The Bear’s Lair: The Free Trade Scam

The Davos leaders last week bemoaned increasing protectionism, attacking opponents of globalization as economic illiterates. Yet there seems no reason a priori why trade should be less subject to tax than any other human activity, and with today’s gigantic governments the need for revenue is very real. Free trade benefits some countries much more than others; today, even without extravagant cheating, it is an unnecessary handout to China’s thoroughly unpleasant regime. A balanced polity, global as well as national, is at least somewhat protectionist. Continue reading

The Bear’s Lair: AI offers a vision of Artificial Stupidity

Image of cybernetic dragon attacking woman , orthodox icon style

We learned last week that Microsoft (Nasdaq:MSFT) is investing $10 billion in OpenAI for 75% of its profits, a stake that will drop to 49% when Microsoft has recouped its investment. Since OpenAI’s principal asset has become the artificial intelligence writing software ChatGPT, this indicates the perceived value of AI applications. Yet we have also learned that Amazon (Nasdaq:AMZN) is slashing staff on its Alexa suite of AI products, said to be losing $10 billion annually. Alexa’s downsizing, rather than ChatGPT’s perceived value, points out the flaw in today’s AI: if centralized dreams of control or “woke” social engineering are inserted into the software, the result may be artificial, but it is certainly not intelligent. Continue reading

The Bear’s Lair: WEF Structure Makes It Evil

The World Economic Forum’s annual meeting in Davos, Switzerland opens January 16, and that body’s anti-capitalist maunderings will once again be spread all over the media. However, the WEF’s Marxist/Thunbergist “Great Reset” approach is not simply due to its chief Klaus Schwab having the looks and outlook of Ernst Stavro Blofeld; it is structural. The WEF’s shareholders, funding and constitution generate incentives that lead it away from free-market capitalism towards collectivism, evil, and human despair. I shall explain why. Continue reading

The Bear’s Lair: 1873 holds lessons for today

Bull Market Geműtlichkeit -- Bethel Henry Strousberg family 1870

Bull Market Gemütlichkeit — Bethel Henry Strousberg family 1870

Moving into a new year, we naturally look for interesting anniversaries, from which lessons can be drawn. In 2023, there are no centenaries, bicentenaries or tercentenaries of interest, while I have written extensively recently about the 1970s, in which 1973 of the “Arab Oil Crisis” is the crucial year. However, 2023 is also the 150th anniversary of the “Panic of 1873” about which much less has been written, in this column or elsewhere, and which has many lessons for us today. Continue reading

The Bear’s Lair: The coming regulatory meltdown

When you add constraints to a complex mathematical or engineering system, at first it does not change much. Then it begins to perform less well, but only gradually until suddenly, with the addition of an additional constraint that may itself be unimportant, the system collapses and either fails to produce a solution or produces one at a very much lower level of operating efficiency – mathematically, a “catastrophic” degradation. Continue reading

The Bear’s Lair: Central banks must play Grinch, not Santa Claus

The core imperative for the move to fiat money and then to permanent “stimulus” policies was the urge by central banks to play Santa Claus. By lowering interest rates, they raise asset prices and make everyone feel richer. This is dangerous; it produces asset bubbles, kills productivity and increases inequality, making everybody but the very lucky poorer in the long run. The need therefore is for an institutional framework that will force central bankers to play Grinch. Continue reading

The Bear’s Lair: The world needs a period of iconoclasm

Iconoclasm, whether in 8th century Byzantium or as the Reformation in 16th century Europe, was a response to a religious order that had become dogmatic, corrupt and detached from the real needs of its flock. It was more than mere reform, because it involved breaking the sacred objects of the establishment’s veneration. Economically, socially and institutionally, we have a quasi-religious “woke” establishment whose dogma has become detached from reality. Iconoclasm, not mere reform, is needed to combat it. Continue reading

The Bear’s Lair: Cash flow will be king in 2023

For the last decade, cash flow has seemed irrelevant. Interest rates have been close to zero and well below the inflation rate, so that loss-making companies and projects with cost or time overruns could easily raise additional capital. Now, with inflation at 7-8%, interest rates are still negative in real terms. However, whatever the level of inflation, a 5% interest rate has one important difference from a zero interest rate: it requires you to find 5% of the principal in cash each year or go out of business. Modern companies, especially in the tech sector, are not used to such disciplines. The result will be bankruptcies and scandals in 2023; Sam Bankman-Fried is just the first of a large crowd. Continue reading

The Bear’s Lair: It’s a long time since the Age of the Antonines

Genseric Sacking Rome

Imagine being a citizen of the Western Roman Empire early in the reign of the Emperor Honorius (ruled 395 to 423). You would know that the Emperor was not very good, and that the Empire was fighting off the barbarians only through the efforts of General Stilcho (c.359-408). Yet you would look back for better rule only to the Emperor Theodosius (ruled 379 to 395) and believe that with another Theodosius, all would be well. However, the Empire had by Honorius’ time been in severe decay for two centuries, since the death of Marcus Aurelius, the last of the Antonine Emperors in 180, and only the Sack of Rome and disintegration lay ahead. Like Honorius’ subjects, we too delude ourselves through looking back only to Ronald Reagan and Margaret Thatcher, not to our truly successful and creative earlier past. Continue reading

The Bear’s Lair: No to digital dollars, yes to new e-gold

Former Fed Governor Kevin Warsh has published an editorial in the Wall Street Journal expressing support for a digital dollar, lest the United States lose competitive ground to China. Since Warsh is a possible Fed chairman should Republicans gain the Presidency in 2024, his support for a digital dollar is truly alarming, given the civil liberties dangers involved. However, his economic argument is specious and his solution damaging; there is indeed a better way to go. Continue reading