Soapbox

A true Greek gift

Peter Darley delves into history to prove that SA's growing problems are of their own making

Wouldn't it be nice if you could find a real economist somewhere?

I have never heard from Dawie Roodt, Mike Schussler, Colen Garrow or Chris Hart that there are at least two other ways to curb credit demand -

• Increase the deposit requirement for a credit purchase. If a 10% deposit is required for a house or a car, it will automatically exclude those whose affordability is marginal.
• Reduce the repayment period, which will also automatically exclude the marginals.

Both are much bigger hammers. Increasing the interest rate merely punishes those who already have credit. Where is the value (to the economy as a whole) in repossessing cars and houses? Interest rate increases have not worked anyway.

The reason why tinkering with the interest rate does not work is that rising petrol and food prices are not in themselves inflationary, as practically every economist you interview seems to believe. They merely force a reallocation of expenditure. Only governments can cause inflation, because only governments can print money (legally, anyway). So-to reduce inflation-STOP PRINTING MONEY.

If you want lower oil (therefore, petrol) prices, talk to the greens in the US. Joel Stern alluded recently to the fact that up to 90% of the US coastline is off-limits for drilling (thanks for getting him back, by the way). The greens would rather have higher prices, especially for the 'poor', than plentiful oil. All the talk about alternatives is just that-talk. Fuel cells have been on the agenda for the whole of my working life (46 years)-where are they? Hydrogen-it takes as much energy to break a molecule of water into hydrogen and oxygen as is obtained when hydrogen is burnt to produce 'energy'. Can you imagine the inferno when a hydrogen-generating vehicle with a petrol tank is involved in a crash? The perfect hydrogen bomb!

The real solution needs one (or both) of two things-a quantum leap in battery technology and/or a quantum leap in the conversion efficiency of solar into usable energy. There has been little change in batteries in my lifetime-a car battery looks just like the one fifty years ago.

Eskom is touting the wind farm at Darling. Ask what the cost per unit generated is. It is higher than coal-fired generation. Partly because of the relatively small scale (and, therefore, the higher labour intensity).

I couldn't believe this when I heard it (since wind is free and coal is not), so I contacted Terry Mackenzie-Hoy, who writes a column for Engineering News. He told me that the reason is the high maintenance cost of the turbines. We all know Eskom's record on maintenance. Let's not even get into the variability of wind speed.

Denmark has a fairly large supply of electricity generated from wind. Read up on it-what is the cost per unit, the availability of the equipment, how the power output varies with wind conditions etc., etc.. The UK has plans to put up wind turbines all around the coast.

Back to your economists-the sub-prime 'crisis' was not a crisis at all.

Credit is not money until it is paid. The billions written off by Merrill, JP Morgan, Citibank et al never existed. And the houses still exist-they did not evaporate, even if they are 'worth' less. If you lend your money to someone who will not or cannot pay, you must expect to lose. That is the normal functioning of a capitalist society-risk taking. At some point, the risk exceeds the reward. This is where the mortgage lenders ended up-allegedly persuaded by the US government to make loans more available.

Why were they so stupid? It is easier to lend someone else's money. You don't think that Warren Buffett got involved in this nonsense, do you?

If you want to read an explanation of 'booms and busts', try Money, Bank Credit and Economic Cycles by Jesús Huerta de Soto. You can find it at mises.org. It is fairly laborious (900 A4 pages) and the main point could have been made in 100 pages or less. The main point is that all of the major panics in history had the same cause-the granting of excessive credit (equivalent to people trying to consume more than they produce).

People never learn-the iron laws of economics are unbreakable. You may think that you are ahead of the game, but the law will catch you sooner or later.

Quote from Plutarch's life of Pericles "To compete with Cimon for the affections of the poor, Pericles began the use of the Treasury for new purposes, such as plays and other amusements, and distributions of money to the public. By the measures he introduced, the Athenians were transformed from a sober and thrifty people, who maintained themselves by their own labours, into unscrupulous and lazy users of the public funds.

The government shrivelled into insignificance as the people, led by Pericles, overruled the decisions of their elected representatives. With the populace steering policy by their uproar, Pericles became the most powerful man in Athens, yet he had never been elected to any public office. Having, in effect, bought their support, he made use of the masses against his political opponents so that he became a king disguised as a champion of the people. Pericles contrived to have his rival Cimon ostracised, even though Cimon had won many great victories over the barbarians and filled the city with treasure."

Substitute Mbeki for Cimon and Zuma for Pericles (bit of a stretch, that!); what has changed in the last 2500 years? Certainly not the stupidity of the masses.

Trevor Manuel proved David Bullard right when he said (in the same week) that "Traditionally, South African families were dependent on remittances from migrant workers and on subsistence agriculture to survive. Since more and more grants were availed, subsistence agriculture has more or less dried up in parts of the country and there is a lot of fallow land".

With that mindset, how can you hope to reduce or 'eradicate' poverty? Much easier to sit on a rock all day, watching the sun go by. If people are given free money, why is anyone surprised when they do just that?

The real question is "What happens when the money runs out?" Then you had better watch out for your pension fund!

The Bible says that 'everyone has a talent'. Why do 95% of people never bother to find one? Why are the churches silent about this?

Bastiat wrote in about 1848 that the objective of the majority of people is to live at someone else's expense. So what has changed in 160 years?

How do you think that Xerxes could amass an army of 300 000 men in 480 BC?

Precisely because the army members expected to survive by looting and raping.

You probably heard the story the other day that citrus farmers in the Gamtoos and Sunday's River valleys are employing Zimbabweans for harvesting. Say what? In the province with the highest unemployment rate in the country, no locals can be found to harvest citrus crops?

I was astonished to read recently that 25% of British kids leave school unable to read or write. What has happened to the education system? I cannot remember anyone I went to school with being unable to read or write. Why is the world breeding so many stupids? Brilliant quotation by Paul Ash in the May 11 Sunday Times "The most abundant human resource is stupidity".

Before steam comes out of your ears, what Bullard wrote applied equally to Europeans not even 200 years ago-because of the severe shortage of crocodiles, bears and wolves would have to do. Out of curiosity, I once went onto the Internet to find out whether Mozart had children. He had six-only one survived childhood (to age 74). It was normal, even into the early years of the 20th century, for half or more children to die in their first few years.

Poverty is not a necessary economic condition-it is a state of mind. Do you know what is the politicians' worst nightmare? It is that the "masses"

will (individually) start to think for themselves and reach the inevitable conclusion that they do not need politicians. How can any politician know more about your life and aspirations than you do?

If you really want to succeed, there is only one way-study the miracle of America. Make no mistake-if America had never happened, almost none of us would have the standard of living we now have. And if America turns socialist (as is possible, since Clinton and Obama are socialists), hundreds of millions of people around the world will starve.

America is based on fundamental principles-the rule of law, the right to private property, the freedom of the individual and the sanctity of contract. It is not perfect by any means.

And all the intellectual pygmies such as Mbeki (President in name only or

PINO) can do is to sneer and spit at them. Like the busload of Gauteng MPL's who were reported as laughing and cheering when 9/11 happened. But, as soon as there is some crisis, where do they go? As the joke about the UN goes-"If it's an emergency, hang up and dial America."

After the East Asian tsunami, the UN was holding meetings five weeks later trying to decide what to do. The Americans (and the Australians) were in there providing help within two days.

And who offers help when America is struck by a disaster? No one.

You know why they sneer and spit? It is not envy of America's success; it is shame at their own failure.

The striking thing about America, as compared with almost all other countries, is that the people do not take politicians seriously. The people know that most politicians are failed lawyers, so they mostly ignore them and get on with the business of making a living.

Africa's 'problems' are all caused by the 'leaders'. There can be no doubt that the people can create viable economies if only they would ignore the 'leaders'.

Re parliamentarians-what an outrageous proposal. After Polokwane, many ANC's have realised that they will not be on Zuma's candidate list, so this is a last desperate grab at the public purse. You do not think that it will stop there, do you? Next will be the provincials, then the councillors, followed by the council employees. Pretty soon, there will be tens of thousands receiving public (i.e. your) money for no work. Can't they just get jobs in the private sector? It seems likely that few of them can add enough value in the private sector to justify a R600k per annum salary.

On a lighter note-if the third force is so brilliant that not a single member has been identified, let alone prosecuted and convicted, in the twenty years the ANC has been spouting this drivel, why can it not chase away those incompetent, useless, lying, thieving clowns? Between breakfast and lunch tomorrow. Please.

* Peter Darley is a member of the Moneyweb community

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