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Greek Tragedies

March 5, 2010 Leave a comment

Distant fiscal targets

There was a time when governments were considered secure borrowers. They could not default, we thought. They had unlimited resources, we thought. They owned the printing presses and could print money to cover any deficit, we thought. Then the Greek fiasco happened.

Before the Greek government revealed, with dollops of egg on its face, that it had a chasm in its fiscal books the size of the Milky Way, governments could ordinarily borrow at low, ‘risk-free’ interest rates. Only banana republics needed to worry about such tiresome formalities as unattractive sovereign ratings.

The problem with this system was, it created a perverse incentive of perilous proportions. It perpetuated the illusion that fiscal rectitude was merely one policy option for governments, and that reckless spending today could always be covered by tax increases tomorrow (usually after the next election).

Welcome to the new reality. As the US and UK governments squirm in unholy terror at the size of their own fiscal sinkholes, the Greek tragedy is a pithy reminder of the mortal limitations of even the most mighty governments. The books must be balanced, later if not sooner. If that lesson reigns in the voracious bureauracies of the modern superstate, it will have been a valuable Greek gift indeed.

Categories: Public Policy

Climate of Distrust

December 21, 2009 Leave a comment

Sorry guys, not this time

To the green campaigners massed outside, it was a complete failure. Even politicians like Gordon Brown abandoned their usual measured platitudes to express decided disappointment with the result of the Copenhagen climate summit.

The Economist explains how the accords agreed fell short of the targets needed for global warming and carbon emissions to be contained. We ask the question: why? The answer can be found in the frameworks of Game Theory.

If each country cared enough about climate change to attend, they presumably were ready to make concessions. So why not just unilaterally set and pursue their own targets?

The problem is, any country that did that would lose out if other countries didn’t do the same. China is planning for ambitious GDP growth that would be constrained if it had to cut industrial carbon emissions. Poorer countries’ economies would never get off the ground without generous compensation for good green behaviour.

And even if all parties could come to joint agreement, as in every game there is always the incentive for someone to cheat and end up better off than the rest. This is why the absence of a monitoring mechanism or global environmental regulator was a stumbling block.

Bank Bonuses: The Crass Class war

December 7, 2009 Leave a comment
You take his Rolex, I'll get his Bentley

You take his Rolex, I'll get his Bentley

Everything sordid about British society and government is on display in the new proposals to skewer bankers by levying exceptional taxes on their bonuses.

It’s no surprise that some bankers are investigating their options under the Human Rights Act. To single out a particular profession or group of workers for punitive taxes is an egregious violation of fundamental fairness, and a nauseating abuse of governmental power. But why is it happening?

Because the government believes it can get away with it. Envy is a peculiarly British trait. The trite euphemism ‘fairness’ masks a darker motivation: to propogate the British obsession with class by dragging down the highest earners down to the levels of the jealous underclasses. And in this war, government is the willing tool.

The costs of this misguided policy are obvious: first, government is not being held to account for its fiscal mismanagement. It creates a deficit, then gets its citizens to pay. Second, it creates a disincentive to hard work and wealth creation, and just drives both the tax base and best and brightest offshore.

But the biggest cost is what it says of Britain as a modern, free market meritocracy. Simply put, it isn’t.

Categories: Public Policy

The London Tube: Sardines on The Go

December 1, 2009 2 comments
Carriage 1

Rush hour

The London Underground at peak times is a people-watcher’s delight. The English are normally haunted by the terrible prospect of being physically touched by strangers. But overcrowding on the Tube forces us to yield to personal-space invasion of a particularly unnerving sort.

Harried commuters are forced to pack themselves shoulder-to shoulder, pelvis-to-pelvis and cheek-to-groin with all manner of strangers. Averted eyes, stony stares, surreptitious groping and inner turmoil ensues.

But why should the trains be so crowded, unlike say, airlines? The answer is, the London transport system is one gargantuan, inefficient monopoly run by Transport for London (TfL), a satellite state of the defunct USSR that still believes in the virtues of central planning.

In a free, competitive transport market, excess demand will result in higher prices, which will move demand to alternative forms of transport like buses and taxis, while incenting operators to invest in new tube capacity. But not in this case.

That’s because TfL also runs London’s buses, and both tube and taxi fares are regulated. The market is straight-jacketed and simply cannot respond to excess demand. Instead, cramped and cross commuters must wait for phlegmatic bureaucrats to approve capacity investment at their unhurried leisure. Watch out for that grope.

Immigrants: The Scapegoats at the Border

November 16, 2009 8 comments
Yes, we're ALL fed up

Yes, we're ALL fed up

As Labour shuffles towards electoral defeat like a convict to his execution, disaffected party mandarins are desperate to regain votes. They’re pressuring the PM to abandon all pretense of intellectual honesty and pander without shame on the issue of immigration.

Honest politicians typically enjoy very short careers. And for an unpopular incumbent facing a disgruntled populace- like Gordon Brown- any kind of honesty is particularly reckless.

So the PM obliged. His suitably anti-immigration speech glossed over the niggling fact that immigrants don’t cause recessions. Also, the labour market’s self-correction mechanism was downplayed (with high unemployment, net UK immigration is down 44% because marginal, unproductive immigrants are going home). What is wanted at times like this is not reason but good, old-fashioned, patriotic xenophobia.

That’s because in a recession, everybody hates immigrants. They’re considered rather like household rats: breeding in the darkness, stealing food and spreading disease. Throughout history’s recessions, this animosity has resulted in ghettoes, gulags and gas chambers. Fiscal restructuring is hard, but scapegoating immigrants is easy. It won’t help the economy, but at least we’ll all feel better.

American Standoff

October 13, 2009 1 comment
I'll drop mine of you drop yours

I'll drop mine if you drop yours

America has the highest rate of civilian gun ownership amongst developed countries. It also has the highest rate of gun violence in its peer group (South America and Eastern Europe are world-beaters in the field).

The correlation between both facts is obvious, as is the causality. This is further proved by the control experiment: the UK (for example) has much lower levels of gun ownership, and of course, much lower levels of gun crime.

The more guns you have, given a certain statistical rate of gun discharge, the more people will be shot.

With such an obvious statistical relationship, why do Americans still oppose gun laws? It’s the classic Prisoner’s Dilemma from Game Theory: if I give up my gun, how do I know other people will give up theirs?

Without any such assurance, each person feels safe keeping his gun, even though the optimal solution would be for everybody to give up theirs.

Of course, the feeling of safety this offers is illusory: the benefit of having a gun is neutralized, because your potential antagonist also has one. But now, with both of you having guns, you both have a higher statistical probability of getting shot over a road rage, workplace dispute or marital infidelity incident. Bang!

The Benefits of Benefits?

October 8, 2009 Leave a comment
Giving disincentives

Giving disincentives

The rich are outnumbered by the rest of us. In America for example, 1% of the population owns 24% of the wealth. Despite this, they have the bad grace to make us feel somehow inferior. It’s not as if they’re smarter or more hard-working than us. They’re just luckier.

If you share those snide sentiments, you may be perpetuating one of Britain’s festering malaises: class envy. Bankers are excoriated only because they earn more money than most people. Their persecution- and calls to curb their bonuses- is a thinly-veiled sop to the envious underclass.

We take money from the rich in the interest of ‘fairness’ (it’s not fair to the rich of course, but that’s an irrelevant detail). We then share the spoils amongst ourselves, redistributing the bulk of it to the feckless in the form of ‘benefits’. It’s government as Robin Hood.

The problem is, benefits are a fiscal time bomb. The more you pay people not to work, the more people don’t work. The more people don’t work, the less you earn in tax revenues, and the more you have to pay in benefits. It’s a downward spiral of higher taxes, lower productivity and social seediness. No man with his hand out has dignity.