Authors

Events

Bitcoin entrepreneurs meet in Paris this week

I’m open-minded about Bitcoin and digital currencies in general. Which is to say I want 10 million people to use it for 10 years before I consider it a store of value.

Events like Paris Bitcoin Startups On Wednesday 16th April reinforce my attentisme or ‘wait-and-see’ policy.

On the one hand, if the digital currency can overcome French bureaucratic hostility and prosper there, that speeds up my adoption date.

On the other hand, it looks a lot like venture capitalists playing with ‘out-of-the-box’ business ideas. Exciting, but not safe. For now, gold wins.

Economics

Goodbye Detlev – for now

Writing on his website, Detlev Schlichter has announced his exit from the sphere of ideas and writing:

This is the final blog entry in the ‘Schlichter Files’. Pretty soon, this website will be taken offline. I would like to take this opportunity to thank all my readers for following my commentaries, essays and occasional rants over the past two-and-a-half years. Thank you.

Read the rest of the article here.

In the past few years, Detlev has made a spectacular contribution to Austrian School economics in the UK. When I first found his book Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown, I knew I had found the contemporary Austrian analysis I was looking for. I was delighted to endorse it.

That giant intellectual contribution to our economic circumstances has been complemented by Detlev’s unique ability to explain his ideas with a compelling charm from the perspective of experience. I will never forget his astonishing appearance on Radio 4′s Start the Week.

We wish Detlev all the best as he moves on to new enterprises, just as we wonder how to fill the vacuum he will leave. We’re delighted to host his articles and we hope one day to welcome him back to the sphere of ideas.

Economics

Confessions of a central bank official (two in fact and one to come)

City A.M. reports today Dovish Carney stuns markets:

EQUITY markets jumped yesterday after the Bank of England shocked investors by indicating that rates would stay at historic lows in the near future, despite recent signs that the British economy is starting to strengthen.

That investors are shocked by the news that Mark Carney plans a further extended period of easy money is more surprising than the news itself. But it turns out markets are good at responding to superficial data over the clearly stated intent of big players in the market, like central bank officials.

Consider the evidence of Lord George, former Bank of England Governor, to the Treasury Select Committee in 2007, in which he confesses his role in seeding economic disruption in an attempt to avoid recession:

Tuesday 20 March 2007 – Treasury – Minutes of Evidence

Q117 Ms Keeble: What makes it worse is that the one tool that the MPC has is interest rates and that filters through to our constituents in the form of higher mortgages. That makes them complain even more; it becomes cyclical.

Lord George: Yes, if house prices are going up. But one has to step back and recognise—I referred to it earlier—that when we were in an environment of global economic weakness at the beginning of the decade it meant that external demand was declining. Related to that, business investment was declining. One had only two alternatives in sustaining demand and keeping the economy moving forward: one was public spending and the other was consumption. It is true that taxation and public spending can influence the demand climate and consumer spending, but confronted with what we saw we knew that we had to stimulate consumer spending. We knew that we had pushed it up to levels that could not possibly be sustained in the medium and longer term, but for the time being if we had not done that the UK economy would have gone into recession, just like the economies of the United States, Germany and other major industrial countries. That pushed up house prices and increased household debt. That problem has been a legacy to my successors; they have to sort it out, but we really did not have much of a choice about what we did unless we accepted that we would yank it back or give up stability altogether. That is the point I am trying to make in answer to Mr Newmark. There are some people—maybe lots—who say that house prices is the biggest problem, that the mortgage rate is going up, housing is not affordable and so on.

And a few weeks ago, the Bank’s Andy Haldane confessed that they “have intentionally blown the biggest government bond bubble in history” (I abridge a little):

Wednesday 12 June 2013 – TRANSCRIPT OF ORAL EVIDENCE

Q41 Mark Garnier: … If you thought that QE was creating financial instability, would you try to warn the MPC and, if so, how would you do it?

Andrew Haldane: I absolutely see it as my one of jobs as an FPC member to alert not just the MPC but this Committee and the wider world if I thought that QE, or monetary policy actions more broadly, was posing significant risks to UK financial system stability. …

To the substance, this is a risk that I feel very acutely right now. If I were to single out what for me would be the biggest risk to global financial stability right now it would be a disorderly reversion in the yields of government bonds globally, for any one of a variety of reasons. We have seen shades of that over the last two or three weeks. Let’s be clear, we have intentionally blown the biggest government bond bubble in history. That is where we are, so we need to be vigilant to the consequences of that bubble deflating more quickly than we might otherwise have wanted. That is a risk. It is one we as FPC need to be very vigilant to.

So, by officials’ own admission, the Bank under Eddie George created levels of debt-fuelled consumption which they knew could not last in the hope of avoiding recession and, following that bubble bursting, they have now deliberately inflated the biggest bond market bubble in history. When I see markets herding in response to the pronouncements of these big players, I think “What could possibly go wrong?”

As I set out in my speech on the Budget (video), Mark Carney has clearly explained his intention to use the Bank of England to manipulate economic expectations to manufacture recovery. This will not work.

It is certainly true that the central banks can alter economic expectations but the idea that they can do so helpfully is fanciful. It is founded on the same errors as socialism and like socialism, it cannot work because the information necessary is not available and because it relies on aggregating away much that makes us human.

We’ve had two confessions from central bank officials. I feel I can predict confidently that Mark Carney will one day confess, more or less, “We thought we could manage the economy by steering the expectations of tens of millions of people using monetary policy to blow various bubbles while making pronouncements about policy. We were wrong.”

One of the great tragedies of our circumstances is that so many people will label this central planning “capitalism”. Eventually, the state will have to get out of money and banking. Mark Carney’s coming failure should accelerate the day.

Economics

Are you ready for EuroCrash the musical?

I am not joking. It has finally happened. And I want to see it. As reported by Bloomberg, ‘Euro Crash! The Musical’ is coming to town. According to this report this spectacular and timely production “transposes the single-currency story to a deep dark forest. Mark and Gilda can’t find their way out. They are lured into the gingerbread Euroland house, where Papa Kohl and Madame Mitterrand run a school of fiscal discipline attended by some wayward pupils – personified nation states like Callum of Ireland and Stavros of Greece”. The show’s numbers include “a chorus praising the virtues of the Bundesbank and former U.K. Chancellor of the Exchequer Norman Lamont singing “Our currency’s gone down the plughole” in the shower”.

“EuroCrash!” is showing in at the Cockpit Theatre in London from 8 to 11 February 2012 and I am definitely going to see it. For more information and to book your ticket(s) just click here.

Economics

How the clash between Keynes and Hayek continues to define the difference between left and right

I’m pleased to promote another Hayek vs Keynes event at the London School of Economics:

Date: Monday 13 February 2012
Time: 6.30-8pm
Venue: Sheikh Zayed Theatre, New Academic Building
Speaker: Nicholas Wapshott
Chair: Professor Danny Quah

Eighty years ago at the LSE, Friedrich Hayek launched an assault upon the new economic thinking of John Maynard Keynes. The clash was so bitter and vituperative that it scandalized the cloistered world of academia. Eighty years on, the differences between the two men have still not been finally resolved and their conflicting approaches to the economy continue to define the profound chasm between politicians of left and right.

Nicholas Wapshott is a columnist for Reuters and regular contributor to Newsweek and The Daily Beast. He is the author of Keynes Hayek: The Clash That Defined Modern Economics and Ronald Reagan and Margaret Thatcher: A Political Marriage. He is a former senior editor for The Times and the New York Sun and editorial consultant to Oprah Winfrey.

Suggested hashtag for this event for Twitter users: #lsehvk

Ticket Information

This event is free and open to all however a ticket is required. One ticket per person can be requested on Tuesday 7 February.

See the LSE site for further details.

Events

Is the global economy heading for monetary breakdown?

A very exciting upcoming event:

The All Party Parliamentary Group on Economics, Money and Banking and Steve Baker MP in association with The Cobden Centre, the Institute of Economic Affairs, the Adam Smith Institute and the Institute for Public Policy Research cordially invite you to a discussion on:

Is the Global Economy Heading for Monetary Breakdown?

The Threat Posed by Elastic Paper Money

Tuesday 11 October 2011

Committee Room 6

Palace of Westminster

4.00pm

Steve Baker MP, Chairman and Conservative MP for Wycombe

Dr. Tim Evans, Chief Executive of The Cobden Centre

Detlev Schlichter, author, Paper Money Collapse:

The Folly of Elastic Money and the Coming Monetary Breakdown

Detlev Schlichter’s analysis might be controversial but it is logical and rigorous. Explaining in detail what he believes to be the real causes behind the world’s current economic woes, he paints a frightening picture of the global monetary breakdown he now believes is underway. The event is a must for anyone concerned with the future of the world economy and our society.

All Cobden Centre readers are invited to attend.

Events

Cobdenites will want to attend this Liberty League Conference

I am sure that many TCC supporters will want to attend this forthcoming conference organised by the Liberty League.

Not only will it be good for Cobdenites to add their insights but my understanding is that the organisers still have a few non-student places available. But hurry, tickets are going quickly.

Economics

The fight of the century redux: Murphy vs. Smith

Exciting news from Mises.org:

The great debate between Keynesians and Austrians enters the digital age with the Mises Academy’s first ever online formal debate, between economists Karl Smith and Robert P. Murphy.

Resolved: Government Spending Can Play an Important Role in Boosting Economic Growth

Smith will argue in favor of this resolution, and Murphy will argue against.

The debate will be held by Webex, and costs $20. It will take place Friday, September 2nd at 1pm UK time, but will be recorded for later viewing.

See here for more details.

Economics

Hayek vs Keynes debate rebroadcast

Back in the ’30s, at the time of the original Keynes-Hayek debate, Hayek had a solid methodological system that could explain the causes of the recession of the late ’20s and early ’30s, and it’s subsequent gyrations, up and down.

The root cause was excessive credit creation by the world’s main central banks, and their fractional reserve private sector mints, the banks. This bank credit was loaned out to businesses who bought extra kit to produce goods and services more efficiently. The boom in producer sectors bid up relative prices for their resources. Higher wages for labour meant more consumption, boosting consumer sectors. This in turn pushed up relative prices in those sectors. Competition for resources bid up prices until no one believed the prices were sustainable — pop goes the mega bubble, and boom turns to bust. This is called the Austrian Theory of the Business Cycle.

At the BBC LSE Hayek v Keynes debate, Lord Skidelsky told us that everyone knew it was excess credit that caused this boom, and that this was called the “Treasury View.”

This of course is not true; the noble Lord is misinformed. The Treasury View was advanced by members of the Chancellor’s department saying, in short, that for every increase in public expenditure advocated by Keynesian types to alleviate the Great Depression effects, there would be an equivalent reduction in private sector expenditure that would mean that the net effect in the economy is zero.

Whilst I hold that this is a valid view, it is not one that gives us the theoretical tools to understand why boom and bust happen in the first place. Mises and Hayek gave us these tools with the Austrian Theory of the Business Cycle.

Neither the Treasury View, as expounded by the likes of Ralph Hawtrey, nor the Keynesian view were based on a series of logical deductions from root causes. The best Keynes could offer as an explanation for boom and bust was “animal spirits”.  He is Theory Lite in this respect.

Unfazed by his shaky foundation, Keynes confidently prescribed how to correct an animal-spirit-induced bust.  We are told to spend when the private sector is not spending. Who does this? The government on our behalf.  The Treasury View makes clear that it’s futile to tax the private sector in order to spend, so we have the cries from modern day Keynesians to carry on borrowing and spending in order to force a correction . If you haven’t got the correction you desire, you have not borrowed enough! So say the likes of Krugman and Skidelsky, drunk on the intoxicating work of Keynes.

The faulty logic than runs underneath this way of thinking is called the “Circular Flow of Income.” This is now bread and butter in any economics text book. One person’s income, when spent on goods and services, becomes another person’s income. Cut one and you cut all. Therefore, a series of cuts or austerity measures is exactly what you should not be doing at a time of bust; you need to keep everyone’s income up.

Hayek held that relative prices and income where what mattered, not gross aggregates . If a man has an income of £100 and costs of £90, we can say he has a profit of £10. Then recession hits and he has an income of £85 and still costs of £90, so he is sunk by £5. Thus the aim of the man in question, with income of £85 is to get his costs down to under £75 and restore his profitability. As this is done, the foundations for recovery are laid. Even better, if he can get costs to £74, on lower income and a lower costs base, he is in fact more profitable than in the glorious boom times!

In the 5 mins each speaker had in this debate to present their case, some of this came across and some of it did not. Jamie Whyte and George Selgin did a fantastic job at putting forward the case for Hayek. Skidelsky sadly did not represent Keynes very truthfully, for the reasons I have outlined above. Selgin picked him up on various other errors and misrepresentations.

This debate is very relevant for today as no doubt we will be told the current market corrections are “Animal Spirits”, and that the answer is further government intervention.

The BBC tell us the debate had over 1 million listeners and was in their top 5 podcasts. In all my years studying at the LSE and as a donor to it, I have never seen three lecture theatres full of public and students alike. Not even for visiting Heads of State!

This is the debate of our times.

I am delighted to say that the program will be re-run, and they expect another 1.5 millions viewers.  Our friend at the Mises Institute, Stephan Kinsella, has blogged all the details here. If you want to educate yourself a little more on these matters, or even if you think you are very familiar with all of the issues, the debate is definitely worth a listen.  If you can’t wait for the next BBC broadcast, you can find it online as an MP3.

Since the original broadcast, the debate has continued online.  On the 3rd of August, PrimeEconomics published a list of eight alleged fallacies in the Keynes/Hayek debate, drawing a number of responses, including some from George Selgin.  On the same day, Selgin posted his own account of the debate at FreeBanking.org.  More recently, on the 18th of August, Selgin took up Skidelsky’s suggestion that “no government has ever achieved a speedy recovery from a recession by clamping down on its spending or reducing its indebtedness”, citing the US recovery from a deep recession in 1920.  The following day, Skidelsky published his account of the Keynes-Hayek rematch at Project Syndicate, declaring

Except to Hayekian fanatics, it seems obvious that the coordinated global stimulus of 2009 stopped the slide into another Great Depression.

You can read Selgin’s response at FreeBanking.org.

Personally, I look forward to the day when Paul Krugman will come and stand on that same stage where Hayek delivered his famous Prices and Production lectures, and engage in serious debate with Austrian economists. How many lecture theatres would that fill? What global TV audience would it draw?

For those at the BBC and for those at the LSE, I think my next Distinguished Hayek Fellowship Teaching Programme event the LSE should be just this debate, and I would be happy to support and fund whatever I can. I repeat, this is the debate of our times.  Only someone of the stature of Krugman can represent Keynes, we need to move this debate up and along now.

Related articles
  • Hayek vs Keynes at the LSE – John Phelan, 27 July 2011
Economics

Kevin Dowd to speak at Adam Smith Institute

Kevin Dowd to speak at Adam Smith Institute

On the evening of Monday 12th September 2011, TCC Senior Fellow, Professor Kevin Dowd, is giving a talk called ‘The Decapitalization of the West’ hosted by the Adam Smith Institute. Co-author – with Martin Hutchinson – of the recent book, ‘The Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System’, Dowd is one of the world’s best scholars when it comes to free-banking and laissez-faire financial and monetary systems.

Make sure you do not miss this event. For all the relevant details visit this page here and then RSVP via: events@adamsmith.org