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.
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Anyone opened a bank account of late? Transferred an account? Dealt in cash? Sent money abroad? Have you been sent half-insane by the form-filling and ID checking it involved?
If so, then please point an accusatory finger at people like Jonathan M. Winer a former US Deputy Assistant Secretary of State International Law Enforcement who has written a rather plaintiff article in the Financial Times exhorting the entire world to join him in his campaign against what he calls ‘dirty money’.
The anti-money laundering regime, in which doubtless Mr. Winer was instrumental, sought to scupper international terrorists and drug-dealers by imposing a regulatory regime on all financial institutions requiring them to act as investigators and policemen on the state’s behalf. I have witnessed the absurd results of this first-hand as lowly pensioners from Essex are told to hand over their passport when signing a loan agreement just in case they are really Osama Bin Laden in deep cover.
Added to the humiliation of treating people like criminals, the cost-burden on financial institutions are awesome and let us not forget the many small countries which have been bullied into surrendering their banking secrecy and legal safeguards of anonymity which are the only comparative advantages they possess.
After all that, it is more than a little galling to hear Mr. Winer say:
“Long before September 11, many other victims of wrongdoing have found that global evil-doers are better at taking advantage of the financial infrastructure of globalisation than the world’s police and regulators are at catching them”
Is it just me, or does that sound suspiciously like an admission of failure? I cannot say that I am surprised. I (along with many others) predicted long ago that these regulations would do nothing to stop or even slow down determined terrorists or drug-runners. People who are ruthless enough to fly aeroplanes into buildings are hardly going to be phased by having to practice some sleight-of-hand with a bank teller or two.
Mr. Winer goes on to remind us of just how evil money-laundering can be but, rather hilariously, cites economic woes in countries such as Argentina, Mexico and Albania as proof, while forgetting to mention that these countries were hardly paragons of financial virtue to begin with. But, this aside, there is some refreshing frankness in the article. Mr. Winer admits:
“In practice, even the most sophisticated and best-regulated financial centres have proved incapable of adequately overseeing the global enterprises they license”
You’d think that Mr. Winer might have considered this beforehand because it is screamingly obvious. Asking bankers to become policemen is not only a good way to ensure that policemen get lazy but it is also an attempt to get banks engaged in an activity that is diametrically in conflict with their primary function, like asking a cat to bark.
Mr. Winer goes on to suggest a better method for bringing these terrible terrorists and drug-runners to their knees:
“But imagine instead a white list, to make compliance a profit centre, rather than a burden on a bank. A white list – and a reward for being on it.”
This ‘white list’ is something which banks all over the world could apply to join once they have satisfied all the states criteria of compliance to the very highest degree. Then they could proudly advertise themselves as ‘the best of the best’ and all their competitiors would rush to join for the kudos it would give them. Mr.Winer expects this to be a ‘race to the top’.
This is an idea born of hope rather than judgement and is likely to be as successful as his last good idea i.e. a total dud. Complying with the standards required to get on this ‘white list’ would cripple any bank with unendurable profit-eating costs and any that were stupid enough to try would slide dolefully into liquidation while their competitors died laughing.
I am quite pleased that the likes of Mr. Winer are pinning their hopes on this because it is further confirmation that they have lost. That’s what the whole article smacks of really; an almost pathetic, desperate attempt to snatch victory from the jaws of defeat. This may be futile but it is, from Mr. Winer’s point of view, understandable because the ‘anti-money laundering regime’ is not really about drugs or terrorists at all, it is a sordid attempt at self-preservation. The global movement of capital represents a grievous threat to national tax bases, particularly those that demand up to one-half of their citizens earnings. But that little game is up if the citizens in question can move their money beyond their local tax inspectors reach.
All this chaffe about drugs and terrorists is really a vehicle by which the public sector can try to defend itself against the vigour (or what they see as ‘virulence’) of the free market and, in doing so, they are quite happy, indeed almost compelled, into press-ganging every bank clerk and accountant into their fight. But no laws that Mr. Winer can pen will upend the immutable laws of physics and, sooner or later, the international money-laundering regime will be buried in the Graveyard of Grand Schemes.
Mr. Winer’s article is not so much a helpful analysis or even a plea for help so much as notice of his intention to go down fighting.
In this report in the Times of India, US reduces reward on Bin Laden, we see the strangest manifestation of the backward bending demand curve I have ever seen!
 Update: As a couple people have ask me to simply explain what a ‘backward bending demand curve’ is, it is a strange and counter intuitive phenomenon in which sometimes as a product gets cheaper, people buy less of it or if a product gets more expensive, they buy more of it. This does not seem to make sense but it does occasionally happen.
Example 1: A high price designer ‘name label’ dress is offered at a reduced price… still out of reach of the ‘woman in the street’ buyer. Paradoxically the high end target market buy less of the dresses, presumably because the reduced price indicates it is probably ‘last years design’ (even if not true, the price is used as the primary source of information by the potential purchaser as to ‘what is hot’).
Example 2: Soviet made wristwatches, made to uncharacteristically high quality and standards were marketed in Britain in the early 1970’s. They were every bit as good as other high quality wristwatches available at the time but were almost half the price. Even though Soviet products were a relative rarity in the UK, British buyers stayed away in droves, presumably taking the view that any watch that cheap had to be complete rubbish. The Soviets were baffled but on advice from a British consultant raised the price to just below the typical UK price and they stared to sell.
Thus, the US is lowering the price on the head on Osama bin Laden in the hope the new level of reward is something rural Afghans can actually relate to in the real world. In each case the specifics are different but price is just a form of information and sometimes if the price of something is unexpectedly high or low, the effects is the opposite of what one might normally expect. That is what I mean by a ‘backward bending demand curve’!
Also on reflection, I was thinking of this in terms of the US doing the ‘selling’ of an outsourced service here (terrorist removal)… but I suppose one could argue that this is a backward bending supply curve: the US is offering money in the hope some impoverished Afghan will ‘supply’ a dead or bound-hand-and-foot Osama bin Laden 
All those people who greeted the inane steel tariffs with a yawn (“No one is interested in steel tariffs”, “it is just a bit of politics”) will be no doubt equally uninterested that the European Union, you know, the USA’s largest trading partner, is now planning fast track retaliation against the USA that will specifically target US states that benefit from the US protectionist measures.
They join Russia, Australia and Brazil looking into setting up a splendid little self-reinforcing destructive anti-international trade harmonic that will hurt everyone.
If there is anyone out there who did NOT think that international retaliation against US goods and services was the guaranteed response to the new US steel tariff, can they please e-mail me to explain why they did not think that was going to happen?
Now what were you guys saying about it not being any big deal and just being about internal US politics? So what’s next George? “Read my lips: No New Tariffs” perhaps?
Given my long and strongly held reservations about the European Union (EU) and my enthusiasm for most things Internet and World Wide Web, I felt considerable discomfort reading an Accenture paper The euro and eCommerce: Bringing Europe closer to a single market. The reason for my discomfort, apart from the source of the paper, was its argument that ‘the interaction of a single currency and e-commerce will forge powerful synergies across the euro zone, enhance European competitiveness and accelerate the emergence of pan-European capital market’. So does Bad [EU] plus Good [e-commerce] equal an enhanced Good [capital market unification and its benefits]?
How is it possible that something as centralising and anti-competitive as the euro can provide such a fertile ground for e-commerce, a symbol of non-regulated and most free market business model? At first I could not fault the paper’s conclusion or even its argument, but then I realised that a dose of ‘meta-context’ analysis is needed to understand what are the underpinning ‘world views’ at work here.
The EU debate (a civilised term for the battle between the strongly opposing camps) seems to be conducted on a simplistic utilitarian level, an argument that cannot get beyond the second-tier logic and with a short to medium-term horizon. It consists, at least in the media, of collecting examples and anecdotes of beneficial or damaging effects the European project will or might have. The EU supporters put forward the positive results of their efforts and EU opponents strive to point out their negative impact. Although consequences are an important measure of success or failure, this approach rarely addresses the fundamental premises from which both sides launch their campaigns.
An EU supporter would use the paper’s conclusions to point out that the positive impact of the euro, as enhanced by e-commerce, makes the justification of monetary union more powerful. The euro together with e-commerce further breaks down the barriers between the nations and moves us closer and more rapidly towards the ‘glorious day’ of pan-European capital markets. This also:
- reduces currency exchange risk and cost.
- through the Growth and Stability Pact limits the size of public-sector deficits thus indirectly increasing private sector access to capital by reducing ‘crowding out’ by public-sector borrowers,
- encourages growth of the European corporate bond market that is now widely seen as being able to match the dollar market,
- in combination with information and communications technology enables more fluid and efficient payment processes and settlement systems,
- enhances competition and creates greater price transparency.
There you are – all of the above worthy of any libertarian, or indeed common sense, endorsement. Why would we want the UK to forgo such lovely things, which is what will happen, if we don’t join the €uro?
To me the issue is not about centralisation and efficiency versus free market and disorder. The successful coupling of the euro and e-commerce has a straightforward explanation – the euro provides, by default, a transparent standard for transactions. E-commerce, e-business or any e-prefixed interaction cannot reach its full potential without it. The issue is about the distinction between standards (good) and uniformity (bad) – uniformity as an objective, out of context and without regard for the long-term consequences (if we are to play the utilitarian game) does not sit comfortably with the pursuit of freedom. The distinction between inefficiency (bad) and variety (good) – although a certain degree of inefficiency may have to be the price we pay for variety. It seems to me that the EU has been designed and promoted by the kind of mind that does not value variety and freedom as much as it values uniformity and supposed efficiency.
I believe that the truth about the EU lies in understanding and exposing the true objectives and motivations of its supporters. An understanding of the unintended consequences of market and human interactions will have to play an important role. Therefore I call for a meta-context based examination of the EU debate that reveals the actual view of the world its supporters would have us accept instead of wasting our adrenaline on specific EU horror stories.
Paul Staines writes in with a rational explanation about how the advocates of flat-earth economics want to ‘end poverty’ by taxing the very mechanisms of trade.
Tom Burroughes wrote on Samizdata on Wednesday:
“This morning a contact of mine called up to say he was attending an event discussing the so-called Tobin Tax, which is a levy on foreign exchange transactions named after the Nobel Prize Winning Laureate of 1981, James Tobin.”
Tom might admit its not so weird when you know that contact was myself, I took his advice and put on a pinstripe, garish shirt and clashing braces – if you are going to be an evil currency speculator, best look the part he said.
Bizarre gathering, left winger Shirley Williams was the keynote speaker, ‘anti-poverty’ campaigners, the Guardian’s economics editor and a couple of economists who have never worked outside academia made up the panel. If you plan to tax foreign exchange transactions best not to involve anybody who has actually done an FX trade in the planning I guess. Besides myself, amongst a sea of ‘anti-poverty’ campaigners the only dissident voice was a journalist from the Financial Times and a pretty young student thing from London School of Economics. The cherub from the LSE asked the entirely logical question “won’t this be a regressive tax on third world traders?”
For example I’m a gum farmer from Sudan, I sell my gum to Rowntrees Ltd. in the UK so they can make fruit pastilles. I want Sudanese dinars, Rowntrees pay pounds sterling, I sell the pounds for dollars (Tobin tax time), I sell the dollars for dinars (Tobin tax time). Minor currencies are always quoted against the dollar, so if you come from a small country you pay the tax twice – and this regressive tax helps the developing world?
War on Want reckon that $250 bn a year can be raised by taxing currency speculation at a mere 0.1%. Sounds like a cheap tax with great rewards. Lots of talk about how $1 trillion a day passes across the FX markets daily. You know how it is, I buy a $1m you sell ¥130m, I buy £1m you sell $1.6m next thing you know, by days end we’ve consummated $1bn in trade. And hopefully I’m up $10,000. Did you notice how the big numbers and the profits are very different? Banks also have their profits taxed by the way. I pointed out that if you add up the profits of all the investment banks this year, it probably doesn’t even make $10bn. Its been a tough year. So where will this $250bn come from? Stand up row ensues, I don’t care about the poor being the conclusion. They were, genuinely, quite shocked to realise the sums couldn’t add up by a factor of 2500%. So much for ending world poverty next year.
Have you ever played poker for hours and ended up with the same money you started out with? Well these jokers think that we’d still play cards if the croupier stole a chip every deal. Obviously we’d play at a casino that didn’t steal our chips, say the Bahamas, Zürich or cyberspace, but I suspect Chancellor Gordon Brown will continue to be the croupier for a free market City of London, home to nearly half the world’s FX deals, he won’t start stealing the chips any time soon.
This morning a contact of mine called up to say he was attending an event discussing the so-called Tobin Tax, which is a levy on foreign exchange transactions named after the Nobel Prize Winning Laureate of 1981, James Tobin. The tax is proposed by such politicians of usually leftist anti-market hue as French Prime Minister Lionel Jospin, who favour the tax as a way of reducing the massive flows of foreign exchange business and hence, they hope, in reducing the power of global markets. It is a vain hope. For starters, any attempt to tax foreign exchange deals would be a massive boost for the offshore tax-haven market, already booming as investors wisely choose to domicile their businesses there to avoid paying tax. It is an idea that has, in my view, very little chance of taking form. It would be a particular blow to the City of London, which boasts a vast foreign exchange market on which many jobs depend.
Anyway, on Monday Professor Tobin, a former adviser to President John F. Kennedy, passed away. One should not speak ill of the dead, and on the whole my impression of Tobin is that of a distinguished economist. But let us hope the foolish levy that bears his name passes away also to the great dustbin of bad ideas in the sky.
David Carr in a post below seeks to reassure us Brits that the US steel tariffs do not matter because they will help rather than harm our economy. That’s like being reassured that it is the house next door burning down, not one’s own, and with a kindly additional word pointing out that all this nice warm air wafting over from the conflagration will reduce one’s heating bills.
The tarriffs will (a) directly harm the economies of many other countries, to whom I am not indifferent; (b) allow the European Union the excuse they’ve been praying for to put tarriffs on the South Korean and Chinese steel you mention – so no, the British consumer will not benefit; (c) give strength to the yelps of half a hundred other US lobbies; (d) start another round of retaliation with all the effects above applied to some other randomly chosen commodity, thus screwing up another bunch of people’s prosperity.
And they make Bush look weak and hypocritical, which the world could do without right now.
When I was a schoolboy some rather smug wag made me look utterly foolish by asking me which I thought would weigh more: a ton of steel or a ton of feathers? “Oh the steel, obviously” I said. Think about it.
Fast forward 25 years and the subject of steel is ruffling feathers in Britain and there must be something about this juxtaposition that makes an awful lot of people appear utterly foolish, most notably those that are spluttering with indignation about this ‘slap in the face’, ‘kick in the shins’, ‘punch up the trousers’ delivered to Britain by the US government’s decision to raise tarrifs. So much for the ‘Special Relationship’, eh.
So much for superficial analysis. Take a pill, John and Jane Bull, for this English patriot is far from ruffled.
This is not to say that British steel production is not significant. It is. In fact, in 1995 it was Britain was the third largest producer in the world. What is insignificant is British exports to the US which account for less than 4% of our total exports. The vast majority of British sales go to the domestic market or Europe.
The really big players in the US market are producers in countries like China and South Korea who, faced with the tarrifs, will turn to Britain and Europe to sell their far more attractively priced steel. That means that prices will drop for the British consumer and British steel producers will have to get leaner, meaner and more innovative in order to remain competitive.
In other words, it is good news for the British economy for precisely the same reason that it is bad news for the US one and, whilst it would be a stretch to suggest that this was Mr.Bush’s intention, it is his fellow Americans that he has ‘slapped in the face’ not us Brits.
Happy now?
New blog Global Grumpy raises an interesting point about the surprising lack of reaction from the US media and muted reaction from conservative bloggers regarding the asinine steel tariffs. He also links to a somewhat pointless article on Slate on the legality of the subject, as if the problem was a legal one rather than an economic and political one. The fact left wing bloggers have little to say is hardly surprising but one can only speculate why the neo-con bloggers are not howling much louder.
Bush’s action is clearly damaging to the US economy due to the inevitable knock-on effects it will have on international trade, not to mention the increased costs passed on directly as US steel becomes more expensive. I was expecting to hear people making much stronger remarks about ‘The Bush Steel Tax on US consumers’ (for that is what it is). The headlines I was expecting were:
- ‘Bush causes squeals of delight amongst anti-globalization advocates’
- ‘Is Bush trying to get France to award him the Legion d’Honneur for inconsistency?’
- ‘Bush encourages reduction in global trade’
- ‘Bush to World: please add tariff barriers against goods exported from USA’
- ‘Bush tells Russians: ‘Yeah I know we are proping up your economy with aid on one hand and trying to wreck your steel industry with the other… so what? If you need money go sell nukes to Iran and stop bugging us’
I hope the reason for this is not the flip side of a phenomena I saw many times during the ghastly Clinton years: even when Clinton occasionally got something right (very occasionally), so great was the detestation of several otherwise analytical commentators (and friends) that they opposed policies which if conducted identically under any US president except Clinton, they would have supported without question. I wonder if ‘wartime’ admiration for Bush has not cause a similar blindness in the other direction towards a truly inane policy.
This is not a trivial issue and could have disastrous implications for the international trade system that are far more important than an industry which employs 150,000 people out of a population of 260 million.
[Note to ‘Global Grumpy’: the two e-mail addresses I have for you both bounce]
Perry’s comments on George W. Bush’s economically illiterate steel tariffs below are surely a reminder that conservatives (with a large or small c) are often the worst defenders of free enterprise.
How on earth can Dubya, for whom I have a fair amount of respect, talk about free markets any more with a straight face? Looks like the worst kind of vote-grubbing measure to me. Clearly bound to have an adverse impact on other sectors of the economy as well as sour relations with other parts of the world.
Bush has given the euro-weenies a stick to beat him with – and this time they have right on their side. Bush’s move is clearly related to next November’s Congressional elections. George, get a copy of Henry Hazlitt’s “Economics in One Lesson” and wise up!
The recent trip by George Bush to Asia in which he preached the value of free trade and capitalism was of course widely reported in the media across the world. As a result, his remarks about the lowering of trade barriers are inevitably going to be thrown back in his face following the ludicrous imposition of 30% tariffs on steel imported into the USA.
Given that the underlying trend for steel imports into the USA has been downwards for years (down 30% over the last four) it is particularly bizarre that this politically motivated protectionism should have been allowed to happened. Of course this will also result in more expensive steel for the domestic US construction and manufacturing industry, it will cause retaliatory tariffs against US products overseas and most importantly, completely destroys the US ability to put political or moral pressure on other countries to lower tariffs against US goods.
So in order to protect some jobs in an inefficient sector, other US jobs are put at risk in not just steel consuming areas of the economy but also possibly the entire export sector once anti-US retaliatory measures are used to hit back by US trading partners.
Perhaps someone needs to point out to Dubya that compared to the value of liberalisation of the world trading system to a massive high tech external trading nation like the USA, the US steel industry is really not that important in the overall scheme of things. In any case, the whole idea that less competition will make the US steel industry more efficient, well, how does that work? It will just penalize the modern and the more competitive US steel producers in order to protect the less efficient unionised dinosaurs who will go bust in a few years anyway regardless. In the meantime overall competitiveness of US industry suffers versus overseas steel users who have access to steel at the regular non-‘protected’ price. Nice one George.
The music industry is a wonderful example of how established players in any market often feel they have a vested interest in stasis rather than dynamic change. Rather than see new technical innovations as potential boons, the industry has spent a fortune trying to use the state to defend its existing business models with an army of lobbyists and lawyers, attempting to un-invent the technologies that they (rightly) see as shattering the current structure of its multi-billion dollar industry. Steven Den Beste has a good article on the subject and makes an excellent point regarding the self-defeating culture in the boardrooms of the music industry majors:
As long as the industry doesn’t see it from that point of view, they will continue to try to fight the future. No industry can ultimately survive if it thinks of its customers as enemies; ultimately the industry has to adopt the point of view of its customers and cater to their desires. You cannot sell someone what you want them to have. You have to sell them what they want to buy.
A classic case of this syndrome of ‘customer-as-enemy’ was provided by Steve Heckler a VP from Sony Pictures Entertainment in August 2000 who said:
The [music] industry will take whatever steps it needs to protect itself and protect its revenue streams,” Heckler said. “It will not lose that revenue stream, no matter what. […] Sony is going to take aggressive steps to stop this. We will develop technology that transcends the individual user. We will firewall Napster at source – we will block it at your cable company, we will block it at your phone company, we will block it at your [ISP]. We will firewall it at your PC.
Although Sony tried to apply some damage limitation spin to Heckler’s remarks soon afterwards, this is clearly delusions of grandeur on a spectacular scale and is exactly the mentality to which Den Beste has alluded. The major players think they can translate their wealth into political muscle and use the state to crush would-be new entrants that seek to undermine their businesses. taking out Napster has only encouraged this flawed thinking. Additionally yet more money is being spent on technological fixes which are also doomed to fail due to the ‘Swiss Watch Effect’ (it is cheaper and easier to smash a Swiss Watch than it is to make one): they spend millions on copy protection that will be broken within months or weeks by the worldwide army of Internet linked 15 year old crackers who work for free.
Another indication of the scale of ‘wrong-think’ going on in boardrooms is that they do not seem to realise that many people’s CD player is their computer. I might have purchase the new Natalie Imbruglia CD White Lilies Island but I have read that most computers gag on some of the tracks due to copy protection and I do tend to play a CD in my computer whilst I surf the Net. As a result I have not bought the CD. Well I suppose if the company strategy is to make it hard for me to rip any tracks into MP3s, one way of doing that is to discourage me from buying their products all together. Somehow I don’t think that was quite the effect they were hoping for but that is the one they have got.
[Update: article amended with Steve Heckler of Sony’s exact remarks thanks to the excellent input of readers Tino D’Amico and Joachim Klehe]
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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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