Saturday, April 18, 2015

Q: But what were the ANZACs fighting *for*?

Did you know that Australian and New Zealand soldiers embarking in November 1914 on ships towards Britain thought they would be fighting for Britain on the Western Front, not fighting in Turkey to gift Constantinople to Russia --against whom for decades New Zealanders and Australians had been defending their shores and ships…?

THE MYTHOLOGY OF ANZAC is that the battle at the Dardanelles gave birth to two nations. If that’s true, it is an odd birth, fathered out of failure by way of disaster.

This mythology is in some ways a modern invention, and if true at all applies more to Australia than New Zealand, who much more than we do have made “the anniversary of a botched battle into virtually the country’s national day.”[1]

It’s truly, truly odd.

It’s true that for the first time, outside the few sports played internationally, NZers and Australians could compare themselves on a world stage and begin to identify (if they could) the sorts of national differences that distinguish one group of people from another. But NZers’ similarities with Britons were still greater than any real differences, and NZ’s war began with Prime Minister Massey’s abject declaration to parliament “that, if necessity unfortunately arose, New Zealand was prepared to send her utmost quota of help in support of the Empire,”[2] and at war’s end held even tighter to Britain than at war’s start, remaining for decades (especially by contrast with Australia) “a particularly Anglophile part of the Commonwealth.”[3]

So it’s not really clear why this legend persists.

The publicity poster for Peter Weir’s 1981 film Gallipoli tells a tale of the legend’s birth: “’From a place you have never heard of … A story you’ll never forget’ – [it says] a lot about where the Anzac saga had been,” says one author picking up on a frequently overlooked point, “and equally where it would be going.”[4]

Oddly, for a battle that gave birth to two nominally independent nations, it was one hatched, devised, planned and bungled entirely without the input of either, and the participation of the Australian and NZ Army Corps themselves were entirely accidental.

Britain’s war chief Field Marshall Kitchener had declared that Britain could afford neither British troops from the Western Front nor the British navy for escort duties, so when Churchill's plans for a naval breakthrough at the place of legend failed as dismally as naval tacticians had predicted, the fortunate happenstance of colonial troops already en route for the Suez escorted by Japanese warships was seized upon.

The resulting irony (among  many) was that, entirely unknown to anyone when they departed, the ANZAC troops were headed to a place they'd never heard of to deliver a city to a natural foe, escorted there by ships of a navy against whose threat (after Japan's stunning victories in the Russo-Japanese war) Australia and New Zealand had huddled even further beneath Britain's defensive skirts.

Perhaps the final irony in this disaster was that Britain cared nothing for those infant nations’ troops, throwing them away in a campaign of unmitigated disaster whose success, if it had even been possible, would have done nothing to shorten the war, and whose drawn-out failure few wanted to acknowledge.

IT WAS ARGUED BY no less than Lloyd George that knocking the Ottomans out of the war would “knock out Germany’s props” and leave its “soft underbelly” exposed. Nothing, really, could have been further from the truth. The props worked almost entirely the other way – and if it cost thousands of lives on the flat and easily supplied Western Front “to move General Haig’s drinks cabinet closer to Berlin,”[5] then in the distant and mountainous terrain between Constantinople and Berlin there was nothing to offer respite except the mind of 1st Baron Maurice Hankey, who as Secretary of Britain’s War Council “carried all before him [in cabinet] with his persuasive memorandum of 28 December 1914”[6] proposing British, Greek, Bulgarian and Romanian troops occupy Constantinople.

For his part, Churchill, at this early stage of plans being hatched, favoured for a diversion landing troops on an island in the Baltic, for which he received only disdain from cabinet colleagues, but when shown the memo jumped quickly on board, “commenting that he himself had advocated an attack at the Dardanelles two months earlier, but that Kitchener had refused to supply the needed manpower.”[7]

Tragically, and

in retrospect, it seems clear that if the Greek army had marched on Constantinople in early 1915, alongside the British navy, the Ottoman capital would have been defenceless.[8]

It wasn’t to be. Not until a desperate Russian high command pleaded for “a diversionary attack”[9] were plans finally drawn up – but for a naval-only attack: Kitchener refused to make troops available, and First Lord of the Admiralty Winston Churchill boasted they would be unnecessary.

SO BEGAN THE BLUNDERING, even as the first of many ironies began piling on. Because the very reason Russia was so beleaguered was an Ottoman attack on the Caucasus that in the end was swiftly repelled in January 1915.

Logically, after crushing the Ottoman invaders that month, the Russians should have told Lord Kitchener that it was no longer necessary for him to launch a diversionary attack on Constantinople in order to relieve it from a Turkish threat that on longer existed. [But this was not how these ‘allies’ operated.]
Thus began the Darnadenelles campaign, which was to so alter the fortunes of Churchill and Kitchener, Asquith and Lloyd George, Britain and the Middle East

And, of course, of Australia and New Zealand, and of the many bold, bright-eyed young men in their respective army corps.

In the end, the attempted occupation was decided upon as an altruistic gift to an ally who had shown no sign of earning British trust, the price for the sacrifice to be paid for in the blood of those Australian, New Zealand and British young men and their families.

EVEN WITHOUT THE NEED for a diversion, however, the gift would have meant everything to the backward, autocratic Russian empire for whom the Anzacs were to give their lives.

As an almost landlocked nation Russia had always been desperate for a warm-water port. For virtually the entire 19th century, or at least since Napoleon had passed away, Britain had been manoeuvring in the Mediterranean to keep Russia out, and in the Middle East to keep Russia away from India.

As long as Russia was held at arm’s length, the two aims were mutually reinforcing. The trouble began when the two aims were crossed by in increasingly muddled foreign policy.

Russia’s desperation for a secure warm-water port had always set it on a collision course with the rest of Europe.

From Russia’s point of view it made eminent sense to search for secure warm-water ports but, as Kuropatkin had warned [Czar] Nicholas in 1900, it ran a great risk: ‘However just our attempts to possess the exit to the Black Sea, to acquire an outlet to the Indian Ocean, and to obtain an outlet to the Pacific, these missions touch so deeply on the interests of almost the entire world that in pursuit of them we must be prepared for a struggle with a coalition of Great Britain, Germany, Austria-Hungary, Turkey, China, and Japan.’ Of all Russia’s potential enemies, Britain, with its worldwide empire, seemed to be the most immediately threatening.[11]

During the peace of the 19th century, Russia’s Black Sea ports eventually came into their own commercially. “As Russia became a major exporter, especially in food, the passage from the Black Sea to the Mediterranean via the Bosphorus, the Sea of Marmara and the Dardanelles – known collectively at the time as ‘the Straits’ – became particularly vital; 37 per cent of all its exports and 75 per cent of its crucial grain exports were flowing past Constantinople by 1914.”[12]

But as its treaty with France made clear enough, it wanted these ports for military use as well – extracting France’s agreement that Russian interests should predominate at the east end of the Mediterranean.

Also clear enough from many centuries of Russian-Ottoman enmity was that the Ottoman capital of Constantinople, past which Russian grain, war materiel and battleships must pass, was under threat.

This should, of course, have put Russian plans on a direct and very visible collision course with British interests in Egypt, Malta and the Suez Canal that helped form Britain’s naval strategy of keeping The Med as “a British lake,” and the Ottoman Empire as, if not a friend, then at least a fairly benign neighbour. It should have put it on a collision course, but it didn’t, because Britain also wanted Russian kept away from India.

You see how I said things would get muddled?

Because the new 1905 Liberal government and its new Foreign Secretary, Sir Edward Grey, saw nothing in this conflict of interests to slow them down.

One of Grey’s first meetings after he took office in December 1905 was with Benckendorff to assure the Russian ambassador that he wanted an agreement with Russia. In May 1906 Sir Arthur Nicolson arrived as British ambassador in St Petersburg with authority from the Cabinet to sort out with Izvolsky the three main irritants in the relationship: Tibet, Persia and Afghanistan. The locals were not, of course, consulted while their fate was decided thousands of miles away. The negotiations were long and tedious as might be expected between two parties, ‘each of which thought the other was a liar and a thief.’[13]

The agreement worked moderately well in fending off Russian aggression on the North-West Frontier.

It worked appallingly in Europe.

The new friendship with Russia was seen by Germany (when combined with the French-Russian treaties) as a threat – Russia, France and Britain forming an “iron ring” it was said that encircled and would eventually strangle them. (Bismarck might have negotiated away the threat; but Germany had no Bismarck’s left, only a child-like Kaiser prone to tantrums.)

And the unlikely friendship was the final link in the powder trail leading from Russia’s agreement to back Serbia that finally ignited in August, 1914.

It was not to be the only foreign-policy bungle from Sir Edward Grey, whose eleven-year tenure in the job offers few chances to transfer blame to others. It was the longest continuous tenure of any person in that office, and it could not have fallen to a less integrated thinker at a time when the world and could not have been more complicated.

His own muddling, and that of his Prime Minister, made all the complications worse.

Because once war began (and I will write later this week about the war’s beginnings) we can draw a straight line from the muddling to the murder on those beaches at the Dardanelles.

ONCE THE PLEADED-FOR “diversionary attack” had begun by naval means, even as the reasons for the diversion had disappeared, Russia saw its chance for someone else to shed blood on their behalf.

Assuming the success of what had begun as an ill-thought-out diversionary attack, in March 1915 Czar Nicholas II demanded that “the Allies turn over Constantinople and the Straits—and all adjacent territories—to Russia.”

[British Foreign Minister] Grey and [his Prime Minister] Asquith, the leaders of the Liberal administration, were ... disposed to make the concession that Britain’s wartime ally required… At the outset of the Ottoman war, the Prime Minister wrote [to his young mistress Venetia Stanley] that ‘Few things wd. give me greater pleasure than to see … Constantinople either become Russian (which I think is its proper destiny) of if that is impossible neutralised…’ In March 1915, when the issue arose, he wrote of Constantinople and the Straits that ‘It has become quite clear that Russia means to incorporate them in her own Empire,’ and added that ‘Personally I have always been & am in favour of Russia’s claim…’
Unbeknown to the rest of the Cabinet [and of course to the Anzac troops who were eventually called upon to carry out his strategy], Sir Edward Grey had already committed the country [i.e., Britain] to eventual Russian control of Constantinople, having made promises laong these lines to the Russian government in 1908.His view [not supported by his advisers, nor by anything in Russian history before or since] was that if Russia’s legitimate [sic] aspirations were satisfied at the Straits, she would not press claims in Persia, eastern Europe, or elsewhere.

If the response could be characterised as anything, it would be a catastrophic combination of altruism and wishful thinking.

So less than ten years after Asquith’s musings developed and Grey’s muddled Russian strategy had taken effect, and with Grey still in the saddle, Australian and NZ forces landed in the Dardanelles. The reason for the mission, not that they knew it: to take Constantinople for Russia.

TO BE FAIR TO Churchill, who shoulders a large part of history’s blame for the campaign’s failure, he was initially wary at the idea of a naval-only operation, but he and the Asquith Cabinet were swiftly persuaded by the commander of the British naval squadron off the Dardanelles, Admiral Sackville Carden, who cabled back answering Churchill’s question on the possibility that “while the Dardanelles could not be ‘rushed’—in other words, could not be seized by a single attack—“They might be forced by extended operations with a larger number of ships.” Churchill jumped on board, and the decision was just as swiftly made.

Yet even as Admiralty opinion began turning against the idea of a purely naval venture, and British naval warships had begun bombarding the Turkish coast, Kitchener suddenly declared that troops would be used after all: primarily Australian and New Zealand troops who had just arrived in Egypt ready for re-embarkation to Western Europe, who would, in Kitchener’s plan, go in “once the navy’s ships had won the battle of the straits.”[15]

That battle was never won.

Instead, the eight weeks of naval bombardment, beginning February 19, 1915, gave the Turks notice of the attack and time to marshal their defences at the Narrows—as did the newspaper accounts of the expedition’s assembly and embarkation in Egypt, the lights and the military bands of the vast fleet as it headed noisily through the Aegean, and the reports of parliamentary debates about the coming combined operation. Turkish expert Sir Mark Sykes had pointed out to Churchill in late February that “though [Turkish troops] could be routed by a surprise attack, ‘Turks always grow formidable if given time to think.’”[16]

And so they were, behind defences expertly marshalled by one military genius, the German Liman Von Sanders, and led by the man for whom the battle would launch a legend who would become known as Kemal Ataturk, the founder of modern Turkey out of the ashes of the old Ottoman Empire.[17]

IF YOU THINK THINGS were already muddled enough then hang on to your hats! On 15 March fearful Turkish negotiators met with British officials in European Turkey to discuss leaving the war they never sought in return for the large, but not wounding, sum of four million pounds. This would have delivered everything British strategists had said they wanted to achieve by force of arms, delivered to them not by the blood of thousands but money that would have been spent anyway on the cost of war. “The negotiations failed because the British government felt unable to give assurances that the Ottoman Empire could retain Constantinople—so deeply were the British now committed to satisfying Russian ambitions.”[18]

If it might be doubted why Australian and New Zealand soldiers were ordered to fight and die on Turkish beaches one month later, the reason by now could not be clearer.

Yet if attacking a place that pre-war British military studies had concluded was “too risky to be undertaken”[19] wasn’t already made difficult enough, the commander of the land operation and his manner of appointment made things only moreso.

Sir Ian Hamilton was appointed peremptorily on March 12, barely one month before the landings. Telling the War Minister “he knew nothing about Turkey,” he was briefed by the War Office “by showing him a map and a plan of attack borrowed from the Greek General Staff.” Despite the overwhelming strategic importance placed on the attack, and the lives of countless men and women being put in harm’s way, “the War Office had not even taken the time or trouble to work out their own [plan]. General Hamilton was sent out with an inaccurate and out-of-date map and little else to guide him.”[20]

On arrival in the theatre he promptly called off the naval operation, delayed the landings for a further three weeks, and agreed to attack only the European side of the straits. Whereupon, when the landings did finally happen – and for the Australian and NZ forces at Ari Burnu they were at the wrong beach – Hamilton decided at the first sign of opposition to dig in, dooming the expedition to a drawn-out replay of the very Western Front stalemate the campaign had been intended to circumnavigate.

If you feel like resurrecting the phrase “lions led by donkeys,” now might be about the right time.

OF THE BATTLES THEMSELVES AT the Dardanelles, much more is known and very little more needs to be said about the shambles that ensued.

Except perhaps that with Turks dug in on the heights to fire down on Anzac troops entrenched on beaches below, and with no obvious hope for any success in the campaign and the only obvious decision being evacuation, we might wonder why the soldiers were condemned to die there for months?

The answer is that, against limp Cabinet opposition, Churchill and Kitchener refused all requests to withdraw –“Churchill because he was never willing to accept defeat, and Kitchener because he believed it would be a disaster for a British[-led] army to be seen to be defeated by a Middle Eastern one.”[21] Especially after the stain of near-defeat by Boers was still so raw.

So the bloody, murderous shambles on the beaches continued until January, 1916, with no hope at all of success, with the death and destruction in the end of 400,000 young lives.

What must those men have thought when they read of Churchill’s speech to his Dundee constituency in June that “the Allies were only “a few miles from victory” at the Dardanelles, “a victory such as the war had not yet seen.”[22]

It never would.

Instead, it all turned to omnishambles. The only thing in the end about which anyone had anything about which to boast was a successful and well-executed withdrawal.

At least, now, some reason for the whole, sordid shambles might be clearer.

The reason however for commemorating the shambles as the birth of our nation is less so.


[1] From David Reynolds’s The Long Shadow: The Great War & the Twentieth Century, p. 376, who in his chapter 10 offers perhaps the best explanation for the birth of the mythology.
[2] Quoted in Douglas Newton’s Hell-Bent: Australia's leap into the Great War. Kindle edition, location 1680
[3] From David Reynolds’s The Long Shadow: The Great War & the Twentieth Century, p. 376
[4] Ibid, p. 375
[5] A quip pilfered from Black Adder Goes Forth.
[6] From David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East, p. 127
[7] Ibid, p. 127
[8] Ibid, p. 128
[9] A plea emulated throughout the next war by Stalin, whose constant refrain in the meetings of the “Big Three” was a demand that Roosevelt and Churchill implement “a second front” to relieve the beleaguered Soviets
[10] From David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East, p. 129
[11] From Margaret MacMillan’s book The War that Ended Peace: How Europe abandoned peace for the First World War, Kindle edition, location 3496
[12] Ibid, location 3492
[13] Ibid, location 3733
[14] From David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East, p. 138
[15] Ibid, p. 133
[16] From Martin Gilbert’s Winston S. Churchill: Vol. 3, p. 343
[17] In that sense, Gallipoli represented the birth of three nations, not just two. No wonder the bond at contemporary commemorations at the battlefield is so deep.
[18] From David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East, p. 151
[19] From Martin Gilbert’s Winston S. Churchill: Vol. 3, p. 358
[20] From David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East, p. 156
[21] Ibid, p. 158
[22] From Richard Toye’s Churchill’s Empire, p. 133.

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Friday, April 17, 2015

Friday Morning Ramble …

The most important single central fact about a free market is
that no exchange takes place unless both parties benefit.

- Milton Friedman

Quel surprise.  This goes in the file titled ‘Told You So.’
CERA control holds back Christchurch rebuild – 3 NEWS
Christchurch Mayor urged to cut red tape – NEWSTALK ZB

Topical again…
Can you own water? – NOT PC, 2012
Water, water everywhere… – NOT PC, 2012
Undiscovered resources do not constitute wealth – Gary Judd, BREAKING VIEWS, 2012
The Prime Minister is wrong – NOT PC, 2012
Q: What would 'Party X' do about the environment?– A: They’d use it to push privatisation – NOT PC, 2011

Yes, it’s true. But New Zealand has nothing about which to boast.
Why Australia's still the world's most expensive place to live – SYDNEY MORNING HERALD

“Whether Campbell stays or goes should be irrelevant, because incisive political interviewing on New Zealand television is, at best, as scarce as a Macaya Breast Spot Frog.  So for my kiwi friends…”
Proper political interviews from the UK... – LIBERTY SCOTT


“"We should expect the Reserve Bank to provide in-depth analysis to back its claims around the housing market.  But in a 19 page speech, only five paragraphs are devoted to the ‘housing pressures are a threat to stability’ section." Go read the whole thing. He also hits on whether any tax advantage lies with unleveraged owner-occupiers or those nasty investors.”
Reserve Bank of NZ on Housing – Eric Crampton, OFFSETTING BEHAVIOUR

“Selling state houses to tenants worked before and it would again today, with consequent social benefits.”
Enrich poor with home ownership – Bob Jones, NZ HERALD

“Environment Minister Nick Smith is floating the idea of splitting the Resource Management in two. One Act would deal with urban planning issues and the other with non urban resource and environmental management.”
Will the RMA be split in two? – KIWIBLOG

A movie featuring a journalist’s interactions with Paul Henry has just been released. Journalist Andrew Goldman finds his life and career fall apart after he meets Paul Henry…
The Desk, The Henry, and business/media collusion – YOUR NZ

“When ‘the common good’ of a society is regarded as something apart from
and superior to the individual good of its members, it means that the good
of some men takes precedence over the good of others….”
Ayn Rand, Capitalism: The Unknown Ideal

If you want to learn, take notes by hand, not with a laptop. “The problem appears to be that the laptop turns students into stenographers, people who write down everything they hear as quickly as they can. Students who take handwritten notes, however, try to process the material as they are writing it down so that they only have to write down the key ideas. Forcing the brain to extract the most vital information is actually when the learning happens.”
Why you should take notes by hand — not on a laptop – Alex Tabarrok, MARGINAL REVOLUTION

Was there no-one in sign-off with a shred of decency?
Woolworths agency in hiding after disastrous Anzac advertising campaign – SYDNEY MORNING HERALD

“From a psephological point of view it is interesting… from a pure who does what with whom equation, it's interesting. However, in terms of the variety of what is on offer, it is more nomenclature than substance…. [and] my suspicion is that there will be another election later this year.”
Most exciting UK election in ages? In one sense... (Part One) – LIBERTY SCOTT

“Once upon a time, it was left to tinpot dictators, ecclesiastical zealots, illiberal judges or scary inquisitors to proclaim a ban, to demand that some publication or custom or subversive phrase be outlawed. In the twenty-first century, however, calls for banning stuff have come down to Earth: now, literally anyone with access to the internet can demand a ban, and many do.”
What's behind the fashion for banning? – Frank Furedi, SPIKED


“In our era of Keynesian economics on steroids, we should ask: How close is current Keynesian practice to original Keynesian theory?”
Can We Blame Keynes for Keynesianism? – Stephen Hicks, EVERY JOE

“... the truly scary numbers were in the details, which revealed unprecedented deterioration.”
China's True Economic Growth Rate: 1.6% – ZERO HEDGE

How economists are misleading the public on climate-change policy.
The Costs of Hysteria – Robert Murphy, F.E.E.

“An examination of the prediction spread from the 90 CMIP5 climate models makes it immediately obvious that the settled science of catastrophic man-made global warming is not at all well-understood.”
Computer Climate Model Incompetence and the Settled Science – OBJECTIVIST INDIVIDUALIST

“The basic ingredients for Hong Kong’s progress were not foreign aid and other handouts from Western nations but instead law and order and a free market.”
The Ticket to Prosperity: Free Markets and Rule of Law – Walter Williams, CAPITALISM MAGAZINE

“We live at a time when politicians and bureaucrats only know one public policy: more and bigger government. Yet, there was a time when even those who served in government defended limited and smaller government. One of the greatest of these died a little over one hundred years ago on August 27, 1914, the Austrian economist Eugen von Böhm-Bawerk.”
Eugen Von Bohm-Bawerk: Leading Austrian economist and finance minister of fiscal restraint – Richard Ebeling, COBDEN CENTRE

“On why zoning laws should not exist at all.
”In truth, there is no ‘public interest,’ only the interests of some individuals trumping the interests of others. As surely as Sharia law, much of zoning (perhaps not all) is the enforcement of one set of preferences. And that is incompatible with a nation founded upon the rule of law, not the rule of men.”
Sharia Zoning – Walter Donway, SAVVY STREET

“Creating paper money does not create goods.”
Cargo Cult Economics – CAPITALISM MAGAZINE


“Should this come as a surprise? Countries with no minimum wage have the lowest youth unemployment.”
Minimum Wage and Youth Unemployment – ECONOMIC POLICY JOURNAL

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
The futility of increasing the minimum wage to reduce poverty – Jim Rose, UTOPIA, YOU ARE STANDING IN IT

“There’s an invisible potential to just about everything on earth. For example, mankind has long known that water was good for drinking, irrigation and floating boats. But with time we also discovered that water held a form of energy. Energy is invisible and intangible. Still, you can see what water energy does: e.g. turns wheels, moves ships along a river, turns a turbine for making electricity, etc. A few hundred years ago, mankind learned that water possessed that potential energy. In the 19th Century, water powered mills and factories. Today, river currents turn generators in large hydroelectric dams.
“‘Capital, like energy, is a dormant value. Bringing it to life requires us to go beyond looking at our assets as they are to actively thinking about them as they could be. It requires a process for fixing an asset’s economic potential into a form that can be used to initiate additional production.’”
Capital: It’s All in Your Head – Hernando de Soto, THE POWER OF THE POOR


“‘It angers me to see mobs burning our flags and chanting 'death to Americans',’ Rand Paul, who’s now running for president, is recently quoted as saying. ‘Until we name the enemy, we cannot win the war. The enemy is radical Islam. You cannot get around that.’
“He’s halfway there.”
Rand Paul’s Foreign Policy – Michael Hurd, CAPITALISM MAGAZINE

“The democracy export practiced by the U.S. is against the principles embodied in the Declaration of Independence.”
Should U.S. Foreign Policy be in Search of Monsters? – Robert Gore, SAVVY STREET

“Candidate after candidate declares for the 2016 presidential election in America. But apparently only ‘career politicians’ need apply.”
America 2016: The Dead-end of “Career Politicians” – Walter Donway, SAVVY STREET

“’The baby boom generation which started with so much promise when it came of age in the 1960s has ended up a colossal failure,’ Stockman wrote. ‘It has turned America into a bloody imperial hegemon aboard and a bankrupt Spy State at home where financialization and the one percent thrive, half the populations lives off the state and real main street prosperity has virtually disappeared from the land.’ … As for Clinton herself, Stockman says she has ‘betrayed all that was right about the baby boomers in the 1960s; and has embraced all the wrong they did during their subsequent years in power.’”
Hillary Clinton: Talking 'Bout Her Failed Generation – David Stockman, via MISH

“Is Clinton Foundation in effect selling American presidency?”
Clinton Foundation to Keep Foreign Donors – WALL STREET JOURNAL


“President Obama said Saturday that partisan wrangling over the nuclear agreement with Iran has gone beyond pale and said the harsh criticism of the deal “needs to stop.”
“Maybe he should tell this to Iran’s supreme leader Ayatollah Ali Khamenei.”
Iran's Ayatollah and America's Obama: Dictators at Heart – CAPITALISM MAGAZINE

“Here’s the thing about agreements. The parties that enter into them have to actually, you know, agree.”
Iran's Supreme Leader Gets to No – Eli Lake, BLOOMBERG

“…a long piece on net neutrality in the latest issue of Reason Magazine entitled, “How to Break the Internet.” It’s part of a special collection of articles and videos dedicated to the proposition “Don’t Tread on My Internet!Reason has put together a great bunch of material, and packaged it in a special retro-designed page that will make you think it’s the 1990s all over again”
Don’t tread on my Internet – Geoffrey Manne,  TRUTH ON THE MARKET
Don't Tread on My Internet – REASON


“One cannot expect, nor is it necessary, to agree with a candidate’s total philosophy — only with his political philosophy (and only in terms of essentials). It is not a Philosopher-King that we are electing, but an executive for a specific, delimited job… [W]e have to judge him as we judge any work, theory, or product of mixed premises: by his dominant trend.
“A vote for any candidate does not constitute an endorsement of his entire position, not even of his entire political position, only of his basic political principles…
“It is the basic — and, today, the only — issue by which a candidate must be judged: freedom vs. statism.”
How to Judge a Political Candidate? by Ayn Rand – FOR THE NEW INTELLECTUALS

“Here is the right way to think through and argue with others about any proposed government policy, regardless of whether you are a liberal or conservative, Rawlsian, Randian, or Hayekian, consequentialist or deontologist, Christian, Muslim, or atheist.”
How to Think Through and Argue About Public Policies – JOHN P. McCASKEY


“Arguments for government involvement in education are many. They include the views that many parents cannot afford to educate their children, that private philanthropy cannot make up the deficit, that too many parents don’t care enough about education, and more.
“At the same time, government involvement in education has risks…”
Education’s “Public Choice” Dynamic – STEPHEN HICKS

Education’s ‘Public Choice’ Dynamic [click to enlarge]

On Mad Men: “He was so dull and pedestrian that even, from the standpoint of disinterested prurience, his many graphically-portrayed episodes of promiscuity and philandering were yawners… Hamm’s Don Draper invites one to redefine ‘average.’ …  he was so unexceptional a character that he never even left a bad taste in my mouth. He left no taste at all. One couldn’t hate him. How can one hate a nonentity?”
On House of Cards: “About half a century ago, President John F. Kennedy, not a man I admire by any means, confessed he liked Ian Fleming’s James Bond novels, popular adventure literature that dramatized good vs. evil. Well into the 21st century a sitting president and a former president have expressed admiration for evil and its triumph. To date, that is the thematic essence of House of Cards.”
Political Cinema – Ed Cline, CAPITALISM MAGAZINE

“[There is a] dangerous little catch phrase which advises you to keep an ‘open mind. ‘This is a very ambiguous term—as demonstrated by a man who once accused a famous politician of having ‘a wide open mind.’ The term is an anti-concept…”
“Open Mind” and “Closed Mind” – FOR THE NEW INTELLECTUALS

The legitimate powers of government extend to such acts only as are injurious to others.
- Thomas Jefferson

“If you ask, most people can cite a day, which, to them anyway, changed the world. It may be the start or end of a war; the beginning or end of an administration; a specific piece of legislation; a birth or death; etc. Well, how about April 10, 1790? To patent folks the earth shook, the heavens opened, and history forever altered. This was the day the first version of the U.S. patent act was signed. It was the third Act of Congress…this legislation was specifically singled out by George Washington as legislation that the Congress ought to pass to help the young country get going.”
The Day that Changed the World: April 10, 1790 – I.P. WATCHDOG

“Perhaps the post-mortem assessment on the ‘movement’ ought to begin with the premise that the ‘service’ provided by The Pirate Bay and similar sites is not anything like a foundation for social change. Forget that digital theft of popular media is illegal, immoral, and rude; it’s also far too pedestrian to serve as a catalyst for political action that would effectively contend with a thorny problem like surveillance or ascend such lofty heights as universal education.”
Pirate Movement is Dead, Long Live the Cause? – David Newhoff, THE ILLUSION OF MORE

“People tend to focus on these nice, round numbers when looking at significant points in history. Here, however, we want to have a little fun with numbers and stick up for the little guy in this conversation, the ‘coulda been a contenders’.”
Near Miss Patents: Looking back at almost milestone innovations – I.P. WATCHDOG

“There are widespread complaints today that the “patent system is broken” and that the ‘smart phone wars’ and ‘patent trolls’ are killing innovation. Yet patented innovation has revolutionized our lives — tablet computers, smart phones and antiviral drugs are just a few of these modern marvels. How to make sense of this contradiction? This talk by Adam Mossoff, recording at ARI’s Objectivist Summer Conference 2014, answers that question.”

“Beauty is bought by judgment of the eye, Not uttered by based sale of chapmen’s tongues. So, like, what’s a Like worth anyway?  I mean a Facebook Like.”
Like’s Labour’s Lost – Facebook Advertising – THE ILLUSION OF MORE

“India’s answer to Sherlock Holmes is in the theatres now, and it creates an original niche for itself.”
Detective Byomkesh Bakshy: India’s Answer to Sherlock Holmes – Kurt Keefner, SAVVY STREET

Students, listen up: Up to US$90,000 in prizes to be won, and all you have to do is write an essay on Ayn Rand’s fiction!
Ayn Rand Institute International Essay Contests 2015 for Students - Up to $90,000 in Prizes – OPPORTUNITY DESK

““At the age of thirteen, Ayn Rand decided she was an atheist. Her reason: ‘the concept of God is degrading to man.’ One major form of this degradation is religion’s effect on genuine values, including sacred values…”
Video: Ayn Rand’s Sacred Atheism – Robert Mayhew, REASON V FAITH

Great songs can have simple origins…

Not an easy cover to pull off …

Like gamelan for electric rock orchestra …

PS: So you want to buy a Castle?

Thanks for reading,
Have a great weekend,

PS: Make mine a Liberty Halo … “quite positively a monument of New Zealand Pilsner.”

PPS: Oh, and this week’s actual Public Health Warning …


Thursday, April 16, 2015

More intervention not the solution to housing crisis

Guest post by Stephen Berry

A thinly-veiled call by the Reserve Bank to examine the tax status of property investors is not the solution to fixing the crisis of housing hyperinflation.

What is making housing unaffordable for increasing numbers of Aucklanders is precisely the intervention by government, councils and the Reserve Bank itself.”

Auckland Council is one of the main contributors to the unaffordability crisis affecting the property market. The refusal of the Council to abolish the Metropolitan Urban Limit – the planner-imposed ring-fence around the city—means that in a city with plentiful land there is a shortage of Auckland land for Auckland housing.

imageFrom Warkworth to Pukekohe: it’s not land that’s in short supply, it’s the supply of building land that’s restricted…

On top of this it costs, on average, $33,000 to get a consent from Auckland Council to build each home.

Central Government is also making the crisis worse with its efforts to help people into the market. Giving larger grants to first-home buyers just makes the problem worse. This adds petrol to the fire by increasing the number of participants in the market without increasing supply.

Let’s also not forget what happened last time the Reserve Bank dabbled in the housing market. Implementing Loan-to-Value Ratios made absolutely zero impact on house prices, but shut out young families and those on low incomes.

Affordable Auckland’s solution to the housing crisis is to deregulate the market and remove the regulatory distortions causing inflation. The party says the Metropolitan Urban Limit needs to be abolished; the consents process streamlined; increased density permitted where appropriate; and the costs of dealing with the Council severely reduced.

Stephen Berry is the leader of Affordable Auckland, and a Candidate for Mayor of Auckland and Albany Councillor in 2016. He was third place-getter in the 2103 Auckland mayoralty election.
Like Affordable Cities on Facebook.


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Quote of the Day: On the world's most unaffordable housing

“‘Traffic jams,’ says Andrew Galambos, ‘are a collision between free enterprise and socialism. Free enterprise produces automobiles faster than socialism can build roads and road capacity.’
    “That same collision is ever present in NZ's severely unaffordable housing markets: a demand bubble inflated by cheap credit and new immigration colliding with a supply suffocation by the socialism of the state. At a time when greater supply is desperately needed to mop up exploding demand, instead we have 'planners' -- those throwbacks to the failed central planning regimes of socialist states – eagerly throttling the rickety supply lines we do have.
    “It's time that unemployment was urgently increased … among the fraternity of planners who have condemned New Zealand's home-owners to half a lifetime of paying off their houses, if they can get one!”
- “Welcome to the land of milk and honey ... and the world's most unaffordable housing” - NOT PC, 2008

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Economics for Real People: “The violence trap”

Sorry to say that students are still away from university this week on Easter break (when aren’t they away, I hear you cry) so no session tonight with our friends from the Auckland Uni Economics Group. But here’s what they have for you next week:

Next week, during the time we our usually hold our seminars, the University is hosting Professor Barry Weingast, an internationally renowned expert on Political Economy, as part of the Dean’s Distinguished Speaker Series. Professor Weingast presents on The violence trap: Why democracy and rule of law fail in the developing world. As this looks to be a fascinating talk, we will not be holding an Economics Group seminar on April 23, instead inviting you to attend Professor Weingast’s presentation.

Note: You must register here if you wish to attend this talk. See below, or click here, to find out more.


The violence trap: Why democracy and rule of law fail in the developing world

Presenter: Professor Barry Weingast

The violence trap is a new approach to the question of why developing countries fail to adopt the institutions and policies that promote development. Professor Weingast will show that the problem of violence is surprisingly prevalent in the developing world, with the typical country experiencing violent leadership turnover once every eight years. All countries must solve the problem of violence, but developed ones do so in very different ways than developing ones.
    The central difference is the level of economic integration. When integration is sufficiently high, violence is too costly, so political problems and policy dilemmas are nearly always solved peacefully. Violent leadership turnover is low. When economic integration is low, however, violence is often an attractive strategy in the face of problems and policy dilemmas.
    The violence trap creates a “catch-22”: investment in economic integration raises the costs of violence and therefore reduces its incidence; but in an environment with violence the necessary investments are too risky and fail to take place. Therefore most poor countries are trapped in an environment of violence and low growth.

About Professor Barry Weingast

Barry Weingast is a senior fellow at the Hoover Institution and the Ward C Krebs Family Professor in the Department of Political Science at Stanford University. He received a PhD in economics from the California Institute of Technology in 1977. He is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. 
    Barry Weingast’s research focuses on the political and legal foundation of markets. He has written extensively on problems of development, the rule of law, and democracy, including his book Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (with Douglass C North and John Joseph Wallis) which has been translated into Arabic, Chinese, French, German, Italian, Japanese, and Russian.


Keep up to date with us on our 2015 Facebook page.


Isn’t it amazing what some people see

When some folk talk about art, I think immediately of this old Charlie Brown cartoon…


[Pic by United Features Syndicate]

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Wednesday, April 15, 2015

The Taniwha Tax: coming to a home near you


While some folk are desperate for affordable housing, council planners continue to demonstrate that’s the last thing on their agenda.  The latest loopiness being bedded in around Auckland Town is a Cultural Impact Assessment – appropriately called a CIA, because the process is akin to being reamed by officious goons.

If you thought trying to get a resource consent out of council is hard, and it is, just wait until you discover your site has been declared as needing a CIA—something that could see you needing to negotiate with up to nineteen different Maori tribes in order to gain consent to erect a carport, for reasons that are entirely “spiritual” in nature.

The provisions may affect the value of perhaps 18,000 properties [says the Taxpayers Union], and many more in time. It is a variable and unpredictable capital tax, collected when someone wants to change their property use. Such uncertainty diminishes prospects for economic growth [not to mention property rights] as it does not allow people to plan with confidence.

No wonder groups opposed are calling it a Taniwha Tax, on which the Taxpayers Union has released a briefing paper entitled The Taniwha Tax: Briefing paper on Auckland Council’s new Mana Whenua rules.

Here is the PR released with the paper:

The Taxpayers’ Union, with support from the Auckland Property Investors’ Association, Auckland Ratepayers’ Alliance and Democracy Action today launched a briefing paper on Auckland Council’s new Mana Whenua Cultural Impact Assessment provisions. The paper, entitled The Taniwha Tax: Briefing paper on Auckland Council’s new Mana Whenua rules.
We believe that every Auckland homeowner or potential homeowner needs to know how the new provisions affect them.
    Most affected property owners will not become aware of the provisions until they suddenly find there is a site on or near their land, or they are told they may need to get a Cultural Impact Assessment (CIA) when applying for resource consent. Worse, the Council isn’t even sure that some of the 3,600 sites deemed ‘of value’ even exist. It didn’t bother to check.
    The Briefing Paper quotes extensive criticisms of the provisions made on behalf of some of New Zealand’s largest corporates, including Vodafone, Spark, Chorus, Transpower, Vector, Watercare.
    If you thought that navigating RMA red tape was hard, these provisions could require you to negotiate with up to nineteen Mana Whenua groups in order to gain development consent, the rules mean that resource consents may be subject to expensive modifications, even if the reasons are entirely spiritual in nature.
    The Council has previously tried to dampen public concerns, claiming that not many Cultural Impact Assessments have been required so far. They ignore the cost and delay of applicants having to go to iwi groups to ask whether a CIA is required.

This reaming by a CIA—along with the approval of appropriate iwi (plural) –is required every time you propose a project anywhere near a site that appears in Auckland’s Proposed Unitary Plan as a purple blob.  There are a lot of blobs (and that only describes the planners):


As you can see, the place is swarming with them.  Most of these sites are unverified, and even the 7 or so iwi to whom you will have to write pleading for your project to proceed will often know no more about a site than you did before you started your project.

And if you think to yourself: “Huh, it’s only Auckland,” then guess what: if the Taniwha Tax makes it here, it’ll make it everywhere.

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I, Whiskey

What better way to follow up the success of I, Pencil – “Leonard Read's classic essay on the incredible, cooperative, creative power of the market”—than to produce a more sodden sequel, I, Whiskey: The unexpected, unplanned, rebellious history of whiskey.

I, Whiskey: The Spirit of the Market reveals how every product and service we enjoy is made possible by the free market and human ingenuity. It’s the story of entrepreneurs, scientists, and bootleggers and the whiskey they produce—a spirit renowned for its individual expression and rich history.
    When people share a glass of whiskey they are playing a part in this ever-evolving narrative.
    CEI [the film’s producer] is dedicated not only to protecting the human spirit but also celebrating it.

Here’s the trailer:

And here’s its older brother:


A rant about Americans

Here’s a post about one Irishman’s view of the U.S. after visiting, living, loving and planning to live there again: what he likes, and what he loves about the American cultural experience – but mostly, let’s be frank, what he thought really, really sucked. Including:

  • oversensititivity
  • tipping (what’s that about?)
  • “awesome”!
  • phoney smiles
  • cheesy marketing
  • stupid drinking laws
  • bland chain stores
  • warped view of America’s place in the world
  • inability to be truly frank; and, of course
  • religious freaking Americans …

Look – I grew up in a religious town in Ireland, went to an all boys Catholic school, and some of my friends in Europe are religious. Even if I’m not religious myself, it’s up to everyone to decide what they believe in. I find religious people in Europe to be NORMAL – it’s a spiritual thing, or something they tend to keep to themselves, and are very modern people with a great balance of religion and modernism.
    But I can’t stand certain Christian affiliations of religious Americans. It’s Jesus this and Jesus that all the bloody time. You really can’t have a normal conversation with them. It’s in your face religion.

Read: 17 Cultural Clashes this European Had in America – FLUENT IN 3 MONTHS

Naturally, I now wonder what an American would say about their cultural experience in EnZed?

[Hat tip Diana Hsieh]

Quote of the morning: Smalley on Campbell

“I don’t want to see it go. no journalist would ever want to see a current affairs show
axed – but if it is axed, there is no-one to blame except the public. New Zealanders
killed Campbell Live, because New Zealanders stopped watching.”

- Rachel Smalley, ‘The fickle old world of TV

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Tuesday, April 14, 2015

In honour of Thomas Jefferson’s birthday …

Declaration of Independence
Declaration of Independence: Wikimedia Commons

In honour of Thomas Jefferson’s birthday … (which it still is in the US),  here’s a subtle yet powerful tribute to him (and men of his kind) from Ayn Rand, via The Objective Standard:

        "In Atlas Shrugged , I discussed the 'pyramid of ability' in the realm of economics. There is another kind
     of social pyramid. The genius who fights 'every form of tyranny over the mind of man' is fighting a battle
     for which lesser men do not have the strength, but on which their freedom, their dignity, and their
     integrity depend. It is the pyramid of moral endurance."

   Happy birthday, Thomas Jefferson—and thank you for everything your moral endurance created and made possible.


Cartoon of the day…

Campbell Live and the Culture of Cretinism

Guest post by Lindsay Perigo

The rumoured looming demise of Campbell Live has triggered an avalanche of obituaries for "true current affairs," of which John Campbell, his fans claim, is the last embodiment standing.

Rather than "lawyer up," as other rumours suggest Campbell to be doing in an effort to retain his slot, I'd urge him to negotiate a new slot where ratings pressure is not so intense, and where he can be himself unreservedly: sharp, ferocious, funny ... and somewhere to the left of Jim Anderton. "True current affairs" is ideologically non-partisan; in that sense, its death occurred long ago, in all media. Let Campbell be liberated from the necessity of pretending he's non-partisan, and be the John Pilger he's always hankered to be. Let him be a Sean Hannity of the Left ... and make no bones about it. If TV3 are worried about "balance," they can always point to Paul Henry.

Even as I dispense this unimpeachable advice, however, I have a sinking feeling the channel itself simply won't be interested. This is an enterprise whose executives are, rightly enough, primarily focused on turning a profit for its long-denied, long-suffering investors. As such, they must ensure that TV3 has as many viewers as possible in order to generate as much advertising revenue as possible. This is where a terminal problem arises in our current culture for any TV programme that even remotely smacks of substance.

For twenty-five years at least, state schools, captured by left-nihilists hell-bent on the destruction of civilised values and behaviour, of intelligence and idealism, have been diligently churning out zombies. Illiterate, innumerate, inarticulate zombies. The walking brain-dead. These infantilised deformities can barely read or write; they can't spell or punctuate; they think "grammar" refers to their parents' mothers; they imagine syntax is a levy on their crack; they have a vocabulary of 6 words ("cool," "awesome," "like" and "oh my god") with a few more incorporated into a sort-of complete sentence on a good day ("Like, oh my god, I'm like so totally over it!"); in lieu of speech they evince that lethal affliction sometimes charitably characterised as an "accent"; they cannot focus on one thing for more than a nano-second; and, most crucially, they cannot think conceptually (the distinctively human mode of thinking)—theirs is the perceptual world of babies and animals. Since they can't truly think, they don't truly feel—hence the chilling Narcissism noted by many commentators. Every part of their brain except that which deals with toys and gadgets has been lobotomised by the child-molesters of the mind who, decades ago, were let loose in our (anti-)education system.

Thus do we have a cosmic paradox that will astound future historians: in the words of comedian Louis C. K., "an amazing, amazing world wasted on the crappiest generation of just spoiled idiots that don't care." Many of these zombies are now back in the classrooms ... as teachers. And it is now largely zombies whom television channels have to secure as viewers in order to attract advertisers.

It doesn't help that television executives and programmers, instead of engaging in zombification as though it were a regrettable necessity, do so with aggressive, unseemly relish; they are sleaze, in eager thrall to the stupefied.

In such an environment, John Campbell doesn't stand a chance—no matter how much he tries to accommodate it by hype and hyperventilation and saying "awesome" when he'd rather say "marvellous." Put him out of his misery in a slot where he's not obligated to do that!

I am not an advocate of the view that government should own television channels. Nonetheless, while government-spawned zombies rule, and government does own a television network, I would say the least government can and should do is make that network a place where zombification is halted and reversed. Restore "true current affairs." Restore genuine ideological neutrality. Restore well-spokenness as a crucial part of a broadcaster's craft. Let this channel be a haven to which non-zombies can repair. And apply the same philosophy to Radio New Zealand where, instead, a hybrid of zombification and hard-left political correctness is currently being pursued.

Such a course, in conjunction with the de-zombification of our schools, would go a long way toward creating a culture in which a) thinking is not only permitted but encouraged, and b) ideas are promoted and debated with the same zeal Mark Weldon and Julie Christie bring to their unutterably odious and vacuous "reality" shows.

That would be a culture fit for brain-alive human beings. I'm sure John Campbell would thrive in it.

Lindsay Perigo is a former TVNZ newsreader and current affairs interviewer. He left TVNZ in 1993, proclaiming its news and current affairs "braindead."
He is the author of “
Shut the Duck UpKiwis Don't Quack,” Total Passion for the Total Height, and The One Tenor.
Visit him at, and follow him at SOLO, where this post first appeared.


Ben Bernanke’s Latest Defence of QE’s Failure

Guest post by Brendan Brown

Daily article february 27 2015Officials from the US Federal Reserve Bank – America’s central bank -- have been busy lately spreading the view that incessantly low interest rates are symptomatic of a still-dim economic reality rather than a result of central bankers’ own monetary experimentation. Indeed they are full of self-praise for not having been hasty to raise rates given the overwhelming evidence, they say, that the natural or neutral level is indeed very low. They even weep for the plight of the small saver.

But the tears are crocodile tears so long as the designers and implementers of the wildest experiment in contemporary monetary history continue to deny in this way their lead role in creating the interest-income famine. Former Federal Reserve chairman Ben Bernanke in his first blog piece for the Brookings Institution has joined the campaign to exonerate “The Fed” of any responsibility for the famine. This is an exercise in great deception.

Is This Time Different?

The ex-Fed chief claims that the “great monetary experiment” for which he was almost singularly responsible has been successful -- despite the non-appearance of strong economic expansion. Small savers suffering income famine right now is not due to monetary policy failure, we’re told, but is due to a “harshness” of the economic environment which has turned out to be “greater than what anyone could imagine.”

Bernanke told a reporter way back at his first press conference after the financial crisis hit the world that “this time would be different.” What Bernanke meant then by “different” was that “this time” economic recovery would be vigorous due to his deploying “non-conventional” tools of monetary policy. This Fed-induced vigour would be in contrast to a history of US economic upturns following great recessions which are slow and fitful. Or so he claimed.

Both promise and history were flawed.

Bernanke’s history lesson on that day has always been questionable in the light of 150 years of US evidence suggesting that the reverse is generally true.

And now, in the midst of the slowest ever economic expansion following the Great Recession, the ex-Fed chief boasts that his particular skill was to “resist” the premature calls to raise short-term rates from near zero, by so doing preventing a relapse of the US economy into recession. (A not-so-subtle change in the story being told seven years ago.)

Amazingly, Bernanke, the notorious advocate of using long-term rates as a policy instrument, now contends in his blog that the Fed’s power to influence real rates of return, especially long-term real rates, is transitory and limited. The weakness of these instruments, Bernanke tells us, has little to do with the Fed and much to do with the “natural interest rate” (which he defines as the real interest rate consistent with full employment of labour and capital, perhaps after some period of adjustment).

Hence the blame for retirees able to obtain only very low rates of return on those savings does not rest with him or the Fed. No, no. Bernanke rejects criticism that he threw seniors under the bus. Rather, he writes:

Indeed, if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do. In the weak but recovering economy of the past few years, all the indications are that the equilibrium real interest rate has been exceptionally low, probably negative. A premature increase in interest rates engineered by the Fed would have likely led after a short time to an economic slowdown and consequently lower returns on capital investment. Ultimately the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate) so that the economy could recover and more quickly reach the point of producing healthier investment returns.

This view that the Fed is not responsible for interest income famine and that it has the small saver’s plight at heart could become the leading popular narrative unless the advocates of monetary stability mount a powerful retort. What should such a retort include?

What Might Have Happened

First of all, Fed critics should point out that if the Fed has abandoned its relentless plan to gain 2 percent inflation, and instead allowed prices to fall, savers would have made real gains on their savings even though nominal interest rates would have remained low. In turn, expectations of price recovery further ahead would have stimulated spending both by consumers and businesses.

Nominal rates would have remained positive throughout the cycle. Cumulatively, small savers would have been ahead in real terms even though interest rates in real terms would have been negative during the early expansion phase.

Yield-Hungry Investors Turn to Speculation

But that didn’t happen. Instead, the actual monetary policy of zero rates and inflaming inflation expectations strengthened irrational forces in the marketplace as investors who were frantic for yield pursued one speculative story after another. In particular, they chased in those early years of the Great Monetary Experiment the story of emerging market economic miracles and, most of all, of a China miracle. Linked to this were claims of an oil shortage (which ramped up risky borrowing to open up new oil production), and an insatiable demand for iron ore (more malinvestment which kept Australians’ bubble inflated for just long enough to make them think they’d escaped the global crisis).

In this “new abnormal” commodity extraction industries boomed and carry trades into emerging market currencies ballooned, feeding vast consumer credit and real estate booms across the emerging market world. The steep fall of speculative temperatures now occurring across those specific asset classes, the related severe slowdown in emerging markets (including China), and the downturn in commodity extraction industries explains the decline in Bernanke’s “natural interest rate.”

The Fed Caused Widespread Uncertainty

There’s more to the story, however. The second effect of Fed policy is the huge monetary uncertainty which the great experiment has created. Almost everyone and their dog realises that the Fed has been deliberately creating asset-price inflation with a view to stimulating the economic upturn. They know also that there has been much speculative froth across a wide range of markets — not all at the same time but partly in sequence. They can think of the private equity bubble, the sky-high prices for junk bonds and European periphery sovereigns and, most of all, the Wall Street equity boom. They realise that all this may very well end badly in another crash and recession. In turn, corporate decision-makers find that they satisfy their shareholders best by paying out huge amounts of cash (equity buy-backs and dividends) rather than investing in long-term risky projects whose payoffs may come in the feared recession. Thus the monetary uncertainty— including the likelihood of eventual crisis — enfeebles the investment activity in the economy (except in those highly leveraged areas where the cost savings on debt trump other concerns). The weak investment which, according to Bernanke and his fellow travellers, explains low real interest rates is actually a direct consequence of their policies.

Bernanke in his consulting work since leaving the Fed has made much of the weak investment spending and low productivity growth in the US and elsewhere, albeit in another recent blog post he takes issue with the “secular stagnation hypothesis.” Many Investors suffering from interest income famine have been firmer believers in this hypothesis to justify their search for yield in the long-maturity US Treasury bond market. Investors who have convinced themselves about secular stagnation in their bond market strategies are not inclined to embrace long-run economic optimism elsewhere. In fact their intuitive sense of a “day of reckoning” ahead becomes sharper. This is the third piece in the puzzle linking the great monetary experiment to weak economic outcomes: low interest rates and small-saver blight.

Brendan BrownBrendan Brown is the Head of Economic Research at Mitsubishi UFJ Securities International. He is also an associated scholar of the Mises Institute, and author of Euro Crash: How Asset Price Inflation Destroys the Wealth of Nations and The Global Curse of the Federal Reserve: Manifesto for a Second Monetarist Revolution.
This post first appeared at the Mises Daily.