Blog RSS

The Pin Factory Blog

"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Does anyone remember 2002?

Written by Nikhil Arora | Thursday 10 May 2012

I certainly do. And I have to say that life wasn’t THAT different. I mean, I was revising for my GCSEs instead of a Masters, wore a school uniform every day and didn’t yet know how to drive, but overall, I’d be willing to wager that most people's lives aren’t that drastically different now than they were 10 years ago.

Crucially, the Government spent money on much the same things it does today – welfare, the NHS, defence, education, policing. It’s not like I am asking you to remember how things used to be in the 1920s when things were radically different.

Looking at Sam’s chart on Monday made me think of something.

In 2002, the UK Government was spending €442bn.

Last year, the government spent €739bn, and it seems likely that the figure in cash terms will be similar or higher in 2012.

It was conceded that the figures in that chart don’t account for inflation, so I have tried to do that myself below. I appreciate that this is a back-of-the-envelope way to do things, and I am not a trained economist, but I also think that my estimates of 4% annually and 3% annually are potentially on the high side, seeing as the Bank of England insist that inflation was kept under control for most of the last 10 years. (Even if quantitative easing may have left us in a situation where recent inflation is quite a bit higher than the “ideal” 2%)

Therefore I have a simple proposition: Return us to the level of spending we were at in 2002, adjusted for inflation and population growth.

Doing that would save, by my rough and ready calculation, between £68bn and £116bn. With that saving, we could abolish or drastically cut Employee Contributions to National Insurance, raise the Income Tax threshold to £12,500 (to correlate with a £6/hour minimum wage for a 40 hour week, so nobody on the minimum wage pays income tax), and abolish Inheritance Tax. If the inflation rate was at the lower end of my estimates, we’d still have a significant sum left over to reduce the deficit.

This would make it drastically cheaper to hire new staff, and would let people on low and middle incomes keep more of their own money, creating big incentives to work. It would also abolish one of the least popular taxes.

Most reasonable people intuitively know that life wasn’t that much worse in 2002, if it was worse at all. If we could have 2002 levels of government spending, along with all the benefits above, I reckon most people would vote for it.

View comments

The beauty of freedom

Written by Nikhil Arora | Monday 03 May 2010

As I was walking through Westminster earlier, I saw something really quite beautiful. A red Ferrari 599 was parked next to a silver Prius Hybrid (Pious Hybrid to those of you who watch South Park). Beautiful as the red car is, and no matter how great a demonstration it is of what a capitalist production system can achieve, this is nothing compared to what it represents next to the Prius. That is the fact that in a free, or free-ish society, Ferrari-owner and Prius-owner can happily coexist.

This is something quite unique about liberty, which simply cannot be countered by those on the statist/socialist left wing. In a free society, people can happily organise themselves along communitarian, environmentalist or even socialist lines if they so choose, as long as they don’t initiate force against those who do not wish to live that way. They can drive a hybrid car, recycle their trash, or even give away all their wealth to charitable causes. In a controlled statist society, libertarians would not be allowed to live along the lines they chose to follow.

This clash of ideologies is perhaps worth remembering with tax freedom day about a month away. In a free-ish society, individuals (like Warren Buffet a few years ago) who feel guilty for their owning wealth and don’t regard that day as a day to celebrate at all, are all entitled to give more than demanded of them to the tax man, or to a charity of their choosing. The crucial difference is that under a government that doesn’t have any respect for liberty, that option is absent – there is no choice whether to comply or not.

View comments

The education debate

Written by Nikhil Arora | Monday 26 April 2010

One of the most telling statistics I have ever seen in the debate on education can be seen here at the Cato Institute’s website. School spending in America since the 1970s has increased dramatically – vastly outstripping inflation, whilst standards have flat-lined. Totally, completely, utterly flat-lined.

There is simply no correlation between school spending from government (and in the USA, that is Federal AND State/Local) and student achievement. Where there is a correlation, it is between government spending and the number of people employed in the education sector, which really shouldn’t surprise anyone. It might, or might not be a coincidence that all parties are promising more school spending at the same time that teachers are threatening not to mark any SATS tests, and their unions are gearing up for strikes. After all, as Sir Humphrey Appleby once explained, The Department of Education exists to lobby on behalf of the teachers unions, not to educate the children of Britain.

What we need is not more money – that will achieve nothing. What we really need, as I have also argued with regards to social security and healthcare, is for the money to be channelled through consumers – the people who actually use the services. Education spending per pupil in the UK for 2008/9 was £5,140. If parents controlled this money, and schools had to compete for their share, outcomes could be improved dramatically. Current spending equates to an average spend per class in secondary schools of over £110,000 p.a. Can anyone honestly look me in the eye and tell me the private sector couldn’t run a better school for that money?

The welfare state, in its top-down form in which money and control are centralised in Whitehall, is failing miserably. If we, as small ‘l’ liberals and libertarians accept the political necessity of redistributive taxation (even if only as part of a transition toward a minarchist state) we should at least argue that the redistribution should be kept as simple and direct as possible. Giving money directly to parents and deregulating the education sector would be a good start, but merely throwing money at the problems that currently exist wont make them go away.

View comments

Douglas, drugs and the law

Written by Nikhil Arora | Wednesday 21 April 2010

More ridiculousness in America’s war on drugs yesterday, as the son of multimillionaire actor Michael Douglas was sentenced for five years for dealing methamphetamine from a trendy New York hotel.

The statutory minimum for this offence is ten years.

Whilst it is unusual to see a rich, white young man going to jail for drugs offences at all, this case does little to defend against the statistical fact that drug laws, particularly in America, are, for whatever reason, overwhelmingly enforced against poor young men from ethnic minorities with little or no education.

The fact that Cameron Douglas received a relatively lenient sentence highlights this problem in waging the drug war. Although the minimum sentence is technically much higher, it does seem somewhat perverse to throw a non-violent offender in jail at taxpayer expense for such a considerable length of time. This is especially true when it is clear that Douglas, like all drug addicts, needs treatment rather than punishment if he needs anything at all.

However, at the same time, the offence for which he was actually charged is the same that is used to go after violent, gang-affiliated thugs who sell exactly the same chemicals.

Because the same offence is used to criminalise such different people, it is only through mitigation pleadings in sentencing that differences between the dangerous, violent criminal, and the non-violent one can be distinguished. This is a relatively arbitrary process that gives an unfair prominence to wealth, race, social class, education and family background (or even more unjustly, a defendant’s political connections and the quality of his lawyers) to decide how long a person stays in jail.

The clear point of all this is that it is not the drugs themselves that should be the cause for coercive intervention by the state. Rather the harm done directly to other individuals is what should determine criminal liability and sanction. Before the government wastes time and taxpayers’ money prosecuting people, it should make sure that it is only doing so for violent offences. It should refuse to prosecute non-violent people who choose to make a living selling other people the means to get high.

View comments

The Green Party manifesto

Written by Nikhil Arora | Tuesday 20 April 2010

With all the fuss about the non-debate, one could be forgiven for forgetting there were any parties in this election other than the main three. However, I was jolted back to reality by this article in the Times, about the concerted effort the Greens are making for this upcoming election, particularly in Brighton.

They insist they are not the part of what Charlotte Vere, the Tory candidate, describes as hard-left “eco-fascists”. Instead they say they have some serious views on serious issues, claiming that people no longer have to choose between green issues and economic growth.

I had a quick look at their website to see what these views were. They amount to little more than what the new economics foundation has been saying for much to long. They will clamp down on bonuses at banks, arguing, correctly that the current government ‘has acted completely irresponsibly’. Of course, rather than proposing sensible governmental reforms to ensure no government can act so irresponsibly in the future, they instead propose a ‘High Pay Commission’ for bankers. Naturally, the Greens know better than anyone else in history how to set price controls without destroying wealth creation. And it goes without saying that they presume to dictate how much other peoples’ labour is worth. I doubt they want to know what most people's opinion of their labour is.

They propose a large increase in the minimum wage at a time of high unemployment. If a small rise in National Insurance is attacked and debated incessantly as ‘a tax on jobs’, what will be the effect of price floors in the labour markets? It certainly won’t be to ‘eradicate poverty in Britain for good’!

As several reports from the ASI have shown over the years, there really isn’t any need to sacrifice economic growth or productivity for the sake of environmental concerns, when those concerns are addressed, not through coercive state force, but through voluntary interaction and innovation in the market. Clearly, the Greens in that respect are correct. However, there are no policies on their site that would actually do this. Instead they  argue for a type of environmentalism that puts climate change at the centre of everything, and that if ever brought into reality, would wreck the economy in the process.

View comments

nef hypocrisy

Written by Nikhil Arora | Friday 16 April 2010

Amongst the many fallacies and contradictions I noticed in this new economics foundation report, there is one that particularly stands out as having more holes than a Taleban base that’s been hit by a fleet of US Air Force A-10s. They propose a General Tax Avoidance Rule to earn our Treasury another 10 billion per year, allegedly needed to pay for some disastrous Keynesian spending plans.

They say such a rule has worked well in several other jurisdictions, including Hong Kong (s61A of the Inland Revenue Ordinance) and Jersey (mentioned explicitly in their report). Of course, they can’t answer why, if these low-tax jurisdictions have such effective anti-avoidance measures, the nef and their statist comrades insist on calling them ‘tax havens’ and claiming that the opportunities they create for tax avoidance are a threat to the British Exchequer. Surely, if these countries’ anti-avoidance rules are so effective, they can’t offer many tax-avoidance opportunities for British citizens.

Simply put, generalised laws rarely work well, and generalised tax avoidance rules work less well than most. Anyone who spent any time looking at these laws knows full well that the courts in Australia and Canada have seriously weakened, if not downright emasculated them. After all, no law means anything until interpreted by judges, no matter how well-meaning the intentions of those who drafted it. The only way to consistently reduce tax-avoidance is a system of low, flat taxes that is simple to understand and comply with – something the nef obstinately refuses to countenance.

However, the one aspect of this proposal that really gets to me is the fact that I can’t help but think that it is really hypocritical. The nef is a registered charity. Registered charities get significant tax breaks. Although they are set up as non-profits to confer a public benefit, and this clearly has a bearing on why the Charity Commission agrees to register them as charities, this itself is not relevant to the motivations of the nef in pursuing charitable status. The reason they wish to register as charities is to avoid paying tax.

Therefore, if all measures designed chiefly for the purpose of avoiding tax were outlawed, can anyone from the nef explain why they should not be subject to their own law, and forced to pay tax accordingly.

View comments

Movies futures trading

Written by Nikhil Arora | Thursday 15 April 2010

Two American companies,Veriana and Cantor, have announced plans to offer futures trading on the potential gross takings of Hollywood movies. However, they have faced strong opposition from the Motion Picture Association of America (MPAA) and several lawmakers from both side of the aisle. None of who seem to understand exactly how futures trading works, or the benefits it can bring to the industry.

Speculators, as Madsen Pirie wrote in Freedom 101, exist to help manage risk. "They offer people certainty and security now, in exchange for a higher return for themselves in the future", providing they make the right decisions. That is their function in the marketplace, and it is this very beneficial effect that Veriana and Cantor are showcasing.

However, cashing in on the theme of the moment, the MPAA, which represents the major film studios such as Universal and Paramount, and other groups, said that the new markets would "create a risk of rampant speculation and financial irresponsibility". There is something very disingenuous about the MPAA’s claims. Either the speculators are just online gamblers, like people who play roulette in online casinos. Or, they are analogous to the omnipotent bankers who apparently nearly destroyed the world. They can’t be both at the same time, and yet I am pretty sure they are neither.

The futures markets are very clearly not casinos, because it is with careful research and good timing that one can make money – not random luck. No matter how much careful research you conduct to find trends in roulette numbers, you cannot consistently predict where the ball will land. Moreover, the kind of ‘gambling’ that the MPAA say they are against is already allowed, on the Internet or in gambling shops. If we are free to go to a bookies to bet on who will be ‘Christmas Number 1’, then betting on box office receipts is no different. Crucially, these new futures exchanges will offer a regulated and transparent system in stark contrast to that found on the high street.

Nor, however, are the futures markets anything to do with the causes of the credit crunch. In much the same way that the government foolishly tried to clamp down on short-selling and hedge funds in the wake of the financial crisis, so the MPAA is seeking to capitalise on general resentment of all financial markets to push through their agenda, without focusing on specifics. The Futures Industry of America made this point quite forcefully in arguing on Veriana and Cantor’s behalf, by saying that ‘one of the lessons of the financial crisis is that the futures markets performed flawlessly’.

In all, the MPAA is acting in a manner that is not only misinformed, but also self-defeating. These companies are attempting to provide a useful service, but are being stalled by the very industry that could benefit from the risk-management they would provide.

View comments

Tesco: In defence of the consumer

Written by Nikhil Arora | Thursday 15 April 2010

Tesco are selling electronics products like CDs and DVDs from the Channel Islands where there is no VAT to pay. In doing so, they are undercutting the prices of retailers based on the British mainland. This practice used to be done from Jersey, but the government there blocked it because it was apparently giving the island a bad reputation. Yesterday, it was announced that Tesco had consequently switched to selling from Guernsey.

British retailers selling on British high streets are understandably annoyed that their prices are undercut by quasi-foreign competition. Frankly, I think they have a point. However, their angst, channelled through Grauniad articles like this one, is aimed squarely at the wrong people. It is, after all, the Westminster government, not Tesco, that creates this loophole for Tesco to exploit – by levying such a high VAT on British businesses. It is the fact that the British government arbitrarily hammers British vendors that means Tesco can graft a competitive advantage by avoiding it.

New Labour has made much of the benefits of globalisation over the last 13 years. However they usually try to ignore the fact that the internationalisation of trade and the Internet Age have both resulted in the realisation that such high taxes are, frankly, wasteful. This realisation could only have come about because places like Jersey and Guernsey, so close to the UK mainland, maintain low taxes. As Dan Mitchell of Cato has argued persuasively, this ‘tax competition’ has been enormously beneficial in keeping high tax countries from becoming very-high tax countries, extorting their populace still further. If the left-wing press and the British government are able to shut down such schemes by forcing the hands of the Channel Islands’ governments, they will have eroded yet more of the processes by which a free people can keep their government honest and responsible.

Furthermore, The Grauniad article ignores some of the more tangible, less lofty benefits of Tesco’s policy. It argues that we should focus on those high street retailers who have lost out because of Tesco’s scheme. Whilst I agree with the sentiment, to do this exclusively would be to focus on only the ‘sell side’ of the buy-sell equation. What is forgotten is the ‘buy side’ – the fact that consumers now have 17.5% (actually about 14.9% if you do the math properly – 17.5 is 14.9% of 117.5) more money to spend on other goods or services, which will in all likelihood be bought from the British High Street, creating more jobs in the British economy etc.

Indeed, the Guernsey example should be celebrated, not condemned, by the people at large. Unlike complicated tax avoidance schemes run by highly paid accountants and lawyers, which largely benefit only incredibly wealthy individuals or corporations, Tesco’s scheme enables anyone and everyone to benefit from reduced taxation, by paying less for products they want to buy.

View comments

Nobel Peace Prize-winner orders targeted assassinations of his own citizens

Written by Nikhil Arora | Thursday 08 April 2010

No prizes for guessing which Nobel Peace Prize-winner…

Barack Obama (the ‘Change We Can Believe In’ President) looks more like his disastrous predecessor every passing day. I am not talking about the bailouts to politically-connected cronies, ‘stimulus’ spending that doesn’t stimulate anything, or the futile throwing of money at an inefficient healthcare system. Rather, I am referring to something that Democrats and ‘proper liberals’ are supposed to agree on – the rule of law and the rejection of unconstitutional anti-terrorism policies. Specifically, I am talking about the use of targeted assassination as a policy priority.

The increase in targeted assassination of terrorist suspects is a direct effect of the policies and preferences of the current President. The frequency of such attacks has increased substantially in the last few years, as even the pro-Obama Washington Post reported. However, things have now reached a new low point – the Times reports that American citizens are now being placed in the Predator drone’s crosshairs.

Even George W Bush, in spite of all the disgraceful human rights abuses he presided over, did not target American citizens for assassination.

The argument is often rightly made that torture is severely limited in its effectiveness in gathering useful information, but it is a truism to say the same can be said of assassination. When contrasted with the capture of these terrorists, assassination offers few meaningful benefits. Any opportunity to learn something new about our enemies’ plans is lost in the bomb crater. Nat Hentoff of the Cato Institute argued this point concerning the assassination of Saleh Ali Saleh Nabhan in Somalia in February. Hentoff quoted a senior military officer as saying- “We wanted to take a prisoner. [The assassination] was not a decision that we made” These shoot-to-kill orders are coming from the very top, and they are in direct conflict with our interests in gathering information by capturing and interrogating high value targets.

Now that these tactics can be applied to American citizens, without any need for judicial approval, even die-hard Obama supporters should be wondering what good was served by believing in his plans for ‘change’.

Oh well, at least by blowing these people to smithereens on the other side of the planet, President Obama is spared those annoying calls from human rights activists nearer to home. There’s no longer any need to worry about fair trials and due process (or lack thereof), or accusations of torture (or is that ‘enhanced interrogation techniques’). As long as he keeps bombing people without trial, there isn’t really any need to expedite the closing of Guantanamo Bay either.

View comments

Selling human eggs - why the fuss?

Written by Nikhil Arora | Friday 26 March 2010

alt altLast week a Virginia fertility clinic raffled a free cycle of IVF to British women, using eggs sold for $thousands in America. This caused quite a stir, particularly amongst regulators of artificial human fertilisation. The lottery itself was a marketing stunt, but the reason behind it is clear – in Britain, there is a shortage of egg donors and a law that prohibits giving eggs for any more than a minor sum for expenses, so demand is high. In America, there is a healthy market in these eggs, so the supply can potentially meet any demand from Britain. The clinic was putting the two together to drum up new business.

Personally, I can’t see what all the fuss was about.

Josephine Quintavalle from ‘Comment on Reproductive Ethics’ argued that “women selling their eggs are taking a huge risk with their health and future fertility simply because they need the money."

An argument to control the commercial sale of eggs for the sake of the donor’s health can only work if two claims are substantiated: Firstly, that the donation of eggs is a health risk to the donor woman, and secondly, that it is right to legislate to prevent women undertaking such a risk to their own bodies. Naturally, as someone who advocates self-ownership, I firmly reject the second assertion, but the EU unsurprisingly disagrees with me.

If we however accept that I am wrong, and the government is right, why is the logical response not to protect donors’ health by banning donations altogether, rather than allowing it, subject to an arbitrary price control? Clearly the regulators don’t think there is that much of a health risk.

When not opposing this on health grounds, they instead argue that “it trivializes altruistic donation, whether of eggs, sperm or embryos", as the British Human Fertilization and Embryology Authority said. However, if the regulators are so confident of the European ‘culture of altruism’ (Ayn Rand fans in the readership should know they have my sympathy), why is there consistently a shortage of eggs available for donation? This culture of altruism is obviously not pervasive enough to ensure results.

Whilst I am usually fond of highlighting the ‘unintended consequences’ of government action, the results of this policy have been anything but surprising or unforeseeable. Price controls cause shortages, and force people to contract elsewhere, outside the regulators’ jurisdiction. Simple and predictable.

If I were more cynical, I might suggest that the regulators’ indignation and the desire they demonstrate to control the choices of adult women is not about protecting anyone but the regulators themselves. They enjoy a privileged position in matters of life creation, and don’t want to see that threatened by forces they can’t control.

Maybe they’re worried that we might come to a point where people can sell organs, not just sex cells. Frankly, I say ‘Why not?’ At least it would be voluntary… unlike in China.

View comments

Pages

Current search

About the Institute

The Adam Smith Institute is the UK’s leading libertarian think tank...

Read more