Woods and trees

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The current disruptions are causing an awful lot of people to get confused between woods and trees. There's the usual conflation of capitalism and markets into a single thing: one which at present must be demonised. Voices such as ours which distinguish between the two and often argue that markets need to be protected from capitalism (or at least the desires of capitalists to engineer themselves into positions of monop- oly or sony) are getting drowned out in the shrill cries that the entire system must be overturned. That's why I draw your attention to this excellent essay by Daron Acemoglu.

Our second too-quickly-accepted notion is that the capitalist economy lives in an institutional-less vacuum, where markets miraculously monitor opportunistic behavior. Forgetting the institutional foundations of markets, we mistakenly equated free markets with unregulated markets. Although we understand that even unfettered competitive markets are based on a set of laws and institutions that secure property rights, ensure enforcement of contracts, and regulate rm behavior and product and service quality, we increasingly abstracted from the role of institutions and regulations support ing market transactions in our conceptualization of markets. Sure enough institutions have received more attention over the past 15 years or so than before, but the thinking was that we had to study the role of institutions to understand why poor nations were poor, not to probe the nature of the institutions that ensured continued prosperity in the advanced nations and how they should change in the face of ever evolving economic relations.

Something that bears repeating endlessly: markets are all regulated in some manner or another, our important question is who is going to do the regulating and how are they going to do it? Is it going to be some set of general principles, like "property rights", or social institutions? Is it going to be the market participants themselves? Or perhaps a set of not particularly wise or omniscient bureaucrats who face even worse incentives than the former? Or, horrors, politicians who face an even worse set of incentives?

I also like the point that we shouldn't be studying poor countries to find out why they are poor: that's pretty much the natural state of mankind, scraping in the soil with a stick. What we want to be looking at is the thing that is different: what is it that makes rich places rich? It is, after all, the creation of that mysterious thing, wealth, which we're trying to explain, not its absence.

Yes, it would be nice to find a magic bullet to banish our current woes but we really do need to remember that these are the trees. The woods are that we've got an economic system, some form of a liberal free market order, which has achieved something for the first time. The sustained rise in living standards for the mass of the population. Actually, that's not just the wood, that's the entire forest that we need to keep our eye on at the moment. No other system that we've ever tried in human history has been able to achieve that so lets not cut that forest down to get at a few trees that have been causing comparably minor  problems.

Living in the land of fear

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It seems to have taken just over 50 years for the reach of the state to become near ubiquitous. There’s little any of us do now that does not involve the parasitic actions and attitudes of it; ultimately we have a malignant monkey on our backs. We have become servile in our acceptance of state actions, but recently (partly as a response to the heavy handed reaction to terrorism and its presumption of all citizens being equally guilty) the heavy fisted approach has spread further.

The evidence can be seen in the case highlighted by Henry Porter, who writes of the arrest of a painter for taking a picture in a public space. The checks on government actions have eroded away, and these instances (also Andrew Pelling MP stopped by Police for photographing a cycle path) highlight the extent that the freedoms we once enjoyed are gone. Perhaps key to this growth, is the state’s capture of our subconscious fears and the implied interpretation that our actions are ultimately entirely criminal.

There is nothing that remains that clearly delineates and protects spaces that keep us, and our actions, from the state’s intrusion. The mindset of the state’s agents and, to a lesser extent, a minority of the general populace, has moved to regard all within their domain, believing that they must act so as to preserve a mistaken public good. The United Kingdom, it could be said, now resembles nothing more than the personal fiefdom of the political elite, an elite with no understanding of the unintended consequences of their actions and mistaken legislation.

Blog Review 836

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Yes, we really should take up Larry Flynt's idea and subsidise the porn industry. Well, why not? It's no more ridiculous than many other things which are having cash thrown at them, which was rather Larry's point we think.

For example, perhaps the UK car industry isn't all that deserving after all.

What we really need is a bad country, not a bad bank. Netsmith likes this idea a lot. Perhaps we will finally find out what France is for?

This could be the phrase for 2009. "You're not dead until you're warm and dead."

Evidence to annoy the republicans (that's the anti-Monarchists, not the GOP). Parliamentary systems do better than Presidential ones.

Blimey. Someone's finally come up with a stimulus plan that's at least half decent?

And finally, the Milky Way Transit Authority. (Puns are here.)

Intern scheme proves the failure of the minimum wage

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With news that the government is encouraging companies to offer graduates - unable to secure jobs after leaving university - low-paid internships for three months, is it not time to admit that the recession has proven the minimum wage a failure?

Wages for the interns will be based upon the grants and loans that students currently receive. Therefore, at most graduates are being offered £9,310 per year. The minimum wage is at present £5.73 per hour. As Tim Worstall argued in The Guardian, this equates to earnings of just under £12,000 a year for a 40-hour week. Thus, graduates are being offered the chance to work for less than the minimum wage.

The minimum wage hits the poorest and least skilled the hardest. This is because employers cannot afford to offer them work that would otherwise exist. They are therefore condemned to unemployment, unable to benefit from the opportunities of work. This move is an explicit acceptance that the minimum wage fails to respond to a changing economy. However, instead of helping the least skilled, the government is supporting the relatively privileged.

How laws are made

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Yes, yes, we all know what Bismark said about watching the law being made. Even so, it can come as something of a shock to hear those who would extol such a system. Complaining that politicians cannot do what he would like them to do about climate change Jonathan Porritt suggests the following:

So it was good to see the latest publication from the Green Alliance on The New Politics of Climate Change. The basic thrust of it is that individual action by the "converted" is never going to be sufficient, and that we now need to mobilise the whole of the so-called Third Sector (voluntary organisations, local community groups, trade unions and co-ops, NGOs beyond the environment world, faith communities and so on) to enable a collective shift in both attitudes and actions. Without this, we will never generate a sufficient momentum to encourage/compel our politicians to do what they know they should be doing but still feel they can’t get away with.

That would be the Jonathan Porritt who used to run Friends of the Earth. That FoE whose offshoot, FoE Europe, gets 50 % or so of its funding from the European Union? Those unions that get great gobs of money from the taxpayer? Those NGOs that, when you examine their accounts, all seem to be sucking at the same taxpayers' teat? Indeed, that Third Sector which in recent years has all but given up any pretence at all of being independent and allowed themselves to be coopted by the promises of government cheques?

So, to explain in more detail. Government taxes us using their monopoly of legitimate violence. They then hand some portion of this money to the less talented parts of the upper middle classes who then use it to persuade us of the merits of what the government wanted to do all along?

Unrelated here is a claim that the European Union spends more on its propaganda budget than Coca Cola does on its global advertising.

For those who would prefer something more pleasant, here is a film of sausages being made.

Better off with no government

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I think it's pretty clear that the last Conservative government left Britain in a good state. It is also fairly obvious that when the current Labour administration is booted out, it's going to leave behind a hell of a mess. Many people would say, therefore, that we'd have been better off if John Major's Tories had remained in office.

But that was never really an option. By 1997 the Conservatives were a spent force – mired in scandal, deeply divided, and running out of ideas. Like many governments that have been in power for a long time, they had lost their touch. Departure from government was inevitable.

But what if we had had no government at all since 1997? What if public spending had simply risen in line with inflation, tax thresholds had gone up the same way, and existing policies had just been followed. It certainly wouldn't be a perfect world, but it would probably be a lot better than it is now.

Taxes would be a lower. There would be budget surpluses, and no public debt. The private pensions system would have remained the best in Europe. We would still have the opt-out from the EU's social chapter, meaning vastly less red tape for business, and greater flexibility in the labour market. We'd still have regulators, but their objectives would be purely economic, rather than social and environmental. We wouldn't be entangled in seemingly unwinnable wars. And our traditional civil liberties would, to a great extent, be intact.

Public services still wouldn't be great, but at least the internal markets in health and education would have been allowed to bed in, and teachers and doctors would be free to get on with their jobs. And while the trains still wouldn't run on time, the considerable improvement that occurred between privatization and the Hatfield crash could have been sustained, rather then squandered with the government takeover of Railtrack.

Not a utopia then, but what is?  Perhaps we really would have been better off with no government at all...

Blog Review 835

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Bankers stupid enough to lend on these terms almost deserve to lose their money.

At least in the US there was little sign of that credit driven frenzy we hear so much about.

Historical evidence that lending booms leading to defaults are hardly exactly new.

Obama is hailed as one of the great rhetoricians of our time. Well, perhaps, but it's certainly true that the Chicago School of political speech has a style all its own.

An elegant and simple solution to the problem of environmental vandalism.

Ukraine, Russia and gas supplies. Best understood as a classical bilateral monopoly situation. With added gangsters.

And finally, great reporting of our times.

EU to vote on killing Africans

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Next Tuesday, the European Parliament is going to vote on legislation which could ban around a quarter of pesticides in the EU. Gordon Brown, Hilary Benn, along with farmers and industry have denounced the legislation’s spurious scientific grounds and its potential consequences; lower yields, increased food prices and a fatal blow to crops like carrots.

But it seems as though the EU isn’t just shooting itself in the foot; a new report by the Campaign for Fighting Diseases reveals that the legislation could also undermine the market for public health insecticides and seriously damage the fight against malaria in Africa.

Insecticides are vital for controlling malaria, a disease which claims over one million lives every year, mostly in young children.

Insecticide markets are based almost entirely on crop protection; public health insecticides represent only around one percent of the total pesticides market. Without the agricultural market, production for public health will almost certainly become unsustainable. Insecticides will become harder to get a hold of and more expensive. There will also be little incentive for industry to invest in research and development of new insecticides.

It is also likely that the EU will apply import restrictions so that foreign producers are subject to the same conditions as EU farmers. This trade barrier will leave countries with the terrible choice of banning public health insecticides or losing the lucrative EU market for exports.

This legislation runs against EU support to eradicate malaria and encourage agricultural exports from Africa. The EU is putting spurious environmentalism before people.

Porn King demands tax bailout

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Larry Flint of Hustler Magazine wants a US government bail-out for the porn industry, which he says is suffering from the recession like everyone else. I'm not quite sure if he's serious – after all, he's used many of the same arguments that the carmakers used in order to get a bail-out from Washington. But I guess it is just an elaborate joke.

However, it's a joke that makes a good point. Why should Detroit deserve billions of US taxpayer funds to help it through hard times, while Van Nuys Boulevard should not?

Of course, the answer is that Detroit has lots of friends in Congress. It's greased palms. It has powerful trade unions who know how to lobby Congress. Van Nuys may have some interesting information on the nocturnal habits of a few Senators, but it has nothing like that power.

So Congress plays the game of taking money from one set of people in order to give it to others who have more political leverage. It sacrifices jobs in the general economy in order to promote employment among people who're producing things we don't actually want to buy right now. Perhaps Larry Flint has a point.