17 September 2008

Midweek review

• What lessons will be taken from the banking crisis? That the free market cannot be trusted? Or that allowing it to be distorted by egalitarian ideology is a recipe for disaster, particularly if market participants correctly guess that their follies will be protected from the normal penalties? There is little point arguing about it; the conclusion is more or less foregone. Too many members of the elite have been desperate for an excuse to find the market 'guilty', and more regulation seems inevitable, regardless of whether it makes sense.

• Even market apologists are swimming with the tide. Samuel Brittan's comments on the issue seem like a case of praising intervention with very faint damnation. His point (based on a recent book about financial crises) that asset markets are particularly liable to bubbles hardly seems novel, and he lets the Fed off much too lightly for holding rates artificially low after 9/11 — an anti-market move which could be seen as the single most important cause of the present crisis. More sense is made by Professor Nicholas Crafts in the column next to Brittan's. Crafts is concerned that "a serious recession will bring ill-judged reforms. Thus, the response to the credit crunch might produce excessive regulation, as in the 1930s". He is right to be worried.

• The leader of the University and College Union points out that without opportunities for radical thought, intellectual progress becomes impossible. And she reminds us of the disgraceful arrest in May of two people at Nottingham University, which demonstrated that we cannot have a law that prohibits literature. However, her suggestion that universities should "remain" at the forefront of challenging popular thinking seriously overstates the degree to which academia was willing to question the dominant ideology, even before the latest restrictions.

• In the dispute between Sam Harris, Chris Dillow and Norman Geras about whether it's desirable that our political leaders seem sufficiently "average", the key point seems to have got lost. Contemporary Americans say they want a "regular guy" for President, an attitude which presumably would have put some previous incumbents like FDR or even George Bush Sr. out of the running. Over here too, you seem to have to prove your blokey credentials if you want to be elected. But the point is surely that if the average voter cannot tolerate exceptionality in his/her premier — if they insist on someone who is "just like me" — they will end up with a person who is either mediocre, or more than usually dishonest. Or both. Chris, incidentally, elsewhere makes some interesting points about the failure of the statist left.

• Have any readers been letting the bedbugs bite? According to The Times, Rentokil have reported a 40% annual increase in cases. If NHS hospitals aren't controlling their pests, how many other institutions with beds have a similar issue? And what effect does that have on the national pest population? A line from Bowie's Diamond Dogs comes to mind. The media is attributing the rise to our "busy lifestyles", but some scepticism about this shiny-happy diagnosis might be in order.

• I can't help seeing a bit of irony in the Lehman Brothers collapse. Some years ago I was interviewed for a post in their mergers department, but was told I lacked "killer instinct". It now looks like some of LB's key people had a little too much killer instinct, from the point of view of the firm's long-term interests. A business going bust, without government intervention, because of too many mistakes? That, surely, is the market working as it should.

• British political identity continues its strange merry-go-round. Labour having been elected on a platform of 'Thatcherised' socialism, and with the Tories now mimicking New Labour to near-perfection, it seems it's the turn of the LibDems to steal the clothes of the (old) Tories. "Liberalism is about smaller, more frugal government" says Nick Clegg. That is the sort of noise the Conservatives used to make, but have now apparently been told by their marketing advisers to avoid, in favour of promises to return power to teachers and doctors — i.e. agents of the state. Is the LibDems' new agenda for real? Probably best to check again in six months' time, to see if their then-leader maintains the new line.

• How's this for a bizarre hypothesis (meant tongue-in-cheek). The Fed allowed the implosion of the financial market system to happen — in a semi-controlled way — to punish the more speculative elements of it. As conspiracy theories go, it seems less implausible than most. Many hedge funds are reeling from the shock of market volatility and, in particular, from falls in commodity prices, whose prior rampant rises were causing big problems for central banks. The sharp drop in the crude oil price (down nearly 40% in two months) is surely in good part due to massive deleveraging.