Greetings everyone!
I found out about the Adam Smith Institute in the classical free-market way; page 23 in a book by Owen Jones.
In the revelation of learning about an entire organisation that shares my free-market principles, I was infatuated with the idea of one day becoming part of it. Deciding post-application that Economics is my undergraduate calling, and feeling disillusioned to the prospect of backpacking in Vietnam, the opportunity to spend a year in Westminster at the spearhead of neoliberalism was one I wished to unequivocally pursue.
Following my application being sent over summer, I was notified that I have been successfully shortlisted and called to an interview in Westminster. After making my way across from Euston Station, I was immediately struck by the unbridled passion and enthusiasm permeating throughout the office, and knew in an instant that this is a place I long for. I received the news of my successful application while brewing a cup of tea, and in my euphoria, ran upstairs to inform my mother.
My journey into neoliberalism started with the realisation that the only guarantee for prosperity is enshrined within the framework of free enterprise. Through this, a close friend and I founded a classical-liberal advocacy website called Friedmanomics, in order to create a platform for young people throughout the nation who feel their beliefs in individual liberty have been marginalised. From our humble beginnings in a single History classroom, we now have writers from around twenty different schools nationwide and an active following. I am extremely excited to bring this previous experience to my time at the ASI, and contribute in the fight to restore the invisible hand to the role now occupied by the state’s creeping hand.
My experience so far has surpassed every expectation (as high as they already were). Walking across Westminster Bridge every morning, brushing shoulders with my political idols as I shop at the local Tesco’s, being paid to investigate free-market ideas; for a boy from rural Cheshire with a poster of Margaret Thatcher on his bedroom wall, this is an opportunity of my wildest dreams.
Charles Bromley-Davenport is joining the Adam Smith Institute for the next academic year as a Research Associate
Hello all!
Never one to take the conventional option, I declined my place at a top university to embark upon a gap year. However, unlike many of my peers who take gap years, I am taking a break from formal education to do something more academically challenging.
I have always loved debating controversial issues, taking stances which seem objectionable to my audience but convincing them of their merits. In the homogenous environment of school, the only way to do this was by presenting arguments with which I (and everybody else) fundamentally disagreed. Now however, I look forward to advocating for neoliberal policies and winning round a begrudging population. I believe this is needed in order to make significant progress in transforming the NHS and Social Care. Intensified through the pandemic, the British public are intent on resisting any change to the NHS, making reform contentious despite economic merit.
Coming to politics (relatively) late, my interest is driven by academic curiosity, rather than dogmatic ideology, and I look forward to my opinions and beliefs continuing to be shaped and challenged throughout the year. My current particular interest is exploring immigration policy, and am looking into the Nationality and Borders Bill. After working within the system at a refugee support service I discovered how harsher policy towards asylum seekers often doesn’t deter entry but simply prevents people from becoming economically constructive.
With the Budget just around the corner, both in time and geography, I am excited to critique and challenge it. During the initial stages of the pandemic, I competed in the IEA National Budget Challenge, and Economics Horizons Competition, coming 2nd and 3rd respectively, giving me an insight into the process and trade offs required when creating the budget. It will now be interesting to examine a budget from Johnson’s Government that gives a more long term indication of the economic priorities of the Government, rather than simply short term crisis control.
As someone who brings the political conversation to every party or pub I go to and am frequently told that there is a time and place, I am looking forward to spending the year with people who, like me, believe that it is always the time and place.
Fiona Townsley is joining the Adam Smith Institute for the next academic year as a Research Associate
Sir Simon insists that we're all terribly naughty peasants
Travel was the great beneficiary of the leisure society. Only now are we appreciating its cost, not just in pollution but in the need for ever more extravagant infrastructure. Cities sprawl when they should be densified. Communities have become fragmented. British government policy still encourages car-intensive settlement in countryside while urban land lies derelict.
It is an uncomfortable fact that most people outside London do most of their motorised travel by car. The answer to CO2 emissions is not to shift passengers from one mode of transport to another. It is to attack demand head on by discouraging casual hyper-mobility. The external cost of such mobility to society and the climate is the real challenge. It cannot make sense to predict demand for transport and then supply its delivery. We must slowly move towards limiting it.
The aim of having an economy - heck, of having a civilisation - is that folks get more of what folks want. That utility is maximised. There is, of course, that problem of third party costs imposed on others by our gaining our wishes. To which, as every good little economist knows, the answer is a Pigou Tax. If everyone is charged, within the market price suitably adjusted, the full costs of their actions then we gain the optimal amount of that thing. Optimal in the sense that we are thereby maximising human utility.
At which point something interesting from the IMF. Buried in their report on how fossil fuels are subsidised by $6 trillion, that £11 million a minute number, is what the petrol and diesel prices should be if all those third party costs were to be included in prices. On page 18. The UK charges just about the right price. It’s certainly within pennies per litre. This includes all costs too - not just climate change emissions but local pollution, congestion, accidents, road damage and even the idea that not paying full VAT is a subsidy.
We Brits, even if others elsewhere don’t fully enjoy this privilege, are paying the costs of our desires. We are already at that fully worked out and priced optimal utility maximisation. Yea, including the damages to others a century after us as the ice caps melt into the oceans.
But still we travel too much according to Sir Simon, our mere desires and willingness to carry the costs of meeting them counts as nothing. It might be unfair to characterise his views in this manner but still - the complaint seems to be that us damn peasants just won’t stay put where we’re supposed to be. That’s unfair perhaps but how unfair is that?
Casual hyper-mobility? That the proles are able to visit the other side of the hill without having to walk up it?
It's the how, not the how much, that needs the attention
A certain coordination in demands upon the taxpayer wallet here:
From climate change to health, spending on research pays for itself
So, therefore, government should spend more on research.
To be a science and tech superpower we need to invest more
So, therefore, government should spend more on research.
These calls coming separately from the head of the Royal Society and of the National Centre for Universities and Business. The representatives of those who would get to go spend any more government money allocated to research. Well, as the rumoured not-to-be-a-lady once said, they would, wouldn’t they?
The problem with the call being that they‘re concentrating upon how much money is to be spent. That’s their target, a rise to some specified level of GDP. Which isn’t what we’re interested at all. We want to know what is the output and that’s not something directly linked to that level of input. As they both point out, showing that the UK does put in less than many other countries but also gets more out.
So, any sensible analysis must start from the point that we are more efficient. So, why are we? Our own inclination being to suggest that as we do less of this inefficient government spending in this area therefore our system is overall more efficient. If that is the answer - note we only suggest it - then increasing the government portion of spending simply reduces our overall efficiency.
This is before we get to the logical problem here. The argument in favour of government spending is that such knowledge is a public good. Very difficult to make a profit from therefore the private sector doesn’t do enough of it. But if that’s true then it doesn’t matter which government does it, because it’s the production of a public good anyway. The argument being tried on here, that government must do the spending and also that it must be our government that does, fails in its own logical confusion.
Special interest groups and their begging bowls will be ever with us but that doesn’t mean we’ve got to listen to their pleadings.
The nation's being gaslit over business rates
It is a standard economic analysis that it is landlords who carry the burden of business rates, not tenants. There are libraries packed with proofs of this, Henry George is by no means the only person to have noted it.
Yet we have continued insistences from tenants that they must be freed from the burden of having to pay such business rates. Why?
In a letter to Rishi Sunak, the Chancellor, 21 business figures from companies including MossBros and The Entertainer said that action is vital to prevent a disaster.
Mr Sunak is expected to announce the delayed results of a review of the rates system in autumn, with speculation growing that it could be unveiled in his Budget later this month.
The property tax has long been derided as an outdated measure that penalises bricks and mortar stores at the expense of online rivals which have warehouses in cheaper out of town locations.
The letter said: “There are many views on precisely how the business rates system should be reformed, but on this we are all united: the current business rates system is broken and there must now be fundamental change.
“If there is no genuine reform of the business rates system, the occupation of commercial premises is going to become unaffordable to more businesses.
"There will be more bankruptcies of well-known retail brands, more retrenchment by retailers which do survive, more closures of hospitality venues, more boarded-up shops, fewer start-ups and whole shopping centres abandoned. Many communities are being hit hard, with thousands of jobs being lost each year.”
It’s certainly a stirring call. Despite the fact that it is entirely and wholly wrong. Any reduction in rates would flow through as higher rents to landlords. We even have empirical proof of this, from the changes in business rates in Enterprise Zones those decades back.
So, why are we all being gaslit in this manner?
Melanie Leech, of the British Property Federation, helped organise the letter
BPF, who are they?
The British Property Federation is the voice of the real estate industry in the UK. Our membership reflects the diverse nature of our industry – owners, developers, funders, agents and advisers.
Ah, the insistence upon the change now makes sense. Of course the landlords will be against a system of taxation that bites into their rents. Why the rest of us should take a blind bit of notice of this self-dealing is the question that needs answering now.
Spotting the invisible hand out there in the wild
Adam Smith’s actual use of “invisible hand” in Wealth of Nations was as follows:
Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
The background discussion is about the difference between the foreign and domestic trades. The argument being that the foreign trade produces more profit than the domestic, more more profit than the extra risk. Yet some do just prefer the domestic trade. Since domestic investment benefits the domestic economy this is the invisible hand. It’s an observation about a foible of humans, that their risk calculation is not necessarily entirely calculated.
One implication of this is about portfolio allocation:
British savers have been urged to expand their horizons and buy overseas stocks as their penchant for domestic companies has held back returns.
“Home bias” among Britons has been waning but the average investor still holds more than a quarter of their pension or Isa in UK companies. This is despite the global market’s total return of 78pc over the past five years, compared with just 22pc from London’s blue-chip FTSE 100 index.
The average investor’s exposure to the UK has almost halved over the past decade, from 42pc of their portfolio in 2010 to 26pc in 2020, according to the Investment Association, a trade body for the fund industry.
245 years and counting since first publication and we’re still catching up with the truths laid out for us. But then that’s true of so much of what’s in that book, isn’t it?
On the subject of the British sausage
The defining point of the British sausage is not quite as Jim Hacker put it:
Hacker: By the end of next year we shall be waving goodbye to the good old British sausage and we’ll be forced to accept some foreign muck like salami or bratwurst or something in its place
Sir Bernard Woolley: They can’t stop us eating the British sausage, can they?
Hacker: They can stop us calling it the sausage though. Apparently it’s going to be called the emulsified, high-fat offal tube.
Sir Bernard: And you swallowed it?
The grand distinction of the British sausage is not what the meat is. All sausages are made from whatever scrag ends come to hand. It is that we, being the pragmatic folk we are, note that the yumminess goes to hide in the fat of said scrag ends. We thus add up to 10% rusk, or breadcrumbs, to retain that yumminess through the cooking process.
Which brings us to current events:
The UK is on the cusp of victory in the Sausage War with the EU, after Brussels finally waved the white flag over allowing British bangers to be sold in Northern Ireland at the end of the grace period.
We’re willing to agree that there is a scale to regulation and politics. Some things are better handled at a higher level, for more people at a time, some things at a lower and more locally.
The current situation has the rulers of the remnant-European Union’s 450 million people arguing with the UK’s rulers of 65 million over what type of sausage the 1.8 million in Northern Ireland may have for their breakfast. The 1.8 million not even being a part of the 450 million.
We can’t help but think that there’s something wrong with the scale at which government and regulation is attempting to work here. We do rather lean to the idea that the folks of Northern Ireland are capable of deciding which sausage, if any, they’d like to have for their breakfast. This doesn’t even need to be done collectively, that voluntary cooperation between butcher and consumer would seem to be all that is required.
They have been doing this for some time, after all, there is a reason that the full plate in all its emulsified, fatty, offaly tubular yumminess is called an Ulster Fry.
It was never sensible to implement the worst part of California's deregulation
Other peoples’ mistakes are opportunities to learn. Opportunities to learn what not to do of course. Every “Hold my beer and watch this” is a teaching moment.
The big mistake made in California’s deregulation of the electricity market was to insist that wholesale prices could and would vary with the more general market but that retail prices could and would not. This baked into the system the risk that price volatility would bankrupt all of the retail suppliers and that’s what duly happened.
We now have UK retail suppliers toppling like ninepins and why is that?
Ofgem has opened the door to a major relaxation of energy price cap rules which would expose millions of households to the risk of sudden price increases.
The regulator signalled it was considering a review of how the energy price cap works after turmoil in the industry triggered by a surge in wholesale prices.
The cap prevents energy companies from immediately passing on higher costs to their customers, forcing many suppliers to the brink of bankruptcy.
Several companies have pushed for a review of the cap, arguing they cannot survive a six-fold rise in wholesale gas prices and four-fold rise in wholesale power prices without being able to pass on more to their customers.
The cap's level is only reviewed twice a year. However, Ofgem is understood to have ruled nothing out in a review of the cap, including how it is calculated and how frequently it can be adjusted.
The obvious answer is that the price cap should be recalculated more often. In fact, it should operate in real time - that is, not actually have a price cap at all.
The background point here being that prices are information. If that wholesale price is rising then we do desire that retail consumers use less power. That’s what the price rise is telling us should and needs to happen. So, insulating consumers from that information is the wrong thing to be doing.
Price setting is a bad idea in itself. But setting retail prices while leaving wholesale free will - and it is will, eventually - bankrupt those who buy wholesale and then sell retail. As is happening.
Leaving us with only the one mystery, why did people decide to copy that worst part of the earlier disaster?
We're wondering how this argument can be made
A strange thought:
Amazon is the enemy of literature – but one writer is taking a stand
Selling books by the shipload seems a strange way of being an enemy of literature. One explanation for the story being that one novelist has decided to run his PR campaign by claiming to be David against the Goliath. Well, it’s work for someone, once, as this very article shows. As an actual thing, rather than a form of chutzpah inspired shilling, it’s a little more difficult to recognise.
The main problem is that Amazon has devalued the book, altering the collective sense among the public of how much books are worth. It sells paperbacks and (in particular) hardbacks at a heavy discount; and it reduces the demand for these by selling e-books at an even lower price. Anyone who goes into a bookshop and sees a new hardback novel retailing at £20 will know that even brand-new novels hardly ever cost more than £9.99 if you get the Kindle version. Amazon would still undercut the opposition if it made new novels available at, say, £15 for an e-book, but it prefers instead to condition its customers into thinking that hardbacks are grotesquely expensive.
Once a book has been out for a while, the Amazon e-book versions tend to become cheaper and cheaper. Some books are marketed as part of a special deal for 99p or less. One author tells me that a novel of his sold half a million copies after Amazon chose it to be included in one such deal – and although the terms of the contract were favourable to Amazon, that book made him and his publisher more money than any of his other books have done.
That really is the complaint. Amazon makes books cheap and that’s bad. Even though readers get more, publishers get more, authors get more, it’s still bad. Because, well, something.
Books really are not Veblen Goods and they’re most certainly not Giffen Goods. The normal supply and demand stuff does work. But, something, apparently.
The arts world does always seem to have this problem with basic economics, doesn’t it?
Another new era of public health
39 Victoria Street
“Humphrey. It’s good to have you back.”
“Thank you, Minister.”
“I spent some of last weekend mulling through the press release we issued last Friday. Apparently our new Office for Health Improvement and Disparities (OHID) will give us all ‘live longer, healthier and happier lives’.”
“It is the dawn of a new era, Minister.”
“According to the press release, as Public Health England is no more, ‘the new UK Health Security Agency will have a laser-like focus on health protection, while OHID will improve health and tackle disparities in health outcomes across the country.’ If OHID has levelled us all up to full health, what will be left for the new Agency to be training its laser-like focus on? It sounds like the Bond movie ‘No time to die’.”
“You cannot have too much of a good thing, Minister. We have an ever-increasing population to care for.”
“It’s certainly inspiring reading though I’m not sure why we are for disparities. I never knew we had such powers. The key seems to be stopping people from smoking, drinking, partying and eating the sort of food they enjoy.”
“That is basically the plan, Minister. It appears that people, especially deprived people, cannot take care of themselves; they need our help.”
“I get that, Humphrey, but we also claim it will make them happier. How does depriving people of all that they enjoy make them happier? Indeed, you could say it makes them even more deprived.”
“A neat play on words, if I may say so, Minister. We are removing inequalities. The deprived members of our society eat, drink and smoke more than the more affluent. If we can reduce their consumption of things which we disapprove of, they will be more like us and better off too.”
“Do they want to be more like us?”
“Possibly not, but they will live longer.”
“Or it will just seem longer.”
”Rather an old joke, Minister.”
“Sorry about that but my point remains: is depriving the deprived of the things they enjoy, a recipe for their happiness?”
“What will make them happy is recognising that they have a government that knows what is best for them.”
“That is not helped, Humphrey, by our claiming more than we can deliver. Only last Saturday, we put out a press release saying that part of the extra £70bn we have just given to the NHS will be used for 40 community diagnostic centres which will all be closer to where people live than the 223 hospital trusts to which they would otherwise go. That is patently nonsense.”
“True but it is an important part of our plan to stop sick people visiting GPs or hospitals. That is what the new OHID is all about. The best way of keeping the costs of the NHS down is to stop people bothering them.”
“That’s all very well, Humphrey, but I am looking for just a bit of integrity in what we say. The two biggest reasons for shorter life expectancy are gender, women live longer on average, and ethnicity. In England, the Chinese live longest, followed by white British, with African and Asian ethnicities trailing some way behind. The non-white population has doubled so longevity has declined. QED.”
“We take a pragmatic view of the problem and assess disparity by where people live. It is quite clear that people in more deprived areas suffer worse health than those in less deprived areas.”
“So why don’t we just move people from the former to the latter. No problem.”
“Well, we are trying to build many homes in the more affluent areas but, unfortunately, they all have MPs from your party, Minister, and they object vehemently. You may not have read the paper on levelling up health and reducing disparities that Public Health England put four years ago. To summarise the action we were then initiating, we would:
‘A. Give every child the best start in life
B. Enable all children, young people and adults to maximise their capabilities and have control over their lives
C. Create fair employment and good work for all
D. Ensure healthy standard of living for all
E. Create and develop healthy and sustainable places and communities
F. Strengthen the role and impact of ill health prevention.’”
“And how much of that did we achieve, Humphrey?”
“Absolutely none, Minister. It has probably got worse but we can blame COVID for that.”
“Humphrey, that is what I am grumbling about. The claims were wholly unrealistic. The public would like to see achievable, measurable goals and regular quantified reporting on progress toward those goals, not some ludicrous aspirations that cannot be delivered. The idea that some quango of the Department of Health and Social Care is going to achieve ‘fair employment and good work for all’ is simply absurd.”
“Minister, may I remind you that it is our job to create policy – not to do anything about it? Are you against fair employment and good work for all?”
“Well, no.”
“There you are. But I do agree we need measurement to have some idea of whether we are making progress or not and we need objectives for which we are plausibly responsible. Are we talking about total life expectancy or healthy life expectancy, i.e. not needing care, or disabilities-free life expectancy?”
“You tell me, Humphrey. What people obviously want are happy, healthy care-free lives but if we target that, people will say we don’t give a damn about people needing care or with disabilities.”
“At the end of the day, Minister, it is all a question of money: the poor are deprived health-wise and the affluent are not. Poor health therefore is a matter for the Treasury, not for us.”
“So we can close OHID down and save the taxpayer some money?”
“Oh no, Minister, we have to look as though we are doing something. In reality, our efforts will change nothing and that will allow us to announce a new era of public health in five years’ time.”
“Humphrey, may I have a couple of those tablets you have in your top right-hand drawer?”