A very interesting article in The Times here, on stripping the Bank of England of its power and letting the market set interest rates.
"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
A very interesting article in The Times here, on stripping the Bank of England of its power and letting the market set interest rates.
A new US Congressman's welcome banner. I wonder if any MPs would put up a similar sign in their offices...
(Hat tip: Club for Growth)
Sino-American relations have been fragile lately as American legislators levy accusations of unfair trade practices against the Chinese government. A certain amount of anti-China rhetoric always accompanies a new White House administration – in fact, the Obama administration has had relatively peaceful relations compared to the early Clinton years. And Treasury Secretary Timothy Geithner is well versed in Chinese affairs and has done what he can to avoid labelling China an official ‘Currency Manipulator”. But inevitably, and particularly with Democratic presidents, there is pressure from unions and economic nationalists to face down the perceived Chinese beast.
Of course, an appreciated Chinese currency would drive the prices of Chinese consumer goods up, which would in turn affect importers of Chinese goods. And of course, bilateral trade deficits are meaningless, given the multilateral nature of industrial inputs. But American politicians seem more interested in pseudo-populist rabble-rousing than in opportunities for growth.
The Chinese government does freely engage in protectionism, but the best thing the US government can do is to do nothing. Divisive accusations and tariffs will only create an escalating trade war that will hurt both sides. This is particularly true because the Chinese government is eager to appear independent of foreign influence before hawkish Chinese nationalists. China is less likely to appreciate its currency or take other steps to reform if it is being chastised. Both governments would do well to keep their hands off trade. Minimising petty recriminations and provocative rhetoric will make that more politically feasible.
Tom links up to a post with this graph about US poverty levels.
The thought is that since the war on poverty began there's been no decrease in poverty: thus the war on poverty doesn't reduce poverty, perhaps it even confirms it?
There's certainly the possibility of welfare dependency however, US poverty line statistics are such a mess that that's perhaps not the best explanation possible. What has really changed since the mid 1970s is that we've changed the way we measure the effects of trying to alleviate poverty.
Unlike the rest of the world the US does not measure poverty after all the things we try to do to alleviate it. UK poverty statistics, for example, give us the number of people still in poverty after we've given them money, cheap housing, tax credits and all the rest. US poverty statistics however used to do this but no longer do.
The reason is that the US numbers include the market incomes of the poor plus the direct cash transfers they get as welfare. They do not include Section 8 (our housing benefit), Medicaid, Food Stamps nor the EITC (tax credits to us). The EITC for example costs $80 billion a year, raises 5 million above the poverty line on its own (just the Federal one, most States have one as well on top) but none of the effect of that is in that graph.
When did the EITC start? In the mid-1970s. When did all the move from straight cash welfare, which is included in those poverty figures, to goods and services in kind, which are not included, begin? In the early 1970s: exactly when we see poverty flatlining.
It all sounds a bit odd, I agree, but there is a real answer to the question "How come the US spends hundreds of billions a year on alleviating poverty and doesn't seem to alleviate much poverty?". The answer is that no one is counting the poverty alleviated by spending hundreds of billions of dollars a year.
Strange but true.
It's a problem of the EU's own making, of course: had they tried to design the Euro as a stable and solid currency for the whole region, they would have just re-branded the Deutschmark, and they certainly wouldn't have let Greece in. Indeed, they probably wouldn't have let Italy in. But no, the Euro was designed not as a currency but as a testament of political faith in the Union.
The problem is that even if Greece is bailed out (and since the UK provides 20% of the EU budget, you know that we will be doing a good deal of the bailing, Euro members or not), Italy looks similarly shaky, and is an awful lot larger. Greece's debt is a tiny and manageable 4% of the total government debt in Europe, while Italy's is a huge and potentially disastrous 23%. And as Laurence Copeland of Cardiff University Business School points out, 'the difficulty is that Italy's the Euro zone's third-largest economic power, [and] has a debt-to-GDP ratio similar to Greece's'.
Copeland thinks it could play out two ways in the UK, Germany and other countries who will be forced to bail out their irresponsible neighbours. Nationalism and anti-EU parties could rise; or voters might support the same profligacy that they have seen in Greece, thinking that everyone else can darn well bail us out for a change.
Either way, it's bad news for the Euro, and a source of instability that the world financial system, already punch drunk, will have trouble defending itself from. Only urgent action to remedy the core problem – government overspending and overborrowing – will keep us upright.
Today’s vote on the higher education funding changes is an important one, though sadly it has lost many of the better points made in the Browne Review. Until there’s a free market in fees, with the price of a degree reflecting its cost and the demand for places, well-performing students will still struggle to get the place they want. If history has shown us anything, it’s that price controls harm the consumer most of all. Similarly, the cap on fees means that taxpayers will still have to subsidize other people to go to university and universities will struggle for funding in the state system.
Still, the bill is a step forward. Increasing the student’s contribution is right and means that the person who will be the overwhelming beneficiary of the degree will pay for most of it. The student loan system will probably continue to be massively inefficient, but at least it means that those students from poor families who do succeed in state schools will be able to study at quality universities.
Alternatives like a graduate tax, as proposed by some Labour politicians – and rejected by others – would disincentivize the work done by the most productive people. It’s also not clear to me why the NUS prefers an extra tax that would hang around for graduates’ entire lives to a finite sum that graduates can pay off and not have to worry about. When you think about how much debt people are willing to incur when buying a house, the £18,000–£27,000 cost of a degree doesn’t seem too bad, especially since, according to the OECD, graduates earn an average of 57% more than non-graduates.
I somewhat understand students who feel hard done by – the Lib Dems are the ones who made the error in signing the “No Fees” pledge – although students really ought to learn that part of being an adult is self-reliance. The Liberal Democrats’ violation of that pledge should be a warning against the danger of this sort of pandering. I don’t think they expected to ever be in a position to violate the pledge when they made it, but they are. But, to their credit, they’re taking an enormously harmful step politically in voting for these reforms and going back on the error. Good for them.
Dear Prime Minister,
Might I suggest a little something on a subject dear to your heart? We are all waiting for your expected announcement this week on the likely classification of cannabis, should it be upgraded to a Class B drug from the current Class C? We're waiting breathlessly, of course (those of us who indulge perhaps more breathlessly than others) to see whether you're going to ignore the advice of your own hand picked advisors, whether you have bought the entirely spurious arguments about increased drug-induced psychosis and indeed whether you think the higher THC contents in modern 'erb make it more dangerous than previously. That last really confuses me I'm afraid: we've long had alcohol that comes in varying strengths, from beer to wine to whiskey, and consumers seem not to unintentionally down pints of whisky nor purchase beer by the 25ml shot, so I'm not sure what anyone thinks the problem is here.
But anyway, on to my suggestion. Might we try the Dutch solution?
"Coffee shops", where small amounts of cannabis have been legally bought and smoked since 1972, have become a major industry and a popular tourist attraction in cities such as Amsterdam.
Tax on the 265,000kg of soft drugs sold last year in the 730 cafés netted the government £315 million.
Rounding out our numbers, and ignoring the point that we have many more people than Holland, currently that £300 million in tax revenue would keep the governmental machine running for an entire five hours! A small enough contribution you might think, but every little counts, does it not? We might also think of the spending savings: the upgrade will raise the possible sentence from 2.5 years to five in jail for simple possession. Given the 3 million regular tokers we are thought to have, do your finances actually contain enough money to cover that potential 7.5 million man years of jail space you might need?
I mention it only as an option, of course: I do understand that you "wish to send a message". It's just that, well, to send a message, umm, don't you know anyone in the advertising industry? I'm sure they'd be delighted to help at considerably lower cost.
The government has correctly realized it cannot spend its way out of debt. It has not, however, paid sufficient attention yet to the supply side, to helping create the right climate and conditions for economic growth. The debt, big though it is, will look smaller in a larger economy.
There is one simply supply side measure that could boost growth rapidly. It is to make life easier for small businesses so they can be established, grow and expand, and create the new jobs that will cut unemployment and dependency.
The record of small businesses is there for all to see. Companies with fewer than 100 employees create roughly two-thirds of all new jobs. Yet life is by no means easy for them. These firms, which account for nearly half of all employment in the UK, have to spend time calculating PAYE tax returns and National Insurance for their employees, when they would rather be out generating more business and creating more jobs. And they have to cope with a swathe of regulations that take time to comply with and hamper their ability to expand.
The one big supply side measure to unleash them would be to allow those who work for small businesses to be registered as self-employed. The employers would not then face the burdens of paperwork. They would not have to cope with statutory sick pay, holiday pay, maternity and paternity leave and a host of other regulatory requirements. Big firms can set up departments to deal with this, but the small employer who hires a handful of people gets bogged down in a quagmire of costly red tape.
Of course the Treasury will resist. They have spent 20 years trying to force self-employed people into 'employed' status so they can collect tax from them more readily. The Chancellor should force his Treasury to look at the supply side. New jobs mean people being paid wages and spending money, some of it in High Streets. They mean people coming off benefit. They mean a growing economy and a broader tax base.
Small businesses could simply send the names and contact details of their staff to HM Revenue and Customs, and pay their staff as self-employed people under contract. It would be a simple reform, and one that could give the economy a jump start where it matters most – in the sector that creates the new jobs and growth.
We've just had a crowd of Nobel Laureates telling us all how urgent is the need to do something about climate change. And we've also just had a group of not scientists telling us that hundreds of thousands are already dying from the effects. That latter used some, umm, creative methods to reach that conclusion, for I was previously entirely unaware that earthquakes were indeed caused by climate change.
However, this leads to me to ponder a little on what Lord Stern told us. That was that we could sort this all out for the remarkably low price of 1-2% of GDP, spent year by year over the next few decades. Given the size of the UK economy this means some £14 billion to £28 billion a year. And we're also told that this amount should be used to correct the price system, so that matters currently external to the markets become internal to the pricing system. This so called Pigou taxation.
This makes sense, I have to say, as the amount of damage, by Lord Stern's figures again, done by Britain's emissions are again in this sort of range: £14 billion to £28 billion.
Now whether I actually swallow all of these numbers is a different matter, but let's take them at the logic of their proponents. We know the problem, we know how to solve it, we know how much the problem costs and we know how much the solution costs. Excellent.
But, but....well, how much are we already paying in such green taxes? That depends a little on exactly how you want to calculate what is a green tax but adding up landfill tax, air passenger duty, the petrol tax rises from the fuel duty escalator and so on we get to a figure of....£14 billion to £28 billion again. Which means that, by the logic of the Stern Review, we've actually already solved climate change.
No, not even I think that to be actually correct, as Lord Stern himself doesn't. For he keeps telling us that we must do much more, much more quickly, in order to solve the problem, as those Nobel Laureates were also telling us last week.
Which, sadly, leaves us with one inescapable conclusion. We're not going to crack this at that low cost of 1-2% of GDP per year over the decades. It's going to be much much more expensive than that: which means we really need to reopen the calculations of whether we want to stop climate change or would prefer to adapt to it.