The Pin Factory Blog

98. "It is more rational to plan for the satisfaction of our future wants and needs than to expect blind chance to do it."
 
This is true, but often the statement is used to claim superiority for a centrally planned society and for government intervention in the economy. Neither of which it is correct. We all plan individually for the satisfaction of our wants, and imperfect though we are, we tend to do it more accurately than government does, and in less costly ways. We are not leaving it to blind chance if we fail to plan collectively, we are planning individually. We know more about our circumstances than any government can, we know more about our needs and preferences, and we have a bigger stake in the outcome than any bureaucrat can ever have. We plan for ourselves, they do not.

The free society produces an overall order out of all of these millions of inputs. It directs towards the satisfaction of our wants the activities of distant people we will never meet, and has us helping to meet the needs of strangers.

This spontaneous society is better at meeting our needs than any alternative which can be dreamed up by a single human mind, or by a small elite. The larger society contains information from all of us, and produces an ordered outcome not sought deliberately by any of us, but more rational than blind chance could produce, and certainly more rational than anything government could ever achieve.

It meets our needs efficiently and continually directs resources to those who produce the most from them. It enables millions of us to pursue different goals at the same time. Any attempt to plan what society as a whole shall do, or what it shall produce, forfeits that versatility, that spontaneity and that problem-solving ability. It substitutes the priorities of the few for the needs and aspirations of the many.
 

Have you seen the movie Happy Feet? It was a blockbuster last year, and with good reason. It’s very funny. Produced in Australia the film is set in Antarctic waters. But in political correct times there does of course have to be an issue with 'mystic beings' degrading the environment with marine debris.

Imagine what happens to the 6-pack ring carrier that holds cans of beer or coke, thrown away carelessly from a cruiser. In the movie little Lovelace, the young Rockhopper penguin, wears it around his neck as a souvenir. Alas! Poor little Lovelace is growing fast and the ring around his neck is getting tighter. So tight that later on a killer whale whose teeth got caught with the necklace thrashes Lovelace in and out of the Antarctic waters leaving him hanging on for dear life.

Well, now the other side of the story has been told by one of the major manufacturers of this ring carrier, Illinois-based ITW Hi-Cone. The ring is non-toxic and photodegradable within days and couldn’t strangle Lovelace at all. But nevertheless the ring carrier:

…has been in the environmental spotlight since the late 1970’s. People often associate it with animal entanglement. But it has been illegal under federal law to distribute non-degradable ring carriers since the (US) EPA crafted regulations in 1994 at the direction of Congress. All three major manufacturers of ring carriers currently produce them with 100 percent photodegradable plastic.

Photo-degradation means that the sun will break the bonds of the plastic polymers, because scientists have put weak links in place. Therefore the ring carriers lose 75 percent of their strength in a few days and fall apart completely in four weeks. The movie's Antarctic setting, with its thinning ozone layer, would expose Lovelace’s necklace to even more ultraviolet radiation and speed up the photodegradation. For all its entertainment value, Happy Feet is nonetheless another example of poor eco-science.

On this day, in 1752, Adam Smith was appointed professor at the University of Glasgow. Though still in his twenties, his fame already preceded him. Through the offices of a wealthy family friend, he had already given a series of private lectures on philosophical subjects in Edinburgh, which had caught the attention of the intelligensia of Scotland's great capital.

Most people today think of Smith as an economist. But in fact he was more of a social psychologist. At Glasgow he taught logic, ethics, rhetoric and belles-lettres (the arts of using language effectively and finely) and jurisprudence (what today we would perhaps call politics).

And it was his work on ethics that made him truly famous. His 1759 Theory of Moral Sentiments analyzed the human social psychology of morality. A hundred years before Darwin's Origin of Species, it took the view that our morality persists because it is useful and helps our species to prosper. That human beings are social creatures; they need the reinforcement of others who appreciate the good they do, and their behaviour is changed by the disapprobation of others whom they hurt.

His book brought him the commission of personal tutor to a young nobleman, with whom he toured France and Switzerland, meeting other leading intellectuals of his day, and giving him the material to flesh out his other great book, The Wealth of Nations.

Learn more about Adam Smith here.

News from the Pope's visit to America:

A salesman from KFC walked up to the Pope and offered him a million dollars if he would change "The Lord's Prayer" from "give us this day our daily bread" to "give us this day our daily chicken." The Pope refused his offer.

Two weeks later, the man offered the pope 10 million dollars to change it from "give us this day our daily bread" to "give us this day our daily chicken" and again the Pope refused the man's generous offer. Another week later, the man offered the Pope 20 million dollars and finally the Pope accepted. The following day, the Pope said to all his officials, "I have some good news and some bad news. 'The good news is, that we have just received a check for 20 million dollars. The bad news is, we lost the Wonder Bread account!'''

Those conferences on poverty: amazing how they're all in such desirable places to visit, isn't it? Mauritius? And of course there's a certain lack of anything useful being done at them as well.

All too many people misunderstand this: yes, services can indeed be productive uses of labour.

Although when Adam Smith called government unproductive labour, he didn't mean quite this unproductive.

Nor did he mean this entirely foolish piece of European Union legislation.

Just as there are no free lunches, there won't be a free carbon cap either.

More on that 10p tax rate abolition: planned and callous so we are told.

And finally, British eating habits are indeed improving.

... ASI Fellow Tim Worstall writes about the importance of taking the poor out of income tax altogether. We particularly like the bit where he describes us as "bleeding heart classical liberals". Click here for the article.

Dani Rodrik equates the three things, guns, drugs and financial markets, and asks why we don't view them in the same way when it comes to their regulation? He does so to point out that, correctly, all three have benefits for their users but can have spill over effects or externalities, upon others. Further, that the fact that all advanced societies strictly regulate the availability of drugs, most do firearms, means that we should be regulating financial markets much more closely and restrictively:

True prudence requires that regulators avail themselves of a broader set of policy instruments, including quantitative ceilings, transaction taxes, restrictions on securitization, prohibitions, or other direct inhibitions on financial transactions...

Well, yes, except that argument rather relies on the thought that our current regulation of drugs and guns is indeed correct for finance to require those greater restrictions. And of course around here we don't think that to be true. That gun crime has risen in the UK since the banning of handguns and the tightening of the restrictions upon private ownership of other types is one thought. But that we around here think that it is the very illegality, the regulation, of drugs that causes most of the problems surrounding them might give us pause as well.

Overdoses, disease from shared needles like hepatitis C and AIDS, adulteration, the crime surrounding the supply, the crime of addicts stealing to fund their habit, all of these are direct results of the regulations themselves and as we often (and forcefully) argue those results are worse than simply allowing people to exercise their natural liberty to dose themselves as they see fit.

Ricardo Hausman weighs in Rodrik's comment section too:

I am sure Dani would agree that Silicon Valley venture capital, by allowing start-ups to be created and grow all the way to an IPO, is an incredibly productive financial innovation that no policymaker could have designed ex ante. One could say also many positive things about leasing and factoring and the list goes on and on. Financial innovation is part of the overall process of technological innovation that has been valuable throughout human history.

Quite: given that we don't have and never will have omniscient (to say nothing of unbiased or unbribable) regulators, providing them with the power to stifle innovation is simply going to make our children poorer than they need to be.

It might also be worth pointing out that people have at various times tried ceilings, transaction taxes, restrictions upon securitisation and other direct inhibitions: the US did in the 1960s and 70s for example upon certain bonds. They don't work all that well though, as with the similar regulations upon drugs: where else do you think the Eurodollar markets came from and why are they based in London, not New York?

97. "We must increase the foreign aid we give if less developed countries are to escape from poverty."

Foreign aid does not lift countries out of poverty; trade does. No poor country has ever become rich from foreign aid, and no poor country which has become rich achieved it without trade. The notion that poor countries will become richer by a more equal sharing of the world's wealth is wrong; they will become richer by creating additional wealth for themselves, just as the rich ones did.

It's all very well for people in rich countries to feel good by increasing foreign aid perhaps from 1 percent to 2 percent, but it will make negligible difference. If they at the same time ban the import of goods from poorer countries or impose punitive tariffs on them, they are preventing people in those countries from pursuing the surest path out of poverty.

The EU waxes pious about the few crumbs of foreign aid it hands out, and then sets tariffs against the goods the poorer countries produce in order to protect its own producers. Its Common Agricultural Policy is little short of criminal, subsidizing its domestic agriculture so foreigners can't compete, them dumping surplus goods onto world markets so they can't sell there either.

Humanitarian aid to combat disease and starvation and to bring relief after natural disasters is a good thing which we perhaps could and should do more of. But development aid is not. Instead we should open our markets to their produce and buy as much as we can. With the money that trade brings they will be able to invest more in developing and upgrading their industries.

Many once poor nations are now set on the upward path that trade makes possible. On our part we can buy their stuff and switch our own economies to produce different things. This, not aid, will help them out of poverty.
 

Gordon Brown's decision last year, as UK Chancellor, to scrap the 10p starting rate of income tax is coming back to haunt him Rising outrage from backbench Labour MPs eclipsed his American trip. A revolt is in the air.

As Robert Chote of the Institute of Fiscal Studies observes in the Sunday Telegraph, the 10p rate does add complexity to the tax system. Scrapping it hurts people in the £5k-£20k range, and noticeably helps those in the £20k-£40k bracket. Helping the rich at the expense of the poor? No, says Choate: by raising tax allowances for pensioners and tweaking tax credits, Mr Brown compensated many of the poorest. The trouble is, he didn't compensate them all. The tax credit changes may help those with children, but not childless people of working age. Some 5.3m people are worse off.

The move to scrap the 10p rate is seen by experts like Choate as a welcome simplification of the tax system. But by relying on his over-complicated tax credits to soften the blow, Brown is simply extending one complexity as he reduces another.

The Conservatives have seized the political ground by saying that they would restore the 10p starting rate. A good dog-whistle policy, but the wrong one. It's time we scrapped the need for tax credits and took the poorest people – certainly those on or below the minimum wage – out of taxation entirely. That would be one great simplification. Another would be to cut out the other tax complexities and extend the 20p rate to everyone. It's called a Flat Tax, it works, and you can read about it here and here.