Entirely true, yes, and?

That Donald Trump fixates on manufacturing as some symbol of the health of the economy is true. That he’s not expanded it is also true. The correct reaction being yes, entirely true, and?

The point being that the fixation itself is incorrect:

Manufacturing, a centerpiece of Mr. Trump’s promise to Make America Great Again, sits at its smallest share of GDP in 73 years of data.

This is used as a gotcha against Trump’s policies and actions. When the criticism should be of the concept itself. There is nothing special about manufacturing. It is not the foundation of all wealth creation, it is not something an economy must do in order to be able to do everything else.

Manufacturing is simply one manner of combining scarce economic resources to produce value. If we find that we’ve other combinations that produce more of that value then of course we should be running with those other combinations. Which is, indeed, what we’ve been doing this past 73 years. For this is not something specific or unique to America, it’s been happening in every rich country. Yea even in German - manufacturing is a higher portion of GDP than it is in the US or UK, certainly, but it’s also smaller than it was as a percentage of the German economy in the past.

Manufacturing as a percentage of GDP is falling in China for goodness sake.

Manufacturing as an economic sector just doesn’t have the importance currently assigned to it let alone that insisted upon by certain politicians from varied parties.

The British housing problem in a nutshell

Apparently there’s a thing called “garden grabbing”. Which is where people who have land a house can be built upon build a house upon that land. Tsk and don’t we just have to invent a phrase to condemn such behaviour?

With the recent changes in planning law announced more people are inquiring about how to do this. Which seems, neatly, to tell us that the recent announced changes in planning law are going to lead to more housing. Within this report there is this though:

The planning process is protracted and expensive, but if you can secure permission, the rewards could be big. Homeowners can increase the value of their land at least 10-fold by getting the green light to build on it, said Mr Bainbridge. “Say you had an acre paddock worth £10,000, if you got planning permission for one house, it could be worth £100,000.”

The same piece of land, with the same entire lack of utility connections, is worth ten times as much after the wave of a bureaucrat’s pen. Or, if we prefer, the absence of the wave of the bureaucrat’s pen deprives society as a whole of the creation of £90,000 in value. We would, therefore, all be richer if more bureaucrats would wave more pens. This being true even if enough waving is done for the price premium to entirely disappear. For at that point the value would still be being created, it would just be enjoyed as the consumer surplus - what people would be willing to pay but don’t have to - rather than being something that must be forked over. We, like all sensible economic types, thinking that increasing the consumer surplus is a jolly good idea indeed.

Or, of course, we could just get all medieval on that planning bureaucracy and return to a system where property actually is property and leave people to deploy their land as they see fit. It is this last which is our preferred end state although we agree that the occasional detail will need to be considered.

The heart of our point here being that the very existence of a rise in value upon the allocation of planning permissions shows us that there is something deeply wrong with the allocation of planning permission. Not enough is being allocated for why on Earth would we want a system that increases the costs of life via a bureaucratic permissioning system?

That planned economy nonsense again

As you may be aware we here are not grand fans of the idea of a planned economy. On the simple grounds that a planned economy never does provide what is the aim of any economy, that the people gain more of what the people want. By definition planning can only ever provide what the planners think the people might want or, as it actually turns out, what the planners insist the people should want. This inevitably leading to some pretty weird ideas of what should be wanted and what won’t be planned for as a result of an insistence that people shouldn’t want it.

The most recent example being the lockdown in Wales.

Wales lockdown: Supermarkets told to sell only essential items

Well, what is an “essential” item?

Supermarkets will be unable to sell items like clothes

Clothes are not essential items. In late autumn. In Wales. Well, doesn’t that just kill the idea of the omniscient planner?

Yes, we do grasp the point that there’s a pandemic on. We don’t agree with this idea of lockdown but we do indeed still get what it is that people are trying to do. It’s the system, how it is being decided, that we’re objecting to:

There is no precise list of non-essential goods in the law coming into force on Friday, but any business selling goods or services for sale or hire in a shop will have to close.

But there are exceptions for food retailers, newsagents, pharmacies and chemists, bicycle shops, petrol stations, car repair and MOT services, banks, laundrettes, post offices, pet shops and agricultural supplies shops.

Under the law firms conducting a business that provides a mixed set of services will be allowed to open if they cease conducting the service that must close.

The aim is to stop the swilling of the virus through the crowds of shoppers. Thus limit which shops may open in order to reduce the size of the crowds. Yes, we get it even as we disagree. But to then say that a shop which is open, which people can visit, may not sell what is there, on the shelves, is ludicrous.

But this is what we get when we have planners deciding for us. A specific and weird form of pepper, as a comestible, may be bought and or retailed. A pot to cook it in may not. And a child’s coat is entirely verboeten. In late autumn. In Wales.

The Welsh polity has always been at the forefront of socialism in the UK. As it is now in showing, again, why it doesn’t work.

A call for papers: recovering and prospering

The dawn of the 2020s has not gone as most had planned. We have, and continue to, face both an extraordinary and unprecedented predicament. While some foresaw the danger of pandemics, few could have predicted the abject failure of many governments and the seismic challenges that would eventuate.

Covid-19 has created immense new challenges like developing test and trace systems, producing equipment, medications and vaccines, and millions of newly unemployed. It has also accelerated existing issues from political disillusionment and division to questions about social media. 

The challenge in the years ahead will not simply be to return to the relative prosperity of December 2019, but to go much further in creating a more prosperous future. We are facing an extraordinary moment of opportunity yet anxiety, change yet yearning for certainty.  

For over forty years the Adam Smith Institute has been at the forefront of debates about the UK’s future. We have big plans for the 2020s. While the decades may change our mission remains the same: make the UK a freer and more prosperous union. 

At the centre of this challenge will be winning the war of ideas. This pandemic must not result in a closing in of society, a reduction in trade, an opposition to change, a rejection of new technologies. To recover and prosper we must be adaptive to new challenges and open to ideas and people.

That is why we are calling out for paper proposals on both ideas to address our immediate predicament (“Short, sharp Covid papers”) and broader issues (“General briefing papers”). There is a list of topics below that take our fancy. This list is by no means exhaustive. We are open to pitches on other topics.

If you would like to pitch please send us a few hundred words on the proposed topic, as well as a quick background on your interest and expertise in the area to: research@adamsmith.org. We can offer a nominal honorarium for papers that we publish.

Short, sharp Covid papers

In the first instance, we are interested in short briefings (of around 2,500 words) tackling very specific issues raised by Covid-19 that put forward narrow suggestions for how to improve our response. What can we learn from test and trace systems overseas? What simple regulatory changes could be made to allow society to better adapt? What is a simple yet effective tax change that could help businesses recover?

General briefing papers

Additionally, the following are a list of topics and questions that are of interest to the Adam Smith Institute, and we would be open to publishing 5,000-10,000 word policy briefing papers. If you are unfamiliar with our work, and  style of our writing (accessible yet rigorously academic), please see previous papers. 

• Red tape and regulation: What specific regulation holds back prosperity and opportunity? What is the cost of regulation to Britain's economy or a particular sector? Can we introduce new mechanisms and processes to reduce red tape (RegData, Sunsetting, One-in-two-out, Exclusionary clauses, Green Book treasury rules)? What regulations can be reformed after Brexit? What can we learn from the Trump Administration’s red tape cutting exercise?

• Tax reform: what is a key modification to the tax system that could, with the least revenue hit achieve the most additional investment? How should a broader tax system be structured?

• Fiscal responsibility: What is the impact on economic growth of more government spending? How can the Government get the national books back in order? What spending can be cut to ensure better intergenerational fairness (i.e. abolishing pension triple lock)? 

• Social mobility: What are key policies to ensure equal opportunity for every individual? What should be the focus (housing, education and skills, transfers, etc)?

• New technologies: Artificial intelligence and machine learning, driverless cars, air taxis, 5G, drones, OLED, robots, supersonic flight, hyperloop, blockchain, e-scooters, vertical farming, vertical aquaculture, lab grown meat. What are the potential benefits and what regulations need to be developed or red tape cut to ensure they can prosper?

• Market environmentalism: What are some pro-market policies that would help address climate change and broader conservation aims? How can we better use property rights? What’s holding back wider use of nuclear energy? 

• Education: Should we fund higher education using an equity stakes rather than debt model? How can we ensure free speech and diversity of ideas are produced throughout the education sector? Should we be adopting ‘micro schooling’?

• Free trade: How can we remake the case for free trade? Should Britain adopt an entirely tariff-free system policy? What should replace the common agricultural policy (CAP)?

• Bureaucracy: What has Covid taught us about the state of the British bureaucracy? How can we increase state capacity? 

• Decentralisation: What has Covid taught us about the state of localism in the United Kingdom? How can we effectively decentralise both powers and responsibilities (fiscal decentralization)?

• Infrastructure and project management: How can we ‘fix’ the civil service? How can we stop projects always being ‘over time, over budget’?

• Criminal justice: How can we be ‘tough’ and ‘smart’ on crime, both saving the taxpayer money and reducing criminal activity? What about drug policy reform?

• Nanny state: What impact do paternalistic policies have on the least fortunate? Do they actually achieve their goals?

• Urbanism: What is the future of cities? How can we ensure cities flourish after the disruption caused by Covid? What powers should be held by city governments and how should they be funded?

• Immigration: What is the economic impact of the loss of immigrants caused by Covid? How can we most effectively make the case for the movement of people?

• Internet: What are the threats to online freedom? How can we ensure free speech is protected? What is the impact of new regulations on online competition? 

• Aid, development and remittances: What has been the impact of Covid on remittances to the developing world and how does that compare to aid? How can we restructure domestic policies to help the world’s poorest (reducing tariffs and regulatory barriers to trade? Cutting remittances red tape?)?

Are “idealists” better than everyone else?

“One of the great mistakes is to judge policies and programmes by their intentions rather than by their results”, said Milton Friedman. The fact that someone claims noble, idealistic motives is often reason enough for them to receive recognition for what they do. Even critics of Greta Thunberg, for example, are quick to praise her “idealism.” Regardless of what her actions actually achieve, people tend to admire her idealism. In contrast, people with a “materialistic” attitude are branded as superficial and anyone who strives for fame is swiftly labeled a pathological narcissist.

The German literary critic Marcel Reich-Ranicki takes a very different view: “Respectable people work in pursuit of glory and money. Indecent people want to change the world and save others.” Of course he is exaggerating and a host of counter-examples immediately spring to mind: Jesus Christ and Albert Schweitzer are among the countless idealists who have changed the world for the better, while innumerable power-hungry and corrupt dictators have been responsible for much suffering and misfortune.

Nevertheless, Reich-Ranicki has got one thing right: The multitude of idealists who wanted to improve the world and redeem people – and in doing so delivered immeasurable suffering – is long and includes mass murderers such as Adolf Hitler and Mao Zedong, along with fanatical cult leaders and the fighters and followers of IS. 

In his speeches, Adolf Hitler railed against the bourgeoisie, accusing them of materialism and a lack of idealism. Hitler wanted to build his party as a fanatical fighting force of idealists. “Anyone who today fights on our side,” he proclaimed in a speech to SA fighters in 1922, “should not expect to win great laurels; far less can he win great material goods – it is more likely that he will end up in jail. What we need today is a leader who is an idealist, if only because he must lead those against whom it would seem everything has conspired. But therein lies the immeasurable source of our strength.” Hitler didn’t attract the support of large sections of the German population in the years 1929 to 1932 by proclaiming anti-Semitic slogans, but because he advocated a social utopia, the Volksgemeinschaft, that would break down elitism and unite Germans across class divides. In this case as so often throughout history, idealism led to dictatorship and the formation of a murderous regime. 

On the other hand, however, there are hundreds, if not thousands, of examples of entrepreneurs whose “materialistic” pursuit of profit has significantly improved people’s lives. Thanks largely to Sam Walton, the Waltons became the richest family in the world. And he became rich by establishing a chain of stores, Walmart, that has served millions of people by offering high-quality produce at reasonable prices. Just take a glance at the list of the richest people in the world and you will quickly see that most became rich as entrepreneurs and innovators who invented new products and services that improved the lives of people all around the world. This is true for the Microsoft founder Bill Gates, Amazon’s Jeff Bezos and the Google founders Larry Page and Sergei Brin.

Steve Jobs is probably an exception among entrepreneurs because he deliberately marketed himself as a world-changer – which he undoubtedly was. He recognised that by appealing to higher values and ideals he could inspire his employees to excel and turn consumers into disciples. He styled the rivalry between Apple and IBM as a battle between “good” and “evil.” Accordingly, only Apple could possibly prevent IBM from dominating the computer market and creating the dark age envisioned by George Orwell in his dystopian novel 1984. 

The founder of Microsoft, Bill Gates, ended up as one of Jobs’ fiercest rivals, although they did collaborate closely for a number of years. Gates once observed, “Steve was in ultimate pied piper mode, proclaiming how the Mac will change the world and overworking people like mad, with incredible tensions and complex personal relationships.” Jobs uttered one of his most famous sentences in 1983 when he succeeded in convincing John Sculley, president of Pepsi-Cola, to become Apple’s new CEO: “Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?” He convinced another early employee to come to Apple with these words: “We are inventing the future. Think about surfing the front edge of a wave. It’s really exhilarating. Now think about dog-paddling at the tail end of that wave. It wouldn’t be anywhere near as much fun. Come down here and make a dent in the universe.” These are the kinds of words you would expect from a guru rather than a corporate leader. In fact, “make a dent in the universe” became one of Jobs’ go-to formulations. Another employee reported that Jobs repeatedly rallied his employees with sentences like these: “Let’s make a dent in the universe.” “We’ll make it so important that it will make a dent in the universe.”

Most entrepreneurs change the world without ever making such a big fuss about it. And perhaps a number of them really are “only” driven by the pursuit of profit. But in their pursuit of profit they create more benefits for the world at large than many “idealists” who set out to save people and make the world a better place. As Adam Smith observed in The Wealth of Nations: “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”

Rainer Zitelmann is a historian, sociologist and author of the book The Power of Capitalism. https://the-power-of-capitalism.com/

It's really important to understand value

This is from the Ellen MacArthur Foundation but it’s a common enough error out there. Common and pernicious:

The textiles system operates in an almost completely linear way: large amounts of non-renewable resources are extracted to produce clothes that are often used for only a short time, after which the materials are mostly sent to landfill or incinerated. More than USD 500 billion of value is lost every year due to clothing underutilisation and the lack of recycling.

This is nonsense. There is that foolishness about non-renewable resources of course. Cotton, flax, wool, silk, they’re all things that grow and so are renewable. As for the oil derived plastics the current complaint is that we’ve more of that raw material than we can allow ourselves to use. If we’re going to talk about water and the like then we’ve a rather large recycling system out there composed of oceans and clouds.

But the gross error is about value. The only useful measure of value we’ve got is what we humans value things at. For there are only us humans around to be doing the valuing. Such human valuations are also entirely the liberty of the individual doing the valuing. We might, say, value Geoff Hurst’s second half ‘66 shirt rather more than a pair of used khaki BVDs after a Ten Tors challenge completion. Same amount of cotton thread in there perhaps, amount of labour, resources consumed, but humans can be odd that way.

People “underuse” their clothes by whose calculation that is? Given that the only possible proper valuation is according to the precepts of those doing the using - rather than some tongue clucking observer - that the clothes are used exactly as much as they are is proof that they are not underused.

Further, if value were gained - or even not lost - by recycling then more recycling would be done. As with Ferraris not appearing on scrap heaps and Yugos doing so.

The very concept of the $500 billion is wrong. Which does rather mean that we shouldn’t be using it as an input into any decision making process we might impose upon society.

London has low damages from air pollution

The Guardian is, strictly, correct here:

The health costs of air pollution from roads are higher in London than any other city in Europe, a study has found.

Two other urban areas in the UK, Manchester and the West Midlands, have the 15th and 19th highest costs respectively among the 432 European cities analysed.

The Guardian is also being horribly misleading even as they are that, strictly, correct. For they are telling us the gross amount of damage to human beings from that air pollution. Which, given that London is, by far (between two and three times larger than the next on the list studied, Berlin) the largest group of people being looked at seems reasonable, that it should be so. Even if the damage were 1 penny per person per year London would still be top of the list of shame of gross damage.

It is rather later in their reporting that we get told this:

City size, combined with pollution level, is a key factor contributing to total social costs.

London, on a per capita basis, doesn’t even make the top 10. Actually, London is about half the per capita cost of those top 10 - roughly, you understand.

A useful example of selective reporting leading to being entirely misleading. But then one has to read The Guardian extremely closely to find something not so these days….

This does rather kill the idea of a planned and scientific socialism

As the incurable optimists that we are a bulletin from that pursuit of the silver lining to the current cloud. This is from Zoe Williams in The Guardian:

In order to follow strict rules, people need to believe they will make a difference: a drop in cases is not enough. If no progress is made during the lull, it feels like an outcome postponed rather than averted. In areas over which the government has the least purview there has been progress: treatment for the virus in a hospital setting has improved; death rates have gone down. Yet the government has nothing to show for the time we bought it. Indeed, every week since March has brought some new instalment of their inadequacy. When it’s not a calamity directly related to the virus – million-dollar consultants selling mixed messages, PPE procurement from amateur chums – it’s an A-level fiasco, or a university debacle. Deferred gratification is something most of us, at our most responsible, can comprehend, but it presupposes some future that is indeed gratifying. When tomorrow simply looks like a worse version of today – and the spectre of a no-deal Brexit doesn’t help, here – why kick the can down that road?

Leave aside the specific subject the complaint is about and consider the wider implication here. In order to agree to be subject to detailed rules we have to believe that those creating and imposing them are competent. As, obviously, is true of such rules being effective - there must be competence in their creation.

We’ve now that experience of detailed rules created by the British state and doesn’t that just kill any idea of a planned and scientific socialism?

Given what’s been happening we’re going to put these people in charge of the bread supply? Get them to run the coal mines and bus companies again? Decide who may build what, where?

This is not specific to the specific party in power either. Decades of our experience of Whitehall and Westminster tells us that competence is in equally short supply either side of the dispatch box. No, we’ve met a lot of these people and our insistence on less political direction of the real world is based upon such experience.

Perhaps this is something we should hope for rather than insist upon but the correct victim of current events is that ridiculous idea that the Man in Whitehall knows best.

Consumption is the point and purpose of all production

What matters in an economy is that consumers gain more of what consumers want. How those desires are met is, at very best, a minor and secondary question. So this is not something to worry about:

Shop closures soared at a record rate in the first half of the year as coronavirus lockdowns hit the high street.

Britain lost 6,001 more chain stores than it gained in the first half, up from a loss of 3,509 in the same period last year, a study by PWC, the professional services firm, found.

The pandemic has laid waste to high streets, costing thousands of jobs in the process.

Well, it could be something to worry about if shoppers still desired the services of those shops. However:

Although the retail sector rebounded after the spring lockdown

Retail sales are up year on year. That is, consumers are gaining what they want from the wider retail system, the services of the retail system. So, in the grander terms, we have no problem at all.

Sure, change is uncomfortable, transitions can be painful for those being transitioned and so on. So to the extent that we have a problem it is one of easing this passage from one method of sating consumer desires to another. That is, we don’t want to go about saving, supporting or subsidising the old way but we might well want to support people through the transition.

To be plain about it, if people don’t want physical shops any more then bye bye physical shops. For the only point of any form of production is to enable consumption and if we’ve a new and more desired method of gaining that consumption then the old production system can go hang.

Once again with the reasoning from manipulated prices

Prices are, of course, information. Information necessary to any decision about what to do next. However, as we’ve mentioned before, using a manipulated price doesn’t provide the information necessary. Because, of course, the price is false and so is the information by the amount of the manipulation:

Looking forward, the signals are not of recovery, but relapse, and it is not clear that the same old central-bank magic will make much of a difference. Inflation is sinking like a stone as consumers rein in their spending again. Annual prices in the eurozone fell by 0.3% in September following a 0.2% decline in August, according to figures last week. Consumer price inflation in the UK dropped to 0.2% in August, meaning prices barely rose.

Therefore, goes the logic used, we should have negative interest rates.

Our point here is not to argue either in favour of, nor against, negative interest rates - not here at least. Rather, the link to the UK CPI was this:

Falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution (0.44 percentage points) to the change in the CPIH 12-month inflation rate between July and August 2020.

We’ve had a specific and known manipulation of the inflation rate, one that lasted for one month at most. This is not a price from which we can gain useful information about what to do with the whole economy for the next few years.

Precisely because market prices are information we have to make sure that it is actually market prices, not manipulated ones, that we use as our inputs into the decision making process.