Quite obviously this would happen - it's the customers who benefit, d'ye see?
Much has been made of the manner in which post-Brexit there are going to be all sorts of regulatory barriers to this and that. For The City for example, there would be an inability to sell products and services to people simply because the regulations to allow it don’t exist. There being a certain truth to this, obviously enough, as the regulatory structure has grown up during these decades of EU membership. Thus those regulations rather depend upon that surrounding structure of law and assumptions.
Some have been arguing that this is a sticking point. Woe is us as our largest net export sector is entirely stymied. That was never what was going to happen of course:
Financial markets moved a step away from no-deal chaos on Monday after the UK and US struck deals to preserve crucial clearing activities whatever the outcome of Brexit.
New York and London are the two largest centres for so-called derivatives trading and clearing actions - a major part of the financial ecosystem that allows firms to hedge risk in areas such as interest rates.
The future of international clearing activities was clouded by Brexit uncertainty because permissions from US regulators for the UK were granted due to its EU membership.
The UK will now be covered by agreements for at least three years. These will be activated the moment Brexit happens, safeguarding contracts.
Regulations are strikes of the bureaucrats’ pens. It being possible to tell them to get their pens out and get on with new regulations.
As to why it was obviously going to happen we need to ask ourselves, cui bono? Who is it that benefits from thriving derivatives markets?
Sure, those supplying them make a tidy penny. But the customers must gain greater value than that. These are voluntary transactions after all, those spending their own money must be gaining greater value than they’re shelling out, that’s definitional. So, who is it that is going to be telling those bureaucrats to get their pens out?
The customers, obviously enough. Exactly and precisely what is happening. Those who use, rather than those who provide, those derivatives markets are making it entirely clear that whatever the desires of the British to be subject to Brussels or not they’d like to keep using those derivatives markets. So, the regulations are being adjusted so that they can.
It always having been obvious that this is what would happen too.
Levis and Kelloggs – consumer icons
Levi Strauss and John Harvey Kellogg were both born on February 26th, the former in 1829, and the latter in 1852. Each created and sold a new product, both of which have become part of modern life and are traded worldwide. Each established a brand image that customers associated with quality and reliability.
The creation of both products is steeped in myth and legend, in claim and counter-claim, but some facts are documented. When on 1853 Levi Strauss, originally from Bavaria, opened a San Francisco branch of his brother's New York business, he numbered Jacob Davis among his customers. Davis thought that copper rivets on work pants would reinforce places likely to tear, and suggested a joint business with Strauss. They patented the idea in 1873 and started making the denim pants we now call jeans. A widespread myth is that they first supplied them to the 49-ers gold miners, but their jeans came later.
John Kellogg was the director of the Battle Creek Sanitarium in Battle Creek, Michigan, and an innovator in health advocacy. He sold vegetarian foods, but is best known for the invention of corn flakes. Instead of discarding a batch of dough left overnight, he put it through rollers and unexpectedly made flakes that could be baked. He filed for a patent for the process in 1895. In doing so he created not only corn flakes, but breakfast cereals and the breakfast habit of millions.
The establishment of brands and brand advertising was the market's response to quality control. In the absence of regulation, customers could choose established brand names that had a reputation for quality. They might often be more expensive than their less fastidious competitors, but many customers sought the security of the big names that had a reputation to protect.
Levis and Kelloggs are both worldwide businesses, advertising their quality and trading on their long-established names for top range products. Both firms have responded to changing customer tastes by extending their product ranges to adapt to changing fashions and tastes, but their basic innovation was a new type of product that found favour with the public because it met their needs. This is how the market works; it rewards those who provide goods that customers want and are prepared to pay for. Levi Strauss and John Kellogg did that spectacularly, each introducing a novel product, ones that have lasted. Today, perhaps, as people try to avoid spilling cereal onto their jeans, some will thank the 19th Century entrepreneurs, born on this day, who gave us such consumer icons.
We rather like this idea, it has so many possible uses
As we’ve pointed out before there’s a certain amount of dissembling over homeless numbers in the UK. We have figures of hundreds of thousands bandied about when in fact there're more like 5,000 or so rough sleeping. The hundreds of thousands number is of those protected by our welfare system from that agreed destitution of having to sleep in the streets.
We’ve the latest insistence from the campaigners though:
Councils have been accused of deliberately hiding the scale of the rough sleeping crisis in England by changing the way they compiled figures for the 2018 official count, the Guardian can reveal.
Gosh. That would be bad.
Official government statistics reported a 2% fall in rough sleeping in England in 2018 after seven consecutive years of rises when the figures were released last month. But critics have suggested the percentage decreased after several councils changed their counting method and does not reflect the reality on the streets.
The government has described the claims as “an insult” to the volunteers and charities who help compile the official figures. But back in 2015 the figures were also criticised as low-quality, untrustworthy and vulnerable to political manipulation by the UK Statistics Authority who threatened to remove their official status.
The rough sleeping statistics for England, based on a combination of estimates and spot counts on a single night in autumn, are intended to include everyone about to bed down or already bedded down on the street, in doorways, parks, tents and sheds but not hostels or shelters.
Estimates, akin to a local census, are typically agreed by agencies who work closely with rough sleepers in the area all year round, whereas street counts are one-night snapshots.
Analysis by the Guardian found that more than 30 councils switched from submitting an estimate to a street count from 2017 to 2018, with some councils reporting reductions in rough sleeping of up to 85%.
So the old method of using estimates was criticised as being low quality, untrustworthy and vulnerable to political manipulation. Therefore many moved to the better system of conducting an actual census. It is these new, presumably better, numbers which are being critiqued because. Well, because what? They show the previous level of political manipulation?
We’d not expect homeless charities to underestimate now, would we?
But it’s that basic contention which has so many uses. Ignore reality and instead depend upon our estimates of the problem. Because our estimates are going to be so much more accurate.
You know, the cry of the snake oil salesman down the centuries. Who you gonna believe, me or your lyin’ eyes?
The history and future of fuel taxes
On February 25th 1919, Oregon became the first US state to levy a tax on gasoline. It was 1¢ per American gallon (four fifths of a UK imperial gallon). From there the only way was up, and the current highest state taxes on fuel are Pennsylvania at 58.7¢ per gallon, and California at 55.22¢. The lowest are Alaska at 14.6¢ per gallon, and Missouri at 17.35¢. These figures include excise taxes, environmental fees, storage tank taxes, other fees or taxes, general sales tax. They do not include the federal tax of 18.4¢ per gallon on gasoline, or 24.4¢ on diesel.
When I lived in the US in the mid-70s, my gold Cadillac Sedan de Ville did about 16 miles per gallon, and even less in city driving, but is scarcely mattered since petrol then cost about 70¢ per gallon. Today it's about four times that for premium. The US government has mandated better gas mileages for fleets, but Americans never really liked the compacts that were produced to meet those fleet targets, and turned to SUVs to circumvent the limits.
Fuel taxes are higher in the UK. They started in 1909 with a petrol tax of 3p per gallon "to help pay for roads." The most recent UK figure was of 57.95p per litre, plus a 20% VAT levied on both the actual price of the fuel and on the fuel duty – a tax on a tax. The current cost to motorists is 65.25p per litre for petrol, and 61.55p on diesel. The fuel duty escalator from 1993 adds 3% above the rate of inflation, but it is not applied in every year.
Obviously these fuel taxes are major sources of revenues for the US and UK governments, as they are for most other countries. Given the surge in sales of electric vehicles, encouraged by government subsidies, this revenue will decline as fossil fuels are phased out. Before very long governments will have to cut their spending, or find other ways of making up the shortfall in fuel duties. One option will be to raise the cost of electricity, a policy unlikely to appeal to domestic users of it. Another way might be to load the tax cost onto the vehicles themselves instead of the fuels they use.
I have paid the government nothing in fuel tax for the four years since I started driving a Tesla. On the highway Elon Musk lets me charge up for free at his power points. If many people move in this direction, as is highly likely, it will be good for the environment, of course, but bad for Treasury coffers. No doubt insatiable personnel there are already greedily examining what other taxes they might introduce to replace those on fuels.
We just thought this was rather good, that's all
That a couple of likely lads from Eritrea are bringing electrification to South Sudan strikes us as being a Good Thing. Certainly, it seems to be being done with rather less collateral damage than Lenin’s electrification of the Ukraine. But we’re also drawing attention to how it is technological advance which brings that newfound wealth:
“There has been a boom in solar over the last five years,” says Joyce Nkuyahaga, CEO of the Uganda Solar Energy Association. “At least 500,000 Ugandan households are now connected to solar.” The bulk of the connections come from pay-as-you-go home kits where customers pay around $10 upfront for a small solar panel, a few light bulbs, and a port to charge cellphones. They pay installments of around $10 until they pay off the system, which usually cost between $100 and $200.
It is indeed better to illuminate the night than it is to curse the darkness. Those illuminations meaning that children can do their homework, the charging port that markets can complete with information and thus economies grow.
Usually at this point we make some political or economic assertion. Today rather it’s to stand in awe at what’s happening. We’re in the middle of the greatest reduction in absolute poverty in the history of our species. And it’s exactly the things like this that are causing it. Uganda’s pretty close to where humans actually started, so it’s been inhabited essentially forever as far as we’re concerned. For the first time in all that history people are lighting the night with something other than a burning brand. Worth a moment of gape mouthed admiration at that, no?
Steve Jobs - capitalist innovator
Steve Jobs was born on 24th February 1955. By the time he died, aged 56, in 2011, he had changed the world. He was in many ways a poster boy for the innovative capitalist, introducing new products that displaced established ones and changed the way people behave. He was Schumpeter's "creative destruction" in action. In partnership with Steve Wozniak, he founded and led Apple, a company that became at one stage, the world's most valuable. Jobs himself became one of the world's richest men.
The roll call of Apple products reads like a list of the things that enhanced and enriched people's lives, and made new opportunities possible for them. The 1984 Macintosh featured a graphic user interface and a mouse. I saw one at Cambridge and was captured by its intuitive ease of operation. The 2001 iPod revolutionized the MP3 pocket music player. More significantly, it became a style icon. Apple products were decidedly cool among the young generation.
The 2007 iPhone was a sensation, and was Time Magazine's "invention of the year." It put the smartphone into people's pockets, and made portable computing a mass-market phenomenon. The iPad in 2010 was a product that created a demand not previously there. It put the product out to create its own market. Jobs quoted the hockey player Wayne Gretzky to describe Apple's policy: "I skate to where the puck is going to be, not where it has been."
Some big firms relapse into crony capitalism, lobbying government for favours and relying on legislation to inhibit competitors instead of outperforming them on quality and price. This is not what capitalism should be, or where its benefits lie. Steve Jobs epitomized the role capitalism plays in introducing products that people freely buy because they perceive the benefits to themselves. He was also a globalist, bringing job opportunities that improved the prospects for people in poorer countries.
It helped that Jobs was a charismatic showman. Working with Jonathan Ive as designer, he made products that created a culture people willingly bought into. The smooth, sleek, white products with curved edges were things that people wanted to be seen with. Jobs was a symbol and a spokesman for the role that innovative capitalism can play in making the world a better place. He certainly did.
Venezuela Campaign: Aid helps, but fundamental reform is needed
While most of the West sits around paralysed, debating whether to give any credence to Maduro’s claims that Venezuela does not need aid, people are dying. In Caracas’ only functioning children’s hospital, children are dying every day because the dialysis machines are not working. Other children are dying of malnutrition or are being permanently stunted. Due to a lack of medication, cancer and AIDS patients cannot receive the treatment required to keep them alive.
While aid is desperately needed, it is by no means a long-term or even medium-term solution. Aid is a sticking plaster, and it is wholly inadequate to treat Venezuela’s gaping and festering wounds. A vast quantity of aid is required to feed starving Venezuelans and prop up Venezuela’s collapsed healthcare system. It would be impossible to provide such a large volume of aid for years or even months, even if the Maduro dictatorship was prepared to let it into the country smoothly and not interfere with its distribution. Hospitals and other institutions would require reforms that the dictatorship does not wish to permit.
Venezuela’s humanitarian disaster is wholly man-made: there has been no hurricane, earthquake, flood, drought, or war. The lack of food, medicine, healthcare, and other necessities is solely attributable to the failed socio-economic policies of the Chavista regime.
Venezuela was once the richest country in Latin America. It had a thriving agricultural sector, it was a founding member of OPEC, and it was entirely capable of feeding itself through domestic production supplemented by imports. That status quo was destroyed by the policies of the Chavez and Maduro regimes. The economy outside the oil sector has largely ceased to function. Agricultural production has shrunk catastrophically. The once proud oil sector is in a state of collapse, with production levels near those of the 1940s and rapidly declining. Four policies have been most destructive:
Price controls made it uneconomical to produce goods and services. Prices were arbitrarily set by the regime, with no consideration to the actual costs of production. These controls have forced thousands of companies out of business and crippled most of the remaining ones.
Nationalisation has eroded any sense of business security. By confiscating private property at political whim, nationalisation has discouraged any investment in the Venezuelan economy and promoted short-termism in Venezuelan businesses.
Political cronyism and mismanagement went hand-in-hand with nationalisation. State-owned and nationalised companies were put under the control of party loyalists and military officers with no commercial understanding other than a desire to line their own pockets. This ensured that any nationalised businesses were run into the ground.
Currency controls compromised Venezuelan’s ability to import vital goods and supplies. Restricting access to foreign currency and fixing the rate enabled the regime and its cronies to make a fortune. But it also undermined the entire Venezuelan economy. The suffering is particularly acute in the healthcare sector, which cannot import advanced medicines such as those for cancer and AIDS.
A serious long-term solution to Venezuela’s crisis will begin with a reversal of these four policies. Once price controls are lifted, farmers will resume production and businesses will once more be able to function. Once currency controls and nationalisation are abandoned and judges once again uphold the law impartially, investment will flow again. Aid is needed to alleviate the worst of the existing problems, but only fundamental political, economic, and social change will restore Venezuela to health.
More information on the Venezuela Campaign can be found on their website.
If only Dawn Butler understood the concept of costs
We’d like people to be able to choose their working hours, of course we would. As, obviously, people currently can - we know of no conscription system insisting that all must work particular times. The choice is, largely enough, made at the time the job is chosen rather than within the job but that’s still a choice.
This does not mean that insisting that all can request flexible working is going to work. Especially not when those proposing the idea manage to get it so badly wrong:
A Labour government would give everyone the right to choose when they do and do not work from the day they are employed, its shadow women and equalities secretary will tell Labour’s women’s conference on Saturday.
“Women do the vast majority of unpaid care, but this must not be a barrier to women in work,” Dawn Butler will say. “That’s why I’m announcing Labour’s plans to introduce rights to flexible working from day one of employment.
“This change to the law is essential to closing the gender pay gap and dismantling the structural barriers that hold women back from promotion and progression.”
The granting of the right or not, OK. You know, political decision and all that. But it is necessary to get the effects of it right.
Whether employers should regard flexible working as a cost or not it’s true that they do. So, by adding flexible working - something we’re already saying that women are more likely to ask for - we’re adding to the perceived cost of employing women. This is going to reduce the gender pay gap in what manner? If overall costs of employing a group rise then the more visible, cash only part, of those costs are going to?
“Under Labour’s plans, no woman will be shut out of the workplace because they’re a mum or they care for a parent or a disabled loved one, or both. We need an economy that works for women, not against us.”
Again, entirely super, but is that what is going to happen? Italy, for example, has a low gender pay gap. On the grounds that mothers tend not to work at all. This being one of the things it’s necessary to grasp, this gender pay gap is calculated only for those in work. Those not working at all aren’t totted up. So, excluding those who would be on lower pay from the workforce diminishes the recorded gap.
Please do note here that we’re not arguing either way on the desirability of anything at all. We’re just trying to insist upon people grasping cause and effect. Adding to the costs of employing women with caring responsibilities will widen, not narrow, the gender pay gap.
Carl Menger, founder of Austrian Economics
February 23rd 1840, marked the birth of Carl Menger, a scholar who was to change economics forever. He founded what is now called the Austrian School. His crucial insight was to recognize that price is not based on what it costs to produce goods, as traditional economists had supposed, giving rise to the labour theory of value, on which the edifice of Marxism is built, but on what the demand is for them.
He had observed the difference between what classical economics taught and what actually happens in the real world. He pointed out that in real world transactions, people give up what they value less in order to gain what they value more. In other words, both gain from the exchange, and wealth is created because each participant gains something of more value than they had. The value of middlemen is that they facilitate such transactions. Instead of value deriving from the labour costs of production, as Smith and later Marx supposed, the value of labour derives from the value of the goods it produces.
Menger proposed that goods change hands, not because they are of equal value, but because people value them differently. Value does not reside in the object, deriving from its inputs, but resides instead in the mind of the observer, representing his or her subjective estimation of its worth.
This ‘subjective theory of value’ provoked a frenzied debate because it ran so counter to the prevailing economic view. It was so different from the German mainstream of thought that it was derisively dubbed “the Austrian School,” a name that later became a badge of honour, inspiring the work of subsequent scholars such as Ludwig von Mises and Friedrich Hayek.
Menger also took the view that money facilitated exchange by its role as a common medium, so the baker does not have to pay the cobbler in loaves for his shoes, but can use the convenient intermediary of money. Money developed naturally, like language.
Menger’s analysis acknowledges the way in which people behave in the real world, and that an economy is a process, not an object. It represents the ongoing reality of day-to-day transactions. It cannot be stopped to represent it in equations because its motion is a part of its essence.
It seems astonishing that someone born only three years after Queen Victoria came to the throne in Britain should be so modern in his insight and analysis, and it is a tribute to Menger that the school he founded should be so vibrant today. It is so because he looked at what actually happens, rather than at what theories tell us should happen.
Freedom's Fighters with Linda Whetstone
Dr Madsen Pirie sits down with Linda Whetstone to discuss the decades long fight for freedom she's had a pivotal role leading. Linda is Chairman of the Atlas Network, an international association of free-market think tanks, and of Network for a Free Society. On top of this she is a member of the board of the Institute of Economic Affairs and has been a board member of the Mont Pelerin Society. As the daughter of Sir Anthony Fisher, the founder of the Institute of Economic Affairs, the liberty movement has been a life-long labour of love.