In an article in its present edition “In Knots Over Nationalization” (page 14) the Economist magazine writes the following about the many trillions of Dollars that President Barack Obama has pledged to spend over and above the wild spending of the hopeless incompetant President George Walker Bush.
…an honest attempt to put the recent stimulus in the context of a plausibly responsible medium term fiscal path
Of course the antics of President Obama are not “responsible” at all. If this increase in government spending, not just over this year but over the following years, is “responsible” what would the Economist consider “irresponsible”?
Of course there are other articles in the Economist in which the details of President Obama’s tax and spend policies come in for criticism – but the position of general support for his Administration, in line with the endorsement of then candidate Obama last year, would seem to be incomprehensbile for a publication that claims to be a supporter of free market “capitalism”.
However, the position of the Economist is not incomprehensible at all – but to understand their articles one must understand some other things first…
If I thought that it was a good idea for more money to be lent out than existed in real savings, i.e. all the complex things that are very loosely called “fractional reserve banking”, how would I defend the practice?
Actually I do not it is a good idea, I think that all borrowing should be one hundred per cent from income that people have chosen not to consume (real savings), but let us say I did. I would defend the expansion of credit in something like the following way… If the lending gets out of hand and becomes rash the banks concerned will go bankrupt and the credit/money bubble will self terminate.
I could go on to say that even the existence of a Central Bank or Federal Reserve sytem did not change this – that as long as banks that overextended themselves went bankrupt the system would be self correcting.
I repeat that I do not actually believe the above – but it is a plausible argument and the only way that someone can reasonably claim to be a free market person and a fractional reserve banking supporter, at the same time.
Whether one is a follower of the Austrian school of economics or an honest follower of the Chicago school of economics (and there are many such people – who totally oppose the present bailout and “stimulus” pig fests) this is the only way one can try and reconcile free markets and credit expansion via the banking system.
The great enemy of such a free market supporter of fractional reserve banking would be the political/financial establishment represented in Britain (and, to some extent, the United States) by the things like the Economist magazine. For such establishment entities are utterly opposed to allowing very big financial players to go bankrupt if they believe that such bankruptcies would put “the financial system” (i.e. the network of banks and politically connected corporations they represent) at risk.
In their defence such entities as the Economist point at the terrible consequences in terms of economic output and unemployment there are from a bust. But, of course, they never point out that their suggested policies for avoiding or mitagating such a bust delay or prevent recovery and produce even more suffering over time.
Whether one supports or opposes the various complex tactics to expand lending beyond real savings that go under the very loose heading of “fractional reserve banking”, once the bust has started one must allow the banks concerned to go bankrupt and the mal-investments to be liquidated. Of course this means that many good enterprises are dragged down along with the bad, and that a lot of good people suffer for something that was none of their doing – but, once the credit/money bubble has been created the best, or rather least bad, thing to do is to allow it to be liquidated as quickly as possible.
Suffering can only be mitigated by general economic policy. By radically reducing government spending (and taxes – but reducing taxes on its own will do little good) and radical deregulation to help markets, especially labour markets, clear. All this aid to recovery was done, for example, by the Administration of Warren Harding in the face of the bust of the World War One credit/money bubble in 1921 – this is the real reason (not the corruption, that was no worse than in most Administrations) that the Harding Administration is hated by establishment historians.
None of the above will be accepted by the establishment – for it destroys their vested interests.
On the contrary to such entities as the Economist allowing the banks concerned to go bust is not even an option, the only options are either to subsidize the banks concerned (with sweetheart “loans” from the Central bank and so on) or to nationalize the banks – and then subsidize them, perhaps before selling them off again.
In the United States such banks as Citi Group and Bank of America can not be allowed to go bankrupt – just as in Britain such banks as the Royal Bank of Scotland and HBOS (and with it now Lloyds) can not be allowed to go bankrupt. Not because their bankruptcy would lead to the bankruptcy of many small and medium sized enterprises (although it would), but because of their own importance to the people who control such publications as the Economist. After all the cost of keeping such banks going, either in private or state hands, will cause far more bankruptcies of such small and medium sized enterprises over time, and these bankruptcies are already happening.
And far from cutting government spending, it must be increased in order to “stimulate” the economy in accordance with the doctrines of Lord Keynes.
This involves terrible contradictions, after all if subsidizing banking is good and increasing government spending in general is good (at least during a recession) then why not subsidize all industries? But that is clearly absurd, so such publications as the Economist must tie themselves into “knots” in order to support a general increase in government spending (especially for their friends) whilst opposing just everyone (for example me) being given money by the government.
All the above must be understood before one reads an article such as “In Knots Over Nationalization” on page 14 of the present edition of the Economist.
If it is not understood the article can not be fully understood. For example, why does the Economist refer to Alan Greenspan, a man whose response to every economic problem from 1987 onwards was to increase the government credit/money supply, as part of “the free market right”.
This would have come as a surprise to the late Ayn Rand, who shoved a dinner plate in Alan Greenspan’s face, but the Economist has to describe Alan Greenspan as a free market person, even if he suggesting the nationalization of the banks, because to discuss real free market people would be a threat to the interests the Economist represents.
This is why, during the present crises (not at less risky times), when the Economist feels compelled to mention alternative economists to Lord Keynes and his followers it does not mention the Austrian School tradition of opposition to Keynesianism or even such neoclassical opponents fo Lord Keynes as W.H. Hutt. Instead the Economist dredges up Irving Fisher from the 1920’s – as it did in a recent issue. Why him? Because he to was an opponent of the evil “deflation”, and a supporter of bailing out the “system”. In short he is no alternative at all – and, therefore, a safe subject.
However, it does stop here. To maintain the vested interests (banking and nonbanking) that it represents the Economist must support those politicians who will support those interests – regardless of how much these politicians increase government spending.
Certainly details can be attacked – but the overall position of bailout and “stimulus” can not be. And, please remember, to the sort of creature that controls such corporations as General Electric even nationalization is preferable to bankruptcy.
And these creatures know perfectly well that if the big banks that are in trouble go down, their debt ridden overextended conglomerates go down with them.
Only about 75 banks (and financial institutions – such as Fannie Mae, Feddie Mac and AIG) in the United States have been given government aid – but they include most of the largest banks, the ones that the General Electric type of debt ridden, unprofitable, zombie corporation depend on.
And please remember that in spite of there, quite truthfully, pointing out that many small and medium sized enterprises would go bankrupt if certain big banks, and the politically connected corporations that depend on them, that is not the reason the Economist supports the bailouts and “stimulus” pig fests.
The people who write for the Economist are not morons, they know that costs have to be paid by someone, and they know that far more small and medium sized enterprises will go bankrupt to pay for the above than would have gone bust had it not been done.
But that is acceptable as long as the system of politically connected big banks and corporations (whether in formal private ownership of in open government ownership) is maintained.
The final irony is that if President Barack Obama is what his background and record suggest that he is, then he may prove to be far more of a threat to the various “businessmen” that such publications as the “Economist” represent than bankruptcy would be.
Is it “plausibly responsible” to pass bills that no single legislator has read in its entirety, or to schedule $200 billion of spending over two years after it’s supposedly needed now, or to increase costs on the public with moves from oil to energy sources that currently cost 8 times more?
None of this is remotely responsible, and I think in the spirit of openness The Economist should consider changing their name to The Big Government Bugle.
Agreed.
Actually I am told that compared to its sister publication the “Financial Times” the “Economist” is quite moderate.
I do not look at the F.T. very much (it is not in the local library to be checked – and I certainly would not buy the publication).
However, someone stopped me when I remarked about the days when the F.T. had card carrying members of Communist Party on its staff – I was told it has all changed.
What the Marxists no longer carry cards?
No, no – there are lots of free market people there now.
Like who – Samual Britton the European Union lover?
No Mr Clive Crook.
In spite of his name I went looking for an article by Mr Crook.
It was an article about how the costs of the unconstitutional entitlement programs were growing out of control (although he did not call them unconstitutional).
However, Mr Crook’s “solution” to this problem was to introduce a “national sales tax or a carbon tax or both” ON TOP OF all the existing Federal taxes.
I repeat Mr Crook is what the F.T. calls a free market person.
And, no doubt, by their collectivist standards he is.
Almost needless to say lots of subsidy loving “businessmen” read the F.T. – to work out how to get government contracts as well as ever bigger subsidies.
it is funny how bush’s expansion of debt in 2000 to try and prevent a recession was irresponsible but obamas giant stimulus is right on the money.
anyway, i think greenspan is right on the money. ‘nationalization’ is the free market solution. banks that are no longer solvent need to be processed by the FDIC which would mean shareholders get wiped out and non-FDIC insured creditors will probably take a haircut. this is infinitely better than the current situation where the government just keeps on pumping money into these institutions which is looking like a massive subsidy to bond holders.
Bankruptcy is the free market solution.
Of course by “nationalization” Alan Greenspan may mean bankruptcy (i.e. the guys go in and put the various different bits of the bank for sale for whatever anyone will pay – and what no one pays for gets shut down).
However, I do not trust the man as far as I can spit. Ayn Rand was right about him – pity the lady did not use the plate to cut his throat.
One should also remember that no “solution” will avoid a terrible contraction.
For example, property prices have to fall (and fall A LOT) – but the endless throwing in of good money after bad is only delaying that price fall, it will not prevent it.
There is a simple solution to this — Stop reading The Economist. After all, nearly everybody else has.
The neo-fascist establishment represented by publications like The Economist has been intellectually bankrupt for some time. Their failure is just becoming steadily more evident. But it really does not matter. Reality will win in the end, and no article in a once-respected London publication is going to change that.
Paul,
There is no intrinsic link between the amount of deposits you have on hand, and the loans you have made. Deposits represent an obligation you have undertaken to produce a given quantity of money on demand. What you do with the money in the meantime depends entirely on your appetite for risk, and relevant laws.
And bankruptcy for the banks is not the only possible justification for fractional-reserve banking. As Larry Sechrest argues nicely in his book “Free Banking,” in theory, as banks assume more risk by retaining smaller reserves, the price of loans will rise commensurately—leading to a feedback that will limit undue risk all around.
Of course, this assumes that incentives are aligned. Under the present structure of corporate management, that is not the case.
Really, lovers of freedom need to closely reexamine the structure of the modern corporation. The corporation is a statist invention, and was structured to enable state influence over private firms.
Additionally, I’m coming round to the idea that the whole structure of interest-based financing is harmful. It decouples the interests of the investor from the recipient of capital, to a much greater extent than does equity; the demands on the recipient have no relation to his actual ability to pay; those less able to pay are forced to pay more via the risk premium than those most able; and in an economy with omnipresent debt, you are forced to increase the money supply to prevent the whole system from imploding.
It seems strange to me, given the level of intelligence usually displayed here, especially by those well-informed, that the actions of the U. S. Congress, are regarded as the actions and responsibility of the President.
One can understand how a large body of the electorate fixes on the Presidency as responsible for things controlled by Congress, but it should not be so here.
Now, no doubt there are many actions, initiatives, endorsements and requests that fall to the President, but, he can not appropriate, he can not spend, and he can no longer (as formerly) “lock-up” appropriations once a spending bill is enacted. The VETO is a negative power.
The actions of the Treasury are specifically provided for by Congress, which in turn funds them.
We have given great powers to people who don’t know what they are doing, who go along to get along.
We are “governed” by the unelected staffs who write the legislation; and we do nothing about it.
So, the fault is not in the legislatures, is it? It is in the fabric and woeful disregard of our electorates.
In the U.S., if the “programs” currently proposed are enacted and funded (by debt, of course) we will begin our journey on the road to the New Totalitarianism.
Also, as to the quote (but not in defense of the leanings of the staff of the Economist),
consider the meaning (if not the intent) of “plausible.”
Mastiff, you say “There is no intrinsic link between the amount of deposits you have on hand, and the loans you have made.”
This is mostly not true. It is true for non-interest-bearing deposits, since they involve very little (and mostly fixed) cost to the bank. Interest-bearing deposits have a very tangible cost – interest paid, so if a bank has a surplus of such deposits, and not enough loans it wants to make, it cuts the cost – it lowers the yield offered, until its book balances. According to the Federal Reserve’s latest H8 release, US commercial banks hold a total of roughly $7.3 trillion in deposits, and of those $670 billion are transaction ones. The remaining $6.6 trillion is only broken down into $1.9 trillion of large time deposits, and $4.7 trillion of “other”, but it is a safe bet, IMHO, that the bulk of that is interest-bearing deposits of various kinds.
To summarize, for banks, taking in deposits and making loans is not a one-time exercise, but a repeated game, and thus they can, and should, and do manage the amount of deposits they take. Those who do not or cannot do so competently suffer losses, and should die when their greed gets the better of their prudence.
Now, your last paragraph is a more than a little strange:
“the demands on the recipient have no relation to his actual ability to pay” – debt covenants? Furthermore, the ability to of the recipient to pay is (normally) factored into the very decision to extend or deny credit.
“those less able to pay are forced to pay more via the risk premium than those most able” – and this is wrong why? How is it the right of someone who cannot pay back to receive cheap financing? And even if it were so, how is it solved by equity financing, which also (naturally) has a risk premium built into it?
I was nodding in agreement with Mastiff through the first half of his post, but we part ways on last two paragraphs. Of course the interests of the provider of debt financing are different than those of the provider of equity capital: the creditor does not share in the growth and profits of the company, but neither does he share in any losses (barring the catastrophic event of bankruptcy). The investor gets all the upside and downside. In contrast, the creditor’s claim is limited to the principal lent and the interest contracted for. But it is precisely because of the possibility of business failure and bankruptcy that the interest rate is higher on riskier loans. Risk requires compensation, and the greater the risk the higher the required yield, with equity receiving the highest yield of all. (In a sense, the riskier the company the more debt financing comes to resemble equity.) That is why the “ability to pay” argument makes absolutely no sense in this context. If a lender didn’t believe the borrower had the ability to repay the loan he wouldn’t extend credit (of course, this assumes rational lenders and no government interference in the lending process, such as through credit mandates [i.e., C.R.A.] or loan guarantees).
This is not to say that I disagree that Corporate America has too much debt, is too highly leveraged. It most certainly is, which increases the risk to all concerned. In large measure this is an artifact of dysfunctional and irrational tax policy: interest on debt is tax-deductible, whereas dividends on equity are not, even though they are every bit as much a part of entity financing as is debt. Allowing for the deductibility of dividend payments would be a simple change and would go far toward de-leveraging large corporations.
Back to Paul’s original post, I am in complete agreement with him. I do not share Paul’s opposition to fractional reserve banking, but he is correct that a necessary corollary is (or should be) the “right” of the enterprise to fail if it becomes insolvent. The “too big to fail” doctrine is morally bankrupt; any institution which is “too big to fail” is too big, period. No institution gets that large without the concurrence (if not outright assistance) of government, and any institution that large should be broken apart into smaller segments.
And of course governmental “bailouts” and “stimulus” for these insolvent entities (commercial banks, investment banks, insurance companies, automobile companies, and who know what else) is completely extra-constitutional. Indeed, I don’t know that anyone has even bothered to try to make an argument for its constitutionality; the assumption seems to be that we are in a “crisis” and that somehow justifies any and all governmental action. Even if one accepts the complete good faith of the bailout proponents (a proposition which I most assuredly do not accept), we all know where the road paved with these good intentions leads.
By the way, if I came across as a bit brusque, I apologize, Mastiff. I added your blog to my list, a lot of great stuff there, even though you do not seem to write much these days.
“The people who write for the Economist are not morons…”
You know the longer this crisis goes on the more I question this. I think they believe their own rhetoric.
Paul, excellent piece.
The Economist these days adopts a sort of managerialist, Davos Man liberalism. Sometimes it can get things right, when it mocked what it called “soft paternalism” (stopped clocks and all that). But it generally tends to go along with a fairly bog-standard conventional wisdom:
State central banks are necessary and good.
The corporation, and limited liability laws, and bankruptcy protection, and patents, are good (admittedly libertarians disagree among themselves on these issues);
George Bush was a total moron even though the Economist supported the invasion of Iraq;
Global warming is happening and clever people with state backing must fix it.
Religious people are weird and wrong
And so on. Now on some specifics, I might agree with the publication’s line. But what drives me around the bend is the supercilious tone that the publication brings to arguing its case. So many of its positions are assumed, rather than argued for from a set of first principles and axioms.
I see that I need to clarify a bit.
Plamus,
Interest-bearing deposits have a very tangible cost – interest paid, so if a bank has a surplus of such deposits, and not enough loans it wants to make, it cuts the cost – it lowers the yield offered, until its book balances.
Oh, I completely agree. I was rebutting the assertion in the original piece that fractional-reserve banking is inherently immoral, because the bank is not able to satisfy 100% of its demand obligations at any moment.
“the demands on the recipient have no relation to his actual ability to pay” – debt covenants? Furthermore, the ability to of the recipient to pay is (normally) factored into the very decision to extend or deny credit.
I grant your point about debt covenants, but note that they are usually available to large companies, not small firms or individuals. And while ability to pay is indeed factored into the original loan decision, that depends on a prediction about the future, and does not change when the future does. Hence, an entity may find itself obligated to pay more than it has on hand—which simply cannot happen because of equity financing.
“those less able to pay are forced to pay more via the risk premium than those most able” – and this is wrong why? How is it the right of someone who cannot pay back to receive cheap financing? And even if it were so, how is it solved by equity financing, which also (naturally) has a risk premium built into it?
An interest risk premium is not wrong, exactly, but it represents a perverse result where the difficulty of successfully servicing a loan rises disproportionately to the financial fragility of the borrower. This means that potential gains of trade are left on the table.
Equity financing would also carry a risk premium, as you note, but it has two signal advantages. First, the interests of the investor and the firm are more closely aligned, meaning that the investor is less likely to press the firm for a short-term payoff that harms the firm’s long-term prospects. Second, as noted, any obliged payout will be strictly limited by the firm’s ability to pay.
Thanks for the kind words, by the way.
Laird,
I believe some of your objections were addressed above. To continue:
Of course the interests of the provider of debt financing are different than those of the provider of equity capital: the creditor does not share in the growth and profits of the company, but neither does he share in any losses (barring the catastrophic event of bankruptcy). The investor gets all the upside and downside. In contrast, the creditor’s claim is limited to the principal lent and the interest contracted for.
I understand this very well, but I believe that it leads to harmful results.
Imagine that everyone in the economy owes everyone else more money than he possesses (but not too much to service, at least in the short term), such that the overall volume of claims throughout the economy grows at some 10% per year. Therefore, in order for the system to keep operating, the money supply must grow over time—regardless of whether or not general economic activity keeps pace, thus creating the ever-present danger of inflation.
Furthermore, even if the money supply does so grow, fluctuations in the success of firms across the economy would inevitably force some firms into bankruptcy. Thus, firms that must carry a debt balance become excessively conservative, and also have an interest in securing protectionist subsidies from the government to stave off their imminent demise. (The auto companies in the US are a case in point.)
On the other hand, if all investment were via participation in profits alone (this need not be via equity per se; indeed, I think that one of the roots of the problem was that participation in profits was needlessly linked to partial ownership, in an age of otherwise-creative financing that would make Colbert weep), then there would be no inherent need for the money supply to grow. There would also be fewer fatal consequences for short-term dips in profitability, which would reduce economic upheaval and protectionist pressure.
What could President Barack Obama do that “The Economist” would consider “irresponsible?”
Nothing.
Unless he became a Republican.
Mastiff – what is and what should be (if things were straight) may be very different things.
For example, how can MB (the monetary base – the notes and coins) and M3 (and the other measures of “broad money”) be different numbers?
Surely banks “just put people’s savings to work”, – of course we both know that is just NOT so.
Still whether one considers the “Mystery of Banking” (as Murry Rothbard wrote it) to be a good thing or bad thing (or neither) if a bank goes bankrupt – it must be allowed to bankrupt. Efforts to keep the bubble inflated (in banking, housing or whatever) just make things worse than they otherwise would be – apart from for a some politically connected people of course.
Anti debt finance?
Well companies should finance normal expenses (such as replacing worn out plant) via PROFITS – but that is considered weird these days. Indeed these days even meeting payroll by borrowing money is considered normal (as opposed to utterly insane).
One can also finance investment via selling shares – that used to be the point of stock markets.
However, I see no reason in principle to be anti lend and borrow – as long as real savings are being lent (not smoke and mirrors games) and the person borrowing knows what he has done, and takes the consequences.
RRS.
Quite so – I apologize.
Barack Obama is not some evil genius who is desryying the United States all on his own.
There are people like Speaker Pelosi, “Charlie” Wrangle, Barney Frank, Senator Harry Reid, Senator Christopher Dodd, Senator Richard Durbin, and on and on and on and on.
The leading mutants in House and Senate, and the mainstream media, and the “education system” that produces these bits of crud.
And, of course, the half hearted Republicans (both official RINOs and those who should know better – and just do not).
After all President Bush and the useless Congress before the 2006 defeat laid the groundwork for this mess.
Mastiff – what is and what should be (if things were straight) may be very different things.
For example, how can MB (the monetary base – the notes and coins) and M3 (and the other measures of “broad money”) be different numbers?
Surely banks “just put people’s savings to work”, – of course we both know that is just NOT so.
Still whether one considers the “Mystery of Banking” (as Murry Rothbard wrote it) to be a good thing or bad thing (or neither) if a bank goes bankrupt – it must be allowed to bankrupt. Efforts to keep the bubble inflated (in banking, housing or whatever) just make things worse than they otherwise would be – apart from for a some politically connected people of course.
Anti debt finance?
Well companies should finance normal expenses (such as replacing worn out plant) via PROFITS – but that is considered weird these days. Indeed these days even meeting payroll by borrowing money is considered normal (as opposed to utterly insane).
One can also finance investment via selling shares – that used to be the point of stock markets.
However, I see no reason in principle to be anti lend and borrow – as long as real savings are being lent (not smoke and mirrors games) and the person borrowing knows what he has done, and takes the consequences.
RRS.
Quite so – I apologize.
Barack Obama is not some evil genius who is desryying the United States all on his own.
There are people like Speaker Pelosi, “Charlie” Wrangle, Barney Frank, Senator Harry Reid, Senator Christopher Dodd, Senator Richard Durbin, and on and on and on and on.
The leading mutants in House and Senate, and the mainstream media, and the “education system” that produces these bits of crud.
And, of course, the half hearted Republicans (both official RINOs and those who should know better – and just do not).
After all President Bush and the useless Congress before the 2006 defeat laid the groundwork for this mess.
“Stop reading the Economist” – well I have not bought the thing in years, but I still look at it from time to time.
However, the claim that no one reads the Economist anymore….
I wish that was true – but the Economist and (utterly vile) Financial Times are still presented as the “voice of the free market” or some such – the “alternative” to the various leftist news magazines (Newsweek, Time and so on).
Of course they are not an alternative at all – they represent basically the same university leftism. The “good students” who lapped up what they were taught and then went on to get jobs in corporations like TimeWarner.
Remember the “voice of business” does not mean “the voice of the free market” – and the “voice of business” really means “the voice of a few big politically connected corporations – banking and nonbanking”.
I don’t think the Economist ever got over it’s editorial disputes and flip-flopping over the Iraq war. That, combined with a campus-bred scorn for liberalism has pretty much turned it.
“The Nation” magazine followed the same path 100 years earlier of course.
Mastiff, you say “Equity financing would also carry a risk premium, as you note, but it has two signal advantages. First, the interests of the investor and the firm are more closely aligned, meaning that the investor is less likely to press the firm for a short-term payoff that harms the firm’s long-term prospects. Second, as noted, any obliged payout will be strictly limited by the firm’s ability to pay.”
These are valid arguments, but more so when a company is in distress. In good times, debt allows a company to leverage, boosting the return on equity. It can also, via debt covenants, be a check on management’s empire-building ambitions – whether we like it or not, the principal-agent problem exists, and will not go away. I agree (as Laird correctly points out) that many firms are overleveraged, but this is not a good argument for throwing out the benefits of debt, just as one (or many) idiots dying of alcohol poisoning is no reason for vilifying alcohol.
Your idea of participation in profits alone is interesting, but to me (call me dumb) it seems to be a distinction without much difference. Voting rights mean little to most shareholders; the few large block holders like them, but rarely exercise them for anything but putting a buddy on the board of directors. It seems to me that you’d either have discard limited liability, and thus have investors also participate in losses, or have a major change in accounting/taxation, and let capex (or at the very least maintenance capex) happen above the net income line on the income statement. I cannot estimate the full impact of such changes, unintended consequences and all, nor do I see them as having a snowball’s chance in a blast furnace, but it surely makes for an interesting thought exercise.
It’s such a relief to see I’m not alone in losing faith in The Economist. But what can I read on the train instead, i.e. when there is no internet connection or even when I just don’t feel like lugging the laptop around? Private Eye is a good read, notwithstanding its own political leanings [but then I think its job is to offend everyone anyway, so I let it pass]. Anything else?
Top article there, Paul. I don’t understand if you propose to use the state to clamp down on “free” fractional reserve banking, or if you just don’t think it’s a good idea; otherwise, a lot of good sense. What is everyone else smoking though? Lots of people with the best intentions really do support all of this nonsense. What can be done?
Jonathan: You argue that The Economist espouses “a sort of managerialist, Davos Man liberalism.”
Of course it does. The Economist aspires to be a ‘respectable’ publication. As such, the positions it stakes out for itself on given issues are shaped by the social consensus among its subscriber base. These days that consists largely of people who have done very well out of the managerialist liberalism you describe.
When the intellectual center of gravity in society as a whole tilts to the left, magazines such as the Economist must follow or cease to remain mainstream.
The anonymity of its writers ensures that every opinion that appears within its pages must be expressed in the same tiresome house style and more importantly, carry the more or less explicit endorsement of its publisher. I can’t think of a better recipe for journalistic timidity.
The Economist provides its readership with ready made opinions they can trot out at dinner parties and the like in order to sound educated and knowledgeable. Its purpose is not to shock offend or disconcert.
In that sense it succeeds. The opinions it espouses are certainly far more ‘respectable’ in the social sense of the word than those typically expressed at Samizdata. I would also wager that most of its readers are far less comfortable being outspoken and contrarian than say, Paul Marks.
The requirement that opinions remain within the bounds of respectability means that it is a slave to fashion.
Expecting The Economist to swim against the intellectual tide is no more reasonable than expecting Vogue or GQ to ignore wildly popular fashion trends in favor of the ideosyncratic personal tastes of its staff..
Well Jerome, I agree with you about 80 per cent, but I’d add that during the late 1980s, for example, that publication fairly robustly supported the deregulation, privatisation moves of Western governments even when they were still controversial. So it has shown backbone in the past.
GF use the law of fraud (or rather an interpretation of the law of fraud) to hit lending out money that does not exist?
Actually I would be happy if governments would stop subisdizing the practice in endless compex ways.
And, by the way, that applies to old 18th century Scottish “free banking”.
It was free – unless you wanted your gold back (in which case there were a vast number of excuses) and it was free in between support operations from the Bank of England (which happened again and again).
Enforce contracts, and let bankrupt entities (banks and nonbanks) go bankrupt.
Is that an extreme request?
As for the Economist.
Some people may think I was picking on one article.
So let us switch to the main cover article of that issue (the cover issue explored in two articles – one on page 13 the other on page 43).
This was all about the European Union bailing out various Eastern European nations.
And the conclusion – the E.U. “must” do this.
At the weekend meeting even the statists of the E.U. recjected this idea as insane.
So there you have it – the Economist is to the left of the E.U.
In short the Economist is a piece of dung.
I was in the doctor’s office last week. All he had were Time and the celebrity gossip rags. But it was an unpleasant reminder that, as WTOBH as the Economist may be, there still is worse out there.
The only thing that could made that a worse way to spend an hour will be when I get old enough for prostate checks. Between that and Time Magazine…not sure which is worse, apart from the magazine lobbying for the palpation to be done by the DMV.
(And GF: you should do the same thing that I should have done: bring a book.)
Time magazine does not claim to be pro “free markets” Sunfish – nor does Newsweek make such claims.
Time and Newsweek are open about what they are – collectivist propaganda sheets.
The Economist claims to be voice of free markets and so on (endless waffle and B.S. about how devoted they are to freedom and so on) – have a look at some of their claims that are repeated on the “wikipedia” page devoted to them.
I altered the page – but no doubt they altered it right back and put their lies back up there.
Do you not see what they are trying to do?
They are trying to shut off any real alternative to the left.
When someone says “I want the other side to Karl Marx” a university will give him J.S. Mill to read as the “pro capitalist” 19th century writer. Actually J.S. Mill is not a real “alternative” at all.
Such is the role of the Economist – “I want an alternative to Time and Newsweek”
“Here it is, the Economist”.
“See we support free speech – we have publications that support the bailout and tell you to vote for Obama, and we have other publications who also support the bailout and tell you to vote for Obama. You have a free choice over which you buy”.
So there is no need for “hate filled” publications like Human Events – so the Postal Serivice can increase the price for delivering it (make it ever higher than the price charged to, say, Time magazine) and we can wear down the writers in other ways……
After all there is a “respectable and responsible” alternative to the official left media.
An “alternative” made up of the Financial Times, the Economist, ……….
Have a look at the statement of principles the Chicago Tribune published in 2007 – seems fine.
Till anyone actually read the “gun control” supporting, Obama loving rag.
… “an honest attempt”?
Is this inferred from the attempt on its face, or from Obama’s remarkable character?
Oh, I get it. It’s like The Economist‘s name (or that of Pravda or Izvestija). But unless you need a hook, you’re supposed to save the punchline for the end.