Paul Marks reads what is generally said to be a ‘pro-free market’ newspaper and find a procession of writers who do not have the slightest idea what they are talking about
Page four of the Sunday Telegraph business supplement (4 August 2002) tells us quite a lot of the state of what passes for free market thought in Britain today – remember the ‘Sunday Telegraph’ is about as free market as mainstream Britain gets, the other newspapers (let alone radio and television programs) are far worse.
There are three articles on the page. The first article is by Jeff Randall of the BBC Mr Randall is one of several B.B.C. people who write in the Daily and Sunday Telegraph and such people are given as evidence that the B.B.C. is tolerant of free market thought. My own opinion is that the Telegraph is rather welcoming to anti free market thought – but I must deal with the article on its merits (not on basis that the author works for the BBC.)
Mr Randall writes about two topics in his article. The second topic is the stupidity of the Football League – a topic I know little about. However, Mr Randall starts his article by writing about the 1990’s stock market bubble. Mr Randall blames the whole thing on stupid greedy people (businessmen, politicians, ordinary investors and so on) and gives several examples of stupid behaviour.
Mr Randall shows little sign of understanding that the bubble was created by an expansion of credit-money by the Federal Reserve Board and the other central banks. But why should Mr Randall understand this? The source of Mr Randall’s understanding of economics is that “classic work” by J.K. Galbraith “The Great Crash”. J.K. Galbraith (being a socialist) would hardly blame the great depression on government credit-money expansion – no, greedy businessmen and other silly people were the cause. Being mostly University graduates Sunday Telegraph readers are likely to have heard of Galbraith’s work. However, it is very unlikely that the average reader (or even Mr Randall himself) has heard of Ludwig Von Mises’ “Theory of Money and Credit” or Murray Rothbard’s “America’s Great Depression”.
The basic truth that investment must be based on real savings and that trying to base investment on credit-money expansion via the central bank system MUST lead to a boom-bust cycle (whatever the moral character of businessmen) is not something that it is generally known. And how can Conservative “Telegraph” readers get to know about it? The socialists are not going to tell them – and anti-socialist establishment types such as Mr Alan Greenspan of the Federal Reserve Board are not going to tell them either. Even if the establishment types know what they have done (and I suspect that Mr Greenspan is one of the few people in the international finance “community” who actually does know what he has done) they are hardly going to say “look, we have created a boom-bust cycle”, such a statement would not make them popular. It is far better to blame “greed”.
The second article (on page four of the business supplement of the Sunday Telegraph) is by Evan Davis (another BBC man). Mr Davis notes that people in some Continental nations tend to save more than people in Britain or the United States. Mr Davis concludes from this that the E.U. central bank should cut interest rates – as this will encourage the people in Europe to spend and invest, rather than save.
Mr Davis is unaware that investment depends on saving (I suppose he thinks that “saving” means hiding money under the floor boards). Mr Davis is also unaware that people must produce before they can consume. All efforts to “stimulate the economy” by getting people to buy more things are putting the cart before the horse.
However, there is no reason why Mr Davis should know any of this – he could spend as much time as he wished in university economics departments without learning any of it. The business people who read the “Sunday Telegraph” are (no doubt) quite happy to think that all would be well if only people had more money to buy their products. Why should the business people not think like this? No one has ever told them anything different.
Mr Davis points out that there is less of a house price bubble in most continental nations and that the stock markets have not reached the heights seen in the United States. However, Mr Davis does not point out that there has in fact been vast money supply growth in most Continental nations and that presently the Euro money supply growth figures are higher than money supply growth figures for the United States – see the back pages of the “Economist” magazine for the figures.
The idea that the effects of the boom-bust cycle in Britain and the United States can be mitigated by further money supply expansion in the Euro Zone is insane – but there is no reason why Mr Davis (or his readers) should know that it is insane.
The last article (on page four of the business supplement of the Sunday Telegraph) is by Luke Johnson (chairman of Signature Restaurants). Mr Johnson is concerned about the rise of China and the relative decline of the West in manufacturing.
Mr Johnson knows little about “macro economic” matters – for example he thinks that the “relentless deflation now present in all economies” is due to China manufacturing cheap goods. Actually there is “deflation” (i.e. falling prices) in virtually no Western nations (apart from Japan) – and the falls in asset values that we have seen (and will see a lot more of next year) are due to the credit bubble (which is still being pumped up) nearing its terrible end. Mr Johnson does mention the credit bubble – but being a businessman he prefers to deal with something he can see in terms of physical goods (in this case the manufactured goods of China).
Mr Johnson is actually right to dismiss the idea that manufacturing does not matter – I know only to well that “service industries” normally do not mean flashy things (and when they do mean flashy things – they are often unstable credit bubble linked things such as “financial services”). Mostly “services” are things like the warehouses that have replaced the factories of the midlands (and much of the rest of Britain). And anyone who thinks that warehouse work, looking after goods imported from abroad, is a real substitute for actually making things is simply wrong.
Mr Johnson makes too much of China’s low wages (there are nations with much lower wages than China that produce very little in terms of manufactured goods – and there is no reason why, with automation, “high wage” areas can not hold their own against “low wage” areas).
However, Mr Johnson is right to point out that depending on a hostile power (and China is deeply hostile to the west) for essential manufactured goods may be unwise. Although one should remember that a real market order can adapt very fast – for example the British military, to some extent, depended on goods produced in Germany in 1914 (even down to the dye for army uniforms) – but this did not prevent Britain fighting Germany (British firms filled the gaps).
But Mr Johnson’s last but one paragraph makes his most important point (and shows there is some reason to read the ‘Telegraph’ papers, rather than reading the ‘Guardian’ or watching the BBC.).
“Fatuous E.U. bureaucrats legislate for more burdensome health and safety regulations, higher taxes, and more red tape for business, and insist that curing unemployment is a priority”.
When they are dealing with “micro” economics (as opposed to the financial magic of “macro” economics) Telegraph business people have something to say. It is the taxes, spending and regulations of Western nations (E.U. or not E.U.) that is helping destroy Western industry – not a wicked Chinese plot. Of course Western industry is also being destroyed by the boom-bust cycle, the very demands for “lower interest rates” and “more consumer demand” that we hear from business people in every Western nation.
They are rich, they are well meaning, they are hard working – but (sadly) they are ignorant.
Paul Marks
