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 99 posts from the blog 'Adam Smith Institute.'

Disclaimer: Reproducing an article here need not necessarily imply agreement or endorsement!

Subscribe to Adam Smith Institute feed
Updated: 2 hours 48 min ago

We fear Sir Michael Marmot is confused here but it's a good plan anyway

4 hours 32 min ago

Sir Michael Marmot is famed as the academic who told us all that health inequality is caused by economic inequality. we don't doubt that this is partially true although we'd really like to insist that health inequality will produce economic as well. Becoming bedridden and incapable to work at age 40 will lead to income inequality at age 60.

His latest work tells us that life expectancy is rising more slowly in the aftermath of the recession. This could of course be true. We might even agree with Owen Jones here:

An ideologically driven programme of cuts is almost certainly robbing us of life. Consistently rising life expectancy should be something we all take for granted. The UK, after all, is one of the wealthiest societies that has ever existed in human history. There are continuing dramatic improvements in medicine and technology. And yet new research by an ex-government adviser, Sir Michael Marmot, suggests that the rise in life expectancy – a constant trend for a hundred years – has stalled since 2010. What happened that year, exactly? Was that not when David Cameron, George Osborne and their Lib Dem stooges began slashing public services with a false economic pretext?

And thus the call for revolution:

Is there any clearer evidence of how utterly bankrupt our social order is? Human and social progress is grinding to a halt in Britain. Life is getting more insecure and poorer for millions – soon, it may even be getting shorter. That’s why we don’t just need a change in government in Britain, we need a change in how we organise our society. A peaceful, democratic revolution is long overdue in Britain, for the sake of our living standards, our health – and for the sake of our very lives.

Well, OK. So, what exactly should the revolution consist of? As Marmot points to:

There is no reason why the UK could not emulate Hong Kong, where life expectancy for men is 81.1 years for men and 87.3 for women – the highest in the world – Marmot added. Hong Kong has overtaken Japan in terms of how long citizens can expect to live.

So, let's increase economic inequality up to Hong Kong levels then, cut social spending down to Hong Kong levels and slash government overall to Hong Kong levels. We're just fine with that but we do think that Professor Marmot, given his usual proclivities, is confused here. And no one at all is surprised that Young Owen is confused at all, are they?

Categories: Current Affairs

Fake news in The Guardian

Thu, 20/07/2017 - 14:30

Oh dear, how embarrassing. The Guardian’s George Monbiot appears to have fallen hook, line and sinker for Nancy Maclean’s poorly (dishonestly?) researched book Democracy in Chains.

Democracy in Chains smears Nobel Laureate James Buchanan (amongst others) with deliberate misquotes and pernicious accusations of racism. It asserts that Buchanan sat at the centre of an elaborate academic conspiracy to undermine democracy and replace it with ‘a totalitarian capitalism’.

Of course, this isn’t the first time Monbiot’s been taken in by a BS Vendor who happens to share his political biases – he frequently cites Naomi Klein’s sloppy Shock Doctrine which proposed a similar right-wing academic conspiracy with Milton Friedman at the centre (thoroughly debunked by Johan Norberg at Cato).

Unlike Maclean herself, it’s not clear if Monbiot actually understands what public choice theory (the field where Buchanan made his name) is.

He writes:

James Buchanan brought these influences together to create what he called public choice theory. He argued that a society could not be considered free unless every citizen has the right to veto its decisions. What he meant by this was that no one should be taxed against their will. But the rich were being exploited by people who use their votes to demand money that others have earned, through involuntary taxes to support public spending and welfare. Allowing workers to form trade unions and imposing graduated income taxes were forms of “differential or discriminatory legislation” against the owners of capital.

Not quite.

Public choice theory isn't a set of political conclusions, it's a method of study pioneered by centre-left academics Kenneth Arrow and Anthony Downs who applied the tools of economics (e.g. rational choice theory) to the problem of political science. Buchanan describes it as “politics without the romance”. Essentially, it is a theory that predicts politics will be closer to Yes Minister than The West Wing. Indeed, Anthony Jay created Yes Minister to popularise the ideas of public choice theory.

Supporters of free and open markets tend to be drawn to Buchanan’s work in particular as it helps to answer questions like:

· Why do industrial strategies always end up subsidising losers rather than backing winners?

· Why are there three times as many bureaucrats at the Department of Agriculture than there are farms in the USA?

· Why do NIMBYs have so much power?

There are legitimate criticisms of Buchanan’s approach to public choice theory. It isn’t (or at least shouldn’t be) a theory of everything. As Ben Southwood points out, voters don’t vote solely out of self interest, they vote for the policies that they think will be best for society as a whole.

But Nancy Maclean doesn’t make those criticisms. She resorts to sloppy misquotes to paint James Buchanan as a supporter of racial segregation. An accusation repeated by Monbiot here:

He explained how attempts to desegregate schooling in the American south could be frustrated by setting up a network of state-sponsored private schools.

An explosive claim, but untrue. David Bernstein in the Washington Post writes

Meanwhile, in Chapter 3, MacLean claims that contemporary libertarians “eschewing overt racial appeals, but not at all concerned with the impact on black citizens, framed the South’s fight as resistance to federal coercion in a noble quest to preserve states’ right and economic liberty. Nothing energized this backwater movement like Brown.” MacLean identifies only two such libertarians, Frank Chodorov and Robert LeFevre. I can’t check her citation to LeFevre, because it’s from private correspondence that I don’t have access to. But her citation to Chodorov fails to support her assertion.

The article she cites by Chodorov can be found here. In it, Chodorov praises Brown: “The ultimate validation of the Court decision, which undoubtedly ranks among the most important in American history, lies in the fact that it is in line with what is deepest and strongest and most generous in our historical tradition.” Chodorov goes on to point out that merely prohibiting segregated schools won’t lead to integration because of residential segregation, and concludes that hostility to integration may lead some southern states to open up publicly-funded education to competitive private schools, which would mean “what began as an attempt to evade an unavoidable change in an obsolete system of racial segregation might turn into an interesting educational experiment.

This wasn’t Maclean’s only ‘mistake’. David Henderson at EconLib highlighted a particularly egregious misquote.

Maclean writes

'People who failed to foresee and save money for their future needs', Buchanan wrote in 2005, ‘are to be treated as subordinate members of the species, akin to . . . animals who are dependent.’

Contrast that with what Buchanan actually wrote

The classical liberal is necessarily vulnerable to the charge that he lacks compassion in behavior toward fellow human beings - a quality that may describe the conservative position, along with others that involve paternalism on any grounds. George W. Bush's "compassionate conservatism" can be articulated and defended as a meaningful normative stance. The comparable term "compassionate classical liberalism" would approach oxymoronic classification. There is no halfway house here; other persons are to be treated as natural equals, deserving of equal respect and individually responsible for their actions, or they are to be treated as subordinate members of the species, akin to that accorded animals who are dependent.

Maclean doesn’t just get this quotation wrong—she edits it so that it says exactly the opposite of what Buchanan actually wrote.

This isn’t an aberration. It’s not a sloppy mistake in an otherwise well-researched book. This is Maclean’s modus operandi.

Russ Roberts highlights a passage from Maclean smearing the economist Tyler Cowen.

The weakening of the checks and balances” in the American system, Cowen suggested, would increase the chance of a very good outcome.” Alas, given the pervasive reverence for the US Constitution, a direct bid to manipulate the system could prove ‘disastrous’.

Maclean describes Cowen as “creating…a handbook for how to conduct a fifth-column assault on democracy.” A claim that will seem absurd to anyone familar with Cowen's work.

Compare that to Cowen’s original passage

While the weakening of checks and balances would increase the chance of a very good outcome, it would also increase the chance of a very bad outcome. Furthermore, the widely perceived legitimacy of the US Constitution suggests that such a change would involve disastrous transition costs.

As Roberts writes

MacLean left out the word “While” that begins Cowen’s sentence. Then she left off the key qualifier that completes the sentence — the point that the downside risk of weakening checks and balances is substantial. There is nothing here suggesting Cowen is in favor of weakening democracy or the Constitution. By quoting only a piece of Cowen’s sentence, MacLean reverses his meaning.

It would be easy to list a dozen more errors but Michael Munger, Christopher Fleming, Phil Magness and Greg Wiener have already done it for me.

Regrettably, The Guardian’s George Monbiot has been taken in by Maclean’s selective quoting and sloppy research.

I am sure it was not Monbiot’s intention to mislead his readership and I expect he will retract his article, clarify his mistake and apologise to the scholars who have been a victim of Maclean’s academic malpractice.

Categories: Current Affairs

Mrs Clegg tells us about Brexit - and gets it entirely wrong

Thu, 20/07/2017 - 07:01

One of the mystifications of the Brexit process is how many very clever people can end up believing things which are just simply not so. For example, Mrs. Clegg takes to The Guardian to tell us about negotiations over trade following our blessed exit:

It is easy to see why this government would be mesmerised by Legatum. It is keen on unilaterally removing tariffs and quotas on agriculture products (farmers, take note) in exchange for services agreements all over the world.

A lawyer should know the meaning of the word unilaterally. It means without being in exchange for something. We've no particular relationship with Legatum ourselves, although we obviously know them. And we too think that unilateral free trade is the way to go. As we did in 1846 with the Corn Laws. For imports are the purpose of trade, they're the very things that we conduct trade in order to gain access to. Taxing ourselves for the temerity to like Argentinian beef is simply ludicrous from the word go. Thus we shouldn't do it.

But it is worse than that:

The effect of this on food security and food prices was highlighted this week in a report published by the University of Sussex.

That's the report by Tim Lang et al which insists (no, not just assumes, insists) that we will have to impose "WTO tariffs" on food imports as we leave. This is to miss that there are no such things as WTO tariffs. What there are are maximum tariff levels that a WTO member may impose upon imports from another WTO member. Further, every WTO member is entirely at liberty to charge themselves anything they like less than these maximums. We did actually check this at source, Britain can indeed decide not to tax itself for access to French cheese. 

Lang's report insists that reversion to WTO terms means we must impose import tariffs, Lang is wrong. Given that it is this error which leads to his prediction of higher food prices Ms. Gonzalez Durantes is also wrong. Not that this is unusual in her circles as Mr. Clegg also suffers under the same delusion.

Brexit will not increase food prices, it will reduce them as we will be able to buy the best and cheapest food from the world, not have to cower behind the EU's protective barriers to trade.

What worries here of course is that these people, both Cleggs, Tim Lang and pals, various others, they insist that they are the Great and the Good who really know this stuff and we should just shut up and do as they say. The problem being that they're simply wrong, they believe things which ain't so.

 I have negotiated myself for the EU on many occasions on trade,

No wonder that EU trade system is such a crock, eh? 

Categories: Current Affairs

The Sorry State of Sex Trafficking Research

Wed, 19/07/2017 - 14:17

Last month, Northern Ireland saw its first prosecution for paying for sexual services (alongside violent crimes) brought before the courts. Having adopted the ‘Nordic Model’ of criminalizing the purchase of sex in June 2015, Northern Ireland seems to have inspired SNP politicians to advocate for a similar approach in Scotland. The debate about sex work legislation also rages on in the rest of the United Kingdom, where marginal progress is being made in some areas.

Research into the impact of different forms of sex work legislation and sex trafficking is a fascinating but highly-fraught area. The prevalence of sex trafficking and its relationship to different legal regimes pertaining to sex work is one of the chief battlegrounds for those who seek reform, and reliable evidence on this emotive issue is hard to come by.

A new paper published online last week by sociologist Ronald Weitzer—who wrote this excellent article on sex work policy and sex trafficking in 2011—gives new insight into the sorry state of the academic literature on these topics. First on his list of grievances is the unreliability of the data that is often used:

Using information on 161 countries from the United Nations Office on Drugs and Crime (UNODC), Cho et al. (2013) and Jakobsson and Kotsadam (2013) attempted to determine whether national prostitution laws were related to the prevalence of human trafficking. Yet UNODC had warned against using its figures either for one nation or cross-nationally, because “the report does not provide information regarding actual numbers of victims” (UNODC 2006, pp. 37, 44–45). UNODC’s caution was based on the unstandardized definitions of trafficking across countries (with some conflating trafficking, smuggling, and irregular migration); the widespread lack of transparency in data collection and reporting; and the reliance on different sources across the 161 countries (the media, research institutes, government agencies, NGOs, IOs). For some countries, only one of these sources was available. The authors concede that “the underlying data may be of bad quality” and are “limited and unsatisfactory in many ways” (Jakobsson and Kotsadam 2013, p. 93) and that it is “difficult, perhaps impossible, to find hard evidence” of a relationship between trafficking and any other phenomenon (Cho et al. 2013, p. 70). Yet they nevertheless treat the UNODC report as a data source and draw profound conclusions about the relationship between trafficking and national prostitution laws, concluding that human trafficking is more prevalent in countries with legal prostitution than countries where prostitution is criminalized.

Flawed data is just the tip of the iceberg. In the case of the two studies cited above, the authors’ approach to study design also leaves a lot to be desired:

A cross-sectional design (at a single time point) is used to measure something that should be examined longitudinally: the amount of trafficking before and after legalization. The latter approach would require reliable baseline figures to compare to reliable recent figures—neither of which exist.

The authors use aggregate national trafficking estimates (which combine labor, sex, and other kinds of trafficking) in their attempt to assess whether legal prostitution makes a difference. This means that there is a gross mismatch between the trafficking figures and prostitution law: In assessing whether prostitution law is related to the incidence of trafficking, figures on sex trafficking alone should be used, not the totals for all types if trafficking.

It is quite possible that nations where some type of prostitution is legal may have superior mechanisms for detecting sex trafficking, a variable missing in both studies.

A subsequent study by Cho (2016) using a different data source contains another howler. It “uses information on countries’ level of protection for [overall] human trafficking victims, which is then correlated with whether prostitution is allowed in a country.” The justification for this sleight of hand?

Without citing any source, Cho claims that “prostitution is closely linked to human trafficking because sex trafficking for the purpose of prostitution is the most common form of human trafficking and constitutes the largest fraction of trafficking victims” (Cho 2016, pp. 325–326). This claim is contradicted by the International Labour Organization (ILO) and the U.S. State Department. According to the ILO, “Forced commercial sexual exploitation represents 11% of all cases” of forced labor worldwide (ILO 2005, p. 12), and the State Department declares that “the majority of human trafficking in the world takes the form of forced labor” (USDS 2010, pp. 8–9).

All of these problems are endemic to the field of sex trafficking research. Weitzer’s paper would be an interesting academic exercise in the perils of low-quality data and poor research methodology, except for the fact that policies being enacted on the basis of the former two studies are hurting marginalized women:

...these two studies were embraced by politicians and policy makers in several countries, and used to justify new criminalization laws.

Weitzer also offers some thoughts on how the current state of research and the public debate based upon it can persist without significant challenge:

It is easy to make blanket and cavalier assertions regarding both trafficking and prostitution when (1) solid data are lacking, (2) the media simply recapitulate “official” claims without questioning or fact-checking them, (3) experts who challenge official assertions are ignored or denounced, and (4) the participants in sexual commerce are highly stigmatized and marginalized. This unfortunate pattern can be seen in both prohibitionist nations (e.g., Sweden) and in nations facing resistance to their current [comparatively] liberal policies (e.g., Germany, the Netherlands).

I’m sure readers of this blog approach every sensationalist media headline with a critical eye. However, when it comes to scaremongering stories about sex trafficking epidemics and accompanying calls for the ‘Nordic Model’, extra caution should be exercised.

[Photo Credit: Ira Gelb]

Categories: Current Affairs

We're entirely amazed at the persistence of truly terrible ideas

Wed, 19/07/2017 - 07:01

We shouted at Dave when he suggested national service for 16 years olds. On the very simple grounds that demanding people go off and work as you insist they do, without a choice, is slavery. Looking back further we've long been appalled that this country had peacetime military conscription post WWII and we're really not sure about the validity of the legal insistence even in times of war.

Yet as has been noted by others really bad ideas do keep being revived

Now, conscription is a scary idea; associated with the great threats that come with war, so it is sure to antagonise. But I believe we need to start treating the multiple environmental crises as the serious threat they are. We need to consider them in the same league as the threat presented by an army massed on our borders. This is not (just) a green manifesto. Eco stems from the Ancient Greek “oikos” and means home. Ecology, the study of the home; economy, its management. Eco-conscription is about working together for our collective home.

The benefits to society just in terms of physical and psychological wellbeing will undoubtedly be worth the investment

The benefits to our “home” of having people working on the land, reconsecrating the sacrilege of our industry, are immense. Reweaving the connections, rebuilding the Linescape will forge links for wildlife and for people.

We suppose it's not Maoism as this is supposed to be for the kids before they become students rather than a method of getting the students out of society's hair. Given that there's no mention of starving them while they are there it's not Pol Pot either. But it is still slavery, society stealing a year of the life of each and every youngster to do as they are damn well told rather than as they would wish.

We would also note that there's no shortage of those rural jobs out there, tens of thousands are available each and every picking season and near none of the youngsters want to touch them with a bargepole. At which point, you know, it is their life.

It's a common mental disorder that one or other of us knows what everyone else should be forced to do. Our own liberalism is based in the fact that we've not a scoobie about what will maximise the happiness of others, good grief, the existence of Simon Cowell proves that. Thus our basic prescription that people should be stopped from doing what damages the rights of others and after that left alone to do as they please.

You know, without being whipped into the fields just because they're 18 years old? 

Categories: Current Affairs

Making Sense of the NHS

Tue, 18/07/2017 - 13:39

Much of the last election, and many elections before, centred on the claimed inadequacy of the NHS. The same arguments have circled for decades creating heat rather than light and, importantly, social disaffection without progress. Adversarial political mudslinging and ill-advised interference have damaged NHS cost effectiveness and capacity, and will continue to do so until politicians leave it to the professionals.  The cross-party convention proposed by Norman Lamb, or the Royal Commission proposed by Lord Saatchi, could help bring that about.

Making sense of the NHS boils, ultimately, down to two issues.  The relatively easy one is how much HM Treasury should provide, be that from a hypothecated tax or the general pot.  That political decision should be based on the state of the UK economy, the plentiful international comparatives, the coherence of the NHS corporate plan and competing demands.  The allocation of those resources, and the rest of NHS management, should be taken out of politics. 

The convention/Commission should review the governance and scope of NHS England and the extent to which pricing should be used to cool demand:

  • NHS England is too big and overloaded with policy makers rather than policy doers – doctors, nurses and technicians. If NHS Scotland and Wales are roughly right-sized, as their separation implies, then NHS England should become six autonomous NHS Regions, i.e. public corporations like the Bank of England or BBC. The public corporation may be only the least bad governance structure but imagine how much worse the BBC would be as part of a Whitehall department.  Since adult social care is already devolved to local authorities, regionalising the NHS would allow the DH and NHS England to be downsized to just a few staff dealing with the overall allocation of resources. 
  • The NHS should be streamlined to be more manageable. The boundary of its responsibility should be narrowed to curing what can be cured and providing medical treatment.  It should not attempt to care for the incurable. Caring and curing need to be closely linked, and cooperate better, but integration would be unmanageable.  The NHS should provide individual treatment and not tackle public health as a whole.
  • Pricing, prescriptions for example, is already used by the NHS to restrain demand. Co-pricing, i.e. patients picking up some of the cost where they can afford to do so, is used elsewhere in Europe and New Zealand, and would be no more counter to the NHS original constitution than charging for dentistry.  What does not strictly need to be cured, or medically treated, could be subject to co-charging, if resources are available, for optional matters such as IVF. One way or another, demand needs to be cooled.

    The number of GPs and geriatricians needs to be increased. An aging population grows the need for geriatricians but supply has been reducing.  GPs do their best but few of them are trained in geriatrics and their interaction with geriatricians has reduced.  It is not the most attractive branch of medicine and the pay and prospects are poor. People aged 65+ now absorb about half of the total cost of the NHS. The number of general physicians is, per 1,000 potential patients, eight times greater than the number of geriatricians: the very people who need doctors most are the least well served. The British Geriatrics Society is outgunned by competing medical professional bodies.

    Mental disorders have also dramatically increased. Drawing the boundary of NHS responsibility between treatment and cure (NHS) and care (other services) for treating geriatric issues is difficult and the boundary for mental health is more difficult still.  Today, surveys indicate that about 12% of the UK population have mental health disorders and more than double that proportion of doctors – mostly due to stress. Clearly some sort of tiered approach is required to focus professional help on those with the greatest need. 

    The potential benefits from these proposals fall into four groups:
  • Improved morale, recruitment and retention of nurses, doctors and technical staff.  The continuous political fault finding, interference and reorganisation of the NHS damages staff motivation and patient satisfaction. The professionals need empowerment and clearer lines of authority. Local and national lobby groups press their vested interests to the detriment of the whole. The contribution of politics to the NHS is, in sum, counter-productive. Unfortunately, even if politicians back off, the NHS will continue to be subject to sniping by the media. Smaller organisational units would bring staff and patients closer to top management.
  • Better management of the demand for NHS services which will always, and increasingly, outstrip supply capability, not least because they are free. Ways have to be found to cut unnecessary calls on A&E and GPs. Falls by the elderly are now treated by ambulance paramedics in the patients’ homes rather than carting them into A&E.  Better for everyone. 
  • Balancing the books by continuing to streamline working methods and bureaucracy to release more patient time for doctors and nurses, simplify the allocation of resources and better interface with, and learn from, the private sector. The NHS could make much better use of IT.  GPs in England use at least four IT systems, for example, which do not communicate adequately with each other or with hospitals. Acute hospitals should move more patients (sooner) into the less expensive cottage hospitals and convalescence homes.
  •  Focusing the NHS on curing the sick, surgery, mending limbs, medical treatment and maternity. At present, only 80.5% of the NHS England funding is devoted to its core role: primary and secondary healthcare.  That streamlining would not reduce the quantity or quality of patient care and enable the adult social care budget to be doubled at no cost to the Exchequer. 

The full paper, to which this is the introduction, can be found here

Categories: Current Affairs

Learning from elimination

Tue, 18/07/2017 - 11:31

This piece was originally delivered as a lecture by Dr. Madsen Pirie to students at the beginning of Freedom Week 2017.

Scientific discovery

David Hume had a problem with induction.  Put starkly it is that it rests upon the shaky ground of an assumption that what happened yesterday will happen again tomorrow.  Hume could not find a causal thread that linked previous events to future ones, and thought it ultimately depended on an act of faith, unsupported by evidence or reason, that linked future events to historic ones.

In the Twentieth Century Sir Karl Popper solved Hume’s problem of induction.  Popper proposed that instead of using induction to develop theories, we use creative imagination to suggest them, and then test them to see which ones work in practice.  Her called the process “conjecture and refutation,” claiming that instead of ‘inducing’ theories from past events, instead we conjecture what might be the case, and then test the conjectures to see if they can be refuted from practical observation.

Thus Hooke’s Law, for example, suggests that the extension of a spring is proportional to the force applied to it.  That is the conjecture.  We then apply weights to springs and measure the extension to see if it does indeed vary in proportion to the attached weight.  If it does not, we discard the theory.  The theories we retain are the ones that are supported by experiment; the ones we discard are those that do not.

Science proceeds by what I call a "selective death rate."  When I used this term on a Radio 4 programme series about "Learning from Life and Death," the producer found the term "macabre," as he put it.  Perhaps it is, but it simply means that we reject the theories that don't cut it.  They die.  The ones that pass experiments live on.

The upshot is that what we call our scientific knowledge is the collection of theories that have been tested, and have not so far been discarded.  Note that they are tested in practice.  It is their performance in observed tests that decides which ones live and which ones die.

Note also that the successful theories only live on until a better one comes along, one that can enable us to predict what we shall observe better than previous ones were able to do.  Like ourselves, theories are mortal, and they live only for a time.

The market economy

There is a striking parallel between this account of scientific methodology and the operations of a free market economy.  In a market economy people are free to introduce new products and processes.  They are tested in the market to see if they appeal to consumers more than do existing products and processes.  The ones that do so survive, while the ones that do not are counted out.

A market economy, like scientific method, operates through a selective death rate.  Unsuccessful products and processes are eliminated, while the more successful ones survive.  We look at the list of leading companies, and we find that most were not there twenty-five years ago.  The names that seemed so dominant then are now distant memories, their places taken by names such as Apple, Google, Amazon and Facebook.  Many of the products that were ubiquitous and dominant a quarter of a century ago are now regarded as anachronisms, to be regarded with amused wonderment when dug out of forgotten cupboards to be surveyed by today's children,

There are other important parallels between scientific method and market economies.  Scientific discovery works faster in a society where people are free to investigate, to explore and to innovate.  It depends upon freedom of information to spread new ideas and to report on the experiments that have tested them.

A market economy similarly makes faster progress if people are free to innovate and to introduce new products and processes without state or other interference or impediments.  It, too, requires freedom of information so that knowledge of success can spread.

They have something else in common, too.  Both are areas in which progress can be made.  In both of them there is a goal or goals, so that attempts to reach towards goals can be tested against each other to see which ones approach closer to it.

In science the aim is to extend our ability to predict what we shall observe, and theories are tested in experiments to see which ones do it better than their rivals.  I part company with Popper at this point, because he thought that by proving things false we could approach closer to objective knowledge about the universe.  I do not think we can do that, because we can no more prove something to be false than we can prove something to be true.  We discard theories not because we know them to be false, but because they serve our purposes less well than the ones we retain.  The aim is to predict what we shall observe, and we retain the theories that enable us to do that better than the ones we discard.

In a market economy, our aims include being able to better our lot, to make best use of scarce resources, to be able to satisfy more of our desires, and so on.  We can test products and processes against each other to see which ones best enable us to achieve these things. 

Thus progress is possible in both science and market economies.  In science we can become able to predict more, and in a market economy we can become wealthier and satisfy more of our desires.

Evolution

There is, of course, another area characterized by a selective death rate, and that is evolution.  New mutations are tested by their ability to survive and reproduce in their environment.  Those that do so live to breed and become the dominant new strain.  The ones that do not are counted out.

I would draw your attention to two significant facts.  One is that scientific discovery and a market economy both have the inspired minds of creative human beings behind them.  People think up the new theories and the new products that have to be tested. 

In evolution the mutations are random.  This means that the changes in evolution are slower than those in science or economic activity.  Innovation in biological evolution is blind, whereas in the other two it is inspired and directed.

The other significant fact is that we cannot speak of progress in evolution because there is no goal to work towards.  There is only an environment that changes in ways that allow some mutations to prosper at different times if they are better equipped to meet the new conditions.

Conclusion

In summing up, I myself take the view that we humans try to improve our lot, or our performance, or our understanding, and that we do so by a method of inspired trial and error.  We do it by introducing innovations and testing them in the real world.  We retain the ones that achieve our aims better, and we discard the ones that do not.  This is how we progress toward our goals.

I add in conclusion something about myself.  I am optimistic about human creativity and ingenuity.  By this method of inspired trial and error I think we can meet any challenge and solve any problem. 

Categories: Current Affairs

We do think this is unlikely to work

Tue, 18/07/2017 - 07:01

Some ideas from the civil service about what to do over the train services:

Civil servants at the Department for Transport have put forward proposals to take much greater control of the running of the train operating companies, raising the spectre of the recreation of the defunct strategic rail authority.

A high level briefing document seen by The Times states: “The franchise model . . . faces real challenge — chiefly ensuring it remains commercial and politically sustainable.”

This would, as the paper goes on to point out, mean building out capabilities in that department. Or, as C. Northcote Parkinson would have pointed out, the aim and intent of every bureaucracy is to expand the budget of that bureaucracy.

However, over and above the usual self serving nature of the proposals we're really quite sure that this isn't going to work:

It continues:

“Reforms may be required to better manage uncertainty, eg HMG [the government] retaining more or all revenue risk.

Which of the various lines is it that has the general public near to revolution? Why, that would be Southern, wouldn't it? 

What is the general arrangement for the management of the Southern line? Govia runs the system on a day to day basis, under a contract from government. That is, this is not in fact a franchise, this is a management contract. One in which all revenue risk is carried by said government. Fares go to the centre, the agreed fee is paid for running the network.

In order to mitigate the outrage about the train system the civil services suggests expanding the management system applied to that part of the network which produces the most outrage.

Really, we're quite sure that this is unlikely to work.

Categories: Current Affairs

What joy when telling the truth is politically unacceptable

Mon, 17/07/2017 - 07:01

An entirely reasonable contention is that if we're to try and work out what it is that we should do we must start from some mutually agreed set of facts. It would also be useful if those agreed facts were the truth of the matter. Not starting from this point is going to be piling error upon misunderstanding.

At which point what joy that telling the truth is now considered politically unacceptable:

Philip Hammond has declared that public-sector workers are “overpaid”, as a bitter cabinet war erupted over austerity.

At a heated cabinet meeting on Tuesday, the chancellor refused to lift the 1% cap on wages for public-sector workers on the grounds that they earn more than those in the private sector, along with generous taxpayer-funded pensions.

But Hammond left his colleagues thunderstruck at the language he used. “Public-sector workers are overpaid when you take into account pensions,” he declared. The chancellor then described train drivers as “ludicrously overpaid”.

The comments will fuel public anger that the Tories are out of touch with the public mood and will plunge Tory MPs into despair at the chancellor’s political tin ear. 

The point being that this is actually true. As one of us has described elsewhere recently, since 2002/3 public sector pay (not including pensions and other perks) has gone from roughly comparable to private sector, risen faster in Brown's boom years and fallen less since the recession. Yes, of course, this is after controlling for age, qualifications and so on.

It's also entirely true that public sector wages have fallen in real terms since the recession - but then so have private, the private by more. These are the facts of the matter. Only once we all agree them can we then start to have a reasoned conversation over what we should do next.

But what chance of that when uttering such truths is regarded as politically unacceptable? 

Categories: Current Affairs

It's almost as if they've no clue what they're doing

Sun, 16/07/2017 - 07:01

Two months ago we had this:

The transfer of 1.6 million patient records from an NHS trust to Google’s artificial intelligence subsidiary was legally inappropriate, the Department of Health’s data guardian has said.

Google’s Deep Mind division and the Royal Free trust in north London agreed two years ago to collaborate in developing an app to diagnose acute kidney injuries in NHS patients. It works by immediately reviewing blood test results for signs of deterioration.

To develop the Streams app, the trust made available to Google patient data going back five years, including sensitive details of patients who had not been treated or tested for kidney injuries. 

Using NHS data to train an AI to make the NHS work better is terrible. Those damn yankees and their technical skills, who do the bastard septics think they are trying to improve that Wonder of the World that is our very own National Health Service? They'll be forcing the ICU patients to pay $50 for an aspirin soon enough what with their only for money health care systems!

Today:

NHS patients will receive pioneering treatments assessed by an artificial intelligence program under plans being developed by the government’s medicines regulator, The Times has learnt.

The system, a prototype of which will come online next year, is expected to markedly speed up the appraisal of cancer drugs and other therapies from months to a matter of weeks.

Ooooh! Using NHS data to train an AI to make the NHS work better is just lovely.

Scientists at Microsoft, University College London (UCL) and Cochrane, a non-profit group that compiles reports on medical evidence, are developing an AI that can weigh up new health studies for itself. 

Yea, even if the septics are involved.

It's as if the government doesn't know what it's doing, isn't it? And that cannot possibly be true about the NHS, an absurd thought. For we all know that it's so exquisitely managed that no system in the world comes near it.

Categories: Current Affairs

For once we agree with Polly Toynbee

Sat, 15/07/2017 - 07:01

This is odd of course but stopped clocks and all that*. Polly Toynbee makes a useful and sensible point. The great adventure of expanding university access in the name of social mobility seems to be failing:

Now that a degree leaves students up to £69,000 in debt, with 70% never earning enough to pay it all back, maybe the surprise is that few school leavers have been deterred. A graduate still earns around 35% more than a non-graduate. But averages deceive. While the number from poorer backgrounds hasn’t fallen, dispiriting new research finds that even after gaining a degree from a good university, those from poorer backgrounds, without the connections or the money to take internships, fare worse in jobs.

The Paired Peers project, which followed a cohort of students from Bristol University and the University of the West of England, found that their family’s social class still counted most, whichever university they attended.

Sending 50% of the age cohort off to university in an attempt to shake up the social classes doesn't seem to work. OK, so, experiment failed, let's not do that any more, eh? Back to a more reasonable 10 to 15% of the cohort taking these academic courses, around and about the likely number who will benefit from academia rather than just a course, and that of course makes the problem of funding the system much more manageable.

In fact, Polly makes two sensible points:

The second great shock, which simply defies belief, is the 23% slump in the number applying for nursing places this year, the first year when nursing students pay full fees and lose their bursaries. That is despite spending half their training time providing useful service to the NHS. 

We made noises about this when it was first mooted, that nursing should become a graduate  profession. Disapproving noises as well. Not just because we're the sort of snobs we are but at least one of us has direct experience of people training under the old and the new systems. That new is not better than the old from direct observation.

Sadly, Polly won't manage to make the third and correct observation from this. Just as there can indeed be market failures so also can there be government ones. The entire joy of a market based system is that when a mistake is made those making it go bust and disappear from the scene. Government mistakes not so much - how difficult does anyone think it's going to be to reverse these two mistakes?

*It is left as an exercise for the reader whether we are or Polly is that ceased timepiece

Categories: Current Affairs

Planning reform can be safe as houses

Fri, 14/07/2017 - 17:27

Over on Medium I've written up what I think is a politically-achievable plan for the Conservatives to get some real action on housing now that gives them something to campaign on at the next election.

In housing, the root problem is mostly the planning system restricting supply – not enough nice, big homes are being built, which keeps prices higher than they need to be across the board. You're not going to win by promising planning reform or anything like it — unlike rent controls, they don't sound good. But you might win if you can show that housing is becoming more affordable and more secure. 

I propose a three-pronged approach — allow densification within cities, and have it done on a bottom-up, street-by-street level instead of exclusively through massive new developments; let local councils capture some of the uplift in land values that comes when planning permission is granted to new developments; and introduce a 'long-hold' midway point between shorthold tenancies and leaseholds, which effectively confer ownership of the property:

"Private rents in the UK are some of the highest in the EU, and private rented households spend between 35% and 40% of their post-tax income on rent compared to a European average of 28%. This does not capture the second-order problem caused by expensive housing costs, which is that it is much harder to move to economically prosperous parts of the country where better jobs are, so people end up forgoing better jobs and salaries than they might otherwise get.

"Housing quality is also quite poor. New builds in England are some of the smallest in the developed world, and shared living areas are being turned into extra bedrooms in many rented properties, squeezing more people in. In 1996 54% of 16–34 year olds owned their own homes; now only 34% do. That’s a twenty percentage-point drop in twenty years. Over that period the number of renters in that age category has doubled from from 1.1 to 2.2m.

"Labour made this a major part of its election campaign. Economists nearly unanimously agree that rent controls do harm, but many voters do not realise the risks. Bans on lettings agency fees and making three-year tenancies the norm similarly sound appealing to people fed up with wheeler-dealer agents and having to find somewhere new to live every year.

"These are tangible policies that sound good on the doorstep. The Tory manifesto was vague on housing issues and offered no track record of improvement. The government’s housing policies were basically useless — they only seemed to be interested in getting people to own their own homes, but because they did little on the supply side, policies like Help to Buy mostly only raised prices and changed the distribution of who got houses, not increase the total number of homeowners."

Read the whole thing, and my previous piece on some other policies the Tories should be going for to win at the next election.

Categories: Current Affairs

The case against the new corn laws

Fri, 14/07/2017 - 17:12

There was once a time when Peel’s abolition of the Corn Laws was regarded as an unqualified success, ushering in an era of free trade and prosperity hitherto unforeseen in human history. What was once taken as dictum, however, seems to be lost on the current generation of policy-makers. The Corn Laws, along with the general spirit of protectionism they represent, has once again become fashionable under the guise of the Common Agricultural Policy (CAP). Needless to say, there is no reason to suppose that a policy which was so disastrous in the 19th century, would be any less disastrous in the 21st. It is remarkable how similar, and how similarly conclusive, the arguments against agriculture subsidies remain. The case against this nefariously illiberal policy is made by simultaneously appealing to the needs of the consumer, the competitiveness of the producer, and the health of the international market more generally. The vote to leave the European Union on the 23rd of June offers the perfect opportunity for the government to repeal these new Corn Laws.

Subsidies are simply redistribution under another name – that of ‘protection’. By definition, subsidy requires the productive sectors to finance the unproductive sectors of the economy through general taxation. In the case of domestic agriculture, 1% of the employment market is financed by the remaining 99%. This is made all the more inefficient by the inequity of national contributions to the CAP, with the UK contributing £6 billion, while receiving half that amount in subsidy. The CAP does not even contain the one redeeming feature of redistribution – that of relieving the plight of the least fortunate. The CAP takes all the wealth of the whole of society (including societies poorest) and redistributes said wealth to a group of landowners, who predominantly belong to the upper middle classes. Moreover, the further effect of this subsidy is to inflate domestic food prices by artificially raising the barriers to entry for foreign imports. Regarding the discussion of the ‘cost of living crisis’ at the previous general election, removing domestic agricultural subsidies would be an effective way of pushing down the price of food without distorting the market.

The CAP does not even achieve what it purports to achieve: the goal of keeping the domestic agricultural sector strong. Rather, the effect of the CAP has been to starve the agricultural sector of much needed competition and free enterprise. Instead of farmers competing against one another in order to create the most efficient product in a free market, the sector is now make up of a rentier class, each competing for a subsidy from government (whether national or supranational). In 1984, the government of New Zealand gradually reduced all subsidies and import quotas on agriculture, with the process finally completed in 1990. The agricultural sector of New Zealand’s economy (which is far more important when relatively compared to the UK’s agricultural sector) consequently boomed, as fair and proper conditions were returned to the market.

Perhaps chief among the CAPs crimes is that it keeps developing countries poor, and in constant need of aid. Repealing the subsidy would enable imports, from African and South American countries in particular, to be sold at a competitive price in Britain. This would not only allow British consumers access to cheaper food, but increase the economic strength of developing nations. This would, in turn, allow western nations (the very nations which imposed the subsidy), to reduce their own foreign aid budgets towards these countries, enabling prosperity, and reducing embezzlement by corrupt officials in one fell swoop.

All that remains is for Theresa May’s government to emulate its Peelite forebears, by scrapping agriculture subsidies, without exception, over a gradual period of years. It may not be politically advantageous – it is in the nature of embedded interests to cause political trouble when their privileges are questioned – but the future benefits of such a policy would go a long way to cementing May’s legacy at a time when her premiership has yet to begin. Before the referendum on the 23rd of June, Paddy Ashdown attempted to boost the Remain campaign by threatening that leaving the EU would ‘open the door to cheap food world-wide’. Let’s take him at his word. 

Categories: Current Affairs

It's time to privatise London's buses

Fri, 14/07/2017 - 16:30

London is home to some of Europe’s most congested roads. While the London Underground does a good job of speeding passengers across the city beneath the gridlocked streets, London’s buses provide what has to be one of the slowest and least convenient public transport systems anywhere in Europe.

However London’s bus network is often held up as one of the country’s finest. A walk down any major London street will usually involve passing several dozen red double deckers in the space of a few minutes. The TfL bus network covers every imaginable corner of the Greater London urban area with over 500 routes, theoretically making any destination in the city reachable for a travelcard or Oyster user.

It is often a revealing exercise, however, to look at how many passengers these routes are carrying. There have been proposals by Sadiq Khan recently to remove the several hundred buses an hour that use Oxford Street to make it a more pedestrian-friendly environment, but there’s a huge question around where these displaced routes will go. However, the question is never asked whether all these routes need to exist at all. Any amount of time spent watching the buses on Oxford Street will reveal that many of them are running close to empty.

Supporters of central planning and public ownership will often point to comprehensive network coverage as one of the advantages of having public transport managed by one authority. London is a textbook example of this; although the routes are run by private operators, they are specified and tendered by Transport for London, in stark contrast to the completely private commercial operation found virtually everywhere else in Britain.

Elsewhere in Britain, operators are commercially forced to respond to passengers’ needs. Intense services appear where demand is highest, while services disappear where demand is lowest. One consequence of this is that smaller communities lose their services, while another is that the routes that emerge are far more attractive to potential users switching from other modes of travel.

This isn’t the case in London. While the TfL network does succeed in providing a service to every community in the city, it fails in providing a service that responds in any way to demand. London’s bus routes are indirect, circuitous and painfully slow. The lack of speed is partly down to the traffic situation, but stops every few hundred yards and routes that rarely head towards their final destination are the main thing that makes a bus ride in London so frustrating. It also doesn’t help that the numerous buses themselves are a major contributor to the congestion problem.

It hasn’t always been this way. A limited amount of private competition was introduced in London in the 1990s, with operators like Grey Green bringing a splash of colour to the red monotony that otherwise prevails. Latterly, however, TfL has tightened its grip, creating a situation where private operators with ideas for new routes are prevented from starting commercial services within the city, even where demand for different routes is demonstrably present. The omnipotent authority has even clamped down on branding variations by its own tender operators, as though Metroline’s blue stripe or Arriva’s cream swish were somehow damaging the quality of service being offered.

Imagine for a moment what London buses would be like under completely private operation. Gone would be the slow red double decker carting fresh air around every backstreet it could find, taking the best part of an hour to cross a distance the tube can cover in five minutes.  In its place would emerge direct point-to-point services, picking up major destinations and responding directly to the needs of passengers. Competition on key corridors would drive up standards, while operators would bring in quality service brands like Stagecoach Gold and Arriva’s “Sapphire” that have proved so successful at bringing people out of their cars across the country.

Certainly, some less densely populated areas would lose out. High-income areas where bus usership is lower would see service cuts. That’s how supply and demand works. There are far better ways of providing connectivity to remote communities than a frequent empty bus service, wasting money and fuel on a vehicle that could be better deployed where that capacity is really needed. It isn’t realistic to expect every community to have frequent bus services, any more than it is to expect every community to have motorway-grade road connections.

But other communities could stand to benefit hugely. Take the likes of Camberwell, a gigantic hole in the rail and tube networks where buses are the backbone of public transport. Here, direct demand-responsive services could act as street-level extensions of the underground network, bringing huge improvements to one of London’s most poorly served districts.

The current state of London’s bus network is a sad reflection on the conflicted political ideologies that have shaped it since the 1950s. It’s sobering to realise that this is what remains of what was once one of Europe’s most impressive tram and trolleybus systems, destroyed as it was by a political drive to free up road space for the car. Now, again, the passenger is being left behind in the same spirit of political idealism.

Let’s move to a system that operates for the passenger, not the politician. 

Categories: Current Affairs

Even the IFS is at it now

Fri, 14/07/2017 - 07:22

One of the things which puzzles people - we know this because people ask us - is how come there is all this shouting about austerity? Cash spending is up, spending as a portion of GDP is still, just, up over what Gordon Brown was spending pre-crash. So, err, what austerity?

The answer being that those complaining about it all are using a different measure. Well, obviously, they must be, if their measure is not according with reality. Even the IFS is in on this now:

Carl Emmerson, deputy director of the IFS, said: “An ‘end to austerity’ – as defined by no further net tax rises, benefit cuts or cuts to spending on public services – would require a very sharp change of direction. 

The point being that that's not the entire budget. A notable lack there is the interest bill for the public debt. Something which has risen rather a lot in recent years and which, as interest rates rise again is going to become ever more important. We don't in fact predict that this will be true but it is certainly possible that said interest will become an expense to rival that of the NHS (debt of 90% of GDP, interest rates up to say 5%? Could happen). And we do tend to think that when we talk about a budget then we should be talking about a budget, not just the nice stuff that people like, the spending upon themselves.

We've also seen a rather more economist's definition of austerity, whatever level of spending is below what would ensure full employment. That meaning that anything less than near infinite spending in 2008/9 being austere given the depth of that recession.

The answer to the basic question is that by our measure, total spending, there has been no austerity. You can indeed cook up measures by which there has been some. But the rest of us don't have to agree with the recipe you've used to do that cooking.

Categories: Current Affairs

Are Bank Capital Requirements Really Ten Times Higher than Before the Crisis?

Thu, 13/07/2017 - 10:51

A major theme in Bank of England speeches over the last three years has been the ‘Ten Times’ story: bank capital requirements are now 10 times higher than what they were at or before the time of the GFC. Here are some examples:

  •  “Capital requirements for banks are much higher … In all, new capital requirements are at least seven times the pre-crisis standards for most banks. For globally systemic banks, they are more than ten times.” (Mark Carney, 2014) [2]
  •  “ … the capital requirements of our largest banks are now ten times higher than before the crisis.” (Mark Carney, 2015) [3]
  • “Common equity requirements are seven times the pre-crisis standard for most banks. For global systemically important banks (G-SIBs), they are more than ten times higher.” (Mark Carney, 2016) [4]

The evidence for Governor Carney’s claims would appear to be the capital requirements in the following Table (Table B.2) from the Bank’s July 2016 Financial Stability Report:

This Table indicates that the minimum Basel II core Tier 1 requirement was 1 percent using Basel III definitions. The lines below show the additional requirements for the ratio of CET1 capital to Risk-Weighted Assets (RWAs), which sum to 9 to 11.5 percent depending on the settings for the systemic and countercyclical capital buffers. However, the settings of these latter two buffers have always been 0 percent, so the actual capital requirement is the sum of the Basel III CET1 minimum and the capital conservation buffer, i.e., 7 percent.

So overall, one can say that there has been a 7-fold increase in the capital requirements involving RWAs and that the system envisages the potential for capital requirements that might be as high as 11.5 times the comparable requirements under Basel II.

At face value, such an increase in capital requirements might appear impressive. But consider the starting base. On the old basis, RWAs could be a hundred times bank capital: banks could be leveraged 100 times. Given that RWAs are around a third of total assets, this means that total assets might be 300 times capital: banks could be leveraged 300 times. So even if capital requirements are now ten times greater, they would still allow banks to be leveraged 30 times. A large percentage increase in capital requirements does not represent a large increase in capital requirements if the base is low to start with.

One can also look at this issue another way. The capital ratios that matter are not those based on the highly inadequate RWA measure: the ratios that matter are the leverage ratios. Basel II had no minimum required leverage ratio and Basel III introduced a minimum required leverage ratio of 3 percent. Therefore, one can say that when it comes to the leverage ratio, the Basel III requirements are not 7 times greater or 10 times greater or even 20 times greater than what they were: they are infinitely greater than what they were. Even so, one can reasonably argue that they are still too low.

Slinging around multiples of capital ratios is great fun, to be sure, but there is a serious side too. The question one must ask is why does the Bank choose to emphasise this 10 times narrative to make their point that UK banks are now strong again, when the underlying facts on the ground – the empirical leverage ratios (see here or here) – do not support that narrative.

One might say the same about their stress test (fairy?) story too. 

 

End Notes

[1] Kevin thanks Sir John Vickers for helpful discussions on this topic.

[2] M. Carney, “The future of financial reform,” 17 November 2014, p. 4.

[3] M. Carney, public statement made on the morning of June 24th 2015 shortly after the result of the Brexit vote was announced.

[4] M. Carney, “Redeeming an unforgiving world,” 26 February 2016, p. 8.

 

Categories: Current Affairs

Nothing like making political capital out of a tragedy, eh?

Thu, 13/07/2017 - 07:59

Dawn Foster tells us that Grenfell Tower is all because of, well, umm, markets? Fatcher? Neoliberalism perhaps

After the fire, as details emerged about the intricacies of how the blaze progressed, the focus zoned in on such things as cladding and the provision of sprinklers. But survivors are clear that the inferno was not just a freak accident but the result of decades of neglect and poor policymaking; an indictment of how Britain houses its poorest people.

Across the UK, many others are suffering similar effects of the housing crisis. It has never been a crisis purely of supply and demand, but of shifts in legal tenure, the erosion of housing rights, the decimation of legal aid, the mass sell-off of social housing, and a growing callousness in attitudes towards vulnerable people.

Something did quite obviously go wrong and we'd love to find out what it was. Which we will and then we'll know and it won't be done again. But this isn't in the slightest about the general structure of Britain's housing market:

For Grenfell Tower survivors, empathy was plentiful at first, as the donations and flood of volunteers rushing to west London showed. Then came the chiding calls not to politicise the tragedy, as survivors themselves stated publicly that their ordeal was political, and the snide backlash when the City of London corporation announced they had set aside 68 flats in a Kensington development for survivors.

Let's remind ourselves of the background here. This social housing, this social rather than market asset that it is claimed we should behaving. Grenfell was exactly that social asset, it was social housing. At non-market prices. When it did burn down then equal if not better housing was found a mile or so away, right in the centre of one of the world's most expensive cities. People will be on the same tenure terms as they were.

Again, there has undoubtedly been a failure, that building going up like a torch has shown that. But this isn't a failure of Britain's housing market in the slightest. Nor has the coping with it been badly done. It's actually worth remarking upon quite how well that provision of non-market housing has worked.

There is another point we should make from the evidence Ms. Foster presents us with:

The 80 people who died in the disaster and those who escaped the fire are at the extreme of the spectrum, but currently, there are almost 120,000children homeless or living in temporary accommodation in England.

There are 120,000 children classified as homeless, not 120,000 children actually homeless. This distinction matters. For we have a system to find homes for those who don't have them. Entry into the system requires that one be declared to be homeless first. Thus the classification of homelessness is a necessary precondition of the system which deals with the problem swinging into action. This is of course Worstall's Fallacy all over again, looking at the size of the original problem, not the effectiveness (or not) of the system we have to deal with it.

The residual problem is those sleeping rough. Of whom there are some 4,000 nationally (no, not children, total) at any one time. And, as Ms. Foster tells us, this is a rather different problem:

The footballer turned property developer Gary Neville admitted to the Guardian this week how difficult it was to provide the kind of help rough sleepers need – 40 of the group Neville and Ryan Giggs allowed to stay in their vacant Manchester hotel after it was squatted were rehoused, with 20 ending up back on the streets.

As a little prompting will elicit from anyone involved with aiding those rough sleepers. The prevalence of addictions and mental health problems (variously estimated at up to 75% of this population) means that the difficulty is in keeping them in accommodation, not finding it for them.

There are undoubtedly problems in Britain's housing markets. The Town and Country Planning Act comes to mind. Fire regulations equally. But we have a social housing system, one that really works rather well. We can see that from the residual of the problem after it swings into action. We have many classified as homeless, we have many at risk of it, and absent drug, alcohol and mental health issues we have just about no one who is actually homeless.

That's actually pretty good for government work.

Categories: Current Affairs

Universities need skin in the game

Wed, 12/07/2017 - 17:44

Derided at the time (and by many today) the Conservative-Liberal Democrat decision to treble tuition fees is signicantly underrated. As I pointed out, Jeremy Corbyn was wrong to state that £9k fees had put working class applicants off a University education. In fact, high tuition England has done better than tuition free Scotland at getting disadvantaged students to apply.

But the system is far from optimal.

Applicants often make poor degree choices, let down by poor quality information on employability. Indeed, there are 23 universities where graduates actually earn less than non-grads.

But that’s not the only problem. Income contingent loans mean that higher earners pay back more than lower earners. This is what makes this system ‘progressive’. Student Loans are underwritten by the taxpayer and in four fifths of cases the taxpayer ends up writing off some debt. The IFS estimates that around 43% of the total debt goes unpaid.

And there’s a massive difference between the winners and losers. If you end up in the bottom 20% of graduate earners it’s likely that on average you’ll never make an annual repayment of more than £500. Meanwhile the top 20% of graduate earners can expect pay as much as £5,000 in a single year in their 40s.

This creates a dangerous moral hazard. By reducing the risk to graduates whose degree choices fail to pay off and shrinking the reward to the graduates who chose wisely, income contingent loans create an implicit subsidy to courses that offer lower economic returns.

This is not just a problem with the student’s incentives. From the perspective of a university £9k a year from a Media Studies student who’ll graduate to earn less than £21k a year is worth just as much as £9k a year from a Physics and Engineering graduate who’ll go on to found the next Tesla. In fact, because science courses on average cost more to run than humanities courses, the Media Studies student is actually a more profitable option for the university.

IFS data shows that while average university funding is up by 25%, there’s a big divergence in where it’s going. The highest cost courses have seen only a modest 6% increase, while lower cost courses have seen a 47% increase. The Government can and does mitigate this effect with funding grants, but those grants have shrunk across the board since tuition fees were trebled.

As student numbers are no longer capped, the unintended consequence of a progressive repayment system is that universities are incentivised to push low-cost, low-return arts courses at the expense of high-cost, high-return STEM courses.

Beyond alumni donations and looking good in league tables, universities fail to capture the upside of investing in the employability of their students. This needs to change.

One suggestion from Ryan Bourne resurrects a relatively untried proposal from Milton Friedman. Rather than students taking out loans, universities would buy shares in a student’s future income. If you’re a bright student with 3 A Stars at A-Level then Cambridge might offer to provide a full education in return for a 3% stake in your future earnings. Cambridge could then tap into that income stream right away by selling it on the open market.

In some ways, this model already exists. App Academy, a 12-week intensive coding bootcamp, doesn’t charge fees but instead requires that students pay App Academy 22% of their salary for the 12 months after graduating (provided they get a job as a software engineer). This gives them a strong incentive to link up with employers, assist in the job search and most importantly, teach coding well.

Moving to the App Academy model aligns the incentives of graduates, taxpayers, and universities. It would disincentivise institutions from admitting students to low-return courses and incentivise investment in more expensive STEM courses provided they paid off for graduates.

Data like the IFS’s that simply compares large blocs of people doesn’t take account of their pre-existing skills and abilities: perhaps they would have done better if they’d never gone to university at all. This system would give students an incentive to only do degrees that enhance their earning power—since they will have to tithe to their institution.

Unfortunately, this policy may be too radical; too big of a change overnight. But discussing and studying the ideal is useful because it can reveal the direction in which policy should move in the short-term.

Here’s a more modest step.

Students should make payments direct to universities not the Student Loan Company.

Under the status quo student loan repayments end up going to the same place, regardless of whether a student went to Oxford or London Metropolitan. In effect it means that once you graduate universities have no stake in you succeeding or failing.

We should change that. Rather than each graduate making repayments to the Student Loan Company, they should pay the university directly under the same repayment terms. Universities should then be allowed to sell off that future income stream for cash today.

This would make a difference for two reasons.

First, it’d create a strong market incentive to accurately estimate graduate earnings. In order to maximise revenue from selling off the rights to future repayments, the university will need to provide accurate, evidence-based estimates of graduate earnings. Similarly, financial institutions will rigorously test each university's numbers, ensuring that they’re accurate.

Second, it would give universities skin in the game: incentivising them to invest in employability, shut down courses that don’t deliver for students, and shift resources to high-payoff STEM courses.

The 'loan' could still be written off after 30 years, but it would be the university not the government writing it off. This would amount to a cut in funding for universities, but importantly it would be a cut that hit the least useful courses and institutions hardest and incentivised expanding the courses that pay off the most. Cutting university funding would be no bad thing either. Subsidised tuition encourages universities to over-invest in new infrastructure and prevents them from making the same efficiency savings that other similar sized organisations might make.

For instance, there’s no incentive to introduce shorter courses; university terms are still based on pre-industrial revolution agricultural seasons.

There is a risk that the courses cut will be disproportionately ones that attract pupils from disadvantaged backgrounds. But we shouldn’t be focused on inputs (i.e. number of disadvantaged students attending university) but outputs (i.e. will they get a good graduate job). The courses that get cut will look good if you simply measure inputs but bad if you measure outputs. There's nothing progressive about saddling a young person with massive debts to pay for a university education that does little to nothing to improve their life chances.

By shifting the burden of funding university tuition fully onto universities and students, it will free up additional public money that can be used to address educational inequalities earlier on - an approach that could be more fruitful.

If we want universities to serve their students better, they need to have skin in the game.

Categories: Current Affairs

The Coming Moral Panic About Sex Robots

Wed, 12/07/2017 - 15:46

Last week, The Salvation Army released a statement expressing concern that sex robots could increase demand for sex work and sex trafficking. This particular moral panic seems a little premature; according to Nature, “just four companies, all located in the United States, currently produce [extremely basic] sex robots.” But this hasn’t stopped some social conservatives and feminists uniting in opposition to the potential spread of this emerging technology.

Unsurprisingly, rigorous academic studies into the effects of sex robots are extremely hard to come by. But the battle lines have already been drawn—anyone familiar with other debates relating to the sex industry (e.g. sex work and pornography) knows that this research area is plagued by motivated reasoning, blind speculation, and emotive anecdotes. Sadly, I do not think that the coming debate on sex robots will be any different.

British opposition to sex robots is led by the Campaign Against Sex Robots, spearheaded by robotics researcher Dr. Kathleen Richardson. In the position paper that launched the campaign, Dr. Richardson wrote that:

“The arguments that sex robots will provide artificial sexual substitutes and reduce the purchase of sex by buyers is not borne out by evidence. There are numerous sexual artificial substitutes already available, RealDolls, vibrators, blow-up dolls etc., If an artificial substitute reduced the need to buy sex, there would be a reduction in prostitution but no such correlation is found.”

But if there is no correlation between the availability of artificial sex substitutes and the amount of sex purchased, then this also rules out the possibility that sex robots will increase demand for the purchase of sex! For the moment, the arguments on both sides are speculative. Richardson states that “new technology supports and contributes to the expansion of the sex industry,” citing the growth of the sex industry spurred by the expansion of internet. To me, this seems like a very weak argument; there is an obvious, meaningful difference between the internet’s effects on human sexual commerce and sex robots’ potential effects on human sexual commerce.

My prediction is that, like sexual violence and pornography, the substitution effect will dominate. I also predict that this substitution effect will be larger for sex buyers who aren’t as interested in the mutuality aspect of commercial sex: arguably a more problematic group of sex buyers.

Let’s say I’m wrong, and that sex robots turn out to be a complement to buying sex. Would an increase in demand for sex work brought about by sex robots necessarily be a net harm to society? The whole ‘End Demand’ approach to sex work is fundamentally flawed, and any potential harms must also be weighed against potential benefits such as using sex robots to alleviate loneliness and assist in sexual therapy.

It’s also worth noting that whilst men are almost certainly going to be the primary market for sex robots, they aren’t the only group involved. Dr. Richardson briefly highlights this in her position paper:

“But the development of sex robots is not confined to adult females, adult males are also a potential market for homosexual males.”

Women of all sexualities are also likely to comprise a non-trivial proportion of sex robot owners. In the few surveys conducted into attitudes towards sex robots, women “answered positively about half as often” as men. The idea that some women may purchase sex robots as they become more widely available is not that farfetched.

In the coming years, the debate over the legal and societal approaches we should take towards sex robots will become more prominent. That conversation must include voices that emphasize their potential positive impacts and call out evidence-free scaremongering.

Categories: Current Affairs

Review: The Political Spectrum by Thomas Hazlett

Wed, 12/07/2017 - 13:39

The Political Spectrum: The Tumultuous Liberation of Wireless Technology from Herbert Hoover to the Smartphone by Prof Thomas Winslow Hazlett. Yale University Press

Prof Thomas W. Hazlett, who recently spoke at the ASI, has accomplished something remarkable with The Political Spectrum. He's written a history of electromagnetic spectrum regulation that’s entertaining, inspiring, and has massive implications for the technologies of the future like driverless cars and drone delivery.

Hazlett, who served as the Federal Communications Commission’s chief economist in the early 90s, traces the history of the electromagnetic spectrum from AM Radio to the iPhone.

He starts by busting the founding myth of spectrum regulation, that without strict regulatory management was necessary to save radio from itself. Contrary to the established view, before the Federal Radio Commission (the FCC’s predecessor) existed the radio spectrum was not in chaos with a cacophony of radio stations blasting signals that drowned out rival broadcasts. In fact, there was a burgeoning market for AM Radio with hundreds of stations in operation resolving disputes and interference with nothing more than the principle of priority-in-use and the common law. It was Herbert Hoover, one of the book’s many villains, who put an end to that. Refusing to enforce property rights in order to create a justification for political control of the airwaves.

In place of a competitive, innovative market that served consumers and where government's sole role was to enforce and define property rights came the Federal Radio Commission and ‘Mother May I’. Innovators could no longer enter the market and many stations were booted off the air.

Rather than a system of tradable property rights, broadcasters instead had to get a license from the regulator and were forced to serve the ‘public interest’. Political broadcasters could get kicked off the air for offending the wrong politician, indeed the book notes that Nixon sought to use license renewals to punish the Washington Post’s parent company during the Watergate scandal.

Frequently the public’s interest was betrayed by regulators and lobbyists uniting to block innovations. The most tragic case is FM Radio. Developed in the 1930s by Prof. Edwin Howard Armstrong it delivered unprecedented sound quality. After eventually being granted permission to use the 42-50 mhz band, the FM radio became a must-have gadget. But Armstrong was hamstrung by nefarious lobbying by NBC and CBS.

They advanced the absurd view that FM Radio ought to be booted off its assigned frequency and relocated higher up the dial in order to prevent ‘ionospheric interference’ from sunspots. Leading radio frequency scientists rejected this proposal citing thin technical evidence. If anyone should have been concerned about sunspot interference, it would have been Armstrong – after all he had a substantial fortune riding on FM radio being a better product. The FCC however didn’t see it that way and pushed FM up the dial.

As a result, existing FM equipment from transmitters owned by stations to receivers owned by listeners was made obsolete overnight. It took Armstrong two years to develop receivers for the new bands, by the time he was finished few consumers wanted to invest in an expensive FM radio that could be made useless.

Only when the FCC approved stereo broadcasting for FM in 1960 (26 years after Armstrong had demonstrated it was technically feasible) did FM win out attracting audiophiles for high-fidelity listening. Tragically Armstrong didn’t make it that far. The failure of his technology and an acrimonious lawsuit lead to him walking out of the 13th floor apartment window. Overbearing regulators and greedy lobbyists denied the world one of its greatest inventors.

Hazlett’s book is full of similar stories where innovators are blocked by the FCC’s onerous approvals process. It wasn’t until 1959 when the book’s hero, Ronald Coase, wrote a paper on the FCC did things slowly change. At the time, his paper was ridiculed and editors criticised him for failing to address the problem of externalities (his 1960 paper addressing the problem is the most cited law review paper in history).

Coase thought the solution was simple. Rather than relying on bureaucrats to approve technologies and broadcasters, simply let the market work. Coase proposed that the FCC should auction off the spectrum to the highest bidder. It would incentivise the spectrum to be used in the most productive way possible. Innovators would no longer have to rely on lengthy approval processes, they simply had to purchase the rights to use spectrum on the secondary market. Mocked at the time, Hazlett's book tells the story of how one British economist changed overhauled the way spectrum was managed and allowing consumers to benefit from new innovations as soon as they were discovered (unlike the 26 year wait for FM Radio).

While many legacy uses still rely on strict regulatory oversight, today most countries have auctioned off swathes of the spectrum enabling the rapid adoption of smartphones. It’s a true victory for free market economics, but the fight’s not over. The public-sector still hoards large sections of spectrum that they’re too slow to clear and legacy users still benefit from overgenerous allocations of spectrum.

Prof. Hazlett’s book offers lessons that have clear implications for the future beyond spectrum. Brent Skorup and Melody Calkins have taken the insights of The Political Spectrum and applied it to the issue of drones and flying cars, two technologies that could revolutionise modern life. The open access standard where anyone can use low-altitude airspace will be under threat when new uses multiply.

Skorup and Calkins fear that the open-access standard will be replaced with the FCC style regulation that Hazlett conclusively demonstrates retards innovation:

1. First movers and the politically powerful acquire de facto control of low-altitude
2. Incumbents and regulators exclude and inhibit newcomers and innovato
3. The rent-seeking and resource waste becomes unendurable for lawmakers,
4. Market-based reforms are slowly and haphazardly introduced

They suggest a Coasean alternative - auction off airspace and then allow a secondary market to develop. Parcels of airspace could be combined, split-up, subleased and sold off allowing innovators to enter and leave the market with the best uses winning out.

Today, Skorup and Calkins idea might be ridiculed – but then again so was Coase. It wasn’t until he was well within old age that Coase’s market in spectrum was vindicated (he received the Nobel Memorial Prize aged 81). Let’s hope that that we don’t have to wait so long for a market in airspace.

Categories: Current Affairs

Pages

Additional Terms