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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

Happy Thanksgiving!

Written by Madsen Pirie | Thursday 24 November 2011


Thanksgiving is a US festival, and the ASI is a think tank based in the UK. Nevertheless, we have always celebrated Thanksgiving. Since it was founded in 1977, the Institute has marked Thanksgiving as a special occasion. The directors cook a meal for the staff. It is traditional stuff, with New England clam chowder, followed by roast turkey with chestnut stuffing and sweet potatoes, and a homemade pumpkin pie finishes the meal.

We celebrate, as the early settlers did, our deliverance from tyranny and persecution. Britain was in a bad way in 1977, with a largely state-owned and state-controlled economy under the thumb of union bully-boys. Under the leadership of Margaret Thatcher, and inspired by her determination, it took only a few years to turn things around.

The UK and the world face difficult times once more, and there are threats to freedom no less real and no less imminent. But we have much to be thankful for, and what was done before can be done again, provided the same insights and the same qualities of character are brought to bear.

We celebrate Thanksgiving, and we wish a happy celebration to our US friends on their special day. To those travelling, we wish a safe journey and may you all enjoy happy times with family and friends.

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No big deal

Written by Madsen Pirie | Monday 31 October 2011

I'm with Liam Halligan all the way on his response to the European bailout deal. It isn't enough and it won't work. They are trying for political reasons to escape what economic necessity dictates. They will not admit they made a mistake in admitting Greece into the Euro (although President Sarkozy has called that an error perpetrated by his predecessors). They do not want to undertake any step that might retreat from 'ever closer union'.

The austerity measures ('fiscal responsibility') are hard for electorates to accept, much harder than the automatic effects of devaluation. Frankly, I don't see how the governments concerned can deliver. Greece should exit the euro, followed by Portugal. Faster than anyone supposes, markets would adjust to the new facts and stability would emerge.

Halligan is skeptical about the 'relief rally; staged by equity markets in response to the deal.

"By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone's deeply indebted governments can roll-over their enormous liabilities and keep the show on the road…"

"Let's be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest."

He describes the deal as another of the "extend and pretend" non-solutions, and gives the deal two weeks before it begins to unravel. I'm not sure about the timing, but given the lack of information about how the EFSF's €440bn is to be leveraged, and from where the funds will come and why, I think pessimism has it by a length. This is not over and it's going to get worse.

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Happy birthday, Lady Liberty

Written by Madsen Pirie | Saturday 29 October 2011

statueThe Statue of Liberty, designed by Frédéric Bartholdi, was dedicated on Oct 28th, 1886, 125 years ago yesterday. It was a gift from the people of France, and is located on Liberty Island, South of Ellis Island in Upper New York Bay. The lady with her torch and her tablet represents the Roman goddess of freedom. There is a broken chain at her feet to complete the message.

The statue has become a symbol of freedom the world over. For many immigrants arriving in New York by boat, it was one of their first sights of America. Engraved on a bronze plaque inside the base are the famous lines by Emma Lazarus:

"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"

The lines themselves, like the statue, have been a source of inspiration to those who came to the United States to escape from tyranny and persecution and to make a better life for themselves in the US.

Even today the statue is a powerful symbol reminding people that America was "a nation conceived in liberty," a liberty that needs to be protected and reinforced against the encroachments of governments and bureaucracy. Many of America's liberties are protected in its constitution, some better than others.

On her hundred and twenty-fifth birthday the lady holds her torch up to the world, as well as to America, inspiring us to value liberty over security, and to live our lives by our own values rather than conform to the prevailing views of how others think we ought to live. Happy birthday!

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Increased rewards for top CEOs

Written by Madsen Pirie | Friday 28 October 2011

It is good news that the rewards for Britain's top CEOs have increased substantially on the previous year. Although this has been depicted as a 'pay' increase, in fact most of it is made up of performance-related rewards such as shares and share options. Only a tiny fraction of it relates to salaries.

It is good news for Britain that our top executives have been delivering the goods with a substantially improved performance. This bodes well for the viability and competitiveness of UK businesses in the future, which in turn will improve the prospects for employment here. They have gained performance-related rewards by improving the results on the previous, poor year.

It is also a good thing that in an international economy, Britain can offer the kind of rewards that attract and retain the high business achievers. Far from criticizing or curtailing these incentives, we should be seeking to make them even more attractive by removing the disincentive of the 50 percent top income tax band.

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In praise of Gordon Brown

Written by Madsen Pirie | Wednesday 26 October 2011

Gordon Brown's premiership will not be remembered as a success. He did so many things wrong that the list is too long to tell. Among the highlights are his sale of 395 tons of Britain's gold reserves between 1999 and 2002 for £2.3bn, an amount that would now be worth $14.3bn.

He devalued trust in open government by sneaking in 'stealth' taxes without declaring them. He turned Britain from one of the most competitive, low-tax regimes in Europe to one of the least competitive, high-tax regimes.

He squandered mind-boggling sums on public services, claiming that their poor performance was because they were under-resourced. The mountain of extra cash brought no improvement remotely commensurate with it.

He schemed against Blair's premiership, undermining it whenever he could, and thwarting its ability to restructure and improve the public services.

He borrowed without limit, leaving his country with a crippling burden of debt. It had taken 300 years and innumerable wars to take Britain's public sector net debt to £352bn by 1997. It took Brown 12 years to double that, and it is well on the way to doubling again by 2014.

The list goes on, but he did two things right. He gave the Bank of England its independence (though its Monetary Policy Committee is still government appointed). And his 5 conditions kept us from joining the euro. Given a chance, Tony Blair would have taken Britain into the single currency faster than he took us into Iraq, but those 5 conditions were never met, so Britain stayed out.

Looking at the mess the eurozone is in today, we can be grateful that staying out was one of the things Gordon Brown did right. The euro represented an attempt to impose political wishful thinking upon economic reality. Even in its current crisis, eurozone leaders are putting EU politics ahead of what economic sense requires. We are well out of it, and Brown merits a nod of praise to punctuate the torrents of well-deserved abuse.

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Remember, remember

Written by Madsen Pirie | Tuesday 25 October 2011

This is a good time to remember what our shadow chancellor, Ed Balls, said about the Irish austerity package. When Ireland's second quarter growth last year was lacklustre, he said, “These figures are a stark warning to governments across Europe including our own. That is not a credible economic strategy because lower growth and fewer people in work and paying taxes ultimately leads to a bigger deficit, not a smaller one.”

And what, asks Anthony J. Evans in City AM today, has happened since then. He lists the following:

• Ireland’s gross national product is now growing.

• Domestic demand is rising.

• Bank deposits are rising too.

• Bond yields are now under 10 per cent.

• Unemployment has continued to rise, but has slowed from the spring 2008-autumn 2009 spike.

To the unbiased observer, this might seem to suggest that Ireland's austerity package shows signs of delivering the goods. Ireland is not out of the woods yet, and its national debt (the true value of which is obscured by the existence of the NAMA "bad bank" and the government's stake in the still-risky financial sector) should be sobering to any optimist.

But the signs are quite promising, and seem to have achieved rather more than the 'borrow your way of out debt and keep spending' policy that Mr Balls was advocating and still is. I can safely predict what he will say about Ireland's performance: nothing.

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What to renegotiate with the EU

Written by Madsen Pirie | Monday 24 October 2011

The present turmoil in the EU and the eurozone gives an opportunity for Britain to renegotiate its involvement in the EU. There is a strong chance that the eurozone countries might move towards much closer fiscal union with EU-imposed common taxation and a European Economics Ministry to harmonize and oversee EU budgets. Obviously Britain cannot be part of this, and should therefore consider just what are the key elements to seek in its future relationship. Four priorities suggest themselves – especially if the government is serious about renegotiation as it opposes today's Commons vote on an EU referendum.

Firstly the UK must no longer participate in the Common Agricultural Policy. It raises food prices in Europe and limits the ability of poorer countries to sell their produce. It cost €42.8bn last year, consuming 31% of the EU budget. Britain should neither participate in it nor pay for it. This would save a significant part of the £14.6bn which the UK pays out annually to the EU.

The UK should no longer be part of the Common Fisheries Policy. This cost the UK some £3.3bn in lost catches and threatens our fish stocks by massive over-fishing in our waters.

Thirdly, the Acquis Communautaire should no longer apply in the UK. This is the body of past European regulations, now some 80,000 pages long, by which European bureaucrats seek to control the minutiae of life and business in the UK.

Our fourth requirement is that under our renegotiated relationship, the European Court of Justice should have no jurisdiction within the UK, leaving our own courts to interpret EU regulations according to the findings of English Common Law in England and Scottish Law in Scotland.

Much more might emerge in the actual process of renegotiation, but these four basic changes would be a good base to build upon in seeking a more rewarding relationship with our EU partners.

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What the Immigrant Saw

Written by Madsen Pirie | Wednesday 19 October 2011

whatThere's a great new book just published by JP Floru. It's What the Immigrant Saw, and describes his adventures and experiences since he first arrived on these shores from Belgium and decided to make Britain his home.

The book is superlatively written, and carries the reader along effortlessly with its narrative as JP struggles with local councils, with UK politics, with the NHS, with housing, and with busy-body bureaucrats. He writes in an engaging first-person style, edging his insights with wry humour as he encounters our ways.

He treads the path of a foreigner looking at our foibles with an affectionate eye, a path trod by George Mikes in "How to Be an Alien" over half a century ago. But there is a political punch to the book. JP puts across the essence of what Thatcherism meant, and how it had to fight vested interests and the blinkered ideology of socialism and officialdom. His causes are those of liberty and free markets, and he wears their favours well.

The book is a must read, entertaining and amusing, but informative too. Buy copies for your friends and spread the word.

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Think piece: Democracy and the economy

Written by Madsen Pirie | Monday 17 October 2011


The old balance struck between rich and poor in a democracy has been circumvented, says Madsen Pirie. A third option, to borrow from the voters of tomorrow, has given politicians around the world a blank cheque to spend their way into oblivion.

Most societies have a tension between rich and poor. Many of the ancient Greek city states chose sides in wars and disputes depending on whether they were oligarchies, ruled by the rich, or democracies, which gave citizens the vote, although not women, slaves or resident foreigners.

Even within democratic societies there has always been a tension. The poor are more numerous and have more voting power; the rich have more resources and can use them to influence opinions. In many democracies there is at least one party broadly sympathetic to the interests of those with wealth to protect, and at least one committed to a broader distribution of that wealth.

Both are restrained by circumstance. If the wealth of the few is inaccessible to the many, and there are scant opportunities for people to see their lives improved, there is the possibility of social unrest and upheaval, not something most wealthy people would wish to see. [Continue reading]

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