On the unnecessary nature of much regulation

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I will admit that much of my personal opposition to the swamp of regulations in which we find ourselves is that I personally cannot stand being told what to do: I'll find my own way to my grave thank you very much. This isn't, I'll also admit, all that strong an argument as a public or political policy against regulation. My personal wants or desires only become such when they are widely shared.

However, there is a much stronger argument against said regulation: it doesn't actually do what it sets out to do. Take, for example, what is possibly the world's strictest single set of regulations, China's "one child policy". Strict in the sense that no one else has even dreamed of imposing such a restriction on that most private and personal of decisions, whether to have a child or not (umm, that should probably read "children", shouldn't it?).

Even the most cursory reading around on the subject will show that all agree that, however vile the actual imposition has been (forced abortions and all that) it has been effective. It has reduced China's birth rate below what it would otherwise have been.

Except, well, even that doesn't seem to be true:

According to the paper, the population of the county has grown over the 25-year period of the scheme by 20.7 per cent, which is nearly five percentage points lower than the national average, despite families being allowed two children.

Over that same 25 year period China has had the greatest growth in the population's wealth ever in that nation's long history. As with what has happened everywhere else people have got rich(er) birth rates would have fallen anyway. And when people were freer they had fewer children, in aggregate, than those who were tightly regulated as to their fertility.

So even this, the poster child (sorry) for necessary and effective regulation, turns out not to be quite what it seems. A little more liberty, a few more markets and the increased wealth that both bring are more effective at reducing population growth than strict regulations. Or, if you prefer, economic liberty, the world's greatest contraceptive.

Yesterday's problem

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This past week’s UK employment statistics underscored the fundamental economic issue facing the nation: a bloated and still expanding public sector that is smothering and shrinking the private sector. Not only is a thriving private sector essential to curing the medium term problem of the government’s budget deficit but it’s even more critical to the longer term pension funding problem.

The political and chattering classes are now mired in pre-election shuffling of the proverbial deckchairs without credibly fixing the hole below the waterline. It’s a depressing wrangle over yesterday’s problem, even as tomorrow’s are about to overtake events.

Friends of the ASI know what needs to be done and nowhere are the details better collected than in Eamonn Butler’s “The Alternative Manifesto.” Aggressive cuts in income and corporate tax rates, simplification of the tax code, a reversal of mindless regulation, an economically-biased immigration policy and ruthless zero-based government budgeting are what’s needed to grow the private sector.

Failure to get on with it now exposes the UK to the shock of the unexpected and risks missing opportunities of the future.

From booming Asia comes the beginnings of rising inflation. Australia, Malaysia and Vietnam have already raised interest rates while China and India have boosted reserve requirements. Economists expect more dramatic tightening in response to accelerating inflation throughout the region by yearend and weak sterling makes the UK especially vulnerable to imported inflation.

Meanwhile, the eurozone is grappling with its own demons, most immediately the problem of Greek, Spanish, Italian and Portuguese government finances. Fortunately, the UK is out of the euro but it’s still exposed to collateral damage. Already, the usual suspects are eyeing London’s financial centre as the whipping boy for their self-inflicted woes but Gordon Brown’s ultimately inept stewardship of the British economy has left the UK with little credibility to stave off regulatory threats from the continent.

Beyond looming problems, though, the shackled private sector may miss out on some terrific opportunities.

Britain’s well-established petroleum industry should be leading the exciting development of shale gas but the industry’s experience could easily go abroad to friendlier tax and regulatory regimes. Similarly, the government’s disastrous management of public-private partnerships (PPPs) could drive Britain’s otherwise excellent infrastructure engineering firms to where PPPs are better run like Canada, Australia or even France. Elsewhere, Britain could better exploit its potential in arts, media & entertainment, tourism, software development, biotechnology, agriculture and aerospace to name just some if only the private sector could see a just reward for the required investment of time and money.

Sadly, old-fashioned fixations on higher taxes and “tough choices” on spending to cure yesterday’s problem don’t bode well for coping with new problems and opportunities in the future.

Cameron should distance himself from Climate Scare

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Many were puzzled recently by the narrowing of the the Tories’ lead in the polls after New Year. This also coincided with President Obama’s decline in the polls. A common link is the meltdown of the climate scare campaign, precipitated by the devastating leak of e-mails from East Anglia University. See this excellent and comprehensive account in the Weekly Standard.

Both David Cameron and Barack Obama have enjoyed miraculous success in the polls over the past two years, and this has been partly due to their populist commitment to “do something” about climate change. Indeed, it seems that the ‘political consensus’ – nowadays much more important than any ‘scientific consensus’, is such that no politician could have survived the last two years without towing a similar line.

Inspiration can however be drawn from The Liberal Party of Australia – whose views seem much more like the proper liberals of yesteryear than the ‘liberals’ we have in the UK or US. They have been through a hefty struggle on the issue of climate change over the last two years. That struggle reached its climax in February this year when Malcolm Turnbull was ousted as leader by a hardcore climate change skeptic, Tony Abbott, because he insisted on helping the Labor Party push contentious Cap-and-Trade legislation through the Senate. Clearly, Turnbull had gone so far toward appeasing the politically correct climate change lobby that he neglected his own party’s base.

As far as Cameron is concerned, he needs to take notice. Now more than ever, it is politically possible for him to distance himself from the typical collectivist position on climate change, which has dragged him away from the base of his party. Seeing as the scientific evidence for anthropogenic climate change is no longer as sound as it once seemed, there is clearly an opportunity to take a skeptical position that is both frank and honest, as those in the Australian Liberal Party have shown they can do.

The Great Flying Banana

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Times are hard, as we know, and things need to be cut from the government budget. It isn't just a matter of doing what is already done more efficiently, it's a matter of looking at what is done and asking two questions. 1) should this be done at all? and if yes then 2) should this be being done at the point of a gun?

For that is what taxation comes down to in the end. If you don't pay they will chase you, if they catch you they will jail you and if you run away from there then they will try and shoot you. So, as PJ O'Rourke didn't quite point out, the acid test of whether something should be tax funded comes down to whether people should be shot for declining to fund it.

Which brings us to the Arts Council. Now I am a philistine, yes, but even I can see the value of an organisation which provides indoor work with no heavy lifting for the dimmer members of the upper middle classes. I just don't see that people should be threatened with being shot for refusing to fund it. Therefore it should not be tax funded and that's another half a billion quid off our collective backs.

But what has this to do with a Great Flying Banana, as promised in the title? Read this. Yes, it's from Canada but don't for one moment believe that arts bureaucracies are not the same the world around. One Mr. Saez was funded to the tune of C$130,000 for a Great Flying Banana which would wave in the wind above Texas to tell us something about George Bush. No banana was produced, no reclaim effort was ever made. Further, no real attempt was made to consider whether said banana would say anything about Shrub nor even what it would say if it did.

Not something for which people should be shot for declining to fund. Now I agree, I've not seen anyone proposing the funding of inflatable fruit in the UK. But anyone think there aren't examples of things quite as ludicrous?

Quite, close it down. Fructifying is what money does in the pockets of the populace.

The FSA is out of control

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Lord Turner of Makebelieve is at it again. Much City trading, which the Financial Services Authority purports to regulate, is, he told the Cass Business School, “economically useless”. If so, isn’t the incubus on the back of this activity even more economically useless? The FSA has just published its 72 page annual plan which is specific about costs but says nothing about what the public gets for its money. There are no benefits, still less quantified, nor any benchmarks by which the FSA’s performance could be measured.

One of their four basic objectives, consumer financial education, is being removed and handed to a new quango, the CFEB. Does that mean that the staffing and costs of the FSA will reduce by 25%? Of course not, staff numbers are expected to increase from “approximately 3,300” (they are not sure how many they have) to “around 3,700” (p.53), i.e. 13%. Needless to say, the fees charged by the FSA will increase even more sharply to allow also for their other cost increases like their £8.5m “investment” in long-term accommodation. Since the FSA clearly does not understand the meaning of the word “investment”, it is just as well that financial education is being transferred elsewhere.

The FSA’s grandiose plans for its future makes no mention of the government’s agreement to transfer financial services regulation to Brussels, leaving the FSA (or its successor) merely to supervise the regulations Brussels decides. Will it get any smaller then? Not under Lord Turner of Makebelieve it won’t.

Tim Ambler is a Felow of the ASI and Honorary Senior Research Fellow of the London Business School.

Wednesday's budget

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Everyone in the House of Commons on Wednesday will know the secret. Alastair Darling's Budget will be no more than a holding operation. Whoever wins, the real Budget will come at the end of June – about seven weeks after the inevitable May 6 election.

It will be upbeat of course. It turns out that the Chancellor has not had to borrow as much as he thought – 'only' £132bn in the first eleven months of this financial year, against a full-year estimate of £178bn. (I say 'only', but £132bn is still £5,666 for every household in the country. Tax receipts have held up and unemployment benefit payments have been lower than he feared. So, even though the Tories and the City want him to use every penny paying back debt, he might still indulge himself by spending a bit of that windfall on some high-profile pre-election sweetener.

And there will be the usual optimistic growth predictions. The future, he will tell us, is bright. The future's Brown. But nothing else to catch the eye. A new 50p tax, higher NIC, and a curb on top-rate pension reliefs will affect only the better off – if they haven't all moved to Switzerland by then. Top civil servants will face a pay freeze, and nurses, teachers, police and others will have to survive within a 1% pay rise – which amounts to a real cut.

Even the Tories right now, while asserting the need for spending cuts, have announced only insignificant changes – all focused again on the better-off. They say they will announce more after the Budget. But since this fake Budget will not reveal anything, it will hardly put them under any pressure to say much at all.

But everyone on the green benches will know the reality. That whoever is elected, it is only after we have voted for them that they will tell us the full scale of the cuts that everyone knows is needed to get the UK out of a deep sea of red ink. The future's not bright. The future's belt-tightening.

“Ban Mephedrone!” urge cocaine and ecstasy dealers

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Realising the danger that ‘legal highs’ pose to their core market of young night-clubbers, cocaine and ecstasy dealers mobilised every lawyer and lobbyist at their disposal to ensure that their rivals’ products are outlawed as quickly as possible.

Although this is clearly far-fetched, the principles are very sound. If these people actually had lawyers and lobbyists, they certainly would have done this. As Levitt and Dubner controversially wrote in ‘Superfreakonomics’, if prostitutes had had access to an organised lobbying apparatus, they certainly would have pushed for those who have sex for free to be outlawed, or at least regulated out of the market, in order to ensure that more people keep paying for it. Why would it be any different for drug dealers?

As Milton Friedman noted, the chief economic effect of American and British drug prohibition is ‘to protect the drug cartel’. Prohibition works wonders for those with the most resources to evade the law. Those who can grow coca leaves on vast swathes of Columbian jungle before processing it in underground factories and shipping the finished product to our shores by airplane or submarine. These are the same people who can afford to buy-off the police, or bomb those who can’t be bought. By criminalising drugs, smaller domestic producers are driven out of the marketplace, and only the big players can afford to survive – in economics speak, the barriers to entry are prohibitive, and new competitors can’t emerge. As Friedman said, “What more could a monopolist want?”

Banning legal highs will likely have the desired effect – people will stop using them, or at least use them less frequently. But does anyone really believe that people will not find other ways to get high, or use more dangerous drugs instead? Banning these legal highs is playing straight into the hands of those the law is aimed to attack.

A regressive state of affairs

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I have been reading a lot about how successive governments undermined the then dynamic private education sector that was galloping apace in nineteenth century England. The state’s usurpations were incremental, but devastating in their consequence.

Making education free destroyed private education for all but the very richest. In order to make it free, money had to come from somewhere, and on this occasion it was largely through regressive taxes on alcohol and cigarettes. In effect, the poor lost all their previous power as consumers. This story is repeated across many current functions of government throughout the world.

It was therefore highly disappointing to read Policy Exchange’s report calling for “tobacco duty to be progressively increased”. Incredibly, they claim: “every single cigarette smoked costs the country 6.5 pence”. By incredible, I of course mean it is literally not credible, as Matthew Sinclair’s broadside on ConservativeHome makes abundantly clear (NB. It is also worth watching the excellent Simon Clark of FOREST take a representative of ASH to pieces here on a related subject).

Which leads to the question that every freedom-loving individual in the UK is asking themselves – and others – in these uncertain times: can this awful state of affairs be turned around? Only time will tell, but clearly the principal ingredient missing at present are the politicians and political party with the pedigree to stand athwart history, yelling stop!

£Sterling: Looking rocky, very rocky

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In recent months, the £sterling has been under formidable pressure. Against the $US, the £sterling has fallen by c10% since October - despite the unparalleled size of the US budget deficit. And, notwithstanding the serious currency travails of Greece and others Euro members, it has also fallen against the Euro.

While international trade movements are obviously key, the size of public sector net debt (PSND) is also very relevant. To fund it, unprecedented levels of gilt-edged stock – of c£200 billion this year and next – are being issued. Now that the leading buyer of UK gilts – the Government itself through its Quantitative Easing programme – has retired from the fray, perhaps temporarily, failures of gilt auctions seem increasingly possible. As such, the £sterling would be under even greater pressure.

Whilst no longer constrained by ERM obligations nor subject to previous forms of currency management, such as the long-forgotten ‘snake in the tunnel’, the next few weeks will be challenging for the £sterling. Above all, the result of the forthcoming General Election is becoming increasingly uncertain. Last autumn, a substantial Conservative Party majority was anticipated. More recently, a ‘hung Parliament’ has become a real possibility, with Gordon Brown conceivably remaining as Prime Minster within a Coalition.

Only serial Labour Party optimists expect the Government to be re-elected with a majority. However, such a scenario cannot be totally discounted – as economic pessimism dissipates and Labour strategists up their game. Remember, too, that the Conservative Party needs a near record swing to secure a workable majority. The one near certainty is that the polls will be volatile during the campaign - with the inevitable rogue poll emerging.

And if this uncertainty creates a full-blown £sterling crisis, would the Bank of England’s Monetary Policy Committee have to raise interest rates prematurely to prevent it sinking any further?