To change the question slightly


Arnold Kling has an interesting question:

Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.

The obvious answer being that the employers think they can make more money by trusting the portion control of the customers rather than employing people to create portions.

However, my little change to the question is, given the UK unemployment rate, why are so many supermarkets installing self-service check out tills?

Clearly and obviously, part of the answer is the same: because the employers think they will make more profit this way. Another part of the answer is the same as well: part of the labour formerly being done by paid staff is now being done by the customers: portion creation and bar code scanning.

However, in our supermarket tills example, there's something more as well. It's something that we hear quite a lot when we talk about the minimum wage and what rate it ought to be. We can push it ever higher, because, yes, well, OK, manufacturing jobs can go overseas but service jobs can't. So whatever we say that minimum wage is then there'll still be jobs here for people to do at that wage.

But that ignores the point that offshoring isn't where most jobs go to die. It's automation. If we push wages up over the cost of doing the same job by a machine then that job will be done by a machine and it's got nothing at all to do with offshore or globalisation.

If every supermarket cashier had to be paid £50 an hour then there wouldn't be any, only those machines. If everyone collecting the supermarket trolleys had to be paid such there wouldn't be any: we'd all pay a £1 deposit and recover it when the trolley was returned.

Yes, it's absolutely true that such liberated labour would then be available to satisfy other wants and desires: but it's still true that a minimum wage that is too high will destroy jobs. The most likely replacements being machines of one kind or another.

Yes, we've been saying this for a couple of centuries now


I'm always slightly shocked by how those in favour of a big state are shocked by how a big state operates. Take the Marxist (or perhaps Marxian is more accurate) Professor Wolff, writing in The Guardian:

The so-called economic "recovery" since mid-2009 was chiefly hype, a veneer of good news to disguise and minimise the awful underlying economic realities. The few (large corporations and the rich) who bear much of the responsibility for the crisis made sure that the government they finance used massive amounts of public money to support a recovery for them. The mass of the population was excluded from the government-financed recovery for the few.

But why would anyone expect anything else? Large government has a large ability to determine who does and who does not make money. Large government will therefore be infested by those trying to use large government to make money. We've various names and phrases for this, Smith's "businessmen seldom gather together" is part of it, we might talk of regulatory capture and the interaction with public choice economics or we might just quote PJ O'Rourke: when legislators decide what can be bought and sold the first thing to be bought and sold will be legislators.

There really is no great mystery to this. When fortunes can be lost and made by the twitch of a legislators' or regulators' pen then fortunes will be spent on influencing the twitching. And there's no way out of this either: except that one true path, the classically liberal one.

A government large enough to do the things which absolutely must be done by government but one that's not large enough to do any of the things that don't have to be done by government. If no one's going to make any money out of changing the rules no one's going to spend money to do so.

We might of course hope for rule by sea-green incorruptibles but after the drugs have worn off we all really know what the only possible solution is. A government that's small enough that it's not worth bothering trying to buy.

Don't drive right-wing extremism underground


Today, police brought Anders Behring Breivik, the man responsible for the Norway attacks, back in for questioning. He will have been asked about his links to other right-wing nationalist groups, a subject of obvious interest to the police. Such movements are not unique to Norway, and Britain has been doing some soul-searching of its own over the past week. Attention has turned to the English Defence League (EDL) in particular, a group to which various news sources (BBC, Telegraph, Guardian) have linked Breivik. Though I suspect that doing so may have put me on a government watch-list, I took the time this morning to browse the EDL website.

The EDL denies in its official statement that it has ever had a relationship with Breivik. Indeed, the welcome page encourages “protesting peacefully,” and the three most recent postings are articles decrying “extremism.” Unquirk the eyebrow that shot up at the claim that the organisation eschews “extremist beliefs.” It may well be that EDL members meet in secret to learn how to assemble assault rifles, but they are trying hard not to look like it. Regardless of how convincing you find them, the EDL’s efforts to seem normal are significant. They smack of self-censorship and the moderating influence of public discourse.

In the aftermath of Norway, politicos have proposed a new MI5 unit dedicated to “the Right,” shutting down the EDL and BNP, and myriad other ways to muzzle nationalists. Enacting these proposals would be intensely unwise. Without public platforms, I suspect that the EDL would produce literature of a far different stripe than that posted on its website. Restrictions on freedoms of expression and assembly are not only rights violations but also ill-conceived policy; they serve only to push speech underground, where it radicalises and becomes more virulent. Right-wing extremism needs to be diffused, but the best way to do this is to let it burn itself out.

Still tangled up in red tape


Research conducted by the Forum of Private Business shows that the cost of red tape has reached a staggering £16.8 billion, or an average of £14,200 per firm. This is despite the government’s promise of a ‘red tape revolution’. A few of the many interesting results from the survey are the following:

  • Small employers share a burden of £5.1 billion per year due to tax-related regulation, the largest regulatory burden.
  • The responses of the Forum members suggest a loss of £29.8 billion due to missed business opportunities caused by red tape and the administrative work linked to it.
  • 21% of the respondents claim to have performed worse as a result of ‘the time and cost they spend on compliance’.

The conclusion is that businesses...

...are concerned that overall legal requirements placed on smaller employers have increased since the Coalition came to power. There also appears to have been no improvement in the guidance, explanation and support small firms are given when new laws are introduced.

This is unfortunate on its own, but even more unfortunate at a time where we really need private sector growth.

Public sector pension contributions need to rise


The headline figure that ‘public sector workers will have to pay an extra £3,000 a year into their pensions’ is completely misleading. Yes, if you are on a salary of £187,000 you do. But nobody earning less than £15,000 a year will pay a penny more. The average rise in contribution is just 3%, but those earning between £15,000 and £21,000 will pay just 0.6% more.

Why are these contribution rises happening at all, though? Well, partly because the government ran out of money and needs to balance its books. And partly because we are all living longer. With longevity rising at two years in every ten, men can now expect to live 17 years past the age of 65, and women 20 years. Great for us, but it delivers two pieces of bad news for public sector pensions. First, public schemes are unfunded. They are basically Ponzi schemes, which pay current pensions out of current contributions. So if more people are living longer and drawing the benefits, the contributions have to go up. And second, most public sector workers don’t retire at 65. They retire at 60. So the problem is even bigger.

And even after these contribution rises, public sector pensions remain the best schemes in the country. Only a tenth of private sector staff enjoy pensions based on their final salary. Very few indeed have their pensions indexed to inflation. And in fact, many public sector pensions are upgraded either in line with inflation or with earnings, whichever is greater. It's worth adding that ONS figures suggest that public sector workers are already 7.8% better paid than private sector workers. And they have better pensions too.

At a time when people in the private sector have been losing not only their pensions but also their jobs and their businesses, there are a lot of people out there who reckon that public sector workers have yet to share the pain. It’s a sad fact of economic life – brought on by more than a decade of reckless government borrowing and spending – but public workers need to grit their teeth and bear it. They certainly won’t find a better pension scheme, even with these increased contributions.

Because they're worth it


I hope that you’ve some appetite left for the advertising standards debate, for today marked yet another instalment in the rigmarole of Nanny v. the AdMan. Following objections from LibDem MP Jo Swinson, the Advertising Standards Authority (ASA) has banned L’Oreal ads featuring Julia Roberts and Christy Turlington. Apparently the ads are sufficiently airbrushed as to be “misleading” under the advertising standards code.

Swinson’s problem is that the ads are “not representative of the results the product could achieve.” This is a strange charge, as in a sense that is surely true of all advertising. Sudden transport to some solstitial dune thick with beach-ready babes is unlikely to be one of the effects of drinking light beer, but we allow Budweiser advertisements that suggest this. Indeed, it is plainly misleading to suggest that any foundation will make you look like Julia Roberts or Christy Turlington – airbrushed or not. Advertisements often hint at things that can never be guaranteed, and drawing a bright red line at greater-than-average airbrushing is arbitrary.

Even if some clear line could be delineated, though, I would still see no reason to prohibit this kind of ‘misleading’ advertisements. A ban is only justified to prevent a serious harm and when there is a direct and necessary causality between an action and that harm. These adverts should not be forbidden under either criterion. First, the only direct harm I can see is that women might be disappointed. This is not enough to limit freedom of expression; there is no right not to misspend.

Second, though, there is no direct causality between ads and greater harms. The problem that Swinson is really targeting is low self-esteem and its associated evils: eating disorders, depression, and self-harm. Body image issues are serious, but they are not a reason to censor advertisements. The fact is that not everyone who sees an airbrushed advertisement will suffer because of it, and we cannot ban everything that maybe, might harm some people. We criminalise poisoning, not leaving cleaning products lying around.

Swinson’s agitation comes from a good place, but it is misguided. We hold our right to freedom of expression too dearly to violate it on the grounds that Swinson and the ASA present. Just because the expression in question comes from a big, bad corporation does not make it any less worthy of protection. Here’s hoping that the next blow in the never-ending ad standards saga comes for freedom of speech.

Flouting its own regulation policy


Regulations continue at the same rate, or indeed, higher even than under New Labour. And about one third of the justifications, according to today’s report from the Regulatory Policy Committee (RPC), were “not fit for purpose”. This is all very depressing. Remember that this government said it was going to reduce the bureaucrats whilst preserving the front line, eliminate quangos and new regulation, and stand up to Europe: it is doing none of those things. Regiments are reduced not desk drivers, primary care trusts are being replaced by many more of the same, quangos are being merged into even less effective bodies.

In the case of regulations, the RPC reviewed 278 in the first half of 2011. The new policy of removing one or more old regulations to make space for each new one works badly if it works at all. And it does not apply to European regulation, the more costly burden on British business. The claimed benefits for removing the old regulations were twice what the RPC thought they should have been (£3.7bn).

When will government learn that they should do less, and do it better?

Tim Ambler's new briefing paper, How Basel III threatens small businesses, is available for free download now.

Welfare denationalization should be the priority



Those who support free markets often hanker for cuts in state spending across all departments. While fine in theory, this can be misguided in practice. Take disability allowance: the government is discussing measures to introduce tougher disability tests, impose an arbitrary time limit on Employment and Support Allowance for those with working spouses, and have a six-month waiting period until disability allowance can be claimed. In any case, provision is likely to get tougher.

Those who already claim benefits are understandably concerned, and even recognise the need for reform. For example, read this heart-wrenching account on the excellent "Diary of a Benefit Scrounger" blog. Yes, some people undeservedly claim benefits, and fraud will always be rife in such an impersonal system, but with a lack of alternatives some people really do need it. One libertarian response is to repeat the mantra that "we just cannot afford it", but this is a weak argument – government makes trade-offs when it comes to allocating spending, and it seems odd that lending a hand to those in most need is so low on the list of priorities.

The other libertarian response is that forms of charity and insurance will step in as state largesse recedes. This is fine in theory, and the history of welfare provision before the welfare state backs this up, but it is something that can only happen over the long run. For example, while extraordinarily rapid growth took place, it was decades until the mutuals of the 19th Century accepted working men over the age of 40. It is one thing to expect people to insure themselves against sickness and old age when there are no state supports, but altogether heartless to remove that support when they have planned their lives in expectation of it.

So what are the libertarian solutions? Instead of cutting an already inadequate system, the focus should be on decentralising welfare to a lower, more personal level, perhaps with the aim of eventual privatisation into the hands of mutuals and other non-state institutions. Burgeoning costs due to fraud, and inadequate, uncaring coverage are the features of state-run and often even business-led insurance models. We must find ways to eliminate those problems by returning welfare into the hands of people themselves, without all the pain.

Anton Howes is Director of the Liberty League.

Say no to Plan B


Today brings news that the British economy only grew by 0.2 percent in the second quarter of 2011. Predictably enough, this has led to renewed calls for a ‘Plan B’ for the economy. Typically, that means more borrowing, spending, and money printing. That’s fiscal and monetary stimulus, to give it its technical name.

Well, I don’t want a Plan B. In fact, I don’t really want a ‘plan’ at all. As I see it, the advocates of stimulus completely misunderstand how the economy actually works. They imagine a motor that’s stalled and needs to be jumpstarted. Just give us a quick boost, they say, and we’ll be up and running like we were before. But in reality the economy is vastly more complex than that crude model can appreciate. It’s not a motor; it’s the product of billions of individual choices and actions. And you can’t ‘fix it’ like a broken down car.

During a boom, the economy gets distorted. With too much easy credit and too much money sloshing around, people make bad investments and take on too much debt. You get bubbles forming in particular sectors of the economy and capital being misallocated as a result. When the bust comes, these bad decisions have to be undone, and new plans have to be made. That’s what a recession is all about: liquidating unprofitable investments, paying down debts, reallocating your scarce economic resources to reflect changed consumer preferences. It’s about adjustment and recalculation, and that means it is a process that takes time.

Attempts to stimulate the economy prevent that adjustment from taking place. They might dull the short-term pain, but they also make a return to sustainable growth very difficult. Look at Japan – they’ve have years of near zero interest rates, several bouts of quantitative easing, and repeated fiscal stimulus. They’ve built the bridges and the roads that Keynesians are so keen on, and they’ve kept their zombie banks on life support. The result? Two decades of stagnation. You have to let the economy adjust: plain and simple.

So what should the government do? In the short run, it’s pretty straightforward: they need to bring spending and debt under control, maintain a stable monetary environment, and make sure that failed businesses (like banks) can be resolved without it triggering mass panic. Then they just need to let things work themselves out. In the longer run, there are things you can do to boost growth: cutting red tape, eliminating barriers to entrepreneurship, cutting taxes on saving and investment. But here and now, we need to be patient: real growth will return, if we let it.