The price of regulation

2476

the-price-of-regulation

Jamie Whyte has written has interesting article for the The Times about how nothing comes cost-free, but always rests upon individuals. This piece touched upon the issue of regulation within our industries, suggesting that deregulation needs to be one of the key issues facing our economy in recovering from the current crisis.

The costs of regulation are often so great that smaller firms are not large enough to sustain great enough profits to remain in business. This has inevitably lead to many larger firms lobbying for greater legislation in order to stiffle competition and gain a greater market share. As the recent financial crisis showed, we cannot rely on a small number of large dominant firms within the economy. If one fails, we all suffer to a large extent. This logic applies to all industries.

In stifling our smaller firms by forcing excessive amounts of regulation upon them, we undermine the foundations of that industry. This is because stronger competition creates greater incentives for the larger firms to increase efficiency and innovate in order to survive.

This year we were shown how the dominance of financial markets by a few large firms almost had catastrophic effects for society. We should learn from this and not allow regulation to force smaller firms, that are so crucial to our industries, out of business.

Blog Review 787

2474

blog-review-787

It would appear that consumers are not irrational after all.

A really dumb idea, even from a Senator (do ideas actually get any dumber than that?)

That didn't last long. Yes, there are sources of dumber ideas than Senators.

That litttle button of emotional rhetoric which , when pressed, makes both writer and reader that little bit more stupid.

Neo-fascism and eco-fascism: yes, the link is more than rhetorical.

An expert on recent changes in the law.

And finally, markets don't as yet supply everything.

If I might make a suggestion?

2470

if-i-might-make-a-suggestion

Just throwing a few numbers around to see what happens. Who knows, we might even end up with a sensible suggestion.

Our first number is the fiscal boost, the expansion, that many are arguing for. £ 30 billion is a number I've seen floated. I'm not sure I'm all that much of a fan of  the idea but the internal logic of it says that  as long as the gap between Govt receipts and Govt expenditure grows by this much then we'll get that boost. We can keep spending where it is and cut taxes to get it for example.

The second number is the cost of raising everyone's personal allowance by £1,000. That's £6 billion annually.

The third is poverty as defined by the Joseph Rowntree report. £13,400 a year....but that is a pre-tax number. When you take off the tax and NI paid you get to a nett income of just north of £11,000 as being the poverty line.

The fourth is the minimum wage. At £5.73 an hour, a full time job (37 hours a week, 52 weeks a year) pays just north of £11,000 a year.

So, if we spent our notional £30 billion boost by raising everyone's personal allowance by £5,000, from the current £6k and a bit, then we'd have a tax free allowance of just north of £11,000. Those who worked full time on minimum wage would no longer be in poverty. Which sounds rather sensible to me as I've always though it most odd that the Government thinks it right to take a slice off the top of what they insist is the minimum value of the sweat from a worker's brow.

We'd also hugely reduce the disincentives, the marginal tax rates, that people face when they're in that twilight zone where benefits are withdrawn and income taxes imposed.

Yes, that does look sensible. Let's stop people being poor by stopping taking their money from them. And if we really do want to spend £30 billion to ameliorate the recession, what better way to do it?

Force of argument

2468

force-of-argument

Sir Richard Tilt, a senior government adviser, has called for welfare reforms to be shelved because of the economic downturn. However, the Work and Pensions Secretary James Purnell has rebutted this position, retorting that in his experience, vulnerable people will not be worse off and grateful for the nudge back into work.

In reporting the story, the BBC tries, but fails (as usual), to offer a balanced position. The crucial mistake is in the use of the word ‘force’ to describe welfare reform. Force, in truth, is the government taking taxes from people who work and giving them to people who do not. Whether or not you believe in taking from Peter to pay Paul, there can be no doubt as to who is being forced. Even The Guardian is starting to get it.

As we stand, the government might be right to try the methadone rather than cold turkey approach to welfare reform. However, it is government action that created the underclass that is now trying rehabilitate. Some people have traded their freedom for state support, passing chain and lock to their children while the keys are safely stashed in the pockets of our power-hungry politicians in Westminster.

The lone parent who wants to stay at home and not work is in an unfortunate situation, but they should work simply because other people should not be forced to pay for this preference.

Quote of the week

2469

quote-of-the-week

"Christmas, even in difficult times, is when children tell Father Christmas what they want – and then adults pay for it. By contrast, budget deficits are when adults tell the Government what they want – and then their children pay for it."

Jeff Randall, The Telegraph

Blog Review 786

2473

blog-review-786

A simple (and elegant, these are not the same thing) outlining of the relative costs and benefits of a carbon tax and cap and trade systems.

Some people really don't seem to get this idea that an economy is run for the benefit of the consumers, not producers.

Yes, minimum wage laws do indeed have negative effects upon employment: especially that of teenagers.

OK, it's a Conservative blog's readership not the Conservative Party, but a huge majority are in favour of legalising prostitution.

This isn't quite what the Greens meant Netsmith thinks. Sometimes those windmill operators have to pay people to take the power away.

There's a good reason why we strive for the rule of law not the rule of men.

And finally, why the Dutch approach to prostitution might need a little altering.

Oil Woes for the DOE

2467

oil-woes-for-the-doe

So, US crude oil production increased 182,000 barrels (or .01 percent) in 2007 compared to 2006. Good news, right? It would be, if that were not the first time production has increased since 1991, and only the tenth time that annual oil production has grown since it peaked in 1970. In fact, production has never reached the 1970 number of 3.52 billion barrels, and has lost an average of 1.8 percent per year in production since 1985. So why are we allotting a $24 billion budget to the US Department of Energy – which was set up specifically to reduce dependence on foreign oil – when, clearly, no progress is being made? Great question.

The statistics on oil imports are equally discouraging. Crude oil imports reached an all-time high in 2005 at 3.696 billion barrels. Except for a sharp decline in the 1980s, petroleum imports to the US have been on the rise, from around 1 billion barrels in 1970 to 4.4 billion in 2007. Last year, there was a 75 percent deficit gap of 5.7 billion barrels of petroleum between production and consumption, which was attributed to the rising number of imports and record lows in crude oil inventory.

Such a bleak picture of the oil industry should raise scepticism about the effectiveness of the Department of Energy in carrying out its objectives. The US has become significantly more dependent on foreign oil instead of less. The oil production numbers have dramatically decreased since the founding of DOE. It is almost comical that the goals its sets are reliable, affordable energy and US economic competitiveness in the oil industry. Since its beginning in 1977, the Department of Energy has only negatively impacted the United States' ability to compete worldwide. And with no change in sight, it will continue to waste billions of government funds a year  - sounds like a familiar tale indeed.

Hope you guess my name

2465

hope-you-guess-my-name

Following the credit crunch and the onset of recession, capitalism has come in for a fair amount of undeserved stick. Much of this has been directed at the ideas of Ayn Rand, heralded by Alan Greenspan as the prophet of his own downfall. However, Greenspan’s argument is disingenuous, as an article in Capitalism Magazine makes clear.

The piece shows how Greenspan was in no way a follower of Objectivism by the time he was leading the Federal Reserve. In fact, a true Objectivist would not even be able to work the Fed; Rand championed the gold standard; this is what she thought about the Fed:

All government intervention in the economy is based on the belief that economic laws need not operate, that principles of cause and effect can be suspended, that everything in existence is 'flexible' and 'malleable,' except a bureaucrat's whim, which is omnipotent; reality, logic, and economics must not be allowed to get in the way. This was the implicit premise that led to the establishment in 1913 of the Federal Reserve System.

Greenspan had lost his way a long time ago. Let it not be forgotten that he rose in unison with Hillary Clinton to aplaud Bill Clinton’s State of the Union address calling for socialized medicine.

In the article, the author Harry Binswanger does an interesting thing. He edits one of Greenspan’s own quotes on the 1929 crisis, replacing the words ‘stock market’ with ‘housing market’, inserting Greenspan’s name and changing the date:

The excess credit which the Fed pumped into the economy spilled over into the housing market--triggering a fantastic speculative boom. Belatedly, Alan Greenspan at the Federal Reserve tried to sop up the excess reserves and finally succeeded in breaking the boom. But it was too late: by mid-2008 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.

The banking industry was never anything close to being free. Greenspan is blaming ideas that he never practised and had given up long before he came to the Fed. History is being written by the losers, and badly.

Blog Review 785

2464

blog-review-785

It's very difficult to work out whether this Guide to Guardianistas on how to write about Africa is simply a satire or the actual operating manual that they work from.

Why didn't anyone notice the housing bubble? Well, actually, thousands of people did. And wrote about it.

All this talk of bailing out the "American" car industry? But just what is an American car?

More people piling in and buying banks. Does this mean that the market is at the bottom? No, sadly, people are buying banks to get access to the bailout.

Just who goes on these foreign Ministerial trips and what they talk about while there.

Apropos nothing very much, some wildlife photos.

And finally, one of the Great Newspaper Headlines of Our Time.

Clear and present

2460

clear-and-present

As I wrote yesterday, there is a clear choice now for the electorate between the spend now and tax later policy of the Labour Party and the more fiscally sane Conservative approach of allying any tax cuts to a reduction in government spending. The Times agrees; although in the leader they fail to acknowledge the true extent of government waste and in so doing over-exaggerate the delicacy with which Cameron needs to tread.

In setting out the argument for the likely promise from the Conservatives of a reduction in spending compared to Labour, The Times states the following:

There are very few claims on public resources for which there is no case at all. This newspaper has long been an advocate of a more extensive reform of public services. But reform almost always loads the cost up front. To close down one system and replace it with another pays off in Year 4 but depletes the balance sheet in Year 1.

This really misses the point. We do of course need reform in what are considered key government services, and this could cost money in the short term, but what is needed now are promises of a slash and burn approach to wasteful spending outside of ‘key services’.

The Finklestein fear – that voters are afraid that the Conservatives will not properly fund public services – can easily be allayed through clarity of argument. Because the public have an irrational fondness for the NHS, it makes political sense to hold off any plans for the reform of this behemoth until the public comes to its senses (despite the human tragedy this entails). However, outside of this ideological sanctuary there is much that can be done.

The plethora of quangos and consultants should have their execution date set for soon after the next election. We have given a guide to sensible Privatizations and none of them will cause the electorate to lose an iota of sleep. Added to this there is much waste to be cut from all departments of government. It is thus good to read that the Conservative shadow Cabinet will spend the next few months carefully studying Whitehall budgets to identify where savings can be made. There are in fact many claims on public resourses that have no case at all.

Now all we need from Cameron is a commitment to some nice clean tax cuts.