The Pin Factory Blog

There seems to be no limit to the cruel and unusual punishments that Britain's government can dream up. Now the Business Secretary Lord Mandelson wants to disconnect internet users who download copyrighted material. The interesting thing about this current proposal is that those it is supposed to protect, such as musicians, are universally opposed to it, and have written to the Times to say so.

Of course, there's s a law of copyright, and as long as any law stays around, people should face penalties for breaking it. Traditionally we have used fines, or imprisonment in the more serious cases. And the principle has been that the punishment should be proportional to the transgression. The punishment should indeed fit the crime – but not in the style of the Mikado, which ministers don't seem to have realized was a joke.

In the last decade, however, all sorts of unrelated punishments have been dreamed up – withdrawing welfare benefits, scrapping people's cars, and 1001 (or more) different proscriptions under Anti-Social Behaviour Orders (which can land you in jail without trial if you break one of them).

The mechanics of cutting people off – when innocent people might use the same internet connection – seems about as impractical as Tony Blair's idea of marching young troublemakers off to cashpoints to extract on-the-spot fines. And about as just.

Here's another Mikado-style punishment plan for Lord Mandelson. People who cheat on their mortgages should have their houses demolished. I know one person who would be out on the street, for sure.

Fidel Castro’s retirement seems to offer a “once in a dictator’s lifetime” opportunity for Cuba to escape the injustices of Communism. However, with reports that brother Raul is of equal mind to Fidel, freedom could be as far away as ever. With the internal strangleholds over internal revolution, this may be a good time for the US government to change their policy towards Cuba, undermining the new leadership through trade and engagement.

If life is to improve for the people of Cuba, the US should consider ending its long-term trade embargo. It could be the necessary catalyst to move the country from the dead-end limitations of Venezuelan oil money to the limitless wonders of free and varied trade. However, President Bush (like those before him) is in a tight corner. The Cuban-American lobby puts strong pressure on the US to continue its embargo, a valid position in view of the many freedoms taken for granted in the US but routinely trampled upon by the Cuban government.

However, efforts like the Condozeela Rice led United States Commission for Assistance to a Free Cuba (CAFC) have failed. The best way to put pressure on the inadequacies of the Cuban system is to trade with them. Such a position was argued convincingly in the Financial Times last month. Cuba’s future may not come from the withered seeds of its home grown kleptocracy, the passing of power from dictator to dictator. Instead it could come with the inauguration of a new President and a change of US policy: from the energised democracy, ninety miles across the Straights of Florida.

One clear fact shines through the bluster: Brown is to blame. He told us that Britain's financial problems were "caused in America," as if their sub-prime crisis were wholly responsible for our own troubles. He told us that he had "cut borrowing," whereas in reality he increased it to record levels and just lied about it, shifting off-stage the liabilities for private/public partnerships, the commitment to Network Rail, the unfunded public sector pensions, and pledges to Northern Rock, amongst others.

He told us that he had "reduced taxation," though of course he increased it, just using stealth taxes to keep much of it out of sight. Britain used to attract businesses, now increasing numbers are being driven abroad by our tax regime.

He told us that "Britain is best placed" to weather the recession because of the healthy state of our economy and our public finances. In fact we are worst placed, according to the IMF and virtually everyone outside of Number Ten.

Brown bears a heavy responsibility. The inadequate and incompetent FSA is his baby, and he appointed the wrong people to it as well. It failed utterly to foresee to warn, and to restrain, as the Bank of England used to do when it had the task of supervision.

Brown inherited a thriving economy and frittered it away on a recklessly massive expansion of the public sector. When Britain should have been storing up assets for leaner times, Brown was spending as if there were no tomorrow. Tomorrow has arrived, and Brown bears the blame for the mess it has brought. He is Culpability Brown, and cannot escape the blame this time.

Attention has focused on energy bills, but Britain’s water industry has its own troubles –drought orders, hosepipe bans, and tariff hikes.  The new management at water regulator Ofwat should focus on changing the counter-productive incentives that are damaging efficiency and choice.

Because companies are regional monopolies, regulation involves careful balancing between enabling companies to finance investment, and protecting customers from higher prices. It’s now time to tip the scales: the drive towards attaining ever-increasing water and environmental quality at an ever-increasing cost must come to an end.

Following reductions in real incomes, the 2014 Ofwat price review should set below-inflation price limits that would give nominal stability to the tariffs paid by customers.

The focus on environmental improvement has driven up costs for consumers and choked supply. Massive investment has been financed by rising tariffs. Now it is time to intensify the search for more cost-effective – and less capital intensive – methods.

Ministers have treated regulatory financing arrangements as an environmental credit card, with too little concern for those paying the bills. Take the Thames Tideway – a major new sewer under the Thames at an estimated cost of £4bn, the need for which may arise from neglect of sewer maintenance. The objectives of dealing with storm water could be dealt with much more cheaply than by a grandiose tunnel project.

More use should be made of markets. Retail competition – along Scottish lines - should be extended . There should be more trading of raw and bulk water, including supplies from independent providers.

Existing company networks should be linked to enable water to be transferred, by trading, from the water rich North to the thirsty South, reducing the incidence of hosepipe bans, giving choice to customers, and incentives to companies. Extension of metering should be linked to the use of pre-payment devices that would reduce bad debt by helping customers to budget for their water bills.

And water companies, especially when private equity owned, need to improve their governance: footloose global money has now acquired ownership, and should behave more responsibility to its customers.

As the ethical debate around ‘payday loans’ continues, local councils have begun to rally against these lenders. Plymouth Council recently became the first local authority in Britain to ban payday companies from advertising across their billboards and bus shelters, while other councils are looking at following suit.  Councils such as Plymouth City, Newcastle, Dundee and Cheshire East have also already blocked access to the top 50 payday loan websites across their public networks of buildings, libraries and  community centers.

This is partially a response to the Office of Fair Trading’s (OFT) report citing widespread regulatory non-compliance throughout the industry, including a prevalence of irresponsible lending. Whilst the new Financial Conduct Authority is soon to start a consultation over beefing-up industry regulation, the OFT has also instructed the Competition Commission (CC) to look for evidence of any prevention, restriction or distortion of competition within the industry. Last week, the CC announced they would be studying the market for evidence of  “impediments to customer’s ability to search, switch and identify the best value product” and any “significant barriers to [firm’s] successful entry or expansion”.

The CC is probably expecting any anti-competitive behavior to stem from firm’s actions or the market’s structure. However, by restricting consumer’s access to information and erecting new barriers to entry, local councils are themselves making the market anti-competitive.

Blocking payday websites in public buildings means that those needing public internet to research loans are prevented from exploring the range of options open to them. These are generally the people most likely to benefit from discovering lower rates of repayment and flexible deals — and the kind of vulnerable people the council’s actions are designed to protect. Furthermore, banning advertising is simply likely to entrench the market share of current top providers who have an established image — regardless of the merits of other companies. The FCA is currently contemplating a cigarette-style nationwide ban on payday loan advertising , which would further compound this problem. Council’s actions may be designed to hurt the loan companies, but they end up harming consumers too.

It is interesting to see what, if anything, the CC will say about this impediment to effective competition. Given current public opinion it seems likely that any action taken to obstruct the publically-defined ‘predatory’ loan companies is here to stay, even if it were to negatively impact on the most vulnerable.

Instead of banning adverts and adding tighter regulation — both of which are designed to make it harder for these payday companies to operate — there are more effective ways to address the rise of payday loans.

Whilst currently only a small source of finance Credit Unions provide a viable and ethical alternative to payday lenders. However, they currently face a monthly interest cap of 2% and are often a loss-making venture. Easing the restrictions on Credit Unions would better allow them to make profits, grow in scope and effectively compete with payday companies.

Secondly, making the benefits system simpler would provide some with greater financial certainty and could eliminate some of the reasons for resorting to a quick loan.  A benefits system better at tracking changes in people’s situations would reduce the delays people face to get the correct benefits and would reduce the number of people having to pay back over- payments. Similarly, tapering the withdrawal rate of benefits in a gradual way would ensure that people entering work aren’t suddenly hit with unexpected surprises and bills.

Tackling what we deem a worrying trend in society doesn’t always require bans and regulation. It is possible to create alternatives to payday loans and reduce the need to use them without demonizing or blaming the lenders themselves.

Recently, Kier Martland produced an article in The Libertarian attacking Sam Bowman's take on immigration, suggesting an alternative libertarian view on the issue – using Hoppe to back up the position. I think this view is entirely mistaken. Indeed, Anthony Gregory and Walter Block take apart Hoppe's position here and Block again here.

The position taken by Hoppe is that nobody should be able to make a claim on the state without 100% consent from those paying for it, including for goods such as roads. The issue is that the state does exist, so long as there is government we should seek to ensure a policy of least damage done. By having high costs or even bans to hire migrants, the state would be taking away people's right to freely associate and make contracts. Further, by increasing the cost of labour, and doing other such damage to the economy as described in Bowman's article, restrictions on immigration do damage to the taxpayer. Hoppe's “second best” position simply doesn't hold true.

If one group in society objects to immigration, that does not mean migration is wrong because they pay a small percentage of the cost (even though, again, immigrants are a net positive for the tax collector). Indeed, the same argument would hold true for economic nationalists or greens who wished for only local goods to be sold in the economy. By importing foreign products, one would be initiating trespass on the roads by transporting goods unwanted by third parties. The same could be said of any good transported that an individual disapproved of, whether alcohol, meat products or any other “vice”. Similarly, Christian Scientists or others who disapprove of modern medicine might insist that taxpayer roads not be used for transporting any related materials. The position is ridiculous, you cannot support absolute rights to reject immigration whilst not supporting the same absolute right to reject other goods and services people might disapprove of.

By suggesting an increase in government control of migration, both Martland and Hoppe are going the wrong way on this issue – it is not about defending the taxpayer. Increasing the scope of the state, and the cost to taxation in policing it, as the Hoppeans propose, is damaging. What about those who pay taxes that DO want immigrants to use government services such as roads? Are their rights lesser than those who are for government restriction? Even if the costs and size of government are larger to be more restrictive? Should they be forced to fund border forces in this way? The Hoppean position on immigration is illogical; you do not reduce the scope of the state by increasing it and the number of tasks it undertakes. We should be looking at ways to limit the damage and cost of government now, and not sit in ivory towers trying to fudge a philosophical position that takes away the right of free association.

China is being widely accused of manipulating its currency for the benefit of domestic exporters. Despite the ostensibly diplomatic stance Obama is taking on the issue, it is clear that many in Congress and the Treasury are not happy about what they see as behaviour that apparently costs US jobs.

But doesn’t the concept of currency manipulation imply some ‘natural’ currency value? Surely to manipulate this value requires an original level to have existed, free from government interference. The point may sound hair-splittingly philosophical, but I certainly think it is interesting.

Just consider that by virtue of existing at all, governments will be having an effect on currency values. Everything a government or central bank does should have some effect on relative currency values; budget deficits (i.e. USA, UK and Euro) and interest rates are a few examples.

The accusation of currency manipulation, then, is a slightly strange, not to mention hypocritical, one. Recall that the USA has deliberately weakened its relative currency value in two previous recessions in order to expand exports. I don’t think it is clear that the current Chinese actions are significantly different.

It seems that the line between ‘legitimate economic policy’ and ‘currency manipulation’ is a thin one, if existent at all. The US should remember that this issue is full of grey areas before it makes any official accusations.

Sir John Major, former Chancellor (and ex-PM) said at the weekend that public spending should be reduced by a third, including cutting the number of civil servants and ministers.

That would mean reducing government spending from nearly £700 billion to around £450 billion. Since the Treasury expects to collect just under £500 billion of tax this year, it would turn the monstrous £175 billion borrowing into a surplus of about £45 billion.

I’ll let you play fantasy Budgets, but that surplus would be more than enough to abolish council tax, fuel duty, or corporation tax, or increase the tax-free personal allowance to £15,000.

So Major’s proposed cut would mean significant tax cuts as well as a balanced Budget instead of record debt.

That sounds like an incredibly radical measure, even though a necessary and desirable one. But is it really (as I am sure the public sector unions will scream) a savage cut that would cripple public services, or is it a feasible, moderate policy?

Let’s look back a few years, to before the recent government profligacy.

In 2000, three years into the Labour government and with “Prudence" Brown as Chancellor, total government spending was just under £350 billion. Increase that by inflation, and it would be about £450 billion next year.

So the radical-sounding cut of one third of public spending just means that the government does what it did in 2000, with its costs increased by inflation. Is that really so difficult?

Just think of all the wonderful things that the government does now, that it didn’t do in 2000 (go on, try). Are they worth beggaring the country for?

As Tom blogged here last week, “all that extra cash has achieved more or less nothing." Well – except for a crippling public debt!

In between the turkey, spiced beef and mugs of hot port, I spent some of Christmas thinking about the state. Specifically, how to make it smaller.

Milton Friedman used to say that cutting taxes would force governments to cut spending to make ends meet. The last ten years has basically proved him wrong. Why cut spending when you can spend more, tax less and let the next lot pay the bill?

The old ‘tax cuts first’ strategy is dead. For a smaller state, we need to cut spending as we cut taxes, and avoid government borrowing as much as possible.

But it’s not quite that simple. The problem is that there aren’t many places you can cut without also changing quite a few other things as well. “Cut spending” sounds good, but, without much more fundamental reforms, almost any big spending cut would leave a lot of people high and dry.

The five biggest areas of government spending are health, welfare, pensions, education, and defence. To really shrink state spending, we need to cut all of these things. But without a complete overhaul of policy in general, no real cuts can be made.

The NHS is a socialist bureaucracy, but until we liberalize the healthcare market and make health insurance a viable alternative for NHS users, cutting the NHS might very well make patients’ lives a lot worse. A simple cut to the NHS would be bad because, thanks to the state, a lot of people depend on it for their healthcare.

The same goes for all the other big areas of spending. Want to cut education spending? Fine, but without something like school vouchers or private education tax credits, things will probably get worse. Some bits of welfare can and should be cut, but without planning reform to reduce the cost of rents and employment deregulation to increase the number of jobs going, people who genuinely cannot find work will suffer. And a tax system that takes £1,500 from a minimum wage worker is utterly morally bankrupt.

Try explaining to granny why her pension is being cut after spending her life paying National Insurance (under the impression that it was something other than a tax in disguise). And defence cuts – great, but not until we’re out of Afghanistan and servicemen’s lives won’t be threatened by a shortage of bullet-proof vests.

Of course deep spending cuts are needed. But, unless you’re happy to mess over people who rely on state services through no fault of their own, they can only work in conjunction with big changes in how we do things.

Spending cuts are a little bit like Brussels sprouts: quite good for you, but not very appealing on their own. But as part of a bigger meal, they can be wonderful. Deeper cuts are only possible with fundamental libertarian reforms of the state. That will be a bigger task than many would like.

For markets to work efficiently, product information needs to be transmitted between the producer and consumer: competition and regulations mean few businesses could survive while keeping consumers ignorant of their product.. However, prohibition creates black markets, where reliable information is hard to come by. In the market for illicit drugs this is a highly dangerous problem: lack of information about the quality and composition of substances is potentially lethal.

It was therefore interesting to read CUT, a publication by Liverpool John Moores University that looks at the adulterants and bulking agents found within street drugs. Contrary to public perception, dealers don’t cut their wares with copious amounts of rat poison and brick dust, as they have little incentive to bump off their clients. A large number of adulterants are in fact relatively harmless substances such as sugar, caffeine and paracetamol. Nevertheless, the report also found examples of some rather more dangerous contaminants, such as lead within heroin samples and cannabis laced with glass. It also found chemicals such as pesticide and vetinary medicine added to certain drugs to intensify or prolong their effect. However, the report is far from conclusive as it is unable to suggest the percentage of drugs that are adulterated, or even the concentration of contaminants found in existing samples.

The main problem is that street drugs are rarely analyzed for anything other than to assure criminal convictions. Supplied underground, illegal drugs are free from all quality assurances and proper scrutiny, so users are kept in the dark on the risks they are facing. This is just one of the many reasons why policymakers should recognize that the war on drugs has been an utter failure. The market for recreational drugs should be legalized and regulated, bringing £6 billion of activity into a system of proper control. With detailed information easily at hand and stringent quality controls, people would be able to take educated decisions with full responsibility for the consequences.