Quotulatiousness

December 16, 2012

Stephen Gordon on “The Carney Affair”

Filed under: Cancon, Economics, Media, Politics — Tags: , , , , — Nicholas @ 11:34

His latest post at Maclean’s talks about the distressing revelations from a Globe and Mail article the other day:

It took 20 years and two recessions — both of which were more severe than the one we just had — before we were able to come up with a monetary policy framework that works well. The current practice in Canada is that the government provides the Bank of Canada an inflation target, and the Bank of Canada is free to exercise its discretion in how it meets its mandate. This is not full independence — the Minister of Finance has the legal authority to override the Bank in extreme circumstances — but it’s been enough so that when the Governor of the Bank of Canada speaks, people know that there are no unspoken partisan political considerations through which his message should be filtered. Explanations of how monetary policy is being conducted can be taken at face value, even if they are couched in cautious and nuanced language.

Or at least, that was the case before the Globe story broke. The second paragraph puts this hard-earned reputation for non-partisan professionalism into question. Unless Mark Carney can swiftly and convincingly demonstrate that he responded to those Liberals’ overtures with a quick and unequivocal refusal, we shouldn’t be surprised if non-Liberals start looking through his recent speeches through the corrosive, distorted lens of partisan politics. Was his speech to the Canadian Auto Workers simply a play for union support? Was his dismantlement of the Dutch Disease talking point simply a tactic to put the NDP off-balance? For me, these are rhetorical questions written with a sense of sickening dread; others will doubtlessly repeat them in earnest and with angry, partisan vigour.

But even in the best-case scenario in which Mark Carney’s conduct is blameless, we are still left with the prospect that not-insignificant elements in the Liberal Party of Canada were willing to risk one of the most crucial elements of our governance for partisan gain. If we are extremely lucky, this episode will be quickly forgotten. But if by taking a run at Mark Carney, these Liberals have initiated a never-ending cycle of speculation about the possible political ambitions of future Governors of the Bank of Canada, they will have weakened — perhaps fatally — the foundations of Canadian monetary policy.

December 6, 2012

Zero Hedge talks Keynes and Hayek

Filed under: Economics, Europe, Government, USA — Tags: , , , — Nicholas @ 09:52

Most politicians have a time sense that lasts just about as long as the current electoral cycle. Economics doesn’t fit neatly into that kind of cramped timescale. Politicians have a lot of influence over the long-term economy, but lack the sense of involvement over that long term because they have to stay tightly focussed on the next election (or they don’t get re-elected). This is one of the systemic faults that’s landed us in the long-term problems we’re facing right now:

Salma Hayek is beautiful, rich and famous. Friedrich Hayek is a deceased Austrian economist. He wasn’t very good looking, certainly not wealthy but he did become famous — but only 20 years after his death and then only within the make believe world of nerdy economists. Fortunately for the World today, if we are lucky, Friedrich Hayek may become the most famous Hayek of them all. Until then, the World remains firmly trapped in an economic hell created by Friedrich’s (and therefore Salma’s) arch enemy — John Maynard Keynes. IceCap’s Keith Dicker points out that, as most politicians and central bankers view the World in very short time frames, to truly understand the devastation wreaked by Keynesian economics, one has to take a step back and see how the financial destruction accumulated over time. It is true that these policies initially provided sugar highs for the economy — but the 3 step cycle of cutting interest rates, cutting taxes and borrowing money to create growth has finally reached its end point. If Mr. Keynes was alive today, we are confident he would be embarrassed that his lifelong work had been so severely distorted.

[. . .]

Since WWII, the Americans, Japanese, British and Europeans have spent way more money than they owned. But that was ok because the money they borrowed wouldn’t have to be repaid until some far away day in the future.

Unfortunately the future has now arrived and today, the next generations of Americans, Japanese, British and Europeans have all plunged into a deathly debt spiral.

Today it is no coincidence that the Americans, Japanese, British and Europeans have all set interest rates as close to 0% as possible.

Also today, it is no coincidence that the Americans, Japanese, British and Europeans are all printing money.

And finally, today it is also no coincidence that the Americans, Japanese, British and Europeans ignored Friedrich Hayek and instead followed the economic principles of John Maynard Keynes.

Today the entire global economic and financial system is rooted in unwavering support for John Maynard Keynes and his beliefs in deficit spending and debt-fueled growth.

November 27, 2012

Coyne: Carney’s departure is probably for the best

Filed under: Britain, Cancon, Economics — Tags: , , — Nicholas @ 10:27

Aside from the ousting of Toronto Mayor Rob Ford, the other big story in Canadian media yesterday was the announcement that Bank of Canada governor Mark Carney will be leaving to take over the Bank of England next year:

Inevitably, there are mixed feelings: satisfaction that a Canadian civil servant should be held in such regard abroad; annoyance that a foreign power should feel entitled to raid our highest offices, as if we were their farm team; gratitude for his service; disappointment that he did not finish his term.

On balance, however, the departure of Mark Carney as governor of the Bank of Canada, to take on the same position at the Bank of England, is probably for the best. It will of course be a great loss: he is largely deserving of his exalted reputation. That’s the point: he was becoming too big for the Bank. His ambitions were known to stretch beyond it; his persona was starting to overshadow it. Rock stars and central banks make an uncomfortable fit.

[. . .]

But ultimately, it’s the institution that counts, not the man. The Bank is steeped in talent, and any successor will be able to draw on the same organizational strengths as Carney. And Carney’s own outsized talents, it must be said, were beginning to present a problem, or at least might have. Politically savvy, a natural communicator, possessed of a certain glamour (at least by central banker standards), and young enough to harbour ambitions beyond his current office, it was perhaps inevitable that he should excite speculation about his future plans, without ever intending to.

All the same, it was unhealthy that talk began to turn to the possibility of him running for Liberal leader, and unhealthier still that this was not more firmly squelched, sooner. I’ve no reason to believe he ever seriously considered doing so, but it would have been a terrible business if he had. It is unusual enough for a governor to leave one country’s central bank for another. But for a governor to resign to lead the party seeking to replace the government he had lately served? I do not think the people who were urging this course upon Carney thought this through.

Update: At the Telegraph, Iain Martin reminds Carney’s sudden horde of fans that he’s merely mortal.

Is there any stopping Carney-mania? Those of us who 24 hours ago couldn’t have identified Mark Carney, even if he was wearing a T-shirt emblazoned with “I’m the Governor of the Canadian Central Bank” in 110pt type, now stroke our chins and swap our best Carney insights. He was voted the most trustworthy Canadian in a poll conducted by Readers Digest (Canada). He has four children. He paid $800,000 for his house in Ottawa, apparently, although he undertook $95,000 of improvements. Did they extend out the back or convert the attic? I don’t know, yet. And Canada didn’t have a banking crisis, you know. Only it did, in the 1990s, and the recovery and reorganisation put it in place afterwards left it in good shape ahead of the much bigger financial crisis which hit the US and the UK particularly hard. And Canada knows how to regulate its banks, only that wasn’t actually Carney’s job. This is most of what we know so far.

[. . .]

Now Carney is hailed as “the world’s greatest central banker”. None of this is to knock the Canadian for a second. He seems like a sensible, pragmatic fellow with a good record. It is also pleasing to see a fresh face, someone not from the revolving door cast-list of the British establishment. Although it is worth remembering that he is from the new global establishment, via 13 years at Goldman Sachs and subsequent sessions on panels at Davos.

The UK certainly needs this appointment to work out, but the new arrival deserves continuous scrutiny from sceptical parliamentarians and, yes, from a (hopefully) free press. After all, Mark Carney is a banker, not a magician.

November 9, 2012

Solving the “tax haven problem” … with military intervention

Filed under: Economics, Europe, Government — Tags: , , , , , , , , — Nicholas @ 12:30

Radley Balko suggested that this is insanity. I agree, but as Dan Mitchell explains, it’s being bruited about by people who should know far, far better:

A former bureaucrat from the European Bank for Reconstruction and Development actually called for the forcible annexation of low-tax jurisdictions, writing in the Financial Times that, “Jersey, Guernsey and the Isle of Man should simply be absorbed lock, stock and barrel into the UK…Andorra, Monaco and Liechtenstein should be given the choice of ending bank secrecy or facing annexation.”

He wasn’t quite so belligerent about Switzerland, perhaps because all able-bodied male citizens have fully automatic assault weapons in their homes. But he did urge financial protectionism against the land of chocolate, yodeling, and watches.

What a bizarre attitude. It’s apparently okay for certain countries to persecute – or even kill – ethnic minorities, religious minorities, political dissidents, homosexuals, and other segments of their populations. Very rarely do people like Mr. Buiter call for annexation or sanctions against such loathsome regimes.

But if a nation has low taxes and a strong human rights policy on financial privacy, then cry havoc and let slip the dogs of war.

October 5, 2012

sp!ked shorts on the Eurocrisis

Filed under: Economics, Europe — Tags: , , — Nicholas @ 08:12

October 4, 2012

Why EU politicians love the idea of a Financial Transaction Tax

Filed under: Economics, Europe — Tags: , , , — Nicholas @ 10:31

Tim Worstall explains why politicians love the notion of an FTT, and why all the benefits claimed for imposing an FTT are not going to happen:

Large numbers of people have convinced themselves that a Financial Transactions Tax (FTT) would be a really very good idea indeed. It would make the banks pay for the problems they’ve caused, it would lower speculation and thus lower volatility, it would raise a lovely large amount of money that can be spent on good causes and anyway, there are a number of FTTs around and they’ve not caused any problems, have they?

Politically this is of course quite wonderful. Lots of money to pay for things and it’s the banks that have to cough up? We’ll get tens, no hundreds of billions and none of us will really have to pay any of it? Let’s tax the other guy usually does gain public support after all.

The thing is, all of the stated joys of this tax are in fact untrue. I’m rather involved in this as I prepared evidence for the House of Lords on the point (evidence which I’m glad to say heavily influenced their final report). Other submissions also pointed to posts on this very blog here at Forbes in support of various points. Finally, this formed the basis of my one and only peer reviewed paper to date. You might say that I’m more involved in this story than I am in most.

The thing is, those four things which campaigners for the FTT say are the good things about it all turn out to be untrue. Firstly and most obviously, banks are companies and companies never pay tax. It’s always some combination of customers, workers and shareholders who do: for only a real human being can bear the burden of a tax. As to speculation, more speculation lowers price volatility so reducing speculation will increase volatility, not reduce it. An FTT would crimp economic growth and thus would reduce total tax revenue, not increase it and finally, we do indeed have several FTTs currently and also know that they crimp economic growth and thus reduce total tax revenue.

All of these things have been explained by all of the serious people (plus me, who you can regard as serious or not as you wish) who have looked at the question. And yet governments continue to sign up for what they keep being told is a seriously bad idea. They’ve even been told this in terms simple enough for a politician to understand.

September 21, 2012

Rick Mercer’s first rant

Filed under: Cancon, Humour — Tags: , , — Nicholas @ 13:15

No, not his own … the first one he remembers:

One of my earliest life-defining memories as a kid was being dragged against my will to the bank because Mom had a meeting.

I can remember sitting in a chair next to my mother while she had an excruciatingly dull conversation with a banker. I remember wondering what I had done to be forced to sit through this and if it were actually possible to die from boredom. And then everything changed. I will never forget the moment. The banker leaned forward and said, “Now Mrs. Mercer, do you have your husband’s permission to do this? Perhaps we should give him a call.”

From my point of view the day just got a whole lot better; for the man behind the desk the opposite was true. He had no idea what he had done. He had unleashed a hell storm that he had absolutely no chance of surviving. The poor, hapless man.

To say the oxygen was immediately sucked out of the room would be an exaggeration. To say that the blistering rant my mother delivered to the dumb creature made his ears bleed would not be. Needless to say very soon we were no longer in a cubicle but in a much nicer office upstairs, with a different banker who was doing everything he could to stop my mother from closing every account and going across the street. The dude who suggested Mom get her husband’s permission to open a chequing account was sent to “get the lad a fudge stick.”

Go Mom!

Everyone should rant. Ranting not only makes you feel better but occasionally, as my mother proved to me many times, you might get results—justice, satisfaction or a fudge stick.

August 13, 2012

After five years, the Great Recession still shows little sign of ending

Filed under: China, Economics, Europe, USA — Tags: , , — Nicholas @ 09:02

For your daily dose of doom, here’s Ambrose Evans-Pritchard at the Telegraph:

The world remains in barely contained slump. Industrial output is still below earlier peaks in Germany (-2), US (-3), Canada (-8) France (-9), Sweden (-10), Britain (-11), Belgium (-12), Japan (-15), Hungary (-15) Italy (-17), Spain (-22), Greece (-27), according to St Louis Fed data. By that gauge this is proving more intractable than the Great Depression.

[. . .]

The original trigger for the Great Recession has since faded into insignificance. America’s house price bubble — modest by European or Chinese standards — has by now entirely deflated. Warren Buffett is betting on a rebound. Fannie and Freddie are making money again.

Five years on it is clear that subprime was merely the first bubble to pop, a symptom not a cause. Europe had its own parallel follies. Britons were extracting almost 5pc of GDP each year in home equity by the end. Spain built 800,00 homes in 2007 for a market of 250,000. Iceland ran amok, so did Latvia and Hungary. The credit debacle was global. If there was an epicentre, it was Europe’s €35 trillion banking nexus.

[. . .]

A study by Stephen Cecchetti at the Bank for International Settlements concludes that debt turns “bad” at roughly 85pc of GDP for public debt, 85pc for household debt, and 90pc corporate debt. If all three break the limit together, the system loses its shock absorbers.

“Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. Used imprudently and in excess, the result can be disaster,” he said.

August 12, 2012

China’s economic situation in Keynesian and Austrian terms

Filed under: China, Economics — Tags: , , , , — Nicholas @ 09:27

Tyler Cowen in the New York Times:

Keynesian economics holds that aggregate demand — the sum of all consumption, investment, government spending and net exports — drives stability, and that government can and should help in difficult times. But the Austrian perspective, developed by the Austrian economists Ludwig von Mises and Friedrich A. Hayek, and championed today by many libertarians and conservatives, emphasizes how government policy often makes things worse, not better.

Economists of all stripes agree that China may be in for a spill. John Maynard Keynes emphasized back in the 1930s the dangers of speculative bubbles, and China certainly seems to have had one in its property market.

[. . .]

The Austrian perspective introduces some scarier considerations. China has been investing 40 percent to 50 percent of its national income. But it is hard to invest so much money wisely, particularly in an environment of economic favoritism. And this rate of investment is artificially high to begin with.

Beijing is often accused of manipulating the value of its currency, the renminbi, to subsidize its manufacturing. The government also funnels domestic savings into the national banking system and grants subsidies to politically favored businesses, and it seems obsessed with building infrastructure. All of this tips the economy in very particular directions.

The Austrian approach raises the possibility that there is no way for China to make good on enough of its oversubsidized investments. At first, they create lots of jobs and revenue, but as the business cycle proceeds, new marginal investments become less valuable and more prone to allocation by corruption. The giddy booms of earlier times wear off, and suddenly not every decision seems wise. The combination can lead to an economic crackup — not because aggregate demand is too low, but because the economy has been producing the wrong mix of goods and services.

Lots of earlier discussion of the problems in China’s economy here.

August 3, 2012

How “you didn’t build that” strikes at “Bourgeois Dignity”

Filed under: Books, Business, Economics, Liberty, Politics — Tags: , , , — Nicholas @ 00:05

Virginia Postrel explains why President Obama’s “you didn’t build that” gaffe has lasted so long when usually politicians’ gaffes barely last a single news cycle, by outlining the arguments of a recent book by Dierdre N. McCloskey:

The president’s sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants — Main Street, not Wall Street. (Obama did work in a swipe at Internet businesses.) The president didn’t simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.

“Bourgeois Dignity” is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today’s buying power), to the current global average of $30 — and much higher in developed nations. (McCloskey’s touchstone is Norway’s $137 a day, second only to tiny Luxembourg’s.)

That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book’s subtitle: “Why Economics Can’t Explain the Modern World.”

[. . .]

McCloskey’s explanation is that people changed the way they thought, wrote and spoke about economic activity. “In the eighteenth and nineteenth centuries,” she writes, “a great shift occurred in what Alexis de Tocqueville called ‘habits of the mind’ — or more exactly, habits of the lip. People stopped sneering at market innovativeness and other bourgeois virtues.” As attitudes changed, so did behavior, leading to more than two centuries of constant innovation and rising living standards.

I’ve read McCloskey’s book and plan on reading the next one too. Earlier mentions of Bourgeois Dignity are here and here.

July 18, 2012

QotD: Quantitative Easing is institutionalized theft

Filed under: Economics, Government, Quotations — Tags: , , — Nicholas @ 08:56

In reality, economics is not the fiscal rocket-science you make it sound. Capitalism itself is based on good old-fashioned honesty. The money at the heart of it must be both an honest store-of-value and an efficient medium of exchange. It ceases to be so when the inherent deceits of fractional reserve banking allow trillions of false credit to be pumped into the system, thus forcing up prices (booms) which inevitably lead to over-valued commodities (busts).

What happens next is that the banks, having privatised their gains in the good times, simply socialise their losses onto the tax-payer. It’s a crime. Simple as that really.

Telegraph commentator “dionysusreturns“, responding to “Fed fiddles as America slides back into recession” by Ambrose Evans Pritchard, 2012-07-15

July 17, 2012

FATCA “may end up killing more U.S. jobs than all the call centers in India combined”

Filed under: Economics, Government, Law, USA — Tags: , , , , — Nicholas @ 09:52

Matt Welch on the worst bit of legislation for US workers so far:

That’s a line from this commendable Wall Street Journal column by William McGurn about the oft-lamented-around-these-parts Foreign Account Tax Compliant Act of 2010, or FATCA (rimshot). While President Barack Obama keeps hitting presumptive Republican presidential nominee Mitt Romney over offshoring and jobs, one of Obama’s most economically deleterious laws continues inflicting damage largely off the journalistic radar screen.

“Within the United States,” McGurn writes, “almost no American has heard of it. Save for the occasional article, it’s gone largely uncovered. And just like ObamaCare, the nastiest, job-killing aspects will not hit until after this November’s election.”

McGurn points out that FATCA was the revenue-generating side of the Hiring Incentives to Restore Employment Act of 2010 (HIRE! God, I hate these people….) — “a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.” So once again, government is “paying” for the economically dubious and morally spurious act of granting targeted tax breaks to favored corporations by screwing over the middle class.

July 10, 2012

American exceptionalism, especially in taxation

Filed under: Business, Government, Liberty, USA — Tags: , , — Nicholas @ 10:19

Mark Steyn on the unique American perspective on taxes:

Elsewhere in the world, there are two generally accepted bases for taxation: residency and source of income. Most countries tax you if you live within their borders, some tax you if you live elsewhere but earn money within their jurisdiction, but only America claims the right to tax you simply for being American — even if you, say, live in Belgium but drive over the border to work in Luxembourg every day. This is unique to the United States: Spain taxes you if you’re a resident of Spain; Slovenia taxes you if you’re a resident of Slovenia; but America taxes you if you’re an American who’s working as a teacher in Gabon. You’re at permanent risk of double taxation, and the fines for minor and accidental infraction are arbitrary and confiscatory.

As I say, no other developed country does this — although Eritrea does.

On January 1st 2013, all this gets worse. The FATCAT act (technically, it’s FATCA, but we all get the acronymic message) makes it not worth a foreign bank’s while to do business with Americans. I don’t just mean Mitt Romney’s chums in the Cayman Islands, but an American of modest means on a two-year secondment to Hong Kong requiring a small checking account with which to pay local utility bills — or a small businessman attempting to expand his distribution in Canada.

Maybe you don’t care about these people: Why can’t the business guy expand his business in Michigan or Idaho like true-blue Americans would do, etc? But at a time when America is ever more mortgaged to foreigners, making it more difficult for Americans to go out and earn money from the rest of the planet doesn’t seem a smart move. Unless you’re planning on making U.S. citizenship a combination food-stamp card. American exceptionalism and American isolationism are not the same thing.

More to the point, the 2008 “exit tax”, the existing foreign bank-account disclosure paperwork, the new FATCAT act, and even the recent habit of publishing the names of those who renounce citizenship are simply inappropriate in a free society.

Tim Harford on Iceland’s economic recovery

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

From his weekend column:

Iceland managed to create three massive global banks. The economy itself is tiny: Iceland has the same population as Coventry, although arguably the scenery is better. That’s really not big enough to support a lot of globally competitive export industries. Iceland had three: fish, aluminium smelting and tourism. Four if you count Björk. Can you blame them if they fancied dabbling in something a bit sexier, such as investment banking?

Investment banking is sexier than Björk?

I don’t think investment banking even manages to be sexier than aluminium smelting these days, but eight or nine years ago it must have seemed like a great gig. So these Icelandic banks borrowed loads of cash and used it to buy pretty much anything they wanted. In particular, they bought from each other at rather ebullient levels, which made for substantial profits on paper. The whole thing was a classic bubble.

And when the flow of loans dried up?

The banks crashed and there was clearly nothing the government could do to save them – they were far too big. And the party came to a grinding halt.

It doesn’t make a lot of sense.

No. It’s hard to understand why anyone wanted to lend them the money, and just as hard to understand why they thought they could instantly learn the craft of global investment banking.

July 8, 2012

Argentina to force domestic banks to loan money at a loss

Filed under: Americas, Economics — Tags: , — Nicholas @ 10:21

As the financial situation in Argentina gets more dire, the government is stepping in to make things even worse:

[President Cristina] Fernandez, a center-leftist, is embracing increasingly unorthodox economic policies as she seeks to sustain activity, which analysts say is vulnerable to insufficient credit.

“We’re going to tell the 20 principal banks… they have the obligation to lend for production and for investment,” Fernandez said in a televised speech.

“The central bank’s going to establish the conditions,” she said, adding that state-run banks should not have to shoulder the entire responsibility for business loans.

She said the loans would carry a maximum interest rate of the Badlar reference rate, which was 11.9pc per year for private banks in June, plus 400 basis points. The minimum loan period would be three years.

Officially, inflation in Argentina is running around 25%, so forcing banks to loan money out at half the rate of inflation seems like asking them to dig their own economic graves.

H/T to Tim Worstall for the link.

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