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 – shining a light into dark places

“Yes, Mr. Musk and his young team are seeing confidential government data. But he’s also the second most closely observed person on the planet, the exact opposite of the thousands who already have access to government data and stay invisible until they turn out to be Edward Snowden, Bradley Manning, Charles Edward Littlejohn or Jack Teixeira. Mr. Musk is said to be causing chaos but government programs are born in chaos—with congressional horse trading and payoffs to appease interest groups.”

Holman Jenkins, Jr. Wall Street Journal

Samzidata quote of the day – voice coach challenge edition

“Imagine being Keir Starmer’s voice coach. It’s like being David Lammy’s academic advisor or Bridget Phillipson’s charm consultant.”

Madeleine Grant.

(For those who don’t – wisely perhaps – follow UK domestic politics, David Lammy is Foreign Secretary, and Phillipson is Education minister. Both are dreadful and therefore classic front-bench ministers in this administration.)

Trump’s tariffs and his zero-sum approach to economics and trade

“Mr. Trump sometimes sounds as if the U.S. shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in, or one that we should want to live in, as Mr. Trump may soon find out.”

Wall Street Journal (£)

I think this post is going to annoy Trump defenders, and of course he’s done a few things (shutting DEI down in schools and so on) that I applaud. But this is not the time for whataboutery when considering how terrible Biden was and Harris would have been, as they were and would have been. Those talking points have their place, but now Mr Trump is in office. He’s the President for the next four years.

So there’s no way to finesse this. Tariffs are a form of self-harm, and the reasons given in this particular case shows they are seen as clubs to hit countries with in order to make them change this or that policy. It creates uncertainty, hits inward investment and domestic activity. Domestic and global economic growth will be reduced from where it might have been. Tariffs are taxes, however hard one might try and spin that fact away. Since Adam Smith pointed this all out 250-plus years ago, the damaging impact of tariffs have been widely understood.  

Tariffs, particularly given how they been justified and enacted, are a grave mistake by Mr Trump. Trying to claim that the US hit economic heights when tariffs existed in the late 19th century is another case of correlation and causation getting all blurred. The US in the post-Civil War era was a low-tax place: no federal income tax, no Fed, hardly much of a Welfare State as we’d call it, immense inflow of immigrants from places such as Russia, Germany, Italy, Sweden, etc. (Because there was little state welfare, such folk had to work their backsides off, and they did.) Here is an essay that in my view debunks the idea that the post-Civil War tariffs were a good idea.

There are facts that might be a puzzle, but not when you consider that Mr Trump loves tariffs even because they are a weapon. That’s what gets him out of bed in the morning, sometimes for good causes, often not. But the economic rationale is even worse when you consider that American energy costs, thanks to all that fracking he’s in favour of (a plus for him, in my view) means American manufacturing in some ways has a big competitive advantage on Europe, which self-harms because of Net Zero, red tape and high taxation.

Here is an essay I came across via social media and I think it is worth a read:

“I’m going to get a little wonky and write about Donald Trump and negotiations. For those who don’t know, I’m an adjunct professor at Indiana University – Robert H. McKinney School of Law and I teach negotiations. Okay, here goes.

Trump, as most of us know, is the credited author of “The Art of the Deal,” a book that was actually ghost written by a man named Tony Schwartz, who was given access to Trump and wrote based upon his observations. If you’ve read The Art of the Deal, or if you’ve followed Trump lately, you’ll know, even if you didn’t know the label, that he sees all dealmaking as what we call “distributive bargaining.”

Distributive bargaining always has a winner and a loser. It happens when there is a fixed quantity of something and two sides are fighting over how it gets distributed. Think of it as a pie and you’re fighting over who gets how many pieces. In Trump’s world, the bargaining was for a building, or for construction work, or subcontractors. He perceives a successful bargain as one in which there is a winner and a loser, so if he pays less than the seller wants, he wins. The more he saves the more he wins.

The other type of bargaining is called integrative bargaining. In integrative bargaining the two sides don’t have a complete conflict of interest, and it is possible to reach mutually beneficial agreements. Think of it, not a single pie to be divided by two hungry people, but as a baker and a caterer negotiating over how many pies will be baked at what prices, and the nature of their ongoing relationship after this one gig is over.

The problem with Trump is that he sees only distributive bargaining in an international world that requires integrative bargaining. He can raise tariffs, but so can other countries. He can’t demand they not respond. There is no defined end to the negotiation and there is no simple winner and loser. There are always more pies to be baked. Further, negotiations aren’t binary.

China’s choices aren’t (a) buy soybeans from US farmers, or (b) don’t buy soybeans. They can also (c) buy soybeans from Russia, or Argentina, or Brazil, or Canada, etc. That completely strips the distributive bargainer of his power to win or lose, to control the negotiation.

One of the risks of distributive bargaining is bad will. In a one-time distributive bargain, e.g. negotiating with the cabinet maker in your casino about whether you’re going to pay his whole bill or demand a discount, you don’t have to worry about your ongoing credibility or the next deal. If you do that to the cabinet maker, you can bet he won’t agree to do the cabinets in your next casino, and you’re going to have to find another cabinet maker.

There isn’t another Canada.

So when you approach international negotiation, in a world as complex as ours, with integrated economies and multiple buyers and sellers, you simply must approach them through integrative bargaining. If you attempt distributive bargaining, success is impossible. And we see that already.

Trump has raised tariffs on China. China responded, in addition to raising tariffs on US goods, by dropping all its soybean orders from the US and buying them from Russia. The effect is not only to cause tremendous harm to US farmers, but also to increase Russian revenue, making Russia less susceptible to sanctions and boycotts, increasing its economic and political power in the world, and reducing ours. Trump saw steel and aluminum and thought it would be an easy win, BECAUSE HE SAW ONLY STEEL AND ALUMINUM – HE SEES EVERY NEGOTIATION AS DISTRIBUTIVE. China saw it as integrative, and integrated Russia and its soybean purchase orders into a far more complex negotiation ecosystem.

Trump has the same weakness politically. For every winner there must be a loser. And that’s just not how politics works, not over the long run.

For people who study negotiations, this is incredibly basic stuff, negotiations 101, definitions you learn before you even start talking about styles and tactics. And here’s another huge problem for us.

Trump is utterly convinced that his experience in a closely held real estate company has prepared him to run a nation, and therefore he rejects the advice of people who spent entire careers studying the nuances of international negotiations and diplomacy. But the leaders on the other side of the table have not eschewed expertise, they have embraced it. And that means they look at Trump and, given his very limited tool chest and his blindly distributive understanding of negotiation, they know exactly what he is going to do and exactly how to respond to it.

From a professional negotiation point of view, Trump isn’t even bringing checkers to a chess match. He’s bringing a quarter that he insists of flipping for heads or tails, while everybody else is studying the chess board to decide whether its better to open with Najdorf or Grünfeld.”

— David Honig

So there you have it. A bad idea having a damaging impact. Is Mr Trump playing 4-D chess with us all, as his defenders and explainers (including those who consider themselves pro-capitalism seem to be doing in some places that I see on social media), or is this in fact a big error that will eventually hurt America and the freer bits of the world? My worry is that history tells us that, with exceptions, tariff clashes tend to go wrong, lead to slower growth, and even nastier conflicts. It may be that Mr Trump is cleverer than we can appreciate, but I am sceptical.

Not a good start to his time in office. May wiser heads prevail, as they say.

Update: Here is a good article today (4 January) from Daniel Freeman at CapX on how, in his view, Mr Trump has misread the causes of America’s ascent as a business powerhouse.

Beatings will continue until morale improves – a continuing series

For the past decade or more, “neoliberalism” has been under attack. For example, a few years ago I read a book by the journalist Tom Bergin (Reuters), who argued, with a lot of data and references, that cutting marginal tax rates will not boost an economy. He poured cold water on the ideas of US economist Arthur Laffer, the “father of supply-side economics”, and denied that changes to tax rates make much difference to incentives to work, or so on. (Bergin’s analysis is politely and beautifully skewered, here, by Kristian Niemietz of the IEA. See also this new book by Tim Worstall.)

Of course, it is true that a 1% cut or rise to, say, capital gains tax or other tax will not produce an instant or commensurate change in economic behaviour. The elasticity of supply/demand relationships for labour, capital and land are variable. Labour is not homogenous, as Tyler Cowen notes (this also is a killer for the Marxian labour theory of value); there are frictional costs and sources of inertia that mean an economy cannot be turned on or off like a switch, contrary to the delusions of central planners or, indeed, naive advocates of free markets. But there IS an effect over time.

Changes to incentives compound: if you make it harder to hire and fire, and make it more expensive, irritating and difficult to achieve A or B, then less of what you want will get done. Hiking taxes on employment will reduce labour employed and encourage a substitution of capital for labour, just as taxes on petrol or food will causes changes to consumption, or force those who buy essentials to buy fewer so-called luxuries, or adjust in various other ways, not all of them predictable.

The UK government spending total, as a share of GDP, at the highest level since the late 1940s. And following the 31 Oct. 2024 budget, unemployment is rising. We also have about 1 in 5 working-age adults out of the workforce. Like a rusty naval frigate, large elements of the UK public have been decommissioned, fit only for a salvage yard, so it appears.

Tax incentives aren’t the only thing that count, but they are important. The UK has moved decisively down the wrong side of the Laffer Curve, and the results are clear.

Samizdata quote of the day – UK home-schooling edition

“Now of course it’s true that the nature of home-schooling will vary family by family. That is precisely the point of it.”

David Frost, Daily Telegraph, warning about the move by the UK government to try and severely curtail home-schooling, which he correctly identifies as a way to enforce ideological conformity on the education of the young – something that the Left (and sometimes also on the Right too) has long sought. Frost writers about the Children’s Wellbeing and Schools Bill.

Samizdata quote of the day – private spacefaring edition

“The critique of private space companies by many on the left is frequently that those billions could be better spent helping the poor or other philanthropic goals. Of course, the Hayekian answer to that question is we don’t know. Predictions about outcomes based on investments are speculative, but there are two points in favor of the space billionaires overusing public money in the pursuit of opening up space. First, the billionaires have track records building successful institutions and seeing market opportunities. That doesn’t mean private sector investment is always right—take the Segway as a good example of that. But they have done it before…private money is much more agile and responsive than public money. When space exploration is driven by private actors and investors rather than bureaucrats, market signals will be received by people with a vested interest in acting upon them. Bezos, Musk, and Branson have experience with building on successes and ending failures. Bureaucracies rarely die and aren’t nearly as innovative as the private sector.”

G Patrick Lynch

Samizdata quote of the day – what Musk sees in the UK edition

“Another way to think about Elon Musk’s relentless attacks on Starmer – and apparent desire to see him out of office before the next election – is that he recognises the opportunity Britain presents, if it can only get its house back in order.”

Marc Sidwell, CapX.

Yes, it does seem Labour wants to be a 60s, or even 70s, tribute act

On 14 June last year, just prior to the UK General Election, I noticed parallels between the Labour Party and its stated aims and how matters unfolded after that party won power in 1964 under Harold Wilson.

An important event was the sterling crisis of 1967. And this week, we read of how the yields on UK government bonds (gilts) have soared – which means investors are far less confident in the country’s creditworthiness. UK Chancellor of the Exchequer, Rachel Reeves, now dubbed in certain quarters as “Rachel from Accounts” due to her questionable background details, is in China at the moment (interesting destination), and there is talk of how the UK might need to be bailed out by the IMF as it was in 1976. Even if this does not come to pass, the descent of this government has taken place with tremendous speed. We could be headed for a sterling and government debt crunch; there is widespread and justified anger about its handling of criticisms about the “grooming gangs” saga; the questionable decision to hand over the Chagos Islands in the Indian Ocean to Mauritius looks worse by the day; the government is going after private schools and educational rigor more generally; one in five working-aged adults are economically inactive….and on it goes.

We are not out of the first half of January yet. “Hard pounding, Hardy”, as Nelson said at the Battle of Trafalgar.

 

 

EV hypocrisy, low politics and “permission structures”

Holman Jenkins Jnr, an opinion columnist in the Wall Street Journal, reflects on the mix of bad faith, moral cant and low protectionist nonsense that underpins so much Western policy on electric vehicles:

Subsidizing green-energy consumption is simply to subsidize energy consumption, including fossil energy. EVs are “strategic” only for China, to reduce its reliance on imported oil in anticipation of military conflict with the U.S. For the rest of the world, including the U.S., electric cars are a consumer technology, albeit a fast-emerging and promising one. Sensibly, they’re also a technology that should have been left to consumers and carmakers to adapt and develop without distorting handouts and mandates.

The result is finally in view: a colossal self-destruction of the Western auto industry, with Germany’s at the forefront. Volkswagen is in a panic about Chinese competition to the money-losing EVs that Berlin forces the company to sell. Germany’s export-led economy is in free fall. Its bellwether auto giant, VW, is pursuing its first-ever domestic factory closures and layoffs.

Likewise, Ford CEO Jim Farley sees his company’s survival in the U.S. threatened by Chinese EVs given the tens of thousands of dollars Ford already loses on each of its government-mandated electric vehicles. The author of Germany’s auto mess, Angela Merkel, is now reviled as an unprincipled bandwagon grabber. Don’t kid yourself. The same reputational fate is coming for Messrs. Obama and Biden. Mr. Biden’s EV protectionism is America’s admission of defeat. The U.S. went from “Americans must buy EVs to save the planet” to “Americans must be prevented from buying cheap, high-quality Chinese EVs to preserve a government-created domestic boondoggle.”

Jenkins also refers to the concept of “permission structures” and the malign legacy of the Obama administration. (He links to this article at The Tablet.) I like that term – it coheres with concerns about how an “administrative state” has evolved over the decades to impose policy outcomes at a remove from democratic oversight or the sharp and corrective blast of free market competition. Worth a read.

The UK’s Institute of Economic Affairs, the think thank, has recently opined about “mission-directed governance”, which is a sort of automated paternalism (I discussed this offline with Paul Marks of this parish). The IEA piece links to an interesting paper about East Asia and forms of authortarianism.

Update: From Guido Fawkes today:

The UK’s electricity grid came worryingly close to blackouts yesterday – just 580 MW shy of the lights going out – in what independent energy consultant Kathryn Porter described as the “tightest day since 2011 or before”. National Grid ESO had to issue its first Electricity Market Notice of the winter, along with a third Capacity Market Notice, though the latter was quickly binned. No surprise that cold weather means more heating and energy…

A sharp drop in wind output combined with limited electricity imports from Europe left the grid scrambling to keep the lights on. Yet Red Ed is still pushing to fast-track planning permission for a wave of new wind farms — despite the inconvenient truth that these turbines have to be switched off when there’s too much wind and the grid can’t handle it. Meanwhile Labour is ploughing ahead with their plan to make wind and solar the backbone of our energy system to hit 95% renewable energy by 2030.

Samizdata quote of the day – material equality edition

“The legitimacy of altering social institutions to achieve greater equality of material condition is, though often assumed, rarely argued for. Writers note that in a given country the wealthiest n percent of the population holds more than that percentage of the wealth, and the poorest n percent holds less; that to get to the wealth of the top n percent from the poorest, one must look at the bottom p percent (where p is vastly greater than n), and so forth. They proceed immediately to discuss how this might be altered.”

Robert Nozick, noting how the presumption of equality of wealth as a just default position is widely held and rarely challenged head-on.

Anarchy, State and Utopia, page 232. The book’s second section, in which Nozick demolishes egalitarian ideas about equality and what he calls the “patterned” approach to justice in holdings, is in my view the best bit of the book, and enduringly influential on many classical liberals, libertarians, etc, to this day. The book was published in 1974, and Nozick was a Harvard academic at the time. (Proof that the 1970s was in some ways a fertile time for good ideas, and Harvard was in better shape than today.)

Samizdata quote of the day – nuclear power edition

“Build 1,000 new state of the art nuclear power plants in the US and Europe, right now. We won’t, but we should.”

Marc Andreessen

Who would be your “person of the year”?

TIME Magazine has made Donald J Trump, re-elected to the White House, as its Person of the Year. These POTY titles don’t necessarily mean the publication thinks that X or Y are good or praiseworthy; what counts is that they are significant in some overwhelming way. Trump fits the bill perfectly. Without a doubt, his election in November will shake things up, not always for the better. But shake them up they surely will.

If I were to choose an alternative POTY from the ranks of politics, my choice would be Javier Milei, president of Argentina. He’s been in the job for just over a year. On his watch, inflation in a high-inflation country has sunk to low single-digits. He’s deregulated the rental market and prompted a flood of new rental housing, cutting rents as a result. He brandished a chainsaw as his symbol of what he wanted to do to government. Thousands of public workers have been laid off; a number of regulations have been scrapped. The price of Argentinian debt, both public and private, has risen, and the yields have fallen. This represents a massive vote of confidence in the creditworthiness of a nation renowned for its fecklessness for decades. This will attract capital and investment, helping the country pull out of recession and hopefully, boost living standards in a sustainable way. It needs to happen: there is a lot of poverty in that country.

As a result of some of this free market medicine, the Argentinian peso has risen in value: The peso-dollar has surged 22 per cent a year before. So much so, in fact, that Keynesian columnist Ambrose Evans Pritchard, who often predicts the case for reflating this or that country with lots of cheap money, has denounced this situation. For those who have seen Latin American currencies reduced to dogfood (apart from maybe in Chile) in recent decades, no higher praise for Milei can be higher than catching the glare of a columnist who is so often wrong in his predictions.

So there you are: My choice for Man of the Year would be a chainsaw-wielding fan of Austrian economics in Buenos Aires, an actual classical liberal in a world gone increasingly collectivist.

Update: I fixed the way of expressing the foreign exchange rate; apologies. The point stands: the peso is worth a lot more today than a year ago.

Another update: Does a stronger Argentina make it more likely the government might try and re-take the Falklands? Maybe; one risk factor now in play is that under a socialist and self-hating PM, Sir Keir Starmer (who has an inferiority complex about Mrs Thatcher), the Argentinian public might, with some reason, think there is a chance the UK could be persuaded to transfer control. There is a lot of oil down in the South Atlantic; Milei does not, as far as I know, give a damn about Net Zero and might eye the area as a key resource. But he is also not a fool and might, with justice, think that a row with the UK is not worth the trouble, particularly if Argentina looks to rebuild trade relationships, particularly in a world of rising tariff barriers.