Need a new policy idea?

In the US Congress, it looks as though they look across the Atlantic to our own Galumphin' Gordon Brown for inspiration. This might look a bit like getting your chat-up lines from Benny Hill, but it seems that even the salary and perks of a congressman aren't enough to attract candidates who can come up with ideas of their own.

When we first heard the phrase "cash for clunkers," we thought the reference was to a Congressional pay raise. Alas, no, it is the bright idea out of Congress to pay Americans to turn in their old cars so they'll go out and buy a new one. As columnist George Will recently observed, this isn't as insane as the New Deal policy of slaughtering pigs to raise pork prices, but it's close enough for government work.

Full story here.

Tax freedom time

The Adam Smith Institute has an interesting article about how Tax Freedom Day, the day on which you stop working for the state and start working  for yourself, has now reached June 25th (at least if you take into account the surplus of government spending over its income).

Tax Freedom Day is a good idea, transforming a rather abstruse number (the percentage of GDP taken by government spending) into something that is readily comprehensible by the man in the street.

The problem with the concept though is that it only comes round once a year. It would be better public relations to have a tax freedom time, the point each day when you stop working for the government and start working for yourself.

By my calculations, if you normally work a 7 1/2 hour day, starting at 9am, you will probably still be working for the government when you knock off for lunch at 12:30. So when you buy lunch, you still haven't retained a single penny of your salary in order to pay for it - Gordon's had everything you've earned so far. Then, you return at 1:30, you have to work for another seven minutes until finally at 1:37pm, you finally reach tax freedom time.

And it's the same thing tomorrow and the next day and the day after that.

To hell with the consequences

President Obama continues to horrify many Americans with his apparent disdain for business and investors. His plans for putting the tottering Chrysler corporation back on its feet look to be another step on the road to a full-scale depression:

Unlike a traditional reorganization, in which the parties negotiate the terms of a restructuring that is then voted on by each class of creditors and shareholders, the administration plans to quickly sell Chrysler’s most important assets to a new entity—“New Chrysler”—whose stock will be owned by Chrysler’s employees and Fiat. The senior lenders who objected to the government’s offer (which amounted to little more than 30 percent of their claims) will not have any vote on the sale. Their only option is the one they have pursued: objecting to the sale, and praying that bankruptcy judge Arthur Gonzalez takes a hard look at its terms even while the government is breathing down his neck and saying in a sense, he better approve or else.

If investors think their assets are going to be handed over to insiders by the bankruptcy courts then they are simply not going to invest in the American economy. That's a recipe for full-scale depression.

And if there's to be a depression in the US, the effects will surely be felt on this side of the Atlantic too.

More here.

More trouble coming?

Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government's ability to raise funds to fight the recession.

The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.

This is the US Government rather than ours, but coming so soon after a failure of a UK gilt auction, it does start to look like the markets sending a signal to Messrs Brown and Obama.

Hold on to your hats.

Saving Gordon

Not that anyone in their right mind would want to do anything so foolish, but Sky's resident psephologist reckons that economic recovery is Gordon Brown's only hope of saving his political skin.

From what we know of the prime minister, of course, he will do anything - literally anything - in order to do that.

So if economic recovery is what is required, economic recovery is what will be delivered. So long as growth is positive in a year's time, GB will be content. To that end, expect still more quantitative easing and crazily low interest rates, all designed to engineer a boom in time for the next election.

Oh, wait a minute...

The Bank of England has kept interest rates on hold at 0.5% and announced that it will inject an extra £50bn into the UK economy.

It won't be enough to save him, of course, but he will try and try and try, and if we are all to be taken down with him in the bust that follows the boom, that is not something that Gordon is going to concern himself with.

Fixing the country - a dilemma

The Heresiarch wonders where the money has all gone. The answer, he notes, is that a great deal of it has been blown on shiny new schoolsnhospitals and bloated salaries and pensions for the Labour voters who work in them.

The capital costs are gone, of course and it's fair to say that this particular aspect of the spending spree will have to be brought to an abrupt halt. Whether the current incumbent of Number Ten has the will to switch the taps off is another matter; perhaps he's going for the scorched earth strategy and reform will have to wait for a change of government.

The fat salaries, and the pensions that can only be described as "obese", are different though. Here, the government can take steps to reduce costs. So, faced with an urgent need to cut back on the costs, what will Messrs Cameron and Osborne do?

If they have programmes of redundancies in the public sector, they will end up with smaller numbers of employees and lower costs, but those left behind will still be grossly overpaid and the services they deliver will inevitably be adversely affected.

Can an incoming government persuade public sector workers to take reductions in pay and benefits, just like the private sector? You can't see the unions taking that one lying down, can you? This road looks as though it will end in tears.

What then? The answer is, of course, full-scale privatisation and the introduction of competition. This is really the only reliable way we have of dealing with overpaid workers. However, when you look at Cameron and Osborne you don't see two men with the character to take these sorts of decisions. They come over as slightly naive fops rather than economic reformers. Will Dave and Gideon really sell off those schoolsnhospitals? Didn't think so.

It's hard to see a way out of this.

Learn from the past

Bruno learns how aberrant bankers were dealt with in medieval Italy.

Freeing banks

Jonathan Pearce at Samizdata reports on Professor Kevin Dowd's ideas on how to stop banking crises happening again. It's not the same as the way Gordon Brown thinks it should happen.

What to do with big business

Picking Losers says "disintegrate it".

Markets say Obama's policies will extend recession

The WSJ:

What's worrying about the plunge in equities since January 2, and especially in the last week since Mr. Obama released his radical budget, is that it has come amid the unveiling of the President's policy agenda. Equity prices have reacted to those proposals by signaling that they expect a much deeper and longer recession.

Third sector hurting, public sector bearing up well

The wires are humming with the news that the National Trust for Scotland is to lay off a fifth of its full-time workforce.  Given the carnage in the private sector, it was probably inevitable that the damage would extend to the third sector.

Still, civil servants are all right. No pain there. Obviously, their pension schemes are not looking quite so healthy as a year or so back, so us in the private sector are going to have to keep working quite a bit longer to keep their retirements nice and comfortable. 

Funny expression, civil servant, isn't it? When the master gets laid off, normally the servants are the next to go. It's different for civil servants apparently. Civil would seem to carry the extra meaning of "cannot be got rid of". Or maybe "cannot be afforded".

More on the origins of the credit crunch

Apologies for the slow posting. I've been laid a bit low for a couple of days.

My search for the origins of the credit crunch goes on. Having watched this video of a big-time American financial whizz (with the most delightful James Stewart accent to boot) explaining what happened, I think I may finally be beginning to get the gist of it.

This is relevant too.

de Soto on the credit crunch

Another interesting article explaining the credit crunch, this time by the eminent economist Hernando de Soto. De Soto spends a lot of time examining the importance of private property rights and how the lack on them prevents poor people improving their lives. This time though he's looking at how some rich people, namely the bankers, lost track of their property by securitising it and how this contributed to the global meltdown.

Why the stimulus won't work

Charles Steele explains why the various stimulus plans won't work.

Expending scarce resources on useless projects may "put people to work," but it remains consumption of capital, and is simply more of what Adam Smith called decay. The idea that stimulus is stimulus and spending solves problems of capital misallocation is just crazy nonsense. Waste is waste, and it makes us poorer, not wealthier.

(Via Picking losers)

Filling the hole in the national accounts

OK, so we need some money and fast. If you have a look around you, you can see how people deal with this kind of problem in day to day life - they sell assets - shares get flogged, the kids' old toys go on Ebay, the four-by-four gets dumped in favour of something smaller.

The government needs to do the same kind of thing too. There's a lot to flog off, but is it enough to fill the hole? Dunno, because we don't know how big the hole is, but let's see what we think we can get for a firesale of UK assets. Here's a start (valuations per my estimates or per the ASI):

• the BBC £50bn? (something like Time Warner)
• BBC Worldwide £2bn
• Channel 4 £1bn
• Secondary schools (put in a voucher scheme) 4000 schools at £20?m each= £80bn
• Primary schools (ditto) 21,000 schools at £6.5?m = £136bn
• Hospitals (introduce Singapore-style healthcare accounts)
• Universities
• HE colleges
• Scottish Water, £5bn
• Glas Cymru £4bn
• Northern Ireland Water £1bn
• British Energy and Urenco £10bn
• Trust ports £1?bn (Forth Ports x 2)
• Commonwealth Development Corporation (£3bn net assets)
• Royal Mail £4bn

I'm still working on filling in the gaps, but that's £297bn so far. Hospitals and Universities and HE colleges must add quite a lot to that though. I have no idea how to value them though. Anyone got any ideas? School numbers are roughly correct. The cost per school is 50% of the cost of a new-build, which may be a bit on the generous side, given that we know most of the recent capital spending by government is just "invested" up the nearest wall. What's clear from this is that in the wider scheme of things it's only by selling off the education and health sectors that we can hope to plug the gap, which was over £1trillion last time I heard.

Well go on then, get to it.