There's a much simpler way to solve this housing shortage thing you know

I'm always amused to see our rulers tying themselves into ever greater knots to avoid having to admit that the problem they're trying to solve is in fact just terribly simple to deal with. The latest is this idea that those who cannot afford a house should have a free building plot given to them by the State:

Young people who cannot afford to buy a home should be given land by the state so they can construct their own houses, the planning minister has suggested. Nick Boles said it would be a way of reaching out to a generation of young Britons who want to be “given the opportunity to get on and help themselves”. Instead of renting or applying for council housing, young people should be able to “put themselves on the list for self-build,” he said.

What we really have here is an admission that it isn't the cost of building a house which is the problem. It's the scarcity value of the planning permission to be able to build on a certain plot that is. It's most certainly not the cost of land itself: even in SE England this is rarely above £10,000 an acre and you can get five or six houses on that. It's not the cost of the land nor is it the cost of building a house (£120k or so for a nice three bedder). It's that chitty from the State that allows you to marry the two together that makes housing unaffordable where people desire to live.

As, of course, is being admitted here by the suggestion that a solution is to give people one of those chitties for free.

Which is a very complicated and in some senses appallingly stupid way of trying to solve the problem. For I'm deeply unsure that the country actually needs more houses put up by self-building bodgers. Nor does it need the local commissars being able to gift a couple of hundred thousand pounds to favourites by controlling the allocation of those chitties.

Why not, instead, simple reduce the scarcity value of those chitties by issuing more of them? We get to the same end point, housing becomes the cost of building plus the cost of the underlying land. No artificial pumping up of the price at all through "planned" scarcity.

We've even a blueprint for you, Land Economy by Mischa Balen.

But there's a much more basic point here too. When the original problem is government screwing things up the solution is not yet more levels of complexity but rather vying to get the government to stop screwing things up. In this case housing is expensive because government doesn't let people build houses where people would like to live. Why not get government stop doing that and the rest of us can then get on with our lives?

It can't be a tax cut for fund managers because tax incidence

Hurrah for someone in government having a bright idea at last but the reporting of this is appalling:

A tax cut for City fund managers will leave the typical worker £11,000 better off on retirement, the Treasury has said. The Treasury has promised to abolish “Schedule 19” stamp duty reserve tax, which applies to some investments sold by funds. The tax cut, worth £145 million a year to the fund management industry, is politically controversial and Labour has promised to reverse it.

That's simply ludicrous. If it's a tax cut on fund managers then fund managers will benefit. If it's actually future pensioners who will benefit then it's a tax cut on future pensioners, not fund managers.

Which brings us back to the whole subject of tax incidence again. Who nominally hands over the cheque to the Treasury can be very different from who bears the economic burden of the tax. As we can see here. Nominally the tax is on fund managers buying and selling shares. But actually, the tax falls on the pension pots of savers. It must do: otherwise how can reducing the tax increase pension pots?

Fortunately this has all been well studied. The IFS looked at exactly this question a decade ago and their report is here. The conclusion is that stamp duty is, in the end, paid by pensioners in lower pension pots and also all workers in the economy as it makes capital for companies more expensive.

So, Hurrah! Investment capital becomes cheaper thus boosting the amount of it that will happen and savers gain better returns on their pensions. Hurrah! indeed.

Ed Miliband, the Labour leader, in September suggested that Labour would reinstate the tax, describing the Coalition move as a “tax cut on hedge funds”.

Yes, yes, I know this is a democracy and all that, the very ability to get elected meaning that you are indeed qualified to be elected. But please, can't we hope for a few more people who actually understand the real world? For example, Schedule 19 doesn't apply to hedge funds in the first place, only to unit trusts and open ended investment companies.

The foundations of a free society

I have just published Foundations of a Free Society with our colleagues at the Institute of Economic Affairs. It was intended to describe the working principles of a free society to those who, unfortunately, don't live in one. Trouble is, that as I started sketching out all the essential foundations of a free society – freedom, property, trade, justice, toleration, moral rules, incentives, rights, and limited government – it became obvious to me that none of us really lives in a free society, and that very few of us understand it.

We all accept that democracy is a good thing, for example. And so, we are told, we should have more of it – that more and more of our lives, right down to what we eat, drink and say, should be prescribed by law. And how we run the rest of our lives and businesses should be regulated too. We simply forget the joy and necessity of human diversity and the power of competition to regulate business.

Trouble is, as readers of another of my IEA monographs, Public Choice – A Primer  know full well, political decisions are in reality interest-group decisions. They call the shots in elections. And politicians and officials have their own self-interest too. So off we go, ambling down the Road To Serfdom, imagining it is all being done for our own good, when it is done for theirs. And most of us do not know enough about the underpinnings of the free society to dig in our heels before it is too late.

The free society is not a random collection of selfish individuals. It is something complex and organic, and based on deep values – not values that challenge other moral systems but values that make cooperation and social harmony possible.

It is no easy task to build a free society out of an unfree one. The institutions of today's free (or more-free) societies have grown up over hundreds or thousands of years and reflect local history and circumstances. There is no blueprint we can give people to build their own. But we can at least give them a rough outline of the sorts of foundations they need to build freedom – or, in the case of those of us in the supposedly free West, to rebuild it.

Foundations Free Soc web cover.jpg

Another point about Mazzucato's entrepreneurial state

As we know, Marriana Mazzucato's idea, that the State is at the heart of all entrepreneurial activity, is storming the weaker minds over on the left side of the political aisle. I've pointed out before that invention can indeed be done by the State: but that's not what entrepreneurialism is, not at all. And the innovation that it is is something that is done appallingly by the State.

However, here's another problem with the idea. This comes from the obituary of Frederick Sanger:

This idea was controversial at the time as, although the 20 or so amino acids that can go to make up proteins were known, most scientists believed the arrangement of different amino acids in a protein to be random. One professor had even produced a complex mathematical formula that would express this random function. Thus, when Chibnall tried to get Sanger a grant from the Medical Research Council to work on protein structure, the grant was refused because “everyone knew” that the pattern of amino acids in a protein was random.

Yes, this was basic science but the same point still stands. To explore the possible space of ideas, whether scientific or entrepreneurial, requires a multiplicity of funding sources. It cannot be just the one organisation because if there is only one then only those ideas the organisation is interested in, or believes feasible, will get funded.

That is, if we leave science or innovation to the State then we'll only get the sort of science or innovation that those who run the State either desire or consider feasible.

Ms. Mazzucato's poster child for her idea is Apple's iPhone. And we do all recall how the bureaucracies of both the US and the UK were doling out grants to people to develop such don't we? For it was indeed obvious to them that this is what 300 million people wanted to buy. Well, wasn't it?

There are good taxes and bad taxes

Or perhaps I should say that there are taxes which do less damage and taxes which do more. My interest being piqued by two stories in the papers. The first is businesspeople complaining loudly about business rates:

For most business people across the country, there will be just one thing on their minds when the Chancellor delivers his Autumn Statement next month – will he act in the economic interest of the nation and announce a freeze on business rates? Business rates are an inflexible and irrational tax that thousands of companies have to pay before they turn over a single pound. We hear from our members constantly that they want to grow but are held back because the business rates imposed on new premises are too punishing for them to bear. The last thing the Government should be doing is weighing down on business growth at a time when we need the economy to move from being just about good, to being truly great. If businesses have more cash freed up from paying less in business rates, they can take on more staff, invest, export and put money back into their local communities.

The second is a different group of people complaining about stamp duty on property transactions:

The Government is coming under increasing pressure to reform stamp duty on house purchases as experts predict rising property prices will push up the total bill to more than £9bn annually. The Council for Mortgage Lenders (CML) said stamp duty paid by home-buyers already looks set to exceed £6bn this year and is predicted to grow by a further 50pc to £9bn in the next five years.

Now, given that we know that there are some things that must be done, even things that must be done that can only be done by government, we are going to need to raise some taxes somewhere, from some part of the economy. But cleartly, what we'd really like to do is raise that money where it does the least amount of damage. The OECD has a handy guide to this for us here. The measurement is of deadweight loss. How much economic activity doesn't take place because of the imposition of different types of taxes?

Repeated taxes on property, that is business rates, have the lowest deadweight costs of any form of tax. The only one that could be better is a proper land value tax.

At the other end of the scale, one that has such detrimental effects that they've not even bothered to put it into the table for they cannot believe that anyone would be stupid enough to use them, are transactions taxes. Like, for example, stamp duty on house and shares, or perhaps the financial transactions tax. Diamond and Mirlees gained their Nobels in part for pointing out how appllingly damaging this form of taxation is.

It's fairly easy for us, therefore, to judge between these different taxes. Business rates are an efficient tax, stamp duty an inefficient one. We should therefore support the rates and attempt to do away with the duty.

It is possible for those subject to business rates to claim that, for example, they put retailers at a disadvantage to internet sellers. But this is fine: we want people to economise on their use of inputs in the production of whatever. If internet retailing uses fewer inputs than traditional then we'd like to see the move from one to the other. This frees up property and capital to be used to do something else: meaning we all become richer as we have both retailing and whatever else from the same initial set of assets and capital.

Ayn Rand: More Relevant Now Than Ever

This is a transcript of the speech "Ayn Rand: More Relevant Now Than Ever"  given by Lars Seier Christensen, Co-founder and CEO of Saxo Bank, at Goldmsith's Hall for the Adam Smith Institute's Ayn Rand Lecture on the 29th October 2013 

"First of all, I would like to thank The Adam Smith Institute and Eamonn Butler for having me here. I would also like to extend a big thank you to Yaron Brook and the Ayn Rand Institute for suggesting me as the speaker for the second annual Ayn Rand speech at this renowned institution. I am very proud of being offered this opportunity, and would also like to thank all of you in the audience for coming here tonight. I hope it will interest you to hear about both the positive aspects of deploying Ayn Rand in practical, day-to-day life, as well the more grim part of the speech – about a world that is on the wrong track and where change is desperately needed.

Now – I am going to start by quoting someone that anyone who knows me realizes is not my favourite politician. I consider him a very significant part of the problem we currently increasingly. But at least he did us a favour by underlining just exactly how relevant and important a voice Ayn Rand is even today, more than 30 years after her death. Let me quote the 44th president of The United States, Barack Obama, for the first and last time this year, I promise.

Ayn Rand is one of those things that a lot of us, when we were 17 or 18 and feeling misunderstood, we’d pick up. Then, as we get older, we realize that a world in which we’re only thinking about ourselves and not thinking about anybody else, in which we’re considering the entire project of developing ourselves as more important than our relationships to other people and making sure that everybody else has opportunity – that that’s a pretty narrow vision. It’s not one that, I think, describes what’s best in America.”

We will get back to who has the greater vision for America and a human life, but I have a confession to make. I did not pick up Ayn Rand as a misunderstood or insecure 17 year old. I wish I had, but unfortunately, I was a 38 year old man when I first read Atlas Shrugged. And to some extent insecure, I will admit.

I still remember clearly how my chief economist, the outspoken and very politically incorrect, Steen Jakobsen, threw a paperback on my desk after the summer holidays, soaked in sun oil, and told me – this book you HAVE to read.

I did, and it was a terrific experience, as it is for many when they are first exposed to Rand’s thinking. Now, when I say I was an insecure 38 year old, it was in a slightly different sense to the insecurity of a high school kid. I had my own business, was married with four kids, and had formed strong views about society and politics. Incidentally these were not much different from the views I hold today. But I always had a underlying worrying concern about what was the real foundation and justification of the views I held. Whether it was only my particular circumstances, ambitions and career path that had led me to be a life long fan of individualism, freedom and capitalism. I would never have admitted it, of course, but I did think about it from time to time.

This is a question that most political and philosophical writings at best don’t answer or at worst, answer with a confirmation that, yes, indeed it is random and only a result of your situation and environment which world view you choose. Ayn Rands answer to that question is fundamentally different. Her answer is that as a rational being, as man and not an unthinking animal, you have to choose the path of freedom and individualism. Not just because it works better, and not just as a utilitarian observation, but because it is fundamentally in your nature and because it is right. It is a necessity for you to fulfill all you can be as a man, and it is a necessity for your survival. The use of your mind and the observance of reality and influence thereon by your mental capacity – it cannot lead to any other logically correct conclusion or result.

So in other words, Ayn Rand removes your insecurity about whether your choices were right and unavoidable or just random and fickle. She provides a philosophical foundation for what most other commentators only present as a utilitarian argument – individualism and capitalism simply works better than collectivism and socialism. Very few advance the moral argument, but that is ultimately the real argument.

That is a very important distinction that has profound consequences. And that begins to reach out for an explanation of ‘The Big Disconnect’ – why is it, that in spite of socialism failing so completely again and again, in spite of capitalism and freedom improving peoples lives and creating wealth and welfare wherever it is applied – why is it– that even with this knowledge and experience – that we have to fight new attacks on freedom, year after year, decade after decade? The attacks come in different disguises, but always with a moral root – capitalism is evil, it is destructive, it is egoistic, it is anti-nature. We ourselves, on the other hand,  fail to advance the moral argument, but the opponents of capitalism always sell their rotten philosophical goods by claiming a higher moral ground, altruism and the need for control of human freedom, to protect man against himself by handing over responsibility to collectivists and anti-individualist leaders who know so much better than the rest of us. With enough moral high ground claimed, there is no need for any clear explanation why or how they would know better, and there is no questioning of why the leadership should necessarily fall to them.

This is an ancient problem, and has recurred in different ways throughout the centuries. Right now, we are seeing a solid revival, a significant pushback against all the advances that were made when the Iron Curtain came down, and the despotic leaders of the Soviet Union and their satellites were overturned. Some of us foolishly thought that this was the final victory of capitalism and freedom, and that surely now the world would move quickly in a better direction, while the remaining dictatorships in the world would collapse one by one before too long. It hasn’t worked out that way. In fact, maybe the disappearance of that very obvious enemy and obvious failure of the Soviet Union has had the opposite effect. Without a strong example of how inferior socialism really is, many people believe again that it is the solution to problems in the West, and if just capitalism could be reigned in, we will all experience a better and more fair society.

Well, there are multiple fallacies in that view. First of all, free capitalism hasn’t  really been experienced by many people alive today. The strange hybrid of western societies today allows only limited capitalism to create enough wealth to support a wider range of political and social ambitions, largely controlled by anti-capitalists. Secondly, of course we know by now – indisputably - that socialism doesn’t work. Full blown socialism doesn’t work at all, and lesser degrees of socialism restrict to a higher or lower level the creation of growth and prosperity. Thirdly, socialism is not fair; equality in outcome is not fair. Equality in opportunity is indeed fair, yes, but if the outcome is then collectivized and shared irrespective of effort and dedication, fairness completely ceases to exist.

To hear a US president saying that it is wrong to “consider the entire project of developing ourselves as more important” than a set of social obligations is rather disturbing, I think, and it goes to show that the malady that has long beset Europe is spreading rapidly to the US.

Before turning to the particular relevancy of Ayn Rand to the current economic and political debate, I would like to talk a little about her relevance not just for individuals, but also the benefit for the multiple forms of cooperation with others that such individuals may choose by their own free will. More specifically, we realized in our business that her ideas also hold plenty of relevance and opportunity for commercial organisations.

I am the co-founder and co-CEO of Saxo Bank, an international investment and trading bank with offices in 25 countries, headquartered in a socialistic country named Denmark. With that kind of base, and more than 50 different nationalities among our employees and clients from all over the world, my partner Kim Fournais and I felt early on that it was necessary to specify a set of principles and values to ensure that our business developed in a sustainable and coherent manner. A way in which we could benefit from the diversity of our employees and clients, without the many differences leading to confusion and chaos in the organization. When you are from many different cultures, and spread over many different locations, it is valuable to operate from a set of agreed principles. In fact, successful organisations do that intuitively, but it is good to be explicit about exactly what those principles are.

The good thing is that capitalism brings people – by their own choice -  together around joint goals that make sense for everyone and that benefit the employer, employee and client alike. As a result, finding common ground is easier than if we were a political organization or a cultural or religious forum. In fact, we have representatives of every major religion, culture, nation and race among our employees and although we face issues from time to time- like any other organization- they are never really based in those differences. It is a given that in a meritocratic organization it is the results, the ethical behavior and the productive efforts that count over above and anything else.

In our first, pre-Rand, corporate statement from the late 90s, we still felt the need to state things like that explicitly, but today it is all about the set of values and the interaction we can expect from each other that we set out to describe.

And after having read Ayn Rands works, and becoming familiar with her Seven Virtues, Kim and I were in no doubt that in effect what was meant as guidance to living a successful, prosperous  and productive life for an individual, could equally well serve as values that an organization can build upon. Later on, I was very pleased to discover that at least one other bank had made exactly the same decision. BB&T Bank in the US, led by the formidable Rand supporter, John Allison, who incidentally gave this speech last year, had been successfully applying the Seven Virtues well before we heard of them, and has built a great business on this foundation. It is interesting that BB&T Bank was about the only major American bank to come out of the financial crash unscathed.

I would like to run through the Seven Virtues and describe how we ask our employees to consider and understand them in a business context.

Some of you will know that Rand developed the Seven Virtues, or Values, as we have chosen to call them in the Saxo Bank context,  as a non-exhaustive list of important virtues to adhere to –


We introduce the Seven Values to our employees along these lines:

You may not be guaranteed a successful career or a great life – accidents, illness or other random elements may interfere – by applying the values to your work, but it is difficult to imagine that anyone could live successfully if he or she continuously disregards and violates these values.

Just try this experiment with each of the values: If you were continuously dishonest to the point where no-one trusted you, would you be successful, and could you continue this for all your life?

What if you were to disregard justice, so that you never encouraged what was good around you, and made no distinction between valuable and worthless activities – making no distinction between productive and destructive actions?

No decent human being would want to associate themselves with you, if they felt you did not distinguish between good and evil, right and wrong.

And so it goes for all these values – they are necessary ingredients in a good life, and, for Saxo Bank, essential for building a strong, reliable, competitive business.

What is so great about this novel is that it gives you a more detailed, philosophical foundation for what you intuitively know is right. It tells you what creates results and why other, contradictory sets of values are unlikely to create long term success.

We go on to give ideas for practical application of the values in everyday work:

About Rationality

Behaving in a rational fashion seems like an obvious thing to do, but actually, in many organizations a lot of time is spent on very irrational and unproductive activities. Rationality means applying a logical approach to identifying how to arrive at a desired end – or to gain a desired value – in the most efficient and direct manner. It also means taking into account the relevant information required to reach these decisions and to decide on an optimal path of specific action.

If a competitor has created a better product than our own, you cannot talk it into oblivion. Even if in the short term you might convince a client to accept an inferior solution, longer term, you are always at risk of this client becoming more informed and, ultimately, you will lose out.

The only way to deal with competitive products is to investigate them thoroughly, take an active interest in industry developments, and meet any challenges head-on by improving your own service and the features of your products.

You cannot dream, wish, hope or lie yourself out of a difficult-to-fulfill, but reality-based client demand.

If the client can get a better service or product somewhere else, you need to deal with this reality and improve in order to maintain the relationship.

If you have a disagreement with another employee you also need to deal with it head-on. If you are right, then you should stand up for your point of view, but if you are wrong, acknowledge it and move forward.

You should not pursue any line of action for any other reason other than it being the most rational and logical way to move forward – even if it means giving up your own (inferior) idea, or if it means the justified recognition of one of your colleagues instead of you. Making the right, rational choices is what life is all about. Just as irrationality leads to failure or at the very least dependency on other people’s rationality, rationality often leads to success and independence - in fact it almost always does if consistently applied and carefully and intelligently executed.

About Independence

All of the virtues are actually derivatives of “rationality”, and this one, in particular, means using rational thinking in an independent manner. In spite of all types of teamwork, all types of organisations and all forms of society, it simply boils down to one brain per individual.

There is no such thing as “group thinking” (don’t confuse that with individual thinkers choosing to work together in a group…) or a “collective brain”. Whether you like it or not (and we hope you do like it!), everyone has their own individual mind that he can choose to use or not.

Your mind is your primary tool of survival, but also the gateway to much more than mere survival – to a great extent, the more and the better you use your mind (which implicitly means independently), the more successful and – at least if applied to commercial business – the more comfortable a living you will be able to create for yourself and whomever you choose to share your life with. And the more personal fulfillment and self-esteem you will experience.

Independence does not mean re-inventing the wheel, or not accepting the Law of Gravity or Einstein’s scientific theories before you have checked all the facts and calculations yourself.

It does not mean a lack of respect for where you work, if that is freely chosen by yourself, or for the managers or leaders you interact with as a result of that decision; nor does it mean having to define or create every single process personally before implementing it. Independence does not mean that you should not learn from anyone else. But it does mean that blindly copying or repeating anything and everything you see or hear uncritically will not get you anywhere in the long run.

If you unquestioningly accept anything that sounds good without further consideration of its consequences or any idea that simply seems to be agreed upon by other people (even – or maybe even particularly - if they are a majority), you can be fairly sure that this will not cause you great success in life.

About Integrity

Integrity means standing up for what you believe, and being prepared to execute your ideas and defend your values. Integrity is therefore closely related to the value of independence. Integrity is about doing what you say you will do, honoring your commitments and fulfilling your promises.

Integrity is accepting that there is a relation between the dreams you have for the future, and the work you need to put in every day to reach those goals – otherwise your life will just be an endless repetition of frustration and disappointment.

In Saxo Bank, extending this integrity to our clients and partners is of course critical. We need to manage expectations correctly, so that we invariably deliver at least what we promise.

Conversely, we need to be very careful to explain to the clients exactly what our services are, and what risks and opportunities they will face while working with us.

There is no real substitute for a life of integrity. If you are not basing your life on reality, either you will fail or you will be entirely dependent on someone else to support you, because they act rationally on your behalf – a parasitic and unsatisfactory existence at best, and a highly risky proposition for the long term.

About Honesty

Honesty should be understood both in the normal sense – i.e. do not unnecessarily lie to others – but also in an intellectual manner. Being honest means meeting reality head-on, and trying not to fool yourself or others by not trying in an objective manner to interpret and deal with the facts that you are faced with.

Dishonesty can take many forms, such as lying to clients, colleagues or friends. This is not beneficial in the long run, as the truth inevitably becomes clear sooner or later and future relationships will be greatly damaged.

Dishonesty also includes pretending to be something you are not. For example, would getting a particular job because you lied about your abilities not be more disastrous than not getting the job at all? You will ultimately end up failing, losing credibility and in the meantime having failed to make progress at something you could have been great at instead?

Attracting a spouse or a circle of friends by pretending to be a different character than you really are?

Forcing yourself to live a life that is not what you really wanted – presenting a façade that you need to think about every minute of the day because it is not honest to your nature – and again, probably eventually getting your bluff called after all those efforts…

Being honest is a selfish value, as are all sustainable values. Honesty is for your own benefit; it is not just a duty you owe to others.

All of Rand’s values serve the purpose of making your life more successful and your philosophy more coherent. The great thing is that applying the values also has beneficial implications for your surroundings, friends, colleagues, the Bank, society… which are all components in helping your life to be successful. So there is a win-win effect in honesty, just as in the rest of our values and the contents of the corporate statement, which is exactly what we want to portray.

About Justice

Justice, in our terms, essentially means that you should not just sit back and accept everything around you without having a view on it. You should not be afraid to speak up when somebody does wrong or behaves in an unacceptable manner.

By keeping quiet you are not doing the person a favour, because that person may not be aware that what they are doing is questionable, or, if he or she is, they may think that doing the wrong thing will never have any negative consequences for themselves – hence encouraging them to continue that way.

Along the same line of thinking you also should give praise when someone does something positive, not just to be nice, but to encourage such actions in the longer term, to show that you notice and that it makes a difference to you.

In terms of Saxo Bank, this is closely related to the value of honesty, and essentially means that you should neither hold back constructive and justified criticism nor should you fail to praise a colleague that does something of value or ethically correct, when you see it.

When we are doing unbearable damage is when we fail to appropriately recognise those people who are doing great things.

Whether this is out of envy or indifference, it is very damaging if people who should be praised fail to get the recognition they deserve.

Being just is both the right action towards your colleagues, and a way to increase your own chances of long term success – by correcting mistakes, and encouraging good work.

About Productivity

Being productive means creating products, systems and services that are valued sufficiently by our clients to enable us to run a successful business and for all of us to be paid a salary that allows us to care adequately for our families and ourselves.

Being productive means taking pride in providing for your own life, and avoiding relying unnecessarily on other people’s production, as well as recognising that any other way of living – stealing, voting for politicians that give you money by taking it from other members of society, begging – may work for you short term, but would be completely unsustainable unless someone else made the decision to produce.

I think that we all know the joys of a job well done. To achieve success, to use one’s mind creatively and productively and to see things grow and expand through your own efforts is a great experience, and life would be much poorer if we did not experience this individually, and together, every day of the working week.

Enjoying the fruits of work, getting the things you want, having fun and free time on your hands and enjoying hard-earned time with your family is all great – but getting there, securing this through your own efforts is a big part of the exercise.

Productivity plays a big part in all we do. It is important that we always bear in mind productivity in our lives as a necessary and logical objective. It is great for us to spend time on research and thinking ahead, and having great plans and long discussions if necessary – but at the end of the day, the goal is productivity.

Any initiative we undertake in our business must have productivity as the key objective – because if we allow ourselves to lose sight of productivity, eventually the business will fail, and we will all lose out in life.

About Pride

Most people and certainly most Danes have been brought up with the notion that pride is mostly a bad thing and that people should rather be humble than proud.

“The Law of Jante”, a particular Danish version of the “tall poppy syndrome” deriving from a famous novel, criticises the success of individuals and portrays their achievements as unworthy, wrong or inappropriate.

We believe that you are indeed responsible for your own character, your own achievements and your own results; and it does matter that you try to do well.

Even in your fundamental choice – deciding to be a productive individual, taking charge of your own destiny and responsibility for your life instead of relying on other people for your sustenance – you have reason to be proud. By having chosen to work for a living, instead of stealing or begging your way through life, you have established a critical foundation for justifiable pride.

The rewards for leading such a life are the values – both physical and spiritual – that you can create, allowing you to have self–esteem and to be proud of your life.

I hope this has given you an idea about how we practically deploy Ayn Rand’s ideas in a modern business. We have seen that people embrace this message, and want clear values in their life and in the business they work for, and we have seen a lot of interest in these thoughts since we introduced them more formally through our corporate statement.

Most employees have read Atlas Shrugged, and most are good capitalists. I don’t think you would be very happy as a socialist in Saxo Bank- I certainly hope not. We have several sessions every year where new employees learn about the values and principles, and old employees can refresh their knowledge.

Now, after this practical example I would like to turn to the broader relevance of Ayn Rand in society today.

First and foremost, Ayn Rand remains among the few who recognize with crystal clarity that we will not win the battle by simply proving that freedom and capitalism work. It has already been proven beyond discussion. Nevertheless, we are still facing new attacks on freedom every day.

One of the biggest mistakes we can make is to assume that rationality will prevail, and  that just through superior economic performance freedom will capture enough people’s hearts in a democracy to win the day.  This creates a major problem for those of us that like to argue rationally, rather than emotionally.

It creates a major opportunity for politicians who intuitively know that in a rational world, there would be little demand for their services. Only in an irrational, emotional universe, where opportunists can gain access to media and visibility to express “feelings” and try to take the moral high ground no matter how unfounded in reality it is – only in such an environment can you survive without having to produce practical, productive results, and instead prosper and benefit from empty talk and third rate acting performances.

This tendency, unfortunately, has only gotten stronger during the recent crisis. There is often a complete disconnect between the reality and the words used to describe it, and the actions pretending to deal with it. In particular, this is very noticeable in the Eurozone these days.

Secondly, Ayn Rand has gained renewed relevance and attention, because her predictions have become fulfilled in many different areas. This of course pleases  and reconfirms long standing admirers, but also bring many new supporters to the scene, looking for answers to the crisis we are in.

To name but a few predictions clearly the dynamics of democracy and interfering politicians are very well described in Atlas Shrugged, where constant intrusive corrective attempts to fix a given problem leads to new, unforeseen problems that need additional correction. This triggers an endless series of correcting moves, where only two things are certain.

First, The politicians assign ever greater powers to themselves, as they manage to convince the citizens of the need for even more interference, although the problems are created by interference in the first place.

There are endless examples of this in both the US and the Eurozone, where one mistake invariably leads to call for even more powers, leading to new mistakes. The EUs standard answer to any of their own failures is that had they just had even greater powers, things would have been much better. The real question to ask here is not why they claim this, because what else could they really do, if the only alternative is to admit incompetence and failure?

The real question is how do voters continuously manage to ignore the reality and believe in their politicians, rather than themselves?

Second, freedom and capitalism, the only real answer to the current crisis, get ever more restricted and prevented from working efficiently, meaning that the underlying strength of human ingenuity and creativity is stopped from working and becomes increasingly powerless to pull us out of the morass we are in.

Another of Rand’s predictions of business people using government favors in return for giving up their independence, has sadly been confirmed better than anywhere else in my own industry. It is embarrassing to see the extent the banking industry has relied on support from governments, and how ruthlessly they are currently exploiting the offers of cheap money available from the central banks.

Very little of the bailouts filters down to the real economy, as it is easier to hold onto safe returns in a variety of government paper, cementing the unhealthy relationship between banks buying government securities and in return being propped up by the same governments to secure them as an outlet for these very securities and their printing machines.

At the same time, banks are now in the firing line all over the world, helpless to resist an endless row of enquiries, fines, regulatory tightening and excessive compliance costs pushed onto their p/l sheets, hurting earnings and making them ever more dependent on the state for support. It is a vicious circle for an industry if I ever saw one, and I fear that we are approaching the end of banking as a private industry. But once we have a government controlled banking industry, our problems will really begin.

Pick-a-winner, corporate social responsibility, employment rules, affirmative action, the creation of fictional jobs and plain political popularity and obedience will then rule who prospers and survives in all industries, not just banking. Beware of this development,  for it is poison to capitalism and growth and to prosperity for all of you. The new central bank regulator and the banking union, ultimately draining the sound banks for money to support the failing ones, could be the nail in the coffin from the EU to a bank near you soon. In fact, the undemocratic, powergrabbing, emotional, populistic Washington that takes over in Atlas Shrugged is today  most closely resembled by the EU and the Eurozone in the real world.

It is quite frightening how much of the rhetoric in Brussels and some of the Eurozone countries resembles Ayn Rand’s universe. Constant talk of solidarity, of progress under difficult circumstances and the need for more central power is almost taken directly from Atlas Shrugged. There is absolutely no connection with reality and no humility whatsoever in the face of near total failure. Absolutely no wish to face the public or give it a say in any of the major new initiatives and blunt direct intervention in national governments.

There is arrogance in the extreme against deviating views of Europe such as those displayed by even a meek David Cameron. This organization is failing big time, and its only response is to gather ever more power in the hands of Brussels, clearly against the will of the populations of Europe that are beginning to see that in fact The Euro may be the practical equivalent of Project X in Atlas Shrugged.

In France, we now have a President that by his own admission, hates the rich. So much so that he is trying to circumvent his own constitution to introduce punitive taxes on them, although illegal, and so much so that he drives relentlessly forward with proposals for a financial transaction tax that has been shot down by pretty much every historical experience and most economists as a massive own goal which damages the very countries that deploy it.

Well, it seems that the rich also hate their president, judging by the number of them leaving – famously spearheaded by Gerard Depardieu - for places like Belgium, that amazingly actually acts as a tax haven for the French in spite of all the EU rhetoric, or Switzerland, where inflows of new immigration requests according to my sources are at record highs, particularly from Scandinavia, UK and France. Depardieu, of course, chose Russia, which speaks volumes of what deep trouble Western Europe is in.

This leads to a very interesting question, a question full of hope. Is there indeed also a solution to the problem, such as the one Ayn Rand foresaw with the flight to Galt’s Gulch? It will be difficult to find a place entirely outside of the reach of aggressive governments eager for tax dollars, as Switzerland has learned to its misfortune. But is there a possibility for creating an area so attractive and so successful that it will attract enough good and productive people to become a good example for other nations to follow?

Unfortunately, not much points in that direction as most countries pursuing such strategies lack sorely in that other commodity, personal freedom and security from governmental abuse.

And the few places that try to provide both, such as Switzerland seem to also be contracting the malaise. I chose Switzerland as my country of residence a few years back, and I have not regretted it for a second.

With its effective tax competition between cantons, and very direct democracy, it has many features aimed at keeping the state under control. But I have been disturbed to see recent attempts at reducing this tax competition, introducing death taxes, and latest, the infamous 12-1 proposal that seeks to limit executive pay to maximum 12 times the lowest paid employees. While not likely to pass, I still know of several big companies preparing contingency plans for spinning off management teams into separate units, and laying off their lowest paid workers to instead use temps and insourced services. Talk about an own goal for both the strong and the weak – wasting all this time instead of focusing on business, instead of creating jobs for the low paid laying them off.

So nowhere seems safe from populism and irrationality any longer. It is difficult to see the necessary reforms forthcoming, and sadly, we may have to go through a much more severe economic collapse before change will be forced upon us. Unfortunately, that change may also be totalitarian in nature, of course, which is in fact the more likely outcome in the short run.

I am not hopeful for change in the more excessively developed welfare states. Let me tell you why with an example from my own country, Denmark.

Denmark has the highest total tax pressure in the world and is towering far above the European average.  It also has the smallest private sector in Europe, to support one of the biggest public sectors.  Add to that a generous entitlement system allowing unemployed and unemployable citizens an income well above that achieved by full time employees in the private sector in many European countries, and you will observe a need for tax revenues nearly unmatched anywhere else in the world.

The majority of Danish politicians intuitively understand that – regrettably, in the view of many of them – capitalists are an unpleasant necessity to generate the necessary revenues to fund the social welfare state and the myriad of responsibilities it takes on. Nothing is too small to attract the attention of Danish politicians and nothing to insignificant to attempt to regulate it. And the answer is almost invariably to throw more money at the problem, or hire more public servants to regulate and supervise it.

So being a capitalist in a social welfare state means extreme supervision, a general scepticism and mistrust from your fellow citizens – and a feeling that most politicians are looking for the exact point of pain where maximum tax can be extracted – not to avoid harming business and growth but to avoid pushing you so hard that you choose to leave the country, close down your activities and transfer the jobs abroad. This incidentally, is obstructed through exit taxation (often of unrealized and theoretical profits), to the point that Denmark has been taken to the European courts several times in connection with these obstructions’ impact the free movement of labour within the EU.

The Danish parliament is nearly devoid of people with practical experience in private sector activity. Several important ministers have never held a job outside of political parties and organisations. When we got a new socialist government in 2011, supported on a de facto communist party, the prime minster brought in a 27 year old to be Minister for Taxation from the Socialist People’s Party (who did not get elected to parliament but was selected for this obviously very important post anyway),  and a 28 year MP as Minister for Health and Prevention, also from the Socialist People’s Party (who started her new job by going on maternity leave immediately after being appointed).  Other interesting choices included the former leader of the now defunct official Communist Party of Denmark, being selected for Minister of Business and Growth. He was, in all fairness, replaced by a school teacher after a year. In fact, only three out of 23 ministers have any noticeable practical experience in the private sector, and then mostly as low level employees.

So how did they get elected?

Well clearly, the Danish voters do not value business or business experience very highly. This is understandable as more than half of the adult population is either working in the public sector or living on some form of social transfer payment.

There are a much higher proportion of these payments than in countries that are otherwise very comparable on many parameters to Denmark, such as Sweden, Norway or Finland.

Out of a total population of 5.6m, approximately one million are under 15 years of age. A little more than 2m are pensioners, unemployed, sick or on social transfer payments for other reasons.  Around 800,000 are employed in the public sector.  This leaves around 1.8m Danes that are not directly dependent on state payments in some shape or form.  But even among this group, there is high focus on cheap, subsidised child care, free health care, child bonus payments, subsidised housing and an infinite number of other ways to secure some additional income from the state.

At the other extreme, only 28,000 Danes have an annual income in excess of DKK1m (GBP120,000). Not surprisingly, more politicians cater to the 2.6m voters dependent on the state for their livelihood, than to the 28,000 hard working individuals making a good annual income. Because of this attempts to highlight the risks of brain drain by taxing such incomes more aggressively are regularly dismissed by socialist parties as a scare tactic. In fact, it is generally accepted by most politicians that there is no such thing as “dynamic effects” from tax policies, meaning that any suggestion to lower taxes in order to promote growth must – in order to be taken seriously – be fully financed dollar for dollar by other initiatives. This of course could be beneficial if such thinking led to reduced public sector expenditure, but unfortunately, it normally leads to a continuous moving up and down of different tax rates to compensate lost revenues on one tax, with new revenues from other taxes.

While no serious reforms are or apparently will be undertaken in the current environment, both voters and politicians like to create the illusion of reforms and security.  Of course, many citizens sense that the current system is if not completely unsustainable, at least threatened (by what is perceived as mostly external causes, as there is little desire or political will to look at the more obvious internal causes). So a lot of time and political posturing is revolving around pretending to be involved in deep and difficult negotiations about wide-reaching decisions and reforms, but reality is that this is fundamentally an illusion intended to create a feeling of actually dealing with issues the country faces, and reassuring voters that the current system can be upheld without any serious cutback, sacrifices or changes.

This, unfortunately, will not lead to change anytime soon, and anything that we may do to improve our situation will be near impossible to execute without resistance from the EU, anyway.

As I said earlier, this battle will not be won by economic rationality. This goes out the door, once more than 51% of the voters live from the government – and probably even long before.

We need to change the values, the morality and the misunderstandings, and to undermine the deliberate lies our politicians feed the electorate about what constitutes solidarity, justice and the common good. Is it solidarity to make people into losers and victims and leave them totally unable to care for themselves? Is the common good to stop businesses and investors from creating wealth and prosperity? Is it justice to regulate every aspect of a normal person’s life and continuously monitor his every move?

The change must start with the changing the values. Focusing on the young that will get a terrible deal in the future. Focusing on the many SMEs and smaller entrepreneurs that create 80% of all new jobs in Europe today, but get only paperwork and bureaucracy in return from their governments.   Focusing on micro rather than macro elements in the economy.

And when the message is values and fundamental change, no one is more powerful than Ayn Rand. Her books constitute inspirational, understandable and practically applied philosophy. Saxo Bank has given out more than 15,000 books in the past 10 years, and I hope that some of you here in the audience today will also feel inspired to help spreading her work among the receptive – the young, the entrepreneurs, the new political movements protesting EUs excesses and against the growing lack of respect for the individual.

If we don’t succeed in changing the values and direction of at least the next generation, I fear the full prediction of Atlas Shrugged will become reality – and while that may hold some promise for the distant future, it is not something that I think people of my age feel like going through if we can avoid it.  Thank you.

Ayn Rand: More Relevant Now Than Ever

This is a transcript of the speech "Ayn Rand: More Relevant Now Than Ever"  given by Lars Seier Christensen, Co-founder and CEO of Saxo Bank, at Goldmsith's Hall for the Adam Smith Institute's Ayn Rand Lecture on the 29th October 2013 

"First of all, I would like to thank The Adam Smith Institute and Eamonn Butler for having me here. I would also like to extend a big thank you to Yaron Brook and the Ayn Rand Institute for suggesting me as the speaker for the second annual Ayn Rand speech at this renowned institution. I am very proud of being offered this opportunity, and would also like to thank all of you in the audience for coming here tonight. I hope it will interest you to hear about both the positive aspects of deploying Ayn Rand in practical, day-to-day life, as well the more grim part of the speech – about a world that is on the wrong track and where change is desperately needed.

Now – I am going to start by quoting someone that anyone who knows me realizes is not my favourite politician. I consider him a very significant part of the problem we currently increasingly. But at least he did us a favour by underlining just exactly how relevant and important a voice Ayn Rand is even today, more than 30 years after her death. Let me quote the 44th president of The United States, Barack Obama, for the first and last time this year, I promise.

Ayn Rand is one of those things that a lot of us, when we were 17 or 18 and feeling misunderstood, we’d pick up. Then, as we get older, we realize that a world in which we’re only thinking about ourselves and not thinking about anybody else, in which we’re considering the entire project of developing ourselves as more important than our relationships to other people and making sure that everybody else has opportunity – that that’s a pretty narrow vision. It’s not one that, I think, describes what’s best in America.”

Read the full speech here:

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Why a carbon tax would work

Yes, yes, I know, I become ever more tedious on this subject. Yet it still is true that if we are to believe that climate change is happening, that it is indeed something we must do about and further, that it is us causing the problem, then the answer is a carbon tax at that social cost of carbon emissions (more accurately, CO2-e).


Two-thirds of Britons are expecting to cut back on heating their home this winter, with more 25 to 34 year-olds likely to turn down the thermostat than pensioners. A new report last night claimed 32 per cent of people will "definitely" turn down the heating or switch off lights over the coming weeks in a bid to save money. A further 35 per cent will "probably" act. Some 88 per cent of households classified among those struggling with the rising cost of living fear they will have no choice but to use less gas or electricity.

Because when prices change people change their consumption habits. Given that this is what we want to happen, consumption habits to change, therefore we want to change prices.

Now I'm aware that many reject the basic layout, that there is a problem that we are causing that something should be done about. But please, let us leave that aside for a moment: think of this as a logical construct, not necessarily a description of the true world around us. Those who do accept that trio of assertions should therefore be in favour of a carbon tax. And yet that is not the consensus among those who do accept those three postulates. And for the life of me I cannot understand why. It is, after all, the main finding of the Stern Review, the very review that is waved around in support of the argument that we do have a problem that we should do something about.

All I can really come up with is the idea that people don't like something so simple as a solution. They'd prefer to witter on about an ecodammerung rather than find that there is a simple and cheap solution.

For a proper carbon tax in the UK would indeed be a cheap solution. As I've pointed out before the UK's emissions are of the order of 500 million tonnes a year. Stern says the tax should be $80 a tonne, or  perhaps £50 a tonne. £ 25 billion a year in emissions taxes. And when you add up the extra fuel duty from the escalator, landfill tax, air passenger duty and so on, we're already paying such an amount in those emissions taxes.

So, actually, we're done, finished, the UK has, as far as the Stern Review is concerned, already put into place the solution to climate change. We can declare victory and go home.

As I say the only reason I can think of that this isn't what we're doing is that there are far too many people invested in the idea that this is a complicated and difficult problem that needs their special skills and jobs to solve, rather than being one that we have already dealt with.

The joy of markets

How wonderful to see that the terrible shortage of housing in London is being solved!

Office buildings across Mayfair, Soho and Fitzrovia are being turned back into residential homes in a bid to capitalise on rising property prices. “We have sold over 100 office buildings in Mayfair back into residential use in the past year,” said Peter Wetherell, founder of Mayfair estate agency Wetherell.

“All the period office buildings that have been used as offices for 50 years are being turned back into homes. “It’s the biggest thing going on in central London right now.” The trend has been sparked by rising property prices in the capital, with the average cost of a home in London rising 9.4pc in the year to September, and 24pc further growth forecast for 2014. “The square footage is worth a lot more for residential,” explained Mr Wetherell.

It is of course the change in relative prices which is leading to the change of use. And of course without a price system we'd not be able to determine the relative demand (and the effectiveness of that demand) for the two potential uses of the properties.

A commissar mopst certainly could (and would) decide that those properties in the most desirable area of London should only be for the use of those the commissar approved of, as happened everywhere that commissars allocated property. But even such a lauded and senior functionary would not be able to work out what they should be used for without some method of determining the relative values that the people themselves placed upon the alternative uses.

Or as Hayek pointed out, we have to have the market because it's the only thing capable of being the great calculating engine a to the value that people place on things.

Chart of the week: Inventory build-up a major contributor to US GDP

Summary: Inventory build-up was a major contribution to Q3 GDP

What the chart shows: The chart shows the contribution of the change in inventories to US quarterly annualised GDP growth

Why is the chart important: US Q3 GDP growth was surprisingly strong at 2.8% (quarterly annualised rate; in the UK, we would say 0.7%). A breakdown of the numbers shows that 0.8 percentage points was due to an accelerated inventory build-up. This was almost certainly was involuntary. Over time, the contribution of inventories change to output growth tends to cancel out. While a positive contribution for three consecutive quarters or longer is not unheard of, it is rare. Bear in mind that what matters is not the absolute change in inventories, but the change in the change. In other words, a slower pace of inventory accumulation means a drag on GDP growth. The conclusion is that the current quarter and probably the next as well, will see a possibly substantial deduction from growth due to inventories.