The Great Society
Fifty-five years ago, on May 22nd, 1964, President Lyndon Johnson announced his Great Society program at Ann Arbor, Michigan. Its scope was breathtaking, aiming at nothing less than the total elimination of poverty and racial injustice in the United States.
Fundamentally, it came down to a series of spending programmes that aimed to tackle shortcomings in education, healthcare, transport, and the problems faced by people in cities and rural areas. Johnson had small working parties of about half a dozen people, working in secret so their initiatives would not be “derailed by criticism.” This meant that shortcomings, which might have been recognized and addressed as the programmes were being planned, were not identified and rectified.
In practice this involved vast spending schemes. The “war on poverty” started with a $1 billion appropriation in 1964 and then another $2 billion in the following two years. It involved dozens of programs such as the Job Corps, to help disadvantaged youths develop marketable skills, the Neighborhood Youth Corps, to give poor urban youths work experience, and the Economic Opportunity Act of 1964, designed to help young people from poor homes gain access to job training and higher education.
Its well-meaning, but ill-thought-out, idea was but to help the poor better themselves through education, job training, and community development, and to have them participate in the development of the programmes designed to help them.
It did food stamps, Medicare and Medicaid, and granted billions of dollars for states to spend on everything from educational research to library books and school buses. It provided money for slum clearance and urban regeneration. It tackled every perceived problem by providing vast sums of money to address it. While it undoubtedly achieved some positive results, critics pointed out that its biggest achievement was the creation of a giant bureaucracy that attempted to step into every aspect of American life, and to guide and steer it. They further claimed that the results it achieved were tiny compared to the input of effort and resources. Milton Friedman famously described such state welfare progammes as akin to throwing silver dollars at a barn door in the hope that some would slip though the knot-holes.
Critics from the Left suggested that its shortcomings were down to not enough money being spent, and blamed its failures on the Vietnam War sucking up the funds it needed. In retrospect it was a much-hyped failure, big in intentions, but poor in its outcomes. The monies diverted to fund it could almost certainly have achieved more in terms of economic growth and the opportunities this brings for advancement of poorer and underprivileged people, including ethnic and racial minorities.
The lessons are perhaps that big often doesn’t work, and that small-scale, carefully targetted efforts involving voluntary and private sector participation can be more efficacious. The legacy of the Great Society is with America still, in the form of costly entitlements that cannot be funded in the future, and which all politicians kick down the road for the next generation to solve.
The Greenpeace protestors rather misunderstand the purpose of a company like BP
There’s always an amusement to watching those who have no clue trying to discuss a technical subject. It’s that old joke about the typist trying to use tippex on the screen come to life. So it is with the Greenpeace activist trying to tell us all what should be done with BP. Or what BP should do perhaps:
So what should BP do? It should go 100% renewable, starting with abandoning all of its fossil fuel exploration plans, today, and become part of the solution to the catastrophic problem it has caused.
This is to entirely fail to understand Coase on the existence of the firm - as well as other bits and bobs of economics.
The firm exists to perform a task. The form of that firm will depend upon the task to be undertaken and the technology and structure of the economy around it. Whether a firm even exists - instead of a shifting network of contractors - depends upon those things.
All of which means that if we change the task then that current firm becomes an irrelevance.
We can approach the same point from the other way. BPs varied assets are optimised to the extraction of, transport, refining and marketing, of fossil fuel products. These are all done in markedly different manners than anything to do with renewables. We shouldn’t, wouldn’t and can’t repurpose them to building, say, solar panels. To think that “energy provider” equals “energy provider” is to think that the toy scooter maker should be building jumbo jets - they’re both transport, right?
Further, all that implicit and explicit knowledge within the company is about those fossil fuels. BP actually sold off the division that knew anything about polycrystalline silicon decades back.
If we have some new task that needs to be done then we need that new organisation, in whatever different form, to do that new task. The idea that oil companies should up and build windmills is absurd.
An important day for women
May 21st is an important day for women in the US, because it was on that date in 1919 that the 19th Amendment, extending votes to women, was introduced to the House of Representatives. It passed by 304 to 89, well above the two-thirds required. It passed in the Senate two weeks later, by 56 to 25, two votes over the required two-thirds. It then went to the states for ratification, requiring three-quarters of them to assent before it became part of the Constitution.
Its passage was uncertain, largely because most of the Southern states opposed it - indeed, many rejected it. By March of 1920, 35 states had approved it, one short of the three-quarters needed. It came down to the wire in Tennessee where state legislators were split 48 to 48. The casting vote was left to 23-year-old Harry T. Burn, a Republican. Although initially opposed, it is reported that his mother persuaded him to “do the right thing.”
The Amendment was declared carried in August, and US women finally acquired the dignity of becoming full citizens after decades of campaigning by fearless leaders. Some 8 million women voted in the elections in November.
Women in the UK acquired similar rights in stages. The Representation of the People Act 1918, passed by a coalition government, extended the franchise to all men, and to women over the age of 30 who met minimum property qualifications. In 1928, a Conservative government finally passed the Representation of the People (Equal Franchise) Act giving the vote to all women over the age of 21 on equal terms with men. Women, who had been second-class citizens in almost every culture in history, could now have their say in who was to represent them in the governments of the US and the UK.
May 21st saw another symbolic event for women. On that date in 1932, Amelia Earhart landed in Northern Ireland, having flown solo from Newfoundland. In doing so, she became the first woman to repeat Charles Lindbergh’s epic achievement of 5 years earlier. She had intended to fly to Paris, but a petrol leak forced her to land in a small field in Donegal. It’s reported in the Irish Press that her first request was for a glass of after, after which she casually mentioned, “I have just flown the Atlantic.”
There have been women members of the Senate and Congress, and of the Commons and the Lords. There have been women Presidents and Prime Ministers in several countries. There have been women high achievers, like Amelia Earhart, in many fields and, except in a few countries yet to embrace the modern world, no-one thinks anything of it. But that date, May 21st, marked a symbolic early step.
5G and weather forecasting - there's a solution to this
Over in the United States there’s some mumbling about the use of spectrum for 5G networks. The problem being that the wavelength on offer is very close to that used by certain satellite based weather forecasting methods. We thus have two valuable things which are mutually exclusive - if we believe the complaints of course - so how do we decide between them?
Obviously enough we decide in favour of the one which is more valuable:
He says that while the FCC can switch which regions of the spectrum it allocates to phone companies, forecasters are stuck. That’s because water vapor emits a faint signal in the atmosphere at a frequency (23.8 GHz) that is extremely close to the one sold for next-generation 5G wireless communications (24 GHz). Satellites like NOAA’s GOES-R and the European MetOp monitor this frequency to collect data that is fed into prediction models for upcoming storms and weather systems.
OK, that’s a technical problem that the universe imposes upon us.
If you had a choice between a better, faster cell phone signal and an accurate weather forecast, which would you pick?
The more valuable one. Obviously. Which really just moves us an iteration back, how do we decide which is the more valuable one? The only method we’ve got is price, that determined by willingness to pay. That is, in order to sort this out we auction that spectrum, with those using those satellites and doing the weather forecasting taking part.
For this is the only way that we can work out what is the more valuable use of that scarce resource.
Yes, this system does work, we use it here in the UK. MoD and other such government organisations do have to justify their spectrum use by bidding for it.
Liberty champion’s birthday
John Stuart Mill was born on May 20th, 1806. Although he engaged in many subjects, it is his 1859 essay “On Liberty” that is regarded as the foundation text for all who espouse individual freedom. In that essay Mill justifies the right of individuals to make their own decisions, rather than have these imposed by state power, or social control, or be subject to the will of the majority. The individual, in Mill’s view, must be allowed to be different.
Mill does not base this on any concept of natural or pre-determined rights, but on the favourable outcomes this produces. He justifies liberty on the basis of its consequences, rather than trying to establish it from first principles. Free speech and debate is necessary if we are to achieve the desirable goals of intellectual and social progress. If we silence some opinions, we might be shutting down ones that contain an element of truth. Whereas if we allow free debate, we reinforce our beliefs by having them tested and strengthened. No-platformers should take note.
Mill is adamant that the only justification for exercising power over people is to prevent harm being done to others, and he makes it clear that he means actual violence or the serious risk of it. Causing offence is not enough, upsetting though some may find it. Snowflakes should take note.
There is no justification for interfering with people’s free choices in order to protect them from harming themselves, says Mill. We can advise them about risks, but the choice is theirs if they wish to accept those risks. We can post a sign warning about a rickety bridge, but if people wish to cross it, we have no basis for preventing them from doing so. People gain more from making their own decisions than they do from being made to do what others think is wise. Nanny staters should take note.
Mill stresses the gain we have by allowing divergent practices. We can learn from those that are successful, and learn to avoid those that are not. Why are the European nations so successful, he asks? It comes from “their remarkable diversity of character and culture. Individuals, classes, nations, have been extremely unlike each other: they have struck out a great variety of paths, each leading to something valuable.” Their strength is in their variety, not their uniformity. He observes that “Europe is, in my judgement, wholly indebted to this plurality of paths for its progressive and many-sided development.” European Unionists should take note.
It is part of Mill’s success that freedom has been so highly thought of that when people wish to restrict it in order to achieve other goals, they dress up those other goals in liberty’s language by calling them “real freedom,” or “true freedom.” The truth is that they are not freedom at all. Freedom means making your own decisions about your life and your actions, unrestricted by the arbitrary power of other persons. So long as you do not impose or risk physical harm to others, freedom means that you should be allowed to behave as you wish.
Productivity's important, sure, but why is it important?
The Observer tells us about how Leyland Trucks is driving (sorry) productivity increases somewhere up north of the Marylebone Road:
The enigma of greater efficiency
What is productivity?
Productivity measures the efficiency of an economy by dividing the value of output generated by the inputs employed. The efficiency of the UK workforce is calculated as output per worker, output per job and output per hour.
Why does it matter?
Academics believe productivity gains are vital for improving living standards over the long term. When an economy can create more wealth with fewer resources, the spoils can help pay workers higher wages.
As Paul Krugman has pointed out, productivity isn’t everything but in the long run it’s pretty much everything. But that description of how and why it makes us better off is misleading to the point of being wrong.
We have a limited set of inputs, we are in a world of scarce resources after all. An increase in productivity means that we gain more output from those scarce inputs. Human labour is scarce - sure, there’s a lot of it, but not an unlimited amount - therefore an increase in labour productivity means more is produced from that labour available.
All incomes equals all consumption equals all production, that’s the basic GDP insistence. So, if we’re producing more from our scarce human labour then all incomes and all consumption have risen as well.
That is, we’re not made richer by wages rising, if that indeed happens. We’re made richer by definition if productivity rises. Even if we decide not to increase production but to reduce the labour employed we’re still richer - more voluntary leisure is being richer.
How those new riches get shared out is a secondary question. It being full employment which will lead to the workers getting a cut of it.
The importance of productivity rising is not that wages might rise if something else happens, It’s that by definition the society is richer when productivity rises.
Venezuela Campaign: Cut off Cuban cash to free Venezuela
News has just leaked out of the bravery of a Venezuelan tanker captain who has been arrested by Maduro’s intelligence services for refusing to deliver a cargo of diesel fuel to Cuba. His crew was threatened with court martial and treason charges and forced at gunpoint to deliver the fuel under the command of a temporary captain.
But why did the captain refuse to carry out his orders, and why was an oil shipment to Cuba deemed important enough to justify the attention of the intelligence services?
There is huge resentment in Venezuela of Cuban interference in their country’s affairs. Venezuelans see the Cubans as partly responsible for their suffering, both directly and indirectly. Cuba has been a close ally of the regime for almost twenty years since Chavez and Castro signed a bilateral agreement in 2000 for Cuba to receive oil in return for providing an array of military, inteligence and other services. Cuban intelligence officers have pemeated the Venezuelan military apparatus over the year, as part of a concerted effort by the Maduro regime to prevent a military uprising. Cuba also provided a healthcare programme called Barrio Adentro, using doctors bound to near indentured servitude, but this has largely collapsed.
Without the supervision of the military apparatus by Cuban officers and intelligence operatives, Venezuela’s military would already have relieved Maduro of power. The regime sees Cuba as a guarantor of its survival, and oil shipments to Cuba maintain the deplorable relationship. But those shipments have decreased dramatically as Venezuela’s oil production collapses. Therefore, each shipment has become vital to regime survival, hence the deployment of the intelligence services to ensure the safe passage of oil to Cuba.
The motivations behind Cuba’s relationship with Venezuela are obvious. Cuba is an international pariah and has faced extreme financial difficulties since the Soviet Union collapsed, taking its funding with it. To prop up its own ailing regime, Cuba replaced Soviet subsidies with Venezuelan ones. Therefore, the impending collapse of the Venezuelan state and its dwindling oil production represent an existential threat to the Cuban regime.
Cuba also faces other challenges besides shrinking oil supplies. One of Cuba’s largest sources of foreign currency is its healthcare export programme which brings in some $8 billion per year to the Caribbean nation, most of this revenue generated by approximately 30,000 Cuban doctors serving abroad. The treatment of these doctors is appalling: their families are kept hostage in Cuba, and doctors receive 10-25% of their salaries, much of which is often withheld by the state until their return to Cuba.
Luis Almagro, Secretary-General of the 35 state-strong Organisation of American States, has denounced it as a “modern system of slavery that cannot go unpunished” and a formal complaint has been filed at the International Criminal Court in the Hague, highlighting the crimes of "slavery, persecution and other inhuman acts." A recent BBC investigation has revealed that 57% of doctors surveyed did not volunteer to join a medical mission, but felt obliged to do so, and 91% were watched over by Cuban state security and required to pass on information about colleagues.
Anyone opposed to US intervention in Venezuela should be equally opposed to the ongoing Cuban intervention. Due to the co-dependency between the two states, restoring freedom in Venezuela may well involve restoring freedom in Cuba, a country that has a terrible human rights record and abuses its own citizens. As part of an EU approach, Britain has been promoting investment there in the hope of improving the quality of life of its citizens and promoting reform. However, this has not had the desired effect. The regime takes 95% of the salaries of workers employed by foreign tourist companies, rendering efforts to enrich the general population worthless.
Fixing the Venezuelan crisis will mean tackling the 60 year old Cuban question. Investment in totalitarian regimes does not make them freer, it only gives them more resources with which to maintain the apparatus of repression. A sensible approach would be to clamp down on Cuba’s modern slavery, and to take lawful measures to prevent Maduro sending Cuba any more oil. Regimes will fall when they cease to become profitable for their leaders and their cronies. The Venezuelan regime is already starting to crack amidst a rush of desertions, and there are good prospects that the Cuban one will collapse too.
More information on the Venezuela Campaign can be found on their website.
The Tariff of Abominations
It was on May 19th, 1828, that President John Quincy Adams, signed into law the tariff bill that gave the United States its highest tariffs, measured by percent of value. Tariffs have always played a significant role in US history. Starting in 1789 with a tariff to finance the Federal Government, they were the main source of revenue for over a century until Federal Income tax was introduced in 1913, following a constitutional change to enable it. At times they have been nearly 95 percent of federal revenues.
The 1828 tariff was very controversial because it was designed to protect the industry of the North from competition by cheap imports, while severely hitting the economies of the Southern states. The tariff introduced in the bill was 38 percent on 92 percent of all imported goods. This meant the South had to pay higher prices for their goods. They imported less from Britain in consequence, leaving the British less money with which to buy their cotton. Southerners dubbed it “The Tariff of Abominations,” and started proceedings to nullify it in some of their states. This itself led to a constitutional crisis.
President Adams feared it would undermine him politically, a fear subsequently justified when he was beaten by Andrew Jackson as he sought re-election later that year. There was a compromise of 1833, gradually reducing the tariff to a 20 percent level, but this, in turn, was reversed by the “Black Tariff” of 1842, which raised it to 40 percent to protect Northern producers from European competition.
President Trump seems to think that the tariffs he imposes on Chinese imports will be paid by the Chinese. In fact they are paid by Americans, who have to pay more for their imports. Furthermore, domestic producers in the US can now raise their prices in the absence of low-cost Chinese competition. Take steel, for example. The tariffs make steel more expensive to import for US producers. They can either pay the now higher prices, or turn to the already higher-priced domestic steel. Everything made with steel now becomes more expensive, meaning that prices rise within the US for domestic consumers of cars, fridges and the like, and US exporters find it harder to sell goods abroad.
The President seems to think that he Chinese exporters will simply absorb the tariffs and keep their prices low by taking lower profits. There is no evidence that this will happen. More likely, the Chinese will send to the EU the low-cost steel they cannot now sell in the US, thereby undercutting EU producers.
It is just possible that these tariffs are not intended to protect US producers, but to force the Chinese to modify their non-tariff barriers - such as the requirement for US firms operating in China to take Chinese partners and transfer their technology free of charge. If the tariffs are simply a bargaining chip of this nature, they might conceivably be justified, and might even work. But if they are designed to protect US producers, they will make life harder for US consumers, just as the 1828 Tariff of Abominations did, and just as its successors did.
Markets do actually solve problems - yea, even Brexit
This is not to take a view upon the merits of Brexit itself - opinion here as elsewhere is divided on that. Rather, it is to point out that if there are economic problems either way, markets will indeed solve those economic problems. That being what markets do, adjust to any new reality which affects markets:
Toward a sterling crisis
That’s a rather odd thing to be worrying about really. We have a floating exchange rate these days. We are not trying to tie the value of sterling into any other economic number. The price is just what it is, the price. So how can we have a crisis? Those belong to the days of fixed exchange rates, when we would try to enforce a particular value, even as other economic policy forced a divergence from it.
In highlighting the economic cost of the United Kingdom crashing out of Europe without a Brexit deal, Mark Carney, the Governor of the Bank of England, famously cautioned that the country was overly dependent upon the kindness of strangers to finance it. By this he meant that the UK’s financial and economic stability depends very importantly on foreigners being willing to continue financing the UK’s large external current account deficit, which now amounts to as much as 4.5% of GDP.
Remember the most basic thing about the balance of payments - the payments do balance. This is wrong in exact detail but good enough. Any trade deficit will be balanced by a capital account surplus. That’s what is meant there by foreigners financing our trade deficit. That causality operates the other way is true - it is the difference between domestic savings and domestic investment which produces the trade deficit.
But no matter. Payments always balance. So, if foreigners decide they’d prefer not to invest in the UK then that trade deficit will shrink. How? Because foreigners exchanging their funny money for good solid pounds sterling to then buy stuff in Britain raises the exchange rate of sterling. If they fail to do this then the exchange rate falls. A lower value of sterling in funny money means that we will buy fewer imports, foreigners will buy more of what we produce. The deficit - after increasing as a result of the J-Curve where it takes time for volumes to catch up with prices - decreases. For the balance of payments balances.
Given that we’ve got a floating exchange rate we cannot actually have a sterling crisis. We just sit here and watch markets and their prices take the strain.
Oh, sure, we might not like those new prices but that’s not a crisis.
And what has happened? Well, when the Brexit vote came in sterling fell - markets are forward looking. And every time it looks like a hard Brexit is getting closer sterling falls, every time some deal that results in single market access, or customs union , or a trade deal, looks more likely then sterling rises. That is, we’ve got that real time and forward looking adjustment mechanism working every moment the markets are open. We’re not even going to get to a crisis point because the adjustment will already have happened.
There are many things we can ponder concerning Brexit and everyone’s entitled to their own views on the desirability of near all of them. But as long as we do indeed have a floating exchange rate a sterling crisis just isn’t one of those things we’ve got to worry about.
Omar Khayyam and modern Iran
Arguably Persia’s greatest son, Omar Khayyam, was born on May 18th, 1048. He found fame as a mathematician, an astronomer and a poet. His mathematical works include contributions to the understanding of cubic equations and conic sections, and there is evidence that he must have known and used a general binomial theorem.
As an astronomer he produced the Jalali calendar, still in use today, and more accurate than the Gregorian calendar, in that it has an error of only one day in 5,000 years. His fame today, however, rests on his poetry, written as quatrains, and freely translated into English by Edward FitzGerald in his 1859 “Rubaiyat of Omar Khayyam.
It has many themes, dealing with the brevity of life and an acceptance of the fatalism that accompanies its journey. Many of the 101 stanzas (quatrains) are, however, in praise of wine.
“The grape that can with logic absolute
The two-and-seventy jarring sects confute:
The subtle alchemist that in a trice
Life's leaden metal into gold transmute.”
This sits ill with the strict Islamism of post-revolutionary Iran, and its rejection of alcohol. When my colleague, Dr Eamonn Butler, received a copy of an Iranian edition of one of his books, he noticed that in his photo on the back, the glass of wine alongside him had been airbrushed out of the picture.
A friend about to visit Iran asked if I had any tips. I suggested he should learn some verses of the Rubaiyat and recite them if he found himself in the company of other young people. He reported that it brought delight, with Iranian youngsters recognizing them in translation and eagerly quoting from their Persian originals.
Iranian people, especially the young, are among the most highly literate and educated. They long for contact and exchanges with their counterparts in the West, but are held back by a mediaeval theocratic regime that seeks to constrain them into a limited lifestyle prescribed by religious leaders. This is a regime that has put death sentences on those who diverge from this lifestyle. Its people are now yearning for the freedom to express themselves.
Brutal and repressive regimes can survive for decades through their monopoly of violence and their readiness to use terror to compel obedience. The street thugs of the Revolutionary Guard are there to repress any expressions of freedom, or any deviation from their code of dress and behaviour. But these things run their course, and the hope must be that the primitive and barbaric regime that denies young Iranians the freedom they yearn for, will one day be swept into history’s dustbin. Then, perhaps, they will be able to enjoy life as Omar Khayyam advocated, perhaps even extolling its pleasures as eloquently as he did.