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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‘Bail-out fears hit banking shares‘ howls the BBC… “We know of no justification for the fall in share price. We are fully aware of our regulatory obligations and we have not said anything,” said a Barclays spokesman in a statement.
Hehehe. Could it be that more and more people do not believe the shit that government and the mainstream media keep peddling any more? The ‘bail outs’ are consuming a larger and larger proportion of the world’s ailing economies, with no end of ‘bailing’ in sight. Frankly why not bail out the porn industry? Why not ‘bail out’ every damn industry! Just print more money!
The system is devouring itself and no amount of manipulation can change that… because manipulation is why the system is collapsing. When the correcting mechanisms of markets are not permitted to work, it is like never allowing forest fires to clear out dead wood. In the end all you do it store up problems for later. Guess what? Later is now.
Let it burn.
One of the reasons why people get so cross about the cost of petrol is the knowledge that a high proportion of the price paid at the pumps is accounted for by tax, rather than the cost of extracting, refining and distributing the stuff. The same goes for a pack of cigarettes, pint of beer or a bottle of wine, to name a few. With a lot of grocery produce, such as your humble carrot, most people may not appreciate – yet – how much of the cost of getting those vital vitamins is accounted for by government-created production costs. Well, there have been a flurry of stories on the wires about a recent EU Parliamentary vote to ban dozens of pesticides that are deemed harmful. As a result, farming groups claim, output of crops will fall and presumably, if other things remain equal, prices will go up at a time when household budgets are under strain. It does not seem to have occured to policymakers that a simple option would be to put what chemicals are used to treat crops on a packet so that consumers can figure this out for themselves and take an informed decision.
The trouble with stories like this is that the votes to ban X or Y at the EU level rarely gain a lot of coverage for more than a day or so, and then the issue tends to fizzle out, of interest only to obsessives and geeks like yours truly. A busy populace, worried more about their jobs, mortgage or children, will hardly dwell on the issue. But when Mr and Mrs Briton wonder why on earth it costs so much to buy basic groceries, the temptation will be to imagine that it is the fault of big, evil supermarket chains, for example. Rarely will the cause of the cost be seen as stemming from bureaucrats and European MPs.
Of course, it may well be that the chemicals being banned are as harmful as is claimed, although given the way these things work, I doubt it. We are told that for a healthy diet, your average person requires several servings of fruit and veg a day; such things are considered good for warding off cancer. Even if there is a health risk from chemicals, the health risk of not eating enough vegetables because of high costs is even higher. These things involve a trade-off between one set of risks and another, rather than some imperfect and perfect state. If such chemicals are banned, resorting to grow-your-own is hardly a viable alternative, since modern farming can, through economies of scale, achieve better yields and lower costs-per-output than someone tending their vegetable patch. And importing fruit and veg from countries such as Spain via air transport, for example, is also becoming less attractive an option due to increased fuel prices and governments’ taxes on air travel.
Once again, the Forgotten Man gets the shaft. This chemicals ban, like measures such as “employment rights”, paternity leave or 35-hour weeks, impose costs on the populace without a government having to take the potentially visible and unpopular step of raising taxes. Joining the economic dots is hard. I just hope that some in the MSM try and do so occasionally so that the message gets through. We bloggers cannot do it all on our own.
Update: in the comments, one person argues that I have contradicted myself by pointing to public apathy or lack of time to scrutinise EU actions, on the one hand, and my stress on the ability of consumers to read packaging labels, on the other. There is no contradiction, though. People shop daily, weekly, monthly, etc. They constantly come up against labels, look at packaging, see advertisements, surf the Net looking at products, and so on. One of the great things about markets is that it is a constant provider of information. Not always accurate, of course. By contrast, once an EU directive has been imposed, that is usually the last that any ordinary member of the public will hear about it. As soon as a law is passed, the media and political wagon rolls on.
This gloomy Bloomberg article, talking of capitalism’s global “winter of discontent”, argues that the current troubles are the first globalized crisis for free enterprise. Well, when an article makes an error in the first paragraph it does rather dim one’s enthusiasm for reading on. Arguably, we have had cross-border crises in markets dozens of times: the recession of 1870s, the Great Crash of the 1930s, the 1970s oil-shocks and stagflations in the US and UK, the early recession of the 1990s in countries as different as far apart as Japan, UK, Germany and US, etc. Maybe the sheer extent of the malaise now is what has struck the Bloomberg writer, but truth be told I think this is a matter of degree. According to this excellent book, markets were in fact more globalised 100 years ago than they are now.
To use one of my least favourite words, there is now a constant “narrative” as to how the recent turmoil somehow proves that unregulated capitalism has failed and too closely interlinked. Quite how anyone can, with a straight face, argue that financial markets have been unregulated in recent years is a joke. Here are some of the regulations financiers have been dealing with, often with counter-productive results:
- Markets in Financial Instruments Directive (known snappily as MiFID). This is designed to make EU financial markets more competitive, but as so often is the case, has been designed to raise barriers to entry in certain fields and has led to a rise in regulatory costs and loss of choice.
- Basel II bank capital adequacy rules. How’s that working for ya?
- Patriot Act – the finance provisions
- Various anti-money laundering laws
- Tax information sharing treaties (various)
- UK capital adequacy regulations of financial advisers
- UK laws banning/controlling certain types of financial advertising. Apparently, we poor saps need protecting from crooks. Shame none of the big banks spotted Bernard Madoff then.
- Restrictions on sell-side analyst research. This is built on the quaint idea that analysts working for banks should be models of Corinthian virtue and not have a bias.
- Sarbanes-Oxley accounting laws – these have been a disaster, encouraging a flight of US businesses offshore, killing IPOs and squeezing new business formation.
- And last but not least: central banks. These are state institutions, issue monopoly money and have been behind much of the current trouble. Sometimes, when reading criticisms of “unregulated” capitalism, you might imagine these banks are purely commercial entities.
I am scratching the surface and I am sure readers can come up with more rules and regulations. Every time any of you good readers hears this canard about “unregulated capitalism”, call them out gently for this and ask them in what field, apart perhaps from security or medicine, are activities more heavily regulated than finance?
Update: oh, I should have mentioned the US federal housing agencies such as Freddie Mac, and their contribution to creating a massive moral hazard problem in the house lending market.
Fraser Nelson over at Coffee House picks up on a point that has been obvious to yours truly for a while as well: the dystopian novel, Atlas Shrugged, by Ayn Rand, nicely charts the sort of demented statist economics that we are seeing back in fashion now. Rand’s novel is more than 50 years’ old and it focuses on the railroad industry, but its themes apply just as well to the world of modern banking or the internet.
Even if you decide to skip the enormous John Galt speech at the end of the 1950s novel, reading this book will help clarify a lot of the issues now swirling around. I can think of a few people in public life today who would qualify as the villains. Who, however, are the heroes? Where are the Dagny Taggarts, Hank Reardens or Francisco D’Anconas of today? There are mutterings about the book being made into a movie, starring the likes of Angelina Jolie (who is actually a lot smarter than some of her Hollywood peers), but I am not sure what the situation is with that. Hmm, let me speculate on the glory of an anti-statist movie winning an Oscar.
As a side observation, I cannot help but notice that ever since the UK government nationalised banks such as Royal Bank of Scotland, which owns Coutts, the private bank, there have been worries that wealthy clients of Coutts must be a bit nervous about having their finances run by folk beholden to the state. Indeed, as Instapundit’s Glenn Reynolds might say. Those banks which have by luck or deliberate choice avoided state bailouts will benefit.
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.]
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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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