Progression to recession

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It seems much more than a year ago that Prime Minister Gordon Brown was telling us that the financial crisis had been "created abroad," and that "Britain is best placed of all the major economies" to weather the storm, largely because of "the fundamental strength of our economic position."

Yesterday's provisional figures showed an economic contraction of 0.4 percent in the third quarter, dashing hopes within the government that a marginal, even tiny, expansion would enable them to bellow forth that Britain is now out of recession, and that their astute economic management had achieved this.

Of course the figures may be revised as more numbers come in, but a striking feature is that all the numbers are bad. It is not that one underperforming sector has dragged the average into red territory; it is that none of the numbers rose, with contractions in both services and industrial sectors. The other striking fact is that Britain might be the only major economy still in recession. Britain's "best placed" position now lags behind France, Germany and Japan (officially out of recession), the US (unofficially out of recession) and China (growth rate accelerated to 8.9 percent).

The stock markets have recovered spectacularly from their lows, but the nuts-and-bolts economy has not. Those who might invest to expand and create jobs are not convinced that the misallocation of resources is yet corrected. For years money was pumped into public sector activity, giving an utterly false picture of real demand. Funds that might have been invested where the market indicated real demand were diverted instead into government programmes. For years the Bank of England (and other central banks) created easy credit through low interest rates, again giving false signals about costs and demand. The UK economy became greatly over-extended in some areas, and will need to readjust. To make this even more difficult, a crippling burden of debt now hangs over future generations.

Is there any good news? Perhaps only that the failure of the UK government stands even more exposed. They cannot claim that their billions of pounds of stimulus has saved the day. The latest result increases the likelihood that a new government with more responsible policies will take over. Whether those policies will include reductions in both spending and taxation, and ones directed to clearing the way for economic growth, remains to be seen.

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

A Cameroon education

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On 3rd October David Cameron told the Sunday Telegraph that a Conservative government will "smash open the state education monopoly so that any qualified organisation can set up a new state schoo".

What sort of organisations will be able to qualify? Well, according to the Conservatives' two years old policy document, "The country which provides the closest model for what we wish to do is Sweden".

A major feature of the Swedish system is that profit-seeking enterprises, including PLCs, qualify. Indeed three-quarters of the new schools in the Swedish model are profit-seeking. Furthermore, an impeccable source wrote, in a recent article for the Spectator and the Daily Telegraph that "the Swedish model would not exist without the acceptance of profit-making organisations". Yet it has long been clear that Cameroons have no intention whatsoever of permitting such enterprises to "qualify". After all, that would be private enterprise; strictly passé for the Cameroons.

Or would it? During the conference week, part of the pro-Tory press was willing itself to believe otherwise. Thus on 8th October the Spectator editorial said “Crucially, it now looks likely that the new schools will be able to be run for profit" while in its Coffee House, Fraser Nelson wrote “Michael Gove’s new Swedish schools will, it seems, be allowed to make a profit".

This blog is some 3 weeks late while I have searched vainly for support of these notions.

I could be wrong, but if I am right, the Cameroons are guilty of serious misrepresentation of the "Swedish model". The same goes for another of their favourites – "the post-bureaucratic age" (largely via the internet and the information revolution). But the word "bureaucratic" refers to management in government and the public sector. The post-bureaucratic age is not a result of the internet as Dave the Vague likes to claim. It is the result of Adam Smith’s "invisible hand" – the most powerful information system the world has ever seen – bar none, whilst the internet is a mere side-show which enhances whatever market signals are allowed by the bureaucrats.

To reduce bureaucracy the Cameroons must slash taxes and allow private enterprise to flourish, rather than continue to tax us all and dish the funds out again to a few favoured voluntary groups. A good start would be to allow any entity, especially a profit-seeking institution, to create a school and charge fees directly, with a full tax rebate to those who thus reduce the cost of state education by moving their children out of it altogether. Don’t hold your breath.

Here come the stormtroopers

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For the first time ever British Police Officers will conduct permanent patrols through the streets armed with fully automatic submachine guns. The measure is supposed to help areas where gang violence levels are on the rise, but does it really take submachine gun wielding cops to lower crime? How much does it take for British citizens to finally realize that the government is taking control of their lives? And how long will it take before the police institute a curfew in those areas, or police patrols like these become a regular occurrence in all of London? This measure taken should not be tolerated. It is severely damaging to the already frail social freedoms that Britons are allowed.

These patrols are supposed to be a means of reducing gang violence and illegal gun sales, and according to the police are ‘intended to be a reassuring presence for residents’. However, I can think of very few things more intimidating than seeing uniformed police walking down my street with submachine guns. I know that there must be line somewhere between policing and state control, but the government has blurred that line to the point that citizens don’t notice anymore. I personally feel that individuals should have the right to bear arms, and I didn’t think it could get any worse than denying individuals this right. I was wrong. The only thing worse is to send out permanent patrols armed with military grade weapons after taking away everyone else’s guns.

All steps toward state control start with good intentions. At some point people need to stand up and declare that good intentions are not enough to justify denying personal freedoms.

Spencer blogs regularly on gun control here.

Danger!

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As I write, Great Smith Street – home of the Adam Smith Institute – is closed off by police. There is red and white 'do not cross tape' everywhere, two police cars and a police van are parked at one end of the road, and another two police cars at the other. Policemen and Community Support Officers are swarming all over the place, doing what they do best (being officious and irritating) and they have just been joined by a collection of yellow-vested fire marshals from the Department for Children, Schools and Families.

What has happened? Is it a bomb scare? A terrorist attack? Or is there a sniper on the roof, as I just heard one passer-by saying? Actually, no. It's none of those things. The reason for all this fuss is... wait for it... a piece of lead-cladding that has come loose from a building across the road.

Now, OK. Falling pieces of lead are, I suppose, a genuine health and safety risk. But do we really need the efforts of a small army of officialdom to protect us from it? Do we really need the disruption of closing a road to traffic, as well as pedestrians? Couldn't they just block off the bit of the pavement underneath the hanging lead, put up a few 'danger' signs and be done with it?  And if they're really that concerned, couldn't they just station a polite bobbie on the street-corner to warn people and direct them to the other side of the road?

Well, apparently not. Not in the crypto-facsist, risk-averse, bureaucracy-obsessed Britain of the twenty-first century anyway.

Do even the markets not trust the market?

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The pound soared yesterday on news that the Bank of England’s Monetary Policy Committee (MPC) had voted 9-0 not to increase the level of Quantitative Easing beyond the £175bn already promised.

On one level, this makes sense. Quantitative Easing is the most deliberate form of inflation: an active policy to increase the supply of money. Inflation devalues a currency not just in comparison to goods and services domestically, but also in comparison to currencies internationally. So the more one Quantitatively Eases, the more pounds one would expect to have to give up to tempt a wily American or European to part with their dollars or Euros. So far, so good.

But if the BBC is to be believed, this is not the reason why the pound soared. According to the BBC, the reason for the pound’s rally was that “The decision not to inject more money was seen as a positive sign that the UK economy was recovering and did not need further help from the central bank." And therein lies the problem.

The Bank of England, despite what we are regularly told by politicians, central bankers (unsurprisingly) and economists trained in the Keynesian school, cannot act as an omniscient oracle, able to predict the future of the economy with precision and foresight. The Bank of England can at best act as a research institute, albeit one with a vast staff. Indeed, Tim Congdon argues that Mervyn King would reduce it to exactly that.

The reason for this, as economists of the Austrian School demonstrated, is that information about the economy exists in the minds of the participants in that economy, and is necessarily vast and diffuse. No single authority – be it bank, ministry or leader – can possibly gather together the trillions of data severally known by the millions of actors within the UK economy (let alone the billions beyond our borders whose actions affect our own). That information can only be found within “The Market" – an unfortunate analogy for the interplay of actors seeking to pursue their own ends with their limited resources. Thus the market price will always be a better indication of supply, demand and future expectations than that of any single expert or group of experts.

Consequently, it would be madness for actors to read more into the opinions of the UK’s central bank than in the investment decisions of millions of capitalists across the country and beyond.

There are therefore two possible explanations for why the market responded as it did. The first is that the BBC’s analysis is correct because “that market" (in fact, currency speculators) have swallowed the myth of the all-seeing central banker and have put their faith in the nine wise men. If so, woe betide us all.

The other explanation is the BBC is wrong, that speculators know that the market knows best, but that they also understand that the value of Sterling can only fall if Quantitative Easing goes on. With such a clear signal from the Bank of England that at least part of their inflationary policy is closed-ended, the markets can breath a small sigh of relief.

On inflation

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Yesterday morning I was reading an old article by Joseph T. Salerno, which was published in the Austrian Economics Newsletter in 1987. The following passage on inflation struck me as a worth reproducing:

[I]f an additional quantity of Fed notes is printed up and spent by government on various goods and services, an excess supply of money will temporarily be created in the economy. The initial recipients of the new money will quickly get rid of the excess cash simply by increasing their own spending on goods; those who eagerly receive the new money as payments in the second or later rounds of spending will do likewise, in the process bidding up the prices of goods, reducing the purchasing power of the dollar, and, consequently, increasing the quantities of dollars that each individual desires to keep on hand to meet expected future payments or for other purposes. In summary, any excess supply of fiat money does not go out of existence, but is spent and respent and continually passed on like a "hot potato" throughout the economy until the surplus money is finally and fully absorbed by the resulting increase in general prices and in desired dollar holding.

The important thing to note here is that inflation – by which I mean an increase in the money supply – does not affect everyone equally. On the contrary, it benefits those closest to the pump, while penalizing those further away. The powerful and the politically connected – like banks, the public sector, and government contractors – get the new money first, before it has driven up prices, and therefore benefit from it. By the time it reaches the average taxpayer, prices have adjusted, and their incomes and savings are worth less than they were before.

This is why, in a sense, inflation is the most insidious and cowardly tax there is. It silently redistributes wealth from the ordinary citizen to the elite, without most people having a clue what is happening. Sadly, I suspect that's one of the reasons why politicians all-too-often favour it.

Progressive contradictions

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It was rather interesting listening to the likely next leader of the country discussing conservative philosophy with Peter Oborne on radio 4. Two points can be drawn from it. Firstly, he does not know very much about conservative philosophy; and more importantly, the philosophy he claims to hold is contradictory.

Although it is no proof that a Prime Minister needs a deep understanding of ideas in order to rule with success (just look at Gordon Brown), the rather limited answers to Peter Oborne’s questions were certainly surprising. Although he has never claimed to be a great intellectual – and of the fraction who will hear the program most will care little for the ideas – surely he should really know more about the intellectual roots of the political party he is now leading. If I was his advisor, from now on I would copy Blair and stick to daytime TV. Best to leave the political philosophy to those in the Conservative Party who can name more than The Road to Serfdom when asked for the key conservative texts.

More importantly Cameron’s various arguments in this interview are irreconcilable. Despite reeling off Oakeshott’s famous quote about prefering present laughter to utopian bliss, when pushed to decide whether he believed in civic associations or enterprise associations he finally came down on the side of the former. However, he spent the whole interview talking about Disraeli's one nation conservatism, his progressive conservatism and how his will be an “enabling government". But the fact of the matter is, progressive and universal goals cannot be built upon civic associations as meant by Oakeshott. This ties in to the contradications with Cameron’s rhetoric in favour of localism and much else. He is so desirous of change that he may be unable to dispense with the apparatus of centralized state control.

In practice, any number of things might force him to adopt a less interventionist approach to governing; yet this hardly insurance against an extension of the New Labour project. Whatever the truth of Cameron’s beliefs, something is going to have to give. Sadly as his latest announcement on all women shortlists shows, the safe money is on his progressive side trumping his conservatism.

Sex trafficking: no evidence for Harman's law

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Harman's sex trafficking law is based on feeble, fraudulent evidence.

Here's the line. Women are being trafficked into Britain and forced to become sex slaves. We know this because the massive Operation Pentameter, involving 55 police forces, six government departments and various NGOs, led to the arrest of 528 sex traffickers. On the basis of this, Harriet Harman is rightly pushing through a bill to make it illegal to pay for sex with a prostitute controlled by someone else.

Except it's all lies. As Nick Davies reports, the six-month investigation actually failed to find a single sex trafficker. Ten of the 55 police forces arrested nobody at all. Some 122 of the 528 arrests claimed never happened (they were wrongly recorded, or phantom arrests designed to chase targets). Half (230) were women – suggesting that the Operation was a convenient excuse to harass prostitutes and clock up more arrest figures.

Of the 406 real arrests, 153 had been released weeks before the police announced their 'success', 106 without any charge at all, and 47 being cautioned for minor offences. Of the rest, 73 were charged with immigration breaches, 76 convicted on drugs raps, and others died or disappeared.

Only 22 people were finally prosecuted for trafficking, including two women. Seven were acquitted. The net haul from this vast operation was 15 successful prosecutions. Of those, just five men were convicted of importing women and forcing them to work as prostitutes (two of whom were already in custody).

So that's the 'huge success' that allowed Jacqui Smith and now Harriet Harman, to claim that 'thousands' of women were being trafficked, and to push a Bill through Parliament. So much for evidence-based policy: I would feel happier if they just said that they found prostitution disgusting and wanted to outlaw it for our own moral good. At least that would be honest. This is simple deception, a fraud on the public.

Sex workers are opposing the new legislation. They know that every time governments 'get tough' on prostitution, they are the ones who suffer. The police just have another excuse to go on fishing trips, round up a few girls, and boost their arrest figures so that they get Brownie points and the Chief Constable gets a better bonus. And to prove that they are not 'controlled', girls will start working alone, rather than in flats with a maid to look after them, which will make them more vulnerable to abuse and attack. Thanks, Harriet.

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

The EU is listening...

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In the past the European Union has been accused of being virtually deaf to the wants and needs of its members populace. The recent reactions to referenda being a classic example. Well it seems the EU is mending its ways and is going to listen to them. They are planning to listen to them all the time, whatever they are doing.

"Project INDECT aims to mine data from television, internet traffic, cellphone conversations, p2p file sharing and a range of other sources for crime prevention and threat prediction.

So rest assured whatever you are doing the EU will be listening to your every word or online action. Reassuring isn't it?