The Bear’s Lair: Gross Imaginary Product

In the era of crypto-currencies, I propose a new economic statistic: Gross Imaginary Product. This can be defined as the total output at market prices of all products and services which do not actually exist. Contrary to popular superstition, not all the $350 billion value of crypto-currencies is imaginary; there are some real values there. Conversely, in the physical economy, in California, London, Japan and everywhere that “funny money” has distorted it, there are apparently “real” values that are in truth purely imaginary. Needless to say, GIP has soared in an era of fraud and fantasy like the present, and appears to be at an all-time high. Continue reading

The Bear’s Lair: Triumph of the bureaucrats

The typical form of human government moved from absolute monarchy, to oligarchy, to democracy, but it did not stop there. As government grew, popular control over it declined, while its own bureaucracy became the principal factor determining its direction. We have now reached the stage where to term the result a “democracy” is laughably in error. We have entered the era of the Bureaucrat State, and the mechanisms for restoring popular control are very limited indeed. Continue reading

The Bear’s Lair: Under funny money, we’re all living in Vegas

“True investing is not the same as gambling” said Isabella Kaminska in the Financial Times recently. Yet in today’s world, I’m damned if I can spot the difference. Bonds are a one-way bet to losses, the stock market is at levels it should not have reached until 2075, London real estate is at levels it should never have reached at all, and only crypto-currencies appear to offer sound long-term value. Whatever the differences were between investing and gambling, they have disappeared. That reality has unpleasant implications for our future. Continue reading

The Bear’s Lair: Let’s leave the world economy death spiral

Capitalism requires capital. The process of industrialization is partly one of technological advance, but it is also one of increasing capital use in the economy. But when the return to capital is forced below zero, as in the last decade, the capital base shrinks, the economy misbehaves and productivity declines, in spite of technological wizardry. Thanks to the world’s central banks, that is happening now in every advanced country. The rich world’s economy is thus in a death spiral, and it is not clear what forces can be used to get us out. Continue reading

The Bear’s Lair: Hollowed-out blue chips are the next subprime

Subprime mortgages caused much of the 2008 financial crisis by defaulting in much greater concentrations than the experts expected. The next financial crisis is likely to be caused by a similar disaster that surprises the experts. I have an excellent candidate: Fortune 500 companies that have been repurchasing their shares like maniacs for a decade, and in many cases have left themselves with negative net worth. In a major recession, when their business drops off and their cash flow turns negative, they will only need a breath of adverse wind to default. Like the subprime mortgages, once a few major companies default, the rest, with fragile credit structures, will fall like dominoes. Continue reading

The Bear’s Lair: Keep Engels’ paws off the economy

My much-esteemed ex-colleague Andrew Stuttaford has written several times on the dangers of robotics. He believes that our living standards may come to suffer an “Engels Pause” similar to the impoverishment Friedrich Engels, writing in 1844, saw resulting from the early Industrial Revolution. Having studied that period in my work on Lord Liverpool, I will suggest that Engels was wrong about the Industrial Revolution. I also claim that whatever the unknowable future effects of robotization, we should today be more fearful of not Engels’ Pause but his statist Paws, meddling like an economically illiterate King Kong with the ineffably efficient wealth-optimizing mechanisms of the free market. Continue reading

The Bear’s Lair: Trump tax reform won’t goose growth

President Trump’s proposed budget justifies its potential $1.5 trillion increase in the Federal deficit over ten years by claiming it will increase the anemic U.S. growth rate (thereby paying for itself). There can after the third quarter figures released Friday be no question that the U.S. economic growth rate has increased under Trump, with his deregulation (or simply ceasing to pile on additional regulation) the main spur to boosting an economy that had been burdened with non-market interest rates and silly leftist regulatory theories. But Trump’s proposed tax changes are a different matter; they are by no means clearly supply-side in their likely effect, and thus may simply deprive the Federal government of much needed revenue. Continue reading

The Bear’s Lair: Trade and immigration need garden fences

“Good fences make good neighbors” wrote Robert Frost in 1914. Those who have lived in both British and modern American suburbs can agree. High fences are not ideal; you can’t talk to people across them. But nor are a complete lack of fences, which allows gangs of neighborhood kids to race across your garden every afternoon, spreading destruction. The ideal is modest fences, low enough to communicate across yet sufficient to act as a barrier and a reminder of a private space. The metaphor is highly applicable to trade and immigration policy. Continue reading

The Bear’s Lair: Mississippi Company Economics

We have seen today’s economics in action before. Not in the 1720 South Sea Bubble – that was a simple stock market frenzy, similar to that of 1999, with a debt conversion scheme buried in it, but no excessive leverage. However, the almost exactly contemporary Mississippi Company/ Banque Royale scheme, devised in Paris by the Scots financier John Law – that, truly, bears a hideous resemblance to today’s markets, sparked off by a very similar monetary policy. Its collapse and the denouement thereof is also instructive. Continue reading

The Bear’s Lair: Better invest in a horse

Britain intends to ban the purchase of internal combustion and diesel engine cars in 2040, hoping to make everyone switch to California, China and France all have similar schemes in place. These government decisions naturally provide yet another implicit subsidy to Tesla Motors (Nasdaq:TSLA) whose first quarter’s production of its latest “mass market” model totaled a magnificent 260 machines. For those of us needing reliable transportation for work or shopping, it may be time to invest in a horse. Continue reading