The Pin Factory Blog

I can't say that I've ever really understood this idea that we must all eat only the things that have been grown in our own region. "Region" of course is a variable thing. It seems to depend on how deep the green of the fool recommending it is. Something from "the nation" to "your back yard" is the spectrum. But as I say, I've never really understood the point.

For we know what happens when food supplies are indeed restricted to just the region one is actually in. We've been there before, back before we had decent roads. And what used to happen is that when the local crops failed then everyone died of starvation: even if 30 miles away there was a bumper crop. Quite why anyone wants to recreate the bad parts of the Middle Ages I'm really not quite sure.

As a modern example, think what would be happening in the near future given the near failure* of the American corn crop this year. We would currently be awaiting the news that Mid-Westerners were keeling over from the shortage of corn dogs no doubt. Then have a look at this other piece of news from this past week:

Chinese farmers are reaping a third record corn harvest even after a typhoon wiped out some of the crop, easing demand for imports at a time when the U.S. drought is driving sales from the biggest exporter to a four-decade low. The harvest rose 3.6 percent to 199.74 million metric tons, according to a survey of farmers in China’s seven biggest producing provinces by Geneva-based SGS SA (SGSN) for Bloomberg. The country’s stockpiles last month were at a nine-year high, and the U.S. Department of Agriculture expects a 64 percent drop in imports. The agency will raise its estimate for U.S. reserves by 2.4 percent when it reports Nov. 9, the average of 29 analyst estimates compiled by Bloomberg shows.

As you can see, no one is predicting that China is going to start exporting corn to the US. My point is, rather, that bad weather doesn't affect every part of the world at the same time. Thus harvests that are bad in one place can be offset by good ones in others.

Or if we are to put it in the terms usually reserved for this argument, the term "food security". We can only have a secure food supply if we grow all our own food. Which is nonsense of course, for our food growing is at the mercy of our weather. True food security comes from having a multitude of suppliers in many different parts of the word so that we can play that game of averages with that weather.

You know, this trade idea. The one that our greens seems to be so strongly against?

*Yes, I know, it wasn't anything like a failure but you wouldn't know that from the news stories.

There is a damaging focus on taxation instead of growth.  Media and politicians, egged on by ideological enemies of business and markets, are talking about ways of making corporations and 'rich' individuals pay more in taxation.  Tax avoidance and use of the legitimate means people use to reduce their tax liability are being denounced as wicked, and ways are being sought to curb this activity.

The emphasis is totally wrong.  Those who think the economy would be in better shape if more of its resources went to government are simply wrong.  Government does not use those resources as wisely as private citizens do.  It neither spends nor invests as effectively.  It is prone to vast wastage and to the direction of expenditure to serve the ends of politicians rather than those of private citizens.

The agenda is misguided.  Instead of concentrating on ways that would give government more of our resources, it should be focused on ways to allow us to generate more resources.  Investment and job-creation should be made more attractive by a policy of lower taxation and lighter regulation.  If it is easier and more rewarding to engage in economic activity, people will do more of it.  The aim should be to have fewer resources directed to government, and more of them to growth.

The weather might not be predictable, but one thing is almost certain; when natural disasters strike, you can be sure that someone will claim this is a good thing. Sure enough, journalists have made the case here, here and here. It is claimed that Sandy will provide a stimulus for the US construction sector as damage estimates approach $50 billion. It is argued that in turn this growth in the construction sector will move through into other areas of the economy, this new activity driving growth.

Those who make this case could do worse than to read Frédéric Bastiat’s “What Is Seen and What Is Not Seen”. Rather than simply generating new economic activity, destruction is not costless. The cost of rebuilding devastated areas will be a cost at the cost of other alternatives. People who might have spent money on improving their homes may now have to rebuild them entirely. They have not gained wealth; they have lost the improvements to their homes that they would have otherwise enjoyed.

If it were true that destroying homes was good for growth, we should be smashing buildings as they spring up. By this logic we would be richer as a result. These arguments are seen not just in the case of natural disasters, but also when war occurs. World War II famously saw huge production numbers as nations clawed for scarce resources to build bullets and tanks. This was not production that improved the quality of people’s lives. Railings from parks and schoolyards were melted down to build bombs.

Similarly, while many breakthroughs were made in the form of new inventions during wartime, this came at the cost of other alternatives. It is impossible to compare with what might have been, but that does not mean that it is not important. Had World War II not happened then we would have been free to pursue research and development directed at improving the quality of lives, not at winning wars.

This story betrays an alarming obsession with GDP. GDP does not usefully describe the health of an economy. What is important is that people have more of the things that they want and natural disasters destroy this prosperity. Bastiat’s classic essay dispelled this myth in 1848, yet it is clearly still rampant.

There is a good news story here, but it's not one of false stimulus. It is one of the continual process of development and production. The damage in the US has been much lower than in less developed countries also struck by Sandy. Development has helped to save lives. As we lift more people out of poverty, we can expect natural disasters to be less lethal.

The year 1776 was a revolutionary milestone for individual liberty, with the publication of Adam Smith’s The Wealth of Nations setting forth the path of economic freedom and a Declaration proclaimed by thirteen American colonies ringing the tocsin for political independence.

But a solemn spectre of ’76 hung over the United States this November as Americans voted for representatives and senators in Congress and a Chief Magistrate to occupy the White House — for the promise of economic and political liberty has turned dark.

The spirit of ’76 was animated by the desire for personal freedom, both in our relations with others and in our transactions with them.  Adam Smith wrote against the mercantilist system which thwarted innovation and entrepreneurship, while the Declaration of Independence affirmed that ‘all men are created equal’ and ‘endowed ... with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness’; that we establish governments to protect these rights, said governments ‘deriving their just powers from the consent of the governed’.

Continue reading.

No, Mitt Romney wouldn't have been any better. But the video above shows the reality of the situation Barack Obama now has four years to resolve. It should be a welcome respite from the politics-focused treatment of the election today. What the Eurozone is now so painfully learning may soon be taught to the United States. In the end, politics can't trump economics.

Tonight, we’ll find out whether Americans have voted to give Barack Obama four more years in the White House or to give Mitt Romney a go. All signs point to Obama, though apparently a surprise Romney win isn’t impossible. If I’m completely honest, I doubt if it would make a difference either way.

The real shame is that by far the best candidate in the race hasn’t had a shot since the word go. Indeed, Gary Johnson, a two-time former governor of New Mexico, is probably the best candidate to run for President in many decades. (I like Ron Paul too, but running for the party nomination doesn’t count – he only ran for president in 1988.)

What’s remarkable is the contrast between the mainstream candidates and Johnson – where they have tussled over ludicrous non-issues like funding for PBS (0.01% of the Federal budget) and state funding of birth control (which costs about $10 a month), Johnson has made issues like immigration, the war on drugs, and spending cuts (the trillions of dollars of cuts needed to balance the budget, not the billions that the two mainstream candidates play with) major planks of his candidacy.

Partially because of this, he probably won’t do very well. His campaign is hoping for 5% of the national vote but, to my untrained eye, that seems far-fetched. But I think libertarians in Britain and the US still have a lot to learn from Johnson, particularly the attention he’s (rightly) given to immigration and drugs policy.

In the US and the UK, immigration would be a profoundly positive injection of new talent and productive workers to ailing economies, and would in all likelihood create more jobs for native workers too.

Libertarian objections to the drug war are often misunderstood by non-libertarians. In the US, the problem is that drug prohibition destroys the lives of millions of people who have harmed nobody else, and has had such a disproportionate effect on black people that it seems certain to be one of the biggest causes of poverty and social breakdown in black communities. It’s not just because libertarians want to get high: these laws are destroying innocent people's lives.

And Johnson has resisted the temptation to focus on small-fry economic reforms, advocating a full-blown reimagining of the state and its relationship with the people. One Bloomberg blogger's condemnation of Johnson's economics (cutting state spending and banning bank bailouts) is, inadvertantly, a wonderful endorsement of the man. With enemies like this, who needs friends?

Johnson, it seems to me, has a joined-up view of what the state does to us. He sees ‘social’ issues like immigration and the drug war as being central to the harm that the state inflicts on society and the economy, and is not willing to ignore them in order to focus solely on ‘economic issues’ like marginal tax rates, and so on.

He’s also an optimistic, sunny guy. (Maybe you have to be to run on the Libertarian Party ticket.) And his time as Governor of New Mexico proves that a libertarian can govern in a way that doesn't send the electorate running for the hills. (Update: In the comments, Tommy gives a nice example of this: "He vetoed 200 of 424 bills in his first six months in office – a national record of 47% of all legislation – and used the line-item veto on most remaining bills. In office, Johnson fulfilled his campaign promise to reduce the 10% annual growth of the state budget. In his first budget, Johnson proposed a wide range of tax cuts, including a repeal of the prescription drug tax, a $47 million income tax cut, and a 6 cents per gallon gasoline tax cut.")

He won’t win tonight, and his campaign hasn’t had the media breakthrough that he hoped. But libertarians and classical liberals have taken note. If he inspires a new approach by them, then maybe Gary Johnson, the libertarian who talks about surprising things in a surprising way, will have a much bigger legacy than anyone ever expected.

Today is the start of 'Living Wage Week', the promotional week run by the Living Wage Foundation to plug their campaign to get firms to pay staff no less than £7.20/hour (£8.30/hour in London). I'm broadly supportive of this sort of thing -- consumer pressure is a much better way to get things done than government fiat, and I respect the fact that the Living Wage Foundation has largely avoided lobbying government and calling for a mandatory Living Wage.

Sadly, not everyone has been so self-restrained. It looks as if Labour is going to call for a massive hike in the National Minimum Wage (NMW) to meet the Living Wage rate. To contradict this sort of thinking, we've released a short paper today outlining some of the empirical evidence surrounding rises in the minimum wage, which show a strong correlation between rises in the minimum wage and drops in employment. It stands to reason -- if you impose a price floor on the price of labour, there will be a shortfall of demand for labour. In other words, there will be unemployment. While it's true that this relationship isn't fool-proof -- there are many factors at play in any economic phenomenon, and it would be silly to claim that any one policy will certainly have a particular effect in a complex world -- no responsible legislator should risk raising unemployment.

Nevertheless, the problem of people working on such low pay that they can barely afford to live is a very real one. In the paper, I point out (as Tim Worstall has, many times before) that the pre-tax minimum wage is actually greater than the post-tax Living Wage. In short, the thing that's holding people on the minimum wage below the basic living standard that Living Wage campaigners want is tax. Lift the tax-free personal allowance threshold to the minimum wage rate and you stop them paying tax, effectively giving them a Living Wage without any of the problems associated with raising the minimum wage rate. People earning less than £100,000 would get a bump in their take-home pay, too.

This would cost about £14bn above the government's commitment to raise the threshold to £10,000, but it would probably cost less than that given the reduced welfare bill and increased economic activity associated with tax cuts. The Keynesian left should support this, too -- this targets the wallets of low- and middle-income earners, and so (in the Keynesian worldview) it should have a stimulatory effect in the same way that government spending is supposed to.

It's a simple policy, but one that makes a lot of sense. Stop taxing the people at the bottom of the earnings ladder, and you'll have gone a long way to solving the low pay problem.

Read the full paper.

Tim Taylor has a nice piece about the extension of human lifespans. Mortality has, as we know, fallen dramatically (or lifespans have extended, same thing) since the hunter gatherer days. We all know they exercised regularly, had no chemicals, little pollution and ate organic food. And were all dead by 35. We have all of the chemicals, lots of pollution, eat polluted chemical muck and live into our late 70s. But here's the fascinating fact:

The bulk of this mortality reduction has occurred since 1900 and has been experienced by only about 4 of the roughly 8,000 human generations that have ever lived.

This life extension has not been evenly distributed over time. The two countries studied are Sweden and Japan and they really only climbed on board this capitalism, markets and industrialisation train at around and about 1900. There's a very clear link between the two therefore.

That is, Swedes in 1900 had mortality profiles closer to hunter-gatherers than to the Swedes of today. This relative difference between Swedes recently and those 100 y ago has emerged in a rapid revolutionary leap, as this distance is far greater than that between hunter-gatherers and chimps. The recent jumps in mortality reduction are remarkable in the context of mammal diversity because age-specific death rates for hunter-gatherers are already exceptionally low, probably among the lowest of any nonhuman primate or terrestrial mammal (especially if body size is controlled for), and lower than even captive chimpanzees at all ages.

Of course, I don't actually believe that a system of economic organisation has directly extended human lifespans. Not even the most miserablist Marxist would claim that we all live longer so that we've longer to be oppressed by the capitalists. However, this strange trio, the capitalism/markets/industry thing, is the only economic system that has ever produced a consistent surplus over and above subsistence for the average person. Everywhere there was economic growth before it was swallowed in Malthusian growth, in the growth of the population.  And I would argue that it is the production, consistently, of that surplus that has led to the extension of lifespans.

Or if you like, an old riff of mine: the good old days are right now. We've never had it so good, we've never been as rich, worked less hard nor had so many years of life to enjoy it. Which is a pretty good result of a method of socio-economic organisation, isn't it?

David Cameron is doing something very important at the United Nations. Well, as far as anything a politician ever does is important. He's talking about what is necessary to aid development in the poor countries. I thought it would be interesting to look at what a development expert thought about what Cameron was saying. Worth reading this in full if you're into this sort of thing. But here's the two highlights from my point of view:

It helps to remember: every economic marvel of its day–from the US to China to (dare I say) England — were paragons of corruption. Few can match Tammany Hall or the Chinese Communist Party in their ingenious machinations. It’s not clear this is a hindrance to development. Taking the long view, corruption may even be part of the glue that keeps societies from falling apart in the midst of transformative economic change–like it or not, elites need something to compensate them for losing their influence, or the’re unlikely to let go without a fight. My feeling: Anti-corruption is a 20th century Anglo-American fetish, important, but nowhere near as important as political stability or basic property rights.

This would mean that all that lefty bleating about transparency, tax dodging and all the rest is, at the very most, a minor problem. And it gets better too:

What’s astonishing to me is that the UN can spend two decades setting the world’s development agenda and never utter the words “industrialize”, “firms”, or “exports”. This op-ed was no exception. I have not done the math, but here’s a conjecture: unless you are sitting on a billion barrels of crude, it’s practically impossible to become a middle-income country without an industrial sector. Simple arithmetic with national accounts should tell us the following: to get the GDP, wages, and consumption of a middle income country, you need to produce high-value goods and sell them to other countries. In most places, agriculture and minerals don’t cut it in terms of value-added production. ... What would I like to see? At the heart of the post-2015 agenda, a recognition that low income countries need industry first and foremost, and that this will require a radical rethinking of governance, trade and aid. Buying things other than corn and cotton from poor countries is part of the deal. In the midst of a rich-world depression, however, where jobs overseas are antithetical to re-election, poor countries are very much on their own where it matters most.

Why do I say better there? For this implies that that lefty bleating about tax dodging is really irrelevant. An industrial revolution is the only thing that we've ever found that substantially increases, permanently, the living standards of the average man or woman. Aiding the poor countries to industrialise is therefore the only way to permanently defeat poverty. And the way we can aid in that is by investing in those countries. We've got capital, they haven't, and capital is what is needed to drive industrialisation. Whether someone's dodging taxes on the profits made from such investments is a triviality compared to the importance of the question of whether capital is being invested or not.

As it happens, the gross (over) estimate is that $150 billion a year or so is being sucked out of poor countries through that tax avoidance, evasion and corruption sort of stuff. Much of which is to do with minerals and oil, not the more regular sorts of trade. Africa alone receives in some $500 billion of private sector investment each year. The numbers are working the right way to aid development.

And the final point, that the other part of such an industrialisation drive is that we should be willing to purchase the products is just as we've been saying here for years. The way to defeat poverty is to buy things made by poor people in poor countries.

It's worth considering the Chinese example. In 1978, at the end of the Maoist stupidities, China was as poor as the UK was in 1600 AD. A GDP of around $1,000 per capita: the average income in the $2 to $3 a day range. Yes, this is inflation adjusted and yes, it also takes account of price differences. Today that country is around where the UK was in 1948. They've done 350 years of economic development in 35 years. Wouldn't it be wondrous if the smaller population of Africa could manage the same trick in the next 35 years? Which they could of course: if they industrialised and if we bought what they produced.

Harry Teasley* spent his life confronting the behaviors of bureaucrats and defined a list of rules covering their modus operandi. You can see these rules operating in government departments, corporations and with politicians themselves. Using these rules, examine bureaucratic behavior and see if the underlying rules and behavior are driving the situation.

The Rules:

Harry Teasley's Rules of Bureaucratic Behavior:

Rule #1: Maintain the problem at all costs! The problem is the basis of power, perks, privileges, and security.

Rule #2: Use crisis and perceived crisis to increase your power and control.

Rule 2a. Force 11th-hour decisions, threaten the loss of options and opportunities, and limit the opposition's opportunity to review and critique.

Rule #3: If there are not enough crises, manufacture them, even from nature, where none exist.

Rule #4: Control the flow and release of information while feigning openness.

Rule 4a: Deny, delay, obfuscate, spin, and lie.

Rule #5: Maximize public-relations exposure by creating a cover story that appeals to the universal need to help people.

Rule #6: Create vested support groups by distributing concentrated benefits and/or entitlements to these special interests, while distributing the costs broadly to one's political opponents.

Rule #7: Demonize the truth tellers who have the temerity to say, "The emperor has no clothes."

Rule 7a: Accuse the truth teller of one's own defects, deficiencies, crimes, and misdemeanors.

Look at this example with the rules placed in brackets next to the relevant comment:

In mid September European Commission President Jose Manuel Barroso  called for the European Union to be turned into a 'federation of nation states' (2, 5), a vision he said would require an overhaul of the Lisbon Treaty.

Mr Barroso also set out plans for a single supervisory mechanism for all banks in the eurozone. He called the plans a "quantum leap... the stepping stone to the banking union".

The European Central Bank would get much greater powers of oversight and regulation of Europe's 6,000 banks under the plan. Mr Barroso said eurozone countries should not rely on bailouts from the ECB, saying the bank "cannot and will not finance governments" (1, 2, 4, 5).

"But when monetary policy channels are not working properly, the Commission believes that it is within the mandate of the ECB to take the necessary actions - for instance, in the secondary markets of sovereign debt," he added (6).

Chris Morris BBC News, Strasbourg writes “this was a very federalist speech. Mr Barroso made it clear that the creation of a single banking supervisor, and moves towards full banking union, are just a first step. He wants the EU to become a federation of nation states.

No-one will be forced to come in, he said, but the speed should not be dictated by the slowest or the most reluctant. Before the next European elections in 2014, the European
Commission intends to put forward explicit ideas on how to change EU treaties to reflect moves towards closer political union (2, 4).

There will be huge arguments ahead - there are big differences within the Eurozone about the pace of political change. But countries like the UK, which don't want to take part in any further integration, are going to have to work out how best to protect their interests as other EU member states pool more of their sovereignty.

"If Greece banishes all doubt about its commitment to reform, but also if all the other countries banish all doubts about their determination to keep Greece in the euro area, we can do it," he said to applause from MEPs (2A).

Mr Barroso said he was not calling for a "superstate", but rather "a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty" (4, 4A).

Harry Teasley’s Rules of Bureaucratic Behavior show in this announcement how rules 1, 2, 2A, 4, 4A, 5 and 6 are being used to slowly push the EU bureaucratic agenda. Since this is a major announcement by a major player, many of the behaviors have been engaged.

The Game

Play ‘spot the rule(s)’.

See which rules are being invoked any time a politician or bureaucrat announces something or a report is released.

At a meeting? Observe whether rules are being used by individuals at the meeting. If it’s happening in your business, you know your business has a problem.

Watching television or reading a newspaper? Look for comments used to perpetuate the behavior.

Keep a set of rules on hand as a ready reckoner! 

And finally, have hours of free fun playing this simple but tragic game.

Try spotting the rules in this YouTube video where MEP Nigel Farage names EU bureaucratic behaviors.

* Harry Teasley is retired only as a professional business executive. He is otherwise engaged constantly in thinking, writing pithy letters to the editor, and supporting liberty through his time, advice and philanthropy. It was people like him that I’m convinced Jefferson had in mind when he urged, “Enlighten the people generally, and tyranny and oppressions of body and mind will vanish like evil spirits at the dawn of day.”