A measure of paternalism

Is measuring alcohol units a good thing? That was the question posed by a debate on Saturday at the Battle of Ideas. At first glance, it seems entirely reasonable that we should know the alcohol content of a given drink. But units are quite different: they allow us to compare the amount of alcohol to an ostensibly objective 'daily guideline'.

It very quickly emerged that this 'guideline' is flawed, if not harmful. From a medical perspective, it is almost impossible to predict the effect of alcohol on the average person. After all, we all have different levels of tolerance, are susceptible to different conditions, and are affected by a multitude of other factors too. The truth is all alcohol is unhealthy; and we know it! But by creating this artificial, arbitrary, and ultimately quite useless measure of alcohol consumption, we risk creating a problem. By definition.

Without an objective standard of what is healthy and unhealthy, we tend to conform to cultural norms. Alcohol consumption experiences its ups and downs, with one generation guzzling gin in Georgian proportions, and another religiously enthralled to temperance. Society itself defines this level of socially acceptable drinking. When we exceed it we are seen to have a problem. More importantly, we're brought up to see ourselves as having a problem, and in extreme cases friends and family intervene. It is a process that has been serving humanity well since at least 3000 BC, when Egypt's Pharaohs started mass-producing wine.

Despite agreeing that the measurement was flawed, a panellist at a government health body stood up and said that we nevertheless needed to look beyond the individual's right to drink, and look at society as a whole. He implied that measures needed to be taken to protect people from themselves, as individuals are too stupid or ignorant to know what is good for them. And thus that society is too ill informed to define an acceptable drinking norm. He brought up extreme problem cases, citing studies of alcohol addiction, and its effects on families and friends. Another doctor chipped in by saying the flaws of alcohol units paled in comparison to the need to inform the public of what they are consuming. They all called for greater regulation, restrictions and taxation, to the detriment of all drinkers.

Of course doctors know better than anyone else what the individual can suffer from excessive alcohol consumption, but these statements suggest a more sinister campaign for wider social control rather than individualised help for the particular patient. There is a fundamental difference between providing "information", and providing knowledge. The first is by their own admission deeply biased. Whereas knowledge is already provided not only by individual diagnoses and by society at large, but every Saturday morning by alcohol's very own resident teacher from experience: the hangover.

7021

blog/justice-and-civil-liberties/a-measure-of-paternalism

Things don't look good

I was sceptical about the eurozone deal agreed last week from the very beginning. In a talk I gave on Thursday, the day the deal was announced, I said that it would either do no good, or be positively harmful.

Firstly, the debt restructuring announced was clearly insufficient to deal with the problem – Greece would still have been left with an unsustainable debt load. For an orderly debt restructuring to work, it needs to be so bold and radical that it convinces everyone the problem has been dealt with. That clearly wasn’t the case in this instance.

Secondly, the bank recapitalisation plans were (and are) dangerously ill thought through. If you force banks to significantly raise their capital ratios by June next year, you’ll get one of two things happening. Either lots of capital will be sucked out of the wider private sector, which means funding going out of productive, wealth-creating industries to prop up dodgy, wealth-destroying banks. Or banks will raise their capital ratios by shrinking their assets – and that means another credit crunch, with a contracting money supply and less funds for businesses. In either case, there’s a good chance that hasty bank recapitalisation will trigger that long-awaited double-dip.

Thirdly, the deal meant more bailouts. And there are two big problems with bailouts. One: they don’t deal with the problem; they just kick the can down the road. Two: we do not have the money to fund bailouts on the scale that is required. Where is the sense in countries that don’t yet have a debt crisis borrowing money to bail out those that do? That doesn’t resolve the debt crisis, it just spreads it to otherwise healthy economies.

Yesterday’s announcement of a Greek referendum – or will it be a snap election? – underlines the futility of the entire exercise. It practically confirms what has seemed inevitable for some time: that Greece will soon undergo a complete and disorderly default. It will nationalise its financial sector, leave the euro and, in an attempt to avoid unpopular ‘austerity’, print lots of its own, new money – raising the spectre of hyperinflation and, in extremis, complete economic and societal collapse. Needless to say, I sincerely hope I am proved wrong about this – but things do look very grim.

Of course, Greece alone isn’t that big a problem to the rest of us. But the potential knock-on effects of a Greek collapse are terrifying. Italy, home to the world’s eighth-largest economy, has to roll over €300bn of its government debt next year. If its borrowing costs don’t fall (the government was recently forced to pay a record 6.06 percent on its 10-year bonds) then it too will face the prospect of default. And then we really will be in trouble.

Ultimtately, this is the entirely predictable outcome of governments borrowing too much money, of politicians buying votes with a larger state than people are prepared to pay for through taxes. As Ayn Rand put it, “We can evade reality, but we cannot evade the consequences of evading reality”.

7020

blog/economics/things-dont-look-good

Regional Fund: Coalition's job plan destroys jobs

By handing out cheques to selected companies, the Coalition expects to create or protect 201,000 jobs. Even though three quarters of bidders were disappointed, the government promised to dole out £950 million.

As state money does not grow on trees, it has to be raised elsewhere. Thereby destroying other jobs. The only thing we see is displacement: jobs are taxed away to subsidise the government's favourites. Nick Clegg, for example, who is the MP for Sheffield Hallam, announced the new plan while visiting Sheffield Forgemasters - which will benefit from the government's profligacy.

When governments pick winners, they invariably end up picking losers. This stems from the classical Hayekian knowledge problem: millions of decisions by people are infinitely better placed to allocate funds to guarantee maximum returns, than bureaucrats from Whitehall are. Investment decisions should be left to those who are best placed to assess them: the parties concerned. They are driven to success by risking their own money on their own projects. Let's make sure we follow up on the "success" of the winners in today's cash bonanza. It will make for a splendid disaster book in about five years time.

The government will hand over £1 to the private companies for every £5 of investment the companies can find privately. It is to be expected that most projects were planned a long time ago and would have been gone ahead anyway. And if they would not have happened without the government's cash, then they should not be subsidised, as the market had determined that it was not a sound investment.

One would have thought that after the disastrous bank-and country bailouts the government would have been wisened up enough by now not to gamble with taxpayers' money in this way.

It looks as if this year Wesminster's Father Christmases will fill company stockings with presents the companies paid for themselves.

7019

blog/tax-and-economy/regional-fund-coalitions-job-plan-destroys-jobs

Slouching towards stimulus

Peter Boettke has a short post on political parties, where he quotes Luigi Zingales from the start of the Great Recession:

If Keynesian principles and education are the cause of the current depression, it is hard to imagine they can be the solution. Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behaviour. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription.

Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.

It's depressing to think that it's this straightforward, but when you see headlines like this it's difficult to disagree. If even an "austerity" government is swallowing Keynesian silliness about government spending "kickstarting" the economy (even for PR reasons), it's pretty clear that we're in trouble. I wrote about the recalculation view of recessions recently:

The policy implications of this perspective are quite signficant. Forget trying to "stimulate" your way out of a recession through spending or printing money – all you'll be doing is creating another type of false, unsustainable demand. You'll do the most damage if the stimulus is aimed at the unemployed, the people who need to retrain to cope with the real economy the most: reskilling takes time, and will be put off if there's some public works project nearby that will hire you instead. Even taking up unemployed people's time has an opportunity cost; justification for "stimulus" programmes ignore this.

It's the "unsustainable" that's key there – governments could reinflate the bubble, or inflate another one somewhere else, through fiscal or monetary policy. But we don't want to do that, because it's not sustainable and diverts resources from where there is real demand. The Coalition's "kickstart" for the economy is bad news: it's the wrong thing to do economically, and it suggests that the government is slouching towards Keynesianism again.

7018

blog/tax-and-economy/slouching-towards-stimulus

No big deal

I'm with Liam Halligan all the way on his response to the European bailout deal. It isn't enough and it won't work. They are trying for political reasons to escape what economic necessity dictates. They will not admit they made a mistake in admitting Greece into the Euro (although President Sarkozy has called that an error perpetrated by his predecessors). They do not want to undertake any step that might retreat from 'ever closer union'.

The austerity measures ('fiscal responsibility') are hard for electorates to accept, much harder than the automatic effects of devaluation. Frankly, I don't see how the governments concerned can deliver. Greece should exit the euro, followed by Portugal. Faster than anyone supposes, markets would adjust to the new facts and stability would emerge.

Halligan is skeptical about the 'relief rally; staged by equity markets in response to the deal.

"By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone's deeply indebted governments can roll-over their enormous liabilities and keep the show on the road…"

"Let's be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest."

He describes the deal as another of the "extend and pretend" non-solutions, and gives the deal two weeks before it begins to unravel. I'm not sure about the timing, but given the lack of information about how the EFSF's €440bn is to be leveraged, and from where the funds will come and why, I think pessimism has it by a length. This is not over and it's going to get worse.

7017

blog/international/no-big-deal

Leviathan is swallowing the voluntary sector

According to the Charities Aid Foundation the UK is one of the most generous countries in the world for charitable giving. The UK has a large and very diverse voluntary sector with an income of £55 billion this year. Worryingly, charities are increasingly being co-opted into the apparatus of the state and being turned into dirigiste organisations reliant upon and supportive of state aid. This is not just a logical fallacy – organisations supported via taxation cannot ipso facto be termed charities – but a serious problem.

From the Charity Commission data we can observe that there is considerable consolidation occurring in the sector, with large charities (income >£10 million p.a.) now accounting for 56% of the sector, up from 43% ten years ago. This coincides with the period beginning in 1997 where the successive Labour governments increased funding to charities as part of their attempts to reform ‘public’ (i.e. socialised) services. According to a report by the National Council of Voluntary Organisations’ (NCVO) Funding Commission government funding of charities has increased from £8.4 billion in 2000/01 to £12.8 billion in 2007/08. “As a proportion of all income to the sector it now accounts for just over one third (36%)”. 77% of charities receive no government funding, so there are relatively few charities gaining all the largesse. But don’t worry, it’s not just HM Government doing this – the EU is also doling out large grants to charities and has spawned a small industry in navigating the complex bureaucracy.

Given these concurrent phenomena it is amazing that the link between them has not been fully observed. There can be little doubt that engagement with the bureaucratic procedures and compliance with big government and receipt of state funding has led to ‘big charity’ consolidation. As with other sectors, regulation and subsidy erects barriers to entry and reduces competition and innovation (yes, there is competition in the voluntary sector and yes it is necessary and beneficial).

We have arrived at a point where the ‘voluntary sector’ is rapidly losing its voluntary characteristics but instead marches to the beat of the politicians’ and bureaucrats’ drums. As the NCVO report tells us:

“[G]overnment funding has not helped them to become more resilient. Charities working in these areas have very limited reserves or assets to call on. As a consequence, they are potentially vulnerable to cuts in public spending; changing political priorities; and / or changes to the way services are commissioned and procured.”

Yet these effects notwithstanding, groups such as Cutswatch have grown up to lobby for greater charitable involvement in public service provision. Charities were particularly vociferous in their opposition to government funding reductions. Once hooked on the drug of taxpayer’s money it’s hard to let go.

Best guesses suggest that the sector will probably see a 7.7% fall in government spending (£911million) by 2015/16. However, I suspect that this may be pessimistic. The Coalition Government’s nebulous Big Society agenda seeks to increase charitable involvement in ‘public’ service provision particularly via the Open Public Services White Paper. An analogy with the problems of the Private Finance Initiative can be drawn. While public service reform is vital and necessary I see it as profoundly dangerous to increase charitable involvement in and reliance upon government and their transformation into recipients and providers of taxpayer-funded services – in other words, QUANGOs. A symptom of where we stand is that there is an Office and a Minister for Civil Society – no, that’s not a joke.

Instead, government’s focus should be on reducing taxation, red tape and decreasing barriers to entry for innovative and small charities – supply side reform in other words. The best thing government could do to promote philanthropic activity would be to slash taxation whilst at the same time divesting itself of many welfare functions (which would fund the tax reductions) that free markets and charitable organisations would be far better at performing. An economy and society less harassed and restricted by government would be far better able to support philanthropic giving in time and money. Moreover, many of the problems that charities seek to assuage such as drug addiction, educational failure and poor housing are caused by government intervention. Eliminate this intervention and we would have far less need for charity!

Charities and voluntary activity fulfil a vital role in civil society. As statist economists are fond of telling us, markets are imperfect in that they do not provide certain goods in ‘sufficient’ quantity. QED – to the statist - this is an argument for government intervention. To the Classical Liberal, shortcomings in markets instead constitute an argument for philanthropy and altruism as intervention by the state can only lead to greater government failure and unintended consequences. If the state continues to co-opt voluntary organisations it will further erode the basis of civil society and ultimately lead to even greater intervention to ‘correct’ the inevitable failures of government controlled ‘charities’.

7016

blog/welfare/leviathan-is-swallowing-the-voluntary-sector

We're going to have to abolish drug licencing you know

Yes, I do mean health type drugs, not fun type ones, for the latter a system of licensing would be a tremendous step forward from the current position. But for health type drugs we really are going to have to abandon drug licensing. Or at he very least, our current system of licensing them.

The reason is that currently we've a system which, however bad it is, however many people it kills by keeping new drugs off the market through the expense of getting a license, is aimed solely and purely at mass market drugs. If, as we move to more personalised medicine, we stop having mass market drugs then we cannot have a drug licensing system which is set up only for those mass market drugs that no longer exist.

If each drug takes $1 billion to reach the market and 10 million people use it over its patent protected lifetime, then each patient contributes, on average, $100 to the development of that drug. If we keep shrinking the denominator, then the economics become more difficult. Taken to the extreme of personalized medicine, with one specific drug for each person, we cannot expect that one person to cover the $1 billion development cost. Even if the development cost drops to $1 million per new drug, the economics won't work.

I think the average development cost would need to drop to $10,000 per drug to be reasonable. To reach this price, we would need to exclude the FDA completely--allow drugs to be marketed without prior FDA approval--or allow the FDA to approve the process of drug development instead of each specific drug.

And there are drug treatments out there which are tantamount to a new drug or each person: cancer treatments that study the DNA of the cancer, the specific immune system and which then turbocharge one to attack the other as an example.

Even where we retreat from such extremes we already know that different drugs have different effects on different parts of the population even when being used to treat the same disease. Those of West African derivation can react quite differently, as a group, to a drug than those of northern European, or East African, or Australasian genetic heritage as can each group from the other. We're finding certain gene combinations which mean that certain drugs will or will not work in sub-groups of such larger collectives as well. All in all, we're finding that ever more drugs have ever smaller target populations, to say nothing of those drugs we've developing, or would like to, to treat complaints that only strike a few people.

We therefore have to reduce the cost of a license for each and every drug: which means abandoning out current methods of licensing drugs. We simply cannot continue to use methods solely appropriate for mass market drugs when we're not in fact trying to develop mass market drugs.

All of which is rather alarming really. For you could, I am sure, talk to any individual who works in or with the drug licensing authorities and easily gain agreement with the basic thesis above. But there's nothing quote so conservative as a bureaucracy when acting collectively, however reasonable or intelligent the component parts of it.

7011

blog/health/were-going-to-have-to-abolish-drug-licencing-you-know

Happy birthday, Lady Liberty

The Statue of Liberty, designed by Frédéric Bartholdi, was dedicated on Oct 28th, 1886, 125 years ago yesterday. It was a gift from the people of France, and is located on Liberty Island, South of Ellis Island in Upper New York Bay. The lady with her torch and her tablet represents the Roman goddess of freedom. There is a broken chain at her feet to complete the message.

The statue has become a symbol of freedom the world over. For many immigrants arriving in New York by boat, it was one of their first sights of America. Engraved on a bronze plaque inside the base are the famous lines by Emma Lazarus:

"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"

The lines themselves, like the statue, have been a source of inspiration to those who came to the United States to escape from tyranny and persecution and to make a better life for themselves in the US.

Even today the statue is a powerful symbol reminding people that America was "a nation conceived in liberty," a liberty that needs to be protected and reinforced against the encroachments of governments and bureaucracy. Many of America's liberties are protected in its constitution, some better than others.

On her hundred and twenty-fifth birthday the lady holds her torch up to the world, as well as to America, inspiring us to value liberty over security, and to live our lives by our own values rather than conform to the prevailing views of how others think we ought to live. Happy birthday!

7015

blog/international/happy-birthday-lady-liberty

That Washington Consensus seems to be working then

There's good news coming out of Africa as we've noted many a time here before. Mired as the continent was in the pit of madcap and counter-productive policies the various economies are now, finally, growing again:

AFRICA has made a phenomenal leap in the last decade. Its economy is growing faster than that of any other continent. Foreign investment is at an all-time high; Senegal has lower borrowing costs than Ireland......Africa’s mood is more optimistic than at any time since the independence era of the 1960s. This appears to be a real turning point for the continent.........Africans are taking a greater interest in each other. Regional economic cooperation has improved markedly—borders are easier to cross now, especially in the east.......Bad governance is still holding back many countries, but markets are becoming more open thanks to privatisation. Examples of the old Africa (destitute, violent and isolated) are becoming more rare.

Now, to pin all of this on just one thing would be a tad brash. It's not just commodity prices, not just new technology and it's not just what I'm about to suggest has been important. However, I would suggest that the Washington Consensus has been important in laying the ground work for what is happening in Africa. An appallingly large number of the development NGOs, right on opinion makers and the like hate said Consensus with a passion. But all it really is is a list of stupid things that you shouldn't do for these stupid things will wreck your economy.

Since the late 80s/early 90s this list of stupid things you shouldn't do has been urged upon African governments as a checklist, see, don't do these stupid things. I really don't think that it's a coincidence that a few years after said governments stop doing stupid things that the economy improves.

Please note that I don't claim at all that everything is just peachy, only that it's getting better. Nor do I claim that the Washington Consensus is solely responsible for things getting better. Only that not doing stupid things that will wreck your economy is rather likely to leave room for the economy to improve. Which is what, I think, enrages some of those NGOs and right on opinion formers. For the list of stupid things not to do reads suspiciously like their list of things that should be done. And even where it doesn't, how appalling that an economy might grow without important white people planning it, it just happening as Adam Smith said it would, peace, easy taxes and a tolerable administration of justice being all that is required.

7010

blog/international/hat-washington-consensus-seems-to-be-working-then

Increased rewards for top CEOs

It is good news that the rewards for Britain's top CEOs have increased substantially on the previous year. Although this has been depicted as a 'pay' increase, in fact most of it is made up of performance-related rewards such as shares and share options. Only a tiny fraction of it relates to salaries.

It is good news for Britain that our top executives have been delivering the goods with a substantially improved performance. This bodes well for the viability and competitiveness of UK businesses in the future, which in turn will improve the prospects for employment here. They have gained performance-related rewards by improving the results on the previous, poor year.

It is also a good thing that in an international economy, Britain can offer the kind of rewards that attract and retain the high business achievers. Far from criticizing or curtailing these incentives, we should be seeking to make them even more attractive by removing the disincentive of the 50 percent top income tax band.

7014

blog/tax-and-economy/increased-rewards-for-top-ceos