The Pin Factory Blog

Recent elections in the UK and the end of the American primaries prompt the question: what does the future hold for the two greatest Western powers?

For the United Kingdom, the future is bright, despite the somewhat pessimistic mood. The Labour Party, to the dismay of Polly Toynbee, at least recognises the need to cut taxes and haul in spending. The Conservative Party may campaign on (perhaps among other things) low taxes and smaller government. Either way, it seems friendly changes are on the way.

For the United States, it’s difficult to say. Over the last few years, the debate has been centred not on big government and high taxes vs. small government and low taxes; but on big government and high taxes vs. big government and low taxes. The second option, favoured by Republicans, obviously does little good for the economy. The first, favoured by Democrats, is obviously not ideal either but at least does not encourage debilitating debt.

Will Gordon Brown read the writing on the wall? Will David Cameron and his party exploit failed Labour policies that have raised taxes and spending over the last ten years? If elected, can John McCain resist the Republican trend to incur debt and grow government? Can Barack Obama resist his party’s inclination to subsidise, intervene and regulate?

In other news, there’s also this war…

What a cliché. Getting married to the Eiffel Tower.

This might well be the best example yet of how not to run a trial over free speech matters. More here and here.

On British governmental stupidity: the proposed Britishness day falls on different dates in England and Scotland.

An old quote but a fine one worth repeating. As another aside, it really depends upon your viewpoint, doesn't it?

Economic illiteracy does seem to be depressingly common, doesn't it?

On the 42 days legislation: which way to vote, for the leader or civil liberties? Another solution might be simply to have more police?

On the modern relevance of Hayek and why the welfare state might eat itself.

And finally, it's the rich who benefit from high European petrol prices.

An article in the New York Times about Spain’s water crisis struck me as another example of the importance of incentives, the problems of bureaucracies, and the superiority of market-based solutions to even the biggest problems.

Basically, we see two sets of responses to the problem of water scarcity in the southern parts of Spain.  On the one hand, a bureaucracy that tried to allocate water to different groups at different prices was created.  Shockingly enough, this response has major problems. People manipulated the system, as resort owners and vacationers planted a few trees and claimed to be farmers to get lower prices.  Meanwhile, farmers who had to pay very little for water began raising crops that needed more water. A trend that is a major cause of the desertification we’re now dealing with. While on the other hand, when costs and the decreasing availability of water actually had an effect, farmers moved towards more efficient irrigation methods and crops that required less water.

Incentives matter. Governments shouldn’t be subsidizing unsustainable lifestyles in arid locations, especially when that will only worsen the situation. If farming is only economically sustainable with subsidized water, people should not be farming there. Water should be more expensive where it’s scarce or hard to access, even if that means fewer farmers or a shift in population towards more fertile areas.  As water gets scarcer, a more market-based system would surely also do more to encourage the development of private desalination plants and water-saving technology, as opposed to simply pouring billions of taxpayer dollars into such projects.

If farming isn’t working out, Spain should move towards less water-intensive industries in those areas and import crops from places with more adequate resources and a comparative advantage. Very high water prices would encourage even the resorts and golf courses to find ways to reduce water usage rather than search for bureaucratic loopholes. People find ways around bureaucracies, but it’s much harder to find a way around the market.

According to Polly Toynbee of the Guardian, we at the Adam Smith Institute are mistaken to question the amount we pay in tax. With disjointed logic, she suggests that we are not paying enough (some of us that is) and this impacts badly upon the poorest. It is a shame that she has not found the time to explore our website a bit further, as she may not have had to go to the trouble of writing the article.

At the Adam Smith Institute we call for the introduction of A Flat Tax for the UK. This proposal includes a tax-free personal allowance of £12,000 that will take the poorest out of the tax net. Also, a low flat tax will stimulate investment, make businesses more productive, and so boost jobs, pulling people out of poverty. The low-paid in work also benefit, for as more jobs are created and the demand for workers goes up, wages will rise.

However, Toynbee might well still disagree with us. In reality nothing short of full-blown Communism accords with Pollyland. Her statist utopia (dystopia) includes not a semblance of meritocracy or individual choice. She has no trust in the people to act for the good of themselves; this is why she and others in Polly's Politburo decide everything for us.

Toynbee fears that tax cuts will become a central policy for all three parties in the next election. Let's hope she is right…

The End of Politics: New Labour and the folly of managerialism, by Chris Dillow (£10.19 + postage, a 40% saving)

New Labour's distinctive idea is that equality and efficiency are partners, not enemies. But that's just managerialist ideology - the belief that trade-offs between conflicting values can be managed away. They can't. New Labour's main economic policies - tax credits, the minimum wage, expanding higher education and macroeconomic stability - have not removed the trade-off between equality and efficiency. But the managerialists have deeper flaws. They fail to recognize the multiple and conflicting meanings of equality and efficiency. And they assume that governments have knowledge and rationality that in fact nobody has.

So, says 'mumblling and stumbling' blogger Chris Dillow, let's scrap managerialism and replace it with genuine policies: ditch the idea that politicians can manage away social problems, and instead have a proper debate about conflicting ideals.
 

An excellent comparison: Gordon Brown is Hedley Lamarr. Other nominations in the comments please.

This is a little unfair isn't it? Sauce for the goose is turning out not to be that for the gander.

Similarly, an interesting use of the meaning of "principles" in government.

More on the duplicity with which we are governed, this time about recycling.

Sigh, yet more governance. Is this the sort of result that those people fighting the War on Drugs really want?

What's the best way to deal with waste? Make a profit out of it of course.

And finally, a decent newspaper advice page and errors in whisky naming.

One argument that's frequently deployed against privatization in general and in favour of State ownership in general is that private companies are only concerned with profit while a State owned (or directed if you prefer) company will invest the socially optimal amount of capital in its endeavours. Thus private or privatized companies will ignore the larger needs of society while a State programme of investment can take them into account and this will thus increase the social wealth of the country more than the purely profit grabbing capitalist running pig dogs.

Well, yes, it's obvious, given that we've been cheerleaders for the process of privatization over the decades that we don't think very much of that or any other arguments that those things which can be done by the private sector should not be.

But back to that first argument in favour of State ownership, that ability to invest the socially optimal amount:

Water UK, the body representing Britain's water companies, points out that since privatisation in the late 1980s, the industry has invested more than £70bn on capital projects, with still more desperately needed........"For much of the 20th century, investment in water supply and sewerage was the minimum necessary to avoid service failure," according to Barrie Clarke, of Water UK. "As long as there were no service failures, and no embarrassments like the 'Great Stink' of 1858 which led to the construction of the famous London sewer network, we relied on the achievements of Victorian engineers, with improvements and repairs only when necessary.

Ah, when Government did control the levels of investment they were even lower than they are now. Which leads us to one of only two possible conclusions. Firstly, that government was investing the socially optimal amount and private companies are doing more than this or the second, that if companies are investing at or below that socially optimal amount government invested even less. Given that we are told that more investment (and the tenor of the whole piece is about leakages from pipes, the needs for new reservoirs and so on) is "desperately needed" then it must indeed be that latter explanation.

Perhaps private water companies are not perfect but then what thing created by fallible human beings ever will be? But governments are even worse, at least at this.