The Pin Factory Blog

The European Commission has delayed making a controversial announcement which could see the state health plans of one Member State paying the costs of patients who opt to be treated in another EU country.

The idea of the plan was that British patients, say, could travel to Spain or Hungary for their treatment, as many do - with Britain's National Health Service picking up the tab. Part of the argument for this is that some countries have more efficient healthcare sectors, with shorter waiting times, for example, and EU citizens should be able to benefit from the competition between them. Following the case of Yvonne Watts, who had a hip operation in France and sent the bill to the NHS, Britain's High Court ruled that the NHS should pay for treatment abroad if patients otherwise had to wait too long. Quite right, I would say.

Already UK doctors are whingeing because they know that lots more people would indeed go abroad for treatment if the NHS was forced to pay for it, rather than put up with the sink service they get in the UK. The British Medical Association's Dr Vivienne Nathansan said that if people started travelling for operations there might 'not be enough need' for that treatment in the UK, which could lead to closures. Yes, well that's competition for you, Vivienne.

Meanwhile Nigel Edwards of the NHS Confederation complained that the EU plan was a stalking horse to create a 'free market' in European Healthcare. Oh, if only it were. We're talking about harmonizing state health plans here. If the EU actually created the conditions for a proper, open market in healthcare - one that wasn't dominated by doctors and politicians - I think we'd all be a lot fitter.

Trade unions are an interesting problem for libertarians. Although they are essentially anti-liberal forces, most attacks on trade unions historically stem from the authoritarian Right. Too often the conflict between unions and business leads to many potential subscribers to libertarianism supporting decidedly illiberal business practises, due to a misconception that one can either be pro-business or pro-union.

For a libertarian, employment must be approached in a manner that is independent of the interests and prejudices of either side. Employment legislation inspired by libertarian principles would at once counter the serious business abuses that justify trade unions whilst removing the ability of unions to act as monopolies.

A libertarian believes that human beings should be free to undertake exchanges with each other free from force, fraud or coercion. Trade unions found their origins in defending workers against abuse by business, abuse often supported by the state. A libertarian state that functioned properly would not collude with anti-liberal business practises and would protect people from forceful, fraudulent or coercive practises that might necessitate trades union membership.

But libertarian employment law would undermine unions too. Like most things, labour is a commodity. A job is a contract between an employer and an employee in which the latter’s labour is traded at a given rate for remuneration in wages and perhaps other perks. Despite this trades unions are not seen as what they are in business terms: cartels working to inflate prices (wage costs) by restricting the labour market. While the horrors of the closed shop and the flying picket have (for the most part, student politics aside) disappeared, the fundamental leverage behind a strike is the idea that a union can exercise a labour monopoly and use the threat of withdrawal to coerce employers.

No libertarian system would ban strikes or unions. People are free to associate with each other as they wish and no libertarian would argue that a worker does not have the right to withdraw their labour. What is critical is that a libertarian recognises the right of an employer to replace that labour. In the same way in which a libertarian government would fight monopolist practises on the business side of industry, so it should strive to create a free market in labour. Not only would this be morally right in accordance with libertarian principles, but it would allow the market to adjust British wages back to internationally competitive levels.

Henry Hill is the winner of the 2011 Young Writer on Liberty Award.

The chart above shows the number of deaths per watt of energy produced by various different energy sources. (Data from the World Health Organization, image from Seth Godin, original graphic here.) Coal is by far the worst offender, causing 161 deaths per terawatt hour (TWh). Nuclear power is remarkably safe by comparison, with just 0.04 deaths per TWh. Shale gas also does well compared to coal and oil, with 4 deaths per TWh.

Clearly, there are significant, unfactored external costs to the use of fuels like coal and oil compared to fuels like nuclear power. This does not mean that coal and oil should be banned, though many environmentalists would like it, because they both produce significant real benefits as well – cheap energy is one of the cornerstones of modern civilization. The optimal outcome is not a total ban or a total free-for-all. As with motoring, where some deaths are an inevitable outcome of socially beneficial activity, the optimal number of deaths is greater than zero.

This is a classic case of conflicting property rights: what we need is a situation that can balance the property rights of polluters with those people whose air is being polluted against.

The standard pseudo-market solution is to assign an arbitrary value to each life and tax polluters by a fraction of that, to “price in the cost to society”. But this is a poor approach, because the cost is borne by the individuals who get sick and die — not by society in general or the government, which gets the money.

A free market solution to pollution would, through courts or voluntary agreement, force polluters to compensate the people they pollute against. If the property rights of the polluted-against were upheld, this would lead to a situation where both parties would agree a pollution premium: a middle-point where the polluter is compensating local people enough to continue polluting.

This would have the happy outcome of incentivizing polluters to move away from urban areas. It might also incentivize people who care less about their lungs, like smokers, to move to areas of higher pollution. The big obstacle to this is that the technology for measuring air quality is quite primitive, and probably wouldn’t allow us to find this balance. But this isn’t as significant a problem as it seems: the very fact of these property rights being upheld (even crudely) would incentivise innovation in demarcating property rights, and so on.

Best of all, it would rebalance the relative price of dangerous fuels, like coal, against safer fuels, like shale gas and nuclear power. Currently, nuclear power isn’t really viable as a free market fuel source – it requires massive government subsidies for the initial investment. With a "free market environmentalist" mechanism that puts respect for property rights at its core, this could change — relative to coal and oil, nuclear may become quite competitive. Shale gas, cheap and relatively clean, would probably become even more invested-in than it is now. And the real costs of pollution would be mitigated to an acceptable level. There's no need for complex regulation and arbitrary "social" taxation. For an energy industry that bears the costs of its pollution, all we need to do is recognise property rights.

Generally positive on tax…

• Cutting the 50p tax rate to 45 percent is a step in the right direction, but the Chancellor should have scrapped this altogether. The danger is that the 45p will become a permanent rate. The government should commit to scrapping this new top rate tax before the next election.

• Raising the personal allowance to £9,025 is also very welcome. The government should raise its target from £10,000 to £12,400, which would lift minimum wage earners out of tax altogether.

• The government’s commitment to merging income tax and national insurance is very encouraging. Britain’s tax code is absurdly complex and tax simplification should be one of the government’s top priorities.

• The ‘tax receipt’ idea could make a big difference. By making spending more transparent, people will be better able to hold the government to account for its fiscal policies. With a bit of luck, these tax receipts could sow the seeds of a small government revolution as more people realise how wasteful government spending really is.

• The additional cut in corporation tax is a good, pro-growth measure that will boost Britain’s economic competitiveness. But it should go further – competing with large countries is not enough anymore, and a corporate tax rate higher than 20% is still too high. Furthermore, the new and/or expanded allowances and tax credits the chancellor announced will increase complexity and run against the general theme of tax simplification.

But there are a few negatives on tax too…

• Raising tobacco duty by 5% above inflation is petty, vindictive, and possibly self-defeating. Such taxes are already extremely regressive, hitting the poorest the hardest. Moreover, high levels of tobacco duty are already encouraging smuggling and counterfeit cigarettes. Cigarette smugglers will be very pleased at today’s duty hike.

• Reducing the 40p rate threshold will mean that only basic rate taxpayers will benefit from the personal allowance rise. Up to 300,000 people will now find themselves upper rate taxpayers as a result. This will hit single-earner families particularly hard.

• The General Anti-Avoidance Rule is a bad idea. It leaves far too much latitude for bureaucratic discretion. It adds another layer of complexity on our labyrinthine tax code. And it is an affront to the rule of law. Radically simplifying taxes is a much better way of ensuring people pay their fair share.

• Raising Stamp Duty Land Tax on homes worth more than £2m is a politically-motivated sop to the Liberal Democrats. Taxes like stamp duty are damaging because they discourage transactions and gum up markets. They also raise very little revenue.

The budget is weakest where it strays into industrial policy…

• Was the tax credit for animation, video games, and high-end TV production designed just so the Chancellor could make his ‘Wallace & Gromit’ joke? These are unquestionably attractive, wealth-creating industries, but the government should not be picking winners and advantaging politically-favoured businesses over less fashionable ones like this.

• In promising to fund superfast broadband in 10 British cities, the government is creating a role for itself where it just isn’t needed. Over the past two decades, the private sector has delivered (and continues to deliver) a vast digital infrastructure at virtually no cost to the taxpayer. It is hard to think of a better example of something the state should simply stay out of.

• The Chancellor’s call for increased airport capacity in the South East is a good thing, but it is worth remembering that the politically-motivated rejection of such airport capacity has been explicit government policy up until now.

• The various credit, business, and construction support schemes contained in the budget are misguided, and will do little except preventing markets from adjusting to changed economic circumstances, as they must if we are to return to robust, sustainable growth. Nevertheless, these schemes are probably small enough to be dismissed as pointless gimmicks rather than serious market distortions.

The macro outlook is worse than the chancellor is letting on…

• The growth forecasts the chancellor announced still look implausibly optimistic. The public sector, financial industry, and housing/construction sectors all boomed unsustainably in the 2000s, and must probably contract further as the economy rebalances. We are weighed down by debt, and the deleveraging process has barely started. So in the absence of significant and radical supply-side measures to boost growth in the rest of the economy, it is hard to see how these forecasts can be met. And that’s before you even consider the sizeable downside risk posed by the eurozone crisis and our still-fragile banks.

• The government’s borrowing costs are low not because of the chancellor’s fiscal rectitude, but rather because the Bank of England is directly intervening in the gilts market to reduce borrowing costs via quantitative easing, and because things in the eurozone are even worse than in Britain. The economy may be getting better, but the overall macro-economic picture remains far worse than the chancellor is likely to admit. 

• Finally, it is worth remembering that for all the talk of austerity Britain, the government will still borrow £126bn this year. That’s £14.5m an hour, every hour, all year long. 

50p Tax – It should go. It doesn't raise any money and it damages Britain's economic competitiveness. Dropping the 50p rate to 45p would be ineffective and wet. Any tax over 40p – to which national insurance must be added too – will produce lower long-term returns for the Treasury as investors conclude that Britain does not welcome them. Changing the rate to a new figure simple sends out the signal that Britain's tax system is in turmoil – while what investors want it stability. Reducing it all the way to 40p will send out a clear signal that Britain is open for business again.

We released a report last year calling for the 50p rate to be scrapped and arguing that it would lower tax revenue. Our director, Dr Eamonn Butler, recently wrote about this in the Mail on Sunday.

Mansion tax - There is a case for wholesale reform of Britain's land/property taxes, but the mansion tax is the wrong way to go. Tax policy should be driven by economics, not envy-fuelled class warfare. This taxing of wealth is essentially theft.

Personal Allowances - We are in favour of raising the personal allowance and have been arguing for this for years. Indeed, we would go further and ensure that people earning the minimum wage or less did not pay income tax at all.

Pensions - Further restrictions on contributing to private pensions would be a misstep by the Chancellor. Firstly, savers have already been hit hard by policies like QE. Secondly, given the demographic pressures of an ageing population, the government should be encouraging people to save more not less. Thirdly, savings create capital pools for investment, which drives economic growth – again, we need more savings, not less.

Sin taxes - Sin taxes are regressive: they hit the poorest hardest. Moreover, the revenue from existing sin taxes already far exceeds the costs to society of tobacco, alcohol, and so on. Any further taxation is just about money – whatever the government claims.

100 year or Perpetual Bonds - You would have to be mad to buy a 100 year or perpetual gilt, from this government or anyone else. The only way this could ever work is the government forced people to buy them (the most likely target of such a policy is the banks). But that's just a covert way to write off debt via inflation. It would be a dishonest cop-out, and another step along the road to permanently high debt and low growth.  

General Anti-Avoidance Rule - The best way to ensure people pay their fair share of tax is to radically simplify the tax system by removing complex reliefs, allowances, and loopholes. Doing that would also allow you to lower headline rates. A 'general anti-avoidance rule' on the other hand, leaves far too much to bureaucratic discretion. It is a recipe for uncertainty, arbitrariness, and corruption. Our paper critiquing the GAAR can be viewed here.

Harry Teasley* spent his life confronting the behaviors of bureaucrats and defined a list of rules covering their modus operandi. You can see these rules operating in government departments, corporations and with politicians themselves. Using these rules, examine bureaucratic behavior and see if the underlying rules and behavior are driving the situation.

The Rules:

Harry Teasley's Rules of Bureaucratic Behavior:

Rule #1: Maintain the problem at all costs! The problem is the basis of power, perks, privileges, and security.

Rule #2: Use crisis and perceived crisis to increase your power and control.

Rule 2a. Force 11th-hour decisions, threaten the loss of options and opportunities, and limit the opposition's opportunity to review and critique.

Rule #3: If there are not enough crises, manufacture them, even from nature, where none exist.

Rule #4: Control the flow and release of information while feigning openness.

Rule 4a: Deny, delay, obfuscate, spin, and lie.

Rule #5: Maximize public-relations exposure by creating a cover story that appeals to the universal need to help people.

Rule #6: Create vested support groups by distributing concentrated benefits and/or entitlements to these special interests, while distributing the costs broadly to one's political opponents.

Rule #7: Demonize the truth tellers who have the temerity to say, "The emperor has no clothes."

Rule 7a: Accuse the truth teller of one's own defects, deficiencies, crimes, and misdemeanors.

Look at this example with the rules placed in brackets next to the relevant comment:

In mid September European Commission President Jose Manuel Barroso  called for the European Union to be turned into a 'federation of nation states' (2, 5), a vision he said would require an overhaul of the Lisbon Treaty.

Mr Barroso also set out plans for a single supervisory mechanism for all banks in the eurozone. He called the plans a "quantum leap... the stepping stone to the banking union".

The European Central Bank would get much greater powers of oversight and regulation of Europe's 6,000 banks under the plan. Mr Barroso said eurozone countries should not rely on bailouts from the ECB, saying the bank "cannot and will not finance governments" (1, 2, 4, 5).

"But when monetary policy channels are not working properly, the Commission believes that it is within the mandate of the ECB to take the necessary actions - for instance, in the secondary markets of sovereign debt," he added (6).

Chris Morris BBC News, Strasbourg writes “this was a very federalist speech. Mr Barroso made it clear that the creation of a single banking supervisor, and moves towards full banking union, are just a first step. He wants the EU to become a federation of nation states.

No-one will be forced to come in, he said, but the speed should not be dictated by the slowest or the most reluctant. Before the next European elections in 2014, the European
Commission intends to put forward explicit ideas on how to change EU treaties to reflect moves towards closer political union (2, 4).

There will be huge arguments ahead - there are big differences within the Eurozone about the pace of political change. But countries like the UK, which don't want to take part in any further integration, are going to have to work out how best to protect their interests as other EU member states pool more of their sovereignty.

"If Greece banishes all doubt about its commitment to reform, but also if all the other countries banish all doubts about their determination to keep Greece in the euro area, we can do it," he said to applause from MEPs (2A).

Mr Barroso said he was not calling for a "superstate", but rather "a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty" (4, 4A).

Harry Teasley’s Rules of Bureaucratic Behavior show in this announcement how rules 1, 2, 2A, 4, 4A, 5 and 6 are being used to slowly push the EU bureaucratic agenda. Since this is a major announcement by a major player, many of the behaviors have been engaged.

The Game

Play ‘spot the rule(s)’.

See which rules are being invoked any time a politician or bureaucrat announces something or a report is released.

At a meeting? Observe whether rules are being used by individuals at the meeting. If it’s happening in your business, you know your business has a problem.

Watching television or reading a newspaper? Look for comments used to perpetuate the behavior.

Keep a set of rules on hand as a ready reckoner! 

And finally, have hours of free fun playing this simple but tragic game.

Try spotting the rules in this YouTube video where MEP Nigel Farage names EU bureaucratic behaviors.

* Harry Teasley is retired only as a professional business executive. He is otherwise engaged constantly in thinking, writing pithy letters to the editor, and supporting liberty through his time, advice and philanthropy. It was people like him that I’m convinced Jefferson had in mind when he urged, “Enlighten the people generally, and tyranny and oppressions of body and mind will vanish like evil spirits at the dawn of day.”

“Senator Jim Bunning’s name is mud these days in Washington,” reports The Irish Times. “Twelve times [last week]... the Senate... attempted to pass a $10 billion emergency, one-month extension of unemployment benefits, healthcare insurance for the unemployed, Medicare funding for the elderly, satellite television for rural America and highway projects. Twelve times, the senator from Kentucky has invoked a unanimity requirement for emergency Bills to block passage.”

While the Washington Post suggests that Senator Bunning is insane, Democrats accuse Bunning of being a typical, obstructive Republican and others speculate that it is all driven by personal animus, the senator himself argues that he is, in his small way, trying to limit America’s ballooning budget deficit. “We cannot keep adding to the debt,” he said. “It’s over $14 trillion and going up fast.” What is more, CNN reports that Bunning “had offered to release his hold on the bill if the Democrat-controlled Senate agreed to pay for the extension using, for example, unspent money from the $787 billion economic stimulus law or closing a tax hoophole (sic.).” Hardly unreasonable, one might think.

The story becomes even more interesting if one looks into the details of the $10 billion bill. It is not all about Medicare and unemployment benefit. Even the Irish Times includes among the list of moral issues “satellite television for rural America” – hardly a life-and-death matter and one that might better be funded by providers and views. BBC Online provides a some more examples of the goodies that were to be paid for by an additional $10 billion of public borrowing: a major bridge connecting Washington DC to the state where many of the senators live; a roundabout in the Virgin Islands; and a new entrance for a national park in California. Does anybody smell riders, here?

What this bill highlights is the mentality of politicians who see it as their job to spend other people’s money. Blind to Bastiat’s dictum that in economics what matters is that which is not seen as much as that which is seen, the senators believe that by building roundabouts in the colonies and bridges linking their homes to their places of work, and by taking the opportunity of the worst recession in a lifetime to spruce up the entrance to Sequoia National Park, they will revitalise the US economy. This is unlikely. Government spending is demonstrably less efficient than private spending (indeed, some argue that it destroys more wealth than it creates). What is more, the very last thing that America needs is a big pile more pork to shove in senatorial barrels.

Eventually the senator capitulated, of course. But even the means of his capitulation highlighted the absurdity of interventionist politics. By proposing an amendment to the bill, he guaranteed that the bill itself would go to a vote, ending his one-man filibuster. And what was that amendment? That the $10 billion package of temporary extensions be offset with the end of a lucrative tax credit for paper companies on a wood by-product. His amendment fell, receiving just 43 votes. So let us be clear: what Senator Bunning’s defeat achieved was not medical aid for the elderly, or unemployment for the needy. His defeat enabled the Government to borrow $10 billion dollars to pay paper manufacturers for producing something they can’t help but make anyway.
 

The G8 meeting in Italy is reported to have agreed yet more goals. An 80% reduction in carbon dioxide emissions by 2050 (from a baseline yet to be agreed) is more of the usual aspiration target-setting, with no agreement on hard shorter-term goals. The chances of India and China signing up to something similar are zero. The likelihood is that there will some form of agreement cobbled together in Copenhagen in December which will in practice be meaningless and will achieve nothing.

However, one further goal has been agreed which will be easy to reach. That is to keep average temperatures from rising by more than 2°C, which has now been taken as some line in the sand beyond which we cannot go without disastrous and irreversible consequences. In practice, we are extremely unlikely to get close to this goal whether or not anything is done about emissions control. So that's one goal they'll meet.

Elsewhere, Prince Charles, in his Richard Dimbleby lecture, has calculated that we have just 96 months to save the world, in what the Independent reported as a searing indictment of capitalist society. So, I assume he is going to take a lead by shutting down Duchy Originals. In the meantime, we can be comforted that the heir to the throne has such a sound grasp of maths.

For more information, visit the website of the Scientific Alliance.

Madsen comments on the new Governor of the Bank of England, Mark Carney. He is, says Madsen,

probably the best candidate to perform an impossible job.  He had a good record in Canada, which weathered the financial storm better than most.  He has sound views on controlling inflation, and on controlling public spending rather than distributing a largesse of newly printed and borrowed money.

His basic problem remains that the system of centralized control of a monopoly fiat currency may not be up to the task of servicing a modern economy without the wild swings induced by political oversight.  Competing currencies, some commodity-backed, and with market interest rates, might be a better model.  Carney would indeed go down in legend if he were able peacefully to transform the one system into the other.

To that I would add that Carney has been remarkably open-minded about both Austrian and NGDP-focused stories about the crisis. He certainly seems like a good appointment, but the task required of a central banker is a godlike one: to avoid disequilibrium between savings and borrowing, he must be omniscient about people's money demand and plans for the future. However able Carney might be, I'm not sure if that's a job that anyone can do.

The Daily Kos deconstruct that work of viral genius: "Fear the Boom and Bust".

H/T Cafe Hayek