Blog Review 866

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What Adam Smith actually said about the banks....and can we please put this "invisible hand" thing to rest?

With Alex Renton's misunderstandings of the food market there's a certain wonder that he manages to remain nourished.

My word, this anti-terrorist legislation is effective, isn't it?

If certain economies (say, Continental European) have structurally higher rates of unemployment than others (say, Anglo Saxon or even Nordic) then that rather damages the Keynesian case that unemployment comes from a lack of aggregate demand, doesn't it?

A reminder to those who argue for higher taxes: you can always raise your own voluntarily, you know? (HMG runs a similar scheme, cheques to "The Accountant", 2 Horse Guards Road).

Wouldn't it be interesting if we had a truly "accountable" government?

And finally, what they are spending those unaccountable higher taxes on. Charlatans.

Dr Eamonn Butler on Radio 4's You and Yours

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Click here (38:44) to listen to Dr Eamonn Butler discussing emigration and the future state of the UK economy on You and Yours this morning.

The new banking crisis

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Just as you thought the banking crisis was over, another one streaks towards you. The £6bn profit announced by Barclays must be relatively good news, even though bank accounts are always complicated and this set has some one-off features that might boost the bottom line. But at least we seem to have got through the fear that the banks could simply collapse. A 'toxic bank', mopping up the remaining bad debt, might help further. Now we're just in a pretty normal, if nasty, recession.

The new banking crisis, though, is political interference. The state now owns large chunks, even majority chunks, in some of our biggest high-street banks. The politicians who arranged this initially said they had no desire to interfere in how the banks ran their business. I said at the time they wouldn't be able to resist. I was right.

The public can't see why a sector that nearly brought us to collapse should be paying its operatives bonuses of thousands, even millions. It may be that they are legally obliged to; that the bonuses are going to high-street branch staff, or to staff selling insurance, rather than executives who made daft decisions. But those details get lost. Yvette Cooper on the radio was even saying of the banks' legal contractual obligations to pay staff bonuses: 'That's something we must look at...these are unusual times.' Yes... and it's not unusual, of course, for politicians to tear up legal contracts when they find it convenient. In evidence I cite habeas corpus, trial by jury, parliamentary privilege, double jeopardy, the right to silence, and the presumption of innocence.

Bankers have indeed made serious mistakes, though a surprising quantity of them were made on the wave of euphoria and cheap credit created by – you guessed it, the same politicians who are now telling the bankers how to do their jobs, despite utterly messing up on their own.

Back off

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The latest, in the ongoing pursuit of this government to compile complete information on the lives of the people, is the news that the government is compiling a database to track and store the international travel records of millions of Britons.

Names, addresses, telephone numbers, seat reservations, travel itineraries and credit card details of travelers will be stored for up to ten years. The e-Borders scheme covers flights, ferries and rail journeys. Officials hope that by the end of next year, 95% of the 250m annual passenger movements will be logged in the database.

This is the type of action that the Lords cross-party constitutional affairs committee recently warned against when condemning the government for risking undermining the fundamental relationship between the state and citizens. If you ask me, this line was well and truly crossed a long time back. The same report claimed that “many of these surveillance practices are unknown to most people and their potential consequences are not fully appreciated". Perhaps, though much of this gets a fair few column inches in the popular press and given the near-unanimous popular discontent over the ID cards, it cannot be said that people are unaware that their liberties are being usurped.

As with all fights for freedom against injustice, a few good souls will have to lead the rest. The campaigners and supporters of NO2ID, Privacy International and Liberty have clearly marked their territory as being at the vanguard in the counteroffensive against the government’s assaults upon our liberties. Their fights clearly have the support of the vast majority of individuals living in this country.

This government’s utilization of the technology of totalitarianism must not prevail; the state has no business watching us. They say that it is for our protection and security, but I am surly not alone in not wanting Jacqui Smith and the plethora of taxpayer funded good for nothing officials watching my back.

Capitalism and morality

It is clearly not a system of "winner takes all", but one in which winners take a fair sum for their results (i.e. they actually win when they win), and the numbers of winners is maximised. These winners then help create more opportunities for others and the system provides the aligned incentives to maximise successes. The adoption of more capitalism has enriched the world, and in India and China, markets have enabled a greater number of people to escape poverty, than government planning ever will.

The record of history is clear, and the temptations must be avoided. Now is the worst time to pursue theories, that when implemented, even in part have produced and would require terrible oppression, economic stagnation, the destruction of freedom; failure in almost all regards, with the honourable exception of the production of hard liquor to substitute for water and null the pain. Under variants of socialism and communism, there were more deaths than in all the wars of the 20th century (as a direct result of government oppression) and under all significant indicators, these experiments failed to compete with the freer nations.

Optimism tells us that Mr Cameron argued for moral capitalism, as an appeal to popular opinion, rather than because of misguided beliefs. The threat against free people, free markets and freedom is always great, and the tide must not turn. Moral Capitalism is just plain simple Capitalism.

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The emergence of the meaningless phrase ‘moral capitalism’ in the political world is worrying. The words ‘moral’ and ‘capitalism’ have limited validity in the same sentence, except to declare that Capitalism is the most moral and valuable system yet discovered. Cameron need not make a radical deviation to make Capitalism moral.

Whilst the world has been hit by economic crisis, this is not the fault of Capitalism. Firstly, very few people live under Capitalism; government expenditure in the UK is 49% - half-and-half. Secondly, the world and people are not perfect, thus markets are not perfect, but more moral and produce better results than any proposed alternatives. Thirdly, Governments and Central Banks played a role in the current mess: from interest rates below the natural rate, to encouraging poor financial practices and partaking in consistently and protractedly incompetent behaviour.

Capitalism is the only the system that maintains liberty, allows true individual autonomy, respects the choices of people, and enable us to achieve genuine freedom. It is the system most allied with the concept of civil liberties, enabling individual rights. This autonomy and freedom is intrinsically moral.

Capitalism is also the most practically effective system and efficient economic model. Autonomy and freedom is a necessary condition for long-term prosperity. Capitalism brought the industrial revolution, and has since promoted economic growth, and raised standards of living to unforseen levels of prosperity. The potential for wealth generation is maximised, and decentralised coordination allows development and adaption. Not only is it the best wealth-creating system, but also benefits the greatest number of people, and fairly allows them a chance to generate a larger slice of the growing economic cake: a land of hope where anyone can ‘make it’. [Cont'd - click 'Read More']

Blog Review 865

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You know, it might just be that infrastructure spending isn't quite the way to revive an economy?

But if we are going to be all Keynesian about these things, might we not do what Keynes actually thought was a good idea?

Question: why are people listening on the subject of macroeconomics to people who are not macroeconomists?

It's happening in the streets now, these protests against the fat cats who don't pay their "fair share" of taxes.

Netsmith might need a little lie down in a moment. In praise of Hazel Blears.

Politics is as politics is: Obama's already breaking pledges.

And finally, the phrase of the day. "The process of quantifying our ignorance".

Purblind idiocy

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How did we end up being ruled by those who simply do not know what they are talking about?

Lord Turner, the chairman of the Committee on Climate Change, said people would be given personal flight limits to lower pollution from the aviation industry.

"We will have to constrain demand in an absolute sense, with people not allowed to make as many journeys as they could in an unconstrained manner," he told the Commons environmental audit committee.

Leave aside for a moment that such limits will clearly not affect the Noble Lord when he flies off to some climate change junket, nor his accompanying civil servants. Let us also accept the entire "scientific consensus" on climate change as represented by the IPCC.

There is nothing, absolutely nothing at all, in any of this that says that aviation needs to be restricted in any manner. It is true that the IPCC says that carbon emissions should be restrained: but that is not to say that aviation must be.

The different sources of emissions provide us with goods and services of differing values. We want, if we are indeed to reduce emissions, to reduce those which produce the least value to us in those goods and services. It might be that the deep and heavy ploughing necessary for organic farming produces the least value, it might be urban car transport, it could indeed be aviation. But value, utility, is in the eye of the beholder, not the supplier and most certainly not the bureaucrat.

Whatever the limits we put on emissions and however we do that, through caps or through taxes, the way to do it is still to allow the individual to decide which method of emitting provides them with the greatest utility. In this manner we solve climate change at the least diminution of our wealth. Rather than, say, an unelected quangocrat forcing us to accord to his values and judgement of our own utility.

Stick with capitalism

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It started out rather depressing. Our hosts were the Friedrich Ebert Stiftung, Germany's Social Democrat think-tank, and the Global Policy Institute, something of a UK equivalent. We were there to discuss The Role of the State in the 21st Century with Polly Toynbee in the chair. So I expected the worst.

And at first I got it. Dr Erhard Eppler, a former Social Democrat politician, was introducing his new book on The Return of the State. 'The state is back', he proudly announced. Market fundamentalism had failed us, most of the planet's problems were in places where the state was too weak, and people were willing to question capitalism and put their trust in the state much more.

Professor David Marquand started from the same prejudices but wasn't sure that capitalism could be written off just yet. Indeed, the world's politicians showed absolutely no inclination to tear up capitalism and replace it with a statist alternative, he thought. It was, sighed Polly, going to be 'the same bicycle, with the promise of better brakes'. There was general mumping all round that while politicians should wave goodbye to the market, they wouldn't.

Thank goodness for that, I thought - the only person with a smiley face by then. Because the market system has taken billions of the world's poorest out of poverty. It's the best anti-poverty device we can imagine. Of course, markets are human, and they only work within a framework of human laws and institutions – rules of property, honesty and contract. And yes, the state has to have the power to enforce those rules. But the awful financial crisis that's hit recently was caused by governments and regulators completely destabilizing the markets. Flooding the world with so much cheap credit, for example, that nobody could see the signals of what was really happening for the riotous noise of the boom.

It's plain that the Left would love 2008 to have been the high tide mark of capitalism. You'd have thought that they might rush forward with some alternative to replace it. But they can't, because we've tried various permutations of the socialist model before, and rejected them They've got nothing left. So yes, we'll stick with capitalism. And the state should stick to its knitting of enforcing the rules that make it work – and properly, this time.

Capping executive pay

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Earlier this week I was on Radio 2's Jeremy Vine Show arguing that the government should not cap executive pay in the City. I rather got the impression I was there as the villain of the piece – a worrying sign of the times!

Talking about executive pay in general, I said that whether or not a particular salary seems 'fair' is not the point. People are paid according to the market value of the goods and services they provide, and what you think of those goods and services is irrelevant. The government cannot possibly determine 'appropriate' pay accurately or justly, because any decision they make will necessarily be based on a political value judgement or personal prejudice. How much should a radio presenter be paid? Or a think-tanker? The government isn't capable of determining these figures, and haven't got any right to anyway.

I also pointed out that we need wealth creators, now more than ever, to get the economy going. And if you cap their pay, why should they bother? Or why shouldn't they just move to Shanghai or Dubai where they'll still be allowed to earn mega-bucks? I'm sure executive pay caps would be like manna from heaven for these emerging financial centres. Furthermore, I pointed out that the top 1% of earners in the UK pay 23% of our income tax. Left-wingers seem not to realize that someone has to foot the bill for all their social programmes.

We also discussed the specific topic of whether executives in the nationalized or part-nationalized banks should have their pay capped. Clearly, this is a more difficult area, since no one likes the idea of taxpayers' money going into the back pockets of incompetent fat cats. Nonetheless, I warned against knee-jerk populism. Now that the government is entangled in the banks (and I don't think they should ever have got in that position), it's important that they recover and that the taxpayers' gets their money back. If that means paying top-dollar for those staff who are still bringing in lots of business and making money for the companies, then so be it.

Quote of the week

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“Bringing the Government in to run Wall Street is like saying ‘Dad burnt dinner, let’s get the dog to cook’."

P.J. O’Rourke, on the US banks’ bailout