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Tom Clougherty discusses tax cuts on the Today Programme

11 November 2008

11 November 2008

Click here to listen. Novels 'better at explaining world's problems than reports'

6 November 2008

By Stephen Adams, (6 November 2008)

Published in The Telegraph here

People should read best-selling novels like The Kite Runner and The White Tiger rather than academic reports if they really want to understand global issues like poverty and migration, a study has claimed.

Fiction - including poetry - should be taken just as seriously as facts-based research, according to the team from Manchester University and the London School of Economics (LSE).

Novels should be required reading because fiction "does not compromise on complexity, politics or readability in the way that academic literature sometimes does," said Dr Dennis Rodgers from Manchester University's Brooks World Poverty Institute.

He said: "Despite the regular flow of academic studies, expert reports, and policy position papers, it is arguably novelists who do as good a job – if not a better one – of representing and communicating the realities of international development.

"While fiction may not always show a set of presentable research findings, it does not compromise on complexity, politics or readability in the way that academic literature sometimes does.

"And fiction often reaches a much larger and diverse audience than academic work and may therefore be more influential in shaping public knowledge and understanding of development issues."

Khaled Hosseini's The Kite Runner "has arguably done more to educate Western readers about the realities of daily life in Afghanistan under the Taliban and thereafter than any government media campaign, advocacy organisation report, or social science research", said the report.

It also praised the winner of this year's Man Booker Prize, The White Tiger by Aravind Adiga, for its "passionate depiction of the perils and pitfalls of rampant capitalism in contemporary India".

The novel "deftly highlights the social injustice and moral corruption that underpin the country's apparently miraculous economic development during the past decade," it said.

Brick Lane by Bangladesh-born British author Monica Ali, that deals with a young woman who speaks no English coming to London, has arguably "contributed to wider public understandings of global development issues in ways that no academic writing ever has," it concluded.

The report's title - The Fiction of Development: Literary Representation as a Source of Authoritative Knowledge - may give a hint about its authors' political leanings.

But co-author Dr David Lewis, an international development specialist at LSE, defended their argument.

He said: "Storytelling is one of humanity's oldest methods of possessing information and representing reality. The stories, poems and plays we categorise as literary fiction were once accepted in much the same way that scientific discourse is received as authoritative today."

Professor Michael Woolcock, director of the Brooks World Poverty Institute, said they were "not arguing that poets should replace finance ministers."

He said: "Fiction is important because it is often concerned with the basic subject matter of development. This includes things like the promises and perils of encounters between different peoples; the tragic mix of courage, desperation, humour, and deprivation characterising the lives of the down-trodden."

Tom Clougherty, policy director of the Adam Smith Institute, said fiction was "a useful tool in aiding people's understanding, sparking their interest, and humanising issues".

But he warned: "There's a problem. Fiction works by appealing to people's emotions, not their intellect or rationality."

He said issues like poverty and international development were "emotionally charged" and consequently solutions often failed to take into account hard, unpalatable facts.

"Years of aid won't sort out fundamental problems," he said, concluding: "Fiction absolutely can't replace factual, evidence-based analysis."

The Metro: Credit crisis 'is God punishing us'

30 October 2008

October 29, 2008

Published in The Metro here

An Anglican bishop says the credit crunch is God's way of punishing Britain for being too materialistic.

The Rt Rev Wallace Benn, Bishop of Lewes, thinks the country is obsessed with cash, which has a 'stranglehold' over our lives.

The credit crisis has been caused by greed and 'God has allowed it for good', he writes in a newsletter.

The Adam Smith Institute think-tank criticised the comments, saying: 'Many people who have not worshipped materialism have seen their lives made poorer.'

Business Standard: The mechanics of the Chinese miracle

29 October 2008

By Deepak Lal, Senior Fellow in Globalization, Adam Smith Institute (October 29, 2008)

Published in the Business Standard here Credit crunch is 'God's punishment' for nations 'consumed with materialism'

29 October 2008

By Richard Savill

Published in The Telegraph here

An Anglican bishop has claimed the credit crunch is God's way of punishing Britain and other western nations for being too materialistic.
The Bishop of Lewes, the Rt Rev Wallace Benn, has written in a church newsletter that materialism has a "stranglehold over our lives" and that some good may therefore emerge from the crisis.

In the November 2008 newsletter the bishop said: "I believe that God ultimately has allowed this crisis for good.

"Our nation, like all the western nations, has become consumed with materialism. It has a stranglehold on our lives.

"We have found our security in 'securities' and have failed to grasp that nothing is permanent other than God.

"Our confidence has been misplaced. Something was needed to shake that and that is what we are experiencing.

"If this shakes our confidence in mammon (money) and forces us back to our creator and redeemer it will have been worth it!"

"That should be our prayers as Christians. We may all have to suffer a bit, but God is an expert at bringing good out of sad, difficult, even evil situations."

But Eamonn Butler, director at the Adam Smith Institute, said many people who were not materialistic had lost their entire savings.

He said: "The Bishop of Lewes is right that the present crisis has shaken people's faith in financial securities, but it has also shaken their financial security.

"We should remember that it is people's homes, savings and pensions that are under threat. Many people, who have not worshipped money or materialism, have seen their savings disappear and their lives made poorer.

"I find little comfort in this. The spiritual world may be important to people, but they also need to feed and shelter themselves and their families."

Steve Wheeler, 34, an electrician, from Chichester, West Sussex, who has lost his job in the last month, said: "When church leaders come up with something like this it is no wonder less people go to churches on a Sunday.

"You have to ask yourself what sort of world these bishops are living in when they say the credit crunch could be a good thing."

The Guardian: A waste of time

13 October 2008

by Tim Worstall, Adam Smith Fellw (October 13, 2008)

published in The Guardian here

We need a proper cost analysis of the time we are now required to spend recycling, compared with its benefits: is it worth it?

The government thinks that your time is worth nothing. At least, that's the implication of this written answer in the Commons last week.

The UKip MP, Dr Bob Spink, asked the environment secretary "what estimate he has made of the average time per year spent by a household in sorting and recycling rubbish." An important question of course, for that time spent sorting items to be recycled is obviously a cost of such recycling schemes. The answer came back from Jane Kennedy, minister of state in the department, "No such estimate has been made".

An answer that means that, quite simply, we do not know whether recycling is a good idea or not. For we don't in fact know whether it costs us more to do it than we save by doing it ... for those who have imposed it upon us have not considered one of the major costs associated with doing it.

Starting from the very beginning: your time has a value. This isn't restricted to your working hours either: the time you spend cuddling your inamorata, building a model railway or in contemplation of a pint of Old Wallop has a value to you. That is why you do these things, because you value them. If, by law, we are going to insist that you give up some of that time, to do something we tell you to do, we need to value the time you're being forced to give up. Quite what value we can put on it is a little fraught. It might be that £10 an hour, something like the average wage across the country, is the right number. It might be £5.73 an hour, for that is the minimum wage, the figure below which it is illegal for you to sell your time. But it is some cash amount per hour, for you yourself have already decided that you'd prefer the cuddling, modelling or contemplation rather than working that extra hour for such a sum.

We'd also like to know how many hours you are being asked to give up to aid in the recycling effort, thus the question asked above. I've received a similar response when asking the same department directly: they don't know because they've never bothered to consider the point. There's almost no academic research on this either, the amount of time it takes to prepare to recycle. The best I've been able to find is something from Seattle, showing that it takes a household 16 minutes per week for a simple programme and 45 minutes for one including food and garden waste. We have some 24 million households in the UK, so for a simple system we're asking everyone to give up 6 million hours a week or around 300 million a year. At minimum wage this is a £1.8bn minimum cost of such a system. At the longer estimate of hours for a more complex system and using the average wage, we have a cost of £9bn. These are the numbers we now need to plug into our cost benefit analysis of whether we should in fact be recycling.

Now don't get me wrong, I'm not against all recycling: no one who has bought and sold scrap metal for a living would be so stupid as to say that none of it makes sense. But we do need distinguish between things it is sensible to recycle and things that it is not. Steel, aluminium, copper, yes, clearly so, these make profits even when all of the costs are included and profit is the market's way of working out whether you are in fact adding value in a process. There are also other factors that we might want to include on our benefits side, things that aren't taken account of in market pricing. Say, perhaps, the methane given off from landfills, even the aesthetics of landfills themselves. Fine, add away: then we can work out whether recycling a particular product in a particular way actually makes sense or not. We assign values to all of the costs and to all of the benefits, tot them up and if B is higher than C then it's a good idea. If C is higher than B then it's a bad one for it makes us poorer by doing it.

It's also true that wittering on about "saving resources" doesn't get around this point. For time itself is a resource, one with a value as above. Indeed, it's not a difficult argument to make that time is the only truly non-renewable resource that we have and thus one that we really don't want to waste.

Now I agree that there's a little of tilting at windmills to all of this. Our targets for recycling aren't actually something in the power of our own government to alter. They are fed to us from Brussels, for matters environmental are a sole competence of the European Union. Local councils will be fined if they don't meet the targets and there's an end to the matter.

However, a few more numbers. We were told in the Waste Not, Want Not report that waste disposal was costing us £1.6bn a year and that if we didn't do something this could rise to £3.2bn. We thus needed to recycle more and reduce this cost … but hang on; recycling more also imposes this huge cost of our time. So are we in fact saving resources at all by pushing out our plans to recycle ever more of our waste? Or are we in fact consuming more resources than we're saving?

Here at Cif there are enough environmental and green type authors whose knowledge and brains we can pick. I'm perfectly happy to agree that the numbers I've used for the valuation of our time are back-of-the envelope stuff: however, they're the only attempt so far that anyone has made at all for the UK, as above, even the government hasn't tried to calculate them. So the labour cost alone of a simple recycling scheme is some £1.8bn a year and of a more extensive one, of the type being rolled out, is perhaps £9bn a year. I would say that this is vastly more than any benefits that we receive from that process. It's greater than the resources saved, it's greater than any environmental benefit, greater than any reduction in transport or emissions, greater than any rational calculation of what we get back for what we're being forced to put in.

So how about it? Caroline Lucas, George Monbiot, Oliver Tickell, Mark Lynas, Tony Juniper – there are enough people around here who should be able to prove me wrong. How much time is required to recycle, how should that time be valued, what are the benefits (valued in money please, so that we can compare costs with benefits), whether those benefits are environmental or more direct and, finally, show us that the benefits are greater than the costs. Please do add in CO2 savings for example, using the Stern review's estimate of social cost.

And no, saying that we've a new state religion and that we should all be required to worship Gaia for an appropriate time each week won't cut it. Anyway, it should be easy to provide these numbers – even though the government clearly hasn't done a proper cost benefit analysis, surely those urging us all to recycle more will have done so – won't they?

France 24: Should the Nobel prize in economics be abolished?

13 October 2008

By Y. Euny Hong (13 October 2008)

Published in France 24 here

Alfred Nobel made no mention in his will of an economics prize; it was added in 1969. With world markets tanking, some are questioning whether the prize should be abolished.

In an economic climate that many have called the worst since the Great Depression of the 1930s, the awarding of this year’s Nobel Prize in Economics almost seems like a bad joke.

Come to that, there have long been detractors who thought the economics award was a bad joke in itself. Almost since its inception in 1969, some members of the Swedish Academy have called for its abolition, as have descendants of the Nobel family. One winner, Friedrich Hayek, who won the prize in 1974, subsequently said that had his opinion been consulted, he would “have decidedly advised against" its creation.

In fact, the original will and testament of Alfred Nobel, drafted in 1895 (a year before his death), made no mention of a prize for economics. It was in fact a creation of the central bank of Sweden, and is officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Purists insist that it is in fact not a proper Nobel Prize but an adjunct prize.

Eamonn Butler, head of the Adam Smith Institute in London and the author of a book on Hayek, concurs somewhat with his mentor. “I’m sceptical as to whether there should be a Nobel Prize in economics. It’s got a way to go," he told FRANCE 24.

Like other critics, Butler believes that economics is a less exact science than physics or chemistry. “The standard joke is if you take two economists, you get three points of view. It’s not like physics, where you can test things and then everyone can agree at the end of the test," he says. “Economics is complicated. It’s a human science, and human beings are unpredictable."

Butler does not go so far as to blame economists for the current crash. He says economics is “academic, very rarefied. Its link with what’s happening [in today’s markets] is tangential. It is too much based on mathematical theorems with little basis in reality."

Are economists’ hands dirty ?

There are those, and not just conspiracy theorists, who believe that rather than helping the economy, Nobel economic laureates have been responsible for market crashes; that the prestige of the prize gives their theories the force of gospel truth, thus affecting investment decisions.

The most notorious example came in 1997, when economists Robert C. Merton and Myron Scholes were honoured for their work (with the late Fischer Black) on the pricing of options - complex financial instruments spun off from traditional investments. Scholes had been one of the co-founders of a boutique hedge fund in the USA called Long Term Capital Management (LTCM). The fund made annual returns of over 40% in its first years; then, in 1998, it lost $4.6 billion overnight, and was bailed out by the US government - the most controversial bank bailout in US history prior to the current financial crisis. Its sensational failure was attributed to holes in the Black-Scholes theorem, which did not allow sufficient room for market anomalies.

Tim Harford, a columnist at the Financial Times, counter-argued in an interview with FRANCE 24 that the current financial crisis arose not because of economists, but because of governments ignoring economists. He notes that Yale economist Robert Schiller has been warning of the housing bubble for years.

Butler, an economist himself, does not question the usefulness of economics as a discipline. He does warn, however, that economists should not directly involve themselves in policymaking. He quotes his mentor: “Hayek used to say the success of a country was inversely proportional to the number of economists. I don’t think he was wrong."

The Times: Do you need a mortgage? Just join a party

13 October 2008

by Tim Worstall, Adam Smith Fellow (October 13 2008)

Published in The Times here

There's a surprise benefit of nationalising the banks

Look on the bright side: we may be about to solve one of our most intractable political problems - the financing of political parties.

You'll recall that the various attempts to do so recently have always foundered on the issue of large donations. If the Tories can't get millions from companies or those who own them, why should Labour be able to get the same from unions? The travails of the banks allow us to slice through that Gordian knot.

A short-term nationalisation of the banking sector may well be both necessary and the right thing to do. But I think we should go farther and make such a nationalisation permanent. Yes, publicly owned and publicly accountable: that's the way forward for our banks. Not out of any desire to control the commanding heights of the economy, but rather to underpin the finances of that most essential part of a democratic system, the political party.

For publicly accountable does not mean accountable to you and me, nor to the public. It means accountable to our elected representatives. And what happens when politicians control the access to money is something we know about. As P.J.O'Rourke has pointed out, legislation that determines what is bought and sold leads to legislators themselves being bought and sold.

Long-term nationalisation of the sources of finance, though, would be a better deal: that way we'd only need to borrow a politician, not buy one. Need your credit card applications approved? That would be, say, a few weekends' leafleting. A mortgage? That might require actual membership of a party. Which businessman, looking for hundreds of millions to build a new factory or launch a new company, would not remember to ask: “And so how are the election funds, then?"

Who knows, perhaps we will find that politicians, taking advantage of their privileged access in borrowing money, will invest in businesses themselves: it would be nice to see some of them with experience of the real economy. In various places around the world, such as Italy or Spain, the appointment of bankers depends on political affiliation - and the Italians and Spanish have a much better work-life balance than the British do.

Who could possibly object? This is not an echo of Maundy Gregory, the celebrated seller of peerages between the wars. His problem was he just didn't think big. Of course we should hand over the allocation of finance to the politicians: they'll never again run out of money to buy our votes.

Tim Worstall is a blogger and Fellow of the Adam Smith Institute

The Scotsman: Don't knock the system: politics caused this crisis of capitalism

6 October 2008

By Eamonn Butler (October 6, 2008)

Published in The Scotsman here

Published in The Korea Times here

Published in Turkey Daily News here

Published in the South China Morning Post here

Published in the Jerusalem Post here

Published in The Frontier Post here

Published in European Voice here

Published in The Examiner here

Published in The China Post here

Published in The Daily News here

Published in The Financial Mirror here

With turmoil in the world's markets, politicians and commentators have been demanding for more regulation and control of the financial sector. Their reaction is entirely predictable — but entirely wrong.

This crisis was not caused by capitalism being fatally flawed. It was caused by politicians forcing banks to give out bad loans, monetary authorities flooding the West with cheap credit and regulators being asleep at the wheel.

Indeed, one can date its origin precisely, to October 12, 1977, when U.S. President Jimmy Carter signed the ``anti-redlining" law. Before then, lenders generally denied loans to people in poor neighborhoods, believing that the local mix of low incomes and a weak housing market would lead to many people defaulting.

But the politicians — with good intent — wanted to make home ownership available to all Americans. So lenders were forced into giving out risky mortgages: what we now call ``subprime" loans.

By 1985, this torrent of bad business had nearly bankrupted America's Saving & Loan institutions. So the government took on their bad debt and encouraged them to consolidate — unwittingly making them too big to be allowed to fail.

Meanwhile, several other problems worried the monetary authorities. In 1987, the U.S. stock market plummeted, fearing that other lenders could collapse. Asia's markets sank.

Mexico, Argentina and even Russia defaulted on their loans. Overvalued dotcom stocks crashed. And then there was 9/11. Each time, Western authorities responded by flooding the markets with cash.

After 9/11, the Federal Reserve took U.S. interest rates down from 6.25 percent to just 1 percent, fearing this blow to investor confidence could sink the markets. But again, their action boosted the wrong market by sustaining the credit bubble. With loans now six times cheaper, mortgage applications soared.

Lenders, awash with the Fed's cash, happily issued more subprime loans. With more people buying homes, house prices soared. Buying a house seemed a certain money-maker, so more people got more loans and bought more houses, continuing the spiral.

In London, that other great financial center, a decade of government overspending saw public debt soaring. Private debt and house prices soared even faster.

So for 10 years, economies boomed, the champagne flowed and everyone had a great party. But it was financed by fake money — printed by the authorities solely to keep the party going. When the dawn of realization broke, the long party turned into the inevitable hangover we suffer today.

The regulators, meanwhile, were unconscious on the floor. The U.S. mortgage institutions, Fannie Mae and Freddie Mac, had 200 regulators on their case but still went bust for $5 trillion.

These semi-governmental companies allowed investors to believe the bad mortgages were guaranteed by the government, causing credit rating agencies to give their dodgy bonds high scores.

Mortgage lenders re-packaged these bad debts round the world but nobody cried foul. Institutions were lending 30 times their asset base.

Though the Bank of England knew that the huge mortgage lender Northern Rock was failing, the 2,500 staff of Britain's financial regulator seemed to do nothing until it actually collapsed six months later. Even then, they had no coherent plan.

When the government is persuading the casino to hand out free chips and the regulators are standing drinks at the bar, you shouldn't be surprised if the customers place a few risky bets.

It's the management and not the system that deserves our scorn for breaking the basic rules of economics: There is no such thing as a free lunch.

Any sustainable solution has to get finance back to those basics. But the U.S. bailout package includes so many treats for special interests that it could save the culprits without helping the victims.

But it's a big world out there. China, now the world's fourth biggest economy, continues to grow at nearly 10 percent. India and other emerging economies are expanding too. Even with the West in recession, world growth next year will probably be near 4 percent. That's pretty good.

Western capitalism has been dealt a severe blow by inept politicians and officials. But global capitalism continues to pull hundreds of millions of people out of poverty. It's a great system. Let's not break it.

British Journal of Nursing: Top ups are the welcome next stage for public private partnerships

1 October 2008

Click here to read Dr Helen Evans, Adam Smith Institute Fellow in Healthcare (October 1, 2008)


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