Tuesday, August 26, 2014

The True Cost of Election Bribes

We have an election campaign underway in New Zealand. You would need to be a blind and deaf hermit to miss all the bullshit the media have been spouting about it. But in between the wall-to-wall coverage of the petty name-calling and downright lies, we are beginning to see some policy announcements from the parties and almost every one of them is trying to bribe voters with promises of more government spending. Even the so-called centre-right National Party thinks it can bribe first home buyers into voting for it (and Not PC gives a very good account of why that is a silly idea in this blog post). 

Unfortunately, many voters are too gullible to question where the money for these bribes comes from. Every dollar has to come from some hardworking taxpayer's pocket. In fact, every dollar of government spending means that around $1.25 has to come from a taxpayer because there is a transaction cost in collecting and spending the money. It costs to run the tax department and it costs to run all the government agencies that spend the loot the government extorts from taxpayers - and despite the ease of the task, they're none too efficient at spending the money because they have no incentive to be efficient (unlike businesses who have to compete with other businesses to be ever more efficient at producing the products and services they produce). 

But, in reality, it's even worse than that. The true cost of the government spending one dollar is much higher because the taxpayer's $1.25 probably would have been invested in a business (either directly by buying shares or indirectly via a bank) and that $1.25 of capital might have enabled the business to produce an additional $20 worth of products or services. That $20 worth of revenue to the company would have been spent on, say, $10 in wages, $5 of supplies and $3 in rent. And the workers that earned the wages would have spent their additional $10 on food at the supermarket or put it towards an Air New Zealand flight to see grandma, and the supplier would have spent some of his $5 on wages, and the landlord would have spent some of his $3 on paying a contractor to get the roof fixed, and so on and so forth.

Now you start to see the true cost of that one dollar the government is promising to spend on you. Talk about cutting off your nose to spite your face.

Friday, August 22, 2014

What Keeps People in Poverty

I have observed that in the current general election campaign in New Zealand there has already been much of the usual commentary about 'child poverty'. The phrase is meaningless because minors cannot have legal title to assets and therefore can't really be rich or poor. What the politicians and commentators really mean is parental poverty.

I have been interested in seeing whether there is anything new in the election commentary about poverty and came across this article by Kate Tindall on the Tindall Foundation's website. The Foundation was established by New Zealand businessman Stephen Tindall and his family and engages in charitable activities. The article quotes the Auckland City Mission on the factors it thinks keeps people in poverty and while I agree the factors exacerbate the difficulties of people in poverty, I think they are symptoms rather than causes and I disagree with most of the proposed solutions.

The Mission blames 'fringe lenders' for keeping poor people poor, as if lenders somehow press-ganged their customers into borrowing, and a 'poverty premium' in the form of higher interest rates. Anyone who knows anything about the finance industry knows that interest rates are proportional to risk. I can borrow at very low interest rates because I have never not paid back a loan. I am sure many of the Auckland City Mission's clients pay much higher interest rates (if they can get anyone to lend to them at all) because either they have a track record of not paying the money back, or no track record at all. The solution, according to the Mission, is to cap the interest rates charged by all lenders. Of course the outcome of this is that no one will lend to these people at all - why would they when they can't get a sufficient return to cover the losses on the default loans?

The Mission talks about the serious impact of having a family member in prison, as if this situation was merely an unfortunate accident rather than the result of the criminal activities of the family member in question. Somewhere, some other family is living with the consequences of that person's criminal action - perhaps the loss of a primary breadwinner with the result that the victim's family in now in poverty through no fault of their own. The Mission talks about making more use of the Clean Slate Act, as if state-sanctioned lying about someone's criminal activity is going to make everything better.

The Mission calls for 'a minimum standard for all rental accommodation' including private rentals. This is similar to the cap on interest rates. Putting additional compliance costs on private landlords is not going to magically create better, less-expensive housing - rather it will push up rentals and discourage property owners from renting out their properties at all.

The Mission calls for 'tougher monitoring' of casual employment and legislated increases in minimal wages. Again, the obvious effect will be the exact opposite of that intended as employers will be discouraged from hiring the very people the Mission claims to care about - the least skilled and qualified - with the consequence that they will be denied a very real opportunity of gaining work experience and improving their lot.

Dental Care
Dental care is already free or heavily subsidised for school children and there are welfare grants available to low income people to pay dental bills. The reality is that dental care is not cheap and the higher taxes that will be required to pay for increased state-provided dental care will mean taxpayers will be less able to provide for their own dental bills.

The Mission says its clients struggle to provide school lunches to their children. I suspect that in many cases the problem is not that the money is not available at all but rather that money spent on school lunches is regarded as discretionary and a lower priority than competing adult 'needs' such as beer, cigarettes and poker machines. I imagine another problem is that many low income people simply do not know how to make a cheap nutritious lunch such as sandwiches and a piece of fruit and instead give their children cash (when they can afford it) for fast food - hardly a cheap or nutritious choice.

This is probably the one area where the concerns expressed and proposed solutions are valid. Negotiating government services is labyrinthine, particularly for those who have to deal with government a lot. To their credit, MSD is doing much to try and simplify and improve their services, but more certainly needs to be done.

Finally, the Mission says that 'course providers who receive government subsidies must guarantee sustainable employment outcomes.' This is probably the craziest of all their solutions. How on earth can an education provider possibly guarantee employment for their graduates? If this were to be enforced, it would force education providers out of business.

It might seem from my comments above that I am unsympathetic to the plight of the poor. That is not the case. There was a time in my life when I was down to my last few dollars and was genuinely unsure of where my next meal would come from or where I would spend the night. I just don't think that the ill-conceived and clearly illogical policies advocated by the Auckland City Mission are likely to have any real impact on poverty in this country. There is only one real solution to poverty and I would have thought Stephen Tindall and his family would know what it is - a vibrant and growing economy that creates demand for labour and thereby increases employment and wages and salaries. It is only by creating greater prosperity through economic growth that we will provide opportunities for the unskilled and unemployed to improve their lot.

The Auckland City Mission needs to think about what conditions are required to create a vibrant and growing economy and to support policies that will achieve this. Stephen Tindall knows what these conditions are because he (and his many thousands of employees and suppliers) benefited from them during the period of greatest growth of his retail empire during the 1980s and 1990s - deregulation, low taxes and minimal government involvement in the economy. 

At best the solutions proposed by the Auckland City Mission are Bandaids, at worst they will make the problem worse.

Thursday, August 21, 2014

A Very Small Village

I woke up this morning to the news on Radio Live, a national radio news station here in New Zealand. Normally, an internet jazz station wakes me but this morning I wasn't in my own bed and had to make do with the station that was tuned on the clock radio. You see I make a point of avoiding the New Zealand mainstream news media and the early morning news report today reminded me why. 

There was the usual petty political bickering - we are in the midst of an election campaign after all - and an article about a fatal road accident somewhere down south, and a story about a kitten caught up a tree (or something similar - I forget the exact details), and then it was straight on to the sport.

You would never know, if you relied on the local New Zealand media, that the world was agog with stories of great achievements and great horrors. You wouldn't know there was a worsening Ebola epidemic in Africa or that the hideous thugs from the self-styled Islamic State of Iraq and Syria (ISIS) had decapitated an American journalist the day before, or that the militarised police in Ferguson, Missouri thought the appropriate response to a protest march was to use Iraq War surplus tanks and M16s against their fellow townspeople. You also wouldn't hear of the wonderful achievement of the scientists behind the comet-chasing Rosetta spacecraft, the fastest vehicle mankind has ever built, that set off in 2004 to fly beyond Jupiter so it could circle back and chase down Comet 67P/Churyumov-Gerasimenko, finally arriving in the last few days and sending back spectacular close-up pictures of a strange and wonderful alien world.

New Zealand might as well be a very small village as far as its mainstream media are concerned. Our news is mostly 'village pump' stuff. I suppose that in a crazy world we should be grateful for the peaceful country we live in. It would be nice, however, to hear about what's going on in the world.

Tuesday, August 5, 2014

Anti-Semitism Lies Beneath Anti-Israel Bias

Anti-Semitism “is to be regarded not as the enemy of the Jewish people… but as the common enemy of humanity and of civilization” 
~ Christopher Hitchens

Several years ago I had a friend to dinner, a highly educated and cultured man with whom I enjoyed discussing all manner of social and political issues. We agreed on much that was wrong with the world and on what the solutions were but I was shocked when he announced that Israel should be wiped from the face of the earth. He admitted that his views were based mainly on his experiences during a visit to Israel a few years before. I thought it a bit extreme to advocate the destruction of a country based on a few negative experiences as a tourist but when he went on to say, "They are an arrogant people, they think they are superior to everyone else," I realised that, of course, he was not talking about getting rid of Israel but rather the Jews. And I think it is that sentiment that is at the heart of everyone who opposes the state of Israel.

Israel is not a bad country by any measure. It is a democracy with universal suffrage and is a relatively prosperous, uncorrupt and tolerant society. The Basic Laws of Israel define the country as a 'Jewish state' but they protect freedom of religion and establish equal legal rights for the more than 20% of the Israeli population that are Arabs - to an extent that is exceptional in the Middle East. The effectiveness of the Basic Laws has been demonstrated by the willingness of the Israeli Supreme Court to rule against the government in matters such as settlement in the occupied territories, the conduct of the Israeli armed forces in conflict zones, and protecting the rights of its Arab citizens. Successive Israeli governments have repeatedly demonstrated the country wishes to live in peace with its neighbours, having handed back territory it occupied in defensive wars to Egypt, Jordan, Lebanon and the Palestinian Authority.

The reason for the current actions of the Israeli armed forces in Gaza is the legitimate protection of Israeli citizens against the unprovoked aggression of the Hamas government in Gaza. After months of enduring escalating rocket attacks by Hamas against population centres in Israel, the Government of Israel did what any other government would be applauded for doing - sending its armed forces into the aggressor's territory to stop the attacks. The fact that there are inevitable civilian casualties does not make the actions of the Israeli government any less legitimate or any different to any other combat situation. A few media outlets have reported the incredible efforts of the Israeli armed forces to avoid civilian casualties such as telephoning occupants of buildings in advance of bombing and detonating small charges in advance of the main strike. Israel is taking these extraordinary measures to ensure civilian casualties are minimised despite the illegal actions of Hamas in using civilian facilities such as hospitals as launch sites for missile attacks on Israel and despite the likelihood that Hamas combatants are able to escape from the targets before they are hit.

It has been interesting to note that hardly any of Israel's neighbours have condemned its current actions in Gaza. This is because almost all other Arab nations regard Gaza under Hamas as more dangerous than their traditional enemy in the Jewish State. They rightly see Hamas as a puppet of the Iranian regime and it is Iran, not Israel, that they truly fear. Extraordinarily, it has been left to the 'liberal' Western media to condemn Israel in some of the most ill-informed and one-sided reporting of any conflict in modern history. Why has the Western media condemned Israel to an extent that is not evident in the coverage of say, France's intervention in Mali, or Barack Obama's use of drone strikes against targets in Northern Pakistan?

I have recently read some interesting theories that explain this highly selective and biased coverage. Douglas Murray, the British conservative commentator, in this interview with podcaster James Delingpole put forward what I'd term the 'guilt complex' explanation. In short, Murray believes the European commentariat are still trying to live down the Holocaust and by projecting some of the characteristics of the Nazis onto the Israelis they can say that, yes, even Jews can be indiscriminate killers so we're not that bad after all. This explanation has some resonance when you hear the references to 'genocide' that are used in regard to the relatively few civilian casualties of the Israeli military action.

Jonah Goldberg, in his book Liberal Fascism, is more blunt. Western liberalism has its roots in the progressivism of the early 20th Century, which was also the root of...well, that political movement started by Benito Mussolini. Incredible as this may seem after decades of the political left-wing labelling its opponents Fascists, Goldberg makes a pretty good case for the common roots of Fascism and modern liberalism. If you accept his argument it explains a lot, such as why Western liberals find common ground with murderous thugs like Hamas and the ISIS army in Syria rather than with a genuinely liberal country like Israel.

I don't know whether Murray's or Goldberg's theories have any basis in reality but I do know the current vilification of Israel is completely inconsistent with any regard for freedom, democracy and the legitimate rights of a nation state to defend itself. The hypocrisy of Western media and commentators means we must ask ourselves what is so different about Israel. The answer is obvious - it is the Jewish state. Anti-Israeli views cannot be separated from anti-Semitism, despite efforts of some Western liberal commentators to finesse the issue.

I should declare that while I am not Jewish, I have Jewish blood on my mother's side (which - and I cannot escape the sobering thought - would have made me eligible for the gas chambers had I lived under Nazi rule). I like to think I would feel the same way even if I did not have Jewish blood, but I admit I find myself getting angry about the treatment of Israel to an extent that I do with few other issues. My response to my friend's comments over dinner were a little less considered than what I've said above so I won't repeat those words here, but instead I will bookend this post with another quotation - the words of the great David Ben Gurion, the founding prime minister of Israel:

"Let me first tell you one thing: It doesn't matter what the world says about Israel; it doesn't matter what they say about us anywhere else. The only thing that matters is that we can exist here on the land of our forefathers. And unless we show the Arabs that there is a high price to pay for murdering Jews, we won't survive."

Sunday, July 6, 2014

Racial discrimination in NZ law has to stop

Life in New Zealand is pretty good. Our country is uncrowded, our economy has come through the global recession in relatively good shape and we have been able to retain our open, largely self-reliant society in the face of the post-9/11 security craziness that has engulfed the rest of the world. However, there is a cancer that threatens to overturn all that is good about New Zealand. That cancer is racial discrimination in favour of Maori.

Last week we saw one of the most disgusting cases of this discrimination when Auckland District Court judge Philippa Cunningham discharged a young man named Korotangi Paki without conviction on charges of drink driving, burglary and theft (see the NZ Herald article here). These are not trivial charges. New Zealand, like many other Western countries, treats driving while under the influence of alcohol as a significant crime, in some cases sentencing perpetrators to prison. Paki, who is 19 years of age, had a breath-alcohol reading of 761. The limit for adults over 20 years of age is 400 but for drivers under 20 it is zero. As for the burglary charge, anyone who has been the victim of a burglary knows just what a terribly intrusive crime it is, even if there is no associated violence. These are not Paki's first criminal offences - he was charged with dangerous driving as a result of a motor vehicle accident in 2011.

So what were the grounds for discharging Paki without conviction? It was simply that he was the son of the so-called Maori king. I say 'so-called' because Paki's father, Tuheitia Paki, who is the head of a group of Maori tribes in the middle of New Zealand's North Island, has no legal or constitutional authority and is not even recognised as the monarch by most other Maori. 

I recall the case of Princess Anne in 2001 who was convicted of breaking the speed limit and accepted her conviction and fine without evasion. Her conviction was a symbol of the 'without fear or favour' that historically has been characteristic of English law and is what we expect of our public figures and the judiciary in New Zealand.

I can reluctantly accept the New Zealand taxpayer dolling out vast sums of money to Maori tribes for Treaty of Waitangi claims (although I have previously written about the highly dubious merits of some of these claims) but I cannot accept some New Zealanders being treated differently by our criminal justice system because of their race. Equality before the law goes back in our tradition to the Magna Carta and it is one of the benefits Maori received when they accepted British rule in 1840.  As a society we have nothing without equality before the law and the discharge of Paki is a huge indictment on New Zealand's legal system and society. 

Sunday, June 29, 2014

Scepticism is Essential to Good Science

I am, as I claim in the sidebar to this blog, something of a science nut. I read widely on a range of scientific issues, often delving into a level of detail that most non-scientists would avoid. My favourite scientific discipline is physics, particularly the fields of cosmology and quantum mechanics and I like to think I have an understanding of these fields that eludes the casual reader. I don't claim that my understanding is due to any particular intellectual strength but rather a perseverance when it comes to deciphering scientific jargon together with some grounding in university-level mathematics. So I was very interested to read in this Quanta magazine article that a group of scientists are challenging the consensus around quantum mechanics.

Quantum mechanics is the area of physics that covers the behaviour of particles at the smallest scale. It is established scientific wisdom that sub-atomic particles do not behave as do larger objects with 'classical' physical properties. The properties of particles at the quantum level are said to be 'probabilistic', that is they cannot have a particular position and velocity at any one time but rather only a probability of being in a set position and velocity. But the Quanta article suggests that 80 years after Danish physicist Niels Bohr and others of the 'Copenhagen' school gave us the probabilistic interpretation of quantum mechanics, a classical explanation of the behaviour of sub-atomic particles is rearing its head again. If it is proven right (and we are a very long way from that), it will justify Albert Einstein's own scepticism about the probabilistic interpretation when he famously said, 'God does not play dice'.

It is not unusual for long-held, consensus scientific theories to be overturned by new evidence. Indeed, that is the way of science. Copernicus and Galileo overturned the earth-centric view of the cosmos, Einstein himself overturned the belief that the speed of light could not be constant, and in 1982 the long-held modern medical consensus that stress is the primary cause of stomach ulcers was overturned by Australian scientists Dr. Barry Marshall and Dr. Robin Warren, who correctly identified a bacteria, Helicobacter pylori, as the culprit.

Which, of course, brings me to climate change. We are told by such luminaries as President Obama that there is a 97% consensus amongst scientists that climate change has a predominantly anthropogenic (i.e. human) cause. The 97% figure comes from this paper by John Cook and others that was based on their review of scientific literature. Leaving aside the thorough debunking of the research that has been done by the likes of meteorologist Anthony Watts, when faced with such as a claim of scientific consensus we should ask, so what? 

Einstein apparently said that 'genius abhors consensus because when consensus is reached, thinking stops', and I agree with him on that. When introduced to the climate change debate by a well-known (pro-anthropogenic) New Zealand scientist about ten years ago, I decided to do my own investigation. Hundreds of published scientific papers and articles later, I am as sceptical as ever on the theory that all, or even most, climate change in the modern era is man-made. Physical experiments have proven that mankind's carbon emissions have some impact on heat retention in the atmosphere, but the dire predictions of ever-increasing global temperatures resulting from mankind's emissions depend on feed-back mechanisms that have not been proven. In fact the slow-down (or complete absence, depending on how you look at the trends) of global temperature rises since the mid-late 1990s has proven that the mechanisms do not work as climate science models up till then predicted.

I don't know where the on-going search for knowledge in the fields of quantum theory and climate change will lead us but, as John Bush, the MIT professor of applied mathematics in the Quanta article says, 'time will tell...the truth wins out in the end.' In the meantime I will, like Einstein, remain a sceptic.

Wednesday, June 18, 2014

On Innovation

Two articles in the Wall Street Journal this week have got me thinking about the subject of innovation, or the lack of it, in Western economies today. The first was this article in the Wall Street Journal quoting molecular geneticist Jan Vigj in his book The American Technological Challenge who said that the number of inventions in America has dropped markedly since 1970 [and hat tip to Mark Steyn who said a similar thing in his book America Alone]. The second article was this one about Uber, the Internet-based taxi booking service that is challenging regulators and established taxi companies in 100 cities and 36 countries around the world.

To understand why the West is not innovating, we need to go back to the Renaissance to appreciate why the West has been so economically successful in the first place. Economic historian Niall Ferguson has identified six 'killer apps' that he believes underly the enormous growth of Western economies over the past 500 years, viz. political and economic competition, the scientific revolution, the rule of law, modern medicine, education and the work ethic. Ferguson expounds on his theory in his book, Civilization, and goes on to say that the erosion of these achievements is responsible for the decline of the West in recent decades relative to emerging economies such as China, which have increasingly adopted these values.

In my view Ferguson's six killer apps can be further reduced to just three things - individual rights, capitalism and the rule of law. In other words, the classical liberal values that became entrenched in the political and economic systems of Britain and the Netherlands in the 17th Century through the writings of John Locke, and that were picked by in the 18th Century in America by the likes of Alexander Hamilton, Thomas Jefferson and James Madison.

The innovative human mind is like a packet of dried seeds - without the right soil, water and sunshine, they will either remain inert or any shoots that do sprout will soon wither and die. The environmental conditions in which the human mind flourishes are the freedom to live and work as one chooses (subject only to the right of others to do the same), the freedom to enjoy the fruits of one's labour, and the protection of laws that guarantee these freedoms for all people. These are the classical liberal values mentioned above that we have so abrogated in the West today. It is little surprise, therefore, that we are losing our innovative edge.

The exception over the past decade or two has been in the realm of information technology and the Internet. Often compared to the 'Wild West', the on-line world has remained lightly regulated with few barriers to entry or innovation. On-line businesses like Uber are able to innovate precisely because they sit outside the highly-regulated traditional markets they are challenging. In the West we have in effect two parallel operating environments - the traditional political and economic environments in which innovators face huge regulatory hurdles in getting their products and services to market, and the on-line environment in which heavy-handed government involvement has been largely absent until now.

The United States provides the starkest example of this dichotomy. Traditional 'bricks and mortar' markets such as banking, manufacturing, transportation and medicine are subject to overbearing bureaucratic control and as a result American companies in these sectors are struggling to maintain their global leadership. Most economic growth in the United States in the last couple of decades has come from lightly-regulated 'digital' sectors such as software, entertainment and on-line services. But this is starting the change. The desire of Western governments to heavily regulate even the on-line world is starting to choke innovation in these sectors.

Western governments, including that in my own country, New Zealand, like to think the answer is more government. They like to think they can pick winners and encourage innovation through government investment and subsidies to certain industries. But history shows us that governments are poor gamblers when it comes to innovation. The clearest example of this in recent years is government investment in so-called 'green' businesses such as solar panel manufacturers. In the United States and Europe in particular, such investments have been disastrous.

Governments have a role to play in providing the fertile environment for innovation, i.e. in maintaining the institutions that uphold the classical liberal values that are responsible for Western political and economic success, but the most important thing they can do to encourage innovation is simply to get out of the way.