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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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.
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).
A great article on why the opposition Tories need to have the cojones to take on the flat-earth economics of confiscatory tax.
“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 Economist.
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.
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.
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”.
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.
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.
I am not terribly convinced by this:
“…after decades and decades of instability in the 1800s and early 1900s, followed by the massive bank failures of the early 1930s, regulations were imposed to stabilize the banking system. The result was sixty years of calm in the financial sector. That’s hardly a failure of regulation. It wasn’t until the shadow banking system began growing outside of the regulatory umbrella that problems began to re-emerge. A central theme of the posts this week has been that bringing about another decades long period of relative stability will require the regulatory umbrella to be extended to cover all firms within both the traditional and non-traditional (or shadow) banking system, hedge funds included.”
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.
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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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