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Diogenes was right to value more than happiness
The Financial Times 27/01/12
The stretching of the term "happiness" beyond the area in which it is normally used is what is wrong with the happiness agenda so eagerly embraced by UK prime minister David Cameron and French president Nicolas Sarkozy. In opposition, Mr Cameron suggested we focus not just on GDP, gross domestic product, but on GWB, general well being. More recently he ordered the Office of National Statistics to investigate the possibility of a national happiness index. This is an instance of the way in which he (or his advisers) is irresistibly drawn to fashionable left-of-centre gimmicks but eschews genuinely radical measures such as stopping official support for arms sales or instituting a land value tax...more |
Capitalism still has no rivals
The Financial Times 13/01/12
My central case for competitive capitalism is that it is that it promotes personal and political freedom. A businessman, outside the financial sector, will prosper by providing what adults wish to have - even if that is pop records, candyfloss or nude shows rather than what our supposed elders and betters think is good for them. Above all the individual is free to use his abilities in line with his or her own choices. He or she can concentrate on personal pleasure, social service at home, the relief of poverty abroad or any combination of these and numerous other activities...more |
Now is the time to eat, drink and be merry
The Financial Times 30/12/11
Have you had a good time this Christmas with plenty to eat and drink and expensive toys for the children? Do you look forward to similar festivities on New Year's eve? Do you feel guilty about indulging yourself amid all the headlines about austerity? Well don't. Bear in mind the complaint of Alice: "Jam yesterday, jam tomorrow but never jam today"...more |
'More Europe' is a mindless slogan
The Financial Times 16/12/11
David Cameron's veto of the proposed new European constitution was the right decision, possibly for the wrong reasons. As has been explained ad nauseam, the British prime minister was heavily influenced both by the perceived need to satisfy his Tory backbenchers and by one interpretation of the needs of the City of London. It is difficult to say whether the proposed rules would have done more to promote much-needed banking reform or to harm the legitimate interests of the City as a top export earner and source of employment. But as the European Union has been lurching for years in the wrong direction, a line had to be drawn somewhere and this is where the opportunity arose...more |
A chancellor still wedded to wrong dogma
The Financial Times 02/12/11
It is in a sense difficult to argue with Mr Osborne. He sees government finances as akin to those of a corner shop whose outgoings must not exceed its incomings - the difference being that cost-cutting by the shopkeeper is unlikely to affect the prosperity of his customers. Others see the budget balance as a policy instrument which can, if need be, reinforce monetary policy in stimulating or restricting demand. It is not easy to find common ground between these approaches...more |
The Dictator's Handbook
The Financial Times 22/11/11
Review of The Dictator's Handbook: Why bad behaviour is almost always good politics
This is presented as a reader-friendly distillation of many years of research. Its basic insight is that to stay in power, a ruler has to distinguish between the nominal selectorate, the real selectorate and the winning coalition. The authors, somewhat confusingly, change their terminology from time to time. On the page after these groups are introduced they are renamed interchangeables, influentials and essentials. I am tempted to say that in the pre-Blair Labour party, the nominal selectorate was the party membership, the real selectorate the college of those who elected the leader, and the winning coalition the trade union leaders who counted for most. Maybe matters are different today, but events leading to the anointment of Ed Miliband as Labour leader makes one wonder...more |
Five simple steps to curing Britain's new depression
The Financial Times 18/11/11
The appointment of so-called technocrats to head the Italian and Greek governments make one wonder who would be chosen to head a technocratic British government if things came to such a pass. There is one clear candidate: Adair Turner, head of the Financial Services Authority. Mr Turner has written extensively on wider economic matters and has no clear links with either of the main political parties. We could do a great deal worse...more |
Morality and War
The Financial Times 05/11/11
Review of Morality and War: Can War be Just in the Twenty-first Century?
If I intentionally kill another person I will be subject to a long term of imprisonment or even, in some jurisdictions, the death penalty. But if I kill 1,000 people, I might receive a medal; or if a million, I might be promoted to field marshal or even president, provided only that those killed come from another side of a border in a state known as "war"...more |
Why I would have voted no in a Greek referendum
The Financial Times 04/11/11
Nearly all the action and discussion on problem countries and areas take the form of financing packages. And if such a package runs into difficulties another refinancing package is dreamed up. Moreover, nearly all the unofficial comment is on the same lines, with ever more ingenious insurance and leverage introduced. For those who like this sort of thing, this is the sort of thing they like. Meanwhile, those of us who were brought up think of international economics in terms of costs, prices and exchange rates are made to feel like dinosaurs...more |
Getting better all the time
The Spectator 22/10/11
Review of The Better Angels Of Our Nature: The Decline Of Violence In History And Its Causes
It has become a cliché that the great increase in material wealth over the centuries has not been accompanied by any corresponding moral advance. Human nature, it is said, remains the same - with the implication that much of it is pretty nasty. Here, however, comes a leading evolutionary biologist, Stephen Pinker, to claim that human violence has decreased over the millennia and centuries...more |
The splintered opposition to fiscal austerity
The Financial Times 21/10/11
What has a logical error to do with the economic doldrums in which many countries find themselves? Absolutely everything. The error in question is the "fallacy of composition". This is defined by the Oxford Dictionary of Philosophy as that "of arguing that because something is true of members of a group, it is true of the group as a whole". The application to economics is to suppose that the principles of sound finance, such as avoiding debt and balancing the books, that may apply to a family or small business are applicable to governing nations. Despite economic stagnation and rising unemployment, most industrial countries, with the honourable exception of the US under the Obama administration, are engaged in fiscal austerity. These programmes are likely to fail in their own budget-balancing terms because of their kickback effects on growth; but that is not the main argument against them...more |
Call off the misguided crusade against 'inequality'
The Financial Times 07/10/11
Before the credit crunch it used often to be said that the Right had won the economic argument and the Left had won the cultural one. But the Left had also appeared to win a third argument, the linguistic one. I refer to the use of the term "inequality" to signify differences in income and wealth. The implication is that equality should be the norm, deviations from which need to be explained...more |
Use the UK's state bank holdings to speed a recovery
The Financial Times 23/09/11
My alternative proposal is to use the state-owned banks as the nucleus of Mr Posen's proposed state lending bank for small and medium enterprises. Who knows what obstacles well-paid lawyers could think up? But in principle this could start next week. The main thing needed would be a Treasury directive to these banks to replace profit maximisation with a requirement to promote economic recovery. In practice this would mean that they would lend for projects which would be just below the threshold of viability in normal banking terms...more |
Where an Augustinian fiscal policy falls short
The Financial Times 09/09/11
St Augustine is known for saying: "Make me continent and chaste, but not yet." Nearly all the world's finance ministers stress that they want to balance their budgets, but over a period of years. The difference is between those like the UK's George Osborne and US Republicans who want to go fairly fast and those like the International Monetary Fund's Christine Lagarde and the UK shadow chancellor Ed Balls who want, in today's depressed conditions, to take longer. The slow motion brigade legitimately points out that too severe a fiscal austerity slows down or even prevents growth, which in turn makes budget deficits harder to curb. This is especially so when many countries are simultaneously imposing austerity packages. At times the argument seems to be between different strategies for deficit reduction. It would be interesting to have some econometric studies of the rival strategies for given countries and regions. We could even find different growth or no-growth paths yielding similar deficit results. Yet contemplating such an exercise shows how absurd the argument is...more |
Mistaken Marxist moments
The Financial Times 26/08/11
During almost every one of the periodic crises that affect mercantile economies, voices are raised saying "Marx was right after all". A few years ago Nicolas Sarkozy was seen ostentatiously clasping a copy of Das Kapital, while in recent weeks financial gurus, including Nouriel Roubini and George Magnus, have written articles referencing the communist thinker. When recovery occurs the cry vanishes, only to reappear next time there is a bust ... Marx has suffered not only from sycophants, but from critics who identify him with the Stalin dictatorship or even the regime of Mao Zedong. It is, of course, absurd to blame Marx, who lived from 1818 to 1883, for the crimes committed decades after his death. Indeed, the great man himself once said: "Whatever else I am, I am not a Marxist." Many serious analysts have written on what Marx meant or should have meant. I am not one of their number and my main excuse for giving my own highly selective take is that I have neither demonised nor worshipped the man...more |
Can complexity unmake civilisation?
Review of Government versus Markets: The Changing Economic Role of the State
The Financial Times 22/08/11
There are many people in the financial world and in the US Republican party (and more sotto voce in the German government) who believe that the worldwide explosion in government spending lies behind many of the recent currency crises. Whether or not this is true, the government spending trend is worth studying for its own sake. Far and away the best guide to this trend is a new book by Vito Tanzi, a former economic counsellor of the International Monetary Fund. If anyone claimed to have read the whole of this massive work, I would not believe them. But the beauty of this volume is that you can learn a great deal from sampling almost any handful of pages. And there are few, if any, equations...more |
First of all do no harm, then start thinking
The Financial Times 12/08/11
My first piece of advice is along the lines of the medical motto: above all, do no harm. It goes without saying that central banks in western countries should not raise short-term interest rates any further and if possible quietly rein them back towards near-zero. But the US Federal Reserve's semi-undertaking to hold rates until the middle of 2013 seems a pretty cack-handed way of doing this. Should there be more "quantitative easing" by the Fed or the Bank of England? That is a close call. Is it worth upsetting the financial markets which, however irrationally, distrust such measures in the absence of clear-cut evidence of what earlier rounds have achieved? A lesser, but still important, measure would be for the US Congress to end "the oligopoly of Nationally Recognised Statistical Ratings Organisations before they contribute to or ignite another financial crisis", as suggested by Bill Miller of Legg Mason Capital Investment. And above all we need more quantification and analysis of the derivatives market...more |
The euro is still far from out of danger
The Financial Times 29/07/11
During an enforced absence from column writing I tried to keep up with events - not so much by reading a vast number of books, analyses and speeches, which would have been incompatible with eating and sleeping, but by reflecting on what might have happened if Greece had not joined the euro in 2001. Similar reflections might apply to other peripherals such as Portugal but might need modification in relation to Spain, Italy and Ireland. The first thing to say is that neither the Greek government nor the Greek private sector would have been able to borrow for so long at German interest rates...more |
It is time for Britain's economy to buck up
The Financial Times 08/07/11
The relative decline of the British economy in the century up to the late 1970s has been reversed. Since then, the UK has caught up with and even overtaken its principal trading partners. The previous two sentences are neither a typing mistake nor a daydream. They are the sober conclusions of the country's leading quantitative historian, Prof Nicholas Crafts.* UK per capita output, which had fallen in 1979 to 86-90 per cent of German and French levels, was by 2007 1-6 per cent above theirs. There was still a gap compared with the US, but less than before. On a more subtle comparison of productivity in the market sector, the UK still lagged behind its main trading partners, but the gap had very much shrunk. Yet it was in just this period of improvement that an investigation of "British declinism" became a major industry among other academics...more |
Economics of Good and Evil
Review of Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street
The Financial Times 25/06/11
For Sedlacek economics is not - or at least not merely - a science with its roots in the north-western fringes of Enlightenment Europe; it stands, rather, at the heart of every philosophy and religion since the first civilisations arose on the Mesopotamian delta. His book, accordingly, is effectively a critical history of western thought. The author, a prominent Czech commentator who was an adviser to Václav Havel when he was president, uses the attitudes of various cultures towards getting and spending as a thread on which to link his reflections. Moreover, unlike most books with large pretensions, this one is beautifully written and at least for the first two-thirds I could not put it down or turn my mind to anything else...more |
Greece's euro exit can now only be a matter of time
The Financial Times 24/06/11
A Greek debt default, however disguised, is a foregone conclusion. More interesting is the fate of the euro. On November 5 last year, I wrote that Greece should and would leave the euro, but most certainly could not give a date. Little has changed since then despite the increasing complexity of the financial packages being negotiated to save Greek membership. It is time to look at what the UK chancellor Denis Healey used to call the real economy. Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. Even Portugal has a much lower increase than Greece of some 36 per cent...more |
Good servants can make bad masters
The Financial Times 10/06/11
The expression "good servants and bad masters" has been applied to so many things: technology, government officials, mathematical models and much else. Today I want to apply it to the financial markets. It goes without saying that we need mechanisms for channelling surplus savings into physical investment, for a second-hand market in titles to ownership, for shifting personal spending over time, for saving for old age, and much else. But when these markets become overextended to the point of determining the fate of governments it is time to call a halt. This is especially the case when the funds in question arise from artificially created money rushing across frontiers. To change the metaphor, it is the tail wagging the dog...more |
The follies and fallacies of our forecasters
The Financial Times 27/05/11
What do the Arab uprisings and the world financial crisis have in common? They seem very different subjects and are written about by different "experts". What they have in common is the complete failure of almost all these experts to predict them. This elementary point has not been well covered in the so-called literature on the origins of the credit tsunami. But it has been made very well in June's issue of Foreign Affairs by Nassim Taleb (of Black Swan fame) and Mark Blyth. "The critical issue in both cases is the artificial suppression of volatility in the name of stability," they write. One moral is that the US government should stop supporting dictatorial regimes "for the sake of pseudostability" and that a robust economic system encourages early failures. Alan Greenspan is criticised for intervening at the slightest sign of a downward tick...more |
Who is winning in the race for recovery
The Financial Times 13/05/11
It is far too early for a final assessment of the relative behaviour of the different parts of the industrial world in the recent nearly unprecedented recession, but it is not too early for a preliminary examination.If we look at the fall in output from the peak quarter before the recession in 2007 or 2008 to the recession trough and the recovery since then, the US emerges as the easy winner. The fall in output was slightly less than that experienced in the eurozone, the UK or Japan and the recovery has been much more impressive. It is the only one of the four main groups where output has recovered to above the pre-recession peak. You might think that the domestic American reaction would be one of rejoicing, but it is not...more |
Ancient Greek lessons for bank reform
The Financial Times 15/04/11
As expected, the UK's Independent Commission has provided a thorough analysis of the deficiencies of the banking system and of proposals for reform. It plunges straight into the current debate, but does not discuss in any depth the purpose of banking...more |
For good or ill, rentiers resist euthanasia
The Financial Times 01/04/11
It is time to turn to the low-rates-of-interest part of the formula. The fact is that low real rates - let alone the negative real rates that sometimes occur - are extremely unpopular with millions of people, not merely top-hatted financiers but small savers looking forward to retirement pensions or merely looking for a safe haven where their money will not lose its value too quickly. Many British chancellors have reported that despite media rage at interest rate increases, it is low rates that excite the greatest volume of protest...more |
Another growth strategy; politics as usual
The Financial Times 18/03/11
The UK government is "going for growth", ignoring sage advice that growth, like happiness, is best achieved by concentrating on more specific goals (advice given by no less a sage than John Stuart Mill). But then David Cameron, the prime minister, has also asked the Office of National Statistics to investigate the possibility of a "gross national happiness" index - following the lead of the Himalayan state of Bhutan. All of which puts me in mind of Karl Marx's saying that history repeats itself, first as tragedy and then as farce...more |
Why there are two kinds of conservatism
The Financial Times 04/03/11
There have been two kinds of answers over the past century and a half to the challenge of socialism by what, for want of a better term, might be called the centre-right. The first might be called the economists' response. This has been to emphasise the need for competitive markets, not only to provide incentives but also to decide what should be produced and by what methods; and in practice it has proved difficult to provide competitive markets without a high degree of private ownership. There is a second and entirely different response. This is to say that the various types of socialism are all theories about how to conduct politics; and the last thing we need are theories of this type...more |
Flat-earthers cannot see around the squeeze
The Financial Times 18/02/11
Mervyn King, the governor of the Bank of England, gave a remarkable estimate in a speech in Newcastle on January 21. This is that real UK wages in 2011 "are likely to be no higher than they were in 2005". He went on: "One has to go back to the 1920s to find a time when real wages fell over a period of six years." Yet so obsessed are the financial markets and those who comment on them with inflation that this statement did not receive the attention it deserved and was generally discussed only in the context of the Bank's overshoot of those wretched inflation targets...more |
Still they are fighting for dead men's shoes
The Financial Times 04/02/11
If Marx were alive today he would be 193 years old. Keynes would be 128. Discussions of what they would think today implicitly assume that they would have retained the intellect of their prime and adjusted their thinking to later events. How can anyone know how they would have done this? I first realised the absurdity involved when, as a student at Cambridge, I came across a lecture by the veteran economist A.C. Pigou entitled "What would Alfred Marshall have thought of current developments in economics?" Marshall was a quintessentially Victorian figure who founded the Cambridge school of economics, and who died in 1924. Milton Friedman remarked to me that Pigou had simply not understood modern developments. Would it not have been simpler if Pigou had simply made his own observations and argued them out with Friedman?..more |
The 'inflation nutters' are only half right
The Financial Times 21/01/11
Media commentators and business analysts in the old industrial west are locked in combat. The "hawks", who have, mostly but not entirely, a financial orientation, point to the upward creep of inflation indices in the UK and some European countries, including even Germany. They also point with alarm to the central banks' indulgence in quantitative easing, which they castigate as "printing money". One of the semi-hawks, Jean-Claude Trichet of the European Central Bank, has, however, tried to draw a distinction between official funds injected to safeguard the banking system and the overall stance of monetary policy. But he is in line with the fully fledged hawks in arguing for acting soon, before inflationary expectations have taken hold and the cost of a cure has become very much bigger...more |
Look behind the myth of global imbalances
The Financial Times 07/01/11
Nigel Lawson was the longest serving as well as the most controversial of Margaret Thatcher's chancellors. His inaugural Adam Smith Lecture (reprinted in the January issue of Standpoint) shows him true to form. It is entitled Five Myths and a Menace. His menace is - or should be to Financial Times readers - the least controversial of his assertions. It is that of a "recrudescence of protectionist sentiment that threatens to repeat the disaster of the 1930s". The "myth" on which I wish to concentrate is his fifth - that big current account imbalances are unnatural and dangerous. He is broadly right, but the argument needs to be taken further...more |
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