"From bored of peace to Board of Peace in five days"

"Just a few days ago, on Sunday, the president wrote that he no longer felt 'an obligation to think purely of Peace,' since he hadn’t been awarded the Nobel Prize. Yet here he was: from bored of peace to Board of Peace in five days. Forget the road to Damascus; true conversions happen on the jet to Davos.

"And who better to solve the world’s conflicts than the man who, in his speech at the WEF a day earlier, became confused about whether he wished to illegally seize Greenland or Iceland? ...

“'Everybody wants to be a part of it,' Trump insisted of his new club. But big European countries had already turned him down. The initial members include Saudi Arabia, Israel and Belarus. Vladimir Putin says Russia may join too, if, and this is not a joke, he can pay the membership from Russia’s frozen assets. If these guys can run a peace initiative, the Sinaloa Cartel can run Narcotics Anonymous."

~ Henry Mance in Financial Times op-ed 'From bored of peace to the Board of Peace'

Javier Milei to the WEF: "You're all a bunch of parasites -- long live freedom, dammit!"

 

Javier Milei's speech overnight (translated) to Klaus Schwab's World Economic Forum. 

"This is actually wild to listen to. It sounds like a libertarian

podcast but its the main stage at the bloody WEF!"

NB: Presentation starts at 4:00, speech starts at 5:45

Argentine president Javier Milei went to the WEF's event in Davos, and told them they are a bunch of parasites.

And they deserved it.

But he had something infinitely more important to say: 

that the western world is in danger, and it's in danger because those who are supposed to defend the values of the west are co-opted by a vision of the world that inexorably leads to socialism, and thereby to poverty....

Leaders of the western world have abandoned the model of freedom ... We're here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world .... the key to prosperity is freedom.

Yesterday, Milei said he wanted "to plant the ideas of freedom in a forum that is contaminated by the 2030 socialist agenda." Today, he did just that — and more.

A fuller summary below of his speech, courtesy of @MileiExplains --  but first, a quick overview:

Today I am here to tell you that the western world is in danger, and it's in danger because those who are supposed to defend the values of the west are co-opted by a vision of the world that inexorably leads to socialism, and thereby to poverty.

Unfortunately, in recent decades, motivated by some well meaning individuals willing to help others, and others motivated by the desire to belong to a privileged class, the main leaders of the western world have abandoned the model of freedom for different versions of what we call collectivism.

"We are here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world, rather they are the root cause.

The problem with neoclassical (economists) is the model they love so much does not match reality, so they attribute their own mistakes to the supposed market failure, rather than reviewing the premises of their model.

On the pretext of the supposed market failures, regulations are introduced, which only create distortions in the price system, preventing economic calculation, and therefore, also prevent savings, investment, and growth.

Not even supposedly libertarian economists understand what the market is, because if they did understand it, they would quickly see that it's impossible for something alone the lines of market failure to exist.

Talking about market failure is an oxymoron, there are no market failures, if transaction are voluntary the only context where it can be a market failure is coercion, and the only one that is able to coerce is the state.

Faced with the theoretical demonstration that state intervention is harmful, and the empirical evidence that it has failed, the solution proposed by the collectivists is not greater freedom but rather greater regulation. Greater regulation which creates a downwards spiral until we are all poor, and the life of all of us depend on a bureaucrat sitting somewhere in a luxury office.

Whenever you want to correct a supposed market failure, inexorably, as a result of not knowing what the market is, or as a result of having fallen in love with a failed model, you are opening up the doors to socialism and condemning people to poverty.

Given the dismal failure of collectivist models, and the undeniable advances in the free world, socialists were lead to change their agenda. They left behind the class struggle based on the economic system, and replaced it with other supposed social conflicts, which are just as harmful to life as a community, and to economic growth.

Today's states don't need to directly control the means of production to control every aspect of the life of individuals. With tools like printing money, debt, subsidies, control of the interest rate, price controls, and regulations to correct the so called market failures, they can control the lives and fates of millions of individuals.

They say that capitalism is evil because it's individualistic and that collectivism is good because it's altruistic, of course with the money of others.

 Those who promote social justice, they advocate the idea that the whole economy is a pie that can be shared in better ways, but that pie is not a fixed given, it's wealth that get generated in what Israel Kirzner for instance calls a Market Discovery Process.

 If the state punishes the capitalists when they are successful, and gets in the way of the (Market) Discovery Process, they will destroy their incentives and the consequence is that they will produce less, and the pie will be smaller, and this will harm society as a whole.

Collectivism, by inhibiting the (Market) Discovery Process and hindering the appropriation of discoveries, ends up binding the hands of entrepreneurs and preventing them to provide better goods and services at a better price.

Thanks to free-enterprise capitalism, the world is now living its best moment, never in all of mankind's or humanity's history there has been a time of more prosperity than today. Today's world is more free, more rich, more peaceful, and more prosperous than in any other time of human history. And this is particularly true for those countries that respect economic freedom and the property rights of individuals.

The capitalist, the successful entrepreneur, is a social benefactor, who far from appropriating the wealth of others, contributes to the general well-being of all. Ultimately, a successful entrepreneur is a hero.

Libertarianism is the unrestricted respect for the project of life of others, based on the non-aggression principle, in defense of the right to life, to liberty, and to property. With its fundamental institutions being: Private property, markets free from state intervention, free competition, the division of labor, and social cooperation. Where you can only be successful by serving others with goods of better quality at a best price.

The impoverishment produced by collectivism is no fantasy, nor it is fatalism, it's a reality that we in Argentina have known very well for at least 100 years. We have lived through it, and we are here to warn you about what can happen if the countries in the western world -that became rich through the model of freedom-, stay on this road to serfdom.

We come here today to invite other countries in the western world to return to the path of prosperity. Economic freedom, limited government, and the unrestricted respect for private property, are essential elements for economic growth.

In concluding, I would like to leave a message for all entrepreneurs and business people here, and for those who are not here in person but are following from around the world: 

• Do not be intimidated either by the political caste nor by parasites who live off the state. 
• Do not surrender yourself to a political class that only wants to perpetuate itself in power and keep their privileges. 
• You are social benefactors, you are heroes, you are the creators of the most extraordinary period of prosperity we have ever seen. 
• Let no one tell you that your ambition is immoral. If you make money, it's because you offer a better product at the best price, thereby contributing to the general well-being. 
• Do not yield to the advance of the state. The state is not the solution, the state is the problem itself. 
• You are the true protagonists of this story. 
• And rest assured that starting today, you can count on Argentina as an unconditional ally. 

Long Live Freedom, Dammit!

Watch at the end. The audience response was something like: "Was that real?!"

Philip Bagus, The leading economist in the Spanish-speaking world of the Austrian economics school summed up Milei's speech this way:

And by the way, he didn't fly there by private jet. He went cattle class. 

And he paid his own way.

[Hat tipsAlex Tabarrok, Mauricio Ríos García, agustina vergara cid, Ryan Bourne, Milei Explains, The Vigilant Fox, Creative Deduction, DutchLibertarian]

"Those who think the world will soon be doing without fossil fuels need to get real."

"A report from the International Energy Agency (IEA), published last week, claims that the world will reach peak demand for oil, coal and gas by 2030. This has been seized on by the likes of the World Economic Forum as proof that we’re about to enter a brave, green future, free of evil fossil fuels.
    "But other developments this month suggest otherwise. At the same time as the IEA and the WEF have been heralding an imminent end to fossil fuels, Germany has been firing up an extra coal facility, energy giants Exxon Mobil and Chevron are doubling down on their fossil-fuel businesses and the wind-power industry has been begging governments for more subsidies and bailouts.
    "It is difficult to avoid the conclusion that those anticipating an imminent decline in fossil-fuel use are indulging in wishful thinking. This is largely because they are ignoring the huge geopolitical changes the world is now undergoing. The fact is that global energy markets have been fundamentally transformed after the Russian invasion of Ukraine. It means that governments and nations are now putting energy and national security above concerns over climate. ... [In short, g]eopolitical conflict has exposed Net Zero as a fantasy. ...
    "Across the world, there’s little sense that fossil-fuel use will be in decline any time soon. ... Even the most ardent environmental zealot will soon have to reckon with the new geopolitical reality. After all, if Greens in Germany’s governing coalition can be convinced to defend coal plants, there’s every chance American politicians will soon be encouraging fracking and drilling from Alaska to Texas.
    "Those who think the world will soon be doing without fossil fuels need to get real. Far from entering terminal decline, fossil-fuel use is set to scale new heights."

~ Ralph Schoellhammer, from his post 'Why fossil fuels are here to stay'

What's ESG? What's ZIRP? -- and why should you care?

ZIRP (zero-interest rate policies) characterises the cheap credit that has flooded out of central banks in the last decade or more. 

ESG (environmental, social, and governance) is the dripping wet "stakeholder" theory that demands that so-called "ethical investors" should direct companies to undertake more politically-correct projects. It is the stakeholder theory route to collectivism.

Fortunately, as Peter Earle explains in this guest post, shareholders and consumers are starting to flex their muscles, and the credit contraction is making a lot of what was formerly cheap very expensive.

ESG as an Artifact of ZIRP

Guest post by Peter C. Earle

Founding myths tend to be mired in obscurity, and like many other investment trends, the roots of environmental, social, and governance (ESG) philosophies are unclear.

The founding of the World Economic Forum is one origin. Stakeholder theory is another of ESG’s clear antecedents, especially as formalised in R. Edward Freeman’s 1984 book Strategic Management: A Stakeholder Approach. The 2004 World Bank report “Who Cares Wins: Connecting Financial Markets to a Changing World” is another contender, providing as it did guidelines for firms to integrate ESG practices into their daily operations. And the publication of the reporting framework United Nations Principles for Responsible Investing in April 2006 (the most recent version of which can be found here) was another.

Its origins however are less important than the destruction it has caused.

Wherever it began, ESG clearly hit its stride within the last five to ten years. Those were heady times for bankers and financiers, first characterised by zero interest rate policies (ZIRP) and then, during the pandemic, by massively expansionary monetary and fiscal programs. Yet in the last two years or so, the prevailing economic circumstances have changed considerably. Inflation at four-decade highs is battering firms by raising the cost of doing business. It is also negatively impacting corporate revenues, as consumers retrench by cutting back on expenditures.

Nowhere are these effects more evident than in shareholder land, where the fourth-quarter 2022 S&P 500 earnings season is just about over. “Earnings quality” is an evaluation of the soundness of current corporate earnings and, consequently, how well they are likely to predict future earnings. For the past year, and certainly for the last quarter, the quality of earnings has been abysmal. One particular element – “accruals,” or cashless earnings – are their highest reported level ever, according to UBS. In that same report, we find the somewhat shocking revelation that nearly one in three Russell 3000 index constituents is unprofitable.

For those and other reasons, a theme in many of the fourth-quarter corporate earnings reports has been cost-cutting: Disney, Newscorp, eBay, Boeing, Alphabet, Dell, General Motors, and a handful of investment banks are all eliminating jobs and slashing unnecessary expenses. And although firms regularly write off the value of certain assets and goodwill, that process accelerates during recessions. 

Firms are additionally contending with the highest interest rates they’ve faced since 2007, and in some cases back to 2001. A substantial amount of corporate debt assumed at lower interest rates is now more costly to service, as a generation of managers grapple with a world of interest rates (and its effects) that they've never seen before.

Dividend payments for example, typically considered sacrosanct during all but the most severe financial straits, are being targeted for savings. February 24th in Fortune:

Intel, the world’s largest maker of computer processors, this week slashed its dividend payment to the lowest level in 16 years in an effort to preserve cash and help turn around its business. Hanesbrands Inc., a century-old apparel maker, earlier this month eliminated the quarterly dividend it started paying nearly a decade ago. VF Corp., which owns Vans, The North Face, and other brands, also cut its dividend in recent weeks as it works to reduce its debt burden … Retailers in particular face declining profits, as persistent inflation also erodes consumers’ willingness to spend. So far this year, as many as 17 companies in the Dow Jones US Total Stock Index cut their dividends, according to data compiled by Bloomberg.

All of this suggests two things.

First, if large firms are doing everything they can to reduce unnecessary overhead, then feel-good initiatives and other corporate baubles are likely to face the chopping block – even if quietly. ESG observance is one of those very costly trinkets, bringing as it does compliance costs, legal costs, measurement costs, and opportunity costs. The reporting requirements alone associated with upholding ESG standards are high, and rising. In 2022, two studies attempted to estimate those costs:

Corporate Issuers are currently spending an average of more than $675,000 per year on climate-related disclosures, and institutional investors are spending nearly $1.4 million on average to collect, analyze and report climate data, according to a new survey released by the SustainAbility Institute by ERM … The survey gathered data from 39 corporate issuers from across multiple U.S. sectors, with a market cap range of under $1 billion to over $200 billion, and 35 institutional investors representing a total of $7.2 trillion of AUM … The SEC has released its own estimates for complying with its proposed rules, predicting first year costs at $640,000, and annual ongoing costs for issuers at $530,000. The study explored the specific elements covered by the SEC requirements, and found that issuers on average spend $533,000 on these, in line with the SEC estimates. Elements not included in the SEC requirements included costs related to proxy responses to climate-related shareholder proposals, and costs for activities including developing and reporting on low-carbon transition plans, and for stakeholder engagement and government relations.

Difficulty measuring costs means difficulty budgeting for them. Another recent report commented:

Although it is inherently difficult to assess the costs [of ESG], it is fair to anticipate significant costs for ambitious ESG goals. In an article in The Economist, a specific cost estimate was made in relation to offset a company’s entire carbon footprint. This was estimated to cost about 0.4 percent of annual revenues. This could already be a huge component for many companies, but it is only one aspect of merely one ESG factor.

Yet that comment concludes with the kind of assurance that flows effortlessly from consultants well-positioned to, frankly, make a lot of money off of ESG compliance: “However, there is no real choice. The climate certainly cannot wait.” Given the recent backlash against ESG, whether driven by ideology or accounting, it’s clear that there is a real choice, and that choice is being invoked with increasing frequency throughout the commercial world.

Second, the recent explosion of ESG adoption may have been in the spirit, if not embodying a strictly theoretical manifestation, of malinvestment as predicted by Austrian Business Cycle Theory (ABCT). 

Without engaging in a lengthy discussion of ABCT, artificially-low interest rates (interest rates set by policymakers instead of markets) undercut the natural rate of interest, misleading entrepreneurs and business managers. Many years of negligible interest rates, indeed negative real rates, have given rise to bubble-like firms, projects, and I would argue, by extension, business concepts. The latter, which include but are not limited to ESG, seem feasible and arguably essential when the money spigots are open. When interest rates normalise and sobriety re-obtains, cost structures reassert themselves. It’s back to the business of business. 

Interest rates are now beginning to normalise. And, perhaps, business practices with them.

Gone are the salad days of easy money, and with it the schmaltzy wishlists of niceties which a decade of monetary expansion permitted activists to blithely force upon corporate executives. In the face of rising interest rates, an uncertain path for inflation, budget-constrained consumers, and rapidly deteriorating corporate earnings, shareholders are likely to take a closer look at how and where their money is being spent than they have in some time. 

Although it is unlikely to disappear completely, the ESG fad is probably past the crest of its popularity. It’s time again for firms to focus, singularly and completely, on the inestimable task of making money.

* * * * 

Peter C. Earle is an economist who joined the American Institute for Economic Research (AIER) in 2018. Prior to that he spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area. His research focuses on financial markets, monetary policy, and problems in economic measurement. He has been quoted by the Wall Street Journal, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications. Pete holds an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.

His post first appeared at the AIER blog.

"I find the virtual hostility to Zelenskyy incredibly disturbing. It is most pronounced among what we might refer to as the post-Covid right"

Pic by Getty

"Then there’s the other side in the memeification of Zelenskyy. His haters. And man, do they hate him. I find the virtual hostility to Zelenskyy incredibly disturbing. It is most pronounced among what we might refer to as the post-Covid right – that corner of the world wide web where the understandable agitation with lockdown has morphed over time into anti-vax conspiracism, an unhealthy obsession with the World Economic Forum, a distrust of everything and everyone, and a cast-iron conviction that Volodymyr Zelenskyy is a puppet of the globalist elites determined to drag us all into World War 3.
    "It’s like a mirror image of the liberal-elite fawning: where that lot dreams Zelenskyy will help to bring about the ‘rebirth of the liberal world order’, the Ukraine cynics think he is the liberal world order. The new world order. A mouthpiece of globalism. Zelensky is ‘working with globalists against the interests of his own people’, says Candace Owens. He’s a ‘globalist puppet for Soros and the Clintons’, said Arizona State senator Wendy Rogers. Apparently he’s aligned with those ‘global bankers’ who are ‘shoving godlessness and degeneracy in our face.’ Donald Trump Jnr reckons he’s an ‘international welfare queen’. You don’t have to be a fan of the West’s sending of ever-more weaponry to Ukraine to recognise how infantile it is to describe an invaded nation’s plea for arms as welfare queenery. Talk about globalising the culture war....
    "There’s a very important debate to be had about Russia, Ukraine, the West and war in the modern era. But what we’ve mostly had over the past year is the cheap exploitation of a serious global conflict to score points in petty wars at home. Chaise-longue Churchills on one side, armchair Chamberlains on the other. And they’re all really talking about themselves, not Ukraine. Let’s change the record. Maybe Zelenskyy is neither saint nor sinner. Neither the world’s saviour nor its destroyer. Maybe he’s just a man doing what he thinks is best in the most horrifying and existential of circumstances. Call me a brainless dupe of Davos propaganda, but that’s what I’m going with."

~ Brendan O'Neill, from his op-ed 'The Two Zelenskyys'

"...if we stop setting the right priorities in technological development, if we stop improving the agricultural productivity, then progress will stop. That is what I fight against."

"LIFE EXPECTANCY IS THE BEST SINGLE MEASURE FOR QUALITY OF LIFE. The increase of world life expectancy with increasing world population (more people, more brains, more creative power) is the best evidence against the evil Malthusian movement [fixated upon environmental catastrophe] and the World Economic Forum’s destructive Great Reset ideology.
    "However, if we stop thinking rationally, if we stop investing in truthful science and education, if we stop setting the right priorities in technological development, if we stop improving the agricultural productivity, then progress will stop. That is what I fight against."

~ Franco Battaglia and Guus Berkhout, from, their post 'Ability of mankind to solve problems is beyond imagination'

Sri Lanka Crisis Reveals the Dangers of Green Utopianism

President Rajapaksa’s fertiliser ban wasn't the only factor behind Sri Lanka’s economic crash. But as Chelsea Follett and Malcolm Cochran explain in this guest post it's definitely part of this story -- and a a grim preview of what can result from distorting markets in the name of utopian priorities. 

Sri Lanka Crisis Reveals the Dangers of Green Utopianism

by Chelsea Follett and Malcolm Cochran

Last week, a group of Sri Lankan protestors took a refreshing dip in President Gotabaya Rajapaksa’s pool. It was probably a welcome respite from the steamy eighty-degree day in Colombo, as well from the unprecedented economic crisis currently devastating the country. Over the last year, Sri Lanka has experienced an annual inflation rate of more than 50 percent, with food prices rising 80 percent and transport costs a staggering 128 percent. Faced with fierce protests, the Sri Lankan government declared a state of emergency and deployed troops around the country to maintain order.

On Thursday morning, the New York Times published an episode of The Daily podcast discussing some of the forces behind the collapse. They outlined how years of irresponsible borrowing by the Rajapaksa political dynasty, combined with the damage caused by Covid lockdowns to Sri Lanka’s tourism industry, drained the country’s foreign exchange reserves. Soon, the country was unable to make payments on its debt or import essential goods like food and gasoline. Strangely, the hosts of the podcast, which reaches over 20 million monthly listeners, didn’t mention President Rajapaksa’s infamous fertiliser ban once during the entire thirty-minute episode.

Yet the fertiliser ban was, in fact, a major factor in the unrest. Agriculture is an essential economic sector in Sri Lanka. Around 10 percent of the population works on farms, and fully 70 percent of Sri Lankans are directly or indirectly dependent on agriculture. Tea production is especially important, consistently responsible for over ten percent of Sri Lanka’s export revenue. To support that vital industry, the country -- until recently -- was spending hundreds of millions of dollars every year to import synthetic fertilisers. But that was "until recently."

Because during his election campaign in 2019, Rajapaksa promised to wean the country off these fertilisers with what he said would be a ten-year transition to organic farming. He expedited his plan in April 2021 with a sudden ban on synthetic fertilisers and pesticides. He was so confident in his policies that he declared in a (since stealthily deleted and memory-holed) article for the World Economic Forum in 2018, “This is how I will make my country rich again by 2025.” It didn't. As the eco-modernist author Michael Shellenberger writes, the results of the experiment with primitive agricultural techniques were “shocking:”

Over 90 percent of Sri Lanka’s farmers had used chemical fertilisers before they were banned. After they were banned, an astonishing 85 percent experienced crop losses. Rice production fell 20 percent and prices skyrocketed 50 percent in just six months. Sri Lanka had to import $450 million worth of rice despite having been self-sufficient just months earlier. The price of carrots and tomatoes rose fivefold. … [Tea exports crashed] 18 percent between November 2021 and February 2022 — reaching their lowest level in more than two decades.

Of course, Rajapaksa’s foolish policy wasn’t revealed to him in a dream. As Shellenberger points out, the ban was inspired by an increasingly Malthusian environmentalism led by figures like the Indian activist Vandana Shiva, who cheered the ban last summer. Foreign investors beholden to the same ideology also praised and rewarded Sri Lanka for “taking up sustainability and ESG (environmental, social and corporate governance) issues on its top priority.” ESG represents a trend (or lasting shift, depending on who you ask) in some investors’ priorities. Put simply, it is an attempt to move capital toward organisations that further a set of amorphous environmental and social justice goals instead of toward the enterprises most likely to succeed and turn a profit.

Proponents of ESG have been pushing for government mandates requiring enterprises to disclose detailed information related to environmentalism and other social goals. That distorts and harms the smooth functioning of the capital markets that keep modern economies running and, in some cases, incentivises nice-sounding but economically inefficient projects, like a return to primitive agriculture. “The nation of Sri Lanka has an almost perfect ESG rating of 98.1 on a scale of 100,” notes David Blackmon in Forbes, and “the government which had forced the nation to achieve that virtue-signaling target in recent years [has as a result] collapsed.” 

Sri Lanka, in other words, offers a grim preview of what can result from distorting markets in the name of utopian priorities.

Consider a long-run perspective. Throughout most of human history, farmers produced only organic food—and food was so scarce that, despite the much lower population in the past, malnutrition was widespread. The long-term, global decline in undernourishment is one of humanity’s proudest achievements. Lacking any sense of history and taking abundant food for granted however, some environmentalists want to transform the global food system into an organic model. They see modern agriculture as environmentally harmful and would like to see a transition to natural fertilisers that would be familiar to our distant ancestors, such as compost and manure.

However, conventional farming is not only necessary to produce a sufficient amount of food to feed humanity (a point that cannot be emphasized enough—as the writer Alfred Henry Lewis once observed, “There are only nine meals between mankind and anarchy”) but in many ways it is also better for the environment. According to a massive meta-analysis by the ecologists Michael Clark and David Tilman, the natural fertilisers used in organic agriculture actually lead to more pollution than conventional synthetic products.This is partly because fertilisers and pesticides also allow farmers to farm their land more intensively, leading to ever-higher crop yields, which allows them to grow more food on less land. According to HumanProgress board member Matt Ridley, if we tried to feed the world with the organic yields of 1960, we would have to farm twice as much land as we do today. 

Despite successfully feeding more people than every before, the amount of land used globally for agricultural has peaked and is now in decline. So long as crop yields continue to increase, more and more land can be returned to natural ecosystems, which are far more biodiverse than any farm. Smart agriculture allows nature to rebound.

In wealthy countries, conventional farming is becoming ever-more efficient, using fewer inputs to grow more food. In the United States, despite a 44 percent increase in food production since 1981, fertiliser use barely increased at all, and pesticide use fell by 18 percent. As the esteemed Rockefeller University environmental scientist Jesse Ausubel noted, if farmers everywhere adopted the modern and efficient techniques of U.S. farmers, “an area the size of India or the USA east of the Mississippi could be released globally from agriculture.”

Most importantly, it must be re-stated, conventional agriculture feeds the world. Since the Green Revolution of the 1950s and 60s, world agricultural production has exploded, causing the per-capita global food supply to rise from barely over over 2,000 kcal per day in 1961, to reach nearly 3,000 in 2017. And this even as the world population itself exploded. While hunger is now making a comeback, that is not any lack of the ability to produce enough food -- it is wholly due to war, export restrictions, and the misguided policies of leaders like Rajapaksa his environmental (and "ethical investment") mentors.

To be sure, the fertiliser ban itself was not the only factor behind Sri Lanka’s economic crash. Much of the damage was also caused by the hastiness of the ban, and the difficulty of obtaining enough organic alternatives. However, the idea that organic farming can produce enough food for the world is an unreachable fantasy based on the naturalistic fallacy — the baseless notion that anything modern, such as agriculture incorporating non-natural components produced by the ingenuity of man, must be inferior to the all-natural precursor.

As Ted Nordhaus and Saloni Shah from the Breakthrough Institute point out, “there is literally no example of a major agriculture-producing nation successfully transitioning to fully organic or agroecological production.” We must never take the relative rarity of starvation in modern times as a given, nor romanticise and seek to return to farming’s all-organic past. Unfortunately, the delusion seems to be spreading, helped along by the global shift toward ESG. Last Sunday, Narendra Modi, the prime minister of India, praised “natural farming” during a speech in Gujarat, calling it a way to “serve mother earth” and promising that India will “move forward on the path of natural farming.” 

Let’s hope not.

* * * * * 

Chelsea Follett
Chelsea Follet works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

Malcolm Cochran
Malcolm Cochran is a research associate at HumanProgress.org.

Their Human Progress article also appeared at the Foundation of Economic Education.

World-class surfer of central banks' tidal wave of counterfeit capital,

Klaus Schwab, speaking to fellow surfers at his absurdly influential World 

Economic Forum. [Image credit: World Economic Forum, CC BY 2.0, via Wikimedia Commons]

Vladimir Lenin once boasted that capitalists would sell the rope to hang themselves -- and then set about organising things to make that happen. He failed, but so-called capitalists still line up to keep trying: one latest attempt being something they call 'stakeholder capitalism,' characterised by so-called 'responsible investing.' As Dan Sanchez explains in this Guest Post, it's anything but...

"ESG" -- Capitalism's 'Great Reset'?

Guest Post by Dan Sanchez

Capitalism needs few descriptive adjectives beyond the words "laissez-faire" or "unhampered." In recent years however, so-called "stakeholder capitalism" has taken the global economy by storm. Its champions proclaim that it will save—and remake—the world. Will it live up to its hype or will it destroy capitalism in the name of reforming it?

Proponents pitch their "stakeholder capitalism" as an antidote to the excesses of so-called “shareholder capitalism,” which they condemn as too narrowly focused on maximising profits (especially short-term profits) for corporate shareholders. This, they argue, is socially irresponsible and destructive, because it disregards the interests of other stakeholders, including customers, suppliers, employees, local communities, and society in general.

"Stakeholder capitalism" [which earns every inverted comma we can muster - Ed.] is ostensibly about offering business leaders incentives to take these wider considerations into account and thus make more “sustainable” decisions. This, it is argued, is also better in the long run for businesses’ bottom lines.

The Rise and Reign of ESG

Today’s dominant strain of "stakeholder capitalism" is the doctrine known as ESG, which stands for “environmental, social, and corporate governance.” Got that? The acronym was coined in the 2004 report of Who Cares Wins, a joint initiative of elite financial institutions invited by no less than the United Nations “to develop guidelines and recommendations on how to better integrate environmental, social and corporate governance issues in asset management, securities brokerage services, and associated research functions.”

In other words, how best to make businesses throw themselves under the bus before governments do it for them.

Who Cares Wins operated under the auspices of the UN’s Global Compact, which, according to the report, “is a corporate responsibility initiative launched by Secretary-General Kofi Annan in 2000 with the primary goal of implementing universal principles in business.” For "universal" read "the UN's."

Much "progress" has been made toward that goal. Since 2004, ESG has evolved from talk of “guidelines and recommendations” to hard, explicit standards that hold sway over huge swathes of the global economy and billions of dollars worth of investment decisions. ESG has begun to move the world.

These standards to which businesses are all-but required to dance are set by ESG rating agencies like the Sustainability Accounting Standards Board (SASB) and enforced by investment firms that manage ESG funds. One such firm is Blackrock, whose CEO Larry Fink is a leading champion of both ESG and SASB.

In December, Reuters published a report titled “How 2021 became the year of ESG investing” which stated that, “ESG funds now account for 10% of worldwide fund assets.”

And in April, Bloomberg reported that ESG, “by some estimates represents more than $40 trillion in assets. According to Morningstar, genuine ESG funds held about $2.7 trillion in managed assets at the end of the fourth quarter.”

To access any of that capital, it is no longer enough for a business to offer a good return on investment (or, sometimes, any at all). It must also report “environmental” and “social” metrics that meet ESG standards.

Is that a welcome development? Will the general public as non-owning “stakeholders” of these businesses be better off thanks to the implementation of ESG standards? Is stakeholder capitalism beginning to reform shareholder capitalism by widening its perspective and curing it of its narrow-minded fixation on profit uber alles?

Capitalism Is for Consumers

To answer that, some clarification is in order. First of all, “shareholder capitalism” is a misleading term for laissez-faire capitalism. It is true that, as Milton Friedman wrote in his 1970 critique of the “social responsibility of business” rhetoric of the time:

In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

Since the owners of a publicly traded corporation are its shareholders, it is true that they are and ought to be the “bosses” of a corporation’s employees—including its management. It is also true that corporate executives properly have a fiduciary responsibility to maximise profits for their shareholders.

But that does not mean that shareholders reign supreme under capitalism. As the great economist Ludwig von Mises explained in his book Human Action:

The direction of all economic affairs is in the market society a task of the entrepreneurs [which, according to Mises’s technical definition includes shareholding investors]. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer.

The “sovereign consumers,” as Mises calls them, issue their orders through “their buying and their abstention from buying.” Those orders are transmitted throughout the entire economy via the price system. Entrepreneurs and investors who correctly anticipate those orders and direct production accordingly are rewarded with profits. But if one, as Mises says, “does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.”

Under laissez-faire capitalism therefore, the principal "stakeholders" whose preferences reign supreme are not not shareholders, but consumers. And (as Mises wrote in his paper “Profit and Loss”) shareholder profit is a measure of—and motivating reward for—success “in adjusting the course of production activities to the most urgent demand of the consumers.” 

What this means for the “stakeholder capitalism” discussion is that, to the extent that the profit-and-loss metric is discounted for the sake of competing objectives (like serving other “stakeholders”), the sovereign consumers are dethroned, disregarded, and relatively impoverished.

Now it’s at least conceivable that ESG standards are not competing, but rather complementary to the profit-and-loss metric and thus serving consumers. In fact, that’s a big part of the ESG sales pitch: that corporations who adopt and adhere to ESG standards will enjoy higher long-term profits, because breaking free of their fixation on short-term shareholder returns will enable them to embrace more “sustainable” business practices.

In a free unhampered market, whether that promise would be fulfilled or not would be for the sovereign consumers to decide, and ESG would rise or fall on its own merits.

Who Complies Wins

Unfortunately, our market economy is far from free or unhampered. The State has instead rigged capital markets for the benefit of its elite lackeys in the financial industry: like those “Who Cares Wins” fat cats who started the ESG ball rolling in 2004 under the auspices of the United Nations.

One of the prime ways the State rigs markets is through central bank policy.

The prodigious amount of newly created money that the Federal Reserve and other central banks have pumped into financial institutions in recent years has transferred vast amounts of real wealth to those institutions from the general public. As a result, those institutions—big banks and investment companies—are now much more beholden to the State and much less beholden to consumers for their wealth.

As they say, “he who pays the piper calls the tune.” So it’s no surprise that these institutions are stumbling over themselves to get on board the State’s ESG bandwagon. 

And that means that if non-financial corporations want access to the Fed’s money tap, and thus to the stream of counterfeit capital gushing out, they too have to get with the ESG program. Especially as the average consumer becomes increasingly impoverished by disastrous economic policies, the incentive for corporations to earn market profit by pleasing consumers is being progressively superseded by the incentive to gain access to the Fed’s flow of loot by meeting the State’s “social” standards.

By increasingly controlling capital flows, the State is gaining ever more control over the entire economy.

This may explain the recent willingness of so many corporations to alienate customers and sacrifice profits on the altar of “green” and “woke” politics. It's not necessarily that they embrace the nonsense themselves (though many do); it's that the governments and their well-rewarded agents have rigged businesses' financial incentives that way.

It is no coincidence that Klaus Schaub, the preeminent champion of the “Great Reset” also co-authored a book titled Stakeholder Capitalism. The upshot of "stakeholder capitalism" is that consumer is supplanted as the economy's supreme stakeholder by The State. The sick joke of stakeholder capitalism therefore is that it “reforms” capitalism by transforming it into a form of socialism. Lenin would be laughing up his sleeve.

Dan Sanchez is the Director of Content at the Foundation for Economic Education (FEE), editor-in-chief of FEE.org, and writer for (among others) The Mission, the Ron Paul Institute for Peace and Prosperity, David Stockman’s Contra Corner, and many other popular web sites. He wrote a weekly column for Antiwar.com.
At the Mises Institute, Dan was editor of Mises.org and launched the Mises Academy, the first ever free-market economics online learning platform.
Dan has delivered speeches for FEE, Praxis, the Mises Institute, Liberty on the Rocks, America’s Future Foundation, and more.

A version of his post first appeared at FEE.Org.

"There is no point in the leaders of global corporations trying to seek accommodation with the likes of Extinction Rebellion. They have not come to praise you for your efforts to decarbonise your activities; they have come to try to bury you." #QotD

Cartoon by Patrick Blower, Daily Telegraph

"There is no point in the leaders of global corporations trying to seek accommodation with the likes of Extinction Rebellion. They have not come to praise you for your efforts to decarbonise your activities nor to offer you advice as to how you can cut the carbon footprint of your company jet; they have come to try to bury you."

~ Ross Clark, from his op-ed 'Kowtowing to Greta won't save woke corporations from the wrath of the anti-capitalist Green movement'
.

NZ: Prosperous?

 

Have you ever wondered about all these international surveys that are quoted so authoritatively?

The latest, from the Legatum Institute – a think tank founded by “a private investment firm headquartered in Dubai” – has already been widely reported,  finding that “Free markets, free people, and the world’s strongest society ensure that New Zealand takes the top spot in [Legatum’s Prosperity Index.”

This is great news, isn’t it?!

New Zealand has ranked first in the Prosperity Index for six of the last ten years [say the authors of the Prosperity Index]. Bar a small prosperity drop as a result of the 2008 global financial crisis and the immediate impact of the Canterbury Earthquakes, New Zealand’s prosperity has been on an upward trend, particularly since 2012. This rise has been driven by concerted efforts by policymakers, especially in economic and health policy. New Zealand’s Business Environment performance has seen it rise nine ranks to 2nd, and in Health it has risen eight ranks to 12th. Underlying strengths include Economic Quality, particularly free and open markets, where New Zealand ranks 1st, Governance (2nd), Personal Freedom (3rd), and Social Capital (1st).

So break out the bubbly!  (As much of the commentariat indiscriminately do whenever any of these surveys are released.)

This follows many other survey’s showing New Zealand and its cities to be among the world’s happiest, most prosperous and most free, all just as breathlessly reported. (Oh, and also the most unaffordable. So there’s that.)

So, great news, if true, right?  But if you catch yourself wondering about the degree to which we and our markets are truly free, and how these authors would really know that, especially in his detail, then you’re not alone. So am I.

It’s not just this survey. Have you ever wondered from where exactly all these folk derive their data for all these things about the world’s happiest this and the freest the-other?  I pressed one fellow once whose “freedom index” showed New Zealand at the time to be the world’s freest -- earning us their “gold medal for freedom” with scores like 9.6 out of 10 for property rights only a few years after the Resource Management Act had taken most of them away.

After a whole riot of wriggling to try to avoid the questioning, he eventually conceded that much of their data is based on subjective surveys sent out to selected “leaders” in each country. And from that news it didn’t take much more to learn that most of those surveys were completed by local cheerleaders desperately keen to trumpet the virtues of their hometown. (Q: Is your place a hell of place to do business? A: [Big tick] Hell, yes!! You’re darn tootin’!)

So, garbage in, and garbage out.

But what about the Legatum Institute’s lovely-looking Prosperity Index?  On what basis precisely do we earn a 68.95 for something called “Social Capital” and an apparently whopping 84.27 for “Governance,” yet only 75.52 for education and a confusing 74.09 for “Natural Environment,” I wondered? Where do these number to that many significant figures come from? And just how much of this country’s and the 260 others’ natural and business environments they’ve surveyed have the authors actually walked through? Or know anything about

Anyone wondering about any of these things will just be left to continue wondering, it seems. The report’s methodology section does have a nice diagram full of words like “selecting the variables,” standardisation” and “variable weights,” all making things sound very sciency, and even a nice picture of some kind of machinery and an assertion that it is all “methodologically sound.” But of information on where all the numbers being crunched actually come from, we are simply left to scratch our heads and wonder. There is not even a section in the diagram for “gather and assess quality of data.”

Yes, one may read this:

For each country, the latest data available … were gathered on the 104 independent variables.

But how?

And from whom?

One should note the careful use of the passive verb there. “Were gathered.” For the fact is we are never fully told by whom, or even how – nor yet what data sources or from whom particular data was gathered, how reliable (or not) the numbers in the sources may be, nor how the numbers from right around the world from (presumably) several thousand different data sources are correlated to all appear on the same scale. It is true that you can download all their data (and all neatly tabulated to up to seven significant figures!) yet you will never be able to determine, for instance, how that 74.08751 for NZ’s “Natural Environment” was made up, or what objective method was used to give NZ a 84.274 for “Governance.”

In their “2016 Methodology Report” we are told in general terms that data for all their 104 variables “are drawn from a wide range of sources including intergovernmental organisations such as the United Nations, World Bank, International Monetary Fund, and World Health Organization; independent research and non-governmental organisations (NGOs) such as Freedom House, Amnesty International, and Transparency International; and databases compiled by academics.” And “for the subjective variables, two major global surveys are used: the Gallup World Poll and the Executive Opinion Survey organised by the World Economic Forum.” (Page 12 to 14 of the report is it when it comes to the explanations you seek, and literally all of it.)

Yet when one does drill down into a few of these sources, even those they themselves call “objective,” one encounters a similar feeling of falling through quicksand with no means of support: the sources there are the often of the same style as this one, with data gathered either subjectively, or not at all, or from surveys like this one relying on each other, but simply preferencing different data or weighting it all differently. And about “executive opinion surveys” we’ve written before: if there’s a better way of giving a good score than inviting local boosters to talk up their marketplaces as places to invest then we haven’t yet discovered it.

So garbage in.

Yet they string all these subjective numbers together to four significant figures, and then total them up to issue press releases and hand out awards, yet just how these rankings are really earned, and where and how the numbers are actually gathered and formed we are never fully and truly told.

We are however given “a detailed description of the imputation techniques” utilised to produce missing data, which the reader may delight in finding in their “2016 Methodology Report.”

So, garbage out.

Are we happy and prosperous down here at the bottom of the South Pacific? Are we the most prosperous place on the planet? You will learn more by opening the window and looking around you than you will by reading junk like this.

A wooden spoon for the Fraser Institute’s “economic freedom” medal

 

Another survey suggests New Zealand is right up there when it comes to “economic freedom.” Third in the world according to the “libertarian” Fraser Insitute’s latest. which awards little old us a bronze model with a score of 8.35 out of 10 for economic freedom, which they define as:

An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.

Fair enough. That’s a reasonable definition. Not so reasonable however is giving any country anywhere in today’s world anywhere colse to 10 on any reaonably objective scale. Or even more than 5.

Or to bestow on us anything like an 8.35. (Are we really 83.5% free? Really?)

Indeed, when property in land is “protected” by law like the Resource Management Act and its use is as regulated as it is now (being one of the leading contributors to New Zealand earning a gold medal for for unaffordable housing), you have to wonder how we can possibly score an 8.49 for property rights.

So since most of these surveys are garbage in garbage out, I figured I’d track this one metric as a measure of how reliable all the others are.

Bear in mind that this survey, like all such surveys, aren’t carried out by folks in the field fully endowed with local knnowledge. They’re pulled together by people at desks very far away from the places they write about (these guys, in this case, are in Canada) with facility mainly in handling a spread sheet and a bunch of somebody else’s data.

The source of data for the Fraser Insitute’s score on property rights is, their appendix tells me, something called the Global Competitiveness Report put out by a group called the World Economic Forum. (Heard of them? No? Transpires they’re “a Swiss nonprofit foundation, based in Cologny, Geneva… The Forum is best known for its annual winter meeting for five days in Davos.” Remember Davos? A meeting of men famously described by Daniel Hannan as deriving most of their income, directly or indirectly, from state patronage.)

So where did Davos Man get his figures from for his Global Competitiveness Report? I went to the report to check:

The GCI uses the World Economic Forum’s annual Executive Opinion Survey to capture concepts that require a more qualitative assessment, or for which comprehensive and internationally comparable statistical data are not available. For this year’s GCI, more than 14,000 business leaders in 140 economies were surveyed on topics related to national competitiveness. It also uses statistical data from internationally recognised agencies, notably the International Monetary Fund; the United Nations Educational, Scientific and Cultural Organization; and the World Health Organisation.

What proportion is opinion, and what proportion is this other data?

The exact share of Executive Opinion Survey data in the 113 indicators used to calculate the index varies slightly by country, depending on its stage of development. In general, approximately two-thirds of the data used in the GCI 2015-2016 are derived from the Executive Opinion Survey and one-third is derived from international sources’ statistics.

So how much of the data is simply opinion? Answer: About two-thirds, emanating from this”Executive Opinion Survey.”

And where do we find this Executive Opinion Survey data?  Answer: We don’t. It’s not publicly available.

It is however possible to discover that New Zealand’s Executive Opinion Survey data comes from a survey completed by just 46 people (see the Survey’s Table 2, page 81.). Names and addresses of this select group of cronies are unfortunately not supplied, however the report does list Phil O’Reilly’s Business NZ as their local “partner insitutute” (the “unique strength” of Business NZ being, according to the Business NZ website, their “capability to engage with government officials, community groups, MPs and Ministers on a daily basis”). So I’m guessing the cronies are his.

None of the survey data of this infamous forty-six appears on the Business NZ website, but the NZ Initiative website at least does offer this cautionary note:

Note the information in the opinion survey can be skewed by perception and by small samples (e.g. New Zealand has a sample size less than 50) and therefore can have substantial error ranges, so analysis should be confirmed with supporting logic and evidence.

None of which either the Fraser Insitute nor Davos Men have apparently bothered to do.

Meaning that a subujective worldwide survey of cronies and business cheerleaders gets trumpeted every year as bestowing upon this small authoritarian backwater some colour of medal for freedom – and people who shoud know better like Daniel J MItchell post pieces praising “reform” in which the government ended up bigger, the total tax take ended larger, and Big Brother became “bigger and more ominous then ever.”

I’d give them a 10 out of 10 for chutzpah.

RELATED POSTS:

• “But have you ever wondered from where exactly all these folk derive their data?  I pressed one fellow once whose “freedom index” showed New Zealand at the time to be the world’s freest (earning us their “gold medal for freedom”) earning scores like 9.6 out of 10 for property rights only a few years after the Resource Management Act had taken most of them away.
      “After a whole riot of wriggling to try to avoid the questioning, he eventually conceded that much of their data is based on subjective surveys sent out to selected “leaders” in each country. And from that news it didn’t take much more to learn that most of those surveys were completed by local cheerleaders desperately keen to trumpet the virtues of their hometown. (Q: Is your place a hell of place to do business? A: [Big tick] Hell, yes!! You’re darn tootin’!)
      “So, garbage in, and garbage out.”
  NZ: Prosperous? – Peter Cresswell, NOT PC
• “With reason and wit, Perigo summarises New Zealand's decade of market reforms, while countering some U.S. libertarians who believe these reforms represented a veritable revolution. Indeed, Perigo explains how the various reforms have ultimately failed — and describes the philosophical revolution it will take for liberty to succeed.”
  In the Revolution's Twilight – Lindsay Perigo, FREE RADICAL

 

.RELATED

Why Negative Interest Rates Will Fail

Negative rates will fail says Frank Hollenbeck in this guest post, because the problem with the economic system is not a problem of either too little consumption or not enough aggregate demand. The problem stems from a distorted economy caused by manipulated interest rates.

It is now just a matter of time before the US central bank follows the central banks of Japan, the EU, Denmark, Sweden and Switzerland in setting negative rates on reserve deposits.

The goal of such rates is to force banks to lend their excess reserves. The assumption is that such lending will boost aggregate demand and help struggling economies recover. Using the same central bank logic as in 2008, the solution to a debt problem is to add on more debt. Yet, there is an old adage: you can bring a horse to water but you cannot make him drink! With the world economy sinking into recession, few banks have credit-worthy customers and many banks are having difficulties collecting on existing loans.

Italy’s non-performing loans have gone from about 5 percent in 2010 to over 15 percent today. The shale oil bust has left many US banks with over a trillion dollars of highly risky energy loans on their books. And the very low interest rate environment in Japan and the EU has done little to spur demand in an environment full of malinvestments and growing government constraints.

Central bank policies have also driven government bond yields into negative territory. Nearly $7 trillion of government bonds are currently trading at negative rates.

None of this has made central bankers question their mantra: that credit drives aggregate demand which drives growth (remembering that “lifting aggregate demand” is a code phrase for lending more money into existence).

But economic theory still presupposes that negative rates are an impossibility. After all, why would you buy a one-year treasury bill for $1,005 that will get you $1,000 in a year, when you can stuff your mattress with the $1,005 and still have $1,005 in a year? Some would say that storing money is costly and risky, but that is also true for most assets.

The reason is actually quite simple and shows how distortive monetary policy has become worldwide: It makes sense to purchase a bill for $1,005 if you intend to sell it to the central bank before it matures  for more than $1,005. In today’s world, the central bank is often ultimately expected to purchase the bill and lose money on it. It’s just another type of debt monetisation.

(And it is, by the way, something the Germans emphatically wanted to avoid when the ECB was initially created.)

We Just Need to Print More Money!

The real problem is the way monetary policy is taught in almost every undergraduate and graduate program in the world. Pick up any macroeconomics textbook and it will explain how interest rates are determined not by the amount of savings available for investment, but by the demand for and supply of “liquidity.” The economy is treated as a car, and interest rates are viewed as the gas pedal. When reality does not match up with the model however, today’s economist, instead of questioning the model and theory, assumes that more of the same will ultimately force reality into the model.

The problem arises from a fundamental misunderstanding about the role of interest rates. Writing in 1912, Ludwig Von Mises had this to say about the current unenlightened view on money:

[This view of money] regards interest as a compensation of the temporary relinquishing of money in the broader sense — a view, indeed, of unsurpassable naiveté. Scientific critics have been perfectly justified in treating it with contempt; it is scarcely worth even cursory mention. But it is impossible to refrain from pointing out that these very views on the nature of interest holds an important place in popular opinion, and that they are continually being propounded afresh and recommended as a basis for measures of banking policy.

How things have changed with Keynes.

Unlike Keynes and his followers, Mises and his contemporaries understood that interest rates reflect the ratio of the value assigned to current consumption relative to the value assigned to future consumption. That is, money isn’t just some commodity that can solve our problems if we just create more of it: instead, it has the key function of coordinating output with demand across time.

So, the more that you interfere with interest rates, the more you create a misalignment between demand and supply across time—and the greater will be the eventual adjustment to realign output with demand to return the economy to sustainable economic growth with rising standards of living (see here and here). Negative rates will only ensure an ever greater misalignment between output and demand.

As with Japan, from whom western central bankers refuse to learn the obvious lesson, unless these “unorthodox” monetary policies are rapidly abandoned then Western economies that pursue a long-term policy of low or negative interest rates can expect decades of low growth. Because recessions are not a problem of insufficient demand. They are a problem of supply being misaligned with demand.

The War on Cash

Meanwhile, since an increase in cash holdings would limit the effectiveness of negative rates, a leading goal of some of the attendees at the recent Davos meeting and of many others has been to push the world toward a cashless society. They know that if they eliminate cash, central banks will have greater control over the money supply and the ability to guide the economy toward their chosen macroeconomic goals.

As long as there is physical cash however, people will hold cash in times of uncertainty. It is a wise alternative when all other options seem unproductive or irrational — and keeping cash in a bank at a time of negative rates is, all things being equal, wholly irrational. Central banks, not surprisingly, would therefore like to take away the ability to hold cash outside the banking system. Worst of all, for Keynesians, people who hold cash outside the system might be saving it instead of spending it. Naturally, from the Keynesian perspective, this must be stopped. [The rest of us however understand that when the banking system isn’t broken, these savings provide the fertiliser for real productive investment.]

The era of negative interest rates is just the latest frontier in the radical monetary policy we’ve been increasingly witnessing since the 2008 financial crisis. The best monetary policy, however, is no monetary policy at all, and central bankers should take an extended holiday so that the world economy can finally heal itself.

---

Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank.
This article first appeared at the Mises Daily.
Image source at head of page: Alcino via Flicker https://www.flickr.com/photos/alcino/

RELATED POSTS:

• "Capitalism means free markets, the opposite of central planning. How could anyone look at our financial system and call it a free market? We have central planning of the most fundamental price in the economy: the rate of interest. Central banking is a key feature, not of Capitalism, but of Socialism. Indeed in The Communist Manifesto, Karl Marx advocates for a, ‘Centralisation of credit in the hands of the State, by means of a national bank….’ Every major country in the world has a central bank. All are caught up in the same megatrend—falling interest rates."
  Don’t Blame the Player, Blame the Game – Keith Weiner, SAVVY STREET
• “In his General Theory’in 1936, John Maynard Keynes looked forward to ‘the euthanasia of the rentier’ when interest rates would be driven to zero and capital would be free and abundant. This nonsense, as much as anything else he said, represents a threat to our economic growth and stability. The assault on savers must end.”
  The euthanasia of the rentier: Why the assault on savers must end – John Phelan, THE COMMENTATOR
• “It actually requires concentrated mis-education to believe that buying things, rather than producing things, is the basis for growth and employment. I remain very uncertain about when Say’s Law will again return to the centre of economic policy, but I am absolutely certain that until it does, macroeconomic policy will do mostly harm and seldom do an economy any good.”
  “Say’s Law need to be revived, pronto, if we are ever to recover from the Great Recession” – Steve Kates, LAW OF MARKETS