Why governments' attempts to pick winners produce more losers than winners.
Imagine you are a politician, elevated after the recent election from shadow to head of a department. You have quite a bit of experience shadowing your department, but to be fair, you haven't had access to all the information and resources that ministers have. You find, on taking charge of your department, that the timetable for some issues is outside your control (e.g. where actions are required by European law). You will have to set out at least a holding position earlier than you would like. It's a pity to be rushed, but you were going to have to rely on your civil servants for much of the detailed drafting anyway, and they have years of experience and a draft close to completion, almost ready for you to sign off. Maybe you are worried a little that the draft may not fully reflect the changes of philosophy and policy that you hope to introduce, but with the addition of some judicious conditionals (i.e. weasel words), you can at least put out something internally consistent and coherent, which avoids commitment to any specific courses of action that you don't want to commit to. At the very least, you and your civil servants should be able to avoid the most egregious mistakes with a little, basic maths and the benefit of your combined years of experience, right? It may not be exactly what you want, but at least it will add up.
Apparently not, if you are Chris Huhne or a civil servant at the Department for Energy and Climate Change (DECC). They have just released the National Renewable Energy Action Plan, which they had to release by June 30 under the EU's Renewables Directive. And it doesn't tally, on even the most basic sanity checks, with the data for the current renewables position.
The economic debate is coalescing increasingly into two camps: those who think that the Government can prevent a further economic correction through deep spending cuts, and those who think that the Government can prevent a further correction through continued deficit spending. On This Week, Will Hutton just described the two camps respectively as Catholics and Protestants. As the British government is implementing a (roughly) Catholic programme, it is likely that the failure of this programme to prevent a correction will be interpreted by much of the media, academia and the population as evidence that the Protestants were right. Conversely, Catholics will point to the failure of Obama's essentially Protestant programme as evidence that they were right. Both sides will pay attention only to the evidence that suits their views. Neither side will consider that they may both be wrong.
Why are there so few atheists and agnostics in this debate? Maybe there is no God, maybe economic imbalances can reach a point where corrections are both necessary and inevitable, and maybe governments promising to prevent them only make matters worse in the long run, whichever creed they follow.
Our intellectual establishment (dominated by the Oxbridge prelacy) is ranged as powerfully against such heresy as the religious establishment was once ranged against those who placed reason above faith. Without the fear of eternal damnation, the promise of perpetual bliss, and the immutability of an order prescribed by a higher power, how were the clerical and aristocratic hierarchies to maintain their authority? And without the promise that they can make things better than they would be without intervention, how is our intellectual establishment to persuade us to keep listening, voting and paying for their arrogant yet ignorant prognostications?
Things didn't turn out too bad when we allowed reason to supersede faith. Authority did not collapse, but became based more on merit and less on position. There turned out to be other foundations of morality than simply having (often delphic or contradictory) rules handed down from above. Technology and our standard of living improved more quickly. People might find similar benefits resulted from apostatisation of the government-deity.
Be wary of strong drink. It can make you shoot at tax collectors... and miss. (Robert Heinlein)
When there's a single thief, it's robbery. When there are a thousand thieves, it's taxation. (Vanya Cohen)
HMRC, King Gord's tax collectors, have reached the same level of unprincipled acquisitiveness as under King John. Motivated by his targets-and-incentives regime, which rewards them in proportion to the degree of misery they can inflict on taxpayers, they treat the public contemptuously as little more than cash cows with probable criminal tendencies. So far, there is no sign that King Dave and Prince Nick have improved matters (voting reform being so much more urgent).
A month and a half ago, I was rung up by a highly aggressive woman from HMRC to tell me that I owed £175,000, and that I had better pay up by Thursday or they would begin enforcement. This came as something of a surprise, as it is considerably more, not only than the calculation in my tax return, but than my total earnings.
Eric Pickles has announced that he will abandon plans to charge people for their use of waste collection services (the "bin tax"). He will use the "carrot" of rewarding people with vouchers for the volume of recyclable material they produce, rather than the "stick" of charging them for the amount of waste they produce.
Mr Pickles justified this announcement as part of an effort to end "meddling" laws. (The other example of "meddling" that he planned to scrap was allowing people to choose whether to apply for redevelopment of their land.)
The move was also justified because charging people for their use of waste-disposal services would result in more fly-tipping and "bin wars".
And it was argued that the move would save money, because of avoided landfill tax (directly) and thereby European fines (indirectly).
Meanwhile, David Cameron was today warning people how much worse the government finances are than he had expected (for which, read: as bad as he knew they were but didn't dare to tell people during the election).
And let's not forget the great theme of this government: decentralisation.
Let us count the number of ways this is wrong:
Attended an enjoyable IPN book launch this evening, for Matt Ridley's The Rational Optimist. It sounds well-worth reading, to keep our current troubles in perspective. Met a couple of interesting guys whose sites I wanted to point you at:
And do you not think you're being just a bit optimistic about the Rwandan government? I don't trust governments in Europe or Africa who have 15- or 20-year targets, but for opposing reasons - in Europe I don't believe them because I know they won't be there when the time comes, in Africa I worry that they may well be. I'd be much happier with an ambition to put in place the necessities for a stable society and successful economy, than an ambition to be a middle-income country by 2020. Sounds too much like central-planning to me. And if so, that suggests that they don't understand the real route to prosperity, and are simply repeating the same mistakes that people have been making in Africa since independence. After all, if Kagame is there to see his ambition fulfilled in 2020, he will have been in power effectively for 26 years. Can you imagine anyone getting that sort of continuous democratic mandate (without rigging elections)?
Makes me rather less proud of our politicians, and particularly the Conservative Party, who seem mostly to have fallen prey to the usual post-colonial delusion: it doesn't matter if he's a dictator so long as he's "our dictator" doing things our way. Will they ever learn? No doubt Kagame's economic record is impressive, if somewhat dirigiste, but that isn't enough. Remembering Franklin's dictum about sacrificing liberty for security, we wouldn't accept the sacrifice of free speech in exchange for economic development in the West, so I don't see why we think it's OK for Africa.
Eleneus is struggling to find work in the UK. If you know of anything more suited to his skills than the social care work he is currently doing, let him know via his blog.
The following is one key point of the Queen's Speech proposals, from the front of today's Telegraph:
Academy schools introduced in England and Wales under plans to free outstanding primaries and secondaries from local authority control.
So the plan appears to be to take those schools for whom the current arrangements are working well and change those arrangements, while those schools for whom the current arrangements are failing are to remain under the current arrangements.
If the faint-heartedness of the cuts announced today* doesn't demonstrate the difficulties that the new British government will have when it comes to more difficult decisions, and that businesses and individuals will have in investing in the face of such uncertainty about and pervasiveness of government action, here is a small illustration from the renewable energy sector in which I work.
In the "good times", both Tories and LibDems had rejected an approach to pricing carbon and resource dependence based on fundamental principles, and had instead pledged to continue some of Labour's expensive, micro-managing, winner-picking policies, and to implement some new expensive, micro-managing, winner-picking policies of their own. They had not modified this position in the light of our economic difficulties, and so went into the election proposing a mess of interventionist policies that we couldn't afford.
One of those policies was the Renewable Heat Incentive proposed by Labour. Although the proposed levels of support were irrational and expensive, the Tories and LibDems both promised to carry it forward and to implement it by April 2011. However, the rent-seekers in the renewables industry have been shocked and disappointed to find no mention of it in the Coalition's detailed Programme for Government.
The energy companies? Our central bankers and Treasury representatives? Or both groups?
In America, prices fell in April, led by reductions in the cost of fuel and other energy. From The New York Times:
"Consumer prices over all fell in April by 0.1 percent, the Labor Department said in its monthly report on Wednesday. The decline was the first since March 2009... The downturn was led by a decline in energy prices, especially for gasoline and natural gas, the report said. Energy prices fell by 1.4 percent in April, the department said."
In the UK, prices rose in April, led by increases in the cost of fuel and other energy. From The Guardian (quoting Mervyn King, explaining why he was taking no action on inflation at nearly double his target rate of 2%):
"First, the impact of higher oil prices, which on average in April were nearly 80% higher than at the beginning of 2009, pushing up on petrol price inflation; second, the restoration at the beginning of January of the standard rate of VAT to 17.5% and third the continuing effects on inflation of the sharp depreciation of sterling in 2007-8"
The movement in the Pound/Dollar exchange rate between April 2009 and April 2010? The Pound had strengthened a little.
On Question Time tonight, there was yet more discontent with the politicians* claiming that "the people had voted for a hung parliament". It is becoming a well-trodden but sterile debate for most non-politicians to point out that none of us voted for a hung parliament, nor did many of us hope for that outcome, while most politicians (and some associated intellectuals) point out that as a group that is exactly what we did.
In its own right, this is not an interesting debate. Both sides are obviously right. But it is a nice illustration of the two basic views of the world, and of how confused is the average person's philosophy.
The two views are the aggregative and the individualist. In their frustration at being treated as part of an amorphous mass whose combined choices the politicians regard almost as the product of a single, anthropomorphous, group-being, most people reveal themselves as fundamentally individualist.
And yet these frustrated individualists continue (mostly) to expect the inherently aggregative system of democratic politics to deliver what each of them wants (or needs), when what rationally they should expect is the messy and unsatisfactory compromise that it must inevitably deliver in practice. They continue (mostly) to prefer delivery of many things on which there are wide ranges of preferences and needs, by the aggregative agency of democratic politics rather than by the individualistic agency of voluntary exchange.
Sometimes you find an error in a book so early and brazen that you barely feel the need to read further, and if you do, everything after that is diminished by the awareness of the author's bias or irrationality. A classic example is Marx's Das Capital, and his theory of value. It is palpable nonsense, on which much of his edifice rests. Anyone with a critical mind must surely see through it. There may be some grains of truth later, but one tends to discount them from awareness that his reasoning is prejudiced.
Sadly, I have just had a similar experience with a book I expected to enjoy: Tom Bingham's The Rule of Law. Only a few pages in, Bingham (seeking to refute Dicey and other predecessors' distinction between the role of the common law in protecting individual rights in Britain, and the dependence on the constitution for whatever limited rights individuals enjoy in other cultures) says:
Although the 'rule of law' is, obviously, an English expression, familiar in the UK and in countries such as Ireland, the United States, Canada, Australia and New Zealand, whose law has been influenced by that of Britain, it is also meaningful in countries whose law is influenced by the jurisprudence of Germany, France, Italy, the Netherlands and Spain. In Germany for instance, reference is made to the Rechtstaat, in France to the État de droit, which literally translated, mean 'the law-governed state'.
I hope to examine this in more detail later. But I wanted to get on record as soon as possible that the events of the last 48 hours have taken a decisive turn in the battle between inflation and deflation.
Commentators backing one or other economic trend are not really making judgments about economics, but about politics (and psychology). Either effect is a likely outcome of a set of political decisions. The deflationists believe that forces will conspire to make it difficult for politicians to inflate the money supply, without which our economic difficulties naturally lead us to deflationary conditions (like Japan for the past two decades). Inflationists believe that, faced with the pain of deflation, politicians will find a way to inflate their problems away.
The two major indicators that the inflationists have it right, at least in the medium term (the short-term is always too subjective to predict with much confidence) are:
I should have explained sooner the latest sustained silence on this site. Frustrated by the dishonesty of all the main parties with regard to the economic challenges that we face, we formed a new political party (Freedom & Responsibility) to be frank about the problems and to propose some radical solutions. My father stood as its candidate in Maidenhead, against one of the leading Tory wets (Theresa May), and I acted as his agent, and the Nominating Officer and Policy Director for the party. Consequently, all my efforts went into that rather than this site for a while.
It was a fascinating learning experience. For instance, we learnt how much the spending limits make it difficult for independents and minor parties to make any impact on an election, to the great benefit (unintentional, of course) of the main parties who designed the system. They have very generous spending limits or their national campaigns, from which all of their candidates benefit, whilst most of the spending by independents is classified as "local" and therefore subject to such tight constraints that one must choose (for instance) between having many billboards on display around the constituency, and much advertising in the local papers.
What do they teach these people on Oxbridge human sciences courses? First the Cameroons demonstrate their ignorance of what it is that is holding British business back (clue: it isn't that it takes 14 rather than 7 days to register a business). Now, with their plans for "worker co-operatives" to run public-sector services (echoing their calls for a "post-bureaucratic age"), they demonstrate their ignorance of the difference between bureaucratic management and profit (or commercial) management.
It looks like George has been reading the wrong book.
Here's a tip, George: try Ludwig von Mises' Bureaucracy, and then you'll understand what profit management means, why it is preferable but not always suitable, where bureaucratic management is necessary, and how it operates on an entirely different basis to profit management. It's only a little book, and a better introduction to real economics than any mainstream textbook or Oxbridge course. Excuse me for quoting at length, but it has never been more clearly explained (and the Tories obviously need it spelling out in very simple terms):
Bureaucratic management is management bound to comply with detailed rules and regulations fixed by the authority of a superior body. The task of the bureaucrat is to perform what these rules and regulations order him to do. His discretion to act according to his own best conviction is seriously restricted by them.
Business management or profit management is management directed by the profit motive. The objective of business management is to make a profit. As success or failure to attain this end can be ascertained by accounting not only for the whole business concern but also for any of its parts, it is feasible to decentralize both management and accountability without jeopardizing the unity of operations and the attainment of their goal. Responsibility can be divided. There is no need to limit the discretion of subordinates by any rules or regulations other than that underlying all business activities, namely, to render their operations profitable.
The objectives of public administration cannot be measured in money terms and cannot be checked by accountancy methods. Take a nation-wide police system like the F.B.I. There is no yardstick available that could establish whether the expenses incurred by one of its regional or local branches were not excessive. The expenditures of a police station are not reimbursed by its successful management and do not vary in proportion to the success attained. If the head of the whole bureau were to leave his subordinate station chiefs a free hand with regard to money expenditure, the result would be a large increase in costs as every one of them would be zealous to improve the service of his branch as much as possible. It would become impossible for the top executive to keep the expenditures within the appropriations allocated by the representatives of the people or within any limits whatever. It is not because of punctiliousness that the administrative regulations fix how much can be spent by each local office for cleaning the premises, for furniture repairs, and for lighting and heating. Within a business concern such things can be left without hesitation to the discretion of the responsible local manager. He will not spend more than necessary because it is, as it were, his money; if he wastes the concern's money, he jeopardizes the branch's profit and thereby indirectly hurts his own interests. But it is another matter with the local chief of a government agency. In spending more money he can, very often at least, improve the result of his conduct of affairs. Thrift must be imposed on him by regimentation.
In public administration there is no connection between revenue and expenditure. The public services are spending money only; the insignificant income derived from special sources (for example, the sale of printed matter by the Government Printing Office) is more or less accidental. The revenue derived from customs and taxes is not "produced" by the administrative apparatus. Its source is the law, not the activities of customs officers and tax collectors. It is not the merit of a collector of internal revenue that the residents of his district are richer and pay higher taxes than those of another district. The time and effort required for the administrative handling of an income tax return are not in proportion to the amount of the taxable income it concerns.
In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive.
There is much more of similar insight and clarity in this little book, which I urge you to read (it's worth buying, or available to read online if you prefer). But hopefully you get the drift. An understanding of and preference for markets does not imply rejection of bureaucracy where necessary, but it does require an understanding of the critical differences between them. Someone with a real understanding of markets can easily distinguish between the activities where markets are the best means of coordinating social cooperation and the activities where the conditions necessary for markets to work are not present and where bureaucratic management is therefore necessary. In fact, many people unencumbered by an Oxbridge education would probably have a reasonable intuition of which type of management is best to apply in many cases. But the Tories (and Philip Blond, the "Red Tory" who originated this nonsense) are so sophisticated that they believe they can breed exotic hybrids from markets and bureaucracy to coordinate activities in private- and public-sector activities. Of course, they end up with a mule.
Third in the list of this week's bad policy ideas* is the revival of talk of a state-owned or -backed infrastructure bank. The FT wrote approvingly of how both major UK parties are considering this option:
By reducing the risk to investors, it could bring down the cost of capital for the industry and hence the ultimate cost to consumers...
The bank could fund projects such as nuclear plants and wind farms, spreading the risk over a range of investments and issuing bonds that could carry tax advantages and possibly a state guarantee...
In return for the cheaper funding, the industry would have to accept tighter regulation, moving away from the UK's free market for energy towards a framework of returns agreed between companies and the regulator.
The Conservatives' New Economic Model, launched on Tuesday, promises:
We will create Britain’s first Green Investment Bank, which will draw together money currently divided across existing government initiatives, leverage private sector capital to finance new green technology start-ups and back the bright ideas of the future. Lord Stern has agreed to advise us in the creation of this Bank.
It turned out that Lord Stern had agreed no such thing, thank goodness (haven't the Tories noticed that fewer and fewer people think the Stern Review's approach to carbon valuation holds water?). But that's just a sideshow. The point is that, with or without Stern, the Tories are quite committed to the concept.
Meanwhile, Labour (according to the FT) is:
considering such a bank as a way to raise funds from long-term investors such as pension funds
It looks like most of our intellectual class thinks we need goverrnment-managed lending to deal with the difficulties of long-term investment in infrastructure. They are wrong. We need to deal with the reasons that businesses judge there to be insufficient reward to justify the risk of investment in infrastructure, not preserve those inefficiencies by hiving off a chunk of the risk to taxpayers, pension-fund beneficiaries and the like. The following is an attempt to explain how and why.
Second in the list of this week's lousy initiatives* announced by the Government is the micro-generation Feed-In Tariff (FIT), or "clean-energy cashback" scheme. The micro-gen FIT is a scheme to pay significant amounts of money, over and above its value to consumers, for every unit of electricity generated by renewable generators upto 5 mega-watts (MW) in scale.
You may feel that 5 mega-watts doesn't sound very "micro", and indeed it is enough to supply the needs of several thousand houses, but let's not carp. That is hardly the main issue.
Now, I have to declare an interest. Our company may benefit from this initiative. So I would like to thank all of you for your generosity - your extraordinary, overwhelming generosity. But you can afford it, can't you? It's not like we're all strapped for cash or anything...
Don't take my word for it. The Government has detailed exactly how generous you are being. According to their Impact Assessment (IA) of this initiative, it will cost...
£8.6 billion (bn).
But you can't just look at the costs. You have to weigh the benefits against it. And those come to the princely sum of...
£420 million (m).
That's right. According to the Government, it is worth spending £8.6bn in order to make carbon savings of £420m.
As reported on the Environment Agency's website:
A series of civil sanctions will give the Environment Agency the discretion to avoid the time consuming and costly process of having to take businesses that commit certain types of offences to court. These will include monetary penalties, the power to make business repair environmental damage and the power to stop businesses from continuing operations that are damaging the environment. Organisations will also be given a formal opportunity to restore voluntarily any damage they cause. The new powers will not replace the Environment Agency’s approach of using advice and guidance and are expected to be used sparingly. The Environment Agency will still take criminal cases against business and individuals that cause deliberate, reckless and grave environmental damage. Such activities also often undercut law abiding business.
The Environment Agency has already been allowed to usurp the planning process. If you get planning approval, they can effectively over-ride it by applying impossible strictures, and they can overturn it by retrospectively imposing non-viable conditions.
They shoot first and ask questions later, even going public with baseless accusations. Any retraction is grudging, delayed, and not publicized, and apologies rare as hen's teeth. Their behaviour and attitude is arbitrary, depending largely on the attitude of the individual agent. They are one of the single most important obstacles to economic development and to good environmental practice in the country.
They have an infinite budget (because the Government is bound to provide them with funds for any actions they take, however many and spurious). Their powers were already excessive, unaccompanied by responsibility or restraint. And now the Government proposes to further expand those powers, without the inconvenience of having to prove their case in court.
"You have been judged!"
In the established NuLab manner, language is perverted to portray this as a benefit to business:
more flexible powers will be used that make it easier and more cost effective for businesses to operate within environmental laws.
This will mean fairer and more effective environmental regulation.
So progressive is this development, in fact, that it is to be the model for the expansion of such powers to other regulatory organisations:
The Environment Agency today became one of the first organisations to be granted new civil powers to complement existing regulatory powers.
"One of the first"? So there are others to come?
The reason they are to be trusted with extra powers is because the Better Regulation Executive reckon that they have improved their performance. One would think that a purpose of the BRE would be to oppose extensions of arbitrary regulatory powers. If they can't do that, in fact if they are recommending extension of powers, what good are they? Proof that you can't improve regulation by creating regulators to regulate the regulators, or quangos to recommend on how to control the quangos. Another candidate for the bonfire of the quangos that the Tories have promised and probably won't deliver.
There is much more to make you want to scream or sob in the EA's announcement of this development. Read it and weep.
The Real World Economic Review is taking votes for its Ignoble Prize for Economics, "to be awarded to the three economists who contributed most to enabling the Global Financial Collapse (GFC)." The shortlist is outstanding, and indeed many of the nominees who didn't make the shortlist deserve greater recognition for their roles in the destruction of real economic understanding. The candidates are:
I hadn't heard of Richard Portes (his economic "achievements" being rather less significant than his political "achievements"), but once I read his resume (which you can find in brief on the same page as the poll), I had to demote Robert Lucas to fourth place so I could give Portes my vote. This has provided a key missing piece in the jigsaw of causes for the complete obliteration of real economics in the UK, to a greater extent than any other country.
One name is particularly conspicuous by its absence. Where is Shriti Vadera? Gordon Brown is more culpable for the global mess than people realise, and guess which "beneficiary" of an Oxford PPE education joined his team as economic adviser in 1999, roughly when he started his spending splurge? She is now economic adviser to the G20, because you just can't do enough damage within the British government.
A poll for a Noble Prize for Economics will follow, but get your votes in now for the biggest knaves or fools in the field.
I have been lucky enough to be involved in several discussions recently in small, ostensibly-liberal* groups including some leading figures in public life and other fields. They were all private gatherings, and some were under Chatham-House Rules, so I am not going to talk about the content or the individuals, but about a depressing conclusion, which the combination of experiences makes it hard to avoid.
Most of these supposedly-liberal figures are not really liberal. They talk a good game about the generalities and principles of smaller government, but when you push them on the details, they object to the government's winner-picking not on the basis that it's not what governments should or can do effectively, but on the basis that they believe the government has been picking the wrong winners. They have a list of their own winners, and believe that picking winners would work fine if only the government took better advice (i.e. picked their winners).
That is depressing enough - that in a society where self-professed liberals are probably in a minority, only a minority of that minority really are liberal. But that is just the context, not the truly depressing conclusion.
I have seen it said, and believe it to have more than a grain of truth, that one reason why (real) liberals lose is that liberal beliefs are ill-suited to the political fight. The liberal believes in other people's rights to do and say what they want, and respects contrary opinions. His respect for reason, principle, freedom, and the rights of the individual means that the ends can never justify the means. The socialist, or conservative or other authoritarian, believes himself to be possessed of moral superiority over his opponents, that the purpose of government is to steer people towards outcomes that are good for them (whether or not they realise it), and that the ends therefore often justify the means. While the liberal tries to achieve his ends armed only with his powers of persuasion, the authoritarian uses whatever means he judges effective to achieve his ends, without worrying about treading on toes and breaking eggs. Collateral damage is a price worth paying. He will gather many people to his side by such means as self-interest, fear or appeal to base emotions, and undermine his opponents by such means as misrepresentation or tricks of rhetoric and false logic, while the liberal struggles to persuade many people to his view.
That also is depressing, but is also not the depressing conclusion I have in mind. After all, having realised this, the liberal may (though rarely does) alter his approach. I, for one, have no problem with the illiberal imposition of liberal policies. They may not realise it, but those liberals who are not prepared to bite that bullet might as well give up on political delivery of their ideals. They are unlikely to achieve anything other than passing on their ideas to the sympathetic minority.
As I listened to the pseudo-liberals at these gatherings, with their pet technologies or solutions, I began to realise another reason why it would always be difficult for genuine liberals to gain enough political support to implement a genuinely liberal programme. One pseudo-liberal's magic bullet is rarely contradicted by another's magic bullet. But they are both contradicted by the real liberal's opposition to all magic bullets.
The pseudo-liberals can deploy the "politics of and", while that luxury is not available to the real liberal. If one pseudo-liberal likes coal and another likes nuclear, they can agree that the government should promote the use of coal and nuclear power. The real liberal cannot compromise in the same way. There is no meaningful trade-off to be had. They cannot agree to have no winner-picking, but also to pick coal (or nuclear) as a winner.
Of course, the "politics of and" dissolves once in power, faced with the reality of budget constraints. (The pseudo-liberals and authoritarians never have properly understood the concept of scarce resources.) So they compromise again and have (in their respective views) not enough coal and not enough nuclear, but (through the alchemy of taxation and government-debt) more of both than can realistically be afforded or would have been justified by undirected investors. This compromise provides the handy excuse (or "saving lie") when their winner-picking fails - it wasn't their idea or the whole concept of winner-picking that was at fault, but the other person's bad idea. They then start building new coalitions and new compromises, which they believe will work better next time. And so on, ad infinitum.
Only in one rare and fleeting circumstance can real liberals hope to get the reluctant support of enough pseudo-liberals to implement a genuinely liberal programme - when the economy collapses so badly under the weight of complex and contradictory initiatives, that few people can fool themselves that there is enough money to fund the magic bullets. Some may even be converted to real liberalism by the evidence of pseudo-liberalism's failure, at least for a while. Most of them will gradually convert back, though, as the economic improvements created by the real liberal policies provide the funds to rekindle the belief that economic outcomes could be improved by a bit of judicious targeting here and there. Their reversion will be justified by the ridiculously high standards to which they hold the highly-imperfect, trial-and-error mechanism of the market, whereby any imperfections of outcome are seen as failures that could be improved through intervention, even though experience should have taught them that the outcomes of intervention were very much less perfect than the imperfect outcomes from the market.
The truly depressing thought, then, is the combination of all of this:
It's more grist to the Schumpeterian and Marxian mills. Circumstances like 1979/80 only come round once in a blue moon, and when they do, liberals will face severe competition from extreme authoritarians pushing the communist or fascist delusions. We may not be so lucky in the swing next time, and if we aren't, you can get locked into an authoritarian nightmare for a very long time.
But I still don't believe the Schumpeterian or Marxian theories that the collapse and replacement of capitalism is inevitable. I still believe it's a question of individual choice (aggregated as democratic choice), and that the promotion and defence of real liberal ideas is a fight that one must keep fighting. But, my God, it's an uphill battle, with no end in site, nor many allies, nor a strong chance of winning. It makes one appreciate the small number of allies there are, like the IEA, and the Cobden Centre, and Progressive Vision. At least their number is growing slowly, and some new initiatives (like the Cobden Centre) offer some prospect that it may start growing a little faster, and with stronger intellectual foundation.
A couple of months ago, I sat next to a leading economist, reputedly of the free-market variety (though our conversation led me to doubt it). I suggested to him that GDP was not a good indicator of the health of the economy. He said he thought it was, and (immediately betraying the weakness of his position) proferred the straw-man challenge that perhaps I preferred Gross Wellbeing.
Though the smarmy economist would not like to acknowledge it, it is possible to be critical of GDP without endorsing the hippy, Cameroony, pseudo-statistic of Gross Wellbeing. Here is one of many reasons why GDP hides a litany of economic and (particularly) political sins.
Consider two economies identical in every way - same size of population, same output of products, same prices - except for one feature. In one economy, the work is done by half the population available for work, working on average 70 hours per week whilst the other half of the working population do not work. In the other economy, the whole population available for work is in employment, working on average 35 hours a week. In aggregate, the same amount of money is paid in wages for the same amount of work to produce the same amount of goods, and the same amount of wages is spent on the same value (though probably not the same types) of goods. The GDP of the two economies would be identical. But are these economies equally healthy? To my mind, clearly not, and for fairly simple economic reasons.
In a speech reproduced at the excellent Cobden Centre website, James Tyler argues for the introduction of a free money system (i.e. independent, private issuers of currency). This is part of the ongoing debate between sound-money advocates about the best way to achieve their agreed objective. Some believe that money must be backed by a commodity (typically gold) whose quantity is difficult to change rapidly (we might tag this the Misesian approach), others believe like James that competition between issuers will favour currencies whose value is debased most slowly and that private, competitive currency is therefore the way to achieve sound money (this might be called the Hayekian approach, though strictly we ought to call it the late-Hayekian approach, as Hayek had for a long time favoured the former solution, until he despaired that state-owned banks would ever adopt a sound-money approach).
James presents the Hayekian case in positive form - that competing currencies themselves would be beneficial. I am more Misesian than Hayekian, but I can see a case for the Hayekian approach. But that case is negative, not positive. In my opinion, the best argument for Hayek's approach is that it would fail, not that it would succeed. Let me explain.
Money is not a good like any other good. Neither is any other good, of course (I hasten to add before I fall into the mainstream economists' trap of over-generalization). Each good has its own characteristics, which makes it quite difficult to express the value of one good in terms of another. That is why barter is impractical, and highlights two of the key characteristics of money (part of whose function is to get round this problem). To serve its purpose well, it must be liquid and fungible. It also needs to be durable, portable, finely-divisible, and of consistent quantity (so that it retains its value as a reliable metric against which supplies of and demand for other goods can be judged). But for these purposes, the key point is that the more widely accepted a currency is, the more useful it is.
"A camel is a horse designed by a committee."