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Meanwhile in a galaxy far, far away …

October 28th, 2008

This story about the IMF rescue package for Ukraine (second of many, after Iceland) quotes Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London as saying

`The money is only half of the issue, conditionality is key. We hope the fund is maintaining its push for a more flexible exchange rate, far- reaching reforms in the banking sector and more privatization.”

Mr Ash, just returned from a six-week holiday on Mars, was reading from his prepared boilerplate script and had yet not been advised of the recent nationalisation of the Royal Bank of Scotland.

(found in today’s AFR)

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  1. Damocles
    October 30th, 2008 at 12:24 | #1

    Andrew, one of Smith’s principal points was that individuals acting in their own self-interest without central direction advance the general social welfare.

    Is it then so difficult to accept that employers and capitalists acting in their own self-interest without central direction advance the general interests of their class?

    I generally have a great deal of respect for your opinions, I find your use of a straw-man argument at 38 disappointing.

  2. October 30th, 2008 at 12:31 | #2

    ah, ha! the problem is not ‘fiat money’ per se, it’s those incompetent/immoral pollies who prostitute the treasury for political gains when they can, and are blind-sided by new financial ‘engineering’ developments.

    so i believe. the cure is, wait for it: democracy. and a variety of socialism. the democracy is the vital ingredient. if the goal be delivering the greatest good to the greatest number, democracy is your system, as well as mine. it’s a question of motivation: rule by any sub-set of the population injects the benefit of that subset ahead of the general population.

    there is also the very real possibilty that a few self-described experts are more likely than the total electorate to simply be wrong.

    socialism is not state capitalism. it need not even be communal ownership. the essential element is political control over public events, the ability to say: “thou shalt not sell heroin to kids” extended to the whole society.

    we have this principle now, except that pollies do not exercise it lest they anger the bandits whose bribes make the election campaigns so amusing.

    suppose every business reported it’s financial activity at least weekly. even an academic economist could use this information to keep an appropriate amount of fiat money churning around.

    suppose taxation was outlawed. instead, x percent of every transaction is diverted to the social treasury to finance societies goals. y percent is assessed to control cross-border transactions. presto,everyone supports society in exact proportion as they get economic benefit from it. no mates rates, and no slings to special interests. plus, the reduced overhead on business will cause a flowering in oz like the renaissance.

    let’s get out of the war business. saves a lot of money, and you don’t have to kill people. it’s safe too, by the way- costa rica disbanded it’s army in the 50′s, no trouble since. that’s because professional armies are primarily used to control angry citizens. if you’re really worried about the neighbors, create a national militia. sweden and switzerland go this way and it works a treat. both have been untouched for more than 100 years. the only drawback is, well, the prime minister has to call on a high school band at formal occasions. tough.

    best of all, the people pay the bills, and the people determine the social infrastructure they want to pay for. that x percent is set to pay off construction of roads and schools. ‘user pays’ is the only known way to control expenditure.

    most important of all: these discussions are barren wankery. none of you are in parliament, perhaps none have the ear of a parliamentarian. you are all subject persons, political nonentities. but you have opinions, perhaps even hopes for a better oz. a society that does not allow you to add your opinion to others in citizen initiative is less efficient, and less, much less, inspiring to youth. “she’ll be right”, and “why bother?” are the shibboleths of oz, the passivity of the ruled that expressed itself as the cultural cringe.

  3. smiths
    October 30th, 2008 at 12:50 | #3

    Andrew, one of Smith’s principal points was that individuals acting in their own self-interest without central direction advance the general social welfare.

    actually, i never did make that point,

    this situation is chaotic enough without being told you are saying things that you’re not

  4. Crispin Bennett
    October 30th, 2008 at 13:49 | #4

    smiths – I suspect Damocles meant Adam S. If you *are* Adam S., I’d love a chat sometime over a beer (latte or chardonnay also on offer if you insist).

  5. Michael of Summer Hill
    October 30th, 2008 at 13:58 | #5

    John, governments around the world need to do more than just fix the financial crisis and restore trust, for the immediate problem now seems to be with real economies stagnating which require governments to seek out innovative solutions in stimulating business confidence and economic growth.

  6. smiths
    October 30th, 2008 at 14:24 | #6

    ha ha, right you are crispin,
    i couldn’t believe damocles could have got my views so wrong, now it makes sense

    i think if i were adam smith i’d be shocked at how my name was used, but i spose that applies to anyone who had a good idea turned into an ideology,

    and it would be beer with the chat i think if i were he

  7. October 30th, 2008 at 14:46 | #7

    “Why is it $100 under the mattress must always buy 2-3% less in a year’s time than 2-3% more?” – obs

    Depends what you’re buying, doesn’t it?

    If it’s a home PC, you’ll be doing more than 2-3% better.

  8. smiths
    October 30th, 2008 at 15:22 | #8

    depends whether a home PC fits in your basket of goods

    the mac g5 i bought cost roughly the same as the g4 i bought six years earlier,

    although it is much more powerful, all the programs require huge amounts of power to run,

    the net result in my opinion is that it looks nicer but is roughly the same,

    plus what is the price of a computer if you include, slave labor to make it, and the ultimate cost to dispose of it

  9. October 30th, 2008 at 15:25 | #9

    Damocles (@51)
    Everyone, not just “employers and capitalists” are capable of banding together to advance their own interests at the expense of others – just look at the union movement for example. The analysis you have provided is nothing startling.
    The rest of the passage from (Adam) Smith makes his position on this perfectly clear – the government should do nothing to assist this, and even attempting to regulate it will tend to assist it. Formal recognition of an employer’s (or employees’) union gives it a negotiating power that will tend to force non-members into the union, thus amplifying its power to do harm to non-members, making the process worse. Smith was clear on this and, as I have seen may times, he was substantially right. Thus, your use and implicit endorsement of that quote really helps to undermine the whole social democratic framework I had been presuming you follow. Thanks for the assist.
    .
    al loomis,
    If you truly believe your own pontificating (see your last paragraph), then why do you waste your time doing it? That said, if you typify it as “barren wankery” then it may show a little more self-awareness than I thought you had, so credit for that.
    As for the rest of your “barren wankery” the point I have been making the whole way though (and you have consistently missed) is that we do indeed need a government to do certain things. I just happen to believe it is doing way, way too much. Items like national defence, a justice system, education and child support can, and should be either run or ensured that they are provided, socially. These are areas with strong and (to me at least) social benefits – particularly childhood education. As for the rest they come down to the information problem that Hayek (inter alia) identified. You may pull vast amounts of funding in to provide wonderful social programs, but how do you ensure this funding is well targetted? That you are not pushing people around rather than helping them? That you are not simply doing what the people would have done with their own funding anyway? In short, you cannot know that you are actually helping and not having vast unintended adverse consequences. In those circumstances my answer would be to not tax the money in the first place. Yours seems to be to tax more and hope that it is useful.
    I will stick with “First, do no harm”. Your position seems to be “First, take the money as we know better”.

  10. Damocles
    October 30th, 2008 at 15:50 | #10

    Smiths, sorry if I was unclear – I was referring to Adam Smith, the source of my quote.

  11. smiths
    October 30th, 2008 at 16:31 | #11

    andrew, you are living in a permanent dichotomy,

    every thing you write is about choosing between two extremes which bear no resemblance to the world as it is,

    if a person says that the current system is a problem, you respond by asking if they would rather be in a gulag

    did a communist do something bad to you?

  12. October 30th, 2008 at 18:12 | #12

    smiths,
    How about re-reading (presuming you read it at all) what I said to al loomis – then look at some of your previous comments about “tearing the system down”. Ask yourself which of us is talking about extremes.

  13. Alanna
    October 30th, 2008 at 19:11 | #13

    Fiat money starts to sound just such dogma as free markets and efficient markets with perfectly rational participants with access to perfect information (and before that microeconomic reform and economic rationalism) is. A passing fad of ideology. Shame some fads last too long.

    There is no silver bullet and we need intelligent souls in charge of economic policy direction that actually analyse growth or not, cause, effects and consequence after the event.

    Some order, rather than seemingly perfect models with fallible predictive ability, in a house of disorder. Some boring old common sense, some boring old fashioned regulation, some after the event analyticial abilities (yes, economic history) and some equilibrium perhaps?

    Alanna

  14. Alanna
    October 30th, 2008 at 19:23 | #14

    I would like to second the opinion “this quote is priceless”. Ive never laughed so hard!

    Privatisation has become a mantra – and the globalised world is reeling with some huge privatisation failures.

    Even Adam Smnith said

    “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce”.

    The Wealth of Nations, Book I Chapter VI

    Such a misinterpreted man – as is so common of our great economists. People hear only what they want to hear.

    Alanna

  15. October 30th, 2008 at 19:38 | #15

    Alanna,
    As with the one from Damocles earlier, I would strongly encourage you to read the passage around it. Selective quotation is like selective truth. It is likely to mislead.
    The passage immediately before it sets the scene, making it plain that Smith approves of this and sees it as correct. Unfortunately, Smith then goes on to make his only real major error in the book, that of the labour theory of value.
    So – the quote is founded on approval (not disapproval) and he then uses it to go on to make an error. Your quote, and the context in which you seek to use it, is the part that is being misinterpreted.

  16. observa
    October 30th, 2008 at 23:08 | #16

    “If it’s a home PC, you’ll be doing more than 2-3% better.”
    That’s exactly my point Michael, that if our money represents real savings(ie forgone consumption) then you’d expect it to appreciate with an overall productivity dividend. Now while it may in some specific goods that almost never appears to be the case with our overall basket. In fact the Reserve quite openly brag that it will buy 2-3% less of that basket over a year, providing they get their proud target right and not the 5% annualised in the last quarter, but what’s a couple of percent here or there eh? For the answer to that we should despatch our excitable Mr Camillo to Zimbabwe on a very long fact finding mission, to find out all about great opportunities with a hell of a lot of money. A plane ticket and fifty bucks should do the trick before he joins all those happy trillionaires.

    While we can all see the lesson of Zimbabwe, apparently it doesn’t matter a jot when our Reserve boasts of that 2-3% in that direction. Relaxed and comfortable because our Glenn’s no Mugabe. No, but it may well be that the small continuous steps in that direction is cumulative and has similar repercussions from time to time. With underlying demographic structural change the steps are really larger than anyone suspects and a massive fallout ensues. The CPI thermometer is our good Dr Glenn’s trusty diagnostic tool, as he blithely ignores a racing asset pulse until the bleeding obvious as all hell breaks loose.

    More free market or less, we may yet need to heed the lesson of something for nothing before venturing there. If its’s so obvoius money matters in Zimbabwe it should be obvious it matters here too.

  17. October 30th, 2008 at 23:40 | #17

    observa,
    Perhaps we should look 2-3% in the other direction – toward Japan during the last 15 years.
    The hyperbole of comparing our monetary system to Zimbabwe’s is not doing (IMHO) your plausibility much good.

  18. observa
    October 31st, 2008 at 19:46 | #18

    “The hyperbole of comparing our monetary system to Zimbabwe’s is not doing (IMHO) your plausibility much good.”

    I didn’t mean to imply that. Just that in Zimbabwe we all recognise the obvious, but somehow don’t acknowledge the Austrian view that a little bit of the same slow poison is far from benign. Like prolonged THC use it produces psychotic episodes from time to time and the immediate treatment seems to be more of the same, if throwing more money/national debt at the problem is any guide. In that sense perhaps ‘we’ are not that far from Zimbabwean hyperbole according to David Walker an ex US Comptroller General(he spells out the disaster in Medicaid and Social Security liability in ‘Call this a disaster? Just wait’)
    In any case trickle inflation encourages debt over saving and begins the dangerous something for nothing mentality. It’s certainly a convenient soft option for taxation by stealth by our politicians.

  19. October 31st, 2008 at 19:52 | #19

    observa,
    It only encourages debt over savings if it is not built into the interest rate. The thing it does do, if only gently is encourage you to earn a return on the money, as without a return its value diminishes.
    Personalyy, I would prefer an inflation rate close to zero (if slightly either side).
    As for the something for nothing bit – if anything it is the reverse. For doing nothing with your money you are getting less than nothing, not something.

  20. jquiggin
    October 31st, 2008 at 20:51 | #20

    When relative prices are changing radically over time (think computers vs health care) there is no unique measure of the inflation rate. In these circumstances, there’s a good case for erring on the side of more rapid growth in some prices to avoid or restrict deflation in others. I’m pretty happy with a 2-3 per cent target.

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