Thomas E. Woods, who has a good book out about the recent financial turmoil and the bone-headed reactions to it, has this excellent piece on the sort of nonsense written about the supposed villains of this story. As he notes, when a leftist author cannot even be arsed to spell FA Hayek’s name properly, you tend to suspect the author has never read the person he is attacking. Or maybe they think Salma Hayek is an economist. (Great excuse for a gratuitous link, Ed).
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A great article on why the opposition Tories need to have the cojones to take on the flat-earth economics of confiscatory tax. April 30th, 2009 | 9 comments - (Comments are closed)
 “As bad as things are at the moment, it seems a mite premature to write off policies in the 1980s as an abject failure. We have not lost 30 years of wealth, and living standards have increased for billions of people since the 1980s. Income inequality has increased, and that can be undesirable, but the welfare of many low-income people has dramatically improved.” The 1980s were only an “abject failure” in the eyes of those whose political ideas never developed beyond a sort of bastardised Marxism. They were not a failure for those who enjoyed, say, the ability to get a phoneline installed in 24 hours rather than six months, or not be forced to join a trade union, or no longer pay cripplingly high taxes, or be banned from taking more than a paltry sum of money abroad on holiday. The 1980s were a good decade in my view across a number of fronts with two main, glaring exceptions here in Britain: the-then Thatcher government did not truly uproot the Welfare State and the “enemy class” that ran it, and she did preside over what was later to become a relentless assault on the checks and balances of the English Common Law. But generally speaking, that decade goes down in my book as a good one. Talking of Mrs T, it is now 30 years since she came to power. April 29th, 2009 | 12 comments - (Comments are closed)
There is an interesting feature article over at Reuters about how, as a result of the financial crisis and the rigid labour market laws of much of the continent, millions of young Europeans leaving school and college face a bleak future over the next few years. Even during the relatively prosperous period of the Nineties and much of the ‘Noughties, youth unemployment in nations such as France was shockingly high, sometimes into double figures. Europe’s failure to create a large number of private sector jobs remains one of the most damning facts about the continent’s economic record over the past quarter of a century. April 27th, 2009 | 15 comments - (Comments are closed)
One of the few financial journalists who rumbled Gordon Brown years ago, Allister Heath, gives his verdict on yesterday’s UK budget. Devastating detail all the way through. Allister is also pretty scathing about UK Liberal-Democrat economics spokesman, Vincent Cable, who tends to be deferred to as the “politician who talks sense on the economy”. April 23rd, 2009 | 3 comments - (Comments are closed)
There is no doubt that – apart from some smart writers like Liam Halligan – not many people in the financial journalist profession saw the current crisis coming or predicted its full extent. Clive Davis, over at his blog, makes that point by linking to an article that goes into what is rather mysteriously called the “shadow banking” sector: ie, any institution that gets involved in trading in or holding credit, such as hedge fund. I wrote about misconceptions surrounding this issue the other day. So why were financial journalists or many economists unaware of the gathering storms? Well, assuming that they were oblivious, my explanations are as follows. I’d be interested in the comments. Here goes: First, over-specialisation in the economics profession. One of the great benefits to me in discovering those Austrian economists such as Ludwig von Mises and writers like Henry Hazlitt all those years ago as a callow youth was that it reintroduced me to the days when “political economy”, as it was known in the 19th Century, was not hung up on mathematical models or big, wooly macro-economic systems, but addressed the incentives, laws, and actions of man. I had the benefit of getting a good grounding in microeconomics, in understanding an economy as a dynamic process that changes through time, not a set of artificial “games” with nonsense such as models of “perfect competition”. Second, I think that for many journalists who did learn economics, the sort of ideas that have given me and other classical liberals/libertarians some insight into the gathering storms are simply not on their intellectual radar, or if they are, they are led to believe that people with surnames such as Hayek, or von Mises, or Friedman, are somehow eccentric, even malevolent creatures. Most of them have either read their JK Galbraiths, or their Krugmans, and get their views from the still-powerful tradition of Keynesian economics. The idea that fiat, state-monopoly money and Big Government – the two are related issues – lie at the core of the issue just does not apply to a group of folk who generally tilt left in their politics (although this is far less the case than in other parts of journalism, in my experience). Also, as a result of overspecialisation, a journalist who writes about, say, the government bond market may not always join the dots when it comes to information coming out in a different area of the economy. There is also the fact that as sectoral journalists covering their beats such as energy, retail, telecoms, etc, get involved in the day-to-day job of covering these things, that the broader trends get obscured because of the sheer volume of stuff that journalists deal with. Given how financial journalism has developed as a profession in the last two decades – I have some insight into this via my day job – I am not too sure how to deal with this. Part of the trouble may even be what I might call the “showbiz” trend in financial journalism: reporters at channels such as CNBC often talk about the market in a sort of sports-coverage way: who’s up, who’s down, etc. There are reporters – the FT’s Gillian Tett springs to mind – who have been very good at trying to keep on top of how the credit markets have evolved and some of the risks associated with that. And there are commentators and investors such as Jim Rogers, for instance, who have been pretty astute at seeing the disaster and warning about it. But a lot of people, as Clive Davis says, have not been aware of the magnitude of what has hit us. Maybe, however, Mr Davis has to remember the flip-side of this coin: we may now be blind to the chances of a pretty rapid recovery, at least in some parts of the world. April 23rd, 2009 | 14 comments - (Comments are closed)
The title of this article written some months ago by noted US economist, Arthur Laffer, has never been more apt after I finished reading through the UK government’s latest outrage, its annual budget statement. A new, top rate of income tax of 50 per cent comes in from next year, applying to annual incomes of £150,000 and above. The government, which probably knows it is doomed anyway, has made the base calculation that the Tories won’t dare to repeal it. I actually am not too sure about that: while £150,000 a year is a lot of money, for many self-employed folk with lumpy income streams, such a new tax band will hit them very hard in marginal terms, encourage further emigration from the UK, deter anyone with any entrepreneurial brio from entering the UK, and probably reduce, not raise, revenues. It is also a boon to the tax-planning and accountancy profession, since anyone who can restructure their affairs to convert income into a capital gain – CGT is just 18 per cent in the UK – will do so. Update: I share Guido’s reaction. No wonder, by the way, that the G20 nations – hypocritically – chose to attack “tax havens” and create a global tax cartel. If you are someone like Gordon Brown or The Community Organiser, the last thing you need is for your high earners to escape abroad. But I’d be willing to bet that there will be quite a rush now of people out of this country. Expect to read lots of stories about how “Mr X, who runs a small business in the Midlands, said he was heading off to Australia/Canada/wherever to get away from high-tax, high-crime Britain”. Expect there to be a relentless, drip-drip of such stories in the months ahead. (Mr Jennings snorts about my mention of Australia: yes but at least there are other benefits to moving there). Update: Madsen Pirie of the Adam Smith Institute and some top wealth management folk give the budget a thorough hammering over at CNBC. The guy from Denton Wilde Sapte is particularly good. April 22nd, 2009 | 27 comments - (Comments are closed)
I am not terribly convinced by this:
That does rather ignore the fact that, in the early 1970s – in the period of “calm” that this writer talks about, we had stagflation, the collapse of the Bretton Woods banking system, etc. Hardly very calm. And if the system was calm, as claimed, how come it collapsed? (Hint: it was not the fault of evil private bankers or tax havens). In the absence of a return to sound money and an end to fiat monetary systems, there may be something to be said for rules to at least limit some of the damage that monetary mistakes can cause. This is a second-best solution, I would say. I have heard it argued, even by some pretty ardent free market types, that there is a case for splitting the roles of risk-taking investment banks from those of more utility-like retail banks, as under the old US Glass-Stegall rules in the US. But had Glass-Stegall been in force today – it was abolished in the late 1990s – it would not have been possible for investment firms such as Morgan Stanley and Goldman Sachs to remodel their businesses as full-service banks, as happened in the autumn of last year when those firms were partly bailed out by the taxpayer. The ironies abound. On this issue of the “shadow banking” system, the author and others need to understand how the business of securitising debt and selling it off to investors started, as well as why hedge funds and other non-bank institutions developed. This market, and the fiendishly complex derivative products that drove it, was given much of its early impetus by a banking regulation system, known as the Basel system, that told banks they had to set aside a certain portion of capital to one side to protect against risk. It was, if you like, a partial acceptance that fractional reserve banking, if it is allowed without any “safeguards”, is dangerous. But what happened? Banks took out tradable insurance policies, such as credit default swaps, and used this insurance to get a better credit rating, and hence, reduce the amount of capital they set aside. The “shadow” banking system, then, and the derivatives market that gets so much heat, was partly driven by regulations, as well as by the application of sophisticated – if flawed – mathematical and scientific techniques to the business of finance. The article does at least, in a backhanded sort of way, recognise that not everyone is signed up to the narrative that “unregulated capitalism” has failed. I am glad that has been noted. After all, it is a myth that supporters of capitalism, such as yours truly, oppose regulations per se: what I oppose is state-imposed, one-size-fits-all regulations. For example, if a privately run stock market wants to create its own listing rules to build and develop a reputation for high standards, it will be in its self interest to do so, since a track record for honesty, transparency and efficiency reduces the costs of capital because investors are more willing to hold equities traded in honest places rather than dodgy ones, and so on. If the state has a role, it is that of going after thieves and fraudsters. And as we have seen in the case of US Ponzi scheme conman Bernard Madoff, the powerful US Securities & Exchange Commission did not act, despite certain suspicions about him, for years. By focusing on the basics, rather than trying to regulate everything under the sun, the state might even do some good. April 21st, 2009 | 13 comments - (Comments are closed)
Via this website is a list of the ten most annoying taxes. I am not sure if I agree with the rankings, but still. The website does seem to have many attractive features (absolutely! Ed). April 14th, 2009 | 23 comments - (Comments are closed)
One issue that does not appear to have provoked a lot of discussion, at least not yet, is how the government bailouts and encouragement of mega mergers between struggling banks has created a banking industry that is, if not monopolistic in its structure, then pretty damn close to so being. Now – as I once argued four years ago (gulp!) – the fact that a firm such as a computer software house or bank is big is not, by itself, harmful. One should not confuse bigness with control over the consumer. A lot of anti-trust laws – which I believe often create more harm than they supposedly solve – are based on the mistaken idea that a firm’s being big is somehow proof of malign intent and that bigness, is, ipso facto, harmful. Well it all depends how the firm got to be big in the first place, and whether it retains its market size by continuing to offer good products that people want. For a firm to stay big at a time when barriers to entry in certain fields are being slashed by new technologies such as the internet, confusing bigness with lack of competition is a serious mistake. Now turning to the banks, it is clear that the mergers between the likes of UK’s Lloyds and HBOS, or Bank of America and Merrill, or Wells Fargo and Wachovia, have produced a number of large banking groups with the state acting very much as the encourager of such mergers, rather than, as might have been in the case when anti-trust lawyers were on the prowl, hostile to them or at the very least, skeptical. As free marketeers like to point out, monopolies that are supported by state powers and privileges are harmful, while those that arise out of a dynamic market process tend not to be, since state-backed monopolies are the least likely to fall prey to new, nimbler competitors. Without state support, even supposedly invincible big firms, such as IBM, Ford or for that matter, Microsoft, can find their market share eroded by a newcomer. One of the reasons why I actually favour free banking and competition in money is that it might create more banks and give the established banking sector a much-needed dose of competitive pressure. I am pleased to see that the likes of Tesco’s, the supermarket chain, is getting into banking. That is good news for the consumer, hopefully, although the haters of Big Retail might complain. In the UK, for example, Lloyds Group, after its acquisition of HBOS, controls almost 45 per cent of the UK mortgage market. Any new entrants that can put that behemoth under pressure are to be welcomed. April 7th, 2009 | 54 comments - (Comments are closed)
I am not suggesting by any means that the gold standard was perfect, but if we judge it by its record, it achieved much better price stability than the disastrous inconvertible paper money standard that replaced it. Unfortunately, in the twentieth century the gold standard came to be seen as a pointless constraint against the issue – or, rather, over-issue – of currency. Economists argued that the Bank of England should be free to issue whatever amount of currency it (or its political masters) wanted. The old idea that the gold standard imposed a useful discipline against the over-issue of currency was discarded as out of date. Keynes famously told us that the gold standard was a relic of a barbarous age, and reassured us that modern governments were much too sophisticated to debase the currency. Modern governments were not like impecunious Roman emperors or medieval kings. The results were catastrophic, but Keynes was right about one thing. Modern governments were not like Roman emperors or medieval kings: they were much worse, and produced much greater inflation rates than their predecessors ever managed to achieve. There is a limit to how much inflation you can create by clipping the edges of your coins and putting them back into circulation, but the sky’s the limit when you can just speed up the printing press or add additional zeroes to your notes. – a characteristically forthright moment from Kevin Dowd’s Chris Tame Memorial Lecture entitled Lessons from the Financial Crisis: A Libertarian Perspective, delivered on March 17th, already reported on here by Johnathan Pearce, now published by the Libertarian Alliance as Economic Notes No. 111, printable out as a .pdf but (more to the point for bloggers) copiable and pastable as an .html April 5th, 2009 | 40 comments - (Comments are closed)
The political atmosphere in Britain is rather peculiar just now. One of the more interesting things to ask of public opinion at any particular moment is: Who exactly does public opinion think are the people who are most blatantly and most undervedly robbing us. It was a decisive fact about the 1979 general election that public opinon’s answer then was: The Unions. It was a decisive fact about the next big electoral upheaval, in 1997, that public opinion’s answer then was: the Conservative Party. Now, public opinion seems to be arriving at another answer to the who-are-the-biggest-plunderers? question. It seems to be deciding that the answer now is: Members of Paliament of all parties. If this opinion solidifies in time for the next general election, it will be very interesting to see what it does to the Conservative vote in particular. What if all the major parties do worse? Since they have all done so badly, this would make sense, I think. But surely the plunderings now being contrived and the further plunderings being attempted by the people who are politically well above the average MP in the plunder pecking order make the petty pilferings of our Members of Parliament look very petty indeed. Has any MP put in a claim for even so much as one billion pounds, to pay for a second West Indian island? If so, I missed the news. It’s almost as if the powers that be want the mere MPs to take all the blame for everything. It’s all a dastardly establishment plot, orchestrated by evil pseudo-libertarian Guido Fawkes! Of course, it could just be that regular people can get a handle on the fraudulent expenses claims of MPs, because these are the kinds of amounts they deal with themselves, and sometimes even pilfer themselves with morally questionable expenses claims of their own. On the other hand, the sums of money being slung at dodgy banks and political-donation-wielding bankers, and now being further unleashed by “monetary easing”, well, these are just way beyond all normal experience. Pile up all those bank notes and they reach far off into the Solar System, or deep into our own galaxy, or the next, or to some such unimaginable never-land. (Thus also does a council planning committee debate a patio extension for an hour and a half, before letting an oil refinery through without further discussion, that being another insight, to add to this one, that we owe to Professor C. Northcote Parkinson.) Speaking of the really serious plunderings that are now being perpetrated, by those at the Obama/Brown level of operations, the other odd thing I have been reading lately, this time said by commentators like Peter Oborne and Fraser Nelson, is that Mr Brown is bad, because he is not stealing as much money as he is pretending to steal, in order to “stimulate” (the new word for wreck) the world economy. Oh Mr Brown claims to be stealing a thousand gazillion pounds! He would, wouldn’t he? But in fact it’s only a hundred gazillion pounds, because he has counted most of the gazillions in question twice or even three or four times. Most of the gazillions he is now promising to steal anew have either been stolen already or won’t be stolen at all. Bad Mr Brown! But surely this is a case where words on their own are greatly to be preferred to words followed by or accompanied by actions. Our best hope now is that, when Obama and Brown and the rest of them promise that they are now taking decisive, radical and above all very big and very expensive actions of various kinds to save the world, they are lying. Heaven help us all if they are telling the truth. April 5th, 2009 | 12 comments - (Comments are closed)
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