Blog Review 897

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Equality's a big thing in lefty circles. Pity they don't actually mean it all that often.

And there's also lefty big style rewards at the top while the workers get fired.

If you're going to nationalise the banks then you do need to use a little bit of logic in deciding how and which ones.

To be hoped for of course, but it's very hopeful to think that this government will lead us to smaller government.

And more on this government. There are some things which government simply has to do and they don't do these essential tasks well if they continually try to do things which government doesn't need to do.

(Sweary alert) It seems obvious that this government still hasn't quite grasped the concept of competition as yet.

And finally, St Augustine and the Obamessiah.

Wake up, cut public spending

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In yesterday's Times, Daniel Finkelstein wrote:

Welcome to the era of no money. The central fact of British politics in the next ten years, and perhaps longer, is not hard to spot. British politics isn't going to be dominated by interesting debates on the future of capitalism. It isn't going to be the stage for a revival of interest in democratic socialism. It isn't going to play host to the interplay of competing ambitious projects. No. We're in for a hard slog. Because what British politics is going to be about in the next ten years is living with the consequences of the State being broke, of the Government running out of money.

I think he's right about that, and I also think he's correct when he points out that the politicians (of all three parties) haven't yet realized how drastically things have changed. By and large, they're all going on as merrily as before, proposing more spending here, a new government programme or two there, and so on.

It's just not realistic. As Finkelstein points out, the IFS says it'll be at least 2030 before the official national debt returns to below 40% of GDP. Of course, that assumes the Treasury's predictions are correct, and many analysts would take a more pessimistic view.

There's one point on which I would strongly disagree with Finkelstein, however, and that's his assertion that the government already has "very difficult, tough plans" to cut spending. They don't. All they are talking about doing is reducing the rate of public spending to 1.1% a year from 2011/12 to 2013/14. It's a pathetic effort.

What you have to realize is that public spending has doubled since 1997, to more well in excess of £600bn. And for what? It's not like government has become twice as effective. In reality, I guarantee you could easily cut 15-20 percent of public spending (that's about £100bn a year) without it having any discernable impact on frontline services. All that's required is the political will to do it.

Abusive taxation

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When their snouts hit the bottom of the trough, politicians have to develop new money flows so that they can survive a little longer. You only have to look as far as the Empire State to realise that their food is getting short, especially as they are facing a $14bn deficit. Felix Ortiz has put forward a bill that would see patrons of strip clubs or topless bars charged $10 every time they visit them. His reasoning behind this particular tax is that it will raise $500m for the, “ victims of human trafficking, domestic violence, sexual abuse and child prostitution." And it has nothing to do with the massive hole in the NY State’s budget.

Even Governor Paterson has got in on the idea of taxing all that moves. His pronouncements have included the following:

...a sales tax on numerous items including digital music and movie downloads; satellite television and radio; cable television; entertainment venues such as theaters, race tracks, bowling alleys, swim clubs, golf clubs, movies, sporting events, and amusement parks. Other proposed taxes included an 18 percent "fat tax" on soda, and he wanted to tax the full price of an item when a coupon is used. Paterson was also going to eliminate the no-tax rule on clothing under $110..

All of which are of course to change the bad behaviour of those who do not know what’s good for them! Government has seriously crossed the line. When times are hard for government it undoubtedly means they will be worse for the citizens; even though taxing them further will only hinder any move towards growth. It would be better if we could just let government go bust, leaving this abject attempt at democracy to disappear quietly into the night.

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.