Dark thoughts


On Monday, Madsen wrote about the Telegraph's various reasons to be optimistic about the economy, and also noted the importance of optimism in driving recovery. Some commentators are less optimistic, and think we are experiencing a rally, not a recovery, and that there may be worse news still to come. They see a fundamental problem remaining in the housing market – essentially, that prices have got a lot further still to fall before they reach anything like historic levels. As MoneyWeek's Dominic Frisbee has written:

The average salary multiple over the last 37 years (1971 to 2007) is 4.54. At the 2007 average wage of £24,000, that gives an average house price of £109,000 – a fall of 40% from the peak. But if you exclude the bubble years (from 2001 to 2007), you get a 4.17 average salary multiple – which would give an average house price of £100,091, a fall of 45% from the peak.

There's also the fear that the market might over-correct, with prices dipping below historic averages. That's what happened during the last recession in the 1990s. Needless to say, that would mean massive problems for our weakened banks and could easily prompt another financial crisis (something the Bank of England is already worrying about). Throw in the fact that the banks haven't really felt the impact of consumer and commercial bankruptcies yet – there are lots of credit card bills and loans out there that are just not going to be repaid – and you can see how things might get sticky. All of which could undermine delicately rising business and consumer confidence.

The government isn't helping either. The rate at which they are borrowing money makes heavy future tax rises a near-certainty, deterring both spending and investment. What of quantitative easing? So far, it appears to have had little impact but some people, including the ASI, are still very uneasy. The drop in the RPI that was used to justify it is almost entirely a result of falling house prices, which are not so much 'deflation' as a necessary market correction. Meanwhile, the CPI continues to rise. Add in a weak pound (making imported goods much more expensive) and it's not hard to imagine that a severe inflationary episode is lurking round the corner.

So the good news is not unmixed, and the message might be this: hope for fine weather, but keep the umbrella handy.

Burn in peace


altHow do you dispose of yourself after you have ‘shuffled off this mortal coil’? Ideally you’d leave instructions with those who you have left, and they would be free to follow through with them, so long as your disposal didn’t interfere/cause harm to others. Alas, it seems that even in the 21st Century the enlightened masters that lord it over us stand in the way of our desires even when we are dead. A devout Hindu wishes to be cremated upon a funeral pyre, but having sought out permission first from his local council, who refused on ‘impractical grounds’ he then took his claim to the High Court. They rejected his wishes, agreeing with the council on grounds of impracticality, and that it didn’t infringe on his human rights in either area of religious freedom or his right to privacy. Morton Blackwell’s first rule of the public policy process should have been observed: Never give a bureaucrat the chance to say no!

If  Mr Ghai had taken the same approach as Dr William Price*, whilst ensuring that he harmed no one else, he could have perhaps forced the debate. Instead he handed the opportunity to refuse his simple demand to a bureaucrat and an inept legal system. When one looks at the history of cremation it seems that this latest ruling is a step back to the times when the “higher authority" of the land laid claim to your body and could forcibly direct you to behave in a certain way through the projection of guilt via sin. We will now have to see if the Court of Appeal has any sense of religious freedom/privacy issues. Perhaps there is a wealthy individual who could donate the use of part of his private land so that a dying man’s wishes could be granted so that he could dye at peace.

Currently though it seems that it will take us some time before we are at one with each others differing desires and that death itself should continue to be viewed as a taboo subject. It is time that the government realised that we do not belong to them, or owe our existence to them. Perhaps they could leave us to burn in peace.

* Dr Price was a druid/eccentric who cremated his deceased 5 day old child Jesus Christ Price in a pagan ceremony atop a hill. Obviously horrifying the natives of Llantrisant, but not the judge at his subsequent trial who found that cremations were not illegal. Such forward thinking from a judge in 1884.

Neodymium: The truth


The political and international divide over green energy politics is growing. Not only are the prospects of over ambitious plans such as Koyoto II getting gloomier in the ongoing financial crisis, it is becoming increasingly clear that the green renewable energy issues could create problems of the same magnitude as our present oil-dependency. As the Atlantic reports in its May issue, the exploding demand for hybrid cars and windmills is likely to create a bottle neck in the supply of a commodity with the exotic name of neodymium.

Neodymium is a crucial material for build lightweight permanent magnets “that make the Prius motors zoom" and are needed for the generators of wind mills as well. In fact, the present production of neodymium would have to be doubled in order to make just a few million electric cars. The main pit for neodymium in the US, California’s Mountain Pass, has recently been closed after a series of leaks released hundreds of thousands of gallons of radioactive waste into the environment. The dirty little secret of green cars and windmills is that the neodymium has to be yielded from rare-earth ore, which are regularly contaminated with radioactive thorium.

So much for the green ideologues and main stream media hypocrites who don’t accept nuclear energy with zero CO2 emission as clean energy.

Young Writer on Liberty: Incentives matter


As the Telegraph picks over the bones of MPs already stained reputations, perhaps only one thing can be learned: financial incentives matter. As such, in order to ensure we get the very best entrants to the Young Writer on Liberty competition we have decided to increase the prize money. As such, as well as the winner getting £500, the second and third prize entrants will receive £250 and £100 respectively.

Remember, this is not one of those prizes that go to your school; instead the money will be given to you in brown envelope to spend on whatever you want, whether that be bathplugs, moats and tennis courts etc.

For more information click here

All entries should be sent to: andrew@old.adamsmith.org

Competittion closes: 15th June 2009

Blog Review 959


The reason that capitalist do so much better than politicians do in matters economic is that capitalists have long term incentives and politicians short. Incentives do matter, after all.

Explaining Joanna Lumley's attatchment to the Gurkhas.

If we just get the prices right then we don't have to worry about doing the near impossible, proper life cycle analyses.

No, prohibition really doesn't work.

However, freeing schools from the dead hands of the unions and the State really does seem to work.

It's been a recession with a nasty banking crash thrown in, not a prelude to a second Depression.

And finally, a book recommendation.

The exodus begins


altLondon's Evening Standard reports that the flight of financiers from the new 50 percent tax rate is gathering pace. The Chairman of Terra Firma Capital Partners is said to have moved to Guernsey, and the head of Odey Asset Management hedge fund has threatened to move his firm offshore. He is quoted as saying, "Everyone is thinking of leaving."

While the ones who can go probably will go, the majority will not enjoy this mobility. What they will do, however, is to make every possible use of shelters to lower their exposure to the tax. Many people who paid it at 40 percent will move heaven and earth to avoid paying it at 50 percent. This is one reason why I publicly predicted on CNBC as the tax was announced that it will raise less money than was yielded by 40 percent. The other reason, apart from avoidance, is that the reduced incentive the new tax offers will shrink the tax base. If people have to give nearly two-thirds of any extra income to be squandered by the government, they will simply not make great efforts to earn any. Any adding in National Insurance and pension allowance changes mean that many people will be keeping only just over a third of any extra they earn.

The upshot is that Britain has moved into the unenviable league of top tax nations, and probably without gaining any extra revenue by doing so. This was the most dreadful feature of a truly contemptible budget.

Equality and the free market

It's official: Britain is now a more unequal country than any time since modern records began in the early 1960s. The incomes of the poorest people have not just failed to keep pace with economic growth, or even inflation. They have actually fallen. Since the last election, the poorest 10% of households have suffered a £9 cut in their average income of £147. The second-bottom 10% have seen their income fall by about £4 a week. 
This is why all those folk who talk about Mrs Thatcher or 'free markets' making Britain more unequal make me puke. The fact is that market economies are more equal than any. Not just in terms of incomes, but in terms of power. In centrally controlled economies, if you are not one of the ruling clique – and that can mean not a member of the right race or the right family – you've had it. And there's nothing you can do about it. In market economies, you rise on the back of your talent and hard work. Not everyone has talent, but application will take you places. That's why market economies are more socially mobile than others.
A socialist government can make early 'equality' gains by redistributing income and using the wealth created by a market economy. But it all takes money, and the more you confiscate in taxation, the less incentive is there for anyone to take risks and succeed. When your taxes reach the threatened UK levels of 50%+, there's less incentive even for people of skill or application to stay in the country. So the redistributive policy poisons itself, like yeast creating alcohol in the wine vat.

Standards of probity


The disclosures about expenses claims made by MPs have been met by the insistence that what they did was "within the rules" and that all the items were scrutinized and approved. This may be true, but it fails to answer the public concern at what has been going on. The nub of it is that MPs have deceived the public for many years by awarding themselves much higher salaries than they have admitted to. They did this by keeping the headline figure down, and awarding themselves a "stealth salary" of padded expenses to augment it.

MPs of all parties have connived in a system which reimburses them for items like bathplugs and barbecues which other people have to buy from taxed income. As the 'expenses' are tax-free, the effective salaries received by MPs are even higher. The public wants to know how MPs, who make laws telling other people how to behave, could behave so deceptively and dishonourably themselves. The answer seems to be that, like the bankers who give themselves multi-million bonuses to reward their failure, they do it because they can. They have the power to do it, and they regard that as a right.

There is a general feeling among the populace that people who occupy positions of authority should possess sufficient probity to restrain them from misusing their powers. They should have a sense of right and wrong sufficiently well-developed to keep them from tawdry and discreditable self-seeking. "With great power comes great responsibility," as Spiderman's uncle cautioned. The fact that MPs and bankers can award themselves unmerited sums of other people's money does not mean that they should. On the contrary, their occupation of those high seats of authority means that they should not. And the higher the office, the greater is the standard of moral correctness required.

The problem for both MPs and bankers is that they have not shown the moral stature required to accompany those positions.

Liberty vs. the State


In the United Kingdom, of our national Gross Domestic Product, which is to say, of all wealth created by all people through the course of the year, we finally find now that the part confiscated and consumed by the State exceeds 50%.

Rarely invoked is a phrase so loaded with import yet so perfectly tuned to pass unnoticed upon the mind.

Of our lives, the first twenty or so years passes in growth and education. There then follows about fourty-five years of work, as we accumulate sufficient wealth that we can finally retire and live free.

Well, now, consider; for of those fourty-five years of work, half, that is to say, twenty-two and a half years of our lives, have the wealth we produce fully taken from us by the State.

That is what 50% of GDP means. It means 50% of your working life.

The State requires us by threat of judicial penalty to accept its provision of services; and by forcing us to accept, the State forces us to pay its price; and that price is twenty years of our lives.

Was this ever the deal? Was this ever what we signed up for?

The fact is, we all past and present were never asked and we never agreed to any of this. We all, past and present, were merely born; into a world where the unchosen State already exists.

The State is an inherited historical accident; it was never chosen, ever, by anyone.

The fact that our current arrangement of State permits us every four years to vote for one of a few parties and so potentially change the Government of the State does not mean we agreed to this arrangement of affairs. Being granted a vote by a State we never chose is not legitimization; that we are not permitted to opt out of the services the State so expensively compels us to accept reveals our subservience.

We owe the State nothing for we never chose it; and we work our lives till but ten years from death, because of the State.