Adam Smith Institute

On Monday evening I was lucky enough to hear Michael Bloomberg, Mayor of New York, address a meeting organized by the City of London Corporation. His speech was primarily focused on the financial crisis [obviously] and its impact on both New York and London, discussing how these cities could recover.

A key point he made was that, “free trade is most important” to aid the recovery and that the actions during the Depression are in no way a provision of guidance for the future. Indeed, he clearly intimated that there was little if anything, in terms of policy, that could be learned from that period. What we could learn was that isolationism and protectionism are not intelligent courses to follow. Protecting jobs is a waste of time and money, as there is always someone who can produce things cheaper than you are currently.

Unfortunately for world trade the above warning may not be heeded by the next resident of 1600 Pennsylvania Avenue. If the Democrats are elected in the US (in conjunction with control of both houses) then this crisis could turn into a series of crises. Reading Obama's issue pages concerned with the economy, it is fairly obvious that the competition America faces from around the world will only be fought via subsidies and renegotiated deals that imbalance trade. In the long run this will be detrimental to not only Americans (raising tax bills) but also the rest of the globe. We could see a prolonging of the current crisis in the confidence of capitalism. But to many this will be irrelevant. They will be wrapped in the cloak of moral smugness, protecting them from the harsh reality of the unintended consequences of electing the wrong person to the White House.

Obama's media and internet savvy presidential campaign seems to have invented a powerful new tactic for the remaining weeks of the race to the White House. So far his success in this presidential campaign has rested mainly on his huge army of supporters, managed with the most advanced digital network expertise.

The list of his supporters, running into the millions, enabled him to collect huge amounts of campaign dollars and to mobilize a national volunteer network as well. However, he seems to be now mobilizing this army of supporters in order to bully adversary media outlets with his website: The Action Wire.

The technique increasingly used is known as Denial of Service Attacks, DSA, forbidden in the UK but not in the US. The effect is that normal customers are prevented from using a particular service such as media properly. And it works like this: media messages are monitored 24/7 and if anything is regarded as wrong or simply not welcome, the Obama campaign uses its awesome army of supporters, many of them left wing radicals, to hit back on the responsible media outlet. Hundreds or thousands of them will keep flooding radio and television stations with e-mails or phone calls as soon as opponents are on air or anti-Obama ads are being published. According to the Weekly Standard:

It did so as recently as Monday night, when it orchestrated a massive stream of complaints on the phone lines of Tribune Co-owned WGN-AM in Chicago when the radio station hosted author David Freddoso, who has written a controversial book about the Illinois Democrat.

So much for Obama's claims to leave behind embattled partisanship and engage in a bipartisan style of political debate.

Apparently John McCain has secret plans to kill the United Nations. According to an article in The Independent, McCain plans to set up a 'League of Democracies' to compete with the UN. Johann Hari argues against such a plan on the basis that this will simply serve as a cover for US power. On this point he his probably right (although in his defence of the UN, he is quite wrong). Therefore, instead of a US initiative, the UK should push for an increased role for the Commonwealth of Nations; an institution uniquely well-suited to play a more prominent role in promoting international peace and prosperity.

The model that should be taken is the one that the nascent institutions of Europe followed: free trade and an arena for political dialogue between states. All countries are of course on an equal footing, with countries outside being able to join. After all, Mozambique was admitted despite being a former Portuguese (rather than British) colony. It has even been rumoured that Japan wants to sign up.

As a free trade area, Europe has become a fortress, defined and rightly condemned by the tariffs imposed to keep out cheaper goods in order to prop up the uncompetitive European industries. A Commonwealth free trade area will allow the British to bypass this negative aspect of European integration; allowing cheaper goods into the UK than can be produced within Europe, at the same time as opening up access to the growing consumers in the developing countries of the Commonwealth.

Rather than a US led 'League of Democracies', the Commonwealth could serve to strengthen the ties that bind. However, currently this country is becoming increasingly trapped into an ever-closer political union in Europe. As such, it would take a bold government to push for a competing role for the Commonwealth. And we may have to wait a while for that.
 

In a recent article in the Square Mile Magazine, London Mayor Boris Johnson chose to endorse Barack Obama, citing the ritualistic epithet, “ it will be the most fantastic boost, I think, for black people everywhere around the world...”. It is a natural reaction for anyone swept up in the deification of Obama that they must reiterate this mantra.

Mr Johnson isn’t the only conservative to be immersed in Obama’s wonder; 1 in 3 of the current crop of conservative MPs support him as well. What makes people leave their principled heads in the cupboard when it comes to November’s election?

What Obama brings with one hand will probably be undermined by the other hand and the rest disposed of  by the Democratically controlled Capitol Hill come November should he win. The implied febrile boost to black people will become greatly subdued under many of his economic policies, which look set not to just damage America’s position but almost all of her trading partners as well.

The boost will be fleeting. The grinding poverty associated with barriers to trade will be enduring. A change we can’t believe in and nor should those with conservative principles.

The time must have come for the United States to lift its trade embargo on Cuba. Post-Fidel, positive changes have been infinitesimal, although there are signs that Raul could be moving in the right direction. However, any optimism needs to be put into context, and even if things are at present getting slightly better for the people, they could quite easily get worse at the whim of one man.

That said, the 46-year trade embargo has conclusively failed to effect positive change in Cuba and the US should consider other mechanisms if they wish to make life better for the people of Cuba. The US has conveniently played into the Communist regime’s image of imperialism. As has been shown in the case of Eastern Europe, access to markets can be a big carrot with which to tempt future leaders within the country that there is another way.

When I stayed in Havana for a few months, I was able to see the effect that Communism has had upon the people there. As a city visited by many tourists, the people of Havana know exactly what they are missing out on. For the young, who were not yet jaded by the Communist system, there was a real thirst for the profits of capitalism. Never have I visited a place in which brands were so highly sought after. It appears that in an attempt to shelter its people from global fashion, the thirst for the best has been made all the stronger.

Whenever I visited the young Cubans that I made friends with, they would play me American rap music. The sentiments in the lyrics that they empathized with was the struggle that many of these musical artists had to go through before they got the financial security that they now have and all the material benefits for friends and family that accrues from such a lifestyle.

It is time the American dream was exported.

Along with China, the economic rise of India is at present much debated in the media. Progress is presumed inevitable, but in spite of all the recent positive steps politicians in India have taken in liberalization, there are still critical choices to be taken that will impact the speed and extent of India’s development.

Having recently finished reading the excellent book on the struggles for Indian independence, Freedom at Midnight, I was set to thinking about the historical antecedents of India’s relatively recent liberalization. Throughout the book, there is an undercurrent of a battle of ideas between two members of the Congress Party: Sardar Vallabhbhai Patel and Jawaharlal Nehru.

It was Jawaharlal Nehru, who of course became the first prime minister of an independent India in 1947. He was also obsessed by the Soviet Union, following socialist policies, thus retarding the latent potential for economic and social progress. In contrast to the policies of Nehru, Patel endorsed strong property rights and capitalist led development. Upon Patel’s death, Nehru was unobstructed within the Congress Party to further his socialist ideals, much to the detriment of the people of India.

In The Power of Productivity (by William W. Lewis – founder of the McKinsey Global Institute), from detailed statistics, Lewis extrapolates the principal problems for current growth in India: restrictions on big business, limitations on foreign direct investment, a confusion over property rights, inefficient national industries and a government that interferes too much in businesses. Recently, the Adam Smith Institute’s Senior Fellow, Deepak Lal, has written an excellent piece for the Business Standard calling on India to follow the Anglo-American model of capitalism rather than the corporatist “stakeholder” model pioneered by Germany in late 19th century.

These are the modern equivalents to the ideas that led Patel to oppose Nehru. Let’s hope these latest expressions of freedom win the day.

One of the most interesting sites to come out of Africa recently is African Liberty  which blows open the traditional Western metropolitan elite consensus about how to help people in the continent.

It's refreshing stuff. My eye was drawn to the piece about the 'ambitious UN centrist plan' to get half the world's children into school (free schools, of course, paid for by governments) by 2015. Part of this is Ghana's programme to feed all schoolchildren at taxpayers' expense – a ploy to increase the enrolment figures. That, say the authors, means higher taxes on parents who would gladly ensure their children are properly fed, with less money then available to fix the problems of dilapidated classrooms, out-of-date textbooks and poorly paid teachers.

And the delightfully-named Rejoice Ngwenya, writing from Harare, gives a sharp taste of what life has become like in Zimbabwe:

My day starts with a fire in the gazebo to warm a bucket of bathing water. Electricity is usually down and with a water system that collapsed six months ago, running water is a thing of the past. Zimbabwe National Water Authority has a repertoire of excuses why the precious liquid deserted my home. I have stopped asking. Water bills do come, but there are no penalties for ignoring them... Forget eggs and a cup of tea. They are not on my menu if the preceding day I had no access to at least six United States dollars. My breakfast is therefore limited to a bowl of corn meal porridge with peanut butter, and boiled sweet potatoes!

Then there are pieces arguing that the Aid industry has become – well, just that, a self-justifying industry – and that its critics, the people who believe in opening up markets rather than sending aid to entrenched governments – are in fact its best friends. Challenging stuff.

Last year The Independent produced an extremely shaky article on overpopulation. It ended with the dreaded words…

By the time you have finished reading this column, an estimated 100 babies have been born in the world.

Won’t anyone think of the children? Ah...wait a minute...

For an equally backward vision of the world read this recent interview with Paul Ehrlich (not to be confused with the Nobel Prize winning Immunologist). Remember it was he who said in an interview with Peter Collier in 1970 that:

Population will inevitably and completely outstrip whatever small increases in food supplies we make, ... The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.

Surely the question is: when will overpopulation loonies cut back their own number?

Recently, the excellent Walter Williams has written a straightforward defence of an increasing population entitled The Ultimate Resource:

The greatest threat to mankind's prosperity is government. A recent example is Zimbabwe's increasing misery. Like our country, Zimbabwe had a flourishing agriculture sector, so much so it was called the breadbasket of southern Africa. Today, its people are on the brink of starvation as a result of its government. It's the same story in many countries -- government interference with mankind's natural tendency to engage in wealth-producing activities. Blaming poverty on overpopulation not only lets governments off the hook; it encourages the enactment of harmful policies.

Thus, to protect the resource, lets premorse the cause. Not people, government.

It's often said that the only thing Belgium's two populations – the Dutch-speaking Flemings and the minority French-speaking Walloons – have in common is the monarchy and beer. It's certainly an odd place. The Flemings account for about 58% of the population compared to the Walloons' 32% (the rest are mostly German speakers). Brussels is officially bilingual, but in fact it is a mostly French-speaking enclave in the Dutch-speaking region. The place became independent in 1830, and got its monarchy in 1831: but might 2008 see it breaking apart?

It's entirely possible. Visitors to Belgium over the last few years have sensed an increasing mood in favour of separation, particularly among the Flemish majority. The federal elections of June 2007 did nothing to clear the air: negotiations between Flemish and Wallonian politicians proved difficult. It was a government in crisis, and the biggest opposition party, Vlaams Belang, predicted that it would all end in separation. And now, a year later, there seems little sign that the politicians are much further forward in terms of their ambition to form a national government. Last week, just before a plan for national reform was to be presented to the federal parliament, Prime Minister Yves Leterme resigned. He's a serial resigner, but even so, it all seems to indicate a federal government in a mess.

Yesterday, the opposition Vlaams Belang staged a press conference to renew their calls for Flemish independence. They may not get their wish right away. But right now it looks to be just a matter of time. Which is going to make Brussels an even stranger place than it is at the moment.
 

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.
 

The U.S. tourism industry is worried about the slowdown in overseas visitors after the 9/11 attack and the subsequent entry hassles caused by increased security measures. So in a brilliant move the Travel Promotion Act was created and is gaining support in Congress. The act is intended to “promote the US as a premier travel destination” and to educate travellers about the entry process, thus making it less of a bother to visit because they understand and are prepared for security procedures.

It’s an easy piece of legislation for most of Congress to support, as it will not use any American taxpayer monies to finance the campaign. And this is why it will also fail: because the act calls for private sector contributions and a user fee on foreign visitors. So imagine the campaign does its job. You are convinced that a holiday to the United States would be nice and that its not a pain to go through loads of security, but now it is more expensive because you are going to actually pay for the nice little brochures that convinced you. A bit backwards in my opinion to have the tourists pay a tourist tax to promote tourism. I guess economic incentives work differently abroad…

Governor Jon Huntsman Jr. of Utah is bringing radical change to his state next month. Currently state employees work eight hours a day, five days a week. Starting in August, they will work ten hours a day, four days a week. The idea is to help employees save on gas and to reduce the state’s energy bills. By closing hundreds of buildings for an extra day of the week, the state will save $3 million a year.

Unfortunately, when politicians try to solve problems they usually make them worse. But this idea shows a keen understanding of supply and demand. Tariffs, taxes, minimum wages, and price controls distort markets because they work against supply and demand. But a four-hour workweek will help 16,000 state employees.

Further, the money workers save will be spent in other sectors of the market and the $3m the state saves can be invested in infrastructure, schools, or given back as tax breaks. In March, Utah was named the best-managed state in America and last year it had the most economic growth and it continues to perform well even as the economy slows.

Creativity, intelligence, and an understanding of economics. Imagine the possibilities.

Several weeks ago, Bryan Caplan supported John McCain’s and Hillary Clinton’s advocacy of a gas-tax holiday not because it would work, but because politicians have to do something to appease public opinion. A tax holiday would be the most benign of a number of options.

[In the 1970s, during the last big energy crisis], doing something turned out to be a salad of populist nonsense: price controls, rationing, windfall profits taxes, arcane loopholes and lots of lawsuits.

He warned that although this would not solve anything, it may prevent politicians from doing far worse. Well, politicians are now talking far worse. This is twilight zone bad. Representative Maurice Hinchey, (D-NY) suggested yesterday that the American government take over national oil refineries. Why?

Then we can control how much gets out into the market.

Uh oh. If he thinks nationalization can solve the energy crisis, then someone needs to knock him on the head with a tack-hammer, teach him a little about pre-Thatcher Britain, France, Lyndon Johnson’s Great Society, the former USSR, and perhaps some introductory economics. Government, however, can help solve this problem — by repealing stifling regulations. Let the companies build new refineries. Let oil companies drill off-shore and in Alaska.

About that gas tax holiday… pass it quick before something worse happens!

We tend to take international statistics as being both fair and true: those nice international bureaucrats are not subject to the stresses and strains of our nasty, brutish domestic politics after all. So if the OECD says that we should do something about poverty, or the UN Human Rights Commission says we must be more careful, then that's taken almost as being a statement which cannot be argued with in any way. That the OECD at times defines poverty as relative and thus they might be talking about inequality, or the UNHRC might be talking about positive liberties rather than negative, both of which subjects are very much part of our domestic political debate, seems to pass many by.

Glenn Whitman has done a lot of work looking at one of these particular pronuciamentoes by such an international bureaucracy: the WHO's rankings of various health care systems. A brief overview here, the full paper here. These rankings are the ones that, for example, say that the US, for all the money it spends on health care, only ranks 37th in the world. France is rated best and our own dear NHS at 18th (that's from the 2000 version). The problem, as he explains it, is that the rankings are making a number of highly questionable value judgements rather than actually measuring anything so simple as the quality of the health care system at delivering treatment.

The most obvious bias is that 62.5% of their weighting concerns not quality of service but equality. In other words, the rankings are less concerned with the ability of a health system to make sick people better than they are with the political consideration of achieving equal access and implementing state-controlled funding systems.

The US does indeed have inequalites of access and of funding: but that's what this ranking method is measuring, not whether it makes sick people better or not.

It's not much of a surprise really, when an index which is designed to make egalitarian systems look good makes inegalitarian ones look bad, now is it?

But the really alarming thing is, our own dear NHS ticks all of the right boxes about equality of financing and of access. All and every one of them. So how come it's only 18th on the list? Is the actual service it provides really that appallingly bad by international standards? Sadly, I think we do have to say yes there.

Good news for Canadians: their Tax Freedom Day comes four days earlier this year

Bad news for Canadians: Tax Freedom Day is today, June 14, which means they've spent the last 165 days working for the state.