Productivity stagnation proves there is a cost to regulation

This morning I read an article in the New York Times asking why productivity growth in America is so weak. It laments the fact that, for American workers, productivity per hour worked has not increased at all since 2011. In New Zealand we have similarly dismal figures.

The Times writer goes on to propose three scenarios to explain this anaemic productivity growth. Firstly, he speculates that we have reached a plateau of technological innovation. He doesn't explain why - as with global warming, we just seem to have reached an inexplicable 'pause'. Secondly, he says it could be a measurement error, but he admits economists can't give any reasons why this might be so. Finally, he says that businesses could be investing for the future but there is a lag between that investment and productivity gains. This scenario sounds plausible but he promptly dismisses this too, for the very obvious reason that business investment in equipment is historically low.

The writer's dismissal of the third option hints at the truth but, as is typical of mainstream media coverage of economic issues today, he is prepared to consider every explanation but the obvious one. We have to question either the Times journalist's intelligence or his motives in putting up three strawman scenarios that he so promptly knocks down, without examining the more likely scenario.

Productivity is a factor not just of labour but, much more importantly, of capital - because it is capital that provides the leverage for labour productivity. When you think about this, it is very obvious. The human body is not much different to what it was in our distant ancestors' days but our productivity is almost infinitely higher. This is because we have become much, much better at making and using tools - and tools are capital. If businesses aren't investing in plant and equipment, then productivity cannot grow.

So why aren't businesses investing in equipment? What has changed so much about their environment that means they feel unable to invest in new plant and equipment? The answer is regulation. In the United States and New Zealand (and every other Western nation) new legislation and regulations have piled more and more compliance costs on businesses. Legislation like the new (and completely unnecessary - but that is for another post) Health and Safety at Work Act introduced by the New Zealand Government this year means businesses must spend more and more of their resources on things other than producing better products and services more efficiently. Increasing government compliance costs mean businesses must cut other production and operating costs just to stand still, with the result that there are no net productivity gains. And why would a business owner risk additional capital for no gain?

The productivity numbers are stark evidence there is a cost to regulation and it is only by reducing regulation and compliance costs that we will grow our productive capacity and improve our lives.

Rights, morality and the size of government

The city of Wellington, where I live, is the capital of New Zealand and it is full of well-off public servants who think that bigger is better when it comes to government, and being of a libertarian persuasion myself, I find I am often called upon to explain my political views to friends and colleagues. In fairness, my views usually engender curiosity rather than outrage - they wonder how someone who is apparently rational and thoughtful could hold beliefs that are so obviously at odds with their own. They are even more surprised when I argue for minimalist government not from the familiar position of practicality (i.e. that the private sector could fulfil many of the current functions of government more effectively and efficiently than the government itself) but from a position of morality. They find this surprising because left-wing, big government supporters always think they have the moral high ground and it is disconcerting for them to find an opponent who undermines the very basis of their own beliefs.

The elemental moral argument against big government is that it requires the threat, and ultimately the use, of force against its own citizens. You could argue that it is not the size of government per se that requires the use of force, but it is hard to see how government could have grown to the size and broad role that is has today without resort to violence. The collection of taxes, for example, requires the threat and use of force and without taxes there can be no big state. If you believe as I do that the use of violence in human relations other than in self-defence is never moral, then you can't believe in big government.

My friends respond that the government needs the threat and use of force to prevent and stop violence. That is the moral contract of government, they argue - we give up the right to use violence to settle disputes ourselves and give the government a legal monopoly on its use in order to protect our rights. But the government doesn't need the unprovoked threat and use of violence to fulfil that moral contract. The moral role of government is the defence against, and prevention of, violence - not the initiation it.

Ah, my opponents say, if the government has a role in protecting rights then what about when those rights are in conflict? Doesn't the right to life mean someone has a right to food - and therefore government has a responsibility for ensuring everyone is fed?

True rights are never in conflict - if they are, then they are not rights. Rights are inherent to our humanity and they are universal. My rights cannot detract from your rights. Your right to swing your fist ends where my nose begins.* The right to life simply means you have the right not to be killed by someone else - not that everyone has the responsibility to feed you. When the government takes on the responsibility of feeding those who can't feed themselves, it has to resort to violence to force others to pay for the feeding.

But, they cry, what about a baby? Yes, a parent who brings a baby into the world has a responsibility to care for that baby. The parent has made the choice to bring the baby into the world and the parental duty of care doesn't detract from the parent's rights any more so than a restaurant owner's right to run his business doesn't obviate his responsibility not to poison his customers. In other words, individual rights don't eliminate individual responsibilities.

Genuine rights sometimes appear to be in conflict and it is the role of the government, through the police, courts and armed forces, to mediate these conflicts by resorting to the objective facts and to moral rights. I have yet to find an example where it is demonstrable that genuine rights are in conflict when all the objective facts are revealed. Of course, sometimes the objective facts cannot be determined and the courts must decide between conflicting claims without full knowledge.

So, if the legitimate role of government is to mediate conflicts, how can it carry out even this limited role if it can't forcibly extract taxes? It has to convince sufficient numbers of people to contribute (through voluntary taxes or user charges) the money it needs to run government services. Such a system would almost certainly result in smaller, more efficient, more accountable and more moral government and that would be a very good thing.

* Variations of this saying have been attributed to different people but most commonly to Oliver Wendell Holmes.

Media mendacity makes for mistrust

In the James Bond movie, Tomorrow Never Dies, Agent 007 battles the megalomaniacal media king, Elliot Carver, who is not content with reporting on the news and decides to manufacture it by committing terrorist acts in the hope of starting a war between China and the United States. It seems that the mainstream media, so desperate for ratings or readership in their fight for survival, is now following the Elliot Carver model. Sure, they are not yet sinking British warships in their attempts to make news, but they are committing serious criminal acts to boost their ratings and readership.

Two recent examples are the case of the Australian Channel Nine news team who were involved in the seizing of two children in Lebanon, and the New Zealand TV3 reporter, Heather du Plessis-Allan, who fraudulently purchased a rifle from a gun shop over the Internet.

In the Channel Nine case, the exact facts of the sordid affair are hard to determine but the children were with their father in Lebanon when the Australian mother, Sally Faulkner, decided to have the children snatched on a Beirut street. Channel Nine paid for four 'child recovery experts' from a UK organisation called Child Abduction Recovery International (CARI) to grab the children. The operation was botched and the Channel Nine news crew along with the mother and the CARI team were arrested. Channel Nine has now paid a significant sum of compensation to the father to obtain the release of its new crew and the mother but has left the CARI team it employed to rot in the Beirut jail. The journalists even tweeted a photo of themselves drinking and grinning in an airport bar on the way home.

I don't know where the right or wrong is in the custody dispute between the parents in this case, but the actions of the Channel Nine news crew are contemptible on so many levels. They were foolish in the extreme, insulting to their viewers, and utter cowards in abandoning the men they had employed to carry out the operation.

In the New Zealand gun purchase case, Heather du Plessis-Allan set out to prove that anyone could buy a rifle online from a Christchurch gun shop without having a permit, and all she ended up proving is that you can't do that without committing fraud. She used a fictitious police ID number and signature to purchase the gun, which fooled an otherwise responsible gun shop owner to supply the firearm, and she and TV3 had the gall to present this as a failure of the firearms licensing system and misconduct on the part of the gun shop owner.

We all know the mainstream media have long since abandoned any pretence of neutrality and take sides in any controversial story they cover. They have become propagandists and political agitators for any cause they deem merits their support. In doing so they have utterly destroyed the public's trust in themselves, with a recent survey showing that only 9% of New Zealanders trust them.

The mainstream media have always claimed they deserve special status under the law. The First Amendment to the US Constitution protects the freedom of the press and in most Common Law jurisdictions the press enjoys similar special rights. But the mainstream media risk losing these protections for everyone when they they consider they are completely above the law.

If God is a Republican, then it is time for Him to intervene

There has been a lot of speculation about what happens if Donald Trump wins a plurality, but not a majority, of the nominating delegates to the Republican National Convention in Cleveland, Ohio in July. If that happens there will be a contested convention that is likely to go to multiple voting rounds. Delegates from many states are only bound to vote according to the primary outcome in the first ballot and after that all bets are off.

Some claim that the party could nominate someone who hasn't even contested the primaries, like House of Representatives Speaker Paul Ryan, while others think John Kasich, who has won only one state in the primary race, could be the compromise candidate. Current rules prevent anyone who has not won at least eight states from contesting the nomination at the convention (rules that were brought in to prevent libertarian candidate Ron Paul from contesting the nomination in 2012) but the rules could be changed by a party committee immediately prior to the convention. The most likely outcome, as Jonah Goldberg writes in National Review, is that delegates will switch from Trump to second-placed Ted Cruz. It might take several ballots but in this way Cruz could end up with the nomination.

Ted Cruz wouldn't be a bad candidate in my opinion. He is liberal on economic and civil liberties issues, non-interventionist on foreign policy and a sceptic on climate change. He believes in trade liberalisation, a low flat tax, and balanced budgets. On the other hand, he is conservative on social issues such as abortion and gay marriage. So he's about half-right, but that makes him better than most Republican candidates by half.

The thing most against Cruz in winning the nomination is that the Republican Party establishment hates him even more than Trump. This is because Cruz has been willing to defy the Republican leadership to vote against his party in the Senate, even going so far as to call Senate Majority Leader Mitch McConnell a liar in a debate last year. But while it may stick in the craw of the Republican establishment to support Cruz, they may fall into line if he is the only alternative to Trump.

The outcome of a Cruz switcheroo is anyone's guess. Trump himself has talked about possible riots if he is unfairly denied the nomination. At the very least it is likely to cause infighting in the Republican Party that would damage its candidate's chances in the November election.

There is still a small chance that Cruz could get enough votes in the remaining primaries to overtake Trump as he is less than 200 delegates behind and there are more than 850 delegates still to be decided, but Trump is ahead in the polls in the remaining big states of New York and California, so that outcome seems pretty unlikely.

However, miracles do happen and if God is a Republican (as so many of the GOP's supporters seem to believe), then it is time for Him to intervene.

Moral Inversion of the Panamanian Tax Scandal

In the 1980s I worked for a private bank in London that specialised in helping wealthy offshore clients manage their investments outside their home countries. Typically these clients were successful businessmen who wanted to secure at least some of their wealth from rapacious tax authorities. We were careful with who we took on as clients, requiring every prospective customer to be introduced by someone we already knew, and we were not prepared to take on anyone whom we suspected might have obtained their wealth through criminal activities.

One of the aspects of our bank that appealed to offshore clients was that being London-based, we tended to attract less attention from foreign governments than, say, Swiss banks. Our job was to act in our clients' interests to the letter of the law and we worked on the principle that if any of the information we held to was disclosed to the UK authorities, there would be no risk of incriminating (or even embarrassing) our clients or ourselves.

So it was with great interest that I read about the hacking of the Panamanian legal firm, Mossack-Fonesca. Leaving aside the obvious incompetence that the firm exhibited in allowing their client records to be hacked (even before the advent of the Internet with its risk of hacking, we never stored real client names with their numbered account records on our computer systems), I have difficulty equating what has been revealed with the outrage from the world's media. There is nothing in the revelations to suggest that Mossack-Fonesca did anything illegal, but the outrage is not about illegality, it's about preserving the inherently corrupt system of taxation and welfare spending.

Governments all over the world have bribed their electorates with money they do not have. They have funded their bribes from borrowings and from printing money, both of which have the effect of deferring the true cost of the bribes. But we know from the recent experiences of many European nations and increasingly the United States that the borrow and spend policies cannot continue indefinitely. There has to be a reckoning - either the state cuts spending hugely or it raises taxes significantly. The problem with doing the latter is competition from low-tax jurisdictions. In a world where money and skilled workers can easily migrate, high-tax governments know they won't keep either when lower tax alternatives are available. The response of high-tax governments is to wage an economic and propaganda war on low tax countries.

The United States has been particularly ruthless in its strong-arming of low-tax nations, for example forcing Switzerland and Liechtenstein to abandon their banking secrecy laws in respect of US taxpayers under threat of seizure of their banks' assets in the United States. It has also forced countries including New Zealand to implement its FATCA regime, in which foreign governments pass laws that put anyone with the vaguest connection to the United States under scrutiny for the rest of their lives in order that the US Government can extract taxes from them (see my blog post about this here). Meanwhile, the Western mainstream media act as cheerleaders to this extrajudicial abuse of power.

There is a moral inversion to all of this - bribery and extortion by governments are considered just, while protecting what is yours is considered immoral - but that is the world we live in and I suspect its going to get worse before it gets better.