The Pin Factory Blog

One of the dividing lines in the political debate is between the egalitarians and those more like myself who worry more about absolute living standards. On the one side those who say that inequality is a problem which we must use tax and redistribution to resolve, on my side those who say, well, perhaps, but that taxation carries a deadweight cost and thus lowers the wealth of all.

We all also tend to assume that there is a trade off between these two: we can't reduce inequality without reducing total wealth but it's worth it: or not perhaps, dependent upon your a priori assumptions. 

As it turns out I've been wrong on this as this interesting paper (.pdf) shows. Economic freedom produces a higher overall rate of growth, this is true. Economic growth does indeed increase inequality and redistribution (note, redistribution, not necessary spending upon public goods) does indeed reduce the growth rate leading, in time, to less wealth for everyone. So far then the debate has indeed been framed correctly and it depends upon which you value more, equality or total wealth. However, there's one stinger in it:

Freer economies are more equal economies; economic freedom reduces inequality by increasing the share of market income going to the poor and lowering the share going to the rich.

This effect overpowers the inequality produced by economic growth. So economic freedom actually produces lower inequality as well as higher growth: and, of course, over time, higher incomes for the poor on an absolute basis.

So our trade off has actually changed: we can be more free, more equal and richer, or less free, less equal and poorer.

At which point I'm left rather wondering: who would choose the latter of those two options?

80. "We need to control movements of capital across borders to prevent funds leaving the country that are needed for investment here."

We used to have exchange controls, dating from World War II and regarded as permanent. People going abroad were only allowed to take out £50 at a time, and had their passport stamped on each occasion. In 1979, early into the first Thatcher government, Chancellor Geoffrey Howe quietly abolished them. The predicted panic and chaos never materialized.

A vital part of our earnings comes from our foreign investments. Because we allowed investment abroad in the past, we now reap the dividends as part of invisible earnings. If we stop people investing abroad, we cut off that future source of income. It is a good thing to have us investing overseas; it means we can make money out of the economic activity of other countries.

It is also good to encourage foreign investment at home. If we make it difficult for our people to invest abroad, foreign governments tend to retaliate, denying us access to investments from there. These investments could be helping to produce economic growth and jobs in the UK.

Exchange controls are part of the mentality of a siege economy, which wants to isolate itself from world trade and trends and seek self-sufficiency instead. Free trade in investment, like free trade in goods, is of all-round benefit. If we want people to invest in Britain we should make it attractive for them to do so, just as we should make our goods attractive if we want people to buy them.

In an increasingly globalized economy, the mentality which seeks to restrict currency flows is a throwback to the mercantilist ideas which preceded the modern world. People once thought we had to hoard gold and silver bullion and prevent its export; now they try to treat currencies similarly. In truth, we live and thrive on trade and free movement of capital and goods.

We had the April meeting of our next generation group this week at our offices in Westminster. The guest speaker was Phil Booth (pictured), the national co-ordinator of the influential NO2ID campaign.

Sticking to the strict 10-minute time limit, Phil took us on a whistle stop tour of the database state, making clear the important point that it's not just about having another piece of plastic in your wallet. The real problem is the massive and intrusive identity database that will back up the ID cards and further shift power away from the citizen and to the state.

That's bad enough on civil liberties grounds, but when you consider the government's record with data security and IT projects, the possibilities are horrifying. Moreover, even the government admits the minimum cost of the project will be £5.8 billion! That's a lot of money for something which won't stop criminals or terrorists, or prevent fraud or illegal immigration, or do any of the things the government claims.

The event was very well attended and made for an excellent evening. Anyone interested in attending future next generation meetings should click here to sign up the email list or click here to join our Facebook group.

From GQ Travel, April 2008:

"Bringing back a bit of enjoyment to the modern day rigours of air travel - that's the main philosophy underpinning Terminal 5's launch. Whether you're skipping the country for business or pleasure, the terminal's mood is perfectly suited for a spot of pre-flight shopping..."

Indeed, enquiring minds want to know. As and when Gordon Brown announces that Cannabis will be upgraded again to a Class B drug, with 5 year potential sentences for simple possession, will those of his Cabinet who have admitted to "experimenting" (and not enjoying, giggle) be tried and jailed? And if not, why not?

That Lords report on immigration: another one who insists that it shows immigration to be justified on both utlitarian and liberal grounds. 

Some in the US insist that the blurring of the distinction between investment and commercial banking was behind the current little problems and that a solution would be to reinstate it (Glass-Steagal being the moniker). Oddly, the head of the French Central Bank, M. Noyer, thinks exactly the opposite: that universal banking as in Europe is why we have less to worry about. 

More bankinig: might be quite the right time to launch a new banking and payments system in the US? 

Yes, the Soil Association are contemplating indulging in a nasty little bout of protectionism. 

One of the more basic statistical tricks: claim that rising numbers needing food stamps shows how terrible things must be. But fail to correct for rising population.Tsk, almost as if there's an agenda or something.

And finally, 18 th century blogging and an Earth Hour well spent (NSFW). 

Here's an idea. Give patients in Britain's state-run National Health Service (NHS) their own healthcare budgets. Then they would be able to buy in the treatment they want, from whatever source they choose, rather than having to put up with the decisions of some distant central bureaucracy. Most patients, especially those with long-term conditions, know what kinds of treatment work best for them, so aren't they best placed to decide their own treatment regime anyway?

You might think this idea is just another rant from the swivel-eyed market zealots of the Adam Smith Institute. But no, it comes straight from Britain's government – a Labour government. Health adviser and clinician Lord Darzi (pictured) wants tens of thousands of patients with diabetes, multiple sclerosis and motor neurone disease to get their own budgets.

I welcome this move. We've long believed that patients, or at least their family doctors, should be in charge of the money that is spent on patients – and that politicians, the Department of Health, and local officials should not be. Then perhaps care might be delivered to serve the needs of patients, rather than for the convenience of bureaucrats. That was where the NHS was heading before it went up a lengthy statist siding under Health Secretary Frank Dobson MP in 1997. So awful was that experience that Labour reformers have been trying to get it back on track ever since. But of course, nobody can admit that Mrs Thatcher's GP-budgets policy was in fact on the right lines.

So, direction-changing as it is, the new initiative is as typically cautious and – well, bureaucratic – as you would expect from a highly centralist administration. It's limited to folk with these very long-term conditions. And they won't get cash to spend, nor anything like it – a new voucher scheme is imagined. (And I can well imagine all the bureaucracy that will go along with that.) I really do wish that our leaders could simply admit that their former Health Secretary made a mistake, apologize for the billions of wasted taxpayers' money that has been thrown at trying to correct it, and agree that patient- or GP-centred budgeting is indeed the best direction of travel for UK healthcare. Don't you?

79. "We should discourage use of private cars by making them more expensive to drive."

Private cars are already hit by vehicle excise duty and fuel tax, in addition to parking fees and congestion charges. The money raised from these is part of the general budget, rather than earmarked specifically for transport purposes.

It is true that each car adds to pollution, but much less than they did a decade ago, and diminishing as new models incorporate new technology. Most of the pollution from cars is caused by older and badly-tuned models. A sustained campaign to improve those would achieve far more than a campaign to raise the costs of motoring generally.

It is also true that each car adds to congestion, but again, a sensible policy to reduce congestion at peak times and on peak roads would achieve more than a general increase in costs. Reducing the need for a 'school run,' for example, would cut congestion substantially.

The anti-car lobby does not seem to appreciate the benefits of private motoring. The extension of car ownership has opened up so many choices for so many people. It enables them to work from places ill served by public transport; it enables them to shop at places which offer more goods and at lower prices. It opens up the country, and even the continent, to ordinary people who had so limited travel opportunities before the spread of car ownership. It brings a degree of independence to people.

Planners might want to move people in blocks between chosen points, but the private car is far more flexible and versatile, allowing people to make different choices. Instead of pricing motoring beyond the reach of all except the rich, we should be promoting the technology which can make car engines use cleaner and less scarce fuels, and the techniques which can spread out their use to avoid the congestion that overcrowding causes.