Economic Nonsense: 31. The modern economy is so complex that only government can manage it

Actually, the opposite is true. The modern economy is so complex that even government cannot manage it. Who can manage it, then? The answer is no-one. No single authority or group of people can handle the volume of information, the speed of its responses and the complexity of its relationships.

This is not to say that the modern economy is out of control, but only to say that the self-regulating mechanisms within it can respond more rapidly and more surely than any body outside of it. A market economy is a self-regulating system. It responds to new information and signals people to change behaviour accordingly. Much as a thermostat detects temperature changes and adjusts the heat supply, so the market detects imbalances, shortages and surpluses and leads people to alter their behaviour in ways that redress them.

Some people wrongly suppose that if the economy is not centrally controlled in some way, then chaos will result. Not so. The order of the market arises spontaneously from the millions of interactions constantly taking place. It holds more information than any group of planners could hope to access, and it is faster to react to changes than any controlling authority could manage to achieve. It is also more intelligent, representing as it does the minds of the many rather than the limited brain power of a few people grouped around a table trying to direct it.

The economy directed by the actions of many allows different individuals to purse their separate goals, where the centrally directed economy is geared to achieving the aims of its planners instead. The market economy thus allows people to give effect to their own values and priorities, to be autonomous actors rather than the agents of someone else’s will. It allows for a society that is more free as well as more efficient.

Non-payment of BBC licence fee accounts for 10% of prosecutions

The BBC is responsible for more than one in 10 criminal prosecutions. Culture Secretary Sajid Javid reports that 10% of magistrate court cases are for non-payment of the BBC licence fee. Non-payment is a criminal offence, punishable by a fine of up to £1,000. Every week about 3,000 people are fined for non-payment, and about one person a week is jailed for non-payment of the fine.

Women make up about 70% of those prosecuted and convicted, and half of those jailed for not paying the fine. When people fail to pay other utilities, such as energy companies, they are guilty of a civil offence, not a criminal one, and they cannot be prosecuted and fined for falling behind with their payments. Civil action can be taken for recovery, but without fines and jail terms.

Several newspapers have had reporters visit magistrate’s court to describe what goes on. They all tell harrowing stories of frightened, distressed people, mostly women, facing fines they cannot pay under threat of imprisonment if they do not. Many are single mothers, many on benefits. They have not paid the licence fee because they cannot afford to. The sum of £145.50 per year is huge for a young mother struggling to feed and clothe children. Many weep in court, unable to pay the fine for the same reason they couldn’t afford the licence fee; they don’t have the money.

Everyone with a TV, except the over 75s, has to pay, whether or not they watch BBC programmes. If people fail to pay for other services, such as a Sky subscription, for example, the service is withdrawn without them being taken to court and fined.

In 21st century Britain we should not be dragging helpless women through courts and fining them, or making their lives more wretched than they already are by putting them in jail for non-payment of those fines. It should be a civil, not a criminal offence, and should be dealt with by withdrawal of the service rather than by prosecution. The technology to do this is relatively simple.

The development of tiny transistor radios killed the radio licence in 1971. Now laptops, tablets and smartphones make the BBC licence fee increasingly difficult to sustain. Many watch TV on portable devices instead of TV sets. They watch programmes on Catch Up and iPlayer. Many do not watch BBC programmes at all. Clearly an alternative way of financing the BBC has to be found. That will take time, but before then non-payment of its licence should be a civil, not a criminal action, and we should stop letting the BBC hound helpless people through the courts.

Economic Nonsense: 30. In economic downturns government can boost growth by increased spending

The problem with this is that in economic downturns the government often does not have the money to do this. In a downturn tax receipts tend to go down because there is less economic activity. With less being earned, less tax is paid. If government wants to expand its spending it will need to raise more in taxes or borrow more, neither of which are good at stimulating recovery and growth.

If, during times of economic growth, government builds up a reserve surplus, then it might have the resources to do things such as infrastructure projects when a downturn comes. Unfortunately governments rarely do this. When money comes in, the pressures are on them to spend it, and if they spend it during the good times, it is not there any more when the bad times come.

Tax taken and spent by government is money that cannot be spent by the private sector. The goods and services that people might have bought, or the investments made possible by their savings do not take place if the government has taken the money to spend on its own projects.

Some commentators say that in a downturn businesses and private citizens are simply not doing the investing, and therefore government has to step in and do some of its own. There might be very good reasons why people are not investing in a downturn, and they are even less likely to invest if government has raised their taxes or by borrowing money to pay for its projects has raised the cost of borrowing.

There are things that government can do to make investment more attractive and encourage more businesses to start up or to expand. It can lower Corporation Tax; it can tweak Capital Gains Tax; it can give small and new businesses a holiday from National Insurance contributions. All of these are on the supply side, where the effort is needed, rather than on the demand side subject to all of the above caveats.

Economic Nonsense: 29. The economy should be based on co-operation rather than competition

It is competition that makes the economy work. Producers compete with each other to supply consumers, and consumers bid against each other to decide who buys. When goods are in short supply consumers bid up prices, sending a signal to producers to produce more and thereby redress the shortage.

Competition allocates resources efficiently. The same steel that makes a bridge cannot also make a ship, and resources are allocated where they achieve most value and where they command the highest prices. Competition for workers drives up wages. It is competition throughout the economy that motivates people and sends the signals that tell people how to improve their circumstances.

If people attempted to base an economy on co-operation, it is difficult to see how they would know what to. Without the signals sent by competition in prices and resource allocation, they would not know what to produce, in what varieties and to what standard. The experiment with the socialist economies of the Soviet Union and its satellite states was an attempt to plan by co-operation instead of competition, and it failed miserably. State factories were inefficient and outdated and they produced shoddy goods. Shortages were a feature of everyday life.

State officials attempted to estimate needs and to instruct factories to produce goods accordingly. They had no knowledge of what people actually wanted. In a competitive economy, producers vie with each other to guess what the public will want, so that they can profit by producing it. In a co-operative economy they do not compete with each other, so some official or committee has to make the decision, with little at stake if they got it wrong, which they often did.

There is nothing wrong with competition. Misguided ideologues tried at one stage to eliminate it from schools, and some still do. In fact competition spurs people to improvement. It is usually friendly, with people looking to the achievements of others to see how they might improve their own lives. It is a fact of nature just as much as is the empathy we show towards others. Competition works, and it is a force that improves lives. In an economy it is essential.

Economic Nonsense: 28. Capitalism brought about the financial crisis and should be replaced

Opinions differ on the causes of the financial crisis; some economists suggest it happened because of a combination of several causes. In the US sub-prime mortgages were involved, in that mortgages had been given to some who were poor repayment risks. When these were bundled into other securities, an unknown risk was being marketed, with some institutions heavily over-extended with potentially bad debts.

It should be pointed out that it was US government policy to extend home ownership to low income people. The two agencies Freddie Mac and Fannie Mae were both encouraged to do this. The process of ‘red-lining,’ drawing lines around city zones inside which no mortgages would be given, was outlawed. It might also be noted that most of those who received mortgages, including low income people, continued to pay their mortgages payments and successfully became home owners. Only a tiny proportion were defaulters. It was the unquantifiable nature of the risk that caused problems.

Others have pointed out that the Federal Reserve Bank made a policy of cheap credit. They did this to weather crises and prevent economic downturns. The Bank of England did some of the same. When money was cheap, so was risk, and the message encouraged financial institutions to undertake riskier ventures. It was as if all the traffic lights were stuck on green, and everyone pressed ahead at speed.

The lesson is that governments and central banks were at fault, as were reckless traders taking huge risks to bring greater returns. It was not capitalism itself that brought about the crisis, but rather the inappropriate behaviour of some of the parties involved, including government. Neither was it regulation. With the possible exception of the pharmaceutical industry, the financial sector was among the most tightly regulated in the world. It was unsuitable regulation that sent the wrong messages and brought about wrong behaviour.

Capitalism has not been replaced and almost certainly will not be replaced, in that no-one has found a better way of generating wealth or of improving living standards over the long term. It experiences shocks and crises from time to time, and it is partly a learning process. After each crisis it is modified to prevent the same happening again. But there may well be new and different crises in the future, and new ways will have to be found to deal with them.