The way we're ruled today


I realise that not everyone shares my distaste of the European Union  nor my deep and abiding suspicion of all who sail in that ship of state.  However, a little story about why all should be worried.

One of the problems we have with the State itself, the very conception of it, is that  if it is possible for it to dole out benefits to favoured groups then those who would benefit pay attention and lobby to become favoured groups. Such benefits will be concentrated and the losses will be, to each person outside the favoured group, small. Thus there will be little pressure for the favours not to be granted.

This becomes even worse when the losses will be, in Bastiat's phrase, those things which are not seen. People are pretty good at spotting the loss of something they once had and terrible at spotting what they never got.

Having two layers of the State just makes such problems worse of course. The European Parliament has just voted to extend copyrights on sound recordings:

Performers and record producers could enjoy increased royalties after European lawmakers yesterday voted in favour of an extension of copyright protection from 50 to 70 years.

Leave aside the rights and wrongs of copyright itself, that's a story for another day. Leave aside the rights and wrongs of this extension as well. And consider solely that this very proposal was considered, carefully, in this country as recently as 2006. In the Gowers Report. And soundly rejected as an unwarranted enrichment of some to the impoverishment of others. This was a benefit that should not be doled out to such a favoured group. Copyright is a mechanism to increase the amount of innovation and given that no musician ever has declined to record a piece of music because they won't be getting royalties 50 years later the extension would not increase innovation. But it would limit what later artists could do with earlier recordings, thus in fact reducing innovation.

But now that we have this double layer of law making, this pair of chances for lobbyists to gain access to the purses of the citizenry, we are simply and obviously going to see more such successful attempts.

As I say, I know that not everyone shares my dislike of the EU either as it stands or even in principle. But doesn't the fact that the favoured ones now have a twice over chance to dip your pockets engender at least some unease?

Lying liars and the lies they tell


The past can tell us so much about what may occur in the future. For example we know that we should be wary of a German neighbour who complains that the east wing of his house is too small. Sure enough you’ll probably wake up one morning to find him breakfasting with a bear in your kitchen. The Labour government of 1974-79 proved that they couldn’t handle the economy, creating the ‘Winter of Discontent’ and culminating with the election of Margaret Thatcher. Yet the electorate of Britain were beseeched in 1997 by a young Tony Blair selling a message that things needed to change. ‘New’ Labour had shaken off the shackles of the past and the economy would be ‘safe’ in their hands.

13.5m people voted in 1997 for New Labour. Swept up in the idea that there was a change coming. For second 10m voted and for the third term they were down to 9.5m voters. The change that had occurred over this period seemed, and was widely reported, to be beneficial to the UK. It now turns out that it was a sham, a mirage founded upon debt and stealth taxes. It is such a shame that the voters of these three elections didn’t take time out to study the past.

We are all now subjected to massive amounts of debt. Rather than a swift readjustment to the economy (had banks been allowed to fail) we are all now burdened with paying this off, in a country that has an economic framework that discourages growth. The 9.5m New Labout voters of 2005 are responsible for this economic disaster. They are the ones that handed the keys of Britain’s economy to Gordon Brown. They should be the ones to pay for the costs.

Labour politicians do not, nor will they ever, accept the simple dynamics of co-operation and the resultant ideology of capitalism. So don’t believe them when they come knocking again in around 14 years telling you they’ve changed! They won’t have.

Blog Review 941


Something to celebrate: only 415 days to go!

And why not celebrate by sending unused shirts to.....

And for the future, could we all try to remember this simple political maxim?

So, did Bastiat actually say this or not? And if he did, where?

What to celebrate for Earth Day? How about capitalism?

This really isn't how to attract hard working foreigners to our shores.

And finally, why you shouldn't trust online polls.

Taxation and the budget


Taxation is bad; the new budget reminds us of that important truth. Taxation takes their property from people and uses it for purposes other than those they might have chosen themselves. That this is done with state power makes it legal, but does not justify it morally. When two wolves outvote a sheep over the dinner menu, it may be democratic, but that does not make it right.

Taxation involves confiscation and coercion. We should not hide that unpleasant truth. Most of us tolerate taxation in return for the essential services it funds. In an ideal world our defence and judiciary might be funded by voluntary contributions, but in this real world essential services rely on tax revenues.

Taxation should inflict minimal damage on the economy. It should cost a fraction to collect of what it yields. It should come from income streams, taking a little for the public purse when money changes hands in earnings or sales. Taxes on capital are invidious because there is no income stream from which to take them, and they are also stupid because the capital would otherwise generate future income streams of profits, wages and sales.

Taxation should be transparent and predictable, and should fall on people who can pay it. The Adam Smith Institute has long campaigned to have low earners lifted out of income tax altogether, since they have insufficient money to pay it. The fact that they receive tax credits underlies this absurdity.

The new budget raises the top tax rate to 50 percent on high earners. It also increases taxes on their pension contributions, and removes their personal allowance threshold, imposing an effective tax rate of well over 60 percent. The Treasury blithely puts down over £7bn of anticipated revenue from this, but it will not yield that because most high earners will not pay it. At those levels it is worth employing accountants to shelter income. The Treasury will close some loopholes and the accountants will open more.

Some high achievers will go abroad, preferring the more benign tax climate of Switzerland to one which forcibly takes from them nearly two-thirds of what their talents and energies earn them. With them will go the jobs they create and sustain.

If the money taken by government actually provided good things, taxation might be easier to accept, but much of it is wasted, spent in useless ways on worthless projects. The new budget is very bad. It appeals to low sentiments of envy, and seeks its justification in an egalitarian ideology that has no place in the real world. The only comfort in it is that this is the last gasp of a dying government.

As a matter of fat...


altWe’ve all sat in our seats on an aircraft before take off with the seat next to us empty. First we start hoping that no one sits there, then we hope that if someone must fill the space it’s not an excessive talker, or a noisy child, then our hope is vanquished. Down the aisle comes a 300lb lumbering hippo that is going to attempt to squeeze itself into the empty seat and in the process marry itself to you as well.  Into the seat they go and then the fountain of fat bursts forth and they spread themselves over you, enveloping your space and ensuring the next hours of your life are going to be excruciatingly uncomfortable. Why should we pay for this?

Airlines though are listening to the bulk of their customers, rather than their bulkier customers. United Airlines announced that it was seeking to charge obese passengers the cost of a second seat and Ryanair have revealed that over 30,000 voted in favour of charging overweight people a ‘fat tax’ when they fly. Those of the larger persuasion have to realise that space on an aircraft is at a premium and that paying for one seat when they comfortably fill two is sufficient for airlines to lose money whilst also causing discomfort to those next to them.

As the numbers of obese people steadily climbs airlines can no longer afford to treat them as single persons, while fair in principle the costs that they incur far outweighs the price they pay. Perhaps these extra costs will be a wake up call and change their eating behaviour. Or perhaps these costs will spark an entrepreneur into starting up Heavyweight Airlines or some similar named organization. The overweight though have to realise that, “obesity is always and everywhere an overeating phenomenon” and that they are no longer in the same weight class as the rest of us meagre morsels. (Apologies to Mr Friedman)

Blog Review 940


How can we use fewer resources? You know, this walking more lightly upon the earth thing? How about just make the economy grow faster?

There's a certain disconnect between what journalists write about matters economic and what economists write about matters economic. Yes, even at the FT.

Netsmith does wonder though, whether alternative history as written by economists will catch on.

No wonder there is still controversy about what to do about finance: there's still controversy about what happened.

Good grief, a politician with interesting and admirable ideas.

It matters what the law says, not what was the original intention. And the unions aren't helping.

And finally, it appears that menu costs aren't really menu costs.


The biggest budget deficit ever


£175,000,000,000. That's how much extra debt Darling proposes to load onto us this year, in the biggest Budget deficit ever.

Brown accused the Tories of unfunded tax cuts in the argument over reform of inheritance tax. But their doubtfully-funded proposals amounted to £2 billion. What about £175 billion of unfunded spending - over a quarter of all government expenditure?

Worse, Darling proposes a further £173 billion deficit next year. And that's assuming that we come out of recession before Christmas; if not, the deficit will probably be more than £200 billion.

Nor is this a short-term problem caused by the recession.

The recession has exposed a long-term problem that had been hidden by the previous boom. As I said yesterday, Brown presided over an enormous increase in government spending (to little discernable benefit), which even the huge tax receipts from the City and the property industry during the boom were not enough to fund.

And what does Darling propose doing to get us out of this problem? Nothing.

The proposed 50% tax rate for the rich (more on that shortly) serves no purpose other than Brown's political manoeuvres. Even on the Treasury's optimistic assumptions it will raise only £1.8 billion per year, a trivial 1% of the deficit.

No, the only thing he can do is fiddle with the figures. By increasing his estimate of long-term growth, claiming that he expects the economy to grow by 3.25% per year after next year, Darling was able to say that the public accounts would eventually be brought back into line. But that growth level looks unrealistic; in 2002, Gordon Brown's estimate of long-term growth was just 1.75%. Have things really got so much better now?

So we are faced with deficits for the foreseeable future. Over the next five years the government plans to borrow more than £700 billion. Anyone who intends to stay in the UK after that is going to have to pay for this folly.