EU referendum and the political class

“This guy cracks me up”

Poor old Gerald Ford was derided for, apparently, being unable to walk and chew gum at the same time. But today’s front rank (sic) British politicians are open about their inability to do two things at once.

As momentum grew in the Conservative parliamentary party for a referendum on membership of the ailing European Union, David Cameron and Ed Miliband both said that to hold one would be a “distraction” from the more pressing business of saving the euro.

On Sunday night it became clear that what David Cameron couldn’t be distracted from was being told to sod off by Nicholas Sarkozy. Pressing business indeed.

Referendums are a very un-British way of doing things. We had them in Scotland, Wales and Northern Ireland over devolution, but UK-wide we have only had two since the Second World War; on membership of the then European Economic Community in 1975 and over the Alternative Vote this year. Edmund Burke’s notion of representative democracy reigns supreme.

But there is a growing feeling that it has been abused. Power in the United Kingdom resides with the people. At each general election we loan it to a political grouping for, at most, five years. But it remains ours. It is not theirs to give away.

And that is exactly what has happened. Despite being told after every EEC, EC or EU treaty that this represents the absolute limit of federalist expansion, within a couple of years the leaders of the European Project are always back asking for more. And they always get it.

The history of British dealings with Euro-federalists is that the Federalists ask for 100 percent, we give them 80 percent, and we call the 20 percent a victory for sovereignty.

This slow transfer of power over the British people to a foreign body has been either endorsed or permitted by successive British governments. And it has been endorsed or permitted by successive oppositions.

But it is not what the people, the owners of this power, want.

Predictably, plenty of Conservative Party members, 72 percent, support the motion. But it goes wider than that. Opinion poll after opinion poll, year after year, has shown the British people to be hostile to the European Union.

In July pollsters Angus Reid found that 49 percent would vote to leave it. Last month YouGov found that 47 percent wanted to leave. 67 percent support the motion for a referendum which goes before the Commons tonight.

But, barring a Parliamentary miracle, they won’t get one.

David Cameron has set his face against this vote wheeling out the heavy artillery of a three line whip and issuing threats about the career prospects of any rebels. In contrast to the kid gloves approach to the Liberal Democrats over the ludicrous Human Rights Act, Cameron has finally found an enemy and an issue worthy of some steely determination; his own back benchers and Europe.

This is an issue which goes wider than one arrogant, elitist politician. Gordon Brown famously called one of his own party’s voters who raised some perfectly valid if clumsily worded questions about immigration a “bigot”.

Lord Glasman, the ‘thinker’ behind ‘Blue Labour’, was excommunicated by the Party after saying “We have to put the people in this country first…We should be more generous and friendly in receiving those [few immigrants] who are needed. To be more generous, we have to draw the line.”

The Labour Party leadership is wedded to the idea of mass immigration but, like most voters, Labour voters aren’t. Research by Demos found that 28 percent of Labour voters think that “Britain should limit the number of people coming from other countries to live and work here because, on balance, they damage our economy and society”. And when these voters feel sufficiently ignored they go off and vote for the British National Party.

It is difficult to avoid the conclusion that both the Conservative and Labour parties are run by people who don’t like Conservative or Labour voters very much.

And more broadly, whether you are a working class white person in an ethnic area of Oldham who’s child is one of the few English speakers in their school or whether you’re a squire in the home counties with a £ lapel badge, our political class doesn’t like you very much. Your desires are inconvenient to its aims.

In his poem ‘The Solution’ Bertolt Brecht wrote

After the uprising of the 17th of June

The Secretary of the Writers Union

Had leaflets distributed in the Stalinallee

Stating that the people

Had forfeited the confidence of the government

And could win it back only

By redoubled efforts. Would it not be easier

In that case for the government

To dissolve the people

And elect another?

Who needs to dissolve the people when, as our leaders do, you can just ignore them?

This article originally apperared at The Commentator

Dirty Hari

“Uh huh, I know what you’re thinking; you’re thinking does this article contain six lies or only five?”

Drowned out by Hackgate this summer was another spectacular story of media self-immolation. Johann Hari, columnist at the Independent, winner of the prestigious Orwell Prize, regular on Newsnight Review, and darling of the left was caught stuffing his columns with lies.

It began in June when a blogger noticed that some of the quotes given by Hari’s interviewees were identical to quotes which had previously appeared in those interviewees published works. Hari defended the charge, saying that “When you interview a writer – especially but not only when English isn’t their first language – they will sometimes make a point that sounds clear when you hear it, but turns out to be incomprehensible or confusing on the page. In those instances, I have sometimes substituted a passage they have written or said more clearly elsewhere on the same subject for what they said to me so the reader understands their point as clearly as possible” He called any allegation of plagiarism “totally false”

But, ironically for a man who praised the power of social media, Hari was about to be hoist on his own digital petard. Twitter exploded with tweeters jumping on a bandwagon bearing the hashtag ‘#interviewswithhari’ which presented the hack as some sort of journalistic Zelig.

“‘Stop!’ he cried, pointing to the brass-framed clock above his desk, ‘Hammertime’” read one tweet. “After discussing my evidence with him. he stroked his thick beard, looked up, and then loudly exclaimed ‘GORDON’S ALIVE’?” read another. “He sensed my malaise” read a third “‘Young man’, he murmured, fingering his leather jacket ruminatively, ‘there’s no need to feel down’”.

A left wing journalist can survive many things. You can survive being caught lying in the service of a greater truth,as Hari tried to make out he was. But one thing you cannot survive when your entire shtick is seriousness is having the piss ripped out of you. As soon as he became a joke Hari was finished.

The story rumbled on from there getting worse at every turn. It took a weird turn when it emerged Hari had been posting lies about his opponents on their Wikipedia pages under an alias. It took an unsavoury turn when it emerged that the same alias had been used for other purposes. The outcome was that, on September 15th, Hari published a second apology covering lots of things he’d denied in his first one, handed his Orwell Prize back before it could be embarrassingly stripped from him, and went on four months leave from the Indy to get some training in journalism, a job he’s been doing for ten years.

Hari’s behaviour has been outrageous even by the standards of the newspaper trade. But it can’t have come as a surprise. Particularly not if, like me, you are a fan of Clint Eastwood and had read Hari’s 2009 article for the Independent titled ‘Clint Eastwood shows how America is changing’

Reviewing his 2009 classic ‘Gran Torino’ Hari looked back over Eastwood’s career. According to Hari Eastwood “caught the tail-end of the uncomplicated Us vs Them cowboy flicks where the Indians were evil, scalping savages who had to be destroyed by the white heroes. The films were gorgeous, romantic accounts of a genocide, told adoringly from the perspective of the genocidaires”

I’d love to know which film Hari is talking about here, he doesn’t tell us. Eastwood’s first big screen westerns were the ‘Dollars’ trilogy of Spaghetti Westerns made in Italy by Sergio Leone. In these films Eastwood played the famous Man With No Name who was only out for himself and whose occasional acts of kindness were few and often executed grudgingly or with an ulterior motive. ‘A Fistful of Dollars’ (1964), ‘For a Few Dollars More’ (1965) and the epic ‘The Good, the Bad and the Ugly’ (1966) were all about grubby scrambles for cash by grubby men in grubby settings. They were utterly amoral films and Native Americans didn’t feature in the trilogy once.

Hari somehow conflates these carnivals of moral ambivalence with the films of John Wayne, writing “The attitude of the genre was typified by John Wayne’s jeer…” Absolutely nothing about Eastwood’s westerns can be typified by anything from John Wayne whose westerns were totally different. For example, Wayne turned down the role Gary Cooper played in ‘High Noon’ (1952) because he disliked that the townspeople abandoned the Sheriff and that he threw his badge away in disgust at the end. When the movie became a hit Wayne responded by making ‘Rio Bravo’ (1959) where the townspeople come to the Sheriff’s aid.

Compare this to Eastwood’s movies. The inhabitants of Lago in ‘High Plains Drifter’ (1973) are such a craven bunch that they stood by and watched the town’s old Sheriff brutally whipped to death. When Eastwood’s mysterious stranger arrives in the town and wreaks havoc it is presented as a richly deserved comeuppance. And at the end of Eastwood’s most famous movie, ‘Dirty Harry’ (1971), the disgruntled policeman ‘Dirty’ Harry Callahan throws his badge away in disgust. John Wayne turned down that role too.

Sure, all art including film is subjective and some will hate what another loves. But this is not a difference of interpretation but an error of content. It is quite simply impossible to characterise the westerns of Clint Eastwood in the way that Hari does. So Hari either has seen them and is misrepresenting them, or he hasn’t seen them in which case why is he pontificating about them?

This brings us to the crux of Hari’s argument; he hates ‘Dirty Harry’. “Dirty Harry is an old-style cop, fond of beating and torturing confessions out of suspects” Hari says before, entirely predictably, quoting Pauline Kael’s old charge that the film is “fascist”, something she said about all Eastwood’s movies and ‘Straw Dogs’ the same year.

Hari summarises the film thus; “He sets out to catch the killer – but at every turn he is emasculated by insane liberal regulations. The new laws prevent him from breaking into homes without a warrant, committing torture, or harassing suspects. Appalled, Harry spits: ‘That man has rights? The law is crazy!’”

Except he doesn’t say that anywhere in the movie. But he does say something similar.

The set-up is that a 14 year old girl, Ann Mary Deacon, has been kidnapped, raped, and buried alive with a few hours oxygen. The Police receive the ransom note accompanied by a tooth pulled out with a pair of pliers. Callahan agrees to take the ransom to the kidnapper, a serial killer named Scorpio who has already shot three people.

When Callahan reaches the ransom drop he learns that Scorpio is going to kill him, take the money, and leave the girl to die. Luckily Callahan’s partner shows up. In the ensuing shootout Scorpio escapes but not before Callahan has plunged a knife into his leg.

The chase is now on as Callahan tries to find the girl before her oxygen runs out. Callahan tracks Scorpio to his flat and finds the rifle used in the previous murders. He finds the fleeing Scorpio and stops him with a bullet in the leg. Scorpio refuses to tell Callahan where the girl is buried, demanding his lawyer instead. With time running out Callahan grinds his boot into the gunshot wound and gets the information. When the girl is found she is already dead.

That’s the context, now the quote. The following day Callahan is summoned by the DA.

District Attorney: I’ve just been looking over your arrest report. A very unusual piece of Police work. Really amazing

Callahan: Yeah, well I had some luck

DA: You’re lucky I’m not indicting you for assault with intent to commit murder

Callahan: What?

DA: Where the hell does it say you’ve got a right to kick down doors? Torture suspects? Deny medical attention and legal counsel? Where have you been? Does Escobedo ring a bell? Miranda? I mean, you must’ve heard of the Fourth Amendment? What I’m saying is that man had rights.

Callahan: Well I’m all broken up about that man’s rights

DA: You should be. I’ve got news for you Callahan; as soon as he’s well enough to leave the hospital he walks

Callahan: What are you talking about?

DA: He’s free

Callahan: You mean you’re letting him go?

DA: We have to, we can’t try him

Callahan: And why’s that?

DA: Because I’m not wasting a half a million dollars of the taxpayers money on a trial we can’t possibly win. The problem is we don’t have any evidence

Callahan: (Indicating the recovered rifle) Evidence? What the hell do you call that?

DA: I call it nothing, zero.

Callahan: Are trying to tell me that ballistics can’t match the bullet up to this rifle?

DA: It does not matter what ballistics can do. This rifle might make a nice souvenir, but it’s inadmissible as evidence

Callahan: Who says that?

DA: It’s the law

Callahan: Well then the law’s crazy

Again, in a subjective art form you can make the argument that ‘Dirty Harry’ is fascist. But there is nothing subjective about making up quotes to bolster the argument. You come back to Hari’s apology. To Hari it is self-evident that the movie is fascist but Callahan doesn’t quite say anything fascist enough in the movie to make the case as clearly as Hari would want. So he “substituted a passage”, or quote, he had made up himself. This was Hari’s downfall. He got caught out doing it with Gideon Levy and Hugo Chavez and he did it with Dirty Harry.

I have no better idea whether Hari saw the first ‘Dirty Harry’ sequel ‘Magnum Force’ than I do whether he saw any of the Leone westerns. If he did he might have taken a little advice from Dirty Harry Callahan; “A man’s got to know his limitations”

This article first appeared at Middlebrow Magazine

No more Solyndras: time for the sun to go down on public spending

$535 million

Whenever I watch Dragon’s Den (Shark Tank to readers in the United States) and I see some entrepreneur waking away with £50,000 in his pocket I try and come up with my own ‘Dragon’s Den idea’.

I wonder how far I’d get if I turned up and said “I want $535 million and I’ll go bust in two years”? I might not get too far with Duncan Bannatyne, but if I was pitching to Steven Chu, Barack Obama’s Energy Secretary, I might be in with a shot.

That, briefly put, is the story behind Solyndra, a California based solar energy technology company which filed for Chapter 11 bankruptcy in August.

There are rumours that something murky went on in the approval of the loan. Perhaps, perhaps not.

But there is certainly a question mark to be raised over the willingness bordering on mania of western governments to throw taxpayers money at any business prospectus with the word ‘green’ in it.

Apparently terrified of global warming, our political leaders also harbour the hope that burying Sussex under wind turbines or covering Nevada with solar panels will boost the economy, a variation on Keynes’ old bottles full of banknotes.

But this is to miss the central lesson of Solyndra; governments aren’t much good at spending money.

In his 1980 classic, ‘Free to Choose’, Milton Friedman set out the four categories that all spending must fall into. Category I, you can spend your money on yourself; Category II, you can spend your money on someone else; Category III, you can spend someone else’s money on yourself; Category IV, you can spend someone else’s money on someone else.

Friedman gave a trip to a supermarket as an example of Category I spending, saying that “You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend”

Category II spending was exampled by buying presents for Christmas or birthdays. “You have the same incentive to economize as in Category I”, Friedman wrote, “but not the same incentive to get full value for money, at least as judged by the tastes of the recipient”

Friedman described Category III spending as being like lunching on an expense account. “You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth”

Category IV spending, Friedman wrote, is like paying for someone else’s lunch out of an expense account and “You have little incentive either to economize or to try to get your guest the lunch that he will value most highly”

Yet it is into this last category that all government spending falls. As D R Myddelton wrote in ‘They Meant Well’, a look at some similar examples of government profligacy in Britain, “Making a profit is the raison d’être of commercial enterprise, and company directors must account to shareholders for their success or failure in doing so. Government quasi-commercial projects may aim to make a profit, but if they fail, taxpayers have to pick up the tab”

Governments are not incentivised to get value for taxpayers’ money because they have no skin in the game. Hence debacles like Solyndra.

The obvious reply, especially given events of the last few years, is that the private sector is no better at spending its money. The multi-billion losses racked up by the likes of Merrill Lynch, JP Morgan, Citigroup, Morgan Stanley, Lloyds, Royal Bank of Scotland etc would make most governments blush.

But here’s the thing, they weren’t risking their money. When these banks saw their investments go sour they were bailed out with taxpayers cash. They were risking your money. And what’s worse, given the close relationship between Wall Street and Washington, the City and Westminster, they knew it.

None of this is capitalism despite what some might say. Capitalism is a profit and loss system with loss just as important as profit in allocating capital. Eliminate losses and you eliminate capitalism.

As has been proven from the Tanganyika ground nut fiasco to the Solyndra mess, government should leave capitalism to the capitalists.

But capitalists and government should also leave taxpayers money in taxpayers’ pockets. It is not the job of government to throw the public’s money at failing businesses or ‘green’ investment pipedreams. That is not capitalism, it is corporatism. And as the Dragons might say, I’m out.

This article originally appeared at The Commentator

The Tea Party and the Occupy Movement: two sides of the same coin but only the former really gets it

That is, like, soooooooo Tea Party

My mother always used to tell me that what was sauce for the goose was sauce for the gander. Apparently not. Many of the same people who get swivel eyed about Tea Party rallies are running out of laudatory epithets for the various ‘Occupy’ protests.

Back in January it only took a pair of crosshairs on a web page for New York Times columnist Paul Krugman to deduce that the Tea Party were behind the horrific shooting of Gabrielle Giffords.

But when a speaker at Occupy Los Angeles steps forward to say that “the bourgeoisie won’t go without violent means” Krugman purrs that we are “seeing the rise of a popular movement that, unlike the Tea Party, is angry at the right people”.

Krugman is wrong is to paint the two movements as diametrically opposed. In fact, there is much common ground between Occupy and the Tea Party.

Both groups are angry with the vast transfer of wealth from individual citizens to banks.

When the Tea Party movement got going nearly two and a half years ago its protestors, according to CNN, were out to protest against “excessive government spending and bailouts”.

Now we have Occupy Wall Street protesting “against bank bailouts, corporate greed, and the unchecked power of Wall Street in Washington”.

Both groups see people like former Treasury Secretary Hank Paulson bailing out his former employers Goldman Sachs to the tune of $12.9 billion of taxpayers’ money and are justifiably outraged. The only difference is that while the Tea Party focuses its anger on the politicians who are so free with taxpayers money, the Occupy movement focus theirs on the banks who received it.

They are in many ways working on the same problem from opposite ends. Big government and big, bailout dependent business are just two sides of a corporatist coin.

There are differences though. Whereas the opposition of the Tea Party to Federal bailouts is part of a more general belief in lower government spending, the Occupy movement has no problems with massive government per se; they are just opposed to this government spending.

The Tea Party want less Federal spending full stop. The Occupy movement want more Federal spending on them. The Tea Party, in other words, is more ideologically coherent.

And its incoherence compared to the Tea Party means that the Occupy movement is unlikely to be as successful.

The Tea Party can state clearly that they are for smaller government. Occupy Wall Street is forced to come out with confusing statements like “It’s not about ‘small government’ or ‘big government’. It’s about who controls the government”.

The Occupy movement may well win support as long as its sticks to vague statements having a go at bankers, but if it settles on a list of demands including, as one suggests, “Begin a fast track process to bring the fossil fuel economy to an end” and “Open borders migration”, it is hard to see others coming along for the journey.

Even though it’s early days, tactically it is unlikely that the Occupy movement will match the effectiveness of the Tea Party.

By working hard within the political system the Tea Party have reshaped American politics, reenergised the Republican Party and won control of Congress in less than three years. It is difficult to see how the Occupy movement expects to achieve whatever its aims are by mildly inconveniencing a few bankers and tourists.

And let’s not forget, the Tea Party were doing this first. If imitation is the sincerest form of flattery then the Tea Partiers can look at the Occupy movement and feel rather pleased with themselves.

But let’s end on a note of harmony. In 2008 candidate Obama received more funding from Wall Street than anywhere else, nearly twice as much as John McCain and he is still desperately schmoozing them.

One Wall Street Occupier rails that “Right now the 99% can’t participate, except through ‘representatives’ who are bought and paid for ahead of time. Time to shift the power! Time to take this country back from the 1%!”

If this angry protestor wants to stick it to the bankers’ candidate he too will be voting against Obama in November 2012.

This article originally appeared at The Commentator

Healthcare – Public and private

Move over love, we’ve got another two to fit in here

In the summer when the shocking abuse of residents at the Winterbourne View care home in Bristol was revealed Polly Toynbee took to the pages of the Guardian crowing that ” The “dead hand of the state” looks rather more welcoming than the grasping hand of private equity”

This week saw a report from the Care Quality Commission found that half of all hospitals were filing in their duty of care for the elderly and that 20% of all hospitals were so bad they were breaking the law.

Does this call into question the entire basis of publicly provided health and social care as, for Ms Toynbee, Winterbourne View did for private provision? Ms Toynbee has yet to address the CQC report.

Quantitative easing: why it doesn’t work

Laying the foundations for recovery

In the second year of my economics degree we were mixed in with some first years for some lectures. In the first week one of the freshers asked “Why don’t we just print more money, give it to people, and make them richer?”

We second years laughed, but that economic ingénue might be having the last laugh. As the Bank of England prepares to print another £75 billion of new money, she seems to have a seat on the Monetary Policy Committee.

Quantitative easing is the purchase by the Bank of England of financial assets so that the money spent on these will find its way back out into the wider economy.

But here’s the trick; the money the Bank spends on these assets is created out of thin air. The Bank, which controls the issue of British currency, simply creates as many new pounds and pence as it needs to buy however many of these assets it wants.

Whether this is inflationary depends on your view of the gradient of the short run aggregate supply curve.

For neo classical economists the curve is vertical, output is fixed, in other words, by real factors like the number of factories and workers. Any increase in the money supply simply causes higher prices. These economists believe money is neutral.

Keynesians disagree. For them, with idle resources in an economy, furloughed factories and unemployed workers, the aggregate supply curve is flat. It is possible, by increasing the money supply, to stimulate new output and employment because the spare capacity allows the amount of goods and services to expand with the money supply. Money is not neutral.

These are limiting examples. In practice most economists believe the aggregate supply curve is sloped, they disagree over the gradient.

Another area where neo classical and Keynesian schools agree is the transmission of this through the economy. Or, more accurately, they ignore it.

Their models are snapshots of a moment. They exclude the fourth dimension, time, and thus miss the transmission process.

They share the ridiculous notion of ‘helicopter money’ whereby newly created money, such as that used in QE programs, magically appears in people’s portfolios as though falling from a helicopter. This money is assumed to be scooped off the ground by each economic agent in proportion to their existing stock of wealth.

Austrian school economists don’t take this bogus notion seriously because they acknowledge that economic phenomenon exist in time. It follows that in the Austrian view monetary expansions are not neutral. They benefit some more than others.

The charts below from the work of economist Roger Garrison illustrate this.

Figure 1                                                             Figure 2

Garrison writes

“The vertical axis represents the nominal magnitude of the original stock of money (Mo), i.e., the stock in existence prior to the monetary expansion. The horizontal axis represents the nominal magnitude of the expanded stock of money (Me), i.e., the stock in existence after the expansion has occurred. The 45° line, representing the equality Mo = Me, serves as a reference. A neutral expansion can be shown, then, by rotating a line clockwise from the reference line” (in Figure 1)

But monetary expansions don’t occur like this. Helicopters don’t dispense the new money, banks do.

Money newly created by the fiduciary authority goes to them first. From them it goes to whoever they lend it on to. As Garrison says

“In (Figure 2) it is assumed…that all of the newly created money takes the form of credit extended to capitalists. Initially, then, the laborers are completely unaffected by the monetary expansion. This is represented in (Figure 2) by M’L, which is coincident with the 45° reference line. Capitalists, on the other hand, experience an initially amplified monetary expansion as indicated by M’c. But as the capitalists purchase additional quantities of labor services, the new money filters through the economy such that eventually the expansion experienced by the laborers is approximately the same as the expansion experienced by the capitalists. This is indicated by the expansion line Mi”c = M”L. The arrows indicate the dynamics of the expansion as it appears to the capitalists and to the laborers”

The capitalists in Garrison’s model, those first to receive the new money created in monetary expansions, get increased purchasing power. But by the time the money has filtered down to those furthest from the monetary expansion the effects have been dissipated by the rising prices created by the issue. They just get higher prices.

Garrison’s model shares the non neutrality of money of the Keynesian model and the assumption of fixed output of the neo classical model. What it adds is the effects of the expansion in time and in doing so it shows how iniquitous these monetary expansions are.

Summarising the work of Ludwig von Mises, Murray Rothbard wrote that monetary expansions like QE confer

“no social benefit whatever. In fact, the reason why the government and its controlled banking system tend to keep inflating the money supply, is precisely because the increase is not granted to everyone equally. Instead, the nodal point of initial increase is the government itself and its central bank; other early receivers of the new money are favoured new borrowers from the banks, contractors to the government, and government bureaucrats themselves. These early receivers of the new money, Mises pointed out, benefit at the expense of those down the line of the chain, or ripple effect, who get the new money last, or of people on fixed incomes who never receive the new influx of money. In a profound sense, then, monetary inflation is a hidden form of taxation or redistribution of wealth, to the government and its favoured groups, and from the rest of the population…”

 People will ring alarm bells and tell you QE is necessary. Many of them will be Garrison’s capitalists. But one thing they cannot tell you is that QE is fair.

This article originally appeared at The Commentator

A woman has the right to choose…sometimes

The sister doing it for herself

Laurie Penny is one of the silliest people on the planet. But she might have outdone herself.

On her New Statesman blog back during the furore over Nadine Dorries ill fated abortion law amendment Ms Penny was fulminating about the “anti-choice minority” who wanted “to roll back women’s right to reproductive choice”

Well, as ever with the left, its not ‘choice’ Ms Penny supports, its choices she agrees with. Even cherished reproductive choices.

Less than a month after venting at the ‘anti-choice’ crowd Ms Penny took to the very same blog to bemoan “The selective abortion of female foetuses” around the world. She spoke of the “tens of millions of potential human beings, neglected to death, murdered at birth or (in increasing numbers) terminated when an ultrasound scan showed that a woman was due to come into the world”

Read that again and tell me how it differs from the rhetoric of the anti-abortion camp.

Cognitive dissonance, they name is Penny.

The hills are alive with the sound of praxeology

When I told a friend of mine three years ago that I was interested in Austrian economics she asked “Isn’t that just selling cuckoo clocks and lederhosen?” True, she wasn’t the brightest, but Austrian economics was fringe stuff. An influential school originating in Vienna in the late nineteenth and early twentieth century it was largely buried under the Keynesian avalanche of the 1930’s. That’s changing.

The Austrian school survived in America where émigré economists escaping the turmoil of 1930s Europe inspired a new generation. Perennial presidential candidate Ron Paul is an advocate of Austrian economics and the Ludwig von Mises Institute dominates the field.

But the economic crisis has seen the school gain new popularity in Britain. Radio 4 broadcast one show, “Yo Hayek!“, which examined the ideas of one of the leading Austrian school economists, and a debate between Keynesians and “Hayekians” (the Austrians won). The Economist, bastion of conventional economics, recently carried a complimentary piece. The Institute of Economic Affairs has produced or reproduced a number of works in and on the Austrian school and Eamonn Butler has written an excellent short introduction for the Adam Smith Institute. In The Cobden Centre the UK now has its own Austrian-minded think tank and in May last year the first (to my knowledge) Austrian MP, Steve Baker, was elected.

Much of this newfound popularity is down to the ability of Austrian Business Cycle Theory (ABCT) to explain the current mess. The Marxist theory of economic cycles with its declining rate of profit is clearly useless as businesses were making record profits on the eve of the bust. There was no shock to Total Factor Productivity which a Real Business Cycle explanation would require. Keynesian ‘animal spirits’ are also unsatisfactory. The liquidation of certain enterprises was a totally rational response to the Federal Reserve raising interest rates between 2004 and 2007.ABCT, by contrast, fits the facts rather well. Briefly put, ABCT says that when a credit expansion occurs, say, as a result of lowering interest rates in response to the bursting of the dot com bubble in 2000, ever more marginal investment projects begin to look viable. Entrepreneurs borrow to finance them or businesses and individuals borrow for current consumption.But eventually, even in a world with dodgy inflation figures and, thanks to the vast productive capacity of countries like China, prices which should be falling, the inflation caused by this credit expansion starts to show even in the central bank’s figures as when inflation went above 4 per cent in the US in 2006. Interest rates are raised; the Fed Funds rate went above 5 per cent the same year. Those marginal investments that looked viable at 1 per cent are now scuppered.

This is the recession. Over the previous boom period, capital has been allocated to investments, more properly called malinvestments, which have no hope of ever producing a return above their borrowing costs unless interest rates are kept low and credit is kept flowing. The recession is the liquidation of these unviable credit positions and it will not be over until this process is complete.

Even though this grim diagnosis seems to be coming true daily the reputation of Austrian economics as a council of despair remains a potent repellent. But truth is truth even when it is unpleasant.

And this reputation is undeserved. Seeing the problem as one of fluctuations of credit Austrians focus on the sources of that credit, banks and central banks, and several lively schools of thought, including Free Bankers and hard money advocates, draw their ideas for reforming the financial system from Austrian thinking. That Austrians zero in on the causes of the slump is hardly a reason to ignore them.

But there is more to Austrian economics than ABCT. Indeed, it is a fairly comprehensive critique of much of modern mainstream economics.

Austrians reject the notion that there is something called “the economy” which can be stimulated or cooled at will. Instead they see economics as rooted in the behaviour of individuals. This makes Austrians generally rather dismissive of the aggregate values which make up macroeconomics and the obscure quantitative mathematics which ties them together.

For Austrians the economy isn’t a thing but a process, one of discovery and coordination of dispersed knowledge. In its rejection of equilibriums and embrace of information asymmetries Austrian economics pre-empts many of the criticisms of neoclassical economics.

Austrian economics is a rich field of the study of human beings, their actions and interactions, what Ludwig von Mises called praxeology. Because it is based on the study of individuals, the only agents in economics, its model has produced a robust interpretation of recent events. It also indicates the way out. Painful, yes, but we are learning that that’s unavoidable. The Austrian school’s time has come.

This article originally appeared at ConservativeHome

We are on the economic brink

It just happened

Yesterday the Bank of England announced another round of quantitatuve easing worth £75 billion.

Andrew Lilico responded by asking

“Perhaps the Bank of England is privy to data that makes it believe that further collapse in the British banking sector is now inevitable. If so, an increase in QE is inevitable and correct. But are we really there yet?”

It seems Lilico’s question has been answered. Today came the news that

“Moody’s has cut its rating on the debt of 12 UK banks, including the state-supported Lloyds Banking Group and Royal Bank of Scotland”

The banks are back on the verge of collapse.

Beyond credit easing and council tax: How Osborne can sail us toward ‘calmer, brighter seas’

Under pressure

The Labour conference last week was all about Ed Miliband but that didn’t really matter, few are listening to him.

The man currently front and centre of British politics spoke at the Conservative conference in Manchester yesterday, Chancellor George Osborne. His brief, the economy, dominates politics.

To continue reading click here