The Pin Factory Blog

Today's lesson in public choice economics: politicians do what benefits politicians, not what benefits the wider public (nor even, in this case, what accords with the rules of logic).

Netsmith for one cannot wait for this particular political announcement.

There's amusement here, to be sure, but very much a damned if they do, damned if they don't sort of situation.

So just what was the most significant wealth creating film of all time?

This might be blasphemy in certain quarters: Ben Bernanke has been doing the right things and averted the crisis?

From an unexpected quarter: the value of private schooling is that it attempts to educate.

And finally, proof that reincarnation really does happen.

Britain's Prime Minister Gordon Brown seems very smug that his government has 'taken a million people out of poverty'. But has he any right to be so? The truth, as always, is more complex and less rosy than Mr Brown presents it.

The government's poverty target is 60% of median income: below that, you are in poverty, above that, you are not. And yes, by giving people just the wrong side of the line a little extra cash, you can move them to just the right side of the line. A great deal of politicians' time and effort (and our money) has been expended on achieving just such a change. Look at a graph of income distribution and you see a slight shift from one side of the line to the other. This does of course represent millions of people. But it doesn't mean that previously they were in abject poverty and now they are enjoying la dolce vita. A few extra pounds might be very welcome, but all this political effort hasn't exactly changed people's lives.

And what has happened to those who really are in abject poverty – say, those who have incomes below 40% of the median? Well, that depth of poverty is the highest in thirty years, both in terms of numbers (over five million) and as a proportion of the population. Two-fifths of those who the government defines as being in poverty are in fact in this, severe poverty.

Then, of course, you have to remember that many people would fall below the government's poverty target were it not for in-work benefits. And the number of us receiving those has rocketed – from around 4% of working-age households in 1997 to around 15% today. We've taken people out of 'poverty' by making them more dependent on the state.

There's something rotten with this. Our over-regulated, state-dominated economy with its perverse tax and benefits system – which taxes people who are below the minimum wage – is not encouraging self-help, hard work and enterprise. So we distort it even more in order to cover up the fact. It's time to restore incentives and trust the market.

The Institute of Economic Affairs held a book launch this week for Eamonn's new book, modestly entitled The Best Book on the Market (subtitle: How to stop worrying and love the free economy). Eamonn told the gathered audience that he learnt the reality of markets in his father's garage, watching him deal with customers as his mother did the books. As a result, when he studied economics at university he quickly realized that the profs had it all wrong. By treating people like robots and trying to make economics a science, they stripped out everything human that actually makes markets work. Unfortunately, lots of bad public policy was (and is) based on these bad ideas.

And that's why Eamonn has written his book – to explain why markets work, why they are a good thing, and why politicians who try to 'perfect' them are evil. He's kept it short and accessible – and full of illuminating examples – so if you liked Freakonomics or The Undercover Economist but thought they were too long, this is the book for you.

Click here to buy your copy now.
 

Councillors in Edinburgh have approved the sale of Panmure House – the former home of the great Scottish economist Adam Smith – to Heriot-Watt University. They chose the £800,000 bid over a higher offer, on the grounds that the University would make the building more accessible to the public. The University plans to restore the house to promote the study of economics.

The sale has to be scrutinized by the Scottish Government in nearby Holyrood, but the Heriot-Watt bid is probably the best possible outcome for admirers of Smith. The house will – once again – become an international centre for scholarly work on economics, and members of the public will be able to visit the house where Smith spent the last decade of his life.

The sale coincides with the unveiling of the Adam Smith Institute's statue of Adam Smith not far away, in Edinburgh's Royal Mile, which will take place on the morning of Friday 4 July.

According to the Daily Telegraph, a Japanese lingerie firm has unveiled a new, hi-tech form of eco-friendly underwear – the solar-powered bra:

The bra comes with a detachable solar panel, worn around the stomach, which can produce enough energy to power an iPod or mobile phone as the wearer lazes on the beach, the makers claim.

It is also equipped with plastic pouches that can be filled with water, allowing wearers to quench their thirst without having to buy and then throw away hard-to-recycle drinks bottles.

Isn't science great?

No, agricultural subsidies haven't lowered food prices: because so many of them are in fact not direct subsidies, but indirect, which raise food prices. What we actually need is industrial farming to reach Africa: as it has Brazil to such good effect.

Now we know the reason that Mayor Boris is not going to do away with the "London Embassies".

What you can find out about a country by the presence or not of a shoe shine stand.

Do we really still have to explain to people the difference between a blogger and a journalist?

Some still don't quite get it: a competition about the environment, the winning prize being a long distance flight.

Great Newspaper Headlines of our Time.

And finally, would Carl Icahn please make a bid for McDonald's?

...Dr Eamonn Butler writes that we have all become slaves of the database state: "Watch out, the Gestapo are about".

Click here to read the article.

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.