Regulating hedge funds

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Businesses could be driven out of Europe because of hedge fund regulation, the European Central Bank (ECB) warns. The ECB reacts to the intentions from the European Commission to regulate hedge funds as the only region in the world. ECB is concerned that regulating funds in the EU but not anywhere else will give the funds incentives to go “country shopping" in order find the best place to be (with the least regulation). The paradoxical part of this argument is that funds can do this already... and many have decided that being in Europe is the best place to be, so why ruin a good thing?

The proposal from the European Commission covers all kinds of funds financing everything from creative entrepreneurs to big business. Driving these funds out of the European region and into the arms of more competitive countries will set back the European industry costing both wealth and jobs.

If the EU really was comitted to supporting productivity, research and innovation, eurocrats should maybe consider ways of easing administrative burdens for those driving progress and prosperity instead of finding ways of turning them away.

Osborne's plan to limit bank bonuses

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George Osborne's plan to limit bankers' bonuses...won't improve life for borrowers.

UK Shadow Chancellor George Osborne proposes limiting bankers' bonuses as a way of making more lending available to cash-starved businesses. He thinks that anything up to £10bn could be freed for lending if larger bonuses were paid in shares, rather than in cash. And it might focus bankers on long-term business improvement, rather than short-term deal-fixing.

I doubt it. In the first place, banks already pay their larger bonuses in shares, precisely because it keeps staff motivated and hooked into the business long term. We already have the most restrictive remuneration regulations in the world, and if people can't get paid what and how they want here, they can zip off to Switzerland, Asia or the Middle East no sweat. It's a very mobile market. Furthermore, if the banks pay in shares, who does that hit? Well, you and me, the taxpayers who are supposed to own the shares in these deadbeat high street banks. Frankly, I'd not like my shareholding watered down any further, thank you.

I'm afraid this plan looks like electioneering again. If there is one lot that people hate more than politicians, it's bankers, so they are easy targets. And yes, the bankers have paid themselves far too much, no question. But politicians should be explaining why, not just joining in the bear-baiting. They can't, of course, because they are complicit. When the Fed and the Bank of England were flooding the world with cash right up to 2007, business was never so good. Not surprisingly, everything you did succeeded, there was so much money around. So the banks paid silly bonuses in order to motivate people to do deals. When the music stopped, a lot of those deals turned out to be unsustainable, but the banks had been acting perfectly rationally, going after the money that the politicians were printing.

Another reason why bankers overpaid themselves is because there is far too little competition in banking. And the reason for that is that banks have to carry so many brain-dead bureaucrats. Regulation is a huge burden which stops new people entering the sector, and induces existing players to merge in order to spread the regulatory compliance cost. And the lack of competition is not helped by the likes of Gordon Brown forcing banks like Lloyds and HBOS to merge. We should actually be splitting banks up, not merging them – George O is right on that, at least.

People don't understand that bonuses are how up-and-down businesses (like banks) keep their wage overheads down. When things boom, you pay spectacularly. When they don't, you rein in – although with contracts in place, that might take a year or two. Frankly, with business in the state it is, I do not think that next year's bonuses will be anything like those of the past. So why not let the market do its job?

And as for all those folk starved of lending funds...well, it's not just that the banks are repairing the balance sheets. It's also that people right now are scared to borrow any more because they don't know what the future holds. Would all that bonus cash go into lending, then? As I say, I doubt it.

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

People used to believe this

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A recent column by Matthew Parris deserves even wider coverage than it received. He made the point that the atrophy in a disintegrating government is betrayed by the media's disregard for things it would once solemnly have reported. "We no longer bother to rebut the Prime Minister’s improbable claims," says Parris, "or dispute his wacky ideas. There’s no point."

And Gordon Brown, who always loved reeling out meaningless statistics to bully and cow his audiences into submission, is coming out with some real corkers. Parris cites two from Labour's recent conference:

“Starting now," said Mr Brown to his conference in Brighton three weeks ago, “and right across the next Parliament, every one of the 50,000 most chaotic families will be part of a family intervention project . . ."

It took hardly a nanosecond to realise that this was a ludicrous undertaking on many levels. It certainly wouldn’t be starting “now". What is this new “project"? Where did he get the figure of 50,000 “most chaotic families" from? Absurd.

Yet no-one mocked it or disputed it. They barely noticed it. They no longer either accept this sort of nonsense, or even think it matters. Parris gives a second one:

“From now on," Mr Brown told his Brighton conference, “all 16 and 17-year-old parents who get support from the taxpayer will be placed in a network of supervised homes." But this is astonishing, isn’t it? Where are these workhouses? Have you seen any young parents carted away yet?

At one time some serious voices in the media might have challenged fantasies like this, but no-one can any longer be bothered. Matthew Parris is the only commentator I saw even mention this, and then only to show that nobody even bothers to take it seriously any more.

The UK might indeed pull out of recession by the turn of the year. Let us hope so. But no-one gives any weight to the fact that the Prime Minister says so. If anything, that would make it seem more improbable. Like a busted bank, his capital of trust is gone, betrayed and squandered over the years.

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

Tax, privacy and the state

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In Norway, an extreme intervention in privacy has become a deadly threat to respected and peaceful citizens, their families, children and spouses. This weekend a number of Norwegians received blackmail letters threatening them to hand over large sums of money to the offenders.

The offenders have used the publicly available tax database to pick out their victims. Each year the Norwegian government publishes all Norwegian citizens’ tax information on the internet for everybody to look at. From this database you can find out the income, paid tax and wealth of all Norwegian people and Norwegian companies. Offenders have picked out those most likely to be able to pay. The publishing of the databases was stopped for a short period, but reintroduced when the present social democratic government came into power.

The same danger is faced by Swedish taxpayers, where the government, like in Norway, exposures citizens’ private lives and incomes. The Danish government does not perform this kind of policy at the moment, but the Socialistic Peoples Party has proposed to introduce this legislation, if a social democratic government comes into power after the next election. The reason they give for this is to make it possible for people to keep an eye on each other to ensure everybody pays tax. Essentially they are encouraging people to spy on each other.

When facing absurdities like this the people of Scandinavia really need to ask themselves how much they really want to expose their private lives to public inspection. They also need to consider if it is proper that self-justifying politicians are able to give what should be private information to the world without asking first?

On a related matter, the ASI have an upcoming event entitled "Tax Competition: Economic Freedom and National Sovereignty". Click here to find out more.

Lord Stern is wrong: giving up meat is no way to save the planet

Dr Madsen Pirie argues that technological advances, not “live more simply” environmentalism, will deliver a greener planet.

Lord Stern, whose 2006 report set out the consequences and costs of various levels of global warming, has now called for humans to stop eating meat. His reasoning is that our farm animals, especially cows and pigs, expel methane, which is 23 times more potent than CO2 as a greenhouse gas, making meat-production account for 18 percent of all carbon emissions. He says that it will become as socially unacceptable to eat meat as it is to drink and drive.

The proposal is not surprising, since it is but the latest in a series of proposed behavioural changes which are claimed to be essential to the planet’s survival. People have been told they must eat locally-sourced food, abandon their cars for public transport, and drastically cut their air travel, among many other ‘essential’ changes. Giving up meat is only another step on the ‘live more simply’ road.

At the heart of the environmental lobby lies an unease at progress and change, and a veneration of a calmer, slower lifestyle. It goes hand in hand with a disregard for the material goods which extend choices in the rich nations, and even for the economic growth which offers the poorer ones a ladder out of subsistence. Although ‘saving the planet’ is advanced as the reason why these lifestyle changes must be implemented, it sometimes seems as if the simpler life is an end in itself, and that global warming is a convenient excuse to force acceptance of it.

Lord Stern, whose 2006 report set out the consequences and costs of various levels of global warming, has now called for humans to stop eating meat. His reasoning is that our farm animals, especially cows and pigs, expel methane, which is 23 times more potent than CO2 as a greenhouse gas, making meat-production account for 18 percent of all carbon emissions. He says that it will become as socially unacceptable to eat meat as it is to drink and drive.

The proposal is not surprising, since it is but the latest in a series of proposed behavioural changes which are claimed to be essential to the planet’s survival. People have been told they must eat locally-sourced food, abandon their cars for public transport, and drastically cut their air travel, among many other ‘essential’ changes. Giving up meat is only another step on the ‘live more simply’ road.

If we give up animal husbandry and eat the vegetarian diet Lord Stern advocates, it would be one devoid of milk, cheese and butter, and the world would have to get along without leather for its shoes or jackets, or wool for its clothes. This is not going to happen, any more than the other ‘essential’ changes.

What will happen instead will be new technologies that solve the problems without behavioural change. There will be emission-free transport, cleanly-produced energy, and minimal-impact production. Human ingenuity and resourcefulness are quite capable of achieving this, and can even be accelerated by suitable incentives.

It is highly likely that animals will be genetically engineered to emit less methane, and highly unlikely that human beings will give up a large part of their diet. The one is easy to do; the other is probably impossible, as well as undesirable. Some in the environmental lobby oppose this kind of technological change precisely because it will make behavioural change unnecessary. It will enable people to live as they want to live, rather than as others think they should live.

But technology will win, and the constricted lifestyles advocated by Lord Stern and others will lose. A look at human development suggests which course is the more likely.

Published on Telegraph.co.uk here.

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:

alt

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.