The Pin Factory Blog

On Friday The Independent led with the article: Art for whose sake? Up for deliberation was the Duke of Sutherland's decision to sell off a highly regarded collection of paintings, known as the Bridgewater Loan. It includes such wondrous paintings as Titan’s Diana and Callisto.

The Independent suggests “ministers might look at whether the tax regime might be further reformed to make it less easy (or desirable) for the holders of these great collections periodically to hold the nation to ransom in the name of art." What skewed analysis! In fact, we should be thanking individuals such as the 7th Duke of Sutherland for letting the public view the masterpieces for so long. Also, the Duke is offering to sell two of the paintings to London’s National Gallery and the National Galleries of Scotland for £100 million, paintings that on the open market that could fetch upwards of £300 million.

Of course, taxpayers should not be paying for the works, even at this bargain rate. The solution? Start charging for museums again. This will mean that only those that like what’s inside will be paying to keep it that way. Galleries could offer membership for those who wish to pop in throughout the year, school groups and art students could have free or reduced access and they could even offer the odd day a month in which access is free. Given the right management, there is no reason why galleries could not run at a profit.

If the state stepped away from the galleries, charities involved in enabling access to art would once more be legitimised. Also, wealthy individuals who believe in the value that holding on to works of art for the benefit of the nation will be free to take up their responsibilities. Unpopular? Perhaps. Yet surely the right answer.
 

Let us, for the sake of the argument, agree that tertiary education is a public good. I'm not so sure myself, it being both rivalrous and excludable but let's just accept that it is. Now, having determined that it is a public good then there's a reasonable argument that there should be government subsidy to it. For we're pretty sure that markets unadorned don't produce quite the quantity of public goods that might be desirable. If you prefer, public goods are, like negative externalities, one of those times when we might righteously consider intervention in the pure and unadulterated free market.

Given all of that would we prefer our government subsidy to be in the form of tax breaks, taxes not paid, by those undertaking the activity or would we prefer that it be a system of grants to those who do? I ask because Felix Salmon over at Reuters thinks that the grants are, by definition, a better manner of subsidy:

If state and federal governments are going to spend billions of dollars subsidizing tertiary education — and they should — then they should spend those billions wisely, with a focus on education. Instead, they spend those billions through the tax code, with no kind of oversight at all, pushing their thumb on the scales so as to encourage, at the margin, the purchase of buildings and the building-up of large endowments.

At which point I entirely disagree: I think that tax breaks are much the better subsidy delivery scheme.

This is really a difference of world views. If you believe that politicians, those who direct such subsidies, are knowledgeable, clever and honest beings, striving only to do what is right for the common weal, then you might well argue that they should direct, in detail, where the taxpayers' money goes. If you're over the age of seventeen you will have been disabused of that notion, that politicians are honest, knowledgeable and clever, and so would prefer that politicians do not direct in detail. Rather, we might accept that public goods exist, that they should be subsidised in some manner, but having done that we want to keep the politicians as far away as possible from the details of what happens next.

I would go further too. A tax break means that anyone who meets the rules gets the tax break. A grant making system means only those who suck up to the politicians get the grants. And let's face it, we really don't want our impressionable youth educated by those who can stand interacting with politicians now, do we?

All of which leaves me with only one problem. I know very well that Felix is over 17 so how come he still thinks of politicians as they are not?

For the 2.5 million people who eat a fast food meal every day, there may be an answer to helping prevent high cholesterol. UK researchers are suggesting fast food outlets hand out the cholesterol-lowering drugs, which would cost about 5p.

Yet again, it seems ill-founded medical advice is being used to regulate and control people’s lives. Whilst the researchers at Imperial College London have apparently taken "data from trials of almost 43,000 people to calculate whether the statins could override the effects of eating a junk food diet", finding that a daily statin can ‘neutralise the risk of cardiovascular disease linked to a daily intake of a 7-oz cheeseburger and a small milkshake’, one wonders why the debate has to arise in the first place.

Although statins do have occasional side effects, they have transformed the lives of many people with high blood cholesterol. Those with high dietary cholesterol are going to see very little effect from a drug developed to control cholesterol produced by the liver. A very large and prolonged intake of junk good will feed through into the blood to some extent, but statins won’t affect that part of cholesterol.

The idea from Imperial is that the effect of the statins will off-set the effect of junk food; it will not directly neutralize it. However, there are drugs, such as ezetimibe, that actually inhibit the absorption of dietary cholesterol, and these might be more appropriate. Ezetimibe appears to be under-prescribed, probably because it encourages people to eat junk food.

If statins are appropriate for individuals, then they are appropriate irrespective of whether they eat junk food. It is a matter for them and their medical advisers – not the nanny state.

For the first time, starting this month, Ofcom has allowed businesses to use product placements in British TV programmes. Businesses wishing to place their product must comply with Ofcom's rules, required under UK and European law, which include bans on the placement of not only alcohol, infant formula, foods high in fat, and cigarettes. Ofcom have decided that a good way to alert the British public of product placement is to insert a logo which will appear on the bottom of the screen to alert the viewers that a business has paid for their product to be placed in the program. While this move by Ofcom would strike many as fruitless, it is also betrays a worrying attitude towards the public and business.

Product placement is of course nothing new. Films through their history have been full of placed products that their producers have paid to be featured. The most recent James Bond film came under some criticism because of the favourable exposure Sony Ericsson received. Apple, Coca Cola and many car companies and fast food chains are known for the prominence of their products in films and television series. Many celebrities and athletes are paid millions of pounds to use or wear certain products. It’s hard to see why British TV viewers should be treated differently.

The objections raised to product placement assume that the public is too stupid or naive to notice when they are being sold something, and thus needs a government approved body to protect them. It also assumes that this agency will be competently run, which is a big assumption. But people can usually tell when they are being sold something. When someone sees advertising from Mercedes, Audi, Apple or Microsoft, they know that competing products and brands are being pitched to them.

That the advertising in question is being done via product placement is no different in principle to standard advertising: it is only the method that has changed. There is also, it seems to me, nothing wrong with someone buying Nike products because Roger Federer endorses them or buying Sony Ericsson phones because James Bond makes calls on them. Nor is there anything wrong with Nike paying Federer to endorse their products or for Sony Ericsson to pay United Artists for featuring their product.

The move by Ofcom should be reversed, as it is likely to annoy customers and make companies hesitant to invest as much money in product placement as they would were this decision not in place. Ofcom should also consider lifting the bans they have imposed on certain products, but being a government-created body bound by European law, I won’t get my hopes up.

This criticism seems entirely misplaced to me: we should no more be blaming Baroness Ashton for this behaviour than we should be for a tree whispering in the wind or a cockerel crowing at dawn:

EU foreign affairs chief Baroness Ashton has been criticised for seeking to "expand her empire" at a time when other EU agencies are having their budgets cut.

This is simply what bureaucracies do: the aim and point of all bureaucrats.

As the late great C. Northcote Parkinson pointed out a bureaucracy does not exist to actualy do anything. There are no tasks by which it can be measured, no metrics that allow us to decide whether they've all been good little diplomats or not. Therefore the only institutional goal of any such bureaucracy will be to increase the inputs available to it. More money allocated in the budget, more staff hired, these become the measures by which it definies its own success. This is how the Royal Navy ends up with more Admirals than ships, more desk bound pen pushers in their £1,000 chairs than soldiers or seamen who do the fighting.

To complain of this behaviour is no more effective than a parp in a thunderstorm. The only way that one can prevent a bureaucracy from doing this is not to have the bureaucracy in the first place.

The European External Action Service, the EU's much-criticised diplomatic corps, already has 141 embassies or delegations across the world.

Now that it has been invented, now that a budget has been allocated, I confidently look forward to the day when it has more ambassadors than there are countries to be an Ambassador to. It will inevitably happen, assuming that it hasn't already.

Parkinson really was correct: the only way to stop the metastatisation of a bureaucracy is to cut it out of the body politic entirely.

The fact that the American government is up and running again is very bad news. Not for the obvious reason that the American government is bloated, self-serving, unproductive, and completely incapable of spending the nation's money efficiently. But for the fact that the budget deal simply postpones problems that should be squared up to.

The fact is that, with a $17 trillion debt ceiling, the American government is really deep in debt. Britain's £1.2 trillion debt looks positively virtuous (which it isn't). But is Congress slicing up its credit card, reining back on its spending and cutting out luxuries, like everyone else has to do when we get into trouble? Not a bit of it. The American government is still living far beyond its means.

The deal hasn't even bought much time. It will keep the government running only until 15 January, and there will have to be more discussion (or horse-trading) on the debt ceiling from 7 February. It doesn't 'solve' anything.

If 'America' (notice how so many commentators say 'America' when they really mean its government) is determined to carry on spending as it does, then it will have to carry on adding to its debt. The only other option is to print the money it needs – in other words, more quantitative easing. And that, of course, is very good for markets – because the new money comes in through the financial institutions, and quite a bit of it tends to stick in the asset markets, inflating the prices of stocks, businesses, houses and the rest. So investors see the benefit even if the rest of us don't.

That might explain why the markets are so sanguine about something that is, in fact, a complete denial of financial prudence within the American government. The trouble is, as we discovered in 2008, you can put off the day of reckoning for quite a time, but eventually your imprudence catches up with you. You can carry on a bit longer by putting everything you can on the credit card, but eventually something messy is going to happen. Nobody knows when that might be. Perhaps a default in the New Year might not be such a disaster, but would make Congress realise that the books have to balance. For long-term American investors, that might actually be cheering news.

As the United Kingdom approaches its date with destiny and the 2014 Scottish independence referendum, the debate surrounding the possible shape of a post-Union Scotland are only going to get fiercer. What Scotland might look like outside the United Kingdom, whether Scandinavian utopia or isolated backwater, is one of the key fronts on which the battle for the hearts and minds of Scottish voters will be fought.

Alex Salmond’s vision, designed to maximise separation’s appeal, is of a Scotland with options: joining the Euro; membership of the Common Market without the single currency; keeping the pound. All intended to give the impression that an independent Scotland would be the master of its own economic destiny.

Yet there are good grounds for suspicion that this is not the case. For a start, it is unlikely that Scotland would be able to claim automatic membership of the European Union as the SNP often claim.

In the instance of Scottish independence, the continuity-UK would almost certainly qualify for ‘successor state’ status under international law, due to possessing (much) more than 50% of the territory and population of the United Kingdom as presently constituted.

Thus the UK would retain its identity and membership, leaving none for Scotland to inherit. Were Scotland to then apply for membership in its own right, there are further hurdles. The UK’s treasured opt-out from the single currency is not offered to new members; likewise the option of joining the European Economic Area without acceding to the EU.

Thus Scotland would either have to join the EU, single currency and all, or not at all. Even assuming the SNP retained their former enthusiasm for the single currency and took the plunge, there’s no guarantee they’d be accepted. Spain, Italy and Belgium are all wrestling with their own separatist movements and will not want to establish the precedent of secessionists gaining EU membership – see Spain’s position vis-à-vis Kosovo.

If not Europe, then what? In an effort to soften the blow for soft-unionist Scots, the SNP are keen to stress the links that they would seek to retain with the UK. Scotland could, the nationalists argue, keep the pound, and British submarines could still be stationed at Faslane to fend off the fear of defence cuts.

Assuming all this was true (and in the case of defence it almost certainly isn’t), Scotland on the pound would be tied to the British economy without having a say in the governance of it, while trying to keep whole communities going via sustaining now-foreign military bases.

The SNP thus risk locking Scotland out of the UK without breaking free from it. As the pro-Union campaign put it, there are polities outside the UK with similar relationships. Until recently, they were called ‘dependencies’.

The Department for Transport has stated that without new runways, London’s airports will be at capacity by 2030. This could put Britain at a disadvantage from not being able to deal internationally at its full potential, especially with fast-growing markets in the Far East. Heathrow, as Britain’s only hub airport, is almost at capacity already and there has been pressure on the PM from businesses, media and backbenchers supporting the building of a third runway there. It is important that government does not prevent international businesses from operating in Britain, yet it is equally important that it allows investment decisions and funding to come from private interests and that it does not encroach on the rights it is designated to protect.

The building of a third runway is all very well if BAA Ltd (or a consortium of businesses and airlines) can afford to do so itself, but it is quite another if the £10bn funding required is going to come from the taxpayer. Against the official line of his party, George Osborne said on Sunday on the Andrew Marr show that a third runway at Heathrow is an option for government funding through the Infrastructure (Financial Assistance) Bill. This Bill will come into effect in October and promises £40-50bn of state finance to go to private schemes approved by the government, can start within 12 months and, supposedly, offer good value for the taxpayer (in other words, more government welfare for private companies that offer ‘good value for the taxpayer’).

If it is decided that a third runway is to go ahead, even if it is privately funded by BAA, additional costs may hit the taxpayer. The Free Enterprise Group, made up of Conservative MPs, has supported a move to give up to £40,000 compensation to those who would be affected by noise created by the new runway. This presumably would come out of government pockets rather than being enforced on BAA.

The best solution would be to grant a private company permission to build an airport around existing transport links and infrastructure located in an area where no or minimal noise compensation would be needed. The Mayor of London has stated his support for a new hub built in the Thames Estuary. One such proposal by Foster and Partners is to build a £20bn four runway airport on an artificial island near the Isle of Grain. It would be entirely privately funded, allocating £4bn towards improving existing infrastructure. Arguably, however, demand in the area isn’t high enough and the government would end up diverting much more infrastructural spending to this to increase demand, by creating transport links and provide public services for new workers. For the same reason, building a hub airport in the north when demand is predominantly centred around London may be good politics, but would be a great risk economically. The ‘build it and they will come’ strategy is a risk that should not be taken on something as crucial as international transport links, especially if the public purse is involved.

Another possibility arises from the currently anonymous ‘world-leading infrastructure firm’ made up of a consortium of British businesses, who are currently scouting sites for a new four runway airport that they hope could rival and perhaps even replace Heathrow as Britain’s key link between domestic regions and international airports, especially in the Far East. The firm has been looking at sites to the west and north-west of London and is now in talks with Chinese sovereign wealth funds over raising the necessary capital.

With a self-appointed monopoly on the decision of where something as crucial as an airport can be built, the government has a responsibility to make a decision that will involve minimal public expenditure, follow demand and protect the citizens who elected it from having their property devalued without compensation, whichever option that may be.

Trying to discover the government’s procedures for forecasting the impact of new regulation, I recently googled “regulatory risk assessment."

The number one result is this. Entitled “The framework for regulatory risk assessment in the Department of Trade and Industry", it’s found on the website of the Department for Business, Enterprise and Regulatory Reform, and topped by the logo of the Department for Business Innovation and Skills.

The DTI was abolished in 2007, and BERR in June this year. Brown’s endless bureaucratic rejigging has clearly proved too much for the governmental webmasters…

So now it's proposed that we should tax the banking system to destruction – the same one that we spent billions bailing out. This is a ruinously destructive course of action that will plunge us all into penury.

Tim Worstall, 'A flaw in the TUC masterplan', guardian.co.uk.