University jobs aren't very good ones so perhaps we should have fewer of them?

If only those who run our universities actually knew stuff. For they’re making an economic claim about how wondrous our university system is, a claim which shows that we’d probably be better off with rather less of our university system. Not what they’re trying to achieve at all.

“University leaders are united in the view that the UK leaving the EU without a deal is one of the biggest threats our universities have ever faced,” the letter says. “As a sector which contributes over £2bn to UK GDP every year and supports 944,000 jobs, it is critical to the national interest, to the economy, communities and wider society, that the UK’s universities thrive post-Brexit.

A million jobs producing £2 billion of GDP. That’s about £20,000 per job. And as any fule kno GDP is all incomes, so we can say that the maximum income being produced by these jobs averages out at that £20,000. But median income for the UK is some £22,000 when measured for both part and full time. Meaning that university jobs are below average.

Thus we’d be better off if we had rather less university and rather more of just average jobs and incomes.

There is, obviously enough, also that point that universities do more than just produce GDP:

University leaders have said that a no-deal Brexit would constitute “one of the biggest threats” ever faced by the sector, as figures revealed a further decline in EU student enrolment, particularly in postgraduate research.

According to the Russell Group of universities, there was a 9% decrease in the number of EU postgraduate research students enrolling at its institutions this academic year. The fall follows a 9% decline the previous year, and has potential consequences for Britain’s research capacity.

The thing is, research is a public good. It’s actually the textbook description of a public good. It doesn’t matter who does it nor where we all benefit from it being done. Further, that the people who do it - or the society which finances it - isn’t able to capture the economic benefits precisely because it is one of those public goods.

That is, there’s absolutely no argument at all that we have to be the people who do the research nor that we finance the creation of the public good. Things discovered by a German postgraduate student in an Italian university enrich us just as much as the same work undertaken here does. If this isn’t true then there’s no argument in favour of any of that public subsidy they’re worried about.

We could well be better off if we had less of this university stuff in our society that is.

From the Resolution Foundation - if you raise taxes then you've raised taxes

We find that we’ve got to do that most unlikely thing here, agree with the Resolution Foundation. If you raise taxes then yes, you will indeed have raised taxes. Can’t really disagree with that point although whether it’s a good idea to increase taxes, whether these are the right ways to do so are more interesting questions we think. Possibly ones where the answer isn’t quite so obvious.

Hammond 'can raise £7bn a year by scrapping tax breaks'

Scrapping a break and raising taxes are the same thing.

Philip Hammond could raise an additional £7bn a year for the Treasury by scrapping tax breaks for the richest in society and tightening up existing wealth taxes, research from one of Britain’s leading thinktanks shows.

In a report prepared ahead of the chancellor’s government spending review, which is due later this year, the Resolution Foundation said that the additional funds could be raised to help finance the higher spending on public services needed to meet the demand of Britain’s ageing population.

Except, of course, it isn’t quite that simple. What they’re suggesting is that wealth taxes should pay for those desired services. Instead of ludicrous rates of income tax that is. And yet we do know something about taxes - all have deadweight costs. That is, the ill effects upon the economy from the simple existence of the tax. And wealth taxes have greater such effects than income.

What this tells us is that if spending would need to be financed by unsupportable levels of income tax then the financing of that spending is even more ludicrously damaging if done through wealth taxation.

The Resolution Foundation warned that, should the government opt to fund the increase through income taxes, the basic rate of income tax would need to rise from 20p in the £1 to 39p.

The very insistence that 39% is an insane starting rate is the proof we need that wealth taxation ain’t the way to do it either.

All of which underlines a point we’ve been making for decades now. We can’t afford the welfare state we’ve already promised ourselves. That’s exactly why they’re all shouting that taxes must rise to fund what we’ve already promised ourselves.

It's not what The Guardian doesn't know, it's what it thinks is but ain't that's dangerous

As Mark Twain pointed out to us it’s not what we don’t know that poses the danger, it’s what we’re sure is but ain’t that causes the problems. So it is with The Guardian and their ideas about business. Here they manage to get one thing about right but then go completely off the edge in their second belief about how it all works:

Gadgets: the hardest thing to make now is a profit

Well, yes, that’s always been true. As many - near every perhaps - attempt at business proves, four out of five such attempts not surviving the first five years. Adding value, the same thing as making a profit, is difficult. They do get this part correct as well:

That’s the challenge for many consumer electronics firms. Not how to make things, or how to distribute them and get them in front of potential buyers. It’s how to make a profit.

The only correction we’d make is that this is difficult for all forms of organisation attempting to produce anything - it’s not limited to capitalist firms trying to make consumer electronics. Actually, 12% of British businesses fail this test every year for that’s the rate of business deaths.

But then what The Guardian believes goes off the rails:By contrast, in software, all the significant costs are in development; reproduction and distribution are trivial – a digital copy is perfect, and the internet will transport 0s and 1s anywhere, effectively for free. If your product is free and ad-supported, you don’t even need anti-piracy measures; you want people to copy it and use it. Software companies typically have gross margins of around 80%, and operating profits of 40% or so.

No. If this were true than absolutely all of the capital in the world would be in software in pursuit of those profits and none would be in hardware or anything else. They’re measuring the profit margins of successful software companies, not the universe of all software companies. This is the equivalent of observing Apple’s 40% margins and concluding that phone making’s a really great business to enter. Entirely missing that Samsung and Apple between them often enough account for more than 100% of the industry’s profits. Meaning that everyone else in the industry is, in aggregate, making a loss.

Yes, this is important, for we’ll never be able to make sense of capitalism itself unless we understand how difficult it is to make a profit and how few manage to do so. It’s only once we do grasp that that the system’s rewards to those who achieve that most difficult task make sense.

Ruse of the Reciprotarians

Trump’s protectionist trade policy and May’s post-brexit trade dilemma have fuelled trade reciprotarians on both sides of politics. They argue that free trade is only a sensible policy proposal if it is mutual. But is this really the case, or are we merely appeasing the whims of proud politicians at the cost to the consumer?

Those with a beady eye on trade-related academic literature will realise that the title of this piece is a twist on Bhagwati and Irwin’s seminal work ‘Return of the Reciprotarians’. However, they never did leave in the first place, for it was all a ruse. We didn’t stop appeasing politicians’ whims either and Britain has had and still has her fair share of politicians on their high-horses.

The early 19th century bore witness some of the biggest battles — including in a literal sense with duels fought over the matter — concerning reciprocal trade. The arguments echo the rhetoric prevalent today.

They say we need a level playing field on principle and that asymmetric tariffs would damage the British economy. “We are to lose the great industries for which this country has been celebrated. Sugar is gone. Let us not weep for it, jam and pickles remain!”

Replace “sugar” with steel, coal or farming and you have the editorial line of your girl-next-door protectionist journo and it sounds all too familiar. Jokes on you though, it is only Joseph Chamberlain; 19th century grassroots organizer of democratic instincts. Nonetheless, one only need to look to their nearest supermarket or kitchen cupboard to realise that we still have sugar, coal and farming produce — in abundance because they’re cheaper too — what a surprise.

More interestingly, Lord Randolph Churchill was a leading advocate of using tariff policy as an instrument to pry open foreign markets. Foreign markets, like oysters, he said, needed to be opened with a ‘strong clasp knife, instead of being tickled with a feather’. This approach to open markets is tedious and requires the wishful skill of politicians. Though the apparent ‘strong clasp knives’ may appear to acquire votes in the short term, to quote Gladstone, “this quack remedy is under the special protection of quack doctors”. For the avoidance of doubt, the quack doctors here are politicians. This tit-for-tat strategy has been advocated by many sympathetic to ‘right wing protectionism’ but it is fallacious; politicians and economies are uncertain by nature.

Standing in stark contrast to protectionist tendencies of Randolph Churchill, Robert Peel, at the expense of votes and his cabinet loyalty, became a catalyst in the history of unilateral free trade measures by repealing the Corn laws in 1846. Richard Cobden, even more so than Smith given his ideas’ influence on the government of the day, was a driving force on this issue. When the French proposed mutual tariff reductions, Cobden objected that the “treaty was opposed to the principles on which the great English tariff reform of 1846 had been based”. The principle was not just free trade, but unilateral free trade.

Unilateral free trade measures may even result in reciprocal liberalisation. Waves of unilateral reciprocity followed the repeal of the Corn Laws and again after the US sponsored the General Agreement on Trade and Tariffs (GATT) which did not require “substantive reciprocity from its major trading partners” after World War II. In this way unilateralism may be reciprocated without a formal agreement to do so. Why kill two birds with one stone when you can kill a flock?

At present however, May’s pitiful attempt to negotiate a constructive trade agreement with the EU reveals that the argument for unilateral trade is yet to be won. A nation’s willingness to unilaterally cease trade barriers is the best measure of its commitment to free trade. Britain doesn’t just need better politicians, she needs a fundamental change in economic doctrine.

Earlier in 2018, during a meeting with industry representatives Trump announced, “you will have protection for the first time in a long while, and you’re going to regrow your industries”. Trump is often caricatured as a charlatan and inconsistently ‘conservative’ on trade based on his protectionist pursuits or attempts to pry open foreign markets in the Randolph Churchill tradition depending on your view of his intentions. Although his critics may be correct, even some of the more ostensibly liberal traders such as Reagan have succumbed to this fallacy; “we are always willing to be trade partners, but never trade patsies,” he claimed at the State of the Union Message in 1987, revealing his ideological fickleness.

This not just a national issue; even the WTO has reinforced the fallacy. Its aims and principles use the milk-and-water lexicon of the reciprotarian, espousing words like: ‘non-discriminating’, ‘stable’, or ‘fair’ to describe trade relations. The word ‘free’ is sadly either non-existent or has been replaced by the more euphemistic adjective: ‘open’.

The Joseph Chamberlains and Randolph Churchills did not win in the 19th century; almost 70% of overall trade liberalization since the 1980s has been unilateral. Let us stop their spiritual heirs from winning today.

Rail discounts given a free pass for no good reason

So, we are going to have a new rail pass, giving half price travel to 16-17 year olds. It has been universally welcomed. I am not so sure. Actually I think it is a bad idea.

In the first place, money doesn’t grow on trees. The cost of carrying XXXX young people on an off-peak train may be marginal, but it is real. Second, when politicians do dish out benefits (paid for by other people’s money, much of it the beneficiaries' own), they hang around for ever: there is never a good time to scrap a state benefit. And once you have created the benefit, you have also created a vested interest group that lobbies against its repeal. So the list of vote-seeking benefit schemes just gets bigger and bigger.

That’s why, on the rail network, we have literally dozens of different railcards and discounts. There’s the 16-25 Railcard, the 26-30 Railcard, Club 50, Family & Friends Railcard, Group Save Discount, HM Forces Railcard, Senior Railcard, Two Together Railcard, Under 25 Advance Fares, the South Yorkshire Student Pass, Season Loyalty Discount plus regional railcards in Cumbria, the Dales, Devon & Cornwall, Esk Valley, Wales, the South East, Pembrokeshire, Yorkshire, Scotland—and a lot more beside. (Not to mention all those free bus passes.)

It makes you wonder who is actually paying for their rail travel. But you know who it is: all those commuters and working families struggling to make ends meet despite higher and higher peak-time fares. It’s a massive—and disguised—transfer of wealth from workers to everyone else. Everyone, including young kids from rich families and older people, who on average are wealthier than the rest of the population anyway. I don’t mind wealth transfers: I prefer to live in a country where people who need support get it. But I can’t see why poor bus users and car users should subsidise rich pensioners for their public transport travel.

Sure, railcards have a benefit in that they discourage people who can travel at any time of day from clogging up the trains and buses at peak hours. But off-peak fares at real term discounts would do that, and would be a lot simpler and fairer than the subsidy to particular groups that politicians think deservice (or are seeking votes from). Let the market take the strain.

Yet another reason why this planning economies thing is so tough

The only thing which should surprise about this commentary on the difficulty of planning is the place it appears. Given that The Guardian usually tells us how government, unions and large companies must all plan together to face the white heat of this technological dawn - or other mixed metaphors - it’s interesting to see a piece there telling us why this is not possible:

Technology in particular has a way of defeating the most ambitious agenda. It is impossible, say, to stand at the foot of the astonishing staircase of locks at Devizes on the Kennet and Avon canal without feeling some sympathy for the pioneers who invested more than £1m to build a southern inland water route linking the river Avon to the Thames – only to be driven out of business by the Great Western railway before they had got their money back. Or, even shorter lived, America’s transcontinental Pony Express, which lasted just 18 months before the advent of the telegraph demolished its business model.

The thing about tech is that even if you can see it coming, you can’t be sure quite how it will arrive or what it will do when it gets here.

Well, yes, obviously enough. We don’t know therefore we cannot plan. It is only if we know what we want to do, how we’re going to do it, what others are going to be doing around us, that we can in fact plan. Given that we don’t know any of those things about new technology then we cannot plan, can we?

The SMS message is one of the textbook examples of this. The ability to do this was there really so that engineers testing the network could do so. No one did predict that consumers would then send them by the billions. Yet we did. The point being that we can’t - OK, if you prefer, we don’t, successfully - predict what combinations of new technological possibilities we out here will use to do what.

The only method we’ve got of working it all out is for everyone to just try stuff out. Offer the ability to do something, see what works, do more of that and less of what doesn’t. Or, as we continually say around here, markets do the heavy lifting for us for planning simply doesn’t work.

Note that this particular point is nothing about the government doing stuff or the private sector. Either still has to use market processes to find out what people do want out of the new technological possibilities.

The world is a better place

There are many predictions of doom and gloom, from global warming to water wars, from trade wars to AI taking jobs or even seizing control. One school of thought suggests that as we evolved, a keen sense of danger helped us to anticipate hazards and try to escape them. This could explain why prophecies of coming catastrophe far outsell those that tell of the progress we've made. By many measurements, the world is a better place than it was. An article by Dylan Matthews draws attention to some of them. For those who want to face the New Year and the future with optimism and a determination to keep things improving, here are a few indicators.

1. Extreme poverty is down to a record low. In 1987 35% of humanity lived below the internationally recognized subsistence line. That figure is down to 10% today.

2. There is far less hunger in the world. The continuing Green Revolution in crop yields has defied Malthus to give us a population that is both larger and better fed.

3. There is less child labour. Just this century it is down from 16% to 9.6%.

4. We have more leisure time than our ancestors did. Typically (1870-2000) it went down from about 65 hrs a week to about 37hrs for non-agricultural work. There has also been a spectacular decline in domestic work that has especially benefitted women.

5. Life expectancy has risen. Since 1770 it has gone up from 29 years to 72 years today. In Europe the rise was from 35 to 80. The last 25 years (1990-2016) saw a gain of 6 years.

6. Child mortality is down. Between 1990- 2017 for under-5s, it went from 90 deaths per 100,000 live births to 35 deaths per 100,000.

7. There are fewer deaths giving birth. Between 1990-2015 it fell from 392 per 100,000 to about 180.

8. Cases of guinea worm went down from 152,814 in 1996 to just 30 last year. Similarly, there have been steep falls in many other diseases.

9. Literacy is up from 11% in 1800 to 85% by 2015.

10. Renewable energy has become much cheaper. The cost of wind power is down from $140 to $45 per mwh (2009-2017), and solar power has dropped from $360 to $50 per mwh over the same period.

These indicators, among many others, show that humanity is dealing with many of the problems that have plagued it for millennia, and is overcoming some of its ancient enemies. Malaria will be conquered soon, just as smallpox was, and many cancers will be. Some people will nonetheless prefer to look to a future of fear, but for those of an optimistic nature, there is a past of progress and the hope of more it.

Of course regulation is needed but it's by whom and how that is the trick

That human society needs to be regulated is obvious enough, it’s by whom and how that regulation is done which is the important matter. Regulation by law, by bureaucracy, by the state, they’re not the only three ways to do it - or, given their similarity, the only way.

In fact, we’d argue that they’re the last gasp attempt to do what we don’t have better methods of doing.

Take, for example, Elinor Ostrom’s work which gained her the Nobel. Garrett Hardin’s highlighting of the Tragedy of the Commons had led us all into believing that government must do something, government must regulate. It might be by defining property rights and leaving the market to do it, it might be by using the bureaucracy to direct actions in detail, but that state definitively had to do something, to act. Ostrom pointed out that this wasn’t so. Often enough a community could work out the rules for itself. And enforce them too.

Government only needs to act to prevent that tragedy when voluntary interactions haven’t worked.

We think this a useful guide to all regulation. Sure, society needs it. But often enough - everyone agrees sometimes, any argument is only going to be over how much or when - people just rubbing along together will produce entirely adequate regulation of whatever it is. Thus we do not require detailed prescriptions of how to run a society to emanate from the bureaucracy.

Sure, that might surprise the occasional German but then so what?

Further, changing technology can flip us from requiring that intervention, those bureaucratic emanations, to not:

Thousands of Britons are earning between £40 and £200 a night by offering illegal taxi services on social media, prompting police warnings.

The Times found 18 Facebook groups with a total of more than 50,000 members where people advertised or sought “lifts” for cash from drivers without taxi or private hire licenses. Many lifts drivers are students and others are in their teens or twenties. They ferry people to and from clubs and house parties, taking their highest earnings on New Year’s Eve.

Drivers and passengers often claim that licensed taxis are too expensive or are unavailable on busy nights but the police warn that clients risk travelling in unsafe or uninsured cars with drivers who could be sexual predators.

Facebook, social media more generally, is producing that reputation management system which is the regulation. That’s what the bureaucracy is proving for us anyway - that the people doing the taxi rides are reputable. We’ve not another system for doing this, maybe we don’t need that formal one any more?

Yes, obviously, such a system would be leaky, would make mistakes. As the state version does as proven by John Warboys. We don’t therefore claim that reputation management through social media is a perfect system of taxi regulation. Only that it’s one that works to a certain extent and the interesting question is. well, how well does it work? Better or worse than the current state regulation? Or even, well enough that we don’t need that state?

We’re not even insisting upon what we think might be the answer - only that we’ve got to answer the question.

Venezuela Campaign: Telecoms for control, not communication

In 2007 Hugo Chavez nationalised CANTV, Venezuela’s primary telecoms provider. Prior to its nationalisation CANTV had a reputation as South America’s leading telecoms operator. The company utilised the latest equipment, paid staff well, and trained staff thoroughly. However, the nationalisation has had a disastrous effect on CANTV. Today the network is falling apart.  State imposed price controls have crippled the company’s ability to generate sufficient revenues to finance its operations. Additionally, investment in new technology has ceased and many skilled staff have left the company.

An in-depth investigation by Reuters has revealed that to pay its employees CANTV has to seek funds every month from the Venezuelan Central Bank. Wage levels are below $8 a month and pay often arrives late. The President of the Fetratel union, Jose David Mora, has written to employees saying that CANTV cannot obtain new equipment because of a lack of foreign currency and complaining that “there is total impunity for those who have bled the company dry.” Skilled employees have left and have been replaced by unqualified supporters of the ruling Socialist Party.

Maintenance has ground to a halt. Vehicles sit rusting because the company cannot afford to replace missing parts.  Servers are no longer upgraded, and the fibre optic network is not supported by maintenance teams. While consumers find it very frustrating when they no longer have phone service or cannot use online services, the impact on Venezuelan businesses has been far more severe. Being unable to communicate with their customers or suppliers is a death sentence for many.

Price controls are also causing severe issues for the mobile networks. Movistar’s top mobile data plan cannot be sold in Venezuela for more than $0.15 cents, while in next-door Colombia a similar Movistar plan costs $17. Mobile networks cannot generate enough revenues to maintain their systems, or to replace network parts stolen by Venezuelans desperate to feed their families. Over 2,000 of the 6,000 cellular antennae in Venezuela have been attacked by thieves over the past three years. As a result of these problems many towns do not have cellular signal.

However, for the Venezuelan regime telecoms is more important as a means of control rather than communication. It speaks volumes that the person Chavez put in charge of CANTV was General Henry de Rangel Silva, head of the intelligence service (also sanctioned by the US for drug trafficking). The Chinese telecoms operator ZTE has helped the regime build a citizen control system based around a new, ID smart-card known as the “carnet de la patria,” or “fatherland card”. This card transmits data about cardholders to computer servers at CANTV, the manager of the database. Venezuelans need the card to receive state benefits such as pensions, food baskets, and subsidised petrol. This year pensioners have been protesting about the card restricting access to their pensions.

The system is also used by the regime to support its election-rigging activities. Voters are encouraged to scan their cards when voting and those doing so then receive messages thanking them for voting for Maduro. Agents of the state are telling people that the system knows how they voted. The regime is focused on controlling its citizens through this sinister programme, even while the basic communication system falls apart. Indeed, that angry citizens are increasingly unable to communicate with one another is likely regarded as a good thing by regime leaders.

While a free press is often championed as the basis of a free society, the freedom to communicate is far more important. Without communications that are reliable and free from surveillance, Venezuelans are unable to escape economic turmoil and political repression.

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

Cuban revolution 60 years ago

On January 1st, 1959, Fidel Castro and his guerillas took over Cuba as President Batista fled into exile. Although initially hailed as a liberation, it quickly became apparent that one dictatorship was being replaced by another. Indeed, the Communist takeover replaced an authoritarian dictatorship with a totalitarian one. There followed the public execution of many who had served under Batista, with Ché Guevara personally shooting some of those condemned.

Castro consolidated his grip on power, nationalising key industries, banning private schools, and confiscating church property. Private lands were appropriated, and an aggressive, anti-US foreign policy was introduced, including armed intervention in foreign military conflicts. The US responded with sanctions, and Cuba became a client state of the Soviet Union, which bought its sugar crop in exchange for essentials. The Cuban economy stagnated under central planning, with shortages and rationing becoming the norm.

Castro's vehement anti-Americanism came to a head when he agreed to station Soviet nuclear missiles in Cuba, aimed at he US. When the US insisted they be removed, and Kruschev backed down, Castro felt betrayed, because he would have preferred a nuclear confrontation.

Cuba will no doubt celebrate the 60th anniversary of its revolution, but it gave the Cuban people a bleak future. Hundreds of thousands risked their lives to flee in small boats to a welcoming US, and the economy they left behind remained locked in a time warp. Things could have been otherwise. A democratic government could have given Cuba the benefits that globalisation brought elsewhere, and made the country rich and prosperous. But 60 years ago this was not on offer.