Tag: Capital Controls

The Muslim Brotherhood’s Legacy: Controls, Shortages and Inflation

The Muslim Brotherhood and President Morsi never had a credible plan for the Egyptian economy. Indeed, I doubt that the Brotherhood’s leaders know the meaning of the word “plan”. Over the past year, economic conditions in Egypt have gone from bad to worse. And, it seems Morsi’s brief tenure as president will likely be remembered largely for its shameful economic record – one marred by a decline in GDP growth, a reduction in foreign reserves, and a sharp increase in unemployment.


Black markets have also been a hallmark of the Muslim Brotherhood’s economic legacy. Price and capital controls have caused shortages and a substantial slide in the value of the Egyptian pound. In consequence, Egyptians have watched inflation destroy their standard of living. Additionally, controls have delivered shortages of foreign exchange and many goods, like gasoline. In the face of the Brotherhood’s wrongheaded economic policies, official inflation and price statistics took leave of reality, and the black market quickly became a source of material support that the Muslim Brotherhood’s government could not provide.


Yes, as the accompanying charts illustrate, the story of a failing Egyptian economy is the story of a troubled Egyptian pound – and of the inflation troubles that accompanied it. Indeed, as of July 1, 2013 (shortly before before Morsi’s ouster), Egypt’s annual inflation rate was 27.1 percent.




These trends have proven fatal for Morsi and the Brotherhood. While Morsi’s final hours were filled by lectures on “constitutional legitimacy”, Egyptians weren’t listening – they were preoccupied with a plunging pound and an inflation rate that is over three times higher than the official rate. Morsi and the Muslim Brotherhood’s policies, of course, contributed mightily to the implosion of the Egyptian economy. In the final analysis, the Egyptian people have taught Morsi and the Muslim Brotherhood a harsh lesson: bread is more important than ideas.

What Is the Value of Bitcoin?

With Bitcoin enjoying a spike in price against government currencies, there is lots of talk about it on the Interwebs. If you’re not familiar with it yet, here’s a good Bitcoin primer, which also counsels reading a lot more before you acquire Bitcoin, as Bitcoin may fail. If you like Bitcoin and want to buy some, don’t go all goofy. Do your homework. As if you need to be told, be careful with your money.

Much of the commentary declares a Bitcoin bubble for one reason or another. It might be a bubble, but nobody actually knows. A way of guessing is to compare Bitcoin’s qualities as a currency and payment network to the alternatives. Like any service or good, there are many dimensions to value storage and transfer.

I may not capture them all, and they certainly don’t predict the correct price against the dollar or other currencies. That depends on the ultimate viscosity of Bitcoin. But Bitcoin certainly has value of a different kind: it may discipline fiat currencies and the states that control them.

Hayek v. Krugman – Cyprus’ Capital Controls

Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling.

Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.

Prof. Krugman then takes a characteristic whack at all those “ideologues” who might dare to question the desirability of capital controls:

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

Fine. But, not once did Prof. Krugman mention that there just might be a significant cost associated with the imposition of capital controls – a cost with which Prof. Krugman is surely familiar.

Before more politicians fall under the spell of capital controls, they should take note of what another Nobelist, Friedrich Hayek, had to say in his 1944 classic, The Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

When it comes to capital controls, I think the Cypriots – even the non-ideologues – might be inclined to agree with Hayek over Krugman.