Subscribe to BrookesNews’ Bulletin
`
Activists use backdoor socialism to con and bludgeon corporations
Gerard Jackson
For years I have been warning that socialism is a power cult that simply will not die, a fact that the current political shenanigans in Copenhagen amply support. No matter how many times reason and history refute socialist fantasies its adherents always manage to dress it up in new garb. In his book Building a Stakeholder Society: alternatives to the market and the state Race Mathews (a minister in the disastrous Cain government that nearly wrecked the Victorian economy) gave us "distributist mutualism". Despite the undeniable success except to socialist cultists of the free market in raising living standards to undreamt of levels socialists are still vainly looking for "alternatives" to this incredible and irreplaceable wealth creating institution.
Enter the 'stakeholder' movement, a leftwing Trojan Horse that many executives have welcomed into their corporate citadels, proving once again that having an MBA is neither proof of superior intelligence nor exceptional political judgment. One prominent 'stakeholder' organization is the Coalition for Environmentally Responsible Economies (Ceres). This socialist front acts to con and intimidate companies into supporting economically destructive policies and to hell with the interests of the shareholders, including pension funds. It has, for instance, bullied Wells Fargo into buying renewable energy certificates that will allegedly support the generation 550 million kilowatt-hours of wind energy a year for three years, making the company one of the largest corporate buyers of renewable energy in the US. According to the EPA the company is in the top 25 of green power purchasers.
Solar plants and wind power farms are a massive fraud. They are so grossly inefficient and wasteful of capital that they could only supply the needs of a community living at the most basic level of existence. Any attempt to replace centralized power stations with these so-called alternatives would destroy the US economy. One needs look no further than California to see how much damage these phony alternative energy sources can do to an economy. We find the same thing in the UK and this is precisely why Ceres supports them.
The aim of this socialist front is not the welfare of the masses, for whom it cares not a jot, but the destruction of capitalism. They have the same mentality as those leftwing thugs in Copenhagen who gave the vicious Chavez a standing ovation. In their fervid ideology the destruction of the economy will herald the emergence of a socialist state never mind that socialism has always failed and always will; that it brings misery, tyranny and economic chaos in its wake is a painful fact that socialists cannot bring themselves to face. This is why they cannot tolerate any opposition including contradictory evidence.
Yet time and time again MBAs allow themselves to be conned and bullied by these leftwing mountebanks, one of whom is Will Hutton, a complete economic illiterate who is a former editor of Britain's left-wing Observer newspaper and a prime mover in the stakeholder movement. He also authored The State We're In, a virulent attack on Margaret Thatcher's economic policies.
Unfortunately, Hutton, as one would expect, carries a certain amount of weight among our gullible journalists, most of whom subscribe to his economic drivel. Given this fact it's necessary to explore the extent of his economic illiteracy. When he visited Australia in late 1997 he revealed his ignorance of even basic economics when he gave a silly demonstration of what he arrogantly believed neatly illustrated people's economic stupidity and hence the need for lefty activists like himself to instruct them.
At a meeting he addressed he held up two $50 notes, asking the audience to vote on whether to take $100 now or wait a week and collect $110. When it was clear that most people preferred $100 today rather than wait a week for $110, he pompously denounced their short term attitude in turning down an annual "500 per cent return". The first thing to note is that he was not offering an annual 500 per cent return, otherwise he would have offered each member of the audience the choice of $100 today or $600 at the end of 12 months. In fact, a weekly return of 10 per cent, which is what his offer really amounted to, actually works out to $14,100 for a year. Now if he had offered members of the audience $100 now or $14,200 (interest plus the principal) in 52 weeks time I have no doubt about that the audience would have responded positively who would not?*
The audience was obviously a lot smarter than the leftwing Hutton, apart from those journalists who were dumb enough to take his figures at face value. (After all these years I am still occasionally surprised by just how stupid and ignorant journalists can be.) Anyway, all that the audience really demonstrated was that it considered $100 today to be more valuable than $110 in a week's time, which is how most people would probably feel.
This is because present goods are more highly valued than future goods. It is this fact that gives rise to interest. To abolish interest you would have to abolish the demand for present goods, i.e., consumption. As Ludwig von Mises pointed out, so long as people prefer an apple today to two apples in a year's time, interest will always exist. If the reverse, however, should occur, the human race would not long exist. Therefore discounting future goods, which is what Hutton's audience did, in favour of present goods is a natural human action that economists call time preference.
It is obvious, painfully so, that the likes of Hutton do not know any real economics. If people's time preferences were anywhere near as high as his socialist thinking believes them to be, then there would virtually be no investment at all. Moreover, the fact that real net returns on a great many investments are way below 10 per cent clearly refute Hutton's infantile thinking.
Not surprisingly, Hutton shares Ceres's view that capital markets do not serve the needs of the public. In their eyes this is an indisputable fact that the financial meltdown confirmed. However, the Austrians have been pointing out for years that the central banks' atrocious monetary policies were creating booms and busts. In 2002 I warned that Greenspan was laying down the foundations for another boom and bust. In 2004 I predicted that the US economy would hit financial problems in or around 2008. And explained why. The left can offer no explanations, only abuse and shibboleths.
Ultimately the blame must rest with Keynesian policies. Although the stable-price fallacy that central banks adhere to causes booms and busts the severity of recent financial events and economic dislocations are entirely due to Keynesianism.
No amount of reasoning or facts can ever change the minds of people like Hutton, so irrational is their hatred of the market. This is not to say that these socialists abhor the good life, far from it. In their corrupt minds the goods life is what they deserve. When Lenin and his crew of political gangsters grabbed control of Russia they took over the Kremlin and awarded themselves perks that would have made a tsar blush.
Let us take the case of Anastas Mikoyan. He was a communist agitator in the oil refineries at Baku Batoum that were owned by an industrialist by the name of Zubalov. Mikoyan led strikes, protests and organised study groups. Think of him as the pre-Soviet equivalent of a "community organiser" or "stakeholder" advocate. However, once the Soviets grabbed control of the state he took Zubalov's mansion for his own, including the servants, cracked down on strikes, shot protestors, banned study groups that questioned the party's authority and sent their organisers to labour camps. He was justified in doing this because like today's activists he believed that anyone who challenged the Party was evil or stupid. I regret to say that Mikoyan survived Stalin's purges and died of old age, unlike thousands of his victims.
And will Hutton? This strident critic of capitalism who forcefully argued for affordable housing paid for by the taxpayer is married to a well known property developer who made millions from selling and renting inner-city properties. And at rates that housing officials called "exorbitant". Her company specializes in rebuilding rundown properties frequently with the assistance of government subsidies after which they are either sold or rented. This highly profitable business allows Mr Hutton to enjoy stylish homes in London and Oxfordshire. So while he rails against profiteers his wife rakes it in. Like Mikoyan, Hutton believes he is deserving of the better life by virtue of being a leftist.
It's not unusual for the very rich not to mention delusional to support leftwing thugs. Edwin Janss, founder of the leftwing Janss Foundation, said that "when the revolution came, the houses of his neighbours would be peoples palaces". Naturally, his house and wealth would be protected against any revolutionary excesses. Then we have Aris Anagnos, a Los Angeles real estate magnate and fanatical Marxist-Leninist. Alexander Helphand, alian Parvus, was a millionaire who helped bankroll Lenin. While Helphand died of old age his son died in the Gulag. (Dmitri Volkogonov, Lenin: A New Biography, Free Press, 1994).
*I = P[(1 + r)n 1] gives the interest. From this we can derive the formula for the principal plus interest, which is: Vf= Vp(1 + r)n, where Vf equals future value and Vp equals present value.
Gerard Jackson is Brookes' economics editor
BrookesNews.Com
Monday 21 December 2009