Video: Daniel Klein on "Mere Libertarianism"

This lecture was delivered at the Adam Smith Institute last week, on Prof Klein's paper "Mere Libertarianism", which I recommend reading. You can download the slides for the talk here, and watch a longer version with questions and answers here.

Prof Klein's new book, Knowledge and Coordination: A Liberal Interpretation, is one of the best non-fiction books I've read in a very long time. You can read my review here, and buy the book here.

Yes, Virginia, there is a slippery slope

A lot of people don’t like slippery slope arguments. To people who see themselves as pragmatic, slippery slope arguments are a convenient way for ideologues to rule out small reforms. As such, people who don’t already believe in the intrinsic badness of government are usually unmoved by the idea that a little reform they like might lead to a big reform they don’t like somewhere down the line, and dismiss the case altogether.

The worst thing about FA Hayek’s “The Road to Serfdom” is the name: many people who haven’t read it (and a few who have) assume that Hayek’s argument is that a state-provided safety net will inevitably lead to totalitarianism.

But slippery slopes really do exist. One good example is tobacco control. The health lobby tends to use tobacco as a testing ground for new pieces of authoritarianism, then extends them over the other things it doesn’t like.

When we released our Plain Packaging report on the latest anti-smoking wheeze thought up by health lobbyists, we warned that, if implemented, plain packaging laws would eventually be extended to things like alcohol. This was nonsense, said the health lobby. Tobacco is unique.

Well, yesterday the government released details of its alcohol strategy inquiry. Among the areas it will look at like “raising the legal drinking age” (because that works so well in the USA?), and “reducing the strength of alcoholic beverages” (like Iceland, which prohibits the sale of beer with more than 2.25% alcohol by volume strength), was this:

• Plain packaging and marketing bans.

Ah. Looks like tobacco isn’t as unique as they assured us it was. (Dick Puddlecoat also mentioned this on his blog yesterday.)

This shouldn’t be a surprise. As soon as Australia passed its plain cigarette packaging law, the health lobby moved on to alcohol. Winning the first piece of ground allowed them to move on to the next piece of ground. We saw this in the creep of “sin taxes” from tobacco and alcohol on to fatty foods and online gambling, and it’s happening again on the packaging front.

When some people make policy proposals, they think of themselves as all-powerful autocrats, supporting precisely the policy they themselves want, and able to limit governmental power along exactly the lines they think are appropriate.

But that’s deluded. The reality is that a government big enough to tax and control the things you disapprove of is big enough to tax and control the things you approve of, too. Slippery slopes are real, and they’re dangerous. 

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Economics is fun, and it was

Today we post Madsen's 20th and final one in his "Economics is Fun" series of YouTube videos.  In this one Madsen examines if Economics can be a science like Physics or Astronomy, even with all its equations and formulae. He points out that atoms and stars don't get it into their minds to behave differently because they have new information.

Madsen and Xander had a lot of fun making these videos, and Madsen got to wear a lot of snazzy T-shirts and tops!  The series seems to be popular, in that the number of views is headed towards 32,000 [we've surpassed that already! — ed], and will no doubt go well beyond that.  Madsen's book, Economics Made Simple, can be ordered here, and the full playlist of the videos based on it can be seen here

What's GDP got to do with it?

Bryan Caplan recently discussed the nature of GDP, and the problems with a lot of what it includes:

1. Some "output" is actually destructive.  At minimum, the national "defense" of the bad countries you think justifies the national defense of all the other countries.

2. Some "output" is wasted.  At minimum, the marginal health spending that fails to improve health.

3. Some "output" doesn't really do what consumers think it does.  At minimum, astrology. . . . 

Coercive support is often a credible symptom of pseudo-output: If the product is really so great, why won't people spend their own money on it?

Once you start passing output through these filters, the world seems full of pseudo-output.  Lots of military, health, and education spending don't pass muster.  Neither does a lot of finance.  Or legal services.  In fact, it's arguably easier to name the main categories of "output" that aren't fake.  Goods with clear physical properties quickly come to mind.

Of the "non-fake" industries, he includes physical goods like food and transport, and non-physical things like entertainment — people are not mistaken in finding something entertaining or not entertaining.

In listing some problems with GDP, Caplan might have added the silly quirk when a woman marries her butler and he starts doing the housework for free. Other things being equal, the country's GDP goes down, but that doesn't mean something has gotten worse. Caplan handily points out some of the many times when rises GDP aren't much to sing about.

Yet I still use GDP, and I guess Caplan does too. There's no better measure of "people getting stuff" that I know of, and that's the best thing I think economists can hope to measure with any degree of accuracy. What posts like Caplan's remind us is that GDP is just an imperfect way of grasping around what we're really interested in measuring.

When people — especially politicians — treat GDP as the end-goal, they've misunderstood what the point of GDP is. Once you make that misunderstanding, you start asking questions like "how do we boost GDP in a recession?", instead of wondering why GDP is shrinking in the first place, whether that contraction might be unavoidable, and what else is going on beyond the surface. And if we're asking the wrong questions, no wonder we're getting the wrong answers.

Cash for no access

As long as government rules vast parts of our lives and our businesses, with nannying and interfering and market distorting measures left, right, and centre, some will try to pull the duvet towards them, leaving others out in the cold. This weekend's cash for access story is just another in a long line of similar cases.

The allegation of cronyism exposed over the weekend illustrates the absence of a free market capitalist society in 2012 Britain.  A free market is neutral.  It treats every individual equally, without privileges: you work, you thrive.

Since time immemorial people have spotted that there is a faster route to prosperity: to take it away from others.  Once, this was merely the preserve of common thieves.  The clever ones identified a more efficient device, called government. And if this government calls itself “democratic” new heights of refinement are achieved: take away from some to give to others under the guise of “fairness”, “equality”, and morality.

Sometimes it is called redistribution, as in: rob Peter to pay Paul, in the hope that Paul will vote for the robber.  Sometimes it is called crony capitalism, as in: privatise company’s gains, but socialise the losses.  Sometimes it is called fairness, as in: do all of the above, but hide it under the moral high ground.

There is a whiff of zero sum thinking about political favours.  It is the logic of the Genghis Khan and his hordes from the steppes, who pillaged and murdered their way through large parts of Europe to enrich themselves. The idea that there is only so much to go around, and that it is therefore essential to take from others to enrich yourself.  Redistributing the pie, instead of making the pie grow for all.  Redistributing by taking away property, granting privileges, and ordering people about; instead of creating wealth by way of property rights, equality before the law, and leaving people free to pursue their dreams and aspirations as they see fit.

Trade unions are at it.  Employers’ organisations are at it.  Businesses are at it.  Collectives are at it.  And you? You pay.  Cash for no access.  Not that most people, notice, of course: a large chunk of the financing system for the redistribution of favours by politicians is carefully hidden in inclusive taxes such as VAT or stealth tax such as PAYE which take the loot away without you even touching it.

Want to stop cash for access? Take away the cause.  Prevent government from looting the nameless. Reduce the size of government.

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Economics is fun, part 19: Globalization

How do strawberries and iPhones explain globalization? Madsen reveals all in this week's video. Interestingly, he mentions obsidian being found hundreds of miles away from its source in prehistoric times, hinting at the fact that globalization is not a modern phenomenon, but an ongoing feature of our whole existence. Industrialization has just been the rocket fuel for globalization, improving poor people's lives in other parts of the world today just as it improved poor people's lives here back in the 19th Century.

200% Proof perfect that we're being ruled by (...)s

I'm afraid that I don't struggle at all, like Sam did, to find something to say about minimum alcohol pricing. This is the most monumentally insane, stupid and illiberal nonsense that we've had imposed upon us in years. There have been things more illiberal, yes, but not insane at the same time. I'll leave you to fill in the (...)s in the title there for I'm afraid that my carpet biting outrage at this silliness might lead me to become intemperate in my language. Idiots just isn't strong enough.

As Sam points out a lot of the detailed heavy lifting on this has been done by Chris Snowden, sometimes of this parish. Alcohol consumption is falling, definitions of "binge drinking" are ludicrous, the statistics on alcohol related hospital admissions are nonsense (they are assumed, not counted or calculated), boozers, smokers and lardbuckets save the NHS money, not cost it and anyway, what is this interference in our charting our own way from cradle to inevitable grave? Not to say that it's regressive in distribution.

There is worse though than just entirely shakey evidential support (much of it cooked up by people paid by the government to lobby the government) and gross illiberalism. There's actual stupidity as well in at least two points. The first is that minimum pricing is almost certainly illegal. We even have case law on the point.

The second is so glaringly, inanely, stupid that it even has the European Commission on the right side of the point. And yes, you know someone has to have been really barmcaked to have managed to get them on the right side of any question more complex than the cuteness of kittens:

The European Commission sounded a warning to Britain about the policy, saying it believed “minimum tax rates to be preferable to minimum pricing for alcohol”.

“Minimum tax rates put all products on an equal footing from a market perspective, whereas minimum prices can increase the profit margin of products with the lowest production cost,” a spokesman said.

Let us assume that all of the evidence is in fact sound: that there is an outbreak of binge drinking, that this is doing harm and that higher alcohol prices will reduce these evils and harms. How magnificently chocolate teapot do you have to be to insist that that extra money from the higher prices goes to brewers and supermarkets rather than into the Treasury? If you're going to sting the boozers because they've been naughty boys and girls then the least you can do is reduce the tax burden on others, no? Instead of pumping up the profits of some favoured sector?

I can reveal that I've once met Cameron, just after he came down from Oxford. I took an instant dislike to him and I'm able to say that the intervening years haven't produced any evidence that I should have changed my mind.

Minimum alcohol pricing is doing something that almost certainly shouldn't be done and then compounding the error by doing it in the most cackhanded way possible and illegally to boot. Just what is it that they teach in PPE these days?

I may have to rethink my support for Pigou Taxes

The standard economic reaction to an externality is to tax it so as to include it into the price system. We'll then get the appropriate amount of said externality, a balanacing of the costs and benefits of it. In economic terms the argument is well nigh unassailable but I am beginning to reconsider my support for the idea. For taxes, by definition, have to be imposed by politicians and there's almost no good idea that a politician cannot screw up.

The straw for the camel is Osborne's increase in the bank levy this budget.

The move to increase the bank levy – from a charge of 0.088 per cent on banks’ global balance sheets to 0.105 per cent from 2013.......The Treasury retained its goal of raising £2.5bn a year from the levy.

The thing is, the bank levy is not supposed to be a tax, a method of filling the Treasury. It's supposed to be, in theory it is, an insurance premium on those bank liabilities which are not already covered by some other deposit insurance scheme. If, for example, bank borrowings from the wholesale markets (these are not covered by other schemes and so pay the levy) fall then the revenue from the levy should fall: we citizenry are providing less insurance to the banks and thus should get lower premiums. Similarly, if such wholesale funding moves from overnight borrowings to 5 year bond issues, this is less risk and thus lower premiums should be charged (the system does differentiate between these two scenarios).

But here we have the Treasury targetting an amount to be received: and a Chancellor seeing the levy as a convenient place to raise revenues, not to set the appropriate insurance premium.

And I'm afraid that the more we see of entirely righteous Pigou Taxes the more we see of this behaviour. I pointed out in these very pages some years back that if we applied the Stern Review to petrol taxation then fuel duty should fall by 12 p a litre: since then it has risen another 5 or 6 p still using Stern as the justification. Air Passenger Duty was set (amazingly, by Gordon Brown) at the Stern level of some $80 per tonne Co2-e: it has been doubled at least since then purely for revenue purposes.

I've not really made up my mind as yet, just rethinking my position. But it could be that Pigou Taxation just won't work because of politics. In the same way that Keynesian economics doesn't because of politicians: even if the entire economic analysis is correct there is never the political will in the booms to put aside money for the busts. And so it is with Pigou Taxes. They are correct in theory, of that there's no doubt.

But giving a politician a justification for a new tax is like giving a child a loaded machine gun: noisy, dangerous and very definitely a very bad idea.

The injustice of minimum alcohol pricing

I’ve struggled to write something about minimum alcohol pricing today. It’s a hugely important issue, and one I care deeply about. But I can’t help but be angry at the people who've proposed it, and the government made up of supposed “conservatives” and “liberals” who plan on implementing it. It's anti-individualism at its worst.

The “evidence-based” arguments made for minimum alcohol pricing are, in fact, based on distortion and bad science. The policy is paternalistic, indiscriminate, and only hits people who are frugal or on lower incomes. Slippery slope arguments are common, for good reason. But they’re especially appropriate here.

The idea behind minimum alcohol pricing is that all drinks must cost at least a certain amount per unit of alcohol in them. The figure being used right now is 40p per unit. On that 40p figure, the price of cans of (say) Becks would go up to at least £1, bottles of wine up to about £3.70, and so on.

If that sounds harmless, it’s because the temperance lobby have a clever strategy. Most people won’t oppose the principle of minimum alcohol pricing at such a low price level, because it won’t affect what they like to drink. But once the principle of minimum alcohol pricing is in place, the minimum price will climb inexorably upward.

The politics of this are straightforward but effective: target the most marginal, “problem” group – in this case, binge drinkers – with a low minimum price to pass an apparently-trivial law.

Once it’s in place, raising the minimum price is like boiling a frog. Bring the heat up slowly and steadily and, before people know it, they’ll be in boiling water. It’s what happened with cigarette duties: now taxes account for over 80% of the price of a packet of fags.

The justifications for this are completely, utterly bogus. Britain does not have a drinking problem: as ASI fellow Chris Snowdon has pointed out, we drink less today than ten years ago, less than a hundred years ago, and far less than we did before that.

Internationally, we are in the middle of the table in the European rankings, behind France, Germany and Spain, and far behind the Czech Republic and Luxemburg.

But what about binge drinking? In fact, the definition of “binge drinking” has been warped beyond all recognition. Three pints of strong lager in a day counts as a “binge” for an adult man, according to official definitions. A woman drinking two large glasses of wine is “binging” as well.

As Chris points out, the number of diseases defined as “alcohol related” has tripled in the last 25 years. When you change the meaning of words to suit your purposes, you can “prove” anything.

Minimum alcohol pricing is outrageously regressive, as are all “sin taxes”, only really affecting the behaviour of people who can’t afford expensive booze. In some ways this is Victorian-style paternalism, but the temperance movement of the 19th Century was about self-help and personal choice. Today’s anti-alcohol “health campaigners” are more akin to the American Prohibitionists. For them, the state is the ultimate weapon with which to impose morality on the masses.

And this, really, is why I hate minimum alcohol pricing so much. It’s puritanical fascism. That fear that someone, somewhere, may be having fun can finally be eliminated using the power and violence of the state.

All of the “evidence” in the world shouldn’t undermine the basic value we place on individual liberty. The case for minimum alcohol pricing is extraordinarily weak as it is, but nothing should undermine the right to choose our own poison.

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Hayek's death, 20 years on

“All political theories assume, of course, that most individuals are very ignorant. Those who plead for liberty differ from the rest in that they include among the ignorant themselves as well as the wisest."

“It is because freedom means the renunciation of direct control of individual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend”

FA Hayek, The Constitution of Liberty. 

Hayek died twenty years ago today. His profound insights into economics and social philosophy might be more important than ever.