The Berlin Airlift countered the Soviet blockade
The postwar allied occupation of Germany saw the country divided into 4 zones, one each run by the US, the UK, France and the USSR. Its capital, Berlin, was divided into 4 similarly controlled zones. On June 24th, 1948, the Soviets suddenly blocked access routes across East Germany to West Berlin. They cut off road, rail and water-borne transport and traffic. It was a response to the introduction of the Deutsche Mark in West Germany and West Berlin.
The Western allies were reluctant to force a land corridor through to West Berlin for fear it would provoke a conflict in a theatre in which the Soviets had massive military superiority in conventional forces. Rather than give in to Soviet blackmail, they decided on an airlift to ferry supplies into the besieged city. It was a huge undertaking calling for high-level logistical planning.
Several air forces took part, including those of the US, the UK, France, Australia, New Zealand and South Africa. It came to involve hundreds of flights a day into the city’s two airports. Initially they used mostly C-47s, the military version of the DC3 Dakota, but later added the heavier C-54s. They soon exceeded the estimated 3,475 tons of supplies a day it would take to sustain the population. Indeed, by the time the airlift ended a year later, they were flying in more food, fuel and supplies than had previously been coming in by rail.
To cut down on the time the crews needed for refreshments, the overall commander had jeeps equipped as mobile snack bars to refresh crews on the runway while their planes were unloaded. Allied pilots noticed that German children would crowd the flight lines below them to watch the stream of planes coming in, and took to dropping sweets and chocolates to them, a gesture much appreciated given the rationing then in place.
In one year over 200,000 sorties were flown, one every few minutes in a constant line of landings and take-offs. On May 12th, 1949, the Soviets realized their bullying tactic had failed, and lifted the blockade. By then the Deutsche Mark had established itself as one of the hardest currencies, and the German Economic Miracle was under way as free markets and deregulation worked their magic. The Airlift was not without cost. There were !01 deaths during the operation, including 40 British and 31 American airmen, mostly killed in non-flying accidents. The financial cost was estimated at between a quarter and a half million US dollars, perhaps just over $5bn in today’s money. It was worth it, in that West Berlin survived as a free city. There are monuments in the city to those who died to save it.
Wars are often caused by uncertainty. When potential aggressors do not know if they will be met by force, they might be tempted to try it. If they are made aware in stark terms that force will be responded to in kind, they are usually deterred. The Berlin Airlift made it abundantly clear to the Soviets that the Western Allies were not prepared to lose West Berlin. It was a measured response, in that an attempt to force open a land route might have provoked war, but an airlift was not aggressive.
The lessons of the Berlin Airlift remain. Enemies must know that acts of aggression against us or our allies will be met with a measured but forceful response. Jeremy Corbyn might want to leave NATO and renounce our nuclear deterrent, but these, not the goodwill of the Soviets or of Russia today, are what has kept the peace these past decades. Corbyn seems ignorant of the most basic rule of defence: "si vis pacem, para bellum."
What a very French approach to cannabis legalisation
Yes, of course, we Britons do tend to tease our closest neighbours simply because they are our neighbours. But isn’t this a delightfully French approach to the question of cannabis legalisation?
A government-tasked commission has advised France to legalise cannabis to “take back control” of the black market, calling prohibition an abject “failure”.
Of course, entirely so, we agree with the basic sentiment. Of course there should be legalisation.
State-controlled cannabis stores would be the best way to control drug trafficking and “restrict access” to younger would-be users, they argued.
By their calculations, cannabis could bring up to €2.8 billion (£2.5bn) per year into state coffers and create up to 57,000 jobs.
Good points no doubt.
Part of the revenues could be channeled into “town and educational policies in sensitive urban areas”, the wrote.
Hmm, well.
The French debate appears to be about the efficiency of control, the tax revenue that might be raised, how that could be spent. All useful contributions to the discussion of course. But there seems to be no reference at all to the issue we think most important, freedom. Liberty if you like. That a consenting adult should indeed, absent third party harm, be able to do or ingest as they wish.
Which is odd really, when you think of how the triplet goes, Liberté, Égalité, Fraternité. The liberty bit being one of the things we’ve rarely seen mentioned in debate across the Channel. But then as we know, political slogans usually mean their opposite.
It’s not “Special,” It’s Socialism
I still remember my childhood trips to Venezuela and long what I left behind. Caracas was a vibrant city, filled with nice restaurants, busy malls, and close to gorgeous beaches. Weekends on Venezuela’s main vacation island - Margarita - were identical to days at upscale resorts in Florida or the Carribean. It was metropolitan and very wealthy nation - not far off from some of our Western democracies.
During the period I visited—throughout the early 2000s—Chavez’s welfare reforms won him reelection and the poor, as well as Labour politicians, worshipped him. The working class flocked to his rallies and faithfully turned out to vote. Poverty rates went down and support soared, but one thing was clear - the center could not hold much longer. Not as Chavez’s nationalized industries shrank oil production and national revenue dropped.
Throughout his time as president, Chavez had some key victories for his socialist cause. For one thing, he succeeded in banning term limits on his presidency. Though not an explicitly socialist policy, it broadened his reach to promote his brand of Chavismo - a wholly socialist vision. As for the poor, Chavez indeed decreased poverty rates and raised literacy and health statistics among the poor. And he did so by nationalizing private industries.
Free education, sweeping healthcare benefits, food subsidies, and nationalized industry—it should all sound familiar. It might conjure pictures of Bernie Sanders or Jeremy Corbyn, of happy students and excited voters. But what do we get in the end? Hungry children and congested hospitals—pictures are not reality.
Chavez pursued - wait for it - social welfare policies. Venezuela was not an outlandish, utopian state, as many Labour or liberal pundits would have us believe. It was a mainstream case of democratic socialism. And this worked. For a little bit.
These changes—though temporarily positive—were built on a shaky platform. Chavez funded his social programs with national oil revenue from PDVSA, Venezuela’s state oil company, nationalized in 1976, and secondarily from revenue gained by nationalizing 1,168 companies, spanning from agriculture to petroleum, from 2002 to 2012. What’s more, in 2003, Chavez took away PDVSA’s largely autonomous status and replaced tens or thousands of workers with loyalists. Now, cash was available for the government to spend, but what would be the fate of these state industries? In the words of Juan Carlos Hidalgo, a Latin American policy analyst at Cato: “Most of them were run into the ground due to sheer incompetence, sleaze and negligence, decimating Venezuela’s productivity.”
The plan initially worked twofold: Chavez could be praised for his generous welfare and progressive thinking while also benefiting from the corruption and mismanagement of the oil industry that cost the country billions and enriched its leaders. PDVSA itself claims that its main end is to enrich the people and the nation: it is a company “subordinated to the Venezuelan State and profoundly engaged with the genuine owner of oil: The Venezuelan People”. And for a time, this was true. According to the World Bank, poverty dropped from 54% in 2003 to 26.4% in 2009. Chavez was elected to office in 1999 and replaced PDVSA engineers and employees with loyalists throughout 2002. At the same time, his most loyal supporters were being enriched with billions of dollars and Chavez, himself, was living in luxury.
The hoax of socialist policy is such: you can immediately deliver on your promises. Until the money runs out, you can spend it, and you can spend it on helpful measures. But what happens when the money ends? What happens when these programs do not have another source of income? What happens when you drain your country to its last drop?
All of a sudden, in 2007, after a major loss of professions in the petrol industry following Chavez’s mass-firing, oil production went plummeting. According to a BP review, production went from just under 3.5 million barrels a day to about 1.5 million a day in 2017 under Maduro. Yes, PDVSA may have been “profoundly engaged with the genuine owner of oil: The Venezuelan People”, but it also fell victim to “sheer incompetence, sleaze and negligence” under the control of self-enriching, underqualified Chavista cronies.
PDVSA (being a nationalized company) could not keep up with the global oil market. It failed under Chavez and thus, the welfare programs that depended on its revenue also failed. In the face of these inefficiencies and government price controls, poverty rates skyrocketed to 82% in 2017.
What’s more, a nation that had briefly experienced the benefits of a robust welfare state was immediately left with nothing. The centre fell through and left a disaster: no welfare and no competitive oil industry to salvage the economy.
Is this a detached reality for places like the UK, where socialism is becoming the mainstream? Is Western socialism more “sophisticated”? Well, for one thing, these places are not that different from Venezuela. Venezuela is not a “special,” “off-brand” form of socialism. It is true that it is a country plagued with corruption - but that is inevitable when all power has eventually been usurped by one entity - the government. Venezuela was once the gem of South America and a very rich nation - one where Europeans settled and entrepreneurs flocked. Today, still sitting on one of the largest oil reserves in the world, it stands decimated.
Yes, we may be rich, and yes, we may have good intentions, but how far can these factors take us? Venezuela was primed for success, and within a decade, not-so-utopian socialist reforms destroyed the country and left its once-poor people, even poorer.
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.