Until the pips squeak

3362
until-the-pips-squeak

It has taken a while, but the Labour Party has reverted to type. In putting the top rate of tax up to 50% for those earning in excess of £150,000 gross from next April, Brown and Darling have decided to turn the clock back to the 70s; going a fair way to undoing the brave work of Thatcher and Lawson.

As wrongheaded as such a socialist policy would be, this budget is not about the redistribution of money from rich to poor, but from private entrepreneurs to the public sector. Even in a deflationary period the size and cost of government is continuing to grow. If they can’t cut the cost of government now, how can we trust them to do so in the future?

Hiking up the top rate of tax is of course a massive disincentive for those earning over £150,000 gross to stay in the country. Although we are unlikely to see a massive exodus of people (after all many have already left), it is entirely likely that enough will leave to ensure that this policy will result in less money in the pockets of this improvident government than they would otherwise have got. Also, in times such as these, the government more than ever needs to back off and give wealth creators the room to set this country on the path to recovery: this government needs reminding that wealth is not created, but destroyed in the corridors of Westminster.

This certainly leaves the Conservatives in an interesting position. They will want to focus on government debt for now, but if in power there will be pressure for them to once again undo this tax hike on the highest earners and at least start the task tackling the most bloated government departments. Only time will tell if they have the leadership to do this.

Markets in methane

3357
markets-in-methane

After witnessing the hoards of climate change activists protesting at the G20 meeting recently, it became clear there is a public consensus that a large powerful state (and vast government spending and taxation) is the only tool for combating environmental damage.

This scheme being started in Sweden, albeit on a meso-scale, is evidence that market solutions to climate change exist where profit incentives benefit all concerned. These farmers are tapping the methane produced by their fertilizer before it is spread onto the fields. Reports suggest that from the eighteen farmers (who’s farms produce 130,000 tonnes of fertilizer) participating, the equivalent of 2.1million litres of petrol could be produced. Enough to power 30 trucks, 30 busses and 250 cars per year.

The essence of these market based solutions to climate change is that the farmers are driven by profit incentives rather than a government induced social conscience. As one farmer said:

Well I hope that I will be able to make loads of money. I hope that I will become a proper oil sheikh.

One of the greatest assets of this scheme is that it benefits both society and the farmers with relatively little costs to either – The fertilizer is a natural by-product of pastoral agriculture, and if the methane was not utilised in this way, would only escape into the atmosphere anyway. These types of schemes are highly sustainable as they do not rely upon government funding and are not plagued by top-down government interference, while the profit incentive will make them much more efficient than government projects designed to be high-profile vote-chasers.

Put simply, environmental goals cannot be achieved by simply throwing large sums of public money around.

Blog Review 939

3360
blog-review-939

If you think the troughing and corruption here, in Westminster, is bad, have a look at how lucrative the US Senate can be.

The problem being that it is big government itself which breeds such corruption.

Bypass such short term trivialities for a moment and celebrate that as the world gets richer it also gets cleaner.

While it may not ne true that blogging is the route to riches it is at least fun, no?

We've all absorbed the idea that there's a liquidity crisis out there. But who is it with the crisis and why?

Why problems in the NHS don't get solved: look at the way they treat whistleblowers.

And finally, the state of the Labour Party today.

 

What Alistair Darling should do

3356
what-alistair-darling-should-do

There are stories circulating in Westminster that the Chancellor has stood up to the Prime Minister and resisted demands for more fiscal stimulus. It is to be hoped this is true because there has been too much of that already. Cash is being scattered like confetti, and billions tossed around like bread on the water. The burden of that debt will fall heavily on the next generation, restricting what they can do and cutting into the wealth they might earn.

What is needed now is more pull and less push. The Budget provides a chance for the government to create spaces into which business and entrepreneurial activity can move. That means creating some of the conditions under which business flourishes, and that means a more benign tax system and more sympathetic regulation. There is talk of tax increases to finance the government's spending commitment, but what is actually needed is a reduction in that spending and in the taxes needed to sustain it.

Far from raising the rates on high earners, the Chancellor should be reducing them to give more incentives to high achievers to live and work in the UK, and for entrepreneurs to aspire and work to join them. Government has to cut its waste and its spending, and boost its efficiency. It is what businesses do when they encounter a rough patch, and it is what governments should do.

The odds must be against it, given this government's record. There has been talk of money being pushed at people to buy more houses and more cars, whereas what government should be doing is removing some of the obstacles which inhibit business activity and expansion. Those obstacles were put there by government in the first place.

 

Today's budget in context

3351
todays-budget-in-context

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

3352
miss-usa-the-curse-of-free-speech

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

3350
hayek-private-currencies-and-zimbabwe

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

3354
a-rare-honour
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!