Two turkeys do not make an eagle

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'I prefer that we take structural measures that clear balance sheets, restructure or wind down banks and allow the survivors to resume lending without looking back. This is the clearest path to both financial stability of the sector and viability of its major players. This is much better than contemplating mergers between troubled banks. As I heard at the OECD yesterday: two turkeys do not make an eagle.'

Nellie Kroes, EU Competition Commisioner

Blog Review 880

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Getting your money out of Stanford's Bank in time might not be the end of your worries.

There is a publication bias in the publication of studies about publication bias.

John, Monty Python – are you sure that he is one of us?

It's rare enough to find a politician who has heard of Bastiat....but one who actually understands him as well is a treasure.

Defining government "investment": I drank eight pints of Stella and then 'invested' the proceeds against a wall on my way home.

The Krugman conundrum. He tells us that he knows, absolutely, that senior government figures rarely if ever know what they're talking about. Yet he still advocates that these know nothings should run ever greater parts of our lives. Eh?

And finally, a literary critique of the Prime Minister (note, one comment page editor for a national newspaper has told Netsmith that the PM does indeed write his own pieces. Sadly.)

 

Forget Fairtrade Fortnight, let the market work

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Division of labour is the most powerful force in the world. It is creative, and it is corrosive. "Fair trade," by contrast, is never creative. It is only corrosive.

If I have two apples, and two bananas, and you have a pin factory, with all the production benefits of division of labor…well, even after we trade, you still have a lot of pins. I might trade you an apple and a banana for a card of 100 pins. I might want three times that many if I want to do some sewing, or to pop a lot of balloons. But you and the other ten people who have specialized in pin-making can't get along with exchanging with just a few other people. They need a larger market, with many more people in it.

That means two things happen, though not because anyone plans it out beforehand. First, the locus of exchange, or size of the market, becomes larger. Second, the focus of exchange shifts to the commodity, and away from the person doing the trading. I don't know who made the pins, and I don't care. I just want to buy pins, and you just want to produce pins at a low cost.

"Fair trade" tries to refocus exchange on the person, not the commodity. Fair trade consciously prevents the productivity increases that arise from division of labor, by creating a kind of human zoo, arresting production and exchange relations in a pre-industrial agricultural form. By raising returns to unproductive labor, fair trade shackles people in less developed nations to traditional roles, and traditional methods of production.

In Chapter 3 of the first book of the Wealth of Nations, Adam Smith argues:

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men's labour as he has occasion for.

Expanded division of labor, and its two consequences, increased specialization and lower costs, is the fundamental dynamic force behind globalization. The market expands dramatically. But then distance and the number of transactions overwhelm the capacity for personalistic "fair trade" exchange to supply the quantity demanded, and so price is artificially high and quantity produced is suppressed.

"Fair trade" raises costs to consumers. Worse, it enslaves the people it claims to help, with the invisible chains of artificial subsidy, and arrested economic development. If it pleases you to think of happy natives, living primitive lives, just go rent a BBC documentary, and let the market work.

Professor Michael Munger is Professor and Department Chair, Political Science Department, Duke University, and writes regularly here

The top ten myths of American health care

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A new report has been published by the Pacific Research Institute, titled “The Top Ten Myths of American Health Care: A Citizen's Guide" by Sally C Pipes. The publication examines ten commonly held myths about health care in US, including:

  -  Government Health Care is More Efficient

  -  Forty Six Million Americans Can’t Get Health Care

  -  Government-Run Health Care Systems in Other Countries are Better and Cheaper then America’s

  -  Universal Coverage Can Be Achieved By Forcing Everyone to Buy Health Insurance

  -  We Need More Government to Insure Poor Americans

There are going to be many problems created over the coming years in relation to healthcare in the US, one can only hope that this book is read by those who need to. Indeed, this publication would be invaluable for many in free market policy in Europe to expose the lies of those who castigate the US system as one that is wholly private and extraordinarily exclusionary.

For a more in depth review of the publication please click here to read Doug Bandow of the Cato Institute, whose article appeared in the Washington Times.

Obama’s pork barrels

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The historic $ 789 billion stimulus package signed by president Obama is basically a spending spree which favors unilaterally the Democratic power base - a wasted opportunity because it does not contain any tax cuts that could stimulate new investment. On the contrary it dries up the money market through government grabs and doles out cash to political movements with very dodgy credentials.

• It gives $2 billion to ACORN, an anti-capitalist "community" group that's been accused of voter registration fraud; $30 million to restore wetlands and save the endangered salt marsh harvest mouse in the San Francisco Bay Area (a Nancy Pelosi project); another $1 billion for a Prevention and Wellness Fund for education programs on sexually transmitted diseases.

• Tens of billions will be spent on high-speed rail lines, which will be of little practical use but of great political service, and projects to expand high-speed Internet access in rural areas.

Remember: It was the new potential of the internet that put the Obama campaign ahead of his competitors. Secondly the stimulus is set to undo the 1996 welfare reform, signed by Bill Clinton. It rewards bad behavior:

• By releasing $800 billion in new welfare spending over the next decade, undermining current work requirements…

• States that have spent recklessly for years will get bailouts when they should instead suffer the consequences of their actions.

• The compromise bill includes $54 billion to hand out to state and local governments, a perverse reward for elected officials who can't control their spending.

To sum it up: The United States is now set on the same track that heralded Japan’s lost decade.

Blog Review 879

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How much are we going to have to cut government spending in the future to get things back on track?

It's not so much manufacturing output that's been falling over the decades: it's manufacturing employment.

Perhaps men and women should be taxed differently as well as separately?

Yes, government and regulation does bear some of the blame for the financial system problems.

How to tell when the economy is improving....more shark attacks.

Important new finding. Yes, it is possible to overdose on cuteness.

And finally, if a dog can sell insurance, why not a cat?

 

National debt: the truth

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Gordon Brown says his government's debt is much lower than most other countries, at around 47% of national income. But the Office of National Statistics (ONS) has just dealt him a blow, by saying that the National Debt ought to include all those dodgy debts of HBOS and RBS. After all, the government is now a part-owner of these banks. What they owe, it owes. And when you tot it up, the bank bailouts add around £1,500 billion to the government's liabilities, trebling the National Debt to more like 150% of the nation's income.

Brown has been struggling for years to hide the true extent of this reckless spending. He fought ONS to keep the cost of all those new schools and hospitals off the books, for example. He claimed they were 'privately' funded, under the Private Finance Initiative. Nothing to do with the government then? Well, over the next couple of decades, taxpayers are going to have to pay £148 billion to the private financiers. That's money which the government owes, just as my mortgage is money that I owe. You can't just ignore it.
 
And there are lots of things like this. Indeed, I calculated them for my new book The Rotten State of Britain. There's Network Rail's borrowings. The cost of decommissioning nuclear power stations. All those fat civil-service pensions we're going to be paying out for years to come. And more. Add it all up and you discover that the government's total indebtedness is twice what the ONS has managed to make stick. It's actually about three times the national income.
 
Borrowing is so big because Gordon Brown has borrowed, not (as he says) to 'invest', but to to spend, spend, spend. I don't know why people are daft enough to lend to such a profligate crew. But if investors stop lending to Brown's government what happens then? A bankrupt government tries to pay its debts by printing more worthless money. Indeed, we seem to be there already. 
 
The Rotten State of Britain by Eamonn Butler (Gibson Square Books) is published in March.

Innovations of economic value

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An extremely puzzling argument over whether certain industries, like fashion, produce innovations which provide economic value. Puzzling because we're presented with arguments that fashion does increase productivity for example.

Eh? Productivity isn't the point of the economy at all (however much rising productivity is desirable). No, the purpose and function of all production is consumption. We should not and do not justify an industry on whether it innovates, whether it provides economic value by this definition, or raises productivity in doing so, we justify an industry or activity if consumers desire (desire sufficiently that they will consume) said production.

If it makes some people happier to have four seasons of fashions each and every year then by all means, let's have them for those that want them. If some want ice cream named after dead drug addict guitarists, equally so. If other prefer clothes that last decades then that too can be provided in a market economy, as can ice cream not named after dead drug addict guitarists.

The justification for any industry, for any production, is that what they provide adds to the sum of human happiness. Nothing else is required as such a justification.

 

Tax havens are safe havens

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Gordon Brown is apparently stalking Europe, attempting to persuade G20 leaders that global action needs to be taken on clamping down on so-called ‘tax-havens’. This course of action is understandable as the bills for the bailouts mount up and the income from tax revenues falls there will be a deficit. From Switzerland to the Cayman Islands the money is out there and it is this wealth that has escaped the clutches of the parasitic classes that Brown, Obama et al are setting their sights on.

Recent campaigns by the Guardian*, the Tax Justice Network and an edition of Panorama have highlighted a problem: they can’t get their hands on all of the wealth that has been created. Dennis MacShane raises an interesting fact, relating to privacy in banking in the Guardian, “This is not a wicked scheme to get the world's dirty money but dates from 1934, when German Jews fleeing the Nazis wanted to get their money out as well as their families." Indeed the Panorama programme, and the TJN revered the Liechtenstein banker who breached contract and divulged secrets of depositors at the LGT Bank.

A new mode of plundering needs to be found to fund the fulsome promises pronounced by politicians. Rather than chasing money across the globe that politicians wrongly believe is theirs, they should be producing policies that attract wealth to a country, not cause it to take flight. They need to be in competition with these nations, but alas they believe that what is mine is in fact theirs. Until that mindset changes there are many states across the world who’s sovereignty will be sorely tested over the coming years.

 *And for insight in how The Guardian avoids paying taxes click here.