Just to pile in on this choice thing with Dr. Clarke

Perhaps I shouldn't pile in on Eoin Clarke's little rant against choice but it's just so tempting that I'm afraid I cannot help myself. Sam's covered it well here but there is a tad more we can add.

I do slightly sympathise (the emphasis there is on slightly) with the Rube from Belfast being astounded that they did things different in foreign. Even when past my rube years I've been to enough foreigns to be astounded at the way some things are done. I have, for example, faced down Soviet bureaucracy in my time which is an experience to astound anyone.

But past that (and I again emphasise the slightly) I end up in gasping slack jawed amazement. For here is a man quite seriously proposing that, because he got confused about coffee three minutes after arriving in a new country then choice is a bad thing. Note that he didn't dislike choice enough not to try a new country, nor move on to a third afterwards.

But think what this no choice mantra actually leads to. Logically, at least, there should only be one book. One film, one TV station at least if not only one TV programme. Even thought these are consumables we should certainly only be allowed to have only one of each at any one time. Umm, actually, why should we have a choice between a movie or a show? And isn't that decision about the musical, the comedy or the tragedy all too complicated?

And if you're to dim, confused or Rube enough to not be able to work out what sort of coffee you want then how can you be trusted with the vote? After all, one government that just gets on and provides everything would be just fine wouldn't it? Like one NHS that just does stuff. Who needs any input from the populace into what that government should do?

It is true that what the NHS does is complicated: so is what government does.

We have actually had a number of experiments around the world at doing just that and they've not really worked out all that well have they? That the NHS is such a Wonder of the World that no one has tried to copy its no choice agenda might also be a revealing piece of evidence.

But here's my real mindboggle. Dr. Clarke is a historian of feminism in Irish Republicanism. He studies those women who fought for choice within their own society, that women actually be allowed to make choices. Inside a movement whose entire existence was predicated on the desire to have a choice in forms and source of governance. This is his professional career. His conclusion is that choice is undesirable.

Ho hum.

Debt reduction and economic growth

Here’s a letter I wrote to the Evening Standard last week. I’m not sure whether they published it or not.

Too many people believe we have a choice between debt reduction and economic growth – that we can have one, but not the other. Nothing could be further from the truth. In fact, debt is the greatest threat to our economic stability and debt reduction is the surest route back to economic health. Recessions are painful, but they also play a vital role in the business cycle: as the excesses of the boom years are unwound, as bad investments are liquidated and debts paid down, solid foundations are laid for real, sustainable growth in the future. 

This has important implications. Firstly, it demands that George Osborne not only sticks with his deficit reduction plan, but actually goes further and faster. There is scope to do this. Remember, Labour raised spending by 60 percent while they were in office. The coalition government has so far reversed only the tiniest fraction of  this. Secondly, the government must stop artificially stimulating borrowing and let the necessary private- and financial-sector deleveraging take place. History shows that growth returns once this process is underway, and not before. The Swedish experience of the 1990s is a good example of this in practice. 

The Eurozone crisis paints a horrifying picture of what happens when debt spirals out of control, and Moody’s recent negative outlook warning shows that Britain is not immmune from the problems affecting the Continent. If we fail to reduce debt, the best we can hope for is Japanese-style stagnation. The worst case scenario – financial chaos and monetary collapse – is altogether less pleasant.

Perhaps I should have included a historical example of debt reduction going hand in hand with a return to economic health. One such occasion is the ‘forgotten depression’ of 1920, which Tom Woods writes about here:

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent… Instead of "fiscal stimulus," Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third… By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

Review: Knowledge and Coordination – A Liberal Interpretation

There’s a contradiction at the heart of much modern classical liberalism. Since Adam Smith, successive generations of classical liberals (particularly in economics) have tried to build a systematic science of man to demonstrate the value of liberty. In contrast to Smith’s vision of economics and moral philosophy as a messy, ad hoc pursuit, modern classical liberals and libertarians have generally proposed a vision of economics and the social sciences as foundational sciences. In different ways, this is apparent in both the deductive praxeology of Ludwig von Mises and Murray Rothbard, and the neoclassical economics of George Stigler, Milton Friedman and most modern classical liberal economists.

Daniel B. Klein’s new book, Knowledge and Coordination: A Liberal Interpretation (you can read parts of it here), tells us to throw out this worldview and embrace a concept of spontaneous order rooted in the work of Adam Smith and FA Hayek. Klein is a professor of economics at George Mason University who, like Smith, has a background in philosophy. In Knowledge and Coordination, he argues that we should try to understand society not by building a series of upward steps derived from axiomatic principles, but by viewing society as a complex web of spontaneous interactions.

Knowledge and Coordination is divided into several parts, which initially seem disparate, including a detailed discussion of entrepreneurship, surprises, and coordination, detailed discussions of the political economy of urban transit and safety regulations, and a philosophical discussion of the value of the “impartial spectator” perspective in moral philosophy and economic analysis.

Klein’s discussion coordination is, by itself, a valuable contribution to the study of spontaneous order. He delineates mutual coordination (conscious “mutually intermeshing behaviour” between two or more parties) and concatenate coordination, a broader “invisible hand”-like coordination that that comes from system-wide harmonious coordination.

Think of Leonard E. Read’s story of the complexities of making a pencil: most of the people are cooperating mutually with their buyers and sellers, but on a whole they are creating a complex mesh of coordination which ultimately leads to the creation of the pencil. The result of human action, but not (necessarily) of human design – this concatenate coordination is usually what classical liberals mean when they talk about the coordinative benefits of a free market system.

One of Klein’s most interesting points is that this concatenate coordination only makes sense from the point of view of an impartial spectator. In this he draws on Adam Smith’s Theory of Moral Sentiments, in which Smith argued that moral philosophy was best interpreted through the eyes of a spectoral viewer – as Klein says, not your conscience, but your “conscience’s conscience’s conscience’s ... conscience”.

But Klein takes Smith’s allegory further. The whole realm of human action (Klein focuses on economics), he says, is best understood by taking this allegorical spectator’s view, to appreciate the aesthetics and efficiencies of system-wide coordinations that would otherwise be ignored from a rigidly individualistic point of view.

On discovery and knowledge, Klein makes a convincing case against “flattening” knowledge into “information” in order to fit it into the confines of economic modelling. He uses an example of a man recently put out of work who feels like a cigarette but can’t find a tobacconist. Sensing an opportunity, he sets up his own tobacconist and rises to own a successful chain of shops. This surprise discovery is central to entrepreneurship and innovation, but is almost completely discounted by economic modelling. Klein argues that “freedom causes prosperity principally because freedom generates discovery”, but this point depends on Klein’s “thick” view of knowledge and discovery.

Three chapters on different areas of public policy – urban transport, safety regulations and technologically-enhanced central planning – apply his web perspective with success. Though he discusses these areas in considerable detail, he does not attempt to recommend specific recommendations. His aim is to show that the web of coordination is no less complex when we drill down into specific areas than when we look at society and the economy as a whole. The Smith-Hayek perspective allows us to grasp around certain areas of human interaction, only really appreciating the limits of our ability to improve them. These parts are an analytical complement to historical case against government schemes to improve the human condition like James C. Scott's Seeing Like a State and Jane Jacobs's The Death and Life of Great American Cities.

Klein hopes to develop a Smith-Hayek argument for liberty, favouring a “by and large” liberty maxim over an absolute liberty axiom. The liberty maxim is much more robust than the absolutist axiom in providing a defence of liberty. Instead of having to prove itself in every single make-or-break hypothetical example, the liberty maxim is more modest and realistic, and embeds the case for liberty in the Smith-Hayek view of spontaneous orders.

This mirrors Smith’s moral philosophy. When presented with the choice between the utilitarian maximization of happiness or the categorical imperative of natural rights, Smith and Klein shrug. Don’t try to build morality up from first principles, they say, but treat it as an “aesthetics of human agency”. Whatever works, works. Don’t try to reduce morality to a rule, model or mathematical formula.

Klein’s vision is radically humble. Throw out your models and accept life’s complicated messiness. Early on, Klein says his aim is to provide a new “by and large” presumption of liberty rooted in the Scottish Enlightenment. He does far more than this. Knowledge and Coordination is a profound, brilliant book that returns Adam Smith to the centre of the classical liberal worldview. It should provoke a paradigm shift among classical liberals and libertarians. Embrace the illegible world we live in. The virtues of liberty are clearest when we take the view of the impartial spectator, and most robust when we realize just how disjointed and spontaneous the orders that we exist in really are.

Dan Klein will be speaking on his paper Mere Libertarianism: Blending Hayek and Rothbard at the Adam Smith Institute on the 20th of March.

An alternative approach to unemployment

Last week’s joblessness figures were hardly encouraging. The Chartered Institute of Personnel and Development predicts a gloomy forecast for employment prospects, forecasting unemployment to reach 2.85 million by the end of 2012. Their Labour Market Outlook makes for very miserable reading for those seeking jobs. Similarly, research from the TUC suggests that ‘unemployment’ may be at around 6 million if those in temporary work or underemployed are taken into account. The TUC has applied the US U1-U6 system of measuring unemployment.

Of course, we should take the TUC’s research with a good pinch of salt. The TUC has taken the broadest possible measure of unemployment, naturally, as it wishes to criticise government policy. The TUC does not give a great deal of detail about the source data it used – it simply states that they are derived from the ONS, so it is not easy to critique its methodology, aside from the general criticisms that must be attached to the US system. These figures do not allow for revealed preference; individuals may state that they are willing to work full time but actually may not to do so if a full-time job were available. If nothing else, the TUC’s presentation is misleading as the US figures expressly contain six different types of ‘unemployment’, so to pick one (U6) and present it as definitive is disingenuous in itself.  

These caveats notwithstanding, unemployment is clearly high and rising by most measures and there is a considerable level of underemployment within the economy. The TUC’s answer is, of course, government ‘stimulus’ and job creation schemes. Regardless of the fiscal impact of further government stimulus, it is unlikely that it will be successful. We have a huge fiscal stimulus already in place and pre-existing job schemes have repeatedly failed – the underperformance of the government’s Work Programme is merely the latest in a long line.

What comes across far more strikingly from these figures is the very high level of structural unemployment in the UK, prior to 2009, something that the TUC entirely fails to mention because it does not fit its picture of ‘demand deficiency’. In April 2005, firmly within the boom years, official unemployment (U3) stood at 1,437,000 (roughly 4.5% of the active labour force) and the broad figure (U6) at 4,184,000 (13.5%). Why then, in the midst of an unprecedented boom and with an acknowledged shortage of skilled labour, was there so many unemployed and discouraged workers in the economy and did the markets fail to clear?

Unemployment is a complex phenomenon but it is clear that a great deal of the UK’s unemployment is unrelated to demand and is, in fact, a result of structural factors. The solution to this sort of unemployment is supply-side reform, of a far more radical sort than the present government is proposing: eliminating – or at least ‘regionalising’ - the minimum wage, reducing employment regulation, lowering and flattening taxes on income and employment and eliminating high marginal tax rates caused by the tax and benefits system. It is also clear that the state education system is utterly failing to equip many young people with the skills that the job market requires. Obviously, many of these reforms are long-term and would require much effort on behalf of the government in the face of entrenched interest-group opposition. However, the present government is not only missing much low-hanging fruit or taking little action but is actually creating further supply-side problems. 

In terms of the discouraged and temporarily employed, the TUC fails to recognise that the prevalence of this is the result of government-created barriers to permanent employment. Temporary employment is not, in most cases, advantageous for employers. The means to re-engage workers and encourage permanent and full-time employment is to de-regulate and eliminate the disincentives for employers to hire workers, not to apply the same restrictions to temporary employment which will merely serve to drive such employees out of work altogether.

Generally speaking, the Coalition government has tended towards the TUC’s approach – stimulus and work programmes – far more than it has to supply-side reform. This is profoundly disappointing, especially given the clear evidence that much of the UK’s unemployment is structural and bears little relation to the cyclical environment.

Echoing Rick Santorum

Tom says he's no Rick Santorum. And thank god for that. In 2006, Santorum said he was against individualism, libertarianism, and much more:

One of the criticisms I make is [of] this whole idea of personal autonomy ... this idea that people should be left alone, be able to do whatever they want to do, government should keep our taxes down and keep our regulations low, that we shouldn’t get involved in the bedroom, we shouldn’t get involved in cultural issues.

I'm certainly glad that Tom's no Rick Santorum. You might think Rick Santorums are rare in the UK. If only:

I don't like choice. No, sorry that was a lie. I hate choice. I detest it. Simplicity is best. . . . 

To me, a hospital and a doctor serve a function. Its not complicated. If I get sick I go to my doctor, he gives me a prescription. If I get really sick I phone 999 they take me to a big white building and put me in a bed. Since when did it all get so complicated? I don't want to book a surgeon. I don't want to choose my care, to rate my food, to score my surgeon. This is not X-factor this is my health. I am an historian not a medical genius. I would much prefer it if my doctor or hospital made my choice for me. What scares me the most is that if my entire life experience of consumer choice has been frustration at the rise in prices, why should it be any different in the NHS? Am I crazy? Am I the only person who does not want choice?

That's lefty blogger Eoin Clarke applying the philosophy of Santorumism to healthcare. After reading his whole post at "The Green Benches", including a story about the agony of choice at Starbucks, I wonder if "The Green Ink" might be a better title for his blog instead.

I can't stand the Santorumist view that some jumped-up prig in government should be able to interfere in my private life. Most people in Britain shudder at the thought of Rick Santorum. And so they should. But they should also shudder at his meddling, father-knows-best worldview being applied to the rest of their lives, including their healthcare.

Privacy isn't just a good thing when it comes to sex. Santorum's collectivist delusions about controlling your bedroom are bad, but Clarke's collectivist delusions about controlling your healthcare are hardly any better.

Update: Simon Cooke has more thoughts on choice in bread and cheese, and what that means for healthcare and education.

The dangers of thinking with one's stomach

Perhaps April Fool’s day has come early? In a gift for comedy writers everywhere, Eric Pickles wants us to have a 'big lunch' for community cohesion. More still – Pickles wants to introduce a ‘curry college’ to promote integration!

Joking aside, there are some serious issues here. The Secretary of State for Communities - that meaningless Blairite catch-all – wants the state to promote social integration and has introduced, inevitably, a strategy to do so. Unlike Labour, however, the Conservatives are seeking to promote integrationism rather than multiculturalism. Naturally, this has outraged leftist cultural groups. It is ironic to note that multiculturalism started life in the Netherlands as a response to post-war immigration, encouraged as a solution to labour shortages rather like the German guest worker schemes. Immigrants were to keep their culture as they were ultimately intended to return home.

The argument between multiculturalism and integrationism is a misleading one. Government cannot create or promote cultural cohesion by any mechanism and, more importantly, it is not its duty to do so. This seems to run counter to this government’s own ‘Big Society’ agenda. State-led attempts to do so invariably result in artificial, bureaucratic initiatives that have little grounding in reality and are a huge waste of taxpayer’s money. Witness the failures of the Blair and Brown governments to create social cohesion; if they had succeeded we would have no need of further initiatives. We don’t need Gordon Brown telling us what our national historical narrative ought to be – in a free society there will be an infinite number of differing and possibly contradictory ones, this is healthy. Nor do we need Eric Pickles telling us what society should look like and how it should behave.

At worst, state attempts to promote cultural and social homogeneity result in the aggressive nationalism that plagued Europe in the 20th century and beyond – witness Putin’s Russia or Serbia in the 1990s. Moreover, the state very often promotes social tensions between immigrants and ‘indigenous’ groups as it creates zero-sum games over welfare and housing and thereby conflict. This is typical of state interventionism: on the one hand it creates a problem, on the other it attempts (and fails) to solve the problem using additional spending and bureaucracy. At the same time it creates a host of client organisations who are dependent on such funding for their existence and will protest bitterly if such funding is withdrawn.

The state should not be attempting to tell people what their culture and heritage ought to be and how they ought to relate to each other; it is best left to trial and error to find out. As David Hume observed in the eighteenth century, the English were much less culturally and socially homogeneous than other European nations. Relative to the French or the Spanish, individuals were freer to expresses themselves via standards of dress and taste and a lacked a centrally dictated sense of belief and national identity:

But the English government is a mixture of monarchy, aristocracy, and democracy. The people in authority are composed of gentry and merchants. All sects of religion are to be found among them. And the great liberty and independency, which every man enjoys, allows him to display the manners peculiar to him. Hence the English, of any people in the universe, have the least of a national character; unless this very singularity may pass for such.

As a result, society was much more coherent, stable and economically productive as interest groups were not set up in positions of exclusive privilege and antagonism.

In the contemporary context, as Mark Pennington and John Meadowcroft show, we need to ‘rescue social capital from social democracy.’ The building of ‘social capital’ is best left to free interaction and civil society. The tendency of government, as with economic capital, is to consume the existing and distort the process of formation of new social capital. 

It's secondary education that needs to get real, Mr Ebdon

If one phrase were needed to sum up all that is wrong with the choice of Les Ebdon as ‘Fair Access’ Czar of British universities, it must be this:

“I don’t think universities can just say: ‘Oh well it is because they are doing the wrong GCSEs’… Universities have to deal with the world as it is rather than the world as we would want.”

What he means is that universities should not be allowed to maintain high standards and insist on schools meeting them. Instead, universities should supplicate themselves to whatever mania is sweeping the teacher training colleges at the time.

Ironically, Ebdon’s policies mark the latest in the public education sector’s long march away from anything resembling ‘the real world’.

As I wrote in June, this sort of thinking is the result of the ‘progressive’ education establishment’s attempt to combine its love for fashionable theories with the terrible results when those theories are field tested.

Instead of adopting more effective teaching methods, to which much of the teaching profession has developed a certain ideological antipathy, state educators realised that they had another option: move the goalposts that marked success.

This started with the concept of ‘value added’ results. In essence, where schools had to deal with ‘disadvantaged’ groups such as ethnic minorities, immigrants or the poor, educators demanded that grades and league table positions reflect how well they thought they had done, given the poor materials to hand. Instead of seeing these children as challenges, they sought excuses.

But all these illusory achievements count for little when universal standards are applied, as in university applications. Because no matter how hard state educators insist that one child’s Cs are equivalent to another’s As because the first child is black or poor, in the ‘real world’ so beloved of Professor Ebdon a C is still a C and an A is still an A. Grade inflation notwithstanding, of course.

Once again, instead of renouncing failing methods ‘progressive’ educators are instead trying to lower the bar. It is our world class universities that must adapt ‘to the real world’, not our many unsatisfactory secondary schools.

Yet even if you crowbar these children into universities, they still aren’t properly equipped for the experience. Some universities already have to dedicate time in first year to equipping students with the sort of basic skills they should have developed during their A Levels.

These students will be accruing tens of thousands of pounds of debt to acquire second- or third-rate qualifications, all the while denying a place to a more capable student and weakening the strength and international competitiveness of British higher education.

Yet how far can this fantasy be sustained? What happens when these students hit the employment market and find that the illusory value-added grades they’ve been given by lazy educators aren’t actually worth the same as qualifications acquired through impartial assessment and intellectual rigour?

Will the next generation of Ebdons insist on ‘value-added’ degrees, and that employers must deal with the world ‘as it really is, not as they would wish it to be’? Will employers be forbidden from ‘discriminating’ against such qualifications?

It sounds totally outlandish. But following the logic of Ebdon’s appointment, it no longer sounds impossible.

It's complicated

Last week, BBC Radio 4’s PM show each day profiled an unemployed person. On Friday, it featured Leanna Brown, 20 years old, a single mum of  a two-year old, living in Sheffield and unemployed for two years.

Ms Brown said she lives in council housing for which she pays £7 a week rent, gets £100 every two weeks for income support, child tax credit of £60 a week plus unspecified child benefits. She earned nine GSCEs, tried for A-levels but didn’t like it, took a course as a nail technician and now has ambitions of being a youth worker. She said her gas and electric bills come to £60 a week.

Ms Brown says she’s diligent about seeking work with regular visits to a local employment agency and the local Job Centre. She’s frustrated and increasingly depressed from her situation, so much so that she’s lost four stone in weight over the last few months.

Commenting on her case, Jonathan Portes of the National Institute of Economic and Social Research described her situation as “quite typical” and “not her fault”. He said it was a “failure of macro-economic policy rather than anything specific to the individual.”

Well, not so fast. It’s a sad tale indeed and there’s little doubt her immediate prospects are bleak but to blame it all on macro-economic policy misses the point that the macro-economy is nothing more than the sum total of micro-policies and individual decisions.

This admittedly comfortable, free market loving, big government fearing, libertarian worries about the Ms Browns of this world but has a lot of questions before pulling any macro-economic levers. After all, Gordon Brown did that for years – throwing huge sums of cash at any and every problem.

So let’s start with the big elephant in the room, an issue not addressed in the PM profile. Why is Ms Brown a single mum? She said she “didn’t plan the pregnancy” but she clearly also didn’t plan well to not get pregnant. In this day and age, how are we still churning out pregnant teenage girls and then fretting about their resulting situation?  Whatever amount of money our schools spend on sex education is clearly a waste as Britain’s woeful teenage pregnancy rankings in the world attest.

Where’s the father of Ms Brown’s child in all this? And what about any other family of Ms Brown? Neither comes up in the PM profile as if they’re irrelevant to Ms Brown’s situation. Study after study shows that nothing enhances prospects in life as well as a strong family yet our welfare micro-policies are failing to encourage them.

Ms Brown’s initial aspirations as a nail technician and now as a youth worker also raise eyebrows. Is that the result of wise advice from our legions of counsellors? Nobody suggested more broadly useful skills like proficiency with Office software or elementary bookkeeping or food catering?

And what about that £60 a week for gas and electricity? That’s about 2/3s more than what we spend on a four bedroom detached house so either Ms Brown’s flat is really drafty or she keeps all appliances and lights on at all times or the number needs challenging. And if she does indeed spend that amount which micro-economic policies are keeping these utility prices so high? Wind and solar subsidies? Foot-dragging on shale gas development?

To PM’s credit, they also had the upbeat Paul Brown from the Prince’s Trust to comment. He noted that 1-in-5 unemployed youth means 4-in-5 are finding work and pointed to his charity’s success in steering many of this nation’s Ms Browns into a good place. The record of focused charities is far better than the welfare state’s so the more outsourcing to them, the better.

Ms Brown’s case is a tough one. She’s been let down by any number of government agents and by her own mistakes. Blaming it all on a failure of macro-economic policies misses the point – it’s more complicated than that.

Economics is fun, part 9: Joint enterprise

Madsen explains why we have firms today. It's all about specialization and economies of scale. This is the point where threads of past videos are beginning to be woven together, adding another layer to the foundations he's laid so far. If you've missed these earlier videos, you're in luck. They're all available on Youtube to watch right now.

Ros Altman is (almost) right on Quantitative Easing

Ros Altman, Director General of Saga Group, upbraided the Times for praising QE in a letter yesterday. As Altman rightly argues, QE diminishes the incomes of pensioners and the savings of future pensioners: 'QE has permanently impoverished more than a million pensioners, and thousands more purchasers will recieve reduced pensions each week'. Altman also points out that QE has a more subtle impact on the economy: 'pension liabilities and deficits rise when gilt yields fall, forcing companies to divert resources into their pension funds, rather than growing  their businesses.'

She states that, as a result, 'QE transfers money from middle-class pensions to banks and borrowers, which will reduce long-term [economic] growth in our ageing population'. Altman is quite correct, even if QE is not also adding to more latently to inflation - which may well be the case, further adding to its redistributive effects. Of course, many borrowers are also 'middle class' pension savers. For instance, many people saving via pensions are simultaneously borrowing via mortgages who are being simultaneously punished and rewarded. Either way, class is not a relevant issue here, the issue is whether borrowers - including the government - should be given preferential treatment over savers.

There is a broader point, moreover, that the state is arbitrarily reallocating resources between different groups without the groups themselves, in many cases, and perhaps even the government being aware that it is doing so. Whilst explicit redistribution is problematical, this sort of redistribution is far more pernicious. The impoverishment of pensioners and creation of further disincentives to save throws them even further into reliance on the largesse of current and future taxpayers as well as being destructive of capital formation.

One might quite fairly observe, contra Altman, that pensioners have been unfairly benefitting for taxpayer-funded government borrowing in the form of interest and capital growth in gilts. Two wrongs, however, do not make a right. Further, pension funds are hardly to be blamed for investing in gilts as they present an artificially lower risk than other investments (although clearly not, in the case of some sovereign debt!), not to mention that pension funds are mandated into doing so. As well all are aware, or should be, government fiscal intervention diverts resources from productive areas of the economy and more efficient uses of scarce resources and thus crowds out economic growth. Hence we observe the stagnant, heavily indebted economies of Europe, the USA and Japan not to mention heavily-indebted developing nations with large fiscal burdens funded by inflationary monetary policies.

Unfortunately, Altman rather blots her copybook by arguing that 'the authorities should find ways to lend to small firms directly'. Picking of 'winners' by governments is notoriously unsuccessful and no way to grow an economy. It also carries the risk of incurring further liabilities on the taxpayer if such firms are unviable.  Further, Altman argues that government should 'harness pension fund assets to underwrite infrastructure projects.' This dangerous idea, which has recently been floated by the Chancellor, seems to present carte blanche to governments to 'invest' assets in their favoured white elephant schemes as no doubt HS2 will turn out to be. Pension funds should be left to decide which assets will bring returns, not have the state decide for them. If this latter idea takes root, we're all better off storing our savings as gold bars under the bed. In the final analysis, the state simply should not be in the business of interfering in how much credit is available in the economy; this has been tried and tested to destruction, or pretty near it.  The real solution is to prevent government manipulation of supply and demand for savings, borrowing and credit-creation via the mechanisms of central banking and fiat currency.