The Pin Factory Blog

So who is winning? Schumpeter or Galbraith? An introduction to an excecllent essay on the subject.

What an idea: we see the baying for a windfall tax on the oil companies: but farmers too are making massive profits so where is the call for the tax upon them?

What is old is new again: At least one of Adam Smith's truths was known in the Babylonian Talmud.

Netsmith thinks it was Somerset Maugham who said that training to be a doctor was an excellent preparation for being a writer. A certain Dr. Paula Gosling demonstrates that well here.

News just in! Changes in prices do lead to changes in behaviour!

This banning of booze on the tube: not very liberal, is it?

And finally, news from the American election cycle.

I'm used to the idea that we'll get economic lunacy from the World Wildlife Fund and the like but when the head of that plus the DG of the CBI and other luminaries get together to argue in favour of the hypothecation of green house taxes I start to despair. The CBI is at least supposed to have economists around the place somewhere. The background is that they've noted that the new cap and trade system for CO2 emissions will raise money, therefore:

But this is still a substantial, additional transfer of funds from business and consumers to government (perhaps £300m-£400m per year from 2008-2012, and several times that in subsequent years). This represents a tremendous opportunity for the government to demonstrate its real commitment by announcing an equivalent-scale investment in securing the transition to a low-carbon economy and in adaptation.

While we accept there may be some technical difficulties in ringfencing the revenue, it should be perfectly possible to announce a similar investment in low-carbon technologies and adaptation equivalent to the revenue raised by auctioning.

There's only four things wrong with this, although they do seem to be four rather important things.

1) The revenues from cap and trade auctions are not supposed to be an increase in taxation. Rather, they are a transfer of such: overall they are supposed to be revenue neutral. One idea might be to do as is done with the landfall tax: the revenues are compensated by a reduction in employers' national insurance charges. But other taxation should be cut in lock step with the new revenue raised: thus there is no pot of money to spend in such a manner.

2) Hypothecation of taxes is a bad idea in principle. There is no link between how much can be raised from the auction of said permits and the amount that we want to spend on low-carbon technologies, just as there is no link between the amount that smokers cost the NHS in direct health care costs and what can be and is raised by the taxation of tobacco. To ring fence such revenues is nonsense: tax where you can and spend where you must rather. [Click 'Read More' to continue]

Healthcare is going to feature prominently in upcoming debates in the exhaustive race for the US Presidency. Despite their war of words, Senator Obama and Senator Clinton differ only in rhetoric in their disastrous plans to provide government-run healthcare. However, between Democrat and Republican the difference between the two candidate's healthcare plans will be stark. Either Democrat would likely create an inefficient and improvident behemoth, while McCain suggests innovative market based solutions, putting individual choice at the centre of healthcare.

In Fortune, Shawn Tully extrapolates the essence of what it is that makes the McCain’s healthcare plan so good. McCain's system will ultimately separate employment and healthcare by taxing the previously exempt corporate benefits. This extra tax will be covered by a federal tax rebate of $2,500 for individuals and $5,000 per family. With employers no longer paying for healthcare, the benefits will be passed on to the employees in higher wages. Individuals would then be free to invest in Health Savings Accounts (HSAs), allowing bespoke insurance plans that suit their stage in life. As Tully remarks: "In essence, McCain wants to create a kind of national insurance market that shoves more decision-making power into the hands of consumers."

Reading McCain's speech inspires confidence in the Arizona Senator. He rightly believes that the "key to real reform is to restore control over our health-care system to the patients themselves." The whole plan is modelled upon opening up competition: Millions of Americans would be making their own health-care choices. Politicians in the UK are also talking of patient choice, freedom and competition. However, such talk is disingenuous given the near unanimous defence of the NHS. Is it too much to ask for a bit of joined up thinking over here too?

A clash of titans: In corner one, we have Google. The company was founded in 1998 by two Phd students at Stanford University. The initial investment was $1.1 million and the company was launched in a private garage. Eight years later, at its first public offering, it was worth more than $23 billion. In corner two, we have the French Government. France invested £75 million in 23 different technology companies for their QUAERO project, aimed at creating a European Google-Killer.

Who will win the battle? Turns out, this clash of the titans is little more than a scrawny schoolboy trying to compete with seasoned professionals. As Business Weekly recently reported, the project "will swallow £75 million of European taxpayers' cash and vanish."

The French Government will learn the sad lesson once again: government cannot take the place of private industry and entrepreneurship. An introductory book to economics or a quick glance at history would have saved Europeans £75m and the French Government a lot of embarrassment. At least we can thank France for providing further proof that free-market economics is the best way for industry and commerce to function.
 

So Gordon Ramsay seems to think that Africans are expendable. How kind of him.

Especially when he is calling for regulations and fines against something which the market patrols and punishes already.

Guido wins an award and some are not happy. Good, nice to upset the right group of people, isn't it?

The effects of the crazed drive to ethanol in the US: consuming 31% of the entire US maize crop!

An elegant way of looking at it: the euro is great for the UK just as long as we stay out of it.

Yes, it's true: recycling is based on the slave (ie, unpaid and mandatory) labour of the citizenry.

And finally, perhaps not the best marketing offer ever. Three for two on shoes?

Apparently Boris Johnson had just one glass of champagne at his victory celebration, and spent most of the night with advisers planning his first hundred days. It's good that Johnson knows he has to hit the ground running, because being London Mayor from 2008-2012 is not going to be the simplest job in the world.

The new mayor has two major projects to oversee. The first is preparing for the 2012 London Olympics. The budget has already spiralled from £2.4bn to over £9bn, but officials are said to be working to a £12bn target.* Johnson will need to do everything he can to control spending and ensure that Londoners do not end up shouldering more of the burden than was originally agreed (£300m). He is also going to have to make sure that London's dodgy transport system is ready for the influx of visitors.

The second big project is Crossrail, the long-awaited train line linking Heathrow with the City and the Southeast, for which the Mayor has direct responsibility through Transport for London. Keeping Crossrail on time and on budget is going to be a major challenge.

Apart from good management, voters are going to want Johnson to deliver tangible benefits in their everyday lives. More police on the streets and a reduction in violent crime, so people feel safer. Less delays and disruption on the tube and less congestion on the roads, so people can get around more easily. More housing so that London life becomes a little more affordable.

All of this is possible with the right policies (and Johnson has some good ones) but it won't be easy – especially when the new Mayor's every move is going to be scrutinized by a hostile central government who would love to see him slip up. London is going to be seen as a testing ground for Conservative government, so the stakes are undeniably high.

* Is it too late to send it to Paris?
 

With all the bankruptcies in the airline industry over the last few years, companies blame high fuel prices, the war in Iraq, the industrialization of China and India, and several other factors for their difficulties. But Southwest Airlines, based in Dallas, Texas, took a different approach that is paying dividends as oil prices rise. In 2000, the company realized fuel prices could rise dramatically and hedged their gas price.

As Moira Herbst wrote,

For 2008, 70% of its fuel needs are hedged at $51 a barrel. That means that while competitors have to contend with spot prices hovering around $120 a barrel, Southwest can buy oil at less than half that... For 2009, the company is covered about 55% at $51 a barrel; for 2010, 30% at $53 per barrel; and for 2011 and 2012, at more than 15% at $64 and $63 per barrel, respectively.

Although continuing this strategy will prove more expensive as fuel prices continue to go up, Southwest has continued to make profits while other airlines have failed. Former CEO of American discount airline JetBlue David Neeleman hoped to follow a similar strategy, but the company rejected his Idea.

As airlines continue to fail and the number of bankruptcies continues to rise, it is not difficult to imagine the Federal Government following the same path it did in the 1980s with Chrysler and recently with Bear Stearns. But Southwest proves that innovative thinking and sound strategy can carry a company through the most difficult times. Government intervention allow less wise companies to unfairly take away Southwest's business, once again rewarding incompetence and penalizing intelligence.
 

THINK TANK OFFERS $15,000 PRIZE FOR JOURNALISTS

London, 1 April 2008 – For the seventh year, International Policy Network (IPN), a London-based think tank, is accepting submissions for its annual Bastiat Prize for Journalism.

The $15,000 prize fund will be divided among First, Second and Third placed authors. The Prize is open to writers anywhere in the world whose published articles eloquently and wittily explain, promote and defend the principles of the free society, including property rights, free markets, sound science, limited government and the rule of law.

Since 2002, the Prize has been inspired by the 19th-century French philosopher Frédéric Bastiat and his compelling defence of liberty. Bastiat's brilliant use of satire and allegory enabled him to relate complex economic issues to a general audience. In keeping with his legacy, Bastiat Prize entries are judged on the intellectual content of each article, the wit, eloquence and persuasiveness of the language used, the type of publication in which it appeared and the location of the author.

Last year, the competition attracted over 280 entrants from more than 60 different countries.

Previous judges have included Lady Thatcher, James Buchanan and Milton Friedman. This year's panel includes the former British Chancellor of the Exchequer, Lord Lawson of Blaby, and Amity Shlaes, syndicated Bloomberg columnist, a senior fellow at the Council on Foreign Relations and a previous Bastiat Prize winner.

Submissions – in English – will be accepted from 1 April until 30 June 2008. (Postal entries must be postmarked 30 June or before). Submissions must be in the form of up to three articles totalling no more than 4,500 words, published between 1 July 2007 and 30 June 2008 in recognized news publications. Finalists will be invited to a ceremony in New York in October 2008, where winners will be announced.

Last year’s Bastiat Prize winner was Amit Varma, an editorial columnist for Mint (a joint venture between the Wall Street Journal and India’s Hindustan Times). Second and third prizes went to Clive Crook, senior editor of the Atlantic Monthly, and Jonah Goldberg, Contributing Editor to National Review and a syndicated columnist. Previous winners include Robert Guest of The Economist, Brian Carney of The Wall Street Journal and Sauvik Chakraverti of the Economic Times (India).

An online submission form, rules, judging criteria, and articles written by previous winners can be found at IPN's Bastiat Prize website: www.bastiatprize.org.

Queries to Marc Sidwell, Bastiat Prize Administrator: telephone +44 207 836 0750 or email info@bastiatprize.org.