Samizdata

We would certainly be watching out for any profiteering that might occur…we wouldn’t want that to happen, there’s no reason for it.

Western Australian Royal Automotive Club (RAC) representative Mike Upton on today’s news that quotes for a Liquid Petroleum Gas conversion in passenger vehicles had jumped markedly from A$2500 to up to $4850 in response to the federal and state governments’ combined $3000 subsidy on the purchase and installation of such equipment.

A while back I suggested that the the high price of gold may be a harbinger of rising inflation, and that even though some people suggest that gold prices are a fogeyish obsession of a few “gold bugs”, the price movement of this golden metal can still offer an early indicator of trouble.

I think I can say a mild “I told you so”. After having been off the radar for years, due to a variety of factors, inflation is rearing its head again. To an extent, of course, the cost of living has been rising in Britain a lot more than official statistics suggest because of the way in which Britain’s finance minister, Gordon Brown, has stripped out things like housing price movements and taxes to make the figures look better. (In all fairness to Brown, his Tory predecessors were no better in this respect). Anatole Kaletsky has a good article here warning that the mighty U.S. Federal Reserve is in danger of letting the inflation genie out of the bottle. A further rise in rates, he says, may be needed, possibly raising the risk of a recession. He may be right. The Fed’s key lending rate is 5.25 percent and has risen 17 times since its low-point around the time of 9/11.

It is a bit rich, though, for an unashamed neo-Keynesian like Kaletsky to bash the Fed for failing to be tough enough, and for not acting sooner, on rates. Kaletsky has not been shy of bashing the European Central Bank for its supposedly restrictive approach on interest rates. The problem of course is that no central bank chief, even if he or she has the wisdom of Solomon, can anticipate perfectly the right course for interest rates. If such a central bank makes an error, that mistake can be enormously costly in terms of jobs, livelihoods, even the loss of homes (I recall a now-departed commenter, called Euan Gray, dismiss such concerns with a sort of “let the experts sort it out” approach of his.)

The perils of central bankers getting the economic signals wrong explains why some classical liberal economists remain fond of F.A. Hayek’s argument for a return to a sort of commodity-backed, competitive currency system. Yes, such a system would have its problems and banks might go bust from time to time. But although such a banking system would have its crises, they would be relatively small compared to the risk of an entire economic region getting into trouble on account of a mistake by a central bank chief and his economists. The bigger and more powerful the central bank, the bigger the potential cockups. That remains for me a great attraction of Hayek’s idea: mistakes will get made, but those mistakes will be dispersed and people will have options to flee a delinquently-run currency.

I think Tory leader, windmill pioneer and attendee of uber-Chav celebrity bashes, David Cameron, might want to take a break from the social whirl and read this about the much-derided U.S. tax cuts of 2003:

In the nine quarters preceding that cut on dividend and capital gains rates and in marginal income-tax rates, economic growth averaged an annual 1.1%. In the 12 quarters–three full years–since the tax cut passed, growth has averaged a remarkable 4%. Monetary policy has also fueled this expansion, but the tax cuts were perfectly targeted to improve the incentives to take risks among businesses shell-shocked by the dot-com collapse, 9/11 and Sarbanes-Oxley.

This growth in turn has produced a record flood of tax revenues, just as the most ebullient supply-siders predicted. In the first nine months of fiscal 2006, tax revenues have climbed by $206 billion, or nearly 13%. As the Congressional Budget Office recently noted, “That increase represents the second-highest rate of growth for that nine-month period in the past 25 years”–exceeded only by the year before. For all of fiscal 2005, revenues rose by $274 billion, or 15%. We should add that CBO itself failed to anticipate this revenue boom, as the nearby table shows. Maybe its economists should rethink their models.

Britain’s Conservatives believed – at least during the 1980s when a certain Nigel Lawson was Chancellor – that cuts to marginal tax rates could actually generate more, not less revenue for the State, as well as being a good thing in its own right for widening economic liberty and reducing the bite taken out of the pockets of the citizenry. Now, I know that some libertarian purists out there might actually be suspicious about a measure that would raise more revenues, even if it is a good thing for individual taxpayers. I say let purity be damned. we know that politicians are not motivated much by supposed abstract concerns about the balance between the individual and the State these days, but the practical benefits of cutting tax rates should still resonate with our political classes. The Laffer Curve still operates, at least if you accept the WSJ article. Even current Chancellor Gordon Brown might wake up to the sort of facts that the Wall Street Journal is on about. It would be nice to think that the Tories would seize on such data, make a fuss, point out the benefits of flattening the tax code, simplifying it and cutting rates. Instead, unless I am missing out here, is silence.

Maybe the implosion of the current government means the opposition can afford to slump in the hammock during the back end of summer and wait. But it would be nice to think that they could be a tad more ambitious. Only a tad – I would not want our Dave to break into a sweat or anything.

I have read Andrew Sullivan’s blog pretty much from the moment he started it. I have a natural sympathy for anyone who defies conventional stereotypes, and a man who is Catholic, gay and a small-government Reaganite conservative, a fan of Madonna and Michael Oakeshott certainly breaks more sterotypes than most. He has been magnificent in taking a stand on the issue of torture, for example. But even our heroes – and Sullivan is one in my eyes – have their feet of clay or views that I regard as stand-out dumb. And on the issue of cars, Sullivan (who does not drive) reverts to nannystatism in all its ugly glory. He endorses an article by Jonathan Rauch arguing that President Bush should press for an international pact to phase out the use of gasoline in cars over the next 30 years. Oh great. So do we humble, much-harassed motorists get a say in this? Don’t give me a line about how this would be ‘democratically’ decided. Oh yeah. Why not leave it to the market, already driving new alternatives to petroleum-based engines? If the real price of oil continues to be high, as it is at the moment, then we will get more hybrids, more hydrogen-powered cars, more innovations and new transport sources, without the need for some Grand International Treaty or 30-year deadline. If Bush did make such a pronouncement, how seriously would anyone take it? Would it not be regarded as the sort of ‘eye-catching initiative’ one has come to associate with our own Tony Blair.

A far better idea, in fact, would be to rely on innovation contests such as the X-Prize to encourage new technologies rather than go for a big Treaty with a deadline. Now that strikes me as the sort of idea a small-government advocate like Sullivan should be pushing.

I can understand the wish to reduce use of oil from the Middle East and curb C02 emissions. But in my gut I feel that Sullivan and others like him just don’t like cars very much and are mystified by most American’ love of a set of wheels (clue, Andrew – America is seriously BIG). Sullivan has lived in the States now for more than two decades, but I fear that in some way, the fella never really left this little damp island known as Britain.