Cameron's plan for the working man

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With the inevitable 2010 election looking like a likely win for the Tories, what will the conservative plan for prosperity be? The Times says “he [Cameron] needs a crystal clear message about how a Conservative government will spread opportunity and benefit ordinary working-class voters." Some of these measures include cutting employers’ national insurance in order to reduce unemployment as well as introducing a Swedish-influenced market system to the educational sector.

Cutting taxes for employers will allow them to hire more workers, lowering unemployment while passing some of the savings on to the employees through reduced taxes out of their payroll. As for the market-based education system, this has been long in the works of conservative thought.

Britain’s system of state run education has been missing the bar because it is far too centralized to meet the needs of every family and unfortunately, the poorest families are suffering the most. Giving low-income families, and the rest of the population included, the option to choose schools for their children will not increase taxes to provide better education, it will only increase fairness to the system and induce more schools to advance their programs if they hope to obtain students (and therefore more government tuition). If markets can teach us (and hopefully politicians) one thing, it is that people respond to incentives. But more importantly, that it does not matter whether those people are corporate executives or school administrators.

(To view some Adam Smith Institute reports on education, click here).

An unhealthy policy

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It's not difficult to complain about the misdirection and failings of the NHS. The list of problems is seemingly endless: Superbugs, waiting lists, failed computer systems..... One common theme throughout is that these problems have been caused by the poor management and misallocation of resources and Taxpayers' money.

However, news that children as young as 10 will be paid to stop smoking have raised the bar, even by the NHS' shocking standards. This scheme has been set up by the NHS in Brighton and Hove who will reward children with a £15 gift voucher if they do not smoke for 28 days and pass a carbon monoxide test. Pregnant teenagers will also be given £5 if they can prove they are no longer smoking.

I sometimes wonder who comes up with these ideas, and who approves them. This scheme is fundamentally flawed and shows a total lack of regard for taxpayers' money. If a 10 year old has the cash available to spend £5 on a pack of cigarettes will £15 worth of BodyShop vouchers really provide an incentive to kick the habit? Secondly, for any young person considering taking up smoking, this scheme could actually act as an incentive for them to start. They can try smoking and if they don't like it, they can stop and be paid in the mean time.

Children are taught from a young age that smoking is unhealthy and a bad habit to start. If I were a 10 year old, I would be pretty miffed if my classmates who were smoking and subsequently being given £15 whilst I was given no such reward for making a healthy choice.

This type of scheme is indicative of poorly considered government plans that reward and create incentives to act in a sub-optimum way. It is absurd. But no doubt a government department somewhere is cooking up an even crazier one right now.

Making the moral case for capitalism

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On Tuesday evening the ASI hosted Dr Yaron Brook, the president and executive director of the California-based Ayn Rand Institute, who spoke about 'capitalism without guilt: the moral case for freedom'. His speech, which was followed by a Q&A session and then a drinks reception, was recorded on video, so I hope to link to it in due course. For now though, here's my write-up...

Dr Brook started by emphasizing the importance of defining terms. For instance, many people say that 'unregulated free-market capitalism' has caused the economic crisis, and yet the economic system we have had in recent years does not even approximate 'unregulated free-market capitalism'. What we have actually experienced is a relatively free, but still decidedly mixed economy. And that's what has failed, not pure capitalism.

Indeed, as Dr Brook argued, it is not the free market bits of that mixed economy that have landed us in trouble. Our biggest problem has been bad monetary policy, presided over by central banks. They held interest rates so low for so long that the government was practically paying people to borrow. In the US, that was exacerbated by social policies, which encouraged lending to people with low incomes. The credit bubble and subsequent debt crisis was (and continues to be) a natural consequence of these interventions in the market.

The main argument that Dr Brook advanced, however, was that defenders of freedom must do more than just talk about economics. They also need to make the moral case for capitalism and rational egoism. Freedom to pursue your own interests must not be reduced in argument to a utilitarian system of maximizing outcomes, Brook said, but should instead be celebrated and advocated as the ultimate, moral ideal. And that, of course, is what Ayn Rand did so well.

All in all, then, an excellent evening. And despite Rand's relative obscurity in the UK, a very well attended one too.

Blog Review 868

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We hear, incessantly, about why the banking system doesn't work: less often do we hear about why central banking doesn't work.

Those Australian bush fires: hot enough to melt metal.

As ever there's a tension between good politics and good economics and, sadly, the economics ain't winning.

Migration may in fact be a problem: all the skilled people are leaving.

Isn't it wonderful having a Home Secretary with such a cavalier attitude to the use of taxpayers' money. And, of course, there is more.

Incentives do matter but only up to a point.

And finally, more Top Gear.

Bye American?

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President Obama has been wishy-washy about his leanings toward protectionist policies in the current economic stimulus package, which faced final approval in the senate yesterday. He has been reiterating the word “change" since the beginning of his campaign, and although this “Buy American" clause was certainly a change from conservative methods of economic stimulation, it wasn’t quite a change for the better.

Although exclusively using American companies in this package may seem appropriate given the current repressed situation in the states, Obama needs to remember that the rest of the world is not picking daisies in the sunshine. They are being flooded by the recession storm. The United States is neither Atlantis, nor any other kind of magical self-sufficient land. The US has depended on foreign trade to boost its economy for the past two hundred years, so why is now any different? America needs help from the rest of the world to get out of its current state.

Providing domestic workers with more opportunities from the package will surely have some short-term benefits, but it will not solve the major problem. It will simply delay the process of fixing the economy (both American and World). Protectionist policies will have the same effect on the United States as emptying water out of a sinking ship will have if that ship has a hole in the hull.

He needs to fix the problem by getting to the source, even if it means facing a tough year. Jobs abroad create wealth to buy American products, which in turn creates more jobs for Americans. Investing exclusively in American workers for government projects will not create the future demand that American industry needs because it involves shunning foreign friends. The EU threatened to retaliate against the US if Obama does decide to include the “Buy American" provision, so it is easy to see the immediate negative effects of the policy. Let’s hope that Obama doesn’t stray this way again in the future, and that Gordon Brown keeps his head clear of protectionism as well.

Level playing field

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Train meet Car. Car meet Train. There will only be one winner. The train. Yet people in cars, and more alarmingly pedestrians, are being seen to risk their own lives on a regular basis. As the video in this BBC News story testifies. A few days earlier grieving relatives and parents, criticized Network Rail for their ongoing campaign alerting people to the dangers of misusing level crossings. Claiming that as more people die on level crossings than in accidents then they must be unsafe. Whilst there may well be one or two tragic accidents occurring per year the rest of the casualties seem to be risk takers simply running out of luck.

Network Rail identifies level crossings as, “high risk" something that any rational road user should do as well. Yet the frustrations at having to wait seem to play on many people to such an extent that they then attempt to outrun a train. Imagine if there were no barriers, how many deaths would there be on the railways, and who would be liable? The railway company. Why? Because they had failed in their duty to protect their customers. Yet due to the apparent  rise in the lemming type mentality of many road users (2,000+ per year) Network Rail, and ultimately us, may well find ourselves paying for the installation of bridges and overpasses. This knee jerk reaction would be welcomed by the RMT, (a sure sign that it’s unwarranted).

If Network Rail’s attempts to educate the uneducated about how to properly stop at a red flashing light because there’s over 250 tonnes (or 12,500 tonnes of force, if travelling at 50mph) fail, then the only people who are to blame are those that ignore the warnings. Risk is inherent in life, you can either lessen your exposure to it, or you can raise it. The railways realise that they can reliably protect their customers using these methods. It is up to road users to protect themselves from the elevated risk of taking on a train.

A trojan horse

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Most US Republicans were against the $900 billion stimulus package, designed by Nancy Pelosi, which President Obama encouraged Congress to support. Obama’s package lost even more credibility after the detrimental elimination of Tom Daschle from his cabinet, a hard liner in American health care collectivization. In fact, the package has become increasingly unpopular among US voters for many reasons, but especially because the federal government will receive a large percentage of it. Consequently, there will be stealth implications for the health system, as a leading physician has opinied.

The stimulus bill will increase state subsidies to health care, and therefore enhance federal government intervention. It is basically a bail out of troubled state Medicare budgets, transferring huge state debts to the federal government. These billions will most likely become invisibly absorbed by the health care system, just as has happened in the UK during the Labour government's NHS spending spree.

This is the exact opposite of health care reform, and in some regard it results in middle class tax churning at a time when the US tax burden is ever increasing. Furthermore, thirty billion dollars of the stimulus package will be devoted to the healthcare sector under a program called COBRA, which will provide federal assistance to citizens who earn up to one million dollars per year.

Blog Review 867

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What if, given the question that Alan Greenspan faced, there was acually no right answer?

We've had the Russian economy as both tragedy and farce: what do we call the third time around?

Does aid to poor countries help or create a form of welfarism?

A test of how liberal one might be. How far should that State interfere in private contracts: and how far should those contracts be defined by the State?

A heartfelt thanks to the way that British journalism works.

One way of calculating bank bonuses.

And finally, setting the bar.

Drugs: come down off your high horse

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The government's drug tsar, Professor David Nutt, has caused a furore by commenting in a scientific journal that the club-drug Ecstasy is about as dangerous as riding a horse.

He's probably right. I've seen the lives of young girls ruined through an addiction to ponies. Their minds seem to turn to equine mush. And of course falls from horses can and do kill or paralyze people – as in the case of Superman actor Christopher Reeve.

But I'm not proposing that horse riding should be made a Class A activity. (I'm sorry I mentioned that idea: it can't be long before the government starts banning dangerous sports and withdrawing NHS care from those who ride motorbikes or go mountaineering.)

Professor Nutt might have been unwise to mention the comparison, but some rationality in the debate on drugs is devoutly to be wished. When I thought that my teenage son might be taking drugs at school, I asked a neighbour, a clinical psychologist, for advice. His view was that schools were rife with drugs, but that most of them were far less harmful than alcohol and cigarettes. It put things into perspective.

It's only when we can actually discuss the real risks of drugs that we will be able to advise young people on how to handle them. But the government seems to be more concerned by the outrage of the Daily Mail than the facts. It spreads the misconception that all drugs are as bad as heroin or crack – driving the others underground and making them more difficult to control. As a policy, it's failed.

True, many modern drugs haven't been in common use very long, so it's difficult to know their full medical and psychological effects. Even with drugs that have been around for years, like cannabis, we are still learning the full physical, psychological and social consequences. So maybe we are right to be cautious about them. But let's be honest: because then, at least, we can steer people away from the most damaging drugs by giving them a genuine profile of the risks.