Saturday, May 24, 2008

Emissions trading continues to dissapoint

From the European Commission Spokesman's briefing yesterday:

"Overall emissions of CO2 from businesses in the EU Emissions Trading System (EU ETS) increased by 0.68% in 2007 when adjusted for changes in the number of
installations covered, according to the information provided by Member State registries. While well below the 2.8% growth in the EU's Gross Domestic Product recorded last year, the slight increase in emissions underlines the need for the tighter emission caps that have been set for the 2008-2012 trading period."

Ignore the spin that this is well below GDP growth. It is no achievement of the ETS that emissions intensity (emissions/GDP) is falling - that has been happening across the developed world for some time.

In fact, the real picture is even worse than this suggests as the EU is, in part due to schemes like the ETS, exporting huge amounts of manufacturing activity, and therefore emissions, to the developing world. If green taxes and regulations result in a very efficient plant in Sunderland being replaced by a very dirty plant in China that is no green achievement at all.

Thursday, May 22, 2008

Kissinger and Metternich

There is a fascinating article over at The Atlantic discussing the lessons Kissinger took from his own experience and history; the foundations of his realism. In particular, the Austrian Prince Clemens von Metternich's construction of a peaceful order following the Napoleonic Wars and the hideous consequences of appeasement at Munich.

It's worth reading it in full but this is a choice paragraph:

"The "most fundamental problem of politics ... is not the control of wickedness but the limitation of righteousness." The Nazis, the Jacobins, the ayatollahs, and the others who have made revolutions have all been self-righteous. Kissinger suggested that nothing is more dangerous than people convinced of their moral superiority, since they deny their political opponents that very attribute. Tyranny, a form of disorder posing as order, is the result. This was one of Edward Gibbon's arguments against early Christianity. Gibbon represented the Enlightenment in full flower, just as Metternich, Kissinger reminded us, represented its dying breath before the onset of modernism, with its righteous causes. In any event, Kissinger observed wryly, punishing the wicked is "a relatively easy matter, because it is a simple expression" of public decency, and thus not a crucial task of statesmanship."

The logic of collective action taken to a bizarre extreme

Recently I wrote, for ConservativeHome's Platform, about Mancur Olson's The Logic of Collective Action. That landmark political text set out how minorities could impose their will on a majority in a democracy. People have an incentive to free ride on the political efforts of others and minorities find it easier to organise and motivate their members. This is one important reason why the work of the TaxPayers' Alliance is so vital. It also explains why some truly ludicrous trade deals can get through - the small number of people in industries that benefit from the tariff can organise while the broad swathes of society who benefit will struggle to.

Still, this case from the Aplia blog, via Marginal Revolution, is exceptional:

"Advocates of trade restrictions often argue that protection will save jobs. Since we can observe price and cost increases associated with trade restrictions, we can estimate how much it costs to save each job in a protected industry. According to the NPR story, there are roughly 30,000 dry cleaners in the U.S., and on average, each pays an additional $4,000 per year due to the hanger tariff. This indicates an average annual cost of 30,000 firms x $4,000 per firm = $120 million. According to the U.S. International Trade Commission's report, U.S. employment in wire hanger manufacturing was 564 workers in 2004 and fell to 236 workers by 2006. Let's assume that employment in this sector would have fallen to zero in the absence of the tariff, and that with the tariff, employment will recover to 2004 levels. In other words, assume the tariff "saves" 564 jobs. Dividing the cost of the tariff to U.S. dry cleaners ($120 million year) by the number of jobs saved (564 jobs) indicates that each job saved costs about $212,765 per year. Keep in mind that the typical full-time worker in this sector earns about $30,000 per year. Even if we assume that industry employment doubles, the cost of the tariff is still roughly $120,000 per job."

$4,000 per dry cleaner is well above the £100 per household that I figured it would take to get people to sit up and take notice of a decision that hurt their economic position. I can see a few possible explanations for why it happened:

1) The dry cleaners pass the cost on to their customers - that means the $4,000 is spread across hundreds of customers few of whom even know they're paying let alone care enough to change their vote.

2) Enough dry cleaners benefit from this measure which prevents new entrants to the market and puts some existing firms out of business - regulatory capture.

3) This measure won't last and is just an exceptional moment of madness.

Regardless, this highlights how divorced from basic common sense political decisions can become. It isn't just in America. European trade policy is full of similar lunacies, the Common Agricultural Policy is the biggest example, and there is little accountability for most public spending. We need to decentralise and hand decisions back to individuals so that powerful special interests cannot take advantage of us.

Tuesday, May 20, 2008

Failed asylum seekers and the NHS

Here is an interview I gave this morning, with BBC Radio Wales, debating plans to offer NHS care to failed asylum seekers with the head of the Immigration Advisory Service.

This is one of those plans that, at first, sounds entirely humane but cannot be economically and politically sustained. It is far too vulnerable to be swamped by those who seek to abuse the system and make Britain cover their, often very expensive, treatment. That would either create huge problems for the NHS and British taxpayers or result in the asylum system itself being curbed, to the detriment of those fleeing real persecution. When the courts don't take proper account of these sorts of concerns we wind up in the kind of absurd situation we're in now with regard to Somalian pirates who the Royal Navy can't detain for fear they'll gain a legal right to live in the United Kingdom.

Big Brother is watching

Government plans for a single, massive database containing records of all public internet activity, e-mails and phone calls, reported in the Times, are alarming. This system will be massively vulnerable to abuse and would allow Government officials to snoop, far too easily, on ordinary people. It is also likely to prove exceptionally expensive.

Holding the information in place will always make it easier for a system to be abused. Anyone looking to gain access to people's very personal phonecalls, e-mail or internet records will only need to gain access to, and then search, one system instead of many. The increased convenience to the unscrupulous will be of a greater magnitude than the improvement for those meant to be in the system, who don't need to crack into each database. Government claims that it will be secure are hardly credible after endless lapses in recent years.

Beyond that, government agencies have a track record of creating powers supposedly needed to tackle serious crime and then allowing them to be used to snoop on ordinary people, for extended periods, for inadequate reasons. Tim Aker, our grassroots co-ordinator, provided one example:

"The Regulation of Investigative Powers Act 2000 was introduced on the grounds that it would boost national security. Poole Council, being a creative sort, went well over their remit by using the powers to snoop on families. They monitored this unnamed family for three weeks, with intentions to stop them sending their children to a good school if they lived outside the catchment area."

You should fear the invasions of privacy this measure will facilitate even if you haven't done anything wrong and don't think that the Ed Balls is going to develop a penchant for the goose step any time soon. After all, it's all in the database:

Finally, this is almost certain to be wildly expensive. If you look through the projects listed in our report (PDF) on big government project overruns you'll see that many of the most troublesome, like the NHS National Programme for IT, are those that try to stitch together a lot of incompatible IT schemes. It tends to become a very complex and lengthy process as so many different organisations need to contribute. The Internet Service Providers and other companies involved have not created these systems with combining them in mind. There is every possibility this will become a wildly expensive project.

This new database will be vulnerable to abuse, encourage and enable snooping by officials and is quite likely to cost us a fortune. It should be abandoned.

Cross-posted from the TaxPayers' Alliance blog.

Sunday, May 18, 2008

One year at the TPA

This article was first posted on ConservativeHome's Platform.

I’ve been at the TaxPayers’ Alliance a year; I’m a year into my first serious job. It seems a good time to take stock and think about what that work is for. What is the role and function of the TPA?

Of course, there is a simple answer to that question: to campaign for lower taxes and public sector reform. However, I think that such a simple answer misses the deeper problem that the TPA addresses. The case for low taxes, and for the government to do less, isn’t just one more conflicting priority that must be lobbied and advocated for. Campaigning for low taxes requires us to confront the fundamental logic of how a democracy operates.

Mancur Olson, in a landmark work of political theory, set out the Logic of Collective Action in the mid-sixties. An understanding of his thinking is vital to understanding how the modern British state functions. He explained how a minority could effectively dominate a majority.

Any individual has a powerful incentive to free-ride on the efforts of the rest of any group providing public goods. While someone may want lower taxes they have every incentive to leave the political effort required to get tax cuts to others. The results of their effort, or slacking, will be diluted across all those with an interest in low taxes. It will not be in their interests to put the socially optimum amount of effort into securing tax cuts.

Successful societies evolve ways of encouraging people to act in the common good. However, it is harder for large groups to do so. It is easy to encourage six people to act in their common interest by personally appealing to their sense of duty, tradition, loyalty or shame. It is far harder to do the same for a group of sixty million.

Beyond that, in a large group each individual person will usually have less of a stake in a given decision than the members of a small group will. Suppose the British government were to decide to give £3 million a year from general taxation to the 125 residents of the isle of Iona, off the Western edge of Scotland. The islanders would each receive £24,000 a year. That would make a pretty substantial difference to their standard of living. People will definitely turn out to vote in droves to be given £24,000. By contrast, each taxpaying household would face a bill of about 12p a year. Who is going to change their vote for the sake of 12p?

I actually think that it takes about £2.5 billion – if it is paid for from general taxation - for a fiscal decision to become a real live political issue. At £100 a year, £2 a week or half of one percent of median gross income, people start to care. Anything smaller than that and you are no longer appealing to peoples’ concern at how their money is being used and can only really get them interested by finding some lunacy, perversity or corruption that is important or interesting despite the amount at issue being relatively minor. What so many people describe as apathy in the face of significant fiscal decisions is actually rooted in a rational decision to accord little importance to decisions that, in each case, have such a small impact on the well-being of each taxpayer.

£2.5 billion is a lot of money. It is more than the budget for the Foreign and Commonwealth Office. It is a real problem if a numerically tiny group can so easily extract, say, £1 billion as they have every reason to invest huge effort in presenting the benefits of their billion pound scheme and no one really cares about the cost.

Politicians are faced with hundreds of groups each claiming a vital need for a billion here, a billion there and it all adds up to a colossal, and increasing, tax burden far larger than the socially optimal amount. The political logic becomes simple: Group X won’t vote for us if we don’t give them taxpayers’ money. Taxpayers won’t change their votes for a few pennies each a week. Give X the money. This is repeated for group after group demanding taxpayer cash until people have little income of their own left, the economy is crippled and we are all less free.

Popular outrage at each overly eager use of their pocketbook is further weakened by a lack of transparency that means it is next to impossible to fully understand where taxpayers’ money actually goes – Group X gets their cash and no one but the politicians, civil servants and those directly involved ever hears about it. That’s the main purpose of the quangos that disperse so much taxpayer money with pretty much zero accountability.

There is no single ‘answer’ to the problem posed by Olson’s Logic of Collective Action. Olson himself came pretty close to claiming that only totalitarian revolution and then losing a war could clear the cobwebs of special interests out. I wouldn’t be as fatalistic as Olson though. It clearly is possible for political entrepreneurs to change things. He didn’t predict Thatcher’s successful challenging of union power, for example.

A vital, long-term, reform which would improve matters would be to decentralise and, thereby, decrease the scale of government decisions. If we make decisions on a smaller scale then the majority who need to be mobilised will be smaller and each member of that majority will be more interested in the outcome. If the difference in size between a minority who benefits from a fiscal decision and the majority who pay the bill falls then all of the problems discussed above become less severe. That is why the TaxPayers’ Alliance should always have a respect for localism in its bones.

However, localism cannot ‘solve’ the issue. Most local politics takes place with constituencies of tens or hundreds of thousands. The difference in size between a minority and majority can clearly still be very significant. The disparities that create the Logic of Collective Action can still exist in small democracies, even though they will be less marked than in large ones. Beyond that, few localists plan on abolishing central government and the Logic of Collective Action could easily lead a shrunken central government to grow again.

One thing we’re told a lot by groups who feel slighted by our research attacking their claim to public support for themselves or their cause is “well, I’m a taxpayer”. Indeed, most people are both taxpayers and, in some way, recipients of taxpayer funds. When I get my pay packet or buy something I’m a taxpayer. When I enjoy a painting at the National Gallery I’m a happy beneficiary of public generosity. The TaxPayers’ Alliance speaks not for a clearly identifiable group of ‘taxpayers’ but for the taxpayer in all of us. We speak for the cause of leaving as many pounds in peoples pockets as possible.

Our work is essential as we can help better mobilise the majority, on each individual issue, that has to pay for each government scheme. By making it easier, more rewarding and more obviously necessary for people to look at and take account of the cost to taxpayers of spending on each item we will make it less likely that the Logic of Collective Action will lead to the wrong decision being made. We make wasting each £1 billion a politically bigger deal.

It requires a thick skin. When people are told that their, often quite reasonable, particular pet use for taxpayers’ money – whether higher doctor’s salaries, more wind turbines, increased museum subsidies or anything else – may not represent good value it is understandable that they sometimes take it poorly. It also requires willpower as trying to fight against the very logic of collective action is quite a challenge.

However, the work is essential to our future prosperity and the defence of the basic freedom of ordinary people to spend a good portion of their money as they see fit. The TaxPayers’ Alliance needs to be eternally vigilant if economic liberty is to survive.