Truth must be not only discovered,
but perennially rediscovered and redefined.

Via The Cobden Centre, Sean Corrigan reflects on the year from an economic perspective:

So, here we are, drawing to the close of another year and still we struggle with the legacy of the last Boom, still we search around for macro economic Tooth-Fairy, ‘liquidity’ solutions to the problems caused by our earlier misallocations of capital instead of facing the fact that insolvent entities need to be liquidated and their assets put to work by people who’ve shown they can run their businesses successfully without a government crutch!

I recommend reading the whole article.

Via Phases of the crisis – are we approaching the endgame? » The Cobden Centre:

“Let all men know how empty and worthless is the power of kings. For there is none worthy of the name but God, whom heaven, earth and sea obey”.

So spoke King Canute the Great, the legend says, as waves lapped round his feet. Canute had learned that his flattering courtiers claimed he was “so great, he could command the tides of the sea to go back”. Now Canute was not only a religious man, but also a clever politician. He knew his limitations – even if his courtiers did not – so he had his throne carried to the seashore and sat on it as the tide came in, commanding the waves to advance no further. When they didn’t, he had made his point: though kings may appear ‘great’ in the minds of men, they are powerless against the fundamental laws of Nature.

I recommend the full article. See also my recent IMF speech for another reference to Canute and our present economic situation.

Via The Austrians Were Right, Yet Again, Jeffrey A. Tucker sets out the way it is in the USA:

After three-plus years of floundering around, a consensus has finally arrived that we are back in recession. Growth is not happening. The meager statistical growth of the past few years — no one dared claim it amounted to full recovery — was probably illusory.

He goes on to catalogue the government interventions which have been a failure before quoting some of the many Austrian-School commentators who explained why that would be so. Finally, he writes:

Why does anyone continue to take Krugman and company seriously? In fact, why does anyone take seriously those who warned that unless we tried the Keynesian plan, the world would end and we would miss an opportunity for a glorious recovery? It’s not just the New York Times; it’s also the Wall Street Journal and the entire financial press that continues to be enthralled with the absurdities of Keynesian theory.

Let’s rub it in a bit more: The Austrians were also correct that the boom before 2008 was unsustainable. See “The Bailout Reader.” There is no joy in being right here. It is pathetic really that any informed observer of events would not be correct in light of experience and the common-sense observation that government can’t make prosperity appear no matter how many kabuki dances Treasury officials do.

On the winning team are those who understand sound economics. On the losing team are those who keep thinking that poison can cure the patient. So we say again: the stasis and depression will continue until the system is allowed to correct itself.

I’m glad to see Douglas Carswell MP making the case that the mainstream commentators have comprehensively failed us. I explained some of the reasons why they do so on ConservativeHome in December: they lack an adequate theory of capital, amongst other things.

No single school of thought has an absolute monopoly on correctness, but when one school is consistently closer to correctness than another, maybe it’s time to look at the relevant ideas. For example, given a robust theoretical understanding of money, it’s possible to produce a measure of money supply growth which gives a good basis for analysing monetary effects on the economy:

The rate of change of the supply of Sterling

That astonishing precipice in money supply growth happened before Lehman Brothers’ collapse and the tightening of credit conditions. That doesn’t justify QE, which redistributes wealth towards those who receive the money first, or further artificial lowering of interest rates, which further distorts the structure of the economy. It does illustrate the importance of having the right theoretical equipment when analysing practical events. Without that, how can we expect good quality policy recommendations?

A primer on the Austrian School is here and these are some of the better blogs:

• The Cobden Centre
• The Ludwig von Mises Institute
• The Foundation for Economic Education
• Coordination Problem

Via Dr Tim Evans, A useful nod for the Austrian school of economics? » The Cobden Centre:

The session in which I spoke was headed ‘The Sovereign Debt Crisis and the Crisis of Sovereignty’ and my partners for the occasion were the British MEP Danniel Hannan and the former Prime Minister of Republika Srpska, Mladen Ivani?.

Now, beyond the content of our presentations and the debate that ensued, what was really interesting to me about this venture was how every time I or Dan Hannan mentioned the Austrian school of economics, a majority in the audience nodded as if in ‘knowing approval’. Clearly, a small minority of those present were familiar with Austrian school ideas but I suspect the overwhelming majority were not; yet all nodded.

To me, what is interesting about this is that if the gathered selection of people were in anyway representative of similar audiences further afield then maybe Austrian school ideas are starting to spread in such a way that even those ignorant of its details are starting to feign appreciation.

For those who wish to avoid embarrassment, a primer is here.

Via Sean Corrigan’s  Et in Academia ego » The Cobden Centre, following a consideration of the predicament of Greece:

So, rather than relying on the snake oil salesmen to tell us how we should think, let us go back to the basics for a moment to see if they will help clarify the situation in which we find ourselves today.

As we never cease to point out, the immediate effect of monetary injections is to reinvigorate business revenue streams and—at first—profits. And so it has been through the Great Reflation.

Thereafter, however, the monetary influx means prices begin to rise—stubbornly not in the sectors whose overbuilding and later collapse are the intended welfare recipients—and as their changes become more unpredictable, they both dilute the money’s growth-inducing potency and swamp out the signals conveyed by prices, signals upon which all economic decisions—whether taken by producers or consumers—must be based.

Unless the monetary authorities then abandon all sense of responsibility, their actions—however reluctantly taken—to counter this will tend to reduce real money supply, either actively (by slowing its nominal growth), or passively (by not adding sufficient to offset its declining purchasing power).

At this point, those whose continued expansion—and perhaps even their very continuance—in business has become too heavily dependent on the maintenance stimulus rush will again start to falter.

This last neatly describes conditions in many of the major economic zones of the world, with the current exception—thanks to the lunacy of QE-II—of the US.

I recommend the full article.