Economic growth no longer possible?


According to a new report from the hair-shirt brigade at the New Economics Foundation, it just isn't possible for the economy to grow any more with destroying the planet. The press release contains this partcularly inspired piece of analysis:

We tend to think of growth as natural for economies, forgetting that in nature things grow only until maturity and then develop in other ways. A world in which everything grew indefinitely would be strange indeed. A young hamster, for example, doubles its weight each week between birth and puberty. But if it grew at the same rate until its first birthday, we’d be looking at a nine billion tonne hamster, which ate more than a year’s worth of world maize production every day. There are good reasons why things don’t grow indefinitely. As things are in nature, so sooner or later, they must be in the economy.

My response is quoted on the BBC website, but here it is in full:

The nef’s latest report exhibits a complete lack of understanding of economics and, indeed, human development. To compare to the growth of an economy to the growth of a hamster, as the report’s authors do, is juvenile and misleading. Growth is emphatically not a zero-sum game. Trade brings mutual gains, and drives a process of innovation and technological advance that no-one can predict in advance.

It is because of this endless human ingenuity that we can and will continue to create wealth and raise living standards, so long as we are not prevented from doing so by foolish government policies. And it is precisely this economic growth which will lift the poor out of poverty and improve the environmental standards that really matter to people - like clean air and water – in the process, as it has done throughout human history.

There’s only one good thing I can say for the nef’s report, and that’s that it is honest. Its authors admit that they want us to be poorer and to lead more restricted lives for the sake of their faddish beliefs. I suppose they deserve some credit for making that admission.

Death and taxes


According to the World Health Organization, an estimated 30 percent of the world’s population lacks regular access to medicines, with this figure rising to over 50 percent in the poorest parts of Asia and Africa. Governments have often blamed this on the price of medicines, and have responded with a number of market interventions such as price controls and compulsory licenses.

However, our new research released this week shows that governments themselves are major contributors to the final retail price of medicines, through import tariffs and a range of domestic taxes. While such tariffs are gradually declining around the world, they are still as high as 15% – thereby acting as a tax on sick people.

Other low-income countries such as Ghana and Bangladesh increase the cost of medicines with import duties of between 6% and 8% - self-defeating in countries with such high disease burdens. Some countries levy especially punitive tariffs on antibiotics, hampering the fight against infectious disease. The worst offenders are Nigeria (20%), Burundi (15%), Nepal (15%) and Congo (15%).

In contrast, countries like Rwanda, Kenya, Gabon and Saudi Arabia have recently abolished import duties on medicines, joining the likes of wealthy European Union countries, Canada and the USA, as well as poorer countries like Benin, Malawi, and South Africa. Indian tariffs have fallen from 35% to 10% since 2001.

In 2005, a coalition of Switzerland, Singapore and the USA proposed at the World Trade Organization that all countries should abolish tariffs on medicines, as they are a regressive tax on the sick. It’s encouraging that many countries are moving in that direction, but there are still too many governments who needlessly price their own citizens out of treatment.

A global interactive map of medicine tariffs is available here.

Philip Stevens is Senior Fellow at International Policy Network, a London-based think tank

On the Citizens United case


The US Supreme Court has just ruled that corporations have more of the rights as "legal persons" that "natural persons" enjoy than was previously thought. In particular, that they've many of the rights of political free speech. They're allowed to spend money on advertising for and against political ideas and even politicians. This of course has created all sorts of screamin' ana wailin' from those who regard companies as the earthly spawn of Beelzebub himself.

Well, no, because as my liberal friends all seem to be indignantly announcing in the aftermath of the Citizens United ruling, corporations aren’t really people! They’re creatures of statute, and “corporate personhood" is just a convenient legal fiction.

And that argument I'm afraid rather leaves me in giggles. For of course it's exactly the argument that we around here have been using about companies over taxation. You can't tax companies because they're just a convenient legal fiction. The tax will end up being paid by people, for only people, not legal fictions, can pay tax. Which rather means that, taking both together, those who are arguing that as "legal" not "natural" persons, corporations don't have the right to political speech should agree that we should abolish the corporate income tax.

For who can tax a legal fiction?

An education in education


Having read his superlative The Beautiful Tree, I have been working my way through Professor James Tooley’s E.G. West: Economic Liberalism and the Role of Government in Education. Stunned also by E.G. West’s magnum opus, Education and the State, I was thus keen to read Professor Tooley’s analysis of the great man and his work. It did not disappoint. In thoughtfulness it put shame to my scribbles in the margins of my copy of Education and the State.

Although unknown to far too many people, E.G. West’s work was, and remains, groundbreaking in scope and depth. Using the lessons of public choice theory he convincingly explains how and why the state came to dominate schooling. The initial usurpations in the 19th Century can be broken down in to six stages:

  1. 1833 – The Committee of Council encouraged private schools to take money in exchange for being regulated.
  2. The Committee of Council then produced dubious statistics to argue that there were deficiencies in the population’s education
  3. Through the elaborate pupil-teacher system, the Committee of Council aligned teachers’ interests with those of the Council’s.
  4. Churches were restricted from helping the poor and strict building codes were introduced.
  5. 1870 – The Education Act set up the board school. This increased the domain and influence of the Department of Education.
  6. 1878 – Board schools given the right to supply deficiencies ahead of voluntary establishments, who were now ineligible for any subsidies.

It is important to note that most, if not all, of this happened without ill intent; yet it is still best explained by the self-interest of bureaucrats through public choice theory. Disturbingly, despite this increase in government expenditure, these policies lead to a decrease overall in spending on education. West calculated that by 1882, 27% of private investment had been crowded out by the state.

In light of West's and Tooley's works it is odd that so many people who are open to free markets in so many functions of the state are still remarkably statist with regards to education. It is not only that they fail to make the ‘leap of facts’ to support a system with no, or almost no, government intervention, they are even averse to anything that goes beyond the limited terrain of Friedman’s voucher system, despite all the state controls that would still be left in place. As such, I can do no more than suggest they read West and Tooley, required reading for anyone that requires an education in education.

Well, we all knew we'd get to this


Yes, inflation, the last refuge of spendthrift governments. And to make matters worse we've actually got The Guardian praising the idea:

But the panic is plainly preposterous: living costs are rising at just shy of 3%, as opposed to just shy of 30% in the dog days of disco. The truth – although it is unthinkable for central bankers to say it – is that cheaper money can be a force for good. It was not (just) to be flippant that Keynes claimed Shakespeare's genius required inflation in order to flourish. At least until savers get wise and demand extra interest, it boosts enterprise by reducing the debts of people who borrow to do useful things, at the expense of those who squirrel their money away. It could also eat up the public borrowing that hangs over us all, just as it did with vast bills for the second world war. The downside? If prices rise steadily and in step, the costs are measured in the shoe leather worn out by extra trips to the cashpoint and in the endless reprinting of price tags – neither a truly crippling burden for UK plc.

Well, at least someone there has read at least one economics book to get the reference to shoe leather costs. But, umm, the rest of it smells like months old tripe really. "Saving" so that others can invest that money is squirrelling it away now, is it? 3% inflation over 25 years halves the value of money: not greatly helpful for those who would save for their retirement now is it?

But the truly gargantuan problem is the supposition that inflation would eat away at the debt burden. Firstly, of course, what this really means is a hidden default on that debt. You know, sort of a "Tee hee...we'll pay you your money back but it won't be worth anything by then. Aren't we clever!". Well, no actually, this isn't big and it's not clever. Those gilts largely exist in the pension funds of us out here in the general population so that suggestion is really that you'll steal from us in our old age in order to fund your fiscal incontinence now.

Worse than that though is that it won't actually work. For markets have been stung by that inflation ruse once already and so matters are now different. Some 25% (so I'm told) of long term gilts are now inflation linked. Inflation does nothing to reduce that burden then. Short term gilts will of course need to be refinanced at the new, higher, (nominal) interest rates that inflation will bring. And the largest parts of government debt, things like the PFI exposures and the public sector pension plans are all inflation indexed. So inflation would be both a default upon those who are not inflation protected and wouldn't solve the debt problem either.

Inflation simply won't cure the debt problem. We're back to either raising taxes so as to choke off new economic activity or firing some portion of the army of wastrels who consume the current tax take. Given my language choices there you can probably guess which course I regard as sensible....

Just not cricket


It was pretty depressing watching England get hammered in the final test match in South Africa last weekend. However, it was even worse hearing English Cricket Board (ECB) Chairman Giles Clarke interviewed about the potential effect of the government’s Davies Review on English cricket – yet another example of the law of unintended consequences at work.

Basically, the government set up the Davies Review to consider which sporting events should have to be shown on terrestrial TV (i.e. not on Sky). And one of the events that the Review decided should be ‘listed’ was the Ashes – the famous test match series between England and Australia. The government has accepted the findings, and seems intent to introduce the relevant legislation before the general election.

But the trouble is English cricket is heavily dependent on the money the ECB gets from selling broadcasting rights. The £30m they estimate they will lose if they have to sell the Ashes to ITV, Channel 4, Channel 5 or the BBC rather than Sky represents a third of their annual turnover. To put it another way, that’s more than the entire ‘Team England’ budget. Take that money out of the game, and it will suffer.

Moreover, while it’s easy to be populist and say that more sport should be shown on free-to-air channels, people ought to bear in mind the extraordinary impact that Sky has had on British sport. Without the money they brought to football, for example, there is no way the Premier League would be what it is today, attracting the world’s greatest players and showcasing some of the world’s best football.

But of course, that’s not really the key point here. Nor is the fact that Sky’s coverage is vastly superior to that of the terrestrial broadcasters. It’s not even that the terrestrial broadcasters show no real interest in showing cricket. The key point is that private sporting institutions should be able to contract freely with whomever they want for whatever price they want. End of story. The government just shouldn’t be involved.

P.S. Another sign of the times came when Clarke discussed the increased burden of government-mandated CRB checks - £600,000 last year, up from £300,000 the day before.

Chile vs. Venezuela


While Chile was being welcomed with open arms into the OECD, Chavez was busy devaluing Venezuela's bolívar fuerte. The lesson is unambiguous: free markets work, while planned economies fail. The Chicago Boys – protégés of the late and great Milton Friedman – deserve a great deal of the credit. Theirs were the policies that broke through under Pinochet’s dictatorship and have been continued and extended under Socialist governments since.

Chile is ranked 10th in the 2010 Index of Economic Freedom, ahead of the UK. By these measurements, this makes it the most economically free country the South and Central America/Caribbean region. Following the recent elections, Chile is now lead by the right-wing Sebastian Piñera. He was elected on a pledge to introduce more business friendly policies – an area in which there is certainly room for improvement.

Things have been looking good for Chile for a while, as Nick Reynolds points out for an article in The Globe and Mail:

From 1914 through 1980, Chile's economy grew at an average annual rate of 0.7 per cent. Since 1981, it has grown at an average annual rate of 4.2 per cent. Before the reforms of the Chicago boys, it took Chile 70 years to double its living standard; after these reforms, it took only 17 years.

Nestled in between Libya and Burma, Venezuela is judged to be the 174th most economically free country in the world, thus 28th out of the 29 countries in the South America/Caribbean region. And with that Constitutional Referendum passing last year, as low as Venezuela currently stands, Chavez is likely to only continue drive the country further into the ground in the coming year (or decades).

Silliest blog comment in the world...ever?

i) As the production of goods and provision of services becomes less labour-intensive, economies need mechanisms to distribute goods and services to those no longer directly involved in production. At some point, state-mediated re-distribution of products and services grows. This leads to extended periods of education and retirement (to keep people out of the workforce), growing prison populations (to keep people out of the workforce), and the proliferation of law creation, law enforcement and law interpretation positions and professions. How will we provide income (a share of the economy) to the laid off police officers, prison guards, soldiers, bureaucrats, lawyers, judges, social workers, teachers, bankers, tax accountants etc. if we shrink government?

ii) In the cell biology analogy to an economy, only a small minority of genes and proteins are actually involved in metabolism (the equivalent of production of goods and services). Most genes and proteins (ca. 80%) are involved in monitoring the environment and regulating cellular activity. So, in a highly mechanized, capital intensive society, it is reasonable that most people are involved in monitoring or regulatory activities, rather than primary production.

Commenter on 'Stop' The Economist.