Tabloid Edition

The Eyebrow Theory of Economic Cycles.

Makes as much sense as most other theories about economic cycles.

Patrick Minford on The Rock

Excellent. So. to peple who are complaining about the way in which the risks of default are now spread throughout the financial system, Patrick Minford says:

The answer is No. In fact the spread of credit outwards from the well-heeled is one of the great triumphs of modern competitive finance.

By spreading the consequent risks around many well-capitalised holders they can be absorbed by the magic of 'diversification': by holding a wide spread of assets whose risks are 'not correlated', the average risk is reduced as in 'swings and roundabouts'.

It was this principle at work three decades ago that transformed company finance and governance through making possible the 'junk bond'; business has never looked back as entrepreneurs could use 'junk' debt to take over large sleepy companies.

So with the extension of credit to people; of course it is well-known that there will be default at a higher rate on this debt. But by opening up a market in it and spreading it around this risk can be priced reasonably.

This process is known as the 'completing' of financial markets. In 'complete' financial markets all risks that are not in principle uninsurable can actually be insured either directly or indirectly through the financial system.

This isn't a fault in the system, it's actually the whole damn point. That's not to say that there isn't a problem:

In fact what seems to have gone wrong is a failure of information in a rapidly developing financial environment.

It seems not to have occurred to anyone that there would be a need to know exactly what was in each securitised package - after all, the whole idea was to spread risk around so that it became relatively innocuous.

So when the worries about sub-prime mortgages surfaced no-one did know; and then of course there was general panic.

However the scale of any possible losses on sub-prime mortgages, even at its very worst, is not very large on the scale of the total balance sheets of the world's banks.

Therefore had all parties known what percentage they actually had on each particular balance sheet this could easily have been priced; the bank's share prices would have been adjusted for the prospective loss of profits and normal banking business would have gone on being done.

So the remedy for the systemic problem seems rather simple and will undoubtedly be adopted in future anyway: any CDO must have its contents on the jar, so to speak.

While we do actually want the risk to be spread around we'd actually really like to know where it is spread around. And given the results of our not knowing this time, anyone issuing in the future is going to have to tell. So, we'll end up with the system that we actually want. Widely dispersed risk with full information disclosure.

It might be that we don't actually need any new regulation after all. Markets do indeed make mistakes, but they also tend to learn from them.

Guardian Leader Shocker!

No, really, a terrible shock this is. The Guardian leader on Northern Rock. Gobsmacking in fact.

It's excellent.

Asymmetric information is common. Supermarkets know more about their food than shoppers; employers cannot be sure prospective recruits have all those qualifications. But most markets try to correct that imbalance. Consumers should be protected by the Food Standards Agency, while licensed bodies certify exam results. There is also the power of reputation; questionable goods are swiftly recalled by any supermarket that values its good name. Whatever forms it takes, assurance is vital to buyers. Without it, markets may seize up.

Now all we need to do is get a few of the columnists to read it. Most especially that part about the way in which businesses try to protect their reputations: that being the greatest protection that consumers have over the quality of the goods on offer.

This Capitalism Thing

An interesting little number from Robert Fogel:

What we currently call the poverty line is so high that only the top 6 percent or 7 percent of the people who were alive in 1900 would be above it.

One century, to move 86% of the population from below the poverty line to above it. Pretty good record really, ain't it?

Naomi Klein and Hayek

Well, at least I think it was Hayek who said something like this (maybe Uncle Milt):

“The ideologues believe that a totally free market is a prerequisite for democracy, but also that it is more important than democracy and that given the choice between the two, therefore, the free market is preferable.”

Economic freedom or having to do what everyone else votes on? I'm for the former as Naomi Klein obviously is not.

Nick Cohen on Private Equity

I'm not sure that Nick Cohen is quite up to speed on how it all works:

Not all the private-equity buyouts of the New Labour years were asset-sweating operations - a study by Nottingham University found that employment rose after some takeovers.

Well, no. The research found that on average employment rose after private equity takeovers. That is, more often that not. A slight difference from "some".

Meanwhile, the AA as an organisation paid no corporation tax in the last financial year and its accounts showed that it ended 2005 and 2006 with the Revenue owing it money.

Yes, it was paying a lot of interest on its debt. (We'll leave aside the fact that companies don't actually pay tax anyway shall we? That idea of tax incidence.) That interest was then taxed when it turned up with the recipients of it.

They turned what was once a mutual association for drivers into a machine for generating private profits.

Well, yes, but Centrica (who did the original demutualisation) paid the members of the mutual association handsomely for it. £ 240 per member if memory serves correctly.

Nor can customers be said to have done well. Which? downgraded the AA from first to third in its list of reliable breakdown organisations and the RAC was left free to run attack ads highlighting the failings of Buffini's cash cow. RAC schadenfreude peaked in April, when one of its call centres received an emergency call from the AA pleading with it to rescue a patrol vehicle. It had broken down and the AA couldn't fix it.

Might be worth remembering that the RAC also demutualised in the late 90s. We've thus got two private sector firms (well three, obviously) fighting it out over who will get the customers. Usually regarded as a good thing, that. Competition, you know.

Anyway, to the massive relief of lefties everywhere I really don't think that this private equity thing is going to be much of a problem anymore. The credit crunch and the repricing of risk (somewhat overdue it was too) mean that it's simply not going to be as easy in the future as it was in the past. 

Will Hutton on Mortgages

So:
Klein would rightly damn the crazed belief in the view that markets are everywhere and at all times right, and rightly call at the very least for a return to the mixed economy formula of the immediate post war years. She would lambast the inequity and unfairness - and point to the supine way governments everywhere have surrendered the capacity to regulate before banks' arguments that regulation is necessarily inefficient and bad. It is good to have such a passionate advocate of a Keynesian/Galbraithian world view strutting her stuff.

Mixed economy of the immediate post war years. The nationalization of the commanding heights of the economy, wasn't it? With respect to mortgages, the mortgage queue, credit controls and the rest.

Deregulation and market forces were, paradoxically, enfranchising ordinary people. And they liked it.

"Paradoxically" is a near insane word to use there. Still,  we can see where Hutton is coming from I think? The system which disenfranchised ordinary people is the one he admires. Quelle Surprise, the argument from one of the Great and the Good that the world runs better when the Great and the Good tell the proles what to do.

Quote of the Day

*

Obviously, this is a winning strategy only if few other friends are playing it and if you are a horrible person who likes to profit at your friends' expense. But we were talking about an economist, right?

Globalization and China

One of the standard complaints about the whole process of globalization is that we must be exploiting the people doing the manufacturing for those low wages in places like China. The standard retort is that they wouldn't be doing those low paid manufacturing jobs if they weren't better than whatever else is on offer.

So interesting to see a repetition of the story about rising Chinese manufacturing wages:

Together with the revival of     the agricultural economy, this shift has begun to push migrant wages     up aggressively, as much as 13 per cent to 15 per cent year-on-year     compared to low single-digit growth only a few years earlier."
...
"It is not as if factory workers can name their price, but     their relative position is much stronger," said the executive.     He said average monthly wages had increased by more than 17 per cent     this year to more than 1,000 yuan (£65).

One can look at this in a Marxist sense if one wishes: the thought that the capitalist class will create and keep a reserve army of the unemployed...that existence stopping the workers from getting better conditions, indeed, leading to their progressive immiseration.

The one bit that's left out of that logic is that "the capitalists", whether they be a class or not, are not in fact acting as a solid block. They are actually in competition with each other for access to the value that can be added by that labour. Thus the impetus is for that reserve army to become employed and thus worker's wages to rise.

As indeed they are. 13-15% year on year? We're talking about some 4 times in a decade. Difficult to think of anything else which would drive up wages that fast. Which leads to the obvious point: if you really do think these people aren't earning enough the best thing you can do is buy what they're making.

A Solution to the Housing Crisis

I'll admit that this is a novel one on me:

One solution to London's housing crisis might be a massive house-building programme but private sector house builders have no real interest in building affordable housing and have no real interest in building enough homes to reduce house price inflation: why should we expect private companies to voluntarily reduce their profits and shareholder dividends? In any case the biggest house builders are undertaking a series of mergers and strategic alliances that will serve to reduce competition and further entrench practices such as "land banking" to ensure that artificially produced scarcities can keep profits high.

So, err, the claim is that multiple suppliers in a market will not provide goods which there is evidence for a demand? That's a very interesting extention of the usual comments about monopolies, that they restrict supply so as to push up the price of their products.

Anyone actually have any evidence that this is true in a competetive market?

Worth noting too that the "artificially produced scarcities" are a result of the planning system. By far the largest part of the cost of any housing in London is the right to build it.

Richard Murphy Proclaims

This is simply amazing:

I believe that governments elected in this way have a right to collect tax. More than that, they have a duty to do so to ensure that communal goals (and we’ll disagree, fairly, on what they are) can be fulfilled. In the process of doing so it has five objectives. These are to:

• Provide public funds;
• Redistribute income to reduce poverty and inequality;
• ‘Reprice’ goods and services to ensure that all social costs of production and consumption are reflected in the market price;
• Strengthen and protect channels of political representation;
• Provide a tool for the management of an economy, usually in combination with government borrowing.

All these goals are, in my opinion, desirable. They create stable communities. That has to be of benefit. This system also corrects the very obvious failing s of the market system. That system could not ever provide a socially optimal outcome in any society in reality because so many of the pre-conditions of it doing so do not exist. Those that do not exist include:

• Perfect knowledge of the future;
• Perfect knowledge of all products and services available in the market now, and their prices;

Right. So the absence of perfect knowledge of the future and of the present is the justification for a small group of human beings, those without said perfect knowledge, (and who gained their positions by their ability at kissing babies) to plan things for us?

Melanie Reid on Farming

Talking about cows:

And, while this process has been going on, did anyone care? Did its longer-term economic significance register? No, of course not, because we, the public, take a limitless supply of milk totally and utterly for granted; and indeed there is probably a significant proportion of the modern population that believes it is sourced from a tap somewhere.

Quite: the longer term economic significance did not register: no one was thinking that the Chinese would overcome their genetic intolerance to lactose. Which is exactly why we don't depend upon planners to think about long term economic significance: because they don't notice such things.

We depend upon markets because they, while not being predictive in such matters, just as planners are not, do indeed provide us with a way of signalling such changes and the incentives to react to them:

Then, out of the blue, panic. There isn’t enough milk on the world market to go round. The Chinese palate, which traditionally regarded the drinking of cow’s milk rather as we would regard drinking glasses of cow’s saliva, has become Westernised and has developed a taste for yoghurt, cheese and milk. The Chinese now want to start feeding half a pint of reconstituted powdered milk a day to their children (of which there are many). Correspondingly, demand for butter, cheese and powdered milk has risen 40 per cent there in the past nine months. Worldwide, demand for dairy commodities has increased by 3 per cent per year, outstripping the 1 per cent increase in supply.

The delicate balance of supply and demand has been blown. At the end of last week the distribution company First Milk, which is owned by 2,800 British dairy farmers and handles two billion litres of milk a year, indicated that it will not be able to fulfil its contractual obligations to some of its leading customers, as production is more than 5 per cent below forecasts.

Suddenly the retailers realise they need to cherish their milk suppliers. Rapidly, the price paid to British farmers has gone up as much as 37 per cent, from 17p a litre to 25p a litre � and is still climbing. Commercial heifers, like my friends in the field, are just in a matter of weeks fetching more than £1,000 a head � prices that haven’t been seen for years. Some British farmers, empowered, are considering sending their milk to China in powdered form instead of selling to the home market.

Excellent, isn't it, how it all works? The very thing signalling a shortage contains the impetus to solve the shortage?

An Economic Explanation of Crime

Burglary is an entirely rational response to the incentives on offer:

They make burglary and other crime a rational choice, especially given the low rate of detection. (One burglary in every twelve reported ends in conviction, and one conviction in thirteen ends in a prison sentence, which means that burglars, on average, serve about one day per burglary in prison. Given the value of unskilled labour on the market, it is a very poor burglar who cannot steal more than one day’s wages from a house.)

Until those incentives are changed the problem will never be solved. Could be longer sentences, could be raising either the detection or the conviction rate. But the incentives do have to be changed if there is ever to be a solution.

(The other one, raising the returns to low skilled labour, seems even more difficult.)

Executive Pay

This doesn't, as it stands, show what people think it does:

Only a handful of top companies in continental Europe and the US are led by UK executives, despite claims that high levels of boardroom pay are essential to prevent a management brain drain.

If UK executive pay were at the correct level to attract the necessary talent, then you would not see many British executives running foreign companies: they would all be running UK ones. So the above can be rewritten:

Only a handful of top companies in continental Europe and the US are led by UK executives, because of the high levels of boardroom pay essential to prevent a management brain drain.
 

Grrr. Grrr.

This does bug me:

BP had total revenues of $266bn (£132bn) in 2006. If BP was a country, it would rank 27th in the World Bank's 2006 GDP league table, between Denmark and South Africa, above members of the European Union like Greece, Ireland and Portugal.

No, it bloody wouldn't. As said numerous times passim. Turnover of a company is not the same as GDP. GDP is value added so that appropriate comparison is with profits.* Thus BP (at $16 billion) is about number 80, Cyprus or El Salvador perhaps. Cyprus has some 800,000 people, by no means all of whom are economically active. BP has 100,000 employees, all of whom are indeed economically active, in an industry currently enjoying booming profits. I, for one, don't find it surprising that the employees of a multi-national oil company are three or five times more productive than the inhabitants of a poor Mediterranean island.

* For the proper pendants amongst us, this is not exactly true. There's some argument about what is the appropriate comparison: it's definitely not GDP to turnover, but it might be GDP to profits plus wages. No, too early in the day for me to try and do that one.

Simon Heffer on Poverty

Well, yes.

Has anybody noticed that the more we spend on the underclass, the bigger it gets...

Well known point, the more you subsidize something the more of it you get.

Could someone who knows a great deal more about Marxism than me tell me something? The rest of Heffer is basically pointing out the difference between the proletariat and the lumpenproletariat (or so it seems to me). So what did Marx say would happen to the lumpenproletariat?

Update. Glenn Reynolds makes a further point:

In the United States, of course, paying less for the underclass -- via welfare reform -- has had the opposite effect.

Those Greek Fires

Who was it who said "follow the money"?

Back then in Greece, setting fire to forests was assumed to be an extremist act of political expression. Now, there is a further, fiscal dimension, which is that land that materially changes can become open to new discussion of ownership.

Paul Krugman: Better Not Use That Argument, eh?

Paul Krugman tries to use what he thinks is a killer argument here:

Suppose, for a moment, that the Heritage Foundation were to put out a press release attacking the liberal view that even children whose parents could afford to send them to private school should be entitled to free government-run education.

They’d have a point: many American families with middle-class incomes do send their kids to school at public expense, so taxpayers without school-age children subsidize families that do. And the effect is to displace the private sector: if public schools weren’t available, many families would pay for private schools instead.

So let’s end this un-American system and make education what it should be — a matter of individual responsibility and private enterprise. Oh, and we shouldn’t have any government mandates that force children to get educated, either. As a Republican presidential candidate might say, the future of America’s education system lies in free-market solutions, not socialist models.

O.K., in case you’re wondering, I haven’t lost my mind, I’m drawing an analogy. The real Heritage press release, titled “The Middle-Class Welfare Kid Next Door,” is an attack on proposals to expand the State Children’s Health Insurance Program. ... And Rudy Giuliani’s call for “free-market solutions, not socialist models” was about health care, not education...

The truth is that there’s no difference in principle between saying that every American child is entitled to an education and saying that every American child is entitled to adequate health care. It’s just a matter of historical accident that we think of access to free K-12 education as a basic right, but consider having the government pay children’s medical bills “welfare,“ with all the negative connotations that go with that term.

And then, over here, we get this little factoid:

DCPS superintendent Michelle Rhee is doing a heroic job trying to get textbooks into classrooms by the start of school. One problem is that school officials still can’t tell her how many books they actually need. Classes start on Monday.

Is the problem insufficient funding? As it happens, DCPS’s total gross budget for the last school year was upwards of one billion dollars according to its own website, and its enrollment was about 52,000 students. That means DCPS had total per pupil spending of nearly $20,000 last year, or half a million dollars per class of 25 students. You’d think that would cover books.

The District’s perennial problem with getting books into students’ hands is a great illustration of what’s wrong with the status quo. When was the last time you walked into a Barnes and Noble or a Borders bookstore in mid August and didn’t see a well-stocked “back to school” display? Why is it so easy for them to handle inventory issues when they don’t even know how many customers they are going to have, while DCPS is flummoxed, year after year, despite having a fairly accurate enrollment number up front?

That's just what everyone is worried about, that a State run health care system will be exactly and precisely as efficient and effective as the State run education system.

Larry Elliott

Really?

Richard Layard, one of those responsible for coming up with the idea of the non-accelerating inflation rate of unemployment in the 1980s,

Nothing to do with the Phillips Curve or Irving Fischer then? Or Samuelson, or Solow?

This would be simply a trivial piece of mis-attribution except for one point. Layard revived consideration of NAIRU in the 80s and it led directly to the way in which welfare was reformed in the 90s. If, as the Phillips Curve implies, it is the presence of a certain number or portion of people who are unemployed which keeps inflation down, then why with unemployment continually rising did inflation not fall? Layard's answer was that a large portion of those unemployed were not really in the labour market at all: they weren't out there jostling for jobs and thus having an impact upon wage rates. They were parked on the dole, on the scrap heap.

The answer is thus to get them back out into the workforce, and if that's not possible, at least into the labour force. So make the receipt of the dole (or welfare etc) contingent on going to job interviews, going on training schemes,  so that they are indeed having that effect upon wage rates.

He's, at least in the UK, the intellectual father of welfare to work schemes (or whatever it is we call them. New Start?).

Now, quite how much effect this has all had I'm not competent to calculate, but I have my suspicions that the changes in welfare eligibility in the US have been at least part of the reason why they've had, by the standards of the past few decades, very low unemployment rates but not much inflation: certainly, very little inflation by the standards of the NAIRU of the 70s and 80s.

But you would expect the Economics Editor of a national newspaper, especially a serious, liberal one, to know that, wouldn't you?

Back in the Day...

When The Economist was open and forthright:

   

Would it be a hardship, or an injustice, if, while everybody had plenty, some people had more than plenty? If £3,000 a year, say, were the minimum income, would it be monstrous if some people had £30,000, or £300,000?

   

The egalitarians apparently think it would be monstrous. Ask them why, and they reply with that noble bromide "social justice." But this is merely a politician's periphrasis for "envy." Social justice is a semantic fraud from the same stable as People's Democracy. It means that when everybody has plenty it is right to hate people who have more. 

Richard Murphy: It's The Way He Tells 'Em.

Here:

This is a good question. It does however assume that the interests of politicians are aligned to those of the countries they govern. Economists make such assumptions; in the real world this is not true.

Err, ever heard of public choice theory Richard? It's a bit of economics....pointing out that the interests of politicians are not aligned to those of the countries they govern. Y'know, they've given at least three Nobels for this work.

It's also one reason why handing over ever more tax money to politicians who, as noted, don't share our interests, is sometimes considered to be a not very good idea.

House Inflation

Yes, we certainly have had house inflation in the UK:

A house which has been a family's home for almost 80 years is to be sold at 400 times its original asking price.

When it was built in 1929 the house cost £1,095. Now it is valued at £435,000.

The thing is, how much inflation have we had?

In 2005, £1095 0s 0d from 1929 was worth:

£44,354.94	using the retail price index
£51,036.73	using the GDP deflator
£186,859.50	using average earnings
£216,815.54	using per capita GDP
£285,837.19	using the GDP

Retail price inflation over such a period probably isn't the right one: average earnings perhaps? or per capita GDP? House prices have doubled in the past 5-7 years, so if we use either of those then we haven't really seen house price inflation higher than "normal" except in those past few years.

There's also the point that the mortgage market has vastly improved over this period of time. If we take away the current sour taste of what "sub-prime" means we could argue that the changes over the past 80 years have been the extension of mortgages to ever more tranches of people previously considered sub-prime. The greater availbility of finance has inevitably had an effect on such house prices.

No major point to make: just think it's interesting, that's all. 

Panic! Panic!

I do wonder a bit, you know?

This weekend marks a pivotal moment in the history of Western capitalism.

The melt-down of America's high-risk mortgage market now threatens the most serious financial crisis since global share prices collapsed back in 1987.

And then on to yet more doom and gloom and the end of the world is nigh.

Yes, it's possible that there might be a recession. Possible, but still not even likely, let alone certain. OK, nasty things recessions, people go bust, lose jobs, lose wealth.

Indeed, but we've had them before and we'll have them again: no one is seriously (whatever G. Brown claims) suggesting that the business cycle has been abolished.

D'ye think that part of it might be the joy of the business page writers in having something to write about, something juicy?

Seumas Milne: Logical Fallacy

Sorry, but this isn't (necessarily) logically true:

Last year, the share of the poorest fifth fell as that of the richest fifth grew larger. The highest 1% of earners' share of national income is up 3% over the decade; and the top 0.1% are now grabbing the same slice as in 1937. While the government has used tax and benefits to pull more than half a million children above the poverty line and redistribute modestly between the better and worse off, resources are being systematically transferred to the wealthiest in the land.

There's a difference between new wealth creation going to those already wealthy, increasing the size of the gap, and what wealth there already is flowing from the poor to the rich. I'm perfectly willing to admit that the former is happening but would need to be convinced that the second is.

I can even give you a good guess as to what the reason for that top 0.1% getting the gains is: globalization. No, not imports, rather, that that small percentage of the population that can compete on a continental, or global scale, is doing so. Instead of their getting 5 pence each off 60 million people, as they would be if restricted to selling their skills in the national economy, they're getting 5 pence each off 6 billion people (numbers purely for example's sake, of course) by exporting their skills.

Peter Mandelson famously declared himself "intensely relaxed about people getting filthy rich" and Tony Blair was adamant he didn't care that there were people who earned a lot of money. His only concern was to reduce poverty, rather than attempt to narrow the gap.

Well, quite. As long as the material conditions of the poor are improving, why should anyone care that the material conditions of others are improving faster?

Only when the government begins to shift away from free market orthodoxy can the underlying trend to greater inequality be reversed.

Hmm. Full blooded state socialism did so much to both improve the living standards of the poor and reduce inequality, didn't it? All those special shops and apartments for the Party insiders while the population rotted in the communal apartments.

Pining for the old days, eh Seumas?

Changes in Cuba

So Raul is Acting President now, what's this going to mean for the people of Cuba?

The combined signals, Fidel's absence and the content of Raúl's speech, add up to a hidden message: Fidel is not going to return to power, but things aren't going to change - much. The change is one of leadership style - not content.

Slowly the Cuban nation is being weaned onto the idea that "El Comandante" will no longer be in command, and reading between the lines one can see that there is a great deal of "change" management going on. In a speech that lasted barely an hour (as opposed to Fidel's usual four hours-plus) Raúl underlined his more down-to-earth pragmatism, but this should not be taken as a departure from the ideological commitment to socialism.

So they're still fucked then.

Quote of the Day

Chris Dillow:

But these gyrations also invites every idiot to repeat the cliché, “it’s all about greed and fear”, as if this were anything other than vacuous. And abandoning the elegant discipline of conventional economics opens the door to every crank. To paraphrase G. K. Chesterton, when people stop believing in orthodox economics, they start believing not in nothing but in anything.

Illiterate? Well, Not Really

Talking about he poverty of rural India, a certain Phul Singh is used as an example.

Skip down to the next generation of Mr Singh's family and it becomes clear how little advancement India's rural poor have made, even as their country basks in growing international recognition as a nascent global economic power.

Phul Singh, 40, lives a few steps across a muddy pathway from his father, in a house that would be better described as a hovel - an open-sided lean-to where he subsists with his wife and six children.

Designated as "BPL" - or below the poverty line - the Singh family receives monthly handouts of 5kg of rice, 20kg of corn and, if they had a stove, a few litres of kerosene. Like his father, Phul Singh is illiterate and gets by as a day-labourer earning 40 rupees (50 pence) a day during the harvest season.

When the work dries up, he collects firewood and walks several miles to sell it for 20 rupees a bundle.

Like his father before him, he's illiterate, and given the paucity of the local education system, so (probably) will his son be. So, yes, he's illiterate. Then, there's what he wants to happen to break out of this deadlock, this poverty trap:

First among their requests is to be given patta - or title - to the common land which villagers like the Singh family have been using for generations to grow maize and other crops essential to their survival.

"We want ownership for the land we have tilled for all these years," said Phul Singh. "With patta it is possible to apply for loans so that we can irrigate the land and grow more crops for our families. Otherwise we are stuck in this life. What can we do?"

Private property as the first steps out of such a life: who would have thought it, eh? Sounds surprisingly economically literate to me.

(By chance, there's more on this subject here.)

Sanctimonious Selfishness

Quite, exactly right from Jamie Whyte:

You cannot help people by preventing them from engaging in voluntary transactions. If a Bangladeshi wants to work in a clothes factory for 20p an hour, then chances are that this represents a good deal for him. Those who lobby to prevent the import of the clothes that he is “exploited” to make are not helping him. Giving him enough money to think it no longer worthwhile to work for 20p an hour would be an act of generosity. Running his employer out of business because cheap labour offends you is an act of selfishness.

China Selling Treasuries?

Hmm. Can't say I'm wholly convinced by this argument.

While most experts remain sceptical that China would start aggressively selling Treasuries - a move which could tip the US into recession - the economic tension between the two nations will be closely watched by the markets.

China holds just under $1 trillion of such Treasuries according to The Telegraph, although I have a feeling that might be total US bonds, or even total US $ bonds for, Bloomberg reports:

China more than doubled its holdings of Treasuries in the three years ended March 31 to $420 billion, according to U.S. government data.

Anyway, my question is, even if it's the higher number, would this really push the US into recession? Would someone selling $1 trillion of bonds cause that?