The Pin Factory Blog

Freedom 101, the recently published compilation of all 101 of Dr Madsen Pirie's Common Errors, is now available on Amazon for the bargain price of £4.79.

The book refutes many of the common errors of economic, political and social debate. Many of them are in daily circulation as if they were truisms. We are
told that, 'the world is running out of scarce resources' or that, 'we
should protect the poor by fixing the price of essential goods'. But as Madsen shows, some of these are based on errors of fact, some on false arguments, and many of them on a misunderstanding of how economics works. The book is designed to help readers clarify their own thoughts and equip them to bring that same clarity to aid the understanding of others in discussion and debate.

Click here for the Amazon page.

It would appear that Hillary Clinton is not the only person with slightly misty recollections of the past.

More Hillary: is this the scariest thing you've heard this electoral season or what? 

The Interior Designers Guild is comparing itself to the AMA: well, yes, they are indeed doing exactly what Milton Friedman's Doctoral thesis suggested the AMA were doing. 

Interested in a bit of British maritime history? Why not try this?

Can't find a copper on the streets? No wonder, they're all in Alberta.

 The BBC is now reporting that Alistair Darling is being banned from pubs. Further updates here. How far will this campaign go?

And finally, perhaps four leafed clover isn't in fact all that lucky? 

72. "Scarce resources should be allocated on the basis of need, instead of going to the highest bidder."

If scarce resources are allocated on the basis of need, they stay scarce. When allocation is other than by price for goods in short supply, nothing is done to relieve the scarcity. When allocation is by price, it does act on the shortfall.

In a market situation, goods in short supply command high prices. This means that producers and dealers make good profits, and others are attracted to do the same. The high prices bring new sources of supply to the market, and the price falls gradually as the scarcity is relieved.

When allocation is on the basis of need, there are no high prices and profits to attract new supplies, so the shortage goes on. Consider the case of a new product such as computers or DVDs. At first they are for the very rich, but the profits attract competitors, and the increased supply brings prices within reach of ordinary people.

Consider, more revealingly, the case of two villages in a famine. Village Bigthorpe allocates the scarce food on the basis of need, and all starve together. Village Littlethorpe lets food prices rise. The high prices attract produce from all around and far away. People have to sell their rings and go into debt, and lots of merchants get very rich. But Littlethorpe survives.

Poorer people can be helped not by rationing, but by being given the resources to buy their necessities. Ultimately they are better served by a wealth-generating society in which supply can be brought to meet demand, and in which the market responds to changing circumstances. Such a society will improve their living standard and their command of resources faster than any which tries to allocate according to perceived needs, and which prevents prices from sending their signals and eliciting a response.

I had a typically nightmarish journey into London yesterday after the Bank Holiday. I arrived at Ipswich station to discover that all the trains were stationary (they had nowhere to go) and were running hours behind schedule. The wonderfully unhelpful announcements just said, "passengers for London are advised not to travel today". No replacement bus services were offered. I wasn’t surprised: I can't remember the last time I had a post-weekend commute that wasn't disrupted by overrunning engineering works, signal failures, or some other problem.

The thing is, everyone blames the train companies (i.e. the privatized rail operators) for these sorts of problems. Yet it is actually Network Rail (the renationalized version of Railtrack) that is to blame. And the trouble with Network Rail is that it just isn't accountable to consumers. The only thing Network Rail are accountable to is the Rail Regulator – which is set to fine them £14 million for the mess they made in the New Year, when everyone was trying to get back to work. However, this is a particularly imperfect kind of accountability – it doesn't amount to much more than the government claiming back part of its subsidy whenever things go seriously wrong.

I'm increasingly coming around to the view Iain Murray expressed in this ASI paper, No Way to Run a Railway, that the railways should be vertically re-integrated. That would mean the train companies would take over responsibility for the track, rolling stock and stations in their networks. That would certainly strengthen accountability to customers and increase co-ordination between maintenance and transport (Network Rail did not even tell National Express East Anglia what was going on yesterday). It might also create greater incentives for private sector investment in the railway as well.

P.S. If anyone is interested in questioning the rail regulator, Bill Emery, he's doing an ASI Power Lunch on May 27. Contact Steve (steve@adamsmith.org or 020 7222 4995) to request an invitation.

As Bernard Levin predicted those years ago with his spotting of the Single Issue Fanatic, the decisive change in life has been the march of the zealots. It's led to a large fall (sad to say) in social liberalism along the way.

Indeed, a substantial decline in liberalism of all sorts. 

Not quite the done thing right at the moment, but defending financial innovation and the derivatives markets. 

The worst movie of all time and the application of correct thinking about sunk costs. 

Such a waste, how could such a thing happen in the educational system? Although, not all the news from that sector is bad. 

Most important to make the distinction between the workers' wages and the workers' compensation. 

And finally, why all this fuss over human/animal hybirds? Been going on for years, hasn't it? 

A New York Times article by Robert Pear reports on a US government research finding that the there is an widening socio-economic disparity in life expectancy, as well as in income levels. Not only has the income gap been widening, but the number of years that affluent people can expect to live is moving further ahead than those expected by poorer people. Tim Worstall discusses the findings on his own site.

The trend has happened despite federal attempts to narrow the gap. It has widened between income groups, social classes and ethnic divisions. In two decades the gap between top and bottom had widened from 2.8 years to 4.5 years.

The gaps have been increasing despite efforts by the federal government to reduce them. One of the top goals of "Healthy People 2010," an official statement of national health objectives issued in 2000, is to “eliminate health disparities among different segments of the population," including higher- and lower-income groups and people of different racial and ethnic background.

Several possible reasons are advanced as possible explanations for the widening gap. Richer, better educated people are more likely to know about and take advantage of the latest discoveries in the treatment of cancer and heart disease. They are less likely to smoke, and more likely to have regular check-ups and screenings. More of them are covered by health insurance, and they are more likely to be well-informed about the importance of diet, exercise and healthy lifestyles.

Tim asks whether anyone thinks gains in life expectancy by the affluent are a bad thing because they increase inequality. Some people express the view that general gains in affluence are bad if their corollary is greater inequality of income. Do they take a similar view on life expectancy? There's a different view, though. In many areas, including education, some experts claim that the easiest way to improve the average is to pull the tail up; that is, to concentrate on improving the standard of those at the bottom. It is at least plausible that the same might be true of life expectancy, and that if the poor can be encouraged and enabled to take the positive actions which the affluent have been doing, the general average will be raised more readily. A general increase in healthy life expectancy seems a worthier goal than greater equality in this area.

71. "Business is polluting the environment, which we should all enjoy, just for the benefit of the rich."

Most people pollute the environment. Some do it with sewage, some with the smoke from fires or the fumes from petrol or diesel engines. Business which uses energy tends to pollute, and manufacturing tends to pollute more than service industries. For that matter, older industries tend to pollute more than the newer, high tech ones. It is not for the benefit of the rich, but in order that the products can be cheaper that a certain amount of pollution is tolerated.

Production could be totally clean, but it would make goods much more expensive if the clean-up costs were added to production. The rich would be relatively unaffected by this, and the poor would suffer most. Society has to balance the cost of a totally unaffected environment against the cost of producing necessary goods.

Even nature pollutes, with forest fires and natural contamination of air and water. A certain degree of pollution is tolerable in the sense that it lies within the regenerative capacity of the environment. As society grows richer, as a result of wealth-creating enterprise, it becomes more able to afford the luxury of a cleaner environment, and is able to insist on cleaner methods of production. One reason why less developed countries are taking a larger share of manufacturing is that for them, the advantages of prosperity outweigh the costs of pollution.

A clean environment is not something which costs the rich money; it costs everyone money in the increased cost of industrial processes, and the higher prices which have to be charged. As countries grow richer they become more able to afford that price and to produce cleanly. Although some urge us to cut back economic growth to secure a cleaner environment, it is only by becoming richer that more people will be able to afford a clean environment.