The Pin Factory Blog

A really rather interesting result here. Various of the Great and Good are asked what they changed their minds upon over the couse of 2007. Daniel Kahneman says:

The
most dramatic result is that when the entire range of human
living standards is considered, the effects of income on
a measure of life satisfaction (the "ladder of life") are
not small at all.  We had thought income effects are
small because we were looking within countries.  The
GDP differences between countries are enormous, and highly
predictive of differences in life satisfaction.  In
a sample of over 130,000 people from 126 countries, the correlation
between the life satisfaction of individuals and the GDP
of the country in which they live was over .40 – an
exceptionally high value in social science.

As we know, we're endlessly told that more money doesn't make us happier and thus that we should get off the hedonic treadmil, stop working so hard and smell the flowers a little more. Indeed, we're told that our positional struggle for more outrageous goods with which to keep passing the Jones' makes us unhappy. But as Megan McArdle says , this new position rather changes that:

The positional competition may not be doing you any good directly, but
if it raises national GDP, it will indirectly help you, and everyone
else in the country.

Another way of putting it. As so often in economic (or social) questions there are two opposing forces at work. It might even be true that our looking around at the baubles that other have makes us unhappy. But the result of that is that we do indeed strive and work more, creating greater wealth in toto, and living in a society which is richer in that manner makes us happier. And when a Nobel Laureate in Economics tells me that the latter effect outweighs the former then I'm inclined to...wow! just look at that Lamborghini over there....

A man was found guilty of murder and sentenced to death in the electric chair. Just before his execution, the man who flips the switch asked the murderer if he had any last requests. The murderer replied with tears in his eyes.

"Yes. There is one last thing that I want. When the switch is flipped, can I hold my defence lawyer's hand?" 

Tim Worstall (he of this parish) has a very good post over at the Globalisation Institute. He points out that coffee can be grown in Cornwall – indeed it has been, at vast expense. But should it? Adam Smith made a similar point in his Wealth of Nations:

By means of glasses, hotbeds and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of Claret and Burgundy in Scotland?

Surprisingly the aid brigade (by which I mean those who earn a good living by demanding aid for the world's poor) are almost unanimous in defending protection for domestic industries in the developing world. They deride free trade and claim, wrongly, that all nations need protection to become rich.

They are victims of the old urban myth of mercantilism, and still believe, along with hobgoblins, incubi and vampires, that nations get rich by selling exports and can then afford to buy stuff. In fact it's imports that help create wealth by getting you things cheaper than you could make yourself, thus giving you surplus spending power with the cash you save.

If developing nations have protective tariffs, it means their citizens pay more for stuff, and are poorer in consequence. It means that their businesses have to buy dearer materials, and thus make goods that can't compete on world markets. I'm often asked about this at schools, and surprise people with a rather laidback attitude. Yes, you can have protectionism and still get rich, but free trade is better. The point is that the free market is quite resilient. You can do a lot of things wrong and it still works to some extent, and you can still get rich. I tell them there are three things you can't do, however: genocide, civil war, socialism...

It's supposed to be the season of goodwill, and I've been thinking about goodwill recently. Not the good cheer and fellowship that is supposed to exist between human individuals, but goodwill in the commercial sense.

The goodwill of a business is the loyalty of its customers, and indeed its suppliers. When people buy or sell a small business, they are not just buying or selling a piece of land, or a building, or even the stock in the shop – although all of those things have value. They are also buying the goodwill. They are buying the trust that customers have in the business, and their willingness to return to it. They are buying the willingness of suppliers to continue to supply it. And they are buying the knowledge of how to make the business work – things like which customers should be avoided because they don't pay, or which suppliers provide the best value for money and the most reliable service.

Until recently, this goodwill and inside knowledge have been a large fraction of the value of a business. Larger companies even put the value of their brand - the name that customers trust - on their books as an asset, as valuable as cash or stock.

But has the internet changed this? How much inside knowledge do you buy when you buy a small business, like a shop. It might indeed be useful to know which customers and suppliers are reliable. But in terms of sourcing the stock which you have for sale, that is a lot easier these days. A quick online search will discover plenty of willing suppliers. And through blogs and chatrooms it's not hard to check the reliability and value of any of them.

I think this must affect small businesses in particular. A loyal customer base is worth something, but the knowledge of how to stock and run a shop, say, is much easier to acquire these days. Perhaps most of that knowledge now can't really be sold as part of the price of the business. On the other hand, this widespread online knowledge must make it easier for people to start new businesses, and add to the competition. What's bad for shopkeepers might be good for their customers.

My true love sent to me: eleven pipers piping. It might refer to the eleven loyal apostles. But who - in the title of Brian Montieth's excellent little book on Scotland's finances - will actually pay the piper?

The bill is rising. Over the last nine years, the Scottish Executive's kitty has roughly doubled, from £16bn to over £30bn. A lot of the money, of course, comes from the Barnett Formula, which provides for public spending being about a sixth higher in Scotland. It was devised in the 1970s to help solve some Cabinet disputes, but as Milton Friedman said, there's nothing more permanent than a temporary government programme.

The Scots enjoy better-funded public services as a result, including free university education, and free care homes for the elderly. And of course they pay their police better than do the English. It's amazing how much you can achieve - on someone else's money. But how much more we would all achieve, if we were allowed to keep more of our own, and spend it efficiently on what we actually wanted, rather than inefficiently on what politicians thought we ought to have.

If government can't get the small things right then why do we trust them with the big things? For example, the fire control centre project was costed at £100 million, is now running at £1.4 billion and is "only" two years late at present.

On the subject of the big things, a very reasonable outline of what is wrong with the NHS. 

 Similarly on the subject of the War on Drugs . When are we actually going to start having a rational discussion of this subject?

A quick note on how the world changed in the past year. 

A change in thinking on the sub prime mortgage mess in the US. 

Will the music industry change quite so much as to lead to this dystopia? 

And finally, there'll always be an England and be careful how much electricty you try to save. 

The government's suggestion - however tentative - that people who are overweight or won't quit smoking shouldn't get treated by Britain's state-run National Health Service is outrageous.

These people have paid their taxes - smokers have probably paid more than most - for what we're told is a state 'insurance' system. What commercial health insurer would be allowed to take your money and then refuse to pay out on the grounds that your lifestyle was politically incorrect?

Health ministers say they're simply trying to encourage people to live more healthily. And indeed, plenty of commercial insurers are doing just that - reports this week reveal that they are willing to give discounts of 75 percent to people who use the gym regularly, and provide supermarket points to
clients who purchase lots of fruit and vegetables.

That's fine. The difference is that people have no choice but to contribute their tax 'premium' to the NHS. If ministers were saying that fat smokers wouldn't get NHS treatment but they'd get their taxes back, then they might have the basis for a deal.

I saw a man yesterday taking gates.

I didn't say anything in case he took offence.

My true love sent to me: ten lords a-leaping. This probably refers to the Ten Commandments, but lords today aren't exactly leaping to do anything, particularly to reform the House of Lords.

The subject has been talked about for decades. Everyone has agreed that reform is needed, but nobody has ever been able to decide exactly what. The trouble is that the House of Lords has actually worked quite well. It has checked the House of Commons, but not been able to override it. The hereditary peers might have been overwhelmingly old, white, posh, bumbling prats, but in fact the system brought in lots of people you never see among the serried ranks of lawyers and political careerists in the Commons - more young people, more women (until recently), more people of all classes (Lord Nelson was a policeman, I recall), more communists, more libertarians...

Tony Blair took a major step in abolishing the heredities - or most of them: these peers are pretty nifty politicians, having had the gene in their families since Tudor times. But that leaves us with a House of Lords that is appointed. This can be good - non-politicians like the medical pioneer Lord Winston bring enormous depth to the House's discussions. And even ex-politicians can bring a lot of experience. But a House full of the Prime Minister's chums is not a delectable prospect.

Nor is an elected House - it will just fill up with the same political lawyers we have in the Commons. If we're going for elections, it needs to be a completely different system, with different constituencies, and radically different rules. Personally, I'd prefer the first 500 people out of the phone book. Or almost anyone, provided they didn't want to do the job.

Philip studied BA History from UCL, focusing upon the history of political thought, specifically the British radical Enlightenment. In the process, he read and wrote more on Thomas Hobbes than is probably healthy in one lifetime. It is at university that his interests in politics blossomed, leading him to go on to study MSc International Relations at the LSE. Here he concentrated his learning and research around questions of state sovereignty and the European Union as a political actor.

Throughout his studies he worked in a number of jobs of various repute in an attempt to avoid a lifetime of student loan induced debt, the most superficially glamorous including cocktail waiter and tennis coach. Upon completion of his studies he undertook a couple of internships, one with the Shadow Defence Secretary, Dr. Liam Fox, the other with a small business consultancy; both interesting and challenging in a different ways.

In both his studies and work experience Philip has picked up a considerable amount of intellectual fodder and practical experience. His interests include most sports (particularly tennis and football), while to relax he cooks, his speciality dish being couscous with roasted vegetables. Firmly behind the libertarian principles of the ASI, he is looking forward to putting his talents into action in his new role as Business Development Director.