The Pin Factory Blog

Austrian economist Professor Anthony J. Evans has written a think piece for us on the dangers of a second round of quantitative easing. He argues that quantitative easing is a counter-productive policy:

Policies like QE increase regime uncertainty and generate systemic instability. They have the potential to make matters worse, and ignore the fact that you cannot buy confidence. The Bank for International Settlements – one of the few organisations that foresaw large elements of the financial crisis – warns about the upside risk of continued low interest rates. Systemic misallocation of capital (including human capital) remains. Excessive risk-taking remains. Over-leveraged balance sheets remain. Volatile capital flows remain. We know that we still don’t know the amount of toxic debt in the economy, so not only are the conditions that led to the crisis still at work, but they are growing as time passes.

Evans goes on to suggest an alternative, laissez-faire approach:

Firstly, economic recovery will only come when we begin to rebuild the capital stock through investment. And rather than recapitalise the banks through taxpayer bailouts, it can be done through an increase in voluntary savings. Secondly, the recession itself is a sign that markets are adjusting, and that entrepreneurs are engaging in the recalculation that is required to understand which plans were unprofitable and where capital should be reallocated. Allowing relative prices to adjust as quickly as possible, reducing labour market rigidities, and improving labour mobility will all help with this.

He concludes by noting that "such policies will not return us to the euphoria of 2008, but they will generate a platform for genuine and sustainable economic growth. There is an alternative to more QE." 

Three people a day die because of a shortage of vital organs for transplant, according to the Organ Donation and Transplantation division of NHS Blood and Transplant. The BMA has called for introduction of presumed consent to donation, but this is politically unfeasible and, in any case, unnecessary. Instead, the government should remove the ban on paid organ and tissue donations. This would very quickly end the shortage of vital organs and save hundreds of lives every year.

There are two kinds of organ donation: living donations and posthumous ones. Living donations occur when someone donates a surplus organ or tissue – the most common example is a kidney, but tissue donations of blood, bone marrow and skin are also in short supply. Posthumous donations can include the heart, kidneys, pancreas, lungs and liver. Both would rise rapidly if sales of organs were allowed.

In the case of posthumous organ and living tissue donations, the case is clear. A major reason for the shortage of organs is that most people lack the time necessary to go through the hoops needed to donate. Others have problems with the ‘yuk factor’ associated with thinking about their own mortality, a fear of needles (in the case of blood) or reluctance to go through with a painful operation (in the case of bone marrow).

Many of these marginal problems would be overcome if money could be paid for donations (or for signing onto the donor register for posthumous donations). People would have the incentive to spend the time finding out about how they can donate, and many people's squeamishness would diminish if they could make some money out of donations. Some might be balk at the thought of a generous act being turned into a financial transaction, but this sentimentality costs hundreds of lives every year.

Worries that living people would feel forced into donating a kidney are real and must be given serious consideration before the law is changed. But the debate over this element of paid donations should not be allowed to overcome the much broader case for paid donations – posthumous organ and living tissue donations – that would not endanger the life of any donor, but would save the lives of many people in need of a transplant. Legalizing these donations would be an immediate way to save lives at zero cost.

US Secretary of Education, Arne Duncan, met Michael Gove yesterday. His arrival in the UK should be a reminder to us all that if we care about what’s best for our education system, we can put aside the traditional divide between the political left and right.

Duncan is a devoted Democrat who grew up tutoring children at his mother’s after-school programme on the South Side of Chicago, an area not known for being populated by latte-swilling middle class parents. He wrote his undergraduate dissertation on the plight of the urban underclass and has called schooling “the civil rights issue of our generation”. In addition to this – shock horror – he supports policies to lessen state involvement in education.

Obama’s administration has overseen an investment of more than $4 billion in the ‘Race to the Top’ competition, designed to spur reforms in state and local district education. States must vie for federal money by submitting proposals that include reforms to expand charter schools, and the evaluation of teachers is based on their students’ exam performance. Duncan supports the coalition government’s proposals for free schools, which model themselves on the charter schools that he has given room to.

Meanwhile, back in the UK, school reform is facing considerable opposition from the left wing. Labourites continue to insist that ploughing yet more taxpayers’ money into comprehensive schools is what’s needed to raise standards, despite the fact that such tactics have been shown to be a comprehensive failure. The experiment into tight government control of education has lasted over four decades, and over 90% of those going through the school system have been subjected to it. And the result? Standards are woeful, teachers are demoralised, and parents who can’t afford private school fees or expensive houses find their options for educating their children severely limited.

The NUT is sending threatening letters to state heads asking them of their intentions with regard to free school status, and plans to create a list of individuals who support the free school scheme in a tactic more reminiscent of the Salem witch trials than a simple bid for freedom of information. Meanwhile the Anti Academies Alliance describes the Academies Bill as a ‘savage attack on the education system in this country’; ‘an attempt to destroy a democratic, planned, state education system and replace it with a two tier, market driven collection of independent schools at the mercy of education companies driven by profit’. It’s a shame that left-wingers in the UK seem to understand so little about free market economics. If they’d read Smith or Hayek they’d understand that an atmosphere of competition fosters high standards, and that planned societies are possible only in conjunction with totalitarian governments.

It is an obscenity to suggest that those backing the liberalisation of schooling don’t care about those from disadvantaged backgrounds. Indeed, the coalition’s plans for free schools promise to be of most benefit to the disadvantaged, since the wealthy will always have the option of shopping around. For the sake of our education system, let’s hope that we can put political bias aside and learn something from Duncan’s visit.

Today the ASI has released a think piece by Anton Howes, which defends the Browne Review and its recommendations for the future of university funding. Anton argues that the Review’s key recommendations – such as its call for the removal of a cap on tuition fees – would end the shortage of university places and allow for a more efficient university system that benefits students. Combined with some modifications to the Review’s proposals for tuition fee repayments, this would allow British universities to retain their world class status and resolve the untenable situation of Britain's universities.

The report does not directly address the government’s proposals, announced earlier today, because the Browne Review remains as the comprehensive investigation into funding. The government's proposals do not address many of the problems and solutions raised by Lord Browne, and as such the article focuses on the pragmatic, evidence-based proposals in his review. The coalition’s policy will go through several rethinks over the coming months, and members of the government would do well to remain conscious of the facts and not the myths about higher education in the UK.

The results of the US midterms and the stunning success of the Tea Party offer a few lessons to free marketeers and libertarians in the UK. Here are some immediate thoughts:

1) Political earthquakes can happen, and happen quickly. Few in the UK imagine that a Tea Party could emerge here because of differences in temperament and history. I agree. But the Tea Party has shown that a simple, strong message of fiscal responsibility can resonate with individuals outside the political establishment and stir them into action. Frustration with overspending and overtaxation can lead to rapid change in political parties, as the number of Tea Party-backed candidates this cycle demonstrates. We should not rule out the emergence of a bottom-up change to the political landscape in Britain, and the free market message appeals to those dissatisfied with ineffectual and overreaching government.

2) The free market message is the best way for the right to win over new demographic groups. As Republican pundit Patrick Ruffini pointed out, the supposedly-racist Tea Party supported black, hispanic and other minority candidates to victory – Marco Rubio, Tim Scott and Nikki Haley are three notable examples. Rubio and Haley are both the children of immigrants and strongly pro-market. If the right in Britain hopes to adapt to a changing population, it should learn from America that the small state, pro-market approach can appeal to people from all backgrounds and walks of life.

3) Libertarianism is becoming increasingly electable. The election of Rand Paul, son of Ron, is heartening. Paul, though backed by Sarah Palin and the Tea Party, is openly libertarian on most issues – sometimes embarrassingly so – and has the potential to be an independent-minded voice for individual liberty in the Senate. Paul’s landslide election shows that, if libertarians can co-opt party apparatus to win a nomination, their views are often surprisingly appealing to the electorate. Kentucky is a far cry from the Home Counties, but his anti-bailout, anti-corporatist platform could be just as effective in some parts of Britain. On the other hand, the Californian ballot initiative to legalize marijuana failed – the libertarian message still has a long way to go.

4) Social conservatism is becoming decreasingly electable. The Tea Party-backed candidates who struggled and often failed were the ones like Christine O’Donnell, Sharron Angle and Ken Buck who emphasized a socially conservative message that strayed from the free market principles that are at the core of the Tea Party. Angle said that she wanted to ban alcohol, while O’Donnell’s campaign was a trainwreck from its conception thanks in part to her outspoken opposition to masturbation. Voters simply don’t want to hear a politician trying to control their bedrooms while claiming to free their wallets. 

Britain isn’t America, and it would be a mistake to read too much into these results. Still, they offer an impressive example of how free marketeers can return from the wilderness and decisively shape an election.

Yesterday researchers at Bristol University released a report claiming to prove that league tables create better results in schools. The report’s authors have shown that schools in Wales, where league tables were abolished in 2001, are achieving worse results than those in England. In principle, it makes sense that the existence of information for the consumer would increase competition and therefore the quality of the school. But, as I have argued before, in their current form league tables are broken and inhibit educational success.

Setting aside the other factors that may have affected this result, it still seems that Wales made the right decision to abandon league tables defined by government targets. The report’s release coincides with the Chief Executive of Ofqual calling for the abolition of the very targets that make up these tables, arguing that the current system of tables is an inadequate provision of information. “Simplistic” league tables, which only consider whether a child has achieved five GCSE of C or higher, narrow children’s learning and create a tendency to “teach to the test”. There are many other factors other than simple results that create a good school.

Obviously it is good for pupils to gain as high a grade as possible. However, this is not parents’ only priority when it comes to their children’s education. It seems that rather than Wales being wrong to abandon league tables, it was the inability of the government to create a more effective way of providing information to the parents. This meant that there was no way to compare schools and thus competition was not fostered.

Privatizing league tables would make them accountable to the consumer rather than the government, and would provide a broader ranking of schools. If the government stopped crowding out private companies’ league tables, competition would allow private tables to use wider criteria than government targets, and in turn spark greater competition between schools. 

Via Reason Magazine's Hit & Run blog. Things were better when politicians spoke their minds about each other rather than treating us like children.

What would a British version look like? Suggestions in the comments section.

The article on the dangers of drugs published yesterday by Professor David Nutt is a welcome development in the drugs debate, but I am afraid that it may be a false dawn for people who want to liberalize drugs. The crux of the article is that alcohol has a greater social cost than most drugs, and that certain Class A drugs like ecstasy are less harmful to users than legal drugs like tobacco and alcohol. This is welcome ammunition in the fight to liberalize drug laws, but relying on it heavily may leaves the pro-liberalization side exposed.

Most people know that ecstasy and the like are less dangerous than alcohol. To have a widely-respected public figure like Prof Nutt saying so, and being publicized widely in the media, is a very good thing and a step towards destigmatizing open discussion about drugs. This open discussion is needed so we can have a clear, level-headed debate about drugs and an acceptance that people must be free to make their own choices even if those are bad choices. The article is a useful demonstration that the dangers of drugs compared with legal substances are not clear-cut, and not something that the state should try to make blanket bans on.

The problem is that using expert testimonies like that of Prof Nutt is playing with fire. Yes, this article shows that drugs are not unequivocally harmful compared with alcohol and tobacco, but that is only a part of the argument for legalization – the other part being that the state should not make laws to protect adults from themselves. This is the part that is motivated by a love of liberty, rather than a technocratic harm reduction analysis.

The liberal side of the pro-legalization argument is fundamental to belief in a free society – that adults should not be treated like children. Many things carry risks and benefits, and the cost benefit analyses involved in choosing which to use and which to reject is a personal, subjective one.

My worry is that embracing Prof Nutt too closely will undermine the philosophical argument for drug legalization, and leave liberals and libertarians vulnerable to changes in Prof Nutt’s calculations about harm causation. I welcome this article, and I’m encouraged by the ripples it has made, but at best it is a small part of a much bigger argument.

The foiling of a terrorist plot on Friday has once more pushed the issue of national security into the headlines. Apart from the direct security risks, a worrying consequence of this is the impact it will have on counterterrorism laws that are currently being reviewed.

There has recently been cause to question the Coalition’s commitment to civil liberties, particularly in regards to the existence of control orders. When the government appointed Lord Macdonald to carry out the internal Home Office review of counter-terrorism measures, it seemed that that it was showing a commitment to civil liberties – MacDonald’s liberal views on this subject are well known in Westminster.

However, recent statements from the Home Secretary suggest that the government is only listening to the concerns of the security services instead of those of the country and Parliament. The attempted terrorist attacks may have been given control orders a stay of execution.

Since the introduction of control orders in 2005 there has been much debate about their legitimacy. Their stated purpose was to restrict the movement of any kind of suspects, including British nationals, targeted by the Home Secretary – a huge infringement on our civil liberties. This raised serious concern about the growing power of the government at the expense of our freedom.

When the Coalition was formed back in May, one of the key policy areas that united the two parties was a commitment to civil liberties and to revoke some of the authoritarian policies put in place by the Labour government, including control orders.

Unfortunately, it seems that what was said in opposition seems to count for little in power. We can only hope that the cries for the abolition of control orders from prominent MPs on both side of the Coalition – notably David Davis, who has pledged to vote against their continuation – will help to restore some of our lost civil liberties.

The Guardian reports that graduate unemployment is at its highest rate for the last seventeen years. Is this a surprise to anyone? You don't need an economics degree to figure out what happens when you oversupply something without the demand for it.

One of the policies of the last government has been to squeeze as many people through university as possible, irrespective of the need for more university graduates, in the naïve believe that having more university graduates is an infinitely good thing.

As today’s report shows, this view was wrong. There is an oversupply of graduates caused by government subsidies for university education, just as there is an oversupply of farm produce caused by government subsidies for farming. This oversupply has depressed wages and, as today’s report shows, created mass unemployment for graduates.

Today’s report should be a wake-up call to the government, hammering home the damage that social engineering policies can cause. If some of the now-unemployed graduates had spent the last four years in the workforce, developing skills that were needed by employers, far fewer would be in their situation.

Top-down attempts to reshape society rarely work as their planners intend. The experiment with creating a ‘knowledge economy’ by creating a massive number of university graduates has failed, by creating a supply where there was little demand. Had the government not skewed market incentives for school-leavers by subsidizing university educations, the one in eleven graduates who are now unemployed might not be in this situation.