The handout package


In the WSJ yesterday was an enlightening article that listed most of what is in the $825bn stimulus package that passed through Congress. Here are the handouts, there's:

  • $66 billion more for eduaction
  • $54 billion will go to federal programs that the Office of Management and Budget or the Government Accountability Office have already criticized as "ineffective" or unable to pass basic financial audits
  • $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities
  • $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects
  • $8 billion renewable energy funding
  • $7 billion for modernizing federal buildings and facilities
  • $6 billion mass transit
  • $2.4 billion for carbon-capture demonstration projects
  • $2 billion for child-care subsidies
  • $1 billion for Amtrak, the federal railroad that hasn't turned a profit in 40 years
  • $650 million (on top of the billions already doled out) to pay for digital TV conversion coupons
  • $600 million more for the federal government to buy new cars
  • $400 million for global-warming research
  • $150 million The Smithsonian is targeted to receive
  • $50 million for that great engine of job creation, the National Endowment for the Arts

$252 billion is for income-transfer payments (cash or benefits to individuals for doing nothing at all)

  • $81 billion for Medicaid,
  • $36 billion for expanded unemployment benefits,
  • $20 billion for food stamps
  • $83 billion for the earned income credit for people who don't pay income tax

...$20 billion for business tax cuts

Depressingly the WSJ can only see, “$90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus."

This is a list that damns the US to a long and rocky road to recovery. But there will be many in the US who will be able to furnish their pockets with the creative wealth of the hard working, and most of those voted for change. This is their reward.

Brussels Dispatch: Human Action v. The European Union

We are in a world that is tilting over the edge of the very deep hole of global recession. Once we have fallen in, our only way out is through encouraging capital growth through real savings and promoting a more resilient understanding of property rights and free markets; or our continued descent will be through bringing in an unprecedented epoch of handouts from the state, more intervention and unpredictable behaviour-altering regulation. Nowhere is this ideological division more cleanly delineated than in development policy.

I look forward to sharing my observations and commentary with you – and the success of any blog lies in the quality of the feedback.  So I offer the assurance now that all contributions will be read by me – and who knows? – perhaps the best ones even circulated more widely here in the Parliament.

My basic principles are that government’s only legitimate function is to protect three things: Life, Liberty and Property. Anything else it does is a usurpation of that liberty – and obviously all taxation is robbery backed by coercion, masquerading as social responsibility. Furthermore, we must abolish the Bank of England and return to the gold standard. I reduce the essence of Conservatism to: “Trust the People”.  Winston Churchill, quoting his father, said that.  Why don’t we give it a try sometime?

Benjamin Harnwell is Secretary General of the European Parliament’s Working Group on Human Dignity; and Chief of Staff to Nirj Deva MEP, Conservative International Development Spokesman in the European Parliament.  He is writing in a personal capacity.  This blog appears on Fridays.


A Preface for Rebellion

My office colleagues were all delighted when Eamonn Butler invited me to write a blog for the ASI. Not because they share my long-held respect for the ASI – but because more simply they hope it will take significant pressure off their ears, which up until now have been numbed to bleeding by my continuous griping at the way socialism is ruining our country. My lamentations have now found a new outlet.

I have the great honour of being the Chief of Staff to the greatest MEP in the European Parliament, Nirj Deva.  He is a fine man, and has affably encouraged my gradual shift in economics from the standard mushy-Keynesianism that any unthinking person assumes by default, via the rather more acceptable monetarism, to the true pinnacle of absolute truth. I mean of course Austrolibertarianism in the footsteps of Mises, Hayek and Rothbard etc.

One of my main duties here in Brussels is to draft the amendments for my boss to the ceaseless flood of reports that washes through the Development Committee and the Foreign Affairs Committee. In case you didn’t know, International Development is the last great arena where the traditional ideologies can still vie for power. Here socialism lives as in its glory days of old. It is as if the fall of the Berlin Wall simply passed the euro-comrades by. Nirj’s principal (and principled) opponent on the Development Committee is Glenys Kinnock - and the land on which all our battles are fought remains the timeless: Is government the solution to existing problems or their cause?

Ivy League Empathy


Princeton University has announced its lowest tuition and fees increase since 1966. The prestigious American institution’s cost raised only 2.9% this year to $47,020. Many other privately funded American institutions are headed in the same direction.

Out of all other American institutions Princeton has made the most earnest effort to provide affordable education to their admitted students. In 2001 Princeton developed the most progressive need-based aid program in the United States, including an unprecedented “no loan" policy. This policy “offers every aid recipient a financial aid package that replaces loans with grant aid (scholarships) that students do not pay back." So for an underprivileged American student, it is a godsend to receive an acceptance letter from the school.

Although it appears to be a great model for other American universities to follow, it is a tough feat to accomplish. Princeton can afford to provide all of that aid because they have extravagant funds to pull from. Princeton has the fifth largest endowment out of all American universities, hovering around $10 billion. Back to the lowering rates overall, since privately funded institutions are becoming less expensive, wouldn’t it make sense for state funded schools to become even cheaper? Unfortunately this is not the case. “State universities are expected to hike tuition to make up for cuts from state governments."

So what does this mean for the future of American university education? Well, successful private institutions can afford to lower their rates and even provide many of their students with full grants, while the state funded ones are forced to increase their rates.

Affordable education in the private sector is quite the proposition.

The rise of Mugabenomics

Gordon Brown has reportedly said that the government must use simpler language about the credit crunch, because banking and financial-policy jargon just confuses everyone. Well, I can sum it up quite easily: we’re bust, and we’re going to print money to make ourselves feel richer.

Of course, Alastair Darling has been denying for the last month that he’s not going to print money to get us out of this jam. He doesn’t want people to suspect that we are doing a Zimbabwe or a Weimar Republic – turning out so much cash that it soon becomes worthless. That would ruin savers and truly mess up the economy. Indeed, the mere threat that the government would risk it could make things worse – it would suggest that the situation was even worse than we feared, that the government was no longer creditworthy, and that everyone should sell Britain’s currency before it’s too late.

So Alastair Darling might just like to hang on to the jargon ‘quantitative easing’, which he’s now given the Bank of England the green light to do – because it masks the inconvenient truth that, yes, the government is indeed printing money.

Another reason why that’s worrying is that it’s a last-ditch remedy. We’ve tried cutting interest rates to stimulate things. Now they’re rock bottom, but people still aren’t borrowing to buy new cars or bigger houses, and the banks aren’t exactly helping either. So like a cancer patient who’s tried everything and resorts to experimental drugs, we’re now resorting to experimental financial cures.

Of course, these days it is nothing so crass as just inking up new tenners. Instead, the Bank of England will press cash into people’s hands simply by buying assets from them. In practice, it simply buys assets like shares and mortgage contracts from the banks. That gives the banks cash they can lend to the rest of us. We go out and spend, and the economy revives. QED.

The Americans have been doing this for quite a few months already, though there is little sign of borrowing getting easier or spending going up. Japan’s experience isn’t heartening either: in response to the earlier crisis there, the central bank spent furiously and ended up with seven times the bank assets it started with, but nobody’s really sure it made much difference.

It’s possible that America and Japan simply haven’t done enough. In each case, the size of the boost has been not much more than 5% of these nations’ income – maybe not enough to convince people that the hard times are over. But the risks of over-egging it are enormous.

The Bank of England already buys bank assets, but usually it only buys the best. Now it’s proposing to buy a lot more, and buy much dodgier ones. So there is a fair chance that the Bank will be spending our money and ending up with a lot of worthless shares and paper promises. Thanks, Alastair.

The most serious threat, though, is the re-emergence of inflation. That’s not the problem right now, when prices are falling. But they’ve fallen rapidly, in the wake of a real drop in confidence about the future. What worries policymakers is that confidence could return just as rapidly. Then we’d all rush out to spend that extra cash the Bank’s given us, and prices would simply shoot up.

What worries me is not that. It’s whether our authorities can actually rein things back in again. Governments and central bankers rather like a bit of inflation: all that extra money makes us feel prosperous, encourages us to spend, and boosts business. But like a drug, the high you get from inflation only persists as long as you take larger and larger doses of it. And larger and larger doses are ultimately destructive. So eventually you have to kick it – and that makes you feel bad for a while. But governments don’t like making us voters feel bad, for obvious reasons.

The problem with ‘quantitative easing’ is that it could deliver a really big dose of inflation, and coming off a really big dose of inflation would make us feel particularly bad for some time. Do our political leaders really have the steel to curb that excess, or will they let us drift into the destructive high-inflation low-output ‘stagflation’ of the 1970s? Well, what do you think?

Money is an incredibly powerful tool. It shouldn’t be used to create a fake boom – as it’s been used in Britain and America for the last fifteen years – and it’s far too potent for economic fine-tuning. This downturn is exceptional, so maybe we should send it to work right now. But only if we believe ourselves strong enough to deal with the consequences, which could be highly destructive if they are not dealt with firmly.

Blog Review 855


In engineering you can have good, fast or cheap. Pick any two you like. It would seem that the same applies to a stimulus package.

Russian law and history seem to be repeating themselves.

Even the government seems to think that the minimum wage is too high now.

Hyman Minksy's views on the recovery. It doesn't really matter what the banks do at present.

Huge subsidies to solar power don't really seem to work.

These tidal barrages might not be quite all they're cracked up to be.

And finally, Jonathan Porritt's solution. We should all go back to being peasants again.

The car industry, the bailout and the taxpayer


On Wednesday, UK Business Secretary Lord Mandelson went some way in bailing out the carmakers by giving them credit, though you might think that it was too much credit that got us all into this mess in the first place, but put that aside for one moment.

The real issue is where this cash is going to come from. Our leaders like to suggest that it's just some bookkeeping entry at the Bank, but every pound lent to a potential car customer has to come from somewhere. And indeed, it comes from taxpayers. Hairdressers in Harwich have to pay higher taxes so that Sloane Rangers can buy a new Jag or a new Lexus.

Yes, that could save lots of jobs, possibly thousands, in carmaking. But only by putting jobs under threat everywhere else. Shops, cafes, and other businesses that are struggling to pay their National Insurance or their Business Rates will have to pay even more. They will start retrenching and firing staff – or not filling vacancies. Every job saved in carmaking is a job destroyed somewhere else. They might only be lost in ones and twos, but it is thousands of ones and twos. The tragedy is that politicians only notice the big numbers.

UK carmaking has been reeling since the 1970s, largely because it's cheaper to make cars elsewhere, thanks to our high labour, tax, and regulation costs. The Brown boom has disguised the fact, because we've all felt rich enough to carry on buying. But now the reality is sinking in, and we've stopped.

The galling thing is that most UK carmaking is foreign-owned. Why should I pay higher taxes to help the Indian billionaire who owns Jaguar? And why risk taxpayers' money on an industry, when tomorrow Detroit or Tokyo could pull the plug on most of it?

First the banks, now this. Pretty soon the whole country will be bailing itself out, at its own expense. A better policy would be to make ourselves more competitive. Cut out government waste. Cut taxes. Reduce our social costs. Encourage entrepreneurs instead of blaming them. Then we – carmakers included – might just have a chance.

The archaeological pirates


It’s cold, it’s wet and it’s muddy and you are wandering around a field with a pair of earphones on, waving a metal wand in your hand waiting for that special beeping noise that indicates that you may have struck gold...well metal anyway. This is the life of a metal detectorist, searching for the “holy grail", though not literally, of course. On Monday night a Time Team programme on Channel 4 shone some light on the trials and tribulations that the metal detectorists face.

The show was advertised as a, “report on a secret archaeological investigation into the site of a possible Viking boat burial in Yorkshire following a major discovery of coins, silver and swords." The discovery was made by a pair of humble detectorists, who, it transpired, had been detecting on the site for a number of years but had only reported a small proportion of their finds. They wished for the site to remain a secret so as to protect their “hunting grounds" and also any undiscovered artefacts. It became evident as the programme progressed as to why many detectorists act as they do towards the authorities.

There are guidelines to a code of conduct on the National Council for Metal Detecting that explain that all “unusual historical" finds are to be reported to the landowner, and the authorities. But as was witnessed last night there is little incentive to do so when the DCMS undervalues finds that come under the Treasure Act of 1996 to the tune of 800%.

Once a landowner has given permission to others to search his land, then those involved in the contract should be able to sell any finds on the open market. Whilst there should be some duty (self-regulated) to pass information to archaeologists to allow them access as well, so as to increase historical knowledge. There should be no room for the government, unless the find occurs on common land. All parties involved need to disconnect with the archaeological pirate that is otherwise known as government, and free up the market so that it runs more efficiently.

Debt, debt, and more debt


The Spectator's Pete Hoskin has been at the Institute of Fiscal Studies today, covering their 'Green Budget' launch. He blogs about it here and here.

The scariest statistics are on debt. The IFS is forecasting that the UK's debt-GDP ratio is going to get close to 60 percent in the next few years, and that its going to take until 2032 to get it back to 40 percent (which was the maximum allowed under Gordon Brown's now-discarded golden rule).

As Pete notes though, that's the optimistic forecast. The pessimists are saying debt could reach 90 percent of GDP – which is a pretty horrifying prospect.

My biggest worry is what future governments might do to pay off all this debt. It's easy to imagine them unable to squeeze any more revenue out of taxes, but unwilling to dismantle the welfare state. Chances are they would then turn to printing money, devaluing the currency, and inflating their way out of it. Needless to say, that would obliterate people's savings and retirement funds, and eviscerate their disposable incomes.

Blog Review 854


All this death of capitalism stuff. Worth looking at this chart. Capitalism is the only economic system ever to manage this, a consistent and long lasting rise in the average standard of living.

As an example, it wasn't the introduction of capitalism that killed Russians but the dying of communism.

Big government didn't work so well for Bush. So perhaps big government won't work for Obama, either?

Oh dear, it seems that Thatcher's lesson hasn't been learnt. To cut government you need to cut what government does, not just try to govern more efficiently.

And the evidence against The Shock Doctrine is now approaching that of The Population Bomb.

If you want a temporary stimulus why have one that isn't temporary and doesn't stimulate?

And finally, a blogger being sued for libel. Worth seeing if you can help perhaps, despite Dave's rather odd economic and political views.

Transatlantic carbon trading


The European Union is keen to link up with the United States and produce a transAtlantic carbon trading system. David Cameron's party has also welcomed the idea of setting up a world system. It's a bad idea.

You know me. I believe markets are the solution to just about everything, from traffic congestion to better healthcare, smarter education, and faster mail delivery. And when tax is debated, my opening bid is to oppose any tax, of any kind, or any size, at any time, for any purpose.

But the trouble with carbon trading 'markets' is that they are run by governments and officials. The European system has always been a complete dog's breakfast. Because to set up such a scheme, you have to negotiate who is going to get what quotas. So from Day One, you're immersed in politics, not markets. Europe was hugely keen to show its good intentions and get Russia into its emissions trading scheme. But the Russians were tough negotiators and ended up with billions of dollars' worth of quotas which they could then sell to others. Were the quotas given to other countries any fairer? I doubt it.

Then at a more micro level, the exact operation of the scheme depends on bureaucrats assessing the outputs of individual producers. The whole structure is based on political horse-trading and bureaucratic judgement. That's no way to run a market. No, I hate to say it, but a carbon tax would be a lot easier.