“Nothing more poignantly reflects the collapse of the great global warming scare than the decision of the Chicago Carbon Exchange, the largest in the world, to stop trading in “carbon” – buying and selling the right of businesses to continue emitting CO2. A few years back, when the climate scare was still at its height, and it seemed the world might agree the Copenhagen Treaty and the US Congress might pass a “cap and trade” bill, it was claimed that the Chicago Exchange would be at the centre of a global market worth $10 trillion a year, and that “carbon” would be among the most valuable commodities on earth, worth more per ton than most metals. Today, after the collapse of Copenhagen and the cap and trade bill, the carbon price, at five cents a ton, is as low as it can get without being worthless.”
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Last night I went to the cinema, which I rarely do nowadays, and judging by the size of the audience for the movie that I and my friend saw, not many other people go to the cinema these days either. The place, in the heart of the London West End, was damn near deserted, apart from us and about three other people. Actually, though, the problem was probably the movie we were seeing, as I will now explain. The movie we saw was Margin Call. Here is a short Rolling Stone review of it, which strikes me as pretty much on the money. Okay: SPOILER ALERT. Stop reading this very soon if you don’t want the broad outlines of the plot handed to you on a plate. When I started watching it, I knew nothing about Margin Call other than that a friend of the friend I was with had said it was the best current financial crisis movie he knew of. This makes sense. Margin Call is very much a trader’s eye view of the moment when the first of the waste matter started to move seriously towards the fan, around 2008. And, remarkable to relate, it actually shows “capitalism” (the quotes being because we all here know how government-intervened-in all these sorts of market have been) in a by no means wholly bad light. I am not a bit surprised now to have learned, the morning after, that this movie was written and directed by an ex-trader, a certain J. C. Chandor. Plot approaching. Final warning. → Continue reading: What capitalism does when the music stops February 15th, 2012 | 13 comments - (Comments are closed)
 I was struck by this graphic, produced by the money printers at the Bank of England and reproduced in the Telegraph: 
We are told (not least by the Bank of England) that deflation is the greatest threat to our well-being. But look at the Nineteenth Century. There’s no end of deflation there. And yet in this time they managed to build almost all of Britain’s railways (including three routes from London to Manchester), the Great Eastern, Crystal Palace, most of London, bring clean water and sewerage to the cities, introduce street lighting, make huge advances in science and medicine. and establish just about all the industries (coal, shipbuilding, steel etc) whose loss is so lamented, especially by people on the left. OK, so I suspect a lot of those industries would have closed anyway but I fail to see how anyone could look at this graph and honestly claim that deflation was something to fear. PS I now notice that the BoE does indeed talk about “Years of Deflation” between 1921 and 1931 and my understanding is that it was a pretty grim time. I would be interested to know if there’s a response to the implied claim that deflation is or was a bad thing. February 12th, 2012 | 36 comments - (Comments are closed)
‘“Quantitative Easing is a transfer of wealth from the poor to the rich,” he says, “It floods banks with money, which they use to pay themselves bonuses. The banks have money, and assets, so they can borrow easily. The poor guy, who is unemployed and can’t borrow, is not going to benefit from it.” The QE process pushes asset prices up, he says, which is great for those who own stocks, shares and expensive houses. “But the state is subsidising the rich. It is the top 1 per cent who benefit from Quantitative Easing, not the 99 per cent.”’ – Nassim Taleb, quoted on the Spectator’s Coffee House blog. February 9th, 2012 | 18 comments - (Comments are closed)
Jay Maynard posted a link to an advert from Moveon.org that illustrates how our children will have to pay off the government’s debt. The trouble with this argument is that it concentrates on the movement of money instead of the movement of resources. This way of thinking can lead to all sorts of mistakes. If the government borrows a trillion dollars, the argument goes, that is a trillion dollars of taxes our children will have to pay in the future. We are borrowing from the future. Except that we are not, because only Doctor Who can transfer resources from the future, and he is busy with other things. When the government borrows money it increases its bidding power for resources in the present. Resources move from private control to government control. It is the other bidders for resources who are really paying the price. The children will not pay back the money because the government will never raise enough taxes to pay it off. Individual bonds mature, but they are replaced with yet more bonds. This will continue as long as there are enough people willing to join the bottom of the pyramid. February 6th, 2012 | 16 comments - (Comments are closed)
“And as to neoliberalism laid bare. Yes, the industrial revolution is the only way we humans have found of improving the living standards of the average guy in the street. I, as a liberal (even if neo) would like the living standards of the average guy to increase. Thus I support the industrial revolution. Yes, in all its mess and clamour: for it is making things better. I’m out and I’m proud. As a neoliberal I buy things made by poor people in poor countries. For that’s how poor people and poor countries get rich.” I think I can formulate a new “Johnathan Pearce law”. Namely, the presence of the word “neoliberal” in a piece mocking markets and capitalism is almost always evidence that the author of said piece either does not understand what he or she is attacking, or is misrepresenting it, and also regards such ideas as being promoted by some sinister, all-powerful cabal, as suggested by that rather creepy use of the term “neo” in front of something else, such as “liberal”. February 2nd, 2012 | 18 comments - (Comments are closed)
I have lost count of the number of opinion pieces written by finance commentators and journalists who complain that the austerity programmes of Europe are doomed to fail, because they cause perpetual economic contraction, resulting in shrinking government revenues, curtailing the ability to pay down debt – which was why the austerity programmes were embarked upon in the first place. And this will go hand-in-hand with a widespread, precipitous and neverending decline in living standards, which raises the spectre of social and/or political collapse. The alternative solution they generally propose comes from our good friend Baron Keynes. Naturally. This is utterly wrong-headed. Naturally. I do not take much issue with the consequences of European austerity that have been identified, however austerity is not the cause of these. Austerity works just fine if governments do not implement it alongside tax increases. Which is what pretty much every austerity programme (either real or imagined) in Europe is either proposing or enacting. It’s the tax increases that will cause the vicious cycle mentioned above – not the austerity, stupid. Austerity alone redirects capital from government programmes to more productive areas of the economy, resulting in growth. But austerity plus tax hikes decreases the size of one part of the economy (the public sector, and this on its own is of course a good thing), whilst putting a yoke on the private sector by preventing individuals and companies from stepping into the breach, with punitive taxes discouraging investment or making it unaffordable. Of course this is a recipe for limitless economic contraction and social misery. Citizens of a nation that requires a genuine period of austerity must be aware that there will be pain as structural adjustments take place whilst private sector investment slowly and surely crowds out a throttled and atrophying civil service. But pain is and was always going to be inevitable when the almighty spending binge so many governments have embarked upon over the last couple of decades unavoidably draws to a close, either through substantial policy shifts or sovereign default. The former is much less painful than the latter, but more politically difficult, so it seems. And, in dealing with the current debt crisis, Keynesians have never seen a can they haven’t wanted to kick down the road. February 1st, 2012 | 17 comments - (Comments are closed)
As regular readers here know, immigration is an issue that even people who are libertarians with a strong hostility to state barriers to movement disagree about. The nub of the issue can be expressed thus: immigration+welfare state+weak indigenous culture = social discord. Or: immigration+free market capitalism+strong sense of civil society = strong, dynamic country. Over at the CATO think tank in Washington DC, a number of writers, such as Bryan Caplan, Daniel Griswold, Richard K Vedder and Joel Kotkin argue that immigration, particularly without the distortions and false incentives of a big welfare state, is a force for good and an expression of the desire of people to better their condition not just materially, but in other ways, and that believers in liberty ought to be on their side. In as much as immigration, legal or otherwise, causes certain costs, then there are ways of dealing with this other than a simple blanket ban, which is what some people, mostly, but not exclusively on the right, are calling for. This is an impressive collection of essays and provides a bit of a counterweight to cultural pessimists, some of whom, ironically, are immigrants themselves. Another good thing about this collection of essays is that with the exception of Caplan, I had not heard about any of these authors before, so I was pleased to find a large assembly of such insightful writers to follow in the future. Here is a paragraph from one of the essays, by Joshua C. Hall, Benjamin J. VanMetre, and Richard K. Vedder:
I should add that these essays have a strongly American flavour, but some if not all of the arguments the authors make apply to certain other countries as well. January 31st, 2012 | 11 comments - (Comments are closed)
I really liked that first Madsen Pirie short economics video, about the subjectivity of value, flagged up here. Now number 2 has emerged, on the closely related topic of price control. I happened upon this second video here, which would suggest that these things are getting around and being noticed. They should. The short video lecture is the perfect medium for Madsen. Many is the time that I have had a short lecture on this or that topic bestowed upon me, by Madsen in person. From most others this would be intolerable. From him, it was welcome, because you had the feeling he had really thought it through, having bestowed it also on many others, each time slightly better. He has been working on these little videos for years, maybe realising it, maybe not. Almost always, when technologically enhanced things emerge that are really good, the person doing them has been doing them for quite a while by hand, as it were, before the technology came along to make the thing even better. If the rest of these little videos are as good as the first two, they could add up to a classic set. January 30th, 2012 | 4 comments - (Comments are closed)
Mark Wallace, recently “seen elsewhere” by Guido, makes a good point, in response to a piece by Tim Leunig in the Guardian, about the nature of the mixed housing economy:
Government hand-outs to “the poor” enriching the not-so-poor is a familiar story. It explains a lot about the current state of politics. In fact politics generally, down the ages. January 24th, 2012 | 8 comments - (Comments are closed)
One example of a speculative bubble that gets mentioned sometimes is the Dutch Tulip Bubble of the 17th Century. I have occasionally come across the argument that says that this bubble, like some others, cannot be blamed on expansion of the money supply, ergo, those hairshirt Austrians banging on about the evils of elastic money are wrong, there are sometimes bad things that happen in capitalism and we need laws against it, etc, etc. But according to this guy at the Mises Institute, even the mania for tulip bulbs in the Netherlands had a monetary cause. So that’s that issue settled then. January 23rd, 2012 | 9 comments - (Comments are closed)
“On the basis of economic theory and historical experience, the life expectancy of a societal model with 50 percent or more government control over the economy does therefore not look promising. The taxing, resources-consuming state-parasite must constantly weaken and sooner or later kill the productive and wealth-creating market-host. When does this happen? Well, we are about to find out, as we are now all part of some gigantic real-life experiment, bravely conducted by the current policy establishment in Europe and elsewhere at our own expense and that of our children. Across the EU, the share of government spending in the economy is already around 50 percent, depending whose numbers you believe. If we could account for regulation and interventionist legislation, the state’s grip on economic decision-making is certainly larger. To call such an economy capitalist is a joke, albeit perhaps not as cruel a joke as the one the economy itself, with its persistently anaemic performance, is playing on the Keynesian economists and their ridiculous clamour for ever more government spending to boost ‘aggregate demand’.” – Detlev Schlichter, making a point that needs hammering home. What we have in the West, right now, is a million miles from laissez faire capitalism. January 23rd, 2012 | 7 comments - (Comments are closed)
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