The effects of unilateral free trade on British food prices post-Brexit

We all know - for we’ve all complained about it often enough - that the varied estimations of what Brexit will do to food prices have their flaws. Most obviously, near all of them assume that we’ll charge ourselves tariffs on imports. Some even claiming that we’ll still pay the revenue off to the EU which is a most odd allegation.

We ourselves argue that we should have unilateral free trade. Not because of Brexit but just because we should have unilateral free trade. If Brexit allows that, fine, but the point is the free trade, not whatever governance arrangements make it possible.

We’ve not been aware of any detailed modelling telling us all what the effects upon prices of such unilateral free trade. Fortunately the National Farmers Union comes to our aid:

The Agri-Food and Biosciences Institute looked at a bespoke Free Trade Agreement with the EU (tariff and quota free, with 5% facilitation costs); a switch to World Trade Organisation defaults (8% facilitation costs) and unilateral trade liberalisation (zero tariffs on imports, UK exports face MFN tariffs, 8% facilitation costs).

It model captures the impacts on commodity markets as a result of changes in trade flows with the EU and the rest of the world. The results are presented as changes in farmgate prices, production and output value.

That report is here. The NFU complains that the unilateral free trade option is the worst, for it leads to declines in the prices of all the major outputs of the farming industry. Therefore we should all support the unilateral free trade option as that’s what will reduce the price of what fills our bellies - those outputs of the farming industry.

Beef comes down by 45%, pigs/pork by 12%, poultry by 9%, wheat by 5% and so on. Exactly why the NFU complains and exactly why everyone else should be supporting that unilateral free trade position.

It’s entirely true that 5% off wheat isn’t a sufficient reason for Brexit and opinions differ on the value of the step itself. But we do have to decide what we’re going to do as we do leave. The option that benefits us out here the most is unilateral free trade so unilateral free trade it ought be then.

Or, as we might put it, why make food more expensive than it need be for 65 million people in order to benefit the 55,000 farmer members of the NFU?

We are an adversarial culture

Some people bewail what they describe as the "adversarial political culture" they think has come over Britain. Politics has certainly become more divisive, more ill-tempered and more abusive. Part of this comes from the conviction by some that their cause is so just and so important that they are no longer required to behave like decent human being in pursuit of it. They think it so virtuous and so vital that it justifies any actions that might advance it. Their self-judged virtue allows them to be vile.

But politics in the UK has always been adversarial. So has our law and our science. We pit parties against each other, facing their opponents in Parliament separated by two sword lengths, not in the horseshoe chambers favoured in continental Europe. The electors make judgements about who wins, and they vote accordingly.

In law we don't conduct a joint inquisition to find the facts. We have one side making the whole case for the prosecution and the other doing likewise for the defence. The jury looks on and decides who has won. It is adversarial.

In our scientific activity we set theories against each other, and contrive experiments to tell us which ones have won by making better predictions and explanations than the others. This adversarial culture is part of our national psyche. We prefer trial and error to system building. This is one reason why we did not sit easily in the European Union. They have coalitions where we have a winner-takes-all political culture. Their law is inquisitorial, ours is adversarial.

Moreover, European law tends to be by statute, top down, telling people what they can do. English law is Common Law, made up of countless prosecution versus defence decisions reached over the centuries. It tells us what we cannot do, and assumes that what is not prohibited is allowed.

So yes, our culture is adversarial; it always has been. That politics has become more bitter is not because it is adversarial, it is because some people have lost their tolerance and sense of decency.

Smokers respond by buying underground cigarettes

Underground or 'fake' cigarettes are flooding the country and costing £2bn a year in lost revenues, according to the Local Government Association (LGA). Furthermore, their sale is said to be hampering the government's programme to encourage smokers to quit.

The 'fake' cigarettes are sometimes counterfeit, packaged to resemble well-known brands, and sometimes are actually well-known brands that enter the country illegally without paying tobacco duty. Sniffer dogs have been used to uncover secret stashes hidden behind walls, under floorboards, and in secret panels. They are sold from shops, private homes, and on the internet.

What did they expect? Many voices, including ours, told them what would happen if plain packaging laws were introduced. This was not theory. We had seen what happened when Australia did that. Plain packaging made cigarette packs easy to copy. Underground cigarettes were harder to keep out of the hands of underage smokers. They are also not amenable to controls for quality, and many contain a higher proportion of hazardous substances than their legitimate counterparts.

Many voices, including ours, also told them that eye-watering tax increases on tobacco would not bring in the revenues that governments anticipated because the higher prices would tempt more people to buy contraband versions.

The response of the LGA is unsurprising. It is a call for tougher penalties, greater enforcement, and bigger fines "to help councils' enforcement work against rogue traders, reduce crime in our communities and protect the health of children and young people." Presumably they also call for "more resources," as nearly all government bodies do these days.

As long as the incentives remain high, it is doubtful if such measures will make the desired difference. There is a proven way to pursue most of those objectives without driving people to criminality. It is to promote vaping as a far safer alternative, to allow more advertising of smoke-free products, and to remove the petty regulations, including those that originated in the EU, that hold back the proven way to lead people away from tobacco smoking.

The terrors of Brexit

Agreed, opinion on the merits, methods and morality of Brexit differ around here as they do elsewhere across the nation. Yet we are still connoisseurs of the desperation inherent in some of the stories. For example, that companies may leave, or even plan their way around things:

Thousands of British companies have already triggered emergency plans to cope with a no-deal Brexit, with many gearing up to move operations abroad if the UK crashes out of the EU, according to the British Chambers of Commerce.

Before a crucial week in parliament, in which MPs will try to wrest control from Theresa May’s government in order to delay Brexit and avoid a no-deal outcome, the BCC said it believed companies that had already gone ahead with their plans represented the “tip of the iceberg” and that many of its 75,000 members were already spending vital funds to prepare for a disorderly exit.

It said that in recent days alone, it had been told that 35 firms had activated plans to move operations out of the UK, or were stockpiling goods to combat the worst effects of Brexit.

Well, yes, there’s likely to be a change in the basic operating environment in the near future for these companies and so we would rather hope that a certain amount of planning and preparation goes on. You know, management does get paid to do some managing, it’s not all just fat cats sleeping on soft piles of lucre.

Again, the merits of that change are not the point here, rather the desperation with which the point is being put forward.

There are 5.7 million businesses in the UK. The BCC represents 75,000 of them. 35 is not a large portion nor proportion of either number. It’s not even certain that this is a larger such than activate such plans on any normal day in fact.

To repeat for a third time, the decision itself is something we can all disagree upon. But there’s more than a whiff of desperation to at least some of the arguments being put forward.

Venezuela Campaign: How to destroy an economy

We are now hopefully witnessing the death throes of the illegitimate Maduro regime. Latin American countries, the US, Canada, and many other states have declared National Assembly President Juan Guaido as the legitimate President. Hundreds of thousands of Venezuelans have taken to the streets to show their support for Guaido, notably from the deprived barrios that once backed Chavez.

Now that the end of Chavismo is in sight, it is worth reviewing how the Chavistas succeeded in ruining the richest country in Latin America, the country with the largest oil reserves in the world. The Chavista regime has destroyed much of the Venezuelan economy, crippled its oil production, and soon it will soon lose the remaining oil revenues that are sustaining it.

Attacks on property rights and the rule of law were fundamental to the economic collapse. Companies were subjected to nationalisation on political whim, as well as price controls that made their operations uneconomical. This resulted in the sustained decline and eventual collapse of the domestic manufacturing and agriculture sectors.

The regime sought to compensate for dwindling domestic production by increasing imports, which more than doubled in per capita terms between 2000 and 2012. It financed this with over a decade of unsustainable borrowing. Between 2002 and 2016 Venezuela increased its debt burden by a factor of 6. Venezuela’s foreign debt now equals more than 5 years’ worth of exports, a worse ratio than that of any other country. However, heavy borrowing during the boom cycle of a notoriously boom and bust economy would prove devastating in the years to come.

Following a fall in oil prices between 2014 and 2016, Venezuela’s heavily oil-centric exports plummeted in value. Combined with the continuing collapse in oil production due to Chavista mismanagement – a 54% drop in production since 1998 – insufficient funds were available to pay for imports. After over a decade of heavy borrowing, Venezuela did not have the credit necessary to see out a depression in the oil market.

Facing severe funding shortages, the regime cut imports of food by 70% between 2014 and 2017, and imports of medicines by 70% between 2012 and 2016. The huge reduction in imports was combined with continuing falls in domestic production. There was a 50% contraction in production of the key cereals rice and corn between 2013 and 2016.

The combination of both a decline in export earnings and the collapse of domestic industry triggered a serious funding shortage for the regime. In an ill advised response to the funding crisis, the regime printed money, beginning a trend of rampant inflation that reached 1 million percent in 2018. The impact of hyperinflation on buying power is staggering. While it took 47 hours of minimum wage work in August 2017 to buy a kilo of cheese, by August 2018 this had risen to an incredible 930 hours. The minimum wage in October 2012 provided 60,000 of the cheapest calories, but by August 2018 this had decreased to a mere 200 calories.

Given the obviously catastrophic impacts of these policies, one might question why the regime did not abandon them. The answer is partially because of an ideological commitment to the extremist Chavista dogma, and partially because the Chavistas themselves, the party elite and military, are benefiting financially amidst the carnage. Price controls created shortages that enabled state enterprise managers to make fortunes from selling goods on the black market. The oil revenues have been systematically plundered for personal gain, and a myriad of other corruption schemes have looted Venezuela’s resources.

As we hopefully near the end of this sad story, we must learn from Venezuela and ensure that this tragedy never repeats itself.

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

From conscription to volunteer forces

On January 27th of 1916, in the middle of the First World War, conscription was introduced into the UK. Men between the ages of 18 and 41 were required to serve in the armed forces. The age was later raised to 51. Exceptions were allowed for those in vital industries, church ministers, or conscientious objectors.

Conscription itself is an ancient practice, imposed in ancient Egypt 27 centuries BC, as well as in Hammurabi's Babylon 4 millennia ago. Its modern form came in the late 18th century when revolutionary and Napoleonic France needed soldiers. It is a denial of liberty, done in the name of national security. Young men, and in some countries women, are forced to undertake military training and to serve in the armed forces. It interrupts careers and forces people into activity they might not freely undertake.

It was phased out in the UK in 1920, but reintroduced in 1939 as the prospect of war loomed. Its second incarnation lasted until 1960, when it was replaced by an all-volunteer army, which we still have.

The first peacetime draft, as conscription was called in the US, lasted from 1940 to 1973, when the US also moved to an all-volunteer army. There was a famous exchange before President Nixon's Commission on a volunteer army, when Milton Friedman and General Westmoreland confronted each other.

General William Westmoreland, testifying before President Nixon's Commission on an All-Volunteer [Military] Force, denounced the idea, saying that he did not want to command an army of mercenaries.

Milton Friedman interrupted him: "General, would you rather command an army of slaves?" Westmoreland got angry: "I don't like to hear our patriotic draftees referred to as slaves."

And Friedman got rolling: "I don't like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general." And he did not stop: "We are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher".

Despite the restrictions it imposes on personal freedoms, conscription remains in many countries today, with a typical period of maybe two years of service followed by several years as a reservist. Some today call for UK conscription to be reintroduced, perhaps for military service, or maybe for "community service." They should bear in mind that taking over people's lives for a year or two, and forcing them to do something they have not chosen to do, is a form of slavery. Milton Friedman was basically right.

We said that someone would and, Bless 'Im, Owen Jones has

Yesterday we said that someone, somewhere, was going to complain about the manner in which oil companies only pay profits tax on the profits they actually make. They’ll do so out of ignorance of course, just an inability to understand this real world out here. So, guess what, Owen Jones, bless his little cotton socks, has leapt in to do exactly what we said some ignorant would do:

Yet the need to stuff the government’s maw with revenue means that that’s not quite how we’ve taxed these companies over the decades. We’ve looked at the costs and revenues per year, not over that entire lifecycle. Now those end of life costs are coming due and sure, companies can count them as costs and deduct them in the calculation of what profits they’re making which can be then taxed.

That’s all these “tax credits” are. Just another cost which is deducted from revenue before profits, thus profits tax, are calculated. Further, we can’t actually have a tax system that works any other way. Well, not a fair nor efficient one at least.

There will, of course, be cries to the Heavens about these subsidies to the capitalists who’ve been raping Gaia and all that. Yet all that is happening is that costs are being deducted from revenues before profits are calculated to be taxed. Given that this is how we work out what are profits that are then taxed why the complaining?

And now Owen:

The “free market” is a creed that stirs up near religious devotion among its believers. It is in fact a con, a myth, a great deception. Take the latest striking example: according to the National Audit Office, British taxpayers are expected to cough up £24bn for tax relief given to oil and gas corporations, for the removal of North Sea wells, rigs and pipelines. Better start saving up, because if the companies suddenly go under, that bill will only increase. Indeed, some companies have already defaulted on the costs of decommissioning, leaving you and I to pay millions of pounds.

Many questions arise here. While Britain’s Tory government frittered away its North Sea oil wealth, Norway invested the proceeds into a sovereign wealth fund which is now worth $1tn. We could have saved up the wealth to invest in the country’s future – what a tragic waste. It is also a damning indictment that we are splashing out on tax breaks for big oil rather than properly investing in tackling the existential crisis of climate change, and in doing so, creating vast numbers of jobs in renewable energy as Germany has done.

But it is yet another example of socialism for the rich, capitalism for everyone else. Britain’s private sector is utterly dependent on state largesse to make money.

Levying a profit tax only upon profits is not state largesse allowing those profits to be made.

We do enjoy saying we told you so, we did tell you, he at least did, we’re telling you we told you so. But then finding Owen Jones in error about reality is hardly setting ourselves a high hurdle to clear now, is it?

What horrors, oil companies only pay profits tax on their profits

The National Audit Office has released a report which is bound to cause a certain amount of wailing. For it states that oil companies operating in the North Sea only pay profits tax upon their profits.

British taxpayers face a £24bn bill for tax relief awarded to oil and gas companies removing hundreds of North Sea wells, rigs and pipelines, the UK public spending watchdog has said.

The National Audit Office (NAO) said the figure would climb if companies collapse and are unable to pay for cleaning up their operations, leaving the government to pick up the tab.

As you can see that’s not quite exactly how The Guardian is reading this. The report is here.

What is actually being said is as follows. Those rigs out there in the ocean, they’re long lasting but not eternal assets. At the end of their life they need to be cleared up. That clearing up cost is part and parcel of the entire cost of the building operating and, yes, removal.

It’s also true that, at least as best we can, we tax the profits of an activity over the whole cycle of that activity. For, clearly enough, it’s only over the entire lifespan that we can actually work out what is the profit from having done it. The first few years of anything are a pouring in of money and thus losses, we carry those forward to offset against profits when they are indeed made. These oil platforms being a little different in that there’s this bolus of costs at the end as well. But, obviously enough, the profit from having exploited the field needs to include the costs of getting rid of the rig just as it already does the building and placing of it.

Yet the need to stuff the government’s maw with revenue means that that’s not quite how we’ve taxed these companies over the decades. We’ve looked at the costs and revenues per year, not over that entire lifecycle. Now those end of life costs are coming due and sure, companies can count them as costs and deduct them in the calculation of what profits they’re making which can be then taxed.

That’s all these “tax credits” are. Just another cost which is deducted from revenue before profits, thus profits tax, are calculated. Further, we can’t actually have a tax system that works any other way. Well, not a fair nor efficient one at least.

There will, of course, be cries to the Heavens about these subsidies to the capitalists who’ve been raping Gaia and all that. Yet all that is happening is that costs are being deducted from revenues before profits are calculated to be taxed. Given that this is how we work out what are profits that are then taxed why the complaining?

Happy birthday, Peter Tatchell

Today is the birthday of Peter Tatchell, a long-time campaigner for human rights, civil liberties, and rights for LGBT people. Obviously the ASI does not go along with his left-slanted views on the economy, neoliberalism or free markets, but on the issue of his human rights campaigns, he has shown both bravery and consistency. He was injured while trying to make a citizen’s arrest for human rights abuses of Zimbabwe dictator, Robert Mugabe, when he was beaten by the latter’s bodyguard thugs. He was injured by neo-Nazis in Moscow while campaigning for gay rights there.

He has consistently supported free speech, even of those he profoundly disagrees with. He wrote in the Guardian, "The best way to tackle prejudice is by presenting facts and using reasoned arguments, to break down ignorance and ill-will," and he made the contemporary threats to free speech in Britain the subject of his lecture to the British Humanist Association.

Since 2011 he has been Director of the Peter Tatchell Foundation, working to protect and secure the rights of individuals, communities and nations, both domestically and internationally. He has spoken vociferously against the “no platform” policies of some university groups, and has been himself been no-platformed and the recipient of death threats in consequence.

He has spoken on human rights and freedoms at the ASI, and found a welcoming and supportive audience. As someone consistent in his campaigns for free speech and for people to be free from violence, oppression and intimidation, he has become a national figure, widely respected. On this day we salute him. Happy birthday, Peter.

Cutting the size of the State is the only viable solution here

Two different recent stories which together show that we’ve really not much option other than cutting what the State does, cutting its activities and ambitions. For as far as we can see we’re at capacity in the economy, we’ve still got a deficit, the tax burden is at a peak - even using Keynesian economics this is a time to be fixing the roof while that Sun shines.

From today’s Telegraph:

Unemployment lowest since 1970s, but deficit edges up slightly

We also know that the employment to population ratio is at its highest since those ‘70s. There simply isn’t some reserve army of the unemployed, we’re using that resource in its entirety. Or at least, in what we usually think of as its entirety, we’re at full employment by any of the usual measures.

From the Times a little ago:

Britain is on track this year for the highest tax burden since 1969-70, at 34.6 per cent, according to forecasts released by the Office for Budget Responsibility alongside last month’s budget.

The State is abstracting from the economy, for its own desires, more of everything than it has done for many a decade. Increased taxation isn’t really an option therefore. And yet we’re still running that deficit.

There’re no unused labour resources lying around unproductive, what does happen is being taxed at high historical levels, we’re in deficit - yes, the only solution to this is a reduction in that Sate, in its appetite for our money to gorge upon.

A Keynesian might say the justification is to provide that fiscal room for government to increase spending again come the next recession. People like us might say that cutting spending’s just a good and useful thing to be doing whenever. But we are getting to the same answer anyway we do our analysis.

That no one in politics is talking or thinking this way just goes to show the truth of that old adage, the more united economists are on a point the less attention everyone pays to them.