Green budget, stupid budget

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Now Alistair Darling and Mervyn King have told him there's no money left for another fiscal stimulus, it seems Gordon Brown is desperately searching for some policy gimmicks to shove in the forthcoming budget. And it looks like his latest big idea is a 'green new deal', which will be "a job creator, a quality of life improver, and an environment-enhancing measure", as he told The Independent.

The trouble is, the money has to come from somewhere. Government cannot give to any one sector of the economy – however deserving – without first taking away from the private sector as a whole. If they tax, then they take away funds directly. If they borrow, then there's less capital available for businesses to access. And however they do it, the government is using resources that would otherwise have been supporting jobs and companies elsewhere in the economy. No new purchasing power is created.

These green jobs that Brown says he'll create will only come at the expense of jobs in other sectors that are not so politically appealing. And the businesses he 'stimulates', will only be stimulated because others are deprived. 

Moreover, are these green industries going to create wealth or are they just going to be a sink for the taxpayers' money? Even if they are profitable, who's to say the same resources wouldn't have been put to more productive use elsewhere? Government is notoriously bad at picking winners. In fact, they're much better at picking losers.

None of this is to say that I don't think the 'green economy' has a future. I do. The possibilities technological advance brings are endless. But they will be better realized if they're subject to the competitive forces and discovery processes of the market, than if they are simply the playthings of politicians chasing headlines.

Peter Kellner at TNG

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Tuesday's meeting of The Next Generation group at the ASI was addressed by Peter Kellner, President of the polling organization, YouGov. He told everyone that if they were looking to do spread-betting based on his insights, it would have to be a very broad spread in that anything was possible from a narrow Labour lead to a Tory landslide.

He thought a 2009 election unlikely, and said the outcome of a 2010 election depended heavily on whether the government were perceived to have weathered the economic storms. If people's personal economy (job, spending power) felt good, there would be an upturn for Labour, even if the global economy were still in recession. He could not say how big that upturn might be, but pointed out that the Tories needed to be several points ahead even to get a dead heat with Labour because of quirks in our electoral system.

His basic point was that the uncertainty arose because elections are linked closely to economic ones, and the economy is in uncharted waters.  Although he himself and his TNG audience were concerned about issues, he said the electorate at large was influenced more by 'valence,' whether the parties were felt to be competent and sympathetic, rather than to any specific policies.

He answered questions about which events might influence the election's outcome, and received a chocolate rabbit with his round of applause. The ASI's Next Generation members were delighted to be given Easter eggs in lieu of the usual canapés or sandwiches.
 

Poverty, equality and hope

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It is not people being poor that causes social ills from school failure, teenage pregnancy, crime and short life expectancy, but the fact that some people are poorer than others. It is not the level of income, but the differences between levels that really matter. It follows that fighting poverty is the wrong battle except if it reduces inequality. The right target is inequality and never mind if reducing it were to leave the poor as poor as before. They, and society as a whole, will still be healthier and happier.

This, stripped of rhetoric, is the latest twist in the convoluted chain of arguments for altering a more or less liberal order out of all recognition until justice proper is decisively subordinated to what some call "social" justice. Explicitly shifting the target from poverty to inequality, to the point where poverty becomes irrelevant as long as it is the same for all, is a radical novelty.

There are more potent ways of fighting poverty than soaking the rich. Inducing people to form and preserve two-parent families, if indeed they can be induced to do so, could be wonderfully effective. Another very potent means is to raise the demand for labour, the main or only thing the poor have to sell. One obvious cause of rising demand for labour is capital formation which, in turn, is fed by public, corporate and personal saving. We can't predict what would happen to corporate saving, but we know that public saving is generally negative. Personal saving is typically much greater proportion of high than of low incomes. Hence the same national income unequally distributed yields more saving than if it were equally distributed. By saving more, the very affluent are, so to speak, raising the price they will have to pay for labour tomorrow. In any event, unequal affluence holds out more hope for the poor than equal poverty.

Extracts from Equal Poverty, Unequal Affluence published by Econlib.

Blog Review 925

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Amazing how complicated it can all get, isn´t it? We balme the banks for having made bad bets and we blame them when they make good ones, too.

Or we could of course just insist that they lend to the government so that the govt can lend to hte banks which can then lend to the g.....you see how this is going, yes?

One problem with modernisers: they always want to do it their way, not allow others to simply get on with their own.

The problems with reforming campaign finance: the sensible solutions aren´t favourable for politicians and it´s the politicians who get to decide which solutions are deemed sensible...

Why is it that green products really seem to suck?

If you´re really angry at government, why not employ this method to frustrate their latest plan to track your every online move? Or this one?

And finally, the state of British policing today.

 

The people's bailout

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Oxfam has a new report out today, calling for a 'people's bailout'. Their argument is that a fifth of the population already lives in poverty and millions more will become more vulnerable as a result of the recession, and that something must be done.

Of course, Oxfam uses a relative definition of poverty, whereas what really matters is absolute poverty. Poverty is about being unable to satisfy basic needs, not just about having less than others. But let's leave that aside for now, because however you define 'poverty', it is clear that there are already plenty of people in Britain who struggle to make ends meet, and that the recession is only going to make that worse.

What, then, of Oxfam's policy recommendations? On the plus side, they recommend raising the personal allowance so that people on low incomes pay less tax. As I outlined in this briefing paper, raising the personal allowance to £12,000 would take 7 million people out of paying income tax altogether, and be equivalent to giving the average worker an extra £1730 per year in gross pay, making them £100 per month better off. And it would only cost the exchequer £18.9bn – a sum that could easily be covered by quite modest efficiency savings (see here). In short, it's a very good idea.

On the downside, however, Oxfam wants higher benefits, more social housing, and so on. And that poses a few problems. Firstly, such measures are not affordable, especially when the government has already run up gigantic debts. But just as importantly, such measures are likely to make the benefits trap even more severe than it is now. Moreover, Oxfam's call to put welfare reform on hold is very short-sighted: it may be harder to tackle the dependency culture when times are tough, but it's actually more important than ever.

In the long run, we'll only help people out of poverty if we get the economy growing again. And that's going to be pretty difficult if uncontrolled social spending is driving up the taxes on entrepreneurs and employers.

Green capitalism

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The CBI is publicly calling for the government to invest more in greening the economy. This was prompted by the low percentage of spending on green issues in the UK's stimulus package. A contributory factor was no doubt the recent withdrawal of several major energy companies from investment in a range of renewable energy schemes, particularly wind farms.

Private sector companies are, by and large, good at spotting opportunities for profit and exploiting them. The message from Shell and others is that the market is not rigged sufficiently well in favour of otherwise uneconomic projects to make it attractive for them to participate. The message from the CBI, on the other hand, is that the government should pass more taxpayers' money the way of businesses to encourage them to invest in economically dubious activities. This doesn't sound like the best way of generating either jobs or prosperity (or, for that matter, power).

Martin Livermore is the Director of The Scientific Alliance

Quangos vs. society

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It is sometimes difficult to keep up to date with the endless stream of ever-changing quangos that seem to illicitly govern our country. With no democratic mandate or channels for accountability the damage they do to society can be underestimated.
 
The quangos have always been a natural adversary to society but it seems they are now even working against one another. The upper management of the quangos seem to be deserting the sinking ships as fast as possible. Three senior staff at the Equality and Human Rights Commission (EHRC) have left within the last couple of weeks. Maybe this is due to the inherent flaws of such bodies – Is there not a huge paradox in trying to engineer equality of opportunity?
 
The emergence of the quangos was a costly episode in more ways than one under New Labour. We have paid dearly for the dubious honour of having the quangos rule over us. There are roughly 1,162 Quangos in the UK (not even the government knows the full statistics) which run at a total cost of £63bn (equivalent to £2,550 per household). They employ over 700,000 staff – all to do boondoggle jobs which have been artificially created by the government.
 
It is not only our taxes that have taken a hit at the hands of the quangos. Our democratic rights have also been massively depleted. The heads of quangos are appointed, not elected, and as such there are no routes for accountability to the public. Yet they are still used to wield huge sums of public money and massive amounts of power. As such, they are extremely useful tools for the government when it comes to unpopular policies and legislation.
 
The prominence of quangos in our society is yet another example of government trying to help itself and promote self-interest rather than focussing resources towards those that would benefit most.

Blog Review 923

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It might not work exactly the same way here but school vouchers in Washington DC seem to provide better results at one quarter of the cost. Yes, one quarter.

More public private: Freddie Mac and Fannie Mae both went bust as did AIG. Odd how the bonuses at the first two don't generate quite the same outrage, eh?

Isn't it wonderful the way that our childrens' details will have to be put on a secure database. One so secure that MPs' children won't be on it for security reasons?

No, the theory of comparative advantage is not "fraying". You shouldn't believe everything you read in the newspapers.

What the culture of targets actually means within the NHS. Fewer appointments with GPs.

If you really want to stimulate the economy, why not liberalise it?

And finally, Sherlock gets to the bottom of the G20 mystery.

 

Blog Review 924

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One more grenade being thrown at the traditional explanation of the Great Depression's causes. Here higher unionisation and thus higher than market clearing labour rates are blamed.

Just what was it that our politicians were doing before they became politicians. Fell happier about their taking hundreds of billions to stave off a depression now, do you?

It is fun when eminent economists put the boot into other eminent economists, isn't it?

The new head office method of investing passes yet another test. Or, how driving through a motorway interchange proved that RBS was doomed.

Explaining politicians of the left, the right and the centre. The best solution to this problem would seem to be to have fewer politicians with less power.

A battle between the photographer and the police not too keen on being photographed. Unfortunately this is all over there where they have a written Constitution to preserve such freedoms.

And finally, an interesting method of working out how to pay those fewer polticians.

MP's homes: Hoon, Beckett, Darling...

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Housing minister Margaret Beckett is the latest to be caught in the 'three homes' row. (Well, the latest at the time of writing, but they're coming through thick and fast now.) That's alongside Transport Secretary Geoff Hoon and Chancellor Alistair Darling. She was given a grace-and-favour home in the grand Admiralty House on Whitehall while she was President of the Board of Trade. But she still claimed £106,000 expenses for a 'second home'. Hoon went one further, renting out his London flat while he actually stayed in a grace-and-favour apartment.

Two things are shocking about this. First, I'm sure that these ministers haven't broken the Commons rules. That's because the Commons rules are deliberately written to allow MPs to claim for just about anything, down to barbecues and bathplugs. MPs have always been embarrassed to put up their own pay, so they got round the problem by voting themselves generous 'expenses' instead. But it's not really expenses – it's really under-the-counter pay. What my colleague Dr Madsen Pirie calls 'stealth salary'. And tax free, of course! The Fees Office actually advised MPs how to maximize their cash grab by making their sister's spare room their 'main residence' and suchlike. They thought their expense chits would never see the light of day – which is why they are now so embarrassed.

You would think that MPs would have learnt to live on the front page. Everything they do gets out eventually. And yet they are prepared to act in ways that might be within the rules, but which were dishonourable and underhand, just for money. It's astonishing.

The second shocking thing is the number of 'grace and favour' homes that the Prime Minister can give out to favoured ministers. Such as the palatial Dorneywood, outside which John Prescott was photographed playing croquet when he was supposed to be running the country. He got fired, but he still hung on to Dorneywood! Likewise, when David Blunkett resigned following a shares scandal, he hung on to his government house in Belgravia! These and other examples are cited in my book The Rotten State of Britain. The evil of this system is that it concentrates power and patronage in Downing Street, and it's one of the reasons why  MPs are such lickspittles – they all want to become ministers and share in the perks too!