Economics: three insidious teachings


Last year in an excellent essay, the formidable Anthony de Jasay set out what he considered to be the three insidious mistakes that were taught to secondary school children in Europe. These were the distribution-independence, the worker-defence and the property "rights" theses.

In regards to the distribution independence thesis, “high school textbooks teach that capitalism, leaving as it does the distribution of income to the free play (or, as some will say, the caprice) of the market, generates inequality. It goes without saying that inequality is bad both because it is "socially" unjust and because it reduces the aggregate "utility" derived from aggregate income." This of course rests on the supposition that income is independent of its distribution, which is of course patently absurd.
The worker-defence thesis relies on the idea that employers would abuse workers if "workers' rights" were not defined, extended and bolstered by legislation. Of course, in truth the dominant effect of this legislation is to “create excess supply in the labour market by making employers shun the increased risk of hiring." As a result the bargaining power of workers is weakened.
The property “rights" thesis is the idea that property is a social construction, granted by society (read government). In reality property is “generated by contracts and matched by the corresponding contractual obligations. Lending and borrowing, mortgages, leases, partnerships, insurance policies, options and other derivatives represent property "rights." They are derivatives of property, and are offset by the corresponding obligations of counter-parties as assets are offset by liabilities." Thus, property is not the governments to give “rights" to.
Mr Jasay was inspired to write this essay by the growing concerns expressed in German and French business circles about the type of economics taught in secondary schools. I have rarely heard of such concern from business people in the UK; in fact most businesses (as part of their corporate social responsibility function) are positively complicit with such views, giving money to charities that vilify the work of business, the freedom of markets and the foundations of capitalism itself.

The future of the US Republicans


Brian Doherty of Reason thinks that the key to a Republican renaissance is to realize that President Bush’s policies were wrong, not just poorly executed. I’m with Doherty. While Bush always came across as a likeable guy, there are few positive things I can say about his presidency. His administration presided over the fastest increase in federal spending since LBJ. They created a massive new entitlement programme (the prescription drug benefit). They further nationalized education (No Child Left Behind). Their ill-conceived foreign policy cost lives and trashed the American brand. Flagrant abuses of liberal principle – Guantanamo, Abu Ghraib, torture, extraordinary rendition, etc – undermined the USA’s moral credibility. They extended executive power, wielded it incompetently, and rode roughshod over the constitution in the process. It’s a hardly a sparkling record for a ‘conservative’ administration.

Clearly, then, change is needed – but kind of a change will it be?

Well, David Boaz of Cato breaks the party down into four different factions. First, there’s the evangelical/populist wing of the party. For them it’s all about telling people what to do – they are socially conservative, but are not inclined towards small government (Mike Huckabee’s a good example). Then you’ve got the national greatness conservatives, who are keen to demonstrate American might overseas, and want to instil a certain set of values in their citizens at home. They may be ‘conservative’ but they’ve got no ideological attachment to liberty or small government (John McCain probably falls into this camp). Thirdly, there are the business conservatives – people like Mitt Romney, who want government to be pro-business but are relaxed about extending the state (into healthcare, for example) so long as it’s done in a business-friendly way. The final group are small government conservatives and libertarians (like Governor Mark Sanford or Ron Paul) who really do care about freedom and are committed to rolling back the state.

Obviously, I’d like it if the Republicans shifted decisively in favour that fourth group, but a successful political movement will probably need to be a broad church, touching on elements of each. My guess is that the party will continue to be socially-conservative, but will emphasize states’ rights and federalism. It will be patriotic and security conscious, but will adopt a more modest and ‘realist’ approach to foreign relations. And it will shift decisively in favour of limited government and fiscal responsibility (a reaction to the Obama administration’s excesses, as much as anything else) without becoming truly libertarian. Time will tell if I’m right.

A new age of responsibility


The blame game is played very differently in China and the UK.  In China, the two executives most responsible for the tainted milk scandal get death sentences.  In Gordon Brown’s Britain, no one is to blame for the financial crisis.  Certainly not him nor the Governor of the Bank of England (who’s actually most to blame, see ASI Briefing Financial Crisis: Is regulation cure or cause?, nor Chairman of the FSA, nor any Bank director.  The blame lies, he says, with global events and market failure, all nebulous concepts that cannot be penalised.

In Brown’s world, an engine driver who ignores red signals and runs his train into another is not to blame.  It is a rail network failure.

The FSA was created, inter alia, to prosecute insider dealers.  How many have they prosecuted in 10 years?  Not one.

Obama has proclaimed a new age of responsibility.  Good for him.  Let’s see some recognition of personal responsibility here.  Let’s strip Fred Goodwin of his £500,000 a year pension and let’s put Mervyn King in gaol.

Blog Review 851


Greed is good....well, in the public sector at least it seems.

And as Polly says, this bonus culture has to go of course.

And as for the fat cats in the charity sector.

It's very important to note that a large part of the disagreement amongst economists about fiscal boosts, spending and tax cuts, is governed not by economics, but by the economists' prior beliefs. Perhaps it shouldn't be this way but it is.

As this chart shows in part.

The OLPC project: great aim, overtaken by a different technology.

And finally, a measure of the times that one of the few liberal statements upon drinking comes from a satire site.

Know no economics foundation again


There's a really amazing report out from the new economics foundation which leads to some really rather remarkable conclusions. What they're trying to do is in fact reasonably sensible. We all know that GDP doesn't measure how happy people are, doesn't tell us how resources are distributed, all it does is tells us the value added in a particular economy in a particular timespan. It is, if you wish, a measure of how much we've got to play with, not a measure of how we're playing with it. OK, as long as we all understand that limitation GDP is a very useful little tool and it has the added advantage of being easy (well, easier than alternatives) to calculate. So we can measure it often and see what's happening. Not so much "are we getting richer?", but "do we have more resources with which to do things?" is the way I like to think of it.

Now, should people try to devise alternative measures, additional ones, to measure other things? Sure, why not? However, what comes out of such attempts might not be what those attempting might desire or worth the attempt. For example, this chart, showing "trust and belonging" across Europe. You'll note that the countries with higher levels of such are the ones with smaller populations. Bit of a stunner, isn't it? That smaller, more homogenous, societies end up with greater trust and belonging?

However, over and above such trivial observations, we also get in the report a reference to "longer working hours" and the terrors that they inflict upon the national wellbeing. I'm afraid that when I come across such references I simply stop reading reports these days. For the number of people doing those long working hours is falling as indeed are average working hours. As both have been for nigh on a couple of centuries as GDP rises and we decide to take more of our newly created wealth in leisure than in cash incomes.

If somebody can't be bothered to note reality when compiling a report then I'm afraid I can't be bothered to note anything further they might want to say in their report.

Oh, and as falling working hours, the increase in leisure time, does track rising GDP rather well, it also shows that rising GDP is still a pretty good meaure to use in trying to decide whether we're going forwards or backwards, doesn't it? Making the effort required to devise alternative measures somewhat moot really.


Clean up the BBC: episode 2


Vaizey’s proposals on the BBC (for greater transparency) highlight an even greater issue. Why should the BBC have special privileges at all? The BBC charter states that the organisation’s mission is “to inform, educate and entertain". However, whilst there is a case for, free access public service TV, for the education and the transfer of vital information, there is none for entertainment; especially in a multi-channel-stream world. The BBC has no exclusive power to entertain, and whilst I enjoy many of their programmes, they need not be made by the BBC, or forced on others. In addition and most importantly, if they are enjoyable then people will voluntarily pay for them through the market, just as they do with other goods.

Also, if one were to support a free access public TV services for vital information and/or education, there is no technical reason to use only one institution; inhibiting efficiency and innovation. The best method would be to offer the contracts on a competitive basis (and if the BBC were the best, then they of course they would get the contract).

Instead, the BBC could survive commercially like other channels through a mix of advertising, subscription services and other commercial mechanisms rather than forcing itself on the public. Let all the viewers decide what they want to watch, how, when and where.

Blog Review 850


Wasn't it Will Hutton who claimed that manufacturing industry, the revival of within a banking led form of Rhineland capitalism, was the solution to all our woes? Hmm, wonder how well that's working then?

A primer on market failure and government failure.

When is an inorganic fertiliser actually an organic one? Strangely, if you rape Gaia by mining her, this is OK, but making the same chemical in a lab isn't.

Âpplauding the new President and applauding the old.

If you're going to write about the CDS market it would help if you understood it. The same goes for Polly and banking.

How we can make the banking system even worse. By ignoring property rights.

And finally, a corollary of Muphry's Law* at work once again.

* That is, that whenever you make some snotty remark about someone else's spelling, grammar, historical research, knowledge of pop music or indeed anything else, you will make at least one equal or greater error in the course of said snotty remark.

Poverty causes pollution


We often hear about how it is our unbridled consumption which causes the pollution causing Gaia to choke on our wastes. We much more rarely hear (although we do our best around here) the point that a clean environment is actually a luxury good. It's something we buy after we've worked out how to feed and clothe ourselves. Proof of this particular pudding comes from some new research:

Burned wood and animal waste are the chief constituents of a "brown cloud" of pollution that has caused illness and death in southern Asia, scientists have discovered. For years the huge toxic sooty cloud has descended on southern Asia and the Indian Ocean during the winter months, hanging in the air for days or weeks at a time. The cloud has been traced to many deaths in China and India from heart and lung diseases. But until now experts have not been sure what it is made of. Two possible sources were the burning of fossil fuels, such as coal and oil, or of "biomass", such as wood and animal dung. The new research shows beyond doubt that smallscale home fires in which wood and animal waste is burned for heating and cooking are primarily responsible for the cloud.

The reason for that brown cloud is thus that people are poor. They're burning wood and dung to cook with, on inefficient stoves to boot (using a resource inefficiently is a useful definition of the cause of poverty by the way).

If they were richer they would, as we do, have electric or gas stoves and that brown could wouldn't exist.

Sorry, but it really isn't true that wealth is what causes pollution: it's poverty. Both in that what the poor consume creates pollution and in that only with wealth do we have the resources to use less polluting alternatives. So, how ever much some might object to the idea, the way to clean up the world is to promote economic growth.

Clean up the BBC: episode 1


The recent calls by the Shadow Culture Minister, Ed Vaizey, for BBC salaries to be revealed should be welcomed with open arms. In fact, it is dismaying that, “fully audited accounts … [and] details of the salaries of all its top talent" are not already available. Transparency is badly needed in the opaque world of bureaucratic, state supported, quasi-autonomous statutory corporations.

The latest BBC scandal, with Ross and Brand, and wide ranging criticisms accusing the BBC of everything from London-centrism to political bias only adds weight to the case.

Far more “funny" than tasteless comedians is the very nature of the organization itself. The BBC is an exceptional entity because the cost of its product is set by government, enforced by criminal law, and imposed involuntarily. If I wish to watch only the many alternative channels, I would still have to pay £139.50 for the BBC. Therefore, it is patently clear that if such an organization continues to exist at all, it must be accountable to the public. Vaizey has a clear-cut case.

Where does this lead us? Find out tomorrow in episode 2. To be continued...