The Bear’s Lair: The eleventh day of the eleventh month

Yesterday was the 100th anniversary of the Armistice that ended the world’s greatest avoidable tragedy, the Great War of 1914-18. In terms of human welfare, we would all have been immensely better off if that war had never been fought, with the benefits extending through the intervening decades even to today. Economically, however, the scale is more closely balanced. Continue reading

The Bear’s Lair: Back to Stuart finance!

Since this column appears on the 413th anniversary of Guy Fawkes’ attempt to blow up the Houses of Parliament, I thought it worth reflecting on why he got so close. The principal reason was the parlous state of early Stuart finances, which was due to two factors: the lack of a central bank and the lack of a reliable government bond market. Modern governments don’t have this problem; indeed, they feel able to finance deficits as large as they like for as long as they want, using a poodle central bank to print money when necessary. Given current policies, that will eventually end, and the era of Stuart finance will return. Continue reading

The Bear’s Lair: 24 years of Schumpeter

The Sears bankruptcy, and the Schumpeteran creative destruction in the shopping mall sector that will follow, feels like it has been coming for a long time – and it has. Ever since the Fed went off track from sound monetary policy in February 1995, ultra-low interest rates have created new unproductive investment and postponed necessary bankruptcies. In 2019, if the Fed stays on its current path, we will enjoy 24 years of Schumpeteran creative destruction – all at once. With good management the experience should be highly invigorating. Continue reading

The Bear’s Lair: Competition is good for governments, too

It is a well-known economic principle, the central thesis of Adam Smith’s work, that competition between individual businesses produces better outcomes, while monopolies and oligopolies result in inefficiency and conspiracies against consumers’ interests. From the economic principles involved, the same is also true of governments. We should thus welcome nationalism and deplore both movements towards global government and agreements between governments to suppress this healthy competition. Continue reading

The Bear’s Lair: The costs of consensus

In many areas, such as monetary policy, the U.S. Supreme Court, corporate Boards of Directors and Cabinet government, decisions are made by arriving at a group consensus. If the group is sufficiently intellectually diverse, this works well. There is however a pernicious danger, which we have seen in action many times in economic policy, where an entire group forms a consensus around a generally held elite opinion. In those cases, disaster is likely to ensue. Continue reading

The Bear’s Lair: Towards the asset-light economy

The last two decades of low interest rates have seen a vast increase in the world’s stock of assets, measured at market value, largely matched by a corresponding increase in debt. However, the increase has not raised global productivity growth, which has slowed as the asset glut has increased. This points to a core economic secret: large agglomerations of assets are a drag on growth, wealth and productivity, and lead to repeated financial crises through their obsolescence. Going forward, we must devise ways to move towards an asset-light economy. Continue reading

The Bear’s Lair: Housing bubbles are universally destructive

Ever since this column started in 2000, I have been writing that British house property is hopelessly overpriced. There is no question this has been spectacularly bad investment advice – Londoners who owned a home in 2000 have at least trebled their money since then, doubling it in real terms. Nevertheless, it is possible for an asset to remain overvalued for decades, and I would like to examine the damage that overpriced real estate has done to Britain’s economy. Continue reading

The Bear’s Lair: The happy new world of tariffs

As President Trump imposes tariffs on China and elsewhere, much dark muttering is heard from the media and conventional economists about Smoot-Hawley and the 1930s. They are too gloomy. Two factors have changed since the 1930s: bloated government and the invention of computers, and their combination means that the Victorian dream of universal free trade is no longer optimal, even if it ever was. By upending conventional economic thought, Trump may well have improved the human condition. Continue reading

The Bear’s Lair: Learning the right lessons from 2008

Learning the right lessons from financial crises is tough. The 1929 stock market crash was blamed for all the ills of the Great Depression that succeeded it and led to two decades of regulation and socialism. In 1720, the British tried to stop all new company formations while the French gave up on finance altogether and started plotting revolution. So, it is unlikely that we have learned the right lessons from 2008, but it’s worth asking what lessons we should have learned, to avoid the same mistakes again. Continue reading

The Bear’s Lair: The Marie Antoinette economy

The Financial Times this week reviewed yet another adulatory biography of John Law, the financier/swindler/Keynesian responsible for France’s Mississippi Company disaster of 1716-20. Meanwhile the Congressional Budget Office published a suitably gloomy study of the budget cuts needed to stabilize U.S. public debt. With a massive financial crash coming, an inability to finance the government’s needs thereafter and social attitudes heavily favoring the destructive over the productive, 21st Century America increasingly resembles 18th Century France. Hopefully its fate will be less bloody! Continue reading