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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

A compromise on the minimum wage

Written by Anton Howes | Wednesday 25 February 2009

Assailed by ignorance of sound economic theory and socialism's addiction to government interference, free-market capitalism is seeking to preserve its hard-won legacy. It is only by melding the ideology of the free-market to the public's most prominent worries and concerns that it can regain the initiative and ultimately defeat these threats.

The abolition or reduction of the minimum wage for example, despite being popular with businesses, is often unpopular or even unthinkable for those workers being made redundant, or those living involuntarily off unemployment benefits, even though it is beneficial to them. If free-market capitalism is to survive the ravages of the emerging "conventional wisdom" that it is a failed system, it is imperative that we forge this connection, establishing the minimum wage as an enemy of the unemployed, young workers, and those on low incomes - the very people whom it claims to defend.

It is opposition from Trade Unions along with an unthinking popular consensus that stands in the way. However, this need not be the case. Why not keep the minimum wage, but allow workers to offer their labour for a lower rate if it means they will keep their job? Businesses would then still be unable to harm workers' interests by imposing lower wages on them. It would be an opt-out scheme that can only be initiated by employees or job applicants. This would allow employment to be negotiated in the market between free and consenting adults, but with the safeguard in place that preempts any counter-arguments over exploitation from the entrenched interests of the Unions.

If a liberal free-market ideology is to endure, it must both offer this example and others to further its agenda, both by acceptable compromise, and by melding its policies with those of the vast majority of the public and especially the most dispossessed in society. Free-market capitalism has the means to claim the moral high ground over socialism at a time when it most needs to. It is now a matter of whether it succeeds in doing so or not.

Anton Howes is leader of the Social Liberalist Party.

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A confession

Written by Scott Blackwood | Wednesday 27 April 2011

I don't know where it started to go wrong for my family. We didn't have any money, but property prices were spiralling up and up, and getting a mortgage to buy a bigger place for ourselves just seemed the sensible thing to do. You couldn't lose. So out family got ourselves mortgaged up to the hilt, and deep in debt on credit cards as we bought new furniture and electronic gadgets. We spent even more money employing painters, gardeners, child minders and cleaners.

It's easy to look back today and blame the bank for enticing us into debt with all those mortgage and credit-card offers. Perhaps we should have been aware that when a deal looks too good to be true, it probably is. We found ourselves deep in debt, but we still had lots of financial commitments we couldn't get out of, like the hugely expensive medical care plan we promised ourselves in the good times. And lots of the people that we took on for one thing and another still depended on us for all or some of their livelihood.

Desperate, I took to robbing the company. I thought they would not notice if I dipped in and helped myself to a little bit of cash on a regular basis. But as our problems mounted, I started to take out bigger and bigger amounts. Before long the company itself started to stutter and have financial problems, then I found it just wasn't making enough to satisfy our need for cash.

Things got even worse. I started up a Ponzi scheme, promising customers wonderful benefits today – but using the investments of customers tomorrow to pay for them. But even that wasn't enough to support my family's lifestyle. Eventually I robbed a couple of banks. I even resorted to forging currency, trying to print my way out of my debt hole.

Now I'm facing charges of fraud and embezzlement, but I still can't admit my guilt. I was just trying to provide a good life for myself and my family. And the large amounts I spent helped create jobs for other people in our community, who had debt problems of their own. Everyone tells me that, if only I had lived within my means, my life would be very different and my family would not be in this awful position. But they just don't understand how overwhelming was the pressure on me to spend and spend, so as to maintain the pretence that everything was going well. Or how big my needs were. After all, mine is a big family, some 61m strong.

Dictated by the accused G Brown at Cannon Row Police Station, April 2011.

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A contradiction in terms

Written by Cameron Willard | Wednesday 24 March 2010

The finances of the UK must be brought under control. David Cameron is planning on cuts. But where? The NHS? Nope, off-limits. The behemoth will stumble on, consuming tax dollars and laying waste to the quality of health care. Education? Protected I’m afraid; in contravention of advice offered by this think tank, Britain’s higher education system will continue to be funded by the population at large rather than those who actually benefit from university. Foreign aid? Also protected.

The simple logic of having protected areas of the budget suggests that there must be more severe cuts elsewhere. But rather than face up to this reality, or drop the notion of protected areas, the Tories seem to be instead toning down initially aggressive rhetoric on balancing the books. I understand that political expediency is important, but so is running the country. Rather than making explicit promises to ‘cut the deficit, not the NHS’, Cameron could be discreet. It would leave him room to manoeuvre when cuts are being made. Just as distressing is the shadow universities secretary’s proposal to create an ‘inspectorate’ to ensure high standards. Bureaucracy doesn’t create high standards; competition and choice does. Mr. Cameron should know better.

The Tories are the party that have spoken with the most honesty on what needs to be done to revive the country’s economy. But this has been muddled by numerous contradictions. Those of us who’ve read our Atlas Shrugged know that when there appears to be a contradiction, we must check our premises. And indeed, the premise that Cameron intends meaningful cuts is seriously in doubt.

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A couple of points on public choice theory

Written by Tim Worstall | Saturday 04 February 2012

Mark Pennington has an interesting piece on public choice theory here. He's specifically looking at how it challenges certain lefty world views.

I do like his implication that public choice theory is the classically liberal refutation of Marxian class arguments. We don't doubt that it's possible, that it happens at times, that the State is captured for the good not of the citizenry but of those who have done the capturing. All we're pointing out is that it tends not to be a class that does this but individuals.

He also points to the way in which some simply deny the existence of public choice probems at all. All politicians, for example, are motivated by nothing more than public service. There are no economic motives here at all so that economics is irrelevant. Yes, I find that terribly convincing too.

My usual answer to these types is to start asking whether CEOs and bankers are worth millions per year. The answer that comes back is that no they're not and thus we can start talking about the principal/agent problem. Bosses are greedy b'tds ripping everyone off: it's not difficult to gain agreement along these lines.

But the principal/agent problem and public choice are really the same thing. When we offer over to someone else the right to control an asset (a company, the State), tell them to help themselves to our money, we face exactly the same problem of trying to make sure that they do all of that running of it for our benefit not their.

And to be a little Marxian about it, those who go into the civil service fast stream, those who go into Westminster politics, those who go into banking and those who go into business, they're all from pretty much the same narrow class here in the UK. If you believe the principal /agent problem it's very difficult indeed to see why you wouldn't believe the public choice one, for they're at times the same problem.

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A creative department

Written by David Rawcliffe | Tuesday 15 September 2009

As an example of dodgy government statistics, the Taking Part Survey* by the Department for Culture, Media and Sport takes some beating. In an effort to prove their success at encouraging participation, they’ve come up with some gems of creative terminology:

  • ‘Attending an art event’ stretches to seeing “street arts (art in everyday surroundings like parks, streets or shopping centres)".
  •  'Visiting a historic site is as easy as going to “a city or town with historic character".
  •  It counts as using a public library if one “used a computer outside the library to view the website".
  • The most popular way for Britons to participate in an arts activity in 2007 was by “buying original/handmade crafts".
  • The list of “active sports" includes snooker.

Shameless.

*Technical Note PSA21: Indicator 6", “annual data 2006/07", “Final assessment of progress on PSA3: complete estimates from year three, 2007/08." All published since May 2008.

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A crisis of capitalism?

Written by Philip Salter | Friday 08 May 2009

Flicking through a copy of Dr Madsen Pirie's Freedom 101, I found a prescient paragraph [p.66] on capitalism and the business cycle:

In recent years independent central banks have tried to smooth the business cycle's severities by combining the pursuit of sound money with making credit easier when economic downturn loomed. It has been a precarious act which cannot necessarily be sustained, but this is not a crisis of capitalism either. It may just be problems arising from one type of financial management.

This was written well before most commentators even realised there was a financial crisis.

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A dangerous addiction – drug prohibition

Written by Daniel Meeson | Friday 23 July 2010

Drug prohibition is an idealistic, puritan response to an alarming real-world problem, of which limited freedom is the only viable solution. It is a problem that is consistently ignored by the majority of the political class; surprising in these times of deficit reduction and prevailing liberal attitudes. Under the simple justification of protecting its citizens, the state has created a monster that, like many other well-meaning public legislation, creates the exact opposite of protection. Ultimately, prohibition is an unnecessary policy of incredible economic cost based on flawed principles.

The social and economic cost of drug prohibition cannot be overstated. A study by the drug-reform think tank Transform only last year stated that the net cost of drug prohibition is, at their lowest estimate, in the region of £17bn per annum. When compared to the net cost of regulated drug markets at the highest estimate of £11bn, to lowest of £3.5bn, we can see there is a cheaper option. However such conclusions should be obvious. The international behemoth of drug production and consumption is under the immense pressure of the law and thus not able to engage in free markets. This inevitably drives all those involved to keep their trade strictly underground. Freed from public scrutiny, the drug industry is free to wage war against its customers; in the form of ever inflating prices, and in a highly inelastic market pushing many addicts to crime, and its competition; with monopolistic, violent gangs. All such social costs unnecessarily aggregate in the form of high taxes and high crime.

Yet the argument on principle is the strongest, and goes to the core of the freedom debate. John Stuart Mill famously fought for individual liberty and the sovereign individual. But politicians ignored such cries, frightened by the harsh realities of drug abuse, drawing a line through personal freedom by banning any drugs which they deemed necessary. But the principle demands politicians meddle further – it compels they ban all dangerous activities, from horse riding to driving – a flawed logic in many respects.

Therefore freedom and regulation is the only solution that would deal with the problems drugs bring to society. Market forces will control drug prices, thus crime. Addiction should be dealt as a health issue, as is currently for the legal drugs in society; alcohol and cigarettes. It will eventually be seen that freedom of choice is ultimately better for society than prohibition and control.

Daniel Meeson is the 3rd prize winner in the 2010 Young Writer on Liberty.

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A debt ceiling could be just what we need

Written by Nigel Hawkins | Monday 08 August 2011

debtThe current carnage in financial markets owes much to excessive debt levels, which have been so irresponsibly run up in recent years: the chickens are coming home to roost with a vengeance. In the EU, the paramount issue is the Euro, a project driven by politics and light on basic economic principles – one of which is that ‘you cannot buck the market’.

The Euro crisis is now probably reaching its denouement. The outcome is very unpredictable, although a split between a hard Euro and a soft Euro seems very possible. In the US, the President has struggled to prevent federal expenditure breaching the massive $14.3 trillion permissible public debt ceiling. To do so, heavy public expenditure cuts will be implemented.

The existence of such a ceiling may seem a crude financial mechanism but it has undoubtedly concentrated minds. But should a public debt ceiling – perhaps as a percentage of the previous year’s GDP – be imposed in the UK?

There is, in fact, a Private Members Bill, which aims to introduce such a ceiling: its chances of enactment are, though, slim. The evidence in recent decades is of a seemingly inexhaustible growth in public expenditure, especially over the last decade. Hence, public sector net debt is currently close to a barely imaginable £1 trillion – prior to various off-balance sheet liabilities, including public sector pensions.

Whilst the Coalition Government is slowing the growth in public expenditure, it continues to rise, especially once the net interest line is included. A mechanism to impose a debt limit can only be beneficial, providing the markets believe it is genuine and enforceable. The fact that the current yield on UK 10-year gilts is below 3% is testimony more to the dire situation elsewhere than to the Government’s belt-tightening policy here. Of course, this scenario could change – but a public debt ceiling could offer some valid defence against ever-rising public expenditure.

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A decently liberal move

Written by Tim Worstall | Saturday 26 July 2008

The French government have just relaxed the strictures of the 35 hour work week and it's worth applauding this as a decently liberal move by them.

French workers were in mourning yesterday for their cherished but controversial 35-hour week, after Nicolas Sarkozy's centre-right party pushed through an employment reform that effectively kills off one of the socialist era's defining policies.

The law, due to come into effect as early as August, will allow companies to decide how many hours and how much overtime their employees clock up every week. Instead of the current maximum of 218 days a year, white-collar workers could be expected to work as many as 235 days.

Sarkozy, who was elected last year with the campaign slogan "work more to earn more", regards the 35-hour week as a major drag on the French economy, arguing that those who want to work more should not be stopped from doing so.

That the law had an effect on the economy is true, but I don't actually celebrate its passing on the grounds that the economy will now improve. The economy, after all, isn't everything (despite what people tend to think about people like me). No, I raise a cheer because of the point in that last line of the quote: it's an increase in freedom and liberty, which are to my mind everything.

Your or my work life balance is something that you and I, as free adults, should, and must be allowed to, decide for ourselves. My choice has been to do light work as a policy wonk, a theory being the worst thing I will ever wrassle with. Others prefer longer working hours and higher incomes, there are those who decide that life without a beach and a surfboard is not worth living. To each their own and it's certainly not the business of government to insist that we should work some maximum number of hours, just as it isn't their place to insist that we should work some minimum (with the proviso that we're not claiming benefits, of course). Of course, we've still not reached the perfect level of non-involvement by government in such decisions, we've a lot further to go yet.

But I do wonder, as with President Bush's question about whether French has a word for "entrepreneur", do they have a phrase that means the same as "à chacun ses goûts"?

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A deflation spiral

Written by Dr Eamonn Butler | Friday 05 March 2010

While many lesser commentators are worried about the threat of inflation after the Bank of England's £200 billion Quantitative Easing giveaway (though most of it seems to have been given away to the government), our ASI Fellow Richard Jeffrey says there's actually a real risk of a deflation spiral.

In his latest Cazenove Capital newsletter, he notes that rises in the cost of living (with RPI heading up to 5%) are massively outpacing wage rises (at 1.2% – but just 0.2% in the hard-pressed private sector). Which leaves households pretty skint. Normally the authorities would help out at this stage with a business-boosting cut in interest rates, but they've already taken them down to about as low as you can get. And even these low rates aren't encouraging people to cash in their savings and spend, because in this economic hurricane, they want to keep their rainy-day money to hand.

Sure, business has bounced back a little, as firms who ran their stocks down at the start of the crisis have started producing again. But who has the cash to buy their product? The rising number of unemployed people certainly don't. Neither do those who are in work, since a bloated public sector continues to suck high taxes out of their wage packets (and there's no sign of the public sector, or taxes, being cut anytime soon).

It's a dangerous cocktail, Jeffrey reckons. Consumer confidence remains upbeat, though, so maybe it will work out. But many economists can't see much solid foundation for that confidence. If households too come to believe their hopes are built on sand, well...you don't really want to think about it.

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