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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Yesterday morning I posted, on my personal blog, some anodyne remarks about how economic trouble strikes. They included this:
Speaking of Paul Marks, …
… as I was …
… someone should really dig out him ranting away three or four years ago about the fact that the British economy is doomed, doomed. Now everybody is talking like this. They are merely telling us so, now. He told us so, years ago. With luck, it will be possible to find an entire Samizdata posting, from way back, in which this last week’s cursings are all there.
I scratched about for a while in the Samizdata back catalog, but could find nothing entirely suitable. I suspect that Paul may have posted a lot of his best doom-mongering in comments, both following up on his own postings, and on the postings of others. However, commenting at my posting this morning, Peter Briffa supplied a link to this posting at conservativehome.com, dated June 14th 2005. The posting itself concerns some fairly anodyne remarks from Shadow Chancellor George Osborne, about such things as a “modern, integrated transport infrastructure”, a reduction of the regulatory burden, a “strong macroeconomic environment” and “simplification of taxes”. But then, comment number two, quite long, turns out to be from a certain Paul Marks. It includes this:
On the Bank of England: Well the British money supply is expanding at least as fast as the Euro money supply (see the back pages of the “Economist” any week for the stats) – so even I would not make a jingoistic claim that all things in Britain are fine. Of course joining the Euro would mean even lower interest rates for central bank credit-money (hardly a good idea).
Sadly the notion that “expanding the money supply” is good for long term economic prosperity has been an article of faith for many decades (whenever there are problems the cry goes up “cut interest rates”). Once it was believed that this credit money expansion should be linked to the general “price level” (in order to prevent, horrors of horrors, falling prices), but at least since Keynes the doctrine has been to issue more money (by various clever means)as soon as there is trouble – whether the “price level” is going up, down or sideways.
I do not expect to convince anyone here that credit money expansion is the cause of the “boom-bust cycle”, but for anyone who thinks (along with Mr Blair and Mr Brown) that this cycle has been “abolished” I would advise them to watch and see.
So, not only did Paul Marks predict the trouble ahead that we have now crashed into. He also predicted what would be wrongly said about how to deal with it when trouble did in due course strike. I’m sure that there is similar stuff to be found here. Paul? Anyone?
I have a lot of time for Chris Anderson, the top editor at Wired. His book, The Long Tail, ought to be on the reading list of anyone who wants to understand how the massive reduction in the costs of searching for stuff online has changed the economics of businesses as varied as retail to travel. But in his latest essay on how businesses are moving to give stuff away for free, he over-reaches.
Here’s this paragraph:
Milton Friedman himself reminded us time and time again that “there’s no such thing as a free lunch. But Friedman was wrong in two ways. First, a free lunch doesn’t necessarily mean the food is being given away or that you’ll pay for it later – it could just mean someone else is picking up the tab.
But if someone else pays for my lunch at my favourite pizza joint, it is not free. It has not mysteriously come out of the sky.
Of course, Anderson makes a lot of great points about how the structure of how things are paid for has been massively changed by technology. He is also right to emphasise how a lot of businesses “give away” goods and services for free as gifts, but they still charge for their output at some point. Otherwise, what Anderson is talking about is not business, but philanthropy.
Sorry, but Friedman’s, or Robert Heinlein’s logic is unbreakable. There is no such thing as a free lunch.
CityAm, the freesheet newspaper in London, has this cracking scoop:
Shire Pharmaceuticals, the FTSE 100 drugs giant that focuses on treatments for attention deficit hyperactivity disorder, is to re-register its head office outside the UK for tax reasons.
The group, which is valued at around £5bn, has been consulting the accounting group PriceWaterhouseCoopers on the merits of a move and is set to inform investors today. Shire’s headquarters are currently near Basingstoke. The news will come as a further blow to the UK economy.
The story ends with a quote from Matthew Elliott, head of the lobby group, The TaxPayers’ Alliance:
“This disastrous news confirms that Britain’s competitiveness has suffered a series of blows from misguided tax hikes.”
I am glad to see that the influence of CityAm’s newly-appointed editor, Allister Heath, who has written on the flat-tax issue in the past for the Taxpayer’s Alliance and at the now-defunct weekly, The Business, is making itself felt. Far too many journalists at places such as the FT, for instance, seem to operate in a corporatist cocoon. Allister will not make that mistake.
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.
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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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