The Pin Factory Blog

I'm not sure that I've seen this extremely interesting form of argumentation before. Quantas, the Australian airline, is in dire financial straits. Their international routes are losing bucketloads and are being subsidised by their very juicy profits on their domestic routes. Etihad, the parent company of Emirates, is looking to raise its stake in Virgin Australia. Quantas is arguing that this must not be allowed to happen:

“Etihad will cross-subsidise Virgin’s domestic business with the specific aim of weakening Qantas,” claims an internal Qantas briefing paper, reported in the Sydney Morning Herald. “Virgin/Etihad will be able to flood the market with capacity until its competition is forced to significantly reduce its own operations or worse.”

That is, they must not be allowed to cross subsidise because it will damage our own cross subsidies.

I've always had this impression of Australia, of Australians, of being a pretty straightforward sort of place and people. Willing to give everyone a fair go, no side or pompousness to them.

Ah well, I suppose even the Lucky Country has to have its share of brazen hypocrites.

The great thinkers at the nef have insisted that we must reform the UK banking system in the following manner:

We need new institutions such as a Post Bank, Social Investment Bank, Green Investment Bank and new mutual, local and regional banks to provide a diverse, competitive and resilient banking system fit for the 21st century.

They and Compass organised the Good Banking Campaign which said:

The creation of a genuinely mixed and plural banking sector with far more choice for people than the present one-size-fits-all model with its few 'too big to fail' banks. Such a sector would for example include flourishing building societies, local and regional banks, green banks, a post bank run through the post office network, co-operatives and mutuals so that all sections and needs of society and business are properly catered for.

Lovely. Co-ops and mutuals, just get rid of that capitalist part, the shareholders, and everything will be well sweet. From the New York Times:

Spain’s three largest banks — Santander, BBVA and La Caixa — are not expected to request rescue financing.

Ah, something of a problem with the basic thesis then. For two of those three are the capitalist shareholding type banks. All the ones going bust and threatening to bankrupt the entire country are the local, regional, mutual or co-op type banks.

I'm all in favour of having a varied ownership structure for I really do believe in markets. Markets in forms of organisation just as much as in products or services. But to think that cuddly local organisations cannot cause problems is an error. Especially when, as in Spain, so many of them were subject to the "democratic control" of the local political classes.

We generally hear the term ‘Consumerism’ used as a term of abuse, usually by religious movements, pro-state economists, environmentalists and so on. I would argue that, properly constituted, a ‘consumerist’ society is exactly the type of society that we should be striving for.

However, part of the pejorative use of the term comes from a particular meaning attached to it. As the brief but surprisingly illuminating Wikipedia article observes, there are at least four possible meanings of the term:

i) The common use of the term giving an "emphasis on or preoccupation with the acquisition of consumer goods" (Oxford English Dictionary) – which is exactly the meaning which attracts much opprobrium

ii) The original coinage (1915) which referred to the "advocacy of the rights and interests of consumers" (Oxford English Dictionary)

iii) The economic use of the term referring to “economic policies placing emphasis on consumption”

iv) And finally “In an abstract sense, it is the belief that the free choice of consumers should dictate the economic structure of a society”.

Clearly, as Classical Liberals or Libertarians, we will see that (iv) is exactly the kind of economic order that we would like to prevail. This is the argument of von Mises in Liberalism that:

The social order created by the philosophy of the Enlightenment assigned supremacy to the common man. In his capacity as a consumer, the “regular fellow” was called upon to determine ultimately what should be produced, in what quantity and of what quality, by whom, how, and where... The much decried “mechanism” of the free market leaves only one way open to the acquisition of wealth, viz., to succeed in serving the consumers in the best possible and cheapest way.

This must be contrasted to an economic order in which producers are able to dictate to consumers what quantity of quality and of goods they should receive and at what prices, rather than having that determined by, in the long-run, the subjective desires of consumers. In a free market*, producers will be unable to dictate to consumers except in a very few cases, as Hayek and von Mises pointed out. However, armed with the power of governmental intervention, producers will be able to create cartels and monopolies and exploit consumers. This is what Deirdre McCloskey recently pointed out as have many others.

Read this article.

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

— Judge Learned Hand, U. S. Court of Appeals, 1935.

This May marked the end of an amnesty by the Information Commission Office (ICO) on enforcement of the EU Cookie Directive. It requires all website owners to update their content to request the viewer’s permission to use cookies. While ‘essential’ cookies are exempt, this doesn’t include cookies that track usage or allow targeted advertising, which are critical to improving the user’s experience (through methods such as A/B Testing). This compromises the ability of firms to provide services that people want, and to do so free of charge.

What this law won’t catch is those who actually mean to do harm. The online community already counters those who would genuinely seek to misuse cookies more quickly than a government agency could shut down a server. The usefulness of cookies to do harm is also limited, and by telling people it is cookies they should be concerned about shifts very real concerns about using the internet safely away from genuine threats.

Meanwhile well-meaning service providers break the law without even realising it. The ICO’s own video to publicise the change has less than 10,000 views, while over 175,000 new .uk sites were registered in May alone. Providers simply aren’t aware that the technology they put in place to improve their products is making them criminals.

In practice, the law means only that users will be faced with constant interruption. Once the user has been asked for permission for a specific cookie for a specific site a hundred times, it seems unlikely that they would continue to read about what each cookie does. Eventually only the illusion of security is provided, breeding complacency.

Cookies have been around almost as long as the internet has been commercially available, and for those that are concerned about them, there are already a plethora of techniques to avoid them such as browsers and scripts. These are one-button fixes as opposed to a heavy-handed law, which requires updates on upwards of half a billion web pages.

While this will have little impact on large businesses, which can move their servers out of the EU and avoid the process entirely, this will be a blight on smaller providers of web content.  It is these small providers that have made the internet so interesting. Traditional publishing has long been dominated by a much smaller group of voices, and the internet has gone a long way to increasing pluralism. The EU Cookie Directive puts that at risk, while only providing a façade of security.

There are two actions that might put the UK's finances and its economy into better shape.  Unfortunately, neither of these can be done.  The first policy would involve hauling down the long-term unfunded entitlements and largely replacing them with self-supporting schemes aided by a measure of transfer payments to the small number unable to fund their own future needs. 

The second measure would involve setting loose the creative abilities of the private economy by a big round of tax cuts, both personal and corporate, and the repeal of many of the unnecessary and bureaucratic regulations that hold back enterprise and ambition. 

Both would probably work, but neither can be done in this political climate.  The electorate would be likely to throw out any government that tried to cancel their future benefits, and would be hostile to tax cuts for business and enterprise at a time when their own living standards were either static or falling.

Since it is unlikely that future generations will pay for those unfunded entitlements, future governments will probably have to borrow more in order to finance them.  And since economic growth will not surge forward without cuts in taxes and regulations, the national indebtedness will not diminish in proportion to the total economy. 

In an ideal world, think tanks and commentators would work to persuade the public of the advantages of both of these policies, clearing a pathway that politicians could walk upon.  In this real world, however, there is little chance of the electorate ever being persuaded to vote for reduced benefits.  It is just possible that the public could be shown that they, too, would gain from tax cuts on enterprise, and agree to support it, but only to a limited extent, and with measures far more timid that those needed to generate vigorous growth.

It is far more likely that governments will just muddle along, incurring great unpopularity for trivial cuts to entitlements, and making trivial tax cuts with one hand while increasing taxes elsewhere with the other.

This is a pity, because these twin tracks to recovery could utterly transform Britain, and do it very rapidly, too.

Today we release our latest policy paper, "Mind Your Own Business!". Elaine Sternberg, the paper's author, argues that high executive pay is not a "market failure" as some politicians have claimed, but a natural and perfectly reasonable function of a well-run firm. Shareholder power is critically important, but where problems have arisen it is because of government meddling in corporate governance. She outlines some of her arguments in today's City AM:

The High Pay Commission, an inquiry set up to look at executive remuneration, concluded that high pay is corrosive and unfair. But the purpose of corporations is not to promote an egalitarian society. Corporations aren’t creatures of the state, there to serve official social ends. They are the private property of their shareholders, and serve the ends designated by their owners.

Corporate governance refers to ways of ensuring that corporate actions, agents and assets are directed at the constitutional objectives of the corporation, set by the shareholders. It should be up to the shareholders to determine the rights, responsibilities and remuneration of all their corporate agents, and to specify the kinds of accountability they require. Given the varied history, size, activity, jurisdiction and shareholder composition of corporations, one size will emphatically not fit all.

Regulation is counterproductive. It is inflexible and imposes substantial costs, both in funds and freedoms: even disclosure is not costless. The High Pay Commission programme would increase intervention, impede corporate governance, and damage business. In demanding detailed disclosure, greater diversity, inexperienced directors, claw-back provisions, and binding votes, the High Pay Commission’s suggestions would further constrain shareholders from governing their corporations in their own ways.

The full report is available for free download now.

The New Economics Foundation’s Happy Planet Index has been inspiring bemusement and mirth since it first appeared in 2006. The third installment, released last week, continues to defy parody with its glorification of lawless, poverty-stricken countries in the name of environmental sustainability.

The index is made up of three elements—self-reported well-being, life expectancy and size of ecological footprint—but is so heavily weighted towards the latter that economic basket-cases, police states and peasant societies score highly at the expense of places in which you would actually want to live. Consequently, Luxembourg, where life expectancy is 80 years and the well-being score is 7.1, finds itself 30 places behind Rwanda, where life expectancy is 55.4 years and well-being is scored at 4.0.

If the good people of Luxembourg (ranked 138th) have not already bought a one-way ticket to more desirable destinations such as Malawi (72nd), Haiti (78th) or Afghanistan (109th), they can console themselves that they are still one place ahead of Sierra Leone (139th), although that could all change if the Sierra Leoneans buy a wind turbine.

Read this article.

Over at the excellent Bleeding Heart Libertarians blog, Deirdre McCloskey has weighed in with a tour de force post. The blog's philosophical symposium on free market fairness is, she says, "factually mistaken". The assumptions philosophers make about reality are misguided; modern history tells us much of what we need to know:

The master narrative of High Liberalism is mistaken factually.  Externalities do not imply that a government can do better.  Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers.  Efficiency is not the chief merit of a market economy: innovation is. . . .

Anyone who after the 20th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.

In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires.  Economic growth in Russia was slowed, not accelerated, by Soviet central planning.  American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers.  “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women.  State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats.  Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized.  Minimum wages protected union jobs but made the poor unemployable.  Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor.  Zoning and planning permission has protected rich landlords rather than helping the poor.  Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive.  The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.

It's an inspiring piece. Read the whole thing.

In a signal honour for the Adam Smith Institute and especially for Eamonn personally, he is today awarded an honorary D Litt from Heriot-Watt University in Edinburgh.

In presenting Dr Butler for the degree, the Head of the Business School described Eamonn as "following in Adam Smith's footsteps."  Just as Scotland's most famous economist had opposed vested interests which used government power to distort markets and promote anti-competitive regulations, so Eamonn has campaigned to have whole areas of government activity carried out more efficiently by free market activity:

"In his many publications in newspapers and magazines, in his many broadcasts on radio and television, and in his many meetings with leading politicians, Dr Butler argued for contracting out of many local government services, he argued for the privatisation of companies and utilities, he advocated internal markets in health and education.  Internationally, he advised governments on economic reform, anti-corruption policies and administrative reorganisation.  To support his policy recommendations, he wrote many books on the contributions made by leading free market economists including Friedrich Hayek, Milton Friedman, and Adam Smith."

The address went on to point out that Eamonn persuaded Edinburgh City Council to allocate the prime site outside St Giles' Cathedral for a statue to honour Adam Smith, hitherto bereft of adequate recognition in his own country.  Eamonn went on to organize the creation and the funding of the magnificent statue of Smith which today adorns that site, dominating the High Street. 

And when, three years ago Adam Smith’s residence for the last twelve years of his life, Panmure House, came on the market, the Edinburgh Business School purchased it.  Eamonn has been a leading supporter of the campaign to restore that property as a further memorial to Smith and his work.

In recognition of Dr Butler’s outstanding contribution to the advancement of public policy and economics, the Head of the Business School asked the Vice-Chancellor by the authority of the University Senate to confer the Honorary Degree of Doctor of Letters on Eamonn Butler.  It is an honour well-earned over decades of contribution to public policy, and is richly deserved.

The ASI and Eamonn's many admirers join together today in offering Eamonn heartfelt congratulations.

Update: Read the commencement address given at the ceremony here.