Thursday, May 22, 2008

Snouts in the Trough Despite Economic Illiteracy

The Spectator Business column HERE
carries an article by Tim Worstall, the thorn in the side of sloppy economists, on an Open Letter from Jacques Delors and Jacques Santer (remember them?), with other signatures from other economists and socialists, to Jose Manuel Barros, President of the European Commission.

Tim Worstall comments that Adam Smith was not in favour of laissez-faire and I endorse that assessment. The notion that he was the ‘father’ etc., of laissez-faire was an invention in the 19th century of economists and legislators to justify (i.e., earn fees, praise and social standing from doing so) the rapacious demands of mill owners and others to continue with impunity the mutilation of men, women and children by their unsafe, fast-moving machinery and the inevitable ‘accidents’ of the 12-hour-plus days that they made them work.

They made similar assertions about their versions of ‘capitalism’ and Adam Smith, even though the word and the phenomenon were unknown to him; the word was not invented until 1854 (Thackeray’s novel, The Newcomes), long after Adam Smith died in 1790.

The letter from Delors and Senter, et al, also asserts that ‘Financial assets now represent 15 times the total GDP of all countries’. I would worry if they were’nt!

Of course the assets of ‘hedge funds’ are bigger that Gross Domestic Product, a spurious comparison that is being repeated all over the place by the Left.

GDP does not measure the asset value of an economy; GDP measures the added value per year of the country's asset value, in much the same way as profit measures the added value of the capital of the business.

The profits from hedge funds should be compared with the GDP, not their asset values. To say that the asset values exceed the GDP is misleading (and ridiculous), just as saying that the profits from an enterprise exceed the capital stock of the enterprise.

Stocks and flows are different entities; rising profits enhance the value of capital stock and falling profits lower it. If the flow profits from a stock of capital exceed the asset value of that stock of capital, truly, you have discovered El Dorado.

To what end have these gentlemen written their Open Letter? To urge The EU Commission to set up (urgently, of course) a special committee to examine the problem they identify, with the usual stipends, lush offices, secretariat and research grants for those scores they hire. I am not yet cynical enough not to gasp at their impertinence. Trough snouting knows no degree of embarrassment, apparently.


Post a Comment

<< Home