Blog Review 853

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Yes, of course markets fail but then so, for very much the same reasons plus others, do governments.

As a minor example, those who insist upon planning seem not to understand, umm, planning.

One reason might be the paucity of explanation and depth we get from the public service broadcaster.

Do we really think that government, for example, knows more about the car industry than Toyota?

Does Will Hutton know how to run a business....or even a charity?

A most amusing and not entirely mad method of dealing with current problems.

And finally, a bank run in cyberspace.

At what point does it become communism?

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According to new research for The Sunday Times by the Centre for Economics and Business Research, state spending as a percentage of GDP has now reached 49% for the UK as a whole.

That's bad enough as it is – the government now controls practically half of the UK economy – but when you look at the regional figures the picture is even worse.

In the Northeast, state spending is 66.4% of GDP. In Wales, it's 71.6%. And in Northern Ireland, it's a whopping 77.6%.

I don't think the Soviet Republics ever managed to achieve quite that degree of state dominance.

Parliament of Whores

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At the weekend The Sunday Times broke a big story: an undercover investigation found four Labour peers who were prepared to sell amendments to government bills, for sums up to £120,000. Cash-for-laws, if you like.

Needless to say, this has led to renewed calls for reforming the House of Lords. But frankly, I don't see what difference electing the Upper House would make. As PJ O'Rourke put it, " When buying and selling are subject to legislation, the first things to be bought and sold are the legislators." It doesn't matter whether they appointed, elected, or chosen by lot. So long as you give them power to interfere in the private affairs of others, corruption will be an inescapable part of the political system.

It's as simple as that.

Managing the taxpayer's money

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The Tories released a new plan for 'disciplined spending in government' yesterday. It isn't exactly scintillating reading, but it does contain some good stuff. The main proposals are as follows:

• Senior civil servants will have a fiduciary duty to taxpayers
• Financial performance measures to be established for the civil service, with pay and recognition linked to these measures.
• Finance Directors will become the second most senior people in government departments, reporting to a central Office of Financial Management. (At the time of the last National Audit Office report, six departments with a combined budget of £45bn did not even have a Finance Director).
• Details of all items of public spending (over a certain level) to be published online.

I think the last point is the most important one: having to publish public spending online will make public (and parliamentary) scrutiny much easier and more effective, and give government departments a real incentive to avoid waste. At the moment, if you want to find out how your money is being spent, you're probably going to be reliant on parliamentary questions or Freedom of Information requests – a significant barrier to proper accountability.

The Conservatives' paper also contains one real gem, which pretty much sums up the mindset behind 'financial management' in the civil service:

The National School of Government teaches a course for civil servants involved in finance and accounting called Managing Public Money. The stated organisational benefits of the programme are:

• To avoid a Department being disadvantaged in the public expenditure process
  
• To protect the Accounting Officer’s position
  

There is no reference to the taxpayer or how to deliver value for money in the course objectives.

The NSG says “this well-established programme enjoys a prestigious reputation and provides the essential knowledge all finance staff need".'

Says it all, really.

Chinese New Year

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With the Chinese New Year starting yesterday it is worth considering how far the country has come since the death of Mao. Booksmith has just started reading The Elephant and the Dragon by Robyn Meredith. So far it is proving an interesting read. In the opening chapter she gives a vivid description of life before Deng Xiaoping's reforms: very unpleasant. However, life is now considerably better for most following the relative economic freedoms now permitted in much of China. Lets hope political freedoms follow.

Blog Review 852

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A fun time to be a central banker at the moment, don't you think? Although the Zimbabwean one seems to be having more fun than most.

What could it be that would make a magistrate so cynical?

Certain Labour Lords have a record of certain types of actions. That might explain at least some of the cynicism.

It might be stretching things to say that only ill thought out regulation caused the current events, but there certainly were some ill thought out regulations that contributed.

A useful political rubric. If everyone's in agreement then they're wrong.

As an example: even Keynes thought that infrastructure was not a good method of providing a fiscal stimulus.

And finally, what the UN spends our money on.

Economics: three insidious teachings

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Last year in an excellent essay, the formidable Anthony de Jasay set out what he considered to be the three insidious mistakes that were taught to secondary school children in Europe. These were the distribution-independence, the worker-defence and the property "rights" theses.

In regards to the distribution independence thesis, “high school textbooks teach that capitalism, leaving as it does the distribution of income to the free play (or, as some will say, the caprice) of the market, generates inequality. It goes without saying that inequality is bad both because it is "socially" unjust and because it reduces the aggregate "utility" derived from aggregate income." This of course rests on the supposition that income is independent of its distribution, which is of course patently absurd.

 

The worker-defence thesis relies on the idea that employers would abuse workers if "workers' rights" were not defined, extended and bolstered by legislation. Of course, in truth the dominant effect of this legislation is to “create excess supply in the labour market by making employers shun the increased risk of hiring." As a result the bargaining power of workers is weakened.
 

The property “rights" thesis is the idea that property is a social construction, granted by society (read government). In reality property is “generated by contracts and matched by the corresponding contractual obligations. Lending and borrowing, mortgages, leases, partnerships, insurance policies, options and other derivatives represent property "rights." They are derivatives of property, and are offset by the corresponding obligations of counter-parties as assets are offset by liabilities." Thus, property is not the governments to give “rights" to.

 

Mr Jasay was inspired to write this essay by the growing concerns expressed in German and French business circles about the type of economics taught in secondary schools. I have rarely heard of such concern from business people in the UK; in fact most businesses (as part of their corporate social responsibility function) are positively complicit with such views, giving money to charities that vilify the work of business, the freedom of markets and the foundations of capitalism itself.

The future of the US Republicans

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Brian Doherty of Reason thinks that the key to a Republican renaissance is to realize that President Bush’s policies were wrong, not just poorly executed. I’m with Doherty. While Bush always came across as a likeable guy, there are few positive things I can say about his presidency. His administration presided over the fastest increase in federal spending since LBJ. They created a massive new entitlement programme (the prescription drug benefit). They further nationalized education (No Child Left Behind). Their ill-conceived foreign policy cost lives and trashed the American brand. Flagrant abuses of liberal principle – Guantanamo, Abu Ghraib, torture, extraordinary rendition, etc – undermined the USA’s moral credibility. They extended executive power, wielded it incompetently, and rode roughshod over the constitution in the process. It’s a hardly a sparkling record for a ‘conservative’ administration.

Clearly, then, change is needed – but kind of a change will it be?

Well, David Boaz of Cato breaks the party down into four different factions. First, there’s the evangelical/populist wing of the party. For them it’s all about telling people what to do – they are socially conservative, but are not inclined towards small government (Mike Huckabee’s a good example). Then you’ve got the national greatness conservatives, who are keen to demonstrate American might overseas, and want to instil a certain set of values in their citizens at home. They may be ‘conservative’ but they’ve got no ideological attachment to liberty or small government (John McCain probably falls into this camp). Thirdly, there are the business conservatives – people like Mitt Romney, who want government to be pro-business but are relaxed about extending the state (into healthcare, for example) so long as it’s done in a business-friendly way. The final group are small government conservatives and libertarians (like Governor Mark Sanford or Ron Paul) who really do care about freedom and are committed to rolling back the state.

Obviously, I’d like it if the Republicans shifted decisively in favour that fourth group, but a successful political movement will probably need to be a broad church, touching on elements of each. My guess is that the party will continue to be socially-conservative, but will emphasize states’ rights and federalism. It will be patriotic and security conscious, but will adopt a more modest and ‘realist’ approach to foreign relations. And it will shift decisively in favour of limited government and fiscal responsibility (a reaction to the Obama administration’s excesses, as much as anything else) without becoming truly libertarian. Time will tell if I’m right.

A new age of responsibility

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The blame game is played very differently in China and the UK.  In China, the two executives most responsible for the tainted milk scandal get death sentences.  In Gordon Brown’s Britain, no one is to blame for the financial crisis.  Certainly not him nor the Governor of the Bank of England (who’s actually most to blame, see ASI Briefing Financial Crisis: Is regulation cure or cause?, nor Chairman of the FSA, nor any Bank director.  The blame lies, he says, with global events and market failure, all nebulous concepts that cannot be penalised.

In Brown’s world, an engine driver who ignores red signals and runs his train into another is not to blame.  It is a rail network failure.

The FSA was created, inter alia, to prosecute insider dealers.  How many have they prosecuted in 10 years?  Not one.

Obama has proclaimed a new age of responsibility.  Good for him.  Let’s see some recognition of personal responsibility here.  Let’s strip Fred Goodwin of his £500,000 a year pension and let’s put Mervyn King in gaol.

Blog Review 851

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Greed is good....well, in the public sector at least it seems.

And as Polly says, this bonus culture has to go of course.

And as for the fat cats in the charity sector.

It's very important to note that a large part of the disagreement amongst economists about fiscal boosts, spending and tax cuts, is governed not by economics, but by the economists' prior beliefs. Perhaps it shouldn't be this way but it is.

As this chart shows in part.

The OLPC project: great aim, overtaken by a different technology.

And finally, a measure of the times that one of the few liberal statements upon drinking comes from a satire site.