Killing jobs and stifling economic growth

There is an article by Richard Epstein on the usual array of labour market recommendationts that always appeal to the economically illiterate.

The constant uncertainty about taxes and regulations is a deal-killing transaction cost that produces no collateral benefits. So long as macro-economic policy remains fixated with moving all the levers at once in different directions, it will act as a drag on the marketplace. Stability of expectations is key to a strong macroeconomic market.

The same mistakes are now very much at work in labor markets, where they do more than their fair share to increase the high level of unemployment. The dominant, though mistaken, attitude is perfectly captured in a letter by Risa Kaufman, the Director of the Columbia Law School Human Rights Institute, who claims that ‘the United States’ failure to enact meaningful protections enabling workers to accommodate the demands of work and family is not only out of step with countries around the world, but it is also counter to international human rights standards.’

These human rights people find work to do everywhere they turn. Anything that makes life a bit tougher than someone might like is becoming a human rights issue which seems to be some kind of international disease. But every solution Ms Kaufman suggests will only make matters worse for the unemployed, and for the employed as well for that matter. As Epstein writes:

What theory of human rights finds a moral imperative in killing jobs to satisfy some abstract and noble ideal?

What’s the theory. The theory is that every problem is caused by someone doing something and that if they stopped doing whatever it was that was causing the problem, the problem would go away. They are not killing us with kindness, we are being killed by their ignorance and stupidity, but it’s nice of them to wish that things were better than they are.

My 300th post

It is quite extraordinary that I am now putting up my 300th post since September 23rd. Not that anyone reads it nor have I made much of an effort to get anyone to read it. But I have sent links to a few people and on good days there may be as many as a dozen people who have looked in. So I should mention a couple of things about this website in case you are one of those who have stumbled across this by accident.

I am doing this just for fun and so what will never happen is that I will allow comments. There may be ways round that but whenever I have been asked to approve a comment I have rejected whatever it was. I read them and I appreciate them but I am not going to have to patrol this website for negativity. I get enough of it elsewhere that I can do without it here.

This is also written as a kind of scrapbook so that I can locate things again. I see things on the net or elsewhere so I write them up and there they are preserved if I want to go back to them. I have been able to use these in writing a couple of published articles so it has come in handy.

But thus far I have only a single reliable reader who comes back to see what I have said – hi again, Joshi – so it makes me happy just to know I am in touch with him. But if anyone else finds this worth a moment of their time, I am very glad for that as well.

Keynesian insanity reaches a new peak

You want proof that Keynesian economics is insane. Well, here it is. From The Telegraph in London:

Savers should stop complaining about poor returns and start spending to help the economy, a senior Bank of England official warned today. . . .

Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.

They should ‘not expect’ to live off interest, he added, admitting that low returns were part of a strategy.

It’s the strategy to discourage saving! What complete fools.

If there is any “strategy” more calculated to make economic conditions worse than they already are, a campaign to reduce private savings would be hard to beat. If you think like a Keynesian that an economy is driven by aggregate demand, then you must think that saving is in and of itself a problem when the economy is in recession. And this is not just some poor sod academic jerk somewhere off in Hayseed-on-Thames Polytechnic but a Deputy Governor of the Bank of England with the full support of the Governor, Mervyn King, himself!

Stupid beyond idiocy. Criminally negligent. Infuriating.

Want to know just how insane this is and also what to do instead? First read the article and then read Chapters 16 and 17 of my Free Market Economics which so far as I know may be the only introductory level text anywhere that will explain to you what you need to know.

And now from another BoE D-G: These people really are nuts. It’s their economic models, of course, but how can we protect ourselves against such moronic views.

Negative interest rates could become a reality in an ‘extraordinary’ move by the Bank of England to kick-start the economy, one of its senior officials revealed yesterday.

Deputy governor Paul Tucker said a reduction of the base rate to below zero should be considered four years after it was cut to a record low of 0.5 per cent. . . .

If the base rate did become negative, it would mean major banks would have to pay the Bank of England to hold their money. The idea is that this would encourage them to lend more to stimulate both business and house buying.

I start with the assumption that this is so obviously wrong that merely putting it up on the page is enough. Everyone can immediately see why lowering interest rates to inhibit saving – even going so far as introducing negative interest rates! – cannot be anything other than bad news. But after three-quarters of a century of Y=C+I+G we may well have reached the stage where virtually no one with an economics degree understands how an economy works. Really, how are we going to get out of the mess we are in if these are the best ideas those who are managing our economies have to offer.

Higher inflation will continue to be the monetary tool of choice

There is such an absence of articles such as this one with the very engaging title The Keynesian Depression that I am always astonished to find one. They virtually do not exist, although there ought to be enough material for hundreds. I cannot say that I am particularly enchanted by this particular article since it seems to base its anti-Keynesian views on Keynesian arguments and it a curiosity that it was only in 2012 that they began to notice that the US could not expect to rapidly emerge from the recession that began in 2008. You do have to wonder what their first clue was. But here at the centre of the article, we find the theoretical core, to the extent there is any explanation at all for what happened.

In an October 2012 whitepaper, Reinhart and Rogoff re-emphasized their findings that the U.S. cannot expect to quickly emerge from what occurred in 2008. They point out that 2008 was the first systemic crisis in the U.S. since the 1930s so the consequences have been much more significant than fall-outs from normal recessions.

The most important question for investors concerns how public sector debt levels, which have risen exponentially over the past half-decade, will ultimately be discharged. As Reinhart and Rogoff discuss, there are three options to reducing debt levels. The first is restructuring, also known as default. For obvious reasons this is painful and typically avoided except under the most dire circumstances. Governments can also pursue structural reform, which in today’s case would mean greater austerity. Implementation of this would stand in stark opposition to Keynes’s recommendation that the fiscal and monetary spigots be kept open during hard times. Although tightening is arguably the best long-term path, it appears unlikely that it will be the primary policy of choice in the near future. The third method, toward which I see global central bankers drifting, is to keep interest rates artificially low and permit increasing levels of inflation in the economy [My bolding].

Pushing down the cost of borrowing and allowing the price level to rise is known as financial repression. The real value of debtors’ obligations is reduced by financially repressive policies. . . .

Financial repression is nothing new. Between the 1940s and the early 1980s, the United States reduced its national debt from 140 percent of GDP to just 30 percent while continuing to run sizable deficits. The difference between then and now is the magnitude of the debt mountain on the Federal Reserve’s balance sheet that will need to be eroded. A subtle shift has begun in which policymakers are starting to think of inflation as a policy tool rather than the byproduct of their actions. Despite Keynes’ warnings, it appears that higher inflation will continue to be the monetary tool of choice for central bankers tasked with cleaning up sovereign balance sheets.

Let me merely say you’ve been warned. The plan for governments, as described, is to inflate their way out of debt. Well, at least it’s a plan which is more than they have at the minute.

The fundamental bedrock non-negotiable principle of the way we live

Look at the video below and answer the following question: which of the people shown should be prosecuted:

  1. The speaker
  2. The man who left the meeting
  3. Both
  4. Neither
  5. I don’t understand the question

Which leads me to the column today in The Australian by Professor Gillian Triggs, the president of the Australian Human Rights Commission. She is concerned about this:

Many of these commentators have been particularly concerned with the 1995 law making racial vilification an offence under the Racial Discrimination Act. The offence applies to conduct likely to ‘offend, insult, humiliate or intimidate’ a person on the grounds of race.

I have my doubts about whether there are very many concerned about this at all although there may be some doubts about judicial interpretation of the Act. As I wrote at Quadrant Online:

Free speech is about open debate about every single political issue. I agree that personal statements, individual to individual, can be a danger to social cohesion and may therefore in certain circumstances be unacceptable. There may well be a need to have limits on such personal remarks where they are made merely to wound someone else. These kinds of limitations should be very carefully identified and the social utility of limiting this kind of free speech should be broadly discussed and consensus of some kind reached. It should only be personal statements, those directed at individuals, and there should be no ambiguity about what is illegal since the law should be very precise about such matters. I am not fully convinced of this but there is certainly a case to be made.

Abusing individuals for any of those matters found in the international covenants she has discussed is wrong and there need to be protections against such forms of abuse. But that needs to be distinguished from this, which is also part of that same Quadrant Online article:

But [abusing individuals] is not what we are talking about. We are here talking about the right to discuss politically charged issues in a public space, issues that often are part of our parliamentary debates, and these should be as open to free a discussion as it is possible to have. That is what freedom of speech means and absolutely nothing else will do.

The example Professor Triggs gives is about someone who had denied the holocaust. Put it out there, I say, have people say it in public if that’s what they think. Since we live in a post-modernist world where every form of idiocy is believed by someone, the only form of protection we have – and I stress this, it is the only form of protection we have – is allowing such views to be stated in public so that others can put their contrary views in public as well. She doesn’t say what the outcome of the case was when the HRC came across this particular Holocaust denier – although it does seem clear that this chap was convicted of something – but if they prosecuted and worse, if they won the case, freedom of speech in Australia suffered a major setback. I wonder if Professor Triggs can understand why that is.

And to repeat, it’s not that I think free speech is a guarantor of truth. Nothing is, and when I hear some of the ideas spoken of today, it terrifies me to think which of these might become mainstream over the next 50 to 100 years. You never really do know. But the only hope we have of keeping the open society we have is by maintaining an open society, and to maintain an open society as the fundamental bedrock non-negotiable principle of the way we live.

Speaking freely

Individual rights and personal liberty is not a law of nature but is a hard won outcome of centuries of debate and conflict with the result that a few very fortunate places on the planet now have an inherited and legislated right to say in public what they please about any public issue. It is a set of circumstances that can disappear because the one certainty is that governments – the people with political power – never like it. And they are the very ones most capable of denying the rest of us the right to have our views put in public.

Liz Broderick is a Human Rights Commissioner and her interview on the ABC the other day with Tim Wilson has had a bit of comment made about it but what really struck me about what she said was this:

We are a vehicle for those people who are marginalised who ordinarily would never have a voice in this country to step up and have their say about things.

Human rights is not about “the marginalised” whatever that might be. This is a product of the usual leftist mindset where some individuals are seen to have power and the rest of us are at the periphery somewhere. The example she gave of those who have been marginalised are the aged. I’m do in any way understand why being old is a form of being on the margin but that is by the way. It is not contrary to our human rights to find ourselves getting old and it is not the role of the Human Rights Commission to worry about whether the aged are able to have their views heard although apparently according to Ms Broderick this is an issue that is now well in hand. I have an article, “If I May be Allowed to Speak Freely” at Quadrant Online that addresses what I think the role of a Human Rights Commissioner should be.

But now that the problem of free speech amongst the elderly has been resolved, how about dealing with some other issues, such as, perhaps, the attempts by the present government to limit free expression through the media. Or about some of the vile and repulsive statements emanating from some of our new Australian minorities. Or defending the ability of journalists to make observations about the manner in which government grants are distributed to those who might not have been the actual intended recipients as originally conceived.

We are in dangerous times because there is so little appreciation of what is at stake since change is taking place incrementally. The right to debate any and every public issue is different from a licence to abuse individuals. We should make sure we all understand the difference and guarantee our right to say in public anything we believe is relevant about any and every public issue.

A meditation on the nature of economic advice

car parts

My son sent me the picture with the following note:

I just came across this photo today and it’s actually how I’ve always thought of your economics. In particular, if someone pours money into the manufacture of cars (for example), and it’s not value adding, there are all these other companies that feed into the process (i.e. the parts manufacturers) that will eventually get hurt as well, and then the economy as a whole.

This is what we mean when we talk about the structure of production. Producing a car is the work of an economy with many different producers of inputs all across the economy, and where each of these producers also has the same need for inputs which are also spread across the economy.

When government indulge in their wasteful spending, it is not just the end products that are produced but they distort the structure of production so that all of the inputs into their non-value-adding forms of production also get produced. When the ability to finance these valueless activities is finally exhausted, it is not just the final government demand that is wound back but so too are all of the inputs down the line. The economy may have looked good for about a quarter or two but it was a delusion that gets discovered soon enough.

The other aspect my son does not touch on which is also crucial to understanding how an economy works, but which is almost never mentioned by most economists, is that every one of these inputs was a premeditated form of production that did not spring spontaneously into existence. Each was the product of a decision by someone somewhere to produce these various inputs and was a decision made well in the past before the car assembly began. The notion that aggregate demand is what drives an economy rather than the premeditated directives of entrepreneurs whose production is entirely financed by the economy’s stock of savings is wilfully inane. Yet this is what we teach and such shallow concepts are now the stock and trade of the entire profession. It is no wonder economic advice is so dreadful when economists never actually learn how an economy actually works.

Freedom of speech

I’d like to put in my own take on Human Rights Commissioner Ms Broderick and her desiccated view of human rights and freedom of speech. This is from her opening statement at the ABC:

We are a vehicle for those people who are marginalised who ordinarily would never have a voice in this country to step up and have their say about things.

What training do these people have? What is the basis for one’s appointment? What previus learning, scholarship, knowledge and study are required to sit in such exalted positions? Most importantly, has she studied the great defenders of freedom in the past: Spinoza, Voltaire, Mill. Listening to her shallow maunderings was an insult to our intellectual history and to the history of free thought and free speech.

I have news for Ms Broderick. Freedom of speech is not about protecting the “marginalised”, it is about protecting everyone. If her example is the best she can do – focusing on the ability of the elderly to find a voice – well that must take some bravery. Who knew that the elderly were not permitted to speak up and say what they pleased. Good to know that she is so on the job in handling this no doubt very difficult problem. There must be a mountain of opposition to their efforts.

But now that the problem of free speech amongst the elderly has been resolved, how about dealing with some other issues, such as, perhaps, the attempts by the present government to limit free expression through the media. Or about some of the vile and repulsive statements eminating from some of our new Australian minorities in reference to other Australian minorities. Or defending the ability of journalists to make observations about the manner in which government grants are distributed to those who might not have been the actual intended recipients as originally conceived.

That, I fear, would be a bit trickier. It would actually require someone to have a philosophical position about freedom of speech and not some ambition to ensure that the marginalised be encouraged and enabled.

But since she got into this and did give us this one example of the elderly, why does she not give us others? Who are these marginalised who are unable to speak out? What is it they wish to say that cannot be said? Why does the HRC not publish these things on their behalf so that we can all see the kinds of statements we are being deprived of. Let’s get these suppressed statements on the record, the ones it is now impossible for these people to make.

She mentioned some European Senator who had been given a visa and allowed to speak. Well, whoever it is must be saying some very shocking things, but if she is so keen to ensure that such speech is given an airing – which is what freedom of speech is about – then why does the HRC not publish this person’s views and put them up on the HRC website. Do it for everyone and not just this Senator. Identify all of those suppressed views and publish them yourself. Then what revenge we would have on the people who are trying to stop their statements from being made because now rather than stopping them, they will have caused those views to have a public platform. That would fix them.

Instead, I fear, the aim is merely to stop non-politically-correct statements from entering public debate. I may be wrong about this, but that is often how it looks. There is the usual leftist position on everything and those who makes a statements outside those permitted bounds are likely to have their right to free speech cut out from under them.

Free speech is about open debate about every single political issue. I agree that personal statements, individual to individual, are dangerous and unacceptable with a need to have limits on such personal remarks made merely to wound someone. But that is not what we are talking about. We are here talking about issues that might well be part of our Parliamentary debates being open to as free a discussion as it is possible to have. That is what freedom of speech means and absolutely nothing else will do.

Update: Michael Ledeen also discusses free speech in a post titled, Shut up or I’ll kill you. Interesting article of which this is a representative sample:

Free societies are so much more productive and creative than the others in large part because of open debate, just as scientific discovery demands testing all manner of hypotheses. Once you lose the habits of the free mind, it extends to all areas of endeavor. Stifling free speech crushes creativity in all areas of life. And once the censors get their teeth into us, there’s no stopping them.