The happiest people?

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Nicholas D. Krist of the New York Times claims that Costa Rica is one of the happiest places in the world because it has abolished its army and spends that money instead on education. He might be right, but first there would have to be some indication that it is indeed one of the best places to live and that its education system is in fact good (not just expensive). That doesn't look like happening any time soon:

• Legatum Prosperity Index: 32/104
• Average Life Satisfaction Ranking: 19/104
• Per Capita GDP Ranking: 53/104
• WEF Global Competitiveness Index: 55/133
• UN Human Development Index: 50/179
• Heritage/WSJ Economic Freedom Index: 46/178
• TI Corruption Perceptions Index: 47/180
• Vision of Humanity Global Peace Index: 29/144

School accountability

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A report released today by the Children, Schools and Families Committee, entitled School Accountability, paints a highly uncomplimentary picture of the government, Ofsted and the regulations and impositions upon the schools of this country.

It is the same old story. Despite the best of intentions, “the Government has continued to subject schools to a bewildering array of new initiatives". The disease is simple enough to diagnose. But it could get worse with the government’s 21st Century Schools White Paper signaling “even greater complexity in an already overly complex system of school accountability and improvement initiatives".

The report is highly critical of the government:

The complexity of the school accountability and improvement system in England is creating a barrier to genuine school improvement based on the needs of individual schools and their pupils. We support the message in the 21st Century Schools White Paper, that schools should be empowered to take charge of their own improvement processes. However, the Government’s continuing tendency to impose serial policy initiatives on schools belies this message and the relentless pace of reform has taken its toll on schools and their capacity to deliver a balanced education to their pupils. We urge the Government to refrain from introducing frequent reforms and allow schools a period of consolidation.

Ofsted is also given a firm and fair wrap on the knuckles:

We note that Ofsted has a duty to encourage improvement in schools. However, we do not accept that Ofsted necessarily has an active role to play in school improvement. It is Ofsted’s role to evaluate a school’s performance across its many areas of responsibility and to identify issues which need to be addressed so that a school can be set on the path to improvement. Ofsted has neither the time nor resources to be an active participant in the improvement process which takes place following inspection, aside from the occasional monitoring visit to verify progress.

 It acknowledges the unintended consequence of the inspectorate system:

[M]any schools feel so constrained by the fear of failure according to the narrow criteria of the Tables that they resort to measures such as teaching to the test, narrowing the curriculum, an inappropriate focusing of resources on borderline candidates, and encouraging pupils towards ‘easier’ qualifications, all in an effort to maximise their performance data.

And even sketches out some enlightening conclusions:

We are persuaded that self-evaluation—as an iterative, reflexive and continuous process, embedded in the culture of a school—is a highly effective means for a school to consolidate success and secure improvement across the full range of its activities. It is applicable, not just to its academic performance, but across the full range of a school’s influence over the well-being of the children who learn there and the community outside.

There is also some good stuff about localising power away from central government, but despite an accurate diagnosis of the problem the report delivers no meaningful cure. Even with all the failure, they are still ‘satisfied that schools should be held publically [read governmentally] accountable for their performance as providers of an important public service’. Yet unless the state school system is returned to the free market, we will never see any real and lasting improvement. Whatever the frequency or nature of testing, Ofsted will only be measuring relative levels of failure.

The report should follow the logic of its own conclusion:

It is time for the Government to allow schools to refocus their efforts on what matters: children. For too long, schools have struggled to cope with changing priorities, constant waves of new initiatives from central government, and the stresses and distortions caused by performance tables and targets.

Caution: Government warnings can damage your health

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Those who hoped for a let-up in the blitz of government warnings that were so prominent at Christmas have been disappointed. Now government agencies try to ride the tide of New Year resolutions, urging behavioural changes upon the population, and giving grim warning of the consequences of not doing so. It has been a boon for the advertising industry and for the media which have benefitted from the bonanza of taxpayer cash funding these campaigns, but there are questions as to whether it achieves any good.

Since stress is regarded as a big killer, exacerbating many other conditions as well as causing its own problems, the wisdom of exposing us all to the stress of this relentless advertising has to be questioned. They want us to treat every meal as a minefield rather than as a source of relaxed pleasure. Is there too much sugar? Too many saturated fats? We are made to feel guilty about eating butter and cream, and made anxious that we might be exceeding our day's quota of salt. And so it goes on. That stress-reducing drink after work now has numbers of alcohol units mentally written upon it for us to fret about, and of course any smokers who want to relax and reduce their stress levels with a cigarette now have to do it in the snow, and feel outcasts as well as guilt-ridden.

Government environmental advertising is adding to stress levels as well. Now we are supposed to fret about ways of traveling five fewer miles a week, or turning thermostats down.

If, as is likely, we have a new government this year, one of its first moves should be to stop all such advertising. Instead of trying to make people feel miserable and guilty, especially at holiday times, it should allow them to relax and enjoy themselves, unbombarded by exhortations to worry about what they are doing. The theme should be lighten up, enjoy life, relax. There's much to enjoy about life, and we don't need killjoys to spoil it, especially those who waste huge quantities of public money in doing so.

There is no equilibrium position in economic activity

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7. There is no equilibrium position in economic activity.

Economists used to talk, and some still do, of the equilibrium position at which supply meets demand. Demand generally decreases as price rises, while more suppliers will tend to enter the market as prices rise. The equilibrium price is supposed to the price at which the supply exactly matches the demand. People use this (and other) 'equilibrium' notions to derive equations which aim to describe how an economy behaves.

The problem is that equilibria are entirely theoretical abstractions and do not occur in real economies. The real economy is characterized by motion. There never is a point at which supply meets demand. Demand changes from moment to moment, and so does supply. There are countless economic actions taking place every moment as potential consumers change their positions on whether they are in the market for particular items, and potential producers decide whether or not to put more produce on sale. Even further back, producers are deciding whether to commit resources now to augment production in a few months time, in anticipation of what demand might be.

At no point does the economy stop and allow itself to be examined. To study a frozen moment of it would be like trying to study a motionless human body. The body is constantly in motion taking air in and out, pulsing blood through veins and arteries, and sending neurons between cells. To study it at rest is to miss the whole point of it, its motion. Even a body at apparent rest is a mass of motion as information crosses between brain cells. The economy is characterized by constant change as it responds to the inputs of countless individuals. People do not respond to abstract economic equilibria; they respond to the changes actually taking place in front of them in the real economy, and their behaviour cannot be abstracted and studied as if it were a response to stationary conditions.

Inconveniently for econometricians, the numbers which describe an economy are changing from moment to moment, and equations which work with particular values can lose sight of the economy's most salient characteristic: it is a process.

Attempts have been made to bypass these drawbacks by using Dynamic Stochastic General Equilibrium (DSGE) models which try to factor in the preferences of the participants, and to account for random shocks to the economy. They attempt dynamic modeling, but face the problem that real economies develop in non-linear ways, and that people's behaviour changes in response to inherently unpredictable events.

This is part of Dr Pirie's ongoing series: Philosophical Observations on Economics.

The tea party

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People across the United States are switching on and tuning in to the spirit of their founding fathers. Tired of government ineptitude, many are looking to overturn the status quo. Enter stage right: the tea party movement.

The movement is a modern political phenomenon and will likely not be easily swept away until its message has been heard, no matter the actions of the donkeys and elephants. As David Brooks writes in the New York Times:

According to the NBC News/Wall Street Journal poll, 41 percent of Americans have a positive view of the tea party movement. Only 35 percent of Americans have a positive view of the Democrats and only 28 percent have a positive view of the Republican Party.

And perhaps even more pertinently:

The movement is especially popular among independents. The Rasmussen organization asked independent voters whom they would support in a generic election between a Democrat, a Republican and a tea party candidate. The tea party candidate won, with 33 percent of independents. Undecided came in second with 30 percent. The Democrats came in third with 25 percent and the Republicans fourth with 12 percent.

For David Brooks though, the desire for a reduction in government is connected to a general ‘sour mood’ across the country. For Brooks, this is a widespread negative reaction to the beliefs of the ‘educated class’ (think global warming, gun control etc.). As well as being a rather patronizing thesis, I think Mr Brooks really misses the point and spirit of the movement. These people are not only reacting against 'elite' culture and control, but are also inspired by the alternative: the restoration of their liberty, the principles of their Constitution.

To claim, as Mr Brooks does, that the tea party movement is ‘defined by what they are against’ is unfair. Firstly, It should be taken as a given that any man, woman or child with an ounce of freedom running through their veins is against a whole lot that the government is doing in the United States. But more importantly, they are clearly best defined by what they are for, not against, namely life, liberty and pursuit of happiness.

Read Andrew Ian Dodge here to find out more.

Teaching right and wrong

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Teachers have been instructed in some areas to teach their pupils the wrongs of "file-sharing," but apparently they don't seem to be getting anywhere. According to an article in the Scotsman teachers are finding it hard to explain why illegal downloading is bad and even what it means.

In a 2003 Gallup Youth Survey, only 15 percent of youngsters aged 13 to 17 thought that "in general" downloading music was "morally wrong". Yet 81 per cent agreed cheating in tests was morally wrong.

As the article properly points out, its not a clear cut issue. The consequences are hard to explain because there is unlikely to be any outcome should a child admit that they are illegally downloading.Considering many teachers have a hard time teaching children the difference between right and wrong, asking them to explain the intricacies of file-sharing illegality might just be too much to ask.

Coshed bankers: Goldman Sachs' relocation plans

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It is richly ironic that Goldman Sachs is now reported to be reviewing whether to relocate some of its spectacularly successful money making operation out of the UK to more conducive climes. The current Government’s tax and regulatory policies are identified as the trigger for this potential move. The prospect of handing over piles of cash to the UK Treasury to meet spiralling tax demands is clearly sticking in the collective Goldman gullet.

Yet Goldman Sachs has been one of the staunchest supporters of New Labour. The bank’s Mancunian chief economist, Jim O’Neill, responsible for coining the term BRICs, is a close friend and informal adviser to Gordon Brown, while the bank’s former chief UK economist, Gavyn Davis, amassed most of his considerable fortune when working for Goldman. Davis’s wife Sue Nye, was Gordon Brown’s diary secretary and continues as a special adviser and Director of Government Relations. The bank’s chairman, Peter Sutherland, is one of the most prominent advocates for the euro.

Last year Goldman Sachs paid £1.1 bn in UK corporation tax. It topped the league as the highest City contributor to the Exchequer. The bank’s 5,500 UK employees pay millions in income tax. Indeed, some of them pay well over a million each. The prospect of making an even higher contribution has caused some of them to form a queue asking the bank to relocate them to friendlier jurisdictions.

As 2010 unfolds one of the key themes we are likely to witness is the flight of well-heeled City folk to countries where the taxman does not grab the major slice of their income. Peter Sutherland’s previous appointment as a member of the Hong Kong Chief Executive’s Council of international Advisers may prove highly relevant as his employees line up to leave to more hospitable financial centres.

The 'party of opportunity' and the 'age of aspiration'

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It is election year and the battle has begun in earnest. Against the Tory message of Austerity, Mr Brown has drawn a clear dividing line; his party of ‘opportunity’ will usher in an Age of Aspiration after ‘only’ 12 years in office. If by aspirational, he refers to the aspirations of socialists to centralise, control, distort, burden, and hinder, then perhaps he has credibility.

Austerity and opportunity are not mutually exclusive. The principles of strict economy are sound, which although forgotten or unknown in Number 10, drive growth and create opportunity. Saving is fundamental to economic growth. The process of investment in capital requires prior saving. By relinquishing immediate consumption below its potential level one may engage in capital formation.

Brown’s disregard for strict economy is made evident by the horrendous state of the public finances due to terribly excessive spending in times of growth. There is nothing complicated about living within ones means, about balancing the budget. However, when Labour entered in 1997 the budget was in balance, but by the Treasury’s own forecast by 2011 we will be over £1 trillion in debt, and this doesn’t include our obligations off the balance sheet.

With business stifled, interest rates rising, our credit rating at risk, and huge amounts of debt that you and future generations will have to pay, Brown’s record for burdening the future is perhaps without comparison. Our growth statistics show that you cannot spend your way out of recession, and we cannot borrow our way out of debt. Brown’s economic illiteracy is simply depressing - No sustained recovery can be achieved without focusing on debt reduction.

The aspirational people who achieve overall success and generate the most wealth will be penalised with at least half of their income taken by the government in taxes. Regulation costs under conservative (small c) estimates work out to over £100 billion. For those still in education, who aspire to success, rather than having an education based on their own choices and needs, it is centralised and focused on government targets.

As Smith put it, “there is a lot of ruin in a nation". We need a competent and genuine strategy in Number 10 which tackles debt and returns power to the people.

Inflation is not a cost-push phenomenon

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6. Inflation is not a cost-push phenomenon.

Many economic commentators used to believe (and some still do) that inflation could result from rises in the input costs of production. An increase in the price of raw materials or in the wages paid to workers would have to be passed on, it was supposed, leading to a rise in the price of the finished product. If enough goods were thus affected, this would bring about the general rise in price levels which is popularly called inflation.

If the money supply is unchanged, then price rises for some products will be matched by lower prices elsewhere. If people have to pay more for their essentials, for example, following increased prices brought about by higher input costs, then they will have less money to spend on non-essentials, the demand for which will go down.

The reverse is true, in that if people pay less for essentials because falling input costs allow lower prices, they will have money left to spend elsewhere, with the increased demand leading to higher prices in other sectors. The significance of this is that for over a decade cheap imports from China meant lower prices in developed countries for many household goods. The result was downward pressure on the consumer price index, leading central banks to keep interest rates low, with easy credit and cheap money.

The fall in prices was mostly in goods which show in the various price indices. It left people with money to spare elsewhere, some of which found its way into asset bubbles, including housing. Some of the goods which saw increased demand and higher prices did not feature in price indices, and therefore did not undermine the visible fall in prices. The choice of some items and not others to feature in price indices means that some price rises are effectively hidden from consideration.

With a stable money supply, price increases in some economic sectors will be matched by reductions elsewhere, and vice versa. If the money supply is increased when prices are stable or falling, the result might well be asset bubbles as people seek places to gain good returns on it, given falling prices and narrower profits elsewhere. Inflation is not caused by the push of higher input costs, but by extra money in the economy, or by its faster circulation.

This is part of Dr Pirie's ongoing series: Philosophical Observations on Economics.

Looking at CCTV

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Britain is the most watched nation in the world with around 4 million CCTV cameras installed across Britain. The London Borough of Wandsworth has a higher number of them than Dublin, San Francisco, Johannesburg and Boston combined. Cameras can be easily installed by local councils, and are a way to visibly display that an issue is being ‘tackled’. However, the exponential rise in cameras simply serves to suggest that as a nation we cannot be trusted, and that if we are not being watched over we are somehow unsafe.

The ‘success’ of CCTV cameras in securing convictions has often been used as an excuse to support even more invasive forms of state monitoring. However, statistics show that CCTV cameras simply do not work. The crimes actually caught on camera fell by 70% between 2003/4 and 2008/09, while in London only one in seven crimes solved involved the use of CCTV. Many cameras are ill-positioned, lack film or are of such poor quality that they can’t be used as evidence in court.

Spending on CCTV guzzles three-quarters of the crime prevention budget, and so provides very little bang for our buck. £500 million was spent on new cameras in London between 1996 and 2006. This is £500 million that could have been spent on a number of better measures, such as employing or training police, and tailoring crime-fighting strategies to suit local areas. Coating the country in all-seeing-eyes has proved to be an expensive and inefficient use of resources, and dramatically reducing the number of cameras in the UK would be a good way to rein in profligate spending and create a freer society.