So, what's it all about, this neo-liberalism stuff, then?

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So let's play a little game shall we? Yes, we are indeed the evil cabal that has imposed neo-liberalism upon the world in recent decades. Yes, it is indeed all our fault: the current recession, the globalisation, the insistence upon light regulation, privatisation, freer trade if no one is quite ready for free trade yet. Yup, it's us, the neo-liberals, teaming up with the Illuminati, the Rosicrucians and whoever Dan Brown is going to write about next to bend the globe to our will.

So what's it all about then? Other, of course, than the intense pleasure of the exercise of power over mere mortals?

This actually:

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Via Bluematter, that's the result of a new paper.

  • Defining poverty as less than $1/day, world poverty rates fell by 80% from 27% in 1970 to slightly more than 5% in 2006.
  • The corresponding total number of poor fell from 403 million in 1970 to 152 million in 2006.
  • Similar findings apply if other poverty measures are used ($2/day, 5$/day, etc)

We want the abolition of global poverty and we've been working towards it in our excessively evil manner. By pointing out that while poverty of the most gut wrenching sort might be the natural state of mankind it is indeed possible to do something about it. That something being the creation of wealth with which to alleviate that poverty which is why we've been shouting about the need for the globalisation, the insistence upon light regulation, privatisation, freer trade if no one is quite ready for free trade yet, even if there is the occasional hiccup along the way in the form of a recession or even two.

Being slightly more serious than the above jocular tone what the global economy has managed (and yes, much of what it has managed has been to do with that now most unfashionable neo-liberalism) over that 36 years is that our living standards have around about doubled, even while they've taken a 5% or so hit in these last couple of years, and global poverty has fallen by 80%. That's the largest drop in poverty in the entire history of our species, longer, since back before Lucy was a glint in her father's eye.

So if you do want to insist that the last few decades have been the triumph of neo-liberalism then just remember: it's been the best ride and the best bargain that humanity has ever had. Might actually be worth continuing it too.....

Georgia on my mind

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I've blogged before on the question of where, assuming that Britain is indeed going to the dogs, libertarians could move to. I suggested Hong Kong, Switzerland, Australia, and the United States, all of which had their various pros and cons. One possibility I hadn't previously considered, however, is Georgia – the former Soviet republic which might just have the most libertarian government in the world.

Let's start with the tax system. Their flat-rate income tax – initially set at 25% – was cut to 20% in response to the economic downturn, and is set to be further reduced to 15% by 2013. The tax on interest and dividends will be phased out by 2012. VAT is 18%. Corporation tax is 15%. Their welfare system is equally sensible. Rather than funding universal public services directly, the government provides highly targeted (i.e. means-tested) assistance through vouchers and cash benefits, leaving choice of providers entirely to the recipients.

What's more, it looks as though the government will soon pass into law one of the best pieces of legislation I've ever seen: The Liberty Act. This act, which is going to be incorporated into the Georgian Constitution, caps government expenditure at 30% of GDP, budget deficits at 3% of GDP, and public debt at 60% of GDP. The establishment of new regulatory agencies is banned, as are price and capital controls. It also enshrines the principle of choice in social programmes, requires that impact assessments are carried out before any new legislation is passed, and, best of all, mandates that any new taxes or tax rises must be approved in a nationwide referendum.

Of course, Georgia is not perfect. It's still a fairly poor country, with persistently high urban unemployment, and 55% of the workforce employed in agriculture. Inflation is relatively high, and corruption remains a problem. And then there is Russia. But if those drawbacks don't deter you, then Georgia has one additional advantage. Its open borders policy means that if you want to move there, you are free to do so.

Mortgage regulation

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According to The Independent, one million might be frozen out of the mortgage market. Concerns stem from the fact that financial authorities look set to ban banks from offering mortgages to people who cannot prove their income.

Essentially, the FSA wants to prevent banks doing business with people who can’t prove that that they will be able to pay off their loans. Such regulation is apparently intended to prevent another credit crunch. As Jon Pain, FSA managing director of supervision, explains to The Independent, “nearly 'half' the mortgages advanced prior to the advent of the credit crunch were either self-certification or fast-tracked, meaning borrowers were able to obtain loans without providing any evidence that they could afford to pay them back."

On the one hand, that sounds fair enough. We don't want another financial disaster. However, the intervention of the FSA could be rendered unnecessary simply by letting the market rule. No sensible bank would ever do business with anybody if there was not a decent chance of getting money out of the deal. So why is this regulation necessary? Maybe it’s because the danger of doing risky business has disappeared due to the government's taxpayer-funded bank bailouts. Indeed, I think this is most likely to be the case. The bailouts have made it utterly clear that if you are a bank (especially if your name is Lloyds) then the natural relationship between risk and possible outcome is no longer valid.

As such, the intervention of the FSA is a perfect example of how government intervention leads to market failures and even more regulation.

There are expensive ways of doing this

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And there are ludicrously expensive ways of doing this. This being attempting to mitigate climate change of course. Start from the point that the IPCC and the Stern Review are correct: it's happening, it's us and we should think about doing something about it. This allows every fanatic with a plan to leap aboard the bandwagon and insist that they, and only they, know how to save the world: amazingly, that salvation always comes from whatever it is they were already proposing without the now accepted problem.

Take, for example, solar photo voltaic power generation. For boring technical reasons I think it will in the future be part of the solution but similarly I don't think it is yet. Yet all and sundry are screaming that we must have feed in tariffs for solar PV for that is exactly what will save Flipper from boiling at the end of times. We should, indeed must, do as German has been doing. So how has Germany been doing?

Given the net cost of 41.82 Cents/kWh for PV modules installed in 2008, and assuming that PV displaces conventional electricity generated from a mixture of gas and hard coal, abatement costs are as high as 716 € (US $1,050) per tonne.

Ah: we've already specified that we agreeing with the Stern Review above and he said that the cost of a tonne of CO2 is $80. Paying more to abate emissions than those emissions will cost us is known as making us poorer: in this case, feed in tariffs make Germany poorer by $970 for every tonne abated. That is what is known technically, in policy circles, as "screaming nonsense".

So no, we must close our ears to those siren songs telling us that we must copy Germany on this matter. We do not want to have feed in tariffs for solar PV in the UK. But if we're not going to have them then what should we do? I've already mentioned that I think the technology will, when it has matured, be part of the solution. But there's one or two iterations, generations, of technology to go before it really is. And I've also mentioned in other posts here what we should be doing about all of this at the moment.

Nada, nothing, zip, bupkis. We just wait while those two iterations of the technology pass us by and we start using it when it makes financial sense to do so: when the subsidy needed is less than the benefit of the CO2 abatement. In the meantime we just sit back and let the German taxpayer make themselves poorer to our future benefit. We can always send them a thank you card later: or if you want to be more serious, we can trade those things we've been able to make by not pouring money into a subsidy hole for those solar cells that they have made by doing so.

Forever blowing bubbles

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Earlier this week, MoneyWeek published an article by Martin Spring entitled "Why stockmarkets are still blowing bubbles". I hope they won't mind me quoting at length, because the article makes an extremely important point:

David Roche of the consultancy Independent Strategy says the defect in the argument that the world is on the path to recovery is "that none of the problems that caused the credit crisis have been resolved." Household and bank leverage is worse than before, the bad debt problem has not been dealt with, and we have a new level of profligacy and leverage – this time, in government.

Edward Chancellor of fund managers GMO says it's misleading to expect a sharp recovery from last year's collapse because of historical precedents. He contrasts the 19th century with the current situation.

Then "depressions were left to burn themselves out. There was no fiscal nor monetary stimulus; unviable businesses went under; households were not succoured with rate cuts and wage incomes fell; excessive debt burdens were resolved through default rather than bailout. Deflation purged the economy like a forest fire, preparing the ground for a rapid recovery."

By contrast, "the aim of policy today is to mitigate the pain of the economic downturn by all available means. Government deficits prevent the recession turning into a depression. The Federal Reserve cuts rates to zero and expands its balance sheet, thereby arresting the debt deflation. Such actions reduce the immediate social costs of the financial crisis, but they do not resolve the problems left behind by the credit boom."

I have felt for a while that the prospects of an early economic recovery were being over-hyped in the UK, and Friday's disappointing GDP statistics appear to confirm this.

The trouble is that people have been mistaking an exuberant stock market for a bona fide economic recovery. Yet in truth the rise of the FTSE is largely a product of the Bank of England's quantitative easing programme, as new money finds it way into financial assets, and is not backed by any genuine upturn in the real economy. Or to put it another way: it's just another bubble.

Ruining the TA

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The British Army is one of the most called upon in the world. It delivers more "bang for buck", than possibly any other regularly utilised force. Equally though, these expectations have become so entrenched, that any additional request put to the Army, is considered already done once it has left the mouth of the Minister of State for Defence (for it is often left to the junior Minister, rather than the Secretary of State for Defence, to make unpopular decisions regarding manpower). The recent decision to halve the number of days payable for training, to the TA, is the most short sighted decision on the part of the MOD in a very long time.

The TA runs on the goodwill of its personnel. We have families, we have increasingly demanding jobs, we are paid a starting salary of approx £30 a day, to put ourselves in harms way. There is no greater civic commitment, than to be a member of Her Majesty's Forces. The TA do this in addition to their full time jobs and lives. The British contribution to the Iraq War, was reliant on roughly 15% of its troops being TA. The war, quite simply, could not have been conducted without them. They also require immense management time to co-ordinate efforts, training, pre-deployment training - and simply 'showing up'. I personally know members of both the TA and the Reserves (recently left members of full time Service personnel), who have missed the birth of a child, whilst away on Operations. This is a regular occurrence for our full time Army colleagues, but it is a big "ask" for someone who has volunteered to be there in his or her spare time...

After numerous strategic defence reviews and initiatives, during which the profile of the TA has been intrinsic to the future operational capacity of the Army, to now have its ability to service that capacity – to effectively be cut off at the knees – is ruinous. The phrase “One Army" was coined several years ago to highlight Government policy that there was to be no separation between the Army and the TA. Both Services are interlinked and dependent on each other, from logistical support to specialist (and expensive) training, shared between the two platforms. The Army has roughly 110,000 personnel, and the TA roughly 35,000: the TA are integral to the Army.

I recommend to simply reverse these short sighted cuts, and have the bravery of their convictions to actually go further along this integrationist route, and afford the TA the recognition that their bravery in the field warrants. To go further with equipment sharing, and after Tour support: still there are too many instances of damaged TA soldiers returning to their civilian lives without the support their full time colleagues receive.

To cut by half the days available to be paid (to 11), effectively means one weekend every two months - either that, or some units are just ceasing Training for several months. This is supposed to fulfil duties that prepare our TA colleagues to go forward to deployment training, and, at the very least, to provide the "Home Guard" function, vital to protect this country's national interest. The net result, in a year's time, could easily be an operational TA of half its present size, its members simply having drifted away...back to their own lives. We anticipate with resignation the new Government's response at that time.

Damian Merciar 135 Indep Geo Sqn RE (V) (www.merciar.com)

Quote of the week

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[I]t is not by the intermeddling of... the omniscient and omnipotent State, but by the prudence and energy of the people that England has hitherto been carried forward in civilisation... Our rulers will best promote the improvement of the nation by strictly confining themselves to their own legitimate duties, by leaving capital to find its most lucrative course, commodities their fair price, industry and intelligence their natural reward, idleness and folly their natural punishment, by maintaining peace, by defending property, by diminishing the price of law, and by observing strict economy in every department of the State. Let the Government do this: the People will assuredly do the rest.

T.B. Macaulay, 1830.

Progression to recession

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It seems much more than a year ago that Prime Minister Gordon Brown was telling us that the financial crisis had been "created abroad," and that "Britain is best placed of all the major economies" to weather the storm, largely because of "the fundamental strength of our economic position."

Yesterday's provisional figures showed an economic contraction of 0.4 percent in the third quarter, dashing hopes within the government that a marginal, even tiny, expansion would enable them to bellow forth that Britain is now out of recession, and that their astute economic management had achieved this.

Of course the figures may be revised as more numbers come in, but a striking feature is that all the numbers are bad. It is not that one underperforming sector has dragged the average into red territory; it is that none of the numbers rose, with contractions in both services and industrial sectors. The other striking fact is that Britain might be the only major economy still in recession. Britain's "best placed" position now lags behind France, Germany and Japan (officially out of recession), the US (unofficially out of recession) and China (growth rate accelerated to 8.9 percent).

The stock markets have recovered spectacularly from their lows, but the nuts-and-bolts economy has not. Those who might invest to expand and create jobs are not convinced that the misallocation of resources is yet corrected. For years money was pumped into public sector activity, giving an utterly false picture of real demand. Funds that might have been invested where the market indicated real demand were diverted instead into government programmes. For years the Bank of England (and other central banks) created easy credit through low interest rates, again giving false signals about costs and demand. The UK economy became greatly over-extended in some areas, and will need to readjust. To make this even more difficult, a crippling burden of debt now hangs over future generations.

Is there any good news? Perhaps only that the failure of the UK government stands even more exposed. They cannot claim that their billions of pounds of stimulus has saved the day. The latest result increases the likelihood that a new government with more responsible policies will take over. Whether those policies will include reductions in both spending and taxation, and ones directed to clearing the way for economic growth, remains to be seen.

Check out Dr Madsen Pirie's newly-published "101 Great Philosophers".

A Cameroon education

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On 3rd October David Cameron told the Sunday Telegraph that a Conservative government will "smash open the state education monopoly so that any qualified organisation can set up a new state schoo".

What sort of organisations will be able to qualify? Well, according to the Conservatives' two years old policy document, "The country which provides the closest model for what we wish to do is Sweden".

A major feature of the Swedish system is that profit-seeking enterprises, including PLCs, qualify. Indeed three-quarters of the new schools in the Swedish model are profit-seeking. Furthermore, an impeccable source wrote, in a recent article for the Spectator and the Daily Telegraph that "the Swedish model would not exist without the acceptance of profit-making organisations". Yet it has long been clear that Cameroons have no intention whatsoever of permitting such enterprises to "qualify". After all, that would be private enterprise; strictly passé for the Cameroons.

Or would it? During the conference week, part of the pro-Tory press was willing itself to believe otherwise. Thus on 8th October the Spectator editorial said “Crucially, it now looks likely that the new schools will be able to be run for profit" while in its Coffee House, Fraser Nelson wrote “Michael Gove’s new Swedish schools will, it seems, be allowed to make a profit".

This blog is some 3 weeks late while I have searched vainly for support of these notions.

I could be wrong, but if I am right, the Cameroons are guilty of serious misrepresentation of the "Swedish model". The same goes for another of their favourites – "the post-bureaucratic age" (largely via the internet and the information revolution). But the word "bureaucratic" refers to management in government and the public sector. The post-bureaucratic age is not a result of the internet as Dave the Vague likes to claim. It is the result of Adam Smith’s "invisible hand" – the most powerful information system the world has ever seen – bar none, whilst the internet is a mere side-show which enhances whatever market signals are allowed by the bureaucrats.

To reduce bureaucracy the Cameroons must slash taxes and allow private enterprise to flourish, rather than continue to tax us all and dish the funds out again to a few favoured voluntary groups. A good start would be to allow any entity, especially a profit-seeking institution, to create a school and charge fees directly, with a full tax rebate to those who thus reduce the cost of state education by moving their children out of it altogether. Don’t hold your breath.

Here come the stormtroopers

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For the first time ever British Police Officers will conduct permanent patrols through the streets armed with fully automatic submachine guns. The measure is supposed to help areas where gang violence levels are on the rise, but does it really take submachine gun wielding cops to lower crime? How much does it take for British citizens to finally realize that the government is taking control of their lives? And how long will it take before the police institute a curfew in those areas, or police patrols like these become a regular occurrence in all of London? This measure taken should not be tolerated. It is severely damaging to the already frail social freedoms that Britons are allowed.

These patrols are supposed to be a means of reducing gang violence and illegal gun sales, and according to the police are ‘intended to be a reassuring presence for residents’. However, I can think of very few things more intimidating than seeing uniformed police walking down my street with submachine guns. I know that there must be line somewhere between policing and state control, but the government has blurred that line to the point that citizens don’t notice anymore. I personally feel that individuals should have the right to bear arms, and I didn’t think it could get any worse than denying individuals this right. I was wrong. The only thing worse is to send out permanent patrols armed with military grade weapons after taking away everyone else’s guns.

All steps toward state control start with good intentions. At some point people need to stand up and declare that good intentions are not enough to justify denying personal freedoms.

Spencer blogs regularly on gun control here.