Blog Review 752

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Perhaps the bailout could be best described as Hayek's Revenge?

Yes, regulation really does matter, as did Lehman.

Now that we know more than we did we need less regulation than we did need.

Contrary to popular belief, it doesn't all stem from the stupidity (or greed) of the bankers.

On the inanity of targeting, or, be careful what you measure.

A look back at the 50's literati.

Boho London is arguably the only environment in which the introduction of cocaine actually improved the general level of health.

And finally, a design icon (umm, iconic design?) celebrates its 100th birthday.

Food fights

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Oh dearie me, those who would control our lives for us, we little baa lambs being quite incapable of doing so ourselves, seem to have found a new phrase to explain their actions.

But individual action is not enough. It requires choice-editing, not personal choice.

No. Sorry, but no. I'm an adult and I, like all the others who share that distinction, am entirely capable of both taking my own decisions and also of bearing the consequences of them. While you've slightly disguised your intention by calling it "choice-editing" your aim is obvious enough. You want everyone to do as you would will it, not as they, in that irritating fractious manner of free people enjoying their liberty, would. And for that, Tim Lang, you need to be assailed, even if only in a blog post.

But we should go further, and subject Mr. Lang to derision as well.

...when we produced 80% of foods consumed here that could be grown here. Now it's near 60%. Why are we using others' land to grow food we could grow here?

It's called trade laddie. That voluntary exchange, that exploitation of comparative advantages, the division of labour that makes the modern world so stinking rich. The very thing that makes it possible for two grown men to spend their time, as we both do, pondering upon food policies rather than stooped double over a hoe in the fields growing the stuff.

Which rather leads us to our second reason, beyond the curtailment of our liberty, that we should oppose such "choice-editing". Those who would be such editors simply have no idea what they're talking about anyway.

Follow the evidence

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If you haven’t read Dennis Sewell's recent Spectator article on the financial crisis yet, you should. It makes a very compelling case that big government, far from being our saviour, is at the root of the current situation. To digest his argument:

• Roberta Achtenberg, President Clinton's Assistant Secretary for Fair Housing and Equal Opportunity at the Department of Housing and Urban Development (HUD), believed that racism was preventing minorities enjoying the same level of home ownership as whites.
• She set up a network to bring lawsuits against any mortgage bank suspected of practising unlawful discrimination. When HUD's investigators couldn't find any overt racism they tried to prove ‘disparate treatment’ of minority groups instead. When that didn't work, they went after ‘disparate impact’.
• The mortgage banks got the message. In contrast to previously conservative lending practices, "Mortgages were offered with only 3 per cent deposit requirements, and eventually with no deposit requirement at all. The mortgage banks fell over one another to provide loans to low-income households..." Now these banks are responsible for more than three-quarters of dodgy subprime loans.
• Meanwhile, national banks were put under a different kind of pressure: "Changes were made to the Community Reinvestment Act to establish a system by which banks were rated according to how much lending they did in low-income neighbourhoods. A good CRA rating was necessary if a bank wanted to get regulators to sign off on mergers, expansions, even new branch openings." At the same time, Congress backed Fannie Mae and Freddie Mac to expand mortgage loans among low earners, and introduced new rules let them securitize subprime loans.

Smoking gun, anyone?

Blog Review 751

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A nomination for the craziest piece (yet) on the financial problems.

When economic times change tastes in naked ladies change.

Another mindboggling scheme slipped out when they thought no one was watching.

Given that the banks are having such problems, why not try working without banks?

Yes, we do know how to sort out the fishing industry. Pity no politician ever listens.

If you think hte British banks have been behaving badly, look at what the German ones have been up to.

And finally, the speech that won't be given.

Bad news all round

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European leaders were all looking smug earlier this week as they pumped another $250 billion into the markets and announced that the financial crisis was officially over. None more smug than Gordon Brown, of course, whose plan they had adopted.

The fact that they had been able to get together and decide anything at all gave the markets a brief boost. But now the European stockmarkets are sliding again, and our great leaders seem unusually shy about media appearances once again.

Investors know that the $250 billion will have to come from somewhere, and of course it will come from bigger borrowing, bigger deficits, rising taxes and cutbacks. The recession that everyone was waiting for has suddenly got worse. And because Europe and the US aren't going to be expanding so fast, other countries are being hit too, particularly those like Russia which produce the oil, gas, minerals and other commodities that fuel Western economic growth. The downturn just got global.

Meanwhile the bail-out plan is not alloyed good news for bank investors. It came with the price of some political demands, like banning dividends and bonuses. So banks will find themselves losing their best people to other sectors, and anyone who has any cash left will be looking for dividends elsewhere.

Given the amount of money that goes through the markets each day, $250 billion looks a modest sum. Can it really stop the rot? It seems to me that you really can't buck the market. But you can use an awful lot of taxpayers' money trying.

Various thoughts

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New research from the Pensions Policy Institute has found that the cost to the taxpayer of public sector pensions is likely to rise by 40 percent (as a share of GDP) over the next 20 years. Aren't we lucky to have had Gordon Brown, that saviour of the world economy, as Chancellor of the Exchequer for all those years? His infamous pensions raid cost savers more than £100bn and destroyed the best private pension system in Europe, but don't worry: he and his gold-plated, public sector cronies will be just fine.

Speaking of the public sector, couldn't our lot follow Ireland's example? (Hat-tip to Guido) The president is taking a 10 percent pay cut, government ministers are taking a 10 percent pay cut, opposition politicians are taking a 5 percent cut, the governor of the Bank of Ireland and the Irish Financial Services Agency has volunteered for a 10 percent cut... Even the top six executives at RTE, Ireland's state broadcaster are promising a "significant reduction" in pay.

Speaking of which, good luck to Tory MP Christopher Chope, whose Broadcasting (Television Licence Fee Abolition) Bill gets its second reading in the House of Commons today. In a multi-channel, digital age the television licence is truly an anachronism. Why should I have to pay for the BBC's so-called 'public service broadcasting' when I would much rather watch Sky? And as for the TV licensing authority, who isn't sick of their crypto-fascist bully tactics?

Binning Barnett

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According to The Times, Sir Kenneth Calman, the chairman of the commission on Scotland’s constitutional future, has said that the Barnett formula, which used to calculate the level of public spending in Scotland, needs to change.

He's right. The existing formula is not so much a needs-based assessment of public spending requirements as it is a bribe to keep Scottish voters quiet. That's why Scotland gets more government money per head than relatively poorer parts of England.

But the best change would be to abolish the formula altogether, and make the Scottish Executive fiscally autonomous. The money they spend, they should raise themselves.

I'd apply the same principle to every level of government in the UK. When politicians rely on their own electorates for money, they are likely to be held much more closely to account. Such a system also encourages tax competition between jurisdictions – a good way of keeping rates low and government lean.

Blog Review 750

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More on Krugman's Nobel. His essay upon development economics.

Krugman himself explains his work that led to the prize.

Yes, it really is all obvious or trivial: but only after someone has explained it.

On Blog Action Day, using Adam Smith to explain poverty.

Again for the day, some ideas on what we might do about poverty.

You can't trust government statistics and you can't trust the way they present them.

And finally, possibly the best newspaper in the country.

Save health savings accounts

Adding insurance to the mix creates a whole host of problems. First of all, it imposes significant administrative costs, which often exceed the price of the actual medical service. Secondly, insurance gives both the doctor and the patient an incentive to maximise costs – the patient because he's paid his dues and wants his money's worth, the doctor because he wants to increase his income. Thirdly, it blunts incentives to keep yourself healthy, because that's what you've got insurance for.

Moving to a more rational system, where people pay their doctors directly for routine services and insurance is confined to its natural role, is the key to reforming healthcare the world over – to keep costs under control, free doctors and empower patients. I hope policymakers realize that.

For a more detailed explanation of the benefits of health savings accounts, have a look our 2001 report Medical Savings Accounts.

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According to the Investor's Business Daily, a Democrat controlled US Congress could attempt to drive Health Savings Accounts (HSAs) out of the market. They won't roll them up overnight, the article says, but they could tie them down with lots of regulation and paperwork, and cap the tax deductibility of savings at a low level – essentially rendering them useless. Given that healthcare is meant to be one the Democrats' priorities, it is hard to think of a more counterproductive step they could take.

According to a presentation I saw from the (US) National Business Group on Health a couple of weeks ago, 27 percent of large employers already offer health plans including HSAs, with a further 9 percent intending to do so for 2009. The reason for this is simple: consumer-directed health plans or CDHPs (which tend to include a savings/direct payment element and high-deductible insurance) are much more cost-effective than traditional group insurance options, coming in at an average $5970 a year compared with $7120 for health maintenance organizations (HMOs), $7252 for preferred provider organizations (PPOs), and $7714 for point of service (POS) plans. CDHPs, which are used in one guise or another by 55 percent of large businesses, can produce 3-year total savings of $1m per 1000 workers without compromising quality of care. In an era of uncontrolled medical inflation, that is nothing to be sniffed at.

The reason HSAs are so important is that unlike most proposed reforms they actually address the fundamental problem with healthcare today – the absurd overuse of comprehensive insurance. This applies as much to government systems like Britain's NHS as it does to mixed or private systems elsewhere in the world. Think of it like this: insurance is very useful for protecting us against unanticipated and costly occurrences, but is completely ill suited to the funding of predictable expenses. Why rely on insurance for a run-of-the-mill doctors visit or a bog-standard prescription? You know these things are going to happen from time to time, so you can plan for them. [Click 'read more' to continue]

Don’t tread on me

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Jacqui Smith has revealed that the government is considering creating a single, centralized database containing records of all telephone numbers called, time and location of calls, websites visited and e-mail addresses used by UK citizens. If this goes ahead, it will be yet another incursion by the state into the private sphere of the individual.

The reactions from Conservatives and the Liberal Democrats have been swift and correct. Dominic Grieve, the Shadow Home Secretary, said: "The Government must justify the case for any such massive increase in state acquisition, sharing and retention of data, spell out the safeguards to prevent abuse and – given its appalling record – explain how it will protect the integrity of any database holding sensitive personal data." Chris Huhne, the Liberal Democrat home affairs spokesman, said: "Ministers simply can't be trusted with confidential data of this sort, as it has shown again and again."

These disagreements are focussed on concerns for the practicality of the scheme. In fact, most of the arguments I have heard and read on this scheme ignore the disturbing ideology behind it. It would be nice to hear politicians refer to the principles of freedom and liberty, instead of simply banging on about the propensity the government seems to have for losing things (relevant as that is). Even if the scheme could catch more criminals and the government was able to protect the information, the essential point still stands that a centralized database of this sort gives powers to the state that they should simply never be allowed to have.

There is a great appetite for greater freedom in the UK, but no major party that is offering to give it to us to any meaningful degree. One reason for this is the ubiquitous demand for politicians to solve all problems and the delusion that leads them to claim that they can. When power is finally taken from Gordon Brown's Stalinist hands, there will be a real opportunity to roll back the frontiers of the state. However, the very real risk is that there will be no one in government with the will or gumption to do it.