Tuesday, November 30, 2010

So why are we bailing out the Spencer family? [update 3]

News that taxpayers could be are on the hook for the failure of yet another finance company (another finance company whose business model was to stand in line for newly created counterfeit capital and use it as fertiliser to inflate borrowers’ asset values) has the added barb for struggling taxpayers that this failure will see them stumping up $178million to help out the Rich Lister Spencer family the family of the late Peter Spencer and all their depositors.

Thanks John. Thanks Bill. Way to help phony, “crony capitalists” privatise profits and socialise their losses.

This, along with the $1.8billion of good money already thrown after bad, really should call into question the acumen of these two numb nuts (John and Bill), and the haste with which they agreed to sign their government up to guarantee finance company deposits simply to keep up already overinflated asset prices.

With U.S.“quantitative easing” already set to throw more good money after bad, and give our exporters even more problems as American degraded dollar sinks against our volatile one, we can see it’s no wonder that talk of double-dip recessions is back again.

No wonder folk are quietly rejecting monetary activism. No wonder we’re now seeing the likes of Newsweek magazine asking if we’re all Austrian economists now? Folk are gradually realising  “that government spending [has, at best] reached the point of diminishing returns, and was producing an anemic recovery that mainly benefited special-interest groups.”

_Quote Monetary activism suffers form the same fundamental flaw as Keynesianism, in that it protects inefficient players instead of injecting renewed vigor into the economy. In a telling statement of the Fed’s thinking, New York Fed member Brian Slack recently said that, with luck, quantitative easing will work by keeping “asset prices higher than they should be,” as that adds to household wealth. This is why stimulus can be so unpopular: it often benefits the rich (who own a disproportionate share of inflating assets such as stocks) at the cost of the poor (who are hurt most by the related rise in food and energy prices).

Which succinctly describes both the reasons for the failure of stimulus to achieve lift-off, and the relationship between the Spencer family and the taxpayers who will now be bailing out their big mistake.

NB: So what is Austrian economics?  Steve Horwitz explains what it is, and what it is not.

UPDATE 1: Horvitz recommends Pete Boettke’s entry on “Austrian Economics” at the Concise Encyclopedia of Economics, which offers these 10 propositions defining Austrian economics.  They’re as good a summary as you’ll see anywhere—and, I would argue, as sound a foundation as you could have to any economics that purports to understand and describe the real world:

  1. Only individuals choose.
  2. The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.
  3. The “facts” of the social sciences are what people believe and think.
  4. Utility and costs are subjective.
  5. The price system economizes on the information that people need to process in making their decisions.
  6. Private property in the means of production is a necessary condition for rational economic calculation.
  7. The competitive market is a process of entrepreneurial discovery.
  8. Money is non-neutral.
  9. The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.
  10. Social institutions often are the result of human action, but not of human design.

UPDATE 2: By the way, for those of you (like the NZIER) predicating talk of recession by focussing on the necessary slowdown in consumer spending (a slowdown that all the monetary activism is designed to discourage) understand that your Keynesian economics is wrong: economic growth caused consumer spending, not the other way around

UPDATE 3: As Owen points out in the comments, the Royal NZ Herald made a mistake with their front-page story, and have now quietly corrected it. Turns out it isn’t the Rich-Lister Spencer family who were the backers of Equitable Mortgages, which went into receivership on Friday, but the family of the late Peter Spencer.

Quality journalism, that.

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6 Comments:

Anonymous Kurt said...

I am sure that our local opinionated fuctard & economic illiterates' resident, Bernard Kim Jong Hickey will be calling the bailouts, an appropriate action by this socialist government.

11/30/2010 03:41:00 pm  
Anonymous Anonymous said...

I think the bailout under the guarantee is actually the debenture holders in Equitable being paid out, not the shareholders (Spencer et al).

While the story looks spectacular it is actually not in fact.

11/30/2010 06:18:00 pm  
Anonymous Anonymous said...

Bad Headline!

I agree with the other anonymous - the bailout is for the depositors not the shareholders

11/30/2010 10:35:00 pm  
Blogger PC said...

Yes, true. I was maybe a little, um, colourful, with the headline.

11/30/2010 10:44:00 pm  
Blogger Dave Mann said...

I don't mind admitting that I am am economic illiterate. I enjoyed reading your post, but I could not understand the 10 points of Austrian Economics at all.... It was like looking at a linguistic fog... I could see that they were english words, but I couldn't make any sense me them. I wonder if most people are like this with economics, or is it just me?

12/01/2010 06:45:00 am  
Blogger Owen McShane said...

Actually, it turns out the Herald got it wrong.
Not the rich list Spencer family at all.

Peter Spencer is totally unconnected to the Rich List Spencers.

12/02/2010 09:42:00 am  

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