The Bear’s Lair: The rapid dynamism of free markets

In August 2020, under President Donald Trump, the U.S. unemployment rate fell in one month from 10.2% to 8.4%. Under President Barack Obama, the U.S. unemployment rate peaked at 10.0% in October 2009; it then took 27 months, until January 2012, to fall to 8.4%. That is not a commentary on the relative competence of the two Presidents concerned; it is a commentary on the relative efficacy of their economic policies. The free market moves very quickly indeed to restore full employment when disruption has occurred; the regulated and micro-managed socialist market may never restore full employment at all. Continue reading

The Bear’s Lair: The Windmill Effect

Between 1600 and 1795, the Netherlands did most things right to industrialize, yet the country’s industrialization occurred only after 1850. In the 17th century, the Netherlands made a massive investment in windmills, a technology clearly superior to water and animal power, but not readily adaptable for railroads or most industrial purposes. Then later, with industrial windmills predominant, the early steam engines were not sufficiently cost-effective to be worth adopting. This syndrome, of an existing technology becoming locked in and preventing further progress, has occurred elsewhere, and may be hampering us today. Continue reading

The Bear’s Lair: Are we in 1720?

Pessimists about the current state of the markets question whether we are in a stock market bubble, like 2000 or 1929. They are not thinking broadly enough. It is clear that when this nonsense bursts, the consequences of that bursting will be longer lasting and more fundamental than those of the burstings of 2000 or 1929. Those consequences will be much more like those of the burst twin Anglo-French market bubbles of 1720. Continue reading

The Bear’s Lair: California, China and Belarus

The world economy has come a very long way from the small-government, unregulated free-market model so celebrated by Adam Smith and other classical economists. Today, even in countries that claim to be committed to capitalism, taxes, monetary policy, regulations and state spending have produced huge distortions. To illustrate how huge, I thought I would compare the economic models of three jurisdictions: California, the high-tech Mecca supposedly a beacon of freedom, China, the state-controlled behemoth that claims to have a new and better economic model, and the universally despised “Communist” dictatorship of Belarus. Continue reading

The Bear’s Lair: Lessons from W. Edwards Deming

W. Edwards Deming (1900-93) was the statisticians and management consultant, famous for visiting Japan after World War II and introducing them to many elements of the superb Japanese management and production system. Nearly thirty years after his death, with Japan deeply unfashionable, he may appear to have little to teach us. However, when I examined his principles, more in top management than in production (about which I am no expert) Deming’s teachings seem to provide both a way forward and a fierce indictment of the funny money era of American business. Continue reading

The Bear’s Lair: Triumph of the Naff

Lord & Taylor’s bankruptcy this week closely followed on that of Brooks Brothers. That suggests a common trend, a Götterdämmerung of the preppie WASP. Certainly, other factors, the COVID-19 lockdowns and the ineptitude of private equity, played a role also. But there is an overall zeitgeist at work, social as well as economic, and it portends a scruffy, style-less down-market future. Continue reading

The Bear’s Lair: Back to the Gold Standard!

As gold finally broke through its 2011 all-time high the mainstream media played the story down as much as possible. No surprise there. However, gold’s surge in 2020, which shows no sign of ending, strongly suggests that the era of dozy Keynesians monetary policies is finally reaching its inevitable Götterdämmerung. The Fed having proved over the last 25 years that all lesser restraints are useless, there is only one resource left to save our more or less free market economy: a full return to the Gold Standard, with all the blissfully corrective discipline that would impose. Continue reading

The Bear’s Lair: Keynesian beauty contests are long-term losers

Emperor Rudolf II

Emperor Rudolf II
Source: Dennis Jarvis

One of John Maynard Keynes’ favorite conceits, expressed in Chapter 12 of his 1936 “General Theory” was that selecting stocks was like a beauty contest in which you selected the six most attractive faces from a panel of 100 photographs – the person who agreed most exactly with the consensus winning a prize. For once, Keynes was right – in the short-term, stock markets do work like that, with the consensus “most beautiful” stock going up most. However, in the long-term selecting the consensus idea of stock market beauty will lose you money, and the eccentrics who stick to their own ideas will shape the future and reap the richest rewards. We just don’t know which eccentrics will win out. Continue reading

The Bear’s Lair: Time for austerity all round

Governments all over the world have in the last four months indulged in a blowout of spending, financed by central banks’ monetary stimulus and zero or negative interest rates. They are currently planning further orgies of spending, even though their economies are mostly re-opening. This will lead them down a path of budget deficits and debts that can lead in only one direction: international bankruptcy. In the United States and indeed Germany, propping up an existing system of bad investments has been tried before; in 1930-32. It led to the Great Depression; let’s not do that again. Continue reading

The Bear’s Lair: Holy Roman Empire example should deter governments

The Holy Roman Empire was a pioneer in banking through the Fuggers, it had adequate constitutional protections for at least the middle classes, and it benefited from fabulous German engineering talent, so why didn’t it get the Industrial Revolution? Its main problem was internal tariffs; we are told that in the 18th Century there were 32 toll houses on the Rhine and 35 on the Elbe. The Empire’s failure to overcome that problem despite its enormous costs for its economy has lessons for us facing similar entrenched inefficiencies today, which are equally regarded by us as part of the natural order. Continue reading