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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

French leave

Written by Dr Madsen Pirie | Monday 26 November 2007

A friend working for a French-based bank was asked by a French colleague about holidays. The conversation went as follows:

French colleague: "How many holidays a year do you have?"

UK Friend: "23 days. How about you?"

French colleague: "I am embarrassed to tell you."

UK Friend: "No, go on."

French colleague: "I have 10 weeks off."

UK Friend: "10 weeks!"

French colleague: "But you have public holidays, of course, as well."

UK Friend: "Don't you have Bastille Day, Christmas Day, Easter holiday and so on?"

French colleague (with a shrug): "Everyone has those."

In fact the French have 11 public holidays a year, compared to 8 in the UK. The above conversation really took place, and is not a 'joke of the day.' It does, though, raise the question of why the French economy is not a bigger joke than it is.

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Will Hutton's history

Written by Tim Worstall | Monday 26 November 2007

Will Hutton makes a good point here :

The state and market are in a symbiotic relationship of mutual need. Regulation delivers public good. And private markets and corporations are the better because of it.

Quite, absoutely no doubt about it, the only interesting question is exactly what form of regulation delivers the most public good. However, he does, in his examples, rather induce a fit of the giggles.

We now need a social-democratic Keynesian government.

This will make things better he thinks. As one of his examples he offers: activist US government took over Continental Illinois bank in the Eighties.

I think that might be the first time I've heard Reagan's America described as being activist or social democratic, certainly the first time I've seen Paul Volker portrayed as a Keynesian. But then while all of that was going on I was merely an undergraduate at the university where Hutton is now a Governor, so what do I know? The thrust of the piece though seems to be that we should nationalise Northern Rock, just as Continental Illinois was taken over. He might even be right, but let's look at what actually happened way back when...

The situation was in fact eeriely similar. A bank with few retail deposits decides to expand by tapping the wholesale markets to borrow short and lend long. When those markets worry about the quality of lending, those wholesale funds can no longer be rolled over and the bank faces a liquidity crunch. Sound familiar yet? What do the authorities do? Well, first, they guarantee all deposits: yes, all, disregarding the previous statutory limits on deposit insurance. They extend assistance through the Fed's discount window. They guarantee to provide any liquidity needs Continental might have. (This is sounding, well, more recent, isn't it?) Then they fiddle around for a couple of months seeing whether anyone would like to take over the bank. That doesn't work, so then, well, do they nationalise it? In a sense I suppose, for the next part was that the Fed bought a chunk of the bank's bad loans ($4.5 billion) and then invested $1 billion in capital by purchasing preferred stock.

This gave them 80 percent of the equity and the bank survived, being taken over a decade later by another bank. With, for some time, continued liquidity support. 

No, I don't know whether this is the best solution for Northern Rock or not. I just rather like pointing out that Will Hutton is telling us all that we must be more socially democratic, more Keynesian, must follow the Continental Illinois path: when what we've been following for the past few months is exactly that Continental Illinois path, the one pioneered by the decidedly monetarist and free market America of the 1980s.

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Joke of the Day

Written by Jokesmith | Monday 26 November 2007

A farmer was milking his cow. He was just starting to get a good rhythm going when a bug flew into the barn and started circling his head. Suddenly, the bug flew into the cow's ear. The farmer didn't think much about it, until the bug squirted out into his bucket. It went in one ear and out the udder.

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Time to deal with the Post Office

Written by Tom Clougherty | Monday 26 November 2007

I have had enough.

I recently sent a package to a friend of mine. I paid for first-class postage, even though I could have walked it to its destination in thirty minutes. It finally turned up two weeks later. Then, for the fourth or fifth week in a row, my Economist failed to arrive on time. It used to arrive on Friday mornings, but now I'm lucky if it turns up before the next issue comes out. These are not isolated incidents. They will be familiar to anyone who uses the UK’s postal system at the moment.

In any other industry, one would switch providers after receiving such shoddy service. An organisation that could not provide a basic quality of service to its paying customers would have to change or face going bust. That is the way a free economy is meant to work.

The trouble is, the Post Office does not really operate in a free economy. Its protected position means it does not face real competition, and unhappy customers do not have a realistic exit option. It is high time this changed. The Post Office is not a natural monopoly whose market is difficult to contest. It should be privatized and its market should be fully liberalized as soon as reasonably possible. Perhaps then there would be some chance our mail arriving on time.

The only thing standing in the way of doing this is the universal service obligation, which compels the Post Office to undertake unprofitable activities (delivering in sparsely populated areas for instance, at the standard price to the customer). People often raise this issue, saying that liberalization could not work since new competitors would take all the profitable areas, leaving the Post Office an irredeemably loss-making enterprise. But there are plenty of sensible ways around this problem, as Ian Senior showed in his ASI report Consigned to Oblivion (2002), and it must not be allowed prevent what is plainly a valid reform.

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Blog Review 428

Written by Netsmith | Monday 26 November 2007

Could it be true that Mark Lynas is an alarmist on the subject of climate change? No, no, surely not ?

On the subject of climate change, a forthright opinion on the value (or not) of ethanol

Staying with the colonial cousins, surely even a lefty knows the difference betweenth Fourth and Second Amendments? 

As is pointed out here, there's a very large difference between the ideas of Adam Smith and those of people like, say, Ayn Rand. 

Factual accuracy in the media. Is it in fact possible for it to arrive at some point in the future

Most interesting logic about democracy from the current Spanish Prime Minister. Somewhat confused, therefore interesting.

And finally , the introduction of Coca Cola Pure, endorsed by the Society of Homeopathy. 

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Thatcher & Sons: A revolution in three acts

Written by Tom Clougherty | Monday 26 November 2007

I have just finished reading Simon Jenkins' Thatcher & Sons,
and would thoroughly recommend it to readers of this blog. As a history
of the Thatcher and Post-Thatcher era it is fascinating: the writing is
superb and – for a political book – it's a real page-turner.

The book's strength lies in its political analysis. Jenkins identifies
not one, but two distinct Thatcher revolutions – one good, one bad –
both of which have been enthusiastically carried on by her successors,
Major, Blair, and Brown.

The first revolution is the one usually associated with the Iron Lady –
the liberation of the economy from the unions and the post-war
socialist consensus. This revolution saved Britain from being the "sick
man of Europe" and made the continued economic growth and prosperity
that followed possible.

But it was accompanied by a 'second revolution', which was altogether
more malign, consisting of the massive centralisation of power in
Whitehall, the destruction of local government, and the rapid
proliferation of quangos, regulations, and targets. As the first
revolution runs out of steam, the second continues to gain pace. As
Jenkins says, our everyday lives are now dictated by central government
to an extent that would be unthinkable in most other countries – even
'left-wing' ones.

The solution, Jenkins argues, lies in a 'third revolution' – the
massive decentralisation of power to local government, to the counties
and cities (and subordinate boroughs and parishes) to which people feel
a sense of allegiance. As 'bonfires of controls' were lit across the
country, the death of the quango would be upon us.

Compelling stuff. I've long been a keen localist, and Thatcher &
Sons leaves me more convinced than ever. You can buy it here, from the
ASI bookshop.

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Medical tourism drives healthcare innovation

Written by Dr Fred Hansen | Tuesday 27 November 2007

There is a new survey out there from the always-interesting National Center for Policy Analysis It covers the rapidly growing global market for medical tourism. We have already blogged about it here . But it is now becoming clearer what lies behind the success of the global high performance hospitals.

The market leader is Bumrungrad International Hospital in Bangkok, which served a stunning 1.2 million customers from 190 countries last year. It is American-managed and creates returns of 20-25 percent each year. Many other hospitals are managed, owned or affiliated with prestigious American hospitals:

  • Cleveland Clinic in Ohio has satellites in Vienna, Canada and Abu Dhabi.
  • The Indian hospital chain Wockhardt is linked to Harvard Medical School.
  • Johns Hopkins has an affiliate in Panama and in Singapore.
  • Dallas International Hospital operates hospitals in Mexico.

All these hospitals are escaping micromanagement by third parties – or otherwise highly regulated markets – at home. And that's how they achieve such competitive pricing. It is not simply a question of lower wages for doctors and lower overheads for hospitals. It is the absence of third party bureaucracies (which do so much to drive healthcare inflation) which allows these hospitals to provide such high-quality, low-cost services.

These hospitals are free-market laboratories serving cash-paying patients. That gives them the edge of performing at the frontier of medical and managerial innovation. Bill Gates just purchased the supreme management software, Global Care Solutions, from Bumrungrad hospital in order to market it worldwide. We should expect more innovation being created overseas and then re-imported to strangulated hospitals in the US and Europe.

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Of teachers and tenure

Written by Rachel Patterson | Tuesday 27 November 2007

The New York Times ran an article a few days ago lamenting the decline of tenure track positions in American universities. While frustratingly indicative of a fall in teacher quality and a high turnover of part time and non-tenure-track university professors, advocates forget that a high number of tenured professors probably will not improve teacher quality.

Teacher’s unions fight for tenure because it supplies the ultimate job protection; after teaching for a given number of years a teacher simply cannot be fired. Visiting professors might only stay for the year but can carry the hope and the incentive to do well, in case they might be offered a tenure-track position. Tenure-track professors will work hard too because they are faced with the incentive of increasing their rank and achieving job security. Tenured professors, on the other hand, have lost all incentive to perform at a high level. University professors are also different from teachers in lower education; many, especially at larger institutions, enter the profession not because of a drive to teach, but often because they had completed advanced study in an area and needed a job. Once offered tenure, these professors might stop teaching all together in favour of their research or publications.

Adam Smith said that teachers must have proper incentives of pay and job security in order to properly instruct students; anyone whose pay is not linked to their work will necessarily under-perform. The ability for improvement and the threat of pay cuts improve any profession, and teaching is no different. Professors must always have opportunities to advance, not a position which completely removes the incentives to do their job well.

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Joke of the Day

Written by Jokesmith | Tuesday 27 November 2007

Colin went to see his doctor with a piece of lettuce sticking out his bottom.

"Hmmm" the doctor said, "that looks uncomfortable."

"I know," Colin replied, "and that's just the tip of the iceberg."

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Brown's big idea

Written by Tom Clougherty | Tuesday 27 November 2007

brownspeech.jpgIn his speech to the CBI yesterday, Gordon Brown signalled that he was planning to put welfare reform at the heart of political fightback, announcing an overhaul of the system to "move claimants from passive recipients of welfare benefit to active job and skill seekers." JobCentre Plus functions look set to be contracted out to the private sector and claimants may be compelled to take jobs that are offered to them or face losing their benefits.

Good. The Conservatives have already seized on this topic, and I am glad to see the government following suit. As our recent report Working Welfare makes clear , this is one of the key challenges facing the country. Aside from being a drain on the economy, worklessness breeds inter-generational dependency, health problems and crime and among other social ills. By actively deterring people from entering work, the welfare state is hurting the very people it was designed to help. Radical change is long overdue.

My worry, however, is that the government may not be willing to think radically enough, given their historic ties to the welfare state and their attachment to redistribution and 'social justice'. After all, Frank Field MP was once asked by Tony Blair to 'think the unthinkable' on welfare reform and was subsequently fought by Brown every step of the way.

Has the Prime Minister undergone a Damascene conversion? Is he prepared to cut taxes for low-income workers, simplify the tax credits scheme and make work absolutely central to the benefits system? Well, perhaps... but I won't be holding my breath.

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