Budget 2013: The good, the bad and the ugly

It’s not saying much, but this was George Osborne’s best budget yet. These tax cuts are long overdue, though they are not significant enough to solve Britain’s growth problem. Cutting taxes for businesses will stimulate investment and job creation, and reducing the tax burden for low- and middle-income earners will make life easier for them.

But government spending is still rising by £20bn this year. The government’s plans to meddle in the housing market are staggeringly misjudged, and we risk repeating exactly the same policy mistake that led to the US subprime mortgage bubble. And we’re still going to be borrowing £108bn this year – that’s £295m a day, every day, with no end in sight.

The Good

Personal allowance raised to £10,000 by 2014. Income taxes are smothering workers. The taxman takes more than 30p out of every pound earned by low- and middle-income workers above the personal allowance. Raising the personal allowance to £10,000 ahead of schedule is a significant step to reducing the tax burden for low- and middle-income workers, and creates the tantalising prospect of the personal allowance being pegged to the minimum wage rate in 2015.

Corporation tax to be cut to 20% by 2015. At last, an encouragingly bold tax cut for business. The corporation tax rate will be falling from 28% to 24% this April, then from 24% to 21% next year, and finally from 21% to 20% in 2015. Although this does indeed put Britain ahead of other ‘major economies’, small countries like Ireland (which has a corporation tax rate of just 12.5%) will still be able to outcompete Britain in attracting investment from multinational corporations.

Employers’ national insurance bills cut by £2,000 for every firm. Employers' NICs are a direct tax on jobs, so tax relief should allow some businesses to take on extra employees. The cut will have the most pronounced impact on micro-businesses, 450,000 of which will reportedly be taken out of tax altogether.

Beer duty to be cut by 1p, and the ‘beer duty escalator’ to be scrapped. Two weeks ago the government was pushing for minimum alcohol pricing, and now it’s cutting the price of beer. It might not be cutting duty by much, but it’s a welcome change after years of miserable, anti-poor paternalism. And scrapping the outrageous ‘beer duty escalator’ is long overdue. No Chancellor should be able to pretend that a tax hike is out of their hands.

The Bad

The Bank of England’s 2% inflation target to stay in place. Inflation targeting has failed. It creates invisible excess inflation during boom periods (by keeping prices rising by 2% when prices should be falling because of productivity gains) and cannot offset changes in velocity in bust periods, leading to secondary deflations that amplify the damage caused by the initial bust. An alternative, rules-based system (such as an NGDP target based on a futures market instead of the discretion of the Monetary Policy Committee) would be a much less harmful mandate for the Bank of England. Mark Carney had indicated that he was sympathetic to this kind of reform. By giving up the chance to rethink British monetary policy, the Chancellor has snatched defeat from the jaws of victory.

20% tax relief on childcare vouchers up to £6,000 per child from 2015. Expensive childcare is a consequence of the costly regulations, such as mandatory maximum children-to-staff ratios (3:1 for under-5s and 1:1 for infants under one year old). If the government wants to make childcare more affordable, cutting these sorts of regulations back would be a better place to start than using taxpayers’ money to pay for childcare for parents earning up to £300,000/year.

Tax avoidance and evasion measures aimed at recouping £3bn in unpaid taxes. Tax avoidance is a legal and legitimate response to the perverse incentives of a complex tax code created by politicians trying to exempt a pet project or special interest that they favour. Tax evasion, too, is a rational response to high taxes and is only possible because of the complications in our tax code. The best way to reduce evasion is to simplify the tax code, not to persecute people taking advantages of a corrupt system.

£3bn extra for new projects every year from 2015-16 until 2020, totalling £15bn. Capital spending projects are always popular with politicians who want to leave a expensive railway line, bridge or motorway as a legacy, but there is a long history of infrastructure projects doing little help their flagging economies. Barack Obama’s $800bn stimulus package, launched in 2009, focused on ‘shovel-ready’ projects and did virtually nothing, as did successive Japanese stimulus programmes in the 1990s and 2000s. Any extra money from spending cuts should be given back to the private sector through tax cuts, where it can do the most good.

…and the Ugly

Bank guarantees to underpin £130bn of new mortgage lending for three years from 2014. Apparently the Treasury has not learned the lesson of 2008: injecting taxpayer money into the housing sector will simply inflate prices, distorting price signals and stoking the housing bubble that already seems to be growing in the housing sector. Houses are expensive because supply is restricted by the planning system. Instead of throwing money at the problem and driving prices up even more, the government should have the courage to liberalize planning to allow more development, including on green belt land.

Government ministers picking winners. Fiddling with tax breaks for specific industries is a mug’s game. There is no way the government can know which industries to promote, and these projects inevitably collapse into a mess of overcomplicated grant schemes and politics-driven bailouts of failing firms. Only consumers can pick winners.

Government spending is still rising. Despite all the talk of cuts, the government will still be spending £761bn this year, nearly £20bn more than last year. By leaving healthcare alone and failing to carry out the big structural reforms needed to reduce social security spending, the government  is not matching its rhetoric on spending with the action needed. We’re still going to be borrowing £108bn this year – that’s £295m a day, every day, with no end to the borrowing in sight.

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Regulating the press

Libertarian regulation theory shows us how state power, apparently used for benign purposes, ultimately results in the exploitation of consumers and the misallocation of resources. Of the two great threats to our economic progress and liberty - state spending and regulation - I would argue that it is regulation that is the greater threat.

State spending is often contested and its results are at least clear to see (although the fact that state spending in the UK is vast and growing should not be forgotten). Regulation, on the other hand, is a far more subtle threat and seems to gain approval across the political and public spectrum. The corporatist pseudo-markets created by regulation in banking, energy, rail and so on are decried as evidence of the failure of capitalism when they are anything but.

As we have a current example of new regulation, it is interesting to apply the theory and see what might be the result. Regulation* is often introduced when there is assumed to be a case of 'market failure'. Broadly, the impact of regulation is to create barriers to entry which protects existing market players and tends to promote consolidation within the industry. Small and more innovative firms, which would otherwise enter a market where large profits are to be made, are thus excluded. Existing players are thus able to dominate the market and drive up prices or prevent innovation. 'Government failure' is thus ignored but it is the consumer and the society at large which suffers.

In the case of Press regulation, many of these features may occur. We cannot call the print media a 'free market' but it is freer than, say, the broadcast media which is dominated by the BBC and bound by tight regulation on objectivity. An instance of perceived 'market failure' in the form of phone hacking was used to justify regulation, ignoring the fact that phone hacking was illegal under existing laws. We can already see how regulation might drive out small players who are currently undermining the profits and market share of the established Press.

The position of small internet bloggers and innovative media news outlets is jeopardised - will the Pin Factory blog be forced to sign up to the press regulator? What influence would we have there? What if the new regulator imposed punitive fines on us?

In many markets, it is the large occupants who welcome regulation and - in fact - connive at its introduction. While they have to sacrifice some control to regulators, they are guaranteed a protected market share and healthy profits whilst avoiding the trouble of innovating against and out-competing small rivals. Further, large firms often have a 'revolving door' to regulators and are able to undertake expensive lobbying to further protect their positions.

Some portions of the Press are opposed to the new regulation, a condition which probably stems from an ideological position unique to this industry. However, it is clear that, under the system of state regulation, it is the large, extant players who would dominate the regulator and be in a position to use this power against potential rivals. In many industries, the emergence of corporatism would be unfortunate. In the case of the Press it threatens to be fatal to liberty.

*We must take care to distinguish 'regulation' from 'law'. Regulation is intervention designed to control the size and shape of a market, prices and quality. Law is (or ought to be) solely concerned with property rights. 

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Budget 2013: Six pro-growth policies from around the world

Ahead of tomorrow's Budget, we look at six pro-growth policies from around the world that we'd like to see the Chancellor follow.

1) Abolish capital gains tax, like Singapore

For the meagre revenues it raises, Capital Gains Tax (CGT) is possibly the most economically harmful tax in existence. High CGT rates depress economic activity and prevent the flow of capital to where it can be most productively used. This lowers both economic growth and government revenue. We have found that there was a 76% drop in normal disposals in the period following the government’s CGT hike from 18% to 28%, a clear sign that the government’s high taxes are costing it money.

A model for Britain to follow is Singapore. Singapore has no CGT and has proved to be a magnet for foreign investment. The Asia Pacific region attracted 33% of global foreign direct investment (FDI) in 2011, up from 18% in 2005. Thanks to its low tax regime, tiny Singapore attracted 13% of all FDI into the Asia Pacific region.

To restore Britain’s status as a global leader in competitiveness, the Chancellor should follow the Singaporean example and cut CGT back to pre-2010 rates. In the long-term, the government should aim to abolish CGT altogether.

2) Cut spending faster, like Canada

The Coalition is losing control of its deficit reduction strategy because of its overreliance on growth that has not materialized. Government spending cuts do not need to hurt the economy. Economists at Harvard University, Alberto Alesina and Silvia Ardagna (2012), have found that fiscal contractions paired with structural reforms, such as labour and goods market liberalizations (see below), can be expansionary if they signal a “decisive” change in government policy.

Canada’s experience with spending cuts in the 1990s offer a useful example of how deep spending cuts can be implemented to strengthen the economy. Chris Edwards has described how in just two years between 1995 and 1997, Canada cut federal spending by 10%, including defence, business subsidies, local government grants and unemployment insurance, shrinking total federal and local government spending from 53 percent of GDP in 1992 to just 39 percent by the mid-1990s.

The Canadian government implemented a comprehensive ‘Programme Review’ of every department. This was a root-and-branch rethink, not just short-term adjustments like those being carried out by the UK’s Coalition government. Welfare was the biggest saving with 40% real terms cut 1990-99, and every dollar rise in taxes was accompanied by a six to seven dollar cut in government spending.

A 2010 IMF study has shown that a 10% lower debt burden correlates with 0.2% higher growth, and Canada’s economic boom following its cuts supports this. Unemployment plunged and the formerly weak Canadian dollar soared to reach parity with the U.S. dollar.

Canada’s cuts coincided with the beginning of a 15-year boom, and Canada has bounced back from the global financial crisis robustly. It is a model for true cuts to spending that leave no department untouched. The Coalition should learn from the Canadian experience and make deeper cuts to spending immediately.

3) Simplify taxes and regulation, like Georgia

While the UK remains a pretty good place to do business compared to most other Western European countries, by international standards it is slipping behind. In many categories of the World Bank’s Ease of Doing Business Index, the UK performs dismally, including basic things like registering property (where the UK is 73rd in the world), enforcing contracts (21st), dealing with construction permits (20th) and starting a business (19th). The Chancellor should commit to getting Britain to the top of the Ease of Doing Business Index within five years.

One model for a dramatic improvement in these rankings is Georgia. Georgia has climbed from 112th overall in the world in 2005 to 9th overall in 2012. To do this, Georgia sharply reduced the number of licence-protected professions, simplified its tax code and reformed property registration to reduce costs and waiting times by 70%.

Every politician claims to want to cut red tape for business, but by committing to improve on an independent measure like the Ease of Doing Business, the Coalition could signal a real commitment to reducing regulatory barriers to business.

4) Liberalize employment law, like Germany

Unemployment has been a persistent problem for the UK since the 2008 recession, particularly youth unemployment. By making it easier to hire and fire workers, and to take on temporary staff as self-employed under contract, the government would reduce the risks associated with hiring new staff, which can put many businesses off employing extra workers altogether.

Germany’s Agenda 2010 reforms, implemented during soaring unemployment in 2005, limited wage rises to regain competitiveness and liberalized temporary work regulations to allow more firms to take on short-term employees. By 2011, unemployment had fallen to its lowest level since the early 1990s. Encouragingly, the number of short-term employees has fallen without a corresponding rise in unemployment.

One notable point about Germany’s labour laws is that Germany does not have any minimum wage laws. This avoids a situation where low-skilled workers are priced out of the labour market altogether. Combined with the Agenda 2010 labour reforms, this has helped to make the German work force significantly more flexible and robust to downturns than other European countries.

5) Cut corporation tax, like Ireland

The government’s corporation tax reductions are a welcome step towards making Britain globally competitive, but the cuts should be faster and deeper. Corporation tax falls almost entirely on workers’ wages: a recent study of European countries by economists at the Universities of Warwick and Oxford found that, in the long run, 92% of any rise in corporation tax falls on wages, not profits.

In Ireland, corporation tax receipts more than doubled after it cut corporation taxes from 40% to 12.5%, thanks to big increases in foreign direct investment by multinational corporations. Ireland still has the lowest corporation tax rate in Western Europe, and even in its recession has attracted big name firms like Google, Amazon and Twitter to headquarter there instead of London. Ireland is making the strongest comeback from its recession of any Eurozone country, thanks largely to its business-friendly tax regime.

To attract investment from outside Europe and grow its tax receipts, the Chancellor should reduce corporation tax to 10%, making Britain the most competitive country in the world for business.

6) Cut taxes for the working poor, like Australia

A full-time minimum wage worker currently pays £1,588 of their £12,875 gross earnings in tax. If low-paid workers were lifted out of tax, every full-time worker in the country would earn an effective ‘living wage’. By making work pay, this tax cut would partially pay for itself by increasing the number of people in work and reducing welfare dependency.

In 2011, the Australian government raised the tax-free personal allowance to AUD$18,200 (£12,513). By letting its citizens keep more of the money they’ve earned and targeting tax cuts on the poor, Australia is mitigating increases in the cost of living that would otherwise hit its working poor hard.

The cost of living is rising quickly in Britain too. Though this could be significantly mitigated by liberalizing planning regulations, allowing workers to keep the first £12,875 they earn every year and taking minimum wage workers out of income tax altogether would go a long way towards ensuring a basic standard of living for all workers in Britain.

Chart of the week: 25 fastest growing countries, 2015-2050

The 21st Century may well be Africa’s Century – not Asia’s

What the chart shows: The chart shows the 25 countries with the fastest forecast population growth over the next 25 years. Only one – number 25 in the list – is not African.

Why is the chart interesting: Demographics are not an absolute science, but the trends are broadly easy to forecast. With numerous exceptions, population growth should lead to economic growth and that in turn to a rise in political importance. Economic growth is also over the medium and long term a pre-requisite for return on investments. We are frequently told that the 20th Century was the American Century and the 21st will the Asian. But from a demographic perspective, Asian countries are almost in the same bad state as European. The fastest population growth over the next generation will be in Africa. This is also where we are already seeing some of the fastest economic growth. Whether Africa’s governments and peoples will build on this is impossible to say – but the conditions for growth are there. The 21st Century may be Africa’s.

Chart and comments provided by Stein Brothers (UK), www.steinbrothers.co.uk.

Making a complete mess of Cyprus

The people in charge of economic policy in the EU appear to believe that they can create economic reality by passing laws and reaching decisions through negotiation.  Their knowledge of human psychology seems to be even more flawed than their understanding of how markets actually work in practice.  The decision they forced upon the Cyprus government is flawed on many levels.  The bank levy punishes savers but leaves the bond-holders untouched, violating the principle that small savers should be protected, while the bond-holders who knew they were taking a punt should take a hit.

It is also a wealth tax, violating one of the principles of fair taxation that it is OK to tax transactions such as making money or buying goods, but not OK to take money from someone simply because they have it.  A state might claim to justify a transaction tax by saying that it provides and maintains the infrastructure that makes it possible for people to deal with each other to mutual advantage, but not a wealth tax.

If the Eurocrats had studied game theory or psychology they could have anticipated the anger and outrage that their move has provoked.  People mind losses more than they value gains.  They mind precipitous losses more than they mind gradual ones.  They mind visible losses more than invisible ones.  People do not like it if their €200 in the bank will, through inflation and currency fluctuations, only buy them €180 worth of goods in the future.  But they dislike it almost infinitely more if government removes €20 from their savings account.  Indeed, 'dislike' is too mild a word.  They are outraged because their government has stolen their money, even though they were not responsible for the crisis.

The signals this move sends out are that it is foolish to save, and foolish to keep money in banks.  These signals are spreading to countries other than Cyprus.  A precedent set in one place could be followed in another.  It is entirely possible that this action will set in motion runs on several banks as savers seek to place their funds beyond the reach of predatory governments.  The reaction of outsiders to this move can only be one of shocked incredulity.

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Doctors and celebrities: the enemies of liberty

If asked which groups posed the greatest threat to individual liberty in modern Britain, I would unhesitatingly cite two groups. These groups are, broadly, the medical profession and those who are generally called 'celebrities' - pop stars, film stars and so on. You may think that I am being somewhat tongue-in-cheek (and in some ways I am), yet there is a serious set of issues at stake here.

Firstly, the medical profession. Hardly a day goes by without some group of doctors or medical scientists calling for a ban on this or some sort of government intervention in that. The latest example seems to be the attempt to set a minimum price of alcohol sales, a terrible idea which, hopefully, has failed. Consumption of tobacco, salt, sugar, fat plus associated advertising are all deemed dangerous and suitable subjects for medics to attempt to ban or circumscribe via price increases . Medics also see fit to spend public money to instruct us how to live our lives and what choices we ought to make.

Some of the rationale for this comes from the doctor's protective monopoly, the NHS. As the health costs of unhealthy lifestyles are born by the state, it seems quite justified for doctors to call for bans and price hikes. Naturally, this simply demonstrates the lunatic incentive structure that state-provision of healthcare creates, especially free-at-the-point-of-delivery healthcare which externalises the costs of unhealthy behaviour. However, the chief threat from doctors lobbying stems from their apparently impartial and expert position as guardians of health and security. Unfortunately, most of their calls ignore the Public Choice and Knowledge Problem implications of the state interventions which result.

Celebrities have an even less programmatic threat to liberty, unsurprisingly for such a diverse group. They usually adopt a single-issue approach. For a long time we have had Bob Geldof and Bono calling for state spending on international aid. The greatest current threat stems from Hacked Off's campaign against a free press. Celebrities will often lead opposition to reductions in public spending or state activity such as Arts Funding. They have a powerful ability to rally strong public opinion for or against a cause, no matter how strong the case against - whilst Joanna Lumley's campaign to allow Gurkha's to settle in the UK hardly represents a major threat to liberty, although it has had some unintended consequences for Aldershot, it serves to demonstrate the power without responsibility that celebrities wield.

In distinction to the recent past, where ideological opponents of liberty tended to possess a coherent ideological programme of state intervention and control, these groups are far more pragmatic and opportunistic. Thus, in many ways, they are far more dangerous because they cannot be so easily shown to be a threat. It must be said that both groups 'mean well' - they cannot really be accused of a malign plot to oppress people. However, both represent a serious threat to liberty.

Regulations and public spending, once in place, are rarely repealed and tend to expand as they crowd out private responses. Innovation is prevented and alternative solutions are foregone. Bans and prohibitions create black markets and often serve to create other problems without solving the first (viz. recreational drugs). Whilst everyone has a right to free speech, those lobbying for state intervention need to be aware of the consequences and problems created by their support for the insidious expansion of the state into yet more aspects of our lives.

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We create resources by inventing the technology that does so

One of the things that is so difficult to get over to the "Arrrgh! We're running out of everything!" crowd is that we humans actually create resources by inventing the technology that does that creation. I've blathered about this with respect to minerals here often enough. Today's example is fresh water. Of course, we all know that there's a water cycle, that we don't destroy water by using it, we just dirty it. But it is true that there are areas of the world that are becoming short of potable water. We would obviously like there to be a solution for this and it looks like there is:

The process, officials and engineers at Lockheed Martin Corp say, would enable filter manufacturers to produce thin carbon membranes with regular holes about a nanometer in size that are large enough to allow water to pass through but small enough to block the molecules of salt in seawater. A nanometer is a billionth of a meter. Because the sheets of pure carbon known as graphene are so thin - just one atom in thickness - it takes much less energy to push the seawater through the filter with the force required to separate the salt from the water, they said.

This is reverse osmosis which is nothing very new. But here's what the new part is:

"The energy that's required and the pressure that's required to filter salt is approximately 100 times less."

100 x less?

"If you can design a membrane that's completely different than what we use today, then there's a chance for more than two orders of magnitude (100 times) increase in the permeability of the membrane," Grossman said.

Well, yes, because the cost in reverse osmosis is indeed the cost of maintaining the pressure differential on either side of the membrane.

Just to put this into actual numbers. The average UK household uses some 100 cubic metres of water a year. (100,000 litres). At current desalination costs this is $50 a year for a rough guide is 50 cents per cubic metre. Reduce that cost by 100 and we're talking about a cost per household of 50 cents, or 25 pence. At which price it really doesn't matter whether we're putting rainwater, rivers, reservoirs or desalinated water into the pipes now, does it?

This also applies everywhere else too of course. Lagos, Lima, LA...potable water simply becomes a non-problem. Agreed, you'd probably still not use it to irrigate wheat but at these sorts of prices water for industrial or human consumption simply becomes something that isn't a problem.

This is entirely apart from the fact that such a water filter fine enough to seive out the sodium and chlorine ions is obviously going to be fine enough to dispose of all microbes and viri, all heavy metals and so on, any oestrogen or other molecule, thus making cleaning up polluted water vastly cheaper. Factory run off, heck, if you really wanted to, fertiliser run off from farming.

There is good news for the worrying crowd though. You can still worry about the fact that we're running out of scarce resources to worry about running out of.

And this week's award for economic idiocy goes to....

All those who participated in this little piece of political grandstanding by some MEP or other. They ran a competition to see what would be nominated as the most dangerous financial product so that the MEP could then work to have it banned. Of course, the competition was entirely rigged: my own nomination of the euro was rejected, as was a further nomination of a financial transactions tax. On the grounds that they rather like them so of course no one should be allowed to make fun of them.

But worse than that is the pureblind idiocy shown by those who voted for the winners:

"Products based on food speculation are dangerous because they cause price increases of basic food stuff."

Which I hope you'll agree is the most gargantuan pile of steaming dingoes' kidneys since the Labour Party election manifestoes of the 1980s. For of course speculation doesn't necessarily increase food prices: even if we want to use physical speculation as our example, those speculating short will be reducing food prices as they do so.

But worse than this is as Adam Smith himself pointed out (start at para 40 here). Assuming that we do start talking about physical speculation, about hoarding and storage, the successful speculator increases food prices in the short term and lowers them in the long. To cut Smith's explanation short.

A wheat merchant purchases wheat just after harvest and stores it. He is speculating that there's not going to be enough wheat to last all the way through to the next harvest. If he's wrong, well, boo hoo, he loses money. Weep for him why not. But if he's correct then something very desirable happens. By his action he has moved some of that wheat from when it was plentiful and cheap to when it is in short supply and expensive. That's how he makes his profit of course. But he's also done something else. He's made wheat a little more expenwsive than it was just after harvest: his buying (depends upon quantity of course) will have moved the price up. This will curb consumption at that point. Similarly, when he sells in that "hungry time" just before the next harvest, he will be lowering the price below what it would have been without his sales. This will enable higher consumption at that time. Note though that total consumption is likely to fall: just what we want if there really is a shortage of wheat before that next harvest. In fact, if there is to be a shortage of wheat then we absolutely want everyone to be more economical in their consumption of it before that next harvest. Better that there's a little more substitution to barley or potatoes all year round (as a result of those higher prices) then that there is no wheat at all for 6 weeks before harvest.

Speculation thus smooths food prices through time: not raises them particularly, even if people are hoarding. But smooths them.

Aren't we lucky to share an economic and political system with elected politicians who are incapable of grasping these basic points. Who would actually ban the very thing that ameliorates food shortages. The trade and speculation in food?

It's time to legalize kidney sales

George Kirby is the winner of this year's Young Writer on Liberty Prize, beating out dozens of applicants. We are delighted to post his excellent winning pieces to the blog over the next few days, and look forward to seeing much more of him in the years to come.

Article 3 of the Universal Declaration of Human Rights holds that “Everyone has the right to life, liberty and security of person.” Through this right to power over one's own body, it is legal to donate a kidney, whether to a friend or relative (Human Organ Transplants Act 1989), or to a general waiting list as a 'stranger' donation (legalised in the Human Tissue Act 2004).

Yet these Acts stipulate that “making payments for the supply of organs for transplantation or advertising a request for, or offer of, such organs for payment” is an offence. Concerns about the possible exploitation of the healthy poor by the nephropathic wealthy have led to more state control of the free market. Meanwhile, “three people a day die on the UK kidney transplant list”, according to the BBC.

This should change. A surprising example of a legal kidney market is that of Iran. Two state-surveyed charities match those who need a kidney with those who are compatible and prepared to sell. The vendor “is compensated by both the government and the recipient”. This system means that “there is no shortage of the organs”. A similar system in the UK would save thousands of lives and help alleviate the financial strain on the NHS, which spends more than £1.4 billion each year treating chronic kidney disease.

Furthermore, selling a kidney helps the vendor. Sue Rabbitt Roff, a researcher at Dundee University, suggests students could use the money to pay off university debt.

Those who oppose such a proposal argue that the state is the best judge of the individual's interests. Dr Tony Calland, chairman of the British Medical Association's medical ethics committee, said,

"Introducing payment could lead to donors feeling compelled to take these risks [of donation], contrary to their better judgement, because of their financial situation."

As it is, the dangers are greater for those selling organs via the illegal market, where advice, safe surgery and support are lacking. The government's policy against the trade of kidneys makes it more dangerous for who will sell anyway, needlessly costs patients' lives and, most fundamentally, infringes on individual liberty on the grounds that it is for our own good.

 

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The Keynesian case against the minimum wage

Bryan Caplan lists a few reasons to be sceptical about the Card & Krueger study that purportedly shows no unemployment effect from minimum wages. His overall point is that, beyond traditional labour economics, there is quite a lot of empirical evidence to show that minimum wages create unemployment. My favourite point:

4. The literature on Keynesian macroeconomics.  If you're even mildly Keynesian, you know that downward nominal wage rigidity occasionally leads to lots of involuntary unemployment.  If, like most Keynesians, you think that your view is backed by overwhelming empirical evidence, I have a challenge for you: Explain why market-driven downward nominal wage rigidity leads to unemployment without implying that a government-imposed minimum wage leads to unemployment.  The challenge is tough because the whole point of the minimum wage is to intensify what Keynesians correctly see as the fundamental cause of unemployment: The failure of nominal wages to fall until the market clears.

I wrote about the labour economics research into minimum wages in a paper on the Living Wage last year. Even if you think minimum wages are a good thing, the levelof ambiguity around the consequences of raising the minimum wage should give you pause for thought. There are no straightforward solutions to low pay, but if there are ways of increasing the net income of the poor that don't risk putting people on the margin out of work, aren't these the ones that we should focus on?