'Nother Solent

And gentlemen in England now abed / Shall think themselves accursed they were not here.

There will be a public debate on free trade versus fair trade tonight in St Margaret's Church, Westminster. At ten to midnight, as it happens. (So the anti-globos can have a candlelit weep-in round Parliament afterwards.) Sean Gabb and Alex Singleton will fight the good fight while lesser souls like me sleep.

Short and Sweet.

Tim Worstall writes:

You say you are looking for short and sweet pieces explaining free trade and why it's a good idea.

What's the target audience? General bloggy goodness or more specific than that?

People who read Christian Aid adverts in the Guardian and believe them.

I mean, everything from Ricardo, Smith and so on is contained in the phrase:

"We should all do the best we can and swap the results"

and if you want to emphasise comparative advantage a recasting:

"We should all do what we're least bad at and swap the results".

Hmmm. I meant a bit longer than that and more targeted to the concerns of 2005... actually I'm sure I would have found all sorts of suitable stuff by now if I hadn't been busy with real life. Perhaps I should do as he says and write it myself.

If I decline Tim's delicate hint that his professional services as a writer are at my disposal it is not from any doubt as to the excellence of his skills or the reasonableness of his fees, still less for the flattering reason he also suggests, but because the TV broke and, having ordered a new one, so we.

Anyone wanting an RSS feed

for this blog can get one by going to its mirror site, 'Nother Solent, kindly provided by an anonymous benefactor. I've also added a link to 'Nother Solent at the top of the sidebar, a thing I should have done ages ago.

UPDATE: I feel bad that I haven't fixed the RSS feed on my blogspot residence, which David Janes kindly provided ages ago. I feel even worse when I read this:

My aquarium lost its first fish: one of three Clown Loaches. The problem with these little buggers is that they like to pretend to be dead all the time so I never noticed this one being particularly ill. I tried my best to get him well today but it never really looked that hopeful.

This is not another post about interest rates.

"The question that I really don't know the answer to is whether high interest rates actually hinder development. Maybe, by discouraging foolish prestige projects, they help it. On the other hand sensible people who want loans for sensible projects pay the price for the folly of their compatriots."

The same reader as before now writes:

Ahh, that's far more complex.

The short version:

That's not an interest rate problem: Much of the third world population is not even in the position to worry about rates, the underlying planks to allow a capitalist to stand on don't exist/are rotten/ are cut away.

My longer blathering:

The folly of compatriots is a big thing, if your nation is a deadbeat with a history of socialism / bank nationalizations/confiscations, an opaque legal system and corruption sliming along the high street in full view. Then obviously, no matter how good you might personally be, or how good your business idea, you are dead inthe water. Either the banks don't exist, or they are smart enough not to loan to you.

The sterotypical black African wanna-be entrepeneur can't get traction, even if he can round up enough funds, because whatever he builds will be stolen (legally because the legal system stinks, or by main force), or the profits sucked away in corruption. Or that's the perception.

That's not an interest rate problem: Much of the third world isn't even in the position to worry about rates, the underlying planks to allow a capitalist to stand on don't exist.

Hence in some places you get powerful families as the only ones able to engage in business, they have the muscle to enforce "private law", and the money to self invest so their risk calculations are wholly different than that of a third party. That doesn' trickle down much. Lot's of really great ideas languish inthe swamp.

Governments are another kettle of fish, by and large their loans are not "bank loans" per se but often special politically motivated development loans, sometimes guarenteed by third parties. Sometimes outright grants disguised as loans.

I like to think of these as free heroin for junkies. You know the money will be pissed away to no longer term avail.

International financial org's get involved, and they have smart people choosing projects that are worthwhile at advantageous rates, they may have done so in the past, but often they are now staffed by PhD's who miss the forest for the trees. The projects often don't make sense in the end after billions have been spent. e.g. Sure, Country Z needs a new power plant, but if the project doesn;t take into account that 45% of the customers don't actually pay their bills or outright pilfer the power and the rest pay a subsidized rate that has no relation to the cost of generation and transmission, then what? Subsidies can cause huge distortions & waste. The rate you pay to make the investmnet in the powerplant and the "official rate" you get paid for the power is irrelevant.

Almost every single third work country and poor country is that way because their policies and laws and practices are corrupt or just abysmally stupid, and the economic signals don't get transmitted - or worse, the wrong signal is emitted, so that the " invisible hand " acts in perverse ways.

They stay that way because a small groups really profit from it. See "public choice theory."

Yes, I know I said this was not about interest rates. I lied.

Chirac lets the cat out of the bag - according to the BBC.

This, if not a mistranslation, is a startling admission. A BBC account of yesterday's debate on French TV says of Chirac that:

"He said it would be in the interest of Anglo-Saxon countries or the US to stop 'European construction.'"

Emphasis added. If this is true it's dynamite. However I am not sure it is true. The construction "Anglo-Saxon countries or the US" seems odd. Apart from us, that's Canada, Australia, New Zealand etc. Can he really think they are a factor? The EU referendum blog doesn't mention those words in this post so maybe it's just some BBC journo's C grade French O-Level talking.

What did the old boy really say? Armed with my trusty French dictionary, a-hunting I shall go.

UPDATE: Having carried out a rather desultory search I think this was a poor paraphrase or conflation of two things he said about the need to oppose the current towards an Anglo-Saxon, Atlanticist kind of Europe and that great powers naturally seek to impose their will.

Yesterday Sprog Minor started reading this blog

over my shoulder. I had to click the minimise button fast because the last two posts had bad words in them. Sternly, determinedly, joyously, I made a resolution to clean up this blog!

It's a shame this came along the very next day. "Mondays with George" is not kid-safe, work-safe, offensiveness-filter safe or reading-while-drinking-safe.

(Via Meryl Yourish.)

(Still gonna clean up the blog a little bit. I resolve that from now on that the doubtful bits will be confined to the decent obscurity of a learned hyper-text markup language.)

Interest rates and the Third World.

A reader writes, regarding my statement in the previous post that I did not know enough to comment on high rates of interest on loans as a reason for world inequality:

Oh, you do. If you allow me, interest is charged, out in the real world, based on percieved risk.

Hence, large stable countries with a history of reliably paying off their debt get a good rate, dead-beats who default, who have poor cash flow, and reliably have revolutions get poor rates.

Similarly, if you borrow to build a productive asset, like say a power dam, or tools based on a decent "business plan" you tend to get a better rate than if you borrow to buy Mercedes Limo's for the boss men, and jet-fighters and fuel to go bomb the revolutionaries.

I'm mixing stuff up here a little bit, but it's clear, I hope.

The 3rd world gets shitty rates because they are terrible credit risks and because they invest in stupid shit with poor, or no, returns.

This is the same reasoning that 60 years old lawyer who has been married 30 years buying a $1,000,000 dollar loan on 3rd house to serve as a rental (with a stable tenant already there) gets a far better rate than a 20 year old highschool drop out with credit problems buying an over powered motorcycle. (In reality, Mr. 20years old gets told to pound sand.)

As this reader implies, I did know something about this, although I could not have explained it so clearly. The question that I really don't know the answer to is whether high interest rates actually hinder development. Maybe, by discouraging foolish prestige projects, they help it. On the other hand sensible people who want loans for sensible projects pay the price for the folly of their compatriots.

What is brought out well in this reader's explanation is that if you want to put a one-line explanation of the effects of interest rates on third world poverty in your textbook, the phrase "third world countries are bad credit risks" would be far more informative than "high rates of interest on loans." Most sixteen year olds, the target audience for a GCSE revision guide, will regard interest rates either as an inexplicable natural phenomenon or as an act of malice directed against defenceless Third Worlders by wicked usurers. In the end my position is that interest rates should be as disaggregated as possible, and, of course, should not be manipulated by politicians, so they fulfil their function of transmitting useful information about risk.

UPDATE: The EU Serf writes:

I have a little experience of a high interest rate economy. What basically happens is:

1) Rich people make money really easily, creating a permanent, useless rich class.
2) Anyone with any money lends it to the state rather than invests in anything else.
3) Business models are all designed to create cash flow for lending to the state, not to maximise long term profit.

The upshot is very little productive investment is made as all the money goes ultimately to fund state borrowing. Established companies face little threat from newcomers, so they treat customers badly. They make only those investments that give a very fast return. Unemployed people are screwed. The investment needed to creat jobs never comes.

Oh and it is always the fault of poor government that interest rates are high.

An aside on the large numbers of small children. As birth rates drop swiftly, this leads to a huge labour force as a ratio of the population. This is one of the big driving forces of all successful developing economies. Its also a one of opportunity that can be lost if other things are not done correctly.

The new established church: GCSE Religious Studies and the Christian Aid worldview.

In December last year I promised to look over some RE textbooks, and, assuming I passed repeated SAN rolls, tell you about them. As it happens this ties in well with the the topic currently keeping me awake at night and blogging in the day: anger at Christian Aid.

So here is a religious studies textbook: Letts Revise GCSE: Religious Studies. Boys and girls, let us turn to page 130. Extracts from the book are in italics.

Reasons for inequality

Throughout what follows poverty and inequality are treated as synonymous. This is odd as there was a discussion of relative versus absolute poverty a few paragraphs ago.

The reasons for this divide are complex

Says you. Personally I think the biggest reason is simple, socialism, and most of the complexity comes from efforts to avoid admitting it.

and any discussion of ways in which the parts of the world might be made more equal generates great controversy.

I'll say. Pity not one whisper of one side of the controversy reaches your pages.

Several causes of poverty in the developing world are generally acknowledged:

No, widely acknowledged, but not generally. Certainly not by me, but I accept that my libertarian opinions are shared by few. More to the point is that the opinions listed below are also not held by vast numbers of conservatives. And it's a subtle issue, but that word "acknowledged" smuggles in the assumption that the possible causes listed are true. One supposes fancies but acknowledges facts.

- Expenditure on armaments (warplanes, guns and tanks/armoured vehicles) using money which is borrowed from the large banks of developed countries.

Weird. Expenditure on armaments by Third World countries is undoubtedly too high, but as a significant factor in us being rich and them being poor? Not even close. We spend plenty on arms too.

- very large populations of very young children who cannot contribute to the economy.

And who do not die in infancy in the vast numbers of yore, thanks to increasing wealth and modern medicine. It's true that the population bulge contributes to poverty while it lasts, but it is sign of success not failure. And it is temporary: when people adjust to the idea that nearly all their children live they stop having so many.

Now the destruction and disruption caused by war, that is a big factor. But that would not be quite so easy to blame on "large banks of developed countries."

- world trade, which forces developing countries to sell their goods for very low prices.

You heard right. World trade cited in itself as a cause of inequality/poverty. Sure, that's why Taiwan starves and North Korea flourishes. In actual fact the correlation between a country's foreign trade and rising wealth is so clear that practically no democratic government, right or left, supports this view. Even Kofi Annan doesn't believe this. As he said in 2000, "The main losers in today's very unequal world are not those who are too much exposed to globalization. They are those who have been left out."

- high rates of interest on loans.
I don't know enough to comment. [LATER: see next post.]

- reduced level of aid from developed countries.
If the level of aid is reduced, which I doubt, it's probably done them a world of good. As the late Peter Bauer said, aid is a transfer from poor people in rich countries to rich people in poor countries.

Then the book lists a few factoids about current affairs that are true, but are far from proven as causes of inequality, such as easier travel, involvement of first world countries in Third World politics, aid programmes demanding contracts in return and so on. We finish with pure Michael Moore:

The countries of the developed world increasingly act as police (in the form of Nato forces) in disputes in the developing world. This might be to protect their own sources of valuable raw materials such as oil.

Got that? World inequality is the fault of Nato acting as world police. Is it OK for the United Nations to act as police, I wonder, or does the inequality gas only seep out when NATO does it? What about NATO forces under a UN mandate... oh, never mind.

The most depressing thing about all this? The study guide boasts that it is "written by GCSE examiners." These guys aren't eccentric text-book writers, then: they sit in judgement. One of them might be marking your kid's GCSE this summer.

But before anyone gets too angry with Letts for publishing or the authors for writing Revise GCSE: Religious Studies, consider the following.

This link to an OCR Religious Studies specimen paper suggests that the Letts book does little more than teach to the test. The extract that follows is from the official advice to examiners on how to mark a public examination sat by tens of thousands of sixteen year olds.

Describe the main causes of hunger in the world.
Candidates might discuss a variety of causes of hunger. These could include the greed of developed countries such as the USA and the UK, with inadequate distribution of resources; changes in climate resulting in poor harvests in the Third World; the effect of the arms trade in reducing the amount that poor countries have to spend on food; world debt etc.

It's all there. The special wickedness of the USA and the UK, the assumption that resources are distributed rather than produced, global warming (snuck in very smoothly, did you catch it?), the arms trade and world debt. Just be thankful we don't have the Caspian pipeline.

Obviously, candidates have every right to argue thus and writers of mark schemes have every right to mention these possible answers. But where have they been for the last thirty years? If you try talking about foreign aid to people off the street, or schoolchildren when authority figures are not present, you will not have to wait long before the charming phrase "they will only piss it away" comes to your ears. The idea that corruption and tyranny might have some role in Third World poverty is not restricted to neocons. (And what if it were? Given the list of left wing ideas in the specimen answer, couldn't the neocons be granted just one?) The idea that command economies have some role in Third World poverty no longer suprises anyone who has the slightest dealings with development studies.

The only place untouched by that thought is the ghetto of the Christian Left.

(This post slightly edited for clarity on April 13.)

Ouch.

Patrick Crozier writes

Yes, this is one of my little eccentricities. At the time of writing my home page and RSS feeds are in reverse chronological order - just like every other bleedin’ blog in the world (except yours Natalie because yours doesn’t have a feed when are you going to get that sorted out - it’s only a couple of clicks you know).

What bloggers such as Patrick do not realise is that I do not go into my template and fix things in the facile, patriarchal way they do - you know, just fiddle for a minute and fix the problem - rather I first achieve a state of perfect spiritual calm and then code from my centre.

Of course there are days when perfect spiritual calm eludes me.

The Coming General Election.

This blog's coverage of the election will be all you have come to expect.

Indecisive.

Against the tide.

Alex Singleton has written a valuable report, "Trade Justice or Free Trade" that explains why the protectionism advocated by Christian Aid etc. would be a disaster for the Third World.

I'm looking for even shorter, even more accessible pieces of writing that could make the case for free case to people with no background in economics. Know of any?

Because the way things are going at the moment does not look good. If protectionism wins out again, as it did before, it will, of course, prove as harmful as it did before. But that phrase "as it did before" disproves any vain hopes about the inevitable triumph of reason in human affairs.