After No: The ASI Brexit Prize Entry

David Cameron famously said that he didn’t want any more banging on about Europe. The ASI feels the same way and for similar reasons: the topic threatens the unity of the party most likely to introduce policies we would welcome. Even so, after a couple of near-misses in essay competitions, most recently the IEA’s €100,000 Brexit prize, the topic seems to have become my specialised subject. One thing I’ve learnt is that those interested in the subject risk putting everyone else off with Monty Python “Judean Liberation Front”-style vehemence. So in the ASI’s entry, After No, I went for more of a “calm down, dear” approach to the most inflammatory issues. So too the winner, enabling the following compare and contrast as a reasoned contribution to an amicable debate.

1.Why leave the EU in the first place?

Almost everyone ends up talking about “sovereignty”. This mainly means intrusion into domestic law-making, in particular the “harmonisation” to European norms which is so unpopular. Also immigration, which is tricky all round. To take the last first, I argued that the UK needs to balance public hostility to immigration with labour shortages, the welfare of UK expats and the country’s humanitarian commitments. As a complication, the European Court of Human Rights prevents the UK limiting the rights of immigrants as a class but is not an EU body. So I warmed to leaving the ECHR system, replacing it with a British Bill of Rights; and accompanying this with a “public conversation” led by a Royal Commission, so as to reduce the temperature on immigration. The winning essay proposed a parliamentary “cross-party commission”. I looked at harmonisation by asking...

2.What are the UK’s trade interests?

Every sector has its evangelists so policy-makers need cool heads to develop a positive regime. The winner dwelt on trade in goods. I was struck that duties on goods have reached record lows, while the EU has failed to keep its promise on services. I see the latter as the future of trade and crucial for the UK, making me most concerned about the non-tariff measures (NTMs) which hobble them. The EU’s approach has been a wall of NTMs against the rest of the world, plus internal harmonisation with the intrusive baggage which upsets British opinion. This led me to see trade as very much calling for Plan B: and so to…

3.Which grouping suits the UK best?

This conjures up partisans for the Commonwealth, the US, (or both combined as the “Anglosphere”), and our non-EU neighbours. I took the view that all are somewhat restrictive and argued for an association open to every nation willing to abolish what’s left of duties and sign up to work away at NTMs while respecting national sovereignty. The winner also urged an “embrace of openness”, together with renewed links with non-EU neighbours in the European Free Trade Association.

4.Just how difficult will departure be?

I talked to EU insiders, who like to argue that ties are so profound as to be unbreakable. This infuriates many Euro-sceptics, provoking them into one of two diametrically opposed responses: that the UK can readily engineer a “single bill” departure; or that it can only leave after years of gradual disentanglement. My own view is that two or three parliamentary acts, a programme of interdepartmental consultations and vigorous leadership would suffice. My essay presented a timetable of proposals for organisation and legislation. The winner went for consultation and a “Great Repeal Bill”. I also argued that a decent deal with the EU is more likely than not, as its negotiators will be driven by the interests of member states who will be afraid of losing the UK market; the winner focussed on the effects of the re-imposition of EU tariffs. This takes us to the final question…

5.What about the costs and benefits of leaving the EU?

The honest answer is that no-one can know for sure. I crunched numbers for best, middle and worst cases, using the falls in output, sector-by-sector after the subprime crisis, as a template for the worst. This showed that leaving the EU would be nothing like as bad as 2008-12, with sensible policies making the country 6% better off after five years even in the worst case. In the other cases it would flourish, with greater output, stronger trade and lower inflation. The winner also calculated three cases and made policy proposals.

If the topic tickles you, take a look at the ASI’s Brexit entry here and the winner here.

The glory that is Will Hutton

We're getting close to the point that we'll have to declare Will Hutton a national treasure, something that must be preserved in aspic for the glory of posterity. Read through this little point:

It is beginning to be obvious that performance has hardly anything to do with the sustained rise in executive pay. Why should British CEOs in charge of smaller, generally less complex companies be paid proportionally more than their counterparts in the US? Does it make sense that 60% of pay comes in options to buy shares, so that executive focus is wholly on doing those things – cutting investment, avoiding risky innovation, using cash to buy company shares etc – that keep up the share price.

Certainly it's possible to ponder the high salaries that executives get at large companies these days. We might even agree that there's perhaps a certain soupcon of conspicuous consumption in the numbers that are bandied about. We could equally point out that modern companies are vastly larger than our largest companies were even just one generation ago, meaning that the effect of a good CEO is more magnified. And, perhaps even more importantly, the effect of a terrible one (recall what happened to GEC for example) similarly magnified.

But imagine how confused you must be to insist that 60% of pay comes from your success in increasing the share price and then insisting that said pay has nothing to do with performance? Getting the share price up being the aim and desire of the shareholders of course, the very reason they've hired that CEO to run the company for them.

So, just how do you embalm a journalist?

HMRC is intending to sell anonymised tax data

It appears that HMRC is going to be selling anonymised tax data.

Government plans to share taxpayers' data with private firms were condemned as "borderline insane" by a senior Conservative MP. Under the proposals, HM Revenue and Customs would be allowed to release anonymised information to third parties including companies, researchers and public bodies where there is a public benefit.

That a senior Conservative thinks this is borderline insane predisposes us to rather liking the idea. And that Richard Murphy is against it makes it obvious that there's some sense to it.

However, we should oppose this on the Sir John Cowperthwaite principle. He, famously, would not allow GDP statistics to be collected in Hong Kong on the grounds that some fool would only try to use them to do something. So it is here.

For do recall that all of that famous Piketty and Saez research into the top 1% incomes, the top 0.1% and so on, came because they were able to get unprecedented access to anonymised tax data from the IRS. So it's not just that fools will use statistics to do something it's that the entire left political class is trying to use statistics to increase taxation. So, don't let them have the data in the first place.

Something of a blow to one of Polly's pet peeves

We're all aware of one of Polly Toynbee's little foibles: her insistence that because the people who own successful newspapers aren't left wing therefore the true left wing nature of our society gets overlooked and overruled.

Never forget what Labour is up against: 80% of newspaper readership for a hundred years has belonged not just to conservatives, but mainly to extreme maverick press barons, using their power to control politics.

We would have a far more left wing government and polity if only those capitalists hadn't been able to brainwash the people.

Interestingly, the John Bates Clark Medal as just been awarded by the American Economy Association. For research into exactly this idea:

A first set of Gentzkow’s papers studies political bias in the news media. In “What Drives Media Slant? Evidence from U.S. Daily Newspapers” (Econometrica, 2010), Gentzkow and co-author Jesse Shapiro use textual analysis of a large set of newspaper articles to classify content as more Republican or more Democrat (“media slant”). This is done using statistical analysis of phrases that differentially show up in Republican versus Democrat Senators’ speeches in the Senate. These constructed measures of media slant match well with conventional wisdom and with other, more ad-hoc and subjective newspaper political classification. Gentzkow and Shapiro then use these measures to estimate demand for newspapers, and to model the newspaper owner’s choice of media slant. They find that most of a newspaper’s media slant can be explained by the preferences of its readers rather than by the tastes of its owner. The second part of the paper tries to sort out whether the bias of individual papers is driven by “demand” – i.e. the political biases of their target audience – or “supply”, i.e. the idiosyncratic preferences of the owners. They find that it is mostly demand.

It's the other way around. Newspapers, editors, proprietors, do not determine the views of the readership, rather they try to divine what those views are and then pander to them. Meaning that if 80% of the UK newspapers are to the right of Polly Toynbee then 80% of the population is to the right of Polly Toynbee. And thus, obviously, in a democracy we should never go anywhere near the sort of policies that Toynbee favours.

Of course, we already know that last but it's nice to get another confirmation.

As I've been telling you for a couple years now

A new ONS report makes for us a point that I've been regularly presenting to you over the past couple of years. Yes, there most certainly is variation in age at death across the country. And yes, those in more deprived areas do indeed tend to die younger than those in more affluent ones. But this isn't, and isn't from somewhere between not very much and a lot, because living in a deprived area kills you. Rather, it's because people migrate in and out of deprived and affluent areas and those doing the migrating tend to have different health prospects:

One factor that has received less attention is the selective migration of healthy individuals from poorer health areas into better health areas or vice-versa. This type of migration has been shown to play a significant role in increasing or decreasing location-specific illness and mortality rates, which then consequently impact on life expectancy figures. Norman, Boyle and Rees (2005) demonstrated that the largest absolute flow within England and Wales between 1971 and 1991 was of relatively healthy people moving from more deprived into less deprived areas. The impact of this migration was to raise ill-health and mortality rates where these people originated from and lower them in the destination areas. The authors also noted that the benefit to less deprived areas was reinforced by a significant group of people in poor health who moved from less to more deprived locations.

This also speaks to the error that is made about health inequality in the UK. Marmot, and thus the system itself, seems to think that it is economic inequality that determines health inequality. Thus, reduce the economic and you'll reduce the health inequality. But as above, we can see that at least sometimes the causation is the other way. People with bad health have bad economic outcomes: that's why they're moving to more deprived, also known as cheaper, areas.

This is that old difference between correlation and causation again. There is undoubtedly a correlation between income in an area and health and lifespan. It's been politically convenient for campaigners to insist that the causation is that the income differences cause the health and lifespan differences. And I've no doubt whatsoever that that is a part of it: but we've also got that reverse causation as well. That the initial health, and thus lifespan, inequalities are part of the cause of the economics ones. Which means, of course, that equalising the economic outcomes will not equalise the health or lifespan ones. And thus we can and should shout at those campaigners who insist that it will.

A little reminder of how far we've come

This is a little way off our usual beaten track here but there's an important point underneath it. An excellent piece in the NY Times about the impact of the deaths of the US Civil War upon that country. We look back now at the numbers, 750,000 or so killed, equate that to perhaps 7 million now in the much larger population, and think that these numbers must have terrorised the country, as that larger one would us today. But that's not quite how it was: people didn't brush off the casualties, but they didn't loom as large in the societal mind as we might think.  Partly because two thirds of those were due to disease and only one third to actual action. And while death from disease on campaign was at least partly caused by being on campaign death from disease while not on campaign was common enough so it wasn't looked at in quite the same way. But more than that:

If we work from an assumption that deaths from disease were not viewed at the time as war casualties, but rather as a continuation of prewar circumstances, instead of 750,000 casualties faced by Civil War-era Americans, we are left with 250,000. If we divide this figure by the four years of war, we have a crude estimate of 62,500 battlefield deaths per year. But even this figure requires context to understand its significance. It is important to keep in mind that death rates were tremendously variable in the period, even within relatively stable locales, because of the unpredictable nature of contagious disease. Some areas reported rates that varied from below 2 percent up to 6 percent. A conservative estimate of a 2 percent death rate for 1860 would have meant about 629,000 deaths that year for the nation as a whole, while a 3 percent rate would have resulted in 943,000 deaths (today’s rate is consistently below 0.8 percent). The additional battlefield deaths in the war would thus represent an increase of between 7 and 10 percent over the normal rates. Significant, but hardly catastrophic.

Yes, the deaths in that war (as in any) were horrendous, wasteful and we would most certainly hope to avoid any more in the future. But it's worth noting how far we've come since those days, our total death rate now is lower than just the variation in the total death rate at that time from year to year. This is basically the effect of sewage and vaccination (other medical treatments a little, but the real drivers are those first two). Two things that our now much richer society can afford as a matter of course.

Another way of putting this is rather hopeful. I tend to doubt that rich countries will ever be persuaded to get into an all out war ever again. Simply because there are so many fewer things that kill us now that we'll not, in terms of mass armies and mass battles, ever be prepared to take the risks.

Online illegal drugs markets show us the potential benefits of legalisation

Monday saw the worldwide release of the 2014 Global Drug Survey, with particular focus on the recent growth of online markets for illegal drugs. Despite its temporary shutdown in October 2013 - following the arrest of its alleged founder Ross Ulbricht - Silk Road (2.0) remains the most popular anonymous drugs marketplace on the internet. The online element of the survey therefore focused mainly on this site. Growing up in Essex has made me appreciate why purchasing illegal drugs online is a far more attractive option. I have experienced the catastrophic effects of drug prohibition first-hand, and it is part of the reason that the issue means a great deal to me. Friends and acquaintances have had terrible experiences due to contamination from unscrupulous dealers with little incentive to raise their drugs’ quality, and every reason to lace their products with harmful additives. The violence associated with buying and selling drugs in person has affected the lives of people close to me.

As a current university student, I now live in an environment populated by many people who use Silk Road regularly, and for a variety of purchases. From prescription-only ‘study drugs’ like modafinil to recreational marijuana and cocaine, fellow students’ experiences with drugs ordered from Silk Road have reinforced my beliefs in the benefits of legalisation. They have no need to worry about aggressive dealers and are more likely to receive safer drugs: meaning chances of an overdose and other health risks are substantially reduced.

Their motivations for using Silk Road rather than street dealers correlate with the Global Drug Survey’s findings. Over 60% of participants cited the quality of Silk Road’s drugs as being a reason for ordering, whilst a significant proportion also used the site as a way to avoid the potential violence of purchasing from the street. Given that payments are made in the highly volatile Bitcoin, it was also surprising to learn that lower prices were a motivation for more than a third of respondents.

Thus far, governments have unsurprisingly been reluctant to apply the insights that Silk Road provided us with. The political classes remain largely sceptical of attempts at reforming drug laws. However, the UK debate on legalisation is slowly progressing; earlier this month, Nigel Farage spoke in favour of drug law reform, echoing calls for a royal commission from Nick Clegg in February. Ipsos MORI polling last year found that more than half the country supports legalising (or decriminalising) cannabis.

Opponents of reform make the argument that legalisation helps to further normalise drug culture, resulting in increased usage. This is a reasonable claim, and one that seems to be supported by the available literature on marijuana legalisation. However, a marginal increase in the use of safer, regulated drugs seems a worthy price to pay. Legalisation will improve the lives of the poorest and minorities, who are disproportionately harmed by prohibition. It will reduce the violence associated with illegal drugs, ease the pressure on prison spaces and benefit public finances. Instead of criminalising drug users and addicts, it can provide the individuals who currently choose to use illegal drugs with products that are even safer than Silk Road.

Ross Ulbricht, or ‘Dread Pirate Roberts’, set out to explicitly show what it would be like to end the failed War on Drugs. He posted the following in his LinkedIn profile:

“I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force.”

Silk Road has given us a real-world demonstration of why removing state violence from the drug market is one of the best steps the UK government could take towards improving the lives of its citizens. Legalisation should be put back on the agenda.

It's not capitalism that Cuba should be worrying about but markets

Cuba is, however gradually, reforming its economy which is great. However, they do seem to be concentrating on the wrong bits still:

Less well known and less common are the cooperatives but they are part of a political balancing act for the government, which needs to move hundreds of thousands of workers off the state payroll but also wants to slow the rise of capitalism. In many ways it prefers cooperatives, where each worker has a stake in the business, to private businesses where owners make profits based on the work of their employees.

That concentration on who owns what is the wrong thing to be concentrating upon. Sure, capitalism is useful, it's also a great bugbear of those over on the left. But it's also not the important point in an economy. What is important is markets: competitive markets at that, with entry and exit. This is vastly more important than whether those entrants (and those being forced to exit) are cooperatives, owned by the government or top hatted pot bellied capitalists like myself.

The reason for this is that there is no possible method of planning a modern national economy. We could use Alchian's (and Hayek's) point that only a market economy produces enough experimentation for us to be able to work out what to do, or that Socialist Calculation problem that means we've still got another century of Moore's Law to go before we could possibly calculate what to do. There is simply no alternative to using the prices and incentives that a market provides for us and so therefore that's where Cuba should be concentrating their efforts. Simply scrap the rules about who may do what, those licencing regimes. Worrying about who owns it is trivial by contrast.

As an aside, to those who will insist that Cuba provides wonderful free health care and so the system mustn't change. Amazingly, I think you'll note that this country, the UK, also manages to provide free health care to all citizens. And we manage to do this without being a communist dictatorship, without being in Stone Age poverty and without shooting anyone who wants to leave. So quite why those three things are considered necessary to provide tax paid for healthcare I'm really not quite sure.

The importance of Tiebout effects

An excellent little piece of cheering news about what this coming century holds for us:

When I was done with In 100 Years, one prediction stuck in my mind more than any other. It was the mathematical economists Mas-Colell who, almost in passing, wrote, “I believe that Tiebout effects will be increasingly felt on a global scale.” He should know, having long been involved in government, in Brussels and his native Catalonia Spain. As the Wiki says, Charles Tiebout is the economist fundamentally associated with the concept of voting with one’s feet. His Tiebout model was designed to show how people choose their communities, within limits, simply by relocating and choosing to pay higher or lower taxes and prices (or immigrating, or simply fleeing, and choosing to bear greater risks). It’s the way suburbs emerge around cities – some with good schools and fancy houses, others with very low rents, and the rest at every stage in between. It covers refugee camps, too. That this ineluctable force of human nature will continue is the prediction I most confidently expect to pan out, in a century of global change.

For what this means is that free and liberal society will continue.

Think about what Tiebout really means: that people differ in their desires, differ in the trade offs they're willing to make. We all thus potter about looking for that set of circumstances that best suit us. It can be the trivial of making sure when young and dating that we live near the good booze and a decent supply of potentially willing sexual partners, moving out to calmer climes when we have chosen (or been chosen to) settle down, through to the ability of the self-appointed righteous to cluster together to congratulate themselves on their righteousness. Camden Council for example. This works on hte larger scale as well: we can and should be allowed to leave a political entity where those trade offs don't suit us.

As opposed to those (Camden again) who say that we all have to live by the same rules, make the same trade offs. And that's the cheering part of the above prediction. That if Tiebout is going to hold for this century then that means that we'll continue to have a free and liberal society this century.

Maybe.

Oh how we laughed all those years ago

Many years ago, just after Boris Yeltsin had abolished rationing and freed up food prices, I was in Russia when a little old granny was interviewed just before Easter. She wanted to know why egg prices were going up just before everyone wanted them to dye for the Easter festivities. Oh how we laughed about that, for of course the miracle of supply and demand means that when more people want something prices will rise. Not that we could expect someone subjected to 70 years of communism to quite get that.

This isn't something that's going to happen in our much more sophisticated age and place of course. Everyopne's far too well informed about how the world works these days:

Majority of parents back holiday price caps - new ITV poll More than half of parents say inflated holiday prices should be capped so they are not forced to take their children out of school for cheaper getaways, a new survey for ITV reveals.

Well, I guess that explains the Labour Party then if more than half of those old enough to breed are quite so clueless about the most basic concept in all economics, the price system.

So how do we go about remedial education for half the population?