A modern tale

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It is the month of August, on the shores of the Black Sea. It is raining and the little town looks totally deserted. It is tough times, everybody is in debt and everybody lives on credit.

A rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The butcher takes the 100 Euro note and runs to pay his debt to the pig farmer.

The pig farmer takes the 100 Euro note and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute who in these hard times, gave her "services" on credit.

The hooker runs to the hotel and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms and takes his 100 Euro note, after saying that he did not like any of the rooms and leaves town.

No one earned anything. However, the whole town is now without debt and looks to the future with a lot of optimism..

And that, ladies and gentlemen, is how Europe and North America are doing business today.

Matthew Anisfeld joins the ASI

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Having just completed my penultimate year at Haberdashers' in Elstree, I have the summer to await my AS level results. I wrote exams in Music, Economics, Mathematics and Further Mathematics. I hope to continue all of these subjects into my final year at HABS. Results permitting, I will apply at the end of this year, to Cambridge University to study either music or economics, two of my great passions.

I would describe myself as a free market devotee; so I anticipate that this week of work experience will provide further depth to my beliefs. In these economically fascinating times, it is easy to take the view that this is the fall of the free-market. I would argue quite the opposite. To quote Eamonn Butler “If you bound the arms and legs of gold-medal swimmer Michael Phelps, weighed him down with chains, threw him in a pool and he sank, you wouldn't call it a ‘failure of swimming'." It is therefore obscene to suggest that this financial collapse is a failure of the free-market.

Will the dinosaur howl or whimper?

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It's a strange time for the BBC. As its Annual Report comes out, it faces attack on all sides; sometimes for editorial reasons, often for reasons of quality and decency, and endlessly for being so damn big and intrusive.

But if a dinosaur stands up and says over and over again that it's the biggest and best player in the steamy swamp what else should it expect?

The oddity about the Beeb is that it always plays with one very old bat - that as the incumbent at the wicket of British culture it has a mission to reflect our culture across its entire diversity and that without it, we would all be worse off. The trouble is that, like politicians, it has been found out. By being part of the establishment, ossified in its position, it has adopted the stance of a typical nationalised entity, with highly paid executives, multiple layers of administration and a self-opinionated belief in its own value.

Seen from outside by viewers who are discovering the delights of many new ways of taking in information, entertainment and education from other source channels, the BBC is in serious risk of becoming - er - quaint. Where a howling vibrant kick-ass BBC would be out there creating waves in drama and documentary, stirring up stupid politicians, and pushing back new frontiers of content delivery, it has become more self-conscious about its position as owner of half our broadcast industry and much more besides. It knows it has to look inward to protect itself against waves of anger by viewers and listeners measuring its offerings against their licence tax. Is that any way to run a vibrant business? Whimpering about good value, compliance standards and splendid achievements does not move it forward.

The BBC desperately needs to be privatised, to move us further towards a universal subscription model, to allow consumers decide what they want from its considerable creative talent. Only then will we get the real diversity we want, the incisive journalism we want, and the ferment in new media that will emerge with true competition between creative players. The Dinosaur can then take its place among other scary raptors, novel mammals and yet stranger fish. Plurality will out, and we can enjoy the tussle for our attention.

Record government borrowing.....and guess who will have to pay for it?

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The measures taken by the current government in an attempt to minimise the severity and length of the current downturn are simply unprecedented in scope or scale. Their reach into markets, particularly financial, has many serious implications. For example, the state-sanctioned merger of Lloyds and HBOS created a titan of the consumer finance sector, with 28% of the UK mortgage market and 35% of savings accounts. However, the government ignored this oligopolistic evidence and overruled the concerns of the Office of Fair Trading that this would cause a "substantial lessening of competition", making the argument that the survival of all the major banking institutions was essential to avoid a 1930s style depression.

However, government intervention is now becoming more prevalent across other sectors which are surely not vital to Britain’s economy. For example, Britain lost comparative advantage in mass production of cars many years ago: the presence of plants such as Nissan’s and Honda’s is simply due to existing tax breaks and subsidies. Yet, the Government appears to be unwilling to face up to the harsh new market realities, offering the industry up to £2.3 billion of loans. Widespread governmental intervention, in providing financial assistance and circumventing competition laws, distorts the free market, meaning that we, the consumer, ultimately suffer. It negates our fundamental free-market liberty to decide through our purchasing power which companies thrive and which fail, and which products and services are offered.

Unprecedented state borrowing also creates a more long-term implication for our liberty. This year the government will borrow £175 billion, and national debt will rise to 79% of GDP by 2013-14. This debt ‘time bomb’ led Matthew Elliott of the Taxpayers' Alliance, to say that "This commits taxpayers to a terrifying amount of debt that will burden ordinary families for decades to come." Public service spending will be squeezed hard, but tax rises in both progressive and regressive taxes are inevitable. These diminish our liberties, as they decide how a large proportion of our income will be spent, and therefore leave us less money which is ours to spend as we choose. Therefore, the compulsion to pay for the government’s reckless spending and failure to predict the downturn is particularly unpalatable, and the scale of the inevitable tax rises represents a serious long-term threat to our freedoms as economic agents.

This article is written by James Freeland, winner of The Young Writer on Liberty 2009.

A brief return by Jokesmith

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Terrorists plan to plant bombs in tins of alphabetti spaghetti. They reckon that when one goes off, it could spell disaster.

The cost of politics

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The BBC has released the results of its research into the ‘cost of politics’ with unsurprisingly disturbing findings. The main breakdown of costs to the public can be found below. It is astounding that almost £500mn of taxpayers money could be spent ‘on politics’ within a single year. With this much public cash swashing around within Britain’s political establishments, it is perhaps easier to see how politicians managed to turn a blind eye to a few thousand pounds in expenses claims here and there – it would have been like fixing a leaking tap on a rotten sinking ship.   Granted, with a political system as large and complex as ours, there will be significant costs to cover – a strong democracy will always come at some administrative cost to the public, but this has been taken to excess. With rising unemployment, growing poverty and many families struggling to make ends meet, there must be ways in which politicians can begin to exercise thrift over their own affairs.   Politics is no longer an honourable profession where those involved have the public interest at heart. Politics has become a multi-million pound business funded by the average taxpayer; this is surely a signal for a major overhaul of spending by those in public office. We need to know where our hard-earning money is being spent.

In praise of the Fawcett Society

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It's not often that I'll praise blinkered ideological groups like The Fawcett Society but today I find that I need to. For they've finally managed to catch up with what has been obvious to the rest of us for years. Their latest report (.pdf) is called "Not having it all: how motherhood reduces womens' pay and employment prospects".

No, really, they've just noticed. After years of telling us that the gender pay gap is grossly unfair, a denial of human rights, a symptom of the patriarchy and a blot on the landscape of this fair land they've finally managed to work out that there isn't really a gender pay gap at all, there's actually a mothers' pay gap. 

Motherhood has a direct and dramatic in uence on women’s pay and employment prospects, and typically this penalty lasts a lifetime.

Quite, something I've been known to bang on about now and again. When you look through all of the statistics about the so called gender pay gap you find that it doesn't apply to never married childless women. That could be something of a clue to the point that it's not in fact a gender pay gap at all. It's all, as this report points out, about motherhood, taking time out of the labour force to have and to raise children.

Now, I think that the Fawcetters and I might differ about where we go from here: if pay gaps are a result of different choices in life then I've not got a problem with them. I don't complain that I don't earn City money for I tried the City and realised I wasn't willing to live like that to earn City money. Fawcetters seem to think that we should change society so that there isn't a mothers' pay gap: their right to advocate such, of course.

But at least we now all agree upon the analysis: no, there isn't a gender pay gap, there's a motherhood one. We can now move on to discussing whether this is something we want to change or not and if so, what might we do in order to do so?

For only if we've correctly analysed the causes of any problem can we possibly hope to solve it.

So well done to The Fawcett Society: however, in future, do you think you might try to be less than, say, five years behind the times?

A very inconvenient truth

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One of the curious implications of the current downturn has been to decrease slightly the prominence of environmental issues on the political agenda and in the media. Nonetheless, Climate Change is still widely seen as humanity’s greatest threat, and further legislation to address this is inevitable. Beneath the hyperbole and hysteria, the scientific consensus that emerges is hardly apocalyptic. Even the Intergovernmental Panel on Climate Change itself predicts a fairly modest 1.8 to 4°C rise in global average temperatures this century. Of course, this is not insignificant, but the action taken in response must be proportional and effective. There is a real risk at the moment that governments use the issue of climate change in a pseudo-Orwellian way as something we need to fight collectively, and therefore use it as an excuse to pass legislation that severely curtails our liberties.

For example, introducing limits on the amount of flying or driving we could do each year are potential future policy responses. Not only would these infringe our rights to lead our everyday lives, but in enforcing measures like these, vast amounts of data on our movements and activities would need to be collected, stored and analysed to assess our ‘carbon footprint’, eroding our right to privacy. Draconian measures such as these are not just undesirable threats to our liberty, they are also impractical and unnecessary. Fossil fuels are finite resources, a fact reflected in their cost. We have already seen that as oil prices rise because of a simple supply-demand relationship, companies and individuals pro-actively seek out alternatives, whether that may be reducing their use of a type of transport or equipment, increasing the efficiency of existing technology or investing in new technology. Furthermore, public recognition of the need to reduce fossil fuel use is a powerful incentive for corporations to do so: many companies already attach great prominence to environmental credentials to help differentiate them from their competitors.

Therefore, a free-market based solution is by far the most effective way of making the transformation from fossil fuels to cleaner, renewable energy sources. We must then remain vigilant against attempts to infringe our liberties under the premise of environmental issues. The really inconvenient truth for governments is that the most effective solution relies on individuals and corporations acting not as a result of compulsion, but in the logical pursuit of their own self-interest.

A very inconvenient truth is written by James Freeland, winner of The Young Writer on Liberty 2009.

Time for liberty

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And now that the legislators and do gooders have futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems. And try liberty…

Frederic Bastiat, The Law (1850)

Why we should fear American health care reform

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Tucked away in a piece about possible end runs around NICE, the health care rationing body, is something of a scary paragraph:

Pharmaceutical companies are reluctant to launch new drugs in the UK at low cost because 25% of the global market is influenced by the UK price.

No, not that one sentence, although it helps explain why this next one is scary:

It comes at a time when other countries are actively considering setting up equivalents to Nice. First among them, and most important for the pharmaceutical industry, is the US. President Obama is known to be interested in some sort of cost-effectiveness scrutiny of medicines, which is bitterly opposed by the industry.

What all too few seem to understand is that medical innovation is hugely driven by what happens in the US market. The only market that is largely free from price controls. We can see from the first sentence that price controls do indeed retard innovation but of course there is no outcry about this for we don't normally see it. Who does take note of cures that aren't invented, aren't launched, because price controls mean there is no profit in their being so?

The great release from this problem for European health care systems has been that the US market, by far the largest in the world, is not subject to such price controls. Thus 300 million of the richest people on the planet underwrite, through the prices they pay for new treatments, the developments that we get years later as prices drop.

If the US does indeed bring in some form of NICE equivalent, some form of price rationing, then medical innovation will fall....no, not cease completely, simply there will be less of it than there would otherwise have been. Thus people who could or might have been cured will not be and they will die.

Reform of the US system might still be worthwhile, something like NICE might even still make sense: but don't anyone believe that such changes will be costless, they will indeed cost lives.