The mindset of a good Chancellor

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[Gladstone] declared at Edinburgh (29 November, 1874):

“It is the mark of a chicken-hearted Chancellor when he shrinks from upholding economy in detail… He is not worth his salt if he is not ready to save what are meant by candle-ends and cheese-parings in the cause of the country."

Gladstone’s long-term object was to raise the moral standards and the ideals of the people by improving their material conditions. He had no trust in the efficacy of State action to achieve that end. His method was to remove all restrictions upon trade, and to extend its area. All taxation, in his view, operated in restraint of trade, and therefore, in order to reduce prices, and to secure full employment, it was necessary to keep taxation and public expenditure to a minimum.

It seems to me that the extract above, from Philip Magnus’s 1954 biography of William Gladstone, encapsulates precisely the qualities that the next Chancellor of the Exchequer will need to exhibit if he is to sort out Britain’s public finances and get the economy going again. George Osborne could do worse than to buy a copy and take notes.

Of course, reducing public spending is more difficult these days than it was in the Victorian era. In the days before the welfare state, those who profited from the government's largesse were, generally speaking, the upper classes. Public sector employment was a matter of who you knew, and not what you knew. As such, cutting public spending could be a populist measure, with great appeal to the masses. Now, with more than six million people employed by the state, and another six million entirely dependent on state handouts, it’s a trickier matter.

But the fact that it will be difficult to cut spending is no excuse for not doing it. The British state currently borrows more than £20m per hour, twenty-four hours a day, seven days a week. Our budget deficit, at 14 percent of GDP, is the largest of any OECD country. Put simply, this cannot go on. Our next Chancellor must bite the bullet, and implement substantial spending cuts as soon as he takes office.

He should also remember that however unpopular that makes him in certain quarters, there are still plenty of hard-working taxpayers out there who will thank him for it.

No, no, no, no, no.

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I do wish that these various think tanks on the lefty side of the street would just try and keep up with even the basics of the (few) true things that other lefties have managed to devise.

A study by the Centre for Regional Economic Research said it counterproductive to try to crackdown on the middle-aged jobless when unemployment was rising. Instead they should be left on benefits in order to concentrate on the young unemployed who had more chance of finding long term work.

No, absolutely not and the person who pointed this out was the impeccably left liberal M'Lord Layard.

As Milton Friedman pointed out the Phillips Curve (that there's a trade off between the inflation and unemployment rates) doesn't really work. For we might think that we can just move along the curve and trade higher inflation for lower unemployment: but once inflationary expectations get built in this no longer works. What Layard went on to point out though is that it is still possible to shift the curve.

Those people who are on the dole are trying to get jobs (no, stop sniggering at the back there, of course they are). In trying to get jobs, in being part of the potential labour force even if they're not actively in the labour force they produce a downward pressure on wages. If there's five people knocking on the door for every available job then wage rises aren't going to happen, are they? And yes, wage rises do have at least something to do with inflation.

However, the long term unemployed (in Layard's work) or here those shuffled into incapacity benefit don't produce that downward pressure on wage settlements. For they're not trying to get jobs and thus aren't even potentially part of the labour force. They're still there of course, rotting on the fringes of society, but we're not even getting the constraint of inflation out of their misery. If we insist that they at least attempt to compete for jobs then some (however few) will of course get some but we'll also have lower wage rises: and we all know what lower wage rises mean, don't we? Yes, labour is more affordable in relation to its production and other things being equal we'll have both more people employed and a lower rate of inflation for that level of unemployment. For that reserve army of the unemployed is putting pressure on wages rather than simply being shunted into the byway of societal obsolescence.

This is all quite apart from the ghastliness of turning to someone in middle age and proclaiming their life over: "there's nothing productive you can do you know". It's about making sure that we at least get something from those unemployed, if only a constraint on wages which will make a rise in employment more likely.

The government that keeps crying wolf

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Getting ready the other morning, a radio advert caught my ear. It featured a spaced-out child telling us that he’s “always there" following the life of a father, because “I’m the boy he killed 5 years ago". A tragedy that apparently took place because he was speeding." Scare tactics iarea key government weapon against the British public, which they are very keen to use.

Most of these campaigns have an annoying tendency to sensationalize the ‘bad’ habits of the public. Only recently, the department for climate change suggested that our carbon footprint would cause dogs to drown. Cigarette packets scream “smoking kills" instead of the more accurate “smoking can kill". We are told that if we are fat or drink more than a couple of pints a week, we will get diabetes, suffer a heart attack, bankrupt the NHS, and then die. The product of government pressure and interference is everywhere: on the TV, cinema, airwaves and billboards, in the age restrictions plastered across shops, and on the breakdown of my saturated fat ration staring at me from my sandwich.

The government often laments that despite lavish ‘public awareness’ campaigns, we simply aren’t adjusting our behavior. Their response is to create even more adverts, leaflets and initiatives. What they fail to grasp is that the constant bombardment of propaganda creates a ‘lecture fatigue’, where people simply tune out to the meaning of any message being put across.

Maybe, just maybe, there are issues that the government would do well to highlight. But to make these problems stand out, they need to stop casting a pall over all and sundry, so they can be taken seriously.

Inciting violence

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It is common parlance to hear that we should be free to speak, excepting of course if we incite violence. This has been especially common in the case of Islam4uk, where their defense rests principally upon the fact they have not been involved in promoting violence. Despite its ubiquity, I have never been entirely convinced by this position.

I would suggest that the promotion of violence is arguably not a valid excuse with which governments should be allowed to infringe upon someone’s freedom of association and speech. My objection is both deontological and based on the consequences of banning these freedoms. It is objectionable on deontological grounds because in a free society, people should simply be free to associate and speak freely. Instead of pulling people up for the possible results of their actions, their active part in or association with real violence against others should be the litmus test for infringing upon their liberty.

However, not everyone desires a free society, so perhaps my consequentialist objections could carry more weight. Firstly, it far from clear that there is less violence as a result of people being banned from inciting violence. This might seem counter-intuitive, but by forcing views (however abhorrent) underground, it is possible that more violence might result. It would thus be illogical to ban such groups. Secondly, as history teaches us, there are occasions where violence (particularly against those in political power) was morally defensible. As such, inciting violence is not always morally wrong and it is perhaps best left out of the hands of politicians to decide when it is and isn't.

This is difficult issue, so I would be interested to hear any thought for or against this position.

Climate change and energy efficiency

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Whether you believe in man made climate change or not, you probably think that energy efficiency is a good thing. And luckily in this respect, the goals of most climate change fanatics (a couple of Guardian columnists excepting) are compatible withd the interests of businesses. However, most tend to ignore this fact and go on advocating for sanctions on businesses, despite the fact that the primary goal of both interest groups is best met in another way.

So how can this goal be achieved? One solution which has been tried  is to hold a meeting between the world's political leaders and let them 'almost' come to an agreement committing them to strangle their domestic industries in order to achieve some arbitrary goal in the reduction of CO2.

The other solution is for governments to let businesses use their profits to invent and invest in technological improvements through a more business friendly tax system. Would all of the profit then go to technological progress? A great deal would, because it is a core interest of companies to develop more efficient ways of using energy to stay ahead.

The current tax levels force companies to stay inefficient because they either can’t afford to innovate. Giving companies an incentive to survive by letting them compete in the global market would lead to more efficient ways of producing goods and would drive less efficient producers out of the market. This would lead to lower energy usage, which is essentially the common goal. Thus competition, not cooperation is the key to decreasing energy use.

So what are these government leaders waiting for? The answer is that many leaders (particularly in the West) have bought into the idea that businesses are essentially evil. We have a saying in Denmark that is fitting: 'It’s hard to escape if you have painted yourself into a corner while painting the floor'. It looses something in the translation, but I hope you get the point.

Islam4Uk: An issue of freedom

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As of today, Islam4Uk and its various guises have become illegal organizations, thanks to the discretion of Alan Johnson and 2000 Terrorism Act. Johnson’s justification for proscription is that that the group “unlawfully glorify the commission or preparation of acts of terrorism." In essence, the group openly takes a positive view of terrorism. Although members of the group’s previous incarnations have gone on to commit acts of terrorism, no member of Islam4Uk itself has been linked to any crimes of this sort.

The group’s main wrongdoing, and the justification for their proscription, has been to hold particular beliefs and to express them in such a way that the extreme majority of the UK are shocked, offended and appalled by them.

This should not be a crime. "If the group or individuals break the law, they should be prosecuted; but to proscribe the group as a preventive measure flies in the face of free speech. If we were able to ban organizations simply because we didn’t like their professed end goals, surely enough support could see the Labour party driven underground. Besides, banning an organization does nothing to change the attitude of its members.

An alternative way to deal with Isalm4Uk would have been to remove the income support that a number of the group appeared to live off, namely welfare. This would make sure that less public money was put towards enabling the group to have the time and means to propagate views that the vast majority of the nation find repugnant.

A collectivist you might agree with

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Freedom, morality, and the human dignity of the individual consists precisely in this; that he does good not because he is forced to do so, but because he freely conceives it, wants it, and loves it.

Mikhail Bakunin

Competing schools

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I stopped reading The Economist a while back, but yesterday by chance I happened upon a blog on their website that reminded me why I was so keen to cancel that subscription.

It is on education and gives undue credit to a thesis set out in the abstract of this paper and endorsed by Matthew Yglesias in a blog here. It is perhaps best summed up in the following statement by Mr Yglesias’:

Colleges and universities compete with one another largely by trying to attract the best applicants. That lets you screen and have the best students. Which then helps ensure that your students go on to be successful, thus improving your reputation. Missing from the circle of life is any thought that you might have to actually do a good job of improving the skills of your students.

And so, for Mr Yglesias, the solution is to limit school choice. The Economist follows this logic stating that:

One tricky part about introducing competition into schooling is in setting up the market to reward high quality teaching rather than reputation.

And goes on to argue that:

We want teachers to do their best. But if the most important thing in education is to be around the right people in the right place, then parents with the financial ability to do so will opt out of the system, reducing the average ability of the students remaining in the system, and making teachers' task harder.

The principal mistake is these authors’ failures to acknowledge that we currently have the very problem that they are wishing to avoid. An education system with profound social, economic and qualitative differences of schooling, determined by a postcode lottery. Thus, positing the fear that a free market will lead to these problems is misleading. As such, the question needs instead to be asked would a free market be less or more equal than the current system (if equality is your aim).

Also, in dealing with the issue, no consideration is taken as to why teachers in schools don’t teach well. The chief answer is an absence of competition. The key to creating this does not lie in another distorted market that will invariably bring its own unintended consequences, but to set schools and parents free.

For this we can turn to Adam Smith. Although he was in favour of some taxation to help fund schools, let it not be forgotten that he also endorsed and saw the merit of parents additionally paying school fees directly to teachers to ensure that teachers' positions and careers are garnered, secured and advanced by the quality of what goes on inside the classroom.

Stepek, booms and the President of Georgia

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I was interested to see this remark by the hugely intelligent John Stepek of Money Week, in one of his morning bulletins:

Every government, authoritarian or democratic, is terrified of growth slowing. Why? Because they’ll lose their jobs. Whether that’s at the end of a rope or more benignly at the ballot box doesn’t make any practical difference in economic terms. The fact is that the people in power will always do their damndest to keep a boom going for as long as possible. And that’s what ultimately does the economic damage.

Absolutely spot on. For some time, particularly following the credit boom-and-bust, I have wondered (rather worrying) if democracy is our problem – that politicians simply have to keep promising higher spending and lower taxes to win elections. But even ministers in authoritarian governments have told me that they face the same sorts of problems. Maybe they don't bother with elections, but they still have to cultivate some kind of public acceptance. And of course the public want booms because everyone seems to benefit from them. The inevitable downturn, you can blame on someone else – greedy bankers, American imperialists, whoever – so few people actually make the connection.

Now, though, is a good time for governments to make the connection. I would like to see the UK and US in particular fess up to the fact that big over-expansions are what produces big crashes. Once they do fess up, then we can do something about it. Like have some kind of constitutional limits to government spending, borrowing, debt, and tax levels. This is exactly what the President of Georgia – one of the fastest-growing countries in the world, following its economic liberalisations – wants to do. His Liberty Act would amend the constitution to cap government expenditure at 30% of GDP (two-thirds of ours), budget deficits at 3% (a quarter of ours) and public debt at 60% (about a sixth of ours, if you take all the under-the-counter debts into consideration). And he is coming to London to explain it to the Adam Smith Institute, on Friday 12 February at 6.30pm.

The CRC should be scrapped

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I got one of those phone calls from a PR agency, asking a series of questions on how I (as a 'stakeholder', whatever that is) view their client. Often these calls aim partly to give us 'stakeholders' a subliminal message ('how aware are you that XYZ Corp helps old folk/ loves cats/befriends orphans/sponsors charities/improves nutrition...sort of thing). But for the most part, they are just trying to find out what 'opinion leaders' actually think of them.

Well, in this case the client was the Commission for Rural Communities (CRC), and my answer to that question was 'not much'. I was appalled when I got this quango's first report – a real door-stopper of a publication, complete with its own DVD, and hand delivered no doubt to all of the Westminster think-tanks as well as MPs, journos and who knows who else. It must have cost a fortune. And last year they produced another 49 separate publications, a few of them on the same sort of scale.

Mind you, the rural affairs department DEFRA gives them £6.7m of our money, so they're not pinching pennies, and with a staff of 80 they have plenty of people. Their motto is 'tackling rural disadvantage', and they see themselves (so their PR person said) as a 'voice for rural people and buisnesses', an 'expert adviser to government and others' and yet, paradoxically, 'an independent watchdog'.

Independent my bahookie. This is a quango set up by Blair & Co in 2005 after they had been shocked by the scale of the Countryside Alliance marchea on London in response to the proposed foxhunting ban, particularly the enormous 2002 rally. The 407,791 protestors – the largest civil-rights march in UK history – argued that Blair's effete metropolitan government didn't have the faintest understanding of countryside issues. The CRC was the government's attempt to show its concern – at our expense. Naturally, like all quangos, it has grown in budget, personnel, and remit. Unelected, it pushes its own agenda on rural communities, while claiming to understand and empathise with them.

The CRC should be closed down. Saturday 10 July would be a good day to send out the redundancy notices, the anniversary of the first (120,000- strong) Countryside Alliance march in 1997. It wouldn't just be taxpayers who rejoiced.

See Dr Butler's new Alternative Manifesto here.