Tim Worstall Tim Worstall

FAA's instructions to Boeing either meaningless or dangerous

If a bureaucracy exists then that bureaucracy must be seen to be doing something. Whether what the bureaucracy does is useful isn’t the point, there are budgets and reputations to protect. Which brings us to this instruction from the FAA to Boeing:

The United States will mandate that Boeing Co implement design changes by April that have been in the works for months for the 737 MAX 8 fleet after a fatal crash in October but said the plane was airworthy and did not need to be grounded after a second crash on Sunday.

An Ethiopian Airlines 737 MAX 8 bound for Nairobi crashed minutes after take-off on Sunday, killing all 157 aboard and raising questions about the safety of the new variant of the industry workhorse, one of which also crashed in Indonesia in October, killing 189 people.

Boeing confirmed the Federal Aviation Administration's announcement late Monday that it will deploy a software upgrade across the 737 MAX 8 fleet "in the coming weeks" as pressure mounted. Two US senators called the fleet's immediate grounding and a rising number of airlines said they would voluntarily ground their fleets.

The company confirmed it had for several months "been developing a flight control software enhancement for the 737 MAX, designed to make an already safe aircraft even safer."

Clearly we’d prefer that planes don’t fall out of the sky and so such an upgrade is a useful idea. However, do note that flight control software is some of the most complex we create as a civilisation. Not so much that the task itself is particularly heinous, it’s that the error rate has to be extremely low. How Google load balances affects the speed at which pages appear on your screen. How flight control software works determines whether, well, whether planes fall out of the sky. We’ve rather different reliability desires between the two.

So, Boeing has been working on this upgrade for months and presumably they’d be rolling it out when it’s ready. That’s why they’ve been working on it for months. The FAA now says that it will be rolled out and it will be by a certain date.

There are two and only two possibilities here, given that Boeing has indeed been working on this for months. The FAA is just instructing Boeing to do what Boeing was going to do anyway. In which case it’s meaningless other than to protect the FAA’s reputation and budget. Or the FAA is insisting that this gets rolled out before Boeing would have done so, before Boeing thought it might be ready. In which case the bureaucracy is creating danger.

Bureaucracy, useless or dangerous? Both is difficult to allege and neither isn’t really possible.

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Madsen Pirie Madsen Pirie

Overpopulation and scarce resources

Harry Harrison was born on March 12th, 1925. When I met him in 1984, he was dividing his time between the Republic of Ireland, where he enjoyed tax free status as a creative writer, and his flat in Brighton. He grew up as an American, but lived in many countries and eventually took Irish citizenship.

He was a prolific writer of science fiction, producing the “Deathworld” series and stories featuring “The Stainless Steel Rat.” His 1966 novel “Make Room, Make Room” brought him to popular attention when it was adapted into the 1973 movie, “Soylent Green,” starring Charlton Heston and Edward G Robinson. It is set in a grim and grimy New York, vastly overcrowded as the world’s population has exploded, leading to a shortage of resources and food. People are fed on bland vitamin blocks produced by the all-powerful Soylent Corporation, and made of soybeans and plankton. The exception is the new Soylent Green, which we discover at the end of the movie is made of recycled people.

It didn’t happen. He set his story in 1999, and although the world’s population did reach 7 billion, as he predicted, it did so 12 years later. This was not the disaster he foretold, and the world did not run out of resources or food, or become so impossibly overcrowded that people had to sleep on the stairs of apartment buildings. Nor did services collapse.

Just as Harry was writing his doom-laden story, the Green Revolution was getting under way. Norman Borlaug was pioneering new technologies, including high-yielding varieties of cereals, especially dwarf wheat and rice, plus chemical fertilizers and irrigation, all combined with new farm management techniques that hugely boosted farm productivity and food production. We didn’t run out of food.

Julian Simon won his famous bet with Paul Erlich that resources, far from running out, would become relatively cheaper as new extraction technologies, combined with the development of substitutes, made their supply outpace demand. Copper, for example, that Erlich thought would run out, was replaced by optical fibre cables for many of its uses, and now has a bigger reserve supply than it did then.

Harry was greatly amused when I suggested that although we’d probably never construct the “Transatlantic Tunnel” he wrote about in another of his stories, we might well bridge the Bering Strait and go overland to America the other way round.

The dystopia of “Soylent Green” never came about, and almost certainly never will. The chances are that there’ll be enough food and resources produced by new technologies, including lab-grown meats and graphene. And we won’t need to recycle the bodies of dead people into nutritious protein blocks.

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Tim Worstall Tim Worstall

How to know someone's away with the fairies

It can be worth a little checking of a claim against reality. Just to see whether the claim has any basis in that reality that is. So it is with this from Jean-Luc Melechon in France. Is this a reasonable set of insistences?

Europeans can insist environmental rules be respected everywhere: that not more is taken from nature than she can replenish. We can abandon pesticides, which kill biodiversity, immediately. We can decide to eradicate poverty, guarantee a decent wage for everyone, and restrict the income gap to stop inequality. We can extend women’s rights.

We can bind the hands of those who steal by tax evasion, those who misappropriate thousands of billions of euros every year.

It sounds rather colonial really to insist that all out there must do things as we insist they should. Still, we did it before no doubt it could be done again. We can’t stop using pesticides immediately - we’ve not enough land. Organic farming does require more land per unit of food produced and there simply isn’t enough of it to both leave some for nature and keep all of us alive. Europe has eradicated poverty - barring unfortunates in the grip of mental or addiction problems there is no one on the continent at all living in the usual international or historical definition of poverty, that $1.90 a day. Quite how we restrict the income gap is unknown and we have, do and are, extended women’s rights.

It’s the tax number which is easiest to compare in detail though. thousands of billions of euros is trillions. And the idea that there’s trillions in tax evasion just doesn’t match up to that reality. We can test this in two ways.

Quite the most expansive estimate - very expansive indeed - is from Richard Murphy and that’s below €900 billion for the entire EU. Given that his estimates of the UK gap are well over three times those of HMRC we should take that as being well over any realistic upper limit.

The other way to look at this is to note total tax revenues in the EU. Around and about €5 trillion a year. Trillions means at least two such, possibly more. And we really don’t think that there’s room for government to be collecting another 20% or more than they already do. There’s not room in GDP for them to be taking that much.

Sure, this is just one detail in a flood of rhetoric. But if one particular claim is as obviously wrong as this we don’t need to pay attention to the rest. It is all, obviously, just that rhetoric, not an actual analysis of anything useful.

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Madsen Pirie Madsen Pirie

Happy birthday to a great Chancellor

Nigel Lawson was born on March 11th, 1932. During his time in government he came to be regarded as one of the best Chancellors of the Exchequer that the UK has seen. He held the role longer than any since David Lloyd George. Before Parliament he had been a widely respected financial journalist, first with the Financial Times and then as City Editor of the Sunday Telegraph.

Even in opposition he was effective, working tactically with two Labour rebels to secure the Rooker-Wise budgetary amendment that automatically indexed tax thresholds in line with inflation. When he was appointed Financial Secretary to the Treasury in 1979, he worked with Geoffrey Howe to abolish exchange controls in October of that year.

When he was promoted to Secretary of State for Energy, he started work on the privatization of gas and electricity, and when he became Chancellor in 1984, he worked with the DTI to set in motion the privatization of British Airways, British Telecom, and British Gas.

He reduced Corporation tax rates and allowances, and shifted more of the tax burden from direct taxes such as Income Tax and National Insurance to indirect taxes such as VAT. This helped bring down unemployment. He turned a budget deficit of £10.5bn in 1983 into a surplus of £3.9bn in 1989.

His finest hour was his 1988 budget, which brought the basic rate on Income Tax down to 25% and the top rate to 40%. It resulted in more revenue as the economy boomed, with the top 10% of earners paying a much higher share of the total.

His proud record as Chancellor was that in every one of his budgets he reduced taxation and abolished at least one tax. The economy boomed and Britons prospered.

In retirement, he decided to control his weight, and went from 17 stone (108 kg) to 12 stone (76 kilograms) in months, completely changing the way he looked. His “Nigel Lawson Diet Book” was a best seller. He has appeared on his daughter Nigella's cookery programmes.

On July 1st, 1992, he was given a life peerage as Baron Lawson of Blaby. He went on to found and lead the Global Warming Policy Foundation, and took an active role for the Leave side in the Brexit referendum.

He has enjoyed a remarkable and successful career, one full of achievements, and we wish him a very happy birthday today.

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Tim Worstall Tim Worstall

How lovely to see the Laffer Curve in the wild again

The Laffer Curve is simply the idea that there are tax rates which are so high that they reduce revenue collected. The implications of this being that lower rates will collect more revenue. That it’s a curve also tells us that there are rates low enough that more revenue can be collected by raising said rates. It’s really not a complex nor complicated idea.

The difficulty comes in determining what that peak of the curve is. Short term rates will be rather higher than long term, as elasticities always decrease over time - but that’s to go off into complexity.

A more general contention made by those who don’t like the idea that there’s an upper limit to useful taxation is to insist that even if the idea is correct it has no relevance to our world. The peak of the curve is simply so high that it’ll never be a relevant consideration. At which point we should - we who think that it is relevant, that the relevant rates might even be lower than our current taxation rates - dance and shout and point when we see that curve in action in the wild. As we are here:

Tighter limits on pension savings “pose a direct threat to patient care” according to Britain’s most senior medical staff, who have called on MPs to intervene to avoid a feared 40pc drop in hospital specialists.

Consultants are receiving sudden tax bills of as much as £100,000 or effective rates of 100pc. In response, they are refusing requests to work extra shifts to meet patient demand, or retiring early. One in 10 hospital doctor roles is vacant.

MPs are being called on to launch an inquiry into the effect of pension tax on the NHS. The Government is under pressure to overhaul contribution limits for all savers to avoid an exodus of experienced staff across sectors.

If you tax people enough they’ll stop working and thus the Laffer Curve is true. It’s relevant because we’re already over those tax rates in some parts of our economy. We’ll all be richer by having lower tax rates - at least in places and at times.

Another way to put this is that there really is a limit to the amount of tax that can be dunned out of the better off among us. Politics has to be adjusted to this simple fact.

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Madsen Pirie Madsen Pirie

Unelected but powerful – a bad precedent

Lady Falkender was born on March 10th, 1932, and died last month, aged 86. Lady who, you say? Precisely. Marcia Williams, as she then was, became, in her day, one of the most powerful figures in Britain. Ensconced in Number Ten as private and political secretary to Harold Wilson, she exercised powers that exceeded those of most ministers.

She ran his office during his four governments, but polarized opinion and became herself a source of conflict. She had the power to determine whether ministers should be promoted or sacked, and was known for her fiery and unpredictable temperament. She was intelligent and talented, and secure in her ability to enjoy Harold Wilson’s confidence and to shape his approach. This bred in her an air of superiority that led her to treat elected parliamentarians as inferiors.

She demanded a peerage, and was made Lady Falkender in 1974, to the outraged scorn of the media. Private Eye thereafter referred to her as “Lady Forkbender.” When Wilson decided to resign in 1976, chiefly for health reasons, she was unable to prevent that, and drafted his infamous resignation honours list on her lavender-coloured note-paper. Known as the “lavender list,” it rewarded cronies of dubious reputation, including some later convicted of fraud, and greatly diminished Wilson’s reputation.

She set an unfortunate precedent which has continued since. Her role rather resembled that of Pallas and Narcissus, the freed slaves who ran the Roman Empire as secretaries to the Emperor Claudius, or perhaps more ominously that of Sejanus, the Praetorian Prefect under Tiberius. It may have been acceptable to give confidants of a Roman emperor more power than government office-holders, but it sits ill with a constitutional democracy.

Enjoying the support of their Prime Minister, the unelected personal advisors and assistants can all too readily develop an arrogant disdain for elected ministers, and can be characterized by their propensity to bully and intimidate them, as well as to use the Prime Minister’s backing to thwart and overrule the decisions of ministers, and to undermine their authority.

The rise of such figures as Nick Timothy and Olly Robbins has led some commentators to point to a democratic deficit and a lack of transparency and accountability. It has been suggested that such people should be more answerable to Parliament, though it is difficult to envisage how that might be achieved. Someone who enjoys the trust and confidence of the Prime Minister can too easily become accustomed to power and intoxicated by it.

Lady Falkender set an unfortunate precedent by exercising powers that exceeded those of elected ministers, but others have followed down the trail she blazed.

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Joshua Curzon Joshua Curzon

Venezuela Campaign: Living in darkness under Maduro

This week Venezuela experienced one of the most severe and widespread blackouts in recent memory. The city of Caracas and nineteen of Venezuela’s twenty-three states were plunged into darkness for nineteen hours initially, with the blackout continuing for another day in most of the country. Every aspect of Venezuelan life was affected - Caracas’s metro and international airport shut, hospitals couldn’t function, and schools closed.

Like the rest of Venezuela’s creaking infrastructure, its power grid has fallen victim to decades of political mismanagement. In 2007, ten state-owned and six private-owned electricity companies were nationalised to form the giant Corpoelec. Competent leadership of this massive and vital company was essential. However, the installation of Chavista managers chosen on political grounds rather than merit led to mismanagement on an epic scale. The power grid cannot match demand, nor can it guarantee any amount of reliable electricity.

Mismanagement in the energy sector was compounded by dwindling revenues. Price controls steadily detached revenues from costs over the years. The economic collapse of recent years now means that there is little money available to fix problems. However, even when Venezuela rode high during the oil boom of the 2000s, the electricity sector was neither improved nor made more resilient. Instead, as with every other Venezuelan state enterprise, it was looted by unscrupulous and corrupt managers and politicians.

A long list of politicians and political favourites have been involved in looting the sector. They include: Nervis Villalobos, deputy minister for electricity under Chávez from 2004 to 2006; Javier Alvarado, former deputy minister of energy and petroleum and director of Corpoelec from 2007 to 2010; Diego Salazar, cousin of former energy minister (and former ambassador to the UN) Rafael Ramírez. Rocio Maneiro, current Venezuelan ambassador to the UK and associate of several leading British politicians, is alleged to have hidden $4m in Andorra between 2012 and 2015.

In one case, a group received at least $2 billion in bribes from Chinese companies in return for awarding infrastructure contracts, many of which were never completed. Court documents reveal the lavish way they spent their ill-gotten gains: €493,573 worth of Chateau Petrus 1990 and Dom Pérignon, €953,000 on bespoke suits, €1.7 million on 107 luxury watches, and €516,012 on helicopter hire. Following the Chavista model of wealth redistribution, establishment officials have been siphoning off funds from the many to their relatives and associates across the world.

Another case involves the company Derwick Associates, owned by youthful Chavistas close to the then head of the state electricity company Javier Alvorado. Following Chavez’s declaration of an ‘electricity emergency’ and despite Derwick Associates having no experience in the energy sector, it was awarded 11 contracts without competition to the value of $2.9 billion. Derwick Associates invoiced $5 billion, and much of the work remains incomplete.

The regime’s record on major energy projects is truly dreadful. After a two year investigation, National Assembly Deputy Julio Montoya reported in 2016 that of the $30 billion of works financed by the Chavista government to address the electricity emergency, 96% had either not started or were not operational. No progress has been made since then. Seventeen years have passed since Chávez announced the construction of the huge Tocoma hydroelectric dam in 2002. Thirteen years have passed since the construction contract was awarded to a consortium led by the corrupt Brazilian firm Odebrecht. Billions of dollars have vanished. And there is still no electricity being generated.

The failings of the Venezuelan energy sector are mostly the responsibility of Hugo Chávez. Chávez nationalised the private electricity companies, introduced price controls, politicised management, failed to maintain the power grid, and responded to the inevitable failures in supply by authorising massive corruption in the procurement of new capacity. Chávez’s legacy is one of shadows and darkness.

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

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Tim Worstall Tim Worstall

How to judge Phil Hammond's mooted period poverty plan

It is said that Phil Hammond, the Chancellor, is to address the problem of period poverty in schools. We do not think that there is any such thing as period poverty but then so what? Reality and politics rarely do match up with each other.

There is a way though for us to judge such a plan. To work out the additional costs, the greater inefficiencies of government action. We have a distribution system for menstrual products in this country. Vast warehouses filled with aisle upon aisle of all the varied forms, shapes and technologies that can and are used to deal with this evidence of fertility. They’re called shops and they exist in near everything down to the smallest hamlet.

We can also take a stab at guessing what would be the cost of using this extant distribution system. A box of tampons - just to use as an example one of the myriad technologies and products - can be had for £1 these days. A box containing perhaps 24 pieces. Agreed, not possibly enough to deal with each and every period but when averaged out we’d not be far wrong in saying that a box per menstruating woman per month is a reasonable guesstimate as an average.

There are 3 million children in English secondary schools, some 1.5 million is a good guess at the number of girls and young women in them.

1.5 million by 13 months of the year - yes, this all works on lunar months, not solar - by our £1 per person per month gives us a total cost of £19.5 million. That’s the total cost of using the extant infrastructure to provide all the period needs of all schoolchildren. If we just added that amount to child benefit then we’d be done. Such an addition of £1 per month to child benefit for a female child of post-pubertal age would see the problem entirely dealt with.

So, how much will Phil’s plan cost?

Anything less than total provision will be an example of the greater cost of direct government action. If it turns out to be only emergency supplies that are provided, or if it’s only for some subsection of all. And of course any amount over £19.5 million even if that total need is met is also that evidence of the inefficiency of direct government action.

That the political head of steam is up for something stupid to be done about this invented problem is obvious. Given that foolishness is to happen we’ll just have to use it as an example in the future of what not to do. An example of how much more expensive it is to have that direct government action rather than a tad of financing leverage and leave markets to solve the rest of the problem.

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Madsen Pirie Madsen Pirie

The book that changed the world

Two documents issued in 1776 were to have a major and lasting impact upon the world. One was the American Declaration of Independence, and the other, published on March 9th of that year, was “An Enquiry into the Nature and Causes of the Wealth of Nations,” by Adam Smith. Normally shortened to “The Wealth of Nations,” it was the book that began the modern study of economics.

Before Smith’s book many people thought (and some still do) that nations became rich by exporting, and by selling more abroad than they bought from abroad. Mercantilism taught that this accumulation of balances was the cause of wealth, and that it was in a nation’s interest to practise protectionism, to give its own goods preference by subsidies and by tariff barriers against foreign goods.

One of Smith’s many insights was that nations become rich by specialization, trade and exchange. Yes, we could grow grapes on Ben Nevis, “by means of glasses, hotbeds, and hotwalls,” and we could make wine from them, at 30 times the cost of an equivalent French wine. But why should we? Let the French specialize, buy their wine at 1 unit, and keep the other 29 units in our pocket. It makes us richer. Tariffs make us poorer by causing us to pay more for our goods.

Smith also observed that people do not need to be good in order to benefit others. Their regard for themselves leads them to make and sell us goods that enrich our lives.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

We could all produce our own meat, beer and bread, but we do better if we buy from those who specialize, and make ourselves richer by accessing their specialist skills.

Smith’s pin factory employs 10 men who produce 48,000 pins per day, each specializing in one of the processes involved in pin making.  If ten workers did every step themselves, they could each produce perhaps 10 or 20 pins per day. Specialization makes each worker 240 times as productive, and makes pins cheaper for those who buy them. The same process in other industries increases productivity and powers prices.

“The Wealth of Nations” was timely, coming in the early stages of Britain’s Industrial Revolution. Its ideas influenced legislators, and persuaded them to lower tariffs and trade more freely. This has created unparalleled and unprecedented wealth, wealth that has funded medicine, sanitation, and more abundant food, giving us longer life-spans and an improved quality of life. Yes, it was indeed a book that changed the world.

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Tim Worstall Tim Worstall

Even the Institute of Directors is missing the point

It’s something of a pity when even those supposedly well informed and part of the system manage to miss the very point under discussion. Here the Institute of Directors, or at least their new head, manages to entirely whiff on the subject of CEO pay. For the important point at issue is not how much is paid but who decides how much is paid:

Pay for chief executives at Britain’s biggest listed companies rose more than six times faster than wages in the wider workforce in 2017, and the average boss’s pay packet hit £3.9m.

“If you start your own company and you run your own company, you can pay yourself as much as you want,” said Valeur. “If you run a company that other people’s money is funding, you have to be having a proper balance between what you get paid and what the company earns.”

That’s there should be a proper balance seems fair enough. Whether it’s at a founder led company or not actually. But that’s not the point at all. The actual thing to be discussing is who decides what is proper?

The correct answer here being the people doing the employing. Not the wider society, not the misanthropes with a grudge at the High Pay Unit, not the Chancellor and not the head of a business lobby groupuscule. Instead, it’s those employers. Which in the case of senior management and CEOs is the shareholders collectively. If they wish to pay whatever then it’s their money and whatever is the proper amount.

Sure, we can go on to discuss whether shareholders get to properly decide and all that but unless we get this more fundamental point straight first we’re never going to be able to discuss matters properly.

How much I pay my cleaner is a negotiation between me and the cleaner, a mutual discussion of hours, effort, labour supply and demand. How much a company pays frontline staff is the same conversation over the same points. How much a CEO is paid is again exactly that same conversation over exactly those same points with the shareholders as the employers being the people deciding what is right and proper as the conclusion to the deal.

Only once we’ve all grasped that can we progress. Progress to the correct conclusion that for the rest of us, non-shareholders and non-CEOs, it’s none of our damn business what CEOs get paid by shareholders.

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