MP's homes: Hoon, Beckett, Darling...

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Housing minister Margaret Beckett is the latest to be caught in the 'three homes' row. (Well, the latest at the time of writing, but they're coming through thick and fast now.) That's alongside Transport Secretary Geoff Hoon and Chancellor Alistair Darling. She was given a grace-and-favour home in the grand Admiralty House on Whitehall while she was President of the Board of Trade. But she still claimed £106,000 expenses for a 'second home'. Hoon went one further, renting out his London flat while he actually stayed in a grace-and-favour apartment.

Two things are shocking about this. First, I'm sure that these ministers haven't broken the Commons rules. That's because the Commons rules are deliberately written to allow MPs to claim for just about anything, down to barbecues and bathplugs. MPs have always been embarrassed to put up their own pay, so they got round the problem by voting themselves generous 'expenses' instead. But it's not really expenses – it's really under-the-counter pay. What my colleague Dr Madsen Pirie calls 'stealth salary'. And tax free, of course! The Fees Office actually advised MPs how to maximize their cash grab by making their sister's spare room their 'main residence' and suchlike. They thought their expense chits would never see the light of day – which is why they are now so embarrassed.

You would think that MPs would have learnt to live on the front page. Everything they do gets out eventually. And yet they are prepared to act in ways that might be within the rules, but which were dishonourable and underhand, just for money. It's astonishing.

The second shocking thing is the number of 'grace and favour' homes that the Prime Minister can give out to favoured ministers. Such as the palatial Dorneywood, outside which John Prescott was photographed playing croquet when he was supposed to be running the country. He got fired, but he still hung on to Dorneywood! Likewise, when David Blunkett resigned following a shares scandal, he hung on to his government house in Belgravia! These and other examples are cited in my book The Rotten State of Britain. The evil of this system is that it concentrates power and patronage in Downing Street, and it's one of the reasons why  MPs are such lickspittles – they all want to become ministers and share in the perks too!

Against quantitative easing

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The current chaos in the world economy is not a crisis of capitalism, but of governance. Few people like economic downturns, especially the politicians who are blamed for the economic stagnation and job losses, and are punished accordingly. Monetary authorities at the behest of governments have played fast and loose with money and credit in order to smooth economic troughs.  

The result has been a long period of continuous growth, but one achieved by flooding the markets with cheap money and easy credit. It accumulated, sending false signals which led to asset bubbles such as that in housing, and to credit so easy that people became careless about their ability to repay. Markets did not behave recklessly because they lacked proper regulation; they acted on false information which monetary authorities sent into them. The regulation was certainly inappropriate, in that it reassured people that inherently risky activities and investments were safer than they were in fact.

Quantitative easing is now hailed as a solution, which it is not. We are to respond to the excess of easy credit by printing more money, sending more false signals into the markets about the level of real demand. The result will be to build levels of inflation into the economy which will be difficult to take out. We are told this will prevent the ten years of deflation which the Japanese economy suffered, but there is little sign of that deflation, and ominous signs that expectation of inflation are creeping in. Inflation-protected bonds are up 8 percent in the last few months, but the regular ones show no change.

Nobody likes unemployment, but economic downturns do weed out businesses using capital inefficiently and predicting demand incorrectly, and replace them by ones which do not. They improve the overall health of the economy, whereas lifelines to sustain ailing firms do not, despite their popularity with politicians.

Amid much smoke and spin the G20 achieved little not already announced or in process.  We should be thankful it failed to endorse the massive new fiscal stimulus that some proposed. This has been a cyclical downturn, and a bad one because previous ones were held at bay by political manipulation. Yet recovery will come.  For some countries it will be this year, and for most others it will happen next year. Future growth will be achieved by capitalism and free trade, not by government demand management and micro-tuning; they are not clever enough and do not know enough.

The staggering levels of government debt and liabilities can be cleared eventually by economic growth, but the huge monetary growth already built in, with more promised, will continue to distort the economy for years to come, and will retard and confuse the recovery instead of aiding it.
 

Privacy: Clear history

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From now on, the 'Private Browsing' and 'Clear History' buttons on your internet browser are redundant. Under a new EU regulation, every email sent and every website visited by people in Britain are to be stored by internet service providers for use by the state. Britain was instrumental in pushing through this regulation, under the guise of 'anti-terrorism' action. But if past 'anti-terrorism' laws are anything to go by, it won't catch any terrorists, but it will be used by the police to criminalize ordinary people.

In the face of public outrage, the Home Secretary has already had to back down from her plans to log every email, phone call and website visit on a Home Office database. But now of course it's happening through stealth by way of EU regulation. This is a massive assault on liberty. Already, if you are arrested – and we can now be arrested for any offence, however minor – the police routinely confiscate your computer and go on a fishing trip to see what they can find. Now they don't have to: they can simply demand your past email and browsing history off your internet provider.

This will inevitably lead to blackmail and abuse – as in the case of the teacher who was arrested and put on the sex offender's register because he had accessed a website that merely had links to child porn – links that he did not access. Rather than take the matter to court, he accepted a caution. So he lost his job for not looking at child porn! Other people have faced charges because they were quietly following an innocent link when some porn site popped up on them. And remember that with the European Arrest Warrant, you can be extradited from the UK to any EU country – Greece, for example, where you can be held for months or even years without trial while your case is 'investigated'. From this week, we really do have a police officer looking over our shoulder – able to examine every email we send and every site we access – and throw us into jail if they don't like the sound of what you're writing or the look of what you're viewing!

MPs expenses: An explanation

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Today we received this helpful explanation from Sir Owen Reddy-Cash MP, Member of Parliament for Soakingham, which gives the lie to media hyperbole about MPs' "expenses".

Dear ASI: I was disappointed by your recent blog making fun of my colleagues, Jacqui Smith and Chris Hoon (and Derek Conway and the Wintertons, etc., etc.) over their claims for second homes, barbecues, sinks, porn films, etc., etc. You people call yourselves economists but you obviously know very little about money, and nothing at all about the value and proper remuneration of public servants, such as Members of Parliament.

You cannot seriously believe that anyone would volunteer for a job that involved as much as 35 weeks' work a year, and almost four days' labour each week, for the paltry salary of £64,766. And you must know that every time the House of Commons suggests raising that figure to something more reasonable, the Daily Mail launches a campaign of smear and vilification.

Obviously public opinion should not stand in the way of what is right for our legislators. That is why, a few years ago, we came to the obviously sensible arrangement of taking our pay, not in salary, but in a form that would not excite such tabloid headlines. We calculated that MPs should be paid £305,059 in today's currency. Deducting the £64,766 awarded by the top people's pay body, that leaves £240,293 to find from this other source. Take out 40% in lieu of tax, and you get £144,176 which happens to be precisely what, on average, we claim. Not a penny more, not a penny less. We are scrupulously honest in this.

So you see, £305,059 is the proper salary for MPs, and that is exactly what we get. I can't see why you complain that we spend the money on £1,000 fireplaces or buy two washing machines in two years. Or employ our spouses and student children, for that matter. We don't ask how you spend your earnings. It's our money, and you just confuse the issue by calling it 'expenses'. It's no more than the appropriate rate for our very thankless job. Yours, etc.

ID cards for war veterans

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The subject of care for war veterans be a sensitive issue. Many feel they have made a huge sacrifice for their country, whilst others believe they took calculated risks in signing up. But, whatever their private views, it is underhand, sly and immoral for the government to use the public's sympathy for them in order to push their system of ID cards.

The government is now proposing that all war veterans will be given ID cards allowing them preferential treatment on the NHS and other benefits such as priority council housing and bus travel. The scheme could be implemented as early as next year, which shows how this government is willing to go to any length to push the unpopular ID cards  before they leave office. Perhaps I wouldn’t have been so sceptical towards the governments motives if they had shown some more interest for the welfare of veterans and servicemen in the past. After all, it is this government that has continually failed to equip and protect frontline soldiers and provide decent quality housing for their families.

Essentially, this extra care for veterans could be provided without furnishing them with ID cards. It is too late for the government to compensate for their failings of the past – but to use this as an excuse for more stealth legislation is disgraceful.

Fat cats

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Except the stars of “showbiz" and spectator sports to whom all is forgiven, fat cats do not have a good press. Even those who have done great things, built and run vast and vastly productive organisations employing thousands of men and women who are all at least a little better off as a result, - even captains of industry are widely blamed for their income and wealth that is regarded as ranging from the provocative to the obscene. When, by a combination of gross collective misjudgment, ill luck, mass hysteria fostered by the perverse incentives governing the panic-mongering media and equally perverse solvency and accounting rules the fat cats of finance got themselves in deep trouble, the jubilant public all but cheered. Admittedly, as the music stopped, many bankers displayed singularly bad taste, but even perfect discretion would not have saved them from the detestation owed to fat cats.

At the other extremity of society, the underdog enjoys general sympathy. There is a presumption that he must be in the right and the top dog (or should it be overdog?) is in the wrong. This is so not because of what either may have done, but because one is now beneath the other. The top dog may be blameless, but sympathy goes to the underdog and sympathy is easily mistaken for an imperative of justice.

All these sentiments and attitudes spring from deep-seated emotions that cloud cooler judgment. One such may be the shock and fear at the sight of gross inequalities of any kind that hurt what Isaiah Berlin called the “love of symmetry". Another may be the emotive appeal that playing Robin Hood holds for most of us (and hang the Sheriff of Nottingham). Half emotion and half calculation inspire the gut feeling that rich-to-poor redistribution enhances the common good (the “aggregate utility" of superannuated textbooks ) while incidentally also raising the income of the person advocating it. Finally, pure emotion excites good old-fashioned envy; do down the fat cats, chop off the tall poppies even if the person feeling that way expects to reap no profit from it.

Extract from The Fat Cats, the Underdogs, and Social Justice published by Econlib.

Blog Review 922

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It appears that the gay vote leans Conservative. Something of a change, certainly, but then as is said, a pretty natural consistency for a message of personal liberty.

Who knew that the tax cut multiplier was so large?

If it is that large then all this fuss about tax havens is irrelevant.

It´s all of the time or none of the time, not just when it suits your particular cause, no?

Whisper it gently, but many banks are simply getting on with solving their problems without government intervention.

No, we don´t get faced by too many choices. Not if you look at what people actually do, that is.

And finally, yes, Mother is always right.

More power to the regulators

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Isn't that the current war cry? That more power must be given to the regulators to make sure that markets won't drive us into another crazed spiral of boom and bust? That only if we hand over to the bureaucrats then children will be able to gambol happily under a shining sky and all will be well with the world?

This is such a strong current at the moment that I'm a little surprised not to have been told that regulation will make my teeth whiter as well. For there is, in this messy real world that we inhabit, a small problem with thinking that regulators will provide that pony for everyone.

Although I know I shouldn't laugh I couldn't help an involuntary snigger when perusing the background section of the report about the Icelandic economy. The MPs quoted an "expert" body from June 2007 which said at the time: "The medium-term prospects for the Icelandic economy remain enviable."......The experts in question? No less than the International Monetary Fund (IMF), which on Thursday was granted a trebling of its resources by the G20 as part of its $1.1 trillion (£750bn) economic aid package.

You see the problem there, don't you? Those that are being proferred to us as the omniscient and benevolent regulators might well be benevolent but they're certainly not omniscient. They were just as wrong as everybody else in recent years.

Well, actually, not quite just as wrong as everyone else. They were even more wrong than one particular group. The hedge funds, the short sellers. People like John Paulson. George Soros perhaps. These people did in fact get the fragility of the banks right and made a great deal of money by doing so.

Logically then we should be arguing that those who got it right sould be doing our regulating for us, not those like the IMF who got it wrong. Sadly, logic has very little to do with politics: we're banning the hedge funds from making short sales and thus removing their major method of regulating.

Ho hum....

The BBC, Ofcom and the Sachsgate affair

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So, we have finally received the findings of the Ofcom investigation into the whole BBC ‘Sachsgate’ affair. Unsurprisingly, the results are notably underwhelming.
 
The BBC has been fined £150,000 in total. £70,000 was for broadcasting offensive materials and £80,000 for invading the privacy of members of the public. This fine of £150,000 may sound adequate, but bare in mind that whilst Ross was publicly embarrassing us, he was earning £6m per year.
 
The Ofcom report into the debacle reveals a little of the extent of public waste at the BBC. For example, after a previous incident, Russell Brand’s broadcasting had already been classified as ‘high risk’ by senior management, yet he was still given a prime-time show on Radio 2.
 
Regulation acts as a cost to industries at the best of times - but there is something askew when a government regulator fines a public body. Essentially, the government has admitted it has failed in this instance, so has decided to fine itself at nobody’s cost but the taxpayer. We wouldn’t let a criminal decide their own sentence in court. The broadcasting regulatory system here smacks of double standards. The regulatory rules state that a private broadcasting company can be fined 5% of its revenue for breaches of the rules on any occasion. By contrast, the BBC can only be fined £250,000 for an identical failing. Why should the BBC be allowed so much more leniency and freedom than other private companies? If anything, as a national public institution they should be held under much greater scrutiny.
 
There is an ironic parody here – just like Ms Baillie, the taxpayer has been shafted by the BBC, and both of us have received comical apologies.

The G-20 and our discontents

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“The era of bank secrecy is over," said Gordon Brown during the G20 conference on Thursday. The conference agreed upon imposing stricter regulations on financial markets, in addition to regulating hedge funds. The bonus crisis was also touched upon in their decision to strictly regulate executive pay. Furthermore, the final statement encourages the IMF and the World Bank to lend to poorer countries by pledging $250 billion.

What Gordon Brown really meant to say is that the era of privacy is over. Now the government will have their nose in every area of bank operation, imposing regulations and removing growth incentives for smaller firms and hedge funds, not to mention the pay incentives for executives. The rest of the measures taken will have questionable effects on the world market. More money is being pumped into the grinder, but until when?

The key question not being asked by many in the media is can we solve the problem with more spending and regulation?