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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Adam Smith's house

Written by Dr Eamonn Butler | Saturday 05 April 2008

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The proposed sale of Adam Smith's house in Edinburgh, where he spent the last twelve years of his life, has sparked international interest. The house is currently owned by the local authority, who didn't even bother to mention the connection with the great economist in their sale particulars. But it has been widely noticed by fans of the author of The Wealth of Nations.

Clearly, it would be a shame if the building, Panmure House, was broken up into apartments, used as an office, or put to some other use that did not recognize the Smith connection and allow the public some access so they could feel a part of Smith's life and work. Now, fortunately, there is a campaign to make sure that is exactly what happens. The Panmure House Project wants to make sure that the house goes to a body that is involved in history, policy, research, or education that will treat the house sensitively and uphold the spirit of its Adam Smith heritage.

The project was originally established by a number of economists living in Edinburgh, but now it seems to have attracted a much wider following. All power to them.

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And another thing...

Written by Junksmith | Saturday 05 April 2008

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Ed Balls, the Schools Secretary, and Andy Burnham, the Culture Secretary, take a break from affairs of state.

Courtesy of Boulton & Co (via Comment Central). 

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Blog Review 557

Written by Netsmith | Friday 04 April 2008

The progressives (what we are now supposed to call the socialists) do seem to have landed upon a most odd logo to go with their conference today. Really, most, most odd. If anyone has a physical copy of it, headed notepaper or the like, Netsmith would be most interested in one.

Supplying kidneys again. The problem is that even if were were all opted in to organ donation, that still wouldn't solve the shortage: we need a market. 

The immigration debate explained. Clearly and graphically.

A most intriguing result: the connection between civil war and soccer hooliganism (by the players that is). One datum in opposition to the theory: given that the last Civil War in England ended in the 17 th century, how do we explain Martin Taylor's tackle?

The Government Chief Statistician seems to have some slightly odd (or should we call them biased?) ideas. 

Possibly not the wisest idea for a reality TV program (although economists would be worse). 

And finally, spare a thought for the true victims of the financial market woes. 

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Common Error No. 81

Written by Dr Madsen Pirie | Friday 04 April 2008

81. "Under capitalism the rich waste resources on luxuries."

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They don't waste resources, they spend them. One of the points about being rich is that you can do nice things and buy good stuff. These goals help to inspire people to economic achievement and what Adam Smith called "the constant and uninterrupted effort of every man to better his condition."  In pursuing their own economic advancement, people help others by providing goods and services for them. What poorer people call luxuries are an important spur to keep richer people continuing to do that.

In spending, they create a demand, and with it a range of businesses to supply that demand. They employ every type of service from hairdressers to waiters. When they buy luxury yachts, they employ boat builders, fitters, decorators, seamen and chefs. When they fly to Monaco they employ airline pilots, cabin staff and travel agents. When they drive Rolls Royces and Lexuses they employ car-makers, mechanics, chauffeurs and car salesmen.

They perform a useful function in testing and selecting new products and services. What is initially the prerogative of the very rich often spreads down through the population as economies of scale and production lower its prices, and which rising affluence makes affordable. Foreign holidays are one example; it used to be only the rich who could afford them. It is often the sight of the rich enjoying their luxuries which inspires others to strive for the same. It is not up to some self-appointed group to deride luxuries and tell us what we need and should be content with; people can be their own judges of that.

What the rich do is to spread their wealth through society, providing opportunities for others to benefit from it. By spending on luxuries, they create jobs in large numbers and give other people the chance to improve their own economic lot. They should do more of it, not less.

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Had he been drinking?

Written by Tom Clougherty | Friday 04 April 2008

sutcliffe.jpgGerry Sutcliffe, the Labour Licensing minister, has got himself into trouble by publicly disagreeing with the government's policy. Referring to the alcohol tax rises imposed by Alistair Darling, the chancellor, in his latest budget, Sutcliffe said:

"I think the [pub] industry's right to be upset. We, and I speak as a champion of the pub trade, want the chancellor to change his mind... The next opportunity will be the pre-Budget report in November."

Oops. I bet he's not looking forward to his next meeting with the prime minister! In fairness, he subsequently 'corrected' himself, issuing a statement saying, "My comments do not accurately reflect my views." A pretty typical politician then, by the sounds of it.

But there are two important points worth making here. First of all, Sutcliffe was right the first time: the pub industry is right to be upset. The smoking ban has driven lots of them out of business, and hiking the price of booze is not going to help. In reality, these tax increases have little to do with combating binge drinking and everything to do with raising revenue. Binge drinking is primarily a cultural problem, and not one determined by prices. So why should the vast majority of people, who consume alcohol responsibly, be punished for the sins of the few who don't?

The second point is that Sutcliffe has fallen into a common trap. As Licensing minister, he spends lots of time talking to the drinks industry, and so then he ends up parroting their line. Notice how he said, "We, and I speak as a champion of the pub trade..." The drinks industry might be right in this case, but it shows how easily politicians get captured by vested interests once they're put in charge of regulating something.

The government shouldn't be championing business lobbies any more than it should be championing trade unions – it should just be leaving things alone!

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Does trade exploit the poor?

Written by Dr Madsen Pirie | Friday 04 April 2008

It can be quite depressing trying to convince paid-up members of the Aid Brigade that people will climb out of poverty by selling things, and not by being given money taken from richer people. For that matter soup kitchens are no real substitute for people selling things and being able to afford to eat properly. Tim Worstall takes a look at it over at the Globalisation Institiute, remarking on the objection by so many NGO people to trade agreements.

Their objection seems to be that buying things made by poor people is to exploit them: and that insisting that their government allow them to purchase things made by rich people is similarly exploiting them.

He cites the example of Honduras joining CAFTA, and the benefits this will bring to their economy. The benefits are modest, he says, because the treaty does not go very far. If you want to see real poverty reduction, look what Indian and especially China have done by selling stuff. It's not the aid rich countries have given them, it's their admission to our markets that has lifted more people out of poverty than ever before in human history. Yet so many NGOs, backed by more obviously self-interested trade unions, call for us not to buy from countries which pay low wages. They might as well urge us straight out not to buy anything from them at all. Perhaps they dislike trade because of its spontaneity, and would much prefer to manage transfer payments to dependent recipients in a more controlled way, even though that way doesn't work.

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Book of the week

Written by Booksmith | Friday 04 April 2008

bestbook.jpgMy Adam Smith Institute colleague has written a new book on how (free) markets work – called, modestly, The Best Book on the Market.

It covers all the basics about choice, competition and entrepreneurship, and prices. But it's short, fun, anecdotal and accessible. So hopefully it will serve to spread the the understanding among the public, students – even politicians – that markets are actually a good thing. Indeed, the book's sub-title is How to Stop Worrying and Love the Free Economy.

John Blundell of the Institute of Economic Affairs says it vividly and simply explains competition, entrepreneurship and prices. Václav Klaus, President of Czech Republic, says that it presents solid arguments against government attempts to 'perfect' markets by obstructing competition and private ownership. And former Chancellor Lord Lawson says Anything which educates the public and politicians on how the free economy actually works is always welcome. Dr Butler does this in style. And the book has received many more plaudits from round the world.

It's being published internationally by Capstone (Wiley's business/popular imprint) on 18 April, but you can pre-order it here. Go on – you know you want to!

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Blog Review 556

Written by Netsmith | Thursday 03 April 2008

So Hillary Clinton has compared herself to Rocky Balboa. But, umm, which version?

An interesting rumour from Wall Street: who was it that started the run on Bear Sterns? 

Another interesting bit of digging: the Bank of England was told that a strategy of aggressive wholesale funded expansion might be a cause of concern....in 1997. 

Here's your cut out and keep chart of which banks have shored up their capital bases from which source.

Odd ways in which technology changes the balance of power. 

So just what is the social cost of carbon emissions? If it's as low as some think then it's not going to be a tough problem to deal with. 

And finally, an early (as in historical) and quite wonderful April Fool.

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Yes, there really is a trade off

Written by Tim Worstall | Thursday 03 April 2008

One of the dividing lines in the political debate is between the egalitarians and those more like myself who worry more about absolute living standards. On the one side those who say that inequality is a problem which we must use tax and redistribution to resolve, on my side those who say, well, perhaps, but that taxation carries a deadweight cost and thus lowers the wealth of all.

We all also tend to assume that there is a trade off between these two: we can't reduce inequality without reducing total wealth but it's worth it: or not perhaps, dependent upon your a priori assumptions. 

As it turns out I've been wrong on this as this interesting paper (.pdf) shows. Economic freedom produces a higher overall rate of growth, this is true. Economic growth does indeed increase inequality and redistribution (note, redistribution, not necessary spending upon public goods) does indeed reduce the growth rate leading, in time, to less wealth for everyone. So far then the debate has indeed been framed correctly and it depends upon which you value more, equality or total wealth. However, there's one stinger in it:


Freer economies are more equal economies; economic freedom reduces inequality by increasing the share of market income going to the poor and lowering the share going to the rich.

This effect overpowers the inequality produced by economic growth. So economic freedom actually produces lower inequality as well as higher growth: and, of course, over time, higher incomes for the poor on an absolute basis.

So our trade off has actually changed: we can be more free, more equal and richer, or less free, less equal and poorer.

At which point I'm left rather wondering: who would choose the latter of those two options?

 

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Common Error No. 80

Written by Dr Madsen Pirie | Thursday 03 April 2008

80. "We need to control movements of capital across borders to prevent funds leaving the country that are needed for investment here."

We used to have exchange controls, dating from World War II and regarded as permanent. People going abroad were only allowed to take out £50 at a time, and had their passport stamped on each occasion. In 1979, early into the first Thatcher government, Chancellor Geoffrey Howe quietly abolished them. The predicted panic and chaos never materialized.

A vital part of our earnings comes from our foreign investments. Because we allowed investment abroad in the past, we now reap the dividends as part of invisible earnings. If we stop people investing abroad, we cut off that future source of income. It is a good thing to have us investing overseas; it means we can make money out of the economic activity of other countries.

It is also good to encourage foreign investment at home. If we make it difficult for our people to invest abroad, foreign governments tend to retaliate, denying us access to investments from there. These investments could be helping to produce economic growth and jobs in the UK.

Exchange controls are part of the mentality of a siege economy, which wants to isolate itself from world trade and trends and seek self-sufficiency instead. Free trade in investment, like free trade in goods, is of all-round benefit. If we want people to invest in Britain we should make it attractive for them to do so, just as we should make our goods attractive if we want people to buy them.

In an increasingly globalized economy, the mentality which seeks to restrict currency flows is a throwback to the mercantilist ideas which preceded the modern world. People once thought we had to hoard gold and silver bullion and prevent its export; now they try to treat currencies similarly. In truth, we live and thrive on trade and free movement of capital and goods.

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