Tory funding rises

There have been stories recently of big donors dissatisfied with Cameron's leadership. Fortunately, this anecdotal evidence seems to be well off the mark and Conservative fundraising has risen heavily in the last quarter off last year compared to a heavy fall for Labour. While some Tory donors may prefer to fund their own ideological playground of a party it would appear that most prefer the Conservatives with their new found electability.

The world's favourite nation

Apparently we are the most liked nation in the world. Despite our various military ventures and despite, or possibly in some quarters because of, our imperial past when ranked on politeness, culture, education, quality of investment environment, as a tourist destination etc. etc. we come out as the nation people most like. This result is true on all sorts of criteria and across huge swathes of the world.

The press release from the pollster contains dollar valuations of national brands which have to contain a fair bit of arbitrary information but the sample is very large and reasonably broad although presumably biased towards those with Internet access. These results provide additional evidence for one explanation of part of Britain's relative economic success recently. We do well out of being a place where lots of highly skilled and talented people want to live, they bring money and achievement with them. The Mittals, Abramovichs and Madonnas of this world are an extreme example of a trend which has been of huge benefit to Britain.

A victory for the Single Market

Marks & Spencers have won their case in the European Court over group offsetting. UK companies now face the same tax risk when investing elsewhere in the EU as they do when setting up a subsidiary in the UK. This has to be a victory for the Single Market as it reduces the distinction between a UK company and a European company.

Worries about a loophole are ever present but would seem more of a problem for group offsetting, whether in the UK or abroad, than international group offsetting in particular. Allowing tax benefits from loss making subsidiaries creates the risk. Offsetting is worth this risk as it is an important tool to allow businesses to expand and challenge in new markets without facing greater tax risk than it does in its core business. Existing companies in other markets are in a good position to enter into insufficiently competitive markets and encouraging this kind of action is good for consumers and efficient business.

The concentration of financial services in London has been a huge benefit to the UK and is one of the key trends behind the strong performance of the UK economy over the last decade and the improvement in the public finances which we are seeing right now.

Holocaust denial laws

Holocaust denial laws are a bad idea because holocaust denial is a phenomenon that is best dealt with in the open. Making martyrs of idiotic fascists is far less effective than simply pointing out the incontrovertible facts of the Holocaust and then letting holocaust deniers make fools of themselves. Political Muscle notes that in the final balance David Irving conceded defeat in the argument over the holocaust and that this is a far more complete victory for truth than prosecuting a defiant holocaust denier.

The argument on Let's Be Sensible, that this is a case of defending holocaust survivors from libel, is a little specious. Most important cases of free speech involve calling someone a liar or an incompetent. If being wrong in a debate over history or politics is a crime then that debate necessarily becomes stunted and overly cautious.

The accusations from Islamists that that these indicate a double standard, as reported by Chris Cauldwell, are, however, equally suspect. Holocaust denial laws were not put in place thanks to a threat of violence from the Jewish community and have been implemented democratically. As such challenging them is best done through democratic debate within Austria and the other European countries with these laws. By contrast, the denial of free speech created by the violent response to the cartoons of Muhammed, the Satanic Verses, the film work of Theo van Gogh etc. is not democratically accountable and, as such, can only be challenged by editorial bravery. There is no double standard in the liberal case.

Charity in crisis

Reuters Alertnet reports on a mudslide in the Phillipines that has claimed entire towns. Fortunately this awful crisis has a good chance of attracting the international aid that can help those living in the area survive and rebuild. The most successful aid appeals of recent times have been following the Asian Tsunami and the earthquake in Pakistan. These crises attract public support far better than the every day hardship of the Third World. This is probably a result of the availability heuristic, this is the psychological tendency for people to disproportionately remember large and shocking events. A good example is the popular misconception that there are more murders than suicides. Fortunately the availability heuristic is, in the case of charitable giving, producing the correct result.

Economists, following the lead of Bauer, are usually cautious about the effects of development aid on the Third World. No country has ever got rich on the good will of others and aid can actively hurt the process of development as entrepreneurial activity is diverted from creating successful businesses towards attempting to seize as large a share of aid receipts as possible. Another problem is that poverty in the developing world is often due to corrupt states and high barriers to legal business; aid cannot cure these problems and may aggravate them if it provides enhanced powers of patronage to corrupt governments. This logic is important when considering claims such as those being promulgated by the 'Make Poverty History' campaign that poverty can be ended if $X is donated by the First World.

Fortunately, the economic distortions of aid in the event of disaster are far less important. Emergency aid is usually distributed directly to those concerned by international aid agencies and, hence, is less likely to feed corrupt regimes. It is also inherently temporary which means that it cannot do long term damage to the incentives facing those talented citizens who, in their search for wealth, are crucial when Third World countries get wealthy. As the negative effects are less and the positive effects, lives saved, offer a huge and unambiguous reward for each aid dollar spent it seems quite clear that the objectives of aid should be simple and direct. Save lives.

Reductio ad Hitlerum in the Guardian

The Guardian today carries an editorial entitled "Denmark's new values" which, as evidence for the dominance of the far right in Denmark, includes the following:

"Where else could liberal politicians get away with saying that one of their party's main aims is to stop Turkey joining the EU?"

Now, I support Turkish entry to the EU enthusiastically but to suggest that anyone who opposes their entry with any force must be a fascist is bizarrely absurd. Plenty of people oppose the entry of the Turks due to their own problematic labour markets, difficulties in reconciling such a large and poor country with policies like the CAP and regional funds and the Turkish human rights record. None of these concerns make someone a fascist.

The author (apparently a Danish musician) also believes that the statement "Freedom of speech should be used to provoke and criticise political or religious authoritarians" is indicative of a desire to tell others how to live. To see the encouragement of free criticism of authoritarianism as indicative of a desire to control requires a bizarre leap of logic.

How does the Guardian find these people? Why does it publish their work?

European Central Bank row

The Financial Times reports that smaller countries are up in arms over the appointment of a German to the ECB's executive board. At the moment this is a row about politics, influence and pride, rather than economics but there is no reason for it to stay that way. The relative sizes, and hence importance, of the small and large economies in the eurozone will mean that ECB policy should be set with the interests of the large economies as its main objective.

At the moment this implies an expansionary policy as the German and French economies see growth slip once again. This is being mitigated thanks to the intellectual inheritance, particularly in the German representation, from the Bundesbank of monetary caution. "Uberhawks" such as Mr. Stark reduce the danger of ECB policy overheating the better performing economies in countries like Ireland. The smaller countries might, therefore, be wiser to welcome his appointment.

The situation where the fortunes of large and small economies are reversed and ECB policy depresses the smaller states would lead to a far uglier political situation. The large countries can be expected to push ahead with interest rate rises to slow their own economies while largely ignoring the pleas of smaller countries for expansion; ideology would cease to work in the interests of small countries.

The long term future of EMU is still in question despite the massive costs of leaving. Without convergence in the performance of the eurozone economies there are big political battles to come.

The Cartoon crisis rumbles on

The crisis over the Danish cartoons is returning to some kind of dismal norm. Protests continue around the Muslim world, Reuters reports on new protests in Pakistan, while Europe is returning to its default, disinterested, stance. Despite this the crisis is unlikely to end as one more case of "Muslim world sees rioting, burning embassies, mass rage; Europe sees argument about EU budget". While European politics is already moving on there does appear to have been a change in public opinion, certainly in the UK as reported by the Times, towards a new willingness to confront radical Islam. Tolerating lunatics such as the one the Sunday Times uncovered is, thankfully, becoming less and less politically shrewd.

The Economist's coverage on the cartoons was just right. The main point I would add is that the strength of protests lends credence to the need for newspapers to show solidarity in the face of violence.

Subway and the Coase Theorem

I've been thinking recently about why I sometimes buy sandwiches from Subway. Subway sandwiches are rather expensive compared to the substitute lunches available to me from the Student's Union shop, the West Cornwall Pasty company or WH Smiths. While I do enjoy their sandwiches I am not convinced that I enjoy them more to an extent that justifies the extra cost.

It could be that I am irrational; that the amount I spend on sandwiches is small per transaction compared to other items such as rent and I, therefore, simply ignore the cost when buying sandwiches. I have an alternative explantion:

I would suggest that this is an example of the Coase Theorem in action: The Coase theorem is that externalities will occur at their socially optimal levels regadless of the legal system in the absence of transactions costs. This results from the ability of those suffering from the externality to pay those who would like to produce an externality not to if they value its cessation more highly than the 'polluter' values the action which creates the externality.

The classical example is that of a railroad which occasionally creates sparks which destroy the fields of farmers either side of the railroad. In this case if the farmer values his crops not being destroyed highly enough he will pay the railroad owner to reroute or upgrade his equipment to prevent the damage. If he values the cessation of risk highly enough he will pay the train owner to cease his service. In this example it can be seen that the socially optimal amount of externality is produced, the amount which prioritises the interests of those who value the result of the decision most. None of this requires the use of legal property rights.

Subway bake their bread instore. This may have some function in terms of freshness but it has an externality in that the smell of bread baking makes me desirous of Subway sandwiches and less happy on my walk past the store on the way into university. Now, I have no legal rights to my own space, free from unwanted pleasant odors. For this reason I have to take the Coasean route and, as the transactions cost is relatively low, pay Subway to end the desire for sandwiches by sating it.

Oil Prices and the UK economy

Today BP announces yet more profit and yet more money for shareholders. The statistic quoted of the amount this means for UK pensions funds doesn't only make the point Lord Browne is trying to make about the positive effects of oil income that our Chancellor of the Exchequer is currently attempting to discourage through the tax system by increasing the costs of investment in the North Sea. Browne has also, inadvertently, pointed to the fact that Gordon Brown is more of a problem for the pensions system than his initial tax raid suggested and to the flaw in his excuses for new weaknesses in the UK economy.

In attempting to shift the blame for falling growth to the oil price Brown was making little economic sense. When the oil price rises this is a huge problem for the US which heavily imports oil but this is not the case in the UK. When the oil price rises it has a distributional effect in the UK as it costs motorists money but it also increases the income of our oil companies which, in turn, pay money to organisations like pension funds; on balance the effect is close to zero as we have only just become net importers of oil. Redistributing money from the motorists to pensioners and other investors isn't inherently harmful, pension funds are hard up, and cannot be the explanation for major changes in growth rates. The reason for past oil related shocks was that they crashed genuinely oil dependent economies and this crash hurt us; this cannot be the case now when the US is doing so much better than we are. Labour reductions in labour market flexibility and increases in the size of the state are a better way to explain falls in growth rates but are less convenient for the Chancellor.

The US Budget plan

The Washington Post has a fairly decent summary of the financial fiction that is the US budget plan. The simple truth is that tax cuts are the easy part of a small government fiscal agenda. This administration has proven very capable of cutting taxes but has failed comprehensively on the more important challenge of controlling spending, which has risen drastically over the President's period in office. While the new budget is supposed to herald a new austerity it does so only by comparison with the profligacy of the President's earlier years. Even if such fictions as the clampdown on tax evasion do realise significant gains in revenue (as reported in the link above Goldman Sachs don't buy these figures) the reality is that the US will be in deficit for some time to come.

The simple truth is that spending is somewhat like calories - where it comes from is only so important. This can be summed up by the Ricardian Equivalence theorem, proposed by Robert Barro, which argues that the choice of financing spending with borrowing or taxation is equivalent; people know they will have to pay eventually.

Of course there are differences, taxation tends to cause unpleasant changes in marginal incentives to work, save, report your earnings accurately or stay in the country but deficits have their own set of unique, micro, harms in their inexorable effects on interest rates and inflation. However, in lieu of a complete analysis of the size of these harms, it seems sensible to assume that in the aggregate there are increasing harms for each additional dollar borrowed or saved, as taxation moves along the Laffer Curve and cumulative deficits increase as a portion of GDP. As the US has been borrowing a lot recently it is likely to become an increasingly damaging option and may even lead to the kind of financial reckoning that would have everyone forget Iraq as the Bush legacy.

Musicians Union condemns 'Miming'

Reuters report that the Musicians Union has urged artists to own up to miming in live sets. This is supported by an opinion poll showing 71% public opposition to miming artists and the assertion that people, Europeans and Americans in particular, can see straight through miming and will be turned off. The Union wants to reward those with the skill to perform a genuine live show.

The weakness in this logic is spectacular. If audiences really could tell when an artist was miming and a massive majority opposed miming and felt it hurt their experience of the music this would create a commercial imperative to avoid miming. The need for artists to 'own up' as the Union wants them to implies that a great many audiences cannot tell or do not care to discover who is miming. While this may imply an information asymettry live entertainment is valuable to most people for the experience so what you don't know probably can't hurt you.

The Musician's Union is historically one of the worst promoters of leftwing idiocy going. The Guardian offers a concise history of some of its worst moments failing to distribute session income or recognise the leaks in its boycott of Apartheid-era South Africa. It also prevented American musicians playing in the UK in the mistaken assumption this would lead to a rise in bookings for British musicians, of course the real effect was to shrink the market and hurt the chances of infant industries such as the British jazz community which relied on contact with the Americans to improve.

The Union's finest hour, however, came with its attempt to have the synthesiser banned on the grounds that it would hurt the interests of live musicians. The comparison made in a Radio 1 debate at the time to banning electric guitars as they would hurt the interests of acoustic guitarists remains apt. Cliff Richard led the Musician's Union attempt to hold back the tide of technological progress; thankfully he failed.

Danish Cartoon crisis continues

The row over the cartoons becomes uglier day by day with embassies burning in Syria. Surely the blame for this has to be aimed at Assad and his nasty regime; I doubt these protests took place without his consent.

The Financial Times describes how the different sides of the British political divide have responded to this crisis with Jack Straw pretending that Christians would have been as unpleasant were Jesus similarly insulted (in fact I think we're beginning to understand that the response to Jerry Springer: The Opera was remarkably tame; phone-ins and threats of picketing) and that this crisis is due to Western insensitivity rather than Muslim hypersensitivity. David Davis and Dominic Grieves have shown more spine and called on police to arrest those calling, specifically, for murder.

Danish Cartoons

I think that a great portion of the liberal media has made serious mistakes in its coverage of the events surrounding the cartoon depictions of Muhammed. It seems to have come to a consensus that printing them was an ugly mistake and therefore limits its criticism of some of the responses we have seen around the Islamic world. Clinton forms a fine example of this trend at its worst.

The cartoons were offensive but were most certainly not offensive for their own sake or out of racism. The editors responsible had seen that artists were, in the wake of the murder of Theo van Gogh, an assault on a lecturer for merely reading the Qu'ran in public and the fatwa against Salman Rushdie, too afraid to express themselves freely even in the most innocuous of manners, illustrating a children's book. If any artistic expression that might offend Muslims carries a heavy threat of violence then free speech ends through self-censorship. It was a calculated offence but when we see British extremists demonstrating with placards such as the one in the picture accompanying this Telegraph article it highlights views which must be confronted by a free society.

This blog from Thabet is a fine summary of the response of Muslim blogs to this issue. Although they do condemn the violent response their analysis is severely flawed.

First, the idea that this is not a debate about free speech because no one has called for government censorship is categorically wrong. A government does not have to censor anything for free speech to die if the threat of violence renders the costs to free speech unacceptably high. The threat of violence allows unpleasant minorities to prevent a majority freely expressing themselves; this is the "Muslim power" which rightly worries secular Westerners. Free expression is exactly what Europeans should be defending as the state is not the only threat to our ability to contest ideas and opinions freely.

Secondly, the conclusion that this is the media causing troubles for Muslims that it would not for more powerful groups. This doesn't stand up to twenty minutes with Family Guy, the Life of Brian, the Last Temptation of Christ, South Park, Richard Dawkins or countless others who ridicule Christianity. Equally, there are countless cartoons and written pieces mocking the royals published every year in the UK; granted they aren't as overtly sexual as one of these bloggers would like but they are strong nonetheless.

National Identity

Our Chancellor of the Exchequer has been trying to convince us all of our Britishness recently:

http://news.bbc.co.uk/1/hi/uk_politics/4611682.stm

I think that we can do a little better than vague aspirations to principles that can hardly be claimed as our own. Liberty, fairness and responsibility are universal ideals. My opinion is that we can draw upon an older tradition to find another ideal for Britain. Shakespeare offers the following (ignore references to Englishness, he is clearly referring to the entire island nation):

"This royal throne of kings, this scepter'd isle,
This earth of majesty, this seat of Mars,
This other Eden, demi-paradise,
This fortress built by Nature for herself
Against infection and the hand of war,
This happy breed of men, this little world,
This precious stone set in the silver sea,
Which serves it in the office of a wall,
Or as a moat defensive to a house,
Against the envy of less happier lands,
This blessed plot, this earth, this realm, this England,
This nurse, this teeming womb of royal kings,
Fear'd by their breed and famous by their earth"

This is similar in nature to the image of the Shire presented by Tolkein. While the Shire is not an island it functions like one; as a home secure from the troubles and travails of the wider world and a base from which adventures are launched. This implies a role for the UK as a sanctuary. That the greatest writer in English and the author of the UK's favourite novel have created such similar images founded upon the geographical reality of the UK suggests that this view is present in the national consciousness and need not be created from the top down. This is also an inclusive identity as it suggests that accepting those requiring the protection of the island nation should be welcomed as part of our historical purpose.

As to whether we need a national identity. Identity and a feeling of common purpose are the main means for societies to overcome group sensitivities and encourage the small sacrifices which allow for common goods such as free speech and transfer payments.

A New Blog...

This blog is named for the Beaver (LSE student newspaper) column I ran in my first and second years but won't have the comic air of that particular wonder of journalism. It will be used as a space for my rantings in the hope that they will no longer solely be the lot of my long suffering friends. Hopefully others may find them of value.