Doubleplusungood

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doubleplusungood

In the past there was the Golden Country, a place that many of us now dream of whilst trudging under the shadow of the Ministry of Truth. It seems that the slightest exposure to the ideas and thoughts of the Dutch MP Geert Wilders would turn us into a baying mob of vigilantes. We would turn on our Muslim brethren and tear them asunder. Or this at least must have been the thinking behind the Home Secretary’s decision to ban him from entering the country on Thursday. He is a controversial figure who is reviled by many, having called for the banning of the Koran and linking of Islamic extremists to that publication in his film Fitna. The controversy should be solely related to his pronouncements on the banning of the Koran ( which would be wholly illiberal).

Why was he excluded? According to the Home Office it was because his appearance, by invitation from a Lord of the Land, would cause, “a serious threat to one of the fundamental interests of society," he "would threaten community harmony and therefore public security in the U.K." A Home Office spokesman further explained: "The government opposes extremism in all its forms."

This government has finally allowed the terrorists to win. By caving into mob rule we have now lost our right to freely express ourselves. That right is essential to the development of mankind, and all that his exclusion achieves is a faster descent into tyranny and darkness. The interests of society are no longer ours. They have been collectivised and are now the Secretary of State is the arbiter of our words and thoughts.

The Golden country has been truewise dispatched into the memory hole. Now we must be goodthinkers, desist from crimethink and be doubleplusgood followers of Ingsoc. Or we’ll be in the joycamps or worse, unpersons!

The red button

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the-red-button

The EU Parliament has decided that all video game devices need a "red button" as a kill swtich for parents to shut off the machines. They seem to think that parents are too dim to know how to shut a machine off and keep their children from playing it. Gamepolitics.com reports on this farcical pronouncement from the EU meddlers. If the Parliament wasn't so serious, it would be hysterically funny.

The EU is actually under the impression that only children play video games and that all parents are luddites. Parents know how to shut the game off well enough; they probably even know how to fake it so it looks like has been turned off so they can come back to play after the young ones have been trotted off to bed.

Blog Review 870

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blog-review-870

An extremely important announcement. Unix geeks will be rooted to their machines.

There might be something odd going on at the Stanford Group. Very odd indeed.

Might pasta be a Giffen Good and if so, can you make money from that fact?

Can we please get this straight on the legal and economic incidence of a tax?

The problem with politicians (OK, one of) is that so often they make things worse. Much, much worse.

No, really, appallingly worse.

And finally, it does have to be said though that incompetence is not limited to politicians.

The trouble with central banks

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the-trouble-with-central-banks

The way Dr Yaron Brook (pictured, left) – the president and executive director of the Ayn Rand Institute – explained the problem with central banks in his speech at the ASI this week was a marvellously clear, so it's worth repeating now.

Put simply, interest rates are a price that tells you how expensive credit is.  You base your financial decisions on them accordingly. If the price (interest rate) is low you borrow more, and if it is high you borrow less.

In a monetary system without a central bank, market rates would develop which balanced demand for credit with supply. The money supply would be as stable and dependable as the food supply.

But once the government tries to set this price, they cause distortions. Let's use the food example again: when government attempts to fix food prices, they almost always get it wrong. They either set prices too high, and you get oversupply. Or they set prices too low, and you get shortages.

Food, of course, is a fairly straightforward commodity – and yet government still does not, and cannot, have the capacity to set prices accurately. But despite this fundamental economic truth, we expect a committee of central bankers to put a price on money – something altogether more complex and opaque than food.

So when you think about it, it's really no wonder that they got it so horribly wrong, with the financial consequences we are currently witnessing.

Brussels Dispatch: Economic Partnership Agreements

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brussels-dispatch-economic-partnership-agreements

As Pat Barron commented last week: “[T]he reduction of development aid is an opportunity for [developing] countries to adopt their only hope of becoming "developed" countries, which is adopting capitalism to its fullest extent….Open borders to trade, without regard to reciprocity.”

This February in Strasbourg, the European Parliament adopted by 340 votes to 225 a Development Committee report on the Economic Partnership Agreements (EPAs) which moves the international development agenda forwards somewhat in this direction.  The EPAs are a vehicle for developing countries to augment regional free trade.

Capitalism and the free market represent the only known way for a country to work its way into prosperity.  Free trade is an important part of this process.  Tariffs, it should be remembered, in addition to raising revenue for the State, also ‘protect’ domestic markets from foreign competition.

So, the most important action that aid donors could perform, is to ask the question:  why are some countries good at generating wealth; whilst others remain impoverished?  The answer to removing people from absolute poverty does not lie in increasing donor expenditure; it lies in removing the inhibitions that currently impede development.

According to the OECD in the last 50 years, some $1.75 trillion has been spent internationally as Official Development Assistance on international development.  Which country is significantly richer through receipt of this largesse?

It makes me wonder whether the Left, which voted against the above report, and which defines itself by its commitment to the State and the State’s expansion - has an ideological vested interest in holding its dependents down.

Power lunch with Lionel Barber

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power-lunch-with-lionel-barber

Lionel Barber, the editor of the Financial Times, was our guest at a Power Lunch in Westminster this week, talking about the financial crisis, the economic downturn and the political response to it. The discussion that took place (off-the-record, unfortunately) was certainly a fascinating one.

It seems to me that economists are more or less agreed on the root cause of our present difficulties: a massive credit bubble built up, then burst, and now we are suffering the predictable consequences. There is, of course, some disagreement on why the bubble got so large, with people like me blaming central banks and political interference, while others point to global imbalances and other factors. But where the real arguments are found is on the issue of what we do now.

Many respectable economists think that extraordinary times call for extraordinary measures, and that doing nothing is just not an option. The Banks needed to be bailed out, and will probably need to be nationalized. Liquidity must be increased, even if it means printing money and dropping it from helicopters. And the government must stimulate the economy with fiscal measures, regardless of the deficits they run up in the process.

Others (and I lean towards this camp) think there's more or less nothing politicians can do to 'fight the recession', since it's an inevitable result of the distortions caused by the credit bubble. There will be pain while the market adjusts, and that's regrettable, but we need to let things work themselves out before we can see the green shoots of recovery emerge. The extraordinary measures others propose will only cause more trouble in the long-run.

Whichever way you look at it, one thing is for sure: we are indeed living in financial times!

Blog Review 869

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blog-review-869

Does school choice help? There are natural experiments that certainly point to that it does.

We really ought to be basing our laws that protect people from risk on an assessment of, umm, risk.

What is it that economists are supposed to do in a political situation?

Quite how appalling can business books be?

And quite how bad can health journalism be?

It's really a little late in history to still be blaming Reagan or Thatcher.

And finally, Russian Lolcats.

Time to scrap the FSA

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time-to-scrap-the-fsa

So ex-HBOS banker Sir James Crosby has quit his job at the UK's bank regulator, the Financial Services Authority. It happened just 30 minutes before Gordon Brown faced questions in Parliament, so I guess he was pushed. But the surprising thing is that Brown appointed him to the FSA in the first place. The Authority is now saying that it had been concerned about HBOS's risky investments since 2002. And then Brown makes it's head poacher into one of the gamekeepers! Absolutely bizarre.

The Financial Services Authority is no good and should be closed down. A Brown invention, it was always clunky and lumbering. With over two thousand staff, it had to make up lots of things for itself to do, so it came up with hundreds of checklists for financial firms, regardless of size and whether the tickboxes were all appropriate. The cost of its enormous bureaucracy meant that banks had to get large to carry the army of compliance officers they needed to deal with it. So the banks consolidated, and competition disappeared.

The Bank of England was a much better regulator. It knew what was happening in the markets, because they could see which banks were coming through their doors to ask for emergency cash. The FSA hadn't a clue, and when the Bank tipped them off about the flighty Northern Rock, they did (next to) nothing about it.

People blame the banks for the financial crisis, and there's no doubt that the banks have taken some shameful risks. But that's because the FSA has squeezed the competition out of the sector. And it encouraged the banks to take enormous risks with their customers' money, because everyone knew that if their bets didn't work, the government would bail out their account holders. This isn't a crisis of banking, it's a crisis of regulation. Every single part of banks' operations, from how they trade derivatives to whether they smile at their customers, is subject to regulation. That regulation hasn't worked. Sir James Crosby should be just the first of thousands to face the sack. And Gordon Brown the second.

Eamonn Butler's new book, The Rotten State of Britain is published in March.

Cameron's plan for the working man

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camerons-plan-for-the-working-man

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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an-unhealthy-policy

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.