Adam Smith Institute

It's here at last. Yes, today is Tax Freedom Day - that wonderful point in the year when the average taxpayer has finally earned enough to cover all their taxes and at last can start earning for themselves. 

It may come as a shock that the average UK resident has spent the last 155 days working solely to support government expenditures, but that is the reality of it. More than two-fifths of an average earner's wages is taken from them in taxes. So when people joke that they spend as much time working for the taxman as they do for themselves, it is very nearly true.

Of course, it wasn't always like this. When Gordon Brown became chancellor in 1997, Tax Freedom Day was May 26 – a whole week earlier. And if you go back to 1965, Tax Freedom Day came on April 27!

Unfortunately, the true picture could be even worse than our figures suggest. Last year Tax Freedom Day actually came three days later than forecast, because the economy grew more slowly than the government expected. The signs are that 2008 could be no different. And if government borrowing is factored in, Tax Freedom Day does not come until June 14.
 
Government spending will reach £600bn in 2008. That's £10,000 for every man, woman and child in the UK  – and twice as much as when Gordon Brown became Chancellor. If he had only raised public spending in line with inflation, he could have abolished income tax, corporation tax, capital gains tax and inheritance tax by now – leaving the taxpayer some £200bn better off. Something to think about, perhaps...

Anyway, a Happy Tax Freedom Day to you all!
 

The other day I took a tour of the area where Jack the Ripper killed five women. The tour guide began by saying, “The City of London was the seat of the largest empire the world had ever seen and the richest square mile in the world. The East End was the polar opposite, with those exploited by unchecked capitalism crammed into the worst conditions imaginable.”

Say what? Unchecked capitalism to blame? There were plenty of problems with the government at that time, but why are so many quick to blame capitalism for poverty?

French President Nicolas Sarkozy is driven to “moralise capitalism.” Seems France has been at it for decades by instituting 35 hour work weeks, creating useless projects, high taxes, and building the Concorde. The result? Low GDP growth, a low GDP per capita, and unemployment at almost 8%.

In a new development, the French government is now threatening to pass legislation to curb the pay of company executives and use its EU presidency to clamp down across the EU. Business executives are paid well because of what is at stake. Companies have to compete and the companies that invest the most will get the best. Executives that fail will be fired or demoted.

If Sarkozy really wants to moralise capitalism, he should leave it be. 
 

This is unashamedly another plug for Junk Medicine: Doctors, Lies and the Addiction Bureaucracy by iconoclastic doc Theodore Dalrymple, which I first reviewed back in January, and which our medi-blogger Dr Fred Hanson mentioned in his piece a few days ago.

Almost everything you know about heroin addiction is wrong, Dalrymple says. Heroin is not highly addictive; withdrawal from it is not medically serious; addicts do not become criminals to feed their habit; addicts do not need any medical assistance to stop taking heroin; and heroin addiction is more about mentality than biology. It's great stuff. And we've got it on special offer, well below the sticker price, for Adam Smith blog readers. You save nearly £4 off the bookshop price if you buy it from our online bookstore.

New green, clean low-carbon transportation between China and Hong. Sadly it is a 300-metre long zip line and illegal.

Would those campaigning against vaccines please ask themselves, quite seriously, whether they would really like to return to this world?

As so often happens, the best retorts occur to you after the retortee is no longer listening.

My word, this is a turn up for the books! Variations in exchange rates affect trade deficits. Have to rewrite all the textbooks.

An extremely harsh measure but who knows, it might actually work.

Business advice to those running Yahoo. Similarly harsh but again, it might work.

In the debate upon MPs pay there seems to be one politician at least who "gets it".

And finally, a quixotic quest concerning male secondary sexual characteristics.

Angela Phillips is concerned about the possibility that the cap on universtiy fees might be raised. 

Should our world-class universities be allowed to operate like football clubs and raise entry fees in order to pay the higher wages it takes to attract the Beckhams of the academic establishment?

I for one would welcome an influx of monosyllabic academics who were actually good at what they do, yes, and if raising tuition fees is the only way to achieve it then I'm all for that plan. A little more seriously:

Are we really ready to contemplate the possibility that education is not about social justice and that we should save the best minds in the world to educate a bunch of bankers and lawyers? Because that what we are talking about if we allow a market to develop in higher education.

No, education isn't about social justice: it might be a means of achieving some but that's a by product. The aim of education is, as the very word itself implies, to educate people, no, not just for the economic value of their subsequent output, but in the sense of aiding in the development of the full and rounded personality. The liberation of the whole human being if you wish. However, before I get accused of being a little too New Age in my outlook, this doesn't mean that fees should not be uncapped.

The people who benefit from the higher education system are those who go through it: not just in the higher rewards that some of them get in the jobs market, but in that greater appreciation of life which a rounded education will aid. Just as it should be the polluter who pays, so should it be those who benefit who pay. In this case the soon-to-be graduates should pay for the costs of the system which provides then with the benefits that graduation will bring.

The only alternative is that higher education be paid for from the tax system - and it's very difficult to see a moral argument that those who do not benefit from having graduated should have to pay the costs of the system which benefits those who do.

Free the fees and not just allow but encourage a market to develop in higher education. As I've said before, there are things which are simply to important for them to be excluded from the market.

There are a lot of smug faces in Frankfurt right now. Shortly after the Euro was launched, it pitched into the sand, down to US$0.90, and some economists thought it was on the way out. But political economists knew that too much political capital had been invested in the Euro for the EU to let it fail. And, indeed, now it seems to be riding high.

A lot of that is of course because the dollar is languishing due the effects of terrorism, wars, China and the inevitable hangover that follows a credit-led boom. The pound too, if less so. The Euro has become the currency of choice for all those who are nervous about leaving their money in America. And while America and Britain's prospects look grim, the European economies in general seem to be doing OK.

Europe and the Euro may be on the up, but the fundamental problems of the Euro remain. A single currency, along with a single exchange rate, can never be right for all the peoples of Europe all the time. Inflation in Ireland is now 5%, well outside the European Central Bank's 2% target, and inflation in Spain is not far behind. Meanwhile, these economies are not doing well. They got a huge boost from low Euro interest rates during the early years of this decade, and how they too are suffering a hangover. Property prices in Dublin are off by 20% and more, unemployment is creeping back, and people are talking again of stagflation.

The strong Euro does Ireland, in particular, no favours. Its main customers are the UK and America after all, with whom it has strong cultural, linguistic and ethnic ties. A lot of people presume that Ireland's boom was due to its membership of the EU, of EU subsidies and cheap credit thanks to Euro membership. In fact, Ireland's real growth was pushed off by an enlightened tax policy that drew business to Ireland, and certainly, access to the wider European market and some infrastructure grants certainly helped, as did changing social patterns and the participation of more women in the workforce. But that real boom was compounded by an inflationary boom that was down to Euro membership. In the long term, the Irish would have been better without it. And that hasn't changed.
 

A YouGov poll taken out between 27 and 29 May shows that Labour and Gordon Brown’s popularity has hit a record low since polling began. The Conservatives are ahead on 47 points, Labour on 23 points, with the Liberal Democrats on 18 points.

The poll showed that people regard David Cameron to be a better candidate for prime minister than Mr Brown and that the Conservatives would be better at running the economy than Labour. Crucially the poll shows that 72 per cent of those surveyed felt that the tax burden was too much.

Gordon Brown should take these results as a sharp slap from the electorate. A warning that if he does not cut taxes he will not only be defeated in 2010, but utterly trounced. His MPs know this. According to the Independent, a group of MPs (including five former ministers) have told him that he needs to cut taxes. As Sally Keeble, Labour MP for Northampton North, remarks: "The tax system provides the most powerful means of convincing this new electorate we're on their side."

However, even if Gordon Brown wanted to move to the right, he is being pulled in the opposite direction by the unions. The Labour Party is £24 million in debt. They have five weeks to find almost £7.5m or be declared bankrupt. A number of unions have promised to bail them out if their policies take a turn to the left.

It’s a catch 22 for Brown. Turn right and go bust, turn left and fail.

When I was in college, we used to take a popcorn popper - because that was the only thing they would let us use in the dorm - and we would fry squirrels. Mike Huckabee, charming voters at the start of 2008.

Yes, more on that sea temperature drop in the 1940s. Turns out it was just a data collection error and yes, that news is now spreading. But the much more important question is, what other errors are there in the temperature records? More here again.

On slightly different matters environmental: yes, the profit motive is a very powerful incentive for people to reduce resource consumption, even WalMart.

And Oxford Colleges, those forcing houses for the intellectually gifted, seem to have problems with environmental matters.

Who can take seriously a political journalist who knows nothing of (or at least ignores) public choice economics?

Of course, not all economics is quite so important. The professor who worked out the economics of scrabble, for example, was consistently beaten at the game by his wife, who cared nothing for such abstractions.

The perils of blogging....sometimes the message escapes.

And finally, well, and finally really.

If you read the latest proposal from the House of Representatives about attacking OPEC. well, you can change it one way, or you can read it as insisting that the House of Representatives should now sue the House of Representatives.

Further oddities: a self-described liberal newspaper is now attacking the very concept of free speech and the freedom of the press.

Netsmith does wonder whether this is an economic indicator that will make it into the standard macroecoonomic toolkit.

Analysing the latest intellectual high speed reverse from someone worried about losing their job.

Politics is really a very messy trade, isn't it?

Things you don't often see. An alternative title might be no, the rest of it doesn't make up for that voice.

And finally, yes, Netsmith knows they scrape the barrel to find contestants for this TV show but really, couldn't they at least find someone who understood the basic concept?

 

I feel a regulation coming on. The Times last week carried a headline on the China earthquake: "Human cost of cut-price concrete is revealed in the rubble." I didn't have to read the story: you know what it means. Shoddy materials contributed to the death toll as substandard buildings collapsed.

Normally following such disasters, the Chinese government rounds up 'cowboy builders' and various 'racketeering' architects, town planning officials and the like. They're shot, and the families are sent a bill for the bullet. (Though the cost of sending the bill and collecting the cash must far exceed the few yuan-worth of lead.) It's designed to encourage the others – though the others are probably just as innocent.

People use cheap building materials because – well, they're cheap. It's a waste of resources – time, money, energy, materials – to use stuff that's costlier than you need. Save money and you can use the change on something that you really want a lot more. Sure, at the back of your mind, if you live in an earthquake zone, is the fact that every few hundred years your particular town might get hit by a tremor and some people will be killed. But that's a risk you have to calculate. Save money now and that saving can be put to good use and grow your economy, making you rich enough to deal rather better with natural disasters.

I make the same calculation every time I fly or drive somewhere. These activities are risky: there is a finite chance I'll be killed in a crash. And make no mistake, being killed is a pretty big deal as far as I'm concerned. I still do it, because the potential benefits to me far outweigh that small risk.

This time, China might spare us the shootings. They're beginning to realise that it's better to have the sympathy of the world than its disgust. But The Times headline makes me dread that they will introduce all sorts of new building standards. Why's that bad? Because it will make houses, apartments, shops and offices that much less affordable. Less will be built, and people will continue to live in insanitary squalor (at the risk to their health and indeed lives, of course) and economic growth will be that much slower. The rational calculations of individuals will be outlawed by the political necessity of the authorities.
 

The Conservative Party plans to harden the line for welfare recipients if it wins the next election by requiring any able-bodied person on welfare who is under 21 and unemployed for three months to attend an intense work-training program. It is hoped that the proposed course would improve their work discipline and teach the skills necessary to obtain work.

Even better, they plan to "ask private sector companies and voluntary organisations to run the… centres." But what if they still don’t find a job? After a year of unemployment, they’ll be required to work full-time in community programme.

This proposal should increase productivity and decrease government spending on a deadweight program. By using private companies and charities, the worker-incentive program has a much better chance of being both effective and efficient.

As the party’s welfare spokesman Chris Grayling said, "Staying at home doing nothing will be a thing of the past."

It all fits in nicely with our line on welfare reform, which you can read more about in our 2007 report, Working Welfare.
 

All the time I'm being told how much wasteful packaging we use these days. Well, that's garbage.

The average US household generates about a third less trash each year than the average household in Mexico. The average US trash can is full of packaging, while the average Mexican one – like the average British one or forty years ago – is full of animal and vegetable food waste.

Intensive packaging actually produces less waste. Buy a fresh whole chicken and you end up with about a kilogram of stuff you can't use. Buy processed chicken in about fifteen grams of packaging and there's no waste at all – almost all of the chicken that you don't want to eat is processed into pet food and other products. The same is true of fruit and vegetables.

And why be ashamed of carrying out your processed chicken in a plastic bag? Plastic bags use 40% less energy and generate 80% less solid waste than paper ones. Plastic bags are a quarter of the thickness they were when we started using them in the mid-1970s. They use hardly any oil, and recycling a kilo of plastic takes just 10% of the energy used to recycle a kilo of paper. Paper bags produce 50 times more water pollution. Recycling paper uses bleaches and other nasty industrial chemicals, remember.

And yet the humble, useful plastic bag is on the way out because politicians, for the best of intentions but the worst of reasons, are intimidating supermarkets into scrapping them. Now: which is the real rubbish?

Any prime minister in office today would feel the voters' anger as they see their cherished plans to spend their own money as they see fit destroyed by rising prices combined with the insatiable greed of the state in all its manifestations to take the people's money for its own, often incompetent and counter-productive ends. Labour MP Denis MacShane, writing in yesterday's Telegraph

How extraordinarily alarming: American high school students show greater economic understanding than that usually on display from the entire Guardian editorial department (substitute "Labour Party" to taste).

Not the most surprising finding ever: demand curves slope downwards.

It isn't just here in Blighty that civil liberties are under attack: habeas corpus isn't looking too healthy across the Pond either.

Here in Blighty: we seem to longer to have the freedom to read.

So, err, why are we taking seriously the comments of a biologist upon the effects of climate change on ice shelves?

The usual source for the latest bright idea.

And finally, a solicitor writes a play and is there life before death?

 

The United Kingdom and the United States are both affected by and concerned about the war in Iraq, the credit crises, the housing market, oil prices, globalisation, immigration, and a host of other challenging situations.

Notice some similarities in recent events:

US: A Democrat won one of the safest Republican seats in the House of Representatives last week.

UK: Last week, the Conservatives thumped Labour in the Crewe and Nantwich by-election.

US: “The Republicans [are] busy dying. The brightest of them see no immediate light. They're frozen, not like a deer in the headlights but a deer in the darkness, his ears stiff at the sound. Crunch. Twig. Hunting party.” - Peggy Noonan, former Reagan speechwriter, Wall Street Journal columnist, and influential Republican

UK: “The lesson tonight for the Labour Party is that it is change or bust.” - John McDonell

US: “[I’ll]… build a coalition for change that stretches through red states and blue states because that's how we'll win in November, and that's how we'll finally meet the challenges that we face as a nation.” - Barack Obama

UK: “I want to go on building this broad coalition for change so we can bring our country better government." - David Cameron

I guess it's the political cycle at work!

There's been a recent revival of the discussions about the hypothecation of tax revenues and as I never tire of telling people, it's a bad idea. For there is no logical connection between how much you can raise from taxing an item or activity and how much you might want to spend on that or any other problem, whether related or not. Another reason it's a bad idea pops up here:

One-sixth of all the national lottery money earmarked for good causes is being spent on bureaucracy, including one quango that has more staff than the Treasury.

New figures reveal that more than £200m a year is being swallowed up in administration and staffing costs at lottery distributors – up to six times the proportion spent on overheads by some leading charities.

The connection is that these groups (like the Big Lottery Fund) have in effect hypothecated funds. They get a set proportion of the money raised but do not have any pressure on them from outside to increase their efficiency. Given that their finds come from that tax on stupidity (if you prefer, ignorance of odds) that is the lottery, they don't have to compete for the cash. Given their entire insulation from the market there is also no pressure from elsewhere. Now that is so far true of all bureaucracies, but with hypothecated funds it is worse. For at least if the money is being doled out of the Treasury's one big bucket then there is a certain amount of pressure from the same Treasury for accountability and economy in the administration. Not much, I agree, but at least some, even if it is only from the covetous glances of others hoping to be fed from the big bucket.

With hypothecation there is a complette absence of this pressure and thus anything funded in this manner, accountable to no one and competing with no one, is bound to become increasingly inefficient.

My history knowledge is woefully incomplete but I do dimly recall that we fought a fairly bloody internal war a few centuries ago and that one of the triggers was Parliament's insistence that the Monarch had to be dependent upon said Solons for money and to account to them for how it was spent. And that if it were ill spent that no more would be forthcoming. As with the Monarch, why not so with a bureaucracy?

Over the last month, several newspapers have highlighted individuals who are moving away from gas-guzzling cars to more energy efficient alternatives. Some farmers are using donkeys and camels rather than tractors, others are buying smaller cars or even bicycles rather than SUVs, and others are choosing mass-transit. Ford is even changing its line-up in favour of cars with better gas mileage to better suit the market.

Oil prices have risen and fallen over the years, but due to rapid industrialisation in many developing countries, this surge will likely be permanent. Which leaves the question: are these high prices best for the long-term success of the oil companies?

Richard Fletcher doesn’t think so. Many people are making long-term lifestyle changes that are much more energy efficient. New homes have better insulation, windows block heat more effectively, and light bulbs run on less energy. Smaller vehicles are quickly becoming the norm in the United States, just as they have been for years in Europe.

Perhaps most importantly, there has never been a greater incentive than now to develop practical alternative sources of energy. In fact, £500bn will be invested in renewable energy over the next twenty years. May the force (but please, not subsidies) be with anyone who can develop cheap and clean energy.
 

"Every revolutionary idea seems to evoke three stages of reaction. They may be summed up by the phrases: (1) It's completely impossible. (2) It's possible, but it's not worth doing. (3) I said it was a good idea all along." Arthur C Clarke