Pupil premiums in education will perpetuate educational failures

Policy Exchange is all the rage in Westminster at the moment, "for mainlining eye catching new policies to the Conservative shadow cabinet", apparently. One of their latest proposals is the pupil premium where schools are rewarded with extra funding if they take pupils from poor backgrounds. This fits the current social narrative where the imperative of every government - that wishes to bask in the approving sunshine of the leftist-establishment - is to cancel out the advantages of a prosperous, stable and responsible home-life in the pursuit of equality. And allocating a disproportionate amount of money to those perceived as disadvantaged is the way to do it, apparently.

Of course, there are many pupils that have a poorer - culturally as well as financially - upbringing and so are less likely to do well at school. Indeed, how is a child meant to do homework properly if their home is a war zone of bile, profanity and neglect. But, the logic that takes this to mean that more money will solve their problems misses the point; more money at school will not affect their home life. The problem is that leftists see every social ailment as one of money. Give anyone more money and everything will be OK. No room for ethos, culture or morality.

One of the reasons for this premium is apparently to give schools an incentive to attract children from poorer backgrounds and thus prevent middle class enclaves and lower class ghettoes from developing. This makes perfect sense if you view the world through a prism of leftist thinking, but what it actually does is distort the way schools and parents interact to provide education for children. Ultimately it prevents the party with the greatest vested interest in good schools - parents - from influencing the education system for the better, thus making it harder for all schools to improve.

As harsh as this may sound, the real effect of this policy is to reward failure and penalise success. If we take failure to mean poverty and social neglect, and success to mean prosperity and social responsibility, then we have the opposite system we should be seeking.

Critics will undoubtedly denounce this viewpoint as anathema to civilised society , but the reality is that this view, in a Darwinian sense, promotes and strengthens that civilised society. If schools are penalised for educating pupils from wealthy households, these households learn a salutary lesson in the futility of responsibility and success - or the more likely lesson is that if they want their children educated well, they need to go private. Conversely, the lesson poorer households learn is that it does not matter what they do because the state will always compensate them.

The pupil premium is a false prophet in the pursuit of educational improvement. In the long run it will make all schools worse. The solution is to allow schools and parents to determine where children are taught in a constructively competitive environment where funding is solely determined by the number of pupils they teach, irrespective of how poor their home life is. To perpetuate the politicisation of education by leftist social ideologues is simply to perpetuate the failings already present in the state education system.

Morale is not just about welfare

It is often difficult to work out exactly what a politician means when his words are parcelled up and inserted, piecemeal, into newspaper articles to make a specific and discrete point. John Hutton, as the new Defence Secretary, will no doubt come under scrutiny in the following weeks and months, but one thing in his favour is his interest in Military History. Of course, this does not make him infallible, but at least it means he has thought about military activities more than most of his recent predecessors.

The issue of an EU Army is an old one and certainly needs a great deal of scrutiny, but his words about morale reveal an important distinction that needs to be made on the nature of morale. It is becoming more and more common to believe that satisfying material needs in the form of healthcare, compensation, pay, welfare and other similar things is the route to high morale. In a sense they are right, but only partially.

Military thinking understand morale as being the product of the moral and physical components of fighting power. Taking the latter component, the physical, it is recognised that decent equipment, good pay, first class healthcare and more contribute to high morale. But, when people contrast poor welfare with high morale, they become confused. Surely if welfare is not as well provided for as possible then morale should be commensurably poor?

Not so, morale is also dependent on the moral component which is the bit that gets the man to fight in contrast to merely giving him the means to fight. Through excellent leadership, motivation and management, soldiers believe they can be successful on the battlefield. In turn this induces high morale. So when we contrast high morale with poor physical provision, we should understand that the British soldier, although reliant on the physical component, derives his determination to fight not just from his equipment but from his courage and motivation.

Business failures are not always bad, except when its recession

Over the last couple of years we have come to believe that normal laws of economics no longer apply. We began to believe that boom and bust really had ended, that growing public and private debt was not a problem, that monetary expansion merely offered benign growth, and that property prices - and stock markets for that matter - only went up. It became a sort of disease and the most serious case was none other than Gordon Brown, our Chancellor of the Exchequer and now Prime Minister.

But, we succumbed to his contagion willingly because, like the siren, he played the enchanting music we wanted to hear. And that he could play the all powerful human architect fitted our anthropic experience. This role is one he always wanted, craved. If he could provide endless prosperity and perhaps end poverty, then his slightly unhinged lifelong ambition to be Prime Minister would be amply justified.

Another reality of economic and business life we forgot was the understanding that business failure is an essential and cleansing action of the market. Not only that, but it can be a good in itself. Without the failure of some businesses, resources cannot be freed up to be allocated where they can be better employed. It is this constant reallocation of resources that enables progress.

This can, of course, go too far. When the economy goes into recession, more and more businesses go bust and because of the nature of recession, resources are not reallocated elsewhere. And this is a major problem of the credit crunch. As banks cease giving loans to businesses they believe are less viable than others, the money is not lent out to others. This is the imperative of recapitalisation. The banks have lost money on bad loans so it is not there for them to finance other businesses.

Business failure, up to a point, is an essential precursor to advancement. It is how the market works, but when other, usually government induced, errors are made, these failures come too thick and fast. Exacerbating this reduction of economic activity is the accompanying contraction of banking investment in new and expanding companies. Under such conditions, the economy ceases to regenerate itself, rather contracting to fit a more pessimistic age. This is where we are today. We cannot reverse this trend, all we can do is not make it worse than it need be.

Brown should be careful of blaming the US too much

Further to my last post on the economic situation, it appears that Gordon Brown really does believe his own rhetoric. "This is a global financial recession", he says on the BBC, "and we are fighting it every way we know how", he continues. "We know this is global", he reasserts. Gordon, please. You are the Prime Minister of a supposedly advanced democratic country and you insist on treating us like idiots. Why?

His contempt for us on this issue is only surpassed by his contempt for members of the Armed Forces. Do they risk their lives so people like him can have a free hand in vandalising our country? Does he ever give them his "undivided attention", and does he know that the Army is not only breaking its harmony guidelines for tour intervals of no less than 24 months, but is also undermanned by over 3,000 soldiers?

Still, that is another story, so back to Brownian economics. In the interview, he later demonstrated a classic Brownian technique: the answering of a question with a work-shopped response to a completely different question: you were a bit off the mark in claiming to have ended boom and bust were you not, Mr Brown?. The naive might have thought a comment on the nature of boom and bust was the logical next step, but, if so, they had clearly not seen Brown in action before.

So, Brown's default response was no surprise: "It's a global financial recession." Wasn't this exactly what he said earlier? And, what exactly does this have to do with boom and bust in Britain? To give him the benefit of the doubt, I suppose he could have been saying that the bust was not his fault, rather the fault of global forces no-one can control, but most commentators know that busts and recession can be internally or externally induced. They are still a bust and they still result in unemployment.

As if to emphasise the point, he went on to say that "everybody knows it started out of America, we are having to deal with the fall out." Do they? We do know that the US sub-prime toxicity has seeped across its border, only a fool would argue otherwise, but does Brown really expect us to believe we had no hand in it, too? I suppose we never gave out 125% mortgages, loans to people that were a credit risk (self certification mortgages). I suppose we did not expand the money supply, induce a lower than optimum interest rate, or fail to supervise our banking system so they did not become exposed to the American toxicity.

However, I suppose he is right in one respect: it is global now. And, in this, Brown seeks refuge, cowering amongst the rubble of US mistakes, unable to take any responsibility for his part. But, if he goes on blaming the Americans in such a blatant way he should not be surprised if a reckoning comes his way once the next President is installed in office. Given a show down, I know who my money is on.

Labour continue to rewrite history

They keep pushing the line. Ram it home and eventually people believe them from fatigue alone. That is the way Labour do their business and they are doing it with a ruthlessness we have now become accustomed to.

Purnell uses the language of the politician trying to rewrite the narrative to alter the interpretation we all make. He says that " there was no way Britain couldn't be effected by these (credit crunch and rising oil prices) very significant international developments." Of course, in a sense he is right, but he fails to recognise that it was Britain as well as the USA who did so much to create the credit crunch in the first place. That the credit crunch, so fuelled in the USA and Britain, then contaminated the rest of the world was inevitable but it does not mean the crunch originated in the international system.

The credit crunch was fuelled by a growth in the money supply, government encouragement of bank lending to poor credit risks, and inadequate supervision of the financial system. All these came from the UK government as much as foreign governments. Just take a look at Banco Santander for a way to escape the credit crunch. Because of simple rules being followed it is now in a position to buy up many sick banks across the world.

Purnell also reminds us that "the UK is well prepared to deal with what is a global phenomenon." Global? It is now, but we fuelled the crunch as much as anyone else.

Governments have always spun their line but it is now becoming really quite annoying. As they convince the public that our problems belong to a broken global system, they avoid taking responsibility for the impact their own policies and actions have had, not only on the UK but the rest of the world. Still, what do we expect from this shower?

Even Brown the Magnificent cannot sort this mess out

It seems that the philosophy of John Maynard Keynes has made a triumphant comeback, sweeping monetarist and any other economic thinking into the rubbish heap of contemporary conceit. Brown and Darling, it seems, want to 'pump-prime' the economy by engaging in grand projects that will kick the UK juggernaut back onto its tracks and demonstrate how indispensible Brown and his brand of leftism really are to the progress of not only the UK but the entire world.

A new world view, shaped by the man who presided over this mess, is a sobering thought, indeed. We should remember that part of the problem is that Brown has already engaged in a grotesque form of 'pump-priming', but because it took place in an already expanding economy, it merely fanned the flames. During his tenure in the Treasury, this 'firestarter' presided over the gradual expansion of the money supply (over 10%), the pouring of billions of borrowed pounds into the state sector, and massive expansions of private credit. The results, as Milton Friedman so clearly explained, are clear to see. This, combined with a structural bias in favour of land speculation, created the whirlwind we now find ourselves at the mercy of - which many argue is inevitably going to befall us again in another 20 or so years unless we make substantial changes.

But, for Government to always and forever inject economic activity via centrally planned projects is not the only option. The problems businesses now face are these: lack of money (cashflow and capital investment finance) and lack of demand because the public are now skint and unable to finance their credit profligacy; both resulting in bust businesses and unemployment. Therefore, the solution is to target these two things. Government projects create a demand but it is focussed too much on supply induced demand; the government will provide and we will consume like the grateful little minions we are.

The government has done much to preserve access to money, and we should be thankful that the banking system has been saved from complete collapse, but they have still not addressed the fundamental problem the banks have. This is the sea of overpriced assets (mostly housing) that have now lost value, leaving the liability the banks face far in excess of the current value of these assets. Is it any wonder they are reluctant to lend to each other in such a climate.

Demand, however, is far better induced by giving money back to people and businesses in the form of tax reductions - even if they are only temporary. Reduce employer NI contributions, we save jobs; reduce VAT, we save jobs and put more money in the hands of consumers; reduce income tax and we put money in the hands of consumers. There is, of course, the danger that consumers will merely save this extra money and so fail to induce economic activity by consumption, but we should remember what people do with money they do not spend: they save it, usually in banks. If they do this, they improve the capital base of the banks, who then have more money to lend out to struggling businesses.

We may be heading for a Keynes induced spending spree, and the jury is still out on whether we want to be piling on even more debt, but if we must then there are other ways to allocate that money than through government directed activity.

In fact, any utopian remedy is probably a fiction of political hubris. The reality is that after a drink fuelled party there is always a reckoning. We are facing this reckoning and we are going to have to deal with it. No magic wand and no Brownian solution.

4.73% undermanning of British Army Regulars

Defence Analytical Services and Advice (DASA) report, as at 1 September 2008, that the British Army is 3,330 (3.27%) undermanned. Were it not for the drafting of 950 Reservists and 530 extra Ghurkhas, this shortfall would, in fact, be 4,810 (4.73%).

One ray of light in the Credit Crunch might well be a reverse of this trend. Tougher economic conditions have routinely eased recruiting difficulties, but it would be nice to think more people were prepared to risk a little for the benefits of living in this country. Then again, should we be surprised that people are not so keen to serve, considering the reckless assault successive governments have made on the patriotic nation?

Cash deposits in banks were always at risk

As we hear how local authorities have got up to £1 billion stuck in Iceland, we are led to believe that we have a right to that money back. Not knowing the exact details, it is difficult to say whether depositors have a case against the Icelandic banks, but it appears that some people are slightly confused about the nature of cash deposits in retail banks.

Cash deposits are not an absolutely safe way to invest. What do we think the banks do with our deposits to earn enough to pay us interest? Yes, they lend it out and by definition that is a risky business. It just happens that under normal conditions, for every loan to a commercial enterprise that goes bad, there are plenty of other loans that earn enough interest to cover losses and a little interest for us. There is nothing in this financial transaction that says there is no risk whatsoever.

If the bank takes our deposits and loses it all on bad loans then that is surely the price we pay. If we wanted the cash deposits to be absolutely safe, a bank would have to hold 100% of deposits in the bank. Under such a system they would not be able to make loans, they would not be able to earn interest and they would not be able to pay us interest. In fact, we would have to pay them to hold and protect our money.

Cash deposits are a loan to a financial institution to enable it to carry out its business operations. Therefore, it is just a variation on other ways to raise cash for business: equity, bonds etc. They are risky. That's just the way it is. Mind you, this doesn't mean we shouldn't be angry about any losses we incur and fingering the right culprits.

The Left is winning the economic argument - we should all be worried

Coffee House informs us that "Just three weeks ago, the Tories had a 17 point lead on economic competence (YouGov/Telegraph). After more news cycles dominated by the financial crisis this had narrowed to 3 per cent (ICM/Guardian) and in the marginal seats it's a 7 point lead (ICM/News of the World)."

This should worry people who still have a semblance of regard for this country and a modicum of economic nous. Why? Because it is evidence that the Left Wing, Fabian narrative that the markets are inherently evil is gaining traction. Is it any wonder that Gordon Brown is happy at the moment?

If the public continue to swallow his stupid rhetoric that he had nothing to do with the problem and it is all down to some fundamental flaw in market economics itself then he will be happy and take public approval as a mandate to further entrench his big state, redistributive plan for Britain.

Let's rehearse the causes of the credit crunch again: a housing boom financed by an expansion of the money supply induced by Left wing expansionary economic policy to make society 'fairer'. By stoking the housing market in the UK, Gordon Brown thought he could stave off a recession and provide the finance to get the poorer into home ownership. The result: people unable to pay back loans and the banks getting jittery.

P.S. Just seen this far more impressive explanation of why politicians and regulators are at fault, rather than the system itself.

Governments are more to blame than markets

As the anti-market rhetoric gains in volume, we are reminded that there are people who cast a slightly more critical eye on the present financial crisis than others who prefer knee-jerk, prejudiced responses.

Indeed, we should not be surprised that the anti-market view is gaining traction when we recognise that many of our politicians have always been suspicious of freedom and free markets. What they prefer is the vague notion of 'fairness' that by definition seeks to limit the freedoms of some to remedy the perceived injustice done to others.

But whilst the financiers have, indeed, made some grave mistakes, we must look beyond the easy target represented by some greedy, City buffoon. If he was alive today, Milton Friedman would surely have recognised the credit crisis as being primarily, but not exclusively, governmental rather than of the market itself.

We are rightly concentrating on the current crisis of liquidity by trying to get the money flowing in the banking sector once again, but if we are to find a lasting solution we must surely identify the real causes: excessive government debt, excessive personal debt, expansion of the money supply and government responsibility for sub-prime lending induced by the false objective of 'fairness'.

Is it fair that these same poor people are now saddled with a house worth less than the debt they hold on that house? Is it fair that the government is still encouraging the poor to enter a falling housing market? No, of course it is not, but then if we elevate 'fairness' over freedom, we inevitably manipulate how people and markets behave. It caused the Great Depression and it has caused this Credit Crisis.

Should we still be giving India Financial Aid?

So, let's get this straight, the United Kingdom, through DFID, gave £275,000,000 in Bilateral Aid to India in the financial year 2007/08. Yes, India, the country we are told is going to eclipse us economically pretty soon.

Why?

• This is a country that spent £15 billion on defence in 2008 and is reported to be increasing expenditure to overtake the UK within 5 years.
• This is a country with an Indian Space Research Organisation spending US$1 billion, of which US$312,500,000 is for "manned space missions".

Now, I have no problem with India spending money on these two things; indeed, I would encourage her to do so, especially as she is most definitely an ally and friend. But, why on earth do we spend £275,000,000 on Aid to a country with such budget priorities. It is almost grotesque.

The bizarre way Britain spends money today is difficult to explain. Is it Imperial guilt or an overwhelming sense of righteousness? In the big scheme of things, this might not seem like much money at all, and I am sure it is going on extremely good causes, but it only serves to corrupt the purpose of Aid - to help those that cannot help themselves.

Given the current economic crisis we face, the government should send our best wishes to India, suggest ways to improve bilateral involvement, and politely inform her that this Aid will no longer be forthcoming.

Milton Friedman - Free to Choose Videos

In 1980, Milton Friedman made a series on the free market. He called it "Free to Choose". The links to all 10 Volumes (less Vol. 6 which does not seem to be available) are shown below. Whilst government remains essential for proper and effective leadership, vital when a people need to act collectively in defence and the upkeep of law and order, this series clarifies the limit we should put on the power of those governments, especially in the way they are permitted to impact on the free operation of markets.

Volume 1: Power of the Market
Volume 2: The Tyranny of Control
Volume 3: Anatomy of a Crisis
Volume 4: From Cradle to Grave
Volume 5: Created Equal
Volume 6: What is Wrong with our Schools (Not available)
Volume 7: Who Protects the Consumer
Volume 8: Who Protects the Worker
Volume 9: How to Cure Inflation
Volume 10: How to Stay Free