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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

€500 notes and thank you notes

Written by Sara Williams | Saturday 31 July 2010

Who would have thought you would want to thank your local drug lord? A recent WSJ article outlines how the black market is keeping the central bank afloat. Higher valued notes, like the €200 and €500 bills, are in high demand, but cost little to produce. The demand is high because it is easier to conceal large amounts of money with higher notes. The Euro produces the highest, which attracts international demand as well as within the EU. So, the central bank is profiting by creating money at little cost and selling it back for high premiums. This profit contributes to the central bank’s solvency and therefore helps in preventing a banking crisis.

Not that I condone the government profiting from illegal trade, but it is extremely interesting. The government makes certain goods and practices illegal. The government also gives itself and maintains a monopoly on the production of money. So really, both sides of the transaction (supply and demand) are artificial. It is purely a legal phenomenon.

If you look at this purely in incentive terms, the government should increase enforcement for catching drug dealers and money launderers to where there is a perfect cost effectiveness for the criminals to demand more large bills. If they enforce too much, the underground economy will find substitutes. Of course, this strategy would increase taxes, and not help the economy in real terms.

Still, when looked at closely, the situation say a lot about the leverage of government power and its citizens.

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“Ban Mephedrone!” urge cocaine and ecstasy dealers

Written by Nikhil Arora | Friday 19 March 2010

Realising the danger that ‘legal highs’ pose to their core market of young night-clubbers, cocaine and ecstasy dealers mobilised every lawyer and lobbyist at their disposal to ensure that their rivals’ products are outlawed as quickly as possible.

Although this is clearly far-fetched, the principles are very sound. If these people actually had lawyers and lobbyists, they certainly would have done this. As Levitt and Dubner controversially wrote in ‘Superfreakonomics’, if prostitutes had had access to an organised lobbying apparatus, they certainly would have pushed for those who have sex for free to be outlawed, or at least regulated out of the market, in order to ensure that more people keep paying for it. Why would it be any different for drug dealers?

As Milton Friedman noted, the chief economic effect of American and British drug prohibition is ‘to protect the drug cartel’. Prohibition works wonders for those with the most resources to evade the law. Those who can grow coca leaves on vast swathes of Columbian jungle before processing it in underground factories and shipping the finished product to our shores by airplane or submarine. These are the same people who can afford to buy-off the police, or bomb those who can’t be bought. By criminalising drugs, smaller domestic producers are driven out of the marketplace, and only the big players can afford to survive – in economics speak, the barriers to entry are prohibitive, and new competitors can’t emerge. As Friedman said, “What more could a monopolist want?”

Banning legal highs will likely have the desired effect – people will stop using them, or at least use them less frequently. But does anyone really believe that people will not find other ways to get high, or use more dangerous drugs instead? Banning these legal highs is playing straight into the hands of those the law is aimed to attack.

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£Sterling: Looking rocky, very rocky

Written by Nigel Hawkins | Thursday 18 March 2010

In recent months, the £sterling has been under formidable pressure. Against the $US, the £sterling has fallen by c10% since October - despite the unparalleled size of the US budget deficit. And, notwithstanding the serious currency travails of Greece and others Euro members, it has also fallen against the Euro.

While international trade movements are obviously key, the size of public sector net debt (PSND) is also very relevant. To fund it, unprecedented levels of gilt-edged stock – of c£200 billion this year and next – are being issued. Now that the leading buyer of UK gilts – the Government itself through its Quantitative Easing programme – has retired from the fray, perhaps temporarily, failures of gilt auctions seem increasingly possible. As such, the £sterling would be under even greater pressure.

Whilst no longer constrained by ERM obligations nor subject to previous forms of currency management, such as the long-forgotten ‘snake in the tunnel’, the next few weeks will be challenging for the £sterling. Above all, the result of the forthcoming General Election is becoming increasingly uncertain. Last autumn, a substantial Conservative Party majority was anticipated. More recently, a ‘hung Parliament’ has become a real possibility, with Gordon Brown conceivably remaining as Prime Minster within a Coalition.

Only serial Labour Party optimists expect the Government to be re-elected with a majority. However, such a scenario cannot be totally discounted – as economic pessimism dissipates and Labour strategists up their game. Remember, too, that the Conservative Party needs a near record swing to secure a workable majority. The one near certainty is that the polls will be volatile during the campaign - with the inevitable rogue poll emerging.

And if this uncertainty creates a full-blown £sterling crisis, would the Bank of England’s Monetary Policy Committee have to raise interest rates prematurely to prevent it sinking any further?

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£99 to the Moon (and back)

Written by JP Floru | Friday 18 February 2011

moonAt the speed governments debase our currency it will perhaps be a bit more in 15 years time. But it is a distinct possibility. You will see space because somebody, out there, believes there is a profit to be made from space tourism. In fact, Richard Branson is building the spaceship right now

As James Bennett, the President of Mach Plus Technologies LLC explained in his talk at the Economic Policy Centre explained on Wednesday night, big government is being by-passed by savvy entrepreneurs, who believe that space should not be the exclusive playground of astronauts. Gone are the days of the monopolistic state space agency; the bureaucrats’ steered and taxpayers’ funded white elephants. Who saw no harm in putting satellites in space at ten or twenty times the cost at which the private sector could have done it – as long as it kept the military industry rolling in the dough.

As far back as in 1964 General Electric offered to put satellites in space commercially – and NASA blocked it. In the eighties, NASA ensured that its Space Shuttle became “the” US launch vehicle for all government and private missions. Today private individuals launch rockets at a fraction of the cost and not taxpayer involvement. Competition and benefits of scale will do the rest – the private profit motive will allow you to visit space.

And that is not all. Space exploitation can make fears over scarce resources a thing of the past: most minerals are out there for the taking on the planets or in the asteroid belt. One space shuttle of Helium 3, extracted from the Moon, can provide the energy needs of the US for an entire year. We’re not there yet – businessmen will only take the plunge when private property rights in space are sorted.

The government can help freeing the market so you can travel in space. By negotiating a lifting of the US export ban on space technology; by introducing a non-interventionist regulatory framework to allow rocket launches from the UK; and by pressing for a free market property rights regime in space with the other space capacity countries. And when they do all that, they may even benefit from my postal vote...sent from the Moon?

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£25 billion more

Written by Junksmith | Saturday 07 November 2009

If only they were just burning it.

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£ vs. €

Written by Dr Eamonn Butler | Friday 29 May 2009

altThe pound seems finally to be struggling up from the floor, rising above $1.60 for the first time since November. It even maanged to rise to €1.15, and speculators are betting it will hit €1.25 by the middle of the summer – providing a welcome boon to the few British travellers who are venturing abroad this year. Time to raise a cheer?

Well, maybe. There are some encouraging statistics – the number of mortgage approvals rose last month, housing rents are strengthening, and some of the more optimistic experts say we're through the worst of this crisis. But most of the pound's consolidation is actually due to the fact that America is in just as big a fix as we are, with a comparable mountain of public debt and a beaten-up financial services sector. And the Eurozone is worse off than everyone thought. It didn't suffer the financial shock that we did because its finance industry is smaller and more conservative. But now that the Brits and Americans are putting off their European holidays and purchases of BMWs and washing machines, the Eurozone is suffering.

Still, the cheapness of British exports is beginning to have a visible effect on our balance of trade, far earlier than most economists thought. The belief was that the low value of the pound would only help us in a year or two, once the world was buying again. So that's lucky. And it's more than luck – it's good judgement, and you have to admit that it's Gordon Brown's good judgement – that we're not in the Eurozone. Then we would be unable to adjust in the wake of an economic shock like the one we've had. As the likes of Italy and Spain now realize.

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Zero-sum thinking on immigration is hurting the economy

Written by Henry Oliver | Friday 16 December 2011

Just as we are about to see a large export of highly educated British citizens to the other side of the world, we are going to bring in fewer people to study here. Australia is currently enjoying a commodities boom. Mining is expanding as minerals are exported to China, and construction projects are benefitting from this as infrastructure projects grow. But there is a shortage of 20,000 engineers in Australia. These will come from South Africa, India, and Britain.

So as we export trained engineers to Australia, and they export commodities to China, you would expect us to see an opportunity: Britain could use its large education sector to train people from all over the world, bringing in large amounts of investment and skill. It would then be part of a new, growing market, attracting wealth to its major cities – and it could keep some of the best of the graduates to work here. Right?

Wrong. We are making it more difficult for people to get a student visa in a bid to keep total immigration low. And as of April 2012 we are going to abolish the Post Study Work Visa. This has already had an effect: MBA applications to the University of Manchester’s Business School are down 18% in anticipation of that.

France has taken a similar approach. And all those students will end up in places like Spain, whose immigration policy is still liberal. Or worse, they will go to Australia. After seeing a drop in applications of 25% Australia reinstated students’ right to work, and sped up the application process. And they’ve just made it easier to get a Post Study Work Visa, as well as allowing people to stay for longer after studying. We are making ourselves uncompetitive in an international market. We will be neither training the mobile workforce, nor attracting them to come and work here.

Immigration limits rely on the zero-sum fallacy that the amount of labour in a market is fixed. That is the reasoning behind the UK’s limits on the number of agricultural workers allowed in from Bulgaria and Romania – to protect British jobs. But it is not fixed, it is flexible: as the market grows so does the demand for labour. And the market grows through the expansion of the population which, in turn, is afforded greater flexibility to innovate, work hard, be more productive, and discover new opportunities.

As I wrote recently, the economics of immigration is based on the division of labour. It only benefits the economy in the long run and can be shown to boost real wages of residents and nationals. Short term negatives, whilst the market adjusts, are more than compensated for by the long term benefits. John Bercow got it right in the Independent in 2005:

Immigrants are incoming assets … in a global economy, their labour is vital both to tackle severe skills shortages and to fill long-term vacancies. Immigrants are not taking jobs that British workers could fill, but jobs which British workers are unable or unwilling to do … the idea that immigration is an intolerable burden on the taxpayer and the welfare state is baloney. Immigrants give far more than they take. It is estimated that they make a net contribution to the economy of £2.5bn …

And it is the same with students. As the economy becomes more global we trade more and more with other countries; as China imports minerals from Australia, generating a construction boom, demand for British engineers increases. And just as that point we decide to stop training engineers, and to stop letting them stay here post study, in order to “protect” British jobs. It’s as if London was buying lots of wheat from East Anglia, who then banned Yorkshire men from coming to help get the crop in. East Anglia would lose out, especially if London could just buy the wheat from Wiltshire, or on foreign markets. And the Yorkshire men would go and work in Wiltshire (or wherever) whose crop would be harvested quickly, increasing their productivity, making them more competitive when it came to selling the wheat.

Unless we attract the top international talent and allow it to study here and work we will not be a part of the global market. Global demand for high-level education is huge, and people working in a global economy will be willing to pay.
As it is we are going to lose our skilled graduates and potential students to countries like Australia, which is all too aware that the wealth it is earning from the commodities boom is only going to increase as the gap in its labour market is filled with our engineers. If we stop supplying engineers Australia will look elsewhere. Or train them themselves under their newly liberalised visa rules.

In 2009 the UN calculated that only 3% of people live outside their country of birth. There is huge potential waiting to be discovered. Michael Clemens explains, with the example of migration from poor countries, why we all benefit from migration:

emigration of less than 5 percent of the population of poor regions would bring global gains exceeding the gains from total elimination of all policy barriers to merchandise trade and all barriers to capital flows.

Clemens also points out that the American population has quadrupled since 1914, and much of that was due to immigration; but America has remained the leading economy in the world. Indeed, Reinhart and Rogoff tell us that America’s share of world real GDP increased in the same time period (1914 – 2008) from 18.93% to 21.41%. Immigration didn’t damage America; limiting it might be damaging Britain.

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Zero base tempts Labour

Written by Dr Madsen Pirie | Wednesday 26 September 2012

Three years ago I published a book entitled "Zero Base Policy," proposing that the UK needs to examine not just how institutions and practices might be improved, but what their purpose is, and what policies might achieve that purpose.  I wrote:

Government usually continues to do what it has previously done, even in areas where the current policy has visibly failed to succeed.  Sometimes there is tinkering, with government promising "a fresh approach," but in reality offering little more than minor adjustments at the margins.  There ought to be a "zero base policy," under which government would ask in each area what it was trying to achieve, what would count as success, and what policies might conceivably help to achieve that success.

I went through areas such as education, health, the police, drugs, civil liberties and taxation, asking the fundamental question and suggesting policy avenues that could lead to more success than current ones.

It is very refreshing to see front-benchers from the Labour Opposition starting to endorse this radical approach.  First Stella Creasy, and now Ian Murray have given interviews in which the 'Zero Base' approach has featured prominently. 

This is excellent news, and it is just what opposition parties should be doing - using their time out of government to look with fresh eyes at the nation's problems and come up with radical solutions.  All too often governments ask "What is being done and how can we tweak it to improve it?"  A more fundamental question is "What should government be doing, and what policies might enable it to do that successfully?"

Britain faces serious problems, and it is plain to impartial observers that in some areas policy has simply not worked.  The fresh approach of 'zero base' promises new and radical solutions, and its endorsement by some on the Labour front bench is to be welcomed.

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Zero Base Policy

Written by Blog Editor | Monday 14 September 2009

In our latest report Zero Base Policy, Dr Madsen Pirie argues that minor changes to existing policies is no longer an option, given Britain's dire economic and social fabric. Instead the need is for "zero base" policies to provide new and effective ways of achieving policy objectives.

Topping the agenda is economic change. Dr Pirie has set out measures to turn Britain from a high tax, high debt economy into one on the virtuous circle of low taxes and increasing growth and revenues. The Treasury's 'static' model of the economy needs to be rejected in favour of a 'dynamic' one, which factors in the growth impact of lower taxes.

As in previous reports we propose to lift the low paid out of income tax by raising its starting threshold to £12,000 p.a., corresponding to the minimum wage, or about half the average wage. This eliminates the need for vast welfare transfers to low earners by letting them instead keep what they earn. At the top end the ASI proposes to expand the tax base by successively raising the threshold for the 40% rate until no-one pays it. Local finance needs overhauling, replacing Council Tax by local sales taxes as in the USA, and setting business rates locally. Local budgets should require popular vote approval before coming into effect.

A one-year judicial commission should be set up to review civil liberties and make recommendations. Public body CCTV surveillance needs to be limited to police and security services, and for anti-terror powers must be restricted to cases of suspected terrorism. Also, government policy on drugs has proved a failure, and need a total rethink. Most narcotics should be made available at medical centres, and the production and sale of recreational drugs legalized under controlled conditions.

The biggest opportunity for reform is in education. Parents should of course be permitted to use their child's education allowance at any school which is non-selective and requires no additional top-up fees. Regulation can be addressed through the use of 'sunset' clauses under which regulations expire unless specifically renewed, and for regulation to be implemented by case law, with the findings of tribunals and juries filling in the details of broad statutes.

Zero Base Policy contains 33 radical objectives including the abolition of regional tiers of government and agencies, and the phasing out of most capital taxes.

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YouTube: Amend the smoking ban

Written by Junksmith | Friday 03 July 2009

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