Balancing budgets

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Earlier this week, Adam linked to the Economy League of Greater Philadelphia's Budget Challenge, which gives anyone and everyone the chance to try their hand at balancing Philadelphia's budget. I had a go last night, and found balancing the budget – which is currently projecting a $170m deficit – pretty easy. In fact, I ended up with a $81.1m surplus. Give it a go and see how you do.

In case you're interested, I kept funding for fire services and housing the same, and only reduced budgets for public health, policing, vehicles, and the city pension fund by 10 percent. City administration faced a larger cut of 20 percent, but biggest cuts were reserved for libraries, business licensing and inspections, and prisons, which all saw their budget cut by 30 percent. My reasoning was that Philadelphia has an unnecessarily large public libraries programme, that licences and inspections are annoying and pointless, and that far too many people currently get sent to prison for trivial drug offences.

I also raised the sales tax by 1 percent, which is why I had such a big surplus. However, had the website given me the opportunity, I would definitely have used that surplus to cut the taxes on business and employment – something which would undoubtedly have a very benign economic impact.

The only reason I point all this out is because it demonstrates that cutting government spending should not be nearly as difficult as most commentators suggest. As Tom has written before, given that public spending in the UK has doubled since 1997, savings should not be difficult to come by.  Indeed, this report by two ECB economists for the Fraser Institute suggests that if we could make the British public sector as efficient as the American, Luxembourgian, Japanese, or Australian ones, the UK could save almost £96bn a year without cutting any services.

Earth Hour: Sitting in the dark

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A portend of the future will be visited upon the population of the earth this coming Saturday evening at 8.30pm: a planet with a seemingly limited electricity supply. WWF’s Earth Hour is hoping that over 1 billion people across the globe wilfully choose to sit in the dark for an hour and celebrate reducing their carbon emissions, briefly. This return to the Dark Ages signifies that there are many out there who hate life and mans achievements and wish to return to more simpler times.

After sitting around in the dark for an hour most people will then be reaching for the light switch creating a surge that the electrical grids will have to deal with. As an example the biggest in the UK was after the England West Germany World Cup Semi Final, a surge that measured 2800MW, meaning that come 9.30pm this evening supplies will most probably have to be bought in from elsewhere. But at least the message is put across to politicians, that there are many people out there who are willing to have their electrical supply rationed, something that they are willing upon themselves so that they can alleviate their own guilt and clamber atop the moral mountain.

But people please don’t switch off. Switch on, tune in and embrace and celebrate all of mankind’s achievements that have brought us to where we are via our unique adaptability to change. Such as clean coal and nuclear power true signs of the ingenuity of man. The ultimate goal has to be how to harness energy from fusion power, something we should be striving for rather than wasting our time sitting around in the dark.

Blog Review 913

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There's insanity and then there's law making. Under the child pornography laws have a photo of yourself naked when you were under 10 makes you a sex criminal. More here.

Disraeli's right again. That lies, damned lies and statistics thing.

Yet more proof that Naomi Klein had it wrong. It's government that uses a crisis to increase its own power.

The 95th birthday of the man who has saved more lives than any other single individual.

Ooooh, so cynical about the ability of government to perfect regulation.

Odd corners of the bureaucracy, the Department of Sensitive Words.

And finally, (naughty words alert) talking back to the Great British Public.

Facebook spys

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The Home Secretary's demand for access to our Facebook records is just the latest in a remorseless stream of spying that is turning us into a surveillance state. 

The government has delayed, but not shelved, plans to link up all the government databases so that our details could be zipped instantly around half a million civil servants.

Last month the Home Secretary was proposing to set up a database that would log every one of our phone calls, email messages, and Google searches. Google has already been forced to hand over information, under government threats. Police can already requisition CCTV footage, our cashpoint transactions and our mobile phone records – and together with traffic-camera information, these will show exactly where any of us are at any time.

Earlier this year, Liberty had to go to the European Court to fight for the right of innocent people, including children, to have their samples removed from the police DNA database – the biggest in the world, naturally. The police said they'd think about it.

The Home Secretary says it's all necessary to fight terrorism. But during the Troubles in Northern Ireland, people were free to move about – even from Ireland to the UK without a passport – and not be monitored all the time.

The danger is that things like our Facebook information will end up in the wrong hands. Already, hospital staff have been caught swapping online medical information on celebrities. Officials have used CCTV cameras to ogle female customers in shopping malls. The new child database will be accessible to 400,000 officials – let's hope there's not a paedophile among them. People put very personal information on Facebook, and it remains there. So if the rules change and the police can check your past postings, it could prove very embarrassing. The opportunities for abuse or blackmail are legion.

Dr Eamonn Butler's new book, The Rotten State of Britain, is now available to buy now. Click here to find out how.

Bailing on AIG

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Executive Vice-President of American International Group’s financial products division, Jake DeSantis sent his letter of resignation to CEO Edward Liddy on Tuesday. Init he deplores the politicians who have outright condemned the employees at AIG, saying that those responsible for the mess quickly found other jobs and escaped the current dilemma. DeSantis feels as though current AIG employees should be supported rather than victimised, as they have been in the media the past weeks. The ones who stayed are committed to helping the company; DeSantis himself was working for a $1 annual salary, with the expectancy of a bonus.

The AIG bonus debacle has been quite nerve-racking for politicians, AIG executives, and American citizens. Reading this letter will allow citizens to see through politicians’ and the media’s attacks on all AIG executives. Not every employee is responsible for this crisis, and most of those still remaining are trying to re-stabilize the company. Are these the people we want to be victimising? Jake DeSantis appears to be a very intelligent and successful employee. He has also been with the company for over 10 years, so it’s quite a loss for the company. Whether you agree with the bonuses or not, we need not demonise all executives.
 

Brussels Dispatch: Gaia and the catallaxy

I have been trying for some time to develop an analogy of the economy in familiar terms that all people can immediately relate to; and noticed that there is an automatic reflex, in considering the environment, that human intervention is such that many unseen and malignant consequences will follow from even an apparently innocuous activity.

Furthermore, and most importantly, people seem to truly understand that there is no such single thing as ‘the environment’ – it is the sum total of billions of tiny interactions, that without any central planning, holds itself in check; but with human intervention, the whole thing can be knocked into disequilibrium.

There would be the most unassailable victory for the laissez-faire movement if people learnt the same innate awe and reverence for the purity of the free-market as they now have for the purity of the ecology: actions cause unintended consequences, whose chaotic effects reverberate – and magnify in amplitude – far beyond the locale of the original intervention.

Austro-libertarians are the militant eco-warriors of the free market.

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Here are the Opening words of the Wikipedia article on the Gaia Hypothesis:

In the ecological  sphere an act…[or] a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen.  The other effects emerge only subsequently; they are not seen […].  Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favourable, the later consequences are disastrous, and vice versa.Whence it follows that the bad environmentalist pursues a small present good that will be followed by a great evil to come, while the good environmentalist pursues a great good to come, at the risk of a small present evil.”

Here are the Opening words of Bastiat’s Essay What is Seen, and What is Not Seen:

The Austrian Business Cycle Theory  is an economic  hypothesis proposing that the free market  and the temporal  components of the economy (structure of production, natural interest rate, savings rate and investment rate)  are closely integrated to form a complex interacting system that maintains the supply  and demand  conditions through means of the price mechanism  in a preferred homeostasis […].  The hypothesis is frequently described as viewing the effects of government intervention  as an immeasurable destructive consumption .  The Austrians  and other supporters of the idea now regard it as a scientific theory, not merely a hypothesis, since they believe it has passed predictive tests.

Okay, so I switched these two articles and changed the key words.

Obituary: R. Max Hartwell

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Friend of the ASI, active member and historian of the Mont Pelerin Society, died on March 14. Robert Higgs, Senior Fellow of The Independent Institute and close friend, has penned an obituary. To quote from it:

He was an outstanding economic historian and contributed greatly to the “Standard of Living Debate," defending the view that the Industrial Revolution, far from having been a Marxist nightmare for the working class, was the means by which they were gradually lifted from the poverty that had been their lot from time immemorial.

Blog Review 912

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Yet another set of reasons why the Geithner plan might not work: incentives matter, remember?

On that graduate premium, yes, quality does matter.

Quangoes, like all bureacracies, find things for themselves to do. Wouldn´t it be rather better if we just didn´t have them than that they wasted our money on these sorts of campaigns?

A review of Paul Collier´s new book. As incentives matter we need to improve those for African political leaders.

It looks like the lawyer/client privilege has just been abolished in the UK.

How to discuss economic matters and don´t try this at home.

And finally, the cure for that too much time on your hands problem.

Moral capitalism

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Gordon Brown and David Cameron are riding the same hobby-horse right now – how we need to make capitalism 'more moral'.

Well, let me tell you: even without their kind intervention, capitalism is very much more moral than most of the snotrags in Parliament, who seem to spend most of the time working out how to fiddle their expenses. I don't think politicians have much to teach businesspeople about being moral, quite frankly.

People say that capitalism is based on greed, which must be restrained. No it isn't. It's built on self-interest – which is perfectly natural to us all, and beneficial to our community. Markets are about free people, voluntarily exchanging cash for goods or services. You can only prosper in the market if you give your customers what they want. In every transaction, both sides benefit – they wouldn't do if they didn't – and with millions of sales and purchases going on every day, that spreads benefit through the whole society.

Capitalism is a vast, worldwide collaborative system. It doesn't need political arguments to decide what should be done. It doesn't need force to make people produce things. It produces enormous variety and plenty without any conflict or coercion at all. It's deeply democratic - with people making millions of choices in shops and markets every day, rather than having just one choice at the ballot box every five years. And capitalist societies are more equal. Everyone can aspire to self-improvement – it doesn't depend on you being a member of the right party, or clan, or caste.

And capitalism can only survive within a framework of moral rules. Rules like the respect for property, for example. People won't build up productive businesses if politicians, robbers, or soldiers can simply march in and take everything from them. Capitalism needs a rule of law to survive. And it needs honesty too. Customers aren't going to go back to a supplier who swindles them, or treats them unfairly, or does not honour promises, or even offers poor value. If you want to survive in business, you need to serve your customers, treat them honestly, and win their trust.

Rather different from our monopoly public services, where people get paid whether they do a good job or not. No, capitalism doesn't need politicians to teach it about morality, thank you.
 

Dr Eamonn Butler's new book, The Rotten State of Britain, is now available to buy now. Click here to find out how.

Following through with Free Trade

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Protectionism harms and trade helps. Almost all the world’s leaders have come to accept this message, and many even champion it. However, as economies falter, little is actually being done to end the process of ‘beggar thy neighbour’. This may be extremely harmful.

For once, I actually agree with Gordon Brown who argues that, “we must tackle protectionism and not risk a spiral of trade collapse". However, while some of his rhetoric is promising, his actions are less so. Only time will tell whether he means what he says, and follows through on his catchphrases; the lessons of recent history suggest otherwise.

His focus remains on securing a ‘stimulus for trade’ rather than allowing genuine free trade, and his comments on British jobs for British workers are hardly reassuring. Free trade is the process that allows individuals to transact without interference from government. A ‘stimulus for trade’ as described seems less like a removal of barriers, and more like an international stimulus plan. If recent ‘stimuli’ are anything to go by, higher government spending supported by a wave of subsidies and barriers focused towards special interest groups are on the horizon.

This will do little for free trade, or all the people around the world who benefit from trade so significantly. The policy does not determine resource allocation by allowing free exchange between individuals based on comparative advantage. Subsidies, taxes, tariffs, and non-tariff barriers are protectionist even when they are disguised as stimuli.
If Brown is truly dedicated, he will push world leaders to lower their barriers, force the EU to lower the common external tariff towards zero, and if unsatisfactory progress is made, leave Europe altogether to join EFTA. This move would continue to allow the UK access to the single market, thus maintaining all the trade benefits with the EU. Additionally, it would allow us to pursue a much freer trade policy, leading the way forward to the benefit of the mass of consumers and producers in the UK, and to our partners across the world.

In times of economic woe, protecting free trade against special interests is even more vital.