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John Hawkins: Now, in recent years we started to hear more people calling to get rid of the Federal Reserve. Good idea, bad idea? What are your thoughts? Thomas Sowell: Good idea. John Hawkins: Good idea? What do you think we should replace it with? What do you think we should do? Thomas Sowell: Well it’s like when you remove a cancer what do you replace it with? January 24th, 2011 | 63 comments - (Comments are closed)
 Indeed. And not just the price of all the other kinds of gas. Am I the only one who suspects that a lot of the climate change hubbub whipped up in recent years was really just a cover for getting young lefty-inclined scientists to find other kinds of energy, not actually to save the planet, but rather to enable the rulers of the West to tell those pesky Arabs to take a hike? I don’t read the right sort of blogs and websites to know for sure, but I doubt very much that I am. Anyway, now, another kind of energy has come on stream, of the sort that conflicts with all the climate change hubbub, because it is disturbingly similar in its imaginary climatic effects to the stuff that our rulers want to be able to stop buying from the Arabs. The BBC’s Roger Harrabin quotes the Chief Economist at the International Energy Association, Dr Fatih Birol:
That settled science is already turning out to be not so settled after all, and this just might be part of the reason, don’t you think? Governments, for their own reasons that have nothing to do with the actual argument, are now switching from being climate change fanatics to what the climate change fanatics call climate change deniers. The moral is: if you want to spread some ideas, any ideas, don’t rely on governments to help you. They will help you, if and while it suits them. But if and when it stops suiting them, you’d better be ready to win your argument all by your little old self. January 20th, 2011 | 25 comments - (Comments are closed)
The other night, when I had the TV on, I saw that one of the programmes, featuring the BBC top economics and business correspondent, Robert Peston, was all about the financial panic of recent years. Oh dear, I thought, I can just imagine the usual line about how it was all the fault of greedy bankers, insufficient regulation, “unregulated laissez faire capitalism”, and on and on. Well, not quite. Yes, some of those elements were there, but there was also quite a lot of sophisticated explanation of how a combination of forces – leverage, “too big to fail bailout protection, over-confidence in newfangled ideas of risk management and misalignment of incentives for bankers – combined to create the storm. I would have liked to see more focus on the role of ultra-low central bank interest rates in creating the crisis, as well as government intervention in the housing market and through deposit insurance, but to be fair, this was mentioned, several times. There was little in the show with which someone like Kevin Dowd, recently referred to here, would dispute, although I imagine Kevin might want to make more about the vexed issue of ownership of banks and limited liability. And about three-quarters of the way into the show was Toby Baxendale, founder of the Cobden Centre, the organisation founded last year to flag up the problems caused by central banking fiat money, and which sets out alternative ideas, such as the possibility of giving depositors in no-notice cash accounts the right to demand that their cash is properly looked after, not lent out for months in a risky play. (Yup, it is that pesky fractional reserve banking issue again). Toby was very forceful and his views were treated respectfully by Peston. There was no sneering. In short, this was and is a pretty good programme as far as the MSM goes. I give it about 8 out of 10. Yes, I am not drunk. January 20th, 2011 | 16 comments - (Comments are closed)
“If you wanted to fly and there were no supervisory authority in the airline industry and no regulations enforcing safety standards, you would be very reluctant to fly fledgling airlines. You would prefer the established ones that had the track record and the reputation. So a complete lack of safety regulations in the airline industry would favour established firms, making the entry of new ones impossible and killing competition and consumer choice.” Raghuram G. Rajan and Luigi Zingales, from page X (in the Roman numeral segment) of “Saving Capitalism from the Capitalists.” Published in 2003. This is an interesting defence of government-imposed safety standards. I am not wholly convinced by this line of argument; it is, for sure, an interesting way of trying to show how government regulation actually stimulates rather than restricts entry into a particular line of business. My take is that if a fledgling airline, say “Ultra-Cheap Airlines Inc.,” can persuade investors and others to get it started in business with a few aircraft and so on, then the staff on the aircraft – such as the pilots – will not set foot into an aircraft if they fear that safety has been compromised, or if the aircraft are poorly maintained. Pilots are not usually self-destructive, as far as I can tell. In fact, a debutant airline business would bend over backwards to show customers that it had set high standards, get consumer watchdog organisations and other certification providers to give it a “seal of approval”. What the authors of the quote don’t seem to understand is how the “established” airlines got to be in that positions in the first place. Presumably, they had to start by persuading a highly nervous customer base that flight was safe, or at least, not lethal. And of course, if the standards imposed by regulators are particularly onerous, then it is hard to see how a small business operating a few aircraft could afford to compete with the big boys. Regulations are a form of barrier to entry, much in the same way that extensive licensing of doctors is designed, quite deliberately, to regulate the number of people working as physicians. This book is generally pretty good, however; it is interesting to read this book alongside the Martin Hutchinson/Kevin Dowd book about financial markets that I quoted the other day. January 15th, 2011 | 56 comments - (Comments are closed)
I know, my friends, that you are concerned about corporate power. So am I. So are many of my free-market economist colleagues. We simply believe, and we think history is on our side, that the best check against corporate power is the competitve marketplace and the power of the consumer dollar (framed, of course, by legal prohibitions on force and fraud). Competition plays mean, nasty corporations off against each other in a contest to serve us. Yes, they still have power, but its negative effects are lessened. It is when corporations can use the state to rig the rules in their favor that the negative effects of their power become magnified, precisely because it has the force of the state behind it. The current mess shows this as well as anything ever has, once you realize just what a large role the state played. If you really want to reduce the power of corporations, don’t give them access to the state by expanding the state’s regulatory powers. That’s precisely what they want, as the current battle over the $700 billion booty amply demonstrates. This is why so many of us committed to free markets oppose the bailout. It is yet another example of the long history of the private sector attempting to enrich itself via the state. When it does so, there are no benefits to the rest of us, unlike what happens when firms try to get rich in a competitive market. Moreover, these same firms benefited enormously from the regulatory interventions they supported and that harmed so many of us. The eventual bursting of the bubble and their subsequent losses are, to many of us, their just desserts for rigging the game and eventually getting caught. To reward them again for their rigging of the game is not just morally unconscionable, it is very bad econonmic policy, given that it sends a message to other would-be riggers that they too will get rewarded for wreaking havoc on the US economy. There will be short-term pain if we don’t bailout these firms, but that is the hangover price we pay for 15 years or more of binge lending. The proposed bailout cannot prevent the pain of the hangover; it can only conceal it by shifting and dispersing it among the taxpayers and an economy weakened by the borrowing, taxing, and/or inflation needed to pay for that $700 billion. Better we should take our short-term pain straight up and clean out the mistakes of our binge and then get back to the business of free markets without creating an unchecked Executive branch monstrosity trying to “save” those who profited most from the binge and harming innocent taxpayers in the process. What I ask of you my friends on the left is to not only continue to work with us to oppose this or any similar bailout, but to consider carefully whether you really want to entrust the same entity who is the predominant cause of this crisis with the power to attempt to cure it. New regulatory powers may look like the solution, but that’s what people said when the CRA was passed, or when Fannie and Freddie were given new mandates. And the very firms who are going to be regulated will be first in line to determine how those regulations get written and enforced. You can bet which way that game is going to get rigged. I know you are tempted to think that the problems with these regulations are the fault of the individuals doing the regulating. If only, you think, Obama can win and we can clean out the corrupt Republicans and put ethical, well-meaning folks in place. Think again. For one thing, almost every government intervention at the root of this crisis took place with a Democratic president or a Democratic-controlled Congress in place. Even when the Republicans controlled Congress, President Clinton worked around it to change the rules to allow Fannie and Freddie into the higher-risk loan market. My point here is not to pin the blame for the current crisis on the Democrats. That blame goes around equally. My point is that hoping that having the “right people” in power will avoid these problems is both naive and historically blind. As much as corporate interests were relevant, they were aided and abetted, if unintentionally, by well-meaning attempts by basically good people to do good things.The problem is that there were a large number of undesirable unintended consequences, most of which were predictable and predicted. It doesn’t matter which party is captaining the ship: regulations come with unintended consequences and will always tend to be captured by the private interests with the most at stake. And history is full of cases where those with a moral or ideological agenda find themselves in political fellowship with those whose material interests are on the line, even if the two groups are usually on opposite sides. – Professor Steven G. Horwitz, writing in late September 2008, in a piece entitled An Open Letter to my Friends on the Left. This evening, Horwitz will be giving a talk at the Institute of Economic Affairs in London, entitled An Austrian Perspective on the Great Recession 2008-2009. January 11th, 2011 | 29 comments - (Comments are closed)
“It might be more appropriate if the Sveriges Riksbank would end the Economics Nobel Prize as a failure: strictly, it isn’t a true Nobel at all; it was not part of Alfred Nobel’s legacy, but a much later add-on to pander to the economics profession’s vain pretensions of scientific respectability. If we judge a science by the hallmark of predictability, then the predictions of economists are no better than those of ancient Roman augurs or modern taxi drivers; alternatively, we can judge by its contribution to “scientific” knowledge, in which case the contribution that modern financial economics has made makes us wonder if the agricultural alchemist Lysenko shouldn’t have got a Nobel himself; or we can judge it by contribution to the welfare of society at large, in which case the undermining of the capitalist system, the repeated disasters of the past 20 years, the immiseration of millions of innocent workers and savers, and the trillion dollar losses of recent years surely speak for themselves.” – Alchemists of Loss – How Modern Finance and Government Intervention Crashed the Financial System, by Kevin Dowd and Martin Hutchison. First published in 2010. Page 86. Now having read it, I cannot recommend this book too strongly. Some of the discussion about modern financial theory – and its baleful consequences – is quite complex, but the authors write with a verve and eye for drama that makes this a very readable book. In my view, it is the best study of what has happened, and more importantly, spells out in practical, thoughtful ways as to what should be done. January 10th, 2011 | 42 comments - (Comments are closed)
Matt Ridley, the Rational Optimist, page 111. He’s right, of course. While Hollywood moviemakers may delight in using bosses of large firms to be villains, which is rather ironic, given the importance of big entertainment firms like Time-Warner, Disney and Sony Corporation to the movie industry in recent years. The actual track record shows, as Ridley says in this excellent book, that firms have a far shorter shelf life than government agencies. This is hardly surprising. There is, in government, no negative feedback loop with a failed agency or an agency that has outlived whatever reason for its original existence. As we see time and again, a government agency will often look for new things to justify its continued existence, arguing for larger budgets, more staff, and so on. With business, on the other hand, any firm that does not adapt to the constant shifts of consumer habits will die. Here’s more:
After having read and watched anti-business folk for years now, I don’t perhaps find this attitude as odd as Ridley does. The hatred of business is, in my view, a product of centuries of crappy, anti-reason philosophy and a fear of freedom that this has generated. January 9th, 2011 | 10 comments - (Comments are closed)
German politicians view the monetisation of sovereign debt as the road to Weimar. They expect the ECB to be the heir to the Bundesbank and not the Reichsbank – Willem Buiter, Citigroup chief economist December 22nd, 2010 | 17 comments - (Comments are closed)
Estate taxes – or what are called inheritance taxes in the UK – have been an issue in the public sphere lately. Russell Roberts, who writes over at the Cafe Hayek blog – a fine one – has an article criticising such taxes in the New York Times, typically a bastion of Big Government “liberalism” (to use that word in its corrupted American sense). Check out the subsequent comment thread. Here are a couple of my favourites for sheer, butt-headed wrongness:
“chaotican”, from New Mexico. Here’s another, from someone called “jmfree3”:
Okay, there are other comments from people which are more sensible, such as making the point that there are other examples, besides estate taxes, of taxing people twice. The double-taxation aspect of inheritance tax is not, in my view, the worst thing about it. Rather, it is a tax on the maker of a bequest; it effectively says, “We, the State, are going to ban you from giving all your legitimately owned money to whoever you want, and we demand that a large chunk of it should return to the State that nourishes you and protects you”. If you read the comment from “jmfree03”, that is pretty much what such people believe. They don’t, not in any rooted sense, believe in the idea of private property and respecting the wishes of the owners of said. Now, of course, the NYT readership is not typical of US public opinion as a whole, if the recent mid-term Congressional elections are a guide. I would also wager that while there has always been a strong egalitarian strain in American life – more so than here – that it has tended to avoid a general denigration of someone just because they are born to rich parents. After all, everyone born in the USA these days is, on this basis, a very lucky person compared with say, someone born in the former Soviet empire, or large bits of Africa, for example. I remember, many years ago before I started this blogging business, having a chat with Brian Micklethwait and we commented on the size and power of the left in parts of the US, especially in the big universities and other such places. A theory of Brian’s was that it is precisely because the US is so fabulously rich in its mostly capitalist way, that it can afford to support a large class of people inclined to attack it. It is, of course, ironic that the left supports confiscation of inheritance, since a large element of the left in the US can be described as “trustafarians”; over here, as is sometimes noted, a lot of the Greens – such as Jonathan Porritt or Zac Goldsmith – are born to money and privilege. The Toynbees and the rest are fairly well minted. Here is one such article here, back in October 2007, that addresses this whole idea that inheriting lots of money gives someone an “unfair” advantage in life over someone else, as if life were like a pre-defined race, such as the Tour de France. But that gets things entirely wrong. It is the fallacy of the zero-sum approach to life generally. And here is another article by me on the same subject, responding to a letter in the Times (of London) newspaper. December 17th, 2010 | 30 comments - (Comments are closed)
Tim Worstall has a new book out, Chasing Rainbows, which sets out what he regards as the economic fallacies of much of the Green movement. Such fallacies, he argues, actually get in the way of solving or at least trying to handle the genuine problems that may exist. What is good about Tim’s book is that he is not some sort of cliched “denier”; he does not base his argument on the idea that AGW is some sort of evil collectivist con-trick or piece of doomsterish nonsense (although I am sure some commenters will want to raise that point). Rather, he says if there are problems caused by a buildup of CO2 in the atmosphere, and there are costs of such problems, then let’s use the tools of economics. For instance, he talks about carbon taxes. I am not a fan of taxes, but I can see a certain logic. They are far better than carbon credits and carbon trading, in my view. Like Nigel Lawson, I see the idea of a market in carbon credits not as a solution to AGW but as something with great potential for fraud. The question I have about carbon tax, however, is what happens to the revenues. If they are levied by nation states, then clearly there will be demands for such taxes to be “harmonised” and levied by some sort of single organisation. And then the question arises as to what happens to such revenues? Much of the book bears many of the trademarks of Tim Worstall’s own excellent blog: lots of data flecked with his caustic wit, often at the expense of such buffoons like George Monbiot and Jonathan Porritt, and on tax, the appalling Richard Murphy, who gets a solid going over at least once a day. There is a touch of PJ O’Rourke in how Tim likes to use a quip to make a serious point. I particularly like the way he gets hold of important concepts, such as the Law of Comparative Advantage, or the idea of opportunity costs, using examples of how forcing households to recycle waste imposes unpaid labour costs, which if added up, can be shown to represent a large cost. Being a good student of the great French classical liberal Frederick Bastiat, Tim understands the point about “what is seen and what is unseen” – understanding that the visible costs of environmental degradation need to be balanced against the unseen costs of trying to deal with it. Bastiat is one of those writers who ought, in a sane world, to be on the compulsory reading list of every school pupil. The central message of this book is that there are problems, but there are also rational approaches to them, and that the Green movement, or at least its most collectivist parts, are blocking rational reforms. It is a similar point to that made by Matt Ridley in his book, the Rational Optimist, to which I have referred before. By their one-eyed focus on AGW alarmism, and by adopting a reactionary, command and control approach to the issue, they are blocking sensible alternatives, and also crowding out other issues, such as alleviation of poverty, which can be made worse by such foolish ventures as subsidies to biofuels, for example. Chasing Rainbows makes for a good stocking filler this Christmas. Go on, do it for the children and for Tim’s bank balance. December 9th, 2010 | 41 comments - (Comments are closed)
I have been reading and enjoying Matt Ridley’s recently published book, The Rational Optimist, which shoots down a number of doomsterish ideas with great aplomb. For instance, he zaps the idea that we somehow reduce our “carbon footprint” by not importing foodstuffs from overseas. The international division of labour, he argues, is good for the planet, not harmful to it. The book is crammed with data to back up such points. Ridley also has a blog based on the book, and it is worth bookmarking, in my view. Whatever his shortcomings as the former head of failed UK lender Northern Rock, Ridley is a fine writer and debunker of fashionable nonsense. More power to him. December 7th, 2010 | 2 comments - (Comments are closed)
I suppose that if someone asked me what is the subject that libertarians get into the most debates about with each other, I would probably say foreign policy (ie, should or would a libertarian polity even have a “policy” at all?); but then I might say that in second or third place would be intellectual property rights. It never fails to get the fur flying, metaphorically anyway. Here is an example of a fierce opponent of IP who is also an equally robust defender of property rights in everything else, at the Ludwig von Mises Institute, Stephen Kinsella. My SQOTD a few days ago created a comment thread where IP came up. Now, I am not going to reprise the arguments for or against IP – here is a great essay by Tim Sandefur on the subject and here is another defending IP – but ask a slightly different type of question from readers, which is: what happens if state-created IP rights no longer existed? Could or would such things ever exist under any kind of Common Law system? How would new, potentially immensely useful ideas, come into being if folk could immediately copy them? It is not good enough, I think, for a person to respond: “well, if writing books/making music/etc no longer pays, then take up bricklaying or perform live, or teach kids for a fee, or whatever.” I do not find such answers entirely satisfactory. In the age of the Information Economy, when so many people create value not by hard physical labour but increasingly, by manipulating ideas and concepts, it seems glib, to say the least, to shrug one’s shoulders about this. So here are some ideas I have about what would happen. Remember, this post is not about my defending or attacking IP, but posing the question of what happens in a non-IP world, and whether we like the results: More prize competitions to stimulate inventions, such as the Ansari X-Prize. Consistent libertarian opponents of IP should, of course, want the prize-winning funds to come from private donors and businesses, not the state. I happen to think that such prizes are a great way to foster innovation anyway. Drugs: we might see a fall in the number of drugs being brought to market, if copying could be done. Bringing drugs to market is notoriously expensive; of course, libertarian anti-IPers might retort that a lot of the cost is caused by regulatory agencies such as the FDA in the US and their international counterparts, and they have a point; even so, reputable drug firms do not want to kill their patients, so trials and tests can take many years, even in a purely laissez faire environment. So we might have fewer drugs being sold and developed from what would otherwise be the case. We cannot measure this shortfall, but it seems a fairly reasonable guess that such inventions might decline. IP opponents need to address this, or at least state that this is a cost that “we” (whoever “we” are) are willing to pay. (This is a bit like the argument that getting rid of limited liability companies could harm, rather than help, economic growth but that the price is worth paying if we remove other problems allegedly connected to LL). Contracts. Some firms, fearing that staff might defect and take blueprints of ideas to competitors, might insist on non-disclosure rules on staff in the event that they leave. This might actually lead to pretty draconian contracts being enforced in certain sectors, such as drugs and software, though not always easy to enforce in practice. Again, this would depend on the circumstances of individual firms, the sectors they are in, barriers to entry, etc. But some firms might be able to draw up such contracts particularly if the supply of labour for such jobs exceeded present supply. Secrecy and concealment. Some firms, such as makers of radical new inventions, would go to far greater lengths to build them in such a way that the design was concealed, making it harder for people to get hold of the object, break it apart and reverse engineer it. It may still happen anyway, but firms might go to all kinds of ploys to try and make their stuff harder to copy, not always in ways we would like. Such efforts are a cost; again, is this a cost that outweighs the alleged negatives of IP? And as a matter of practical reality, we might see some individuals get so enraged at having their ideas copied that this could get quite nasty. If a composer of a piece of music sees his score copied by someone who cannot even be bothered to acknowledge the source, and who performs it live and earns a fortune, then the composer might find out ways of seriously ruining the career of the performer, such as by libelling that person, blackmailing them, even physical violence. Do not forget that libel laws, for instance, are in part a way that the legal system tried to prevent folk killing each other in duels over affairs of honour. No-one likes the plagiarist, and opponents of IP need to accept that such conflicts might arise. I am not saying that the example of the irate composer would be justified in what he might do, but we are talking about likely outcomes, whether we approve of them or not. One other consequence of a world without IP is that it makes enforcement of property rights in non-rivalrous stuff – such as land, movable goods – even more important in economic life than it is now. Property is inseparable from wealth creation, since if we cannot have the security of knowing that we can build up a store of wealth, then we cannot plan ahead and deal with our fellows in peaceful, voluntary ways. Good fences and good neighbours, and Englishmen in their castles, etc, etc. Anyway, comment away. Play nice in the sand-box. November 30th, 2010 | 157 comments - (Comments are closed)
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