From the Department of Excessively Stupid Ideas

3107

from-the-department-of-excessively-stupid-ideas

Companies could face extra costs under Government plans to offer workers a guaranteed payment when they lose their jobs. Ministers are looking at a scheme to impose a legal minimum on how much employers have to pay employees who are dismissed.

Essentially this is a rearguard action. There are those who wish to raise the maximum statutory redundancy pay and those who think that this can be headed off at the pass by introducing a minimum amount payable.

Both are, of course, being fatuously stupid. We are pumping hundreds of billions of guarantees into the banks so that they will lend to companies. This is so that companies do not go bankrupt thus leading to soaring unemployment. The aim is to prevent that loss, not just of output but also of human effort and even the dignity that comes from productive labour. I might argue with specifics but the basic aim seems fine to me.

Then we have fools suggesting that now would be a good time to raise the amount that must be paid to workers who become redundant. These proposers seem to have missed a vital point: it is illegal to trade while your business is insolvent.  That is, that if you have insufficient funds to pay all your debts then you must close down and make all of your workforce redundant. One of the debts that you have to be able to cover is the statutory redundancy payments to that very workforce.

Soooo, if you raise the statutory redundancy payments then you'll raise the debts that companies have to be able to cover in these straightened times, these times of scarce capital and even scarcer bank loans, meaning that more of them will, by law, have to close thus throwing more of that precious labour onto the scrapheap of unemployment.

Could someone please remind me why it is that we are forced, at threat of prison, to pay for the people who come up with such ludicrous ideas?

Video games don't kill people

3101

video-games-dont-kill-people

Much like the argument over gun control and the gun rights with assertion that "guns don't kill people, people kill people", video gamers are saying the same thing in the latest onslaught after a school massacre in Germany. Of course, meddling politicians are using the attack as to ban or severely restrict video games. Expect this event to help push further tightening of controls on "violent" video games all over Europe.

Daniel Finklestein has written an excellent retort to the claims about video games causing violence that is well worth reading.

One sometimes wonders if the anti-game/gun/etc. politicians have letters or statements pre-written in case something useful comes along in the news. Its amazing they can make a case for such legislation based on one awful occurance. One bad apple out of the millions of people who play video games does not make a case for anything in a sensible mind.

Video games don't kill people, deranged lunatics do.

FT vs. WSJ

3102

ft-vs-wsj

The Financial Times has new analysis on its website under the title ‘The Future of Capitalism’.

The reason for this exposition is as follows:

The credit crunch has destroyed faith in the free market ideology that has dominated Western economic thinking for a generation. But what can – and should – replace it? Over the coming weeks we will conduct a wide-ranging debate on this dominant political issue of the day.

Most of the articles so far are as bad as you can imagine given the premise of this introduction.

Robert Shiller’s neo-Keynesian article on the need to control bankers’ ‘animal spirits’ entirely distracts from the true need to clamp down on the much more dangerous ‘animal spirits’ of politicians.

Martin Wolf’s apocalyptic look at capitalism is far too long given that it says practically nothing of any value. If he is looking for the seeds of destruction, try government, central banks and regulators.

Richard Layard’s call for less selfish capitalism does not just miss the wood for the trees, but fails to see beyond its own self-conceited happy-clappy pseudo-science.

The FT has been very poor in explaining the credit crunch, the financial crisis and recession to its readers. This latest feature is a reflection of their lack of leadership on the subject. In contrast the Wall Street Journal has been superb. Even if all the analysis has not been entirely convincing, at least it does not rely on sound bite driven analysis.

Blog Review 899

3105

blog-review-899

Interesting spoofing of the censors in China. More here.

When we're talking about inequality we have to define whether we're talking about income inequality or consumption inequality.

We also have to be careful how we define poverty.

For example, those teenage summer jobs buy a great deal more now than they did then.

For all that's being said about him Herbert Hoover most certainly did not cut the Federal budget.

Not everyone is convinced, even now, that crude Keynesianism is the answer.

And finally, what we need right now is a little less fear and a lot more greed.

This is a bit odd isn't it?

3104

this-is-a-bit-odd-isnt-it

Radical powers for financial regulators to step in to stop banks around the world overextending themselves with “catastrophic" consequences will be proposed by Britain today.

Alistair Darling will suggest that the Financial Services Authority and its counterparts elsewhere should monitor the overall financial positions of banks and other institutions to preempt irresponsible behaviour.

I'm fully willing to admit that we might need different regulation. I'm also open to the idea that this might mean more regulation, just different regulation or possibly even less regulation.

But I'm not open to the idea that those who do the regulating will suddenly become omniscient. It isn't just that the incentives faced by those who regulate will never lead to such wisdom, it's that no one, in any system of incentives, ever will be.

Further, I'm absolutely certain that those who do the regulating will not be any wiser than those who currently do such regulating. Which is really something that we might want to worry about before giving them the power to decide what is "irresponsible" and what is not. For example, informed gossip is that those currently regulating the banks are asking for the impossible.

The banks are being told that they should both be lending more money (possibly a desirable state of affairs) and also bolstering their capital rations (ditto possibly a desirable state of affairs). The only problem being that these two possibly desirable states of affairs are in fact mutually exclusive. One can do one or the other, but not both.

In Alice in Wonderland of course you could believe two impossible things before breakfast: but that's probably note quite the tome to provide the guidance for the regulation of the international financial system.

So, as I say, while I'm all ears about what changes we might want to make to regulation, perhaps not this specific one then, eh?

Gun control rationale

3103

gun-control-rationale

In the aftermath of the shootings this week in Germany and America, there will of course be the obvious calls that gun control needs to be further tightened. However, even if we compare these two nations and their approach to gun control, we’ll see that freedom barely clings on in either one.

In Germany they’ve spent 30 years strengthening the state’s hold over the ownership of weapons to no avail. In America there are at least some examples where people have not been robbed of the right to protect themselves and this has proven to be an impressive way of cutting crime (or in moving it elsewhere) as the article shows. Americans have their founders to thank for protecting them via the Second Amendment against swingeing government violence but we in Europe are at the mercy of government, simply due to the fundamental idea that when something like this occurs we need legislation to unarm those who desire to kill.

But when you examine the simple undertones of these shocking crimes you understand that the chosen weapon is not to blame. In an interesting article, in the Freeman, written by Scott A. Kjar and Jason Robinson, the rationale is broken down behind why it’s not the weapon that should be the centre of attention, but the person who utilizes it. The criminals have an end and they find a way compatible to achieve it successfully. In almost all cases they choose to be efficient and decide on a path that will meet the least resistance. It is perhaps time to reflect on gun legislation and realise that we are broadly capable of protecting ourselves, and others, from harm. The state has failed to protect us and will continually do so.   

Guns don’t kill people. People kill people.

US transparency

3095

us-transparency

Barack Obama introduced his stimulus plan to the world a few weeks ago, had it approved in the house and senate, and subsequently established a separate website and program to analyse the progress of the package. According to the ‘Our Mission’ section of the website: “The Act provides for unprecedented levels of transparency and accountability so that you will be able to know how, when, and where your tax dollars are being spent. Spearheaded by a new Recovery Board, this Act contains built-in measures to root out waste, inefficiency, and unnecessary spending."

Of course, the stimulus is mostly waste, inefficiency and unnecessary spending, but given that Obama has already mentioned his plan for integrating this level of transparency into all areas of government spending it could prove a useful check on government spending in the future. Therefore, at least in theory this plan for transparency in government spending is positive and quite revolutionary in the history of US government policy. For those Americans who have tried to use government websites to search for information on just about anything, they know how frustrating it can be to actually find what you are looking for. And since government databases are for the most part inaccessible from search engines such as Google, a user will have to spend hours sifting through poorly organized pdf and other text files to discover that they have been on the wrong government website all along.

A step forward of sorts, one hopes the UK follows suit.
 

Blog Review 898

3093

blog-review-898

When someone is given the Nobel for achievements in one are of economics that doesn't instantly make them experts in other areas of economics.

As one other Nobelist puts it, the current problems require a new understanding of the points Adam Smith made.

And the current problems are also laying bare quite how little we know about macroeconomics (as opposed to micro....)

For example, the Goldilocks Theory of Macroeconomic Stimulus.

One way of putting it, we don't have a British banking crisis, we have a Scottish banking crisis. A new Darien perhaps?

Don't try to trim government spending, slash it by simply stopping government from even attempting certain things.

And finally, OK, economists don't know everything about the economy but then that's not uncommon, for a science not to know all the answers.

Banking secrecy: A convenient scapegoat

3094

banking-secrecy-a-convenient-scapegoat

Politicians and lobbies of all persuasions seem to have found a new 'public enemy number one': banking secrecy.

Politicians and their paid servants, the regulators, have failed miserably to prepare for the current global financial crisis. Despite the fact that institutions like the Bank of International Settlements has spent around ten years and produced a report of 1000 pages, the Basel II rules did nothing to prevent the debacle that has afflicted major banks around the world. The attacks on banking secrecy and particularly tax havens are nothing more than a desperate search for scapegoats. They are not the cause of the current crisis.

Not so long ago there was a time when anyone could walk into a bank in Austria and open a bank account without presenting any form of documentation. No one asked what his or her name or address was. You paid in your money and you received a bearer passbook that was the only document you needed to claim back your money. Was crime any higher as a consequence of lax banking regulation? Was corruption rampant? Not at all. Since the (US inspired) crusade against banking secrecy has gathered speed, both crime and corruption has - if anything - increased.

Ironically, much crime and corruption can be traced back to ill-conceived legislation: the war on drugs, arbitrary taxes (tobacco, alcohol), questionable regulations and subsidies (agriculture, trade tariffs), limits on prostitution. All these laws and regulations may be well intentioned but they provide a fertile field for criminal activity and usually are counterproductive as well as costly to the taxpayer.

If countries want to close down tax loopholes they can avail themselves of a solution that is easy to administer and leaves the precious privacy of all citizens untouched: Legislators can decide to impose taxes at source. If politicians are really only interested in reducing the amount of tax that in unpaid this solution should suffice. Their more intrusive tactics indicate that the authorities are more interested in invading the private sphere of the individual, increasing the control that the state already has over the lives of individuals.

Illions

3091

illions

It's one of those -illions moments, where everything steps up in magnitude. I remember when government budgets, tax receipts, public expenditure, public borrowing and the rest was always expressed in millions, or hundreds of millions. Sometime in the 1980s, the numbers started to go through the 1,000 million ceiling, and than we had to choose – should we stick with expressing them in thousands of millions, or should we adopt the American rule of calling 1,000 million a billion? Eventually The Economist decided it for us, and we opted for billions.

And now, with bank bailouts and gargantuan, mistaken, Keynesian New Deal spending programmes, we're into trillions. In just 25 years, government financial measure have grown not just once or twice or even ten times, but a thousand thousand times.

But how do you write trillion? When budgets were just in the millions, we'd write £1m. When they reached the billions, we could have written £1b, but for clarity £1bn has become the norm. That use of two letters seems appropriate. A billion is bigger, after all.

So how do we write trillion? We could to £1t or £1tr, but I would favour, once again, something a bit longer, to match the scale of the figure - £1trn.

Dr Eamonn Butler's new book, The Rotten State of Britain, is published later this month.