More pointers towards a coming crash(and this time it’s from someone much cleverer than us)

Over the years we’ve ventured a series of blogs (LSS 23 4 25;30 6 25 18 5 26) in which we suggested that another financial crash on the scale of 1929 or 2007-8 may be approaching. We shared our concerns about the long-term viability of US Treasuries, pointing to weaknesses in the property market and the effects this might have on general confidence and demand. We also speculated that rising tides of nationalism and protectionism vitiated the possibilities of co-operative global responses in the style of 2008. Our view alone; and we swiftly moved on to to other matters.

Yet the risks have not gone away. Eduardo Porter, in an excellent article for the Guardian, [1] does not dismiss the possibility of the AI stocks bubble bursting. But for him:

The largest risk, at this moment, revolves around the federal government’s accumulation of debt, now in excess of 120% of the nation’s gross domestic product, a near unprecedented level. It is likely to keep on growing at a fast clip given massive built in budget deficits for the next decade……a global context: the US’s insatiable appetite for capital – to finance data centers or the federal deficit – is met by China’s export of capital to recycle its huge trade surplus. A coarse, schematic way to think of it is China sells stuff to the US and invests the proceeds in the US. Then, Americans take money from China and use it to buy Chinese stuff.

That’s how the world works in May 2026. What happens next? Now Porter gets really interesting, pointing to deep political risks which might trigger a sell off of US debt.[2] Astute readers will not be surprised to learn that many of them revolve around a the actions of President Donald J Trump. An invasion of Greenland? Stepping the war in Iran up again? Attempting to meddle with the Federal Reserve, sending the dollar into a tailspin? Mr Trump is a democratically elected politician and has every right to do these things. But if he does, the consequences will be global. And Porter is equally merciless on the shortcomings of other nations. Like us, he sees no collective escape this time. Ouch indeed.

[1] The world is heading toward a financial crisis – the state of US politics has left us ill-prepared | Business | The Guardian

[2] https://www.aei.org/economics/brewing-government-bond-market-crises/?_hsenc=p2ANqtz-8u2PIGjNg8Q6fBS5RzfUnOeM9txpv7fI9NjE9uC1veq4UgmUkPS-0YDGyIk7m_WiFx

#economics #politics #USA #Federal Reserve #economic crisis #dollar #world trade

Why Adam Smith thought immigration controls were Creeping Socialism

Many people who call themselves free‑marketeers begin from a sincere fear of “creeping socialism.” They see every new regulation, planning rule, workplace standard, environmental requirement and every tax as another brick in a wall that hems in enterprise and erodes liberty. They believe that once government starts managing economic life, it rarely stops. Which creates a contradiction at the heart of a lot of modern political rhetoric. Parties, especially of the Right, describe themselves as advocates of free‑market nations, committed to open trade, open capital, open competition, lower taxes — and then insist that immigration must be tightly controlled. It sounds like a reasonable compromise, a balancing act between global economics and local sentiment. But it’s also a rejection of the classical liberal tradition we claim to inherit. Smith, Ricardo, Mill, Bastiat — none of them imagined markets as a buffet where you could pick capital and goods but decline labour. For them, the free movement of labour was not an optional extra but a structural necessity. Capital moves to where it earns the highest return; goods move to where they are most valued; labour moves to where it is most productive. These are not moral preferences but mechanical facts. Remove one gear and the machine does not slow down politely; it compensates, strains, and distorts.

Yet modern politicians try to keep the first two gears spinning while jamming a stick into the third. Where capital must be free, goods must be free, but labour must be fenced, filtered, and rationed. The economic equivalent of declaring your devotion to physics while exempting yourself from gravity on weekends. Once you restrict labour mobility, you are no longer operating a free market. You are operating a managed economy with selective liberalisation. This may be politically popular. It may even be economically defensible in certain circumstances. But it is not classical liberalism.

And the distortions appear everywhere. If labour cannot move, something else must. Capital moves instead: offshoring, outsourcing, investing abroad. Goods move instead: imports rise to fill the gap. Wages diverge between protected insiders and excluded outsiders. Productivity stagnates as firms rely on scarcity rather than innovation. Regions hollow out as young workers leave and old workers remain. Demographics collapse as fertility falls and dependency ratios rise. Ironic, really: anti‑immigration sentiment produces the very globalisation its supporters resent. Block the worker, and the factory moves, the goods arrive instead, the demographic pyramid inverts. You can restrain labour, but you cannot restrain arithmetic.

Adam Smith warned that restrictions on labour mobility were a violation of natural liberty — an eighteenth‑century way of saying that such rules protect incumbents at the expense of everyone else. Immigration controls raise domestic wages artificially, raise prices for consumers, reduce competition, entrench inefficiency, and subsidise native labour at the expense of the global poor. This is protectionism by another name. And once you accept protectionism in labour, you have accepted the principle that economic policy must be directed by the Government for the public good. And that free markets do not deliver the optimum national outcomes. A country can choose many things — a managed economy, a protectionist economy, a high‑skill selective system, a low‑migration demographic strategy. All of these are legitimate political choices. But what a country cannot choose is to restrict labour while claiming to champion free markets. That is not a philosophy; it is a branding exercise.

Wealth of Nations, Book I, Chapter 10

#Adam Smith #David Ricardo #free markets #liberty #economics #politics #capitalism

The Crash of 2028-an old blog revisited

It’s our occasional habit here to make serious points in a light-hearted sort of way. So when last summer (LSS 30 6 25) we published a piece called Why the Crash of 2028 was so bad….. , we felt we’d made our peace with certain worrying trends in the insurance market, and duly moved on. Except-we must have hit a raw nerve with some of you, because you keep reading it. So what did that old blog say-and has anything changed to make its predictions more accurate?

It was based on some pretty reliable sources [1] [2] including McKinsey and the Finacial Times. In a nutshell, we argued that continuing destruction due to climate change would make property uninsurable in large areas. That this in turn would cause some insurers to go bankrupt, leading to demands for Government bailouts just as the US Government was running at the fiscal limit. Confidence, we said, would fall quickly. Leading to fire sales in asset prices of all sorts, especially Equities and Bonds. Above all we predicted that recovery would be much more difficult than it had been in 2008, because nations had turned away from co operation and towards nationalist, tariff driven positions, a bit like the autarchy that proceeded the Second World War How then have we shaped up? Have thing got worse, better or stayed the same?

One constant is the risk from climate change.[3] When something as staid, solid and utterly unexcitable as the Yale Law Journal publishes something like this [4] we know we’re in for a bumpy ride. As for International Co operation-ask them in the Middle East how that has changed since 2025. And Taiwan ? Nothing in the recent summit suggests Mr Trump has achieved anything to deter Mr Xi from his long term ambitions. But most worrying of all is all the warning lights suddenly flashing “Red” in the Bond Markets today. [5] If you’re wondering why anyone should care about a so‑called “bond market rout”, the answer is simple: government bonds are the bedrock of the entire financial system. When their prices fall sharply, the cost of money rises everywhere else — mortgages, business loans, pensions, bank funding, all of it. A sudden jump in yields isn’t just market noise; it’s the system quietly saying it now trusts governments a little less than it did yesterday. And when the safest assets start to look less safe, everything built on top of them has to be repriced. That’s why experts twitch.

LSS does not give financial advice-we are not financially trained. But we have read our economics. And our History. And today, our worries have grown just that little bit more.

[1] https://www.mckinsey.com/industries/financial-services/our-insights/climate-change-and-p-and-c-insurance-the-threat-and-opportunity

this piece by pitilla clark of the Financial Times is well worth jumping the paywall:

[2]https://www.ft.com/content/9e5df375-650d-492e-ba51-fb5a34e6ddd6

#global warming #climate change #financial markets #stock market crash #investor #economics

New references

[3] There has been a sudden increase in the rate of sea level rise | New Scientist

[4]The Uninsurable Future: The Climate Threat to Property Insurance, and How to Stop It | Yale Law Journal

[5] Bond market rout deepens as investors fear ‘stagflationary shock’ from higher oil prices – business live

#global warming #insurance #property #bond market #finacial system #middle east #geopolitics

Farewell Robert Skidelsky. If you want to know more about the current mess, read this

No one over thirty will forget the terrifying autumn of 2008. For on September 15^th of that year the collapse of Lehman Brothers initiated the acute phase of a chronic financial crisis, tumbling the world economy towards final ruin. And as the indefatigable Larry Elliott [1] notes in the Guardian, in his masterly obituary of Robert Skidelsky, the ruling classes of the west were utterly bewildered:

…… there was almost universal disbelief that the crisis was happening. The entire economic establishment – politicians, bankers, Treasury officials, analysts and pundits – were caught unawares, because according to the free-market orthodoxy there was no chance of such a catastrophe occurring

Robert Skidelsky (1929-2026) might have known better. Having devoted a lifetime to studying the works of John Maynard Keynes, he presumably shared that thinker’s suspicion of the axiomatic beneficence of untrammelled Free Markets. Ironically by the summer of 2008 even he felt the Keynesian game was up, and was contemplating other projects, as Elliott points out. Then, as they say-It happened.

For a few fleeting months Keynes was in vogue again, so desperate was the plight of the Great and Good. Interest rates were cut. Money printed. Governments borrowed and spent, Catastrophe was averted. And then? Well, in Britain the Cameron government was elected and reverted to the via dolorosa of financial orthodoxy. Cutting the budget was all that mattered, as if a nation was like a grocer’s shop in a small market town. Keynes was firmly shown the door: and the consequences of poverty, lost growth, wasted lives and appalling political outcomes are with us to this day.

Like Keynes, Skidelsky was not a tribal Party man, having variously flirted with Labour, the SDP, the Tories, and even Jeremy Corbyn in his time. Both Keynes and Skidelsky preferred solutions that worked, reason and evidence over belief and emotion. And both knew that Keynes’ essential insight was that money is about a lot more than just cash, or even more sophisticated accountants’ tricks like stocks and shares. Money is really a network of obligations, contracts, promises and deliveries which facilitate the flow of energy through human societies and by which they live. Any system which depends ultimately on the unregulated competition of lone individuals will ultimately corrupt the information and break the trust on which all depend. A truth now lost in the declining plutocracies of the west, but which certain other parties have understood very well

[1] Lord Skidelsky obituary | Robert Skidelsky | The Guardian

[2] Skidelsky, Robert. John Maynard Keynes: 1883–1946: Economist, Philosopher, Statesman. London: Penguin Books.

#robert skidelski #JM Keynes #economics #politics #financial crash

Neo Liberalism to National Market Liberalism: is this a Great Global Transformation?

“The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.’”

These words of Ronald Reagan were the best and most concise summary ever of the creed of Neoliberalism, which he shared so avidly with Margaret Thatcher. They called themselves Conservatives: but their belief was utterly radical, dominating all public discourse and transforming the world at least until the Great Crash of 2007-2008.

The radical nature of that transformation is laid out by Branko Milanović in The Great Global Transformation. We have two reviews for you, one via the inestimable Nature Briefing [1] and the other by Ivan Radanović for the equally prestigious London Review of Books [2] As ever we won’t spoil these excellent pieces, humbly begging you to read both. However we could not resist this passage from Radanović’s review. For it highlights the contradiction at the heart of the Reagan led project which would ultimately bring it crashing down:

For Branko Milanović and many others, China is at the centre of the current ideological paradigm shift. China’s rise, enabled by global neoliberalism, also made the end of global neoliberalism inevitable, by growing too big to be integrated into a global order whose rules are written by the US and its allies.

The Chinese saw a blindspot which the complacent westerners had missed: if you build an economy where the private sector is good and the state bad, how do you cope when foreign governments act like private companies? In Britain many utilities privatised by Thatcher are owned by foreign governments: is that Socialism or Capitalism? The shrewd rulers of China simply flipped this conundrum: the State and the Communist Party oversee the activities of a thriving private sector. Is that Socialism or Capitalism? In which case, what do words like “Conservative”, “Liberal” and Neo Liberal” really mean?

Milanović worthily joins a list of critics of the Neoliberal project including Wilkinson and Pickett, Thomas Piketty, and Will Hutton. It is easy to see Neoliberalism’s faults now, but it was very popular once. And before we rejoice its final passing, what follows may be very much darker indeed.

[1]“Nationalism grows on the terrain of never-satiated mass plenty and greed,” writes economist Branko Milanovic in his new book, The Great Global Transformation. Milanovic argues that globalization benefited previously poor populations, notably those in China, and the already rich, but left the middle and lower classes in countries such as the United States behind. The result is “the exponential growth of ‘nationalism, greed and property’”, writes sociologist Roberto Patricio Korzeniewicz in his review. “For Milanovic, greed is the iron cage of our times, and our future is bleak.”

Nature | 7 min read

[2] Branko Milanović – is neoliberalism being replaced by something more capitalist? – LSE Review of Books

The Great Global Transformation: National Market Liberalism in a Multipolar World. Branko Milanović. Allen Lane. 2025.

#politics #economics #Ronald Reagan #free markets #capitalism #socialism #communism

Why Taxes are good for you #7: but why you still won’t want to pay them

It’s time to wrap up our counter-intuitive series Why Taxes are good for you. We started it as a slightly cheeky riposte to the massively funded and relentlessly intolerant opposition who insist that taxes must be, always and everywhere, a despicable evil. In the first part we met the industrious but not very knowledgeable Dave Watford who expounded upon the best of their arguments from his post at the bar of the Dog and Duck. We went on to learn the rather chilling truths about life in a low tax nirvana, where their are no laws, roads nor health services and violent death lies around every corner. Part three considered the little known but incredibly well documented story of 18th Century China whose low taxes led it to be conquered by the tax- funded armies of ruthlessly hypocritical western nations. Whatever else they are for, taxes are good for your health as we showed in part 4. We felt that part 5, despite being a historical argument, was crucial. No taxes equals no economy. And if you really do want to get rich, the best chance of doing it is by starting from a well-taxed society, as our part six concluded. We provided lots of links and books and that sort of thing for you to read in order to draw your own conclusions. And so we said ” Quod erat demonstrandum“

Except it wasn’t. Isn’t. And probably never will be. Because we forgot one thing. The benefits of taxes are long term, and require an immediate short term loss. Think how Dave Watford sees it. Money taken from his pocket to pay for armies, nurses, roads is not there now. Indeed, some of those hospitals, schools and museums may not even have been built yet. But Dave feels that loss of money very personally. Money which he could spend here, and now on, any number of Bright Shiny Things. And it is no good telling him “Dave-most of these Bright Shiny Things, that you covet so desperately, will have no value in the long term. Remember how you longed for an Austin Healey, a record by the Bay City Rollers, Watneys Red Barrel, a bottle of Hirondelle, a quadrophonic stereo? All good in their day, no doubt-but are they quite what they were, have not other things come along to take their places?

But Dave knows things that we do not. Has studied authors that we have never heard of. Like Thorstein Veblen who as long ago as 1899 showed that people buy Bright Shiny Things not because those things are useful, but to signal the wealth, status and sophistication of the buyer. To consume conspicuously, ostentatiously, vainly, and emptily. To doom themselves thereby to domination by rich men, and to conquest by foreign ones. Oh well. We tried to warn.

Veblen, T: The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions (1899).

#economics #taxes # finance #history #veblen #consumer society #production #marketing

Why taxes are good for you #6: The best thing for an Enterprise Economy

As we approach the end of this series, we could not resist two more arguments which have always irritated the “taxes are evil” lobby. If only because we haven’t met one of them who has come up with a convincing counter argument. And the first should be beloved of all: taxes are a superb way to control inflation. As Britain and the US began to gear up for the Second World War the sheer enormity of the spending needed ran the risk of runaway inflation. It was Keynes in How to Pay for the War who saw the answer. Taxes, he argued would not provide the money; they would suck excess cash from everyones’ wallets , thereby keeping prices on a relatively stable trajectory. The US applied a similar philosophy in its own way [1] The economy grew at unprecedented rate, bringing prosperity to all. And there was a an even more significant side effect, which led to prosperity lasting for decades thereafter.

Because in both Britain and the US, vast defence spending contracts generated an equally vast ecology of institutions, government departments, University research labs and the rest. All beavering away at new discoveries, new ideas and shiny technologies. No wonder the years 1945 -1970 are remembered so fondly as times of progress and prosperity . Names like Rolls Royce, Boeing and McDonnell Douglas are just the tiniest iceberg tips. If you want to know more, trying kicking off from the site of the US’ famous famous DARPA[2] a seed bed for an almost fractal cornucopia of new ideas. Even things we use today like GPS, the internet, and advanced semiconductors are all horses from this stable. By contrast, the economic ascendancy of western countries only really declined after the tax and regulation reforms of the Thatcher-Reagan years when Proud Finance finally crushed Humble Industry.

Why does this all work? Because ultimately the State is able to take a risk which private enterprise capital cannot. We don’t blame them: this is not a moral failing, just a question of numbers and distributed risk. Its true that in some countries private banks have a much more supportive relationship with their local industries: but these tend to be lands where such innovations as Regulations and Industrial Planning are celebrated, and not seen as wicked socialist evils. Leave aside the fact that taxes pay for the roads, hospitals and schools which provide entrepreneurs with a ready supply of able workers. Their real benefit is to create a vast pool of opportunity in which enterprise can afford to reach losses and profits in turn, and keep coming back for more. After all-what use is a football club without a League to play in? We will be revisiting these and other thoughts in the last of our series. Hold on to your seats.

[1]https://www.federalreservehistory.org/essays/wwii-and-its-aftermath

[2]https://www.darpa.mil/research

#fiscal #tax #financialisation #keynes #second world war #inflation #research and development #history #economics

Why taxes are good for you #5: No taxes= no economy

Let’s go back to part one of this series where our old friend Dave Watford is leaning on the bar of the Dog and Duck. Complaining how the government takes all his money in taxes and” if he ditnt ‘av ter pay no (expletive deleted) taxes his wife wouldn’t ‘av ter (expletive deleted) work at all!” It’s a widely held view, assiduously promoted by certain very well funded “think” tanks. In fact it’s the exact opposite of how a real economy works. Or exists at all. All the evidence suggests that without taxation, and the government to enforce it, there could have been no economy. Humanity would have frozen at the level of sheep grazers and dirt farmers.

It worked something like this Once there was a King somewhere in old Mesopotamia: and he invented something called an Urg, No one wanted it much at first. Until the King said: ”everyone has to pay ten Urgs a year in taxation. Which I will enforce.” Suddenly the Urg had value because-everyone needed it to pay the taxes. They started to work and trade to earn and swap all the Urgs they needed to pay the King. Who helpfully kept the whole process going by creating more Urgs which he issued to people in order that they could pay their taxes…….suddenly roads were built, trade networks flickered into life, and huge buildings like ziggurats started going up. “Ah!”. cry the detractors, “all these things were gong on before there was money!” It was Keynes who nailed this fallacy. Money is about much more than coins, and came much earlier, he said. Money is all about the network of obligations, debts and credits, which by their redemption make trade possible. The whole point of the king was to ensure that these contracts were enforced. Coins came much later in the archaeological record, as a convenient technological advance to the system. . The electronic banking of their day, if you like.[1] [2]

We’ve talked before how kings use taxes to pay for armies and policemen and courts and other things to keep its citizens safe. But below that level, they are even more fundamental to the very existence of an economy. Without them there would be no Dog and Duck bar for Dave to lean on. He would depend on home brewed beer and home spun clothes. And, as it was mainly women who produced all those sorts of things (they do most of the work in agricultural societies), think of this Dave:-she would indeed ‘av ter work, mate. Innit.

[1] The History Of Taxation In Ancient Civilizations: A Comprehensive Overview Of Early Fiscal Systems And Their Impact

[2] The Shocking Origins of Money Hidden in 1,000-Year-Old Artifacts

[3] Kelton, S The Deficit Myth John Murray 2021 see especially pp 25 et seq

#archaeolgy #economics #history #taxes #money #coins

Why Taxes are good for you #3: look what happened to China

One of the great disadvantages of low taxes is that you end up getting conquered. As China learned at terrible cost. In the eighteenth century Qing China had been one of the greatest states in the world:, rich and populous, with booming trade, advanced techniques in agriculture, and envied craftsmanship Taxes were low, less than 5% of GDP it is estimated. So was military spending. And there was the problem. For nations in the west, like Britain for example, ran at much higher tax burdens, perhaps 15-20% GDP. With the result that they could pay for vast armies and fleets which captured all the world’s sea lanes and trade routes. It’s true that the most advanced western thinkers were classic Liberals like Ricardo and John Stuart Mill, who loudly proclaimed the virtues of low taxes and a minimal state. It was just that no one serious paid any attention to them. The result that these fleets and armies were eventually flung against China. The resulting Opium Wars were not only one of the most terrible crimes in History, they disgraced and destabilised China until 1949.[1] [2]

It was a lesson the British themselves had to relearn after the rise of Hitler forced them into frantic re-armament after 1937. After nearly two decades of orthodox economics like the Gold Standard and low taxes, suddenly the latter began to rise. Fast. All those Spitfires and cruisers and radar had to come from somewhere. So in 1938 the standard rate of income tax was raised to 27.5% (5s 6d in the pound) to help fund rearmament. A 41% surtax applied to very high incomes (over £50,000 annually), targeting the wealthiest. Other hated impositions like death duties and PAYE *were imposed. And -despite what it says in the Daily Mail-it worked. Not only was just enough done to survive the perilous summer of 1940, by 1944 Britain was the most fully mobilised of all the wartime economies. Pride indeed.

Yet there is a little irony at work here . It is our lived experience that those who most loudly proclaim the greatest patriotism are also those who would avoid paying taxes wherever and when ever possible. It is their right to say such things. But ours also to at least doubt the sincerity of a patriotism which will not pay to uphold that which it professes to adore.

_{*Pay as You Earn}

[1] Thomas Piketty Capital and Ideology

[2] David Ricardo Principles of Political Economy and Taxation

#taxation #economics #liberalism #free markets #imperialism #opium wars #china #britain

Why taxes are good for you: part #1 of a new series

Next to the arrival of immigrant persons, nothing so exercises the anger of our old friend Dave Watford and his mates at the Dog and Duck as the imposition of taxes. All taxes. Any taxes. Death duties, sales taxes, income taxes……the mere mention of the “t ” word is enough to unleash paroxysms of indignant wrath. As we have heard it so many times we think we can give a fair summary of their case, which goes like this

I’ll tell you what’s wrong with this country, mate —taxes. I work hard, and they just take it. For what? So some bloke in a suit can sit in an office pushing paper? I don’t see any of it. Roads are still full of ‘oles, the(expletive deleted) NHS is on life suppawt, and don’t get me started on foreign aid. They say it pays for schools an ‘ospitals—well I haven’t been in school for 40 years and I haven’t seen a(expletive deleted) doctor since ’98. Why should I pay for stuff I don’t use? And all these entrepreneurs, they’re the ones wots creating jobs. Government just gets in the way. If they cut taxes, we’d all be better off. More money in our pockets, less wasted on(expletive deleted) bureaucracy.

Dave, despite the obvious logical fallacies in your arguments. we respect you! We know you and your kind work hard and on the whole put in more than you take out. We know how your lives are centred on family and community, and that the world can seem a harsh, bewildering place. But can we, dare we, just take a short time to offer the counter-intuitive case? Just because every argument by its nature always carries a counter point.

For we believe that taxes and their imposition do more than pay for armies, police and courts (which they do). We believe they do more than generate economic growth (and we will show that they do indeed) That they create more stable societies-and we have strong evidence for that. But what we really believe is that the idea of taxes lies at the very beginnings of Civilisation, and are what made it possible to rise above the level of stone age farmers and grangers. It’s that profound. In the next few weeks we shall be running a series of blogs which explore these themes. If only for the sake of balance. In the meantime compare Finland (top tax rate 57.65%, rigidly enforced) with Chad (top tax rate 30%, barely enforced), and answer these questions:

1 Which has GDP per capita of a $53 189 and b which $1420?

2 which of the two boasts a universal healthcare, free education, strong infrastructure, low corruption. and which b Fragile institutions, limited public services, poor infrastructure, high corruption.?

3 Which of the two do you think has Higher life expectancy, lower infant mortality, combined with top global rankings in happiness and education?

ANSWERS TO QUIZ

1 a Finland b Chad

2 a Finland b Chad

3 Finland

#economics #tax #infrastructure #growth #GDP wealth creation