Adam Smith Institute

According to the sages at the Chronic Poverty Research Centre - an international partnership of universities, research institutes, and non-governmental organisations - the UN’s Millennium Development Goals are not ambitious enough.  Even if they are met, there will remain 800 million ‘chronically’ poor people around the world.

In order to lift these marginalised people from poverty, their report advocates a massive scaling up of state welfare in developing countries, ranging from cash benefits to ‘minimum income guarantees.’

Later this year, the World Health Organization is also likely to recommend expanded social protection – including minimum wages -- as an essential means of improving the health of the poor.

These kinds of interventions are likely to make the problem of ‘chronic’ poverty worse.

Take minimum wages. In richer economies, they don’t cause too much economic damage during times of rising prosperity. The problems start when an economy begins to slow down.

When things get tough, employers will dispense with those they regard as the most marginal workers first, such as unskilled people, part-timers, women, and so on.

But in fragile African economies, asking the private sector to provide ‘minimum income guarantees’ is tantamount to telling them not to bother employing anyone at all. As the World Bank has shown, there are enough bureaucratic hurdles to starting a business in the poorest countries, without this costly extra burden. 

And without a strong private sector creating wealth, there will be no juicy tax revenues to fund state welfare – unless, of course, western governments are prepared to underwrite African welfare systems indefinitely.

Countries like Britain have had enough experience with welfarism to know that it is not the way to eradicate poverty.  As the light shone on Glasgow East during the by-election has amply demonstrated, it entrenches it.

Making Poverty History? Making Poverty Perpetual would be more accurate.
 

I never thought I would get interested in pensions. But in fact the pensions crisis that the UK now faces is something that has to concern everyone, me included – and not just out of personal interest, but in interest of the county.

We're all living longer, and drawing our state pensions for many more years. Meanwhile, a falling proportion of the population is in work and able to contribute towards those pensions. Growing numbers of older people mean a smaller proportion in work: and at the same time, people are spending longer in education (the government is about to make kids stay in school until 17), kicking about the world on gap years, doing MBAs and the like. So everyone in work has to carry more dependents.

But it gets worse. We used to have a good that laid golden pension eggs – the so-called occupational pension system, work-based savings schemes run by employers. Sadly, over-regulation by Gordon Brown has killed that goose. The UK used to have pension savings larger than all the rest of Europe's. But in the last few years, thousands of employer schemes have closed down. Thanks, Gordon.

What do we have instead? Daft schemes and lots of them – like Stakeholder Pensions, the Personal Account, and the Savings Gateway. All trying to get lower-income people to save for their retirement. Nobody bothers to mention that when they do, they will just lose their means-tested benefits, of course. They might as well spend it on beer now than lose it to the benefits office when they retire.

What we need to do, as expert Alan Pickering said in an ASI report years ago, is raise the pension age and index it to life expectancy – and use the money saved to raise the basic state pension so that nobody in retirement needs to rely on means-tested benefits. So when people do save something of their own, they get to keep it, instead of simply losing state benefits.

All that's needed is a bit of political vision and boldness. Oh well, see you in the workhouse.

The government wants surgeons to receive extra pay for good performance when operating on their patients. State of the art quality of care is internationally getting ever more important but nobody has yet come up seriously with the idea of incentivising surgeons for good performance - measured in patient survival. For this is a very tricky thing to measure. You need a whole new layer of bureaucracy.

But even worse are the unintended consequences: as one consultant, responsible for cancer care, has put it:

We have got to ensure we don't create a dangerous precedent, that the surgeons doing the big complex cases aren't discouraged from taking them on.

It is obvious that the incentives would prod surgeons to focus on the patients with acute diseases rather than chronic ones because this delivers better survival scores. However, it would be absolutely counterintuitive,  as the NHS always was and still is by default biased heavily against the chronically ill. The reason for this is political meddling which is driven by short-term thinking glued to election cycles.

Patient outcomes are important as a standard between competing health care providers. But this is all about information for patients as consumers who can then compare quality and make choices. At present the performance information on hospitals in the NHS is almost useless and does not enable patients to choose on the basis of quality. This is the challenge the government strives to circumvent by reducing it to a contest between surgeons. But that won’t do. Only comprehensive outcome data reporting of all providers can extend competition to the hospital as a whole and enable them to address the worst problems first. Moreover, in times of ever rising healthcare spending, the best doctors should not be rewarded with bonus pay, but with more patients flocking to them and thus increasing their reputation and pay.      
 

'Idiots and lunatics' may be allowed to stand for Parliament. Where's the story?

Thre's still some problems with this right to self defense that's recently been reitereated.

The inevitable Batman post now that the movie's out. Who could in fact become Batman?

Things have rather changed since Pitt spoke in 1763. Many vastly for the better of course, but not all.

Guido has the EU's latest message to the Irish.

Instead of agitating about the closing of Starbuck's outlets, umm, why not simply buy more coffee from them?

Which major industrialised nation(s) actually reduced carbon emissions over the past 6 years? Could it be the one that everybody shouts at for not doing anything?

And finally, the streets just aren't safe any more. I blame the government personally.

Will Hutton makes the most amazing suggestion in the Observer:

Brown was right to spend what he did in the good times, but wrong to have been so obsessed with tax cutting.

Seriously? There's a suggestion in a major newspaper that Gordon Brown's period as Chancellor was marked by an obsession with tax cutting? All those stealth taxes, that 1% on National Insurance, that catalogue of charges and an ever increasing stream of geld into the Treasury's coffers (unfortunately at a slower rate than it went out) was tax cutting?

He elaborates a little later:

Instead, income tax under Brown should not have been lowered so much.

Income tax has been lowered? Really? Now it's true that income tax rates have moved around a little, but that doesn't mean that income tax itself has fallen. Income tax receipts in 2001/2 were some £108 billion. This year they are to be £155 billion. A 44% rise in 7 years is a cut now is it? Even after inflation that isn't a cut, that's still a substantial rise.How Brown did it is fiscal drag. Neither the personal allowance nor the higher tax band were ever raised in line with earnings growth, only in line with inflation (and not even that every year) meaning that more people went into the higher tax band and more people entered the income tax system itself.

We can call this many things but lowering income tax it is not.

Everyone is, of course, entitled to their own opinions, however odd you or I might think they are (like, for example, Will's thought that taxes should be higher). But no one at all is entitled to their own facts. Gordon Brown didn't lower income tax.

It is a mixed bag on free trade. While agreements are being stalled in the US, across the other side of the globe the Association of Southeast Asian Nations (ASEAN) are deep in free trade negotiations with Australia, New Zealand, the EU and India. They are also implementing a free trade agreement with Japan, which will make 90 percent of trade tariff-free inside of 10 years and have signed a deal with China to create the biggest free trade zone by 2010.

So while much of the East is opening up, the West is closing its doors. An article by Avi Salzman in Business Week considers the reality on the ground for businesses in the US wishing to export. For the company Caterpillar – which assembles trucks of behmothian proportions – without the Colombian free trade deal, they face a tariff of $180,000 on a $1.2 million truck. Doug Goudie, director of international trade policy for the National Association of Manufacturers, is concerned: “Every day that goes by, we lose the opportunity to export manufactured goods".

With the next round of world trade talks starting up, it is time for ministers to step up to the plate and liberalize global trade. As The Economist reports: “Yvan Decreux and Lionel Fontagné, of CEPII, a French economic research institute, have tried to measure the effect on global growth. They estimate that the world economy would eventually be $43 billion a year better off. Throw in some liberalisation of services too, and the sum rises by $30 billion.”

In fact, as The Economist acknowledges, the financial gains would be much greater than this. All we need now is for the politicians throughout the world to sign up to free trade. I am not holding my breath...
 

After three wonderful months at the Adam Smith Institute, it is time for me to go back to the United States, marry my fiancé, complete my last year of university, and then head to law school. In the words of Paul (the Saint, not the Ron):

I have fought a good fight, I have finished my course, I have kept the faith (2 Timothy 4:7).

Ok, that's all a bit dramatic.

In all reality though, it has been a pleasure working here and I will miss London and the great friends I have made. If I have learned one lesson during the last three months, it is that we can never be complacent. Political demagogues will always promise greater prosperity to the masses by subsidizing, mandating, and taxing.

This is why those of us who want to take responsibility for our own lives must continuously work to keep the markets free, the taxes low, and the government small. Over the next few years, capitalism may indeed face its stiffest challenge in decades. Globalisation is changing the world landscape, and although it promises great benefits, many people are afraid of the future. The oil crisis and global warming hysteria will undoubtedly fuel the fire for greater government intervention.

So let's stick to our guns and continue our fight for freedom and liberty!

This one time, at band camp...

Which crime figures to believe? Any of them? James Bartholomew points out that things are certainly very different from the past. And who knew that Britain was more violent than the Balkans?

The Sith Institute does indeed seem to have suffered a defeat. Well done Guido.

Something that not enough people are paying attention to: The Great Moderation. For example, a slow down or recession combined with globalisation might mean job losses in China, not Chicago or Cumbernauld.

More on recession: the housing crash in the US is higly localised, might too the fallout be?

Will the recent licencing of baobab fruit into the EU lead to another Commons Tragedy?

Netsmith agrees with this boat. Time to start some gleeful axe swinging amongst the quangos.

And finally, explaining the difference between engineering and PoMo.

Yesterday I rather made fun of Al Gore's latest call for a greener world. Today (alerted by EU Referendum) I can show you the expense of a less adventurous plan. This is the EU's plan that each EU country should reduce their emissions by some amount, in Ireland's case, by 20%. One way of looking at the costs of such a plan is to work out what level a carbon tax would have to be set at to make such a reduction possible:

In a presentation made to the committee, Prof Tol made what he described as a "cheeky" suggestion that the carbon tax needed to meet this stringent target would be equal to a carbon tax of €4,000 per tonne of CO2.

Given that the Stern Review thought that the cost of the emission of such a tonne of CO2 was $85 (and the EU thinks about €40, Tol's own estimate is lower) clearly this level of taxation is ludicrous. It simply isn't sensible to pay 100 times more in tax to discourage an activity than the costs of the activity you're trying to discourage will incur.

Richard Tol isn't, contrary to what some might fear, a crank, or anything like it. He's actually one of the people that helped write the IPCC reports that the whole concern is based upon.

Unfortunately, what we're seeing here is not unusual. The politicians have got the bit between their teeth, they're insisting that something must be done and dangnit, they're going to be the ones who tell everybody else what to do. Unfortunately, in their ignorance, they're now telling everyone to do things which will make us all immeasurably poorer. More unfortunately, for little reason as well.

At the heart of the economic debate over what we should do about climate change is a point that all too few have as yet grasped. We shouldn't spend more on mitigation that such mitigation will save us. To do so is simply to make future generations poorer.

The politicians are insisting that we pay 100 times more to mitigate than the mitigation will save us. Politicians: actively campaigning to make you and your children poorer: isn't that nice of them?

Hayek was right. The cause of business cycles and market turbulence is – governments.

In the latest New Scientist, a bunch of 'econophysicists', using sophisticated computer analysis, suggest that crashes might well have something to do with the euphoric levels of credit that precede them. In other words, the cause of your hangover is the binge you went on the night before.

The geeks used some pretty impressive technology – not just looking at portfolios, but programming virtual hedge funds and brokers to see how they react to market conditions. In stable times, they conclude, these agents all work pretty well, spotting under-priced stock and borrowing to invest in it. But when credit is cheap and they borrow and buy more is when they can get into difficulties. Some single chance event can send waves through the entire market: because when everyone's borrowing, one person's failure becomes everyone else's problem.

So that's it. Politicians and monetary authorities love it when we're all borrowing to spend wildly. It's boom-time, everything succeeds, employment rises, production soars, house prices rocket, we all feel rich. And then pop! – the first person who can't pay the bills leaves a second short of cash, which knocks on to a third, a fourth, a fifth... Pretty soon the economy's in a tailspin. All those people the banks and building societies lent to suddenly can't pay it back.

You could mitigate this by regulating the gearing of financial institutions. Much better to do it through a sensible monetary policy that doesn't make credit too easy and keeps a close and concerned watch on the monetary aggregates. The quasi-independence of the Bank of England has probably helped: but it evidently needs tougher targets if boom and bust is truly to be eliminated for the future.
 

It will surprise no one that I’m not a fan of the 130 demands that unions handed to Gordon Brown last week.  Most, if not all of them will hurt far more people than they help. Requiring the adult minimum wage for apprenticeships and 18 year olds, for example, will certainly not encourage companies to hire young folks (which probably explains why they also want some companies to be required to guarantee apprenticeships.  Hooray for solving the bad results of one policy with another bad policy!). The fact that anyone seriously thinks that running train companies as not-for-profits will be better for customers is also mind-boggling. 

The funniest item on the list, however, is definitely the call for tax deductions for union membership.  That’s right- they basically handed the prime minister a list of expensive demands, and then said “oh, and our members want to pay less taxes, let someone else do it.”  Not that this is unusual for labour, but this just seems like a particularly flagrant declaration of that philosophy and demand for pork.  Though Brown has rejected many of the propositions, it is likely that at least some will pass.  As Auberon Herbert once asked, “how should it happen that the individual should be without rights, but the combination of individuals should possess unlimited rights?” Good question… how indeed?
 

Fainting goats. I kid you not!

We're not the only people who think that the new Rowntree method of defining poverty is useful. Adam Smith thought so too....

Trying to put some costs to Al Gore's latest little brainwave.

But of course it will be easy for those who brought us so many other wonderful government goodies, won't it?

One little chart that shows the essential need for legislative certainty.

It was really pretty certain that this post was going to be included, wasn't it?

Yet more idiocy from the frontlines of the War on Drugs.

And finally, whether or not it's true it's a good story.