Blog Review 955

3463
blog-review-955

Yet anopther reminder that it doesn't matter so much what resources you pour into the public education system. Much more important is what you do with the resources you have.

Free markets aren't without regulation. The major differrence in regulation between free and unfree markets is that in free markets the regulating is done by people who actually know what they're doing.

Today's installment of "incentives matter", the game every economic actor plays: "Interestingly Dick Cheney's first daughter, Elizabeth, was born 9 months and 2 days after the Selective Service System announced that childless married men were to be drafted."

Those who have done nothing wrong do have a great deal to fear.

How to decode bureaucratese.

Finally, someone standing up to state sponsored theft.

And finally, how to decode politicianspeak.

A crisis of capitalism?

3468
a-crisis-of-capitalism

Flicking through a copy of Dr Madsen Pirie's Freedom 101, I found a prescient paragraph [p.66] on capitalism and the business cycle:

In recent years independent central banks have tried to smooth the business cycle's severities by combining the pursuit of sound money with making credit easier when economic downturn loomed. It has been a precarious act which cannot necessarily be sustained, but this is not a crisis of capitalism either. It may just be problems arising from one type of financial management.

This was written well before most commentators even realised there was a financial crisis.

Joanna Lumley gets A* for politics but fails economics

3452
joanna-lumley-gets-a-for-politics-but-fails-economics

altNow is not a good time to be critical of Joanna Lumley.

The former New Avengers and Absolutely Fabulous star has been in the ascendant, recently, championing the "right" of Gurkhas to settle in the United Kingdom. In the process she has managed to facilitate a defeat for the Government in the House of Commons on a Liberal Democrat motion (the first time the Government has lost on an opposition motion since Jim Callaghan in 1978) and box Gordon Brown into a corner.

This is not the place to debate whether such a ³right² does or should exist. Suffice to say that in as far as a ³right² is an entitlement granted in law it is clear that no such right does exist, but that there may be a compelling case for creating such an entitlement, considering the sacrifices that these men were willing to undertake on behalf of the British people.

My concern, however, was triggered by a flippant retort that Ms. Lumley made in response to a question about the cost of admitting potentially thousands of Gurkhas. Asked how the government was supposed to find the alleged £1.4 billion required, Ms. Lumley paused for thought and then responded ³Borrow it!² She and those around her laughed, some a bit nervously.

And they should be nervous. The government has already shown a slipshod attitude to the public finances, with borrowing rising to an oceanic £175 billion (in which the cost of supporting the Gurkhas would, admittedly, be a mere drop). While debate may continue about the extent to which it is necessary for the government to bail out banks and support the economy, it is quite clear that borrowing money for discretionary spending is partly responsible for our being in this state in the first place.

What Ms Lumley¹s comment demonstrates is the extent to which a belief in lax fiscal discipline permeates the privileged classes. Rather than ask the tough questions about how much should be spent, by whom, and on what, they are all-too-ready to issue a few billion in bonds to pay for their favourite pet projects, and assume that one day it will all come right.

After her recent successes, a few enthusiasts started asking whether she should become Prime Minister. Perhaps. But let us hope she never becomes Chancellor.

Friedrich Hayek

3451
friedrich-hayek

altOn this day in 1899, Friedrich Hayek was born. He went on to become a Nobel Laureate in Economics, and indeed he did groundbreaking early work on the economics of business cycles. He showed that it is governments that start business cycles. Thinking the economy (and no doubt their opinion polls) could use a boost, they create cheap credit. That makes it cheaper for producers to invest in productive processes that, in normal circumstances, would be unviable. Production expands, and more is produced and consumed. But it's a fake boom, and credit can't be kept artificially cheap and plentiful for ever. When it becomes scarce again, all those investments on marginal production processes are shown to be a mistake, and people suffer real losses as factories are closed and the economy re-adjusts back to reality. Prescient, you might think, of the fake boom that Gordon Brown and his colleagues created, and the pain of re-adjustment that we are now suffering.

But Hayek's main contribution was in political science rather than economics, with his development of the idea of the unplanned or spontaneous order. Human – and animal – societies demonstrate an amazing degree of order, without anyone necessarily ordering them. Flocks of geese fly in formation, but not because some head goose tells them which positions to take up. Human society has language with the most intricate grammar, but it evolved naturally – it was never planned out by some government or committee. The order comes, not because it is imposed from the top, but through the individuals following common rules. The geese fly at a sensible distance from one another, we use words in ways we can all understand, and in doing so, patterns or orders of social organization simply emerge.

Through this analysis, Hayek gave the world an intellectual understanding of the free society. Just because a society is not planned by politicians and officials does not mean that it is chaotic or inefficient. Indeed, the interactions of millions of individuals, responding to their local circumstances on the basis of general rules of action, employ far more information than the minds of planning officials could ever conceive. That is why the market responds far more quickly, and more rationally, than government planners; and why the free society is also a humane society.

Happy birthday, Hayek.

Dr Eamonn Butler's new book, The Rotten State of Britain, is now available to buy now. Click here to find out how.

The big four clubs

3450
the-big-four-clubs

alt“Andy Burnham, Culture secretary, is calling for an overhaul of English football finances to break the domination of the ‘Big Four’ clubs", The Times has reported. Why would the Government get involved in such a matter? Have they no more important issues to be worrying about? It is no surprise that the Culture Secretary is an Everton fan.

Undoubtedly, the top four teams have been hugely dominant for over a decade. Manchester United, Chelsea, Arsenal and Liverpool have been at the forefront of English football and because of this end up becoming richer every season. New and better players have consistently chosen these football havens as a place to learn their trade, ultimately leaving the ‘smaller clubs’.

It is understandable that this has become an issue as a mini league has now been created between these teams and the lesser teams fight for fifth place downwards. However, Burnham is demanding the top four redistribute their earnings from the Champions League. This ridiculous stipulation is both embarrassing and disgraceful. The Champions League is a competition where the best four teams from our country fantastically represent the Premier League and of course acquire extra revenue. Why should the teams who do not even play in this competition gain extra money for doing absolutely nothing? If Everton were part of the ‘Big Four’ would Mr Burnham be making such a fuss?

Once again people who seem to know very little of football and the beauty of the game are involving themselves in how it is run. Burnham also raised the issue of quotas for English players to help make the Premiership English. Nevertheless, there is a simple reason why there are so many foreigners in our League. We want to have the best League in the world; therefore, we attract the best players in the world. And alas, the best players in the world are too rarely English.
 

What Say the Reeds at Runnymede?

3447
what-say-the-reeds-at-runnymede

A poem for our current band of politicians to read:

Rudyard Kipling (1865-1936)

At Runnymede, at Runnymede,
What say the reeds at Runnymede?
The lissom reeds that give and take,
That bend so far, but never break,
They keep the sleepy Thames awake
With tales of John at Runnymede.

At Runnymede, at Runnymede,
Oh, hear the reeds at Runnymede:
'You musn't sell, delay, deny,
A freeman's right or liberty.
It wakes the stubborn Englishry,
We saw 'em roused at Runnymede!

When through our ranks the Barons came,
With little thought of praise or blame,
But resolute to play the game,
They lumbered up to Runnymede;
And there they launched in solid line
The first attack on Right Divine,
The curt uncompromising "Sign!'
They settled John at Runnymede.

At Runnymede, at Runnymede,
Your rights were won at Runnymede!
No freeman shall be fined or bound,
Or dispossessed of freehold ground,
Except by lawful judgment found
And passed upon him by his peers.
Forget not, after all these years,
The Charter signed at Runnymede.'

And still when mob or Monarch lays
Too rude a hand on English ways,
The whisper wakes, the shudder plays,
Across the reeds at Runnymede.
And Thames, that knows the moods of kings,
And crowds and priests and suchlike things,
Rolls deep and dreadful as he brings
Their warning down from Runnymede!

Blog Review 954

3444
blog-review-954

Ooooooh, yes, let's tax something to make it cheaper!

It would appear that the real cause of global warming is the US Post Office.

How to save the Indy: if anyone wants to, that is.

Contrary to popular belief, yes, you can buy advertisements on the BBC (and it has to be said that Netsmith has a sneaking admiration for the PR type that cooked this one up).

When people start to think that France is a better place to do business from: well, isn't it time to look at why they are?

If you investigate people for fraud, or at least if you investigate certain groups, then you have to compensate them because you are investigating them.

And finally, the names of those who support the Prime Minister are revealed!

The way forward

3442
the-way-forward-

altOver on the Spectator's CoffeeHouse blog yesterday, James Forsyth approvingly quoted from this column by New York Times' columnist David Brooks. But I think Brooks is only half-right.

He is certainly correct that the US Republicans are in trouble, and that they are not currently acting in a way that would enable them to win back Congress in the 2010 mid-terms, let alone the White House in 2012. But I think he is wrong in his prescriptions about what the Republicans should do about it.

Let me elaborate.

First of all, yes, the Republicans are not doing what they should be doing. There are a number of inter-connected issues here. The first is that the Republican brand is fundamentally broken – their party is now associated with incompetence (Iraq, Hurricane Katrina, etc), corruption (Tom DeLay, Scooter Libby, etc), and the complete betrayal of their principles (Bush's was the biggest spending government since Lyndon Johnson's). This is a brand that desperately needs to be re-invigorated, not reinforced.

The second point is that the Republicans are not going to rediscover electoral success solely by energizing their base: the US electorate has changed, and the Republicans need to tailor their message accordingly. Voters are increasingly youthful (new voters are heavily Democrat), or members of ethnic minorities (who also lean Democrat). Obsessing about social 'wedge' issues (like gay marriage) just isn't going to swing these voters.

The third point is that the Republicans can't redefine themselves solely in negative terms by being against whatever Obama does (however heinous it might seem) – they need a positive agenda of their own.

So far then, I'm with Brooks. But I think he goes awry when he argues that the Republicans need to give up on "freedom and maximum individual choice" and instead embrace "community and civic order". The truth is that Americans are no less individualist and entrepreneurial then they were a decade ago. It isn't the Republicans' principles that need to go. They just need to find a new way of communicating.

If you're sceptical, just compare Barry Goldwater (who lost 44 states) with Ronald Reagan (who won 49). It wasn't the principles that changed; it was the presentation. And ultimately, that's the challenge for all of us: showing why small government and individual liberty are still the way forward (and not just the way back).

Predicting the financial crisis

3440
predicting-the-financial-crisis

Despite Alan Greenspan’s claim in a speech back in 2000 that “It is very hard to definitively identify a bubble until after the fact", contemporaneously economists affiliated to the Austrian School were doing just that: identifying the bubble that Greenspan and others had help create. Remember, this was at a time when nearly everyone was borrowing like headless bulls in china shop. In an incisive report on the increasingly popular mises.org, Mark Thornton brings to light the then largely ignored analysis (at least by the mainstream media).

For example, Thornton points to the fact that Christopher Meyer in 2000 stated that:

Looking back, future financial historians will likely relate the Glassman-Hassett thesis to Irving Fisher’s famous proclamation in 1929 that "stock prices have reached a permanent and high plateau." James Grant likes to say that there are three common features of a bubble: one part fundamental (i.e., a technological revolution), one part financial (i.e., a surge in money and credit) and one part psychological (i.e., a suspension of belief in traditional valuation measures). All the ingredients would appear to exist in the current bull market.

Similarly, Tony Deden of Sage Capital Management wrote in a paper entitled “Reflections on Prosperity" in 1999 that the growth in money and credit signalled that they were in the presence of a huge bubble; going on to draw attention to the cause of the current bubble:

Their cause is not the fault of capitalism as it has been suggested, but an excessive amount of money and credit created by central banks. Yet, this seems to escape the understanding of those who will, in one day, convene congressional hearings to determine what caused this destruction. The culprit is, as it always has been, the same organization, which professes interest in bringing about price stability and low inflation: The Federal Reserve Bank and its policies of money market intervention, credit creation and loose money.

Also, Sean Corrigan saw it coming, writing in 1999:

Monetary pumping on this order, as the Austrians will tell you, leads to serious distortions in the price structure of an economy which cannot be captured in crude, aggregate, index numbers. These distortions between the value of goods, present and future, lead to mal-investments and a clustering of false decisions. Factories built and productive processes put in train based on a market rate of interest artificially lowered by the effulgence of fiduciary media are not backed up by real savings and thus become misaligned with a propensity for consumption which has, if anything, intensified.

There are many others who saw that the economy had no clothes on; there are many who continue to do so. After all, governments are still pumping credit into the economy in the same way that the emperor continued his parade long after it was firmly established that he was naked.