The Pin Factory Blog

I'm an economic optimist. But the news just now does seem pretty awful. Consumers are nervous and spending less. Surveyors say house prices are plummeting faster than any time in the last 30 years (including the 1990s 'negative equity' period). Meanwhile, inflation has hit 3%. The price of manufactures is up 7.5% on the year to April. The pound is sliding, pushing import prices up. Public-sector trade unions are re-asserting themselves as they find that the government's 'generous' 2.5% wage rises don't actually keep abreast of inflation.

Will cheap imports from China continue to help us, though? Well, they've helped get us through a period that should have been a lot rougher than it was. Unfortunately they also helped convince us that the boom was never-ending. But now the Chinese themselves – and residents of other developing countries – are getting wealthier. They want the same computers and clothes that they've been exporting. They are demanding more the world's commodities like timber, steel, and cement, as they build new roads, houses, and factories. The West is finding that commodities and manufactured imports just aren't so cheap any more.

The fact that so many prices are tied to the dollar doesn't help either. US experts think the dollar slide may have bottomed out, but the fact that oil is priced in decrepit dollars is one reason why it's been soaring up from $100 a barrel. Many other wages and prices in developing countries are also tied to the dollar. It's not good inflationary news. And as Hayek tells us, inflation is a real killer because it overwhelms the subtle signals of the price system with a sort of inflationary white noise. Sure, the collapse has been sudden and the financial threats large: so I can see the case for easy money right now, even at the risk of some inflation. But once we all have confidence in the banks again, that inflation will have to be taken under control. The summer of discontent hasn't even started yet.

Yesterday Boris Johnson confirmed that he had taken the imminently sensible decision to scrap The Londoner – the taxpayer-funded propaganda sheet that blighted London letter boxes under Livingstone’s mayoralty. Johnson has further announced that he is to use £1m of the £2.9m saving to plant 10,000 ‘street trees’, particularly in London’s poorer, least green communities. Unveiling the initiative Boris explained:

Trees improve the street environment in which Londoners live and work so I will do all I can to save the trees we have and campaign for more trees to protect London’s open spaces.

Well, yes, this is all well and good. But surely on the PR front team Boris have missed a trick here? After all, trees, vegetation and water features in the urban environment – apart from making a more attractive city – work to combat the effects of climate change by dramatically cooling the surroundings. This is why air around the Thames or within urban parks is on average 0.6 degrees Celsius cooler than neighbouring built-up areas. So this tree planting business need not just be about making London prettier but also making it a healthier, more comfortable, greener place to live and work.

Boris should tell his detractors in the green lobby to put that in their rizla and smoke it.

Tim Ball, who received a Phd in climatology from the University of London and teaches at the University of Winnipeg, was accused of "getting money from the oil companies" because he is sceptical that green house gases cause global warming. The Union of Concerned Scientists and other agencies accuse respected scientists of the same crime.

Time will answer the ifs, hows, and whys of global warming. We may or may not be in danger of melting ice, but we are definitely in danger of alarmist hypocrisy. Several industries already receive huge subsidies, including the corn farmers, and other special interest groups and green companies are lining up fast.

Will these green economic policies be effective? According to the Wall Street Journal:

An estimate by the International Energy Agency holds that, to ward off the worst of climate change, the world by 2030 must build 34 hydroelectric dams the size of China's Three Gorges Dam, 510 nuclear plants, 289,000 wind turbines, 6,800 biomass plants and 714 fossil fuel plants equipped with unproven CO2 capture technology.

Will this happen? Considering more nuclear power plants have been decommissioned than built in the last decade and that locations for dams that size are scarce, it seems unlikely. So why the speeches and promises from McCain and Obama (and let's not forget Ken Livingstone)?

Real solutions are lacking so politicians can only devote themselves to telling voters what they want to hear… Then what, as a practical matter, would be the aim of global warming policy? Our political system permits only one answer: to please the special interests that even now are gathering at the trough for subsidies in the name of climate change.

So while environmentalists accuse scientists of being paid off by oil companies, they’ll pad their own wallets with subsidies from the government.

Another tale from the NHS:

Doctor: "Nurse, this patient is dead."
Patient: "No I’m not!"
Nurse: "Quiet please, Doctor knows best."

Something of a pity that Darling's announcement monopolises the tax reporting today. The Taxpayers' Alliance has done a sterling job detailing how much taxation has risen in recent years.

Darling's announcement though is going to make the politics of tax cutting a great deal easier (or more difficult, depnding upon which side of the argument you are).

Reporting from north of the border on the latest twist in Wendy Alexander's political career.

Just how much do Americans and America give in aid? Both public and private? Comparing wealth and population? Although Netsmith would disagree with the wording of the conclusion: rather than private charity making up deficiencies in state provision, shouldn't it be state provision crowds out private?

Meeting the bureaucracy up close and personal.

Introducing the loan shark full employment bill.

And finally, wine snobs and the basic problem with Microsoft.

The cyclone in Burma reminds us of the misery inflicted by human disasters as much as natural ones. The (all too common) human disaster of totalitarian governments leaves people trapped under regimes which think that they know best. They know best how to plan and run the economy, they know best where people should live and what they should do, they know best how people should conduct their personal, cultural and spiritual lives, and they know best how to meet what nature throws at them.

Except they don't. They don't have a thriving economy because, as Hayek showed us, information is over-concentrated at the centre, and decisions are out of date or just inappropriate by the time they get out to the sticks. And they are unable to deal with natural disasters for much the same reason: information is slow to get to the decision-making centre, slow to be processed by the bureaucracy, and slow to get acted on. Economic backwardness, and the fact that capitalism is seen as a threat means that there is less capital – trucks, helicopters, cranes, hospitals, utilities – that can be focused on dealing with natural disasters.

Richer countries, by contrast, can build more strongly, defend themselves from storms, floods and earthquakes more effectively, and repair the damage more quickly. There is more capital to throw at the problem, more decisions are made locally, and more people are willing to get stuck in without waiting for the government to tell them what to do. If you want an example, remember the Hurricane Jeanne in 2004 that killed over 3000 people in poor Haiti but only 5 in rich Florida.

And yet, some people seem determined to compound the misery by keeping poor countries poor – refusing their imports in order to protect our own manufacturers, or demanding that they rein back industrial development in case it pollutes the atmosphere. If you really want to help the planet and the lives and welfare of all who live in it, my prescription would be liberal democracy and free trade. That's the best form of aid we could give to anyone.

The broken welfare systems in the United States and throughout Europe have kept the poorest citizens poor while wasting huge amounts of taxpayer money. Rachel Swarns wrote this week in The New York Times that many states now give cash handouts to those who move from welfare to low-wage work.

Arkansas, for example, offers $204 a month for up to two years, while Oregon and Virginia offer $150 and $50 respectively for up to one year. Massachusetts offers $7 a month, Michigan gives $10 for six months, and Utah offers $474 for two months and $237 for the third.

How will these plans work? Fortunately the programs are varied enough that empirical research should shed light on which plans are most effective. Although a cash handout for workers is better than welfare, it leaves the fundamental questions of poverty unanswered.

Swarns highlighted two women who are currently receiving cash handouts. One is a 24 year-old mother of two and the other is a 33 year-old mother of four and grandmother of one. Both women are single, and neither graduated from college. With no disrespect to them, financial success is always going to be difficult under these circumstances. Education is strongly correlated to low poverty, low teen-birth rates, and a host of other factors. Perhaps reforming education and giving the poor access to better education, rather than the moribund state-financed schools in many urban communities, would be a better cure.

Still, at least many states are moving away from detrimental welfare policies and toward programs that encourage productivity.
 

We’ve long known that the Swiss are big-fans but now it seems the Germans too are getting the hang of direct democracy. The Economist reports on the enthusiasm of campaigners for Tempelhof airport, who urged Berliners to vote yes in a referendum to keep open the airport; (which is seen as a symbol of the Berlin airlift of 1948-49). On the same day the citizens of Schwerin voted to oust their mayor for mishandling an investigation into the starvation of a five-year-old girl, while the Bavarian branch of the trade union confederation started collecting signatures on May 1 for a referendum on a minimum wage.

Supporters argue that direct democracy is stepping in where traditional democracy has failed. Membership of political parties has collapsed, as has trust in politicians – trends that should be recognisable to any student of British politics. A 2006 survey showed that nearly half of Germans think elections give them no say over government policies and that some 80% wanted referendums at national level.Yet in spite of such figures opposition still remains; most states do not allow votes on such issues as spending and taxation, and legislatures can sometimes overturn referendum results or have them modified in the courts.

The Swiss model certainly indicates that direct democracy improves decision-making. Lars Feld of the University of Heidelberg claims that Switzerland's taxes and spending are lower than otherwise, and its labour productivity higher, precisely because the Swiss can vote on fiscal issues. Now that Germany is adopting similar solutions in reponse to voter apathy, the qustion surely is, when will the UK catch up?

My credit card was stolen and the thief used it to buy flowers, hair restorer and books.

Police are looking for a sensitive, bald-headed bibliophile.
 

Yet more evidence that the government doesn't seem to have got the hang of this tax reform thing  yet. You're supposed to be making it simpler!

Can you say "producer capture of the regulators"?

Something of a turn up for the books: someone has found something useful to do with all those CCTV cameras.

A film recommendation, or, what two South Asian stoners can tell us about the American ideal.

It's an interesting question: if unions really do increase productivity and or profits, then why don't companies welcome them with open arms?

Of interest perhaps only to rugger buggers: Richard Hill has played his last first class game.

And finally, some clue as to what is wrong with the education system.