Adam Smith Institute

Earlier this month Democrats in the United States House of Representatives managed to delay the establishment of a free trade agreement between the United States and Colombia. This protectionist stance reflects the positions taken by Hilary Clinton and Barack Obama, the two contenders for the Democratic nomination. This is despite the fact that both countries would clearly benefit from the agreement. Robert J Samuelson articulates this well, pointing out the blindingly obvious (though clearly not to many democrats): that this agreement would increase trade, helping U.S. manufacturers.

The decision for the Democrat led house to delay President Bush’s agreement with President Álvaro Uribe Vélez is mired in cheap political opportunism with little thought as to the consequences. The free trade agreement would benefit people in the United States by stripping out Colombia’s tariffs that are as high 35% on cars, 15% on tractors and 10% on computers. This will obviously give U.S. businesses a fairer chance of competing with imports from elsewhere.

The principal benefit for Colombians is different. Colombia's exports already enter the U.S. market duty-free under the 1991 Andean Trade Preference Act. For the people of Columbia, the Free Trade agreement offers the permanency that the 1991 Andean Trade Preference Act lacks, as the latter has to be renewed leaving businesses uncertain on the future.

Although the Democrats lead the delay on the Trade agreement, there is a split in Democratic Party ideology between Lou Dobbs-style populism and Bill Clinton-style free trade. As such, prominent Democrats have written an open letter to Congress in support of the U.S.-Colombia free trade agreement.

Whether Clinton or Obama are true advocates of protectionism or just posturing for popular appeal, they are undoubtedly damaging the economic prospects of their country. In contrast, straight talking John McCain has the guts and integrity to stand up in Ohio and make the case for free trade to the people. He seems wise enough to know that free trade begins at home.
 

If you picked up the Daily Mail this week and came across this article you may have been quite cynical. Glass, in bones, that heals? They must be joking! Well, no, it is true.  Scientists at three English universities (Imperial College London, University of Kent, and Warwick) are working together to develop just that – a glass to heal bones. 
 
Now, before you go thinking they’re crushing up windows and putting them in people, glass can be (simply) defined as: a brittle, transparent solid made from silica without a crystalline molecular structure.  Back in the 1969, Larry Hench developed BioGlass (pictured left), after being challenged by a US colonel to help Vietnam War vets with devastating injuries.  BioGlass was the first man-made material to bond with living tissues, and has many uses today, including dental, middle ear implants, and orthopaedic applications.
 
In patients where grafts are necessary, often there is little spare bone to graft from one place to another. Animal grafts or bone from donor banks introduce immune responses, and require lots of medication to prevent rejection. This research aims to eliminate that need altogether.
 
Today, scientists are working on improving this glass, making it more bioactive and like the shape of trabecular bone.  Researchers at Imperial College were the first to take BioGlass and make it into a 3-D porous structure. The improved shape allows cells to grow and form tissue, while providing strength and support like native bone. 
 
When implanted, these bioactive glasses gradually release necessary ions, such as calcium and phosphorus, stimulating the bone to mend itself.  They are also biodegradable, and slowly break down as the bone re-grows, preventing a loss of strength while repairing. These glasses are now being combined with other materials on the nanoscale, widening their potential applications in the body. These implants have the potential to greatly improve patients’ quality of life and change the future of medicine.

It does appear that Our Polly has become somewhat monomaniac, doesn't it?

Government regulation again: it's legal to sell hot dogs on the Mean Streets of LA. Wrap them in bacon and go to jail.

There are other barriers to entrepreneurs and social mobility than just tax rates or the ease in setting up a business.

A brief breakdown of the US Federal budget. Looks very like you can't get to there (anyone's desired destination) if you start from here.

Someone once said that there would one day be the Ultimate Machine. Well, now there is.

When is the law not the law? When the UN speaks, apparently.

And finally, why are the septics even bothering to have an election?

Sir Malcolm Rifkind spoke at the CPS this week about The Unfinished Business of Devolution. I wasn't there to hear it, but ConservativeHome has a good write-up here.

Rifkind is right that the West Lothian Question – the constitutional anomaly that means Scottish, Welsh and Northern Irish MPs can vote on issues that only affect English voters, while their own constituents are governed by devolved institutions – needs to be addressed. It's a basic issue of fairness. Tuition fees, the ban on fox hunting and foundation hospitals were all forced through Parliament by non-English votes, even though they only applied to England.

Rifkind is also right that his proposed solution, a grand committee of English MPs who would consider, amend and vote on English-only legislation, is better than the fudge Ken Clarke's 'Democracy Taskforce' is considering. But it still doesn't go far enough – it lets an unrepresentative government continue to control the policy agenda.

I think there are two options. The first is to establish an English Parliament, as I recommended in this ASI Briefing. It need not amount to gross over-government or excessive cost as Rifkind fears. The new English Parliament could be made up of all the existing English MPs in the UK Parliament, sitting in the House of Commons for 'English sessions'. This parliament would elect its own First Minister who would appoint a cabinet to exercise the devolved powers (existing government departments would simply be transferred from the UK government to the English one).

The second option is more radical and localist. Rather than have devolved powers exercised by an English Parliament, you could shift authority closer to the voters and put counties in charge (as I suggested here). Parliament would then be free to focus on the real affairs of state like foreign policy, security and defence – which is what it should be doing anyway!

Either way, it's important that the devolved authorities set their own taxes and spend only revenue they themselves raise. That discourages profligacy, rewards efficiency and increases accountability.

As Rifkind says, it's about time we dealt with the unfinished business of devolution.

101. "We should help third world producers by buying Fair Trade goods."

Actually, we should help third world producers by buying more of everything they produce. 'Fair Trade' aims to give higher prices to approved producers in the developing world, inevitably at the expense of others. It tries to manage trade, setting the price it thinks more appropriate than the market price, and giving some of the extra money paid to producers who have signed up to its organization.

But only a small proportion of the price differential finds its way back to people in poorer countries. The movement is big on heart-warming individual anecdotes, but scores low on the overall statistics. Only a tiny proportion of goods are designated as 'fair trade,' and most of the higher prices paid are swallowed up before they reach the original third world producer.

It might make a few people feel good, but it is not going to be a significant factor in the drive of poor countries to become richer. They do that by selling goods that the world wants. Often this starts with primary products, but real development can come when they gradually add value to their products by such things as refining and marketing, and take more of the value back to their own country.

Countries do not stay poor because we all pay too little for our coffee. Coffee responds to market forces, and some of these countries over-expanded production, with an increased supply that caused a price fall. Some have sensibly moved into added value, doing the processing, packaging and branding themselves for greater returns. If 'fair trade' keeps more basic coffee-growers in business, it contributes to that over-supply and depressed price.

We could help poor countries most not by trying to manage a small part of the market at inflated prices, but by removing our tariffs and subsidies, and buying as many of their goods as we can.
 

The new book by our august Director, Dr Eamonn Butler, is now out. It explains in simple language how markets work and why the politicians who try to thwart markets or harp on about 'market failure' are in fact instruments of pure evil. Indeed, Dr B says that he's written the book so simply 'that even politicians can understand it' so let's hope they will take his message on board.

The book will be finding its way to a bookshop near you soon, but it's on Amazon, where you can actually flick through the contents pages – which contain intriguing headings as Zen and the art of price maintenance, That ol' black market, In God we trust – others pay cash, and (presumably a reference to Mrs Thatcher) Handbagging the state.

You can also read the first half-dozen pages, where Butler gets into the subject by describing his foray through a bizarre and rowdy street market in the wilds of China as he searched for someone to fix his trousers. And you can check the index, which references, among other things, Cabbage Patch Kids, Churchill, Coca-Cola, Princess Di, Hammurabi of Babylon, The Good Life, Hobson's choice, Nike shoes, Paying for lighthouses, and Probibition.

My favourite index entry is 'equilibrium, meaninglessness of'. As Butler says, when you get to this section in your economics textbook, 'rip it out'. An amusing and instructive read.

Buy it here.

Tax Freedom Day in the United States was yesterday. Hurrah! Here's one song in a video to celebrate that fact. And here's one vastly more amusing from, well, some might call it a haven.

Finally, one country has done something sensible about drugs!

So why would the Teachers' Union want to have their offices next to the State Capitol in so many US States? It couldn't be so that they could, umm, lobby lawmakers, could it? You know, be a special interest?

An interesting proof that the private sector really does do things better than government.

Understanding what My Noble Lords actually mean, rather than what they say.

Competition dragging up standards again. If it works with toilets in hamburger joints, why not in schools, hospitals....

And finally, put not your trust in DRM.

In all the discussion of the American sub-prime mortgage market, few people have pointed out that the US government actually compels banks to make loans to poor people in poor neighbourhoods – regardless of whether those loans are prudent and are likely to be repaid.

It started with the Community Reinvestment Act of 1977, which aimed to support community groups, but in 1995 the Act was extended and beefed up, giving regulators far more powers to punish banks who refused to lend to people in poor urban neighbourhoods – so-called ‘redlining’ – because they considered the risks too high in those particular areas.

Congress's idea, obviously, was to extend to poorer people the same rights and enjoyment of home ownership that the middle-class majority possessed. But in fact it precipitated the banks into giving loans to some rather shaky people. Quite simply, they feared retribution by the regulators if they did not.

As a result, sub-prime loans mushroomed in the late 1990s. Not too bad for as long as the US economy was booming. But booms inevitably burn out and then the banks started to realize the magnitude of their dodgy contracts. And now, the whole world is being sucked into this crisis, and ordinary, prudent bank customers find themselves and their money frighteningly exposed. That's the cost of American political correctness. Thanks, guys.

Just a few months after the capital gains tax farce, Gordon Brown made another embarrassing U-turn yesterday. With forty of his own MPs opposing the abolition of the ten percent tax band and local elections coming up next week, the prime minister announced that a 'compensation deal' for the losers from the tax changes would be unveiled in the autumn. The 10 percent starting rate of income tax will still be abolished, but the groups that stand to be left worse off – 60-64 year olds and low-paid workers without children – will get more winter fuel payments or new tax credits.

Once again, an attempt at simplification has ended up making the UK's tax code even more complicated and confused. It's already the longest in the world at 9,973 pages, while its administrative burden costs the UK £5.1bn a year. Nor is the government's quick fix (rushed out just in time for Prime Ministers Questions) likely to satisfy opponents of the tax change. The parliamentary rebellion may have been averted, but taxpayers will not be so easily satisfied. They don't want the hassle of filling out forms and applying for tax credits, they just want to pay less tax and keep more of their hard-earned cash in the first place.

A much better solution is to take the poor out of the tax system altogether. At the minimum, the personal allowance should be raised so that no one earning less than the minimum wage (about £12,000) a year pays any income tax at all. Then you could get rid of the labyrinthine tax credit system and all the bureaucracy that goes with it as well. 

Unfortunately I can't see the government going for such an obvious solution. They would rather tax you as much as they possibly can, and then give back only as much as they think you deserve.
 

100. "Nobody should be free to smoke in public places."

There are many things which people do in "public places" – a concept which now includes private property open to members of the public – which others find unpleasant. The question is whether they do significant harm to others. It seems well established that many smokers harm themselves, and are at risk of incurring diseases thereby. This does not justify state intervention, any more than our consumption of unhealthy food and drink justifies it. The state can warn us, but the behavioural decision in the light of that knowledge is our own. Most smokers do not appear to engage in criminal activity in support of or in consequence of their habit.

There is less evidence that passive smoke harms third parties. People who share living space over the years with heavy smokers might incur greater risks, but there is little to suggest that non-smoking patrons of bars and clubs stand a significantly greater health risk if others smoke. The bus which spews diesel fumes onto a crowded pavement, especially at the level at which children breathe, might well prompt greater health risks. Those who cough and sneeze in public places undoubtedly pose health risks to others, while the thoughtless use of mobile phones on trains and in restaurants might raise the stress levels of those who have to suffer it to health-damaging levels. Society usually takes the view that there must be a significant risk to others before it intervenes.

Some of those who support smoking bans claim that most smokers welcome them because it helps them to give up. Very few cigar smokers, also banned in public places, want to quit, though. And although many people would like to lose weight, few would regard this as a justification for society to ban caloric foods in order to help them diet. The principle should be consistent, and not single out smokers to ban.
 

On the State funding of political parties: why do they want more if they're already getting £1.75 billion? Isn't that enough?

All about bear raids, or, why Oxford shouldn't have a business school.

People lose weight when economic crisis strikes: so should we have some more economic crises to beat obesity?

For those worried that the US doesn't make anything any more: a list of what it does make.

One answer to why we haven't already rebuilt the energy infrastructure the way some would wish: given the regulatory burden, we couldn't even build the one we already have again.

Strange tort laws combined with regulatory burdens can be worse though.

And finally, Netsmith's life, loonie socialists and how to write a modern CV.

George Osborne's non-dom tax policy is now in tatters. It wasn't a bad policy, all in all, to make non-domiciled investors stump up a bit of cash to pay for the public services that they enjoy by dint of living here. The proposed burden was modest, and the policy had been tested out on the business community before it was announced. I don't think I would have proposed it (on the ground that the UK needs every investor it can get, and there are plenty of places round the planet who are willing to tear up the tax forms and welcome them in). But nobody really objected too much.

Indeed, it went down pretty well with the general public. Whereupon (unfortunately) Chancellor Alastair Darling thought that he too could stick these rich foreign investors for some cash to help fill his budget deficit – and, in haste to steal Osborne's halo and without any consultation, promptly overdid it.

So now we've had a stream of non-domiciled investors mumbling and grumbling that they might – or will – soon be leaving the country for more agreeable and lower-taxed places, like Bermuda or Switzerland, where policy is less fickle and arbitrary, and where you can plan your business for the longer term. The latest, according to reports, is Brevan Howard, a $22bn investment fund currently based in London's Pall Mall. But that's just the latest of dozens.

So at a stroke, Darling has killed off the UK's hard-won status as a buzzing international investment centre where non-dom enrepreneurs are welcome and left in peace to get on with making money for themselves and, indeed, all those Brits they work with and invest in.

To will back that status, Osborne – when Chancellor – will have to do far more than just promise a somewhat lower rate of tax. Investors' confidence in UK policy has, unfortunately, been shot away by the government's arbitrary, opportunistic attack on them. Osborne will have to say that he'll restore the status quo ante – and sign in blood that it won't change again during his term of office – before the big fund managers will think about returning.