7 policies the Labour Party should adopt in Opposition

The Labour Party is in disarray, and looking for a new leader. But being the official opposition party is an important duty, and can change the terms of the political debate. Here are the policy issues the party should concentrate on if it wants to make an impact in opposition, and eventually restore its electoral prospects. 

1. Emphasise housing and planning reform

We are unlikely to see sorely needed housing reform with this Conservative government. After all, most Tory MPs will have committed to protecting the Green Belt during their election campaigns, and their Help-to-Buy policies will probably make ballooning house prices even worse. The application of Right-to-Buy to Housing Associations also risks further lowering the UK’s already low house-building rate as they’ll lose all incentive to build more. 

Labour can use housing to out-flank the Conservatives on the economy, making the case that rising house prices and the policies that worsen them will needlessly stifle economic growth. For example, we need Green Belt-constricted areas like Cambridge and London to not drive away innovative start-ups as rents skyrocket. Labour should emphasis this in its appeal to entrepreneurs and small businesses, while using it to regain trust on the economy.

Housing is also an issue where they may outdo the Conservatives on aspiration, constructing a vision of mass home ownership with affordable housing. Labour tried to appeal to renters and young people for this election, but in a way that smacked of statist heavy-handedness with its emphasis on greater regulation. Yet parents and grandparents who already own their homes will also be worried about their children stepping onto the housing ladder in the face of rising prices. 

Labour therefore needs to adopt policies that are attractive to renters and owners alike, with the overall aim of bringing housing inflation under control. De-regulating planning laws would be a central step to achieve this. Many owners would welcome a reduction in the time and cost it takes to improve their property, and deregulation would also allow the housing supply to be boosted further, satisfying renters. Combined with a re-zoning of the Green Belt, Labour should emphasise the boost to economic growth that a house-building boom would cause.

By emphasising private solutions to out-of-control housing inflation that would also boost economic growth, Labour would further enhance its economic credentials. They would no longer need to answer awkward questions as to where the money would come from to build more government houses.

2. Regain trust on the economy by calling for tax reform

Labour desperately needs to regain trust on the economy. One way to do this would be to outdo the Conservatives in calling for tax reform. Rather than proposing Mansion taxes to spook home-owners, they need to call for wholesale Council Tax reform. Re-scaling the tax bands would be a start, but they can afford to be radical in their proposals. Any policy they come up with should focus on potential economic gains to be had from using empty houses and brown-field land more efficiently.

Labour also has a golden opportunity to reframe National Insurance as a tax on workers and jobs. They could call for it to be more progressive, perhaps even to merge it with Income Tax. This would be one way of making current taxes appear more regressive, without necessarily needing to call for higher top rates – it should now be clear that Labour cannot win in England if it is to punish people for aspiring to earn more. Reframing National Insurance would thus allow them to focus on the injustices faced by lower and middle-earning workers under the current system.

Proposing cuts to Inheritance Tax, Capital Gains Tax and Corporation Tax are likely to be anathema to the Parliamentary Party and members. However, they should not oppose Conservative moves in this direction – they need not alienate those who benefit from it. Indeed, if Labour MPs are flexible enough, they should make the difficult case for Corporation Tax to be lowered on the basis that it ultimately falls on workers. 

3. Become the party of civil liberties

Theresa May is staying as Home Secretary and is likely to be very authoritarian. By making itself the party of civil liberties in opposition, Labour will have the opportunity to reconnect with voters who previously voted Liberal Democrat. It would also allow them to deliver the final blow to the LibDems by squeezing out any space for them to be relevant. 

Over the course of the next five years, Labour needs to tap into our instinctive concerns about privacy and government intrusion.  They should therefore make opposition to the Snoopers’ Charter a core plank of their policy, while framing the Conservatives as the party of “Big Brother”. As part of this, Labour MPs should educate themselves about internet policy, and oppose attempts to regulate free speech. If May is the new Conservative leader in 2020, forming this line of attack as early as possible will be crucial to Labour.

4. Promote the benefits of immigration

One of Labour’s many problems in this election was its stance on immigration. Ultimately, any attempt by Labour to be harsh on immigration will be unconvincing, and is one of the reasons for its mug’s infamy. The party needs to accept that it will never be the party of controlling borders, and play to its strengths instead. It therefore needs to make the case for the benefits of immigration so that it can turn public opinion over the next five years and consolidate its hold over urban areas.

Ultimately, Labour needs to paint a vision of Britain as the most attractive country for the world’s top talent. For example, it should promote foreign students as a source of creativity and innovation to boost economic growth, and celebrate foreign entrepreneurs as a source of new jobs. This economic emphasis would be inspiring if done well, and should be central to regaining trust on the economy. Labour should bear in mind that it may have to compete with Boris Johnson on similar terms in 2020, given the positive noises he has made about immigration.

Labour also needs to emphasise the importance of immigrants and their contributions in paying for public services. For example, it might frame Conservative attempts to control borders as a subtle attack on pensions and the NHS.

5. Call for the legalisation of cannabis

Labour needs to see off the growing far-left threat of the Green Party, while also mopping up the few remaining Liberal Democrat voters.  To re-unite the left, Labour should therefore call for the legalisation of cannabis. It would need the next five years to help turn public opinion in its favour, emphasising rehabilitation and the positive experience of similar reforms around the world. Most importantly, it would be a less risky strategy than attempting to outdo the Greens on economic issues, while getting many younger voters enthusiastic about the party.

By taking the initiative on this, it would also force the Conservatives to take a position on the issue. This may cause havoc with Cameron’s attempts to modernise his party, as many of the Conservative MPs elected in 2010 and 2015 are of a younger generation that is likely to be more amenable to legalisation. It is worth bearing in mind that Cameron himself was broadly in favour of decriminalisation before becoming Conservative leader. This could therefore be a chance for the Labour party to shift the centre-ground of politics on social issues, despite being in opposition.

6. Call for people-powered public service reform

Labour retains its position as the party most trusted to run many public services. However, it should not squander the opportunity it has to put the Conservative government on the back foot. It failed to make any electoral headway with pledges for more funding and peddling fear of privatisations. Part of the problem was that funding promises did not square with deficit reduction, and the warnings about “saving our NHS” seemed exaggerated and insincere.

Instead, Labour should propose alternatives to privatisation that focus on civil society. It needs to grow up in how it conducts debates over the NHS, accepting the need for reforms aiming at greater efficiency and higher quality. This should be part of a wider attempt at rebuilding the party’s activist base, involving the party more directly in civil society, friendly societies, co-operatives and mutuals. It should promote communities and civil society organisations as a viable alternative to both inefficient bureaucratic state control and for-profit exploitation. For example, it should propose allowing patient-led groups to commission care services alongside GP-led consortia, and champion the use of friendly societies and mutuals as healthcare providers within the NHS.

If it were to be particularly bold, Labour should do all this while making the case for the NHS to be reformed to a more European, social insurance model. This would be one way to play up its Social Democratic credentials while also achieving positive and meaningful reform. As the self-styled “party of the NHS”, it would be a shame if it did not use its position to improve Britain’s health.

7. Become less paternalistic towards working class lifestyle choices

Labour needs a way to head off the potential threat posed by UKIP. In the North of England in particular, UKIP often came in second place, and this should be a cause for concern. Labour should accept that it will never outdo UKIP on immigration or on leaving the EU, but also realise that much of UKIP’s appeal is cultural. 

Many of these voters would have been attracted by UKIP’s tolerance of vices like alcohol, gambling and smoking; in stark contrast to the paternalistic, London-elites-know-best tone taken by both Labour and the Conservatives. Labour should therefore take the sting out of UKIP’s tail, and re-establish its credentials as a culturally working class party. For example, it should call for cuts to alcohol duties, which would have the advantage of being both popular and cheap.

Anton Howes is a Fellow of the Adam Smith Institute, and a PhD student in Economic History at King's College London. He blogs at Capitalism's Cradle. 

QE-a Culpa

Recently I've been looking through some of the articles I've written about QE over the last few years. I spent much of the post financial crisis period learning about monetary theory and wondered about the extent to which this was reflected in my commentary. I feel that my understanding has increased significantly, and so I should reassess my previous claims.I published several articles from 2009-2012 and benefitted from a general uncertainty that led to an increase in the demand for economic (and indeed Austrian economic) commentary. Most of the opportunities I had were not a result of my own expertise or reputation, but because I was representing a perspective that people wanted to hear. It has been an interesting intellectual journey to try to provide a mouthpiece for certain ideas, whilst also developing my own voice. Firstly, a bit of background and motivation. I've been accused of being too academic, too theoretical. However my primary aim is to prompt debate. It is not to simulate policy. Therefore I’m very resistant to the “don’t just stand there” mentality of a crisis. If I were a policy maker my instinct would probably be closer to action. As an academic my instinct is more contemplative. I have a natural tendency to think of longer term and unseen effects, and even if these are outweighed by the short term necessity for action, I still feel I’m doing an important public duty by pointing them out. If my audience were policymakers my message may well be different. But I consider my primary audience to be the educated layperson, and therefore my primary goal to provide a perspective that they may not already possess.

As I said in 2010,

my objective isn't to impress you by how clever I am. It's to participate in a conversation about economic theory and practice that all sides can learn something from. Therefore I don't see why I need to have provide[d] an alternative plan before jumping into the debate - if I convince you that fiscal stimuli very rarely achieve their objectives, you'll need to decide for yourself what the implications are. This reminds me of students that want "an answer". I'm sorry, but that's not my job. It's to provide new information that allows you to provide your own answers. I'm not trying to convince people that my "worldview" is correct, and that you should share it. I'm merely offering fragments of wisdom to allow you to cultivate your own.

I've read through all of the articles I've cited below, and picked out the money quotes. I've then categorised them and reflected on whether I stand by them (and whether I stand by them but for different reasons). You'll have to take my word that I've surveyed them honestly, and haven't simply ignored quotes that make me look bad.

Introduction

I moved back to the UK to write up my PhD dissertation in 2006. My research focus at the time was the spread of the flat tax in Eastern Europe, but it seemed clear to me that there was an impending resurgance of Austrian business cycle theory. I've written elsewhere about whether Austrians predicted the financial crisis, and that's a hard question to answer. But it seemed clear that we were experiencing a central bank induced credit bubble and that a recession was on the horizon. And yet policymakers didn't seem concerned. With Toby Baxendale I began work trying to find an Austrian measure of the money supply. By 2008 it seemed obvious that a monetary boom had preceded a monetary contraction. But at the time, official measures hadn't revealed it. I used the three charts below in a presentation on 8th November 2008. Broad money didn't show any problems: Narrow money didn't show any problems: And then there was the "Austrian" measure: Given that the method of constructing the UK Austrian Money Supply has changed since then I was right to not draw too much emphasis to the warning signs at the time. But it signalled to me that us Austrians had something important to say and my confidence rose. Then, in January 2010, the Bank of England switched its conventional measure of broad money from M4 to M4ex, which stole a lot of my thunder: Suddenly the value of the Austrian school switched from accurate forewarnings to the policy debate. In terms of QE, I think there's a narrow debate and a broad debate. The narrow debate is about whether QE will achieve it's stated aims and if this is broadly desirable given the current monetary regime. The broader debate is whether this "success" comes at the expense of unintended consequences (which may possibly be greater). Both of these debates rest on a firm understanding of what QE is, and how it differs from "conventional" monetary policy. When QE was first touted I had zero knowledge of the Japanese experiment. I'm happy with my contribution to clarifying what QE was, but perhaps focused too much on the broad, as opposed to narrow debate. Over time, this may be vindicated, because those broader concerns may becoming increasingly relevant. But in 2009 I was behind the curve in being able to make insightful commentary on that narrow debate.

Here are some of the key points I was trying to make:

1. QE is "merely" OMO

From the get go I was uneasy with the distinction between conventional monetary policy (cutting interest rates) and unconventional monetary policy (printing money to buy bonds - i.e. QE). Since QE is conducted via open market operations (OMO) it is more of a tweak to conventional monetary policy (i.e. targeting a quantity of reserves, rather than price/interest rate) than a replacement. In January 2009 Alistair Darling said

• “We are looking at a range of measures to support the economy, to support business and to help people. But nobody is talking about printing money.

I don't think politicians should be allowed to deny that QE involves printing money and that central banks are routinely printing money. My response:

• "QE isn't a different policy tool, it's an alternative way of using current policy. Whereas OMO means targeting a particular interest rate (and altering the money supply to hit it) QE means targeting a particular quantity of money (and ignoring the interest rate)" [see here]

As I put it in my 2009 Comment is Free article:

• “1) QE is printing money; and 2) the printing press is already turned on.” [1]

In March 2009 I criticised a Financial Times video that attempted to explain QE because it:

• “propogates the myth that this is fundamentally new policy - as if the Bank of England is only now being "inflationary", and "printing money".” [see here]

Tim Congdon has also made the point that QE is standard monetary policy for the situation we were in:

• “He [Tim Congdon] challenges Gordon Brown's portrayal of his own role in the financial crisis, arguing that instead of the response being his ‘brainchild’ the then Prime Minister required a layman's briefing and did not grasp the orthodoxy of the policy for situations when nominal income is falling” [5]

Verdict: I stand by this. In fact, I think this is a strength of QE and should be why QE becomes even more conventional.

2. QE is one arm of the state financing the other

Stephanie Flanders confirmed that "printing money" is technically accurate, but defended QE:

• “we can expect the Bank to buy a lot of gilts as part of this policy. Is that "printing money"? The politicians will say no. But any economist would say yes...
• ... "When the Bank of England buys up gilts, one arm of the government is buying up debt owed by another arm of the government in exchange for money created by the central bank. Whether the gilt is brand new, or issued the day before, is quite simply irrelevant.”

I made this "two arms" debate in a 2009 article:

• “despite the obfuscatory terminology, QE is nothing new. It is simply an exotic label for a discredited policy – one arm of government buying up the debt of another” [1]

Perhaps this was OTT. According to Flanders,

• “That said, there are big practical differences between this policy and Zimbabwe-style money financing. The most important is that the Bank is choosing to buy gilts as a means to an end. It is not being forced to buy them because the government has nowhere else to go. –Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past”

I was dismissive of the argument that QE isn't "printing money", and expressed concerns about public finance. I felt that Flanders' point rested on semantics and intentions, and the public finance considerations shouldn't be dismissed so easily

• “Yes, the Bank of England is purchasing assets on the secondary market (not directly from the Treasury). Yes, the Bank has every intention to mop up this additional liquidity once the economy recovers, but "directness" and "intentions" are largely semantic.” [1]
• “the Bank of England buying assets on the secondary market is essentially a gradation of the policy that Mugabe’s government has unleashed in Zimbabwe. One arm of government is buying up the debt of the other. We can pretend that those two arms are separate, but that illusion is becoming harder to maintain by the day.” [4]

And indeed the Bank of England has now became a major player in the UK debt market (from a Kaleidic post): Verdict: I am glad I pointed out tangible downsides, but the jury is still out on the impact.

3. There is a risk of inflation

This is something many anti-QE commentators referred to, and we were wrong. We've not seen inflation anywhere near the scale we warned about. I said,

• “The biggest danger of QE – one that no economist would deny – is the destructive inflation that it unleashes. We are asked to have confidence that our monetary authorities have both the omniscience to know when inflation will shoot upwards, and the benevolence to act in the public interest when this occurs” [1]

I then attempted to provide some evidence for this claim:

• “In February 2009 food price inflation rose to 9%, and factory gate inflation is at 3.1%, which might mitigate fears over deflation. We are in for another bout of inflation; another bubble is brewing. The party isn't over” [1]

The chart above shows CPI from 2004-2014 and in Feb 2009 I was warning about inflation. As you can see, it promptly falls to around 1%. However, QE starts March 2009 - February 2010 which is the period in which CPI is in a trough. The consequence is that in 2010-2011 we see inflation rise to over 5%. So I could say "there's the inflation", and QE advocates could respond "it's hardly Zimbabwe!" Indeed already by February 2010 I was saying:

• "the inflation risk appears to be lower than first feared. Inflation expectations are contained, and yields remain low. Whether this can be maintained is another matter. The decision to cease QE indicates a concern that the inflation tiger is about to bite. Today's figures show a sharp rise, and we should not ignore the possibility that UK gilts are merely a new bubble." [3]

And then in November 2010,

• “monetarists are right to mock scaremongering about hyperinflation… CPI is above target (3.1%), but not to the extent that I (and others) feared… [But] We should also remember that inflation could manifest itself in asset price bubbles, for example in the gilt market or emerging markets” [4]

That said, I think I was successful at avoiding the claim that QE is a sign of loose monetary policy. Indeed:

• “those who believe that low interest rates and a fast growing monetary base imply expansionary monetary policy make the same mistake that economists made during the Great Depression. Then, as now, they were actually signs of an inept central bank failing to offset a fall in the broader money supply.” [4]

Verdict: I was wrong, but shifting the argument slightly reveals the kernel of truth.

4. QE is hair of the dog monetary policy and generates malinvestment

If loose monetary policy caused the crisis how can loose monetary policy get us out? The hair of the dog argument is a convenient one to make, as I did in 2009:

• “the Bank's solution is a larger dose of what caused the original disease.” [1]
• “We are now seeing the inevitable hangover and are faced with choice – either to go through the painful but necessary recovery (a hangover) or simply to prolong the intoxication… QE is more hair of the dog.” [1]

This leads to a related idea that a liquidation is a necessary consequence of a boom. Once you accept that there was an Austrian style boom then a recession is an inevitable and necessary consequence. In this 2009 article for Comment is Free article I reeled off some standard arguments:

• “Over the last few years we have seen an unsustainable boom that has been financed through impoverishment. During this boom scarce capital has been squandered. Rather than use credit as a foundation for wealth-creation, it was erroneously treated as actual wealth, and consumed” [2]
• “a decline in output is an important step towards production that more closely matches consumer demand. If GDP growth has been driven by bubble activity, a fall in GDP is therefore an inevitable and necessary stage of recovery.” [2]
• “Genuine economic growth will only return if relative prices can adjust, malinvestment gets liquidated, and a correction is allowed to occur.” [2]
• “the recession itself is a sign that markets are adjusting, and that entrepreneurs are engaging in the recalculation that is required to understand which plans were unprofitable and where capital should be reallocated. Allowing relative prices to adjust as quickly as possible, reducing labour market rigidities, and improving labour mobility will all help with this" [4]

Verdict: If the inflation argument is over simplified monetarism, then this is over simplified Austrianism. I totally neglected the distinction between a primary and secondary recession and ignored the possibility that such declines in output were unnecessary.

However, by 2010 I was making a more distinct monetary equilibrium argument:

• “There is a plausible free market argument to say that under certain institutional conditions (such as competitive banks and no moral hazard), increases in the money supply to offset changes in the demand for money would avoid adjustments having to take place through the notoriously ‘sticky’ real economy. In the same way that inflation creates real effects, so does a monetary deflation, and these effects are neither desirable nor necessary.” [4]
• "A further argument that Austrians might be interested in, is the distinction between an expansion in the money supply to offset an increase in the demand for money, and an expansion in the money supply as a means to stimulate aggregate demand." [see here].

And in an IEA article published in March 2011 I was a lot clearer:

• “Austrian economists are happy to acknowledge that under certain theoretical conditions QE can work as Congdon suggests – when the demand for money rises a corresponding increase in the supply can restore monetary equilibrium without forcing an adjustment to take place through prices and output” [5]
• “the best hope for monetary policy was that it prevented the ‘primary recession’ caused by the bubble unwinding turning into a "secondary recession" that sucked in the whole economy.” [5]
• “just as the monetarist view is too rosy, the Rothbardian view is too pessimistic.” [5]

Verdict (2): I got there in the end

5. Unintended consequences of setting a precedent

In February 2010 I published a Guardian article that softened my critique of QE:

• “To judge whether it worked depends on what would have happened without QE, and economists typically lack the toolkit to engage in rigorous counterfactual analysis.” [3]
• “Even if we understood better how the economy would look without the actual policy responses, determining whether they "worked" implies we understand the intentions of the primary decision-makers. Only then would we know if the actual outcomes match the intended consequences” [3]

Part of the problem with QE is that it requires an exit strategy, and we entered it without having a clear one:

• “The excess liquidity that QE creates will find its way into the real economy at some point – possibly after the economy has already begun to recover naturally – and this is why having an exit strategy is so important. Again, the more confidence markets have in the efficacy of such a strategy, the harder it is for QE to ‘work’, but doubts remain as to whether this can be navigated. Some argue that it’s simple to hike up interest paid on reserves, or possibly even confiscate such reserves when banks begin lending again. However, this overestimates the Bank of England’s ability to anticipate events.” [4]

I also relegated the threat of inflation as a consideration but pointed out the following:

• "the rules of the game have changed. The conditions under which QE would be rehabilitated aren't clear." [3]

A key issue is the danger it becomes semi-permanent. In a Management Today article, published January 2012:

• 'The Bank of England’s policy rate has been historically low for some time now and this cannot continue indefinitely. The aim of low interest rates is to boost the economy by creating incentives to borrow money and invest. But higher capital requirements and policy uncertainty create counter forces that restrict bank lending. [7]
• 'In these circumstances the purported "benefits" of low interest rates fail to materialise, but the costs certainly do. These include the lack of an incentive to save (and actually rebuild banks' balance sheets through voluntary lending), distortions to the capital structure of the economy (making white elephants like the HS2 line appear profitable) and the erosion of people's savings. [7]
• 'The fact that real interest rates (the difference between inflation and the return you get on your savings accounts) is negative is a harmful confiscation of wealth. [7]
• 'When interest rates are close to zero policymakers look to alternatives, and quantitative easing has emerged as their favoured tool. However grateful banks and the financial community are in general to have an injection of freshly-printed money, it’s not clear how much this is helping the real economy. The aim shouldn’t be to preserve the status quo, but to find ways to allow banks to fail without exposing the general public to the fall-out.' [7]

In November 2010 I said:

• “the use of QE to boost aggregate demand (rather than prevent a liquidity meltdown) is a precedent” [see here]
• “there can be a fine line between “stabilising MV (money supply multiplied by velocity)” and “boosting AD (aggregate demand)” [6]

Verdict: QE needs to be reformed and there's a real danger that it simply becomes another source of stimulus.

6. Back door bailouts

I try not to engage in banker bashing, but was unable to resist the temptation:

• "banks have benefited. QE served as a bailout by the back door. By enlarging the scope of assets it buys, and printing money to fund them, this creates (alas perhaps literally) a get-out-of-jail-free card for profligate bankers." [3]
• “Whilst many businesses have benefited from being able to issue more commercial paper (as the second Giles video points out), the main beneficiaries have been the banks. For very good reasons the Bank of England is not supposed to directly finance UK government debt. This is the cause of most hyperinflations, and is "one arm of the state directly financing another". But they are able to buy them on the secondary market. This makes a massive arbitrage opportunity for banks that buy up gilts and sell them on to the Bank” (see here)

Verdict: A bit crass.

What I should have done is emphasised the importance of liquidations in market corrections and the role of central banks at distinguishing between liquidity and solvency crises. In 2010 I tried to make this point, arguing that a downside of QE is that it masks solvency problems:

• "The original reason for having a lender of last resort was to provide emergency liquidity during a bank ‘panic’ and to help unwind unsound banks so that they wouldn’t pose a systemic risk. As time has passed since the first round of QE1 we have realised that it wasn’t merely a short-term liquidity problem, but a fundamental one of solvency. This cannot be cured with a quick gush from the monetary spigot, and direct bailouts merely obscure the distinction between liquidity and solvency problems further.” [4]

Perhaps this is too simplistic because they way in which QE is conducted can determine whether it's providing a Bagehot style penalty or a back door bailout. In March 2011 I said

• "In a world where central banks exist, this is the mechanism by which we distinguish between the temporary illiquid to the fundamentally insolvent. And unlike QE it avoids a slew of unfavourable side effects, such as expanding the scope of the Bank of England (by redefining the types of assets and types of institutions they deal with); expanding their discretionary powers; generating regime uncertainty; increasing the upside risk of inflation; and placing epistemic burdens on policymakers that there is no hope they can shoulder.” [5]
• “why can't the Bank of England simply fulfil its traditional role as being lender of last resort” [5]

Back then, I felt that the Bank of England should use discount window. Now, I believe QE could be used in a way that is better than a discount window.

Conclusion

In November 2010 I wrote a think piece for the Adam Smith Institute, and stand by the main argument:

• “Policies like QE increase regime uncertainty and generate systemic instability. They have the potential to make matters worse, and ignore the fact that you cannot buy confidence. The Bank for International Settlements – one of the few organisations that foresaw large elements of the financial crisis – warns about the upside risk of continued low interest rates. Systemic misallocation of capital (including human capital) remains. Excessive risk-taking remains. Over-leveraged balance sheets remain. Volatile capital flows remain.”  [4]

However I argued that QE had run its course

• “There is an alternative to more QE.” [4]

Now, I believe that I should have explained what it is good for, and clarified what those alternatives are. The justification for QE was to prevent a collapse in commercial banks balance sheets and reduction in broad money growth. But the main reason for this problem was an exogenous policy shock, namely an increase in capital requirements. So, mea culpa:

• I didn’t have a good grasp at to what was happening to the money supply at the time - broad money growth data was flawed
• I was treating the ceteris as paribus, believing that if the problem was regulatory intervention the solution is to remove that intervention, rather than introduce new ones
• Quibbling about how QE was conducted (and not having a clear alternative) was less important than generating liquidity
• I placed too much weight on the long term, unintended consequences of QE

Then, my main policy sympathy would have been to implement Bagehot through discount window and keep provision of market liquidity separate Now, however, I think that the problem was OMO being too narrow. If you have a “small number of counterparties” and a “small subset of “good” securities”, then a ““Bagehotian” case can still be made for occasional direct Fed lending”. However if OMO function well or are reformed (i.e. diversify the participants and diversify the assets) then that’s how Bagehot should be implemented. (See this George Selgin article for more).

I maintain that hair of the dog isn't effective monetary policy, and so the central bank should not be there handing out shots. But they do have a role in easing the hangover by handing out water. And given that they won't always know where it's needed, soak the market with liquidity and see where it goes. Here's how I'd summarise the debate:   References:

1. “The semantics of printing money” The Guardian, March 2009
2. “The unpalatable financial truth” The Guardian, March 2009
3. “Has quantitative easing paid off?” The Guardian, February 2010
4. “The Threat of QE2”, Adam Smith Institute, November 2010
5. “Monetarists’ blind spot on quantitative easing” Institute of Economic Affairs, March 2011
6. “Forward thinking”, Money Marketing, May 2011
7. "To QE Or Not To QE? The Market Has Spoken” Management Today, January 2012

Anthony J. Evans is a Senior Fellow of the Adam Smith Institute and Associate Professor of Economics at ESCP Business School. This post was originally hosted at kaleidic.org.

LFTRs: The Future of Green Nuclear?

The nuclear industry is abuzz with talk of an avant-garde next-generation nuclear concept, pundits are chattering and governments are starting to show interest; advocacy for thorium is gaining traction and LFTRs are stealing the show. Some, such as fervid thorium exponent Kirk Sorensen, are proclaiming this technology to be the innovation that revolutionises our approach to energy and invigorates our fight against climate change.[i] So, what is thorium? Naturally-occurring and frequently accommodated in amalgams of rare-earth metals, thorium is typically present in the single isotopic form Thorium-232.[ii] It was uncovered in 1828 by Swedish chemist Jons Jakob Berzelius, who, rather imaginatively, named it after the Norse God of Thunder, Thor. Experimentation into the utility of thorium as a nuclear fuel has been relatively unsystematic and underfunded over the past 60 years. Noteworthy examples include investigation into the efficacy of thorium based fuels in Pressurised Heavy Water Reactor 'Candu' units at Canada's AECL Chalk River Laboratories; designs for a thorium fuelled Advanced Heavy Water Reactor in India — construction of which is envisaged for 2022 — and the intermittent operation of a High-Temperature Gas-Cooled 'Dragon' Reactor in the UK, between 1964 and 1973, for a total of 741 full power days. However, it is a series of projects conducted throughout the 1960s at the Oak Ridge National Laboratory in the USA that appeal most strongly to the contemporary imagination.[iii]

The ORNL erected a 7.4 megawatt — a megawatt is equivalent to 1 million watts — prototype Molten Salt Reactor, utilising U-233 as its principal fissile driver; Molten Salt Reactors that utilise fissile thorium are known as Liquid Fluoride Thorium Reactors (pronounced 'lifter' in acronymic form, LFTRs are the most exciting thorium concept and as such shall be the focus of this essay). To elucidate the basic mechanics, LFTRs are bifurcated into two compartments: the reactor core and surrounding thorium 'blanket'. Within the core, isotopic uranium U-233 fissions to expel neutrons, which then exit the core and fuse with fissile Th-233 in the 'blanket'. The fusion with neutrons results in Th-233 transmuting to U-233, which is then transported into the core and fissions to propagate the process — LFTRs 'breed' fuel because of the neutron-dependent transmutation that occurs.

The technical superiority of LFTRs, relative to conventional nuclear, is conferred by numerous structural refinements. Amongst these, automatic temperature regulation nullifies any requisite for control rods or an active cooling system, as in conventional reactors. To be precise: the molten salt is expanded by heat generated through fission in the core, thus retarding the rate of fission. Conversely, if more power is demanded from the reactor, more heat energy is extricated from the saline and the returning cooler salt augments the rate of fission. Overheating is only conceivable if the flow of molten salt is disrupted and heat energy is agglomerated in the core; yet even this hypothetical is liable to a self-checking mechanism: surfeit heat will melt a solid salt freeze plug, allowing the liquid fuel to safely decant into a drain tank.

The reactor is sustained at atmospheric pressure throughout operation; fluoride salts boil at approximately 1400°C, so needn't be pressurised to retain their liquid state. In a conventional Light Water Reactor, water undergoes intense pressurisation to inhibit extrication into a gaseous state — a consequence of which is the requisite to construct highly pressurised containment facilities. LFTRs obviate this bloated hindrance: reducing size, danger and enhancing aesthetics. The fuel in a Molten Salt Reactor is, obviously, molten, so cannot melt-down in the same way that solid fuel in a LWR can. In the rare eventuality that a LFTR is the object of military/terrorist hostility, the liquid fuel would only contaminate the immediate vicinity, leaving the environment largely unscathed. The products of fission would remain in the saline as stable fluorides, and the construction of a rudimentary protective encampment around the plant would inhibit soil leaching.[iv]

LFTRs can be compact, permitting effective operation in inaccessible locations (country towns, military bases, research camps etc). It's even possible to construct Small Modular Reactors at a central site and then assemble them at the desired location — or, to amalgamate them into a more potent productive unit. Unlike conventional LWRs, LFTRs do not require water to be supplied throughout operation, thus negating the requisite for supplementary infrastructure. As such, it becomes viable to locate them in more densely populated areas. Conventional nuclear produces large quantities of radioactive waste, but LFTRs allow you to siphon-off waste products and reprocess transuranics — all the thorium can be fissioned.[v] Although it's true that LFTRs produce radioactive fission products, only 17% of these have long half-lives — approximately 300 years — and LFTRs are spectacularly more efficient than LWRs: utilising 98% of fuel rather than the traditional 2%. Not even the waste products go to waste, because they accommodate a wealth of valuable industrial compounds. Plutonium is not produced, making it exceptionally challenging to construct nuclear weapons. Even superfluous heat energy needn't go to waste: if redirected, it can feed industrial processes like water desalinisation and hydrogen production.[vi]

The structural superiority of the LFTR is compounded by diverse economic advantages. Thorium is three times more abundant in the Earth's crust than uranium, with the largest known deposits in Australia, India, Norway and the USA. Remarkably, the energy in 5000 tons of Thorium would satiate world energy demand for an entire year — and there are 44 million tons of Thorium in the world! A LFTR produces the same quantity of energy from 1 ton of thorium as a LWR does from 250 tons of uranium; and LFTRs, being substantially safer than conventional nuclear, would be capable of jettisoning much of the burdensome regulatory stipulations imposed upon contemporary plants.[vii] According to www.thorium.tv: 'you might be able to go as low as $220 million or below, if 80% of reactor costs truly are attributable to expensive anti-meltdown measures'. By ameliorating the often painful start-up costs, LFTRs could act as a beacon for international capital, allowing for the rapid establishment of a multitude of plants and swift absorption of market share.

Following commercialisation, annual operating costs would nosedive, further incentivising ownership and construction: 'Current operating costs, ignoring fuel costs, for a 1-gigawatt plant are about $50 million/year. With greater automation and simplicity in Generation IV plants, in addition to more reasonable safety and security regulations, this cost will be decreased to $5 million/year' — even fuel will be cheaper: 'Fuelling a 1-gigawatt uranium plant today costs $30 million/year. Fuelling a 1-gigawatt thorium plant will cost only $1 million/year'. Plant ownership would be highly proficuous, and energy consumption more affordable: 'over a 60-year operating lifetime, both plants produce 60 gigawatt-years of power. The total cost for the uranium plant is $4.9 billion, at a rate of $81.6 million per gigawatt-year. The total cost for the thorium plant is $490 million, at a rate of $8.16 million per gigawatt-year. Thorium power makes nuclear power ten times cheaper than it used to be, right off the bat'. Unfettered by the requisite for water transferral and protective encasement, and with fewer transuranic disposal costs, LFTRs are highly economical.[viii]

Besides the aforementioned benefits, the greatest potential of LFTRs lies in the low-emission sourcing of energy. We need to be pragmatic about the transition to clean energy: renewable is promising but inchoate, and nuclear has the industrial horsepower to effect serious change.

With public support and private ingenuity, the 35% of British energy provided by nuclear and renewable could usurp the 37% share of oil, and eventually the remaining third of market share held by natural gas.[ix] Yet, it's important not to become myopic in focusing exclusively on hypothetical environmental benefits, for this risks overshadowing broader implications. Much global conflict is fought over finite energy resources, so, it's imaginable that a superabundance of affordable and sustainable energy would precipitate an age of heightened stability, energy independence and national security — there would be less war and more prosperity. The inextricable correlation between abundant energy and higher living standards means that a stable energy supply is a requisite of future economic growth; modernisation on this scale would widely extend the reach of capitalism in raising people from perdition in the depths of penury. On a symbolic level, it would transform our relationship with the planet, heralding a shift towards a more symbiotic future.

It might strike you as being rather bizarre that governments are only just apperceiving the benefits of green nuclear, but a miserable, stultifying confection of radiophobic media bias, wincingly high research costs and Big Nuclear's vested discouragement — LFTRs would render all exorbitantly pricey uranium plants — in which corporations have large sunk costs — superannuated and obsolete — have made investment impolitic until now. Despite all this, we probably would have had functioning MSRs operating around the world by now if the Nixon Administration hadn't jettisoned the thorium project at ORNL in the 1960s; ironically, it was one of the benefits of thorium, the conspicuous absence of plutonium production, that the administration perceived to be a weakness — the DoD was seeking to use nuclear power to foster its domestic nuclear armaments programme.[x] Political expediency has since resigned any aspiration of resuscitating the research programme to destitution in the graveyard that is the government archives. Only in the USA — and more recently China — have government research budgets had the available funds to finance a serious thorium research programme; so, to put it simply, no one has been willing to foot the bill — it's a classic case of short-terminism triumphing over prudence. What about private firms? Only established energy companies would be able to raise the capital, and every energy company interested in nuclear is already a stakeholder in conventional uranium reactors[xi]: what's the point of sinking money into research for a decade, only to have the eventual conclusion of that research invalidate your principal market assets? Energy companies need to sell the nuclear energy produced — technically converted from chemical to electrical energy, 'produced' may invoke the erroneous notion of energy being generated ex nihilo — by current reactors to justify the massive capital costs associated with establishing those reactors: for firms with a vested interest in conventional nuclear the development of thorium is unneeded and may actually pose an existential threat to their market share (smaller firms have tried, but the fiscal horsepower is lacking). Disparate incidents — Castle Bravo, Chernobyl and Fukushima being the most memorable — have caused the public and media to perceive nuclear with gratuitous cynicism. Less than 40% of people in the UK and US are supportive of nuclear power — in countries like Germany that dips as low as 7% — and this is as much the product of sensationalist journalism as it is general ignorance.[xii] Contrary to popular belief, nuclear power actually obviated an average of over 1.8 million net deaths worldwide between 1971-2009, due to the preclusion of burning fossil fuels to supply this energy and the decreased air pollution and green house gas emissions that ensued[xiii] (that's just conventional nuclear, imagine what thorium would do). A sad series of unfortunate coincidences have culminated to relegate this visionary technology to the slideshows of conference power-points — until now.

Despite an ambitious grassroots campaign in the USA to promulgate awareness, much of the intrigue surrounding thorium has been engendered by the Chinese government. The ravenous Chinese industrial economy demands fuel, lots of it, so their government is frenetically sinking billions into exploring a diversity of conceptual energy sources. Their home-grown thorium research initiative has been expedited, with the aspiration to construct a 2MWt pilot plant (Thorium-Breeding Molten Salt Reactor - Liquid Fuel) by 2018, a 10MWt experimental reactor by 2025 and a 100MWt demonstration plant by 2035. 750 staff will be employed by the project by 2015 — which is a lot as research projects go — so it's fair to say there's no deficiency of enthusiasm for it. In nuclear-averse Norway the opportunity has proved too good to pass up, and private research is underway at the Halden Reactor Project. Having withheld its signature on the Treaty on the Non-proliferation of Nuclear Weapons, India has faced difficulty in importing uranium to fuel their current fleet of nuclear reactors, so aims to construct a Heavy Water Reactor capable of utilising their extensive domestic thorium reserves. It's reasonable to posit that the USA will eventually join in: forecasts reveal that domestic coal production will decline over the next decade, and LFTRs would be an intelligent substitute. So, the future of energy is at a crossroads: we either turn a blind eye to pioneering green nuclear technology and go it alone with renewable, or, we adopt a mixed, pragmatic approach, and permanently refashion mankind's relationship with the planet.

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[i] http://www.forbes.com/sites/kirksorensen/ [ii] http://www.ncpa.org/pub/ib149 [iii] http://www.world-nuclear.org/info/current-and-future-generation/thorium/ [iv] http://www.the-weinberg-foundation.org/wp-content/uploads/2013/06/Thorium-Fuelled-Molten-Salt-Reactors-Weinberg-Foundation.pdf [v] http://www2.hmc.edu/~evans/LamThorium.pdf [vi] http://thoriummsr.com/intro/pros-and-cons-list/ [vii] http://en.wikipedia.org/wiki/Thorium [viii] http://www2.hmc.edu/~evans/LamThorium.pdf [ix] http://www.eia.gov/countries/country-data.cfm [x] http://thedigitalfirehose.blogspot.co.uk/2013/09/why-are-we-using-uranium-instead-of.html [xi] http://en.wikipedia.org/wiki/List_of_companies_in_the_nuclear_sector [xii] http://www.bbc.co.uk/news/science-environment-15864806 [xiii] Pubs.GISS: Kharecha and Hansen 2013: Prevented mortality and greenhouse gas emissions from historical... (nasa.gov)

The Collected Economic Nonsense

In his latest series of blogs, the Adam Smith Institute's President, Dr Madsen Pirie took aim at 50 of the most prevalent and pernicious falsehoods about economics. Read them all here in this collection of all 50 pieces. [gview file="http://www.old.adamsmith.org/wp-content/uploads/2015/04/Economic-Nonsense.pdf"]

Protectionism Takes on a Dangerous New Legal Identity: A New Threat Posed by State Sponsored Patent Trolls

This think piece sees Adam Smith Institute Senior Fellow Keith Boyfield explore a worrying aspect of the alarming growth of patent assertion authorities – often referred to across the pond as patent trolls. He highlights a particular brand of patent 'trolling' sponsored by foreign governments, and contemplates its implications for world trade and competitive markets. Major corporations, some past their sell by date, have lost none of their appetite for continuing to launch unjustified demands for patent royalties through patent assertion entities (PAEs) or patent trolls as they are more familiarly termed across the Atlantic. PAEs hold patents with a view to extracting a substantial sum from companies utilising the patents. (see Privateers and the sinister plot posed by ‘patent trolls’). Typically, patent trolls have little in the way of assets and no manufacturing operation: they exist simply to ‘milk’ patents on behalf of a parent organisation. The patent itself is the primary asset and the only with any real revenue-earning potential. Tellingly, a PAE’s payroll is dominated by a platoon of lawyers.

Their efforts aimed at exploiting weaknesses in the patents system have proved so damaging to commerce that they have now provoked action by Congress. Indeed, US legislators have redoubled their concern as the threat of patent trolls sponsored by foreign governments, notably the Chinese, looms on the horizon. Even countries in Europe, most obviously France, have already taken worryingly protectionist steps in this area, with their own state-sponsored patent trolls.

Patent trolls are growing in popularity – and are, in many cases spreading their wings. Troll-like behaviour is being exhibited by others, too, such as the ‘patent privateers’, of which more later.

The aggressive bullying exhibited by trolls in pursuit of patent rights has led to product development being stifled and the shackling of competition in the marketplace, particularly as it relates to consumer products and telecommunications. To give one striking example, recent research by economists at the Massachusetts Institute of Technology (MIT) has shown that sales of imaging software has declined by one third relative to other medical imaging products due to the threat posed by patent litigation. The demand for such medical services is buoyant, yet patients suffer[i].

Nokia, which once bestrode the planet as the leading manufacturer of mobile phones, has now sold its handset manufacturing operation to Microsoft yet, significantly, it has retained the bulk of its patent portfolio. Whereas it no longer focuses on producing phones, Rajeev Suri, the CEO, has made only modest attempts to disguise the company’s strategy of asserting its patents through aggressive licensing demands pursued by privateer subsidiaries with no assets and no manufacturing capability[ii]. His colleague, Nokia’s chief intellectual property officer, Paul Melin, acknowledges ominously that, “Divestment of patents has become a very important channel for us to monetise and realise the value of our research and development[iii]”.

As pointed out in an earlier blog by the author on the dangers associated with this behaviour (Privateers and the sinister plot posed by ‘patent trolls’, August 29^th 2014), the cost of litigation and the awards given by US courts, notably in West Texas, can be staggering. PriceWaterhouse Coopers (PWC) report that 6,500 patent suits were filed in the US in 2013 of which PAEs – patent trolls – accounted for two thirds of them. PWC note that the median damages awarded in 2013 was a lucrative $4.3 million. America’s accounting journal – the CPA Practice Advisor – reckons “frivolous patent litigation costs US businesses $29 million a year in direct costs and $80 million in indirect costs”.

Patent privateers take the patent troll model a step further. Privateers focus on what are termed ‘better’ patents, associated with leading parent companies as opposed to obscure, antiquated patents. In practice, privateers tend to restructure the originating company’s portfolio into a series of sub-portfolios, thereby increasing the potential to generate lucrative royalties. They also aggregate patents into those they are already asserting with a view to increasing their negotiating leverage. Privateers are used by some of the larger market players as a form of rent-seeking through the courts – to undermine or attack their competitors by launching time-consuming and expensive lawsuits or other aggressive actions against successful market players.

In the last month the US Congress has made fresh moves to combat this menace to competitive, free markets. In February, Bob Goodlatte, the chairman of the House Judiciary Committee, reintroduced an Innovation Bill with the signatures of no less than 18 Democratic and Republican legislators – and potentially the support of a majority of House members. The House passed an earlier version of the Bill in December but it did not win support in the Senate prior to the closing of the session. Crucially, this revised Bill aims to raise the pleading requirements of a patent owner intent on making an infringement claim. If passed this could help to curb the activities of PAEs, whether based in the US or established by foreign governments.

The threat to competitive markets, both in the US and here in Britain, has significantly increased with the establishment of government sponsored PAEs, a move which carves out a dangerous new form of protectionism. The People’s Republic of China, for instance, has pumped huge sums[iv] into China’s Ruichan IPR Funds in order to acquire a portfolio of patents which it can they use to extract substantial royalty sums from licensees across the globe. This alarming new trend is dubbed ‘patent stockpiling’. Japan, South Korea, Taiwan and even France are adopting a similar strategy by way of rent-seeking activity. In the case of Korea, the state owned PAE, the misnamed Intellectual Discovery, has bought more than 200 patents, including one for retinal eye scan technology, with a view to maximising royalty income through aggressive threats to litigation. France Brevets – the French Government’s patent pool – has been open about the litigious protectionism inherent in such a model.

Britain needs to be aware of these growing dangers to world trade and brief its representatives in the EU (which handles all trade negotiations on behalf of the UK and other member states) to support initiatives aimed at addressing the threats posed by patent trolls in World Trade Organisation (WTO) talks, along with the ongoing negotiations taking place under the auspices of the Transatlantic Trade and Investment Partnership (TTIP). Furthermore, our courts and legislators need to be wary of any rent-seeking in the form of frivolous patent suits aimed at extorting money from companies keen to innovate products and services.

If we do nothing about this menace we face a downturn in world trade, higher prices and a poorer deal for customers.

It’s time to act now.

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[i]                  See ‘Patent trolls: Congress gets down to business - A bipartisan consensus to address the issue is building in Washington’ by Steven Titch, Computerworld, 10 February 2015.

[ii]                ‘Why Patent Reforms Are Needed: Intellectual Property Abuses Threaten Innovation and Cost Consumers Billions’ by Steven Titch, Heartland Institute, Chicago, February 2015 Briefing Paper.

[iii]                 Op cit endnote (i).

A libertarian solution to the welfare state we’re in

Given all the bold statements of Iain Duncan-Smith about restoring fairness and making work pay one could easily be swept away by the hype.  The reforms set out by the coalition include the introduction of the ‘Universal Credit’ in an effort to streamline the cacophony of benefits and tax credits inherited from Labour, the introduction of a benefit cap of £26,000 for families on benefits, and a tightening of conditionality surrounding disability to ensure that all those capable of work do seek it.

The welfare state we’re in

With this swathe of seemingly radical reform taking place one would expect spending by the Department for Work and Pensions to soon reverse from the relentless upward trends seen under Labour.  Sadly, this will not be the case with spending set to increase by an average of £4.29 billion per annum over the course of this Parliament comparing on marginally better than £4.43 billion per annum increase during Labour’s time in office.  According to ONS data unemployment has also only fallen from 2.51 million to 2.49 million since the coalition came to power and growth remains stagnant.

The damaging effects of long-term welfare dependency are well documented by writers such as James Bartholomew and Charles Murray.  Welfare to work programmes such the various New Deals created by Labour were marginally successful at pushing some of the long-term unemployed into work, but only at great cost by subsidising jobs for a fixed period, and often pushing individuals into inappropriate jobs leading to their inevitable return to benefits.  More state intervention is clearly not the solution.

Academics and politicians alike at present seem unable to develop an alternative model for the provision of welfare that brings down public spending (and ultimately debt and taxation) but that also avoids these damaging effects, helps to restore growth.

A libertarian solution? 

I would like to therefore propose that reducing unemployment and improving the economy will require less, not more state intervention through a number of radical reforms:

1. Time limits on out of work benefits

The introduction of the ‘The Personal Responsibility and Work Opportunity Reconciliation Act of 1996’ in the United States was designed in the words of Bill Clinton to ‘end welfare as we know it’, and it did.  It ended welfare as an entitlement programme, limited federal benefits to a maximum of 2 years continuous claim, and a life-time maximum claim of 5 years.  ‘Aid to Families with Dependent Children’ was replaced by the time-limited ‘Temporary Aid to Needy Families’.  The law also discouraged out-of-wedlock births and encouraged the enforcement of child support to re-emphasise the central role of the family in the provision of welfare.  The result, continuous drops in unemployment and massive drops on the funding required for benefits.

2. Turn benefits back into Unemployment Insurance, a genuine insurance scheme

Many people fail to realise that ‘National Insurance’ is named such because that is what it was intended to be, a genuine insurance scheme supported by the Government Actuary’s Department that would provide support to those who had paid into the scheme should they suffer an accident, sickness or unemployment.  1970’s Labour ensured that this came to an end with a move towards universal benefits, but a radical reversal would prevent the thousands of young people from going straight from school or college onto benefits: they would simply not be eligible until they had paid a sufficient amount into the scheme.

3. Abolish means testing, but also all taxes on savings

Even Gordon Brown and New Labour realised that a certain amount of wealth was the best security should the worst happen, and this led to their mean-testing approach called ‘Asset-based welfare’ to ensure that state support was limited to those who have failed the provide for a rainy day.  Unfortunately this led moral hazard and the perverse incentive not to save should the worst happen.

Means testing should be done away with! When it comes to savings the state should do more (or is that do less.  Although the introduction of ISAs has seen the state surrender some of its power to steal our hard-earned money, cash ISA limits are barely nudging up by c. £100 a year.  There is even less incentive to keep money in current accounts depriving the recovering banks of much needed liquidity and capital.  So, why not kill two birds with one stone and abolish all tax on savings?  Should unemployment hit individuals are less likely to require support if they have 6 months’ salary stored away earning them 2 – 4% without the taxman stealing a large chunk.

4. Abolish in-work benefits and use the money to continue to increase the tax-free allowance

There’s little doubt that coalitions most successful policy to support those on the fringes of the UK labour market is to increase the tax-free allowance, thus increasingly taking the working poor out of tax altogether.  However, even with Universal Credit many will still see the government take with one hand from their pay packet just to return slightly less back to them in the form of in-work benefits.  Why not abolish all in-work benefits including child benefit (why not kill this sacred cow/horse once and for all?) and use the billions saved in transfers and administration costs to go even further with the tax-free allowance.

A full-time worker on the minimum wage will have a gross take-home pay of about £11,900.  Why not increase the tax-free allowance to £12,000 so they keep every penny?  With costing we could probably go even further and increase this to £15,000 benefiting even more of the working population.

Conclusion

Ever since the Poor Law Report of 1834 the problems of welfare dependency have been well documented.  Ultimately individuals cannot be given a choice about work, but by rolling back the state to encourage higher earnings, savings and the family to provide an alternative welfare support structure we could finally begin to reduce dependency and the spiralling cost of welfare.

Summary

The Coalition's welfare reforms are too timid, says economist Peter Hill. Welfare-to-work schemes have failed, and adding more state intervention will only compound the problems. What is needed is a reform package that time limits out of work benefits, turns benefits into a genuine unemployment insurance scheme, and more.

Compulsory Education, Child Rights, and the Foundation of Society

Vishal Wilde's series of think pieces continues with a radical look at the role of government in education. Why, he asks, do we assume that both children and society are better off when we make education compulsory in childhood? He suggests that using state coercion in this way is reprehensible and unproductive. Instead, children should be liberated from the constraints the state currently places upon them, for their own benefit and ours. Everyone loves learning. The thing is that not everyone likes studying and what’s even more frustrating is being told how and why we should study. Making education available to everyone is benevolent but making education compulsory for everyone is something that we are so used to that we do not see the blatant problem with it – the deprivation of freedom that prevents the flourishing of precisely those who have the most potential in society; children. Children, when you think carefully about it, are the most oppressed people across all societies.

One might argue that we often only see the value of things once we have gone through them and we might not have realised that had people not guided us onto and through that path. There is, however, a distinction between gentle guidance and legal coercion via making something compulsory. Imagine if we made undergraduate degrees, master’s degrees and doctorates compulsory – this would, quite likely and certainly justifiably, result in public outrage due to the deprivation of civil liberties.

Of course, when children are forced to go to school, since they are unable to argue comprehensively against the injustice of the situation, we do not listen to their outcries. Now, there are children who enjoy going to school. What about those that really don’t, though? What about those who have genuine passions and interests outside of the syllabus and classroom? The crude manner in which we are organised according to our ‘ability’ or ‘academic potential’ from an early age is hardly representative and within each ‘ability set’, there is still a wide spectrum of potential with respect to the taught material and there is, therefore, an oft-documented tendency for some to feel bored and some to be left behind.

A way to handle this problem is reduce class sizes and one way to reduce class sizes is to make education non-compulsory whilst still allowing people to attend the classes that they want to, in order to attain the skills that they themselves think would be useful. For example, if a child realises that they’d like to learn how a computer works (whether this be in terms of software or hardware), they will quickly realise that in order to effectively learn about this (like many other things), they will need to learn become numerate and literate. Therefore they will, by innate means, come to value numeracy and literacy and, most likely, expend more effort in attaining the necessary level of proficiency in these skills as a means to their final end.

Furthermore, the way in which various subjects are taught in school is essentially a form of paradigmatic, scientific indoctrination. Yes, teachers are taught to be unbiased and impassionate when teaching subjects such as History and Economics, but this does not prevent the syllabus itself from being biased toward a particular methodology, ideology, interpretation or analysis. Thomas Kuhn (1962) argued in The Structure of Scientific Revolutions that sciences such as Physics, Chemistry and Biology are taught as if they had progressed in a linear fashion and the History of Science is completely misrepresented to students from a very early age. The education system is the method by which we are trained to think dogmatically under the rules of a specific paradigm rather than rationally and independently whilst being aware of the prevailing rules of the paradigm. Ultimately, this stifles the speed of articulation and shifting of these paradigms. The representation of ‘scientific’ knowledge that many are so quick to praise because of the rapid development it has enabled will also, in future, be deemed the dogma of our era, whose limitations were self-imposed, unnecessarily prolonged and continuously reinforced by means of compulsory education.

However, what would children do if they were not forced into education? Play? Work? Whatever they want? All of these might seem like horrifying propositions to some but this is because we have been conditioned into believing that education means being up to the standard of certain metrics, sitting in a classroom, being passively taught and raking in the qualifications that correlate with higher earnings. Making education non-compulsory does not mean that people would not learn, it would just mean that people would, from a young age, be empowered to learn how they learn best rather than be taught how they supposedly learn best; they would have a more holistic understanding of what constitutes an education and this would enable them to think more creatively with less regard to the standards currently imposed by civilisation.

What about those children who do not feel motivated to advance scientific knowledge and are, rather, interested in pursuing work opportunities? After all, not everyone is interested in working at the so-called ‘frontiers of knowledge’. The phrase ‘child labour’ appals people because it conjures imagery of children working in horrific, mind-numbing and often life-threatening conditions. I’m certainly not actively advocating that children should be sent up chimneys or work with dangerous, heavy machinery once more but I’m saying that children should be allowed to work non-life-threatening jobs that they feel they might get some valuable experience from. For example, if a child who has taken a particular interest in computer programming was allowed to do some coding jobs for a software developer, would it not be wrong to prevent them from doing so? Coding is not life-threatening, it pays well, the child might love it and indeed, the child may be able to think in ways that adults cannot and he or she may well be far more suited to the job than any adult.

Similarly, if a child had a passion for art and he wanted to work as an assistant or apprentice in an artist’s studio, why on earth would we deny them the opportunity and instead force them to go to a classroom to learn the things the government thinks they ought to learn? One of the arguments put forward is that children need to go to school in order to be economically productive in society and work well within it – however, if they find that they don’t need to go to school to do this or that only certain classes taught within school are worth attending to attain this end, then education cannot be made compulsory purely on this ground. In fact, studies, life experience and even common sense repeatedly reveal to us that much of what we are taught in formal education turns out to be of very limited use in the interests we choose to develop in future.

The gender differences in educational attainment (girls outperforming boys) and in pathways (boys being over-represented in mathematics, engineering and the sciences versus girls who are over-represented in the arts and humanities) may also possibly be addressed when individuals are able to express their passion for a subject in their own way.

Indeed, we might find far more passionate teachers outside of the classroom than in the classroom. By making education non-compulsory, children would be able to pick and choose their teachers and they would naturally gravitate towards those who complement their personalities and this would, in turn, naturally foster passion for their interests.

The gist of some of the arguments for compulsory education is that “since we went through it and it has done something good for us, they should go through it as well”. This logic doesn’t hold when we consider the example that something good, such as lessons learned with respect to what we should like to never repeat, might have come out of some appalling eras in History (Mao’s Great Leap Forward, Gulags in the Soviet Union, Hitler’s Third Reich) but we would certainly not wish them to be repeated again for the sake of the lessons being ingrained in us once more.

You might think that the three aforementioned examples were extreme comparisons but when you think about it and scrutinise education policy closely, they may still be apt comparisons – Mao thought that his reforms would do good for China, Hitler suppressed and slaughtered entire peoples because he thought the world would be better off without them and Stalin thought that imprisonment and forced labour was the optimal way to deal with political dissidence. There are many children who love going to school and get a lot out of it but what about those who don’t? When those children that love reading fantasy stories, learning about dinosaurs or ancient civilisations get told to put down their books, lay aside their passion and listen to what must be taught – is it not suppressing their thoughts, is it not the slow slaughter of the people they could be, is it not forced labour as punishment for intellectual dissidence?

Of course, we don’t see this when the child cries not to go to school because they would rather do something that we perceive to be unproductive. “But how will they learn the skills necessary for economic independence from their parents? How will they learn to be good, functioning members of society if they do not go to school with their peers?” Isn’t there more than one way to learn from and interact within society? Do we really want to teach a child that what really matters is how much they make from their education? Should education be viewed purely as a monetary investment?

Surely by telling children what they must learn and what is best for them without allowing them to think for themselves from a young age we are preventing them from thinking independently about how best to tackle the world – it is, after all, independent thought that is the necessary precursor for all other forms of independence (such as, but not limited to, the financial variety) and a vital ingredient for advancing civilisation.

Suppose they were granted the right to, when some children leave the classroom to embark on their own personal journey of learning, a high proportion of those who remain in the classroom will be composed mainly of individuals who see value in the taught syllabus, for one reason or another. This leaves together those who see value in what they are doing and the mutually shared interests of the class will enable all of them to collectively cover more ground and explore deeper questions. Incidentally, this would also cut the cost of education to the taxpayer since children would only learn what they want to and enrol in the classes that they’d like to even from the primary years.

Even though life expectancy has increased over the centuries, this does not give the State (or any other person, for that matter) the right to encroach upon and dictate what we do with our, on average, increasing amount of time spent in this world. Parents might say “but they are my children, I need to guide them” and no-one would deny them the opportunity to guide their children but you should never forget that though you might think of them as your children, their lives will never be your lives.

The government continuously inhibits children’s’ development, albeit with good intentions. By all means, let education be available and optional but enforced compulsion tramples upon that most powerful, cherished and important civil liberty – the freedom of thought, the foundations of a truly flourishing society. The panacea to this poison is to make our education system wholly optional.

A Regular Choice Between Voting Systems

With May's general election set to emphasise the shortcomings of First Past The Post more than any other in recent memory, Vishal Wilde posits that we should empower voters by allowing them to choose their electoral system as they vote, and by embracing plurality in electoral systems. Many eligible voters do not actually vote when the time comes for various reasons. One significant reason is for some is the belief that their vote doesn’t have a tangible impact on public policy or that the party they vote for might never come into power. The Liberal Democrats attempted to address this (albeit with their own gains in view as well) by having the Alternative Vote referendum of 2011 that was subsequently rejected by the electorate. However, the fact that 32.1% wanted to change to the AV system shows that a significant proportion of the electorate don’t think that the current system works effectively or fairly.

The problem is that not everyone will agree on one voting system but we might instead design and employ a voting system that amalgamates and integrates major voting systems simultaneously by allowing voters to pick a voting system and mark their candidate/political party choices simultaneously as they do so; then, the seats are allocated accordingly in proportion to the voting systems chosen and constituencies are redrawn as well.

This obviously sounds very different to what we have in place and it can be argued that this would make each vote unequal but the principle is simple: All votes would still be equal if each voter was given the same opportunity to determine how they would like their own vote to impact the political process instead of being wholly constrained to one single predetermined system – after all, why shouldn’t people be allowed to decide how they’d like their vote to count when they cast their vote?

Consider that the influence of each vote is clearly unequal in a system that is determined entirely by the first-past-the-post (FPTP) criterion? If people feel the need to vote tactically so that they don’t ‘waste’ their vote in constituencies where it is highly unlikely their preferred choice will ever come to power and, furthermore, if some people choose not to vote at all, everyone’s votes are unequal and not everyone has real freedom during the election process.

Suppose now that voters had the choice between PR and FPTP and that 40% of voters wanted PR whilst 60% of voters were content with FPTP. We might then say that 40% of the seats in Parliament would be PR whilst 60% of seats would remain FPTP (of course, this is applying the principle of proportionality where other principles might be applied but it will be apparent that when we amalgamate several voting systems into one, we can apply various principles and issues will persist with any one of them).

This would mean that those people who live in constituencies where their first choice of political party or candidate have no chance under the FPTP system would now have an incentive to vote (rather than abstain entirely) since they could vote for them via PR and, therefore, previously marginalised and largely powerless individuals from various constituencies would have a real impact on the way in which our parliamentary democracy functions.

For example, a political party that never wins under FPTP but which still has a sizeable support base across the country would gain seats despite the supporters’ dispersion because those voters may simply choose to vote PR whilst others in their constituency continue to vote FPTP. In this way, more voters would realise that their preferences can be properly accounted for and their time and vote will not be wasted on the day of the polls.

A potential problem here is that this would entail a constituency being divided in terms of whether they vote PR or FPTP and there might need to be a continuous redrawing of constituency lines in order to account for this (i.e, if very few people vote FPTP in a certain locality, their locality might be amalgamated into another, larger constituency so that they have an MP representing them. The complication here is the continuous need to redraw constituency lines and it would be difficult to agree on what to do here (of course, an algorithm can do this easily but the criteria under which it does this would be controversial).

However, this would mean that in many constituencies, many voters would benefit from an MP representing them due to the people who voted via the FPTP option despite the fact that they actually voted via the PR option. In fact, one could argue that if the constituencies are enlarged then there are more constituents per representative and this might diminish the quality of that MP’s service.

This problem could be dealt with in a variety of ways but one such way might be to assign some of the representatives elected by PR to various constituencies and actually have more than one MP for some constituencies. They might also be from different political parties to encourage competition between the MPs that may, therefore, improve political performance and incentivise efficient governance.

Of course, there are so many ways that we could increase the freedom with which people vote – for example, we could also allow people to choose between having a Presidential or a Parliamentary Government each time they vote a new government into power. In this way, voters would be able to choose between the different underlying moral principles that the various structures of government supposedly reflect.

Finally, the proposal to enhance the power of peoples’ votes might be rebuked on the basis of its being too complicated for people and this might make people less likely to vote in the first place. However, people would also have incentive to become more educated about the entire political process, different voting systems, various distributions of power, the moral principles underlying them and so on; via granting more choice about how their vote is utilised in the first place, there is increased incentive to self-educate.

Tactical voting will always exist, no matter what voting system we use but by granting the voter more freedom in terms of voting method, we can potentially ameliorate election turnout. So, a fundamental democratic principle can undergo innovation and be elevated to new heights when we simply apply the principle of freedom.

It will be apparent to the reader that I obviously haven’t worked out all the details, complications and practical considerations that empowering votes and, thereby, freeing the electorate would entail. Neither do I purport to know exactly what the fairest voting system would be. I do, however, believe that elections in which a significant proportion of the population think that the system must change to even make it worthwhile for them to vote simply undermines democracy. More freedom in voting will increase faith in democracy, improve political efficacy and ameliorate voter turnout.

Co-operative, Competitive National Currencies: An alternative Eurozone currency arrangement?

In this think piece, Vishal Wilde puts forward a novel proposal for the Eurozone, based on a system of competing currencies. This could well be the tonic for a febrile Eurozone, damaged both by the timidity of the European Central Bank and the monolithic nature of the existing currency arrangement. Many call for the dissolution of the Euro; more than 40% of Italians want to return to the Lira, 1 in 3 French citizens want to exit the Euro and, similarly, support for the Euro amongst other member-states has steadily dwindled. Many want to regain (what they believe to be) some degree of control over their money supply. However, this does not solve the root of the problem and will only provide temporary relief – if at all. Any expected relief from (solely) reversionary measures is likely to be offset by the uncertainty associated with what a return to the previous paradigm, at this moment in time, might entail. Furthermore, since one of the main benefits of the Euro is lower transaction costs, a reversion might lead to increased transaction costs. There is also the immediate risk of currency wars that could be trigged from re-granting unfettered national sovereignty over money supply. Murray Rothbard wrote in ‘What has Government done to our Money?’ that former US Secretary of State Cordell Hull repeatedly pointed out that the currency wars in the 1930s were a major cause that led to WWII. This is a more general cause for concern when we consider the aggressive devaluation of currencies that many major central banks are indulging in (through one medium or another).

The Proposal

1. Let Eurozone governments print their own national currencies. 2. Let the ECB continue printing Euros. 3. Require Eurozone governments to allow their citizens to pay taxes in any Eurozone currency (Euros, domestic or foreign national currencies). 4. Let all citizens and businesses in the Eurozone trade in any Eurozone currency (Euro, domestic or foreign national currencies).

Potential Benefits

1. Freedom of choice of currencies

For example, French residents, companies etc. would be allowed to pay taxes and trade in Euros, Francs (Belgian or French), Deutschemarks, Lira, Pesetas, Escudo, Guilder etc. and so would all other countries in the Eurozone. Therefore, the Euro would no longer be the Eurozone’s sole legal tender. In this way, currency users would have increased freedom to choose between using the supranational Euro, their domestic currency and various foreign currencies.

2. Pragmatic reconciliation of rising and alarming nationalist sentiment

This would pragmatically reconcile both those who wish to remain with the Euro and those who want to leave it whilst preventing one group from unilaterally imposing their will on the other. It would be a stabilising concession to the rampant Nationalism sweeping across the EU.

3. Increased competition between Eurozone central banks

Eurozone central banks would have to compete with each other to ensure that their currencies are stable and capture some market share rather than their being excessively devalued (since the benefits of excessive devaluation or overvaluation would be limited because those who are harmed would simply switch to another currency).

4. Benefitting both exporters and importers

In all countries, there exist regional disparities in economic structure. Some regions, towns, villages, cities, or boroughs are more heavily weighted toward certain industries, types of employment, export, domestic consumption etc. By allowing several currencies to coexist across many countries, this would enable areas and communities that make most of their living from exports to use a weaker currency as their predominant means of trade. This would effectively provide exporters with the option of boosting their sales by selling in relatively ‘cheap’ currencies. Conversely, those areas and entities that import more than they export can use a stronger currency as their predominant money; this would enable them to keep inflation under control (thereby preventing the suffering from imposed price rises, amongst other things, that would occur if governments had a monopoly over the money supply and artificially devalued it in the name of exporters and at the cost of importers). For example, those operating in tourism hubs could sell their goods in cheaper currencies in order to revive their local economies. Both importers and exporters would benefit from an arrangement where people could continuously choose the most advantageous currency.

5. Proliferation of currency-related technologies

Despite the potential complication of managing delivering different paper monies across various countries, this situation could become easily feasible in the near future when we consider the rapid proliferation and development of smartphones, e-wallets etc. This arrangement would enable and indeed encourage the proliferation of e-wallets and other technologies that will allow people to transact and switch between several currencies in a seamless manner rather than being constrained to one. It would reduce the need for cash in the first place and would encourage the Eurozone to move towards being a ‘cashless’ society (also, incidentally, reducing the scope for fraudulent activities in currencies).

6. Increased legitimacy of new national currencies through mutual recognition

Suppose that any one country such as Spain, Greece, Italy or Portugal decided to unilaterally leave the Euro, their newly established national currencies may not immediately experience the approval of financial markets. If, however, all countries printed their own currencies whilst allowing taxes and trade to be conducted in either that, the Euro or other Eurozone currencies, this would mean that each member-state’s currencies would gain some immediate legitimacy through official recognition by other nation-states.

7. Increasingly diversified National ForEx Reserves Portfolios

Governments would have an increasingly diversified portfolio of foreign exchange reserves if all entities paid taxes in and traded using different currencies. This would reduce risk to the taxpayer associated with exposure to only one currency. Furthermore, the Eurozone is one of the largest economic zones in the world and this might create an alternative to the dominance of the dollar as a global reserve currency. Of course, governments could simply exchange taxes for their preferred reserve currency but it provides a natural alternative and, in any case, increases the volume of foreign exchange transactions and, therefore, transaction costs.

8. Increased money supply and demand in the Eurozone

With potentially 18 central banks in the Eurozone printing their own currencies (in addition to that printed by the ECB), there would, undoubtedly, be an increase in the money supply across the Eurozone and this would help stimulate the demand deficiency that is a major cause of its economic stagnation.

Potential Drawbacks

1. Complicates tax-collection

However, through the natural proliferation of currency-exchange technologies for peoples’ daily transactions, it would also make it more difficult for tax evasion. Furthermore, the same rate would be applied regardless of which currency one uses or pays taxes in.

2. Elimination, by competition, of some currencies

Certain national currencies may be unable to compete against others and if they are eliminated by the competition, it would be for no reason other than that people found it more advantageous to use other countries’ currencies instead of their own.

3. Devaluation of the Euro

If this policy is announced, the Euro might get devalued as markets expect other currencies to emerge and challenge its dominance. Initially, this may seem destabilising but it could work to improve Euro area exports and, although inflation might increase, the Eurozone is well below its inflation target. Furthermore, the Euro is still likely to be more valued than some countries’ newly printed currencies (and, conversely, less valued than others’).

4. Makes the Euro superfluous

If there will potentially be 19 currencies (18 national and 1 supranational), one might ask why we need the Euro at all? The Euro is needed because, if it were suddenly eliminated, it would be a shock to many who are accustomed to it. Leaving it as an option means that there won’t be market chaos as businesses and households of all sizes faced major uncertainty and people could, instead, gradually switch to other options. Since it has been the sole legal tender for so long, it is likely that it would continue to play a major role in intra-EU and international trade (presuming a prudent ECB). 

5. Increased transaction costs

The Euro was supposed to eliminate these and they would make trade more costly under the proposed arrangement. However, if people regularly used different within a country as well as when going abroad or trading with foreign entities, the overall volume of Forex transactions will increase. Then, currency-exchanging firms would look to capitalise by offering cheaper, competitive rates to attract individuals and businesses. Whether Forex transactions costs would be nil in the Eurozone as with the Euro is debatable but it would certainly be lower than the arrangement preceding it and, in the former case, the benefits from a greater money supply, stimulated demand, more competitive exports etc. might offset any incurred transaction costs.

6. Loss of central banking as a policy tool

Not necessarily. Although there would no longer be a sole legal tender (monetary monopoly) across the Eurozone, there would be several governments that would still have the power to co-operate and compete to produce efficient outcomes (albeit, each of them with limited influence so that we don’t remain in the situation where entities have no alternative but to constantly lobby the ECB) and so that we are not at the mercy of one official institution.

Summary

Enabling central banks to print national currencies once again whilst allowing citizens and other entities throughout the Eurozone to pay taxes and conduct trade in any of them (whilst preserving the ECB in a co-existent, co-operative relationship) would not be privatisation or free banking but it would be a pragmatic liberalisation that could help boost demand, increase trade and create jobs.

Prof. John Alfred Blyth Hibbs OBE

John Hibbs was born in Birmingham but spent his childhood in Brightlingsea, the Essex trading and sea-faring town from where came both sides of his family, Hibbs and Blyth. His father died just ten days after John’s birth, so John was brought up by his mother, supported by two aunts and his grandmother. He was educated first locally, followed by Colchester Royal Grammar School, and then boarded at Haileybury College, Hertfordshire.

By the time he was 18, John was a committed pacifist, following his father, a Congregationalist minister, and satisfied the war-time Tribunal for registration as a Conscientious Objector. He spent the time he would otherwise have been on National Service working in agriculture and in hospitals. It was in such capacity at Essex County Hospital, Colchester that he met a nurse, Paddy, who was much later to become his second wife

After some further periods of hospital working, including at the Radcliffe in Oxford, he took a BCom(Social Studies) degree of Birmingham University at Woodbrooke, one of the Quaker Selly Oak Colleges. The turning point in his career was securing a second-year placement with the bus and coach company, Premier Travel in Cambridge. That placement supported John’s BCom dissertation “The place of the motor bus in the rural economy”, and led to a job in 1950 as Personal Assistant to the Managing Director. John learned a great deal about how to run buses from his boss, but by 1952 the company was in trouble, and John was one of the staff who had to go. By this time he had married Constance, whom he had met at the Radcliffe.

He was fortunate to gain the position of Rees Jeffreys Research Student at the London School of Economics.  His MSc research project examined the economics of the road transport licensing system, and became the foundation of much of his later career.

After two years as a transport consultant and technical journalist, together with a fellow Omnibus Society colleague, Bert Davidson, he acquired Corona Coaches in Acton, three miles from Sudbury. Within a few years, Bert died, and not soon after things got difficult. Rural car travel was increasing rapidly, leading to less need for public buses; the licensing framework stifled innovation; credit for fuel became hard to come by. So, with great sadness, John sold the business. After a period as a transport consultant and technical journalist again, he was appointed Traffic Survey Officer at British Railways Eastern Region HQ at Liverpool Street in 1961.

Surviving various re-organisations at BR, and as a member of the British Transport Costing Service, John undertook a wide range of projects involving computerised traffic analysis, costing, market research, demand forecasting, and the market for specific passenger train services. Frustrated at intransigent attitudes, and having acquired a unique set of experiences across road and rail, John took up the challenge of creating the first UK undergraduate course in Transport Studies at what was then City of London College (later, City of London Polytechnic, now London Metropolitan University). Having previously taught with the Workers’ Educational Association (WEA) and been self-employed as a consultant/researcher, this was a smooth transition for him. By the time he left in 1973, he had been promoted to Principal Lecturer, and established a national reputation.

Following his divorce, John moved to Birmingham to be nearer Paddy, and took a post at Birmingham Polytechnic, which proved to be a great career move. In due course he became Director of Transport Studies, and subsequently Professor of Transport Management. He developed new courses (such as a Postgraduate Diploma in Transport Management); taught widely; set up and managed programmes such as an MSc Transport & Distribution Management, researched, undertook consultancies, published extensively, and successfully supervised postgraduate students to MBA, MSc, MPhil, and PhD degrees. In parallel with this, he gained his own PhD in 1983 with a thesis: “A comparative study of the licensing and control of public road passenger transport in selected overseas countries”. The title of Professor of Transport Management was conferred in 1986.

John became a significant national figure. As an academic, he was in great demand at conferences, through invited contributions, as an external examiner and validator. He also was exceptionally active in a range of professional bodies. By way of illustration: he joined the Chartered Institute of Transport (as it then was) in 1951 and remained in continuous membership, holding several offices, including Editor of the ‘Proceedings’; he was a member of the Omnibus Society from 1947, and was Vice-President  from 2006 – sadly he passed away without knowing of his election as President  this year. John founded the Organisation of Teachers of Transport Studies (later, the Transport Teachers Association), and also the Roads and Road Transport History Conference/Association. He also played roles in the Institute of Transport Administration, the Passenger Vehicle Operators’ Association, the Transport Studies Society, and the Adam Smith Institute.

John Hibbs was an eloquent speaker and wrote with precision and flair. He was a prolific writer of papers and authored several books. He was particularly renowned for combining clear intellectual analysis with practical experience of the industry; challenging conventional thought; presenting argument with passion and conviction.

John thus had a strong influence, arguably more than anyone in the UK, on establishing Transport Studies as a credible and important academic subject and as a highly professional area, economically and socially. He effectively created the subject of transport economics, and encouraged a whole new cadre of transport specialists. For his outstanding services to transport education, John was appointed OBE in 1987.

It was little wonder that John’s expertise was sought by policy makers on the national stage. As a long-time Liberal, he was transport advisor to the Party (as well as being active at the constituency level). Moreover, his views were influential in formulating the 1980 Transport Act, which was the first move to reinstate the market. Through discussions with the then Secretary of State for Transport, Nicholas Ridley, the 1985 Transport Act and its White Paper precursor owe much to John’s arguments; the bus industry was reformed, bringing in a commercial structure, removing the road service licence system and weakening monopoly. There were some aspects of the Act of which John did not approve. In particular, he regretted that the Act did not actually achieve his desire for full deregulation, which was the popular (and political) description; he regarded it as about ‘regulatory reform and reorganisation.’ Later, John advised John Major and his government on railway privatisation. In the event, privatisation proceeded in a manner contrary to John’s advice (and that of many others): wheel was separated from rail, leading to what John regarded as ‘the mess we have today.’

John continued an active professional life way after his formal retirement, and was frequently called upon as a media commentator. He was still teaching postgraduate students at Aston University into his 80s! He regularly wrote and presented extensively about road and rail policy matters, especially privatisation and deregulation. He continuously challenged the establishment – the road and rail transport industry and government regulators – with careful and critical analysis and research. Not everyone found his arguments to their liking or conviction; but John’s standing and powerful exposition, his integrity and mastery of the economics and practice, and the respect with which he was held, made for compelling listening and attention.

John Albert Blyth Hibbs passed away on 7 November 2014. He is survived by children Mike, Alison and Robin from his first marriage to Constance, and five step-children Krysia, Cyrrhian, David, Enistine and Tim from his second marriage to Paddy.