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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

Freedom Week: 11-15 July 2011

Written by Tom Clougherty | Monday 04 April 2011

FREEDOM WEEK 2011 will take place from 11 to 15 July, at Sidney Sussex College, Cambrige.

Freedom Week – a joint project of the Adam Smith Institute and the Institute of Economic Affairs – is an annual, one-week seminar designed to teach students about classical liberalism and free market economics.

If your application is successful, you will spend five days learning about liberty from some of Britain’s leading thinkers.

You will also have the opportunity to network with fellow students, academics, and think tank representatives - all in a relaxed atmosphere with plenty of free time and nightly social activities.

Freedom Week is entirely free for the students: there is no charge whatsoever for accommodation, food, tuition or materials.

The deadline for applications is May 15th, 2011. However, the earlier you apply, the more chance you have of being accepted.

For more information, click here.

To submit an application, click here.

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Paying the piper

Written by Jan Boucek | Monday 04 April 2011

Another bun fight has broken out between the UK government and the nation’s academics. In return for maintaining government funding at £100 million a year, the Arts and Humanities Research Council (AHRC) will have to spend a “significant” amount on studying the Big Society.

Academics see this as a violation of the so-called Haldane principle whereby academics have the right to decide where research funds should be spent. The Royal Historical Society described the government’s stance as a “gross and ignoble” move to favour research into a “party political slogan.” (See this article in The Guardian for all the sound and fury.) Labour MP Tristram Hunt has weighed in with the comment that “it is disgraceful that taxpayers’ money is being spent on this bogus idea.” And petitions are circulating.

Where does one begin to unpack the contradictions and hysteria?

Well, let’s start with the easy one. In that perfect world of ivory tower inhabitants, money rains down from heaven and the priests’ superior intellect will decide where it should go. Of course in the real world, Mr Hunt’s taxpayers actually do want some input. After all, he who pays the piper, calls the tune.

Money from the government will always come with strings attached but in a really perfect world of really independent research, funding would come directly from the people via self-funded think tanks, endowments and the like. (Please click Support Us at the top right corner of this page to get into the spirit of things.)

In any case, academics with any sense of the real world have always pitched their research applications with an eye to prevailing prejudices in the government of the day. Would there have been an uproar under Labour if it sought to steer research into income equality or executive compensation? Just ask climate change sceptics how difficult it is to get government funding.

Most predictably, of course, is Mr Hunt’s dismissal of the Big Society as a ”bogus idea.” Does he have the research to back up this assessment? To be honest, it isn’t clear whether the Big Society is a good idea or not but what is clear is that the policies of the past decade are unsustainable. We simply can’t go on like this anymore.

So if we are saddled with taxpayer funding of academic research, a bit of a nudge to poke around the Big Society seems eminently reasonable.

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Why we might want to forget about Intellectual Property

Written by Tim Worstall | Sunday 03 April 2011

Intellectual Property, or IP, is of course a hugely important part of our economy, as it is of all of the advanced and industrialised ones. While we can qand should protect such property in our own and other advanced economies, it's much less certain that we should impose such protections and rights in the less advanced and developing economies. This report deals more with media, music, movies and so on, but similar arguments wpould cover all other IP.

Do note that IP protection is not some vision of the free market spun out of control. It's actually a correction to such a free market, an agreement that all markets all the time markets is not optimal. The much more interesting question is when are markets optimal (mostly, often, nearly always, to taste) and when are they not (public goods for example and IP falls under that rubric).

Aside from that, what we see in the IP protections being imposed in poor countries is that poor people don't get to use what is therefore expensive: and also that those who own the IP don't make any money because it's too expensive to use. It would almost certainly be better for all concerned to either have different prices on such IP (product differentiation of a kind and the pharma companies do do this a little bit) or simply to state that IP is protected in these places and not in those.

The argument for the latter is that in poor places the government isn't going to put in the grunt work to protect IP anyway. Whatever we put into treaties like TRIPS or the WTO agreements, without the local government enforcing matters, those treaty provisions just aren't going to be effective. So why bother?

The response to that is that wouldn't everyone do that? Just rip off everyone else? No, I don't think they will. Once there is a sufficient amount of IP being created domestically (which is a pretty good indicator of economic development in itself) then there will be domestic pressure on the local government to protect that local IP. Which in itself will call forth the protection mechanism needed to protect everyone's IP.

In a nutshell, strong international IP protection, strong protection imposed upon poor countries, doesn't make anyone any money but does keep poor people poor. So why not stop doing it, for when poor people start creating IP, a good marker of their becoming less poor, they'll naturally build their own system of IP protection.

Works for me.

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Squatters' wrongs

Written by Anton Howes | Sunday 03 April 2011

Squatting in London seems to be on the rise, with a spate of high profile cases including the occupation of a building owned by Guy Ritchie. Out of curiosity, I visited one. The walls outside were plastered with posters denouncing capitalism and calling for an end to public sector cuts. Inside, I found a group of largely courteous, well-educated and well-dressed students living in musty but comfortable conditions. I had expected people struggling to get by and occupying someone else's property as a last resort, but the iPods and laptops suggested otherwise.

These squatters were well-organised and seemed to be very aware of the law. They had been there before, been evicted, and returned after some months to find the place totally untouched: "It was surreal, like some sort of time capsule," said one, an Oxbridge graduate. I asked what they thought about the Ritchie occupation and they said it had been a case of bad research on their part – it certainly wasn't an isolated case, as they were largely the same people. I asked about using utilities, wondering whether they knew that the owners could get them for theft if they refused to pay. One frowned, but explained that they certainly paid for the electricity they used.

Given they professed to have reclaimed the place for the people, I tried to explore. However, I was stopped when trying to go upstairs: it was apparently "private". I complained that this surely contradicted the whole justification for occupation but was told "if you're going to be like that, you can f*** off then". So much for "property is theft". In fact, the tone of the visit changed drastically at that point – a few started to view me as a threat and soon after some kind of leader came down to tell me that they were locking up for the night and visitors would have to leave.

I complied and was shown to the door. I'm not entirely sure how they could justify throwing me out under their principles, but one thing is clear: they have occupied buildings in the name of the public, but only selected members are allowed to stay. Hypocrites or not, squatting may soon become recognised as a criminal offence and the social phenomenon may disappear. Unlike the destitute on the streets, I'm not so sure the people I met will have much of a problem finding or paying for alternative accommodation.

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Waiting for the lights to go out in California

Written by Tim Worstall | Saturday 02 April 2011

The State Legislature of California has just passed a law requiring that:

Earlier today, the California Assembly passed a bill that would oblige state utilities to get a third of their energy from renewable sources by 2020.

I have the popcorn making scheduled for late 2019 as we watch the lights go out all over California. Because there's no way at all that this can actually happen.

To take one of the supposed benefits of the scheme first, supporters claim that this will create 500,000 "green collar jobs". And as we've shouted repeatedly over the years, jobs are a cost of a scheme, not a benefit. A certain M. Bastiat pointed this out 161 years ago: enough time, surely, for even Californians to have grasped the idea? This will mean 500,000 people not designing computers, caring for the elderly, making movies or growing garlic (that last actually an important part of the economy, surprisingly, up around the Gilroy area). We thus lose that output while we gain the energy but if we used a less labour intensive method of generation we could have both the energy and the computers/happy oldsters/movies/garlic and would thus be richer.

However, the law is much, much, worse than this. Here. Section 6 states that large scale hydroelectric power does not qualify as being part of that 33% target. Which, given that large scale hydroelectric power currently produces 14.9% of California's electricity, is something of a problem. If you include that large scale hydro, renewables currently generate about 18% of California's power.

So actually the target is that renewables (ie, solar, wind, small scale hydro, geothermal, biowaste etc) need to grow from maybe 3% of current electricity generation to 33% in only 9 years. I suggest that, whatever the politicians in Sacramento might think or say, this just isn't going to happen. The lights are going to go out.

Oh, and if ignoring M. Bastiat isn't enough, they seem ignorant of the findings of Adam Smith and David Ricardo as well. Section 6 also seems to be saying that all of this generating capacity that isn't going to be built should be built within the State. Meaning that they've quite ignored the value of trade despite being part of an enormous free trade block of 300 million people known as the United States of America.

While I am entirely on message that climate change is a problem and one we ought to do something about might I suggest that stumbling around in the dark might not be the very best of solutions?

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Loop the loop subsidies

Written by James Paton | Saturday 02 April 2011

airbusThe fight between Boeing and Airbus has taken another loop-the-loop moment. Accusing each other receiving subsides from government, they have taken each other to battlefield of the World Trade Organization (WTO) in dismay of having an ‘unfair’ advantage in the air.

As a fan of the free market, I do not like government intervention. Market competition forces firms to experiment with ways to produce goods and services in the most efficient way. Interfering with this process leads to market inefficiencies and causes competition to decline. Government subsides are on this list of do-nots.

Boeing has received at least $5.3 billion in subsidies from Washington, which has been declared illegal by the World Trade Organization. In one of the most complex cases ever to face the WTO, it was been disclosed that some of the subsidy that Boeing received was for research and development from NASA.

Before this, the US complained to the WTO that Airbus took subsidies from the EU and it had unfair advantage. The EU believe that Boeing has received even more illegal subsides from 1989-2006, totaling $19.1 billion.

This latest dispute has been on running for over six years but I think that there are a number of double standards from both sides of the flight war. The US complained that the EU was helping out Airbus and at the same time the US was helping Boeing. The EU has then counter-complained and we are at the stage of the dispute of where both parties have been found to have broken trading rules.

Both governments need to step back and let the firms compete without help at all. Competition between them should be fair in the sense of governments not handing taxpayers money to them. Though it does not like for the foreseeable future that the Boeing vs. Airbus subsidy war is going to end, the losers are the taxpayers in both the US and the EU whose money is being poured down the drain for the sake of their governments’ sense of pride.

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Young Writer on Liberty 2011

Written by Tom Clougherty | Friday 01 April 2011

The Adam Smith Institute invites you to enter our annual student competition, Young Writer on Liberty. This year’s theme is:

“Three policy challenges: how libertarians should respond”

In order to enter the competition, you must write three separate, blog-style articles, none of which may exceed 400 words in length. Any articles exceeding the word limit will be excluded.

Each article should identify a contemporary policy challenge, and then explain how libertarians – that is, people who believe in liberty, free markets and limited government – should respond.

You could, for example, look at the banking crisis and suggest a policy response. Or you could point to the growth of the surveillance state, and propose ways of restricting government power. Or you could look at the defects of the welfare state, and outline an alternative approach.

Those are just suggestions, and there are a huge range of other options you could choose from. Just pick up a newspaper and ideas should spring from the pages!

To enter, you must be aged 21 or under at the time of entry. Submissions should be emailed to tom.clougherty@adamsmith.org no later than Sunday 29 May. Please put ‘Young Writer on Liberty’ in the subject line.

Top prize is £500, three books on liberty, and two weeks work experience at that Adam Smith Institute. All three of the winners articles will be published here, on adamsmith.org/blog. Second prize is two books on liberty, and two articles published here. Third prize is one book on liberty, and one article published here.

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Calvin & Hobbes explain the economy

Written by Blog Editor | Friday 01 April 2011

 calv

Click for the full-sized strip. (Via The Big Picture).

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Adam Smith and progressive taxation

Written by Sam Bowman | Friday 01 April 2011

People on the left sometimes accuse us of misrepresenting Adam Smith who, they say, was in favour of progressive taxation and certain other state interventions. On his (excellent) blog, David Friedman has convincingly refuted this error. An extract:

"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state." (Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations)

Taxation in proportion to revenue isn't progressive taxation, it's proportional taxation—in modern terminology, a flat tax. The quote not only isn't evidence for the claim, it's evidence against it—important evidence, since it is the first of the maxims of taxation with which Smith introduces his discussion of possible taxes.

Quite an important difference – progressive taxation is, by definition, a disproportionate system. What about the idea that Smith favoured a public school system? Back to Friedman:

The web page quotes (from another web page):

"For a very small expence the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education."

Smith has a long discussion of possible ways of organizing and funding education, in the course of which he argues both for and against a variety of alternatives, so it is easy enough to select out a passage which appears to be for government provision, such as this one. For an example on the other side:

"Those parts of education, it is to be observed, for the teaching of which there are no public institutions, are generally the best taught."

His final summary statement on the subject, however, is:

The expense of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expense, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.

Or in other words, some public funding of schooling is not unjust, but an entirely private system is also not unjust and might even be preferable.

Obviously, Adam Smith was wrong about many things (such as the labour theory of value he subscribed to), and none of this proves that the systems we tend to advocate are good. But it does give the lie to the idea that Smith was some sort of proto-socialist being cruelly misappropriated by classical liberals.

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Two simple rules for running the economy

Written by Sam Bowman | Friday 01 April 2011

There are two insights about human behaviour that are pretty fundamental to economics:

1. People respond to incentives.

2. Knowledge is limited.

These sound elementary, and they are, but it's often astonishing how easily they're forgotten. Here's an example, carried in yesterday's Financial Times:

Total, the French oil and gas group, and one of the biggest producers in the UK, has become the latest company to warn about the effect of last week’s Budget tax rise on future exploration investment in the North Sea. . . .

Meanwhile, Valiant Petroleum, the explorer, said it had put on hold a £93m project. Centrica, the utility, said it was seeking meetings with the government in order to press its case for gas to be excluded from the tax increase. On Tuesday, Statoil, the Norwegian oil and gas group, said it was postponing $10bn (£6.2bn) worth of investment in two projects after the chancellor raised the supplementary tax on production from 20 per cent to 32 per cent.

People respond to incentives. (Stephen Landsburg thinks that this statement alone summarizes most of economics.) If government makes the incentives to do something worse then, other things being equal, people will do less of it. So it is with the North Sea oil companies – tax them more, and some of them will leave if there are better opportunities in operating elsewhere. That means less tax revenue overall.

It's not as simple as that, of course, because the precise response is hard to pinpoint. They might cut their profits. Or they might pass on the cost of business to their customers. The BBC's Stephanie Flanders wondered about this too:

I asked Chief Secretary to the Treasury, Danny Alexander, what would stop the oil companies passing on the cost of the extra tax onto consumers, at the pump. His answer, give or take, was that he didn't think they would, but they'd be looking out for it. Hmmm.

Knowledge is limited. It's hard to predict the consequences of any action that we take in our own lives. Now think about a society with millions of people, each with their own goals and preferences (which are constantly shifting). Governments hire armies of economists and other consultants to try to figure this sort of thing out, but they're still naked in the dark. Even small government actions can have big unforeseen consequences, because only individuals know their precise response to a change in circumstances – and even then, they only know in their actions.

People respond to incentives. Knowledge is limited. They're almost self-evidently true, but politicians (and quite a few economists) don't seem to recognise this. We can't make water run uphill and we can't design a chaotic, cloud-like system like society. I wish our rulers would stop trying to do so.

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