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.
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There is a Reuters story quoting a survey suggesting that the recession could trigger a general increase in violence around the world. As is always important in these kind of claims, we need to be sure that correlation between two things – violence and economic uncertainty – is not being conflated with causation. Consider: Saddam Hussein invaded Kuwait in the early 1990s when the world, in general, was quite prosperous, albeit coming out of a short recession in countries such as the US and UK, when the price of oil had also been falling. The violence that broke out in the MEast later in parts of Africa (think Sudan, think USS Cole) took place in the middle to late-1990s, a period when emerging market economies were generally on the rise. The exceptions may prove the rule: what I think is true is that places that are felt, rightly or wrongly, to be unfairly excluded from a global prosperity are often likely to be unstable, and quite violent, but not always.
In fact, it is even arguable that greater prosperity might even cause some forms of violence if reactionary/religious groups regard such wealth as a defilement of whatever it is they want to protect. (I happen to think that explains why some anti-globalisation folk are often, in essence, reactionary snobs). That in part explains the argument of those who said that the West was attacked on 9/11 not for its supposed transgressions in the Middle East, but for its wealth and freedom per se.
Where I think economics does play a more direct role is where you have regimes that are financially busted, with few remaining resources, and where they greedily, and desperately, eye other, resource-rich nations nearby. That explains some, but not all, military campaigns. As in the case of Japan during the 1930s, a hunger for raw materials, coupled with a militaristic ruling ideology and elite, led to the Japanese conquests in parts of East Asia and the Pacific Rim. The same happened with Argentina and its invasion of the Falklands Islands in 1982 (the islands are supposedly close to some very big oil reserves). Ceasar’s conquest of Gaul had a partly economic incentive (all that gold, slaves, etc). And so on.
There may also be some evidence that the more prosperous we are, the more tolerant we are, too. In fact tolerance, which is allied to liberty, and prosperity, are faces of the same coin. In the minds of the great Victorian champions of free trade, such as Richard Cobden and John Bright, free trade and peace went hand in hand. A bit naive, maybe – trade routes need to be protected against thieves and thugs – but it is a view based on an essentially benign view of how most of us live our lives, given half a chance.
Even in Britain, the headlines this morning are full of the imminent bankruptcy filing of GM. It is, as one report points out, the biggest bankruptcy in US industrial history, setting an unenviable record. Several things stand out as I looked through the details but one immediately grabbed my attention: the US taxpayer could be on the hook for up to $60 billion on account of state assistance. $60 billion. I guess we all get so punch-drunk with the vast sums involved in bank bailouts and the like that the significance of these sums becomes a little fuzzy (or maybe it was that white wine I had at the BBQ yesterday). $60 billion of money that is being spent to rescue part of a veteran auto firm will be money that will not be available to fund, say, a new set of business startups in the US. GM has highly recognisable brands and a lot of well organised workers. Pretty much everyone has heard of it, has heard of Detroit’s status as a car-making town. So, naturally, there is big media and political interest in what happens to GM. All those thousands of jobs on the line, etc. But the entrepreneurs, taxpayers and consumers who will see their wallets lifted, business plans stymied, or car purchases affected – who speaks for them? Taken as a whole, far more people will be affected by the cost of paying to sort out GM than the management and workers, but given the dynamics, it is usually far easier for politicians to portray themselves as “saving” a firm by spending or “investing” (sic) public money than it is to accept, however painfully, that a firm needs to be broken up and capital released for other, more productive things. (It needs to be remembered that GM’s problems pre-date the credit crunch).
The French classical liberal economist, Frederic Bastiat, wrote a famous essay, “What is seen and what is not seen”. He was attacking things like subsidies and tariffs. And not a word of his essay is out of date.
I suppose they deserve half a clap for trying, if not for the rigour of argumentation. Crooked Timber, a leftish blog I read occasionally, tries to deny that flexible, relatively lightly regulated labour markets have fared better, or are superior to, the more heavily regulated, European ones, such as in France and Germany. Oh really? Let me quote a couple of lines:
“According to the latest Eurostat data, the unemployment rate in the US was equal to that in the EU-15 in March, and is now likely to be higher. Writing in the NY Times, Floyd Norris refers to the conventional wisdom that flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries implies that unemployment should be lower (at any given point in the business cycle) in the US than in Europe.”
It is “conventional wisdom” in the sense that it makes sense. Other things being equal – which they never are, of course – if you increase the cost, and hassle, of both hiring someone, and make it more expensive and difficult to fire someone if they fail to come up to scratch for any reason, then fewer people in general get hired. And it strikes me that that holds pretty robustly. Yes, unemployment may currently be as bad, percentage-wise, across the US as a whole as across the whole of the euro zone, although let it be noted that different parts of the US have differing rates of unemployment, as does the euro zone. But as the next paragraph demonstrates, it really will not do to try and claim that heaping labour markets with more costs and rules has few adverse effects:
Advocates of the US system make much of the deterrent to hiring associated with employment protection laws, but they ignore the other side of the coin. When the economy is contract, employment protection laws do in fact protect employment (if they did not, they would have no adverse effect on hiring either). On this basis there is nothing surprising in what we are seeing. EU unemployment rates should be higher in expansions and lower in contractions, which is exactly what is required for lower variance.
But – and it is a big but – if monetary policy is not run by idiots, thereby avoiding boom-bust cycles of great severity, then overall, the low-regulation labour market fares better, in the medium to long-run, than the alternative. If wage rates are allowed to fall in a recession, rather than be held up via artificial means, then yes, you will get, as America did in the early 1920s for example, a sharp, but short contraction, followed by a rapid recovery. But if you load lots of rules and regulations on, you get a 1930s-style decade of high, double-digit unemployment. And in measuring the impact of labour market laws, the duration of a period of high unemployment is as bad as, if not worse, than a period of high, but short-lived, unemployment.
And let’s not forget that in France, for instance, the country had high unemployment rates for much of the 1990s and early ‘Noughties, when much of the Western economy was booming on the back of cheap commodities, the rise of the BRICs, the dotcom boom, the Cold War “dividend”, and impact of partial free market advances in the US, the UK and some other countries. And yet hundreds of thousands, even millions, of Frenchmen and women, let it not be forgotten, languished on the dole or make-work projects. In 2005, for example, French unemployment was above 10 per cent.
Here is quite a balanced account of the benefits of a supposedly flexible labour market, including the pros and cons. This extensive study comes down pretty firmly on the side of the view that flexible labour markets are good overall.
In a way, what this comes down to is the trade-off between security for those who have a job already versus the freedoms of those who want to get another one or any job at all. To pretend that things such as regulations and costs of firing people will not influence behaviour is to deny that incentives matter, or that they affect welfare.
“There is an almost universal assumption that the next government, of whatever stripe, will be imposing new taxes to avoid a junk-bond future. This easy option should not be allowed to run its course without challenge, because it ignores the risk of turning Britain into a junk economy of high taxes and low growth. It is no coincidence that the pressure to bring tax havens to heel has become intense over the past six months. So panicked were the finance ministers of the G20 nations about the risk of capital flight from the grabbing State that a campaign of bullying was launched against a small group of nations that refuse to accept that the State has the power to achieve absolute dominion over private wealth.”
Carl Mortished. He is writing about California, and the lessons of that indebted US state for the euro zone and Britain.
I love the headline on this piece in the Spectator by Matthew Lynn. I don’t think he is talking about our own Brian Micklethwait, but he could be.
Mr Lynn is talking about the risk, now rising, that the UK will have its sovereign debt ratings cut, a fact that means the UK government has to pay higher interest rates to investors wishing to hold UK gilts. I suspect the US could be headed for a similar fate.
Hopey-change!
Very smart article by Niall Ferguson on the lessons to be drawn from the financial crisis. As one would expect, many of the wrong lessons have been learned by policymakers. As he says, the 1970s was a period of relatively heavy financial regulation and state controls over part of the banking system, and yet it was a grim period economically (unless you happened to be an OPEC oil producer). He also picks up on the point that Canada, which operates a broadly free market banking system, has not suffered anything like so badly as its neighbour, or indeed the UK. That’s mightily inconvenient for our own Gordon Brown in claiming that the crisis was like swine flu or a meteorite impact from outer space, rather than something that was caused in many cases right on his doorstep.
Thomas E Woods – whom I mentioned the other day – hits back most satisfyingly at Matthew Yglesias. The latter had some sniffy thoughts about Mr Woods’ recent book on the financial crisis. For the sin of looking at the crisis through the perspective of Austrian economics, with its specific way of looking at the economic cycle and the role of banking, Mr Woods incurs a certain amount of sneering from Mr Yglesias.
Mr Woods gets the distinct impression that Yglesias has not read his book. I have no idea whether he has or not; but there does seem to be a recent pattern of leftists trashing the likes of FA Hayek, or whomever, in a way that suggests that they haven’t the faintest idea of what or who they are talking about. You can just picture the thought process that goes through Mr Yglesias’s mind: “Ah, these central Europeans with their funny names and their think tanks – who are they to question the great Keynes and his sensible ideas on demand management”.
But I detect a sign that perhaps, just perhaps, the Yglesiases of this world are losing some of their Olympian self-confidence. At a City event the other night, listening to people talking about the economy, I did not get the impression from all the associated financial types that the idea of using the printing press to cure problems caused by underpriced credit was regarded as very brilliant. In fact quite a few folk are mentioning inflation as the issue that could hit Real Soon Now.
Thomas E. Woods is great value. Check out his website.
The first 10% off public spending could be painless for the public and popular.
– John Redwood
I have not written about the subject of the Chrysler bailout so far since, not being close to the action in the US, I did not feel I had much to say that was not already voiced by the US blogs. But it does occur to me that there is a general problem right now in the way that the US administration – and arguably the UK one as well – has been acting in respect of bailouts of certain industries, such as carmakers as well as banks. What do I mean? Well, this report (H/T: Instapundit) suggests there is real fear about the “Nixonian” tactics employed by Mr Obama’s administration against bond-holders who have been angered by the expropriation of their capital via the Chrysler bailout.
For those who have not been following this story, bond-holders have been pushed to the back of the queue, as far as potential recovery of capital is concerned, with the auto union membership getting preferential treatment. Maybe Mr Obama figures that investors can be rained on right now because it is more important to get the votes and support of traditionally Democrat-leaning car workers. With mid-term Congressional elections a couple of years away, he will have his sly, Chicago machine-politics mind working out how to garner important support in the event that the US economy is still sluggish by that time. But pissing off investors – such as, let it be noted, pension funds – is not smart. The US requires large amounts of capital for any economic recovery that may take place. Ask yourself one of the most basic questions any investor should ask: can I get my money back if I need to? If the answer is no or only maybe, and if there is the threat of governments robbing investors, then less investment occurs. The problems of such behaviour explain why, for example, Africa has been such a bad investment bet for so many years.
It is an ugly business. Part of the trouble with the automakers is that even if they had been put into a Chapter 11 bankruptcy process, with the banks and bondholders put on a more even footing for any recovery of assets, there is still the issue of what to do about the enormous unfunded pension obligations that these heavy industrial companies have. It is the same with airlines and steel. I have heard it said of British Airways – to take a UK example – that is is a pension scheme that happens to have a lot of aircraft. The pension tail can wag the corporate dog. And that is a hideous issue to deal with against the background of an ageing population. So in fairness to US policymakers, running down Chrysler involves dealing with a lot of tricky contractual issues.
Even so, it strikes me that the Obama administration is showing a level of political ruthlessness and “bugger-the-investor” attitude that is hardly going to endear people towards investing in that economy. My fear is that Mr Obama is making the cynical calculation that memories will fade; after all, how many investors in the UK remember how the Blair government, in the form of the charmless Stephen Byers, the-then industry minister, shafted investors in Railtrack?
Like I said, an ugly business.
Regulars may have already come across this article, but if not, click on the link as this is a good item showing that the “Austrian” school of economics, in particular, did predict the credit crunch and the problems associated with it. It is just no good for folk to prattle that “no-one saw this coming” yadda yadda. (H/T: Adam Smith Institute Blog).
As an aside, the award-winning FT journalist, Gillian Tett, whom I once met many years ago, has a book out about making the argument that modern financial engineering has to bear much of the blame for the crisis. I have not seen many reviews of it – is it any good? My worry is that no analysis of the crunch makes sense if you ignore the broader issues of how financial systems become deranged in a world of fiat money in which central bankers start to believe in their own myths and where the rules create perverse incentives. Blaming derivatives for the crunch is a case of shooting the messenger, methinks. Even so, I’d be interested to see what Tett has to say. She holds a doctorate in anthropology, by the way, which gives her a bit of an insight into things like crowd behaviour – a very useful insight indeed.
One of the beauties of the blogs, I find, is that the link-rich medium enables you to fly off on all manner of tangents and think through issues that might otherwise not arise or come into one’s head so fast. The recent posting on Samizdata about Ayn Rand – which seemed to trigger a rather bad-tempered and long comment thread – led me to a site put together by this fellow, who wrote a rather rude comment about Rand – nothing very new there – and I decided to take a look at his own blog. This is what I found. James Hooper is a socialist who once, apparently, was a “teenage libertarian”. I guess one does not come across many libertarians who imbibed their Hayeks, Rands, or Rothbards and later decided that what the world really needed, in fact, was lots of collectivism, progressive taxes, and the rest of it. I suppose John Gray fits a similar path, although as Brian Micklethwait has noted, Gray is consistent in his pathological gloomsterism.
Anway, back to James Hooper. In his latest post, he writes this:
“Healthcare is an area where the market has proven utterly inadequate, indeed it’s hard to find any pure market approach outside of the Third World (company insurance is decided by CEO boards and unions, state insurance by governments), although I’d imagine that those who have died in America owing to lack of insurance didn’t rate the distinction that much.”
Now it seems to me that there is something very wrong about this statement. Human beings require health care, just as they require food. Now, in the West, food is – mostly – produced by the free market, although as a libertarian I’d be the first to note that there is a lot of regulatory control over food production (ask any farmer, slaughterhouse owner, food retailer, etc) and a lot of subsidies, such as under the EU’s Common Agricultural Policy. But by and large, the process by which we get our fruit, veg, meat and carbs is via capitalism. This seems to work tolerably well. It could work a heck of a lot better, of course, but in general, you don’t see people, even the very poor, starving in the streets as happened under communism in Russia (1930s) or Mao’s China (1950s, 60s), or see the sort of state-induced disasters in Zimbabwe, etc. So clearly, something as basic as food seems to work best when left to the market.
So what is so different about health care that it can only – according to various statists, including many right Tories – be provided by a mixture of private/public operations or even, only by state monopolies, such as the UK’s National Health Service? For sure, some people, such as the very poor, will not be able to afford all the healthcare they want, but then the same issue applies to very poor people who cannot get all the food or housing that they want. Their problem is poverty, not something peculiar about food or housing. I understand that healthcare purchases tend to be less frequent than purchases of food; there may be inefficiencies or supply-demand issues that perhaps don’t let a market in health care function as well as in say, baked beans. But even so, for a person to state as a bald fact that a market in health care does not work seems, well, to be a case of ideology trumping experience and elementary logic. This article by Ronald Bailey lays out a good argument for a free market in health.
Of course, if, like Marx, Mr Hooper believes that a socialist society will be based on the “From each according to his abilities, to each according to his needs”, then that of course begs all kind of momentous questions of interest to defenders of liberty and prosperity. As I have pointed out before, if you say, for example, that I have a “right” to “free” healthcare, what that really means, in practice, is that I have a right to coerce someone who is able to work as a doctor/nurse/lab technician to give me what I want. In short, the Marxian “from each according to his abilities” presumably means that the state must have the power to decide what are the “abilities” that Johnathan Pearce, or James Hooper, etc, actually have, and then have the power to harness those abilities to fullfill the needs, as the state has defined them. In short, the Marxian formulation requires conscription of abilities.
There is a word for this state of affairs. It is called totalitarianism.
Mike Oliver (who blogs as ‘Mr. Integrity’… currently off-line) spotted an interesting article over on National Review that for once does not try to give Rand a kicking.
BB&T – and its open defence of rational/individualist/objectivist philosophy, a credo that runs counter to 2000 years of Judea/Christian/subjectivist/marxist ethics and deeper subjectivist planks that link those categories. Explicit defense of reason – I say!
Yes, such businessmen do exist, they are not merely the stuff of a well-known novel. As opposed to at least a large plurality of “business leaders” who seek always to cultivate government/business linkages, contracts, and of course regulations that “rationalize” their sectors (with such government rules used to ossify the industry with them – the privileged businessmen- commanding a degree of non-market control over that business sector). In history classes the U.S. trends now massively underway was how Fascism was defined.
But modern lovers of the State seem to have conveniently blanked that out. Anyway BB&T stands out from the crowd. What is most curious on a meta-level about this online article is that it comes from NationalReviewOnline.
National Review has been and until now at least was always the most outspoken and spewing opponent of Rand & Objectivism. Denouncing Rand’s rational philosophical base. NR has always been at its core, and explicity so – Buckley’s first book was titled God and Man at Yale) a subjectivist, religiously-planked political credo, arguing that God and a belief therein is the basis of capitalism and individual rights, etc. No wonder over the decades so many young potentially-bright students have mistakenly linked (as their professors would have them do) capitalism, or such that we have had in the U.S. that is labeled “capitalism.” with a religous or non-rational philosophical base.
Many of those students, not realizing the subjectivist, A-is-not-A base of Marxism, therefore sized-up the two choices – of an ethical code based on mysticism (the Buckley-type defence of “capitalism”… or Marxism… which to so many seemed a “scientific” or otherwise rational view of the world. And tended to opt for the later – either Marxism or many of its falsely-“humanist” variants.
Anyway, National Review was on the side of mysticism and held that banner high while viciously attacking Rand and her atheism – almost foaming in their attacks over the years. Well, perhaps even that changes with new blood at National Review? No, it’s probably just the failure of one of their higher editors to notice that one of their writers slipped this article onto their online site. Well, in any case it is an interesting article about the current times and the role of ideas: ideas taken from reality then applied back to issues of dealing with reality.
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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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