A useful little lesson is that things which are politically decided will be decided by politics. That is, when we have politics deciding the allocation of something -- whatever it is -- then the people who get it will be those with political influence. It is possible, no, just humour me here a moment, that those with political influence are not quite wholly and exactly the people who we would like to gain that thing.
You know, that idea that politics isn't wholly and entirely driven by perfect logic and total regard to the facts? It's that which is driving the problem this newspaper complains about -- that it's the state owned banks with the vast non-performing loan portfolios about which nothing ever seems to be done.
As I noted some years back, there really is only one solution to this problem. We can call for, insist upon, better banking, but that's simply not going to work. Because political decisions are made for political reasons. The SOBs make loans on political grounds and call in non-performing loans -- or don't of course -- on political grounds. Simply because, as state owned organizations, they make decisions on those political grounds.
Now it is possible to suggest that politics distributes resources better than mere markets do. I'd laugh at that, history shows it to be wrong, but it's possible to say. But any puzzlement over why political decisions are guided by politics is clearly missing the point -- that's what people who have political access like about such a system after all.
Some years back in this newspaper I gave the solution to this problem: Sell off the state owned banks. Give them away. Close them down. But just get rid of them somehow, get them out of the political system. Then their lending and loan recovery decisions will be determined by market forces not political. Problem solved.
I am watching, with mounting horror, a similar story happening in my own specialty (yes, I have real world business experience as well as at typing out opinions) in the global rare earth business. There's all this fuss about how China controls the market for these weird metals that are vital for the electric vehicle revolution and saving Gaia and so on. So, there's government money floating around -- that's going to be allocated on political grounds, not good market sense or even some small part of good business sense.
I am watching one mine trying to gain the money to open. Their business case is ludicrous. No, I'll not give the name but this is in a very specific area, a tiny little corner, where I'm one of perhaps half a dozen global experts. Hey, someone has to be and one of them is me. The basic foundation of their finances is insanity. They intend to mine five times the world's current annual consumption each year and also sell it for three times the current global price.
This is just one of those things that isn't going to happen.
Yet they have the ear of the politicians handing out all that US Government money to beat the Chinese at the game of mining rare earth metals. Which means that they are getting grants and loans which tax-payers have to pay for -- for an adventure which is entirely doomed. A total waste of money except for those few who own shares now and sell them in time. Of course, all paid for by tax-payers and the politicians will be regarded as wise for spraying money at this coming disaster.
My point being that I am not just making some theoretical complaint based upon some political stance. In my little area of technical specialty I can see this happening right before my eyes (just for the avoidance of doubt no, I am not a competitor to this potential mine).
What we actually desire as a society is that scarce resources -- labour, capital, land, anything -- be allocated to activities where they add value. When they are allocated through politics then they will be allocated by politics, to those who have political influence.
That's just how it all works.
The only way out of this is not to have resources allocated by politics. That is, the only possible solution to the state owned banks (and those other sobs) is for them to stop being state owned and thus driven by politics in their decision making. Any private sector capitalists would ask for their money back and if the borrower couldn't repay then they'd bankrupt him. Only take one example of that for everyone to start performing on their loans.
Political allocation means politics doing the allocation. So, to stop it we need to separate politics from the allocation process altogether.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.