Market failure, government failure

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We're all aware of the concept of market failure of course: and those who read around here are similarly going to be au fait with the concept of government failure. We tend to try and point out that government failure is going to be worse than the market kind, partly because of the incentives faced by the actors and partly because it's so much more difficult to reverse the government type of failure.

However, if you really want to have gobsmackingly awful failure you have to go further than mere government, bureaucracies, and get the politicians involved. Something which has just happened in fact, as a leftish but good economist notes, a Canadian economist, rightish economist, White House type, the economically literate and even the closest the US has to an economically literate social democrat notes. Congress has just made an entirely idiotic decision.

They've decided to bring back trade protectionism as a way of dealing with the economic downturn. The House version of the stimulus bill states that only US made iron and steel can be used in any of the projects funded. The Senate version says that anything used must be US made.

Einstein once said that lunacy was performing the same actions over again and expecting a different outcome. We tried this, protectionism, in the last big downturn and Smoot Hawley really didn't work all that well, did it? In fact, most people say that it made things worse, not better. I guess we simply have to conclude that the majority of the duly elected politicians of the USA are lunatics.

That economists are united in their opposition won't, unfortunately, make all that much difference. As last year's Nobelist*, Paul Krugman, has pointed out, it's when economists are most united in their policy proposals that they have the least influence.

Sigh.

* Yes, yes, Swedish Bank in honour of, still don't care.

The never ending rise of public spending

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There was an interesting piece over on Douglas Carswell MP's blog this week, asking "Why does government spending increase no matter who's in office?" Looking at the graph he produced using ukpublicspending.co.uk (left) it's easy to see his point. Whether the government has been Tory or Labour, spending has just gone up, up and up – albeit with an occasional (minor) dip or pause.

Douglas' suggestion is that the rise in spending mirrors the decline in Parliament's power to check, scrutinize, and hold the government to account. He argues that the UK's whole budgetary process should be overhauled, with Select Committees given the power to approve or reject annual departmental and QUANGO spending.

Well, I'm certainly in favour of greater parliamentary accountability and a more constrained executive, and I agree with Douglas that the UK's budget day is a 'charade'. But would giving MPs more people really reduce expenditure? I can see how it might, but I can also see that some MPs would soon be selling their approval in return for funding of their pet projects – pork-barrel politics, as the Americans call it.

The other problem is that cutting out waste can only take us so far. Now, I think the state could probably carry out all the functions it does now for around 30-35 percent of GDP – if they did things really efficiently – rather than the 45 percent or so they spend at the moment. But as long as we have a full-blown welfare state we're not going to be able to get it any lower than that. Indeed, with a growing and ageing population, welfare statism pretty much condemns us to ever-higher public spending.

The only way to escape that upward spiral, in the long run, is to move whole services out of public funding, and into the private sector economy. Getting people to save for their retirements (as in Chile) and their healthcare (as in Singapore) would be a good start. An education tax credit, like the one advocated by the Cato Institute, is also worth investigating.

Douglas Carswell's excellent new book, The Plan – Twelve Months to Renew Britain, is available here.

Liberal, Libertarianism and Classical Liberalism

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American English has expropriated the word “liberal". It uses it to signify a mishmash in which “lifestyle" must be absolutely free, subject to no rules of common decency and traditionally agreed norms of good taste, while “economic“ freedoms are subject to mild contempt and irony (“free choice between two dozen flavours of ice cream") and subordinated at every turn to labour union privileges, eminent domain, public interest, “positive rights", equal access and the administrative regulation of markets. The “liberal"of English English is replaced by “conservative".

Before this linguistic occupation of their ancient terrain, some liberals started to call themselves “libertarian". This conjures up images of wild devauchery, emancipation from authority, might over right and much else that gives honest citizens goose-pimples. It is doing liberalism no good. Other liberals have opted for calling their creed “classical liberalism." This term is perhaps the worst of all. It is instinctively understood as the opposite of “modern".  It is outdated, fuddy-duddy, 19th century, nice enough and worthy in its own limited way, but not up to the “great challenges of contemporary society".

The point I am trying to make is that retreat and peaceful acquiescence in the colonising infiltration of alien notions does not pay. It does not pay at the level of language any more than at the level of judgments of value and the finding of facts.  The order of the day should be to resist and counter-attack.
 

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

Blog Review 857

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There really are green shoots of recovery. If the index of shipping costs is rising, is trade also rising?

Fascinating: what the truly non-partisan economists say about tax cuts as stimulus.

Also fascinating: what politicians think is economic analysis.

Will a stimulus work? Depends upon what you mean by stimulus and what you mean by work.

If you mean this stimulus and "work" means anything useful, probably not.

Man flying in taxpayer funded plane criticises those who fly in partially taxpayer funded plane.

And finally, can there be such a thing as too much bacon or sausage?

But who is it that gets fined?

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I have to admit to a certain amount of head scratching here. It's determined that we're ruled by incompetents so therefore we must pay more tax?

Europe is prosecuting Britain for consistently breaking air pollution laws and endangering people's health in urban areas. Legal proceedings against the government were started today by the EU environment commissioner, Stavros Dimas, and could result in unlimited daily fines.

I agree that it isn't that much of a surprise that the median pecksniff who actually gains power over us is inefficient, willing to promise what cannot be delivered and is driven more by what retains his power than any thought of the wider interests of the body politic.

I'm also aware that the art of government is to charge me a great deal for things I don't in fact want while failing to deliver the things that I do actually both need and desire. While still charging me for failing. But what causes this bonce handling is the logic that, once government has been proven to be government, someone is going to come after my wallet again.

The British Government doesn't have any money of its own. It only has whatever if can extract from our hides now or, by borrowing, what it can extract from those of our children in the future. So when some bright spark says that it would be a lovely idea to sign up to some standard for PM 10 pollution, then fails as they were always likely to do, why is it that "the government" gets fined? We're the people who have paid for said bright spark, we're the people being poisoned and we're also the people who have to pay this fine for being poisoned because the bright spark signed us up.

Why isn't it the people who have failed who have to pay the fine, rather than the people they have failed?

Anyone?

Another fine mess

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In an interview with Friday's Independent, John Armitage, the Chairman of the Olympic Delivery Authority (ODA), said it was "possible that no private sector money would be found for the £1bn Olympic village" and that "the authority has already given up hope of securing funding for the £355m international media centre, which will now be paid for entirely by the Exchequer."

Wonderful. More taxpayers' money down the toilet. Let's not forget that the original budget for the games (with which London won the bid) was £2.4bn. It subsequently spiralled to more than £9bn when ministers realized they had forgotten about security and VAT, among other things. Now, officials are said to be working to a £12bn target. And yet it could still get much worse: when the developer Sir Stuart Lipton was offered the chairmanship of the ODA, he turned it down, saying the plans could not be delivered for less than £15bn. And that, of course, was before all the private sponsorship dried up.

I say they should stop throwing good money after bad. London already has more than enough sports facilities to handle the Olympics, without filling the East End with monuments to the government's vanity. As Simon Jenkins has written:

Athletics should go to the (itself vastly expensive) new Wembley stadium, designed by Foster and Partners to be adapted to the Olympics in an emergency... Football and hockey can go to existing London stadiums, of which there are at least 25. Riding can go to Hickstead, and save the trees at Greenwich. Shooting can go to Bisley (rather than spend £11m at Woolwich) and gymnastics, boxing and the rest to the Wembley Arena. The Dome and Excel are standing by...

The media can look after themselves, and the athletes can stay in hotels. Better still, the whole thing could go to Paris and save Londoners a lot of hassle – or is that too much to ask for?

Hat-tip to Spectator CoffeeHouse

Whose children are they anyway?

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The price of holidays rise during school holidays for one simple reason: demand rises! Many families think about this rationally and take their children on holidays during times when it is more affordable but this obviously results in the child missing days at school. Now local education authorities are fining the parents for removing their children from schools without permission during term times.

Most parents of school children pay their council and income taxes and therefore contribute financially to their education but according to government they give up all rights in having any control over how their children are taught, what they are taught and when and where they can attend school. Parents want the best for their children at all times, admittedly putting them into the state education is going against the grain a little, but after paying all the taxes, what other choices are left. Being able to take their children on holiday, when it is financially suitable should not be something that is dictated to parents by the state. Children miss school in their early years through illness and accidents and yet this does not seem to hinder them in progressing through the education factory.

How best to regulate this? A solution could be to allow schools to test children at the end of each academic year to see if they have learned what they were supposed to (and been taught it well enough) during the previous months. If they fail, keep them back a year; if many of them fail, fire the teacher. Simplicity that allows a rational approach to a child’s education, allowing both parents and schools to see how well children are progressing against their own year group. And if they are doing well, why not take them on holiday, if they’re doing really well, take the teacher along!

And another thing...

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The Wall Street Journal has a superb article entitled: Lax Regulation Didn't Cause This Crisis. We couldn't agree more.

Blog Review 856

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This idea of "fake charities" is one that should be pursued more vigorously perhaps? The Daycare Trust is found to be parroting the propaganda of its paymasters, just as one example.

Or the NSPCC which seems to be part of the attack upon home schooling.

On which subject, schooling, why should the vouchers be limited to the poor?

"Capitol Hill has become a veritable vortex of stupidity."

Defining heroes, villains and saints: and their beneficial effects on other human beings.

Government asking blogger why government programme is working as it does. And some people think that government can plan things.

And finally, why we love France.

Quantative easing is printing money

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Fresh off the press, here is the latest think piece from Dr Eamon Butler, the Director of the Adam Smith Institute. Entitled The rise of Mugabenomics, It considers the economic downturn and the government's latest response to it: printing money.