Unintended consequences


altJohn Baden of FREE – the Foundation for Research into Economics and the Environment – sends out a weekly column which is always worth reading. This week, he's talking about the counterintuitive nature of economics, and he gives an interesting example – and a very relevant one too, given the retreat into trade protectionism.

In 1981, he says, US carmakers and unions petitioned Congress, claiming that the growing tide of Japanese imports put their industry and jobs at stake. They requested a limit – 1,680,000 cars per year from Toyota, Nissan, Honda, and Mazda.

Bill Niskannen, chief economist of Ford, argued against this protectionism. He explained that if the number of cars was fixed, Japanese companies would simply increase their revenues anyway by selling Americans cars of higher quality, larger size, and bigger price.

Ford's management fired him. The Japanese could only build “rice burners", they said —tiny, tinny econo-boxes. They could never compete with Lincoln, Chrysler, or Cadillac. But Niskannan's counterintuitive argument was right. Faced with the threat of import restrictions, the Japanese did indeed take their products upmarket – to the point where they actually surpassed the quality of their American counterparts. Perhaps US carmakers would be in a better position today if they had actually had to square up to the competition and improve their own products too, instead of being featherbedded by legislators.

Human rights and computer games


Just when you thought the EU could not get any more meddling about computer games the Council of Europe comes up with a real corker. In a report grandly entitled Human Rights Guidelines for Online Game Providers, they mention all their favourite bugbears: "aggressive nationalism, ethnocentrism, xenophobia, racism and intolerance." Gamepolitics has the full story.

They are even meddling in "user" generated content that sustains many computer after their sell-by-date and warning companies to be wary, lest they get in trouble for something an end user does without their knowing.

The EU continues to do its best to drive computer games companies out of its borders to friendlier places like Quebec, Eastern Europe and the US.

Blog Review 960


Might it be that the Speaker is covering up yet more troughing?

No, really, he might be.

And how much should an MP get? Rather less than they think they should perhaps?

And John Locke thought they should get nothing. Just think of what would happen if people pursued power for the sake of the money!

We might hope at least now that politicians understand the idea of producer capture.

It's not as if they've ever managed to create a good regulation now, is it?

And finally, what one who complains about the trough gets from the trough.


Dark thoughts


On Monday, Madsen wrote about the Telegraph's various reasons to be optimistic about the economy, and also noted the importance of optimism in driving recovery. Some commentators are less optimistic, and think we are experiencing a rally, not a recovery, and that there may be worse news still to come. They see a fundamental problem remaining in the housing market – essentially, that prices have got a lot further still to fall before they reach anything like historic levels. As MoneyWeek's Dominic Frisbee has written:

The average salary multiple over the last 37 years (1971 to 2007) is 4.54. At the 2007 average wage of £24,000, that gives an average house price of £109,000 – a fall of 40% from the peak. But if you exclude the bubble years (from 2001 to 2007), you get a 4.17 average salary multiple – which would give an average house price of £100,091, a fall of 45% from the peak.

There's also the fear that the market might over-correct, with prices dipping below historic averages. That's what happened during the last recession in the 1990s. Needless to say, that would mean massive problems for our weakened banks and could easily prompt another financial crisis (something the Bank of England is already worrying about). Throw in the fact that the banks haven't really felt the impact of consumer and commercial bankruptcies yet – there are lots of credit card bills and loans out there that are just not going to be repaid – and you can see how things might get sticky. All of which could undermine delicately rising business and consumer confidence.

The government isn't helping either. The rate at which they are borrowing money makes heavy future tax rises a near-certainty, deterring both spending and investment. What of quantitative easing? So far, it appears to have had little impact but some people, including the ASI, are still very uneasy. The drop in the RPI that was used to justify it is almost entirely a result of falling house prices, which are not so much 'deflation' as a necessary market correction. Meanwhile, the CPI continues to rise. Add in a weak pound (making imported goods much more expensive) and it's not hard to imagine that a severe inflationary episode is lurking round the corner.

So the good news is not unmixed, and the message might be this: hope for fine weather, but keep the umbrella handy.

Burn in peace


altHow do you dispose of yourself after you have ‘shuffled off this mortal coil’? Ideally you’d leave instructions with those who you have left, and they would be free to follow through with them, so long as your disposal didn’t interfere/cause harm to others. Alas, it seems that even in the 21st Century the enlightened masters that lord it over us stand in the way of our desires even when we are dead. A devout Hindu wishes to be cremated upon a funeral pyre, but having sought out permission first from his local council, who refused on ‘impractical grounds’ he then took his claim to the High Court. They rejected his wishes, agreeing with the council on grounds of impracticality, and that it didn’t infringe on his human rights in either area of religious freedom or his right to privacy. Morton Blackwell’s first rule of the public policy process should have been observed: Never give a bureaucrat the chance to say no!

If  Mr Ghai had taken the same approach as Dr William Price*, whilst ensuring that he harmed no one else, he could have perhaps forced the debate. Instead he handed the opportunity to refuse his simple demand to a bureaucrat and an inept legal system. When one looks at the history of cremation it seems that this latest ruling is a step back to the times when the “higher authority" of the land laid claim to your body and could forcibly direct you to behave in a certain way through the projection of guilt via sin. We will now have to see if the Court of Appeal has any sense of religious freedom/privacy issues. Perhaps there is a wealthy individual who could donate the use of part of his private land so that a dying man’s wishes could be granted so that he could dye at peace.

Currently though it seems that it will take us some time before we are at one with each others differing desires and that death itself should continue to be viewed as a taboo subject. It is time that the government realised that we do not belong to them, or owe our existence to them. Perhaps they could leave us to burn in peace.

* Dr Price was a druid/eccentric who cremated his deceased 5 day old child Jesus Christ Price in a pagan ceremony atop a hill. Obviously horrifying the natives of Llantrisant, but not the judge at his subsequent trial who found that cremations were not illegal. Such forward thinking from a judge in 1884.

Neodymium: The truth


The political and international divide over green energy politics is growing. Not only are the prospects of over ambitious plans such as Koyoto II getting gloomier in the ongoing financial crisis, it is becoming increasingly clear that the green renewable energy issues could create problems of the same magnitude as our present oil-dependency. As the Atlantic reports in its May issue, the exploding demand for hybrid cars and windmills is likely to create a bottle neck in the supply of a commodity with the exotic name of neodymium.

Neodymium is a crucial material for build lightweight permanent magnets “that make the Prius motors zoom" and are needed for the generators of wind mills as well. In fact, the present production of neodymium would have to be doubled in order to make just a few million electric cars. The main pit for neodymium in the US, California’s Mountain Pass, has recently been closed after a series of leaks released hundreds of thousands of gallons of radioactive waste into the environment. The dirty little secret of green cars and windmills is that the neodymium has to be yielded from rare-earth ore, which are regularly contaminated with radioactive thorium.

So much for the green ideologues and main stream media hypocrites who don’t accept nuclear energy with zero CO2 emission as clean energy.

Young Writer on Liberty: Incentives matter


As the Telegraph picks over the bones of MPs already stained reputations, perhaps only one thing can be learned: financial incentives matter. As such, in order to ensure we get the very best entrants to the Young Writer on Liberty competition we have decided to increase the prize money. As such, as well as the winner getting £500, the second and third prize entrants will receive £250 and £100 respectively.

Remember, this is not one of those prizes that go to your school; instead the money will be given to you in brown envelope to spend on whatever you want, whether that be bathplugs, moats and tennis courts etc.

For more information click here

All entries should be sent to: andrew@old.adamsmith.org

Competittion closes: 15th June 2009

Blog Review 959


The reason that capitalist do so much better than politicians do in matters economic is that capitalists have long term incentives and politicians short. Incentives do matter, after all.

Explaining Joanna Lumley's attatchment to the Gurkhas.

If we just get the prices right then we don't have to worry about doing the near impossible, proper life cycle analyses.

No, prohibition really doesn't work.

However, freeing schools from the dead hands of the unions and the State really does seem to work.

It's been a recession with a nasty banking crash thrown in, not a prelude to a second Depression.

And finally, a book recommendation.