Britain's Drug Death Disgrace

Today saw the release of the latest ONS data on drug-related deaths in England and Wales. The figures, which are for 2019, are grim yet unsurprising. As Release points out in their press release, “The rate of death relating to drug misuse in England and Wales in 2019 was 50.4 deaths per million people. 2019 is now the year with the highest number of registered drug poisoning deaths since records began.”

Opiate deaths fell slightly, but cocaine-related deaths continued their dramatic rise (11% more compared to 2018). Regional variation in death rates remains a key theme in the data, with the North East facing a significantly higher rate than the national average.

All of this will continue unless politicians recognise that our drug policy is an abject failure. They continue to block sanctioned trials of drug consumption rooms, leaving heroes like Peter Krykant desperately trying to fill in the gaps in Glasgow. They underfund treatment services and devote scarce little time to drug education in schools. And they refuse to rethink the flawed idea at the heart of UK drug policy—that the criminal justice system is best placed to address the root causes of problem drug use. 

Yesterday evening I hosted a webinar with three drug policy experts where we discussed what could be done to stop drug deaths in detail. You can catch up on that in full below:

It's an increase in the supply of child labour

It’s rather worrying when a major newspaper can’t quite grasp a very basic economic distinction. An increase in supply is different from an increase in demand.

Covid-19 prompts 'enormous rise' in demand for cheap child labour in India

No. What the article itself goes on to describe is a rise in the supply of cheap child labour in India as a result of the coronavirus:

Before the coronavirus pandemic, Kumar had been enrolled in grade four at the school in his small district of Gaya in the impoverished Indian state of Bihar. But when Covid-19 hit and the country went into lockdown, the school gates shut across India and have not opened since. With his parents, both daily wage labourers, unable to make money and put food on the table, last month Kumar was sent out to find work.

“During lockdown, my parents had no jobs, and after lockdown, my parents had no money to arrange food for us,” said Kumar, the eldest of seven. “My entire family somehow survived on one meagre meal. Most of the time, I either slept with a half or completely empty stomach. So, I joined a group going out for work. I thought, ‘If I work, I will get money and at least eat good food.’” His home district of Gaya is now thought to have around 80,000 children working as labourers.

As one of us has explained elsewhere in the past. In a truly subsistence economy then a hit to incomes will lead to more children being sent out to work. Simply because that is the alternative to starvation for some or all of the family. It might be that the child brings in money to feed siblings, or even just that the child itself - and its food bill - is off the strained family budget.

This is not mere pedantry. Getting this the right way around is important. Knowing the cause enables us to craft policy which will deal with what we all agree is undesirable. It isn’t some rise in the capitalist hunger for cheap labour that is the driving force here. It’s the inability to feed the children if they go to school, not work.

The solution is to feed the children at school of course. As charities like Mary’s Meals do. The feeding of the child is lifted off the family budget, the child is fed, the child is not working and is in school.

No, this isn’t the same as breakfast clubs and Marcus Rashford. Feeding British children more at school might be a good idea, might not be, but it’s entirely a different set of circumstances from those out there who will starve if they don’t give up education for a working life.

Berlin and the Road to Socialism

Just over 30 years after the collapse of socialism and the end of the communist dictatorships in the Soviet Union and East Germany, socialism is rearing its head once again. For decades, Berlin stood as a symbol of freedom in the fight against totalitarianism. On September 9, 1948, the then Mayor of Berlin Ernst Reuter stood in front of the ruined Reichstag building and issued an emotional appeal: “People of the world, people in America, in England, in France, in Italy: Look upon this city and see that you should not, indeed you cannot, abandon this city and its people!”

Today, freedom in Berlin is once again under threat. For years now, the same party that ruled the communist German Democratic Republic has been in power as a coalition partner in the German capital’s government. Back when Germany was a divided land, the ruling communist party was known as the SED. In its modern guise, the party is now known as DIE LINKE and governs Berlin with two other left-wing parties, the SPD and the Greens. 

While a post-World War II anti-totalitarian consensus in West Germany was directed equally against National Socialism and Communism, the Communists in the East established what they called an “anti-fascist democratic order.” This is the same goal pursued by DIE LINKE in Berlin, and it is coming ever closer to fruition.

Abolition of freedom of assembly?

It was only a few weeks ago that authorities banned a demonstration in the German capital against Covid-19 curbs and Berlin’s Senator for the Interior Andreas Geisel (also a former SED comrade, now an SPD member) declared that he was “not prepared to stand by and watch for a second time as Berlin is misused as a stage for corona deniers, Reichsbürger and right-wing extremists.” As the renowned Neue Zürcher Zeitung commented at the time: “The term scandal is used far too easily and far too frequently nowadays. But Geisel’s words are indeed scandalous. They raise serious doubts about the extent to which Berlin’s red-red-green Senate is committed to upholding the country’s constitution. And they feed the suspicion that the fight against the pandemic is being abused to silence unpopular opinion.” A Berlin court ruled against the ban and the demonstration was allowed after all.

Defeated by the courts, Berlin’s Senate has decided to implement a second, even more decisive measure. Berlin’s left-wing government has now announced a new “Freedom of Assembly Act,” which should make it easier to ban “racist” and “right-wing extremist” demonstrations. The renowned daily newspaper Die Welt explains: “This is a de facto special provision of the law and it is being used against right-wing extremists. Of course, no one wants to see right-wing extremist protestors marching through Berlin, but that is not the point here. This is about whether the government of Berlin should hold the power to legally determine which causes citizens may demonstrate about and which causes are banned.” 

In stark contrast, Berlin’s government exhibits unlimited tolerance toward left-wing extremists. The well-known German television magazine Kontraste recently ran a shocking report about two apartment buildings occupied by left-wing extremists: “Rigaer Strasse in the heart of the German capital has long been a hotspot of left-wing extremist violence. In the past one and a half years alone, 346 criminal offences have been committed here. Neighbours living around the two occupied houses openly complain about being harassed. Internal documents show that the left-wing radicals have long since created a lawless zone, overriding the state’s monopoly on the right to use or authorise the use of physical force. Out of misguided political consideration, Berlin’s red-red-green Senate avoids the problem, leaving homeowners and police to fend for themselves.”

Abolition of the market economy

Berlin’s left-wing government has also implemented rent cap legislation that not only prohibits landlords from raising rents at any point over the next five years, it also forces them to actually reduce legally binding in-place rents. In essence, this is equivalent to partial expropriation. And according to the German constitution, no federal state has the right to pass this kind of legislation, since the legislative competence in tenancy law clearly resides with the federal government. But such constitutional considerations do not seem to bother Berlin’s left-wing Senate. Nevertheless, given the fact that the law so clearly violates the German constitution, the Federal parliamentary factions of the CDU/CSU and the FDP have filed suit with the highest German court, the Federal Constitutional Court, on grounds of the law’s unconstitutionality. Incidentally, the “rent cap” is not a new idea. An earlier rent freeze was approved in Germany on April 20, 1936 as a gift from the National Socialist Party to the citizens of Germany on Adolf Hitler’s 47th birthday. The National Socialist’s rent cap was adopted into the GDR’s socialist law by Price Regulation No. 415 of May 6, 1955 – and remained in force until the demise of communist East Germany in 1989.

For DIE LINKE and elements of the Green Party, two of the capital’s three governing parties, the “rent cap” is merely an intermediate step on the path to full expropriation. The two parties have previously declared their support for a “grass roots” initiative that is campaigning for a referendum to expropriate all real estate companies that own more than 3,000 apartments in Berlin. The left-wing daily newspaper taz is already delighted at the prospect of the referendum. The banner headline above a recent article on the referendum campaign declared: “Make Way For Socialism.”

The Senate has also recently unveiled a new marketing campaign for the city. The city’s new slogan, “From I to We!,” is identical to the slogan used in the communist GDR to justify the forced collectivisation of agriculture. Incidentally, the slogan used by the Nazi party’s youth organization (the Hitler Youth) was similar: “You are nothing, your people everything.”

Rainer Zitelmann holds doctorates in history and sociology and is the author of over 20 books including The Power of Capitalism - A Journey Through Recent History Across Five Continents (http://the-power-of-capitalism.com) and The Rich in Public Opinion : What We Think When We Think About Wealth (https://therichinpublicopinion.com) which has recently been published by the Cato Institute.

Boasting of how expensive it is seems a strange tactic

Economics concepts can get a little mangled when they meet the imperatives of public relations and propaganda campaigns. As here:

Australia could unlock an investment boom of $63bn over the next five years if it aligns its climate policies with a target of net zero emissions by 2050, according to new economic modelling.

The analysis, by the Investor Group on Climate Change (IGCC), finds the investment opportunity created by an orderly transition to a net zero emissions economy would reach hundreds of billions of dollars by 2050 across sectors including renewable energy, manufacturing, carbon sequestration and transport.

However, if the country keeps to its current targets and climate policies, investment worth $43bn would be lost over the next five years, growing to $250bn by 2050.

We’re encouraged to like investment, to think of it as a good thing. Which it indeed can be. That delay of current consumption into building to make the future richer can indeed be a good thing as it raises future living standards at the cost of current ones.

However, this all too often slips over into the idea that all investment is good simply because it’s investment, innit? This is how rises in public sector pay are justified as “investment in public services” when they’re actually just buying the votes of the captive workforce.

This current claim is a lovely example of the genre. For that claim is that if we follow these plans then there will be hundreds of billions that cannot be spent on ourselves right now. Nor can those hundreds of billions be spent upon other possible investments like curing cancer, getting back to the Moon or solving Simon Cowell. The boasting is therefore of the cost to us of these plans and we’re expected to sign up precisely because of what else we’ll lose as a result of travelling this path.

Odd. Of course, it has been tried before and it did work too. But we tend to think that advertising beer is rather different from determining public policy. We don’t think that “Reassuringly expensive” is the correct manner of choosing what to do with societal assets strange as that may seem.

Auctions are awesome: congratulations to Paul Milgrom and Robert Wilson

This Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2020 has been awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats”.

They are worthy recipients of the highest honour in economics. It is, as is often noted, not actually a Nobel Prize and was critiqued by Hayek in his acceptance speech for bestowing authority above station (see Paul Krugman). Nevertheless, Milgrom and Wilson show how theoretical insights in economics can deliver immense human benefit. Auctions have ancient roots, but their ideas provided new insights and applications.

Wilson developed a bidding model for perfect competition. He argued that in a closed auction (in which other bidders cannot see each other’s bids) the highest bid will be equal to the true value. This reveals the common value, leading to a mutually beneficial equilibrium outcome without requiring sharing of information in advance between seller and buyers (as is often the case to resolve game theory problems).

The bidding process extracts the information unknowable in advance to the seller. “Thus, no bidder knows the true value of the item, yet it is essentially certain the seller will receive that value as the sale price,” Wilson writes. This supports the idea that a sale price conveys the relevant information, that sale price is equal to the value of the product, and that prices are meaningful in a competitive market.

On the other hand, Milgrom theorised that auctions not only allow the revealing of a common value but also differing private values between bidders. By analysing various bidding strategies across auction formats, Milgrom concluded that revenues are higher when bidders can learn about each other’s bids.

Milgrom and Wilson didn’t just write the theory, they helped engineer new action formats. They worked with governments to develop new, multi-stage auctions that, by increasing information flows, created pressure to maximise the value of public assets.

Milgrom and Wilson’s ideas were first used by US authorities in 1994 to develop an auction format to sell radio frequencies in a “simultaneous ascending auction”. This model was copied by the UK Government in 2000 to auction the 3G mobile phone spectrum. They used multiple secret rounds, in which a bidder had to be active in each round, either holding their bid or raising the bid by at least the minimum increase. Only after each round were the bids revealed. There were 150 rounds over a six-week period. Bidding closed when there were no new bids on any licence. The sale raised £22.5 billion, four and a half times more than was anticipated, and up until that point, “the biggest auction ever”. At the time it was 2.5% of GDP for “selling air” and enough to build 400 new hospitals. (Spectrum subsequently divided in price: the 5G auction in 2018 raised “just” £1.4 billion.)

Learning from this experience, the Adam Smith Institute has long argued that auctions could have even wider applications. We have called for auctions for work visas after Brexit, airport take off and landing slots as well as low-altitude airspace for air taxies and autonomous freight drones, reverse auctions for train subsidies, privatising state-owned companies, and rezoned property to raise money for infrastructure and compensation.

The alternative to auctions are ‘top-down’ administrative processes, in which government bureaucrats – who lack information about the respective uses – specify arbitrary criteria and opaquely select a winner. These processes are not only less efficient but can also be corrupt and do not raise revenue.

For example, if we choose to allocate radio spectrum by an administrative process, who would decide whether Three or Vodafone deserve a certain frequency? Or perhaps a radio or television service? How do we know whether companies are being truthful about how much they value the frequency? What would be the influence of lobbyists from the respective companies? 

Auctions are a sensible tool when there are multiple potential uses of a scarce resource. Actions reveal value and ensure an efficient allocation: whoever is willing to bid the highest in an action are showing they would get the most value relative to the other potential users.

Thanks to Milgrom and Wilson we now understand this all quite a bit better.

Do we really want Santa Claus managing the NHS?

The Cabinet Office categorises NHS England as an “Executive Non-departmental Public Body”. In other words, it is not part of the Department of Health and Social Care (DHSC) but it is part of government.  It is independent and not independent at the same time: it is a quango. But it gets better. The IT, legal and HR functions, which all other CEOs of large organisations would expect to be under their control, are separate executive agencies of the DHSC. NHS Improvement is tasked with running the NHS alongside the Board of the NHS. In April 2019, they were brought under one roof but still with one Board each. The foundation of the country’s health care, the GPs, are contractors to, not employed by, the NHS.  

The CEO of NHS England has probably the toughest job in the country. NHS England, with more than ten times the number of employees it started with, or employed by any other UK organisation, is simply too big. The NHS is the fifth biggest employer in the world. This CEO, Sir Simon Stevens, is beset by 2,163 politicians and civil servants in the DHSC, its arm’s length bodies and every member of the House of Commons. And that is not counting all the local politicians and bureaucrats on hospital trust committees, “integrated care systems” and “primary care networks” (PCNs). The BMA, being itself a bureaucracy, is keen on these things but a survey it published earlier this year showed that about half the GPs reported that sitting on PCN committees reduced their ability to provide primary care. Now there’s a surprise.  

The oddly named Norfolk and Norwich University Hospitals (NNUH) Trust has 10 governance boards and an untold number of committees. There is no Norfolk, or Norfolk and Norwich, University; the only Norwich University is an arts college. When I was in the NNUH for two weeks, with nothing much to do except watch the nurses, they seemed to spend more time tending their computer terminals than their patients. I asked why and was told (a) it was none of my business and (b) they were too busy with their computers to talk with me.  The then Trust CEO was a friend of mine so I asked her what they were doing.  She said she had no idea; she was too busy with committees to know things like that, still less walk round her hospital and to see it through the eyes of patients. 

Some politically inspired NHS initiatives have been helpful, but the number of such re-organisations has not. The Health Secretary may or may not be in charge of NHS England but is a professional politician, with little if any managerial or health provision experience, more suited to running the largest employer in the land than a seasoned executive with long experience in both? On March 16, Matt Hancock announced that 30,000 patients were to be immediately discharged from hospital beds. The extent to which Sir Simon Stevens was involved in that decision is not known, but what is certain is that the care home sector was not consulted. This exodus was largely responsible for taking Covid 19 into care homes. 

Confusion over, and excessive, governance lies at the heart of the long-term under-performance of the NHS.  Its response to Covid this year, however, has been brilliant.  Many have noted that this was due to the dedication of the front line and their just doing things that would usually have taken months for approval.

The confusion comes ultimately from classifying the NHS as a quango, neither run by politicians nor run by those qualified to do so.  It should be one or the other, an executive agency or a public corporation, not supposedly independent with politicians and bureaucrats meddling.  Thank God the GPs are independent; the rest of the front line are professionals and they too should be as independent as possible, with the senior ranks providing the resources and light touch leadership.  A hospital should have one management board, not ten. Healthcare in Britain in the 1930s worked quite well apart from most of the population not being able to afford it.  Aneurin Bevan cured that but he saw his NHS as a public service, not an instrument of government. 

The NHS, like the Bank of England, should be a public corporation, not a quango.  Of course the government must agree the long term plan and annual budgets.  Of course, it should set the key objectives, i.e. what NHS should achieve, and of course it should top the funds up in times of crisis.  But that does not mean that politicians and bureaucrats, national or local, should interfere.  Define the “what” by all means but not the “how”.  And that should allow the staff numbers in the DHSC to halve, releasing funds for the health and social care front line. 

Politicians will be reluctant to agree to this because they like playing Santa Claus.  Party political game-playing requires headlines announcing dollops of cash for this or that praiseworthy purpose.  October 9th saw three such announcements: “Over £400 million pledged to remove dormitories from mental health facilities”, “How GP practices in England can access the extra stock of flu vaccines this winter that the government has secured”, and, in case we missed the point, “Guidance has been issued to GPs in England setting out how they can order more flu vaccines to ensure 30 million people can receive the jab this flu season.” According to the last of those press releases, over half the population of England are “65s and over, pregnant women and those with pre-existing conditions, as well as frontline health and social care workers”. The administration of the jab I was given last week looked nothing like the photo on the press release but then, this is the world of make-believe. 

All these releases come from the DHSC, not the NHS, because Santa Claus would have us believe that every day is Christmas.

You can't use a manipulated price to judge prices

It’s Scott Sumner who tells us to never reason from a price change. To which we’d add the corollary that we should never use a manipulated price to tell us about prices. Thus we cannot take the current price of money to be indicative of the non-manipulated price of money currently:

Their concerns were twofold. First, the amount of money sloshing around the global financial system then was scarce and therefore came at a high cost. Second, former and declining colonial powers don’t have the productive engine of entrepreneurs and skilled workers that allow an economy to power its way out of a crisis.

The first of these concerns has evaporated. Seventy years of accumulated post-war savings, whether stashed in western pension funds or the sovereign wealth funds of oil-rich nations, means that the price of borrowing has fallen to almost zero.

No, we can’t do that. The point of quantitative easing is to lower the price of money. We’ve rather a lot of QE at present, perhaps $12 trillion of it and that might well be a significant underestimate when we add the 2008 and following amount to the Covid.

We can indeed say that pensions savings have lowered the cost of money over the decades. We can even say that the current low cost of money is a good time to be borrowing. But what we cannot say is that the current price of money is a market price from which we can derive useful information about market prices.

All central banks have deliberately and with malice aforethought gone out to distort and manipulate the price of money in recent years. That price cannot thus be regarded as a market one conveying market information to us.

Stop doing this, everyone, the post-QE interest rate is not the correct market price of money.

It's because, not despite

Correcting Guardian headlines is one of those participatory sports that we think more people should take up:

Tesco defends £315m dividend plan despite business rates holiday

The actual claim being made is that the dividend is because of the rates holiday, not despite it:

Tesco has defended plans to pay a £315m dividend to shareholders at a time when the supermarket chain is benefiting from a business rates holiday worth £249m.

Of course, if we were to spend the time necessary to correct all of that newspaper’s mistakes we’d never have time for anything else. But the argument even as corrected has its mistakes:

Positive Money, a campaign group, criticised the Tesco move. Fran Boait, its chief executive, said: “There needs to be conditions to ensure that any company receiving public support in a time of crisis isn’t wasting money on paying out dividends to wealthy shareholders.”

The New Economics Foundation think tank said the money from business rates was used by local government to fund the vital local infrastructure needed for Tesco stores to function, such as refuse collection and the bus services that workers use to get to work.

“For Tesco to accept this relief, and then be able to turn around and pass the benefit straight on to shareholders, shows that the system is not fit for purpose – public funds should not be captured as private profit,” said senior economist Sarah Arnold.

Some snark is due over Positive Money there for they’re grand proponents of Modern Monetary Theory. Which insists that tax doesn’t in fact fund public spending, the government creates the money the economy requires by printing and spending it. An interesting implication of this being that if we’ve no inflation then government shouldn’t be taxing. We’ve not, they shouldn’t so stop bleating.

The more pernicious concept is embedded in NEF’s comment. Tesco is the product of over (just, by a year) a century of investment. A continual exploration of how to do retailing, of the expansion of logistics chains, of the management of supply. Those owners have delayed gratification, by continuing their holdings even if more money was only occasionally poured in, for that century. So, when we actually need experts in logistics, supply, when a pandemic closes most of the British economy and yet the population is still fed, watered and even bottom wiped, when we need the system it has taken a century to build, we’re to whine about the existence of the system that provides what we so desire?

We’re to insist that no reward should happen for that century of work?

Presumably the NEF thinks the system should be replaced with something more short term than capitalist free markets. But then there is a reason that Giles Wilkes insisted that the true meaning of the acronym is Not Economics Frankly.

Huzzah!

There is at least the hint of a suggestion that we’ll gain the single obvious and logical climate change policy:

Rishi Sunak is examining proposals for a UK-wide carbon tax that could raise billions of pounds while encouraging the drive towards net-zero emissions.

The chancellor is seeking to replace existing EU carbon-reduction schemes with the new tax when the transition period finishes at the end of the year.

Treasury officials are also looking at longer-term proposals to extend the tax to other areas including domestic gas and agriculture, which could raise more than £25 billion by 2030, supporters say.

The idea - whether climate change is happening or not, whether something needs to be done about it or not - that nothing is going to be done about climate change is clearly beaten into a pulp. It’s simply not going to survive in the current politics. Thus the argument is over what is to be done rather than whether.

As William Nordhaus gained his Nobel for saying, as Nick Stern his peerage with the eponymous Review, as more than 90% of economist asked insist, the effective and efficient solution is a carbon tax at the social cost of emissions.

Around £25 billion is around right for the UK too. Take emissions levels, several hundred million tonnes CO2-e per year, multiply by $80 per tonne, convert to sterling and yes, around the £25 billion mark, that’s close enough for government work.

Each economic actor now bears, in the prices they face, those formerly external to markets emissions costs. We thus gain the optimal level of emissions. That is, this one tax and we’re done, finished, all we’ve got to do then is wait for the economy as a whole to chew through the changed incentives.

There are those who disagree:

However, the move has alarmed some environmental groups

Well, yes, clearly, for it will end the orgy of cronyism which is current climate policy. For the carbon tax is a one stop shop. Once instituted we get rid of everything else. Repeal the Climate Change Act, abolish the Climate Change Committee. If fracking makes sense when paying a carbon tax then we should have fracking - if green hydrogen then ditto. We also cease all subsidy, feed in tariff and planning partiality for solar, wind, hydro, tidal and the rest. The entire load of providing the correct incentives is now on market prices, as adjusted by that carbon tax. We even stop wibbling about insulating every house in the country - if more expensive fuel, incorporating all costs, doesn’t incentivise then it shouldn’t be done anyway.

Our view here is that given all that can be abolished by having that one correct policy of the carbon tax it’ll all end up being markedly cheaper this way. Especially as the literature recommendation is for a revenue neutral tax, meaning other taxes should fall by that same £25 billion.

That the associated parts, the abolitions and the reduced other taxes might not be quite what Mr. Sunak is actually proposing is all the more reason to hold feet to fire.

The Glorious Victory of Bolivarian Socialism

Venezuela, under Chavez and then Maduro, has certainly tried to impose a non-market form of socialism on that unhappy country. Leading to a destruction of wealth to rival, perhaps even beat, the idiocies in Zimbabwe over much the same period.

Both places have also employed the essence of modern monetary theory in the course of their economic actions. Print money for the government to spend and don’t worry over that pesky idea that possibly there should be some connection, just some relationship at all, between tax revenue and that spending.

It’s even possible to claim, as some do, that there’s nothing wrong with either theory or course of action, it’s just it was all implemented by know nothings, by idiots:

Venezuela plans to launch the biggest-denomination note in its history, but owing to delays in printing and hyperinflation it will be worth less than 18p by the time it enters circulation.

The value of the bolivar has collapsed after years of economic mismanagement and even beggars on the streets of Caracas refuse to accept the lower-denomination notes.

The central bank took delivery of 71 tons of security paper from an Italian printing company this year in preparation for the issuing of a 100,000 bolivar note, according to Bloomberg.

Since 2007, eight zeroes have been removed from the currency to make accountancy simpler and avoid the humiliation of having to issue multimillion, or even multibillion, bolivar notes.

Inflation is running at about 2,400 per cent, down from its high of over 2 million per cent in early 2019. The minimum wage, once a boast of the government, is now the lowest in the world. Including all “bonuses”, it is equivalent to £1.40 a month.

Of course our socialism, our modern monetary theory, would be implemented by clever people.

So, that’s alright then.