No time for the Euro

2608

no-time-for-the-euro

Now that the pound has fallen so dramatically against the Euro, there are a lot of people saying how much better off we'd have been had we joined it years ago. And there are even more others who are saying that we should join it now so that we'd have a currency with at least some value left in it. And there are yet others who say that now, when the pound is low and our exports are cheap, would be the ideal time to join, because then our exports would stay cheaper than other members', and we'd coin it. All these views are wrong.

You can only have one interest rate in a currency area, so if we joined the Euro, we would have handed the control of interest rates over to the European Central Bank. Their interest rates have been lower than ours: indeed, one of the 1990s arguments for joining used to be that we'd have lower interest rates so mortgages would be cheaper. In other words, if we had joined the Euro years ago, we'd have had an even bigger (but equally fake) boom than we in fact had, house prices would be even more astronomical, and the inevitable bust would have been even more painful than it's now going to be.

We're lucky not to be in the Euro, because at least we can let our exchange rate take the strain of the adjustment we now need to make. Things are bad, so the pound is falling, but that does indeed make our exports cheaper and perhaps we might just be able to sell a few goods and services to any other country out there which is still buying. If our currency had remained high at Euro levels, we'd be locking up more factories and closing down more insurance companies and language schools, because our prices, seen from other currencies, would have remained higher.

But while a cheap currency can get you out of a hole by making your exports cheaper, it can't save you forever. The other side of the balance is that your imports are more expensive. Much of what we import is used to make what we export, so that's not good. A lot is food and energy, which it's hard to live without, so that's not good either. And if we start making things inefficiently at home because it's too expensive to buy from efficient producers overseas, that's neither good for us nor them.

No, it's not the right time to join the Euro. Given the diversity of Europe's economies and ours, I'm not sure it ever will be.

A year of Clegg

2629

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Today is Nick Clegg's first anniversary as leader of the Lib Dems. He may not want to celebrate it too loudly: the party is not doing much better in the polls now than it did under Clegg's predecessor Sir Ming Campbell. And with the partial exception of Vince Cable MP, the Lib Dems still struggles to make themselves heard in the political debate. Indeed, come election time the Lib Dems will probably struggle to keep the parliamentary seats they've got – a far cry from the electoral breakthrough that has occasionally seemed possible in the past.

That said, there have certainly been good things about Clegg's leadership. Most importantly, he has successfully repositioned the party on the issue of tax and public spending. Clegg has embraced a higher personal allowance and lower taxes for those on low-mid incomes, tax simplification at the wealthier end of the spectrum, and small reductions in public spending. It's not perfect policy – Lib Dem proposals to reform capital gains tax would hamper wealth creation, and the party could and should be much more radical about cutting spending – but it's a good start.

The Lib Dems have also been saying good things on education (where they now advocate school choice) and on health (where they would expand direct payments and personal budgets, and give people 'vouchers' to go private if the NHS can't treat them within a set time).

On a theoretical level, meanwhile, Clegg has pushed the party back towards its classically liberal roots – something I think is very welcome. He's still got a long way to go, but it is better than nothing. Britain would benefit from a genuinely liberal mainstream political party, like the German Free Democrats or Ireland's Progressive Democrats, if only to counteract the big-government paternalism that too often comes from both sides of the House.

Blog Review 812

2611

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It might be that we are all acting like Keynesians now but are we wise to be doing so?

Creating green jobs is indeed a cost: for environmental policy can change the mix of jobs but not the overall number.

Bjorn Lomborg on what we ought to be doing about green jobs.

Introducing an entirely new concept. Charity porn.

Plausibility calculations or, don't you know enough to see that that answer is obviously wrong?

Half a millenium of European history in only 15 years.

And finally, the best of five years of Iowahawk.

Failure, failure, failure

2607

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Bernard Madoff making off with $50bn of other people's money; public sector pensions being overpaid; a 'stupendously incompetent' efficiency drive at the Department of Transport. A pattern is emerging here.

The point of having regulators is so that swindlers like Bernard Madoff get found out. As they say on Wall Street, when the tide goes out, you can see who's been swimming naked. But the point of regulation is that you shouldn't have to wait for the next recession to be confident that your money is safe. It turns out that the Securities and Exchange Commission hadn't actually examined Madoff's hedge fund since he registered it in September 2006; his audits were done by an obscure accounting firm in a tiny office; and frankly, the list goes on. Sure, it's fraud. But it's fraud that was allowed to happen because of a failure of regulation.

Meanwhile, the UK government says it's accidently been overpaying public sector pensions since the 1970s. But that's all right - no public sector workers will be asked to repay any of the money. That's in contrast to all the folk in the private sector who have yet to see compensation for pension fund collapses (brought about largely by Gordon Brown's tax and regulation of them); or the farmers who had to wait up to two years to get the farm payments they were promised; or all the families on tax credits who were asked for immediate repayment when the Revenue messed up and overpaid them. That's a failure of officialdom, and worse, it's civil servants protecting only their own.

Now we learn that an efficiency drive designed to save £57m has ended up costing taxpayers a net £81m. The scheme's computer system was not put out to tender, nor tested, and was unusable, and pretty much everything else was mismanaged too. That's a failure of government.

And this is just one day's news. All these people demanding more regulation and more government should be eating their hats. We don't want more regulation, lulling us into believing that things are properly policed when they are not. We don't want a more bloated civil service. We want smarter regulation and smarter government. Which probably means less of both.

Heads we lose, tails we lose

2612

heads-we-lose-tails-we-lose

Earlier this year we had Paul Ormerod speak at ISOS. Given his reputation, we were certainly pleased he was there to talk to the 200 young people gathered about the ability of governments to implement successful policies. This was no theoretical trek or rhetorical rant, but a simple look at the statistical case of Britain. Although statistics have come in for some stick of late, when not in the hands of self-serving politicians, but a consummate economist, there can be little doubt that most government policies have failed.
 
Much of Ormerod's speech was taken from chapter 3 his excellent work Why Most Things Fail. There isn't space or time to cover all that the book has to offer, but for our purposes chapter 3 offers a devastating attack upon public policy as practised since the end of the WWII.
 
When chewing the fat with statist friends, they nearly always accept the failure of government policies, but still have faith in the ability of it to be turned around if only government had more of our money or was directed in a slightly different way. When pushed and prodded they mostly fall into arguing that even with the ubiquitous failure evidenced, the state should continue as is. This is a quasi-religious deontological approach to public policy. In truth a rational consequentialist approach is much better suited to the task.
 
So where does a consequentialist approach lead us? Well here we move away from the failure brought out in Ormerod's excellent book and go back to the genius of Milton Friedman. If you have an hour to spare it is worth sitting at the feet of the Mahatma of Markets. So what is the consequence of most government policies? More harm than good.

Blog Review 811

2610

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Worth pointing out (worth pointing it out repeatedly in fact). That Greenspan was wrong does not make Keynes correct. In fact, that any specific economist or regulator was wrong does not make Keynes correct.

A peek into the economics of newspapers. The news has always been free, it's the delivery mechanism that wasn't.

It would appear that the BBC is following the government in paying those who would seek to influence it.

Depressing news: those government efficiency drives seem to spend more money than they save.

The aristocracy of pull is always there, Governor Blagojevich was just a little more open about it it.

This probably isn't the biggest problem that we face. Species that was expanding its range no longer is.

And finally, European Commissioner limericks!

Time to stand up

2604

time-to-stand-up

With Richard Hooper’s report into the future of Royal Mail due to land on Lord Mandelson’s desk any day now, questions abound as to the future of this Behemoth. The biggest concern seems to be that the report will suggest that taxpayers should take on the £7 billion pension liabilities, in order to allow the partial privatization of Royal Mail.

Given that public sector pension liabilities are already in the region of £1 trillion, £7 billion is small change; but this is the kind of small change I would rather not be liable for. Although of late, amounts seem to have taken Zimbabwean inflationary dimensions, there are no two ways about it; this is all a lot of money. Whether this £7 billion is transferred or not, in truth, taxpayers will be paying for it in the end on way or the other.

There is no easy solution for dealing pension liabilities. Clearly government is failing in a profound way. It would be wrong to renege on the promises it has made to current workers, yet it is wrong to continue to pass on the cost to taxpayers at large. What is important now is that we stop the rot. Taxpayers should be assured that this will end.

With Labour still in the pay of the unions, nothing much can be expected to come from them. I can't see the Liberal Democrats taking this on; most Lib Dem MPs would split in half just thinking about it. The Conservatives offer perhaps the only hope. They have promised to conduct a full review of public sector pensions and David Cameron has made some positive noises. We will see.

The current policy of sticking head firmly in sand has not proven successful. It is increasingly causing suffocation. Forget caring about the state of the planet for future generations, the way things are going they will be too busy working to see much of it.

What is government really worth?

2603

what-is-government-really-worth

Yesterday I wrote a piece about asking where you should live if you believe in free markets and limited government. And as I said then, Switzerland is often touted as an attractive option.

All the more so, I suppose, if you are super-rich (and I, sadly, am not). One of the interesting peculiarities of the Swiss tax system is that if you are wealthy enough, you can locate there without paying normal Swiss taxes. Instead, you can negotiate a flat-rate annual fee with the government of whichever canton you decide to live in.

Whatever the rights and wrongs of such a system, it does pose an interesting question: if you could freely negotiate a price with the government for the services if offers, how much would you actually be prepared to pay? Much less than you pay in tax at the moment, I suspect.

Indeed, when I think about it, the government really does very little for me personally, given the amount of tax I fork over. There are the roads, streetlights, refuse collection and street sweeping, there is subsidy on my bus, train and tube travel, then there's London's parks, the police, and that's about it. Maybe a very occasional trip to the GP or dentist, but no more than one a year.

No, it's definitely not a good deal.

Obamalyptics

2602

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The main features of president-elect Barack Obama’s economic agenda are increasingly taking shape, and we may be facing the full-blown four apocalyptic horsemen if all this gets implemented. That’s what Kevin A Hassett from the American Enterprise Institute is saying, anyway.

The First Horseman is the ‘Fair Currency Act’, favored by Obama for its potential of protectionist tariffs against China, which is likely to spawn a new international trade war.

The Second Horseman is the infamous ‘card check’, a pending bill that will do away with the fundamentally democratic secret-ballot-election at work places and enable trade unions to bully workers into membership.

The Third Horseman is his tax policy, because he will refuse to keep George W Bush’s tax exemptions for multinationals, which are vital to encourage investment during the economic downturn.

The Fourth Horseman is regulation. Obama is notorious for blaming deregulation for the present economic problems and he has promised to crack down with a barrage of new regulations – and not just on the financial industry.

Click here to read Hassett's full article.

Blog Review 810

2599

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A reasonable argument (finally, a reasonable one!) against quants and markets driven by them. It's impossible to include every variation of human behaviour into such models.

Once again that important point: you can only conclude that Europeans work shorter hours than Americans if you exclude the hours spent in home production.

Using the Prisoner's Dilemma as an anti-cartel weapon.

Heh, yes, "profitable until deemed illegal".

"Would be science journalist doesn't think much of current science journalists" shocker. But he's right all the same.

You might say that 2,215 page contracts have something to do with the Big Three's current woes.

And finally, Buffett's cornered the market again.