The Adam Smith Institute has no official line on Brexit. Its staff have different opinions on the issue, just like those in other policy bodies. The ASI’s Executive Director, Sam Bowman, favoured Remain in the referendum, and now advocates an EEA-style solution. Its President, Dr Madsen Pirie and its Director, Dr Eamonn Butler, voted to leave the EU and now believe that a clean (and quick) Brexit is desirable.
Both founding directors take the view that the referendum result must mean that UK laws are in future made in the UK, that the European Court of Justice has no further jurisdiction in the UK, that the UK no longer contributes to the EU budget, and that the UK has control of its borders. All these were crucial elements in the Leave vote.
We both take the view that the UK now has the chance to trade freely with the rest of the world, since it will no longer be locked inside a protectionist bloc of diminishing economic and political significance. We think our economy will grow faster than those of our EU neighbours now that the UK – always an advocate of liberal commerce and free trade – can negotiate with its own interests at heart, instead of having them swallowed up in the interests of 27 other EU members.
We expect to enjoy very good relations with our former fellow members. We do not expect the agreement we reach with them to be like any they have with other non-members. Ours will be different because we have been members and have worked with them. We do not come to them as mere outsiders who have to start from scratch; the saga of the proposed EU trade deal with Canada shows how difficult that can be. For us it will be a case of modifying previous ways of working together to take account of the new relationship.
Like most economists and everyone at ASI, we hope that protectionism will not prevail, and that free trade with those beyond our borders will be the norm. We hope, too, that once in control of our borders, we can be relaxed about immigration, choosing whom we wish to take into our economy, our culture and our society, and taking significant numbers of those who can contribute positively to all of those.
We therefore look to the future with optimism that, outside of the EU, the UK can move forward to a bright future that will enrich the lives of its citizens and provide a positive example to the world. And the quicker we embark on that future, the better for everyone.
One of the unintended consequences of the 2008 financial crisis has been to bring what until then had been a backwater of academic research, financial history, into a mainstream topic of the reading public. So it will pique readers’ interest that Jonathan Conlin in Adam Smith (Reaktion Books, 2016, £11.99) covers an intriguing episode from the life of the great economist when he was working on The Wealth of Nations. In 1772, Smith witnessed the collapse of a major Scottish financial institution, Ayr Bank, and since one of the bank’s principal shareholders was Smith’s principal patron, the Duke of Buccleuch, its demise affected him in more ways than one.
In 1769, when Ayr Bank opened doors, Scotland was booming. Investing in Edinburgh’s New Town seemed a one-way bet and substantial sums were raised for property there and for infrastructure in the region. When the managers Ayr Bank came to grief they did much as have bankers before and since, namely by kidding themselves that loans could not sour and even if they did, savers were unlikely to care enough to pull their deposits., David Hume wrote to his economist friend after Ayr Bank collapsed, “we are here in a very melancholy situation … Do these Events any-wise affect your Theory?”
Smith in Wealth of Nations had two points to make.
The first was banks ought to lend to create real value in an economy and help build highways rather than highways through the air. Such common sense advice was in keeping with conventional thinking. But there was another comment Smith offered, regarding the imprudence of depositors, that evinces Smith had an intuitive understanding of the psychology of risk where he was well ahead of his time.
This is what Adam Smith had to say about depositors whose mind-set conduced to financial crashes: “The house is crazy, says a weary traveller to himself, and will not stand very long; but it is a chance if it falls to-night, and I will venture, therefore, to sleep in it to-night.” Depositors, in other words, share some of the blame for a collapse in market confidence because they are not as vigilant as they ought to be.
Just how perspicuous is this insight we can see from debates over the benefits of deposit insurance, today unquestioned as an indispensable prop of financial market stability. But less thought is given that once monitoring bank solvency becomes a regulator’s job, this not only adds to cost of regulation but also tempts reckless depositors to act as free-riders to the system.
In Jonathan Conlin’s biography, Smith’s reaction to Ayr Bank’s default is only one of many incidents in the life of Adam Smith that are sets against his works. As Conlin shows, it is often Smith’s asides and throwaway observations with which his Theory of Moral Sentiments and Wealth of Nations abound that illustrate his almost limitless capacity to prod readers into looking at things from an unexpected angle; for more of this see my full review of Adam Smith.
Given that we are all economically literate around here we know that corporations do not bear the economic burden of corporation tax. It's just a convenient fiction that they do, the reality is that the tax hits the wallets of investors in the company being taxed and all the workers in the economy which has the tax. Similarly, given that we are all economically literate, we know that capital income should be taxed rather more lightly than labour income, if it should be taxed at all.
So, this seems like a very good idea:
Britain could slash corporation tax to 10 percent if the European Union refuses to agree a post-Brexit free trade deal or blocks UK-based banks from accessing its market, the Sunday Times reported, citing an unidentified source.
The newspaper said the idea of halving the headline rate from 20 percent had been put forward by Prime Minister Theresa May's advisers amid growing fears other EU member states will take a hard line in Brexit negotiations.
The tax cut would be used to try and persuade the EU to grant "passporting" rights for financial services firms to continue operating across the EU, the newspaper said, in a sign of the likely animosity of the upcoming divorce talks.
But why is this being kept in reserve just in case we want to be dastardly to the French? Or the threat of not doing is being used as a persuasion for the Germans to maintain their own access to our fine banking services?
This is simply a good idea in and of itself and one we should implement right away.
Could we, should we, think about importing a political practice from Thailand? We have the long reigning monarch after all, even if their practice of military coups is something we gave up centuries ago. For they've decided that a Prime Minister who oversaw a piece of monumental stupidity should be personally liable for some of the damages.
Yes, obviously, there's more than just a tad of political score settling here but the idea still has merits:
Former Thai Prime Minister Yingluck Shinawatra on Friday said the junta that overthrew her government had ordered her to pay nearly $1 billion in civil damages over a botched rice-subsidy program.
Botched is not quite the concise description we want here - insane folly is perhaps closer. The plan was to pay Thai farmers 50% above the world price for their rice, store it, then make a profit by selling as exports the now more expensive rice. This did not work as a quick glance at the EU's history of wine lakes and butter mountains would have shown.
It was political genius, that's true, given that it secured the votes of the 40% of Thais who are rice farmers, but an economic hallucination consistent with the very finest psychotic drugs. Production increased both inside and outside Thailand, the export markets substituted over to other producers, smuggling into Thailand took place and by the end the plan was reportedly swallowing 4% of GDP.
That's cheap votes if it's other peoples' money, expensive if its your own. And thus the idea of making all politicians so personally liable. £400 million here on a troubled families programme, £20 billion there on a nuclear power station and £169 a MWatt for tidal power and pretty soon you're talking about real money.
Some would say that this would mean politicians never did anything, paralysed as they would be by the fear that it might go wrong. This is not a bug in the plan, King Log was a rather better ruler than King Stork, it's rather the point of it....
Not that it's actually that unusual for people to try to usurp the law to ban voluntary economic transactions. There're all too many people out there who believe that others should not be allowed to do as they wish and who will use the might of the State to prevent them doing so. This does not make prison time for being an efficient ticket distributor the correct answer:
Touts who use computer software to buy concert tickets for resale at inflated prices could face a prison term, under proposals to be considered by the government.
The proposal was made as Theresa May, the prime minister, said she was looking at ways to address the use of ticket-resale websites by professional touts at the expense of fans.
This simply is not the correct answer.
The market clearing price is the market clearing price and it always will be. Those supply and demand curves really do intersect. And trying to put a price cap on the supply only makes whatever it is more expensive for the consumer. Either there is the intervention of resellers, in a relatively inefficient market, or the cost of gaining access to the tickets becomes something else, time spent in queues for example, also less efficient. As we know, the best method of rationing anything is by price.
If it is true that the current supply leads to a price being "too high" according to whatever metric you want to use then there are only two potential answers. One is to reduce demand - by, perhaps, doing worse gigs. This might not be an entirely desirable answer of course. The other is to increase supply so that prices do come down - because again those supply and demand curves do intersect. Play larger gigs, play gigs more often.
That prices will vary according to those two, supply and demand, is not some optional extra it's one of the laws of our universe, at least a universe which has humans like us in it. Up to 51 weeks in prison doesn't change that fundamental fact of our existence.
This is a terrible idea, a bad suggestion for the law.
In the last few weeks a number of politicians and right-wing commentators have attacked Mark Carney, Governor of the Bank of England, either for his conduct during the referendum campaign or for the policies he has overseen while at the Bank.
These attacks are misguided. There is an important debate to be had about the nature of central bank policy in Britain and elsewhere – indeed, a debate about the very existence of central banks – but, with some notable exceptions, few of Carney’s critics seem to be aware of it.
The House of Commons library has compiled figures to show that it is small, not large, companies that produce employment growth in the economy. This should not be news to anyone although sadly it is. For it is small companies which provide almost all of the forward impetus of the economy. This is true everywhere and always:
Small firms have created ten times more jobs than the big businesses who are lobbying to keep Britain inside the EU's single market, an MP revealed last night.
Tory backbencher Charlie Elphicke said the figures – compiled by the independent House of Commons library - nailed the CBI's 'single market lies'.
The pro-EU business group argues it is vital for the economy that the UK stays inside the tariff-free single market.
The figures show small and medium-sized enterprises (SMEs) have created 3.4 million new jobs in the private sector in the past 15 years.
Big businesses have created 323,000 over the same period, according to a new analysis of the Government's Business Population Estimates 2015.
This is true not just of employment. It is also true of innovation - as in the old joke that science proceeds one funeral at a time. The economy advances, productivity increases, one bankruptcy at a time.
New technologies are created, new technologies are adopted, largely through firm exit from the market and firm entry to it. Thus the entire system itself advances not through those large companies continuing to exist, but by their death from the competition bubbling up underneath them.
This is not a point specific to Brexit or the EU argument of course, but it is relevant to it. It's the entire and whole reason why we want a lightly regulated economy. Regulation aids incumbents as they are the people with the size and heft to be able to deal with the overhead of said regulation. It is only via a low regulation environment that we leave the room for the small companies to pop up into and so drive that economy forward to the ever greater enrichment of us all.
The relevance of the EU or Brexit to this being that we do all believe that we can transform the EU into a low regulation economy, right?
Christmas seems to start early these days, so here's our contribution. We sometimes publish a list of books we suggest people might lay in stock to read over Christmas, or to give to friends. Here's our list for Christmas 2025.
"Why I Became a Conservative" by Owen Jones.
In this story of his journey, Owen tells how he came to see Marxism as an ideology imposed by intellectuals on the working class, and against their interests and aspirations. By contrast, he came to realize that Conservatism, working with the grain of human nature, gives working people the chance to improve their lives.
"On My Ownio - the last of Labour" by Ben Bradshaw.
This rather sad autobiography chronicles how it feels to be the last Labour MP. Ben sketches the history of the once great party from its origins in working men's associations, to its final demise in the streets of Islington. As Westminster's solitary Labour MP, Ben tells how it feels to have no-one to second his motions, and to have to sit on the cross benches after a distinguished career in opposition.
"The Body Count" published by HM Statistical Office.
This shocking book catalogues the death toll brought about by NGOs through their campaigns against genetic modification, nuclear power, fracking, global free trade, and by their campaign for biofuels. The authors count up the millions of children who could have been saved from starvation by GMO crops and cheap food and energy, plus those whose sight could have been saved by GMO golden rice. It is a shocking catalogue of the havoc the NGOs wreaked until their funding began to dry up four years ago as people withdrew their support.
"Bought and Sold for English Gold" by Elaine McLintock.
Here at last is the gripping story of how Scotland's fifth referendum on independence since 2014 went down by an even bigger margin than the fourth. It's a blow by blow account of the increasingly bitter campaign that saw the Scots decide to remain within the developed world's fastest growing economy rather than heed the siren calls to a proud and romantic, if impoverished, independence.
"We Kept the Peace" by Herman von Rompuy.
Five years after the dissolution of the European Union, one of its stalwart old time enthusiasts asks for it to be remembered fondly for the good it did. Herman claims it prevented a third war between France and Germany, and that although it finally expired in a quagmire of bureaucracy and mutual recrimination, it should be remembered for its earlier achievement as Europe's Nobel prize-winning peacekeeper.
It's entirely true that at times we need to be a little unconventional in our thinking. Possibly even prioritise some out of the box conceptualisations as an urgency to set the ball rolling. But unconventional thinking is not the same as asking us to stop thinking.
At which point gurning from stage left is Andrew Simms, he formerly of the not economics frankly groupuscule:
Conventional thinking will not solve the climate crisis
Choosing the best possible future means considering radical scenarios that align energy use and industry with climate action
OK, many of us don't share his obsession with the amount of plant food in the atmosphere. But it is always worth examining someone's logic within the structure of their own beliefs. So, what is it that we are urged to do?
Rarely considered but important variables come from new economics, including the shorter working week, the share economy, shifts in corporate ownership and governance, and intelligent but deliberate measures for economic localisation. Compare these to the “stumble on”, or business as usual scenario, in which we give up control of our future to a permanently destabilised climate change, but also assess seriously the consequences of the argument for planned so-called “de-growth” of the economy.
That is not thinking rather than unconventional thinking. For all of these were examined, in detail, a quarter century back. It was considered in the Special Report on Emissions Scenarios, the economic models upon which the entire IPCC process is built. Absolutely every meeting, treaty, gabfest and report since then has been working on the basic logic of that examination.
The results of that examination being most interesting. The most obvious of which is that, even within that obsession with plant food, if we reduce carbon emissions then we're done. There is no other problem in this area. The other seriously interesting result being that economic localisation makes the problem, such as it is, worse, not better.
Approximately speaking we have four models, families of models. A, in which we're capitalist free marketeers and B in which we do the Swedish socially democratic cha cha cha. 1 in which we're doing the globalisation waltz and 2 in which we revert to economic localisation. A1 and B1 are markedly better in terms of living standards and also the size of the climate problem than A2 and B2. Better as in the problem is smaller.
The reason is obvious - more trade will produce a higher living standard with the same resource use, or the same living standard with lower resource use, than less trade will. Because the process of trade is producing where resource use is least.
Which leaves us where we came in. Unconventional thinking is undoubtedly necessary at times. But this is not a synonym for not thinking. As with Simms and his idea here that the solution to climate change is economic localisation, the very thing we've known for 25 years which makes the climate change problem worse.