Happy days are here again (not!)

I claim no experties in economic matters as I have said before once or twice (well, once). But one cannot help worrying when the government shows every sign of wanting to nationalize our banks. How else can one describe the apparent plan the Chancellor has mooted of buying a stake in the large banks?

Alistair Darling is promising to spend billions to prop up banks and in return the state will part-own them. Great. Even the Attlee government did not go quite that far. Almost but not quite. Incidentally, where is Mr Darling going to get those billions? There will be no Marshall aid coming from America.

David Cameron, leader of the party that used to be known as Conservative, is supporting the move. Hands up anyone who is surprised by this "stunning U-turn" as the Sun puts it.

In another part of the woods the Guardian reports that there are plans to create a new economic council to tackle the existing rather large problems. I expect the Conservatives will support that, too. Anyone here recall the disastrous Wilson - Callaghan administrations? Or, going further back, the catastrophic consensus known as Butskellism?

Other posts on the financial crisis here.

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Dear me!

We are all getting a little overwrought. So let me say that I do not think we are doomed. Nobody is ever doomed. Things will change and they might get worse. But the world will not collapse and even capitalism will not end, simply because it is the only economic system dynamic enough to produce the kind of lifestyle we are all, and not just our masters in politics, the EU and the media, accustomed to. It is the only economic system dynamic enough to lift people and countries out of poverty. It will not die, no matter what EU Commissars and Guardian journalists might say.

Der Spiegel also quotes the egregious Peter Mandelson fulminating about partisan politics in the USA. Well, nobody could accuse our Peter or his colleagues of partisan politics unless the partisanship is of them against the rest of us.

For his and everybody's information, about 40 per cent of the Democrats voted against the bail-out Bill and about a third Republicans voted for it. I wonder whether anybody has done any kind of study as to how those Congressmen and women who are coming up for re-election in November voted.

The truth is that, no matter what the British, European and much of the North American media tell us, the Bill was not overwelmingly popular.

A new poll by the Pew Research Center found weakening public support for the bailout. The September 27-29 survey said Americans only backed the plan by a 45 percent to 38 percent margin.

And those despicable American legislators who are so partisan are accountable to their electorate while EU Commissars like Peter Mandelson are not.

If one trawls through the American blogosphere, one realizes that there is a great campaign going on across the country of people trying to stop their Representatives from voting this Bill though. People are phoning and e-mailing politicians and that may well have had an effect on the votes (as did Nancy Pelosi's screaming outburst). Parliament has not even been recalled because it is quite clear that they can do nothing without the permission of the EU and the various committees already in existence. Communicating with one's representative on this subject in Britain is a pointless exercise.

So when the article says that "Europe is furious at Washington's failure to agree on a bailout plan, calling Congress 'irresponsible'.", what it really means is "Increasingly, EU leaders feel the answer to financial instability lies in greater international oversight." You bet they feel that. Ever more power to the people who created much of the mess through their regulatory structure has always been a cry of the bureaucrat and, as I have pointed out (she repeats with gritted teeth), those EU leaders do not have to stand up and justify their behaviour to the electorate.

Well, some of them might have to and quite soon, too. Chancellor Merkel is up for re-election next year. President Sarkozy is safe at the moment, though his popularity is not of the highest despite the constant appearance of his ultra-glamorous wife. Prime Minister Brown is still the least popular prime minister for many a long year.

Somehow or other, they and their acolytes in the media assure us that the answer is to fling large amounts of taxpayers' money at this mess, rescue banks who made egregious mistakes, stupid people who borrowed when they had no idea how they would pay back the loans, and the hides of politicians who have contributed to this mess.

Do we actually know that Europeans or, rather British, Germans and people of the Benelux want their taxes to rocket to finance the bail-out packages? Oh well, who cares? They are merely peasants whose job it is to feel gratitude that their betters take such good care of them. Except that even peasants have been known to riot over taxes and there has been the odd revolution or two in European history.

Do we know for certain that all businesses are happy with the idea of more government control? But then, we are ruled by people who instinctively hate businessmen and women; we have a media who, with very few exceptions such as the economic journalists of the Times and the two Telegraphs, routinely lambast the most important people in our economy - the City financiers; and we have a public that repeats the ignorant, envious, poisonous rubbish that the politicians and the media feed them. Still, that same public will not like it if the despicable financiers stop bringing in the lolly and taxes go higher and higher to pay for all that "international" regulation.

Above all, we are told, partisan decisions are wrong. There must be a consensus in order to save the financial system and the European banks. Of course, a consensus has to agree on somebody's idea and it is just possible that not all parties and politicians agree. What should they do if they think bailing out banks through taxpayers' money and even more oversight from international and transnational organizations will make the situation worse? If they oppose it they are cursed as contemptible partisan politicians; if they go along with it they find themselves supporting activity that they know to be harmful. On the other hand, if they choose the second option they will be praised for taking part in consensus politics.

It so happens that the outcome of consensus politics has been displayed once again in Austria this week-end.

The governing coalition between the center-left Social Democrats and the conservative People's Party collapsed in July after a shaky 18-month alliance that hit snags over tax reforms and EU policy changes.

Two rightist parties — the Freedom Party and the Alliance for the Future of Austria — won a combined 29 percent in Sunday's balloting. Both parties advocate an end to immigration and the expulsion of foreigners and asylum seekers who commit crimes.

In contrast, the People's Party and the Social Democrats had their worst showings since World War II.

Despite some news of probable far-right vandalism the truth is that the people of Austria have expressed more than anything else their dislike of that cosy consensus they have been fobbed off all this time; the consensus that is being presented to us all and the Americans as being a superior political system.

The response to the people's vote was predictable. The President has reappointed the government as caretaken, though this, as Forbes points out, is standard procedure in a country where every government has to be a coalition.

More to the point, as Wiener Zeitung reports, the broad left-right coalition that collapsed in July and has been defeated in the election, is being reconstituted under a new leader of the "conservative" People's Party, Josef Pröll. Right. So that's all that vote was about - a new leader for the disliked People's Party.

Political analyst David Pfarrhofer said a remake of the centrist coalition would have to show significant differences from the last to convince a public that came to despise it over the past two years. "Above all, the style has to change. There is a lot of discontent. People don't want quarrels, they want a government," he told Austrian radio.

The main parties have been hit by voter frustration over their bickering and concern at a looming economic downturn, inflation and immigration -- a mix which allowed the far right to make significant gains. But Pröll's appointment could mark a fresh start for the conservatives.

It is, of course, entirely possible that the people of Austria would like the political establishment to listen to what they are saying, which is clear enough. They do not like the ruling coalition and do not want it to govern. But what do they know? They seem dissatisfied with the consensus and that makes them baddies - almost as bad as those terrible partisan politicians in the United States who pay attention (sometimes) to the electorate.

As Edward Lucas says in today's Daily Telegraph, that cosy post-War consensus is coming to and end in many European countries and it is not necessarily a bad thing. Consensus is the antithesis of real democracy.

UPDATE: It seems that there was a very visible correlation between Representatives whose seats are in danger and the vote against the Bill.

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This might explain some things

On the whole I find economics either very hard to understand or something that is just a matter of common sense. As a consequence, I try not to write about it and this posting will not give you my (somewhat inadequate) opinions on what is going on.

Instinctively, I side with those people here and in America who are against the famous bail-out plan, which has undergone some minor restructuring. I am against nationalization of banks and more government interference in business.

Politicians, in my opinion, know very little about anything, even politics. They are full of envy of those who do know things and can do them. When they look at people in the City or on Wall Street playing around (as it seems to those in the Westminster bubble or within the Beltway) with billions of pounds or dollars, their hands start itching. Without understanding anything about financial matters they want to move in there and play with those billions themselves. What usually happens is a disaster.

Therefore, I have been quite interested to read ever more references to the Clinton-era Community Reinvestment Act and the pressure that banks and mortgage companies have been under to ensure that people who could not afford to buy their own homes should, nevertheless, be allowed to do so on loans they could never repay. It seems that the people who pushed this insane measures through are largely behind the bail-out now. Interesting.

An article on American Thinker gives a good summary; there are links and postings on Michelle Malkin's blog (she is, needless to say, vehemently against the bail-out); numerous references on Instapundit (Glenn Reynolds is less vehement but also sceptical); links and comments on the seriously non-vehement Volokh Conspiracy.

Make what you will of it all.

Another very clear expose from Roger Kimball. A supposedly right-wing friend railed to me toda about the Bush administration and how it has caused this disaster. I felt very smug when I pointed out that it was Clinton-era legislation that was at the bottom of it. Somehow, I do not think he was going to remember that till the next conversation.

Plus ça change …

Somewhat belatedly I got round to reading Eamonn Butler’s IEA pamphlet, "Adam Smith – A Primer". I cannot recommend it too highly both to people who have always meant to find out more about Adam Smith but never quite got round to it and to those who have read the great man but would like a little brush-up.

While I would not like to take away the pleasure of reading this work from anyone, I cannot help quoting Dr Butler’s summary of the main ideas in "The Wealth of Nations" and the harmful ideas that great work was trying to defeat:

The most obvious theme is that regulations on commerce are ill-founded and counterproductive. The prevailing view at the time was the ‘mercantilist’ idea that a nation’s wealth was the amount of money that it possessed. This implied that to become richer, a nation needed to sell as much as possible to others, in order to get as much coin as possible in return; and it needed to buy as little as possible from others, in order to prevent its cash reserves leaking abroad. This view of trade led to the creation of a vast network of import tariffs, export subsidies, taxes and preferences for domestic industries, all designed to limit imports and promote exports.

Smith’s revolutionary view was that wealth is not about how much gold and silver sits in a nation’s vaults. The real measure of a nation’s wealth is the stream of goods and services that it creates. He had invented the idea, so common and fundamental in economics today, of gross domestic product. And the way to maximise that product, he argued, was not to restrict the nation’s productive capacity, but to set it free.

Another central theme is that this productive capacity rests on the division of labour and the accumulation of capital that makes it possible. Huge effi ciencies can be won by breaking production down into many small tasks, each undertaken by specialist hands. This leaves producers with a surplus that they can exchange with others, or use to invest in new and even more efficient labour saving machinery.

Smith's third theme is that a country's future income depends upon this capital accumulation. The more that is invested in better productive processes, the more wealth will be created in the future. But if people are going to build up their capital, they must be confident that it will be secure from theft. The countries that prosper are those that grow their capital, manage it well and protect it.

A fourth theme is that this system is automatic. Where things are scarce, people are prepared to pay more for them: there is more profit in supplying them, so producers invest more capital in order to produce more. Where there is a glut, prices and profits are low and producers switch their capital and enterprise elsewhere. Industry thus remains focused on the nation's most important needs, without the need for central direction.

But the system is automatic only when there is free trade and competition. When governments grant subsidies or monopolies to favoured producers, or shelter them behind tariff walls, they can charge higher prices. The poor suffer most from this, facing higher costs for the necessities that they rely on.

A further theme of "The Wealth of Nations" is how different stages of economic progress produce different government institutions. The early hunter-gatherers had little of any value. But when people became farmers, their land, crops and livestock were important property and they developed government and justice systems to protect it.

In the age of commerce, as people accumulate capital, property becomes even more significant. But this age is populated by merchants who have much to gain from distorting markets in their favour and who have the guile to use the political process to help them. Competition and free exchange are under threat from the monopolies, tax preferences, controls and other privileges that producers are able to extract from the government authorities.

For all these reasons, Smith believes that government must be limited. It has core functions such as maintaining defence, keeping order, building infrastructure and promoting education. It should keep the market economy open and free, and not act in ways that distort it.

It is so very sad to think that all the problems that Adam Smith outlined as being barriers to growth and economic prosperity are still considered to be sensible policies by the European Union, by our own political establishment and by far too many people who know no better but think they mean well.

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May they enjoy it while it lasts

When you think of the miles of extruded verbal material produced by the "colleagues", extolling the virtues of their wonderful European "project", every now and again it is so nice to see a report which tells you, in no uncertain terms quite what a load of baloney it really is.

Courtesy of Tobias Buck, the Financial Times reporter in Brussels, we get precisely that, a report from Eurochambres, the pan-European business lobby, which tells us that the EU is still losing ground vis-à-vis its global competitors and that its economic development is only now reaching the level achieved by the US more than two decades ago.

The US, we are told, reached the EU's current level of gross domestic product per capita in 1985, the EU's employment rate and level of investment in research and development were reached by the US in 1978, and its level of productivity (expressed in GDP per employed) was reached by the US in 1989.

Furthermore, compared with the data in the first report published by Eurochambres two years ago, the time differentials have widened. The most drastic example is in R&D spending, where it has expanded from 23 to 28 years.

Some of this can be explained by EU enlargement in 2004, when ten less developed countries joined the EU, but it also reflects the fact that the US has extended its lead over Europe in many categories, says the Eurochambre report.

So huge is the gap that it concludes that: "Europe would need to register monstrous yearly performances to reach the current US levels by 2010," with an annual growth rate of more than 8 percent per year, just to equalise GDP per capita. Since this is not likely to happen – cannot happen - the study warns that the EU is progressing at an insufficient pace to really compete on the world stage."

The really crazy thing, though is we did not really need the Eurochambre report to tell us this – although it does help. The European experiment has long been failing, and it has been obvious to all those who have charted its progress for some long time.

In virtually every other field of human endeavour, the project also fails, so it is only through a sustained diet of self-deception that anyone associated with it can pretend that it has any merit. Even the Emperor has given up and gone to live in a nudist colony.

But there you go. We live in strange times, when nothing seems to be real any more, and nothing has much meaning. Thus it is, perhaps, we will see another Eurochambre report in a couple of years, and it will mark an even further decline. What it cannot and will not predict, however, is when the bubble will burst and reality will come sweeping in. But surely some time, this must happen.

Until then, self-deception rules OK. May the "colleagues" enjoy it while it lasts.

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