For a real fiscal stimulus, let's invade Europe!

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Here is Nobel Laureate Paul Krugman on how to bring a major recession to an end:

It took the giant public works project known as World War II — a project that finally silenced the penny pinchers — to bring the Depression to an end.

The lesson from FDR's limited success on the employment front, then, is that you have to be really bold in your job-creation plans. Basically, businesses and consumers are cutting way back on spending, leaving the economy with a huge shortfall in demand, which will lead to a huge fall in employment — unless you stop it. To stop it, however, you have to spend enough to fill the hole left by the private sector's retrenchment.

I’ve read a lot about World War II, but I don’t think I’ve ever heard it described as a “giant public works project" before.

Of course, with conscription it is easy to get full employment. And industry will certainly churn out shells if you keep firing them. But the idea that war boosts the economy is as boneheaded (to use a phrase Krugman likes to use about those with whom he disagrees) as suggesting that breaking windows stimulates economic growth because it provides work for glaziers.

War is a massive waste of resources. A vast amount of American productivity – and the productivity of other nations – was wasted producing things that serve no productive purpose. Worse, they actually destroy other productive items. The US and the UK lost over 400,000 productive citizens apiece. Meanwhile, the rest destroyed factories and infrastructure across Europe and the far east. I don’t want here to start a debate about whether the war was one of necessity or choice; for the purposes of this discussion, that is irrelevant. The important point is that suggesting that World War II was beneficial to the economy of the United States is not only disturbing but is also nonsense.

The current fiscal stimulus is not focussed on warmongering, to be fair. But there is still a lot of unproductive expenditure that the government would like to hasten in the belief that it will generate a fiscal stimulus. New aircraft carriers are still being built; the ID cards rollout is being sped up. These projects cost billions, yet are utterly unproductive. But even if the stimulus was “productive", focussing on infrastructure and capacity building, it would not necessarily be beneficial. There is no way that the government can decide how best to allocate those resources: whether a bridge is more important that a school; a power station more productive than a harbour; wireless internet for Birmingham more valuable than broadband for Yorkshire. So even if the “stimulus" is productive, it cannot be demonstrated that the resources so allocated would not have been more productive if the original (pre-taxation) owners of the resources had been allowed to allocate them instead.

In fact, the empirical evidence for fiscal stimuli is damning. Stimuli rarely achieve a “multiplier" greater than 1, which means that at most the boost in GDP is only equal to the boost in government spending. More often than not the multiplier is less than 1, so the economy grows by less than the government spends (e.g. a £200bn fiscal stimulus might lift GDP by just £150bn). This is clearly a disaster for the economy, as future growth will be sacrificed as we repay a debt that did not even pay for itself at the time. In the meantime, the extent that government controls our lives grows: government spending grows even as the economy shrinks, creating a pincer movement on our freedom.

Which seems to bring us nicely back to World War II.

Tough on education, tough on the causes of education

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Schools Adjudicator Dr Ian Craig has published his report on Fraudulent Applications; it is a frustrating read. Dr Craig believes that Local Authorities should consider “removing places from the guilty and pursuing them through the courts, possibly using the Perjury Act." In the text of the report, Dr Ian Craig concludes:

The evidence presented persuades me that additional disincentives are required, together with a media campaign to underline the fact that every place obtained by a parent through deception, has the consequence of depriving another child of their ‘rightful’ place. This is not right, nor should it be tolerated in a ‘fair’ admissions system.

The report was doomed from the start. Its remit was to look at:

  • The scale of the problem at local level; 
  • The effect on fairness of local admissions; 
  • The Chief Adjudicator’s view of whether ‘withdrawal of places’ in the Code (paragraphs 1.50 and 1.51) is sufficient to dissuade fraudulent application, and - if not – his recommendations on how this could be addressed.

Within the body of the report the telling point is made that “fraudulent/misleading applications are only an issue in relation to oversubscribed and popular schools". Exactly. Could you imagine such a situation in any consumer led model of education? The good schools should be expanding at the expense of the bad ones, which should go to the wall.

Interestingly, the report finds that “There was no immediately obvious logic to which types of authorities were reporting a problem, for example in terms of geography, deprivation or size." This is rather telling because many believe the quest to give children a good education is essentially a middle-class pursuit. However, this is not the case as the excellent new book The Beautiful Tree by James Tooley shows. When it comes to education – we have a lot to learn from entrepreneurs in the developing world.

The whole approach of this report is wrong-headed. Instead of castigating parents for wanting a better education for their children, those in power should be asking themselves why parents are prepared to make so much effort to get their children into a good school. They should also look at how the schooling system needs to be reformed to allow this competition for places to engender the opportunities of excellence in education for all, rather than trying to cut it off at root.

Modern socialism's unintended consequence

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The rise of the BNP can be charted from the depths of the 1980s through to the present. Wherever there has been a gain by the BNP the politicians have quizzically scratched their heads and wondered how it happened. If only they held a mirror in their other hand they would then be able to see who is to blame for turning voters into the arms of the BNP. These voters are the forgotten masses, in the 1980s it was those that felt rejected and let down by Thatcher's closing down of the mines and the general decay of inner cities. Now we see the indigenous population cast aside as the tsunami of New Labour's multiculturalism washes through the streets elevating others above them on a crest of the left's moral wave.

The third way socialism of this century is founded upon the proceeding thirty year's righteous moral competition: the smaller or more insignificant the minority the greater the sense of do-goodery to those championing the cause. If only the left could accept that the greatest way to elevate all from poverty is to accept the spontaneous and natural marketplace. The public space needs few rules to govern it as long as those meeting there respect and are spatially aware of those around them. Ironically Labour are merely reaping the unintended consequences of what they have sown over the past 12 years in power and the previous 40 years in the socialist nirvana of academe.

The rejection of the Labour Party by the British working class is a qualification of the failings of Labour's economic and social policy. They have forced people to become second class citizens in their own country and the bribery of increased benefits has been insufficient compensation. The majority of these new BNP voters aren't racist they are merely disaffected. They support the BNP because the BNP claims to put their wants above others. To solve this crisis the Labour Party have to reject all that they have accepted as gospel over the past 12 years. They have to cease their multicultural pursuits and end the lunacies of both the minimum wage and excessive benefits.

Crime reduction

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Since Obama won the Presidential election in 2008 gun sales in the Unites States have been soaring. Citizens feared that with a democratically controlled congress and presidency that gun rights would inevitably end up on the chopping block. In reality, gun rights have actually increased in America since President Obama took office – especially with the ruling of DC v Heller. President Obama had even stated on several occasions before he ever ran for public office that he actually believes the right to bear arms is an individual right and is not dependent upon militia service. And the number of democrats in congress that are supportive of gun rights makes it highly unlikely that any gun regulation will be on the docket anytime soon. While it appears that the general public may have over-reacted to the threat on gun rights it has actually given us a unique opportunity to look at what happens to crime rates as the number of private gun owners dramatically increases along with the number of conceal and carry permit holders.

More recently, the number of conceal and carry permit holders has more than doubled in most states. The surprising part is that in areas with the largest increase in conceal and carry permits we are also seeing the greatest reduction in violent crime. Although this is nothing new – as far back as 1997 there have been studies linking crime reduction with the number of conceal and carry permits – it is still surprising to many people when they hear about it, and many choose to disregard it.

Many advocates of gun control tend to cite that crime in general rises when gun are more present in an area. Generally speaking this is true, but the number of violent crimes and crimes committed with firearms actually decrease. It is believed that when criminals face a higher risk of encountering potential victims that are armed they tend to substitute into committing more petty crimes rather than more violent crimes. While the outcome of this criminal-substitution effect generally leads to an increase on overall crime it also decreases violent crime. This essentially leads to fewer crime related deaths and an overall better outcome. I guess in a strage way, President Obama has actually helped make America safer – so let it not be said that he has done nothing since taking office.

Spencer Aland blogs regularly here.

The best way to think of gold

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So the best way to think about gold in the longer term, rather than as a specific hedge against either inflation or deflation, is as a currency. A currency that cannot be debased or undermined by any government. Central banks in emerging economies certainly seem to be looking at gold that way.

John Steepek, 'Why your portfolio should be braced for another crash' MoneyWeek

Air travel duty a stealth tax, not a green tax

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Air Passenger Duty rises will damage tourism without helping the environment.

Charles Starmer-Smith makes a powerful ten-point case against the first of two increases in Air Passenger Duty (APD) which came in on 1 November.

First, APD of £5 (short haul) and £20 (long haul) was imposed as a 'green' tax in 2004. Since then, the airlines have improved the efficiency of their fleets, yet the government is raising the tax by up to 425% of the 2004 level. This is a stealth tax, not a green tax.

Second, private jets are exempt (so Roman Abramovich is OK, then). As (third) are cargo planes. Why, if this is a 'green' measure?

Fourth, a new banding system means travellers flying 11 hours to LA incur less duty than those flying just 8 hours to Barbados. And (fifth) Tunisia incurs tax of just £11 while Egypt is socked with £40. Why?

Sixth, premium-economy passengers pay most. The tax on them will rise from £80 to £150 by the end of 2010. If four of you fly to the Caribbean, that's £600 in tax. It could make premium-economy uneconomic.

Seventh, the tax will damage the economy. The Netherlands' APD brought in €300m last year but cost the Dutch economy €1,200m. Eighth, while posing as 'green', not one penny generated by APD is being spent on environmental causes.

Ninth, with the Olympics coming in 2012, is raising APD the best way to encourage tourism? And tenth, anyone travelling from within Britain to (say) London and then changing planes to fly abroad will pay not just one, but two sets of tax on their journey. Which means travellers will choose to fly to an overseas hub rather than London. Another dent for the UK economy. Thanks, Gordon.

Dr Butler's book The Rotten State of Britain is now in paperback.

Politicians against science

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The Home Secretary has been displaying some rather statist behavior of late (see here & here). However, his latest attempt to stifle debate and research contradicting government policy is particularly authoritarian.

As a distinguished scientist, Dr Nutt has proven been unafraid to speak out about the findings of drug research. In this way, he has been able to provide the public with more information on the actual risks of illegal and legal drug-related choices. Yesterday's defense of his position is clear and logical, even if does not call for the legalization and medicalization of currently illegal drugs.

This is not the first time the government has ignored expertise on this matter. The Advisory Council on the Misuse of Drugs' recommendation not to reclassify cannabis was contradicred by Jacqui Smith. Dr Nutt was also forced to apologize for remarks made comparing the risk of ecstasy to horse-riding. Lucky he did, else the government might have crimanalized that too.

What passes for debate and grown-up discussion of the issues of drugs is pitiful. It is only when the myths are swept away, that reasoned policy will emerge. Close-minded, hypocritical and cowardly; our politicians have a long way to go.

EU're bang wrong: A history of lies!

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Nothing is set in stone, especially when it comes to the world of politicians. Their mission is to govern, and to govern down to the minutiae of each of us. A prime example of this is the ever expanding wasteline of EU law and regulations. The European Union will never be a simple single market place where people can freely trade due entirely to the nature of the politicians and civil servants in Europe. It will become a federalist state with extremely high barriers to trade: where people are licensed to trade, outside goods are allowed only under exorbitant tariffs and exports are heavily subsidized.

Reading the original Treaty of Rome and comparing it to what it has become clearly defines the natural advancements of a relatively simple idea corrupted by the poisoned hands of politicians. But then a politician's idea of a market place is radically different from a rational person's. What was it that we were signed up for? In the Conservative Party manifesto of 1970 Europe was only mentioned three times and then in respect to negotiations. Yet Heath signed us up to the Treaty Rome without asking. Wilson's referendum of 1975 was built on the renegotiations of entry that had taken place over the previous year. Yet reading a Labour Party pamphlet of that time exposes the fabrications and limited knowledge of trade that politicians had (and continue to have).

The modern era is tainted with lies and obfuscation from all sides. A Labour party that reneged on its manifesto pledge for a referendum and a Conservative party leader purposively muddying the waters via convoluted English. Conservative Home's analysis suggests that the Tories are unlikely to offer a referendum on the Lisbon Treaty. The party will instead seek renegotiations. Since Chamberlain returned from continental Europe with a piece of paper in his hand, that is all the politicians of this country ever come back with. Unfortunately for us that piece of paper is regularly stamped with, "WE HAVE GLADLY SURRENDERED TO EU".