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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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.
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:
When examining these various views on immigration it’s important not to fall subject to the all too common misperception that one’s immigrant status dictates one’s position in the debate, viewing immigrants as pro-immigration and nonimmigrants as anti-immigration. This is clearly not the case as Brimelow (1999), Hoppe (1998) and Borjas (1999) are some of the most prominent skeptics of immigration and are immigrants themselves – anti-immigrant immigrants.
In fact, the anti-immigrant immigrant is not a new phenomenon. It stems from the growing instinct for individuals to think that their generation is the Great Generation and that those who follow are somehow inferior. So it goes with immigration. One can speculate that the individuals who arrived on the Mayflower lamented newcomers arriving to Massachusetts on subsequent boats in the 1620s as lacking the motivation, the ingenuity, or some other positive attribute allegedly possessed in abundance by those arriving earlier.
In the 18th century, Benjamin Franklin lamented the allegedly deleterious effects of new German arrivals to Philadelphia by disparagingly speaking of how Pennsylvania was being “Germanized.”
In the mid-19th century, the great American inventor Samuel F. B. Morse denounced new arrivals from Ireland and spoke of the dangers to America arising from the Roman Catholic faith of the newcomers. A half-century later, Woodrow Wilson pronounced that new arrivals from Italy and eastern Europe were of an inferior stock compared with those coming earlier from the northwestern part of the same continent. So it is not surprising when Borjas (1999) and Brimelow (1999) lament the arrivals to America after 1965 as inferior to those coming in the 1950s or early 1960s. The question that ultimately arises then is, if conventional political ideology does not explain differences in opinion on immigration then what does?
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.
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.
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:
Leunig’s Guardian piece claims to calculate that the benefits cap would leave people living on 62p a day. The most crucial element of his workings is that a 4-bedroom house in Tolworth costs £400 a week. That’s true right now, but it wouldn’t be the case once a cap has been brought in.
The truth is that some of the main beneficiaries of overly high benefits are private landlords. They may not get payments from the DWP direct, but they reap the cash anyway through inflated rents, secure in the knowledge that every time they put the price up, benefits levels are raised to pay them. This is a racket, exploiting the foolishness of officials in pumping more and more money out and the absence of taxpayer power to rein in this behaviour.
Tim Leunig is right that if rents were fixed as they are now then his hypothetical family would pay £400 a week. But rents aren’t fixed, they are fluid. If you remove a large amount of cash from the system then prices will fall. By arguing for the system to remain as it currently is, rather than accept a cap, this supposed “progressive” is effectively fighting the corner of benefit-farming landlords.
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.
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.
“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.
Is this video the 21st century version of a photocopied 1980s Libertarian Alliance pamphlet? It contains Madsen Pirie explaining an economics concept in under three minutes. He tells me that he is going to do 20 videos, one a week.
Strangely, outside of lectures held by the ASI and IEA, there isn’t much video coming out of the UK libertarian scene. Over in the States, all sorts of organisations, especially Reason.tv, have done sterling work with online video. My instinct is that the returns on time for British libertarians doing video could be significant – and that Madsen’s videos will have quite an effect among young people exploring economics.
The recent debates about the US Stop Online Piracy Act, or SOPA, has reignited interest in the subject of intellectual property. As regulars here know, people who defend free markets take very different views of IP, often clashing sharply about what the purpose of property rights as such is. So to help form my views about this, I recently ordered and received this book, Justifying Intellectual Property, by Robert P Merges. From a fast skim-read, it bases its arguments around the ideas of three thinkers: Kant, Locke and Rawls. A strange mix in some ways, I think. There is a huge bibliography, and the book notes – without rudeness or dismissal – those writers who dispute the case for IP, such as Stephan Kinsella and Tom G Palmer.
Definitely an interesting read, I think. Naturally, it is under copyright.
Update: this is an interesting observation from a man, D Halling, who is a fierce proponent of IP and yet regards the SOPA and related legislation as “power politics at its worst”. So if the IP crowd hate these bills, why bother?
Another update: here is a very rigorous explanation by Stan Liebowitz of the issues as to why IP exists, and does so very much from an economics point of view, rather than say, arguing that IP is about “free speech”.
“In retrospect, there are some obvious questions an Icelander living through the past five years might have asked himself. For example: Why should Iceland suddenly be so seemingly essential to global finance? Or: Why do giant countries that invented modern banking suddenly need Icelandic banks to stand between their depositors and their borrowers – to decide who gets capital and who does not? And if Icelanders have this incredible natural gift for finance, how did they keep it so well hidden for 1,100 years?”
Tom Clougherty has an interesting graph up at the ASI blog, taken from this McKinsey report, of the movement in combined public and private debt for the ten biggest of the world’s developed national economies, from 1990 until now. Follow either of the above two links to get a bigger and more legible version of this graph:
Since 2007, of course, all have lurched upwards from wherever they were to quite a bit more.
To me the interesting bits are those between 1990 and 2007. The general trend was a general increase in debt, from somewhat troubling to somewhat more troubling. But three countries bucked this trend: Japan started very bad and merely stayed very bad; Canada started okay-ish and stayed okay-ish; Britain started okay-ish but became very bad. In terms of the direction things went in, Canada has the best graph of them all, and Britain has the worst. Between them, these three graphs, the grey one along the top (Japan), the green one in the pack towards the bottom (Canada), and the dark one moving most determinedly upwards (Britain), make a kind of big and elongated Z.
One other deviation from the norm worth noting is that just before 2007, Germany, unlike any other country, went (see the yellow graph) definitely downwards. It did what Keynes said, in other words, and paid down its debts when times were good, or at least when they seemed good. In Britain, the “Keynesians”, public and private, just carried on running up more debt.
I know that as a fan of Austrianism I am not supposed to get too excited about national economic aggregates. But this set of aggregates and aggregate movements looks to me quite telling. Make of it all what you will. For me, it confirms the sense that many now have that Tony Blair’s government was one of the worse ones that we’ve ever had.
This article over at the Foreign Policy website, by Helen Mees, dusts off an argument that I have mentioned here on Samizdata before, (in relation to a comment by the US investor and commentator Peter Schiff) namely, that China, by using its vast foreign exchange reserves to buy Western government debt, thereby pushed down long-term interest rates and encouraged the kind of reckless lending that ended up going ker-boom! in 2007-2008. And if only the Chinese had not flogged us all those artificially cheap computer parts and children’s toys (made cheap by that naughty fixed exchange rate regime for the yuan), they would not have made so much money to then lend to us Westerners to blow on housing we cannot really afford. (Here is another old post of mine on the same subject of debt/savings imbalances between the West and China.)
The problem with this line of reasoning is that if, say, a country has earned genuine income by selling something valuable and useful (like toys, cars, electronic components or whatnot), and invested the proceeds abroad in things that can generate new wealth in the future, what is the problem? The problem is not that China invested huge savings and other surpluses into the West – after all, in the 19th Century, the UK invested large capital surpluses in places such as the US, Canada and Argentina (now there’s an irony, Ed). And there was nothing “imbalanced” about that. If real savings – not central bank funny money created out of thin air – gets lent to people to invest, that’s hardly bad. The problem is if the money is lent to people buying homes as part of a broader speculative bubble in real estate, say. And there is no doubt that domestic policy in the West, most definitely in the US, encouraged unwise lending and borrowing for property, consumer goods and so on, rather than investment in new technologies and industries.
The comment thread on the FP item are interesting, where it is contested that subprime borrowing made up only a tiny fraction of the US mortgage market. It did not, since one of the issues with the sub-prime market and the huge losses sustained by banks was how sub-prime debt was mixed up with better quality stuff and then sold to investors as if it is was all investment-grade, when it was wasn’t. For example, here is a comment from a person called “RRAFAY”:
“Actually, 5% of Subprime is enough to cause a crash. Especially, when no mention is made of how these mortgages were leveraged. Secondly, Alt-A is not mentioned either. When both are taken together, they represent roughly 15% of the US mortgage market. Secondly, the idea that Chinese surplus capital led to an excess supply of money is so weak, that it is mind boggling that someone would even suggest this. China only holds 7% of total US debt. Each country mentioned had a housing crisis, Ireland, Spain, and the US.”
In my view, it is certainly true that in a world of free capital movements, if a country A can export a vast amount of its capital into country B, and people in the latter country are not constrained by proper market disciplines and there is already a full-blown encouragement of high borrowing and lax lending, then the added money will pour fuel on the fire. But in the main, I think it is a pretty silly line of argument to say that it is the fault of the Chinese for having earned so much money and then reinvested it. There’s something just not quite right about that argument on so many levels.
Comment just attached, by “Malcolm”, to my posting here a while back entitled Austrianism as Number Two:
Newsnight has just introduced its story on Ed Milliband’s decision today to back the government’s pay freeze by playing the Keynes v Hayek video from Econstories.tv
The narrator even described it as a “fabulous” video that is “easily the most entertaining explanation of the issues” – as closely as I can remember the wording, anyway.
I realise I’m commenting on a posting that’s six months old, but I’m hoping Brian, as the original author, gets automatically notified of comments. That the video is being used to give context to a now-current news item is certainly consonant with Brian’s original theory about Austrianism as the new #2 (with apologies to The Prisoner).
I did get automatically notified of this comment. Many thanks for the kind thought. However, I also clocked this Newsnight snippet myself, and added an off topic bit in a comment I also added to the earlier posting today about SOPA, which Newsnight is also reporting on, thanks to the Wikipedia black-out that Rob Fisher noted.
The more I ponder those Keynes v Hayek videos, the more of a stroke of total genius I believe them to be. They play especially well with the BBC, because the BBC is never happier than when explaining an issue in terms of competing arguments. Yes, the BBC is often “biased”, in the sense that you get a definite idea of which team they may prefer (which may not be yours), and which team they choose to give the last word to. But the “other” team often gets a more than fair crack of the whip.
As I made clear in that earlier posting of mine, the real sufferers from this kind of bias are the “other other” teams, so to speak, the ones who don’t even get a look in, the ones who are shown as being not even wrong, on account of not even existing.
To quote Rob Fisher in the posting immediately below, about Detlev Schlichter’s performance on the BBC’s “Start The Week” show yesterday morning:
All in all not a bad day for the spreading of Austrian ideas.
Which adds up to two consecutive not bad days for the spreading of Austrian ideas.
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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