The free education dilemma

A friend of mine, a committed Christian, sent me this story about how taxpayer dollars are being used to teach kids in Louisiana all sorts of wacky things. America's 'voucher schools' – rather like Britain's new Academies and Free Schools – manage themselves, though the cost of the education they provide is subsidised by taxpayers. The aim is to give parents choice and the benefits of real competition between independent school providers, while making sure that every child has access to education, no matter how rich or poor their parents might be.

A noble ambition. But what happens if schools teach creationism, say? Or for that matter, promote Islamic fundamentalism? Denmark, which has had the same sort of private-provision/public-finance model for decades, used to have so-called 'Red' schools, which promoted socialist thinking. Are such things a legitimate use of taxpayer cash, however much the parents in question might actively seek out schools teaching such stuff?

It's an interesting problem. The libertarian view would be that the state shouldn't be involved in education at all. Education departments in Britain and America, certainly – and probably in most other countries – have not added at all to the quality of education, nor to children's access to it, say libertarians. Most kids got a good education long before the state got involved. Parents in Africa on just a few dollars a day make sacrifices to send their kids to 'penny schools' and consider it a good investment – as Professor James Tooley has documented in great detail.

At the other end of the spectrum, look at the disaster of state-financed and state-produced education. It was this model, in the postwar years, that brought us the so-called 'progressive' approach that was so ashamed of what it produced that it did not even publish examination scores – so parents had no way of knowing what state schools were actually doing for their children, if anything. They were expected just to pay up through taxation and let the 'experts' get on with whatever they were doing to their kids. And later, in Britain, we had the utter inanities of the National Curriculum, in which the country's history and culture barely got a look in.

The idea of voucher and quasi-voucher schemes is precisely to break down that kind of state monopoly in eduction. It's reckoned that you cannot do everything at once: so let's free up the supply of schooling first, while still maintaining the guarantee of state support so that nobody is left out. It is actually that model, first introduced in Britain by Mrs Thatcher's government, that brought us the National Curriculum just mentioned. The view was that if taxpayers' money is being used, then the authorities have a right to make sure that it is spent properly. Unfortunately, when you leave it to state providers and state-employed education experts to decide what a 'proper' education is, well, you get a very silly answer.

So should we just leave it for parents to decide? This is probably the leading market-economics answer. Even if the state is paying, so the reasoning goes, parents will tend to make sensible choices for their children, whom they want to succeed. They are not going to choose schools that paddle their kids into some intellectual backwater. And so, like any other competitive market, you will get standards being bid up, and the quality of schooling will improve.

Except that actually, many parents would indeed like their children to be paddled up the backwater. Some fundamentalist families may not wish to see their female offspring learn too much. Others may deeply believe the creationist paradigm and want their children to share it. Some might believe that the Western values that give them the choice of what to learn are fundamentally wicked, and that their children should learn to hate them.

So should the state insist that taxpayers' money should not be spent on such things? To override the wishes of parents is to say that some state 'experts' should decide. And we know where that leads us. So it is not an easy question. On balance, I would say yes, parents should decide; I have faith that the overwhelming majority will make sensible decisions for their children. Better choices, on balance, than the professional state educationalists have made over the last half century.

The lottery and the Olympics

Some oppose the cost to public funds of the Olympics, and some criticize the inconveniences to which Londoners have been subjected.  There can be few, however, who deny credit for the superb performances of our athletes.  They have shown a dedication and commitment that has rallied most of the nation behind them in their efforts, and given them generous praise for their achievements.

That so small a nation can do so well is remarkable, and many commentators, including Lords Coe and Moynihan, have praised the role of the National Lottery in this.  The Adam Smith Institute is proud of the role it played.  In 1990 we invited the orchestra conductor, Denis Vaughan, who had suggested the idea, to write a paper for us setting out the case.  Within two years of that publication, the National Lottery bill had cleared Parliament, with credit to Sir John  Major and Virginia Bottomley for the role they played.

The lottery is voluntary. No-one has to buy a ticket, and those who do can dream of the chances of winning millions. Funds are raised that taxpayers might not be prepared to give.

The distribution of lottery receipts has been remarkable.  Of every £1 spent on tickets, 50p has gone into the prize fund.  Of the remaining 50p, 28p is assigned to good causes, 12p in government duty, 5p to retailers as commission, and 4.5p in operating costs to Camelot, and 0.5p as their profit.  It returns to good causes a higher proportion of each £1 than any other official lottery.  It is reckoned to have increased funding for the arts and sport sevenfold. 

Perhaps too much lottery money has gone to support institutions such as the Royal Opera House, where more might have been given to local arts ventures, repertory companies and youth orchestras, but large numbers of people on modest  incomes have benefitted from the support it has given to sports activities.  Lottery funding has enabled athletes to undertake full-time training in preparation, to attract top-ranking international coaches, and to train in the world-class facilities that it funded.

The pay-off achieved by our athletes at the Beijing Olympics and even more in London is the reward for a bold idea well executed.  The arts, medical and other charities have been aided by the National Lottery as well, but the Olympics highlights the difference it has made to sport.  And every penny is raises is freely given.

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The monkey's paw

One way to catch a monkey, it is alleged in parts of Africa, is to place fruit at the bottom of a narrow-necked jar.  The monkey reaches in for the fruit, but when it makes a fist holding it, its hand is too big to withdraw.  The monkey is trapped, and remains so until the villagers come to collect the jar.  Of course the monkey could just let go of the fruit, but it wants it so bad that it will not do that.

There are some parallels with the euro.  The single currency was created for political, not primarily economic, reasons.  Its purpose was to bond its members into a closer union that can be translated into closer political union.  And it had the side aim of challenging and later unseating the dollar as the world’s reserve currency of choice, thereby elevating what were perceived as European interests over American ones.

Their hand closed around it, and now they are trapped, like the monkey in the jar.  Danger approaches, but they want unity so bad that they won’t let go.  If Greece, and maybe others, had left two years ago, there would have been defaults and devaluations, and the basket-case economies would probably by now be lifting themselves up and starting to grow again.  But they won’t let go because they are reluctant to loosen their hold on the fruit of ever closer union.  To let go of that fruit would be to dispel the myth of one-way progress.

Economic growth in the eurozone might be gone for a Japanese-style wasted decade.  Some of the EU’s bigger economies might be unable to finance themselves.  The euro itself might ultimately go down.  But even if it took the EU down with it, and even the whole world’s economic prospects, they won’t let go.  They prefer to convince themselves that if they simply keep trying, they’ll be able to keep the fruit of unity and extricate themselves from the trap.  The monkey didn’t escape.  

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On business cycles and economic engineering

I've made no secret of my love for LearnLiberty's videos before (among other things, they've saved me once or twice when I really couldn't think of anything to put on the blog the next day), but this series of videos may be my favourite. With each one spending about five minutes on one of the key theories of the business cycle, they're essential viewing for anybody interested in where we are and how we got here. It might be a little much to hope that our rulers would be able to give a rudimentary outline of these theories without having watched these videos, but for the one or two who were dozing in class that day, these should still be useful.

I tend to think of these theories as stories that can tell us a bit about business cycles: one may be able to tell a great deal about a particular cycle and very little about another; two may together be able to tell us everything we need about a certain cycle; and we may not have a good story to tell at all about some cycles. For my own part, I find the Austrian school emphasis on capital malinvestment and liquidation during the bust especially compelling, which may be influenced by the fact that I grew up in Celtic Tiger Ireland. But I try to keep an open mind — I think there are some important compatibilities between Austrian and parts of Real Business Cycle Theory, and I find the Monetarist theory of the bust fascinating. 

What always strikes me is how uncertain all of this is. There are smart, sane, informed economists in each 'camp', and many in no camp at all. Yet politics has demanded that economists provide one grand answer to our problems, as if the book is closed and the questions are settled. (Harry Truman famously asked for a one-armed economist who couldn't answer his questions with, "Well, on the other hand...".) Some economists have obliged them, offering superficially easy, get-rich-quick schemes to 'end this depression now', and they're celebrated even if their area of technical expertise isn't where they're now giving out free advice.

It would be nice if more politicians would realize that the economy isn't a straightforward engine that just needs the right engingeer, but a highly complex spontaneous order that may give surprising and unpleasant reactions to well-intended stimulii. The economist who, to quote Hayek, 'demonstrates to men how little they really know about what they imagine they can design' may never be as popular as the one who offers the no-fail solution. But I hope they keep pointing it out until someone in charge starts to listen.

Will HS2 be kicked into the long grass?

The much criticised flagship HS2 rail project, which seeks eventually to build a new £50+ billion high-speed rail route between London and Scotland, has had a difficult few months.

Phase 1 from London Euston to Birmingham is due for completion by 2026, whilst the construction of Phase 2 – a Y-configured route from Birmingham to take in both Manchester and Leeds - is scheduled to operate from 2033. 

Recent confirmation of heavy investment in several much smaller rail projects in the North and the Midlands, a series of legal challenges to HS2 and even bureaucratic foul-ups at the Department for Transport (DfT) have all been negative for the project’s future.  And, at the macro-economic level, the UK economy is basically flat-lining thereby substantially deferring the year when the UK’s public sector net debt (PSND) will eventually start to fall – it recently passed through the previously unimaginable £1 trillion threshold.

As such, further deep public expenditure cuts seem certain as the UK seeks to protect its treasured AAA sovereign debt rating. Whilst the HS2 project has many flaws, such as its environmental impact, its weakest case remains financial. Quite simply, the numbers don’t stack up. And, even assuming that the optimistic passenger growth projections until 2033 are accurate, it is difficult to discern how a decent commercial return can be generated. A Tory minister was quoted in the Spectator recently as saying that the project was 'effectively dead'.

Compared with other EU countries, HS2’s projected Phase 1 capital costs per mile are way higher, whilst its claimed financial benefits are seriously inadequate. A Benefit-Cost Ratio (BCR) analysis by the DfT for Phase 1 barely shows a positive return, even before many risk factors. Not surprisingly, the DfT prefers to focus on the various contentious non-commercial benefits. In times of economic crisis, previous Governments have axed major projects. Within the next three years, the highly uneconomic HS2 project is a strong candidate to be shunted into the sidings.

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The Olympics and public choice theory

I view the Olympic Games as a prime example of a Public Choice dilemma. It has grown from being a relatively small-scale, privately-funded and organised event into a behemoth supported by a large bureaucracy, state-enforced monopolies (so-called ‘exclusive sponsorship rights’) and vast amounts of state subsidies. Public choice theory coherently explains why countries are so keen to host the Olympics and why such rent-seeking behaviour occurs at the expense of the public good. 

Concentrated special-interest groups benefit from the Games both directly and indirectly: the IOC bureaucrats with their junkets, Olympic organisers in the host nation such as LOCOG and the London Legacy Development Corporation, athletes who raise their profiles and win sponsorship deals, corporations and construction firms who benefit from contracts and via advertising opportunities and so on (one might also say that the Olympics represents a classic example of Corporatism, an unholy alliance between Big Government and Big Business).

Politicians also gain from being an Olympic host nation from a Public Choice perspective. On the one hand, they may benefit directly from the lobbying that inevitably takes place from the special interest groups. On the other hand, there is clearly an expressive interest at stake – one might rather aptly call this the ‘bread and circuses’ approach, developed particularly by Geoffrey Brennan and Loren Lomansky. Much of the public support for the Olympics is given on the basis of an expressive interest rather than an instrumental one and politicians of all stripes seek to benefit from the public mood of good cheer and enthusiasm that do – genuinely – seem to surround the Games.

The instrumental arguments for the Olympics are much less convincing. Much emphasis has been placed on the legacy, particularly in terms of the sporting infrastructure and the ‘regeneration’ of run-down parts of northeast London. It is highly doubtful, given the level of success of previous Olympic legacies and the general record of government spending and top-down regeneration how successful this will be. Moreover, there can be no doubt that the transfer of resources via taxation of £9billion (or more?)  represents a similar problem to all other government spending in that we cannot know what use the resources would have been put to, had they been left in private hands. What we can tell is there will be a significant deadweight cost, not only because of the usual deadweight costs of collection and reallocation but also because the Games themselves represent a one-off, deadweight cost with no tangible benefits.

From a Public Choice perspective, however, it is clear that the concentrated interests of particular groups who might benefit from the spending - certain people in Newham, sportsmen and women, the bureaucrats responsible for administering the legacy and so forth – have benefitted instrumentally from the Games at the expense of the broader public (especially Londoners) who have suffered a loss. That this loss is small per capita is precisely the reason why opposition to the games has not proven more substantial. Moreover, as opponents to the bid and then the spending had no real means of expressing their opposition, even in the unlikely event that they were willing to do so, given the small per capita cost involved. This is, however, exactly how the Public Choice process works and we must not construe such tacit consent as legitimising such spending relative to the Olympics or any other areas of public policy. 

Why we shouldn't tax companies: because companies don't pay taxes

It's not unusual to hear the economically illiterate insisting that companies must pay more in taxes. This is illiterate because companies do not pay taxes. They cannot, for only people can bear the burden of a tax: someone's wallet has to get lighter and that wallet must belong to a person.

The really big question therefore is who does pay a tax if we try to levy one on a company? The only three groups possible are the shareholders of that company, the customers of it or the workers. At  which point we have an interesting new paper on what that incidence is in the European example:

A stylised model is provided to show how the direct effect of corporate income tax on wages can be identified in a bargaining framework using cross-company variation in tax liabilities, conditional on value added per employee. Using data on 55,082 companies located in nine European countries over the period 1996–2003, we estimate the long run elasticity of the wage bill with respect to taxation to be −0.093. Evaluated at the mean, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 49 cents.

As we can see, the workers are paying 50% of that corporation tax bill. Meaning that anyone (and everyone) shouting that companies must pay more in taxes is in fact saying that they want to reduce the wages of the workers.

Something useful to keep in mind when considering the Robin Hood Tax proposal for example. You're not taxing the banks because banks, being companies, do not pay taxes. Which rather blows apart even the spurious justifications for said tax.

Yes! Let's close the libraries!

I'm not going to do my reputation as a b'stard neoliberal here any good (hmm, well, it might increase it perhaps) but CityUnslicker makes an interesting point: why shouldn't we be closing the libraries?

We can happily wander back to Adam Smith and point out that general literacy is a public good, that such a public good can be usefully bolstered by some tax funding, sure. But we also need to consider technology: most specifically whether the tax funded provision of dead tree printed books is the best way of advancing that public good.

And there's a strong argument, one gaining strength every passing month let alone year, that it isn't. For the written word is going digital.

The whole concept of a library (and before that, of public lectures at a university) is based upon the concept that books are an expensive thing. That they are too expensive for the average person to purchase and own and thus that there should be some method of borrowing them for a short time. It is rapidly becoming true that this is no longer so. Certainly the canon of western literature is now available for free online: and there's any number of very cheap newer books available as well.

At which point the concept of a library as a physical space in any one town rather loses its function. It's possible to think of all sorts of alternatives: from simply saying the entire idea is past it to some form of online library where government does the (much lower of course) funding of maintaining a stock of titles for lending to the impecunious.

And this highlights one of the problems with government provision of things. We've seen over recent years how public libraries have added all sorts of things to become more "relevant", CDs, videos, internet access and so on. All as the book part of it falls away. Out in that red in tooth and claw market part of the economy suppliers who become technologically irrelevant go bust and disappear. As computer games are increasingly downloaded then expensive retail stores supplying the physical box go bust. Indeed, some 10% of retail space in the country is empty as some 10% of retail sales take place over the internet: something of a clue there really.

So I present the idea, perhaps we actually should be closing the libraries? Not just as some austerity measure but as part of that culling which we have to do as technology changes. In a digital world why would we want to subsidise the distribution of physical books? And given that the public sector does not have that market driven bankruptcy to do the winnowing of old technologies, perhaps this is something that we have to do more aggressively through direct action in that public sector?

Austrian Economics - A Primer

Austrian School economists gave us the ideas of marginal utility, opportunity cost, and the importance of time and ignorance in shaping human choices and the markets, prices and production systems that stem from them. 'Austrian' economics has revolutionised our understanding of what money is, why economic booms invariably turn to damaging busts, why government intervention in the economy is a mistake, the importance of time and information in economic decision-making, the crucial role of entrepreneurship, and how much economic policy is just plain wrong. Eamonn Butler explains these ideas in straightforward, non-technical language, making this Primer the ideal introduction for anyone who wants to understand the key insights of the Austrian School and their relevance and importance to our economic situation today.

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Get the Olympic rulebook out of our private lives and legalize steroids

We’ve seen quite a few sporting upsets at the London 2012 games so far. But what remains predictable are disqualifications for drug use, with an Albanian weightlifter and Uzbekistani gymnast being banned and some Chinese swimmers facing allegations of doping.

The reasons for cheating are clear. Performance enhancing drugs (PEDs) offer improved performance and detection is far from certain. A constant arms race between drug developers and those who test for them has led to a situation where even the World Anti-Doping Agency Director-General himself has confessed that they are catching “the dopey dopers, but not the sophisticated ones.”

Only users who poorly time their intake get caught, while those on more intelligent cycles can avoid detection at the games themselves. Simultaneously, the rules on what is allowed constantly change to account for new substances. At different times caffeine and Vitamin D have been prohibited. Bizarrely, blood doping is now banned while training at high altitude to achieve the same effects is permitted.

Many have responded by asking for greater international cooperation in cracking down on the drugs trade. There are alternatives, however. The Chairman of the IOC takes the view that a more stringent out-of-competition testing system, with a greater use of the “whereabouts” policy, would improve detection.

Further restrictions on PED markets will not just affect performance athletes, though. The vast majority of users do so recreationally for aesthetic reasons. Growth in users has been dramatic in the past few years, particularly in poorer areas such as the Welsh valleys, where 60% of recycled hypodermic needles are from steroid use, not heroin use. 

These users do not have the professional team that Olympians do, procuring drugs and ensuring their quality. As with mood-altering drugs, steroids are often cut with other substances, such as baby oil. The legal status of these drugs also means that users are often restricted to purchasing products developed for bulking up cows or the treatment of injured horses. Legalising supply would ensure that fitness enthusiasts could rely on brand strength for the quality of their drugs as they can do with legally available supplements now.

Many of the health complications that arise as a result of use can be put down to a poor circulation of information. Many learn how to use steroids by word of mouth or from internet forums. Moves to legalise the use of drugs would help to open the world of PEDs, so that those who do choose to use them can educate themselves to do so as safely as possible.

Steroid use is swelling, and whatever happens in the world of professional athletes, the rules of their games should not affect the lives of those outside them. We should ignore calls for tighter controls (especially when those who decide what is permissible change their definitions so often) as these clearly have not stopped the use of steroids skyrocketing in recent years. Rather, we should push for legalisation of all performance enhancing drugs so that those who are more vulnerable can be safer in pursuing their fitness goals.

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