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"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

Cheerio, ASI

Written by Caroline Porter | Saturday 06 December 2008

After eight weeks of working with the wonderful members of the ASI team, it is time for me to say farewell. It has been a great experience working for the Adam Smith Institute, and I have learned more than I ever thought I would in such a short amount of time.

While doing research and writing about current events, I have gained a much clearer understanding of both the important issues in British politics and the Libertarian outlook on them.  Never in my life have I heard so much about the free market and privatization, but all this talk has helped me realize the value of competition and choice in business. I will bring this new appreciation with me as I return to the US to complete my Bachelor’s degree in Economics at Fordham University in New York City.

It has truly been a pleasure interning at ASI. I wish everyone at the organization the best of luck with all of their upcoming projects and publications. I look forward to seeing how the Adam Smith Institute will impact the policy agenda in the future.

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New confines on wine

Written by Caroline Porter | Friday 05 December 2008

An article in The Times today will surely disappoint many wine lovers throughout the country. The new Crime Bill, which is to be published next week, will include a ban on cut-price drink promotions in an effort to curb irresponsible drinking. The bill will bring about an end to “buy-one-get-one-free" deals and will stop the practice of allowing women to drink free of charge. It will require clubs and pubs to serve wine in smaller glasses as well. The Home Office has also resolved not to ban “happy hours" in pubs and bars throughout England and Wales. But don’t get too excited, the department may decide to give local councils the ability to outlaw them in their respective regions.

This legislation is just a small episode in the series of government restrictions on alcohol and smoking that people have suffered over the past few years. Considering the institution of the smoking ban in pubs and restaurants in July 2007, proposals to tighten pub licensing laws, and talks of allowing bars to only fill two thirds of each pint, it is safe to say that the government is becoming bolder in its attempts at regulation.

Many, including the wine industry, argue that this and other bills will affect moderate drinkers as well, causing them to unjustly suffer the same restrictions and higher prices. It has been established that excessive drinking can lead to crime and disorder, but the measures the government is taking will not be effective in stopping someone keen on drinking him or herself into oblivion. Alcoholics will drink whether or not they can get two beers for the price of one. In the meantime, those who enjoy a glass of wine or a pint every so often are left to suffer.

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Oil Woes for the DOE

Written by Caroline Porter | Friday 21 November 2008

So, US crude oil production increased 182,000 barrels (or .01 percent) in 2007 compared to 2006. Good news, right? It would be, if that were not the first time production has increased since 1991, and only the tenth time that annual oil production has grown since it peaked in 1970. In fact, production has never reached the 1970 number of 3.52 billion barrels, and has lost an average of 1.8 percent per year in production since 1985. So why are we allotting a $24 billion budget to the US Department of Energy – which was set up specifically to reduce dependence on foreign oil – when, clearly, no progress is being made? Great question.

The statistics on oil imports are equally discouraging. Crude oil imports reached an all-time high in 2005 at 3.696 billion barrels. Except for a sharp decline in the 1980s, petroleum imports to the US have been on the rise, from around 1 billion barrels in 1970 to 4.4 billion in 2007. Last year, there was a 75 percent deficit gap of 5.7 billion barrels of petroleum between production and consumption, which was attributed to the rising number of imports and record lows in crude oil inventory.

Such a bleak picture of the oil industry should raise scepticism about the effectiveness of the Department of Energy in carrying out its objectives. The US has become significantly more dependent on foreign oil instead of less. The oil production numbers have dramatically decreased since the founding of DOE. It is almost comical that the goals its sets are reliable, affordable energy and US economic competitiveness in the oil industry. Since its beginning in 1977, the Department of Energy has only negatively impacted the United States' ability to compete worldwide. And with no change in sight, it will continue to waste billions of government funds a year  - sounds like a familiar tale indeed.

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Negligent Health Service

Written by Caroline Porter | Thursday 20 November 2008

The NHS strikes again. It has been reported that since 1995, £2.1 billion has been given to mothers and babies as compensation for medical negligence during childbirth. Costs include lifelong treatment for children who have experienced brain damage, cerebral palsy and developmental delay. This news comes as the maternity services are suffering from cuts in spending, short-staffed hospitals and rising birthrates. In England, the NHS reduced spending on maternity by £55 million in 2006-07, while the birthrate has risen 16 percent since 2001.

NHS shortcomings have caused an increasing number of litigations from the victims of insufficient care. The cost of maternity-related claims has risen from £163 million in 2003-04 to £288 million in 2007-08. One in every six thousand births in the UK has resulted in legal action against the health service. For example, Tristian Blomfield was awarded just over £8.26 million after suffering permanent brain damage at birth. At eight years old, he has cerebral palsy in all four limbs and needs constant care.

So what needs to be done? Well, in the short run, money should be spent on improving care to decrease the ridiculously high compensation costs the NHS has had to pay. Yet the current health care structure just won’t cut it. For example, despite the fact that Labour has increased spending on the NHS by £57 billion since 1997, the productivity of consultants has fallen over 20 percent during the same period.

In terms of health care reform, privatization is holds the key. Only an increase in the role of the private sector would introduce the necessary competition and efficiency savings. These changes need to start soon – just ask Tristian and his family.

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Recession, regulation, and rubbish

Written by Caroline Porter | Tuesday 18 November 2008

Well, it turns out that the UK is in for an even deeper recession than originally suspected. The CBI (Confederation of British Industry) says unemployment may rise to 2.9 million in 2010, instead of the 1.8 million previously forecast. The UK economy shrank for the first time in 16 years between July and September of this year. CBI warns this is far from over; the size of the economy could decrease by 1.7 percent in 2009, which is a staggering change from the 0.3 percent predicted in September.

CBI blames two major factors for the economic slowdown that lies ahead, which is expected to cause five quarters of negative growth. First of all, the banking crisis has diminished the accessibility of credit and credit insurance for all kinds of businesses. Secondly, the negative reports about the economy resulted in a decrease in consumer confidence, reducing the demand for products and services.  This declining consumer spending, in addition to less investment spending and significant drops in inventory, will be the largest contributors to the downturn.

Unite, the UK’s largest union, has come up with a plan to stimulate the economy by increasing public spending and instituting stricter regulation of the financial sector. But why would one want to do that when too much box-ticking regulation helped get us here in the first place? While they hassled firms and companies with nonsense procedures and stipulations, stifling innovation and impeding progress among businesses, regulators completely neglected the bigger issue of financial stability. Although some regulation will surely be needed, the economy will fair much better if companies have more say in their operations and management, and regulators get back to focusing on the big picture.

Ultimately, as long as competition and free market ventures are put on the backburner, the bad news will just keep coming.

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Good luck Obama – You’ll need it

Written by Caroline Porter | Thursday 13 November 2008

As Barack Obama tours the White House and entertains thoughts about life in Washington, one cannot help but wonder how he will face the economic shambles that will welcome him in January. Blows to the US economy have remained in full-force over the past couple of weeks, allowing for even more disheartening news about the finances of firms, homeowners, and schools throughout the nation.

The prevailing instability of financial institutions will prove to be a huge concern for Obama and his administrators as banks and mortgage companies seek more monetary help. American Express has joined Goldman Sachs and Morgan Stanley in changing from investment banks to bank holding companies in order to access government funds. A.I.G. has received a government assistance package worth $150 billion after losing almost $25 billion in the third quarter. Fannie Mae, after losing $29 billion in the third quarter, claims that it may need more than the $100 billion the Treasury Department has already promised.

Homeowners throughout America are witnessing further decreases in their homes’ values. First American CoreLogic, a real estate data company, has determined that 7.6 million properties in the US were in negative equity as of September 30, with another 2.1 million not far behind. This is almost a quarter of all homes with mortgages in the US. In the hardest hit zip code, Mountain House, California, 90 percent of its homeowners owe more than their houses are worth.

In education, all universities, rich and poor, are suffering because of the crisis. Even Harvard University is struggling, forcing it to halt plans for expansion and instead discuss the topics of financial restraint and endowment loss. Both Brown University and Cornell University have stopped hiring for a period of time and paused construction projects due to reductions in funds.  Need-blind institutions such as Vassar College and Tufts University are fighting to keep their promises to fully meet students’ financial need.

These points provide only a brief description of the persisting economic issues that Obama will face when he takes office. The whole world will be watching to see how well this beacon of hope and change will actually improve the dreary global financial scene.

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Must work for housing

Written by Caroline Porter | Tuesday 11 November 2008

Plans to revise the social housing system are currently being reviewed by the new Housing Minister, Margaret Beckett. Major changes would occur to address the lack of accommodation and long waiting lists for housing that exist today. Under these new plans, people in council houses would have fixed-term contracts with stricter limitations on residency. This is due to the fact that almost 4 million people, or 1.6 million households, are currently waiting for subsidized houses, while only 170,000 open up each year. These numbers are expected to increase in the next few years as more homes are repossessed due to the credit crunch.

According to The Times, Beckett may seek to end the possibility of lifelong residency in subsidized council homes. First of all, a person could only live in council housing if he or she was actively looking for work. To ensure that no one is taking advantage of social housing, tenants would be reviewed every few years by a board of directors. She also proposed that if a tenant’s financial situation improves, he or she would be persuaded to take an equity share or else move to a private home or apartment. The tenant would then face higher rent rates if he or she does not move out. In this case, rent would be closer to the market rate, rather than only rising each year by the retail price index plus half of a percent.

This new plan is far from being implemented, but it does allow for promising changes to the subsidized housing system. It will give priority to those people who need housing the most, such as pregnant women and families with dependent children. Its more stringent rules concerning residents’ finances and work ethic would also give them the push they need to reduce their dependency on the state – a very welcome move. By enforcing limits on occupancy and employment, tenants will have more incentive to find work. At least in theory, Beckett’s plans could, in the long run, reduce the number of people seeking government aid while also ensuring that people who really needed subsidized housing would be able to benefit from it.

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Milk, bread and ID cards…

Written by Caroline Porter | Friday 07 November 2008

It was reported yesterday that private shops and post offices might be recruited to collect biometric data for the government’s ID card scheme. This is another addition to the elaborate plan for introducing the UK's new form of identification. Starting next year, some 200,000 airport workers will get identity cards as a condition of employment. The following year, students will be encouraged to apply for a card when opening a bank account, and eventually, the Identity and Passport Service hopes to distribute a substantial number in connection with issuing British passports.

Yet the Home Office is already encountering (justified) opposition to this plan. Many are protesting the £30 charge for an ID card, when most of the population do not see it as necessary. Airlines such as British Airways, Easy Jet and Virgin Atlantic have expressed opposition because they claim the scheme is unfounded and will not increase security. Despite the good intentions of the government, it is obvious that this scheme will build up its already mounting costs. In the next ten years, the ID cards are predicted to cost £4,740 million for British and Irish citizens, and an additional £311 million for foreign nationals. In times like these, who really wants to think about further spending on plans most people contest?

As the government tries to move forward with the ID card scheme, the British people may not be the only opposing force that they face. As mentioned earlier, the Home Office is looking to "use market forces and competition" by enlisting the services of private companies, organization and retailers to enrol UK citizens in the program. Those outside of the Home Office, however, speculate whether private companies would be willing to invest millions into a program that very well could be scrapped by a new administration.

So, we must wait and see how the execution of the ID card scheme pans out in the next few years. But getting fingerprinted while shopping for groceries at the supermarket is still a rather worrying thought.

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Whither Regulation?

Written by Caroline Porter | Friday 31 October 2008

Wednesday night, ASI hosted a meeting in the Quadrant Chambers' Library to discuss the future of regulation in international capital markets. Keith Boyfield, chairman of our Regulatory Evaluation Group (REG), served as moderator of the event, which was titled Whither Regulation? Each of our three guests speakers had ten minutes to argue his position on how the UK can best respond to the US bailout and current credit crisis.

Richard Jeffrey, the Director of Economics & Strategy at Cazenove Capital Management, started off the discussion with the failures of regulation. His main issue was that current regulatory practices focus too much on micromanagement.  Regulators are more concerned with establishing common procedures among companies than they are with achieving regulation's main objectives, namely a stable financial system. To put it another way, our regulators do so much legalistic box ticking that they get distracted from the bigger issues at hand. At the same time, this approach stifles innovation and creates barriers to progress and growth in the market. Jeffrey argued that in future regulation needs to focus on basic principles and outcomes, not complex processes. Such a system would allow both financial institutions and regulators to do their respective jobs better. [Click 'read more' to continue...]

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Caroline Porter joins the ASI

Written by Caroline Porter | Tuesday 14 October 2008

Hello – My name is Caroline Porter and I have just started my eight week internship at Adam Smith Institute.

I am currently a junior at Fordham University in New York City, but am studying abroad for the fall semester in London through Boston University. I am working towards a Bachelors degree in Economics, but also have interests in Politics and Sociology. My plan for what to do after college remains undeterminded, but I am looking forward to learning more about my field of study as well as British policy formation through this internship.

Besides school, I am greatly interested in music and travel, and I am a major fan of Law and Order reruns.

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