The Pin Factory Blog

There's been a recent revival of the discussions about the hypothecation of tax revenues and as I never tire of telling people, it's a bad idea. For there is no logical connection between how much you can raise from taxing an item or activity and how much you might want to spend on that or any other problem, whether related or not. Another reason it's a bad idea pops up here:

One-sixth of all the national lottery money earmarked for good causes is being spent on bureaucracy, including one quango that has more staff than the Treasury.

New figures reveal that more than £200m a year is being swallowed up in administration and staffing costs at lottery distributors – up to six times the proportion spent on overheads by some leading charities.

The connection is that these groups (like the Big Lottery Fund) have in effect hypothecated funds. They get a set proportion of the money raised but do not have any pressure on them from outside to increase their efficiency. Given that their finds come from that tax on stupidity (if you prefer, ignorance of odds) that is the lottery, they don't have to compete for the cash. Given their entire insulation from the market there is also no pressure from elsewhere. Now that is so far true of all bureaucracies, but with hypothecated funds it is worse. For at least if the money is being doled out of the Treasury's one big bucket then there is a certain amount of pressure from the same Treasury for accountability and economy in the administration. Not much, I agree, but at least some, even if it is only from the covetous glances of others hoping to be fed from the big bucket.

With hypothecation there is a complette absence of this pressure and thus anything funded in this manner, accountable to no one and competing with no one, is bound to become increasingly inefficient.

My history knowledge is woefully incomplete but I do dimly recall that we fought a fairly bloody internal war a few centuries ago and that one of the triggers was Parliament's insistence that the Monarch had to be dependent upon said Solons for money and to account to them for how it was spent. And that if it were ill spent that no more would be forthcoming. As with the Monarch, why not so with a bureaucracy?

Over the last month, several newspapers have highlighted individuals who are moving away from gas-guzzling cars to more energy efficient alternatives. Some farmers are using donkeys and camels rather than tractors, others are buying smaller cars or even bicycles rather than SUVs, and others are choosing mass-transit. Ford is even changing its line-up in favour of cars with better gas mileage to better suit the market.

Oil prices have risen and fallen over the years, but due to rapid industrialisation in many developing countries, this surge will likely be permanent. Which leaves the question: are these high prices best for the long-term success of the oil companies?

Richard Fletcher doesn’t think so. Many people are making long-term lifestyle changes that are much more energy efficient. New homes have better insulation, windows block heat more effectively, and light bulbs run on less energy. Smaller vehicles are quickly becoming the norm in the United States, just as they have been for years in Europe.

Perhaps most importantly, there has never been a greater incentive than now to develop practical alternative sources of energy. In fact, £500bn will be invested in renewable energy over the next twenty years. May the force (but please, not subsidies) be with anyone who can develop cheap and clean energy.
 

The most interesting part of US Presidential politics: parsing John McCain's medical records.

More American politics: adding taxes to investment managers and coproations in order to fund a $1.6 billion tax break for lawyers. Shows the wisdom of filling Congress with said lawyers really.

More more Americana: calling M. Bastiat. Would there, might there have been, more and better cures for gliomas if a certain poltician hadn't intervened?

A little British politics to leaven the loaf.

Defining a recession: we all know the two consecutive quarters of negative GDP growth, but what were the others in the original definition?

Applauding that Dutch education system: better, cheaper, fairer.

And finally, the joke that has been gestating for twenty years.

Alison Wolf has a piece in The Observer where she details the decline in charitable giving and involvement in the UK. One of her points is best viewed as being an advance, despite the effects upon such endeavours: the freedom of women to enter the paid workforce in a manner that just over a generation ago would have been unthinkable. A second is most certainly not an advance:

One thing that has certainly changed is the arrival of modern regulation. Here's a simple thought. Imagine there are no Scouts or Guides and a latterday Baden-Powell appears. Could he move from a small camp for 20 boys to a rally of 10,000 Boy Scouts two years later and a tripling of membership in the following two, all based on local volunteers? It's a stupid question. Today, you need Criminal Record Bureau clearance and specialist training to do pretty much anything with under-16s.

And here we need the ritual invocation of M. Bastiat. Assume, just for the sake of argument (not an assumption I would be happy to have to support, I regard these regulations as having done almost nothing to curb the evils they are aimed at) that such checks and clearances have prevented some crimes. We might even be able to see such in declining rates of such events. But what we can't see, but which has cost us dearly, is all the things that have not happened because of the deadweight costs of those very rules and regulations.

There's one more point:

It is hardly that the need has vanished. The welfare state is hitting its limits.

I agree that the welfare state has both expanded mightily and also does not cure every ill, that there is still a necessary role for private charity. I also accept her outline of the decline in people making those charitable efforts. But just to be contrary, might it be the very expansion of that welfare state that leads to such hesitancy? This graph of private overseas aid by country is instructive. While there are problems with it (it's not per capita nor weighted by GDP) a quick eyeballing does seem to indicate that the larger the domestic welfare state (and quite possibly the higher the percentage of GDP spent in official aid) the lower the private charity. Domestically this could be explained by there (ha ha ha!) no longer being a need for it as every want is catered to, but this clearly doesn't hold overseas.

Could it be that, as with such things as investment or borrowing, so with charity? That as government demands that we do things centrally and via the State, that private activities get crowded out?

I admit, that does lead to a very odd idea. That it isn't so much that if the State retreats then private charity will take its place, but that we should pull back the State in order that individuals might exercise their moral senses by helping directly their fellows? There's more than one best selling book been written on the way that that last activity makes us better people.

In the spring issue of the Fabian Review, much space is dedicated to the topic of healthcare. The leading article claims its YouGov poll demonstrates that “people love the NHS for all its flaws" and that “there is still considerable support for further spending". It shows nothing of the sort. What it actually shows is that people are despondent and disappointed with the NHS.

The “considerable support" that the Fabians assert is not evident. Asked to choose between the statements: “The government should continue to increase the levels of funding, and increase taxes if necessary to pay for it" and “The NHS receives enough money and should use it better," only 38% of respondents agreed with the former statement, whereas 50% of respondents agreed with latter. Hardly a ringing endorsement.

These statistics are also slanted towards the left of the political spectrum. The respondents chosen came in equal quantity from Labour, Liberal Democrat and Conservative supporters. The local elections and the Crewe and Nantwich by-election make clear that there are far more Conservative than Labour supporters out there at the moment.

From the poll it is clear that people are still ideologically attached to the idea of healthcare free at the point of need. As such, this may be the only politically viable option for any party. However, it is still possible to unleash the power of enterprise and innovation in healthcare, and as luck would have it, we have produced a number of publications explaining just how this can be done.
 

The Best Book on the Market is now out at a station or airport bookstore near you. Need proof? Well, here's the author, Adam Smith Institute Director Dr Eamonn Butler, among the shelves of WH Smith at Gatwick Airport, on his way to a conference in Croatia. Unlike George Soros, Dr Butler believes that markets are orderly and self-correcting – it's politicians that get us into the swings of boom and bust!
 

With news that a political party in Mumbai is getting into the fast-food business, will be too long before we see a Brown Burger or Cameron Kebab? Lets hope not.

We don't normally do investment advice around here but this might be an opportunity that you'll want to miss. Almost an object lesson in how not to do it.

Yes, it's true that many who have turned out to be right were first dismissed as crazy. As the intellectual prophet of econoblogging indeed was. (No, this argument does not work in reverse, remember that your being called crazy could in fact be because you are.)

Another example of technological change beating regulation.

On the comparisons between Gordon Brown and Hillary Clinton. One unfortunately made it, the other fortunately won't.

Unpicking the latest Greenpeace hysteria about the environment.

Larking about.

And finally, quite uncanny the similarities between the present and certain historial episodes.

Seriously, start with a blank page and ask yourself what we actually desire in a school system? This would be a good start of course:

The country that came top of the Unicef report and did consistently well in the international league tables was...

Yes, all in favour of that, being one of the best in the world means that you're at least doing things better than many, perhaps as well as it can actually be done.

But what it really means is that parents don't snare themselves in mortgages to get into catchment areas they can't afford, or pay expensive school fees or face the humiliation of having to rediscover a lapsed faith.

Yes, that sounds like something to be desired as well: not having to face financial ruin simply to educate the ankle-biters would appeal to most.

There is choice though, and ... children are in the upper quartile of the international tables, which might help explain why the ... is rated as the best place for a child to grow up in the developed world.

Oh, my, yes, that does sound like a good idea. So, how is this done then? What's the magic secret here? Clearly it's going to cost a fortune, yes?

If we want better schools for our children we need to spend more money, don't we? Well actually, no.(....) The surprising answer is that their results have nothing to do with money – in fact, they're spending quite a lot less than we are.

Really? Better schools, better education, the best place in the world to grow up, and it costs less money? Where? How?

They can choose whichever school will suit their child best. Not all parents make an active choice but enough do to influence the standard of schools everywhere. All this is based on the fact that parental choice in education is a part of the Dutch constitution. It assumes that one size does not fit all.

Yes, it's Holland, the Netherlands. The how is that they have a variation of the voucher system that we argue for here at the ASI. The parents choose the school, any one of them that they wish subject to minimal licencing requirements and the government pays the bills. Yes, top up fees are allowed, parents making that decision for themselves as well. We might also note that the Netherlands is a great deal more egalitarian than the UK and I wouldn't be surprised to find out that it has greater social mobility as well (for those who worry about such things).

Engineers have a saying that you can have "better, faster, cheaper, pick any two" for you can't have all three. But it appears that we run our current education system so appallingly badly that we can indeed make it better, fairer and cheaper.

So why is there anyone at all who opposes such voucher systems?