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

Labour’s troubles are historic, not just economic

One thing we like about Larry Elliott of the Guardian: he always looks for deeper reasons behind the news stories flashing across our screens. For him, they’re often economic reasons. .[1] Today he examines the plight of UK Labour Prime Minister Keir Starmer and the sea of troubles against which he has tried to take arms. Brexit,(“not done properly” Elliott asseverates ) globalisation (“has mainly benefitted the South East”), too much financial services ,and of course de-industrialisation. Especially in the old manufacturing areas like the Midlands, the North of England and the Scottish river valleys. Where Starmer and his party received such a kicking in the recent local elections. It was that last one that caught our eye, gentle readers.

For what was the Labour Party but a Party of the mass industrialised workers? From its foundation, in deep partnership with the Trades Unions and Co-Operative movement, but a Party of workers, who had been torn off their farms and thrown together into mass agglomerations in things like factories, mines and ports? Whose consciousness and very lives were collective, where sharing was a more certain way to survive hardship. But now those factories are gone. And the industrial unions with them. (for the benefit of foreign readers, Britain has an atrophied group of unions, but they now largely represent small groups of white collar workers and count for little in the balance of power).

For us the clue is in the name: the party of Keir Hardie grew from an organised, industrial membership. The Party of Keir Starmer exists in a very different nation. The politics of the 20th century were all about economics Those of the 21^st about Identity. No wonder Labour got such a kicking. No wonder the Conservatives did too. A very different road now lies ahead. In every country.

[1] Labour is being destroyed by dithering: it should either do Brexit properly or rejoin the EU | Larry Elliott | The Guardian

[2] Labour Party (UK) – Wikipedia

#Keir Starmer #Keir Hardie #Labour Party #economics #politics #history #society #britain

Beyond the Nation: we conclude

In March we opened a new series called Beyond the Nation(LSS 5 3 26), which suggested that there are a number of practical , and very pressing problems which could be more efficiently addressed if the response were global rather than by the current group of 193 or so mutually suspicious, jealously competing, nation states. In particular we looked at things like pollution, disaster relief, and the economic brakes imposed by creating national identities,

Thinking about it, that last is the very heart of what we’re on about, isn’t it? Because national identities are really, no viscerally, important to people. They have more power over our minds than any alternatives offered by religions, class, sports teams or profession. They not only define who we are: they define the behaviour others expect of us, and more importantly, the behaviour we expect of ourselves. And no one can deny the critical importance they have played at times when freedom was in critical jeopardy. Would Ukraine have sustained the fight against Russia for so long without a crucial sense of its own identity? Or for that matter would the USSR have sustained its own fight against the Nazis without incorporating a strong sense of Russian Nationalism? All this, and more can can be set in the balance for the Nation as the highest form of organising human societies, as we have argued elsewhere. (LSS passim: see our World Government series)

Yet nations are transient, fleeting things. Where are the Spartans or the Akkadians now? Men and women lived and died for their causes, and many like them, across thousands of years of history. Yet the real drivers of existence are huge impersonal things like climate, disease or massive technological leaps such as the Industrial Revolution. Britain spent immense quantities of treasure and lives trying to defend a position it had established in the Age of Sail, only to discover that the Age of Steam made all its efforts irrelevant[1] And so the question becomes “If your identity is so important, what price are you prepared to pay to maintain it?” Because if technologies can change, so can societies, and the identities which they generate.

We shall close the series with a personal anecdote, a thing we rarely do, Many many years ago still trapped in Undergraduate adolescence we were debating the question of Britain’s membership of what was then called the European Community with a fellow inmate, albeit far more intelligent than ourselves Being good Young Socialists we then followed the Orthodox Labour Party Line: that the UK should leave forthwith. Being entirely of independent mind (and far less neurotic) our interlocutor laughed and observed “You would have been against joining up Wessex with Mercia, wouldn’t you?” A quiet wisdom which time has made more memorable than almost any other things we have ever heard or read.

[1]Kennedy, Paul. The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000. New York: Random House, 1987. London: Unwin Hyman, 1988. ISBN: 0394546741 (US hardback); 0049230737 (UK hardback). see especially chapter 3

#nation state #society #politics #history #russia #ukraine #USSR #Britain #economics

When George Monbiot says “listen” we pay attention

George Monbiot has been right on so many things-climate change, river pollution, re-wilding- and often so far ahead of the curve, that when he comes up with something new, we take notice. Today he tackles an agonising question: why are the political extremes doing so well, and the messaging of what we used to call rational parties not cutting through? George thinks he knows why, and what’s more, thinks he has a way of making up lost ground. He calls it radical listening. [1]

George notes that just relying on focus groups or turning up on someone’s doorstep and arguing changes very little. Especially the arguing: we’ve noticed that most people will resort to the most twisted verbal convolutions and distortions rather than lose face by admitting that the first thing they said was wrong. Radical listening, according to George, means spending quite a bit of time with people, just letting them talk and giving them space to say what’s really on the minds. He even reports on a variation of the technique which was tried out in the streets of certain small towns in Devon, with remarkable results, But you should read those bits for yourself.

And why do we think George is right? Because we have observed that most of the mistakes in the world are made by Important and Powerful Men(mostly) who are far too busy to listen to anyone, spending their time making Big Decisions quickly, which lets them move on to making the next decision…..Plus: something first observed by another George, this time one called Orwell. Who noticed that what people say, and the political, philosophical or religious opinions they aspire to, are often the result of deep emotional states and preoccupations which are actually quite distinct from the manifestoes and policy positions these philosophies ostensibly adduce. Listening is a skill in all sorts of areas-sales, learning languages, human relationships, even management, occasionally. And its defining characteristic is humility. Perhaps Plutarch says things best of all

“Know how to listen, and you will profit even from those who talk badly.”

Moralia, “On Listening to Lectures”

[1]Imagine a technique that can heal Britain of division and keep out the hard right. I call it ‘radical listening’ | George Monbiot | The Guardian

#populism #listening #politics #economics #alienation #Right #Left

[

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

Beyond the Nation State #6: The Cost of Nations

Identity, it is said, is the most important thing a People can have. So what better way to guarantee that identity than by taking back control and assuring it inside a sovereign nation state.? It’s a very popular policy at the moment, so there must be advantages. But it’s worth at least noting the counterfactual argument, because it has consequences for what we try do here.

If you’re going to have a sovereignty worthy of the name, you must have the following: Defence, Intelligence, Borders, Customs, Taxes, Tariffs, Executive, Legislature, Judiciary, Foreign ministry ,Legal system, Central bank, Currency, Police and Regulators. To say nothing of the fixed obligations such as pensions you inherited from the larger state you have left. You could opt for health education, culture, policy, tourism and transport as well; but these are discretionary. So could smaller entities bear all these costs if they went it alone? Could California? (large-ish) Wales?(medium) Or Jersey? (rather small, with due respect). Take Wales as a hypothesis : let’s say the UK spends £50 billion on Defence and Wales is 3.1% of its population. That ratio would entitle an independent Wales to £1.5 billion. Would they be as well defended? The answer is no. For one thing they would have to set up entirely new structures of command, procurement, intelligence and all the other essentials of a modern force. Secondly, there is the brute fact that larger purchases always generate cheaper prices for anything Defensive-aeroplanes, tanks, guns, even the dusting cloths you need to keep them clean. Bulk purchase means cheaper unit cost. And it works the other way. Even a superb Welsh manufacturer of tanks would only enjoy tiny assured domestic markets, making its borrowing and production costs prohibitive in a world market. That is why American giants like Ford and General Motors thrived in the twentieth century: they had fixed access to the largest Single Market then available. That is why nations which have tried to downsize, like the UK after Brexit, have struggled so badly ever since.

The argument to grow polities into larger units is the same as that for growing companies. Economy of scale and stripping out fixed costs. A World Government would only need one of each the exhaustive list above. Imagine the procurement advantages in any number of things-medicines, schoolbooks, computers or even those wretched dusters again. What a saving for taxpayers! A single world Ministry of Defence would enjoy the highest possible bargaining power against its suppliers, cutting the cost of the $2.7 trillion we spend as a planet on defence by whole orders of magnitude. Of course, if there were a World Government most defence spending would become unnecessary anyway, as most nations’ armies exist sole to defend against other nations’ armies. But that’s something for another day

#nation state #history #politics #economics #world government

Camilla Cavendish Confounds the Conspiracists

Photo by Hartono Creative Studio on Pexels.com

Of all the columnists we follow, Camilla Cavendish of the Financial Times is one of the most clear-eyed and objective. But the reason we’re showcasing her today is because she has turned her mind to that old LSS favourite: conspiracy theories and their devotees. Here is the reference [1] but because it’s behind the FT paywall* we’ll provide a short summary, clearly distinguishing Camilla’s points from our own riff on them, which is demarcated below.

CAMILLA SAYS

She notes sadly that an old pal (University educated!) has fallen for the hoary old belief that anthropogenic global warming is a hoax. Which leads her to consider why people need Conspiracy Theories: their History (apparently they had previous spikes around the troubled years 1900 and 1950): that people have an inherent tendency to believe facts that confirm their existing beliefs: and most chilling of all, that believing one conspiracy acts as a gateway to believing all, as the susceptible mind links the dots between anything and everything. Astutely, she notes that the provision of facts and reason almost never help the sufferers, because these do not address the deep emotional and psychological needs which are really driving participation in these modern cults. She even provides further reading: a book called Foolproof: why we Fall for Misinformation by Professor Sander. Camilla concludes with an admirable determination to read more things that she disagrees with. A form of mental training also recommended by Bertrand Russell, another much admired favourite of this blog.

OUR THOUGHTS

She’s right, sadly. For us, what’s so depressing is the way that conspiracy theories and misinformation on just about anything choke up the worldwide interweb like bindweed in a garden. The intellectual level of much conspiracy discourse-the use of language, evidence and reason-reminds us of the old Anonymous Letters we used to examine long ago in a Police Laboratory, long before the internet could spread such rubbish universally. So we’ve little enough to add, frankly. Except perhaps some further reading into Social Identity Theory as pioneered by the great Drs Tajfel and Turner [3], and its depressing observations that the species we are forced to belong to tends to draw its conclusions about what is true from the opinions of others rather than an objective consideration of the facts. In which case the only remedy is to choose you friends, family and above all, masters, with extreme care.

* or is it? Gentle readers when we clicked on this the whole thing came up in which case you can read all of Camilla’s article for yourselves. Go on, try it

[1] It’s far too easy to get sucked down a conspiracy theory rabbit hole

[2] Foolproof: Why We Fall for Misinformation and How to Build Immunity
London: Fourth Estate, 2023.ISBN: 978-0008466764

[3]https://en.wikipedia.org/wiki/Social_identity_theory#:~:text=As%20originally%20formulated%20by%20social%20psychologists%20Henri%20Tajfel,the%20activities%20in%20which%20o

Conspiracy theory #climate change #misinformation #internet #social identity theory #camilla cavendish #financial times

Beyond the Nation #4: Of War and Peace

Photo by Mitchell Soeharsono on Pexels.com

Themes of war and peace are constant here. Human beings, we have often said, posses a pathological tendency to divide themselves, quickly, into mutually hostile groups [1,2] And that once those identities are established, their members proceed to ascribe all evil and nefariousness to their latest enemy. [3.4] Even the most advanced and enlightened nations are not immune. We do not wish to single out the US. But remember when the North Vietnamese were about to unleash a domino effect with countries like Thailand, Malaysia, Indonesia and beyond toppling to Communism, ending with the Red Flag raised in triumph over the Sydney Opera House? Or when Mr Saddam Hussein grasped weapons of mass destruction of such awesome power and reach that they threatened the lives of very man woman and child with imminent destruction?

Nations change in size, Bu the threat is the same. Our Spanish readers will recall a time when nations such as Castille, Leon, Navarre, Aragon and the various emirates to the south fought each other like tom cats. If they tried it now the Spanish Government would simply send the police to arrest the culprits. Every nation shows the same sorry trend: remember our post on the unknown skeletons of Neolithic Alava, who died for causes long rendered futile by their utter unknowability? (LSS 5 11 2023)

It is impossible to estimate the costs-economic, ecological, in lives- of the current war in the Middle East. All of us must pay them, although only three of our current nation states are directly involved. But we know they will constitute a long lasting tax on future generations. Which leads back to the United States The principle of their founding Revolution was “no taxation without representation.” So do all the other nations deserve representation in the dialectic of this war? And thereby, perhaps, to stop it while there is still time?

[1] Social identity theory – Wikipedia

[2] Realistic conflict theory – Wikipedia

[3] Chua, Amy. Political Tribes: Group Instinct and the Fate of Nations. New York: Penguin Press, 2018.

[4] Kaufmann, Eric. Whiteshift: Populism, Immigration and the Future of White Majorities. London: Allen Lane, 2018.

#war #social identity theory #peace #nation state #vietnam war #iraq war #middle east #saddam hussein #president george w bush