Tuesday, 30 September 2008

Dee Doocey is right for all the wrong reasons

The body fascists are out in force again.

Dee Doocey has been pressuring the Mayoral administration to remove London Development Agency funding from London Fashion Week. That’s fine in itself: I can see no reason why London’s taxpayers should be subsidising the fashion industry, let alone why Bromley residents should be paying for fashion shows in the West End.

Sadly, Doocey seems to have no concern for taxpayers subsidising special interests. Rather, she is jumping on a social-conservative bandwagon that aims to dictate how models, fashion houses and the organisers of sartorial trade fairs should market their goods.

This is, in fine social-conservative tradition, all about protecting patronised groups from themselves by dictating to third parties whom the supposedly-weak willed might emulate. In this case, thin girls are seen as at risk of emulating thin women. Doocey notes that “1 in 40 women suffer from an eating disorder, [that] the numbers are on the increase [and that] the girls are getting younger”, all of which is undoubtedly a tragedy. That the solution is censorship does not automatically follow, however.
On a very fundamental level, censorship is always the wrong solution to a problem. Neither the models nor their employers are doing any direct harm to girls who choose to emulate them, any more than Richard E. Grant and Paul McGann can be blamed for causing harm to my liver just because I occasionally like to order “Two large gins and two pints of cider (ice in the cider)”.

As I noted the last time this issue came up, “Perhaps (radical suggestion, I know!) people are making their own decisions based on a multiplicity of information and imagery. Should we control all information, vetting it to ensure it promotes only a benign or (in our opinion) positive image?“

Of course not. If we tried to order our society in a manner that prevented anybody from unwittingly influencing others in a negative manner, we would face an insurmountable censorship burden. Should we allow dangerous sports on the television? What about fat people?

In passing, one cannot help wondering whether the fact that we are concerned simultaneously by obesity and anorexia suggests that our society’s problems with eating are to do with something other than the effects of London Fashion Week.

It is also worth noting (again!) that “Size 0 models” are actually Size 4 models, but it sounds so much more dramatic to disingenuously use the American numbering. Firstly, it implies that there are twelve full sizes between a “normal” girl and one of what Doocey calls these “skeletal models”; in fact, there is only four sizes between them (unless you know where one can buy odd-numbered sized clothes). Secondly, there is a subliminal sense that Size 0 must equate to nothing. This is not ever stated, and nobody would suggest this consciously, but subconsciously Size 0 has a particularly ghoulish resonance.

Opposition to the employment of thin models will do little to help girls with eating disorders. They are surrounded by examples of norms of beauty (and behaviour) that only a draconian censor could prohibit. Their problems are psychological and so require treatment rather than censorship. And it is not clear that any government intervention is going to prevent the problem.
But it is an example of the conservative tendency to use government as a vehicle to protect people from themselves and to use the coercive power of the state to shape society (an in this case, women) in their own (unflattering) image.

If Dee Doocey wanted to strike a blow for freedom, she would object to the LDA’s funding of London Fashion Week because it was a misuse of taxpayers’ money. By allowing this subsidy to pass as long as it promotes her view of how women should look, she is striking a blow against it.

A real economic roller-coaster

Ever wondered what it would be like if the housing marked really was a roller-coaster ride?

Well, some clever wag has created a roller-coaster using Roller Coaster Tycoon 3 and using a graph of US house prices since 1890 as the shape of the track.

An amusing graphic to demonstrate the madness not only of the bubble that has just burst but the overall picture over the past 118 years.


Real Estate Roller Coaster

Monday, 29 September 2008

Sub-prime, securitisation and how government caused the financial crisis

The bogeymen-of-the-moment are clearly bankers. Photographs of bankers with their heads – or boxes of their possessions – in their hands are commonplace. The sympathy for the former Lehmans employee does not appear to match that felt for the unemployed docker or miner. Schadenfreude is de rigueur at the moment. And if the banker is the bogeyman, the free markets is the wicked system that is now being exposed for what it is (if only!).

But are our current problems really the fault of capitalists and bankers? There is an altogether different narrative that points the finger in an entirely different direction: the sub-prime and securitisation crises were created by government.

The sub-prime problem begins with the US government's 1977 Community Reinvestment Act (CRA), which allowed the Federal Reserve and other US financial regulators to pressure banks into making loans to less-than-creditworthy borrowers. Far from greed driving bankers to offer 100% loans to unreliable borrowers, this position was forced upon them by government.

Thomas DiLorenzo explains the problem:

When the CRA was created during the Carter administration, the administration also funded with tax dollars numerous ‘community groups’ that have helped the Fed, the Comptroller of the Currency, and other federal regulatory agencies to enforce the act. Under the CRA, if a bank wants to make virtually any change in its business operations — merging, opening up a new branch, getting into a new line of business — it must first prove to regulators that it has made "enough" loans to the government's preferred borrowers. The (partially) tax-funded ‘community groups’ like ACORN (Association of Community Organizations for Reform Now) can file petitions with regulators that stop the bank's activities in their tracks, perhaps defeating them altogether. The banks routinely buy off ACORN and other ‘community groups’ by giving them millions of dollars as well as promising to make even more dubious loans.

Not only is the sub-prime market the result of Federal legislation that forced banks to lend to un-creditworthy borrowers, but the practice of dicing up debts and selling them on in chunks that mixed prime with sub-prime loans was also the creation of a Government body.

In order to try to diversify the risk of these loans, the Federal Home Loan Mortgage Company (‘Freddie Mac’) pioneered the ‘securitization’ of bundles of these high-risk loans so that they could be sold on secondary markets. Such ‘securitization’ exploded during the 1990s as a result of government regulation. As Fed Chairman Ben Bernanke himself stated in a March 30, 2007 speech entitled The Community Reinvestment Act: Its Evolution and New Challenges,

Securitization of affordable housing loans expanded, as did the secondary market for these loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a large percentage of their activities to meeting affordable housing goals.”

The deregulation of banking in 1994 led to banks to elevate their CRA activities so as to avoid objections by these ‘community groups’ to their business activities. Meanwhile, in 1995 the US Treasury Department created the multibillion-dollar Community Development Financial Institutions to pour taxpayers’ dollars into subsidising sub-prime loans.

Indeed, from 1995 banks were pressurised to make loans “without the benefit of many traditional credit-worthiness criteria, such as the size of the mortgage payment relative to income, savings history, and even income verification! Instead, the Fed told banks that participation in a credit-counseling (sic.) program, many of which are federally funded, could be used as ‘proof’ of a low-income applicant's ability to make his mortgage payments. In other words, federal bank regulators required banks to make bad loans based on nonexistent credit standards.” One cannot help but think that participation in a credit counselling programme suggests that the borrower has had credit trouble in the past and may not be an ideal customer.

Though largely a US based problem analysis has three significant messages for our current situation.

Firstly, the eagerness with which journalists and politicians have blamed bankers is misguided. While there is no doubt that bankers can be and have been greedy, the sub-prime mortgage problem was forced on banks by the US government, while habit of ‘securitising’ debt began with a US government housing agency. This is a problem created by government, not greed.

Secondly, for the above reason, the eagerness with which we look to government to solve the problem is equally misguided. Our faith in more regulation to resolve the current mess is misplaced. To my knowledge HM Government did not force bankers to lend to less reliable borrowers, but the excess of credit in the marketplace as a result of Government’s toleration of inflation in the pursuit of low interest rates meant that banks had to look further down the pecking-order of borrowers to find people to whom to lend. Had money been tighter, there would have been a duel break on the problem as borrowers were more cautious due to facing higher repayments and banks were less eager to accept any borrower due to credit being limited. There might have been fewer 100% mortgages to those with poor credit histories or people who were “self-certificating” (a practice known colloquially as the “Liar’s mortgage”).

Finally, the troubles resulting form the US government’s intervention in housing markets and the deliberate policy of encouraging those on low incomes with poor credit histories to borrow against property casts a cold light upon the Labour government’s proposals to give first time buyers cheap loans, ease the payment of mortgage interest using income support and allow council’s to offer cheap mortgages. This last is particularly pernicious as it opens up the possibility that, in the future, councils will be in the invidious position of having to foreclose on defaulters and repossess their houses (which the defaulter would probably then stay in, now as a tenant of the council!).

Much of the current economic mess has been caused by governments, with the US government to blame for the specific trigger and our own to blame for the underlying mess. Our headlong rush to solve this government-made problem with more regulation risks turning a brief if sharp recession into a long depression. But right now we seem stuck with the mindset that “Something must be done”.

An insight into bloggers and their bitter little battles

My sister is reading Immortality by Milan Kundera and Peter Kussi and came across this passage:

Don’t tell me that two men who deeply disagree with each other can still like each other; that’s a fairy tale. Perhaps they would like each other if they kept their opinions to themselves or if they only discussed them in a joking way and thus played down their significance…But once a quarrel breaks out, it’s too late. Not because they believe so firmly in the opinions they defend, but because they can’t stand not to be right. Look at those two. After all, their dispute won’t change anything, it will lead to no decision, it will not influence the course of events in the slightest, it is quite sterile and unnecessary, confined to the cafeteria and its stale air, soon gone when the cleaning lady opens the windows. And yet, observe the rapt attention of the small audience round the table! Everyone is quiet, listening intently, they even forget to sip their coffee. The two rivals now care only about one thing: which of them will be recognized by the opinion of this small audience as the possessor of the truth, for to be proved wrong means for each of them the same thing as losing his honour. Or losing a piece of his own self. The opinion they advocate is itself not all that important to them. But because once they have made this opinion an attribute of their self, attacking it is like stabbing a part of their body.

It strikes me that it casts a piercing light onto the bitterness with which many bloggers and those who leave comments on websites fight their corners. Very quickly so-called debates descend into slanging matches as one or both parties become more interested in “winning” or slapping the other down harder then they (think they) have been slapped.

In the process the valuable exchange of ideas and the thought that we all might benefit from a healthy debate is lost.

Saturday, 27 September 2008

The Revolutionary Conservative Party and other oxymorons

There is and have always been concern within the Liberal Democrats that we are not as liberal as we ought to be; that our party too often looks to the State to solve problems and is willing to curb individual liberty to achieve social goals.

It has long been a criticism of New Labour that they have abondoned their roots in the labour movement and spent too long playing court to big business rather than worrying about the working man.

Now David Cameron has decided to steal Barak Obama's clothes and take 'Plan for Change' as his party conference theme.

I have long maintained that the names of the political parties have a lot more to do with their roots than with any actual reflegion of their current policies or the philosphies of their members. But when faced with illiberal Liberals, Labour capitalists and revolutionary Conservatives a start to wonder whether the parties' names are supposed to be ironic!

Thursday, 25 September 2008

Horray for the end of capitalism as we know it

Is this the end of capitalism as we know it?

Eamonn Butler, of all people, hopes that it is. Once he explained his reasoning, however, I could see his point.

"Capitalism as we know it is a creature of the regulatory authorities, who've messed it up good and proper" he argues. But frankly, that's just the start of it. Our supposedly capitalist system often looks more like Corporate Statism than any free market that our liberal forebears in the C18th and C19th would have recognised or welcomed. Big businesses larded with subsidies; investors insured by the taxpayer against bad investment; bankers bailed out to the tune of hundreds of billions of pounds.

The sooner that that sham capitalism is swept away and replaced by free exchange of goods, services, capital and labour without interference, impedence or assistance from politicians the better we will all be.

I would like to see Government's role in the economy limited to three things: ensuring the rule of law; protecting property rights (which as Tristan reminds us, includes one's own person); and providing sound money. In fact, make that two things.

Monday, 22 September 2008

Why the poor need tax-cuts for rich people, too

There has been a lot of (welcome) talk recently about the Liberal Democrats’ pledge to cut taxes for low- and middle-income earners. This has been broadly welcomed in the party, though many have only accepted it as long as it is accompanied by a promise that the overall tax-take will remain the same, and that richer people should shoulder more of the tax burden.
This kind of “redistributionist” approach is always very popular, as most people are in the poorer rather than the richer category. It is easy to take from the minority to give to the majority, and there is no minority less sympathetic than the rich.

A counter argument might be that the only fair thing to do (and “fairness is something that the Liberal Democrats claim to take very seriously) would be to cut taxes for everybody if we are cutting them for some. But that kind of fairness - that everybody be treated equally no matter how wealthy they are - generally only cuts one way.

However, economists such as George Reisman make a far more startling claim: that it is tax cuts for rich business people and for corporations that are in the long-term interests of low and middle income wage earners; more so, in fact, than tax cuts aimed directly at the poor themselves.

Reisman’s initial point is a simple one, but one that is too often forgotten: that human society enables one to benefit from other people’s success. “The view of redistributionists…” he explains, “is that the only wealth from which an individual can benefit is his own…” The redistributionists are mistaken, however: “in order to benefit from privately owned means of production, one does not have to be an owner of the means of production… one benefits from other people’s means of production – [not only] every time one buys the products of those means of production [but] also as a seller of labor (sic.).” Capitalists invest in improving the efficiency of production so that they can enhance their profits, but in the process they make the goods we buy cheaper and make our labour more productive, so increasing real wages.

The reason that redistribution looks so attractive is because one tends to think of redistribution in terms of individual sums being transferred from a rich person to a poor person; and there can be little doubt that £1,000 is more valuable to a poor person than a rich person. But it does not follow that £100 billion is worth more in the hands of poor people overall than in the hands of rich people overall.

The problem is that “most people tend to think of themselves as members of the class of wage earners rather than separate individual wages earners, and to think of their interests as indistinguishable from the interests of other wage earners.”

In fact, while it is more in my interests that I have £1,000 than that Richard Branson does, it is no more valuable to me that a poor man in Liverpool has that £1,000 than Mr. Branson. And it is far more likely to serve my interests that a few rich people have £100 billion than huge numbers of poor people, even if £1,000 of that £100 billion ends up in my hands. The reason for this is that poor people spend a greater proportion of their money on consumption, and are more likely to consume than to invest additional sums. As Nick Clegg said in a recent interview with The Times, "give tax cuts to the better off [and] they will just save them. You have to give [tax cuts] to people on lower incomes who will transfer them into consumption on food and fuel.”

This is ceertainly true and is entirely predictable: those on the breadline would be happy for the opportunity to buy new shoes, while those who already own a yacht are free to invest extra money in their business. This is especially true for businesses themselves: business taxes leach away the money that would either be invested in improving productivity or would be paid out in the profits that attract further investment.

There is a point here that Reisman does not fully draw out, but which we can recognise today after a decade of Labour economic mismanagement. Money in the hands of the poor would create greater wealth in the short term, as a result of a consumer boom. But these consumer booms are unsustainable: buying more clothes and electronic goods does not make their production significantly more efficient. Investment makes them more productive, but this requires an investment boom. In fact, during the past decade the consumer boom has been accompanied by a dangerously low and shrinking savings rate: the West has saved almost nothing. Consequently, productivity has not risen as it should have done, which is one reason why real wages for less skilled workers (which are set by their productivity and thus by the investment in them and in the tools that they use) has not risen. Simply taking the money that would be invested in businesses and giving it to others to consume is “eating the seed corn.”

By comparison, “A tax reduction on businessmen and capitalists will promote capital accumulation, far, far more than a tax reduction on the mass of the individual wage earner's fellow wage earners. The average businessman and capitalist will save and invest the taxes he no longer has to pay, in far greater proportion than would the average wage earner, [and the businessman] will be induced to introduce more improvements in products and methods of production, which are also a major cause of capital accumulation…” In addition, “cutting the taxes of businessmen and capitalists [will] significantly … raise the demand for labor and … reduce or eliminate unemployment”. The result of increased innovation will be to enhance “the ability of upstart new firms to grow rapidly and thus to challenge old, established firms.”

Overall, “The effect of this combination is … a continually rising productivity of labor… and thus prices of consumers' goods that are progressively lower relative to the wages of labor, which means progressively rising real wage rates, so that in not too many years the average wage earner is far ahead of where he would have been on the strength of a cut in his own taxes.”

So ironically, it seems that cutting taxes for the labourers makes capitalists rich in the short term, whereas cutting taxes for the capitalists makes labourers rich in the long term.

The reason that Reisman’s argument is so challenging is that it seems to suggest that tax cuts for the poor are not in their own best interests. This isn’t mere sophistry. If productivity does not rise, real wages cannot rise. All “labour” can do is fight with “capital” and “land” for the share of wealth. This seems to be the be-all-and-end-all solution for redistributionists, who argue that the poor can only benefit at the expense of the rich. This would be true in a static economic system. But they forget that economies are (or at least should be) dynamic. The route to prosperity is through economic growth: “The average standard of living would double in a single generation if economic progress at a rate of just 3 percent a year could be achieved. Such economic progress would also mean a halving of the average wage earner's tax burden in the same period of time — if government spending per capita in real terms were held fixed.”

Consequently, the long-term prosperity of the average worker is best served by capitalists who invest for their own benefit. In seeking to further increase their own profits, capitalists invest extra money in improving productivity, which they do by buying new and better plant machinery, "upskilling" their staff and employing new and better business systems. Improvements to productivity in turn push up real wages and so benefit labourers far more than tax cuts on their own wages would. If Government can avoid the urge to “share the proceeds of growth” then wage earners will see their taxes fall anyway – not in absolute terms, but as a proportion of their rising incomes.

If there is a problem in Reisman's plan, it is that in advocating this policy of easing taxes on business and high incomes first, he overlooks the political economy of the 21st Century. No matter how correct he may be about the long term economic effects, it would be impossible to implement such tax cuts in the face of the vast majority of voters who will understandably ask why their taxes are not being cut while those of £billion businesses and rich oligarchs are. What is needed, therefore, is a sort of liberal realism that recognises that lowly paid workers, who form the bulk of the electorate, will want to see some of the short-term gain that their richer peers will enjoy as they wait for the longer term growth-benefits to kick in. One might suggest that a little honey today will keep them sweet until tomorrow’s jam arrives.

Thus if the Liberal Democrats really want to improve living standards for those on low incomes, we need to look not just to redistribution but to cutting the overall level of taxation in the economy. And we must do this by reducing taxes on businesses and among those wealthy enough to invest as well as those who will feel the benefits most in the short term. This is not about larding the rich for their own sake; it is about recognising a fundamental lesson of liberalism – that we all benefit from one another’s success – while also understanding that it is investment, not consumption, that makes future prosperity possible.

Reisman concludes that

Of course, in a further display of their ignorance and blindness, members of the Left will undoubtedly characterize the line of argument I've presented in this article as the "trickle-down theory." There is nothing trickle-down about it. There is only the fact that capital accumulation and economic progress depend on saving and innovation and that these in turn depend on the freedom to make high profits and accumulate great wealth. The only alternative to improvement for all, through economic progress achieved in this way, is the futile attempt of some men to gain at the expense of others by means of looting and plundering. This, the loot-and-plunder theory, is the alternative advocated by the redistributionist critics…. It is time to supplant it with ... sound economic theory….

Monday, 8 September 2008

When Donald Rumsfeld Makes Sense

There is something disturbing about Donald Rumsfeld.

Despite all the execrable decisions that he has taken in his life and the disasters he has caused, he is by no means an idiot. At times he makes a lot of sense.

I have always thought it rather odd that people mocked his “Unknown Unknowns” comment, which actually makes perfect sense if you bother to read it.

Here is another comment he made on the issue of global poverty:

I was involved in the so-called war on poverty here in the United States and I've traveled the globe and seen just terrible poverty. I had a friend once and he was asked to chair a commission, an international committee, and the title of it was What Causes Poverty. He declined. He said “I will do it but on one condition. The condition is that we change the title and I'll chair a committee on What Causes Prosperity.” The reason he said that was, the title What Causes Poverty leaves the impression that the natural state of the world is for people to be prosperous and that for whatever reason there are prosperous people running around making people poor when you say what causes poverty. He looked at the world the other way. He said the natural state of people is to be relatively poor and that there are certain ways and things that can be done that can cause prosperity. They can create an environment that's hospitable to people gaining education and people gaining investments and people finding ways to contribute in a constructive way.

There are big portions of our globe that are so far behind the rest of the world that it is a dangerous thing. It is an unfortunate thing for those people. It's a heartbreaking thing.

The task for the developed world is to see that we do not just salve our consciences by finding ways like Lady Bountiful, we can give some country this or some country that which then is gone and disappears. But to the contrary, that we find ways to
encourage countries to take the kinds of steps that create an environment that's
hospitable to enterprise and to education so that the nation itself can do those things that will begin to ameliorate the kinds of terrible poverty that we see around the globe.

Earlier this week I noted that Colonel Gaddafi was saying the right things. Now Donald Rumsfeld is making sense.

How long before Hugo Chavez and Polly Toynbee start sounding rational.

Maybe it’s been too long since I had a holiday!

Tuesday, 2 September 2008

Who is the latest convert to the small state and school choice?

Yesterday, I asked you which mysterious world leader or politician it was who it was who had decided to return billions of dollars to the people to take it out of the hands of corrupt Government officials and allow parents to control their own children's education.

The rather surprising answer is Muammar al-Gaddafi, dictatorial ruler of Libya since 1969.

Who would have thought it!

Monday, 1 September 2008

Quote of the Day?

Today’s it’s-easy-if-you-cheat competition for which there is no prize is….

Guess which politician or world leader said the following recently:

"The money that we put in the education budget, I say let the [people] take it…

"Put it in your pockets and teach your kids as you wish. You take responsibility.

"As long as money is administered by a government body, there would be theft and corruption".
Sounds like common sense to me.

What one innocent sentence tells us about Government

Today I was obliged to read a document published by the Cabinet Office. The first line read

The Commission on the Future of Volunteering was set up by the England Volunteering Development Council after the 2005 Year of the Volunteer.
It seemed that so much of what is wrong with Government was encapsulated in that one sentence.

The proliferation of Quangos; the spurious Year of Action; the Government’s belief that society – even civil society in the private realm – can be made better by Government intervention.

Not to mention the endless production of utterly pointless and vacuous reports. The money wasted. The manpower wasted. The unbelievable hubris.

There is just no understanding in Government circles that endless talking shops do not achieve anything useful. Or that civil society emerges from below, as individuals come together spontaneously to work together.