This is the way economic recoveries happen
Covid lockdowns have caused more than a few businesses to crumble - airlines among them. So, what will happen after covid with airlines? This:
MESA, AZ — Avelo Airlines, which launched Thursday at Hollywood Burbank Airport, offers $19 flights to and from Mesa Gateway Airport.
Avelo’s only flight option from Mesa Gateway as of now is Burbank, but the price tag of only $19 after taxes and fees is pretty enticing.
Not that we’re backing, in any manner, this particular adventure into the soaring skies. Rather, that it’s an excellent example of how economic recovery happens.
People who desire to fly still exist. ‘Planes and airports still exist. People capable of flying ‘planes still exist. What might have failed in the recent hard times are particular organisations which employ the people to fly the planes which people desire to travel upon. So, the solution is that new organisations arise to employ the extant people to fly the existing ‘planes to services that revived desire.
That is, the Austrian view of recessions and the recovery from them is at least partially true. Assets don’t disappear, it’s the form of their ownership that might change. Once the hard times are past then entrepreneurs will and do pick up the assets and use them, again, to satiate consumer demand.
And, of course, if no one can work out how to usefully utilise such assets then clearly they’re not in fact assets anyway.
The point being of rather wider application than just short haul jollies of course. Take, just as an example, a business built of the scrag ends of the steel and aluminium industry worldwide which now finds itself desperately short of working capital. No names, no pack drill you understand.
That the organisation itself goes bust will be painful to those who currently own it. Other than that, well, not much. The assets that are worth reemploying will be reemployed. Those that aren’t then we shouldn’t be trying to save them anyway.
Liquidationism as a reaction to recession has a bad name, mostly because people don’t seem to understand that what is liquidated is the current structure of ownership, not the underlying valuable assets.
Here's the difficulty with investing our way out of debt
The IMF tells us how to get out of this problem of there both being a massive debt mountain and also slack in the economy:
The IMF tries to square the policy circle by advocating investment in infrastructure projects with a fiscal multiplier of 1.0 to 2.0, meaning that they pay for themselves through higher GDP growth, and ultimately lower the debt ratio over time.
Well, yes, but does anyone know of a manner of ensuring an actually existing political system makes such investments?
We have a certain logical problem which is that if past governments had been investing only in such a manner then we wouldn’t have a national debt whizzing through 100% of GDP in the first place. For the growth from those past investments would have arrived and paid off the debt.
We’ve also little to suggest that current plans pass such a test. HS2 appears to cost £100 billion by now and that doesn’t even pass its own internal cost benefit analysis let alone anything more general. Or perhaps it should be more directly about greenery, one idea being the mass installation of heat pumps. This would seem to involve “investing” £450 billion for a £3 billion a year reduction in emissions costs. That’s not a set of numbers to pay off the national debt now, is it?
It is conceptually obvious that it is possible to spend now to reap more in the future - that’s how all investment works after all. It is conceptually possible that government can spend money that performs this trick. It is not obvious, to say the least, that politics - that thing which defines what government does - leads to this result in practice.
The answer here - such as there is one other than abandoning the whole idea as unworkable - would be to insist that any such government “investment” pass a rigorous cost benefit analysis. A proper financial one, not just vague hand waving about intangible benefits at some point. For the aim here is to pay off the national debt, something determinedly financial. The problem with this as a solution is that some to many of the things already being spent upon would fail such a test.
That is, we could only know that the government is being serious about investing to cut debt levels when they cancel HS2. Which isn’t, as we know, going to happen. Therefore the idea itself doesn’t work, does it?
In short, politics cannot invest its way out of a wet paper bag - therefore government investment isn’t going to pay off the national debt.
It's so immensely annoying when George Monbiot almost gets there
Monbiot tells us that:
The central premise of neoliberalism is that the locus of decision-making can be shifted from democratic government to the individual, working through “the market”. Rather than using politics to change the world for the better, we can do it through our purchases. If neoliberals even half-believed this nonsense, you’d expect them to ensure we were as knowledgable as possible, so that we could exercise effective decision-making in their great consumer democracy. Instead, the media keeps us in a state of almost total ignorance about the impacts of our consumption.
Given that we are neoliberals we do indeed put our hands up to that prejudice. We’d shade it a bit of course. Even among those who insist that fewer pints must be sunk, less soda pop consumed, everyone does agree that precisely which flavour be consumed by which person is to be left to individual choice, not democratic government. So we all agree, at one end of the possible range, in the liberal ideal.
We neoliberals just disagree about the other end of that range, where is it that individual choice and markets stop working so well and government becomes the solution? We think it extends much further than Monbiot does.
We even run this site and write books and make speeches and run conferences and produce position papers pointing out to the public at large how far that spectrum of market efficiency reaches - to then blame us for how the BBC doesn’t pick up the story is just that little tad unfair perhaps. It’s not us limiting the knowledge available to the public that is.
This has its importance with the specific that George wants to talk about:
Many “marine reserves” are a total farce, as industrial fishing is still allowed inside them. In the EU, the intensity of trawling in so-called protected areas is greater than in unprotected places. “Sustainable seafood” is often nothing of the kind. Commercial fishing is the greatest cause of the death and decline of marine animals. It can also be extremely cruel to humans: slavery and other gross exploitations of labour are rampant.
Only 6.2% of the world’s marine fish populations, according to the latest assessment by the UN Food and Agriculture Organisation, are neither “fully fished” nor “overfished”, and they continue to decline. “Fully fished” means that fish are being caught at their “maximum sustainable yield”: the most that can be taken without crashing the stock.
This is a central aim of fisheries management. But from the ecologist’s perspective, it often means grossly overexploited.
From the neoliberal’s point of view such stocks are grossly overexploited. Blaming us for the EU’s Common Fisheries Policy moves well beyond unkind to a calumny. We have been, for many years now, pointing out the foolishness of the policy.
Backed by considerable evidence too. The base problem is that described by Garrett Hardin, the commons problem. Revised by Elinor Ostrom who gained the Nobel for her work. What actually is the management system that should be imposed upon a commons that actually needs a management system? As Hardin pointed out - Ostrom’s revision being that in smaller groups of humans communal management also works - it needs to be either government regulation or private property ownership with markets. Which depends - depends upon the specifics of the resource under discussion.
Coase, another Nobel Laureate, pointed out that mining spoils can be privately dealt with - can be, not must be. Widespread air pollution is going to need at least some regulatory interference, a result that conforms to Ostrom.
So, what is it that works with fisheries? Yes to marine reserves, then private ownership of the stocks outside them. We’ve seen this work in situations as diverse as salmon netting off Scottish rivers, orange roughy off New Zealand, the Alaskan halibut fisheries. The Icelandic and Norwegian fisheries are near entirely built upon individual transferable quotas, ITQs, a best approximation to such a system.
The reason these work is because profit is maximised where the fish stock is well - and it is well - above sustainable levels. It being easier to catch fish if there are more of them to catch.
That is, this is not a knee-jerk reaction, this idea that individual choice and action within markets works better than politics, government and democracy. It’s a result of direct observation of the world around us. The CFP is vile and governmental, more market and private property based fishing systems work better.
That is, the only neoliberal knee-jerk that exists is a propensity to believe that “the market” works better than the alternatives. A propensity that we’re entirely willing to see disproven as it is in the case of, say, nuclear weapons, the price regulation of a natural monopoly - it was us who insisted that the national grid and the like needed price regulation - and public goods.
That is, the neoliberal reaction to a proposal that government solve a problem is not to run from the room shrieking in horror, it is to insist upon “Prove it, Sunshine”. Something that doesn’t in fact work with fishing, as Monbiot complains. Which is why we support more market based solutions to the agreed problems of fishing.
A Formula of Diplomatic Etiquette
When my great-grandfather was deputy head of the Royal Irish Constabulary during the troubles at the dawn of the 20th century, he considered Whitehall to be the main obstacle. Were he alive today, his views would probably not have changed. The Northern Ireland Protocol is an example. It all started from a good idea. The Irish land border is 499 km long, about 10% longer than that between France and Germany. Nearly 300 public roads cross it. Contrary to the prevailing wisdom, border posts and customs checks existed along it, albeit not very effectively, for the 70 years up to the UK and Ireland joining the Single Market in 1993. Brexit meant that there had to be a border with customs checks between the Republic of Ireland and the UK. As the land border was not really enforceable, moving one in the Irish Sea would be more practical.
The UK was not too bothered about goods moving south to north but the EU was very exercised about goods moving from the UK into the Republic. So far, so good but, at this point, Whitehall lost the plot. What should have happened was that goods coming into Northern Ireland were demarcated “north” or “south” with the former needing no paperwork or customs formalities and only the latter receiving the customary checks by EU officials. The problem was that the EU were only prepared to give a free pass to goods originating in Northern Ireland if it remained, in effect, in the EU with all its rules and regulations. They ignored the reality that Mrs May’s government had already adopted all the EU’s rules and regulations to smooth the transition.
The EU therefore insisted that shipments from Britain to Northern Ireland would, after all, be required to meet the full bureaucracy. In effect the EU would annex Northern Ireland and, contrary to Boris Johnson’s “over my dead body” claims, there would be a full not-quite-so-Great Britain/EU border in the Irish Sea.
The EU’s interpretation of this was enshrined in the Protocol which, in order to get the main deal through, the UK government signed and Parliament endorsed. The EU Parliament has yet to do so which may prove helpful. “Protocol” is a French word meaning a “formula of diplomatic etiquette”. In other words, it specifies polite behaviour. Its wording is indeed polite with much emphasis on the need to cooperate, but the substance is all take by the EU and give by the UK. For example: “Accordingly, nothing in this Protocol shall prevent the United Kingdom from including Northern Ireland in the territorial scope of any agreements it may conclude with third countries, provided that those agreements do not prejudice the application of this Protocol.” (Article 4). In other words, the Protocol takes precedence over any international deals the UK might do. Some doubt that Mr Johnson, never a man for detail, has ever read it cover to cover.
VAT is a minefield. So far as VAT on goods is concerned: “Northern Ireland is treated as if it were a Member State.” (p.5) I am not clear whether this means that the part of the VAT take known as the “VAT-based own resources" is handed over to Brussels as it is by other member states. On the other hand, Northern Ireland is treated as part of the UK for VAT on services.
So, having got into this mess, how should the UK now proceed?
The three alternatives are firstly to tear it up and face the consequences. Secondly, having unilaterally postponed the worst of the paperwork until September, the government could keep doing that until the Belfast government can legally reject the Protocol in 2024. Finally, it could be renegotiated. The first of these would be unlikely to bring the whole Brexit treaty crashing down and it would have the advantage of dumping the hard border problem on the EU. The Good Friday agreement, finalised long before Brexit was envisaged, has nothing to do with the border issues.
The main problem with the first two is that the UK is developing a reputation for reneging on EU agreements and they would make that worse. This damages the UK’s international new dealings and ability to pressure others into conformity. The Protocol allows for independent arbitration but unilateral UK action makes that less likely to be favourable.
The reality is that the priority for all three options is to restore the UK’s reputation for compliance and create a climate where the UK is seen as the victim, not the transgressor. The EU has blocked any attempt to make the Protocol workable but this intransigence is not widely appreciated. As it stands, the Protocol is costly for the UK without any financial benefit for the EU. This lies behind the intransigence: streamlining it has no financial benefit for the EU either.
There are wider reasons why genuine cooperation would benefit the EU and the Republic of Ireland in particular. They need to be formulated and marketed but this has not happened.
Since the current postponement of much of the paperwork was announced in March, the UK government has been entirely silent on the matter. Discussions may be going on behind the scenes and a secret plan may be evolving but, if so, they are symptomatic of the lack of openness that has persisted since the Protocol was first mooted. The House of Commons Select Committee has done its best to help but all the evidence to date, bar one, has been about the problems caused by the Protocol, not potential solutions.
The Protocol requires that the minutes of the meetings of the joint committees remain confidential but that does not prevent the UK publicising the problems, sensible solutions and the obstinance and intransigence of the EU which is failing to cooperate. This publicity campaign is needed in the USA, the Republic of Ireland and the rest of the EU in particular.
We're always insisting that things must be properly measured
There is Hayek’s point, that the central planner never can quite measure the world accurately enough to be able to plan things properly. We then go on to insist that even if we’re going to ignore that - because some things really do require management even if it cannot be done perfectly accurately - then we do have to devote a certain effort to trying to measure matters as well as we can.
For example, we insist that all measures of the wealth distribution are wrong because they, quite deliberately and openly, ignore the effect upon that wealth distribution of all the things government currently does to change it. We continually point to the manner in which estimates of climate change damage are vastly too high as they entirely ignore what has already been done to avoid those worst future projections.
We seem to have another example here with the Body Mass Index:
Growing numbers of women and men in England with eating disorders are being denied support because they are not considered to be thin enough to warrant it, a leading psychiatrist and other experts have warned in a briefing shared with ministers.
Against the backdrop of a fourfold rise in people admitted to hospital with eating disorders during the Covid pandemic, doctors said body mass index (BMI) was too often used as a blunt measure to decide whether someone should get treatment.
In some cases, women have not received an eating disorder diagnosis despite their periods stopping due to overexercising or restrictive eating.
BMI uses height and weight to calculate a healthy weight score. A normal body weight is considered to be between 18.5 and 24.9, and some doctors consider anything below this a signifier of an eating disorder.
The point here being that at least some people considered “normal” by that BMI are quite clearly too thin to be healthy.
It’s also possible to point out that those considered “overweight” and shading into “obese” - but not “morbidly obese” - by that very same BMI measure have better health outcomes. More years of life, more years of pain and sickness free life.
It would appear that we’ve pegged the definition of normal too low - or perhaps the definition of desirable.
All of which does play to our own insistence on counting things right. Once we do so solutions to the perceived problems become much easier. A more equal wealth distribution is achieved by counting what we already do to gain such. Climate change is at least in part beaten by how we’ve already made wind and solar power so much cheaper than they were. Britain’s obesity crisis can be lifted simply by shifting our definitions.
The current definition of “normal” weight is unhelpfully, often enough dangerously so, thin. So, rebase to normal being what is currently considered overweight, that BMI which is, in fact, healthier. At wihch point, largely enough, we’re done. No need to eviscerate commercial freedoms and civil liberties by banning foodstuffs, or advertisements for them, or supermarket placings. Unless, of course, the power to do those things is the point of the scares about BMI and obesity in the first place.
Reasons for optimism - Space
In 1956 the then Astronomer Royal, Sir Richard van der Riet Woolley, was widely quoted saying, “Space travel is utter bilge.” When the first artificial satellite, Sputnik 1, was launched a year later, he was asked if he stood by his remarks and replied, “It depends what you mean by utter bilge.” I forgave Sir Richard when he taught me to play croquet three years later, but I’m not sure the space industry ever did.
The conquest of space has enabled us to do things that were impossible or at least very difficult to do on Earth. Communication satellites that beamed television from fixed geostationary orbits were among the first big money-spinners. Although still classified to some degree, military reconnaissance satellites have given each side detailed information about the other, and have probably made the world a safer place. No more dangerous and provocative spy plane flights over hostile territory were needed, since the information could be safely gleaned from orbit.
Satellites have enabled us to gain information about the Earth below them and the universe beyond them. They have enabled us to map pollution and rainforest depletion, to measure icecap shrinkage and expansion, to track illegal shipping activity, and to monitor the progress by rogue states to develop nuclear weapons and missile capability.
The Hubble space telescope has given us more insights into the working of the universe and its early origins than Sir Richard could even have dreamed about when he made his comment 65 years ago. When the James Webb Space Telescope, planned to be launched in October, is operational, it will far exceed the capabilities of the Hubble telescope it will replace.
Space offers the chance to step up communications by making high speed internet available in most of the world via hundreds of small low orbit satellites. Elon Musk’s SpaceX has already put more than 1,300 of his Starlink satellites into orbit, and plans rapid expansion of his 10,000 existing users. It is particularly useful in remote areas that would otherwise lack connectivity.
Intriguingly, space tourism looks set to become a significant source of revenue as costs and prices come down. The only non-government space travellers so far have been seven multi-millionaires sent by Space Adventures aboard Soyuz launch vehicles to the International Space Station at a cost exceeding $20m per trip. The SpaceX Crew Dragon and the Boeing Starliner have been approved to take private astronauts into orbit and to the International Space Station at much less cost, and even cheaper sub-orbital flights by firms such as Virgin Galactic are planned to give passengers the space experience for about $250,000.
Companies have been formed somewhat prematurely “to exploit the mineral resources of the asteroid belt.” While some asteroids are known to contain large deposits of valuable minerals, the costs of extracting and transporting them is currently far beyond any value that could be gained from such operations. More plausible, perhaps might be the future harvesting of ice asteroids to provide water for future space activities.
We can be optimistic that some means of reaching outer space by means other than rocket power might be developed to achieve dramatic cost reductions. There are proposals to site rail guns up mountain slopes to achieve the requited velocities using ground-based power. The ultimate prize would be the space elevator, with its cars ascending to the geostationary point 22,500 miles high. The materials with the necessary strength have yet to be developed, but they might soon be. It looks as though space will be an important part of human achievement and activity for decades, if not centuries, to come, and will continue to bring us new knowledge and new excitement.
Just how much should those other people be allowed to make?
It’s a standard joke - or observation of human behaviour - that those rich people over there who must be taxed much more are defined as being those earning 10% more than the person making the demand. Perhaps we should expand this to business matters too:
Channel 4 has urged the competition watchdog to broaden its crackdown on Google and Facebook to prevent broadcasters ceding millions of pounds in advertising income.
The Gogglebox broadcaster has called on the Competition & Markets Authority to rein in distribution deals offered by the tech platforms that demand a 45pc slice of the advertising revenue.
Is 45% too much? Channel 4 itself:
£985m total revenues in 2019
£660m total content spend
£492m spend on originated content
If we consider total content spend then Channel 4 charges, to feed its own costs, about a 33% - instead of the 45% of Google or Facebook - margin. If we consider the spend on originated then Channel 4 charges those who make their programmes more like a 50% margin to feed their own cost base. Or, if we wish to be naughty with numbers here, a 100% markup.
Which is too much? Well, actually, our faith in human nature is confirmed whichever the correct number ought to be. For the complaint is coming, as ever, from those making a little less than those they’re complaining about. So, that’s all right then, humans are still humans.
Will Hutton manages to ask a good question
Implicit in this is a question rather than assertion:
What amazes the party and commentators alike is why a 78-year-old moderate stalwart such as Biden has suddenly become so audacious. After all, he backed Bill Clinton’s Third Way and was a cheerleader for fiscal responsibility under both him and Barack Obama, when the stock of federal debt was two-thirds of what it is today. Now, the debt is no longer to be a veto to delivering crucial economic and social aims.
Why that change, why no longer?
What has changed is that quantitative easing has morphed into Modern Monetary Theory, that magic money tree. Or, as older language had it, monetisation of fiscal policy. Something which does rather lead to disaster, as Venezuela and Zimbabwe have recently shown.
Yes, of course, we agree that there’s a lot of ruin in a nation but it’s not an unlimited amount, as the Great Debasement shows in our own lands.
The politicians now all agree among themselves that anything desired may be had by printing the money to gain it. Thus that’s what is being done. Which is, has been all along, our complaint about MMT. We do indeed know that within the theory there is the solution, that when inflation arises taxes do to curtail it. But that’s not how politics works - spending is much more fun than taxing. Thus spending will rise and tax will not to offset as the theory states needs to happen.
Thus why politicians both here and in the US are having such fun in spending more than they’re willing to impose in taxation. We insist that this won’t work out well.
KPMG and the necessity of a circular economy for renewables metals
We have, some time ago, addressed the mistakes people generally make when considering the availability of metals and minerals. Mass confusion over what is a mineral reserve - the correct answer being something created by spending the resources to do so - leads to the usual insistence that a circular economy must be created. We have no problem with recycling of metals or anything else, we just keep pointing out that it’s justified only when a profit is made by doing so.
KPMG is the latest producer of one of these reports and, to be fair, it’s better than many. It does point out that the demand for interesting metals for the renewables revolution can indeed be found in them thar hills. There are still the mistakes though:
Not all theoretical reserves are technically or economically extractable
Nonsense. The definition of a mineral reserve is that it is technically and economically extractable using current technology, at current prices, and to make a profit while doing so. If we can’t do that then it’s not a reserve.
They also fall prey to a piece of environmentalist misinformation:
There are also ESG concerns associated with extraction. In Chile, lithium uses approximately 500,000 gallons of water per tonne extracted, which diverts away 65% of available water in some regions, causing adverse impacts on local farmers growing produce and rearing livestock
No, really, just no. The lithium is contained in brines. The extraction method is to evaporate the water away from the contained salts - once that’s done the lithium is extracted from the remaining sludge or powder. To say this “uses” 500k gallons of water is nonsense - we’re extracting from the water by extracting the water. Such brines would, if drunk, kill the cattle and ruin, through salinity, any farmland they were used to water. A much more realistic statement would be that we’re liberating the water into the clouds using the locally abundant sunshine to do so.
Once these sorts of misunderstandings are cleared up the base complaint left is that Johnny Foreigner might be beastly to us as we ask if we may have some more of their lovely minerals. At which point we get back to that insistence that we must have a circular economy and recycle everything.
Well, yes and no. As we’ve said, nothing wrong with a bit of recycling as long as a profit is being made. Those offshore wind turbines might have 4 tonnes or more of rare earth metals in them (more likely an overcount, as FeNdB magnets do contain that iron as well but still) and with neodymium at $40 a kg when reprocessed there’s a decent margin in there. So, as and when these are replaced we’d expect that concentrated store of value to be recycled. The gramme or two of the same magnet material in your hard disk drive (for those who have not graduated to SSDs as yet) is markedly less profitable to collect, extract and process. So much so that landfill is the useful destination.
The important underlying point to grasp here is that no policy decisions are required. The difficulty of extraction, geopolitical worries, resource availability, recycling or reprocessing possibilities, value in end us and all are already incorporated into market prices. We can thus leave greed and capitalism - in the Prime Minister’s words - or eye for the main chance if we prefer to deal with this. There is no need for a grand plan or a redesign of the system, enlightened self-interest, as so often, is already dealing with this for us.
Shops to houses conversions - a little ahead of schedule actually
We here at the ASI have long said that our job, duty, is to be those off howling in the wilderness with the odd ideas for how society can and should be improved. Start with an entirely contrary to accepted fashion proposal and then spend a decade seeing it move from absurd to thinkable through acceptable to policy.
The latest one seems to be a little ahead of schedule:
New rules allowing shops to be converted into homes to revitalise high streets
The logic being impeccable. Online shopping means we need a smaller retail estate. We do also tend to think that we’d like more residential estate in the country. Ease the rules to allow the conversion:
“We are creating the most small business friendly planning system in the world to provide the flexibility needed for high streets to bounce back from the pandemic,” Jenrick said.
“By diversifying our town and city centres and encouraging the conversion of unused shops into cafes, restaurants or even new homes, we can help the high street to adapt and thrive for the future.”
Back in August 2011 we pointed out that this was indeed the obvious and logical solution:
Or we could observe reality and conclude that with so much shopping now done by computer we simply don’t need as many shopfronts as we used to. As with manufacturing, we could turn those buildings we no longer need to other uses.
Anyone know how to convert a shop into affordable housing?
It was good sense then, it’s good sense now, it’s just that things seem to be speeding up - we’re still 5 months short of that decade. No, we don’t claim sole and whole ownership of the original idea but we would like to suggest that perhaps people should start listening faster.