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 102 posts from the blog 'Adam Smith Institute.'

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Against rural broadband

Mon, 25/09/2017 - 15:21

Society got very excited about the invention of the car. From the 1950s onwards especially, governments around the world began huge road-building projects, bulldozing swathes of cities for huge multi-lane dual carriageways. This frenzy has subsided, and it's largely clear how this ideological expansion reformed our cities for the worse.

Highways are a crucial part of a nation's infrastructure. Turnpikes—privately-funded and toll-financed roads—were, alongside the private waterways network, a key part of the earliest stages of England's industrialisation. Their high tolls—the rents earned by those who built them—were incentives for the creation and rapid expansion of the world's first, and for a long time the greatest, railway network. So much for natural monopolies: price competition was so vigorous that Mancunian workers and industrialists (and eventually the city corporation) funded a canal that made the city, 40 miles inland, the world's third biggest port.

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But it's all too easy to go from thinking something is beneficial in particular contexts to thinking we should expand it indefinitely, even outside of that context. In post-war Britain, infrastructure investment was not driven by the profit motive—it was driven by a conviction that cars were the future. Birmingham is, of course, an especially prominent UK example of this. But it happened almost everywhere, and London was only just saved. The US midwest provides even more extreme examples. Of course, the more heavily roads and parking were subsidised, the more rapidly transit declined.

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An insightful short newsletter, which I saw online like a blog post, applies this insight to broadband.

Our rampant enthusiasm for involving computers in everything reminded me of the last century's most important technological revolution, the automobile, which turned out differently than it began. Like computers today, cars were once so novel and promising that we "did the things that let us use cars" rather than the inverse.

That honeymoon period lasted long enough (and for some it hasn't ended yet) to entirely and permanently remake the infrastructure of cities, the most familiar example being the wave of support that enabled Robert Moses to slice New York apart with expressways. By the time the car's real problems became visible—traffic, pollution, physical danger, and social atomization—it was too late to reverse its complete dominance. Most of the rebuilding was already done.

Right now, we're building a digital infrastructure that rivals the physical one we built for cars, just as fast and with equally uncritical enthusiasm. If freeways prioritized cars at the expense of people, this prioritizes bits similarly, no less because we've all begged for it. Of course, it's still too early to say what the internet version of gridlock and global warming will turn out to be once its saturation of society is complete.

In the eyes of this author, it's Zuckerberg and Jobs we should be worrying about, but I'm not sure. See, like private road, rail, and waterways, Facebook and Apple have automatic feedback mechanisms that help guard against both overexuberance and underexploitation: profit. Yes, private firms make crazy decisions, but when they do they get wound down, automatically. They only stay alive, assuming a decent institutional framework, when they satisfy preferences. Uber's venture capitalist investors can only subsidise riders while they have money in the bank. Historically we can see that government-funded boondoggles have not faced this discipline.

So I'm sceptical about the clarion calls I hear absolutely everywhere that we should spend billions of pounds, or hundreds of billions around the world, building broadband because the internet is the "technology of the future". It probably is, but unless we have incredibly solid evidence that broadband has large net positive externalities, then we should let it roll out privately; when people are willing to pay how much it costs society to build. Real technologies of the future fund themselves.

Categories: Current Affairs

We most certainly welcome this People's Trust Fund, oh yes we do

Mon, 25/09/2017 - 07:01

We think this is an absolutely wonderful idea, the People's Trust Fund. Not, we hasten to add, that we're saying anything at all about how you should invest. Rather, this is going to be the most wondrous test of what we are really pretty sure we know about markets, finance and investment.

As The Guardian says:

An investment fund that promises to break the mould of City short-termism and aims to make gains of 7% a year is to open for small investors able to put in as little as £500.

As they say in a little more detail themselves:

Nobody can be sure what our investment returns will be, but we believe that over a typical seven-year period, our strategy should be capable of turning £100 into £160 – that’s a total return of 7% a year compound, after costs, and assumes that inflation runs at 2% p.a. over the period.1

In terms of your spending power, this is the equivalent of 5% p.a., giving your £100 a value of around £140 after seven years, after inflation.

A 5% real return after costs? That is a remarkable offer. So, how are they to do this?

Well, firstly the investors own the company - so, it's like Vanguard in that sense, a mutual. Secondly, no cash bonuses for anyone, only shares in the fund itself- be interesting to see how the dilution works there. They'll accept investments as small as £500 or even £25 a month. Those logistical costs of management are going to be quite high.

Further good things:

 The People’s Trust will also aim to improve lives directly and immediately, by using a small proportion of the fund to lend to charities and community interest companies that have a direct social impact. This is not charity; we expect a modest return on these loans – but you’ll know this money is being used with the aim of doing good in society.

Deliberately lending at modest returns in order to produce a 5% real return.

Further:

The day-to-day money management will be done by five fund management groups, which will each be given a seven-year contract to ensure their performance horizon is the same as the underlying investors.

It's a fund of funds, meaning two sets of fund management costs.

The special magic sauce here is that it will be a long term investment fund. Eschewing all short term fads and fancies, along with making sure that everyone pays all their taxes and so on.

That is, an investment strategy that simply hasn't occurred to any of the other half a million people working in The City is, through that fee structure, charitable endeavour and tax insistence, going to deliver a 5% real return to investors.

That would indeed be most welcome - as we know, over the long term managed funds tend to underperform the basic indices precisely because of those management costs. And it would be welcome too, not least for the investors.

But also it would greatly inform the rest of us out here labouring as we do under that efficient markets hypothesis. That known information about prices is already in prices and therefore no one can consistently and long term outperform that market. Or rather, if someone does then they're very definitely a statistical outlier (Warren Buffett doesn't quite count here, his insurance float means that his cost of funds is rather below that of Treasuries, below everyone else's in the market).

This is going to be the most wonderful test of exactly that basic critique of the current investment markets. If it is true that short-termism damages investment returns then this fund has a chance of proving that. Our own supposition is that that's a simple enough idea that someone's had it before and tried it but still, we look forward to the disproof of our contention.

Categories: Current Affairs

In which we entirely agree with John Harris of The Guardian

Sun, 24/09/2017 - 07:01

Something we entirely agree with:

No one, surely, is going to be able to roll back a social transformation that dates back to the era of Margaret Thatcher.

Excellent, now that we've got the issue of council housing out of the way we can move onto important matters:

Which takes us to the question posed by our presumptive next king-but-one, and the stupid tangle of legal and cultural conventions that get in the way of recognising what is happening, and doing something about it. Just as hardened heroin addicts are often killed by dealers who play fast and loose with their supply, so it is with scores of young ecstasy users. In other words, for as long we allow our young people to ingest chemicals cooked up in bathtubs by career criminals, with no means of checking what on earth they are about to swallow, tragedies will happen.

I am as unsure about the sweeping legalisation of drugs as Prince William appeared to be. God knows how you liberalise the supply of crack; the idea of powerful hallucinogens available from your local off-licence seems problematic to say the least. But the idea of decriminalising at least the possession of most drugs seems increasingly unanswerable – and in time, it is not hard to envisage the liberalisation of cannabis pioneered by a handful of US states extending to Britain, as well as ecstasy being legalised, made subject to official standards, and freely bought and sold.

We are not unsure. As Harris ably describes it is the very uncertainty of what is being ingested which causes the problems with what is being ingested. Even with heroin this is true - certainly, Shipman turned out to be a mass murderer but he was also an entirely functional one and also entirely functional GP for some decades while on good, pure, pharmaceutical grade stuff. 

We actively desire that suppliers be held responsible for the purity, consistency, of what they supply, just as in any other area of life. All of which means that it should be legal, so we can sue them, so that there is the incentive to create brands which are indeed consistent. 

It really is worth noting that the branding of food took off in the 1850s, largely solving the problems of adulteration rather before legislation upon this matter in the 1870s. Food that doesn't kill people gains market share against that which does. Drugs which don't kill people will equally so.

It may even be that drug taking is immoral, that it's a waste of a life, but whose life it it anyway? To be a liberal is to say that it is the life of the person living it. And we here are utilitarians, simply desiring what works best given that fallible material being worked with, human beings.

We're still not quite convinced that heroin should be sold in sweetie wraps so that 5 year olds can chase the dragon. But the closer that consenting adults get to being able to purchase known drugs, in known purities, with the standard consumer comebacks for failures on either part, then the fewer people will die from taking drugs - and, of course, the more people will be able to follow their desires.

And what else can drug policy be other than management at least damage of something that happens anyway?

Categories: Current Affairs

How terribly amusing from the European Commission

Sat, 23/09/2017 - 07:01

There's a great deal of shouting from the European Union about the taxation of digital business. An insistence that really, such companies must be paying more tax where value is added. Which is, of course, how the system currently works. Most of he value is created in the US, given that's where all the programmers are, and that's where it gets taxed, under US rules. Really - profits cannot be paid out to shareholders until US profit taxes are paid.

This doesn't satisfy European politicians of course as they want to be able to spend that revenue. Thus the shouting. However, in the course of their reasoning they let slip something terribly fun, an agreement, an admission perhaps, that we shouldn't be taxing corporations at all:

In the field of taxation, policy makers are struggling to find solutions which would ensure fair and effective taxation as the digital transformation of the economy accelerates. There are weaknesses in the international tax rules as they were originally designed for "brick and mortar" businesses and have now become outdated. The current tax rules no longer fit the modern context where businesses rely heavily on hard-to-value intangible assets, data and automation, which facilitate online trading across borders with no physical presence. These issues are not confined to the digital economy and potentially impact all businesses. As a result, some businesses are present in some countries where they offer services to consumers and conclude contracts with them, taking full advantage of the infrastructure and rule of law institutions available while they are not considered present for tax purposes. This free rider position tilts the playing field in their favour compared to established businesses.

Not paying corporation tax is an advantage to those who don't pay it as against those who do. Which is what we've been saying about corporate and capital taxation all along. If you tax corporations then there will be less investment in them in your economy. This makes everyone poorer - the deadweight costs are high. This is indeed exactly the same reasoning which leads us to insisting, as a result of optimal tax theory, that we shouldn't be taxing the corporations at all.

Which is interesting, even amusing, don't you think? The EU's justification for why they just must tax companies is the very reason basic theory says we shouldn't be taxing corporations at all.

Categories: Current Affairs

We're struggling to see what the problem is quite frankly

Fri, 22/09/2017 - 07:01

We're aware that we might not be quite in tune with the zeitgeist here but we do find it difficult to understand what is the problem here:

The ranks of Queen’s Counsel are the elite of the legal profession’s advocates. To take silk — so-called after the silk robes worn by the 10 per cent or so who attain the initials “QC” — is a passport to status and higher earnings. So who gets it, and how, matters.

Yet despite fundamental reform in 2005 to end the system’s reliance on judges’ comments and the lord chancellor’s decisions, women still do not put themselves forward in anything like the same numbers as men.

As it happens women seem to achieve this exalted rank in about the same proportion as they put themselves forward. The portion of newly appointed QCs that are female also seems to be about the same as the the portion of those lawyers of the appropriate seniority who are female.

We'd thus start with the idea that the appointment of QCs isn't a problem. As the analysis goes on, what is actually happening is that rather more of the women - than the men - who qualify to be lawyers don't progress in their careers to the point where they might be considered as QCs. Yes, obviously, family life and children.

That is, those who take the career breaks - or, as is mentioned, restrict their travel or activities for the same reason - to raise their children tend not to reach the upper reaches of the profession. We are really quite certain that the same would be true of men who took such breaks, restricted their activities in such a manner.  

Which is why we can't see what the problem is. Those who strive for the brass ring seem to have, whatever their gender (and the same seems to be true of ethnicity), the same opportunity to grasp it. Which is about what we would hope society did and does. People should indeed have the liberty, even the right, to organise their lives as they wish, to pursue their own goals. That's rather what being a liberal means and we're most definitely that, liberal.

That those who don't work nose to the grindstone for 20 years don't become QCs does not worry us. For the same reason that those who do not qualify as lawyers don't become QCs does not worry us. People make choices in life, they get to enjoy living as they wish. But, as ever, making one choice does rather preclude some other outcomes - opportunity costs do always exist of course.

Categories: Current Affairs

The ASI at Tory Conference: cannabis, vaping, clubbing and winning over Millennials

Thu, 21/09/2017 - 10:50

Let's face it, Conservative Party Conference can get a bit stuffy. But that's definitely not the case when it comes to the ASI's conference fringe line-up. We're discussing issues that really matter on topics that are often neglected, but vitally important if you care about a free society.

We're hosting three events inside the secure zone (that means to attend you'll need a conference pass) over the Monday and Tuesday covering e-cigarettes, cannabis legalisation and winning over young voters with free market policies.

On the Monday we've got two panels. The first (at 1pm-2pm in the Stanley Suite at the Midland Hotel) will cover how innovation (and not nanny state regulation) has been the driving force behind millions quitting smoking, and what we can do to ensure that more people can benefit from innovations like e-cigarettes. Regulations from Brussels are threatening the harm reduction revolution, imposing silly rules on vape canister sizes and preventing vendors from fully informing customers that e-cigs are (at the very least) 95% than tobacco.

We've got a great panel for it. Media GP, Spectator Columnist and author Dr Roger Henderson will be speaking about the public health divide on harm reduction. Roger probably knows more about giving up smoking than anyone else, indeed he's been the face of NHS stop smoking campaigns. He'll be joined by Christopher Snowdon, who's work as Head of Lifestyle Economics should be known to every reader of the ASI blog. Chris is a fierce opponent of the nanny state and a strong critic of the EU's Tobacco Products Directive. He vapes. Representing the ASI will be Sam Bowman, our Executive Director. He's a big advocate of Sinnovation, the idea that innovations in vice products like heat-not-burn cigarettes could have massive benefits for public health and reach people who'll never sign on to a public health campaign. Also from the ASI will be our Director, Eamonn Butler who'll be chairing the panel. Given the sheer number of people who suffer from smoking-related illnesses and the massive prospects for e-cigs to dent that, this could be the most important discussion you will see at Tory conference. For more info, click here.

Sticking with the harm reduction theme, we've partnered once again with Volteface, Britain's best drug reform think tank on an event (4pm to 5pm - Central 3) entitled 'how to stamp out street cannabis'. We'll be talking about how cannabis legalisation can address the drug problems that Conservative voters really care about. Just as alcohol prohibition led to stronger booze, no ID checks and violent crime, so to does the legal fudge on cannabis. States in the US that have legalised cannabis have been able to regulate purity and strength, force sellers to check IDs, and tax it to pay for drug treatment. 

We've got a great panel to discuss what we can learn from the US and Canadian experience. Crispin Blunt MP (a former criminal justice minister) will be speaking. He's always worth listening to, especially since last year he declared his support for full drug legalisation at an ASI party conference event. His experience on the foreign affairs select committee gives him a unique perspective on the harms of cannabis prohibition. Joining Crispin will be Steve Moore who's the Director of Volteface. Steve's, one of the few drug reformers who really gets the need to win over and address the concerns of Conservatives as well as liberals. He's a true expert on drug policy. Rounding out the panel will be Sam Bowman, who's been leading the ASI's drug reform push. For more info, click here.

Cannabis and vaping lead in nicely to our third secure zone panel on Tuesday, 'The Millennial Manifesto: how to win over young voters' (4pm - 5pm - Central 3, ICC). Young voters opted for Corbyn's socialist agenda at an overwhelming rate. If the Tories are ever going to win another majority they'll need to have a message that appeals to young people. We've already chipped in to the debate with Dr Madsen Pirie's Millennial Manifesto grabbing headlines with policies that cut taxes, build houses and prioritise mental health. 

Our panel will tackle the issues that young voters care about and make the case that the Conservatives change to win over the young. Dr Madsen Pirie, President of the ASI will make the case for his Millennial policy agenda. Alongside Madsen, will be the ASI's former head of comms and current IEA News Editor, Kate Andrews. Our Head of Research Ben Southwood will be joining the fray making the case that bribes won't work and that the only real way to win over young people is to start building more houses. Grant Tucker, Diary Reporter for The Times will be chairing the panel. For more info, click here.

As well as our secure zone panels, we're doing an invite-only one outside the secure zone at a nearby music venue on Tuesday at 6pm (email samd@adamsmith.org if you want a place) on a new approach to 'preventing club drug deaths'. Clubbing may not be the first thing you think of when you hear the words Conservative Party Conference, but with the Conference returning to Manchester, a city that can claim ownership of clubbing culture like no other in the UK, it is a perfect fit for a debate on the opportunities and the threats to the industry.

We'll be discussing how to prevent club drug deaths and how innovative harm reduction solutions like The Loop's Multi Agency Safety Testing are having a real impact. Working with Volteface and The Night Time Industries' Association we've assembled an incredibly cool panel.

We've got Paul Staines (aka Guido Fawkes) chairing the panel, who before becoming the most feared voice in Westminster stood up against anti-rave regulations with the Freedom to Party campaign. We've got Volteface's Policy Director, Henry Fisher, who's heavily involved in The Loop's drug testing. Alan Miller, Director of the Night Time Industries Association will be making the case against excessive regulation of venues, and Sacha Lord Marchionne, founder of Parklife and The Warehouse Project (Manchester's superclub) will be talking about how venues can be a force for good by working with the police and groups like The Loop. If that wasn't enough, we've also got The Loop's Director Prof Fiona Measham joining us via videolink from New York.

It's sure to be a cracking couple of days.  If you'd like more info or to request a place at our club drugs event, then send an email to samd@adamsmith.org

 

Categories: Current Affairs

Once again the NHS is evidence of Baumol's central contention

Thu, 21/09/2017 - 07:01

Or as we should put it, the NHS is evidence of both of Baumol's central contentions. The first is that one that many know, the Cost Disease. As technology marches on it is easier to increase productivity in manufacturing rather than services. But wage rates are set by average productivity across the economy thus services will rise in price as against manufactures over time. The NHS is largely a service and this then explains the NHS having an inflation rate above that of the general economy.

We're perfectly happy with that basic analysis by the way, we just don't think that it explains all of the NHS' higher inflation rate. However, here's the other of Baumol's major contentions coming into view:

Maternity wards have done ‘very little’ to prevent serious medical errors in the past 20 years, a damning report warns.

Babies are today just as likely to suffer brain damage as a result of blunders made by midwives and doctors as they were during the late 90s.

Midwives are failing to properly monitor heartbeats and junior doctors are attempting to perform complex deliveries with no previous experience.

The report by NHS Resolution – the health service’s legal body – examined 50 cases where the health service admitted liability for babies being born with cerebral palsy, a form of brain damage, between 2012 and 2016.

That other major contention being about invention and innovation, those things which lead to those increases in productivity in the first place. The two, the Cost Disease and the creation of innovation making up a unified whole. 

His observation being that governments and planned systems can do invention just as well a market and competitive systems. However, they are considerably worse at innovation, the gradual and continual refinement of processes so as to increase that productivity. Actually to the point that entirely planned systems, like say the Soviet Union, manage to make no, none, advance in such innovative productivity even while they can indeed invent satellites and so on.

Productivity here is clearly the amount of labour being used in maternity wards as against the number of children damaged by errors on those same wards. Fewer damaged would be an increase in productivity.

The point is not that the errors happen - no human based system is ever going to be free of those. Rather, that there has been no improvement in this planned system over the decades. Exactly Baumol's point, planned systems don't manage to do this.

Rather why we should indeed be having a market - even if government funded - in health care, yea even in the NHS. It's for the children, you see?

Categories: Current Affairs

Which groups are most affected by minimum wage increases?

Wed, 20/09/2017 - 11:06

A new NBER paper released last month examines how minimum wage increases in the U.S. affect employment in low-skilled automatable jobs. Consistent with the majority of papers on the subject, it finds that low-skilled workers (high school diploma equivalent or less) holding such jobs become unemployed as a result of minimum wage increases.

As the authors explain, many papers examining the effects of increasing the minimum wage focus on teenagers and restaurant workers. However, this study aims to shed light on how other subgroups are disproportionately affected by minimum wage increases:

...the perspective we adopt in this paper suggests there may be subgroups of workers among those groups not usually considered in the minimum wage literature who may be adversely affected by minimum wages, because they tend to be employed in automatable jobs.

My colleague Sam Bowman has previously explained what elasticities mean in the context of the minimum wage debate: “an elasticity of -0.5 means that a 1% rise in the minimum wage is associated with a 0.5% fall in employment for the affected group.” Although the paper measures the effects of a minimum wage increase in a different way, the corresponding elasticities can easily be calculated.

Overall, the estimated elasticity for low skilled automatable jobs is -0.08: a small but negative effect on employment. However, the effects are markedly more pronounced for older workers (age >40) in automatable jobs and their young counterparts (age ≤25). In the case of automatable service industry jobs, low-skilled young people saw an elasticity of -0.28, with the figure for older workers being -0.22. Older manufacturing workers faced an elasticity of -0.19. Younger manufacturing workers fared even worse, with an elasticity of -0.53.

The authors also find that women in automatable jobs are more likely than men to become unemployed as a result of minimum wage increases. For men, overall elasticity was -0.09. For women, it was -0.13.

As for those low-skilled workers that managed to hold onto their automatable jobs post-minimum wage hike, the paper finds a decrease in the amount of hours worked:

...a $1 increase in the minimum wage generates a 0.23 decrease in hours worked for low-skilled individuals who held an automatable job in the previous period. The decline is negative and statistically significant in manufacturing, transport, wholesale, retail, and services (sometimes only at the 10-percent level).

Perhaps the most interesting finding is that the effects of minimum wage increases on automatable jobs seem to be getting larger over time. The Bureau of Labor Statistics dataset used by the authors runs from 1980-2015, but using data from 1995-2016, the authors find a noticeably higher disemployment effect (an overall elasticity of -0.27). This is hardly surprising; as technology advances, the cost of substituting labour for capital goes down. But there is now empirical evidence to support the claim that the disemployment effects of the minimum wage are getting worse over time.

Of course, this is just one paper in a sea of economic literature on the effects of the minimum wage. But it’s worth remembering that even if the minimum wage doesn’t kill jobs, or lower overall hours worked among the least well-off, it may still hurt the poor in other ways.

Categories: Current Affairs

We confess to finding this amusing rather than worrying

Wed, 20/09/2017 - 07:01

Boris is being shouted at over that £350 million figure and perhaps he should be and perhaps he shouldn't. But it takes Mr. Polly Toynbee to tell us that this is a constitutional crisis:

The Boris Johnson affair – especially his dismissive rejection of the UK Statistics Authority – provokes a constitutional crisis. Not constitutional in the formal sense of the workings of parliament and the Crown, but in the spirit and procedures of Whitehall.

The head statistics bod tells us and Boris that £350 million might not be the correct number, could even be a misleading statistic.

We will confess that we don't monitor the slapdowns that head statistics bods give to Ministers but we do recall just the one earlier example, Harriet Harman and various Labour Ministers talking about the gender pay gap. A number then wrongly used by Gloria del Peiro some years later, also by the EHRC. We're absolutely certain that there are examples of Polly repeating it.

What we don't recall is The Guardian (except in that piece by one of us) pointing this out and we most certainly don't recall anyone, not even us, describing it as a constitutional crisis.

No, not worrying, for we are far too mature in years to even dream that people would use statistics to illuminate rather than obfuscate in politics. We're also well aware that if politics didn't have double standards it wouldn't have any standards at all.

Tu quoque is indeed a logical error but it is amusing when it can be pointed out.

Categories: Current Affairs

The risks of Brexit

Tue, 19/09/2017 - 17:20

Here at the ASI we don't always agree on everything, and Brexit is probably where we debate amongst ourselves the most. It's in a similar spirit that I've been taking part in this month's edition of Cato Unbound, where four people debate through a series of essays and responses. This time I've joined Dan Hannan MEP, Cato's Ryan Bourne and the American Enterprise Institute's Dalibor Rohac to debate Brexit.

My view is that the costs and risks are very significant, which I've tried to outline in response to Dan's sunny, optimistic vision of things to come. I don't believe in trying to stop Brexit or hold a second referendum in the near future, but I do think that recognising the costs (as I see them) will help mitigate some of the costs. My basic claims are that the British people aren't as liberal as Dan thinks, that the EU acted as a restraint on democracy that enhanced liberty (when the two are in conflict, I will choose liberty every time), and that the new opportunities Brexit creates are outweighed by the things we lose:

Maybe Brexit gives us the chance to reform areas the EU wouldn’t let us. Fishing and farming have long been some of Brexiteers’ biggest complaints about the EU, but so far there is little appetite for reforms like creating property rights over fisheries stocks or cutting farm subsidies. Pro-Brexit politicians have been given control over these areas but have been at pains to stress just how little will change. We already have full control over things like healthcare policy – and, with the National Health Service, have chosen one of the most centrally planned systems in the world.

So what does “taking back control” really mean in a country with no checks and balances and no codified constitution? Parliament is supreme in Britain. No domestic body can overrule it, and a Parliamentary majority is equivalent to an unlimited dictatorship.

This has served us well enough, though it is what allowed the post-war Labour government to set up a nationalized healthcare system and nationalise the entire energy sector, the railways, road haulage, the steel industry, and more, all virtually unopposed in only six years.

For decades the EU has acted as a check on that kind of state overreach: stopping the Scottish government from establishing a prohibitionist price floor on alcohol, forcing member states to open up state-dominated markets to private competition, and barring European states from subsidizing or otherwise protecting their native industries from foreign rivals. These policies were part of what helped the British economy to return to health in the 1980s, complementing and supporting Margaret Thatcher’s reform programme. The system is flawed – I have been a vocal critic of bad EU rulings over Google and antitrust – but it has proved better than the alternative.

Read the whole thing.

Categories: Current Affairs

Coal kills people apparently - sadly, so does everything else

Tue, 19/09/2017 - 07:01

What is assumed to be a top and trumping argument from Australia:

Coal kills people. This isn’t even slightly scientifically controversial.
From the mines to the trains to the climate disruption; from black lung to asthma, heat stress to hunger, fires to floods: coal is killing people in Australia and around the world right now.

Yet we are once again having what passes for political debate about extending the life of coal-fired power stations and, extraordinarily, building new ones.

It's entirely true that the mining of coal, the use of it, does indeed kill people. But this is not a top and trumping argument, because everything kills people. Solar power kills people, nuclear does too (rather fewer in the second case but still), hydro has killed hundreds of thousands in catastrophic failures, people have been falling off windmills since at least the 12 th century AD in Western Europe when the technology first arrived.

Not having energy also kills people. Having only expensive energy kills people.

Every method and mode of producing energy kills people, every method of organising the economy kills people as does not having an economy organised in any manner, every mode and method of life kills people too. What matters is which kills the fewest and the answer is that, yes, coal kills people, rather fewer than not having any energy. That's actually our entire problem with climate change, that emitting or polluting energy sources have their downsides, but so does no or expensive energy.

But we would really reserve our ire for this misunderstanding:

In capitalism, we have created the first social organising principle based on selfishness, the first system to make greed, competition, non-cooperation its credo.

Capitalism, or if you prefer, global markets - which is what is being complained about here - enables the some 5 billion of us (some 2 billion are still as yet, and sadly, not quite plugged into the global economy) to cooperate with each other to our ever greater enrichment. To insist that the one system which enables that widespread cooperation is based upon non-cooperation is indeed a misunderstanding. Perhaps one so egregious that it rises to the level of idiocy.

Categories: Current Affairs

Airbnb and discrimination

Mon, 18/09/2017 - 17:32

I have repeatedly blogged about discrimination, especially against women and non-whites in labour markets. On raw numbers we often see different outcomes between groups, and since we know that discrimination goes on, we often instinctively attribute these "gaps" to discrimination, as Tim Harford does in an otherwise nice piece here. But once we dial down and get more detail, the gaps often evaporate—the more employers or clients have about individuals, the less they use averages about groups.

Three recent papers looking at room rental service Airbnb find things that point towards a similar conclusion. The first, by Ben Edelman, Michael Luca and Dan Svirsky (pdf) finds that applications from guests with distinctively African-American names are 16pp less likely to be accepted. It looks like an instance of straightforward discrimination, but the authors don't test for alternate possibilities (e.g. controlling for crime rates or socioeconomic status what is the effect of race), so it's impossible to say for sure. However, they do find that African-American hosts accept African-American applicants at the same rate as white hosts, implying sheer racism is unlikely to be the explanation—although of course it very reasonably may not feel that way to black Americans unable to find a room.

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A second paper, from Morgane Laouénan and Roland Rathelot (pdf), also finds a raw gap between races, but they have the sorts of data that can distinguish between bigotry and statistical discrimination. Guests demand ethnic minority hosts' apartments less—resulting in prices 3.2% lower on average—but when minority hosts have reviews on the system this gap mostly goes away. It is not completely overturned, and guests do seem to have some sort of "taste" for same-ethnicity hosts, but this forms a relatively small portion of the gap, less than a quarter. They hypothesise that an even better feedback and information system would narrow the gap further.

Finally, a third paper, from Ruomeng Cui, Jun Li, and Dennis J Zhang (pdf) finds the same thing. Absent reviews, people discriminate against groups based on lower intra-ethnic trust, and facts like average crime rates. But as reviews accumulate—even bad ones that are not that bad—the gap falls towards zero. They call on platform owners like Airbnb to more strongly motivate reviewing to add information and shift judgements from "coarse grained" info like averages towards things centred on the individual.

As I said above, statistical discrimination may not feel fair. Yes, it's based on true facts (or it's driven out) and yes it's efficient (in the absence of better info), but it still judges you not like an individual, but like an average of your observable characteristics. But, satisfyingly, increasing info seems to work, driving out even statistical discrimination through robust endogenous incentives. People aren't incorrigibly discriminatory, they just need more data.

Categories: Current Affairs

Immigrants are taking our jobs, but..

Mon, 18/09/2017 - 14:50

The government has targeted low-skilled workers in the recently leaked government papers, suggesting a restriction on the amount of foreigners in low-skilled occupations. The paper insinuates that low-skilled immigrants are not valuable to the country because they don’t make existing residents better off. The argument consists of beliefs that UK wages are being driven down and that UK jobs are being taken away from natives. This is a common fallacy in the public debate and I beg to differ. Here’s why:

A paper from 2016 written by Mette Foged and Giovanni Peri looks on the longitudinal data from the period 1991 to 2008. Throughout that period, Denmark experienced and immense inflow of low-skilled workers from Bosnia, Somalia, Iraq and Afghanistan and it therefore gives Foged and Peri a good foundation to assess data from this period.
The three main findings in their analysis are as follows:

First, the increase in refugee-country immigrants pushed less educated native workers to change occupation. [...]  Second, less educated natives experienced positive or null wage effects and positive or null employment effects. [...] Third, as we compare a cohort-based analysis and an area-based analysis we find that the direction and magnitude of the effects on native outcomes are similar using either method and the wage and specialisation effects persist in the long run.

Nonetheless, it’s true that immigrants are taking native jobs. However, it’s not because of the reasons normally stated in the public debate. Rather, it’s because immigrants basically forces natives to be mobile and specialise themselves and thus gain entry to a higher paying job. Therefore, immigrants are stepping onto the lowest step on the ladder while pushing the natives upwards in the process.

Although, the paper states that there is not necessarily a positive change in natives’ wages, but there is not necessarily a negative effect as well. If there are any positive effects, they occur after three years and are permanent afterwards.

The reason for this potential gain in wages is explained in another paper and is complementary to the paper referred to above.
It too suggests that native workers are able to generate higher wages through specialization. According to this study, production consists of different kinds of skills. Immigrants who are less educated have a comparative advantage when it comes to physically demanding tasks, whereas natives of the same level of education have an advantage in tasks demanding better communication and language skills. Therefore, when the increase in physical labour supply pushes native working to a job demanding better communication and language skills, the natives are rewarded through their wages.

As it turns out, immigrants can in fact be an asset in the future and make the current residents better off. The leaked government proposal therefore seems to be projected at addressing the concerns of the public rather than actually looking at the reality of things.

Our Executive Director, Sam Bowman, wrote an article on this a few years back. If you enjoyed this piece, have a look at his piece as well.

Categories: Current Affairs

The right is to blame for the proliferation of dangerous leftist eco-nonsense

Mon, 18/09/2017 - 12:29

“This changes everything” is perhaps the leading siren call in the face of climate
change. For a certain sub-genre of leftist, the existence of environmental issues
means only one thing. Capitalism, modernity, growth, consumerism, and
industrialism are to blame, and a paradigm shift is necessary to save humanity
and the earth. We must embrace a zero-growth, or even degrowth, economy with
significant central planning and curtailment of consumption. The alternative is
global catastrophe.

This is, of course, absolute nonsense. As Tim Worstall has pointed out in
response to George Monbiot’s opportunistic take on Hurricane Irma, a grandiose
quixotic paradigm shift in values and economic organisation is entirely
unnecessary. The answer to climate change, and indeed pollution, lies in the
market price system generally and intelligent policy, such as a carbon tax,
specifically. Other free market policies, such as deregulating nuclear energy and
removing subsidies for fossil fuels, are also viable and important tools for
mitigating climate change. Likewise, imposing specific environmental
regulations does not amount to “changing everything” much as banning dumping
toxic waste in rivers is not some kind of refutation of the profit motive.

These are not merely alternative solutions to the problem. The puritanical-
luddite route of demonising consumerism is a grotesque vision, even if it could
work. Whilst the likes of Monbiot may relish a poorer, more regimented, and
guilt-fetishizing world, I’d suggest that most people would not. In any case, even
if prices cannot take account of environmental risk this is no way implies that
central planning has been vindicated. In lieu of prices there is no way, at all, of
assessing value at an economy-wide or global level, let alone of organising
efficient allocation.

So, why do the worst kinds of environmentalism gain so much traction? Simply,
for far too long, far too many on the right have endorsed or enabled denialism
and a caricatured version of the case for free markets. I dislike the term “market
fundamentalism”, but the resistance of some libertarians to any role for
government has caused significant damage to our cause. Pigouvian taxes to
internalise and correctly price externalities are not socialism or anathema to a
free market economy. Preventing or reducing activities that impose on and harm
others is not a violation of self-ownership or inherently illiberal.

Some measure of skepticism regarding climate change is not necessarily
misguided. When data was less comprehensive and there was less of a scientific
consensus, it was right to treat claims of catastrophe with caution. Likewise, the
fact that there is a serious risk of environmental damage does not mean that any
proposed solution should just be accepted without taking account of other
factors, such as the wider economic implications of said policy. Nevertheless,
verging into conspiratorial thinking and amateur attempts to debunk the bulk of
climate science is in no way laudable.

Failure to engage with addressing, and minimising the magnitude of,
environmental problems is, of course, damaging in its own right. It has also left
the door open for uninformed and outright dangerous agendas, which gain
traction in a relative vacuum. Making the case for serious solutions that are
compatible with prosperity and liberty has been made considerably harder by
this context.

Categories: Current Affairs

If only Britain had done what Germany did we'd have beaten homelessness

Mon, 18/09/2017 - 07:01

Lynsey Hanley tells us all how appalling the rise in homelessness in Britain is. Apparently it's all entirely the Tories who actively desire the poor, addicted and mentally addled to suffer. We think that might not be the whole and entire truth to be honest.

One little part of this analysis did catch our eye though:

As long ago as 1993, researchers at the Joseph Rowntree Foundation, in a report tellingly titled Making It Happen: Finding the Resources for Social Housing, noted that 600,000 more homes would have been built in Britain during the 1980s had we invested the same proportion of GDP in housebuilding as West Germany did during the same period.

It's entirely true that West (or as is now, all of) Germany has a rather different structure to the housing market. And calling forth more investment into housebuilding doesn't seem a bad idea to us at all. So, how is it that they've done it? 

Well, the first part is that the planning system is generally, even if not quite exactly, "can build." If you own a piece of land then the presumption is that you may build upon it. There are certain things you may not do, of course, but the generally underlying idea is that within those constraints one may. That is, instead of asking permission to build the system is much more sure, you can build, but not this or this.

The second part is that there is a much larger rental sector. No, not a much larger social rented sector, a much larger rental one. Much of which is (page 5) small landlords with one or three units rented out. Or, to translate that into the British vernacular, buy to let landlords. Even the IPPR has been known to note these things.

So, let us indeed take that example of Germany, a place which has built, as Hanley says, sufficient housing for the populace. They've done it by never having the Town and Country Planning Act and by not just allowing but encouraging the petit bourgeois (even haute bourgeois, if you prefer) idea of private landlordism.

All of which might be something of a clue as to how to deal with Britain's problems. Except, of course, for the sad fact that everyone shouting about the problem, including the very Hanley who draws our attention to Germany, insists that those are the very two things that we must not do. That is, having pointed to a solution they are insistent that we must not apply that very solution they are pointing to.

Politics is a funny thing, isn't it? 

Categories: Current Affairs

A fascinating result from China about economic mobility

Sun, 17/09/2017 - 07:01

As we all know the Chinese communist revolution entirely appropriated all private wealth. As we all also know it has been possible once again, for these past few decades, to make private wealth again. We've thus a good test of that old question, is it simply happenstance that some people have more wealth than others or not? 

That is, once the redistribution has happened do we get the same old people accumulating the wealth again or is it some completely different group that then prospers? A claim at least of an answer out of China:

Virtually every Chinese millionaire or billionaire is self-made because capitalist reforms to the centrally planned communist economy only began in the early 1980s and did not really take off until the 1990s. But the modern super-wealthy often turn out to be descended from an earlier capitalist class. Richard [Liu] is no exception. Before the 1949 revolution his family were wealthy shipowners who transported goods along the Yangtze river and the ancient imperial canal from Beijing in the north to Hangzhou in the south. They lost everything when the communists took over and were forcibly resettled at least twice. One academic survey found more than 80 per cent of Chinese “elites” (those with income at least 12 times higher than the average in their area) are descended from the pre-1949 elite. Richard puts this down to “family culture”.

“My parents and grandparents taught us a lot — not Chinese or maths but a sense of values, of how you should be and how you should treat others,” he says. They also drilled into him the knowledge they had once been very rich but everything had been taken away — a lesson all too relevant even now.

Do note that no one is saying that it's genetics or anything so immutable, only that it is the basic culture, the familial upbringing if you prefer.

It's an answer to the question, one of the very few that we've got in any empirical sense, so sad that it's not the one that the redistributors are likely to want to hear. That there is something distinctly non-random about who ends up with said wealth.

Categories: Current Affairs

The one single economic fact we have to explain

Sat, 16/09/2017 - 07:01

There's a new, and free, economic textbook out there, coming from the Core project. David Henderson likes some of it and not other parts. Which is or course just how it's going to go, no one is ever going to get the entire subject between the front and back of just the one book, that's why we've libraries packed with nothing but the subject.

However, it does place useful emphasis on the one single economic fact we've got to explain, in this chart here and used above as our image. If you want the numbers themselves then Angus Maddison is a good source. This thing we've got to explain being the economic hockey stick.

Starting around 1750 something began to happen to living standards in Britain. They started to rise, substantially, for the common man, and sustainably. This is something that had never happened before in human history. The unique occurrence then became less unique, the system which produced it, whatever that system was, spreading and producing the same or similar rises wherever it spread to.

This process is still going on - what we today describe as absolute poverty, that $1.90 a day out there, is roughly and around and about what historical living standards were before this unique occurrence, everywhere.

As the economic historian Brad Delong has been saying these decades, as Dierdre McCloskey has been emphasising, this is the one great fact we have which must be explained.

Of course, we have different names for this, the Enlightenment, the Industrial Revolution,   capitalism perhaps, the destruction of the guild economy and its replacement with free markets possibly. We could also call it the increased immiseration of the proletariat, the greater exploitation of the worker by the employer, as indeed some do. 

But we're still left with this one fact. Human life, in material terms, started to get better for the first time as a result of this occurrence. And no economic explanation, indeed no explanation of any sort, which cannot explain why this did happen is of any value at all.

This is not to say that our explanation has to detail why at this time in this place, not at all. But it does have to explain to us why living standards, for the first time ever, started to rise. We've thus a handy shorthand by which to measure economic, or any other, explanations. If they tell us why we've gone from $2 a day to $100 (yes, obviously, after inflation) then they might have some element of the truth to them, if they do not then they can be rejected immediately.

That this change has only ever happened in places with some modicum of capitalism and markets does indeed make deciding upon the merits of the varying explanations rather easier.

Categories: Current Affairs

This is a mighty piece of chutzpah even by the standards of political lobbying

Fri, 15/09/2017 - 07:01

The booksellers want us all to know that they're very hard done by. The tax system perversely benefits Amazon, not they themselves and Something Must Be Done.

British bookshops pay 11 times the rate of corporation tax paid by Amazon, according to a report that has prompted outrage from booksellers.

They also complain about the business rates system, of course:

The report, from economics consultancy the Centre for Economics and Business Research (Cebr), also revealed that UK bookshops pay £131m in tax (including £12m in corporation tax), equating to 91p per £100 of turnover, which is 11 times the amount of tax paid by online retailer Amazon, which contributes 8p per £100 of turnover.

The rates system we've dealt with elsewhere. Rates are a tax upon the landlord of the property you use. If you're using more expensive property, as a retail footfall place will, then your landlord will be charged more tax.

But the real joy to us here is of that argument about corporation tax which is, as we know, a tax upon profits. Usually the complaint is that the existence of profit means either that the consumer is being ripped off or the workers are not gaining the full value of their labour. Amazon doesn't do this both by lowering prices to the consumer and also paying its staff very well.

This is an outrage of course. 

Which is where the chutzpah comes in. The booksellers are actually both insisting that they make more profit than Amazon - at least on a turnover basis - and that they are thus enriching the capitalists more than Amazon does, plus demanding that something be done about this appalling state of affairs so that they can continue to enjoy their higher profit margins.

What is it about the concept of a tax upon profits that they've missed? 

 

Categories: Current Affairs

American income statistics aren't quite what people are saying they are

Thu, 14/09/2017 - 07:01

The latest numbers for incomes, health insurance and poverty are out in the US. This is one of those times when we've got to really understand how a statistic is calculated before we can work out what it's really telling us. And here what it is telling us is not what some people are saying it is. Take Catherine Rampell at the Washington Post:

One of the more striking parts of the U.S. Census Bureau’s 2016 income, poverty and health insurance report is its data on income stagnation. While incomes went up in 2016, the current median household nonetheless brings in about as much as its counterpart in 1999 did — that is, around $59,000 (in inflation-adjusted dollars).

If you look at men’s earnings alone, though, the trends are worse.

Today’s full-time, year-round male worker earns a median of $52,000. That’s roughly what his counterpart made in 1972.

This is equal to the statement, the same as the statement, that the lifestyle you can buy on the median male wage is the same now as it was in 1972. Which is a statement of such utter ridiculousness that merely restating it that way shows that it must indeed be wrong. Some of us were around and adult back then and it really wasn't that way.

One problem is that of how this income is being measured. Which is to leave out crucial parts of compensation - most notably the health insurance and pensions contributions that people gain from going to work. It's entirely true that health care has gone up in price over these decades but it's also true that it has got a great deal better. We do live longer lives, we live healthy lives for longer, now than then which is, at least we would assume it to be, an increase in lifestyle and therefore of any real measure of income.

But the biggie here is the measurement of inflation. These numbers are, of course, adjusted for such. But they are adjusted by a variant of the CPI. And we know, absolutely, that the CPI is wrong. By, depending upon who you talk to, anything between 0.5 and 2%. Always, but always, over-estimating inflation.

The biggest problem being, and we've not really got a solution to this either, practically or conceptually, the prices of new things. To get an inflation level we want an average inflation level. Sure, that health care rises in price but food much less so, we've even seen significant deflation there at times. Our method is to work out how much the average family spends upon food (say, 12% for American households today, around and about), how much for health care (umm, 20%?) and then multiply their respective inflation rates by that basket composition. If we consumed the same basket of goods over time then that would work just fine.

But of course we don't consume that same basket. The smartphone, with the iPhone, is a decade old now. When it first came out it wasn't in anyones' consumption basket. After a year or two it was in those of some people but not enough for us to say that it was a common enough purchase that we should be measuring that inflation - or crucially here, deflation - rate. By, say, 5 years in and the flood of Landfill Android a smartphone was an average purchase and so made it into the basket we use to calculate that average inflation rate.

But the iPhone started at $500 (??) and by the time a smartphone was in the inflation basket it was what, $50? And this is true of all new products. ABS started out only on the most expensive cars - is it even possible to buy one without it now? And at what point in the price drop for the technology did it enter the consumption basket we use to measure average inflation? The tumble drier, central heating, microwaves - all new technologies suffer from this problem and as above we've no real method of solving it.

But look what happens to real incomes if CPI is 2% overstated for 45 years - correcting for that means that what we're recording as the same has in fact more than doubled. Even just the 1% over 45 years gets us close to a doubling and that strikes us as much more representative, somewhere in between those two perhaps, of the development of the average lifestyle that can be afforded on the male American median wage over that time period.

It's entirely obvious that in any way that matters, looking at consumption possibilities, that US male wages have not stagnated for 45 years. Which just leaves us wondering why so many seem so gleeful in telling us that they have?

 

Categories: Current Affairs

Greetings everyone!

Wed, 13/09/2017 - 16:05

Since I started my A-Levels I knew I would go on a gap year, but I didn’t want to do it for the sake of doing it. I wanted to do something that would be enriching for me as a person and my future career. Now, I have been a neoliberal from the day of my first social science class (in Denmark social science is a combination of politics, economics, international studies and sociology) and I therefore knew that I wanted to do something that would help change the world, even if it was a small dent, to a freer and more prosperous place.
As a Local Coordinator for European Students for Liberty I got to do exactly this, but it wasn’t enough for me since this was only in my spare time. Later on I searched on the internet for organisations looking to hire gap year students and the Adam Smith Institute popped up. I thought the position was perfect for me: being taught on important issues from some of the brightest heads in the UK in addition to actually working full time to promote freedom and a freer market. However, I didn’t think I would actually be able to get such an attractive position. But fortunately, I did.

In a place like Denmark opportunities like this doesn’t occur often, especially not to a neoliberal, and on top of that find a place whose beliefs you share is extremely seldom.
I’m very passionate about educating the public on neoliberalism and the ideas behind and, hopefully, change people's minds in the process. I also think that it’s important to educate the youth on these matters since they play a huge part in shaping the future. Therefore, I was happy to see the launch of ASI’s ‘Secrets of the Magna Carta’ and excited to become a part of ‘The Next Generation’.

Some other areas I’m passionate about include economics, consequences of the welfare state and Danish politics. Hopefully, I will get the opportunity to write about some of these subjects in the future.

I’m looking forward to my time here at the ASI and I can already after little less than a week tell it's going to be a great one.

Categories: Current Affairs

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