Adam Smith Institute

It may seem odd to quote a 19th century Russian philosopher here, we tend to deal more with the thinkers of the Enlightenment. But Tom Stoppard, commenting on the events of the 1968 student "revolution" makes a point I hadn't seen before (clearly, my knowledge of 19th century Russian philosophers needs to be brought up to speed).

...Alexander Herzen’s own words about the English in the 19th century: “They don’t give asylum out of respect for the asylum seekers, but out of respect for themselves. They invented personal liberty without having any theories about it. They value liberty because it’s liberty.”

We might indeed agree to certain measures, for example, the prancing and preening that is party politics, for long experience has shown us that this is a means to an end, the furtherance and protection of that liberty.

But as to the end result, the aim, that is indeed that liberty, and to ask what that liberty is for is to ask a nonsensical question. We value liberty simply because it is liberty.

Not just liberty from and most certainly not simply liberty to: but freedom, the right to cleave our own path through life, the liberty to choose our own path to perdition, as long as we are not interfering with the very same rights of our fellows.

There's not much of 19th century England that I would want to bring back but this is indeed one part. What terribly confuses me about the modern world is that not everyone agrees with me. 

There's an interesting side to the EU's latest "green" threat. The suggestion from the EU summit is that nations which fail to conform to the EU's idea of environmentalism will have their goods excluded from the EU market. That is, unless they sign up to Kyoto or son-of-Kyoto or whatever carbon targets are to be achieved by the specific methods endorsed by the EU, there will be trade sanctions against them. This might include nations that don't trash the planet and starve the poor by turning intensively-produced food crops into biofuels.

Quite what the WTO would make of such flagrant violation of its rules would be interesting to observe. But Tim Worstall makes another point over at the Globalisation Institute. It is that the proposed protectionist measures would actually hurt EU citizens more than those they were aimed at. He says:

... As we know it is the imports which make us rich, exports being only the dreary drudgery we do to pay for them. So what the Commission is actually proposing is that if those foreigners do not do what the Commission tells them to, then the Commission will make all Europeans poorer by restricting access to or increasing the price of those imports.

Oh dear. It appears that the cryptographic protection on such cards as the Oyster has been cracked. Despite the likely losses to the transport network from the inevitable clones, perhaps something good might come of it? A realisation that there is no truly secure computer system and that thus the ID cards and the National Database will never work as advertised?

Anecdotal evidence that the other security monsterings that we are subject to are really not necessary. 

Do market systems encourage people to act honourably? Well, if Adam Smith was correct (ToMS, not WoN)  then yes, arguably so. 

Apparently at least one of the current Cabinet has read AA Milne.  

If music is to be paid for by a levy on all broadband, why would anyone bother to produce music that customers preferentially want to listen to? 

If we use the tax system to encourage the rich to move away, why aren't we using it to encourage the poor to move away as well? 

And finally, Brighton is an odd sort of place, isn't it? 

The SNP government in Scotland has decided it wants to replace council tax with a local income tax.

The problem is, their local income tax is not a local tax at all. Although its proceeds would be used to pay for local services, it would not be set or collected locally. Basically, three percent on income over the personal allowance would be added to a person’s usual tax bill. Aside from higher income taxes being precisely what nobody needs, this is hardly a recipe for increased local government accountability.

The problem with local government finance is that councils themselves raise less than 30 percent of the money they spend. Being so reliant on central government for funding makes local councils merely the agents of the centre. This means that there is no meaningful link between taxation, representation and spending. There is little incentive for efficiency, little accountability to voters, and little policy choice come election time. The reliance on central government funding has another nasty side effect: if a council needs more money, it has to raise council tax quite substantially to make a real difference to its budget. The SNP’s proposed reform addresses none of these issues.

There is another problem. Based on broad assumptions, the Scottish government says any household with an income of less than £58,000 would be better off. They may be right. But that means households earning more than £58,000 a year will end up paying more. This is the problem the Lib Dems encountered in the 2005 when they campaigned for a local income tax. A middle class couple, say a teacher married to a nurse, could easily end up worse off. That’s always bad politics.

What’s the solution? By happy coincidence, VAT raises almost the same amount of money as central government distributes to councils in grants. Replacing VAT with a local sales tax (set and collected locally) would be the simplest way of making councils self-financing, as Douglas Carswell argued in this ASI paper. Of course, competition in policy is the essence of true localism, so we shouldn’t be too prescriptive. I’d tell local government they had three permissible sources of revenue - property taxes, sales taxes and service charges - and leave the rest up to them. If people started moving out, they would know they’d got something wrong.

62. "A person's economic or political viewpoint is only the unconscious expression of their class interest."

This argument is elevated by the name of "Sociology of Knowledge" and implies that some views can be ignored because they reflect only the self-interest of those who hold them. The bourgeoisie support liberty, for example, only because they get rich when they are free to exploit. In its extreme form it rejects philosophy, art, literature and culture as no more than expressions of the self-interest of those who produce them. Deconstructionism, for example, supposes that any account reflects only ideological bias, and that history is only about power and domination.

The attitude is profoundly anti-intellectual and anti-rational. It suggests that people with an interest have no case to put. It might be that the condemned murderer awaiting execution has good arguments against the death penalty; but on this thesis they need not be listened to at all because they echo only his or her self-interest.

This analysis is a recourse of those who lose arguments. When the logic and the facts show their views to be erroneous, they respond by saying that this is only 'bourgeois' logic, and that there are no facts, just a series of experiences. In reality both the argument and the evidence are on the side of those who point to the creativity which freedom and enterprise unloose, and to the solid achievements gained by such societies in contrast with rival systems.

An interesting feature of this approach is that it is never taken to apply to those who use it. They are never taken to be expressing their own class interest as leftist intellectuals who would end up with power if their views prevailed. On the contrary, they are taken to be the only group whose "correct analysis" has cut them off from expressing any class interest. Just as one might expect.

Well, surprise surprise, there really is a relationship between the rule of law and the wealth of a country. But as the original researcher points out, it's a long term matter.

An excellent fun game for all the family to play. Lol Blairs. Don't worry if you don't understand the idea yet: just ask anyone under 20.

The Royal Navy in the Age of Sail: how about viewing it as a test bed of superstar economics? 

A bit of a stretch perhaps, but a reason to urge dictatorships to host the Olympic Games?

Another 11 "victories " in the War on Drugs. 

A provocative thought: were Jeff Skilling and Ken Lay railroaded in the Enron case? And what about those Nat West bankers?  

And finally, the English legal profession appears to have some problems as well. 

61. "It is important for us to understand the causes of poverty."

No. There are no causes of poverty. It is the rest state, that which happens when you don't do anything. If you want to experience poverty, just do nothing and it will come. To ask what causes poverty is like asking what causes cold in the universe; it is the absence of energy. Similarly poverty is the absence of wealth. For most of humanity's existence on this planet, poverty has been the norm, the natural condition. People hunted to survive or lived by subsistence farming, and they were poor. In some parts of the world this is still the case.

The unusual condition is wealth. This is what changes things. We should ask what are the causes of wealth and try to recreate and reproduce them. When you ask the wrong question, "What causes poverty," you end up with wrong answers. People fall into the trap of thinking that the wealth of some causes the poverty in others, as if there were a fixed amount of wealth in the world and that rich people had seized too large a share of it.

In fact wealth is created, and it is only during the last 250 years or so that we have found how to do this on a grand scale. Wealth is created by production and enterprise, by the specialization of labour, and most of all it is created by exchange. Instead of trying to take wealth away from rich people and redistribute it, we should be seeking to implement the conditions in which as many people as possible can join in the wealth-creating process for themselves.

Poor countries will not become wealthier because we give them some of our riches. They will climb out of poverty the same way we did, by producing and selling goods and services and by creating wealth in the process.

This is good work if you can get it. Selling nothing for $85 million.

No, seriously, this is what the University of Wisconsin has just managed to do. You'll be aware of the practice of various schools within universities, or stadia outside them and the like selling off naming rights: Arsenal plays in the Emirates Stadium, MIT has the Sloane School of Management. There are various ways one can look at the practice, honouring a generous donation or a way to play to vainglory to shake down rich men. But money does flow from those rich to those educational institutions to the perceived benefit of both.

But what the Wisconsin School of Business has managed to do is to rent out (yes, rent out, rather than in perpetuity as most of these deals are) the naming rights to the school for $85 million: on the basis that the school will be called the Wisconsin School of Business for the next 20 years.

The Dean, Michael Knetter, has been so taken with this idea that he's extending it, as the Freakonomics blog tells us:

For $50,000, you can have a classroom not named after you. For $5,000, you can not have your name on a plaque in the entryway to the building. For those of you with a little less to give, $50 will guarantee that the urinal of your choice will go unnamed. But only for the next 20 years.

I was invited to the Cambridge Union (pictured) this week to speak for the motion, "The best state is that which governs least."  I pointed out that the quotation, often attributed to Thomas Paine or more plausibly to Thomas Jefferson, was in fact from Henry David Thoreau in 1849. He also said, "Law never made men a whit more just; and by means of their respect for it, even the well-disposed are daily made the agents of injustice."

I also cited Thomas Hobbes saying, "The liberty of the subject lies in the silence of the law," and rested the case against an intrusive state on two arguments. The first was the moral case that when government sets its priorities, it denies people the chance to live by their own values and, indeed, to be fully human by exercising choice. Thoreau himself had said there was nothing about a majority vote that linked it to morality and justice. The alternative to state government is not no government, I said, but self government.

The second argument was that of efficiency. States are not very good at doing things like running schools or collecting garbage. Indeed, they are not very good at government. They waste huge resources on layers of bureaucracy and management, and usually make a poorer job than citizens could achieve by voluntary association. I cited the Royal National Lifeboat Institution which has rescued people at sea for 180 years, running 230 lifeboat stations and saving an average of 22 lives every day. It does this without government funding or control. I suggested that if government ran it, it would cost 200 times as much, and that health and safety offices would probably stop lifeboatmen putting to sea because it was too dangerous.

Finally I suggested we should ask of the state what Diogenes asked of Alexander the Great, to stand out of the sunlight. That would leave people free to get on with their lives. Gratifyingly, the motion for a minimal state was carried by a small majority.

In light of the news that a pint will cost £6.47 by the time the 2012 Olympics come around, we can only predict that we are all going to have to start producing more of our own beer, wine and spirits. So that you're all professionals by the time the hyper-inflated prices arrive and can avoid lining the Exchequer's pockets, here are some links to get you started:

Click here if you want to know how to make beer.

Click here for wine, and here for still.

And if you need to purchase some kit, click here. 

Dr Rant has started asking exactly the right question: why do some believe that state delivery of services is superior?

And the Medical Student has a report on what the targets used to measure that delivery actually mean in practice. 

Further evidence of the near insane use to which at least part of the tax take is put. 

There's a possibility that Ed Balls was misquoted. But then in politics it doesn't matter what is said, only what is heard. So sad, couldn't happen to a nicer man. 

Have we reached "Peak Economics" yet?

Perhaps not: exploring the problems of transtemporal economics.

And finally, something for a slow friday afternoon. A (possibly controversial) list of the top 100 stand up comics along with links to clips. Sadly, very US biased, so no Kenn Dodd, Bob Monkhouse, Tommy Cooper, Roy Brown....well, there's a task for the weekend, eh?

How far should we blame the Chinese for the credit crunch? Traditional savers, they saved even more as they got richer and richer, and a fair chunk of it went into US government bonds. That kept US interest rates low, making Americans better able to afford mortgages. More loans were taken out, and property (along with much else) boomed.

But low-interest mortgages are bad news for banks. They want to charge more to borrowers than they pay out to lenders. That's how they make money. But at low interest rates there is not much room for that difference to work. So banks went for volume, expanding their mortgages and raising the cash in slices from investors and other banks.

Low yields looked OK when the market was expanding, but many investors seemed not to understand the risk of this high-flying strategy. They weren't helped in that by the rating agencies, who earn their fees from banks and are therefore reluctant to criticize them.

But eventually the kite began to come down, with US failures among the riskiest mortgage lenders, and the UK collapse of Northern Rock, whose business rested on their ability to carry on raising the funds they needed to keep the business growing.

The US and UK cut interest rates in the hope of helping customers to pay their loans and bankers to ride out their failures. But then the growing realism among bankers has caused them to raise the interbank rates on which this whole kite flew – shaving the lender-borrower margin still more. Ouch.

At least with quarterly reporting, most of the problem is now out in the open. It's uncertainty that really spooks markets, and perhaps now that analysts and investors can see the numbers, however bad they are, there's less of that uncertainty about. But every bit of bad news continues to give investors the jitters.

So the Chinese were at the root of it all. Or was it perhaps our own stupidity, and a regulatory system that props up failing enterprises (like Northern Rock) and makes businesspeople able to take absurd risks in the knowledge that taxpayers will bail them out?

60. "Alcohol should be made more expensive and less widely available to combat binge drinking and yobbery."

Many people who put no great faith in the price mechanism elsewhere happily advocate big price increases for things they disapprove of. Such things include smoking, budget air tickets, petrol, and alcohol. Price increases can indeed change behaviour, but it is poorer people who are hit hardest; the rich can afford the increase.

The assumption behind the anti-alcohol campaign is that low prices promote binge drinking, and the attendant anti-social behaviour sometimes seen in young drinkers. It is by no means clear that this is true. People in some other countries where alcohol is cheaper do not have the binge drinking or lout problem to anything like the same extent. It seems to be a cultural thing which affects some countries more than others.

An increase in the price of drink would probably just prompt a switch among binge drinkers to cheaper types, or perhaps to illegal substitutes. Meanwhile respectable middle-aged couples would have to pay more for their bottle of wine, and the great majority of Britons who do not binge drink and commit anti-social acts would be punished for the sins of the minority who do.

Similarly there are those who urge that pubs and bars should have reduced opening hours to deny drinkers the opportunity. Again, it seems that facilities enjoyed the many are opposed in order to target the abuse committed by a few. Determined binge drinkers would continue to drink, but at home or outside, rather than in licensed premises where the decision of the proprietor when to stop serving them exercises at least some restraint.

Countries which make it difficult to drink through state monopolies or huge liquor taxes seem to suffer greater drink problems than more easy-going ones. To curb drinking excesses, it is the culture that must be changed, not the availability of alcohol.