Exchange between father and son on economic issues
Responding first to your latest on our gold standard debate:
You say any further issue of currency must be fully backed by additional gold reserves. I’m not sure where these additional gold reserves could possibly be found, especially in the short time scales in which governments need to act during emergencies.
You say government spending would have to be financed by taxation and genuine savings rather than money printing. What about borrowing?
Where I am with you is that the gold standard would act as an important brake on politicians’ desire to spend their way to popularity through fancy infrastructure projects and unrestricted welfarism. It might also have dissuaded us from ruinous foreign adventures such as in 1914 and 2003. However, I do still worry that the gold standard would have been an impossible straitjacket during periods of genuine national emergency such as in 1939 and, I would argue, 2020. Unless there’s a way of making it work through borrowing – if that’s possible in a situation where all money is backed by gold.
Re your latest blog [EP 96]
I agree with you about balance of trade – I’ve never understood why a trade surplus is seen as a good thing. It seems oddly nationalistic when trade is inherently global.
You say government use of taxpayers’ money to subsidise failing sectors is a distortion etc.
In an ideal world I would agree with you. If no countries did this, then we’d have a level playing field and all would be well. Also, labour costs vary widely around the world. And the classical liberal counter to this that there is a free market in labour as well doesn’t hold, in my view, because working people often can’t or don’t want to move to find better paying jobs, and when they do they cause all sorts of social and cultural upheaval in the nations they move to. Labour is fairly static whereas capital is not, and this is why governments, even conservative ones, often feel compelled to step in. These sectors are only ‘failing’ as you put it because other governments are subsidising their equivalent industries, or because workers in poor countries are happy to work for next to nothing. Finally, the pandemic is teaching us that in times of global crisis, nationalism rears its ugly head e.g. over things like PPE and vaccines. So governments do sometimes have to step in to protect vital industries to make themselves self-sufficient. We are likely to see this happen soon with Liberty Steel.
You say that, under a gold standard, no country could devalue its currency. Couldn’t it just devalue its worth against the price of gold?
I cannot agree with your denunciation of recent measures to extend employment protection to millions of gig economy workers. To say ‘workers had never expressed any demand for the pension contribs, holiday pay, health insurance and other benefits now thrust upon them’ sounds like mere assertion. Can you back it up with any surveys? As I understand it, these workers do not have the rights of full-time employees – they’re still essentially freelancers, they just have a little more security than before. And if we have to pay a little more for our next Uber as a result, I think that’s a good thing.
The way I see it, there has always been this dance between government and business. Business goes too far in its exploitation of workers for profit, and government regulates to make things a little better for workers. It’s been going on since 1850 or so, and it’s a positive thing. Sometimes one side becomes too powerful, like the American robber barons of the 1890s or the British trade unions in the 1970s and they have to be cut down to size. I’m actually glad we live in a world where deliveroo drivers or Amazon warehouse workers feel that someone’s out there looking out for their interests. It makes me feel better about using these services.
Many thanks for your thoughtful response.
I believe there is less difference between our positions than might appear. Those differences are more to do with flavour than substance. My perspective on government is that it is largely and usually an encumbrance and needs drastic pruning to be effective as the protector of life, property and civil liberty, or its size will render it self-defeating – whereas your position is that it has a positive role that is excessive in parts.
1 – Throughout the history of 3 millennia the quantity of above-ground gold has expanded broadly in step with population growth. There are regular underground prospecting finds throughout the globe and no one is postulating that we are running out. Even asteroids that have landed on earth have been found to contain gold seams! Depending on price levels, there are vast reserves in the form of artefacts and jewellery that regularly enter the markets, mainly in the East where private holdings are hoarded by families as security – even in ghastly regimes like Myanmar and Indonesia. So “short time scales” don’t apply. I can also give you a schedule of above ground tonnages held by the world’s central banks – it’s truly awesome! At that level there’re no ‘emergencies’. A government would not need to devalue its currency against gold – the currency markets would do that anyway.
2 – Genuine borrowing is fine for meeting government spending beyond tax availability, but must be paid back in like-for-like resources – ultimately savings – rather than the printed variety that caused the dollar to lose 98% of its purchasing power against gold over the past 50 years.
3 – We can’t legislate for pay levels in poorer countries. Their industries depend on being able to export to us and other Western countries. It is a travesty to deny our citizens the right to buy from these nations by use of tariffs and embargoes, and by using our taxpayers’ money to subsidise the domestic industries they are competing with. If an overseas country subsidises their exporters, that’s a gift at their expense that our government should accept on behalf of our citizens. Otherwise it’s an endless cycle of recrimination and trade war that historically has led to actual war, as you well know. See my new closing section on the article I have just sent you on Burke. Where economic structures change, ultimately resources are mobile, however reluctantly. Keynes was wrong – he said his grandchildren would all be having a 3-day working week because of automation. The Liberty scandal is a fraud perpetrated by a crook who never had any intention of repaying the network of debts that have finally come home to roost.
4 – Gig-dependent businesses – Thanks for your input – you will see that I have modified my article. But the danger persists that government involvement can go too far. Remember that it’s OUR money they are dispensing without any recourse to economic calculation!
Enjoy the latest holiday diary – it’s time for my whisky!!