This could indeed be substantial state aid from the SNP to Gupta

A useful little reminder that just because cash doesn’t change hands doesn’t mean that there isn’t something of economic import going on:

Nicola Sturgeon's government may have broken state aid rules in a deal to sell a steelworks to Sanjeev Gupta

We’re not attempting to judge this particular case, we want instead to use it as an example:

The SNP government bought the site for £1 from Tata Steel, then immediately sold it to Mr Gupta's business Liberty Steel as part of a deal they claim was intended to protect jobs. Ministers agreed to protect Tata from any future clean-up costs for environmental damage to the site.

Ah:

….it is considered that the clause providing the indemnity to Tata Steel may represent State aid, even though no money has, or may ever, change hands."

Well, yes, it could be. For the costs of closing down a site after decades - possibly centuries - of heavy industrial use can be extremely high. That’s why it is often so much more expensive to build on brown- rather than green- field sites. An indemnity against any possible clean-up costs is a significant subsidy. Whether that actually breaches state aid rules we’ll leave to the courts.

The larger point here though being we agree, no cash has changed hands. Yet clearly something of economic import has happened. Which is something we need to consider about government involvement overall.

It may be true that the UK government only - “only” - takes 35% of everything in tax to spend as it, not we, wishes. But the government also imposes burdens through regulation, bans, indemnities and even flat out stupidities. These may not lead to cash changing hands but they weigh upon the performance of the economy just as badly. The true cost of government is thus much larger than the mere cash that is sucked from our wallets.

One estimation over in the US, by the Cato Institute, suggests that the true cost of government is about twice that cashflow. That would be 70% of GDP, of everything, for us and that wouldn’t surprise us as an accurate measure.

Which leads to a suggestion. Why don’t we lift some of that burden off our shoulders by limiting, even reducing, the regulation and non-cash interventions into the economy? Actually have that long promised bonfire of the red tape?

Capitalism doesn't cause death by tornados

There’s an interesting attempt out there to insist that those deaths in the tornados were caused by capitalism. You see, folks were at work, work is capitalism, so, without capitalism they wouldn’t be at work and therefore wouldn’t have died. We’ve seen the idea floated in several places so we might think that it’s an attempt to create a meme - something wildly untrue, a lie even, but which is popular.

Here’s The Guardian version:

They were forced to stay at work as a tornado bore down. Would a union have saved them?

Those who died in an Amazon warehouse in Illinois and a Kentucky candle factory were sacrificed to the altar of profit

Profit, d’ye see? Capitalism.

Because none of them had a union to protect them.

Fight the power etc.

Some 100 people, around and about, died in those tornados. Something like 10% of those were at work. Meaning that 90% were not and having a union or not would have made no difference at all. Nor would capitalism in fact. So, at this level of detail we can reject the idea already. Even if it were all about capitalism, unions, the pursuit of profit and work then it’s only trivially so.

Except, of course, it isn’t about any of those things at all. Work is not something unique to a capitalist system of production. Indeed, given that capitalism and markets are what make modern society so rich - and richer people work fewer hours because leisure has value - we can actually say that given capitalism fewer were at work when the tornados struck than would have been under any other system. After all, the workloads under socialism of feudalism weren’t lighter, were they?

So, no, it’s not true. Capitalism didn’t kill here. Unions wouldn’t have saved. It’s an attempt to create one of those memes. Something lightly and generally believed but which on examination has no truth to it at all.

But then, you know, The Guardian.

Joe Stiglitz appears remarkably unobservant for a Nobel Laureate

Joe Stigltiz tells us that this is vitally important:

Only when they all agree to the WTO waiver will they have done what is necessary. But there will still be more to do, including incentivising the transfer of technology. Only then can vaccine production be adequately ramped up around the world. And only then will we really be able to effectively counter the spread of the virus.

Well, no. It’s not true that vaccine production needs to be ramped up around the world. It is true that vaccine production should be ramped up for the world though. Which is a rather different thing.

To illustrate, there’s no point at all in Cabo Verde, with half a million people, producing its own vaccines. That’s as sensible as suggesting Bristol does and that’s not including Clifton. But that seems to be what is being suggested:

What is needed is for Germany to agree to a temporary exemption from the World Trade Organization’s intellectual property rules. These currently stifle the worldwide production of Covid-19 vaccines and antiviral treatments. If this barrier were removed, more vaccine doses could be produced in, and for, developing countries. That is exactly what the world needs, as the emergence of the Omicron variant is proving, all over again.

What is needed is that vaccines are produced, not where they are produced. And it’s only if the patent on a vaccine is the scarce resource that freeing that patent will increase vaccine production.

From those who actually know their onions in this field patents are not, in fact, the constraint. Anyone who has the ability and capacity to manufacture extant vaccines can gain access to the right to do so. What is lacking is industrial capacity, not access to the patents that is. So, the patent waiver would not solve the problem then, would it?

It’s also interesting the specificity about Germany. That’s where BioNTech is based of course. That Pfizer manufactured and distributed vaccine, part of that programme where Pfizer spent its own money, thinking that taking government cash, with bureaucratic oversight, would slow things down.

So, the actual proposal is that the private property of those folks should be taken in order to produce nothing of value to the vaccine rollout. Except, of course, to the great disincentive of anyone in the future agreeing to spend their own money trying to solve a global problem.

It might be possible to disagree more strongly with this suggestion but at the very least we’d say that this, coming from a Nobel Laureate in economics, is remarkably unobservant as a suggestion.

In Memoriam: Linda Whetstone (1942 - 2021)

We are saddened by the death of Linda Whetstone (1942-2021), a good friend of the Adam Smith Institute and a tireless campaigner and organiser for the cause of a free society and free economy.

In that, Linda took up the work of her father, Battle of Britain pilot Antony Fisher, who in the 1950s, set up the highly influential Institute of Economic Affairs — following advice from the great liberal thinker F A Hayek that liberty is won through ideas, not politics. Knighted under Margaret Thatcher’s government for his work in advancing the ideas of liberty, Sir Antony went on to create the Atlas Network, an institution dedicated to establishing and assisting free-market think-tanks around the globe.The Network has by now grown to around 500 partner think-tanks in 100 countries.

Linda became a board member of the Institute of Economic Affairs and of the Atlas Network, rising to become its chair before going on to become President of the Mont Pelerin Society, an international association of liberal-minded scholars and practitioners first created by Hayek in 1947. She still held this office when she died, suddenly, at an Atlas Network forum in Miami on December 15th.

Linda was also a farmer who gave advice to Margaret Thatcher on agricultural policy reform and wrote reports and spoke at events for the Adam Smith Institute criticising the agricultural subsidies system. She bred horses and became Chair of British Dressage, where she was instrumental in the development of the National Championships and Area Festivals.

However, she will be best remembered for her tireless initiatives and effort in helping spread liberal ideas and working with young liberal activists in many countries, particularly in Africa and the Middle East. She developed a CD with key extracts from the work of important liberal thinkers such as Hayek and Milton Friedman, successfully negotiating with publishers to release their copyright for the purpose of public education through this medium. Over 150,000 copies were distributed to over 60 countries. Having access to these ideas — so rarely taught in schools in rich and poor countries alike — brought countless young people their first experience of liberal thought and the arguments to support it. Many of them went on to form their own liberal student societies and think-tanks.

It was Linda who urged me to write, for the Institute of Economic Affairs, Foundations of a Free Society, a short introduction to the liberal mind, which she helped get translated into over twenty different languages including Arabic, Swahili, French, Farsi, Dari and many others. So successful was this enterprise that she commissioned another author to write Islamic Foundations of a Free Society, which again she helped get translated and distributed across the Middle East and North Africa.

Those who knew her will remember her as a no-nonsense person who railed without tiring against the inbuilt conservatism of governments and organisations, particularly those that were supposedly committed to advancing freedom. She was happiest in the company of young people who were driven by ideas and saw no limits on what could be achieved with application and effort.

She leaves in the liberal movement a gap that is impossible for any other individual to fill. And yet, the countless hundreds of new, young ambassadors for freedom that she inspired and developed will carry on her work in different ways but with no less vigour, commitment, kindness and humility.

We fear George Monbiot is missing something important here

George Monbiot wants us all to know that building fences along borders slices up wildlife populations to the detriment of the future health of those populations. He may well be right in that. Not wholly right, absolutely, as those fencings and blocking offs have, at times, had the opposite effect. That Australian rabbit fence is rather useful for example. Or, given the area of the world Monbiot is talking about:

For decades, the border that cut through Europe was a brutal symbol of the hostility between East and West, between the socialist and capitalist power blocs. Until the fall of the Berlin Wall 28 years ago, it divided Germany into the Federal Republic of Germany in the West, and the German Democratic Republic (GDR) in the East. Many lost their lives trying to cross over to the West, killed by snipers or landmines, in the no-go zone between the two nations. This heavily guarded corridor became known as the "death strip".

But in this region where no humans could tread, plants and animals thrived.

No, we don’t think the abomination of the Iron Curtain was worth some wildlife but it is an interesting example of how everything does have costs and also benefits, everything.

But that’s not the important thing that we fear Monbiot has missed:

When the Berlin Wall fell, we were promised that this marked the beginning of a new era of freedom. Instead, far more walls have risen than fallen. Since 1990, Europe has built border walls six times longer than the barrier in Berlin. Worldwide, the number of fenced borders has risen from 15 to 70 since the end of the cold war: there are now 47,000 kilometres of hard frontier.

For those trapped at these borders, the cruelties of capitalism are scarcely distinguishable from the cruelties of communism.

The distinction should be simple enough. For there is a difference between a wall meant to keep people in and a wall meant to keep people out.

Yes, we grasp the moral point that the people should be free, that migration is one of the great exercises of that human freedom. We would also insist that observing the flow of people across such lines on the map tells us a great deal about the systems either side of it. People are moving from less desirable to more and one useful manner of working out what it is that people actually desire in this life - migration as revealed preferences - is which socioeconomic system loses people, which gains?

But we do still insist that there’s a simple manner of distinguishing between those different cruelties, of capitalism and communism. Which way are the guns pointing? Out to keep people out, or in to keep people in?

The NFU can go boil their heads

This is a special interest group demanding more of our money:

The supply chain crisis must be fixed urgently if the government is to ensure food security in the UK, a coalition of industry groups has warned.

Food and farming leaders warn that the sector has been hit by shortages of workers from seasonal fruit pickers to abattoir staff and lorry drivers, alongside inflation that has driven up the price of energy, feed and fertiliser.

The National Farmers’ Union (NFU), which has convened a summit of organisations to discuss food security on Tuesday, called for the government to make a serious commitment to at least keep Britain’s self sufficiency in food production at 60%, and create an environment to support businesses.

As the government itself points out, significant domestic supply is actually detrimental to food security:

Food Production to Supply Ratio is calculated as the farm-gate value of raw food production (including for export) divided by the value of raw food for human consumption. It provides a broad indicator of the ability of UK agriculture to meet consumer demand.

A high production to supply ratio fails to insulate a country against many possible disruptions to its supply chain.

Britain is a small enough place that the weather events that are so detrimental to a season’s crops can affect the whole place. Therefore concentrating our supply source in an area that can all be affected by the one season’s weather - or crop disease, or animal plague - reduces our food security.

As it happens that domestic production is about 54% of what we consume and 63% or so of all food - that second including exports.

The actually important demand there is “an environment to support businesses”. The NFU wants to ensure that when the holdover of the EU subsidy schemes disappears then there’s some other ladling of our cash into farmers’ pockets. “Food security” is just the latest fashionable cloaking for this demand.

As we should all already know and as the government itself does, food security is enhanced by having many sources of food, not concentrating supply into one geographical area.

The NFU can go boil their heads.

Holding people to the results of their policy promises

There are many suggestions in politics and policy. We should do this, or that, if we do the outcome will be this benefit or that t’other. The thing is the world’s a complex place with many different moving parts. We never really find out the effects of a policy until it has been implemented. For only by something actually working through the system do we see those full effects.

Women now account for a majority of independent directors at Britain’s largest public companies, research has found.

The biggest 150 groups listed on the stock market now employ 442 female non-executive directors, compared with 422 men, a report from Spencer Stuart, a headhunting firm, shows.

How excellent.

For we were told, nay insisted at, that gender diversity in the management of companies would mean that companies were better run. So much so that some countries - Norway comes to mind - insisted by law that it must happen. Others have fiddled with listing rules and so on.

Again, excellent. But now comes the interesting part. Has it worked? No, not has the impulsion worked, but has the act itself worked? Are British companies now better run than they were before the gender diversity arrived?

No, not is the world fairer now that the economic liberation of women, that devoutly to be wished event, has matured. But has that claimed and insisted upon effect of companies being better run happened as a result?

Only by examining this can we find out whether those original assertions were true. Companies would do better with gender diversity. Now we have that gender diversity has the predicted company performance arrived as well?

Do note that this is actually nothing at all to do with gender or diversity at all, it’s to do with science. The prediction was, the event has happened, did reality conform to the prediction? If not reality wins, not the prediction. Which is why the management scientists, the advocates of equal outcomes along gender lines, need to be asked to prove their contention.

Has your prediction come true? If not, why not? How has your hypothesis changed if it didn’t? The reason being that if they’re not studying all of this, testing the hypothesis against the evidence and results of the experiment, then they’re not doing science, are they? Which is what they claimed they were doing so we should hold them to it.

Are British companies now better run, Y/N? If yes then excellent but prove it. If no then why is it being forced?

If earthquakes are the problem then why different rules for fracking and geothermal plants?

That there should be rules - laws, regulations, even social standards can work at times - over what may be done as it affects others is an obvious truth. However, it is a standard part of a just system that rules are rules, the law is the law. Where the limitation is upon third party effects then the cause isn’t the point, it’s the effect. So, different causes of the same effect should be treated the same way under the same rules.

As the man said the rich are prevented from sleeping under bridges, stealing bread, too.

Fracking companies were riled after testing to extract heat, power and lithium from deep geothermal waters in the county last year triggered mini-earthquakes similar to those caused by fracking, but different regulations meant the work did not have to regularly pause as a result.

There is energy in those geothermal waters, there is lithium too. Gaining access to both of those may or may not turn out to be profitable. There is gas to be fracked in various shales, gaining access to that may or may not turn out to be profitable.

The third party effect being worried about here is earthquakes. In common with mining - in fact with anything that involves messing around with underlying rock and geological structures - there is a risk of those ‘quakes.

Therefore the regulations, the rules, on what the effect of the earthquakes upon the activities should be the same for each activity. They’re not. At which point it’s possible to come to the, and we admit the horror of even thinking that British politics could be so corrupted, conclusion that the fracking limitations are about killing fracking, not actually a concern about earthquakes at all.

It’s not only that co-opting the claim about safety regulations to advance a specific political cause is that undesirable political corruption. It’s also that different rules is grossly inefficient. If the rules do vary by the cause then it becomes ever more risky to try out new things that might create the effect. For who knows what the law will be on causes that have not yet been considered and codified?

That is, if we’re to have technological advance - the entire secret of making the world a better place - the rules have to be known and in advance. Not reliant upon whatever politics thinks of the cause but concentrated purely upon the effect.

If x, y and z all cause earthquakes - something oft true of fracking, geothermal and mining - then x, y and z should be treated equally under the law concerning the creation of earthquakes. Otherwise it’s not actually the rule of law, is it?

You can have a progressive taxation system or a large state - choose wisely

A further little point concerning the World Inequality Report. They argue that corporate taxation is a backstop to the income tax one. That a truly progressive taxation system - by which they mean high taxes on richer folk, not just a progressive system - is only possible if the combinations are taxed as well as the individuals.

As part of this discussion they seem to be arguing - implicitly at least - for both a large state and also that progressive tax system. We feel honour bound at this juncture to point out that you cannot really have both.

The American federal tax system is significantly more progressive than any of the European. Progressive in its true sense, that the portion of income paid in tax rises as income does. This system captures some 18% of GDP. The US system as a whole captures some 26% and is, with that addition of state and local, less progressive but still more so than European.

The European systems capture, largely, in the 35 to 45% range of GDP. The reason they’re much less progressive is that it’s just not possible to only - or only heavily and then lightly for the poorer - tax the rich and capture that amount of GDP. Even attempts to do so will lead to those richer leaving, or not working, or cheating, so that GDP itself is smaller which really isn’t quite the point.

So, taxation to gain that portion of GDP needs to weigh more heavily upon the poorer as well. It’s necessary to tax everyone, not just the rich, to gain that portion. This is largely achieved with VATs which are sometimes actually regressive and near always more so than income taxation systems.

To have a large state you have to tax everyone and heavily. There’s a limit to how much you can tax the rich. The combination means that you cannot have a large state financed y a highly progressive taxation system. The need for higher rates upon the rich, which are necessarily limited, means there’s no room to lightly, or not at all, tax the poor to provide the progessivity.

It’s necessary to make a choice. Progressive financing of the state or lots of the state?

We’re just fine with the progressive part - Adam Smith did muse on “more than in proportion to income” as being a reasonable taxation basis. In fact we’d insist upon it, as all our taxation proposals have done. This does bolster our further insistence upon the small state though.

It’s true that we always do argue for that small state. We’re liberals, so we insist that the vast majority of life is best, also righteously and justly, run by people themselves doing as they themselves desire. We’re also - having spent these decades up close and personal with the system - insistent that government isn’t very good at the vast majority of the things it tries to do. But it is also true, as a supporting argument, that you cannot finance large government progressively. On balance we think the large part is the one to get rid of.

Why not a state that we can pay for out of what can be grifted off the rich?

Capitalism does work but it does have to be capitalism

There is much woe and gnashing of the teeth over how the investment industry is gaming matters:

As socially conscious investing surges, dodgy metrics and dirty tricks abound.

…

Being able to label a fund as net zero is a marketing coup for fund managers, and has prompted some to try some classic financial engineering.

Yes, obviously. If strewing a few pretty words around and continuing to do the same ol’, same ol’ makes money then pretty words will be strewn and the same ol’ done.

If you actually want people to change what they do then you’ve got to recall that first important part of economics - incentives matter. What you do is change what makes money, not what rhetorical wrapping you put around it.

This is the argument in favour of that carbon tax. Every price in the economy is changed by its existence. What is profitable to do is then informed by that. Every capitalist - and every manager of capitalists’ money - can instantly see that incentive reflected in the numbers of every potential investment.

At which point we don’t need standards and exhortations and committees and meetings and social movements. For the task is already done - all investments are now made taking full account of both the costs and benefits of that climate change and how to deal with it.

The reason being that capitalism really does work but it really does have to be capitalism. Haul ‘em in by their wallets and all else will follow. Change the incentives, not the language, investors face and investors will change their actions. It really is just that simple.