Sunday, January 06, 2013

Bye 2012, hello 2013

Beyond the tragic shooting in the United States, which Peter Cresswell has pithily written about, the time has come for me to reflect on 2012.  What themes were important, what really matters and how has the world changed in that time?


The big theme remains economic policy and what remains a crisis of stagnation, public and private debt across the OECD.  It was caused on the one hand by malinvestment by financial institutions obtaining cheap credit from central banks which were focused on inflation of consumer prices, not asset values, and on the other hand by governments which thought they could perpetually overspend using that credit and never face a collapse in tax revenue when the malinvestments collapsed.

Despite the (rather pathetic) efforts by some on the left to try to paint this as the collapse of "neo-liberalism" (their term) and free market capitalism (ignoring that fiat money issued by central banks controlling credit, and a US financial system that made some lending to the "uncreditworthy" compulsory), nothing much has changed.

An exercise in widespread economic guesswork has seen a range of "solutions" be adopted by larger economies.

The US has been printing money, as has the UK, which is meant to work by flooding the financial sector with money to lend to businesses, hoping they will invest and grow the economy.  Of course, this risks causing inflation, which is happening on sharemarket prices (and some commodity prices) largely because entrepreneurs are conservative.  Inflation on consumer prices is low, because consumers are largely deleveraging (reducing their exposure to debt) because of fear of unemployment.

This money printing is being undertaken largely because central bankers and government economists don't know what else to do, and are hoping that the flood of money will end up getting spent and circulated and revitalise the economy, ignoring the real effect on savings and threat of inflation taking off.

In fiscal policy there is a split between the Keynesians and the "austerity is necessary"advocates.  The former believe that government can spend its way out of a recession, and Barack Obama has been of that school (as have more than some leftwing parties in other countries).  Japan has also been pursuing this approach and has seen 15 years of continuous stagnation.  The austerity advocates believe (as I do) that a balanced budget is critical, which is all very well, except that they also see tax increases and spending cuts as essentially neutral in terms of net economic impact.

They aren't, as tax increases reduce the size of the private sector, whereas spending cuts reduce the size of the public sector.   Tax increases take money from people undertaking voluntary transactions, whilst spending cuts mean less of other people's money being spent.  This is qualitatively and morally quite different.

I don't expect much will come of the limited austerity being undertaken.  France is taking the extreme tax increase approach and is paying for it.  The European Union is continuing to preach that the solution to a crisis caused by its own monetary looseness and fiscal incontinence is for it to spend more money from European taxpayers, to pay lip service to liberalising reforms that could do some good, and to arrogantly regard European citizens who question is unaudited, unaccountable bureaucracy as morally questionable.

So all of that continues, and it continues to deliver little, and I predict that will continue some more, until the next short term boom and bust.

The problem is that rent seekers of the state are loud, and demanding, whilst those who lose from rent seeking (savers, and a subset of current and future taxpayers) are numerous (and in many cases not yet born).

What is needed is true austerity, an end to taxpayer support of all business, encouragement of personal savings for retirement income and healthcare, an end to taxpayer support of children in middle income households, the end of QE and the removal of restrictions on competing currencies (to allow a shift towards commodity currencies if there is market demand for it).  That is the necessary minimum, to avoid the rolling bankruptcies of governments, to avoid the fiscal child abuse that is now rampant and to reduce the risk of future booms and busts.

By Country

UK:  The UK ends the year under a cloud, with continued moaning by rent seekers of state largesse about relatively small cuts in spending, and rising debate about the future of the UK within the EU.  The two bright lights at the end of the year has been the intelligent decision to reject Lord Leveson's call for a state regulator of the press (given his most recent comments wanting a level playing field between bloggers, tweeters and publishers, it ought to, but wont shut up the foaming at the mouth haters of Rupert Murdoch lying about his market presence), and rejection of mandatory internet filtering.   The year ahead will be full of hope of a recovery, which is unlikely, and full of arrogance and hatred of successful business from a revitalised more leftwing Labour Party - which will continue to argue that its slower programme of spending cuts (not saying what those are) will miraculously save the economy and mean that by spending more, the government will somehow be overspending less.   The mainstream hate filled class warfare against the "rich" will continue, and the national religion of the NHS (the world's largest non-military public sector employer) will remain almost impossible to challenge.

USA:  So Obama has won, thanks to a massive campaign of negativity, and he has succeeded in introduced a 2% increase in tax on all working Americans, whilst claiming all he did was increase taxes on the rich.  The US will continue to limp forward, printing more money, and the Obama Administration will do little to constrain the budget deficit.  The US taxes like a small government country and spends like a big government country,  this year wont be the one when it reconciles which of those it wants to be.  For those noisy about higher taxes also have an equal number noisy about losing the money they receive from borrowed loot.

New Zealand:  Politics will continue to be dominated by who may lead Labour, the Greens will continue to shroud their radical statist racist agenda with "oh so reasonable" sounding policies, with a media incapable or unwilling to challenge it, and the Nats will continue to ride slowly down their wave of disappointment and public cynicism.  The remains of ACT and libertarian/pro-capitalists will be developing a new platform forward for the local government elections.


Germany feels lucky, but it has its own fiscal problems, with public debt approaching 90% of GDP.  It will have to embark on austerity sooner or later, but is hoping the global economy will recover enough to avoid this.

France is following a path of socialism that is chasing away business and successful entrepreneurs.  Those on the left should watch and learn.

Russia survives on energy prices that remains buoyant due to Chinese demand, but if Western Europe ignores the environmentalist luddites on fracking, it will decimate gas prices and hurt Russia and Putin. Russia still has net population decline because the rampant corruption, brutal state and lack of opportunities for anyone who doesn't buy into the culture of corporatist corruption that surrounds Putin makes anyone with vision to not be a gangster, leave.  As long as Russians remain complicit in this, it will continue to bubble on, and become less and less relevant.

The Middle East will see a series of contrasts.  Libya will be increasingly a friend of the West, Egypt will face ongoing civil conflict,  Assad will fall, but the rebels will not be enamoured with the West.  Israel will continue to be hardline towards the Palestinians given the events in Egypt and Syria.  Iran will continue to stagnate, and there will be some efforts to reduce its isolation due to economic reality (and collapse of its ally in Syria).

Japan will stagnate, more.

China's growth will slow down, as its property bubble and its own sub-prime loan crisis gets absorbed by the state in one way or another. The biggest story in China is the rampant free speech seen online and the debates internally about politics and government policy through that medium.  China's new leadership wont embark on radical change, but watch to see if local politics become more pluralistic.   Meanwhile, China will sabre rattle over the Senkaku/Diaoyutai islands, and the islands in the South China Sea, until the US makes it clear that any battle over any such islands will not be tolerated.

Finally, Australia or China's mine, is hoping China's lowering growth doesn't hurt its grossly imbalanced economy.   It continues to be competitive in little beyond digging dirt and selling it, it continues to engage in massive transfers to support inefficient parts of the economy (e.g. motor vehicle assembly).   It will get a shock if China takes a shock, and NZ will be not far behind.


The year ends with the greatest influence on culture being the pervasiveness of the internet and communication technologies.  It is radically transforming how people interact, how they meet and what exposure they have to ideas, images and sounds.  Children and teenagers dive into it, parents either embrace or fear it, governments seek to monitor and control it, businesses are struggling to get to grips with how to use it and how it affects their businesses.   It remains dynamic and unpredictable, and will frighten governments more and more, but will also drive populist politicians to want to "do something about it" as people use it to bypass tariffs, taxes, censors and monopolies.


This blog will be changing, I will be making it primarily about the UK and world affairs, with a separate page for NZ matters that I care to care for.  I will be writing slightly less frequently, but with a bit more reflection, and with a few more pieces that are less "current history" and more strategic in focus.

As much as I am an objectivist, libertarian and vehemently pro-capitalist, all that in itself is not enough to affect change and influence.  More important than politics, is culture and the philosophy underpinning that, and at the moment there is has been a yawning gap abandoned by traditional conservatism that has been filled by a post-modernist cultural relativist mush of constructed fiction.  Only by taking that on can those of us who believe in individual freedom, capitalism and small government provide convincing arguments against the status quo.  However, on top of that we also have to demonstrate the moral case for capitalism and individual freedom is not the vampiric caricature of a strawman that the post-modernist left paints all too lazily, but of generous, benevolent, positive and social people who are defined by themselves, and how they live their lives.

The case for freedom is not based on economics, it is not based on religion and is not based on a nihilistic hedonism, but on a belief in life as the highest value and that humanity and civilisation is reflected with consensual adult interaction in all affairs.


Anonymous said...

The austerity advocates believe (as I do) that a balanced budget is critical, which is all very well,

Fuck that. When the ten bludgers and their families that I'm supporting through my taxes are starving in the gutter outside my house then I'm admit there's been some successful cutting of government "services" (really handouts).

Until then - nothing

(what's the chance that you'll approve this - zero I guess)

Anonymous said...

Love your work!
Your rational voice (and a few others) give me hope and make me feel like I am not alone!
Keep up the fight!