Tuesday, 28 June 2011

What is justice?

A nasty fat scrote was convicted last week of the murder of a thirteen year-old girl by the name of Amanda "Milly" Dowler (here). Her murderer, as he was eventually proved to be, pleaded "not guilty" when put on trial so the forensic process that has developed over centuries was put in train. English law, as it stands at present, requires the prosecution to prove the guilt of an accused person beyond reasonable doubt and has a complex system of procedural rules to try to ensure that no innocent person will be convicted of a crime. Only a fool would suggest that the system is perfect, nonetheless it is as it is as a result of thousands of minor adjustments over hundreds of years. Further adjustments will be made as time passes, I can only hope they all bear in mind the overriding consideration that the innocent should not be convicted.

The procedural rules cover four main areas. First, there are requirements for the police to conduct their investigation subject to certain limits, for example questioning suspects must not involve oppressive actions. Secondly there are limits to what can be put before a jury - this is the law of evidence that, for example, allows hearsay evidence only in certain circumstances. Thirdly there are limits to how a lawyer may put a case in court, these are imposed by the codes of conduct that apply to barristers and solicitors. Breach of the codes of conduct can, in extreme cases, lead to someone being disqualified from practising law and in less extreme instances there can be suspensions of practising certificates or fines. Fourthly, trials are presided over by judges who have a wide discretion to prevent lines of questioning if they consider them insufficiently relevant. It is not without reason that judges can only preside over serious cases if they have earned a "ticket" to do so.

Over the last few days the conduct of the lawyers defending Milly Dowler's murderer has been subject to a great deal of ill-informed criticism. I need not explain the errors of the critics because it has been done already by Ms Wig (here), to which I was alerted by the good Mr Paine. My comment today is not about the details of that case but about something much more troubling, namely a false definition of justice.

One thing we must get clear right at the beginning is that the victim of a crime is the victim - not the victim's family and friends, not the readers of a newspaper, not people with children of the same age or bearing some physical resemblance to the victim, not people of the same racial or social grouping as the victim, but the victim and only the victim. Milly Dowler was the victim and only Milly Dowler was the victim, desperately distressing though her death was to her parents they were not the victim, Milly Dowler was the only victim in the murder of Milly Dowler.

Justice in the case of the murder of Milly Dowler could be delivered only by convicting her murderer of murder and having him sentenced according to current sentencing laws. That is an exercise between the State and the accused. It is absolutely not an exercise between the victim's family and the accused.

Far too often I read or hear references to a criminal trial bringing justice for the victim or the victim's family, that is utter nonsense. It will, no doubt, give them a degree of comfort that someone has been convicted; frankly they would receive the same degree of comfort whether the person convicted was the murderer or someone who was completely innocent. The administration of criminal justice is exercised by the State on behalf of the general populace and is intended to reach a true result whether or not the victim or victim's family is happy with the outcome. I say again, in serious cases the victim and/or victim's family often wants someone convicted, anyone, and they have no interest in whether the convicted person is guilty of the offence. The system of justice is designed, albeit not perfectly, to convict only those proved clearly to be guilty. If that means a family continues to mourn a murdered person and never discovers who committed the heinous crime, so be it.

The system must be unemotional and impersonal. The system must acquit anyone it cannot prove to be guilty. He or she might be guilty in fact but if we, as a general society, are to impose a penalty we would not volunteer for ourselves we must do so for good reason. A crime committed against a famous or popular person deserves no greater investigation and no lower standard of proof than one committed against a homeless crack addict with no family or friends to wail in public. Each requires the over-weaning powers of the State to result in a penalty against an individual only if the State can prove that a penalty is justified.

It is inevitable that some very serious crimes are never solved. No matter how thorough the police investigation, nothing can happen unless it turns-up evidence of sufficient weight to justify prosecuting a suspect. And even when the Crown Prosecution Service believes it has enough to justify a prosecution, that will only be enough to justify a conviction once a trial has been conducted, the defendant's lawyers have challenged the prosecution case as well as they can and a jury has returned a verdict of guilty. Unsolved cases involved victims and family of victims just as much as solved cases.

Criminal justice is about the defendant not the victim or the victim's family. There is no such thing as justice for the victim or the victim's family because, by definition the victim has already undergone his or her trauma, sometimes fatal trauma, and his or her family have suffered their consequential trauma. All that is left is the chance of identifying, convicting and sentencing the perpetrator. The only question is whether there is sufficient evidence to satisfy a jury that they should say "guilty" rather than "not guilty".

Pandering to victims and, in particular, to consequential or vicarious victims is no way to administer justice. If we give them any special protection in court from the questioning that would be relevant of a non-victim / non-victim family member, we risk placing their peace of mind above justice. I know it it will sound harsh to those of a certain mind, but it must be said loud and clear - no victim and no victim's family is entitled to see someone convicted and given a penalty. Whether someone is convicted and given a penalty depends not on the feelings and desires of anyone, it depends on cold, hard proof of guilt to the strict standard that is imposed to ensure (so far as possible) that only the guilty face the serious penalties resulting from conviction for criminal offences.

In this field, as in so many, meaningless feel-good concepts have been developed by psychologists with too little to do. One such concept is that of "closure" ( I occasionally comment on a "bad word", this is one). I watch little television but I do enjoy quasi-documentary programmes about real crimes, especially murders, a lot of which feature on a channel called Crime and Investigation. Time and again there is a police officer spouting words he has learned but never analysed, he says "we are pleased to have given the family closure" or some such twaddle. Anyone with half a brain understands that the death of a loved one is something that lives with you for ever. That someone is convicted of killing the late lamented loved one gives a degree of comfort but the pain continues and will continue until the end of your life. "Closure" is a concept designed to make victims or their families feel good but it has nothing to do with justice.

Criminal justice is not personal, it is not something delivered to victims, it is wholly and utterly about the State imposing a penalty against those proved to have broken laws. It is, so far as the system can ensure, impartial, impersonal, unbiased, unbigoted and aimed at only the defendant. Any attempt to change these principles will result in more innocent people being convicted, that is not something I would welcome.

Monday, 27 June 2011

Chinese PM: "Scrap the Euro"

They're dashed clever these oriental types and they grow up in a culture in which loss of face is a serious matter. Whenever an established position needs to be altered you will not witness an admission of error or even of change of mind, the switch will be effected either by sacrifice of the career and reputation of the person nominated to take blame or by a series of gradual shifts of emphasis, each explained as an incremental development of existing policy in the light of new circumstances.

Their approach mirrors that of most modern western European politicians, these days only the rarest instance arises of an overt and admitted change of mind. Here in the UK we saw a sea-change in the mid and late 1990s as the spin machine of the Blairite Labour opposition pounced on any division, indecision or flip-flop on the part of the incumbent Conservative government. It was a well-organised (but patently dishonest) approach and it presented the image required for electoral purposes. Since then a united front and a consistent position have been seen as fundamental to the prospect of gaining political power, it allows only limited scope for a change of mind, indeed I would suggest the only exception is when both main parties have to abandon a previously advocated stance because of external factors.

The main players of the EU are even less inclined to change their positions, albeit for a different reason. No ballot box can oust them but they are on a mission to remove all powers from individual EU member states and create a single political system under the dictation of the EU oligarchy. In order to achieve this they must appear strong, so strong that national governments have no realistic chance of challenging or overturning the position the EU's permanent rulers have decreed to be correct. Perhaps the greatest exemplar of this is the Euro. The Euro is the means by which the aim of unified political control can be achieved. For some us it is also seen as the means by which unified political control can, should and will be defeated but that is not the topic for today.

Buttering-up the locals publicly is a necessary part of international diplomacy, often accompanied by quiet expressions of criticism being made behind the scenes. Criticising the locals publicly is an inevitable part of international power-grabs, often accompanied by soothing words of support to incumbent politicians in private until they are no longer of use. When it comes to business, the ideal situation to find is one in which others are acting in a way that will be of enormous benefit to your business in the long term. In that situation you would be mad to point out their errors, so you adopt your public diplomatic hat and say nothing else, safe in the knowledge that it will deliver you economic power that you could not achieve by criticism. That is what China's Prime Minister, Mr Wen, is doing very successfully during his short tour of Europe. We are told (here) he said "China will consistently support Europe and the euro." Well, yes, of course, he would be mad to say anything else. Supporting Europe is a fine sentiment that is totally without substantive meaning. The final three words are, however, in a different category.

Why would China want to support the Euro? A strong Euro zone full of throbbing economies making lots of goodies to sell to China would undoubtedly provide all the benefits history proves to arise from efficient, competitive production but the same would arise from those throbbing economies having their own individual currencies - as it did throughout the industrial era until the Euro was established. Portugal, Italy, Ireland, Greece and Spain (the PIIGS) are living proof that the Euro does not have magical powers and cannot turn idleness into profit or house-price bubbles into genuine wealth. The economies of these countries are not throbbing and nothing about the Euro can make them throb. If truth be told they would probably not throb outside the Euro but they would have the chance of stability at their own sustainable level of economic activity. Out of the Euro these countries can offer China greater trading opportunities than they can while still inside but that is not of any great interest to Mr Wen.

Mr Wen is playing the second half of the game China played during the boom years of 2003-7. Then China cashed-in on the additional money (I stress money, not wealth) sloshing about Western Europe due to the expansion of credit beyond sustainable levels. That it was not sustainable made no difference to China, it sent us washing machines and we sent it money. Washing machines lose value far faster than money, they need to be replaced so China says thank you and sticks another wad in the bank. Now that the PIIGS are having to face up to their earlier folly and are unable to ease their situation by devaluation, they need to raise money. The EU considers it necessary to keep them in the Euro zone and the only way that can happen is by increasing their debt enormously in the short term in the vain hope of something coming along later to allow repayment. One thing can come along in pretty short order, namely Chinese money. After all, China has lots of money in the bank that came from the PIIGS in exchange for washing machines and other jolly delights of modern life.

Buttering-up the locals is easily done when you have lots of money. The course chosen by China is to buy Euro currrency bonds issued by the insolvent PIIGS, to send a signal of confidence that is in fact nothing of the sort because they are safe in the knowledge that those bonds are essentially backed by all Euro zone economies (including Germany) due to the EU's need to support the Euro project. All the while the PIIGS will remain insolvent unless they can raise large sums of money. China is awash with the profits from years of washing machines, that is all very well except that cash can only fall in value over time whereas turning cash into capital assets stands a chance of giving a positive return over the longer term.

China's plan is to buy capital assets at below par value, a plan that is easy to achieve when the current owner is desperate for cash and is willing to hold a fire sale just to get something in the bank. It happened with the MG Rover site in Birmingham and it will happen with state-owned and privately-owned land and businesses throughout the EU. The UK and most of those in the Euro zone gave them the money to do so by creating credit we could not afford and spending it on Chinese goods, now that we need additional money (either because we are illiquid or because we are insolvent), the very money we created is being used to save us however in return we must give capital assets we can have no hope of ever recovering.

Of course China supports the Euro. Maintaining the Eurozone with its current participants means there are five countries (the PIIGS) in such dire need that there are rich pickings for Mr Wen and his merry men.

When Mr Wen says his country will support the Euro he is not giving it a Good Housekeeping Seal of Approval, he is shouting as loud as he can that the Euro is a disaster and must be scrapped to prevent the wholesale transfer of capital assets to his country.

They're dashed clever these oriental types.

Wednesday, 22 June 2011

The truth about Greece

Now look, there's no need to get yourself into a twisted-knicker situation, it's all really very simple.

Individuals, families, businesses, clubs, towns, cities, counties, countries or federations of countries only have so much wealth. Wealth is measured in money but money is not, in and of itself, wealth. Money is a system of tokens that we give and receive in place of real stuff. The true value of money is dictated by the stuff it represents. I grow a pound of runner beans and you like to eat runner beans so you are prepared to give me something for those runner beans. What should you give? Well, that's up to you. You decide what my pound of runner beans is worth to you. You might offer two pounds of potatoes, or a small diamond, or twenty minutes with your wife, or you might offer money. You must value my runner beans and offer what you consider to be a fair exchange. What is essential is that you offer something of substance because I have no incentive to give up a pound of delicious green scrumptiousness unless I receive something that I value as highly as I value the finest vegetable god ever created.

Our transaction is not about money, it is about stuff. It is about something substantive. I give you something to enhance your life and you give me something to enhance my life. Were I to accept potatoes, diamond or fleeting fleshy pleasures with a lady who has seen better days, we exchange no money. Except that we do. Money is involved in all trades, even barter, because money is just a language by which we value stuff. Money is involved in a swap of a pound of runner beans for two pounds of potatoes just as it is involved in the swap of a pound of runner beans for a £2 coin. The reason it is involved is that the trade comes first, the stuff comes first, and money is just a way we can assign value to the goods we exchange. That exchange involves £2 for £2. My £2 is runner beans, your £2 is ten minutes access to a scrawny dry crone, although the reality is the other way round - £2 is the token we assign to represent each side of what is actually exchanged. Without stuff behind it, £2 means nothing. It has no value of itself.

That is not to say that the production of a pound of runner beans that gives me a £2 coin is a transaction without consequences. I take that coin to Mr Patel's Minimart and exchange it for a super-sized condom (in preparation for my next visit to Madame Fifi's Sauna and Hanky-Panky Parlour) thereby giving Mr Patel a bit of profit and justifying the profit he has already paid to Mr Choudery's Cash-n-Carry who have already given a bit of profit to the manufacturers of the intimate rubber item of gentleman's apparel. Their profits are the consequence of me producing something new. But that tells the story from only one side. Kingdong Condom Ltd also produced something, something rather big actually, and it is the combined action of turning what I produced and what they produced into economic activity that gave work and profit to Mr Patel and Mr Choudery. The whole thing is sustainable because it is based on stuff that people value sufficiently to be prepared to exchange their own stuff for it.

Economic activity that is not part of the production and exchange of stuff is a drain on the wealth of a national economy. What each country has to do is decide how much of the profit derived from the production of stuff can justifiably be committed to activities that drain wealth. Some government expenditure supports and contibutes to the production and exchange of stuff, sadly the things that buy votes are usually nothing other than a drain.

Greece suffers from one thing and one thing only, its government spends far too much money on things that do not support and contribute to the production and exchange of stuff.

There is only so much wealth in any national economy. It can go up and down from year to year but each year and each decade it is limited by the amount of stuff that is produced and exchanged. Wealth comes from the production and exchange of stuff and from nothing else.

Governments can produce more money but they cannot produce more wealth because they cannot produce more stuff. They can produce money by diluting their currency through either the printing press or devaluation, in each case they reduce the value of each unit of currency in circulation; they do not, however, change the substance of their national economy. The substance is dictated by the production and exchange of stuff. Currently the government of Greece can produce neither money nor stuff. It cannot turn on the printing press and it cannot devalue because it is tied into the ludicrous Euro, yet it is spending far more on non-productive governmental activity than the Greek nation's output of stuff can sustain.

Greece is bust, it's a simple as that. Nonetheless it still has a valuable economy, it's just that it is overvalued because it is tied into the Euro. Released from the straitjacket of the Euro the true value of it's economic activity will be reflected because there will be adverse effects to every part of its economy from its government continuing to overspend. Only then will there be any chance of the Greek economy becoming sustainable.

Monday, 13 June 2011

Privately collected taxes

My old chum Mr Wadsworth regularly puts forward a proposition I just can't understand (as he did yesterday). The starting point, as I understand it, is that governmental activities sometimes result in people making money they would otherwise not make. No one could dispute that. This government-inspired profit is described as "privately collected tax", and that is the concept I cannot grasp.

I suppose it all depends on where you start. The blankest page is one of anarchy, a situation in which there is no government and, therefore, nothing we would describe as law. Onto that blank page we put a system of government or, to be more precise, we put a system of law. The most basic effect of any system of law is prohibition of particular activities accompanied by sanctions for breaking the prohibition. Every prohibition that impinges on economic activity results in people either gaining or losing money compared to how things would be in the absence of the prohibition. I can illustrate what I mean with a simple example.

Two factories make motor cars. A law is brought in requiring all new cars to meet a particular standard of robustness in the event of a head-on collision. Factory A's cars meet that standard but Factory B's cars do not and it would cost so much to redesign them that Factory B is no longer viable. Factory B closes and Factory A makes additional sales as a direct result of Factory B no longer being a rival. As I understand it, the theory says Factory A benefits from "privately collected taxes" because it makes additional income because of the new law - that law gives an economic advantage and this advantage is said to be a "privately collected tax".

I fail to see this as privately collected tax. To my mind it is an economic consequence of a law but it is not a tax unless you adopt a highly artificial definition of tax.

It is hard to find an example of economic activity in the UK which is not affected by law. The costs of manufacturers and retailers are increased by the need to comply with health and safety laws. Those who are unable to comply or who can only comply at a cost that makes their business unprofitable will go to the wall. They do not go bust because of tax they go bust because of the cost of complying with the law. Those who are able to comply do not make "privately collected taxes" they make income by selling their wares within the framework of the law. All businesses that receive income by way of cheques or card payments do so only because there is a framework of law to give such payments a cash value. Businesses that deal only in cash receive valuable income only because the law recognises bank notes and coins to have value. To what extent do the laws that turn cheques, plastic payments, notes and coins into useable value represent "privately collected taxes"?

No sensible person could deny that laws allow people to make income they would not make in the absence of those laws. Indeed, I would go further and suggest that no one earning a living in this country would earn exactly the same living doing exactly the same thing without a complex framework of laws affecting the job they do and the field of business within which they operate. Identifying a single law and suggesting that it provides a benefit that should be classified as a "privately collected tax" is, in my view, to take that single law out of context. All other laws that affect the business in question will necessarily increase or decrease income or costs. Any law that increases income must be balanced against laws that increase costs.

It is no more realistic to look at those laws that lead to increased income or decreased costs as allowing the business to benefit from "privately collected taxes" than it is to say the laws that lead to decreased income or increased costs amount to "privately incurred tax rebates". And that is the heart of the matter. Once one adopts the language of tax to describe something one must adopt all the language of tax and describe every aspect of the business in the same way. If you describe economic benefits received because of a new law as "privately collected taxes" you have to have a description of losses incurred as a result of a new law. Only "privately incurred tax rebates" could fit the bill yet it is a nonsense because there is no one to pay a rebate. The reality is that some people benefit from new laws and some people suffer a detriment, but neither the benefit nor the detriment is tax in any sensible use of the word.

Friday, 3 June 2011

The PIIGS and one-sided equations

The good Dr North has been pointing out for some time that things in Europe are not all sweetness and light (for recent examples, see here and here). He observes that mass demonstrations are taking place with a degree of regularity in Spain and Greece as the little people give vent to their frustration at the economic mismanagement of their political masters. None of us knows what the outcome will be, nor whether it will be the same in both countries or, indeed, in any of the other countries teetering on the brink of government bankruptcy.

What troubles me is not that people are finally waking up and complaining, it is that they are complaining about completely the wrong thing. Their target is undoubtedly correct, politicians have left the PIIGS (Portugal, Ireland, Italy, Greece and Spain) deep in the mire through reckless economic mismanagement. Their complaint, however, appears not to be that their governments borrowed and wasted too much but that they do not want their governments to stop borrowing and wasting now that existing debts cannot be repaid. We see exactly the same delusionary behaviour in this country whenever the trades unions wheel out their usual rent-a-mob to bemoan a tiny bit of trimming from departmental budgets to find cash to pay the interest charges incurred by Gordon Brown's feckless stewardship of the Treasury.

I am not in the least bit surprised. Governments all over Europe have been winning elections for years by presenting one-sided equations that sound nice but do not stand up to even the gentlest scrutiny. These one-sided equations are the tool of every headline-grabbing initiative and are not restricted to the field of economic policy, we see them all the time in the field of health policy.

Smoking / drinking / one food / another food / too much exercise / lack of exercise / salt / lack of salt, or whatever is the scare of the day, is calculated to cost the NHS so-many hundreds of millions of pounds and must therefore be banned. The figures are always wrong, always grossly exagerrated, but that is beside the point; even if they were correct they only look at one side of the equation. Treating medical conditions which might not have arisen had the patient not been a smoker can be seen as a cost caused by smoking, there is nothing unreasonable in that as a general proposition. The problem is that the NHS does not exist in a vacuum and it is not funded in a vacuum, it is funded out of taxes and smokers pay taxes that others do not pay; shops and wholesalers make profits on which taxes are paid, workers in those businesses and in every stage of the cigarette production and distribution network pay taxes on their wages. The taxes gathered from the ciggy network grossly exceed even the most dishonestly overstated costs attributed to adverse consequences of smoking.

The same is seen in the moronic argument that "green" production of electricity will be economically beneficial because it will create new jobs. Of course it will create new jobs because no one has been so stupid before to pay people to do anything so utterly pointless, but even so the benefit of these new jobs is only one side of the equation. On the other side lies the fact that employing more people to generate the same amount of electricity means it is more expensive and that cost must be passed on through higher prices. Higher prices for electricity means higher costs for businesses and individuals. Those businesses can be tipped into insolvency causing their employees to lose their jobs and individuals who must spend an extra £100 on electricity have £100 less to spend on other things thereby depriving Mr Patel's Merrymart and Madame Fifi's Sauna and Hanky-Panky Parlour of income, resulting in shed staff and less tax being paid. No one should be surprised that studies in both France and Scotland reveal each "green" job to cause the loss of more than two other jobs.

So it is also with the bubble of economic activity arising from an unsustainable expansion of credit. Of course it means people have more money and buy more stuff which means shops and manufacturers employ more staff, make more profit and pay more tax. The government takes credit for the miracle of an ever-expanding economy. Apparent riches for all means votes for incumbents. The other side of the equation in this situation contains what groovy hep cats might term a "double-whammy".

Credit cannot go on expanding for ever, eventually you reach a point where you cannot borrow any more because even the most foolhardy lender is not prepared to advance you another penny. At that point the economic expansion arising from credit necessarily stops and in due course it must be reversed as people realise they must repay their borrowings. It doesn't necessarily happen all of a sudden although it did two years ago because banks simply stopped lending. In addition to the reduction in economic activity resulting from the wind-down of credit-based spending we have the second whammy, namely a reduction in tax receipts for the government. The additional sums received in the boom years were used to strengthen their electoral position. Were we cruel people we could suggest they used tax receipts to bribe voters, but we aren't cruel so we will instead describe the spending of this windfall of unsustainable taxes as the result of nothing more sinister than stupidity. Unfortunately the stupidity knew few bounds so the PIIGS, the UK and many other countries find themselves with government spending commitments far in excess of tax receipts.

A sober and sensible approach to the problem would recognise that governments handed out treats that could not really be afforded even when times appeared good, so now that they are far from good those treats cannot be given any more. The governments of Spain and Greece are trying to cut back a fraction of the unaffordable treats and it is this that causes discontent on the streets. The people are complaining that something they should never have had in the first place (because it could not be afforded) should be maintained despite government income being substantially lower than it was in 2009, it is utter madness. A particular difficulty arises with government spending compared to individual spending, namely that the consequences of reducing it are highly visible. A million people each spending £50 less is equivalent to government spending £50million less - the former is just a normal incident of life whereas the latter is a headline in every newspaper.

I cannot help thinking that pushing one-sided equations at their people and arguing tooth and nail that the equations in question have only one side is the root of current public disquiet in Spain and Greece. There is every sign that the people demonstrating against plans to trim government spending really believe there is only one side to the equation. In a way this should not be surprising, both countries had long periods of socialist government in which the allure of the magic money tree was all pervading - no need to worry, the government will pay for it, the government has a bottomless pit of money because it just plucks some more from the magic money tree. We should be more worried about this reason for mass demonstration than we would have to be were demonstrators complaining about overspending in the past.