The Pin Factory Blog

5. "Prices of essential goods should be controlled so that the poor can afford them."

Price caps are one of those things that sound fine in theory but are disastrous in practice. Prices are signals which tell about supply and demand, like the markings on a thermometer tell about temperature. And just as you can't control temperature by bunging up a thermometer, you can't control supply or demand by fixing prices.

When the price rises for scarce goods, it tells people to consume less and maybe switch to alternatives. It tells others to produce more of them because there are profits to be made. The combination of less consumption and greater production acts to redress the scarcity. But it only works if prices can send their signals. If they are fixed by law to shield poorer people from their effects, there is no disincentive to consume, nor any reason to switch to alternatives. Nor is there any incentive for producers to bring more of the goods to market.

If the price of bread is fixed because of rising prices in a shortage, there is no incentive for people to turn to alternatives like other grains or potatoes. Nor is there any incentive for farmers to bring more wheat to market, or for foreign merchants to bring in their wheat to take advantage of the greater returns. There is no signal telling farmers they could profit by planting more wheat next year.

All that happens when prices are fixed by law is that the supply dries up, usually because no-one can make money by selling at the fixed price. Then the state steps in again to ration the scarce goods "fairly", and passes new laws to stop black market dealing in them. We see this happen for bread, fuel, and rented accommodation. Ultimately, the outcome is clear: if you fix the price, you only succeed in choking off the supply and making the shortage even worse.

America seems to be drifting back in history in a sort of time machine. The backlash against admittedly rather limited free market reforms by George W. Bush, exerted by the status quo left, is gaining momentum. If the polls in the run up for the presidential elections are correct, the 'ownership society' could soon be hit by a severe blow. If one of the Democratic hopefuls gets elected, Santayana’s rule is unlikely to be escaped: those who ignore historic failures are prone to repeat them. Such is the case with the old whore of universal health coverage, favoured vigorously by Hillary Clinton, John Edwards and only haphazardly rejected by Barack Obama.

Remember, this is a policy introduced in Britain in 1908 at a time when socialist movements were surging through Europe. Leading Democrats are advocating this concept hundred years late. Is this what Americans get from the collapse of the Soviet Union? The current concept seems even more collectivist than the collapsed HillaryCare of 1993, which nearly derailed her husband's presidency.

Compulsory and comprehensive health insurance for everyone is expensive and would likely deepen the financial crisis in health care even further. It is also inadequate in times when Americans are in perfect control of up to 50% of their health risks, which renders comprehensive insurance obsolete. What is really needed is catastrophic, no-frills health insurance for everyone. That's the kind of safety net the late 19th century European reformers had in mind. And it would be much cheaper and therefore more affordable for consumers.

However, in the freest country in the world compulsion is unlikely to work. Look at car insurance: Despite being compulsory up to 15% of drivers in the US – depending of the state, but higher in the West – don’t care about car insurance. Ironically that is about the same percentage of 'free riders' in the yet not compulsory US health system!

We're constantly being told that reducing CO2 emissions would be a form of insurance against global warming. This, unfortunately, rather misunderstands the concept of insurance. True insurance would be investigating geo-engineering.

Another report (this time the US Treasury) confirming the fact that the workers bear the brunt of the corporate income tax. Time to abolish it, don't you agree? 

Jim Callaghan never actually said it anyway, but perhaps the correct reaction to the sub-prime problems is "Crisis, what crisis?". 

Understanding the Jeremy Clarkson bank account furore: it really isn't what you're reading in the newspapers.

One simple and obvious method of reforming the welfare system. Pity no one will ever try it. 

So just why are American newspapers losing readers? Might it be because they don't offer what their putative customers want? (Heaven forfend that it might be because they think journalism is a profession rather than a craft.) 

And finally, Bill Gates' last day at the office and freedom and liberty are built on gay hobbit porn.  

4. "Rich people should not  be able to buy better healthcare and education"

Rich people buy better versions of most things. They buy smarter cars, better houses, higher quality music systems and more expensive food and clothes. This is one reason why people want to earn more – wealth brings better goods and services and more choices, too.

Some claim that education and health are different, and that we should all have the same quality, with no-one able to buy better. Few say this about other essentials such as food, or urge a state monopoly of food production, with no-one allowed to buy better than whatever standard supply the state was able to deliver.

When people are allowed to buy better things, more money enters the market, and what starts as a luxury for the rich gradually becomes affordable to most buyers. Today's common flat screen colour TVs were previously affordable only by the wealthy. In many markets product improvement and innovation start at the top end – It is often where producers earn greater rewards – and work downwards.

If people are allowed to buy better health and education, this brings more money into health and education. It also allows the state to divert the money it would have spent on meeting their needs toward those less able to provide for themselves, and to give them access to better services.

Some feel that equality of opportunity is fairer, but nature knows no such equality, equipping some people with more intelligence, better looks, or more caring parents. Similarly in health the accident of inheritance puts some at an advantage over others. What we can seek, rather than an unobtainable equality, is a society in which everyone has access to an education which can develop their potential, and a healthcare system which will provide essential treatment for those who need it.

The young trainee was greatly impressed by the doctor's swift diagnoses as she accompanied him on his house calls. 

"Your trouble is too much alcohol," he told the first patient. "Give it up, and you'll be fine."

At the next house, he told the patient: "Your trouble is too much chocolate. Give it up, and you'll be fine."

The trainee asked the older doctor how he did it. "Simple," he replied. "I just pretend to drop my stethoscope, and as I stoop down to retrieve it, I have a look under the bed. If there are empty bottles there, I know they're drinking too much. If there are food wrappers, I know they're eating too much. You try it."

So at the third house, the trainee examined the patient, dropped he stethoscope, looked under the bed, and pronounced: "Your trouble is too much religion. Give it up and you'll be fine."

"How did you make such a strange diagnosis?" asked the older doctor as they left the house.

"Well," said the trainee. "I dropped my stethoscope as you said. And under the bed was the parish priest!"

A recent publication by the Vancouver-based Fraser Institute argues for the introduction of flat tax in Canada, convincingly showing that the move would make the tax system both simpler and more lucrative. They call for a 15-per-cent flat tax, which would save a significant amount of time, energy and money, estimating that the current multi-rate progressive federal and provincial tax system costs the country around $30 billion per year.

The report argues that the current system is impeding Canada’s economy, constructing strong disincentives for working hard, saving, investing and engaging in entrepreneurial activities. These findings chime with those of the Adam Smith Institute: we have made similar arguments in both Flat Tax – The British Case by Andrei Grecu and in A Flat Tax for the UK – A Practical Reality by Richard Teather. Of the latter, Allister Health, the editor of The Business, wrote the following:

Rarely has a think-tank publication been this influential so quickly. Its arguments have been dissected by the UK Treasury, are well known among the Shadow Treasury team, have had an influence on some parts of the Liberal Democrats and were even adopted by several minor political parties.

Yet despite the press and political interest the research has engendered, there remain obstacles to its implementation. The much discussed Huckabee FairTax, while superficially attractive, is not the answer and may be distracting from the sounder proposals that could be implemented by governments on both sides of the Atlantic. In the UK, as in many other countries, the research is there and politicians are engaging in debate; the next stage is for them to stick their necks out and argue the case.

Interaction Times, a Brazilian international relations consultancy which organises academic trips around the world, brought a group of 20 students to visit the ASI yesterday. Their tour of Europe is also set to include visits to the World Trade Organisation, World Health Organisation, OECD, NATO and the European Commission, which sounds like rather an interesting way to spend a few weeks. I told them about the Institute, its history and its current activities, about the way we operate and about the role of think tanks in general. Dr Madsen Pirie then told them more about the liberal approach to public policy, noting that while the ideology of the free market is the same the world over, the policy instruments used to promote it do, by necessity, vary from country to country. The key is to come up with solutions that are politically  acceptable, and which work. We took questions afterwards, and it was clear they were a very bright bunch. Many of them seemed to have market-liberal leanings as well, which is always nice to see!

Carbon footprints and now food prints. Hmm, how about a radical system which measures everything, distilling all the information down into just one number?

It is odd how it's turned out. If you'd made these predictions 20 years ago no one would have believed them possible. 

One of those possibilities, ID cards. This is an excellent forensic dissection of why they'll not work as Gordon Brown seems to think they will. 

Yet more on why seemingly good ideas simply cannot get off the ground in the UK. Yes, it's the bureaucracy. 

A poser for a Monday : if we do meet aliens, what will we ever trade with them? 

Back here on planet earth, more amusement as the prognostications of Paul Krugman the political columnist on trade are refuted by the prognostications of Paul Krugman the economist on trade.

And finally, yes, Netsmith too was a victim, sucked into wonk land by airy promises. 

3. "The industrial revolution brought poverty and misery for the masses."

The masses already had quite enough poverty and misery. The mediaeval myth of rosy-cheeked and carefree villagers dancing around the maypole before returning home to dine on roast beef is a later construction of romantic conservatives. The reality was squalor and unremitting toil. People worked the entire day, and lived on a poor, basic diet of which there was often not enough. Death from disease or childbirth was common, as were malnutrition and starvation. A more real impression of what life was like can be gained by looking at agricultural economies in poor countries today.

The industrial revolution created employment opportunities and gave the chance of advancement. True, women and children worked long hours. They had always done so. True, working conditions were poor and often dangerous. They had always been so. The working class housing that characterized Northern and Midlands industrial cities was an improvement on the squalid and primitive hovels which the agricultural poor inhabited.

Industrialization enabled labour to be more efficient, and to add more value to goods, enabling workers to be paid more. With the spread of mechanized production, the wage labourers were gradually able to afford better food, better clothing, better household goods such as china, and luxuries such as tea. It was the industrial revolution that made it possible for people to become richer by creating wealth and to move away from mere subsistence.

The wealth-creating process gradually made society able to afford better public health and social amenities. It enabled society to afford higher standards of safety at work. It was the wealth generated that made families rich enough to educate children instead of needing them to work.

It is only natural that we compare the conditions of early industrialization with our own, and call them "Dickensian." We should really compare them with what prevailed before then. Capitalism was a step up.
 

There are two rules for success: 

1) Don't tell all you know...