The Hayek vs Keynes debate on Radio 4

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The Hayek vs Keynes debate held at the LSE will be broadcast tonight (Wednesday 3rd of August) on BBC Radio 4. You can listen in online from around the world here. It was a terrific debate, and you won't be disappointed by the intellectual firepower that the Hayekians brought to bear.

Over to the BBC for details:

What caused the financial mess we're in? And how do we get out of it? Two of the great economic thinkers of the 20th century had sharply contrasting views: John Maynard Keynes believed that government spending could create employment and longer term growth. His contemporary and rival Friedrich Hayek believed that investments have to be based on real savings rather than increased public spending or artificially low interest rates. Keynes's biographer, Professor Lord Skidelsky, will take on modern day followers of Hayek in a debate at the London School of Economics. Paul Mason, economics editor of Newsnight, is in the chair.

Speakers:
Lord Robert Skidelsky, Emeritus Professor of Political Economy at the University of Warwick and author of a three-volume biography of the economist John Maynard Keynes.

George Selgin, Professor of Economics at The Terry College of Business, University of Georgia. Prof Selgin is one of the founders of the Modern Free Banking School, which draws its inspiration from the writings of Hayek.

Duncan Weldon, a former Bank of England economist, works as an economics adviser to an international trade union federation. He has a long standing interest in and admiration for Keynes but also a respect for Hayek. He blogs at Duncan's Economic Blog.

Jamie Whyte, Head of Research and Publications at Oliver Wyman, a strategy consulting firm specialising in the financial services industry. In February 2011 he presented an edition of Radio 4's Analysis series in which he looked at the revival of interest in the economic theories of Hayek.

George Selgin and Lord Skidelsky have written outlines of their arguments for the BBC here. Be sure to read Tom's discussion of Hayek's beliefs about spending and monetary policy here. And, if this has whetted your appetite for more Hayekian economics, Eamonn's excellent Primer on Austrian Economics is available for purchase or free download here.

Rupert's real threat

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True liberals and government minimalists must now battle those clamouring for more regulation of the UK’s press. Rupert Murdoch’s woes have unleashed a frenzy of schadenfreude amidst suddenly emboldened politicians and the broader Westminster chattering classes, all demanding stronger oversight of the news business.

As with so many other incidents of lawbreaking, the cry goes out for yet more laws, even as those already in place had failed to eradicate evil. Just consider how already illegal acts like murder by terrorists spawned yet more laws that infringe on the innocents’ rights – like harassment of tourists taking photos of public buildings or artists setting up easels to paint street life.

As with any industry, tighter regulation would suit all participants. Politicians would be spared the inconvenience from those not playing by some unwritten rules. News organisations would see higher barriers to entry by competitors. Formal licensing of journalists would secure the jobs of incumbents.

Most importantly, though, tighter regulation would stifle the creativity and enthusiastic irreverence of the press. The price of this freedom will be occasional steps beyond the justifiable but still a price worth paying. After all, it was the press that exposed the MP’s expenses scandal and the News International shenanigans. It wasn’t the politicians, the regulators or the police.

The Murdoch frenzy has an increasing air of unreality about it. Cries that something must be done about the “press” and the “red tops” in particular sound so yesterday. There’s the misguided assumption that they are somehow powerful and must be either courted or controlled even as they’re slowly fading into history.

The real creativity and imagination in news gathering and distribution is rapidly shifting to the likes of Twitter, Facebook, YouTube, WikiLeaks and a seemingly endless stream of competitors and innovators. It wasn’t more regulation that spawned these, just the opposite. In responding to the News International incidents, the Westminster clique is like the generals preparing to fight the last war.

In that sense, the only difference that greater regulation of the “press” might make is to hasten their extinction. If pre-occupation with yesterday’s industry keeps the politicians from meddling in tomorrow’s, that’s a good thing. However. it would also whet their appetite and set the precedent for regulating the news business of the future. Libertarians, on guard!

Think piece: LulzSec and the open society

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The first subversive act I can remember carrying out was during the spring of my senior year in high school. At the time, I had signed up for intramural ultimate frisbee – I didn't take to interscholastic sports and never saw the point of spending my weekends being carted off to faraway destinations in a van, just to throw a ball at some people I'd never met before. Everything was going swell until one day, after arriving to practice bare-footed as usual, I was ordered to go back to my room to throw on some shoes.

I was stunned: mandating shoes for frisbee constituted a wanton and savage violation of both natural justice and the very raison d'être of the sport. When I quite rightly asked how such a rule had come about, I was told by the supervising faculty member that it was "policy" put into place by a personal edict from the school's athletic director, a highly unpleasant man whom for present purposes we shall call "Rupert". This only made matters worse: I'd crossed paths with Rupert before and did not care much for him, nor he for me. So, within earshot of forty people or so, I offered a pithy but nonetheless colourful one-liner about Rupert's abilities as a policymaker (which I shall not repeat, save to say that it included the word "worthless"). In exchange for my wise counsel, I was invited to spend a day working in the school's mail room. But gosh, was it fun – and totally worth it.

With that in mind, you might understand why I was disappointed when, a few weeks ago, the infamous hacker group known as Lulz Security disbanded. Claiming loose affiliation to the global Anonymous movement, LulzSec – in a series of very public and highly illegal operations – fiddled with the computers of major international companies and organizations including Sony, Petrobras, News Corp., and various government agencies, including the CIA. (They even hacked my brain: after visiting their website, I had the theme song to "the Love Boat" stuck in my head for over a week.)

But hacking into a computer and my brain is not, on its own, newsworthy: people do this sort of thing all the time without getting mentions in the Wall Street Journal and the FT. What makes these fellows special is that they aren't doing it for financial gain, or for fame and glory; they're doing it, above all, because it was amusing: "we've been disrupting and exposing corporations, governments, often the general population itself, and quite possibly everything in between, just because we could." But even this is insufficient to explain the popular fascination with this merry band of computer hackers – for awhile, the whole world knew what they were doing, and seemed utterly fascinated by it. So why did they get so much attention? [Continue reading]

Should we be free to choose suicide?

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Though known in his lifetime as a family man and hotel tycoon, Peter Smedley will likely be best remembered as the subject of Sir Terry Pratchett’s documentary, Choosing to Die. The film follows Smedley’s journey to the Dignitas assisted suicide clinic in Switzerland. It aired Monday on BBC2, and is available on BBC iPlayer. Since Monday, the BBC has received 898 letters of complaint.

With the Suicide Act of 1961, suicide ceased to be a crime in England. To “aid, abet, counsel or procure the suicide of another”, however, remains punishable by up to fourteen years’ imprisonment. Therein lies the reason why Smedley died in an industrial park in Zurich rather than at home in Guernsey. Because of laws against assisted suicide, Englishmen and women seeking the service must travel to clinics abroad, often at great expense and sooner than they would prefer, owing to the demands of travel. The point of the film is to advocate for the legalisation of assisted suicide in Britain, which would allow people to die at home.

I see two reasons for the 898 angry letters. First is assisted suicide per se. “Life is a gift,” Rt Rev Michael Nazir-Ali writes, “we are not competent to take it”. Second is the idea of a publicly funded broadcaster airing a film about assisted suicide.

The question of whether one should be able to have a nurse administer poison to him or her is a question of individual liberty. Is the individual capable of choosing to take his or her own life? Does this choice harm the rest of society or reduce the value of life? If so, does this matter to whether the choice should be allowed? Most at this institute would come down strongly on the side of individual choice, but there are obviously many Britons who would disagree.

Perhaps more complicated is the latter question, of whether it is appropriate for a public broadcaster to finance and air a film about an illegal and controversial practice. Let us leave aside libertarian objections to the existence of a public broadcaster. Given such a broadcaster, what should it air? Alistair Thompson, spokesman for the Care Not Killing Alliance, calls the programme “propaganda”. The BBC denies this, but Pratchett is a vocal advocate of legalising assisted suicide, and the film is hardly neutral on the subject. The other BBC response is that it always seeks to promote public discourse, which has certainly been achieved.

What is the mandate of a public broadcaster? Must it show all sides of every issue, or is prompting debate sufficient? Should it serve as vehicle for the expression of political views?

Giving up on political news

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I’ve been trying to cut out politics news from my reading this week. That might seem strange, given my line of work, but I think the news stories of the past couple of days have underlined how empty most political news really is. The news stories about the government's justice U-turn focus on what a political mess it is for David Cameron. Likewise, the NHS stories of the last few weeks have given more time to discussing Andrew Lansley and the electoral damage to the Prime Minister than discussing the reforms themselves.

Journalists and government press men have a habit of focusing on the political sides of a news story, rather than policy. This is understandable – most people care more that their team wins than how it does – but it’s not very useful if you care more about how people's lives are affected by events than being able to wave your party's flag. Economics blogger Eli Dourado made the point on his blog recently, arguing that the importance of politics is overrated:

“Taking a commercial or economic perspective on history can show you how much politics has been oversold. [The IEA's Stephen] Davies shows that, for instance, the invention of mass production, the shipping container, the birth control pill, and the Internet have been arguably more important over the last century than any presidential election.”

If economic innovation makes so much more of an impact on people’s lives than politics, who cares who wins the next election? As Eli argues further on in that post, politicians can rarely act on their preferences. Even if we had an economically literate liberal in charge instead of David Cameron, his or her freedom action would be tightly constrained by public opinion and Parliament. (This point is truer in the US than the UK, which has a less strict separation of powers, but still pertinent.) A constrained executive is necessary in a free society, but it implies that politics might not as important as the energy many people devote to it.

Instead of political news, I’m spending more time reading about technology (sites like Wired, New Scientist and H+), development economics (Paul Romer’s charter cities, debates about what the South Sudanese government should do first) and the history of culture and commerce (PDF). Most of the day's political news is so irrelevant that, so far, I haven't missed it at all. 

The paradox of paternalism

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Two stories from the UK point up some troubling choices. First, the government wants shops to stop selling 'inappropriate' clothes to pre-teens. It's worried about the 'sexualisation' of young girls. Second, there are calls for a 'proper watershed' on TV following some very sexy talent-show routines.

I believe in personal freedom, and think that people should be able to buy whatever clothes they like, for themselves or their family, and watch whatever TV they want at any time they choose. But while I believe that mature minds can handle freedom, I am not so sure that child minds can. Human beings have a protracted childhood in which we learn from adults how best to choose and to conduct ourselves. It is long and difficult process, and we don't always get it right.

So there is a case for some protections on children. We might decriminalise drugs (another story in the news), for example, but would we really want to allow children to buy drugs, or even for them to see drugs being traded? Again, I would like to see prostitution decriminalised, but would I like to see brothels next door to schools? No, not really. And as for TV – well, parents know how hard it is to keep a constant eye on what kids are watching, so a watershed is quite a popular idea.

That's paternalist, but children need a bit of paternalism. But paternalism is best delivered within families, and by self-control in the media, rather than from governments and regulators. If politicians are worried about the sexualisation of our children, they should perhaps first reflect on how the state has intruded into the family, and undermined family culture and responsibility. Then butt out and let ordinary decent people decide what is best for their own children.

Evidence-driven intellectual property laws

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The Digital Opportunity (PDF), the independent review of intellectual property (IP) published last week after being commissioned by the government in 2010, is one of the most important contributions to the IP debate in years. IP laws, it says, have become hostage to special interest groups – “lobbynomics”, in the report’s words – and do not serve the purpose that its advocates claim it does. The balance between protecting past innovators and promoting future ones has not been struck and, says the report, evidence should drive policy – not lobbying by rent-seekers.

IP is one of the toughest areas of policy to get right. The challenge is to protect innovators’ rewards, and thus promoting innovation, without stifling future innovation by making these protections too stringent and long-lasting. The problem is complicated even more by criticisms of the concept of intellectual property itself. Critics argue that IP laws are effective restrictions of private property rights: I should be allowed to arrange my own property in any pattern I like, and bits on a computer or words on a page should be no different. The idea that a non-scarce resource should not have property rights assigned to it is appealing, but if granted it removes much of the incentive for people to write books and create innovations.

I sympathise with the anti-IP argument, but I’m an agnostic. And, for the foreseeable future, it’s clear that only gradual change can take place. And even IP's critics should support reform that makes it less strict. There’s no need to make perfect the enemy of good.

What would evidence-driven copyright law look like? (I won't discuss patents here, although this argument should roughly apply to patents as well as copyright.) The length should be determined by looking at earnings distributions for things like music and books, and cut the copyright protection period to only include, say, the first nine-tenths of the average distribution. Most copyrighted productions follow a power law – the bulk of their earnings from a novel or movie will usually be earned in the first couple of years (see diagram above). It’s the initial high earnings that IP should be aiming to protect, not the “long tail” that comes afterwards. This would reduce the stifling effects that copyright has, without reducing much of the innovation incentive, since most profits would still be protected.

Drastically shortening the copyright coverage period would hardly be perfect – it wouldn’t solve the problem of piracy, and would create some unfortunate outcomes where the creator of a work that only becomes popular after the copyright period misses out. But a big reduction in IP coverage periods, based on the income distribution of copyrighted works, would be a step towards promoting innovation that doesn’t undermine the income incentive to innovate.

The street that didn't cut enough

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If you haven't already, you should watch last night's "The Street that Cut Everything", presented by Nick Robinson. The idea was that a small cul-de-sac in Preston would have all council services withdrawn for six weeks, a council tax rebate given for that period, but that no private money could be spent on replacing the cut services. And therein lay the fundamental flaw: by forcing the residents to supply these services within the limits of their council rebates, all sorts of potential solutions were ruled out.

The most obvious example was when a group of nurses wanted to spend £10 buying their own torches for when the street lighting was shut off. Apparently this was not allowed. If private money could have been used to replace services, any entrepreneur in the area would have jumped at the chance to make a profit providing lighting, or collecting rubbish. But then six weeks for just a handful of households is not enough to merit that kind of endeavour. Instead of rationing public services within strict limits, a whole service industry involving growth and increasing productivity could have been created, particularly if done on a larger, longer-term scale.

The residents were also called upon to devote their personal time to council services. However, this neglects the fact that we have a medium of exchange. Instead of effectively bartering their labour, the reality is that the residents would have used their wages to pay for expert services. It sounds obvious, but this remains a supposed criticism of the Big Society. If people had to devote their time so specifically to everything they needed, most of the things we now take for granted simply would not be feasible. After all, no one person could have made the keyboard I am typing this on!

But then reality would have made bad television. It was far more interesting to force the residents together to form a strong sense of community spirit and also highlight divisions. Huge problems arose surrounding a particular household on housing benefit, but the community still offered to help out. The best outcome however, was for an elderly neighbour who suddenly found herself receiving more personal care than ever before. Above all, the programme demonstrated how government provision of a service crowds out people's personal responsibility for themselves and others: it would be interesting to see the trial repeated without the flaws and cameras. 

Anton Howes is Director of the Liberty League.

Europe Day is a make-believe celebration

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Are you celebrating Europe Day? No, me neither. I don’t know anybody who did, except for the poor sods in government buildings around Westminster. It does seem odd, a fortnight after the splendid sight of Union flags ringing Parliament Square to commemorate the Royal Wedding, to see the same flagpoles flying the flags of the EU’s member states. And there is a difference – people obviously wanted to see the Union flags flying during the Royal Wedding, but who wanted the flags flying for Europe Day?

Europe Day must be the most top-down celebration day we have. Unlike the Royal Wedding, St George’s Day or even St Patrick’s Day, all of which are bottom-up celebrations that people would celebrate with or without any state endorsement, Europe Day is something that we’ve been told to commemorate. (Some will argue that the Royal Wedding is a state-sanctioned holiday, but it’s different to Europe Day in that people would have celebrated it even if there had been no state fanfare. It was spontaneous and bottom-up.)

I have no real objection to Europe Day, if people want to celebrate it. And, if enough people want to see something celebrated, I don’t mind if the government recognises that and flies the flag to mark the occasion. But my suspicion is that, in the case of Europe Day, few people would celebrate it if. Instead, I think it’s another brick in the wall of the EU’s efforts to manufacture a “European” identity. Other examples are the European “national anthem” (how can a non-nation have a “national” anthem?) and the European flag that must be flown outside government buildings in EU member states.

Supporters of the EU often claim that it’s a “post-national” body. Why, then, does the EU bother with the symbols of nationhood – flags, coins, anthems and holidays? This seems less like a “post-national” body than one trying to invent a new nation for itself. And this is a problem: like other “spontaneous orders”, nationality is hard to engineer from the top down without negative unforeseen consequences. See the failure of the Yugoslavian project for an example of this, as well as many post-colonial African states, like the Democratic Republic of the Congo whose problems are, in large part, consequences of successive government attempts to engineer ethnic identities there.

Thankfully, the EU’s failures in this regard will be more benign, but it should be clear that it is a bad idea for states to try to make a nation out of nothing. I’m not worried about bogeymen from Brussels hiding under my bed, but top-down planning of society is just as hubristic and short-sighted as top-down planning of the economy. 

Why we might want to forget about Intellectual Property

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Intellectual Property, or IP, is of course a hugely important part of our economy, as it is of all of the advanced and industrialised ones. While we can qand should protect such property in our own and other advanced economies, it's much less certain that we should impose such protections and rights in the less advanced and developing economies. This report deals more with media, music, movies and so on, but similar arguments wpould cover all other IP.

Do note that IP protection is not some vision of the free market spun out of control. It's actually a correction to such a free market, an agreement that all markets all the time markets is not optimal. The much more interesting question is when are markets optimal (mostly, often, nearly always, to taste) and when are they not (public goods for example and IP falls under that rubric).

Aside from that, what we see in the IP protections being imposed in poor countries is that poor people don't get to use what is therefore expensive: and also that those who own the IP don't make any money because it's too expensive to use. It would almost certainly be better for all concerned to either have different prices on such IP (product differentiation of a kind and the pharma companies do do this a little bit) or simply to state that IP is protected in these places and not in those.

The argument for the latter is that in poor places the government isn't going to put in the grunt work to protect IP anyway. Whatever we put into treaties like TRIPS or the WTO agreements, without the local government enforcing matters, those treaty provisions just aren't going to be effective. So why bother?

The response to that is that wouldn't everyone do that? Just rip off everyone else? No, I don't think they will. Once there is a sufficient amount of IP being created domestically (which is a pretty good indicator of economic development in itself) then there will be domestic pressure on the local government to protect that local IP. Which in itself will call forth the protection mechanism needed to protect everyone's IP.

In a nutshell, strong international IP protection, strong protection imposed upon poor countries, doesn't make anyone any money but does keep poor people poor. So why not stop doing it, for when poor people start creating IP, a good marker of their becoming less poor, they'll naturally build their own system of IP protection.

Works for me.