Swine flu and the financial crisis


I guess that Swine Flu is a bit like the financial crisis, in a way. One started in the US on the back of bad policy – forcing banks to lend to minorities who couldn't repay, bad regulation, the government creating lenders who were too big to fail – and the other came from Mexico, with bad farming practices.

They both infected other countries with alarming speed, thanks in one case to modern electronic communications and in the other to daily international air travel. They remind us what a small, interconnected global village we now live in.

They are both things we have not seen before, since 1933 in one case and 1918 in the other, and since then, things have changed (financial institutions and trade, viral strains). So we don't really know how to cure them.

They've both caused panics which seem disproportionate to the reality. As ASI author Terence O'Halloran pointed out in a letter to the Daily Telegraph on Friday, 36,000 people a year routinely die of seasonal flu in the United States, but there was hysteria over a single death from Swine Flu. And both have a real impact on the economy and on output.

Ultimately it will not be elaborate technologies that defeat them, but basic, sound, common sense. Keynesian makework programmes, massive borrowing and quantitative easing will not cure the financial problem. Only sound money, freer trade, lower tax and regulatory burdens on business and better (not more) regulation on the banks will cure the financial problem. And sound hygiene, and putting infected people (like infected assets) into isolation will have more effect on Swine Flu than any of the latest anti-virals.

And we will learn that, just as the human body has amazing powers of fighting infection and recuperating from it, so does market capitalism have amazing powers to restore itself to health. Provided that the policy doctors let it, of course.

Blog Review 949


We have myriad problems about pensions, both public and private, at present. But the root cause of all of them is actually something to celebrate: we're all living longer.

Anna Schwartz blamed the Fed for the last disaster, in the 30s, and she was right. Now she's blaming the Fed for the current problems: is she right again?

No, Somalian anarchy is not the perfect state. But amazingly, the absence of government is better than the presence of some governments.

The secret to understanding Adam Smith. He describes meticulously that which is - and not so much that which should be.

The universal first rule of politics:

Every politician really, sincerely, and truly wants what is best for the nation ... as his or her second priority, after doing whatever it takes to get elected or re-elected.

The language here is shocking but then perhaps justifiably so. The lies and contortions are simply fantastical.

And finally, celebrating May Day.

This is a political problem, not an economic one


Keynesianism that is, or the management of the economy through fiscal policy. Allow us, for a moment, to pretend, and assume that we've found ourselves miraculously in agreement with all and every of Keynes' tenets. We will even agree that borrowing £175 billion in the coming year is a good idea (and that no, it doesn't matter what we spend it on) because we really could do with some fiscal stimulus.

So, where does this leave us? Well, we're saying that we need this fiscal stimulus because there are unused resources in the economy and that growth is going to be below trend. Right, but as the IFS points out, this gives us something of a problem. For if we are below trend now it's fairly easy to show that in recent years we were above trend. As indeed the IFS points out.

Now remember that we have drunk the Keynesian Kool Aid in its entirety. Just as we believe in fiscal stimulus when growth is below trend, we also believe in fiscal contraction when growth is above it. And can anyone see that happening in recent years?

Such a contraction would have meant raising more in taxes than was being spent by government. Instead of public borrowing, we would have had debt repayment. And can anyone really believe that was going to happen? When you've Polly Toynbee screaming that we can and must abolish child poverty for only a few billion more? When every policy panhandler is pronouncing on how this or that evil of the world can be solved for just a little more taxpayers' cash and anyway, isn't this what a Labour government is for?

Well, quite. The failure of the system is thus a political one at the very least. Whether it works as an economic system is for others to determine but if it's politically impossible to have fiscal contraction when the theory says that there must be fiscal contraction then it's not all that useful a theory, is it?

Changing our ways


I haven't yet heard anyone yet say that Swine Flu means we must abandon the acquisitive society and all learn to live more simply, but I have no doubt at all that I will. I anticipate this because the mantra is used every time anything of significance happens, and even when insignificant things do. There are always people who yearn for a simpler life when people were nicer neighbours and the Hovis boy pushed his bike up that sepia cobbled hill. Things were under control more in those days.

Now they wail that everything has gone manic with people pushing and shoving and trying to improve themselves. The spread and speed of our interaction with others has led to a world which cannot be controlled and which occasionally seems to run wild.There are just so many interactions that no directing brain can hope to slow it down and make it behave as some idealists would like it to.

In despair over these developments, and over their failure to persuade the world to behave differently, they clutch at each new development as a sign of the imminent collapse of the modern world, and the emergence of a quieter one in which people have more limited ambitions and know their place. They rather parallel the environmentalists who hail any weather that happens as evidence of coming catastrophe.

It is true that the world faces a series of challenges and shocks; it always has. It is also true that modern speed and interconnectivity can highlight and intensify some of those challenges. But there is another side to that coin: it is that the speed of scientific and technical advance, and the rapid transmission of information, mean that humans can respond more quickly and more effectively. Our ability to deal with crises has increased, too.

It is unlikely that Swine Flu will overwhelm us. Humankind will rise to its challenge and emerge from its threat, just as it does from the others. And no, it will not abandon its quest for self-improvement, or the speed and range of its reach. But its success will not prevent some people hailing the next crisis as the one to curtail our unlimited ambitions.

Tax Freedom Day 2009 falls on 14 May


But you'll have to work until June 25 to pay off Brown's borrowing binge.

Tax Freedom Day, the day in the year when the average Briton has earned enough to pay his annual tax bill, will fall on 14 May this year. This means that for 135 days of the year, every penny earned by the average UK resident will have been taken to support government expenditures.

This is the earliest Tax Freedom Day since 1973 – on the face of it, good news for taxpayers. But there is a downside: the traditional Tax Freedom Day measure only reflects the money actually raised by the government in taxes, not the full amount it spends. If the government deficit is factored in, Tax Freedom Day does not come until 25 June (the worst figure since 1984).

This gap between Tax Freedom Day based on actual revenues and Tax Freedom Day based on government spending is now the widest it has been since the early 1970s – and possibly since World War II.

These figures indicate a bleak future for British taxpayers. Running up deficits can be described as a form of deferred taxation. The effect will be that when the economy recovers – as it eventually will – the UK tax burden is likely to rise much faster than would otherwise have been the case and Tax Freedom Day is likely to creep later and later in the year.

Moreover, the reason that Tax Freedom Day will arrive so early in 2009 is not so much that the tax burden has been dramatically reduced – although the temporary reduction in VAT is certainly significant – as it is that tax revenues have collapsed due to the sharp downturn in the economy.

Overall, our research doesn't give much cause for optimism. Under Gordon Brown's stewardship of the economy, the government's annual deficit went from near-balance in 1998 to more than 3% in 2007. And that was with the UK economy was growing strongly. Now the Chancellor is forecasting a 13.3% deficit. We'll be carrying the burden of these mistakes for years to come.

Click here for more information about Tax Freedom Day.

Blog Review 948


What we do about the current troubles of course depends on what caused them. And there's still some confusion around as to what actually did cause the current troubles.

We used to have a Man in Whitehall who really did know best. Unfortunately, he retired, which explains a lot about the modern world.

This is known as "ripping a new one". About time it happened to Thoreau.

Rarely is the correct reaction to a tragedy to ban something.

Why Government procurement always costs so much.

Has Gordon really lost the plot?

And finally, some appear to think so.