The Pin Factory Blog

This is good work if you can get it. Selling nothing for $85 million.

No, seriously, this is what the University of Wisconsin has just managed to do. You'll be aware of the practice of various schools within universities, or stadia outside them and the like selling off naming rights: Arsenal plays in the Emirates Stadium, MIT has the Sloane School of Management. There are various ways one can look at the practice, honouring a generous donation or a way to play to vainglory to shake down rich men. But money does flow from those rich to those educational institutions to the perceived benefit of both.

But what the Wisconsin School of Business has managed to do is to rent out (yes, rent out, rather than in perpetuity as most of these deals are) the naming rights to the school for $85 million: on the basis that the school will be called the Wisconsin School of Business for the next 20 years.

The Dean, Michael Knetter, has been so taken with this idea that he's extending it, as the Freakonomics blog tells us:

For $50,000, you can have a classroom not named after you. For $5,000,
you can not have your name on a plaque in the entryway to the building.
For those of you with a little less to give, $50 will guarantee that
the urinal of your choice will go unnamed. But only for the next 20
years.

I think it's a quite wonderful idea. However, there is one sadness. Traditionally Deans are academics who have moved into management: they do no teaching of their own any more. Think of it this way: how much of a premium would you pay on already steep US business school fees to be taught directly by a man who could come up with an idea like this? Could the business school make even more money by demoting Knetter and sending him back to the classroom?

(I am accepting contributions to the Tim Worstall  No Deed Poll Fund if anyone is interested.)

I was invited to the Cambridge Union (pictured) this week to speak for the motion, "The best state is that which governs least."  I pointed out that the quotation, often attributed to Thomas Paine or more plausibly to Thomas Jefferson, was in fact from Henry David Thoreau in 1849. He also said, "Law never made men a whit more just; and by means of their respect for it, even the well-disposed are daily made the agents of injustice."

I also cited Thomas Hobbes saying, "The liberty of the subject lies in the silence of the law," and rested the case against an intrusive state on two arguments. The first was the moral case that when government sets its priorities, it denies people the chance to live by their own values and, indeed, to be fully human by exercising choice. Thoreau himself had said there was nothing about a majority vote that linked it to morality and justice. The alternative to state government is not no government, I said, but self government.

The second argument was that of efficiency. States are not very good at doing things like running schools or collecting garbage. Indeed, they are not very good at government. They waste huge resources on layers of bureaucracy and management, and usually make a poorer job than citizens could achieve by voluntary association. I cited the Royal National Lifeboat Institution which has rescued people at sea for 180 years, running 230 lifeboat stations and saving an average of 22 lives every day. It does this without government funding or control. I suggested that if government ran it, it would cost 200 times as much, and that health and safety offices would probably stop lifeboatmen putting to sea because it was too dangerous.

Finally I suggested we should ask of the state what Diogenes asked of Alexander the Great, to stand out of the sunlight. That would leave people free to get on with their lives. Gratifyingly, the motion for a minimal state was carried by a small majority.

In light of the news that a pint will cost £6.47 by the time the 2012 Olympics come around, we can only predict that we are all going to have to start producing more of our own beer, wine and spirits. So that you're all professionals by the time the hyper-inflated prices arrive and can avoid lining the Exchequer's pockets, here are some links to get you started:

Click here if you want to know how to make beer.

Click here for wine, and here for still.

And if you need to purchase some kit, click here. 

Dr Rant has started asking exactly the right question: why do some believe that state delivery of services is superior?

And the Medical Student has a report on what the targets used to measure that delivery actually mean in practice. 

Further evidence of the near insane use to which at least part of the tax take is put. 

There's a possibility that Ed Balls was misquoted. But then in politics it doesn't matter what is said, only what is heard. So sad, couldn't happen to a nicer man. 

Have we reached "Peak Economics" yet?

Perhaps not: exploring the problems of transtemporal economics.

And finally, something for a slow friday afternoon. A (possibly controversial) list of the top 100 stand up comics along with links to clips. Sadly, very US biased, so no Kenn Dodd, Bob Monkhouse, Tommy Cooper, Roy Brown....well, there's a task for the weekend, eh?

How far should we blame the Chinese for the credit crunch? Traditional savers, they saved even more as they got richer and richer, and a fair chunk of it went into US government bonds. That kept US interest rates low, making Americans better able to afford mortgages. More loans were taken out, and property (along with much else) boomed.

But low-interest mortgages are bad news for banks. They want to charge more to borrowers than they pay out to lenders. That's how they make money. But at low interest rates there is not much room for that difference to work. So banks went for volume, expanding their mortgages and raising the cash in slices from investors and other banks.

Low yields looked OK when the market was expanding, but many investors seemed not to understand the risk of this high-flying strategy. They weren't helped in that by the rating agencies, who earn their fees from banks and are therefore reluctant to criticize them.

But eventually the kite began to come down, with US failures among the riskiest mortgage lenders, and the UK collapse of Northern Rock, whose business rested on their ability to carry on raising the funds they needed to keep the business growing.

The US and UK cut interest rates in the hope of helping customers to pay their loans and bankers to ride out their failures. But then the growing realism among bankers has caused them to raise the interbank rates on which this whole kite flew – shaving the lender-borrower margin still more. Ouch.

At least with quarterly reporting, most of the problem is now out in the open. It's uncertainty that really spooks markets, and perhaps now that analysts and investors can see the numbers, however bad they are, there's less of that uncertainty about. But every bit of bad news continues to give investors the jitters.

So the Chinese were at the root of it all. Or was it perhaps our own stupidity, and a regulatory system that props up failing enterprises (like Northern Rock) and makes businesspeople able to take absurd risks in the knowledge that taxpayers will bail them out?

60. "Alcohol should be made more expensive and less widely available to combat binge drinking and yobbery."

Many people who put no great faith in the price mechanism elsewhere happily advocate big price increases for things they disapprove of. Such things include smoking, budget air tickets, petrol, and alcohol. Price increases can indeed change behaviour, but it is poorer people who are hit hardest; the rich can afford the increase.

The assumption behind the anti-alcohol campaign is that low prices promote binge drinking, and the attendant anti-social behaviour sometimes seen in young drinkers. It is by no means clear that this is true. People in some other countries where alcohol is cheaper do not have the binge drinking or lout problem to anything like the same extent. It seems to be a cultural thing which affects some countries more than others.

An increase in the price of drink would probably just prompt a switch among binge drinkers to cheaper types, or perhaps to illegal substitutes. Meanwhile respectable middle-aged couples would have to pay more for their bottle of wine, and the great majority of Britons who do not binge drink and commit anti-social acts would be punished for the sins of the minority who do.

Similarly there are those who urge that pubs and bars should have reduced opening hours to deny drinkers the opportunity. Again, it seems that facilities enjoyed the many are opposed in order to target the abuse committed by a few. Determined binge drinkers would continue to drink, but at home or outside, rather than in licensed premises where the decision of the proprietor when to stop serving them exercises at least some restraint.

Countries which make it difficult to drink through state monopolies or huge liquor taxes seem to suffer greater drink problems than more easy-going ones. To curb drinking excesses, it is the culture that must be changed, not the availability of alcohol.

The US is in recession – it's official. Well, maybe not quite official, but according to quite a few people like former US Treasury Secretary Larry Summers it is, while folk like Lehman Brothers are predicting negative growth for the first two quarters of this year – which would indeed be a recession on the standard definitions. Some think that as people lose their jobs and fail to meet their mortgage payments, that could just deepen the banks' problems even further.

I suppose – unfortunately – that is good news for Hillary Clinton. She's been doing well in the industrial states where workers have seen their jobs undermined by global competition and the (to them and Hillary) hated NAFTA. Southern states may well have large black populations who would like to see one of their own make it: but they also have large populations of all sorts who have lost their jobs and think that Clinton's more protectionist stance would help them.

It wouldn't. And in the longer term, more US protectionism would be bad not just for America – but for everyone else too. The UK is highly dependent on US trade, and there is less of that already. Even mighty China has seen its steel exports suffer a big fall as American housebuilding slows. Greater US protectionism – even the threat of it – would rein in trade even more. Sorry, Hillary, but that's not a
welcome prospect.

Do read this (newspaper, not blog) piece from David Mamet. How a liberal (American style) became a real liberal. And, as you might expect from a writer of such stature, it's beautifully written. The penultimate paragraph of this contains similar wisdom from Tom Stoppard.

Might being fined $1,000 for dying one's poodle pink be a decent example of Stoppard's point? 

More spotting of Laffer effects in the wild. Here and here. Even the Treasury seems to agree that the rise in spirits taxation of yesterday will have no effect upon revenues.

It's probably not wise to trust the Treasury estimates of future borrowing requirements. 

We don't know quite as much, empirically, about economics as we might hope.

The basic logical structure seems sound. Just how do we decide which things we really do need government to do? 

And finally, achieving excellence, finally learning how to play "Eruption".

The UK's Tax Freedom Day 2008 will fall on 2 June. That means that average Brits are spending more than five months of the year working for the Chancellor, rather than working for themselves. Last year's date turned out to be 4 June – later than forecast due to the slowing economy. But in fact Tax Freedom Day 2008 is only one day earlier, since this is a leap year. And the date assumes that the Chancellor is right about his growth forecasts – with less growth, the taxes take a larger share of our income.

While the tax burden is bad enough for average families, the tax paid by poor families has been doubled. Next month, the starting rate of income tax goes up from 10 percent to 20 percent. This means that people on the minimum wage will pay a tax rate of 31 percent (20 percent plus 11 percent National Insurance) on over half their income. Under the Adam Smith Institute's flat tax proposals, people on the minimum wage would pay no tax at all.

As usual, the Budget speech was significant for what the Chancellor did not say. He did not mention that government spending will soar to £600 billion this year – that's £10,000 for every man,woman and child, twice as much as in 1997. Is the average family of four really getting good value for the £40,000 it pays out? Is the state catching twice as many criminals, doubling educational achievement, or treating twice as many NHS patients? If the government sector had grown only in line with inflation, rather than far above it, taxpayers would be £200 billion better off – enough to abolish income tax, corporation tax, capital gains tax and inheritance tax.
Just think what that would do for our international competitiveness.

Now we have high taxes which make the UK uncompetitive. It used to be a very attractive place to locate, but now we have the seventh highest corporation tax in Europe. Our taxes on middle-class families are the OECD's highest. Combined with the increase in capital gains tax on entrepreneurs, and the assault on non-doms, Britain is now a much less attractive place in which to start and run a business. The Chancellor's growth forecasts overlook that. Tax Freedom Day may come later than he thinks.