Credit to Cameron

David Cameron’s challenge upon taking office was monumental. After 13 years of Gordon Brown’s fiscal incontinence and Tony Blair’s failure to reform public services, national debt levels are incomprehensible and the government sector bloated and inefficient. All this against the wider issue facing all mature democracies of a burgeoning ageing population supported by a relatively dwindling workforce. This certainly wasn’t what Cameron expected when he first thought of becoming leader of the Conservatives.

Now that he’s grappling with the mess, there’s no shortage of conflicting advice from left, right and centre, often vitriolic, merciless and downright abusive. You do wonder why anybody ever wants to become a politician. Us ASI types haven’t hesitated to put the boot in on a range of issues from high tax rates to green subsidies, from immigration control to misguided infrastructure projects, from EU vacillation to ineffective foreign aid.

Yet, this past week, Cameron looks like he’s about to take on yet more vested interests, having already riled up the benefits industry, doctors & nurses and teachers & academics. First out of the gate was Tom Winsor’s report on police pay and conditions, suggesting fat coppers shape up or ship out, that useless coppers get sacked and that good coppers get paid more than bad ones. Then came suggestions that the government is planning to end national pay scales for civil servants in favour of pay being set against local conditions.

Remembering Blair’s comment about “the scars on my back” from attempts to reform the public sector, Cameron’s persistence on widening this front is admirable, given the full knowledge of what to expect in terms of more outraged howling.

But, in for a penny, in for a pound, so Godspeed, Mr Cameron. Unleash Home Secretary Theresa May and Chancellor George Osborne because the fact is you won’t succeed with your top priority of taming government finances unless you tame the public sector. Just ask Tony.

Weekend notes

Detlev Schlichter is on typically forceful (and, yes, depressing) form over at Paper Money Collapse.

We should accept that deleveraging is ultimately unavoidable. If it comes with a period of deflation – so be it. But we will get neither. The system will be sustained at this stage of arrested collapse for as long as policymakers can get away with it. My outlook is that we will get even bigger central bank balance sheets (forget exit strategies! There is no exit!), we will get no sustained growth but inflation will creep higher.

The noisy advocates of easy money and of government stimulus always pretend to care for Europe’s unemployed youth. It is today’s youth that would have most to gain from a cleansing correction now, and it is those who already made their money and who sit on inflated assets and overstretched balance sheets that have most to gain from the central bank’s policy of extend and pretend. That is, until the whole thing goes pop anyway. Which won’t take too long.

In the meantime, the debasement of paper money continues.

Have you read his book yet? If not, get your copy here.

***

Charles Murray's new book 'Coming Apart: The State of White America, 1960-2010' seems to be stirring up a lot of debate. His thesis, as I understand it, is that the gap between a new upper class and new lower class of Americans is growing, but that it has far more to do with diverging values, cultures and behaviours than economics. I haven't read it yet, but David Brooks says he'll be "shocked if there’s another book this year as important". For now, I just like Murray's comment to the FT on the race for the Republican nomination:

I am really unhappy with Obama. I really think he's terrible, but Romney and Santorum as the alternatives? Don't even think about Newt… I'm in despair. I mean, I'm a libertarian. I will take Romney over Santorum. And both of them over Newt. That's not a ringing endorsement, I know, but what can you say about such a field?

***

On the other hand, for all his flaws (and they are many) Mitt Romney has at least said something exciting about tax - he plans to cut marginal rates by 20 percent across the board. As Fraser Nelson wrote in the Telegraph last week, Britain's Conservatives should take note. They won't win the next election by chasing opinion polls and running scared from the Left's renewed class warfare. They need to craft an aspirational agenda that is worth getting out of bed to vote for. As it is, all the Tory leadership is talking about is which taxes to raise to provide cover for scrapping the 50p tax rate (which isn't actually raising money anyway). They blame the Liberal Democrats, of course, but the real problem is that they are themselves completely unprincipled.

***

In happier news, I was delighted to see the Wall Street Journal's Mary Anastasia O'Grady endorse the legalisation of cannabis on Fox News. Ever so gradually, the tide of opinion is turning against America's deadly, destructive, disastrous war on drugs. There is even talk that Colorado voters will approve a ballot initiative to legalise and regulate the production, sale and consumption of cannabis this November. Now there's something I could bring myself to vote for.

You know the world's gone crazy when...

Current political debate ahead of the UK budget puts me in mind of the set of jokes originally inspired by the US comedian Chris Rock. Chris Rock’s original quip went like this: 'You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the Swiss hold the America's Cup, France is accusing the U.S. of arrogance and Germany doesn't want to go to war.’

But now we have a world where the Liberal Democrats argue for tax cuts, the Labour party calls for wider tax cuts, and the Conservative Chancellor is at pains to damp down any speculation that he is about to make tax cuts.  This of course isn’t as funny and isn’t quite the political reality. Osborne has constraints on what he can achieve in next month's budget, both in terms of what the market will accept and what his coalition partners will allow.

But even if he doesn't have the scope for big tax cuts to help the economy, there are some useful pro-growth measures that the chancellor might include in his budget. The MP John Stevenson has suggested that stamp duty to be altered so that is borne by the sellers of properties. This is a reasonable idea: it could enliven the housing market by moving the cost from first time buyers onto those (the sellers) who are more likely to be able to afford it.

However, much better would be allowing small and medium sized businesses (SMEs) to opt out of onerous health and safety rules, a whole host of labour market regulations, and the minimum wage. This is where the chancellor could really help the UK economy, and it wouldn't cost the Exchequer a penny.

It is self-evident to anyone who deals with small businesses that HSE directives don't make workers any safer, that labour market regulations unnecessarily restrict employment, and that the minimum wage is higher than a free market would bear. Party political cross-dressing aside, the government's continued failure to deal with the onerous (and sometimes plain ridiculous) legislation imposed on SMEs is no joke. The forthcoming budget is a good opportunity to turn the tide.

Government should butt out of marriage and churches

UK Equalities Minister Lynne Featherstone want to legalise gay marriage. Fine by me: I don't see why gay couples should not be able to sign up for the same obligations, rights and benefits that heterosexual couples observe and enjoy.

She also wants gay couples to be allowed to marry in church, like heterosexual ones. Again, I have no problem with that, if the church is willing to do it.

The Church of England, typically, is divided on the issue. As the Established Church, they do pretty well out of their cosy relationship with the state, not the least of which is that two dozen of their senior executives, the bishops, sit by right in the House of Lords. So when ministers tell them to do cartwheels the Church of England normally swallow their principles, hitch up their cassocks and cartwheel.

The trouble is that some time ago, the state muscled in on marriage. Churches had been doing their own thing for millennia, but when the state started taxing rich folks and paying benefits to poor ones, it had to find some way of defining families so that it could establish the tax base and the appropriate unit to which benefits should be paid (two can live as cheaply as one, and all that). So they nationalised the whole business, and shoehorned everyone into a single set of regulations, as governments do.

But should we be so shoehorned? Maybe one of the reasons why the one-size-fits-all state-produced marriage contract has declined so much is that people today are more individual, and want to fashion their own ways of living, rather than have a standard, off-the-peg package of obligations forced on them. And so they should. People should be able to draw up their own lifetime contracts, accepting some bits of the present marriage contract, rejecting others and adding different ones of their own if they choose. Certainly, the state might insist on some minimum elements if people want to be taxed, and draw benefits, as a family. But apart from that, it should keep its nose out.

Likewise, Ms Featherstone should keep her nose out of what the churches choose to do. They too may have their own minimum standards for marriage, which couples have to sign up to before they can expect to be married on the premises. Fine. Churches are private clubs, let them get on with it. Personally, I would be campaigning for them to accept gay couples, but I wouldn't force church officials to betray their consciences. These are deeply held ethical positions. Churches have been thinking about the morality of lifetime partnerships a good deal longer than Ms Featherstone has.

I do wish politicians would buzz off and leave us all to our private sphere, allowing us to wallow in our own eccentric diversity rather than forcing us into tidy moulds. At this, rate, they will be demanding that the churches should not discriminate on the grounds of religion, and should accept other faiths into membership. I don't know what Cardinal O'Brien is going to make of it when he has to hand out wine and wafers to his first Satanist.

Correction: An earlier version of this post claimed that the government planned to force churches to perform gay wedding ceremonies. This is untrue. The post has been corrected.

Selling the Rule of Law for £500m

On Radio 4’s Today Programme this morning, Exchequer Secretary to the Treasury David Gauke defended the introduction of retrospective tax law to make Barclays pay tax which it had avoided legally. “When we see something like this, behaviour which is unacceptable, we are willing to step in”, he said. There are always reasons to ditch rules which aren’t very convenient.  But such reasons are rarely good enough.  And certainly not when it is to scrape away the glue which keeps the law together: the Rule of Law.

Retrospective legislation – or Ex Post Facto law, as it is called in jargon – is unacceptable because it make coercive rules random at the behest of the rule maker.  In The Constitution of Liberty, Hayek describes how some coercive action by government is acceptable, provided it satisfies three conditions: generality, certainty, and equality.  Retrospective legislation fails on the certainty ground, and is therefore objectionable. Earlier, in The Road to Serfdom, he said:

“[The Rule of Law] means that the government in all its actions is bound by rules fixed and announced beforehand – rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances, and to plan one’s affairs on the basis of this knowledge.”

How is a company to assess costs and gains before it makes an investment if greedy government can turn around at any given moment and ask for more?  It is fundamentally unfair to hold a person to be in contravention of the law when the law did not exist when the alleged contravention occurred.

This is not the first time a greedy government has decided to outlaw behaviour after the facts. But there is even worse: leaving tax laws vague to give the taxman discretion to tax no matter what has been common practice in the UK for years.

Some have tried to legitimise the Treasury’s actions by pointing out that Barclays has signed a voluntary code of practice in which it promised not to use tax avoidance schemes. It was certainly silly of Barclays to do so, as tax avoidance is not illegal (tax evasion is); and by signing this code of practice it effectively harmed its shareholders. Its action may have been inspired by a fashionable public spirited sense of “corporate responsibility”.  Barclays wouldn’t be the first corporate player to decide that it’s quite a good little idea to collaborate with coercive greedy government. Never mind the consequences for the entrepreneurs who arrive later.

You cannot opt out of the Rule of Law. Barclays' silly signature changes nothing to that simple fact.  For the Treasury, £500 million of additional tax revenue is a sufficient reason to walk over legal certainty. Never mind the billions of pounds investment which will now walk out of the UK.

The dangers of thinking with one's stomach

Perhaps April Fool’s day has come early? In a gift for comedy writers everywhere, Eric Pickles wants us to have a 'big lunch' for community cohesion. More still – Pickles wants to introduce a ‘curry college’ to promote integration!

Joking aside, there are some serious issues here. The Secretary of State for Communities - that meaningless Blairite catch-all – wants the state to promote social integration and has introduced, inevitably, a strategy to do so. Unlike Labour, however, the Conservatives are seeking to promote integrationism rather than multiculturalism. Naturally, this has outraged leftist cultural groups. It is ironic to note that multiculturalism started life in the Netherlands as a response to post-war immigration, encouraged as a solution to labour shortages rather like the German guest worker schemes. Immigrants were to keep their culture as they were ultimately intended to return home.

The argument between multiculturalism and integrationism is a misleading one. Government cannot create or promote cultural cohesion by any mechanism and, more importantly, it is not its duty to do so. This seems to run counter to this government’s own ‘Big Society’ agenda. State-led attempts to do so invariably result in artificial, bureaucratic initiatives that have little grounding in reality and are a huge waste of taxpayer’s money. Witness the failures of the Blair and Brown governments to create social cohesion; if they had succeeded we would have no need of further initiatives. We don’t need Gordon Brown telling us what our national historical narrative ought to be – in a free society there will be an infinite number of differing and possibly contradictory ones, this is healthy. Nor do we need Eric Pickles telling us what society should look like and how it should behave.

At worst, state attempts to promote cultural and social homogeneity result in the aggressive nationalism that plagued Europe in the 20th century and beyond – witness Putin’s Russia or Serbia in the 1990s. Moreover, the state very often promotes social tensions between immigrants and ‘indigenous’ groups as it creates zero-sum games over welfare and housing and thereby conflict. This is typical of state interventionism: on the one hand it creates a problem, on the other it attempts (and fails) to solve the problem using additional spending and bureaucracy. At the same time it creates a host of client organisations who are dependent on such funding for their existence and will protest bitterly if such funding is withdrawn.

The state should not be attempting to tell people what their culture and heritage ought to be and how they ought to relate to each other; it is best left to trial and error to find out. As David Hume observed in the eighteenth century, the English were much less culturally and socially homogeneous than other European nations. Relative to the French or the Spanish, individuals were freer to expresses themselves via standards of dress and taste and a lacked a centrally dictated sense of belief and national identity:

But the English government is a mixture of monarchy, aristocracy, and democracy. The people in authority are composed of gentry and merchants. All sects of religion are to be found among them. And the great liberty and independency, which every man enjoys, allows him to display the manners peculiar to him. Hence the English, of any people in the universe, have the least of a national character; unless this very singularity may pass for such.

As a result, society was much more coherent, stable and economically productive as interest groups were not set up in positions of exclusive privilege and antagonism.

In the contemporary context, as Mark Pennington and John Meadowcroft show, we need to ‘rescue social capital from social democracy.’ The building of ‘social capital’ is best left to free interaction and civil society. The tendency of government, as with economic capital, is to consume the existing and distort the process of formation of new social capital. 

When a council tax freeze is not a freeze

Councillor Colin Barrow, leader of Westminster Council, had a post on Conservative Home yesterday boasting about Westminster's council tax freeze:

Today Westminster’s Cabinet will confirm our intention to freeze our council tax for a record fifth year in a row, whilst at the same time responding to the concerns of our residents by putting an additional £2 million back in to street cleansing for the coming year.

Sounds good. Except that, in exchange for freezing council tax, Eric Pickles is offering councils a payment equivalent to a 2.5% rise in their council tax in exchange for freezing their rates. In other words, Westminster's council tax "freeze" has come at a cost to the rest of us that do not live in Westminster and might be facing rises in our own council tax. Eric Pickles's money is taxpayers' money, so this "freeze" is in fact a tax hike for everyone else so that Westminster council can look prudent. 

There's a bigger point here than just the deceptive use of taxpayer money. That the central government can do this sort of trickery to allow councils to look prudent (and to avoid bad headlines for the government) points to a much deeper rot in the system. Councils only get about a quarter of their funds through council tax — the rest is from national taxes and centrally-collected and -allocated business rates. The idea is to use government to redistribute between rich and poor parts of the country. This bears the same zero-sum thinking of all redistributive taxation.

A much better approach would be to devolve fiscal, tax and regulatory powers to councils, so that the poor parts of the country can grow their way into prosperity. If the Barking and Dagenham Council could slash business regulation, it could stimulate business and attract investment to enrich its residents. If the plain people of Islington don't want laissez-faire, fine, but they shouldn't stop poorer places from enriching themselves by cutting back the state.

Alas, it's unlikely to happen. As long as councils are dependent on the central government for most of their funding, their "constituents" will not be council taxpayers but government pen-pushers. No wonder they're happy to boast about tax "freezes" that cost taxpayers even more money.

Wirral first – but where second?

A friend showed me this fantastic group last night: Wirral First, an organization (with at least one member) dedicated to the Wirral seceding from the rest of the UK:

Firstly, local citizens will stand for election to Wirral Borough Council as independent candidates, but on a Wirral First platform. That platform is a proposal to massively reduce the size of the present Council and outsource almost all of its current functions.

By following this policy, unnecessary spending would be greatly reduced, as would Council Tax. This is in line with other recent local government proposals around the country.

In the future, if we can achieve a majority of councillors in Wirral, we would then propose to petition central government to hold a referendum on whether Wirral should have autonomy from the UK. The principle has already been conceded that, if the majority of Scots want to run their own affairs, they can do so and we would expect the UK government to allow the same rights of self- determination to the citizens of Wirral.

Their economic policy is based around abolishing income and corporation taxes. They would hold to English Common Law and abolish at least some of Westminster's statutory laws. If you ask me, the common law is the only law we should have, but I suppose this is a good start. Best of all, drugs and prostitution would both be completely legal.

Alright, I'm not sure that the Wirral will ever manage to achieve any of this. But why shouldn't it? Douglas Carswell MP was profiled in yesterday's Evening Standard as "the politician who wants to bring down the SW1 set". Well, good. More importantly, though, Carswell wants to reform local government so that most decisions take place on a local basis. The advantage of this is that the costs of statism are more immediately felt the closer power is to them, and leaving a lousy government is easier when it means moving to the next-door county than the next-door country.

Milton Friedman used to make the point that there were four ways of spending money, and spending someone else's money on other people was the worst way possible. The more local this sort of decision is and the fewer other voters there are, the greater the incentive to vote for sensible, free market policies. And even if it's still unlikely that voters would elect a liberal administration, the more local administrations there are, the greater the chances of getting at least one.

I'm all for charter cities, seasteads and free zones. Honduras's experiment with a charter city shows a lot of promise. I'm convinced that new technology is rendering the nation-state obsolete, and this will be the century of the city-state. But we should be thinking globally while acting locally: let's not forget the Wirral.

Algirdas Semeta: European Commissioner as East End schmutter salesman

You know that a politician is losing it when he comes aross as an East End schmutter salesman: you know the line, never mind the quality sir, feel the width! Which is exactly what Algirdas Semeta does here as he tries to defend the absurd financial transactions tax.

All taxes, when looked at in isolation, carry an economic cost. But there is an urgent need to raise revenue and the cost of the FTT is small compared to the trillions of euros and pounds of support that the financial sector has received in recent years.

Moreover, the positive effects of using revenues from the FTT must be taken into account. If the projected €57bn (£47.7bn) per year is put towards consolidating national budgets, reducing other taxes or investing in public services and infrastructure, the direct economic effect of the FTT should be positive for growth and employment in Europe.

That first part is indeed true: all taxes have costs as they are raised. Which is why we have to look at the costs imposed by each tax and the way the tax is raised. Not wander off into a salesman's patter about how gloriously we're going to spend the money.

Ways of spending funds can have good effects, yes. And we should consider those effects when deciding how to spend money. But different ways of taxing things have different effects. So we should not, cannot, justify a specific tax by the glory of how we're to spend the revenues. We should, must, justify a particular tax by the effects of just that tax, comparing it to the effects of the other ways in which we could raise the same revenue: for of course, the glories of the spending will be the same even if we reduce the impacts of the raising.

There is an urgent need to balance budgets. How could this small tax on the financial sector be worse for growth and competitiveness than further hikes in income taxes, or deeper cuts in public spending?

Well, I don't know about you matey but I, when confronted with a thorny question like this, tend to go and seek the opinions of the experts in the point at hand. Perhaps Mirrlees and Diamond, you know, the blokes who got their Nobels for exploring this very point, the various forms of taxation and the elements that make up an optimal taxation system? The blokes who were writing papers on this while you were having Soviet economics drummed into you in Vilnius? The blokes who point out that transaction taxes are entirely contra-indicated for the way that they cascade through the economy makes them vastly more expensive in effects as against revenues than taxing capital, corporations, income or consumption?

You know, the experts who say that an FTT is a very bad idea indeed?

But then I'm not a politician having to defend a near insane idea for which I'm extraordinarily grateful. For I'm allowed to look at facts, not compose rhetoric.

Would an independent Scotland sink or swim?

As the United Kingdom approaches its date with destiny and the 2014 Scottish independence referendum, the debate surrounding the possible shape of a post-Union Scotland are only going to get fiercer. What Scotland might look like outside the United Kingdom, whether Scandinavian utopia or isolated backwater, is one of the key fronts on which the battle for the hearts and minds of Scottish voters will be fought.

Alex Salmond’s vision, designed to maximise separation’s appeal, is of a Scotland with options: joining the Euro; membership of the Common Market without the single currency; keeping the pound. All intended to give the impression that an independent Scotland would be the master of its own economic destiny.

Yet there are good grounds for suspicion that this is not the case. For a start, it is unlikely that Scotland would be able to claim automatic membership of the European Union as the SNP often claim.

In the instance of Scottish independence, the continuity-UK would almost certainly qualify for ‘successor state’ status under international law, due to possessing (much) more than 50% of the territory and population of the United Kingdom as presently constituted.

Thus the UK would retain its identity and membership, leaving none for Scotland to inherit. Were Scotland to then apply for membership in its own right, there are further hurdles. The UK’s treasured opt-out from the single currency is not offered to new members; likewise the option of joining the European Economic Area without acceding to the EU.

Thus Scotland would either have to join the EU, single currency and all, or not at all. Even assuming the SNP retained their former enthusiasm for the single currency and took the plunge, there’s no guarantee they’d be accepted. Spain, Italy and Belgium are all wrestling with their own separatist movements and will not want to establish the precedent of secessionists gaining EU membership – see Spain’s position vis-à-vis Kosovo.

If not Europe, then what? In an effort to soften the blow for soft-unionist Scots, the SNP are keen to stress the links that they would seek to retain with the UK. Scotland could, the nationalists argue, keep the pound, and British submarines could still be stationed at Faslane to fend off the fear of defence cuts.

Assuming all this was true (and in the case of defence it almost certainly isn’t), Scotland on the pound would be tied to the British economy without having a say in the governance of it, while trying to keep whole communities going via sustaining now-foreign military bases.

The SNP thus risk locking Scotland out of the UK without breaking free from it. As the pro-Union campaign put it, there are polities outside the UK with similar relationships. Until recently, they were called ‘dependencies’.