Samizdata

This is not a blog about whether the war was a good idea or not (for better or worse the choice has been made, and it is too soon for any historical analysis). Nor is it a blog about how the war should be fought – I do not have access to all the military information and I am not a soldier anyway.

My concern in this. Will the war get the blame for the coming economic downturn, thus diverting attention from the real cause?

For 30 years most newspapers, television and radio shows, economics textbooks and other such have blamed the failure of the Keynesian system in the 1970’s on the “Oil Shock”.

The fact that wage and price controls were introduced in the United States in 1971 and in Britain in 1972, whereas the ‘Oil Shock’ was in 1973 is overlooked. The idea that one can just pump up the money supply to hold down unemployment was clearly coming under strain (hence the effort to deal with the price rises, caused by the monetary growth, by direct controls), but then the “Oil Shock” came along to give the establishment an excuse for the failure of their system.

A similar thing could happen again. There is a vast credit bubble out there (in most Western nations) – the great majority of credit-money is not backed even by paper notes (let alone by anything else) and we are due for a big bust that will hit asset prices hard.

We have seen some of this already (with the decline in stock markets) – but there are a lot more problems to show up yet.

However, now the war has come – thus giving the establishment an excuse. “There is nothing basically wrong with the system, it was the war that messed things up”.

I know that it is cold to write about such things when people are dying – but it still has to be thought about.

On March 6, 1950 the first egg of Silly Putty was sold.

The best known free market economist in Britain after World War II was not F.A. Hayek (who taught mainly in the United States and then Germany), but rather John Jewkes of Oxford.

John Jewkes was the main voice opposing government economic ‘planning’ and the endless taxes, spending programs and regulations of modern Britian.

Jewkes opposed statism in many ways – he tried to show students and fellow academics some of the errors of statist policy in his university work, he sat on official commissions (and tried to make their reports less insane), and he wrote a series of articles and books for the layman. Such books as Ordeal by Planning and The Sources of Invention.

John Jewkes was, in many ways, the best British economics had to offer in the post war world – and he shows that British economics was dying as a serious discipline. How can I say this? Well consider the following.

“It would be idle to deny that the White Paper was a ‘Keynesian’ document. Keynes was, after all, the major prophet of the idea that governments could, by increasing aggregate demand, reduce unemployment. Some of those who collaborated in the preparation of White Paper had been his pupils or had long been his followers. Those who resisted some of his ideas before the war had later gained an enormours respect for and confidence in him as they watched, and collaborated in, his superbly dextrous negotiations with the American Government and its economic officials. Those who had perhaps been most suspicious of the pre-war ideas of Keynes (I was among these) had seen at first hand the horrible consequences of the pre-war high rates of unemployment in the depressed areas, especially among juveniles and were only too ready to concede that, if the doctrine of the White Paper could be made to work, the post-war world might be a safer and more humane place”.

The Government and Economic Policy: A Defence of the White Paper on Employment Policy 1944, page 42.

Essay Three of John Jewkes’ A Return to Free Market Economics (Macmillan Press 1978).

My first concern here is not with the the idea that ‘increasing aggregate demand” (government issuing more funny money) is a good idea (absurd though that is), but the total lack of interest in basic economic theory that John Jewkes shows. → Continue reading: The death of economics in Britain

President Bush has announced a proposal to abolish the Federal tax on dividend payments.

This proposal is defended partly on the grounds that reducing taxation (i.e. letting people keep more more of their own money) is generally a good thing, and partly because taxing dividends is ‘double taxation’ (the money that companies make already being taxed via Federal Corporation tax – which is actually quite high in the United States).

However, there is another factor to be considered. Financial institutions such as Pension Funds do not tend to be taxed as highly on their share holdings as individuals are (if indeed such trusts are taxed at all), so the effect of taxing individuals on their share holdings (not just the dividend tax but capital gains tax) is to concentrate a higher and higher percentage of stock into the ownership of financial institutions.

In short a group of hired managers in financial instructions ‘owning’ corporations managed by another group of hired managers. This may well be unhealthy (with a ‘magic circle’ of managers having developed, who tend to sit on each other’s ‘remuneration committees’ and lobby for State and Federal laws to make takeovers [if they are a threat to managers] more difficult and …)

In Britain the government also considered the difference between the regime of personal and financial institution taxation a problem. However, here the government responded by increasing the taxes that the pension funds (etc) had to pay – thus undermining further people’s incentive to save.

For all its many problems the United States is still a better country than Britain.