The true joy of microfinance
That Muhammad Yunis has been having problems in Bangladesh has been true for a long time. Sad perhaps but true. But it’s still worth pointing out what we really found out when we tried microfinance:
Yunus is credited with pioneering microfinance, a financial service for people locked out of formal banking systems. It allows them to take out small loans to invest in building their own businesses. Piloted in 1976 among a group of women in a Bangladeshi village who were given small loans without needing collateral, by the mid-2000s it was seen as a key tool for ending poverty. Yunus and the Grameen Bank won the Nobel peace prize for the work in 2006.
The first point is that those loans were not without collateral. Rather - and this is a very Elinor Ostrom point - the collateral was the social reputation of the borrower. Potential borrowers are placed into groups - who should know each other well. Only one of the group can have a loan at any one time. There’s therefore considerable social pressure to repay so that one other of the group can borrow. The very poor do still have an asset - their social reputation.
The second, and perhaps much more important, thing we’ve found out - more from Mpesa than Grameen - is that what the poor really want is a form of secure savings. Microsavings if you wish. The ability to put by - out of reach of the mice that will eat paper cash, thieves who might take it - a few days or a couple of weeks of necessary funds.
The point to be made here is not that therefore everyone must provide opportunities for microsaving even if that would be a good idea. It was that until those poor actually did get banked no one had a clue that that’s what the poor really wanted. Even Yunus thought it was access to capital that was the grand wish. But it’s been the ability to save, even at that microscale yet securely, that has had the biggest take up.
We don’t, in fact, know what people are going to do with a new thing until they’ve the opportunity to do so. Planning at some rarefied level of abstraction simply does not work. It has to be actually tried then, of those things that work, we do more of them. Markets that is and markets with free entry. Let all try stuff out then do less of what isn’t wanted, more of what is.
There’s, well, umm, you know, a plan, eh?
Tim Worstall
Your reminder, the social housing waiting list is those who want cheap housing
We’ve pointed this out before and no doubt we’ll have to point it out again. This is a very basic point about supply, demand and prices. The queue of people asking for below market price housing tells us absolutely nothing at all about the number of people who need below market priced housing. It is, by definition, the number of people who would like below market price housing:
Between April 2013 and April 2023, the number of social housing homes owned by local authorities and housing associations in England fell by 260,464 units, according to the charity Shelter, which calculated the figures.
Polly Neate, its chief executive, said: “We are seeing more social housing being sold off or demolished than built, despite the staggering 1.3m households stuck on social housing waiting lists in desperate need of a genuinely affordable home.
If Aldi (or Lidl, Tesco, whatever and to taste) cut the price of bananas to a penny each there would be a queue at Aldi (or Lidl, Tesco, whatever and to taste) for one penny bananas. Everybody likes having things at below market price.
And, as that very basic supply and demand model tells us, as prices fall then demand rises. So, the demand for below market price housing is high and that then leads to a queue.
Sure, it’s possible that more cheap housing should exist. We certainly think so, that’s why we insist that the Town and Country Planning Act 1947 should be blown up - proper blown up, kablooie. In order to make housing cheaper for everyone.
But it’s still not true that a queue of 1.3 million households for below market priced housing is proof that there are 1.3 million households that need below market priced housing. It’s proof that there are 1.3 million households who would like to pay below market price for their housing. This is not the same thing.
There are queues for stuff going cheap are there? Gerraway……
One problem with monopolies is groupthink
Back in that - at the time - famous book “The Wisdom of Crowds” there was a long discourse on the perils of groupthink. Some inaccuracy creeps into the thinnking of an isolated group and becomes a foundational belief. The dynamics of ingroups mean that the belief becomes ever more extreme. There’s no reference - it’s within group groupthink - to outside reality to check this process of spiralling off into ever greater error:
Considering the fact this part of their website was updated in April 2024 after several maternity scandals, including at Shrewsbury and Telford NHS trust, where mothers and babies died or were left severely disabled in part because of the pursuit of “normal birth at any cost”, this policy was completely tone deaf. The Royal College of Midwives dropped its initiative to promote “normal birth” in 2017. British women have had the right to a caesarean birth on request since 2011, though some are still having to fight to have that request granted.
NHS midwifery did indeed become overcolonised by the “madwives”. Some number of would be mothers and their children were killed by that, umm, “overenthusiastic” insistence upon natural birth rather than the technological marvels that we spend £160 billion a year on the NHS to gain access to. Why?
The NHS is a closed system, does not face competition from those not subject to its groupthink. Therefore we gain that spiralling off into extremism of the thinking within the group.
This is a criticism at a much higher level of abstraction than whether taxpayers should be paying for other peoples’ healthcare or not. It’s that the one monopolistic supplier is a bad idea. Because Monopolies Are Bad, M’Kay? This groupthink leading to extremist error being only one of the reasons they are.
Tim Worstall
Big Brother is alive and well and living in Westminster
Seventy-five years ago, on June 8th 1949, George Orwell published 1984, his classic novel on totalitarianism. It was not about the future, so much as an indictment of Communism in the Soviet Union of the 1930s, but it gave us the language to speak about totalitarianism. It gave us doublethink, thoughtcrime and Big Brother, among others.
If one looked as many years forward from 1984 as Orwell had done from 1948, when he wrote it, those 36 years would take us to 2020. In 2020 we were locked indoors, only allowed out for essentials. We were banned from sitting down to rest outside. Police stopped people to see if their journey was ‘essential,’ and in shops the book sections were taped over as ‘non-essential.’
Schools and universities were forcibly closed, with many students confined in hostels, with barbed wire in some cases to prevent them leaving. A father was warned by police for playing in his garden with his children. Police drones were used to track and caution country walkers.
No meetings were allowed with strangers, or visits to relatives and friends. Foreign travel was prohibited. Mask mandates were enforced. Hymn singing was banned in churches. Some towns were sealed off, with no-one allowed in or out. NHS health inspectors enforced self-isolation by phone calls and unannounced visits.
No visits were permitted to hospitals and care homes, and attendance at weddings and funerals was limited to six persons. Most tellingly, a climate of fear was deliberately cultivated to force people to keep to the rules.
If anyone had told Orwell, or indeed anyone else in 1948, what 2020 would be like, they would have been met by astonished disbelief. Yet it happened, and much of it went far beyond what Orwell’s dystopian future had envisaged. The people who broke those rules received criminal sentences. The people who dreamt them up were knighted.
Those who say, 75 years after Orwell published 1984, that it could never happen, should be reminded that it did.
A wealth tax wouldn’t make the poor wealthier
One of these strange but true things. A wealth tax wouldn’t make the less wealthy wealthier. Apologies for making heads explode and all that but this is, in fact, true.
When we tax richer people on their income and give it to poorer people as an addition to their income then those poorer people are of course richer. They’ve got more cash, have a higher income. We include this in our calculations of income inequality too, as we should. Even those measures of relative poverty are after taxes and benefits.
This is entirely separate from whether we should be doing this, should not be, are damaging the economy by doing so and all that. It’s just the observation that we do count the money given to top up in the incomes of the poor when we measure income by poverty.
We do not do this with wealth. This is something that it’s important to understand when people chunter on about wealth inequality and how, therefore, we’ve got to tax the really wealthy in order to redistribute it. For example, the JRF:
The average family in the poorest 10% of families has negative net wealth (such as their debts exceed their assets) (Advani et al., 2021). The bottom 2% have just £2,500 (including household physical assets). At least half of the bottom 10% only held wealth in physical assets (with a mean value of £8,000)
We could (well, we couldn’t, but as an exercise in logic) tax all the wealth off all the rich and ship that off to the poorer in goods and services, income tops ups and so on. This would change that wealth distribution to the poor by not one iota, not one pound nor even penny. Because we don’t count as wealth the things that are sent to the poor via government action.
Formally, from Saez and Zucman:
Our definition of wealth includes all pension wealth— whether held in individual retirement accounts, or through pension funds and life insurance companies—with the exception of Social Security and unfunded defined benefit pensions. Although Social Security matters for saving decisions, the same is true for all promises of future government transfers. Including Social Security in wealth would thus call for including the present value of future Medicare benefits, future government education spending for one’s children, etc., net of future taxes. It is not clear where to stop, and such computations are inherently fragile because of the lack of observable market prices for these types of assets. Unfunded defined benefit pensions are promises of future payments that are not backed by actual wealth. The vast majority (94% in 2013) of unfunded pension entitlements are for government employees (federal and local), thus are conceptually similar to promises of future government transfers, and just like those are better excluded from wealth.
The NHS is not counted as wealth, free education is not, the benefits system is not wealth, not just the state pension but a civil service pension - a doctors pension! - is not wealth. But all of these things are wealth. And that they are funded by a progressive taxation system - as they are - means that we already have a considerable redistribution of wealth in this country.
It’s very easy indeed to tot up that absolutely every citizen in the country has a half million or so of wealth. Free lifetime healthcare is perhaps £250,000 - that’s, -ish, what it costs to provide. Free education per child costs £90,000 or so - per child again. The state pension has an actuarial value of £150,000 or so. And so on. Simply by being born British people have a half million in wealth before we think of the insurance value of the welfare state and so on.
But, as above, all that wealth is not counted when we discuss the wealth distribution. Which does mean that if we tax the wealthy harder to spend on more of these things for the less wealthy then, by the measurement system we use, we’ve not made those poorer any wealthier at all. Which isn’t a good way to be doing the counting.
Of course we’re against a wealth tax for that’s an idiot idea. But moving from opinion, however based, to irrefutable fact. We do not measure wealth properly at present, therefore we don’t measure wealth inequality correctly. Which seems like the first thing we need to be doing if we’re going to then discuss whether we want to change that wealth distribution.
For, as above, it really is true that given the way we measure these things we could double pensions, triple the NHS and cost every school in the country at Eton levels and we’d not have increased the wealth of those who get pensions, health care or education by one iota nor penny. Which is not just insane it’s misleading.
Tim Worstall
The terrors of the secretive international court system
The investor state dispute settlement system courts, ISDS, such a terror to the spread of democracy and all that is good and holy around the world:
More than $100bn of public money has been awarded to private investors in investor-state dispute settlement (ISDS) courts, according to the most comprehensive analysis yet.
The controversial arbitration system which allows corporations to sue governments for compensation over decisions they argue affect their profits is largely carried out behind closed doors, with some judgments kept secret. But, according to a global ISDS tracker which launches today, $114bn has so far been paid out of the public purse to investors – about as much as rich nations provided in climate aid in 2022.
Fossil fuel companies have been by far the biggest beneficiaries of the corporate panels, raking in $80.21bn since 1998, according to the site. If current trends continue, at least another $48bn will be disbursed to settle cases currently under litigation, the research finds.
So, we thought we’d have a look at this claim. And please do note what we’re doing - we’re using their evidence, following their facts. We’re not introducing anything else, not handwaving about how capitalists are always right or anything. These are their examples.
From their website the top 5 cases they’re complaining about.
Veteran and Hulley, two cases stemming from the Yukos case. Mikhail Khordokovsky was an oil billionaire with political ambitions. Vladimir Putin actually had political power. Yukos was driven bankrupt. Ah well, such things happen.
Conoco/Venezuela, the Bolivarian state nationalised, without compensation, oil fields.
Repsol/Argentina, the Peronist state nationalsed the oil company without compensation.
Eureko/Poland. Not one we know much about but apparently about the privatisation of an insurance company. Did government keep to the contract it had agreed?
All of these are about whether government kept to a contract that government signed. Might be a contract through a treaty and all that but they really are all about well, did government keep to its word? And if you want to have a court case claiming that a government didn’t then not being in a court controlled by that government seems to be a good idea.
Which is what ISDS is. Just like when we accuse our own government of breaching our human rights, it’s off to the European Court of Human Rights we go - a court not controlled by the government we’re accusing.
Here the accusation is - in colloquial language, in the sense of “But, but, I just brushed against the table and it fell into my pocket, honest, Constable!” and on up - governments nicked this property. So, which court, why and how, does anyone use to test this proposition that the nicking was illegal?
And why would anyone complain about people being able to do so? Our assumption is that some people don’t like the idea that anything should stand in the way of governments being able to nick stuff. A very odd idea to hold we think but there we are, part of that glorious human variability.
David Boaz 1953-2024
Eammon Butler
Colleagues and I are sad to learn of the death of our good friend and fellow freedom-fighter David Boaz, Distinguished Senior Fellow and former Executive Vice President of the Cato Institute.
He will of course be remembered for his many books, notably Libertarianism: A Primer (1997), which set out the principles of libertarianism and justified their adoption. In similar vein, he also published The Libertarian Reader, which brought together ideas and articles on libertarianism from a wide variety of sources, and The Libertarian Mind (2015), described as a ‘manifesto for freedom’. And as the head of Cato’s output for many years, he also produced Handbook publications designed to guide Washington policymakers on sound economic and social policy, and oversaw the Cato Journal.
David relished public debate, bringing attention to controversial libertarian ideas such as the decriminalisation of drugs. His articles appeared in the major US newspapers such as The Wall Street Journal, The New York Times and The Washington Post, as well as leading magazines such as National Review and New Guard, of which he was a former editor. He was a feisty and penetratingly intelligent debater in TV and radio discussions such as CNN’s Crossfire and ABC’s Politically Incorrect. He conducted such interviews with characteristic charm and cheerfulness, even in his last months when he was undergoing medical treatment for cancer.
David joined Cato in 1981 after being Executive Director of the Council for a Competitive Economy. He quickly made his mark and became a mainstay — perhaps the mainstay — of the organisation. Always welcoming and full of ideas, and ever critiquing the latest nonsense to emerge from Capitol Hill or the bureaucracy, he drew countless numbers of people, particularly students, into the freedom movement. He encouraged and supported the intellectual progress of many who would go on to become significant
This just won’t work
….said Great British Energy would be headquartered in Scotland and invest in community wind and solar projects, as well as new technologies such as floating offshore wind, hydrogen, and carbon capture and storage. The company is the flagship of …..’s green energy pledge to roll out 100 per cent renewable electricity by 2030.
Simply not something that will work whichever party it comes from in this electoral period. We have 5.5 years until 2030. That’s all. We also have a planning system which takes years to approve of anything. Therefore we are not going to have a new, or revamped, electricity system in 5.5 years. It’s simply not going to happen.
That’s before we get to all the thoughts about new technologies. We’d certainly not be able to get new nuclear by 2030, offshore wind let alone floating won’t build out fast enough and so on.
This isn’t to just parp at an electoral claim, nor is it to say that a renewables driven system is a bad idea (it might be but that’s for another day). It’s to insist that the British planning system means that radical changes like this simply are not possible. Further, if we do want to have radical changes - we think sorting out the housing problem would be a damn good idea for example - then it’s that planning system that has to be sorted out.
Root causes really are root causes. The reason we can’t get anything done in Britain is because the law makes it incredibly hard to get anything done in Britain. Therefore if we wish to return to being a society where things can be done we’ve got to change the law about doing things.
Abolish the Town and Country Planning Act 1947 and successors, proper abolish and blow up - kablooie.
Only then will we be able to save the planet or, even, have something better than hovels to live in.
Election Wishlist - a Special Series on How to Reboot Britain
With a surprise General Election called, significantly accelerating timelines, election manifesto drafting has become an urgent task across political parties.
Over the coming weeks we are doing a special series of blogs to explore some of the biggest challenges and opportunities facing the UK. It will offer a radical “wish list” for policy makers of what to do, and by implication, what not to do.
“It’s the economy, stupid”
The UK, along with much of Europe, is in decline. Following the 90’s, similar stagnation in Japan was called a “lost decade”. Having failed to reverse this trend, Japan has since suffered from three lost decades. Unfortunately, things are not much better in the UK.
After almost two decades of stagnation, Britons are rightly frustrated. According to ASI analysis of World Bank data, the UK’s real GDP per capita only rose 1.3% over the seventeen years between our 2007 peak and 2024, in total. By comparison in the seventeen years preceding 2007, it grew 141%.
For many, particularly younger generations, they are actually worse off even in real terms, as the distribution of these tiny (per capita) gains are not evenly distributed. Younger generations have particularly seen their rents rise significantly faster than their wages.
While inflation has now returned to normal levels, it reached its highest peak since 1980. Despite the denial of the Bank of England, inflation was not a transitory phenomena, and it was avoidable.
The tax burden has been consistently rising too. Inflation-driven fiscal drag and other tax rises have undermined claims of tax cuts. So while Britons have seen their incomes stagnate, taxes have risen.
“It’s the economy, stupid” became the mantra of Clinton’s 1992 U.S. presidential election. Similarly, the “Keys to the White House” prediction system uses the short-term economy and long-term economy as two key checklist items to assess the situation of the country ahead of an election. Political fortunes can rise and fall for many reasons. While other factors are also important, including the relative charisma of candidates, foreign policy outcomes, social conditions and perhaps even the campaigns themselves, elections are heavily influenced by economic circumstances.
Leadership not Point polling
More broadly, voters over time judge based on outcomes and whether they feel the country has been governed well. Polling provides a diagnosis as to what is electorally popular, However, polling topics in isolation is not the path to long term success. It ignores the salience of policies or their long term impact.
Popular policies may not be effective policies - the public look for leadership and judge outcomes too. Slavish devotion to point polls can lead to vacuous policies that distract Government or worse, to bad policies. Bad policies deliver bad outcomes, and bad outcomes are unpopular. By contrast, some good policies may be unpopular in the short term, but if they delivery prosperity, they can be rewarded electorally long term, as Thatcher found with her three successive electoral victories.
So, while this series offers some reflections on the electoral feasibility of its recommendations, its primary focus is on what policy makers ought to do, rather than on what will deliver short term popularity alone.
Crisis of collectivism not capitalism
Today our politics is plagued by corporate cronyism (interventions to support special interests), de-growth (policies that hinder growth), vetocracy (blocking development of all kinds), and safetyism (risk aversion).
The common theme is the destruction of the price mechanism, and decision making guided by the state rather then the markets. Collectivism has won the day, not as a radical top down plan or through ownership of the means of production, but through a steady expansion of the frontiers of the state across almost all domains.
Decline is not an inevitability. Things do not have to be this way. A brighter future for Britain is possible. The solutions are already known to us, and have often been proven to work in the real word.
The path to restoration lies in re-embracing the power of markets, promoting innovation, protecting our free society, and defending the rule of law at home and abroad.
This series will explain how across key areas of government.
These debt numbers don’t add up
But then given the source we didn’t really expect them to:
Debt payments by the 50 countries most vulnerable to the climate crisis have doubled since the start of the coronavirus pandemic and now stand at their highest level in more than three decades, campaigners have warned.
The Debt Justice charity said countries at the highest risk of being affected by global heating were paying 15.5% of government revenues to external creditors – up from less than 8% before Covid-19 and 4% at their lowest recent point in 2010.
The report is here and - at least as far as we can track the numbers back - they’re comparing all foreign debt payment with government only revenues. Which is very apples and oranges. The government does not have to pay for privately contracted debt so a comparison with government revenues is meaningless. But, well, if you want to count up to big and scary numbers that might be what you have to do.
However, basic numeracy aside there’s a much more interesting point here. Which is that the list of the 50 climate vulnerable countries is a pretty good recount of the 50 poorest places on Earth. Which gives us a plan to deal with climate vulnerability - economic growth.
Which is excellent, so we should be lending lots to, investing more in, those poor places so that they can grow and become less vulnerable to climate change.
Sounds like a plan to us, economic growth for the win.