Adam Smith Institute

The doctor's taken me off my antidepressants. It hasn't affected me at all, but suddenly my husband's become a complete idiot.

There's something really a little odd about the current financial shenanigans, based as they are, at root, upon mortgages in the US. As is being noted, here and here , it's not quite right to think of the US as having a national mortgage market: it's a series of discrete regional ones.

Explaining why the Bear Sterns share price is above the offer from JP Morgan. It's bondholders willing to take a loss on the equity in order to ensure that the bonds don't default. Morgan might even sweeten their offer.

Excellent (if almost certainly apocryphal) advice on how to deal with hecklers. 

An interesting report of the Arctic ice melting, the seals vanishing and so on. From 1922. 

Arthur C. Clarke has died. A nine word obituary from one of his own stories. 

It will be fascinating to see whether this here internet thing along with blogs manages to make this campaign work. Does the manner in which the Chancellor raised alcohol taxation mean that he should be barred from every pub in the country?

And finally, if this is his first published piece then I think we've got a lot to look forward to. 

Many people seem to have misunderstood the Conservatives' approach to public service reform. All their announcements are so carefully couched in compassionate, centrist rhetoric that people often miss the radical ideas at their core. Their recent green paper on the penal system is a good example. The headlines were all about rehabilitation: had the Tories had 'gone soft'?

In reality, the proposals were exciting ones. Public sector prisons would be made independent 'Prison and Rehabilitation Trusts', with a single governor responsible for prisoners, both during incarceration and after release. These trusts would be paid by results, with a premium awarded if the prisoner is not reconvicted within two years. Similarly, drug rehabilitation would be contracted out to the private and third sector (again, with payment-by-results). This is an excellent example of how market incentives and private-sector discipline can be introduced into government activities, unleashing powerful forces to drive improvement.

With these green papers, clear themes are beginning to emerge in the Tory approach to public services, from crime and welfare to health and education. The first is autonomy and accountability. So schools and hospitals would be freed from government control, and full responsibility vested in head teachers and hospital chiefs. The second theme is payment-by-results: these newly-independent hospitals (or prisons or benefit agencies) would be paid according to outcomes, giving them an incentive to get the best possible success rates at the lowest possible cost.

The third theme is a much greater role for the private sector. The proposed 'supply-side revolution' in education would allow the private and voluntary sector to set up new schools and receive per-pupil state funding. Private sector healthcare companies would compete freely with NHS providers on the same payments tariff. The delivery of welfare-to-work schemes would be contracted out. The fourth theme is addressing the asymmetries of information that exist in public services. Thus, for instance, the Tories would introduce 'crime-mapping' so that residents had a clear picture of crime in their area, and could really hold police chiefs to account.

So – autonomy and accountability, payment-by-results, private sector competition, and greater transparency. They seem like good principles to me. 

65. "Drug patents should be scrapped so third world countries can access them."

Scrapping drug patents would be a sure-fire way of reducing the number of therapeutic drugs being developed and marketed. Pharmaceutical firms research new ones to bring future profit streams for their company. The scientists might work from commitment or for peer group respect, but company money provides the research facilities, the equipment, the grants and the salaries.

There is a compromise between allowing the drug companies to recoup their costs and show a return, and allowing them to exploit monopoly prices. At present they are allowed 20 years of patent protection before other companies can copy their work and produce generic equivalents. The research company has to recoup its investment within that time before it faces competition from low cost variants of it drug.

In practice their 'protected' time is shorter. The process of testing and trials, of attempting to establish product efficacy and safety, and the process of securing regulatory approval takes an estimated 12 years from when the patent is registered. That leaves 8 years of unique market exploitation, and it is why some drugs cost so much.

Poorer countries cannot afford these prices, and there are calls for them to be allowed generic copies. If this happens, the cheaper versions will rapidly leak into rich country markets, undermining the drug's and the manufacturer's profitability and their ability to continue to develop new drugs. Some drug companies have, however, reached voluntary agreements with poor countries, allowing controlled generic production for poorer patients.

The present compromise broadly works, and means that rich country patients pay high prices for drugs so that in a few years poor country patients will have access to them at lower prices. It means rich people have the first access to new drugs, as they do to everything, but it also means that poorer people can benefit from them later on.

If anyone should doubt the basic tenets of public choice theory (that politicians do what benefits politicians, not constituents) then this little story should put them straight.

On a related matter, the winners of the most expensive MPs awards, broken down by staff allowances, postage paid, travel and so on. 

This might not be the wisest of all decisions. Increasing the demands upon company cash flows at a time of tightening credit. 

As the composition of the medical workforce changes there are going to be inevitable changes in how medicine is practised. 

On marginal tax rates: 7% of the working population face 90% marginal rates. And no, it's not the rich either. 

It's one thing to insist that people should be allowed to buy insurance. It's quite another to insist that they shouldn't. 

And finally, yes, you really can get pizza delivered in orbit. 

I'm currently reading the IEA's latest book, Prohibitions. Edited by John Meadowcroft, it tackles the whole range of prohibitions – from drugs and prostitution to the sale of body parts. It looks like an excellent (and timely) contribution to the public debate. You can get it here from the IEA website.

The introduction sketches out the general case against prohibition. The opening points are theoretical. Any restriction on what we are allowed to do with our own body "assigns partial ownership rights in citizens to the state", reducing individual liberty. Such prohibitions must therefore be considered very carefully, with "an assumption that government will not intervene, even if a good case for intervention can be made, other than as an absolute last resort." Without such an assumption, liberty can be gradually undermined by a series of well-intentioned and seemingly worthwhile interventions, "until it has completely disappeared."

Laws should instead be based on Mill's harm principle: the state should only prohibit things that directly harm others. Once that principle is breached, and autonomous individuals are prevented from freely choosing actions that only harm themselves, almost any intervention can be justified.

The chapter then outlines a series of practical arguments against prohibition. Firstly, prohibition places markets in criminal hands, imposing costs on the whole of society. Secondly, prohibition "increases the risk of already risky activities". Unlike legitimate corporations, drug producers have little incentive to ensure the safety of their product, and users must purchase drugs without adequate knowledge of their purity or contents. Similarly, prostitutes forced to work illegally are at much greater risk than those working in legal brothels.

Thirdly, prohibition criminalizes people who would not otherwise be criminals, by making illegal acts voluntarily undertaken by consenting adults. Fourthly, prohibitions divert police resources away from activities that actually harm third parties, imposing an opportunity cost on society and leading to higher taxes. Fifthly, prohibition increases public ignorance, making it harder for them to get the information required to assess the risks of a particular activity.

The upshot of all this is that "prohibition almost never works and is almost always counter-productive". I'm looking forward to reading the rest of the book.

The 2008 International Conference on Climate Change, which took place from March 2-4 in New York City, changed the momentum of man-made climate change scepticism. The groundbreaking event at Times Square, with 100 scientists and more than 500 attendees, exposed what were described as "absolute horror stories" with biased reporting, even in scientific journals. Science journalists were accused of "outrageous and unethical behaviour" with regard to the censoring or suppressing critical studies on climate research.

Among the many speakers in New York, three leading scientists presented solid, dramatic and verified new material completely refuting the myth that climate change was caused by mankind's production of carbon dioxide... The number of scientists attending the conference apparently well exceeded the number involved in the IPCC process... I felt touched by 100 scientists with the courage to put their convictions in writing to the United Nations' Bali climate summit. The scientists from 17 nations include internationally eminent climatologists – and authors of the scientific report prepared for the United Nations' Intergovernmental Panel on Climate Change (IPCC) including some IPCC Lead Authors.

A new 'Manhattan Declaration on Climate Change' was initiated stating "that carbon dioxide (CO2) is not a pollutant but rather a necessity for all life." Senator Inhofe’s register, put together by the USA Senate's Environment and Public Works Committee, already contains more than 500 scientists who previously endorsed the IPCC views but have meanwhile changed their mind. The sceptics have reached a consensus on four key points:

1) The Earth is currently well within natural climate variability. 2) Almost all climate fear is generated by unproven computer model predictions. 3) An abundance of peer-reviewed studies continue to debunk rising CO2 fears and, 4) "Consensus" has been manufactured for political, not scientific purposes.

Contrary to expectations the media coverage was excellent – that’s the new momentum.

Clearly today's big news is Bear Sterns. So why $2 a share? And what what different over there as opposed to what happened here with Northern Rock? And where might such things happen next? And if you really want to be scared out of your Calvin Kleins, read this.

A possible solution to the whole thing. 

On to lighter things. Did Adam Smith have Tourettes? 

The House of Lords now has a blog.

Does having Bianca Jagger doing a book blurb make you more or less likely to purchase a book on economics? 

Tastes like chicken, yes, but which type of chicken? 

And finally, yes, we would all like greater efficiency in the provision of public services, but perhaps not Prussian efficiency.

63. "We need ID cards to help fight terrorism."

Terrorists constitute the one group which seems to have no difficulty in gaining access to forged and false identification. If ID cards were introduced in Britain, no competently equipped terrorist would be without one. Terrorists do not usually write the word "terrorist" as their occupation; they try to hide their purposes, and only surface as terrorists at the moment of their crime.

It is all very well to talk of higher technology to combat ID card forgery, but the technology of the forgers advances, too, and many terrorist groups have the resources to use it.

What ID cards are actually about is control. They enable authorities to know our movements, along with a great deal of other information. We have always been reluctant to grant gratuitous information to those in authority because we have so often seen it misused. Just as sophisticated phone-tap technology is now used by local authorities to search for people involved in fly-tipping, so we can expect the information on ID cards to make its way rapidly down the scale of offences and be used against individuals suspected of trivial misdemeanors.

We have learned to our cost that every level of government is careless with the information it stores on us. Even if authorities did not misuse the information themselves, it is quite likely that their slipshod controls would make it easy for those with criminal intent to do so. There have been incidents of highly sensitive information lost on mislaid disks, or stolen while inadequately protected. The very collection of so much information together would create risks of it falling into the wrong hands.

Government talks of combating terrorism, but the real purpose of ID cards is probably to control employment of illegal immigrants or to fight benefit frauds. There are better and less expensive ways of doing this than subjecting the whole citizenry to an ID card regime.

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.