Tim Worstall

Do They Actually Think?

I do wonder sometimes, do the Guardian editorial writers actually think before they publish? At the end of a decent enough leader we get this:

Surely, rather than rich
nations sitting as judge and jury on the debts of the poor, it should
be possible to establish an independent arbitration system to stop this
situation ever developing again.

An independent arbitration system to stop this situation ever developing again? What’s the situation then? That a bunch of thugs and dictators borrowed money in the name of their country, stole it and left the country to pay (that’s one reading of it, anyway). So the abitrators will sit in judgement on who is allowed to borrow? Can’t see any other way of stopping people from running up excessive debts. So, err, we, the great and the good of the international system, get to decide who may borrow money?

This ties in with the desire for nations to find their own route to development how? And such a system will not be a judge and jury on the debts of the poor?

As I say, I do wonder whether they actually think before they publish. Anyone would think they were bloggers or something.

In

15 responses

  1. EU Serf Avatar
    EU Serf

    I’m sure the idea that debts could be cancelled unilaterally by some third party will be a great way to get lenders to give their money again.

    Reply
  2. Mark T Avatar
    Mark T

    this is the same logic that complains about greedy shareholders and supports renationalising railtrack then wonders why their own pension funds are in deficit.

    Reply
  3. Paddy Carter Avatar
    Paddy Carter

    Even if you take the more generous view that 3rd world nations accumlated debt in good faith for genuine nation building projects, but through misfortune and miscalculation (or, I guess to take the Groan position, thanks the machinations of evil global capitalists) got themselves into a a position where they were unable to repay those debts – or a blend of this and your corrupt despots version – then who is is the best position to ensure that situation does not happen again?
    Well, normally the person in the best position to ensure loans that are made can be repaid is the lender – it’s in its interests after all.
    Which leads me to wonder whether “this situation” has arisen not because greedy first-world creditors have lent too freely, but because the World Bank and IMF granted too many soft loans in an affort to help poor countries, and perhaps this unrealistically low cost of financing encouraged too much debt to be taken on?
    So would the solution to stopping this situation from happening again to be leave lending to greedy private investors at exhorbitant rates?
    Just thinking aloud here so it could all be rubbis
    Of course if you read The Guardian you might inadvertently get the impression that the World Bank and IMF exist to profit from lending to poor nations, rather than provide them with financing at rates way below that they’d otherwise get.
    I really want to know what the Guardian and Independent think they are playing at not presenting their readers (OK I haven’t read every issue so could be wrong here) with the other side of the coin about debt relief – i.e. the higher cost of future borrowing and the problems around how to fund poor nations (trade off between supporting crap governments or leaving their people to starve). Are they all really unaware of the other side to the story? I know you’ll think me naive to expect sense from a paper whose writers probably learnt their economics from the marxist theory module on their English Lit degrees, but it really is an appalling omission.
    If I was in the habit of writing to editors, I’d be composing a lengthy diatribe on this topic. actually I did write to Rusbridger once, but got no reply.

    Reply
  4. john b Avatar
    john b

    No, most of the relevant, wasted-on-guns-and-bombs debt was granted by national governments and private lenders. Your theory relies on the concept that the people administering the loans a) aren’t corrupt b) aren’t stupid and c) aren’t giving them for their own political ends. In nearly all cases of cold-war era loans to Africa, at least one of conditions a)-c) was broken.
    Mark – your Railtrack example doesn’t back you up too well, given that the operational arm of the company was bankrupt. The shareholders wanted to be bailed out with taxpayers’ money; the government rightly suggested that they could go swivel. Corporate welfare != free markets.

    Reply
  5. Tim Newman Avatar
    Tim Newman

    No doubt this independent arbitration body would be an arm of the UN, and thus corrupt third world dicators like Robert Mugabe would find themselves heading this arbitration body.

    Reply
  6. Paddy Carter Avatar
    Paddy Carter

    john b – thanks, I did wonder about that – who the lenders were I mean.

    Reply
  7. Mark T Avatar
    Mark T

    You are right, Railtrack was a bad example in that it was primarily individuals rather than pension funds that were shafted. The scandal of railtrack was that Byers pursued a policy of renationalisation on the cheap. Far from being bankrupt and wanting to be bailed out by taxpayers, Railtrack had just seen a 50% boost in its revenues from a new pricing regime and as it’s regulator said at the time, if things were so bad, why has the company not informed the regulator? Railtrack was forced into administration for political reasons with no thought of the free market consequences. Capital providers – whether bond or equity holders or banks needs a return. My point is that ones man’s “greedy shareholder” is another man’s savings. Regardless of whether the structure of Railtrack was correct(I happen to think it wasn’t) the price of future government projects went up as the risk premium on UK public private partnerships increased. The £130m “outrageous” dividend was a lot less than interest payment on an equivalent amount of debt would have been. No, I wasn’t personally involved – any business where politicians can set the cost line (the losses were largely due to hysterical post paddington expenditures) is unlikely ever to achieve a return on capital.

    Reply
  8. Paddy Carter Avatar
    Paddy Carter

    john b – you don’t have a link to data on who the creditors are, do you?

    Reply
  9. john b Avatar
    john b

    This isn’t really the time or place to debate Railtrack, but fundamentally you’re wrong.
    The company’s commitment to the government and to Virgin to build the WCML upgrade at 140mph would have bankrupted it *even pre-Hatfield* when it became clear the cost of doing so would’ve been in the region of £25bn rather than the £8bn it predicted at privatisation.
    Sure, the government could have relaxed these constraints if it had wanted to. But why the hell should it cut slack to a private company that failed through its own incompetence to deliver the services it was contractually obliged to provide?
    I feel slightly sorry for Railtrack shareholders, in that they invested in a company whose managers were so insanely deluded (I assume – had they actually known, this would be very criminal indeed) about its liabilities. Blaming the government for stepping in before the entire rail infrastructure collapsed, however, is not the way to go.

    Reply
  10. Mark T Avatar
    Mark T

    you are right…let’s leave it to the court case…my real point was that one man’s greedy shareholder is another man’s pension fund.

    Reply
  11. Owen's musings Avatar
    Owen’s musings

    Debt relief: avoiding the problem in the future

    A modest proposal to prevent the accumulation of odious debt in future – by nominating an institution to declare governments “odious” and making any subsequent loans to those governments legally unenforceable….

    Reply
  12. Brendan Avatar
    Brendan

    You can go into a small store almost anywhere in the developed world, let the clerk borrow a piece of plastic, and walk out with a bag of onions and the piece of plastic.
    Economics is an imaginary system based, like religion, on faith.
    How many times have various deadbeats cancelled their national, not to mention personal, debts? Are you any the worse for wear?
    I have a brother-in-law. He worked for loan companies, banks, even the U.S. Federal agency that closed out all those bad loans in the 80s. To the best of my knowledge, he never made the payments on a car, yet he drove something decent all the time. He defaulted on every debt he ever owed, including $3500 US that he owed to his sister, my wife. He is a pleasant fellow and his favorite saying was “The bank can’t eat you.”
    Loan away, the more, the merrier I say.
    Brendan

    Reply
  13. Rob Avatar
    Rob

    Has the Guardian ever heard of the World Bank and the International Monetary Fund? Sheesh!

    Reply
  14. KenS Avatar
    KenS

    Once these international institutions are created they have to make loans. Else there is no reason for all those nice jobs which are supposedly based on the keen levels of analysis needed to run the world.
    There is no personal penalty to lenders or borrowers if the loans fail.
    So what do you expect?
    Writing off these loans doesn’t help Africa much anyway. The money is already stolen or wasted. And there was no repayment burden because no repayment is ever made.

    Reply
  15. Paddy Carter Avatar
    Paddy Carter

    well I’m getting confused. So most creditors to the third world are private investors and governments. But some are insitutions like the world bank. And they’re just bound to loan money, so everybody there can keep there nice jobs, not because, say, of a genuine need for funding in a poor nation. I can believe these guys made the odd loan for non-existent projects, or made loans that were instantly misappropriated – but all the time? Didn’t anybody notice? And there are no penalties to either the debtor or creditor if the loans default? What, none? That doesn’t accord too well with what little I know about banks and other lenders. And no 3rd world debt repayments were every made anyway? Data / evidence please, because I seem to remember reading lots of articles about the burden of debt repayments.

    Reply

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