“Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.” - Ronald Reagan.
The Daily Telegraph’s recent ‘Lockdown Files’ – ‘revelations’ from 100,000 WhatsApp texts exchanged between the former health secretary Matt Hancock and other UK government officials – have proven to be just as morally repellent as one might have feared. ‘Convid’ has, unsurprisingly, shown itself, from the administration’s perspective, to be not so much a devastating public health emergency as a grotesque public health pantomime.
This should not strike longstanding readers as much of a surprise. We have previously cited the endemic bureaucratic failings of Big Government through the examples of prohibition and generalised price fixing.
A narrow band of urban sophisticates wishes to take action against what they perceive as a social ill. The ban comes into force. Far from improving public behaviour, it makes it demonstrably worse.
The Eighteenth Amendment to the US Constitution on 16th January 1920 introduced a national ban on the sale, production and transportation of alcohol throughout the United States.
The intention of the ‘dry’ movement was to reduce crime and corruption, solve social problems, lower the tax burden caused by prisons and poorhouses, and improve health and hygiene in North America.
It failed on every level.
Far from reducing crime and corruption, it boosted both. Al Capone, one of the most infamous beneficiaries of prohibition, was by 1927 earning $60 million a year from alcohol sales alone. As he conceded, “All I do is satisfy a public demand.”
The death rates from poisoned liquor were appalling. 1920 saw 1,064 deaths in the United States from tainted alcohol. By 1925 the toll had risen to over 4,000. Will Rogers quipped that “governments used to murder by the bullet only. Now it’s by the quart.”
The homicide rate during the 1920s rose by 78% compared to the period before prohibition. The courts and prison systems were stretched to the limit. More crimes were committed because prohibition destroyed legal jobs whilst creating black market violence.
The dismal experiment finally ended in 1933 when President Roosevelt overturned it. Having signed his amendment into law he remarked, “I think this would be a good time for a beer.”
Christine Lagarde recently announced that the European Central Bank should do more to tackle the inflation ‘monster’. Since the ECB is itself Europe’s primary inflation monster, this is rich. But as Robert Schuettinger and Eamonn Butler point out in their history of wage and price controls, government-provoked inflation is nothing new. Nor are the proposed solutions, as they explain in Forty centuries of wage and price controls: how not to fight inflation (The Heritage Foundation, 1979):
“The co-authors began working on this book in 1974, just after the termination of President Nixon’s controls in the United States. Since that time, we have examined over one hundred cases of wage and price controls in thirty different nations from 2000 BC to AD 1978.
“We have concluded that, while there have been some cases in which controls have at least apparently curtailed the effects of inflation for a short time, they have always failed in the long run. The basic reason for this is that they have not addressed the real cause of inflation which is an increase in the money supply over and above the increase in productivity. Rulers from the earliest times sought to solve their financial problems by debasing the coinage or issuing almost worthless coins at high face values; through modern technology the governments of recent centuries have had printing presses at their disposal. When these measures resulted in inflation, the same rulers then turned to wage and price controls.”
The Roman Emperor Nero (AD 54-68) responded to growing economic problems by devaluing the currency. The devaluation started relatively modestly but accelerated under Marcus Aurelius (AD 161-180) when the weights of coins were reduced. “These manipulations were the probable cause of a rise in prices,” wrote the historian Jean-Philippe Levy. The Emperor Commodus (AD 180-192) turned to price controls and decreed a series of maximum prices, but things deteriorated and the rise in prices became “headlong” under the Emperor Caracalla (AD 211-217).
Egypt was the imperial province most severely affected. During the fourth century, the value of the gold solidus changed from 4,000 to 180 million Egyptian drachmai. Levy also attributes the grotesque rise in prices which followed to the increase of the amount of money in circulation. The price of the same measure of wheat in Egypt rose from 6 drachmai in the first century to 200 in the third century; in AD 314, the price rose to 9,000 drachmai and in AD 334 to 78,000. Shortly after AD 344 the price had reached more than 2 million drachmai. Other provinces endured similar inflations.
“In monetary affairs, ineffectual regulations were decreed to combat [Gresham’s Law, that bad money drives out good] and domestic speculation in the different kinds of money. It was forbidden to buy or sell coins: they had to be used for payment only. It was even forbidden to hoard them ! It was forbidden to melt them down (to extract the small amount of silver alloyed with the bronze). The punishment for all these offences was death. Controls were set up along roads and at ports, where the police searched traders and travellers. Of course, all these efforts were to no purpose.”
Perhaps the most notorious attempt to control wages and prices took place under the Emperor Diocletian. Commodity prices and wages reached “unprecedented heights” shortly after he assumed the throne in AD 284. The Empire’s economic troubles have been attributed to a vast increase in the armed forces (to repel invasions by barbarian tribes); to a huge building programme of questionable value; to the consequent raising of taxes and the employment of ever more government officials; and to the use of forced labour to accomplish much of Diocletian’s public works programme. (Nobody mention HS2 !)
Diocletian, on the other hand, attributed the inflation entirely to the “avarice” of merchants and speculators. Some things truly never change.
What is undeniable is that as taxes rose, the tax base shrank, and it became increasingly difficult to collect taxes, resulting in a vicious circle.
Probably the single biggest cause of Diocletian’s inflation was his debasement of the coinage. In the early Empire, the standard Roman coin was the silver denarius. Its value had gradually been reduced in the years leading up to his reign as emperors issued tin-plated copper coins which still kept the name “denarius”. Under Gresham’s Law, silver and gold coins were hoarded and left circulation.
During the 50 years ending in AD 268, the silver content of the denarius fell to one five- thousandth of its original level. Trade was reduced to barter and economic activity stagnated. The middle class was almost obliterated. To overcome the baleful influence of his bureaucracy, Diocletian introduced a system of taxes based on payments in kind, which had the effect of destroying the freedom of the lower classes and tying them to the land. Then came currency reform, and the Edict on prices and wages. Historian Roland Kent:
“Diocletian took the bull by the horns and issued a new denarius which was frankly of copper and made no pretence of being anything else; in doing this he established a new standard of value. The effect of this on prices needs no explanation; there was a readjustment upward, and very much upward.”
Diocletian had the option of either inflating – minting increasingly worthless denarii, or to deflate – in the form of cutting government expenditures. He chose to inflate. He also chose to fix the prices of goods and services and suspend the freedom of the people to decide what the currency was actually worth. He fixed the maximum prices at which beef, grain, eggs and clothing could be sold, and the wages that workers could receive, and prescribed the death penalty for anyone who disposed of his wares at a higher figure.
Less than four years after the currency reform associated with the Edict, the price of gold in terms of the denarius had risen by 250%. By AD 305 the process of currency debasement began again. Levy:
“State intervention and a crushing fiscal policy made the whole empire groan under the yoke; more than once, both poor men and rich prayed that the barbarians would deliver them from it. In AD 378, the Balkan miners went over en masse to the Visigoth invaders, and just prior to AD 500 the priest Salvian expressed the universal resignation to barbarian domination.”
David Meiselman, in a foreword to Forty centuries… writes as follows:
“What, then, have price controls achieved in the recurrent struggle to restrain inflation and overcome shortages ? The historical record is a grimly uniform sequence of repeated failure. Indeed, there is not a single episode where price controls have worked to stop inflation or cure shortages. Instead of curbing inflation, price controls add other complications to the inflation disease, such as black markets and shortages that reflect the waste and misallocation of resources caused by the price controls themselves. Instead of eliminating shortages, price controls cause or worsen shortages. By giving producers and consumers the wrong signals because ‘low’ prices to producers limit supply and ‘low’ prices to consumers stimulate demand, price controls widen the gap between supply and demand.
“Despite the clear lessons of history, many governments and public officials still hold the erroneous belief that price controls can and do control inflation. They thereby pursue monetary and fiscal policies that cause inflation, convinced that the inevitable cannot happen.
“When the inevitable does happen, public policy fails and hopes are dashed. Blunders mount, and faith in governments and government officials whose policies caused the mess declines. Political and economic freedoms are impaired and general civility suffers.”
Which brings us back to the present day and the legacy of ‘Convid’.
Thorsteinn Siglaugsson, via Substack, cites Hannah Arendt:
“Evil comes from a failure to think. It defies thought for as soon as thought tries to engage itself with evil and examine the premises and principles from which it originates, it is frustrated because it finds nothing there. That is the banality of evil.”
“Now, three years later, when the dust is finally settling after the fear pandemic, the consequences of it can be clearly seen. We see them in the inflation and crippling debt of countries that shut down their economies in a misguided attempt at halting the spread of a highly contagious respiratory virus. We see them in the irreversible damage to our children, isolated, locked out of school. We see them in the effects on public health, in the starvation and deaths of millions, and perhaps most importantly in the mounting distrust of government and public health officials who lied and knowingly inflicted harm by imposing useless and damaging measures, and who deliberately silenced all criticism of their conduct. It is in this light that we must look at Hannah Arendt’s words on the banality of evil.”
Even when politicians and bureaucrats genuinely and unequivocally harbour the best of intentions, their objectives can still founder under the weight of the crooked timber of humanity.
From the obituary of Joan McCord in ‘The New York Times’ of March 2004:
“Joan McCord, a criminologist who marshaled mountains of evidence to question the effectiveness of social programs championed by both liberals and conservatives, died Tuesday at her home in Narberth, Pa. She was 73..
“In 12 books and many other writings, Dr. McCord, a professor at Temple University, disputed the effectiveness in fighting crime of boys’ clubs, summer camps, programs in which young offenders visit prisons, D.A.R.E. (Drug Abuse Resistance Education) and other popular programs.
“The first woman to be president of the American Society of Criminology, she was known for her use of longitudinal studies, which follow subjects for many years. Her goal was to examine the long-term effects of programs, ranging from individual mentoring programs often favored by conservatives to social work efforts frequently advocated by liberals.
“Dr. McCord believed that just as the government monitors the effectiveness of pharmaceuticals, the public should examine data to determine if well-meaning interventions to help people might, in fact, be harmful. Often, she found that programs had no built-in procedure to evaluate their success.
“More troubling, she said, was that officials sometimes resisted evaluation of programs, in part because they regarded it as an affront to their good intentions. She also said she sensed a fear that solid criticism of one social program might brand all as ineffective.
“That fear, perhaps justified in some quarters, would be like blocking publication of damaging effects of Celebrex, thalidomide, or estrogen because the publication could slow work in disease prevention,” she wrote in the May 2003 issue of The Annals, the publication of the American Academy of Political and Social Science..
“Her best-known longitudinal study was her 1978 follow-up on a youth-mentoring program done 30 years earlier in Cambridge and Somerville, Mass. She found that boys at high risk who had been given mentors, health-care services and summer camp fared worse in later life than a similar group of boys who were given nothing special. The 250 boys who got special services were more likely to become criminals, have trouble in their jobs and marriages, and become alcoholics, according to court, hospital and other records noted in her study.
“A possible reason, Dr. McCord suggested, was that those boys had felt they were given the attention because something was wrong with them, making it a self-fulfilling prophecy. Her theory was that the boys who went to summer camp modeled themselves after camp troublemakers.
“The counterintuitive result contradicted the statements of two-thirds of the participants that the program had helped them by giving them better values and keeping them off the streets.
“In other studies, she found that some youths counseled by court-appointed volunteers fared worse than those who received no counseling. Her statistical analysis of a program in Australia that provided recreation for troubled adolescents found bad effects. And participants in the Scared Straight program, which takes young offenders from many locales to visit prisons, were arrested more often than a control group, she found.
“She said that D.A.R.E., the popular nationwide ”just say no” drug education program in which law enforcement officers spend time in schools talking about drugs, alcohol and violence, may actually have contributed to drug use, according to her analysis of statistics from the program..
“Her often pithy remarks appeared in articles about crime in many newspapers and magazines. The New York Times in 1996 asked her about a 12-year-old arrested on charges of gang rape and murder and who was turned in by his mother.
“Of the mother’s dilemma, Dr. McCord said, ”It’s almost impossible to imagine a good thing to do with a gun-toting 12-year-old.””
To which we should ask one final question. Which is really more costly and dangerous to society at large: the gun-toting adolescent, or the politician supremely confident in his belief that he can ‘fix’ the problem ?
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Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: email@example.com
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