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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A Reuters columnist says that markets have yet to face up to the fact that there could soon be a “glut” of oil. In other words, the scarcity-mongers are mistaken.
“A final conclusion to draw from the next oil revolution is a little more existential. This is yet another reminder that what both common sense and expert consensus assure us to be true very often isn’t. It was obvious that efficient markets worked and financial deregulation would stimulate economic growth, until the financial crisis and the subsequent international economic recession. It was equally apparent that we were running out of oil – until we weren’t.”
Quite. In these depressing times, it is easy to miss the positives.
Peter Schiff is an economics guru held in high esteem by several of my libertarian acquaintances, and he is is starting a gold-based bank.
The good news:
You can open accounts in dollars or gold bullion at the new Euro Pacific Bank Ltd, launched by Peter Schiff. this is an awesome idea
You can even get a “gold debit card” that you can use anywhere in the world. It’s backed by actual gold, which converts to whatever currency you’re needing at the time you visit an ATM.
The bad news:
There’s one catch if you are an American: you can’t open an account at this bank if you’re a U.S. citizen.
U.S. security laws have become so intrusive, burdensome, and expensive to comply with, that it made it difficult for Schiff to offer the services in the U.S. So, Schiff opened his bank offshore, in St. Vincents and the Grenadines. It operates outside the jurisdiction of U.S. security regulations, and does not accept accounts from American citizens or residents.
In the comments on my previous posting here, about what went wrong and when, much was made of the idea that in addition to knowing what went wrong it would help a lot if we can also say how to put it right.
Personally, I believe that “politics” is never going to sort this mess out, certainly not politics alone. What might is people just recreating the gold standard on a freelance basis, by such means as joining in with enterprises of the sort described above.
Yes, governments can shut such things down, as the above report makes abundantly clear. But if large numbers of people start placing side bets in enterprises of this sort, then it starts to become politically hazardous to just forbid such arrangements.
One of my favourite slogans just now is: “This isn’t gold going up; it’s the dollar (the pound, the euro, the yen, the whatever) going down.” That is because I consider this to be the basic idea behind a non-state imposed (which is the good kind of) gold standard. When large numbers of people measure state fiat currencies by how badly they do against gold, rather than gold by how “well” it is doing against this or that collapsing currency, then that is surely the beginning of the end for these currencies.
One of my understandings of the current financial mess that the world is in concerns when the various contending diagnosticians think that the rot set in. The earlier the more Austrianist, seems to be the rule.
Instapundit recently linked to a piece by James Pethokoukis concerning the diagnosis offered by Robert Hetzel.
Hetzel thinks the problems only got seriously serious around 2008. Until then, it had been a bit up and down, but nothing that bad. But then, in 2008, the Fed, and central banks the world over, adopted money supply policies that were too restrictive. By not creating enough more money at that moment, the Fed turned a little temporary difficulty into a far bigger difficulty.
I’m not an expert on this stuff, but this is similar to what Milton Friedman et al said about what triggered the Great Depression, is it not? Hetzel is, I presume, some kind of Friedmanite Monetarist. He reckons he knows exactly how to skipper the nationalised industrial ship that is money. I reckon he doesn’t.
For if Detlev Schlichter and the other Austrianists are right (I think they are), the rot set in a long, long time before 2008. The idea that, if things had been handled just that little bit more deftly in 2008 all could have been well – bar a slight bump or two – is just wrong. The world by then was full of bad investments, and these investments were – are – going to have to be liquidated if the world economy is ever going to start motoring again. Encouraging even more bad investment, which is what Hetzel is saying should have been done, would only have made the grief still to come that much more grievous.
Whether James Pethokoukis agrees with Hetzel with anything resembling the vehemence with which I disagree with Hetzel, I do not know. Perhaps he just wants an excuse to blame everything on President Obama.
But if the Austrianists are right (they are – reprise), it goes way back, to Nixon and before, to the very creation of central banks as a means of sucking wealth out of economies (traditionally to wage war) without people getting the chance to complain too loudly in some sort of parliament. The idea that Obama, or for that matter George W. Bush, could have entirely solved the world’s present financial problems, i.e. solved them without any political grief, is absurdly mistaken. They could make it worse and they both did, with only a bit less Hetzelism than Hetzel now thinks they should have perpetrated. The idea that, with one Hetzelian bound, they could have freed us all from any grief is crazy.
As is the idea that dumping Obama and replacing him with someone less malevolent, anti-American, socialistic, Christian, atheist, Muslim, environmentalist, Chicagoan, incoherent, lazy, golf-loving, devoted to black magic (take your pick), will fix everything.
In my opinion dumping Obama would be better than not dumping him. But doing this could merely be the difference between jumping off the cliff instead of sliding down it.
The investment strike is one the government would do well to bust, writes Michael Burke in the Guardian. When I read the headline I gave him the benefit of the doubt. The Guardian subs do not cope well with nuance. But the headline fairly represents the views of the man:
Since both the cause of the slump and the cause of the deficit are the same, the investment strike by firms, economically the remedy is very simple. Government policy should aim break that strike and release sufficient resources to fund an investment-led recovery.
I bet them fancy-pants government ministers are kicking themselves now they see how easy the solution is. You just redefine thousands of separate people and organisations not wishing to risk their money in the present economic climate as a ‘strike’. Then you break the strike.
Don’t knock Mr Burke’s logic – when the British government redefines pretty much any behaviour it does not like as ‘terrorism’ and then uses anti-terrorism powers to suppress it, the tactic seems to work just fine.
There is controversy over empty seats at sold out events at the Olympics. People who could not get tickets are annoyed to see them.
The way that tickets were sold is odd. I know people who applied for tickets in ony the events they were interested in and were allocated no tickets. I know other people who applied for lots of events and got tickets they were not interested in. It would not surprise me if some of those empty seats belong to people who decided against going to events they had tickets for because they were not interested enough. The tickets were sold this way to stop the prices getting so high that poor people could not afford them. The tickets can not be transferred for the same reason.
The trouble is that you either have a market or you have a lottery. There are no other choices, no matter how you try to dress it up. The trouble with lotteries is they do not allocate resources efficiently.
“What I find fascinating is how many intelligent people are willing, even feel urged, to provide intellectual support for a system that is not the result of intellectual discourse but came about – rather non-intellectually – through sheer power politics, opportunism and hubris, and that is evidently failing. Our financial system (or non-system) offers a great example of Nietzsche’s dictum that investigating the true origin and the true motivation behind things most often leads to surprising results. The purpose and the clever design that most people later believe to be behind various institutions are often only projected onto them with hindsight.”
– Detlev Schlichter.
As regular commenter “Laird” said the other day, compared to the chicanery that is modern central banking, the row about the LIBOR business is small beer indeed.
From Foreign Affairs:
“The scandal has sparked calls from politicians, including Mervyn King, the governor of the Bank of England, for stronger regulation of the world’s most powerful banks. But such proposals miss a key point: Price fixing and manipulation are illegal. They have been for a long time. So it is unlikely that saddling financial markets with legal constraints that simply double down on what is already on the books will help. A better solution would go to the heart of the problem. Regulators and market participants should set such benchmark interest rates as Libor in a way that makes them reflect movements in the market, making manipulation impossible.”
“The fundamental principle underlying floating rates is to allow the market to determine borrowing costs. Customers who borrow on a floating-rate basis, if they are sensible, and institutions that loan money on a floating-rate basis, if they are ethical, therefore expect two things from a benchmark interest rate. First, the benchmark should reflect actual conditions in the financial markets. That means no random fluctuations — money costs what it is worth. Second, the benchmark rate should not be easy to manipulate. No rational, informed borrower would borrow money at a variable rate of interest and then empower the lender to determine when and how the interest rate changed in the future.”
This is one of the best and most incisive explanations of what is wrong with the current system of averaging out interbank rates – as done via the British Bankers’ Association – and what needs to be done to avoid a repeat. Refreshingly, the article, written in the sort of publication that policymakers read, does not call for more regulation, which is definitely not what is needed.
I have been playing on my Asus Padfone (review to follow) with an app called Zinio, which lets users buy electronic versions of print magazines. It came with a free sample of the November 2011 edition of India Today. As far as I can tell the magazine is run and written by Indians. According to Wikipedia it is published in Hindi, Tamil, Telugu and Malayalam as well as English. So I imagine it provides some kind of snapshot of the opinion and thinking that is going on inside India, rather than an outsider’s view. The cover story was about cotton farmers who are committing suicide because they can not pay their debts. A boxout by Dhiraj Nayyar entitled “Government the Culprit” reads:
Rahul Gandhi has a straightforward explanation for why farmers in Vidarbha commit suicide. Speaking on the perils of globalisation on October 18, he said, “The farmer in Vidarbha drinks pesticide as global prices tumble.” The economics behind the suicides of cotton farmers in Maharashtra is more complex.
Contrary to Rahul’s claim, it is the Government which has done more to depress the prices of cotton than the international market has. The Government has imposed numerous restrictions on the export of cotton since April 2010. This has led to a decline in the domestic price that farmers get.
…
The use of genetically modified Bt cotton has been at the centre of controversy, with activists blaming it for the plight of farmers. Evidence suggests that Bt cotton has been good for farmers. A position paper published by the Foundation for Biotechnology Awareness and Education, an NGO, quotes five independent academic studies conducted after the launch of Bt cotton in 2002, that say that Bt cotton has increased yields in India by 30.9 per cent to 63 per cent. The increase in profit to farmers, according to these studies, has ranged from 50 to 110 per cent over non-Bt cotton.
This seems like sound thinking so far. I wonder why the Indian government would restrict export of cotton.
While Bt cotton is resistant to pests, it is not resistant to droughts. So crops still fail.
In normal course, farmers are entitled to a concessional financial bailout from the local administration or public sector banks. They don’t always get it. “The administration will only help if the farmer was using a seed approved by the Government. A lot of farmers use unapproved seeds”, says [agricultural economist Yoginder] Alagh. By his estimate, there are 20 large firms and anywhere between 200-300 small firms which sell Bt seeds. Most small firms aren’t Government approved but sell seeds cheap. Banks are usually reluctant to lend to indebted farmers because they lack collateral. That sends farmers into the clutches of moneylenders who charge between 25 and 40 per cent interest instead of the 7-9 per cent charged by banks. It isn’t Bt cotton that has failed farmers. It is the failure of back-up systems that has.
I am not so sure about this appeal to government bailout schemes. The implication here is that the government is wrong to favour seeds from certain suppliers. There may be rational reasons for doing so, such as seed quality, or there may be political connections with certain suppliers. I imagine that a free market solution, such as insurance or futures trading, would be more likely to make only rational and proportional restrictions. Could the government scheme be crowding out such solutions?
In any case, I am encouraged to detect a somewhat pro-free-market stance in a mainstream magazine in India.
The stifling impact of being run by so-called “moderates” continues. On the BBC TV this morning, the programme is leading with the fact that a government finance minister, some hopefully soon-to-be-gone creature called David Gauke, is attacking people who have ever paid a builder, plumber or garage mechanic in cash so as to avoid paying VAT. Mr Gauke told his TV interloctor, in words that may haunt him, that he has never done any such a naughty thing, oh no.
The context for this is that the UK government has recently announced a campaign against what it defines, with worrying vagueness, as “aggressive avoidance” schemes. Not just “avoidance”, which is what happens if you hold a tax-advantaged fund such as a Self Invested Personal Pension, or if you do not smoke (avoiding tobacco duty), or don’t drive (avoiding petrol tax) or drink (etc). No, “bad avoidance” is if you structure your financial affairs in such a way as to pay as little tax as you can do so without actively defrauding anyone. An interesting notion. As we know, the UK comedian Jimmy Carr was recently hit by exposure of his tax-planning, and other celebs and sports folk have sometimes got into similar sorts of arrangements.
In as much as governments need to exist at all – and I am not an anarchist – there is a legitimate argument about the least-bad way to do this, and the simpler and flatter the tax regime is, the better. A huge chunk of this tax planning industry from which people like Jimmy Carr make use would vanish in a puff of smoke if our system was overhauled on the sort of lines recently proposed by the 2020 Tax Commission.
The trouble with the stance taken by Mr Gauke is that he presumes that there is some correct chunk of our wealth to which the State has presumed to take a share, and that any action we take to avoid tax might increase the tax burden paid by our fellow citizens. But what this man seems to ignore is, a), that an economy is not a static pie where my action must negatively affect someone else (that old zero-sum problem again), but an economy is something can grow through mutually beneficial trade, and that that, b), in a tolerably free society, the level of tax that citizens will pay has its limits, even if people don’t go in for some of the more artificial wealth structures to minimise tax (bearing in mind that it costs money to get an accountant/lawyer to set these schemes up).
Also, suppose that, instead of getting a builder into do a bit of work for cash to smarten up my flat or tackle an issue, I try and get a mate around to do the job for me in return for buying him a nice bottle of wine or editing some material for him/her? Is this not also wrong in the eyes of Mr Gauke? I guess it is. Even before I have done anything, the State is saying: “I want a piece of whatever action you engage in”. Taken to extremes, this penalises work over leisure. It is not surprising what the results are.
At root, this is a matter of basic political philosophy. In the main (there are exceptions), the current Conservative Party and its Liberal Democrat coalition partners subscribe to a deeply paternalistic, communitarian outlook of the sort that Barack Obama, in his recent communitarian-leaning “you did not build that” speech, could identify with. This is also a sign of how under Cameron, the Tory party has reverted to the older, more trade-disdaining traditions of old and away from its Thatcherite strains. How’s that working out for us?
People who make a living by getting paid in cash to fix windows, respray cars or mend pipes are not an evil. In the vast majority of cases, they are doing something about which someone like David Gauke, David Cameron or Barack Obama have been ignorant of all their lives: earning a living, and providing people with goods and services in a free market. They might as well try and understand life on Mars. It is shame we can’t send them there.
Update: The Daily Telegraph weighs in. It is not impressed by Gauke.
While the weather in the UK has been, with barely a break, a miserable wet time resembling one of those bits of the Old Testament where God gets a bit pissed off with His Creation, it has been stinking hot in some other countries, notably the wheat-growing parts of the US. Hence, all kinds of grim predictions of shortages, and ensuing higher prices for bread and other foods, as reported by Reuters.
But there is another factor besides the weather – deliberate government policy concerning biofuels. Here is blogger Bishop Hill on the matter:
“I’m sure that people who can no longer afford a loaf of bread will be much reassured by the fact that the UK government is discussing flexing their biofuels mandates.”
Of course, the idea that misguided environmental ideas might make poor people even poorer is a notion that does not fit with the conventional narrative from our political class. I doubt that our own benighted Prime Minister, David Cameron, gives this much thought, or if he does, evades the implications thereof. One of the biggest scandals of our time, in my view, is not private banks cooking up “LIBOR”, or MPs fiddling their expenses, but the fact that a mistaken or overwrought theory about climate change was used to justify loading extra costs on the global economy and those least able to bear it.
Today’s SQotD is already taken, and in any case yesterday’s SQotD was also about banking, but here is more quotability, from regular quotee here, Steve Baker MP, writing for the Spectator Blog about the LIBOR scandal:
The really important question today is not whether the Bank of England encouraged manipulation of credit markets by self-interested rogues but why we tolerate systematic credit market manipulation by the central banks as a matter of policy: nowhere else in the economic system would we accept explicit planning of the price and quantity of a vital commodity. If it worked, we’d all be communists.
In the Cobden Centre round robin email flagging up this piece, the words “linked from Guido” were included in the email title. This stuff is not merely being said, relentlessly. It is getting around.
Here is some further evidence of that, from the BBC:
A popular solution to the financial crisis has been to print more money, but is there another way of fixing our economy? Would the financial system be more stable if each pound, dollar or euro in our pocket was once again backed by gold?
And they go on to provide the answer given to them by Detlev Schlichter: yes.
All of which confirms the Austrianism as Number 2 meme.
LATER: More incoming from the Cobden Centre flagging up this programme, the first part (of two) of which will be shown at 9pm on Channel 4 this evening. Various Cobdenites contribute. Plus, see also this.
Enough diagnosis. What is the cure? A change of personnel will not do it. The search for chief executives who are not motivated by greed and for regulators who are sufficiently god-like to know how to design rules that cannot be gamed will never succeed. The truth is, the financial system, like the whole of human society, was not designed in the first place; it evolved. And the answer is to allow a better one to evolve.
– Matt Ridley
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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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