The Magic Money Tree explained by @Worstall

All you wanted to know about QE, the circulation of money and why magic – at least as it relates to money trees – isn’t real, from Tim Worstall.

The magic money tree is permanent spending of the same invented money, it is not temporary – the effects are permanent – and it is not reversible without stinging tax rates. It is also known as the monetisation of fiscal policy, or the monetisation of spending. And it has everywhere and everywhen been a disaster from the point of view of subsequent inflation. Not inflation of a couple of percent here and there either, but of two and three digits a year sort of inflation.

There is also mention of the Hungarian pengő, which I understand to be a small and adorable penguin.

 

Photo by Adarsh Kummur on Unsplash

 

New enemies threaten the Enlightenment – @mattwridley

Matt Ridley has a thought-provoking and concerning column in today’s Times, arguing that these politically correct times of snow-flake students, timid academia and craven politicians threaten the foundations of western, Enlightenment thought.

He concludes:

… the spread of fundamentalist Islam, the growth of Hindu nationalism and Russian autocracy, the intolerance of dissent in western universities and the puritanical hectoring of social media give grounds for concern that the flowering of freedom in the past several centuries may come under threat. We have a fight on our hands.

Read the full column, here.

 

Image: Peter Walton on mattridley.co.uk

 

Ayn Rand – hero of the Sovereign Professional

So you think that money is the root of all evil? Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by men who produce. Is that what you consider evil?

When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others.

Thus opens an eloquent defence of capitalism by the character Francisco d’Anconia in Ayn Rand’s Atlas Shrugged (Part II, Chapter II, pages 410-415 in the Penguin Modern Classics edition).

Ayn Rand and Objectivism

Ayn Rand has always been a divisive figure. Perhaps strangely in a world of increasing self-obsession, her philosophy of objectivism is denounced as selfish and amoral. But is this really the case?

To understand Rand’s philosophy, it helps to understand her background.

Born in Saint Petersburg in 1905, she was 12 when she saw her father’s business confiscated by the Bolsheviks in the Russian Revolution. The family fled to Crimea, later returning but suffering desperate privation. As an adult in the United States, Rand made several attempts to have her parents and sisters join her, but they could not obtain permission to emigrate. In a 1959 television interview, she said she didn’t know whether they had survived or not.

The Revolution opened universities to women, but Rand’s studies were interrupted  when she and other “bourgeois” students were expelled. Only complaints from visiting foreign scientists enabled the students to graduate.

Rand’s subsequent antipathy towards the power of any state to interfere with the rights of the individual is understandable.

But, what is Objectivism, the philosophy Rand developed?

The philosophy is grounded in reality, reason, capitalism and self-interest. It is the last of these that often causes controversy. However, the Ayn Rand Institute (ARI) describes it like this:

Selfishness, in her philosophy, means:

  • Follow reason, not whims or faith.
  • Work hard to achieve a life of purpose and productiveness.
  • Earn genuine self-esteem.
  • Pursue your own happiness as your highest moral aim.
  • Prosper by treating others as individuals, trading value for value.

Rand herself, in various interviews fuelled the fire with assertions that seemed sometimes to be wilfully provocative. But, in reality, is it any more than a blend of Aristotle, Stoicism and Adam Smith?

Aristotle and reason

Rand believed that man should “hold reason as an absolute” and claimed that Aristotle was the only philosopher to have truly influenced her:

I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason. If one recognizes the supremacy of reason and applies it consistently, all the rest follows.

Stoicism

Stoicism, as summarised by the Daily Stoic holds that:

Stoicism has just a few central teachings. It sets out to remind us of how unpredictable the world can be. How brief our moment of life is. How to be steadfast, and strong, and in control of yourself. And finally, that the source of our dissatisfaction lies in our impulsive dependency on our reflexive senses rather than logic.

Stoicism doesn’t concern itself with complicated theories about the world, but with helping us overcome destructive emotions and act on what can be acted upon. It’s built for action, not endless debate.

Although the famous stoic Marcus Aurelius would place greater emphasis on duty and society than is apparent in Rand, he also believed in reason, reality and the self:

A little flesh, a little breath, and a Reason to rule all – that is myself.  (Meditations, 2.2)

Adam Smith

Adam Smith famously wrote of self-interest:

Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

and…

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.”

Although, he had no truck with “selfishness” in the common understanding of the term:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

So, perhaps we would be better served by understanding Rand’s philosophy as a blending of existing strands and by reading the novels for which she is most famous in that light.

Her most famous novels, The Fountainhead (1943) and Atlas Shrugged (1957), are fables. A tad longer than the standard set by Aesop, but fables nonetheless; simplified and exaggerated to emphasise their point.

Atlas Shrugged

Atlas Shrugged is 1,168 pages long. It opens, famously, with the question: “Who is John Galt?”

And, when the mysterious John Galt finally addresses his audience, the speech runs, non-stop, to 60 pages. In places, the book is turgid, laboured and leaden. The conservative author, and one-time associate of Rand, William Buckley said, “I had to flog myself to read it.”

But, it is an utterly memorable fable of strong characters driven by a deep integrity to do what is right in the face of a government seeking to stifle individual freedoms and harness its entrepreneurial talent, until that talent begins to disappear. It’s a fantastic tale, but not without lessons for today’s world.

In the UK, the top 1% pay 27.5% of all income tax (rising towards one third by the end of this parliament); the top 5% provide 47%. Just 1% of firms pay four fifths of all total corporation tax.

Recently, the Economist looking at a environment of Brexit-y uncertainty drew parallels with the business-hostile world described in Atlas Shrugged. And, just yesterday, the Sunday Times warned of the irony of leaving the EU only to suffocate in home-grown restraints: Don’t leave the EU just to become more European.

Atlas Shrugged is, just about, worth reading. If all else fails, you’ll have the gist of it in the first hundred pages, then read d’Anconia’s speech (as above) and resort to a synopsis for the rest.

 The Fountainhead

Rand described this as “an overture to Atlas Shrugged”. At just 727 pages, it’s an easier read than its successor.

The book centres on an idealistic young architect unwilling to compromise on his beliefs or fall in line with the accepted world of compromise, pastiche and mediocrity.

That said, I’m not sure it stands the test of time as well. There are a couple of scenes that definitely don’t play well and seem only to support the worst accusations against Rand.

Again though, strong characters playing out a fable that has relevance for the world today.

So, Hero of the Sovereign Professional? Yes, because here are strong characters preaching self-reliance, looking to no-one to support them in the face of mediocrity and an unrelenting pressure to conform for an “ill-conceived greater good”.

Here’s Rand’s first ever television interview (from 1959):

 

And, here’s William Buckley’s perspective:

 

Image: Wikimedia

Living in a shepherd’s hut – @thisisseth

More pithy, sage advice from Seth Godin:

The best way to plan a house on a vacant piece of land is to move into a tiny shepherd’s hut on a corner of the property. It’s not fancy, and it’s not comfortable, but you can probably stay there for a week or two.

And during that week, you’ll understand more about the land than you ever could in an hour of walking around. You’ll see how the rain falls and the sun shines and the puddles form.

As you’ve probably guessed…

The rest, here.

 

Photo by Sam Carter on Unsplash

Shorter lives or shoddy statistics? – @TheSundayTimes, @CapX, @Worstall

Two articles on Michael Marmot’s odd assertion that the (relatively) recent government policy of austerity was the “obvious candidate” for stalling the growth of UK life expectancy.

Professor Sir Michael Marmot is, of course, well-known as the man behind the famous Whitehall Studies that showed the connection between stress, life-expectancy and control or autonomy in the workplace.

He deserves attention because of his groundbreaking research. However, his recent comments on the effect of government spending cuts upon lifespan seemed odd. Is it plausible that a relatively recent government policy would have such an impact on a long term measure?

In the Sunday Times, Nigel Hawkes takes issue with the conclusion:

So is the UK really the sick man of Europe? The statistics suggest not. Figures from Eurostat, the EU’s statistical body, show that between 2014 and 2015 life expectancy fell across the EU as a whole, and — in sharp contrast to what Marmot says — that falls in Germany, France and Italy were steeper than in the UK.

Between 2000 and 2015, life expectancy rose by three years in the UK, and by very similar amounts in other countries (3.2 years in France, 2.8 in Italy and 2.4 in Germany). Yet growth has slowed everywhere since 2010, and between 2014 and 2015 went into reverse.

He continues…

Life expectancy is also falling in America. We need to find out why, not waste time and damage trust in academics by claiming “the cuts” are to blame.

Scotland has free social care and additional disbursements from UK taxpayers that allow it to spend more on the NHS than England does, yet still has life expectancies far below England’s.

France and Germany are often held up as examples of well-funded healthcare systems, in contrast to the NHS. Yet we’re all in the same boat, and it’s sinking. Not a great moment to engage in petty political point-scoring.

And, points to more plausible alternatives including the flu and the unwinding of long-term effects:

Better health in childhood is linked to better health as an adult, so today’s elderly could have childhood care — antibiotics and vaccines — to thank for their long lives. Since most of the improvement in children’s health was in place by 1950, when today’s 70-year-olds were infants, it may be that the benefits to adult mortality are finally playing out.

On CapX, the Adam Smith Institute’s Tim Worstall takes issue with the underlying statistics:

 In fact, no one is measuring the expected lifespans of those being born today. What is being measured is the age at death of those who were born 60, 80 and 100 years ago.

So because we cannot measure how long people are going to live, we use a proxy: how long did people live? Sure, this has its uses, but, just as GDP doesn’t measure human utility (the important thing), we need to recall that this, too, is just a proxy – not the thing itself. Remember this, and Marmot blaming the past seven years of austerity doesn’t quite make sense.

For example, we now insist it’s the early years which make the most difference to lifelong health and thus presumably lifespan. Which means that the generation now dying was influenced by what happened in the 1930s and 1940s. You know, Depression, Second World War and even the creation of the NHS. Not recent Tory policy.

And, he makes an interesting point about domestic migration:

We know that richer people live longer than poorer in general. But it’s also true that people migrate as their economic circumstances change. So those people living longer in Kensington were not necessarily born there, nor those dying young in the Gorbals. Being poor is likely to lead to migration to areas where housing is cheap –  and getting richer vice versa.

In fact, this also applies to the emptying out of Appalachia that Nobel Laureate Angus Deaton has remarked upon. Average lifespans seem to be declining there, unprecedented in modern times. Yet all other reports seem to show that those who manage to get out to go to college don’t come back – the very group which we’d expect to have the higher lifespan is leaving, bringing down that average. So it’s entirely possible that the length of lifespan of no single individual has changed, it’s just that the composition of the group being studied is changing.

Both articles are worth a read.

 

Photo by Piron Guillaume on Unsplash