The Bear’s Lair: Central banks must be rule-bound, not independent

Retiring Senator Jeff Flake (R.-AZ), apparently concerned about President Donald Trump’s influence in all areas, wants legislation to make the Fed truly independent – of Congress as well as the President, presumably. However, independent central bankers like Ben Bernanke and Mark Carney have been responsible for most of the truly lousy monetary policy of the last two decades. Rather than mandating Fed independence, therefore, Congress must establish rules, constraining the Fed to observe monetarily responsible behavior. Continue reading

The Bear’s Lair: Thank God for President Trump!

This column has on a number of occasions been critical of President Donald Trump; his views on interest rates are especially unenlightened. Yet in two crucial areas, where corporate interests and the intelligentsia had spread a deep fog of deliberate lies to smother intelligent global discourse, Trump has acted as a mighty wind of clarity and illumination. I refer of course to those twin scourges of our times: global warming hysteria and excessive legal and illegal immigration. Continue reading

The Bear’s Lair: Hasta la vista, Ulster!

The border between Northern and Southern Ireland has become the most important factor preventing a clean exit for Britain from the European Union. Yet British statesmen sacrificing the needs of the entire country to fulfil a 1998 commitment of the odious Tony Blair are omitting one consideration: even if Britain sacrifices everything to keep Northern Ireland as part of the Union, that sacrifice, for demographic reasons, is likely to be wasted within less than a generation. Far better to recognize the demographic reality now and get Britain’s EU exit right. Continue reading

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