The Pin Factory Blog

When economists speak of “zombie banks” or “zombie companies”, they mean outfits so overwhelmed by debt that they cannot turn to the future. So too the current generation of UK politicians, with a zombie coalition and a zombie opposition. The poor beggars are weighed down not just by debt but also by duff ideas from the past, just like the man down the hole who hasn’t worked out that first he needs to stop digging.

Eventually, however, debt gets paid off or (more likely) inflated away. At least as important, moreover, new ideas emerge. This is the first of a series of blogs drawing attention to straws in the wind along these lines: ideas on the turn and their policy implications. Now for opinion-formers and policy-makers to recognise these changes in the intellectual climate for what they are and to get up the gumption to turn from “keep digging” to reform and resolution.

When Tony Blair signed up for Kyoto, it was a cost-free policy for the UK as it coincided with the “dash for gas” which he inherited. But our adherence to Kyoto targets isn’t cost-free any more. Now we are subsidising wind-farms, solar energy etc so that the UK average energy bill has risen by 18% for this reason alone.

On 8 February, Ed Hawkins of the University of Reading posted a graph, subsequently globally anthologised, drawing attention to the mismatch between climate change models and some seventeen years without measurable climate warming. To be fair, the meaning of the graph is contested, with diehard proponents of classical “Anthropogenic Global Warming” (AGW) spluttering that it is premature to make much of the statistical meaning of the recent  figures; or that the warming is taking place under the sea where we can’t measure it.

This is weak stuff: contrary to the campaigners the science turns out to be far from settled; indeed by the tests climate practitioners have set themselves their predictions are falling apart. Honest scientists are now revisiting their theories and models.

So let the Prime Minister launch a Royal Commission to revisit the evidence, modelling and consequent policy. The composition of such a Commission would have to be carefully chosen to ensure balance. The public interest needs statisticians and scientists from outside the hermetic world of “climate science” to challenge insiders robustly and in full view. Also in the interests of transparency, the DPP should seize data such as papers from the Climate Research Unit of the University of East Anglia for examination by forensic statisticians. The Commission should be given ample time to get it right - five years at least.

Over the period of its review the Government should suspend surcharges on energy bills, subsidies to energy suppliers or technologies, and generally the obligations of the Secretary of State for Energy under the Climate Change Act (2008).

We may expect the Liberal Democrats to object, but they may not want to stand in the way of a good-faith re-examination of the evidence. If they do, they have handed the Tories a priceless wedge issue for 2015.

The left-wing commentariat seems to be using the argumentum ad nauseam against the Thatcher record.  This consists of repeating an allegation, no matter how much evidence is produced against it, or how many times it has been shown to be false.  In City AM Allister Heath dealt with some of these assertions, but that has not stopped the anti-Thatcher brigade from repeating them.  Here are ten claims they make which are not supported by the facts.

1.  She destroyed UK's manufacturing base. No. Manufacturing output was 7.5% higher when she left office than when she began.  It did decline as a proportion of the total economy, but only because other sectors, especially services and finance, expanded more rapidly as the economy changed.  This happened in other advanced economies at about the same time as part of a general trend.  It is true that three major industries, shipbuilding, steel and coal, did decline as they proved unable to compete with other countries in these areas, but other industries, such as advanced manufacturing, expanded.

2. She destroyed the Unions' power to protect workers. Her reforms empowered union members rather than union leaders.  Previous Conservative and Labour governments had tried and failed to bring unions under the law.  The UK's strike record, the worst in Europe, did not help workers.  The Thatcher reforms gave union members the right to vote for their leaders in secret postal ballots, and gave them the right to be balloted ahead of possible strike action.  These resulted in more moderate union leadership and greatly reduced industrial unrest.

3. She lowered income tax so that the rich paid less. She did change income tax, but the rich not only paid more, but paid a higher share of the total.  Her governments steadily lowered the top rate from 83% (or 98% on investment income) down to 40%, and cut the basic rate to 25%.  The low rates raised more revenue than the high ones had done as business boomed and the tax base expanded.  The top 10% who had been paying 35% of total income tax saw this rise to 48% (from just over a third to just under a half of the total).

4. She turned vital state industries into private monopolies. Wrong.  The privatization programme turned ailing state monopolies into competitive and successful private ones.  Her government took care when it privatized to build in competition by whatever means it could.  BT faced a competitor called Mercury, with periodic reviews that allowed more competitors.  Most of the utilities were exposed to world competition as well as national competitors.  An important key was to separate the infrastructure from the supply, so that different producers competed to send their products down the pipes or cables to consumers.  Where this was impractical, suppliers had to bid competitively to win the franchise for a limited time frame.  Loss-making state monopolies were replaced by competitive and profitable private companies.

5. She destroyed Britain's coal industry. Britain's coal industry had been in decline for decades.  Many more pits were closed under Harold Wilson's Labour governments than under Margaret Thatcher's Conservative ones.  One reason was the rise of oil and then gas and nuclear as cleaner alternative sources of power.  Another was the decline of heavy industries that depended on coal.  Domestic heating moved away from coal, and North Sea gas replaced coal gas.  Added to this was lower cost foreign coal.  All of these ultimately doomed loss-making subsidized coal mines, and the year-long miners' strike helped reinforce the case for alternatives.

6. She did not really cut taxes. Critics point to a slight increase in the government tax take over her 11 years as proof that her tax cuts were illusory.  There were initial increases, especially of VAT, but under her there were major cuts in income tax and corporation tax that generated substantial economic growth.  After the initial years of dealing with the financial mess and the inflation that had been left, the government took less of GDP.  Tax Freedom Day, calculated by the ASI as the day of the year when people have paid off the government share, for 10 years after that either came earlier or stayed the same.

7. She unleashed the regulation that led to today's crisis. As Philip Booth at the IEA points out:

"the 1980s was not a period of financial deregulation. Insider trading was made illegal in 1980. The life insurance industry, which had been almost free of regulation for over 100 years from 1870, was re-regulated from 1980 to 1982. Bank deposit insurance was introduced in 1979. The sale of investment and insurance products came under statutory regulation from 1986. Further, the first ever regulation of UK bank capital took place under Basel I, agreed while Thatcher was Prime Minister."

The 'Big Bang' did allow more types of firm to trade in financial instruments, but it essentially replaced private regulation with public accountability.

8. She committed a war crime by the sinking of the Belgrano. The UK was in a war situation over Argentina's illegal seizure of the Falklands.  The South Atlantic area was a war zone in which hostilities were under way.  The 200 mile exclusion zone did not restrict fighting to within its limits.  It was a warning to neutral ships to avoid it.  The Argentine cruiser Belgrano was not a neutral ship and was on a zig-zag course, posing a menace to the British task force, and was sunk as an act of war, one that Argentine commanders accepted as legitimate.

9. Hers was a deeply unpopular and divisive government. She led the Conservatives to victory in three elections in a row, all with substantial majorities.  She did not win over 50% of the vote, which no party has done since World War II, but she did win a higher share in 1979 than Tony Blair did in 1997, and more in her subsequent two victories than he gained in his.  Her governments shunned the post-war consensus that had presided over Britain's decline to an economic basket case, and thus divided opinion.  More to the point, socialists had hoped that their ideology might one day rule, but the Thatcher governments ended that hope within the UK and helped to end it on a world scale.  The Left cannot forgive her governments for taking that future from them.

10. Her cuts slashed the public services. In fact public spending increased by 17.6% over the course of her governments.  There were cuts to proposed increases, but core service spending expanded.  Because the economy boomed under Thatcher governments, the total state share of GDP diminished as a proportion of the total.  It declined from 45.1% when she came in to 39.4% when she left. She increased expenditure on health, education and social spending, but by less than the growth in the private economy.

I thought this was an interesting piece of polemic from Ken Linvingstone:

Thatcher was sustained only by one extraordinary piece of luck. Almost the moment she stepped over the threshold of Downing Street the economy was engulfed in an oil bonanza. During her time in office, government oil receipts amounted to 16% of GDP. But instead of using this windfall to boost investment for longer-term prosperity, it was used for tax cuts. Public investment was slashed. By the end of her time in office the military budget vastly exceeded net public investment.

A quick read of that (or an ignorance of economics of course) would lead you to think that it was 16% of GDP each year. When of course it wasn't: it was 16% of one year of GDP spread over the 11 years of her term. Or 1.5% or so of GDP in any one year. It did bounce around quite a bit but that's what that government revenue actually was. To put that into context in today's money that's a bit more than we get from fags and booze combined, a little less than we get from fuel duty.

Strangely, we don't get told that those must be used to boost investment, do we? Which is odd, given that they're really about the same amounts of money.

It's also true that another thing gets missed: if the receipts had been 16% of GDP then we'd have needed to have a sovereign wealth fund. The point of which is not to invest in the future of the economy but to make damn certain that the cash does not enter the domestic economy in any manner at all. That would cause Dutch Disease and is the reason why Norway's fund is not allowed to invest in the Norwegian economy. It all sits offshore and is meant to stay there. And this is generally true of all resource windfalls. Either they're a nice bit of extra cash which can be used domestically or they're vast great gobs of it that must be kept offshore. There's not really any middle ground: enough to rebuild society will be too much to use domestically.

One more point: yes, of course public investment fell over those years. At the beginning the nationalised companies were nationalised. At the end of the 11 years they were private sector ones. Thus whatever investing they were doing moved from the public sector balance sheet or P&L to the private sector one.

I had a Frenchman comment on something I'd written elsewhere. The argument was that a company must contribute to taxes where it trades otherwise it will not be contributing to where it trades. An idea which many agree with: but let us use that French invention, strict logic, to examine it.

The National Health Service does not provide tax revenue for the United Kingdom. Indeed, it's a famous consumer of such. We cannot argue that the employees pay tax: for that is the employees, not the organisation itself. Thus, if tax paid is the measure of the contribution an organisation makes to socierty then the NHS is valueless. Given that it produces no tax revenue then it does not contribute, does it?

The same would obviously be true of education, the military and so on. Also, it would be true of companies that make a loss: as Starbucks really was. All of which is quite obviously ridiculous. I might wish that tthe NHS was organised in a different manner than the way it is: but I would not argue that treating tens of millions of people a year adds no value to the nation. That not everyone who escapes the state schooling system can read does not mean that none do and so value is added. And the military has value in all those French invasions that do not occur each year as a result of the existence of the military.

And so it is with private sector companies. The value that they add to our country is the value they add to the consumer experience. Starbucks enables us to have expensive and bad coffee. Google enables us to search, for free, the information of the world. I'm sure that Facebook does something or other: something that some of my fellows value for whatever reason it is.

The value that a provider of something provides to the society in which they provide it is the consumer surplus among those consumers of that good or service. How much tax they pay or dodge on having done so is an irrelevance. For if it were relevant then supplies of goods and services which did not, by design, pay tax would be valueless, would they not?

This Frenchy stuff of Caretesian logic is fun, innit?

Martin Durkin's documentary is to be shown on Channel 4 at 7.00pm on Saturday April 13th.  Amid all the anti-Thatcher myths put out by the chatterati, this movie offers a refreshing assessment of how she changed the lives of ordinary people for the better.

"Martin Durkin's controversial thesis is that Margaret Thatcher was a working class revolutionary.  She believed that capitalism was in the interests of ordinary people, not the toffs. Many ordinary people agreed.  And that is why the left hated her so much - Margaret Thatcher stole the working class."

The documentary features interviews with many of those who knew and worked with Lady Thatcher, including brief contributions from Dr Madsen Pirie, the ASI's President.

Owen Jones tells us that everything, but everything, wrong with our modern world is the late Margaret Thatcher's fault. Apparently this can all be changed by our following the agitprop of a 28 year old unreconstructed Bennite. Call me old fashioned here but I think I prefer to get my prejudices from someone who has actually had time to acquire their own but maybe that's just me being in contact with my inner conservative.

It would also help if Jones were able to be factually correct. I do realise that all the events he is whining about took place before he was even a gleam in his mother's eye but we do have these interesting things called history books that can be referred to:

This current crisis has roots in the Thatcherite free market experiment, which wiped out much of the country’s industrial base in favour of a deregulated financial sector.

I know that this is the sort of tosh that Jones has been fed for many a year but it just isn't true. As Philip Booth points out:

Let’s be absolutely clear: in general, the 1980s was not a period of financial deregulation. Insider trading was made illegal in 1980. The life insurance industry, which had been almost free of regulation for over 100 years from 1870, was re-regulated from 1980 to 1982. Bank deposit insurance was introduced in 1979. The sale of investment and insurance products came under statutory regulation from 1986. Further, the first ever regulation of UK bank capital took place under Basel I, agreed while Thatcher was Prime Minister.

That just isn't a "deregulated financial sector".

As to manufacturing, as I have been pointing out for some time now it simply wasn't wiped out. There was a recession, yes, there most certainly was. And manufacturing output is more sensitive to such things than services output (a note to those who claim that more manufacturing would make the economy less volatile). But manufacturing output was higher when Maggie left office than it was when she entered. As it was for Major: higher when he left than when he arrived. Indeed, for both of them, manufacturing output was, on the day they left office, higher than it had ever been in this country. And yes, of course, that is indeed inflation adjusted.

That just isn't what happens in a country with a wiped out industrial base. So it would appear that Jones needs some education in just basic history.

But I will not stop there. No, I will reveal the full and true extent of the entire Thatcherite, neoliberal and globalising conspiracy. I recall the meeting well actually. Madsen and Eamonn of course, the consiglieri of the movement. Mrs T, as we were graciously allowed to call her. I was the mascot, being barely out of short pants myself at the time. The Queen appeared in her true lizardly format and David Icke served the drinks (ginger beer for me, said mascot). Now that powert had been gained the basic plan could be implemented: let's get this capitalism, these free markets, red in tooth and claw roaring around the globe. Which is what led to, as Richard Murphy notes, the most important policy change:

In one of her first moves on coming to office she delivered capital market liberalisation. What that meant was that money was allowed to roam free around the world.

Yes, exactly: the end of the Bretton Woods idea and the arrival of globalisation. Where the owners of capital could indeed roam the world, free from the trammels of bureaucracy, and exploit underpaid labour wherever they could find it. The end result of which is the world we have today. The one where the Millennium Development Goals of the UN have been met years early. Where we're just seen the greatest reduction in poverty in the history of our species. Where billions have moved from the possibility of the occasional bowl of lentils to those very Granthamite petit bourgeois pleasures of three square meals a day.

Or, as Branco Milanovic puts it, and he is the World Bank's guy on this sort of stuff, global inequality is falling and the people who have really benefitted from globalisation are:

As the figure below shows, most significant increases in per capita income are indeed found among the very top of the global income distribution and among the emerging global middle class, which includes more than a third of the world's population.

That figure being this one:

Yes, indeed, that top 1% has benefitted (and that's the global top 1%, you, me and Jones, those earning over around $50,000 a year). and yes, the 70th to 90th percentiles haven't seen mucdh benefit from it all. Nor have the bottom 10% who haven't actually taken part in globalisation. But look at the increases in income for everyone else! For the 10-70th percentiles!

I do recall what the great question of the 80s on the international stage was. How the hell do we make the poor rich? And the answer was that we had already started that long and difficult process simply by kicking off this neoliberal globalisation thing. The effects on poverty, from Xavier Sala i Martin:

It worked too.

Now of course I am in part joking. David Icke wasn't there. But I will agree with Jones on one thing. We do indeed live in a world that Margaret Hilda Thatcher helped to create. One that's immeasurably better than the one that existed when she came onto the political stage. She fired the starting gun on the whole great neoliberal experiment of globalisation. The result of which is poverty is halved.

Well, don't you think that's a better world? And all simply because the Lady let capital roam free to exploit where it could.

The above chart shows the level of the personal income allowance from 1979 to the present day. The blue line is the nominal level. It seems that chancellors have only ever increased or maintained the current level, and with good reason, given the unimaginable political backlash of decreasing it. But the red line is the real level of the personal allowance, when adjusted for inflation. This tells a different story. Although there has been a general trend for it to increase, there have been many occasions when it has actually decreased, harming the poorest, hard-working families the most. In this way, chancellors have been able to deliver real tax increases, purely through waiting for inflation to have its effects.

In order to stop the abuses of this Inflation Tax, the level of the personal allowance should be linked to inflation. That way, chancellors would only ever politically be able to increase or maintain the real personal allowance.

Secondly, the ASI has long advocated that the working poor be taken out of tax altogether. Thus, the green line shows the level of the national minimum wage since it was started in 1998, assuming a 42.7 hour week (the UK average), for 52 weeks. Even the recent acceleration of the real personal allowance therefore falls far short of taking minimum wage workers out of income tax altogether. To take the working poor out of tax, the personal allowance must not only be indexed to inflation, but raised above this level too.

On Tuesday, Madsen took part in an Intelligence Squared debate at the Royal Geographical Society on the motion that "Karl Marx was right: capitalism post-2008 is falling apart under the weight of it own contradictions." Speaking in favour of the motion were Tristram Hunt MP, Robin Blackburn and Frank Furedi, while against it were George Magnus, Madsen Pirie and Judith Shapiro. The vote taken before the start of the debate saw the audience roughly equally divided between those in favour, those against, and those undecided.  The vote after the debate saw a huge majority against the motion, with most of those undecided switching to vote against it. People will be able to watch the debate when it is posted on Intelligence Squared's YouTube channel.  Meanwhile the text of Madsen's speech can be read here:

Like many public figures who leave a legacy, either in their writings or their deeds, Karl Marx was sometimes right and sometimes wrong.  I concentrate on some of the things about which he was wrong.

He was wrong to predict that history would take us to the inevitable triumph of the proletariat and then stop.  History shows no signs of doing either.  Marx was also wrong to suggest that this would happen first in the most advanced economies as the final stage of capitalism.  In fact such revolutions as came took place in less developed economies such as Russia and China.  It has not happened in the advanced economies, and this could be because Marx was wrong about something else.

He predicted that capitalism would drive down wages to survival level before its final denouement.  In fact as economies became more advanced, both wages and living standards rose to levels not even dreamt of in Marx's day, and this seems to have lowered the pressure for revolutionary change.

Marx was also wrong about something more fundamental.  He was wrong about change.  I don't just mean that he was wrong about the changes that would come about; more fundamentally he was wrong about how change takes place.  He took the Hegelian model of change.

Continue reading.

London's pubs may soon be protected from demolition or conversion after Boris Johnson agreed to list them as 'community assets'. What this means is that any pub which is so listed becomes considerably more difficult to sell. A selling pub landlord will be required to:

• notify their local authority;
• wait for the local authority to notify any “interested parties;” and
• “if local groups are interested in buying the asset they (will) have 6 months to prepare a bid to buy it before the asset can be sold,”

…helped along by government-funded “pre-feasibility grants of up to £10,000 and feasibility grants of up to £100,000” drawn from a £30 million social slush fund.

The Daily Mail reports that “every week 25 pubs close,” with the attendant loss of thousands of jobs, “never to reopen, victims of... cheap supermarket booze, heavy duty on beer and the smoking ban.”

Supposedly, listing “helps to see off the property developers who are the main reason pubs go down.” But are they?

Industry publications further point out that taxation on alcohol is “eight times greater” than in France, which combined with increased input costs “of barley, malt, glass, aluminium and energy” squeezes margins such that “the major UK brewers have seen profits plummet by almost 80 per cent.” Changing tastes and squeezed budgets have contributed to beer sales falling to their lowest levels since the Great Depression.

Many pubs are now more valuable for the land on which they sit than the pints they pull, resulting in their being “demolished or converted to other uses such as residential and retail services which radically alter community spaces and change the tone of the high street.”

This is no bad thing. The father of Austrian economics, Carl Menger, wrote that “if, as a result of a change of tastes, the need for tobacco should disappear completely,” there would be no doubt that tobacco would lose its utility entirely and the services of tobacconists, importers, traders, pipe-makers, tobacco-farmers, and “the specialised labour services of so many people who are employed” in the trade would “cease to be goods.”

This should not mean permanent destitution for those involved. A free market can redeploy its resources towards more profitable purposes. “Many tools and machines used in the manufacture of tobacco products,” Menger wrote, can be “placed in causal connection with other human needs even after the disappearance of tobacco.”

As in many other occasions in life, where goes tobacco, so goes beer. Times, and tastes, have changed. [ ] Yesteryear's East End labourers are now hipsters and carb-conscious yuppies, and City types are more likely to hit the gym at lunchtime than ‘roll down the pub’.

The problem is exacerbated by the smoking ban, the high burden of business rates, VAT and excise taxes, and falling household incomes. Additionally, in the midst of a housing crisis, the human need for housing is considerably more pressing than the human need for drinking in connection with the land on which “our” pubs have been built. One should not therefore be surprised that pubs have become increasingly valuable as property, rather than business, assets.

This is not to say that the Austrian approach is entirely fatalistic on the issue. We can, and should, announce “last call” on government intervention in this sector of the economy – freeing pub business from regulation so it becomes more competitive and liberalising the housing market will reduce the cost to society of both entertainment and places to live, while not interfering one whit with the property rights of pub owners. Listing pubs as “community assets,” however, achieves virtually nothing.

As part of our continuing series, Madsen Pirie discusses some common ground between libertarians and the left.

4. The ASI backs the cause of personal liberties.  The Left should welcome the fact that the ASI is firmly libertarian in its outlook, taking the side of those who express a right of dissent, or who choose to follow alternative or minority lifestyles.

The ASI takes a libertarian approach, believing that people are the best judge of what suits their lives.  They know more about themselves and their circumstances, and should make the decisions about how they prefer to live.  We think people should be entitled to live their own lives, rather than being forced to conform to someone else's idea of how they should live.  Provided they do not harm others or seek arbitrary restraints on their liberties, people should live as they choose.

The ASI does not support imposed conformity.  It recognizes that people differ in their views of what constitutes a family, or marriage, and supports their right to live by different values.  It opposes using state power and state finance to back only certain types of relationship, believing that such choices should be outwith its jurisdiction.

The ASI backs free speech, including the expression of ideas that some might find offensive and insulting.  We might prefer to see people exercise courtesy and restraint, but these are not things that the law should impose.  A free press will at times overstep the boundaries of taste and decorum, but only a free press uncontrolled by politicians can expose their machinations and follies and therefore restrain their excesses.