The Pin Factory Blog

Free Exchange, a blog from The Economist, looks at how to compensate those who lose their jobs as a result of a change in either the flows or restrictions upon trade. Retraining seems like a reasonable response. However, this opens up the question of whether we do in fact owe compensation to those affected by trade: I would say not. Oh, as a political matter, certainly it makes sense, that those who will be negatively affected know that they won't be thrown on the scrap heap and thus oppose a reduction in restrictions, but as a moral matter?

I'm specifically thinking of those insisting that they should be compensated for a removal of a tariff or quota and thus likely to be driven out of business by increased competition. The demand is usually that there should be lump sum compensation from those who will benefit (ie, consumers) to those who will lose (those about to be out of work producers). And I don't, as I say, think this is either morally or logically justified.

For the removal of said tariff or other restriction is what is going to cause the loss to those producers. Which means that the imposition of it has been of benefit to those very same producers all the years it has been extant. And what we haven't been seeing all of those years are lump sum transfers from those producers to the consumers to compensate, from the benefits being gained, to cover the losses from not trading. 

It is, if you like, another example of what some accuse certain financiers currently of doing: the privatisation of profits and the socialisation of losses. 

I have absolutely no doubt that such things as retraining grants and the rest are a useful political response to peoples' worries over the structural changes brought about by changes in trade restrictions. It's just that I don't see the moral case: they're not been paying us out of the profits they make from the restrictions upon us, so when those restrictions are lifted, why should we pay them? 

76. "If state industries are opened up to competition, private firms cream off the lucrative trade, leaving the poor and outlying regions without adequate service."

This argument exists only on the fiction shelves of libraries. In practice the private sector shows a remarkable ability to make profits on what were loss-making services for the state. Examples are plentiful. State airline routes abandoned as loss-makers are taken over by private airlines and run at a profit.

Deregulation of US airlines was widely predicted to cut services to outlying areas. The reverse happened. Instead of "cowboys" engaging in their customary "creaming off" of the large and heavily used services, there was an increase in small airlines serving smaller towns. The private sector is more innovative. It introduced the "hub and spoke" system of air traffic, for example. It uses smaller planes and buses. It brings in the ‘no frills’ economy services which have proved so popular. It uses unfashionable airports. It brings in new types of service and uses up-to-date technology.

Private firms have the incentives state ones do not. They seek customers because that is where profits can be made. They do not impose a national standard, as state bureaucracies tend to do, but vary their output according to the conditions and needs of different areas and sectors. This has happened in mail services, in telephones, in freight and package delivery. Far from just losing their loss-making state services, people gained viable and innovative alternatives.

In rare cases where private business cannot manage to provide service for outlying areas, society will get a better deal if private firms are invited to bid on the basis of least subsidy needed. That way we get competition and consumer pressure, and the incentive to operate efficiently, none of which are normally to be found in state monopolies.

The Freedom of Speech apparently nowadays means the freedom to say what the government approves of. Further details here: that enlightenment thing, so old hat, don't you think?

Freedom of information appears to be suffering similarly. 

Another example of an old economic favourite: how much is your time worth? 

As with this morning's blog: biofuels simply don't work. 

Although this rather wonderful idea actually might work: attatching a kite to a ship. 

Yes, we know, you've been waiting for the update on the Ban Darling campaign. Further sightings, a competition winner and this rather stirring song to sing (tune: Wild Rover):

I've been your new Chancellor for not quite a year
But I've taxed all your money from whiskey and beer,
And now in the coffers there's no gold in store
And I never will pay off the lenders no more.

And finally, the weather has been declared Muslim. 

I'm sure there was supposed to be a massive increase in the pub trade as a result of the smoking ban. Absolutely certain of it in fact. For there was that huge pent up demand, wasn't there, all those non-smokers who were denied their right to a social pint or two without reeking like an ashtray?

I'm not imagining such things, am I?

The deal - known as a "pre-pack" administration - saw Laurel put into administration prior to 293 of the 383 pubs and restaurants being purchased by newly formed companies. Laurel, which had been hit by the smoking ban and consumer slowdown, has now ceased to trade.

Really?

Since then, trading across the pub sector has been hit by the extension of a smoking ban from Scotland to England and Wales.

Or more locally:

Paramount’s managing director Mark Greig said: “The pub trade is going through troubled times thanks to last year’s poor summer, the smoking ban and fears of a recession.

So, umm, pubs are going bust left right and centre as that heaving mob of non-smokers desperate for a watering hole turns out not to exist, to have been a figment of some fevered imagination.

Gosh, whatever next? Our Lords and Masters making decisions upon incomplete information? Misleading us perhaps?

Dearie me, no, say it isn't so!

75. "Democracy is a sham with no real choice because all the major parties basically support the system."

This is an argument popular among those whose views find little support. They say that choice in our free elections is illusory because Conservative and Labour, Republicans and Democrats, are all committed to continuing with the established system, making only minor changes. A really radical party stands little chance.

The reason that major parties support the current system is because most people prefer it that way. The parties seek votes, and that is where they are to be found. Parties which come along with radical alternatives generally attract little support. People are suspicious of the untried and untested. Sometimes, though, a new party with new ideas can emerge as a major player. It takes time for the electorate to assess their competence and to trust them. This is how the Labour Party emerged in Britain.

Sometimes the times call for radical action and the electorate backs it. This is how the post-war Atlee government was returned with a mandate to build a new, radical and modern Britain. It is how a radicalized Conservative Party was elected under Margaret Thatcher to break the post-war consensus.

To say that a similarity of party outlooks denies choice is to sidestep the whole point of democratic elections, which is the ability to change a government peacefully. Even if our parties were the same, which they are not, at least we could still change the people. The important thing is that we can throw out governments we do not like. It is the knowledge that they can be thrown out that keeps our governments reasonably responsive to the needs and wishes of the people. Very often we have seen governments which have been in office too long become complacent and bankrupt of ideas. In a democracy the people can replace them with new and untainted leaders to do things differently.

Yet another prominent scientist has joined the chorus against crop-derived biofuels, as Lewis Page reports.

Dr Richard Pike, chief of the Royal Society of Chemistry, has said that biofuels are a "dead end" and "extremely inefficient", and that the government was wrong to impose a requirement for 5 per cent biofuel content in motor fuel by 2010.

Dr Pike points out that "the 80 tonnes of kerosene used for a one-way commercial flight to New York is equivalent to the annual biofuel yield from an area of approximately 30 football pitches." At this rate it would take the whole of Britain's farmland just to run Heathrow.

It really is time to stop this nonsense. To produce these crops people are farming intensively, using more fertilizers and pesticides. In poorer countries people are cutting down virgin rainforest to plant biofuel crops. Poor people are finding corn and wheat priced out of their market, and the tanks of 4x4s are taking the food from the plates of poor families.

This is very straightforward. Biofuels are bad for the environment and bad for poor people. Like much so-called environmentalism they are based on bad science and ill-thought out consequences. They are popular with legislators and agri-businesses for rent-seeking reasons. The case against biofuels has been made overwhelmingly, and they should now be stopped. If we can derive fuel from waste biomass or algae, or from genetically engineered organisms, we should revisit biofuels. But until and unless that happens we should immediately withdraw the commitment to biofuel targets. This is tokenism gone mad and should be stopped and replaced by more useful and less damaging activity.

What it is like when you've got a serious amount of inflation in the economy.

Yes, many are calling for increased regulation in these difficult times. That doesn't mean that we should in fact have more regulation: for it is extremely rare that the results are those intended. 

Words to live by:

Almost all that any politician says on any topic other than political strategy
should be treated with even less respect than would be accorded a
professional circus-clown's speculations about string theory.

A description of what it is that politicians and bureaucrats actually do and how they work.

From strength to strength. The Ban Darling campaign makes PM's QT. And the story seems to be going international as well.

Rather more sober minded economics now: the way in which recessions spread geographically.

And finally, copyright theft as a Pareto improvement.

The Cato Institute's David Boaz, who seems to have been churning out a lot of good quotes lately (see here and here), had an excellent article in the Lima News earlier this month. His subject was "The Hillarys and the Huckabees", the two groups that threaten individual freedom in the United States.

The Huckabees, named after Republican primary also-ran Mike Huckabee, are the big government conservatives who want government to fill God's shoes, stamping out sin and telling everyone what to do and what not to do. They're the people who reject the social liberation of the 1960s. As Boaz puts it:

[They] want to censor cable television because they don't think you can be trusted to decide what your family should watch. They support bans on drugs, pornography, gambling and violent video games because you just don't know what's good for you...

Meanwhile, the Hillarys (no prizes for guessing who they're named after) reject the economic liberation of the 1980s. They "want to raise taxes because they think they can spend your money more wisely than you can. They don't believe in school choice because you don't know how to choose a school for your children. They think they can handle your retirement savings and health care better than you can." In short, the Hillarys want government to treat citizens as parents treat children – the nanny-state writ large.

Fortunately, as Boaz points out, the US has a natural inclination towards libertarianism and has so far been able to avoid the excesses of both camps. I think it's a pretty good analysis of American political dynamics: a libertarian default position, embattled by two powerful forces for statism.

I'm not sure it can be easily translated to the UK though. For starters, despite our liberal history, we lack a widespread libertarian ethos – sixty years of the welfare state has seen to that. Similarly, much of our 'political class' (not least the present government) are both authoritarian and economically illiberal. Nonetheless, I'm confident that the political wind will change before too long.