The Pin Factory Blog

Germany’s Bundesbank, that symbol of sobriety and caution, reports that banks appointing a higher proportion of female executives results in “a more risky conduct of business.” Yes, that’s right, women aren’t the traditionally viewed paragons of safety and touchy-feely empathy.

Of course, a moment’s rational thought would have come to the same conclusion. Britain’s biggest risk-taking prime minister was the sainted Margaret Thatcher who boldly threw the dice on taxes, the Falklands, unions and privatisation. And how else to explain the tens of thousands cheerily opting to surgically implant gelatinous gloop into their breasts other than a wild propensity for taking risks? You don’t see men doing the same with their tackle.

With this finding, though, we may have stumbled onto a way out of Britain’s current dreary predicament. On present form, the predominantly-male consensus view of our prospects is years of anaemic growth marked by incessant skirmishes about which lot of taxpayers to screw on behalf of which lot of tax spenders.

So let’s round up some of these risk-taking women and set them loose. We start with the Bank of England where that cerebral Mervyn King has probably run his course. Our new chief roulette spinner there would start with a systematic edging up of the Bank Rate. It’s been stuck at 0.5% for three years and looks set to stay that way indefinitely. This is like a bright red flashing light screaming: “We have no confidence! It’s awful out there! Run! Hide!” And the boys in charge wonder why nobody’s putting any chips down.

While she’s at it, our new BOE Governess would also put a stop to all this quantitative easing. It’s inflating the stock market, robbing pensioners and just postponing the inevitable reckoning of an over-indebted society. Perhaps a good candidate for the BOE job might be found in a drug rehab centre where they appreciate that you don’t cure an addict by shooting them up with more heroin.

Over at the Treasury, our new chief card dealer would shuffle the decks thoroughly. Why take a simple but probably losing bet of a 45% top tax rate when you can go for the really big payoff? With a flash of her pearly whites and a demur wink, she’d deal out 35% or even 30% with no loopholes, exemptions or dodges. And to sweeten the pot, a boost for personal exemptions to £15,000 would really wow the punters.

She wouldn’t stop there but would bring in some no nonsense chums to clear up the VAT mess with no exemptions for anything but a simple rate of, what, 15%? Just imagine, no more Cornish pasty crumbs on the table.

Finally, there’s that riotous pensions slot-machine hall where foolish folk feed in the coins, crank the handle and get nothing back. For this job, nothing less than a Lara Croft type will do because the whole racket needs closing down in favour of a simple giant annual ISA allowance of maybe £30,000 from which you can take your money tax free at an appropriate retirement age. No more advisors, no more unfathomable products, no more rip-off annuities, no more pension mis-sellings, no more hidden fees. Ms Croft’s skill in martial arts will be needed at the door to fend off salivating politicians trying to sneak in to grab a piece of the action.

The boys have had their day and clearly run out of inspiration. Bring on the girls ready to take a chance!

By all accounts, this was a crappy week
for Mr Cameron and his Tories.
After taxing granny, pasties and the meek,
and seeing George Galloway crowned in glory,
the Home Office creates a scheme so fearful,
antithetical to liberal thought,
I'd pay a lot to give a great big earful
to a minister (shame they can't be bought-
that is, unless it's Dave that you'd like to see.
I wonder if George charges VAT).

The plan, we're told, is the implementation
(necessary for survival of the State)
of a GCHQ listening station
to stop these pesky terrorists of late.
We need this new system here and now!
But passage of the bill can wait till post-
the Games, as "Parliamentary time allows",
just exactly when we will need it most
"to obtain effective, real-time, viewing stats"
of web use (this includes photos of cats).

Never mind all the current legislation,
extensive in consequence and scope,
now laws that govern the British nation.
(They should not instil you with too much hope.)
I shall provide an example here for you:
see "section 58"! Ten years, for taking
a picture of a building in full view.
And if they can't prove you're below the board, Her
Maj can slap you with a Control Order.

They say stop-and-search mitigates the risks,
which as of the year two thousand and nine
meant none were arrested, six figures frisked
(the perps got away in the nick of time).
And remember that Libyan revolution
and how you took to Twitter fervently?
That's speech unsafe under our constitution
(you'll be needed at Belmarsh, urgently).
Want to tear down a foreign state? Well, this here's
unlawful, and will get you seven years.

When a book can be illegal and jail needs no charge,
the state has the tools it needs to play rough.
It's time to push back on Big Brother writ large:
we must say, and loudly, "enough is enough."
But I've now said plenty. Enough out of me:
time to get on the horn and call your MP.

There’s an interesting piece of research out this morning from BDO, an accountancy and business services consultancy. Its quarterly Industry Watch, which makes projections about rates of company failure, suggests that Britain’s “two-speed recovery is starker than ever”.

There are a couple of points to make here. The first is that we shouldn’t expect a recovery to be ‘one-speed’.  The assumption that it ought to be reflects, I think, a misunderstanding of the boom-bust-recovery business cycle, and owes something to the Keynesian obsession with economy-wide aggregates – which frequently mislead more than they enlighten, particularly in times of economic volatility.

The thing to realise is that busts are usually the products of preceding booms. Typically, the boom is fuelled by expansionary monetary policy, which leads to too much easy credit and pushes market interest rates below their natural level (i.e. rates which balance the supply of savings with the demand for loans, and which signal the extent to which people are willing to forgo present consumption in favour of future consumption). The result is that people make bad decisions – they systemically take on too much debt, and invest too much in marginal projects.

Crucially, this affects different sectors in different ways. In particular, you get bubbles in those parts of the economy which are fuelled by credit, like housing, construction and financial services. Resources are sucked towards these bubbles – as they grow, more and more people want to jump on the bandwagon, creating a self-reinforcing cycle. Eventually you reach a point where the economy has grown completely out of kilter with the real, underlying demands of consumers, and any tightening of credit conditions will bring the house of cards tumbling down. Enter the recession.

Now, if recessions are about unwinding the mistakes of the boom years – liquidating unprofitable investments, paying down debts, reallocating scare resources and coming up with new plans to reflect changed consumer preferences – then it is inevitable that any real recovery will, of necessity, be ‘multi-speed’. Some sectors need to shrink. Others must simply weather the storm. And for a few, the recession presents an entrepreneurial opportunity – a chance to grow and prosper. Of course, this process happens within sectors as well as between them. The point is that recessions are, or at least should be, periods of dynamic change, of creative destruction writ large. Different sectors, let alone different companies, do not rise and fall like boats on a tide. What you get instead is constant churn.

The other interesting point to come from the BDO research is the relative strength of the technology, media and telecoms sector – and the finding that the best performing retailers are the ones who are capitalising on the new opportunities that technology, media and telecoms offer. This is a useful reminder of the overwhelming force of human innovation, which can drive forward growth and progress in ways no central planner could ever imagine. But it is also a warning – the government’s forthcoming Communications Bill, which represents the first effort to systematically regulate this emerging sector, must not strangle the life out of this revolution, or force it overseas. I wish I could say I had more faith in our lords and masters, but I don’t.

The confrontation between John Maynard Keynes, and his Austrian born free market adversary and friend, Friedrich August von Hayek, is one of the most famous in the history of contemporary economic thought.  The debate took place during the Great Depression of the 1930s about the causes and remedies of business cycle downturns in market economies.

The origins of this debate can be traced back to the book ‘Treatise on Money’ (1930) written by Keynes, a rather obscure book, that was superseded by his masterpiece ‘The General Theory of Employment, Interest, and Money’ (1936).  ‘Treatise on Money’ was a difficult book to read, and this probably caused Hayek and Keynes to misunderstand each other.  As Keynes and Hayek were building their economic models at the same time, their debate was very much dominated by terminological definitions.  One of the main topics that Keynes and Hayek corresponded about was the definition of savings and investment, and Hayek wrote three extensive systematic reviews of ‘Treatise of Money’. In turn, Keynes wrote only one article in response accusing Hayek of misrepresentation.

Read this article.

Reading the news this week, I have been reminded of FA Hayek’s classic essay “Principles or expediency?”.

The impossible task of liberals, said Hayek, was to argue for a general principle of liberty in circumstances where “pragmatists” wanted to give a little liberty up for some other direct and visible benefits. The benefits of liberty are unseen and indirect. They are sometimes hard to justify on a “pragmatic” case-by-case basis, but on aggregate are critical to a flourishing society. In Hayek’s words:

"it is not in our power to build a desirable society by simply putting together the particular elements that by themselves appear desirable. … If the separate steps are not guided by a body of coherent principles, the outcome is likely to be a suppression of individual freedom.”

So it is with the government’s plans to store every person's emails, search histories and social networking activities, and read them at will without a warrant.

Josh Lachovich has already highlighted the government’s hypocrisy in proposing this measure. The coalition parties’ manifestos and the programme for government all explicitly ruled out “database state” measures and, indeed, promised to roll back the surveillance state. Of course, these were all lies.

The depressing thing is how predictable all this is. “Pragmatic” erosions of our civil rights to date – CCTV cameras everywhere, centralized government databases of personal information, attacks on habeas corpus, covert surveillance operations by local councils and sundry encroachments onto people’s online privacy – have led naturally to this grotesque new plan.

Every new piece of authoritarianism has been justified as “counter-terrorism”. As Hayek would have recognised, the many freedoms we have given up “pragmatically”, ignoring the value of upholding the principle of liberty, have led to our current position.

Given the amount of our private lives that we conduct online, the government’s proposals are really just a modern updating of 1984’s telescreens, which videotaped the inside of every person’s home. If there is there any meaningful difference, I can’t see it.

The government’s new proposals are crass, authoritarian and stupid. All decent people oppose them, but they may go through nonetheless. When the principle of liberty is conceded in favour of false “pragmatism”, the great benefits of living in a free society go as well.

That is what Hayek meant by his often-misunderstood title, “The Road to Serfdom”. Each step along the way, giving up a little freedom, might seem expedient and sensible. By the time you’re in a country where the government indefinitely stores and can read your emails at will, it’s too late.

"The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!"

— Ludwig von Mises, Bureaucracy

At a meeting of our Next Generation group this week, Sunday Telegraph columnist Iain Martin talked about the various failings of the Conservative Party. His primary criticism is that the Conservatives under David Cameron abandoned their principles in favour of telling people what they wanted to hear. That might have been a decent electoral strategy when the economy was booming, but once the financial crisis hit it left the Tories rootless and incoherent, so that no-one (least of all the Tories themselves) had a clear idea of what they stood for.

I more or less agree with that position, with the caveat I’m not convinced the Tories were that principled to begin with. Even a cursory look at the Conservative Party’s history will reveal that Margaret Thatcher’s reputed ideological fervour is very much the exception, rather than the rule. Indeed, many Tories will tell you that the rejection of hard and fast principles in favour of ‘pragmatic’, case-by-case managerialism is the essence of British conservatism. And as Sam wrote yesterday, the trouble with that mindset is that it leads inevitably to the persistent, piecemeal erosion of individual liberty.

After the speech, a few people asked me what I really thought about the coalition government. My honest response is not a terribly positive one. On education and welfare reform, their policies are generally pretty good. Their deficit reduction plan, while far less impressive than the chancellor’s rhetoric would suggest, is at least better than the alternative (I think that’s what they call damning with faint praise – ed.). There have been a few good moves on tax – like raising the personal allowance and cutting corporation tax – but it is hard to ignore the fact that they’ve has robbed Peter to pay Paul and skimmed off the top while doing it.

Beyond that, I struggle to think of anything nice to say. Certainly, when it comes to matters of personal freedom, this government borders on the fascist. The commitment to civil liberties that both parties claimed in opposition seems to have gone out of the window now they’re in government – the electronic surveillance powers trailed last week are even more despicable and grotesque than anything Labour managed to come up with. And when it comes to food, drink and tobacco, the government couldn’t be more in thrall to the bully-state establishment. To be blunt, they plainly care not a jot for individual liberty. 

I had hoped that coalition might mean the best of both worlds – that the Liberal Democrats’ civil libertarian, non-interventionism might be blended with the Conservatives’ fiscal conservatism and suspicion of state power.  That seems an increasingly forlorn hope.

Jeff Tucker, writing from his new home at Laissez Faire Books, extolls the virtues of technology and the future:

True confession: I was once among the late adopters. I freely put down the techno enthusiasts. I wrote a highly negative review of Virginia Postrel’s provocative book The Future and Its Enemies, which turns out to have seen what I did not see. After the digital revolution advanced more and more, I began to notice something. By being a late adopter, I gained no advantage whatsoever. All it meant was that I paid a high price in the form of foregone opportunities. If something is highly useful tomorrow, chances are that it is highly useful today, too. It took me a long time to learn this lesson. . . .

In World War II, we saw technology used for mass murder and ghastly accomplishment of human evil as never before seen in history. Then we went through almost 50 years in which the world was frozen in fear of the uses of technology. It wasn’t called the Cold War for nothing. When it finally ended, the world opened up and we could turn our energies again toward technology that serves, rather than kills, people.

The real “peace dividend” you hold in your hand. It’s your smartphone. It’s your e-reader. It’s the movies you stream, the music you have discovered, the books you can read, the new friends you have, the amazing explosion of global prosperity that has visited us over the last 10 years. This is technology in the service of the welfare of humanity.

In conclusion, no, we are not oppressed by technology. We can embrace it or not. When we do, we find that it brightens both the big picture and our own individual lives. It is not to bemoan, ever. The state of nature is nothing we should ever be tempted to long for. We are all very fortunate to be alive in our times. My suggestion: Try becoming an early adopter and see how your life improves.

Hear, hear. Matt Ridley had a similarly optimistic post today, called "17 reasons to be cheerful".

I'm still a little pessimistic, though. Even if it isn't outright war, things like email surveillance, phony "anti-terror" erosions of our civil liberties and the medicalization of alcohol and tobacco make me worry. For all the quality of life improvements that technology brings, states can still wipe away everything we have at the push of a button.

Is, as we know, all that is required to lift a nation from the lowest barbarism to, well, to riches untold by earlier standards in fact. However, once we've got rich we can't just sit back and assume that we'll continue to do so as Italy shows us. Contrary to many reports on the economics of the place it's not actually grossly overindebted. Most of the public debt is owed to Italian households for example, something that is always much easier to deal with than those pesky foreigners. However, what the place really doesn't have in any noticeable form is economic growth. That's what's making the debt to GDP ratio look problematic and we mighrt be able to find a good reason for that too:

The U.S. Supreme Court reviews around 100 appeals per year. The number for Italy's top appeal court, serving a population a fifth the size? More than 80,000.

Italy has 40,000 lawyers specializing in supreme court cases. According to Valerio Spigarelli, head of Italy's top criminal lawyers body, the number in neighboring France, with a similar population, is 25. They are among 240,000 lawyers in Italy, compared to 54,000 in the country next door.

Statistics like this give a glimpse into a chaotic, byzantine legal system which not only reduces citizens to despair and has senior judges tearing out their hair, but acts as a serious disincentive to foreign companies planning to invest and a powerful brake on the euro zone's third economy.

Everything from a simple dispute among tenants of an apartment block to attempts by Prime Minister Mario Monti to revive Italy's stagnant economy are at the mercy of a system that can delay final judgment for many years.

Note that for reasons economic we do not need a perfect administration of justice. Only a tolerable one, one that produces roughly fair outcomes in roughly reasonable amounts of time. That being what Italy seems not to have of course.

I put this here not to make fun of Italy or their legal system. Rather as a warning to those who would mess with our own. Yes, there are undoubtedly things that we could do to make the legal system more finely grained, make it mill and grind smaller: but we need to understand that we also need those wheels to grind quickly if we are to have that tolerable, rather than perfect, administration of justice. That thing without which our children will not be richer than we are.

This is slightly disturbing, finding myself agreeing with Francis Maude on something. But he's absolutely correct here:

“I recollect twenty years ago as a financial secretary I was taking a finance bill through parliament, a Labour MP said indignantly to me: ‘You are just trying to turn Britain into a tax haven’. To which my response was: ‘Thank you very much, I appreciate the compliment.’

"And that is exactly what we’re trying to do. We want Britain to be a place where people don’t mind being taxed....."

Using this definition then everywhere, all the time, should be striving to become a tax haven. For if you don't mind the tax that you've got to pay then you're roughly happy with the deal that you're being offered in return for that tax. Perhaps it is true that government allows the rich to get rich: OK then, if the rich stick around and pay the taxes to pay for that government then this is proof perfect that the rich think they're getting their money's worth. Similarly, if absolutely no one ever does a £50 job off the books to dodge VAT then it's an agreement that everyone thinks that what they get for their VAT is worthwhile.

We can also put it the other way around. That people are attempting to avoid tax, that people are attempting to evade tax, is similarly proof perfect that they believe they are getting a bad deal. It might be that they think that they're not getting enough for the cash they have to feed into the maw of the State: that government is inefficient. It might be that they think they're getting too much government and thus that the marginal amount they're getting just isn't worth having.

The intermediate stage, that government is both efficient and we've got just the right amount of it cannot logically be true: not if anyone refuses to do the paying for it it cannot be. For that very refusal to pay is evidence that those refusing don't agree with the statement.

So, yes, everywhere should be striving to be a tax haven. A place where people don't mind being taxed because they think that what they get for the amount they're charged is fair and reasonable.

There is a delicious corollary to this of course: all those insisting that people must be forced to pay taxes are, by definition, agreeing that the people being taxed don't think the taxes are fair and reasonable....