Madsen Pirie

Someone is bound to say that Hurricane Sandy will give a welcome boost to the US economy.  They will bemoan the loss of life and the confusion and upset, but will point out that it will mean work for clean-up gangs and builders.  This is a neo-Keynesian version of Bastiat’s broken window fallacy.

The shopkeeper spends money to repair the broken window, and the glazier uses the cash for stuff that he wants, and so it circulates through the village economy bringing benefits to many.  The fallacy comes from forgetting that the shopkeeper had a window and some cash, whereas now he only has a window.  The other things he might have used that cash for will now never happen because he had to spend it repairing the window.  The business he might have generated, the jobs sustained or created, will not happen.  The fallacy arises by not taking opportunity cost into account.

No doubt there will be repair work done in the aftermath of Hurricane Sandy, and no doubt builders and electricians will be employed to put things right.  But it will cost money, and the other uses to which that money would have been put will not happen.  The jobs it might have sustained or created will not now be there.  Natural disasters and accidents do not benefit economies; they harm them and divert resources that could have boosted growth elsewhere.

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I’ve been posting on the ASI site (adamsmith.org/blog) some of my ten reasons for being optimistic about the future. I covered food, where I expect GM technology to usher in a second Green Revolution that will feed humanity. I dealt with water, where a combination of low-tech and low-cost devices, plus advances in osmotic desalination technology, will give the world the clean water it needs to drink and to irrigate.

Yesterday I posted my view on the future of the world’s and the UK’s economy. I suggested that the first industrial revolution, founded initially on water power, and then on steam, and the second one, built upon electricity and the internal combustion engine, both brought economic expansion through huge gains in productivity.

I think the third industrial revolution, arising from computers, the Internet and biotechnology, will do the same, ushering in similar economic expansion. Globalization, far from hindering this process, will augment it. So even though economics has been called “the dismal science,” I am one of its optimists.

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Yesterday I read BBC reports of better than expected US economic growth in the third quarter.

“The world’s largest economy expanded at an annualized rate of 2% in the third quarter, the Commerce Department said. The jump was partly due to a large increase in government spending.”

It is just the sort of news that could boost Obama’s chances of defeating Romney on November 6th, bring the hope that the US might have be coming out of the worst of it.  But look at the figures.

“Federal government expenditures and gross investment increased 9.6% compared with the previous quarter, while national defence spending rose by 13%.”

A suspicious mind might conclude that Federal expenditure and investment and especially defence spending have been deliberately jacked up to give a positive (and exaggerated) figure for growth just ahead of the election.  And the incumbent is in a position to do that.

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I can’t quite work out why the South Koreans should be interested in Micropolitics, but they seem to be.  It was the title of a book I wrote 25 years ago, published by Wildwood, and it covered the impact of Public Choice Theory on policy formulation.  At its core was the notion that successful policies should take into account the interest groups that derive benefit from the status quo.  Rather than simply moving to confiscate that benefit, the policy formulators should consider trading it for another.

The most obvious example that springs to mind is the replacement of forced redundancies by voluntary early retirement.  Instead of simply sacking people, a company (or public body) can offer cash sums to those who volunteer to leave.  This has the same effect if cutting workforce numbers, but firms that do this are unlikely to face the level of opposition and resentment.  It is more costly, but the extra costs might be worth it, especially in the political domain.

Now the South Koreans want to translate it and publish a Korean edition, a quarter of a century on.  I wonder what they’ll make of it.

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I know quite a few people who are out of work, and a few more who had to jump through hoops for months before finally landing a job.  We might have record numbers in work, nearly 30m, the highest since records began in 1971, but there’s no question that jobs are hard to find.

Some of the gloom-mongers think that this is permanent, and tell us it’s because the Chinese and Indians can now out-compete us, and that the advanced economies are now sclerotic by comparison.

I don’t buy this, though it does mean we have to move our jobs up-market into higher added value stuff, and into services, especially at the higher-skilled end.

I lean to the view that we’ve made jobs too difficult to create.  A combination of high taxes, plus the mind-boggling form-filling and regulatory compliance, makes people reluctant to start new businesses and to take on employees.  If we exempted small firms from these burdens it would go a long way to creating more jobs.  If a small employer didn’t have to sort our PAYE taxes and National Insurance, and didn’t have to worry about unfair dismissal, maternity and paternity leave, sick pay, holiday pay, and all the rest of it, they might spend time and effort instead on drumming up extra business and taking on extra staff.

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I went to a book launch yesterday for a new work from Douglas Carswell, MP.  The first half reports “The End of Politics,” pointing out that it has grown beyond our ability to control it or to prevent a political class preying upon the rest.  He shows that while our commercial products now give us more for our money than they could deliver a few decades ago, the reverse is true of our government.  It costs us more money to achieve less with it.

The second half, “the Birth of iDemocracy,” suggest a way already evolving that might enable us to cope.  It comes down to having a say in what services we want as individuals, and how we might use the new powers the internet gives to customize what we receive and how it is delivered.  Communication now gives us access to crowd-sourcing and the experience of others to help guide our own.  You can read about the book here.

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I was at a very enjoyable meeting of the QMUL Literary Society.  It was held in an upstairs room at the New Globe pub in Mile End.  I went through how I set about writing science fiction for children some of the techniques I use.  For example, I take care to use more senses than sight.  It’s not enough to say what things look like to the characters; readers want to know what they sound like, smell like, feel like, or even taste like.  The central characters have to have a ‘vector,’ making progress through the book and developing in some way to overcome inadequacies or weaknesses.

Children are less tolerant of lengthy descriptions than were their Victorian counterparts.  Today they prefer it done through dialogue.  I also explained how I never dumb down the language.  If young readers come across an unfamiliar word, let them look it up and have the pleasure of learning something.  It’s never been easier to do that.

Later on in the meeting one of my editors for “Think Tank” joined us, so the talk broadened into some of my other writing.  Great fun.

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The first of my “ten reasons to be cheerful” was published on the Adam Smith Institute site.  Basically my case is that just as the Green Revolution brought unprecedented increases in food production, so a second Green Revolution based on genetic modification of food crops, will bring even more.  It means that far from running short of enough food to feed the world’s future population, we are far more likely to see great increases in food production.  I point out that:

“Plants have already been developed to resist herbicides so that weeds can be killed without affecting food crops.  Even more exciting is the research under way to develop crop strains that will resist pests themselves without needing chemical assistance.

Researchers are developing crops that will thrive on marginal land, that can resist drought and temperature extremes, and that are saline tolerant.  This will open up to agriculture huge areas of land not presently suitable for crops.  Varieties are being produced that can fix atmospheric nitrogen and fertilize themselves in the way that legumes do.”

It also means we won’t need to cut down any more rainforest.

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I thought about that answer I gave to JFS School as to whether any pessimism came along with my optimism.  I expressed concern about unfunded entitlements posing future problems, but was by no means pessimistic on the great areas that seem to alarm many commentators.

I then made a list of ten areas which have been subject to both genuine worries and politically motivated scare campaigns.  They include factors like food, water, energy and the environment.  I started to write up short entries on each of them to post on the ASI website blog, so watch out for “Ten Reasons to be Optimistic.”

I’ll put links up to them here as they are published, and prepare to think more positively about the future world we’re heading into…

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I posted details of some of my children’s books in the box about them.  If you click on the bottom left box there are brief summaries.  Incidentally, that photo of ‘Dark Visitor’ in space is not photo-shopped.  The rocket boys actually sent it up to the edge of space in research balloon and photographed it above most of the atmosphere with a curved Earth and black sky behind it.

My books are aimed at ‘young adults,’ the age group of perhaps 12-14, although younger children have told me they have read and enjoyed them.  My settings and characters are all different in each book, but all have it in common that there is no magic.  This makes them science fiction rather than fantasy, and the laws of physics apply.  I must add ‘The Emerald Warriors’ to the list of those in print.  And a month ago I finished a sequel (my first) to ‘Children of the Night,’ which is still being edited.

On Tuesday, when I speak to the QMUL Literary Society, I’ll be dealing with the processes and techniques which I use.  Basically I start with the characters and the setting, and then develop a rough outline of the plot.  One of the rewards of writing is that the characters come to life as I write, and start doing things that were never initially expected or planned!  At the end of it I’ve created a new universe with people in it who never existed before.  It’s a very satisfying process, and my hope is that my readers will find some of the pleasures in reading them that I enjoyed in writing them.

They are all available on Amazon in a Kindle version at 77p each. The link is: tinyurl.com/95h9z9z

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