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
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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. March 17th, 2008 | 26 comments - (Comments are closed)
 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. March 15th, 2008 | 37 comments - (Comments are closed)
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:
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. March 12th, 2008 | 25 comments - (Comments are closed)
The following headline appeared in The Times (of London) this morning: Greggs chief attacks speculators for driving up the price of wheat
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. March 12th, 2008 | 15 comments - (Comments are closed)
[A blogapotamus] Mr Speaker, Income tax is an evil. It is an evil not because it is a tax, but because of the way it works. First, it takes from the citizen the choice of how to spend his money. Indirect taxation, though often in the past tweaked to show the state’s displeasure at certain choices, still leaves you a choice; to spend or save, and whether to have booze, burgers or broccoli for lunch. Second, it requires the tax authorities to enquire how you obtain your money and how you spend it. The existence of exemptions and allowances, of deductible business expenses, returns and taxes management is essential to the operation of a system that would widely be seen as unfair if it fell as heavily on the pauper, the producer, and the rentier drone. But the existence of allowances and schedules, and latterly tax-credits, means people rightly use their rights, and the Revenue is incentivised to regard everyone as a cheat, to treat careful self-management as a form of fraud, and press for more powers and more bureaucracy. The system becomes ever more complicated, by special pleading and anti-avoidance; the complication allows for ever closer investigation of personal affairs, ever more complicated and impenetrable forms, and ever harsher treatment of the negligent, confused or exhausted taxpayer. The result tends to a system of brigandage, where the law of collection is as uncertain as the Tax Inspector’s patience, where the small taxpayer is as much prey as he has fat on him, and only someone rich enough to fight a case as far as the House of Lords will ever find out what the law is. Having made the travellers empty their pockets, the suspicious highwayman will resort to strip searches, then to probing body orifices. Anyone who has made tax or tax-credit returns for a few years has had a similar experience. Third through PAYE and deduction at source, it takes and spends your money before you get it. You may never notice it has gone. And if you do, and your financial knowledge is small, you may not realise how much of it has gone, nor make the connection between your vanishing money and state spending. That makes it easy for tens of millions of people to believe that it is always someone else who is paying for political promises. Yes, income taxation is great evil. It tends to destroy liberty, privacy, and personal responsibility. It may come as a surprise to the House and the country, therefore, that I, as the first Samizdatista Chancellor, am proposing to increase the rate of personal income tax. → Continue reading: Playing the budget game March 11th, 2008 | 23 comments - (Comments are closed)
Hysterical Guardian readers are getting absurdly upset. The reason? A member of the Samizdata team suggested that a new tax on prestige cars was more about the politics of envy than saving the planet. March 11th, 2008 | 13 comments - (Comments are closed)
Michael Totten’s latest bloggage from Iraq is as informative as ever, but the thing that fascinated me most was a brief but interesting discursion into the use of the English word ‘Supermarket’ on a sign in a small town in Iraq.
I disagree with Michael’s use of the word ‘imperialism’ and I think he answers that point himself in the very next sentence. An even more demotic variation on the inexplicable prevalence of English puzzled me many years ago BB (Before Blogging). I spent some time in a few fairly rough parts of Croatia and one can hardly miss the prevalence of racist and sexist graffiti on the communist-era concrete tower blocks. The odd thing is that mixed in with the usually ‘Jebi Se’ varient epithets in Croatian, you will find floridly racist threats or extravagant anatomical references in more or less grammatically correct English. And this in an area that was not exactly a magnet for English speaking tourists, particularly in the middle of the then on-going war. The huge number of people who speak English in Croatia can be easily explained by the ubiquity of satellite dishes, which is why I often referred to the local Croatian English dialect as MTV English. But that does not answer the question of why in a linguistically and ethnically homogeneous area (such as unlovely New Zagreb in Croatia or Saqlawiya in Iraq), people use written English when there is no commercial or political pressures to do so. Interesting. March 10th, 2008 | 40 comments - (Comments are closed)
It sounds like one of those three decker jokes where part three brings you down to earth with a bump, which is presumably why it got written like that. Hedge your bet by hinting that the story could be all rubbish, and then tell it anyway. Because, maybe he’s right:
Tell me more:
Is anyone serious now interested in this, other than singularity prophets?
Okay, but I would have preferred an obscure venture capitalist with a boring name, rather than the overmighty corporation which is, for now, flavour of the decade, and which has, for now, more money than God, to the point where hundreds can have full-time jobs spending it, without making a visible dent in money mountain. How “substantially” has Google invested?
So, could any of this be true? If it is true, what follows, economically, politically etc.? Beyond the obvious in the shape of disconsolate arabs. Instapundit doesn’t have comments, but we do. My first thought: batteries for laptops and mobile phones are going to be replaced by infinitely powerful black patches on the outside (that’s already happened with calculators, has it not?). Second thought: will big black patches on the roof in due course be enough to power cars? Trains? Lorries? Airplanes? Spaceships? Third thought: the greenies will absolutely hate this, because there’s nothing they hate so much as technical fixes to their precious and previously unfixable problems. Predictions for what they will say: “The sun is a finite resource! It is running out! Stop consuming Our Fragile Sun! …” And, suddenly they will fall in love with oil industry workers, because they won’t be needed any more. But, first things first. Is it true? March 4th, 2008 | 46 comments - (Comments are closed)
At first I was going to put this up as a Samizdata quote of the day. It is a paragraph from a piece by Mark Leonard in the latest issue of Prospect, about Chinese think tanks. The Chinese intelligentsia have their left and right, it seems, just like us.
Nice story. But the problem, from the quote-of-the-day point of view, is that Zhang Weiying surely has the story upside down and entirely wrong. They did not start by painting stripes on horses. They introduced real zebras, but painted over the stripes and declared them to be horses just as usual. No change was occurring. No upheaval. It was still socialism. Only after the amazing production gains duly materialised were the authorities in a position to wash away the camouflage, and admit that the new and improved “horses” had been zebras all along. But – extra twist – the zebra stripes are still painted over. They still insist that they are horses. Horse with stripes painted on them are what you introduce when you are trying to get rid of zebras. March 3rd, 2008 | 2 comments - (Comments are closed)
There is a depressing article at Reason magazine about the protectionist instincts of both Hillary Clinton and Barack Obama. What the article does not tell us about much is whether McCain is much better (I honestly do not know, so I welcome comments about his voting record). And of course George W. Bush hardly made friends with Britain by slapping tariffs on steel imports – which also hurt American manufacturers and builders (but they lacked powerful friends in Congress). America is the largest economy in the world and despite what some of the more starry-eyed writers on China or the other ‘Brics’ might claim, is likely to remain so for the foreseeable future. Basically, America matters. If the country goes down a more protectionist path, it will hit the world economy in general. For all his many flaws, Bill Clinton’s signing of the NAFTA Treaty – admittedly when Congress was in Republican hands – was one of the few major achievements of his time in power. It has helped to fuel the ascent of the world economy, lifting millions into higher living standards: if any fans of trade restrictions out there want to contest that assertion, let them provide figures. Here are some official US ones that give some pretty punchy numbers. As the title says, I wish they could all lose. I have had it with the media guff about how a McCain-Obama contest will somehow elevate American politics and ‘restore’ its image in the eyes of the world. What is the point of winning image points among the Guardian-reading classes if you pull a rug under the world’s economy through greater trade restrictions? How is that going to help America’s ‘image’, assuming that Americans could or should give a flying **** what people think of them in the first place? February 28th, 2008 | 35 comments - (Comments are closed)
The United Nations and the various NGOs which operate within its orbit, which naturally sees the world in terms of nation-states, regards statelessness as a ‘problem’ and the 1948 Universal Declaration of Human Rights include the phrase “everyone has the right to a nationality”. Yet as the world becomes more cosmopolitan and globalised, the primary threats to security are themselves non-state based (such as radical Islam) and private trade without the intermediation of states has never been easier in the dawning age of virtualised networked economics. Could we one day see a time in which many see modern narrow concepts of nationality and ‘citizenship’ of any Westphalian style state as an imposition rather than a ‘right’? February 26th, 2008 | 46 comments - (Comments are closed)
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