ASI at the Conservative Party Conference

We've got a host of great fringe events organized for the Conservative Party Conference this year. I feel a little selfish – I didn't organize them, but the line-up of topics and speakers is pretty much a dream team. Come along to as many as you can: you can watch dull speeches by politicians at home, but you can't find a panel on booze, drugs and tobacco that features Chris Snowdon, Alex Massie and Dan Hamilton anywhere else. The other events – which include speakers like Allister Heath, John Redwood and Steve Baker – will be superb as well. You don't need a Conference pass for any of the events, but do RSVP if you can so we can put out enough refreshments.

If you're around on Sunday night, come along to our Liberty Drinks at 7:30pm at Bar 38 (Peter St, Manchester).  That's just outside the cordon, so even if you're not going to the Conference you should come along for a pint. I know better than to give out my phone number on the internet, but if you need directions or have any questions you can tweet me throughout the Conference at @S8mB or you can email Sally at sally@old.adamsmith.org.

Here are the details for all the events:

 

  The Individual v The State - The battle for lifestyle freedom

 Panelists:

Philip Davies MP 
Daniel Hamilton, Director – Big Brother Watch 
Alex Massie, freelance journalist – Spectator blogger
Chris Snowdon, author – Velvet Glove, Iron Fist

Date: 2nd October 2011
Time: 5.00pm to 7.00pm
Location: Radisson Edwardian, Stanley / Livingstone Suite, 38-40 Peter Street, Manchester, M2 5GP (outside the security zone)
RSVP: sally@old.adamsmith.org 
Food and drinks will be provided

After the event we have also reserved an area at Bar 38 on Peter Street for 'Liberty Drinks' in association with the Taxpayers' Alliance and Big Brother Watch from 7.30pm. 


  Wealth Creation & The Coalition: An agenda for growth

Panelists:

David Gauke MP 
John Redwood MP 
Allister Heath - Editor, City AM
Freddie Cohen - Assistant Chief Minister, Jersey

Date: 3rd October 2011
Time: 12.30pm to 2pm
Location: Manchester Central Exchange 2 & 3
RSVP: sally@old.adamsmith.org 
Lunch will be provided


 Economic Growth & The Planning System

Panelists:

Bob Neill MP 
Steve Baker MP
Tim Smith, Partner, Planning & Environment, Berwin Leighton Paisner
Tom Clougherty, Executive Director, Adam Smith Institute

Date: 4th October 2011
Time: 8am to 9.30am
Location: Manchester Central 5
RSVP: sally@old.adamsmith.org

Breakfast will be provided

 

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Why inequality?

As we know our hunter gatherer forebears lived in rigorously egalitarian societies: some of our instincts even now are that we should similarly be living in such egalitarian manner. No one has much more than the other and peace and harmony should prevail. We do certainly know that excessive (a changeable measurement, to be sure) inequality can lead to great unhappiness in a society.

So, if this is so, how come the inegalitarian, unequal, societies, won out over those more equal?  No, not oppression, not the "capitalists", at least not according to these researchers:

Agent-based simulation results show that in constant environments, unequal access to resources can be demographically destabilizing, resulting in the outward migration and spread of such societies even when population size is relatively small. In variable environments, stratified societies spread more and are also better able to survive resource shortages by sequestering mortality in the lower classes.

That doesn't sound very fun (that "sequestering mortality" means the poor die) but what we seem to have here is Darwinian evolution of societies (no, please don't write in, this is an analogy, not a direct comparison). The environment is changeable and it appears that unequal societies are able to thrive in such changes, while the more equal ones are not.

I would go further than this research myself: no proof, just my own prejudices. Two things: firstly, it's necessary to move beyond the hunter gatherer technology before there are things with which it is possible to be unequal. Certainly inequality in the physical goods sense requires stationary and thus agricultural living.

The second is that those hunter gatherer societies are vehemently, violently egalitarian. Place can only be measured by positional goods thus there is always a battle for them, for status, for the prettiest woman and so on. So much so that, as Stephen Pinker points out, such societies are not just much more violent than our own, murder isn't just the most common cause of death for men, in some it is the majority cause of death.

In essence, I'd argue that this inequality is beneficial: we may have an inequality of physical goods but squabbling about keeping up with the Jones' stops us all from murdering each other over the zero sum game of who gets to be top dog.

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Picks of the week, 30th September 2011

The Brazilian advert that the Guardian wants to ban.

1. Is this the sanest man running for president? – Nice bio of Gary Johnson, former governor of New Mexico and the "other" libertarian running for the Republican nomination. Also: Comedy Central interviews Johnson, where he calls drug policy "a litmus test for having a brain". Dear Gary: please move to Britain.

2. Irish health minister examining a "sugar tax" – The Irish government has form in pioneering nannying laws that other governments adopt enthusiastically. I've written about this before. If these paternalists used their brains they might realize that a sugar tax isn't even an effective piece of statism (a tax on the fat themselves would be equally unjust but at least would be thought through properly).

3. Why Ron Paul is winning the GOP primary – The short version is "because he's the only guy with good ideas (except Gary Johnson)", but the whole piece is worth a read to see how non-libertarians view the rise and rise of Ron Paul.

4. The cuts are a convenient lie for the whole political class: City A.M. does the maths – City AM's brilliant new opinion page featured this piece by Julian Harris, which destroys the government's pretensions to being tough on spending.

5. Who would push the fat guy? – Apparently utilitarians are bad people, scoring relatively highly on tests for psychopathy and sociopathy. For what it's worth, I'm a utilitarian and I would push the fat guy – but only in a thought experiment. In the real world, limited knowledge requires that we respect private property rights as if they were natural rights in order to produce the best results in the long run. Even though I don't believe in natural rights, I think it's good if we act like they exist.

6. The folly of "Smart Growth" – Great study of the Portland, Oregon, "smart growth" strategy, and relevant as the government tries to reform the planning system. The takeaway is that even though planners might like high-density urban housing, most people prefer low-density suburban housing. Far too many discussions of planning ignore what should be central – where the people concerned actually want to live.

7. Unintended consequences of food aid – If you're give emergency aid, the simpler the better. Giving food instead of cash can disrupt local economies and accidentally make things even worse.

9. Ralph Nader's grand alliance – Who knew that Nader liked Ron Paul so much? "Do you read all these right-wing theoreticians? Almost every one of them warned about excessive corporate concentration. Hayek did, [Frank] Meyer did, even Adam Smith did in his own way." Hear, hear. If libertarians and sincere left-wingers could agree to disagree about redistribution, they'd find that they have an awful lot in common.

10. Bookbenchers: Steve Baker, MP – A short interview with Steve Baker about the books he's reading inadvertently turns into a short primer on the books everybody else should be reading too.

11. Time to think the unthinkable and start printing again – Ultra-establishment economist Martin Wolf argues for "debt monetization" (printing money to pay off government debts). If the Eskimos have 10 different words for snow, then Western governments have 10 different words for printing money.

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What the tortoise taught us about licences

tortoiseA tortoise sanctuary in Cornwall has closed this week. This might not sound like news. But the reason is astonishing. The council decided that tortoises are wild animals, and that meant, because it was open to the public for more then seven days a year, it was a zoo not a sanctuary. And all of this was decided under the Zoo Licensing Act 1981.

The council started looking into this because another animal charity complained to them. Apparently, this charity campaigns against what it sees as the cruelty of keeping animals in captivity: it routinely finds sanctuaries and complains that they are really zoos. As Jeremy Vine said on the radio yesterday, that sounds like vested interests; and the council refused to reveal who complained, and therefore why they were doing this.

Although the licence for being a zoo is only £275, other bureaucratic costs, and infrastructure alterations, put the total up to £2,500 over ten years. They would have needed new fencing, regular government inspections, and a whole raft of other regulatory measures to comply with the terms of their licence. The sanctuary cannot afford this, and have closed. As they said, “The heavy financial and bureaucratic burden of the Zoo Licensing Act is way beyond the means of a small sanctuary.”

Despite the fact that s21(1) of the Act says “wild animals means animals not normally domesticated in Great Britain” the council were insistent that tortoises are wild animals. Apparently an expert told them so. Even llamas and alpacas are not wild animals.

Such a fuss have they made that there has been a veritable maelstrom of argument and letters between the sanctuary and the council. There was even a letter from the Prime Minister where he advised the sanctuary that the council had discretion to make the “wild animal” decision under the act.

The council insisted on the radio that they were just following the rules. But they were actually enforcing the rules on behalf of anther organisation who had an interest in them doing so. Taxpayers’ money has been spent on a long argument about whether a tortoise sanctuary is a zoo. And the net result is that there is no zoo and no sanctuary.

All that this has achieved is the loss of the benefit of a sanctuary, no extra revenue from a zoo, and a bureaucratic expense to administer all of this nonsense. And the owner, who never profited form the sanctuary, now has the added cost of looking after 480 tortoises that can no longer be covered by visitor donations.

Does government interference ever make anything better?

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Another disaster waiting to happen

This morning’s City AM contained some admirably sound thinking on the European Commission’s proposal for a Europe-wide Financial Transaction Tax, which would involve imposing a minimum tax of 0.1 percent on bond trades and 0.01 percent on derivative trades.

First, Allister Heath in his daily editor’s letter:

There is of course no way that such sums [£40bn–£300bn] would ever be raised. Transactions would simply cease to happen. Tens of thousands of jobs would be lost overnight and the City of London would be destroyed. The tax would raise a couple of billion at most, while increasing volatility by forcing traders to concentrate on larger, less frequent trades.

Those deluded souls who believe they have discovered a new way of solving the world’s problems by taxing financial transactions will have achieved nothing other than crippling the economy. Why can’t the coalition simply come out and say this?

And then Neil Bentley in the paper’s excellent new comment section, The Forum:

A transactions tax would be easily circumvented by firms simply moving their trades out of the EU. This would, of course, hit the UK hardest because London is by far the largest financial market in the EU. Transactions would be pushed out to competitor jurisdictions, like New York, Singapore and Hong Kong, damaging the UK’s long-term competitiveness as a leading centre for financial services companies.

This is no idle threat – when an FTT was implemented in Sweden in the 1980s, share prices fell quickly and substantially, and half of all Swedish equity trading moved to London. The volume of bond trades fell by 85 per cent and futures trades by 98 per cent. As a result, the Swedish government eliminated the tax, trading volumes resumed, and Sweden is now one of the most vociferous opponents of the tax.

And remember:

The UK’s financial services industry accounts for around 10 per cent of total economic output, 11 per cent of the UK’s total income tax, and 15 per cent of corporation tax. Additional tax is also collected from more than 1m people who work in the industry through employer national insurance.

So – what we’ve got here is a plan for a tax that would cause severe damage to the most significant sector of our economy, which would not raise much money, and which would fail to reduce volatility. Sounds like a great idea, right?

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130 years of Ludwig von Mises

mises

Today is the 130th birthday of Ludwig von Mises. Mises was, in my opinion, the greatest economist of all time as the man who systematized the Austrian school of economics and developed some of its key insights.

His Theory of Money and Credit gives the first fully-fledged exposition of the Austrian Business Cycle theory, later refined and developed by FA Hayek; his article Economic Calculation in the Socialist Commonwealth and book Socialism make the defining argument against socialism based on the impossibility of calculating resource allocation without a functioning price system; his Epistemological Problems of Economics and Theory and History (a personal favourite) are broadsides against positivism and historicism in economics and the social sciences. His magnum opus, Human Action, gives the most comprehensive and persuasive defence of the free market that I am aware of. (Eamonn has written a great primer on Mises, which is available for free here.)

For me, Mises is the root of 20th Century libertarianism. Himself a product of the early Austrian economists Menger, Bohm-Bawerk and Weiser, Mises directly spawned the two great – and often conflicting – traditions of Austrian school thought, by converting a young FA Hayek to liberalism and hugely influencing Murray Rothbard. For all their disputes, both the Hayekian and Rothbardian traditions owe their roots to Mises. Both have produced some of the most important works of economics and the social sciences of the 20th Century, in the Misesian tradition. Ayn Rand usually made her economic arguments along Misesian lines. Mises has had an impact on politics as well: both Ron Paul and, closer to home, Steve Baker have cited Mises as key influences and promote his ideas where they are needed most.

Reading Mises at university changed my life, by convincing me of the need for truly laissez-faire capitalism without government control of the money supply or the economic autocracy of socialism. We stand on the brink of another crisis caused, yet again, by the government-induced bubbles that Mises identified. Mises never made his arguments in terms of natural rights or morality, but in much simpler terms. His message was that if you want peace, prosperity and happiness, people must be free.

Here's an extract from Mises on the economic foundations of freedom:

Unfortunately many of our contemporaries fail to realize what a radical change in the moral conditions of man the rise of statism, the substitution of government omnipotence for this market economy, is bound to bring about. They are deluded by the idea that there prevails a clear-cut dualism in the affairs of man, that there is on the one side a sphere of economic activities and on the other side a field of activities that are considered as noneconomic. Between these two fields there is, they think, no close connection. The freedom that socialism abolishes is "only" the economic freedom, while freedom in all other matters remains unimpaired.

However, these two spheres are not independent of each other as this doctrine assumes. Human beings do not float in ethereal regions. Everything that a man does must necessarily in some way or other affect the economic or material sphere and requires his power to interfere with this sphere. In order to subsist, he must toil and have the opportunity to deal with some material tangible goods.

The confusion manifests itself in the popular idea that what is going on in the market refers merely to the economic side of human life and action. But in fact the prices of the market reflect not only "material concerns"; like getting food, shelter, and other amenities; but no less those concerns which are commonly called spiritual or higher or nobler. The observance or nonobservance of religious commandments; to abstain from certain activities altogether or on specific days, to assist those in need, to build and to maintain houses of worship, and many others; is one of the factors that determines the supply of, and the demand for, various consumers' goods and thereby prices and the conduct of business.

The freedom that the market economy grants to the individual is not merely "economic" as distinguished from some other kind of freedom. It implies the freedom to determine also all those issues which are considered as moral, spiritual, and intellectual. . . .

What makes many people blind to the essential features of any socialist or totalitarian system is the illusion that this system will be operated precisely in the way which they themselves consider as desirable. In supporting socialism, they take it for granted that the "state" will always do what they themselves want it to do. They call only that brand of totalitarianism "true," "real," or "good" socialism the rulers of which comply with their own ideas. All other brands they decry as counterfeit. What they first of all expect from the dictator is that he will suppress all those ideas of which they themselves disapprove. In fact, all these supporters of socialism are, unbeknown to themselves, obsessed by the dictatorial or authoritarian complex. They want all opinions and plans with which they disagree to be crushed by violent action on the part of the government.

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More QE will give us stagflation

Have you noticed how more and more economists are joining the Austrian School? Or at least accepting an Austrian explanation of why we are in such a financial hole and what to do about it?

The latest is Andrew Sentance, A very grand economist, being a former member of the Bank of England's Monetary Policy Committee. In the Financial Times the other day, he was contemplating the prevailing wisdom that the Bank of England would and should stimulate the economy with a further round of Quantitating Easing (printing money to you and me).

But, he noted, previous stimulus packages in both the UK and US have not exactly had the desired effect. They have not boosted growth: rather, they have produced only increased inflation. More of the same policy, he concludes, is likely to produce more of the same – the old stagflation we remember from the 1970s.

So what is to be done? His answer seems to be the Austrian solution of grit your teeth and let the economy sort itself out. We must expect a period of low growth while things adjust – as the Austrians say, over-optimistic investments made in the boom years have to be liquidated and resources redirected to projects that make more more sense in more normal times. And we need to make that adjustment easier: Sentance talks about ensuring labour markets are flexible, not burdening business with excessive regulation, keeping taxes as low and as enterprise-friendly as we can. Not much sign of any of that, though.

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Why are people who oppose capitalism so obsessed with money?

wilt

Capitalists are frequently accused of being mercenary, in the sense that they are fixated on accumulating the greatest amount of wealth at the expense of other important issues. Their critics like to present themselves, in comparison, as focused on less tawdry, more important matters: happiness; social justice; public welfare.

Yet if once looks at the writings of anti-capitalists, they do seem to spend a lot of time talking about money.

Let us take one particular family of anti-capitalist: the egalitarian. Egalitarians believe that equality is an end in itself, or at the very least it is a means to a better end. We frequently hear the egalitarian mantra that “equal societies have more social cohesion, more solidarity, and less stress; they offer their citizens more public goods, more social support, and more social capital; and they satisfy humans’ evolved preference for fairness” (to which egalitarians add plenty of other nice things, as well – notably that “more equal societies are happier”). As a consequence, they advocate policies that seek to actively promote equality; to ‘narrow the gap between the richest and the poorest.’

Others might question the validity of the statements, and/or the wisdom of the policy ambition. Fewer ask the question “why the obsession with money?”

This question occurred to me this morning as I was thinking about the Wilt Chamberlain example (that’s what happens when you miss a night’s sleep!). The Wilt Chamberlain case is Robert Nozick’s classic demolition of “distributional justice” – the idea that certain distributions of wealth are fair, morally right or desirable (it does not matter whether that distribution is equality or if “shares vary in accordance with some dimension you treasure”). Put simply, he asks what happens to one’s notion of distributional justice if individuals choose to change the distribution? In this instance, what happens if large number of individuals choose to part with some of their share in return for the opportunity to watch Wilt Chamberlain wow them with some amazing feats of basketball?

Nozick’s point is twofold. Firstly, distributional justice is intrinsically unsustainable, because those pesky humans inherently inject a degree of entropy into the system: they will redistribute the money through free exchange, quickly wrecking any pattern of distributional justice. Nozick suggests that this new distribution must be equally just, because it is brought about by the voluntary action of individuals who began in a state of perfect distributional justice (after all “what was it for if not to do something with?”).

As a consequence, egalitarianism requires continual interventions “to stop people from transferring resources...” (or rather, to rectify the results of those transfers). Clearly, this undermines the incentives that money serves to transmit: Wilt might rather pursue his other hobby if not paid to shoot hoops. This is Nozick’s second point – probably the more important one for libertarians (and for liberals who also see themselves as egalitarians): egalitarianism is completely incompatible with freedom. The guardian of distributional justice must constantly intervene to thwart free exchange among individuals.

So far, so good, Robert. However (unless I’ve forgotten something since reading Anarchy, State and Utopia), Nozick overlooks another feature of the egalitarian mindset: the egalitarian is utterly fixated on money.

Let’s examine the Wilt Chamberlain a bit more. The fans clearly value the sight of Wilt dribbling more than they value the cost of the ticket; Wilt clearly values the resulting millions more than he values baiting the Black Panthers. What matters in society is one’s ability to satisfy one’s ends, not the amount of cash one has under the mattress. Therefore an equal society is surely one where everybody’s ends are equally satisfied. If Wilt and his fans are equally happy, society is equal even as Wilt amasses his millions. If Wilt and his fans are compelled to have the same amount of money, and as a result Wilt’s fans feel deprived of good basketball while Wilt gets to accompany the President to an important funeral, society is unequal even if Wilt and his fans have a similar bank balance.

Nozick isn’t completely oblivious to this: he asks “Why might somebody work overtime in a society in which needs are satisfied?” and answers “Perhaps because they care about things other than needs.” The libertarian, clearly, understands that there are things more important than money. The odd thing is that the egalitarians do not. For them, it is the distribution of wealth that is the essential criterion; it is the relative amount of money that people have that decides whether a society is just or not.

As such, it really is the egalitarians that are obsessed with money. For the rest of us, there are much more important things in life.

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An EU financial transaction tax would be folly

You’d think that after a decade of creating one of the world’s biggest financial powder keg in living memory, the leaders of the EU would have a little humility about their plans to tax financial markets. Alas, not. Today’s outline of the financial transaction tax proposal by Jose Manuel Barroso confirms that they plan to throw more gunpowder onto the keg. We published a very good paper on the idea of the Tobin tax recently. A financial transaction tax, like a Tobin tax, would not raise any significant revenue and, crucially, would probably make markets more volatile.

First, a clarification: despite many reports to the contrary, this is not a Tobin tax in the true sense. A Tobin tax is a small tax on spot trades of foreign exchange – intended by James Tobin to reduce volatility in currency markets. But it is similar: the financial transaction tax would apply to stock, bond and derivatives exchanges. The impact will be less profound than a true Tobin tax would be, but most of the same principles apply.

Will it raise money? Probably not: the projections for revenues are based on market volume (ie, the total number of exchanges made) which would probably fall considerably. When Brazil tried a financial transaction tax (now abandoned) it didn’t raise much. Tobin himself rejected the idea that a Tobin tax would raise any money and explicitly distanced himself from groups that did.

I am constantly baffled by the failure of politicians to understand that trading funds can and will move country if the financial incentives are there. How many times have Europe’s leaders lamented cheaper competition from the Far East driving jobs out of the EU? Yet when those jobs are (far more lucrative) financial ones, they seem to think that no similar principle applies. It’s crazy for the EU to claim that it can raise €57 bn per annum without impacting the sector. (Mind you, the British government might be tempted to favour a Eurozone-only tax, as it would probably drive quite a few funds to the City of London.)

More importantly, transaction taxes actually increase the volatility they’re designed to reduce. Tim Harford once gave a good analogy for this. Imagine if you were charged for using an ATM – rather than taking out £20 or £50 whenever you needed it, you might save up your withdrawals until you absolutely needed to, and then take quite a lot of money in one big go. Irregular, large withdrawals would increase the fluctuations in your cash reserves (and the ATM’s) and increase volatility.

Markets exist to factor information into prices. Taxes on exchanges act as a blindfold on them, reducing the number of exchanges that can take place at the margin. If a trade is taxed, it makes some trades with a low expected yield unviable. Traders wait to make their trades – that means fewer and bigger trades. The impact of this tax won’t be as bad as a Tobin tax would be, but it’s a bad step nonetheless. But I’m sure the leaders proposing it know that. Their agenda is a political one: to buy enough time and political capital by appearing “tough” on markets for them to pass more EU bank bailouts.

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