Written by Fred Hansen
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Monday, 11 January 2010 18:00 |
If you look at the latest crime statistics you are probably in for a surprise. Recorded crimes fell 5% to 4.7 million in 2009. Here are the latest stats for the UK:
- Violence against the person down 6%
- with injury down 7%
- Domestic burglary up 1%
- Offences against vehicles down 10%
- Theft from the person down 12%
- Criminal damage down 10%
- Robbery down 5%
- Drugs offences up 6%
Given the financial crash and concomitant job losses, unemployment is at new heights. So shouldn't crime be going up? Haven’t we always been told that unemployment, poverty, etc. is the driving force behind crime? Well, the latest facts from both sides of the Atlantic don't support this thesis and may never have, according to Heather Mac Donald in the WSJ. As such, the theoretical link between jobless numbers and the number of crimes lays in tatters.
It has long been argued that thwarted expectations turn the disillusioned youth towards crime. From there emerged the logic that crime could best be fought by a higher income distribution. The logical consequence of this mindset is that the police can do nothing really to bring crime down. That’s why the police in Britain have been content to report that crime figures are “stable”. Now the facts have taught politicians and the police a lesson.
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Written by Tim Worstall
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Monday, 11 January 2010 07:03 |
Who am I to argue with a Nobel Laureate? Paul Krugman points out that the places with really terrible housing bubbles were those with more restrictive planning regulations. The less land available to build on (as opposed to looking at and going "Awe!") the worse the bubble was.
And as has been noted innumerable times, those places which had almost no such restrictions (although yes of course they require some form of planning permission) like Texas didn't have a housing bubble:
From January 2000 until they peaked in 2006 or 2007, the price of single-family homes rose 174% in Los Angeles, 181% in Miami, 135% in Las Vegas and 107% in 20 metropolitan areas tracked by the Standard & Poor's/Case-Shiller Home Price Indices. In the Dallas-Fort Worth market, by contrast, home prices rose less than 27% before peaking in June 2007.
Why?
Texas offers residential developers lots of wide-open spaces and imposes few restrictions on home building.
Right. Which means that if we want to avoid further housing bubbles in the UK then we rather need to do something about our own planning system. We need, in essence, to move to a more Texan system. Fortunately someone has already done the intellectual heavy lifting on how we might do this:
Land Economy proposes the most radical change in land use in decades, putting the case for redeveloping agricultural land into a combination of woodland, housing and infrastructure.
By converting just 3 percent of the farms in England and Wales over a ten year period, covering 90 percent of the land with trees and the other 10 percent with houses, we would create 950,000 new homes and almost 130,000 hectares of new woodland.
An excellent plan and I commend it to the House.
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Written by Dr Eamonn Butler
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Monday, 11 January 2010 07:00 |
France is considering a "Google tax" on internet search engines to raise money to plough back into creative industries weakened by the digital revolution. Fine: so we should put a tax on new creative industries to support old ones, is that what they are suggesting? At that rate they will be putting a tax on digital cameras to support the polaroid camera industry, a tax on polaroids to support the colour film industry, a tax on colour film to support the black and white film industry, and a tax on black and white film to support the print engravers.
Of course, the tax proposal is being justified on the ground that the internet has promoted piracy – illegal downloads of music tracks, for example. Then again, the music industry is working out its own clever strategies to deal with this new reality. And I haven't noticed an immediate drying up of creative music since the internet arrived, perhaps quite the opposite.
The French should go back to their Bastiat, who drafted a spoof petition from the candle makers, urging government to legislate that all windows should be shuttered to prevent the 'unfair competition' of the sun. Read it here, mes amis (English translation here).
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Written by Dr Eamonn Butler
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Sunday, 10 January 2010 11:00 |
The demand for road salt has reached such heights that there are now police cordons around the salt mine yards to control the endless stream of lorry traffic, not to mention the punch-ups. Contractors are desperate to get road salt, but in many cases it is a forlorn hope – not because the market has somehow failed, but because the government is trying to control it.
It is the same pattern we have seen before. Any sign of a problem, and Downing Street butts in and says that it is stepping in. Not that it is doing a very good job of it. In their buyers' market, besieged by lorries, the salt producers tell me that they would rather like the government to tell them exactly who they should and should not serve. (And local authorities, punch drunk from public criticism, would probably rather like Gordon Brown to tell them which streets and pavements to grit and which not to – a task that should keep him busy for a while.)
What people don't realise, though, is that the government has already decided the priority customers. And the priority customer is – you guessed it, the government. Rock salt suppliers tell me that right from the start of the cold spell, they have been telling private contractors that they can only supply government users, like local councils, health authorities, and the military. So contractors I know of have been reduced to buying food-grade salt in 25kg bags to spread in their contract areas.
Not only that, the local authorities have been instructed to spread what salt they have very thinly. So the gritters are out every day (for which, of course, the government is happy to take credit), even though they are not doing much good. Council officers tell me that what you need to do is to put down plenty at the outset to prevent roads icing up, then renew it as needed.
About the only people who are content are the drivers of the gritting lorries, some of whom, I'm told, are netting £1000 a week thanks to – you guessed – public sector wage contracts. When authorities decide to do preventative gritting at the end of the day, well, that is after their scheduled hours, so it is double time. Or when they go out early it is double time (and it stays double time for as long as they are out). Then Saturdays and Sundays are double time again.
It all seems like an extremely expensive way of the government getting what it wants. But as a way of keeping the country moving – I would take that with a pinch of salt.
See Dr Butler's new Alternative Manifesto here.
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Written by Tim Worstall
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Sunday, 10 January 2010 07:03 |
There's an old joke about economics exams: over the years the questions are always the same, it's just the acceptable answers which change. Much more amusing than the joke though is the possibility that this might actually be true. That is, it's not just a comment upon what is the fashionably correct answer, it could be that the right answers really do change over time.
This is rather an addendum to Madsen's point that an economy never actually reaches equilibrium: I'd add to the issues he raises the point that technology is always developing. Thus any equilibira, even if they were ever reached, would be outdated as soon as they were by this new technology, new method of production, new change in the production mix and so on.
But what has this to do with the correct answers to questions economic changing? Let us take, just as an example, the New (or Neo-) Keynesian school of macroeconomics. This is a response to the New Classical school, itself a response to Keyesianism...and so forth back to the mists of time. The central point of the New K school is that of menu costs. The reason an economy once divergent from equilibrium doesn't immediately or quickly bounce back is because prices are sticky and thus government really should and really can do something about it all.
Now when the theory was first being pieced together in the 80s and early 90s sticky prices or menu costs looked like a reasonable assumption. However, we've seen much more recently that wages are a great deal less sticky downwards than had been assumed. And prices vastly less so:
It is time for everyone to realize that menu costs are a thing of the past. With current information technology, pricing is much more flexible than the production schedule (which gained tremendously in flexibility as well), and those New Keynesian models can safely be shelved now.
Which means that the New K explanations could have been true even if they are no longer so: and it's changes in technology which have made them wrong.
Now whether this applies to all macroeconomic theories is another thing: but I have a feeling that that is possible at least. For they're all trying to model past events and then using those models as predictions of the future. But if the underlying technology of the economy keeps changing, upsetting those modelled relationships, then we haven't really got a secure basis upon which to base our macroeconomics.
Not so much that the correct answers keep changing, but that by the time we've worked out what was correct for the past it is wrong for the present.
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Written by Dr Madsen Pirie
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Sunday, 10 January 2010 07:00 |
Health is an area where the gains of one would not normally come at the detriment of others. If one person is cured, it does not usually involve another person becoming ill. As society becomes wealthier and better educated, most of its members ought to have access to better health and greater longevity, without impeding the ability of others to do likewise.
Alas, the NHS has changed that. Given its universal provision and its necessarily finite resources, decisions have to be made about which treatments and procedures can be afforded and which cannot. In a recent case a leukemia sufferer was denied access to a possibly life-prolonging drug because the NHS regarded the £30,000 a year cost as an ineffective use of resources, given likely clinical outcomes.
The point is that within a closed system of finite resources, each treatment has to be assessed to see if it is worth denying funding to other treatments in order to supply it. Television reporters interview someone demanding extraordinary (and very costly) treatments for their brain-damaged premature baby, without ever alluding to the brutal fact that others must die if it is to be kept alive. In the NHS people have to ask if that extended life is worth more than the ten kidney patients who might otherwise have been saved. They have to ask if a drug which might offer a few extra years to one patient is worth the suffering to dozens of elderly patients who will not receive their hip replacements if the money is spent elsewhere.
The NHS has turned health into a zero sum game, in which the survival of some takes place at the expense of the death or suffering of others. The QALY, or quality-adjusted life year, was devised to facilitate these complex, and some would say repugnant, calculations. Many people also blanch at the way the NHS can withdraw all treatment if people obtain privately the drugs the NHS has refused to allocate to them. Gods might behave like this, but men and women shouldn't.
There has to be a better way, and it might involve encouraging charities and communities to rally round people who lose out on NHS allocations, and raise extra funds to support them. That breaks out of the fixed pie of the zero sum game, and brings in additional resources instead of taking them at the expense of others.
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Written by Dr Madsen Pirie
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Sunday, 10 January 2010 06:00 |
10. Most economic factors change when time is entered into them.
Economics is a process made up of countless individual inputs, with a constantly changing composition. Many of these individual factors change over time. What is valued by someone now may not be valued as highly by them in a few months time. People reckon that a degree of satisfaction now is worth more to them than that same degree of satisfaction in six months time. Pleasure diminishes when time is factored into it because immediate pleasure is worth more than distant pleasure.
If money has to be foregone now, the immediate pleasure its use might bring has to be postponed for the promise of subsequent pleasure. Money now is worth less than that same amount of money in six months time because of that. If I am to lend someone £100 for a year, I have to be compensated for that exchange of immediate pleasure for subsequent pleasure, and I might need £105 to make it worth my while.
People who produce goods immediately to meet a perceived demand are taking a smaller risk than those who commit resources to production to meet an anticipated future demand. The latter is less certain and less immediate. As a higher risk activity it will need a greater anticipated return than the immediate activity in order to compensate for the delay and the risk to the reward.
We speak of a 'time horizon,' meaning the distance forward that people will contemplate future rewards and let them outweigh, if they are greater, the more immediate rewards of present consumption. Different cultures and social groups have different time horizons, and a different propensity to sacrifice current pleasures in return for greater anticipated future gains.
Time has to be factored into economic processes, and it changes most of them. The further off into the future that an outcome lies, the more it becomes vulnerable to the changes of circumstance that can befall it, and the less certain it becomes. If people are to commit to such long-term activity, they will need correspondingly greater rewards. Many economic activities take time to show their effects, and some of the plans people make will be rendered futile by changing circumstances in between the initiation and the outcome. Some economic activities, arising as they do from human psychology, will change over time as human psychology changes in unpredictable ways.
This is part of Dr Pirie's ongoing series: Philosophical Observations on Economics.
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Written by Jokesmith
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Sunday, 10 January 2010 05:00 |
It's quite simple. Iceland can keep the £3.4 billion, as long as they take back their freezing weather.
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Written by Wordsmith
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Sunday, 10 January 2010 01:00 |
Funny how the Labour Party's finances reflects the mess they have made of public finances::
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Written by Dr Eamonn Butler
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Saturday, 09 January 2010 14:50 |
It all reminds me of Britain in the 1970s. In Venezuela, facing 25% inflation, the government of retro-Marxist Hugo Chavez has had to devalue the national currency, the bolivar, by 17%. It will drop from the official rate of 2.15 to the US dollar, to 2.60. At least, that is the official rate for 'priority' imports like food and medicines, and whatever the government itself happens to want from abroad. The rate for imports of 'inessential' imports like cars, chemicals, electronics and suchlike will be 4.30 to the dollar (a 50% devaluation).
Chavez will be lucky if this move has any effect at all, of course: even these huge devaluations do not reflect how worthless his currency really is. The unofficial exchange rate for bolivars is more like six to the dollar – that is how much people think it is really worth.
Sure, there is a recession on and people aren't consuming so much oil, but it puzzles me how a country in the world's top ten for oil reserves – and where oil generates about 80% of export revenue, half the government's income, and a third of GDP – can get itself in such a pickle. Well, actually, I do know. It is the same problem that we had in the 1970s, in fact – ultra-socialism.
One might have thought that governments would learn. (Though to quote Milton Friedman, in reply to the question: 'Don't governments ever learn?' he said sagely: 'No. governments don't learn. People learn.') I worry that perhaps they do learn, and know full well that their fiscal alcoholism is a road to ruin, but cannot stop themselves because their electors always vote for higher spending and lower taxes. Does that mean democracy itself is the problem? Or a woeful lack of public education on common sense economics?
See Dr Butler's new Alternative Manifesto here.
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Written by Dr Madsen Pirie
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Saturday, 09 January 2010 06:00 |
9. Economic statistics are a subset of history.
Economic statistics are about the past. They are not what happened; at best they are an approximation to what happened. They are about indices and arbitrary measures constructed by humans to approximate and abbreviate a totality too large to be apprehended. Sometimes the necessarily limited nature of the statistics hides important events. The Consumer Price Index, for example, only features selected items and has to be updated to reflect changing lifestyles. Even then it can miss things not included in its list.
It is possible to study economic statistics and look for correlations between what might otherwise be seen as independent variables. Regression analysis can show that certain figures rise or fall together, or in inverse ratio. Equations can be constructed which show apparent relationships between some variables, and can give reasonably good approximations to the measured outcomes that have been recorded. This describes the past, however. It is when economic statistics are used to predict the future that problems arise. Most 'rational agent' models assume that people know past prices, and can form normally distributed expectations of future prices on that basis. But the future often defies those expectations.
From a room's doorway we can look at its contents, as we look at the past, gaining a reasonably good picture of what the room looks like. Even then, though, we are choosing what to notice out of vast numbers of things we could look at. When we turn our direction and step outside from that doorway we are stepping into the unknown, and the knowledge we take of what is behind us might be of little help in examining what lies ahead. The future is by its nature unknown and unknowable. Popper observed that since we cannot know now the content of future scientific discoveries, and since they will affect our future, we can never predict that future.
The phrase 'economic science' is misleading because economics deals with material not susceptible to the scientific method. We would think little of a scientific theory that changed its predictions "because people now know more than they did," or "because people now behave differently." Yet we are often asked to accept these as explanations of why an economic prediction failed, rather than accept that the theory itself was not up to the task.
We can, of course, conjecture relationships on the basis of past data, but these are always subject to modification or rejection on the basis of new outcomes. Economics deals with real people who all differ from each other, and who have individual motivations and social habits in a way that the material of the physical sciences do not. It has to deal with people whose behaviour changes in response to unpredictable events. The further that economic theory is removed from this world of motivated human beings, the less is it likely to tell us anything about the real world future their actions will bring about.
This is part of Dr Pirie's ongoing series: Philosophical Observations on Economics.
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Written by Charlotte Bowyer
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Saturday, 09 January 2010 05:30 |
The UK government is none too pleased with Iceland’s recent antics. As has been well documented, the country’s President Olafur Grimsson has refused to sign the Bill detailing a payment schedule of £3.4bn owed to Britain and the Netherlands due to the collapse of Icesave. Instead, he has put it to a referendum. While Iceland’s political elite are keen to repay the money owed, the public are not so obliging. Firstly, they feel their money should not be used to cover the failings of a private bank, and many are fuming at our government’s use of anti-terrorist legislation to freeze UK assets. The terms of the bill are also causing anger: representing over 40% of Iceland’s GDP, the money must be paid over 14 years at an interest rate of 5.5%.
Putting aside the rights and wrongs of this case, it is heartening to see the President recognizing that this debt will be paid for out of the pockets and hard work of the Icelandic people. Standing at a debt of over £10,000 per person this is a large sum for current and future generations to be saddled with; and as such the public has been given a chance to voice their opinion. As Mr Grimsson explained on Newsnight: “The difference between the British and Icelandic constitution is that in Britain parliament is sovereign. In Iceland, it is the nation and the will of the people that is sovereign.” Considering the way in which vast sums of taxpayer’s money has been thrown about on the say-so of an over-powerful executive, Iceland’s respect for the decision making ability of its people is in comparison refreshing.
Sadly, our government is (perhaps understandably) more interested in getting its hands on a few billion than taking lessons in democracy. Even though the proposed referendum is entirely constitutional by Icelandic law, the country is threatened with international isolation and having its chances of joining the EU dashed. Then again, perhaps for a country that values the sovereignty of its people this is no bad thing.
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Written by Dr Eamonn Butler
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Saturday, 09 January 2010 05:00 |
The development and restoration of Panmure House – Adam Smith's home in Edinburgh – has been the subject of long drawn out discussions between the Edinburgh Business School (its new owners), Historic Scotland, and the Edinburgh City Council planners.
Everyone is keen that this historic house should be accessible to the public as a venue for public meetings, concerts, seminars and other events. But it is obvious that the building's footprint is not large enough to accommodate both the meeting rooms and the services (staircase, toilets, lifts, kitchens) that a modern venue requires. Edinburgh Business School's architect solved this problem by creating a glass atrium housing an external staircase. It is a brilliant solution. It provides the necessary access in a stylish way that does not violate the house, nor require some ghastly solid extension, and indeed which keeps the main elevation visible and allows it to be attractively lit.
Historic Scotland have objected to pretty much all proposals for an external stair. It would be a shame if Edinburgh's planning committee, which meets next week, takes its cue from them and rejects the proposal. Panmure House will survive only if it has a viable function. Without that, it becomes a useless hulk that nobody will care for, and which will decay. I am sure that Historic Scotland does not want that. And given the sorry state that past public-sector owners have left it in – the only remaining original feature is one fireplace in the attic – the Edinburgh Business School's sympathetic restoration plans are definitely a welcome improvement. Let's not allow Adam Smith's home to decay and be forgotten as it has been over the last half century.
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Written by Charlotte Bowyer
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Friday, 08 January 2010 19:00 |
Despite government plans to teach children ‘money management’ lessons from the age of five, thousands of schools that have effectively controlled their finances are facing unpleasant repercussions. The Department for Children, Schools, and Families has released the expenditure of our schools and seeks to ‘name and shame’ those that have amassed significant surpluses. Headteachers of such schools have been warned that they should return ‘extra’ money to their local authorities, and might well be forced to do so under law.
This is an absurd idea: punishing schools for prudence and careful budgeting will simply lead to a further degeneration in the quality of the country’s education. Most schools control spending and generate surpluses in order to invest in large projects or improved facilities, such as a new science lab. Compelling schools to spend their entire budget each year creates little incentive to take a long-term view to investment for either the school or its pupils. By frittering away money for the sake of it, this creates an even greater waste of taxpayer’s money.
While we rightly don't like the idea of schools hoarding public money for the wrong reasons, the best way to combat this (and solve many other problems) would be through educational reform. With vouchers Parents should be free to send their children to the school of their choice, with the money following the child. In this way, schools which appear to stockpile funds yet make scant improvements would see themselves very short on pupils and money.
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