Blog RSS

The Pin Factory Blog

"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 capitalist crime which should be heavily punished

Written by Tim Worstall | Sunday 26 January 2014

Much of my time is spent in explaining how this capitalist/free market mix leads to the best of all possible outcomes. Except when I'm explaining that in this or that instance it needs a little nudge or limitation. However, there are times when it's necessary to condemn, in no uncertain terms, the purported actions of certain capitalists or capitalist firms. And this alleged price fixing (and do please note that "alleged" there) in the wages of engineers in Silicon Valley is one such instance. The claim is that the big companies agreed not to try and poach staff from each other thereby reducing the wages spiral that might have ensued:

In early 2005, as demand for Silicon Valley engineers began booming, Apple’s Steve Jobs sealed a secret and illegal pact with Google’s Eric Schmidt to artificially push their workers wages lower by agreeing not to recruit each other’s employees, sharing wage scale information, and punishing violators. On February 27, 2005, Bill Campbell, a member of Apple’s board of directors and senior advisor to Google, emailed Jobs to confirm that Eric Schmidt “got directly involved and firmly stopped all efforts to recruit anyone from Apple.”


It is said (note, alleged) that this practice them spread across the major firms in the area. And there's two major problems with this sort of cartel behaviour. Obviously, one is that the wages of said engineers were not bid up and they did not gain the full value of their scarcity. Sure, companies reported higher profits as a result, shareholders made more money. But we're not in fact capitalists, trying to make sure that this is what happens. We're actually free marketeers and this is one of those times when the two creeds conflict.

The second is perhaps even more important for us market types. One way of looking at said market is that it is the Great Calculating Engine of our society. Indeed, the only one we have that can have any possibility of correctly allocating resources. And if, through coordinated action such as this, people then damp those prices then our market allocation is going to be wrong. For example, depressing the wages of engineers in California would have led to some (maybe only a few, but this all happens at the margins of course) quants deciding to go off to Wall Street instead. And yet free market pricing would have told them that their skills were more highly valued in the computing rather than finance sectors.

At root of course this is again that conflict between markets and capitalism. We marketeers are very sure indeed that while capitalism is all very well it is competition in markets that harnesses and controls it. And if the capitalists do ever collude, whether it be in the prices for vitamins or the pay of the workers, then we're going to end up with a very much sub-optimal outcome. Which is why if we do find such collusion that we want to punish it very severely indeed.

If this sort of thing had happaned in Europe then the EU could levy fines of up to 10% of global turnover of each company that participated. I don't know what the potential US penalties are but I wouldn't think those numbers would be out of line with a just outcome.

We simply cannot allow such cartels to operate and should punish those who try severely.

View comments

A case for higher interest rates

Written by Jan Boucek | Friday 24 September 2010

interestDoes the Bank of England’s bank rate of 0.5% inspire confidence? For savers and investors (two sides of the same coin), confidence means belief in an adequate rate of return in an economy that rewards hard work and innovation and a belief that stores of value won’t be eroded by a debauched currency.

Near-zero official interest rates send just the opposite signal – there is no faith amongst the economic cognoscenti that the economy can generate sound economic growth so rates are kept low that support otherwise bankrupt organisations and individuals.

Meanwhile, the presses are running fulltime, churning out new money out of thin air. And with inflation running consistently well above target, the Bank of England ignores its mandate to keep it under control. There’s always some special factor to be overcome first but, trust us, things will be fine in due course.

All this is terribly dispiriting for those wanting to do the right thing – save and invest.

Take savers first. Confronted with the officially pessimistic view, they hesitate to put their money to work in riskier assets, choosing instead to shelter in unproductive but seemingly safe assets like government bonds. They also choose to save more than they might otherwise if they have been convinced that the future is, indeed, bleak and unpromising. Stash cash away now before things get really bad!

Good savers are also probably dutiful taxpayers and are further discouraged by what has happened to the government’s finances over the past decade. Where on earth has all the money gone that they have faithfully and unquestionably handed over, day after day, year after year? No wonder there’s so much gloom about.

The story is similar for those who must consider real investment opportunities. If the official view is so pessimistic, who are they to be optimistic? And if failed enterprises and individuals are kept on life support with low interest rates, how can new investment get a fair bite of the cherry?

The good guys now feel like fools and faith in traditional virtues is gone. Is it any wonder that gold is at record highs? Maybe it’s time to try something new, like a modest rise in the bank rate to 0.75% as part of a gradual return to normalcy and faith in the future.

View comments

A catalogue of errors

Written by Dr Eamonn Butler | Wednesday 27 February 2008

Remember when Her Majesty's Revenue & Customs lost disks containing information on 20,000 people, including their bank account numbers and health details? Of course you do. Remember all the other dozens of cases where people in authority have 'lost' the data that they collect on us? Probably not.

But fortunately the Open Rights Group have been cataloguing them here.

There is, for example, the 5,123 patients' medical records that were on a laptop stolen from a Black Country hospital. Though that pales into insignificance alongside the NHS warning last month that perhaps 1.7m records have been dumped in skips, lost in the mail, left on stolen computers, pinched from doctors' lockers, or forgotten in the pub.

Also last month, a laptop was stolen from a Royal Navy officer. It contained information on 600,000 people, including their passport numbers, National Insurance and bank details.

Then last November, the Department for Work and Pensions lost yet another computer disk containing personal and fnancial details of 40,000 Housing Benefit claimants.

I don't know about you, but I just don't trust officialdom to protect the information it holds about me and other people like me. If there was one knock-down argument against the national ID database, the Open Rights Group list of failures is it.

View comments

A certain bravery here

Written by Tim Worstall | Sunday 04 May 2008

But I think I'll put the boot in anyway, because I'm nice like that. Richard Spring MP has given the details of his income as an MP on his blog here.

Firstly, my own monthly salary. After deductions it is exactly £3,250.53. Deductions include 10% of the gross figure of £5151.67 for the parliamentary pension scheme (£515.17).

Certainly that's an interesting example of average tax rates on a not especially large salary: adding back in the pension contribution, that's 27% off the top in taxes. Now while many around here disagree with me I'm of the opinion that the number of people clamouring to become MPs means that the wage paid should fall, but leave that aside for a moment. The point I really want to look at is this: 

By June next year I will have been an MP for 17 years. If I were to stand down as an MP then and elect to draw my pension, my pension would be £22,952.41 per annum, slightly above the average parliamentary pension.

Well, 17 years of £515.17 a month (clearly it would have been lower in earlier years, but bear with me) would be a pension fund of £105,000 ish or some £7,000 a year as a pension. Hmm, yes, getting a £23,000 a year pension off that fund would be rather an achievement, wouldn't it? Even if we compound the interest at 8% on the payments into the scheme it gives us a fund of only £225,000 (and that's being absurdly generous, assuming that the payments in have been at £515 a month for 17 years). Given current annuity rates for a 60 year old, that would give a pension of some £14,000 a year.

But whether readers of this blog feel that my own contributory pension is generous enough to be described as ‘platinum plated’ or a ‘goldmine’ is for them to decide. I simply state the facts.

Platinum plated or a goldmine is indeed in the eye of the beholder: but I think the stated facts would support such a description?

View comments

A certain sadness, yes, but really we should celebrate

Written by Tim Worstall | Sunday 21 June 2009

Ian Jack's got a nicely done piece over at The Guardian about the decline of the British milk producing industry. Yes, of course, there's a sadness at the idea that the very embodiment of Stout British Yeomanry, the independent farmer, is being driven out of business. I'm also a little surprised that mention isn't made of the way that the milk quota regime imposed by the EU is deliberately skewed against said Stout British Yeoman.

But there's one little line in there which is the reason we should really be celebrating.

Years of genetic engineering and dietary supplements mean increased milk yields and fewer cows;

Fewer cows of course means fewer farmers needed to tend to them. This is really the story of increasing efficiency, increasing productivity, in farming. Something that we really should be celebrating, for it's the key to this whole civilisation thing. A society where everyone has to work full time in the fields in order to keep that society fed is really not much of a society. In order to develop anything other than just that peasant farming, you know, things like libraries, the NHS, symphonies, jet travel, absolutely anything other than a pure subsistence lifestyle, it is necessary that farming become more productive. That one person working upon the land can produce the food for 2 people, or 49 (as it is in our own, with some 2% working upon the land) or even 1.001 people's food.

It is only if there is this sort of surplus production over and above the necessary food for those doing the labouring that we can develop and build a society of any real sort.

So while we might indeed be sentimental about the disappearance of part of Ye Olde Englande, we really ought to be celebrating the process which has been going on for some10,000 years now, the ever increasing producivity of farming. For it's to that that we owe the rest of this wonderful world we see around us.

View comments

A check on spending

Written by Adam Scavette | Saturday 07 March 2009

The Japanese government has issued a stimulus package which will assign every over-18 citizen a 12,000 yen check, which they hope will be spent soon in order to break the 11 month spending fall. Unfortunately, such a measure will not create the stimulus that the government hopes for.  

12,000 yen is equal to roughly £87, so the people of Japan aren’t exactly winning the lottery here. Will this be a major determinant of going on a trip or making a big retail purchase? Probably not. Most likely, it will get people to go out for a nice dinner on a night when they typically wouldn’t have or keep younger people at the bar for a few more hours one weekend, but Japan most likely will not see a major difference in spending. 

For a country that has had a spending slump for the past year they are probably better off cutting taxes rather than giving out a measly stimulus check. At least a tax reduction could have a lasting impact on a consumer’s mindset, even if it is only temporary.

Unfortunately, this will not be the end of tiny stimulus moves by the Japanese government. They plan on pumping 2 trillion yen back into the economy at a gradual rate. Hopefully they'll come up with a better plan, or they will suffer another lost decade.

View comments

A cheer for constitutional monarchy's restraint on government

Written by Stephen MacLean | Wednesday 06 June 2012

As the Queen’s Diamond Jubilee celebrations wind down, it may be well to reflect on an aspect of public choice theory which supports constitutional monarchy — principally its rôle as a brake upon self-aggrandising politicians.

Public choice argues that, contrary to the myths propagated about the selfless motives of public servants, politicians and bureaucrats can be as self-interested in their public personas as they are as private citizens.

This is not the time to examine the unitive functions of the Crown, nor the acts of public service performed by the Royal Family — and how monarchy either refutes or conforms to the political landscape sketched out by public choice  theory (though I personally believe the opportunities for gain are very few, while the burdens are many).

Neither is this an argument for constitutional monarchy as against republican forms of government; indeed, this may be one of the few areas where both forms, when modelled on justice, are equally serviceable according to the respective country’s traditions and national character — quite in variance, by the way, with respect to economics, where all the arguments are in favour of classical liberal/Austrian theories and quite contrary to Keynesian prescriptions.

Moreover, let it be admitted that constitutional monarchy is rarely an active force in limiting the power of politicians (minority parliaments being one exception, where the Crown has legitimate avenues of intervention), but serves rather more as a passive agent in limiting the State.

First, the very hereditary nature of British constitutional monarchy — i.e., non-elective — disinclines government to aggrandise the Head of State.  Governments are reluctant to invoke public criticism for expenditures which do not in some way flatter the ‘heirs’ of democracy (especially when the House of Windsor is itself exceptionally well-endowed financially):  Witness the absence of a royal yacht when H.M.Y. Britannia was decommissioned.

Second, the constitutional role of the monarch in the Westminster parliamentary system means that the prime minister is a servant of the Crown and cannot therefore with impunity rise above his station.  It is at best to be guilty of lèse-majesté, and at worse an affront to the parliamentary party which can always be relied upon to remember that the inhabitant of No. 10 is simply primus inter pares.

The theoretical ground of this public choice defence is laid out by Austrian economist Hans-Hermann Hoppe who, while he may not necessarily be a monarchist, sees the unrestrained growth of elective governments as far more destructive of personal liberty and economic freedom.  When absolute monarchy reigned, Hoppe argues, the State and its appurtenances were held as private property, and husbanded wisely as a future inheritance; subjects were jealous of their rights and defended them tenaciously (arising from an awareness of ‘class consciousness’), leaving the Crown on guard not to exceed its authority.  Democracies, to the contrary, do not arouse a corresponding scepticism — Why, one day I too may be leader of the country! — but nor do they engender similar feelings of safeguarding wealth:  Without the responsibility of bequeathing royal estates to one’s children, politicians become mere ‘caretakers’, and the spoils of State become transitory gifts that must be enjoyed and shared with one’s cronies while the democratic gods shine (a form of present-orientedness that is reflected in citizens’ consumption rather than investment).

Arthur Seldon called this ‘the dilemma of democracy’, noting four weaknesses in popular government:  short-sighted with material resources; over-expansive with a tendency to ‘grow’; liable to conspiratorial patronage; and uncritical of majoritarian electoral decisions.

All of which leads me to wonder why classical liberals are so often enamoured of the republican ideal.  As Hoppe observes:

From the viewpoint of those who prefer less exploitation over more and who value farsightedness and individual responsibility above shortsightedness and irresponsibility, the historic transition from monarchy to democracy represents not progress but civilizational decline.

One can understand their inability to appreciate a Tory reverence for tradition and continuity, yet why do they so cavalierly dismiss the public choice arguments that demonstrate that limited government in the age of the Welfare State is held hostage to democratic fortune?

‘It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the œconomy of private people, and to restrain their expence,’ wrote Adam Smith in The Wealth of Nations.  ‘They are themselves always, and without any exception, the greatest spendthrifts in the society.  Let them look well after their own expence, and they may safely trust private people with theirs.  If their own extravagance does not ruin the state, that of their subjects never will (II.iii.36).’

Let not the irony be lost:  Britain has gone from the time when a burgeoning representative democracy set in motion the end of the divine right of kings, transformed thus into constitutional monarchy — which itself has become the most visible restraint on elected politicians who behave as if themselves graced with divine sanction.  We may no longer fear kings, but their ministers remain a threat to our rights and freedoms.  Elizabeth II embodies the limits we must impose upon the political classes; her Diamond Jubilee an occasion to remember the State is the servant of the people.  God Save the Queen!

View comments

A circle in a spiral

Written by Dr Eamonn Butler | Wednesday 24 September 2008

As a good free marketeer, I love failure. It's something inevitable in the market economy, where there's no job for life. From time to time, businesses are overwhelmed by the competition, or simply make mistakes, and they fail. But new ones come along, so nobody gets too agitated about it.

Unless of course, they are big. Then the politicians step in, concerned about the political effect of job losses. When they are big financial institutions, the politicians are even more agitated, in case they also bring down other businesses that depended on them for finance. That's why the UK government nationalized Northern Rock and the US bailed out Fannie and Freddie.

The UK and US authorities have also been encouraging mergers to save big financial institutions, like HBOS and Lloyds TSB last week. But in so doing they create even bigger financial institutions, which ups the stakes even more when things go wrong again.

The regulators are on an impossible spiral. Regulation has grown more and more onerous, forcing financial firms to merge in order to absorb the cost. That created larger institutions, which couldn't be allowed to fail. And it reduced competition, making them less nifty and actually more likely to sink when they hit troubled water.

Now the regulators are going round the spiral again, creating yet larger institutions. You have to ask, though, whether even governments will have enough cash to keep these monsters afloat when the waters next get choppy.

View comments

A circle of extremism

Written by Steve Bettison | Sunday 18 October 2009

If you subscribe to the idea that politics is a straight line, then for you there is a far right and a far left separated by the great central plains of minor differences. This separation is distinguished by the singular outcome of either the right or left establishing a system of governance that is diametrically opposite. The far left would be characterised by the abolition of private property, primarily, privacy and the complete subservience of the population to the pursuit of a commonly held good, excluding those that didn't hold the 'good will' dear. The far-right would exclude those it feared/hated, primarily, abolish/co-opt private property and privacy and attempt to ensure that the population pursued a centrally directed good. It depends where and what the emphasis of political priority falls upon that allows others to define.

Here is where the idea of politics being a straight line breaks down: the realisation that extremists, be they religious, political or just deranged are merely fanatics intent on the violent overthrow of the state. The outcomes of which are fairly certain, and are almost identical. The end result of political revolution has been seen throughout history, Stalin, The Khemer Rouge, Hitler, Mao et al. It is the outcome that should define what type of label is handed to the politics of a tribe. In the UK the BNP is continually referred to as the far-right, yet their policies drip with socialist nationalization, their descriptive is based upon one policy, not all. Yet they should be referred to as an a extremist political party; with no left or right far or otherwise prefixed. The same goes for the SWP, ANL, UAF who are all extremist groups.

The idea that you can break politics into closely defined neighbourhoods with certain areas juxtaposed is a purposely confusing message. Politics is the pursuit of power by representatives of parts of society. Within that society there are outliers who trend to extremist positions. The outcomes are all the same, a rule of centralized power characterized by extreme violence and a fear of the unknown. It is neither left nor right it is merely an expression of hatred of the individual.

View comments

A collectivist you might agree with

Written by Wordsmith | Friday 15 January 2010

Freedom, morality, and the human dignity of the individual consists precisely in this; that he does good not because he is forced to do so, but because he freely conceives it, wants it, and loves it.

Mikhail Bakunin

View comments


About the Institute

The Adam Smith Institute is the UK’s leading libertarian think tank...

Read more