Adam Smith Institute

32. "The fact that capitalism is in crisis is shown by the constant shifts from boom to bust."

Critics point to stock market and financial volatility as evidence of a "crisis of capitalism." In fact capitalism is always adjusting to new trends and reacting to new events, sometimes sharply, sometimes gradually.

Capitalism goes through business cycles. When confidence is high the market booms, but sometimes business contracts and consolidates. Despite the fluctuations of these periodic swings, there has been a steady growth rate, averaging about 2 percent per annum for over a century. Even the Great Depression of the 1930s failed to deflect the trend of that long-term average.

The business cycle's troughs and peaks are not a crisis of capitalism. Capitalism has shown itself well able to survive these cycles. Despite them, society gets steadily richer, and living standards rise as wealth diffuses through all classes.

Governments have distorted these cycles by manipulating the economy for electoral advantage. They have flooded money and credit into the economy ahead of an election to stimulate a short-term boom and gain support from the feeling of prosperity this induces. This has produced economic dislocation and inflation which had to be squeezed out later with attendant unemployment.

In recent years independent central banks have tried to smooth the business cycle's severities by combining the pursuit of sound money with making credit easier when an economic downturn loomed. It has been a precarious act which cannot necessarily be sustained, but this is not a crisis of capitalism either. It might just be problems arising from one type of financial management.

Capitalism itself is resilient. It adjusts, it survives. Its dynamism contrasts sharply with the rigidity of the planed economies, their consistent failure to deliver the goods, and their ultimate collapse. If people are free to invest in new production, to innovate and seek new markets, the resultant economy shows remarkable ability to survive the periodic shocks it encounters. 

Two ambitious state projects for universal healthcare, Massachusetts and California, are about to fall apart because of huge funding problems. Barak Obama has taken notice. He keeps repeating that Hilary Clinton’s state mandate – wrongly labelled as ‘individual’ mandate - to purchase private insurance can’t work. Too many people, he says, simply can’t afford it. He has a point, since overregulated private insurance in many states comes with prohibitive premiums.

More important here is the case of existing inequality and unfairness – which both Democratic presidential candidates are silent about. We are talking about the present tax exemption for employers who provide healthcare to their employees. This is a dismal paternalistic ruling, going back to the cold war. It benefits mostly immobile and heavily unionised worker communities. The Wall Street Journal, which is free for everyone to read online since Richard Murdoch took over, raises the question of equity in healthcare. The subsidy is not just iniquitous because individuals can't get it, but also because it favours employees with higher incomes:

Estimates show that the subsidy is worth more than $3,000 for upper-income families (with higher marginal tax rates), and less than $1,000 for those on the lower rungs.

It's difficult for satirists to keep ahead of a reality that verges ever closer to madness. Tim Worstall has a field day over at the Globalisation Institute site. Frederic Bastiat wrote a legendary spoof about candle-makers demanding protection from unfair competition by the sun.

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him.

Syracuse has a proud history of candle production but attempts by importers to undercut our producers have put that tradition at risk. I am pleased that the Department of Commerce heeded our call to take action against these unfair practices and recognized the importance of this decision to local producers.

New research confirms that the average rat in London is never more than fifteen feet away from a sleazy MP. 

Now here's an interesting speculation. Is Bill Clinton actively (or subconsciously perhaps) trying to undermine Hillary's campaign? Alpha males are as alpha males do....

A welcome outbreak of economic liberalism on the British political scene.  

An outbreak of illiberalism on the British political scene. Can MPs really be thrown out of their party for attempting to uphold a manifesto pledge? 

A solution to a problem on that scene: how to adjust MPs' expenses so that they are rather fairer (to the taxpayer that is). 

An extremely important word, one which Sr. Chavez doesn't seem to have quite grapsed as yet: fungible. 

And finally, the results of that smoking ban in France. Smoking does cover up the smell of people themselves and in France....

In the course of this piece bewailing the State of the Nation (yes, we do get the standard "the rot set in with Margaret Thatcher") John Gray makes one point that I fully agree with:

We should junk the idea that state services should always be run as businesses; this has left public services struggling with debt and fixated on targets. It would be better to hive off some functions from the state altogether while accepting that others should be managed on non-market lines. We should be ready to give back autonomy to institutions. Devolving power has become the catchword of the hour for the opposition parties, but it involves more than giving schools and hospitals more discretion to decide their budgets. It means leaving them free to manage themselves whether or not the result is efficient.

Similarly I'm entirely happy with the idea that certain functions should be hived off from the State. The detailed management of the education or health care systems, as an example (and I would argue that that "discretion" urged would best be met by simply slapping a voucher on the back of everyone and letting them go take their pick).   

But really this is simply covering old ground. There are certain things that only the State can do and thus they are the things that it must do. Just about everything else can be left to a free people to work out for themselves. The only argument any of us is really having is which of those two classes does any specific subject or activity fall into? My answer might be more minimalist than yours but it's informed by more than either ideology or simple cynicism.

Give the pig's ear being made of the criminal justice system, one of those things that the State must do because only it can, why would we want them to do anything else which we might usefully do for ourselves? 

31. "In a new form of economic colonialism, multi-nationals are forcing harmful products such as junk food, high tar cigarettes and baby milk onto poor countries."

It's worth noting that predatory NGOs in search of campaigns to secure and boost their funding pick on 'scapegoat' or symbolic targets that are readily identified, and can easily be turned into whipping boys. Urban myths are spread about their alleged behaviour, and boycotts are born.

Yet multi-nationals do not force anyone to buy their products. As wealth increases, people seek for themselves some of the luxuries which rich countries have long enjoyed. It may be unfortunate from a diet point of view that many young Orientals prefer McDonalds' hamburgers to the healthy Chinese cuisine they were used to, but they do. They like it for the same reasons that young people in the West do.

High strength cigarettes have falling sales in advanced countries, but sell in the poorer ones. Again, this is not because their inhabitants are tricked or coerced, but simply because they like them. They might only be able to afford a few cigarettes a day, and prefer to make them count.

While breast milk may be better for the child, helping them with antibodies, mothers in developing countries sometimes appreciate the convenience of packaged milk. The same is true in rich countries. It is up to mothers to decide whether the convenience, and often the necessity, of continuing to work merits the trade-off. It is said that in poor countries powdered milk might be mixed with water which has not been properly boiled to kill diseases. The packaging and advertising both handle this responsibly, stressing the importance of hygiene.

Multinationals are supplying what the market wants. It might be sad for sociologists to see poorer countries trying to emulate our vices, but some products are assoc¬iated with increasing wealth and the convenience this enables people to afford.

Bruce 'The Brute' Anderson in the Sunday Telegraph:

The Treasury is full of thin-blooded and thinner-lipped characters, faces pale from too little exposure to natural light, whose fish eyes glint behind their wire-rimmed spectacles only when someone mentions tax increases.

Terry Wogan in the Sunday Telegraph, on global warming initiatives:

Still, be of good cheer, something seems to be working. Perhaps it's the Al Gore effect: global temperatures haven't risen for 10 years, the ski slopes are up to their salopettes in snow all over the world, it's even coming down all over China, and the supposedly doomed polar bears are enjoying the coldest winter in Hudson Bay for many years. Not much chance of the ice melting at -30C, with a wind-chill factor taking it to -50C.

Apparently the solution to climate change is to move away from democracy to an authoritarian form of government. But don't worry, this time it will be authoritarian government by experts, not those who seek power.

On the subject of authoritarian government, just who was stupid enough to bug legally privileged conversations? Clearly experts, eh?

Introducing a new method of measuring political sleaze: one, two or three little piggies? Five presumably is when someone is actually banged up.

On the subject of banging up, could we please stop doing this to people who are only harming themselves by ingesting the substances of their choice? 

What's in a name? If it's John Gray rather than a rose, well, perhaps they don't all smell the same. 

This is indeed a rational reaction to most political speeches. 

And finally, just what all that World Bank money really gets spent upon. 

No, not about the prices of mobile phones, but what mobile phones do to prices. We already know that better communications technology is correlated with a rise in the growth rate of GDP. A new paper helps to explain quite why:

In this paper we provide some estimates of the nature, magnitude and distribution of the effects of cell phones on grain market performance, traders’ behavior and consumer and trader welfare in Niger. The introduction of cell phones reduced price dispersion across grain markets, with a larger increase for those markets that were farther apart and over time.

As the researchers conclude, mobile phones are therefore probably Pareto-improving: some have been made better off and none worse off, a highly desirable state of affairs.

In the larger scheme of things this does suggest some options for how we might aid growth in such poor countries. Yes, some, as with the authors of this paper, suggest subsidising mobile phone systems. Given that private companies are entirely happy to build such networks as long as they are allowed a licence, this would seem unneccessary (as with the Niger system itself). Encouragement to governments to issue such licences might seem to be all that is required. But more important than that even is the lesson that improving the ability of markets to function benefits all, so we should be encouraging those things which improve said functioning.

30. "Private equity firms do nothing but make excess profits at the expense of jobs."

Private equity firms specialize in making more efficient use of resources than is currently being made. They look for opportunities where a firm is under-performing. Typically they might consider that not enough use is being made of the firm's resources, and that better management and organization might get more out of them. These are in no sense "excess profits," though they are higher profits; that is the point of the exercise.

Very often the private equity bidders will put their own money into a venture as well as borrowed money. They calculate that the return they can get a company to yield will be sufficiently greater than the interest on the loan to make it worthwhile, and that their own funds will see a significant return in the process.

It is not true to say that private equity takeovers result in job losses. They can in the short term, but most often their effect is to improve the company's performance, to secure its market position, and to expand the areas in which it succeeds. The net result is more jobs, not less, and more secure long-term jobs at that.

The shareholders benefit, too, from the higher than market price the private equity group pays for their shares. In cases where some shareholders opt to retain minority holdings in the restructured firm, they gain, too, from the enhanced performance achieved by the new owners.

The economy as a whole gains by having its resources used more efficiently and contribute more to the economic growth of the nation. The firms taken over by private equity nearly always become more competitive as well as more successful, able to bring business to the country that might otherwise have gone to foreign competitors.

The rise of private equity groups has brought benefits throughout the economy, turning under-performing firms into success stories.

I was so happy when I married Miss Right. Until I discovered that her first name was 'Always'.

The Ten Commandments contain 297 words. The Bill of Rights is stated in 463 words. Lincoln's Gettysburg Address contains 266 words. A recent federal directive to regulate the price of cabbage contains 26,911 words.

– The Atlanta Journal

This might not be true in every and each particular: a slight suspicion of over-emphasis for dramatic or comic effect perhaps. But Alfie visits Westminster to discuss the West Lothian Question.

This might indeed be a world first: a blog post from the Oval Office. 

Discussing the economics of obesity: yes, that recent paper showing that fatties save the NHS money is discussed. 

What is wrong with the benefits system in three short sentences. 

What might be wrong about the US welfare system: marginal tax rates of 130% anyone? 

Don't let anyone ever tell you that economists define wealth by how much money people have. 

And finally, an online jukebox for your delectation.