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]

Samizdata quote of the day

If that sounds familiar, it’s because this amounts to Mr. Corbyn’s People’s Quantitative Easing concept in all but name. The idea much derided last year is becoming so mainstream that even a leadership candidate for Britain’s Conservative Party, Stephen Crabb, could recently propose a £100 billion ($130 billion) public-works investment fund that wasn’t so different from PQE. Mr. Corbyn’s PQE is essentially indistinguishable from the suggested 50-year Japanese bonds.

This probably says more about the central bankers’ desperation than Mr. Corbyn’s prescience. With government spending and borrowing constrained by slow growth and high debt, and supply-side reforms still politically far off in many economies, the pressure is mounting on central bankers to act as magicians pulling rabbits out of their hats. The longer this continues, the deeper they’ll have to rummage around for the next rabbit. It’s enough to make one wonder what will be the next extreme idea to follow the journey from crank to orthodoxy.

John Phelan

15 comments to Samizdata quote of the day

  • John in cheshire

    Isn’t it time to kick out the Keynesians and give the Austrian school economists a chance to put some proposals together to help normalise things?

  • Hell John, even picking people off the street at random would probably result in improvements.

  • Regional

    Central Banks doing nothing would be the best idea.

  • Eric

    Central banks not existing would be the best idea. In theory fractional reserve currencies are better because you can “smooth out” the business cycle. In reality, though, the political pressures are all on the printing side.

  • NickM

    that is four SQOTD in sequence!

  • Paul Marks

    Japan has tried this government deficit spending “infrastructure” thing 25 times – and 25 times it has failed.

    Yet Keynesian cultists (such as the Economist magazine and the rest of the “mainstream media” and the education system – the schools and universities) still come out with the same “infrastructure spending” nonsense. So, by the way, does Donald Trump – he (like Mrs Clinton) is going to “rebuilt American infrastructure” even though only “post roads” are mentioned in the United States Constitution (more general infrastructure powers are actually from the CONFEDERATE Constitution).

    When well the Keynesian madness end?

    I thought it was about to end long ago, but they have kept the bubble economy going longer than I would have thought possible. It limps along (obscenely) with a hopelessly distorted Capital Structure and wildly ARTIFICIAL inequality (which the left blame on “capitalism” rather than the Keynesian monetary policy).

    By the way….. Karl Marx mocked what we now call “Keynesianism” (deficit government spending – financed by monetary policy) before Keynes was even born. In the 19th century Keynesianism was pushed by the “monetary cranks”, it did not become part of the official left till after World War II – when the Italian Marxist P. Straffa mixed Marxism and Keynesianism – hence J. Corbyn and Owen Smith and so on.

  • Many many economists seem to be searching for a way to stimulate economic growth: and are not doing well at finding it.

    I would have thought it obvous that economic growth comes from people investing (money and particularly effort) in things that they value – and when that value perceived in advance actually leads to true value in outcome.

    The problem we have had (since the Great Depression and more especially since the crash starting in 2007) is that people have not had the money to invest in things that they value: instead governments have been investing in things that governments value.

    The underlying trouble is that governments value the wrong things – those that do not lead to economicly sound investment (and hence growth) or lead to less economic growth than would be the case if a greater proportion of money were not spent on consumables or on government choice of investment. More should be invested by those other than government.

    Doing this lack of sound investment for decades must, inescapably, lead to economic slowdown.

    Only when we invest much more wisely (which may well necessitate recession – given the current starting point), and over decades, will we have a decent level of economic growth.

    Government spending should be ramped smoothly and firmly down to around or below one third of GDP. The money thus freed-up for better investment will soon (as in half-decades) lead to a return in real economic growth.

    Best regards

  • Patrick Crozier

    There is little I can add to what Paul has said other than to berate him for his cheery optimism. I do not see a way out of this that does not involve war, mass starvation and the collapse of western civilisation.

  • Laird

    Excellent comments by Paul and Nigel.

  • Fraser Orr

    @Nigel Sedgwick
    > Government spending should be ramped smoothly and firmly down to around or below one third of GDP.

    Can you explain how that is possible? In the USA more than half, in fact nearly all the money actually collected in taxes, goes to mandatory spending. That is to say, people have been forced to save for retirement and for future medical events through a tax on their earnings in the past. The government, instead of saving that money, spent it on tchotchkes to get them re-elected and so don’t have it. So they have to tax people now to fulfill promises they made and money they took for the past thirty years. Add to that debt service that comes from a similar source.

    The problem isn’t the spending level, it is simply that the government has been stealing people’s money systematically for thirty years, and the chickens are coming home to roost.

    The idea that the solution is to spend more money that they don’t have is so laughably ridiculous only a PPE could get away with it.

  • Regional

    The Left regard saving as theft.

  • Laird

    Fraser, you are correct that the lion’s share of the US federal budget goes to “mandatory” items (Social Security, Welfare, etc.); only about 35% of it is classified as “discretionary” spending (which includes the entire defense budget and pretty much everything the government does every day). However, I have a serious problem with the terms “mandatory” and “non-discretionary.” Politicians like to call it that because it absolves them from having to make hard choices. But the truth is that all Federal spending is “discretionary”. The Constitution expressly prohibits the spending of federal money otherwise than by “appropriation” (Article I, Section 9, Clause 7), and a law establishing a welfare program (for instance) is not, in itself, an “appropriation.” All that spending has to be specifically appropriated each year, which is handled through the budget process.

    Long ago the Supreme Court held that the Social Security law (as well as all other such programs) does not create any enforceable obligation on the part of the government; it is perfectly free to cut, or even totally eliminate, any such benefits, and no one could sue over it. This is the law of the land, notwithstanding the common (albeit utterly fraudulent) claims that the money is in a “lockbox” or that the taxes paid into the Social Security Administration are some sort of “insurance premium”. They are nothing of the kind. All that money goes into general revenues, and all that the SSA has is a bookkeeping entry. Congress has the legal power to cut welfare benefits, reduce social security payments, eliminate low-income housing vouchers, etc.; it merely lacks the will to do so.

    So in answer to your question, cutting federal spending to 1/3 of GDP, or some other figure, is entirely possible from a legal perspective. The only impediment is political.

  • Thanks to Fraser Orr for his questions and many thanks to Laird for his clarification WRT the USA.

    Concerning the UK, I note that the Thatcher government (IIRC 1979 to 1990) did manage to drag government spending down to around 35% of GDP. Thus, it can be done, though many scream with the pain of it – much of such pain not being easily tolerated, but tolerated better when the (welfare and other) subsidies are phased out over a period.

    Also for Fraser, he is labelling the problem Ponzi – which is true in part. The usual approach to non-government Ponzi schemes is to imprison the organisers and let suffer those caught out. Unpleasant though this suffering of the caught out is, it is surely better than allowing the Ponzi scheme to continue and grow.

    Best regards

  • Fraser Orr

    > is entirely possible from a legal perspective. The only impediment is political.

    I didn’t really mean to imply differently. Notwithstanding the USSC perspective on social security there is a very clear view by people that they are paying in and should get paid out. My point is more that to cut into these programs would require the government to admit they have been stealing trillions of dollars from your grandma for thirty years. That is a political impossibility. After all, when it comes to Washington “legal” is mostly irrelevant, they break the law all the time, the only thing that really mattes is “political”.

    Hell, Hillary can’t even admit that her emails were classified.

    Which is to say that the only two ways I know of to make such an adjustment to the budget from a practical point of view is either the collapse of the economy under its own weight of mendacity, or cutting the budget by fiddling the figures — printing masses more money so that the numbers look the same but the value those numbers represent is massively decreased.

    Obama did the latter in spades, and still couldn’t get it right. One wonders how you can get a windfall of two trillion dollars and do almost nothing with it…. That is incompetence of a galactic scale.

  • Fraser Orr

    Nigel Sedgwick
    > to imprison the organisers and let suffer those caught out

    Yes, insofar as the Ponzi scheme doesn’t impact almost the whole retirement savings of nearly the whole population of a country, and insofar as it doesn’t leave seniors, who had a reasonable expectation of return, living in cardboard boxes, and insofar as the people who would do the imprisoning don’t happen to be the police, prosecutor and judge.

    > Unpleasant though this suffering of the caught out is, it is surely better than allowing the Ponzi scheme to continue and grow.

    Unpleasant isn’t really strong enough a word, is it Nigel? Even a Ponzi scheme the debtors have the right to redistribution of the assets of the thieves, even if only pennies on the dollar. So the only approach here is the distribution of all the assets of the federal government to its debtors, and the elimination of the source of the problem.

    Which comes back to my only two solutions — massive financial collapse, or massive monetary devaluation. However, the government seems to have been able to string the whole thing out quite a bit longer than I’d have expected. They are going the devaluation route, but doing it slowly, and so far seem to be keeping their heads barely above water.