Sarko's madcap plan


Like Baldrick, French president Nicolas Sarkozy has a cunning plan. He's going to give €1000 to anyone buying a new car (assuming their old one is more than 10 years old, and they opt for an environmentally friendly model).

First of all, it strikes me as barmy for a government to borrow money, ramping up its budget deficit in the process, and then give it to people to spend on cars. What this really amounts to is future taxpayers subsidizing current taxpayers’ new cars – and it’s hard to see how any rational person would regard that as a good thing. Indeed, even Patrick Devedjian, the general secretary of Sarkozy's own party, the UMP, is against the idea.

It’s not going to do anything to boost the economy either – it will just encourage money to be invested in unproductive sectors. It’s true that car manufacturers are suffering, and maybe this could help them temporarily – but only at the expense of other areas of the economy. In the long run, the auto companies would be far better off restructuring than relying on government subsidies anyway. It's instructive to note that Sarkozy's idea is hardly new: they've already tried it three times, in 1994-5, 1995-6, and in 2007. And if it didn't work then, why should it work now?

Sarkozy could actually make a far greater difference to French industry if he got round to tackling the high taxes and restrictive labour laws that make it so difficult for French companies to compete in global markets. He did win the presidency promising a rupture with the past, after all.

Arguing about apprentices


Apprenticeship schemes can be beneficial to the labour market, and in turn the economy as a whole. If run efficiently and led by firms they can produce highly skilled young people with a higher degree of specialisation in their field. This helps promote high quality domestic industries.

The reason these schemes tend to work is that firms know that they are investing in high quality staff who can be nurtured to suit their needs, creating a reliable and efficient workforce. So when the quality of the apprenticeship schemes becomes questionable, the entire system is undermined. This is the problem with the governments interference by proposing a quota of 400,000 places to be on offer by 2020.

By producing such a quota, the government is effectively artificially boosting the supply within the market for apprentices, consequently devaluing the benefits they bring to firms and the economy. By ensuring that there are always places available on these schemes, the government is disincentivizing young apprentices, making the market less competitive. The government needs to be aware of possible unintended consequences that could harm the long-term interests industry.

As this article says, these targets are facing some stiff opposition and may not actually come into play. Let's hope so. Apprentice schemes should be left in the hands of the private sector. Ultimately, they know that if they invest in young employees, educating and training them, they will reap the rewards later on.

Blog Review 801


If the manipulation of your model leads to conclusions that are near insane, shouldn't you be questioning the value of your model?

Very odd behaviour leading to a rather excellent project outcome.

We can tell that the recession really is happening, yes.

The problems with unions don't come only from pay rates: the inflexibility, the job demarcations can be just as damaging.

It would appear that bubbles are inevitable, just something that're innate in the human mind.

There's been good news and bad news over the past week.

And finally, the economist with the gripping hand, a new currency idea and why did the chicken cross the road?

The economists' toolbox


There's two ways of looking at neo-classical economics. The first is as a coherent series of stories and assumptions about the way that the world works. I certainly hold that view. However, there's another, looser, sense which many more people would agree with. People like Dani Rodrik for example might not agree that those stories and assumptions explain the world (or at times that they are coherent) but neo-classical economics still provides the economist with a toolbox with which to explore the value of certain policies. In this view the value is in the methods rather than the assumptions.

The value of this can be seen in the current discussion of daylight savings time. It's long been an assumption that the move saves energy. Thus most governments promote it and there's even a move here in the UK to move to double summer time so as to save even more energy. The question we would really like the answer to though is whether summer time (or daylight savings time, same difference) does in fact save energy? Just because governments have been assuming it does for a long time doesn't make it so.

Which is what has just been done using the economists' toolbox: an empirical study of whether advancing the clocks saves energy. Something which is actually a little more difficult than you might think. We can't compare a year with savings with a year without as cloud cover and temperature could have varied making accurate comparison impossible. We can't compare areas with and those without for the same reasons. But Indiana had a strange system whereby some counties daylight saved and others did not and then it became statewide that they did. So we can compare the same places with and without and the same (almost) geographic areas with and without. The result?

A final component of our analysis is the calculation of costs associated with the estimated effect of DST. We find that the policy costs Indiana households an average of $8.6 million per year in increased electricity bills. We also estimate social costs of increased pollution emissions due to the residential response to be between $1.6 and $5.3 million per year.


DST leads to more energy use, not less. So I guess that idea of double DST as a way to curb climate change isn't going to work either then?

Does not accept


And that's most certainly the attitude that the government will take in relation to a ruling from the European Court of Human Rights. The ECHR unanimously passed judgement in favour of DNA and fingerprints not being retained if persons had not been charged or indeed acquitted of committing a crime. Their decision was based on the fact that the actions of the police violated Article 8, the person's right to respect for private life. And of course the Home Secretary Ms Smith rolled out the usual utterances post-verdict, "disappointed with the verdict" and that, "the existing law will remain in place while we carefully consider the judgement".

We have long held that the police are wrong to retain the details of innocent people. Indeed the current DNA database contains the details of some 4.1million people, of which 730,000 people were never charged with any offence. And then there are the children (though some have obviously committed crimes): more than a million under 16-year olds are now on there as well. Of course to err is human, but to retain the details of the innocent merely presumes that they are guilty of some, as yet, uncommitted crime. This ECHR's ruling is welcome (although we shouldn't have to rely on them), but more needs to be done to hold back this tide of totalitarianism.

It may not be the conventional view, but I regard this government is truly socialist – which is reflected in the way it has viewed and treated the realm of privacy. It has pushed back the boundaries and assumed that all we do, know and hold dear, is really theirs. To them we are nothing more than state agents.  We should not be surprised to see that this ruling will be ignored and new legislation will be introduced that comes up with more disingenuous reasoning as to why our DNA are belongs to them!

Cheerio, ASI


After eight weeks of working with the wonderful members of the ASI team, it is time for me to say farewell. It has been a great experience working for the Adam Smith Institute, and I have learned more than I ever thought I would in such a short amount of time.

While doing research and writing about current events, I have gained a much clearer understanding of both the important issues in British politics and the Libertarian outlook on them.  Never in my life have I heard so much about the free market and privatization, but all this talk has helped me realize the value of competition and choice in business. I will bring this new appreciation with me as I return to the US to complete my Bachelor’s degree in Economics at Fordham University in New York City.

It has truly been a pleasure interning at ASI. I wish everyone at the organization the best of luck with all of their upcoming projects and publications. I look forward to seeing how the Adam Smith Institute will impact the policy agenda in the future.

Blog Review 800


The point of actually having intellectually honest economists involved in the formation of public policy.

Netsmith is never sure with politicians. Are they too stupid to be able to recognise the truth or do they think we're too stupid to recognise when they don't tell the truth?

This is strange but true. Some people really shouldn't be saving for their pensions.

Yes, the US auto bailout remains an extremely silly idea.

Remember, MV equals PQ. So if V falls then M must rise to prevent a fall in P and or Q.

Lie detector tests for benefit claimants. Yes, this really is an extremely good idea. If they're allowed to test us we can test them, no?

And finally, form filling and a job offer.

Was there any point?


The area around our office has been horribly traffic-clogged and chaotic all week. That's because half the roads in Westminster are closed for the Queen's speech. It seems they needed the roads closed on Monday and Tuesday so they could erect the barriers, closed on Wednesday so the Queen could visit Parliament safely, and then closed yesterday so they could take all the barriers down again.

Now, much as I enjoy the ceremony of occasions like this, I do wonder whether there's really much point, given the disruption involved. After all, it's not like the Queen's speech told us anything new – most of the bills were announced ages ago, and the rest were leaked to the media before the speech. Maybe HM should just have stayed home with the corgis instead?

In fact, I sometimes wonder why the government bothers involving Parliament in things at all, given the contempt it seems to have for the institution. It's well known that Tony Blair attended less than 10 percent of Commons votes during his tenure as prime minister, and rarely attended parliamentary debates (even in the debate on the Iraq war, he left after just a few speeches). Gordon Brown did little better as chancellor, and doesn't seem to have changed much since he's been at Number 10.

Of course, I'm not surprised that ministers don't care much for parliament. Although Labour MPs are rebelling with increased regularity, the Commons still more or less does the government's bidding in the legislative chamber. Most of the committees are just as bad, since they have government majorities and – usually – chairs (the Public Accounts Committee being a notable exception).

Indeed, politics these days is almost all about the media – parliamentary democracy being an unfortunate afterthought. Politicians are driven by polls, polls are driven by media coverage (generally, the more 'your man' is on TV, the better your poll rating), and media coverage is driven by action. And that's why politics-by-media means a constant stream of 'initiatives', endless tinkering, and masses of completely ill thought out legislation which undergoes little scrutiny. Which brings me conveniently back to the Queen's speech...

New confines on wine


An article in The Times today will surely disappoint many wine lovers throughout the country. The new Crime Bill, which is to be published next week, will include a ban on cut-price drink promotions in an effort to curb irresponsible drinking. The bill will bring about an end to “buy-one-get-one-free" deals and will stop the practice of allowing women to drink free of charge. It will require clubs and pubs to serve wine in smaller glasses as well. The Home Office has also resolved not to ban “happy hours" in pubs and bars throughout England and Wales. But don’t get too excited, the department may decide to give local councils the ability to outlaw them in their respective regions.

This legislation is just a small episode in the series of government restrictions on alcohol and smoking that people have suffered over the past few years. Considering the institution of the smoking ban in pubs and restaurants in July 2007, proposals to tighten pub licensing laws, and talks of allowing bars to only fill two thirds of each pint, it is safe to say that the government is becoming bolder in its attempts at regulation.

Many, including the wine industry, argue that this and other bills will affect moderate drinkers as well, causing them to unjustly suffer the same restrictions and higher prices. It has been established that excessive drinking can lead to crime and disorder, but the measures the government is taking will not be effective in stopping someone keen on drinking him or herself into oblivion. Alcoholics will drink whether or not they can get two beers for the price of one. In the meantime, those who enjoy a glass of wine or a pint every so often are left to suffer.