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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

A better futures market in housing

Written by Liam Ward-Proud | Monday 26 April 2010

Property is, for the majority of citizens, the single biggest investment made in a lifetime. Most people’s portfolios are far less diversified when you factor in the fraction that is dominated by house price movements. Indeed, many who would consider their wealth relatively ‘safe’ from fluctuations in market prices by keeping the majority in cash are far more dependent on economic circumstance than they realise, owing to the large investment they have made in bricks and mortar.

‘Sophisticated’ investors can hedge most investments through futures markets in the particular investment, but housing is unique in having a futures market that is ‘index-based’, i.e. you can hedge risk for the market movements as a whole, but not for your particular area or property. Property is inherently heterogeneous, and just as derivatives instruments have blossomed and specialised in other areas over the last decade, housing derivatives should do the same. Everyone has to buy a house, so why not allow people to hedge against the particular risk they are taking in doing so.

Credit goes to Robert Shiller for the popularisation of this idea, and interesting research (drawing from techniques of the biomedical sciences of all things) has been done into the nature of heterogeneous derivative instruments. I think that the broad argument for widespread involvement in such markets is worth restating though.

I would argue that recent events highlight the need for such a facility in the housing market. When house prices plunged in 2008, UK citizens where clearly horrified at the amount of their net worth that was evaporating after years rising in an overheated housing market. As a result, consumer spending dropped and recession deepened.

This wasn’t the first overheated housing market, and it surely won’t be the last; loose monetary policy seems to be a speciality of this generation of central bankers. I think this only strengthens the case for a hedging facility in housing. If people had less to lose from a drop in house prices, the economy would be more robust and efficient as a whole.

The argument for a more sophisticated futures market in house prices is even more convincing in the UK, where the proportion of buyers to renters is much higher and house prices in general are higher.

There is a need for this market, and clear profit opportunity for firms involved. I’ll keep harping on until more notice is taken.

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A better plan for the London Olympics

Written by Steve Bettison | Monday 24 December 2007

olympics.jpgIt's time to make the Olympics not only profit making but also interesting. Every four years the Olympics rolls into some poor naïve city and proceeds to prove to all and sundry that it wasn't worth the time, the effort, or the money that was spent on it.

With London 2012 expected to be enormously over-budget, I would suggest implementing the following plan - not just to save money, but to also put some life back into the Olympics. Post 2008, regional qualifying should take place over three years, reducing the field of competing athletes to a cream of the region. Then, when the Olympics come around, the events are simply a series of finals with no one but champions competing in them. Perhaps the Olympics could be reduced to a three-day event. Infrastructure would then be dispersed around the World and costs shared, and the event itself would be short and sweet.

The amount of taxpayer's money that is going to be wasted upon on the upcoming London Olympics is not even known by the current administration. The honesty of their continual claims that it will not be over budget is hard to believe, but they could insure themselves against dramatic loses by seeking to have the cost of the games shared across the globe! The Olympic Committee will continue to seek others to pay for their games and, unfortunately, many cities/governments will continue to force their taxpayers to pay.

It has to be remembered that governments are vain, and there is nothing better than an Olympics to rub the egos of those in power.

[Ed - I also like Sir Simon Jenkins' rather more modest proposal: that we deliver the Olympic games at the originally agreed cost and not a penny more. If that means we have to use existing stadiums and venues, well, so much the better!]

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A better way for hospital care I

Written by Miles Saltiel | Saturday 08 June 2013

Relieving the State of a hospital sector it has never been able to control would raise standards and reduce Britain’s national debt by close to fifteen percent.

In the private sector, if outfits fail they are reorganised, we call this bankruptcy. In the public sector, if outfits fail they are supported with our taxes—heaven knows what to call this—solidarity? compassion? How about hokum?

Yes, they keep us alive; yes, they’re free at the point of use; but let’s get real. NHS hospitals are unwholesome—hospital infections are now an NHS commonplace. They're unfriendly—try getting a diagnosis from a consultant whizzing through ward rounds. And they're inharmonious—listen to front-liners talking about clinicians, consultants about GPs, or any of them about porters. Such ill-feeling leads at best to bloody-mindedness, at worst to irregularities like the mid-Staffordshire deaths or newly-disclosed lapses in late-week aftercare.

And the keeping alive thing isn’t going so well: two years ago, the ASI’s No Need to Flinch presented data showing that the NHS is undistinguished by comparison to its peers. It is certainly free at the point of use, but that’s one of the problems: without pricing we have centralised rationing, priorities set by bureaucrats using clinical pretexts for essentially arbitrary decisions.

The NHS has become an ethical dump. Ordinary people are assumed to be unable to make their own decisions. They face policies which second-guess their choices, ration healthcare surreptitiously, allocate provision according to the state of public finances, and deprive patients of treatments in a public setting if they want to fund them directly.

As to economics, for as long as healthcare is unpriced, it is subject to infinite wants, especially as populations age and new technologies emerge for diagnosis, treatment and bodily modification. Prices would help patients make informed choices, as in the private sector.

Looking at practicalities, as ever in public supply the producers have captured the system, running it for their own purposes. Doctors, nurses, radiographers and pharmacists collaborate reluctantly in an ill-tempered armistice covered by paperwork in triplicate. Compare private healthcare, where professionals co-operate promptly. This is because customers with choices ensure that private healthcare competes to meet their needs. By contrast the NHS monopoly prevents customers going elsewhere; instead the Department of Health creates tick-lists, demoralising practitioners who game them. The NHS needs the discipline and coordinating force of the price system.

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A better way for hospital care II

Written by Miles Saltiel | Sunday 09 June 2013

Two years ago, the ASI’s No Need to Flinch set out a raft of proposals to shake up the NHS’ demand side. We called on the NHS to treat people as individuals with less heavily aggregated risk pools, we called for funding options to be widened, and we made the case for allowing co-payment on procedures the National Institute for Clinical Excellence would not otherwise fund.

Under this system most would be obliged to purchase insurance—like the car insurance regime in the UK—while end of life care and accident and emergency would be paid for by the state, as determined by a political consensus. The issue then becomes reform on the supply side—hospitals.

Governments have grappled with this for generations, giving rise to perennial complaints about “NHS reorganisation”. In fact, hospital doctors always see the civil servants off: they’re the smartest guys in the room, furnished with the best data and ruthless in exploiting the fear-factor. But the public would be best served if the components of secondary care were broken up to embrace a variety of approaches, so that best-practice emerged continuously from what Tim Worstall’s recent blog post called “market processes …an endless repetition of experimentation”.

This would include all secondary care: ambulances, labs, specialist clinics. Most of all hospitals, although it is often argued that full service calls for concentrating the required skills in big operations. There is something in this, but not so much as to render integrated hospitals beyond competition. In the first place the argument misses the mark. Even now, we accept some specialities in regional if not national settings. Meanwhile national guidelines impair the experimentation which makes for progress. More to the point, even the largest hospital is susceptible to competition. This is because even small reductions in demand threaten the specialist functions which justify its existence.

Disposals also promise relief to the Chancellor. ASI’s 2010 study of the UK’s intergenerational obligations, On Borrowed Time, showed Britain’s secondary healthcare to be worth around £200bn. Considering corporation tax reductions and market increases since then, it could now be worth £300bn.

Let’s recast integrated outfits to maximise choice for scheduled activities where patients have discretion. Let’s also contemplate several business models: overseas groups, newly-listed companies, professional co-operatives and charities or universities. And finally, let’s set aside a fraction of receipts for practitioners, following Bevan with the consultants when he “stuffed their mouths with gold” to win them over to the NHS. So the Exchequer might only get half the headline sum. That would be £150bn, not quite fifteen percent of the national debt, but well worth having.

Best of all, if hospitals failed to attract referrals from GPs, already at arms-length, even the largest would shortly find their specialist functions at risk: market discipline would enforce reform, something beyond seventy years of NHS control. So let's free up the rigid UK healthcare system and inject some innovation, competition and diversity in.

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A bit rich

Written by Charlotte Bowyer | Wednesday 16 December 2009

The New Economics Foundation’s latest report ‘A bit Rich?’ advocates a ‘fundamental rethink of how the value of work is recognized and rewarded’. This is on the back of the argument that wages paid to people in different professions don’t reflect the ‘real’, social value of their roles.

The report repeatedly reveals an automatic desire for state intervention and regulation, based upon an aspiration for significantly greater equality of outcome. Unsurprisingly the three examples used for ‘highly paid yet socially catastrophic’ jobs come from the private sector; namely banker, tax accountant and advertising executive. When analyzing tax accountants they note that “every pound that is avoided in tax is a pound that would otherwise have gone to HM revenue"; and proceed to look at “how this lost revenue could have been better spent" by the government. This analysis neglects the fact that despite huge increases in public spending and taxation in recent years few if any improvements in the state of public services can be noted. The NEF are wrong to argue that wealth is better off in the clammy fist of government than being put to productive use by those that earned it.

The report also seems strangely puritanical. Advertising executives are deemed vastly destructive because they create ‘insatiable aspirations’ and fuel the social and environmental damage caused by over-consumption – as if seeking to better your lot and consume over and above the absolute minimum is a sin. When measuring over-consumption the Joseph Rowntree Foundation’s Minimum Income Standard – categorized by the charity as the lowest income at which someone can lead a meaningful existence – is taken as the level of consumption deemed acceptable.

The report neglects the true reason for differences in wages: the need for certain skills. Almost everybody could go around a hospital with a bottle of antiseptic, but it is unlikely that many of us would be able to understand opaque tax laws that highly-paid accountants have to. To have jobs priced according to their social (read ‘political’) value and not the scarcity of required skills would result in a chronic misallocation of labour.

The report concludes that we need more progressive taxation, higher minimum wages and a national pay differential to prohibit anyone from earning over a certain amount. It is a call for socialism and all its attendant failures, and no pretence of social benefits should disguise it otherwise.

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A box of frogs

Written by Philip Salter | Tuesday 16 September 2008

Noel Edmonds may be as mad as box of frogs, but his recent stand against the BBC licence fee should be supported. He is not against the BBC per se, but against the harassment surrounding their way of extracting the licence fee. Speaking on a BCC breakfast show at the weekend, he stated:

I worked for the BBC for 30 years. When I was there it promoted the licence fee by saying how wonderful it was. But now Auntie’s put boxing gloves on. I am not going to have the BBC or any other organisation threatening me. I’ve cancelled my TV licence and they haven’t found me. Nobody’s coming knocking on my door. There are too many organisations that seem to think it is OK to badger, hector and threaten people.

Our Director, Dr Eamonn Butler was one of the first to point out the Gestapo tactics the BBC’s latest Orwellian drive to strike fear into homes around the country. A campaign that those in the BBC should be thoroughly ashamed of.

Of course Edmonds should not break the law, but the license fee really should not be enshrined in law in the first place. If the BBC has any value at all, it should be able to survive in a competitive market, if it cannot, it should go to the wall like any other service provider. Without doubt it now fails to fulfil even that most patronizing ideal, 'public service' broadcasting. After all, they put Noel Edmonds' House Party on the television every Saturday night for eight years... What kind of public service was that?

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A brave stand for gay marriage

Written by Anna Moore | Tuesday 05 July 2011

On July 4, 993, Saint Ulrich of Augsburg was canonized. Well, that too, but perhaps slightly better known is the adoption of the Declaration of Independence by the Second Continental Congress in 1776. Yesterday America celebrated the anniversary of her self-rule, recalling her struggle for liberty.

A great irony and pity, then, to read this story in the weekend’s New York Times. On June 24, New York became the latest American state to legalize same-sex marriage, to the joy of proponents of individual liberty everywhere. As supporters clinked champagne flutes outside the Stonewall Inn, though, the four Republicans who voted for the bill doubtless brooded on their political futures. The NYT article ponders the same, describing staunch conservatives’ vows that the four will never be re-elected. Michael R. Long, chairman of the Conservative Party, says that none of the men will receive the party’s endorsement. The National Organization for Marriage, an anti-gay marriage pressure group, claims it will spend $2 million in an effort to defeat the legislators at the next election.

That’s fine. Mr. Long and his party are under no obligation to support senators who take positions with which they disagree. The NOM may campaign against people it considers unfit for office. But how horribly dispiriting it is that there is still such fervent opposition to gay rights in America. Senator Roy J. McDonald, one of the Republicans who voted for the bill, responded to a reporter’s question with, “Well, f--- it, I don’t care what you think. I'm trying to do the right thing”. Senator Steven M. Saland justified his “aye” vote in similar terms, saying, “I must define doing the right thing as treating all persons with equality”.

This, I think, is the heart of the matter. A Catholic priest should not be forced to marry a gay couple, but nor should Catholicism, or any other personal belief or doctrine, be used to bar that couple from marrying. Good on New York, fingers crossed for the rest of the Union.

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A breath of fresh air in airline regulation

Written by Sam Bowman | Thursday 18 November 2010

Over in the think pieces section of the site, you can read Karthik Reddy’s analysis of the UK’s aviation industry and his recommendations for improvement of the industry. Karthik says that among the biggest problems facing the industry is the fact that the government allocates airport take-off and landing slots to airlines based on perceived need rather than on the ability of these airlines to pay.

As with many government schemes that try to allot scarce resources along supposedly ‘just’ lines, the airport slot system is rife with negative unintended consequences. Because airports slots are taken away from airlines which don’t use them enough, airlines are often forced to fly nearly-empty (sometimes completely empty), loss-making flights in order to maintain usage and meet the targets needed to maintain possession of the slot. Remedies to these problems, like requiring a certain number of passengers on flights, have led to ridiculous situations like the airline Flybe hiring actors to fly between Dublin and Norwich to meet numbers. The problem with government targets like this is that the market is necessarily ingenious at getting around them.

The government’s attempts to be judicious with scarce airstrip slots has in fact created even more of a scarcity, by forcing airlines to fly unwanted flights at the expense of passengers for flights that are in demand. Karthik recommends that this scarcity be eliminated by auctioning off the slots to the highest bidder and allowing them to be used in the way the market deems to be the most efficient. (Note that, as well as airlines and other businesses, bidders could include local residents who want to avoid the 6am wake-up call from the local airport – if they are prepared to put their money where their mouths are.)

As well as landing slots, Karthik discusses the regulation of airports themselves that has created poor services and a shortage of airports around London (and arguably a surplus of airports in the rest of the country due to political concerns). The think piece shows that many of the worst inefficiencies in the aviation sector come from artificial scarcities created by government. As Karthik says, we should give everybody a breath of fresh air and set Britain’s aviation industry free.

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A breathtakingly silly piece of journalism

Written by Dr Madsen Pirie | Tuesday 02 April 2013

The Guardian has published many silly pieces in its time, as have other papers, but today it published a piece by Lynsey Hanley that must rank as one of the most breathtakingly silly of all time. The article claims that raising the income tax threshold to £10,000 patronizes the low-paid. Moreover it "disenfranchises 3 million people":

More fundamentally, it suggests that people on low wages are effectively earning pin money, not "proper" money that requires being taxed, and therefore that the low-waged aren't full citizens. The article goes on to say that if people don't pay towards public resources, they lose their perceived entitlement to them.

Where to start? First of all, low-paid people pay a great deal in taxation, especially in VAT, and many of them pay taxes on alcohol, tobacco and petrol, plus dozens of other unseen taxes. The £10,000 threshold only exempts them from income tax, which is quite reasonable when you realize it is below the minimum wage. If people are not earning the minimum, it makes no sense to take some of their money away from them. They still pay the other taxes. Secondly, if paying no income tax makes you lose your "perceived entitlement" to public resources, doesn't paying less tax than someone else give you less entitlement to them?

Lynsey Hanley claims that "a fundamental component of citizenship, however, is paying towards the ongoing work of building and maintaining resources for everyone to use." In her disoriented world people on pensions, or disabled people supported by the state would not appear to be full citizens. I disagree.

In her world "Tax cuts are always a sop, no matter who you're giving them to." Again, I beg to differ. When the state takes less of our money it isn't "giving" us anything, certainly not a sop, because the money does not belong to the state. She wants the poor to pay taxes to make them full citizens. "To tax only the rich, or the better off, is madness. It's disenfranchisement by any other name," she says. No it isn't. It is taking money to support public resources from those who can afford it rather than from those who cannot. The rich should pay the taxes for the same reason that gangster Willie Sutton robbed banks, "because that's where the money is." I like it when we succeed, by lowering top tax rates, in having the rich contribute a greater share of total taxation. That's what should happen.

I wonder how many of the low-paid would agree with her that they should be paying more income tax? I suspect you could count them all on the one finger they would use to indicate their opinion.

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A brief return by Jokesmith

Written by Jokesmith | Tuesday 14 July 2009

Terrorists plan to plant bombs in tins of alphabetti spaghetti. They reckon that when one goes off, it could spell disaster.

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