Friday, October 17, 2008

A week (or two) of it, at NOT PC

A busy week here at NOT PC, mostly trying to make sense of what's happening to the world's economie and trying to explain how the "experts" are already making it worse, and party leaders and talking heads would do if and when they could.

Here are the posts that you, the readers, ranked most highly over the last week:

  1. Alleged economist wins Nobel Prize
    "Determinedly uninformed" "professional bleeding heart 'liberal'" Paul Krugman gets the award for earlier more rational work, but is feted most widely for his high-profile present gig as a promoter of "the alleged horrors of economic freedom."  So say the commentators.
  2.  'One-day wonder' market correction
    After the single- biggest monetary inflation the world has ever seen, a magnanimous golden shower in which all the world's bankers have been drenched, stock markets went up.  For a day. Like the title says...
  3. Explaining the "credit crunch"
    Mainstream economists and mainstream commentators think all will be well just as long as the credit spigot at the central bank remains turned on full blast -- but since they've never truly understood where credit actually comes from, which is real savings, they have no idea where it's gone now it seems to have vanished. But George Reisman does.
  4.  No indeed, Minister
    When Michael Cullen wanted to meddle with the NZ Super Fund, National supporters said it left Cullen looking "looking more like Muldoon by the minute," and called it "a defining election issue." So what do they say now John Key wants to meddle with his own 'Dancing Cossacks' planSee here.
  5. Everyone has a voice
    So who speaks for taxpayers when all the election bribes are being handed out? Anyone?
  6.  Message to National: Stop the spending
    A message neither heard, nor understood: When the economy is bailing, get the hell out of the way.
  7. Clark and Key 'agree' plans to prop up the banking system
    There are seven things governments can do to stifle economic recovery ... and both big parties are planning --and doing! -- them all.  Go figure.

So there's a fairly common theme there, don't you think? No, art and architecture have hardly had a look in here in recent days (though we have been posting some crackers) but when the winds of parlous economic times are blowing around your ears, looks like the primary interest lies in hunting down a supply of decent head-scarves -- as this week's Objectivist blog roundup over at Rational Jenn's also demonstrates.

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'One lesson' for all the squawking heads

Well, that workedAgain. The world's political power-lusters and so-called financial experts are ferociously bailing out and bailing out, and each time they bail the leaks in their creaking fractional reserve system only get bigger and the markets give their own short-term assessment (either up or down) and medium-term estimate of their success:  they keep going down. 

And meanwhile they sacrifice any chance of long-term prosperity by the short-term hope that something they might do now may somehow have some effect that lasts longer than tomorrow's headlines.

But it can't.  As I said before, they're pouring billions of dollars down a black hole of failed (macro)economic theory.

Feeding financial failure today with more and more paper in the expectation of success next week is like feeding a whale a tic-tac in the hopes he won't swallow you instead.  It's the wrong treatment for the wrong symptoms, and fails to address the cause. 

cartoon120810_60305aoct12 No wonder they all look like chickens with their heads cut off.

There was a  time, back before Paul Krugman got a job there as a columnist slagging off capitalism, when the New York Times economics commentator not only understood the most basic lesson of free market economics -- a lesson that today's "financial experts" seem oblivious to --but he also wrote a book about it called, simply enough, Economics in One Lesson.  The one lesson delivered in that 1946 book, written by then-Times editorial writer Henry Hazlitt is thisTreasury Secretary Henry Paulson needs to read this book.:

the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Read that again.  "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." That's the lesson -- simple in essence, but profound in its implications.

Scott Kjar delivers Hazlitt's lesson for today's "experts" here.  In short, if they looked beyond their noses they would discover a. that their "bad credit" will only drive out good producers, and b. that the argument that the government is somehow pumping new capital into the market is absurd --

    Government is actually borrowing the money from the capital markets that it is in turn injecting into the capital markets. There is no additional source of funding; there is only a diversion of funds from more-productive outlets to less-productive outlets, with government acting as the middleman.
   
So when Henry Paulson argues that it is necessary to pump money into credit markets to prevent them from freezing up, he doesn't bother to realize that the money he pumps into the credit markets is coming directly out of the very same credit markets. He is doing little more than rearranging the deck chairs on the Titanic; shuffling the money from one set of financial intermediaries to another does not increase either liquidity or solvency. It merely delays the problem for a few brief moments.

Paulson and Bernanke and their European confreres are running faster and faster just keep going backwards -- as they will until they learn the fundamental lesson taught to succinctly by Henry Hazlitt over sixty years ago.

NB: Just to help you learn and apply the lesson yourself, the Mises Institute has posted a series of twelve video interviews with leading Austrian Economists, one interview for each chapter.  Take time over the weekend to listen and learn.  George Reisman's Minimum Wage Laws in particular is a classic.  They'd love it over at The Sub-Standard blog, where they call for a huge hike in the minimum wage at the very moment when we're all about to plunge into depression.

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Rescuing defeat from the jaws of recovery

In the thirties they were called "public works projects," massive spending on which dragged resources away from productive enterprises and delayed the necessary recovery for years.  Now it's called "investment in infrastructure," and while the buzzwords have changed, in a time of economic crisis the two big parties have both hung their hats (and our heads) on the same old failed nostrum -- big spending on big public works projects --  to get us out of the economic mire.  Spending that can only be paid for out of ten years of borrowing.

So much failed thinking in just one shared policy. 

Meanwhile, one of only two NZ finance ministers to pull NZ out of a previous economic mire is now going in to bat at this election with a policy to keep growing the state, while cutting the money that pays for it -- meaning the inexorable reek of deficits emanates from this source as well.

So much for radical solutions to real problems.

A while ago I made some excellent points (if I say so myself) that public "investment" in infrastructure:

  1. sucks capital away from profitable private investment ; and
  2. since real infrastructure investment repays the investment whereas public investment doesn't,  government spending on infrastructure is essentially consumption spending.

To say nothing of what government-borrowing to pay for deficits does to bid real capital away from businessmen and entrepreneurs -- the ones we actually need to grow the economy.

To illustrate this point again, an avid reader (whose initials might be A.B.) has sent me an excerpt from one of the investment papers he analyses for a publicly-owned European rail infrastructure organisation. He says that in such papers there is a note saying that "Net Present Value & Internal Rate of Return analysis is not applicable for Socio-Economic Projects."

Forget the jargon (I did), but do note the package deal: "Socio-Economic Projects," as opposed to actual economic projects.

In other words, when you're analysing real infrastructure investment you should expect it to repay the investment; whereas when you're examining "socio-economic" projects you should expect to see your money poured down a black hole -- but with some really colourful excuses to explain why.

For example, a UK railway line (for which a higher speed main line & a motorway already exist as alternatives) was previously closed -- by a government body -- just for sheer lack of use.  No chance at all then that any "investment" in such line would do anything other than use up the resources "invested" in it.

But that's when you look at real economics.  In the fantasy world of "socio-economics" in which reality has been suspended, an analyst can read the following benefits of "socio-economic investment" in such a line:

  • To improve direct access to labour markets in BigCity1 and BigCity2 for people living in Hicksberg and Wopwopsville.
  • To stimulate the economic growth of the Hicksberg and Wopwopsville Council areas by improving the connectivity of the area and thus encourage inward investment.
  • To assist in the delivery of social inclusion to communities in Hicksberg and Wopwopsville, particularly in the Smalltown to Smallertown corridor.
  • To contribute significantly to increasing the number of people using public transport in Central Socialistland and to provide these people with direct access into the national rail system.
  • To offer a sustainable public transport alternative to the local motorway that will be attractive to car and other vehicle users and thus reduce the rise in road congestion and subsequent environmental impacts.
  • To facilitate connectivity between existing services thereby creating a viable alternative to the BigCity1 - BigCity2 main line route, and consequently alleviating congestion during the peaks.

And the price of delivering all this "social inclusion" and other politically correct benefits? The local currency equivalent of $1.07 billion NZ dollars!

We should take comfort that it at least makes FailRail look cheap (and we can see where Jeanette Fitzsimons and Mike Lee get their "analysis" from). But this is what happens when politicians direct investment instead of entrepreneurs: they chew up real resources that could have been used to make everyone better off.

That's NZ$1.07 billion that entrepreneurs won't get to invest profitably. It will go instead to:

  • bid up the prices of public works contractors, bidding them away from profitable work elsewhere
  • bid up the price of building supplies companies, bidding these materials away from profitable work elsewhere
  • paying large sums to adjacent land owners for access to land worth virtually zero
  • paying the exorbitant fees and levies of the local environmental protection agency, the national waterway protection board, the local heritage protection agency (not to be confused with the national historical preservation agency, who will also be consulted); and a host of other consultants my correspondent's employers will retain to represent them in dealing with all those agencies.

And of course, since this project has been publicly announced and touted by politicians, it is work that "must be done" -- without delay! -- and so the amounts of taxpayer money handed over for the aforementioned works, access and consulting will be far above amounts that a private investor would pay.

Now, aren't you glad the Red and Blue Team are going to beef up the RMA to make "work of National importance" easier, and increase public "investment" in infrastructure. The NZ Contractors' Federation sure is ...

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Never mind the results, you can just feel the power

The total bill for the US bailout package, which started at US$250 billion only four weeks ago before the headline figure of US$750 billion was added on, "comes to $2.25 trillion, triple the size of the original $700 billion rescue package. 

Money spent buying up "distressed assets" so that (given the laws of fractional reserve banking) banks can manufacture credit worth around ten times that amount-- which, the "experts" vainly hope, will end the credit crunch.

Money spent partially-nationalising banks by buying up their shares -- even if some of the stable banks themselves don't want a bar of the plan:

    The chairman of Wells Fargo, Richard Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages, and did not need a bailout...
    Why, you might reasonably ask, would the government twist executive arms when they know that several around the table had no need of the money? For the simple reason that the dictators are concerned that if the stable banks didn't accept the money, the weak banks would be revealed for what they are: weak. That, they fear, would upset their plans.

There is a reason that in some circles Treasury Secretary Henry Paulson's nickname is "Mussolini."

Where does the money come from? Essentially it involves us lending the money to ourselves so they can lend it back to us in interest, or in bankers' talk,

    the US government is going to have to churn out bonds and simply print money on top of that to cover the cost of its continuing bank rescues.

Analysts at Pimco, the world’s largest bond manager, say 

"It is a fair bet other countries engaged in socialising bank losses will have to do the same."

With the result being "devalued bonds and debased currencies," a world "headed for higher inflation and rising long-term interest rates."

The real payers will be all those who bear the costs of this impending inflation and interest rate explosion – in other words, just about everyone.

This is the result of people doing "something," simply because they've heard that something must be done. 

Will it work?  Not economically.  But as Arnold Kling says, that's the wrong question.

Whether the economy needs a "plan," or whether the plan will help the markets, is beside the point. The plan serves to consolidate power...  This American Mussolini has captivated Washington by demonstrating the exercise of raw power.

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From the Bloomberg news ticker...

ATT1977741

Thursday, October 16, 2008

Lying National Socialists

Talking about "that" TV debate yesterday I mentioned one of two questions that particularly interested me:

  Shane Taurima asked Key to clarify his policy on abolishing the Maori seats, which Pita Sharples maintains Key had indicated privately was up for grabs -- something suggesting some kind of mendacity in the public policy. I found Key's response on this unconvincing, and unclear.  Waffle designed to obfuscate.

Apparently Key's response interested Pita Sharples too:

    Maori Party co-leader Pita Sharples maintains John Key told him Maori seats would not be abolished if National went into government with the Maori Party, despite Key's denials on a TVNZ leaders debate last night.
    Mr Key was asked yesterday whether he had told Mr Sharples privately he would drop National's policy of abolishing the seats sometime after 2014 as the price of Maori party support, and said Mr Sharples was "wrong."
    However Mr Sharples will claim tonight on an Alt TV minor parties debate: "I was not wrong."
    Mr Sharples said he had explained his bottom lines to Mr Key, who had agreed with them.

Like I said back when this first came up, , National's Maori Affairs policy suggests "either a few problems for the talked-about deal, or a few problems with the honesty of National's policy commitments...

"...this looks like talking out of both sides of the mouth, doesn't it. Promising something in public to the electorate that [their] electorate wants to hear, while in private promising the Maori Party precisely the opposite in order to keep them on side."

Looks even more like it now, doesn't it.  The National Socialists can't even lie straight in bed.

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Sound as a pound in the ground?

If there was a standard for irony Dominic Lawson would have just violated it.  Dominic's dad, Nigel Lawson, was the Chancellor who so inflated Britain's money supply in the mid-eighties that the bust his boom created lasted nearly five years.  Lawson pere may not be an advocate of sound money, but Lawson fils sure is.

In the Independent newspaper he writes of Gordon Brown's bailout --

    When Governments spend vast sums of money to shore up the banking system, you just know that it would be all too convenient for it to let inflation erode the national debt incurred in the process. Even before these gigantic expenditures, Britain's true level of national debt, according to the economist Liam Halligan – the Government won't give the real figure including off-balance sheet liabilities – is over £1,300bn. This is equivalent to £50,000 per household. Perhaps Gordon Brown might call it "imprudence with a purpose" – he dumped Prudence some time ago, although he kept on telling everyone that they were still an item.

-- and concludes with a paean to sound money, and to the man who more than anyone else was the twentieth-century's leading advocate of sound money:

    There is, however, a small band of men and women ... who can now say: "We told you so." I am not referring to the Communist Party of Great Britain (Marxist-Leninist). No, I'm talking about the followers of the great Austrian economist Ludwig von Mises (1881-1973). in his 1912 work, The Theory of Money and Credit, Mises declared that the corruption and distortion of money by the state and bankers ... was the principal cause both of inflation and – to coin a phrase – boom and bust...
    As the chief economic advisor to the Austrian government in the 1920s, Mises put his theories into practice and slowed down inflation in his native country (which, as a Jew, he later fled). He used his "cycle" theory to forecast that the "New Era" of apparently permanent prosperity in the 1920s was illusory, and that it would end in runs on banks and depression: The Wall Street crash of 1929 was exactly what Mises had predicted.

And the Misesians predicted the present crash as well -- as you can see by checking the 'Who Predicted This?' section of the Mises Institute's Bailout Reader.

    Mises' followers insist that the present problems in the economies of the West have not been caused by laissez-faire, but by the opposite: politically sensitive central bankers so desperate to prevent any stock market slump that they cut interest rates to a level which turbo-charged the debt markets. So when George Osborne, as he did yesterday, declares that "laissez-faire is dead", the Mises-ites – one of whom is the libertarian ex-Presidential candidate, Congressman Ron Paul – would protest that such a policy was never tried in the first place...
    The Government will insist that it is no time to be debating economic theories and the origins of this crisis – that we should simply do what we can to inject confidence back into the system. Professor Polleit sees it differently: "A proper diagnosis is necessary before you know the right remedy. Your Government – and others – are dealing with the symptoms but not the causes." As any doctor will tell you, that is not in the patient's long-term interest.

Read (and reflect on) the whole piece here.

UPDATE: Liberty Scott spotted this great satire on Gordy's bank bailout: British banks to lend you your own money

Satirical website Daily Mash has an excellent take on the UK government's recent welfare subsidising nationalising handout to banks:
"THE government is to invest £500bn of your money in British banks so they can lend it back to you with interest"
The best line has to be this:
"Meanwhile, Emma Bradford, a sales manager from Bath, said: "Why doesn't the government just give my money to me so I can buy stuff from businesses who will then make a profit and put it in a bank?"
But Mr Darling insisted: "Shut up.""

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Nanny loosens builders-apron strings ever so slightly

It doesn't happen often, so let's praise it when it does.  Nanny just stepped back a few inches:  "New Building Act exemptions mean fewer projects require building consent." Don't get too excited however, it is only very few inches:

The types of building projects not requiring building consent have been increased due to new changes to Schedule 1 of the Building Act 2004.

Effective from 16 October 2008, the exemptions are part of a range of government initiatives to streamline the building and consent process by removing work of a low risk or minor nature from the consenting process.

Examples of building projects which no longer require a building consent include:

  • Removal or alteration of a wall that is not a structural or bracing element.
  • Awnings, pergolas or a veranda over a deck (15 sq m maximum).
  • Installation or replacement of windows, exterior doors or roof windows, provided that structural elements are not modified.
  • Alteration of dwellings to improve access for persons with disabilities, including doorway modifications and access ramps, but excluding wet area accessible showers.
  • Internal shop or office fit out where the work does not modify, or require modifications to, any specified systems or means of escape from fire.
  • Alterations to existing plumbing in bathrooms, kitchens, laundries and toilets, including minor drainage alteration (e.g. shifting a gully trap) but excluding new connections to services. Any such alterations must be carried out by a registered plumber in accordance with the Plumbers, Gasfitters and Drainlayers Act 1976.
  • Erecting tents and marquees of up to 100sq m where they are for private use and up to 50sq m where they are intended for public assembly.

Stick up a marquee and have a party to celebrate.

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North Shore, Helensville & Wairarapa

Eric Olthwaite summarises last night's election meeting in North Shore. Apparently Wayne Mapp and Phil Twyford said all the usual stuff, Dail Jones said the embarrassing stuff, John Boscawen did ... "not the best" ... and Libertarianz' Mike Murphy, says Eric, "was one of the night's stars."

     Mike spoke with a lot of confidence and, to paraphrase Helen Clarke, you won't die wondering what a libertarian thinks - a refreshing change from the others.
    For example, on the question of coalition partners, after the others had ummed and aaahed about who they might go with, Mike stood up and proclaimed "The Libertarianz will not go into coalition with anybody!" to raucous applause.
    Another of his finer moments was on Defence. After going through the Air Force and Navy the "time-up" bell sounded before he could get to the Army, not wanting to leave the audience hanging Michael just managed to call out "... and we'll arm the populace" before sitting down, again raucous applause.

Yes, Eric's biased -- "why vote for Libertarianz even if there is no realistic chance of them getting into parliament?" he's asked, to which he responds "It'll be even less realistic if I don't vote for them."

Words of truth. Whatever your political persuasion, vote for what you believe in and be proud for doing so.

A vote for what you believe in is never wasted.  A vote for what you don't believe in, always is.

And just to make sure you don't die wondering what a libertarian really thinks, here's what Mike might have said about coalitions and defence if he'd had time for a few more words:

UPDATE 1:  And here's a very brief report (thanks Paul) on a meeting at Whenuapai, in John Key's Helensville electorate -- although it looks like National's Paula Bennett is standing in for an absent (in all senses of the word) John Boy.  I'll skip the boring stuff and head straight to the report on Peter Osborne, Libertarianz candidate for Helensville:

    Peter Osborne was the fourth member to give his speech and without a doubt the meeting livened up a bit. After a few lacklustre applauses for NZ First, National and Family party Peter got a very long and loud applause bordering on cheering. Followed by the host of the night commenting "How can anyone disagree with that!"
    I think we at least made some people think and I saw many people walking out with
Libertarianz flyers. Of course we went around afterward to make sure
people took a flyer with them...
   
There were quite a few defence people there and questions were asked about Whenuapai airbase. Peter got up and made a very passionate and clear statement. "If freedom is worth having it is worth defending. Not only will we keep Whenuapai open but we need to upgrade it as well." 10 votes right there! The others just weaseled around a bit
having no idea what should be done.

That could describe their approach to lots of things, couldn't it, including the economic crisis...

UPDATE 2: And from a Wairarapa meeting, where Libz deputy Dr Richard McGrath first took a pop at the Labour candidate

about the $194k of unpaid gift duty that Labour still owing to taxpayer (see Darnton vs Clark).

And then:

Later on our National MP said his party would scale back the worst excesses of the RMA. I spoke straight afterward and reminded him that this was entirely appropriate as National had passed that act in the first place. 

As I'm sure Dr McGrath told the audience at that point,  National is NOT the answer.

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National Socialism

John Key's 'Dancing Cossacks' plan for the 'Cullen Fund' to amend the law "so the Finance Minister can direct the allocation of the fund" and allow Bill English to start buying up New Zealand for the government has given everyone the chance to spot the economic illiterates around the traps -- most of them people paid to pretend they know what they're talking about.

The Herald's Paula Oliver, for instance, who blithely reports, "The policy would see a greater amount invested into New Zealand."  Well, as I explain below, not necessarily.  The policy would see a greater amount of the Retirement Fund invested into New Zealand ... but that's not the sme thing at all.

And the Herald's John Armstrong, for instance, for whom politics is just sport -- and economics is just something Finance Ministers do to each other -- who says on the Herald's front page that Key's plan may offend the "economic purists," i.e., those who know what they're talking about, "but his announcement cleverly outflanks Labour...  National's bolder move has given it back some of the initiative on economic policy..." 

What a twit.  National's move has shown that in a time of economic crisis John Key is just as ignorant about what to do as the other team.  If Armstrong was doing his job he could point that out.  Instead, he say, "It will be seen by most voters as the right call in worsening conditions."  If that's true, it's only because when voters read commentators like Armstrong they don't realise he's so bloody ignorant of the subject on which he's paid to comment -- in this case economic policy.

To call this "bold" or "brave" -- let alone to use adverbs like "cleverly" -- is to ignore completely the effects of such a policy, and to demonstrate the paucity of your grip on what your job should be. 

To ignore how enormously destructive it is to give politicians the keys to this particular candy box; how irrational it would be to crowd out foreign entrepreneurial investment in NZ, and to forego higher returns elsewhere; how bloody risky it is to put so many of NZ's future retirement eggs in the same bloody basket as where they were hatched; how ridiculous for the NZ taxpayer to be investing in taxpayer-backed bonds... 

Yes, yes, Oliver asks a few "experts" later in her piece, under the fold on page 3, two of whom (Weldon and Skilling) are in a froth about the prospects of getting their hands on the candy jar.  (It's Weldon who calls it "brave" -- and not as an ironic reference to Sir Humphrey's warning: "'controversial' can lose you votes; 'courageous' can lose you the election.")

Thank goodness then for Brian Gaynor (and I don't say that too often), the other expert interviewed by Oliver, who points out his concerns with "the principle" of the move -- and bravo for a man who knows that principles are guides to right action -- "Where does it stop?" asks Gaynor, "It leads to pork barrelling -- go and build an airport in Kaitaia, or something like that."  Drive around Europe and see all the pork barrelling projects scattered around Europe like EU confetti, super-highways to nowhere and bridges made just for bungy-cords, and you get an idea of what sort of "returns" politically-driven "investment" brings.

Thank goodness too for commentators like David Hargreaves who writes in BusinessDay,

    [Key] wants the fund to take money from higher returning assets overseas and pump it into lower performing New Zealand assets as a short run boost to the economy. It is an easy way of the government increasing spending, without increasing its budget deficits.
    What it means is the returns to the fund are likely to be less in future years than they would be if the fund was left alone. Therefore the fund's ultimate ability to service pension requirements in future will be reduced.
    And worse, once the fund has become a play thing and source of easy money for the government to invest in its pet projects, you will lose the very high calibre of people the fund currently has.

Bingo!  And then there's the 'Dancing Cossacks' problem,

    that the New Zealand economy runs the risk of being heavily skewed by the impact of the fund. The fund already at this early stage has to be careful that it does not cause distortions in the markets through its activities. This risk will grow as the fund grows.

Sure will.

    One of Key's long ago predecessors as National Party leader, Rob Muldoon, won an election by lambasting a superannuation scheme set up by Labour. The argument was that as the Labour super fund grew, then so it could be used as a political tool. National scrapped that scheme after it won in 1975 and delivered us on the route to the future pension problem we now have.
   
How ironic then that a National leader is now attempting to politicise a fund that has been set up for all of us.
   
New Zealanders should have absolutely no truck with this idea. Key wants to mess around with money that is set aside for your retirement. In doing so, large chunks of that money could be lost.

Exactly right.  Now, John Key says he's been thinking about this since 2004! -- Gawd help us! -- but it takes only a moment of thought to realise, as Matt Nolan explains so simply that what he's "thought" about is a way to make "more" local investment mean less:

If capital at home made the highest return, then we wouldn’t need to legislate a 40% investment - as the Cullen Fund would put all its dosh there anyway. As a result, by “forcing” the fund to keep 40% onshore, we are reducing the return on our investment plain and simple.

As Nolan concludes, this is a terrible idea. National=Labour Lite -- "but they seem to be bouncing worse and worse ideas off each other."

It's just utterly pig ignorant, and shows beyond doubt that the single biggest danger with Key is not just his craven need to appease, but the idea apparently so strong within him that his laudable success as a currency trader gives him the credentials as Prime Minister to tinker with the levers of a very fragile economy.

We had one hot shot already who thought he could do that job, and we all know where that left us in 1984, don't we.

When Cullen announced earlier in the week his own plans to dig into the Super Fund chocolate box, Adolf from the No Minister blog called it "a defining election issue." It still is. In a time of terrible financial crisis, we now know absolutely that Key has no more clue what to do than Cullen.

UPDATE 1: Elijah is right, "Those people who have gone down the "vote National to get rid of Labour" track should be ashamed of themselves... A vote for National is now, without doubt, a vote for left wing socialism and State ownership..."

UPDATE 2: Yes, I've changed the title of the post. The more I think about this, the angrier I get.

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Alas Real Groovy

rg_logo Alas, Real Groovy, I knew her well.  For twenty-eight years Real Groovy has been bringing band members together and improving the music collections of the nation. It's a sad day now to see it go into receivership.

I was one of its first customers in its first shop further up Queen St.  Back then, as an impecunious architecture student, I used to make some pocket money by buying up bootlegs and valuable records from junk shops and lesser second-hand record dealers and sell them up at Record Exchange for decent prices to people who were prepared to pay good money for valuable stuff.

My best deal, as I recall, was the Sex Pistols bootleg 'First US Show,' which I bought for about $3 from a chap down in Fort St whose prices were always wrong, and sold up at Record Exchange in St Kevin's Arcade for $35.  That wasn't bad pocket money for the early 80s, and I soon cut a regular path from that under-priced Fort St shop to the good payers at St Kevin's Arcade..

Real Groovy put a stop to all that.

They knew what they were buying, they knew the precise value of what they were selling, and they imported so many shit-hot bootlegs (sold at prices that were almost affordable) that vinyl junkies didn't need to go anywhere else.

And they didn't.  It was no good for 'arbitrageurs' like myself, but it was damn good for all the other vinyl junkies who flooded into the first decent vinyl store to hit Auckland's main street. Pretty soon all the other shops were all closing and, with the exception of Colin in Victoria St's 'Rock 'n' Roll Records', their people were working at Groovy.

And why not?  They were the true example of the benevolent monopoly.  Huge range, good prices, knowledgeable staff. What more do you need?

Turns out what we didn't need were all those US vinyl imports that started to flood the store in recent years; it wasn't competition from Warehouse or TradeMe, or even MP3 downloads that drove the final nail in: it was foreign exchange deals on those imports that apparently finally broke the bank.

Which means the four stores in each of New Zealand's four main cities might rise again one day like a phoenix.

I hope so, and look forward to it.

UPDATE:  Russell Brown has more details here about Groovy and its demise than you could poke a stylus at.

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A long, slow slide into night

Venezuela's inexorable demise is the latest demonstration that socialism never works, except to cause misery.

Not even easy oil wealth can make socialism work:
Venezuela's oil output slumps under Hugo Chavez - TELEGRAPH

UPDATE: The Four R's blog makes clear the socialism that has and will continue to impede Venezuelan production of anything, even its major earner.

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Quote of the day...

As if she were speaking yesterday...

"People seem to insist on talking - and on carefully saying nothing. The evasiveness, the dullness, the gray conformity of today's intellectual expressions sound like the voices of men under censorship - where no censorship exists. ... The truth about the intellectual state of the modern world, the characteristic peculiar to the twentieth century, which distinguishes it from other periods of cultural crises, is the fact that what people are seeking is not the answers to problems, but the reassurance that no answers are possible."

- Ayn Rand

Wednesday, October 15, 2008

No indeed, Minister [updated]

You have to laugh.  Earlier in the week No Minister was rightly lambasting Michael Cullen for meddling with the New Zealand Superannuation Fund -- insisting that the Super Fund, which is supposed to relieve the need for taxpayers to fund NZers' retirement years, must "invest" instead in "long-term infrastructure bonds," bonds whose returns will be paid for by the taxpayer.

It's not just insane, but once you start the meddling any hint of it being an "independent fund" is gone -- and before you know it Minister for Tasteless Crap Sue Kedgley will be insisting it must "invest" in mung bean manufacturers and ethical bone carving. 

Said National-supporting No Minister about Cullen's signalled intervention this leaves Cullen "looking more like Muldoon by the minute." 

But now John Key is doing the same.  See: National to legislate for at least 40% of NZ Super Fund to be invested in NZ.

This is bad.  Crikey, even National man David Farrar thinks it's bad: "We don’t want MPs in charge of a $100 billion fund," he says.  No, we sure as hell don't.

But Key does.  Key is signaling here that he's a tinkerer.  A meddler.  An interventionist. In his facile way he thinks his laudable success in the world's finance markets qualifies him as a politician to be tinkerer in our local markets. It didn't work for Muldoon -- hell, it didn't even work for Greenspan -- and it sure as hell won't work for Key, or for us.

You have to laugh.  if you didn't laugh at what they're all doing with our money, you'd cry.

UPDATE  1: Looks like No Minister aren't the only ones from the Blue Team who will need to give their Team Leader an uppercut.  The stodgy fraud who calls himself Adam Smith wrote earlier in the week that "directing the so called ‘Cullen Fund’ to invest more in NZ for political reasons is worse than National reducing Kiwisaver contributions," and their assault on the independence of the Super Fund shows "Clark and Cullen seem determined to gain short term political advantage for themselves and the Labour Party at the expense of New Zealand and the New Zealand citizenry."

I look forward to his response now his hero has plumped for the same mess of short-term political advantage.  [UPDATE: Good to see 'Adam' rightly upset, if a little muted: "No this is not a good idea."  It's worse than that, mate.]

UPDATE 2:  "This is a defining election issue," said No Minister's Adolf about Cullen's intervention. "Nothing is sacred for these greasy pricks. Remember the Kirk superannuation fund the demise ... has been widely vilified by people of all political stripes."

What do you think Adolf will say once he realises that "greasy prick" John Key is just as much an interventionist as the other "greasy prick" Adolf so despises?

UPDATE 3: Crampton comments:

    I'm intensely disappointed in the commentariat over at Kiwiblog. The same folks who would be (and were) foaming at the mouth about the policy when proposed by Labour find all kinds of reasons to love it when proposed by National.
    More evidence that Caplan's hypothesis in The Myth of the Rational Voter is right. For most folks, politics is just cheering for the home team, without any thought given to the content of policy.

He's right, you know.

UPDATE 4: Paul Walker has a summary of blog commentary on Key's capitulation to collectivism.

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Weimar Republic here we come

MoneyWheelbarrowLeft People here and elsewhere have been asking where all the money comes from to pay for all the world's governments' rescue plans.

Apparently they haven't read Ben Bernanke's comment in 2002 (back when his then boss Alan Greenspan was inflating his way out of the collapse of the Dot.Com bubble and sowing the seeds for this latest collapse):

The US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost...

Author Peter Schiff points out in this CNN interview that Americans blew through their savings in the Dot.Com crash, too few people want to lend to Americans now, so to pay for all those rescue plans Americans at least "are reaching for the printing press." 

And in Europe?  Essentially just the same.  The "responsibility" of paying for the "rescue plans" rests on the central bank's printing press and the wilting shoulders of taxpayers. But unlike the facile reasoning of Bernanke, the printing press does not come "at essentially no cost." As Honorary Professor at the Frankfurt School of Finance & Management Thorstein Pollett explains,

    Under today's fiat-money regime, banks, under governments' auspices, increase the money stock "out of thin air" whenever they extend loans. The money supply is built on credit, which, in turn, hinges on peoples' confidence in banks and banks' confidence in their borrowers' ability and willingness to service their debt.
    As confidence leaves the system, banks refrain from extending loans and demand repayment of outstanding loans, and the money stock contracts. Economies that have for decades been fuelled by ever-higher doses of credit and money fall into depression — that is, declining production, employment, and prices...

The "punch bowl" of never-ending credit expansion has been taken away, and while the hangover is now in full swing the response from all the "rescue plans" so far is to keep the punch bowl topped up and spiked with an increasingly toxic mix:

  • More credit, by increasing the base money supply in the interbank market,
  • Guarantees for financial institutions' liabilities, and
  • Nationalising the world's banks. 

How is it all paid for? 

  • By government sponsored credit, and
  • Money-supply expansion.

In other words, by more of the same.  And the expected result?  Thorstein Pollett again:

... it is hard to see how fighting the symptoms of the unfolding monetary fiasco could solve its underlying cause.

True.  And ...

Starting the printing presses wouldn't solve the debt crisis either. Hyperinflation would cause economic and political damage to the greatest possible extent.

So...

    To qualify as a remedy to present ills, government action needs to be constrained to a far-reaching reform of the monetary systems, which, if implemented properly, would neither cause deflation nor inflation.[1] Markets need to be liberalized to the greatest extent to allow prices to adjust back to equilibrium.
    A return to sound money is needed.

You think that's going to happen?  You think the house of cards can be repaired from the ground up?

Or is it Weimar Republic here we (all) come?

UPDATEBusinessweek magazine explodes the idea that New Zealand can ride out the world financial crisis.  Reports NBR:

    Businessweek has named New Zealand as one of the 13 countries likely to be hit hardest by the global credit crunch.
    New Zealand, which scrapes in at 13th place, is joined on the list by countries like Pakistan, Argentina, Serbia and Kazakhstan.
   Businessweek compares New Zealand to Iceland, saying both countries were favourites of investors playing the yen carry trade...
    But it’s not all bad: “Unlike Iceland, though, New Zealand's banks have strong support because most of them are controlled by bigger banks across the Tasman Sea in Australia.
    “The New Zealand government also is in a stronger position than Iceland's, having run budget surpluses of around 4% of GDP until recently. Even with the country in recession, the government is likely to continue running a budget surplus..."

Maybe Businessweek hasn't read the "economic plans" of either Cullen or Key, since both plan to plunge the government firmly into deficit...

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Aro Valley bondage

With bondage jokes, two-hundred jeering hippies and a water pistol trained at the back of candidates' heads, the Aro Valley election meeting is always the most entertaining, if not the most enlightening.

The Dim Post has a roundup of the meeting as raucous as the meeting itself; The Dom Post has the stuffier report, but it does have an added video.

And what exactly did happen to Bernard Darnton's billboard?

UPDATE:  Billboard's location still uncertain, but Wellington photog Matthew Plummer posted some pics of the political event here [hat tip Stephen Franks].

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Debate

I missed the first half of last night's leaders' "debate" -- I was at Auckland's Town Hall with the APO happily lapping up the treats in store for next season, thanks very much -- but I'm still surprised to see so many so serious about it being a victory for John Key.  Key won the debate say most commentators, and most NZers surveyed.

Did they see the same second half I did?

I'm surprised on two counts.  First, the format wasn't really a debate at all, simply a two-headed interview -- but with the 'YouTube' participation the interview questions were at least better than Sainsbury can normally manage -- but every time a real debate actually seemed about to break out between the actual participants, with some real emotion and real points being made, bloody Sainsbury help up the hands and started waving the chequered flag at them both.

Someone should tell him he's not the main event.

And second, John Key's "interventions" when Helen Clark was talking -- necessary, since Sainsbury appeared to have no intention of offering a "follow-up" chance to respond -- seemed to me to be both weak and pathetic, setting his high pitched squeak in unfortunate contrast to Helen's authoritative lower-pitched contralto.

I say "seemed to me," because other commentators disagreed.  The Herald's Claire Trevett for example thought Key's responses showed "quite a talent for ruining Helen Clark's more fanciful moments":

    Asked whether the student allowance policy was a "blatant election bribe," Clark starts to reply with the "grandiose" "I've always had a dream" [a dream it's taken nine years, a close election and incipient economic collapse to "afford"] before going on to talk about the privileges her generation had. 
    John Key happily pops the bubble, noting "my holiday job was cleaning out the chickens."

What Trevett thought the perfect response, those in my house thought weak and pathetic, and utterly irrelevant to the fact it is so clearly a blatant election bribe.  Why can't he call a bribe a bribe, for goodness sake?

Two questions in particular interested me.  Shane Taurima asked Key to clarify his policy on abolishing the Maori seats, which Pita Sharples maintains Key had indicated privately was up for grabs -- something suggesting some kind of mendacity in the public policy. I found Key's response on this unconvincing, and unclear.  Waffle designed to obfuscate.

The other question came from a YouTuber, asking both leaders to comment on the brutal murder of Navtej Singh.  This drew a response that shows a genuine sea change: after initial hand-wringing both responded that "New Zealanders are entitled to use reasonable force to defend themselves."  Yes, I'll say that again: "New Zealanders are entitled to use reasonable force to defend themselves."

That's progress.  Definite progress.  It's been there in the Crimes Act but recognised more in the breach than the observance" -- we can only hope the attitude quickly makes its way into policing policy. 

How tragic that good New Zealanders had to die to make it happen.

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Chain the bastards up

David Farrar has finally realised we need a written constitution to chain the bastards up.  It is vital, he says

that at some stage we the people vote into existence a supreme law or constitution that not even a Helen Clark can ignore or amend. A law that allows Judges to strike down a Government’s actions or even a Parliament’s actions if they act in an undemocratic way.
    If we ever manage to get such a supreme law, it should be dedicated to Helen Clark and Robert Muldoon. They have proved why it is necessary.

Read on to see his reasons -- reasons with which The Hive sympathises.

Like I've said so often (so often I'm almost losing my voice), we have governments for the same reason we get guard dogs.   And just like guard dogs we'd better make sure we chain them up, or else instead of protecting us they'll be out there chewing off our leg.  That's the job of a written constitution.

They're an indispensable protection for freedom.

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'Drawing' - Jacob Collins

drawingpainting01

The founder of the Hudson River School for Landscape, Collins is a "contemporary realist" painter whose work, says painter Michael Newberry, is based on "the sensuous nature of light." Reviewing Collin's oeuvre,  Newberry says

    Collins paints and draws portraits, landscapes, still-lifes, and nudes. Across the board, he imbues them all with sensuous light and an aptitude for finely wrought detail. He reminds me of a scientist who shines a light on an object to see it to full advantage. And like a scientist, he sees beauty in realizing his understanding of things.
    He told me "I find beauty in observing and in furthering my knowledge about light, the identity of plants and trees, and even such things as the nature of the formation of rocks and land masses."

Newberry describes Collins' masterful painting 'Drawing,' seen above:

    Spreading out in foreshortened perspective are the paper and tools for drawing. Even if you are not an artist, you might have experienced the joy in going into an art store and seeing and feeling the textures of the papers, looking at the pastels and charcoals, and wondering how much fun it would be to make art.
    Notice the different textures and subtle colors of the papers in Drawing.
    You might notice the  highlighted, ruffled, and delicately torn edges of several of the papers. I have fond memories of learning about different papers as an art student. One lesson we learned was to tear a really good acid-free 100% cotton rag paper to size using a straight edge--it's a very sensual experience. Collins gets that tactile beauty of the paper down exactly.

For me, I thought too of the foreground piece in JL David's 'Death of Marat,' and its companion piece.

Anyway, I thoroughly recommend Newberry's complete review of Collins' work here.

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Tuesday, October 14, 2008

'One-day wonder' market correction [updated]

$5 trillion, and counting. That's around how much the governments of the US, UK, Germany, France et al have spent in recent weeks "stabilising" markets, buying up worthless assets and nationalising banks. 

Germany, France, Austria, Spain, Italy, Sweden, Poland, and Norway pledged over $2.3 trillion just yesterday, thanks very much, to nationalise banks and spray around truck-loads of "liquid confidence," and the Brits themselves pledged around half that amount themselves to make the government sector larger than its been since Clement Attlee essentially wrote The Communist Manifesto into the British constitution.

It's possibly the single- biggest monetary inflation the world has ever seen.

And yes, after that magnanimous golden shower,  the world's stock markets are up.  Today. 

Yes, the NZ dollar has stabilised.  Today.

But if you really think that huge monetary inflation is going to have any long-term effect in changing the real value of worthless assets, in changing lead into gold -- in fixing the problem of worthless assets that has poisoned the balance sheets of the world's banks, and the problem of inflated values that poisoned those assets -- then I have some Florida swampland and Dot.Com bubble stocks to sell you.

Monetary inflation, of whatever magnitude, can't do a thing to change real values -- but it can inflate them artificially.  Monetary inflation, however fast the printing presses are working, can't do anything  to effect the necessary economic correction - but it can delay it for a few more years. Monetary inflation, however large, can't do anything to transform unsustainable businesses into sustainable profit-making ones -- but it can and will keep alive these malinvestments, those walking zombies, which are only alive in any case because of the monetary inflation of  previous years.

Says Warren Buffett about market corrections, "It's only when the tide goes out you can see who's been swimming naked."  This sea of monetary inflation won't stop the tide going out, eventually -- but it will delay the time when we can see who needs to be drowned.

You see, there is no choice about the pain of correction.  It has to happen.  Unprofitable businesses need to be liquidated and the resources therein transferred to something more profitable. Bad loans need to be liquidated, and any assets involved used as fertiliser for real growth.  People have blundered, and we have no choice about the need to liquidate those blunders so they don't go on consuming real resources.  We have no choice about correction. The only choice is how long it takes -- how long the pain of correction will last -- and how many real resources are consumed along the way.

You'd think that someone would have learned from Japan's lost decade, where the same medicine was tried in the early nineties, ensuring their necessary recovery was delayed for a decade.

You'd think someone might have learned from the meddling of Herbert Hoover, (continued by Franklin Roosevelt) whose meddling in the face of depression did precisely the opposite of what he intended: instead of protecting failing businesses and providing the funds necessary for recovery as he hoped, the failure to let the market contract and flush out the dead wood and malinvestments  merely prolonged the pain.

So, yes, the markets are up today.  But don't bet on it lasting.

UPDATE 1Read how a play-money auction shows yet another iniquity of these "bailouts": it punishes the virtuous, and rewards the profligate.

UPDATE 2Peter Boettke, among others, points out that that expecting governments to bail out businessmen leads to another significant problem for businessmen: "regime uncertainty."

    A lot of important economic concepts have filtered into journalist accounts and even everyday conversation about our current finanacial crsis.  Moral hazard, liquidity, credit contagion, deflation, etc. have all been used in various accounts that often demonstrate the old adage that "a little bit of knowledge is a dangerous thing" as much as the usefulness of these economic concepts to aid understanding.
    To my mind, one of the most important economic concepts to be developed in the past decade is Bob Higgs's [and Gene Smiley's] idea of "
regime uncertainty" and the application to which he has put that concept to use to explain the depth and length of the Great Depression.  Given the earlier application, the relevance of the concept of "regime uncertainty" to our current situation should be evident.

UPDATE 3:  Regime uncertainty?  That's what Tim Selwyn's talkin' about, y'all:

As for the stockmarkets, supposedly good barometers of humanity, 15-25% down for last week in most countries and now the US has come back 11% today. Erratic and wild fluctuations. Why? Nobody knows what the fuck is going on.

UPDATE 4: Peter Schiff points out Americans blew through their savings in the Dot.Com failure, too few people want to lend to Americans now, so top pay for all the rescue plans "we're reaching for the printing press. 

Weimar Republic here we (all) come.

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Alleged economist wins Nobel Prize [updated]

The Nobel Prize in economics has just been awarded to alleged economist Paul Krugman [hat tip Anti Dismal].

I bet when George Reisman read that he coughed all over his corn flakes.  "Alleged economist" is his term for Krugman.  He's also described him as "determinedly uninformed," "a professional bleeding heart 'liberal'," a promoter of "the alleged horrors of economic freedom," and a "non-reader."

Anyway, since Professor Reisman is still on holiday, here's some tributes to the 'great man' from some other economists, only some of them alleged:

  • Peter Boettke: "...  the Swedes just made perhaps the worst decision in the history of the prize today in naming Paul Krugman the 2008 award winner."
  • Boettke again: "Krugman's work [for which he was awarded the Nobel] devolved from science to ideology and finally to political partisanship...  This would be innocent enough if Krugman were just another political pundit, but now the prize has given him an enhanced platform from which to pronounce his partisan positions as if they are grounded in economic science."
  • Tim Harford, The 'Undercover Economist':  "Mr Krugman has long been seen as a future Nobel laureate. He won the John Bates Clark medal for young economists in 1991, an award which is often a precursor to a Nobel. Yet if the choice is not surprising, the timing – just before the US Presidential election – might be."
  • Tyler Cowen: "I have to say I did not expect him to win until Bush left office, as I thought the Swedes wanted the resulting discussion to focus on Paul's academic work rather than on issues of politics.  So I am surprised by the timing but not by the choice."
  • Greg Mankiw: "No one knowledgable about developments in the theory of international trade could have doubted that Paul was on the short list [for the Nobel]. The timing, of course, was impossible to predict, and I am a bit surprised that the Nobel committee did not award the prize jointly with some other economists who worked along similar lines. But the prize itself was an easy call.
  • Per-Olof Samuelsson: "I guess it's time to feel ashamed of one's nationality!"
  • And some humour:   "The stock market rallies 900 points on Paul Krugman winning the Nobel.
    Why not this is as good a reason as you often see in the popular press?"
  • Mises Economics Blog: "The Nobel Prize committee seems to have gone out of its way exclusively to cite Paul Krugman's "analysis of trade patterns and location of economic activity," contributions which students have appreciated and also criticized ... Krugman wins [but] not for his Keynesian macroeconomics.
        "Of course, the prize confers a broader invitation to take all his other ideas seriously, among which his criticism of Austrian trade cycle theory, a criticism to which Tyler Cowen points with admiration.
        "Here is Shawn Ritenour's excellent review of some of Krugman's work in this area. He argues that Krugman is not a neo-Keynesian or a proto-Keynesian or any other variety; he is just a plain old-fashioned paleo-Keynesian. Here also are Roger Garrison and John Cochran responding to Krugman."

UPDATE 1:  Two more goodies:

  • From William Anderson: "Today's announcement that Paul Krugman won the Nobel Prize in economics, although not earth shattering, indicates that outright political partisanship is not a deterrent to winning. This is not as tragic a moment in western civilization as the sacking of Constantinople in 1453 or the Bolshevik Revolution of 1917, but it suffices as one of those sad moments we will regret over time.
  • Lew Rockwell: "With the sole and shining exception of F.A Hayek, who was forced to share his prize with a Swedish communist, every other Nobel econ winner has been a shill for central banking. This year especially, the central bankers wanted a loyal propagandist for endless currency depreciation."
UPDATE 2:  And Canterbury Uni's Paul Walker sits on the fence:
  • Many people have many reasons for not liking the awarding of the Nobel Prize to Paul Krugman and to be honest I share many of them. But I also have to admit that there are also good reasons why he got the prize.  [His his work on strategic trade theory and the new economic geography] does justify the award of the Nobel. I do however share the surprise of Mark Koyama at Oxonomics over the award.
    I always envisioned Krugman winning jointly with Dixit or perhaps with Bhagwati or another trade theorist.
    A joint prize between two or all three of Krugman, Dixit and Bhagwati would have made a lot of sense.

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Everyone has a voice

img_1041 "Yay," say students, "the government is throwing us money!" " Awesome."  "Cool."  (Insert further random sub-literate exclamations of joy here.)

"Good stuff," say university chancellors, "but you need to throw more our way to keep the right balance."

"Great stuff," says university staff, ""but you need to throw more our way to keep academics in New Zealand."

"Fantastic move," say media commentators, congenitally unable to distinguish an election bribe from a ten-year fiscal deficit.

And the taxpayers?  Who gets to talk for them?

Who indeed.  They just keep on getting the bill.

UPDATE 1:  Ah, turns out there is someone talking for taxpayers: See press release here:  Universal Student Bribery.

UPDATE 2: And here's someone else: Labour rescues rich students from the horrors of reality.

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Exam Questions (choose one)

1.  "Government is a broker in pillage, and every election is a sort of advance auction in stolen goods." - H.L. Mencken.
    Discuss, with reference to the election campaign as it's shaping up.

2.  "If at first you don't succeed, you aren't bribing the right people." - Anonymous.
    Discuss with reference to the likely responses to the election campaign so far.

3.  "Democracy will fail when people begin to think they can vote themselves rich." - P.J. O'Rourke.
    Discuss, with reference both to this election and the trend from elections past.

4.  When politicians talk "substance," they invariably either lie or spin.  But when they insult each other, their insults are without exception true.
    Is this the only consolation of modern election campaigns?

UPDATE:  A late question for those wondering why the Red Team seem to have captured the electoral high ground, while the Blue Team is still playing catch-up:

5.  "In any conflict between two men or two groups who hold the same basic principles [in this case, that the State should manage everything], it is the more consistent one who wins." - Ayn Rand.
    Discuss with reference to the fundamental principles of both Red and Blue teams.  For extra marks, discuss the relevance of Rand's observation to the US elections as well.

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Greek Landscapes September 2008 - Michael Newberry

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From a recent stay in Greek, an old haunt for artist Michael Newberry, comes these "plein air" oil paintings -- produced by hauling easel, oil paints, brushes, etc outside, then with the sun, view, artistic license, "within an hour whip out a small painting."   The size of each of these is about 9"x12".

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There are 31 of them up on his site

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Monday, October 13, 2008

Desperate for bribes

Things are desperate.

The government has no spare money in its trousers. 

Things are so bad, in fact that there's only just enough left for election bribes.

Thats $720 million of bribes per annum promised so far this week.

That's the measure of how desperately irresponsible this government is.

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Nick Smith at your Xmas table

NZ's Environmental Risk Management Authority -- the crowd National's Nick Smith's wants to make into an even bigger bureaucracy called the Environmental Protection Agency -- has just sent out a memo "reminding importers that under the Hazardous Substances and New Organisms Act, Christmas crackers are covered by the definition of, and controls on, the importation of fireworks."

    As such Christmas crackers require a completed Certificate to Import Explosives from Erma (the Environmental Risk Management Authority) New Zealand before they may be imported into New Zealand,” the circular states.
   
It is estimated that only approximately 60 percent of Christmas crackers being imported into the country obtain the required certificates.

So that means no Christmas crackers this Christmas, just like there's no decent fireworks on fireworks night.  And it also means that this summer you'll have Helen Clark in your shower, Jeanette Fitzsimons changing your lightbulbs, and now Nick Smith sitting at your Xmas table holding a wet blanket.

That's a pretty foul trifecta.

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Clark and Key 'agree' plans to prop up the banking system [updated[

NZ'S TWO MOST POPULAR political parties have leapt into action in the last twenty-four hours in response to the worldwide economic turmoil.

The National Party reconfirmed their pathetic tax cuts based on a decade of government deficits, and also confirmed it will/it won't/it might build "infrastructure" [choose one] paid for from borrowing/not from borrowing/through public-private partnerships [choose one].

And it makes these promises while trumpeting its competence, and whining that Labour hasn't told it what it's doing.

The Labour Party meanwhile has just made the NZ taxpayer, you and I, the guarantor of every banker and every director of nearly every finance company in the country, and of all $150 billion of the deposits on which they earn some pretty impressive commissions.  (Oh, and they too want to "bring forward" government spending on "infrastructure," and add lots and lots of "retraining.")

Perhaps it was better when they weren't reacting to the crisis?

Sure, when your neighbouring government promises to "back up" the deposits in its country's banks, you have to do something to stop the inevitable movement from your country's banks -- Germany's Angela Merkel learned that lesson when Ireland started the European rush to backstop depositors in their banks -- but it doesn't change the fact that a short-term promise to backstop deposits itself is utterly unrealistic.

And does being forced into a destructive promise that's impossible to back up alter the fact that it is a destructive error that's impossible to back up.

Just how realistic is the promise can be seen from the amounts involved. How one million taxpayers are going to underwrite a $150 billion contingent liability is a question you just aren't supposed to ask. 

ArchimedesLever The reason they have to make the promise (and John Key has now confirmed it's their "plan" as well) is simple: it's the inherently fragile fractional reserve banking system -- a "leveraged" credit pyramid that balloons rapidly when the small fraction of real reserves increases in value, and plunges just as quickly when the equity base propping it up loses value. The whole fragile system is predicated on important questions about its stability not being asked.

If you want to know whether your friendly local bank is "sound" then just ask yourself what would happen if every depositor wanted their money out all at once.  The answer is: you can't. Modern banks are inherently bankrupt; their promise to pay is based on the assumption that everyone won't turn up at once to ask for their money back.

Image (3) When they do, or they look like they might, then modern banks tend to either fall over like the fraudulent house of cards they are, or they run off to Nanny like a crybaby kid to have their hands stroked and their losses made up by taxpayers. And those few that do act honestly by revaluing their assets and "de-leveraging" the credit pyramid -- the essential prelude to economic recovery -- are punished by Nanny for their diligence by having to watch their less honest colleagues rewarded for failure, and the smoke-and-mirrors concealing the fractional reserve system stay in place to ensure failure on some other day far off in another election cycle altogether.

NOW, WE HAVEN'T YET SEEN a full "economic plan" from either party to address the crisis -- Labour cunningly promises to deliver one after the election -- National seems to think the mere presence of John Key on the Ninth Floor will automatically cause all stocks to rise and a steak to materialise on every plate -- but the remedies we've seen bandied about are all as destructive as the cause of the crisis, every one of them used by the likes of Hoover and Roosevelt to extend the 1929 correction for another fifteen years.

When  markets need to correct, when real savings are being consumed on malinvestments that urgently need to to closed off, then here's what you can do to make sure the necessary correction won't happen:

  1. Prevent or delay liquidation by propping up shaky businesses and shaky credit positions.
  2. Further inflate the money supply, creating more malinvestments and delaying the necessary correction.
  3. Keep wage rates up --or keep money wages constant when prices start falling (which amounts to the same thing) -- which in the face of falling business demand is a sure recipe for unemployment.
  4. Keep prices up (by means of the likes of green-plated building regulations) or add new costs to struggling businesses (such as the dopey Emissions Tax Scam), delaying the necessary corrections that will make businesses profitable again.
  5. "Stimulate" demand by spending on "infrastructure" projects just to make it look like the government is doing something -- when what that something actually does is to take money from profitable businesses in order to bid resources away from struggling businesses.
  6. Discourage saving and investment by increasing government spending (all of which is consumption spending) and maintaining high tax rates.
  7. Subsidise unemployment with make-work schemes paid out of money from profitable businesses that bid resources away from struggling businesses, delaying the shift of workers to fields where genuine jobs would otherwise be available.

As Murray Rothbard points out in America's Great Depression (from which I draw the above seven points) when you list logically the various ways that government could hamper market adjustments and hobble the adjustment process, you find that you have precisely listed the favourite "anti-depression" arsenal of government policy.

Expect to see them all used here.

UPDATE 1: Bernard Hickey disgracefully called "in March and again last week" for the government to guarantee deposits.  As he says today, " I should have been careful what I wished for."  This is a scheme with "two big holes to drive trucks through":

We now have a scheme that Rod Petricevic could (in theory) use to launch new government-guaranteed finance company to repurchase loans from the receivers for Bridgecorp. It could also be used by Doug Somers-Edgar to fire up the Money Managers empire again. Allan Hawkins could start raising money for his Budget Loans finance company and promise that it was backed by the government.

Yet it may do nothing to solve the fundamental problem facing our major banks — a shortage of wholesale funding between banks. Our banking system could still freeze up in the same way that the European and US systems have and this plan does not stop that.

Frankfurt School of Finance professor Thorstein Pollett simply explains the importance of "interbank" loans, and why their rapid diminution is a sure sign that confidence is leaving the fiat money system

And an astute commenter at Hickey's site makes another excellent point:

What I don’t get is… if everything is guaranteed…. will all the rates offered converge? I mean, why should I buy safe NZ government Kiwibonds at 6% if I can get guaranteed deposits at 10% in a finance company? I think everyone will pull their money out of government bonds, out of banks even, and into finance companies. And that just seems entirely backwards, causing the money to move to it’s lowest and worst use.

UPDATE 2:  Expect all seven ways of hampering recovery to be used here, I said above.  The Standard in all its ignorance not only applauds the use of  most of the seven in Labour's "economic plan" -- propping up liquidity,  subsidising employment and re-training money, spending on public works  -- but delightedly refers to it as

a programme of infrastructure construction, labour up-skilling, and idle capacity utilisation akin to the policies that got the world out of the Great Depression.

Well, no, it's certainly on a smaller scale (at this stage) than anything of the sort done in the depression, but every part of this programme actually made the depression longer by jacking up costs and bidding resources away from where they were most needed.

Readers of  The Standard might like to ask themselves why the US, which adopted every single one of  the policies above that hamper correction, was one of the last countries out of the depression (not really out until the mid-forties) whereas New Zealand, which actually allowed prices and wages to fall as they needed to, was among the first to emerge from total gloom (by 1935/36 production was nearly back to 1929 levels and next year exceeded it; from its 1933 high of 79,435, about 12%, unemployment had by 1937/38 come  back down to 29,899). 

NZ still ran public works and make-works programmes however, sucking up resources needed for recovery.  In 1932/33 these absorbed 45,000 men, whereas by 1939 the number "employed" was just 77.  By contrast, in 1939, one decade after the Wall St crash, Roosevelt's America had virtually the same number unemployed and on relief as they had in 1932, the year Roosevelt was elected.

So much for "policies that got the world out of depression."

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