BP

I was recently asked by the LSE Student Newspaper, the Beaver, to write an article defending BP from its critics (a critical piece was written for the same issue). As the editor didn't know the precise line of attack from the critical piece I responded to a couple of the most common critiques of BP. As the Beaver does not have an online edition here is the article:

Carnegie’s charitable endeavours have left libraries and cultural centres of various kinds all over America. However, his greatest contribution to the welfare of the rest of the United States and the world probably came not from this act of kindness but from while he was building his own wealth through industry. Innovation in the production of inexpensive steel to form the tracks for the railways played its part in making America a cohesive nation, created huge savings for passengers and, through savings in freight costs, savings in the costs of all manner of products for consumers. His work helped make the skyscrapers which crown New York. Similarly, those looking at the profitable corporation that is BP right now should be aware that its corporate activities have positive impacts which, while less obvious than handouts from governments or charity, are, nevertheless, massively important.

When listening to Gordon Brown’s complaints about how oil prices are hurting the UK economy it is important to remember that we have only just become net importers of oil and our net imports are negligible. The only way that high oil prices can cause trouble for the British economy is if they crash other economies, like the US, which are genuinely dependent upon imports of oil. As the US economy is still importing Britain’s economic sluggishness cannot be blamed on the oil price. This means that the effects, in the UK, of a high oil price are to shift income from motorists to the shareholders of oil firms like BP. Concerns about whether it can be fair for BP to be making so much profit, $22.3 billion last year while British motorists are facing stiff rises in the cost of petrol don’t stand up to scrutiny. BP dividends make up around 17% of the entire income of UK pension funds. When the introduction of means testing and tax raids on pension funds have led to a reduced incentive to save and a fiscal crisis looms on the horizon thanks to too many pensioners relying on tax income to provide for them in their, increasingly, old age increasing the income of pension funds has to be a good thing. A shift in income from motorists to pensioners cannot be seen as an injustice. Oil profits, which some commentators seem to view as money lost to the ether, actually help us get away with policy mistakes that discourage proper provision for old age.

BP’s environmental record is a bad one if compared with the environmentalist idyll of people giving up on foreign holidays and driving to work. However, if the reality that the world currently runs on oil is accepted as beyond BP control their record starts to look very good. Their investment of $8 billion over 10 years in alternative energy is a vast amount of money. It is also money being spent by a company interested in making alternative energy a practical and economical proposition rather than on basic research with only the vaguest of expectations that it will result in workable solutions. If hydrogen cars and solar power become a reality it will, most likely, be a result of investments by energy companies like BP, along with other big investors in alternative energy like Toyota. Equally, BP’s work on reducing emissions has been hugely successful, meeting its target of a 10% reduction eight years ahead of schedule, and has also been hugely beneficial to the company. BP has saved $600 million through the efficiency gains that have created this fall in emissions. Achieving significant cuts through emissions through this sort of efficiency provides a practical way forward, with current technology, in efforts to combat climate change.

The environmentalist movement can be its own worst enemy. Condemning BP is to attack on of the best hopes for improvement in the way we treat our environment. Equally, the Chancellor can be the worst enemy of the British economy. By putting in place windfall taxes on oil profits from the North Sea he hurts investment there and hastens the day when Britain’s economy can genuinely be wrecked by increases in the oil price. Taxing the profits which provide the incomes of pension funds further undermines any effort to overcome the economic challenge of our ageing population. British Petroleum is a company to be proud of.

David Miliband and the Vast Right Wing Conspiracy

Is there actually anyone competent left in the Labour party? Currently David Blunkett (twice), Hilary Armstrong, Estelle Morris, Peter Mandelson (twice), Keith Vaz, Stephen Byers and more have already been forced to resign. Tessa Jowell, John Prescott, Charles Clarke and Patricia Hewitt have disgraced themselves enough to warrant resignation if the allegations that Prescott did more than just sleep around are true.

That leaves Tony Blair (who's promised to leave), Jack Straw (why?), John Hutton (who Brown clearly dislikes), Margaret Becket (why?), Alistair Darling (dull), John Reid (should really be a bouncer), Geoff Hoon (demoted for a reason), Peter Hain (dull), Ruth Kelly (hasn't there been an education scandal yet?), Hillary Benn (is the country ready for another Benn yet?) and Des Brown (who?) in the Cabinet and not proven liabilities. Hardly the most inspiring of lists.

Perform a similar experiment for the end of the Major years and you had Ken Clarke, Michael Howard, Michael Portillo, Malcolm Rifkind and William Hague all left with sufficient credibility and substance to later make leadership challenges. Like them or loathe them they were national figures none of whom had done anything worth resigning over. Probably the closest to such notoriety was Michael Howard thanks to the Paxman interview but I doubt that any of the current Labour scandals will be looked back on as such non-events. Perhaps Alistair Darling could mount a John Major style dark horse ascent but I doubt it. None of the names in the Labour list look like they are going anywhere despite their being ministers and, hence, those you would expect to become national figures during Labour's long stay in government.

Given that we still, theoretically, are a country of cabinet government where a Prime Minister is only the first among equals it is important that Brown have impressive figures around him. He is hardly the magnetic political personality required to carry a government alone. How on Earth are the Labour party going to build an impressive government with such an unimpressive set of ministers? Granted there are Brownite back-benchers sure to be promoted but they will be establishing their national reputation pretty much from scratch.

Of course there is one name in the Labour cabinet I haven't mentioned yet. Ask a Labour supporter to name someone impressive in the parliamentary Labour party and they will almost certainly give you one name; David Miliband. David Miliband is apparently a "thinker" and the great hope of those still attached to the Labour party. This Observer article gives a decent account of what the Blairites think of him.

What does this mean for the Tory party and blogosphere?

We have ourselves a target... being local government minister hasn't he, just once, offered to alter the funding formula in favour of the local council which paid the most into his Tuscany fund? Being a Labour minister surely he's paid an illegal immigrant he met in a Carphone Warehouse to come back to his house and choke him while he touches himself?

We need to find out... get to work people.

Brown's Advice to the World on Oil

Over at the ASI Tim Worstall is explaining why a lack of oil supply is due to intervention in the oil markets in the new oil demanding countries as much as it is to any failure of the free market. What he doesn't mention is that we can find such unfortunate intervention far closer to home than Mexico.

The free market response to rising oil demand is that it will increase prices which, in turn, will incentivise new investment and make new fields profitable. It's no co-incidence that North Sea oil came online not long after the last oil price shock. This mechanism is ruined, however, if you take the opportunity, as the Chancellor has done, to place a windfall tax on oil profits as this endangers the market signal that increased investment in oil will be rewarded.

This harms investment in the North Sea and is likely to hasten the UK's move away from supplying most of its own energy needs. This will make the UK more vulnerable to oil price shifts and make the oil prices a more credible excuse for incompetent Chancellors in the future. At the moment a rise in the oil price is no direct concern for the United Kingdom, particularly if countries like the US which genuinely depend on oil grow more robustly.

The Safety Elephant fails to keep us Safe

Charles Clarke is currently trying to separate himself from the utter mess that is allowing hundreds of foreign nationals who should have been considered for deportation to remain in the UK after completing their sentences. Even after this problem coming to light there is mounting evidence that the response has been slow enough to allow hundreds more after the Home Office was aware of the problem. All this makes the concerns over reducing compensation to victims of mistakes by the Home Office even more salient. Is this a department we want to give immunity to compensation claims?

Iain Dale doesn't explain his mystifying personal attachment to a Home Secretary who has spent his time restricting civil liberties, freedom of speech and is now failing to fulfill his basic duties of administration but still comes to the correct conclusion; Charles Clarke should clearly resign.

The Conservative Movement and the Democrat 'netroots'

A broader conservative movement beyond the Conservative Party will play a key part in making the renaissance in British right wing politics become a lasting change. As such the multitude of blogs and campaigning organisations currently forming have to be a source of hope. However, at this, relatively early, stage there are choices which have to be made about the kind of movement that we want to be.

Last week's Economist contained an article about the failure of the Democratic party to take advantage of the weaknesses created by Republican incompetence on major issues. The article made it clear that the Democratic Party's 'netroots' can create problems by preventing the party sticking to the center and expecting the Democrats to focus upon their pet causes (indicting Bush is a favourite):

"The embrace is awkward, though, because the netroots are always goading
the party to get as angry as they are. They tend to favour the most frothingly
anti-war, Bush-bashing candidates, who usually lose at the polls."

I think that the Conservative Movement has the potential, and is likely to be, a huge boon to the Conservative Party but it will need to avoid the temptation to force its priorities, from Europe to Immigration, on a party that needs to appeal to a broader mass of voters. Disagreeing with the party is part of a debate in any mature political movement but that debate has to keep the political reality the parliamentary party is facing in mind.

Layard makes me less Happy

Layard's book on happiness is out in paperback and continues its inexorable march to the forefront of left wing economic thought. His work has always upset me (I'm not the only one) as I have a feeling that he, as an LSE academic, reduces the value of my degree every time he further embeds us into the socialist ferment. The precis of his argument that is contained in the New Stateman article published on his page at the Center for Economic Performance is more than sufficient to allow you to understand what he is getting at and why he is wrong so I wouldn't recommend buying the book unless he actually convinces you with the article and you want to implement his awful ideas. If someone tells me the book has seen him perform a U-turn then I might consider reading it, however, I doubt that is the case and as every page of the New Statesman article leaves me less convinced I don't think a book length dose of Layard will leave me converted.

He leads into the article, and I presume the book, with the fact that survey evidence suggests no increase in happiness since the 1950s despite vast increases in income. This is, as he notes, due to the fact that people's aspirations also change over time in line with their incomes; the ability to own a TV made you a king in the past but now seems dull and ordinary. He then argues that the rise in aspirations means that there are externalities to being rich which deserve high marginal taxation in order to reduce their numbers and compensate for the "pollution". Layard has, therefore, justified the crudest kind of old socialism which explains why he is being published so widely in founts of common sense like the New Statesman. Flaws with Layard's work in no particular order:

1) His study of happiness is vulnerable to the Lucas critique. While the notion that only relative changes in income matter may be true now if the engine of steady increases in income stops this result could certainly change. Perhaps people only treat incomes as a relative quantity when rising absolute amounts are a given and they have the luxury of comparison? Perhaps the steady state happiness with no growth is a lower amount?

2) He assumes that global governance can be established. Were high marginal rates adopted in Britain we would be able to compare ourselves with the French and everyone else we had become poorer than. We would also suffer a chronic decline in national power. People like their team to be winning and would be unhappy to see our collective status so diminished.

3) He assumes that income comparisons are made between a person and the mean income. More likely people compare to their peers (those at a similar status to themselves). I find it credible that seeing richer students around me makes me feel poor and inadequate. However, Bill Gates is simply outside my frame of comparison at the moment and I would expect this is true for nearly every person who isn't incredibly rich. This suggests that reducing the number of rich people won't make much difference to the happiness of the middle classes or poor.

4) He first argues that comparing yourself with those around you is an inescapable part of human nature and then almost immediately that performance related pay is dangerous because it encourages you to compare yourself with those around you.

5) He dismisses the connection between high levels of legal protection of job security and unemployment despite the simple logic that making people hard to fire makes them far more risky to hire and the evidence available from a cursory examination of the results in the continental European states. He does this by arguing that there are unnamed "exceptions" and claiming a lack of welfare to work is the problem. Given that welfare to work only affects the willingly unemployed is he arguing that there are plenty of job opportunities available in Germany and France right now? That the unemployed of the banlieues are all choosing to remain on benefits because the income from working isn't worth the effort?

6) He uses the data on the decline of trust in others as evidence for a general moral decline rather than using the simpler explanation that people spend more time dealing with those they don't know and should be careful about trusting.

7) His logic extends to other activities besides getting rich which have implications for the happiness of others. Ann Coulter probably upsets far more people than she enthuses. The clear implication from thinking in happiness terms is to censor her. Equally, some people are real misers and will bring down those around them; thinking in terms of happiness suggests shunning them or worse. Without liberalism the kind of crude utilitarianism Layard is proposing requires some fairly unpleasant behaviour; if Layard is willing to admit liberalism in cases of free speech then surely he has to extend it to free economic activity?

8) He ignores the Brave New World critique. For someone who wants to establish "happiness" above all else this is surely a massive failure. If we all want to be really happy why not just drug ourselves silly? His section on Mental Health sounds positively sinister in this light.

I'm sure there are plenty more reasons why Layard is wrong; that's just a quick survey. In the end he has chosen a measure of human progress (happiness) which sounds inoffensive but which is used as a blunt tool to attack human progress on the grounds that keeping up is stressful. This is a part of the intellectual tradition that has us drugging our poor until they can't feel the pain any more. This is the latest manifestation of the Left's ability to find a new way to be wrong with each passing generation.

Immigration Policy and the Points System

Eventually the Conservatives will have to form an immigration policy. I am entirely with the Cameron strategy of spending as little time talking about immigration as possible. The political benefits of increasing the enthusiasm of a few core voters can't be worth trading for losing the chance to fight our reputation as the nasty party. Equally, the argument that we need to focus on immigration policy in order to undermine the BNP seems to be predicated on the idea that the BNP are highlighting reasonable concerns about immigration; they are not. The proper response to the BNP is to explain why they are wrong rather than attempting to reassure people that mistaken notions of our country being swamped are being taken seriously. However, it is still important that the Conservatives have a policy offering on such a contentious issue. To be without a convincing policy on immigration would be a dismal failure of imagination.

A few axioms from which policy formation can begin:

1) Immigration is generally good for the economy as it alleviates skills shortages in key sectors of the economy.

2) Too much immigration places a strain on the ability of any society to integrate the newcomers and ensure smooth community relations.

3) We have a moral duty to provide safe haven to those fleeing persecution abroad.

With axiom 3) in mind it is pretty clear that leaving the 1951 convention would be a dereliction of duty. We do not take a particularly high number of asylum seekers relative to the rest of the world so have no substantial grounds to complain. There are justified complaints about the failure to deport those who are judged to not be genuinely seeking asylum but other than that complaints about asylum seekers are morally bankrupt.

With 2) in mind it seems sensible to have some kind of limit on the numbers of economic migrants allowed in. I am not sure of any way of 'automating' this decision so I think it is probably necessary to set a limit for total immigration of X thousands. The number of economic migrants allowed would then be X - asylum seekers. If asylum seekers exceeded X then some flexibility could clearly be shown as that would probably mean an exceptional humanitarian crisis.

2) also begs the question of how we deal with those with no desire to integrate and form a constructive member of British society; the Germans have a, fairly radical, solution that I mentioned in a previous post.

The final question is therefore how to allow for 1) and ensure that economic migrants are allowed in who provide the greatest benefit to the UK. The problem with using a points system, as we have recently introduced, is that we are relying on the government to predict and ration out a valuable economic resource. Government is very bad at this and makes mistakes, as it has in Australia, which leave sectors of the economy without the workers they need and others oversupplied with immigrant labour.

The best solution would seem to be to auction off slots for economic migrants to employers who wish to employ migrants. Once a company has bought a slot that entitles it to bring in an economic migrant and it should advertise for migrants abroad as it would for workers in the UK. This would ensure that the migrant slots are allocated to where they are most needed. As the total number of economic migrants would be determined by the exogenous variables of the political target and asylum applications economy wide skills shortages would still increase the general price of obtaining a worker and the incentives to develop the skills of current citizens would not be significantly endangered. The money raised would also be something of a fiscal boon in place of the administrative cost of a points based system.

The basics of a conservative immigration policy?

The NHS

Tim Worstall links to an article by Simon Jenkins which provides a brilliant history of exactly why the NHS is needing to go through so much painful reform now and exactly why the idea of Labour saving the NHS from the Conservatives was always a joke.

It also explains exactly why Mr Eugenides is having such trouble adjusting to Hewitt's analysis of the state of the National Health Service.

A few choice selections from the Jenkins article:

"Yet as a recent report for auditors KPMG by Rupert Darwall — a director of
the Reform think tank — has shown, Thatcher’s fundholding yielded a more
dramatic fall in waiting times than did Labour’s extravagance."

"When Blair came to office in 1997 he wrecked this structure out of sheer
political vengeance. His health secretary, Frank Dobson, dismantled fundholding
and the internal market and reduced the NHS to administrative chaos. "

"After a further doubling of health spending Blair has returned to where
Thatcher was in 1987, with fundholding, trust hospitals and internal markets.
This time he appears to mean it, but he will need to keep his nerve."

"GPs should go back to the arrangement before the war, under the wing of elected local health committees. They were cheap and they worked. There will be “postcode lottery” rows. But democratic accountability will be clear, as in Scandinavia, Germany and other countries where healthcare contrives to be better than ours yet is not “nationalised”. In Denmark just 5% of patients need treatment that cannot be supplied within the remit of their elected county health authority."

The Economics of getting fat at the cinema

Apparently childhood obesity is rising at something of a shocking rate. I don't honestly think there is much the government can do about this even if it wanted to regulate what is a lifestyle choice. With the amount of heavy people around it is somewhat disingenous to claim that people do not know that obesity is a possible result of eating too much and not exercising. Equally, while the details of the health implications may not be understood the social consequences of being fat are regularly brought home by media and peer pressure; unlike cigarettes, obesity really isn't cool. A fat (fatty food) tax necessarily means taxing the poorest people most and only strength of anti-corporate feeling stops even the left dismissing it on those grounds. My own experience is that I took up sport as soon as I hit sixth form and didn't have the school minimum forced on me so I am suspicious of government programmes to get the nation exercising.

What I am currently struggling to understand though is the change in the size of drinks at cinemas. When I first headed out to the States I was amused that all of the portions were a size or two up from what I expected in the UK. Now it is safe to rely on a small being what used to be a large and when I ask for a small it is almost certain that I will be told a large can be mine for a negligible increase in price. My best understanding of the economics behind this is that the increase in cost to the cinema of increasing the size is insignificant but that an increase makes people less likely trouble over paying extra. Despite this it would seem that the cinemas probably cause some people with appetites less formidable than mine to either not buy a drink or share it between two or three people. This would seem to be quite a risk as this halves the cinemas income from the sale and therefore offsets a lot of marginal rises in price. The effect of all this on me is unambiguous though, I order a small and drink more than I did before when I ordered a medium.

That I am talking about the old days at twenty two worries me. Only trying to relate to myself before the existence of the Internet and e-mail gives me a similar shock of modernity.

On another note popcorn's margins are some of the highest of any product; less profitable than Kalashnikov's but without the risk.

The BNP and the Left

Alice Evans is perplexed by Lord Tebbit's description of the BNP as left wing and cites the letters in the Telegraph today in response to Tebbit's argument.

Objectively and thoroughly assessing this view is clearly difficult because the definitions of right and left wing do not properly capture the subtleties of political belief but I think Tebbit's analysis is an entirely sensible one. There are two plausible definitions of the right wing which have value in making our assessment of the BNP's leanings:

1. A belief in the value of free markets and distrust of the constructive value of state power: This fits with the modern conception of the right wing's views on economics. When Stiglitz describes a "market ideology" as a great evil he is clearly positioning himself on the 'left'.
2. A distrust of radicalism: Right wing parties have always had a belief in the value of tradition as a social glue and a repository of collective experience in making uncertain policy choices.

As Tebbit points out that the BNP is clearly on the socialist side of the economic debate. Opposition to globalisation, belief in nationalising services considered important and a suspicion of the interests of capital are the mark of the left. On one of the key battlegrounds of modern politics the BNP clearly cannot be described as right wing.

Equally, the BNP shows little attachment to incrementalism. A conservative, right wing, response to concerns over immigration, which are widely held, is to take action to reduce new immigrant numbers and encourage integration. A classic right wing response to immigration is the one put forward by Krauthammer recently. Radical responses such as repatriation advocated by the BNP cannot have much attachment to those with an interest in social stability and suspicious of radical panaceas.

The two letters responding to Lord Tebbit's both miss the point. The first sees the sum of the right wing in authoritarianism. Tebbit has already answered this point: As the most authoritarian states of the 20th century were clearly left wing (Maoist China, the GDR with the Stasi, the USSR) this cannot be a preserve of the right. To identify all those who believe in maintaining the state's authority as right wing is clearly mistaken.

The second letter argues that as the Nazis were right wing the BNP must also be. This would work if the other fascists were objectively right wing but they are not. The Nazis also believed in state control of industry, autarkic trade policy and a radical's break with tradition. This is why they were called the National Socialist party and why supporters so regularly moved between the Nazis and the Communists. Mussolini was a notable transfer from Socialism to National Socialism and saw little contradiction.

Tebbit is clearly correct that the BNP as fascists do not fit on the right wing of the ideological spectrum.

Dave the Chameleon made easy

The "Dave the Chameleon" attack ad is funnier with a few modifications by Tim Ireland.

Dalrymple on lawless England

Dalrymple is one of the most powerful moral commentators writing today and his new piece for the City Journal is no exception. He discusses the modern trend towards public policy being focussed upon managing people's thoughts and private behaviour rather than preventing genuine acts of violence and criminality; lenient towards violent crime but hard on smokers. This suggests a move from the night watchman state to the parallel opposite of one that enjoys its nannying reponsibilities but finds maintaining the peace an encumbrance. Such a move is an abandonment of the traditional virtues of the English nation.

I do not see a desire for this move in the public; people favour a more forceful approach to maintaining law and order and view intrusions into their ability to make their own decisions with derision at best. However, it is generally true in a democracy that a public gets the leadership it deserves. Pretending that Chirac, Sarkozy et. al. are failing France neglects the reality that had Thatcher been borne French she would probably have wound up a frustrated councillor at best. This tendency means that I cannot dismiss the idea that we are not being led astray by our political class but actually want a state telling us what to do and giving those who leave someone permanently disabled in a vicious assault a token sentence. What I'm having trouble working out right now is why.

A Tory Reshuffle?

ConservativeHome is being briefed by anonymous sources that George Osborne may be replaced by William Hague as Shadow Chancellor. I think that if this happens it could well prove to be an unfortunate mistake. When Osborne spoke to the LSE Conservatives he was reassuringly confident and his grasp of economic policy impressed all those present. Despite him being in a room with many well trained non-Tory economists he left little doubt of his command of the fiscal options available to the Treasury. By comparison Hague's past form is to be incredibly impressive in minor roles and then fail to control a larger brief (the leadership).

Whoever the anonymous contact was didn't help his case by describing how campaigning on immigration and law and order was necessary to do well in the local elections. As David Davis is currently the Shadow Home Secretary it seems unlikely that this is due to not having right wingers in the right places. Cameron has maintained a tough stance on crime and the lack of material on these issues is a result of the long policy formation schedule as much as anything.

The main rationale appears to be that by appointing a right winger as Shadow Chancellor Cameron can assuage the fears of the right wing of the Conservative Party on the central issue of taxation. I am sceptical of the foundations of this fear as it is based on the statement that tax cuts would not be prioritised ahead of economic stability. This is an ultra Conservative statement (Herbert Hoover among others would be proud) if you read it literally as a statement that if the public finances make cutting taxes an imprudent risk you will not countenance them (Keynes criticised Hoover for prioritising a balanced budget over fiscal stimulus). An awful lot of unfounded speculation is required to take it as suggesting that Osborne is a Keynesian.

New Design

The amount of black on my blog was becoming oppressive. The new design makes the site a much easier read I think. I hope you all like it.

The Hidden Costs of Charity Parachuting

Buried away in a tiny Telegraph column this week was a reference to one of the best academic studies to emerge in a long time. Doctors in a Scottish hospital have looked at the hidden costs of charitable parachuting, to the health service in particular, and published the results in the journal Injury (the link is to the abstract unless you or your institution subscribe). They found that the injury rate was 11% and the serious injury rate 7%. Minor injuries cost the National Health Service £3751 on average and serious injuries £5781.

As the average parachutist raised all of £30 (this is just a day out after all) each pound raised for charity cost the NHS £13.75. Every one of the charitable types who feels terribly virtuous raising money for charity in this way is actually preventing the health service treating the sick.

Dave the Chameleon

The new Labour party political broadcast is so bad it actually hurts to watch it. It cites as contradictions in Cameron's political views not beliefs he has actually changed but the statements that he wants to be leader of the Conservatives, is the heir to Blair and is a liberal Conservative. As he is a liberal leader of the Conservatives who could yet succeed Blair as Prime Minister this is only a contradiction in the Labour Party's tiny collective mind.

If Labour really regard Cameron's adoption of policies associated with other parties as dismissable on grounds of inconsistency alone doesn't this suggest that they are approaching policy formation as an exercise in dogmatic rigidity. Accusing someone of being open minded can surely backfire. Charging Cameron with being superficial when your broadcast is of an animated chameleon and his is focussed on the environmental record of various Tory councils has to ring hollow.

Dave Cole is a friend of mine from the LSE and the Labour council candidate running in St James ward in Westminster and, in his newly revived blog, utterly condemns the broadcast which is supposed to be supporting his election. When even the most ardent of Labourites is put off by their election material surely it is time for a rethink at Labour HQ?

Stiglitz demeans the Nobel Prize

Stiglitz has demonstrated without a doubt that it is possible to be a very successful academic with the intelligence of a massively overweight domesticated cat. His article on China for Comment is Free is one of the most poorly argued and substantiated pieces I have ever read.

He notes that China has seen massive growth in recent years. He then notes that China has often upset the West and Washington in particular. He connects the two to establish that China's success has come from its plucky rejection of the Washington Consensus. Apparently the reason for its success in raising GDP is that it hasn't focussed on GDP but instead on the environment.

Of course this is complete rubbish. The Chinese state is massively concerned with GDP with internal fears that if growth slips below 7% there will be serious social unrest as discussed in this Deloitte report (PDF). By contrast all they have done to justify Stiglitz's optimistic account of their environmental policy is make sure that the "new plan places great emphasis on the environment". Taking statements of benign intent from a Communist state as gospel is surely a mistake the Left should have left behind some years ago after the Soviet growth miracle turned out to be fool's gold. The actual picture, as chronicled by Jasper Becker in The Chinese, is that the Chinese environment is one of the most heavily damaged in the world with collosal pollution problems in the cities and water shortages in vast swathes of the country thanks to Mao's grand schemes gone wrong. It's plans on global warming will not make much of a dent in the amount put out by the hundreds of new coal power plants it is planning.

Equally he is incredibly sanguine about the prospects for the new Chinese plan for education. Again the reality can be seen in this report by Becker for the South China Morning Post: The Kuomintang in 1936, in war time, spent 3.6% of GDP on education. This had fallen by 1992, in peace time, to around 2% of GDP. Becker notes that Tony Benn and J. K. Galbraith were making the same mistakes as Stiglitz back in the seventies and trusting the absurd story put out by the Communist party of superb new education schemes. Of course things are improving with rising incomes but the reality is that Chinese education is paid for by fees at school and university level. Chinese public services generally have far less state support than those in the West and certainly look nothing like Stiglitz's visible hand guiding the market.

That the Chinese state is a great force fighting inequality is palpably absurd. It's officials enrich themselves by taxing the poor to the point of rioting and, as reported recently on Sky News, confiscating their homes without compensation. A massively corrupt state means that property rights cannot protect those who have fallen prey to bureacrats on the take. By contrast government officials in expensive cars with tinted windows roaring around Chinese cities symbolise the wealth of the civil service elite. The grand plans that impress Stiglitz so much should come second to the state ending its role as an active promoter of inequality.

Finally the idea that the state is responsible for rapid growth and maintaining economic stability is absurd. As reported by Allen, Qian and Qian, the growth rate of the formal (mostly state led) sector has been around a quarter of growth in the informal (private) sector despite the huge advantages in financing and legal protection secured by state power. Equally, the potential for instability comes from the massive bad debts contained in the state led financial system and from intervention in its currency encouraging unprofitable industry rather than from unmanaged capitalism.

Fortunately, the Chinese don't take people like Stiglitz seriously. Marginal Revolution reports that the Chinese were the most likely of several countries surveyed to agree with the statement that the best system is the "free-market economy" (more so than the Americans). While the statement is likely to mean different things to the different groups interviewed support for it among the Chinese does suggest they have seen the difference between the socialist and capitalist parts of their nation and know which they prefer. Anyone who has been to Beijing's Silk Market or wandered the streets of any of the bustling cities will see that the Chinese can make superb capitalists if their state gives them the opportunity.

"Big Nuclear"

Greenpeace have rebutted a report from the Chernobyl Forum working for the IAEA, WHO and a number of other organisations and UN agencies. While I do not have the means to establish whether Greenpeace or the Chernobyl Forum are correct in their assessment of the death toll from the nuclear disaster one particular piece of logic infuriated me:

"[the nuclear industry have a] vested interest in playing down Chernobyl because it's an embarrassment to them".

Given the membership described above it hardly makes sense to describe the Forum as part of the nuclear industry but even if it was couldn't a similar statement be made about the Greenpeace rebuttal?

"Greenpeace have a vested interest in playing up Chernobyl because it helps their fundraising and campaigning against the modern nuclear industry".

Wouldn't it be easier if everyone debated the issues rather than their opponent's character?

Cameron's Dog Whistle

Margaret Hodge believes that there is going to be a big rise in the numbers voting for the BNP in her constituency and others like it. Apparently concerns over housing combined with an influx of immigrants have proved fertile ground for an anti-immigration challenge in Labour safe seats.

It should not be too much of a surprise that it is Labour dominated areas which are seeing the rise of the BNP. Immigration is an overwhelming economic good but it has to be accepted that there are winners and losers. Increased competition for low skilled work threatens those who are already poor. These people are generally Labour voters. Conservative voters are concerned about immigration but are mostly better off and, hence, for them immigration is a far more abstract issue. They do not live in the areas immigrants move to and do not work in the sorts of jobs that immigrants generally compete for. Equally, they are not in competition with immigrants for housing and other limited resources. Instead they have the luxury of worrying about more distant issues such as the environment.

This logic raises some interesting questions about whether David Cameron is really attempting to convert enemies who will never vote for him. Environmental issues and the other elements of being a 'nice' party matter most to the middle classes for whom other issues, like immigration and social breakdown, are less pressing. Talk of the 'metropolitan elite' who the Conservatives cannot recruit from misses the simple point that it is the votes that the Conservative party most needs to win, the swathes of the middle classes who did not return to the fold at the last election, who will base their vote most upon a broad conception of whether a party is one they would invite for dinner. Of course, issues like tax and the management of public services will still form the central battleground by the time of the election but while those policies are still being formed and the election is years away changing the perception of the party such that we cannot be dismissed as nasty is a fine way for Cameron to be spending his time.

Of course, this focus upon becoming acceptable to the middle class who have deserted the party since we last won elections does not mean that our long term fight for the votes of the northern cities needs to be sacrificed. Talking about the environment is a dog whistle which those who spend their time worrying about immigration will not hear. As we are still committed to maintaining a tough stand on issues like law and order we will retain the policies required for the slow struggle to revive our presence in the north.

Cameron using dog whistle politics to pursue Conservative core voters? More plausible than it sounds.

South Park vs. Self-censorship

South Park has attempted to take a stand over the cartoons of Mohammed. It appears that when they put a show based around the cartoons to Comedy Central they were told that the network would not show any episode depicting Mohammed. In defiance the South Park staff put out a show based around censorship of a fictional Family Guy episode which offends Muslims. Over two episodes they make a pretty complete, and utterly correct, case for freedom of expression.

South Park can clearly not be accused of victimising Muslims. Early in the first part Cartman asks Kyle how he would feel if a cartoon made fun of the Jews; South Park has endlessly done so. Equally, it is clear that the same self-censorship is not being applied to the sensitivities of Americans; at the end a fictional Islamist response is shown which has Jesus, the President and the US flag defecating and/or being defecated upon. By contrast the censored image of Mohammed is of him passing an American football helmet with a salmon on top of it to Peter; hardly dynamite stuff.

For a while after the airing of the show there was considerable confusion. Ed Morrissey and many of those posting on the South Park Studios BBS thought that this was all a joke and that the South Park staff had not wanted to show an image of Mohammed at all. However, reliable reports and statements now indicate that the censorship came from the network. There were good reasons to suspect that Comedy Central would not prove a worthy partner to South Park Studios as they had removed an episode concerning Scientology from the rotation just a few weeks earlier but even so it is a shock that they would prevent an unmodified episode seeing the light of the day at all.

If a show as famous as South Park is not able to express itself clearly then there can be little doubt that one of the West's fundamental principles is in danger. Freedom of expression is a right which has important functions in enabling creativity, proper debate and accountability as well as being a value choice. Fear of terrorism cannot be allowed to endanger free speech.

The death penalty and 9/11

I don't support the death penalty. I think that the act of killing someone who is defenceless and a danger to no one (as they must be when strapped down waiting to be electrocuted or injected) makes a coward of the state. However, some people really do make opposing the death penalty difficult.

I think that the documentary on Channel 4 looking at the 9/11 hijackers experience in the months leading up to the hijacking which aired a year or so made something of a mistake. There isn't necessarily a problem with attempting to humanise the attackers if it is done well and the documentary did make sure to highlight the betrayal of families that was involved. However, in choosing to end when they boarded the planes it managed to avoid dealing with the fact that the hijackings, as can be seen in the account of the recordings above, clearly required utter brutality.

While humanising the hijackers the film lost sight of the human consequences of their attacks. Holding a knife to a woman's throat, killing her, stabbing the unarmed passengers fighting for survival, barricading yourselves in the cockpit while bringing the plane down. These are the actions of cowards and monsters and humanising them cannot get around the fact that they possessed free will just like the rest of us and chose a truly evil path. This is a good illustration of the challenge that liberalism poses. Opposing the death of someone responsible for something so utterly horrible is an ugly business.

Blair's failure of leadership

I think that the mainstream press has somewhat missed that neither the Tories nor UKIP can match Labour for putting closet racists in positions of power. As such I think I'll send the following letter to the Prime Minister so that at least he might see the reality of the situation:

--

Dear Mr. Blair,

London’s mayor, Ken Livingstone, has recently been in China and has compared the Tian’anmen Square protests, in which thousands were killed opposing a dictatorship, to the London Poll Tax riots, in which no one was killed opposing an unpopular policy of a democratic government. This suggests that he puts an incredibly low value on the lives of Chinese demonstrators. An attitude such as this is entirely inappropriate for the mayor of a cosmopolitan city such as London.

Prior to this Mr. Livingstone has demonstrated anti-Semitism on two occasions: Firstly, by repeatedly comparing a Jewish reporter to a guard at a concentration camp. Secondly, by telling the owners of a company running a regeneration project in Stratford to “go back to Iran and try their luck with the ayatollahs”.

All of these actions hurt race relations in London and demean Mr. Livingstone’s office. The High Court has ruled, quite rightly, that the standards body does not have the right to suspend officials with an electoral mandate. For this reason it would appear that this is a situation in which free speech combined with a desire to avoid gratuitous offence is best served by not suspending Mr. Livingstone from office but, instead, expelling him from the Labour party.

Recently, when a Conservative candidate for councillor stated that an ethnic minority candidate would not be appropriate for their ward Phil Woolas complained that David Cameron had “failed the test of leadership by refusing to take action”. Doesn’t that logic apply here as well?

I would like to ask you, as leader of the Labour party, to take action to sever links with a man who is an embarrassment to the Labour party, London and, by association, yourself.

Yours,
Matthew Sinclair

--

Any chance of a response? Not much but you get the point.

New Conservative Movement Awards Launched

Conservative readers of this blog should go and take a look at the new Conservative Movement awards being launched by ConservativeHome. Seems like a good idea as a networking event for the Conservative movement as much as anything.

At the moment they are discussing the categories. I would suggest that it will be important to include best newcomer in many of the categories. While these are the inaugural awards I think there is still a function to noting those who are less well established. A balance needs to be struck between giving the huge blogs like Iain Dale and Guido Fawkes the awards they deserve but also giving real amateurs something to play for.

Chirac scraps Youth Job Law

It appears that Chirac has surrendered to the protests against the CPE. While the replacement policy he has promised could revive moves towards greater labour market flexibility it seems unlikely he will risk a revival of the protests. Most likely the law will be replaced with a new measure which either introduces no significant change or an active harm such as 'job creation' (as Marginal Revolution notes even the economists still support such ideas in France).

As I have noted in an earlier post this situation appears to be the result of a political mainstream able to put the interests of an employed population interested in stability above those of the unemployed even with staggering numbers out of work. All this requires is a belief that the unfortunate are best helped by the state and a disturbing desire for security at any cost among French youth. The Economist was right to note that, for all their rebelliousness, they display a "chilling lack of ambition" when asked to face the more mundane risks of the job market.

If there was a chance for Sarkozy to demonstrate that he is something more than a political fighter this was it. Instead he has chosen to play this as another political game and humiliate a rival. While this is evidence of some political nous it does not suggest that he can be expected to achieve much if he becomes leader. While he has talked of a need to change the system this change will not come easy and is unlikely to be achieved by a leader who is not steadfast in its support. Perhaps this is not such a surprise, his support for 'industrial champions' over the years suggests that he shares the preoccupation of the French political class with an long out of date mercantilist approach to capitalism.

France has the potential to be an enormous success but if its leadership does not start showing some statesmanship it faces the same fate as Italy; chronic and banal decline. Even if a French Thatcher is not on the cards the competence and steady improvement of a Merkel would make a huge difference.

Oliver Kamm on Political Violence

Oliver Kamm does an excellent job of spelling out the difference between the violence of the democratic state and the violence of terrorists.

Cameron's Gamble

All of the talk we are hearing at the moment about Cameron's lack of policy misses the point. We aren't supposed to have policies yet, that's what the policy groups are studying. That the emperor has no clothes is no particular revelation; the tailors are at work. To take longer to come up with policies does not indicate that someone is in any way policy light, however. If you were policy light you would be happy to come up with policies quickly. Instead, it suggests sustained thought which will, hopefully, produce the right policies.

The problem is that repetition can secure even the most questionable of ideas in our common consciousness. Cameron's gamble is a bet that once the policy drought comes to an end, with the various commissions reporting back, the media's characterisation of him will actually change. This is a substantial risk, these stories do not change quickly and good policies could be written off as lightweight for their association with Cameron thanks to his "media darling" reputation.

There is little to be done about this now beyond toughing it out until the policy comes. If we get bad results at the council elections the strong mandate from Cameron's overwhelming victory in the leadership contest should see him through. This problem does suggest, though, that it might have been better to have the policy groups making interim reports rather than leaving the party with so little to talk about for so long.

Amartya Sen on the West and Democracy

Reformist Muslim, on Picked Politics, links to an article by Amartya Sen written for the Wall Street Journal in which the economist attacks the notion that democracy is "owned" by the West and innapropriate for those from other cultures. He does this in two ways: First, by questioning the legitimacy of Europe and the modern West as a successor to the Greek democratic pioneers. Second, by noting that concepts such as religious and academic freedom have been followed in other cultures including those now seen, in some quarters, as inimical to democracy. He concludes that cultures are not and should not be overly restrictive of the futures of their constitutents.

His second line of argument is most welcome. All those engaged in the struggle for or against the advance of liberalism in the Islamic world should be aware that they are not entirely trying to create something new. The contribution to mathematics and literature of the old Muslim nations was the creation of cultures open to new ideas and people. Those who attack the advance of liberalism should know that they are attacking the basis of some of the proudest moments of their own culture's history as well. Those in favour of reform should be heartened that their task cannot be impossible.

Equally, his conclusions are intellectually important. As an economic historian I study in a discipline which has seen culture used to explain far too many phenomena and it is, unfortunately, often the mark of a poor understanding of the conditions that individuals are facing. When Africans are faced with a lack of property rights which leaves them unable to trade beyond immediate communities or be sure that the fruits of their labour will not be arbritrarily confiscated there is no need to explain a lack of entrepreneurial activity through resort to their "culture". Explaining the behaviour of nations or people through culture is toxic to any programme of improvement and usually fails Occam's razor.

However, I do have to take issue with his first line of argument. His argument that the West of the Greeks has no special connection to the modern West requires a twisting of history. While the Greeks may have had little to do with the Goths a line can be traced, with major overlapping institutions, from the Greeks to the Romans through the Church to the present day West. This is a civilisation which, while it has seen good and bad times, has always conceived of itself as distinct from the rest of the world; the ancient Greek concept of the barbaroi (foreigner) never quite left. While many of its values are also held by others and are not entirely constant it is a feat of pedantry not to see a common tradition. The modern West rightly takes pride in being the heir to this tradition.

Sen could make his point more effectively by arguing instead that some values are important and worthwhile regardless of their origin (values like government by discussion) and for all people. The arrogance with which Western universalism has often been expressed has hurt its case but clearly there are many values which are currently found most well developed and widely spread in the West which are simply correct answers to questions about how people should best form societies. Sen has made the important point that many of these answers, such as allowing free thought, are not new to Muslim and other civilisations and that government by discussion is neither alien nor unattainable to any people.

Hamas confronts reality

Hamas is turning its back on suicide bombing and suggesting that it might accept a two state solution. This marks solid progress from that organisation that introduced suicide bombing to the Palestinian conflict (it originated with the Tamil Tigers) and until recently maintained an "into the sea" policy on Israel. While there are all sorts of messages coming out of the PA and declarations should not be accepted at face value this does appear to be movement in the right direction.

It has to have something to do with the suspension of funding that has been implemented by the US, Israel and Europe. This cost and the difficulties it created with sustaining the Palestinian Authority forced Hamas to confront reality. The Europeans, as the largest donor, are particularly significant here with Angela Merkel in particular, proving again to be a superb international operator, having played a large part in introducing a stick to policy towards the Palestinian Authority. A few of the arguments against a suspension of funding were always somewhat questionable:

1) They will get funding from other sources: Firstly, this contradicts all of the other reasons given not to reduce funding. Secondly, if this doesn't involve substantial costs why aren't they doing it now? Being funded by the crusader West surely has to involve substantial political costs for the PA.

2) This will shut down services essential for the running of the Palestinian state: It will involve costs to the people but that is the nature of any kind of sanction against another state, however, most of the budget goes towards a paramilitary police force and paramilitaries are political bodies who, at least in the short term, will turn up regardless. That they are a paramilitary can be seen in a group of the police officers storming the parliament in protest after Hamas were elected.

3) This is undemocratic: No, believing in democracy means that we defend the sovereignty of democratic states, it does not mean that there cannot be costs to political choices. If a state votes in Communists it will become a lot poorer as the result of a legitimate democratic choice but this does not mean we need to step and provide financial aid in if we believe in allowing "free" democratic choice. We have to tolerate democratic choices but we don't have to give them our money.

Krauthammer on Immigration

Charles Krauthammer has written a superb piece for the Washington Post on the immigration debate in the US. His idea is that you combine the hard policy of building a physical barrier on the border of the US and Mexico with the soft policy of an amnesty on integration. This allows you to solve the problem of suffering illegal immigrants without the risk of incentivising future illegal migration. This proposal is of limited practical value to an island nation but does suggest at least the direction of movement; towards a more friendly policy for those already in the country if we can combine that with stronger controls at the border.

A problem is the brief suggestion that amnesty be dependent upon paying back taxes. That would make staying hardest for those who have been in the US longest and hurt the purpose of helping those stuck in the black market for so many years.

The other solution of having immigrants learn English makes more sense in finding those migrants committed to integration. An alternative would be a strong citizenship test such as that being suggested in Germany.

Since this report Merkel has set herself up in favour of it. Some of the questions are strong and clearly aimed at Islamists but should only really offend those that hold them (offending these people isn't a problem). Moderate Muslims should be more than happy that we exclude such extremists and to pretend that such views don't exist is absurd.

The only question which isn't directly targetted at extremists is that about homosexuality (which would catch many peaceable social conservatives who would have no trouble integrating in the UK) but this isn't a problem if the answers are interpreted such that milder, if illiberal, answers like "dissapointed" aren't cause for a red flag. The question is looking for an answer like that suggested by the University of London Union chair recently that he would "shoot a gay son".

While people can always lie having to study around the questions will give any applicant a good view of the values and opinions of the nation before they arrive and, therefore, still serve a purpose in informing their decision over whether to seek citizenship.

Twelve Books that Changed the World

Martin Goodman notes the selection chosen for the twelve greatest books of all time by Melvyn Bragg. As Martin describes the selection of books chosen is heavy on works which can hardly be considered literature at the expense of the novel. Martin’s choice for a novel to add is Lady Chatterley’s Lover as a book which, through the controversy it created, led to serious social change. He is obviously right that many of the books selected by Bragg have recorded changes which have already happened in the world of technology or the law and therefore form a poor advertisement for the power of the written word.

However, Martin is a writer of dystopian fiction, among other things, and I think that he has neglected to mention the poor showing that genre has made in a write up of the most important books. A Brave New World is unparalleled as a challenge to utilitarianism and is therefore clearly of huge importance in the development of human thought. It also acts as a warning which has been noted far and wide; it recently showed up in the film Garden State as the intellectual underpinning to an otherwise simple movie. 1984 is probably one of the most widely referenced books going which is currently both honoured by frequent name checking whenever someone wishes to defend freedom against autocracy and dishonoured by its new association with popular culture through Big Brother. Both of these books are clearly highly important and important in their own right as artistic and political statements rather than as the record of important activities going on elsewhere. They are a showcase for the written word which would better befit a series about great books than Bragg's series, which is likely to become a record of great 'things'.

The Union Modernisation Fund

Guido Fawkes highlights an ongoing concern for anyone worried about how the Labour party seems to be taking maximum electoral advantage from its time in government by every means other than actually running the country well. The Union Modernisation Fund offers £10 million over 3 years to the Unions for the purpose of "modernising". This, fairly vague, term appears to mean buying computers and websites. It is set out clearly on the DTI's documentation for the project that it cannot be used for funding political projects. This is an important distinction because otherwise the money is the Labour party using the Unions as a vehicle to fund itself from tax revenues.

The problem here is that the Unions have a budget restriction that forces them to make choices between, for example, spending more on computers or spending more on political funding for the Labour party. Reducing this pressure by, for example, paying for Amicus to communicate with its branches increases its ability to spread largesse elsewhere. The segregation of Labour funding in a political fund does not change the fact that this political fund's size is limited by the need to prioritise within the budget limitation that is the willingness of union members to sacrifice consumption for union representation. Clearly a Labour government policy is contributing to the same budget that funds the Labour party politically. Clearly Frances Maude is right that is "very, very direct sleaze. That is buying influence and buying taxpayers' money".

The argument that unions which don't fund Labour are also receiving money therefore the scheme is okay is utterly irrelevant. All that means is that Labour has no objection to spreading taxpayer money around so that it funds other unions as a byproduct of enabling those unions who do fund the party to continue to do so. Al Fayed also gave substantial money to his son, does that mean his payments to the Hamilton's were above board?

The Metropolitan Police investigation into this scandal marks another low for this government. With the investigation into the cash for peerages row that makes two policy probes into the Labour party directly that I know of at the moment. Really puts the problems at the end of the Major government into perspective doesn't it?

April Fool's Gold Prize 2006

Google, I believe, win the prize for Best April Fool's joke this year with Google Romance. Previous efforts from the company have been somewhat lacklustre with the faintly comic but lacking social bite or plausibility Pigeon Rank providing the premiere.

Google Romance, on the other hand, is both self effacing with its "Contextual Dating option, thematically appropriate multimedia advertising throughout the entirety of your free date" and incisive with "Post multiple profiles with a bulk upload file, you sleaze".

Iain Dale's effort concocting Tory donors deserves a mention as well.

Barry Eichengreen and the World Economy

Eichengreen provides an analysis of the imbalances in the World Economy similar to that offered by Wolf, as I discussed in an earlier post, but focussing in upon an analysis of different views on the size and importance of the US current account deficit. It is less broad than Wolf and probably less interesting for the policy minded but deals more throroughly with the economic questions behind the problem.

The main weakness he seems to miss of the 'Savvy Investor' view is that it requires foreign investors to be consistently poor decision makers. It would seem likely that if they continue to make poor decisions when investing in the US there is every chance that they will reduce their investment there rather than pressing on regardless. In this regard it appears to be vulnerable to the Lucas critique.

His policy recommendation is the same as the fiscal component of Wolf's but without the focus on changes in developing country financial regulation. He simply advises tighter fiscal policy in the US and more expansionary policy in the developing world. I think Wolf's view is more useful here as changing fiscal policy without suitable financial institutions in the developing world would seem the route to a crisis which would probably have ugly consequences in China in particular.

Blair's plans for reforming the House of Lords

Yesterday in the Telegraph the details of the Labour plans to reform the House of Lords were detailed in an interview with the Lord Chancellor. When I wrote up my ideas for reforming the House of Lords I presumed two objectives. First, ensuring that the house has the democratic legitimacy to challenge the Commons when it needs to. Second, ensuring that its opinions do not change too rapidly in line with the Commons so that it acts to slow intrusions into liberties thanks to transient threats.

It appears, by contrast, that Blair's objectives for the Lords are that it should do very little at all. His opposition to elected Lords was on the grounds precisely that they would be able to challenge the Lords and the new proposals would rob them off their ability to temporarily block most legislation. Fears for the power of the executive can only really be understood as MPs feeling territorial; our system clearly allows huge power to governments which usually have large majorities thanks to first past the post and the freedom of an unwritten constitution. The Lords even now only has the power to delay legislation. While it is understandable that Labour feel it a poor result that their legislation is delayed the items which have been resisted most fiercely in the Lord recently were bills such as the Religious Hatred Act or ID cards which made significant changes to the balance between liberty and control and clearly should not have been passed in a hurry. The ability, under the Parliament Act, to ignore the wishes of the Lords in the final instance provides the Commons with all the supremacy it needs.

Martin Wolf and the World Economy

Martin Wolf (links from Brad Setser) has set out an immensely broad sweep picture of the state of the imbalances in the world economy. Regardless of the accuracy of his conclusions I would recommend it as a read if you want to try to get to grips with the issue.

His core observation on the world as it stands is that the current policy of Asian countries of neutralising surpluses by recycling to the United States is effective in avoiding an Asian bubble but creates reserves in Asia and deficits in the US which are reaching unmanageable levels, it is also very expensive for Asian countries. For this reason the large Chinese economy needs to move towards less export led growth.

His final conclusions are phrased in terms of a number of actions which need to be taken at the same time but to my mind he has really set out a series of desirable steps such as market exchange rates and a reduction in worldwide surpluses which are contingent on the prior step of reforming financial sectors in developing countries. This is necessary to avoid repeating the Asian Financial Crisis where financial systems which had been successful serving a less developed economy demonstrated vast flaws when dealing with exposure to international finance.

His ideas on how this financial reform should proceed are the Basel standard including strong regulators, proper transparency etc. but he does acknowledge that more information is needed on the efficacy of differing regulatory regimes. This clarity might be provided by the study highlighted in the Economist (requires subscription) which questions the wisdom of granting vast powers to financial regulators in developing states. It would appear that the crucial reforms are particularly those ensuring transparency in the affairs of banks; allowing lenders and borrowers to decide on the soundness of banks rather than empowering an additional layer of, often inscrutable, officialdom.

A British Fox?

Alex Deane has written on Conservative Home calling for a British equivalent to Fox News. The problem with this piece is that it seems to believe that the block to such a channel is a lack of willing investors.

I think key here is the regulatory agency. Fox News US, as it is shown in the UK via digital, was recently in trouble because someone, in a comment section, called the BBC anti-american. So long as we have a regulator which enforces the BBC as the standard for fair and unbiased deviations from that, left wing, code will be punished and impossible to maintain.

The only solution would seem to be to remove the rules governing impartiality and let right and left wing programmes duke it out as in the newspapers. Some kind of regulation is still needed for the state owned BBC (if abolition is not an option) but not for the competing private news stations. Were deregulation to happen the promise of an audience which would (as is the case in the newspapers) most likely be larger than that for left wing journalism would see right wing TV journalism proliferate.

Chirac's Nationalism

Chirac's storming out of a European Council of Ministers meeting in response to the horror of a Frenchman addressing the summit in English has to mark a new low for the defence of the French language. While the political reasons for Chirac to play the Franophone card while under siege at home are fairly clear one thing still shocks me.

How can Chirac do that with a straight face? As a well educated and intelligent man surely he can't really get angry enough to storm out of a meeting because the head of a multinational group uses a language he easily undestands and has interpreted?

Managing to pretend that he was serious in this stunt is surely an argument for broadening the Oscars. Best Head of State.

The Budget

I've been thinking of whether there's anything original to say about the Budget and have concluded that there is little new in it and, hence, little new to say.

Martin Wolf's commentary is, as ever, excellent.

The main thing that struck me about the speech is how strange it is to hear Brown boasting that he has spent vast amounts on X public service. Standard procedure in charity, business and the rest of life is to boast of doing something with little. Return on capital employed is the accountancy measure, charities compete to suggest that they are keeping costs down and improving the life of a fisherman so much for so little money by supplying him with nets. Gordon Brown doesn't talk about the value he is getting us for our money because the reality is that the value is very low. While measuring productivity in public services is difficult it is probably falling in the public sector (as Redwood mentioned in his generally good speech in the Budget debate) while rising at a decent rate in the private sector. Gordon Brown's boasting of huge amounts of "investment" is a boast of waste so long as he fails to take reform remotely seriously.

He has noticed that we face challenges, from India and China and other developing nations, but his response consisted of lots more funding for education (no mention of reform) and lots of window dressing. Does he really think that changes to the means of distributing academic grants (moving the decision from council to university) will make a serious difference to whether or not we take the opportunities of new markets?

Cameron's response was pure politics but I don't see that as a problem. The detail of the weaknesses in the chancellor's numbers was best left to the more technical MPs; Cameron should stay focussed on a message that can get through.

V for 'bloody awful'

My review of the film V for Vendetta has been posted on Conservative Home.

Avian Flu

Reuters AlertNet reports that "H5N1 bird flu found in Kazakhstan fowl". I agree.

The BBC enters the advertorial business

Listening to BBC3 in the car this morning (someone else's car) I found myself listening to a programme which was clearly designed for American cable TV. It was essentially an advert for a miraculous invention; glow in the dark house numbers so that ambulances/pizza delivery can find you more easily. While this was dressed up as a feature with incredibly probing questions like "well, wasn't it a little expensive?" to which the answer was, obviously, "the technology is expensive but we now have a special discount just for this show" it always reverted to a sales pitch. Had they been selling versatile blenders it couldn't have been much tackier.

With the collosal bias in the BBC news coverage, advertising features like this and BBC online's ongoing crippling of the UK online industry through its massively subsidised websites surely the case for scrapping the license fee has to be mounting. It was while I was in China appreciating the role of the BBC in undermining dicatatorships only to realise that the relevant service was BBC Worldwide (which was sold off and is a private concern) that I finally appreciated the complete pointlessness of the license fee we are all forced to pay.

BT released from price regulation

After 22 years Ofcom have decided to stop regulating BT's prices. The regulators deserve credit for taking a decision that reduces their ability to control and resisting the temptation to define their purpose ever outwards.

The logic behind this move is very sensible. The market for phone calls has been entered by VoIP phone services like SkyPE, cable operators and mobile phone companies. All of these firms bring different advantages from the flexibility offered by mobile phones to the extremely low costs available through Internet services. While BT has advantages in this market, such as a well developed infrastructure, these are not nearly enough to be worthy of monopoly regulation.

The stock market response suggests that investors do not expect new monopoly rents to flow. BT's share price responded with a slight fall; investors can see that with so much new competition and a mature market there are difficult times ahead. While this is hardly cast iron evidence that there are no monopoly rents for BT to make it does suggest that no one can currently see where they might come from.

Funding political parties

State funding of political parties creates far too many difficulties for good governance to be a good idea. Such a move would leave the funding of political parties dependent upon the government and, therefore, create powerful electoral incentives for the government to change the system to skew it towards advantaging their own side. While it might lead to fewer funding scandals they would be replaced by massive cynicism each time a government attempted to fine tune the funding formula and commentators saw unsavoury motivations behind the changes. These fears won't always be irrational, the recent problems with Labour pushing postal voting too fast and risking fraud in defiance of the Electoral Commission in order to shore up its Northern vote provide an important example of the sort of trouble we don't want to see in the funding process.

Caps, as supported by ConservativeHome, are just as problematic. Last time these were floated it was a Labour response to Lord Ashcroft's financing of the Conservative party, the new Conservative enthusiasm for them can be traced to the widening of the Conservative funding base following the election of David Cameron. The level of the cap provides the ability for governments to adjust the system in their favour and, therefore, creates the problems described above for state funding.

The solution to this crisis has to be more along the lines of the ad hoc Labour response. When there are crises due to poor information in industries like financial services the best regulatory response is not to restrict the risk or return of products (a cap) or to have the state step in and nationalise (state funding). A proper role for government in situations like this is for it to ensure regular accounting standards and open information. This is a crisis caused by a lack of open information; the proper response is to let the information flow and leave the judgement on whether a party's funding is proper to the electorate.

An idea for reforming the House of Lords

The new cash for peerages scandal highlights the problem with the lack of a long term solution to the organisation of the House of Lords. So long as the House of Lords remains an appointed body it will remain a means for patronage. Making the funding of political parties more transparent is clearly a good idea but this will not remove the suspicion surrounding a system where presence on a house of parliament can be used to return a favour.

Designing a new House of Lords faces the fundamental problem of balancing several conflicting priorities:

First, there is a need for democratic legitimacy. Without a link to public opinion the House of Lords will increasingly lack the authority to challenge the Commons and fulfill its function as a second house. This authority is necessary for the Lords to be able to properly defend civil liberties and other minority issues. Appointment is simply not close enough to the electorate and leaves the Lords as a subsidiary of the Commons dependent directly upon Commons' structures.

Second, it is important that the balance of opinion in the Lords not track the currents of public opinion reflected in the Commons too quickly. If the Lords is simply a duplicate of the House of Commons with a slightly different electoral cycle then it is likely to offer little in terms of improved governance. Defending the interests of a minority is best done in a similar manner to that of the US Senate, by having the balance of power change slowly; this allows the Lords to slow radical programmes from incoming governments who may allow transient overreactions to endanger liberty. Clearly appointment is little help here as it acts to reflect the balance in the Commons.

Finally, the Lords should be as free from the pressures of reelection as possible so that they can act as a check to interest politics and the distortion of the electoral cycle. The system in the US Senate appears to be failing in this regard. The debates over issues such as drilling in Alaska demonstrate a failure of the deliberative body as it descends into farcical interest politics.

Another concern, although subsidiary, is that there needs to be a mechanism for an orderly transition to a new system which does not involve bringing collosal tranches of new members at once.

The best system, in my view, would be to combine the life time appointments of the current House of Lords with an entirely elected system. Elections could be held in line with each general election and every Lord who died since the last general election could be replaced. The exact system for electing them would need to be designed in detail but should be a direct vote. The number of Lords who we can expect to replace each election can be calculated from the mortality rates for those in the Lords' age bracket multiplied by the number of Lords. The final figure would probably be around 72 initially (using the 65-74 age band as the average age of a Lord is 68) but would probably fall as the Lords become younger once no longer appointed in return for, and after, a life of service to country or party.

Judging by the criteria above this seems to be a suitable design. As directly elected representatives they will possess the legitimacy needed to challenge the Commons when required. Movement in the house of around 10% per election is sufficiently glacial to act as a bar to transient majorities. As the Lords would not need to be reelected they would not suffer the interest pressure which appears to have found its way into the Senate. This system even suggests a mechanism for transition by removing no current peers but instead treating the current balance as the starting point from which replacement elections are held.

The problem seen in the Supreme Court with life appointments, that each appointment has far too much at stake is negated by the House of Lords being a body of hundreds. Could a system of lifetime election be the way forward?

More riots in France

The new riots in France should not be considered another outburst of anger from a downtrodden group in French society in the mould of the car burnings we saw earlier this year. Graduates of the Sorbonne may face some difficulty finding work with a youth unemployment rate of 23% but as they are emerging from a top university it is far more likely that they will succeed than fail in finding employment. These demonstrations are more in the mould of the regular strikes by French public sector unions defending their interests; they are strikes in the defence of the status quo.

This is significant because if the earlier riots, in the banlieues where unemployment is 50%, constituted a powerful case for reform the new demontrations, and the public support for them, are indicative of the strength of the political forces opposed to such change. The simple reality is that most French people are employed and a large number of the unemployed are safely contained within the banlieues away from the sight of the middle classes. So long as those in work fear reforms which hurt their security of employment more than they do France's present steady stagnation change is unlikely.

South Park vs. Scientology Round 2

It appears that after legal threats from Tom Cruise the South Park episode which so offended Mr. Hayes will not be shown in the UK or repeated in the US. There are even suggestions that this is due to his threatening to cancel publicity for Mission Impossible III with Viacom. This is an absolutely tragic violation of freedom of speech that seriously needs to be fought. Using the court system to harass those who speak out against their religion has been standard practice for the Scientologists for some time and South Park is a show uniquely placed to get past this thanks to its high ratings and experience with controversy.

Of course, the episode has already leaked onto the Internet and free speech will find a way but it is dissapointing that even a well known TV show cannot freely speak out against a group which is only differentiated from the other nutty cults by its funding. Exactly the same logic applies here as it did during the Danish cartoons crisis or after the cancellation of the play about a Sikh temple. Freedom of speech is the principle which guarantees accountability and accountability is a major part of what makes the West the success it is. Freedom of speech is a principle which we should defend to the hilt.

Cameronomics

Cameron's article today on conservativehome.com got a familiar reaction. Conservatives like winning and there was broad support but nervous questions about the statement that tax cuts will not be prioritised over economic stability. Reform responded to this when it was first announced with a standard, and clearly correct, line that a small state is not more unstable. However, there are two possible processes at work if a party states that they will not prioritise tax cuts over stability:

1) They are left wing and believe that private sector irrationality makes capitalism inherently unstable and in need of state sector stability.

2) They believe that should we come to possess a debt/GDP ratio radically higher than it is today (a severe fiscal crisis) then it would be sensible to prioritise austerity over ideologically driven tax cuts. While there are no policy implications now we need to let the public know that our ideology does not imply poor decision making in a crisis.

While the first paradigm is patently false I believe it is the second that the Conservatives are addressing and this is far less troubling.

MatthewSinclair.com

http://www.matthewsinclair.com now points at this blog.

Buying your own name as a domain name when you are not famous can be a form of bet on your own success. There have been several corporate cases where substantial amounts have been paid for domains and private individuals have surely had to do the same on occasion. My MP has http://www.oliverhealdmp.com which is so much less satisfying than oliverheald.com would be. Avoiding the confusion and disgrace which comes from having your name point at someone else's website becomes highly valuable if your name has meaning. That famous names can drive traffic to websites was the first mover advantage rationale behind firms like Amazon investing so much early on.

By buying the name now I incur a steady cost of £8.99 per year. At the moment I am not famous and this domain therefore has little value beyond a vague sense of satisfaction and control which I will treat as insignificant. Still, it takes ten years for me to become famous and by then I will have paid around £90. According to this shady looking website domains can go on sale for hundreds of thousands of dollars but with only the moderate success of a thousand pounds in value my domain name becomes a fine bet if I believe that I have a greater than one in nine chance of becoming famous. Of course there is an opportunity cost in tying up my capital in this way but it is unlikely to be a problem if my expectations of my own success are rational.

The reason why I can get a good deal in this case is an information assymettry. Domain registrars and shady individuals behind sites like "openforsale.com" know less about me than I do. For this reason they have to treat me in a similar manner to a random individual. The name of a random individual has a very low value as they will not bid for it and very few people become famous. I have an ability to differentiate between my promising self and random others that domain registrars do not.

Old problems in UK scientific education

The Financial Times today reports on the CBI's observation of further falls in the number of science graduates. The CBI is right to point out anomalies such as psychology being used to boost biology numbers. Psychology is methodologically more subjective than economics and both are different in nature to the natural sciences. Psychology is a fine subject for academic study but is a far more esoteric concern for industry.

The FT fails, in setting the context of the article, to note that this is a fall from a low base in the UK. There have been concerns about the quantity of scientific education in the UK since at least the beginning of this century and these concerns have generally been justified. While there are excellent centres of scientific study (such as Imperial College) there is not the same quantity of scientific education as elsewhere in Europe. This matters because scientific education is particularly important economically. Scientific education doesn't only increase the base of skills for high value sectors but also increases the ease with which firms can identify promising scientists, which is important if they are making a high value investment in them. Also, science departments are valuable as they often maintain links with industry and are at the centre of competitive industries. Early and important examples are the links between Ruttgers University and Merck and between the University of Delaware and Du Pont. These advantages are the reason Michael Porter pointed to high end research institutions as far more important to economic growth than mass university attendance.

Our current system of higher education funding is created with the goal in mind of creating lots of graduates. This goal is determined by class concerns (university implies entrance to the middle class) as much as anything. The economic rationale above suggests we could be better off targeting funding at the hard subjects which provide such solid returns to the nation.

South Park vs. Scientology

Isaac Hayes, who has voiced Chef since the series' inception, has quit South Park. He has described how he cannot be associated with the attacks on religion he sees in the show. It appears, as is noted by the Reuters report, that the problem is more specific and related to the show's recent attack on Mr. Hayes' religion, Scientology.

The episode was brutal, featuring long sections describing the bizarre beliefs of Scientologists but the inclination of those who run the religion to sue those who publically question it rendered the religion a fine target for important satire. South Park is in its tenth series and Mr. Hayes has taken part in shows where entire episodes have been devoted to mocking Christians, Jews and Mormons. If there has ever been a show which can fairly use the defence of mocking all equally it is South Park. Being so selectively offended completely undermines the moral case Mr. Hayes attempts to deploy.

The OFT investigates supermarkets

The BBC reports that the Office of Fair Trading is set to launch a probe into the dominance of the UK market by a limited number of supermarkets. The problem is that it appears to be struggling to find a harm. There is the question of monopsony power allowing supermarkets to drive down prices but, as supermarket margins remain low, this operates as a transfer of wealth from producers to consumers which is not a suitable candidate for OFT action.

All the evidence is that the supermarkets have been an unambiguous good thing for the consumer with prices falling and increased choice thanks to the supermarket's expansion into non-food items. An anti-trust case could exist to block a merger between any of the top players but beyond that the watchdog should clearly be stepping back and letting the supermarkets tear each other to pieces.

The move towards increased shopping in supermarkets instead of small shops surely has its origins in the same trend that is leading to reduced fertility. With the decline of discrimination against women in the workplace there are increasing opportunity costs to time spent not earning. When women could not work the value of the time they spent travelling between different shops is of far less concern than when that time could be spent earning or in scarce leisure time.

"Shoot to kill"

Reuters reports that an initial review has suggested that the Met's "shoot to kill" policy is appropriate and should remain. This has led to another chorus from various quarters that such a policy is both wrong and undemocratic as it was introduced in secret.

I honestly fail to see the secrecy. I would have always expected that if a police officer saw a suicide bomber and thought the only way they could stop them killing others was to shoot them then they should do so. As suicide bombing does not require great physical exertion it seems entirely credible that killing is the only way of stopping them and that it must often be done quickly. If this has been formalised recently then I don't think a police cover up is to blame for that formalisation not making the front page; it doesn't sound much like news.

The problem in the de Menezes case was that the police shot someone who was not a suicide bomber. This may raise questions about whether the police have poor mechanisms for identifying suicide bombers but it says little about how they should behave towards bombers once they identify them.