The Pin Factory Blog

When I first entered the Adam Smith Institute world 8 weeks ago, I believed my thoughts on how markets and the government should operate were fairly stable – I grew up in a staunchly liberal (in the American Democrat sense) family. Over the course of the weeks, through vast amounts of reading and discussion with my fellow co-workers, my previously held opinions shifted and rearranged until I discovered myself completely embracing the views of Adam Smith.

Interning with the ASI has certainly been an experience – erecting a statue in Edinburgh, writing my first publicly viewed blogs, learning British phrases (for ages when I asked Steve if he wanted tea and he replied ‘go on then’ I never could figure out if he was saying yes or no) and realizing that I took the relatively liberal (in the classical sense) laws of the United States completely for granted. I’ll now forever be grateful for our lower taxes, first amendment, freer stance on markets and, after a flatmates experience with the NHS, our healthcare.

Thank you to everybody I’ve encountered who has helped me along in developing true libertarian beliefs. I’ve enjoyed my time here thoroughly and look forward to continuing the fight for open economies, free markets and less involvement of the government in citizens’ lives back in the good ol’ US of A.
 

Julian Critchley, who used to be the director of the Cabinet Office’s anti-drugs unit, has come out and said that drugs should be legalised. In his opinion, the government’s current policy on drugs and enforcement of the laws has “no significant, lasting impact on the availability, affordability or use of drugs". He argues that, contrary to what many believe, there would not be a large increase in drug use as a result of legalisation and his argument makes sense: “The idea that many people are holding back solely because of a law which they know is already unenforceable is simply ridiculous". He describes the actual effect as similar to what is happening with tobacco. “Tobacco is a legal drug, whose use is declining, and precisely because it is legal, its users are far more amenable to government control, education programmes and taxation than they would be were it illegal."

Which brings me to a point my colleague made a few weeks ago about the black market in which drugs operate. Drugs are big business and a lot of revenue is generated that isn’t counted in the legal economy. Bringing drugs out of the underground and into the open market would provide a boost in GDP and employment, while also reducing the incentive for drug dealers to use theft and violence as tools of enforcement.

Besides bringing the previously diverted funds back into the economy, legalisation restores the citizens’ right to choose for themselves what they deem acceptable to put into their bodies. Thanks to the media and advertising, people are extremely well-informed of the effects of abusing any type of drug, be it marijuana, cocaine, alcohol or tobacco. People should be allowed to use this knowledge to evaluate for themselves what is appropriate. 
 

Implementing curfews seems all the rage these days in the United States. Last week a town in Arkansas ordered a 24-hour curfew for all residents in a neighbourhood struggling with high amounts of violence and drug dealing. Peaceable citizens passing through the neighbourhood in any form of transportation could be stopped and searched by officers under the mayor’s orders. Another recent curfew on teenagers was implemented in Hartford, Connecticut. Teenagers less than 18-years of age cannot be out and about past 9PM without a parent or guardian. 

Sure, these curfews are set up to protect innocent bystanders from being caught up in the violence on the streets, but at the serious cost of their civil liberty to move about freely. It is not the government’s job to decide when people are allowed to traverse their own neighbourhood or if they are able to sit outside to enjoy the summer weather. People should be able so make the decision for themselves when to stay inside when the risk of straying past their doorstep is too high. The government should focus on the individual criminals and preventing their ability to commit crimes instead of forcing all citizens to sit under house arrest.

This past weekend I spent my Sunday morning listening to a woman declare that all non-English persons living in London were thieves and plunderers. She identified Indians, all Africans and Italians for her criticism. Not only are these people not wanted in her country, but they also have no right to be here. I have never heard more blatant bigotry and racism anywhere. However, she wasn’t hauled off in the back of a police car, nobody from the crowd of thirty or so took her around the corner for a sound beating, in fact the worst that was thrown her way were a few boos.

This is the beauty of Speaker’s Corner in Hyde Park. It is acceptable to be a complete fool because it is your right to speak your mind. You don’t have to agree with what’s being said, just accept that it is a person’s right to espouse whatever they like. Even though I live in the United States and freedom of speech is taken for granted, as soon as I learned of its existence I knew I had to see the people on their plastic crates for the pure symbolism of the right to express what you think without fear of prosecution.

Hybrid cars are getting another update: “the roar of the traditional combustion engine". In The Independent this week, an article explained that Lotus was developing technology to make hybrid engines louder.

Really? More noise? I thought that was one of the perks of getting a hybrid car: an eco-friendly, noiseless ride to work. Not to mention reducing noise pollution in the streets – a wonderful positive externality to be enjoyed by others.

I know groups have come forth with complaints about the safety of blind and partially sighted pedestrians because they might not hear a hybrid car coming, but putting money and energy into developing noise when the time could be better spent on developing better efficiency is silly.

However, since there seems to be a demand for this sort of thing, I am not one to fight against the market. I was just looking forward to the day when the silent hybrid ruled the world and I didn’t hear every car that passed my bedroom window.

A recent headline in The Australian that caught my eye said, "Free market no place for unis". Apparently, a lobby group called Innovative Research Universities is worried about the role of public sector institutions and has demanded protection for public institutions because it claims private competition will be harmful to education.

Competition is a key aspect to providing quality, low-cost services to consumers. It makes the providers more efficient, forcing them to provide what is demanded and keeping costs down. But IRU says that competition will cause student fees to rise. And that just doesn’t make any sense.
The IRU also fears "greater homogenisation" because all institutions will focus on courses that are in high demand. But there isn't really a problem with institutions focusing on what is in demand, because what is in demand in terms of education is a reflection of what the economy demands in terms of its labour needs. After the introduction of computers to the workplace, the market demanded workers with knowledge about programming, development, design, etc and those courses became demanded in university and so universities provided them.

Finally the IRU is worried of "market failure". Well, yes, there are market failures, but they're usually better than the government failures that replace them. Too often government steps in 'to help' and distorts the messages about supply and demand, leading to false pricing and inefficiency. Education will always be a highly demanded good and if allowed to operate without excessive regulations should be just fine.

If IRU believes, as they say, that universities "are critically important" then they should start lobbying for goals that aren’t detrimental to the quality of education.

Australia has had a dramatic increase in the national fertility rate, putting it at its highest rate since the 1980’s. A report from the Australian Productivity Comission said on Tuesday that that while "in a safe zone" now in terms of fertility rate, any further increases could damage the economy. An article in the (Australian) Daily Telegraph reviews the report, saying that having more children will "shift women out of the workforce while they care for babies, depressing labour supply and reducing the taxation base" – factors that could potentially hurt the economy. Further on it states, "the women having the babies would be exacerbating the financial impacts of the government".
   
What this article fails to mention is that more and more women are now having children and working outside the home. So, yes, there is the time they take where they are not contributing to GDP, but shortly after they are back in the workplace. Also, it puts far too much emphasis on the short-term outcome, rather than highlighting the long-term benefits of a replenished population. A growing labour force is one of the requirements of growth. While they are growing up, children are, technically, a drain on funds, but the end result of a larger labour base more than overcomes this through increased productivity in the long-run.

Yesterday The Guardian reported on the Department of Health's plan that starting next month parents will be sent letters that contain their children’s heights, weights and whether they are underweight, a healthy weight, overweight or very overweight. This plan is an attempt to address England’s expanding obesity problem. 

If you were visiting friends and noticed that their little Sally was a couple stones heavier than your little Billy you most likely wouldn't say, "Harriet, Sally is looking a little heavy. Don't you think you should put her on a diet?" It is not your job, and certainly not the government's job to tell parents when their child is fat, mainly because it is an issue of personal responsibility for the parents to look after a child's health. They should not rely on public services to alert them to when their child is overweight, nor should we encourage that behaviour by providing the service.

The initiative is also frustrating because how could parents not notice that their 8-year-old child outweighs comparable children by 10 kg. It seems suspect if the child in question seems to be carrying around almost 2 bowling bowls in extra body weight. The Department of Health is basically giving parents an easy way out by allowing them to plead ignorance to their child's rotundness.

Putting the creation of the program aside – if the letters are going to be sent they might as well be to the point and forceful. Ministers are worried about stigmatising children and so have decided to avoid the words "fat" and "obese". If you want parents to react to these letters they need to be convinced or otherwise the children will become stigmatised because they'll hear it everyday in the playground. And the 4 categories that ministers did approve of aren’t convincing at all. By combining "obese" into "very overweight" it softens the message parents receive and it won't make them notice or be more proactive, especially if they haven't noticed the obesity in the first place.
 

I came across an article on Economist.com the other day about a fairly new branch of economics called neuroeconomics. This branch of economics takes a cue from behavioural economics by incorporating another of the sciences, neuroscience, into its analysis of why and how people make decisions.
   
One of the breakthrough reports cited in the article used active MRIs to determine that failure to choose an optimal outcome in the ultimatum game correlated with an area in the brain that is said to be involved with reward and punishment decisions. For those of you not familiar with the ultimatum game:

"Take two people and tell them they have the opportunity to split $10. Furthermore, tell one person that, as first mover, they get to make a one time offer, and tell the other person that, as second mover, they get the opportunity to either accept or reject this offer. If the offer is rejected they both go home with zero."

Economists have found that many people would rather have nothing than accept the ungenerous offer of a dollar. Meaning that maybe for some people the incentive of a monetary reward to choose the classically defined optimal outcome is tempered by the emotional/mental reward of punishing the other person for their low-ball offer.
   
Some economists, and in particular two from Princeton, criticise neuroeconomics and behavioural economics because, in their opinion, it doesn’t matter what the mental process is; just the final outcome is relevant to the discipline.
   
On the other hand, I think there is a lot of appeal in studying why and how people make decisions. Firstly because it's interesting, and secondly because people make irrational decisions daily – even in the realm of economics.
   
Of course, people usually make decisions that provide the most benefit to themselves and to society – that's why the total sum of individual decisions will guide society towards optimal welfare like an invisible hand.  Yet it is equally clear that sometimes, some people don’t act rationally. It's worth considering why.
 

If you missed the headlines, World Trade Organization talks failed on Tuesday – disheartening news for free-traders like us.
 
The talks fell apart when the US, China and India could not agree on whether protectionist measures to defend struggling domestic products would be included in the agreement. Surely the goal here was to reduce the barriers to trade, not include new ones?

Allowing India, China and the other G33 countries to keep tariffs on agricultural imports would have been counter-productive, especially with current rising food prices. The tariffs would have encouraged this trend instead of making food and other goods more affordable for all their citizens. On the other hand, perhaps developing countries would have been more willing to bring down tariffs if the US and the EU had actually been prepared to reduce the subsidies they pay their farmers.

It's a real shame that 7 years of negotiations have amounted to nothing. But the most frustrating part is that once again governments were far too short sighted, choosing a path that would lead to popularity in the here and now, and did not consider the net benefits and long-term growth achievable through truly free trade.