Adam Smith Institute

Quite the most enjoyable story of this week for me has been the report that smokers and fatties actually save health systems money, rather than the usual assumption that they cost.

On average, healthy people lived 84 years. Smokers lived about 77 years, and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.

Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.

The cost of care for obese people was $371,000, and for smokers, about $326,000.

But there's another rather interesting question to be asked. There were those who were making this point (myself for example) when the Master Tobacco Settlement was being crafted. The claim was that smoking created costs to the State run health care systems (Medicare primarily) and that the tobacco companies should thus pay up. Which they did, to the tune of something north of $200 billion and counting. But if they knew, as they most certainly did on both sides, that this increase in costs was fictitious, why the settlement?

Because the tobacco companies did not in fact pay that money. What they were allowed to do was raise prices to their customers, protected from any anti-trust measures, to make those payments. And at the same time they were protected from any upstart competition coming into their business. It wasn't actually about health care costs at all, it was a Bootleggers and Baptists scenario, with the usual outcome of the insiders benefitting and the consumers losing out. Which is why, whatever the evidence of the costs of smoking on healthcare budgets, the agreement won't be unpicked, whatever the evidence presented.

Isn't it wonderful the way government works? 

28. "A small rise in inflation is a legitimate price to pay for reducing or eliminating unemployment."

There is no trade-off between the two. A "small" rise in inflation means that the government is creating false demand, and sending false signals about the real cost of investment. Making more money available pushes down the cost of borrowing. It also steals from people by making money worth less than it was, reducing the real value of their savings, and it therefore discourages thrift.

There is over-investment in producer goods as a result of the false demand. This does indeed create temporary jobs, jobs which will be lost as soon as the money which sustains them stops being pumped in. Furthermore, the loss in everyone's purchasing power which results from the inflation means that jobs are lost in the wider private sector because people can afford fewer of its goods and services.

Governments tried in the past to sustain the job expansion by increasing the rate of inflation. All this did was to postpone the day of reckoning for a little while. The "small" inflation does not lead to a reduction in unemployment on any permanent basis. What it does lead to is a larger and larger rate of inflation as government struggles to ride the tiger.

When hyper-inflation comes and the squeeze is applied, all of the "new" jobs are lost, together with many more as the economy plunges into recession. It actually happened in Britain, as in other countries.

The point is that inflation, even at modest rates, distorts the economic process with false signals, and leads to investment in areas where there is not the genuine demand to justify it. The real way to reduce unemployment is to achieve honest money that holds it value and the right conditions for enterprise. Then genuine economic growth will create the new jobs.

The ASI's Next Generation group hit the ground running with its first reception of 2008. It was first Tuesday time, and Nigel Evans, MP (Con) for Ribble Valley was the guest of honour. There was a good crowd, probably attracted more by the speaker than the wine of the month (Wilga Tree shiraz-cabernet).

After the members had sampled the gourmet sandwiches, it was time for the 10-minute presentation. Evans spoke to the title "Between now and the next election." Like the ASI's Madsen Pirie, he seems to have concluded that this will happen in 2010 as the parliamentary term runs out. His theme is that the case must be made relentlessly that individual enterprise can create wealth far more than government can, and that a growing economy can both fund public services and also take a lower proportion of the nation's earnings. He referred to examples of when this had been done.

The verdict on his speech was that it was superb, brief, but making valid points succinctly. Mr Evans stayed after his address and managed to meet and chat with most of the members there. It was a great start to the year. Bookmark the next on: Tuesday March 4th.

A company here in Los Angeles is making dolls of all these current political figures. ... They're not like normal dolls where you pull the string and the dolls talk. These are a little different. These, you have to make a large donation to their campaign and then the dolls will say and do whatever you want.

–Jay Leno 

As Netsmith hits the half thousand of these little reviews (demi-mille perhaps?) we get perfect proof of one of his pet theories. You really can't trust politicians to do as they say they will. Trixy is in court today and heard the Prime Minister's barrister say:

...manifesto pledges are not subject to legitimate expectation...

...you know something's gone wrong with politics when... (1) you tell a court "I'm a liar and my promises cannot be relied on", and (2) that's your defence...

A point that we like to make around here, "creating jobs" is not a benefit of environmental greenery: it's a cost. 

We at the ASI are, so far as we know, the only UK think tank who support the legalisation of all drugs. Which is why we like this. Tell 'em like it is Willem! 

A decent guide to the British political system. The only thing it doesn't explain is how we ended up with items one and four above.  

An excellent (and Netsmith does indeed mean excellent) piece on why we don't run out of things. Unless you understand the concepts here you'll continue to get taken in by those screaming that we're about to run out of resources: as we have been since the great flint shortage of 8,000 BC which led to the Bronze Age.

And finally , the military does seem to have changed a bit over the past century. 

It was the absolutist Louis the XIV who extended the Palace of Versailles to all that it is today. It is therefore an ironically appropriate setting for the French government to ignore the wishes of its people. Both houses met to change the French Constitution, so that by the weekend the other Constitution (under the guise of the Lisbon Treaty) can be signed and sealed by President Sarkozy.

Despite general support for a referendum throughout France, those protesting outside the Palace were sadly the anti-globalization posse. It is a shame to see the debate again framed as a battle between those on the extremes of the political spectrum against those in at the centre. This is a misunderstanding by many as to what is at stake. The fundamental concern with the latest move towards the EU's ever-closer union should be that largely unaccountable European institutions are undermining national liberal democracy.

The central problem is that the Lisbon Treaty centralizes decision-making power, taking it away from the places in which that power is exercised. This has opened up the corrupting tendencies so apparent in Brussels, with lobbyists – whether business or NGOs – pumping in money to sway unaccountable decision makers. Corrupt as politics appears in this country, at least it does appear: the media and the public are mostly interested. Last November the EU failed its annual independent audit, with the auditors claiming in the report widespread financial abuse both within Brussels and member states. As this is now the thirteenth time in a row that the EU has failed the audit you would think there should be a Europewide outcry.

It is not just us who are impacted. Given that the annual budget of the EU is €121.9 billion, the way it spends our money can have a terrific impact on the lives of many around the world. Around 43 percent of the budget goes on the needless protection of European agriculture, restricting free trade with poor countries, with devastating impacts on the prospects of the developing world. Isn't it time that the anti-democratic injustices thrown up by the latest European Treaty/Constitution (delete as appropriate) be made the centre stage of the debate?

27. "Free market capitalism simply cannot meet society's welfare needs."

Strictly speaking, it is not supposed to. It is a method of social and financial organization that allies itself to the individual motivations which help determine human action. It does do two very important things, however.

In the first place it creates the wealth that allows for welfare provision. Under a free economy people in society can become rich enough to afford higher levels of care for those in need. They may do this through charitable organizations, or they may do it collectively through government. Non-capitalist economies tend to achieve poorer results, and cannot usually afford so high a level of provision.

Secondly, the free economy itself reduces the need for welfare by a variety of market provisions. Recognizing the demand, people respond with insurance policies, health plans and pension schemes, all of which reduce the need for welfare. By encouraging people to make their own provision wherever possible, the free economy reduces the need for state welfare. Self-provided welfare can usually be tailored more closely to each individual's circumstances, whereas collective provision is often provided on standardized levels based on what are perceived as average needs.

Paradoxically, it can be the state welfare system which makes people dependent upon it. It takes the funds to support its provision which people might otherwise have used to pay for their own. In other words, high taxes make people no longer capable of providing for their own welfare. Two-thirds of those receiving benefits in Britain actually pay more in direct and indirect taxation than they receive back from the state.

Furthermore, state services crowd out private choices for many people. Private education, healthcare and pensions compete with state options which are 'free' at the point of consumption. Private alternatives charge fees, but compete with state services which do not (because they have been paid for through taxation). This severely restricts their availability and accessibility for most people.

It's one of the tropes of our times, that the inheritance tax is such a spiffingly new and inventive idea that it must be progressive. In one way of course it is new, starting in 1986 (with the origin as Estate Duty in 1894), in another, it's really rather old.

Feudal England worked on the basis that everything, most especially the land, belonged to the King. Whilst you might have an estate, even the hereditary right to one, you only ever held a lifetime interest in it. At your death, your inheritors would pay a fee to the next lord up in the fedual chain. This progressed all the way to the top, where those who held lands directly from the Monarch paid him at their own moment of inheritance. There were other such details, such as heriot, the right of a lord to seize the best animal or clothes of a serf from his estate.

Fortunately we got rid of such things as the medieval system faded away: land holdings became freeholds, owned absolutely, property rights actually meant that things were inheritable rather than held only for life.

Until, of course, the system of inheritance tax came along again. What is ours is not ours to do with as we wish again, to dispose of as we please. Our inheritors must pay again a fee, to the State this time instead of the feudal lord, for the enjoyment of our property, what we have built and paid for. 

Thus, far from being progressive, the inheritance tax is in fact medieval, positively feudal: we're now simply regarded as serfs of the State, ripe for the plucking upon our passing. 

Blessed are the young, for they shall inherit the national debt.

– Herbert Hoover

Yes, it's true. Fat people and smokers save the government and the health care system money. So can we please go back to doing as we wish, not as we're told? And further, snarl at those who lie to us on this point?

More on 'elf'n'safety. Of course, it's vitally important that the are regulations about workplace safety, fines for breaching them and inspectors to enforce? Yes? Well, such are entirely dwarfed by the effects of the extra wages employers pay to workers for risky activities. The incentives are already there.

If only Bastiat were alive now. No, really: the candlemakers are calling for trade protection. 

Disturbing evidence that there really might be people to dumb to be allowed to vote. 

This compulsory education idea might be worse than previously thought. Much vocational training actually has a negative return. 

Something for our cartophile (?) audience. Another fascinating map site.

And finally, proof that intelligence is not a requirement to be a BBC newsreader. 

26. "Government must 'prime the pump' by stimulating demand through increased public spending."

Some urge that when the economy slows, and people are not spending or investing as much, government should step in with projects of its own to boost demand with public spending. In fact when government does this it destroys private sector jobs by taking away the resources which would have sustained them. Taxes are higher than they might otherwise be, leaving less to be invested in private business and to spend on its products.

Moreover, government uses those resources inefficiently. The administrative costs of sustaining each job are higher in the public sector, and the funds themselves are used less effectively. "Priming the pump" often means spending on infrastructure and civil engineering projects, all capital-intensive and less productive of jobs.

Even in labour-intensive areas, such as the public services, most of the extra money it puts in is swallowed up by increases in the public sector rate of inflation. It simply puts in more cash for public employees to bid for. This happened with the huge sums pumped into UK public services in the post-2000 budgets. All of the money was swallowed, but service improvements were not remotely commensurate with the enormous increases in spending. Indeed, some things became worse.

Private money goes where economic factors signal it should, but government cash follows political demands which are not as commercially viable or as sensible.

It takes a lot of money to sustain each public sector job. The private sector employs more people for the money. "Priming the pump" is a now discredited notion from Keynesian days. It creates a temporary and artificially high demand in certain sectors at the expense of others, followed thereafter by massive dislocation and unemployment when that artificial demand ceases. It tempts government to create artificial short-term 'booms' ahead of elections, with the consequences coming after they have been safely re-elected.

The RMT and TSSA – the underground's biggest trade unions – have threatened to ballot their workers for strike action tomorrow, if Transport for London (TfL) does not meet their demands (which is basically impossible, given the time constraints).

The unions object to ticket office closures and the employment of non-union, agency, security or sub-contractor staff on the tube network. That is not surprising. They know that private-sector workers could do a much better job, at a much lower price. Frankly, they could hardly fail to do so. Unfortunately, the fact that TfL is a public-sector monopoly makes it easy to hold them to ransom and commuters suffer as a result.

Using the tube is a nightmare. According to statistics obtained under the Freedom of Information Act, the average commuter on the Metropolitan Line wasted three days, 10 hours and 25 minutes in 2006 due to delays. I hate to think what the figure would be on my (notoriously unreliable) branch of the district line.

These problems are not insurmountable: the Docklands Light Railway (DLR) provides a good model for the future. First of all, it is computerized and driverless. That blunts the power of the unions but also makes it more reliable, since trains can run a set distance from one another, arriving and departing at set times, without reliance on an antiquated human-signalling system.

Secondly, the DLR is operated and maintained by a private franchise, which means better management and greater efficiency. Our report Underground Revolution advocated a similar structure for the rest of the network, which would be split into four vertically integrated businesses (Metropolitan, District, Circle, Hammersmith & City lines; Jubilee and Bakerloo lines; Piccadilly and Central lines; Northern and Victoria lines). Splitting the tube up would promote competition in ideas on innovation, marketing and efficiency, as well as weakening the hand of the unions. Vertical integration would encourage investment in infrastructure and capacity building.

In short, no other policy would make such a difference to Londoners' quality of life.

Apologies for the late start on the blog this morning. Slight technical difficulties...

Hopefully everything should be working now. 

According to a survey of 3,000 people commissioned by UKTV Gold, a satellite TV channel, Britons are increasingly confusing fact and fiction when it comes to their historical knowledge. While 58 percent believed Sherlock Holmes was a real historical figure, 23 percent believed Sir Winston Churchill was fictional.

On seeing the results of this survey I assumed that I had overslept and woken up on April 1st but, alas, no. It appears to have been a real survey of real people – something which, humour aside, is very worrying indeed.

Education reform, anyone?

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