The Pin Factory Blog

A long post (and to be continued) but if you'd like to know what went wrong with Fannie Mae this is an excellent place to start. Yes, there were indeed faults with the incentives both faced by and set by politicians (Surprise!).

A trailer for a BBC series: Netsmith would make the point that this shows exactly why we don't wantto reduce what some call "hypermobility": it's essential to the way we live, not some undesirable add on.

And interesting question: how is that that avowed lefties can write such capitalist dramas? Without perhaps even realising it?

Asking what is the value added of the World Bank: not a lot seems to be the answer.

Another fascinating question: what would FDR think of today's Social Security system?

One contender for the best passage from Solzhenitsyn's works.

And finally, a worthy image for a poster perhaps?

Over on the Spectator's CoffeeHouse blog, Fraser Nelson highlights the unintended consequences of Australia's decision to raise the tax on alcopops:

Jacking up pre-mixed drink prices by 70% cut their consumption by 30%, but pushed bottled spirit sales up by 46% as kids mixed their own. And - surprise, surprise - the people pour far more generous measures than they were getting with the Bacardi Breezers. Result: a sharp 10% hike in the amount of alcohol consumed in Australia, the precise opposite of what was planned.

The reason this is relevant to the UK is that the Conservatives have proposed a similar measure here, as part of a strategy to tackle binge drinking. The Tory proposals may avoid this problem, since they would also reduce the tax rates on 'light' beers and ciders by a corresponding amount, hopefully making these softer drinks a more attractive option. But then again, they might not. Kids drink alcopops because they want to get drunk but don't like the taste of alcohol. And that means self-mixed drinks, not beer, are the obvious alternative.

The whole political response to Britain's 'drinking problem' is littered with such unintended consequences. The truth is that Britons, like other Northern Europeans, have always been heavy drinkers. It's an ingrained, cultural thing that is not easy to change. What has exerted a moderating influence in the past is social pressure – in particular, the fact that drinking was centred around community pubs. If you wanted to drink, you had to behave yourself or risk being thrown out. And because you would know people there, and be known to them, you wouldn't want to embarrass yourself.

Yet it is these community pubs that have been hit hardest by government interference, like the costs imposed by licensing requirements and other regulations, or the smoking ban. As they close down in droves, drinking has been shifted from these pubs to impersonal venue bars, with their happy hours and two-for-one promotions, or to street corners and park benches (for the less discerning).

As that has happened, the social pressures that once kept the 'English disease' in check have slowly disappeared.

Michael Gove MP gave a speech to IPPR yesterday on, "Why Conservative social policy delivers progressive ends". He outlined how the Conservatives would approach education, relationships and family policy.

Gove did well identifying where the state has been destroying the community through it's war of attrition on what binds us together; a war that has increased its pace over the past 10 years:

More broadly, the web of autonomous institutions which help bind communities together have found their lives made more difficult in the last ten years. From scouting to child-minding, regulation has driven adults out of roles where they served their communities. School governance and charitable engagement have become much more time-consuming, legally fraught and bureaucratically complex.

He rightly identifies the problems that centrally driven targets have on children within education – none more so than those who live in poverty. He wants to 'devolve power downwards' to make institutions friendlier, and he's right to say that this will create greater responsibility. By empowering people, it gives people greater choice and allows them to tackle their problems first hand and head on; encouraging them to draw on their own resources (family, friends etc.).

Gove also said, "the costs of relationship breakdown, of children left fatherless, of men behaving badly, are borne by us all." And he's right – but the reason a sub-section of males within society act as they do is that the state countenances their behaviour. Via the tax system, the state funds the benefits and tax credits that allow people to live without responsibility for their actions. The 'lads mags' of the past 15 years (which Gove criticized for irresponsibly promoting "one-hit hedonism") merely reflect market opportunities – market opportunities that the state has accentuated through its destructive policies.

For those of us who understand how incentives and cradle-to-grave welfare affect behaviour it is easy to see that the state is not the solution. Even paying families to remain together has proven to be detrimental to children in some cases.

So, Mr Gove, could you, and the rest of parliament, please step aside and let us rebuild our societies?

Hello - I’m Yohan Sanmugam and I am starting my two-week internship here at the Adam Smith Institute.

At 18 years old, I have just finished at Westminster School where I studied Maths, Further Maths, Economics, History and Spanish. Fingers crossed for results day, the 14th. In October, I will be starting my degree in Economics at Christ’s College, Cambridge. And after that I don’t know - many have warned me not to sell my soul to the City. But I am torn between that, politics and some sort of civil service job (diplomat, economist).

Outside of my core education, I would say my greatest interest is Politics, which explains why I wanted to work here and understand more about public policy. And after that, The Sopranos.

Not a blog post and it's old, but well worth reading. Why recycling wastes time, money and resources.

Another highly counter-productive endeavour: raise the tax on alcopops and alcohol consumption rises 10%.

Something a little different: an apparently sensible and worthwhile thing to do about matters environmental and fuel poverty.

Something very much not sensible being suggested over the pond on the same matters.

A good question: if paternalism, even of the libertarian kind, is such a good idea, why don't we have food rationing?

Adventures in the European subtitling industry.

And finally, yes, fabulous idea but Netsmith is holding out for the four rasher, two eggs and toast version.

The Sunday Times tells us that these calls for a windfall tax on the energy companies aren't being listened to in the way I'd been worried they could be. Rather than hammering the profits being made they're rather thinking about:

The government has already announced proposals to raise £2 billion over four years by auctioning so-called “emissions permits". Previously these permits, created under the European Union’s carbon trading scheme, were free. Ministers are examining ways of raising more cash from the auctions. If the proportion of permits auctioned for money is increased from the existing 7% to 10% – the maximum allowed under EU rules – a further £500m could be raised from power companies in the coming 12 months.

That's certainly more sensible. There's two things that we need to understand about these permits and green taxes. The first is that there's a difference in the effects of a carbon tax and these cap and trade systems using permits. With tax we know what the cost will be, but not what the emissions reductions will be. With permits we know what the emissions will be but not the cost. I prefer the tax because it makes clearer and more transparent the cost benefit analysis: but feel free to differ. But if the tax and the permit prices turn out to be at the same level then the two systems are functionally equivalent.

However, a cap and trade system where some permits are given away is not the same as a carbon tax. It's the same as a carbon tax plus corporate pork. Those lucky companies that get given permits make unearned profits from them. Even if every extant company gets the same proprotion of freebies, that still leaves potential new competitors at a disadvantage, they will have to buy all of their permits on the market. It's protecting the incumbents again.

So that's our first lesson about green taxes: if we're to have a cap and trade system of permits then all permits need to be auctioned, not just that 10% limit.

The second is that moving the tax system from taxing "goods" to taxing "bads" doesn't actually mean that we want to raise the general level of taxation. It doesn't mean that when we tax carbon (or sell permits) to reduce emissions that we thereby hand another pot of money to the politicians for them to waste. No, far from it, what we actually need to happen is that other taxes elsewhere in the economy get lowered by the amount raised. As, amazingly, was done with the Landfill Tax: the amount raised would be compensated for by reducing that worst of taxes, employers' national insurance (changed to reduced corporation tax in 2007).

If auctioning 3% of permits would raise £500 million, then auctioning the other 90% might raise £15 billion. There's about 30 million tax payers, so that could be used to raise the personal allowance by £2,500 each (basic rate is 20%, so 30 million x £2,500 x 20% = £15 billion will be the revenue lost from this move), getting us that much closer to our goal of taking the poor out of income tax altogether. Very rough numbers, I know, but increasing taxes on those bads must be balanced by reducing them on the good things.

I recently returned from a holiday in the USA where, as always, I was struck by how cheap everything is. Part of this is down to exchange rates – my pounds go a long way the other side of the Atlantic – but that’s not the whole story.

I found that for most things the dollar price was the same or lower than the GBP price would have been at home – which is to say, something that costs £1 here, would sell for $1 or less is the US. If our incomes worked out as £1=$1, then that might make sense, but they don’t. In fact, the median income ratio is more like $1.5=£1, meaning life is about 50 percent more expensive for us Brits than it is for Americans.

The question is, why? Several reasons for Britain’s high prices spring to mind:

• Property prices are exceptionally high in the UK – partly a result of limited space, but also a product of our restrictive planning system. Government restricts the supply of available land, driving up prices. High land prices mean higher rents and higher wage demands, both of which push up costs for retailers. Then they have to charge more for their goods and services.
• VAT, at 17.5 percent, is much higher than the sales taxes in the US. High fuel duties don’t help either, since most goods have to be transported. Indeed, the very fact that Britain is a relatively high-tax economy pushes up prices – sellers need to charge more to come out with a decent profit.
• Regulation, another burden on business, has the same effect. In particular, employment regulations make labour more costly in the UK in the USA, as does a higher minimum wage (where, again, $1=£1). And that drives retail prices up.
• The EU’s Common Agricultural Policy and the Common External Tariff, makes a range of goods (especially food and clothing) more expensive than they would be if we traded freely.

Pondering these things, it’s pretty clear that smaller government and freer markets could do a great deal to reduce the cost of living in the UK. Is anyone surprised?

Violent surprise attacks on unsuspecting citizens in their own home are a feature of totalitarian states, and were used to intimidate dissidents in Nazi-Germany and in Stalin's USSR. But for some time now scientists in the West have been falling victim to such storm trooper assaults perpetrated by animal right activists. As in the UK, US Scientists and their families have been horrified and severely traumatised. According to the Washington Times:

Over the past couple of years, more researchers who experiment on animals have been harassed and terrorized in their homes, with weapons that include firebombs, flooding and acid… These attacks have been escalating in recent years: The Washington-based Foundation for Biomedical Research said researchers were harassed or otherwise victimized more than 70 times in 2003, up from 10 a year earlier.

To be sure, people who are concerned in non-violent ways to protect animals from harm have been around for centuries. But these eco-terrorists are a different bunch. Jerry Vlasak, who speaks for the US Animal Liberation Front, says: "if you had to hurt somebody or intimidate them or kill them, it would be morally justifiable." This is a rhetoric that dehumanises our society in another bout of egalitarian furore, which is aiming at the gradual levelling of the animal and the human world. It is in this context that we should look at the Spanish parliament. For it is the first to deal with the international Great Ape project, which attempts to impose human rights on certain monkeys.

When I wanted help for my gambling addiction, I went to Alcoholics Anonymous.

They said I needed Gamblers Anonymous.

I explained that I was so drunk I thought that's where I was.