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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

Common Error No. 61

Written by Dr Madsen Pirie | Saturday 15 March 2008

61. "It is important for us to understand the causes of poverty."

No. There are no causes of poverty. It is the rest state, that which happens when you don't do anything. If you want to experience poverty, just do nothing and it will come. To ask what causes poverty is like asking what causes cold in the universe; it is the absence of energy. Similarly poverty is the absence of wealth. For most of humanity's existence on this planet, poverty has been the norm, the natural condition. People hunted to survive or lived by subsistence farming, and they were poor. In some parts of the world this is still the case.

The unusual condition is wealth. This is what changes things. We should ask what are the causes of wealth and try to recreate and reproduce them. When you ask the wrong question, "What causes poverty," you end up with wrong answers. People fall into the trap of thinking that the wealth of some causes the poverty in others, as if there were a fixed amount of wealth in the world and that rich people had seized too large a share of it.

In fact wealth is created, and it is only during the last 250 years or so that we have found how to do this on a grand scale. Wealth is created by production and enterprise, by the specialization of labour, and most of all it is created by exchange. Instead of trying to take wealth away from rich people and redistribute it, we should be seeking to implement the conditions in which as many people as possible can join in the wealth-creating process for themselves.

Poor countries will not become wealthier because we give them some of our riches. They will climb out of poverty the same way we did, by producing and selling goods and services and by creating wealth in the process.

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Selling nothing

Written by Tim Worstall | Saturday 15 March 2008

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

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.)

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Libertarian motion wins at Cambridge Union

Written by Dr Madsen Pirie | Saturday 15 March 2008

cambridgeunion.jpgI 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.

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Say no more to alcohol duties

Written by Steve Bettison | Saturday 15 March 2008

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

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Blog Review 536

Written by Netsmith | Friday 14 March 2008

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?

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Blame the Chinese?

Written by Dr Eamonn Butler | Friday 14 March 2008

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?

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Common Error No. 60

Written by Dr Madsen Pirie | Friday 14 March 2008

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.

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An unwelcome prospect

Written by Dr Eamonn Butler | Friday 14 March 2008

hillary.jpgThe 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.

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Quote of the day

Written by Wordsmith | Friday 14 March 2008

Politicians take people's money with a promise to fulfill desires that supposedly can't be attained any other way. Prostitutes do the same, though by reputation, they are more reliable in delivering.

Steve Chapman's take on the Elliot Spitzer scandal

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Blog Review 535

Written by Netsmith | Thursday 13 March 2008

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".

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