We don't need to applaud short sellers but we do need to allow them
Another little entry in the well they would say that stakes:
Short sellers 'should be applauded' over Burford attack
Perhaps in the sense that people putting their money where their mouth is can be seen as admirable.
A secretive investment firm has leapt to the defence of short sellers after litigation funder Burford Capital suffered one of the most devastating “short attacks” ever seen in the UK.
Gotham City Research, known for its assault on outsourcer Quindell in 2014, has released a note adding to the criticism against Burford and arguing that short sellers “should be applauded for their work”.
The report comes days after US short-seller Muddy Waters issued a blistering dossier on Burford, one of the biggest names in the rapidly growing litigation funding industry, in which it took aim at its accounting practices and “laughter-inducing” governance.
That Gotham is also a short seller might lead us to the Mandy Rice Davies line. But there is a more important point here.
As the standard joke goes - laughs are hard to come by in economics - Eugene Fama got the Nobel for showing that the efficient markets hypothesis is true, Lars Peter Hansen for doing the mathematics, Robert Shiller for showing it isn’t true. All on the same day, Tee Hee.
As with many jokes this isn’t quite true - Shiller instead showing what was necessary for the EMH to be true. Which is that all have the opportunity to express their view by trading upon it in that market. Only then are all views, thus all information, incorporated into market prices - the base contention of the EMH, that information is already in market prices and efficiently so.
That is - and Shiller has been most vocal on this point - people must be able to make money from falling prices as well as rising. Only then is the view that prices can or will fall incorporated into those very prices that we wish to be correct.
Applauding short sellers isn’t therefore quite the point. We must allow them so that markets do in fact work. To the point, as Shiller says - as in the housing markets - that we should deliberately construct futures and options markets so that people can be short the market where this is, in the absence of such constructed markets, difficult to impossible. Thus his agitation for derivatives markets in housing.
Short selling is important. No, not moral nor ripe for our approbation for both economics and markets are entirely amoral. Just important, which is why we must allow it.
How much should we trust the man who wants to abolish his own handout?
An interesting little philosophic question here. Who is it that we should trust more on an issue?
Boris Johnson’s controversial enforcer, Dominic Cummings, an architect of Brexit and a fierce critic of Brussels, is co-owner of a farm that has received €250,000 (£235,000) in EU farming subsidies, the Observer can reveal.
The revelation is a potential embarrassment for the mastermind behind Johnson’s push to leave the EU by 31 October. Since being appointed as Johnson’s chief adviser, Cummings has presented the battle to leave the EU as one between the people and the politicians. He positions himself as an outsider who wants to demolish elites, end the “absurd subsidies” paid out by the EU and liberate the UK from its arcane rules and regulations.
Lord Astor rather comes to mind here.
Imagine that some official of the National Farmers’ Union insists that we must remain in the European Union because of those handouts. In the context of farming incomes they’re substantial - by some estimates they’re all of net farming incomes - and so we could and perhaps respond with “Well, he would, wouldn’t he?”
Now imagine that someone is in receipt of such payments but still, for what he at least believes is the greater good, thinks that the system which so enriches him should be abolished. Whose word should we be putting greater weight upon?
The other phrasing that comes to mind is, well, who is merely talking their own book?
The grander issue here being that we’ve reached a place where doing so, loudly demanding that one continue dipping into the communal pot, is seen as righteous and serious, while arguing the contrary is a potential embarrassment. When did we reach the point that “No, don’t give me other peoples’ money” is a political position to be criticised?
Charles Darwin and change
Charles Darwin, one of history's most influential scientists, was born on August 12th, 1809. Newton had dispelled the notion that there were two domains, the heavens and the Earth, by showing that the same laws that governed motion on Earth also governed the motions of heavenly bodies. Now Darwin was to achieve a similar result for nature, showing that there were not two domains, humans and the animal kingdom, but that humans were part of the animal kingdom and subject to the processes that governed its development. Both Newton and Darwin therefore edged humanity away from a human-centred view of the universe, and into a position that saw human beings as a part of the universe and a product of it.
His 5-year voyage on HMS Beagle had given him scientific recognition as a geologist, one whose observations and samples supported Charles Lyell's notion of gradual geological change over long periods of time. But it was his observation of the different species scattered across different islands that aroused his interest. He had read "An Essay on the Principle of Population," published by Robert Malthus in 1798, which suggested that human population would always grow at a faster rate than the food supply, causing periodic catastrophes of starvation. If many were doomed to die, Darwin wondered which ones would survive, and the question led him to develop the theory of natural selection. He wrote:
"In October 1838, that is, fifteen months after I had begun my systematic enquiry, I happened to read for amusement Malthus on Population, and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. The result of this would be the formation of new species. Here, then, I had at last got a theory by which to work..."
Darwin published his theory of evolution with a weight of supporting evidence in his 1859 book "On the Origin of Species," and the world was never the same. One of the interesting features of his account was that it included a process of change, a process by which one thing gradually became another. Unlike accounts of change such as Hegel's, for example, that thought change occurred abruptly, Darwin's was one of slow incremental change, evolution rather than revolution.
Radicals such as Marx have supposed that changes to society must come in abrupt leaps achieved by revolution, and have proposed what those changes should be. Some have inspired others to seize power in order to impose those sudden changes. The more evolutionary approach takes it that free societies change gradually over time as people develop new ways of doing things and new ways of looking at things. Values change over time, as do practices and habits. Under this framework, changes come about by gradual adoption. The innovators are the early adopters, but others observe the results, and copy the new behaviour if they seem favourable.
In "The Poverty of Historicism" (1957), Karl Popper contrasts what he calls "Utopian social engineering" with "piecemeal social engineering," describing the former as "a method which, if really tried, may easily lead to an intolerable increase in human suffering." The latter, by contrast, he describes as "a reasonable method of improving the lot of man." The lessons of the French and Russian revolutions bear out the view that sudden, imposed, revolutionary change can easily bring disaster. The Industrial Revolution and the gradual spread of capitalism as a global wealth-creating process have brought about by gradual change the biggest advances in human welfare since hunter-gatherers became farmers.
The process Darwin saw in nature of gradual, incremental change has proved to be one that people can apply to the improvement of society and to the quality of life, as well as to expanding the choices and opportunities that are available to people. Evolution brings improvement, where revolution often brings only disaster.
Andrew Carnegie – making philanthropy fashionable
Andrew Carnegie died exactly a century ago, on August 11th, 1919. His was a "local boy makes good" story, in that he went from a one-room house in Dunfermline to become one of the richest men in history, and one of the most generous. His father was a casualty of the new textile technology as machines replaced the skilled handloom weavers. The machines gave the world cheap fabrics, but they drove the weavers into destitution. Carnegie's father moved with his family to seek a better life in the United States.
His first job, at age 13 in 1848, was as a bobbin boy in a cotton mill. It paid $1.20 a week for 12 hours a day for 6 days. In modern values that would be about $35 a week. His second paid more, $2 a week, but it was harder and involved firing up a boiler in the factory basement and running a small steam engine to power the machines.
Still a teenager, he became a railroad telegrapher with the Pennsylvania Railroad Company, in his spare time avidly devouring the library that one of the bosses gave the young employees free access to. He resolved then to offer poor boys the same opportunities if he ever became wealthy himself. He did indeed, by acquiring a series of shares in growing companies. Still in his 20s he had acquired investments in railroads, Pullman sleeping carriages, bridges and oil derricks. America was growing into its industrial revolution, and Carnegie was building up wealth in its new technologies.
He later built up the Carnegie Steel Company of Pittsburgh, eventually selling it to J P Morgan for over $350m, a fabulous sum even in those days, equivalent to about $5.15bn at today's values. His subsequent reputation, however, rests not on the wealth he accumulated during his life, but on the wealth he distributed to charities and worthwhile causes, especially educational ones. Before he died he had given away some 90% of his fortune. He funded 3,000 public libraries in the US, the UK, Canada, Australia, New Zealand and South Africa. He paid for the establishment of libraries in nearly every town in Scotland, and also paid for organs in many of their churches. He donated money to help set up the University of Birmingham.
Before his death from pneumonia on this day in 1919, Carnegie had donated over $350m to deserving causes, which today would be worth about $5.15bn. His "Andrew Carnegie Dictum" was:
* To spend the first third of one's life getting all the education one can.
* To spend the next third making all the money one can.
* To spend the last third giving it all away for worthwhile causes.
His name lives on in New York's Carnegie Hall, the Carnegie Endowment for International Peace, the Carnegie Institution for Science, the Carnegie Trust for the Universities of Scotland, Carnegie Mellon University, and the Carnegie Museums of Pittsburgh and other cities. He even had a dinosaur named after him when he sponsored the expedition that discovered it. He was so proud of "Dippi" that he had casts made of the bones and plaster replicas of the whole skeleton donated to several museums in Europe and South America.
Andrew Carnegie has been an inspiration to successors such as Bill Gates and Warren Buffett. The message is that it's fine to make a huge sum of money, but that is by no means life's purpose. To dispose of it wisely and generously is a better way of feeling that one's life has been worthwhile.
To do that sciencey bit about the power cuts
In order to be able to do science it is necessary for us to have an hypothesis. An idea that, if this happens, then that. Such an hypothesis is always open to disproof by reality. That one ugly fact that can explode a beautiful theory.
At which point, to ruminate upon the power outages yesterday across Britain:
The enormous impact of this power failure is likely to lead to questions about the strength and robustness of the system.
The BBC understands that two power supply plants - one a traditional gas and steam-fired power station in Cambridgeshire, the other a huge wind-turbine farm in the North Sea - failed at about 16:00 BST.
National Grid described it as an "unexpected, and unusual event".
An additional factor may have been capacity problems at Britain's largest single power station in Yorkshire.
The sudden drop in available power caused protective measures to kick in that immediately cut electricity supply to a section of the National Grid network.
Our hypothesis is that running the National Grid on intermittent power sources is more difficult - without power outages - than running it on reliable power sources. Indeed, we have had numerous predictions that trying to run the country on wind and solar could cause problems. Like, say, wind speed at a producing wind farm going over safe limits, the entire operation thereby shutting down, that then cascading across the Grid. That standby gas cycle plant perhaps powering up in time, perhaps not. This leading to shutting off power to some parts of said gird in order to save other parts of it.
We have our hypothesis. We have our fact. And we can’t as yet say that our fact disproves our theory. Which is going to make that inevitable report into events most interesting to read, isn’t it?
If we’re allowed to read it of course.
Biodiesel Day
August 10th has been declared "International Biodiesel Day because on that date in 1893, Rudolph Diesel ran one of his early engines in Augsburg, Germany, on nothing but peanut oil. It was, however, only in 1977 that Expedito Parente, a Brazilian scientist, invented and patented the first industrial process for the production of biodiesel.
It's not quite clear why biodiesel deserves a day. In fact, if anything, it deserves to be forgotten. It is one of the silliest things ever one in the name of 'renewables.' Determined to be seen to be cutting back on the dreaded fossil fuels, people went for fuels derived from vegetables (and in some cases animal fats) , and therefore renewable. Farmers, especially in the EU and the US, were rewarded for growing crops that could be converted into diesel fuel to be used in transport and heating. 3.8 million tons were produced worldwide in 2005, with approximately 85% of biodiesel production from the European Union.
Biodiesel is made by the transesterification of vegetable oil or animal fat feedstock, with rapeseed and soybean oils most commonly used. Soybean oil accounts for about half of U.S. production. Biodiesel can be used by itself, or mixed with petrodiesel in different proportions, and blends of it can also be used as heating oil. Some concerns have been expressed about the effect that biodiesel has on engines. Mercedes Benz revokes its warranty if fuels containing more than 5% biodiesel are used.
The more pressing concerns are about world food prices, especially in poor countries, and the environmental impact biodiesel has. Moving fully to biofuels could require huge tracts of land if traditional food crops were used. Environmental groups including Greenpeace and Rainforest Rescue have criticized the use of oil palms, soybeans and sugar cane for biofuels, pointing to the loss of rainforest cleared for their plantations. They claim that oil palm plantations in Indonesia and Malaysia have caused tropical deforestation there.
Two factors are behind the food problems. If food stocks are used for fuels, there is less available for consumption, leading to price increases. The rising price of vegetable oils and basic feedstocks means that poor people cannot afford food if they are outbid by those wanting it for fuel. There have been attempts to make fuels from inedible crops, but these have made only a marginal contribution. Researchers in Nevada, for example, have developed a process for making biodiesel from used coffee grounds. However, even if it could be done on a commercial scale, the entire world supply of coffee grounds would not contribute even 1% of the diesel used annually in the US alone.
Critics also point out that if farmers switch from growing food crops to growing fuel crops, it means that less food will be produced, and the price of it will rise. It seems a strange world in which mothers in rich countries can feel virtuous by driving their children to school in giant 4x4 'Chelsea tractors' running on biofuels, at the expense of mothers in poor countries unable in consequence to afford enough food for their children.
Biodiesel seems to represent one of the worst cases of environmental tokenism, doing something that looks good without taking account of its real impact. Taking an environmental protester across the Atlantic on a millionaire's high-speed yacht "to save the environmental impact of flying her" is virtue signaling of the highest order. The environmental impact of that voyage far outweighs many times over that of putting her in a plane seat that would otherwise be flown across empty.
It is highly probably that petrol and diesel engines will be banned from our cities in the near future, and then gradually phased out elsewhere, replaced by electric vehicles than can be powered by relatively low impact electricity generation. Even before that happens it is to be hoped that governments will recognize the folly of using food crops to make fuel. Promoting it and subsidizing it was one of the more wicked things the European Union has done. On International Biodiesel Day, we would do well to realize that.
What really is the cost of obesity to the NHS?
We live in a world where people who are overweight or obese are considered part of a ‘national health crisis’, which needs addressing through nanny-state measures such as the sugar tax - or, alternately, simply left to die an early death to benefit the rest of us, according to BBC presenter Michael Buerk. The logic behind these policies is that, especially in a nation with state-run healthcare, it is for the public good to have citizens who are healthier, and thus less of a drain on NHS resources due to preventable diseases or lifestyle choices, justifying an increased level of control over the lives of individuals.
However, this is misleading for two reasons. Firstly, direct links between being overweight and catastrophic health problems are arguably overstated. In fact, “the available scientific data neither support alarmist claims about obesity nor justify diverting scarce resources away from far more pressing public health issues”, and instead place the focus on the real health dangers which lie in lifestyle and diet choices and where the most significant benefits can be gained. While obesity is not ideal health, there is a substantial difference between being overweight, and being unhealthy, and it is very possible to be one without the other. In fact, between one-third and three-quarters of ‘obese’ people are metabolically healthy. This is a fact it seems our healthcare system has not yet recognised. Because of this failure to separate weight and health, significantly lower effort is being put towards educating people about the dangers of other factors such as being underweight, even though studies have found that “obesity and [being] underweight, but not [being] overweight, was associated with higher all-cause mortality”. If the purpose is to create a healthier society, more focus should be put on educating people about healthy lifestyles and diet choices, and a distinct division between health and weight ought to be created, something which must be perpetuated through change in social norms at large, not just in the doctor’s office.
Secondly, the costs of obesity on the NHS have been largely miscalculated, promoting an ineffective and heavy-handed response. Several government and independent estimates of costs to the NHS because of overweight and obesity range from £5.1 billion to £6.1 billion; however, these estimates are not balanced cost-benefit analyses. The costs saved on pensions, healthcare, and other benefits from the 7.1% of early deaths attributable to overly high BMIs are calculated at £3.6 billion per year, which brings the net costs on the state of overweight and obesity down to £2.47 billion — 2.3% of the 2016/17 budget of the NHS. In conclusion, though, callous, “obesity prevention may be an important and cost-effective way of improving public health, but it is not a cure for increasing health expenditures.''
However, even if one believes that part of the state's role is to promote healthy lifestyles because of increased productivity and the overall wellbeing of its citizens, enforcement, ineffective promotion, and shaming are some of the least beneficial ways to do so. The current culture of fat-shaming and the acceptance of discrimination based on weight (in the legal definition) is actually counterproductive, as perceived weight discrimination is directly linked to increased levels of the stress hormone cortisol, which “may play a role in generating a vicious circle of weight gain and discrimination and contribute to obesity‐associated health conditions”. Instead of ineffective sugar taxes, the state should focus on education, especially about the importance of a healthy diet and exercise, while disconnecting it directly from weight. A review of 44 studies of school-based activity and health programmes found that while such programmes did not result in weight loss for children, they were correlated with improved athletic ability, a tripling in daily exercise, and a reduction of TV consumption of up to an hour. A much more effective approach would be a focus on education and ‘nudge policies’, metaphorical carrots which encourage - but don’t penalise or enforce - healthful behaviour. These policies include redesigning roads to make safe cycling lanes (cyclists now constitute up to 70% of traffic on some London roads during peak hours), providing free and/or easily accessible exercise classes, and healthier school meals. These policies actually do encourage healthier lifestyles, without an unsubstantiated focus on overweight or obesity. This is not a national health crisis burdening our healthcare system with billions more in preventable costs, and it is not easily solved by measures which infringe on individual freedom and are largely ineffective.
Melissa Owens is a research intern at the Adam Smith Institute.
Telford, the man who built bridges
It is often invigorating to read of high achievers who managed without the formal qualifications and training usually required. Such a man was Thomas Telford, born on August 9th, 1757. He built bridges - some 40 in Shropshire alone - yet at aged 14 it was to a stonemason he was apprenticed. He then worked in Portsmouth dockyard, and although untrained, was soon working on some of the major projects involving their design and management.
By the time he was 30 he was appointed Surveyor of Public Works in Shropshire. There is a telling anecdote that, when consulted by St Chad’s Church in Shrewsbury about their leaking roof, he warned them it could easily collapse. When it did so 3 days later, his reputation was enhanced.
Telford was just getting into his stride. He inspected Abraham Darby’s famous bridge at Ironbridge and thought he could do better. His own bridge, even though 30 foot wider in span, weighed only half as much. His most famous work is probably the Menai suspension bridge connecting Anglesey to the mainland. It was then the longest suspension bridge ever built, spanning 580 feet, and is regarded as a work of art, now listed as ‘Heritage.’
He constructed canals as well, notably the Ellesmere Canal and the Shrewsbury Canal. He did roads, too, including sections of the main Northern route from London to Holyhead. His friend, the Poet Laureate of the day, Robert Southey, dubbed him “The Colossus of Roads.” And he constructed the St Katharine Docks near Tower Bridge in London. He was elected the first President of the Institution of Civil Engineers, not bad for an unqualified lad from Scotland.
Such were the heady and exciting days of the early Industrial Revolution, that people could achieve great things if they had talent, ambition and determination. The Britain of the day fostered and rewarded such people, and had the courage to back them undertaking impressive things never done before. It was not conservative in the small “c” sense, but hungry for change that brought improvement.
It is very much a spirit that could be recaptured today. The planning laws that strangle development would have to be changed, as would the appeal procedures that allow a few obstinate opponents of change to tie things up for years in the courts. The tax system would need to be overhauled to allow people to gather the rewards of risk. Perhaps most of all, it would require a change in attitudes, one that would see people respect and admire giants like Telford, treating them as role models to inspire emulation, rather than trying to bring them down. It could all be done, and as the UK moves away from the bureaucracy that is Brussels, it might be done. All it would take is a country determined to make it happen.
There's a certain relation between different things here
We’re told that female entrepreneurs have it differently from male. The solution is, apparently, that more should be invested in the businesses of female entrepreneurs. However, there is a certain relationship being missed here:
Female entrepreneurs are more likely than men to take a salary cut when getting their own business off the ground, a survey has revealed.
The study found that women are more likely than their male counterparts to sacrifice their own income for the sake of getting a new business on a healthy footing.
It suggests that women are still struggling to attract investment into their firms and feel under more pressure to reinvest as much spare income as they have into the business.
The survey, by the small business investor Iwoca, also appears to show that women are less likely than men to sacrifice their family time when starting a company, suggesting they try harder than me to juggle their time in order to share it equally between work and their partner and children.
One possible - and reasonable, there is useful evidence on the point - explanation for this might be that more women start businesses in order to gain that greater family time. But let us leave such empiricism aside.
Concentrate upon the theory here. Starting a business isn’t easy and it requires significant investments of time. Those willing to invest less time in doing so gain access to less capital to do so. This is a surprise in what universe? Further, which reality requires a solution to it?
Francis Hutcheson, father of Scottish Enlightenment
The philosopher Francis Hutcheson is widely regarded as one of the early father figures of the Scottish Enlightenment, the blaze of talent and intellect that swept Scotland in the 18th and early 19th Centuries. He was born on August 8th, 1694, and died on the same day 50 years later. Although hugely influential in Scotland, where he made much of his career, he was in fact an Ulsterman, and was born there and died in Ireland.
Hutcheson was hugely influential on Adam Smith and David Hume, and other Enlightenment figures, many of whom attended his philosophy lectures in Glasgow, where he was the first professor to lecture in English instead of Latin.
He was not a systems-builder, like both Smith and Hume, but his influence can clearly be seen in their subsequent thought. Hutcheson himself was influenced by Locke, from whom he took much of his empirical approach. He thought that there were no ‘innate’ ideas, but that the five physical senses were the sources of the information that we processed.
However, he also listed six non-physical ‘senses,’ referring to things we felt, including consciousness itself and a sense of beauty. His third one he called a “public sense,” which is "a determination to be pleased with the happiness of others and to be uneasy at their misery." This immediately stands out as what Smith called “sympathy” (and we would call “empathy”), and which lies at the core of Smith’s “Theory of Moral Sentiments” (1759). This was the magisterial work of philosophy that made Smith famous many years before his “Wealth of Nations” was published in 1776.
The sixth of Hutcheson’s ‘senses’ was what he called “a sense of honour,” and it is that by which we seek to earn approval and to avoid blame. He said it is that "which makes the approbation or gratitude of others the necessary occasion of pleasure, and their dislike, condemnation or resentment of injuries done by us the occasion of that uneasy sensation called shame." Again, there is a clear thread running from that thought to Smith’s “impartial observer” that we construct in our minds to tell us how our behaviour will look to others.
Although Hutcheson published his essays anonymously, his authorship was widely known, and there were rumblings against him in the Church of Scotland. In 1738 the Glasgow presbytery challenged his belief that people can have a knowledge of good and evil without, and prior to, a knowledge of God. Hutcheson probably would not have faced the death penalty, since the last person to be so punished had been a 20-year-old student, Thomas Aikenhead, executed for heresy 43 years earlier, but he could have been sacked from his academic role had not influential friends supported him.
The Scottish Enlightenment was a remarkable phenomenon, which might have had its seeds in the 1707 Treaty of Union that gave Scots access to the British Empire and its economic possibilities. It might have been the defeat of the ‘15 and ’45 Jacobite rebellions that confirmed to Scots that they were not going back to a mediaeval world of kinship and kingship, but could embrace the new individualism that was sweeping the intelligentsia of Europe.
Wherever the roots of it might lie, Francis Hutcheson was one of the thinkers who laid its foundations and contributed to an intellectual heritage that is respected worldwide, and has greatly impacted upon modern thinking. Ironically, this tradition is one barely acknowledged, if it is at all, by Scotland’s current intellectual and political leaders.