Saturday, 29 November 2008

Let my people lend

"Internationally people say to me, 'Your prime minister has been transformed. His standing has soared.' People really do look to him like some Moses figure who is going to lead them away from this economic mess to the promised land."
So claims Peter Mandelson, in a surreal interview with the Guardian which came to my attention for other reasons. If any biblical analogy is suitable for the current Prime Minister, it is the role diametric to Moses: the Pharaoh of Egypt, whose reckless and imprudent government inevitably brings the plagues of retribution upon his people, all the while fixated on chasing and binding the productive element of society with ever higher burdens.

In justification of the recent Pre-Budget Report's plan to increase income tax to 45% for those earning above £150,000, Lord Mandelson offered the following argument;
"There would have been a public backlash if those who are so clearly better off and have gained so much in the last 10 years were not seen to be shouldering their fair share of the burden."
It seems like a rather easy line of attack to observe that "their faire share of the burden" is simply rhetoric, for which a government minister can substitute any level of taxes they want to. With well-defined property rights, people bear the costs of the damage they impose on others, as well as the costs of freely-contracted agreements: when political distribution is involved, they bear the costs others impose on them, and agreements made without their consent. The debt that governments have built up should fall on those who built it up, not on innocent taxpayers - as Murray Rothbard argued, we "have to rid ourselves of the fallacious mindset that conflates public and private, and that treats government debt as if it were a productive contract between two legitimate property owners."

This, though, was that originally drew my attention:
"Mandelson is already thinking of the future shape of British industry. In a speech next week, the Hugo Young lecture, he will map out a new industrial activism for his department, a role he believes British industry is craving. "They don't want us to pick winners, but they do want a route map.""
The worrying spectre of a return industrial policy, with select government favourites being guaranteed protection against the vicissitudes of the market, causing the stagnation and retardation of industries by crowding out innovation and competition, is the worst of all worlds. Hidden behind such innocous terms as a "route map" is the implication that individual preferences exhibited in the marketplace will be disregarded in favour of a centrally dictated destination. It is impossible for the government to objectively determine which industries and which methods of production best cohere to the diversity of constantly-changing subjective preferences held by individuals.

His efforts, too, in "drawing up plans to choose which businesses and industries are important enough to be saved in the event of their going bankrupt as the recession bites," sound reasonable, until it is understood that which firms are "important enough to be saved" - that is, those which are best managed and most financially sound - is already decided by the market. The mechanics of price discovery in the marketplace is the only way to efficiently aggregate the diversity of knowledge and preferenes. Any alternative mechanism to deciding which businesses succeed and fail in which government determines winners and losers is ripe for rent-seeking and special interest manipulation. If "British industry is craving" increased "industrial activism," that is all the more reason for the wider public to be concerned.

Nonetheless, in the credit markets, Lord Mandelson - financial guru that he is - seem to thinks he knows the correct lending policies.
"They have lent too much at too cheap a price for too long. But they are now overreacting to that in my opinion in too conservative and restrictive a way. They are in danger of substituting one set of problems for another, and in the process doing themselves further damage by underlending and not strengthening their balance sheets and profits in the longer term. They are close to cutting off their noses to spite their faces."
Perhaps so. If Mandelson has spotted a profit opportunity and wants to further experiment with lax lending standards, he's free to do so. Preferably, though, with his own money, not with ours .

1 comment:

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