Involving: the death of a Socialist leader, questions of praise, inexplicable Somalians, an orphaned currency, and what we really know about economic cause and effect…

Good morning

The headlines and/or interesting stuff that you should read:

1. The Obvious News Headline.

   Link: Farewell Mr Chavez.

   

   The world is down by another socialist, pseudo-democratic leader today. And twitter and facebook are full of RIPs and “Long live the struggle”.

   I can’t really judge – I am not Venezuelan, and I haven’t been on the receiving end of his policies. But then again, neither have all of the twitter and facebook folk.

   He started and foiled coups. He nationalised industry, giving the proceeds to the poor. He made alliances with the Axes of Evil. He was catholic. He was divorced twice. He knew he was dying. He refused to give up his power. And his suggested successor is a bus driver that has accused the United States of being behind Chavez’ cancerous tumour.

   Basically, I just think that legacy judgements should be based on outcomes, not intentions. There’s something biblical about this – “and ye shall know them by their fruit”.

   And those outcomes are not clear yet.

2. Caroline Baum on Austerity.

   Link: cutting.

   

   The problem with austerity, as with most economic policy decisions, is: how do you really know what effect it’s having?

   For example, with Maggie Thatcher, Britain’s economic prosperity began to turn after the Falklands war. But it was also preceded by some pretty controversial cuts in spending, and increased taxes during the recession of the early 1980s. And some liberalisation (mostly by destroying trade unions). So what policy/outcome do we blame for the boom? We can attribute, and analyze, but the truth is that we really don’t know (I mean, read news item 3 below this).

   As Caroline puts it:

   “An economy is a huge, dynamic organism, with lots of moving parts. At any given time, it is buffeted by an array of forces. Tax-and-spend policy is just one of them. Others include monetary policy, the ebb and flow of the business cycle, rules and regulations, asset prices, animal spirits, exogenous shocks, natural disasters, wars and terrorist threats.”

   The US, being the US, doesn’t have “austerity” – it has the “sequester”. But it’s the same thing. And Caroline Baum has a short, but incisive, opinion on how we don’t actually know what impact it will have.

   It’s the best sort of opinion.

3. This awesome article on Somalian shillings.

   Link: thanks @CausticPop.

   

   This article was pointed out to me by my favourite critic – Gareth (@CausticPop). Somalia hasn’t had a Central Bank to print money since 1991.

   And yet, for no obviously apparent reason, Somalians are still using Somalian shillings.

   So, like, why though? Because now they are literally just pieces of paper.

   The theory I like best:

   “Though the central bank had collapsed in January 1991, a Somalian trader might choose to still accept shillings the day after the collapse because he had accepted them the day before and he knew that others had accepted them too. In a self conscious manner, the trader would also know that other traders knew that he had accepted them. Expectations about expectations about expectations, a Keynesian beauty contest of sorts, was sufficient to drive the use of shillings beyond the day of the central bank’s demise.”

   To me, it sounds much like the way that we still attribute value to gold (and now I’ve annoyed the Misesian blogger)…

   Fascinating!

That’s all for now.

Have a good day.