Quote of the week

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quote-of-the-week

"What will destroy our country and us is not the financial crisis but the fact that liberals think the free market is some kind of sect or cult, which conservatives have asked Americans to take on faith. That's not what the free market is. The free market is just a measurement, a device to tell us what people are willing to pay for any given thing at any given moment. The free market is a bathroom scale. You may hate what you see when you step on the scale. "Jeeze, 230 pounds!" But you can't pass a law making yourself weigh 185. Liberals think you can. And voters--all the voters, right up to the tippy-top corner office of Goldman Sachs--think so too."

P.J. O'Rourke, We Blew It, The Weekly Standard

Blog Review 788

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You can find examples of spontaneous organisation, of industrial self-regulation, all over the place, for example in the porn industry.

No, this isn't a good time to be joining the euro....just as when economic times were better was not a good time.

Shock horror at the idea that the BNP is concentrated in urban (ie, Labour voting) areas. Umm, there's more of everything in more highly populated areas, isn't there? At least, more of every type of human, that's what more highly populated means isn't it?

Once again markets reveal the truth: this time it's that, no, recycling does not make sense.

A new game to play at Comment is Free. Comment cricket.

For students of perverse incentives. Now appears to be a great time to set up a bank.

And finally, though why set up a bank when you might get one free?

Bailing out the Big Three

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bailing-out-the-big-three

Should the Big Three (or as they are now, the Detroit Three, for they're no longer so big) automakers be bailed out with public money? Or allowed to go bankrupt? Or, at the very least, allowed to go into Chapter 11 bankruptcy  so as to reorganise?

Thomas Palley and other left leaning economists and commentators are insistent that they should be bailed out. I'm almost certain that he and they are wrong on this (although I certainly agree with this "the bosses of the Big Three automakers could never be convicted of an excess of imagination.").

However, the cost structure of these companies just seems to be appallingly wrong. Unless that is tackled a bailout will simply mean sending ever more money into a black hole. For example, their labour costs are hugely higher than their competitors in other parts of the United States. I can't see how they could ever return to profitability without cutting those.

Now there is some argument as to whether those labour  costs are a result of paying for their current workforce and their promised benefits or whether it's a result of the benefits promised to their now retired workforce. But for the purposes of my argument that doesn't actually matter. It could be that they cannot make a profit because they pay their current workforce too much and it could be that they can't make a profit because they promised their past workforce too much in deferred pay. So what, they still cannot make a profit at present and thus have to restructure. And they have to restructure by reducing what they pay their workforce, either past or present.

And to break those labour contracts they need to go into at least Chapter 11 bankruptcy. Yes, this does mean that the shareholders get wiped out and that the bondholders take a haircut. But this is the very purpose of this form of bankruptcy. To tear up the existing division of spoils and to examine the whole to see if it in fact creates value or not. If it doesn't, then liquidate in Chapter 7 proceedings. If it does, then create a new split of the spoils and relaunch under the new dispensation.

While I get the political angle of all of this I really don't get the logical one: what is the objection to a reorganisation inside bankruptcy? Don't people want to find out whether they do in fact create value within these companies or not? Or is it that there is a worry that we'll find out that they don't?

Please note that if they are in fact destroying value (and will continue to do so in the long term) then that does make us all poorer and thus we really do want them to be liquidated, whatever the short term chaos that would cause.

Decriminalize prostitution

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decriminalize-prostitution

When an ordained priest of the Church of England writes that the government’s policy of criminalizing paying for sex then it is quite likely that those in power might be making a mistake.

As George Pitcher argues: “The first effect of such legislation would be to drive the "good" punters out of the market. Cosy, self-satisfied, middle-class observers may claim that there is no such beast as a good user of prostitutes. The prostitutes themselves would disagree." As such “The market for the oppressive, abusive and violent will expand, offering less protection for prostitutes, rather than the greater protection that is intended."

Pitcher hits the nail on the head: “laws made by legislators with an eye to the electorate, rather than care for the oppressed and vulnerable, can make lives considerably worse for those who most need our protection."

The motivations behind this government’s approach are clearly the perceived popularity of the tough stance, however the intellectual tradition, as Dr Belinda Brooks-Gordon states, “include the radical feminist thesis that all heterosexual sex is exploitation, a Marxist view that all work is exploitation, and a religious evangelism which argues that all non-procreational sex is wrong."

Dr Brooks-Gordon also has he solution: “ministers should scrap the prostitution laws and start again by following New Zealand's lead in decriminalising the industry, which empowered workers and reduced violence. It also led to better cooperation between the police and sex workers against coercion, something which will do more to help the victims of trafficking than any amount of wrong-headed government meddling."

The price of regulation

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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

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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?

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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

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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

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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

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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.