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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.
In the current crisis, there is a lot of wisdom in the idea that the best thing for politicians and their appointed central bankers right now is to do absolutely nothing. Nada, zip, the square root of zero. To do nothing would be the gutsiest option of all. Of course, Mr “Hope and Change” Obama is unlikely to show that sort of courage, nor will Gordon Brown or, heaven help us, David Cameron.
I actually have a theory, that the amount of time that a politician talks about courage, audacity, vision, etc, is inversely related to the actual possession of those qualities. Not even Mrs Thatcher went on about her courage all the time: the most we ever got was the “resolute approach”. And she delivered by taking genuinely brave stands on issues in the teeth of furious opposition from the chattering classes and the media establishments of the time. And in terms of telling folk what they did not want to hear and sticking to a tough policy, politicians such as former UK finance minister Geoffrey Howe in the early 1980s, wiped the floor with today’s lot.
Here is a collection of good articles attacking the massive US stimulus plan. Fair play to Andrew Sullivan for linking to them. There’s hope for him yet.
Clueless. The Independent has what it thinks is good news for employees:
The minimum amount of money that employers must pay staff they make redundant is set to be increased by the Government, The Independent has learnt. In another attempt to ease the pain of those worst affected by the recession, ministers have launched a review of the minimum payments to which people are entitled by law when they lose their job. With around 1,500 posts being axed each week, unemployment will soon pass the two million mark and could eventually rise to more than three million.
So, what is the predicatble effect of making redundancies more costly to employers? You at the back, there! A firm wants to stay in business. It needs to keep cash in hand in order to do so. Looking ahead it sees uncertainty as to whether it can afford the wage bill, and it has to balance the cost of keeping people on and maintaining capacity, with the cost of losing them, and its ability to continue in business after they have left.
Yes, Purnell minor, if the cash lost by making people redundant increases, they will be made redundant sooner, and firms will be more averse to taking the risk of hiring.
As a crude estimate, we might expect the cash constraint to require someone to be sacked sooner by the amount of time in which the cost of employing them would accrue to equal the increase in statutory redundancy they would be owed. (Which is the sort of ‘linear programming’ people could do before spreadsheets and Monte Carlo methods: the wisdom of the 1970s for a government that has worked so hard to return us to them.)
Those firms that do not make such precautionary sacrifices increase their risk of total failure, and none of their workers getting redundancy pay. So higher redundancy pay means more redundancies and more business failures, in an uncertain proportion.
What’s worse, it is likely that such a change in the rules that is signalled in advance will mean large, well-informed and unsentimental corporations (which are typically more risk averse, and more capital intensive, anyway) reducing their headcounts to get under the wire. Even “a review” undertaken to give an impression of doing something, and as a sop to the trades unions, is likely to influence hiring and firing policies. And not in a good way.
Nicolas Chatfort calls foul on the absurd sense of moral superiority trumpeted by Paul Krugman when the man’s own pronouncements are riddled with falsehoods
In a recent New York Times column, Paul Krugman wrote about what he called the bad faith of the opponents of President Obama’s economic stimulus plan. Krugman is apparently labouring under the view that his side has a monopoly of virtue in the current debate and that the Obama plan can not possibly be attacked on the merits. It must be comforting to be allied with people of such beneficence and infallibility.
Perhaps Krugman, however, should examine the good faith of his own claims before casting aspersions against his opponents. At first glance his counter arguments appear cogent, but a closer look reveals that Krugman is a master of illusion, employing many tricks that would do any sideshow magician proud.
First, Krugman assails the criticism that the Obama plan will cost $275,000 per job created as being a bogus talking point. His reasoning is that this figure involves taking the multi-year cost of the program and divides it by the number of jobs created in just one year. Krugman claims that the true cost per job is closer to $100,000 – or even a net cost of only $60,000 if you take into account the higher taxes that would be generated from a stronger economy.
Let us examine this counter argument carefully as Krugman is employing some slight of hand here. He is pulling a switch by re-framing the costs from a total program basis to an annual basis. The critics of the plan never claimed that the $275,000 per job was an annual cost. By the way, the $275,000 per job estimate is generous as it cedes the point that the plan will create the 3 million new jobs claimed for it by President Obama. Not all economists believe that anywhere near this number of new jobs will be created under this plan. → Continue reading: On true ‘Bad Faith Economists’
Roger Thornhill, an occasional commenter here who also has his own blog, asks what is all the fuss about a foreign firm in the UK hiring foreign workers? He points out that if a UK firm operating in say, Germany, were to bring over some of its own staff, it might cause outrage among the locals, but then UK unions would protest at their members being banned from working abroad.
The truth is that when Gordon Brown made his comment, “British jobs for British workers”, he stoked the flames of a protectionist labour force doctrine that is now threatening to get out of hand. The disgrace of it is that even when the UK economy was growing relatively strongly, millions of able-bodied UK adults were not working and living off benefits. The tax, benefit and education system conspire to keep large numbers of the indigenous population out of the workforce. So naturally, firms turn to other sources of labour if they feel they can get a better deal.
In these tough times I feel sympathy for skilled workers who have felt themselves to be frozen out by a foreign employer doing business in the UK, but the brutal fact has to be faced that as far as many employers are concerned, some of the locals are just not as employable as foreigners. It is a terrible indictment of what has happened to the UK labour market under this administration. Untangling the mess is, or should be, a priority lest the situation fans the flames of protectionism, with disastrous consequences.
Update: The always cool-headed Chris Dillow puts up a feast of links explaining the impact of such foreign labour on local markets.
This is excellent. Brew up a coffee, give yourself a break, and read the whole thing.
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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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