Samizdata

At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.

– Ludwig Von Mises as quoted by Toby Baxendale

It is not just the economic downturn that has got us deep in debt, it is a consumerist politics in which our elected representatives feel compelled to tell us we can have our cake, eat it and walk out without paying.

Writes Matthew Taylor, former policy adviser to the Blair government, in today’s Times. I think that is not quite right. Not “feel compelled” – “are compelled”. Elected representatives do not stay elected very long unless they maintain the fiction for those who voted for them that someone else is less deserving, someone else is paying.

Taylor says ‘leadership’ is the answer. I wonder why we should believe that, when politicians are actually exercising leadership all the time, in the manner their interests direct. Leadership conferred by outbidding other leaders for the favour of the public is precisely where consumerist politics comes from.

From time to time, the Guardian, to its credit, likes to shake up its leftist readership with a dose of sanity. Here is a fine example.

US-based academic Stephen Hicks, whose excellent website I occasionally check in on, is taking part in a conference in Las Vegas on 11-13, April, next year. And he is raising the issue of what are the ethical issues stemming from the turmoil. As he rightly notes, a lot has been said and written about the economic, political, even legal sides of the drama. But the ethics? Not so much. If you want to mix a bit of food for the brain with a few sessions at the blackjack tables and the odd show, this might be a fun few days.

It is certainly like to be more intellectually and sensually stimulating than watching the latest offerings of Michael Moore or the Hugo Chavez fan, Oliver Stone. Update: talking of which, how interesting it is that Mr Stone should champion a regime that exercises media censorship.

The idea of the Enemy Class, to coin Sean Gabb’s term, gains credibility by the hour. A distinguished member of this class is Lord (but of course!) Adair Turner, now chairman of the Financial Services Authority, the regulator of UK financial affairs. The FSA was set up by the current Labour administration in 1997, and among its many achievements is to have largely failed to warn of the catastrophic expansion of credit – driven by central banks – which created an asset bubble in the UK. It failed to warn sufficiently about the high-risk lending policies of mortgage lender Northern Rock. Undaunted, the FSA churns out reams of consultations and reviews on how to make financial services more efficient and professional. It would require the patience of a saint to point out that the best way to promote competitive, high-quality financial services is for regulators and other agents of the State to get out of the bloody way and ensure that firms have to build a solid reputation and for consumers to exercise the virtue of caveat emptor.

But the latest foray of the FSA into the issues surrounding the credit crunch may be its lowest point yet. Lord Turner argues that the UK banking sector is too large, so large in fact, that it is harmful to society. He does not, in the widely cited Prospect magazine interview, elucidate what he means by “too large”, or whether it is possible for a civil servant, economist or other such person to figure out the optimum size of a specific sector. When Hayek talked of the “fatal conceit” of socialists imagining they can micro-manage the balance of human activities, this is the sort of hubristic thinking the great man was talking about.

I fear Lord Turner is also missing a crucial point, or just ignoring it. The point is that in a globalized economy such as we now have, financial centres such as London, Singapore, Zurich and New York are almost akin to nations in their own right; they dwarf the economies of their host nations because specialisation in finance has moved to a global arena. They rather resemble the old north European Hanseatic League of the Middle Ages. Take a different sector, such as telecoms. Finnish mobile phone firm Nokia is so large, as a percentage of Finnish GDP that a Finnish equivalent of Lord Turner would no doubt argue that the company should be punitively taxed, so that it shrinks and gives the reindeer industry in Lapland a greater share of GDP, or help those vodka retailers do so, or whatever. It is easy to laugh at such bizarre logic, but remember this: these guys have got where they are not by baldly stating their views in quite such terms, but by insinuating them through such question-begging terms as “excessively large”, or by referring to a sector of an economy as “swollen”.

Now it is true that as long as big banks can exert a sort of moral blackmail over taxpayers by stating that they are “too big to fail”, and as long as we benighted taxpayers are told we have to bail these guys out, then Lord Turner’s odd logic will gain a kind of ready audience. But he is looking at the problem the wrong way round: instead of making banking smaller and less profitable and simply driving it abroad, the better approach is to remove state-mandated deposit protection; to remove arbitrary and often counter-productive capital requirements and above all, to focus on the prime culprit in this business: the central bank as printer of funny money. But to do that will require the sort of analysis that does not give the FSA, or other bodies, the powers to tax and regulate. The FSA, like all regulators, is forever looking to increase its powers; it is hardly likely to consider the problem in such a way as to make itself redundant.

Perhaps we’ll soon be hearing that the casino sector is “excessive” in Las Vegas, gold mining is a “swollen” part of the South African economy, and there is too much reliance on fishing in Norway. And as for those Arabs, they spend far too much of their time drilling for oil. Cannot those chappies do something less fwightfully vulgar?

Lord Turner, by the way, is a former director general of the Confederation of British Industry, a lobby group for big business; he has had a consultancy role for Merrill Lynch and has wiritten a long and quasi-statist paper on UK pensions reform. He’s Enemy Class to the core. That he is, as I can attest, a thoroughly likeable guy does not alter that fact. It makes him actually quite dangerous.

Update: Tim Worstall points out how opposed to the notion of economic liberty this man actually is. When someone says that “an activity is socially useless”, what he or she really means is that “I don’t understand the use for it so it should be banned”.