Adam Smith Institute

The Adam Smith Institute and its supporters think that a range of policies covering every area of government is needed to improve life and prospects in Britain. We think that a flat tax would improve the economy and the range of choices open to people if they could spend more of their own money. We think that universities would do better if they secured their independence from government and were free to pursue their own admissions and tuition practices. We'd like health services that responded to the needs and priorities of patients, rather than to the targets which government and its managers preferred to deliver. We think that much of the regulatory burden could be replaced by industry wide codes of practice and a legal regimen that specified general objectives whose details could be filled in by accumulated case law of test cases and tribunal decisions.

The list of these desirable and necessary changes is a long one, but if we had to pick one out for fast-track priority action, it would probably be the schools. Long an ideological battleground, a social laboratory, and a factory for inculcating fashionable attitudes, many of the state schools have failed to bring out the full potential of their students. Indeed, all too many have even failed to equip them with the basic educational skills needed for a decent life.

It is not that state-produced education needs to be changed; it needs to be ended. Schools should be independent, setting their objectives according to the wishes of parents, headteachers and governors. It should not be a decision of government to replace A-level examinations by a certificate, or to abolish oral tests from language qualifications. It should be up to the school to decide which exams are appropriate for its students, and for various exam boards to offer different alternatives.

City academies are not the answer, and neither are grammar schools. Both are part of the answer because the desired outcome is of a variety of different types of school so that parents can choose one they find suitable. Government's role should not be that of running schools and employing teachers, but of ensuring that everyone has access to a decent and appropriate education. If they were allowed to spend the state funding in schools they choose, like the Swedish model, all parents would be able to choose quality education for their children.

This should be coupled with moves to make it very easy for new schools to be set up, whether by parents and teachers getting together, or by educational organizations taking the initiative. The key factors are free choice for parents and a wide range of choices for them. Yes, we need all the policy changes in other areas, but we need this one most of all, and we need it soon.

At last, after four months of dithering, the UK government has finally decided to nationalize the failed bank, Northern Rock. To their credit, and as if to show how far they have grown from their Old Labour roots, they declare that this nationalization will be "temporary". But as the economist Milton Friedman once noted, "Nothing is more permanent than a temporary government programme".

This particular temporary measure may indeed last a lot longer than the government intends. It's going to be very difficult for the government to extract itself from this business. The new boss that they have put in charge – Ron Sandler, who has appeared at Adam Smith Institute seminars on financial-services regulation – is, it seems, not being paid £1m a ayear to stabilize the bank and quietly return it to the private sector. On the contrary, he says he intends the Rock to "compete vigorously" with the other banks and mortgage lenders.

Right: so the government is going to be running an enterprise which aims to take on, and take business from, the private sector. Until recently the Rock had a fifth of the mortgage business, so it remains a potentially big player that the government's got hold of. And that's not good: London's reputation as a financial market has rested on the fact that governments have let the market get on with it and do not interfere in the running of particular firms.

The government says that nationaization is good for the taxpayer (though estimates suggest that the process could cost us each £3,500). But it's not good for the existing shareholders, who threaten the government with court action over their 'theft' of the bank. The government will brush off these gadflies – but they will be buzzing around, irritating ministers, for years.

There will be even less joy for ministers when they see a bank that they control evicting people and repossessing their homes because (thanks to the credit crunch) they can't pay their mortages. The press will have a field day with that.

If I were a minister now, I think I'd be stepping down and planning my career in the City.

40. "The free market does not work in practice because there is no such thing as perfect competition or perfect information."

The free market needs neither perfect competition nor perfect information. It works on the basis of what there is. Textbooks might talk of such things, and they might be used to make pretty equations and graphs, but they have nothing to do with the real world.

In the market place there is competition all the time. Sellers are competing to sell products at different prices, and buyers are bidding to buy them. When supply is abundant, sellers might have to undercut each other to get their goods sold. When goods are in short supply, customers might find themselves bidding against each other to obtain them. This goes on constantly, changing from day to day and even from moment to moment as new information emerges. None of this has anything to do with perfection. It is a continual process in which available information is acted upon. It does not have to be perfect; all it has to be is better.

Textbook economists might talk of 'equilibrium prices' at which supply matches demand, but no-one has ever seen such a thing in the real world. On the contrary, prices are changing constantly and vary at different times between different types of seller and between different locations.

Some people take the 'imperfection' of markets as a signal to advocate central planning and state direction. They want intelligent minds to supersede the confusing jumble of market interactions and impose a rational order on things. But there is no such thing as perfect planning either, and attempts to plan economies have proved laughably inferior. They have less information, less motivation, and are less responsive. Comparing the record of free markets, imperfect as they are, with planned economies and their imperfections, one sees the market economies winning hand over fist.

Many people leaving comments on our 'Common Errors' series have suggested that we produce a compilation of the errors. Well, they will be happy to learn that just such a compilation is nearing completion.

On March 4th the ASI will be launching a new book, Freedom 101 by Dr Madsen Pirie, which collects all 101 common errors into a paperback single volume (PDFs will also be available from the website). Since the series was always intended to help students and young people to confront conventional wisdom and persuade their friends of the case for liberty, we are happy to announce that Jean-Paul Floru (left) – the driving force behind Freedom Week – will be speaking at the launch.

As Guido points out, the nationalisation of Northern Rock means that the government will be making someone homeless by repossession on a defaulting mortgage at the same time that the government has a duty to house said people. And this might be the first such person.

On sub-prime, an opportunity for some experiments. Given that each of the 50 States have different rules abour foreclosures etc, we can study over the coming months which set of said rules work best. 

Education vouchers: they benefit not just the children that leave failing schoiols, but those that stay in such failing schools as well. 

Some of those global warming numbers are starting to look decidedly iffy.

The comparisons economists make: leaving your wife is just like having a colonoscopy. 

Discussing MEPs' expenses. All done behind closed doors, of course. 

And finally, harsh but fair. 

Anatole Kaletsky's take on the Northern Rock nationalization in yesterday's Times was spot-on:

Nationalisation... made sense only as a necessary legal stepping-stone to the orderly liquidation that Northern Rock required as soon as it ran out of money in September... To use nationalisation to keep the bank in business and its staff in state-subsidised employment would be a travesty of all the economic principles that “new” Labour has claimed to believe in.

His final paragraph is particularly telling:

All in all, what Mr Darling announced yesterday was a financial and political disaster of almost unimaginable proportions. The Northern Rock saga did not end yesterday; the fiasco has only just started, with the Government now officially in charge.

39. "Even though people are richer on average, they are no happier, so we should stop pursuing economic growth."

Surveys show roughly the same proportion of happy people as there were 20 years ago when standards of living were lower. From this Lord Layard and others conclude that economic growth does not bring happiness and that we should aim for a simpler, more equal society rather than for a wealthier one.

There are things that can be said about wealth brought by economic growth. It makes more opportunities available. At some levels it can remove unnecessary sources of unhappiness such as disease and starvation. It can make it easier to achieve goals, or to lead a more varied and fulfilling life.

Surveys about happiness also show that people say they are happier when they feel their circumstances are improving. They are less likely to profess happiness in a wealthy society that is static than in a less rich society which is advancing. It is the improvement which counts, not the actual level. Jefferson rightly pointed to "the pursuit of happiness" rather than to any given level of it.

Humans are not the sort to enjoy static contentment. They seek challenges and the thrill of achievement. The peaceful calm of the Lotos Eaters is not for them, and neither are the sheep-pen and the secure pasture. Those who think of happiness as needs satisfied fail to spot that those needs include challenge and change. Humans are aspirational, seeking much more than the provision of necessities. Better a human dissatisfied than a pig satisfied.

It is not up to economic commentators to say what levels of wealth and achievement people are to be allowed to make them happy enough. People themselves will determine the limits, if any. To achieve a society in which more people are happy, far from curbing economic growth, we will aim at one which affords its citizens opportunities for advancement.

The Adam Smith Institute is saddened by the news of the death of the former MP for North Norfolk, Sir Ralph Howell.

A resolute free-marketeer, Ralph was the author of the ASI reports Why Work? and Why Unemployment? In the first, he pointed out how the unemployment and welfare benefit system – alongside high taxation – created a poverty trap. When people received generous benefits when they did not work, and were taxed when they did, is it any wonder, he asked, that we had high unemployment rates? All the more so when moving to work meant losing benefits – leaving some families facing an effective rate of tax of 70% when they tried to move off benefits and into employment.

Ralph's second ASI report suggested a solution. Ralph was one of the first people in the UK to mention the W word – workfare. He made the point that people who are fit for work should either be working, looking for work, or training for work – and not just living off the taxpayer while doing nothing. After all, even Lord Beveridge, the intellectual architect of the welfare state, imagined unemployment benefit as no more than a temporary form of assistance. Various US states, observed Howell, had a policy of making people do at least something in return for their benefits, something that would hopefully get them back into the active workforce. After all, a job is the best welfare benefit there is. The existing policy trapped people in poverty and unemployment and, over the years, made them less and less likely to get back into work.

That was, of course, almost twenty years ago. And now, it seems, the government is racing ahead to try to prove itself more radical than the Tories and introduce exactly what Ralph Howell proposed – ending the poverty trap and prompting people on unemployment benefit to take active measures to get themselves back into work. It's taken a long time, but then Gordon Brown is a very cautious man. But good ideas do come through in the end.

Eamonn Butler, the ASI's director, has an article on The Free Society's excellent new website, in which he looks at the worrying amount of surveillance we are all subject to these days:

From time to time there are small victories – a judge recently grumbled about street cameras with microphones that enable police and local authority staff to eavesdrop on what it being said on the pavement underneath. But the trend is all to more and more surveillance. Yes, CCTV cameras have no doubt deterred crime in some places and they have certainly solved crime in others. But do they make me feel safe? Not on your nellie.

[I]t’s not as if all this surveillance is being used to protect us against hardened terrorists anyway.

[W]e will probably find the state authorities sharing this information with lots of other people. Not deliberately, of course. I’m thinking of the hackers and mafia bosses who will find them to be a very convenient way of cloning someone’s identity. Why should the state have a monopoly on the abuse of personal information?

Ah, that's what that thing about Berwick becoming part of Scotland is all about. Who gets the offshore oil and gas depends upon which way the border is pointing when it hits the shoreline...

The economics of supermarkets explained. Why would we have so many of them if we didn't actually prefer shopping in them? 

The influence of blogs upon politics may be more indirect than many think. Did the stick that Iain Dale got for standing by his friend, Derek Conway, influence Cameron's decision about the matter? 

With all this talk of rational behaviour in the new economics books: is the Stockholm Syndrome such rational behaviour?

Sad that this continually has to be done but here it is. Another go at expaining the nuclear numbers.

A very useful guide to the UK tax system. 

And finally, a politician talking good sense. The logic of running as a candidate to go to Washington given such a view seems a little off though.

Iain Martin points out the latest glories on offer:

Daily, ministers unveil the latest interfering scheme to tackle a problem either real or imagined. All 14-year-olds are to have their exam results and personal records placed on an electronic database which will follow them through life. It will cut down on fraud, say officials, who neglect to ask if employers have been hit by an epidemic of employees pretending to have a B in GCSE Maths when they actually were awarded a C. So what do civil servants really want to do with all this information? In the Whitehall mind, more data means a better decision, so there must be a use to which it can be put. Officials will think of something.

Sir John Cowperthwaite had the right idea:

Cowperthwaite took the lesson to heart, and while he was in charge, he strictly limited bureaucratic interference in the economy. He wouldn't even let bureaucrats keep figures on the rate of economic growth or the size of GDP. The Cubans won't let anyone get those figures, either. But Cowperthwaite forbade it for an opposite reason. He felt that these numbers were nobody's business.

Something of a sadness that those bureaucrats with the right ideas, like Sir John, were only allowed to operate in colonial outposts rather than here at home. 

38. "It's all very well to talk of freedom, but poor people are not free to buy Rolls Royces."

Actually, the poor are free to buy Rolls-Royces. They are not rich enough to buy them, but they are not prevented from doing so by the whim or will of others. If they had or could get money they could buy luxury goods, but there are some things people are not free to do, be they rich or poor.

They cannot smoke with impunity in a public bar, or demonstrate within the vicinity of Parliament. Being banned from doing something is about curbs on freedom. Being able to afford something is about power over circumstance.

A person who lacks the resources to buy something might hope to raise the money by saving, working, borrowing, or winning it. Most of us buy things we couldn't at one time afford. It wasn't that we were thwarted by the will of those in a position to stop us, only that we lacked the necessary means.

There is a crucial difference between being held back by circumstance and being restrained by the superior power of others. In the first case you have aspirations beyond your present abilities, but in the second case you are subject to the arbitrary dictates of an authority which makes you live as it sees fit, rather than as you want to do.

A free society allows people to make their own decisions, rather than have them subject to the whims of those in power. There are things they cannot do, not because they are unfree, but because they are unable. People are free to jump unaided over the Eiffel Tower, but are not able to do so. The difference is that people can overcome a lack of means more readily than gravity. In a free society they can hope to prosper, and to do the things hitherto beyond them. In an unfree society they cannot.

I agree with both Madsen Pirie and Nigel Evans. It's going to be May 2010 before there's an election. Here's my reasoning: Gordon Brown is a cautious man. He's not just one who plans long and carefully; that would be admirable. Instead he's one who goes into a tizzy when things don't go exactly to plan. His bottling out of an autumn election at the last minute was characteristic. It wasn't George Osborne on the death tax, it was a poll of the key marginals which frightened him.

As PM he gets to choose, barring accidents. He'll want a time when he has a sustainable lead in the polls, a long-term one that cannot be overturned in the heat of an election campaign. There isn't going to be such a lead. The economy has turned against him, and people are feeling poorer because of too many price increases. The reputation for economic competence foundered on the Northern Rock, and any remaining reputation for probity disappeared into the pockets of anonymous and third party Labour donors.

No lasting poll lead translates into no election until he hits the wire in spring 2010 and has to call one. Then he loses and David Cameron becomes prime minister. Simple, really. Pity it's all going to take so long.

The big blogging news this weekend is the beginning and near immediate end of Max Grogarty's blogging career at The Guardian. The original piece (and the comments can be both exceedingly harsh and most amusing) the editor's response,  Clive Davis, Rafael Behr (and again). Yes, contacts matter, even at The Guardian, which so decrys the old boy network in other areas of life.

Rather to Netsmith's surprise (did they ever solve that one about how many angels can dance on the head of a pin?) philosophy has answered some questions.

As ever, good economics doesn't seem to mix well with politics. The economically sensible thing to do about climate change doesn't seem to interest the politicians. 

So just how tough is it to get ahead in the US if you are destitute? Surprisingly easy it seems. 

Adam Smith proved right once again. Peace, easy taxes and a tolerable administration of justice really are the secrets to growth. 

Netsmith could (perhaps rightly) be criticised for obsessing over the European Union. But the licencing of journalists, who is one and who is not, being decided by the EU, well, is it obsessive to be concerned by that? Or the language used here? 

And finally, perhaps the lawyers are making too much here?