On this day...

2721

on-this-day-1979

I promise if you look at it from the outside, I don't think other people in the world would share the view that there is mounting chaos.

Prime Minister James Callaghan, 10th January 1979

Blog Review 835

2738

blog-review-835

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

2732

eu-to-vote-on-killing-africans

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

2728

porn-king-demands-tax-bailout

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.

Levy on gambling

2729

levy-on-gambling

It had been reported that plans are afoot to introduce a change in the levy placed upon bookmakers in order to help combat gambling addictions. Previously, this levy was a voluntary one, with all revenue going to the 'Responsibility in Gambling Trust’, a government run charity. Now the government is concerned that not enough firms (mainly small independent bookmakers and arcades) are paying this voluntary tax.

Approximately £1.2m needs to be raised by the government to balance the books of this Trust, so now this levy will become compulsory to all firms. I think the government seems to have confused the concepts of charity and tax collection. As soon as firms are forced to pay this levy The Responsibility in Gambling Trust becomes a public service provider, not a charity.

The firms hardest hit by this new compulsory levy will be smaller independent bookmakers. This could force them out of an already tough market (since the boom of internet bingo and poker websites) as well as force the increased costs onto the punters. Possible externalities of this route could be the growth in foreign internet gambling sites or unlicensed bookmakers.

This government has already banned smoking in public places, happy hours and relatively cheap drinking. Now they intend to make it more expensive to gamble. There really is a direct correlation between what they discourage and the pleasure people get from it. Ironically, the politicians were not so righteous and prudent whilst gambling with our public finances, economy and future prosperity.

Blog Review 834

2731

blog-review-834

In one way we could think of the second stage of the stimulus as being like the Battle of the Somme. So far our tactics haven't worked so let's go large!

Even Obama's new advisor seems to be indicating that fiscal stimulus won't work.

And of course a stimulus fired by spending leaves us open to the most egregious pork.

One such piece of infrastructure pork here in the UK is a broadband rollout. There is a better way.

There is of course real world evidence that there is a slowdown: oil stocks are booming.

This fall off in car sales. It's not all about the recession you know.

And finally, conclusive proof that soccer is becoming more popular in the USA.

Printing money: the Zimbabwean solution

2723

printing-money-the-zimbabwean-solution

It

seems

that Gordon Brown may be planning to resort to a Zimbabwean policy to get himself and us out of the credit crunch – simply printing more money. It will probably have the same effect – stagflation. Like we had in the 1970s under Brown's predecessors Harold Wilson and James Callaghan.

Printing money is supposed to make us all feel richer, so we go out and spend. But money is like anything else. When there is more of it about, it loses its value. People may not notice this immediately. They just see they have more money in their pockets, and feel better off. But then prices start to rise again, and they realize that they're actually no better off at all. They've just spent their savings, so they're actually worse off, or they've invested in new business ventures that will come to grief because eventually people will see that their new riches were illusory.

Money is a very powerful economic tool – it runs through every bit of the economy. You shouldn't use it to try to correct temporary ups and downs in economic performance. It should grow at a constant rate, reflecting growth in the economy. If you try to adjust it in fits and starts, you will just make things worse.

Frankly, this is a time for sound money that we can trust. And it's a time for investment decisions to be driven by market rates of return – not by politicians taking our money with one hand and giving it out with the other in the attempt to create high-profile jobs. Only from a solid, market foundation will the economy recover.

Printing money: the Zimbabwean solution

2724

printing-money-the-zimbabwean-solution

It seems that Gordon Brown may be planning to resort to a Zimbabwean policy to get himself and us out of the credit crunch – simply printing more money. It will probably have the same effect – stagflation. Like we had in the 1970s under Brown's predecessors Harold Wilson and James Callaghan.

Printing money is supposed to make us all feel richer, so we go out and spend. But money is like anything else. When there is more of it about, it loses its value. People may not notice this immediately. They just see they have more money in their pockets, and feel better off. But then prices start to rise again, and they realize that they're actually no better off at all. They've just spent their savings, so they're actually worse off, or they've invested in new business ventures that will come to grief because eventually people will see that their new riches were illusory.

Money is a very powerful economic tool – it runs through every bit of the economy. You shouldn't use it to try to correct temporary ups and downs in economic performance. It should grow at a constant rate, reflecting growth in the economy. If you try to adjust it in fits and starts, you will just make things worse.

Frankly, this is a time for sound money that we can trust. And it's a time for investment decisions to be driven by market rates of return – not by politicians taking our money with one hand and giving it out with the other in the attempt to create high-profile jobs. Only from a solid, market foundation will the economy recover.

Hedges and markets

2715

hedges-and-markets

There's a hole in my hedge. This is very worrying for me, because it shouldn't be there. I used to have a small shed which went up to the hedge and blotted out the light, so the hedge itself became thin just there. When the shed went, there was a large and obvious gap. No problem, I thought, it will soon grow back.

It's grown back a bit, but there's still a hole. Why don't the surrounding bits of privet just colonize this free space? Yes, I guess my new shed blocks out the light, which doesn't help. And it's been cold and there hasn't been much sun. So I don't suppose that helps. I know that eventually, it will grow back. But I want my hedge back now.

Markets are like hedges, or any other ecosystem for that matter. When things go wrong, purists expect them to correct and fill all the gaps instantly. Politicians, who have all been taught by their economics lecturers that markets are perfect, just can't bear it when markets don't correct instantly. They say it's a market failure, and propose to plug the gaps themselves. As if government failure wasn't worse.

Markets – if they are competitive, and free from government-sponsored monopolies and restrictive regulation – do adjust. But it takes time. Markets aren't perfect. Markets are people. And while people might see that investment is in the wrong place – in houses bought at inflated prices with cheap credit, for example – it takes them time to adjust. They need time to make a judgement about what they think will succeed in the future. They need time to assess a number of possible alternatives. They need time to unwind their current commitments and put their money, time, and expertise into other areas. And they need time to build the plant, equipment and networks they need to capture those new opportunities. Some of those guesses won't work, and there will be further setbacks. Some initiatives will fail because other people got to the same place faster. Others will stumble because other entrepreneurs are buying up the resources they need for completely different ventures. Market adjustment is never smooth, predictable, and perfect.

And meanwhile, unemployment will persist. Just like the hole in my hedge. But it will grow over eventually. There's no point in me creating a hole somewhere else in the hedge in order to plug the one I've got – just as there's no point in governments raising taxes, borrowing and spending that costs jobs in one part of the economy in order to try to boost it in others that are more politically troublesome. Hedge transplants and job transplants don't always take.

Adam Smith Institute named world's No.10 non-US think tank

2720

adam-smith-institute-named-worlds-no10-non-us-think-tank

The Adam Smith Institute has been ranked as the No.10 think tank outside the US in a major new study for Foreign Policy magazine, making it the highest-placed domestic policy think tank in the UK. The ASI was also listed at No.5 in the 'Top 5 International Economic Policy Think Tanks' category.

The 'Think Tank Index' – which is based on a worldwide survey of hundreds of scholars and experts – is published in full in the January/February issue of Foreign Policy. It was compiled by James McGann, Assistant Director of the International Relations Program and Director of the Think Tanks and Civil Societies Program at the University of Pennsylvania.

Naturally we are delighted to feature in the top 10 of such an authoritative international study, and to be considered one of the five leading economic think tanks in the world – despite having a much smaller budget than many of our competitors. We put it down to many years of solid effort to produce timely, well-researched and practical policies, an eye to cost-effectiveness, and the continuing loyalty of our many supporters among the general public.

It has in fact been an excellent month. In Ian Dale's End of Year awards, the Adam Smith Institute was voted to be Think Tank of the Year. With big plans for 2009...