Liberal Vision

Bad Economics Fortnight

It’s “Fairtrade Fortnight” - apparently… Don’t get me wrong. The people behind the “Fairtrade” brand (which is a brand just like Coca Cola. It is a brand. Full stop.) have good intentions. But what they believe in is bad economics. They are ultimately out-of-touch and misinformed and rely on woolly rhetoric and guilt-inducing marketing.
I think this facebook group says it best:

Fairtrade is a cartel that favours farmers in relatively wealthy countries (eg Mexico), who can afford to sign on to the Fairtrade brand, at the expense of those in the poorest countries, who cannot. Fairtrade incentivises the growing of cash crops, like coffee, which encourages the overproduction of these crops and locks poor farmers into a dependence on Fairtrade for their income. According to Oxford University economist Paul Collier, Fairtrade ensures that poor farmers “get charity as long as they stay producing the crops that have locked them into poverty”, perpetuating the poverty trap that Fairtrade claims to work against. We also object to the bullying tactics used by the Fairtrade cartel to get exclusive access to universities, etc, by having their rivals banned. This is a coercive measure that limits freedom to choose between different products.The only way to help lift the poorest farmers out of poverty is by boycotting Fairtrade and buying goods from the poorest, non-Fairtrade countries. Our alternative: Buy products from poor countries and spend the amount you save on real charity that helps the neediest, not a privileged elite of Fairtrade-sponsored farmers.

A good video:

Quote: “we don’t have a view on mechanisation…”

Oh dear…

Some more articles here:

Not So Fair Trade

The Poverty Of Fairtrade Coffee

Unfair Trade

Robin Hood: A Libertarian Hero Defamed (!)

Amidst all this discussion of a “Robin Hood Tax” it occurred to me that collectively we seem to have seemed to have forgotten the story of Robin Hood.

Robin Hood famously “stole from the rich and gave to the poor”. But before socialists claim him I’d just like to point out one little detail. The poor were poor because of hugely punitive taxes. They were imposed by Prince John to fund the statesman’s extravagant lifestyle. A factor in turn augmented by an already heightened level of taxation due to his brother’s (King Richard’s) costly middle eastern conflict (the Crusades). You could say the fable holds some parallels with modern day Britain…

Far from being a socialist, Robin Hood took money off the wealthy elite and gave it back to those who had generated it in the first place, redressing problematic redistribution. Sounds like a libertarian to me.

Naming a tax after a man who is, by all means, a libertarian hero must surely be defamation!

Happy birthday, Schumpy

Today is the birthday of Joseph A. Schumpeter, the Moravian philosopher largely responsible for the term “creative destruction”.

Here’s one quotation of his on the subject:

“The process of Creative Destruction is the essential fact about capitalism … it is not [price] competition which counts but the competition from . . . new technology . . . competition which strikes not at the margins of profits . . . of existing firms but at their foundations and their very lives.”

Liberal Vision’s Barry Stocker has previously summarised Schumpeter’s Capitalism, Socialism and Democracy text: click here to read it.

GUEST POST: The Era of Laissez-Faire?

One of the established memes about the financial crisis is that it demonstrates the failure of unfettered capitalism, the dog-eat-dog, laissez-faire environment that prevailed in the West over the last few decades, all driven by the ideology of “free-market fundamentalism.” This seems to be a truism among most of the Commentariat. Of course, as pointed out repeatedly on this blog, the truth is virtually the opposite: there was never any “deregulation,” the Bush Administration spent public money like a drunken sailor, and government continued to expand as it always does. But a picture is worth a thousand words, so try these on for size. (US data; click charts for sources.)

One response I sometimes hear is “Sure, there are more regulations and more government spending, but the set of things that should be regulated and the amount of government spending the economy needs are growing even faster!” This is essentially the Krugman-DeLong view about the stimulus: it just wasn’t big enough. Or they say that financial markets were “deregulated,” de facto, because the number of regulations and regulators increased more slowly than the number of new financial instruments and new markets. I wonder, though: are these falsifiable propositions? No matter how big the government is, if there are any problems, it’s always because the government isn’t big enough!

This post is authored by Peter G. Klein, an Associate Professor at the University of Missouri and Adjunct Professor at the Norwegian School of Economics and Business Administration. He usually blogs at Organizations and Markets, where this post first appeared.

“That credit crunch ain’t a liquidity trap, just a broke banking system, I’m done - that’s a rap.”

Back on my now-virtually-dormant blog, I posted a rap video from across the pond to mark the start of the US stimulus package, kicked off by the legendary George W. Bush.

Now that we’re further in these stimulus attempts, I’m delighted to bring you a follow-up, to aid your understanding of the ideological Keynes v Hayek battle.

Enjoy…

Free Market Basics

Speaks for itself.

Aid “for Trade” is pointless amid corruption

While funds continue to be pumped into Africa through Aid for Trade programmes (to the tune of $9.5 billion in 2007), African governments continue to stifle their own businesses by imposing restrictions upon the movement of goods through the region.

A recent article in the Vanguard News (Lagos) details how debilitating delays to traffic are caused by Nigerian government officials extorting money, in the form of taxes and fines, from traders. It’s a common story, has even become a stereotype of much of the continent, yet sadly remains true. This heavy handed government action renders Nigerian businesses uncompetitive–delaying their goods and increasing their costs compared to foreign competitors.

Historically, the response of the government in Nigeria has been to increase import duties to “protect” their domestic industries. This results in higher prices for the average Nigerian as they have to pay more for their goods and services. The sad irony is that the reason many Nigerian businesses aren’t competitive in the first place is because of these detrimental government interventions in their business activities. Thus the vicious cycle continues–businesses crippled by their own governments plead for further protection against competition from abroad.

African governments need to stop looking to aid agencies for hand-outs and start allowing domestic companies to do their good honest business.

“Good for bankers”? Are you sure, Vince?

It was somewhat disappointing to receive yesterday’s post-pre-budget report response from Vince Cable.  As impressively prompt as it was, I couldn’t help suspect that the title and opening line were written before the increasingly-destructive Mr Darling had even uttered a word.

“Good for bankers but bad for taxpayers”

So shouted Vince’s headline, seemingly implying that the former is not included in the latter.  An odd response, really. Those of us who live and work relatively near the City aren’t hearing much cheering. Rather, word on the street is how this disastrous PBR will harm everyone, but particularly bankers.

The absurdly populist destruction of Darling’s PBR is to be expected from Labour.  The anti-bonus measures portend all manner of unintended consequences (or at least I assume they’re unintended) and smack of unfairness.  As explained in today’s City AM, a commodities trader at a hedge fund will receive unaffected bonuses, while a commodities trader at a bank will be hammered - causing the bank to restructure its payment system, fiddle its accounts, or risk losing talent to hedge funds and similar groups.  Or, of course, they can just move their people to Dublin, or further afield. But never mind all that because “bankers’ bonuses caused the financial crisis”. Right?

Wrong, of course, but let’s move on: the budget is appallingly bad for the rest of us folk who work considerably less hours than bankers and are thus less reviled.  The usual surreptitious hiking of NI further increases the burden of income tax, while our unprecedented deficit of £178bn is well reported. According to Darling it’ll all be ok because the economy will grow by at least 3.5% the year after next.  Sure it will.

But the point here is that there’s ample scope for attack from a good Liberal like Vince–without resorting to populist attacks on a minority of the workforce.  Sure, banker bashing may win votes, may be popular among the greater mass of voters, but that doesn’t make it right. And call me sanctimonious, but we’re supposed to be above all that.  As Cicero rightly bemoaned the other day, we mustn’t become just another party.  Sadly Vince’s missive, or at least its headline message, present us as just that.

LUDWIG VON MISES (1881-1973) LIBERALISM (1927

Mises was an Austrian in the sense that he was born into a high bourgeois  German speaking family in the Habsburg Austro-Hungarian Empire.  Mises was from a high bourgeois Jewish family which had roots in Vienna.  However, he was born in Lemberg, now the Ukrainian town of Lviv, which has been also been part of Lithuania and Poland.  The range of languages and ethnicities in the town reflected that history and in Liberalism he refers with great emphasis to the conflicts and suffering of that situation, arguing that the situation can only be experienced in that way in a non-liberal society.

His father was a liberal politician, and Liberalism also refers with great emphasis to the decline of the old liberalism, the liberalism of the late Eighteenth and early Nineteenth centuries.  The family moved back to its roots in Vienna, and Mises attended the university there, first becoming qualified in law, and the coming under the influence of the ‘Austrian School’ economists Carl Menger and Eugen von Böhm-Bawerk.

Mises became an economist in that school, and for many Austrian School economists and libertarians now, he is the most important figure in that school.  Hayek was his student, when Mises became an academic economist.  Mises also worked as an adviser to governments and the Vienna Chamber of Commerce until 1934 when he moved to Switzerland.

He moved to New York in 1940 to escape Nazi-dominated Europe and had some difficulty finding an appropriate niche, but was able in the end to become a recurrent visiting Professor at New York University, though this was privately funded by sympathetic business people.  In his time in Europe, his students included many future economists, government advisers and politicians.

At least some of the more liberal aspects of post-war European economics were under Mises influence.  His students, and others under his influence, in the United States ensured the continuation of the Austrian School, most famously the economist and Anarcho-Capitalist thinker Murray Rothbard.

Mises’ most influential books are probably: Socialism (1922), a lengthy critique of socialism in many aspects and varieties; and Human Action (1949), developed from Nation, State, and Economy (1919), a long treatise which grounds economics in the broadest categories of human life.

He also took part in a famous 1920  debate with the Marxist Oscar Lange about the possibility of economic calculation under socialism.  Mises denied the possibility of economic calculation without a price mechanism guiding the decisions of economic agents.  As he argues in Liberalism, the pursuit of a completely planned economy can only collapse into chaos as decisions will be made with no regard to the best allocation of resources. Liberalism, though probably not one of his most influential books, is a convenient place to introduce his ideas.

We shall return to the other books, and to Rothbard.  Mises was not an Anarchist, and is at great pains in Liberalism to establish that liberalism is not opposed to the state.  His vision of the state is very minimal though, and he strongly condemns deviation from such a view.  This leads to him to reject John Stuart Mill as an authentic liberal, because of Mill’s increasing tendency over time to think that society could evolve towards socialism, or even communism, and preserve liberty.  Mises’ reaction seems harsh in relation to On Liberty and some other Mill texts.  It’s true that at the time of On Liberty, Mill toys with the idea of socialism in Principles of Political Economy, but very briefly and it is only later that Mill makes sustained gestures towards socialism.  In any case, this illustrate Mises’ view that in every way real liberalism has been declining since the mid Nineteenth century, and has become a form of moderate socialism.  Mises does not quite adopt the minarchist view that the state only exists to protect life, liberty and property, but he certainly regards these as the essential aspects of liberalism and rejects most forms of state action going beyond them.

He argues against unemployment benefits, on the grounds that they increase unemployment, and hold back changes in the labour market, of a kind necessary for economic development.  He does think that labour exchanges to help workers find new employment are allowable.  Mises does not completely exclude education from the state sphere, but certainly thinks that in the circumstances in which he grew up that compulsory schooling is dangerous, because it inevitably creates problems about which languages are preferred and more or less disguised pressures to adopt the majority language.  In this context, he also argues that a large state machine worsens relations between different groups, because of the competition to control the state in order to gain economic benefits that results.

Only liberalism respects both individual rights and objective sociological and economic realities.  Wealth is only created if there is private property and associated laws and institutions of the market, which allow the incentives to invest and produce.  Anyone who rejects this rejects reality and is a neurotic.  Mises supports the idea of the League of Nations (the forerunner of the United Nations), arguing it needed stronger powers to prevent war and to prepare colonies for self-government.  Though he supports a world structure to prevent aggression, he opposes European federation on the grounds that this would just promote a European level version of statist nationalism.

Frenchman bang on over African liberalisation

While the Doha round of trade agreements sinks even deeper into a quagmire of bureaucratic hurdles and empty promises, Emmanuel Martin hits the nail right on the head in an article for Kenyan ‘paper Business Daily.

He correctly states that Africans have the opportunity to free themselves from trading constraints in spite of the stalled World Trade Organization (WTO)  talks.

The WTO’s goal of reducing the import tariffs faced by developing nation exporters may be admirable, but the sad reality is that a disproportionate amount of the barriers to trade are actually imposed by African governments on other Africans.

When a World Bank study looked at trade barriers in 75 countries, they found that the countries ranked as “below average” in terms of free trade could boost trade by $377 billion–just by liberalising “half way to average”.

Imagine the effect on trade and alleviating poverty if they fully liberalised.

And yet within Africa trade is stifled by extortionate admin fees for construction permits and registering business, debilitating delays at border crossings and corrupt officials skimming money.  In combination, this makes the costs of doing business in Africa the highest in the world.

Indeed, according to the World Bank Doing Business report, even the warzones of Iraq and Afghanistan offer a comparative haven for business compared with many African nations. It should therefore come as little surprise that the continent has the lowest levels of intra-regional trade in the world: under 10 per cent of exports are destined for other African nations.

Until these issues are addressed there is little hope for Africa’s millions of potential entrepreneurs, even if the Doha talks do come to an expedient conclusion–which, by the way, they won’t.