Camilla Cavendish made the following quite mindboggling assertion in her Times column:

The theory of comparative advantage, which has underpinned trade for 200 years, is fraying.

Eh? How so?

The argument was that everyone would gain because emerging economies would take over low-wage jobs and rich countries would gain new markets for high-end services.

Ah, whatever it is that she's talking about there it's not comparative advantage. A precis of which is that, whether we're talking about me and my kid brother, two companies or many countries, we should each do what we're least bad at and swap the resulting production.

That's the way that we get maximum production at our current level of technology and resources and thus have the maximum amount of things to swap with each other: a reasonable definition of being as wealthy as we can be is that we have that maximal amount of stuff to share, no?

And once we've got the idea properly stated it then becomes apparent that there is no threat, no possible fraying of the theory, because other people move up the value chain, other people become more productive:

But India is already better at high-end technology than the West, and is filing an increasing number of patent applications. Western politicians make glib statements about the need to improve education. But the globalisation of innovation should shake them to the core. That's why many G20 countries talk up trade while implementing protectionism.

If people in India invent cool new things then that's just more cool things for us all to swap and share. If Indian, or Chinese, or Martian (and yes, if they do indeed exist we will indeed trade with them), workers become more productive then that's just more production that we can share.

This idea that other people, companies or countries, because they start doing high wage, high value things, are some sort of a threat to us or our way of life is entirely arse about face. We want their labour to be worth more, we want them to be as productive as they can be, we want all of the many billions across the Earth to be adding the most value they can, creating the most from the sweat of their brow.

For as they do so they'll be creating more things, more stuff, more goods and services, more goodies which we can all partake of by the simple method of trading what we make for what they do.

The "globalisation of innovation" isn't a threat. It's a blessing, a joy to be welcomed rapturously. Good grief, do you want a few hundred million already rich people thinking about how to make your life better or all of humanity, all 6 or 7 billion of them, feverishly beavering away in attempts to satiate your every desire?


The future of the BBC


A new report by Martin le Jueune entitled To inform, educate and entertain? British broadcasting in the twenty-first century has been published by the CPS. It goes some way in offering a realistic way forward for reform, but alas, falls short of calling for the disestablishment of the BBC.

The report is right in arguing that “The next Government should be prepared to face down élitism disguised as a concern for standards". However, the idea that the next government should also “build a system that really meets the needs of British consumers, voters and society" draws inspiration from the same ideological scripture that he criticises.

Politicians should leave the media well alone. The report suggests the government should regulate that the BBC so it provides:“Impartial news and current affairs, factual and documentary programming, children’s television, classical music, speech radio – and little more."

  • Impartial news and current affairs? A panacea.
  • Factual and documentary programmes in the private sector? Take a look at how HBO can do it.
  • Children’s television? No thanks. Good and bad children’s programming is spread evenly across the channels.
  • Classical music? Classic FM already exists. With the BBC taken out of the market, others would come into the market.
  • Little more? Nothing more.

As I have written before, the BBC should be privatized through BBC Worldwide. Given there are a fair number of people who would agree with Martin le Jueune that the BBC should provide these ‘public goods’ the BBC could also be made into a charity. This would allow those that believe in it to voluntarily decide to support its work and leave the rest of us as free as Jacqui Smith's husband to spend our money on other things.

Cycles for London


altTransport for London doesn’t offer the best of service. I’m sure most people who live or work in the capital have lost count of the number of times they have been have been late for an engagement or told their service is not running. This is mainly because the complex task of keeping the city moving is controlled by politcians who indulge in grand, top-down schemes. This creates a culture of misdirection and mismanagement.
The scheme recently launched by TfL to provide 6,000 new ‘hire bikes’ to the capital looked optimistic at first. A fairly simple, yet effective way to relieve congestion on the roads, free-up public transport and cut carbon emissions. Only the public sector could find a way to turn this straight-forward idea into a farce. And they have - spectacularly.
They have now announced that none of the bikes will not be given padlocks and anybody supplying their own padlock will be fined £150. A deposit will be paid before a bike can be hired, and will naturally be unredeemable if the bike is stolen. So effectively TfL is denying the cyclists the right to protect their money. If people cannot lock their hired bikes, they are simply not going to use the scheme.

What's all this then?


Having written a new book, The Rotten State of Britain, to show what a police state we have descended into, I seem to have become a victim of it myself.

This morning I was doing an interview with a Canadian TV crew on the outcome of the G20 at my office just underneath the Church of England's headquarters in Westminster. After I'd told them that capitalism was still alive and well and that the mess we're in was a failure of government policy rather than banks or markets, they decided they would like some set-up shots outside.

So the cameraman lugged his enormous camera and tripod onto Great Smith Street and I started doing my stage walk towards the office door. Whereupon a red police car, lights flashing, screeched up and two officers rushed out, in full body armour, to confront the cameraman and the interviewer and ask them what they were up to.

The cameraman suggested that it was pretty obvious what they were up to – setting up a TV interview. The police officers took out their notebooks. The cameraman ventured that this was not really necessary, but the police replied that under Home Office guidelines – the department run by the keeper of the nation's morals, Jacquie Smith, of course – they had to report that the crew had been stopped. And since we were under the gaze of at least ten CCTV cameras (five on the Schools department and even more on BERR), they had to go through the paperwork. They stopped anyone 'behaving suspiciously' around 'sensitive buildings'. Is the Church of England's headquarters really so sensitive? Am I worried about them taking pictures of my office, when it was me they were photographing?

So the crew had to provide identity and state their date of birth, their height, and even their ethnicity and were duly given their yellow copies of the stop and search form.

It really does underline the fact that we are now living in a police state, which is exactly why I wrote The Rotten State of Britain. One smart comment or false move and we could all have been arrested and held for 21 days as terrorist suspects. It's exactly why I wrote the book. The police used to be our servants. Now they're our masters. No doubt they get a bonus for everyone they stop; senior officers certainly do get a bonus for everyone they caution or charge. Fortunately, the police are drowning in paperwork so they can't do too much harm. But I wish they were out there catching burglars rather than stopping people from doing their job.

Blog Review 920


Something to chew upon. With the largest banks, nationalisation simply isn´t possible.

Looking at the relative sizes and thus economic importance of the G 20 countries.

We all knew this government "help" was going to end in tears. And here´s a possible mechanism. What is necessary above all else is certainty: certainty of the law. And that´s just what banks aren´t getting right now.

But then it´s not a surprise that politicians are witless now, is it?

Amazingly, biting sarcasm does not overturn the rules of economics.

More fake charities attempting to alter the course of public discourse.

And finally, embarrassing, ain´t it?

Verdict on the G20


Oh, what a circus! Oh what a show! But after diverting London's traffic, 85,000 police hours and a lot of our cash from more useful destinations, what good has come of the G20?

Not a lot. For a start, they obviously couldn't agree on a financial stimulus package. Thank goodness there is someone out there who figures, unlike Gordon Brown, that you can't borrow your way out of debt. Or tax you way out, for that matter. A reassuringly large round figure – $1trn – is to be spent, but largely on poor countries, and on trade. That's welcome, inasmuch as poor countries (and many developed ones, like Japan) have seen their exports plummet as we Westerners have all tightened our belts and stopped buying new cars and clothes. Even so, the money has to come from somewhere, and it will come from higher taxes or higher government borrowing, which will actually depress economic enterprise among the wealthier countries. Ho hum.

Regulating the hedge funds was long expected, but the customers of hedge funds are financially-savvy people who frankly ought to be able to look out for themselves. Regulating them will do little, apart from encouraging all sorts of non-savvy customers to go into rather risky investments in the belief that the regulator will save them from their own imprudence. And regulating bank bonuses? That's a pure greed policy. Bonuses aren't to blame for the crisis – governments are to blame. They're the ones who spread money and credit around like confetti in order to save us from busts and create a rather long and enjoyable boom. It was a great party, they poured the drink until we could hold no more, and no we're suffering the hangover.

And we're going to have a new quango, the Financial Stability Board, to save us from future international crises. Sounds like the old International Monetary Fund again (the one which had to invent a new international-development role for itself when floating currencies made its old currency-stability role disappeared). But markets move fast, and the numbers are huge. New quango-crats have no hope of keeping up with them, any more than the Financial Services Authority did.

In two years from now, this circus will be largely forgotten. It will be business as usual, except that we'll all be in even greater debt. Frankly, they could have all stayed at home and Skyped each other rather than disrupt life for the rest of us. It would have been a lot cheaper, and they would probably have come up with something a lot less dull.

Dr Eamonn Butler's new book The Rotten State of Britain is published this month. Click here to find out more.

The shackles of free trade


In The Times of March 31st we have an extraordinary attempt from Noreena Hertz (a Fellow of the Judge Business School at Cambridge University) to bring free trade down to size (“Let’s shake off the shackles of free trade.") Her main prongs are that our politicos at the G20 summit this week are “in uncharted waters" (they are not), that they “acknowledge that the credit crunch was man-made" (indeed it was, but not by “a complacent blindness to the to the downside of untrammelled free-market economics") and that “all the absolutism of the key tenets of neoliberalism (privatisation, deregulation, balanced budgets, have been rejected by all but the most dogmatic. Apart from one – the primacy of free trade").

How wrong can one be? What planet is she on? Politicos will always blame anyone but themselves, of course, but where exactly are these untrammelled free-market economics, when government spending alone is almost certainly at an all time high and state regulation is still rising having reached it long ago? Put the two together and you’re miles over half the national income.

It gets worse. Like Gordon Brown, she doesn’t even understand free trade.

In my book I quoted Gordo thus: “In the 19th century Britain led the world in equating free trade with liberty only when business and politicians came together for that shared purpose. In this new century the same kind of joint effort is required from government and business before the last window closes to restart the talks." (Gordon Brown, reported in The Times, 6 November 2006).

Just a little word left out, Gordo. In the 19th century the defining feature of Britain’s free trade was its unilateral nature. Trade treaties didn’t come into it. We knew then that the practice of free trade in just one country, (to the extent that it was allowed any trade elsewhere), brought gains. Treaties are just an excuse for stalling.

With or without treaties the “Gospel of free trade" which Noreena describes as “What an extraordinary thing to say" is actually unassailable by logic; a simple economic truth. Don’t truths count any more? If so, why don’t we practice a little protectionism between London and Birmingham, say?

Brussels Dispatch: Full Marx for the G20’s prescriptions


Let’s start with a dangerous idea:

Nevertheless the theory of output as a whole, which is what the following book purports to provide, is more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output under conditions of free competition and a large measure of laissez-faire.

This is JM Keynes, in the preface to the 1936 German edition of his General Theory.

Do not deceive yourselves that Thursday’s G20 meeting is anything less than an overt and brazen attempt of our so-called leaders to launch a putsch against their own peoples; using as a pretended necessity the downturn in the financial markets.  A downturn, incidentally, which they themselves created through years of reckless monetary expansion and steady supply of cheap credit.

So which are the liberties that have been immolated on the altar of “rebuilding confidence and restoring trust”?

  • the freedom to buy and sell our own labour at a price freely entered into by both parties (bankers’ pay and bonuses will be subject to stricter controls)
  • more political cronyism and corruption as businesses have to kiss milord’s hand, and leave a gift on the mantelpiece, in order to trade (greater regulation of hedge funds and credit ratings agencies)
  • an act of outright pillage of the purchasing power of our currency as the State compulsorily purchases on our behalf those goods and services which we had declined to buy voluntarily hitherto (“an unprecedented and concerted fiscal expansion” of $5 trillion).
  • price fixing of basic goods and services (commitment to “ensure long-term fiscal sustainability and price stability” – how else will this be ensured, in light of the above expansion?)

We have sovietised the productive capacity of the economy.  In ten years’ time when we are queuing for our price-fixed ration of food, think back to this day, and how Gordon Brown led the conspiracy against liberty and freedom, and re-orientated the direction of our culture towards total self-destruction.

This is the totalitarian state, which brings us back to the quote at the beginning.

Bloggers Bash 2009 – Politics and the Blog


We had two of the country’s top political bloggers discussing Politcs and the Blog on the 1st April. Guido Fawkes spoke first, discussing the right’s hegemony over the left. He argued that two factors are key to this, namely Labour’s top-down attempts to create a comparable site to ConservativeHome and the fact that the predominantly left BBC has such a strangling dominance over the media at large. Rightly proud of the tabloid style of his blog, Guido also spoke with relish on the mounting political scalps that he has amassed.

John Redwood MP was up next and spoke extensively of the failure of the media  to offer a thorough and critical analysis of government policy. Acknowledging his purposefully technical and demanding subject matter, Redwood spoke of how he is stirred to write after reading the documents of government; analysis of which he is required to do, in place of the failure of the mainstream media. His analysis of the financial crisis has certainly outstripped that of professional journalists by a country mile.

The audience included a litany of other top bloggers and as such the questions were excellent. We had many questions that focssed on the BBC. The room was thick with plots on how to bring down this behemoth. This would certainly be a welcome move: something for the politicians in the room to think about perhaps. As Guido rightly pointed out, the i-player is all very well, but without the BBC’s monopoly we could create the next Google.

Blog Review 919


Oh my, what confusion! Even Nobel Prize winners are finding it difficult to keep their thoughts straight in these times.

Find out which MP took the most of your money last year.

Still, a silver lining....that money they took this year wasn´t worth as much as the money of yesteryear before those MPs got elected to run things for us.

A most important point about economics. It´s essential to differentiate between theory and the underlying reality that theory is attempting to describe.

Sometimes theory is pretty good at that of course: barriers to entry do raise the prices consumers pay.

Good news: "Economic globalization has been going on for far too long for even the crash of 2008 to derail."

And finally, just when should an MP declare an interest?