Once, when I was on the radio during the autumn’s public sector trouble, a teacher representing the trade union activists who were due to go on strike at midnight that night countered one of my arguments by saying that he was striking for “people like me”. By this he meant ‘young people who are going to have to work longer than us for smaller pensions.’ The thing is, I couldn’t see any injustice in my generation having to work longer. We’re going to live longer, too. It is absurd to suggest that the generation graduating university in 2011 should be expected to retire at the same age as people who entered the job market in the Sixties and Seventies.

Yet that is precisely what this man was proposing: regardless of advances in life expectancy and medical science, each generation should demand to spend no more time in work than the preceding one and each should enjoy a longer and longer retirement. With life expectancy increasing, it is likely that most people my age will never be able to afford a worthwhile annuity and will be working into our seventies and eighties, maybe our nineties.

Will that be so terrible? In the half century between now and then medical science will have advanced in leaps and bounds. In all likelihood our seventies will be as unrecognisable to the baby boomer generation as their fifties and sixties are to their own parents. The fact is that science is keeping us younger longer, yet we cling to a model of social provision that was designed in the late Forties. The pension was designed to be a small boon to carry people from the end of their working lives to the grave; less a safety net than a stretcher.  It was pitched at roughly the age when people of that era who survived that long were physically incapable of work.

Yet as our life expectancy grew and employment patterns shifted away from manual labour, we invented the concept of a long retirement as our lifespans came to rapidly outstrip the pension age we refused to change. Such pensions are vanishing from the private sector, and as financial reality bites their public sector equivalents will go the same way. We’re living too long to afford them.
The solution is that the government must fundamentally rethink its approach to pensions. It should shift from being seen as an entitlement you reach at a certain fixed age and become a benefit tested against an individual’s personal circumstances.

In short, the very idea of ‘the pension age’ should be abolished. State pensions should become a benefit and be seen as such – when age renders you unable to work, you receive the pension as an out-of-work benefit if you cannot get by on your own means. People would still be free to contribute towards a pension, but with increasing life expectancy annuities are only going to get more prohibitively expensive.

This will hurt. But the era when the British public could use borrowed funds to bridge the gap between acceptable taxation and expectation is over.

Jock Coats has a dilemma:

We had our coursework assignment for Macroeconomics 1.  I could have some fun with this...

Individual Assignment Task:

In 2011, Bank of England chose to maintain the Bank rate at its historic low even when the prevailing inflation rate was significantly higher than the targeted level. You are required to critically evaluate this particular policy decision of Bank of England.

Using available information on the UK economy from 2000-2010:

i. Outline the pattern of economic growth, inflation, and interest rate over the past 10 years.

(This task requires that you find annual data on these economic variables over the whole period. You must present the data in a table and you must also present it in a graphical way so that you detect any significant changes in growth, inflation and interest rate over this period. You should then comment on these changes.)

and,

ii. Explain and critically evaluate the policy of Bank of England in relation to inflation for the last one year.

(You should explicitly link the discussion to relevant economic concepts. You should keep in mind the interrelated nature of fiscal and monetary policies and use it to expand on the discussion)

Should I be good, and answer as no doubt they would like us to answer, or be honest and tell the truth about the failure of central banking, the curse of state manufactured inflation and the fiat money system?

It's a tough one. I'm sure Jock decided to put head over heart and gave the answers they were looking for. (All the better to change the questions when he's a professor himself.) But what a pity the world's pure fiat monetary regime, barely forty years old, is accepted so unquestioningly by nearly all academic economists. Perhaps they think "the science is settled", though lots of people who have claimed that in the past have turned out to be wrong.

What's doubly depressing is that economists, who are generally free market folk, don't see a problem with half of every transaction that takes place in the economy being based on the product of a state monopoly. A good way of judging something's efficacy is to ask, "If we were starting from scratch, is this what we would design?" Nothing as complex as a market economy can really be designed, so maybe of our fiat monetary system we should ask a slightly different question: "Absent state coercion, is this what would spontaneously emerge?"

I’m sure the folks in Brussels-land mean well with every intention of making the world a better place but you do wonder what planet they live on. Maybe it’s the dull weather or the flat vistas of the Belgian plain that give us Viviane Reding, vice president of the European Commission and EU Commissioner for Justice, Fundamental Rights and Citizenship, and her plan for the rest of this decade.

In an opinion piece in Wednesday’s Wall Street Journal Europe, Ms Reding notes the 20-years since the Maastricht Treaty and lays out a five-point plan of action for 2020, ending with European political union. As the continent struggles with a debt crisis, lagging competitiveness and anaemic economic growth, Ms Reding is confident that “Our European House now stands ready to weather further storms” but that “we still need to win the hearts and minds of European citizens.”

Maybe we’re too simplistic in the belief that the only cure for most of the real and perceived woes of Europe – and indeed the world – is sustained and robust economic growth. Nothing else will deliver the means to deal with ballooning health and pension costs,  unemployment, social unrest, failing education, immigration, welfare reform, national security and climate change. Without that economic growth, you have, well, Greece.

But Ms Reding proposes yet more fussing with EU institutions for the next nine years and makes it all sound so reasonable and easy. In the real world, though, it would unleash a process that would sap the energy of our political leaders and divert them from their most urgent task – definitive and comprehensive completion of the Single European Market. Until that bit of “Europe” is done, nothing else really matters.

Ms Reding first proposes that, in 2013, European governments “should begin an open debate…about the Europe they would like to have by 2020.” Why in 2013? Because it’s the “European Year of Citizens” and that’s as a good a reason as any.

Point 2 says the European Parliament elections in 2014 could be the occasion for “a broad debate: Should we complete the European House and move toward full-fledged political union?” Well, full marks for honesty of intent but does she really expect a clear cut answer from an electorate more worried about job prospects, pensions and health care?

Onto point 3 which proposes that, prior to the elections in 2014, European leaders should agree that the next Commission president would also become president of the European Council. Sounds like a significant change, right? Well, Ms Reding points out that current treaties have been “deliberately worded in a way that allows for this.”

Then comes point 4, the big one – a convention to draft a treaty on European political union so that the European Parliament becomes a true European legislature – followed by point 5 which notes that 2016-19 will be devoted to ratification of the new treaty.

Now, if you’re a business, big or small, local or global, and Europe’s political elite have just told you they’ll expend their limited political capital for the next decade on yet more EU constitutional rearrangements rather than completing previous commitments on open markets, where would you invest?

The coalition government's healthcare reforms are in the news once again. My take on the proposals haven't changed a great deal since I wrote the following for The Spectator last year:

They might help a little here and there, they might be an improvement on the status quo, but they are probably not going to prove worth the effort. To put it bluntly, they don’t go far enough. They won’t help cost control in any meaningful way, because they don’t allow competition on price or abolish collective pay bargaining. They won’t do much to encourage choice or innovation, because they leave the public sector dominant and perpetuate onerous, central regulation. And crucially, they fail to put the patient in charge of their own care in any meaningful way, which is surely the key to delivering a tangible change in the patient experience.

Today, former health secretary Alan Milburn weighs into the debate with an article in The Times (£). He writes:

The Health and Social Care Bill is a patchwork quilt of complexity, compromise and confusion. It is incapable of giving the NHS the clarity and direction it needs. It is a roadblock to meaningful reform.

He goes on to make a number of points that I more or less agree with. Health and social care should be better integrated, rather than being forced into artificial silos that suit planners instead of patients. Control should be decentralised. Payment should be by results. The private sector should play a greater role. And patients should become active participants in their healthcare, rather than mere passive recipients.

All good stuff. But Milburn's final point exposes a contradiction in his thinking. Early in his article, he rules out demand-side reform of the way British healthcare is funded. Later, he says: "Studies in both the US and the UK show that where people have direct financial control over their own health budgets levels of patient satisfaction rise and levels of public spending fall." Milburn suggests that hundreds of thousands of patients should get their own personal budgets, "so that they can buy the services that are right for them". But why stop there? Why not extend the same logic to all patients?

This, ultimately, is the key to successful health reforms: put patients in charge of the money. Not bureaucrats, not doctors, but patients. Once you do that, the door is open to genuine choice and competition, which will raise up standards and drive down costs - as well as instilling a much-enhanced sense of personal responsibility. No amount of supply-side tinkering - however worthy or well-intentioned - can have anything like the same effect.

We need this principle to be spread as far and wide in the healthcare system as possible. As long as NHS funding comes from the top down, it will necessarily remain a centrally-planned, command and control institution, with all of the inherent defects that entails.

I've outlined my own, radical vision for the future of healthcare here.

Pretty much every university student must be at least passingly familiar with their student union. Although the quality of such establishments – and it is as establishments that they are most widely known on campus – varies enormously from place to place, let nobody think that I want to get rid of the student union in its familiar, homely on-campus sense.

But do students really need the other aspects of a union? I mean, they’re called trades unions for a reason, and the student-college relationship is fundamentally different to the employee-employer one.
The relationship between a business and its employees is that the business buys labour with wages. In this relationship the business is the consumer, not the worker – hence the term ‘labour market’. As I argued in my Young Writer on Liberty submission, trade unions parallel business cartels by seeking to restrict supply of a good (labour) in order to inflate prices (wages).

The student-college relationship differs from this in that it is the student, not the college, that is the consumer. We purchase a university education, including access to teachers, libraries and online material, from a university via our tuition fees. This would suggest that what students need is not a ‘union’ but a ‘Which?’-style consumer champion.

Is this distinction important? Or am I simply playing around with semantics?

During my time at the University of Manchester I got quite well-acquainted with the workings of the fairly large executive council of the student union. I found that these positions could be divided between the useful - those that focused on students’ relationship with the university, each other, oversaw events and societies or government welfare – and the big-budget playthings of political poseurs.

On the one hand, it is certainly true that the work of the former – the welfare, student societies and academic-related officers – could be carried out as effectively under the auspices of a ‘union’ as anything else. On the other, in my view many of the problems in the ‘student movement’ – another awful term – stem from the casting of student interests in the trades union mould.

For example, student leaders fundamentally misinterpret the nature of student problems – and the solutions to those problems – by viewing the issue through the prism of labour relations rather than consumer relations: for example, supporting lecturer strikes and other measures out of ‘solidarity’ when they are not in the interests of current students as consumers of education.

As I argued in the Manchester student paper, the idea of a student ‘strike’ having any discernible impact on a university is absurd because students pay universities once a year and aren’t willing to get kicked out for non-payment. What then is the student equivalent of a withdrawal of labour?

A total waste of money, that’s what.

Here's the latest video in Madsen's 'Economics is Fun' series. This time, he's tackling time. The preceding four videos are available on our YouTube video channel here.

George Monbiot begins his Guardian op-ed this week with this jaw-dropping assertion:

Self-deprecating, too liberal for their own good, today's progressives stand back and watch, hands over their mouths, as the social vivisectionists of the right slice up a living society to see if its component parts can survive in isolation. Tied up in knots of reticence and self-doubt, they will not shout stop.

Has Monbiot been asleep for the past 18 months of deficit-denying, Wall Street Occupying, Murdoch-pieing shenanigans? Has he heard of UK Uncut or 38 Degrees? Did he notice all the strikes and marches in London? Does he, indeed, ever read his own newspaper? His article—titled ‘The right’s stupidity spreads, enabled by a too-polite left’—appeared on the same day as the The Guardian published such opinion pieces as ‘The NHS bill could finish the health service—and Cameron’ (Polly Toynbee) and ‘Why we need more banker bashing’ (Sunny Hundal). This is hardly unrepresentative of the organ’s output.

The issue that the left is “too polite” to mention is an academic study which Monbiot (wrongly) claims to have “revealed that people with conservative beliefs are likely to be of low intelligence.” Have you heard about this well-guarded piece of secret research? Of course you have. Only two days earlier, the reticent and self-doubting Charlie Brooker covered the ‘right-wingers are stupid’ story and proved his point by quoting comments left on The Daily Mail’s website. Guess what? Some of the things people say underneath Daily Mail stories are really stupid! One hopes Brooker waived his fee for this journalistic turkey shoot.

In a classic example of confirmation bias, Monbiot declares the study’s findings to be “embarrassingly robust”. This is not the view of the statistician William M. Briggs, who calls the study “a textbook example of confused data, unrecognized bias, and ignorance of statistics”. The study’s methodology does indeed appear to have been designed with the preferred conclusion in mind and it is not difficult to guess the political persuasion of its authors. Even if the findings were sound, the study would only serve as a reminder of how useless that ridiculously broad and pejorative term “right-winger” is.

Monbiot fails to mention it, but libertarians and free-marketeers do not have a dog in this fight. The study examines homophobia and racism with a selective definition of “conservative ideology” thrown in for good measure. The researchers define right-wing ideologies as “socially conservative and authoritarian”, which rules out Monbiot’s hated libertarians and “neo-liberals” at a stroke. People who agree that “Schools should teach children to obey authority” and “Family life suffers if mum is working full-time” are, by the questionable definition of these researchers, “right-wingers” and they find correlations—though not very strong ones—between these attitudes and weaker cognitive abilities. There are similar correlations with racism and homophobia. It turns out that bigots are not always very intelligent. Who would have thought it?

But Monbiot is not prepared to leave it at that. Although the study clearly relies on a North American view of the political spectrum in which the left is socially liberal and the right is socially conservative, Monbiot cheerfully conflates it with the economic outlook of the British Left and Right. The “Conservative appeal to stupidity”, he says, manifests itself in reforming the benefits system and checking whether people on disability benefit are actually unable to work. But one wonders how many Americans on the left or the right would consider capping benefits at £26,000 ($41,000) a year to be unreasonable, let alone “stupid”.

Much as Monbiot would like to think otherwise, a study of social prejudices tells us nothing about the wisdom of his brand of Malthusian, zero-growth economics. Tax-and-spend leftists and Spirit Level suckers who still cannot grasp the broken window fallacy after 160 years should hesitate before calling people dumb. In 2010, researchers exposed the left’s economic incomprehension when they asked people whether they agreed with statements such as “Restrictions on housing development make housing less affordable”, “A company with the largest market share is a monopoly” and “Free trade leads to unemployment”. They found self-defined Progressives and Liberals to be consistently more ignorant of basic economics than self-defined Libertarians and Conservatives.

The study was, however, criticised for choosing statements designed to trip up left-wingers. When the researchers conducted the experiment again last year, they added statements designed to appeal to the prejudices of the right, such as “Making abortion illegal would increase the number of black-market abortions” and “Legalizing drugs would give more wealth and power to street gangs and organized crime.”  With these new statements included, the differences between political factions evened themselves out somewhat. Progressives still did worse than Libertarians overall, but it was concluded that “all groups do poorly, with each group tending to do relatively poorly on questions challenging its positions”. Regardless of political affiliation, people tend to believe what they want to believe. This is a conclusion that Monbiot should bear in mind before he allows one piece of flawed research to confirm his bias.

George Mason University's Don Boudreaux considers the common claim that wages have stagnated in the US since 1980. His points are as valid for the rest of the world as for the US.

As the United Kingdom approaches its date with destiny and the 2014 Scottish independence referendum, the debate surrounding the possible shape of a post-Union Scotland are only going to get fiercer. What Scotland might look like outside the United Kingdom, whether Scandinavian utopia or isolated backwater, is one of the key fronts on which the battle for the hearts and minds of Scottish voters will be fought.

Alex Salmond’s vision, designed to maximise separation’s appeal, is of a Scotland with options: joining the Euro; membership of the Common Market without the single currency; keeping the pound. All intended to give the impression that an independent Scotland would be the master of its own economic destiny.

Yet there are good grounds for suspicion that this is not the case. For a start, it is unlikely that Scotland would be able to claim automatic membership of the European Union as the SNP often claim.

In the instance of Scottish independence, the continuity-UK would almost certainly qualify for ‘successor state’ status under international law, due to possessing (much) more than 50% of the territory and population of the United Kingdom as presently constituted.

Thus the UK would retain its identity and membership, leaving none for Scotland to inherit. Were Scotland to then apply for membership in its own right, there are further hurdles. The UK’s treasured opt-out from the single currency is not offered to new members; likewise the option of joining the European Economic Area without acceding to the EU.

Thus Scotland would either have to join the EU, single currency and all, or not at all. Even assuming the SNP retained their former enthusiasm for the single currency and took the plunge, there’s no guarantee they’d be accepted. Spain, Italy and Belgium are all wrestling with their own separatist movements and will not want to establish the precedent of secessionists gaining EU membership – see Spain’s position vis-à-vis Kosovo.

If not Europe, then what? In an effort to soften the blow for soft-unionist Scots, the SNP are keen to stress the links that they would seek to retain with the UK. Scotland could, the nationalists argue, keep the pound, and British submarines could still be stationed at Faslane to fend off the fear of defence cuts.

Assuming all this was true (and in the case of defence it almost certainly isn’t), Scotland on the pound would be tied to the British economy without having a say in the governance of it, while trying to keep whole communities going via sustaining now-foreign military bases.

The SNP thus risk locking Scotland out of the UK without breaking free from it. As the pro-Union campaign put it, there are polities outside the UK with similar relationships. Until recently, they were called ‘dependencies’.

A French court has found Google guilty of "unfair competition" and ordered it to pay €500,000 to a rival. (H/T Cato @ Liberty.) Google's crime was to offer its Maps application for free to anybody who wanted to use it. A rival firm which charges for its product sued Google for allegedly plotting to eliminate rivals from the market and then start charging for Maps.

For a start, this is obviously wrong. Google's entire business model is based around making money from advertising in free products: see its Gmail, Blogger, Youtube, Calendar and Search sites for examples. Google don't even charge businesses for using its products with their own branding (Google Apps). This is the dominant business model for most successful sites. The court has failed utterly to grasp business in the internet age. A product that doesn't charge can still make money from advertising, as Google and Facebook both do with some success.

That the rival firm is too backwards to be able to compete isn't a problem for the consumer. The only people who think Google will ever charge for any major service are the same tweenage girls who post Facebook statuses about "Facebook Gold" coming in at midnight unless 10,000 people post this message as their status. And the French courts.

This sort of kowtowing to uncompetitive firms victimized by "unfair competition" hits on why Europe's outlook is so bleak. "Unfair competition" laws put the needs of inefficient businesses ahead of those of consumers. The laws have been spectacularly abused in the last twenty years. Microsoft was fined €497m for bundling Windows Media Player into Windows, Samsung has had devices banned from sale because they used a 4x4 rectangular layout for its smartphone screens that looked a bit like Apple's, and Apple is currently being sued because its Apple Stores are too good and outcompeting local French stores. In every case, the consumer has lost out.

Most recently, Google's new privacy policy is facing an EU probe. Not only is Google wrong to provide high-quality products to everybody for free, it seems, but it must also let the EU determine its privacy policy. A normal person might think that, if you object to a company's privacy policy, you should just not use that company's products. But EU commissioners are not normal people — they seem to think that everybody has a right to use Google as they see fit, whether Google like it or not.

Absent state intervention, firms will only be successful if they satisfy consumers better than anyone else. "Unfair competition" laws punish firms that have satisfied consumers the most. They are conceptually and practically anti-consumer.  With rulings like the French Google Maps decision on one hand, and the European Union's bizarre, anti-private interference in private citizens' contracts on the other, it's hardly surprising that there are no French Googles or German Facebooks.