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Kill All Drug Users?

I don’t know if any of you are on the YouGov site. But it is addictive. A bit like twitter, but with 500 characters. I wrote an Opinion on the Legalisation of Cannabis.

Why do we gift the most profitable industry in history to criminals? Successful Interdiction of supply is incompatible with a free society, so why bother? Legalise. Enjoy the benefits of police no-longer alienating swaths of the population enforcing ridiculous prohibition, who can be deployed elsewhere. Tax the trade. Enforce quality standards, Treat problem users medically rather than criminally. EVERYONE is better off.

I received the following comment

EXTERMINATE once the users , dealer and growers are suitably dead there will be no further problem And anyone calling for legalisation MUST be tested one trace and its guilty

So there we have it – some people getting high is more of a problem than a murderous state executing people without due process. That’s the level of idiocy we’re up against, people. And for the record, I suspect this is what he genuinely believes. I have come across plenty of police who think like this.

You cannot stop people desiring to get out of themselves chemically. Whether it’s booze or narcotics. And in a free society, you cannot meaningfully interdict supply of psychoactive chemicals. To some people such as my correspondent above, that means a free society is the problem. Perhaps he needs some time in the salt-mines to learn the value of freedom?

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The Post Office IPO

Most of the objections raised in the media concerning the sale of the Royal Mail are spurious. Most IPOs get away at a discount. Investors are taking on significant risk in buying a share for which there is no established market, and therefore price. Get it wrong, and your investors lose a great deal of money. No further money can be raised by the business in future except at high costs of capital.

A lot is being made of the advice as to the price range:

At the time of the flotation, and more specifically the book-building process, there were significant threats of industrial action. This faded as the floatation day approached. At 330p, the top end of the range, the shares yielded 6% or so, which appears about right for a floatation of a regulated utility the sale of which was driving the trades union movement nuts. SSE at the time yielded significantly more than that and 5% or so is about normal. 290p was cheap but 330 looked about right to me at the time.

Setting the price too high would ensure much less demand. And there are big magnifying effects at work.

There are known problems with the book-build process. The main one is that it is inflexible should demand prove higher than expected. And it was massively over-subscribed. Politicians running round telling everyone it’s undervalued might have something to do with this. There was an immediate buzz, as everyone tried to get as much as they can. This flattered the figures for demand. Once it is clear the demand is greater than supply, this creates more demand and so on in a virtuous circle. It became clear, as I endured my busiest week ever that everyone would get substantially less than they put in for. This in turn encouraged retail customers to bid for £20,000 in the hope of getting £3000 worth, further flattering demand.

So was the demand really 24 times over-subscribed by institutions as reported by the National Audit Office? No.

If the issue was priced at £5, just over 10% below the trading range it established following the flotation, it’s unlikely, at a yield of around 4% that I’d have been recommending it to clients. There would have been no politicians running round telling everyone how under-valued it was, and in the absence of the excitement, there wouldn’t have been people putting in for significantly more than they actually wanted. The issue may have been a flop, and been pulled. The Government would have been left with egg on its face, and the price it could achieve in future may well be worse than the 330p it actually achieved for the 60% of the company it sold, if it could get it away at all. This is of course the real objection from Labour and the Unions, who simply object to any and all privatisations.

Could the Government have got more than 330p? Yes, but not much more, and at significant risk to a successful flotation.

People are objecting that institutions which took part in the flotation have sold some or all of their holding. Well why shouldn’t they if they think as I do that at 560p, at a yield of 3.7%, Royal Mail is over-priced? I simply don’t understand this fetish for long-term holders. Royal Mail is a successful flotation with a deep and liquid market in its stock and so as a result, can if needs-be raise money at a low cost of capital. Those institutions which put in for the flotation early did so at some risk. They have been paid for this risk handsomely and early, as have the 600,000 or so retail investors, many of whose holdings of 227 for which they paid £750 are worth well over £1200. I don’t regard this as a bad thing. If you think the shares were sold off cheap, you could have bought some (unless, of course you were overseas, or an MP).

Should more have been made available to retail investors? Yes. But at the cost of securing the IPO, when it was not at all clear what demand for the shares was out there. Could a different flotation mechanism be used in future – an auction perhaps? Yes but these are a great deal harder for retail clients to understand and access. And if there are to be privatisations in future, we want to allow retail clients – individual British people to take part.

These quibbles aside, the IPO was a great success, and most of the objections to it are mere left-wing cant. The risk of owning Royal Mail to the tax-payer has been reduced. You can still post a first class letter from the Scilly isles to Shetland. Private money now underpins the business, and thanks to a hugely successful flotation, the Government can, at a time of its choosing, sell some of the remaining stake for which it will get a better price. The National Audit Office made an estimate of the value to the taxpayer of keeping the company in public ownership of £1. Labour is not making much of this figure. It has been sold to people who value it significantly higher. This is why capitalist, free-market economies are richer than the kind of economy Labour MPs want: everyone is better off now the Royal Mail is privatised and no-one is worse off.

Isn’t capitalism marvellous?

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State-Funded Political Parties?

No Thanks! And here’s why.

At present, British political parties operate on shoe-strings. They have to scrabble round for money. Which means they can’t lose touch with people. In Labour’s case, they can’t get too far from the Unions and their membership. And the Tories rely on their membership and business. This need for money keeps them honest, so long as these donations are in the open, declared and public (which I accept they sometimes aren’t.)

Imagine a world where politicians could vote for political staffers to be paid by the state. Anyone think this bill would ever go down? Anyone think it would rise alongside wages? No. It will go from a few million to a hundred million very quickly. A billion would become “the price of democracy”.

All state funding would do is support the incumbents against the likes of UKIP (with whom I disagree, but who’s right to fight in the arena on a level playing field I will defend to the death). UKIP are building a movement on private donations, and they’re able to do so BECAUSE THE ESTABLISHED PARTIES HAVE LOST TOUCH with much of their base. State funding would hamstring UKIP who’re successfully stepping into the void left by parties squabbling over a managerialist middle, while preventing the Tories and Labour ever having to engage with their people ever again.

State funding is a solution to a problem that exists only in the minds of people who can only see corruption in a business-owner supporting a party. It says more about the cynicism of the people who support it than about the problems politicians face now.

State funding is anti-democratic, foolish and will more profoundly corrupt the British body politic than any rich man ever could.

Why? Because the state is richer than any man.

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Minimum Unit Pricing for Alcohol

Cameron seems to think a minimum unit price for alcohol is a good idea. It isn’t of course, it’s the worst type of New Labour nanny-state idiocy. You know that, I know that. What’s important is who the enemies of liberty are, and how they use their positions in a conspiracy against the public.

The medical political complex has become dominated by a kind of purse-lipped puritan, who sees the maintenance of life as its sole aim. To these people, the poor especially must be bullied, for that is what it amounts to, into “healthy lifestyles”. To this end, government must see to it that the poor especially must be prevented from doing harm to themselves. Especially by smoking, drinking and taking drugs.

The war on smoking is going well. The habit has been de-normalised in much of middle-class society, remaining widespread only in the working class. The ban on smoking in pubs has caused tens of thousands of pubs to shut down. Not, of course the nice gastro-pub in which the members of the medical/political complex might take their 21 units a week (a number for which, of course there is NO evidence), but the kind of local boozer in which a builder might enjoy a pint after work. Builders, who are more likely to smoke than public health professionals, have responded to the incentive provided by the smoking ban by going to the supermarket for lager, and watching the television at home, where they are (still, just) allowed to smoke, instead of socialising with their friends and work colleagues.

The public health professional is not now satisfied with the steady decline in smoking. They are now going after booze, in a big way. And they are fundamentally dishonest. The UK has relatively low consumption of alcohol. Consumption of alcohol is falling. Young people are drinking less than ever. Of course some people go out and get squiffy on a Friday night, but THEY ALWAYS HAVE and much of the vomit and blood on the street is down to insane licencing laws that see local pubs shut (no “entertainment” you see) and vertical drinking barns with bull-necked bouncers who delight in giving random kickings, stay open late. People are herded into noisy “venues” only to have all of them shut simultaneously, leading to fights in kebab queues and taxi ranks. Stressed, drunk people whose jackets are probably still in the cloakroom of the club they’ve been kicked out of, and by whose bouncers they’ve had kickings, are herded around by increasingly officious and aggressive people wearing high-viz, until the police arrive and add one more person to the crime & disorder statistics.

A free market in the night-time economy wouldn’t look like that.

Sheffield university’s Professor Petra Meier’s MODEL-BASED APPRAISAL OF ALCOHOL MINIMUM PRICING is being widely touted as evidence that minimum pricing works. It’s nothing of the sort, of course. It’s a model. If you assume a policy works, and put those numbers into a spreadsheet, you can estimate by how much consumption will fall at different unit prices. All you need is a title – in this case two PhDs and a Professor – to be believed when you say “but the model shows that consumption by problem drinkers falls the most”. But it is by no means evidence that the policy will work. It’s a tarted-up guess. It’s policy-based evidence making, and hoping no-one challenges you on the data.

In a word they’re lying to you. But by repetition the lies become the accepted truth.

But it’s not about whether an intervention into minimum pricing would work. To make the argument about that risks the medical/political complex actually finding it does work, within their parameters, and being encouraged to ban bacon. Is a drop in alcohol consumption a good thing? Why? We probably want to cut the blood and vomit on the street on a Friday night, but that isn’t about booze, it’s culture, law and licensing. Why fight on ground of the puritan’s choosing?

The question should whether it’s the state’s role to intervene in pricing. Because once that rubicon’s been crossed, you can bet we’re back to fighting the cold war again as price-planners flood through the economy, and every decision gets scrutinised by your GP. We will see restrictions on fatty foods. And before long, no-doubt the nation will be forced (for the good of the NHS) to do their press-ups and sit-ups every morning, in the road, where you can be inspected. Minimum pricing therefore is about whether the state has a right to tell you and me what we do with our bodies.

I like a glass of wine now and again. Once in a while, and less often than I used to, I like to get squiffy with my friends. This is absolutely none of the government’s business. And it’s the poor who suffer most. Pubs in poor areas were  already marginal businesses, and they’ve gone. So the low-waged have seen their social forum shut, increasing atomisation and alienation. And all because the temperance lobby don’t like the sight of men with cigarettes and a pint. The poor have been driven to a WORSE health outcome by the smoking ban. And because their lives are a bit less social, the harmful drinkers may well drink more. Of course, if this is the case, there’s no evidence, because there’s no-one looking. The temperance lobby got their policy, and they’ve moved on.

This isn’t about health. It’s about a certain type of curtain-twitching middle-class puritan, drawn to careers in public health who see the poor not as people, but a problem to be tidied up. This is true of slum clearances which destroyed communities in the name of public health, and it’s true of the modern-day temperance crusade.

My prediction: This policy will be declared illegal under European law as the Scottish experiment is shot down. Cameron will use that as a pretext to drop a policy in which he’s invested, but on which the rest of the Cabinet is less less keen. He will use it, like the votes for prisoners, as something on which he will “stand up to Europe”. We will still hear the confident assertions medical/political complex go unchallenged on the Today program.

Further reading on the subject: Heresy Corner’s post is very good and Christopher Snowdon’s blog is excellent on the litany of lies by public health professionals and the temperance industry. You should read it.

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How Financial Regulation “Works”.

So, you’re a stockbroker, and you’ve been in the game now for over a decade. You’ve got some fairly serious book-learning under your belt, and have experience across a wide range of businesses including buy and sell-side analysis, sales-trading and futures trading. You’ve been at your current desk for 7 years, and you guided your clients through the crash with some success.

You’re not unqualified. The business is not unregulated. There was no systemic problem in the private-client stockbroking business.

However there was a crash. And lots of people lost money and are looking for someone to blame. The economy is stagnant (though this is mainly due to pre-crunch crowding-out coming home to roost). Everyone in the financial services industry without a regional accent and a job in a call-centre, is a “banker”, and so “a cause of the crisis”.

“Something must be done“, said the politicians, without having the vaguest notion of what it was they wanted to achieve. So they asked the FSA to “do something”. So the drones of the FSA, who regulated the banks so successfully over the past decade, asked the Professional bodies like the ‘Chartered Institute of Investment Management’ and the like, whether further regulation of the investment advice industry was needed.

“YES!” screamed the professional bodies. “All brokers need to be a member of Professional bodies [us]” they said with a straight face, “and they must all take lots of Exams [provided by us, for which we will charge many hundreds, knowing these people have no choice but to take them or lose their jobs]”

“Anything else?” Asked the failed banker with a 2:2 in media relations from Hull, who was rejected by the investment banks he really wanted to work for, instead of the FSA.

“Certainly. the brokers need to spend many hours logging their ‘continuous professional development’ on our system, so we can sign off their competence each year, by issuing an annual piece of paper called a ‘Statement of Professional Standing‘, but only if they take lots of courses [provided by us, for which we will overcharge]”.

“That seems a lot of work” said the FSA-wallah, overcome with sympathy for the non-problematic part of the financial-services industry which forms his bailiwick “won’t that take them a lot of time they could spend blogging tending to their client’s needs?“

“No” lied the professional bodies. “This will improve the customer experience. All exams are good [even though we’re STILL teaching them the CAPM which is, put simply, bollocks]”.

The FSA-wallah reports back to the politicians that the regulation of investment advice is in hand. “This is something“, say the politicians. “Let’s do it“.

Thus financial regulation gets more onerous, time-consuming and expensive. Clients will see higher bills, and find it harder to speak to their broker as he will be doing his mandatory 35 hours of logged annual CPD or inputting it into his chosen Professional body’s computer system. It not being worthwhile to go through the process above for small clients, if you want advice, you’d better have serious wedge to invest, or you’re on your own.

If you want a perfect example of regulatory capture working against the interests of (especially less-wealthy people), this is it.

The Retail Distribution Review is the most counter-productive piece of legislation I’ve ever seen. It’s a Vicious, savage, bureaucratic, insane, corrupt over-reaction to a problem which doesn’t exist. It will virtually ban those on average earnings from receiving decent financial advice. They will be driven instead into the arms of the Banks who will sell them “products” whose performance is utterly opaque, larded with fees which will be virtually impossible to get out of. The banks will call this “advice”, but you will never see or hear from the hair-gel and bri-nylon school-leaver who sold you the “product”, ever again.

You think the Banks fear tighter regulation? No. They want it. They lobbied for it. They NEED it. Regulation protects them from the likes of me. Wicked.

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Government as a Tool.

Government is not inherently evil. Indeed it is necessary – anarchy is not a happy state of affairs. This is the difference between Anarchism, and Libertarianism: Somalia is not a standing retort to the principles of the latter. Nor are things like progressive taxes, welfare states or redistribution necessarily bad.

Even (or even especially) in meritocratic societies, much of one’s station in life is overwhelmingly predicted by what your parents do. If they’re smack-addled self-arguers, you’re unlikely to become Prime-Minister. So, redistribution fulfils a fairness function – mitigating the gross dice-roll of fate which decided which womb bore you. Redistribution also reduces the risk of starting businesses – if you fail, you’re not going to starve, so  as a minimum standard of living can be guaranteed, people can on take more entrepreneurial risks. And as much business success is down to luck, this too is fair. There is an economic function to welfare. Welfare can also be seen as an insurance policy, preventing the rich ending up on a gibbet when the revolution comes.

The trick is to help the needy and unlucky while not damaging the incentive to work. Unfortunately, the British welfare state, with its vast bureaucracy of 72 separate benefits is a massive disincentive to work. Simplifying the benefits system, and aligning it with the tax system and make it simpler to claim, reducing the risk of lost benefits, when taking on short-term work. The Government’s plans for a universal Credit are a step in the right direction.

Government has a role in infrastructure. It is naive to imagine a comprehensive network of Metalled roads would be provided by the private sector. Paths form naturally, but for them to be in decent condition, this is best provided collectively. A road on its own is worth less than the same road in a network.

The realm must be defended. Most countries don’t have a handy English Channel, and whilst Britain Eschewed a standing army long after the rest of Europe had started conscripting, she did always have a big Navy and almost no states do without some form of military, even tiny Lichtenstein has paramilitary police. No-one would argue that private armies are a good idea. This is what made Medieval England so hard to Govern.

Defence morphs into law enforcement. A strong, central state through British history has tended to act as a protector of the peasants against their local potentates. The Royal Boroughs became wealthy for example because their liberties were guaranteed by the crown against the often rapacious demands of local barons. Where monarchies became defenders of the people against the barons in this manner – The UK, Scandinavia and much of Northern Europe, they tended to survive. It’s clear therefore enforcing rules, especially on behalf of the weak against the powerful is a key role of the state.

A strong, effective state therefore is good for all except the most powerful. Economically, the benefits of a state listed above are demonstrated in the concept of the Rahn curve. If the state doesn’t exist, you don’t get much economy, let alone economic growth. But just as libertarians are wont to abuse the Laffer Curve to suggest that tax-cuts always bring more revenue, leftists are currently pretending more state spending will always generate growth. It doesn’t, and here’s why.

An efficient package of tools

Having got some measure of control of the state, and having used it to deliver a more equitable society, the temptation arises in democracies especially to use this powerful tool called the state to solve problems to which it is not suited. Politicians get called “complacent” if they say “not my problem”. A limited state, focused on what it does well is wealth enhancing. Take the state into areas to which it is not suited, the result is a state which takes too much, and as a result gets captured by vested interests in public-sector unions, who agitate for more spending on their priorities (mainly wages for their members) forgetting that this must be paid for out of everyone else’s surplus production. The result is a state providing Health, Education and social services, over which the people who are supposed to use them, have no control. You take what you’re given and like it. You get substandard services, delivered by people who know they’re going to get paid, whatever you think.

It also means the costs lead to over taxation. The rich are mobile, and while they might enjoy London or Paris’ cultural riches, there comes a point when they will bugger off, as Francois Hollande is likely to find out soon. It is tempting to blame ‘the rich’ because they are few in number and democracy can become the tyranny of the majority. If the rich “avoid” taxes, a problem existing mostly in the fevered minds of left-wing activists, it’s because a ridiculously complicated tax-code allows them to. Simple, fair, progressive taxation is rarely avoided. Gordon Brown tried to use the Tax system as a control on the economy. He failed.

Trying to do too much

The problem causing the ratchet upwards in the cost of government is the costs of state inaction are easy to picture – you’ve pissed off individuals making noise. But the costs of state over-action are spread equally amongst millions, but it takes a crisis to make people aware of it.

The answer is to use the state as an enabling tool, funding rather than providing. And this is the key to the success of the Nordic states, despite their high (eye-wateringly so) tax rates. I’ve no problem with state funded services. I’ve no problem with progressive taxation, and a welfare safety net. But these have limits. And we’re at or beyond them now. The tool of the state has become unwieldy and inefficient because it tries to do too much.

Few would have a problem paying high taxes if the services delivered were up to scratch. And if they are not up to scratch, if there’s a choice between competing providers, you still don’t mind paying. You just take your tax-funded business elsewhere. This is why Sweden’s state schools are so much better than ours – they aren’t run by the state, and so don’t have the bureaucracy to stifle good ideas, and are not completely captured by the producer interest.

Ultimately the standard of living, that we’re trying to improve for as many as possible, equates to a measure of free income after tax, non-tax health and education costs, and transport. All of which government can influence. The USA may have low headline federal taxes, and variable state taxes but its citizens are expected to pay out the majority of the difference into a bloated private health system (the US health industry is as obscene as it is in part of ridiculous laws like those banning the sale of insurance across state lines, but that’s another subject, for another day). So despite their low taxes, Americans are not greatly better off than western Europeans. It’s not just about money.

It’s impossible to live cheek-by-jowl without some collective decision making. So long as this is under democratic control, and uncorrupt, State action can mitigate certain behaviours which only become individually optimal in the absence of a collective alternative. For example, America rejected public transport almost entirely, in favour of the car facilitating (along with a large, underpopulated land-mass) urban sprawl which means Americans spend longer commuting than almost anyone else on the planet, something at the top of the list of misery-making habits. So a rejection of state action in favour of rugged individualism has forced Americans into a sub-optimal status quo and sitting in queues of traffic on the freeway, but feeling like they have no choice.  Monopolies, like the near monopoly of car infrastructure in Los Angeles, are anywhere and always a problem.

So the idiot ‘Libertarian’ battle cry of “cut taxes now” is likely to mean people spend the savings from taxes on things that used to be provided by taxes and being forced into sub-optimal behaviour by the abandonment of some collective action. Inevitably taxes would also be spent on subsidising the poor’s access to goods and services, so few are really any better off despite lower headline tax rates.

The trick therefore is to maximise everyone’s utiltiy at minimum cost, and to do so whilst increasing everyone’s freedom of action. And the best drivers of efficiency are markets. Free schools would create choice, whilst still being free at the point of delivery. There is no reason (apart from producer interest) to oppose privatised bits within the NHS. The internal market was abandoned, then resurrected by Labour, not for ideological reasons, but because it worked.

I’ve no problem with health care free (or free-ish) at the point of delivery funded from taxation because no-one has shown me any evidence that private insurance is more efficient. After-all insurance pools risk. Tax-funding pools risk better. However I do not believe the state, or any other monopoly to be any good at delivery. So break the NHS up, and let the patients choose where to be treated, whom to see as their GP, and let the funds follow those choices accordingly. All the regulator (NICE?) needs to do is say which treatments are available for free, and which need to be paid for out of your pocket, and then check they’re up to a standard. The market can do the rest.

Where the real cuts need to come is in the vast, expensive bureaucracies managing and regulating our lives. Big business lobbies for tight regulation because this protects incumbents. Look at banking – a ridiculously tightly regulated industry from which innovation has been frozen by a cartel of self-interested Giants. These Giants are egged on by a regulator which encourages scale in the belief that big is better, and who do business according to the regulators idea of risk. And look where that go us. Deregulation cannot be the reason for the crisis because it’s never been tried. A free market in banking (with a state guarantee for depositors, but not investors) would let a thousand flowers bloom. Bank failures need not be disruptive and would cause the banking industry to join the 21st century as crappy customer service would be punished by people moving. At present, I can’t e-mail my bank and they still take 3 days to clear a cheque.

If you want to cut costs in Government, don’t look at the transfer payments of the Education and NHS. The delivery of these is going to improve as markets penetrate industries which were once monopolies. If a state bureaucracy replaces an insurance bureaucracy, is that really worse? Look at the vast regulatory raj, with fingers in big business, local Government and cut that out. Focus remaining regulation on competition, not consumer outcomes (that’s what a market’s for…)- don’t let anyone get a monopoly anywhere. Bust cosy cartels. Enable choices, stop protecting us from ourselves, and leave the results alone.

Ultimately the state needs to stop doing quite a lot of things its got used to doing. Why is there a public bureaucracy around sport? What is the DTI for except a conduit to Government for big business? Why are there laws demanding I wear a helmet on a motorbike or a seat-belt in a car? Why is there a ‘War on Drugs’? Why can I not have a cigarette with a pint? Because our elected representatives decided to use an inappropriate tool to solve problems which are none of their business. The result is a state delivering shoddy services, yet which cost 50% of everyone’s income.

This has become unsustainable. Much as I want taxes cut, I still want good public services and we need a balanced budget. However instead of cutting the Army to 82,000, why not cut the bureaucracy of the MoD? Instead of pruning branches, why not cut down the whole tree of the DTI? How about Stopping giving money to “charity” on  our behalf? Why not Roll DfID back into the FCO? The list of unnecessary stuff the Government does is nearly endless. Slash the areas of the state whose sole purpose is to provide jobs for life for Unite members, and create markets in most of the rest. You may not see the tax burden go down much in the short-term, there are too many pensioners for that, but you may get more for your taxes and your children might be rich enough to be taxed less. In final analysis, Gordon Brown’s spending splurge wrecked the rest of your economic life. It might not wreck your children’s.

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Filthy Lucre

Of course, following the bust in 2000, over a decade of poor returns means those excitable investors who got into shares following ‘Big Bang’ and the privatisations, got burned and left. While share ownership is a bit broader than it was pre-1986, it is being seen as increasingly the preserve of the rich or institutions which manage pension funds. Companies are increasingly eschewing a listing on public markets, preferring to tap other sources of capital. The Economist is in no doubt as to why.

The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth.

I’ve also seen the bleat from the left about companies like Boots being taken private. Suddenly the left is reaping what it sows. If you make it difficult to raise risk-capital on the stockmarket, you cause people to seek other, less onerous sources of capital. This means the returns available to the private equity industry (which haven’t been all that good) are not available to the private investor, or his pension fund. This benefits no-one except the caste of city/wall st. insiders.

In the name of equality, share transactions and dividends are taxed, further promoting debt finance over equity. Executive pay is being regulated, further weakening any incentive to go public. The left through rhetoric and regulation is destroying a means by which ordinary people can take control of their lives through investment.
It’s not just at the level of the company. In the name of protecting investors, regulations ensure it’s difficult to give advice, especially on small amounts of money. So the poor are vulnerable to the bucket-shop, leading to poor strategies and lost money even where there is not outright fraud. Private investors are encouraged by tip-sheets into wildly inappropriate stocks because their broker isn’t allowed to point them in the right direction. Banks are the most complained-about sector on the high-street. They are also absurdly tightly regulated, selling investment “products” larded with fees with opaque performance measurements designed to comply with regulation and keep the customer in the dark thereafter. If that same person wanted me to suggest a share for him to dabble in the stockmarket, I would be breaking the law. The bank can chuck his money into a crappy fund and forget about him drawing commission every year for doing so.
The greatest engine for investment has been broken, not by excessive risk-taking (that’s what the stockmarket is FOR) but by over regulation based around the foolish notion that a chaotic system can be rendered safe. What’s left is the kind of big, regulated utility which doesn’t offer the returns to attract the hot money (utilities) massive hype businesses whose owners want to cash out (glencore, facebook) or crappy aim-listed mining juniors whose shareholders are ultimately betting on the financial equivalent of three-legged bob in the 3:15 at Epsom. The rest are there out of habit, until they’re taken over or taken private.
Regan’s epithet about the Government’s view of the economy is aposite:

“If it moves, tax it. If it still moves, regulate it. If it stops moving subsidise it.“

Big business still needs the stockmarket. But only just, and not as much as you, me and your pension fund need it. The Government needs to let it breathe. This is how regulation makes us poorer without making us safer.

Stamp duty (our very own Tobin tax) needs to go. Restrictions on advice need to be softened. Taxes on dividends need to be cut. Share ownership is a means to the ownership of capital open to the masses and it needs to be encouraged, not tamed.
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QE3 won’t work, the cuts will.

The Bank of England has indicated that it is considering another bout of Quantitative easing. This presupposes that the problem in the world economy is insufficient demand, to which a solution is printing more money. If insufficient demand WAS the problem, the incredibly low interest rates would have encouraged investment and spending. The first two bouts of quantitative easing would have seen demand pick up.

They didn’t. We barely scraped out of recession.

What quantitative easing did do was push up the prices of Gold – a hedge against inflation. Up too went the price of Oil, of Commodities such as copper, and therefore share-prices. Much of the money went into banks, so their balance sheets were artificially boosted. The FTSE100, being mostly miners and banks did very well, for a time. Other commodities, such as food also rose as more money chased a short-term fixed supply. House prices in the UK have been artificially maintained at their inflated level. Most of all, Quantitative easing, a policy of buying bonds has contributed to a bond bubble, where the sovereign debt of the USA, UK, Germany, Switzerland and (for a long, long time now) Japan are paying nothing in real terms.

The cost of this policy is borne mainly by the poor. Inflation has been explicitly blamed on Oil price rises and rises in the cost of , especially in food hurts the poor. While the main beneficiaries are people with assets – the rich. Labour’s left however is clamouring for MORE intervention in the economy, but this isn’t a Keynesian recession caused by aggregate demand. Therefore Keynesian solutions such as fiscal stimulus (spending money, or cutting tax) won’t work any more than monetary ones, at least until the Government books are nearly balanced. So Labour’s solution – to keep spending until we’re Greece won’t work.

So if it isn’t demand, what is causing the problem? First there is a lack of investment opportunities. Whether this is a cause of or caused by the excess bond issuance crowding out other investments is moot. What’s certain is the low interest rates and negative real yields are shielding governments from the effects of their two decades of profligacy. Germany, the USA, Italy and Japan all have enormous stocks of debt. Thanks to Labour’s 10% deficit, the UK is still catching up fast. Most of the debt is internal, to pension funds and citizens of the states involved. The External debt, especially the USAs is mainly bought by China.

This has the effect of keeping the Chinese currency down and the Dollar artificially strong. What this does is boost exports from China at the expense of domestic demand. This is, in effect keeping Chinese poor to allow the Chinese Government to sit on an enormous pile of Dollars. At some point, this has to end. The Chinese will have to allow their people to buy French handbags & Wine, Italian Clothes, German Cars and English Shoes at the cost of devaluing their Dollar reserves. A fall off in demand for Western government securities will force (or allow) Governments to cut spending even as real interest rates rise. As bond prices fall, and the bubble bursts, money will flood out of treasuries and look for more productive investments.

So, can cutting Government spending faster, closing the deficit and restricting the issuance of Government debt help without the Chinese releasing their reserves? A restricted supply of Gilts would lead to the real interest rate falling, helping with deficit reduction. This doesn’t really help prick the bond-bubble, but restricting the supply of Gilts will drive more money into the productive economy. Furthermore the means by which spending will be cut faster – firing and not hiring people in the public sector will re-weight the economy faster towards the private sector. In the Last Quarter, the public sector lost 111,000 jobs, but the private sector gained 41,000. Year to date, the figures are 149,000 fewer public sector workers and 159,000 more private. The cuts are beginning to do their work, and the private sector, against the stark warnings of the left, is taking on the task of picking up the slack. Since public sector employment started falling in the first quarter of 2010, the Private sector has increased employment in every quarter. That’s 617,000 jobs created for 290,000 lost in the public sector. Each of those public sector jobs lost is one fewer wage bill. Each of those extra private sector jobs is one extra tax-payer. This helps reduce the deficit.

But it’s more than the reduced deficit. Most public sector workers aren’t the Nurses, teachers, firemen and doctors which represent the public sector in the fevered imagination of the Left. It’s bureaucrats, so there’s another benefit of having 290,000 fewer of them: They’re not sticking their clip-boards in the way of business hiring and investing. These bureaucrats aren’t unemployable either. For a decade, business has been crying out for literate, competent people who are capable of turning up to work in the morning. In many parts of the country, these people have been working for the state, which has effectively crowded out private sector employment. With that option no longer open, the Private sector is now able to find the people to provide the investment opportunities for capital which have been so lacking since 2005. The fact is this recession, like all recessions is down to malinvestment. In this one we’ve over invested in public sector prod-noses and under invested in the productive private sector.

This has been multiplied across the entire western world, and added to imprudently low interest rates as Governments have pumped money into the economy in a desperate and futile attempt to keep the party going. This monetary and fiscal “stimulus” has had the same effect as moving off beer and onto vodka. Quantitative easing is like offering round the cocaine in an attempt to keep inebriated guests dancing at 4am. The conversation’s still nonsense, but the hangover will be much, much worse as a result.

If the Chinese government can do a bit for us and allow their domestic demand to rise with their currency too, we (and the Chinese people) will be thankful. Chris Dillow argues against the usual reason for stimulus not working (as per this paper, often cited by Tim Worstall & Others including me on discussiong about “stimulus”) keeping suggesting that it raises the currency, harming exports. In this recession, that might not be the case, AUSTERITY in the west may weaken our currencies relative to China’s by slowing the flow of treasuries & gilts which are being purchased by the Chinese in order to keep western currencies artificially high.

The “double-dip” is a misnomer. We’re witnessing the last gasp of an asset and credit bubble which started to burst in 2000 and it ain’t going to be pretty. In truth, we’ve barely left the recession which started in 2007. Unless we free up resources – people, capital from the public sector, we will not get growth. BRING ON THE CUTS. More & faster, please.

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Heroes and Anti-Heroes.

In previous generations, Americans have enjoyed mafia anti-heroes, morally questionable wild-west lawmen & outlaws. They’ve celebrated the guy running from the law, they’ve thrilled at rule-breakers and loners who get the job done. Investigative journalists were once a staple hero of film and TV as they uncovered the truth about what those in power did to those without. Authority was always suspect.


America’s cool new fascism

What does the current output of america’s TV studios say about the country now there are more shows about people WITH power, doing unto those without. There seem to be a lot of shows about law-enforcement. From the sinister conflation of Policing and entertainment of Police! Stop! Kill! (or whatever), reaching it’s apotheosis with Steven Segal actually becoming a Lawman and the even more ridiculous Dog the bounty hunter which feature real-life shoot-outs.

Policing as entertainment is troubling enough, but it is the raft of interchangeable shows showcasing the myth of an alphabet soup of ultra-competent hi-tech law-enforcement agencies which trouble me the most. Does anyone imagine the world’s forensic labs are staffed by genius savants with a thirst for the truth a-la CSI? Or are they banging out DNA matches to order on a production line? ‘The Mentalist’ and ‘Lie to Me’ at least have interestingly flawed characters at the centre, but still essentially support the authoritarian submission to law-enforcers, who are ultra-competent, all-seeing and incorruptible. Then you have the deeply creepy NCIS, a spin-off from the equally suspect JAG in which military legal people are trying to be cool, whereas everyone knows everyone hates the monkeys. Even court-room drama, like Shark, is now more likely to see the prosecutor as the hero, not the defence lawyer, nor the guy uncovering mal-practice against the wishes of those in power. The investigative journalist is just as likely to be portrayed as a traitor than a hero these days. Finally you have the 192 episodes of 24, which serve together as an apology for the Bush/Obama policy of extra-judicial execution, rendition, torture and extra-legal detention. The metaphor of the ticking bomb made into highly a watchable televisual torture-fest.

The myth of the the ultra-competent, all-seeing intelligence agency able to swoop on “terrorists” who in these shows are rarely anything like the terrorists in real-life, and are instead generally painted as “the guy next door” serve to make people watching them comfortable with the idea of surveillance being for our own good because it helps the good guys catch the bad, who could be anyone, anywhere. This is a comforting myth to hideously overweight middle America that there are young, good-looking people protecting them while they sleep amongst their fast-food cartons in front of the telly.

The reality is a different. Forensic labs are understaffed, by underpaid biology graduates. Police are more interested in performance targets, overtime and the location of the nearest doughnut emporium than they are in ‘justice’. They are more than happy to fix-up the usual suspects if it means they get home in time for 24 on the telly. Intelligence agencies rely on guess-work and hearsay and certainly don’t have access to all the nation’s cctv from one central control room with inexplicable cool-blue underfloor lighting. Have you ever beein in a Government building that looks like CTC/LA from 24?. Intelligence operatives are not cool, they’re civil servants who are 43% fatter & uglier than the national average*. No-one ever, in any public-secotr organisation anywhere, has ever used a fucking Mac, let alone an iPad.

America is sleepwalking into facism. They already lock up 1% of their adult population, mostly for possession of small amounts of drugs, mainly of the kinds used by poor people. They are developing a surveillance culture as bad as our own, and as for bureaucracy – well you think Her Majesty’s Revenue & Customs is bad? Wait till you try dealing with the US equivalent. This is all OK because thanks to the Black Propaganda of NCIS, 24 and the like, all that oppressive apparatus of the state is deployed for people’s “security”. If you can persuade them of the existence of bogeymen, they will pay and suffer intrusive surveillance to protect themselves from bogeymen.

Western power comes from wealth; our wealth comes directly from our liberty. Our freedom to think “how can I do this better” and freedom to apply those insights leads directly to economic growth. Freedom to question the Government’s policies and those acting in it’s name means an absence of piles of corpses in western political discourse. How long can this last? Timid and cowed people, brainwashed into not rocking the boat, not questioning why that camera is looking at me, nor why there’s armed men at the airport, are less likely to question their boss’s stupid man-management or the government’s latest plan to lock up ever more ‘bad people’, and shoot in the head those it can’t catch. Not only is everyone a’frit to go out but everyone’s doing as they’re told. No-one’s happy. And we get poorer. As we get poorer, we get weaker, magnifying the threats and yielding more excuses for repression.

The price of liberty is eternal vigilance, but it seems everyone’s watching the wrong shows.

*Some statistics may have been made up.

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The ‘Big Society’ or big society?

Everyone, it seems, is cheering the demise of “the Big Society”, and even Cameron seems to be dropping the capitalisation. The left think the concept is ideological cover for “cuts” and the right just think the whole thing is amorphous bollocks. Libertarians deplore the whole thing as Blairite “third way” crap by which politicians attempt to manipulate the people.

They’re all right.

Over and above the cuts necessary to deal with the horrendous deficit bequeathed the nation by the previous Labour administration, it should surprise no-one that Tories think a smaller state is better, which means taxing, and spending less. Charities and the like will bleat about losing funds. How can you, they argue, demand that civil society achieve more, even as councils cut charity funding. Of course this is part of the point. A charity dependent on state or local Government funding isn’t charity any more than the police are: it’s an arm of the state. Meanwhile the right argue what’s the point of cutting spending, only to hand the same money to people outside the state who have their own agenda better to let the charities function in the market. However, for far to many politicians, “The Big Society” allows them to be seen to be doing something with tax-payers’ money – in this instance giving it to correctly branded organisations of varying merit – which doesn’t subsequently demand too much of politicians by way of oversight. Funnily enough, this was the approach of the Labour Government to the “third way” organisations which are now screaming about “cuts”. So, much of the Big Society’s failure is merely a continuation of the failure of the Labour project under a different brand.

It depends on what the big society means – and it is more likely to work if it is, indeed as the left suggest, a cover for cuts. The whole point of a big society is that the state should cease to be the first port of call for people in solving every problem. Once people lose the habit built up in 13 years of absurdly interventionist Government, of expecting every community group to be funded by the state, every campaign group’s expectation of an open ear to calls for new legislation, every branch of Government’s expectation of seeing its annual budget grow, people will seek alternative provision first, and in most cases, find it better than bureaucratically delivered, top-down services delivered by central or local Government.

Even areas which are to remain state-financed, such as health and education will help in this process: GP fundholding means the local GP rather than an distant bureaucracy ‘The NHS’ will be responsible for healthcare. Likewise Free schools will allow the local education bureaucracy to wither as more schools escape the miserable embrace of Government. Don’t think your school is working – open another. This means, in time, the direct umbilical chord of service provision direct from Government will be broken, leading people to think, and blame, locally for the success or otherwise of their services. If you’re buying your education with a voucher, you blame the school for poor performance and crucially have the option of going elsewhere, rather than simply blaming ‘the Government’ for crappy service provided which you’re expected to simply endure.Don’t rate the education your local school is providing? move your child to another. Don’t like how your GP operates? find a different one. Hopefully the expectation that “the council” should provide every service will likewise wither, and people will self-organise into community groups to achieve things without getting Government too deeply.

Not only will this eventually mean more responsive services, it will free government up for delivering roads without potholes and other things they’ve forgotten with the expansion of their role into providing “outreach” services.

The Big Society – Government encouragement of initiatives to persuade the people to take on roles for free previously paid for out of taxation – will fail. The if the ‘big society’ however is simply that which will grow into the space vacated by Government, then it will happen organically, naturally and without any input from government. Indeed government intervention will be resented. People just aren’t in the mood to help the state. Instead, rather than state-funded “charity” which should wither, to be replaced by genuine, independent charity and community organisation operating without the facilitation of the state. Cameron should stop talking about the big society for a year or two, until that process is underway and there are examples of local groups delivering services without much input from Government to demonstrate the people no longer expect the state to step in to solve every problem.

So. The ‘Big Society’ is dead. Long live the big society.

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