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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I have linked to Tim Worstall quite a bit lately and make no excuses for doing so again. He has a good piece about the current economic issues and ponders whether the latest risk factor is that of carbon-reducing measures worsening the economic outlook. It is afactor to consider, for sure. If the EU or other groups of countries slap tariffs on “naughty” carbon emitters, it could have quite a severe impact.
Former UK Chancellor Nigel Lawson has a new book out on global warming issues. For all that he made some errors during his time at 11 Downing Street, his sharp analytical brain is rather more impressive than that of the current office-holder. This looks like a good study of the subject.
This commodity supercycle has led to an increase in the prices of wheat and rice. Governments have predictably undertaken a perverse policy of raising prices on the exports of crops to ensure their own supply (and take advantage of higher prices for revenue), removing incentives for farmers to cultivate more land or increase their productivity. Argentinian farmers on the pampas are now milchcows for Kirchner.
The reinforcing inflation of higher prices and bad policy leads inexorably to unrest amongst the poor. Was this not the overriding concerns of all elites in a subsistence economy? Now that age-old conundrum has returned?
Sir John [Sir John Holmes, the undersecretary general for humanitarian affairs and the UN’s emergency relief co-ordinator] said: “The security implications should also not be underestimated as food riots are already being reported across the globe.
“Current food price trends are likely to increase sharply both the incidence and depth of food insecurity.”
As well as the riots in Egypt, rising food costs have been blamed for violent unrest in Haiti, Ivory Coast, Cameroon, Mauritania, Mozambique and Senegal. Protests have also occurred in Uzbekistan, Yemen, Bolivia and Indonesia.
China, India, Pakistan, Cambodia and Vietnam have curbed rice exports to ensure there is enough for their own people.
The phenomenon has even acquired its own term, ‘food insecurity’, though I prefer older and simpler terms: famine and starvation. Since the United Nations has stated the obvious, there is the unspoken assumption of “somthing must be done”. When one looks at the speech, the outstretched hand appears:
But I fear we are also going to need more global resources to tackle these challenges, to find innovative ways of raising these vitally-needed additional funds, and to make sure that these extra resources are spread evenly across the sectors. Allocations must not be devoted exclusively to the most visible aspect of this new demand i.e. meeting immediate food needs, but also to health, emergency education, etc. So the UN, NGOs and donors – both public and private – must continue to work together to increase the level of resources coming from both new and broader sources of funding, not least from the private sector, and to set appropriate priorities. We also need to continue to work on the diversity of funding mechanisms, in addition to core contributions to agencies and NGOs.
Holmes was talking at a conference in Dubai and, despite the denial of scaremongering, painted a picture of crisis (including the usual bogeyman, climate change) to demand more resources co-ordinated and spent by the UN, presumably.
UN spots crisis and pleads cash is not such a good headline, though more truthful.
Obama’s speeches frequently include passages that flatter their listeners who aren’t quite intelligent enough to realize how shallow his thinking actually is into thinking that they are more intelligent than they are.
– Stephen Bainbridge. Ouch.
There has been a lot of comment this week about a House of Lords report on the benefits, or otherwise, of mass immigration to the UK as far as the economics is concerned. It did not address the cultural aspects, such as the influx of large numbers of people from fundamentalist Islamic states or people with other, very different traditions to those of the existing population. It talked about the impact on the economy. The general conclusion is that in the long run, there is a very small, positive impact on growth but no real impact overall on GDP per head. And for some parts of the existing workforce, the impact is bad: lower wages, or no work at all.
The Sunday Telegraph, in its leader column, broadly endorses this analysis. What bothers me, however, is this: if immigrants are ‘taking’ a certain number of jobs (our old friend, the Lump of Labour Fallacy, is at it again), why not recommend say, a drastic pro-emigration policy for say, 25 per cent of the population, or even half? I mean, if there are “too many” people in the UK, why not go for a massive reduction? Indeed, if you take the argument to extremes, you could argue that we would be fabulously rich if the population were reduced to say, 100,000 or one million.
But that would remove all the benefits of a large population, which the immigrant-bashers overlook: the skills, or ‘human capital’ that a large population makes available. The silliness of the complaints about all those foreigners ‘taking’ ‘our’ jobs is not just the Lump of Labour Fallacy, however, which by extension is part of the closed-system thinking one associates with socialism and many other collectivistic doctrines.. It is also the unspoken assumption, rarely explicitly spelled out, that there is some sort of optimum, or “just about right” level of population for a given geographic area. But how do the noble Lords or even a mere economist figure out how many people in a country is right or wrong? And as a commenter said, I believe on this site, some months ago, you do not hear about Tescos or Vodafone moaning about “too many customers” putting pressures on their services.
Of course, some commenters will insist that the cultural implications of mass immigration from the Islamic world, say, outweighs what economic benefits there might be, but that is a separate issue.
The recent scary share price fall in HBOS, the UK banking group, prompted alarm that hedge funds and other naughty speculators were deliberately bad-mouthing the company in order to make its shares drop, and profit from that fall. There may be some truth in this: the UK financial regulator, the Financial Services Authority, is checking this case, although my confidence that the FSA will find anything has not been improved by the watchdog’s almost total uselessness over the Northern Rock affair. But as this article points out, the supposedly demonic practice of “shorting” a company is often a good thing. If investors can make a profit by a company they think is headed for trouble, it can light a fire under the complacent/useless/criminal/other executives of that company.
It all sounds a bit like witchcraft to the economic non-expert. What the bejeesus is shorting? Simply, it is the practice of borrowing something like a company’s shares in the expectation they will fall in price, then selling them, repurchasing them at a cheaper price a couple of days later, and pocketing the difference. Short-selling used to be mainly done by hedge funds who borrowed shares, bonds and other things from banks. But through derivatives like spread-betting accounts, contracts for difference and warrants, even your average Joe Punter can do this, although they would be wise to realise the risks. Numero Uno risk is that the market will not fall as the punter expects, so the investor, be he Nobel Prize winner or retired executive trading stocks in Surrey, should limit their losses by buying a pre-arranged clause to close off a bet.
Making money when a market falls. How cool is that?
Here’s this gem from Reuters:
Cuba seeks more user-friendly socialism
There is something almost pathetic about the following paragraph from Reuters, as if the ability of people to trade with one another is some sort of wonderful present given by Father Christmas, rather than an extension of the basic right of every human to sustain life and flourish happily:
Bans on the sale of computers, DVD players and other products have been lifted, and Cubans who can afford it can now stay at tourist hotels and buy a cellphone.
Agriculture is being decentralized, farmers can decide for themselves what supplies they need and the prices paid to them are rising to boost food production.
Seriously, these steps represent real progress. If the reforms are real, it clearly makes sense for the US and other countries to lift sanctions against the country. A sharp dose of free trade should put a stake in the heart of the failed Marxist experiment in that island for good.
Meanwhile, let’s hope sanity eventually returns across the Atlantic in Zimbabwe. Surely, one of the great lessons of the 20th century, continuing to this day in Cuba, Zimbabwe or for that matter, Venezuela, is that state central planning is a disaster, whether applied to agriculture or anything else.
This priceless comment adorns the Financial Times comment pages this morning:
“Public funds are also not always well-directed”
Wow, alert the media!
This remark is contained in a remarkably wrong-headed piece of analysis as to the implications of a recent decision by 3i, the large UK investment firm, to pull out of financing early-stage companies, or what it is generically known as venture capital. Compared to other news events, this might seem like arcane stuff, but in its own way, tells us a lot about the rough environment that entrepreneurs face not just in Britain but in the continent. Venture capitalists typically will back dozens of fledgling businesses, hoping that a minority of them become Google-type successes to compensate for the inevitable failures and just-about-break-evens. VC is very much a long-term game: it can take up to 10 years or more for a portfolio of these investments to bear fruit. The epicentre of VC investing is in northern California; investment outfits like Sequoia Capital have helped to fuel the Silicon Valley startups that are now part of business folklore.
Yet the writer of the FT piece lamely argues that public – taxpayer’s – money be used to encourage such businesses. Groan. It is vain to point out to this person that politicians should have rather more urgent things to do than risk public funds on highly speculative investments. Far better to get to the roots of why 3i and similar outfits have turned their backs on venture capital: a stifling tax and regulatory climate in Britain and elsewhere. If the rewards to success are not taxed at high marginal rates, then the money will flow in eventually, just as it has in the US.
There are no causes of poverty. It is the rest state, that which happens when you don’t do anything. If you want to experience poverty, just do nothing and it will come.
– Madsen Pirie explaining the folly of Common Error No. 61
It was always a mistake to think that the demise of UK mortgage lender Northern Rock, entailing a massive bailout of the bank by the UK taxpayer, would be the only major example of a financial institution getting into dire trouble. Investors have woken up this morning to the news that JP Morgan, the blue-blooded US bank, has bought US bank Bear Stearns for less than a tenth of what Bear was worth, based on its share price, late on Friday. Wow. Bear Stearns, which has been building a fancy new European HQ in London’s Canary Wharf (that is a often a bad sign), was one of the earliest victims of the credit crunch. Two of its hedge funds were smashed last year by heavy losses linked to US mortgage-backed debt that has turned out to be worthless. The Fed has stepped into the JPMorgan/Bear Stearns deal with a £30 billion (don’t you just love these big round numbers?) funding facility. The dollar is in free-fall, which might be great for US exporters, not so marvellous for Germany, France or other countries. There is a whiff of panic in the air.
One of the more thoughtful, if sobering, analyses comes from The Times (of London) columnist William Rees-Mogg. He points out that once again, the late Milton Friedman has been proven correct: we have been through a period, since the 1990s, of rapid monetary growth. The inflationary impact of that growth had been temporarily masked in the High Street and the labour market by the deflationary effect of cheap goods from China and elsewhere. But for those who wanted to look hard enough, the warning signals were plenty: asset price bubbles in property, gold, antiques, fine wine, equities, as well as the frenzy of mergers and takeovers, much of which was funded by cheap debt, as well of course as the heavy lending to sub-prime borrowers in the US, Britain and elsewhere.
The trouble, however, is whether central banks have, or ever had, the weapons to control runaway lending. Consider this: for much of the 1990s and “Noughties”, Japan, the world’s second-largest economy, operated a zero-interest rate policy. Its official interest rate today is 0.5%. Let me repeat: 0.5%. As a result, speculators have borrowed vast amounts of money from Japan and reinvested the proceeds in places like Britain, where rates have been over 5%, or the US, or Switzerland, or Australia, New Zealand, and the euro zone. This is what is called the “carry trade”. These carry trades mean that to all intents and purposes, low-rate nations set the prevailing value of borrowing money.
Of course, old-style mercantilists might argue that this proves the need for exchange controls, capital controls and the like. I disagree, but I can understand the reactions. We live in a globalised market for money and credit, but without some sort of international “anchor” mechanism like the old gold standard, there is a dangerous vacumn in the system. Yes, I know all the arguments against tying currencies to gold (which is above $1,000 per ounce), but surely the finest minds of our economics profession need to figure out one of the key challenges of our time: how to ensure that the price of money is handled intelligently in today’s global market place.
Update: Megan McArdle has thoughts.
It might seem strange that I would be saddened by the death of man who was supposed to have admired Lord Keynes, but Tony Dye knew a credit-money bubble when he saw one. What Tony Dye did not understand was politics. Every time he was certain that the crash must come, Alan Greenspan (and the mini me versions of him in charge of such institutions as the Bank of England) would just create more money to keep the credit boom going.
“But if he does that it will just make the crash worse when it does finally come” seemed to be Tony Dye’s position, and he was right.
However, he did not understand that political types (and Greenspan was certainly a political type) do not care about the long term.
“In the long run we are all dead” was the position of Lord Keyes, and Tony Dye is now dead. However, he did care about the long term – and the people who are left to live in it.
Down in the dreary bowels of the Financial Times’ website, which has a list of what we happy people can expect in today’s budget, is this classic of FT understatement:
The chancellor will announce a delay in introducing international financial reporting standards to government.
No shit, Sherlock. In plain English, the vast debt bill incurred in the government’s Private Finance Iniative will not be put on to the public balance sheet for a while yet. How jolly conveeenient. If the PFI debt was so accounted for, it would add tens of billions of pounds of debt to the public balance sheet, making the state of the UK public accounts look positively Italian.
As I have said before, this “off-balance-sheet” stuff is a curse of modern finance, and should be scrapped.
The following headline appeared in The Times (of London) this morning:
Greggs chief attacks speculators for driving up the price of wheat
The managing director of Greggs, the high street baker, has attacked speculators for driving up the price of wheat and fuelling famine in Africa.
Sir Michael Darrington, who yesterday announced that he would be stepping down after 24 years in charge, said commodity traders were more to blame for spiralling food price inflation than poor harvests or farmland given over to biofuels.
Ah, bash the speculators. Where would we be without those terrible people? It may be that some of the high price of wheat – now over $13 a bushell and up 118% in the past 12 months – is down to hordes of greedy, Gordon Gekkos bidding up prices for the stuff, but these people make a living by trying to correctly guess future prices and act on imperfect information. They cannot, however, defy the laws of economic gravity. If supplies increase, as is likely if prices are so high and there are big profits to be made growing the stuff, or if demand slackens, as people use wheat substitutes, then all that speculative mania will fall away. In any event, unless this business executive or other folk have looked at what happens when wheat is no longer traded as a commodity but handled by government regulations, they will realise the nonsensical nature of bashing speculators. In the 1980s, years of agricultural subsidies led to the infamous “wheat mountains” that were subsequently dumped onto the world market, hitting producers in the Third World.
Now consider this headline:
Bread basket that is left to grow weeds
The item goes on to explain that large tracts of good, agricultural land in Eastern Europe are lying fallow, ie, un-planted, because of tariff barriers and other restrictions. The Times rightly hammers the EU’s wretched Common Agricultural Policy, the USA’s farm support system, and other regulatory controls on farm production, for contributing to this farce.
It is a joke to attack speculators, who after all bet their own or their banks’ money on trying for forecast supply/demand trends, when it is politicians, who rarely, if ever suffer the consequences of bad investment decisions, who get to bugger up global agricultural markets in this way. At least if a bank or hedge fund gets a bet wrong, the principals in the fund get bankrupted, or executives are sacked. This does not always happen, of course, but generally the market is much tougher on mistaken bets than the political system is. As prices soar in the shops and hit poor consumers, the petty meddling of Chancellor Alistair Darling in today’s budget statement is small beer indeed. Great former UK politicians like Robert Peel have put free trade front and centre of their economic philosophy. It would be a welcome step if western governments today did the same.
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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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