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The name of Hunter Lewis’ book says it all: Where Keynes went wrong – and why world governments keep creating inflation, bubbles and busts.
What Mr Lewis has done is to update Henry Hazlitt’s “The Failure of the New Economics” – the classic line by line refutation of Lord Keynes that the older ones among us read as undergraduates (before such works were purged from university libraries). Of course Hunter Lewis uses work on Keynes that was not available to Hazlitt in the 1950’s and he explains the terrible effects that the influence of Keynesian ideas on the policies of modern governments (especially in the United States), but basically Hunter Lewis is a Hazlitt for our time.
To say this is not to diminish the achievement of Mr Lewis – which is a considerable one. Many people when the first come upon Keynesian doctrines at school and then at university spot some of the absurdities (such as the idea that the government spending more money makes a nation more wealthy), and when not satisfied by textbooks and by the explanations of teachers and lecturers, we go on to seek out J.M. Keynes’ “General Theory of Employment, Interest and Money” (1936) but then we are confronted with a tested mess. Not just a very badly written book (so different from the witty paragraphs that are quoted in the textbooks), but such a complex mass of absurdities and contradictions that one despairs (or let me be honest “one despairs” means “I despaired”) of writing a full refutation of the work that was actually readable.
For example, the use of mathematics. It was obvious even to someone as ignorant of mathematics as me that Keynes used mathematics improperly – he used mathematical means that assumed, in their very structure, the very things the mathematics were supposed to “prove”. Yet Keynes also downplayed the importance of mathematics in the “General Theory…” and in other works – so what was the point of trying to explain his misuse of mathematics? Hunter Lewis deals with this problem (as he deals with all the other problems that trying to seriously examine Keynes presents), by using enough words to fully explain what Keynes is doing – whilst not falling into the trap of making the language so complex that his book becomes unreadable. The great strength of Keynes’ “General Theory…” is that it is almost unreadable – the nature of the writing is not an accident (Keynes could write perfectly clearly if he wanted to), it is deliberate – in order to obscure the line of “argument” and intimidate the reader into thinking “I can not follow this – Keynes must be a genius”. Paul Samuelson (the main American spreader of the ideas to undergraduates in the post World War II world) admits all of the above, but then (without irony) takes it as proof of the ‘genius’ of Keynes – as Hunter Lewis explains in chapter 20 of his work, especially on pages 267 to 268. → Continue reading: “Where Keynes went wrong : and why world governments keep creating inflation, bubbles and busts” by Hunter Lewis
A few weeks ago, we were having one of many conversations on this blog about the subject of climate change. In the comments, I said the following
The climate is clearly changing. There is nothing unusual about this. The climate is always changing. I’m happy to concede that the trend in recent decades has been to hotter temperatures. Again, nothing unprecedented about that. The world has hot periods and cold periods. The trend seems to have slowed or reversed over the last few years. This is not a short enough period of time to prove anything, but it does make you wonder how strong the trend is. Some of the data analysis that purports to show the trend has been presented in ways that deliberately or otherwise state the data in such ways that appear to indicate the trend is stronger than it is, and/or choose starting points and data series lengths that appear to show the trend as more abnormal than it is, in my opinion.
Again, with the impact of human activity, I am happy to concede an impact exists. There is a lot of human activity – it must have some impact on the climate. Whether it is a significant impact is another question.
Having those two thoughts, you look for a correlation, and find one between CO2 in the atmosphere and average temperature. One can be found, although it is not clear whether it is a causal relationship (CO2 levels vary historically before significant human activity existed, and a lot of the time CO2 increases seem to trail temperature changes rather than the other way round).
So how much are higher temperatures caused by higher CO2 levels, and how much of the increased CO2 level caused by human activity? The answer to the last question is clearly “quite a lot”, but that is not an answer to the question “How much?” Is it “70%? 90%? 100%? 120%? To be able to come up with a meaningful model, we have to have a good numerical answer, and we don’t remotely.
As to what impact increased CO2 levels have on average temperatures, there is much greater uncertainty. Basically you have to enter a fudge factor into your model, see how well it models the past, and hope you can then model the future successfully. A few people have created models that can just about model the past, but that doesn’t mean you have the mechanism right – it just means you have found a mathematical function that fits the points on your curve.
As it is, we have a few extremely crude mathematical / computer models that suppose mechanisms that go from human activity to CO2 release to global warming. They don’t agree with one another, and they are incredibly crude. (The Earth’s atmosphere is an extremely complex system. These models only have a tiny fraction of its complexity). They have a poor record of predicting the future.
The science of global warming ultimately boils down to saying that “The level of warming is unprecedented”. “Human releases of CO2 into the atmosphere are unprecedented”. “Therefore, the second causes the first”. This isn’t an inherently ridiculous thing to say. If climate change really is unprecedented then we would look for other unprecedented things as likely causes and human activity would be the likely one. We could then look for mechanisms and solutions, but we would largely be doing so with our eyes closed.
I will listen to somebody who more or less says this and that the risks of global warming are so great that we must do something about them, but somebody who simply states that the science is settled and beyond discussion is frankly not even worth arguing with.
In response, I received a mocking reply from a true believer, saying more or less that if I knew so much about it, why didn’t I publish papers in a refereed journal myself, and he was sure that a Nobel Prize would be beckoning. There was no attempt to address anything I said – merely an observation that what I was saying did not have the approval of the clique controlling the argument.
In a way this was odd, because I was not actually claiming to know anything about the workings of the climate: only about the likely limitations of the methodology of climate scientists.
As it happens, once, in another life, I was a research scientist. → Continue reading: A few thoughts on Climategate.
Alice Thompson is a bit of an economic dunce, isn’t she?
“Their private polling shows that the public loathe bankers more than politicians, so the Conservatives are desperate to disassociate themselves from the City. Voters are furious that the gap between the yachts and have-nots has grown rather than diminished in the past few months. While City high-flyers are once again buying £10,000 stocking fillers, eBay crashed last weekend under the weight of people trying to sell goods to get extra cash for Christmas. The more distance the Tories can put between themselves and the City the better. Even Boris Johnson, always a reliable guide to the prevailing political wind, has dumped his “monstrous” pinstriped friends. Instead, the Tories are courting the CBI and business, emphasising tax cuts for companies and promising to be “unashamedly pro-enterprise”. The message is clear: real businesses matter; the City doesn’t.”
Let’s unpack this. I read the entire, dreadful piece and it occured to me that Ms Thompson is wedded to the notion that if an activity – such as hedge fund arbitrage – cannot be immediately explained in terms of some physical good or easily understood service – like laundry – then it must be suspect in some way. She does not necessarily endorse all of the anti-market sentiment expressed by others she quotes in her article, but the overall tone is unmistakable. It is also a reminder that there is much hostility to banking, finance and the market on parts of what I might call the Right as among the Left, crude though such terms are in terms of political mapping.
Of course, it is true that the size of the financial services industry has been arguably swelled beyond what is healthy by decades of ultra-low interest rates, which have caused an increasingly manic hunt for yield, leading to the whole alphabet soup of acronym products associated with the credit crunch. But that is not the point that Ms Thompson is making. She seems to be saying that banking per se, when set against other kinds of economic activity, is wrong or morally dubious, and that we’d be better off without it. But whether “we” (who?) would be “better off” with a different mix of economic activities is something of a subjective judgement, not something that can be modelled according to some sort of utilitarian calculus. For instance, should banking make up 5%, 10%, or 20% of an economy’s gross domestic product? How much is too big or too small? Surely, in a proper market without artificial barriers to entry and without the distortions of central bank rates, regulations and the like, the size of banking as a sector will vary depending on the shifting sands of consumer preferences. That is all.
I am not suggesting that Ms Thompson take in all these points in a brief column for a newspaper, even if she had a clue about economics. But frankly, when I read yet another version of the centuries-old slur against speculators and “middlemen”, even if dressed up in the slightly “gosh how awful” tones of a rightwing female columnist, I think it is necessary to kick the offending author in a sensitive part of the anatomy. If Britain loses its edge in financial services due to a rash of bad legislation, heavy taxes and the rest, this nation is in trouble. The exodus is already well under way.
I want to say more about this massive story. And yes, the general opinion now seems to be that this was not a hack, but rather an inside leak.
First point, this is indeed massive. As Devil’s Kitchen in particular has been repeating, both in comments here and at his own blog, this is not just a few maverick scientists gone bad, off the edge of the central enterprise. The idea that a few little scientific baddies can be sacked, thereby allowing the main, big, uncorrupted fleet of Global Warmist truth seekers to sail on with their dignity unsullied, is delusional. These guys, the so-called “Hockey Team”, are at the very centre of the whole AGW-based global taxation, global command-and-control system that we are about to be severely threatened with at the forthcoming Copenhagen Conference. That process has slowed at bit recently, but it is still very much still in motion. This drama is now being described by blogger after blogger, and by blog commenter after blog commenter, as “the biggest scientific fraud in history”.
Indeed. Said DK, commenting here on that earlier piece of mine:
The point is that this relatively small group of “scientists” control the entirety of the alarmist agenda.
That is why this is significant.
These people control the scientific arm of the IPCC, all of the major journals, etc. and the emails show that they have actively conspired to prevent any view other than theirs from being put across.
Exactly. A major exercise in World Government, no less, is being made to look like the dodgy little racket that it has long been believed to be by the few critics who have been scrutinising it carefully, and suspected of being by many more, me included. The great horde of politicians and bureaucrats and lobbyists and ecofascists (basically an entire generation of politicians and political activists) are being made to look like credulous idiots.
With every hour that passes without a coherent argument emerging from the Hockey Team to the effect that these emails – any of these emails – are fake, then their genuineness looks that much more real. And now, the process has already begun of analysing other material that has been leaked too, which looks now like being even more significant. As I said in my earlier piece here, all the anti-AGW bloggers I read during the first hours when the story broke began their reactions by saying “This stuff could be fake and it could certainly include fake stuff.” Indeed. But as the hours and days of stunned silence or stuttering evasion go by, from the skewered scientists and their bewildered allies in the media, the chances of any of these emails or any of this other stuff being bogus is becoming vanishingly small, to the point where if it is eventually claimed that some of it is faked, the response will probably be either: you forgot about that; or: you’re lying. Again.
Many scientists, commenting in recent days on blog postings, have been declaring themselves baffled. Why all the fuss? Is it some kind of big scandal that scientists are – shock – human? They sometimes use less than noble methods in their fights with one another, making their own opinions seems more solidly justified than they really are, their own data seem more precisely in accordance with their theories than they perhaps should, or would in a morally perfect world. And especially in what they thought were private emails to one another. So? That’s science. It’s a tough old world, and sometimes, yes, they do fight a bit dirty. As do we all. So, why this huge blogo-fuss about pretty nearly damn all?
Why the fuss is because of the vast, globe-spanning policy conclusions that have been plucked from these in themselves rather minor deceptions. The fraud revealed isn’t just in the fiddling of some numbers. There is also the faking of that precious scientific consensus that has so dominated public and official thinking about climate and climate policy during the last decade. The world is being sold a gigantic economic and political upheaval, backed by the claim that all this scientific rough-and-tumble, this slightly dodgy infighting, was in fact a blandly uniform scientific consensus. And the “scientists” (who more and more now look like politicos who have barged their way into science) are the engineers of this political fraud, not just the contrivers of the scientific opinions around which they have assembled their bogus consensus. → Continue reading: More about the CRU leak – how big arguments are won and lost and how the mainstream media are already responding
I recently recorded a conversation with Toby Baxendale, who owns and runs a fish distribution empire, and who is the founder of the Cobden Centre. Listen to it by clicking here.
Our chat lasted about fifty minutes and a lot of interesting biographical and intellectual ground is covered. For the benefit of those for whom that is rather a long time to spend listening to talk, I have written at greater length about listening to and learning about this interesting and formidable man here.
Via the Cobden Centre, a relatively new think tank that focuses on banking and money from the “Austrian” point of view, here is a nice article by James Tyler. He sets out how to avoid past problems and what to do about banking and money.
I still think that fractional reserve banking, so long as it is openly stated and so long as legal tender laws are scrapped, is not necessarily an evil. If a person deposits money in an FRB that advertises itself as such and if he takes out commercial insurance to cover a potential disaster, then in a free market based on consent, I am not sure that FRB should be made illegal. For sure, a bank that claimed to be a 100% reserve bank that was in fact, not fully covered, should be prosecuted for running a fraudulent business. But that is simply a case of obtaining money by deception, an offence covered in existing law.
As is so often the case, I think that some of our current woes could be ameliorated, if not solved, if we enforced the basic Common Law of this realm rather than endlessly creating new rules instead. But then I guess that would give politicians nothing much to do, would it?
So how is Zimbabwe doing these days? According to this article, linked to yesterday by Patrick Crozier, things are actually improving. Patrick quotes this bit:
Price controls and foreign exchange regulations have been abandoned. Zimbabwe literally joined the real world at the stroke of a pen. Money now flows in and out of the country without restriction. Super market shelves, bare in January, are now bursting with products.
While reading this article, I could not shake the feeling that I was really reading a piece of libertarian science fiction. Could they really have done anything so very sensible, and could things really be improving so definitely? The piece does appear to be genuine, so far as I can tell, but if it turns out to be fantasy-fiction, this paragraph will get me off the credulity hook. File under maybe true but maybe too good to be true.
Meanwhile, if the piece really is true, the best bit of all in it is that there is now no “lender of last resort” in Zimbabwe. Could it be that libertarian economic policy – in particular libertarian banking policy – is about to get a serious test, which it will pass, and hence another serious showcase, highly pertinent given the world’s current banking woes, to educate the world with? How will socialism and state-centralism get the credit for that I wonder?
If genuine, this piece reminds me of a vivid British recollection from way back. Someone on the telly asked a City commentator, just after Black Wednesday (the day in 1992 when John Major’s economic policies collapsed in ruins), what the prospects were now for the British economy. Well, he said, now that the government has not got a policy, rather good.
I find this horribly convincing:
Chang argues that inconsistencies in Chinese official statistics – like the surging numbers for car sales but flat statistics for gasoline consumption – indicate that the Chinese are simply cooking their books. He speculates that Chinese state-run companies are buying fleets of cars and simply storing them in giant parking lots in order to generate apparent growth.
Another data point cited by the bears: overcapacity. For example, the Chinese already consume more cement than the rest of the world combined, at 1.4 billion tons per year. But they have dramatically ramped up their ability to produce even more in recent years, leading to an estimated spare capacity of about 340 million tons, which, according to a report prepared earlier this year by Pivot Capital Management, is more than the consumption in the U.S., India and Japan combined.
This, Chanos and others argue, is happening in sector after sector in the Chinese economy. And that means the Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.
The Pivot Capital report was extremely popular in Chanos’s office and concluded, “We believe the coming slowdown in China has the potential to be a similar watershed event for world markets as the reversal of the U.S. subprime and housing boom.”
To me the moral of the last couple of decades of world economic history is clear. The world was indeed somewhat released from the dead hand of politics. In particular, the making of stuff was released into the wild. Consequently, during the last two decades, stuff has just got better and better.
But the world’s financial systems remained under rigid political control, everywhere.
Stuff-making roared ahead. But then the financial systems started collapsing, and China looks like being next. Managed capitalism has indeed only been a very partial success, but which word in that phrase will get the blame?
I say that the stuff-makers, the truly honest capitalists of the last two decades, should not be blamed. They did, and continue to do, a fabulous job. On the contrary, the politician/financiers should, instead of trying to shift the blame and the burden onto them, be looking to the stuff-makers for lessons in how to make an honest living.
The predicted insanity of “quantitative easing” (i.e. re-inflating the bubble) is laid bare:
Sharp increases in share prices have improved the outlook for pension funds in every major developed nation apart from the UK, according to research from the Organisation for Economic Co-operation and Development.
The news coincides with figures which reveal that the deficits in Britain’s largest privately-sponsored defined benefit schemes have soared by £15bn to £77bn, wiping out almost all the gains achieved by market increases the previous month. […] The deterioration is largely an unhappy consequence of quantitative easing (QE). Pension funds’ deficits depend on two factors: the value of their assets, much of which are equities, but also the potential amounts they will have to pay out when people retire in the future. These future liabilities have been pushed higher as QE has depressed yields on gilts and other bonds
I would quite like to see the people responsible for one of the greatest rolling acts of theft in recent history hanging from lampposts. Bernie Madoff was a minor league player by comparison.
So asks John McWhorter:
The main loss when a language dies is not cultural but aesthetic. The click sounds in certain African languages are magnificent to hear. In many Amazonian languages, when you say something you have to specify, with a suffix, where you got the information. The Ket language of Siberia is so awesomely irregular as to seem a work of art.
But let’s remember that this aesthetic delight is mainly savored by the outside observer, often a professional savorer like myself. Professional linguists or anthropologists are part of a distinct human minority. Most people, in the West or anywhere else, find the fact that there are so many languages in the world no more interesting than I would find a list of all the makes of Toyota. So our case for preserving the world’s languages cannot be based on how fascinating their variegation appears to a few people in the world. The question is whether there is some urgent benefit to humanity from the fact that some people speak click languages, while others speak Ket or thousands of others, instead of everyone speaking in a universal tongue.
See also this article about Indians who write their novels in English rather than in one of the local Indian languages, partly because they just do, and partly in order to increase their potential readership around the world. The piece is by Chandrahas Choudhury, himself the author of a novel in English. He also blogs.
Both pieces were recently linked to by Arts & Letters Daily, to whom thanks.
I suppose a danger of everyone on earth speaking the same language, as was explained in The Hitchhiker’s Guide to the Galaxy, is that we would all of us then understand each other’s insults.
… the … Babel fish, by effectively removing all barriers to communication between different races and cultures, has caused more and bloodier wars than anything else in the history of creation.
But this is to assume that hostility causes wars. I think it is at least as true to say that wars cause hostility.
Quite aside from the rights and wrongs of English conquering everyone and everything, there is the intriguing question of whether it in fact will so triumph, or whether any other potential universal language, like Spanish or Chinese, will triumph, in the nearish future. Perhaps English will triumph, but in the process it may itself fragment. If one language does triumph, it may well be English, but not necessarily English as I know it.
“The Japanese government did absolutely everything the Austrian theory suggests it should not do in order to fight recession. It engaged in every single activity that Keynesians like Paul Krugman recommended. As a result, its slump went on for a decade and a half. Keynesians continue to recommend these very policies for the United States, as if the debacle in Japan never occurred. In late 2008 financial newspapers in the US actually began to speak of a revival of Keynesian thinking (claiming, absurdly enough, that the present crisis gave the ideas of Keynes, one of the twentieth century’s collection of inexplicably respected crackpots, a new lease of life) again with no mention of Japan.”
Thomas Woods, Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Page 84.
This book is full of great passages like this. I have already quoted a nice line from Mr Woods mocking the contention that the enormous expansion of government spending in WW2 helped “solve” the Great Depression. Incredibly, there were people who actually defended this absurd idea on our comment boards. It never fails to amaze me that people overlook a basic fact of economic life: we work to produce stuff that people want to consume. The kind of state domination of a country during war, with its rationing, government direction of labour, and of course, mass conscription, hardly sounds like the sort of policy that anyone interested in increased prosperity should favour.
There is one point where I disagree with Mr Woods. He says the veneration of Keynes is inexplicable. It is in fact pretty easy to understand: he had a sort of superficial plausibility, and of course his ideas were meat and drink to politicians looking for intellectual cover to expand their powers. Even so, I do kind of wonder if Keynes would be embarrassed by some of the people who claim his name as justification for their views.
Yesterday I recorded a conversation with Paul Marks, a regular contributor here. My purpose was to enable all who are curious about who and what Paul Marks is to learn more. And the best way to learn more about Paul Marks is to listen to him talk not about himself (which we only did for about ten seconds) but about some of the things that he has been thinking about in recent years and in recent months.
In recent years, Paul has been brooding on the impending financial disaster which he saw coming. You know, the one that “nobody saw coming”. Well, he did. How come? More recently he has been pondering the Marxist background and foreground of US President Barack Obama. What, Barack Obama as bad as Ho Chi Minh? Yes, he replied. He didn’t just say it, he explained it and he justified it.
As I said at the end of the convsersation itself, and as I repeated in the posting I did about the conversation on my personal blog soon after it had been recorded, I think it went well. Since then, I have listened to it right through again, and I remain very content with it. If, on the basis of this plug, you feel inclined to have a listen yourself, this will occupy somewhat under half and hour of your time. Enjoy.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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