MPs expenses: An explanation

3255
mps-expenses-an-explanation

Today we received this helpful explanation from Sir Owen Reddy-Cash MP, Member of Parliament for Soakingham, which gives the lie to media hyperbole about MPs' "expenses".

Dear ASI: I was disappointed by your recent blog making fun of my colleagues, Jacqui Smith and Chris Hoon (and Derek Conway and the Wintertons, etc., etc.) over their claims for second homes, barbecues, sinks, porn films, etc., etc. You people call yourselves economists but you obviously know very little about money, and nothing at all about the value and proper remuneration of public servants, such as Members of Parliament.

You cannot seriously believe that anyone would volunteer for a job that involved as much as 35 weeks' work a year, and almost four days' labour each week, for the paltry salary of £64,766. And you must know that every time the House of Commons suggests raising that figure to something more reasonable, the Daily Mail launches a campaign of smear and vilification.

Obviously public opinion should not stand in the way of what is right for our legislators. That is why, a few years ago, we came to the obviously sensible arrangement of taking our pay, not in salary, but in a form that would not excite such tabloid headlines. We calculated that MPs should be paid £305,059 in today's currency. Deducting the £64,766 awarded by the top people's pay body, that leaves £240,293 to find from this other source. Take out 40% in lieu of tax, and you get £144,176 which happens to be precisely what, on average, we claim. Not a penny more, not a penny less. We are scrupulously honest in this.

So you see, £305,059 is the proper salary for MPs, and that is exactly what we get. I can't see why you complain that we spend the money on £1,000 fireplaces or buy two washing machines in two years. Or employ our spouses and student children, for that matter. We don't ask how you spend your earnings. It's our money, and you just confuse the issue by calling it 'expenses'. It's no more than the appropriate rate for our very thankless job. Yours, etc.

ID cards for war veterans

3245
id-cards-for-war-veterans

The subject of care for war veterans be a sensitive issue. Many feel they have made a huge sacrifice for their country, whilst others believe they took calculated risks in signing up. But, whatever their private views, it is underhand, sly and immoral for the government to use the public's sympathy for them in order to push their system of ID cards.

The government is now proposing that all war veterans will be given ID cards allowing them preferential treatment on the NHS and other benefits such as priority council housing and bus travel. The scheme could be implemented as early as next year, which shows how this government is willing to go to any length to push the unpopular ID cards  before they leave office. Perhaps I wouldn’t have been so sceptical towards the governments motives if they had shown some more interest for the welfare of veterans and servicemen in the past. After all, it is this government that has continually failed to equip and protect frontline soldiers and provide decent quality housing for their families.

Essentially, this extra care for veterans could be provided without furnishing them with ID cards. It is too late for the government to compensate for their failings of the past – but to use this as an excuse for more stealth legislation is disgraceful.

Fat cats

3241
fat-cats-

Except the stars of “showbiz" and spectator sports to whom all is forgiven, fat cats do not have a good press. Even those who have done great things, built and run vast and vastly productive organisations employing thousands of men and women who are all at least a little better off as a result, - even captains of industry are widely blamed for their income and wealth that is regarded as ranging from the provocative to the obscene. When, by a combination of gross collective misjudgment, ill luck, mass hysteria fostered by the perverse incentives governing the panic-mongering media and equally perverse solvency and accounting rules the fat cats of finance got themselves in deep trouble, the jubilant public all but cheered. Admittedly, as the music stopped, many bankers displayed singularly bad taste, but even perfect discretion would not have saved them from the detestation owed to fat cats.

At the other extremity of society, the underdog enjoys general sympathy. There is a presumption that he must be in the right and the top dog (or should it be overdog?) is in the wrong. This is so not because of what either may have done, but because one is now beneath the other. The top dog may be blameless, but sympathy goes to the underdog and sympathy is easily mistaken for an imperative of justice.

All these sentiments and attitudes spring from deep-seated emotions that cloud cooler judgment. One such may be the shock and fear at the sight of gross inequalities of any kind that hurt what Isaiah Berlin called the “love of symmetry". Another may be the emotive appeal that playing Robin Hood holds for most of us (and hang the Sheriff of Nottingham). Half emotion and half calculation inspire the gut feeling that rich-to-poor redistribution enhances the common good (the “aggregate utility" of superannuated textbooks ) while incidentally also raising the income of the person advocating it. Finally, pure emotion excites good old-fashioned envy; do down the fat cats, chop off the tall poppies even if the person feeling that way expects to reap no profit from it.

Extract from The Fat Cats, the Underdogs, and Social Justice published by Econlib.

Blog Review 922

3247
blog-review-922

It appears that the gay vote leans Conservative. Something of a change, certainly, but then as is said, a pretty natural consistency for a message of personal liberty.

Who knew that the tax cut multiplier was so large?

If it is that large then all this fuss about tax havens is irrelevant.

It´s all of the time or none of the time, not just when it suits your particular cause, no?

Whisper it gently, but many banks are simply getting on with solving their problems without government intervention.

No, we don´t get faced by too many choices. Not if you look at what people actually do, that is.

And finally, yes, Mother is always right.

More power to the regulators

3250
more-power-to-the-regulators

Isn't that the current war cry? That more power must be given to the regulators to make sure that markets won't drive us into another crazed spiral of boom and bust? That only if we hand over to the bureaucrats then children will be able to gambol happily under a shining sky and all will be well with the world?

This is such a strong current at the moment that I'm a little surprised not to have been told that regulation will make my teeth whiter as well. For there is, in this messy real world that we inhabit, a small problem with thinking that regulators will provide that pony for everyone.

Although I know I shouldn't laugh I couldn't help an involuntary snigger when perusing the background section of the report about the Icelandic economy. The MPs quoted an "expert" body from June 2007 which said at the time: "The medium-term prospects for the Icelandic economy remain enviable."......The experts in question? No less than the International Monetary Fund (IMF), which on Thursday was granted a trebling of its resources by the G20 as part of its $1.1 trillion (£750bn) economic aid package.

You see the problem there, don't you? Those that are being proferred to us as the omniscient and benevolent regulators might well be benevolent but they're certainly not omniscient. They were just as wrong as everybody else in recent years.

Well, actually, not quite just as wrong as everyone else. They were even more wrong than one particular group. The hedge funds, the short sellers. People like John Paulson. George Soros perhaps. These people did in fact get the fragility of the banks right and made a great deal of money by doing so.

Logically then we should be arguing that those who got it right sould be doing our regulating for us, not those like the IMF who got it wrong. Sadly, logic has very little to do with politics: we're banning the hedge funds from making short sales and thus removing their major method of regulating.

Ho hum....

 

The BBC, Ofcom and the Sachsgate affair

3243
the-bbc-ofcom-and-the-sachsgate-affair

So, we have finally received the findings of the Ofcom investigation into the whole BBC ‘Sachsgate’ affair. Unsurprisingly, the results are notably underwhelming.
 
The BBC has been fined £150,000 in total. £70,000 was for broadcasting offensive materials and £80,000 for invading the privacy of members of the public. This fine of £150,000 may sound adequate, but bare in mind that whilst Ross was publicly embarrassing us, he was earning £6m per year.
 
The Ofcom report into the debacle reveals a little of the extent of public waste at the BBC. For example, after a previous incident, Russell Brand’s broadcasting had already been classified as ‘high risk’ by senior management, yet he was still given a prime-time show on Radio 2.
 
Regulation acts as a cost to industries at the best of times - but there is something askew when a government regulator fines a public body. Essentially, the government has admitted it has failed in this instance, so has decided to fine itself at nobody’s cost but the taxpayer. We wouldn’t let a criminal decide their own sentence in court. The broadcasting regulatory system here smacks of double standards. The regulatory rules state that a private broadcasting company can be fined 5% of its revenue for breaches of the rules on any occasion. By contrast, the BBC can only be fined £250,000 for an identical failing. Why should the BBC be allowed so much more leniency and freedom than other private companies? If anything, as a national public institution they should be held under much greater scrutiny.
 
There is an ironic parody here – just like Ms Baillie, the taxpayer has been shafted by the BBC, and both of us have received comical apologies.

The G-20 and our discontents

3240
the-g-20-and-our-discontents

“The era of bank secrecy is over," said Gordon Brown during the G20 conference on Thursday. The conference agreed upon imposing stricter regulations on financial markets, in addition to regulating hedge funds. The bonus crisis was also touched upon in their decision to strictly regulate executive pay. Furthermore, the final statement encourages the IMF and the World Bank to lend to poorer countries by pledging $250 billion.

What Gordon Brown really meant to say is that the era of privacy is over. Now the government will have their nose in every area of bank operation, imposing regulations and removing growth incentives for smaller firms and hedge funds, not to mention the pay incentives for executives. The rest of the measures taken will have questionable effects on the world market. More money is being pumped into the grinder, but until when?

The key question not being asked by many in the media is can we solve the problem with more spending and regulation?

Blog Review 921

3246
blog-review-921

Just a gentle little reminder of where the money goes. Aren´t you much happier about paying your taxes now?

A handy hint about not trusting statistics....they don´t mean nothing without the causation being explained.

Companies don´t suddenly become greedy. There´s another reason for rising prices than that.

For those planning bailouts, nationalisations, confiscations and the like. Do remember that there is something called the law to constrain you.

To warm the cockles of your heart: putting the boot into a Nobel Laureate.

A reminder that defending free speech means defending vile speech.

And finally, economic wisdom in a cartoon strip.

Mindboggling

3249
mindboggling

Camilla Cavendish made the following quite mindboggling assertion in her Times column:

The theory of comparative advantage, which has underpinned trade for 200 years, is fraying.

Eh? How so?

The argument was that everyone would gain because emerging economies would take over low-wage jobs and rich countries would gain new markets for high-end services.

Ah, whatever it is that she's talking about there it's not comparative advantage. A precis of which is that, whether we're talking about me and my kid brother, two companies or many countries, we should each do what we're least bad at and swap the resulting production.

That's the way that we get maximum production at our current level of technology and resources and thus have the maximum amount of things to swap with each other: a reasonable definition of being as wealthy as we can be is that we have that maximal amount of stuff to share, no?

And once we've got the idea properly stated it then becomes apparent that there is no threat, no possible fraying of the theory, because other people move up the value chain, other people become more productive:

But India is already better at high-end technology than the West, and is filing an increasing number of patent applications. Western politicians make glib statements about the need to improve education. But the globalisation of innovation should shake them to the core. That's why many G20 countries talk up trade while implementing protectionism.

If people in India invent cool new things then that's just more cool things for us all to swap and share. If Indian, or Chinese, or Martian (and yes, if they do indeed exist we will indeed trade with them), workers become more productive then that's just more production that we can share.

This idea that other people, companies or countries, because they start doing high wage, high value things, are some sort of a threat to us or our way of life is entirely arse about face. We want their labour to be worth more, we want them to be as productive as they can be, we want all of the many billions across the Earth to be adding the most value they can, creating the most from the sweat of their brow.

For as they do so they'll be creating more things, more stuff, more goods and services, more goodies which we can all partake of by the simple method of trading what we make for what they do.

The "globalisation of innovation" isn't a threat. It's a blessing, a joy to be welcomed rapturously. Good grief, do you want a few hundred million already rich people thinking about how to make your life better or all of humanity, all 6 or 7 billion of them, feverishly beavering away in attempts to satiate your every desire?