It's the debt and the spending

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Edmund Conway makes a shrewd observation in the Telegraph. It is not just that "for the first time since the start of the financial crisis, investors demanded a bigger premium in return for holding British debt than Spanish," bad news though this is. Nor is it that "the Bank of England has embarked on a quantitative easing scheme that involves printing enough money to buy the annual economic output of Denmark." It is that our time-honoured formula for dealing with runaway debt and runaway spending - by runaway inflation - will probably never work again. Could we try it again, damaging and humiliating though it would be?

Look at the figures. About a quarter of our debt is index-linked bonds, which rise automatically with inflation. And many of our liabilities, including public sector pensions, state pension and PFI, are now also tied to inflation. It means that the option of cheating our creditors by repaying them in devalued pounds is no longer a valid one. Four-fifths of our debt, says Conway, is inflation-proof.

What, then, can we do? You stop the spending spree, cut back the public sector, stop financing a pre-election spending spree on debt, and start a programme of retrenchment and repayment. Coupled with that must be tax reductions to boost incentive and growth, to generate the wealth that can repay that debt. It will be done, but not by this government. Maybe, just maybe, it might be done by the next one.

Madsen Pirie's "101 Great Philosophers" can still be ordered in time for Christmas presents.

Father Christmas: Public health pariah

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Christmas: a time for festive cheer, family and eating rather more than normal. Not for Dr Nathan Grills. Writing in the British Medical Journal, the traditional Christmas wish of ‘goodwill to all men’ has been extended to cover protecting the public from the horrific, dangerous, yuletide threat that is Father Christmas. Utterly po-faced, Dr Grills accuses Father Christmas of acting in a reckless way that could “damage millions of lives". Some of his crimes are as follows:

- embarking on high-speed air travel without wearing a seatbelt or helmet, and partaking in dangerous sports such a roof-surfing
- blatantly ignoring the drink-drive limit by consuming copious measures of brandy
- equating obesity with cheerfulness and joviality
- encouraging parents to expand their own waistlines by scoffing the mince pies left out for him
- ever so occasionally being depicted with - shock-horror - a pipe in hand.

No doubt Father Christmas also glorifies the unlawful entering of people’s homes.

Likening Father Christmas’ selling power to that of Ronald McDonald, the author is concerned that Mr Christmas is sending young, impressionable children into a spiral of unhealthy behavior, which must be stopped. The answer? Give the fat man an ever-so-socially-correct makeover, swapping mice pies for celery sticks and the reindeer and sleigh for running shoes.

This report beggars belief. Father Christmas is an adored figure across the globe with an approachability and mysticism that would be utterly undermined if he served as government propaganda for healthy living. The idea that he drags children into a life of drink-driving obesity is absurd. Encouraging illustrators the world over to ease the conscious of the over-anxious, do-gooding ‘experts’ is appalling. Luckily, I’m very confident that this article will just result in incredulous laughter.

All the same, I don’t want Father Christmas to be at risk of developing liver failure, so I’ll leave him a nice bottle of Nanny State beer by the fireplace this year.

Pay nothing, get nothing

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Keeping London’s museums and galleries free will cost the taxpayer over half a billion pounds in 2009. Free costs quite a lot, doesn’t it?

Of course, many who claim to value that which is kept behind the heavy doors of these institutions often come quickly to the defense of keeping them free to all. If they throw in a collection of Blairisms about social opportunity the other side of the argument is swiftly shut down. Yet most of the people defending free museums and galleries surely don’t actually visit them or they would not hold these opinions. In my experience the whole process is more often than not an ordeal. Free museums and galleries are overcrowded and under-appreciated, full to bursting with people that ruin the experience for people who value the artifacts and art on display.

It is like subsidising football matches only for most of the crowd to turn its back on the match, natter about what they are do at the weekend while doing the knitting. I oftener visit the excellent Courtauld Gallery than the free galleries. The small amount it costs to enter seems to be enough of a deterrence for anyone who usually treats such places as a creche, meeting point or playground.

So who are these people claiming that museums and galleries should be free? The loudest voices come from the politico-media types who get free invites to attend when a corporate has rented out a whole exhibition. Fine, but the rest of us would also like the luxury of being able to pay for the privilege of having people in museums and galleries that actually value what is there. Overcrowded museums and galleries are claimed to be a sign of success, they are not.

The only solution to overcoming the overcrowding of these commons is for these institutions to charge for entrance. The taxpayer would also be unburdened by half a billion quid to boot.

Inequality and the minimum wage

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I take issue with an aspect of the New Economics Foundation report discussed here by Charlotte yesterday. It apparently finds that the reason that the minimum wage can’t tackle inequality is because it has not been indexed. As the report states in the introduction, the NEF calculates that the UK could gain 7.35 trillion of social value between now and 2050, if only the UK achieved Danish standards of equality. Being a Dane I am flattered that my country is being used as a benchmark of good policy. However, there might be some misunderstandings of how the Danish system actually works.

First of all, yes Danes pay more income based taxes than in the UK, but with the tax reform in Denmark and increasing taxes in the UK this is about to level out. We also pay a higher rate of VAT, however we have a somewhat simpler system of calculating VAT since everything being sold is subject to a 25 % tax. This is a bit simpler than the extraordinary list of rules for VAT in the UK, leaving the Danish companies administrative burden at a minimum. Regarding corporate taxes, these are actually lower than in the UK, as are capital income taxes up to certain revenue.

So what about that minimum wage? You might be surprised about this but there is no minimum wage in Denmark. The minimum wage totally depends on what job you are carrying out and what convention has been negotiated between the union and the employer’s organization, i.e. more or less the market value of labour. This is also to say that most regulation in the Danish labour market is not enforced by law but by mutual conventions. Both unions and employer’s organisations agree that the government should stay out of matters concerning the labour market. So we don’t have a minimum wage, then what about the maximum wage proposed by the NEF? We don’t have that either, but we are still one of the most equal countries in the world. If equality is what NEF want and Denmark is thier model, they need to formulate some new policies.

No escape from World Government

Indeed, it is only the potential for people – and capital – to fly to freer countries that prevents governments from being more tyrannical. Governments’ ability to force their citizens to surrender their property is constrained by competition from lower-taxing rivals, while societies that allow successful people to enjoy the rewards of their efforts can attract skilled workers away from less free societies. And this competition also enables societies to learn from one another: the oft-cited examples of superior practice abroad (be it high-welfare Scandinavia, high-growth East Asia or English-speaking North America and Australasia) rely on other jurisdictions trying different things, from which we can learn.

Neither, despite the passionate belief of those behind World Vote Now, does democracy always lead to prosperity. The Social Democratic failure of the mid-20th Century proves that. Bad policies can dominate even in democracies. Indeed, democracies have in-built features that undermine freedom and general welfare. The current economic crisis, caused by broadly similar policies across the developed world, should act as a signal warning that one world government would have the potential to get it wrong on a colossal scale.

It is questionable how democracy could work across 6 billion people, anyway. A legislature the size of the UK House of Commons would be made up of members who each represented 10 million people. I doubt many MPs will hold surgeries or canvass voters across constituencies the size of Beijing. Yet a larger legislature would not function. Consequently, politicians will simply be more remote; more isolated from voters. We should be devolving power, not pushing it ever further away.

Lastly, there is the risk of utter calamity. Recent history has contained far more civil than international wars, and they have proven far more costly in lives. They fall into two categories: wars to control the government; and wars to break away and form a new state. Both have resulted in (sometimes immeasurable) human suffering. Even democracies have not been spared. The potential suffering from a global civil war is too horrifying to contemplate.

There is an alternative. Polities could be small; close to the people: probably the only way that power can be held in check and made to serve, rather than to master, the people. Politicians could be limited to doing only that which individuals cannot achieve either on their own or by cooperating freely with their fellows. Polities could have open borders so that they would benefit from the work and resources of all mankind. They would be free to experiment and so to learn from one another.

Most of all, they would provide havens to which the victims of oppression could escape. Under a world government, minorities, non-conformists and dissidents would have nowhere to hide and nowhere – absolutely nowhere – to run.

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In 1620 a group of religious non-conformists, oppressed by the English Church and government, fled Southampton and sailed to a new world, where they founded a colony where they could practice their religion freely. For 30 years, East Germans would risk (and sometimes suffer) death or torture to cross from Communist East to Democratic West Berlin. In 2008, over 25,000 people sought asylum in the UK, many with their dependents in tow.

Yesterday, my brother sent me a link to a website advertising the documentary-film World Vote Now. This latest campaign for a world government – based upon democratic lines – asks the question “[If] democracy creates stability and raises living standards... why not introduce it on a worldwide scale?"

The Pilgrim Fathers and the East Germans entangled in barbed wire might be able to answer that question. When all is said and done, there is one, final check upon a government’s ability to oppress its people. It is the mechanism used by Cubans when they tie empty oil drums to the chassis of old cars and try to paddle to Florida, or by North Koreans who manage to sneak all the way from the Yalu River to Bejing to try to slip into foreign embassies and beg for freedom. It is the ability to escape.

The advocates of a world government would of course claim that, constituted democratically, a world government would not oppress its people. This is charmingly naive. India, the world’s largest democracy, faces more independence movements than one can easily count. The United States government spies on its own citizens in breach its own constitution. The UK has more CCTV cameras than any totalitarian state and our government would seek to vet one in seven of us and make us all carry identification papers at all times.

[Continued... CLICK HERE TO READ MORE]

The pacman expenses game

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Kirkbride, Martin or Blears?

A bit rich

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The New Economics Foundation’s latest report ‘A bit Rich?’ advocates a ‘fundamental rethink of how the value of work is recognized and rewarded’. This is on the back of the argument that wages paid to people in different professions don’t reflect the ‘real’, social value of their roles.

The report repeatedly reveals an automatic desire for state intervention and regulation, based upon an aspiration for significantly greater equality of outcome. Unsurprisingly the three examples used for ‘highly paid yet socially catastrophic’ jobs come from the private sector; namely banker, tax accountant and advertising executive. When analyzing tax accountants they note that “every pound that is avoided in tax is a pound that would otherwise have gone to HM revenue"; and proceed to look at “how this lost revenue could have been better spent" by the government. This analysis neglects the fact that despite huge increases in public spending and taxation in recent years few if any improvements in the state of public services can be noted. The NEF are wrong to argue that wealth is better off in the clammy fist of government than being put to productive use by those that earned it.

The report also seems strangely puritanical. Advertising executives are deemed vastly destructive because they create ‘insatiable aspirations’ and fuel the social and environmental damage caused by over-consumption – as if seeking to better your lot and consume over and above the absolute minimum is a sin. When measuring over-consumption the Joseph Rowntree Foundation’s Minimum Income Standard – categorized by the charity as the lowest income at which someone can lead a meaningful existence – is taken as the level of consumption deemed acceptable.

The report neglects the true reason for differences in wages: the need for certain skills. Almost everybody could go around a hospital with a bottle of antiseptic, but it is unlikely that many of us would be able to understand opaque tax laws that highly-paid accountants have to. To have jobs priced according to their social (read ‘political’) value and not the scarcity of required skills would result in a chronic misallocation of labour.

The report concludes that we need more progressive taxation, higher minimum wages and a national pay differential to prohibit anyone from earning over a certain amount. It is a call for socialism and all its attendant failures, and no pretence of social benefits should disguise it otherwise.

Further education reform

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Further education is oft neglected by the headline grabbing areas of compulsory and higher education. Yet it is also in vital need of reform, as an excellent IEA publication entitled ‘An Adult Approach to Further Education’ by Professor Alison Wolf makes clear.

The problem with further education is familiar one, namely too much government wrapped up in the ubiquitous quangocracy of central planning and control. Of the many intersting findings of Professor Wolf’s paper, crucial is the fact that many of the qualifications that the government promotes have no economic value at all. In fact:

A conservative estimate is that £2 billion a year of further education and skills spending – i.e. almost half of total government expenditure in the sector – is wasted, providing no benefit to individual learners or society at large.

Lord Mandelson, the country deserves an explanation for this failure.

In my opinion Professor Wolf is not radical enough. She suggests that there are valid arguments for some subsidies being continued and calls for the extension of the government run student loan scheme into further education. Instead of government subsidies individuals and employers could do far better job at deciding when to undertake further education and when not to. Where markets are free, supply and demand will be met, while the case of NIIT shows that the poorest in the world can access high quality further education services at no cost to the taxpayer. The introduction of the student loan scheme would be a distortion of the credit market, which only benefits the providers of education who are able to increase their prices in line with the increases in available credit. Government subsidies and loans do not take away the risk inherent in undertaking further education, but instead muddy the waters for consumers and providers of education.

Yet despite my reservations, there can be no doubting the immense step that would be taken if Professor Woolf’s proposals were put into action. If this area is to be subsidised, better to do it through individuals, as she suggests, than rely upon central government and quangos to try to manage over the unmanageable. Professor Wolf sums up the situation as follows: “The idea that one can plan for anything as complex as the modern labour market would be laughable if it were not that we are wasting vast sums of money attempting to do so". How true.

Relocation time

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In a previous blog I implied that those who are to be hit by the 50 percent super tax next year, would be likely to pay the tax for a year or so without taking any further measures. However, I am happy to admit that I was wrong and the reactions are already showing it. For example, the inter-dealer broker company Tullett Prebon has reacted rapidly on the government’s PBR and announced that they are willing to help employees relocate if they wish to get out of the hands of Her Majesty's revenues and customs. As reported in The Daily Telegraph, the core issue for people who wants to be relocated is the uncertainty that the British government is forcing on the private economy.

Earth watch

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Sigh!