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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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There is some controversy at present about the moves by the UK government (and not just the UK, the government of little Malta is at it) to let Chinese-owned (ie, state-owned) businesses invest in the UK, buy shares of local firms, and the like. Iain Martin more or less says we should only let the Chinese do so if they accord equal freedoms to UK firms. At present, any non-domestic organisation wishing to do business in Mainland China (it is different in Hong Kong) is required to set up a joint venture with a local Chinese partner. In practice, it means making nice to the local, often corrupt, representatives of the Chinese communist party. The comment thread on Martin’s article contains its usual share of foreigner-hating buffoons but there are some intelligent observations as well.
A difficulty presents itself. First, the UK is already one in which the state owns a fairly large share of the economy, not just through the overtly public sector bit, but by national controls and regulations over all kinds of sectors, such as transport and energy. True, the UK is a democratic polity, but given the imperfections of democracy, and Britain’s membership of the EU, the accountability of politicians for what happens in the UK is, to say the least, limited. And so does it really make sense for Britons to get in a rage about sinister foreigners buying bits of the UK? It is not as if we are operating in a world of unfettered capitalism. (Those who remember the late 80s when Japanese firms were buying Western assets will feel a sense of deja vu coming on when reading about another supposed menace from overseas.)
Then there are the exploits of what are called Sovereign Wealth Funds. Such funds, mostly run by energy-rich jurisdictions in the Middle East and Asia, are politically and legally opaque. We have seen how the heads of these large gobs of wealth have bought such “trophy assets” as football teams (Manchester City) and so on. State-owned EDF, the French energy conglomerate, is a big player in the UK energy market. (I note that one Samizdata commenter on a previous post about energy policy seems rather upset about this. The accursed French!.)
In fact, if we are going to ban investment into a jurisdiction such as the UK from entities deemed to be opaque, or the arms of oppressive regimes of various kinds, that is going to create quite a headache. These folks have a lot of the money. They may not, of course, have it forever. China’s property market is, shall we say, an unknown quantity. If the US fracking revolution continues, and the price of energy falls a bit, some of the prowess of the SWFs might decline. It might also be a smart idea if Western governments learned to live within their means rather than go begging for such sources of money to make up the deficit gaps, which is what is really going on here.
But then again, these issues might not be all that new. In the past, politicians of various hues have tried to reinstate protectionist controls on foreign trade by objecting to things such as “dumping”, for instance (evil foreigners selling us subsidised cheap stuff). If China wants to sell us cheap things, and we can save money by paying less for such things than we would otherwise, and invest/spend what we have saved on something else, I don’t really see the problem in that.
We should remember that China needs the West to grow to sustain the value of what it wants to buy abroad. Ironically, one of the best ways to keep pushing China down the path to real capitalism rather than the odd hybrid it has now is to expose its people to doing as much business abroad as possible. So long as Western leaders play their hands intelligently and push for more penetration of China’s markets as part of that process, that surely is in everyone’s long term interests.
The current lead story for the Daily Telegraph highlights the mixture of hauteur, obduracy and paternalism of an administration which has enacted policies designed to force up energy bills (for those dubious CAGW reasons) and is now trying to advise the public on the results:
David Cameron believes that millions of people facing rising energy bills should consider “wrapping up warm” and wearing jumpers, Downing Street has said.
The comments are likely to provoke anger from people struggling to cope with the rising cost of living.
The last sentence belongs in the “no shit, Sherlock” category.
Heating bills are as high as they are in large part because energy is produced not, by and large, under unfettered laissez faire capitalism – as it should be – but in rigged and heavily taxed conditions. The details are complex, but as far as the UK goes, it has been a Conservative/Labour/Liberal Democrat consensus that certain types of energy (carbon-based) should be heavily taxed. Taxes are costs and as the simplest businessman will know, such costs will either manifest themselves in higher prices, or lower output of services/products, or weaker returns on investment, or some combination of all three. There are, of course, other reasons for high energy bills, such geopolitics and our reliance on sources of oil, for example, from the Middle East.
We have an electricity industry that is now very close to not being able to cope with a harsh winter, according to various press reports. The government, unable or unwilling to be honest with itself about the issue, or face up to the mounting evidence about the dubious science on which anti-carbon ideas are based, is reduced to lecturing the public about wearing more clothes.
The former US president, Jimmy Carter, is remembered for some lamentable things in American life (although in fairness he did at least appoint Paul Volcker to the Fed and some industries got deregulated under Carter’s term). And one thing this man is remembered for is how he wore a woolly jumper in the White House to save on heating bills. He wasn’t doing that out of frugal fiscal policy, which might have been admirable, but because of the-then energy crisis to which his own policies contributed. (Price controls, etc).
David Cameron had better realise that a repeat of an energy crunch in the next year or so (blackouts, freezing weather, people dying of cold), will finish him off and his style of politics for some time to come. As for the rest of us, the demise of his brand of Toryism cannot come a moment too soon. A couple of years ago, when he and his finance minister were making nasty noises about the need to tax low-cost flights, I was reminded of that remark that the Duke of Wellington is said to have made about the-then new railways – he disliked trains as they encouraged the masses to move about. I cannot help but notice a certain parallel with how Cameron views the public – except that Wellington won a lot of battles.
There was no hope once the politicians and media were fully on board with the “default” meme. There was never any possibility of a debt default. The government has plenty of money to cover debt service, which requires less than 10% of average monthly tax revenues. It could also have rolled over any bonds which came due. The only thing it could not have done was issue new debt in excess of the limit. True default was never a risk (not that it would have been the end of the world, anyway; the US has defaulted before). But when even the Wall Street Journal adopted that language (their article today about the congressional deal on “reopening” the government and increasing the debt ceiling began with “A potentially crippling U.S. debt default was averted late Wednesday…” there was no hope left. We all knew that the Republicans would cave. They always do. But they were not able to extract a single concession from Obama and Reid. Truly pitiful.
Coincidentally, this afternoon I attended a speech given by Robert Guest, US editor for The Economist magazine. Before launching into what was actually a rather interesting talk he treated us to a diatribe about the pending “default”, comparing the Congress to a bunch of petulant teenagers (OK, that’s actually not too far off the mark). Nothing he said was correct. Quelle surprise.
– Samizdata commenter ‘Laird’
What has happened in the real Czech Republic and Poland goes against the grain. It is a rare case of small countries confronting a big bully – the biggest of them all, the European Union (EU)…
The Czech Republic didn’t just denounce renewables. Like Poland, it declared that it would double its reliance upon the most vulgar, explicit word in energy – coal…
In 2011, the former president of Czech Republic addressed an audience in Sydney, Australia, where he drew parallels between communism and the global warming doctrine. Those who declare Poland and the Czech Republic’s respective decisions to revert to coal as sacrilege should remember two important points: first, no economy wins any prizes for poverty; second, these countries happen to know a totalitarian movement when they see one.
– Simon Lincoln
Historian Niall Ferguson – who as shown here, has the guts to admit where he made a wrong prediction – has clearly had more than flesh and blood can stand from Paul Krugman:
So we public intellectuals should not brag too loudly when we get things right. Nor should we condemn too harshly the predictions of others that are subsequently falsified by events. The most that we can do in this unpredictable world is read as widely and deeply as we can, think seriously, and then exchange ideas in a humble and respectful manner. Nobody ever seems to have explained this to Paul Krugman. There is a reason that his hero John Maynard Keynes did not go around calling his great rival Friedrich Hayek a “mendacious idiot” or a “dope”.
For too long, Paul Krugman has exploited his authority as an award-winning economist and his power as a New York Times columnist to heap opprobrium on anyone who ventures to disagree with him. Along the way, he has acquired a claque of like-minded American bloggers who play a sinister game of tag with him, endorsing his attacks and adding vitriol of their own. (I would like to name and shame in this context Dean Baker, Josh Barro, Brad DeLong, Matthew O’Brien, Noah Smith, Matthew Yglesias and Justin Wolfers.)
Krugman and his acolytes evidently relish the viciousness of their attacks, priding themselves on the crassness of their language. But I should like to know what qualifies a figure like Matt O’Brien to call anyone a “disingenuous idiot”? What exactly are his credentials? 35,650 tweets? How does he essentially differ from the cranks who, before the Internet, had to vent their spleen by writing letters in green ink?
And there is this:
I am not an economist. I am an economic historian. The economist seeks to simplify the world into mathematical models – in Krugman’s case models erected upon the intellectual foundations laid by John Maynard Keynes. But to the historian, who is trained to study the world “as it actually is”, the economist’s model, with its smooth curves on two axes, looks like an oversimplification. The historian’s world is a complex system, full of non-linear relationships, feedback loops and tipping points. There is more chaos than simple causation. There is more uncertainty than calculable risk. For that reason, there is simply no way that anyone – even Paul Krugman – can consistently make accurate predictions about the future. There is, indeed, no such thing as the future, just plausible futures, to which we can only attach rough probabilities. This is a caveat I would like ideally to attach to all forward-looking conjectural statements that I make. It is the reason I do not expect always to be right. Indeed, I expect often to be wrong. Success is about having the judgment and luck to be right more often than you are wrong.
Ferguson goes to painstaking detail to list the various wrong predictions that Krugman has made, and then points out the absurdity of how the professor seems willing and able to claim that his predictions have been more or less correct and his opponents are morons.
The general conclusion to draw from all this is that just because a person gets a Nobel or whatnot for economics is no infallible guide to the usefulness of that person’s predictions, or policy prescriptions. Another is that civility and courtesy towards those who disagree with you is, in general, expected of those who want to use their academic credentials in support of a controversial point of view. Of course, people get heated. When debating about the life and work of, say, a Marxist historian who continued to sing the praises of the Soviet Union long after its crimes were manifest, for example, a bit of harshness is to be expected. Another justification for anger is where there are signs of plagiarism, say, or when a person uses bullying tactics to silence opponents or misrepresent them and try and wreck careers.
When debating those who are unconvinced of, say, Keynesian economics, the sort of bullying that Krugman engages in is ultimately self-destructive. It makes the person who is doing the bullying look, well, insecure. The problem is that Krugman no seems to know, or care, how bad his sort of behaviour is for his own legacy and impact. The contrast with the late Milton Friedman, for example, is instructive.
The problem is not confined to the U.S. Britain’s problem is almost as bad; gross debt there increased from 51.9% of GDP in 2008 to a projected 82.1% of GDP, an increase of 30.2 percentage points, or 6.2 percentage points a year – again double the increase in nominal GDP, which in Britain has consisted almost entirely of inflation. This is not due to British “austerity” – policies since May 2010 have slowed the debt increase somewhat, but killed the economy, since they involved heavy tax rises and very few genuine spending cuts.
– Martin Hutchinson. Read the whole thing.
Allison thinks the [bank risk] models are doomed from the get-go because they are based on fundamentally incorrect notions. “They always assume normal curves, and they try to manage things to a 99 percent probability. That means there’s only a 1 percent probability that certain bad things can happen. Well, there’s an interesting thing with a 1 percent probability: Give it long enough, and it becomes certain.”
– Former BB&T chief executive officer John Allison, quoted on page 84 of I Am John Galt, by Donald L Luskin and Andrew Greta. (The chapter on Paul Krugman is gruesome reading.)
I heard Allison speak in London about a year ago, and he’s very good.
Venezuela food shortages: ‘No one can explain why a rich country has no food’
I know you all want to jump in and offer your suggestions. Do not, however, be too scathing. Seriously, the clue train shows signs of having made an unscheduled stop at the Guardian station. The article mentions, albeit in a hurried way and sandwiched between irrelevancies, price controls as a possible explanation for the mystery. And this is downright subversive:
For Oliveros, an additional cause for the shortage of basic food staples is the decrease in agricultural production resulting from seized companies and land expropriations.
From the way that is phrased one could almost think that a decrease in agricultural production was a result of seized companies and land expropriation. I am beginning to wonder if the “No one can explain it” title was selected by either the writer or the mole among the Guardian‘s sub editors in order to call forth the responses it did get.
The idea that we are living in a period that in retrospect we might call “The Crazy Years” gets an airing in this long, essay by John C. Wright. He takes the term from Robert A Heinlein’s “Future History” series of stories, written decades ago when the Grand Master of Science Fiction was not yet fully famous. (Thanks to Charles N Steele’s excellent blog for the pointer).
Steele, in his own ruminations on this, says:
Robert A. Heinlein explored a possible future history for homo sapiens. One of things he foresaw was a period at the end of the 20th Century and beginning of the 21st that he called “the Crazy Years,” in which cultural fragmentation and decay in advanced countries generates political and economic decline and social disruption. He was prescient in recognizing what happens when commonly accepted principles such as an individual’s responsibility for self are forgotten and political correctness and multiculturalism run amok. As advancing technology places increasing power in human hands, human ethics fail to keep pace. In Heinlein’s world, humans do manage to navigate these shoals without destroying themselves and eventually do settle on a MYOB sort of libertarian ethic…but only narrowly averting nuclear self-destruction and environmental self-destruction, and not without going through periods of dictatorship as well as societal chaos.
Steele then lays out a number of areas where signs of our descent into the Crazy Years might be evident:
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Iranian or Al Qaeda religious fanatics obtaining nuclear weapons…
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An American federal government — especially the executive branch — working to acquire unlimited power, and already apparently having the power to spy on essentially all communications, everywhere…
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A growing segment of the population — some poor and some very rich (think Goldman Sachs) — who live as parasites on the productivity of others while creating nothing of values themselves…
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An intelligentsia that cannot bring itself to condemn Islamism for fear of being seen as insensitive or racist or ethnocentric, but which regularly denounces, in the most hateful terms, anyone who opposes the continued expansion of state power…
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An intelligentsia that praises socialism, hunter-gatherer economies, massive interventionism, anything but the one system that actually works, free market capitalism, a system they bitterly condemn…
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A “press,” our mainstream media, that sees its job as promoting political positions and readily lies when lies serve this goal better than truth, and spouts nonsense the remainder of the time, apparently because reasoned analysis is too hard.
He then goes on to argue – and I hope he is right – that reasons for pessimism are perhaps overdone. For instance, who would have predicted that, after 1945, the continent of Europe (albeit apart from the Balkans in the early 90s) was free of any serious armed conflict of the sort that has routinely ravaged the region for centuries, and that the Cold War came to an end without the Soviets or NATO firing hardly a shot at one another on the continent?
I would add that in the confines of the UK, signs of craziness are evident, for example, from the political classes. Take the recent UK Labour Party conference. Labour leader Ed Milliband wants to impose a freeze on the prices that electricity companies charge their customers, while simultaneously demanding that they invest more in things such as renewable energy; his reversion to the idea of draconian price controls is pure demagoguery. Remember, dear Samizdata readers, that the Millibands of this world are quite popular with large chunks of the electorate. Labour is leading – just – the other main party – the Tories – in the opinion polls. This is what happens when, in such a crazy period as ours, that people are encouraged to think blatantly contradictory things: electricity firms must charge less but do more and invest more; banks must hold more capital in reserve but lend more; we must intervene in foreign lands but only with “surgical strikes” and nothing else; that everyone must be given access to health insurance but that the cost mustn’t rise; that we must ban opinions and notions because someone might be offended, and so on and so on.
Of course, thinking nonsense such as this is hardly new. Big business, for example, has been demonised as long as big business has existed, and political targeting of this has been almost the norm, rather than the exception. But what makes me want to think of this issue within the broader “crazy years” context is that I doubt that Milliband and his fellow socialists would be so confident of pushing these notions were it not for the rather batty political climate in which we now operate. Part of the cause for this may be a temporary reaction to the credit crunch, and the false narrative that quickly took root. But then the willingness of people to believe this narrative (which leaves out the role of central banks and government and blames it on “bankers”) is itself a sign that something is very wrong and cannot be quickly put right.
Robert Heinlein’s “future history” stories certainly do pay a re-visit. Come to that, so do pretty much all of his writings right now.
(Addendum: in case anyone brings this up, Steele could have mentioned any of the big banks as “parasites” in his list of examples. He chose Goldman Sachs, but he’s not picking on it specifically.)
Which is better? A technically superb photo of something you’ve seen many times before, like a wonderful still life oil painting? Or, a technically very average photo of something remarkable, that you never thought you’d live to see?
If you are in the mood for the second sort of photo, and you are someone who likes the kind of ideas that Samizdata seeks to spread, you should definitely take a look at this:
This is a group of Chinese people to whom Tim Evans of the Cobden Centre, seated proudly in their midst, was speaking, on Friday September 20th, about … Austrian Economics. And yes that is people from China China, not from some already strongly capitalistic outlying fragment of China.
My thanks to Simon Gibbs of Libertarian Home for telling me about this. Gibbs writes:
Tim Evans of the Austrianist Cobden Centre shared this image on Facebook. It is unclear who is visiting who but he is depicted front and centre with a delegation of Chinese officials as if he was an honoured guest or leader. Tim has been training the group in the details of Austrianism. The group worked with the Chinese State Council and the Central Committee of the Chinese Communist Party.
Of this exercise, Tim Evans writes:
Spent a great day on Friday lecturing key academic and economic advisers to the Chinese State Council and the Central Committee of the Chinese Communist Party. I regularly work with senior Chinese officials and find many of them to be increasingly well versed in the ideas of the Austrian School of Economics.
Austrian Economics is very persuasive to a certain sort of economically curious person, because it is basically a statement of how things are. It describes a world of realities which are true whether you care about or accept their truth or not. This stuff is true no matter what else you choose merely to believe. You can, in principle, understand that Austrian Economics describes how the world is, yet still believe that the world ought to be a centralised despotism or a socialist nirvana, or maybe even some combination of the two.
But, it is rather difficult to stick with such beliefs on a permanent basis. Once you accept the truths that Austrian Economics tells you, it is difficult not to find yourself believing that the world ought to be different from the tyrannical way that a lot of it still is.
I was reading an article about the creation of the Federal Reserve Bank (boo, hiss) in 1913 and I came across this:
Faced with the supreme necessity of sustaining the national credit and providing a market for Government securities, the Secretary of the Treasury in 1863 passed a National Bank Act basing the issue of currency by the banks upon the purchase of an equal amount of Government bonds. That was a cardinal error which still remains uncorrected. It has entailed a vast locking-up of banking capital in Government bonds as security for notes, and it has made impossible a normal and elastic currency system based on commercial paper and similar assets and automatically adapting itself to the daily needs of business.
Cue utter confusion. For starters, why would a bank want to issue currency? Surely, a bank has all the money it wishes to lend out in the form of deposits. And what is meant here by currency? notes and coins or money in general?
…it has made impossible a normal and elastic currency system based on commercial paper and similar assets and automatically adapting itself to the daily needs of business.
This is really confusing. I can understand how notes work in a goldsmith system. Briefly, a depositor deposits some gold with the goldsmith and in return receives a receipt for that gold. The receipt, or note, is then capable of being used as money because it is literally “as good as gold”. I can see how government bonds might replace gold but it requires a depositor. And surely, once a depositor has deposited his bond the bank can issue its own receipts/notes rather than having anything to do with the government. Or maybe that’s illegal. Or maybe depositors would prefer to use government notes as they are accepted in more places.
“…a normal and elastic currency system”. What do they mean by “elastic”? Do they mean what modern-day Austrian economists mean i.e. inflationary? I doubt it because at the time the UK was on a gold standard which tends to be anti-inflationary [notwithstanding comments I have made about how there was some inflation at the time].
And what’s all this about commercial paper? The modern meaning is short-term business debt. I can kind of see how that would replace government bonds although presumably it would have to be extremely homogenous and what happens when the term is up?
And where, if anywhere, is the link with gold which, as I understand it, was one of the main issues in the 1896 presidential election?
Whatever the case may be it seems clear that the US monetary system was far from being a free market before the Fed came along.
One last thought: there are times when I think the confusion that monetary matters generate is deliberate rather than accidental.
 The Times 10 September 1913 page 8
I just got an email from the End of the World Club, about their next meeting. This will be at 6.30pm on Monday September 30th, at the Institute of Economic Affairs, London SW1.
Corrie Chipps will talk about “Lessons from Zimbabwe: A Broke Billionaire’s Survival Guide”, discussing her personal experience of watching a prosperous economy spiral into total collapse and how Zimbabweans have adapted.
Email me (click top left here, where it says “Contact”) if you are interested in this, or other EotWC meetings, and I’ll put you in touch.
I have the feeling that there might be rather more than the usual EotWC turnout for this one. Here is a case where the political and the personal overlap, big time. I for one will definitely be attending, barring disaster or memory failure, and I expect to learn a great deal.
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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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