The Pin Factory Blog

Last week Anna wrote a piece on ‘The fatal conceit of the Police National Database’. It raised concerns about plans to store the details of 10-15 million people in this database, on the basis that there are only 9.2 million people in the UK with criminal records. By implication, Anna wrote, up to 6 million people without criminal records would be on the database. And given the British government’s less-than-stellar track record with data security, this poses a worrying threat to privacy. I stand behind all of that.

However, the National Policing Improvement Agency (NPIA) has written in to say that Anna’s piece contained a factual error that they would like us to clarify. They say Jennie Cronin, director of the NPIA, never said that, “many of these people [the additional six million] are victims”. In fact, they say that victim data will only be held in a limited number of cases, where it relates to sexual offences for which a court can grant a sexual offences prevention order.

I’m happy to admit it when we get something wrong, and I apologize for us putting inaccurate words in Ms Cronin’s mouth.

The NPIA go on to say that holding such victim data is important because it will help the police to realize when vulnerable people are being repeatedly targeted and prompt them to provide additional protection. The example they cite is of a recent Police National Database (PND) search on a victim of domestic violence, which revealed a pattern of abusive relationships across the country. They say that now the police force in question is fully appraised of the situation, they are in a better position to protect her and to “help her to break the pattern of abusive relationships.” Similarly, they believe the victim data on the PND will help police to protect “children and young people being ‘groomed’ for prostitution and then trafficked across local police force borders”.

The NPIA also argue that they are justified to put the details of people who haven’t been convicted of any crime on the PND. They say that individual police forces already hold information on such people, and that all that is in question is sharing it between forces. They also say that Ian Huntley, the murderer of Holly Wells and Jessica Chapman, came to the attention of Humberside Police in relation to allegations of eight separate sexual offences between 1995 and 1999, was investigated in yet another, but was never convicted. They do not claim that the PND would have prevented the Soham murders, but do say it would help to prevent people like Huntley slipping through their net in future.

Now, the NPIA advance valid arguments on both victim data and sharing information on those who have not actually been convicted of any offence. And I think it is important that even those of us are deeply concerned about the over-extension of police powers and the inexorable rise of the database state acknowledge that such policy shifts are often driven by noble intentions.

But I’m still not sold on the whole thing. The trouble is that we’ve been here so many times before: we’re told that new police powers are needed to tackle terrorism, and before you know it they’re being used to arrest people for walking on cycle lanes or heckling at the Labour Party conference. We assume that the police will only arrest you for serious wrongdoing, and then we hear you can be banged up for dropping an apple core and prosecuted for overfilling your wheelie bin.

If I still believed that the police could be trusted to exercise their powers fairly, proportionately, and responsibly, I wouldn’t have to be writing this blog. But I don’t believe it, and many others feel the same way. Whatever the rights and wrongs of the Police National Database, the National Policing Improvement Agency has its work cut out to convince us we’re wrong about that.

The universities are very keen indeed to extract the maximum £9,000 a year fees from their students. Indeed, half of them have already said (to the government's initial shock) that they would indeed charge this maximum figure. But the universities may get something they weren't bargaining for in return. Namely, much more discerning customers.

To a student in particular, £9,000 a year is a lot of cash. If they are spending that sort of money, they will be asking some pretty sharp questions about teaching standards, course quality, and their job prospects after they get their degree. And the universities will have to have answers to those questions – or see students drift away to other universities that have better answers. Universities will find that they can no longer drift along doing things as the academics and administrators deem fit. They will need to ditch that public-sector ethos and actually start doing this in the way that best suits their student customers.

For a time I taught at a small private college in the US, and I saw this first hand. There was fierce competition between colleges, so teachers were all expected to go out on a schools roadshow to show the college's wares to prospective students – exactly the sort of thing which will come as a shock to British academics. If I was late marking an essay, the students would be banging on my door wanting to know why – not as sheepish supplicants, but as rather irritated customers. If they didn't understand something, they figured it was more likely to be because I had not explained it well enough, rather than that they were too dim. And they wouldn't let me go home until I had explained it better, and they had properly understood it.

At last we are getting the same competitive pressures here. And about time. For as Adam Smith put it, "The discipline of the colleges and universities is in general contrived, not for the benefit of the students, but for the interest, or more properly speaking, for the ease of the masters."

In his editor’s letter in today’s City AM, Allister Heath outlines the Danish approach to bank reform:

BELIEVE IT or not but Denmark has emerged as Europe’s pioneering financial reformer. We need to learn from it. Fjordbank Mors, a small lender, has just been allowed to go bust; taxpayers are not having to shell out a penny and the world hasn’t come to an end. Senior bondholders at Fjordbank Mors are taking a massive hit, shareholders are losing everything, the management is being sacked, depositors with more than the maximum guaranteed by the deposit insurance scheme are losing out (tough, but necessary) and the taxpayer is being protected.

This is the second time this happens under Denmark’s new resolution procedures designed to allow an orderly, controlled failure of banks and thus reintroduce profit and loss discipline into the industry…

As Allister suggests, this is precisely the sort of approach that we should be taking in the UK. We need to put measures in place to allow the orderly winding up of failed banks, without them threatening the entire banking system or becoming a burden on the already overstretched taxpayer. And we need to do this urgently – if European sovereign debt goes the way of sub-prime mortgages, and another financial panic starts, not all of our banks will be able to weather the storm. In a rational world, we’d have got ahead of the game and done this a couple of years ago rather than obsessing about bankers’ bonuses. But hey, better late than never.

Allister’s conclusion is a compelling one, which I would endorse wholeheartedly:

Some Danish bankers are complaining that their cost of finance has shot up as credit rating agencies now assume a larger risk premium. But that is no bad thing. Everybody needs to face an accurate cost of capital. It should be neither artificially high nor artificially low. The removal of government guarantees is a good thing. It will lead to a better allocation of resources, a more rationally managed financial sector and correctly priced credit, reducing the risk of bubbles. Most important of all, it will allow the City to regain the moral high ground, which it lost when it was bailed out. The real problem in finance has been too little capitalism, not too much. Reforms need to be put into place to ensure that even large banks can be weaned from state guarantees and subsidies. It will be great news for the City’s long-term prospects if the Danish experiment succeeds.

If you went to a school where you were subjected to years of Latin, or are a Star Trek: the Next Generation enthusiast, you will be familiar with the phrase, “Who watches the watchers?” Though Juvenal was decrying the corruptibility of men guarding their masters’ wives, his line is now used to refer to that quality in government—no comment on the evolution of the phrase. The problem of how to ensure government accountability is older than Juvenal, and sadly perpetual. Two recent stories on the Internet and police misconduct raise interesting questions about how technology might be used to guard the guardsmen in the modern era. Might we finally be getting it right?

First to cross my radar screen was a Telegraph article on a Merseyside Police scandal. Merseyside had 152 breaches of the Data Protection Act in 2009, an act that limits police access to information on private individuals. Most of the violations appear to have been the result of voyeuristic interest in Steven Gerrard’s affray charges, though there were a fair few private investigations into daughters’ boyfriends.

That we know of this is encouraging. It shows that the Freedom of Information Act, under which the breach statistics were released, is doing some of its job. It also shows that technology can make it easier to identify government wrongdoing; login information leaves a paper trail. The flip side, of course, is that technology in the form of databases makes all manner of unscrupulousness easier. Beyond waiting for professional standards departments to uncover misconduct and release it via the Freedom of Information Act, though, the Internet also offers citizens the opportunity to monitor police activity on their own. A piece from the Atlantic presents iPhone apps like “OpenWatch” and “CopRecorder” as story sources “for investigative reporting in an age when newsrooms are shrinking.” This may be one of their merits. The more obvious is their capacity to help keep the police honest.

CopRecorder has already been downloaded by over 50,000 users, and has spawned a webpage to which anyone can upload audio and video files of police encounters. The cynical take is that the chance of catching something truly horrendous is infinitesimal. That’s fair, but the likelihood without such programmes is much smaller. OpenWatch improves upon camcorders by allowing users to record and immediately upload files on a device to which most of us are conjoined, our mobiles. The Internet is a tool, and ultimately is what we make of it. Some police officers will abuse it, but misconduct is nothing new. More exciting are innovations that finally let the public counter-survey authority figures. Watching the watchers, indeed.

Today's FT also contains an interview with Stephen Green, the former chairman of HSBC, who is now a government trade minister. It is for the most part fairly unexceptional stuff – the headline is that Green thinks the banks need to honour their Project Merlin commitments to SME lending – but one paragraph did catch my eye:

But one populist refrain – that bankers are “evil and greedy” – is enough of a red rag to prompt even the discreet Lord Green to speak up. “I have known many, many bankers in my time. To say there have been episodes and evidence of greed, of course, [but] evil is a very strong word to use on other people and I don’t do it, and nor would I think it’s helpful.”

Later, Green continues:

“I’ve got many banking friends, and I know what high-calibre people [they are], not just in a commercial sense, but also in the sense of wanting to do the right thing. The notion of demonising an entire industry for the undoubted failures that did occur in the banking industry is neither helpful nor fair.”

This is a point I've often tried to make to left-wingers, usually without success. Too many people are so blinded by hatred of the financial industry, that they simply assume that all its problems are caused by bad people with bad motivations. It leads them to completely overlook the very real structual and systemic problems in banking, and produces little more than shallow, populist rhetoric.

It's why so much public debate has focused on marginal issues like executive pay and bonuses, and so little attention has been given to the all-important skewed incentives created by bailouts, central banks, and government regulations. Political discourse seems inevitably to focus on the personal, which hardly matters at all, and ignores structures and systems, which matter a great deal.

Perhaps it was ever thus. But regardless, it's not a sensible way to discuss, let alone make, policy. 

The BBC reports that the Bank of International Settlements, one of the few major economic institutions to forsee the financial crisis, has warned that monetary policy around the world needs to be normalized and that persistent low interest rates may prove counter-productive. It quotes them as saying:

The prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis.

Meanwhile, the FT's Norma Cohen and Chris Giles write:

The BIS report, however, warned policymakers not to expect a normal recovery because much of the pre-crisis growth had been unsustainable and capacity will have been destroyed for ever, particularly in finance and construction.

Jaime Caruana, general manager of the BIS, said on Sunday that the imbalances caused by unsustainable growth before the crisis “now need to be rectified, and as they are, growth is bound to be slow. Policymakers should not hinder this inevitable adjustment.

The emphasis there is mine. Now is it just me, or does the Bank of International Settlements actually seem to get it?

I've been reading George MacDonald Fraser's "Steel Bonnets", the history of the Anglo Scottish Border reivers. Yes, I do know it's nearly 40 years old, it just takes me some time, OK? I also came across this new paper:

Suppose that you took a freely available resource, but that now anyone can contest your ownership of that resource. Depending on the consequences, you may not want to extract in the first place. It thus matters in which way the state is weak. If it is weak in that it gives away rights to natural resources, then there will be over-exploitation. If it is weak in that it cannot enforce property rights in general, and in particular when it comes to bring product to the market, then it is the Wild West and under-exploitation may ensue. Theft is a powerful mechanism to kill markets.

The underlying economic problem in the Borders was exactly that the State was too weak. It could not provide the rule of law nor punishment of the thieves. Thus there was no or little incentive to invest in the land, thus little way of making a living other than stealing what someone else had.

I think that it's this sort of issue that distinguishes the classical liberla from either the anarchist or the libertarian (OK, certain extreme forms of libertarianism). There are certain things that have to be done and some of those certain things have to be done by the state. Criminal law being one of them (we can think up ways in which it's not the current form of the state which enforces such but I'd claim that whoever imposes criminal law is in fact the state).

We can all have lovely fights about which those things are which both must be done and must be done by the state: certainly I'd agree that the proper list is a lot shorter than the number of things that the state currently tries to do.

On the same point, there's a Thomas Sowell quote out there about how the caveman had access to exactly the same natural resources we do. Our vastly greater wealth comes from the knowledge of how to exploit them rather than anything else. And one of those things we know is that the incentives to exploit such wealth, to create wealth by exploitation, comes from a legal system which enable us to enjoy the fruits of that exploitation.

Which is indeed one of the things that the state has to provide us with.

A number of people have been screaming recently that speculation in food is just immoral. Futures, derivatives, options, in food commodities is evil, oppresses, starves even, the poor and should thus at least be curbed if not banned outright. Oxfam, the World Development Movement, Nicholas Sarkozy, these sorts of people are leading the charge.

The the adults at the World Bank step into the conversation.

As they say:

He added: “We have been in a period of extraordinary volatility in food prices, which poses a real danger of irreparable harm to the most vulnerable nations.”

Food prices were “the single gravest threat” facing developing countries, he added.

Quite. What the entire speculative edifice allows is the transfer of price risk from the producer and consumer to the speculators in between. So if your concern is that the poor are damaged by food price variability (which they indeed are) then the sensible thing to do is subsidise the poor's access to the speculative edifice so that they can transfer that risk of food price variability to the speculators.

Not, as the NGOs and the French President are doing, scweam and scweam that it's all evil and should be banned. Why they think it's all evil is simple enough to understand. It's something largely done by men, in offices with money, and is therefore quite clearly immoral.

Attempting to ban the very thing which is the solution to the problem you've identified appears to me to be insane: but then I don't work for an NGO. Maybe this is just par for the course for them?

Regulation is necessary: nay, essential. The thing is though, it does rather depend upon who is doing the regulating and how they're doing said regulating.

I would, as an example, most certainly say that companies need to be regulated in the prices they can charge for their products. Darn tootin' they shouldn't be allowed to charge whatever they want. The who should regulate in this case is us the consumers. The how is by simply not purchasing what we think isn't a good deal.

There are also bit of regulation that seem a bit over the top. For example, this from the Coyote Blog: 

After over three years of effort, and many, many checks written to numerous departments, Ventura County has granted us the right to operate a fuel tank at a particular location near Lake Piru, CA.  This is actually a huge improvement, and will be much safer and less liable to create a spill than the current methods of schlepping around zillions of 5-gallon cans in a pickup truck.

However, we still have not, after 3 years of trying, obtained a permit from self-same Ventura County to install said tank.  So it is currently legal for us to own, posses, and operate a fuel tank at the permitted location but still illegal for us to install one there.

Then there's the truly insane regulations:

The proposal fine-tunes blending mandates for 2012 called for by the federal renewable fuel standard, and EPA said yesterday it expects to require a total use of between 3.45 million and 12.9 million gallons of cellulosic biofuels next year. Officials said the final figure could come out to more or less than the 6.6 million gallons required in 2011. Charles Drevna, president of NPRA, said given that EPA’s own data show the ethanol industry has produced no qualifying fuel in the past year, the requirement for blenders to either use the fuel or pay EPA about $1 per gallon for a credit makes no sense.

Yes, you did read that right. The EPA is fining people for not using a product that doesn't exist.

As I say, regulations are essential but it does depend upon who is creating them and what the actual regulations are. Consumer regulation of producers works rather well: bureaucratic regulation seems not to work at all.

Detlev Schlichter had a great piece on his Paper Money Collapse blog yesterday, in which he argued that Greece should return to the gold standard. But let’s leave that conclusion aside for the moment – what I really liked about the article is the way it systematically debunks a lot of the dodgy ‘accepted wisdom’ circulating about the Greek crisis.

In particular, Schlichter takes aim at the idea that Greece would be better off outside the euro because that would allow it to devalue its currency, and in the process monetize (or inflate away) its debt while boosting exports. According to the accepted wisdom, such a policy would allow Greece to get over its debt problem and give its economy a shot in the arm.

But as with much accepted wisdom, this is really just another example of the good old broken windows fallacy in action. Yes, inflation might erode your debts. But it also undermines savings – preventing the accumulation of real capital – and distorts economic decision-making. Before long, inflation inevitably turns out to be the road to economic ruin.

And yes, devaluation might boost exports. But that doesn’t do much to further overall prosperity: the boost to exporters only comes at a cost to importers, while in terms of access to internationally traded goods and services, everyone immediately becomes poorer.

Crucially, moreover, Schlichter points out that this ‘soft money solution’ isn’t even likely to succeed in its stated objective – avoiding a default:

Once the markets sense that the government or its central bank tries to “inflate the debt away”, the currency and the domestic debt get sold and real interest rates shoot up. This quickly worsens the debt dynamics for domestic borrowers, most importantly the government itself. In the end you get both, hyperinflation and sovereign default, as has happened numerous times before.

Ultimately, you can’t get away from the fact that governments just can’t keep spending more money then they raise in taxes. And they can’t just print away their problems with money created out of thin air. A successful, sustainable economy needs sound public finances and sound money. The have-your-cake-and-eat-it-too approach is a dead end.