Adam Smith Institute

California is at it again. This time it is trying to ban trans fat from all restaurants in the state. Forget that these restaurants are privately owned. Forget that costumers buy and eat food of their own free will and volition. Forget that doing so carries no externalities that would endanger the health of those who do not eat trans fats. The nanny is saying no.

As Assemblyman Chuck DeVore said, "For gosh sakes, this is taking government power to an absurd extreme."

For gosh sakes, is true. Many restaurants now voluntarily use trans fat free substitutes because consumers are increasingly aware of products that cause obesity and heart disease. But some restaurants cannot use substitutes without compromising the quality of their food. According to the California Restaurant Association:

Ethnic-food restaurants could be hit particularly hard by a ban on trans fats, because some of their entrees are difficult to prepare with substitutes... The particular oil used in a food affects product taste, appearance, texture, performance and stability.

Let restaurants and consumers decide. Children have mothers, and adults generally have enough brain capacity to decide what kind of food to eat.

The legislature approved the bill, which is now awaiting the Governator's approval or veto. For freedom's sake, let us hope Arnold Schwarzenegger terminates it.
 

When I was 11, I spent most of my free time in a fantasy world, pretending to be shipwrecked and building a fort in the woods behind my house.  When Steve Sayer was 11, he was starting a business that has given the now 14-year-old over £4,500 in the last 3 years.  The schoolboy sweeps up and sells manure from his father’s horse farm.

Now, you might think that a local government would want to support this kind of behaviour, or at least would not actively stand in its way…  but you would be wrong.  In 2006, Steve discovered what so many entrepreneurs do; that advertising would help his business.  He bought a small £100 sign and leaned it between two wheels on his father’s property.   A year later, the local council decided this sign was “illegally placed,” and the boy had to remove it.  He spent the next 10 months collecting signatures, applying for approval, and appealing the rejection of his application before finally being allowed to put the sign back up.

If it’s this hard for a 14-year-old kid to sell manure, how much harder must it be for adults to start or advertise for a small business? I understand not wanting giant billboards to appear in the middle of a farmland, but really, should placing a knee-high sign leaning against some wheels on private property require a year of time, effort, and lost revenue?  I’m sure the local commission had the best of intentions.  But when we make it difficult for people to use their own ingenuity and stifle this kind of enterprise, we help no one.
 

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.

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”.

The New York Times has reported that vacation time is good for your health. While this is not a very shocking or interesting revelation, it is certainly a useful piece of information that businesses and individuals could consider when creating employment contracts. More information can only help people make good decisions and properly weigh trade-offs. The problem, however, is that the researchers behind the study do not stop simply at spreading their information; they have fallen into the all-too familiar pattern of identifying something that has one good effect, and concluding that the appropriate action is to legislatively mandate that thing for everyone, regardless of the trade-offs. Most of Europe has already fallen into this trap, but America so far has held out.

Long vacations are a delightful thing, and may well be good for the health, but those aren’t the only concerns that either individuals or businesses must consider. After all, working in an office at all is probably less healthy than a life spent relaxing and exercising on the beach. The authors acknowledge that mandating increased vacation days would increase labour costs, but suggest that this would be counter-balanced by increased productivity and better employee retention. If this is really true, concerned organizations should be able to focus on simply spreading that information. This is precisely the sort of question that a market is suited to determine, for surely if these benefits really do make up for the increased costs, companies will begin offering longer vacation times. If businesses remain reluctant and people are unwilling to voluntarily make the trade-off between money and vacation time, perhaps European governments, too, should pay attention. 

People weigh the relative benefits of different packages of pay and hours and vacation days, and make their own decisions; for some, the extra pay may be well worth giving up the mild benefits of extra vacation time. If anything, perhaps proponents of longer vacations should be encouraging employers to offer more negotiable contracts, or encourage individuals to negotiate longer vacations in exchange for lower salaries, in line with how they value such things. Allowing a bunch of legislators to make that decision for Americans would be a step in the wrong direction.

John Baden runs an influential environmental-economic think-tank in Montana. In his syndicated column for the US papers this week he strays off that brief onto what is for him a more personal issue. The so-called 'Title IX' law passed in 1972 bans discrimination on the basis of sex in colleges that receive federal funds. It was designed to end the discrimination against women that was rife in employment and selection policies at the time. But it can also be taken to demand equal treatment – and numbers– in college sports.

Baden welcomes the six-fold increase in female college sports participation since the legislation. But he cites three problems. First, a number of men's teams have simply been disbanded in order that colleges can claim they are achieving parity. Second, there has been a huge rise in litigation over the work conditions and salaries of female coaches and administrators. These are hardly happy outcomes.

But Baden is perhaps most concerned with the fact that, because more women are encouraged to participate at more demanding levels so that colleges hit their quotas, serious injuries among female athletes have increased. Baden's own daughter needed knee reconstruction as a result of this – and such injuries, he says, can be a lifetime burden.

Baden supports equal sports opportunities for women. But he acknowledges that it comes at a price we would be irresponsible to ignore.

I feel a regulation coming on. The Times last week carried a headline on the China earthquake: "Human cost of cut-price concrete is revealed in the rubble." I didn't have to read the story: you know what it means. Shoddy materials contributed to the death toll as substandard buildings collapsed.

Normally following such disasters, the Chinese government rounds up 'cowboy builders' and various 'racketeering' architects, town planning officials and the like. They're shot, and the families are sent a bill for the bullet. (Though the cost of sending the bill and collecting the cash must far exceed the few yuan-worth of lead.) It's designed to encourage the others – though the others are probably just as innocent.

People use cheap building materials because – well, they're cheap. It's a waste of resources – time, money, energy, materials – to use stuff that's costlier than you need. Save money and you can use the change on something that you really want a lot more. Sure, at the back of your mind, if you live in an earthquake zone, is the fact that every few hundred years your particular town might get hit by a tremor and some people will be killed. But that's a risk you have to calculate. Save money now and that saving can be put to good use and grow your economy, making you rich enough to deal rather better with natural disasters.

I make the same calculation every time I fly or drive somewhere. These activities are risky: there is a finite chance I'll be killed in a crash. And make no mistake, being killed is a pretty big deal as far as I'm concerned. I still do it, because the potential benefits to me far outweigh that small risk.

This time, China might spare us the shootings. They're beginning to realise that it's better to have the sympathy of the world than its disgust. But The Times headline makes me dread that they will introduce all sorts of new building standards. Why's that bad? Because it will make houses, apartments, shops and offices that much less affordable. Less will be built, and people will continue to live in insanitary squalor (at the risk to their health and indeed lives, of course) and economic growth will be that much slower. The rational calculations of individuals will be outlawed by the political necessity of the authorities.
 

Earlier this week I was at a two-day conference in sunny Dubrovnik, on the coast of Croatia – a country that used to be behind the Iron Curtain but which is now a candidate for European Union membership.

Hosted by the Stockholm Network, an umbrella group of European think-tanks, the conference went into the art and science of running a think-tank and making a difference to events. It was certainly refreshing to see so many talented people committed to the free-market cause and committed to changing reality in so many countries.

We were staying, appropriately, at the Libertas hotel. Liberty is a key principle here, a country which has come through the bitter war of the early 1990s when the beautiful old walled city of Dubrovnik, the Pearl of the Adriatic and a magnet for tourists, was shelled and laid waste. But now it's flourishing again, restored (apart from a few poignant bullet-holes) in just a few years, largely thanks to Unesco and its World Heritage Site programme. Perhaps Unesco has its uses.

The city had been destroyed before, in the earthquake of 1667. Among other things, this catastrophe brought on a new regulation, banning balconies on the grounds that many people had been killed by falling masonry during the tremor. My friend and fellow delegate Jose Pinera, the man who privatized Chile's pension system (and who is doing his best to privatize everyone else's) was scornful. Typical, he said: you get an earthquake only every 400 years or so, but still the bureaucrats rob us of the pleasure of sitting in our balconies, just in case.

Sounds like absurd Health and Safety rules are nothing new...

Dani Rodrik equates the three things, guns, drugs and financial markets, and asks why we don't view them in the same way when it comes to their regulation? He does so to point out that, correctly, all three have benefits for their users but can have spill over effects or externalities, upon others. Further, that the fact that all advanced societies strictly regulate the availability of drugs, most do firearms, means that we should be regulating financial markets much more closely and restrictively:

True prudence requires that regulators avail themselves of a broader set of policy instruments, including quantitative ceilings, transaction taxes, restrictions on securitization, prohibitions, or other direct inhibitions on financial transactions...

Well, yes, except that argument rather relies on the thought that our current regulation of drugs and guns is indeed correct for finance to require those greater restrictions. And of course around here we don't think that to be true. That gun crime has risen in the UK since the banning of handguns and the tightening of the restrictions upon private ownership of other types is one thought. But that we around here think that it is the very illegality, the regulation, of drugs that causes most of the problems surrounding them might give us pause as well.

Overdoses, disease from shared needles like hepatitis C and AIDS, adulteration, the crime surrounding the supply, the crime of addicts stealing to fund their habit, all of these are direct results of the regulations themselves and as we often (and forcefully) argue those results are worse than simply allowing people to exercise their natural liberty to dose themselves as they see fit.

Ricardo Hausman weighs in Rodrik's comment section too:

I am sure Dani would agree that Silicon Valley venture capital, by allowing start-ups to be created and grow all the way to an IPO, is an incredibly productive financial innovation that no policymaker could have designed ex ante. One could say also many positive things about leasing and factoring and the list goes on and on. Financial innovation is part of the overall process of technological innovation that has been valuable throughout human history.

Quite: given that we don't have and never will have omniscient (to say nothing of unbiased or unbribable) regulators, providing them with the power to stifle innovation is simply going to make our children poorer than they need to be.

It might also be worth pointing out that people have at various times tried ceilings, transaction taxes, restrictions upon securitisation and other direct inhibitions: the US did in the 1960s and 70s for example upon certain bonds. They don't work all that well though, as with the similar regulations upon drugs: where else do you think the Eurodollar markets came from and why are they based in London, not New York?

Is it me, or is someone determined to make simple stuff harder? Not long ago, when you applied to get your kid into a particular state school, you weren't always successful, but at least you got the impression that some human being had considered the application. Recently our youngest was applying for schools, but his application to the school that we thought best got no further because another school (which we considered unsuitable) "in the collegiate system"had accepted him.

Eh? The original idea of "collegiate schools" was that local state schools would collaborate so that the best ones helped the worst ones. Now it has become a way of squeezing out the last vestige of competition in the state system. Get an acceptance from any school in the network – even the worst – and the authorities can tick the box – satisfied parents. Except we aren't.

But it's not just the state sector. I've been tearing my hear out trying to open a bank account for my elder boy. The other day we went in and when they ran a credit check it was a case of 'Computer Says No'. Since he's never had credit in his life he can hardly be a bad risk, and I suspect the glitch is just that the Royal Mail changed our postcode recently and 'Computer' thinks that his address doesn't exist. But no human being seems to be able to sort it out.

State or non-state, the ultimate source of such absurdities is the same. Centralization and regulation. For a few happy years, state schools competed for students, because their income depended on it. But now, due to some central edict about "collegiate" collaboration, they've found a way to divide the pack of applicants cosily between them. And while I'd have thought that seven or eight banks was a fair measure of competition in a small place like the UK, the fact is that they now pursue the observance of government regulations more than the demands of their customers. Make a mistake and you get splatted by the reguator. It's much easier to say No. Or at least, get the computer to do it for you.

78. "Government investment is vital to protect industry and jobs."

It's a matter of historical record that government investment is reasonably fatal to industry and jobs. What government does is to take taxation from those industries which are successful, and redistribute some to those which are not. In doing so, it takes away resources which would otherwise be available for investment in expansion or the purchase of goods and services.

It puts these resources into industries for whose goods and services there is not enough private demand. Government tends to choose industries for political, not economic reasons, and to make bad choices. "Picking winners" means picking losers. For all of the public jobs created by public investment, rather more jobs will quietly disappear from the private sector in consequence.

Government investment in industry involves spending other people's money on somebody else. Since it is not their own money, the politicians and bureaucrats do not have the same incentive to make good and wise decisions as do those whole livelihood or reward depends on success. They do not have the same drive to ensure that the goods produced will be of the quality and price to hold their own in the marketplace.

Furthermore, government investment is usually called for when private investment has failed to materialize in support of certain industries. There is a very good reason why it did not appear; it is because private investors had low expectation of any returns to be made by doing so. When government does invest, the industries concerned become dependent on continual state handouts and unable to attract private funds in its place. The graveyard of Britain's industrial history is littered with the corpses of failed state investments, whether in steel, ships or motorcycles. Government investment in an industry is the kiss of death.

Or, at least, how to try and replace the profit motive. One of the things that can be very hard to get across is the idea that making a profit isn't simply or solely a manifestation of human greed: it's also information. Making a loss is the market's way of telling you that you're doing something stupid.

But what if you don't actually want to make a profit? What if, say, you're a charity? How do you get that same information, about whether you're doing to right thing or not? Jamie Oliver's charity, the restaurant project Fifteen, is working hard on this problem:

But perhaps the most surprising aspect of this warts-and-all assessment is that it was commissioned by Jamie Oliver and Fifteen itself, who wanted to know exactly where they had gone wrong and how to improve. Few charities assess their work in this systematic and critical way. Fifteen will publish the report, Life in the Present Tense, next month in the hope that it emboldens other charities to do the same.

“Second, there is a a straight business case. If you don’t understand what you are doing, if you don’t get someone from outside the culture to verify it, how do you know how to improve things?” he said.

I might also note that the Public Accounts Committee and the National Audit Office investigate the actions of government in very much the same manner. One question I have though: has either body ever looked at any branch or activity of said government and reported "Yes, well done, top marks"?

The UK's new 'Department of Business and Regulatory Reform' isn't exactly living up to its name. New figures from the British Chambers of Commerce show that the cost of regulation on Britain's businesses has risen more than £10 billion (yes, billion) from last year, to a staggering £65.99 billion.

The Chambers have produced another of their annual 'Burdens Barometer' wallcharts, showing where all the costs mount up. There's data production, groundworks regulation, working time regulations, student loan rules, part-time worker initiatives and flexible working shemes, the stakeholder and occupational pensions rules, disability law, buildings regulations, use of animal by-products, water use and environmental regulation, new financial accounting, corporate responsibility requirements, working at height codes, and innumerable others.

It's not really a burdens barometer, it's a burdens escalator, because the Chambers' bar-chart shows a steadily increasing burden, up from a 'mere' £10 billion in 2001 to more than six times that today.

Often, there is only one way to 'reform' things. That is to pick your target and focus on achieving that. With the whole emerging world eager to compete with us, we need to make sure that we don't regulate (and add cost to our business base) unless we really need to. Sure, we should lead the world in having high production standards. But you can do that without smothering yourself in red tape. Department of Business and Regulatory Reform's target, for the second half of its name and mission at least, should be to focus on the damage that over-regulation does and commit to cut the cost of regulation on business. It's about time the barometer started to fall.

It's sad to see a once proud institution enter a death spiral but we do have to consider quite seriously that the LSE might be doing so. The former home of luminaries such as Karl Popper and Freddie Hayek (and educator of some lesser talents) now has as one of its adornments a certain Professor Julian Le Grand who has come up with this idea:

A ban on the sale of cigarettes to anyone who does not pay for a government smoking permit has been proposed by Health England, a ministerial advisory board.

"Breaking the new year's resolution not to smoke would be costly in terms of both money and time ... [This] would probably have a greater impact on poor smokers than on rich ones, hence contributing to a reduction in health inequalities."

The money raised would go to the NHS.

But the ultimate fatuity is that of course such a scheme will only cover the UK. We will still all be free to purchase anywhere else in the EU without such a licence. And still free, as at present, to bring such back into the UK, for the free movement of legally purchased goods is a cornerstone of the entire enterprise.

Meaning, of course, that the numbers who do this will rise, leading to less revenue from the taxation of tobacco sales to pay for the NHS.

None of these effects are, from either my or the Professor's point of view, desirable. Something seems to have changed at the LSE: back in my day we were urged to think before making proposals.