The Bear’s Lair: Creating an Innovation Economy

The Financial Times this week had a lengthy piece “When the tech boom met reality” detailing how truly galactic levels of venture capital funding have produced little innovation and are now leading to truly galactic levels of losses. It is now clear that the “all point in one direction and throw money at it” approach to innovation does not work. Since technological innovation is key to our future prosperity and indeed happiness, it is perhaps worth reviewing how better approaches in the past have produced better results. Structural changes are needed. Continue reading

The Bear’s Lair: Decade of Economic Denial

The 0.9% decline in U.S. second quarter GDP Thursday brought an immediate denial from the Biden administration that the United States was in a recession, following similar denials that inflation was persistent and that high oil prices were due to restrictions on U.S. pumping. As this column has frequently forecast, the 2020s will be a difficult decade. It is now clear that it will be a decade of economic denial, in which administrations of whichever party attempt to obfuscate the economically obvious. We have seen this pattern before; it is one of the reasons economics is a truly dismal science. Continue reading

The Bear’s Lair: The investment banking down cycle

Goldman Sachs’ (NYSE:GS) second quarter income falling 47% with threats of job cuts is just the beginning of a major downtrend in investment banking, reversing the surge of 1982-2021. This should not be a surprise: it has happened three times before. The most recent occasion was after the 1968 stock bubble; that crash was short. The two longer-term declines were after the 1929 stock market crash and the 1720 South Sea Bubble. The three downturns have interesting lessons for today’s investment bankers now seeking a new line of work. Continue reading

The Bear’s Lair: The Death of Productivity Growth

June’s unemployment figures showing growth of 372,000 jobs were hailed as unambiguously good news by the media and the markets. However, there is a problem: advance estimates of second quarter GDP, to be announced at the end of this month, suggest a decline of 1.5% at an annual rate, similar to that in first quarter GDP. If that figure pans out, it can only do so by a catastrophic fall in productivity, already down at a 7.3% annual rate in the first quarter. That says something very ominous indeed about current monetary and regulatory policy, and about Americans’ living standards going forward. Continue reading

The Bear’s Lair: The deflationary decades ahead

The last six months have shown that the absurdly loose Fed policy and benign monetary conditions have gone – the 39-year bull market in bonds (1982-2021) is over. Inflation will not disappear soon, and the Fed will not raise rates far enough to control it, but the next decade or more will inevitably see a bear market in bonds and in asset values. We have forgotten what those deflationary markets are like, so I thought it worth setting out some pointers. Continue reading

The Bear’s Lair: How the Supreme Court can make itself useful

The Supreme Court’s decisions in “Dobbs v. Jackson Women’s Health” and “New York State Rifle & Pistol Association v. Bruen” demonstrate that, for the first time since its emasculation in 1937, the U.S. Supreme Court is capable of holding firm in protection of basic Constitutional rights. The media have obsessed over the possibility of further possible decisions restoring previous norms in social issues, which I think unlikely (will a Supreme Court Justice with a mixed marriage vote to outlaw them?) Much more interesting is the possibility of some reversals of the more outrageous economic decisions of the last 87 years, thus restoring the Constitution’s guarantees of property rights. Continue reading

The Bear’s Lair: Bigger than the Founding Fathers

There were two world-changing events stirring in the confused British politics of the 1760s and 1770s. One of them, led by Edmund Burke and the Founding Fathers and endlessly studied, ended in the American Revolution and a new and eventually powerful country. The other, simultaneous and much less studied, led to the Industrial Revolution, a development that has had an even greater positive effect on the future of humanity as a whole. This column will focus on the politics of the latter. Continue reading

The Bear’s Lair: 24 Years of Malpolitics!

Government quality is not randomly distributed, but leptokurtic – good and bad trends tend to perpetuate themselves. In so doing, they resemble stock market and real estate malinvestment, as Austrian economists put it. It can probably be agreed by both political sides that since January 2001, the United States has endured more than two decades of very poor leadership, an ailment that seems unlikely to be alleviated this side of 2025. However, this is by no means the longest run of bad leadership in a country’s history; both democracies and the various forms of autocracy have produced longer periods of unrelieved ineptitude. To cheer ourselves up, it is thus worth looking at how these other examples escaped their malaise – while passing over hurriedly those that did not. Continue reading

The Bear’s Lair: Metropolis Doomed

We are constantly subjected to propaganda from media journalists living in tiny apartments in crime-ridden major cities about how wonderful those cities are. That is partly a matter of taste, of course. However, the technological and organizational changes brought by the COVID-19 pandemic may finally end city life for those for whom that pathological taste is not politically and psychologically ingrained. For those without the mania, it will be a joyous release. Continue reading

The Bear’s Lair: Regulatory blight can last three centuries!

This column has written fairly frequently about the blight of regulation, but it is always difficult to find concrete examples, while proving economic damage requires considering the counterfactual where the regulation did not exist. However, in my researches for “Forging Modernity,” a study of Britain’s Industrial Revolution, I have come across a modest-sized regulation whose damage is pretty clear, huge, and extending over three centuries. I refer to the Woollens etc. Manufactures Act, 1720. Continue reading