Independence Day - 3 years on

Parliament contracted out to the people of the UK the decision as to whether the UK should leave the EU or remain a member of it. The promise to hold that vote was in the Tory manifesto for the 2015 election. When they won that election, Cameron duly delivered, and the referendum was held on June 23rd, 2016, exactly 3 years ago. Political leaders on all sides pledged to deliver the result that people voted for.

The electorate was given a clear choice, to Remain in the EU, or to Leave it. On the day of that people’s vote, the people voted by a clear margin that they wanted the UK to leave the EU. According to the pollsters, immigration was an issue in that campaign, with even those who support a generous immigration policy unhappy about having to accept unrestricted immigration with no choice in the matter.

Sovereignty was the most cited issue, with people preferring the laws that apply to the UK being made in the UK by people answerable to the electorate. Brussels was seen as remote, bureaucratic, and prone to have its agenda too easily captured by lobbyists and special interests. Furthermore, people pointed to a democratic deficit within the EU, with too many powers exercised by non-democratic bodies, and with unanswerable officials setting its rules and regulations.

The UK political establishment was shocked by the result. The élite who thought themselves enlightened shared a pro-EU outlook. The CBI, the BBC, and the majority of MPs and Lords all took the view that the EU was our comfort zone, and couldn’t imagine a life for Britain outside it. The government spent £9.3m printing and distributing a leaflet on why it recommended staying in the EU. This did not count as campaign spending by the Remain campaign, because it was “government.”

The feeling among the élite was that the people who voted Leave were “stupid,” “uneducated,” and “lacked knowledge of the issues.” A more likely alternative, and one borne out in polls, is that they were fed up of being bossed around by foreign bureaucrats in Brussels. In the words of the Leave campaign slogan, they wanted to “Take Back Control.”

Despite promises to respect the result, a significant number of MPs, probably a majority, want to subvert it by any means they can. With a biased Speaker on their side, they have deployed, and are deploying, every Parliamentary trick of procedure to make sure the UK remains within the EU, despite having voted to leave it. Calls for a second referendum show how much they have absorbed the EU culture of making people vote again if they got it wrong the first time.

Trust in Britain’s political process, and respect for it, has diminished since people see their elected Members of Parliament trying to thwart the clearly-expressed opinion they were asked to give. Whether it’s leave with a deal, or leave on WTO terms, people do not want any more dithering, prevarication and uncertainty. Three years after that historic vote for independence, they want the UK to leave that narrow protectionist trading bloc, the one that tries to protect its industries from world competition by tariff walls. They want to step into a wider world, and will reward anyone who shows the leadership to do just that.

George Monbiot's misunderstanding of mass transit

George Monbiot wants us all to know that the car is the great threat to urban civilisation. It’s even possible that he’s got the beginnings of a point concerning urban air pollution and the internal combustion engine. As long as we ignore the pollutants - horse dung say - that accompanied every other previous technology.

However, it’s in the prediction of what must be done about it that Monbiot really fails.

Neither electric cars nor driverless cars will solve our problems. They take up as much space as fossil-powered vehicles. Electric cars are already triggering a series of environmental disasters, due to the rush for lithium, cobalt and nickel required to make their batteries. Driverless cars are likely to exacerbate congestion and accelerate climate breakdown, because of the energy demands of the data centres required to control them.

It makes far more sense to build electrified mass transit.

By electrified mass transit he means trams, light rail and full on trains of course. Which is really just an illustration of how conservative the right on are these days. Why would we want to use a 19th century technology in the 21st? Well, if it was still the best option then that would be fine. But what if we’ve developed something else, better?

Like, say, fleets of autonomous electric cars? We now no longer have terminus to terminus travel, we have point to point. Any point to any point. Electric means the emissions, whatever they still are, take place outside that urban centre. We seem to have ticked the boxes. So why, other than just an innate conservatism, the objection?

Or to put the point another way, what is it about a fleet of autonomous electric cars that makes it not electric mass transit?

Galileo was forced to recant

On June 22nd, 1633, Galileo was shown the instruments of torture by the Inquisition and threatened with their use unless he recanted his expressed view that the Earth revolved around the Sun, instead of the other way round.

Galileo had seen the moons of Jupiter and the phases of Venus through his telescope. When he published “The Starry Messenger” in 1610, he endorsed the heliocentric theory of Nicolaus Copernicus. He proposed a theory of tides in 1616, attributing the motion of the Earth as a cause of them. In 1632 he published his “Dialogue Concerning the Two Chief World Systems,” again implying heliocentrism, which the Inquisition had formally declared to be heretical in 1616, banning books that supported it.

At his trial he was found "vehemently suspect of heresy", banned from holding or teaching heliocentric views, and was sentenced to life in prison. He was a frail 69-year-old, and the sentence was commuted on the following day to house arrest. He spent the remaining years of his life under house arrest at his villa near Florence, until he died aged 77.

The Catholic Church and its Inquisition claimed the right to insist that it alone knew what was God’s will, and persecuted those who resisted their dogma and who sought to investigate themselves what the universe might be like. It is doubtful if the Bible decreed that God’s universe was geocentric. There are passages which declare the Earth to be fixed. 1 Chronicles and Psalm 96.10 both declare, “The world is firmly established; it cannot be moved.“ Psalm 93:1 tells us, “The world is established, firm and secure.” And Psalm 104:5 says, “He set the earth on its foundations; it can never be moved.”

All of these can be taken as expressions of how things look to us, rather than how they might be literally true. We speak of sunrise and sundown, without supposing it is the sun that goes up and down. The Church in Galileo’s day chose to insist upon a literal interpretation. It was not because scripture demanded it; it was a question of authority, and they had the power to torture old men into submission, or to burn at the take those who questioned that authority.

The Church apologized in 1992, pardoned Galileo somewhat tardily, and took his works off the Index of banned books. It reminds us of a time when we had to believe, under pain of death and suffering, what those in authority demanded we believe, or at least pretended to believe. Similar requirements have been made by totalitarian dictatorships, Nazi and Communist, and even today social media lynch mobs will howl in pursuit of those who dare to say how they think things are, rather than utter the anodyne platitudes of political correctness.

Galileo had the last laugh, albeit posthumously. A few months after he died, over in England Mr and Mrs Newton decided to christen their newborn son Isaac…

Central bank independence, inflation and political power

Just a small observation, not particularly original to us. Politics has only controlled the value and quantity of money for a short period of history, roughly WWII through to the 1990s. Perhaps, for purists, really only the 1970s through the 1990s. The period of fiat currencies and government control of central banks.

Before that period we generally had currencies based, however tenuously, upon specie. After we’ve had those independent central banks able to kick back against government policy. Which makes this long term chart of inflation in the UK interesting.

There were inflations - Henry VIII debased the silver coinage for example. There were deflations, QE I tried to restore the value. But to get to consistent inflation we had to wait for politicians to control both fiscal and monetary policy, something that really only did happen post WW II.

One way of looking at this is that the more power politics had the worse matters got. Another, less cynical, is simply that the move to central bank independence from the 1990s onwards was well rooted in empirical justifications.

Our general view around here is that the correct question concerning politics is whether we’re being cynical enough. We’d thus take this record as being a warning about allowing politics, and politicians, to control too much. Or even much.

Going into space privately

On June 21st, 2004, SpaceShipOne, a launch system designed and built by private sector engineers and entrepreneurs became the first non-government manned vehicle to reach space. Later that year it won the Ansari X-Prize by reaching space twice within a 2-week period, carrying the equivalent weight of two passengers.

It clocked up several records during its development, including one for the first privately built craft to achieve supersonic flight, which it did on December 17th, 2003, exactly 100 years since the Wright brothers’ first flight. Unlike many of its rivals for the prize, it never had to pause during development to attract more funding. This is because the entire costs, estimated at $25 million were met by Paul Allen, the co-founder of Microsoft.

Burt Rutan, head of Scaled Composites, was the designing genius behind it. Carried aloft to be released from its mother ship, White Knight, SpaceShipOne was a rocket powered aircraft that could make a sub-orbital flight into space, reaching over 100km, the internationally accepted Karman Line regarded as its boundary. Instead of a conventional heat shield, the back half of the plane lifted up to provide a “feathering” motion that provided enough drag to lower the speed to a safe landing level.

Virgin Atlantic’s Richard Branson was not involved at all in the project. After the prize-winning flights he formed a joint venture with Burt Rutan to develop a system for commercial spaceflights. The company, Virgin Galactic, plans to use second generation craft, SpaceShipTwo and White Knight Two, to carry paying passengers on suborbital flights.

These will not be the only private spaceflights. Elon Musk’s SpaceX has already flown its Dragon capsule to resupply the International Space Station, and a manned version is expected to carry first astronauts and later private passengers. Jeff Bezos’ company, Blue Origin, has its New Shepard system designed to take a passenger-carrying capsule for space tourism, while Boeing’s Starliner capsule could, like the Dragon, carry astronauts initially, and then private customers. In addition, Sierra Nevada is developing its lifting body, Dream Chaser, as a mini successor to the Space Shuttle.

All this private activity, some of it NASA-funded, indicates that space is no longer the sole prerogative of nation states. The private sector is developing many different and novel approaches simultaneously, testing which ones are viable, both scientifically and financially. This is what the private sector does well, and what governments tend to do badly. A strong part of that is motivated by profit. The unabashed desire to make money helps to motivate private entrepreneurs to experiment with previously untried ideas, and to test novel and less costly ways of achieving success. This has meant that the costs per kilogram of space launches have been driven down, and competition will doubtless drive them down further.

That said, profit is only part of it. Many of these space entrepreneurs are driven, as other businessmen and women are, by a desire to succeed, to overcome the difficult and to solve problems, and to achieve something they think worthwhile. Long may people continue to do so. Burt Rutan started something 15 years ago, something that will continue until space becomes commonplace.

A new way to cut taxes

Rory Sutherland, in his Spectator column of June 8th, says something novel about cutting taxes. Instead of discussing how much taxes might be cut, he considers how they might be cut. He says, as an alternative to simply cutting the rates:

“More interesting would be to hold the tax rate constant, but to refund tax cuts annually in a lump sum. It would then be valued year after year, rather than becoming invisible.”

This brings psychology into the picture. The theory is that if government cuts tax rates, it earns gratitude for a couple of years, then the new rate beds in and people get used to paying less per month in PAYE. On the other hand, an annual rebate keeps oncoming and keeps on earning gratitude.

Suppose, for example, that government decided to cut the basic rate from 20% to 18%. Obviously this would have to be funded by spending cuts, efficiency savings, tax rises elsewhere, or through economic growth. A cut of the top rate from 45% to 40% would probably not have to be funded, in that the lower rate could well yield more revenue by making avoidance less attractive and by stimulating investment and growth.

A cut in basic rate from 20% to 18% could be done by a straight rate cut, or it could be implemented by having people continue to pay at 20%, and giving them an annual rebate of the difference between 20% and 18%. In crude terms this combines a tax cut with forced savings. There is evidence that people would like to save more, but find it difficult. This would give them a helpful nudge.

I have lived in the US and paid taxes there. Many people choose to overpay somewhat, preferring to receive a refund every April rather than a bill. Advertisers know those cheques are entering postboxes at that time, and promote their wares accordingly. The same would happen in the UK. Knowing those refunds are landing on doormats would encourage advertisers to plug products. Those lump sums might be used to help children with university and college fees, or toward a deposit for a mortgage, or maybe a new car or a foreign holiday. It would be like a second Christmas coming to boost the economy with extra spending.

It would incorporate some flexibility, too, in that people would mind receiving a lower rebate, if this were necessary, less than they would mind a tax increase. The rebate could, if this were thought desirable, be linked to the state of the national economy. Rebates can be tweaked in innumerable ways.

There is no reason why this need would to impose additional bureaucracy costs. A conventional cut from 20% to 18% would have to be calculated so that lower PAYE rates could be applied. The rebate system would involve the same calculation, but have it paid as an annual rebate instead of by lowering monthly payment rates. Indeed, the Treasury might prefer it because they could benefit from the interest they would earn on the money until it was repaid.

The Chancellor who introduces the rebate system of lowering taxes might well incur the gratitude of taxpayers, those who would like receiving lump sums ever year. And the investment and spending they would stimulate could give the economy an extra little kick every year.

We can't see it ourselves - Facebook's Libra

As is so often true we find ourselves echoing Craig Pirrong here. We can’t really see what problem it is that Facebook’s new Libra solves. There being, to us at least, two major problems with what Libra actually is as well.

It’s a stablecoin - that is, it should have a fixed and static value. This is most useful if we’re to regard it as a method of payment. Except the valuation is to a basket of currencies. Which means that when compared to any one currency it is of course not a stablecoin at all. That translation into real world currency value is thus always changing. Not a useful attribute of a means of payment.

The other is the risk of temptation:

I note in passing that low interest rates destroyed the traditional FCM model which relied on interest income from customer margins as a major revenue stream (as Facebook is proposing here). Ask John Corzine about that, and look to the experience of MF Global.

If there’s a pool of funds which the operator of the pool keeps the interest from there’s always that temptation to chase returns on that pool. Higher returns meaning either greater risk of less liquidity. Which is indeed what happened at MF Global and could be said to be the problem that Neil Woodford’s funds are suffering from.

That we don’t know whether a new adventure will solve a problem or not is precisely the argument in favour of markets and entry into them so we’re obviously not saying that Libra should not happen or not be allowed. But it is true that we can’t quite see what problem will be solved here.

Two technological leaps

The date of June 20th marked two major technological breakthroughs. On that date in 1819, the steamship Savannah completed the first ocean crossing by a steamship, pointing to a future of fast sea transport. And on June 20th, 1840, Samuel Morse patented the telegraph, heralding the dawn of accurate long-distance communication.

The Savannah, built in New York, was fitted with a small steam engine and a supply of pinewood fuel to power it. She actually spent most of the voyage under sail during her 24 day journey, but pioneered the practicality of steam power for ocean voyages. When she appeared off the Irish cost, a fast cutter sped to her rescue, thinking the plume of black smoke from her funnel indicated that she was on fire.

The compression steam engine, used from the 1870s, had a closed cycle of retained water instead of seawater, and meant that less coal was used and needed to be carried. This brought efficient long-haul cargo vessels into use and opened up the first era of globalization as cheap US food and raw materials could flood into English ports.

Samuel Morse's telegraph sent electrical signals down wires. They carried information in the form of a code he invented in which each alphabet letter was assigned a combination of dots and dashes. This made virtually instant long-distance communication possible. Long distance wires were laid in the UK and the US, held aloft on what are still called "telegraph poles" in the UK. The British used the telegraph to communicate in India, and it played a key role in overcoming the Indian Mutiny. "It saved India," said Sir Robert Montgomery, Judicial Commissioner of the Punjab.

In 1861 the first US transcontinental telegraph link was completed by Western Union, linking America's East and West coasts, and providing communication to otherwise-isolated settlements in between, communities that had previously been reliant on services such as the Pony Express. When Marconi pioneered a wireless version of Morse's telegraph, it was fitted to the transatlantic ships, and was instrumental in enabling the Carpathia to pick up 700 survivors from the Titanic disaster in 1912.

Both these technological advances contributed to the globalization we take for granted today. The advent of container ships from 1956 transformed the economics of ocean-going freight, and the advent of mobile cell phones has enabled instant communication in most parts of the world. This globalization has done more to lift the world's poor from subsistence and starvation than anything else that humankind has otherwise achieved. It has enabled vast increases in the trade that generates wealth, and made the poorer countries a vital part of the economy of the rich ones, narrowing the gap that previously separated them.

There are those who oppose this, who talk of domestic self-sufficiency and food miles, and who object to the pollution caused by long-distance freight transport, but it is the wealth enabled by that trade that funds the research to develop and use more efficient and less polluting forms of transport. The steamship and the telegraph were but steps along the way to a more integrated and richer world. Both have been supplanted by more efficient successors, but each constituted the beginnings of a revolution that has continued and is continuing.

Why do the French distrust government? Perhaps it's the amount they have...

The particular observation here is about trust in vaccines across countries. Large numbers of people don’t think vaccines are safe. In which, of course, they are correct. Getting out of bed in the morning isn’t safe either - and nor is staying in bed. Nothing is safe, it is always relative risk that we should consider. At which point vaccines are vastly safer than non-vaccines.

However, the observation about vaccines maps over something rather more interesting:

France is more sceptical about vaccine safety than any other nation, research suggests. A third of French people disagree that vaccines are safe, according to the Wellcome Global Monitor survey.

This scepticism over vaccinations reflects the public’s comparatively high distrust of politicians, say experts on France’s anti-vaccine movement. The Wellcome study found France had among the highest levels of distrust of government.

Well, why would the French distrust government? This not being something that can just be blamed upon Macron, it’s rather more deep rooted than that. A useful observation is that the French have more government than just about anyone else. We do generally believe that experience matters, that humans learn through their mistakes. Lots of government leads to a certain dissatisfaction with government.

Aiding us in this analysis is the manner in which Eastern Europeans are also deeply dubious about both vaccinations and the merits and value of government. They, of course, having had lots and lots and lots of government from 1945 or so to 1989.

The thing that truly divides us humans from the other animals - in fact it’s a useful definition of intelligence itself - is that we’re able to learn from the mistakes of others. It’s not necessary for us to make our own errors to get the lesson.

Lots of government makes people unhappy with government. The answer being, therefore, to not have lots of government.

Edward Heath's "Conservative" government

On June 19th, 1970, the Conservative Party, led by Edward Heath, was declared the winner of the General Election, and asked to form a government. The result was an upset because previous polls had given Labour, led by Prime Minister Harold Wilson, a comfortable lead. A poll on election day, however, showed a small Tory lead, and the Conservative Party, which the included the Ulster Unionists, gained a majority of 31 seats.

Their term in office under Heath was not a comfortable one. The had been elected on the "Selsdon Manifesto," a radical free market agenda that repudiated the post-war consensus. Soon after taking office, however, Heath abandoned the 1970 manifesto in the face of bitter opposition from the trade unions. He concluded that free market ideas were simply not appropriate in the modern world. His Chancellor, Anthony Barber, attempted a Keynesian-style "dash for growth," printing money like there was no tomorrow, stoking up a massive inflation that provoked union militancy.

The unions never accepted Heath's 1971 Industrial Relations Act, and staged a series of crippling strikes. Heath U-turned on his pledge not to bail out failing businesses by doing precisely that. Government spending increased far ahead of revenues, and he failed to modernize the outdated and relatively unproductive UK economy. The result was a new phenomenon: high unemployment combined with stagnation, or "stagflation." He introduced wage and price controls, both disastrously ineffective.

Heath undermined Britain's relationship with the US and its former dominions by taking the UK into the European Economic Community, not recognizing its ambitions to become a political entity. His downfall was his inability to cope with the 1973 oil crisis caused by the OPEC embargo. He instituted a 3-day week for offices, factories and public buildings, and saw frequent power cuts as militant unions went on strike to bring down his government. The economy went into recession. He called an election in February 1974 asking the electors, "Who governs Britain." They replied, "not you," and removed his majority. Labour formed a minority government, and the following year Heath was ousted as Conservative Party leader by Margaret Thatcher.

It did not help Heath that he was widely regarded as arrogant and rude. He went into a massive sulk that lasted for years, refusing even to mention the name of "that woman." Meanwhile Margaret Thatcher adopted the free market policies Heath had discarded, and from winning the 1979 election, used them to take Britain to renewed growth and prosperity. She succeeded where Heath had failed in taming the unions. She abandoned controls that he had brought in and that Labour had continued. Britain boomed, taxes were lowered, jobs were created, and people who had been dependent on the state now bought their own homes and often shares in the newly-privatized state industries. The ones that Heath had needed to subsidize massively now became profitable private businesses that paid taxes instead of consuming them.

History has not looked kindly upon Edward Heath and his administration, and is unlikely ever to do so. Even the museum at his home, to which he left the vast bulk of his estate to establish in his memory, failed to attract enough visitors, leading the trustees to seek permission to close it down and sell off its assets to other charities. A compromise was reached in which it remains open for part of the year as a centre for charitable activity related to Heath's interests, principally yachting and music.