Thanksgiving

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As an American, I was obliged to celebrate one of our most time-honored holidays, Thanksgiving. As part of the tradition, many families across America take time before Thanksgiving dinner to express what they are thankful for in their lives. In the spirit of Thanksgiving I would like to talk a bit about a couple of the things I am thankful for.

As an American, I am thankful for the Constitution and the Bill of Rights. In today’s world it is easy for government to enter into a slippery slope were rights can be reasoned away. This has never been more apparent than in Britain where we see government stepping into homes and telling more than adequate parents how to raise their children. Invasion of privacy is now perceived as something only criminals should fear, and anyone speaking out against big government is branded as ‘ignorant’ or ‘obtuse’. While things are far from perfect in America, it is comforting to know there is a document that draws a line somewhere; that we at least have a platform to stand on when arguing for personal liberties.

I am also thankful to be living in a socially and economically free country. While we still live in a free Britain, there are many politicians with good intentions that would seek to take that away. Limiting individual and business income with massively high marginal tax rates is what many government leaders believe to be the moral thing to do. Government intervention in the economy has cost thousands of individuals their jobs, and yet they still preach that the solution to the problem is more intrusive action. We are losing the ability to be economically independent of government.

In reality, there is a lot to be thankful for even if you sincerely believe that government is slowly changing that fact. But while we still have a chance we need to stop this wave of government expansion. It is imperative that we stop the massive amounts of public spending and curb the intrusion of government into our personal lives. We need to make the world a place where future generations will still have freedom to be thankful for.

The Copenhagen Summit – Kyoto Re-visited?

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Energy experts are focusing on next month’s climate change summit in Copenhagen. Given the complexity of the issue - notwithstanding the need to guard national interests - a far-reaching deal emulating that at Kyoto is an unlikely outcome. Much attention will surround the stances adopted by the US and Chinese Governments, which between them account for 40% of global greenhouse gases.

In the case of the US, any agreement to bring about major emission reductions would need Senate approval. The Chinese situation is also fraught with difficulty given that its economic growth rate remains robust. Whilst emission reduction figures will be widely debated, the issue of new nuclear-build cannot be ignored. As a general environmental principle, more nuclear investment will reduce the need for renewable generation capacity, whose development in most countries remains very challenging.

However, recent events have seriously dented the prospects for new nuclear-build projects, including the current weakness of world gas prices, and especially those in the US. The recession was a key factor in bringing down oil prices but, more recently, the deferred linkage between oil and gas prices has frayed: new gas recovery systems from shale sands in the US are partly responsible. In the nuclear sector itself, there has been a raft of bad news, including cost and time overruns along with technical concerns about the new designs.

Hence, if new nuclear-build fails to take off, there will be increased demand either on the renewables sector if the case for large emission reductions prevails or on gas-fired generation if security of supply becomes paramount.

In view of all the uncertainty on general economic issues, on new nuclear-build and on the future of gas supplies and prices, will Copenhagen deliver anything more than solemn and binding undertakings?

Free markets, perfect competition and monopolies

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Simon Jenkins writing in Guardian yesterday, makes a claim that “Nobody but a fool believes that a free market in anything, left to its own devices, will tend to perfect competition. Economic history attests that it tends to monopoly." Scratch the surface and this argument adds up to very little and as a consequence, so does his demand that politicians need to regulate the banks better.

Mr Jenkins makes two crucial errors. The first is obviously his conflation of free markets with perfect competition. All markets are human and are by that attribute imperfect; this does not mean we need politicians and regulators to step in, history attests that they make matters worse. We could do with better education so that people can make better decisions more of the time, but seeing that the state has a near monopoly on teaching we can't expect that any time soon.

The second error Mr Jenkins makes is his statement that free markets tend to monopolies. This is wrong. Regulated and politicized markets tend to monopolies, while free markets tend towards competition, perhaps not perfect competition, but competition nonetheless. With regards to the specific case of banking that Mr Jenkins tries to tackle in his article, though not a monopoly, it is regulated to such a ludicrous extent that the barriers to entry are too high for newcomers to enter the market.

In general Mr Jenkins takes an illogical approach to the issue of government and regulation. If he is writing about small businesses he wants less regulation, if it's big businesses he wants more. However, he fails to acknowledge that the reason many businesses are so big is down to the regulation itself.

Hobart lunch at IEA

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I was privileged to attend what I'm told might be the last ever Hobart Lunch at the Institute of Economic Affairs (IEA). These monthly munch-ins have been going on regularly for decades, attracting a mix of academics, politicians, students and policy thinkers. Indeed, my first introduction to the free-market policy world was attending one as a student, and sitting cheek by jowl with some of the leading liberal ideas people of the day.

Derek Scott, former economic adviser to Tony Blair, gave some remarks about the financial crisis and what to do about it. Sound money, of course, a less politicised civil service and a public expenditure bill heading more to 35% of GDP than its present 45% or more featured among his answers. The last word went to Esca Hayek, who congratulated the outgoing director, John Blundell on his long stewardship of the IEA in a way that her father-in-law, the great Nobel economist FA Hayek (who played a key role in its founding), would have heartily approved.

Free-market fundamentalism

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Ben Chu is not alone. His conclusion that ‘free-market fundamentalism’ is to blame for the financial crisis is still sadly reflected in much of the media and public at large. Yet a glance at the arguments made in his article published in The Independent reveals an antipathy for government, not the free market.

So what are the traits of this ‘free-market fundamentalism’ that Mr Chu is condemning? Despite using the term, he is certainly not upset about anything ‘free’. He is annoyed that the UK government has been captured by baking lobbyists, that they and the Bank of England lent vast sums to these banks, and that despite this, banks are still in much the same state as they were last year. The real recipient of Mr Chu’s ire should be this corporatism and poor inefficient government, not free banking. A free market in banking has not been practiced in the UK (Scotland) since 1845, and even then arguably.

Although clearly used as a pejorative by Mr Chu and others, the fundamentalists – if by fundamentalism one means a strict adherence to principles – would agree with Mr Chu’s concerns, if not his solutions. Following the financial crisis, the ideas of the Austrian school have rightly undergone something of a renaissance across the globe. In the US, the work coming out of the Mises Institute, Peter Schiff of Euro Pacific Capital and Republican Congressman Ron Paul have redefined the terms of the debate. In the UK, the recently formed Cobden Centre has the potential to do the same over here.

The zombie that actually needs putting out of its misery is the model upon which we have built and allowed our economy to bubble and burst. Although the jewel in the crown, of the overturning fiat money, is unlikely to take place any time soon, the ideas may well set the groundwork for radical reform once the next financial crisis hits.

George Miller-Kurakin

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As reported in yesterday’s Independent the Adam Smith Institute recently lost a great friend and a heroic fighter for freedom. George Miller-Kurakin was an anti-communist activist who during the 1980s was not only a close associate of the ASI but in orchestrating a wide range of direct actions behind the Iron curtain he inspired a generation of young freedom fighters during what turned out to be the latter decade of the cold war.

A larger than life character with a great sense of humour, George was thoughtful, generous and staunch. Strategic, visionary and an outstanding executioner of field-craft and tactics he always believed that Communism would eventually collapse under the weight of its own manifest contradictions. How right he was. Rest in peace.

Corporate tax competition

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The Confederation of Danish Industries (DI) is urging the Danish government to cut corporate taxes from the current 25% in order to maintain Danish competitiveness. This recommendation comes after the new German government announced it plans to cut corporate taxes by half, from 30% to 15%.

Deputy Director General of the DI, Tine Roed, argues that because Germany is Denmark’s largest trading partner, a lot of Danish companies would be tempted to move their businesses south of the border. This is compounded by the new “green taxes" imposed upon Danish industries together with the indications that the opposition would raise taxes if in power.

The British government should carefully follow the actions of the new German government. Unfortunately the UK has put itself in a position where it is not able to act this decisively because of the already extended public borrowing: about 12 percent of GDP this year. Germany’s deficit on the other hand only accounts for about 5 % of GDP this year, thus leaving more room for the German government to act on changes in the global economy.

As Jeremy Warner pointed out in The Daily Telegraph, the UK is in a situation where tax cuts are not likely. As a short term measure, Mr Warner suggests a dual action of tax raises and expenditure cuts. Why, you may ask is suggesting we raise taxes? Because: “spending cuts take time to implement and sometimes involve substantial upfront costs". The ideas is that a shorter period of higher taxes might increase government revenue, taking us out of the debt spiral quicker, followed by tax cuts so the economy is not too adversely damaged.

However, given where we are on the Laffer curve, the government might not have Warner’s luxury of extorting more revenue with a quick tax rise, and more worryingly, governments are rarely keen on cutting taxes once they have been instituted.