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.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Once every month until I get sick of it, I intend to remind anyone whose attention I can get of this…
PARTS of the United Kingdom have become so heavily dependent on government spending that the private sector is generating less than a third of the regional economy, a new analysis has found.
The study of “Soviet Britain” has found the government’s share of output and expenditure has now surged to more than 60% in some areas of England and over 70% elsewhere…
The state now looms far larger in many parts of Britain than it did in former Soviet satellite states such as Hungary and Slovakia as they emerged from communism in the 1990s, when state spending accounted for about 60% of their economies.
It was the redoubtable Thaddeus Tremayne who first mentioned this back on January 25th of this year in an article called ‘Narrative narcosis’.
So next time some purblind fool tells you that our economic woes have been caused by ‘capitalism’ rather than ‘regulatory statism’ and ‘big government’, make a print out of that Times article on good high quality paper, roll it up tightly, and shove it very forcefully wherever your imagination and their complacency will allow.
Are you optimistic about the future? Several months ago I was not, but I am now. From what I can see, governments are walking down the path of their complete moral and financial bankruptcy far more quickly than I ever imagined they would. I thought that it would take our overmighty governments several slow, demoralising decades of decline and eventual collapse to completely discredit their authority and control in the eyes of the people. However, our governments appear to be going supernova right now and I suspect they will burn themselves out over a few painful and tumultuous years – destroying a great deal of wealth in the process, no doubt. However, as worrying as that prospect is, it was always going to be that way. And in spite of that, I feel particularly upbeat about the longer term future. Those who know nothing more (and expect nothing less) than widespread government authority and control over all aspects of our lives will have their imbecile – sorry, umbilical – cords to the State cut sooner than expected, thanks to the overwhelmingly reckless (but entirely predictable) government response to the current financial crisis. I really do believe that future historians will pinpoint this crisis as marking the beginning of the end of the big-government era.
Do you agree?
Government is an institution that has evolved along with we humans as our best means of applying violence. When you want to break things and kill people, there is no better institution for the job. The problem comes when we attempt to use it for other purposes. Its true skills will out even when the goal is entirely different, as with the current attempts of States to ‘help’ the economy.
What I see happening in the US and UK and other places with maximally ‘helpful’ governments is much like what happens when you accidentally spill Nitric Acid on the rug. It steams, bubbles, gets hots and makes a bit of sound and for a short while it appears that ‘something is happening’. Then the smoke clears and you see that it has ruined your rug.
Government ‘help’ is like that.
Following on from this, is another theme that came out of that seminar with media/City luminaries I went to the other day. One point that Anthony Hilton mentioned was the “global imbalance” issue. This is all about how the West, which is in net terms, up to its eyes in debt, has been living high on the hog thanks to oodles of surplus savings generated by countries such as China and Japan. In looking to figure out how to play the “global financial crisis blame game”, one argument goes like this: China, with its cheap exports, kept cheap by its artificially low and fixed exchange rate, earned huge amounts of money by selling this stuff to the West; in turn, the Chinese needed to reinvest the proceeds – there would be no point earning money you cannot spend – and they reinvested those proceeds in things like US government securities. As a result, long-term bond yields in the US fell, which enabled Mr and Mrs Westerner to renegotiate their long-term mortgages, release equity from their homes, and spend even more of their inflated wealth on – yes you guessed it – Chinese consumer goods. Result: a whacking great housing and consumer spending boom that inevitably crashed.
This argument sounds quite convincing. If it is true, then it also suggests that, contrary to what some of the critics of the Fed or other central banks might say, that there is not much that someone like Alan Greenspan could have actually done to curb domestic US monetary growth if there were such enormous inflows of hot money coming into the country’s debt markets from abroad. Well up to a point, Lord Copper. Much depends, I think, on what proportion of monetary growth in the West was driven by Asian inflows, and what was basically driven by domestic factors. I haven’t seen a lot of commentary on this.
If you buy the “Asian connection” argument, a problem, it seems to me, is that it would not have been realistic, for various reasons, for the US to have tried to curb these supposedly dangerous inflows of Asian money by protectionist measures such as capital controls or exchange controls. If one believes that capital and trade flows are good things, then imposing such controls would and could cause more damage than it solved. Exposure to capital flows has, in many ways, driven beneficial economic change.
But the argument about Asian money does suggest that had the Fed, etc, raised rates to curb inflationary pressures, all that would have achieved would have been to suck in even more Asian money from investors seeking a higher yield. But presumably, with higher rates, it would have curbed, and did eventually curb, US consumer spending, and hence dent the demand for Chinese and other non-US goods. China is now starting to feel the effects of the global slowdown rather sharply.
Even so, the “global imbalance” argument highlights the fact that in a world of fiat money without capital controls, it is now very hard for state central banks, even those with powers as wide as the Fed or the European Central Bank, to set interest rates effectively. Of course, the idea of a central bank setting rates for a complex economy is itself a version of state central planning. Globalisation has exposed its limitations.
One of the things I really want to ask Kevin Dowd at his Libertarian Alliance Chris R. Tame memorial lecture next week is how this sort of issue can be addressed. The “Asian dimension” to our current predicament could be the proverbial big gorilla in the living room. Or maybe it is just a small and rather distracting rodent.
Brian Micklethwait, over at his personal blog, links to a sentiment that states that it is wrong to blame the private sector banks for the current problems, given that the underlying cause of the credit/property bubble was cheap credit as supplied, ultimately, by central banks. Central banks are not creatures of the free market and would not exist in a world of pure laissez faire. So obvious to us, it hardly needs to be said. But outside our little intellectual bailiwick, you’d be be surprised – or perhaps not – to realise that saying such things still gets you a funny look.
As purely personal evidence, let me cite an experience last evening. I went along to a financial seminar in London’s Bloomsbury district, where various folk, including Anthony Hilton of the London Evening Standard and Angela Knight of the British Bankers’ Association were holding forth. Q&A ensued. Yours truly asked a question about what the panelists thought was the role of central banks and governments in causing the current SNAFU. You could almost smell the palpable relief on Knight’s behalf that she had heard someone not try to pin the blame entirely on private banks. My god, she thought, here’s a guy who has not bought the statist line that what is happening was caused by big, evil private banks. I have to say I found her answer on how the central banks mucked up was quite convincing although she by no means accepts the idea that the existence of central banks as such is a problem. As a lobbyist for the existing fractional reserve banking industry, she is certainly no Ludwig von Mises, but still.
I sense that some of the banking industry’s more independent-minded figures are getting really angry at being pilloried for sins outside of their control. The banking industry, however, cannot win any battle for hearts and minds until they are absolutely transparent about their own financial affairs, and until some of the leaders of the banking industry begin to embrace genuine free banking rather than the quasi-statist mess that we have now. Let’s face it, given the reputation of banks at the moment, what do they have to lose? The current option – hope for the best and take taxpayer’s money – is not proving to be very successful.
Life for me is hectic right now – for all the right reasons – but I wanted to quickly put up this link to an excellent commentary by Dan Mitchell of the Cato Institute, concerning the current US government’s drive against offshore tax havens, especially Switzerland. Governments such as that of the spendthrift US, UK and France are getting desperate for cash, and low-tax regimes which respect client confidentiality make for an easy target.
I can also recommend Dan’s recent book, co-authored with Chris Edwards, as a fine study of the whole case for tax havens and why they are a thoroughly good thing. Whenever you read someone arguing for ending “unfair tax competition”, what they really in fact want is to create a cartel. Most cartels, if not backed by states, tend to disintegrate in time, but are generally thought of as bad. Tax cartels are a prime example of cartels of the worst kind.
In an article in its present edition “In Knots Over Nationalization” (page 14) the Economist magazine writes the following about the many trillions of Dollars that President Barack Obama has pledged to spend over and above the wild spending of the hopeless incompetant President George Walker Bush.
…an honest attempt to put the recent stimulus in the context of a plausibly responsible medium term fiscal path
Of course the antics of President Obama are not “responsible” at all. If this increase in government spending, not just over this year but over the following years, is “responsible” what would the Economist consider “irresponsible”?
Of course there are other articles in the Economist in which the details of President Obama’s tax and spend policies come in for criticism – but the position of general support for his Administration, in line with the endorsement of then candidate Obama last year, would seem to be incomprehensbile for a publication that claims to be a supporter of free market “capitalism”.
However, the position of the Economist is not incomprehensible at all – but to understand their articles one must understand some other things first…
If I thought that it was a good idea for more money to be lent out than existed in real savings, i.e. all the complex things that are very loosely called “fractional reserve banking”, how would I defend the practice?
Actually I do not it is a good idea, I think that all borrowing should be one hundred per cent from income that people have chosen not to consume (real savings), but let us say I did. I would defend the expansion of credit in something like the following way… → Continue reading: What could President Barack Obama do that ‘The Economist’ would consider “irresponsible”?
How to stop this bail-out madness? I think I have an idea that might help.
One of the most valuable things that the internet can do is state ideas of the sort that you definitely do want said, but which it would probably not be wise for heads of state or front bench politicians to be saying for definite, for fear of it all getting out of hand.
One of the most important memes that the internet has circulated during the last decade has been the extermination option, when it comes to Islam. Extermination of all muslims. Not now, you understand. Just if there continue to be serious muslim-perpetrated terrorist incidents (and especially if there are some much more serious muslim-perpetrated terrorist incidents), and if muslims continue to equivocate about whether they support them, and seriously try to conquer the world with a kind of good-muslim-bad-muslim routine. Which in a lesser way is what they are doing anyway, just not on a scale and with a degree of nastiness that elbows all other problems to one side. But, if you guys crank up the nastiness the way you say you want to and that we deserve, said certain voices on the internet, including certain voices commenting here on postings soon after 9/11 (including my voice), and you’ll get the exact war of Us against You that you are spoiling for, and guess what, we’ll fucking wipe you off the face of the earth. See: Dresden. Don’t make us angry. You really wouldn’t like that.
This is not the kind of thing you want Presidents and Prime Ministers to be saying, until such time as things like that actually have to be done. But I sincerely believe that having some people saying things like this, as and when the need arises (therefore including me), is a force for peace and harmony in the world. Seriously. I think the fact that the internet said this stuff to muslims – did a good-infidel-bad-infidel act right back at them – meant that since 9/11 most of the terrorist crap has been strictly amateur. The heavy hitting muslims have confined themselves to propaganda. Good. We can win that one. Certainly we can argue and low-level-fight them to a stand-still. Not everyone on our side believes that, I know, but I do.
One of the biggest reasons why major conflicts (and major catastrophes generally) happen is because the participants don’t realise, until it is too late, what they are letting themselves in for.
This was one of the major causes of World War 1. They just didn’t realise what horrors they would soon find themselves doing to one another, or (in that case) for how long the horrors would last. Maybe if they’d had the internet in those days, the few people who did realise might have been heard, and that might have caused the contestants to hold back.
These apocalyptic recollections have been prompted by the realisation that there is now another extreme meme which the internet now needs to circulate. I refer to the government default option.
It needs to be said that under certain circumstances easily now imaginable, many Western citizens would argue, strongly and vocally, that those idiot foreigners who are now lending money to Western governments should in due course be told: sorry sunshine, you ain’t ever going to get it back. Our governments are bankrupt. Why the hell should we and our descendants in perpetuity be paying tribute to you? You knew that the money to pay you back would have to be stolen from us. You assumed we’d just cough up indefinitely. Well, we damn well won’t. You are now a definite part of our problem, and telling you to take a hike is going to be part of our solution. Our thieving class is now “borrowing” money from your thieving class like there is no tomorrow, and we are not responsible for the actions of either gang. A plague on both your houses.
We want you foreign thieves to stop lending to our thieves, now. And the best way for us to convince you that you should indeed stop lending, is to tell you that you are extremely liable never to see most of your money back.
Which has the added virtue of probably, approximately, being true, already.
The usual way such threats are phrased is to talk only, and very vaguely, about how “nobody wants” and “nobody is recommending” the extreme scenario in question. It’s all just too too frightful to think about with any clarity or seriousness. Well, I think that the internet should now aggregate all the voices of those who, like me, think that under certain thoroughly imaginable circumstances the default option would not only be highly likely to go into effect, but also highly desirable. We would support default, argue for default, now.
Just circulating this meme in an angry whisper (i.e. in postings in and comments on blogs) will raise the interest rate, a bit, for our thieves, as they frantically mortgage the future tax revenues that they still think they are going to get from us. And that’s good, because it will bring the current craziness to an end that little bit sooner.
Reuters, last month:
LONDON, Jan 26 – British Prime Minister Gordon Brown warned on Monday against a retreat into financial protectionism as the global economic downturn gathers pace.
With sterling near record lows against the yen and 23-year lows against the dollar, Brown also reiterated that his government policy was not built around currency exchange rates.
“We have not yet seen the same protectionism in trade with beggar-thy-neighbour policies of the ’30s,” he told reporters, referring to the Great Depression. “And I will fight hard to ensure we do not. But we also need to ensure we do not exercise a new form of financial mercantilism of retreat into domestic lending and domestic financial markets.
Reuters, this month, from Berlin:
BERLIN, Feb 22 – European leaders meeting in Berlin on Sunday have backed oversight of all financial markets and products, including hedge funds, and urged that sanctions be drawn up to punish tax havens, according to a final statement seen by Reuters.
Where was Gordon? Apparently he was there. Perhaps he has changed his mind about financial mercantilism in the meantime.
TARP – Troubled Assets Relief Program – is not an acronym that has yet made its way across the Atlantic in a big way. But it surely won’t be long coming because yesterday it reached me, in the form of an email from Michael Jennings, containing this, which is a pictorial explanation of what it means. Apparently, some of MJ’s Aussie stockbroker mates have been circulating this amongst themselves. A few seconds of googling also got me to a TARP song.
Obviously sanity is losing all the policy battles at the moment, big time, but at least sanity is speaking – and singing – out, and may yet win the ideological war. As I said in a comment on a recent Johnathan Pearce posting here, this bodes well for our great grandchildren, if not for our children.
I see that the former BBC presenter of a programme about gardens and gardening, Monty Don, has recently argued that we should aim to be self-sufficient in food. The trouble with such calls for self-sufficiency is that the unit in which such activity should occur is not spelled out. Does Mr Don think trade should be confined to within Britain, or within a region of it, or a village? Has this character no idea of how starvation frequently accompanied those societies cut off from the benefits of trade? Has he no notion of the benefits of trade, division of labour, regional specialisation, etc?
Of course I have nothing against owners of land looking to grow their own food if they want – how could I? But of course I doubt that Mr Don or other self-sufficiency types want to adopt such a grass-roots policy, to excuse the pun. I grow most of my own herbs, for instance. People have at times brewed their own beer to avoid the insipid stuff on sale in the shops, and as a result, this encouraged the “micro-brewery” movement in the US and elsewhere. But that is an example of enterprise at its best. The trouble with Mr Don, I suspect, is that his approach tends to be accompanied by calls to restrict imports, and the like. I remember once watching a programme in which Mr Don went to Cuba, and presented a remarkably uncritical, almost fawning eulogy to the wonders of Cuban home-grown food. He is quoted gushingly by some Cuban website here. Ugh.
Talking of bad ideas, it does appear that Naomi Klein’s argument that crises provide fok with an “excuse” to “impose” free markets seems to have been rather turned over. In fact, the current crisis seems to have provided politicians and their media supporters with a great excuse to bash free markets, trade and entrepreneurship. It may be that eventually, of course, the disastrous consequences of interventionism will cause a reaction back towards free markets, in which case Klein will be correct, but not in a way she realises.
David Boaz has a good article on this issue.
Pure genius this is…
Barney Frank, the Democratic chairman of the House Finance Committee, said Mr Geithner should not to repeat the mistakes of his predecessor Hank Paulson, who “lost sight of the rest of the country and pissed them off entirely,” with his initial bank bailout.
Frank warned the Treasury Secretary that voters want to see fewer foreclosures and more bank lending to ordinary consumers before they support the rest of the financial rescue plan. “They understand the political need,” Mr Frank said.
The plan will help distressed homeowners get modified loans, subsidising lenders who cut interest rates. Mr Frank said the plan would aim ensure that such householders need pay no more than 31 per cent of their income on their mortgage.
Voters want to see fewer foreclosures and more bank lending to ordinary consumers. No doubt they do. I assume they also want more sex, better cars, more holidays and yet another Rocky movie to be made. Or maybe a Caddyshack remake.
So the political and financial elites decided that if more and more people could be made home owners, that would benefit both sections of said elite, or as I like to call them collectively, the Political Looter Class… tax money and government guarantees (which are not cost free) and, when necessary, actual threats to financial institutions that were reluctant to loan money to people who might well not ever pay it back, pushed the number of homeowners ever higher as ever more money was borrowed by John Q. Public and invested in mortgages. The political looter class was happy and so were the millions upon millions of people who voted for them again and again and again.
And of course why should everyone not be happy? A loan is a bank asset, right? And banks with more assets can lend more money, and that means even more people, voting people, can buy houses.
Well yes loans are a bank’s ‘assets’… but only if there is a realistic chance of that loan ever being paid off, otherwise it is in fact a liability (or more accurately, a loss, although through the mystical political arts it does not actually get called that as often as it logically should when the ‘loss’ is incurred by a member of a voting block the likes of Barney Frank, or for that matter, George Bush, wish to pander to). I only state this obvious fact because it does not seem obvious to the political section of the looter class. It was of course always obvious to the financial sector of the looter class, which is why all those ‘assets’ (which were actually liabilities) were wrapped up in complex financial packages and splendidly ‘securitized’ with the open connivance, indeed encouragement, of the political elite… and whilst there is absolutely nothing wrong with securitization per se, it ain’t quite so splendid when it is being used to spread what we now call ‘toxic debt’ throughout the entire financial system, making it enormously harder and often impossible to assess loan risk.
But to the entire political looter class, and I mean not just the elite elements but also including the millions and millions of people who took loans they could not repay and voted for the people whose regulations provided the perverse incentives for banks to loan money to them, the important things was to… keep lending. And this, boys and girls, is what we call a Credit Bubble. And why do we call it a bubble? Because when loans are given out at a rate greater than actual economic growth can support, the amount of loans (assets) that go bad increases because the increased lending was not supported by an increased ability to pay the loans back… and when that fact becomes clear, people with money suddenly stop lending… the ‘bubble’ bursts.
And when the state decides to fix that by motivating more people to borrow by reducing interest rates to almost zero, that of course makes no damn difference at all because lenders, not borrowers, are the ones suddenly back in touch with reality. And just because the government (i.e. central bank) says “the price of loans is 0.1%”, that actually does not mean jack shit, because the genuine price of loans has to include the premiums needed to cover bad debts. Moreover if it cannot be determined how risky it may be to lend due to the poisonous spread of toxic debt, it is safer to just hold onto the money rather that flush it down the toxic debt toilet.
And how are the political looter class trying to remedy this situation? Well they are trying to re-inflate the bubble with the extra added spice of making the secured assets (property) even harder to repossess (in effect un-securing questionable loans either by fiat or with money plucked from the government’s magic money tree). Pure genius.
And the next news item just around the corner? Think about US Treasuries… or ‘Junk Bonds’ as they will soon be known. ‘Screwed’ does not even begin to describe it.
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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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