Well, yes, this is what prices do, even for drugs

Right there on pages one and two of every economics textbook ever there is that little chart of supply, demand and prices. As prices fall fewer people wish to supply and as prices rise more do. That’s all we need to explain this little story:

A 700% spike in the price of a drug used to wean addicts off heroin has caused alarm among treatment agencies, which warn of a rise in drug-related deaths unless urgent action is taken to make it more affordable.

Buprenorphine is an alternative to methadone that reduces the symptoms of withdrawal and lessens the desire to use heroin. It is estimated that more than 30,000 people in England use the drug, which offers a reduced risk of overdose compared with methadone.

About which we are told:

The shadow health secretary, Jonathan Ashworth, questioned the role of the drug makers in the crisis. “We already have record deaths from drug misuse, while treatment services have been slashed by millions in recent years,” he said. “Yet again, this looks like ‘big pharma’ exploiting the market by ramping up the price, and some of the most vulnerable in society ultimately paying a devastating price. With treatment services on the brink, these escalating costs could push many into absolute crisis. Ministers urgently need to step in, get a grip and ensure access to this vital drug for the most vulnerable at fair prices.”

Well, OK, but how are we to define a fair price? Possibly one at which people willingly produce the item desired?

For what has happened here is nothing to do with patents or any other restrictive practices. It’s simply that some of the people who used to produce the drug thought the game not worth the candle and stopped doing so. That is, the price being paid was too low to call forth the desired supply. Suppliers leave the market, the price rises, that’s just what happens. That’s also what we want to happen - the price rises and we’re now assured of supply at this new and higher price.

It’s not even Big Pharma here, it is generics manufacturers.

Earlier this year it emerged that one of the makers of the generic drug, which is far cheaper than its branded equivalent, Subutex, had stopped producing it. Amid fears of an impending shortage, the government stated that pharmacies could be paid close to the same price for dispensing buprenorphine as Subutex, in an attempt to encourage manufacturers, who could command higher prices elsewhere, to continue supplying the UK. Prices rocketed.

There’s a wider importance to this little story just as there is to those basics about supply and prices. There are all too many who believe that government should be fixing prices so that they are “fair.” Rents should be “stabilised,” house prices reduced, transport fares pinned back and so on. And what happens when prices are so set - fair never does mean where people willingly produce for if it were what would be the point of the politicians defining “fair”? - then that thing whose price has been set fairly becomes in short supply to vanishes.

Venezuela, where food was most fairly priced, has no food. A price for housing which is too low to encourage market supply will have a shortage of housing. If drugs are too fairly priced then people will stop making them.

How the USA keeps the Venezuelan Regime Afloat

A common refrain among defenders of the Venezuelan regime is that the country’s problems are somehow caused by the USA. Precisely the opposite is true. The USA is the main source of the hard cash that keeps the Chavista regime afloat.

The issue of US-Venezuelan sanctions was in the news again this week after the US Government sanctioned for corruption Cilia Flores – leading Chavista and wife of President Maduro. It didn’t even stop her from travelling to the UN in New York together with her husband.

Some 45% of Venezuelan crude oil is exported to the USA and analysts expect that proportion to rise, even as total Venezuelan production continues to fall. “US refiners are among the few customers that still remit cash payments for Venezuelan crude oil,” commented Lejla Viller, an analyst with the US Energy Information Administration. Another analyst concluded that “the US is currently the ATM cash machine for Venezuela.”

The main threat to the regime is in fact its own incompetent management of the Venezuelan oil industry. The Chavistas’ policies are killing the oil sector, despite Venezuela having the largest oil reserves in the world. Overall oil production has now fallen below the levels of 50 years ago and Venezuela now produces less oil and gas than the US State of Dakota.

The rot began with Chavez’s firing of 18,000 competent staff of the Venezuelan state oil company PDVSA and their replacement with untrained Chavistas, combined with the transfer of control of PDVSA to the President’s office. Rather than investing money in its essential oil industry, the Chavistas used oil funds to buy short-term support among the population and to enrich themselves personally.

The US Government could of course prevent anyone from buying Venezuelan oil in the USA. That would likely be the final blow to the weakening regime. But it has not done so, knowing that the humanitarian crisis would worsen and that US oil prices would rise. Moreover the US’s position as the main source of income for the regime gives it important leverage. Were the regime to move from merely starving its population to actively trying to kill them in large numbers, the US would be able to wield a big stick.

In the meantime, Venezuela receives over $1.1 billion every month from the US. Supporters of the Chavista regime should stop peddling the fantasy that US sanctions are somehow to blame for Venezuela’s tragedy and instead should appreciate that the US is the only reason why Venezuela’s regime has not already collapsed.

More information on the Venezuela Campaign can be found on their website. 

If Andy Haldane's right here there doesn't need to be a law about it

As we’ve pointed out the only reason to have a law banning something is that we’re rather sure that people would like it. If it wouldn’t happen anyway in the absence of the law then we don’t need the law, do we?

Equally, if there’s something beneficial to the participants then we don’t need a law in favour of it. Entirely true that we’ve got to be careful about third party effects in both cases but, just as an example, if putting workers on the board makes capitalists richer then we don’t need a law insisting that capitalists put workers on the board, do we?

Putting workers on company boards could improve corporate decision-making by bringing new views to the table, according to Andy Haldane, the Bank of England’s chief economist.

He did not endorse any specific proposal, but his comments come just days after Jeremy Corbyn said that under Labour’s proposals one-third of board seats would be reserved for workers.

“We know that plural and diverse boards tend to perform better than non-plural, no-diverse boards. That has been established I think pretty clearly empirically. [Workers] bring diversity of experience and background,” Mr Haldane said, speaking to an audience at the Institute for Government.

We do, after all, agree that capitalists are greedy - hmm, no, properly aware of their own economic self-interest. So, if they make more money by having co-determination with the workforce then that’s what they will do. It might even be that they need to be advised of this method of gaining more lucre, as Andy Haldane is doing here.

But quite obviously that also means that we don’t need a law insisting upon it. For the capitalists, if it really does make them richer, will do it as soon as advised of it. And if it doesn’t in fact make them and us richer through greater efficiency then we don’t want it done anyway, do we?

A law insisting upon worker boards is thus either superfluous or damaging - your choice - and thus contra-indicated. Whatever the merits of that co-determination, we still don’t want a law upon it.

Dame Janet Suzman insists her Belsize Village neighbours would really love a Co Op

This is not what Dame Janet thinks she is saying at all, but it is, once examined, what she is insisting:

An Academy Award nominated actress has been accused of "snobbery" over her objection to a new Co-op store in her north London "village".

Dame Janet Suzman, who made her name through performances with the Royal Shakespeare Company, said she feared the supermarket chain could negatively impact independent smaller businesses in "Belsize Village", near Belsize Park, after plans were revealed for a new outlet last week.

The 79-year-old, who was nominated for a Best Actress Oscar in 1972 for her debut film role in Nicholas and Alexandra, has previously campaigned against Tesco and Sainsbury from opening branches in the area.

Speaking to the Camden New Journal newspaper, she said: "Go away, Co-op, find a nice high street or some other lonely corner where you could serve a purpose, and leave Belsize alone."

"It's going to be tough on the small established shops already serving the needs of the Village and most likely put them out of business. What a rubbish way to find your profits - on the back of the ruination of others."

The Co Op is, of course, a cooperative, owned by its customers. Their pursuit of profit can be viewed in a different manner, if that’s what one wishes to do, than the activities of more capitalist companies.

However, look at the points underlying her statement. If a Co Op arrives then people will shop in it in preference to the current smaller and more locally owned (??) stores. That is, people would prefer there to be a Co Op.

Now, of course, they may and they may not. But the very statement that the new store will put the old out of business is the insistence that they will prefer the new. So, what is really being said here is - my neighbours would like a Co Op but I insist they cannot have what they desire.

Which makes a reasonable accusation against her selfishness not snobbery.

We have no doubt at all that this logic is entirely unexamined by Dame Janet. But then there’s a reason why actresses become rich and famous spouting the lines and logic written by others rather than themselves.

On Adam Smith's linen shirt

One of us recently bought a linen shirt. OK, it wasn’t top of the line, from one of the Inditex brands. It was also in a sale but then it was also £4.

Adam Smith uses the example of a linen shirt. His point being that one can live just fine without one. Yet if you’re in a society where not being able to afford one marks you out as poor, then in that society, if you cannot afford a linen shirt, then you are poor by the standards of that society.

The point here being that back then a linen shirt was an investment, something that one would consider - on labourer’s wages - the cost of. Substantial numbers of people would not be able to afford one. Today? It is possible to buy a new one for around half an hour of minimum wage labour.

It’s still, quite obviously, true that some people have more than others. But Smith’s specific example of relative poverty doesn’t really work in a rich world society today. Which is a useful measure of how far this capitalism and free markets mixture has brought us, no?

Be wary of solutions to perceived falling lifespans

We’ve been known - ad tedium perhaps - to make the point that we must understand the details of a number, a statistic, to quite grasp what it is that we are being told. If we forget the original composition it’s all too easy to fall into error while trying to craft solutions.

An obvious example is the American poverty line - this is calculated before the effect of near all that is done to reduce poverty. It is not possible therefore to argue that we should be doing more of what is done in order to reduce the number below the poverty line. Simply because we’re not taking account of those things that are done.

A similar problem will face us with these new numbers from ONS showing life expectancy falling. Or growth in it slowing.

Life expectancy growth has stalled to a record low, but there are more male centenarians than ever before.

Figures published by the ONS show that life expectancy has stopped growing in the UK, and is even going backwards in some areas.

Between 2015 and 2017 life expectancy at birth remained at 79.2 years for men and 82.9 years for women, the first time that there was no improvement at all from the previous data.

In Scotland, Wales and Northern Ireland, life expectancy fell, with the largest drop, of 0.11 years, seen for men in Wales.

If we were, and Heaven Forfend, to leap to making a political point we might mutter something about the less marketised NHS Wales and NHS Scotland being less effective at preventing death than the more marketised NHS England. And we’d be right, too, but political sneering isn’t quite our style.

The important point here, as we’ve also pointed out before, is that no one at all is even trying to measure how long people born today are going to live. They’re measuring the age of death of people born 70, 80 and 90 years ago. Which means that there’s an importance to the composition of these numbers.

We will, undoubtedly, be told again that it’s inequality, or selective schooling, or relative child poverty, or something to do with the kiddiewinks at least, which is causing this slow down in life expectancy. The usual claim is that those things cause all ills after all. The problem with this allocation of blame being that whatever the effects of these things on current death rates they’re the relative child poverty and so on of 65, 75 and 85 years ago, not those of today.

Whatever we do about children today, whatever is happening to children today, is going to influence deaths in near a century’s time. Well, assuming no Herod solution being offered.

So, when solutions are offered to deal with these changes in life expectancy remember that we can reject out of hand any of them at all which refer to current conditions for younger people. Given the manner in which the statistic is compiled they have no relevance at all to the point at hand. The influence is of past conditions upon those ageing now.

The Future of Energy

Last week, we hosted Purdue University’s Dr. Lynne Kiesling who spoke eloquently on what falling transaction costs and platform business models mean for the future of the electricity market. Her new working paper is titled From Airbnb to Solar and she is also the author of the 2015 Adam Smith Institute paper Power Up: The framework for a new era of UK energy distribution.

You can view the slides from that lecture by clicking here, and listen to our Facebook Live recording here.

Witch hunting, South Sea, Mississippi, tulips, dodgy mortgages, recycling

Human society is subject to fads and fashions. We’re most familiar with those in financial markets, where speculations give way to manias as with the South Sea Bubble, John Law’s Mississippi scheme, tulips, possibly dotcom and subprime mortgages. But it’s us humans subject to the fads, the manias, not financial markets. As witch trials and now recycling show us.

Monthly bin collections have been introduced for the first time in England and Wales, causing fury amongst residents who say they are having to burn their rubbish.

The controversial scheme was launched in the county of Conwy, North Wales, following a year-long trial for its 11,000 households.

Almost the first duty of local governance, the reason for it being instituited in the first place, is to rid the city of piles of foetid, stinking, waste. That local government now insists upon creating piles of foetid, stinking, waste in urban areas would seem to be an error in our system of governance.

The reason given is that we must recycle more and that’s where the error is:

At least 18 councils across England and Wales have moved to three-weekly rubbish collections, with a handful trialling four-weekly collections as they come under increasing pressure to reduce waste and increase recycling rates.

Some recycling is an excellent idea. Collecting up all that scrap gold makes money, we’re adding value by doing it. Other examples present themselves. But this is not then to agree that the mania, that all must be recycled, makes sense. For recycling everything doesn’t but that is the delusion under which modern society is being driven to act.

We’re even told that we must recycle plastics. Something that costs us money - subtracts value, makes us poorer - and the basic justification doesn’t even exist. For we’re told that we must “save resources” and it costing more is evidence complete that we’re expending more resources. But without that, what resource are we to save? Plastics are made from natural gas (not so much oil these days) and these very same environmentalists will tell us that we’ve already found enough fossil fuels, that we cannot use those we’ve got. There’s no resource here for us to save, is there?

True, we don’t want to choke the whales but that means that plastics are a waste management issue, not a resource and recycling one.

The idea that everything must be, or even ought to be, recycled is a mania as extreme as any of those financial market ones. One we’ll wake up from at some point but it might end up being more expensive than any of those tulip and trade ones. For what is going to be the cost if public health breaks down because local government insists upon the creation of foetid, stinking, wastes in urban areas? Doing so in opposition to the very reason we have local government in the first place.

Jeremy Corbyn to reverse most successful economic policy of all time

It might be possible to cavil that this description of Jeremy Corbyn’s ambitions is a tad unfair. Certainly some would so complain. Yet we do think it fair to point out the counterparty to the claim he’s making:

Jeremy Corbyn has warned that the rich are on “borrowed time” as Labour unveils plans today for a multibillion pound raid on companies which would force them to handover 10 percent of their shares to workers.

The Labour leader last night said he would break the mould of “neoliberal economics” which had dominated political thinking since the Seventies, adding that a Labour government “was coming” for the “very richest in our society”.

Speaking at The World Transformed rally at the party’s conference in Liverpool, Mr Corbyn said: “What we're doing is challenging a neoliberal ideology that took over the world in probably, let's say, 1970s or thereabouts.

Note the claim, took over the world. Thus there will have been global effects. As, indeed, there have been. The greatest reduction in absolute poverty in the history of our species. We think that’s a pretty good result from a socio-economic policy, Jezza clearly disagrees.

We think we should probably continue with this successful economic policy too. The UN, with the development goals, thinks we can actually abolish such extreme poverty in the next 12 years - we think that’s an excellent ambition whatever our views on the UN and targets.

Yes, we do understand how political opposition works. Everything currently being done must be opposed because that’s what opposition politics is. But now we’ve finally got that policy which really does lift up the poor it would be a pity to reverse it just so a different grouping of Britain’s chatterati can sit on the government benches, no?

Greetings everyone!

A Gap Year Intern at the Adam Smith Institute is a title both piercingly thrilling and intimidating. When I found out I’d secured the place, I was glad to know I would escape the usual gap yah pressures of lavish drinking and virtue signalling, instead enjoying witty office banter and an obligatory Google Scholar addiction. I cannot wait to get started.

Having observed the ASI’s work whilst at school and won their essay competition, I decided to go from merely intellectualising on ideas of freedom to being an active participant in bringing such policies about. I feel the best way to achieve such a pursuit is, of course, through copious amounts of tweeting, witty memes and coffee. I am certain the upcoming year will provide all three.

Speaking of which, I am keen to spill the beans on future technological and innovative trends through my blogs. I am particularly interested in ways to ensure technological developments in the near future, such as in vitro meat and driverless cars, are allowed to flourish. I am intrigued by the (arguably ambitious) idea of private currencies and how property rights can be used to improve trading relations. Furthermore, as a recovering teenager I would find it hard to resist covering topical issues from feminism to fisheries, and I look forward to engaging with like-minded (and unlike-minded) people who are keen to exchange views. My more niche interests involve Viking economics (or as I prefer, Vikonomics!) which I have found fascinating paralleled with contemporary economic philosophy.

Finally, through far too much time spent on JSTOR and the ASI’s plethora of research papers, I look forward to not only witnessing the economic past of the U.K. but the economic future as well!