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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This reviewer plainly does not care much for Naomi Klein, scourge of the supposed evils of global capitalism. I plodded through some of her writings once just to see what the fuss was about and the economic illiteracy of this woman surprised even a jaundiced observer like me. She has achieved the rare feat of making the late JK Galbraith look like a great sage by comparison, which is quite a feat, given that many of his predictions were wrong, although he was a witty writer at times, which I suspect explains a lot of his appeal. And yet it is all such a shame: I think we free marketeers need to be challenged by high-class criticisms in order to sharpen our own defence of the market order; the problem is that if the anti-capitalist types out there become self-parodies, we can fall into a sense of false security. It never fails to surprise me just how bad a lot of anti-market writing often is.
On the issue of anti-capitalism, this old gem by Ludwig von Mises is a must-read, as fresh now as when he wrote it decades ago.
The decision of the British government to rescue Northern Rock, the mortgage lender, with billions of pounds of taxpayer’s money, represents a terrible long-term blunder, in my view. It may also put the UK afoul of EU law, for those that care about such matters. Of course one feels very sorry for the people who have savings with NR and I suppose many of them are mightily relieved at the turn of events. I am sure I would be relieved if I were in their position.
But hard cases make bad law, and bad policy. Consider what has happened: a company gets itself into a pickle because its funding policies are up-ended by a sudden rise in short-term interbank borrowing costs; fears grow that the firm cannot make good all its commitments and a bank run occurs. Before the days when financial institutions of a certain size were considered too large to be allowed to fail, the collapse, however tragic, of Northern Rock would have been seen as a necessary if very nasty reminder that capitalism has its risks.
Banks and other institutions that lend money must not lend to people without being sure of the latter’s credit worthiness. But that caution has been thrown to the winds in recent years: in the US and Britain, for example, borrowing covenants have been relaxed, and pretty much any sentient lifeform has been able to get a mortgage. Some financial institutions are to blame for their plight although in mitigation, the price signals that are the essential feature of markets have been distorted by a long stretch of cheap money. The ultimate culprits, as I said the other day, are the central banks and their historically low interest rates. With so much cheap liquidity, the sort of returns investors made on safe investments were peanuts and so they took greater risks for often only a slightly higher reward. We are now moving to a position where risk is more realistically priced. The Northern Rock bailout undermines that move.
The rescue of Northern Rock also shows that the supposed success by Margaret Thatcher and even John Major in rolling back socialism is itself an exaggeration. It proves that if a company is big enough, it can call on the public purse. Northern Rock, based in Labour Party heartland of the north-east, has been effectively nationalised by the government, and inevitably, the clamour will grow for more and arguably more deserving groups of people to be bailed out. I can think, for example, of the hundreds of thousands of people who face retirement without a decent pension because Gordon Brown, when he was Chancellor, helped to shaft private sector pensions by changes to how equity dividends are taxed. They are arguably far more deserving of some form of recompense.
Of course, if the Tories had any moral or political backbone – and they most certainly do not – they would have denounced this state of affairs, rather than take the easy way out of playing to the gallery by supporting the tax-funded bailout of Northern Rock. Back in the mid-1990s, when Barings went down due to dodgy trades in the derivatives market, the collapse was seen as a harsh but necessary lesson about the realities of risk. For a while, Barings served as a useful warning, far more useful than any group of regulations. With the rescue of Northern Rock, careless financiers will now regard the state as an easy touch.
Neil Cavuto (of Fox news) to Alan Greenspan.
“Did you keep interest rates too low for too long, creating a bubble?”
Mr Greenspan to Mr Cavuto.
“Collapse of communism in Eastern Europe… [blah, blah, blah]… the Third World… [blah, blah, blah]… the rise of investment in China…”
Draw your own conclusions.
This is a pretty good yarn explaining to the layperson how exactly we moved from a period when the financial markets only ever seemed to go up to the time, now, when there are long queues of anxious customers trying to pull their money out of mortgage lending and savings firm, Northern Rock. Hedge funds have lost money. Weird-sounding entities called ‘SIV-lites’ have lost cash (the absurd jargon of financial markets never fails to amaze me). I do not share the view of some Jeremiads that this saga will bring about a recession – although I do not discount that possibility – but the pace of the UK economy is bound to slow down. Suddenly, this present government is going to find it a lot harder to pay for all those new public sector sinecures it has created over the past 10 years – possibly as many as a million public sector jobs. Slower growth will cut into revenues.
The Northern Rock saga has jolted financial markets so much that the US equity market today fell because of the situation. Normally, the UK stock market takes its lead from the US, not the other way around. By coinidence, meanwhile, Alan Greenspan, the former chairman of the US Federal Reserve, has been plugging his memoirs and airing his views about the current problems. Like a lot of people, I take a less than reverential view of Greenspan, although I can see his many fine qualities too: he is a good economist, pretty sound on markets as such folk go, but he abandoned his old, gold-bug principles a long time ago and was a pretty “seat-of-the-pants” sort of Fed head, making up economic doctrine almost, it seemed, on the hoof. It is a bit rich, frankly, for Greenspan to bash Bush for the tax cuts (one of the few good things that Dubya did as President, actually). Greenspan operated a relatively loose interest rate regime and this fuelled the lending practices that have come back to haunt us, especially the whole sub-prime debt Snafu. Cheap money that is detached from economic reality begets trouble. As a man who once learned his economics in the circles of Ayn Rand and Ludwig von Mises, it is a shame that even he could not understand this, or if he did, act upon it.
I have said it before but I repeat it here: it is high time that the cult of the detached, Olympian central banker setting interest rates for whole land masses was ended. Here is the classic statement of why central banks with monopoly rights of currency issuance keep coming a cropper.
London is the most expensive place to eat out in the world, even more pricey than Tokyo (a city I really want to visit). Not very surprising, I guess. The sheer financial vibrancy of London fuels this, although it may lose some oomph if the problems in the global markets lead to some job cuts in the investment banking industry.
The key thing I have learned is to be bloody careful about the wine. I find that even in a pricey restaurant, you can get away without paying a fortune so long as you go very easy on the booze. But as soon as you buy anything other than the cheapest plonk in the list, you might as well call in the receivers and sell the house. For this reason I rarely eat out in expensive places, unless it is a special occasion, or eat at my magnificent Tandoori restaurant in deepest Pimlico, which is right next door to my flat. Now that’s luxury for you.
Recommendation: try this place out for a special night out. Great staff.
The other day I encountered this argument, which I failed properly to swat away and as a result, got rather rude to my interlocutor and he went off in a huff (sorry about that mate). What he said that made me go red was this:
“You libertarians keep banging on about the terrors of regulation. Yet you also slag off massive lawsuits and things like that. But if you want to get rid of huge payouts for things like people suing for damages, you need regulations. So why are you so hostile to them?”
As I pointed out, this is what is called a straw man argument.. Such “arguments” hold up a false, or in some cases deliberately false and weak, version of a point of view that a person wants to knock down easily (hence the “straw” bit). So let us fisk it.
First, I do not know any liberals or libertarians who argue that regulations are and always are a bad thing. Private sector bodies and voluntary associations of all kinds have them. A privately owned hospital, for instance, would regulate the behaviours of people who entered the premises. Why? Because that hospital would not want its reputation and bank account to be wrecked by outbreaks of disease, which lead to nasty insurance payouts. So it is in the self interest of said institutions to operate regulations, and more important perhaps, to be seen to do so. Another case is the London Stock Exchange. Long before modern financial regulators like the Financial Services Authority came along, the LSE was founded (back in the 18th Century, I think) and it had rules, albeit not always formal ones, but rules nonetheless (“my word is my bond”, etc). Trust is the key. And if you do not have trust, and have ways of enforcing said, then networks of commercial or other transactions do not work so well. So let us dispose of the canard that classical liberals are agin regulations. They are not. What we are against is one-size-fits-all regulations imposed heedlessly by the state. This is the crucial thing. Regulations, to be useful, need to be tried and tested, and if need be, discarded. State regulations tend not to be like that, but rather resemble clumps of ivy climbing up the side of a tree. They are much harder to reverse.
Okay, so now we come to the idea that libertarians hate expensive lawsuits. I suppose it is true that we hate frivolous, massively costly lawsuits, by definition (and who does not, except lawyers?). But sometimes you need to have lawsuits because you will not always have perfect knowledge of the kind of problems that can arise. Take the example of the hospital again – its managers may not know about new diseases that can be transported into the building in unexpected ways. A lawsuit following a disaster may be the trigger for a new rule. In this sense, lawsuits, although unpleasant for those on the receiving end of them, act as a sort of discovery process about what sort of problems exist. Lawyers have their uses.
In other words, this is quite a complicated argument. I just will not make the same mistake of trying to explain it after two beers and a 13-hour day at the office.
I am glad to see that the current moral panic about Britons sliding into a Hogarthian nightmare of drunken idiocy has not put off these guys from selling sparkling wine – or champagne, maybe – for £5 a bottle. I am not sure whether it is going to taste as good as Krug, mind. And of course, with many so-called luxury goods, the business model gets ruined if the prices are cut so massively that the exclusivity is lost, and hence the cachet of buying X or Y in the first place. Would Ferraris, for example, be quite the same if they were as cheap as Fords?
Even so, fair play to the businesses that bring us cheap goods. Globalisation – terrible, isn’t it?
There could be an interesting storm brewing when you see things like this…
Gold has raced to a 16-month high of $700 an ounce as investors seek to shelter their cash after stock markets ended the week sharply lower. The yellow metal has clawed back around $30 this week, raising hopes it could revisit last year’s highs of around $730 an ounce. Although gold is traditionally strong at this time of year, the rout in credit markets is fuelling further appetite for the safest investments.
and this…
A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.
I am trying to join the dots but instead of a bull or a bear, the outline looks a bit like a hippopotamus. Not sure what to make of that.
Tim Worstall has a bit of fun with poor old George Monbiot, who frets about the origins of all that terribly nasty “neo-liberal” (ie, classical liberal) thinking that dared to suggest an alternative to Man’s future in a great socialist project.
Well, I have been to a few events hosted by think tanks like the Institute of Economic Affairs, have been a member of the Libertarian Alliance for 22 years (!) and have been even known to correspond with likeminded people in foreign countries. The sheer horror of it, Georgie!
Seriously, articles such as Monbiot’s suggest to me that the “neo-liberals” have been winning at least some debates, or at least getting under the collars of collectivists of various types. That has to be a good thing.
For a grown-up analysis of the revival of classical liberal ideas in the West, Brian Doherty’s book is a great read. It mainly focuses on the US, however.
Let’s see if we can spot the flaky reasoning in this letter to The Times (of London), as prompted by a good(ish) article by Daniel Finkelstein today:
Writing as a parent and as one who stands to inherit a large sum, a far better way to reduce inter-generational inequality would be to set inheritance tax at 100% over a comparatively high threshold (e.g. £500K). Then the older generation would have a strong incentive to sell their large, expensive homes – increasing supply and making property more affordable for the young – and spend the money, boosting the economy, employment and wages. It would also have the benefit of forcing the children of the rich to make their own way in the world – they have enough advantages in life anyway.
First, the writer assumes as a matter of course that “inter-generational inequality” – however defined – is of itself a bad thing, a thing to be prevented by limits on any wealth bequeathed above a certain level. For this writer, he/she assumes that no person should have, in this case, an amount higher than say, £500,000. But why on earth should the state rule that people should be banned from receiving, as a gift, more than whatever some egalitarian thinks is the “right” amount? So the inheritor may not “deserve” it in some sense but so what? If a person does not deserve to inherit £1m, neither do his fellow citizens deserve to have that wealth evenly divided up among themselves, either. I think it was FA Hayek who pointed out that in talking of deserve, we talk of deserve in the eyes of someone else, like a father, boss or God who decides that Johnathan Pearce or AN Other “deserve” to receive X or Y out of the multitudes. But dumb luck in inheriting money or good looks or a high IQ is just that: luck. Luck is neither undeserved or deserved. Through aeons of time, we have evolved into human beings with things like opposable thumbs and relatively large brains. We did not “deserve” those, either, so does this mean we should hold ourselves back to benefit our less fortunate creatures?
→ Continue reading: The fallacies behind inheritance tax
As a counterweight to the doomongers out there, this is a spendid talk on global economic and population trends that one hopes reaches a wide audience. Something pleasant for a Sunday. The video runs for about 20 minutes or so, if my memory serves. It is always refreshing to come across an academic who is not only thought-provoking but also very funny.
Ruth Lea (thanks to Perry for pointing this out to me) has what is a pretty good analysis of the upcoming regulatory juggernaut to hit the City out of Brussels. I won’t expand much further other than to say that without the City, the UK economy would be a shadow of what it is now. Of course, in the short run, the UK government has been content to let financiers make their big bucks because it pulls in so much taxable revenue. More fundamentally, however, London’s position as a great finance capital on the planet is not secure; while regulations like Sarbanes-Oxley have driven some US businesses to the UK, Brussels-generated laws could hamper the UK and drive that business outside the EU, although natural inertia and the benefits of London’s accumulated legal and financial expertise are strong assets. Never forget the Swiss. The weather is okay, the trains work, the Swiss mountains are great for skiing in the winter and although I am happily married, I have always rather admired their women. If you are a 30-something banker with no ties, London is not necessarily superior.
Of course, if the Scottish nationalists were not such lefties, they’d be playing the Adam Smith card and campaign to turn Edinburgh into a sort of tartan low-tax paradise, and take a leaf out of the Irish book on how to revive an economy (no, the Irish economy is not all about EU grants, in case anyone brings that one up).
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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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