Adam Smith Institute

We'd just like to point out that you are currently reading Britain's number 1 economics blog. (Yes yes yes, it's a tendentious measurement method, not very accurate and we don't always talk about economics. But we're still number 1! Hurrah!)

On a much sadder note, Andrew Olmstead, an American blogger and US Army Major, was killed in Iraq. He left a blog to be posted if....do read it.

Greenpeace were for biofuels before they were against them . Indeed, we could say that we're spending fortunes on biofuels because Greenpeace were for them before the scientists started pointing out they should be against them.

Shades of the European Union here, who famously pay Friends of the Earth to lobby the European Union. The expansion of big government is driven at least in part by the government funding of lobbyists whose job is to campaign for more government spending.  

And Dizzy has another update on where all that money being spent goes: try not to wince as you read it. 

Some seem to think that Adam Smith and John Nash were on opposite sides of the question. Not so.

And finally , the loneliest Lenin in the world. 

[This is the first in a new series of blogs to be published over the coming months. Each piece will look at a common error people make about free markets and the free societiy, and explain why they are mistaken. We hope readers of this blog will be able to make use of these arguments themselves, and in doing so convince others of the overwhleming case for liberty - Ed.]

1. "Only the guilty have anything to fear from surveillance or police searches."

The cry of oppressive and intrusive authority has always been that "only the guilty have anything to fear." It isn't true. Even the innocent have to fear an over-mighty and intrusive state. It has always been the case in free societies that each individual has a private domain which he or she is allowed to keep private. It's not that it holds guilty secrets, but that it holds private things that are no-one else's business.

Why should the state be allowed to open our mail, to snoop on our electronic communications, to tap our phones and to spy on us with its cameras? We are right to wonder why an innocent state would want such information about us. The mere possession of such information poses, in itself, the risk of abuse. Those with access to it are put in positions of power over others; the information could be used to blackmail or intimidate. It need not be about illegal activity, merely that which would cause embarrassment if it were known.

In free societies we put limits on the law. We deny it the right to snoop on the off-chance of finding guilt, but require it to show good cause for its investigation. We demand that it states what crime is suspected, rather than allowing it general warrants to see what it might find. We are not servants and underlings to be ordered about and kept in place by a mighty state: rather are we free citizens who sustain that state to serve us. It has no right to powers beyond those we accord it, and we do not choose to give it the right to know more about us than it needs to know in order to serve and protect us. 

Now that Mike Huckabee has actually won something in his quest to be the next President of the United States it's time to have a look at one or two of his economic and taxation ideas. As the basic one is the "Fair Tax", why not that? This is the idea that all other Federal taxes will be swept away and replaced by a 23% sales tax.

This is, to put it kindly, insane. Don't just take my word for it though, for detailed reasons as to why it is try Bruce Bartlett. 

The idea's been around for a few years now and from writings elsewhere I've had my share of ALL CAPS emails berating me when I've tried to point out the obvious errors in the idea. 

Even if the rate proposed is correct (it isn't, it'll be much higher) the idea of collecting the entire tax take at the point of the retail transaction simply won't work. We're all well aware of small traders offering two rates for the job, cash and on the books. We've now extended that to the entire economy, as we don't have the chain of people adding VAT on each part of the value they add: only on that final sale to the consumer.

Not that there's any chance of Congress enacting such a tax system, whoever becomes President, but it is slightly alarming that the Republican front-runner at this point is advocating such a system. Which of the two alternative explanations for the advocacy of the idea you find more alarming is up to you: that Huckabee doesn't know the problems with the scheme or does and is still proposing it. 

My true love sent to me: twelve drummers drumming. It probably means the twelve points of doctrine in the Apostle's Creed. The number of Gordon Brown's apostles is subsiding daily, after the sound of the election drums back in October proved a false alarm. Had he called an election then, he could have won it, though it might have been close. Now, I agree with Trevor Kavenagh of The Sun - he can never win an election again.

That's a good reason to suppose that the next UK general election will be as late as it possibly can be - in the first half of 2010. But I met Sir Robert Worcester the other day and he's still staking money on June 4, 2009, arguing that what goes down must come up, a year's a long time in politics, etc. Anyway, the prospect of overweening politicians losing their seats is always something to look forward to, whenever it comes.

Iain Dale gets a most disturbing email from Kenya . Yes it is as bad, if not worse, than you are already imagining.

Pity poor Jeremy Leggett. The man arguing for greater subsidy of renewable energy technologies manages to prove that subsidies are not needed.

Interested in winning $100? Know anything about anthropology? Willing to learn something about it to win $100? Try this essay competition. 

To prove that Netsmith is not a train spotting policy wonk type, we bring you station blogging. 

The true problem with weather alarmism (which is the practice of using any weather anomaly to prove the existence of climate change). 

Germany isn't racing towards the smoking ban quite like other European countries. Wonder why? 

And finally , if only all politicial commentary were this cogent and well argued. 

A really rather interesting result here. Various of the Great and Good are asked what they changed their minds upon over the couse of 2007. Daniel Kahneman says:

The most dramatic result is that when the entire range of human living standards is considered, the effects of income on a measure of life satisfaction (the "ladder of life") are not small at all.  We had thought income effects are small because we were looking within countries.  The GDP differences between countries are enormous, and highly predictive of differences in life satisfaction.  In a sample of over 130,000 people from 126 countries, the correlation between the life satisfaction of individuals and the GDP of the country in which they live was over .40 – an exceptionally high value in social science.

The positional competition may not be doing you any good directly, but if it raises national GDP, it will indirectly help you, and everyone else in the country.

A man was found guilty of murder and sentenced to death in the electric chair. Just before his execution, the man who flips the switch asked the murderer if he had any last requests. The murderer replied with tears in his eyes.

"Yes. There is one last thing that I want. When the switch is flipped, can I hold my defence lawyer's hand?" 

Tim Worstall (he of this parish) has a very good post over at the Globalisation Institute. He points out that coffee can be grown in Cornwall – indeed it has been, at vast expense. But should it? Adam Smith made a similar point in his Wealth of Nations:

By means of glasses, hotbeds and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about 30 times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of Claret and Burgundy in Scotland?

Surprisingly the aid brigade (by which I mean those who earn a good living by demanding aid for the world's poor) are almost unanimous in defending protection for domestic industries in the developing world. They deride free trade and claim, wrongly, that all nations need protection to become rich.

They are victims of the old urban myth of mercantilism, and still believe, along with hobgoblins, incubi and vampires, that nations get rich by selling exports and can then afford to buy stuff. In fact it's imports that help create wealth by getting you things cheaper than you could make yourself, thus giving you surplus spending power with the cash you save.

If developing nations have protective tariffs, it means their citizens pay more for stuff, and are poorer in consequence. It means that their businesses have to buy dearer materials, and thus make goods that can't compete on world markets. I'm often asked about this at schools, and surprise people with a rather laidback attitude. Yes, you can have protectionism and still get rich, but free trade is better. The point is that the free market is quite resilient. You can do a lot of things wrong and it still works to some extent, and you can still get rich. I tell them there are three things you can't do, however: genocide, civil war, socialism...

It's supposed to be the season of goodwill, and I've been thinking about goodwill recently. Not the good cheer and fellowship that is supposed to exist between human individuals, but goodwill in the commercial sense.

The goodwill of a business is the loyalty of its customers, and indeed its suppliers. When people buy or sell a small business, they are not just buying or selling a piece of land, or a building, or even the stock in the shop – although all of those things have value. They are also buying the goodwill. They are buying the trust that customers have in the business, and their willingness to return to it. They are buying the willingness of suppliers to continue to supply it. And they are buying the knowledge of how to make the business work – things like which customers should be avoided because they don't pay, or which suppliers provide the best value for money and the most reliable service.

Until recently, this goodwill and inside knowledge have been a large fraction of the value of a business. Larger companies even put the value of their brand - the name that customers trust - on their books as an asset, as valuable as cash or stock.

But has the internet changed this? How much inside knowledge do you buy when you buy a small business, like a shop. It might indeed be useful to know which customers and suppliers are reliable. But in terms of sourcing the stock which you have for sale, that is a lot easier these days. A quick online search will discover plenty of willing suppliers. And through blogs and chatrooms it's not hard to check the reliability and value of any of them.

I think this must affect small businesses in particular. A loyal customer base is worth something, but the knowledge of how to stock and run a shop, say, is much easier to acquire these days. Perhaps most of that knowledge now can't really be sold as part of the price of the business. On the other hand, this widespread online knowledge must make it easier for people to start new businesses, and add to the competition. What's bad for shopkeepers might be good for their customers.

My true love sent to me: eleven pipers piping. It might refer to the eleven loyal apostles. But who - in the title of Brian Montieth's excellent little book on Scotland's finances - will actually pay the piper?

The bill is rising. Over the last nine years, the Scottish Executive's kitty has roughly doubled, from £16bn to over £30bn. A lot of the money, of course, comes from the Barnett Formula, which provides for public spending being about a sixth higher in Scotland. It was devised in the 1970s to help solve some Cabinet disputes, but as Milton Friedman said, there's nothing more permanent than a temporary government programme.

The Scots enjoy better-funded public services as a result, including free university education, and free care homes for the elderly. And of course they pay their police better than do the English. It's amazing how much you can achieve - on someone else's money. But how much more we would all achieve, if we were allowed to keep more of our own, and spend it efficiently on what we actually wanted, rather than inefficiently on what politicians thought we ought to have.

If government can't get the small things right then why do we trust them with the big things? For example, the fire control centre project was costed at £100 million, is now running at £1.4 billion and is "only" two years late at present.

On the subject of the big things, a very reasonable outline of what is wrong with the NHS. 

 Similarly on the subject of the War on Drugs . When are we actually going to start having a rational discussion of this subject?

A quick note on how the world changed in the past year. 

A change in thinking on the sub prime mortgage mess in the US. 

Will the music industry change quite so much as to lead to this dystopia? 

And finally, there'll always be an England and be careful how much electricty you try to save. 

The government's suggestion - however tentative - that people who are overweight or won't quit smoking shouldn't get treated by Britain's state-run National Health Service is outrageous.

These people have paid their taxes - smokers have probably paid more than most - for what we're told is a state 'insurance' system. What commercial health insurer would be allowed to take your money and then refuse to pay out on the grounds that your lifestyle was politically incorrect?

Health ministers say they're simply trying to encourage people to live more healthily. And indeed, plenty of commercial insurers are doing just that - reports this week reveal that they are willing to give discounts of 75 percent to people who use the gym regularly, and provide supermarket points to clients who purchase lots of fruit and vegetables.

That's fine. The difference is that people have no choice but to contribute their tax 'premium' to the NHS. If ministers were saying that fat smokers wouldn't get NHS treatment but they'd get their taxes back, then they might have the basis for a deal.

I saw a man yesterday taking gates.

I didn't say anything in case he took offence.

My true love sent to me: ten lords a-leaping. This probably refers to the Ten Commandments, but lords today aren't exactly leaping to do anything, particularly to reform the House of Lords.

The subject has been talked about for decades. Everyone has agreed that reform is needed, but nobody has ever been able to decide exactly what. The trouble is that the House of Lords has actually worked quite well. It has checked the House of Commons, but not been able to override it. The hereditary peers might have been overwhelmingly old, white, posh, bumbling prats, but in fact the system brought in lots of people you never see among the serried ranks of lawyers and political careerists in the Commons - more young people, more women (until recently), more people of all classes (Lord Nelson was a policeman, I recall), more communists, more libertarians...

Tony Blair took a major step in abolishing the heredities - or most of them: these peers are pretty nifty politicians, having had the gene in their families since Tudor times. But that leaves us with a House of Lords that is appointed. This can be good - non-politicians like the medical pioneer Lord Winston bring enormous depth to the House's discussions. And even ex-politicians can bring a lot of experience. But a House full of the Prime Minister's chums is not a delectable prospect.

Nor is an elected House - it will just fill up with the same political lawyers we have in the Commons. If we're going for elections, it needs to be a completely different system, with different constituencies, and radically different rules. Personally, I'd prefer the first 500 people out of the phone book. Or almost anyone, provided they didn't want to do the job.