Newton's laws of banking

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The IMF and Bank of England want to tax banks to pay for future credit crises. It's a bad idea.
 
Newton’s third law of banking is that every good idea has an equal and opposite daft one. We had a banking crisis because banks did not have the cash when they should have done. So it is a good idea to pay executive bonuses in paper (shares) and not cash – always assuming they should be paid at all. The banks hold onto the cash and if the shareholders are silly enough to dilute their holdings in favour of the executives, so be it. There’s also a faint chance the executives’ shares will give them a longer view of performance.
 
On the opposite, daft, side, the IMF and Bank of England are suggesting two separate new bank taxes. The IMF head, Dominique Strauss-Kahn, long-term French economics minister and previously a member of the Union of Communist Students, is planning bank taxes and also for Britain to lose its seat at the IMF top table. No hint of nationalism there of course.
 
Closer to home, Paul Tucker, Deputy Governor of the Bank of England, is suggesting taxes for the government to squirrel away until the next financial crisis when the money can be returned to the banks. Who believes any money given to this government, or any UK government come to that, will still be there in two years time, never mind 20 years time?
 
The FSA had a similar idea in their March discussion document (DP09/2) which suggested the banks themselves should hide away some rainy day reserves. For most of the 81 respondents, that exemplified the very lack of transparency which the FSA was complaining about. Secret reserves in banking were outlawed 40 years ago and rightly so.
 
Could someone please bring these regulators back to earth? Banks are businesses and should be taxed like any other business. They should not be deprived of the cash they need but do not have.

Denmark's knife

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More than 53 people have been put to prison in Denmark because they had a knife on them or had it lying in their car. This is the consequences of a new law the Danish government have implemented in order to prevent crimes committed with knifes.

In most of the cases, the defendants have been craftsmen forgetting to take their tools out of the car after work, anglers coming home from a fishing trip, or just people with a multitool in their car in case something should happen (with the car). An overwhelming majority of those put in prison are peaceful people that offer no threat to anyone else. Now they are convicted criminals because the (Conservative – Liberal) government doesn’t understand the consequences of letting the “Big Brother State" loose.

In Denmark this injustice is putting innocent people in jail. How constructive is that I may ask?

Rubbish for sale

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A black market boom in stolen wheelie bins.

How David Cameron can reverse Labour’s unjustified attacks on civil liberties

A judicial review of Britain’s liberties would give the Conservatives a programme of reforms and help David Cameron establish his pro-liberty credentials, says Madsen Pirie.

Over the last few years, many traditional liberties which protected our way of life have been removed or compromised by the Government’s initiatives. In the name of taking more effective action against terrorists, drug dealers or paedophiles, customs and practices that shielded the citizen from arbitrary abuse by authority have been over-ridden or subverted.

We used to enjoy the protection of habeas corpus, and no detention without trial. We used to have the right to remain silent without it counting against us, or be forced to testify against ourselves. We could demand trial by jury, and once acquitted, need not face the ordeal of a retrial. We enjoyed the presumption of innocence, and could not be punished or have our property seized without conviction in a fair trial.

All of those liberties and many more have been eroded or abolished in a flurry of government and official zeal to crack down on possible law-breakers. Almost every day we read of incidents in which people are bullied or harried by police, not for criminal activity, but basically for doing things the authorities dislike. It will be difficult to regain ground lost for liberty, given a now-entrenched official culture unsympathetic to it.

It is fanciful to suppose that a consolidated repeal bill could be passed to reverse at a stroke all of the illiberal measures of recent years. There is, however, an effective measure that an incoming government could take. David Cameron should announce his intention to establish a year-long judicial review into the state of British liberties. Presided over by a senior and respected judge, the review body would hear evidence in public concerning the degree to which traditional liberties have been eroded.

Crucially, the review body would be empowered to make recommendations at the end of its enquiry, recommendations of measures to restore and entrench the freedoms needed to protect citizens from abuse at the hands of an arbitrary and oppressive authority. While the Conservative Government would not be compelled to implement its findings, there would be a moral pressure on it to do so. Through its year-long inquiry, the review body would raise awareness of liberty issues, and publicize the degree to which it has been lost or threatened. A culture of liberty would gradually supplant the illiberal culture that currently prevails. It would be difficult for government to resist its recommendations.

The announcement now of such a review would enable Mr Cameron to establish the pro-liberty credentials of himself and his party. It would not impose any great costs, nor commit his government to any specific pledges. What it would do it establish a momentum of liberty, and secure carefully thought-out and well-drafted proposals to restore our freedoms to their respected place at the heart of British law and tradition.

Dr Madsen Pirie is President of the Adam Smith Institute and author of the newly-published ‘101 Great Philosophers’.

Published on Telegraph.co.uk here.

Brown's decade of disaster

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In his editorial in yesterday's City AM, Allister Heath wrote:

Next year, government spending in Britain will reach 54.1 per cent of gross domestic product (GDP), up from 36.6 per cent in 2000. This devastating statistic, buried on the OECD’s website, has been largely overlooked; yet it is one of the most important facts that everybody should know about today’s Britain. It demonstrates that almost an extra fifth of our economy (17.5 per cent, to be exact) has come under state control on Labour’s watch since the start of the century.

Sadly, that's not the only devastating statistic buried on the OECD's website. Indeed, if you look at this OECD spreadsheet from July this year, you'll find everything you need to destroy Gordon Brown's absurd reputation for economic competence. Actually, I'd say there is enough there to bury that particular fantasy at a crossroads with a stake through its heart. For example:

• In 2000, we had the 7th lowest public spending in the 30 OECD countries. In 2010, we will have the 6th highest.
• In 2000, we were the 16th most indebted country in the OECD. In 2010, we will be the 8th most indebted country.
• In 2000, we had the 7th lowest deficit in the OECD (in fact, we had a surplus). Next year, the UK will have the biggest budget deficit of any country in the OECD.

I've put together a few tables showing the declining health of the UK's public finances over the course of Brown's disastrous decade. If you can't see them, click here.

Profit is good

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Anton Howes is spot on. The next government must not only implement a Swedish-style school reform in Britain, it must retain its essential features. In addition to allowing parents and children to choose a school (even outside their area), it must facilitate the establishment of new schools, including ones set up for profit.

One reason why the Swedish scheme has attracted massive parental support is that nearly all applicants gain their choice of school. That has meant a huge programme of school-building, spearheaded by private firms seeking profits. Without investment and energy from that source, a British reform would be vapid and half-hearted, and would fail to attract the support needed to make it irreversible.

There is still in Britain a resentment of profit, probably surviving from wartime and postwar collectivism. There is a still-widespread view that public services should rely on a dedication to public service rather than the pursuit of more personal motives. This is misconceived. It is the profit motive that spurs people to supply goods and services that people want and need. Services that depend on motives which lack the incentive to satisfy customers are prone to producer capture, and end up with unions and administrators doing a self-serving pas-de-deux which excludes the recipients of the service.

The supply of food, no less important than education, is provided for profit. It would be very different if its supply were decided by civil servants, funded out of taxation, and available only from approved outlets. The 1980s saw many goods and services moved into the private, profit-making sector, and improve immeasurably in consequence. Now is the time to extend the same advantages and improvements to some of the areas which still lack their benign effects. Schooling will be the first and most important, but others must follow.

Dr Pirie's latest work, 101 Great Philosophers, is available to buy here.

The Irish referendum

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Ireland's Lisbon Treaty vote puts the spotlight on the Czech Republic's ratification and David Cameron's UK referendum promise

Well, it just goes to show that the European Union has no problem getting people to vote for it, as long as they are bankrupt. When Ireland was looking OK, it voted No. Wrong answer, so it had to vote again. Now it's bust, it has fallen sobbing into the arms of the subsidy providers. Britain joined in 1973, and the East European states twenty years later, for just the same reasons. They were suffering a deep economic malady and thought it might be cured, like scrofula, simply by touching.

Now it's down to the Czech Republic. I cannot imagine that its robustly free-market and Euro-sceptic President, Vaclav Klaus, will be in any hurry for his country to ratify the Lisbon Treaty. He's already taken a stand against it. If he can hold out until May 2010, he knows that there will probably be a change in government in the UK, and that the Conservatives have promised a referendum if the Czechs haven't already decided. So he can let the UK take all the flack that will surely come from Brussels (and Paris). I think both of us could live happily with that.

Dr Butler's book The Rotten State of Britain is now in paperback.

It gave him nothing

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Michael Moore has a new documentary out, titled. "Capitalism: A Love Story". An investigation into the failings of the economic system that is a central tenet of American life in light of the recent financial crisis. At the premiere in Washington, DC, Michael Moore responded to a question about his supposed earnings to date, "[you have] amassed a fortune of over $50 million, some have said and -" Moore interrupted, “Really? Are you kidding me? Seriously? Wow. Where did it go?..Well, capitalism did nothing for me, starting with my first film.."

Mr Moore never had it handed to him on a plate. He had to work hard to get to the level he has. He despises capitalism because that's what it means. Working hard to make a living. The system he wants to replace it with is one that is founded on theft, violence, a regal liberal elite that subjugates the masses, state authorised freedom and massive subsidized sectors of society.

Michael Moore's films are the only reason why illegal downloading should exist.(Some would probably want to include Michael Bay films on there as well). It is the only way his films should be distributed. He should be made to sit down and perhaps think about his wealth and what he would have been rewarded with had he made films in communist Russia or North Korea. Indeed imagine if he had made films criticizing those regimes. Mr Moore should be grateful he lives in a free country and is somehow rewarded for his dross documentary films. Freedom and free exchange has granted him untold wealth, but he fails to see it. It is doubtful he ever will if his films are a reflection of his intelligence.

Downsizing government

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An excellent new website from the Cato Institute.

The purpose of profits

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There's still a desperate and really rather sad misunderstanding of the purpose of profits out there. Our first example is about rubbish and recycling:

It is far more profitable and much less labour intensive to dump unsorted garbage in a landfill than it is to separate it for compost or recycling.

Quite contrary to the imputation of the author this means that we should indeed be throwing the garbage into a hole in the ground. It isn't just that time is one of the things we are all short of, that three score and ten passing by much too quickly to want to spend unnecessary time sorting rubbish. Here profit is showing that we are using fewer resources by dumping unsorted than by sorting. This is a good thing, profit is telling us that we are being more efficient: and more efficient with our scarce resources means that we get more out of whatever resources are scarce. In short, profit is showing us what makes us richer.

Our second example is about schools (and cries of "rubbish!" in regard of the UK educational system will be ignored, however true they might be):

The Conservatives, however, are planning to keep their "Swedish schools" profit-free and rely on charities, voluntary groups and other philanthropic types.

Ignorance of the purpose of profit is not limited to foolish environmentalists of course: it seems to be a failing of our next Prime Minister as well. For he and his sidekick are missing the second point of profits: the hunger for being allowed to keep them. It is this, the idea that we might individually get rich by making profits which leads to the society as a whole getting richer as we struggle (and the successful succeed in) to find newer and better ways to be efficient with those scarce resources.

Profits are both a signal that we're doing something right and a temptation, an incentive, for people to do those right things: look for and find ways to be more economical with the resources available.

No surprise in an environmentalist not quite getting it but if a Tory PM in waiting can't understand it, what is the world coming to?