Adam Smith Institute

On this day, in 1752, Adam Smith was appointed professor at the University of Glasgow. Though still in his twenties, his fame already preceded him. Through the offices of a wealthy family friend, he had already given a series of private lectures on philosophical subjects in Edinburgh, which had caught the attention of the intelligensia of Scotland's great capital.

Most people today think of Smith as an economist. But in fact he was more of a social psychologist. At Glasgow he taught logic, ethics, rhetoric and belles-lettres (the arts of using language effectively and finely) and jurisprudence (what today we would perhaps call politics).

And it was his work on ethics that made him truly famous. His 1759 Theory of Moral Sentiments analyzed the human social psychology of morality. A hundred years before Darwin's Origin of Species, it took the view that our morality persists because it is useful and helps our species to prosper. That human beings are social creatures; they need the reinforcement of others who appreciate the good they do, and their behaviour is changed by the disapprobation of others whom they hurt.

His book brought him the commission of personal tutor to a young nobleman, with whom he toured France and Switzerland, meeting other leading intellectuals of his day, and giving him the material to flesh out his other great book, The Wealth of Nations.

Learn more about Adam Smith here.

News from the Pope's visit to America:

A salesman from KFC walked up to the Pope and offered him a million dollars if he would change "The Lord's Prayer" from "give us this day our daily bread" to "give us this day our daily chicken." The Pope refused his offer.

Two weeks later, the man offered the pope 10 million dollars to change it from "give us this day our daily bread" to "give us this day our daily chicken" and again the Pope refused the man's generous offer. Another week later, the man offered the Pope 20 million dollars and finally the Pope accepted. The following day, the Pope said to all his officials, "I have some good news and some bad news. 'The good news is, that we have just received a check for 20 million dollars. The bad news is, we lost the Wonder Bread account!'''

Those conferences on poverty: amazing how they're all in such desirable places to visit, isn't it? Mauritius? And of course there's a certain lack of anything useful being done at them as well.

All too many people misunderstand this: yes, services can indeed be productive uses of labour.

Although when Adam Smith called government unproductive labour, he didn't mean quite this unproductive.

Nor did he mean this entirely foolish piece of European Union legislation.

Just as there are no free lunches, there won't be a free carbon cap either.

More on that 10p tax rate abolition: planned and callous so we are told.

And finally, British eating habits are indeed improving.

... ASI Fellow Tim Worstall writes about the importance of taking the poor out of income tax altogether. We particularly like the bit where he describes us as "bleeding heart classical liberals". Click here for the article.

Dani Rodrik equates the three things, guns, drugs and financial markets, and asks why we don't view them in the same way when it comes to their regulation? He does so to point out that, correctly, all three have benefits for their users but can have spill over effects or externalities, upon others. Further, that the fact that all advanced societies strictly regulate the availability of drugs, most do firearms, means that we should be regulating financial markets much more closely and restrictively:

True prudence requires that regulators avail themselves of a broader set of policy instruments, including quantitative ceilings, transaction taxes, restrictions on securitization, prohibitions, or other direct inhibitions on financial transactions...

Well, yes, except that argument rather relies on the thought that our current regulation of drugs and guns is indeed correct for finance to require those greater restrictions. And of course around here we don't think that to be true. That gun crime has risen in the UK since the banning of handguns and the tightening of the restrictions upon private ownership of other types is one thought. But that we around here think that it is the very illegality, the regulation, of drugs that causes most of the problems surrounding them might give us pause as well.

Overdoses, disease from shared needles like hepatitis C and AIDS, adulteration, the crime surrounding the supply, the crime of addicts stealing to fund their habit, all of these are direct results of the regulations themselves and as we often (and forcefully) argue those results are worse than simply allowing people to exercise their natural liberty to dose themselves as they see fit.

Ricardo Hausman weighs in Rodrik's comment section too:

I am sure Dani would agree that Silicon Valley venture capital, by allowing start-ups to be created and grow all the way to an IPO, is an incredibly productive financial innovation that no policymaker could have designed ex ante. One could say also many positive things about leasing and factoring and the list goes on and on. Financial innovation is part of the overall process of technological innovation that has been valuable throughout human history.

Quite: given that we don't have and never will have omniscient (to say nothing of unbiased or unbribable) regulators, providing them with the power to stifle innovation is simply going to make our children poorer than they need to be.

It might also be worth pointing out that people have at various times tried ceilings, transaction taxes, restrictions upon securitisation and other direct inhibitions: the US did in the 1960s and 70s for example upon certain bonds. They don't work all that well though, as with the similar regulations upon drugs: where else do you think the Eurodollar markets came from and why are they based in London, not New York?

97. "We must increase the foreign aid we give if less developed countries are to escape from poverty."

Foreign aid does not lift countries out of poverty; trade does. No poor country has ever become rich from foreign aid, and no poor country which has become rich achieved it without trade. The notion that poor countries will become richer by a more equal sharing of the world's wealth is wrong; they will become richer by creating additional wealth for themselves, just as the rich ones did.

It's all very well for people in rich countries to feel good by increasing foreign aid perhaps from 1 percent to 2 percent, but it will make negligible difference. If they at the same time ban the import of goods from poorer countries or impose punitive tariffs on them, they are preventing people in those countries from pursuing the surest path out of poverty.

The EU waxes pious about the few crumbs of foreign aid it hands out, and then sets tariffs against the goods the poorer countries produce in order to protect its own producers. Its Common Agricultural Policy is little short of criminal, subsidizing its domestic agriculture so foreigners can't compete, them dumping surplus goods onto world markets so they can't sell there either.

Humanitarian aid to combat disease and starvation and to bring relief after natural disasters is a good thing which we perhaps could and should do more of. But development aid is not. Instead we should open our markets to their produce and buy as much as we can. With the money that trade brings they will be able to invest more in developing and upgrading their industries.

Many once poor nations are now set on the upward path that trade makes possible. On our part we can buy their stuff and switch our own economies to produce different things. This, not aid, will help them out of poverty.
 

Gordon Brown's decision last year, as UK Chancellor, to scrap the 10p starting rate of income tax is coming back to haunt him Rising outrage from backbench Labour MPs eclipsed his American trip. A revolt is in the air.

As Robert Chote of the Institute of Fiscal Studies observes in the Sunday Telegraph, the 10p rate does add complexity to the tax system. Scrapping it hurts people in the £5k-£20k range, and noticeably helps those in the £20k-£40k bracket. Helping the rich at the expense of the poor? No, says Choate: by raising tax allowances for pensioners and tweaking tax credits, Mr Brown compensated many of the poorest. The trouble is, he didn't compensate them all. The tax credit changes may help those with children, but not childless people of working age. Some 5.3m people are worse off.

The move to scrap the 10p rate is seen by experts like Choate as a welcome simplification of the tax system. But by relying on his over-complicated tax credits to soften the blow, Brown is simply extending one complexity as he reduces another.

The Conservatives have seized the political ground by saying that they would restore the 10p starting rate. A good dog-whistle policy, but the wrong one. It's time we scrapped the need for tax credits and took the poorest people – certainly those on or below the minimum wage – out of taxation entirely. That would be one great simplification. Another would be to cut out the other tax complexities and extend the 20p rate to everyone. It's called a Flat Tax, it works, and you can read about it here and here.

A useful point to make about the Reverend Malthus: he was right about all of human history until his own time. Similar remarks could be made about other oeconomical ideas: those of Marx perhaps?

If you're interested in peer reviewed scientific papers which take issue with the tenets of climate change, here's a (non-exhaustive although long) list.

On which subject, a climate scientist takes issue with Nicholas Stern's latest pronouncements on the immediate and catastrophic nature of the problem.

Further evidence that wind power might not be all that much of a solution to any problems.

The Conservative Homies choose their book of the year.

One way to eradicate poverty: if sending them aid doesn't work, why not let them come here?

And finally, the Ban Darling Campaign seems to be getting some results.

A report in The Times on how rural land values are soaring:

Farmers have seen their land values soar by 30 per cent in a year. With markets in turbulence and surging global food prices making agriculture profitable, land is now seen as a safe haven for cash and pension funds.

City institutions, led by Blackrock, UBS and Schroders, are setting up funds to invest in land and agribusiness. Other hedge funds are exploring the market. They are in competition with British farmers and businessmen from Ireland, Denmark and the Netherlands, where land is even more expensive.

Well, yes, but there's something else going on as well, it's not just the usual interaction of supply and demand. There's subsidy as well.

The Common Agricultural Policy (spawn of the very devil that it is) has recently undergone some changes. Instead of subsidy being based upon production, it is now linked simply to the acreage (actually hectarage but forgive this traditionalist his little pleasures) of land held. It's not quite in one leap though: over a period of years it moves from the historical amount based on past production to the flat per acre payment. That change is having its obvious effect: previously you had to actually farm the land, get something out of it. Now you just have to own the land to get the cheque.

That obvious effect being of course that the price of land will rise, as David Ricardo woud have pointed out. The subsidy is now simply an additional rent to the property, one which will simply feed through into increased capital values. It's a little difficult to work out exactly what the subsidy actually is (come on, this is the EU we're talking about) but £100 an acre or so looks like a reasonable estimate. Taking a 5% interest rate (or return upon capital, your choice) we would thus expect the subsidy to increase the value of land by some £2,000 per acre (ignoring the effect that the earlier subsidy system had on such land).

£3,500 Price of an average acre of farmland a year ago
£5,000 Price that an acre is close to fetching today

Ah. So, that's what the CAP does, increases the wealth of those already owning land and making future farmers require more capital to enter the business. Not, perhaps, the desired outcome. Which brings me to my perpetual and oft asked question about the European Union itself.

Can we leave yet?

96. "Private sector health and education cream off the very best in resources and personnel from the state sector."

When people pay for private health and education, they save the state money because it no longer has to provide facilities for them. Furthermore, the money they spend for themselves means that the total expenditure on health and education is increased. And because the private sector has to be responsive to what consumers seek, it gives the public sector some idea of what it is that people want. It is not true that it drains away state service personnel; only a tiny fraction of those going to work in private healthcare come from the state sector.

Private health and education do not take resources away from the public sector; they give it more to spend per head. They may, by providing more flexible conditions, attract some of the most talented personnel. But they also improve conditions in the state sector by taking away some of its workload; and there may always be those who prefer to work in the state sector. Machines bought for use in private medicine increase the total supply of health equipment and the supply of equipment per head for the population. Their use enables waiting times for NHS equipment to be cut.

The private sector often acts as pacemaker for the public sector, making advances in services and techniques which the public sector can follow. Some of the innovative treatments are available first in the private sector, and spread over into the state sector once their value and efficacy have been established. In both health and education it is not so much the financial rewards which draw people to the private sector; it is the attitudes and conditions they find there. The weight of bureaucratic compliance and the endless form-filling are absent, and personnel have more time to interact with those they are serving. The parallel private services do not undermine the state services; they bring about their improvement.
 

My top read this week is Squandered: How New Labour are Wasting Over One Trillion Pounds of Our Money, by David Craig (£7.64 + postage).

The UK government has increased our taxes by around £1000 billion over the last decade (that's an extra £50,000 per household). And what have we got for it? Slick, world-class health and education? A welfare system that really helps people back into work? Or a bigger, fatter, self-serving bureaucracy?

Silly question, really. David Craig's new book shows how the tsunami of extra cash (our extra cash to be precise) has been squandered by department after department. It's a triple whammy of f incompetence, cover-up and cuts. Craig exposes a story of woeful mismanagement that has produced more bureaucracy rather than better service, squandered astonishing amounts of our money, damaged our life and rewarded the person responsible with the keys to Number Ten. Would be comic if it weren't so tragic.

Learn more and buy it here.

Behavioural economists tell us that humans aren't rational and thus that carefully crafted regulation can be better than laissez faire. Possibly so, but then public choice economics tells us that "carefully crafted" ain't what regulation ever is. The idea is thus rather better than the reality.

How addicted do drug users get? Not very according to the latest figures: even with crystal meth only 5% of users actually become addicts.

Ripples of the credit crunch or how you can now buy (certain) airline tickets with PayPal.

On airlines, those limits upon liquids or gels in baggage: are these by volume or weight?

Greenhouse gas efficiency is indeed increasing.

A very efficient (if rare) method of making money.

And finally, how modern political reporting would have covered one of the great political debates of the past.

Our Senior Fellow in Transport, Professor John Hibbs OBE, alerts me to a new extension of regulation in the bus industry. The Certificate of Professional Competence is already a requirement for any business engaged in public road passenger transport, but from September it will be made a requirement for drivers too.

At a cost of £240, new drivers will be required to take a four-hour theory test, even though that will cover the NVQ that many companies already demand of their drivers, and naturally (since this regulation emanates from Brussels) it will cover not just safety but subjects such as 'customer care', 'transport in the economic context' and 'role in the company'. Existing drivers will have to undergo 'periodic training', involving 35 hours attendance to meet the same criteria.

Well, I love the idea that my bus driver should be trained to drive safely, but this seems to be over-egging it. It won't improve on what responsible operators already do. What it will do is load the industry with extra costs, which the large groups will be able to bear but smaller operators will not be. So new competition will be thwarted, and today's legions of perfectly well qualified part-time drivers will find themselves out of work because their hours don't justify all the cost and training. The impact will be most severe for the small firms, usually personal or family businesses, that today provide private hire and contract services of various kinds, who (thanks to current fuel prices and of course taxes, work on tight margins already.