Up the proverbial creek...

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Britain's current-year deficit of 12.4 per cent of GDP will not automatically fall to 0. The Treasury's latest scenario foresees a gradual reduction to 5.5 per cent in 2013-14, raising the ratio of debt to GDP to 76 per cent, only a little above the Western European average. It is not made explicit how the deficit reduction is to be achieved—spending cuts are no doubt tacitly assumed—except that the growth rate of the economy is supposed to rise spectacularly to 3.25 per cent from 2011 onwards. If the average interest rate on the debt were to settle at 5 per cent, the interest cost on the projected 76 per cent of GDP would be 3.8 per cent of GDP a percentage point more than at present. To accommodate this and still achieve a reduction of the deficit to 5.5 per cent, non-interest spending would have to be squeezed by 7.9 per cent of GDP. Anyone who believes that this will be done has never understood democracy.

Anthony de Jasay, 'Who Is Afraid of the National Debt?', The Library of Economics and Liberty.

A proposal for solving the pension crisis

ASI Fellow and Associate Director of CentreForum Tom Papworth sets out how to solve the looming pensions crisis.

We need to wean people off the state pension. It’s a giant Ponzi scheme that sooner or later will become bankrupt. There used to be five working age people supporting each pension; now there are two, and in the future that number will shrink. It cannot go on.

However, we can’t just scrap it. Too many people have based their future plans on its existence, and it is too late for them to make up for its removal. To tell a 50 year old that they won’t get a state pension is unfair: they’ve worked for thirty years expecting it, and not prepared for a world without it. But I see no reason why we should not tell a 20 year old that they won’t get a state pension, as they have all the time in the world to make their own arrangements.

I have been considering a phasing out approach. Anybody over 60 gets a full pension; anybody under 20 gets no pension. The rest of us see our pensions tapered away at a rate that equals 2.5 percent per year off retirement. Thus, the 50 year old would get almost two thirds of a full state pension, and would have 15 years to make their own arrangements to supplement that amount. I would get slightly less than one third of a state pension, but would have three decades to prepare for a world where my state pension was meagre.

There are two problems with this approach, as I see it. The first is that young people would have to pay in to a system from which they did not benefit. This would generate some understandable resentment. However, we cannot refuse to implement changes on the grounds that certain groups will in the future not benefit where those in the same group but in a previous generation did benefit. That argument, often deployed by students to oppose tuition fees (“You all got a free higher education, so it is unfair to deny it to us”), is the quintessence of Conservativism: a fundamental opposition to change. That same argument, 100 years ago, would have cut the other way: old people benefited from a system into which they had not paid; one generation was being taxed where the previous generation was not. That did not prevent the state pension being created and nor should it have.

I would suggest that we could counter the objection among younger workers in three ways:

  • Firstly, by pointing out that the current system is a lie and that one way or another the state pension is ultimately bankrupt. It is better to taper it out than to reach a crisis point for which nobody has prepared.
  • Secondly, by pointing out that they are in many cases paying for their own parents, just as their parents paid things that they benefited from (such as free childcare) which their parents never enjoyed.
  • Thirdly, and this is perhaps the best bit, by pointing out that over time taxes will be able to fall, so that as they get older the tax burden will be reduced, meaning that they can finance their (probably superior) private pension out of the difference, and probably still be better off than their overtaxed parents.

The other objection that I envisage is that the state pension provides for people regardless of wealth, and that the poorest are not able to afford a private pension. While I doubt that this is as true as those who make that argument claim (in the pre-pension era millions of low paid people made private arrangements though Friendly Societies, cooperatives and other methods), I accept that there will be a demand for some arrangement to help the poorest. This could be achieved by a means tested benefit (like a tax credit) that was paid directly into the pension scheme of their choice. This would also benefit those unable to work for health reasons or due to caring requirements, and would be applied to those signing on as unemployed.

There would of course be a hard core that refused to make arrangements. As long as the above arrangements were made clear, however, nobody would be able to pretend that they did not know that they might face poverty in old age. But no government will be able to ignore that poverty nonetheless. I would therefore suggest that the mandatory retirement age be scrapped, so that a person has chosen not to prepare for their future – or not to do so adequately –can continue working. There may be a case on anti-discrimination grounds for banning companies from having mandatory retirement ages too. Once people became too infirm to work, they could be dealt with through unemployment and/or sickness benefits.

Before anybody accuses me of being callous I would emphasise that honesty from the outset and a tax credit for the poorest would mean that only those who wilfully refuse to prepare for their retirement will find themselves in this predicament. If this is unpalatable, however, then the alternative would be to compel people to make arrangements: a pension could be mandatory for all workers, just as car insurance is for all drivers.

While some might suggest that not everybody would be able to make an informed choice about pension provision, I find this argument unconvincing – and indeed patronising. With the exception of those who are truly not capable of making decisions for themselves (and these are indeed exceptions and should be dealt with separately), everybody is able to make an informed pension choice, just as they make informed investment choices in other areas of their lives.

Some measure would be necessary to ensure that pension funds were not completely at the mercy of the markets. When I signed up for a defined contribution scheme, my pension provider arranged that in the last decade of the scheme, 10% of my funds would be moved each year from riskier, more rewarding investments to the safest investment vehicles (AAA bonds – which I would hope would mean government bonds considering how casually the rating agencies handed out AAA ratings over the past decade). This should ensure that nobody is caught out by a sudden market slump. It may be necessary to make this sort of protection mandatory.

These proposals are certainly a work in progress. Some of the ideas are not original, though the basic plan to taper the pension away is not one I have come across before. I make them in the hope of stimulating a discussion that may help me revise (or even abandon) what has for some time seemed like a good idea.

Ethical is not what these people think it is

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We should, of course, all act ethically all the time: the problem comes with who is defining what is ethical:

Some supermarkets have a "dismal" ethical record when it comes to supporting British farmers, buying local, seasonal and sustainable food and saving energy according a Government watchdog.

That definition of ethical coming from something called Consumer Focus, who appear to believe that it would be more ethical for me to support Farmer Giles, one who is already by any historical or global standard rich beyond the dreams of Croesus (and already swallowing flagons of taxpayers' money to boot) as opposed to spending my money with Farmer Obiang: one still stuck in the destitution of peasant farming and looking to modest trade with such as myself as a way of feeding and educating his children. 

This is not a notion of ethics which I find worthy of the name. How and when did nationalism of this, green, sort become ethical and internationalism, the acknowledgement that we are all human with the same rights and desires unethical?

More importantly, how did our system of governance become colonised by the purveyors of this new religion (for an ethical framework can indeed be so described)? And yes, this is our system of governance, Consumer Focus is a statutory body which we paid some £45 million for last year according to their accounts.

Roll on the regime change when we can have (and if we don't have then we'll just have to change regime again, won't we?) the Bonfire of the Quangos.

Obama lays an egg: An electable Republican renaissance

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Could Obama do more for the cause of libertarianism in America than any other political figure since the founding fathers? The similarities between Jimmy Carter’s courteous paving of the way for the Reagan years, and Obama’s dazzling ability to boil economic waters are starting to suggest that one cliché is earning it’s place in the political lexicon: history repeats itself. Only Reagan didn’t have Fox News in his corner.

The victories of Bob McDonnell and Chris Christie in Virginia and New Jersey, both of whom skirted the traditional, socially conservative rhetoric, favoring an economic platform that resists the President’s tea party provoking profligacy, can be weighed against the failure of their fellow Republican Doug Hoffman, who stuck to the old school with grassroots heavyweight Sarah Palin in his corner. Economics won the day, not abortion and gay marriage.

There are signs here that the Republican base is moving. Social issues are, inevitably, going to become more “progressive" with every passing year. The sooner conservatives realize that by leading with these issues they’re feeding the preposterous, but highly effective “religious + Republican = prejudiced / stupid" equation, perpetuated by their competitors, the sooner they can take advantage of the fact that, yes, America is an essentially libertarian nation. Avoiding Palin-esque embarrassment, their policies would win every time. The stimuli taking them in this new direction are the financial crisis, Obama’s spending, and critically the ever-growing conservative media.

Constitutional boogey-men like Glenn Beck and Rush Limbaugh are feeding grass roots conservatives a new, non-religious, economic diet. And it delights the palette of rednecks and independents alike.

Two evils

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As I was riding the tube a couple of weeks ago I noticed one of the “text" polls in the paper as I was thumbing through it. The question was straight forward, “Do you Trust David Cameron?" the results, while admittedly not scientific, were both astonishing and yet not surprising. An overwhelming amount of respondents, over 75%, voted No.

While your average bloke on the street could tell you that most people don’t trust Cameron it is surprising to me how much we would rather jump from one boiling pot to another instead of just jumping off the stove. It is a sad state of affairs when we vote for a particular candidate or party that we distrust because we distrust the other more. I believe that democracy cannot continue to survive if it is reduced to choosing between the lesser of two evils because it fundamentally undermines the purpose of the vote.

To a large extent political parties are responsible for this democratic failure by eliminating the need for individual beliefs in elections. Political parties may ultimately prove to be the end of government accountability to the people. Politicians realize that money means more than a happy constituency so they respond more to the party than to the people. Any individual with real aspirations to make the world a better place must first conform to the party standards if they have any hopes of ever reaching political office. This not only waters down the quality of candidates, but reverses the role of government from employee to employer of the people.

It is no coincidence that the countries with the most powerful political parties are the most authoritarian. Perhaps it is time for people to look outside the political box, and maybe we can find a candidate that is truly trustworthy.

Yes, you can have too much education

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Yes, it really is possible to have too much education. Not just in the sense of the absent minded professor either (as the saying goes, the more educated you become you know more and more about less and less until as a senior professor you know everything about nothing).

It is entirely possible for both an individual to have too much education and for a society to be educating too many people too highly:

The oversupply of college graduates started in 1999 when Chinese leaders decided to counter some of the effects of the Asian financial crisis by boosting university enrollments. They had hoped that a generation of well-heeled educated urbanites would boost domestic consumption and help reduce China's dependence on exports. Enrollment rose quickly, from 3% of college-age students in the 1980s to 20% today......Some 6.1 million graduates entered the job market this summer, 540,000 more than last year. In 2008 the employment rate for graduates was less than 70%. This year nearly two million of graduates, many of them postgraduate diploma holders, are expected to be left without job placements......An explosive report released by the Chinese Academy of Social Sciences (CASS) in September said earnings of graduates were now at par and even lower than those of migrant laborers.

That has to be a blow, the highly educated scions of the urban middle classes are valued at less (for their labour at least) than the peasants just in from the fields. Yes, education itself is valuable and life enhancing, but this idea that we should push as many as possible through the universities simply does not make economic sense. Our own experience in the UK is that trying to get 50% of all to have a degree is, well, it's already been reported that an Arts degree for a man is not cost effective, it detracts from lifetime income. It's one thing to say that education is good (as I've said it is, as part of personal development) but this mania that it will be the economic salvation of us is nonsense.

For us to take people out of the workforce for three years, at great expense to both themselves and the taxpayer, simply doesn't work as part of economic development. We are actually destroying value, not building it, by doing so.

As is so often true the American vernacular seems to have recognised this long before the policy makers (how about that for the wisdom of the crowds?). One discussion on the correct form for the plural of Starbuck's barista (baristae? baristas? baristi?) ended with the sage observation that it was in fact "liberal arts graduates".

Capitalism in crisis?

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On my way to work this week I sighted a number of posters stuck up around Victoria Street. Advertising Socialism 2009, these flyers proudly bear the slogan “Capitalism in Crisis: Marx was Right". An remarkable claim. A look down the road shows hundreds of commuters striding to their destinations. Everywhere shops are opening, and little cafes are overflowing. The inescapable truth is that capitalism is valiantly ploughing on; and everybody seems determined in supporting it.

The economic crisis sent shockwaves across the world, and recessions have thrown national economies completely off-kilter. It has been painful and faintly embarrassing; how did we fail to see this coming? Capitalism as practiced is a cyclical affair; with centralized attempts to temper fluctuations causing increased and prolonged destruction further down the line. Marxists are absolutely salivating because the banks are a mess, the UK are still in recession, unemployment is rising. In the mix, political freedom allows expression of opinion, and technology brings those of a similar mind together. The circumstances are perfect for ‘spontaneous revolution’.

But where is it? The truth is, society does not want a new economic and social order. What people want from the back of this crisis is a return to normality, and a return to the markets that have served us well and made countries richer for generations. People do not feel oppressed and exploited by capitalism, because it works for them.

Socialism 2009 is held with pride, despite the obvious failure of central planning across the world. As we celebrate the fall of the Berlin Wall, believers in individualism, liberty and competition should make their voices heard without any embarrassment. Free markets have made lifted untold millions out of poverty, given us all more goods and opportunities and entrenched freedom and diversity. These are reasons people continue to choose the market. Roll on Capitalism 2010.

Dealing with the EU

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So, after years of handwringing, it has finally happened: the EU Constitution Lisbon Treaty has been fully ratified and will now come into force. The Tories say there is no point in Britain holding a post-facto referendum, because it wouldn’t make any difference anyway. The position is that when they’re in government, they will seek to renegotiate Britain’s relationship with the EU and repatriate certain powers from Brussels. The opt-out from the Social Chapter will be restored, and so on.

Well, I’ll believe it when I see it. As Fraser Nelson has written on the Spectator’s CoffeeHouse blog, it is more than likely that the EU will be kicked into the long grass as a political issue and that superficially attractive measures like the proposed Sovereignty Bill will be largely symbolic. Meanwhile the Lisbon Treaty will have created a federal superstate without any real constraints on its growth. Brussels will accrue more powers, British sovereignty will continue to ebb away, and the regulations and directives will keep piling up.

That, sadly, is the reality of the situation. But it doesn’t have to be that way. What we need is a completely different set of tactics for dealing with the EU. Polite negotiation will get us nowhere. We should simply repatriate powers unilaterally. We don’t want the Common Agricultural Policy? Fine, scrap it in Britain and withhold the part of our EU contribution that would have gone towards it. Want a real opt-out from the social chapter? OK, just state that no EU measure related to social and employment policy will have any effect in Britain.

The EU won’t like it. They’ll make a fuss and snub British politicians at gravy-train summits. The European Court of Justice will hold that we are acting illegally. But at the end of the day, who cares? The EU only has legitimacy in so far as we acknowledge its legitimacy. Like all matters of international law, the EU depends entirely on the consent of those bound by it, or the willingness/ability of some to impose their will on others by force.

To restate my case plainly: if the Tories want renegotiation, they must present their desired relationship with the EU as a fait accompli. Doing things the traditional way will get them nowhere.