The failure of monetary socialism

The central planner’s unlikely redoubt

There is a story from the Cold War era about a Soviet official who travelled to London. As he was shown around he couldn’t believe how full the shops were of all sorts of produce. Amazed by this bounty, he eagerly seized his guide and asked “Who is in charge of the bread supply to London?” The baffled reply came – “No one”.

I was reminded of this story and how, from the Austrian viewpoint, economics is about coordination, at an excellent talk I heard in east London last Thursday night by Steven Baker, MP and Cobden Centre board member.

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0.2% growth is cause for celebration!

The lesser of two evils

Things must be bad when economic growth of 0.2% is better than expected. And indeed, things are bad. But it is a mistake to think they could be much better.

To understand this grim sentiment you have to take a step back and think what has happened in the British economy over the last few years. UK household debt which barely budged from 63% of GDP between 1993 and 1997 rocketed to 100% in 2007. Between 1997 and 2008 the number of credit cards rose from thirty-six million to seventy-one million. In the same period our spending on holidays more than doubled to £1,068 per annum and spending on other forms of entertainment rose by 76% to £250 per month. Consumer debt topped £1.4 trillion in 2008. Britain went on a borrowing binge.

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Hayek vs Keynes at the LSE

No contest

July 26th saw one of the most eagerly anticipated economic events of recent years. At the London School of Economics (former employer of Friedrich von Hayek), Professor George Selgin and Dr. Jamie Whyte for the Hayekians and Professor Lord Skidelsky and Duncan Weldon for the Keynesians gathered in front of a packed lecture hall to debate Keynes vs. Hayek. Two other lecture halls were required for the overspill. The debate will be broadcast on BBC Radio Four on August 3rd.

In front of a boisterous crowd, Hayek won fairly easily. Skidelsky’s haughty style contrasted with Selgin’s bullishness and the perennial Keynesian failure to look at the origins of the bust won over nobody in an admittedly partisan crowd. But even an hour of discussion left a few things hanging.

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Greece, Ireland and the euro – How we got here and where we go

Welcome back

Greek town squares and streets have erupted in violence. A Socialist government has incurred the wrath of the left by forcing through a package of fiscal retrenchment which would have made Margaret Thatcher blush. Greek interest rates are skyrocketing yet borrowing still grows. Even so, many commentators from both right and left doubt it will be enough. Greece will almost certainly default on its debt. It’s a good bet that it may even be forced to leave the euro.

How did we reach this state? What will happen next?

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Brazil

Coming to a condo near you

With his history in the transfer market there is no guarantee that Carlos Tevez won’t still end up at Brazilian side Corinthians. But even if he doesn’t, some are saying that the bid itself represents a shift in power away from the European clubs, which have traditionally benefited from the players produced in Brazil, and towards Brazilian clubs themselves.

Brazil’s new found wealth is being flaunted elsewhere. Last month Bloomberg reported on a growing number of Brazilians buying property in Florida. According to the report:

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Versus: Norwegian Wood by Haruki Murakami

Holly Steell: After weeks of seeing Norwegian Wood being read by hordes of engrossed commuters on the tube, I convinced Sean that this was the book we should be reading for our versus and off we went.

Norwegian Wood is primarily about nostalgia and sexuality in the rapidly changing world of 1960s Tokyo. Its protagonist Toru Watanabe is a young drama student at a private university who after an opportune meeting with Naoko, the ex-girlfriend of his best friend, Kizuki, who killed himself at seventeen, embarks on a series of complex relationships that ultimately allow him to finally fully mourn the death of his friend.

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The private origins of public institutions

Welfare before the state

This is the first draft of the introduction to a pamphlet I hope to have published soon titled ‘Galloping Horses – The private origins of public institutions’

Public policy and the microeconomic theory which underpins it is replete with justifications for state provision of a wide range of services. Under the general heading of ‘market failure’ concepts such as asymmetric information, externalities or public goods are all seen to be solved in modern mainstream microeconomics by some degree of state intervention.

The message is that state provision of these public institutions is a necessity if they are to be provided at all. Obviously, the flipside is that no more state provision of these services means the services will cease altogether.

This concern has animated much of the opposition to the Conservative Party’s ‘Big Society’ agenda. Along with the predictable opposition from producer interests, much of the concern with the Big Society stems from the notion that if the state doesn’t provide these services they won’t get provided at all. The influence of the market failure paradigm runs deep.

Away from the models of economic textbooks we see that this is not, in fact, the case. We see, all around us every day, the results of human action taken in the private sphere to increase our welfare. And just as often as we see this private human action working to reduce our welfare, we see some state action doing the same.

Indeed, the idea that human action can, in fact, provide the services which mainstream public policy microeconomics and market failure theorists say it can’t is seen in the very fabric of some of our most hallowed and cherished public institutions who’s continued attachment to government, microeconomics tells us, is so vital to their continuance.

This pamphlet will take a critical look at some of the key concepts of market failure concepts. It will then look at three public institutions in three very different sectors; unemployment insurance, the National Health Service and the London Underground. The standard theory tells us that these could not exist without government but we will see that their existence actually predates state control and that the state did not create these public institutions, it simply took over what human action in the private sphere had already built. Or, as EG West wrote of the state intervention in education, “it jumped into the saddle of a horse that was already galloping”

Finally, we will look at the theory of the evolution of money developed by the nineteenth century Austrian economist Carl Menger and apply it to the evolution of public institutions more widely. It will help us to explain what the standard theory cannot; how unemployment insurance, healthcare and underground railways can be provided without the state.

For exactly 100 years, since the National Insurance Act of 1911 elbowed many perfectly good private arrangements for insurance against unemployment, injury and old age out of the way, the trend of British public policy has been that the state steps in and people step out. Reversing that trend is the goal of the Big Society. It is a large concept dealing with deep issues of psychology, sociology, history and economics. It has proved difficult to communicate which is one reason why it has proved so difficult to get off the ground. This pamphlet aims to go some way to redressing that.

Too Blue for Labour

The Great Blue Hope

I wrote a little while ago about the ‘common ground’ in British society uncovered by a Labour Party listening exercise. It found that Brits wanted

“tough on crime (and to hell with the causes), a preference for money to be spent in the UK’s roads and schools before those of India or Nigeria, a crackdown on benefit cheats and lazy arses who don’t want to work, and a strong desire to see the NHS and school system work properly. Add in a little mild xenophobia towards the continental Europeans and a visceral loathing of MPs and bankers”

I went on to say

“For all the fuss about ‘Blue Labour’, there is only so far Labour can move towards this common ground without breaking apart”

It seems that I overestimated how far Labour could move in this direction. This week Maurice Glasman, the guru behind ‘Blue Labour’, gave an interview to the Telegraph in which has said

“We’ve got to re-interrogate our relationship with the EU on the movement of labour…Britain is not an outpost of the UN. We have to put the people in this country first. The EU has gone from being a sort of pig farm-subsidised bloc to the free movement of labour and capital.”

He went on to say

“We should be more generous and friendly in receiving those [few] who are needed. To be more generous, we have to draw the line.”

All sensible stuff and well in tune with what the Labour party’s listening exercise told them about the feeling of the British people.

But on the issue of immigration Labour remains firmly wedded to the principle of the open door. As reported in the New Statesman today Blue Labour is about to be “effectively disbanded” for Glasman’s heresy over immigration.

So, already, we have found just how far Labour are prepared to go to meet the British people and it isn’t very far. They should listen when Glasman says of the public and Labour “They’re in the right place — it’s us who are not”

Miliband says Cameron should apologise…but what on earth for?

No straw left ungrasped

Britain used to be a place where innocent until proven guilty was the way things were done. But such is the hysteria around ‘Hackgate’ that that has gone out of the window.

Ed Miliband has today called on David Cameron to apologise for having hired Andy Coulson as his PR guy. But you have to ask what, exactly, Cameron is supposed to apologise for?

In 2007 Andy Coulson resigned as editor of the News of the World. Under his editorship a reporter was jailed for hiring a private detective to hack into the phones of celebrities. Both the reporter and the gumshoe were jailed. A few months later, Cameron hired Coulson.

When Cameron took Coulson on board there was no serious suspicion that Coulson had authorised the hacking. Indeed, he resigned as editor not for what he did know but for what he should have known. It was an error of omission, not commission.

So, to recap, back in 2007 David Cameron hired a guy who had resigned from his previous role because of actions undertaken by those working under him, actions he knew nothing about.

Is that what Cameron is supposed to apologise for? Pull the other one.

However, Andy Coulson, like several others, has recently been arrested over suspicion he did, in fact, know about the hacking. Arrested, you’ll notice, not charged, not convicted.

And yet, prejudging an ongoing investigation, Miliband thinks Cameron should apologise. To see how silly this is try and imagine what form Cameron’s apology might take;

“I apologise for hiring a man who authorised the hacking of phones”

Well, we dont know that Coulson did do we?

“I apologise for hiring a guy employed people who hacked phones without his knowledge at his previous job, for which he resigned”

Again, we dont know that either, but its hardly the crime of the century is it?

If Coulson is found guilty perhaps Cameron might have to apologise. It could go something like this

“I apologise for hiring a guy who, at his old job, did something I didn’t know about”

Fair enough perhaps, but does Cameron really need to apologise for a lack of clairvoyance?

This rubbish is a blatant attempt by a cluless bufoon disliked by even his own party members less than three weeks ago to get a few brownie points. In the short term it might even work. His nasal calls for, er, something or other to be done have impressed one Labourite after another, and another

The truth for Miliband is likely to be less of a renaissance, a bit like when Neil Young releases an album slightly less crap than most of his recent stuff people start comparing it to Harvest. In reality Ed Miliband was an incompetent party leader before ‘Hackgate’ and ‘Hackgate’ hasn’t changed that. After its done Ed Miliband will still be an incompetent party leader.

The seventeen percent solution

House of pain

The prospect of a default by the United States might be grisly to contemplate but, with Treasury figures suggesting such an outcome is just two weeks away, it can’t be avoided.

If the United States suddenly found itself unable to borrow any more money it would have to slash spending. It would no longer be able to roll over its current debt or borrow to pay off old debt and so confidence in the debt would fall and the value of that old debt and the dollars it is denominated in would crash. Interest rates, on the other hand, would go sky high. Some of the trillions of dollars shipped abroad in recent years to pay the Chinese for consumer goods would probably emerge from underneath the mattress of the Chinese central bank and come back home to be cashed in for American assets before they lose too much value. This flood of money would send inflation surging. The American economy might crash and take the rest of the world down with it except for a few isolated tribesmen in the Amazon who have never heard of a debt ceiling

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