Today's budget in context

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As we head towards the UK government's biggest Budget deficit ever, a black hole of at least £118 billion, can anything be done about it?

No, raising taxes on the rich is the wrong answer (I will blog later about why). The problem is simply that government spending has grown out of control.

For a while Brown's booming spending was almost hidden by the booming economy, which almost raised the taxes to pay for it. But now the boom has turned to bust the true state of the public finances is revealed.

In 2000, when we were already three years into the Labour government, the government spent £343 billion. This year it plans to spend £653 billion: nearly twice as much.

Just what are they spending all that extra money on? What useful things does the government do now that it didn't do in 2000?

If spending has nearly doubled, are schools educating twice as many pupils? Are hospitals treating twice as many patients?  Are the police catching twice as many criminals? Of course the government has statistics to suggest that various things have improved, but most of us who actually use public services would say that overall they are much the same as in 2000.

But if little has changed, why has the cost doubled?

Even if we allowed for inflation since 2000, government spending would now be just £407 billion - £246 billion less than this year's proposal. That's enough to wipe out the deficit, abolish VAT entirely, cut corporation tax to match Ireland's 12.5%, and abolish Council Tax, and still have £10 billion spare.

So you can have today's public services, today's taxes, and a government debt that will cripple our economy for a generation. Or we could have the public services we had in 2000, pay no VAT or Council Tax, have no deficit, and have one of the most competitive economies in Europe. Do you even need time to think about it?

Miss USA: The curse of free speech

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Be careful what you say in these enlightened times. As Miss California found out when answering a question put to her during the Miss USA Beauty Pageant.  Her honesty meant that she missed out on being crowned Miss USA, yet the outcome says far more about what have become acceptable personality traits in today’s society.

The question that was put to her, from Perez Hilton was, “Vermont recently became the 4th state to legalise same-sex marriage. Do you think every state should follow suit. Why or why not?" She could have gone on to discuss the Tenth Amendment and state’s rights and given a politician’s answer, but she chose to speak openly about what she believed in. Replying with:

Well, I think it’s great that Americans are able to choose one or the other. We live in a land where you can choose same-sex marriage or opposite marriage. And you know what, in my country, in my family, I think that I believe that a marriage should be between a man and a woman. No offence to anybody out there, but that’s how I was raised and that’s how I think it  should be - between a man and a woman. Thank you very much.

And for being principled she finishes second. In modern times free speech and the values that it encompasses have become belittled and undermined; debate has been sidelined. If you do not think as the ‘establishment’ want you to, then it will be ensured that you do not succeed and that your voice is not heard.

NB: Same-sex marriage should be state-by-state issue decided by the voters in each individual state. The various benefits that ‘married’ couples have accrued need to be stripped back so that it equalises the commitment between two people their genders having no influence on the contract they enter into. Once the benefits have been marginalized marriage simply becomes a contract between two people, something that others should have no say over. Perhaps she wouldn’t have been an acceptable face for Miss USA, but castigation of her beliefs is no way to ensure that the issue is debated properly. The riposte she received highlights how the right for people to choose is overlooked by those who believe they hold the moral high ground: it is the foundation of authoritarianism.

Hayek, private currencies and Zimbabwe

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In 1976, Hayek proposed that a government’s monopoly over the issue of currency in its country should be broken. He argued that any body, public or private, should be allowed to issue currency, and these bodies would be forced by competition to keep their currencies stable. It is likely that the resulting private currencies would have a fixed value relative to one or more commodities for two reasons: firstly, it would limit the total value of currency in existence, which in turn would drastically reduce inflation. Secondly, it will enable these currencies to be used in legitimately in countries with legal tender laws (like Britain). A legal tender law ensures that any debts in a private currency can also be paid in the currency mentioned in the law (Sterling, in Britain’s case). Declaring that a unit of private currency is worth a fixed amount of one or more commodities means a debt in the private currency could be paid by providing enough of a second currency to purchase the commodities that the debt represents on the open market.

I believe that these private currencies exist today. There are already institutions that issue perpetual, zero-coupon notes with values proportional to one or more commodities. Millions of these notes are traded on stock exchanges every day (though not quite as many as other major currencies). I am referring to commodity-backed exchange traded funds (ETFs). Debts denominated in shares of an ETF can be paid in any currency by buying these shares on the market to deliver to the creditor. Existing ETFs allow the number of shares in circulation to be increased or reduced; anyone can give the fund money to buy more commodities in return for new shares, and existing shareholders can compel the fund to sell some of its backing commodities to redeem their shares in another currency.

Hayek has said currency is an adjective, so these notes can already be referred to as a private currency. The next step towards breaking the government’s monopoly over the issue of money is for companies or individuals to start lending and taking deposits of these shares. As long as the interest (in shares) gathered from loans exceeds the interest paid (in shares) to depositors, this activity will be profitable. I imagine there is already a large demand in terms of depositors of shares, given that there are people who are willing to hold these shares for no interest. Given that we are in an economy of nominal deflation, there should be no shortage of people willing to borrow these notes either.

Hayek also believed that if a government was the only issuer of money, then monetary policy would become politicised to the detriment of the economy. It will therefore be interesting to watch Zimbabwe as its government has suspended their own currency, thereby opening the market to competition. The public can now choose to use a variety of currencies, some of whom are issued by government with no political interest in Zimbabwe. Time will tell whether competition and the removal of national politics from monetary policy will increase price stability in Zimbabwe.

A rare honour

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Guido Fawkes has gained considerable acclamation, and rightly so. Single-handedly he has exposed the brutal thug culture at the heart of this government's Downing Street operation. Other journalists knew of it, but were bought off by titbit 'exclusives' and access to the one-for-one interviews that please their employers. Some just printed Number Ten press releases, altering them only by the addition of their own by-line. Now the whole corrupt system is withering under the glare of public scrutiny.

The latest honour for Guido is that his handsome features now adorn the framed portrait in the loo at the ASI offices. This rare honour is awarded by vote of the ASI staff, and in this case it was unanimous.

Well done, Guido, and don't let up!

Blog Review 938

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Ghana is an interesting place to go looking for evidence about gender equality, as Polly T just has. Actually, it´s an extremely interesting place to go looking.

St George´s Day is coming. Would help if those urging us to celebrate it knew a little more about it really.

Brain eating zombies and the European Union. The difference is?

This really does have to be beaten into people. The US (and it´s true of the UK too) has not stopped "making things".

The problem with allowing government in to "save your business" is that it´s very difficult indeed to get them to leave again.

Which is what makes this idea of a new Labour industrial policy so scary.

And finally, something completely different. A guide to the nice parts of France....Netsmith assumes this means the parts with few Frenchmen in it.

Reforming schools - A self-correcting system

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Plagued by persistent regulation, our system of state education is barred from reaching the level of quality that teachers not only aspire to, but are fully capable of achieving. Schools themselves are better placed than local government to decide where they should be allowed to set up and how they should function.

 It takes only a small reform of our current system to allow the potential of our teachers and schools to be fulfilled - the creation of a system where schools of all kinds, whether they are state, private or charity-run, provide free and universal education, funded on a per-pupil basis by government, and given the freedom from burdensome regulation that the private sector enjoys. This is not an imposed reform, instead enabling schools to run themselves, opting in of their own accord, with government acting as the financier rather than the provider of free education.

The beauty of the reform is its self-correcting nature - the first of these free schools will appear where education is most in demand. As a school becomes popular, more parents will choose to send their children there and since it is paid per pupil, its income will increase. If a school is unpopular, then fewer and fewer pupils will be sent there until it either improves or fails. Schools will be able to innovate, directly rewarded for successful models of education through their popularity. Even if the amount paid per pupil is too low, then fewer schools will opt into the system until it can be increased.

However, this reform requires that all schools that have opted into the system be allowed to make a profit - something that the opposition party have shied away from, despite it being the principal reason for the system's success in Sweden. Without the entitlement to make a profit, not only will uptake of the system be slow, but successful schools will also be unable to expand and spread that success to other parts of the country for all pupils, parents and teachers to enjoy.

Anton Howes is leader of the Social Liberalist Party.

Tomorrow's budget

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What horrors are going to come out of this week’s Budget? Wrong question - think first about the horrors we know about. Darling has already announced that he will be borrowing £118 billion this year.

Of course that figure is hopelessly inaccurate. It was based on optimistic growth targets, which we aren’t going to meet; the final figure could be £160 billion. But even that doesn’t include the vast sums used to bail out the banks (which Darling claims he is going to get back one day), or the usual stealth spending (public sector pensions, PFI and so on). So the actual amount is going to be even higher. But never mind that for now; let’s just think about that £118 billion.

£118,000,000,000 extra borrowing, in just 12 months.

But governments do deal in huge numbers. Is that really so large? Yes, it is. About one pound in every five that the government spends this year will be unfunded. Borrowed, to be paid by future generations. If we closed down the entire NHS, that would just about balance the Budget. Alternatively, if we doubled income tax – so that most taxpayers pay 40% instead of 20%, and the better off pay 80% instead of 40%, that would almost raise enough money to plug the hole. Except of course it wouldn’t, because anyone who could would leave the country.

Even in government terms, £118,000,000,000 is a huge amount to borrow. But next year he plans to borrow another £105 billion. In fact over five years he plans to borrow £457 billion. And that’s just what he has admitted to; there will be much more hidden away.

To show the sheer scale of this government’s overspending:

  • It took past governments over 200 years, from the 1700s to 2000, to run up a cumulative debt of £300 billion.
  • Gordon Brown doubled that in just nine 9 years, borrowing another £300 billion between 2000 and 2009.
  • Darling plans to borrow a further £300 billion in just over two years.

The interest and repayments on this debt will be dragging down our economy for a generation.

Frankly I find it terrifying.

Daniel Polak joins the ASI

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My name is Daniel and I began my internship with the ASI yesterday. I am currently taking a gap year. Next year I will reading Economics at Birmingham University. Other than Economics, some of my interests include watching and playing sport, a wide variety of music and film. During my time at the ASI, I hope to gain a more in-depth view in current economic and political issues in preparation for my degree. 
 

This is not a photo opportunity

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An Austrian’s obviously unhealthy obsession with architecture and transport meant that the police had to intervene and delete all of his holiday photos. His pictures of Vauxhall bus station were obviously gold dust to either Al-Qaeda or the People’s Front of Austria. The system is broken and change is needed, we need the power returning to us and this is something only we can bring about, until then we shall continue our descent into authoritarian madness.