On market failure

From The Christian Science Monitor - Markets fail. That's why we need markets.

Some new technologies and innovations are genuine improvements and are long-lasting welfare enhancers. But others are the basketball equivalent of pump fakes – they look like the real deal and prompt market actors to leap hastily into action, only to realize later that their bets were wrong.

Given this dynamic, markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.

But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.

It goes on to mention rent-seeking in government, and so on.

I think I've been guilty of, in the past, seeing markets as perfect, when in fact, since humans aren't perfect (or more of, they don't have perfect information) so markets cannot be perfect, and from time to time something goes wrong.

But as humans learn from experience, the market improves with experience (recessions). That's why it's so important to let the market reallocate in recession (since government will do an even worse job - they don't know the minds of so many economic agents) and not to help create bubbles in the boom.

The article in the CSM is a good read. It sums up my view of it all quite well.

(hat-tip: Anti-Dismal)

Inheritance tax

Good to see George Osborne sticking to principle on inheritance tax.

Did we not have such a big budget deficit, I'd suggest scrapping it (a death tax, to me, is unfair anyway) but having just the super-rich pay is certainly keeping it in line with its original aims.

For all that Labour go on about "tax cuts for millionaires", yes perhaps they'll pay less inheritance tax, but a) they already pay a lot more tax at higher rates already, and b) this tax cut means that only millionaires with pay IHT. Not only that, but with real wage inflation, it takes some of the hard working middle classes out of the death tax band altogether.

About time, I say.

This is how it should be done

From the New Zealand Parliament.



Dave, Gordon, take note.

Hat-tip: Iain Dale

Being asked for ID

I can see the point in IDing people for alcohol and cigarettes. Well, they could harm your health (and depending on your perspective, others' too).

However, when I walk into a shop, and try to buy some car shampoo (the stuff you mix with water to wash your car), I don't expect the woman behind the counter to say "I can't sell you this. Have you got any ID?"

For the first time in a while, I was actually gobsmacked. You see these things in the Daily Mail, but actually getting asked for ID for something as pathetic as car shampoo is just shocking. What on earth am I going to do with it other than wash my car?

I have a full driving licence, it's quite clear I can drive and chances are I'm going to use it to wash my car.

Is this jobsworthiness, or is it actually getting scared that the police might sue you because I drunk a bottle of car shampoo, and you just happened to sell it to me?

Yes, this actually happened to me. I got IDed for car shampoo.

Credit ratings, interest rates and the price signal

The BBC's economics correspondent, Stephanie Flanders, has noticed that the bond market is treating UK gilts as if they were AA-rated rather than AAA-rated. Which begs the question, if they were officially AA rather than AAA, how would the markets treat them?

I suppose the whole question is about the effect of credit ratings on the bond market. Quite clearly here, the credit rating is wrong, or the agencies know more than the market (which probably isn't true). And once again, the many individual agents have done a better job than an agency.

Which brings me to interest rates. Just like a credit rating, the interest rate acts as a price signal (though more so in the latter case) - and if it's wrong, naturally, a bubble is created. 2002-2007? Possibly, since it's widely believed that interest rates were too low and therefore money was underpriced - excess demand to delve into economic theory. I digress.

So it's a distortion of the market. At least with credit ratings, bond markets can act pretty much independently; there's no agency with a central price like the Bank of England with its interest rates. But this is quite interesting.

Additionally, there was upward pressure from housing, mainly from mortgage interest payments which rose this year but fell a year ago.

I'm probably jumping to conclusions, but the market sees a rise in the demand for credit, and so is pushing up the cost of lending? So it does have some influence after all?

So I tend to agree with this piece I saw in the Times back in July. Prices should be set by demand and supply, demand and supply are best set by the voluntary actions of individuals, the money market has demand and supply (even if it is a means of exchange, rather than a good/service), so interest rates should also be set by the voluntary actions of individuals - no central agency or committee can ever know the details of every single transaction.

Maybe there's still hope...

Just after posting the last one, this story popped up on my RSS feed.

Also using a cricket bat, but no hitting the robber involved.

Hmm.

Defending the home

Three masked men break into your home. You return, and they take you hostage with knives. One escapes, and you throw a coffee table at them, then chase them down the street, catch them and hit them with a cricket bat.

They violated your home, and various rights. They tried to take you hostage. You fought back. Praise and a police commendation, yes?

No.

The government can tell us to stop making scare stories about the justice system all they like, but just like the Tony Martin case, it is very clear that it is positioned in the favour of criminals. That's not the Daily Mail's line, that's an altogether reasoned line.

But had he spared Mr Hussain jail, the judge said, the 'rule of law' would collapse.

He said: 'If persons were permitted to take the law into their own hands and inflict their own instant and violent punishment on an apprehended offender rather than letting the criminal justice system take its course, then the rule of law and our system of criminal justice, which are hallmarks of a civilised society, would collapse.'

At this point I have to avoid going on an all-out swear blog. No, you idiot, the rule of law is collapsing when politically correct prats like you make stupid decisions like this, and let criminals go free to commit their next crime (yes, he committed crimes before). You say this, then don't punish someone for actually committing a crime. Is that justice? Quite clearly not. Mr Reddihough, you are a fool. Just go. Go now. You quite clearly can't uphold the law properly.

This wasn't just a random burglar who had broken in, where the force may have been excessive (though if you shoot a burglar dead in the USA, they'll just come to pick up the body, and good for them), this was a group of yobs who had inflicted psychological suffering on an innocent family. The fact that these yobs haven't been given a prison sentence is beyond a joke.

Hussain then stopped the one criminal with a cricket bat, and beat him up. Seems fair compared to the suffering that the criminals inflicted on the family. In America, shoot the criminal dead, no one would bat an eyelid. It's completely fair, considering (a) what the criminal did and (b) what a joke the British justice system is. If the criminal doesn't want to suffer justice, he shouldn't have committed the crime.

British justice system, once the envy of the world, so much that the USA used common law, has now been reduced to an utter joke. It's about time that it started being a justice system, and not something I'm reduced to swearing at because of its stupidity.

On maternity pay

Thought I'd end my hiatus with some economics that went through my head earlier.

Maternity leave can be defined as a payment for extra economic agents in the long term. As age increases, the utility of humans with regard to work decreases, so obviously childbirth is "replacement" of some sort.

So where does that leave us?

The question is 'should maternity leave be paid?', and I'll ignore the usual arguments, but instead ask, what benefit does it give in the long run? Does maternity leave encourage childbirth, of a child that may contribute more back to the economy in the future? Is there a net gain from paying maternity leave, childcare etc in the long run?

All very interesting stuff, but relies on some basic assumptions I suppose. Assuming that maternity pay is paid to mothers who were working, there should be some sort of culture of work in the family (or there is more likely to be), which (and I hate bringing up stereotypes, but) should count out the stereotypical 'council estate benefits sponger', so there's less likelihood of the child draining society (or the government coffers rather).

So, if n is the number of children, I could assume
monetary benefit n = n . average earnings - n . maternity pay
would be positive, and maternity pay would be a good thing, yes?

Then again, does maternity pay really benefit the child? And back to an early point, does it actually persuade mothers to have children?

Is this an argument for paying more benefits for those who work giving children? I'd disagree with anything like that since I don't think the state should behave in such a way, and I'm more convinced by the benefits of work than maternity pay in itself, which means an absence from work (and long term absence caused by it for the mother even?). But then again these crazy economic thoughts go through my head from time to time.