Adam Smith Institute

A few days ago I was sent an excellent paper from the Investment Bank Goldman Sachs, entitled The Expanding Middle: The Exploding World Middle Class and Falling Global Inequality. It argues that we are in the middle of an unprecedented explosion in the growth of the middle class, and that this trend is gaining pace. By 2030, it predicts that two billion new people will join the world middle class. An argument backed up by other studies (for example, click here and here).

All this comes under the rubric of globalization and has been encouraged by the nascent opening up of the BRIC (Brazil, Russia, India, and China) economies, through the acceptance of capitalism. As such, this is of course highly encouraging, and shows the extreme failure of the command economies that preceded (partial) liberalization.

Of course, as history attests, things may upset this prediction. If these countries revert to the nationalistic protectionism of the past, stark global inequalities could continue to feature. But as things stand, they are heading in the right direction. But let it not be forgotten: The road to poverty is paved with good intentions.

In response to the widespread increase in knife crime, the Devon and Cornwall police have instituted “Operation Goodnight”, a new curfew program that will allow anyone younger than 16 found on the street after 9 PM to be “removed.”  Children under 10 will be sent home after 8 PM.

Now, no one is saying that it’s a good idea for 9 year olds to be running around late at night without their parents, and the rise in knife crime is certainly troubling.  But is treating all kids who are socializing in the evening as criminals really the way to change a culture or to discourage them from behaving badly?  Do we really want to live in a society where 16-year-olds who walk home with friends or buy a soda after an 8PM movie are looking over their shoulders, worried they’ll be shooed home?

After all, in the summer it’s still light out at 9 PM, and realistically, many schoolchildren with time off will not be headed to bed for a few more hours.  But that is not even really the issue.  The question is, should the government be deciding what bed-time is, or should the onus be on parents?  A mentality that emphasizes the government over the family, and in which all youth are potential criminals will do little to help what is, at its root, a cultural problem.
 

I spent a lovely evening at the Waterstone's bookstore in Picadilly last night and enjoyed perusing Mr Jones' Rules for the Modern Man by Dylan Jones. As I read the table of contents, I noticed a chapter entitled "How to Fire Someone." Jones then outlined what he claimed was the complicated procedure of giving warnings--both written and verbal--and of notifying HR, recording bad behaviour, and keeping witnesses.

Little does he know how good he has it. According to a Times article:

Talking to one headmaster at a London school last week, he told me that his hands were tied. Getting rid of a poor teacher, he explained, was nigh on impossible. Even though parents had complained about one of his own members of his staff, he had done little because the process was long and arduous, created dischord in the school, and might not even work.

An anecdote from my own lovely education. My history teacher when I was 16 did nothing more than make us read our textbook. She never lectured, never taught--just told us to read. If someone spoke, she yelled. Our principal wanted to fire her, but was scared she would sue. After several years of poor performance, she assaulted a student. Finally the axe fell.

It should not be this hard! Are the students for the teacher or the teacher for the students? I love and respect the thousands upon thousands of truly excellent teachers. There is hardly a more dedicated and altruistic bunch. But making it difficult to fire protects teachers at the expense of children.

As things are, if children get stuck with the poor teacher, they just have to accept it.
 

The investment monks - every city should have some.

All this shouting about speculators is simply silly:

All humans with a pulse plan beyond today and are, therefore, speculators.

Another quotable quote, this time from the CEO of McDonald's:

If you can’t get your kids to eat vegetables, why is it my job?

A third one:

If you don't have clear and convincing evidence that doing something is better than doing nothing, do nothing.

That last rather explains some of the logic of the Irish vote on the Lisbon Treaty, no?

Something to occupy you intellectually over the summer: a book club on Capitalism and Freedom.

The current government seems to be treating the legislative programme as a lengthy form of press release.

There seem to have been a few design corners cut on the new Eurostar trains.

And finally, politicians don't build things.

John McCain has been cruising the Rust Belt, empathizing with those who are hardest hit by economic hard times: “America is hurting today,” he said. “Michigan is hurting today. The automotive industry is hurting. And we’ve got big problems, and we’ve got big challenges… [but] I have to tell you — and I know that it’s not popular — I do believe in the overall benefits of free trade.”

For many in the developed world, there is indeed reason to be pessimistic. The manufacturing jobs that are leaving are not likely to return. The credit crisis and high gas prices are making things more difficult for many. Perhaps this is why more Americans than ever believe their children will not be better off than they were.

The good news, however, is that the Europe, the UK and the United States will be more prosperous in the future than they ever have in the past—as long as they recognize the opportunities that the globalised world will bring. Even though many jobs are going abroad, resulting in an increased demand for oil and food, a more prosperous world will tremendously benefit the developed world.

Why? China, India, and Brazil have a combined population of more than two billion people. As they grow more prosperous, the size of the market will increase dramatically. This creates a remarkable and unprecedented opportunity for entrepreneurs in Europe and America. Our workers will no longer anchor the assembly lines, but will market, create, and imagine new products for a better world. Although the transition may be difficult, a new and more prosperous day is on the horizon.
 

Even for proponents of a nanny state, this one is rather extreme.  BSI British Standards is outlining safety guidelines that should be followed by all owners of those age-old menaces to society: trees.  That’s right; to protect against falling limbs (which kill roughly 6 people per year), BSI Britain Standards is writing new guidelines that will suggest yearly inspections, biannual professional tests, and more extensive examinations every 5 years for all trees.

In the Economist article on the matter, Rick Haythornthwaite, chairman of the Risk and Regulation Advisory Council, attributes this move toward intense regulation to two trends:

The first is the tendency for small risks to become magnified in the public mind and provoke disproportionate responses. The second is the growing involvement of special-interest groups in campaigning for tougher regulation.

For most of us, trees are beautiful additions to any landscape and have a positive impact on the environment, to boot; they are not menaces from which we need to be protected at all costs.  If keeping trees becomes expensive or annoying, people will simply cut them down; in fact, trees in public places have already been cut down because  of liability fears.  Regulation that costs time, money, and results in trees being cut down helps no one- except, perhaps, the tree trimming companies that support these guidelines.

In the end, though, the Economist gets it right; the danger is not just the loss of trees, or the additional annoyance for everyone who owns them.

The real danger highlighted by the proposed guidelines is that of regulation gone wild. 

A recent article from my hometown newspaper pointed out an interesting quirk about Minnesota’s (and most government) wage scales. In Minnesota, the legislature votes on the governor’s salary. There is a cap on the governor’s salary of $120,303 and also a law that state executive-branch employees cannot earn more than the governor.  These laws have had the effect of keeping most state employee salaries from increasing very little in the last ten years and the governor’s from increasing at all.

One of the concerns presented in the article is that the public sector may lose out on skilled employees to the private sector because of the cap on wages. With higher gains to be made in the private sector, the more innovative, competent, and motivated employees will leave public service jobs. That is why salary caps, and minimum wages to the disbelief of many, are bad news for labour markets. They distort the market’s natural tendencies to arrive at wages that benefits society the most. Government jobs, especially those towards the top of the scale, don’t function in the usual market terms because wages are left up to legislation. If this was a private sector problem the caps would be removed and things would be sorted out through the market.

While government salaries should be decided upon by the legislators, they should coincide with comparative market salaries and not include useless stipulations. At the very least, they should keep with inflation. Finally, the salaries should be transparent to ensure accountability and allow public scrutiny.

What more could be said?

"For every action, there is an equal and opposite government program."

Anonymous

Parsing that Paulson statement on Freddie and Fannie. If you prefer, the art of explaining what someone means rather than what they say.

One would have to have a heart of stone not to laugh. The long standing French suppression of minority languages is now found to be against EU law.

The government holds a consultation exercise. People register to tell them what they really think. Then this happens.

Globalisation affects a great deal more than just trade: mating patterns for example.

Explaining just how and why John Prescott hit that protestor.

Most people are currently thinking that the best investment advice is "run away! flee!". Here's something more useful and less hysterical.

And finally, introducing the Pirate Encyclopedia.

Greg Mankiw has a piece in the New York Times about what policies politicians should pursue if they wished to chase that all important economists' vote. Well, perhaps not all that important in terms of the number of votes to be gained, but still interesting in outlining what he sees as uniting the profession (to a large extent at least).

Number one is free trade (or we can be picky and say "freer" trade) which is, at least around here, entirely uncontroversial. Similarly the legalisation of drugs and opposition to farm subsidies. They're really aspects of the same point, after all, as is leaving oil companies and speculators alone. While markets aren't perfect, they are usually better than what politicians try to put in their place.

Inviting more skilled immigrants is a little more controversial: it's a planning of the jobs market. Better perhaps to simply remove restrictions and allow that market to be free as we argue the others should be. Taxing the use of energy does indeed make sense if you've bought into the concerns over carbon emissions.

The one that might most surprise those outside the hallowed halls where economists tread is to raise the retirement age. When 65 was set as the age for the state pension (social security over there) that was about the average lifespan: it was indeed thus a reasonable form of social insurance, insurance against the idea that you would outlive your rational level of savings. Now that lifespans are well over a decade longer (and prospective lifespans for those who have already reached 65 much longer again) raising this age makes great sense: even if not to most politicians.

Unfortunately, there aren't enough economists to make up an important voting block so we're unlikely to see them pandered to in this manner: might I suggest though that given that economists are the experts on these matters, that politicians at least start to listen to them?

The last suggestion is a little different: that spending upon economic research should be increased. Yes, it's special interest group time again, when talking to politicians make sure to mention that your own group, your own interests, should have more of other peoples' money.

But then that just proves that economists are human, right?

Cristiano Ronaldo is under fire for claiming he is like a slave because Manchester United will not release the final year of his contract so he can play at Real Madrid. We should all mourn this blatant violation of human rights.

Poor Ronaldo. In 2004, Man U exploited a helpless and innocent teenager, and then tricked him into signing a new contract in 2006 for £56 million 2010. When he said, "United have stood by me and been there for me and I want to repay that,” it was probably against his will. Those monsters at Man U made him say it. In April 2007, he renegotiated his contract through 2012 for £120,000 per week and said, "I am very happy at the club and I want to win trophies and hopefully we will do that this season."

Those guys in Manchester United can manipulate anyone to say anything. It’s ludicrous to believe anyone could possibly be happy playing football for a living—especially for such little money. It won’t be long until the bosses at Man U realize their errors and write the greatest hymn of anguish and repentance since “Amazing Grace” and Ronaldo releases his album of freedom songs.

For someone named after the Great Ronald Reagan, Ronaldo should realize that this is actually called CAPITALISM, not slavery. Two people negotiate, agree on the terms of a contract, and sign it. Then both parties do what they agreed. In this case Man U agreed to pay Ronaldo a ridiculous amount of money and Ronaldo agreed to play football for 5 years. A little different than being transported from Africa to South Carolina in the barracks of a terrible ship, being sold from one owner to the other, and performing forced labour your whole life…

Housing crisis...what housing crisis?

Not the most stunning discovery: yes, incentives matter, even in maternity wards. What would of course be stunning is if more people understood this point.

This argument applies to just about any bright plan cooked up over a wet weekend by just about any politician.

Good to see that a point made here often enough is getting further airplay: to charge income tax to people who will then get tax credits is simply insane.

Another point various of us have made recently: what the world needs is more speculators.

It's not so much what if politicians pandered to economists: could we just start by getting them to listen to them?

This might sound a little odd, and it's not certain that it is actually legal. But it does seem to work in cleaning up a housing estate.

And finally, much fun to be had with Photoshop.

No, really, the way to improve the European economy is to allow (or perhaps insist upon is better?) more firms to go bankrupt. That's the highly amusing and true result of this paper over at Vox.eu.

In a nutshell the author divides growth in Europe into two parts. Pre-1995, when the European economies were essentially trying to catch up with the US (and to a lesser extent, the UK). In this period the rigidities, the restraints, the protections for incumbent firms, mattered little as catch up growth is easier than when one is at the technological production frontier.

However, once the catch up is complete, then those restrictions become progressively more expensive in their constraints upon future growth. Thus the period after 1995, when it was indeed complete. The effects of this can be seen in both total factor productivity and in labour productivity in services.

The real European problem is in sluggish labour productivity growth - over the same period it averaged 1.4% per year compared with 2.1% in the United States, so that Europe has been falling behind rather than catching up during the last decade, in contrast with the whole of the post-war period until the mid-1990s.

.... 

Again, the variation in the contribution from labour productivity growth in the service sector is considerable, from 1.6% per year in United Kingdom to 0.1% in Italy during 1995 to 2004.

What we need is a great deal of the tearing down of those barriers that prevent Schumpeter's creative destruction from sweeping through the European economies:

More progress would be made if the dark side of productivity improvement implied by creative destruction – exit of established producers and re-deployment of labour – were accepted and facilitated. If only ministers could bring themselves to think (better still occasionally to say) “these job losses are good news”.