The Conservatives sometimes like to think that they believe in freedom. I’m not entirely sure where they get this delusion, but I am always assured that sooner or later they will expose themselves as the paternalistic autocrats that they naturally are.
So a hat tip to Conservative Home for highlighting
Wednesday, 10 December 2008
Tories: if it’s fun, ban it; if it delivers papers, spy on it!
Tuesday, 9 December 2008
The generosity of T-Mobile and other retailers
I received an email from T-mobile today telling me that they were kindly passing the 2.5% cut in the VAT rate on to their customers and I would see the reduction in my next bill. They are not the first to make this statement.
Excuse me, but is somebody a bit confused here?
T-mobile is not my bank. Nor are any of the retailers now offering to pass the VAT cut onto customers.
The 2.5% cut in the rate of VAT is not a shift in the rate at which they buy energy from the government, which they may then choose to pass on or not depending on their own whim and the details of my contract.
VAT is a tax on consumption of luxuries (at least in theory). In fact, at the bottom of every receipt it says how much of the bill is tax. Therefore, a cut in VAT should automatically be passed onto consumers.
In fact, it is not the phone company or the retailer that is charging me the 17.5% (or now 15%) VAT in the first place. It is government. So for the retailers to “not pass it on” they would have to raise their prices by just under 2.5%.
So let us thank T-mobile and other retailers for not taking the opportunity of a reduction in VAT to raise their prices in a manner that would either have left them individually less competitive or collectively guilty of operating a cartel.
Excuse me, but is somebody a bit confused here?
T-mobile is not my bank. Nor are any of the retailers now offering to pass the VAT cut onto customers.
The 2.5% cut in the rate of VAT is not a shift in the rate at which they buy energy from the government, which they may then choose to pass on or not depending on their own whim and the details of my contract.
VAT is a tax on consumption of luxuries (at least in theory). In fact, at the bottom of every receipt it says how much of the bill is tax. Therefore, a cut in VAT should automatically be passed onto consumers.
In fact, it is not the phone company or the retailer that is charging me the 17.5% (or now 15%) VAT in the first place. It is government. So for the retailers to “not pass it on” they would have to raise their prices by just under 2.5%.
So let us thank T-mobile and other retailers for not taking the opportunity of a reduction in VAT to raise their prices in a manner that would either have left them individually less competitive or collectively guilty of operating a cartel.
Why the Government’s plans to rescue the economy don’t seem to be working
The Times captures the mood perfectly: “The economy is plunging deeper into recession despite emergency tax cuts and the multibillion-pound bank bailout, the Bank of England said yesterday.”
What it fails to mention is that this is all utterly predictable and indeed inevitable. The reason that “Cutting the base rate to its lowest level in more than 50 years, the Bank said the outlook now was worse than a month ago, with manufacturing and consumer spending in sharp decline” is that cutting the base rate is not going to have much impact.
The base rate is just one driver of credit, and it is not by far the most important. What is more, it does not address the real problems in the economy, which is that the credit expansion of the last decade has fooled entrepreneurs into thinking that investments were viable when in fact they were not. In some cases, whole businesses will now need to be liquidated as reality crashes in on those who had been fooled by artificially-low interest rates.
Reducing interest rates again cannot solve the problem. Just as the first rule when one finds oneself in a hole is to stop digging, so the first rule when one finds oneself facing the inevitable crash following an inflationary spike is to stop inflating. Further interest cuts (as preached by all political parties) are simply attempts to stimulate more credit expansion, which means further inflation. This will lead to more poor decisions by entrepreneurs and more unviable businesses being created, expanded or propped up. That can only lead to an even bigger crisis in the long run.
“The Bank of England pinned much of the blame for the economy’s slide on the borrowing drought that high street banks have inflicted on consumers and businesses alike” according to The Times, but in doing so the Bank misses the point. The borrowing drought is the result of banks making sensible economic decisions in avoiding making the same kind of loans that got us into this mess in the first place.
For let’s be clear about this: the loans that the banks are currently proving reluctant to make are those that they fear may not be repaid; those that, in American parlance, are “sub-prime”. In a market where asset prices are falling, many homeowners are in negative equity and many businesses are destined for bankruptcy, further lending would not only be stupid, it would be irresponsible.
Far from cutting interest rates, the Bank of England should be raising them so as to reduce the demand for credit and increase the desire of savers to provide it. In doing so, it will not only redress the massive imbalance between saving and borrowing that has led the West to borrow trillions of dollars of the (thrifty) Asians as well as creating money through government-backed central banks, but it will also accelerate the reallocation of “factors of production” between unviable and viable industries. As a result, it might just make this a sharp but short recession, instead of another painfully-drawn-out one.
What it fails to mention is that this is all utterly predictable and indeed inevitable. The reason that “Cutting the base rate to its lowest level in more than 50 years, the Bank said the outlook now was worse than a month ago, with manufacturing and consumer spending in sharp decline” is that cutting the base rate is not going to have much impact.
The base rate is just one driver of credit, and it is not by far the most important. What is more, it does not address the real problems in the economy, which is that the credit expansion of the last decade has fooled entrepreneurs into thinking that investments were viable when in fact they were not. In some cases, whole businesses will now need to be liquidated as reality crashes in on those who had been fooled by artificially-low interest rates.Reducing interest rates again cannot solve the problem. Just as the first rule when one finds oneself in a hole is to stop digging, so the first rule when one finds oneself facing the inevitable crash following an inflationary spike is to stop inflating. Further interest cuts (as preached by all political parties) are simply attempts to stimulate more credit expansion, which means further inflation. This will lead to more poor decisions by entrepreneurs and more unviable businesses being created, expanded or propped up. That can only lead to an even bigger crisis in the long run.
“The Bank of England pinned much of the blame for the economy’s slide on the borrowing drought that high street banks have inflicted on consumers and businesses alike” according to The Times, but in doing so the Bank misses the point. The borrowing drought is the result of banks making sensible economic decisions in avoiding making the same kind of loans that got us into this mess in the first place.
For let’s be clear about this: the loans that the banks are currently proving reluctant to make are those that they fear may not be repaid; those that, in American parlance, are “sub-prime”. In a market where asset prices are falling, many homeowners are in negative equity and many businesses are destined for bankruptcy, further lending would not only be stupid, it would be irresponsible.Far from cutting interest rates, the Bank of England should be raising them so as to reduce the demand for credit and increase the desire of savers to provide it. In doing so, it will not only redress the massive imbalance between saving and borrowing that has led the West to borrow trillions of dollars of the (thrifty) Asians as well as creating money through government-backed central banks, but it will also accelerate the reallocation of “factors of production” between unviable and viable industries. As a result, it might just make this a sharp but short recession, instead of another painfully-drawn-out one.
Monday, 8 December 2008
Henry Hazlitt on the so-called “free market”
I have recently been reading Economics in One Lesson by Henry Hazlitt, and this section from the end of Chapter XVI particularly caught my attention:
[B]y the greatest miracle of all, this postwar world of super-international controls and coercions is also going to be a world of "free" international trade! Just what the government planners mean by free trade in this connection I am not sure, but we can be sure of some of the things they do not mean. They do not mean the freedom of ordinary people to buy and sell, lend and borrow, at whatever prices or rates they like and wherever they find it most profitable to do so. They do not mean the freedom of the plain citizen to raise as much of a given crop as he wishes, to come and go at will, to settle where he pleases, to take his capital and other belongings with him. They mean, I suspect the freedom of bureaucrats to settle these matters for him. And they tell him that if he docilely obeys the bureaucrats he will be rewarded by a rise in his living standards. But if the planners succeed in tying up the idea of international cooperation with the idea of increased State domination and control over economic life, the international controls of the future seem only too likely to follow the pattern of the past, in which case the plain man's living standards will decline with his liberties.
So much for “peak oil”
It seems a long time ago, now, but just prior to the recent recession the price of oil reached new heights and wild predictions of $200 a barrel and more were flying around. At the time, many energy- and environment-pundits, including some among the Liberal Democrats, believing that we had now reached “Peak Oil”, that mythical time when the increase in our rate of consumption outpaces the increase in our rate of discovery and so initiates an accelerating decline in supply until the oil runs out and civilisation as we know it ceases to exist.
Those who talk about it often have a slightly excited look upon their faces, as though they cannot wait for the final cataclysm to come so that they can say “I told you so” as the cities begin to go up in flames and people collect together in small bands to try to eke out some semblance of survival in the mountains.
They appear to have gone rather quiet recently, however. Once again, “peak oil” has turned out to be nothing more than a foothill in the great undulating range of energy prices. Oil prices have fallen by two thirds in the past six months to end up $100 a barrel below their Summer peak at just $50 a barrel.
Of course, peak oil is nonsense anyway. Firstly, it is based upon a deliberate obfuscation of known, economically viable reserves on the one hand, and what is in fact under the crust on the other: oil companies only list the reserves that they have so far identified, and they do not list reserves that are, at current prices, too expensive to be viable, while at a higher price they would be worth drilling for. As Russell Lewis explains,
In fact, this last points to another flaw in the peak oil theory: it ignores human ingenuity. Even accepting that there is a set amount of oil, it is irrelevant to our ability to produce power from it. By inventing an engine that is twice as efficient, or a new means of producing plastics that requires half and many hydrocarbons, we have effectively doubled the amount of fuel available even if we have the same number of litres. If we invent alternative technologies, lakes of oil are made available for the remaining needs. In truth, we will never run out of oil, because before that ever happens human action and rising prices will have rendered oil surplus to requirements.
So the next time you see that fuel prices are rising and hear somebody mutter about peak oil, you can rest assured that new research is underway that will soon bring prices back down, and that there is plenty of oil left under the ground. More, in fact, than we will ever need.
Those who talk about it often have a slightly excited look upon their faces, as though they cannot wait for the final cataclysm to come so that they can say “I told you so” as the cities begin to go up in flames and people collect together in small bands to try to eke out some semblance of survival in the mountains.
They appear to have gone rather quiet recently, however. Once again, “peak oil” has turned out to be nothing more than a foothill in the great undulating range of energy prices. Oil prices have fallen by two thirds in the past six months to end up $100 a barrel below their Summer peak at just $50 a barrel.
Of course, peak oil is nonsense anyway. Firstly, it is based upon a deliberate obfuscation of known, economically viable reserves on the one hand, and what is in fact under the crust on the other: oil companies only list the reserves that they have so far identified, and they do not list reserves that are, at current prices, too expensive to be viable, while at a higher price they would be worth drilling for. As Russell Lewis explains,
Oil reserves are never remotely equivalent to all the oil in the earth’s crust.This does not mean that oil could never run out, however. That is left to the price mechanism. As the supply of oil diminishes, the price will inevitably rise. This will not, however, trigger a mad rush to capture ever shrinking reserves until the oil economy collapses; rather, it will lead to a steady rise in prices that will encourage greater efficiency, spur research into make alternatives more cost-effective. For example, if fossil fuels quadrupled in price, wind turbines would be able to generate electricity more cheaply and so they would become a viable alternative. The increase also pushes up the cost of high-energy products and services (such as flights) and so discourages consumption. And finally, as we have already seen, rising fuel costs encourage consumers to pay more attention to the miles-per-litre that their car can achieve and so encourage producers to invest in more efficient engines.
The proven reserves are what the oil companies have decided to look for and
which are known to be exploitable under prevailing technical and economic
conditions. They are designed to provide the oil industry’s working inventory of
oil stocks. There is a limit to the amount of money the oil companies can spend
on searching for more or deeper wells because prospecting and drilling are
expensive, and there are other competing obligations which affect their
long-term profits, such as advertising, marketing, research, building refineries
and distribution. The best indicator of whether oil is getting scarcer is its
price, and though prices have risen sharply in the last two years [and bearing
in mind that this was written before the collapse in prices in the last six
months], that fact does not necessarily point to a long-term upward trend.
In fact, this last points to another flaw in the peak oil theory: it ignores human ingenuity. Even accepting that there is a set amount of oil, it is irrelevant to our ability to produce power from it. By inventing an engine that is twice as efficient, or a new means of producing plastics that requires half and many hydrocarbons, we have effectively doubled the amount of fuel available even if we have the same number of litres. If we invent alternative technologies, lakes of oil are made available for the remaining needs. In truth, we will never run out of oil, because before that ever happens human action and rising prices will have rendered oil surplus to requirements.
So the next time you see that fuel prices are rising and hear somebody mutter about peak oil, you can rest assured that new research is underway that will soon bring prices back down, and that there is plenty of oil left under the ground. More, in fact, than we will ever need.
Wednesday, 3 December 2008
Queen's Speech a textbook example of meddling and failure
Today’s Queen’s Speech is another fine example of government meddling and failure.
One Bill after another is being introduced to interfere with people’s legitimate freedoms and try to paper over the cracks in their interventionist system.
I have recently written on the phenomenon that government intervention is doomed to fail and that in doing so it encourages further intervention as governments try to repair the unintended consequences of their own legislation. Clear examples of this are to be found in the Queen’s Speech.
There is too much in the speech, and there is too much as yet unclear, to make a comprehensive attack on the Labour agenda for 2008-9, but the following is an analysis of some of the problems raised.
Business Rate Supplements Bill
The proposals to enable upper tier local authorities and the Greater London Authority to levy a supplement on their business rates, and use this to promote economic development, have a certain charm in that they restore a tiny modicum of tax-raising discretion to local authorities (though not, infuriatingly, to the 32 London Boroughs!).
Of course, any wise local authority would exercise the better part of discretion and not exercise the power. Increasing business rates by up to 2p in the pound will simply squeeze business profits, putting some out of business, driving others away and reducing the ability of the remainder to invest in capital goods (including training) that improve their productivity (and thus the wages of staff). The money raised will never achieve the level of “economic development” that would otherwise be achieved by individuals allocating resources based on their own priorities (a level of information detail that no government can hope to emulate) but will instead be wasted on schemes that appeal to legislators and those who are best able to influence them. It will replace the freedom, efficiency and effectiveness of the market with imperfect politicised outcomes.
Interestingly, the Bill makes provision for allowing businesses to vote on any proposals. It must be assumed that this vote will not be extended to those businesses (with rateable values of less than £50,000) that will not be taxed, as representation without taxation would just allow them to pillage the profits of their more-successful rivals.
It does raise an interesting question, however: why not allow Council Tax payers a similar freedom: a plebiscite enabling them to veto any council policy that would be funded primarily by local taxation. That would certainly put the wind up spendthrift officers and councillors.
Local Democracy, Economic Development and Construction Bill
The devil is in the word “Construction”. Little detail is available on this one, but it does appear to include provisions for a more level playing field for construction businesses, particularly smaller local ones, in construction contracts. Whether this is more anti-success regulation is unclear, but considering the onerous costs that businesses and authorities already have to incur putting tenders through OJEU and other legal competitiveness tests, this can only be detrimental to business. Fairness is best achieved through a free market, where those that discriminate against providers for any reason other than efficiency will be forced to pay higher prices for poorer goods or services and so will see their businesses suffer.
Saving Gateway Accounts Bill
The government’s plan to establish a Saving Gateway scheme, administered and approved by HMRC, with the government “matching” every pound saved with 50p from government up to a maximum of £300 (not the “matching” that Anglophones will be familiar with!), is old-fashioned redistribution of wealth with an added paternalistic twist: the poor must “do the right thing” – by which Labour means save money in bank accounts – to earn their redistributed wealth.
Glossing over questions about the sense of or justification for transferring wealth, this is bad legislation for two reasons: firstly, because it creates a massive dead-weight cost in that the government will have to pay people who would have saved the money anyway; and secondly because it will encourage rent-seeking as people make arrangements to borrow-to-save, for example by borrowing on credit cards (at rates of, say, 25% or 30%) knowing that there is a guaranteed profit of 50% in the first year.
Children, Skills and Learning Bill
The Children, Skills and Learning Bill promises to enforce compliance with the Standard Teachers’ Pay and Conditions Document. The very existence of this document is a problem, as the setting of national standards across England ignores the different costs of living and levels of supply and demand, and further undermines educational independence. At worst, it could see pay and conditions set at too low a level to attract staff to some areas, while being unnecessarily generous (with the resources of local taxpayers) in others.
It also creates a statutory entitlement to apprenticeships for all those suitably qualified by 2013. Unless the meaning of “apprenticeship” has changed, this is idiotic. Apprenticeships involve qualified individuals working for established providers so as to learn on the job; the government cannot increase the number of apprenticeships beyond the demand among qualified workers for apprentices. The proposed duty on the Learning and Skills Council to provide apprenticeship places may easily morph into the provision of further course-based training, which would defeat the supposed purpose.
Policing and Crime Bill
A bill to protect vulnerable groups, particularly women and children, may seem welcome at first. But one has to wonder at a government that considers 51% of the population to be a “vulnerable group” simply because of their gender!
The main problem with this bill is the plans to tighten regulations on lap dancing clubs and the sale of alcohol. Lap dancing clubs are places where consenting adults go to watch other consenting adults perform erotic dances; it should have nothing to do with the government what these individuals (or groups) choose to do. Similarly, government has no business interfering with the right of businesses to sell, or adults to buy and consume, alcohol. As I have noted before, this kind of legislation is never directed at our claret-swilling elites, but at those whom they see as they look down their wine-flushed noses.
Where there are ancillary problems (for example, anti-social behaviour in the environs of the club or pub) they should be dealt with in their own right,
Marine and Coastal Access Bill
The Marine and Coastal Access Bill continues the assault on private property by forcing property owners to allow trespassers to walk over their land simply because they happy to have bought property adjacent to the sea. If the proposal was applied to all properties, so that ramblers may cross anyone’s land at will, it would be fair, but it would also be as welcome as the Poll Tax.
Constitutional Renewal Bill
Finally, something good in the government’s proposals. Thank heavens they are finally repealing their own, oppressive legislation. One law down, 10,000 more to go!
One Bill after another is being introduced to interfere with people’s legitimate freedoms and try to paper over the cracks in their interventionist system.
I have recently written on the phenomenon that government intervention is doomed to fail and that in doing so it encourages further intervention as governments try to repair the unintended consequences of their own legislation. Clear examples of this are to be found in the Queen’s Speech.
There is too much in the speech, and there is too much as yet unclear, to make a comprehensive attack on the Labour agenda for 2008-9, but the following is an analysis of some of the problems raised.
Business Rate Supplements BillThe proposals to enable upper tier local authorities and the Greater London Authority to levy a supplement on their business rates, and use this to promote economic development, have a certain charm in that they restore a tiny modicum of tax-raising discretion to local authorities (though not, infuriatingly, to the 32 London Boroughs!).
Of course, any wise local authority would exercise the better part of discretion and not exercise the power. Increasing business rates by up to 2p in the pound will simply squeeze business profits, putting some out of business, driving others away and reducing the ability of the remainder to invest in capital goods (including training) that improve their productivity (and thus the wages of staff). The money raised will never achieve the level of “economic development” that would otherwise be achieved by individuals allocating resources based on their own priorities (a level of information detail that no government can hope to emulate) but will instead be wasted on schemes that appeal to legislators and those who are best able to influence them. It will replace the freedom, efficiency and effectiveness of the market with imperfect politicised outcomes.
Interestingly, the Bill makes provision for allowing businesses to vote on any proposals. It must be assumed that this vote will not be extended to those businesses (with rateable values of less than £50,000) that will not be taxed, as representation without taxation would just allow them to pillage the profits of their more-successful rivals.
It does raise an interesting question, however: why not allow Council Tax payers a similar freedom: a plebiscite enabling them to veto any council policy that would be funded primarily by local taxation. That would certainly put the wind up spendthrift officers and councillors.
Local Democracy, Economic Development and Construction Bill
The devil is in the word “Construction”. Little detail is available on this one, but it does appear to include provisions for a more level playing field for construction businesses, particularly smaller local ones, in construction contracts. Whether this is more anti-success regulation is unclear, but considering the onerous costs that businesses and authorities already have to incur putting tenders through OJEU and other legal competitiveness tests, this can only be detrimental to business. Fairness is best achieved through a free market, where those that discriminate against providers for any reason other than efficiency will be forced to pay higher prices for poorer goods or services and so will see their businesses suffer.
Saving Gateway Accounts Bill
The government’s plan to establish a Saving Gateway scheme, administered and approved by HMRC, with the government “matching” every pound saved with 50p from government up to a maximum of £300 (not the “matching” that Anglophones will be familiar with!), is old-fashioned redistribution of wealth with an added paternalistic twist: the poor must “do the right thing” – by which Labour means save money in bank accounts – to earn their redistributed wealth.
Glossing over questions about the sense of or justification for transferring wealth, this is bad legislation for two reasons: firstly, because it creates a massive dead-weight cost in that the government will have to pay people who would have saved the money anyway; and secondly because it will encourage rent-seeking as people make arrangements to borrow-to-save, for example by borrowing on credit cards (at rates of, say, 25% or 30%) knowing that there is a guaranteed profit of 50% in the first year.
Children, Skills and Learning Bill
The Children, Skills and Learning Bill promises to enforce compliance with the Standard Teachers’ Pay and Conditions Document. The very existence of this document is a problem, as the setting of national standards across England ignores the different costs of living and levels of supply and demand, and further undermines educational independence. At worst, it could see pay and conditions set at too low a level to attract staff to some areas, while being unnecessarily generous (with the resources of local taxpayers) in others.
It also creates a statutory entitlement to apprenticeships for all those suitably qualified by 2013. Unless the meaning of “apprenticeship” has changed, this is idiotic. Apprenticeships involve qualified individuals working for established providers so as to learn on the job; the government cannot increase the number of apprenticeships beyond the demand among qualified workers for apprentices. The proposed duty on the Learning and Skills Council to provide apprenticeship places may easily morph into the provision of further course-based training, which would defeat the supposed purpose.
Policing and Crime Bill
A bill to protect vulnerable groups, particularly women and children, may seem welcome at first. But one has to wonder at a government that considers 51% of the population to be a “vulnerable group” simply because of their gender!
The main problem with this bill is the plans to tighten regulations on lap dancing clubs and the sale of alcohol. Lap dancing clubs are places where consenting adults go to watch other consenting adults perform erotic dances; it should have nothing to do with the government what these individuals (or groups) choose to do. Similarly, government has no business interfering with the right of businesses to sell, or adults to buy and consume, alcohol. As I have noted before, this kind of legislation is never directed at our claret-swilling elites, but at those whom they see as they look down their wine-flushed noses.
Where there are ancillary problems (for example, anti-social behaviour in the environs of the club or pub) they should be dealt with in their own right,
Marine and Coastal Access Bill
The Marine and Coastal Access Bill continues the assault on private property by forcing property owners to allow trespassers to walk over their land simply because they happy to have bought property adjacent to the sea. If the proposal was applied to all properties, so that ramblers may cross anyone’s land at will, it would be fair, but it would also be as welcome as the Poll Tax.
Constitutional Renewal Bill
Finally, something good in the government’s proposals. Thank heavens they are finally repealing their own, oppressive legislation. One law down, 10,000 more to go!
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