Blog Review 862

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It seems that no one wants to use Burke's small battalions any more: to our increasing poverty.

Yes, it is true, Adam Smith really did predict Gordon Brown.

The bad bank proposal is even worse than you thought it could be.

Perhaps resolution (that's bankruptcy by another name) might now be better?

One more economist opposed to the fiscal stimulus.

Staggering: sales fall by 32% and market share rises?

And finally, well, and finally.

Savers and the interest rate cut

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The general wisdom is that when economic conditions are this dire, you need to slash interest rates to get things to pick up again. To make borrowing cheaper, so we might all borrow and spend a bit more, and so that entrepreneurs will find it cheaper to finance new plant and equipment, and so boost production.

But interest rates this low can do more harm than good. Where does all the cash come from that these entrepreneurs and their customers are going to borrow? From savers, of course. But who in their right mind would save right now, when the interest you get is almost non-existent?

Well, say the economists, that will just encourage people to spend rather than save, which is what we want anyway. But they're wrong. Many savers, like pensioners, are actually living off their interest. They don't want to run down their savings, because they depend on the future interest. But they're getting less interest right now. So they are spending less, not more, which is just adding to the economic depression (sorry, slip of the tongue - recession).

Also, low interest rates push down the value of the pound. When interest rates are high, people abroad buy pounds to put into accounts that will capture the high rates. When rates are low, they figure they can get more interest elsewhere, and sell their pounds to buy other things.

Again, the economists say that's just fine, because a low pound makes our exports cheaper and soon we'll be selling a lot more and getting in some much-needed cash. But again, there's a downside. The government aims to pay for its vast bail-outs through borrowing. Well, I don't know about you, but like most of the country, I'm skint. They're not going to borrow it from me. No, they will be borrowing a lot of it from overseas. But who wants to lend to a decrepit country that promises to repay you in a decrepit currency? The government will have to offer much higher interest rates to attract the lenders it needs.

And there will be a lot of people looking at the UK and figuring that interest rates now have nowhere to go. The government's used up every weapon it has – apart from printing money and risking inflation. It's hardly a situation that would give anyone any incentive to back Britain. We should start composing our begging letters to the IMF now.

Sympathy for the consumer

 

 As you can see, the taxman has his hand in all our pockets...
 
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After some research last week, I was able to calculate the average percentage of tax paid on some of the “sinful" goods purchased regularly here in the United Kingdom. Keep in mind that these percentages are estimates and only include direct taxes on the products, the VAT and Excise Taxes. I am currently calculating the average tax rates on the same goods in the state of California (to represent the United States’ mid-range for tax rates). I started off with a few popular pub drinks and continued with tobacco and fuel. The findings were quite alarming…

Click 'read more' to fnd out how much tax you're paying on wine, cigarettes, petrol, and more...

Environmentalism, population and carrying capacity

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Scratch an environmentalist, and you will often find they believe that there are just too many of our species. This comes through overtly in organisations such as the Optimum Population Trust, which thinks that the population of the UK should be managed down to no more than 30 million. It also lies behind much of the current fuss over climate change: fewer people, less energy, less carbon.

Of course, many of us would probably find it more comfortable if there were fewer people around, but that's different from saying that there is some "optimum" population. The concept is underpinned and justified by measures such as the carrying capacity of the Earth. The Global Footprint Network tells us that we are currently using the resources provided by 1.3 planets. Like any measure, this figure will depend on the assumptions made, but the message is that we either cannot sustain the current world population or must consume fewer natural resources each year.

This is the latest incarnation of Malthusian thinking, and to me suggests a narrow view of life and a lack of confidence in the adaptability and flexibility of the human race. The whole philosophy of sustainability relies on us continuing to progress along the same path as we have in recent decades. It's really a first shot at global planning and, like all attempts at central planning, is deeply flawed.

The reality is that, when there are pressures for change – rising oil prices, reduced food security, etc – we find ways round them. The green revolution of the second half of the twentieth century made nonsense of Ehrlich's predictions of famine and disaster. Private sector development of new and efficient alternatives to the internal combustion engine (in parallel with continued efficiency gains for conventional engines) will lead to a new generation of personal transport. The free market isn't perfect, but it's a much better way of channelling creativity than is government planning.

Guest author Martin Livermore is the Director of The Scientific Alliance

The Rotten State of Britain

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Some readers might remember Will Hutton's 1995 book The State We're In. It beat up the Thatcher/Major government for how bad things were: overcentralized government, a politicized civil service, huge private and public borrowing, Britain isolated in Europe and the world...

Well, nice try, Will, but Britain's in an even worse state today. It's even more centralized and politicized, even more despised by other countries, and a whole lot more bust. We're nannied, spied on, and bossed about even more. And we've spent trillions of extra cash on our public services – to what result?

The trouble is that, as these political outrages unfold one by one in the newspapers, it's impossible to see the full, shocking picture of what's really happened – and is still happening – to this once-proud country. Like an impressionist painting, you need to stand back to see the reality.

So I've written a new book – The Rotten State of Britain – in which I do just that. I've woven twelve years' worth of facts into a damning indictment of our rotten government, politicians, economy, welfare, healthcare, education, society, values, and the rest. And I've explained how we can stop the rot.

You'll see a link to the book on the right-hand column. It comes out 26 February, but you can pre-order it, at a discount, right now by clicking the link. And every book you buy from the right-hand column brings the Adam Smith Institute a few pennies from Amazon – so get clicking!

The Next Generation with David Davis MP

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On Tuesday night we held our first Next Generation reception of 2009, with David Davis MP there as speaker and guest of honour. Despite the freezing weather and the transport chaos it sparked, the event was as packed as I can remember a TNG being. Mr Davis' 10-minute speech was a wide-ranging and robust defence of liberty in the economic and civil spheres, and plainly hit home with the young audience.  And although he had to rush to the House of Commons to vote, Mr Davis came straight back to spend the rest of the evening talking informally to our guests.

Next Generation events are open to those aged 16-33, and usually take place in Westminster on the first Tuesday of every month. If you would like to join the TNG, sign up here via our website or, better still, become a member of our Facebook group.

 

Blog Review 861

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It isn't actually clear that migrant labour damages either British jobs or wages.

Proof though that trusting markets does indeed work in the medium to long term.

I think we can say that there probably is a credit crunch, yes. Or at least a credit contraction.

That your city has pockets of loyal natives all over the country isn't in fact good news.

Are multiple births a status symbol? A Veblen Good?

While it's glorious to see the biter bit, shouldn't those teeth be gnawing a little more vehemently?

And finally, old jews telling jokes.

Green cars

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Part of Lord Mandelson's bail-out (oops, we're not supposed to call it that) of the car industry is yet more subsidy to promote the production of 'green' cars.

If the government really wanted to produce green cars, it would quadruple the price of fuel. You could then be pretty sure that customers would demand cars that did four times the mileage, and that the carmakers of the world would rush to produce them.

But of course they don't dare, because they would be swept to oblivion at the polls. (They might well be anyway.) So just like the National Socialists, they tell industry what to produce, and tell it to produce cuddly products that will show how 'concerned' the politicians are for the environment. But it's a sure way to mess up our rotten economy even further.

When politicians spend on something that makes them look good, the money has to come from somewhere. And it comes from our pockets. Quite frankly, most people right now – reeling under high taxes and falling order books – can find far better things to do with their money than spend it on building greener cars. Sure, in the future, greener cars might be in high demand, either as a result of people's genuine concern about the environment, or politicians forcing people to buy greener cars and no others. But again, the lure of profit would supply that demand. Why have politicians got to spend our money trying to do it?

Social insurance and unemployment

In a free labour market, the worker gets his marginal product.This is what his labour is worth to his employer and this is the equilibrium wage. With compulsory social insurance, the employer pays a part of this wage not to his employee, but to the insurance system on his behalf. This part is, with a clever turn of phrase, called the “employer’s contribution" although in effect it is money the worker should have got as part of his wage. From the remainder, the worker, too, must pay for his insurance. This is, with a straight poker-face, called the employee’s contribution (fraudulently suggesting that he is only contributing this part, although in effect he contributes both parts).  If this labour is worth 100 and costs his employer 100, the employer pays 20 in its own name and 20 in its worker’s name to the social insurance schemes. The worker takes home 60 and believes that his wage is 80. Some part of this, however, he gets not in cash, but in natura, in the form of social insurance. This is harking back to the 17th and 18th century when in some trades workers were paid partly or wholly in goods rather than cash. This system that cheated the workers was repeatedly outlawed and gradually went out of use until it was reborn in Bismarck’s Prussia as a measure of benevolent paternalism. It has, of course, become a standard feature of “social" policy in most countries.

Since cash is always worth more than what somebody else has chosen to buy for you for the same amount, workers would normally prefer to get their wage of 80 all in cash rather than partly in kind, ie. in insurance. If they realised that their wage is really 100 and they only get 60 of it in cash, they would be very, very upset and would insist that “social" legislation should stop treating them as children. Believing, however, that on top of their wage of 80 their employer is spending a further 20 to insure them more fully, they imagine that the system treats them quite well.

Be that as it may, the final result is that employing a worker costs 100, much of it spent on insurance that the worker  values at less than 100 and perhaps even less than 80 because however much he may value social insurance, he does not value it higher than its cash cost .Compulsory “social" insurance, which is a wage in kind to the worker, drives a wedge between what the employer pays for labour and what the worker really gets.

This wedge can be justified by the paternalist view that it is better for the worker if some of his money is spent as the state chooses rather than as he would choose. Nevertheless, it remains the case that thanks to this system, insurance is imposed at a cost that is higher than it is worth to the worker. Moreover, the cost of labour is pushed above, and the demand for labour below, the level at which workers are available for employment. With other things equal, unemployment must become the chronic tendency.

Extracts from a speech introducing Liberale Vernunft, Soziale Verwirrung, 27 January 2009 in Zurich.

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Among my triad of perpetually repeated social mantras is the idea that society is a good thing if and because it functions as a mutual insurance association. It protects everyone from life’s unforeseeable ups and downs by indemnifying the losers out of the gains of the gainers. The association, being mutual, is programmed to break even, everybody has a random probability of being a gainer and paying a premium or being a loser and collecting compensation. Since losses reduce happiness more than gains increase it, everyone is made happier, – at least ex ante, which is what matters.

The fallacy of this schema resides in the obvious fact that due to different endowments and capacities, some people are always more likely to end up as gainers rather than losers and others are more likely to end up as losers rather than gainers. Mutual insurance where some always pay premiums and others always collect them is not just, at least not in the sense supposed by the fallacy of society providing equitable protection against risk.

There is, however, a real-life variant of this scheme that we find in most industrial societies, namely compulsory social insurance by payroll deductions. This system, quite apart from its morally dubious premises, is probably responsible for the tendency to chronic unemployment being more prevalent in modern industrial countries than the tendency to excess demand for labour.[Cont'd - click 'read more']

Tough Guy: The antidote to health and safety

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On Sunday (1st February) I took part in the annual ‘Tough Guy’ challenge in Perton. This is an annual event to separate the men from the boys in terms of mental and physical fitness.

The event consists of a timed assault course covering 21 major obstacles with plenty in between. The obstacles range from crawling through drain pipes (some of which have dead ends), climbing over huge towers, jumping pits of fire, swimming through tunnels (in muddy ice cold water) and crawling under barbed wire through mud and gravel. The event was great fun, but was no mean feat – I couldn’t feel my legs or hands for about half an hour, and couldn’t hold a cup of coffee with spilling the entire contents due to my shivering.

I am amazed that the infamous Health and Safety officials, that purge this country of any fun and excitement we have in our spare time, have not managed to dig their claws into Tough Guy. The reason for this is that every competitor has to sign their own ‘Death Warrant’, declaring that if they are injured (there were a few broken limbs and many more cases of hypothermia this year) or are killed (as happened some years ago) they or their families cannot hold the organisers at all responsible.

This system works superbly, it puts the emphasis of responsibility entirely on the individual, and in return they ensure that they are physically fit to compete. This does not mean that the organisers neglected competitor safety. There was an army of literally hundreds of ambulances, paramedics and fire crews ready to help any injured competitor.

Tough Guy is a perfect example of how people have more fun and act just as safely if the responsibility of their welfare is given directly to the individual. Without Health and Safety rules breathing down our necks, and without organisers being scarred senseless by the threat of lawsuits, we can all have great fun, and raise money for charity in the meantime.