We refuse to see this as a threat or a problem
Front page headline in The Times:
Rural areas face threat of 400,000 new homes
We refuse to see this as a threat or even a problem.
Start from the very beginning. With any economic resource we desire to put it to the use that produces the most value. Moving something from a lower to a high valued use is the very definition of wealth creation.
We also think it a useful attribute of a planning system that it enables people to do what they want where they want to do it. Yes, there are limits on this, those third party effects. But those effects must be significant - more than harming the view out the window - for them to overcome that general presumption in favour of people being able to maximise their utility.
So:
The revised planning formula requires that more homes are built in areas where house prices are higher, because property costs are seen as a proxy for where people want to live.
That strikes us as a very useful proxy. If £5,000 worth of agricultural land can be turned into £1.5 million of building plots then that is value addition. We also agree that willingness to pay is a useful definition of the value being added. We can’t do that with an acre of Snitter, up by Morpeth, we can with parts of Surrey. Building in Surrey thus adds more value.
A stark illustration of the effect of the new plans can be seen by comparing the demands put on Boris Johnson’s London constituency and Rishi Sunak’s North Yorkshire seat. The analysis suggests that the prime minister’s seat of Uxbridge & South Ruislip would need to accommodate 1,220 homes a year, ten times as many as the chancellor’s constituency of Richmond.
We’re not sure we entirely share these tastes but then the point of an economy, a civilisation, is that each gets to maximise their own utility according to their own determination of it. If ten times as many desire to live in Uxbridge than the Yorkshire Richmond then that should be the distribution of the housing.
The claim in that headline is that housing people would like to live in being built where people would like to live is a threat. We think it’s the point.
Merchants' Day
In my diary for today, 25 May, is a mysterious entry: “Merchants’ Day”. I have no idea when or from where this reminder came. But it struck me as a red-letter day worth celebrating. After all, merchants of many kinds have had a pretty tough time of it over the last year.
So to find out what Merchants’ Day was all about, I turned, naturally to Mr Google. Or is it Mrs, Ms or Mz Google. Let’s just say Dr Google, which is gender free. Or does that sound too elitist. Anyway, I, er, got on the internet.
I thought I’d struck paydirt straight away when I alighted on a page from Chapman University, where my friend and fellow economist Mark Skousen teaches. He’s the author of a book on Smith and Keynes and the Austrians and an enthusiast for the General Output measure of economic benefit. “Third annual merchant’s day sees record turn out” said the heading. Sure, it was from 2019, but then things have been pretty odd over the last 18 months so maybe there wasn’t a 2020 one.
It looked promising. Local businesses apparently line the piazza, giving out free samples and offering games and prizes (even a surfboard, among those) to the students. Looks jolly and helps the students to get engaged with and support the local business community. The sun shone, and it seems everyone had a good time. The dark cloud for me, though, was that this was on 18 September, not 25 May.
Next I found a site advertising (at least, I think it was advertising) “[Game Even] The Merchants Day!” “Wanna be a RockStar in Trading?!” it asked. “So, what’s the problem buddy?” “Are you a well-known Trader? This event is for you then,” it continued. I’m not, and it advised me that “midnight is your last chance,” so I thought I’d best move on.
Moving on, I found another link between “Merchant” and “25 May” on Wikipedia. But it turned out only that the Indian-born film producer and director Ismail Merchant (he of Merchant Ivory) died on that day in 2005. Ah, well.
Another promising find was for “Merchant Day [singular], also known as Trader’s Day” [also singular, but with a “ ‘ ” for some reason]. This, I was advised, “was a holiday on many Human worlds celebrating merchants, traders,” [this is looking good!] “and space explorers.” Oh, not what I had in mind. Interesting to know that traditional families that celebrated Merchants Day [which somehow seems to have become plural again] abstained from eating dinner in reference to the low food supplies that many merchants endured during their travels, and I know the feeling. But I seem to have alighted on a Star Wars fan site rather than anything exactly ... real. Nor did this Merchants Day seem much allied to 25 May. Well, May the Fourth be with you.
Maybe someone out there knows what Merchants Day really is. But I certainly think some sort of Merchants’ Day [grammar!] should be celebrated as a recognition of the staggering benefits that are brought to us by millions of individuals, buying and selling goods and services, freely and voluntarily, in competitive markets. Without their resilience and adaptability in difficult and changing circumstances — think shops, supermarkets, private schools, Amazon and other delivery companies — we would not have been able to continue daily life through the Covid lockdowns. While so much of the public sector — NHS family doctors, state school teachers, civil servants — just concluded that things were all too difficult and replaced customer service with queues and waiting lists, merchants kept us going. With things at last opening up, this day as much as any other seems a good day to raise a toast to them.
The point of trade is the imports
As Adam Smith pointed out, the purpose of all production is consumption. So too the purpose of trade is to gain access to the imports:
Securing an FTA with Australia would be a fillip to them. But an Australian deal is running into strong opposition from all the usual suspects for all the usual reasons. When it comes to discussing trade arrangements, many people are obsessed with the interests of producers and think that the interests of consumers don’t matter. Accordingly, they believe that it would only be sensible to “concede” foreign access to our domestic market if we secure equivalent access to their market. In the Australian case this is particularly relevant because Australian exports to the UK will potentially rise by substantially more than British exports to Australia.
This is often presented as a reason why we should not favour an FTA with Australia. But this is bonkers. Much of the gain from trade comes to consumers in the form of lower prices, higher quality or wider choice. If Australian exports to Britain rise by more than British exports to Australia, then potentially British consumers can gain more than Australian consumers.
Quite so. Which is why Patrick Minford’s work has always so appealed. Britons, therefore Britain, would gain substantially from the simple declaration of unilateral free trade. Thus we should declare unilateral free trade.
Just as we did with the repeal of the Corn Laws and just as we benefited mightily when we did so. Time to get all 1846 on the enemies of free trade, time to get Victorian.
So much for Brexit reducing Regulation
On 2nd February, the Prime Minister asked the Rt Hon Sir Iain Duncan Smith MP, the Rt Hon Theresa Villiers MP, and George Freeman MP to form a new Taskforce on Innovation, Growth and Regulatory Reform (TIGRR). The announcement included an invitation to send in suggestions. That apart, and after nearly four months, no action has transpired. As Sir Iain has reached the age where people take longer to cross the road, one should make allowances, but it is disappointing nonetheless.
When Lord Frost appeared before the Commons’ European Scrutiny Committee on 17th May, he endorsed this initiative “You will know, I am sure, about Sir Iain Duncan Smith’s work and his team’s trying to identify opportunities for regulatory reform.” Rhetoric but no substance.
The wine industry would be a good place to start. In June 2008, the EU Commission enacted Regulation (EC) No 555/2008 which introduced the VI-1 form. Third country exporters of wine into the EU were required to provide a mass of wholly unnecessary information therein. This was of no benefit to EU consumers, indeed it put up their costs, but was designed as a “TTB” (Technical Trade Barrier) to protect EU wineries. As far as the Commission was concerned, the EU had plenty of wine of its own.
EU Regulations are supposed to have Impact Assessments showing the cost/benefits of the proposals, i.e. an “Appraisal showing the expected technical, economic, environmental and social impact.” In this case, no appraisal was made: the requirement (C) has a footnote saying “Member States referred to in Article 5(4) of Regulation (EC) No 479/2008 shall not have an obligation to fill point C and F.” The UK’s European Scrutiny and Regulatory Policy Committees seem to have been asleep at this particular wheel. If these Committees do not protect UK citizens from costly and unnecessary bureaucracy of this type, and a fortiori, its transposition into British law (see below), one has to wonder what they are for.
With Alice in Wonderland logic, the government decided that, post Brexit, VI-1 forms, and laboratory tests (now dropped), would be required for all wine imports from the EU, presumably as a tit-for-tat for the above Regulation 555/2008 being applied to UK wine being imported into the EU. Whitehall has now deferred this until January 2022.
Post-Brexit, the rationale for VI-1 Forms for third country wines as a TTB to protect continental wine growers (if that ever made sense) fell away and the expectation was that wines from Australia, Chile or wherever would no longer need them. The Department for the Environment, Farming and Rural Affairs (DEFRA) with their customary generosity put us straight: “Wine imported into the UK that originates in a non-EU country can continue using the existing VI-1 arrangements.” The Minister, Victoria Prentis, attempted to justify this to the Delegated Legislation Committee on 25th January, by saying that as VI-1 forms were already required from third countries, it was only fair to apply them also to imports from the EU.
Wines shipped from Northern Ireland to Great Britain do not need VI-1 forms. As Brussels regards the Province as part of the EU, no VI-1 Forms are needed for EU wines shipped directly to the Province. It follows that wine merchants in Great Britain could avoid VI-1 forms by shipping their EU wines via Belfast. Daft!
Quite apart from the absurdity of filling in forms, designed to prevent EU wine imports, for EU exports, we have the nonsense of DEFRA requiring third country wines coming into Great Britain to have VI-1s and then to have a further set when they travel on to Northern Ireland. Some small producers in the EU and third countries are refusing to play these games and thereby depriving the British wine trade and consumers of the most unusual and interesting wines.
There is an EU/USA wine deal, which does not simplify VI-1 requirements, but does make all paperwork electronic. Since the start of 2021, USA wine (shipped in bulk) coming first to the UK and then the EU has to convert the original VI-1 e-form into a paper one that can be signed by the UK government – with a ‘wet’ stamp by Defra’s Rural Payments Agency.
In order to get the VI-1 proforma to fill in, one has first to send DEFRA a four page Application for an EU VI-1 pro-forma document for exporting wine to the European Union. The VI-1 proforma may then take a week to turn up.
Hundreds of thousands of VI-1 forms cause delays and costs for the trade, and then their customers, as they are extended next year. The cost of bringing in a single pallet of EU wine has nearly doubled from £200, and if multiple wines are grouped together, as was common practice, the charges are considerably higher.
The taxpayer also bears the cost of all the civil servants processing these forms. The delays mean the trade has to carry higher stocks with financing costs falling on a Covid-struck economy. Not good timing. Most of the UK wine trade are SMEs, the sector the government regards as critical for post-pandemic recovery and yet this is the sector the government is penalising hardest by failing to remove this bureaucracy.
The All-Party Parliamentary Group has been very critical of the government’s approach to this bureaucracy. The “House of Lords has supported calls to scrap ‘unnecessary’ wine import documentation, which could cost the UK trade an extra £70 million a year.”
One indication of the artificiality of the justification for VI-1 forms is that they apply to wines but not beers or spirits or, indeed, to any other food or drink product. Of course, the EU was not trying to protect their beers and spirits but neither does the UK wish, or need, to protect our wine producers in such an underhand manner. Most of the EU documentary requirements for food and drinks are related to hygiene but this does not arise in the case of wine.
It is hard to understand why the government continues to insist on VI-1 forms for all imports and exports. Senior government sources have indicated that, entre nous, they are being maintained as bargaining chips to be given away when doing trade deals with third countries. As rationales go, that is scraping the barrel:
It does not apply to the requirement for EU wines
They could be eliminated now and the bargaining chip, if it has any value at all, used the other way round, i.e. threaten to reinstate them.
The WTO, rightly, does not like TTBs and would get especially grumpy if they were applied to some third country wines and not others.
January 2022 will bring another red tape bonanza as organic wines get special attention. Mandatory “Certificates of Inspection” to be checked at each UK Port Health Authority. All kinds of other authorities, like the Soil Association, diving in will add delays and £75 per consignment even though it’s only a few cases amongst a great majority of non-organic wines and they have had much the same checks at the producer’s end. One wine merchant told me that although his customers want organic wines, he is not going to bother with importing them.
Finally, the regulators are messing about with labelling. Traditionally, labels that sufficed in their domestic markets were fine in the UK. Now they will need the addresses of the winemakers. An unhappy customer complains to her retailer, not some winemaker on an Andean slope who may not understand English.
The Commission claims that EU legislation requires a label to have a named EU-based originating company and EU wines in the UK would require two labels (EU and UK).
Furthermore, there are moves afoot to add the calories, or “energy values”, to help wine drinkers lose weight. American experience has shown that putting calories on menus, or wine labels, will not, as some health lobbyists claim, do anything to reduce obesity. That said, some winemakers believe calorie information to be helpful and they should be free to show it.
Brexit was sold to the nation on the basis that regulation would reduce and we would trade more freely with the rest of the world. Unfortunately, that is not what this government is delivering and, so far as wine is concerned, red tape is dramatically increasing. Government rhetoric is not the reality.
Understanding the gravity model of trade
The gravity model of trade tells us that the amount of trade between two economies depends upon their relative sizes and the distance between them. This is an observation and one that holds up rather well in the real world. However, it is vital to grasp that distance here is not geographic distance, it’s economic distance.
Economic here meaning things like, obviously, tariff barriers and transport links but also such intangibles as culture, language and so on over and above that mere geographic distance. Which is where Phillip Inman goes slightly wrong:
A deal with Australia is not significant in itself: Truss admits it would boost Britain’s economy by just £500m over 15 years, or 0.02% of GDP – figures that explain why most economists agree trade is something that happens with nations close at hand or that share strong cultural ties. Almost 50% of trade remains with the EU despite Brexit, and the US is the largest single destination for UK goods.
As Daniel Hannan points out those cultural ties with Australia are fairly strong:
Even so, it is extraordinary that anyone should object to restoring our pre-EEC relationship with Australia, a country to which we could hardly be closer in commercial practices, legal norms, accountancy systems, political institutions, regulatory standards, professional qualifications, wage levels or sentimental links.
Quite a free trade deal would simply be removing some of that economic distance deliberately added by the EU’s tariff walls, wouldn’t it?
If we are, as Inman suggests, to consider cultural ties as being an important part of this process - which they are - then it’s difficult to think that those ties of the UK with Bulgaria, say, or Finland, are closer than those with Australia or New Zealand.
Tariff barriers are deliberate additions to economic distance and why do we want to make those foreigners further away than they need be?
There is also the point that the aim and idea of trade is to gain access to those things which foreigners do better or cheaper than we do. Which gives us our reaction to this:
Farmers would accept a larger volume of imports from any deal, but they want the protection offered by some form of permanent quota. They are concerned by briefings last week that the UK will offer Canberra a transition to tariff- and quota-free access after 15 years, saying that would eventually result in cheaply produced food flooding on to the market, and pushing down prices.
Cheap food, eh? That’s your complaint - and?
If only Marxists actually understood Karl Marx
As Zoe Williams points out “late capitalism” is a phrase that seems to be replacing “neoliberal” as the unthinking caricature of the present day over on the left. There being a significant problem with this as an insult, or dismissive, as those using it seem to entirely misunderstand what Marx himself was thinking about when he muttered about capitalism, late or otherwise, and what was necessary before it was replaced:
In late capitalism, you should be grateful to the wealth creators to be paid at all. Plenty of people would do this for free. Experience, if it makes you more expensive, is just wasted overhead. True productivity is when everyone is paid the same minimal amount. Late capitalism is like arguing with a teenager. Its gambit on matters of fairness and dignity is “Why should I?” and its logical endpoint is “robots”. I can’t figure out whom I blame – maybe postmodernists?
Well, yes, something about robots. As Marx himself insisted. Capitalism, in his eyes, was all sorts of things one of them being extremely productive. So much so that at some point so much of production would be automated - robots - that the problem of economic scarcity in supply would be solved. This was a necessary precondition for the arrival of true communism where all could hunt in the morning - or is it afternoon? - and be philosophers in the evening. Because that problem of how to provide for material needs and wants was already solved by having the machines do it all.
Of course, if this does happen, as William Nordhaus pointed out (page 18 here), then wages do not approach zero. Quite the contrary, assume even that the capitalists who own the machines asymptotically approach 100% of all incomes in the economy then even under that condition real wages rise by 200% a year for everyone else.
We don’t, to be honest, think that this killing of economic scarcity is ever going to come to pass, not completely, for there will always be positional goods and human desires at least appear to be unlimited.
On the other hand in terms of human needs - shelter, sustenance and so on, even if not perfectly as yet - we do seem to have got a long way in defeating that economic scarcity. After all, a society devoting quite so many resources to something like critical race theory cannot be said to be entirely bereft of supplies of those more basic needs now, can it? If we were we’d still be striving to fill them instead of expending resources as we do.
At least as far as Marx was concerned late capitalism was a thoroughly good idea as a stage to pass through, a necessary one. Quite why so many bemoan it we’re not sure - unless it is of course that all too many self-professed followers of Ol’ Karl have failed to understand his actual points.
Always read the small print
Proposals for this and that come thick and fast, there’s no shortage of people at least claiming that they’re going to make the world a better place. It is, however, necessary to always read the small print of such policy offerings. For that’s where the real point is, not in the glossy surface of pandering to currently fashionable ideas.
Take this for example:
Stamp duty and council tax should be scrapped and replaced with an annual wealth levy on housing which would hit the best-off hardest, according to an influential group of politicians and economists.
The new annual proportional property tax (APPT) would seek to raise the same amount for the Government as existing property taxes, but more closely reflect the value of homes than the existing system that includes council tax valuations dating back to 1991.
Land value tax is good taxation. Deadweight costs are low, possibly even negative at times. As Henry George pointed out at such length it’s possibly even righteous that the value added to land by the civilisation around it be taxed to pay for that surrounding civilisation. Which is what this looks like on the surface. And yet here’s the true heart of it:
The new property tax has been proposed by economists Paul Cheshire and Christian Hilber and backed by politicians including Labour’s Margaret Hodge, Conservative Lord Willets and Lib Dem Sir Vince Cable. It would charge the owner 0.11pc of the property’s value each year for the central government, plus a local charge set by councils.
Ah, no, that’s a grab at the revenue stream by central government. Greater centralisation not being something that many would propose as a cure for whatever ails Britain. Except, obviously, those who might get to allocate, from the centre, the spending resulting from the change.
The small print matters.
The claim here is that climate change is already beaten
Whether we wish to believe this claim - or any of the claims on the subject - is another matter. But the claim being made by the International Energy Authority here is that climate change is already beaten:
Slashing CO2 emissions and switching to renewable energy is not a ‘cost’ or a constraint on rising affluence: it lifts global GDP growth by 0.4pc a year over the course of this decade. World output is 4pc bigger in real terms by 2030.
...
It does not raise energy costs: it cuts the average bill for households on heating, cooling, electricity, and car fuel from $2,800 to $2,300 a year by 2030 in advanced countries. From then on it is a canter. The energy share of disposable income halves from 4pc to 2pc by mid-century. It is tantamount to free energy.
Human beings tend to do moire of what makes them richer. They also tend to gravitate to cheaper ways of gaining what they desire. So, if renewable energy, not using fossil fuels, is cheaper and makes people richer then this is what people will do - move from fossil fuels to renewables. Climate change is beaten.
We have mentioned this before. If the claims of the new being cheaper are true - if - then that is the problem dealt with for the above logic is impeccable. This also means that attempts to plan, like the following, are entirely unnecessary:
Gas boilers to 'be banned from 2025' in every UK household
Not just unnecessary but entirely contraindicated for that’s to impose more costs on a process that is happening anyway. If, of course, those claims of reduced costs are true. So too the banning of ICEs, the ethanol mandates and all the other central planning mistakes that festoon our economies.
Of course, it is possible that the claims of cheaper aren’t in fact true:
Net zero does not cost jobs: it replaces five million lost in oil, gas, and coal with eight times as many jobs for engineers, electrical experts, offshore operators, solar technicians, or lithium and rare earth miners, whether directly or indirectly.
Using the labour of 40 million people to power society is a higher price than using the labor of 5 million to do so. Jobs are, after all, a cost, not a benefit.
But this base logic is still true. If this green new world is cheaper then nothing more need be done because it will happen precisely because it is cheaper. Those shouting that we must have the restrictions, the laws, the bans, must be those arguing that it is not, in fact, cheaper.
Just a little note for the Resolution Foundation's national conversation
The Resolution Foundation has taken upon itself the task of guiding a national conversation about how the British economy should develop in the coming years. We are, as you all know, somewhat sceptical of the value of such national conversations about the economy. We regard the economy we’re going to get as being the outcome of individual actions, not something produced for us by a few meetings and mutterings among the Great and the Good.
However, as a matter of politesse and even good cheer a little note of advice for them. In their opening report they insist that:
The UK’s changing place in the world will require a major reallocation of labour and capital, away from the sectors that are no longer competitive in EU trade, and towards the domestic market and non-EU trade. It is critical for UK prosperity that the new jobs and firms that emerge are productive, thereby enabling the UK to remain internationally competitive and supporting the living standards of UK residents.
We agree, obviously we do, jobs should be productive. The test of this being whether the output from the job being done has greater value than the cost of the inputs into the job being done. That is, if there’s a profit - and there’s no insistence here that said profit has to flow to a capitalist, this is just the observation that profit is the excess of value produced over the cost of production - then the job is productive. If there isn’t, if subsidy is required or losses are made then it’s an unproductive activity and thus job.
As to how we get such productive jobs the only known method is a free market economy where entrepreneurs are allowed and left the room to try things out. Top down planning does not produce them - as looking east from the Brandenburg Gate in 1989 showed us all. Further, the competition in a market economy, and from outside it in the form of potential imports, is exactly what raises that productivity over time.
That is, we entirely share the ambition of productive jobs. We just insist that the gaining of it requires very much less guidance by the Great and the Good sitting in committees and rather more economic liberty. But then we would say that, wouldn’t we, and the Resolution Foundation wouldn’t.
One of these little misconceptions that annoys
This has become a standard part of the debate and we insist that it’s wrong. In the discussion over online advertising, online money making, there is often the claim that peoples’ data is being sold. This isn’t what happens.
A study by the New Economics Foundation think tank and the charity Global Action Plan estimates that British children's data is being sold to advertisers around 820 million times a day as they browse the web.
The findings have prompted the organisations to call for a ban on default ad tracking online to protect children from having their private information harvested and potentially misused on an industrial scale.
The report – called I-Spy – looked at how children are being tracked across the internet using web cookies that funnel information about them and what they are looking at to agencies, which then sell it to advertisers.
It is not true that Facebook (or Amazon, Google, whichever) works out that Harry, of 4 Privet Drive, seems uninterested in Action Man but might go for a wand and then sells that information to an advertiser. That’s simply not what does happen.
Think about how magazines and newspapers work. They have some idea of who their readership are. Ask any of them, they’ll gladly show you their ABC circulation data. Our readership is mostly C and D socioeconomic groups, there’s a hole in the circulation where Liverpool should be and so on - at, say, The Sun. The Mail will talk about, well, why not let Yes Prime Minister take the strain here. If you wish to advertise something then you’ll select from the outlets which reach your target market. The Mail for that cancer curing coffee that raises house prices, The Telegraph for cavalry twill trousers (for decades just one such ad ran next to the crossword) and The Guardian for something or other, possibly a course in the latest self-righteousness.
At no point has anyone sold you the data of the readers or consumers. Rather, you’ve been sold the ability to reach certain targeted groups of them. Sliced and diced to as narrow a fit with your perceived interests as is possible given the information available. Push up wonder bras might not do so well on the sports pages, men’s hair weaves perhaps not so well on the women’s page (for decades, the front page of the Evening Standard was considered the perfect place for that).
Again, at no point was the data about the readership sold to anyone at all. Rather, the ability to advertise to select slices of it was.
The online advertisers are simply doing this at a greater level of granularity. It may well be possible to slice and dice the audience to find boys, in Surrey, who seem to have no interest in war toys but have havered over a page about magic. But that information is not then sold to an advertiser. Instead, the opportunity to advertise to them is then rented to the advertiser. In exactly the way that a magazine salesman might agree that Tribune isn’t quite the place to advertise a privatisation stock while The Spectator might well be.
Data is not sold in this online advertising business. It simply isn’t.
But then the study quoted comes from the New Economic Foundation which always has had that tenuous connection with reality.