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Saturday 14 November 2009

The "Gusher Up" Theory Of Economics


 
By Jeff Berg
13 November, 2009
Countercurrents.org

During the Reagan era the government put in place policies that guaranteed that the wealth that naturally accumulates at the top end of the income ladder stayed there. In order to accomplish this bit of social engineering the top taxation bracket was significantly reduced. The policies of this time succeeded to the extent that the wealthy did in fact get much wealthier.

Where they failed was in the second part of the "trickle down" theories that justified this policy to the public. The theory such as it was stated that if the rich were allowed to get richer this would allow the society at large to become wealthier as a whole. This extra wealth would then "trickle down" thereby resulting in everyone become wealthier than they had been previously and would have been otherwise. To no great surprise to the critics of this policy what happened instead is exactly what the critics projected. I.e. The gap between the rich and everyone else increased dramatically.

Simultaneously the Reaganites embarked on a massive increase in military spending which resulted in two major economic effects. First it massively accelerated America's debt and deficits. Second it acted as a further transfer of wealth from the middle class to the wealthiest classes. An aspect of military spending that is seldom publicly discussed but has been fully understood for centuries if not millennia.

Today we have a new variant on this economic theory that I would like to call the "Gusher Up" theory. In this economic model the government sprays massive amounts of money directly upwards into the pockets of the investor class. This is justified by declaring that a state of emergency exists and to do anything else would result in a complete collapse of the entire financial system. It is further justified by claiming that the end result of this massive geyser of money will be - in the long run - to make everyone wealthier. (As many of you know Keynes had a different view of this long run) This time around no one is saying out loud that this wealth will then "trickle down". No doubt afraid that the terminology might create negative associations for what is already a hard sell. It is nonetheless relentlessly implied.

Once again the critics of this policy have a different take. They are projecting that the net result of this policy will instead be a monumental transfer of money to the richest classes while leaving the entire country burdened with an unprecedented level of debt. The effects of massive debt on a county's economy and its citizens standard of living being at least as well understood as the effects of massive military spending on the pockets of the rich.

This debate could not be said to be raging in the mainstream media as the only critics of the current policies of the U.S. Federal Reserve given major media attention come from the deranged end of the "laissez-faire" libertarian fringe. Folks who would have had all governments do nothing after the collapse of Bear Sterns and Lehman. These "invisible handers" insist that the market like mother knows best. It is now clear in retrospect that what would have happened instead is a cascading failure of all derivative bets that would have taken down the entire economy. A situation that would have led to most of us being unable to access our funds from our banks and a subsequent run on the banks. The resulting panic, pandemonium and street level unrest would have led to an international credit seizure that would have stopped the global economy in its tracks. The net effect may well have put 1929 in the shade. This would have been to no one's advantage.

Those making an informed and balanced critique of these policies are as usual shunted off to the margins. Though they did have a few moments in the sun when it turned out that their projections about the housing bubble were exactly right. Dean Baker comes to mind.

Another critic whose projections have been exceptionally accurate for the last four years is Mike Whitney. In his latest article he refers to a recent study that shows that the critics of the "Gusher Up" theory are proving to be as prescient as those that predicted the effects of the earlier "Trickle down" variant.

"The Fed's meddlesome interventions (now in-excess of $11.4 trillion) represent the largest transfer of wealth in history.

Berkeley economics professor Emmanuel Saez, recently released a report which just confirms that income inequality in the United States is at an all-time high, surpassing even levels seen during the Great Depression. The report shows that
1--Income inequality is worse than it has been since at least 1917
2--"The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007"
3--"In the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth." ~ http://www.informationclearinghouse.info/article23947.htm

Along with these facts are the current facts about the productive economy in the U.S. today. The true jobless rate is at 17.5% and shows every sign of increasing. The number of people "upside down" on their mortgages and being tossed out of their home continues to grow at an alarming rate. Worse yet there is another round of resetting beginning in the Adjustable Rate Mortgage market which will only exacerbate this already drastic situation. Simultaneously commercial real estate is giving off every sign that it too is a bubble ready to burst. This is the picture for the working and non-working stiff for the next few years at least. To call this a depression for the non-investor class is no exaggeration.

Meanwhile the asset and equities bubbles are being reflated with the Fed's money. It's as if the Fed has decided that the only way markets will be allowed to go is up. No matter how much public money this takes. What Whitney and people like Marc Faber, Peter Schiff and Jim Rogers rightly call "lunacy".

When we finally get around to tabulating the numbers for the period of 2008 to 2010; the gap between those few at the top and what is now being referred to as the "bottom 90%" will have become the widest chasm ever seen in the U.S. What this will mean for the social fabric of the country is not hard to guess. The only upside that I can glean is that this time, surely, the U.S. will not turn to a massive increase in military spending to pump-prime its economy. If only because they have no foreign creditors to bankroll the effort.

Who knows maybe this will leave the energy, transportation and housing retrofit sectors as the only places large enough to turn to in order to kick-start the U.S. and global economy. If this turns out to be the case, and the U.S. meets its domestic challenges and international obligations in these areas, then there is a good chance that all else will be pretty much forgotten if not forgiven. "The War on Terror" like the "Domino Theory" fading into well deserved obscurity. Horrific episodes that ultimately meant little to those not directly affected and not permanently fatal to the human project. Meaning there is at least something to be hoped for if not to be counted on.

Ton confrere,
Jeff Berg
Jeff is a founding member of Post Carbon Toronto. His writing focuses on Energy & Emissions and their micro and macro implications ecologically, economically and socially. He can be reached at jeffberg@rogers.com
 



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Private supply of a 'Public Good'

 
 
Private 'police' provoke concern
 

The growing number of private security companies policing UK streets is a worrying development, senior police figures say.

The Police Federation of England and Wales said there is "huge concern" over their powers and accountability.

Former Metropolitan Police Commissioner Sir Ian Blair has also said there should be no role for the private sector in Britain's law enforcement.

The firms typically charge residents to patrol streets and deter troublemakers.

 

Regular patrols

The growth in private security firms taking on policing work comes despite an increase in police numbers.

A record 141,252 police officers are available for duty in England and Wales, although there have been reductions in 16 police areas.

Private security firms have no powers, although chief constables may award some limited ones such as allowing them to move people on.


 
 
" It's the police who patrol public space and we should be very wary about giving those powers to private security companies "
Simon Reed, Police Federation
 

BBC correspondent Keith Doyle joined one private security company who began patrolling the streets of Darlington this week.

He said residents there pay between £2 and £4 a week to have their homes included in regular patrols and to receive an instant response if they need help.

"These guards know they have no powers but they say simply by being here it prevents trouble and that's something local residents agree with and have signed up for," he said.

Francis Jones of Sparta Security told our correspondent the patrols provided a visual deterrent to potential criminals.

He said: "We are giving a deterrent to them and also raising the confidence of the public who have taken us on board and there are quite a lot of people coming forward, ringing us up, wanting our service."

 

'Fear of crime'

But the vice chairman of the Police Federation, which represents officers, said such firms could cause problems.

Simon Reed said: "We have got people who have certain powers, we are going to see them in uniform. Potentially there is confusion there for the public and who are they actually accountable to?

"I understand the public's fear of crime but actually it's the police who patrol public space and we should be very wary about giving those powers to private security companies."

Sir Ian Blair said more use should be made of community officers and civilians working within the police, otherwise there could be more private police patrols.

He said: "I do not see community safety as a commodity to be bought and sold and therefore we shouldn't be having the private sector in policing.

"Unless we get this right, we will end up with private security coming in and they will work for the rich and the poor will go without."




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Friday 13 November 2009

Non-Europeans shut out from another 250,000 skilled jobs

 

Non-Europeans shut out from another 250,000 skilled jobs

Brown to clamp down on student visa abuses
Home Office plans big asylum system changes

More than 250,000 skilled engineering, care and catering jobs are to be closed to non-European overseas workers next year as a result of Gordon Brown's immigration speech today.

 
The prime minister promised that these sectors would be taken off the official list of shortage occupations as soon as employers and training bodies can provide sufficient qualified recruits.
 
In his first major speech on immigration for 18 months, he also promised to clamp down on widespread abuse of the student visa system.
 
An official review will look at raising the minimum level of course for which foreign students can get a visa, introducing mandatory English language tests and blocking overseas students from working part-time in temporary jobs that could be filled by young Britons.

 

After the speech the Home Office published a draft immigration bill which is designed to be enacted after the general election. The 243-page bill – which would be the eighth major piece of immigration and asylum legislation since Labour came to power in 1997 – is designed to "simplify and consolidate" the baffling jigsaw of bills and rule changes introduced since the bedrock 1971 Immigration Act.

 
The bill also proposes sweeping changes in immigration procedures, including the replacement of the deportation process with a general power to expel failed asylum seekers and illegal migrants. They would also be banned from returning to Britain for a fixed period or indefinitely.
 
A Home Office consultation paper on welfare support for asylum seekers also published today underpins these proposals with plans to limit housing and benefit payments to three months for those told to leave the country. Families who have been told to leave would have to live in "full-board" Borders Agency accommodation and replacing all cash payments with a plastic pre-paid card.
 
The further changes to the points-based immigration system outlined by Brown involve implementing recommendations from the government's migration advisory committee. From this autumn, shortage occupation jobs will have to advertised for four weeks rather than the current two before they can be filled by non-European skilled workers.
 
The previous work permit regime covered about 700,000 jobs in shortage occupations. Since the migration committee was set up last year, it has recommended a cut to about 500,000. The latest recommendations covering engineering roles, skilled chefs and care workers would remove a further 290,000 British jobs.
 
The number of these jobs filled by non-European workers, however, is very much smaller, with only 30,000 coming to work in Britain between November 2008 and August 2009. The door was closed to unskilled workers from outside the European Economic area when the points-based system was introduced. Now, step by step, the door is also being closed to skilled workers from outside Europe.
 
The prime minister said realistic timetables needed to be developed for adequate training to take place before these jobs could be taken off the shortage lists.
 
"As growth returns I want to see rising levels of skills, wages and employment among those resident here – rather than employers having to resort to recruiting people from abroad," said Brown.
 
The Conservatives said that the PM's speech had a hollow ring to it. "This is the Government that tried to cover up a deliberate
policy of increasing immigration and the prime minister's comments show that he has no idea about how to deal with the whole question of immigration now," said the shadow home secretary, Chris Grayling.
 
The Liberal Democrats' Chris Huhne said Brown was trying to shut the stable door long after the horse had bolted and argued that the government's mismanagement of the immigration system had long ago undermined the country's liberal attitude to the issue.
The Refugee Council said the consultation on asylum support showed the government was determined to make life as miserable as it could for those who got to Britain. Jonathan Ellis, the organisation's head of policy, said: "It has proposed to re-enact the widely condemned section 55, making refugees homeless and destitute, that was ruled illegal by the courts four years ago. Not only that, the government proposes that families who are unable to return home will be refused cash support, and forced to rely on a payment card.
 
"This makes a mockery of the government's claim to be safeguarding and promoting the welfare of children seeking asylum as it announced last week."
 
The Home Office denied any change of policy on section 55, insisting it would not be used to make anybody destitute in the way condemned by the law lords.
 
Refuge and Migrant Justice said that buried in the bill was provision to give ministers the power to overrule bail decisions made by judges in immigration and asylum cases.



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Wednesday 11 November 2009

Powerful interests are trying to control the market


 

 

By John Kay
Published: November 10 2009 20:34 | Last updated: November 10 2009 20:34
John Kay, columist
You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.
 
Rent-seeking takes many forms. On Europe's oldest highway, the Rhine river, the castles on rocky outcrops date from the time when bandits with aristocratic titles extracted tolls from passing traffic. In poor countries the focus of political and business life is often rent-seeking rather than wealth creation. That helps explain why some countries are rich and others poor.
 
Rent-seeking drives the paradoxical resource curse. Oil or mineral wealth mostly reduces the population's standard of living because it diverts effort and talent from wealth creation to rent-seeking. Sadly, foreign aid often has a similar effect.
Rent-seeking can be effected through rake-offs on government contracts, or the appropriation of state assets by oligarchs and the relatives of politicians.
 
But in more advanced economies, rent-seeking takes more sophisticated forms. Instead of 10 per cent on arms sales, we have 7 per cent on new issues. Rents are often extracted indirectly from consumers rather than directly from government: as in protection from competition from foreign goods and new entrants, and the clamour for the extension of intellectual property rights. Rents can also be secured through overpaid employment in overmanned government activities.
 
Rent-seeking is found whenever economic power is concentrated – in the state, in large private business, in groups of co-operating and colluding firms. Private concentrations of economic power tend to be self-reinforcing. This problem was widely recognised in America's gilded age. The well-founded fear was that the new mega-rich – the Rockefellers, Carnegies, Vanderbilts – would use their wealth to enhance their political influence and grow their economic power, subverting both the market and democracy. Today it is Russia that exemplifies this problem.
 
But America has a new generation of rent-seekers. The modern equivalents of castles on the Rhine are first-class lounges and corporate jets. Their occupants are investment bankers and corporate executives.
 
Control of rent-seeking requires decentralisation of economic power. These policies involve limits on the economic role of the state; constraints on the concentration of economic power in large business; constant vigilance at the boundaries between government and industry; and a mixture of external supervision and internal norms to limit the capacity of greedy individuals in large organisations to grab corporate rents for themselves. Vigorous pursuit of these is the difference between a competitive market economy and a laisser-faire regime, and it is a large difference.
 
Privatisation and the breaking up of statutory monopolies has reduced rent-seeking by organised groups of public employees. But the scale of corporate rent-seeking activities by business and personal rent-seeking by senior individuals in business and finance has increased sharply.
 
The outcomes can be seen in the growth of Capitol Hill lobbying and the crowded restaurants of Brussels; in the structure of industries such as pharmaceuticals, media, defence equipment and, of course, financial services; and in the explosion of executive remuneration.
 
Because innovation is dependent on new entry it is essential to resist concentration of economic power. A stance which is pro-business must be distinguished from a stance which is pro-market. In the two decades since the fall of the Berlin Wall, that distinction has not been appreciated well enough.
 
The story is told of the Russian policymaker, visiting the US after the Soviet Union collapsed, who asked: "Who is in charge of the supply of bread to New York?" The bureaucrat had not learnt how markets work, and we are in danger of forgetting it. The essence of a free market economy is not that the government does not control it. It is that nobody does.
 
johnkay@johnkay.com



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Tuesday 10 November 2009

Corporates hold key to recovery


 

 

By David Bowers
Published: November 9 2009 19:12 | Last updated: November 9 2009 19:12
 
It might be heresy but what if the credit crunch turns out to be more of a supply shock than a demand shock? While markets appear to be focusing on the prospect of multi-year consumer deleveraging and weak consumption growth, it strikes us that investors risk forgetting that it is corporates, rather than consumers, that have been on the frontline of the 2009 recession.
 
The conventional wisdom is that this recession was in essence a housing bubble followed by a bust. But that is too narrow a view. Analyse this year's gross domestic product falls in the US, eurozone and Japan and you will discover that the dominant contributing factor has been the collapse of corporate, rather than consumer, spending. Capital spending has been cut back brutally and inventory levels run down. So it might be that corporates rather than consumers now hold the key to the shape and duration of the recovery.
 
We believe corporates were significant beneficiaries from the plentiful supply and mispricing of credit during the boom years. Multinational companies profited from an extremely low cost of capital as banks rushed to offer them Swiss franc- and Japanese yen-denominated credit to help fund the long, thin supply chains that seemed such a winning formula during the Great Moderation. Moreover, this "portable cost of capital" supported a plethora of vendor financing deals, whereby producers extended credit to their customers to purchase their products, making revenue lines appear more predictable than was really the case.
 
This business model came crashing down with Lehman's collapse. Companies' cost of capital went through the roof (assuming you could get any) and the vendor financing deals evaporated as the credit ratings of customers were called into question. This happened so rapidly that companies found themselves with excess inventory at a time when they had no recourse to bank credit. In a desperate attempt to preserve cash they cut dividends, jobs and capital expenditure and when that failed they temporarily ceased production to liquidate inventories. Thus, Lehman's failure triggered a contraction in global supply all the way down the supply chain as inventories were liquidated and capex projects abandoned.
 
Economic recovery, however, may pose an even greater challenge to these fragile supply chains. As any accountant will tell you, one cast-iron way of ceasing to be a going concern is to have nothing to sell. When inventory falls to critically low levels, companies will reorder only to find that their suppliers have no inventory either – a pattern echoed all the way through the supply chain. In the ensuing scramble for resources, we fear a rise in "frictional" inflation – particularly among the industrial sector.
Already our proprietary news flow indicators are showing much more concern about inflation than we would normally expect given the depth of the recession. Did the credit crunch force companies to cut back capacity excessively? If so, then the amount of spare capacity in the economy might not be as great as first thought, meaning deflationary pressures will be weaker than the bond bulls had been expecting. It would come as a big surprise if what they saw as a negative demand shock turned out instead to be a negative supply shock. One of the greatest risks of this is that we see a sudden "bear flattening" of the yield curve where short-term bond yields rise faster than long-term yields.
 
So next year could see the start of some fundamental challenges to the business models of global non-financial companies. For a start, companies will have to start thinking how to reinstate that supply. With employers having maxed out productivity gains from their current workforce, there could be a rush to re-employ workers. It is quite conceivable that US unemployment might fall in 2010, which would call into question the consensus view of a "jobless recovery".
 
The second challenge will be to rebuild and resecure their supply chains. But that will depend on what funding is available. Following the credit crunch, the supply of private sector cross-border finance will be much reduced, especially the farther away companies stray from their home market. Faced with these and other challenges, companies might look to relocate their supply chains nearer to home – "nearshoring" rather than "offshoring" could be a buzzword to watch out for in 2010.
 
Finally, companies will find that they face a very different regulatory agenda as scientists persuade the politicians of the need to reduce carbon emissions. Not only will companies have to reinstate their supply and relocate it closer to home, but they will also have to re-engineer their capital stock to be more climate-friendly. Maybe it is time that we stopped worrying about the consumer, and focused more on how the corporate sector is going to have to rebuild its capital stock and how that rebuilding is going to be funded.
 
David Bowers is global strategist at Absolute Strategy Research


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Key oil figures were distorted by US pressure, says whistleblower


 

 

Exclusive: Watchdog's estimates of reserves inflated says top official

 

 

Grangemouth oil refinery

Grangemouth oil refinery in Scotland. Photograph: Murdo Macleod

 

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.
 
The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies.
 
In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.
 
Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.
 
"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.
 
A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.
 
The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans."
 
The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.
 
The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.
 
John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.
 
He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on," said Hemming.
 
"This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation," he added.
 
The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures.
 
But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.
 
Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted.
 
A report by the UK Energy Research Council (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 – but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible".
But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference: "If the real [oil reserve] figures were to come out there would be panic on the stock markets … in the end that would suit no one."




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Monday 2 November 2009

A viewpoint on legalising drugs - What do you think?


 

It appears to be impossible to have a rational debate about drugs. David Nutt, the head of the government's advisory council on drugs, argued that alcohol and tobacco

Bruce Anderson: Let's be honest... legalise drugs and society would benefit

This is a war that cannot be won. And the suppression of David Nutt won't help  were more dangerous than some drugs which are currently illegal. That point seems so obvious as to be barely worth stating. Prof Nutt also said that it was silly to upgrade cannabis, from class C on the illegal drugs register to class B. The maximum penalty for using a class B substance is five years in prison. Does anyone believe that any judge would ever pass such a sentence for smoking marijuana? So what is the point of pretending to buttress a law that is already widely flouted with even more pains and penalties which will never be enforced?

Before taking such an absurd decision, ministers might have considered the experience of the Black Code in the early 19th century. By mandating ferocious penalties for trivial offences, it brought the law into disrepute and undermined the penal justice system, until Sir Robert Peel - no softie - replaced the savage and inspissated nonsense with a sensible criminal code. But an examination of precedents would require thought, reading and a knowledge of history. Under this government, those are class A crimes.
Instead, the Professor was sacked, which has annoyed some of his colleagues, who see no point in continuing to assist a government which has no interest in reasoned debate. This does not mean that politicians must always accept expert advice. Sir Christopher Kelly and Sir Thomas Legg should be treated with much more scepticism than they are likely to receive. A minister is perfectly entitled to say that he had received some advice from Professor so-and-so, for whom he had considerable respect - and that on this occasion, he respectfully disagreed. But there is no point in asking academics to serve on a committee if their intellects are to be subjected to a three-line whip.
 
Moreover, drugs policy is in urgent need of hard thinking. Our present arrangements are a mess. So let us start with fundamentals. Until the 1960s, our legal system was overshadowed by pre-libertarian theories of the state, which criminalised breaches of Christian morality and started from the assumption that governments were entitled to regulate the private behaviour of adults. As that has all gone over the past few decades, what theory of the state now permits governments to prohibit adults from taking drugs? There is only one intellectually respectable answer to that question: none.
 
This does not mean that those who wish to retain prohibition are bereft of arguments. Their counterblast might run along the following lines. "Intellectual respectability be damned. You are talking as if the drugs question could be resolved in an academic seminar. Go a few miles from intellectually respectable London to disintegrating London, where the wreckage of David Cameron's broken society is outward and visible, where so many forces are already at work to accelerate social breakdown - and then tell me that you would like to add to the problem by legalising drugs".
 
That is what many judges and policemen believe, based on their experience of trying to hold society together, and it is a powerful case. It is also a pragmatic one - none the worse for that - and as such, open to challenge on evidential grounds. The evidence does seem to suggest that the present policy is failing. Drugs are readily available, while drug-users mug and burgle to sustain their habit. In her forthcoming study of underclass youth, Harriet Sergeant depicts the allure of drug dealing: its corrupting effect on the de-socialised young. If no one who wants drugs has to go without them, while the illicit trade is worth hundreds of millions of pounds, it is hard to see why legalisation would make things worse.
 
There is a further point. The drug menace is not only impairing the quality of life in British cities. It is wrecking countries. Trinidad, Guyana, Jamaica: those really are broken societies. Colombia and Mexico have had dreadful difficulties. Admittedly, this arises far more from the lucrative American market than from the much smaller British one. But if we British concluded that the current war on drugs could not be won, we would be doing the world a favour.
 
This is how legalisation could work. Allow adults (photo ID necessary) to buy limited supplies of their chosen poison from licensed and regulated outlets. Ban all advertising. Tax the stuff as highly as is possible without creating a black market. Announce an amnesty for all drug crimes, in the hope that the skilled operators would take the chance to go legit.
 
Increase the penalties for illicit drug-trafficking, to include impoverishment. Anyone involved in selling drugs to children would lose all his assets, however acquired, and would not leave prison if there was any suggestion that he had some cash stashed away. Step up police operations, hoping to catch new dealers while they were still inexperienced. Employ the SAS to eliminate foreign traffickers who were trying to supply the British criminals who remained in business.
 
The aim of these measures would not be the promotion of universal hippydom: still less, to bring the decadence of the late Roman Empire to the streets of South London. The intention is to reduce drug-related crime and to make it easier to deal with the criminal underclass. There might also be a fall in drug consumption, especially among children, whose supplies would be significantly interrupted. That said, there would be a price.
 
We can surely assume that there are some young adults who might be curious about drugs, but who do not like the idea of searching out dealers in insalubrious parts of town. They are also reluctant to run the risk of being arrested. There may not be many such persons: there must be some. After legalisation, the restraints are removed. So they try the stuff, and one or two of them turn out to have addictive personalities and turn into druggies.
 
Although there are those who insist that anyone who might become a druggie already has, legalisation is bound to create some new addicts, whose lives might be wrecked. This is not a pleasant thought. Then again, the individuals concerned would be adults, unlike many of those who are destroyed under the current arrangements. Adults are entitled to make their own choices.
One hundred and fifty years ago, John Stuart Mill published On Liberty. The passage of time has not diminished its radicalism. Mill realised that the desire to interfere with others' freedoms has deep roots in the human psyche. If it is denied one outlet, it will find another. Fifty years ago, homosexuals were persecuted. Recently, some half-witted police force wanted to persecute a woman who complained about the excesses of homosexual demonstrators. The rights to free speech and free expression can never be taken for granted, especially under this government. It might seem absurd to cite drug-taking in the same context as those dignified, noble freedoms. But freedom is freedom.
 
Mill could also remind us that you do not arrive at truth by suppressing opinions, even if they are unpopular. Admittedly, this government has hardly been successful in suppressing Prof Nutt, but it is now time for the opposite approach: a Royal Commission on drugs, to review all aspects of current policy, from philosophy to policing. David Nutt should certainly be a member.



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