Written by Kristy Dorsey
Others, however, are not convinced there is much substance behind the rhetoric. Tom Clougherty, executive director of the Adam Smith Institute, was at last week's Labour conference. He points out that there is no way to significantly expand the Post Office's financial activities without substantially increasing its subsidy from the government, money the Exchequer simply doesn't have at this point in time.
"This looks like a crowd-pleasing announcement that can bring a cheer at the party conference, and that's about it," Clougherty says.
Published in Scotland on Sunday here.Read more...
Written by Martin Waller.
A new phrase has entered the economic lexicon — “fiscal alcoholic". It emanated from the Hungarian central bank and has been introduced into the UK by Eamonn Butler, of the Adam Smith Institute. It is defined as “someone who knows that they should be giving up their reckless spending and borrowing habit, but is addicted to it." “My name is Gordon, and I am . . ."
Published in The Times here.Read more...
Written by Rob Langston
Political think tank Adam Smith Institute claimed the regulator had failed in its supervision, which was compromised, plus its inability to recognise that it was responsible meant it could not learn lessons for the future.
Published in the Financial Times here.Read more...
Baroness Scotland should not lose her job for the mere technicality of failing to take a photocopy of her cleaner's identity documents. But she should lose her job for pushing this law through parliament. Plainly, it is a law with regulations so complicated that even the UK's top law officer cannot follow them. And a law which empowers a quango – the UK Border Agency – to issue large fines that could ruin unsuspecting, struggling small businesses.
Dr Eamonn Butler
Director, Adam Smith Institute
Published in The Guardian here.Read more...
Written by Tim Worstall (Fellow, Adam Smith Institute)
GDP is not the be-all and end-all of our existence; it talks of value added to economies but has little to say about anything else.
Richard Layard and Joseph Stiglitz (one a Nobel Laureate, the other one of those who tried to jam some economic understanding into my brain) rightly tell us that gross domestic product isn't in fact the be-all and end-all of how we should be measuring life, the economy and everything. They also, again correctly, point to various alternative ways in which we might measure, thus set as our target, things which are more important than merely the value added in an economy.
What is always interesting is to take such suggestions and follow them to see where they lead: so let's do exactly that with the proposal from the professor at the old alma mater, my Lord Layard.
So I propose a campaign for the Principle of the Greatest Happiness. This says I should aim to produce the most happiness I can in the world and, above all, the least misery. And my rulers should do the same.
Sounds like a plan, so, using only the professor's own work, where will this lead? Specifically, where will this lead us if we try to design a tax system which accords with this principle (that's the "rulers should do the same" bit)?
Vital clues can be found in his book Happiness, something which if you haven't read you probably ought to. There are two major points made about the taxation of incomes in it and we'll add just one commonplace observation from the world around us to reach what we must assume will be the taxation system that will produce the maximal amount of happiness: the top fluffy kitten count, if you will.
The first point is that happiness does indeed rise with income – but only to a certain point. That point varies a little, dependent on where you are and with exchange rates and so on, but a reasonable estimate is about £15,000 a year. Less than that and earning more money makes you happier simply because you're earning more money. More than that and you might be happier or not, but it's not the extra money that's making you so.
Excellent. So the first and most obvious principle of our high kitten-cuteness tax system is going to be that we're not going to tax incomes below £15,000. This would clearly make people less happy, as it would take them below that number where higher incomes make them happier.
The second point is a little more complex. The contention is that when we earn more than £15,000 we create a kind of pollution. It's never quite really nailed down: one way of describing it would be jealousy, the green-eyed god, over the fact that others have more than we do. Layard's description is more gentle, in that others having more impels us to emulate them; we try to keep up with the Joneses. In doing so we strive for higher incomes, despite the way that these will make us no happier, at the expense of the many other things that will make us happier – time with family, with friends and so on.
Thus those earning more than £15,000 are imposing an externality of unhappiness on those around them: and we all know what happens to such negative externalities in welfare economics. We tax them! This is exactly the same economic argument behind carbon taxes, the congestion charge and air passenger duty. The polluter must pay the social cost of their pollution. Turning the argument around the other way, that positive externalities should be subsidised is exactly the economic argument used for tax contributions to basic science and such things as universal primary schooling. There's nothing odd or strange about the economics here, only the aspect of life to which it is being applied.
Layard's estimate is that the unhappiness caused by those on higher than £15,000 incomes is some 30% of the amount of those higher incomes. Someone on £1,015,000 a year is causing £300,000 of unhappiness elsewhere while someone on £45,000 is causing £10,000s' worth (umm, OK, I'm using one third not 30%, but you get the picture). We should thus tax the two, respectively, £300,000 and £10,000 for the externality of the non-fluffy kitten time they are imposing on those around them.
Our third point is simply the commonplace that people do not like to pay taxes. Yes, yes, I know, there are endless screeds here at Comment is free insisting that no, really, offering up the sweat of our brow to the state is such a pleasurable experience that we'd all do it willingly, without the compulsion of law. Actually, this seems not to be the case. Last time I got the figures from the Treasury (for the tax year 2005), it turned out that only five people across the entire nation had voluntarily paid more than was their legally demanded due – and four of those were dead. So if we adopt the entirely uncontroversial economic idea of revealed preferences (don't look at what people say but what they do) we can be sure that for the vast majority of the population taxes are not something paid for the joy of them. They are, in fact, something which make us unhappy.
This now gives us the details which we need to build our tax structure for optimal happiness. We can and should tax those who cause unhappiness in others by the value of the unhappiness they create through their higher incomes. We should not tax more than this for we will be creating unhappiness by doing so. Finally, we should not be taxing incomes below £15,000 a year because taking money below that sum will again increase unhappiness.
So our tax system with the highest fluffy-kitten count, the one that will "produce the most happiness" as our rulers should strive to do, just as we ourselves should, is a flat-tax system of 30% with a high personal allowance of £15,000 a year.
While this is, of course, very different from our current tax system, it is still progressive (yes, it is: work out the maths for yourselves – as incomes rise so do the portions of those incomes paid in tax) and it ticks all the boxes that will lead to maximal happiness.
In the UK, the US and Germany, happiness has been stagnating for decades. A civilisation based on the Greatest Happiness Principle would be a great improvement. Yes, indeed it will, as long as we actually accept the implications of that Great Happiness Principle as laid out for us by one of the great researchers into that principle, Richard Layard himself.
The only conundrum left is that there are only two organisations that I know of (that I am a member of both of them is entirely coincidence) which actually have as suggested policy anything close to this top cute-kitten system: Ukip and the Adam Smith Institute. But then the reason that I am a member of both is because they are both well ahead of the progressive crowd, in so many important ways.
Published on guardian.co.uk here.Read more...
Written by Dr Madsen Pirie
Ben Bradshaw, the Culture Secretary, has stepped into a simmering row about the BBC's expansion policy. He says it is "at the limits of reasonable expansion." Set up originally by six private companies to broadcast radio programmes, and nationalised in 1927, the BBC has been a public body ever since. Although it attracted praise for the quality of its commercial-free broadcasting, the BBC has tried throughout its history to monopolise broadcasting by squeezing out competition.
It opposed the introduction of ITV in 1955 and of commercial radio subsequently, following the success of the offshore pirate stations. The BBC has never hesitated to use its publicly-funded clout to compete with private ventures dependent on commercial finance. Local radio stations, set up to fill a gap in the market, soon found themselves in competition with BBC versions, financed out of the licence fee, which cut into their audience and the commercial finance it brought.
The BBC looks at what others are doing commercially, and copies them, trying to maintain its dominant position by undercutting commercial operations with its "free" licence-payer-funded alternatives. The BBC has no need to finance such operations by market share because it has the compulsory licence fee behind it. Everyone who uses a television has to pay it, and bullying big brother tactics and intimidating commercials ensure that most of them do.
Part of the problem is that with media diversification in the internet age, the BBC still wants to do everything. It fears its dominance will be undermined by new technology unless it keeps a finger in every pie. This is very evident in its news services. Seeing the news audience move from broadcast news to internet coverage, the BBC has responded with "free" internet news to compete with and undercut those who need a market share and commercial backing to sustain their own news output.
In response to a proposal to award a small part of the licence fee to local news alternatives, Sir Michael Lyons, Chairman of the BBC Trust, has urged a cut in the licence fee rather than see any of it go to help competitors. Mr Bradshaw's intervention is timely. Just occasionally, in the way the BBC treats its prima donna celebrities, do people glimpse how their licence fees are splashed around. Less visible is the ruthless way they are used to squeeze out commercial media competitors.
The BBC is rightly praised for some of its output, but it has traded on that goodwill to distort the media market to maintain its own dominance. It is time that its use of licence fees was subjected to close and independent scrutiny, and that alternative funding models were explored.
Published on Telegraph.co.uk here.Read more...
Written by Dr Madsen Pirie
Capitalism has lifted more people from poverty and hunger than any other force in history, including religion.
I respectfully disagree with Dr Rowan Williams, the Archbishop of Canterbury, over his views on the City and its finance industry. He regrets there has been "no repentance for the excesses which led to the economic collapse," and describes a feeling of "diffused resentment" that bankers have failed to accept their responsibility for the crisis.
While the archbishop is entitled to express his views, I am sure he will not mind me pointing out that these are somewhat uninformed views. He admits to not being an economist, saying the crisis has taught us that "economics is too important to be left to the economists." I am sure he will not mind me pointing out, either, that financial services are not founded on greed. For the most part they represent honest trading by well-intentioned people whose skill lies in the efficient allocation of resources. This skill, internationally, has lifted more people from the blight of poverty and hunger than any other force in history, including religion.
Few economists think that the crisis was caused by greedy bankers. In increasing numbers they are coming to the view that recklessly loose credit created by politicians and central bankers sent false signals to the financial industry, causing them to act inappropriately and take on undue risks. Dr Williams describes a sense of "muted anger" at the bonus culture, pointing to a gap between what people are paid, and the worth of what they do. He might just as well criticise the huge rewards gained by footballers and pop stars, but the fact is that their pay reflects what people are prepared to pay for their services. The "bonus culture" is no different; it reflects the economic worth of people whose financial skills can add value to transactions.
Of course we can learn something from the crisis. Perhaps that banks should be encouraged to align bonuses with long-term returns rather than with short-term turnover. We can also learn that when governments try to "smooth" downturns for political advantage, it simply stokes up future calamity.
Everyone admits that there have been bad eggs in the City, as there have been in the Church, and perhaps in every walk of life. That is why we need institutions and practices to restrain them, and to improve these when they fall short. But to taint the financial industry with "idolatry" is to veer dangerously close to populist sloganeering.
Published on Telegraph.co.uk here.Read more...
Written by Dr Madsen Pirie
The enemy of our future prosperity is not the savagery of any spending cuts, says Madsen Pirie, but the hesitancy to do what is needed.
The C-word is out in the open. The Prime Minister previously insisted the debate was between indiscriminate and savage Tory cuts, versus Labour's investment in public services. The Prime Minister uses the term "investment" as we might talk about "investing" in a Mars Bar, which most people would call spending. Now Lord Mandelson has described Labour policy not as big spending, but as wise spending, to be contrasted with Tory "savage cuts".
The Government is trying to pitch the debate as one between cuddly and sensible economies from Labour, versus Tories "salivating about wielding the axe". The debate has changed, however, in that the public now expects cuts and even supports them. Moreover, they trust the Tories to better implement them.
They are correct. Several studies have identified savings to be made without cutting essential services. The James report identified £35bn, the Taxpayers' Alliance and Institute of Directors report pointed to £50bn, and the European Central Bank has said that Britain could save £96bn if its public services could operate with the efficiency achieved in the US, Australia and Japan – and without reducing actual services.
The notion that the public services were simply under-resourced has been tested to destruction by Gordon Brown. The torrent of public money poured their way has not brought commensurate improvements. What it has done is to leave Britain poorly placed (not "best placed") to deal with the global financial crisis, and with an overhang of debt that will stifle future development and growth.
National Debt is over £800bn and heading for £1tn, and far more than that if the cost of baling out the banks is factored in. A Britain saddled with the costs of paying the interest on that, never mind repaying the debt itself, would see its business and industry intolerably burdened, with its ability to generate the jobs and wealth of the future severely handicapped. It is like a ball and chain tied to the economy.
That debt burden can be diminished in two ways. One is to let the economy grow by tax incentives and deregulation. The other is to cut public spending. The first targets must be waste, profligacy and inefficiency. But after that we must ask which services currently provided by government could be better done outside it, and which should not be done at all.
The enemy of our future prosperity is not the savagery of any spending cuts, but the hesitancy of those not prepared to do what is necessary. It is no time to be squeamish.
Published on Telegraph.co.uk here.Read more...
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