The Pin Factory Blog

It is a mixed bag on free trade. While agreements are being stalled in the US, across the other side of the globe the Association of Southeast Asian Nations (ASEAN) are deep in free trade negotiations with Australia, New Zealand, the EU and India. They are also implementing a free trade agreement with Japan, which will make 90 percent of trade tariff-free inside of 10 years and have signed a deal with China to create the biggest free trade zone by 2010.

So while much of the East is opening up, the West is closing its doors. An article by Avi Salzman in Business Week considers the reality on the ground for businesses in the US wishing to export. For the company Caterpillar – which assembles trucks of behmothian proportions – without the Colombian free trade deal, they face a tariff of $180,000 on a $1.2 million truck. Doug Goudie, director of international trade policy for the National Association of Manufacturers, is concerned: “Every day that goes by, we lose the opportunity to export manufactured goods".

With the next round of world trade talks starting up, it is time for ministers to step up to the plate and liberalize global trade. As The Economist reports: “Yvan Decreux and Lionel Fontagné, of CEPII, a French economic research institute, have tried to measure the effect on global growth. They estimate that the world economy would eventually be $43 billion a year better off. Throw in some liberalisation of services too, and the sum rises by $30 billion."

In fact, as The Economist acknowledges, the financial gains would be much greater than this. All we need now is for the politicians throughout the world to sign up to free trade. I am not holding my breath...
 

After three wonderful months at the Adam Smith Institute, it is time for me to go back to the United States, marry my fiancé, complete my last year of university, and then head to law school. In the words of Paul (the Saint, not the Ron):

I have fought a good fight, I have finished my course, I have kept the faith (2 Timothy 4:7).

Ok, that's all a bit dramatic.

In all reality though, it has been a pleasure working here and I will miss London and the great friends I have made. If I have learned one lesson during the last three months, it is that we can never be complacent. Political demagogues will always promise greater prosperity to the masses by subsidizing, mandating, and taxing.

This is why those of us who want to take responsibility for our own lives must continuously work to keep the markets free, the taxes low, and the government small. Over the next few years, capitalism may indeed face its stiffest challenge in decades. Globalisation is changing the world landscape, and although it promises great benefits, many people are afraid of the future. The oil crisis and global warming hysteria will undoubtedly fuel the fire for greater government intervention.

So let's stick to our guns and continue our fight for freedom and liberty!

This one time, at band camp...

Which crime figures to believe? Any of them? James Bartholomew points out that things are certainly very different from the past. And who knew that Britain was more violent than the Balkans?

The Sith Institute does indeed seem to have suffered a defeat. Well done Guido.

Something that not enough people are paying attention to: The Great Moderation. For example, a slow down or recession combined with globalisation might mean job losses in China, not Chicago or Cumbernauld.

More on recession: the housing crash in the US is higly localised, might too the fallout be?

Will the recent licencing of baobab fruit into the EU lead to another Commons Tragedy?

Netsmith agrees with this boat. Time to start some gleeful axe swinging amongst the quangos.

And finally, explaining the difference between engineering and PoMo.

Yesterday I rather made fun of Al Gore's latest call for a greener world. Today (alerted by EU Referendum) I can show you the expense of a less adventurous plan. This is the EU's plan that each EU country should reduce their emissions by some amount, in Ireland's case, by 20%. One way of looking at the costs of such a plan is to work out what level a carbon tax would have to be set at to make such a reduction possible:

In a presentation made to the committee, Prof Tol made what he described as a "cheeky" suggestion that the carbon tax needed to meet this stringent target would be equal to a carbon tax of €4,000 per tonne of CO2.

Given that the Stern Review thought that the cost of the emission of such a tonne of CO2 was $85 (and the EU thinks about €40, Tol's own estimate is lower) clearly this level of taxation is ludicrous. It simply isn't sensible to pay 100 times more in tax to discourage an activity than the costs of the activity you're trying to discourage will incur.

Richard Tol isn't, contrary to what some might fear, a crank, or anything like it. He's actually one of the people that helped write the IPCC reports that the whole concern is based upon.

Unfortunately, what we're seeing here is not unusual. The politicians have got the bit between their teeth, they're insisting that something must be done and dangnit, they're going to be the ones who tell everybody else what to do. Unfortunately, in their ignorance, they're now telling everyone to do things which will make us all immeasurably poorer. More unfortunately, for little reason as well.

At the heart of the economic debate over what we should do about climate change is a point that all too few have as yet grasped. We shouldn't spend more on mitigation that such mitigation will save us. To do so is simply to make future generations poorer.

The politicians are insisting that we pay 100 times more to mitigate than the mitigation will save us. Politicians: actively campaigning to make you and your children poorer: isn't that nice of them?

Hayek was right. The cause of business cycles and market turbulence is – governments.

In the latest New Scientist, a bunch of 'econophysicists', using sophisticated computer analysis, suggest that crashes might well have something to do with the euphoric levels of credit that precede them. In other words, the cause of your hangover is the binge you went on the night before.

The geeks used some pretty impressive technology – not just looking at portfolios, but programming virtual hedge funds and brokers to see how they react to market conditions. In stable times, they conclude, these agents all work pretty well, spotting under-priced stock and borrowing to invest in it. But when credit is cheap and they borrow and buy more is when they can get into difficulties. Some single chance event can send waves through the entire market: because when everyone's borrowing, one person's failure becomes everyone else's problem.

So that's it. Politicians and monetary authorities love it when we're all borrowing to spend wildly. It's boom-time, everything succeeds, employment rises, production soars, house prices rocket, we all feel rich. And then pop! – the first person who can't pay the bills leaves a second short of cash, which knocks on to a third, a fourth, a fifth... Pretty soon the economy's in a tailspin. All those people the banks and building societies lent to suddenly can't pay it back.

You could mitigate this by regulating the gearing of financial institutions. Much better to do it through a sensible monetary policy that doesn't make credit too easy and keeps a close and concerned watch on the monetary aggregates. The quasi-independence of the Bank of England has probably helped: but it evidently needs tougher targets if boom and bust is truly to be eliminated for the future.
 

It will surprise no one that I’m not a fan of the 130 demands that unions handed to Gordon Brown last week.  Most, if not all of them will hurt far more people than they help. Requiring the adult minimum wage for apprenticeships and 18 year olds, for example, will certainly not encourage companies to hire young folks (which probably explains why they also want some companies to be required to guarantee apprenticeships.  Hooray for solving the bad results of one policy with another bad policy!). The fact that anyone seriously thinks that running train companies as not-for-profits will be better for customers is also mind-boggling. 

The funniest item on the list, however, is definitely the call for tax deductions for union membership.  That’s right- they basically handed the prime minister a list of expensive demands, and then said “oh, and our members want to pay less taxes, let someone else do it."  Not that this is unusual for labour, but this just seems like a particularly flagrant declaration of that philosophy and demand for pork.  Though Brown has rejected many of the propositions, it is likely that at least some will pass.  As Auberon Herbert once asked, “how should it happen that the individual should be without rights, but the combination of individuals should possess unlimited rights?" Good question… how indeed?
 

Fainting goats. I kid you not!

We're not the only people who think that the new Rowntree method of defining poverty is useful. Adam Smith thought so too....

Trying to put some costs to Al Gore's latest little brainwave.

But of course it will be easy for those who brought us so many other wonderful government goodies, won't it?

One little chart that shows the essential need for legislative certainty.

It was really pretty certain that this post was going to be included, wasn't it?

Yet more idiocy from the frontlines of the War on Drugs.

And finally, whether or not it's true it's a good story.

Al Gore gave a little speech which you can read and watch here. He's essentially calling for a Manhattan Project, an Apollo, to move the entire US economy away from a dependence upon carbon. Nothing like an out of office politician for seeking the limelight, eh?

He does make some interesting points: solar is indeed getting cheaper as economies of scale start appearing: but then that's a logical argument for waiting a little before you install rather than installing today of course. He's also correct that a ten year time horizon for governmental plans is about right: that's as long as most currently serving politicians are likely to be in office and thus about as long as they're prepared to think. It's private companies that think longer term than that.

There's a slight wobble here:

When I first went to Congress 32 years ago, I listened to experts testify that if oil ever got to $35 a barrel, then renewable sources of energy would become competitive. Well, today, the price of oil is over $135 per barrel.

Well, yes, but we've had a tad of inflation since then. In fact, $35 a barrel in 1976 is $134.60 today in purchasing power....but this is where the wheels really come off:

Today I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years.

I'm sorry, but the only possible response to that is hysterical giggles. For a start, there's no such thing as a truly clean carbon-free technology for power generation. There are low carbon, medium and high carbon, but given that the cement used to stick a windmill in the ground has emissions associated with its manufacture, hydro emits from rotting vegetation, solar from mining and purification....well, you get the picture. Further:

This goal is achievable, affordable and transformative.

It most certainly would be transformative: it would impoverish the US as the technology is currently not affordable. Not just in that renewables are vastly more expensive, but because trying to do it on such a short timescale would mean scrapping all of the current stock of generating capacity. Throwing out a few hundred billions of dollars worth of functioning equipment really isn't thought to increase wealth.

Fortunately, the plan is also not achievable: there is absolutely no way on God's Green Earth that 100% of electricty generation is going to be from renewables in a decade's time. There simply isn't the industrial capacity nor the time (nor money) for a crash programme of building such.

Lucky that, once again simple facts destroy a politician's lovingly constructed theory.