The Pin Factory Blog

The government is contemplating a tax on plastic supermarket bags. This makes me think of the words of Henry Luttrell:

O that there might in England be
A duty on hypocrisy
A tax on humbug, an excise
On solemn plausibilities.

One argument used in favour of progressive taxation is the diminishing marginal utility of income. David Friedman doesn't think it's a very valid one though.

The absurdiity of the current management of schools and access to them. Vouchers please, the Swedish Option. 

Guido reveals quite how much a political family can make these days. 

As ever in politics, sincerity's the thing. If you can fake that you've got it made. 

Just how much of the cost of a nuclear plant is actually the cost of a nuclear plant: and how much is the paperwork? 

Further bad regulation: the problems of tin whiskers and the banning of lead solders. 

And finally, the history of economic thought in four minutes, or, for the traditionalists, the same subject by Sellars and Yeatman's amanuensis.

51. "Capitalism is wasteful, dissipating resources into profit and advertising."

Some claim that resources in a planned economy need be allocated only to production and distribution. With no need for profits or for advertising, costs will be cheaper. In practice, however, profit spurs people to seek out market opportunities. They are constantly looking for needs that can be satisfied, or efficiencies which can be made, and to the gains which these can bring. This is why the market economies are so flexible and adaptable at bringing people the goods they want, by contrast with the sluggishness and unresponsiveness which characterized the socialist economies, and which still characterizes state industries.

Men and women are motivated, each with a desire to improve their lot. They are not automatons, programmed to act in ways which are of no benefit to them. People generally put in more effort and skill when they have some personal stake in the outcome, and stand to reap some of the rewards of their enterprise and enthusiasm.

The search for profit directs people to invest in production, to put money to work generating new wealth, and bringing new goods before people in the process. Advertising serves an important information function. It tells people about products, processes and prices, and enables them to compare. Much of it is directed to informing people about new products and services, and in attempting to break into new markets. It thus contributes to the competitiveness and adaptability of the economy.

Without profit or advertising, there is neither the incentive to seek out new markets, nor the ability to let people know what choices are available. There is no pressure for ever more efficiency in the production of goods and services, and no rapid turnover in the range of those which are available.

Far from being wasteful, both profit and advertising contribute to the superior efficiency and cost-effectiveness of market economies.

Mark Boyle set off from Bristol a month ago on a planned two-and-a-half year trek to Ghandi’s birthplace in India. Nothing unusual in that most would think, but when you set off with only a backpack (filled with a knife, a bandage, t-shirts, sandals and sunscreen) and no money or credit cards then it’s taking a turn for the weird. But as a member of the Freeconomy movement Mr Boyle wanted to prove his faith in humanity and get to India on the simple idea of trading his skills for either food or shelter. He got as far as Calais before quitting this week.

The main reason for his failure was that he couldn’t converse with the natives. He lacked one of the most fundamental skills needed for trade to take place and thus he had no choice but to return home. Whilst I’m sure that Mr Boyle has plenty to offer in the way of tradable skills, if he cannot communicate with others in the marketplace there is no way for him to sell himself. The failure to communicate sufficiently engenders distrust, it makes people fearful, as in this case, the French of Calais believed Mr Boyle to be either a ‘freeloader or an asylum seeker’.

This is a barrier that is partly broken down through the use of money. Money conveys priceless information to the other party in the exchange, it can insure them against any loss they may incur and ultimately it puts people at ease. To be able to trade across borders we need more than basic skills and a heart full of good intentions, as Mr Boyle’s failure has proven.

His idea of a world without money is possible. As amply demonstrated by Kyle MacDonald, who swapped switched and traded up from a paperclip to a house within a year. He had things that people wanted, and he was able to communicate with them. In the competitive world that we now live in Mr Boyle’s journey to India may well take him a lot longer than two-and-a-half years, especially as there are plenty of other people out there who can do similar work and not inhibit trade through their own moral grandstanding.

I spoke at the Oxford Union on Thursday against the idea of positive discrimination or affirmative action. I rested my argument on three pillars. The first was that to discriminate in favour of some inevitably involves discriminating against others. Those who have worked to qualify for university or to gain a job are rightly affronted if the place goes to someone with lower qualifications but who happens to belong to an approved group.

My second point was that to treat people in groups rather than as individuals diminishes them a little, even dehumanizes them to a small degree. We should not be concerned with what groups people come from, but with where they might go. It is somewhat patronizing to demand high standards generally, but to lower the standards for people from certain groups.

The third pillar of my argument was that those who lose out when others receive positive discrimination have done nothing to deserve it. Why should people be punished for deeds which some of their ancestors might have been involved in? None of mine were likely to have owned or traded slaves. Indeed, in ancient times they quite possibly were slaves themselves. I doubt if any joined the redcoats in conquering continents. And even if any of our Roman ancestors might have mistreated Gauls or Carthaginians, is that a reason why less qualified Gauls and Carthaginians should be given favoured treatment today.

To my surprise and pleasure, positive discrimination was voted down by a large majority.

Just a reminder that we are launching Madsen Pirie's new book, Freedom 101, tomorrow at a TNG drinks reception here in our Westminster office. Freedom 101 is a compilation of all 101 articles in our 'Common Error' series. JP Floru (pictured left), the founder and organizer of Freedom Week, will be speaking at the launch. 

Join us from 6-8pm for pink champagne, a selection of ales, and gourmet sandwiches, RSVP to events@adamsmith.org or Steve on 020 7222 4995. 

If you're suffering from a slow Sunday afternoon you might enjoy these videos of the late, great, Julian Simon. He'll put you straight on the greenies favourite obsessions, no, we're not running out of resources, we create them.

On the subject of creating resources by innovation, a marketplace where you can buy and sell innovation. An extremely interesting idea: if you've got a problem you want solved, you can offer a reward for it, if you've got some bright ideas, you can see whether anyone will pay for them.

Warren Buffett's simple (and correct) and forthright view of foreigners investing in the US. 

Who knew ? You really can have too much local government. 

You can have too much of any kind of government in fact. 

My word, this is a surprise. Shirley Williams is to blame again. 

And finally, if you even understand, let alone think having read it that it might be worth a listen, this description of a song you are almost certainly somewhat younger than this policy wonk. 

I'm very glad to see the UK's Chancellor of the Exchequer, Alistair Darling, getting roundly beaten up on his proposals to raise taxes for non-domiciles. His opposition counterpart, George Osborne, is keeping rather quiet. But then it was Osborne who started this hare running.

Of course, Osborne's plan, to lift a few grand from the richest folk who live in the UK and pay tax elsewhere was relatively modest, and had been tested among business groups (who weren't pleased, but didn't see it as very troublesome). The idea went down well with the public, who rather like the notion of making foreign zillionaires pay at least something to support the Health Service, and that prompted Darling to come up with his clumsy, disastrous copy.

In fact, non-doms already pay about £7bn in taxes. Darling's plan to charge them £30,000 for the privilege of living in the UK would add £500m to that. That's hitting them big (they're not all zillionaires, you know) to raise a tiny (less than 0.1%) increment to total government revenues. As Madsen Pirie made plain in the Adam Smith Institute report The People Economy, wealth-creators these days are highly mobile creatures. Even the Treasury estimates that the new tax might drive away 3,000 of these foreign entrepreneurs, but the CBI it could well be nearer 8,000 – in which case the Chancellor would end up with less revenue, not more.

Since Osborne's under pressure from Conservatives who think tax is already too high, and Darling's advised by Revenue officers who think it's too low, the plans are actually chalk and cheese. But the public can't see the difference, so Orborne can hardly start beating up the Chancellor, and it is being left to business groups – which makes it look like special pleading. That's a pity. Investors are easily spooked by tax rises and indeed tax uncertainty. They don't have to live and invest here. In the attempt to be more populist than the Conservatives, the Chancellor could end up doing the UK – and his own revenues – a lot of damage.

All Hail Central Planning! We seem to have another quite wonderful disaster from the bowels of the NHS.

Despite restructuring and a hiring freeze, documents presented to the board of NHS Direct show that so far this year the "total cost per call answered" has been £16.54.

OK, NHS Direct is the idea that we'll save money by having nurses at the end of a phone line rather than people going to their GPs for a meatspace consultation. Does it really save money though?

The British Medical Association estimates that it costs the NHS between £20 and £25 every time a patient sees a GP...

Well, yes, it appears. Except, except, it's a lot easier for a patient to make a phone call rather than schlepp down to the surgery, so we might be getting more not very much less expensive phone calls than we did GP consultations. No figures on whether that is true or not unfortunately.

More than a third of patients treated by the organisation's nurse advisers are referred to their GP or hospital accident and emergency unit.

Ah, the savings by using the nurses are about one third. But one third of the calls incur the costs of the nurses plus the costs of the GP (or A&E, even more expensive). So we've managed, by the glories of central planning, to make the system more expensive while trying to make it cheaper.

All Hail Central Planning! 

Did no one think this through? GPs are independent businessmen, if a nurse on the phone was indeed a great saving, wouldn't at least some practices have done this themselves? And if they were, then why the central system? And if they weren't, then why did anyone think it would be a great saving?