Tuesday, 20 May 2014

Political Will, or more the lack of it

David Cameron has recently talked down the recent house price rises as more people are identifying its bubble like nature. He has used the recent 2007 peak as guidance for normality. It seems a distant memory when Mr Cameron was taunting Gordon Brown regarding credit bubbles and debt issues. As stated in the article if we are currently only 15% off the 2007 peak in real terms then we will soon be in real terms back at the bubble price and everyone knows with historical hindsight how that turned out. The Government deficit and debt levels are worse than 2007 and the interest rates are far lower along with Quantitative Easing propping up asset prices. Its funny how politicians when out of power convey the image of responsibility but when they obtain power act in the same reckless manner as the predecessor. I agree with a recent article published on moneyweek, both the Bank of England and the Government have no political will to reign in all these shenanigans and the real cause behind rising house prices is monetary policy, as I detailed in my eye of the storm post.

Any centralised system is doomed to failure, lawful anarchy based on the non-aggression principle is the end game for society. Democracy was a substantial step forwards for human liberty but suffers from mob rule and therefore acts of third party aggression. David Cameron is acting rationally as any democratic leader does. He is using monetary policy to engineer an artificial boom in order to obtain as much of the mob rule to win next years election. There is no reason for the Prime Minister to worry about the fallout. Political will, to do the "right" thing, is an illusion. In reality it never even existed, its all about the majority mob rule. Many just pretend it does.

Sunday, 18 May 2014

In the Eye of the Storm

House prices are once again on the rise. London has seen the fastest increases to date with money slowly filtering out towards the rest of the country. Mark Carney, the Bank of England Governor, pays empty lip service to interest rate rises. Even if they were to go up tomorrow the damage is already done. It was done when they bailed out everyone, slashed rates and embarked onwards with Quantitative Easing. Raise interest rates tomorrow and we would be back where we started only worse. However history shows that central banks are always reluctant to raise their rates in a timely manner, even when they are raised they stagger it over months and it then takes months or years for the broader economy to feel the restriction of credit once more and fall back into a recession.

The 21st Century will view the central planning of money as an absolute disaster and free market alternatives will replace the current defunct system, good money always drives out bad and Government money is never good. Many Central Banks are using their faulty inflation rates as guidance as to when interest rates should rise but their metrics are critically flawed. 

Inflation is not just the price of staple goods such as milk, televisions, cheese or oil. If the price of the stock market rises that's inflation. If house prices rise that is inflation. If Gold rises that is inflation. If the price of a Picasso masterpiece rises, its inflation. If we take these items into account, the hard assets, then inflation is rising at increasingly faster rates. Its important to understand that the prices of these items are inflation the Central Banks just choose to ignore them in their indexes.

Another problem facing the planners is that interest rates can't rise or at least not by much. Many Governments don't want them to rise as it impacts on their already woeful deficits. It would hurt their tax receipts. It would ruin the "feel good" feeling in the run up to the UK election. People are beginning to stretch themselves once more and pile up debt on the low rates that are currently on offer. Mark Carney blames everything but loose monetary policy the real fuel to the fire that sparks off an asset price bubble. The same reasons that were cited during the previous boom are once more trumpeted to causing the recent house price rises:

  • Too much Demand
  • Too little Supply
  • Not enough building
The real reason is excess credit. Its loose monetary policies that are causing house prices to rise once more. Demand and supply dynamics have changed no more than back in 2009, the difference is Central Banks have turned on the taps once more to release more credit and banks are once more recklessly lending to anyone with a pulse. Same with Gold. Same with art collectables or with vintage cars, the free market can not produce hard assets to keep up with inflation. Electronics and consumer goods hide real inflation as capitalism does such a wonderful job of providing these services in ever greater quantities at lower prices. We are not building more land. Houses are getting built but its the land they sit on that causes them to rise in value. 

So we are in the eye of the storm and if I'm a betting man it will go on for a few years at least. "Get it on tick" is once more a way of life for people. Once the tanker moves in one direction it generally holds course for longer then people can call it. When will the crash come? No one knows. What format will it take? Again no one can say for sure. All we do know is that the fundamentals are progressively deteriorating. When the 2000 stock market bubble popped the central banks re-leveraged the system, cranking down interest rates to low levels. Then 2007 and interest rates went to zero and monetisation actions were also taken. So once interest rates rise (if they do) then once more they will see-saw back to zero but it will be very hard to get credit moving with all the extra problems. Again monetisation of debt will happen, this time will see even more draconian manoeuvres. We could get "Bail-ins", similar to a Cyprus situation where money is simple taken from the wealthiest account holders (or even across the board) to try and bail out the system; a direct attack on freedom. One thing is for sure, it won't be pretty and it won't be moral.

The asset price bubble is global. This pod-cast with Krassimir Petrov highlights Asias problems and how it is creating reckless bubbles. House prices are rising there even faster than the UK, yet no doubt the same reasons are given, limited supply, too much demand not enough new builds and so forth. As mentioned near the end of the pod-cast central banking really does change the morality of people for the worse. Excessive credit does great harm to us all.

Thursday, 15 May 2014

Everythings Amazing

Sometimes we forget how far we have come as a species in such a short time even between generations. When our family went on a holiday recently my daughter kept demanding certain television programs. I had to keep telling her that we can't do catch up or watch YouTube content and this was how TV worked when I was a child; you watched what was on at the time with four channels to choose from or nothing at all. She couldn't comprehend and still kept demanding certain programs. Similar to when my mum said their first house didn't have a phone, I struggled to get my head around that concept as I'm used to having instant communications on tap.

The video does actually make an excellent point. Most people always feel like the world owes them something. That's why everyone moans at capitalism, rich people, companies but really we have nothing to moan about when we sit down and think about it. The people who moan the most are generally the ones who gain the most. Think about someone who is wealthy in a monetary sense and didn't inherit that wealth. They in all probability worked long hours, sacrificing all sorts of comforts to gain that wealth and in turn create wealth for others. They most likely enjoyed what they did but still had to sacrifice many hours of leisure. Compare that to a lazy person who doesn't even work. They gain all the fruits of human ingenuity for free without even breaking a sweat. Providing economic freedom to the great thinkers and doers gives them untold riches. Capitalism always favours the lazy, poor and ignorant. It's ironic that such people are generally the first ones who wish to take wealth and freedom from the wealth creators, thus hampering their free lunch.

We should all be grateful for the entrepreneurs, inventors, business leaders who contribute in changing things. Life really is amazing for the developed world in the 21st Century and its only going to get better and I can't wait to see the progress we make during my life.

Saturday, 10 May 2014


Jobs are constantly being created and destroyed in a free market. Its a continuous process, human labor being automated with the jobs being redeployed into some other line of work. There's also new business models that are spawn to challenge convention. Decades ago car workers didn't like the sound of automation so mobilised their unions to try and stop the progress of humanity. In countries like the UK they hampered innovation but they could never win. Germany for example embraced robotics during the 70's and 80's and eventually the UK car companies collapsed as they had fallen so far behind. Instead of maybe mild job redeployments it was a complete collapse of the industry. It would take foreign car companies to come into the UK until the jobs reappeared at which point the companies said "This is the way we make cars now".

The taxi business is rife for innovation. Black cabs have had it too easy for too long and entrepreneurial individuals have noticed there is room for competition. Applications such as Lyft and Uber are giving consumers and businesses increased choice of how to travel and generally lower the costs for us all. The concept is to use peoples cars as the taxis and lower the barriers of entry into the sector. Of course black cabs are not best pleased as their relative monopoly is being challenged. Is it the moral role of society to protect these jobs? Of course not, for if it was we would all still be living in caves. People got to where they are as the most dominant and prosperous species on the planet by constantly innovating and finding new way to do things more efficiently. 

During the industrial revolution the Luddites used to smash the factories that were popping up all over the country. Their logic? No one would have any jobs as the mills would do all the tasks many were used to doing manually. Instead what happened was a golden age in human history. Prior to this time, wealth had remained fairly static, then along came the industrial revolution and changed all that.

Those who abandoned the mills suffered. Those who embraced them, prospered. The West got ahead of everyone else because it embraced individualism, the challenge to authority and had the conditions for economic freedom.

In the long run Cabbies should embrace changes. They should adapt to the new methods and techniques to secure their jobs. If they don't then they will have to find new lines of work.

It won't be long until driver less cars will be a common sight and I suspect my daughter may never need to learn to drive if I decide to shell out for one. Taxi drivers won't even be required at this point as the automation continues. Should we be fearful? Would you fear much cheaper fees and a car tracking system all automated so it can efficiently send a car out to pick you up? The Taxi drivers will move into other lines of work; for the job destroyed ten more will be created. We don't need to protect jobs, in a true free market jobs are always abundant and we need to automate as many laborious tasks as we possibly can.

Who will build the Roads?

The title of this post causes many people with free market views to tear their hair out. The free market revolutionised global telecommunications, built the vast complex Internet we now know today and has banished starvation for many in the developed world. Laying down some tarmac? We need a Government. Who else could possibly perform such a vital and complex function for society. One of the most important philosophical concepts to understand regarding human economic freedom is its spontaneous creative nature. Just because you can not envisage an alternative world where entrepreneurs, not state planners build roads, does not mean there are not more efficient means to building such infrastructure like we are used to seeing. Not only could a free market build roads but they could do it far better than any Government.

Roll back 30 years. We had phone lines. The Internet existed but lay dormant for decades, used solely by Government Agencies with no consumer services. Visionaries saw the potential - what if we connected everyone's computer? No one knew how this could be done. Who was going to pay for the infrastructure? Who was going to build the applications? Who was going to invent the technology to deliver the content? Who was going to build this new Global Information "Highway"? Surely the cost of such operation would never take off, it would be far too expensive for people to bother with? 

So the Entrepreneurs, Venture Capitalists and Angel Investors set to work with their time, money and passion. The pioneers bore all the costs, that of money and time to get this going, we didn't have to pay a dime. Early adopters stepped in and began using such systems but at very high costs. Computers costing thousands of dollars with Internet Connections making funny sounds down your phone line at blistering speeds of 14K or lower. All the while the people with no vision, the same people who can't see how roads could be built by a free market proclaimed "It's too hard to use", "Its too expensive", "Its too slow", "It has no use" and so on. We must remember these were real complaints made in the past by the majority. Many other claims were made. Ethernet can not go faster than 1Mbs, it will never scale, Voice over IP will never have the quality of fixed line telephony and so on; the technical complaints kept coming. 

We now know that all these concerns proved false. Never underestimate human ingenuity. What can I currently consume for a £10-20 month internet connection in the present time frame as I write this article on a second hand £60 computer? Unlimited email, video (HD) content, the complete library of humanities knowledge, Instant communication, News as it happens. I can sell my house, my car, get a job, book a holiday, insure my dog and literally shop for everything and anything from the comfort of my armchair. Now that's free market value. Value that was created by economic freedom devoid of state planning. The developed world are not the only ones who have benefited. It has exposed numerous totalitarian states with no respect for human rights making such regimes more transparent. Google and Facebook now plan to roll out free Internet access to Africa. They may be connecting a whole continent for the selfish reason to get new users but those people will gain access to one of the most important tools ever developed for humanity. 

If we had economic freedom in the road business then I can guarantee you they would be in far better shape then they are now. Just as we now know the information highway lay dormant until peoples imagination and freedoms were allowed to transform it into one of the greatest tools.

Many people assume that toll roads will be required, that people won't able to access certain geographic locations because they will be denied access. As can be seen from the example above, people could have assumed that high speed internet access would only ever be for the rich but is now even accessible for people on their mobile phones. I can't possibly propose what form road networks would take under the free market as I can't predict the millions of creative minds out there, but I know there are a lot of vested interests in maintaining good roads. For example:
  • Retailers - Physical retailers rely on making it as convenient as possible for people to come buy goods in their stores, after all they now have to compete with online shopping. They don't want people stuck in traffic jams or high toll road costs to put people off. Similar to making private shopping centres a pleasant environment they would also wish to make roads as efficient as possible. 
  • Car makers - Without roads these companies go out of business. Car makers have a large incentive to make driving a pleasurable experience and to make roads as accessible as possible to all consumers. Who wants to buy a budget car, the bulk of the market, if they think roads are too expensive to drive on?
  • Distributors - Think of the wall-marts of the world who have massive distribution costs. Think of how these guys have streamlined their distribution system to remove any inefficiencies. Now think if they were given that freedom with roads. Lots of great ideas would enter the space along with capital. They don't want poor quality roads damaging their vehicles or traffic jams slowing down delivery times.
  • Private Businesses - All our workplaces rely on people getting there by car. No business wants to see their employees come in to work an hour late and tired. They want them there as soon as possible and fresh for the days challenges.
  • Bus companies/private taxis - Traffic jams do not help profits. Many smaller companies who offer transportation services would also face the same challenges.
How all of this would be funded is like asking how will the Internet be funded in the early 90's. It has to be left to human ingenuity to solve such issues. Advertising? Companies could pay to sponsor a road, the BMW bypass? A company would want to ensure it was a quality road to uphold their image. Road subscriber fees to end users based on mileages similar to buying Internet packages from Internet Subscriber Providers (introducing the concept of consumer demand)? Maybe over time roads would be free for the poorest. Premium services could be provided to power users, similar to many computer services such as email. Who knows. I am neither an expert in the field nor do I have the talent or the creative imagination that many others will have.

Railways were initially completely funded by the free market. Huge expanses of track were laid by private investors. They did this from prices, consumer demand and had the freedom to do so. It wasn't the mess of a railway system we see today after years of state interference. It was a marvel at the time, holidays to the seaside for the first time, allowing people to live in the suburbs for the first time. A great liberator.

I know there are lots of suppressed Entrepreneurs out there who are waiting to transform the road business but have a hard time even getting funding or started due to the Governments monopoly provider status. Some people still try. Instead of using asphalt, engineers are now proposing using pre-fabricated slabs to try make roads more robust and easier to maintain. Instead of having road works that take months how about days? How about just at night then the road is re-laid for busy periods? How about less human labour, more automation and thus lower prices for consumers?

97% of city pavements are asphalt because it's cheapest to put down and easy to dig through if you need to access utilities. Asphalt lasts 7-15 years but needs service every couple years. Patches are easy, but low quality. Concrete lasts 25-35 years but has a cure time, is tougher to fix, and harder to get to utilities. Our products should last 50 years with minimal service or maintenance, and it's fairly easy to remove and replace a slab if need be. We have utility access slabs that can go over utilities so that you can pull out the piece, fix the problem, and put the same piece back in. 
I just got tired of the constant resurfacing. The formative moment was probably when I spent an entire summer driving down the wrong side of the highway because they were reconstructing the other lanes - only for it to start snowing, and they had to re-do the grade again in the spring. It just seemed obvious to me that they could build the pieces for the road off-site then assemble them on-site like they do for bridges & buildings.

Of course, it took a long time to get from there to here.

I don't know if this will succeed or if it is even a good idea. There are probably a dozen competing ideas out there and thousands more to be explored. All I do know is that human prosperity is built by failures and by people trying different ideas. To have failures and to try ideas you need complete economic freedom with no central authority, no monopoly and no select committee. 

Always have faith in humans. Socialists and Statists mislead you to believe that people can't solve societies problems and you need the state there to provide core services. It used to be food, clothes, manufactured products, cars and so forth. When it became clear to many that this was not the case; that the free market was doing a far better job the Government repositioned itself into having you to believe that healthcare, education, money, laws and so forth needed a Government; and of course who will build the roads! I propose people will build roads. Free people. No monopoly. The public as individual consumers will decide who will build our roads not a small set of central planners with little accountability. Just like the information highway was built now known now as the Internet, our transport highway has so much unseen potential. We just need to release the human mind to create it.