Some Basic Economics from Tim Worstall

Tim Worstall does it again (as he often does).  His comments on the economics of everyday discourse hit the target once again.  He posts (18 October) this in the “Pin Factory Blog” at the Adam Smith Institute HERE :

“In which we catch the New Statesman being very silly”

The post leads with a photo of some demonstrators with a large placard on which the message: “Don’t Cut Tax the Banks”.

The message is that health workers and others like them produce useful services, while rich bankers are parasitic. Yet most people employed in the banks are fairly lowly paid (my son is one of them), while surgeons and top administrators in the NHS are well paid by any standard.  Tim goes for the economic nonsense supporting this attitude.

“Thus the value of banking is that we get to have a banking system. The value of the NHS is that it (occasionally) cures more people than it kills.** The value of Google is that we get to Google.

The value or contribution to us all of what people are doing lies not in the taxes they pay and not even in either the profits they make or the number of jobs they create. It is in the value to us of consuming their production. Any other measure of value will inevitably lead to the sort of nonsense that the New Statesman is peddling here.

Something that Adam Smith pointed out 237 years ago when arguing that the correct labour theory of value is the one that measures the value in use of something that has been produced: something we would rather hope that people would have grasped after all of this time.”

Comment

The basic economics highlighted by Tim are a valuable antidote to political posturing about some elements of financial trading behaviour that got out of hand recently and for which the world’s economies are still paying.

True, governments often spend taxation and borrowed funds unwisely and State direct managed activities are congenitally inefficient.  I have experience of both unwise ventures and inefficient activities. 

The old Property Services Agency was one such that was both.  It used to be said by users of the PSA’s services that if you wanted to find the most expensive way to undertake any project, big or small, then the PSA never let you down, and it always took the longest time to deliver the finished project.  A similar view applied to Direct Labour departments employed in local councils – then they privatized them, often with the same managements, and while some costs were cut (mainly in the excess labour they employed) it took a while to change its bad habits. But that led to some corruption and favouritism scandals in kick-backs from private contractors to some of the council people running them.

However, Tim is right: generally the value-added was still positive, the more so when action was taken about the inherent defects of taxation and borrowing misspending.

Adam Smith was extremely sceptical about public spending being efficient and that was long before government spending reached undreamt of levels of today.