Law making by outrage of the day


Hard cases make bad law, act in haste, repent at leisure....there are any number of aphorisms that suggest that we might at least try and think before we act. Especially where the act of law making is to be committed.

In a frenzy of foaming rage over the retention bonuses being paid to people at AIG Financial Products the House of Representatives has passed a law stating that the tax rate on bonuses over $250,000 a year at firms that have been bailed out by the US Government will be 90%. As Henry Blodgett points out, this is absurd for a number of reasons. It's household income for a start and the effect will be to raise salaries while curbing bonuses: because the tax only applies to bonuses, not salaries.

However, there's one further level of stupidity that no one seems to have noted as yet. US tax laws apply to those who work in the US, of course. They also, uniquely amongst countries, apply to US citizens who work in other countries. But they most assuredly do not apply to non US citizens working outside the United States...even if they do work for US companies which have been bailed out by the Feds.

So, let us take the purely imaginary example of a London based subsidiary of a large US insurance company. This subsidiary bankrupted the parent company by being silly fools in the derivatives market. Difficult to imagine, I know, but suspend disbelief for a little bit more. The staff of this subsidiary were a mixed lot, as is common in finance. Some Americans and some from other countries. The result of this law is that those American employees, working for this US company which has been bailed out, will face 90% tax on their bonuses. The non-US employees will face the standard 40% UK tax rates. The end effect would be, I assume, that Americans would no longer work for the overseas offices of American companies, their jobs going to non-Americans who are in no danger of being touched by this law.

D'ye think that anyone at all in Congress thought about this when they were slavering to pass this law? No, me neither.

But of course this is entirely hypothetical. I have no idea whether there are any non US citizens that work for AIG Financial Products, the London derivatives subsidiary of a large US insurance compay and the company whose bonus plans sparked off the legislative frenzy and the bailout itself.

Straight As no longer enough


This week Cambridge University confirmed that from next year, three A-Grades at A-Level (the exams British school children take at 18) would no longer be enough for a student to be admitted. In future, students will need at least one A* and two As to be considered for a place.

There have been predictable complaints about this, with some arguing that such an admissions procedure will discriminate against students from state schools. But what did the government expect when they introduced the A* grade? If universities weren't meant to use it to distinguish between students, then what was the point?

Moreover, it's not exactly the university's fault if demanding a top grade means only people educated in the private sector can get in (though that is clearly an overstatement). On the contrary, it's the state schools, and by extension the politicians who believe they can run them, that deserve to be the targets of criticism.

It is also politicians who have debased the exam system and made the introduction of an A* necessary. As the Telegraph says, "Last summer, more than a quarter of A-level exams sat in England, Wales and Northern Ireland were awarded an A grade and the rate has more than doubled in 20 years." Grade inflation is not that different from monetary inflation – by increasing supply for political reasons, government agencies have decreased value. It seems they just can't help themselves.

The other thing that irritates me about this story is the implication that lies behind it, that requiring excellence (if that's what an A* means) is some kind of unjust discrimination. It isn't. Rewarding achievement and success is the way the world works, and rightly so. That's all Cambridge are doing.

Nowhere to hide


According to ZD-Net the UK government has plans to monitor all social media traffic including the likes of Facebook, Twitter, MySpace & Bebo.

"Social-networking sites such as MySpace or Bebo are not covered by the directive," said Coaker, speaking at a meeting of the House of Commons Fourth Delegated Legislation Committee. "That is one reason why the government (is) looking at what we should do about the Intercept(ion) Modernisation Programme, because there are certain aspects of communications which are not covered by the directive."

The U.K. government has previously said communications interception is "vital" and has hinted that social-networking sites may be put under surveillance. And responding to a question from Liberal Democrat Parliament member Tom Brake, Coaker said all traffic data on social-networking sites and through instant-messaging services may be harvested and stored.

Web inventor Sir Tim Berners-Lee is not terribly keen on this idea and thinks that people should not be snooped on. This is yet another worrying turn of Labour's survelliance government and one that we should probably not be terribly surprised to read about.

Blog Review 905


Yes, there are arguments for subsidising the production of public goods. But remember, education isn't a public good, even if it is publicly provided.

Most shocking: Ken Livingstone is actually correct on a matter more important than whether newts are cute.

The BBC definitely seems to be holding the law in contempt.

Why new regulation when the market itself just isn't going to make that mistake again?

As a little changes, some reasons for optimism.

Bankers aren't the only people getting rewards for failure you know....

And finally, meet Obama's teleprompter.

Free to sell, free to buy


The Department for Culture, Media and Sport is currently undertaking a consultation on Ticketing and Ticket Touting. On their webpage the Department states, "The Government... does not favour legislation to prevent secondary sales.  But new laws cannot be ruled out if voluntary measures do not succeed and conditions for consumers do not improve. The consultation urges ticketing companies to tighten up sales of tickets if they want to prevent them being resold. "

However, polling by ICM for eBay has revealed that 86% of people think that they should be allowed to resell their own tickets if they can no longer attend the event. 83% of the public also show an understanding of property rights, agreeing with the idea that the ticket is theirs to sell on. 80% of people also believe that reselling tickets should not be against the law if they can no longer use it. And further evidence shows that 85% agree that the organizer, not the government, should ensure that tickets don't end up with touts. Over two thirds of people can also tell the difference between an individual selling their ticket and a tout, unlike the government and some event organizers who lump everyone together.

It is clear from this data that there is little need for the government to act. The event organizers need to implement a system that controls ticket sales so that the so called 'touts' aren't the ones purchasing tickets directly so that they may resell them on after events have sold out. One problem area highlighted by the polling data was that of the 13% who attempted to get a refund when they had unused tickets, only 42% were successful. If organizers were more willing to refund tickets then this would cut into the potential profits that touts could make and also offering a more secure environment for purchasing tickets. The answers to the problem of professional touts are straightforward and event organizers shouldn't be relying on/pressuring government to implement legislation that criminalises all merely to ensure their own profits on what is currently a bad business model.

One small step for Brown, one giant waste of time for the rest of us


In the midst of a complicated recession, Gordon Brown proposed a small solution to improve the status of public service in the UK. Brown wants to integrate user reviews into the NHS system: “He proffered a vision in which patients choosing a family doctor or parents looking for child care could benefit from the same kinds of reviews and ratings that are now available for books and other products on internet sites like Amazon."

Gordon Brown wants the public focusing not on why they are jobless, but on a public complaint forum where citizens review NHS professionals, centres, and hospitals. The problem with this plan is that people simply do not have enough choice of where they can be treated in the first place. These reviews will simply bring people together to complain about the problems they face at NHS clinics. Why have information without choice? It is like living as a prisoner on bread & water exclusively, but if one day the warden decided to display menus for some fabulous restaurants in the mess hall. You can look all you want at restaurant menus and reviews, but meanwhile you know what’s going to be on your plate when you sit down to eat.

Migration tax planned


News of yet more taxes seems to be a drop in the ocean these days, with few batting an eyelid. A tax of £50 for a UK work visa (£20 for students) may seem an insignificant amount, but it’s still a tax increase and it’s still a bad idea.
The issue of migrant work is clearly a contentious one when so many British workers are becoming unemployed, but in order to ensure the prosperity of Britain we cannot afford to forget the long-term. We cannot allow the government to drag us out of current difficulties at the expense of much greater, long-term, goals.
The labour market has been allowed to stagnate. A wave of regulation and taxation such as the National Minimum Wage and national insurance contributions have made the UK workforce uncompetitive internationally and has reduced competition internally. Hardworking migrants are an asset to our society, boosting economic productivity. We only attract unproductive migrants because of the welfare state the government has created. There is no utilitarian benefit in protecting unproductive British workers when there are others willing and able to do the same jobs from abroad – instead we should be incentivizing productivity to make our labour market more productive – a recession should be acting as a wake up call to our inefficient industries.
The introduction of such a tax may be a nifty vote-winner for the government, but it will be damaging in the long run. The fact cannot be ignored that migrant labour plays a large role in our economy. If we earn a reputation as isolationists, there will no doubt be some reactionary policies abroad. These would have major negative impacts on many of our geriatric industries.
The motive for this levy is to ‘raise £70 million over two years to help pay for public services’. Surely a simpler solution would be to reduce spending on public services by £70million?

Or as Alice Thomson points out, in The Times to pay for the work shy: Two nations: those who work, those who won't

Blog Review 904


No, we really don't want children to learn poetry. We want them to enjoy it instead.

The reason no one spoke out about the Staffordshire Hospital is because the person who did was accused of being mad.

Against the stimulus. It simply takes a long time to spend a lot of money.

And it's not as if there aren't problems with economic statistics.

On bananananas and deflation.

Regulation doesn't always achieve its aim, for people will offset their behaviour.

And finally, something is wrong when lawyers are more highly paid than bankers.

Sign the Freedom to Trade Petition

Free Trade Is the Best Policy

The specter of protectionism is rising. It is always a dangerous and foolish policy, but it is especially dangerous at a time of economic crisis, when it threatens to damage the world economy. Protectionism’s peculiar premise is that national prosperity is increased when government grants monopoly power to domestic producers. As centuries of economic reasoning, historical experience, and empirical studies have repeatedly shown, that premise is dead wrong. Protectionism creates poverty, not prosperity. Protectionism doesn’t even “protect" domestic jobs or industries; it destroys them, by harming export industries and industries that rely on imports to make their goods. Raising the local prices of steel by “protecting" local steel companies just raises the cost of producing cars and the many other goods made with steel. Protectionism is a fool’s game.

But the fact that protectionism destroys wealth is not its worst consequence. Protectionism destroys peace. That is justification enough for all people of good will, all friends of civilization, to speak out loudly and forcefully against economic nationalism, an ideology of conflict, based on ignorance and carried into practice by protectionism.

Two hundred and fifty years ago, Montesquieu observed that “Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities."

Trade’s most valuable product is peace. Trade promotes peace, in part, by uniting different peoples in a common culture of commerce – a daily process of learning others’ languages, social norms, laws, expectations, wants, and talents.

Trade promotes peace by encouraging people to build bonds of mutually beneficial cooperation. Just as trade unites the economic interests of Paris and Lyon, of Boston and Seattle, of Calcutta and Mumbai, trade also unites the economic interests of Paris and Portland, of Boston and Berlin, of Calcutta and Copenhagen – of the peoples of all nations who trade with other.

A great deal of rigorous empirical research supports the proposition that trade promotes peace.

Perhaps the most tragic example of what happens when that insight is ignored is World War II.

International trade collapsed by 70 percent between 1929 and 1932, in no small part because of America’s 1930 Smoot-Hawley tariff and the retaliatory tariffs of other nations. Economist Martin Wolf notes that “this collapse in trade was a huge spur to the search for autarky and Lebensraum, most of all for Germany and Japan."

The most ghastly and deadly wars in human history soon followed.

By reducing war, trade saves lives.

Trade saves lives also by increasing prosperity and extending it to more and more people. The evidence that freer trade promotes prosperity is simply overwhelming. Prosperity enables ordinary men and women to lead longer and healthier lives.

And with longer, healthier lives lived more peacefully, people integrated into the global economy have more time to enjoy the vast array of cultural experiences brought to them by free trade. Culture is enriched by contributions from around the world, made possible by free trade in goods and in ideas.

Without a doubt, free trade increases material prosperity. But its greatest gift is not easily measured with money. That greatest gift is lives that are freer, fuller, and far less likely to be scalded or destroyed by the atrocities of war.

Accordingly, we the undersigned join together in a plea to the governments of all nations to resist the calls of the short-sighted and the greedy to raise higher the barriers to trade. In addition, we call on them to tear down current protectionist barriers to free trade. To each government, we say: let your citizens enjoy not only the fruits of your own fields, factories, and genius, but also those of the entire globe. The rewards will be greater prosperity, richer lives, and enjoyment of the blessings of peace.

CLICK HERE to endorse this petition and add your support.


The specter of protectionism is rising. It is always a dangerous and foolish policy, but it is especially dangerous at a time of economic crisis, when it threatens to damage the world economy. Protectionism's peculiar premise is that national prosperity is increased when government grants monopoly power to domestic producers. As centuries of economic reasoning, historical experience, and empirical studies have repeatedly shown, that premise is dead wrong. Protectionism creates poverty, not prosperity. Protectionism doesn't even "protect" domestic jobs or industries; it destroys them, by harming export industries and industries that rely on imports to make their goods. Raising the local prices of steel by "protecting" local steel companies just raises the cost of producing cars and the many other goods made with steel. Protectionism is a fool's game...

So begins the 'Freedom to Trade Petition', a joint initiative of the International Policy Network, the Atlas Foundation and its Global Initiative for Free Trade, Peace and Prosperity. The Adam Smith Institute has already signed up, and I strongly encourage all of you to do the same. You can add your names to the petition here. Click 'read more' to read the petition in full.