It’s time for all men and women of good will to defend the market.
It’s currently fashionable to say that the state has to do more, and the market less. It’s is conventional wisdom that “markets have failed” so we need to try more regulation, nationalisation and state direction. The left are on the march, telling us that markets are cruel and immoral, forcing people into low pay or no pay, delivering boom and bust.
I am a democrat. I believe in democracy. It is the least bad way of organising government. At its best it allows political choice, defends the rights of all, protects minorities from abuse and offers a peaceful way of settling differences and changing course.
The market is democracy in action in the worlds of business and consumption. The market is more democratic than political democracy. In the latter you get a chance every four or five years to express your view and change the government. In the market you have a minute by minute opportunity to express your view and exercise your choice. In democratic government there is the danger of a single decision by a small group of people messing everything up. In a market for everyone deciding to do something there is someone else deciding to do the opposite. They will not all be wrong.
Markets are n either cruel nor immoral. They are amoral – they are a stage for your drama, a platform for your train, an opportunity for your future. They are more likely to be the source of new employment than the cause of the loss of your job. They allow you to buy the daily bread to stay alive, and to visit the weekly circuses to enjoy yourself. We should be grateful for their myriad successes, as well as rightly worrying over their troubles and failures.
My youth was disfigured by the cruel experiment in the Soviet bloc. They thought that comprehensive nationalisation, direction of labour, state planning and the denial of the market would cut out the waste of competitive capitalism and the injustices of the markets. Their experiment ended in ignominious failure. Their people were much poorer as well as much less free than we in the west. Their technology was years behind, they were starved of fridges, cars and washing machines, they diverted too much production to weapons and privilege for the political bosses. There was not much moral or just about the Zil lanes and the special education for the favoured few.
No sensible defender of the market believes in an absence of law or a lawless state of anarchy. We seek a legal freedom, with sensible rules laid down by democratic assemblies. You cannot have a successful market without a law of contract and a law of property. You need a strongly enforced competition law to prevent monopoly abuse. You need to enact a minimum income ( wider than a minimum wage) and generous treatment for those who cannot compete in the market for a job. You need a strong Central Bank which upholds the value of a monopoly currency, and polices the solvency and liquidity of the commercial banks well.
It would be wrong to go from a position where the state has failed to carry out its side of the bargain to one where the state nationalises banks and other companies, seeks to regulate individual transactions and activities, and seeks to influence what we make and what we buy and sell. That way is the way back towards the failures of state socialism, which will be worse than failures of the market.
This recession is a failure of a regulated market. The regulators must carry much of the blame, for stoking the fires of credit too high, and then tipping too much water over the fire in one go. There is one thing worse than too much credit, and that is too little. Many people will pay with their jobs and businesses for these mistakes. Yes, the bankers got it wrong. The bosses should pay for their mistakes. But so too did the regulators, whose main task should be to prevent such excess. Today the Regulators main task should be to get the banking system going again. They are still too tempted to put out the fires when the economies are now shivering to death.
November 6, 2008
Mr Redwood, in passing you allude to the difference between a minimum wage and a minimum income. Do you mean by minimum income some form of tax credit (dread words) that would be applied to a sub standard wage? I don't understand the principle of minimum income. Would it mean that the Government would in effect top up the hourly rate of lowly paid jobs to some minimum? If that were the case wouldn't employers pay 1p an hour and allow the Government to top this up to, say, the current minimum wage.
One of the market distortions that I haven't seen mentioned by any commentators is the artificial $/Yuan rate of exchange. I'm no economist but would expect that this has distorted the markets enormously and I could imagine might have provided indirectly the funds for the bankers to splash about so recklessly in sub prime mortgages etc.
I'd be interested in your comments on the above two points.
Reply: Minimum income means benefit top up,as we have.
Yes the Chinese currency is too low and we need to put more pressure on the Chinese for further revaluation, as it is not a free market rate
November 6, 2008
Excellent piece John. Please can I direct Redwoodians to this FT article; "Globalisation is not our enemy". Particularly the comment from Stephen King.
http://blogs.ft.com/wolfforum/2008/10/globalisati… .
Regarding your earlier post; The Mail has a full front page picture of the US president elect and the new first lady. How I wish we could, one day, have a similar picture of our directly elected prime minister. Would it be a face we currently recognise; who would he/she personally appoint to his cabinet. He would not be limited by having to appoint from a small bunch of his party's amateur MPs.
Numerous commentators have said that the UK has an elected dictatorship and parliament does not, can not, hold it to account; either on primary or secondary legislation.
Separating the Executive from the Legislature, could be the starter that makes politics and politicians popular again. Can you imagine MPs having to think for themselves; do deals across the chamber; creating properly thought out and engineered Bills; that do what the consensus says they should do. Such that most Bills get passed just by the speaker saying, "I think the ayes have it".
November 6, 2008
Anyone who takes a look at local government in its present bloated state, and how badly it delivers its "services", should be reminded of what departure from the market ends up with: a huge bureaucracy which can't even manage its own employees, let alone everyone else's affairs, and settles for lower and lower standards in every deaprtment because its taxpayers have nowhere else to go and there is no danger to its staff of redundancy. The charade of local democracy and accountability makes no impact on the careers and gold-plated pensions of those tiers of council officers, most of whom will live in comfort outside the slums they preside over, while the front-line workers are ever more diminished and demoralised.
November 6, 2008
Way to go Mr R! Now get into power and enact the necessary legislation to repeal all the anti freedom stuff of the last 11 years.
Thing is, all the lefties use the short form 'capitalism' to describe what we have. And they use it with bile.
But we don't have 'capitalism'. We have (or would like to have) 'Anglo Saxon Libertarian Democratic Free Market Judeo Christian Capitalism with Thrift, Responsibility and Compassion all subject to English Common and Commercial Law' – well that's as near as I can get pro tem, but it is a work in progress. What we have now, after 11 years of another bungling and deceitful experiment on us, is 'bureaucratic capitalism'.
I have commented on Ian Dales blog that Mr Cameron needs a simple mesage. Maybe this is it?
November 6, 2008
This blog is certainly living up to its very favorable billing by the Guardian p.17 yesterday as being "unafraid to be unfashionable"!
There are surely problems with the free market which can hardly be as democratic as the voting system where everybody is on an equal footing, unlike the economic system.
Irrespective of that basic issue, the freedom of the market leads to the crowding out of discretionary spending by the necessities of life making the whole thing dysfunctional.Henry George and before him the Physiocrats pointed out the fundamental problem that spending on keeping a roof over one's head could rise to absorb a disproportionate part of one's income.In George's own stamping ground,San Francisco, 30% of people now spend more than more than half their income on housing.Add in utilities , the car needed to reach the place and shops, medical insurance and saving for the kids'education and there is n't much left to support any other goods and services.
It would be much better for capitalism in general, if Georgite controls were put into place to stop land rising in value and certain services such as health and education were subsidised to stop them swelling in the proportion they take of average incomes.
It is all very well restricting government borrowing but as the money has to be provided other ways, making the people shoulder the displaced burden, for instance by lumbering students with loans not grants, means the problem does n't disappear but falls on the weakest. (Less able to afford it than the Gov. anyway).And then the students laden with university-debt and possibly a mortgage can't afford much of anything else.
All this privatisation and free market fundamentalism is putting capitalism out of business by not producing more goods but increasing the price of things people can't do without.Negative capitalism ,is what it has become.
Reply: Yes it would be unfair without the safety net – that's why we need to give benefits.
November 6, 2008
Capitalists will always try to create profit, for example by buying up Oil, creating a shortage, then selling off at the higher price, like they did recently.
People have died as a result of the actions of these speculators.
Govt regulation is not the answer, you then end up with the Current situation where Capitalists bribe Govt ministers for favourable laws to allow them to feed off the populace.
Govts Job should not be to interfere beaurocratically, since you then end up in an endless chase, with Capitalists exploiting loopholes and Govt trying to close them off, or not, depending on how much they have been offered not to close them off.
Maybe the way out of this is for Govt to simply allow the free market to do as it wishes, But, where Problems arise, to have open debate and maybe set up alternatives so that the Capitalists have to Compete so reigning in their excesses.
For example setting up an alternative phone company should it appear that that area has been monopolised.
November 6, 2008
Not entirely on thread, but Acorn 11.59 makes a good point about separation of Executive and Legislature. The British Legislature has been comprehensively captured by the Executive and we no longer have the checks and balances which Walter Bagehot (among many others) identified as so important for a well-functioning government. Apart from a General Election every four years or so we have virtually no means of holding the Executive to account. This is of course why we have corruption, disgraced ministers returning to government despite general revulsion, the enormous growth in patronage, and what Peter Oborne called 'The Triumph of the Political Class'.
I used to be a traditionalist on the British Constitution, but it's now so debauched I think we must have a written one with clearly defined limits of the power of each arm of government.
But I'm not holding my breath.
November 6, 2008
The EU is now working on a directive to regulate workers' hours. This is going before the European Parliament in December. That seems to be the EU contribution to the crisis: limit working hours. I am sure everyone who runs a small business at the moment, when credit is tight, will just love that.
The pictures of the Leader of the Opposition, the Mayor of London and the shadow Chancellor at Oxford in their Bullingdon (?) Club outfits delights the left. I am much more shocked, myself, by the young Mr Brown in his 70s haircut and Mr Darling with his Trotty Beard. Of course these two love Socialism. It is in their genes!
I loved your article above – it made all the right noises. Well written!
November 7, 2008
Minimum income is an interesting idea to come from a Tory MP. My main sticking point with the Conservatives is the desire to privatise everything without ever explaining how most of the population should pay for these services.
November 7, 2008
Just before this post disappears off the radar … I am delighted to see you mention Minimum Income.
The Citizen's Income Trust have been promoting the idea of replacing the entire Welfare State and a variety of tax breaks and tax reliefs with a flat rate 'Citizen's Income' (set at approx income support/Pensions Credit levels) combined with a flat rate of tax (set at basic rate of tax plus Employee's NIC) for some time. Their booklet is here.
November 9, 2008
An interventionist government is the problem, not the solution. Here are four examples.
1. Home ownership for people who could not otherwise afford it was encouraged by the US government which coerced the (admittedly all too willing) banks to make stupid loans (see the CRA along with Fannie and Freddie). This is the source of the sub-prime debacle.
2. Government bail-outs that discouraged firms from accepting tough market solutions like selling assets at pennies in the pound or relying on tried and tested bankruptcy.
3. Government banking guarantees encouraged people to look for the highest deposit rates and not wonder if over-geared, under-capitalised Icelandic banks, six-times the size of their actual government were the absolute best place for their money.
4. Nearly half the economy in the non-productive state sector, which burdens tax payers and employs people in either pointless or actually counter-productive jobs.
GOVERNMENT IS NOT A SOLUTION TO OUR PROBLEMS, GOVERNMENT IS THE PROBLEM.
Until we grasp this we are like the ancient alchemists searching for gold where none can be found. We must massively scale back the size and scope of government. Yet I see almost no sign of this, indeed the trend seems hugely the other way. Indeed, why would political turkeys vote for Christmas? If they do not however, the solution cannot come from parliament as it currently stands.
That should worry all of us, because in the absence of alternative solutions coming from the main parties we may see the likes of Griffin on the one hand and Galloway on the other gaining some kind of foothold. This would be the worst possible outcome.