Jamie Whyte:

I have made a programme for Analysis on BBC Radio 4 which will be broadcast on Monday at 8.30pm. It concerns the Conservatives’ wrong headed abandonment of free markets following the financial crisis. You won’t learn anything you don’t already know — but then you are not the target audience! Nevertheless, you may be amazed to hear these things said on the BBC.

Relevant bit of the Radio Times (Monday October 8th):


Internet info from the BBC:

The financial crisis has made many on the political right question their faith in free market capitalism. Jamie Whyte is unaffected by such doubts. The financial crisis, he argues, was caused by too much state interference and an unhealthy collusion between government and corporate power.


23 comments to Jamie Whyte’s Analysis of the financial crisis

  • “many on the political right question their faith in free market capitalism”

    For that to happen we’d have to have started out with a political right that had faith in free market capitalism.

    Not something I’ve particularly noticed that we’ve ever had.

    We’ve historically had an awful lot of lefties like myself who think that the best way of improving the lot of the poor is through free market capitalism. As Cobden whose picture I see beside this comments box pointed out.

    But “the right” has traditionally been as opposed to the free market part as the standard British left has been to the capitalism part.

  • In Australia, free market governments (on the rare occasions that we have had them – but the Hawke/Keating government was a fine example for about the first half of its time in office) have been much more likely to come from the left than the right. (Left wing governments have historically been more liberal on immigration, too, which is another thing in their favour). Alas, the current left wing (Labor) government decided that the Blair government was the very model of a modern Labo(u)r party, and is ghastly at least partly because of this and is certainly not an example of what i am talking about. Right wing governments have tended to be rather protectionist entities more interested in protecting the well connected rather than in introducing or allowing competition on anything – the Howard government was a pretty typical example of this which is why it was only worthy of being despised.

  • Lee Moore

    Although it’s tilting at windmills on this blog, I may as well remind Michael Jennings that being liberal on immigration is not at all the same thing as being liberal on free trade generally. Imported cars, soap, fruit and textiles are NEVER given a vote in their new countries. Imported people are. And if they come from illiberal cultures the votes they get to cast can take away your liberties.

  • Alisa

    Michael: I wonder how do you define left- and right-wing then?

  • Regional

    A right winger would be an Anarchist,
    Hawke and Keating introduced policies that Howard wanted to introduce but Prime Minister Guttless sent them to the Campbell Commission but the ‘Conservatives’ fully co-operated with Labor to introduce the reforms and the Meeja fell into line and supported them, however if the Conservatives had tried to introduce the Meeja would have risen from the underworld and howled their despair like Banshees. The biggest threat to our prosperity and liberty in the West is the Meeja.

  • Paul Marks

    Australian Labour governments do not have a good record on Welfare State spending – and they are not importing people out of love of free migration libertarian doctrine (they are importing voters – and importing the Islamic ones is something that even they regret. although not as much as the women and girls of Australian cities do).

    Still this is all off the point – the future struggle over who controls Australia is a matter for another thread. And there may be cultural shift among the children of the new people (actually there has been – but in the wrong direction), so all may be well.

    This Radio Four show is nothing to do with Australia – it is about the real cause of the financial crises.

    If it concentrates on the truth – the massive credit money supply “boom” (which must lead to a bust) then things will be well.

    But I did not like the sound of the “corporate power” bit.

  • The current Australian government does not have a good record on welfare state spending. The Hawke/Keating one had a much better one, at least initially. (Where Labor governments have been consistently bad is on labour market reforms). And Howard was, once again, terrible on this. His was more middle class welfare, but it was traditional Australian conservative politics dishing out the spoils to their favoured parties, and it was still horribly expensive.

    And a lot of the time Australian Labor governments actually have been liberal on immigration because of a pretty sincere appreciation of its benefits, actually. Muslim immigrants are actually a tiny minority of the whole, and a vastly less significant factor than they are here. You actually are too cynical on this one, Paul. Immigration in Australia isn’t largely about politics. It is much more about economics – ie it’s a big country that needs the population and needs the labour.

    Basically, though, I was responding to Tim’s comment. There have historically been people in the Australian Labor Party have have been pro market and pro free trade because they have understood that these polices will improve prosperity. There have been far fewer people in the conservative parties who have have been pro these things for these reasons. (There are virtually none on either side of politics at the moment. I agree that the present Australian government is indeed awful).

    Alisa: They are not especially meaningful terms, and they mean quite different things in different places.

  • Paul Marks

    Michael – even when I was young the Australian government would not have let me in (someone like me would have been let in the 1960s – but not after the P.C. crowd took over, ditto in the United States pre 1965 Act an after 1965 Act)

    Yet many other people (also without special skills) were let in.


    Too cynical – I do not think so. It is about votes.

    As for “need the labour” – how about cutting off the welfare (or even scaling it back to what it used to be) – there are plenty of people not working. If they got really hungry they would work. Or they would turn to crime – and get shot.

    “But they are sick Paul”.

    I am sick – I can hardly breath (each day might be my last). Does not stop me working – although it was the job that pushed me over the edge.

    And a lot of the people who are not working in Australia (and elsewhere) are not sick.

    And a lot of them are the children of the new people.

    So the “import people to pay for the people we have on the dole” ideology does not work.

  • Regional

    What you say about John Howard pandering to the Middle Class is true, Krudd won on promises to the Middle Class and any government will have to pander to the Middle Class, it’s a reality in politics.

  • Regional

    The most generous backers of Obama were Wall Street and in Australia the top end of town hates the Liberals and loves Labor, because they love big government. The North Atlantic Financial Crisis wrongly called the GFC was caused by Sub-prime lending to people to buy houses they couldn’t afford, Barack Obama as a Community Organiser used threats of harassment through the courts to force banks to make these loans and you talk of platitudes, Labor deal in platitudes all the time.

    If you remember the Time Line about the so called GFC, well before it occurred the OECD released a report saying Australia didn’t have enough debt and Krudd and Swann promised to do something about that but the economy was tanking because a dramatic drop in consumer confidence and because Krudd was already throwing money away to stimulate the economy the Meeja trumpeted that he was ahead of the curve.
    But don’t forget Costello was returning surplus budgets before the Mining Boom.

  • Paul Marks

    If the money had not come out in the housing market (YES a market hopelessly distorted by the Carter and Clinton “Community Reinvestment Acts” and other things – see Thomas Sowell “Housing: Boom and Bust”) it would have come out somewhere else.

    Once the money has been created (created from NOTHING) it will come out – somewhere. See “Meltdown” by Thomas Woods.

    Did the Wall Street crowd fund Obama? Of course they did – Barack Obama was one of three policitians in Washington to get truly vast sums from them (the others being Congressman Barney Frank – I suppose the rent from the underage male prostitutes was not enough, and Senator Chris “Countrywide” Dodd). For Barack see “Bought and Paid For”.

    What did all the money get the Wall Street crowd? Remember they would have got the Federal Reserve money anyway (and the bailout – John McCain would have twitched and shouted, but he would still have paid).

    Well Congressman Frank and Senator Dodd have so wraped the financial services industry in red tape that even established interests LOSE.

    No “corporate power” there not with “Dodd – Frank”. Yes the Wall Street crowd were betrayed – which always happens and they never seem to learn.

    Just like Jamie Dimon and Barack.

    How much money did Jamie (and the others) give Barack? More money than had even been given to a politician before (and from 2004 – not just in 2008).

    And Barack – he, of course, betrayed them (and is planning far worse betrayal).

    It is difficult to have sympathy for the Wall Street crowd – but they do not actually deserve what is being planned for them (no one deserves stuff like that).

    Do rich leftists despise the ordinary folk they claim to represent?

    Of course they do – that is like saying “water is wet”.

    For example, Joe Kennedy might have felt some empathy with the Irish of Boston.

    But his son “Teddy” despised them – their religion (which he pretended to share), indeed even their biological existance. After all the 1965 Immigration Act was planned to displace them (indeed to displace the existing populations of all the major cities) – we know that because Teddy kept saying it was not (without anyone asking him). He also (at the same time) backed the creation of the American Welfare State (the “Great Society”).

    Mmmm – create lots of new government benefits, and open the doors (but only open the doors for people who are likely to claim them). Sounds a bit political to me.

    Still it had not fully happened – there is still a market for the Boston Herald in Boston (the people in certain places did not need the law to keep control of their area). And (to be fair) the Boston Irish Catholics displaced the former Wasp domination of Boston anyway.

    The wheel turns – new people can bring a new culture and that can be a GOOD thing (who says the new culture is always inferior to the old).

    For example, the so called “Yellow Peril” of the 19h century and early 20th century California and so on (the Chinese and Japanese) was bullshit. The new people (and the new culture) were interesting and creative. They are in places like Canada, Australia and New Zealand now (when their children are not corrupted by the state schools and by the welfare payments).

    Indeed, at least in New Zealand, the attack upon the asian immigrants is that they are too rich and too successful – a sure sign that the attack is from nasty, envy consumed, people.

    Still true “free migration” would not be a matter of making it HARDER (not less hard) for someone like me (not me as I am now – me as I was when I was young) to settle. If it makes it harder (not less hard) for people like me (as I was when I was young) to settle, then it is NOT free migration – it is a con, like the 1965 Act in the United States – or the comming of the P.C. people to power in Australia.

    The Australian Liberals – yes (like British Conservatives once were, but not in the age of Cameron) there are a lot of ordinary people at the top.

    They remind me of the CDU – the ruling party in Bavaria for the last half century.

  • CaptDMO

    And for those of us not blessed with BBC4,
    the transcript can be found…where?

  • Alisa

    Michael: true. I guess I was mostly wondering about the Australian context – but I think I get the picture, now that I am more awake…

  • Paul: It is indeed true that once (45 years ago) as a British national you would have received favourable treatment if you wished to emigrate to Australia and this is no longer true. However, you would not be actively discriminated against, either, and on Australia’s (deeply stupid but not actually sinister) points based immigration system you would actually get a head start, given that the British do speak something resembling English.

  • RRS

    “This Radio Four show is nothing to do with Australia – it is about the real cause of the financial crises.

    “If it concentrates on the truth – the massive credit money supply “boom” (which must lead to a bust) then things will be well.”

    Paul Marks – spot on as usual.

    The point is not just to determine the so-called real cause, it is to determine the real sequences in this financial crisis, both preceding and indicated to follow. But this recorded program is unlikely to do both.

    As Paul Marks specifies, the crisis among financial enterprises (principally banks) was preceded in sequence by huge aggregations of debt. If This Time Is Different, it may well be because there are no, or very reduced and insufficient, surpluses to absorb the ultimate “restructuring.” That will include, among other erosions, defaults at all the various sequence levels from private through sovereign debt.

    Thus, we cannot all be as optimistic as Paul that after the “bust” everything will be “well.”

    As Paul Marks specifies, the credits that funded the enormous rise in debts did not come from the redeployment of accumulated and aggregated surpluses. The debt was funded by leveraged credits of a fractional reserve financing system (based upon estimations of rates of maturities of near-term obligations – rates of withdrawal and inducement rates of return).

    The sequences auger for a period of “replacement” or rebuilding of those deficient or missing surpluses before there can be any substantial expansions in the economies affected. Absent some technological or physical phenomena, “Growth,” will necessarily be minimal during that period.

    There has been insufficient consideration of the role of surpluses, how they are accumulated, aggregated and redeployed in the “developed” economies; and, in Western Civilization as well. We do not see the examinations of where, if at all, and to what extent, surpluses of any kinds are being accumulated and at what rate. There is no adequate tracking of where business enterprise “profits” as surpluses are being accumulated; nor how the redeployment of those particular surpluses are being managed, to what ends, and with what motivations.

    There is nothing in the current scenario to indicate This Time Is Different; nor that the sequences will not follow the historical patterns of the past 200 years.

  • Alisa

    A great summary, RRS – and a welcome expansion on what Paul usually puts as ‘credit must come from REAL SAVINGS’.

  • RRS

    Alisa –

    Would that it were a simple as REAL SAVINGS.

    In most of the “developed” economies, savings are simply deferred consumption.

    Surpluses, in the sense used, must come from production or “productive” activities (such as efficiencies in creating or distributing, etc.). E.g., “Better” crops, in terms of yields, can be attained via more acreages or genetic modifications (“Golden Rice”).

    Formerly, a principal role of financial enterprises, chiefly, not exclusively, banks, was the aggregation of savings as surpluses and the intermediary function of redeploying aggregated surpluses. That role has been incrementally displaced by the function of generating leveraged credits based on hypotheticals, not actual surpluses from whatever sources; to such extent that the former role is now negligible, and there are few other “intermediaries.”.

    So, REAL SAVINGS, however helpful will not “cut it,” despite Keynes citation of a perceived effect of “savings” on “consumption” and of “consumption” on “Production.”

  • RRS

    Standby for smite control of another slow-typed synthetic pearl on REAL SAVINGS

  • Alisa

    RRS: but isn’t production the absolute prerequisite for consumption, and isn’t surplus a likewise prerequisite for the deference of consumption? In other words, aren’t surpluses necessarily built into Paul’s REAL SAVINGS?

  • RRS

    REAL SAVINGS, etc.

    Production and distribution are “prerequisites” for consumption.

    “ . . .Isn’t surplus a likewise prerequisite for the deference of consumption?”

    No, not likewise. Don’t eat the seed corn.

    Dependent upon the efficacies of production and distribution, deference of consumption can be a critical requisite for the availability of surplus.

    There are surpluses generated by the efficacies of production and distribution which are not “consumption oriented.” Example: Amazon lends money from its retained “profits” to merchants who market through its facilities; surpluses cover depreciation and obsolescence.

    Whilst the term REAL SAVING can, of course, be used (if agreed) in a broader context, one certainly would not regard the extensive retained earnings (“Earned Surplus”) of large U S business enterprises as “REAL SAVINGS.” If nothing else, the motivations for deferring applications or uses are distinct.

    This is actually a long-developing distinction, which led, in part to Louis Rougier’s 1938 Paris convocation that preceded the Mount Pelerin Society, by many of the same intellects. Of course, much else was involved, but the displacement of aggregations of “surplus capital” by leveraged credits was well underway, along with the “sequestration” of surpluses in managed enterprises.

  • Alisa

    RRS: good point, and thanks for the correction.

  • Paul Marks

    Michael – you sound like my old friend Jeff Taylor (always trying to convince me that I could make it to Oz). Remember what I speak (and especially what I write) only resembles English – so not much of a chance really.


    As we both know, those “developed economies” are going to have to change their ways (or they are not going to stay “developed”).

    And, almost needless to say…….

    I forgot the show was on (in spite of writing it down on my calender), and so did not listen to it.

  • Paul Marks

    I remembered what coloured text sometimes means – a “link”, and have now listened to the programme.

    The show started off with members of the Conservative party, including members of Parliament, saying things that are just not true (I hope they were quoted out of context – but my gut feeling is that they were not).

    They all claimed (and, to my irritation, Mr Whyte did not really challenge them) that there had been massive “deregulation” before the financial crash, indeed that there had been “laissez faire” – and that this had (somehow) caused the crises.

    They even claimed that government had almost gone into nonexistance before the crash – government was, in fact, spending between 40 and 50 per cent of GDP at the time and regulated every aspect of the economy (especially financial services) with thousands of pages of regulations.

    One person went on about how banks were “after Big Bang” allowed to combine retail and merchant banking (this had never been illegal in Britain – he must have been thinking of Glass Stegal in the United States). And one lady (formally very senior at Barclays and now senior in the government or something) went on about under a “laissez faire” one company or one individual would “own the world”.

    Leaving aside this lady (who appeared to have have a very distorted idea of what “economies of scale” actually means and what the limits on it are – and no idea about “diseconomies of scale”), the others appeared to be saying that there had been a great removal of regulations in Britain and that this had caused the crises.

    The crises (the boom-bust) was in fact caused (like all boom-busts) by a vast increase in the money supply (it was pity that Mr Whyte did not point this out – or at least point people in the direction of such books as Thomas Woods “Meltdown”).

    And there was no massive “deregulation” in Britain in the 1980s and 1990s – on the contrary thousands of pages of EXTRA regulations were imposed.

    I can remember Brian (and the late Chris Tame) leaving Allied Dunbar (years ago) because the great INCREASE in regulations in the financial industry made working there a nightmare.

    So, to put it in terms of history, it was like listening to a group of people (and members of my own “tribe” the Conservative party) talking about how Harold had invaded Normady in 1066 and made himself Duke.

    Mr Whyte did suggest that perhaps a problem was (assuming that evil bankers were the cause of the crises) that government bailouts (and the promise of them) meant that no one (not the evil bankers or their customers) was concerned with the possibility of failure – of bankruptcy, and then it was vital that any enterprise (no matter how big) had the possiblity of going bust.

    He was met up some upper class (or upper class want-to-be) using such terms as “sense of proportion, “judgement”, “experience” “not deciding things a priori” (i.e. no principles) and speaking with the sort of friendly sneer tone that some English people do – the sort of English person I tend to want to hit over the head with a shovel.

    I think this person’s name was “Ferdinand Mount” – anyway he was very hostile to allowing big banks to go bust, better to have the state control them, with bankers still paid a lot, but not “unreasonably” so as to be in line with “social justice”.

    Mr Mount did also mention that shareholders had less power than in the past – but he did not suggest (and neither did Mr Whyte) getting rid of Capital Gains Tax and Inheritance Tax in order to put ownership of companies back with individuals and away from “institutional” owners (hired managers in control of other hired managers). Indeed Mr Mount seemed to think that “thousands of invidual shareholders” was the problem.

    It all sounded like the “War Socialism” system of Germany in the First World War – that was brought back by Adolf Hitler in the 1930s, you can keep formal ownership of your company as long as you let the government decide what is “reasonable”. This is sometimes know as “corporatism” after Mussolinl, but it must be remembed that under this system the government, not the “corporations”, has the power.

    Anyway the various Conservative party members did have a idea – this was to move away from “rule based regulation” (i.e. the thousands of pages of regulations they had just claimed did not exist) to a system of “discression” – i.e. the arbitrary power of poltiicians and administrators to order whatever they felt “reasonable”.

    Again this was German “War Socialism” from the First World War – with the (supposedly rule obssessed) Germans having officials with the power to just order what they liked.

    As Mises pointed out in “Nation, State and Economy” this did not have good results (indeed the “chaotic” French system of production during the First World War was vastly better than the “planned” German system).

    As for having government officials or politicians actually in the business enterprise – that sounds like Massachusetts were (for example) there has been just been yet another mess – this time in the production of medical drugs (more people dead accross the United States). “Where the regulators” – right in the place of business (as they are in banks in Mass) as officials (working for the state) actually sit inside supposdely private enterprises in Mass.

    “Banking is different” – as Mises spent his time explaining, “no it is not”.

    And the idea of having politicians acting as represtatives to various large companies (and “giving support to the things that Britain is good at” as one govenrment minister) is just an open door to corruption – on a massive scale.

    I felt a bit let down by Mr Whyte – as he did not really argue against what these people were saying (other than on the letting banks go bankrupt point – someone who supports the “too big to fail” doctrine is clearly a scumbag). However, he may have felt that he just had to let these (obviously vile) people talk – and they would alienate (sane) listeners themselves, without any intervention from here.

    However, Mr Whyte’s conclusion was clearly sound – if these are the “free market” people (and they all said they were ardent free market people) the the situation in Britain was hopeless – utterly hopeless.

    I agree with him – and strongly suggest that he move back to New Zealand (a country with terrible problems of its own – but not as bad as here).

    I only wish I could join him.