back to article Adam Smith was right about that invisible hand, you know

We have a nice little empirical proof that Adam Smith really was right about us all being guided by that invisible hand. Yeah, I know, you're sooo tired of the free market maniac telling you that governments are all wet and laissez faire is where it should be. Except that's not something Smith ever said nor is it what he meant …

  1. chris swain

    Algorithmic trading

    So would it be fair to say that the current trend for algorithmic trading is likely to subvert this beneficial invisible hand by removing human quirks from the system? I wonder how HFT investments stack up in comparison? Could they ultimately be detrimental to the wider economic well-being by eliminating human nature from the market? Will they make markets that suit the aims of our future AI masters? (Sorry, had to get a paranoid ROTM reference in there, this is el reg after all)

    1. Tim Worstal

      Re: Algorithmic trading

      Well, HFT makes absolutely no difference at all to investment allocations. To the trading of them, yes, and almost entirely beneficial at that level. But *what* people invest in almost entirely unaffected by HFT.

      1. chris swain

        Re: Algorithmic trading

        So humans still choose the stocks, the machines just trade them more efficiently? I can envisage a time when someone successfully applies machine learning to the picking process too and when they do everyone will jump on the bandwagon. It would only take a relatively small increase in margin to make it worthwhile.

        1. Tim Worstal

          Re: Algorithmic trading

          "HFT" and "investing" or choosing stocks are two entirely different things. The investing bit is, say (quick, quick, think of an analogy!) fueling a car on diesel or petrol, as appropriate. HFT affects the method of the fueling: are you pouring cans of stuff in or have you got a pump there?

          Not quite right but it is like that. HFT is a method of stuff being traded around. what is being traded, or by whom, is a different thing.

          1. chris swain

            Re: Algorithmic trading

            That's why I read your column: I obviously know little about such things and it is good to broaden my limited knowledge and be entertained. So no machines pick what they trade? I think MIT were playing around with AI-based natural language analysis of financial journalism to facilitate efficient machine stock picks a few years back, guess it came to nothing.

            1. Tim Worstal

              Re: Algorithmic trading

              That could be true. But it wouldn't be HFT. High Frequency Trading. What you're describing there is using an algo to decide what to invest in. About as scary as people using Excel to analyse stock prices really.

              1. Anonymous Coward
                Anonymous Coward

                Re: Algorithmic trading

                @Tim. Having an algo choose what to trade in isn't a problem provided the algo is well tested and something else runs the trading limits around that strategy and is also well tested. I have worked at a place that performed medium frequency algo trading and did it very well. It is in no way as scary as people using Excel to analyse stock prices.

              2. Martin Budden

                Re: Algorithmic trading

                What you're describing there is using an algo to decide what to invest in. About as scary as people using Excel to analyse stock prices really.

                Of course it would be daft to use Excel to... do anything, really. But isn't it true that picking stocks completely at random yields (on average) better results than picking stocks by thinking with our fleshy brains? I'm sure it would be a simple matter to write an algo to pick stocks randomly.

            2. scrubber
              Terminator

              Re: Algorithmic trading

              Machines do pick what they trade. Certain large banks have fully automated systems running their own books. They are carefully monitored by humans because once you get into automation they can run up rather large positions rather quickly. Plus, once a computer starts doing something ... mechanically ... then some smart person, or better programmed computer, can take advantage of foreknowledge of what the original machine is going to do.

              Incidentally, this is why computers are much better than humans at chess but nowhere near as good as them at poker - yet - in spite of the enormous money to be made by an unbeatable poker bot and the relatively minor rewards for making good heuristics for minimising the gamespace in chess.

              PS. My portfolio: 40% UK, 20%US, 15% EU, 20% Asia (exc. Japan), 5% Japan.

          2. Shannon Jacobs
            Holmes

            Re: Algorithmic trading

            The current stock market is more like a frictionless engine with constant acceleration. HFT is just increasing the speeds at which it spins, but at some point it's still going to tear itself to pieces. We've already had a couple of interesting scares from what were only minor wobbles...

            Strongly recommend Flash Boys by Michael Lewis. There's a new invisible hand in the house, and it's about to slap us silly.

            To close with the obligatory constructive suggestion: There needs to be some minimum transaction charge (dare I say "tax") to create metaphorical friction. Not certain, but I believe the transaction charge would also redefine the delay times that Michael Lewis is focusing on.

        2. Yet Another Anonymous coward Silver badge

          Re: Algorithmic trading

          Nobody picks the stocks.

          HFT is mostly either arbitrage (this stock in London is 0.1% cheaper in New York if the exchange rate from GBP->Euro->USD is slightly less than X.)

          Or front running; people are buying stock X so if I am 0.1km closer to the exchange I can buy it 100us before them and resell it for 0.1% more.

          Or market watching; a big pension fund has to hold 30% of a certain class of bonds. On the last payday of the month it will get a huge chunk of new money which it has to buy these bonds with, so just before this the price goes up.

          HFT can be a good thing in that it makes the market more efficient, everybody gets to buy Apple for the same price, anybody attempting to sell apple for 0.1c more is going to get zero business. That's why some IPOs and those little "only certain customers can buy these stocks" deals that a bunch of (now bankrupt) merchant banks did - are so bad.

    2. amanfromMars 1 Silver badge

      Re: Algorithmic trading

      Hi, chris swain,

      With particular, peculiar regard to three questions posed there for answering ......

      So would it be fair to say that the current trend for algorithmic trading is likely to subvert this beneficial invisible hand by removing human quirks from the system? Could they ultimately be detrimental to the wider economic well-being by eliminating human nature from the market? Will they make markets that suit the aims of our future AI masters?
      ..... the politically correct and direct and unambiguous answer is YES to all three.

      And such presents a titanic broad band of wealth and virtually unlimited opportunities in a whole host of brave new orderly world orders for zeroday vulnerability exploiters and exporters to explore and profit obscenely from. And such is the real present day nightmare scenario which current establishment power elite, too big to be thought allowed to fail systems are crashing and burning themselves into. Take a great look around you at the stalled and failing bigger picture shows starring in sub-prime mainstream media productions today.

      Dim stories with crazy memes running around like headless chickens springs to mind. And in times and spaces and ages of smarter enlightenment are they and their supporters always gonna perish and explode/implode spectacularly.

  2. Anonymous Coward
    Anonymous Coward

    Congratulations

    A clear and informative account of what Smith actually wrote. I'm impressed.

    1. Tim Worstal

      Re: Congratulations

      Partly in response to, I think it was you, being less than impressed with my Smith in another piece recently.

      1. Anonymous Coward
        Anonymous Coward

        Re: Congratulations

        If so, then my negativism has achieved something useful.

        (I'm a great admirer of Smith, but I also happen to think that if you ignore all the blue sky thinking and rabbinical background hangover, Marx was a pretty good economist. Even though Engels did a lot of the leg work.)

        1. Tim Worstal

          Re: Congratulations

          Marx's analysis of some stuff was pretty good. He did understand both Ricardo and Smith a lot better than many moderns for example. I'm certainly guided by some Marxian (ie, influenced by, rather than swallowing the kool aid) stuff. For example, all this robots will take all our jobs stuff. OK, that's what Marx saw as the incredible efficiency of future capitalism, meaning that economic scarcity stops being something we have to worry about. At which point true communism can occur. OK with me.

          And I often use his description of how and why wages rise: in the absence of both a reserve army of the unemployed and also monopsony (what he called monopoly capitalism) then wages will rise with productivity as capitalists compete for access for that scarce labour from which they make their profits. It was from this that he derived his warnings about monopoly capitalism.

          Of course some of his predictions are looney tunes ....like, say, the idea that monopoly capitalism is inevitable, rather than just something to be aware of and thus avoid.

          1. Yet Another Anonymous coward Silver badge

            Re: Congratulations

            > predictions are looney tunes ....like, say, the idea that monopoly capitalism is inevitable,

            Ironically since most capitalists regard the idea that they themselves can't, or shouldn't, be a monopoly as looney tunes .

          2. Anonymous Coward
            Anonymous Coward

            Re: Congratulations

            "And I often use his description of how and why wages rise: in the absence of both a reserve army of the unemployed and also monopsony (what he called monopoly capitalism) then wages will rise with productivity as capitalists compete for access for that scarce labour from which they make their profits. It was from this that he derived his warnings about monopoly capitalism."

            I think the problem is that the two contingencies mentioned have appeared. With a broader market (access to more potential workers) and increased efficiency and automation (meaning you need fewer hands to get the job done), you end up with that reserve army of the unemployed. As for the monospony, you can get that with an oligospony as well. They conspire to milk the consumers dry and only then fight for what's left, and you end up with cartel behavior.

            "Of course some of his predictions are looney tunes ....like, say, the idea that monopoly capitalism is inevitable, rather than just something to be aware of and thus avoid."

            Well, unregulated, capitalism WILL eventually result in an ultimate winner: one who has all the cards and can use them as an infinite barrier of entry to block any upstarts. Think of it like a poker tournament. As players fall out, others amass lots of chips and can use them to muscle out the competition. Sure, some get unlucky, but on average the more you have the better you can fend off. And eventually, someone's going to have all the chips.

            1. Tim Worstal

              Re: Congratulations

              "As for the monospony, you can get that with an oligospony as well. They conspire to milk the consumers dry and only then fight for what's left, and you end up with cartel behavior."

              That's monopoly or oligopoly you're talking about there, control of supply. What Marx was (rightly) much more worried about was monopsony, a single buyer. In this case, a monopoly purchaser of labour, who would then be able to determine wages.

              Delightfully, the only place this has ever happened was in Soviet states and boy, was Marx right, labour got screwed big time.

              "Well, unregulated, capitalism WILL" which is why even classical liberals like me are just fine with regulatory action to break up monopolies.

              1. Anonymous Coward
                Anonymous Coward

                Re: Congratulations

                "Delightfully, the only place this has ever happened was in Soviet states and boy, was Marx right, labour got screwed big time."

                Ah, no, it also happened in Nazi Germany (I'm re-reading Shirer at the moment). The Nazi State allocated workers to industry (and tied peasant farmers to the land) then set wages. Although the propaganda was that the German worker was better off under Hitler, the truth was that the reduction in unemployment was paid for by a bigger reduction in real wages. Not only were hourly rates reduced, but a series of new taxes were introduced, some of which went to the Labour Front - which absorbed some of the unemployed in its huge bureaucracy. The resulting inefficiency is partly demonstrated by the way that the Western allies outproduced Germany without slave labour, though cheap energy in the US played a part in this.

                1. IvyKing

                  Re: Congratulations

                  The production in the US was due to more than cheap energy, having all sorts of raw materials on hand was also a big help. Another big help was the machine tool industry seeing a war coming and engaging in a large scale program training people to run machine tools. Having managers picked on th basis of competency as opposed to part loyalty was another big help. Finally, given individual workers some incentive didn't hurt.

                  The downside of the big push for production was an incredible industrial accident rate, IIRC ~120,000 fatalities between December 1941 and May 1944.

                  One last fallout from WW2 was that American manufacturing developed a lot of ways to cut down on the amount of labor required to produce a given widget.

                  1. Alan Brown Silver badge

                    Re: Congratulations

                    "One last fallout from WW2 was that American manufacturing developed a lot of ways to cut down on the amount of labor required to produce a given widget."

                    You speak like this is a bad thing.

                    As fewer people are involved in production, more become involved in services. It's not in the manufacturers interest to set prices too high (pricing is never based on cost plus, it's "what the market will bear") even if they hold a monopoly as lack of sales will put them out of business even if the per-item profit is high - but it's better for society overall not to allow monopolies to develop in the first place.

                    1. Charles 9 Silver badge

                      Re: Congratulations

                      "As fewer people are involved in production, more become involved in services."

                      But the problem with this scenario is that fewer people are becoming necessary in services, too. With more intelligent computerization, fewer people are needed to do the same amount of servicing. Bosses can now be their own secretaries, self-checkouts mean you need fewer clerks at the register while ordering tablets means less work for waiters in restaurants (meaning you need fewer waiters), web shops mean you don't need someone on the phone taking an order, and advanced inventory systems mean less human intervention is needed to place orders. It's going to take more specialized (and harder to obtain) skills in order to have a better footing in an increasingly computerized world, and many people (such as the anti-social with no "people" skills: one of the few skills resistant to computerization) will find they've hit the proverbial dead end.

                2. amanfromMars 1 Silver badge

                  Re: Congratulations ... Osbornomics Unmasked. ‽

                  Ah, no, it also happened in Nazi Germany (I'm re-reading Shirer at the moment). The Nazi State allocated workers to industry (and tied peasant farmers to the land) then set wages. Although the propaganda was that the German worker was better off under Hitler, the truth was that the reduction in unemployment was paid for by a bigger reduction in real wages. Not only were hourly rates reduced, but a series of new taxes were introduced, some of which went to the Labour Front - which absorbed some of the unemployed in its huge bureaucracy. The resulting inefficiency is partly demonstrated by the way that the Western allies outproduced Germany without slave labour, though cheap energy in the US played a part in this. ....... Arnaut the less

                  Sounds very much like current Conservative Party rhetoric and economics, Arnaut the less? Are we to conclude and realise that a new age and wave of creeping neofascism is alive and well and a right old Eton mess for the masses and the errant and arrogant ignorant Bullingdon type Boy?

                  1. Anonymous Coward
                    Anonymous Coward

                    Re: Congratulations ... Osbornomics Unmasked. ‽

                    "Are we to conclude and realise that a new age and wave of creeping neofascism is alive and well?"

                    No.

                    It's the opposite; under fascist governments, large corporations made big profits but at the expense of total political subjugation to the government. Today, governments are told what to do by the banks and the super-rich (as with the Greek crisis.)

                    If you read Piketty you will see the situation is completely different from the 1920s and 1930s.

                3. Tim Worstal

                  Re: Congratulations

                  Hmm, Aly's analysis is rather different. Real wages for the workers rose considerably.

              2. Charles 9 Silver badge

                Re: Congratulations

                "That's monopoly or oligopoly you're talking about there, control of supply. What Marx was (rightly) much more worried about was monopsony, a single buyer. In this case, a monopoly purchaser of labour, who would then be able to determine wages."

                Why can't an oligospony work as well? If all the members of a cartel agree to limit their wages equally, since there's no need to compete for, say, a glut of workers they need less of (one dies/leaves, get another), then can not a cartel exert the same kind of single-buyer influence as a monospony?

                1. Anonymous Coward
                  Anonymous Coward

                  Re: Congratulations

                  Isn't this pretty much what a group of Silicon Valley tech companies effectively did and were fined for, though in part it was based on no compete agreements on poaching staff

              3. Alan Brown Silver badge

                Re: Congratulations

                " What Marx was (rightly) much more worried about was monopsony, a single buyer."

                This is the effective case in a number of areas (mostly agricultural), thanks to the size of large supermarket chains and the lockin supply deals they have.

                One of the favourite tricks is to cancel a large supply order a few weeks before it's due for delivery and then offer to take the stuff off the farmer's hands at half (or less) of the contracted value.

                One can posit that the behaviour is cartel-like because the supermarkets are a small group of very large buyers and they're all pushing to keep their purchase prices down in order to maintain profits on what they sell.

          3. Zog_but_not_the_first Silver badge
            Devil

            Re: Congratulations

            "Of course some of his predictions are looney tunes ....like, say, the idea that monopoly capitalism is inevitable, rather than just something to be aware of and thus avoid."

            Actually..

  3. Tom 7 Silver badge

    The invisible hand of the market

    is almost always just a little too late. Perhaps the S plane was named after Smith?

  4. Steve Davies 3 Silver badge

    There was I thinking....

    That the FTSE-100 was at the level it was because of all those Antipodean & Russian etc Mining Stocks that choose to list in London thus leaving less room UK PLC based companies.

    How does this square up with the bias towards local companies?

    One of the above is wrong? Or nearly right as with pretty well everything 'Economic' (-al with the truth)

    1. Tim Worstal

      Re: There was I thinking....

      FTSE is a fun one. Because some 50% or so of the total UK stock market is foreign owned. More of FTSE is. So, we could think that this is evidence of people not having that domestic bias. Or we could look to your point, that many are foreign companies simply listed in London, and think of it as evidence of that domestic bias.

      Your choice.

      1. Yet Another Anonymous coward Silver badge

        Re: There was I thinking....

        Isn't that two different things?

        Most of the FTSE could be foreign owned, you would expect that in a major market the majority of the shares would be owned by international insurance, pension funds etc - rather than necessarily by share owning British citizens.

        The majority of firms in the FTSE being foreign controlled is because the London market is a so much better place to list than Moscow or Singapore, or because they were all originally British firms that have now been taken over.

  5. John Smith 19 Gold badge
    Unhappy

    You say "High Frequency Trading"

    I say "Man in the Middle Attack."

    Buyer. "buy X shares of Y" (from Seller)

    300 microseconds later...

    "Hello Mr Buyer, I'm the HF Trader who bought those shares 200 microseconds ago. Pay me instead".

    It's no surprised trading volume doubles when HFT's turn up.

    There are now 2 transactions going on for every real trade in the market.

    1. Anonymous Coward
      Anonymous Coward

      Re: You say "High Frequency Trading -I say "Man in the Middle Attack."

      The stock market has usually been about getting asymmetric information by speed, whether it was someone in a post chaise bring news of military victories, the telegraph, or the move to electronic trading.

      Rather than mess around with Tobin taxes, I do feel regulators should be focussing on the creation of a truly level playing field. If someone makes money by buying servers closer to the stock exchange and faster networks, then any pretence of transparent markets is just that. If I can understand it and you can understand it, so can a regulator. Perhaps they just don't want to.

      1. Anonymous Coward
        Anonymous Coward

        Re: You say "High Frequency Trading -I say "Man in the Middle Attack."

        It's more than that. A market like that has a natural tendency for "cheating". No matter how you try to level the playing field, someone will come along and find a loophole. It's like with "buying" political influence. No matter how much you try to regulate it, someone will come up with a new one: eventually finding one you can't regulate because it hits a guaranteed right. For example, how can you stop someone being influenced by a lobbyist who also happens to be their spouse or immediate relative? Or they otherwise live together so they meet every night under normal circumstances? You can't isolate them since they may be actively raising children, so at some point you'll probably end up raising the white flag because we're only human, we can be influenced whether we like it or not, and a determined adversary will get through to us no matter what we do.

        1. Doctor Syntax Silver badge

          Re: You say "High Frequency Trading -I say "Man in the Middle Attack."

          "For example, how can you stop someone being influenced by a lobbyist who also happens to be their spouse or immediate relative?"

          If their areas of concern are different there's no problem. But you should require them to declare a conflict of interest and one of them to resile. But maybe I'm old-fashioned.

          1. Charles 9 Silver badge

            Re: You say "High Frequency Trading -I say "Man in the Middle Attack."

            The problem lies in the lobbyist MAKING the legislator turn towards that area of concern. That's why lobbyists exist: to convince legislators to see things their way. Meaning, even if they don't see eye to eye at first, they probably will by the end.

  6. SVV Silver badge

    biting the invisible hand that feeds it

    I love my tech news laced with a dose of Milton Friedman inspired economic rants. Not entirely sure why a technology news site feels the need to publish such stuff, but if you really want to make money start publishing pics of scantily clad young ladies for spurious reasons - that always works.

    1. Yet Another Anonymous coward Silver badge

      Re: biting the invisible hand that feeds it

      It can't be for spurious reasons - that would be sexist.

      It has to be to accompany a vital public interest story about fashion, skin care or the beach holiday of some minor royal.

      1. dogged

        Re: biting the invisible hand that feeds it

        > It has to be to accompany a vital public interest story about fashion, skin care or the beach holiday of some minor royal.

        Or about an EEE-PC.

      2. Anonymous Coward
        Anonymous Coward

        Re: biting the invisible hand that feeds it

        "It has to be to accompany a vital public interest story about fashion, skin care or the beach holiday of some minor royal."

        What about the latest automobile stats?

    2. iLuddite

      Re: biting the invisible hand that feeds it

      This is good. T.W. throws a compliment at Marx and is criticized for being Freidman-inspired. When he disparages Keynes and compliments Freidman, he is called a Lefty. His explanations are called rants. I think Mr. Worstall is not here for our benefit. Rather, he comes here to practice skin-thickening for his political life.

      As to economics on a tech site, what sector is more involved in global trade than IT? IT enables global trade on a massive scale, is traded globally, tallies global trade, suffers out-sourcing, down-sizing, expansion and competition according to global economic factors. Your next chip_drive_OS_security bits are subject to global economic(and political) happenings. My long-ago Middle East posting is now filled by someone with English as a second language - global labour trade (some will work for less). I for one like to hear about politics and economics, especially as to how they affect IT. I would even like a bit on the menu bar for just that.

      Now That's a rant, not an explanation:)

  7. jake Silver badge

    Yawns.

    Marketards.Go figure.

    In reality, we grow food. People purchase it. We profit.

    Global politics & economics don't really apply here (sorry, Greece!).

  8. Langtoon

    Too true

    Of course, if the west spent more investing in 'third world' countries maybe we wouldn't have the current mass immigration problems we are currently suffering. Too true that we are suffering from unintended effects of our own policies.

    1. Gordon 10 Silver badge

      Re: Too true

      You mean like lending them money then having their local warlord fritter it away on everything but the intended purpose. There is a lot more to 3rd world poverty than lack of investment...

      1. chris swain

        Re: Too true

        Indeed there is but much of it seems to be down to poor governance, which in turn is often a result of post colonial failure caused by imperial powers politicking and maintaining subtle control. Borders drawn up in line with colonial territories when colonial powers left rather than natural borders based on pre-existing tribal/ethnic realities don't help either.

        I'd love to see the day when Africa utilises its massive reserves for the general good of its people but it's hard to see how we in the wealthy countries can help given our shared histories. Same goes for the middle east. Only when the wealth is shared more evenly (by economics under good governance, not some communist planned economy or debilitating 'aid' programme) will we see a reduction in the kind of backward thinking that gives strength to the nutty militias of boko haram, isil and their like.

        1. Yet Another Anonymous coward Silver badge

          Re: Too true

          So what they need is the wise leadership of some western power to go in, remove the local warlords, manage their resources and tell the natives to stop doing the silly local religion stuff and attend church fetes ?

          1. chris swain

            Re: Too true

            That's not what I'd suggest, nor did I allude to that. I suspect we've done more than enough meddling and imposed solutions are unlikely to work anyway. As I said I don't know what the answer is but I live in hope that it will turn up, I guess I'm a left-leaning internationalist who hopes that one day we'll drop the short term self interest and parochialism in favour of a global approach to enabling all of us to benefit from our common resources.

            1. Anonymous Coward
              Anonymous Coward

              Re: Too true

              "That's not what I'd suggest, nor did I allude to that. I suspect we've done more than enough meddling and imposed solutions are unlikely to work anyway. As I said I don't know what the answer is but I live in hope that it will turn up"

              Given their past (highly-competitive tribes meaning frequent border clashes), many would tell you, "Good luck." As they say, nice guys finish last, and anyone who tried would likely get backstabbed. It's in their history, in their blood. That's why it's hard to civilize Africa. They don't have a record of anything close to what Europe has experienced. To deconstruct an adage, it's hard to teach a man to fish to sustain himself if he doesn't understand the concept of a fish.

              1. Anonymous Coward
                Anonymous Coward

                Re: Too true

                "They don't have a record of anything close to what Europe has experienced. "

                You mean, to quote your own example, highly competitive tribes with frequent border clashes?

                Europe has in the past been in as big a mess as Africa - e.g. after the Thirty Years War. I suspect that the difference is a variety of natural barriers (mountains, rivers, big marshes, seas), compactness, a relative lack of insect disease vectors, and, once the Industrial Revolution started, natural resources. This meant that some tribes could get big enough and stable enough to be able to hold on to territory long enough to build an advanced society.

                1. chris swain

                  Re: Too true

                  Exactly so, and 1939-45 is within living memory, that being of course the final act of a family squabble between related chiefs of different tribes that failed to be resolved in 1914-18. Perhaps we just need to share nuclear weapons tech with all the nations of Africa then they can have peace through mutually assured destruction.

                  1. Anonymous Coward
                    Anonymous Coward

                    Re: Too true

                    "a family squabble between related chiefs of different tribes that failed to be resolved in 1914-18"

                    Actually I think part of the reason for the 1914-18 war was the Serbs, whose rulers weren't related to the Habsburgs or the Saxe-Coburg-Gothas. The Balkans is Europe's own bit of quasi-African style instability, and all too frequently the insanity spills over.

                    1. chris swain

                      Re: Too true

                      True enough re: the Balkans but I gather that Kaiser Bill's feelings of familial inadequacy and general demeanor were also an influencing factor. The Russian, British and German aristocracy were all closely related and the kaiser got the hump and had a falling out.

                2. Anonymous Coward
                  Anonymous Coward

                  Re: Too true

                  "Europe has in the past been in as big a mess as Africa - e.g. after the Thirty Years War. I suspect that the difference is a variety of natural barriers (mountains, rivers, big marshes, seas), compactness, a relative lack of insect disease vectors, and, once the Industrial Revolution started, natural resources. This meant that some tribes could get big enough and stable enough to be able to hold on to territory long enough to build an advanced society."

                  Well, put it this way. Africa never had anything like Rome: an all-pervading force that existed from coast to coast at some point. Best as I can tell, control never got very far past specific regions, and that probably affected their history.

              2. Alan Brown Silver badge

                Re: Too true

                "That's why it's hard to civilize Africa."

                Bullshit.

                Africa's (and the middle east's) current problems are a direct result of divide-and-conquer tactics by colonial powers. Creating "countries" which divided tribal/ethnic groups whilst putting others head to head against each other was a fairly calculated move to keep people occupied whilst resources were being plundered.

                Imagine the european map redrawn bisecting existing countries and joining those sections with bisected parts of their neighbours. Then insist that the occupants of these new "countries" speak a language unrelated to either of the local ones, whilst enacting policies which favour one of the component groups more than the others and so causing resentment and friction amongst the others. Keep them under an iron fist for a few hundred years and then walk away.

            2. BobRocket

              Re: Too true

              'I guess I'm a left-leaning internationalist who hopes that one day we'll drop the short term self interest and parochialism in favour of a global approach to enabling all of us to benefit from our common resources.'

              Oy, get your filthy hands off my resources, haven't you heard of The Tradegy of The Commons ?

              (and don't mention Elinor Ostrum)

              1. chris swain

                Re: Too true

                Fair point re: the Tragedy of the Commons but I believe that the development of human social mores over time is a history of our continuing struggle to overcome our baser instincts, perhaps we'll overcome this one too.

                1. BobRocket

                  Re: Too true

                  Sorry Chris I was being facetious, The Tragedy of the Commons is a myth spread by the land grabbers.

                  Elinor Ostrom got her 'Nobel' for work including the 'Design principles for Common Pool Resource (CPR) institutions' which is well worth a read.

                  https://en.wikipedia.org/wiki/Elinor_Ostrom

                  To date, she remains the only woman to win The Prize in Economics.

                  Her acceptance lecture is one of the better ones.

                  http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2009/ostrom-lecture.html

                  1. chris swain

                    Re: Too true

                    Cheers for the links, most interesting. Devolved resource management rather than some system imposed from the centres of power? I'm all in favour of that sort of thing.

          2. Alan Brown Silver badge

            Re: Too true

            It takes the power of the locals to achieve it.

            Nigeria is finally making headway on dealing with its corruption problems - not because of external demands to do so, but because the growing middle classes there have found that it severely impedes the ability to do business within the country AND they are sick of being treated with suspicion by businesses outside the country.

            Once sufficient numbers of your own voters are demanding action be taken, a government tends to listen.

  9. mfckr

    Reading over the 3 cases where Adam Smith mentions the 'invisible hand', it sounds more like he was simply making an epistemological point about seen vs. unseen effects of economic activity.

    Parallel to what Bastiat argued here: http://www.econlib.org/library/Bastiat/basEss1.html

    Friedrich A. Hayek also talks about this sort of thing quite a bit, e.g.: "Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand."

    1. amanfromMars 1 Silver badge

      Friedrich A. Hayek expanded further

      Friedrich A. Hayek also talks about this sort of thing quite a bit, e.g.: "Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand." ...... mfckr

      That would be those quite disturbingly powerful conscious directing thought programs which can run riot in disciplined fields of work, REST and Great Games Play for chaos with CHAOS ..... Clouds Hosting Advanced Operating Systems, mfckr/El Regers.

    2. kdd

      More on Hayek

      Re: mfckr's comment on Hayek and his similarly (to Adam Smith) famous remark, "Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand."

      Hayek's most important observation about markets is the impossibility of predicting them. However, both Hayek and his followers have then attempted to extrapolate this fact into additional areas where factual support is significantly lacking.

      For example, Hayek and his adherents attempt to use this "never fully understand" idea as one to justify the laissez-faire approach to markets. In effect, markets are too complex for anyone to fully understand so they should be left alone, essentially arguing that any consequences will always be better than any alternatives. But I'd say this is like arguing that because weather is too complex to fully accurately predict, that we have no need for umbrellas. In any event, the claim is an interpolation of Hayek's original observation about complexity, concluding implications of it without any factual support.

      Hayek also likes to talk about "spontaneous order" as if that is the saving grace of free markets, based on his repurposing of Darwinian evolution's ability to adapt and "produce order." On the other hand, it seems to contradict his "never fully understand" concept, because he pretends to understand Darwinian solutions as sufficient to produce a market that is optimal. Unfortunately, Hayek's understanding of evolution is lacking in that evolutionary solutions can often be seen to be sub-optimal, haphazard and makeshift, producing dead ends and at times, essentially, dog-eat-dog survival of the fittest, spontaneous "disorder". I've seen Hayek fanboys try to wave this away by arguing that human awareness of evolutionary market forces would inherently correct these problems, ironic in that they too seem to contradict the "never fully understand" observation that Hayek himself had made in claiming they understand these supposed correctional effects of an added sentience to the process.

      Even Hayek seemed to have accepted the need for a social safety net, having admitted as much at one point. But I keep returning to the weather/umbrella metaphor, which I think accurately suggests the difference between trying to "control" the weather (or the markets) vs mitigate their adverse effects, which is something different. Even the most strident Keynesian economist, generally is not suggesting we attempt to "control" markets, but to mitigate their adverse effects. But the died-in-the-wool free market faithful prefer to conflate this into some kind of all-or-nothing control or do-nothing dichotomy that pretty much no one but them is suggesting. In addition, there are common enemies, some government regulations or proposals for them ARE attempts to "control" markets, often to reap unwarranted profits for powerful forces. But to then to consider that as argument to eliminate any environmental or workplace protections, or any protections for the well-being of workers as unwarranted attempts to "control the market", is a misinterpretation of the facts and even of what Hayek himself claimed.

      1. mfckr

        Re: More on Hayek

        "Even Hayek seemed to have accepted the need for a social safety net, having admitted as much at one point."

        Interestingly, Hayek actually made an argument for universal basic income (i.e., something like a Mincome floor). He seems to conceive this as something necessary for a truly free society, and as a way to circumvent intergroup conflicts over social justice/perceived 'fairness'. Some excerpts of what Hayek wrote on that subject here: http://bleedingheartlibertarians.com/2012/05/hayek-enemy-of-social-justice-and-friend-of-a-universal-basic-income/

  10. Anonymous Coward
    Anonymous Coward

    The value of local knowledge

    This is all well and good, but skips over the possibly rational reasoning behind this propensity to invest locally, namely that investing locally is less risky as the investor is likely familiar with the businesses through their other interactions with the market in which the investment operates. This is, in a sense, legitimate 'insider trading', using knowledge not readily available to the foreign investor.

    So the question then becomes, are local investors more successful because of this extra knowledge: do Canadians with their holding of Canadian equities have more success that say British investors who do buck the trend and invest in Canada?

    1. Chris Miller

      Re: The value of local knowledge

      The main driving force (as Tim acknowledges towards the end of the article) is that local banks, insurers etc. have liabilities denominated in the local currency. Investing in 'foreign' stocks carries risks of both stock movement and currency movements.

      We had an interesting example of this when the eurozone was created. German banks, fed up with getting tiny returns on their holdings of German bonds found that they could get much higher returns on Greek government bonds denominated in what was now the same currency. What could possibly go wrong?

      The German government-inspired process of kicking the Greek problem a few months down the road by throwing money at it, was precisely to give time for their banks to untangle their Greek assets without becoming insolvent. Now that has been achieved, the Greeks can go swivel.

      1. dogged

        Re: The value of local knowledge

        Surely historically speaking, it's more likely that we invest locally because if the bloke down the road loses our money we can go round there and beat him up?

    2. This post has been deleted by its author

  11. Dave 126 Silver badge

    I'm sure Tim knows this anyhows...

    Similes are just metaphors with signs around their necks saying "Don't take me literally, I'm only a comparison!" [Metaphor]

    Similes are like metaphors but with signs around their necks saying "Don't take me literally, I'm only a comparison!" [Simile]

    1. Anonymous Coward
      Anonymous Coward

      Re: I'm sure Tim knows this anyhows...

      The word "simile" is Latin and the rough English translation is "similar" or "like". Metaphor is Greek.

      So if you did Latin at school you use similes and say something is like (simile) something else. But if you learned Greek, you don't bother with the word "like", you just say "it's a metaphor".

      This means that similes are for the less intelligent people who need to have it explained to them, metaphor is for the more intelligent people who don't.

      Writing for the Sun - simile. Writing for the New Yorker - metaphor.

      Simple really.

      1. Yet Another Anonymous coward Silver badge

        Re: I'm sure Tim knows this anyhows...

        I though similes were the little sideways faces made with "; - )" before we had emoticons ?

  12. WalterAlter

    Never Mind the Invisible Hand Behind the Curtain...

    It's the invisible knee to the yarbles you need to worry about:

    "The Money Masters"

    https://www.youtube.com/watch?v=Dq9yjt_JbWs

  13. JP19

    "home country bias"

    Isn't a home currency bias somewhat sensible in that it tends to reduce the risks of inflation of the currency you eventually want to sell your investments for?

    1. Yet Another Anonymous coward Silver badge

      Re: "home country bias"

      No exactly the opposite. If you think you are going to experience inflation then you are better off owning a global mix of companies in USD, GBP, Eu, Yen, Renminbi etc.

      The only advantage of owning shares only in your local currency is if you think it is going to rise in value compared to the rest of the world - in which case all the companies in your home market that have to export are screwed

      1. JP19

        Re: "home country bias"

        "No exactly the opposite."

        If your local currency inflates more than where you invested you win, if it inflates less you loose.

        If you invest in your local currency it is a wash which is why I said it reduces risk.

  14. ecofeco Silver badge

    Once again, I find my self agreeing with you

    Absolutely spot on regarding the misinterpretations of Smith. I believe he would have been insulted and angry at how his ideas have been twisted to support the very principals and ideology he was against and trying to warn people about.

  15. DougS Silver badge

    Stock diversification versus multinationals

    I live in the US, so let's use that as an example. My two largest holdings are Apple and Berkshire Hathaway. If those were my only holdings, you would probably say I'm 100% invested in the US and that's bad. That's not really true, however.

    Apple makes the bulk of its income overseas, and China is rapidly becoming (if not already) their largest market, larger than the US. I'd argue that Apple offers 'indirect diversification' since I'm exposed to the economies of other countries through holding their stock. This isn't true of all stocks though, Berkshire Hathaway's holdings are highly concentrated in the US - the sort of holdings that are that way by default, such as railroads that have all their track in the US, insurance companies that only do business in the US, etc. It has some international exposure, but relative to Apple a small amount.

    The US has roughly 20% of the world's GDP, so Apple is not a bad proxy if the argument is that I should therefore have 20% of my holdings in the US, 15% in China and so on down the line to a tiny fraction of a percent of world GDP in poor countries where Apple makes a tiny fraction of a percent of its earnings. Obviously you wouldn't want all your holdings in a single company, but as far as international diversification goes it works, or at least comes a lot closer than the "home country of the stock" does to determining one's exposure to the world's economy.

  16. Graham Marsden

    Can you guess what I'm going to say Tim...?

    Once again we have an article from TW which, whilst accurate and informative, manages to ignore the elephant in the room:

    > he must have, by definition, have spread the value of that consumption, thus allowing them to consume that amount, among the people who provided him with the yacht.

    Yes, that's very true, BUT, of course, the value of that consumption is NOT spread evenly, is it?

    > if he's paid £1.5bn for that yacht then obviously there's some yacht builders somewhere who now have £1.5bn in spondoolies, and that's been used to pay the workers who built the yacht, pay the workers who made the steel, that made the yacht and so on and on.

    How much of that £1.5bn goes to pay the workers who *built* the yacht? How much of the money that paid for the steel goes to the workers who *made* the steel? Isn't it actually the case that (with a few exceptions) the people who got that £1.5bn will be doing their damndest to ensure that they pay the absolute minimum they can get away with to get the work done (and giving as little as possible away in dividends) ensuring that they manage to keep as much of that money for themselves as possible.

    > it's capital added to labour which makes labour more productive and that's what then raises wages. And that's the invisible hand that benefits.

    Really? Unless you have a situation approaching full employment where the workers have sufficient power, you get the result where the employers can say "You do what jobs we want for the money we're going to pay and if you don't want to do that, we'll find someone else somewhere else who's cheaper or more desperate who *will* do the job. So take our wages or starve!"

    Can you guess what I'm going to say? It starts with Cui...

    1. Tim Worstal

      Re: Can you guess what I'm going to say Tim...?

      "Really? Unless you have a situation approaching full employment where the workers have sufficient power, you get the result where the employers can say "You do what jobs we want for the money we're going to pay and if you don't want to do that, we'll find someone else somewhere else who's cheaper or more desperate who *will* do the job. So take our wages or starve!""

      Err, yeah. If you read up a bit you'll see that that's the bit that I think that Marx got right.....

      1. Graham Marsden

        Re: Can you guess what I'm going to say Tim...?

        > If you read up a bit you'll see that that's the bit that I think that Marx got right.....

        Yes, Tim, but again you ignore the elephant. You quote: "by their purchase of things to consume they do spread that income, that wealth around" and "that's what then raises wages. And that's the invisible hand that benefits."

        Except that the wealth doesn't get spread around, does it? The wages don't go up, do they? Or, at least, only the barest minimum possible. Meanwhile the rest of the wealth gets concentrated upwards, so who *actually* really benefits?

    2. LucreLout Silver badge

      Re: Can you guess what I'm going to say Tim...?

      Isn't it actually the case that (with a few exceptions) the people who got that £1.5bn will be doing their damndest to ensure that they pay the absolute minimum they can get away with to get the work done

      All the while the workers will be doing their damndest to ensure they get paid the absolute maximum for their effort in building the boat.

      Building a yacht takes skill and experience. Setting up a company is about 15 minutes worth of paper work. So what is it preventing the workers setting up their own company to capture more of that fee? Have you perhaps discounted some things which are critical to the process, also worthy of reward, and are perhaps greater in scarecity than the skills and experience of the production workers?

      I tend to find those that are the loudest critics of capitalism understand the least about how the game is played. It is by far and away the least worst system ever devised by man. Capitalism may not work for everyone, but socialism and communism work for nobody.

      1. 9Rune5

        Re: Can you guess what I'm going to say Tim...?

        "Building a yacht takes skill and experience."

        Precisely. And besides: If you are forking out that kind of dosh for a boat, you probably are looking for someone who can supply the best level of skill and experience – AND you would be willing to pay for said skill and experience.

        I think a better showcase for the sensed inequality (and possible double standards) would be somewhere like Norway where customers hate to part with their money, but often voice their opinion whenever it turns out that some poor worker in Asia is being exploited as a consequence of that. (and nobody will ask that worker if he/she would prefer to be unemployed instead)

      2. Graham Marsden

        @LucreLout - Re: Can you guess what I'm going to say Tim...?

        > All the while the workers will be doing their damndest to ensure they get paid the absolute maximum for their effort in building the boat.

        Except that, as has already been pointed out, unless there's a situation of almost full employment which forces employers to offer better wages, they can say "This is what we're paying, take it or leave it. If you don't take it, someone else will".

        > I tend to find those that are the loudest critics of capitalism understand the least about how the game is played.

        Really? Perhaps I should point out that I've been running my own business for over 20 years and got an A-Level in Economics many years ago...

        But the fundamental point that *you* are discounting is that it *takes* money to make money. The first rule of the game is that you need a stake to get into the game.

        What is stopping those workers setting up their own company? Answer: A big lump of capital to afford to buy premises, a boat yard, raw materials, pay labour, etc etc etc. And if you say "they can get a bank loan" I'll ask "who are the banks likely to loan to? The workers who have little in reserve or someone who's already got a few million in the bank?"

        The fundamental issue with capitalism, socialism, communism or anything else is that they run into the problem known as "Human Nature" and unless you make sure that the game a) has rules and b) people are made to play *by* the rules, you will always end up with a situation of increasing inequality.

        1. LucreLout Silver badge

          Re: @LucreLout - Can you guess what I'm going to say Tim...?

          unless there's a situation of almost full employment which forces employers to offer better wages, they can say "This is what we're paying, take it or leave it. If you don't take it, someone else will".

          Neatly missing the point that if the skills and experience of the production worker were the entirety of the process, they'd have long ago started their own business, under cutting the former boss by a very large margin, while more than doubling their take home pay. Only, they can't. They can't, because as integral to the yacht building process as their skills undoubtedly are, there are a great many other skills involed - such as the designer, the safety certification, the salesman, the marketer, all the way through to the tea boy. Then you have the costs, like rent, tooling, materials, energy, and yes, workers. Gathering all of that into one place is certainly a skill too, which is why the business owner gets rewarded. The employees are self evidently taking less risk with their capital (none?) and so get a lower risk:reward balance.

          Perhaps I should point out that I've been running my own business for over 20 years and got an A-Level in Economics many years ago

          Well that certainly qualifies you to..... Well, I'm not sure what. And its worth bearing in mind that IT contracting isn't running a business in any real sense, its operating a tax shelter. Running an actual business that employes people who aren't family members requires a very different skillset.

          But the fundamental point that *you* are discounting is that it *takes* money to make money. The first rule of the game is that you need a stake to get into the game.

          Well, yes, sort of. I have a friend who runs his own boat building company, and has done for a very long time. Since about the time he didn't get what he thought of as a fair pay rise. He'd like to build yachts too, but can't finance that level of operation, so he started with narrow boats. Instead of bemoaning the yacht making business owner taking most of the profits (which is the point of owning a business), he became the fat cat of his local boat industry. Fast forward a further ten years and he'll be the boss of his own yacht firm, which rather undermines your world view.

          unless you make sure that the game a) has rules and b) people are made to play *by* the rules, you will always end up with a situation of increasing inequality.

          Equality of outcome is irrelevant, and as it happens, utterly inevitable. Equality of opportunity is what really matters, and you'll never get that between the only child of a millionaire and a single mother of 5 on a council estate, no matter how lavishly you fund her benefits or how hard you try to tax the wealthy.

          Take literally any other aspect of life... do we beat pretty people in the face to equalise their looks with those of us with a visage that appears to have been kicked by an epilleptic donkey? Do we chemically retard the intelligent down to the level of the average socialist? How about making the uber hot sleep with the fat and fugly, to you know, equalise their opportunity for sexual encounters? Nope, its so ridiculous that we don't even try. Why then are those of you on the left so obsessed with other peoples money? Just relax, because it's not yours to worry about, sequester, or gift away.

          1. Graham Marsden

            Re: @LucreLout - Can you guess what I'm going to say Tim...?

            > Gathering all of that into one place is certainly a skill too, which is why the business owner gets rewarded. The employees are self evidently taking less risk with their capital

            Neatly missing the point that, as said, it *takes* money to *make* money. If the employees *had* the money, they could start up on their own, but they haven't, so they can't.

            > Well that certainly qualifies you to..... Well, I'm not sure what.

            It doesn't "qualify" me to do anything. It just shows that your (not very implicit) sneer that I "understand the least about how the game is played" is wrong.

            > And its worth bearing in mind that IT contracting isn't running a business in any real sense

            Who is an IT Contractor? Not me, so another point fails.

            > Equality of opportunity is what really matters, and you'll never get that between the only child of a millionaire [...] do we beat pretty people in the face to equalise their looks with those of us with a visage that appears to have been kicked by an epilleptic donkey

            Yadda, yadda, yadda.

            Please, LucreLout, spare me the ridiculously silly Straw Man arguments. I've never said anything of the sort, nor would I, so please don't imply that I have because *you* are ignorant of my position.

            > Why then are those of you on the left so obsessed with other peoples money?

            Oops! LucreLout gets it wrong again. I am only on the "Left" from your point of view. On the scale of http://politicalcompass.org/ I come in at -0.3 on the Left/Right axis and -7.75 on the Authoritarian/ Libertarian axis, so I'm hardly some left-wing, pinko, bleeding-heart liberal who thinks that the only way to equalise opportunity is to tax the rich and give it all the the poor.

            Have you seen the recent story about the Saudi Prince who has just given $32 billion to charities and government employees? Apparently that has inspired a number of other Saudi business leaders to give bonuses to their employees. Similarly Abramovich has decided that Chelsea is going to not just pay staff the Minimum Wage, but the Living Wage and other football clubs are doing the same.

            Why? Perhaps it's because they've realised that they don't actually *need* many millions or even a few billion in the bank and that paying people what they're worth, rather than only what they *must* pay them is actually a better way of doing business.

            So which is better, saying "Screw you workers, I'm alright Jack" or developing a conscience and not trying to hog it all for yourself?

            1. LucreLout Silver badge

              Re: @LucreLout - Can you guess what I'm going to say Tim...?

              If the employees *had* the money, they could start up on their own, but they haven't, so they can't.

              Sure they can. They just first need to make something that is cheaper to build, so requires less start-up money, than building a yacht. Rowing boats, for instance, require less materials than the workers probably spend on lunch in a month, so start there.

              Nobody is coming to them with 10s of millions in start-up money, just as nobody did for their current employer. Amazingly, the founders of their current employer found a way around it, or is it your contention that only rich people start businesses? You seem not very bright, so it is difficult to tell.

              I've never said anything of the sort, nor would I, so please don't imply that I have because *you* are ignorant of my position.

              You're either ignorant of your own position or lack the vocabulary to express it coherently. Perhaps you've not thought it through sufficiently that you comprehend it well enough to describe? None of those are a me issue.

              I am only on the "Left" from your point of view. On the scale of http://politicalcompass.org/ I come in at...

              You're aware of how ridiculous that sounds, aren't you? Political compass has the Conservatives being more authoritarian than labour, which is patently untrue. 1984 could have been written to describe Blair’s government. It then compounds its errors by having labour in the centre right segment, which again, is obviously not the case. Political compass, much like your own line of reasoning, is basically junk.

              Have you seen the recent story about the Saudi Prince who has just given $32 billion to charities and government employees?........... Why? Perhaps it's because they've realised that they don't actually *need* many millions or even a few billion in the bank and that paying people what they're worth, rather than only what they *must* pay them is actually a better way of doing business.

              That A-level is failing you badly here. You seem not to understand that the Prince hasn't given the fortune to his staff via pay rises. In fact, as far as is publicly known information, he hasn't given them a payrise at all. Nothing changes for them. He's simply setting up a foundation in the vein of Bill Gates to help people that he thinks need it.

              You've got confused between the basic concepts of distributing significant wealth to charity versus employees wages. I can see why you're having difficulty being rational or at least projecting a rational view.

              So which is better, saying "Screw you workers, I'm alright Jack" or developing a conscience and not trying to hog it all for yourself?

              Where does this straw man come from? Who is it you think is screwing the workers? Which workers?

              Employees get paid at replacement level salaries. If you quit today, how much would it cost me to replace you tomorrow? That is the primary determinant in salary level, for that is how a businesses competitors function. I can't imagine your business as being more than a one man band, maybe employing the wife/husband as a tax efficiency, but you certainly seem to understand little of how capitalism functions in the real world.

              1. Graham Marsden

                Re: @LucreLout - Can you guess what I'm going to say Tim...?

                You know, LucreLout, sometimes I have to wonder if you're a Matt Bryant Sock Puppet, since you and he have the same debating tactics of shifting the goalposts or insulting people's intelligence to avoid conceding a point.

                Rowing boats? Yes, they fit in the same general classification of craft as Luxury Yachts, but I don't think the skills needed to build them are quite the same, are they?

                "You're either ignorant of your own position or lack the vocabulary to express it coherently." Or perhaps you just don't want to listen to anything that doesn't fit in with your narrow mind-set.

                > Political compass has the Conservatives being more authoritarian than labour, which is patently untrue.

                Ah, now we see LucreLout's true colours (as if they weren't obvious). I have no love for Labour, but at least they didn't try to get rid of the Human Rights Act and replace it with an act which says "You get the rights *we* say you can have, provided you're someone we like"..A pox on both their houses.

                > You seem not to understand that the Prince hasn't given the fortune to his staff via pay rises. In fact, as far as is publicly known information, he hasn't given them a payrise at all.

                And there go those goalposts again...

                "The massive handout, estimated to total more than $32 billion, includes a two-month basic stipend for all state employees, soldiers, students, and pensioners, as well as generous grants to various professional associations, and literary and sports clubs."

                Fine, if it makes you happy, it's a bonus, not a "pay rise". Feeling better now?

                > Employees get paid at replacement level salaries. [...] you certainly seem to understand little of how capitalism functions in the real world.

                No, LucreLout, I understand perfectly well how capitalism *can* function and does, indeed, function in the minds of those who think that labour is simply another resource which needs to be chiseled down to the lowest possible level to make it as cheap as it can be in order to maximise profits.

                I'm simply saying that this is not actually an absolute necessity. I'm saying that those at the top who are paying themselves nice big salaries and bonuses shouldn't forget the ones at the bottom of the ladder who are actually doing the work that *earns* that money and that maybe paying them, at the least, a Living Wage instead of the government mandated Minimum Wage might actually make things better and, who knows, they might even work harder because you get more from loyalty than fear.

                If you cannot understand this, then I pity you.

                Now feel free to get the last word in, then you can go back to counting your money and seeing how good that makes you feel.

                1. chris swain

                  Re: @LucreLout - Can you guess what I'm going to say Tim...?

                  Nice response! I wondered whether LucreLout was a sock puppet for Scrooge McDuck.

                  I find his assertion that the Conservatives being more authoritarian than Labour is 'patently untrue' to be laughable (and not supported by any evidence).

                  Don't the tories paint themselves as the party of law and order? Aren't they now rubbing their hands together with glee at the thought of being able to implement more mass surveillance, having lost their Liberal millstone at the last election? And one only has to look at their record during the Thatcher/Major years to see that they've always kept a pair of jackboots in the wardrobe. For all his many failings and messianic visions I don't recall Blair directly ordering armed, mounted police units to charge members of the public en masse.

                  1. LucreLout Silver badge

                    Re: @LucreLout - Can you guess what I'm going to say Tim...? @Chris

                    I find his assertion that the Conservatives being more authoritarian than Labour is 'patently untrue' to be laughable (and not supported by any evidence).

                    Look at where we were in 97. The level of surveillance, the level of petty rules and thought policing. Then look at where we got to by the time they were thrown from office. That is a pretty ballistic looking trajectory. The conservatives are better than labour only in that the trajectory has moderated extensively. It has, regrettably, not gone into reverse.

                    I'm not wed to one party or another, having voted Labour in 97, and Conservative ever since (it was the spending plans Gordon produced that showed lessons had not been learned). I dearly hope Jeremy Corbyn wins labours nomination, for three reasons. 1) He'll really reignite political debate. 2) He'll put the far left to death forever (though that won't be his intent). 3) He's unelectable as PM, allowing the third term we're very much going to need for the Conservatives to repair the economy labour torched. By 2025 I dearly hope to be able to vote for Ms Kendall as PM, I really do. Or perhaps Chukka could be persuaded to run again, as I genuinely believed he had a lot to offer.

                    Don't the tories paint themselves as the party of law and order?

                    Truthfully, I'm not wholly sure what they stand for just now. My view is they won an election by not being Labour or SNP. Not by being Conservative.

                    Aren't they now rubbing their hands together with glee at the thought of being able to implement more mass surveillance, having lost their Liberal millstone at the last election?

                    You really believe that? wow. I believe all of the activities they propose in their bill are already happening, this just legitimises it in law. Look at the party they began under.... yup, Labour. As I've said before, I believe the best thing Labour can do right now,since they collectively have no view on what the party stands for anymore, is to dissolve it, allowing the formation of new and eventually credible opposition to form around the ideas of ordinary people rather than party lines. There's no rule that says the party must exist.

                    And one only has to look at their record during the Thatcher/Major years

                    Thatcher saved this country from unionised greed, and the sock puppets of the communist USSR. Or useful idiots as they described them. Had the miners had better leadership, and one might legitimately suppose that had Scargill not been a mysoginist who delusionally believed that he should run the country, then much of the pain of those years could have been spared. Scargill, Red Robbo, all they did was destroy their industries and end their members livelihoods. Sad, very sad, but true. They achieved nothing else.

                    As an aside, it amuses me how many of the left complain about Thatcher, who left power more than 20 years ago, and well before her most vociferous detractors were old enough to remember events or understand politics.

                    For all his many failings and messianic visions I don't recall Blair directly ordering armed, mounted police units to charge members of the public en masse.

                    No, Blair just bombed the piss out of the arabs. But I guess they don't count in your world view. Blair was the most needlessly bloodthirsty PM this country has ever known. I dearly hope that his like will not be seen again, regardless of the colour of rosette they choose to wear. How is it not a badge of honour for a PM to serve three terms of peace? I am ashamed to have voted for him.

                    Orgreave should be investigated in full and any wrong doing punished. Hillborough has taught us that time need be no barrier to the truth, and I am personally saddened that those events won't yet be reviewed. Surely their time must come? I remain open minded as to wrong doing on either side, and believe a full, open, and public enquiry is the only way to establish the truth. Maggie, Scargill, the police, the miners.... none were saints. All should be scrutinised, and if necessary, judged.

                    1. chris swain

                      Re: @LucreLout - Can you guess what I'm going to say Tim...? @Chris

                      Re: the Conservatives being more authoritarian than Labour is 'patently untrue'

                      Labour were just continuing a trend already started under the tories, for example the Criminal(isation) of Justice Act. WWW and mobile tech were still in their infancy and not exactly mainstream when the tories were last in power, had they access to the technology and the tools I don't doubt for a second that they'd have deployed them

                      Re: Truthfully, I'm not wholly sure what they stand for just now

                      Me neither, political parties and the professional political class no longer have principals they have focus groups

                      Re: I believe all of the activities they propose in their bill are already happening, this just legitimises it in law

                      Not exactly a renunciation of the surveilance state then is it? Wouldn't they be taking steps to prevent such abuses if they didn't agree with them rather than enshrining them in law.

                      Re: Thatcher saved this country from unionised greed, and the sock puppets of the communist USSR

                      The unions gained power because of the extremely poor relationship between the workers and the bosses. Had capitalism in the UK taken a more enlightened route from the start, and there were examples of enlightened capitalism fairly early on such as Lever's Port Sunlight or the Cadbury family, relations might not have got so bad. The whole communist treachery thing is just another example of left wing idealogues betraying the workers and abusing their power. This unsustainable state of affairs could have been resolved in a less brutal manner.

                      Re: it amuses me how many of the left complain about Thatcher, who left power more than 20 years ago, and well before her most vociferous detractors were old enough to remember events or understand politics

                      That most certainly does not apply to me; I'm an old git and I have seen the suffering that these events caused in our land, I'd even go so far as to say that it laid the foundations for the rise of the underclass by ripping the heart out of many working class communities. What place community in the cult of rampant individualism that characterised the yuppie years.

                      Re: But I guess they don't count in your world view

                      That's mildly offensive, thank you. I hope that one day Blair will answer for his crimes.

                2. LucreLout Silver badge

                  Re: @LucreLout - Can you guess what I'm going to say Tim...?

                  You know, LucreLout, sometimes I have to wonder if you're a Matt Bryant Sock Puppet, since you and he have the same debating tactics of shifting the goalposts or insulting people's intelligence to avoid conceding a point.

                  Who on earth is Matt Bryant?

                  I'd gladly concede a point were you to make one that passed muster, unfortunately I feel that is becoming increasingly unlikely.

                  Rowing boats? Yes, they fit in the same general classification of craft as Luxury Yachts, but I don't think the skills needed to build them are quite the same, are they?

                  In what way do you imagine they differ? Pick one single skill that is required to maufacture a rowing boat that is not required in yacht building? There seems to be none. Meaning the workers already posess the fullness of skills and capital required to begin as business owners, no?

                  I have no love for Labour

                  First you must convince yourself of this, then you may try to convince others. Right now its sounding awfully hollow.

                  Fine, if it makes you happy, it's a bonus, not a "pay rise". Feeling better now?

                  If you don't understand the difference, and therefore why you were wrong both in making the point and in not now conceding you've lost that argument, then that A-level is looking still more shaky.

                  I understand perfectly well how capitalism *can* function and does, indeed, function in the minds of those who think that labour is simply another resource which needs to be chiseled down to the lowest possible level to make it as cheap as it can be in order to maximise profits.

                  Wow. You're actually almost half way there now (except for the emotive second half). Think ahead to where the rest of the money goes - to reinvestment in the company, thus securing jobs for the future, and to the company owners in the form of dividends. What, prey tell, prevents the workers buying shares in the company to capture a stake in those cashflows? Yep, nothing. Nothing at all. Capitalism works, because they have the opportunity to participate in their employers success, or mine, or yours, and I too have that opportunity; There's no closed shop. Its simple and its fair. I have shares in my employer for exactly this reason.

                  I'm saying that those at the top who are paying themselves nice big salaries and bonuses shouldn't forget the ones at the bottom of the ladder who are actually doing the work that *earns* that money

                  Your assumption that those "at the top" are not also "doing the work that *earns* that money" is principally where you're going wrong.

                  maybe paying them, at the least, a Living Wage instead of the government mandated Minimum Wage might actually make things better

                  From where does this man of straw arise? There is nothing in the article nor prior comments that imply the yacht builders are or would be on minimum wage. The living wage is just as much an arbitrary number as the minimum wage, moreso in fact.

                  My mate, with the boat building company, would love to pay his guys minimum wage, only theres no chance at all they'd consider working for it. Just as they'd love him to pay them £250k per year, but there's no chance at all he could afford to do it. Its a trade, literally in this case, but its a trade of some of their time and efforts for some of his money.

                  they might even work harder because you get more from loyalty than fear

                  Nobody should go to work in fear. Soldiers, perhaps at times must, but everyone else should be unafraid at work. Poor management is most certainly not a function of employees wages though.

                  That being said, if you want loyalty, buy a dog. I don't want my teams loyalty. I want their brains, their talent, their committed effort for 8 hours a day, and I want them to do that for the salary the company is offering. The company, for it is not mine, requires and wants no such loyalty - it's just not a feature they value nor could monetise. They value my loyalty at zero, and so they do not have it - I'd leave tomorrow if I was offered a 20% rise elsewhere, and they'd replace me just as fast if someone would do the job for 20% less. Why do you see that as somehow wrong?

                  If you cannot understand this, then I pity you.

                  You confuse agreement with understanding. Not very rational.

                  then you can go back to counting your money and seeing how good that makes you feel.

                  In the words of Kenny Rogers "You never count your money when you're sitting at the table, there'll be time enough for counting when the dealings done". The dealing is decidely not yet done.

                  Or as I prefer to think of it, there's so much more to life than money. Which is why I find it so puzzling that you lefties get so irrationally obsessed with other peoples money, when it simply isn't your business.

                  Capitalism is a simple game. Workers who understand the rules can do very well out of playing it, just as business owners may. Those who don't first take time to properly understand the game can play it for a lifetime and never get to what they define as winning, and that is not the fault of the game but the player.

                  1. Graham Marsden
                    FAIL

                    Re: @LucreLout - Can you guess what I'm going to say Tim...?

                    You know, LucreLout, I *really* wasn't going to post in this thread again, but then I read THIS

                    > Who on earth is Matt Bryant?

                    Seriously, LL? You've been posting on The Register since June 2014 and you have *NO* idea who Matt Bryant is?

                    Here, let me remind you of just some of the threads where you both commented, indeed, in some of them in the *same* sub-thread:

                    http://forums.theregister.co.uk/forum/3/2014/07/08/christopher_wilson_students_refusal_to_give_up_crypto_keys_jail_sentence_ripa/#c_2237226

                    http://forums.theregister.co.uk/forum/1/2015/03/03/snowden_us_return_russia_leak/#c_2455462

                    http://forums.theregister.co.uk/forum/1/2015/02/17/privacy_international_investigatory_powers_tribunal/#c_2441569

                    http://forums.theregister.co.uk/forum/1/2015/02/17/privacy_international_investigatory_powers_tribunal/#c_2441569

                    http://forums.theregister.co.uk/forum/3/2014/12/14/inequality_poverty_living_standards_not_same_thing/

                    http://forums.theregister.co.uk/forum/3/2014/07/16/british_cops_cuff_660_paedophile_suspects/#c_2245434

                    http://forums.theregister.co.uk/forum/3/2014/07/03/nsa_xkeyscore_stasi_scandal/#c_2233537

                    I don't use the Fail icon lightly (unlike some), but this in this case, LL, yep, Epic Fail.

                    PS Of course I have no doubt now LL is going to try to dig himself out of this hole by vociferously claiming that he was joking or being sarcastic or something else clever. Methinks he doth protest too much...

                    Have fun, LucreLout, I'm sure I'll see you in another thread soon.

                    1. LucreLout Silver badge
                      Gimp

                      Re: @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                      Well, that's some slightly disturbing stalking you've got going there.

                      I presume, if I could be bothered, that I could find a bunch of threads where I posted that you had posted, but, sorry if this offends, you're just not that memorable. For all I know I may have replied to you directly before.

                      I've still no idea who Matt Bryant is or why you're fascinated with him. Maybe you just spend more time thinking about him than most posters?

                      You've been posting on The Register since June 2014 and you have *NO* idea who Matt Bryant is?

                      I've been reading it since it started, but I probably couldn't name more than 3 or 4 current writers... It's just not that big a part of my life.

                      I don't use the gimp mask lightly, but in your case there isn't a more appropriate stalker icon.

                      1. chris swain

                        Re: @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                        Never mind having a pop at Graham Marsden, you've obviously driven him to distraction.

                        Why not level one of your somewhat wordy postings at my response? Or am I to assume that your silence indicates acceptance of what I have said?

                        1. Graham Marsden
                          Happy

                          @chris swain - Re: @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                          > you've obviously driven him to distraction.

                          Actually he drove me to type - site:theregister.co.uk "matt bryant" "lucrelout" - into a search engine to see if his claim of not having any idea who Matt is was credible, but, well, to him that's "disturbing stalking"...

                          1. LucreLout Silver badge
                            Gimp

                            Re: @chris swain - @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                            Actually he drove me to type - site:theregister.co.uk "matt bryant" "lucrelout" - into a search engine to see if his claim of not having any idea who Matt is was credible, but, well, to him that's "disturbing stalking"...

                            Had you substituted "matt bryant" for "graham marsden" you'd have noticed the result count doubles. I still had no idea you existed until this thread, and I'll most likely have forgotten you exist again within a week or two.

                            Face it, your obsession with this Matt Bryant character is a little weird. I've no idea who he is to you, and I still have no idea why you think he's supposed to mean something to me.

                        2. LucreLout Silver badge

                          Re: @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                          Why not level one of your somewhat wordy postings at my response? Or am I to assume that your silence indicates acceptance of what I have said?

                          As you wish...

                          Labour were just continuing a trend already started under the tories, for example the Criminal(isation) of Justice Act.

                          Not so. The CJA doesn't permit anything close to the level of surveillance we became subject to under labour. Labours prying knew/knows no limits - everyones calls, emails, vehicle locations, phone tracking data etc etc gets collected. Everyones, not just those under suspicion. The CJA most certainly has nothing to do with that.

                          Not exactly a renunciation of the surveilance state then is it? Wouldn't they be taking steps to prevent such abuses if they didn't agree with them rather than enshrining them in law.

                          Agreed. I'm not happy about their actions, but the trajectory has moderated even if the direction of travel has not changed. Sort of like how Tony Blair was less evil than Pol Pot.

                          The whole communist treachery thing is just another example of left wing idealogues betraying the workers and abusing their power.

                          Yup.

                          This unsustainable state of affairs could have been resolved in a less brutal manner.

                          I've always believed that it could have too. Governments of all colurs need to be better at retraining and redeploying people rather than letting them rot on the scrap heap. A large part of that will require what Guardian readers will doubtless term "savage cuts to welfare".

                          I have seen the suffering that these events caused in our land, I'd even go so far as to say that it laid the foundations for the rise of the underclass by ripping the heart out of many working class communities.

                          Obviously, I completely disagree. I grew up in those communities and they very much ripped their own hearts out in spite. "If I can't go down the mine then I'm not doing owt!" - If you'd heard that as many times in as many working mans clubs as I did, then you'd perhaps understand better what I mean by that. The other classic of the day being "I build ships, not not <whatever> Ships!".

                          I watched so many skilled workers simply stop working because their employer folded, rather than relocate, retrain (for they undoubtedly were capable), or start up self employed (ship builders maybe easier than miners). The government should have provided a lot more support, but also a lot more stick - life on welfare should never have been an option. These were men who had mastered their craft; certainly they were capable of functioning within another.

                          1. chris swain

                            Re: @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                            'everyones calls, emails, vehicle locations, phone tracking data etc etc gets collected.'

                            The tories would have done the same if the technology had matured on their watch.

                            "savage cuts to welfare"

                            I'm not necessarily in favour of many aspects of the welfare state, I think benefits dependency is debilitating.

                            "I grew up in those communities"

                            I'm also from a working class background and I do take your point about people not wanting to retrain when the industry they worked in crumbled but I suspect that there was a lot of resentment at seeing one's community destroyed. The Tebbit-esque 'on your bike' reference to relocating just echoes that callous disregard for what were living communities. And as for starting at the bottom in some manual role, most likely for an agency for little pay and no job security in the middle of one's working life, that's neither a pleasant nor dignified prospect for someone who's "mastered their craft".

                            I'm in favour of people taking responsibility for their own lives and against the nanny state but I appreciate that these were people from a passing age and culture who saw what they knew being annihilated.

                            1. LucreLout Silver badge

                              Re: @LucreLout - Can you guess what I'm going to say Tim...?@WTF?

                              I'm also from a working class background and I do take your point about people not wanting to retrain when the industry they worked in crumbled

                              My view is that was a double failure. The people didn't want to retrain, but also the government were woeful at opportunity provision. Labour were just as bad, and the following governments equally so. As a nation, it is something we will have to get better at, because more and more roles will be automated, and a faster pace than ever before. People may need not one, not two, but three careers before long.

                              I suspect that there was a lot of resentment at seeing one's community destroyed

                              The work went away, but the communities destroyed themselves. "They cannot take our self respect if we do not give it to them" - Ghandi.

                              The Tebbit-esque 'on your bike' reference to relocating just echoes that callous disregard for what were living communities.

                              It does work though. It worked for me. Sure, the beer down here isn't great, and the accent is awful, but there's always been a lot of work down south.

                              And as for starting at the bottom in some manual role, most likely for an agency for little pay and no job security in the middle of one's working life, that's neither a pleasant nor dignified prospect for someone who's "mastered their craft".

                              Why does it have to be a manual role? Why not IT? These were world class welders, world class electricians, etc etc. They wouldn't have needed to be world class programmers or Ops staff, they could just have been average and they'd have found work. Why not setup a garage? Or gates/railings manufacture, or well, anything made of metal - there's nowt they couldn't have turned.

                              Government support to make that happen and encourage near shoring or sourcing their goods from the region would have helped enormously, but lets be honest, those losing their industries were not what we'd now term proactive.

                              My father worked a low level manual factory role all his working days. Suggest to him that it wasn't dignfied and... well, he'd possibly get upset with you in a way you may not enjoy. The rest of his shift also. "There's no dignity in welfare, son" - my dad. Blue collar workers generally don't look down on a working man because of his job, for he could always not be working. That miners viewed themelves above the rest of the community, and were used to double pay, was a larger cause of the problem than the level of dignity in manual work.

  17. Charles Manning

    Risk measurement

    "Foreign trade will normally produce greater (risk adjusted) profits than the domestic. However, there's still some significant portion of people who would prefer to stick with the domestic trade just because."

    That's surely not right. Risk cannot be accurately measured in real-time, just perceived.

    People perceive higher risk with foreign dealing (my money is further away from my control, can't trust the damn wogs...).

    The reason people prefer to stick with domestic trade is because it is lower perceived risk when you can talk with someone you have a cultural connection with as well as less hassle (no import/export forms to fill out).

    Living in NZ I see this all the time in the NZD exchange rates. The Greeks drive their bus off a cliff and everyone gets risk adverse when dealing with foreign money - even with the NZD which is about as far as you can get from Greece (both geographically and fiscally).

    1. chris swain

      Re: Risk measurement

      'Can't trust the damn...' really? That word? Unless it has a very different meaning in NZ it is a rather offensive term. I appreciate that you may be using it as someone else's voice in this context, and that it is the kind of terminology that some may well use but even so there are other, more general words that are less freighted with oppressive historical and racial connotations that might be more appropriate

      Sorry to be a pain in the arse and apologies if this comes across as pernickety but I have friends who would be deeply offended to see such words in use.

  18. BobRocket

    Rational behaviour

    Another good article for the weekend edition Tim, gives one pause for thought whilst scoffing the Uitsmijter.

    While the immediate returns may be greater by investing in non-local enterprises, there are valid economic reasons to accept in the short term the reduced return from localism.

    It broadens the local tax base so that the investor individually pays less.

    The investor gains from the local reinvestment preferences of those around the investor.

    The investor may have some influence over political spending in their own locality but none externally.

    I see no invisible hand.

    The studies may show a preference to invest in home markets, did anyone ask the investors why ?

  19. gerdesj Silver badge

    This is possibly OT ...

    I've just had a notification that mobile calls to Greece mobiles have pretty much tripled in price (at the wholesaler -> retailer/reseller level).

    I'd be intrigued to find out how this comes about given that the mobile (cell) telcos are generally international in spread. Are they being charged more by termination costs in Greece or what?

    We have a currently playing out study in economics: How are the theories stacking up?

    Cheers

    Jon

    PS There are roughly 11M Greeks watching their economy tank in a pretty spectacular but unpleasant way. I hope that the powers that be eventually manage to find some way to make things easier for the average Greek on the street.

    1. LucreLout Silver badge

      Re: This is possibly OT ...

      I hope that the powers that be eventually manage to find some way to make things easier for the average Greek on the street

      I hope so too, but sadly things will get very much worse for them before ever they begin to get better. The next five years won't even look as 'good' as the last five.

      That being said, with a tax collection rate of roughly 25%, it is the average Greek on the street that has been evading their taxes which has brought them to where they are, in concert with their politicians utterly short term view and outright ambivilance as to the inevitable suffering their lies and incompetence would bring.

      I wish them the very best of luck though. They will need it for this next chapter in their history.

  20. Tom Samplonius

    "According to a recent survey from the International Monetary Fund, Canadian investors allocate a mere 40 per cent of their total equity investments outside Canada. Their local allocation to Canada is about 10 times what it should be."

    This is so stupid. A lot of money is held in funds, which to get certain tax incentives, must be 80% Canadian investments. Everyone knows this isn't great for diversity of investments. I assume all gov'ts have various tax incentives to keep money from leaving. Or, if you are Greece, just order the banks closed. Either way, there are a lot of reasons to invest at home besides being irrational.

  21. The last doughnut

    'tis all hot air, sir.

    Well that is the last TW article I ever read. All you have done is convince me that economists are pretend academics who start with a falsehood and then proceed to convince themselves it is true by misinterpreting anything written by anyone ever.

  22. Anonymous Coward
    Anonymous Coward

    TLDR. Bolshy BS.

  23. Mark Price
    Joke

    Show me the money shot

    "Sure, Abramovich gets to consume the yacht"

    I'd like to see the photo of that please

  24. johnwerneken

    Great Article

    Smith properly understood is about the philosophy of political economy. One attempts to observe the world and the human condition, so as to learn facts upon which an understanding of what is, and of what is good, might result. That’s philosophy. Political economy is how do we most effectively and efficiently promote the betterment of human life, without attempting to violate what appear to be unchangeable facts about how things actually work.

    So, we can appreciate personal desire for status, and for an improvement in life conditions, and for justice. We can see that there are many cases where compulsory collective action may be warranted: defense, transportation, education, standards of measures, methods for the safeguarding of one’s personal life, safety, freedom, and property, including contractual property. We can see where some sorts of similar actions, such as mercantilism or arbitrary manipulation of currency values, may in fact produce the opposite of the intended goals: less wealth, a greater likelihood of spectacular economic collapse.

    We can also see that while rational thoughts and words are quite valuable when we wish to get a bunch of us on the same page, and when we are describing what is objectively and reproducibly measured by physical means (weights, or accelerations, for example), rational thought is only a part of how human beings individually and/or in groups actually make decisions. For example, people fear what they do not understand and have not experienced, but not what they do understand and are accustomed to. As in fearing a nuclear power plant but not the three packs of tobacco cigarettes one might be smoking each day.

    We have not yet made those cigarettes unlawful, probably because many just do not fear them in that fashion, while others feel such a law might accomplish only the creation of a new criminal industry whilst lessening public revenues. So laws are an example also of what is not entirely designed using rational thinking. We do however regulate the power plants, thus giving some expression to the fear, and to the potential utility, of such things, and a place to sort out particular disputes.

  25. jrwc

    The invisible hand also has a backside and that is exactly what neerdowell nations (marxist,socialist) are goind to see very soon. Practically speaking, Peter Schiff having seen Anmerica give its back hand to God is recommending that Americans invest elsewhere for obvious reasons.

  26. Anonymous Coward
    Anonymous Coward

    I've seen Abramovich's yacht, up fairly close

    He also employs henchmen! Real, Bond-villain style henchmen. It's an impressive setup.

    Anon - I'd rather avoid a polonium enema.

  27. Brennan Young

    There's a first

    I read most of Worstall's articles, despite being irritated by his smug know-it-all manner. (Ever heard of humility, Tim? It's a virtue). I might mention some ideological differences too, but I think he's kind of trolling for those.

    No, this time, he hits the spot 100%. An important corrective for a widely misused meme.

  28. Tom Foale 1

    Adam Smith is misunderstood

    Adam Smith was first and foremost a moralist, and his primary concern was the perverse incentives of business owners and property owners, given power, to subvert the national wealth for their own ends. Hence he first had to show how the wealth of the nation came about - through pursuit of self interest. So Smith's writings were about the morality of the politico-economic system, not just economics.

    We now know that the basis of economics is trust, of which money is just a convenient form. Trust in institutions accounts for all of the difference in average income between a state like Somalia and the UK, or 99.5% of the average British income. Loss of trust destroys wealth, as happened in 2008 when the banking system lost trust in the CDO, sending the world into recession. Crashes are due to sudden and contagious loss of trust. Trust is hard to gain, easy to lose.

    Laissez-faire liberalism is a cargo-cult version of free markets, ignoring the many assumptions which are necessary for perfectly competitive free markets to work without regulation - including the fact that we are far from "Homo Economicus". It will fail, and it is failing in the USA and UK, as the gap between rich and average continues to widen.

    1. Charles 9 Silver badge

      Re: Adam Smith is misunderstood

      Then the take-home lesson from this is that ANY construction of man is doomed to fail at some point: simply for the fact that there WILL be someone who cheats, and once one cheats, the whole house of cards comes tumbling down. Insert ANY governmental or economic system you want, the results will be the same, guaran-damn-teed, simply because we're human.

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