Beware the Ides of March

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The introduction of rules forcing Internet companies to keep details of every e-mail for one year will come into force on the 15th March this year. The new rules will come into force as part of a European Commission Directive. It will prove to be highly illiberal, costly and ineffective.

The Ides of March will give over 600 public bodies access to your emails. Granting access to the police is one thing, but letting local councils, health authorities, and the likes of the Food Standards Agency, the Health and Safety Commission and Ofsted trawl through you emails is quite another.

Taxpayers will be charged to the tune of somewhere between £25 and £70 million to pay Internet Service Providers (ISP) for this. This is not small change. It will prove ineffective because as Dr Richard Clayton has made clear, much of emails are spam. As he says, “There are much better things to do to spend our billions on than snooping on everybody in the country just on the off-chance that they're a criminal."

Obviously the costs on Internet Service Providers (ISP) will be great. As such the Home Office has been hinting that smaller providers will be exempt. Thus, your average criminal is unlikely to be  signing up to Virgin, AOL or BT. This is not a loophole, but a black hole.

So as individuals, our privacy will be opened up to the whims of anyone with a name badge, but in generally our security would be no less improved. If you know anyone in the country that thinks this is a good idea, please refer him or her to their nearest mental asylum.

The true value of organic

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Has the bottom dropped out of the organic market? Probably. Alex Renton in The Times bemoans the fact that people aren’t willing to pay the extra for organic/morally superior foods: “The truth is that better food is more expensive food, and many of the ills in our present supply system could be tackled if we paid more for it." So why are we choosing not to pay more for our food? Why aren’t we purchasing this holier-than-thou food that would, and can, apparently carry us to the promised land?

His article is titled, “Forget thrift chic. If you want to eat well, we must pay for it." Quite. But in times like these money becomes tight, so they reassess the true value of the products they purchase. For many, organic food is now overpriced. Unfortunately for organic farming, this has come at the same time as a rise in feed costs for the animals, meaning that their meat prices (save for lamb) have been rising. This is why many farmers now want an organic feed exemption. Of course they could further help themselves by calling for a deregulated market in which they would be able to move between the two freely, allowing them to react quickly as costs shift.

When peoples’ budgets become constrained they pay more attention to value, they require more ‘bang for their buck’. This is nothing more than a natural process. Organic farming's added value is becoming little more than a mirage, built on guilt. After all a vegetable is a vegetable. This recession could spell the end for the organic fatted calf. but it could also lead to people regaining an understanding of the true value of what they eat.

Quote of the week

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The government is bailing out Wall Street for being evil and the car companies for being stupid. But print journalism brings you Paul Krugman and Anna Quindlen. Also, in 1898 Joseph Pulitzer of the New York World and William Randolph Hearst of the New York Journal started the Spanish-American War. All of the Lehman Brothers put together couldn't cause as much evil stupidity as that.

by P.J. O'Rourke,   Bail Me Out, Mr. Paulson, The Weekly Standard

How to promote the free market in 2009

In this think piece, Tom Clougherty outlines the key ways the free market can be promoted in 2009: offer a compelling narrative that runs counter to ‘common wisdom’; oppose Keynesianism and the idea that government can stimulate the economy; expose the government interventions and failures that contributed to the financial crisis; advocate policies to raise productivity and economic competitiveness; and educate people about theories and ideas of the great free-market thinkers, particularly those of the Austrian School.

2008 was not an easy year for defenders of the free market. The credit crunch, the banking crisis, and the beginnings of a recession all fuelled the belief that markets are inherently unfair, unstable and destructive. It also gave those on the left the opportunity to resurrect big-state interventionism and, particularly, the economic doctrines of John Maynard Keynes. The idea that government should do less and spend less is, sadly, viewed with suspicion at the best of times, but in an economic downturn it is seen almost as heresy. Every politician feels compelled to ‘do something’ regardless of its consequences. This tendency is reinforced by the 24-hour news media, with its insatiable thirst for new initiatives and dramatic announcements. And so the free market – perhaps for the first time in decades – is on the back foot.

And yet worrying as this is, it also poses an opportunity for defenders of freedom – and particularly those in the think tank world – provided we approach it in the right way. For starters, there is great potential for offering compelling media commentary that runs counter to common wisdom. Markets need defending, and we are the people to do it. We need to ensure that no expansion of government goes unopposed, that no leftist economic fallacy goes unchallenged, and that our ideas reach the widest possible audience. In short, the current economic and political climate gives us the chance to get exposure, be controversial, and get attention. Certainly, there are some people who will never be convinced by our arguments, but there are also huge numbers who would embrace our point of view if only they heard it. That is the challenge in 2009.

What are the key arguments we should be making? Well, the foremost challenge is clearly to oppose Keynesianism and, more specifically, the idea that government can and must ‘stimulate the economy’. There are a number of points here:

(1) We need to make people realize that government spending cannot boost the economy, for the simple reason that every pound it ‘injects’ must first be taxed or borrowed from somewhere else. The government cannot create purchasing power out of thin air. Tax takes money out of the private sector economy. Borrowing does the same. And if the government resorts to printing money, they will succeed only in reducing the value of that already in circulation. [1]

(2) The fact that government cannot create new purchasing power, means that the case for government stimuli rests on the idea that politicians can allocate money better than the market can – an idea that has surely been tested to destruction. We already know that ‘priming the pump’ simply creates temporary and artificially high demand in certain sectors (generally inefficient ones), at the expense of others (typically ones that actually create wealth). This is followed by dislocation and unemployment when the artificial demand inevitably ceases. The abject failure of a series Japanese stimulus packages in the 1990s backs this case up – all their debt-financed infrastructure spending accomplished was to run up debts amounting to 180 percent of GDP.

(3) Debt is a particularly potent issue, and one which people instinctively grasp. Borrowing enormous sums to prop up an economy that has been thrown into crisis by too much debt and too much credit is widely and correctly seen as absurd – not to mention deeply unfair on future generations. It is also unclear that this is really what Keynes advocated. He believed that there should be high taxes, low spending and budget surpluses in boom years (in order to restrain demand and check inflation), followed by tax cuts and increased public spending to boost demand (avoiding deflation) and increase consumer confidence when the economy turned bad. We can argue with some justification that the government can’t have it both ways: high spending and deficits whatever the economic weather! There is also the point that failing to control the public finances now will actually decrease business and consumer confidence, making things even worse. Nick Bosanquet calls this ‘toxic Keynesianism’ – a useful soundbite.

So opposing the Keynesian-revival is probably the key economic task for defenders of freedom in 2009. But is also important that we continue to make the case that it was not unbridled free markets, but rather interventionist governments which caused the 2008 crisis. Interest rates that were held well below the neutral level for far too long caused a boom of cheap credit, fuelling a gigantic asset bubble, which subsequently burst with predictable consequences. Social policy added fuel to the fire: the US Congress’ Community Reinvestment Act and taxpayer backing for Fannie Mae and Freddie Mac were a key driver of the sub-prime mortgage crisis that brought the financial system to its knees. And then there is the complete failure of the regulators to do the job they were paid to do. Legalistic, box-ticking regulation led to the micro-management of firms’ business – and the diversion of enterprise into riskier areas – while completely ignoring the big picture. Perhaps we do need a different kind of regulation, or smarter regulation, but we certainly do not need more of the same.

Of course, it is not enough to simply argue against things: we also need a positive agenda. Unlike politicians, we should not claim that there is anything government can do to directly end the recession. However, we should be arguing for reforms that will make it easier for businesses and individuals to work their way out of the recession. In other words, we should be advocating policies across the board to raise productivity and increase the UK’s economic competitiveness. That means sustainably lower taxes on work, production and investment, balanced by spending restraint rather than increased borrowing. It means reforming the public sector so that it is not such a drain on resources. It means simplifying and reducing the regulatory burden that hampers small businesses. It means addressing infrastructure bottlenecks and liberalising the UK’s highly restrictive planning system. No one policy is a panacea, but the right combination could make a real and lasting difference. The important thing is that we come out of the recession stronger than we went into it – not saddled with debts that will take a generation or two to pay off. [2]

Finally, we should also realize that the economic crisis has sparked a renewed interest in the theories and ideas of the great free-market thinkers – particularly those of the Austrian School. With economics in the news so much, now is the perfect time to educate and engage a new generation in the concepts that lie behind free markets and the free society. It may not change policy now, but in the long-term winning the war of ideas is the most vital task that advocates of liberty face.

[1] See Why Government Spending Does Not Stimulate Economic Growth by Brian M. Riedl, Heritage Foundation (November 2008)[2] See The hole we are in and how to get out of it by Dale Bassett, Professor Nick Bosanquet, Andrew Haldenby, Lucy Parsons & Elizabeth Truss, Reform (November 2008)

Blog Review 837

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Here's a bold prediction. One or other of the curent euro are members will try to return to their own domestic currency this year.

Why is it that politicians don't put their money where their mouths are?

A long but sound essay on the mess that is drugs prohibition in the UK.

There's something really very different about the pattern of unemployment in the US this time around. There's a huge gender gap.

Contrary to intuition, a brain drain can be a boost to the country having it.

Cause and effect again. Do obese people have worse cancer treatment outcomes because they are obese....or because they are not treated as if they are obese?

And finally, a lesson for political spinmeisters everywhere.

Woods and trees

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The current disruptions are causing an awful lot of people to get confused between woods and trees. There's the usual conflation of capitalism and markets into a single thing: one which at present must be demonised. Voices such as ours which distinguish between the two and often argue that markets need to be protected from capitalism (or at least the desires of capitalists to engineer themselves into positions of monop- oly or sony) are getting drowned out in the shrill cries that the entire system must be overturned. That's why I draw your attention to this excellent essay by Daron Acemoglu.

Our second too-quickly-accepted notion is that the capitalist economy lives in an institutional-less vacuum, where markets miraculously monitor opportunistic behavior. Forgetting the institutional foundations of markets, we mistakenly equated free markets with unregulated markets. Although we understand that even unfettered competitive markets are based on a set of laws and institutions that secure property rights, ensure enforcement of contracts, and regulate rm behavior and product and service quality, we increasingly abstracted from the role of institutions and regulations support ing market transactions in our conceptualization of markets. Sure enough institutions have received more attention over the past 15 years or so than before, but the thinking was that we had to study the role of institutions to understand why poor nations were poor, not to probe the nature of the institutions that ensured continued prosperity in the advanced nations and how they should change in the face of ever evolving economic relations.

Something that bears repeating endlessly: markets are all regulated in some manner or another, our important question is who is going to do the regulating and how are they going to do it? Is it going to be some set of general principles, like "property rights", or social institutions? Is it going to be the market participants themselves? Or perhaps a set of not particularly wise or omniscient bureaucrats who face even worse incentives than the former? Or, horrors, politicians who face an even worse set of incentives?

I also like the point that we shouldn't be studying poor countries to find out why they are poor: that's pretty much the natural state of mankind, scraping in the soil with a stick. What we want to be looking at is the thing that is different: what is it that makes rich places rich? It is, after all, the creation of that mysterious thing, wealth, which we're trying to explain, not its absence.

Yes, it would be nice to find a magic bullet to banish our current woes but we really do need to remember that these are the trees. The woods are that we've got an economic system, some form of a liberal free market order, which has achieved something for the first time. The sustained rise in living standards for the mass of the population. Actually, that's not just the wood, that's the entire forest that we need to keep our eye on at the moment. No other system that we've ever tried in human history has been able to achieve that so lets not cut that forest down to get at a few trees that have been causing comparably minor  problems.

Living in the land of fear

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It seems to have taken just over 50 years for the reach of the state to become near ubiquitous. There’s little any of us do now that does not involve the parasitic actions and attitudes of it; ultimately we have a malignant monkey on our backs. We have become servile in our acceptance of state actions, but recently (partly as a response to the heavy handed reaction to terrorism and its presumption of all citizens being equally guilty) the heavy fisted approach has spread further.

The evidence can be seen in the case highlighted by Henry Porter, who writes of the arrest of a painter for taking a picture in a public space. The checks on government actions have eroded away, and these instances (also Andrew Pelling MP stopped by Police for photographing a cycle path) highlight the extent that the freedoms we once enjoyed are gone. Perhaps key to this growth, is the state’s capture of our subconscious fears and the implied interpretation that our actions are ultimately entirely criminal.

There is nothing that remains that clearly delineates and protects spaces that keep us, and our actions, from the state’s intrusion. The mindset of the state’s agents and, to a lesser extent, a minority of the general populace, has moved to regard all within their domain, believing that they must act so as to preserve a mistaken public good. The United Kingdom, it could be said, now resembles nothing more than the personal fiefdom of the political elite, an elite with no understanding of the unintended consequences of their actions and mistaken legislation.

Bailing out graduates

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Now we're going to bail out graduates. The government is alarmed by the high rates of unemployment faced by recently graduated students, and is proposing to fund new 'internships' with big companies like high-street banks.

When is this nonsense going to end? Pretty soon the whole country will be bailed out by some new wizzo government scheme. The only trouble is that the whole country will be paying for it at the same time.

First, governments can't create jobs. Entrepreneurs create jobs by recognizing the demands of customers and serving those demands. Willing customers give them money, and they grow businesses and hire staff to capture it. The most that govenment can do is dip a bucket into one side of the nation's money pool, run round to the other side (spilling quite a bit on the way), and (with great fanfare) empty it into the other side, where of course it will create jobs. But not lasting jobs, only jobs that exist solely because of the new cash.

Second, any such scheme is arbitrary. I'm sure that the Adam Smith Institute would love to have a few government interns, but we'll never get the chance. The scheme will be focused on larger employers. Why? Again, it's just a way of politicians doing something that looks highly visible. They can say that they've found 1,000 'jobs' in Barclays or whatever. If they found jobs in ones and twos with employers across the country, however, it wouldn't have the same media impact.

And of course all these arbitrary schemes do generate some real jobs – in the bureaucracy. The more arbitrary and quirky and focused they are, the more people are needed to manage them. Which means, of course, the more taxes need to rise and the more small businesses (and large ones) start firing people...

Blog Review 836

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Yes, we really should take up Larry Flynt's idea and subsidise the porn industry. Well, why not? It's no more ridiculous than many other things which are having cash thrown at them, which was rather Larry's point we think.

For example, perhaps the UK car industry isn't all that deserving after all.

What we really need is a bad country, not a bad bank. Netsmith likes this idea a lot. Perhaps we will finally find out what France is for?

This could be the phrase for 2009. "You're not dead until you're warm and dead."

Evidence to annoy the republicans (that's the anti-Monarchists, not the GOP). Parliamentary systems do better than Presidential ones.

Blimey. Someone's finally come up with a stimulus plan that's at least half decent?

And finally, the Milky Way Transit Authority. (Puns are here.)

Intern scheme proves the failure of the minimum wage

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With news that the government is encouraging companies to offer graduates - unable to secure jobs after leaving university - low-paid internships for three months, is it not time to admit that the recession has proven the minimum wage a failure?

Wages for the interns will be based upon the grants and loans that students currently receive. Therefore, at most graduates are being offered £9,310 per year. The minimum wage is at present £5.73 per hour. As Tim Worstall argued in The Guardian, this equates to earnings of just under £12,000 a year for a 40-hour week. Thus, graduates are being offered the chance to work for less than the minimum wage.

The minimum wage hits the poorest and least skilled the hardest. This is because employers cannot afford to offer them work that would otherwise exist. They are therefore condemned to unemployment, unable to benefit from the opportunities of work. This move is an explicit acceptance that the minimum wage fails to respond to a changing economy. However, instead of helping the least skilled, the government is supporting the relatively privileged.