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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Brussels Dispatch: The perfect storm

Written by Benjamin Harnwell | Friday 10 April 2009

The great thing about this current man-made economic crisis – other than the brilliant cover it has provided for government to launch the biggest financial power-grab the free world has ever seen – is that its bright red flashing light has distracted attention from just how structurally unsound the entirely synthetic euro is proving to be.

Spain’s economy, for example, is asphyxiating: unemployment is running at 14%. Its deficit is 7% - incidentally, that’s over twice that allowed by the Maastricht Convergence Criteria. It also has a current account deficit nearing 9% of GDP (whilst Germany has a current account surplus of 7%).

The next great sub-prime lending disaster is hiding within the Western European loans to Eastern Europe of around $1.5tn. Austria, Belgium, Sweden (and Switzerland) have a loan exposure of between 25% to 60% of their GDP. Italy has a debt to GDP ratio of over 100% (but that’s just to itself).

As of February 2009, the lowest eurozone annual inflation rate was Ireland and Portugal at 0.1%; the highest were Finland 2.4% and Malta 3.5%. In the same month, manufacturing output was declining at record levels, hitting Germany and France particularly badly.

So, it is about the best the eurozone can do at the moment not to fall apart – and the pressure hasn’t even started yet.

According to the European Central Bank, the M3 money supply across the eurozone is growing at 6.5% annually. ECB interest rates are currently at 1.25%

Against any logic (other than straightforward duplicity), the Keynesians have somehow convinced the world that the big fear for the global economy is deflation. Milton Friedman said that inflation was always and everywhere a monetary phenomenon. Inflation is properly understood as an expansion of the money supply (and credit).

In summary, manufacturing output is falling. Certain member states are encumbered by massive debt.  Both considerations will push the ECB to consider lower interest rates. But the money supply is already expanding at a rate far greater than has been reflected by price rises.

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Brussels Dispatch: Full Marx for the G20’s prescriptions

Written by Benjamin Harnwell | Friday 03 April 2009

Let’s start with a dangerous idea:

Nevertheless the theory of output as a whole, which is what the following book purports to provide, is more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output under conditions of free competition and a large measure of laissez-faire.

This is JM Keynes, in the preface to the 1936 German edition of his General Theory.

Do not deceive yourselves that Thursday’s G20 meeting is anything less than an overt and brazen attempt of our so-called leaders to launch a putsch against their own peoples; using as a pretended necessity the downturn in the financial markets.  A downturn, incidentally, which they themselves created through years of reckless monetary expansion and steady supply of cheap credit.

So which are the liberties that have been immolated on the altar of “rebuilding confidence and restoring trust”?

  • the freedom to buy and sell our own labour at a price freely entered into by both parties (bankers’ pay and bonuses will be subject to stricter controls)
  • more political cronyism and corruption as businesses have to kiss milord’s hand, and leave a gift on the mantelpiece, in order to trade (greater regulation of hedge funds and credit ratings agencies)
  • an act of outright pillage of the purchasing power of our currency as the State compulsorily purchases on our behalf those goods and services which we had declined to buy voluntarily hitherto (“an unprecedented and concerted fiscal expansion” of $5 trillion).
  • price fixing of basic goods and services (commitment to “ensure long-term fiscal sustainability and price stability” – how else will this be ensured, in light of the above expansion?)

We have sovietised the productive capacity of the economy.  In ten years’ time when we are queuing for our price-fixed ration of food, think back to this day, and how Gordon Brown led the conspiracy against liberty and freedom, and re-orientated the direction of our culture towards total self-destruction.

This is the totalitarian state, which brings us back to the quote at the beginning.

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Brussels Dispatch: Gaia and the catallaxy

Written by Benjamin Harnwell | Friday 27 March 2009

Here are the Opening words of the Wikipedia article on the Gaia Hypothesis:

In the ecological  sphere an act…[or] a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen.  The other effects emerge only subsequently; they are not seen […].  Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favourable, the later consequences are disastrous, and vice versa.Whence it follows that the bad environmentalist pursues a small present good that will be followed by a great evil to come, while the good environmentalist pursues a great good to come, at the risk of a small present evil.

Here are the Opening words of Bastiat’s Essay What is Seen, and What is Not Seen:

The Austrian Business Cycle Theory  is an economic  hypothesis proposing that the free market  and the temporal  components of the economy (structure of production, natural interest rate, savings rate and investment rate)  are closely integrated to form a complex interacting system that maintains the supply  and demand  conditions through means of the price mechanism  in a preferred homeostasis […].  The hypothesis is frequently described as viewing the effects of government intervention  as an immeasurable destructive consumption .  The Austrians  and other supporters of the idea now regard it as a scientific theory, not merely a hypothesis, since they believe it has passed predictive tests.

Okay, so I switched these two articles and changed the key words.

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Brussels Dispatch: A pressing idea

Written by Benjamin Harnwell | Friday 13 March 2009

This week the Government commenced 'operation helicopter', its three-month, £75bn plan, by having the Bank of England buy £2bn of government bonds using money it printed specially for the purpose. 
As the the Governor of the Bank of England, Mervyn King, wrote in his 17th February letter to the Chancellor: “The Bank of England remains committed to improving liquidity in credit markets that are currently not functioning normally.”   
Printing ‘central bank money’ is apparently the way to do this – don’t worry that the Bank has never tried quantitative Easing before in its 315 year history – there are some very clever people working at the Treasury and the Bank. Not having sufficient savings is no longer an inhibition in the light of the Bank’s greater priority of increasing velocity.

So here is my idea of how I can contribute to the 'war on illiquidity'. I have my own 'domestic quantitative easing monetary base expander' which I can use. More commonly known as a ‘counterfeiting machine’. Why can’t I contribute to expanding the money supply? Why not just let me print £2,500 myself, and start spending? 

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Brussels Dispatch: Through the looking glass

Written by Benjamin Harnwell | Friday 27 February 2009

If you don’t follow what is going on in Brussels, I envy you. The FT carries an astonishing interview this week with Joaquín Almunia, the Spanish European Commissioner for Monetary Affairs. Sadly, Mr. Almunia’s job title is the nearest we get to monetarism. Here is some dirigiste ‘almunition’ with my comments added:

“I’m convinced that financial regulation will be broader [more pervasive] and stronger [more punitive]. The financial system will be more regulated [more bloated parasites living off fewer wealth creators and more coercion in instructing entrepreneurs in what way they are to create wealth - which will then be confiscated by the State anyway].

This will mean less leverage [Mr. Almunia can perhaps take a look at the Member States’ track record of carrying debt larger than their assets, with their off-balance sheet accounting practices which would be illegal for any commercial enterprise, and redirect his cant in a  more needed direction], less flexibility in the financial system [I honestly have no idea what the man is talking about – unless he is ignorant enough to believe that less responsiveness in the financial markets is a good thing], and less influence for the financial system in the aggregated results of our economy [that’s right – he wants less wealth generation in the economy to come from investment]...

Either we accept that our growth will be lower than in the past because the stimulus [obviously, he’s been reading the New York Times too much, the word he really needed was ‘contribution’] from the financial sector will be smaller, or we find more engines of growth in the non-financial side of the economy. [Oh yes, look at all these engines of growth that we never knew existed just turning over happily in the Retezat hinterland. Good old Romania]. 

Never forget, you pay his salary.

Take a look around you, at what little liberty you still possess, O free market, because this is as good as it gets.

But there is one small sector I am still prepared to invest in – the lamppost industry.  Because when the revolution hits the streets we are going to need a lot of them.  Now a Commissioner for Lamppost and Rope Provision – that would fulfil a useful need…

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Brussels Dispatch: Yesterday’s history is today’s politics

Written by Benjamin Harnwell | Friday 20 February 2009

The Petrograd Strikes, which heralded the start of the 1917 Revolution in Russia commenced on 22 February; find a moment for reflection this Sunday. Even though the Soviet system of Communism lasted for 69 years, its ideology is evidently still very much alive and well: the British government now spends half the nation’s income. Yesterday’s history is today’s politics, to adapt the adage.

This Thursday our very own Nicholas II went to see the Pope. Perhaps he asked the Vicar of Christ to pray for a miracle – huge monetary expansion without hyperinflation – or perhaps he asked for the economy to receive the Last Rites. Ironically, one of the things the Prime Minister did discuss was freeing the world from poverty. He can contribute best to this desirable goal in Great Britain by the near abolishment of the State. Government remains the problem, not the solution, and we can work our way back into prosperity, as opposed to continue to regulate ourselves into impoverishment.

I came across this passage today in Ludwig von Mises’s Human Action which underlines this point (Chapter 21, Part 7):

The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses. The wage earners are no longer people toiling merely for other people’s well being. They themselves are the main consumers of the products the factories turn out…The very principle of capitalist entrepreneurship is to provide for the common man…There is in the market economy no other means of acquiring and preserving wealth than by supplying the masses in the best and cheapest way with all the goods they ask for.

Blinded by their prejudices, many historians and writers have entirely failed to recognise this fundamental fact. As they see it, wage earners toil for the benefit of other people. They never raise the question who these “other” people are.

The free market must be permitted to get on with offering exchanges in which both parties expect to benefit, unhampered by unpredictable behaviour-altering regulation and wealth confiscation. Only the State coerces.

The only question Mr Brown should be asking is which tax (capital gains tax, corporation tax, income tax, ‘inflation tax’, or VAT) he should scrap  first.

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Brussels Dispatch: Human Action in action in the European Parliament

Written by Benjamin Harnwell | Friday 06 February 2009

I mentioned in last week’s blog that one of my main duties at work is to draft the amendments to the reports and opinions that pass through the Development and Foreign Affairs committees. These are the two committees that the Viceroy sits on – commonly known here by their respective abbreviations DEVE and AFET. The Viceroy is an old nickname coined for Nirj by Fr. Michael Seed some 25 years ago.

An amendment works like this; the text on the left is the actual proposed text as drafted by the rapporteur. Members of that committee then mark in bold italics that part which they want deleting, and consequently, in the text on the right, they mark in bold italics that text which they propose to add. Both are then bundled together and taken as one vote in the relevant committee. In this way, we table amendments to delete the socialism and insert the laissez-faire. Sometimes, we even win.

Here is a good example from the past week – this amendment is to an opinion written by Mrs. Kinnock.

I would be very interested to see how Dispatch readers would have rendered this amendment.

Draft opinion

Paragraph 6

Draft opinion
Stresses that, as the financial crisis develops into a deepening recession, developing countries could be set back by decades as a result of falling commodity prices, lower investment flows, financial instability, and a decline in remittances; further notes that the value of existing EU aid commitments will fall by nearly USD 12 billion a year, because they are expressed as a percentage of Member State GDP Stresses that, as the financial crisis develops into a deepening recession, developing countries now have a historic opportunity to take advantage of the decline in Foreign Direct Investment flows by exploiting their competitive advantage of low labour costs – this is especially true at the present time when the existing EU donors are increasingly burdening themselves with such costs (minimum wage, employer social security contributions, union ‘rights’, over-regulation etc.) which can only serve to accelerate investment flight to the developing world


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Brussels Dispatch: Human Action v. The European Union

Written by Benjamin Harnwell | Friday 30 January 2009

A Preface for Rebellion

My office colleagues were all delighted when Eamonn Butler invited me to write a blog for the ASI. Not because they share my long-held respect for the ASI – but because more simply they hope it will take significant pressure off their ears, which up until now have been numbed to bleeding by my continuous griping at the way socialism is ruining our country. My lamentations have now found a new outlet.

I have the great honour of being the Chief of Staff to the greatest MEP in the European Parliament, Nirj Deva.  He is a fine man, and has affably encouraged my gradual shift in economics from the standard mushy-Keynesianism that any unthinking person assumes by default, via the rather more acceptable monetarism, to the true pinnacle of absolute truth. I mean of course Austrolibertarianism in the footsteps of Mises, Hayek and Rothbard etc.

One of my main duties here in Brussels is to draft the amendments for my boss to the ceaseless flood of reports that washes through the Development Committee and the Foreign Affairs Committee. In case you didn’t know, International Development is the last great arena where the traditional ideologies can still vie for power. Here socialism lives as in its glory days of old. It is as if the fall of the Berlin Wall simply passed the euro-comrades by. Nirj’s principal (and principled) opponent on the Development Committee is Glenys Kinnock - and the land on which all our battles are fought remains the timeless: Is government the solution to existing problems or their cause?

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