Blogroll: Adam Smith Institute
I read blogs, as well as write one. The 'blogroll' on this site reproduces some posts from some of the people I enjoy reading. There are currently 88 posts from the blog 'Adam Smith Institute.'
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The Institute for Fiscal Studies is quite right here, the people who really pay stamp duty on shares are the pensioners:
Labour’s plans to raise taxes on businesses and financial transactions will hit pension funds, reducing returns for savers and harming living standards into old age, the Institute for Fiscal Studies has warned.
Jeremy Corbyn hopes to raise £5.6bn per year with a levy on bond and derivatives purchases, extending the stamp duty charge that already affects share transactions.
He said it would target banks and help repay the damage wrought by the financial crisis.
It is not, of course, the banks who buy and sell shares, but our pensions that do. And a charge on a transaction inside a pension will be paid by that pension.
This is all known as "tax incidence" of course, the thought that all taxes are paid by hte wallet of some live human being getting lighter - on the simple basis that there's only us folks here to pay taxes - and we need to walk through the effect of a tax on the economy in order to work out whose.
However the IFS said that, ultimately, all taxes are paid for by individuals.
This is not new news either. The IFS has issued a couple of papers on the subject in the past. There is also the EU's own investigation into the incidence of a financial transactions tax. Which shows that, yes, the incidence is largely upon investors - pensioners that is - plus lower wages for the workers across the economy.
Taking the fat cats this ain't. Which is why the Mirrlees Review so strenuously insists that we just should not be having transactions taxes at all, they're simply a bad form of taxation to begin with.
If you do want to try to tax the financial sector there are other and better ways. An extension of stamp duty is the wrong thing to do entirely, it's a tax which should be abolished in its entirety.
The usual suspects are shouting about how the education system is to be starved of that funding vital to all that is good and holy:
The Institute for Fiscal Studies (IFS) said that school funding would fall by nearly 3% by 2021 even with the additional £1bn a year, after adjusting for inflation and a rise in students enrolled.
“Taking account of forecast growth in pupil [numbers], this equates to a real-terms cut in spending per pupil of 2.8% between 2017–18 and 2021–22. Adding this to past cuts makes for a total real-terms cut to per-pupil spending of around 7% over the six years between 2015–16 and 2021–22,” the IFS said.
And we're afraid that we don't quite see it.
Firstly, it isn't true that the marginal costs of another pupil are the same as the average costs of a pupil. Education spending is far more lumpy than that. One more pupil into an extant school might cost the number of pencils they'll chew in a year but not much more than that.
Secondly, and much more importantly, this isn't actually a big ask. The education system is being asked to improve productivity by 1% a year or so. That's very much less than any private sector organisation tries to manage. And anyone at all who thinks that there isn't 1% a year to be ground out of the cost base of a British public service just sin't dealing with reality.
It's entirely true that the recently departed William Baumol had his Cost Disease, that it's more difficult to increase productivity in services than in manufacturing. But do note that he said more difficult, not impossible.
1% a year improvement in productivity, 1% a year reduction in costs? Pah!
A general observation is that as modern fads and panics rotate through their second, third and fourth iterations then people start losing their minds. The original point becomes entirely forgotten and we end up with the meaningless, or even in gross error, incantation of the fashionable chant.
So it is with this about food waste, now we're onto how much bagged salad gets thrown away:
People buying bagged salads with good intentions of eating healthily end up throwing 40per cent away.
The fragile leaves look appetising on the shelves but they have a very short shelf life and soon spoil and become soggy.
As a result, tonnes of lambs lettuce, baby spinach, wild rocket and ruby chard-duos end up in the bin.
New research suggests people throw away around 37,000 tonnes of salad every year, which is the equivalent of 178 million bags.
This is a useful example of failing Chesterton's Fence. Which is the idea that you cannot work out whether something should not exist until you have understood why it was first constructed. Noting a fence is one thing, but it is necessary to work out why the fence was constructed in the first place before it is possible to say it is no longer needed.
And so, why do we have bagged salad? Possibly because, even at these wastage rates, the loss is less than when all had to buy salad bits loose? We don't say that this is so, only that it's the relevant question to be asking.
As to the waste being worth a lot of money, no, of course it isn't. We're throwing it away so it is of no value to us. And yes, it really is true that we are the determinants of our own utility, the value of something to us is the value of something to us, not what either it should be nor what someone else thinks it should be.
But then others do manage to get to that ritual of incantation rather than doing the difficult bit of thinking:
The solution, then, it would seem, can in part come from us, the consumers. By taking personal responsibility and ensuring that we limit our consumption, we can probably dramatically reduce the colossal figure currently hanging over our bagged-salad heads.
It is indeed part of the worship of Gaia that we must reduce our consumption. Or at least acceptable ritual that we should claim to desire to do so, along with St Augustine's caveat of not quite yet perhaps.
But there is that very proof that people aren't thinking. For of course the actual complaint here is that we're not consuming enough of this bagged salad, isn't it?
Ritual incantations rather than thinking just aren't the way to run the world.
This is something we humans do rather well, hold two or more directly contradictory ideas at the same time. One particular version of this is prevalent over on the environmental left these days. Which is that renewable energy is just so cheap these days that they're going to take over the entire power sector, while at the very same time any cut in investment funds to designing new methods of renewables would be to condemn the planet, and Flipper and ourselves, to drowning in ever hotter water.
As an example, over at Salon they are running these two stories side by side:
We’ve seen prices for new solar farms below 3 cents per kilowatt hour (kwh) in other countries for over a year now, but before this week, not in the U.S. That changed on Monday when Tucson Electric Power (TEP), an Arizona utility company, announced that it had reached an agreement to buy solar power at the same game-changing price.
TEP says that this is a “historically low price” for a 100-megawatt system capable of powering 21,000 homes — and that the sub-3-cents price is “less than half as much as it agreed to pay under similar contracts in recent years.”
For context, the average U.S. residential price for electricity is nearly 13 centsper kwh, and the average commercial price is 10.5 cents.
Sen. Maria Cantwell (D-WA), ranking member of the Senate Energy and Natural Resources Committee, criticized Trump for his proposed cuts in clean energy research. “His budget proposes a staggering seventy percent cut to renewables and energy efficiency initiatives,” Cantwell said in a Tuesday statement responding to the budget proposal. “This would devastate an emerging sector of our economy by killing thousands of clean-energy jobs all over the country — all in a misguided effort to hold onto the past at the expense of our future.”
But if solar is now one third the price of conventionally produced electricity then we don't need to be doing any more research, do we? We've done what we needed to do and we can stop now and go on to try and solve the next problem.
Alternatively, of course, there's something hooky with that 3 cents number and we do need to keep researching. But they can't both be accurate complaints. Either we've got cheap renewables and we don't need to research cheap renewables any more or they're not cheap and we must continue. But we simply cannot be where we've achieved our goal and we must still research how to achieve our goal.
In City AM, Cato’s Ryan Bourne makes a free market case for the Tories’ original plan for social care. The plan was to continue the current system, where a person must pay for their own care until their assets fall to £23,500, after which the taxpayer pays – but raising that floor to £100,000, including housing wealth in the measure, and allowing people to defer payments until after their death. They now want to include a cap on how much any individual can spend before the state steps in and pays for the rest.
Of the original plan, Ryan says:
This looked like a fair (but still generous) compromise. It would maintain a significant safety net for an individual requiring social care, and his or her family. For the taxpayer, it prevents an expensive new commitment to an unfunded liability, important given demographic trends. And it entrenches the idea the first port of call for paying for care should not be the state, but individuals themselves.
Given most potential inheritees will themselves tend to be older with large assets and numerous options, including paying for care out of their income, renting out the parent’s home or using equity release, this is reasonable.
Ryan makes a strong case, as usual. But he does acknowledge two flaws in this system:
Some say it is unjust because outcomes are determined by luck or chance. Have a heart attack or cancer, your family gets to keep the full estate. Suffer dementia for years and then pass away, and the assets are depleted to £100,000, eroding the inheritance.
But life itself is a lottery. Many factors which contribute to wealth accumulation owe something to luck. Homeowners have been lucky, for example, that policymakers have imposed tight planning laws that drive up house prices. Government cannot correct for all instances of luck and should not try.
Another objection is that this approach discourages saving. Some believe it will encourage people to spend, dish out their wealth through gifts earlier in life, engage in behaviour that will make quick death more likely, whilst those who do “the right thing” will be penalised.
Certainly there are some perverse incentives, but the instances of those living it up and then falling back on the taxpayer are the price you pay for a safety net. The alternatives are no safety net whatsoever or a hugely expensive nationalisation of care funding.
These are very important. In the Telegraph I make the case for a different system – one of universal coverage funded by mandatory, Singapore-style savings accounts combined with high-excess “catastrophic” insurance.
This would address both the ‘lottery’ argument and the incentives argument. I don’t think a system that randomly wipes out most of someone’s savings if they get dementia is going to command public support in the long term. The older society gets, and the more people get entered into the ‘dementia lottery’, the more unpopular this element will become.
As of 2009/10, half of of people aged 65 will spend less than £20,000 on care throughout the rest of their lives, while one in 10 will spend over £100,000, as this chart (from the Dilnot Commission’s report) shows:
It may be that, in fact, wealth differences are largely luck-based – you bought a house in 1990 while I bought shares in Kodak and IBM. But we are loss averse animals, so losing that doesn’t feel symmetrical. And the psychological pain of effectively losing your life’s savings at the same time as contracting dementia must be difficult to bear.
It’s also inconsistent with most of our other priorities in things like care for the disabled – if you are born unlucky we try to mitigate that bad luck – and healthcare. If you get cancer you don’t lose your life’s savings, and nor should you.
The perception that a person could lose their life’s savings after falling ill is one of the biggest reasons that people (including me) perceive the US healthcare system to be so awful. Sharing this risk is a major part of why insurance exists and why state-funded models of healthcare are so appealing. I suspect that a social care policy that includes this risk will fall apart fairly quickly as more and more people fall victim to it.
Secondly, the disincentive to savings is potentially very significant. A raft of evidence from Britain and Europe shows that people's behaviour is very sensitive to means-testing of assets for things like pensions benefits. This is not that surprising: reducing savings means consuming them. Get a higher pension in exchange for going on a few nice holidays in the sun? Count me in.
You might argue that people don’t price the risk of getting dementia accurately, but I’d say they’re just as likely to overestimate the risk – and hence the savings disincentive – as they are to underestimate it. And since savings have wider benefits, by providing funds for investment, anything that artificially disincentivises them is bad news.
This is why a floor of any kind is a difficult proposition. As Ryan says, if it’s means-tested it’s difficult to get around that.
My suggestion is a true insurance model: a high-excess plan that would only cover the “tail risks” – the truly enormous costs faced by the minority of people who need a lot of care. This would effectively spread the risks of getting dementia.
We should not expect insurance to cover all costs. That isn’t what insurance is for. Systems that try to make insurance cover all costs often don’t work very well, giving people a blank cheque for unnecessary consumption and driving premiums up very high.
When individuals pay with their own pot they economise: they size up benefits and costs and choose their best option, like when they choose where to rent, or what car to buy.
So a Singapore healthcare-style model, but for social care: insurance for the catastrophic costs that ten or twenty percent of us will face, and a special pot of our own savings for the normal costs of old age that most of us can expect to face. Whatever’s left can be passed on to your kids, tax free, when you die, and people on very low incomes can have their payments topped-up by the state during their working lives.
I am afraid that this is very much a second-best solution: as long as there is a prospect of the state swooping in and caring for people who cannot pay for themselves, these insurance and savings account schemes will have to be mandatory. But it would mean people (mostly) providing for themselves, would eliminate the ‘dementia lottery’, and avoid disincentivising savings (at the expense of disincentivising earnings for those who receive a government top-up, which is probably less important).
I see the distinction between healthcare and social care as being largely an accident of history. A system that works for one might very well work for the other too. So, no lotteries, but no pooling of day-to-day costs that individuals have some control over either.
This particular complaint should be met with an angry shout of "What the hell did you think was going to happen anyway?" quite possibly with a few cuffs around the ears to encourage thought:
A record 60% of British people in poverty live in a household where someone is in work, according to researchers, with the risk of falling into financial hardship especially high for families in private rented housing.
No, that's not it, this is:
Low pay is a trigger for in-work poverty but the primary determinant is the number of workers in a household, with single-earner families at a very significantly elevated risk of hardship, the study says.
So what the hell else did anyone think was going to happen?
We measure poverty as being below 60% of median household income (and then in various forms, before and after housing costs, disposable income, before and after tax and benefits and so on). We adjust for the size of the household, the number of adults - but not for the number of earners. The median UK household has two earners in it. Thus single earner households are much more likely to be in poverty simply because of the way we measure it, comparing single earner household incomes to that median of dual.
The result is built into our measurement system. We could not reach any other result given that measurement system.
Imagine, just as an example, that the second adult went out to work and the household then spent upon paid child care. As many have actually noted the extra earnings from that second job only just about cover those child care costs. The household isn't any better off. But by our poverty measure that household isn't going to be in poverty any more as a result of two earnings not one.
We must always, but always, remember that we do not actually have any poverty in the UK. That, the absolute poverty, was beaten back in the 1930s. What we have and what we measure today is inequality, the thing we call relative poverty. And if we don't remember this then we're going to be making mistakes similar to the one above.
Single earner households have lower earnings that dual earning ones. Blimey, that's a bit of a surprise, innit?
In Britain, manufacturers and suppliers can recommend prices to retailers, but they can't enforce those prices through a contract. Retail price maintenance (RPM) has been banned outright since 1964's Resale Prices Act on the grounds that it's anti-competive and hurts consumers. The problem is economics has moved on, but the law hasn't.
That's not the case in the US where the Supreme Court overturned a near hundred year precedent in 2007 to rule that suppliers that set minimum prices weren't necessarily undermining a competitive marketplace. In the US the practice was banned through the courts based on the best available economic theory and evidence. But when new theory and more importantly new data overturned the economic consensus the courts (eventually) took note.
The Competitions and Markets Authority (the regulator tasked with enforcing the law) states that "RPM agreements are usually unlawful because they prevent you (the retailer) from offering lower prices". It's a bit more complicated in reality: suppliers have little incentive to increase their retailer's markup at the expense of their consumers, especially in the face of competition from other brands. It wouldn't be wise for Coca Cola to set a minimum price that boosts Asda and Tesco's bottom lines when they face competition from Pepsi.
Most economists accept that RPM agreements can potentially undermine competition for two main reasons – exclusion and collusion. They make it easier to police collusive agreements at both the manufacturer's and the retailer's level. It might also enable a dominant but inefficient retailer prevent other more efficient retailers from undercutting them with smaller mark-ups.
If that was the only reason to employ an RPM agreement, then banning them would make sense. In fact since the practice was outlawed economists have discovered additional explanations for why a firm might employ an RPM agreement and why it is in the consumer's interest to let them.
To begin with, a range of products from high-end fashion to digital cameras and phones typically require retailers to invest substantial effort in hiring staff to explain and promote their features to customers. This doesn't come cheap. It means hiring more staff, training them and paying them more. That squeezes margins and pushes up prices in store. But a consumer is under no obligation to buy from the retailer who's put the effort in. No-frills retailers can free-ride off the effort of other retailers in promoting the product and sell it at a discount. The threat of free-riding discourages firms from investing in promoting the product and leads to a worse customer experience with less well-informed customers.
Think of a car dealer offering test drives with well-trained staff offering detailed explanations of the vehicle; the incentive to provide those services falls if the buyer has the option of going to a discount retailer afterwards.
If manufacturers agreed a minimum price with their retailers they could prevent no-frills discount stores from undercutting and free riding off of the ones that invested in promoting the product.
But it's not simply blocking free-riders. It also helps resolve a conflict between the incentives of retailers and manufacturers. Retailers have much less to gain than the supplier from promotional services. Retailers tend to make a greater investment attracting customers to their store over other shops, for instance by extending opening hours. If I ran an electronics shop, I might reward repeat customers to attract more customers from other shops. However, I'd have less of an incentive to invest in promoting Apple Macs by displaying them prominently, offering free installation and bundling in products as a special offer, because while I'll sell more Apple Macs I might sell fewer PCs.
It's true that manufacturers could simply pay retailers for floorspace. As UCLA's Benjamin Klein points out Gucci could simply pay a department for their product to be placed in a prominent place, but that would inefficient for a number of reasons. First, the value of floorspace varies from shop to shop. It'd be inefficient for Gucci to go to a great length at determining the value of floorspace in each different shop to them. Second, retailers tend to know better than manufacturers how to market products. Gucci might struggle to specify the exact promotional services that they want the department store to carry out. It is better for Gucci to solve that knowledge problem by creating a financial incentive for shop to push for further sales. Instead of this inefficient duplication of efforts they can just make sure that retailers have a financial incentive to market their products through a bigger markup.
Whether or not America or Britain's approach to RPM is right depends on how often RPM is used to boost competition and how often it's used to suppress competion. If it's the case that RPM is mostly used to police cartels and for dominant dealers to throw their weight around then the UK's approach is right.
But multiple meta-analyses of prosecuted cases of RPM find few cases of it being used to police cartels. Ippolito (1991) reviewed 203 litigated cases of RPM and found that just 13% of case alleged (not proved) horizontal price-fixing, while many more offered evidence suggesting the agreements led to better customer service. Ippolito's review backed up previous research by Overstreet (1983) which found that RPM agreements tended to appear in markets with little scope for either retailer or manufacturer collusion.
A more recent meta-analysis by LaFontaine and Slade (2005) which reviewed 23 papers came to a similar conclusion. They stated:
"...when manufacturers choose to impose such restraints, not only do they make themselves better off, but they also typically allow consumers to benefit from higher quality products and better service provision.
The evidence thus supports the conclusion that in these markets, manufacturer and consumer interests are apt to be aligned, while interference in the market is accomplished at the expense of consumers."
The evidence against banning RPM is overwhelming and on the strength of that evidence the US Supreme Court overturned the outright ban on RPM in 2007 moving to a rule of reason approach which requires firms to prove that RPM was being used for the purposes of undermining competition.
Promoting and preserving competition benefits consumers, but too often regulation rules out innovative solutions to potential market failures. Let's fix that and deregulate RPM.
Yes, you're right, of course that headline is a deliberately provocative piece of hyperbole. And yet it is indeed true that Smith described at least the most feminist of all socio-economic systems, that of roughly free market roughly capitalism. For that is the only system of organisation which has ever lifted mankind out of Malthusian growth.
At which point this new book looks like a waste of valuable space and time:
Does capitalism help or hurt women is an enduring question. And one that a fascinating book, Capitalism, For and Against: a Feminist Debate (Cambridge University Press), seeks to answer that question.
There is the ritual mention of the fall in child mortality made but not enough is made of the full horror of that past. At which point Don Boudreaux mentions Queen Anne:
A high-born English royal in the early modern era – a woman who was for twelve years Queen of what was by then one of the wealthiest nations on earth – died as a widow in 1714 at the age of 49 without a single surviving child despite giving birth ten times. (Each of her other seven pregnancies ended in a miscarriage.) Anne’s longest-surviving child was Prince William, Duke of Gloucester, who in 1700 died at the age of 11.
Anne’s sad fate was unusually bad even for her era, and especially for her class.
Yes, at the bad end of the spectrum. Yet when we examine all the Stuart and Hanoverian Kings/Queens of England we find that absolutely none of them had all children surviving into adulthood. For many not even a majority of pregnancies led to a child even, rather than a baby and then nothing.
The aim and point of any form of life is of course that the life itself replicates down the generations. And for human beings, until very recently, that meant that in order to have a good chance of grandchildren a woman would be pregnant or nursing from marriage until menopause. If she survived that grueling duty of course, or if her fertility did. And that is the greatest achievement of the surplus that this capitalist free marketry has brought.
Today an odds on chance of grandchildren, a stable population, is achieved with 2.1 completed pregnancies per woman. Rather than the 10 and 20 needed by the British royal family of only two and three centuries ago. And if that ain't a feminist advance then what is?
Smith may only have described the system which achieved this but there's no doubt at all in our minds that this capitalist free marketry is the most feminist socio-economic system devised as yet.
As with the opera not being over until the Fat Lady has sung about her youth, beauty and slenderness the Greek debt saga is not going to end until the one important decision is taken - how much debt should Greece repay? We've been making this point for a number of years now in a number of venues. There is just this one question that must be answered:
Policymakers were still in disagreement this weekend over assumptions about Greece’s long-term growth trajectory, and the ability of the country to maintain a sizeable primary surplus over the medium term.
Countries such as Germany believe stronger growth in Greece will remove the need for debt relief, with the country’s expansion alone enough to reduce its debt burden to sustainable levels.
However, the International Monetary Fund has called for more conservative estimates of growth and primary surpluses, insisting that it will not join Greece’s €86bn (£74bn) third bail-out package unless there was meaningful debt relief.
A simple truth about our universe is that debts which cannot be repaid will not be repaid. Thus putting rather a large weight upon the definition of "cannot." Which is where the disagreement is here.
The IMF thinks that Greece can run a primary budget surplus (the primary meaning before interest and debt repayment, the implication being this is the amount that can be used to pay down debt) of 1.5% of GDP for some decades. Run that forward and that means Greece can repay some portion but not all of the current debt.
Everyone else is a politician and a politician quite aware of the fact that they've lent their voters' funds to Greece. And they'd just hate for said electorate to find out that they've lost that money by so lending it. So they've cut the interest rate to near nothing (a few basis points over the ECB's current QE influenced very low rates on much of it) and extended repayment out towards the end of the century. Losing money through opportunity cost, inflation and interest not paid is less politically painful than cutting the capital sum. Even the dimmest voter on the Chemnitz Omnibus would cotton on to the loss if there was a reduction in the outstanding sum.
But this still leaves them coming up short - unless Greece runs a primary surplus of 3.5% of GDP. So, that's the demand. Not what can Greece achieve, but what must Greece achieve to save political positions?
Which is where the problem is. No democratic system can run a primary surplus of that size over time. It can be done for a year or two but sending that much of the economy off to foreigners just isn't going to happen over the long term. The only person we know of who did manage it was Ceausescu in Romania and they machine gunned him and his wife in the end.
The IMF is correct here but then this is Europe, political desires do so often seem to win out over economic reality. But that's why the whole thing is still rumbling on after all of these years. And it will continue to do so too. Until that basic truth is recognised by all, debts that cannot be repaid will not.
There's obviously something we've missed in this argument about Facebook and the other internet giants and their collection and manipulation of our data. The specific fine handed out this past week we're just fine with. Facebook was more than a little economical with the actualite to the regulators over its capabilities and intentions. Whether there should be such regulators we think doubtful but if there are going to be then they should indeed be told the truth. It's like the courts and perjury and contempt - these are very serious crimes on the grounds that if we're going to have courts then people must take them seriously and also tell them the truth.
So with regulators, this is a rule of law matter. However, he larger issue here is something we've missed:
Equipping competition law for the formidable task of properly tackling data-rich behemoths is a fertile area of research and policy, but still awaits enforcement. Challenges include market definition, accurately valuing data assets and dealing with the particular modes of virtual competition.
If the value of data were more appropriately considered, the commission might not have waved through the Facebook/WhatsApp merger so easily.
We're not even understanding the concern here. The data, to the individual, isn't worth a great deal. That's why they're willing to hand it over in order to share cat pictures. The individual pieces of data are worth nothing. It's only the information, in aggregate, and when processed, that has any value. And that's what Facebook really is, an aggregator and processor of such information. That's the function of the beast, so why people are worrying about something doing what it says on the tin we're really just not sure.
We assume this is just the usual about people doing something new and damn it, they're Americans, so we had better stop them.
If we are really to change the dynamics of the modern data economy, it is going to take more than just targeted arrows and small-fry fines.
Again, we're missing this. Was there a meeting at some point, one we weren't invited to, which decided that the dynamic must be changed? If so, what was the justification? That they're Americans or something useful?
Although we think we do understand this bit:
For the future to offer anything more than resignation to the power of Facebook and its ilk requires dedicated finance for sustainable, civic-oriented technology, strategies to incentivise growth and for people to vote with their feet. How many lies will it take until we hit that point with Facebook?
Yes, we get this bit:
Dr Julia Powles researches technology law and policy at Cornell Tech and at the University of Cambridge
Give my department a big grant please.
Other than that, what actually is the problem that is being complained about?
Unemployment is of course a problem, there's those vague whispers of technological unemployment coming down the pike, so, what should we be doing about it?
Should the Government Guarantee Everyone a Job?
No. That's one of those questions where it's entirely and quite clear that the answer is no.
As to why it's no it's because it's a solution that's at least a century, if not near a millennia, out of date as an answer to the problem.
One way of detailing the problem is OK, so government guarantees a job for everyone. Which job?
Back when work was, to a large extent, the application of human muscle power to either farm work or some form of building (roads, canals, buildings, sea defences, whatever) then labour was homogeneous. Someone who could guide a plough might not be quite capable of surveying a dyke, for example, but they'd be perfectly, reasonably at least, efficient at doing the spade work to build one. Thus the various make work schemes in times of dearth familiar to the varied Chinese and Indian administrations of the past were sensible reactions to dearth.
The 1930s experience in the US, well, still, building a dam did need tens of thousands equipped with little more than a shovel and wheelbarrow.
But today we just don't have homgeneous labour. It's hugely, highly, heterogeneous. This is, of course, just the side effect of that much greater division and specialisation of labour which makes the modern world so rich. But it does mean that there isn't anything that we do which either requires or benefits from the mobilisation of large amounts of untrained, in this task, labour.
Well, perhaps government could work out what needs to be done, then train people to do it and that's how we'll provide everyone with a job? But that runs straight into Hayek, pointing out that the market is the only method we've actually got of processing through the information to work out what needs to be done and in what manner. We know very well that government trying to decide that is going to be less efficient than just leaving well alone.
And as a final kick in the fork for the argument that we can just move labour from one task to another at will. If we could do that then there would be no such thing as technological unemployment, for labour could be moved from one task to another at will.
Or if you prefer your analogies more Northern-style, too may ferrets in that trouser leg:
The EU’s chief Brexit negotiator, Michel Barnier, fears the refusal of member states to soften their demands over the size of Britain’s “divorce bill” could lead to a collapse in talks and the UK crashing out of the EU without a deal, minutes of a meeting of the European commission reveal.
Barnier has told the commission president, Jean-Claude Juncker, and other senior officials that the stakes are so high because Berlin and Paris are refusing to pay more to cover the UK’s departure, while those governments who receive the most from EU funds are opposed to any cuts in spending.
And thus those demands for €60 billion, €100 billion, that are being bandied about. Not because there is any legal right to have such sums, nor even a nod to the lads agreement that they would be paid, but because that's the amount that wouldn't inconvenience the others as we leave.
Which isn't, if we're honest about it, that great a justification for our having to open up the chequebook. And it's not as if the EU doesn't have form here, they're prone to backcasting.
The very centre of the Greek debt problem is that the IMF insists that Greece can only manage a primary surplus of 1.5% of GDP, thus can only pay back less debt than is owed. The Eurogroup has been working the other way around, in order to pay back the total that surplus should be 3.5% over decades. Therefore Greece must be plunged into the sort of austerity that no democratic polity has ever managed over the long term just because that's what makes the EU sums add up.
It's the same here. We desire this much money, that's the demand. Not anything to do with how much is owed, due, or can or will be paid.
And we would note one more interesting little point. If it's €100 billion to leave then what would have been the even greater costs of staying? For this demand really does only take us up to 2020......
No organisation ever goes quietly into that long dark night and most certainly no bureaucracy. So, even if the original problem is solved we end up with ever more demands. For little reason other than the prolongation of the life of the organisation making them.
So it is with food waste:
Less than 1% of edible surplus food produced by UK manufacturers and farms is being sent to charities to help feed the hungry, according to new figures.
Vegetables that are perfectly edible are being left to rot in the fields, and other foods not sold to retailers are put into anaerobic digestion or sent straight to landfill, the UK’s largest redistribution charity FareShare has warned.
While retailers and supermarkets have doubled the amount of surplus food sent to feed the needy in the last three years, a high volume of food that never makes it into the shops is being needlessly wasted elsewhere in the supply chain, it said.
We're entirely in favour of the change that has happened over the last decade or more. The growth of food banks fills us with nothing but joy. The little platoons have discovered a technology, for that's what such a system is, a technology, with which they and we can fill in one of the gaps of the State's incompetence. Why wouldn't we be happy about this?
Similarly, people getting realistic about best by dates and the rest is just fine with us. But it's possible to take this much too far, as is being done here:
According to the government’s waste advisory body Wrap, food waste at a supermarket level – any edible food that remains unsold – stands at just 2%, whereas 17% of edible food surplus found in manufacturers and on farms is lost.
When dealing with something perishable like food we'd take 2% to be perfection. Even before considering things like the marginal cost of clearing up the last little bit as opposed to the marginal value of doing so. But now to the extreme:
Vegetables that are perfectly edible are being left to rot in the fields,
So why is this happening? Because they are not worth the cost of collecting them, that's why. Let alone the cost of then transporting them and distributing them. If they were worth it then people would be doing so, profit is a pretty good incentive.
So what is now being demanded is that someone must make a loss in collecting those vegetables from the fields and transporting them. And you know what? We think that insisting that someone else makes a loss is extreme, we really do.
Backpacking around South-East Asia is great, but do you know what's more fun?
That's right, spending 6-9 months in the ASI office with all of your favourite neoliberals!
It's that time of year again: the ASI is looking for two new employees, to start in September 2017.
As last year, the crucial requirements are that you:
- Are on a gap year; you must be 18-20
- Are open-minded, inquisitive, friendly, intellectually curious, eager to learn and interested in policy
- Know and have an opinion on the ASI's perspective and what it does
- Have a broadly liberal perspective on the world
Does that sound like you? If it does, you've passed the first hurdle. Congratulations! You're one step closer to potentially becoming the latest ASI intern.
Your duties will include:
- Organising lunches and dinners, keeping the database up-to-date & doing secretarial work for the directors
- Managing the blog
- Reviewing and editing ASI publications
- Selling ASI merchandise
- Logging RSVPs for events
- Meeting a wide range of interesting & important people
- Learning about social & political science
- Socialising with the staff
- Carrying out self-directed research
- Writing blog posts
- Setting up and cleaning up after events
- Mailing out publications to subscribers
- And, of course, having fun!
Previous interns have gone on to work with the Adam Smith Institute, including the ASI’s current Executive Director, Sam Bowman, and Head of Digital Policy, Charlotte Bowyer, who was a Gap Year intern in 2009-10.
The role pays the National Minimum Wage. All applicants will interview with President Madsen Pirie and Deputy Director Sam Bowman at the Adam Smith Institute offices in Westminster during the summer.
Please send a CV and cover letter of around 500 words to email@example.com by Sat 1st July 2017.
So we're told in this latest paper at least, the NOx emissions from diesel engines, over and above what emissions standards say they should be spewing out, cause 0.07% of deaths globally:
Diesel driven cars, lorries and buses churn out far more air pollution than standard testing procedures suggest, leading to many thousands of unreported deaths, scientists claim.
The excess emissions of harmful nitrogen oxide (NOx) exhaust gases can be linked to 38,000 premature deaths worldwide, according to the new research.
Mr. Google, our friend, tells us that there are some 54 million deaths a year globally. Thus that 0.07%.
At which point we've got to ask the obvious economic question - compared to what?
The heart of the problem here is that we have three things we'd like to have. Low diesel consumption for cost and CO2 reasons, low NOx creation for those health reasons and low cost engines just on the general basis that cheap is better than expensive. And as with the engineering wish list, faster, better, cheaper, we can only have two of the three.
As we crank up the combustion temperature in order to gain fuel and CO2 efficiency we end up creating more NOx. We can only avoid this by having expensive, not cheap, diesel engines - or adding the expensive urea systems to such vehicles. This is not an optional aspect of our universe. We cannot have all three, we can only have two of the three in pretty much any combination we desire. Low NOx is possible cheaply at the cost of general fuel efficiency, we can have low NOx and efficiency at high cost and so on.
So our 38,000 deaths are compared to what? To the extra cost of having no cheap diesel engines, only expensive ones.
No, we don't know the answer here either. But we do insist that this is the correct question to be asking. We've limited, scarce, economic resources. So, what is it that we'll have to give up to gain this purported reduction in deaths from NOx? For without that answer we cannot possibly hope to answer the question of whether we should do it or not.
Back in 2011 and 2012 I was writing quite a bit about the financial transaction tax (FTT) that was being proposed by the EU and which is now being proposed by Labour. We have a FTT on shares in Britain in the form of stamp duty, but now Labour want to impose it on other financial assets too.
An FTT is a tax, usually a fraction of a percent, on trades of financial assets. It’s sometimes referred to as a Tobin Tax and is intended by its advocates to reduce high-frequency trading which, they claim, adds random noise to market prices and increases volatility.
In this sense the tax may be efficiency-raising in that it shifts costs these traders impose on others onto those traders themselves. However, if high-frequency trading is not mostly based on randomness, as Sam Dumitriu argues here, then curbing it will slow down the incorporation of new information to market prices, increasing market volatility and making markets less efficient.
FTTs are also sometimes referred to as the ‘Robin Hood Tax’ by people who think it will raise lots of money. Some of these people look at the total volume of a market and presume that taking 0.5% of that will not reduce the volume of trading very much. This is somewhat at odds with the other case for the tax – if it changes behaviour it won’t raise much money, if it raises much money it won’t reduce the supposed negative externalities that high-frequency trading creates.
The EU still has not implemented a Eurozone-wide one. France, however, did introduce a 0.2% tax on purchases of shares in any publicly traded company with a market cap above €1bn (£789m), on “naked” short sales of sovereign credit default swaps, and on some high-frequency trading. It included several provisions that made it less restrictive than a true FTT, including a rebate scheme for trades of the most liquid shares and for intraday trading. Still, we can look at this to see what the impact of stamp duty on shares might be in Britain, and what extending this to other assets might be.
At the time I pointed to the empirical evidence and warned that France’s tax could reduce market liquidity and raise volatility, and not raise very much money either. Sweden introduced a financial transaction tax in the 1980s which ended up raising one-fortieth of what its backers had promised, drove many exchanges to London, and was abandoned after less than ten years. I reckoned that France would see many similar results.
Five years on, what have been the consequences of France’s transaction tax? A recent European Central Bank paper looked at the impacts on French equity markets, and for the most part it concludes that the outcomes of the tax were quite bad.
Market liquidity fell a lot, by 20% for affected stocks. Revenues were much lower than anticipated – an estimated €475m instead of the €1.6bn that had been predicted – “which once again points at an underestimation of the impact on revenue-generating market activity”.
Importantly, volatility rose and price efficiency fell, even though the tax exempted intraday trading (allowing “short-term arbitrageurs to continue eliminating price inefficiencies quickly”). Though the overall effect was small (but statistically significant), the rebate scheme masked a large effect on volatility in shares that were exempt.
The paper’s authors conclude that the French FTT had an overall negative impact on market quality, where reducing market liquidity led to less efficient pricing of assets and more volatile price movements, and effectively priced high-frequency trading out of existence altogether in affected shares. “The decrease in volume associated with the FTT hurt liquidity and crowded out “useful” trades.”
In order words, as I said in 2012:
“High-frequency trading allows markets to be highly sensitive to new information and to intermediate between buyers and sellers who may not be in the market at the same time. Stopping high-frequency trading would have the effect of making price shifts more sudden, unpredictable and large.”
More volatile markets are riskier ones, so the cost of investing is higher and you get less of it. We don’t want that. All of this should make us treat a British FTT with extreme caution, and indeed make us consider abolishing stamp duty on shares instead of extending it to other parts of the market.
PS: I can’t resist pointing out my other prediction, about a man whose approval ratings eventually fell to 4% and whose party now seems to be on its deathbed: “Along with policies like the 75 per cent upper tax rate Hollande proposed during the election, the French may soon regret electing their blundering new President.”
Many general elections turn into bidding wars, and this election is certainly no exception. Instead of proposing measures to grow the economy to the benefit of most sections of society, some parties vie to see how much money they can take away from a smaller group in order to hand some of it out to buy the votes of a larger group.
They promise largesse and nominate tax increases that they say will pay for it all. Unfortunately, they never seem to have heard of a dynamic, as opposed to a static, economy, and seem unaware that taxation changes behavior. So far we have seen proposed increases in Corporation tax and income tax hikes for high earners. These have been variously promised to fund untold billions of extra spending on education, health, social care, public sector pay, and a raft of other things besides.
Critics have pointed out that the sums do not add up, but it is worse than that. The proposed increases in Corporate tax and high earner income tax will almost certainly both lose revenue. The steady reduction in Corporation tax, down from 28 percent to 19 percent, has seen huge increases in the revenue it generates, while the reduction in top rate income tax has not only increased revenue, but greatly increased the proportion of total income tax paid by high earners. The top 1 percent of earners now contribute 27.5 percent of all income tax paid, while nearly half of the population pay no income tax at all.
Corporation tax falls on shareholders to some extent, and on labour to a much larger extent. Higher tax rates lower investment and activity, and in some cases lead to relocations beyond the reach of the tax man. Higher taxes on income reduce incentives and expansion, and encourage people to move away, while discouraging others from moving in.
Increases in both of these lead to falls in revenue, so far from promising who will receive the imagined gains, those proposing the increases should be telling us how they intend to finance them.
In rather too much of what it tries to do government is counterproductive. Examples abound, raising the minimum wage to aid the incomes of the poor leads to some having no incomes at all. Germany's vast push away from fossil fuels has led to a rise in the country's consumption of coal, cracking down upon illegal drugs just raises the profit margins for those who continue to deal them.
There is a subset of this, which is that government often designs plans to encourage some activity. Those plans being either so absurdly complicated, or come with such side effects, that they diminish, not increase, the desired amount of whatever it is. And so it is with forestry in England:
The figures mean that a Government pledge that 12 per cent level of woodland cover should be reached by 2060 is looking increasingly remote.
What joy, there is a plan. That plan includes paying subsidies to those who plant trees:
Landowners who wish to plant a forest must negotiate a "complex and bureaucratic" system in order to obtain a Government grant, the report said.
Three agencies, the Forestry Commission, Natural England and the Rural Payments Agency administer the main grant available, the Countryside Stewardship Scheme.
Witnesses told the committee that the application process was “tortuous”,“bureaucratic”,“ overly complex” and “not fit for purpose”.
Quite how a simple grant to stick acorns in the ground can become bureaucratically tortuous we're not sure. It doesn't need the usual panoply of diversity advisers, health and safety checks, inequality impact statements and all the rest, does it? They're not out there demanding disability access and racial balance are they?
Our own experience of business tells us that people shouldn't apply for government grants for anything. Precisely because to do so is to get sucked into a morass of bureaucracy making the money on offer not worth the effort. It's nice to have another example to add to the portfolio but there's got to be a better way of getting things done than this, no?
Perhaps even that those who would like a few trees around for their children get on with the acorns in holes thing and the rest of us agree that it's their land and nowt to do with us? Nor our money?
Some to many NHS trusts have found their computers encrypted, locked and held to ransom. Pay $300 in Bitcoin to... or else. At which point the usual and entirely unsurprising insistences that if only the NHS had a bigger budget then this would not have happened.
And that's not in fact true. But, of course, it is being said:
The ransomware attack is all about the insufficient funding of the NHS
No, as ever, this is not about the amount of money, this is about how the money is spent:
“The problem is that the old IT systems were never designed to withstand the forces now ranged against them,” Moores said. “You may note that US hospitals haven’t been so badly hurt if only because they have the money to use more up-to-date systems rather than coax older systems to keep going.”
No. Again, it's how money is spent, not how much there is.
Yes, there's that interesting side issue that the NHS used to pay Microsoft for support on that outdated Windows XP and then decided they wouldn't. But that makes no difference here as the company didn't release the necessary update to anyone until this attack had already started. Why should they, they announced they wouldn't be supporting this any more some years back.
No, our problem is that the NHS is a government system, those American hospitals are not. And the one thing that governments really aren't good at is maintenance. Anyone with any experience of the Soviet block in its pomp knows this.
We've even tried lavishing fortunes on NHS IT and it didn't work well. Some £12 billion spent and by some reports not a single usable line of code resulted - possibly an exaggeration but still. And IT spending in the NHS is increasing at a reasonable clip, ahead of inflation at least.
Computer security is maintenance by the way. You don't need ribbon cuttings on masses of shiny new kit, there are no grand projects to announce, no one does stand up in Parliament and detail how 10 web monkeys upgraded 500 PCs yesterday. Which is exactly why a government run system ends up splashing £12 billion on nothing and spends nothing on security maintenance.
It's entirely reasonable that the NHS runs on an old operating system by the way. There is so much sector and function specific code out there that upgrading would both be hugely costly and really not worth it. But money does have to be spent upon security maintenance, that one thing that a politically driven and centralised system never is any good at, maintenance.
We are told that government should have much more money. OK, we don't agree, but that's politics for you. We are also told that companies should pay much more in tax. Well, apart from the obvious point that companies never do pay tax, the incidence is always upon the wallet of some live human being, OK again, that's politics. No one has ever said that electoral platforms have to make logical sense.
But we do think that we'd all sort of hope that such electoral platforms will add up. Which is where our puzzlement comes in. For the claim is that government will get much more money by raising the rate of corporation tax:
UK corporation tax receipts surged to a record high during the past financial year despite the main rate falling from 30 per cent in 2008 to 19 per cent today.
We're really just not sure how, if lower rates bring in more money, higher rates will also bring in more money.
Bit of a puzzler, eh?