Government Failure

…Now I know my ABCs!

But does Jacqui Smith? Today she announced the reclassification of cannabis up to a Class B drug – against the advice of the government’s drug council and undoing the reclassification to Class C under Tony Blair’s reign. Legislature on drugs is an infamously contestable topic with each political party throwing their respective hats into the ring. The Conservatives certainly want cannabis at Class B, the Lib Dems want to listen to the scientific advice which means that they want it at Class C, while the Greens were daring enough to declare in their recent manifesto that they want a legalised, regulated market for cannabis, much like in Holland. Personally, I don’t even know my own stance on this, but here’s the story so far:

Tim Harford takes a dig at green taxes

VAT on gas and electricity too low? Excise duty on petrol and diesel too high? Yes says Tim Harford in his Undercover Economist slot this week. “Green taxes have been fussy and poorly-targeted, by turns too stringent and too lax ... This government – like most governments – likes to use the tax system as a way of expressing its moral views: hooray for pensioners, down with Jeremy Clarkson. Cheap politics for them, less so for the taxpayer.”

The rest of the article is here

The Rock and his Millions

Geoff’s entry today here prompted me to write something topical for once, so I’m going to follow up on this enlightening review. Despite everyone clamouring for change (from more staffing to a rehaul of the entire system), nobody actually knows what actual reforms are going to be implemented, aside from how we’re promised that things will be “better”. Somehow it reminds me of a certain someone’s campaign, but let’s not get into that. Instead, I’m going to discuss the theoretical side of how this discovery may affect the future.

Government failure and the Rock

Well here is one for the file on classic examples of regulatory (aka government) failure in the market. The Financial Services Authority (FSA) has admitted that it gave too few resources over to monitoring the problems building up at Northern Rock - covered in this BBC article and also this piece in the Financial Times. The FSA seems to have been assuming that the Bank of England stood ready to bale out the Northern Rock and there were failings in the oversight of the Rock by supervisory teams sent to look at the Rock’s flawed business model. None of this will be any comfort to the shareholders and also to the thousands of Rock employees who will lose their job. Robert Peston is brilliant on this issue - here is his latest blog which lays bare the blundering at the FSA and the shocking incompetence of their senior management.

What shall we do with the drunken nation? Volumen Dos

[This is the concluding half of my two-parter on combating alcohol abuse in Britain. The first half, focusing on the price policies the government can use can be read here.]

Jackoby on Government Failure

How government makes things worse - Jeff Jacoby writes about the law of unintended consequences and government failure in today’s Boston Globe. There are spooky parallels with failed government policies here at home.

“WHAT DO ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.”

Read the remainder of the article here

24 hour drinking - a case of government failure?

Last week one of our bloggers carried a story about taxation and the demand for alcohol. And today the Independent reports that a Home Office study is likely to report that the liberalising of the licencing laws in 2003 has not (as yet) led to a reduction in alcolhol related crime or a change in our drinking patterns towards a European-style culture. The Indy report claims that ‘Serious violent crime has been displaced, with a steep rise in offences committed between 3am and 6am and, despite the millions spent on police crackdowns on drunken disorder, alcohol-fuelled crime hot spots have become worse.’

You can barely walk into a supermarket these days without facing a barrage of deep discounts on cans of lager, boxes of Chilian wine and bulky dispensers of Heineken. It is cheaper to buy a can of lager than a bottle of mineral water. Online shoppers receive regular emails alerting them to the latest 3 for 2 offers on cheap alcohol. The supermarkets have a social responsibility but one retailer on their own is unlikely to make the first move for fear of putting itself at a competitive disadvantage. Is it time for a law banning the deep discounting of alcohol products.

Telegraph

BBC news audio-video on Tesco and alcohol prices

A Licence To Print Money?

An innovative method of internalising the externality of smoking? The introduction of a £10 permit to purchase tobacco products has been proposed in an attempt to increase the cost and inconvenience of buying cigarettes and similar goods.

The ban on smoking in enclosed public spaces which began in England in July 2007 has been touted as a considerable success, contributing to a 7% drop in cigarette sales compared with the year before. But this has not been without unintended consequences, highlighted already on these blog pages. And with approximately one third of imported cigarettes already arriving in the country illegally (at a cost of £2bn per year to the UK Treasury), won’t any attempt to drive up the price of legal tobacco products - and the inconvenience of buying them - simply result in greater demand for smuggled goods?

Perhaps more radical and shocking methods to reduce demand for cigarettes are needed (this link shows some of the campaigns that have been used in various countries.)

Unintended consequences of the smoking ban

Any government intervention in the market can give us cause to consider the Law of Unintended Consequences where a policy decision or action leads to fresh actions which might not have been considered by those putting a policy in place. Some of these knock-on effects can be positive, a windfall that enhances the impact of the original decision. Others can be negative leading to fears of government failure and a deepening of an existing problem or market failure. The smoking ban seems to be providing a rich seam of examples of such unintended blow-back effects.