From the Annals of Entirely Counter-productive Government Interventions

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Yes, we know, we're ruled by blithering idiots whose every attempt to make anything better makes everything worse: this is not cynicism about politics it is simply the wisdom which we all painfully aquire as we mature. There are also those few who drink deeply at the fountain of economic knowledge and are able to point to exactly where and when the idiots go wrong. Today's entry from the Annals, the Analects of Stupidity, brings together two wildly different economists: our own Richard Layard, New Labour Peer exemplary, and Alan Reynolds of the Cato Institute. Not people you would normally find agreeing on the colour of the sky but then that economic knowledge when imbibed does lead one to outburts of truth telling.

First, Layard on the distinguishing feature between European and US unemployment rates:

For example, Europe has a notorious unemployment problem. But if you break down unemployment into shortterm (under a year) and long-term, you find that short-term unemployment is almost the same in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4% who have been out of work for over a year, compared with almost none in the United States. The most obvious explanation for this is that in the U.S. unemployment benefits run out after 6 months, while in most of Europe they continue for many years or indefinitely.

Elsewhere this is laid out as the pithy truth that if you subsidise something you get more of it. Reynolds makes the same point by quoting Larry Summers:

Summers knows why the US rate is so high. He explained it well in a 1995 paper co-authored with James Poterba of MIT: "Unemployment insurance lengthens unemployment spells." That is: When the government pays people 50 to 60 percent of their previous wage to stay home for a year or more, many of them do just that.

But what has been happening in the US over the past year? Yes, unemployment has been rising to European levels and above. And what has also been happening is that unemployment benefits, or the time you can claim them, have risen to one and a half years in some states and near doubled to just under a year in all of them at minimum.

In reality, the evidence is overwhelming that the February stimulus bill has added at least two percentage points to the unemployment rate. If Congress and the White House hadn't tried so hard to stimulate long-term unemployment, the US unemployment rate would now be about 8 percent and falling rather than more than 10 percent and — rising.

Yes, OK, we know we're ruled by idiots: but do they have to be so damn expensive with their stupidity? We know that raising unemployment benefits, and extending their term, raises unemployment. So why do they extend them when we're already worried about the amount of unemployment we have?

And to have the effrontery to call it "stimulus"....sorry, but that is so stupid, it hurts.

Properly subsidized education

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Flicking through a copy of the Evening Standard last week an advert proclaimed, simply: "If your child can pass our exams, we can help you with the sums." In a move that is highly praiseworthy, eighteen London schools (listed here) have joined forces to advertise the educational opportunities to the low earning families of the capital.

Though each school may vary slightly in what they offer, the idea is one that has been at the core of quality education since time immemorial and continues in many countries. In private schools throughout the world, parents of those who can not afford to pay are not asked to. Nothing is as fair, nor simple as that. This simplistic approach gives all equal access to a good standard of education. Yet for some strange reason this model for education is seen as being grossly unfair by many.

Education in the UK is, and will remain, in need of a complete overhaul for many decades to come. The best and brightest will continue to have their minds negatively impacted upon by a poor state education system until schools and parents are released. Either politicians realise they have no right to the children, or the parents have to revolt and disavow the state, either through homeschooling or schools outside of the state system. Until then, hopefully independent schools will be able to offer subsidized places and free some children from the clutches of the politician.

Immigration makes us richer

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Much nonsense is talked about the effects of immigration: and few of the truths are well known. The greatest truth of which is that it makes us, the natives, the indigenes, richer. And no, not just because it means there is a plumber about who doesn't require a second mortgage to fix the toilet.

We've all seen the various figures bandied about: immigrants bring in new skills in short supply: ah, say Migrationwatch, but immigration only raises native incomes by £4 a year (or was it week?) each. And then the response that yes, but the incomes of the immigrants have risen tremendously, making immigration as a whole hugely an increase in general human happiness. Then someone mentions that the immigrants steal "our jobs" and then but immigrants have needs and thus create jobs....and around the whole circle we go once again.

However, there's a very Adam Smithian attempt to look at this all here. The argument is obvious (as are all good ones once they've been explained to you): average incomes depend upon average productivity in an economy. The division and specialisation of labour increases productivity thus the more people there are around the more division and specialisation there will be and the higher productivity will be.....and so average incomes. Immigrants are more people and thus.....

Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.

What is further worth noting is that this was true of low skilled immigrants: for having more low skilled labour around means that we can indeed have that greater division and specialisation of labour, between the high skilled and the low.

So it isn't just that we're doing people a favour by allowing them in to share what our forebears built: immigration really does make us richer.

UK libel laws need to be reformed

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The UK’s reputation as a financial epicentre may have taken a battering, but it still attracts clients the world over in one area: libel law. Anyone across the globe can bring about a libel case in England if they can prove that just one copy of a publication containing ‘defamatory’ remarks about them has been purchased or downloaded on English soil.

Our system is incredibly claimant friendly. A defendant must prove that what they reported was either true or fair in order to win. Unlike in countries such as the USA, little respect for diversity of opinion and free speech is enshrined in the legal process. Also, defending libel action in England costs 140 times more than the average of other European countries.

These flaws bring about several problems. “Libel tourism" is rife; rich foreigners exploit UK law to try and silence unpleasant allegations made against them that would be thrown out of court in their own country. This has lead to foreign publishers becoming wary of circulating in the UK. Large American newspapers such as the New York Times told a Commons Select Committee that they are considering pulling out of the UK market as the threat of billion dollar court cases being brought against them simply isn’t worth it.

The high costs of defending libel lawsuits mean that too often those brought to court simply settle instead of fighting. It also leads to a dramatic clampdown on investigative reporting within the UK, as journalists are so incredibly wary of libel action. Journalists and Scientists in England are not forcibly censored, but they are self-censored; it is difficult to tell how many reports never make the light of day for fear of the potentially ruinous legal implications. Super-injunctions and over-zealous interpretations of the HRA’s Right to Privacy often mean the English public do not even know that something has been covered up.

Index on Censorship and English PEN have released a report on this issue, suggesting a number of reforms to libel law. These include bringing about a £10,000 cap on damages paid out, and ensuring at least 10% of a publication’s circulation is in England before libel charges can be brought about. A select committee is also due to be reporting their findings into the effect of libel law shortly.

At present English libel laws are used by the rich and influential to deflect attention, while discouraging serious journalism and the spread of ideas to the UK. These laws are in desperate need of reform so that they actually serve their intended purpose.

Roads to nowhere

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Standing on a crowded tube this week, something occurred to me: why do they bother heating the London Underground? Since the tube is underground and full of people, it doesn’t get that cold. More to the point, anyone taking public transport will at some point have to walk outside. Presumably, they will have dressed accordingly and will be wearing jackets, coats, scarves and so on. So why turn the heating on full blast, and pump carriages full of air so hot passengers would feel uncomfortable in shorts and a t-shirt? Surely not heating the tube would save a lot of money, make travelling on it far more pleasant, and even reduce emissions (assuming one cares about that sort of thing)? It seems like commonsense to me, but maybe I’m missing something.

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Continuing with the transport theme, is it really necessary to close so much of Westminster to traffic for the Queen’s speech? As far as I could tell, more or less all the roads within half a mile of Parliament were shut on the day, making it just about impossible to get anywhere. Meanwhile, a number of main roads stayed closed all week, filling alternative routes (like Great Smith Street, home of the ASI) with a constant stream of noisy, slow moving traffic. What’s most annoying is that the whole thing is a pointless charade anyway. Everything the Queen announces to Parliament has been leaked to the press in advance, and most of it will never become law anyway. The pomp and circumstance of the occasion may be nice for tourists, but for the rest of us it’s just a pain.

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Finally, one of the things you notice when you’ve got a traffic jam outside your window is how many buses drive around virtually empty. We often hear that buses ease congestion by fitting more people into less space, but I can’t believe that’s true outside the rush hour. Once you take account of how much road space is reserved solely for the use of buses, I wouldn’t be at all surprised if they were causing congestion, rather than reducing it.

Life is dole

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£64.30 a week to live off. Or £278.63 a month. And you don't pay any tax on your take home pay at the end of the month. Now most of us would rather not attempt to live off that amount of money a week, especially if you live in London. Yet those without a job and family have to. That's a single person's allowance a week or month if they are job seeking. An indebted Daily Mail journalist attempted to do this recently. She's in debt to the tune of £150 000, and managed to spend £330 per week when attempting to spend £64.30. (I think this gives an insight into why she's in that much debt).

The article raises the question as to whether you can live off that small amount. Ultimately the question would be: is it difficult to go without? Do you have the self control to limit your spending? Using DirectGov to input a fictitious 25 year old who lived alone it's fairly easy to find out that living on benefits should be pretty straight forward when 'all' entitled benefits are taken into account. Presuming they live on their own, in an average single bed flat, in an average Band D property, in an average part of the world (rent £400 per month, council tax c.£1200 per year) the results are surprising. On top of the Jobseeker's allowance, there is housing benefit of £92.06 and council tax benefit of £23.02 per week. A total of £179.38 per week.

So you don't have to worry about who's paying your council tax and rent? Fuel and food are the next essentials. Life in a single bed flat or studio shouldn't consume much of either of those and it's quite feasible to eek out a sustainable life on the remainder. You could even stretch to purchasing the internet/phone for £6.73 a week and a TV Licence costs £2.74 a week. You may have to kiss your rollies and beer goodbye, but you can live quite easily without them.

So to those who say it's not enough. Oh it is. It's more than enough.

Britain's debt spiral

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The OECD has issued a warning to Britain that it could stand in danger of entering ‘debt spiral.’ While this may come as a surprise to many – perhaps most of all to our beloved Mr. Brown – many of us, not living in blissful ignorance, have been warning of this for years. According to the best estimates, Britain currently has the largest debt of any country in the developed world, and even if it takes drastic measures to reduce public borrowing, we will still hold that title until at least 2017.

The ignorance of the government on this matter is evidenced every time Mr. Brown is questioned about the economy. He will immediately begin to tell you how much better the economy is doing and how much the national debt is not as bad as other countries. This report should serve to those who have bought into this bogus rhetoric as a slap in the face. The OECD report clearly shows Britain’s debt well above even that of Iceland’s.

Only a couple of days ago, the government promised to introduce legislation to halve the deficit within four years. While it is quite doubtful that the Labor Party has any any intentions to fulfill that promise, perhaps a new elected government will be able to at least recognize the problem. We will see...