Quotulatiousness

November 23, 2019

What? No minister for socks? How will Justin decide what to wear?

Filed under: Cancon, Economics, Government — Tags: , , — Nicholas @ 03:00

Chris Selley on the quirky decision to appoint a “Minister of Middle Class Prosperity” to Justin Trudeau’s new cabinet:

Typical image search results for “Justin Trudeau socks”

Wednesday’s Cabinet shuffle featured the usual head-scratching reorganization of portfolios and outright invention of others, “bigger” being for some reason a stated goal. Joyce Murray, for example, becomes Minister of Digital Government. It has a very pre-Y2K ring to it, but then again the government in question accepts payment for access-to-information requests by cheque, and sometimes fulfills them (if at all) via CD-ROM, and it can’t manage a simple payroll system. So maybe it’s not such a bad thing to have someone on that job specifically.

Then there’s Ottawa-Vanier MP Mona Fortier’s new job. I literally assumed people were joking about the Liberals’ obsessive branding, but it’s true: No word of a lie, she is an Associate Minister of Finance and, specifically, the Minister of Middle Class Prosperity.

Should a government need a minister whose job is to ensure Canadians are prospering? One might reasonably hope that’s the goal of pretty much any minister when she rolls out of bed in the morning. But they sure don’t always act that way, so maybe a Minister for Making People Richer isn’t such a bad thing.

But the “middle class” flourish is so ridiculously on-brand that it turns the very idea into a joke. Recalling Trudeau’s 2015 catchphrase, many wags asked: “Shouldn’t it be the Minister of the Middle Class and Those Working Hard to Join It?” And they have a point. After four years in government, the Liberals have a good story to tell on social mobility: Poverty rates are at an all-time low. And yet they remain officially obsessed with a middle class that was never as imperilled as they claimed.

November 18, 2019

The Opium War – Lost in Compensation l HISTORY OF CHINA

Filed under: Britain, China, Economics, History, Military — Tags: , , , , — Nicholas @ 06:00

IT’S HISTORY
Published 22 Aug 2015

The Opium War started as a dispute over trading rights between China and Great Britain. Regular trade between Europe and the Chinese had been ongoing for centuries. But China’s trading restrictions frustrated the British who were eager to supply the Chinese people with the increasingly popular narcotic opium. Circumventing the government’s attempts to ban opium trade by smuggling and bribery, China declared the death sentence on Opium smuggling and refused to compensate British tradesmen for any losses. Furiously, the Brits sent out a fleet to demand compensation and end the Cohong trading monopoly. Fierce battles and attacks on the Chinese coast were followed. Find out all about the First Opium War from Indy in our new episode of Battlefields!

» SOURCES
Videos: British Pathé (https://www.youtube.com/user/britishp…)
Pictures: mainly Picture Alliance
Content:
Lovell, Julia: The Opium War: Drugs, Dreams and the Making of China
Wei, Yuan: Chinese Account of the Opium War
McPherson, Duncan: The First Opium War – The Chinese Expedition 1840-1842
Merwin, Samuel: Drugging a Nation – The Story of China and the Opium Curse
Bernard, William Dallas; Hall, Sir William Hutcheon: Narrative of the Voyages and Services of the Nemesis, from 1840 to 1843.
Isabel Hilton (The Guardian): “The Opium War by Julia Lovell – review”
Perdue, Peter C. (MIT): The First Opium War http://ocw.mit.edu/ans7870/21f/21f.02…

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Contains material licensed from British Pathé
All rights reserved – © Mediakraft Networks GmbH, 2015

November 17, 2019

QotD: Socialist beliefs about “capitalism”

Filed under: Business, Economics, Government, Politics, Quotations — Tags: , , , , — Nicholas @ 01:00

The poor understanding of economic and political institution that Marx did so much to promote remains widespread today. “Progressive” and hard-left opponents of markets hold mistaken – or, at the very least, questionable – presumptions about reality, which include:

  • Wealth is either fixed in amount, or, while it might be destroyed or diminished by certain human activities (such as war), if wealth grows this growth occurs largely independently of human ideas, choices, actions, and institutions;
  • trade and commerce, therefore, are largely zero-sum – that is, each exchange situation pits a party who will win against one who will lose;
  • trade and commerce, in turn, involve activities are thus, at best, suspect; trade and commerce too often reward greediness and duplicity while penalizing generosity and honesty;
  • the “distribution” of wealth – whether conceived as financial flows or assets, or as access to real goods and services – is determined largely by power;
  • prices set on markets are largely arbitrary; prices seldom play any role beyond determining how much one party “wins” from trade and how much the other party “loses.”
  • each of a handful of large groups of people, mostly as conceptualized by intellectuals with no understanding of economics, has its own “interests” – interests that are shared by all members of the group and that are at odds with the interests of other groups; for example, “labor” has interests that are are shared by all workers and that are at odds with the interests of “employers”;
  • while the state can be captured by ill-intentioned people, the state – especially under unlimited majoritarian rule – is also the only possible savior of the powerless against the predations and frauds of the powerful;
  • absent vigorous state intervention, ordinary people – people whose main asset is the value of their own labor – lack both the power to get their fair share of society’s wealth and the intelligence or self-discipline to use wisely whatever share of wealth they do manage to secure;
  • social progress is achieved by the powerless grabbing power under the leadership of men and women of singular vision, intelligence, and courage; “the People” will be led to the Promised Land – can be led to the Promised Land – only if they faithfully follow their caring messiahs;
  • those who argue in favor of free markets are either soulless mercenary cronies for the powerful propertied class or they are ideologically blinded dupes for this class; no intelligent and decent person could possibly deny the enormous benefits available to “the People” when the state is empowered to work on their behalf against the propertied few.

Don Boudreaux, “Some Links”, Café Hayek, 2017-10-08.

November 15, 2019

QotD: Understanding trade policy

Filed under: Economics, Politics, Quotations — Tags: , , — Nicholas @ 01:00

You live on a block on Elm St. which has two other households: the Joneses and the Jacksons. Suppose your neighbor Jones puts a knife to your throat and threatens to kill you unless you either buy your tomatoes from him or, if you insist on buying tomatoes from a grower across town, pay him a fine for each across-town tomato that you buy. You immediately understand that Jones is violating your rights; you immediately understand that Jones is a thug, pure and simple. No amount of philosophy, economics, political science, or theology will change your assessment.

Now let Jones secure Jackson’s approval for his actions. Jackson expresses his approval not only of Jones obstructing your freedom to buy across-town tomatoes, Jackson also approves of Jones taking some of your money directly to help Jones pay for the employment, arming, and dressing up in fancy costumes of a street gang who will do the actual dirty work of caging or killing you if you refuse to abide by the tomato-buying terms that Jones imposes on you.

When you object to the injustice of Jones’s actions, he reminds you that you had a vote in this matter. But being outvoted 2 to 1, this majority outcome, by some mystical process, transforms Jones’s pure and simple thuggery into perfectly acceptable – even noble – “trade policy” the violation of which would make you the anti-social criminal.

Further, Jones, to his delight, discovers that Jackson has been hard at work on a treatise that details the many dangers of allowing you to buy your tomatoes without obstruction from across town. Jackson’s treatise even has empirical data on the number of tomatoes and labor hours that would no longer be grown and and worked on your Elm St. block if you are left free to buy your tomatoes unobstructed. Combined with criticisms of “simple-minded” defenses of free trade and with explanations that tomatoes grown across town are sold at unfairly low prices, Jackson’s treatise rids Jones of the few qualms that Jones’s threats of violence against you caused him to suffer from time to time

Thus is “trade policy.”

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2017-10-23.

November 8, 2019

QotD: Exports are costs; imports are benefits

Filed under: Economics, Quotations — Tags: — Nicholas @ 01:00

You write that “exports are at least as much a benefit to us as our imports are.”

With respect, you’re mistaken. To see why, look at the matter at the level of your household. What you export from your household is your labor; what you import are the goods and services that you purchase with your income. Suppose that you were given the option of continuing to do one or the other of these activities but not both. That is suppose that you could either (a) continue to export (that is, continue to work) but no longer import (that is, no longer bring into your household any goods and services) or (b) continue to import into your household goods and services for your consumption but no longer work. Which option – (a) or (b) – would you choose?

You would clearly choose option (b).* The reason is that you supply the fruits of your labor to others in order to increase your ability to consume. What you export from your household is a cost that you willingly incur in order to be able to import into your household the goods and services that you and your family consume. What is true at the level of the household is here true at the level of the national economy: the goods and services that Americans export to foreigners are the costs that we willingly incur in order to be able to import into our country the goods and services that we receive from foreigners in exchange. Exports are the means; imports are the end.

* If I’m mistaken and you’d choose option (a), please call me as I have several household repairs to be done and I’d be delighted to have you do the repairs for me for free.

Don Boudreaux, “Exports are Costs; Imports are Benefits”, Café Hayek, 2017-10-17.

November 4, 2019

QotD: Ludwig von Mises explains the fall of the western Roman empire

Filed under: Economics, Europe, History, Quotations — Tags: , , , — Nicholas @ 01:00

Knowledge of the effects of government interference with market prices makes us comprehend the economic causes of a momentous historical event, the decline of ancient civilization.

[…]

The Roman Empire in the second century, the age of the Antonines, the “good” emperors, had reached a high stage of the social division of labour and of interregional commerce. Several metropolitan centres, a considerable number of middle-sized towns, and many small towns were the seats of a refined civilisation […]. There was an extensive trade between the various regions of the vast empire. Not only in the processing industries, but also in agriculture there was a tendency toward further specialization. The various parts of the empire were no longer economically self-sufficient. They were interdependent.

What brought about the decline of the empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions. The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered to them. From a military point of view the tribes which invaded the empire in the fourth and fifth centuries were not more formidable than the armies which the legions had easily defeated in earlier times. But the empire had changed. Its economic and social structure was already medieval […]

[I]n the political troubles of the third and fourth centuries the emperors resorted to currency debasement. With the system of maximum prices the practice of debasement completely paralysed both the production and the marketing of the vital foodstuffs and disintegrated society’s economic organisation. The more eagerness the authorities displayed in enforcing the maximum prices, the more desperate became the conditions of the urban masses dependent on the purchase of food. Commerce in grain and other necessities vanished altogether. To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves.

Ludwig von Mises, Human Action, 1949.

November 3, 2019

Colby Cosh on the origins of carbon taxes

Filed under: Economics, Environment, Government — Tags: , , , , — Nicholas @ 05:00

In response to a column by Andrew Coyne in the National Post, Colby Cosh outlines the intellectual origins of carbon pricing:

As Andrew knows, the intellectual origins of carbon pricing are purely classical-liberal. Maybe you have to belong to our club to spot that he has carefully not called it an invention of the “left.” When I was an undergraduate, it was the unfashionable libertarian and Hayekian zanies, not the despondent post-Cold-War Marxists, who were preaching what would become mainstream environmental economics. The left has been slow rather than fast to accept the idea of putting a mere price on what they regard as an inherent evil.

British economist Arthur C. Pigou (1877-1959).
Photo via Wikimedia Commons.

All of the foundations of carbon pricing were developed by economists that the left, in all varieties, now regards as cartoonish modern-day demonoids. The gentle Arthur Pigou, who developed the concept of economic externalities and the idea of taxing them, might still pass muster. But Pigou’s reformer-reviser Ronald Coase is deeply suspect, having pioneered an amoral analysis of externalities that tackles social-cost problems like environmental pollution without assigning blame to, or even necessarily acting against, the polluters.

In his paragraph Andrew almost explicitly outlines the theory of the “double dividend” from replacing bad, economically distorting taxes (like the one we impose on incomes) with taxes laid directly on externalities like carbon. The double dividend is pure Gordon Tullock, who is now a hate figure on the left for his role in creating public choice economics.

You can see that this analysis gets pretty complicated in a hurry. The idea of carbon taxation isn’t really of the right or the left. The best term for it might be “neoliberal,” although some people think there is no useful place for that word. To the degree that the left has accepted carbon pricing, they have done so as a (perhaps mostly unwitting) compromise with otherwise abominable thinkers like Coase and Tullock. Total state command-and-control of the economy isn’t an option in today’s Western world, and since there’s a neo-Malthusian crisis in the atmosphere around us, we had better try to solve it without having to execute a global socialist revolution first.

But if instinctive suspicion of the state is a feature of the conservative mind, carbon pricing doesn’t solve the problem completely. Canadian carbon tax designs have been given redistributive features, which makes them more acceptable politically to people who aren’t instinctive or innate conservatives, but creates confusion and distaste for those who are. And to the degree conservatives are inclined to doubt that the state will cut other taxes to make carbon prices revenue-neutral, they have been partly justified, so far, by the history of Alberta and B.C. The “double dividend” is a good idea: can governments be trusted to actually let us collect it?

In a nutshell, that lack of trust is why I’m generally opposed to the federal carbon tax system, even though the idea of carbon taxes (when properly implemented) are far less distorting to the economy than the hodge-podge of taxes and regulations we have now.

Alberta and the Liberals

Filed under: Cancon, Economics, Government, Politics — Tags: , , , — Nicholas @ 03:00

Andrew Coyne summarizes the deep-seated anger in Alberta toward the federal Liberals … and the rest of Canada:

The point sometimes arrives in politics when a complex of different issues coalesce into one; when people stop listening to the arguments in favour of or against each, and instead allow their emotions to dictate a single response to the lot. We are at such a point in Alberta.

Pipelines, carbon taxes, equalization, the Canada Pension Plan — to which familiar litany we can now add the departure of Encana’s headquarters from Calgary — have become, not so much issues in themselves, but arguments in another, grander meta-controversy. All of the questions raised by each (is there a problem? if so, how is it to be solved? who pays? etc) have been pureed into a single narrative: of a Liberal government that is at best indifferent and at worst hostile to Alberta, whose re-election confirms the rest of Canada is as well.

There is, it should be said, some truth in this. Whether the Liberals have failed to win more than a handful of seats in Alberta in over a half a century because of their historic disdain for the province, or whether the causation runs the other way, the chicken is as malignant as the egg. There’s no doubt some people in some parts of the country would cheerfully shut down the oilsands tomorrow, nor is it impossible to detect a strain of anti-Albertanism in some of the rhetoric on the subject.

Albertans, for their part, are not just in a fight to defend their major industry today, but have been for decades. It is inconceivable, to take the most obvious example, that the National Energy Program, that vast attempt to expropriate Alberta’s oil wealth for the benefit of central-Canadian oil consumers, would have been visited upon either Ontario or Quebec, were the situations reversed.

October 30, 2019

Defending the work of Dr. Beeching

Filed under: Britain, Economics, Government, Railways — Tags: , , , , — Nicholas @ 09:20

Ever the contrarian, Tim Worstall responds to an article calling for the “Beeching Axe” cuts to the British passenger railway network in the 1960s to be reversed:

The British Railways Board’s publication The Reshaping of British Railways, Part 1: Report, Beeching’s first report, which famously recommended the closure of many uneconomic British railway lines. Many of the closures were implemented. This copy is displayed at the National Railway Museum in York beside a copy of the National Union of Railwaymen’s published response, The Mis-shaping of British Railways, Part 1: Retort.
Photo by RobertG via Wikimedia Commons.

For background, as the “Beeching Axe” is far less well-known today than it used to be, here’s Wikipedia’s introduction:

The Beeching cuts (also Beeching Axe) were a reduction of route network and restructuring of the railways in Great Britain, according to a plan outlined in two reports, The Reshaping of British Railways (1963) and The Development of the Major Railway Trunk Routes (1965), written by Dr Richard Beeching and published by the British Railways Board.

The first report identified 2,363 stations and 5,000 miles (8,000 km) of railway line for closure, 55% of stations and 30% of route miles, with an objective of stemming the large losses being incurred during a period of increasing competition from road transport and reducing the rail subsidies necessary to keep the network running; the second identified a small number of major routes for significant investment. The 1963 report also recommended some less well-publicised changes, including a switch to containerisation for rail freight.

Protests resulted in the saving of some stations and lines, but the majority were closed as planned, and Beeching’s name remains associated with the mass closure of railways and the loss of many local services in the period that followed. A few of these routes have since reopened; some short sections have been preserved as heritage railways, while others have been incorporated into the National Cycle Network or used for road schemes; others now are lost to construction, have reverted to farmland, or remain derelict.

Worstall says:

[Dr. Richard] Beeching is one of the most universally hated figures in British politics, yet I have no doubt that he was that rare creature, someone working for the state who actually got things about right.

What Dr Richard Beeching mostly did was a cold, analytical report into the railways and recommended cutting large chunks of it that no-one was using. This was done because the railways were losing a fortune every year. And he mostly got it right. He assumed that we would replace trains with buses, which isn’t a bad idea at all. […]

One of the reasons I think Beeching ended up more right than he thought was the arrival of the car. Yes, cars can be environmentally damaging, cause deaths and so forth. Personally, I lean towards the bus or train as a preference. But you can’t ignore the upsides of cars.

The biggest problems with trains are connection time, flexibility and that there’s no market in there. Rail is quite poor at doing their one job: getting a train from A to B. You’d think after 150 years, they’d have it going pretty good, but crew not turning up, signal failures, electrical failures, doors not closing properly. industrial action are not that rare. The problems are certainly more common than if you drive a Toyota Corolla on the motorway to work. Your driver will turn up (because it’s you), the doors will close, the car will run pretty much perfectly. You also have no connection time in that Corolla. You turn off one road straight onto another. You can also go when you please. Middle of the night, middle of the day.

Maps originally from Losing Track by Kerry Hamilton and Stephen Potter (1985), by way of Is Your Journey Really Necessary?, 2012-12-31.
https://isyourjourneyreallynecessary.wordpress.com/2012/12/31/nice-work-if-you-can-get-there/
Click map to enlarge.

October 29, 2019

QotD: The financial crisis of 33AD

Filed under: Economics, Europe, History, Law, Quotations — Tags: , , , — Nicholas @ 01:00

Let us next take a brief but important notice in Tacitus, for the year 33 AD:

    Meanwhile a powerful host of accusers fell with sudden fury on the class which systematically increased its wealth by usury in defiance of a law passed by Caesar the Dictator defining the terms of lending money and of holding estates in Italy, a law long obsolete because the public good is sacrificed to private interest. The curse of usury was indeed of old standing in Rome and a most frequent cause of sedition and discord, and it was therefore repressed even in the early days of a less corrupt morality. First, the Twelve Tables prohibited any one from exacting more than 10 per cent., when, previously, the rate had depended on the caprice of the wealthy. Subsequently, by a bill brought in by the tribunes, interest was reduced to half that amount, and finally compound interest was wholly forbidden. A check too was put by several enactments of the people on evasions which, though continually put down, still, through strange artifices, reappeared. On this occasion, however, Gracchus, the praetor, to whose jurisdiction the inquiry had fallen, felt himself compelled by the number of persons endangered to refer the matter to the Senate. In their dismay the senators, not one of whom was free from similar guilt, threw themselves on the emperor’s indulgence. He yielded, and a year and six months were granted, within which every one was to settle his private accounts conformably to the requirements of the law.

    Hence followed a scarcity of money, a great shock being given to all credit, the current coin too, in consequence of the conviction of so many persons and the sale of their property, being locked up in the imperial treasury or the public exchequer. To meet this, the Senate had directed that every creditor should have two-thirds of his capital secured on estates in Italy. Creditors however were suing for payment in full, and it was not respectable for persons when sued to break faith. So, at first, there were clamorous meetings and importunate entreaties; then noisy applications to the praetor’s court. And the very device intended as a remedy, the sale and purchase of estates, proved the contrary, as the usurers had hoarded up all their money for buying land. The facilities for selling were followed by a fall of prices, and the deeper a man was in debt, the more reluctantly did he part with his property, and many were utterly ruined. The destruction of private wealth precipitated the fall of rank and reputation, till at last the emperor interposed his aid by distributing throughout the banks a hundred million sesterces, and allowing freedom to borrow without interest for three years, provided the borrower gave security to the State in land to double the amount. Credit was thus restored, and gradually private lenders were found. The purchase too of estates was not carried out according to the letter of the Senate’s decree, rigour at the outset, as usual with such matters, becoming negligence in the end.

So far as we can understand what was happening, the passage largely explains itself. An old law restricting the rate of interest is suddenly revived. This invalidates a large class of loans above the official rate made on short term but renewable contracts. An indulgence is given of eighteen months, during which the now illegal loans are systematically called in. The result is a liquidity crisis in which land prices collapse. The crisis is dealt with by emergency lending by the Emperor.

There is nothing unusual about this sort of crisis. We are passing through something similar at the moment. What Tacitus is showing is a developed economy with much integration of capital and land markets. We can see how easily land can be sold, and how responsive prices are to the forces of demand and supply. Again, special pleading can be brought to bear on the story to try and minimise the extent of market behaviour. But, so far as this crisis can be analysed in terms of standard economic theory, the simplest explanation is to conclude that the economy of the early Roman Empire was, in its essentials, like that of the modern world.

Sean Gabb, “Market Behaviour in the Ancient World: An Overview of the Debate”, 2008-05.

October 24, 2019

Monetary Policy: The Best Case Scenario

Filed under: Economics — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 8 Aug 2017

Imagine that you’re the Fed and the economy’s been doing fine. GDP growth is good, inflation is low. But then something happens. Consumer confidence drops. The economy shrinks.

What do you do?

October 21, 2019

QotD: Poverty versus relative poverty

Filed under: Britain, Economics, Media, Quotations — Tags: , , , — Nicholas @ 01:00

A family-of-four who live on a council estate in Southampton were given a taste of a different life by swapping with a millionaire couple from Wiltshire for a week. The Leamon and the Fiddes families are participants in a new series of Channel 5’s Rich House, Poor House, which sees a family from the richest ten per cent of British society swap homes (and lives) with a family from the poorest ten per cent.

However, viewers took to Twitter to insist that Andy and Kim Leamon and their two children from Southampton who have £170 a week to spend on food, clothes and socialising after paying their mortgage and bills are certainly not struggling.

It’s not, by local standards, exactly great riches, to be sure. But that is £2,210 of disposable income per person per year. That’s on the fringes of the top 30% of all global incomes. 70% or so are poorer.

Note again, this is their disposable income, after housing, bills and taxes, the global income number is before all of that. Or, as we might also put it, this is unimaginable riches by global or historical standards.

Tim Worstall, “Well, yes, there’s a point here”, Tim Worstall, 2017-10-20.

October 18, 2019

The State of the US is Depressing | BETWEEN 2 WARS I 1933 Part 2 of 3

Filed under: Economics, History, USA — Tags: , , , , , — Nicholas @ 04:00

TimeGhost History
Published 17 Oct 2019

The American economy is in a state of despair. Mass unemployment and poverty sweep the lands. In 1933, a new President is elected, promising to change things for the better. His name is Franklin D. Roosevelt.

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A TimeGhost chronological documentary produced by OnLion Entertainment GmbH.

From the comments:

TimeGhost History
12 minutes ago (edited)
If you’re new here, you might not be familiar with Indy Neidell and his other work. Not only are we doing “Between Two Wars”, on the events and years leading up to World War Two (of which this video is a part), also we’re covering World War Two in realtime week-by-week, exactly 79 years after it all happened. We have now entered the second year of the war. If you haven’t already, check out the World War Two Channel for what maybe one day will become the most complete account of The Second World War: https://www.youtube.com/c/worldwartwo

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October 17, 2019

England in 1550 was a remarkably unpromising location for the later industrial revolution

Filed under: Britain, Economics, Europe, History — Tags: , , , , , , — Nicholas @ 03:00

Anton Howes, in his investigations on the Industrial Revolution looks back in time to see where or even if England deviated from the rest of Europe in ways that made the revolution possible, thinks he’s located the crucial time:

If a peaceful extraterrestrial visited the world in 1550, I often wonder where it would see as being the most likely site of the Industrial Revolution – an acceleration in the pace of innovation, resulting in sustained and continuous economic growth. So many theories about why it happened in Britain seem to have a sense of inevitability about them, but our extraterrestrial visitor would have found very few signs that it would soon occur there. There were many better candidates, on a multitude of metrics.

[…]

But England in 1550 was by global standards quite poor. Historical GDP per capita measures are notoriously difficult to obtain, even for some countries in the twentieth century let alone the sixteenth. The historical GDP per capita of England – by far the most studied region – is still hotly debated among economic historians. Nonetheless, according to the most recent collection of estimates – the Maddison project’s database of 2018 – in 1550 our extraterrestrial visitor would have been much more interested in Belgium. England at that stage lagged behind almost all of the areas for which we have estimates: Holland, Spain, Italy, Sweden, and France. In 1600, it was behind Portugal and India. Here are the figures in 2011 dollars; the colours are by row:

Such estimates should of course be taken with a hefty boulder of salt. (Note, also, that these particular figures, called “CGDPpc”, are something of an innovation by the team compiling the Maddison Project Database – they use multiple benchmarks to improve how we compare countries’ relative incomes in any particular year, which comes at the cost of not being able to compare their growth rates, for which there are separate figures. In other words, you should read the figures by row, not by column.) But it is worth noting that the more recent research on historical GDP per capita, finally filling in some details for regions other than England and Holland, often results in those other countries seeming richer in the sixteenth and seventeenth centuries. The more we know, the more the traces of an early English divergence seem to disappear.

Even without access to such statistics, however, our visitor would have noticed that in the mid-1550s England suffered severe food shortages. Indeed, the threat of famine would be present right up until the beginning of the eighteenth century: there was a major famine in the north of England in 1649, and even a famine in the 1690s that killed between five and fifteen percent of Scotland’s population. Britain would one day become perhaps the first famine-free region, but that did not occur until much later, when innovation had already begun to accelerate. It may even have been its result.

And England in 1550 was not just poor; it was also weak. If our visitor thought, as some historians do, that conquest and exploitation were essential for future growth, then it was Spain that had the major overseas empire, followed by Portugal. England in 1550 had no colonies in the New World, and its attempts to found them all failed until the seventeenth century, by which stage the Dutch and French had also begun to extend their own empires too. It was not until the eighteenth century that Britain began to exceed them.

October 15, 2019

The Fed as Lender of Last Resort

Filed under: Economics, USA — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 1 Aug 2017

If you heard a rumor that your bank was insolvent (in other words, it had more liabilities than assets), what would you do?

A typical reaction is to panic. What if you can’t get your money out? Your next step would likely be to try and get all of your cash in hand.

The rumor could even be false, but if enough people responded as if it were true, it would still spell trouble. Even solvent banks can have illiquid assets. If the bank can’t pay out to its depositors, the panic can spread.

This is where the Federal Reserve System comes into play. The Federal Deposit Insurance Corporation (FDIC) insures deposit accounts. And, if the insurance isn’t enough or the financial institution isn’t covered, the Fed can act as the “lender of last resort” – it can loan enough money to a bank to cover customers who want their cash.

Why does this happen? Well, panics can be a threat to the entire banking system. If one financial institution falls, even if it is insolvent, it can have a domino effect.

If you think through very recent U.S. history, you’ll quickly come up with some examples of the Fed intervening. During the 2008 financial crisis, the Fed, along with U.S. Treasury and FDIC, stepped in to “bail out” insolvent U.S. financial institutions to minimize systemic risk.

But what happens when you know that the government will clean up the mess if you make risky investments? This is certainly a big problem facing the Fed. We’ll discuss the consequences in detail in this video.

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