Optimism

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Writing in the Telegraph, Angela Monaghan and Edmund Conway give us ten reasons to be optimistic about the economy. Considering there was so much Armageddon-speak only a few months ago, this itself is good news. They list the weaker pound helping exports at number one, with markets correcting as they do the imbalances between currencies (except in the Euro zone where one exchange rate fits all).

They point to rising equities, increased business confidence, and US banks coming off better than feared in their stress tests. Low interest and mortgage rates are another plus, creating the conditions for recovery. They are impressed by the Chinese economy's unexpected resilience, and by the fact the both UK and US housing markets may be bottoming out. The point to the benefits of falling utility bills, and finally list the coming summer with its feel-good warm weather lifting people's spirits.

Even if you don't agree with all of their pointers, it's an impressive list. The last one is important and they are right to list it. Optimism points to recovery as people begin to make plans to invest, to expand, and to plan purchases. This is one reason why Obama's message of hope is probably more important than anything he actually does.

On the whole the authors are probably right. This was not the end of market economics, but a cyclical downturn made worse by the smoothing of previous downturns with massive credit expansion. Downturns pass, unless unwise governments turn them into depressions.

After this one the real fight starts over what lessons can be learned. France and Germany are leading the EU charge to learn the wrong ones by introducing more restrictive regulations that would leave politicians driving business decisions. The right lesson might be for governments to stop doing the things which led businesses into making wrong decisions in the first place.

Nothing to fear, oh really?

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altHave you signed a petition on the Number 10 website? Did you sign this one: We the undersigned petition the Prime Minister to…resign? (As of Friday lunchtime there were currently 54,672 signatures). You could be in for a surprise in the future.

In an article on Marginal Revolution, Alex Tabarrok brings attention to a recent report from Venezuela that examined the wages of the millions of signatories to a petition calling for Hugo Chavez to be removed from office. Unfortunately for them in the proceeding election, Chavez triumphed and their names were added to a database that was distributed across government agencies. The report finds that those who signed the petition and: “...were identified as Chavez opponents experienced a 5 percent drop in earnings and a 1.5 percentage point drop in employment rates after the voter list was released. A back-of-the-envelope calculation suggests that the loss aggregate TFP (Total Factor Productivity) from the misallocation of workers across jobs was substantial, on the order of 3 percent of GDP."

Whilst this specific instance may have taken place overseas it highlights that governments can’t be trusted, especially with private data. Whilst it is hard for people to imagine something similar taking place in this country, we are singularly blind to human nature, it is entirely possible. Should Gordon Brown win the next election (hypothetically speaking) there is little to stop him implementing a subtle tweak to tax credits, or the tax system that would leave the majority of the signatories to the online petition worse off. The database state is not your friend, at some point you are very likely to become a victim of a politician disposed with a weaker human nature.

Thankfully though on this occasion, it looks likely that signatories of this petition are in the majority!

Obituary: Professor Norman Gash

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We are sad to report the death of Professor Norman Gash, former Professor of Modern History in the University of St.Andrews, at the age of 97.

Norman Gash was known to the world as a fine historian of the Nineteenth Century, and in particular the leading expert on the life and times of Sir Robert Peel – on whom he wrote a definitive two-volume biography. His thoroughly researched books on Peel, the Duke of Wellington, Lord Liverpool, and the politics of their age continue to command respect within the academic community.

Gash was also a leading Conservative intellectual, and at St.Andrews did much to encourage the thriving group of student activists whose members would go on to become MPs – such as Michael Fallon, Michael Forsyth, Robert B Jones – or active in the world of policy formation – such as Madsen Pirie and Eamonn Butler of the Adam Smith Institute and Stuart Butler of the Heritage Foundation.

EU wants to run the internet

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Daniel Hannan MEP, has informed us all that the EU seems rather upset that the US "runs" the internet and is keen to do something about it. They want ICANN to be taken over by the G12 so that they can run it "for everyone". The internet was invented (by a British man) because of the American effort to protect itself in case of a nuclear attack. The EU expects the US to hand over the keys to a strategic asset merely because it offends their anti-American sensibilities. "If it ain't broke don't fix it" does not resonate with them much either it seems.

Hannan quotes this gem: "In the long run, it is not defendable that the government department of only one country has oversight of an internet function which is used by hundreds of millions of people in countries all over the world."

Obama might be keen to suck up to the Europeans, but even he would not be stupid enough to grant this request. I doubt most in the UK would be too keen on this idea eithe.

Blog Review 957

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So will the newspapers be able to charge for online content? Doubtful, but then many have bet against Rupert Murdoch before as well.

Nobody goes into politics to get rich, of course, but it's amazing the number who get rich from having gone into politics.....

The latest victim of the elfnsafety culture. One culture that may be even more pernicious than even those of banking or even politics.

There are (at least) two problems with torture. one is that it immoral, the other that it doesn't actually work.

Just as confiscating private property via government pressure doesn't work in creating future prosperity.

Yet another piece of the gender pay gap. If male jobs are more likely to disappear in a recession then they're more likely to pay more outside recessionary times.

And finally, another page from the modern dictionary.

Yaron Brook speech now online

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Earlier this year, Dr Yaron Brook, the president of the Ayn Rand Institute, spoke at the Adam Smith Institute (write-up here). His excellent speech, on Capitalism without Guilt - the Moral Case for Freedom, is now available to watch online. If you weren't able to join us back in February, these videos are well worth watching:

You can also watch the Q & A session in parts five, six, seven and eight. And as if that wasn't enough, you can also see Andrew Medworth (of the Ayn Rand Forum) interviewing Dr Brook before his speech: part one, part two, part three and part four.

Why are we ruled by the illogical?

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I've long been saying that recent events might mean we should have more regulation of the financial sector. It might also mean less and I'm certain it should mean different regulation. But could we please have an absolute moratorium on illogical, just plain counter-productive, regulation like this?

Today, as part of that effort to make markets safer, lawmakers in the European parliament are expected to back new rules that will force banks to retain 5 per cent of the securitised products they originate and sell.

Now a reasonable thumbnail sketch of what happened is that the banks went overboard in a wave of euphoria about the joys of securitisation. in fact, they thought that these whizzy CDOs were such fun that they weren't going to flog them on to the pension funds and the insurance companies as originally planned. Nope, these things were so super that they were going to keep them. And so they did keep them until everyone woke up with a hangover one day and realised that they weren't so whizzy or super duper and immediately started calling them "toxic assets". And then the banks went bust.

So the legislators suggestion to stop this happening again is that the banks should be forced to do what made them bust rather than just left to make a stupid decision like that on their own? Everyone's got to do it not just a few?

Now some will say that having to keep a portion of a securitisation will make the banks look a little harder at them and their risks. Perhaps, but this is the point. Up until 18 months ago the banks were indeed looking at these securitisations and they thought they were just peachy. Best thing since sliced bread in fact right up to the point that they thought that they weren't any more. So such a law would not have changed their behaviour at all. Except, of course,  for those people who didn't get swept away in the euphoria and so didn't keep the toxic assets on their books.

Yes, of course we need laws, of course some form of regulatory system has to be in place. But does it have to be so blitheringly stupid a one? One that forces every bank to do what has just sent half of the banks into bankruptcy?

Consult or cut?

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The Times reported last week that a management consultancy employed for its cost-cutting skills is playing a key role in helping the shadow cabinet draw up plans for power. The time-and motion crew have seconded a member of staff to the implementation unit run by Francis Maude, the paper says.

This will do no good at all. It will be like the time when Mrs Thatcher brought in a top businessman from the board of Marks & Spencer – then thought to be Britain's best-managed firm – to map out how to make the civil service and government systems more efficient. The civil servants listened politely as he explained how they could re-use the envelopes or whatever, and then after he had gone everything simply reverted to normal.

It was at this point, in 1982, that the Adam Smith Institute published its seminal report, Strategy Two. The first strategy, of trying to make government more efficient, had failed, it said. The second strategy, and the only thing that would restore the public finance, should be to make government smaller. It led, of course, to the great privatizations of telephones, utilities, carmaking and all the rest. Inside government, no amount of effort would have made them more cost-effective. Outside government, the chill wind of competition did the job in no time. Francis Maude should send the stopwatch bandits home and bring in a wrecking crew.

Dr Eamonn Butler's new book, The Rotten State of Britain, is now available to buy now. Click here to find out how.

TNG with Brooks Newmark MP

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alt Brooks Newmark MP, marked Obama's first 100 days in office with a speech as guest speaker at this months TNG meeting. In his description of the new President of the United States, he evaluated that a lot of his policies were, “Bush-like", pointing out that his policy of ‘Big Government’ and the immense fiscal stimulus were not dissimilar to that of his predecessor.

Nevertheless, the main scope of his speech embarked on what Obama has and will achieve in his Foreign Policy. The pull out of Iraq followed by the increased number of troops in Afghanistan is very much heading in the same direction a Bush. Newmark stated that Obama has put significant emphasis on his dealings with Israel, pin pointing that he will continue to promote a two state solution.

As well as this, he highlighted the importance of Iran and how Obama has attempted to improve relations with the country. For now this has wrong-footed Ahmadinejad, though he insisted that the President might be disappointed when his outstretched arm is not taken by Iran. If and when this occurs, it will be in interesting to see how comparable his reaction will be with that of President Bush.