Economic policy does matter

From The Times’ obituary for Kenneth Kaunda:

He might have stayed in power and departed at a time of his own choosing but for his Achilles’ heel, an ineptness in economic management, which blighted his country’s development. When he came to power in 1964 Zambia was among the more prosperous of Britain’s former colonies in Africa thanks to earnings from the Copperbelt in the north. Even greater wealth might have been harvested from the Zambian soil, which was and remains some of the finest farming land in Africa. But, like his friend Julius Nyerere, the president of Tanzania, Kaunda trusted to socialist agricultural policies with disastrous results, and when the copper price fell in the 1970s Zambia was precipitated into an economic decline from which it has never recovered.

To create food shortages in a land where you have to leap out of the way of a fallen seed’s zooming growth does require excessively bad policy.

In his early years in office, humanism could be equated with socialist policies; the copper mines were nationalised and agriculture put in the hands of peasant co-operatives and state farms. When the copper price fell and state agriculture became riddled with inefficiency and corruption,

We do like to remind that Tsarist Russia and today’s Russia - for all the faults in both polities - both were/are grain exporters. Soviet Russia, for all the science of the agricultural system, required grain imports.

We seem, as with the Washington Consensus, to have a little list of stupid things that should not be done to any economy. This being one of the pieces of evidence to show that at least a part of economics is in fact a science. Postulate an hypothesis - say, that socialism makes a place rich - and test that against the evidence. When it’s the universe disagreeing with the idea then it’s reality that wins, not the wishful thinking.

A useful lesson for the rest of us perhaps?

Deregulating properly

The task force for innovation, growth and regulatory reform, led by Sir Iain Duncan Smith, reported last Tuesday. It was welcomed by the Prime Minister, which suggests that its general approach might find support among the Better Regulation Cabinet Committee. It sets out a blueprint with over 100 recommendations on how the UK can grasp the opportunities that Brexit brings to reshape its whole approach to regulation.

Its proposals include initiatives to allow greater freedoms to pension funds, to encourage investment in “sunrise” technologies and business start-ups, and to give greater flexibility to the financial sector, while retaining “prudent” regulatory protections.

Our departure from the EU allows us to change three restrictive EU approaches and to replace them with ones that are more in accord with common sense than bureaucratic diktat.

The first is that we can replace the EU’s precautionary principle by the more sensible cost-benefit analysis. The EU line is to prevent innovation until it is “proved safe.” The UK philosophy is more Popperian, recognizing that nothing can ever be ‘proved’ safe, and that we have to weigh up the benefits against the risks. The EU looks only at the downside, and does not take the advantages into account to set against them.

The second change to the EU approach we can make, one on which Sir Iain’s team stress strongly, is that we can move from process-driven regulation to result-driven regulation. The EU style is to set out in detail the technology that must be adopted to achieve the result it seeks. This shuts out inventiveness and innovation. The alternative is to specify the required outcome, and leave it to businesses and individuals to come up with ways of achieving it. This will almost certainly lead to more innovative and cost-effective ways of doing so.

The third change is to revert to the English Common Law practice of allowing interpretation to be decided by case law, rather than by detailed statutory requirements. This means in practice that we can enshrine principles in law, and allow interpretation to be built up by the decisions of juries and tribunals. We could require employers, for example, to provide “adequate” toilet facilities for employees, and instead of setting out in 150 pages of detail what that involved, leave it to the decisions made by good citizens sitting on juries and tribunals to quickly build up a body of case law specifying what previous judgements have decided that this required.

One of the most refreshing aspects of Sir Iain’s task force report is its recognition that regulations impose costs. Big businesses tend to like them because they can absorb those costs, and because they squeeze out would-be competitive market entrants who cannot. The emphasis should be on keeping those costs low enough to achieve their objective, while cutting out the bureaucratic creep that expands and extends them and makes life unnecessarily difficult for would-be start-ups. Implementing most of the task force’s initiatives would indeed tell the world that the UK is now open for business, and especially for new businesses.

The universe appears on a mission to prove Hayek right

A central part of Hayek’s concept of governance, of the world, is that the centre - whether that be messy politics or even a benevolent dictator - simply cannot ever have enough accurate data about the economy to be able to extract the information necessary to manage that world, or economy, in detail.

On Monday, just hours before Boris Johnson pushed back Freedom Day by four weeks, the Government published new modelling, warning that a deadly third wave was on the horizon.

Under the most pessimistic scenario, Imperial College estimated Britain could experience a further 203,824 deaths by next June, while even modest estimates from other groups suggested more than 50,000 would die.

Yet it has now emerged the models were based on out-of-date estimates of vaccine effectiveness, which assumed far fewer people protected by the jabs.

Which does raise an interesting question. There being two possible answers here. The first is simply that Hayek was right. The second is that the universe is striving mightily to prove him right. As we’re not sufficiently even Deist to believe that the universe strives to do anything at all we will run with the conclusion that Hayek was right in the first place. But given the only two possible answers that makes little difference.

It isn’t possible to plan in any detail as the information necessary to do so simply cannot be extracted from reality. Therefore we must stop attempting to plan in any detail. We are left with only the one option. Set the basic rules, yes, of property, incentives, of the law, then leave be and see what happens.

Equality and opportunity

There seems to be a widespread assumption that in our societies equality should be a prime goal. There are other goals, many agree, but they suppose that equality should be a paramount goal, outranking others deemed to be lesser goals.

In John Rawls’ book, “A Theory of Justice,” he famously makes the case that if we were drawing up the composition of a society without knowing what our position in it might be, we’d choose to make it a reasonably equal one. He and many of his followers have thought that this ‘proved’ the case for equality, and that a just society would have to be an equal one.

But as Robert Nozick pointed out almost immediately in “Anarchy, State and Utopia,” such a society would not be equal for long. In his Wilt Chamberlain thought experiment he argued that Wilt Chamberlain might freely choose to exercise his talents for basketball, and that spectators might willingly put 25c in his box to watch him, making him $250,000 richer. To prevent this distortion of equality, the rules would have to prevent people from freely choosing how to exercise their talents, and prevent people from freely choosing how to spend their resources. Few people would call that a just society.

Rawls did not ‘prove’ the case for equality, he assumed it. His assumption was that people would want to be reasonably equal with other people, and would therefore choose a make-up of society in which that happened. But there are those who think that some goals outrank equality. Some would choose a society in which, whatever their role in it, they would have opportunity, the chance to better their lot.

Adam Smith remarked upon “the uniform, constant, and uninterrupted effort of every man to better his condition.” Today we’d make that “every person,” which is what Smith meant. Thomas Jefferson spoke of “life, liberty and the pursuit of happiness,” valuing the pursuit of it rather than the attainment of it. Several psychological surveys have shown that people are happier when they feel they are improving their condition than they are in static societies, even those with a higher level of achievement.

Many people value opportunity, and want to live in a society that offers it. This is not equality of opportunity, just the chance of improvement, even when it is not available to everyone in the same degree. A society that does offer opportunity will necessarily be an unequal one because not everyone will avail themselves of the opportunities present to the same extent. It is difficult to conceive how equality of opportunity might be brought about, given that some people have more loving parents, or parents more concerned to help their children to seize opportunities. The childhood environment makes a difference, as does character, and as does chance.

What we can do is work to bring about a society in which everyone can strive to improve their lot and to give themselves and their children better lives. Everyone is a stakeholder, even though not an equal one, in such a society. They all have something to gain from it, together with the chance of self-fulfillment.

The Australian trade deal won't affect British production standards in the slightest

Minette Batters is entirely and wholly wrong here:

Minette Batters, president of the National Farmers’ Union – which bitterly opposed lifting levies on meat imports from Australia – said it would await further details, but was concerned Tuesday’s announcement “made no mention of animal welfare and environmental standards”.

She said: “We will need to know more about any provisions on animal welfare and the environment to ensure our high standards of production are not undermined by the terms of this deal."

The Australian trade deal will make no difference whatsoever to British production standards - whether they’re high or not. Beef - for this is the beef at issue - will be produced in Britain to British standards as previously.

What Ms. Batters is actually complaining about is that British consumers will now have the choice of beef produced to British standards or to Australian ones. This is, of course, an advance in freedom and liberty and so to be welcomed merely on those grounds. What Ms. Batters is worried about is that some to many will choose those Australian standards. Which is, as we say, an advance in liberty and freedom. For those who still prefer the British standards will be able to have them, those who don’t will not be required to.

Which does bring us to a point we’ve made before. The only possible logical reason for denying people such a choice is the fear that they might make the one the proposer of the ban would prefer they didn’t. After all, if everyone continued to prefer British standards then there would be no need at all for restrictions upon Australian beef. The call for the restrictions is this not just an admission it’s a positive insistence that some to many would prefer the Australian option.

And, when put like that, why in heck shouldn’t people have that choice? Why should production standards they don’t desire be imposed upon them?

That is, Ms. Batters, the very fact that you oppose the freedoms is why we should have them. Because you are agreeing that people desire the freedoms by your very opposition to them.

If only Polly Toynbee actually understood

But then if she understood then she’d not be Polly Toynbee of course. For Polly tells us of a new tax explainer from the IFS and insists that it will be a glorious addition to the progressive’s armoury:

Thatcher said you will always spend the pound in your pocket better than the state will. This remains the key political divide: the left believes our taxes buy everything we value beyond price – health, security, education, beautiful parks and public spaces, fine stadiums and leisure centres, museums and galleries. In a country to be proud of, burdens are fairly shared and no one falls below civilised living standards: that requires fair taxes, fairly raised. The right relies on fiscal ignorance. The IFS is impeccably neutral, but its TaxLab will be a great asset for progressives.

Up to a point Lord Copper, up to a point. Take this about corporation tax:

However, economic theory and evidence strongly suggest that the incidence of corporation tax is not exclusively on shareholders. In some cases, companies will set higher prices, or pay lower wages, than they would in the absence of corporation tax, such that part of the burden of the tax will be felt by customers or workers respectively. Evidence shows that corporation tax affects how much companies invest and where they locate their real activities. To the extent that companies respond to corporation tax by doing less investment in the UK, a lower capital stock and associated lower productivity will leave UK employees with lower average wages.

Quite so, entirely reasonable estimates for the US have shareholders and workers carrying 30/70% of that corporation tax burden, others equally reasonable 70/30. One UK estimate is 50/50. Further, we know what determines the split and it was Joe Stiglitz along with Tony Atkinson who pointed out that for a small economy reliant upon foreign investment - so, a developing country - it could be the workers hauling more than 100% of the costs of corporate taxation.

Don’t tax profits because you’ll lower the workers wages isn’t, quite, what the progressives want to hear.

But there’s another point here as well.

A mouse-click shows that people in Britain pay less tax (in 2019 figures), at 33% of GDP, than the EU average of 39%, while in Denmark it’s 46%.

...

Democracy depends on citizens understanding what they vote for; ignorance breeds dangerous misconceptions.

....

Voters are unreasonable, demanding Scandinavian services on US-style low tax rates.

Well, OK to each individual point there. But this is to miss that what government spends on those services is very much less than the tax revenue government collects. Denmark spends some 17.5% of everything on such things, the UK some 15.3%. We agree, that’s a difference, but it’s not anything like that of the tax collection. Near all of the rest is redistribution of incomes, not the provision of public, state or government services. That is, it’s entirely possible to have those Scandinavian levels of service without having to have their tax bills. Why, that might even be good idea:

Tax is not a “burden”, but the price we pay for civilisation.

The price we pay for something is the burden we must carry for having that thing. That’s the very definition of price. But we do come to an interesting place here, don’t we? We can have those services which Polly describes as civilisation for very much less than we currently pay for them. Gaining civilisation at less cost sounds like a good idea to us. Why don’t we try it?

All of the things we gain from government - whether they’re done well or badly, could be done better in other ways - in terms of goods and services can be had for 15 to 20% of GDP. Everything else is just shuffling bits of paper between citizens. A state limited to those necessary goods and services has its attractions. This not being something we expect progressives to be interested in hearing.

So, that's that problem solved already then

We are told that the virus lockdown and associated actions have led to something happening.

The number of homeless households rose slightly in 2020-21 compared with the previous year.

Ah, so the virus and lockdown and associated actions in fact made pretty much no difference then. That’s good. There is also this:

At least 130,000 households in England were made homeless during the first year of the pandemic

That does seem remarkable though. We rather think that it would be possible to see this. That number sleeping rough, exposed to the elements, would be easily visible, wouldn’t it?

Analysis of published government homelessness statistics and figures collected under the Freedom of Information Act from around 70% of local authorities in England show that 132,362 households were assessed by councils as being owed the “relief duty”, where a household is deemed to already be homeless.

Ah, all is explained. This is a celebration of the glorious success of the welfare system. Without it there would have been - OK, could have been - 132,362 households forced to sleep in the rain. What is being measured here is the number of households - because that is what they are measuring, the number of people kept out of the rain - who could have been but were not, in fact, made homeless. Because we have a system that deals with the risk of homelessness, those local councils having a duty to provide a solution.

So, that’s nice then, isn’t it? We need a system to protect people from sleeping in the rain, we have one, time for the Happy Dance, no?

Given that this is all sorted which is the next problem that we need to find a solution to?

Defending the Great British Sausage

70 Whitehall 

“Humphrey.” 

“Yes, Minister?” 

“I hear our gallant friends in Ulster will not be allowed to breakfast on British sausages after 1st July.” 

“That’s correct.” 

“Why on earth not?” 

“As I am sure you are aware, Minister, they do not comply with regulation EC 853/2004.” 

“Never heard of it.” 

“Inter 151 pages of alia, EC Regulation 853/2004 says about meat products, i.e. sausages: ‘Certain foodstuffs may present specific hazards to human health, requiring the setting of specific hygiene rules. This is particularly the case for food of animal origin, in which microbiological and chemical hazards have frequently been reported.’” 

“Frequently been reported? Has any continental ever reported a single hazard?” 

“That might be because continentals don’t eat our sausages and Her Britannic Majesty’s subjects have, over the centuries, acquired immunity.  Of course, that might not apply to the Duchess of Sussex but she may not have lived long enough in the UK to acquire immunity and has now put herself at a safe distance.” 

“You are wandering, Humphrey. The fact is these sausages were considered perfectly complicit with EU regulations when we were in the EU, the regulations haven’t changed and nor have the sausages, so why should they be banned now?”  

“They are not banned from consumption, Minister, just for import from third countries, which did not include us then, but does now.” 

“So it’s another EU non-tariff barrier like VI-1 forms to deter the imports of third country wines.” 

“Indeed, Minister, but in this case it was unintended.” 

“So the Ulstermen could produce exactly the same sausages in Belfast and send them all round the EU?” 

“It would seem so, Minister. Maybe the Protocol does open trade opportunities for Northern Ireland after all. Although I doubt it. Pork sausages made in the Republic of Ireland are much the same as British ones, apart from their shape, and the continentals do not go for those either.” 

“Well, that’s really what is daft. The EU insists this ban is necessary to prevent the British sausage undermining the sanctity of the single market by flooding into the Republic and all other parts of the EU thereafter. The reality is that the Republic is awash with its own sausages and none of the continentals want to go near them.” 

“The EU is not interested in reality; it cares about rules and the logic thereof. It is an ideal; a fictional aspiration designed to stop the tribes of Europe squabbling but ultimately ensuring they will do exactly that – or that’s what recent polls indicate.” 

“You may be right, but that’s too clever for me.  The issue today, Humphrey, is that Ulstermen must have their British sausage and if that is something we overlooked in the Brexit talks, you can’t expect us to have thought of everything.  It was all very complicated.” 

“No one admires more than I do, the ability of our ministers, advised by their civil servants of course, to cover every detail across an enormous range, but I must mention un petit oubli, if I can put it that way. On the 17th December, your colleague Michael Gove agreed a grace period until 1st July.[2]  Far be it from me to be critical, but he simply kicked the can six months down the road, when he should have pointed to paragraph 27 of the introduction to the regulation which says ‘Scientific advice should underpin Community legislation on food hygiene.‘? As we have 40-something years of harmless EU enjoyment of the British sausage, there is no scientific evidence to support banning its import.” 

“Well spotted, Humphrey, even Brussels would have to recognise that as the reality of that. Unfortunately we can’t blame Mr Gove now.  He is one of our star players.  We simply have to blame the French.”  

“I quite understand, Minister.  M. Macron has given us an opening when he said the Protocol cannot be amended.  He clearly has not read it.  The Protocol is designed as a working document: intended to be amended.” 

“Jolly good.  Nothing like biffing the Frogs.” 

“There is one other small ray of sunshine.  Mrs May, as you will recall, imported all the EU regulations into UK law, en bloc, to make transition easier.  So now under UK law, the French cannot make British bangers and export them to us at prices lower than ours.  As a third country, their sausages would be deemed hazardous.” 

“Do they show the slightest desire to do that?” 

“Well, I did say it was a ‘small ray’.”

Dom Cummings is a decade late in noting HS2's worthlessness

Dominic Cummings tells all that Boris Johnson signed off on HS2’s £100 billion costs on the basis of inaccurate - fanciful to laughable in fact - projections of future passenger traffic. This being obviously true, it’s just that all of this was known a decade back, as we’ve repeatedly pointed out.

Boris Johnson signed off on the £100 billion High Speed 2 rail line based on "garbage" data predicting an exponential increase in demand for the service, Dominic Cummings has claimed.

In a posting on the Substack website, the Prime Minister's former chief adviser, said that he and other officials had highlighted "absurdities" in the evidence presented to Mr Johnson to justify pressing ahead with the construction of the line last year.

But Mr Johnson "blew" the decision on whether to go ahead with the scheme having been presented with a "garbage model/graph", Mr Cummings wrote.

This is not something new. As we have indeed been pointing out for a decade now.

For HS2 has never actually passed a properly done cost benefit analysis. The underlying assumption is that business, or working, time spent in a train carriage is unused, worthless, time. So, if those business, working, people get to their destination faster they have more working time available and this is, really, the major benefit on offer from HS2. It’s by far the largest amount of money on that benefit side.

Except that 21st century technologies, the laptop, mobile phone and internet - OK, possibly 20th century technologies - make that assumption about the 19th century technology of the railways untrue. People do work while travelling these days therefore the reduction in travel time isn’t worth what is being assumed.

This is such an obvious point that it even made George Monbiot choke on his cornflakes when he was told it. And if you’re making an economic error that even Monbiot can see through then you are, obviously, making a real doozy.

The question then becomes well, why in heck is it being built? The answer being concentrated benefits and diffuse costs. That £100 billion becomes, for us out here, £1,500 each in costs. Or, perhaps more accurately for how we care about it, £75 a year per man woman and child in the nation for a couple of decades.

Yes, this is real money, it’s a cost for us to bear, but it’s not an amount we’re about to storm the barricades over. On the other hand those who are to receive the £100 billion are a small group who are really very, very indeed, interested in their receiving this bounty from the rest of us. Therefore we have a concentrated political interest fighting a diffuse not very interested at all. Guess who wins in politics?

Which brings us to our actually lesson from all of this about HS2. Politics - therefore government - is a lousy way of not just getting infrastructure built it’s a terrible way of deciding which and what infrastructure to build. HS2 being our perfect exemplar - it wasn’t worth it back when it was only going to cost £17 billion but it now continues at £100 billion.

The solution is equally obvious. Insist that those who wish to build infrastructure do so with their own money, not our.

Once more into the breach on the gravity model of trade

As seems to be turning out Brexit has not had some disastrous effect upon British trade. There’s some rebalancing between trade with the remnant European Union and the rest of the world and that’s about it. Which leads The Telegraph to tell us that:

First, the single market is wildly over-sold, and so is the textbook "gravity model" of trade, on which the Treasury and most trade experts relied to forecast catastrophe once we left the bloc. In truth, even though its cheerleaders like to sell it as the EU’s crowning achievement, and a jewel that must be protected at all cost, it does not make much difference one way or the other, and certainly not between major developed countries.

It is tariffs and quotas that count, not regulatory alignment, and those are dealt with under World Trade Organization rules, and were set aside by the trade agreement. Beyond that, it is an irrelevance.

Well, yes, and also no, not quite. The thing being that all too few understand the gravity model.

Large economies trade more with each other than do small - obvious enough, a large economy has more economic activity. Economies close to each other trade more with each other. Thus the analogy to gravity, large close economies have more influence upon each other than do small and far apart. The Earth and Moon have more gravitational impact upon each other than do Ceres and Europa, The Sun is very large and has impacts on all of them.

However, the distance that is talked of is not geographical distance, it’s economic. “Economic” here being that mixture of simple geography, transport links, artificial barriers like borders, more artificial barriers like customs declarations, tariffs, quotas and so on. At which point it should be obvious that the single market was tipping the scales in the measurement of that distance. The absence of that free movement, the reversion to all trading with the UK on the same terms - to the extent this has actually happened - means that all are now competing on the same economic distance. The same economic distance as measured by those artificial barriers such as tariffs, quotas and so on.

Lower economic distance is a good thing, of course it is, more trade makes us richer and all that. But the changes in trade barriers are allowing the gravity model to play out on that level playing field as EU membership did not. Thus the reallocation of trade relationships to non-EU members:

The UK is returning to a historic trading relationship with the rest of the world, which means trade with the EU will fall a lot more over the next few years.

That’s not a violation of the gravity model of trade it’s a proof of it.

Of course, what we should really do is abolish all those artificial additions to economic distance by simply moving to unilateral free trade. But then as we know such obviously sensible actions have no chance in politics, do they?