Review: Machines Of Loving Grace

24th May '11 by marben100

21 comments 10320 reads

The peculiar, and maybe off-putting, title* of the new TV documentary series "All Watched Over by Machines of Loving Grace" disguised a first episode (of three) that investors ought to find of considerable interest. I must admit that I was not familiar with the work of Ayn Rand - but it appears that her (abhorrent to me and many others) philosophy has strongly influenced US political and economic thinking. It was fascinating to learn how characters such as Alan Greenspan were closely associated with her. Unmentioned was the fact that the (once fashionable, perhaps less so now) efficient market hypothesis is influenced by Rand's belief in the supreme power of self-interested rational action, when the brakes of regulation are removed. These ideas still seem to me to influence much American political and economic thought (especially that of the Tea Party) and the views of economic commentators like John Mauldin. In turn, this thinking is likely to profoundly influence the outcome of the pivotal economic and political situation that I believe the world now finds itself in.

Whether you agree or disagree, the programme is highly thought provoking and worth watching. I look forward to the next episode. You need to consider the impact on your investing strategy that current and future economic policies globally will have.

Mark

*Inspired by a poem of the same title by Richard Brautigan.

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marben100

24th May '11

If self interested individuals aren't going to get off their backsides to work and produce for others ... who is?

The machines. ;0)

This is one of the flaws I find in much modern economic thinking I read. It harks back to the 19th and early 20th centuries - when manufacturing was highly labour intensive. Much of it is not any more. Even in China, as labour costs rise from slave-labour levels, automation is being introduced to increase productivity.

Now, I am no advocate of laziness and people being paid for doing nothing. However, a whole new brand of thinking is required to consider how useful (and fairly paid) employment will be created. It will not come from traditional manufacturing.

macroeconomix

Aha so a Marxist utopia then :) and resource based, Star Trek like economy, where money simply does not exist.

http://www.thevenusproject.com/
http://www.zeitgeistmovie.com/

Sadly, such ideals have lead to totalitarianism in the past. I don't like the thought of a boot stamping on the human face forever. I'd prefer freedom myself:
http://www.amazon.co.uk/Liberty-Defined-Urgent-Issues-Freedom/dp/145550145X/ref=sr_1_1?ie=UTF8&qid=1306250310&sr=8-1
http://www.amazon.co.uk/Revolution-Manifesto-Ron-Paul/dp/0446537527/ref=sr_1_3?ie=UTF8&qid=1306250310&sr=8-3
http://www.amazon.co.uk/How-Economy-Grows-Why-Crashes/dp/047052670X/ref=sr_1_1?ie=UTF8&s=books&qid=1306250347&sr=8-1
http://www.amazon.co.uk/Economics-One-Lesson-H-Hazlitt/dp/0517548232/ref=sr_1_fkmr0_1?ie=UTF8&qid=1306250374&sr=8-1-fkmr0
http://www.amazon.co.uk/Atlas-Shrugged-Penguin-Modern-Classics/dp/0141188936/ref=sr_1_1?ie=UTF8&qid=1306250401&sr=8-1
http://www.amazon.co.uk/Confessions-Economic-Hit-Man-shocking/dp/0091909104/ref=sr_1_1?ie=UTF8&qid=1306250418&sr=8-1

At least we have freedom/anarchy in the form of the internet through which all these ideas across the spectrum can communicate... but for how long?

Mattybuoy

Shoot, I meant to watch that. Perhaps it's on iPlayer or something.

I saw (somewhere forgotten now) a conspiracy theory which stated that the whole reason Greenspan started killing the world economy with excess money printing was that he was really still a gold bug, but that he realised the only way to ever politically achieve a return to the gold standard and "real money" was to engineer a complete failure of the fiat currency/fractional reserve banking system.

Probably nonsense, but you never know.

Mattybuoy

That is one good theory! :)

Perhaps Gordon Brown is also a Randian? Expanding the dependency culture and nanny state, spending money he didn't have, selling gold at all time lows, solving debt problems with more debt, generally out Keynesing Keynes, and now with ambitions to take on a larger role at the IMF, and spread his magic touch across the globe.

Previously I was thinking he was just an over achieving sociopath with severely deformed moral compass whose hubris blinded his own incompetence. i.e. cock-up rather than conspiracy.

.. now I'm not so sure ;)

Mattybuoy - the link to watch it in iPlayer is at the start of the review.

Macro - wait till I get round to writing the article that I intend to produce - and then then decide whether I'm a naive "Marxist Utopian" or not. ;0) And while I'm at it, in exactly what way did Greenspan become the master "central planner" you seem to suggest? AFAICS all he did was open the monetary taps... and an unconstrained Wall Street (with Glass Steagall undone) did the rest.

I believe in capitalism and free-markets - and the competitive environment they create - but not without some controls on the types of excess we saw in the lead up to the GFC (and we are seeing again but in a different guise).

I believe in capitalism and free-markets

What about a free market in money?

The point is that the central bank controls the money spigots.. It need not!

all he did was open the monetary taps..

Greenspan was offered a very powerful job, a job with more power and less accountability than the president of the United States. He accepted, and served to provide easy money to a financial system drunk on easy money who gladly accepted the alcohol.

Without a central bank, and interest rates set by the market, such big levers for demagogues and powerful corporate lobby groups would simply not exist. Banks would be free to fail, and free to succeed. The competent would take over from the incompetent. Fraud and corruption would not go unpunished, the system would not consume itself and destroy the wider economy were sporadic isolated failure be tolerated, as indeed it should in a capitalist system.

I'd argue that if you are truly for free markets, then you should also be strongly against central banking.

BTW Karl Marx, 5th plank:
http://en.wikipedia.org/wiki/Communist_manifesto
5. Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.

PS Who regulates the regulator?

I'm thinking revolving doors between SEC, Goldman Sachs, Government treasury dept here....

Also note that the market already has a regulator. The consumer.
If nobody demands a business' products or services that business will soon go out of business. When government and regulators, NGOs etc. become the prime consumers, whose resources are stolen from citizens through taxation, bypassing the end consumer - you can bet that these corporate interests will stay alive, remove that support and they will cease to exist.

Capitalism works great on the upside, and even better on the downside ;) *if* it is allowed to work - i.e. *no* bailouts!

25th May '11

Not too much argument from me on many of the points in your last two posts - and the "revolving door" issue is one raised in the programme (especially in respect of Robert Rubin).

Without a central bank, however, I presume you advocate a monetary system based on gold or similar "hard" currency? Not sure how practical that would be nowadays but I don't rule it out.

My main, immediate, concern is how to get western economies moving and create useful employment. Many "de-regulatory" government actions seem aimed at (or will have the effect of) driving real wages down for most people and putting more power in the hands of mega-corporations. Without money in people's pockets, there is no consumer to drive free markets.

Whilst I'm no fan of bailouts, for the moral hazard reasons you imply, if free markets had been allowed to run their course I think something akin to the great depression would have been highly likely. Maybe you'd like to see that, as useful "creative destruction"? I would not. The degree of human misery entailed is, in my eyes, unconscionable. Morever, had it not been for interventionaist policies in the 1930s, there was no clear end in sight for the deflationary spiral that characterised the Great Depression. The "no bail out" route was tried and resulted in disaster.

At the end of 2008, we were peering over the edge of the precipice, with confidence in the banking system shattered. Mines and factories were idled, because confidence in credit was lost. Global trade literally stopped, with queues of vessels anchored outside normally busy ports. It doesn't take too much imagination to see what would have happened without any goverment intervention. My preferred solution for the banking crisis would have been to nationalise any banks that couldn't stand on their own two feet - thus imposing the ultimate penalty on bond- and shareholders who had failed to monitor and control the behaviour of their investee companies. However, I would not want to see that nationalisation persist but rather to see the banks refloated (though in a restructured, more manageable form) as soon as practical, once total collapse had been averted.

Having said all that, I think your wish for a sounder monetary system could come true. Whilst a basic level of confidence in banks has been restored (at least temporarily), I do foresee a risk of a loss of confidence in fiat currencies, which is a why I consider "real assets" (mainly natural resources and gold) as an import element of my portfolio. Another fear, which perhaps we both share, is the imposition of capital controls by governments, as has often happened in the past when they are faced with monetary crises. However, I guess the only way to circumvent that would be to emigrate before it happens, which is a little too drastic for me!

One of my main reasons for joining and actively helping ShareSoc is to try to restore the shareholder right to properly control their agents - the company executives. In the case of the banks in particular the foxes were allowed to take over the henhouses (and they're still in charge). I hope you would support us in trying to achieve that restoration of shareholder power - even if you don't agree with some of my other economic, political and philosophical views. :0) I should also stress that those other views are very much my own and not those of ShareSoc.

Best,

I'm afraid I have a different interpretation of history :)

The Federal Reserve with loose monetary policy since its inception in 1913 contributed to the false boom and massive credit expansion of the 1920s which led to the Great Depression. A short sharp recession would have cured the problem had it not been for state interventionalism, new deals and stimulus packages which only protracted the pain. It was the spare capacity as a result of the troops coming home that finally led to the recovery.

The Boom is the disease, the bust is the cure. Of course we'd not have such "irrational exuberance" without a central bank stoking the flames and keeping the music going.

Note also that introducing more debt, printing more money, and increasing the power of the state to confiscate resource only serves to destroy any capital that would otherwise be left over after a short sharp deflationary correction. It is the prudent savers and sensible capital investment that leads to economic recovery, and this can only occur if the state simply gets out of the way.

26th May '11

Well, FWIW, I think your interpretation of history is simplistic and wrong. :0) [though it appeals to many people, as simplistic theories often do.]

It was the spare capacity as a result of the troops coming home that finally led to the recovery.

That isn't borne out by the facts, as this chart shows:

The turning point clearly came in 1933.

Whilst "easy money" may have led to a false boom, allowing banks to fail (without bailout or nationalistion), switching to a tight monetary policy, and throwing up protectionist trade barriers played a major part in turning what could have been, as a you say, an ordinary recession into a deep depression.

It is the prudent savers and sensible capital investment that leads to economic recovery, and this can only occur if the state simply gets out of the way.

If only the world were as black-and-white as that. It aint.

History teaches us that false and simplistic certainties about how the world works and how people behave are extremely dangerous and can lead to mass slaughter. That is my biggest fear right now. All the preconditions are in place for an unimaginable catastrophe, if the wrong decisions are taken by politicial leaders (or if demagogic leaders with simplistic theories get into power).

So the argument is whether the state should steal from it's citizens (more tax, confiscating property/gold) & send them to war versus allowing them to be free?

And freedom is more dangerous than a totalitarian state?

The philosophical argument is more than just the "simplistic" consideration of GDP figures. It is a question of what world you want to live in?

Do you want people to be free, or ruled over by meddling and corrupt political class?

Personally, I'd choose freedom over tyranny every time. Even if that meant a slump in GDP.

Also a few serious problems with that graph. It is too "simplistic" I think ;)

Gold was confiscated at $25, and the dollar revalued at $35 per oz gold. That explains much of the uptick in nominal GDP! Imagine a graph of Belarus *nominal* GDP over 2011 with a 50% devaluation ;) Or Icelandic GDP in their currency post their currency collapse!

Also the "full normal GDP" line is drawn from the peak of the 1920s boom, what you and I *know* to be a false boom. The graph is therefore *very* misleading, and hides the fact that real GDP was actually a lot worse for much of that period.

Also note that Hoover was the one to start the public works program. This wasn't all that it cracked up to be either, hence FDR's very desperate measures.
"The Hoover New Deal of 1932"
http://mises.org/rothbard/agd/chapter11.asp

FDR expanded this, stole from his citizens to pay for it, and gave birth to the miltary industrial complex that has risen to become the dominant US empire of the 20th century.

Anyway, instead of American history, where a hands off approach cannot be seen from 1913 onwards, and therefore cannot prove a negative. Instead let us look at the few places where the hands off approach has been "attempted".

I'm thinking of Hong Kong and this man:
http://en.wikipedia.org/wiki/John_James_Cowperthwaite

Maybe after we witness state interventionism failing again and again (Einstein's definition of insanity) we'll get to try out a government that actually works on a seastead, I don't know if you've heard of this rather intriguing idea?
http://seasteading.org/about-seasteading/our-strategy

extrader

Hi macro,

Do you want people to be free, or ruled over by meddling and corrupt political class?

Personally, I'd choose freedom over tyranny every time. Even if that meant a slump in GDP.

"Highly desirable, regrettably impractical", as one of my Keralite colleagues used to say in response to another senior management wishlist.........;>

Can't think off-hand of an historical instance where 'people' - ie a community, not individuals - have done as you propose.....could you name one, please ?

Fascinating discussion btw, whatever your viewpoint !

ATB to all

Can't think off-hand of an historical instance where 'people' - ie a community, not individuals - have done as you propose.....could you name one, please ?

The war of independence and the birth of the US as a free country rather than a satellite colony of the British Empire.

Hong Kong and Switzerland are probably the closest you'll get to a functioning society that is relatively free from state intervention. HK following on from JJ Cowperthwaite's example, Switzerland with the most direct democracy in the world (still mob rule and not a constitutional republic though!)

Sadly people all too often opt for demagogues to rule over them :( Hence the reference to seasteading - I'd say that is the most likely place we'll find a working example in the future.

Thanks macro,

A few quibbles re your examples :

- the American colonists AiUI already had at the time of their revolt far greater freedoms than their 'mother country ' counterparts........

- your link to Cowperthwaite at wikipedia refers to (1) his making the HK Govt - through his public housing building programmes - at one time the biggest landlord in the world and (2) the establishment of the Royal HK Jockey club as a major betting monopoly of the State....

And some might say that there's been a steady slide towards their being ruled over by meddling and corrupt political class.......

Agree that Switzerland appears to support your case , but surely it is "the exception that proves the rule" ?

Thanks for the feedback !

So the argument is whether the state should steal from it's citizens (more tax, confiscating property/gold) & send them to war versus allowing them to be free?

Do you have to descend to sophistry to defend your position? War and totalitarian/repressive government is precisely what I seek to avoid. Advocating a "law of the jungle" will result in the strongest crushing the weakest. Is that what you suggest should happen? I'd like to think we've progressed a little from the medieval era.

If you are trying to equate all forms of taxation with theft, then that is a highly distorted view of a civilised society. What would happen to those with disabilities, for example? Would we have a police force and judicial system, or would self-appointed vigilantes roam the streets to keep order?

Concerning the chart, if you look again, you will see that GDP is expressed in constant year 2000 dollars - so takes inflation/deflation into account. You might not like the chart because it doesn't fit your theories but it's a more accurate representation of what actually happened to the economy - as opposed to the stockmarket - than you suggest.

Concerning Hong Kong and the "Seasteads" - these are not exactly representative of typical (or viable) societies. Hong Kong's situation was and is highly unusual, as a key gateway to China, financial and trading hub. Note that Singapore, in a similar situation, has also been highly successful - under a pretty authoritarian regime for many years. The "Seasteads" might be an interesting (and theoretical, as they don't exist) sociological experiment but would hardly be representative of people living in a large community. I don't belive sociological issues simply "scale up". As with computer software, scale introduces its own issues that fundamentally alter behaviours (this is an area of research I have pursued, with some interesting results, and intend to take up again, once I've made enough "filthy lucre").

From the article you quote re Cowperthwaite:

Commentators have credited his management of the Hong Kong economy as a leading example of how small government encourage growth.^[2] However his starting of a large public housing programme which made the Hong Kong Government the world’s biggest landlord and the setting up of the Hong Kong Jockey Club as the region's monopoly in gambling business are rarely mentioned.

It is hard to assess what the economic impact of those latter actions was, relative to the former. Government revenues obtained from land, however, have undoubtedly played a major part though, which is a factor (almost)unique to Hong Kong's circumstances. Now let's consider Cowperthwaites "Positive non-interventionism":

In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralised decisions of a government; and certainly the harm is likely to be counteracted faster

I don't see it as "either or", black or white. In most cases simply letting entrepreneurs "get on with it" with a minimum of interference is a great way forward, which I advocate. However, there are certain issues (and several examples) where such an approach is inadequate - but I'm reserving that debate for my larger article. [Just as Cowperthwaite himself didn't see private landlords alone solving a chronic housing problem in Hong Kong].

Look, I agree with you that government interference and taxation should be kept to a minimum. The hard question is what is the minimimum that still leaves a civilised and reasonably stable community? I believe in taking a utilitarian approach: looking at where we are now and what the consequences of different economic decisions taken by the government might be - then taking the one likely to lead to the best outcome for the largest number of citizens.

If you are trying to equate all forms of taxation with theft, then that is a highly distorted view of a civilised society.

Theft is the taking of somebody's property through the use of force or threat of force.

When the state takes that property, it is still very much theft yes. In what way is taxation somehow not theft?

Now I'm not religious but even the bible suggests that stealing is morally wrong "Though shalt not steal", and I didn't see a clause in there that said "except by majority vote". There was instead a 10% tithe.

Now I'm not advocating complete anarchy. I just want to be in a position to give more. To give more money to charity and good causes. Instead I'm taxed through force to pay for wars and the bombing of people with whom I have no quarrel, the feckless, the incompetent, fraudsters, and yes, some of that money goes to worthy causes, and those who have drawn the short stick in life, but what proportion is that actually in reality?

Health should be privatised, it is no more of a human right than food (and the supermarkets to a super job of providing us with a good service here, if the state was involved shelves I imagine would be empty), Education similarly, if you want to have kids, you need to provide for them, not rely on stealing from folks who choose not to have them (I have kids FWIW - and I would dearly love to have more choice in how and where they are educated, instead I'm taxed to such an extent I cannot afford private healthcare or private education for my children).

Generally where the state has been involved in running something, it becomes inefficient, inefficiencies require more resources to be thrown at them, more resources require more taxes, more taxes require more theft from individuals and companies. The less money a person has in his own pocket, the less capacity he has to save, spend, invest, and give! It reduces the capacity for people to look after themselves, their own family and their own communities how they see fit.

GDP priced in gold

BTW the dollar in yr 2000 doesn't seem to account for the $25 to $35 revaluation. Probably better to look at GDP in ounces of gold (since the USD was on the "gold standard" at the time, until 1971).

31st May '11

Well your, view of theft is "uncoventional" to say the least - though undoubtedly many find it appealing. Who likes to pay tax, after all.

Theft in English law is defined as "dishonestly appropriating property". Now, of course, you might claim that taxation is dishonest - but most do not. Relying on people's good nature and individual charitable acts to support those incapable of supporting themselves (often through no fault of their own, eg through ill health) represents a return to a system from past centuries that led to appalling conditions for many. You may wish to live in such a society but I most certainly do not.

There are certainly major flaws in the current UK benefits system and there needs to be more incentive to work. I applaud the intent to ensure that those that work are always better off than those that don't, in the same personal circumstances, and the idea of capping housing benefits, which are subsidising a housing bubble. [I'll believe those when I see them, though!]. However, I most certainly do not believe in throwing the baby out with the bathwater.

Thanks for the US GDP chart expressed in oz of gold. It also shows clearly that the depression bottomed around 1933 and that's when recovery began - not when troops returned from the second word war as you claimed.

I can guarantee you will absolutely hate the second episode of the series as it aims to debunk precisely the view you have that it is possible to build a functioning society without any central authority. View it here: http://www.bbc.co.uk/iplayer/episode/b011rbws/All_Watched_Over_by_Machines_of_Loving_Grace_The_Use_and_Abuse_of_Vegetational_Concepts/

1st Jun '11

1. I can guarantee you will absolutely hate the second episode of the series as it aims to debunk precisely

2. the view you have that it is possible to build a functioning society without any central authority.

In response:
1) I liked the episode actually, though it barely scratched the surface of philosophical and political thought in this area. It aimed to debunk:
a) Hippy communist communities don't work: TRUE
b) It is pointless overthrowing centralised government, because what replaces it is often worse: PARTIALLY TRUE
c) Implying: You might as well stick with the status quo of authority and centralised bureaucracy: DUH! FALSE

2) I don't see where I said this! What I'm in favour for is representative government with some very clear restrictions put on the state to protect the very basic rights of individuals.

Looking back at 1)a) The problem with revolutions is that they are more often than not motivated by idealistic socialism and so they end up replacing one sprawling mess of a corrupt bureaucratic system with another even worse one.

While we have mob rule, proper revolution can only come about as a result of education, and enhanced communication of principals and values, not through violent overthrow but as a result of working within the system - if it lasts! Violence is always an absolute last resort as it so very rarely achieves anything, other than misery, suffering and resentment.

The problem we have today is that we have too many corrupt, greedy over achieving, sociopathic, bureaucrats in positions of power, power which is enhanced through unrestrained mission creep, and sustained by very high taxation. I'm arguing for less of it, and reducing taxes (flat tax - no income tax), in order to "starve the beast" so that ordinary people can prosper in a (relatively) free society. With 52% of GDP already spent by our state, I cannot see any other direction to go without complete collapse of the monetary system that maintains this seemingly "stable" status quo.

Also clear from that program was the point that within a system stability can be an illusion! ;)

Systems of government have typically gone through cycles on a spectrum between individual freedom and tyranny:
Freedom: Limited government (e.g. constitutional republic) -> Democracy -> Oligarchy -> Dictatorship : Tyranny

We are presently at the high end of the scale in Oligarchy.
- We have a corrupt centralised monetary system which maintains the status quo, and doesn't allow corrupt/incompetent banks to fail.
- We have corporatist (fascist) revolving doors between government, large corporations, and powerful unaccountable positions in quangos.
- We have large international institutions which are again completely unaccountable. The IMF which pushes debt to debt addicts. The EU! (Don't let me start on the EU - how did we elect our EU president again????)
- The US has renewed the PATRIOT act, granting emergency dictatorial powers to the president. And unprecedented shift of power away from the plebiscite and congress to the executive.

Are you seriously arguing for more power and control by the state in our situation for the sake of maybe, possibly improving GDP figures (or not) by a fraction of a percent? That way lies tyranny. Have you read 1984?

20th Jun '11

FWIW this Adam Curtis parody is pretty funny :)
http://www.youtube.com/watch?v=x1bX3F7uTrg&feature=player_embedded

Review: Machines of Loving Grace

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