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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

I know I shouldn't argue economics with a Nobel Laureate but....

Written by Tim Worstall | Saturday 27 November 2010

A couple of weeks back I said that I thought that Iceland might well come out of all of this in rather better shape than Ireland. They've admitted their bankruptcy, defaulted, devalued and now seem to be growing again. Paul Krugman agrees:

What’s going on here? In a nutshell, Ireland has been orthodox and responsible — guaranteeing all debts, engaging in savage austerity to try to pay for the cost of those guarantees, and, of course, staying on the euro. Iceland has been heterodox: capital controls, large devaluation, and a lot of debt restructuring — notice that wonderful line from the IMF, above, about how “private sector bankruptcies have led to a marked decline in external debt”. Bankrupting yourself to recovery! Seriously.

But where I argue with his statement is that he's saying Iceland is heterodox, Ireland orthodox. Countries of course aren't companies or people but the orthodox response to bankruptcy is to admit it and restructure. Devaluation is a time tested tactic as well: as the UK's experiences in 1931 and 1992 (coming off the gold standard and the EMS respectively) show. As Argentina more recently and any number of other times and places show.

What Ireland (and Greece etc) are trying to do now is the heterodox path: given that they can't have an external devaluation they must have an internal one and that the political demands of the European Project seem to rule out default (at least at present), they're not able to do what the orthodoxy prescribes for them.

If you can't pay your debts you've got to default (or the nicer sounding euphemisms of restructure, impose haircuts,) and if your cost base is too high then you should devalue. This isn't, pace the Professor's description, odd, unusual or even slightly different. It's the straight textbook reaction to being in this place where everyone would really prefer they weren't.

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Mapping the future of British healthcare

Written by Harriet Blackburn | Saturday 27 November 2010

nhsAs part of its push for transparency in public services, the government has released a “UK health atlas”. Its aim is to show the variations in health spending and outcomes in primary care trusts around the country. The findings show huge disparities in provision. The idea behind this release of information was to encourage patients to put pressure on the lowest performing primary care trusts. It has, however once again highlighted that the NHS suffers from serious disparities in the quality of care provided. This suggests that the system of healthcare provision in this country has to be radically overhauled.

There are huge discrepancies in spending between primary care authorities – for example, there is a fourteen-fold difference between the highest and lowest expenditures on hip replacement surgeries in different authorities. Some health authorities spent two and half times as much on mental health care compared to others. These variations clearly indicate that the postcode lottery of healthcare is still a major problem. The atlas was standardised to take account of various social and patient factors, so variations in spending cannot fully be explained by these elements.

The lack of a price system means that it is impossible to know which trusts are at fault – are some spending too much, or are others spending too little? What is the optimum amount of money to allocate to hip replacements? Giving power over health spending to a bureaucrat means that spending decisions will be made without the necessary information that a price system would convey.

The most important step to improve the NHS is to break its monopoly on the healthcare market. There should be a move towards the state becoming the regulator rather than the manager of these hospitals, and the provider of funds to support patients rather than of services. Because there is no price mechanism, there is currently an enormous amount of bureaucracy in the system, which all too often results in bad performance of services. The lack of competition means that hospitals can underperform without any incentive to improve. Breaking up the NHS would be a big task, but by doing so the government and the charities would see better care for patients.

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Quantitative Cheesing hits Ireland

Written by Junksmith | Friday 26 November 2010


'As the financial disaster in the Republic of Ireland continues to worsen and doubts are cast over the continuation of the euro, Irish bank chiefs have rolled out beleaguered country's new currency. Earlier this month, Fianna Failure Agriculture Minister Brendan Smith announced that free cheese would be handed out to deprived citizens "to contribute towards their well-being".' – Link.

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Tim Worstall's Chasing Rainbows

Written by Blog Editor | Friday 26 November 2010

Readers of this blog will be well aware of Tim Worstall’s ability to cut through muddled thinking and write clearly about the real solutions to the world's problems. Tim has been particularly strong writing about the politics of global warming, and next week will be launching his new book on the subject, Chasing Rainbows. The book takes on the global warming alarmists on their own terms, accepting the IPPC’s science, and uses the logic of economics to argue that the ends that environmentalists want is best achieved through more globalization and freer markets, not government interventions like cap-and-trade.

The book is thought-provoking and laugh-out-loud funny – from Tim, you’d expect nothing less – and comes with recommendations from Matt Ridley (author of the Rational Optimist), Madsen Pirie, and Tim Harford, the Undercover Economist. I’m happy to say that Tim has allowed us to give ASI Blog readers the book’s full introduction to download, so you can see for yourself. The download is available here, and you can pre-order the book at Amazon (at 20% off) here.

The book launch will be held this Tuesday November 30th. For full details, see here.

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The Lib Dems are listening

Written by Anton Howes | Friday 26 November 2010

It seems as if the Liberal Democrats may be reading this blog. We can't say for sure, but after a truly lamentable start to how university reforms were being presented, they appear to be taking the advice of classical liberals. Rather than making the reforms about deficit reduction and accepting the unpopularity of a rise in tuition fees, they are attempting to redefine the debate. They might not be taking our ideas but they are certainly converging on them: Already, they've done something similar to my suggestion of renaming it so as to differentiate the scheme from up-front tuition fees: I proposed something akin to a "graduate income repayment", and now we hear Nick Clegg (as well as John Hemming) talk about a "graduate contribution scheme".

The Liberal Democrats have finally found their message. Now they simply need to shout a little louder, and a little more. Students aren't stupid, but up until now some extreme socialist activists have misled them: not having actually read the proposals, they readily act upon any number of myths. On closer inspection, the National Union of Students (NUS), having vowed to hound Liberal Democrat MPs as traitors, actually has fairly similar proposals to the coalition government's.

Remarkably, the NUS appears to have got away with this gross hypocrisy: although they would end graduate contributions after 20 years rather than 30, and would set an unrealistically low level of contributions, a system of income-related graduate contributions would remain. The government's proposals fulfill their call for an end to up-front fees for part-time students, and are actually substantially more generous with regards to lifting the repayment threshold from £15,000 per year to £21,000: something the NUS would have kept the same.

The key difference is in abolishing the ability of universities to set their own fees, instead having all funding centrally directed - presumably according to perceived "need" rather than rewarding universities based on their popularity with students. I'm certain that the vast majority of student fury was directed against paying more rather than against maintaining a market in higher education. How absurdly ironic that even the first reason is based on a myth: students would in fact pay less per year under the new system.

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Shifting the consensus on civil liberties

Written by Anton Howes | Thursday 25 November 2010

policeOne of the more positive outcomes of Ed Miliband's election as Labour leader is that his social liberalism is beginning to manifest itself in party policy. He made it very clear during the campaign that he thought the previous government had gone too far with its assault on civil liberties. Now Ed Balls, amongst the most authoritarian and statist members of the shadow cabinet, is admitting the same: he has indicated that Labour may back moves to reduce the period of detention without trial from 28 to 14 days. He has also dropped any calls for the use of ID cards, although the position on the use of CCTV will remain the same.

So what? Well, the mark of a successful government is not one that enacts bold reforms, but one that makes those reforms politically irreversible. The easiest way to do this is to achieve cross-party consensus on reform, or else cause a tectonic shift in political debate, making certain realms unelectable. New Labour emerged as a response to Thatcher and Major – it dropped the more economically illiberal elements of Labour policy in order to become electable. Likewise, the Conservatives have had to become increasingly socially and culturally liberal in response to the Blair years.

Although the consensus may be shifting in favour of civil liberties, we must ensure that it shifts far enough. As Alex Deane of Big Brother Watch rightly points out, the debate must now move towards whether we want to go lower than 14 days. Shifting the political tectonic plates takes incremental change, but the shift must not end with what an ostensibly liberal Labour party will accept – the defence of civil liberties has the potential to become the coalition government's most enduring legacy if it takes truly bold steps to secure them.

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Don't believe the hype about Rupert Murdoch

Written by Sally Thompson | Thursday 25 November 2010

murdochThe Bishop of Manchester this week called for News Corp's £12 billion bid to take control of BSkyB to be blocked. It follows Vince Cable’s referral of the bid to Ofcom, the UK’s communications industry regulator, based on concern that the deal will threaten media plurality in the UK. There has been a growing and unfounded anti-Murdoch sentiment fomented by his media rivals based on the allegation that he has a monopoly over British media. This is mistaken.

In terms of media plurality (sustaining a diversity of views in the media), Murdoch has done a great deal to encourage plurality and innovation through his investment in the UK media scene. Like all profit-driven ventures, success in media comes directly from satisfying people’s wants: Sky News wouldn’t exist without Murdoch’s money and we would probably still be watching three or four TV channels without his support for satellite TV.

James Murdoch also made a strong point when he highlighted how much News Corporation have invested in UK media. Their investment has led to the creation of over 30,000 jobs in the UK over the last 40 years and News Corp’s commitment to innovation, particularly in digital journalism, has changed the face of news provision. Meanwhile in print journalism, Murdoch runs the Times at loss. Without his passion for print media and his deep pockets facilitating long-term recovery, it would most likely collapse. It’s also worth noting that only Murdoch’s support has allowed the Times to experiment with charging for online content – an innovation that may secure the future of other independent newspapers if successful. It’s rather ironic seeing Mark Thompson, Director General of the BBC, calling for Ofcom action against BSkyB when Thompson is the man running the market-dominating, government-funded media monopoly.

As Stephen Foster has argued, the media world is kicking up a fuss about Rupert Murdoch not because of concerns about media plurality, but because they are afraid of the competition. The vilification of Rupert Murdoch as a ‘media tyrant’ gives cover to his rivals to run to the regulators to protect them, rather than trying to compete by offering better services.

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For the unions, apathy rules OK

Written by Nigel Hawkins | Wednesday 24 November 2010

lenBehind all the headlines of the forthcoming Royal Wedding and of Ireland’s ignominious financial collapse, there was an election for the new General Secretary of Unite, the UK’s leading trade union with 1.4 million members. The official winner was Len McCluskey, but the real winner was apathy. Just 16% of Unite’s membership actually voted, with the winner securing a measly 7% of the total membership’s vote.

It is well known that trade unions have had difficulty in organising valid ballots – think of the shambles relating to recent strike votes at British Airways. But a 16% turn-out for such a key trade union post is woeful.

How has trade unionism come to his? After all - allowing for amalgamations - McCluskey’s predecessors include such household names as Jack Jones and Hugh Scanlon. Compared with the 1970s when the trade union movement exuded power, it is now marginalised. Like rusty seaside piers, it seems part of history.

Unquestionably, the major contraction of UK manufacturing industry has greatly reduced trade union membership. Furthermore, as the UK faced seemingly endless strikes – remember British Leyland at Longbridge and Ford at Halewood - in the 1970s, the election of Margaret Thatcher as Prime Minister in 1979 had a massive impact on trade unions.

Various Acts in the 1980s severely curbed their activities and materially changed their legal liabilities. Clearly, with heavy job losses now certain in the public sector, there will be widespread trade union action.

But it is in the pensions field where trade union officials, with the right expertise, could add so much. Millions of employees have precious little idea of their pension options and entitlements – explaining them in clear language would be so very beneficial and, rather than agitating for strike action and mass protest, union reps could play a valuable role in helping their members navigate the complex tax and pensions systems. John Foster Dulles famously asked if Britain had a role once it had lost its empire - do the trade unions now have one?

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Spring-cleaning: The missing trick

Written by Tim Ambler | Wednesday 24 November 2010

envelopeIncoming management typically regards the inherited HQ as idle, over-staffed and unproductive. They seek to reduce overheads, which seems so much easier than increasing sales, and re-focus the frontline teams. In the event, especially if they are inexperienced in these matters, the new management, and their shareholders, are disappointed.

Some readers will be familiar with the three brown envelopes story: the message in the first is “blame the previous management”, then “say that things are about to turn around” and finally “write three brown envelopes”. This same old sequence applies to government just as much as commerce. The leaders of the Coalition are exceptionally bright and talented but, Ken Clark aside, have little relevant experience from commerce or government.

The wrong but typical approach is to decide to cut costs by X, which translates to reducing the headcount by Y. Since, initially, headcount reduction costs more than it saves due to redundancy payments and notice periods, management announces it as medium term savings, i.e. the benefits without the costs. Non-replacement of leavers mitigates the pain and the cost.

The surviving old guard of senior managers bide their time but eventually stoke up the fury when expected work is not completed on time or adequately. Consultants are then hired to get it done and, eventually, are replaced by payroll workers to save money cost. We are back to square one, or at least another brown envelope. The missing trick is that the spring-cleaning of government departments needs to be driven by removing work first, and people second. Each HQ unit should be considered in the light of “if this work was not done at all, what would be the consequences?” Where the work disappears, so can the headcount. It needs to be that way round. 

Closing quangos or primary care trusts and transferring their work to departments and doctors’ practices respectively will achieve nothing unless the work itself is also eliminated. A dead giveaway is the phrase “working with”. The people being worked with may well be grateful not to be worked with. The Eastern Strategic Health Authority claims to “work with” 46 other NHS bodies.

Rolling back government should be about reducing what government does first and worrying about headcount and savings second.

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The road to freedom

Written by Philip Salter | Tuesday 23 November 2010

There is likely no book on the market that better sums up the state of the British education system than Chris Woodhead's A Desolation of Learning. It opens with a damning tsunami of proof on the dumbing down of exams and ends with a thoughtful conclusion entitled The Road to Freedom (a nod to an essay by Iris Murdoch, not Hayek). Everything in between is just as good.

Written prior to the transfer of power from Balls to Gove, the critique of both is still relevant to the current debate. Take his references to Oakeshott for example. Despite Gove's unreserved and worthy personal intellectualism, the government nevertheless often defines education policy as an economic public good instead of intellectual private good that happens to result in unforeseen public benefits. The distinction is important because the former has been used to justify increasing government interference for social and economic ends impacting unduly upon the role of the educator and those to be educated.

Every person I speak to involved in education policy is asking themselves the same question right now - when will Gove come out and confirm or deny whether free schools can be run for profit? Woodhead addresses this issue straight on this book and offers a robust defence of for-profit schools for the delivery of education (and is not afraid to support them over the charitable model). On this he writes: "where there is no profit motive there is no incentive to expand capacity. It is more congenial to avoid risks and challenges of expansion and instead to channel ever-increasing surpluses into ever more elaborate facilities, which entrench the elite nature of the institution. Surpluses, which could achieve high returns on investment if re-invested in capacity creation, are used to build state of the art, five star facilities for the tiny minority of pupils whose parents can afford the highest fees. It is hard to think of An ownership system less likely to expand capacity and widen access." So true.

Reflecting upon education policy since the book, I think Woodhead strikes the right tone. There are of course things to congratulate Gove for, and leaks about this week's white paper suggest that there will be more to celebrate. An overhaul of teacher training looks to be unashamedly radical and positive. But still we are right to want more because the success needs to be undeniable and universal. And as James Tooley of Newcastle University states in TES, "The problem with the free-school policy is that, ultimately, the schools are not accountable to the parents, but to their paymaster, the Government."

Woodhead and Tooley are both right. Gove needs to allow for-profit free schools. Once free to choose, future governments will not be able to to wrestle power back from the people, as they will be up against one interest group they cannot ignore: parents.

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