Blog Review 896

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There's more management wisdom in this blog post than in most MBA courses.

No, it's true, nominal prices really are sticky downwards.

Technical, but what went wrong at AIG.

If rewards for failure are to be named and shamed in the private sector, should that also apply to Ministers in the public sector?

On the valuse or not of teacher training courses.

If a politician is going to hire an expert it's probably a good idea that the politician pays attention to what the expert says, no?

And finally, an old photo series explains new events.

The Recession: Causes and Cures

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The present recession is the direct consequence of first, the formation and then the bursting of speculative asset-price bubbles in the housing and financial markets, made possible by a combination of three factors. An excessive growth of liquidity in the financial markets was tolerated by the central banks,  the Federal Reserve and the Bank of England. The behaviour of these two bodies encouraged the development of two significant beliefs amongst financial market players:  that debtors would always be bailed out by the increased availability of cheap money, and the belief that many financial institutions were too big  to be allowed to fail. The combined effect of these three factors was to encourage behaviour on the part of market participants that ranged from the reckless to the fraudulent. Lesser contributory factors included the failure of regulatory agencies to identify, let alone restrain, such behaviour, and the pressure exerted on the commercial banks by Governments in both countries to make extensive housing loans to households who were poor credit risks in the name of ‘social inclusion’.

Those who were in charge of the commercial banks and other financial institutions  that failed have, rightly, either resigned or been dismissed. No one would entrust them with the responsibility of leading the recovery of the institutions they made bankrupt. However, no such principles seem to apply to those policymakers who were responsible for the systems of monetary control and financial market regulation that failed so spectacularly in both London and New York. These failures may be attributable to the fact that the policymakers concerned were relying on an inadequate understanding of how recessions come about, and how financial markets behave. Their variable and sometimes contradictory responses seem to bear this out.

Just as there is no medical way to escape a hangover, other than to avoid becoming drunk, so the only way to avoid having a recession is not to have the antecedent boom. There may be, however, some ways to mitigate the worst effects of a recession. The key principle must be to encourage the restoration of a climate of confidence in which businesspeople can seek profitable opportunities. The most direct way in which a government can bring this about this would be by a permanent  reduction of taxes on business. To be effective, this must be financed, not by increasing borrowing and thus future taxes, but by cutting unnecessary government expenditure.

A financial tea party

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The people are revolting; we can be fairly certain that that is probably how the majority of politicians view the populace below them. In much the same way that the Parliamentarians of the late 18th Century viewed the North American colonists, especially after a particularly truculent tea party in Boston. The colonists wanted something in return for the taxes  the Crown was asking of them, specifically, representation in the English parliament, while the Crown was attempting to usurp this by forcing tea upon them. The act of throwing the tea into Boston Harbour is now synonymous with rebellion against higher powers abusing their positions to enslave.

A few weeks ago a new call to arms was raised by Rick Santelli in his now ‘infamous’ conversation with other presenters on CNBC where he exposed the true feelings of many in the US to President Obama’s bailout. He ended his piece by calling for a Tea Party in Chicago to protest against the bailout and the uncontrollable government spending. As such, there have already have been some protests across America, but now forces mobilizing for a larger event on Tax Day, April 15th 2009, Nationwide Tax Day Tea Party. Yet to reach the non-violent heights of 1773 it can only be a matter of time before money starts moving away from the shores of the US, as businesses and individuals look to keep their property safe from the tax collector.

It is rare for violence to flare in relation to taxation, especially in these modern times where capital is fluid and can be moved at the touch of a button. The coming financial revolution will not be one that is characterized by violence but by outflows of capital moving away from overbearing high tax, wasteful countries. The bailouts are a characteristic of wasteful spending: the purchasing of bad debts and even worse businesses. The time has come to starve the pigs at the trough.

NB. Our blogging contributor and friend Andrew Ian Dodge is organizing the Tax Day Tea Party in Maine, click here or on Facebook for more information.

Seasteading: Take to the waves

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When you run out of land here is a simple solution: move to the sea. Despite the hardships of living at sea, Patri Friedman and his organization The Seasteading Institute plan to place their first sovereign nation off the coast of San Francisco. Leaving the laws, regulations, and taxes of the United States and other major nations behind, seasteading nations, Friedman hopes, will become the new homes of many liberty-craving citizens of the world.

For some observers, this concept may conjure up images of the 60s counterculture movement toward communes, but Friedman thinks that the first expatriates will not have such liberal lifestyle habits. Friedman believes that “'steaders will not be nudists, recreational drug users, pacifists, environmentalists, or religious groups hoping to create an enclave far away from secular influences." He plans to bring successful entrepreneurs, investors, and even doctors out to the sea dwellings. You could end up living next door to Donald Trump or Alan Sugar (not sure if this is a good thing).

If you want to find out more, Patri Priedman will be talking at the ASI on March 31st 2009, 6.30pm to 8.30pm where he will discuss seasteading and all that it encompasses. To find out more click here. If you would like to attend please email events@old.adamsmith.org to be put on the guest list.

Blog Review 895

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Climate change isn't a major preoccupation around here. But markets, even constructed ones, really do work.

When even Pat Buchanan is making noises about drug legalisation maybe we're actually getting somewhere?

Many seem to think that the rapid privatisation in the Eastern European states killed the workers. Turns out that this isn't in fact true.

There are indeed reasons to think that the various stimulus programmes will make things worse, not better.

An interesting example of truly abysmal science reporting.

Is it the people in government who are incompetent or is it government that is incompetent?

And finally, describing a new political party.

Transparent taxation

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The Freedom of Information Act is supposed to make government accountable. But in order to make it work, you have to know what information needs to be eked out, and you have to have the stamina to go through the process of putting in FOI requests – often against strong bureaucratic resistance.

I suggest, instead, that every cheque that government bodies issue, and every contract they sign, should go straight up on the web. Not just for departments of state and Parliament, but for local authorities, education authorities, NHS boards, even school governors' boards. Yes, it would be a mass of disjointed information. But it would be the raw material by which newspapers and the concerned public could spot corruption and waste.

It would encourage a wider range of people to stand for election to public bodies like local councils: many people, looking at where the money goes, might well conclude that they could spend it more wisely. And when they are elected, they would be much keener on taking responsibility for the spending, rather than just letting the hired professionals get on with it. After all, their decisions would be in the spotlight.

Perks, and contracts to 'friendly' suppliers, would be exposed. If we want to root out corruption in other governments, we should lead by example and expose it in our own. And businesspeople too, could look at how much public bodies pay for things and tell them – or us – if they could be bought a lot cheaper. So government contracting would become much more competitive.

At last we could see, openly, exactly where our money is going, which councillors are awarding contracts to their friends, and how much of our cash goes on MPs' perks. Isn't that a better, more honest way to run government than making people fight for such information?

Dr Eamonn Butler's new book, The Rotten State of Britain, is published later this month.

The best of both worlds

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Vince Cable is often portrayed as the economic guru of the Commons. However, his latest speech to the Lib Dem spring conference has left me unsure of his opinions.

I find myself agreeing with him on a number of issues. For example, civil servants should not ‘expect’ a bonus, even if they perform poorly. At the moment, if they perform well, they are given bonuses in reward, and if they fail to meet targets, they are given bonuses as incentives to do better. This is clearly absurd and counterproductive, reinforcing an inefficient public sector workforce.

However, I don’t agree that high earners within private companies should have their salaries disclosed. Firstly, a person’s salary is a private arrangement between themselves and their employers – the government has no right intruding into this aspect of our lives. Also, if every ‘high’ earner were forced to disclose their earnings, they would have even more of an incentive to hide their wealth abroad, resulting in a net loss for our economy.

Fundamentally, there is big difference between working in the private and public sectors, although of late these lines have become merged. Public sector workers enjoy job security, public sector pensions and the opportunity to serve the public, while private sector workers do not enjoy such similar graces, as many are currently discovering. Top civil servants should not be allowed to enjoy the benefits of both worlds – if they are continue to enjoy private sector bonuses they should face similar risks.

Environmentalism fueled bushfires

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Ben O'Neill has written a superb piece on the excellent Von Mises website about the Victorian Bushfires. Here is a brief synopsis of his arguments. Click here to read the full paper.

Australia last month experienced its most devastating bushfires in history. Fires raged in the state of Victoria on an unprecedented scale, killing over 200 people and destroying 1,834 homes. By comparison the 1983 “Ash Wednesday" bushfire killed 75 people and back in 1939 on “Black Friday" 71 people died. In fact, in all previous such fires - since reporting of bushfires started in the 17th century - a total of 642 have perished.

The immediate possible causes of the fires include arson, discarded cigarette butts, faulty power lines and lightning strikes. However, these minor events escalated into infernos only because of extremely high fuel loads throughout the state's bushland. The reason?

For years, local governments have neglected to manage fire hazards on their land in order to be faithful to the principles of environmentalism — a philosophy that contends that nature has intrinsic value that must be preserved, regardless of any use it has to man. The result has been that people have sacrificed their prosperity and even survival in an attempt to preserve the unspoiled sanctity of nature.

Expect Change4Life

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It seems TIGA, the European game makers association, is a might peeved with a campaign by the UK government called Change4Life. The first advert from these people shows a child with a gamepad in its hand to highlight "health risks" of game playing. Sega and Atari are both asking for the government to defend the advert's claims. Both TIGA and the MCV have filed a complaint with the advertising standards commission over the advertisement.

 In the complaint TIGA has stated the following:

In contrast, many video games are mentally stimulating, potentially educational and social and some involve physical exercise. Brain Training, Wii Fit, Civilisation, Singstar and Buzz are cases in point.

Considering the game industry is one of the few things still doing fairly well in the UK, it's odd that the Government is trying to hurt the industry's sales by such shock tactics. Is this yet another case of one government department (Health), not clearing something with the other (BERR) first?

Considering the exodus of UK firms away from the high taxation of Brown's government, another incentive like this one isn't exactly well timed.

What is the difference between Keynesians, Monetarists and Austrians?

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For Keynesians, government is the spender of last resort;
For Monetarists, government is the lender of last resort;
For Austrians, government really is the last resort!