“Let all men know how empty and worthless is the power of kings.”
This claim comes from French foreign minister Laurent Fabius as he banged his gavel at the close of the Paris climate summit. To the cheers of bureaucrats and cronies the world over, Fabius announced the deal that the press has been crowing about for days, the one in which “humanity” has united to stop increases in global temperature through the transfer of trillions of dollars from the rich to the poor, combined with the eventual (coercive) elimination of fossil fuels.
“The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society — a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”
And thus did he bang his gavel. To his way of thinking, and that of the thousands gathered, that’s all you have to do to control the global climate, cause the world to stop relying on fossil fuels, and dramatically change the structure of all global industry, and do so with absolute conviction that benefits will outweigh the costs.
One bang of a gavel to dismantle industrial civilization by force, replace it with a vague and imagined new way of doing things, and have taxpayers pay for it.
Interestingly, the news on the Paris agreement had no notable impact on global markets at all. No prices rose or fell, no stocks soared or collapsed, and no futures responded with confidence that governments would win this one. The climate deal didn’t even make the business pages.
Investors and speculators are perhaps acculturated to ignoring such grand pronouncements. “The Paris climate conference delivered more of the same — lots of promises and lots of issues still left unresolved,” the US Chamber of Commerce said in a statement. And maybe that’s the right way to think, given that the world is ever less controlled by pieces of paper issued by government.
“Historians have challenged the point of the story. The only account we have of this incident, if it occurred at all, is from Henry of Huntingdon. He reports that after the sea rose despite his command, the King declared: ‘Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.’”
Still, breathless journalists wrote about the “historic agreement” and government officials paraded around as planet savers. Meanwhile, the oil price continues to fall even as demand rises, and the Energy Information Administration announced the discovery of more reserves than anyone believed possible. As for alternatives to fossil fuels, they are coming about through private sector innovation, not through government programs, and successful only when adopted voluntarily by consumers.
“He did and said this, say modern experts, to demonstrate to his courtiers and flatterers that he is not as wonderful and powerful as they were proclaiming him to be. Instead of subservience to his own person, he was urging all citizens to save their adoration for God.”
It’s a heck of a time to announce a new global central plan affecting the way 7 billion people use energy for the next century. Anyone schooled in the liberal tradition, or even slightly familiar with Hayek’s warning against the pretensions of the “scientific” government elites, shakes his or her head in knowing despair.
“His point was that power — even the absolute power of kings — has limits. During his rule, King Canute was enormously popular and evidently benefitted from the common tendency of people to credit authority for the achievements of the spontaneous evolution of the social order itself. His sea trick, if it happened at all, was designed to show people that he is not the man they thought he was.”
The entire scene looks like the apotheosis of the planning mentally — complete with five-year plans to monitor how well governments are doing in controlling the climate for the whole world and do so in a way that affects temperature 10-100 years from now.
The scene prompted many commentators to compare these people celebrating in Paris to King Canute, who ruled Denmark, England, and Norway a millennium ago. According to popular legend, as a way of demonstrating his awesome power, he rolled his throne up to the sea and commanded it to stop rising.
It didn’t work. Still, the image appears in many works of art. Even Lego offers a King Canute scene from its historical set.
Historians have challenged the point of the story. The only account we have of this incident, if it occurred at all, is from Henry of Huntingdon. He reports that after the sea rose despite his command, the King declared: “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.”
He did and said this, say modern experts, to demonstrate to his courtiers and flatterers that he is not as wonderful and powerful as they were proclaiming him to be. Instead of subservience to his own person, he was urging all citizens to save their adoration for God.
His point was that power — even the absolute power of kings — has limits. During his rule, King Canute was enormously popular and evidently benefitted from the common tendency of people to credit authority for the achievements of the spontaneous evolution of the social order itself. His sea trick, if it happened at all, was designed to show people that he is not the man they thought he was.
The Pretensions of the Planners
Lacking a Canute to give us a wake-up call, we might revisit the extraordinary speech F.A. Hayek gave when he received his Nobel Prize. He was speaking before scientists of the world, having been awarded one of the most prestigious awards on the planet. Read the rest of this entry »
Mr. Grant confronts the subjectivity of economic measurement head-on in his book in an enlightening discussion of whether the 1921 depression was, in fact, a depression at all.
The Forgotten Depression: 1921 — The Crash That Cured Itself, by James Grant, Simon & Schuster, 2014.
Joseph Calandro Jr. writes: To better understand the current economic environment, financial analyst, historian, journalist, and value investor James Grant, who is informed by both Austrian economics and the value investing theory of the late Benjamin Graham, analyzes the Depression of 1920–1921 in his latest work, The Forgotten Depression: 1921 — The Crash That Cured Itself.
Grant understands that despite the pseudo-natural science veneer of mainstream economics the fact remains that economic value is inherently subjective and thus economic measurement is also subjective. Mr. Grant confronts the subjectivity of economic measurement head-on in his book in an enlightening discussion of whether the 1921 depression was, in fact, a depression at all.
Was It a Depression?
Grant concludes it was a depression, but mainstream economist Christine Romer, for example, concludes it was not a depression. As Grant observes, Ms. “Romer, a former chairman of the Council of Economic Advisors, presented her research, titled ‘World War I and the Postwar Depression,’ in a 1988 essay in the Journal of Monetary Economics. The case she made for discarding one set of GNP estimates for another is highly technical. But the lay reader may be struck by the fact that neither the GNP data she rejected, nor the ones she preferred, were compiled in the moment. Rather, each set was constructed some 30 to 40 years after the events it was intended to document” (p. 68).
In contrast, Mr. Grant surveys economic activity as it existed prior to and during 1920–21 and as it was evaluated during those times. Therefore, five pages into chapter 5 of his book, which is titled “A Depression in Fact,” we read that:
A 1920 recession turned into a 1921 depression, according to [Wesley Clair] Mitchell, whose judgment, as a historian, business-cycle theorist and contemporary observer, is probably as reliable as anyone’s. This was no mere American dislocation but a global depression ensnaring nearly all the former Allied Powers (the defeated Central Powers suffered a slump of their own in 1919). “Though the boom of 1919, the crisis of 1920 and the depression of 1921 followed the patterns of earlier cycles,” wrote Mitchell, “we have seen how much this cycle was influenced by economic conditions resulting from the war and its sudden ending. … If American business men were betrayed by postwar demands into unwise courses, so were all business men in all countries similarly situated.”
So depression it was … (p. 71)
- War finance (the currency debasement and credit expansion associated with funding war) has long been associated with economic distortion including World War I, which preceded “The Forgotten Depression.” Such distortions unfortunately continue to the present day.
- Scandal is also associated with booms and busts; for example, the boom preceding “The Forgotten Depression” had Charles Ponzi while the boom preceding “The Great Recession” had Bernie Madoff.
- The booms preceding both financial disruptions also saw governmental banking regulators not doing a very good job of regulating the banks under their supervision.
- Citibank famously fell under significant distress in both events.
- Both eras had former professors of Princeton University in high-ranking governmental positions: Woodrow Wilson was president of the United States at the beginning of “The Forgotten Depression” while Ben Bernanke was chairman of the Fed during “The Great Recession.”
- On the practitioner-side, value investor Benjamin Graham profited handsomely from the distressed investments that he made during “The Forgotten Depression” while his best known student, Warren Buffett, profited from the distressed investments that he made during “The Great Recession.”
The Crash That Cured Itself
Despite similarities, there are noteworthy differences between these two financial events. Foremost among the differences is the reason why “The Forgotten Depression” has, in fact, been forgotten: the government did nothing to stop it. Not only were interest rates not lowered and public money not spent, but interest rates were actually raised and debt paid down. The context behind these actions is fascinating and superbly told and analyzed by Mr. Grant. Read the rest of this entry »
In this video, we provide an overview of Hayek’s life, his accomplishments, and the events that influenced his thinking.
Mark J. Perry writes: Nobel laureate economist Friedrich Hayek (1899 – 1992) is one of the most influential thinkers of the 20th century and his work still resonates with economists and scholars around the world today. Two decades after Hayek’s death, his ideas are increasingly relevant in an era where governments grow ever larger and more interventionist.
Essential Hayek is a project of the Fraser Institute (Canada’s leading public policy think tank) and includes a new book by George Mason Professor Don Boudreaux (The Essential Hayek, with a forward by Vaclav Klaus, available here), an Essential Hayek website including a great collection of Hayek resources and a series of videos (watch two below and there are more here), that aim to explain Hayek’s ageless economic ideas in common, every-day language. Read the rest of this entry »
Bin Laden’s Right-Wing Reading List Goes Viral
The list includes an archive of radical right wing books, history books, humor texts, and conservative philosophy belonging to the former al-Qaeda chief, some of which are still being withheld by the U.S. government, but leaked online this afternoon.
Among the volumes of books on law and military strategy that were publicly released this week, are a not-yet-declassified list of books by popular conservative authors such as Ann Coulter, Jonah Goldberg, and Andrew Breitbart, as well as scholarly texts by Ludwig von Mises, Milton Friedman, and Friedrich von Hayek. The collection includes:
The End Is Near and It’s Going to Be Awesome by Kevin D. Williamson
Ideas Have Consequences by Richard M. Weaver
Mugged: Racial Demagoguery from the Seventies to Obama by Ann Coulter
The Road to Serfdom by Friedrich von Hayek
Capitalism and Freedom by Milton Friedman
God and Man at Yale: The Superstitions of ‘Academic Freedom‘ by William F. Buckley, Jr.
Righteous Indignation: Excuse Me While I Save the World! by Andrew Breitbart
On Liberty by John Stuart Mill
Human Action, The Scholar’s Edition by Ludwig von Mises
The Conservative Intellectual Movement in America Since 1945 by George Nash
Witness by Whittaker Chambers
The Conservative Mind: From Burke to Eliot by Russell Kirk
Ethnic America: A History by Thomas Sowell
Natural Right and History by Leo Strauss
The leak comes shortly after the fourth anniversary of Bin Laden’s death at the hands of US special forces…
Media Ignorance Is Becoming A Serious Problem
This reminds me of Donald Rumsfeld’s abstract musings on “known unknowns” and “unknown unknowns”. But then, Zach Carter—The Huffington Post‘s senior political economy reporter–would have to know who Donald Rumsfeld is.
Mollie Hemingway rocks. Read the whole thing here.
Last week, conservative radio host Hugh Hewitt interviewed Zach Carter, who is The Huffington Post‘s senior political economy reporter. The interview’s purpose was to discuss Carter’s negative response to Hewitt’s previous interview of former Vice President Dick Cheney. The interview was lively and interesting but it did not go well for Carter, who was forced to admit his ignorance of the historical context of the situation in Iraq.
Looked at one way, the interview might almost seem like pointless point-scoring. In response to Hewitt’s questions, Carter admitted he didn’t know who Alger Hiss was and that he hadn’t read The Looming Tower. Those two questions are standard questions for Hewitt’s interviews.
…he was unaware that Bill Clinton had bombed Iraq in 1998…
But then Carter said he hadn’t read various other books, such as Bernard Lewis ’Crisis of Islam, Robin Wright’s Dreams and Shadows, or Thomas P. M. Barnett’s The Pentagon’s New Map. He said he hadn’t read Dexter Filkins’ The Forever War but that he’d “read a lot of the stuff that he’s written for The New Yorker.” Filkins joined The New Yorker in 2011. He said he does not read politician’s memoirs, including Cheney’s or George W. Bush’s. That he was unaware that Bill Clinton had bombed Iraq in 1998 or that Gadhafi had reportedly disarmed in 2003. He admitted he doesn’t know who A. Q. Khan, the father of the Pakistan bomb and godfather of Iranian and North Korean nuclear programs, is.
“I give him credit for sticking through the entire interview.”
It’s such a display of ignorance that it seems almost unfair. But looked at another way, it’s simply a good interview where Hewitt seeks to establish Carter’s background and breadth of knowledge in order to help listeners know on what basis he critiqued Cheney.
“But it speaks to a larger problem we face with our media, which is that they frequently are not well read and, more importantly, they do not realize it.”
“He then asked the 31-year old Carter if he knew who Alger Hiss was. I’ve been on Hewitt’s show before—he can be a fantastic interviewer, especially of politicians—but this was unusual.”
Unusual? Call me old-fashioned, but let’s not pretend Alger Hiss was an “obscure” figure in American history, an unfair “gotcha” question to ask of a 31-year-old college graduate.
Alger Hiss was a high-ranking U.S. State Department official and Secretary-General of the United Nations founding conference. He was convicted of perjury in 1950 after denying involvement in Soviet espionage. Hiss partisans and many on the ideological left for many years hotly disputed the jury’s verdict in the case, putting forward a variety of conspiracy theories. The overwhelming consensus among historians today is that Hiss was guilty.
Note: If history had revealed Alger Hiss to be not guilty, every child in America would be subjected to endless Alger Hiss Day classroom assignments, “Alger Hiss Day” would be registered as a national holiday, and there would be a monument in Washington D.C. honoring his noble sacrifice.
Back to Mollie…
I don’t mean to pick on Carter, who was a good sport. If anything, I give him credit for sticking through the entire interview. But it speaks to a larger problem we face with our media, which is that they frequently are not well read and, more importantly, they do not realize it.
My favorite line was when Carter was asked if he’d heard of George Weigel and he replied, “I’ve heard of Dave Weigel.”
A prominent liberal economist contends capitalism will inevitably increase inequality.
‘Karl Marx wasn’t wrong, just early. Pretty much. Sorry, capitalism. #inequalityforevah”
James Pethokoukis writes: When trying to condense a sweeping, 700-page analysis of the past, present, and possible future of capitalism into an 85-character tweet, you’re bound to miss a few things. But the above Twitter-fication of economist Thomas Piketty’s much-awaited Capital in the Twenty-First Century captures the gist of the author’s argument.
“Piketty, a left-wing Frenchman who teaches at the Paris School of Economics, is hardly the only economist arguing inequality is headed inexorably higher…”
Piketty thinks the German progenitor of Communism basically got it right. It’s only that his essential insight — private capital accumulation inevitably leads to the concentration of wealth into ever-fewer hands — took a hiatus during the middle part of the last century thanks to depression and war hurting the fortunes of the well-to-do. But now Marxism’s fundamental truth is reasserting itself with a vengeance, a reality borne out in both Piketty’s own meticulously gathered data and in business pages replete with stories of skyrocketing wealth for the 0.001 percent and decades of flat wages for everyone else.
“John Maynard Keynes and Friedrich Hayek famously squared off in the 1930s, Left versus Right. But when Keynes published his revolutionary General Theory in 1936, Hayek went silent….Who will make the intellectual case for economic freedom today?”
And it’s only going to get worse, Piketty concludes. Sure, the productive and innovative capacity of market capitalism will generate enough income growth for the masses to prevent revolution. He concedes Marx got that bit of apocalypticism wrong. But an “endless inegalitarian spiral” will create such wealth bifurcation that “the meritocratic values on which democratic societies are based” will be undermined. The political process will be hopelessly captured by a tiny elite of rent seekers and trust-fund kids. America (and then the other advanced economies) will become what Occupy Wall Street types and Elizabeth Warren think it already is.
‘Neoliberalism’ – A Term Both Ubiquitous and Ill-Defined – is an Evolving Body of Market-Driven Ideas. Or a Conspiracy by Elites to Torment the Poor…Posted: February 10, 2014
Spontaneous Order: Looking Back at Neoliberalism
Tim Barker writes: “The owl of Minerva,” Hegel famously wrote, “flies only at dusk”: historical events can be theoretically comprehended only in retrospect. Is this the case with neoliberalism? A term ubiquitous in the academy but scarcely used outside it, the concept is difficult to define with precision. A common shorthand identifies it as the economic and philosophical ideology behind the Reagan-Thatcher revolution; it is also often agreed that this ideology contributed somehow to the financial crisis of 2008. Now, with the recession technically over but recovery still ambiguous, two recent books attempt to describe neoliberalism’s historical origins and explore its current political implications.
by Johanna Bockman
Stanford University Press, 2011, 352 pp.
Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics
by Daniel Stedman Jones
Princeton University Press, 2012, 432 pp.
In Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics, Daniel Stedman Jones charts the rise of neoliberalism, which he defines as the “coherent, if loose, body of ideas” that underwrite our contemporary “market-driven society.” He begins with the intellectual biographies of three exiled Central European thinkers—Ludwig von Mises, Friedrich Hayek, and Karl Popper—who challenged the industrial West’s consensus around social welfare programs, full employment, labor unions, and state intervention. This first, émigré generation (joined by kindred Americans and West Germans) were “neoliberal” in their opposition to central planning, but also “neoliberal” because they sought a reformed liberalism for the middle of the twentieth century, not a simple return to the laissez-faire of the nineteenth. Hayek’s Road to Serfdom, for example, countenanced significant departures from laissez-faire, including universal health care.
2013 brought little more than uncertainty to an already uncertain nation.
2013 was an excellent opportunity to learn the lesson that we failed to learn in 1857, 1933, 1971, and 2008: Uncertainty is the destroyer. Economic growth remains unsteady, with a consensus among experts that the economy is slowing down as the year closes — Bloomberg calculates the average of economic-growth forecasts at a tepid 1.8 percent. Key figures remained negative in 2013, from the labor-force participation rate (down 2.7 percentage points since Barack Obama took office) to the employment-to-population ratio (down 2 percentage points during the same period). The most important of those economic indicators, at least so far as future growth is concerned, is net domestic private investment, which remains far away from returning to pre-crash levels.
Weak private investment means weak growth and bleak long-term employment prospects. There is no way to finesse away that fact. The question is: Why are we still in this position, all these years after the end of the recession?
There is some debate on the right about whether President Obama is a fundamentally well-intentioned incompetent or a more Machiavellian figure so power-hungry that he is willing to kneecap key sectors of the U.S. economy in order to advance his political agenda. My own view is that the distinguishing feature of Obama’s ideology is the utter inability of the president and his partisans to distinguish between the national interest and their own political interests. (That is one problem with electing a messiah rather than a chief administrator.) If you believe that your guy is a uniquely gifted, once-in-a-lifetime transformational figure with a mandate to save the country, and that he is opposed by uniquely wicked servants of Mammon and partisans of unreason, then it follows that your political interests are identical to the national interest, and consequently you have such grey eminences as Bill Clinton, who has managed to secure for himself a career as an elder statesman without ever having been a statesman, insisting that Republicans are “begging for America to fail” — because they oppose large parts of the president’s health-care program, which the president now opposes, too, having set aside measures that are too unworkable or punitive to act on until some more politically opportune time.
Government versus Private Resource Management: The Theory
Robert P. Murphy writes: According to a common but naïve worldview, there are objective, well-known techniques for producing various goods and services, and the consumer preferences regarding these outputs are also common knowledge. In such a worldview—which even many professional economists, in discussing policy, seem to hold—it seems only natural to conclude that government officials could improve upon the decentralized market outcome. After all, the government has access to the same “production function” as private firms, and if it decides to be the monopoly producer of a good or service, it can avoid wasteful advertising expenses and other redundancies. Such arguments were behind the proposals for outright “market socialism” in the era between World Wars I and II, and, to this day, they guide recommendations for heavy government regulation of “natural monopolies” such as utilities.
However, more-practical economists recognize the limits of their textbook diagrams with elegant marginal revenue and marginal cost curves. In reality, we operate in a world of uncertainty. The “least cost” method of producing a good or service is never obvious, nor is what consumers will be willing to pay for various items. In a famous lecture, “Competition as a Discovery Procedure,” Friedrich Hayek explained how markets in the real world stumble upon this hidden knowledge. Various people with access to different information make piecemeal discoveries and constantly modify their operations accordingly; they receive feedback from market prices in the form of profit or loss. Firms mimic particularly profitable innovations, and if a firm does not adapt quickly enough, it will go out of business. Hayek thus viewed competition as a process rather than a condition or end-state. The state of “perfect competition” described in the textbooks—which includes the property that all firms in an industry use the identical “least-cost” method of production—is actually something that would emerge over time onlybecause of the competitive rivalry between the firms, and only if the conditions in the real world remained static long enough for all firms to fully adapt.