Capitalism in crisis?

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On my way to work this week I sighted a number of posters stuck up around Victoria Street. Advertising Socialism 2009, these flyers proudly bear the slogan “Capitalism in Crisis: Marx was Right". An remarkable claim. A look down the road shows hundreds of commuters striding to their destinations. Everywhere shops are opening, and little cafes are overflowing. The inescapable truth is that capitalism is valiantly ploughing on; and everybody seems determined in supporting it.

The economic crisis sent shockwaves across the world, and recessions have thrown national economies completely off-kilter. It has been painful and faintly embarrassing; how did we fail to see this coming? Capitalism as practiced is a cyclical affair; with centralized attempts to temper fluctuations causing increased and prolonged destruction further down the line. Marxists are absolutely salivating because the banks are a mess, the UK are still in recession, unemployment is rising. In the mix, political freedom allows expression of opinion, and technology brings those of a similar mind together. The circumstances are perfect for ‘spontaneous revolution’.

But where is it? The truth is, society does not want a new economic and social order. What people want from the back of this crisis is a return to normality, and a return to the markets that have served us well and made countries richer for generations. People do not feel oppressed and exploited by capitalism, because it works for them.

Socialism 2009 is held with pride, despite the obvious failure of central planning across the world. As we celebrate the fall of the Berlin Wall, believers in individualism, liberty and competition should make their voices heard without any embarrassment. Free markets have made lifted untold millions out of poverty, given us all more goods and opportunities and entrenched freedom and diversity. These are reasons people continue to choose the market. Roll on Capitalism 2010.

£25 billion more

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If only they were just burning it.

Dealing with the EU

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So, after years of handwringing, it has finally happened: the EU Constitution Lisbon Treaty has been fully ratified and will now come into force. The Tories say there is no point in Britain holding a post-facto referendum, because it wouldn’t make any difference anyway. The position is that when they’re in government, they will seek to renegotiate Britain’s relationship with the EU and repatriate certain powers from Brussels. The opt-out from the Social Chapter will be restored, and so on.

Well, I’ll believe it when I see it. As Fraser Nelson has written on the Spectator’s CoffeeHouse blog, it is more than likely that the EU will be kicked into the long grass as a political issue and that superficially attractive measures like the proposed Sovereignty Bill will be largely symbolic. Meanwhile the Lisbon Treaty will have created a federal superstate without any real constraints on its growth. Brussels will accrue more powers, British sovereignty will continue to ebb away, and the regulations and directives will keep piling up.

That, sadly, is the reality of the situation. But it doesn’t have to be that way. What we need is a completely different set of tactics for dealing with the EU. Polite negotiation will get us nowhere. We should simply repatriate powers unilaterally. We don’t want the Common Agricultural Policy? Fine, scrap it in Britain and withhold the part of our EU contribution that would have gone towards it. Want a real opt-out from the social chapter? OK, just state that no EU measure related to social and employment policy will have any effect in Britain.

The EU won’t like it. They’ll make a fuss and snub British politicians at gravy-train summits. The European Court of Justice will hold that we are acting illegally. But at the end of the day, who cares? The EU only has legitimacy in so far as we acknowledge its legitimacy. Like all matters of international law, the EU depends entirely on the consent of those bound by it, or the willingness/ability of some to impose their will on others by force.

To restate my case plainly: if the Tories want renegotiation, they must present their desired relationship with the EU as a fait accompli. Doing things the traditional way will get them nowhere.

UK banks – payback time

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As Royal Bank of Scotland (RBS) and Lloyds (with HBOS) went round Go to collect a combined £37 billion of recapitalisation funds – courtesy of the hard-pressed taxpayer – it was inevitable that, one day, payback time would arrive.

Due primarily to EU pressure, RBS is now being forced to dispose of hundreds of its branches and its two high-quality insurance businesses – Churchill and Direct Line. Lloyds, too, has not escaped: its Cheltenham and Gloucester franchise is to be sold.

And why, pray, has the unelected Dutch bureaucrat, Neelie Kroes, become the key player in restructuring the UK banking sector, which is seeking new high quality entrants, such as Tesco, Virgin and Spain’s BBVA?

What has raised eyebrows, though, is the staggering amount of money involved. In Lloyds’ case, there is good news since a heavily discounted rights issue will enable it to exit the Government’s Asset Protection Scheme (GAPS).

Originally, GAPS was planned to cover toxic liabilities of £585 billion. With Lloyds now exiting, the new £282 billion figure is wholly attributable to RBS.

To reduce GAPS’ liability by over 50% is to be welcomed – unwinding GAPS was one of the ‘Ten Economic Priorities’ identified in an ASI publication last May.

The level of financial support for RBS defies belief. Following the latest announcement, the total figure – a financial record-breaker - is a staggering £53.5 billion, including the £8 billion recapitalisation option. It puts into perspective the subsidies controversially paid to British Leyland all those years ago.

As such, the Government’s stake in RBS would move to 84%, with financial support being close to £1,000 for each UK person.

Moreover, RBS is not out of the woods yet - its share price continues to fall following the EU’s rulings.

Those responsible for RBS’ unbelievable plight bear a heavy burden. How will history judge them?

Forced sex education

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Ed Balls has announced that parents can no longer pull their children out of sex education classes in England once they  turn 15.

It is a move away from the government’s position in 2008, when Schools Minister Jim Knight stated that:

I think it's important for individual parents' views to be taken into account in some of these sensitive areas and their right to withdraw from parts of education in those areas that they do not feel comply with their moral views and beliefs and that they will be better dealing with in the home…That would be something that would take us a lot of persuading to move away from.

This is yet more meddling in education. Ed Balls justifies the move by the facts that the age of consent is 16 and the voting age 18. How this relates to forcing even independent schools to teach sex education to 15 year olds is beyond a rational mind.

By taking increasing amounts of power away from schools and parents, this policy is weakening the individuals and institutions that will enable children to be brought up in a way that is fitting for their needs. If schools wish to offer an abundance of sex and relationship advice, then parents should be free to send their children to those schools. However, if instead the parent wishes to offer their child a slower jolt into adulthood than most children get at present, I can think of no reason why the state should be involved in this decision. Depending on the circumstances and the child, different approaches will be appropriate.

Ed Balls argues that this policy will only impact upon a "very small minority" who currently choose to opt out; their wishes are to be sacrificed so he can build  "a strong consensus". Without wishing to come across as too conservative on these matters, much of the strong consensus that makes up the statist fabric of 21st century mores, is worth opting your children out of. As such, on this as with all aspects of education, the state should leave well alone.

Silly stuff, but great adverts

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Ever get the feeling that you are running just to stand still?

How green taxes boost emissions exports

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Over-high green taxes and regulations destroy jobs without saving the planet.

Green campaigners make a fair point that rich countries like the UK actually emit more carbon than they let on. That is because a large part, maybe most, of their manufacture is done elsewhere. We busy ourselves selling insurance and making fashion videos that emit a lightbulb's worth or carbon, but we buy our cars, computers and clothes from other countries that are less squeamish about belching smoke into the atmosphere.

Their solution, of course, is that we need to cut back more – switch off that lightbulb! – to compensate, and that we should buy fewer cars, computers and clothes and live within our environmental means.

As always, the role of incentives is forgotten. Under the Kyoto protocols, the UK and other developed countries have significant targets for emissions reductions. And like everything else, that can be achieved in one of two ways: either by banning industrial processes that create them, or by taxing carbon so that nobody wants to emit it.

But there is a snag. If you ban too much or tax too highly, those processes will leak abroad to other countries which regard growth more important than global emissions. And already, we impose taxes well over the Stern Report's carbon cost estimate of £80/tonne. Sometimes, we can't escape them – ask any motorist or air traveller. Where we can, though, the above-reality fantasy tax just one more thing that pushes manufacturing out of the UK. The world is too full of such distortions already. Taxation should be based on reality, not self-righteous posturing.

Dr Butler's book The Rotten State of Britain is now in paperback.

For a real fiscal stimulus, let's invade Europe!

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Here is Nobel Laureate Paul Krugman on how to bring a major recession to an end:

It took the giant public works project known as World War II — a project that finally silenced the penny pinchers — to bring the Depression to an end.

The lesson from FDR's limited success on the employment front, then, is that you have to be really bold in your job-creation plans. Basically, businesses and consumers are cutting way back on spending, leaving the economy with a huge shortfall in demand, which will lead to a huge fall in employment — unless you stop it. To stop it, however, you have to spend enough to fill the hole left by the private sector's retrenchment.

I’ve read a lot about World War II, but I don’t think I’ve ever heard it described as a “giant public works project" before.

Of course, with conscription it is easy to get full employment. And industry will certainly churn out shells if you keep firing them. But the idea that war boosts the economy is as boneheaded (to use a phrase Krugman likes to use about those with whom he disagrees) as suggesting that breaking windows stimulates economic growth because it provides work for glaziers.

War is a massive waste of resources. A vast amount of American productivity – and the productivity of other nations – was wasted producing things that serve no productive purpose. Worse, they actually destroy other productive items. The US and the UK lost over 400,000 productive citizens apiece. Meanwhile, the rest destroyed factories and infrastructure across Europe and the far east. I don’t want here to start a debate about whether the war was one of necessity or choice; for the purposes of this discussion, that is irrelevant. The important point is that suggesting that World War II was beneficial to the economy of the United States is not only disturbing but is also nonsense.

The current fiscal stimulus is not focussed on warmongering, to be fair. But there is still a lot of unproductive expenditure that the government would like to hasten in the belief that it will generate a fiscal stimulus. New aircraft carriers are still being built; the ID cards rollout is being sped up. These projects cost billions, yet are utterly unproductive. But even if the stimulus was “productive", focussing on infrastructure and capacity building, it would not necessarily be beneficial. There is no way that the government can decide how best to allocate those resources: whether a bridge is more important that a school; a power station more productive than a harbour; wireless internet for Birmingham more valuable than broadband for Yorkshire. So even if the “stimulus" is productive, it cannot be demonstrated that the resources so allocated would not have been more productive if the original (pre-taxation) owners of the resources had been allowed to allocate them instead.

In fact, the empirical evidence for fiscal stimuli is damning. Stimuli rarely achieve a “multiplier" greater than 1, which means that at most the boost in GDP is only equal to the boost in government spending. More often than not the multiplier is less than 1, so the economy grows by less than the government spends (e.g. a £200bn fiscal stimulus might lift GDP by just £150bn). This is clearly a disaster for the economy, as future growth will be sacrificed as we repay a debt that did not even pay for itself at the time. In the meantime, the extent that government controls our lives grows: government spending grows even as the economy shrinks, creating a pincer movement on our freedom.

Which seems to bring us nicely back to World War II.

I'm too sexy for my council

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A Councillor has been told he will not be re-selected for next year's elections after posting a 'How Sexy Am I' quiz on Facebook.

Time to reform Parliament – or blow it up?

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If Guy Fawkes came back today and blew up Parliament, would we notice any difference? In a new briefing published today, ASI fellows Tim Ambler and Keith Boyfield say they're not so sure. The EU writes our most important laws, and ministers are more accountable to the media than to MPs. New regulations, like those giving councils the power to search our homes and freeze our bank accounts, are never even debated. MPs vote as the party whips tell them, not as their constituents want. No wonder 80% of Brits think that Parliament has lost the plot. According to their paper, Knaves and Fawkes, MPs keep themselves busy – and not just on fiddling their expenses. But much of their time is wasted on trivia, leaving them overwhelmed by the deluge of new law coming from Brussels and Downing Street. Parliament's founding purposes – to make laws, restrain public spending, hold ministers to account, and represent the public – now exist only in name. But tempting as it is to blow up Parliament and sell the land to reduce the National Debt, Ambler and Boyfield say we should put aside the gunpowder, because these are vital democratic protections that need to be re-asserted. However, nobody will trust MPs until they clean up their expenses act, and streamline their operation. Britain has 646 MPs while the United States, with five times the population, has just 435 Members of the House of Representatives. David Cameron's proposed 10% cut in MP numbers does not go far enough, believe the authors, who suggest a far more radical reduction. And instead of spending hours discussing road closures and drains, the time devoted to both UK and EU legislation should be proportionate to its importance, says the paper. EU regulations should be more effectively scrutinised, and MPs should be told which of the annual 3,500 'statutory instruments' that currently go through on the nod embody serious legislative changes rather than trivial amendments, so that they can be discussed and voted on. Ambler and Boyfield would strengthen accountability by making regulators like Ofgem, which sets gas and electricity prices, answerable to MPs, and MPs should be able to question civil-servants directly, rather than having to go through ministers. And Opposition MPs should chair the main parliamentary committees to ensure close scrutiny of ministers and officials. As Eamonn puts it, "Parliament today has lost its power and significance. It should reform itself and not wait to be told what to do by Whitehall, Downing Street, or Brussels – none of whom would be sorry to see it go. Otherwise, they might find the electorate putting a large keg of gunpowder under them all."