The Pin Factory Blog

Given the tendency of us wonks here to have great faces for radio we're happy to outsource these videos on the Laffer Curve to the George Clooney of the free market movement (self-described we note). We give you Dan Mitchell.

Yes, Netsmith knows that these people are lefties, but more joy in heaven over one sinner that repenteth etc. Finally, a Nanny State regulation not even they like.

Not good news at all: productivity in the NHS continues to fall. Proof once again that it's not how much money you spend, it's how you spend it that's important. 

Long and detailed but useful for those who want to try and understand part of the American mortgage market and its current turmoils. The final paragraph simply emphasises that Heinlein was right: TANSTAAFL.

It would appear that it is not only our own, home grown, media which is at times innumerate. 

On South Africa's energy problems: it seems that, apart from coal, the entire mining industry is shut down. 

And finally, technological changes have uncertain effects. Who knew that mobile phones and wristwatches were substitutes? 

21. We are using up resources for the future; we should all learn to live more simply.

Although it might seem obvious that the supply of resources is limited, and that they grow more scarce as we use them up, this is not in fact true. It costs money to locate reserves of scarce resources, so we tend to search for more as the price rises. In other words, as they grow scarce, we can often establish more supplies.

Furthermore, as materials grow scarce, the price rises and it becomes more economic to mine marginal reserves. Not only that, it becomes cheaper in some cases to use or develop substitutes. As supplies appear to dwindle, so does the rate of use. Instead of the world suddenly waking up one morning to find the last ounce of aluminium gone, it turns gradually to glass filaments and to carbon fibre as substitutes. New methods of extraction and reclamation become economically viable. The question is whether our development of new sources and substitutes is faster than our use of resources.

There is one reliable indicator. No one knows what new sources will be developed, or how fast our use will be. We do know, however, that price is a guide to the ability of supply to meet demand. Over many years the real price of most commodities (excluding oil) has been going down. This means that they have been becoming progressively more available, and that our relative supply has been increasing rather than diminishing.

We do not have to live more simply. On the contrary, we have to keep on developing new technology to make better use of our resources and to extract from more difficult locations. In this way our relative supply of them will continue to increase. If we start to "live more simply" we may lose the ability to economize on them and replace them.

We have an interesting event coming up tomorrow, an evening seminar on 'The Future of Immigration'. Our guest speakers will be Philippe Legrain, the UK's leading advocate of open immigration and author of Immigrants: Your Country Needs Them, and Damian Green MP, the Conservative Immigration spokesman.

Immigration is a difficult subject – one I sometimes feel conflicted about myself. The free-marketeer in me thinks we should encourage the free movement of labour, just as we strongly advocate the free movement of goods, services and capital. If someone wants to come to this country to work and contribute, then surely we should welcome them. The economic benefits of immigration are pretty clear and there is no doubt that immigrants usefully fill many gaps in the UK labour market. Where would the tourist industry, for instance, be without foreign workers? In the global context, there is another important benefit to immigration: remittances. The amount of money sent back to developing countries by people working the rich world now dwarfs government aid – and unlike aid it goes straight into the hands of individuals, where it can make a real difference.

Of course, there are serious arguments in the other direction as well, and they are hard to ignore. There is little doubt, for example, that mass immigration has heightened racial tensions in some parts of the UK, and contributed to the ghetto-ization of many big towns and cities. Furthermore, in a country where public services are government-controlled and incapable of reacting to demand, large numbers of immigrants can put them under immense strain. There are other legitimate concerns too.

These are the kinds of issues that will be discussed on Thursday, and I have no doubt the debate will be lively. The seminar, which is being held in our offices at 23 Great Smith Street, Westminster, kicks off at 6.30pm (doors open at 6), with drinks to be served at 7.30pm. If any of you would like to come, please email Steve at steve@adamsmith.org or call 020 7222 4995.

Digby, Lord Jones – formerly director-general of the CBI and now Minister of State for Trade and Investment – was our Power Lunch guest this week. He spoke very candidly and engagingly about his role as a GOAT (government of all the talents) and sparked some fascinating discussion around the table. What really shone through was the clarity of his ministerial remit (to promote the British brand overseas), and his enthusiasm for and expertise in getting the job done. That always seems to be a rare quality in politicians, but then, I suppose, Digby Jones is not really a politician anyway. He may have taken the government whip, but he has not joined the Labour Party.

It made me wonder whether there might be some mileage in appointing more government ministers – or even secretaries of state – who are not MPs. US cabinet members are typically far more qualified for their positions than their British counterparts. The US Treasury Secretary, for instance, usually comes from a financial rather than political background – and this is surely a good thing. Thinking really radically, couldn't we directly elect Prime Ministers, have them appoint top quality cabinets, and turn Parliament into a US-style legislature, with its own agenda and powerful committees to grill government ministers? Well, perhaps not, but there may be something in the idea. I'm probably just getting carried away with US election fever...

The traditional statement is that half of your advertising budget is wasted. If only it were that efficient!

There's more information coming out about those derivatives trading losses at Soc Gen. According to one whisper they were actually in profit by €1.6 billion at one point. 

An altogether more amusing rumour. Apparently M. Kerviel was driven into his behaviour by something terribly un-French: reading Adam Smith's "The Wealth of Nations" 

On which subject, here's PJ O'Rourke talking about his book on Adam Smith. 

Even the ECB now agrees: there's a trade off between redistribution now and wealth in years to come. Higher government spending reduces GDP growth. 

How odd, a politician arguing that transparency is essential for football clubs but not for politicians.  

And finally, film of how lefties do when they actually try to run something. Extra-ordinarily amusing, if it were not for the fact that many of these people are now trying to run larger and more important things. Like, say, the BBC documentaries division. 

According the Heritage Foundation and Wall Street Journal's annual Index of Economic Freedom, Britain now ranks as a "mostly free" economy, rather than a "free" one. That's because the UK's scores have worsened in four of the ten economic freedoms measured by the index: trade freedom, monetary freedom, fiscal freedom, and freedom from government. By far the worst scores are in fiscal freedom (where we get 61.2 percent) and in freedom from government (where we score just 40.1 percent). Basically, that means our taxes and public spending have gone up, and we are less economically free as a result.

People will dismiss the Index as being just another pointless list, but these things do matter. Higher taxes blunt incentives to work and produce, and discourage businesses from investing in the UK. That stunts economic growth, making us all poorer. Public spending increases achieve the same end by taking money away from the private sector, where it is productive, and spending it in the public sector, where it is not. The private sector is crowded out, and less wealth is created.

As Fraser Nelson pointed out on the Spectator blog, public spending has grown faster in Britain since 2000 than in any other OECD country (except for Korea). Government spending as a proportion of GDP has risen from 37.1 percent to 44.8 percent, without any real improvement in public services. Given that, it amazes me that so many people still believe that more public spending is, de facto, a good thing. Even the more adventurous Tories are only suggesting that public spending growth be slower than the government plans.

On a political level, that position is understandable. But intellectually, why should public spending rise any further at all? Isn't £600bn a year enough? At the very least, spending should rise only in line with inflation. Better than that though, would be to freeze actual spending, and starve the big government beast. That way, the government would be forced to prioritize, cut waste, and become far leaner and more efficient.

20. "It is wrong that so few people should own so much of the nation's wealth."

The wealth in no sense belongs to the nation, since we are talking about wealth which belongs to individuals. The statement comes down to saying that it is wrong for some people to own vastly more than others. This is not self-evidently true, and there are many advantages to people in society if concentrations of wealth are possible.

Firstly, estimates of the distribution of wealth in society are often wrong. They conveniently count shares and landed property, while often neglecting the entitlements which constitute the main source of wealth for ordinary people. Pension rights are often treated as if they did not exist or had no value to them, while other estimates deliberately omit wealth vested in housing, which is most people's main item of value.

That said, there is nothing wrong with an uneven ownership of wealth. Some people are more prudent, some more successful than others. Some show enterprise and initiative, and the accumulation of wealth represents the reward for their activities. In a free society, even if people started with an equal amount of wealth, there would soon be wide variation.

Possible accumulation of wealth not only stimulates entrepreneurs into socially useful activity; it often provides the means. Wealth can be put to work by investment in creative enterprises. It can create employment, and can lead to the creation of more wealth. Pools of capital are necessary to most economic enterprises; they are a vital tool by which societies become richer.

Of course we want decent living standards for those who cannot make it on their own, but we also want opportunities for those who wish to advance themselves and who can benefit society in doing so. Inequalities of wealth are not important; what counts are the opportunities for people to create the wealth that enables society to improve its services.

Bill Gates is good at making money and supporting charitable work, but weak on his understanding of how capitalism works. He called at Davos for a kinder, gentler, "creative" capitalism. As our own Tim Worstall points out on the Globalisation Institute site, that's what capitalism already is. It harnesses desire for self improvement into social good. All right then, how much good does capitalism's creative side do socially? Tim quotes William Nordhaus calculating how much of the benefit of technological change between 1948 and 2001 went to its producers.

The actual number he came to is that only 2.2 percent of the total value created by innovation remained with those who did the innovating. The other 97.8 percent went to the society at large: they got new, or cheaper, or more, gew gaws like edible food, clean water or even mobile phones as a result of the entrepreneurs' attempts to enrich themselves.

That's the point. It already benefits others. Bill Gates seems to have taken on board some comic book BBC view of a greedy, reckless capitalism which tramples the poor. Phooey. It's the best thing in history that has ever happened to the poor.

Since it came to power, the Labour government has introduced 2,685 pieces of legislation every year. And each has been either ill-conceived, draconian, bonkers, bitter, dangerous, counter-productive, childish, wrong, thoughtless, selfish, or designed primarily to make life a bit more miserable for everyone except six people in the BBC, 14 on The Guardian and Al Gore.

– Jeremy Clarkson tells it like it is in The Sunday Times.