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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)

Categories: Economic policy Tags:
  1. October 28th, 2008 at 08:28 | #1

    While JQ laments the push for privatisation of Banks I lament the push for floating exchange rates. We should have learnt our lesson by now. And we should have closed the IMF long ago, it is a morph monster doing stuff way beyond it’s original brief and doing it baddly. We should be floating interest rates not currencies.

  2. Donald Oats
    October 28th, 2008 at 09:10 | #2

    That is priceless!

  3. Spiros
    October 28th, 2008 at 09:57 | #3

    I reckon even bacteria would show a greater ability to learn from experience.

    I wonder how much Mr Ash gets paid for saying stuff like that.

  4. Crispin Bennett
    October 28th, 2008 at 10:16 | #4

    Spiros, there is actually plenty of evidence that bacteria are indeed capable of learning. Not sure about bankers.

  5. October 28th, 2008 at 11:00 | #5

    Has the IMF hasn’t learned anything since Stiglitz’s damning critique? Have they learned from how conditionality made the Asian financial crisis worse? Have they have not learned anything from the current financial crisis? When the IMF stuffs up, it is not them that have to deal with the consequences, it is the poor in countries subjected to the IMF’s conditionality. We have a moral hazard problem.

  6. October 28th, 2008 at 12:13 | #6

    Peter – in some ways it used to be worse. IMF staff used to be insulated from their own fiscal policy advice. If they recommended higher taxes then the IMF adjusted their salaries to compensate for the higher taxes. They used to doll out austerity advice without suffering from it’s effect. The IMF should be abolished.

  7. James Haughton
    October 28th, 2008 at 12:41 | #7

    It’s only the fear of my boss wanting an explanation that stops me from ROFL.

  8. Ubiquity
    October 28th, 2008 at 14:09 | #8

    The IMF has stated:

    “Yes, bold action is needed,’ says the International Monetary Fund (IMF).
    It’s ready to lend to countries in dire need of capital.”

    Nobody is to blame. It’s happening because

    “[banks are] paralysed for now by fear and distrust.�

    The IMF is a laugh. It reminds me of “The Laughing Policeman” compassion.

  9. Joseph Clark
    October 28th, 2008 at 15:31 | #9

    Bagging bankers — how original.

  10. smiths
    October 28th, 2008 at 16:03 | #10

    why does it upset you so much joseph

  11. smiths
    October 28th, 2008 at 16:48 | #11

    how do you defend such parasites is what i wonder?

    The Royal Bank of Scotland Group, one of the so-called “jewels” of the Scottish economy, has beneficial shareholdings in at least 128 companies incorporated in tax havens, according to its annual return.

    Included in its portfolio are 62 firms in the Cayman Islands, 29 in Jersey, 11 in Guernsey, seven in the British Virgin Islands (BVI) and four in the Bahamas.


  12. sean
    October 28th, 2008 at 18:27 | #12

    Another lazy theory from the neo-Kenysians, they are wrong so that makes us right.

    And it seems you are already trying to steal Hayeks and Mises Cycle theroy. You know the one that predicted the 29 and 08 Crash, not just the Bubbles, but the system failures?

    from WaPo

    We Forgot Everything Keynes Taught Us

    “`The price level is not a leading, but a lagging, indicator. Asset bubbles can coexist with a stable price level, even while the rest of the economy is starting to slide into depression. And this, in essence, is what Keynes believed was happening in the late 1920s. . . Every financial crash is different in detail — today’s started in the banking system, not the stock market — but the anatomy of all is surprisingly similar: A speculative frenzy, triggered by some technical innovation such as mortgage-backed securities, that collapses when reality — in the form of more sober valuations — kicks in.'”

  13. sean
    October 28th, 2008 at 18:33 | #13

    Seems the IMF fancies printing its own money.
    Comedy becomes Tragedy.

    IMF may need to “print money” as crisis spreads

  14. October 28th, 2008 at 18:43 | #14

    if you financial alchemists put your mighty brains to the cause of creating a rational economic system, we wouldn’t have to ‘laugh’ as bankers explain why the system is basically ‘sound’.

    socialism and democracy, possums, is the path to salvation. you have grasped the efficacy of regulation in the operation of automobiles and airplanes, you require badges of competence from doctors and plumbers, why then should the financial system be in fact a non-system, unfettered by planning or regulation?

    a rhetorical question, of course- i quit trying to modify religious beliefs some time ago. but a system that needs to be re-set at frequent irregular intervals is a non-system. believers who insist that capitalism works if just [insert qualification here] are mere religious fanatics, since [qualification] never happens.

  15. October 28th, 2008 at 19:03 | #15

    al loomis,
    If (and it is if) the price of avoiding dictatorship is occasional financial turmoil, then that is a price I am more than comfortable paying. Living my life as a serf to a State is far worse than occasionally having to worry about where I deposit my funds.

  16. October 28th, 2008 at 22:39 | #16

    Is a serf to ‘the market’ such an improvment?

    Personally, I’d prefer a flesh and blod dictatorship over the irrational and invisible ‘market forces’. I’m with al on this – it’s all a bit too quasi-religious for me.

  17. observa
    October 29th, 2008 at 10:10 | #17

    There’s a Very Very Serious!!!(VVS) double irony here that any of us can chuckle at any financial statement by anyone now. That’s because fiat money, the unit of account is fast approaching near meaningless now. I should say many fiat currencies here and their meaningless exchange rates and interest rates. Take the AUD which has gone from buying 104 Yen to around 57 in 3 months, a currency on which the Japanese can earn no interest for saving locally and such a movement in which will see Toyota workers despair at selling the product of their labour to Australians. That is, apart from hybrids to anointed ones who can guarantee as much paper as is required in any day, while that same ‘guarantee’ sees around 65000 of their compatriots suddenly guaranteed nothing. Makes you wonder why they don’t copy the US anointed ones and borrow more paper at close to zero interest to satisfy all. Apparently the more paper you borrow the cheaper it gets to borrow which is a marvellous new arrangement, given that many people exchange things you want for it. Deja vu as I recall my young daughter and her friend while we’re all at the checkout many years ago, excitedly telling each other how they both want one of those plastic cards I’ve got when they grow up.

    As the billions turn into trillions in a blur that boggles the neurons, I wake up to find the Dow has jumped 11% with such child-like excitement. Comforting watching that item on telly last night about networking and how I like you are only ‘six steps away’ from such largesse, although who would have thunk it, that when Clinton decided all those years ago it was a good idea to begin to communally lend houses to people you wouldn’t dream of doing yourself, we’d all be just six steps away from sub-prime ourselves. It would appear now that all fiat money is just six steps away from being rooted in anything of serious value any longer. I’ll leave markets and regulators to work that out for themselves now.

    I used to think Mogambo was taking the piss at stocking his Mogambo Bunker of Doom with tasty victuals, drink, guns, ammo and gold but not any more, although I’m not even sure about the gold bit any more. I’ll stick with the deadly serious stuff like guns, ammo and sustenance now.

  18. Andrew
    October 29th, 2008 at 10:19 | #18

    Right… so capitalism’s busted, Marx was right, socialism is the answer.

    Oh dear… if socialism is the answer then we’re clearly asking the wrong question.

    Yes – the financial system is currently in a mess. But its a touch melodramatic to say that it won’t get sorted out and capitalism is dead.

    The world needs capitalism. Bankers might be disliked (alot at the moment) – but next time someone comes up with a bright idea for a business, guess who they’ll go have a chat with.

  19. October 29th, 2008 at 10:24 | #19

    You are no more a serf to the market than you allow yourself to be. That is the beauty of a free market – within the limits of your capacity you get to choose what you want, when you want. Under socialism that gets chosen for you.

  20. observa
    October 29th, 2008 at 10:26 | #20

    “..next time someone comes up with a bright idea for a business, guess who they’ll go have a chat with.”

    The Barter Card rep and their local black-market gun dealer?

  21. October 29th, 2008 at 10:30 | #21

    What are you going to buy the “…deadly serious stuff like guns, ammo and sustenance…” with? The “meaningless” fiat money? Oops – not quite meaningless, is it.

  22. observa
    October 29th, 2008 at 10:33 | #22

    With those entries in the banks’ computers and double quick before everyone else is just six steps away from me.

  23. smiths
    October 29th, 2008 at 12:03 | #23

    the beauty of a free market Andrew is that it is an illusion, a mirage in the hot desert,
    and the only limit to its brilliance is your imagination …

    not only that, but if you imagine a free market of such exquisite beauty and perfection that it inspires millions,
    you get a big prize and go to all the parties

  24. October 29th, 2008 at 12:32 | #24

    As opposed to a socialist who tells everyone that working for the reswt of your life for the glory of the State is much more important than going to parties. Give me that, anytime.

  25. Ernestine Gross
    October 29th, 2008 at 12:38 | #25

    “Meanwhile in a galaxy far, far away …� Apt.

  26. smiths
    October 29th, 2008 at 12:44 | #26

    the major difference Andrew,
    is that anyone with half a brain understands that the marxist/communist dream evaporated horribly a long time ago,
    most left leaning people are realistic about the failure of that god,

    the utopian vision of the late twentieth century was the private sector, efficient-market based system hwere some invisible force balanced all information and interests perfectly,

    most stooges of this utopian vision are still crooning like some harpees on a brutal shore, as the ship is torn to pieces,

    just like communism, the idea in the hand of fanatics pushed to extreme ends in death, misery and this time probably the destruction of the biosphere,

    you chose the wrong side andrew, face it

  27. October 29th, 2008 at 12:48 | #27

    I fail to regard freedom as being the wrong side, smiths. I will let you choose yours. If you choose the freedom to submit, so be it.

  28. Crispin Bennett
    October 29th, 2008 at 13:27 | #28

    Andrew, here are some freedoms not available under the free market:

    – not to be surrounded by ludicrous destructive 4WD’s driven by homicidal yuppie-rednecks when I’m trying to cycle quietly around my inner-city neighbourhood
    – not to have all coastal regions of Australia destroyed by overdevelopment
    – as a low-income renter, to have a home (ie. somewhere where I am permitted to think of as domicile for more than 6 months at a time)
    – (too innumerable to list)

    Pure ‘free-market’ thinking has nothing to do with non-notional freedom of individuals. Like all political philosophies, it’s a collective choice to privilege some goods (freedoms amongst others) over others, for some individuals over others. As such it’s just one of a spectrum of thousands of possible choices in a state-space of goods distributions. It might be perfectly defensible to value the particular distribution of goods favoured by ‘free markets’, but this is no more than one such choice amongst others, and has no more intrinsic connection with ‘individual freedom’ than any other.

  29. observa
    October 29th, 2008 at 13:35 | #29

    I think you need to be aware that when some of us talk of the beauty of ‘free markets’ we implicitly assume we are talking of ‘real free markets’ rather than phoney nominal ones. ie the transactions are real ones with real tradeoffs, not funny money ones. I admit we’re having a wee bit of a problem visualising the former just at present but we’re ever the optimists. You might say nearly as optimistic as those who believe that very soon they can overlay a global CO2 ETS and all the derivatives that sail with it, over all you see before you now. A global network of hubs and fiat money flows you’ll note, that have never been overseen by more sets of regulations and regulators in living memory. Chuck more regulations, guarantees and fiat money at it all you reckon?

  30. observa
    October 29th, 2008 at 14:00 | #30

    Andrew, you should have pointed out how Porsche owners just struck a blow for the little bloke against them evil short sellers (I’ll be good John promise!)-

    ‘VOLKSWAGEN briefly became the world’s biggest company by market value overnight, as short sellers caught betting on a price drop with borrowed stock scrambled to find shares after a buying spree by Porsche.

    Short sellers desperate to close their positions paid as much as €1005 ($1989) a share during the session following Sunday’s news that there was less than 6 per cent of VW voting stock still floating in the market.

    At that price Volkswagen’s voting stock was worth €296 billion, or more than the $US343 billion ($531 billion) market capitalisation of Exxon Mobil.’

  31. smiths
    October 29th, 2008 at 14:18 | #31

    nowhere in anything i have written here have i advocated more regulations, guarantees and fiat money,

    as i have stated in earlier threads,
    when you have a network of tax havens and shadow banking, coupled with political institutions that effectively merge with big companies, the media and banks, regulation is meaningless

    ironically the flaw is the same in both system,
    all are equal in the market, except some are more equal than others

  32. October 29th, 2008 at 14:36 | #32

    What do you understand by “…within the limits of your capacity…”?
    so, smiths, you have never called for more regulation. Really, or was that just you putting your words into his mouth.
    BTW – for all your hand waving over the current system, you have never said what it is you actually want. As usual, a critic, not a creator.

  33. smiths
    October 29th, 2008 at 14:51 | #33

    andrew the link doesnt work,
    i must admit i was quite excited to see what it was i had previously written that contradicts what i just wrote,

    also what is hand waving?
    is it a cross between hand-wringing and flag-waving?

  34. Katz
    October 29th, 2008 at 15:11 | #34

    C’mon neoliberal claqueurs. You’ve gotta do better than that.

    One of your leading mouthpieces, Timothy Ash of the RBOS, has made a prize prat of himself and all you can do is point and yell “don’t look here! Look over there!”

    Seriously now fellahs, how would you write Timothy’s speech so that it takes due notice of the horrible condition of state serfdom under which he now labours as a villein of the British Government?

    Or do you think that poor Timothy was tortured into making his neoliberal speech by those very slavemasters in an attempt to cause us to forget that we are all vassals now?

    If so, it looks like the ruse has worked on you patsies.

  35. Crispin Bennett
    October 29th, 2008 at 15:35 | #35

    What do you understand by “…within the limits of your capacity…�?

    This ‘capacity’ isn’t a natural kind, but is a set of attributes rated highly by ‘free market’ proponents (and no doubt differently by other political philosophies). So despite the nominal obfuscation, the ‘free market’ promotes not human freedom, but a particular set of goods that are valued by its proponents, for everybody.

  36. Michael of Summer Hill
    October 29th, 2008 at 16:20 | #36

    John, according to some wright-wing commentators the blame for the current financial crisis around the globe is the result of regulators falling asleep behind the wheel. But the facts speak for themselves, the current global mess is the result of thirty years of neo-liberal reforms and deregulation.

  37. October 29th, 2008 at 18:05 | #37

    Andrew @#19.

    I think there’s more to it than a contrived choice between socialist dictatorship and the ‘free market’.

    Thankfully, we are freed of utopian visions of socialism, and now await delivery from the chains of the utopian ‘free market’ delusions.

  38. October 29th, 2008 at 21:48 | #38

    Bollocks, to put it mildly. People get paid according to what they can get and what they want to put in. There is no claque of “free market proponents” setting prices or anything else anywhere. That would run directly contrary to what a “free market” is.
    If you want to see a system that does what you describe, look under “socialism” in any dictionary.
    An economy that taxes its citizens nearly 50% of their income is hardly an ideal of deregulation.

  39. Damocles
    October 29th, 2008 at 23:23 | #39

    “That’s because fiat money, the unit of account is fast approaching near meaningless now.” -Observa

    Well can I have some of your’s then?

  40. Damocles
    October 29th, 2008 at 23:39 | #40

    “Bollocks, to put it mildly. People get paid according to what they can get and what they want to put in. There is no claque of “free market proponentsâ€? setting prices or anything else anywhere.” – Andrew Reynolds

    “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” – Adam Smith

  41. observa
    October 29th, 2008 at 23:40 | #41

    Michael, if central bankers have the social monopoly on the polyester of the realm and blow it by deliberately targetting 2-3% annual reduction in its purchasing power, as well as allowing so much of it to be printed to facilitate asset price booms and their inevitable busts, then expect me to be their most virulent critic. I have no truck with their facilitation of taxation by stealth any more than their like facilitation of plunder by carpetbaggers. It is real savings and investment that will lift material well-being, rather than an environment that fosters something for nothing casinos.

    Regulators of all political persuasions around the world have been guilty of deliberately fuelling this giant ponzi scheme and their collective remedy for past incompetence is more of the same unless you’ve been asleep of late. They all have the powers and the regulations to cease such behaviour, but by their apparent incompetence, have created a massive crisis of confidence in fiat money. However, perhaps I’m judging them too harshly and they really have a secret long term plan in doing that. They’re all closet Austrians perhaps?

  42. observa
    October 29th, 2008 at 23:53 | #42

    Ask yourself a rhetorical question Michael. Why is it $100 under the mattress must always buy 2-3% less in a year’s time than 2-3% more? It aint that hard Michael, but the latter is totally beyond the experience of anyone here I’ll wager. OTOH perhaps I’m just one of those imaginative, dreamer types from a galaxy far far away..

  43. Damocles
    October 30th, 2008 at 00:35 | #43

    Ask yourself a rhetorical question Michael – if Observa is correct and roughly 99.999999% of the world’s economists, business professionals and politicians are wrong why is he wasting his time posting on internet forums when with the vast incalculable wealth he should have accumulated by now he could be sailing the South Pacific in his megayacht while being simultaneously serviced by a bevy of courtesans?

  44. October 30th, 2008 at 07:25 | #44

    observa, i lay my head on the block: ‘fiat’ money is the only kind that’s worth anything. if national treasurers get it right, there’s just enough fm to do the nation’s business and maintain stability of prices. if..

    what other money can do this? certainly not gold, gold supply is notoriously volatile…

    as for you who equate socialism with dictatorship, i will be generous and commiserate with you about the quality of your education. there have been state capitalist dictatorships, they must have terrified your mother when carrying you.

    but sweden is a socialist nation with a better track record than oz, in just about every area of freedom save freedom from taxation. it’s nobody’s idea of repressive dictatorship.

    then there’s switzerland, bless their little snobbish hearts. something quite close to democracy, fundamentally capitalist, but a good social safety net, peaceful but actively engaged in making the world a better place. the contrast with the oz oligarchy should be a cause of shame to ozzians who continue voting for gundog governments while public hospitals and schools spiral into 3rd world levels.

  45. Crispin Bennett
    October 30th, 2008 at 07:52 | #45

    Andrew, surely there isn’t anyone left in the 21st C who believes that our political choices come down to ‘socialism’ or ‘the free market’?

    As for the “bollocks”: if you could validly operationalise ‘human freedom’ (scare quotes a requirement here), and compare any two countries on your scale, it would be unlikely to correlate any better with a measure of ‘free-market’ goodness than with a measure of some other political choice. Some freedoms and other human goods happen to be enhanced by what falls out of a market, and some diminished. Because ‘free market’ philosophy is an ideology rather than a theory, its proponents will respond by denying the value of the diminished goods, either by privileging a fiat notion of ‘human freedom’ above them, or by using an a priori notion of ‘capability’ to locate causes in the individual (it wouldn’t take you more than an hour or two of research to find out quite how empirically unmotivated such a notion of ‘capability’ is). ‘Free market’ ideology is just a particular choice of distribution of human goods, and has no privileged relation with the real free choices of actual human beings.

  46. observa
    October 30th, 2008 at 09:00 | #46

    Deleted for policy violation again

  47. observa
    October 30th, 2008 at 09:07 | #47

    And 99.999999% of the kings horses and 99.999999% of the kings men wonder why they can’t put Humpty together again 😉

  48. October 30th, 2008 at 10:11 | #48

    Damocles @40,
    If you are happy with that quote from Adam Smith I challenge you to read on. He goes on to demolish most of the edifice that social democrats have come up with even before it was more than partially developed. Go on, read it. I dare you. I doubt you would have the intellectual duplicity to stand up for that quote and then diswagree with the context.
    BTW – thanks for bringing that up. I know that this (selective) quote is a favourite of people on the left. Pity that as soon as you actually read the context it destroys your case.
    Ultimately the question is one of information. Resource allocation can be done in many ways. I tend to believe that the most efficient way (as well as the ione allowing the greatest freedom) is to allow the individuals affected by their own decisions the latitude to make those decision as far as possible on their own. To me, people are intelligent and able to decide their own life path by themselves – they have the best information about what they want to do, better than any centralised bureaucracy could ever possibly have. If you want to believe that it is better to take roughly half of all people’s wealth away, waste some of it and then give it back to them with strings attached, then who really is believing in freedom and the people, and who is attempting to run their lives for them?
    Perhaps you should wonder why M1 is used at all. In the world today why do you just include bank deposits? Are money market deposits as liquid – or even more so? What about lines on a credit card – they can be used in just the same way. What, precisely, is “money”? Be precise, please.

  49. observa
    October 30th, 2008 at 10:50 | #49

    You mean we should all be relaxed and comfortable that M1 is only the tip of the iceberg Andrew? The US has given up on publishing M3 I hear.

    The overarching lesson is that mild inflation is now viewed as some benign drug like THC. Like THC regular and prolonged use has some nasty consequences. We can see it in those quintessential words of Mr Camillo-
    “There will be a hell of a lot of money available and this is a great opportunity,�

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

    relax observa,

    andrew says banks dont create money out of thin air

  51. Damocles
    October 30th, 2008 at 12:24 | #51

    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.

  52. October 30th, 2008 at 12:31 | #52

    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.

  53. smiths
    October 30th, 2008 at 12:50 | #53

    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

  54. Crispin Bennett
    October 30th, 2008 at 13:49 | #54

    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).

  55. Michael of Summer Hill
    October 30th, 2008 at 13:58 | #55

    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.

  56. smiths
    October 30th, 2008 at 14:24 | #56

    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

  57. October 30th, 2008 at 14:46 | #57

    “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.

  58. smiths
    October 30th, 2008 at 15:22 | #58

    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

  59. October 30th, 2008 at 15:25 | #59

    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”.

  60. Damocles
    October 30th, 2008 at 15:50 | #60

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

  61. smiths
    October 30th, 2008 at 16:31 | #61

    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?

  62. October 30th, 2008 at 18:12 | #62

    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.

  63. Alanna
    October 30th, 2008 at 19:11 | #63

    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?


  64. Alanna
    October 30th, 2008 at 19:23 | #64

    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.


  65. October 30th, 2008 at 19:38 | #65

    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.

  66. observa
    October 30th, 2008 at 23:08 | #66

    “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.

  67. October 30th, 2008 at 23:40 | #67

    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.

  68. observa
    October 31st, 2008 at 19:46 | #68

    “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.

  69. October 31st, 2008 at 19:52 | #69

    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.

  70. jquiggin
    October 31st, 2008 at 20:51 | #70

    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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