Free Markets after the Polycrisis

European Diary: Skopje, April 2024

Skopje is the capital of the new state of North Macedonia, established after the dissolution of Yugoslavia in 1991 and inhabited mostly by Southern Slavs, but with an Albanian minority. The Serbs and the Bulgarians have long fought over the country, both trying to impose their language and culture on her. North Macedonia became the thirtieth member of the North Atlantic Treaty Organisation, NATO, is 2020 and is applying for membership in the European Union. My first time in Skopje was on 25 April 2024 when I was invited to give a lecture on ‘Free Markets after the Polycrisis’ at the University of Saints Cyril and Methodius, named after two brothers of the ninth century who were missionaries and created the oldest known Slavic alphabet. A ‘polycrisis’ is, according to the dictionary, ‘a time of great disagreement, confusion, or suffering, that is caused by many different problems happening at the same time so that they together have a very big effect’. In my talk, I said that I was not sure that we were in a time of a great crisis. I quoted two recent books that I hope to discuss soon in The Conservative. In Superabundance, Dr. Marian L. Tupy and Professor Gale L. Pooley present a new way of looking at wellbeing. It is to measure it in time prices instead of money prices: how many hours do you spend on working for a sack of sugar or a light bulb? Today, only a tiny fraction of the time you spent on this a hundred years ago. Moreover, contrary to common belief, every additional individual on average creates more value than he or she consumes. In The Myth of American Inequality, former Senator (and economic professor) Phil Gramm and his two co-authors point out that the figures often quoted in the media on income distribution are misleading because they are about income before taxes and transfers. They also demonstrate that the ‘American Dream’ of upward mobility is still very much alive.

Nevertheless, many serious problems remain. We have been stumbling from one crisis to another instead of marching resolutely towards freedom for all like Hegel’s World Spirit (at least in Francis Fukuyama’s version). In my talk in Skopje, I discussed several such crises.

The 2007–9 Financial Crisis

The first real crisis after the collapse of communism was the international financial crisis in 2007–2009. It had two main causes, 1) the inability by banks with their new financial tools to price risk adequately and 2) the easy-money policy pursued both in the United States (with mortgages given to people obviously unable to pay them back and with low interest rates) and in Europe. A Great Depression like that in the 1930s was avoided by central banks providing commercial banks with liquidity, bailing them out. But at least one great problem with that was moral hazard. If bankers know they will enjoy the profit in good times whereas they can pass losses on to the taxpayers in bad times, they will take unreasonable risks. I think the Icelandic solution should be applied elsewhere: not to bail out banks but avoid bank runs and panic by making deposits priority claims on bank assets. Thus, banks will become more cautious. They will be run like other private companies, at their own risk.

The Covid Pandemic

The second real crisis was the Covid Pandemic in 2019–2022. We cannot change the fact that it took place, but we can try to make it less likely that such a disaster will repeat itself. For this, however, we have to know its causes, whereas the Chinese authorities have been singularly uncooperative in investigating them. Why this secrecy if there is nothing to hide? It seems increasingly likely that the Pandemic was caused by a leak (accidental?) from a Wuhan laboratory. The Chinese Communist Party should not be allowed to obstruct investigations into this crucial issue. There is also little doubt that authorities in most Western countries over-reacted during the Pandemic, ignoring the cost of greatly disrupting their economies. The explanation was probably political visibility. Those infected with the corona virus were visible, unlike the losses incurred for example by companies that had to close, by students who could not go to school, and by people waiting for hospital operations.

Climate Change

The third crisis, according to many, is climate change. I offered two common-sense observations on this complex issue. The first was that it was implausible to think that in late twentieth century nature had suddenly ceased to have any effect on climate, while it had in the not-so-distant past been the only cause of change. If man had now become a significant factor, which was by no means impossible, nature must still be an important factor. The second observation was that it was implausible to think that the climate of the late twentieth century was somehow, and mysteriously, optimal so that any change from it would be to the worse. An increase in average temperature of, say, one or two degrees would have both positive and negative consequences. It was indeed quite possible that the positive consequences would outweigh the negative ones.

Environmental Protection

The fourth crisis is environmental damage, pollution and the over-utilisation of resources, for example depletion of some animal stocks and deforestation. I pointed out that the cause of this problem was not really industrialisation, but rather the absence of property rights. Why were sheep in Iceland not in any danger of extinction, unlike elephants in Africa? It was because the sheep had owners who looked after them. The correct response if you wanted to protect the endangered elephant stocks in Africa was to define ownership to them. Thus, with one stroke of the pen poachers would become game keepers. Environmental protection required environmental protectors, custodians, stewards. I recalled the Icelandic example of the fish stocks. They had been an example of the ‘tragedy of the commons’, where unlimited access to a limited resource led to its over-utilisation. The Icelanders decided to limit access, and they limited it to those presently harvesting fish. Those people were given exclusive fishing rights, the so-called individual transferable quotas, ITQs, on the basis of their catch history, while a total allowable catch was set by government over each season. The quotas have gradually been transferred into the hands of the most efficient fishing firms. The Icelandic ITQ system has turned out to be both sustainable and profitable.

The Ukraine War

A fifth crisis is the war in Ukraine which may be in danger of escalating. I pointed out that the despot in Kremlin had at least twice received misleading messages from the West. When he invaded Georgia in 2008 and seized some of her territory, nothing happened. When he invaded Ukraine in 2014 and seized some of her territory, nothing happened, except the introduction of some token sanctions (not including natural gas for Germany). When despots sense softness, they get aggressive. In this war, the odds are in the long term against Ukraine, unfortunately. She is not going to win it on her own. But it would be intolerable for Europe if she is defeated by the Russians. Appeasement is out of the question. ‘An appeaser is one who feeds a crocodile, hoping it will eat him last.’ The only feasible solution is a ceasefire, followed by plebiscites in the contested regions, in Crimea and Eastern Ukraine, where the inhabitants would choose freely in several voting zones whether to belong to Ukraine or Russia, with each zone going to the country for which its majority had voted. Suffrage would be limited to those residing in those regions in 2014, before the first Russian invasion. Moreover, to placate the Russians, Ukraine would not join the European Union, but rather the European Economic Area, with Norway, Iceland, and Liechtenstein.

Illegal Mass Immigration

A sixth crisis has been and still is illegal mass immigration, both in Europe and North America. In my talk in Skopje, I recalled the classical liberal principle (which was also one of the ‘four freedoms’ on which the European Union was founded) that people should be free to seek jobs across borders. I added that they should not be free however to violate laws and regulations. Most immigrants are willing to work and have a positive effect on the economies of their host countries. But there are immigrants and asylum seekers who are undesirable and should not be welcomed: 1) Individuals who do not respect the laws of their host countries and resort to crime. Sometimes they come from cultures where honest, hard work is despised. 2) Religious zealots who want to impose their own customs on not only members of their group (often against their will), but also the whole of society. 3) Seekers of welfare benefits, reluctant to work. People of that ilk should not be let in or they should be deported at the first opportunity. The British scheme of sending illegal asylum seekers to Rwanda while their cases are processed is entirely reasonable. Moreover, welfare benefits should not be available to immigrants or asylum seekers until after quite some time. The only real problem is with those who are already citizens and who therefore enjoy all the rights citizens have, and should have. They may be disruptive without doing anything dramatic to forfeit their rights. Perhaps the price mechanism could be used in such cases. They could be paid to stay, say, in some countries in North Africa where it is much cheaper to live than in most of Europe.

Cyber Crimes

A seventh crisis, or perhaps rather a challenge, is cyber crime, including disinformation and fake news. It is well known that the Russians have organised cyber attacks on other countries, for example in the Baltic region. Apparently, they also financed some of the environmentalists campaigning against nuclear reactors in Germany, with the result that the Germans became dependent on natural gas from Russia. Chinese hackers with ties to the Communist Party have made cyber attacks on individuals and institutions in the United States, the United Kingdom, and New Zealand. Iran and North Korea are also trying their best (or rather their worst). But the oriental despots are not the only ones threatening freedom in cyberspace. It was amazing to witness during the Covid Pandemic that the social media giants, Facebook and Twitter, removed all references to the possible origin of the corona virus in a Wuhan laboratory. They did not even allow people such as U.S. Senator Rand Paul, a physician, to criticise mandatory masks. It was equally amazing that before the 2020 presidential elections in the United States they also removed all references to the entirely legitimate news story by New York Post on the controversial material found on the laptop of Democratic candidate Joe Biden’s son. But what is to be done? The oriental despots may be beyond our reach, but the social media giants ought to be treated not as private companies, free to discriminate between their customers, but as common carriers. The owner of a road is not allowed to prohibit Muslims from walking or driving on it, just because they are Muslims.

The Thought Police

The eight crisis is played out in academia and the media where freedom of expression is being severely limited by woke enthusiasts and cancel culture activists, a new Orwellian Thought Police. Ideally, academia should be a quiet retreat from the turmoil of everyday life. Scholars and scientists are supposed to be free to collect and present evidence, to explore ideas and to follow arguments to their logical limits. But the social science and humanities faculties of most Western universities have been taken over by intolerant left-wing fanatics. Taboos used to be regarded as signs of a primitive culture, but nowadays universities operate under several taboos. You will not be appointed, or published, if you doubt the hypothesis, based on computer models, that man-made global warming is catastrophic. You are not allowed (at least if you are a white Christian or Jew) to reveal findings about the crime rate in different racial or religious groups, or about the average intelligence of some groups according to I.Q. tests (of which I happen to be sceptical, but that is a different story). If you so much as entertain the thought that colonialism might have brought some benefits to the peoples in the colonies, your lectures will be disrupted by activists. And so on. Ideally, the media should tell us what is happening in the world, instead of pushing an agenda. But many of the media have also been taken over by left-wing activists who have given up all pretence to be objective. Again, what is to be done? Instead of defunding the police, academia, at least faculties mass-producing useless degrees, should be defunded. Left-wing intellectuals should of course be free to present their ideas, but not at taxpayers’ expense.

The European Debt Crisis

The ninth crisis is the debt crisis in Europe. The public debt in many member states of the European Union is clearly unsustainable, but it is being dealt with by violating the clear prohibition in the statutes of the European Central Bank on extending loans to individual member states. The strategy is obviously to make the debt manageable by spreading it out both in space and time. By spreading it out in space, I mean that countries under sound fiscal management, such as Finland and Germany, will be expected to help countries that have spent beyond their means. By spreading it out in time, I mean that the euro will be allowed slowly to depreciate so as to ease the future debt burden of the treasuries of European states. The free-market solution would of course be to let each country be responsible for her own debt and to make sure that the euro will be a sound currency. This is difficult, but not impossible.

European Centralisation

The tenth crisis in Europe is centralisation, which goes under the euphemism ‘political integration’. The Treaty of Rome in 1957 was about economic integration and the minimal political integration necessary to ensure a competitive common market. The plausible idea behind the Treaty was that it would create a more peaceful Europe, after centuries of what could be called a European civil war. This project was largely accomplished in the early 1990s and it was supremely successful. But then the Brussels elite adopted another and much more ambitious project which was essentially to construct the United States of Europe, against the wishes of most citizens in the member countries who have time and again voted against proposals for increased centralisation. The two engines driving European centralisation have been the European Commission and the Court of Justice of the European Union. Both these institutions are self-selected and unaccountable. People who seek jobs at the European Commission are usually euromantics, and lawyers who specialise in European law and subsequently become judges at the CJEU are likely to have a centralisation agenda. Yet again, what is to be done? I think the European Commission should be deprived of its legislative power, which should be transferred to the European Parliament. The European Commission should become a normal civil service. The CJEU should be split into two courts. One of them should deal with ordinary legal issues. A new court would however only decide on issues of competence between the European Union on the one hand and its member states on the other hand. It could be called the Subsidiarity Court and it should test cases with the Subsidiarity Principle as its lodestar: that decisions should be made as close as possible to the people they affect, at the most immediate or local level.