I know I’ve been blathering on about the Adam Smith Institute quite a lot lately (my reasons for doing so aren’t unique, though), but this is particularly egregious:

“Do we need an inquiry on the Libor scandal? No. The boom phase of every boom-bust cycle breeds this sort of excess and dishonesty. It is to be expected. All another banking investigation will conclude is that we need more curbs on the banks. That might cure the symptoms – quite probably by killing the patient – but it will not prevent the disease from coming back.

Instead, we would be much better investigating and curbing the excess and dishonesty of the politicians who created the artificial, unsustainable boom in the first place, and thereby encouraged the banks – and we borrowers too – to make some pretty massive mistakes and do some pretty colourable things.”

Dr Butler, Director of the Institute, is asking us all to ignore the actions taken by bankers over the period during which Barclays, amongst others, were purposely manipulating the LIBOR rate in order to gain pecuniary advantage. Instead, we should blame the politicians who were responsible for the cheap credit that inflated an unsustainable boom. Apparently, bankers are incapable of controlling themselves in the presence of large amounts of money, and so should be left well alone:

“And sure, in the process, a lot of people did a lot of stupid things, and a lot of bad things. It’s pointless, though, for the people who actually hosted the party now to wring their hands, blame the people who got drunk on their easy credit, and say that we need new investigations over what went on, and new restrictions to stop them doing it again. What went on is perfectly obvious. And it was encouraged by government-created disincentives and excess.”

What Dr Butler is saying is that if you host a party and provide alcohol, you’re to blame if people get drunk and vomit all over the upholstery. This provides an interesting, but I’m sure inadvertent, insight into Dr Butler’s social life: at parties hosted by the Adam Smith Institute, the host always pays to clean up when people get too tipsy for their own good.

I regret to say, at my parties people who act like twats get kicked out (although in one notable instance, they did try to kick down the door afterwards). Perhaps I’m insufficiently libertine for the ASI, but I think the problem lies in an interesting inversion of standard left-wing tropes about the poor.

During the London riots, the instinctive response of many Guardian-reading types was to point to the social conditions of the rioters as an explanation for their actions. They were always very careful to say that these conditions did not excuse the riots, but they were something we should bear in mind when considering our policy response. This is in much the same vein as Dr Butler’s plea that the venality of the bankers involved in manipulating LIBOR should be understood in the political context of the times.

Both parties are making the claim that the structure of incentives surrounding the actions of their preferred social group at a given point go at least part-way to, if not justifying, then explaining their actions, and demanding that Government action bear this explanation in mind. Both parties are making the fundamentally patronising and dehumanising claim that their preferred group is incapable of making moral judgements because of a nice big fat pile of cash or a lovely pair of trainers. Both parties are guilty of spouting bollocks.

No-one can claim that someone else is incapable of making moral judgements, because no-one gets exclusive access to morality. Making such a claim is tantamount to saying that only your moral vision is true and pure, and that the vision of other people is in some way fogged by returns on interest-rate derivatives or a flat-screen telly.

In this case, Dr Butler is doing precisely that. Moreover, he is doing so in a way which ignores the facts of the case, and the sheer spivvery of the people involved. The role of Government and the Bank of England in setting LIBOR is tangential – the short-term interest rates which are in the BoE’s gift do have an impact upon on it, but the strongest influence rests with the group of banks whose estimates for the rates other banks will charge them for money go into deriving it. Blaming Government for this is rather like blaming the party host for the people who make ‘cocktails’ using every available kind of alcohol, and are surprised when they’re violently ill. The best way of dealing with such people, of course, is to not invite them back to the party.

A new website has been launched by Clifford Singer, the excitingly named chap behind The Other Taxpayers’ Alliance and MyDavidCameron.com. It’s called whofundsyou.org, and attempts to highlight the transparency of the funding arrangements behind 20 prominent thinktanks.

As such, it’s something that fans of Public Choice Theory should welcome. For those not in the know, you can find an excellent primer on the subject on the website of the Institute for Economic Affairs. Broadly, it covers the application of the methods of economics to Government and to its influencing parties. It rests upon the key insight that incentives apply to the people that comprise Government and the interest groups that attempt to lobby them – not just markets. These incentives can lead to ‘Government Failure’ – regulation or Government action which fails to produce the outcomes it was ostensibly intended to deliver. This can be down to incentives on particular politicians or the corrosive influence of interest groups attempting to capture political action for their own cause. The primer puts it like this:

“In this struggle between interests, small groups with sharply focused interests have more influence in decision-making than much larger groups with more diffused concerns, such as consumers and taxpayers.”

“Because of the enormous benefits that can be won from the political process, it is rational for interest groups to spend large sums on lobbying for special privileges – an activity known as ‘rent seeking’.”

In order to be able to properly understand who is lobbying for special privileges, we need to understand who is spending large sums on doing so. In this context, whofundsyou.org is a welcome addition to the political landscape, by providing pressure upon interest groups to reveal their backers.

However, it has not been universally welcomed. This Guido Fawkes post highlights the response of the Adam Smith Institute to the site, which is to say that they have been ranked top for respecting donor privacy – the ‘E’ category of whofundsyou.org, reserved for the least transparent. This would be amusing, if the author of the primer on Public Choice Theory quoted above was not Dr Eamonn Butler, who is a Director of the Institute. It is difficult to not suppose that the large sums spent by the ASI on lobbying are being used to seek special privileges for their funders – not least for their advocacy of lower taxes for higher earners, which would directly benefit a minority.

Yet, somehow the ASI seems to be claiming that it is immune from incentives by declaring that it is independent and does not need to be transparent. It is bizarre for an organisation bearing the name of Adam Smith to claim that the fundamental insight of economics, that incentives matter, does not apply to it. It is difficult to believe that the kind of robust constitution advocated by Public Choice Theory advocates would not require any organisation seeking to influence Government policy to be wholly transparent, in order to ensure that all rent-seeking activities are on full display to the demos. Doing so is the best way of minimising the risk of Government failure, a fact to which the ASI seems to be blind.

 

Over on City AM, Eamonn Butler, the Director of the Adam Smith Institute, has written an article about what he calls the ‘powerful moral arguments’ against taxation. It’s fairly standard Randian demagoguery about taxation being confiscation through force, the use of force being necessarily evil; clearly, no-one should ever try to section a libertarian even if they’re a danger to themselves.

Butler also argues that people who disagree with what the Government does with their money are being forced to pay for things they don’t agree with. This is absolutely true, and a good thing too: if Government had refused to collect taxes during World War 1 because conscientious objectors didn’t want their taxes to be used to fight the dastardly Hun, we’d be part of the Second Reich. One of the downsides of living in society is that you’re prevented from doing absolutely everything you want, because other people have opinions about how things should be done. Adults realise this and figure out how to work with others to achieve the majority of what they want while comprising where necessary; children join the contemporary Republican Party.

This is because, quite fundamentally, moral claims are not relative when you’re the person making that moral claim. If you think doing a particular thing is good, then you think it’s good regardless of whether someone else thinks it’s bad. If you and that other person have to get along, then you need to find a way of compromising over this. If both of you think your moral claim should be privileged, then you’ll compete to find a way of implementing it. In a democracy, this often takes the form of competing over the right to implement a moral claim as part of law. In this context, the compromise is that you both sign up to a system that adjudicates the competition: democracy.

However, Butler seems to be saying that because all claims are relative to the person making them, allowing one moral claim to win out is bad. This is classic moral relativism, but in itself it involves a moral claim: that any form of non-individual moral adjudication is bad. Luckily, for those of us who disagree with this claim, it’s repeatedly lost out in the competition we run to determine who gets to implement their moral claims. By pushing it in the pages ofCity AM, Butler seems to want to get into this competition.

Addendum

Butler also goes for the now classic claim that higher taxation means people give less to charity, based on two data points: the US and the UK. This has been repeated so many times it’s almost become a trope, but is it really the case?

Let’s map out this by using the Heritage Institute’s figures for percentage of GDP made up of Government spending in 2012 and the comparative data of the John Hopkins Centre for Civil Society Studies from between 1995-2002. While the distance between these two dates is a factor, comparable data for 1995-2002 is not readily available. The length of time the JHCCSS study covers should provide a useful average that we can extrapolate, however, especially as the relative figures for the US and the UK are broadly in line with the figures that Butler uses.

This is Government spending as a percentage of GDP against share of GDP made up by charitable giving:

It should be immediately obvious that there’s no relation, and indeed the correlation between the two is 0.13, implying if anything a tiny positive effect. However, the relationship between Government spending and volunteering as a percentage of GDP is more interesting:

The correlation is relatively higher at 0.44, implying that people in countries with a higher share of Government spending as a percentage of GDP are more likely to spend more time volunteering. This would imply that voting for a higher tax take by the Government is related in a positive way to people being willing to spend their own time working for society.

The Adam Smith Institute is – according to its website – a libertarian thinktank. It promotes free market solutions to policy questions, and individual freedom more generally. It does not pretend that it agrees with absolutely everything its namesake believed, but purports to promote his “belief in humanity and the power of freedom”. I would share that belief – but it’s unclear to me that the ASI understands the same thing Adam Smith did by ‘freedom’, and indeed whether the libertarian understanding of freedom has much in common with the kind of classical liberal understanding of freedom that Adam Smith is understood to have promoted.

I’ve been reading through An Inquiry into the Nature and Causes of the Wealth of Nations, and I’ve been pulling out quotes that appear to me to conflict with what could be called a procedural justice version of libertarianism; a version which may not be held by every contributor to the ASI, but nonetheless appears to inform some of their work.  This post, the first in an occasional series, will examine some of the ASI’s work in the context of the actual words of the Master.

I am using the OUP World’s Classics version of WoN. The following is from Book 1, Chapter VIII:

“What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little, as possible. The former are disposed to combine in order to raise, the latter in order to lower, the wages of labour.
“It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily: and the law, besides, authorises, or at least does not prohibit, their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks, which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year, without employment. In the long run, the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”

Smith is here observing that the freedom of contract between capitalist and worker is, in reality, no such thing. The relative levels of capital each holds distort the negotiation: the capitalist can always afford to hold out for longer. However, within procedural justice libertarianism, freedom of contract is interpreted as absolute: any Government intervention, whether it be through regulation of rights or wages, is an immoral intrusion into a private negotiation.

The above quote appears to indicate that Smith understands that the freedom to make contracts varies between capitalist and worker, in a manner dependent on their relative wealth. This particular freedom appears to be determined less by Government intervention and much more so by possession of capital. Being a strong believer in the power of freedom, I would advocate that some way be found to bring a greater equality of freedom to negotiations between a capitalist and a worker, as an end in itself. I am agnostic as to how this can be achieved, whether it be through the State or through a non-state body, such as a trade union.

However, the Adam Smith Institute has recently put forward a proposal that runs counter to this aim of securing greater freedom of negotiation, which they have dubbed the ‘Self Employment Option’. This calls for greater use of the self-employed status amongst workers, which “sidesteps the burdens not only of PAYE and NI, but also of unfair dismissal, discrimination suits, maternity and paternity leave, statutory sick pay and holiday pay“. The self-employed, being freed from the ‘burden’ of rights, will have less freedom in negotiation than the employed. It is difficult to interpret this in any other way than the ASI having a very different understanding of freedom of contract to Adam Smith.