The Pin Factory Blog

Apparently there are still one or two brave souls who are liberals on the subject of immigration.

A depressing look at the current emissions targets. For example, if the transport reductions are ten times more expensive than those from electricty and heating, wouldn't we do better to ignore the tranpsort reductions and spend the extra on the electricty and heating? 

Is Adam Smith of the left or the right ? Well, peraps the best answer is that given that he was writing before the fracture of the French Revolution which gave us our very concepts of right and left politically, possibly neither or both, but not one or the other. 

Those Sovereign Wealth Funds really might not be as wealthy as many think. 

How government really works: forms to detail your success at reducing form filling. 

Your guide to what the literati and glitterati really think of the London Mayoral election. 

And finally, l'internet est arrive and praising British judges. 

The blog's comments function has been malfunctioning, and has been temporarily disabled while we upgrade it.

Hopefully it should be up and running again soon. 

Is it me, or is someone determined to make simple stuff harder? Not long ago, when you applied to get your kid into a particular state school, you weren't always successful, but at least you got the impression that some human being had considered the application. Recently our youngest was applying for schools, but his application to the school that we thought best got no further because another school (which we considered unsuitable) "in the collegiate system"had accepted him.

Eh? The original idea of "collegiate schools" was that local state schools would collaborate so that the best ones helped the worst ones. Now it has become a way of squeezing out the last vestige of competition in the state system. Get an acceptance from any school in the network – even the worst – and the authorities can tick the box – satisfied parents. Except we aren't.

But it's not just the state sector. I've been tearing my hear out trying to open a bank account for my elder boy. The other day we went in and when they ran a credit check it was a case of 'Computer Says No'. Since he's never had credit in his life he can hardly be a bad risk, and I suspect the glitch is just that the Royal Mail changed our postcode recently and 'Computer' thinks that his address doesn't exist. But no human being seems to be able to sort it out.

State or non-state, the ultimate source of such absurdities is the same. Centralization and regulation. For a few happy years, state schools competed for students, because their income depended on it. But now, due to some central edict about "collegiate" collaboration, they've found a way to divide the pack of applicants cosily between them. And while I'd have thought that seven or eight banks was a fair measure of competition in a small place like the UK, the fact is that they now pursue the observance of government regulations more than the demands of their customers. Make a mistake and you get splatted by the reguator. It's much easier to say No. Or at least, get the computer to do it for you.

78. "Government investment is vital to protect industry and jobs."

It's a matter of historical record that government investment is reasonably fatal to industry and jobs. What government does is to take taxation from those industries which are successful, and redistribute some to those which are not. In doing so, it takes away resources which would otherwise be available for investment in expansion or the purchase of goods and services.

It puts these resources into industries for whose goods and services there is not enough private demand. Government tends to choose industries for political, not economic reasons, and to make bad choices. "Picking winners" means picking losers. For all of the public jobs created by public investment, rather more jobs will quietly disappear from the private sector in consequence.

Government investment in industry involves spending other people's money on somebody else. Since it is not their own money, the politicians and bureaucrats do not have the same incentive to make good and wise decisions as do those whole livelihood or reward depends on success. They do not have the same drive to ensure that the goods produced will be of the quality and price to hold their own in the marketplace.

Furthermore, government investment is usually called for when private investment has failed to materialize in support of certain industries. There is a very good reason why it did not appear; it is because private investors had low expectation of any returns to be made by doing so. When government does invest, the industries concerned become dependent on continual state handouts and unable to attract private funds in its place. The graveyard of Britain's industrial history is littered with the corpses of failed state investments, whether in steel, ships or motorcycles. Government investment in an industry is the kiss of death.

This being April Fool's Day, I thought I'd give you a few lines that you could use to make buffoons of your friends.

Start by telling them that the UK now has a higher tax burden than Germany. That the average Brit has to work more than five months of the year just to pay taxes. See if they believe that.

Tell them that household disposable income in the UK is now lower than it was when this government came to power in 1997.

Or tell them that after ten years of 'Prudence' and policies aimed to 'end boom and bust', the public's confidence in the economy is now lower (at -52%) than since records began. Twice as low as when John Major was in power.

Finish by telling them that despite record immigration, house prices are actually falling.

Unfortunately, it's no joke that all these things are actually true.

An excellent little map showing the conditions on the ground during the election in Zimbabwe.

A very odd idea, that markets do not cater to minorities. Are we not all a minority of one?

How to make a fortune running a hedge fund. Alternatively, don't invest with someone who claims to have read The Black Swan.  

Given the errors people keep finding in the statistics on global warming, might it not be a good idea that the raw materials be released?   

A little change in Parliamentary procedures. Apparently an MEP holding the executive to account by asking a question now amounts to abuse.

The Ban Darling campaign impresses the Spaniards (translation here).

And finally, blogger proposes marriage (to Wendy Alexander?) and why there are more engineers in terrorist cells than sociologists. 

The Telegraph has a nice piece about the hedge funds and Brad Delong comments upon it here. All very interesting but still missing one vital point: that the current blowups amongst hedge funds are exactly the way this liberal capitalism, this market allocation of investment, is supposed to work.

Start at the beginning, decades ago: some bright sparks noted that excess returns (that is, above the risk adjusted normal profit rate) could be had by arbitraging in the markets. It might have been bonds against stocks, or debts of different maturities, or currencies and loans: doesn't matter. They thus invested in such arbitrage trades and in the process of making themselves a great deal of money they smoothed out these market inefficiencies.

Those excess returns were spotted by other investors, of course, and they acted as a signal that perhaps investing in the same business could bring more of those highly desirable profits. This is what we actually want to happen, that resources are applied to their highest known value usage: it's the very definition of wealth creation when an asset moves from a low to a higher value use.

At some point enough investors note these potential excess profits and thus they are competed away. There's enough, or more than enough (for markets do sadly tend to overshoot) capital now working in this sector and of course the returns to it fall.

We might thus end up with what we actually desire: the sector as a whole makes normal risk adjusted returns, clearly with some making good decisions and thus good profits, others less so. The whole economy has been made more efficient (and thus wealthier) by the elimination of those imperfections that led to the arbitrage opportunities and the bright sparks go off to look for another similar opportunity to allocate capital to its most productive use.

What's not to like about this?   

77. "We must subsidize our industries, to compete with foreigners who do the same to theirs."

We want industries that can compete on world markets. They can do that by matching the products of their rivals in both quality and price, and by learning to adapt quickly to changing market conditions and being able to spot emerging opportunities. When foreigners subsidize their industries they are making them depend on government aid rather than on their own qualities. Industries so supported become complacent, finding it easier to get government funds than to adapt to competitive markets.

In an ideal world we would buy the subsidized goods from abroad, being grateful that foreign taxpayers were stupid enough to send us cheap goods. If they pay higher taxes it limits their own economy, and if they do it for our benefit we might be grateful for their largesse. The lower prices we paid would leave us more resources to spend on other things, which means richer.

In this less-than-ideal world, foreigners sometimes subsidize their exports in order to drive our domestic competition out of business. That domestic industry clamours for equivalent assistance to secure a level field, and we end up in a world where everyone is worse off.

Far better in the first instance to secure international agreements against this kind of predatory dumping. The World Trade Organization has gradually proved effective at ending this beggar-my-neighbour attitude which only holds back wealth creation and economic expansion. It requires countries which sign up to its great benefits to desist from the subsidies which bedevil trade.

When we suspect that subsidized goods are flooding into our markets, the correct response is to insist on compliance with WTO rules. The worst response is to subsidize our own producers in retaliation. This helps neither the taxpayers who have to support it, nor the businesses which then become dependent on continuing government support.

I keep an eye out for web mentions of Tax Freedom Day – that day in the year when we at last stop working for the tax authorities and at last start working for ourselves. And over the last couple of weeks, I've spotted lots and lots of mentions, because Tax Freedom Day arrives this month.

If you're an American, that is. The Tax Foundation has calculated that Tax Freedom Day this year will fall on April 23. That's three days earlier than in 2007, thanks to President Bush's tax rebates, designed to kick-start the US economy. But it's still later than it was during the whole of the 1980s (thanks, Mr Reagan) and the early years of the George W Bush administration.

None of this is any consolation to hard-pressed British taxpayers, though. Tax Freedom Day doesn't come in the UK until June 2 this year. That's also a little earlier than last year, but the general trend has been upwards in the UK for some long time.

So as the Americans are heading off to the beach to celebrate their liberation from taxes on April 23, we Brits will still be slaving away for the benefit of HM Revenue & Customs. Slaving for nearly another six weeks, in fact. Isn't that just too long to be in thrall to our political masters?