Blog Review 778


There's more to the cost of regulations than just the money that people have to pay under them.

The case in favour of a revenue neutral carbon tax really isn't all that clear cut.

Perhaps we don't want a "Manhattan Project" on renewable energy.

But we probably do want open source science on some of these climate change questions.

What it's like to go shopping where you don't have an efficient distribution system (ie, no Tesco's or the like).

It's official (if an unfair method of calculation). Gordon Brown is the worst PM ever for pensions!

And finally, Obama the opera.

Without trust there is…


The public’s trust in our politicians has fallen, according to a survey carried out by the Committee on Standards in Public Life. Apparently only 22% of people think government ministers tell the truth. This is down 5% from 27% in the 2006 survey.

Committee chair Sir Christopher Kelly thinks that the reason behind the fall in levels of trust is that greater openness has meant that people have become aware of things that were previously carried out that they did not know about. Kelly thinks that once party funding and MP allowances are sorted out, the public will have more trust.

It would be a start, but more needs to be done before politicians pull themselves out of the trust levels of estate agents and tabloid journalists. Of course there are some politicians who are honest, capable and hardworking, but there are plenty more who are, frankly, worthless. I wouldn’t trust them to mow my lawn, let alone represent me, and I certainly don’t want them running the country.

27% in 2006, 22% now, it is all much of a muchness really. People do not trust politicians because the nature of running for political office means survival of the slimiest. People are not stupid; they can see through the fake smiles and discern the simple truth that in front of them is a man or woman who does not care for you but for power.

For trust in politicians to rise, a number of things would have to change. A good start would be to return power to Parliament, subverted over the years by the political parties. MPs are so closely contained by party politics that you can almost see the strings controlling them. To cut the strings would make humans of these puppets. Gordon Brown came to power promising such reform, but as we have seen with the plethora of contemptuously illiberal acts supported by his MPs under the threat of a good whipping from the headmaster, his talk has proved as cheap as the subsidized booze in the House of Commons.

Good luck Obama – You’ll need it


As Barack Obama tours the White House and entertains thoughts about life in Washington, one cannot help but wonder how he will face the economic shambles that will welcome him in January. Blows to the US economy have remained in full-force over the past couple of weeks, allowing for even more disheartening news about the finances of firms, homeowners, and schools throughout the nation.

The prevailing instability of financial institutions will prove to be a huge concern for Obama and his administrators as banks and mortgage companies seek more monetary help. American Express has joined Goldman Sachs and Morgan Stanley in changing from investment banks to bank holding companies in order to access government funds. A.I.G. has received a government assistance package worth $150 billion after losing almost $25 billion in the third quarter. Fannie Mae, after losing $29 billion in the third quarter, claims that it may need more than the $100 billion the Treasury Department has already promised.

Homeowners throughout America are witnessing further decreases in their homes’ values. First American CoreLogic, a real estate data company, has determined that 7.6 million properties in the US were in negative equity as of September 30, with another 2.1 million not far behind. This is almost a quarter of all homes with mortgages in the US. In the hardest hit zip code, Mountain House, California, 90 percent of its homeowners owe more than their houses are worth.

In education, all universities, rich and poor, are suffering because of the crisis. Even Harvard University is struggling, forcing it to halt plans for expansion and instead discuss the topics of financial restraint and endowment loss. Both Brown University and Cornell University have stopped hiring for a period of time and paused construction projects due to reductions in funds.  Need-blind institutions such as Vassar College and Tufts University are fighting to keep their promises to fully meet students’ financial need.

These points provide only a brief description of the persisting economic issues that Obama will face when he takes office. The whole world will be watching to see how well this beacon of hope and change will actually improve the dreary global financial scene.

Promoting tax cuts


I've done a few media appearances in the last couple of days talking about tax cuts – how nice to have them back on the agenda! What I've been saying, basically, is that while tax cuts are not a silver bullet, they are a vital part of fighting against recession. We should be using them to encourage economic activity and get the economy going again.

I've argued that the most important thing is to put more money back in people's pockets, both to make it easier for them to get by, but also so they can go out into the economy and spend it. We should raise the personal allowance as high as we can, and get VAT as low as possible.

But I've also made the point that investment, rather than consumption, is where real, sustainable economic growth comes from, so we should reduce the various taxes on that too. An added bonus is that these kinds of tax cuts tend to have the strongest pro-growth, 'laffer curve' effects, so revenue loss should be minimal.

At the same time, I've been saying that it is vital to encourage employment, and that the best way to do that is to reduce, or preferably abolish, employers' national insurance contributions – currently 12.8 percent of all earnings above £94 per week. Putting a tax on jobs is stupid at the best of times, but in a recession it's downright perverse.

I've been keen to stress that these tax cuts should be balanced by spending cuts, rather than more government borrowing (which is just a tax on the future). Every business and household in the country is looking to economize right now, and I don't see why government – with an annual budget of more than £600bn – should be any different.

You can hear me talking to John Humphreys on the Today Programme here.

Blog Review 777


So, was the sexual revolution all a great big mistake?

Certainly, the way the American auto industry was run was a mistake.

So just what is the most addictive thing?

Explaining the difference between environmental economics and ecological economics. The first is the application of the economist's toolbox to matters environmental, the second seems to mean making stuff up.

Of course the environment is valuable to us, that's why we have to put a price on it.

Just what did happen in hte Great Depression is still a matter to argue about. Firstly, Hoover boasted of the interventions he made, the British experience shows that fiscal expansion was not necessary for recovery and thus that Paul Krugman's proposed solution might not be a good idea.

And finally, how language changes.

Pants on fire


Pinocchio Brown says debt has been reduced from 44 percent to 37 percent, "and that is a fact". But that's only because he's fiddled the figures. The Office of National Statistics (ONS) says debt is 43.4 percent and even that excludes debts incurred under PFI contracts, unfunded public sector pensions and other liabilities. See Fraser Nelson's piece over at Spectator Coffee House for more information.

Polishing the pledge


Some Conservative Party advisors are determined not to repeat the tax cut pledges which they see as having counted against them in previous campaigns.  Afraid that Labour will accuse them of threatening funds for essential services, they are pledged instead to match Labour spending, even Labour's proposed spending levels.

It is time to revisit that pledge and polish it.  Times have changed, and polls show the country is now ready for tax cuts – not the fiddling around with the detail of tax credits, or some vastly complicated scheme that allows write-offs for selected businesses, but clear and visible tax cuts that people can understand.  John Key in New Zealand announced the dates on which he would cut people's taxes.  Barack Obama gave a ringing promise to cut the taxes of 95 percent of Americans.  Both won.

The Conservatives  can finesse the charge of threatening essential services by promising to match Labour on health and education, and make the savings elsewhere.  Many people might welcome a guarantee that no schools or hospitals would be closed without being replaced, but would not really mind if government spent less on five-a-day officers, real nappy officers, diversity officers and the like.  In fact during a recession, the chances are high that many people might prefer to spend such funds for themselves, thinking they could do it more wisely.

The mantra of matching Labour spending looks folly now that Labour have been exposed as spendthrifts, with consequences for all of us.  The mantra of no tax cuts looks silly now that people are demanding them and both Labour and Liberal parties are promising them.  Rather than refighting the last war on a totally altered battlefield, the Conservatives should revisit their tax pledge and polish it to reflect changed times.

Education, Education, Education!


This was the slogan of Blair’s government; the next’s should be vouchers, vouchers, vouchers!

With Obama as new President, and the UK election on the horizon (at least by 2010) it is elementary that we begin reassessing policies on both sides of the Atlantic. Government intervention in education is justifiable under paternalistic concerns and the positive neighbourhood effects resulting from investment in humans. However, whilst this line justifies government funding, it does not validate a government monopoly over the running of schools.

These arguments have been well learnt since Friedman’s insights into “The Role of Government in Education" in 1955. However, the point needs to be hammered home.

A progressively based voucher scheme for approved privately run schools would benefit the vast majority. A market for education would reduce inefficiency and facilitate true social mobility. Vouchers provide a great improvement over the current system of schooling. They provide choice and schools are motivated to tailor for the needs of parents and students. In addition, they serve to help the disadvantaged the most by providing new opportunities. (I should emphasize that I do not regard vouchers to be a comprehensive solution.)

Focusing on the UK, I recently had the opportunity to talk with Chris Woodhead, the once controversial Chief Inspector of Schools, and it is clear our educational system is in dire need of change. Declining academic standards (in real terms), decreasing social mobility (despite Ed Balls’ claims), high truancy and other problems have yet to be solved by the ‘innovative’ government reforms of academies and ‘deep’ learning. Cynically, it also appears that our future plans will only continue this trend.  Political parties and politicians may claim to be agents of ‘social mobility’ and ‘change we can believe in’, but until they address the issue of education with radical and far-reaching reforms, progress will be limited and our system will continue to limit the real opportunities provided to our youth.

See our 2007 report Open Access for UK Schools for more info.

Blog Review 776


So just how much did policy contribute to the length and depth of the Great Depression? Of course there's always another hand, perhaps it was the smallness of the action that mattered?

It's a little odd when the head of the organisation concerned about racial equality doesn't understand that organisation's definition of race.

Explaining the economics of spam.

Why would anyone be cynical about politicians when they tell us stories like this?

Yes, it probably would be better if GM were allowed to go bust (and then reorganised of course)

How glorious, government licencing for who is and who is not a musician.

And finally, yet more data loss.

Goneth the hour?


Is the writing on the wall for that glorious and appropriately named time of the day: happy hour? An hour (or more) in which one can actually afford to drink outside of one’s house in this most costly of countries. The threat comes from MPs calling for cheap alcohol to be banned in an attempt to address the growing evidence of rising drunken violence.

The argument is that we are seeing an increase in alcohol-fuelled violence, so if alcohol is made more expensive we will see less violence. Well possibly, but alcohol does not cause violence, people do. The problem is not that most people are drinking too much, but that some people are willing and able to commit violence that the rest of us could never consider perpetrating (no matter how inebriated we get).
There are of course many reasons for this violence, but ultimately it is about culture, something that politicians are particularly bad at dealing with. It is not a simple alcohol equals violence equation, but one in which situation plays a key role. For most people violence itself is a taboo, but for some Friday night is all right for fighting.
Ironically, politicians have helped create the problems that they are now trying to solve. As the state has increasingly taken responsibility away from those in society who previously held it by virtue of their position and relationship to those around them, we have seen a concomitant rise in social problems. This is not to claim an idyllic past or a current state of terror; but there can be little doubt the state has taken explicit and implicit power away from teachers, publicans, ticket conductors et al. and we are very much the worse off for it.
Your average drinker should not be penalized for the actions of the wolves amongst the sheep. What we need are more shepherds. The government should be looking at ways of empowering those who used to take a more active role in their communities, so that they can be free to live up to their responsibilities. Instead it is incentivizing the shepherds to take the ferry to France, stock up on cheap booze and drink it in the safety of their home with the doors firmly bolted behind them.