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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Well, the Fed has cut the cost of borrowing to avert what many see as a financial crisis. There are several ways to view this move, I guess. One view, as expressed here, is that central banks created the current asset price bubble and appetite for dubious credit products like collateralised debt obligations – bundles of bonds and loans – by cheap interest rates. Central banks caused this state of affairs, so they should let hedge funds and other institutions go bankrupt as part of the natural, if painful Darwinian process of the market. It sounds harsh, but a few casualties, while not much fun for the immediate investors, are a useful warning about how investments can go awry.
On the other hand, the fall in stock market prices since late July has been so fast that it threatens to cause a wider, systemic economic problem, and the rate cut was justified.
I take the former view, by and large. The underlying state of the UK economy, for example, is reasonable, if not great (thanks to the taxes and regulations of our current prime minister, Gordon Brown). But corporate earnings have been strong, consumer spending is okay – it has weakened a bit but hardly fallen off a cliff – and the cost of equities, when set against expected corporate earnings, are pretty cheap by long term standards. (The FTSE 100 index is priced on a multiple of about 12 times earnings, the cheapest since the early 1990s). The Fed, by cutting rates in this way, is more or less saying that stock market bears cannot make money, that the only way to bet is for stocks to rise. This ultimately creates a serious moral hazard by encouraging risky borrowing and lending behaviour.
I think we’ll regret what the Fed did today. Whoever said August was dull?
A report in the Times (of London) states that one of the UK’s leading charities, Voluntary Services Overseas (VSO), has told gap-year students (students taking a period of time off between school and university or whatever) not to take part in costly and often useless aid projects.
Indeed. Far better to encourage students not to take a gap year off at all, but to work hard, get a job, and then use all their energy and idealism to campaign to scrap all tariff barriers, trade “pacts” and other distortions of the world trade system.
As a subject for reading, this I highly recommend. I wonder if any university dons care to put it on their students’ reading lists?
When people start blaming Big Evil Capitalists for the latest SNAFU in the global capital markets – the collapse of many debt products linked to what are called sub-prime mortgages in the US – remember that the problem stems in part from how lenders have been positively encouraged by some states to lend money to risky borrowers and people with a history of debt defaults and late payments (thanks to Glenn Reynolds for the link).
Of course, ultra-low interest rates in many nations, such as Japan, have also fuelled a vast rise in the levels of global monetary growth, which in the near-term encouraged people to invest in any asset class offering a decent return regardless of risk of assets held, like bundles of sub-prime mortgages repackaged into exotica called collateralised debt obligations (please do not ask me to define these, it is too early in the morning and I have only had one coffee). Low interest rates have cut the price that investors typically demand for shouldering risk; now that rates have risen to curb inflation, the price for that risk has gone up.
Milton Friedman and Robert Heinlein may be dead, but the truths they espoused are very much alive. As they said, there is not, and never has been, such thing as a free lunch.
Maybe I should point out this story to my lovely Japanese sister-in-law. I wonder how many ordinary British people, never mind women, do things like this to make money?
Rod Liddle in this week’s Spectator has a fiery article about the English floods (the Scots have not been flooded, but their turn may come). It starts off in poetic fashion. When Rod is good, he’s very good:
England’s habitually well-mannered and inoffensive chalk streams have been uncharacteristically full of themselves this last week or so — as you may have gathered from your television evening news programmes or, if you’re unlucky, your kitchen.
The Pang in West Berkshire, for example, rarely bothers anybody. Scarcely 15 miles in length, its job is simply to adorn the Thames in agreeable manner, as if purchased from a sort of riparian Accessorize. Not this week, though. It has puffed its chest out and pretended to be one of those hectic, rough, uncouth northern rivers — the Tees, say — all swirling brown water and ill-concealed anger. It is possibly in your front room right now, making itself at home. The same is true of those other gently bourgeois downland streams; the Windrush, bored of the Cotswolds, engulfing the village of Standlake. The Ock pelting down from the White Horse hills, spilling its load hither and thither, the Lambourn doing its best to drown all those expensive horses. What has got into them all of a sudden? Not just rain, surely?
Liddle then goes on to argue that the floods are not really caused by global climate change – we have had lousy wet summers before – but by a different change: mass housebuilding. He argues that as more homes and roads are built, rainfall has fewer places to soak into the ground and runs off quickly, creating “flash-floods”. As more houses are built, so the argument goes, the flash-flood problem will get worse. Solution: build fewer homes, or at least build them in places where the drainage has been sorted out. This makes a degree of sense.
The problem I have with this article, however, is that Liddle misses obvious points and then goes on to ride his hobby horse, anti-immigration, in a rather trite way. Here’s one paragraph:
Three fairly calamitous floods in the last seven years, for example (2007, 2004 and 2000), the latest seriously affecting a vast swath of the population, something like five million people in all. And the cost is already estimated at more than £3 billion. Meanwhile insurance premiums are likely to rise between 15 and 20 per cent as a result, according to the Association of British Insurers.
I suspect the total insurance bill could be even higher. If insurance premiums do rise, then if housebuilding did operate in a genuine free market – it does not, unfortunately – then those higher premiums would incentivise housebuilders and would-be occupiers to build them in places at low risk of flooding. That is why I fervently hope that the government does not try to limit increases in insurance costs, but on the contrary, lets them rise sharply to remind people of the costs of living in a flood plain. If the government tries to artificially subsidise people by capping insurance costs – as I believe happened in the Mississippi Delta in the US – it creates a moral hazard problem.
However, Liddle does not make this point. Instead of using insurance premiums as a market method of constraining construction on flood plains, he wants to limit housebuilding by direct state action, and goes on to argue that Britain does not need new homes anyway, since our indigenous population is quite stable. No, it is all those smelly foreigners and welfare-sponging migrant workers:
Nobody has factored in the cost that accepting migrant labour — a workforce characterised by low skills, low aspirations and of a necessarily temporary nature — will incur. But we might hazard a pretty good guess. A higher crime rate occasioned by the entirely understandable sense of injustice experienced by a poorly paid immigrant labour force; a concomitant constant drain on our health and education and social services, resulting in higher and higher council tax. And the provision of cheap, ugly housing which, remarkably, manages to square the circle of increasing the likelihood of both flooding and chronic drought. More cars, roads, shopping malls, petrol stations, leisure centres. Whole cities of pale faux-brick starter homes, the rainwater deprived of an opportunity to sink down into the earth.
Migrant workers may not be rocket scientists, but it is surely a sweeping statement to say that they have low skills and have low aspirations. If a person gets off his behind to travel thousands of miles to get work and live elsewhere, that strikes me as pretty aspirational, actually. If the problem is that a lot of these people are low-paid, it is because the marginal price of the work they perform is quite low. Of course the solution to such a problem of supposedly pointless migrant labour – at least as Liddle sees it – is not to stop migrant labour, but to ensure that no welfare and other tax-funded benefits will be paid to such migrants for a period of say, at least 5 years. Immigration and welfare states do not mix: if you want one, you cannot have the other without creating a genuine sense of injustice among the existing taxpayer population. But to argue that housing shortages will no longer be a problem if we close immigration off is wrong. The days when people lived as one family, of several generations, under one roof, has gone: grannie has her flat, young singles do not want to live with their folks into their 30s, and divorce and other facts have increased the number of people living on their own. Even had the domestic population been static since WW2, we would have had an increase in the demand for homes, not to mention for things like second homes as incomes grow.
No, if the problem of the floods is that it is caused by building on flood plains, bad drainage and so forth, the problem is government. The government refuses planning permission in areas where the drainage might be good, such as the “green belt” land surrounding London, yet it encourages building in areas already at risk. It should let the market force of insurance premium increases do its job in encouraging building in places of low risk and deter it where risks are high. Bashing immigrants and imagining we can keep the UK population stable is not, frankly, sensible economics. It is about as intelligent as King Canute ordering the tide to flow out from the beach.
The UK floods are still wreaking havoc. I have friends who live in the Thames Valley area and they are out of danger, but many other people are not so fortunate. Besides the damage to homes, another problem will be the damage to crops. In my native East Anglia, the wheat harvest – the area is a sort of mini-version of the North American plains – is likely to be poor. Horticulture, in areas like Lincolnshire and Cambridgeshire on the Fens, has been hammered, although thanks to modern greenhouses and the like, not everything has been lost. We can expect prices of groceries, or at least some items, to go up, at least in the short run.
That got me wondering about our food supplies. As I mentioned in a previous post, the terrible summer of 1845 led to the Irish famine. In centuries past, bad weather was not just destructive in some ways but it also meant people starved in their millions. That is unlikely to happen now. And one reason for that is that we are no longer reliant on home-grown food. Food production is not only much greater because of modern techniques, drainage, use of fertilisers and machinery, but also because the 60m souls on this sodden island have access to a global market for food. Free trade can be a risk – this nation’s food supply routes need to be protected by naval forces, as we found out during the German U-boat menace – but in normal circumstances, having a diverse range of non-UK supplies for food makes great sense, particularly as climatic conditions change, as some argue.
The next time you watch a programme or read an article going on about the wonders of self-sufficiency and which bash supermarkets and global trade in foodstuffs, ponder what would happen if we really were reliant on the local farmers for everything we eat.
Even to a jaundiced observer of the mainstream UK media like yours truly, it is sometimes surprising how much bias there is against private property and privately owned business. The left just about tolerates big listed companies, I suspect because socialists imagine that such companies are easier to harass and bully via large shareholder groups like pension funds. This has certainly been part of the thinking in the United States, where large state pension schemes, such as the Calpers fund in California, have used their shareholder voting power to hammer the boards of firms they dislike or think are letting investors down. It is odd, as I remarked a few months ago, that the left, in the form of writers like Observer columnist Will Hutton, used to wax indignant about the short-term investment horizons of listed firms, and now regard them as the finest business model that there is, while regarding companies that are owned by private equity firms as somehow bad, even evil. Well, we had another example of the sort of prejudice against non-listed companies today in the Observer:
Britain’s leading bookmakers, including the private equity-owned Gala Coral, face serious allegations about the vulnerability of thousands of staff who are regularly attacked during robberies and by punters who have lost huge sums on new-style gaming machines. Gala Coral is owned by Permira, the private equity company headed by Damon Buffini.
Union officials paint an ugly picture of betting shop staff regularly abused and intimidated by gamblers, with hundreds of employees experiencing serious attacks. Staff have been injured and murdered as robberies of shops become an increasing occurrence.
The implication, lazily expressed, is that the horror of being robbed and murdered is somehow connected to the private ownership of the firms in which these people work. The Observer has been among the most vociferous attackers of private equity firms – firms that buy businesses and restructure them, usually with large amounts of borrowed money – and its criticisms are usually wide of the mark. Various studies, such as from Nottingham University, have shown that private equity firms invest for the longer term, create more jobs in total, and generate more profits, than listed businesses. But these firms are mega rich and their owners are very wealthy men (it is a male-dominated world) and so are clearly evil in the eyes of the left-leaning media. But even I was struck at how casually the Observer has tried to link the problems of robbery to private ownership in readers’ minds.
Of course, with interest rates rising and debt markets getting a lot rougher due to the sub-prime mortgage SNAFU in the US, the ability of private equity firms to borrow money will drop, so those economic illiterates at The Observer can rest easy, and go back to bashing publicly-quoted firms.
Ecogeek reports:
In the next 12 months, McDonald’s plans on creating enough fuel to power its 155 delivery vehicles while having enough fuel left over to sell into the public market. The fuel will be composed of 85% waste vegetable oil and 15% virgin rapeseed oil. So, while it will be 100% carbon neutral, it won’t be entirely waste oil.
It is all very well training executives in communication with the media. Somehow I have a feeling that if the guy was allow to talk normally instead of using the pseudo-technical press-release talk, this might have been avoided.
However, Matthew Howe, Senior VP of McDonald’s UK was quoted saying:”As we get better at the refinement we will be able to remove virgin rape from the process”, a line which we sincerely hope never gets taken out of context. [emphasis mine]
Now please excuse me whilst I clean the tea from out of my keyboard.
Which of these places would you say is more economically important?
Shenzhen, China. March 2005.
Silicon Valley, California. June 2007.
On Sunday evening, I returned a rental car at Los Angeles International Airport prior to boarding a flight to London. LAX is one of those airports where the car rental station is some distance from the terminals, and having returned your car, you board a shuttle bus that takes you to your terminal. There were only a small number of people on this particular bus, and the driver asked each of us which airline we were travelling on and hence which terminal we needed to be taken to. One of the other passengers was a young woman – perhaps 30 years old. She told the driver that she was flying on United, hesitated and said “…but it is an international flight. Is that the same?”. As is the case with many Americans, she gave the impression that she did not fly internationally very often, so I assured her that she was going to the correct terminal.
I asked her where she was going. She answered “Johannesburg”, and told me that she was going via London to get there. I expressed surprise that she had to take such a long route, and she told me that she could have flown to Washington and got a direct flight from there, but that the 15 hours non-stop from Washington to Johannesburg was a longer flight than she wanted to take. Personally, I have done more than a few 15 hour flights in my time, and I would not have made the same choice she did (for me, getting the total journey time down to as small a time is key, but other people’s mileage does vary, somewhat literally in this case). I mentioned that I had friends and family in Johannesburg and that I had visited that city earlier this year, and she asked me what it was like. I told her that the rich parts of northern Johannesburg (where she was going) are like southern California but with more fortifications, which may or may not have reassured her.
I asked her why I was going. She said it was “Business”, and that she was “involved in the Live Earth concerts”. I probably should have asked her how she was involved, or what she did, or something, but connections between LA and the music industry are not exactly surprising. I was tempted to make some snide remark about how the Johannesburg concerts had just been relocated to a smaller venue due to lack of interest, but in truth the discovery as to why this woman was travelling rather caused me to lose interest.
I suppose the real question might have been just exactly how she thought that flying lots of people like her from LA to London to Johannesburg was going to help global warming exactly, but I could not be bothered asking. And in truth it would have been rude to ask, because I was just making friendly conversation with a perfectly pleasant woman before catching a flight.
I fear though, that we are back to “essential” travel for “important” people like politicians, rock stars, and people who work in the music industry somehow not counting. Making sacrifices to save the world is something for the plebs to do.
Anatole Kaletsky, one of the newspaper columnists I read regularly, despite his incurable Keynesianism, has smart things to say in defence of private equity firms that have been taking over major businesses lately, provoking the ire of unions and leftist policians. Good for Anatole for refusing to jump on a silly bandwagon. Here are my thoughts on the issue a while back.
(Full disclosure: I do work for a non-listed company, thank god).
A week or so ago, Ross Clark, the eminently sane columnist who writes for the Spectator, defended globalisation and attacked what he sees as a growing hatred of rich people. We see it in the endless bleating about the supposed Evil of private equity and hedge funds, or of financial speculators generally. Much of the reason, I think, for this hatred, is not that the rich are so much better off in relative terms than the poor – the poor probably don’t have the time or the inclination to spend time hating the rich – but that the rich are a lot better off than the broad middle class. In my experience, many anti-globalistas are middle class intellectuals, not poor folk living in state subsidised housing. As it becomes more difficult for middle class folk, for example, to educate their offspring privately without going into massive debt, and to buy a house for the same reason, naturally the Man on the Clapam Omnibus – or his US version – gets a bit cheesed off if he sees City financiers buying swanky homes or sending children to nice schools with ease.
But this hatred of wealth is dangerous and it draws on economic illiteracy. To demonstrate a good case of such dunderheadedness, in the print version of the Spectator (16 June, page 26), is this letter from a Mr Edward Collier, of Cheltenham, a traditionally genteel spa town in the west of England famed for its posh girls’ school and a rather fine horse racing festival in March:
“Sir, In his article “Hatred of the rich is back in fashion” (9 June) Ross Clark wondered “What about the people who sew £10,000 handbags together – surely the more that the wealthy spend on their handbags, the more they earn?” Does he really believe that the sewers of hyper-handbags earn more than those who sew the mundane totes of everywoman? They’re sewn by the same people, for God’s sake, and for the same pathetic pittance.”
I could quote more from this character, but you get the idea of where he is coming from. So let’s spell it out for this Sage of Cheltenham: if more people spend money on luxury goods, which typically often require more intensive labour to produce, such as fine leather handbags or Breitling wristwatches, this increases the profits of the people who make these things, and in turn, increases the demand for the skilled labour required to make them, and hence, raises the real wages of the persons who make them, and so on. If a luxury leather handbag really does require no more skill to produce than a bag one could buy for a fiver, then presumably this letter writer might have a quarter of a decent point, but he does not. He merely asserts that the “same people” produce high-value goods as cheap ones, and uses this to dismiss the argument that when rich people spend their milions, it recycles wealth back into the economy.
In fact, even John Maynard Keynes’ argument of stimulating demand to encourage production presumably was based on the notion that if people spend money in the shops, it creates jobs, and therefore is a good thing. What this character seems to be saying is that no matter how much money rich folk spend on luxury goods, it makes no difference whatever to the people who make them. Apparently, the money never reaches the poor downtrodden producers, but ends up in a few capitalists’ pockets. But presumably, if more money is spent on goods than before, then, other things being equal, the prices of those goods will rise or output will have to be increased. To argue that none of this process filters through into the living standards of people is quite extraordinary.
Meanwhile, this story, if it is true, is not going to help the blood pressure of Mr Collier, I fear.
I am looking forward to this book by Ross Clark.
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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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