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Talking to fellow contributor Brian Micklethwait last night, we somehow got on the subject of the recent property and debt market bubble, and what a total mess things were. And Brian pointed out that some market bubbles, like the infamous Dutch tulip bubble of the 17th Century, were based on almost a totally ridiculous notion, delivering nothing of value, whereas at least the tech bubble of the 1990s, for all of the associated craziness and subsequent pain of the crash, did at least propel a lot of useful innovation in the internet and associated world, just as the railway boom of the 1840s in the UK helped drive forward development of the railways, even though the industry had its fair share of crooks and incompetents. And for that matter, even the tulip bubble, as the Wikipedia entry I linked to suggests, did perhaps help to drive development of what is still a huge horticultural industry in the Low Countries.
The trouble with bubbles is that they pop. But it is too easy to forget, in our current fit of puritan disgust for speculative frenzy, that much, if not all of the energy that can drive prices for things higher is reflective of often dynamic and highly beneficial changes in the long run. I still believe that in a few years’ time, unless we have reverted to statism completely, that the long boom of the 1990s and most of the ‘Noughties will be seen as a generally good thing, even though part of it was driven by unwisely cheap money set by central banks – state institutions – rather than genuine economic rationale.
“Economists from across the political spectrum agree that if we don’t act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment and the American dream slipping further and further out of reach,” Mr Obama said.
Across the political spectrum eh? And which spectrum would that be? Let me guess… the spectrum that runs from Democrat regulatory statist to Republican regulatory statist? There is no ‘spectrum‘ in front bench congressional politics in the USA (or the UK), just a groups of people who are arguing over how much deeper the same hole they are standing in should be dug in order to get out of said hole.
That is why the USA needs vastly less bipartisanship and a whole lot more disunity. The truth is that NOTHING the US government will do is going to prevent double digit unemployment and economic depression. Both parties were the authors of this situation and every time some jackanapes in Washington DC uses the term ‘bipartisanship’, it is worth pointing out the discreditable Republican role creating a vast edifice of state controls that prevent markets from actually working.
Outside the USA, explicit attacks on capitalism are perfectly acceptable by leading politicos, so it is unsurprising to see Britain’s dismal prime minister Gordon Brown petulantly blaming ‘unbridled capitalism’ when Britain’s regulation smothered and very much ‘bridled’ economy refuses to respond to his ever more pointless orders. But in truth politicians in the USA, the ones in both parties who have done equally absurd things to bury the US economy, in practice share much the same views about ‘capitalism’ as Gordon Brown does. The reasons for that are not hard to figure out.
They are trying to blame everyone other than the predatory political class and its army of tax funded clients and instead point at those pesky people who actually create wealth rather than destroy it as the problem. It is not so much that they are consciously lying about the nature of reality but rather their underpinning axioms within which they see everything simply cannot cope with a world view that does not place politics and regulation at the heart of absolutely everything and as the solution to everything. And if vast reams of regulations are a given then problems cannot be regulation per se but rather that the wrong regulation was tried this time and so ‘we’ need to try different ones. The notion that there is something systemically wrong with creating a massive impenetrably complex tower of (often contradictory) laws simply does not compute. Most politicians, and indeed most people generally, do not even see the teetering structure in totality, just the changes compared to the last time they looked. The tower of regulations simply is… the only ‘sensible’ discussion they will even entertain is how much more should ‘we’ pile on this year.
But then that is one of the major upsides of the massive global crash that is coming down upon us all… the tower that has been created has been struck by lightning and yet they want to save it by piling the structure higher even as it is tipping over… whereas the correct course of action is to get out from underneath it.
Now let us make sure that the people responsible from the largely interchangeable statist ‘right’ and ‘left’ are the ones who get the blame because the smarter ones are already trying to shift it to anyone else but themselves. Our job in the non-mainstream media is to make sure the political life gets crushed out of them as they so richly deserve.
The ‘Crisis of Regulatory Statism’ meme needs to spread.
I loved Liar’s Poker, and Michael Lewis returns to his old stamping ground of Wall Street to write one of the best summations, in my view, of what happened in the markets leading up to the current woes. I do not buy into all of his analysis but as an entertaining version of events, it is pretty good.
Another good, if flawed account of the problems of the debt-driven economy came recently from Niall Ferguson, the historian. He has good things to say on how the understandable desire for home-ownership – encouraged by political leaders such as Margaret Thatcher in the 1980s – tipped into an attitude which stated that owning a home is almost some sort of “right”. If you think about it, paying a mortgage where you own only, say, 10 per cent of the equity is not really ownership, but a form of lease agreement. But I think Ferguson under-plays the role of central banks in the 1990s and ‘Noughties in getting complacent over the warning signs coming out of the housing and asset markets, such as gold. He had a recent television series on Channel 4 on this whole process – sponsored, I could not help noticing, by the Cayman Islands – and I was impressed by how Ferguson explained the often eye-watering complexities of derivatives and asset-backed products in simple ways without dumbing it down. Doing good-quality television shows on economics, where so much has to be conveyed by mood and picture, is hard. And Mr Ferguson’s modulated Scottish accent is a damn sight easier on the ear than the bizarre inflections of Robert Peston.
Dominic Lawson writes a good deal of sense about proposals to to use public funds in the UK and US to rescue various stricken car manufacturers, such as Jaguar and GM. Like Mr Lawson, I cannot quite see how the average UK voter, who can barely afford a Jaguar car, feels about handing over money to ensure that these cars stay in business, and certainly not if a prize political creep such as Peter Mandelson is involved. Do not misunderstand me: I love the brand, but would it not be better to let the firm shrink to the status of specialist niche product for those who are willing to pay for it?
Anyway, finances permitting, I am upgrading to buy myself and the missus an Alpha Romeo., assuming I can get one second-hand in great condition. Discounts for cars are likely to be pretty generous over the next few months.
Evidence is only of use to the mind that is prepared for it.
Every time I see the government of Japan (or some other government) spending yet more money, in spite of the failure of all their previous government spending orgies, I am reminded of this.
Because, of course, to them there is no such thing as evidence that expanding government spending is not a “good thing”, just as there is no such thing as evidence that trying to finance lending (“investment”) via credit/money expansion, rather than solely by real savings, is not a “good thing”.
On the contrary, any economic decline (perhaps even mass starvation) is interpreted as evidence that there should both be more government spending (an “expansionary fiscal policy”) and more credit/money expansion (an “expansionary monetary policy”).
This is due to the framework of ideas in the heads of the politicians, administrators, mainstream academics and media people – and, yes, many businessmen… What Perry would call the “metacontext”.
Yet in the private sector, this sort of behaviour is called this a ‘pyramid scheme‘ and people get thrown in jail for it.
Here is an interesting list of the worst economic notions or economy-related stories in 2008, from a mostly US perspective. My personal favourite is the one about “killer tomatoes”.
(Hat tip: Andrew Ian Dodge).
A lot of people in the financial industry are trying to figure out the individual costs to them of the $50 billion Bernard Madoff hedge fund fraud. The allegation is that Mr Madoff operated a “Ponzi scheme” scam wherby hedge fund investors were paid money, not from the performance of the funds, but by money paid in by new clients. As soon as the inflows of new clients dried up – partly due to the credit crunch – the scam came to light.
As a result of this case, no doubt those who have been calling for much tighter regulation of financial markets will have yet another stick with which to hit the system, never mind that fraud is and should be prosecuted under the normal law of the land anyway. But what interests me, however, is that systems such as Social Security in the US or public sector pensions in the UK have been funded under what is, essentially, a Ponzi system, whereby retirees depend on future generations continuing to fund a system that is rapidly becoming broke. I do not see any stories about politicians, in different countries and different parties, facing indictment for scamming the electorate. Maybe, however, the ultimate problem is that in a Welfare state, the scam artists are us. We are all in on the heist.
I think I know best, too, of course. But what I know best is that the world is too complicated for me or anyone else to rule. Other people are generally better placed than I am to decide what is good for them. Even when they are not, nothing gives me in particular the right to impose my ideas.
Gordon Brown is one of the elect (not just the elected) who knows no such restraint.
The Prime Minister: The first point of recapitalisation was to save banks that would otherwise have collapsed. We not only saved the world— [Laughter . ]—saved the banks and led the way— [ Interruption. ] We not only saved the banks— [ Interruption. ]
Mr. Speaker: Order.
The Prime Minister: Not only did we work with other countries to save the world’s banking— [ Interruption. ] Not only did we work with other countries to save the world’s banking system, but not one depositor actually lost any money in Britain.* That is the first thing.
Having contented himself that he only saved world banking, Mr Brown has now set out to work on the rest of the job. He has started on a mission to create peace between Pakistan and India – two countries that have not had a war since 1971. Such is his supreme diplomatic tact that his approach after the Mumbai massacre is to visit the region in order to announce that “Three quarters of the most serious plots investigated by the British authorities have links to al-Qaeda in Pakistan.” A claim that is both occult (full in equal measure of secret authority and meaninglessness), and calculated to make people in India more hostile to Pakistan.
Maybe this is not a record breaking sprint to megalomania for a British Prime Minister. Perhaps it is that Mr Brown’s nostalgia for the 1970s knows no bounds. Having destroyed the British economy in order to become its saviour, he is trying the same trick on the global village.
*[This is a lie: I know personally several depositors who between them lost many millions in Britain when Mr Brown decided to expropriate the Icelandic banks. Even those among them whom the Treasury has made a vague promise to compensate have yet to see a penny, and have had the huge cost, which is unlikely to be refunded, of arranging indefinite bridging finance in near-impossible borrowing conditions.]
Following on from my post below objecting to compulsory purchase laws – with the sole exception of where such laws are needed for things like defence or to save life – here is a great blog and resource for those interested in these issues. It is written mainly about the US but much of its insights carry weight over in the UK and other Common Law nations, or for that matter, other countries too. Recommended.
Via Tom Palmer’s blog, here is an excellent picture summing up what I think of bailouts.
What caused the economic crises?
“Greedy bankers” says some people.
There is certainly a lot of greed about. For example, the people who trampled a part time Security Guard to death at a Walmart on Long Island (as he shielded a fallen pregnant women from them) were certainly greedy. Even after it was announced they had killed a man they still did not want to give up shopping for bargains in the sale and were very angry at being removed from the store. But I doubt there were any bankers in the Walmart sale crowd – although I am open to being proved wrong.
And the lawyers who are talking about “going after Walmart” over the death are greedy also – they are targeting Walmart, rather than the mob of shoppers, because Walmart has “deep pockets”. But these lawyers are not bankers.
In fact I rather doubt that bankers are either more greedy than other people or more greedy than they used to be. Someone does not tend to go into banking as a vocation – it has always been a “for the money” job. Although (and this may shock people) I suspect a lot of bankers are rather more innocent minded than bankers, at least in Britain, were in the past. Many (although far from all) British bankers in past decades were very aware that banking (as practised in the modern world) was based on very “dodgy” foundations and limited themselves with some care – not out of lack of greed, but because they did not have a university education in progressive ideas of “economics” telling them there was nothing dangerous (for example) in lending out money that was not 100% from real savings – indeed modern bankers are taught, as students, that “savings” and “lending” (or “investment” – as all lending is considered “investment”) are automatically the same whatever they do.
A certain Scotsman (an historian who does not thinks that fractional reserve banking in England came from copying Holland – even though the main bank in Holland, the Bank of Amsterdam, was famous at that time for not being a fractional reserve bank) blames the present crises on “Enron style practices” even though Enron was not a bank, and most of the bankers in trouble have not committed fraud in the way the Enron management did – whether fractional reserve banking is itself fraud is something the Scotsman does not consider.
No doubt some bankers were corrupt. Indeed on the board of Citigroup sat (indeed still sits) the disgusting Robert Rubin – one of the very people who was paid to help Enron cover up its debts, and who was listened to because of his high place in the Clinton Administration. Mr Rubin advised Citigroup to “invest” in securities based, credit bubble pyramid style, on home loans granted to people of whom Citigroup knew nothing – and by this advice and other advice Mr Rubin has helped Citigroup build up two trillion Dollars of “toxic assets”.
Mr Rubin has now secured Citigroup a vast government bailout which will support politically connected shareholders and managers and which has so far allowed Citigroup to go on doing things like paying about half a billion Dollars to name the Mets new baseball field “Citifield” and to pay ten billion Dollars (as of Monday) to buy a road building company in Spain – a country where the construction boom went bust some time ago.
One could then talk about the corruption in the (Democrat dominated) Fannie Mae and Freddie Mac and their political cooperation with people in Congress (such as Senator Chris Countrywide Dodd and Congressman Barney I-was-just-helping-the-young-boys-out Frank) and the work on the ground of such organizations as ACORN (an alliance of groups specializing in extortion and election fraud, whose most powerful section appears to be in Chicago) and how it used the Communities Reinvestment Act to get banks and other such to make loans to people who could not pay them back – when these people really existed at all.
However, all the above could not have produced the present level of crises… → Continue reading: If this is Capitalism then I am a Communist
Iain Martin is rapidly becoming one of my favourite columnists. This article explains why.
A recent book which looks at tensions between free markets and the short-term interests of incumbent businessmen, this book is great. It was written shortly before the credit crisis went into overdrive and its warnings about a stampede into regulatory overkill are very apt.
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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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