Compulsion doesn’t cure apathy

Australia boasts a 95% turnout rate every election season thanks to their adoption of compulsory voting in the 1920s. In Australia, refusing to show up to the polls – unless you can prove illness or an emergency to the state’s liking – results in a fine, up to $170. If that isn’t paid, a court hearing is the next step.

Advocates of compulsory voting point to high turnout numbers and claim the system ‘works’. But getting high voter turnout is not a good thing in and of itself. If high numbers are the result of engaged, politically interested people choosing to vote for on issues they care about, that’s great; that result will have stemmed from politicians taking to the streets and doing their jobs. But getting high percentages through coercion and threats of punishment isn’t something to boast about.

In September 2013, IPPR proposed that the UK make voting mandatory for first-time voters, to ensure they are registered to vote and to set them on a ‘good’ voting path for the future. Not only does the well-meaning proposal reeks of paternalism, but it is also the wrong way to get young people genuinely engaged in politics.

Many young people don’t feel they have a stake in political decisions, while others feel their opinions don’t carry weight within the parties. Couple that with making their first adult interaction with the state be one that’s compulsory, met with fines and courts, and you may just turn a potentially interested voter off for life.

But young people aren’t the only ones who feel abandoned by the political system. The integrity of democracy is breaking across western countries, as the political systems prioritize taking care of promises made to special interest groups, unions and corporations before they address the promises made to voters during the election season. Many feel voting has become a spectacle – just another occasion to glorify the state. And even if there is an option to spoil one’s vote, the state has still made people complicit in upholding a political system they may disagree with.

Those who would advocate for the Australian system and propose a compulsory vote on all adult citizens in the UK have carelessly forgotten that avoiding the ballot box in a check on government power.

Refusing to take part in what is thought to be a civic duty is an act of civil disobedience – and civil disobedience, especially when it is as thoughtful and safe as not showing up to the polls – is a health-meter for the state of the country’s political parties and political system as a whole.

The right to vote is the choice to vote – or not vote. That freedom must be upheld, both to provide a check on over-reaching governments, but also to act as a safeguard for individual liberty.

The People’s Republic of South Norwood

South Norwood, the unassuming splodge in the London Borough of Croydon is no more. Long live the People’s Republic of South Norwood! You may not have noticed, thanks to a concerted media blackout by The UK Establishment (though the WSJ did get wind), but last Friday was the day of the Great South Norwood Referendum and the dawn of a new Republic.

Inspired by the Scottish Independence movement and frustrated by the disdain with which local government treats the area, local heroes The South Norwood Tourist Board  held a (definitely absolutely legitimate and totally binding) referendum for the community: Should South Norwood remain with Croydon Council, unite with an Independent Scotland, or declare their independence? The public spoke, and voted to boot out their uncaring and overbearing masters to go it alone with a whopping 53% of the vote.

It’s hardly surprising that the downtrodden population of South Norwood had enough of Croydon Council, who have simultaneously ignored pleas to clean up and invigorate the area, whilst clamping down on displays of frivolity and fun. Notoriously, head of the Council’s Health and Safety outlawed plans for the community-led ‘Lake Naming Ceremony’, inspiring a crowd of revellers (and a gang of Morris Dancers) to hold an illegal event in subversive defiance. It will be written in history that the naming of Lake Conan Doyle sewed the seeds of secession.

Now that South Norwood has established its independence it faces a number of tough questions. What does this mean for its governance and security, its relationship with the UK, and its currency? Addressing these will be challenging, but there’s every indication that an independent South Norwood could thrive.

At first glance South Norwood is remarkably unremarkable. Long overlooked by pretty much everybody, it is yet to benefit from the gentrification of neighbouring Crystal Palace or the massive regeneration of Croydon town centre. Yet, with its blossoming community spirit (galvanized by the tireless tourist board), more lakes than the lake district, and a country park grown on top of an old sewer farm, its potential is undeniably huge.

Clearly, it is for the people of South Norwood to decide what shape their Republic takes. But as an ex-resident and dear friend of the area, I’ve outlined a few of the topics they need to address, and give a few suggestions on how to achieve a radical, yet roaringly successful Republic:

The first issue to tackle is that of governance. How shall people be ruled, and how shall laws be made? Should, for example, The Republic have a head of State? A symbolic one may suffice, and Sir Arthur Conan Doyle (who apparently lived there for a bit) or Pickles the dog (who discovered the stolen FIFA World Cup in a bush) are good contenders. There’s also Ray Burns a.k.a Captain Sensible of The Damned, who already has a community garden installed in his honour.

Perhaps the people of South Norwood will opt for a proportional electoral system: with a population of about 14,000, the area’s certainly small enough to adopt a straightforward proportional model, although PR creates the risk that Winston McKenzie, organizer of the infamous UKIP diversity carnival could hold some power. Going further, some form of direct democracy might even be possible. Regardless, electoral architects could do far worse than to read Douglas Carswell’s iDemocracy for some inspiration.

However, we know that democracy can be troublesome, and that most voters are often (quite rationally!) spectacularly ignorant on basic political issues. What if democracy’s not actually the ‘least worst’ system? One alternative, particularly for a Republic of such size, would be sortition- the selection of decision-makers by lottery. With its roots in Athenian democracy and still used in Jury service today, those selected could wise up on facts for the duration of their term and make decisions based on what’s actually best for the Republic, instead of shoring up votes and a political career. There are other, more elaborate alternatives (such as Moldbug’s suggestion that governments should be based on the profit motive, with bureaucrats seeking to increase their profits by boosting the value of the land, thus making it a lovely place to live) – but why not just abolish all government and embrace a form of market anarchism? It probably wouldn’t be worse than the system the South Norwooders left.

Another pressing issue The Republic must address is that of their currency: what should an independent South Norwood use? Clearly, South Norwood could unilaterally adopt the pound without the permission of the UK, just as the ASI has argued for Scotland. Should PRSN wish to tie itself to the economic fate of the UK, it could -literally- just keep on using the pound. However, South Norwood could also protect its own economy and shore up against demand-side recessions by allowing private Norwood Banks to hold reserves of GBP and issue their own notes on a fractional reserve basis, adjusting the supply of money in response to demand. (Again, the detail’s in the report!)

Admittedly, that does seem a bit excessive. Another option would be for South Norwood to issue their own currency (perhaps the Norwood Crown). Down the road the Brixton Pound  is well-established and well-liked; those behind it could certainly lend a hand with an eye-catching design and the logistics of issuance. And with the news that Brixton is also scheduled to hold a referendum on its independence, perhaps a currency union is on the cards.

Yet the people of South Norwood have already shown themselves to be a tech-savvy, forward-thinking bunch, as evidenced by their use of a high-tech, online voting mechanism . So why not make Bitcoin SE25′s new currency? If the Assistant Governor of Australia’s Central Bank thinks its good enough for Scotland, it’s probably good enough for South Norwood. In fact, they could go one further, and join Iceland, Cyprus, the Oglala Laktota Nation and others in creating their own national cryptocurrency. If they act quickly, they could beat Ecuador in creating the first government- ordained digital currency.

South Norwooders could adopt any of these options. But why not do away with legal tender completely and embrace free banking: the great people and businesses of the area accepting whichever competing currencies and payment methods (what about interpretative dance?) they so choose.

Clearly the most exciting part of forming an independent territory is deciding the guiding principles and policies to pursue. Again, such matters should be decided by the citizens, but here are a few pointers:

South Norwood should get in touch with the organziations who’s raison d’etre is to look at how to achieve growth and political and economic innovation within small, autonomous communities. Some groups such as Charter Cities and Startup Cities aim to create refuges of experimentation within amenable host nations. Others, such as the Seasteading Institute work within a paradigm of complete territorial autonomy and independence. Politically neutral, all of them value radical ideas, economic progress and the freedom for individuals to join such communities and innovate.

Tips on running a successful Republic can also be gleaned from examining things like Legatum’s Prosperity Index, Heritage’s Index of Economic Freedom, the Index of Freedom in the World and the Tax Competitiveness Index. Countries topping these rankings have probably got a few ideas worth borrowing.

The Republic could also look at which UK laws most need a radical overhaul, and lead by example. Planning laws are a key example. Far too many houses in the area are left vacant and boarded up, yet could be put to good use. Similarly, perfectly useable patches of land lie tangled up in legal battles and the quest for planning permission, sprouting brambles and dirty mattresses in the meantime. Liberalizing planning laws would allow creative uses of neglected spaces whilst providing the area with an economic boost.

The Republic should also embrace an open borders policy, as research repeatedly shows that reducing barriers to migration benefits both migrants and the culture and finances of the host country. An open Republic which builds on its cosmopolitan roots would be a successful one.

I encourage The Republic to experiment with radical new ideas. It could scrap alcohol duty, revitalizing some of the area’s more shabby-looking pubs. Or it could legalise the consumption and production of Marijuana, using taxes levied on it to fund social expenditure. From there the UK’s confusing, intrusive and expensive welfare system could be replaced with some form of Minimum Income or Negative Income Tax. Deer could be introduced to every park. Uber could run the public transport. The possibilities are endless.

It really is a brave new world for the people of South Norwood. The Scots may wonder if this is an omen for the success of their own referendum, but it’s unlikely: even free-thinking South Norwooders eschewed the offer of being part of  an independent Scotland. This is perhaps a shame,  given the ASI’s prior work on forging a union between Scotland and other countries seeking freedom from illiberal control.

Nevertheless, the prospect that Croydon Council refuses to accept the secession and continues to ‘rule’ its (ex)citizens with an iron fist is very real.

I wish all the best for The People’s Republic of South Norwood. But whatever the outcome of their independence, it’s good to note, on the eve of an even bigger, game-changing referendum, the diversity and breadth of untested policies and fresh ideas out there – and how many of these could make countries, communities and individuals happier, richer, more successful and freer.

 

Why does everyone want to subsidise the stuff that no one wants any more?

Here’s another one of those terribly silly ideas that people keep having. People aren’t using the High Street as much as they used to. Therefore everyone must be taxed more in order to subsidise that High Street that no fewer people want to use any more:

The Labour Party is considering a new secret tax on the high street to try to boost ailing town centres across the UK if it wins next year’s General Election.

An advisory group created by Labour to consider the future of the high street has recommended that it looks at introducing a new levy on residents to fund a major expansion of Business Improvement Districts, which manage local areas.

In its report, which has been seen by The Telegraph, the High Street Advisory Group recommends “diversifying the application of BIDs, including the ability to assess property owners and residents” and says that “new tools will need to be explored which diversify income streams”.

Sigh.

OK, so hands up everyone, why are people using the High Street less?

Yes, correct, because some 11 to 12% of retail sales now take place on the internet. We thus require some 11 to 12% less retail space on a High Street. Or, if you wish to be picky, we require 11 to 12% fewer High Streets. So the idea of taxing the people who don’t want to use High Streets as much as they used to in order to preserve those High Streets they no longer want to use is, well, it’s ridiculous, isn’t it? Akin to taxing Ford and GM to keep buggy whip makers in business.

But sadly it’s not just ridiculous. For what do we also have a shortage of? Yes, you’re right again, batting 1.0 so far. We have a shortage of housing in the centre of towns, where people like to live (OK, some people like to live, but enough people do that the point still stands). And what else have we got? That 11 to 12% of former retail space that has gone bust and is standing empty. Walls, roof, utility connections: bish bosh with a bit of plasterboard and some Dulux and we can convert one to the other. You know, this structural change stuff, where we move an extant asset from a lower valued use to a higher and thereby make the nation and society richer as a result?

And what is the response to this? Quite seriously there are people campaigning to deny change of planning use from retail (most especially the pubs that no one is allowed to smoke in any more, and are thus going bust) to homes and houses. That’s not ridiculous that’s just crazed lunacy.

Sigh.

Tempus mutandis and the extant infrastructure of the nation occasionally needs to be repurposed. The idea that we should tax everyone to set it in aspic is so, so, well, it could really only have come from politicians, couldn’t it?

Central banks cause low interest rates, but not by lowering interest rates

The Bank of England slashed its discount rate (‘Bank Rate’) to 0.5% in its 5th March 2009 meeting in response to the growing recession, hoping to stimulate demand. It has left it there ever since, and indeed, because of the ‘Zero Lower Bound’ on interest rates it has turned to other tools to try and bring about an economic recovery—a recovery which is only just setting in properly.

When the Bank moves its key policy rate, commentators talk about it hiking or cutting interest rates; on top of this, we’ve seen extremely low effective interest rates in the marketplace; together this makes it reasonable to believe that the central bank is the cause of these low effective rates.

There are lots of reasons to doubt this claim. In a previous post I pointed out that the spreads between Bank Rate and market rates seem to be narrow and fairly consistent—until they’re not. I made the case that markets set rates in an open economy. And I argued that lowering Bank Rate or buying up assets with quantitative easing (QE) may well boost market rates because they raise the expected path of demand, the expected amount of profit opportunities in the future, and thus investment.

Since then I came across an elegant and compelling explanation of exactly why this is. In a 1998 paper, Tore Ellingsen and Ulf Söderström show that this is because some monetary policy changes are purely expected and ‘endogenous’ responses to economic events, whereas some monetary policy changes are unexpected ‘exogenous’ changes to the central bank’s overall policy framework. When changes are expected, market rates keep a tight spread around policy rates; when changes are a surprise, cutting Bank Rate actually results in higher interest rates in the marketplace.

To identify which changes were exogenous (surprises) and which changes were endogenous (expected) Ellingsen and Söderström looked at market commentaries in the Wall Street Journal the day after policy events—where the Fed decided whether to change or maintain its current policy rate. When traders they interviewed were surprised or disappointed by the move (or lack of move), they judged it exogenous—when traders explained the Fed’s move in terms of changes in economic data they judged it endogenous.

This neatly explains why raising Bank Rate would not shut off bubbles (as an aside: a recently-published paper finds that tight, not easy money, is more closely associated with bubbles) and house price booms and so on. Raising Bank Rate would raise market rates if it changed markets’ perceptions of what target the Bank of England is working towards. Conversely, if the Bank had decided not to look through high supply-driven inflation, and thus surprised markets by running tighter than expected policy, this would have been likely to push rates even lower.

The best way to get rates back to normal territory, thus incentivising firms to economise on investment projects and put cash into the very best, is to make sure the economy doesn’t suffer the effects of what Hayek called a ‘secondary depression’. And the best way to ensure that is to implement something we might call a ‘Hayek Rule’ after the monetary policy he proposed—stabilising MV (the money supply x velocity, equal to aggregate nominal income).

Firm expectations now mean that setting this at zero, as he proposed, would have a very costly intermediate period—setting it at the rate consistent with 2% inflation (roughly 5%) would be more appropriate. But without a stable macroeconomic environment, capitalism cannot create the wealth that makes it so widely successful.

Why sign up generics manufacturers for a drug you’ve only just got patent and approval for?

More importantly, why would you sign up generics manufacturers to make a drug that you can charge $84,000 a course of treatment for? Which is exactly what Gilead, the makers of Sovaldi, the $84,000 a course treatment for Hepatitis C have just done:

Multinational American drug maker Gilead Sciences was set to join hands with at least five Indian generic pharmaceutical companies and allow them to manufacture and sell cheaper versions of its new hepatitis C medicines – sofosbuvir and ledipasvir – in 90 countries, four people in the know told Business Standard.

Clearly, someone is being either terribly clever here or terribly stupid. So which is it?

It is, of course, being clever. NICE has approved Sovaldi for use in the UK, the FDA has in the US. Gilead has some short number of years (usually, about ten) to squeeze that drug for the billion dollars or so it cost to develop. So, obviously, they’re going to charge what the market will bear. $84,000 looks like a lot, is a lot, but it’s about the same price as other current treatments and is markedly more effective. So, that’s the price they set.

But to then go and licence to generics manufacturers to sell in 90 odd countries looks most odd: won’t this undercut sales? No, no, it won’t: for the generics manufacturers only get the rights to sell in countries where there’s no way at all that anyone would pay $84,000 for a course of treatment. For yes, there are poor countries out there and poor countries, rightly, don’t try to spend that sort of money on treating one patient. They can save tens, hundreds, thousands of lives by spending the same amount on, say, a vaccination campaign.

Thus, at full market price there would be no sales: at generics prices there will be some and thus some revenue to Gilead.

But that then leads to, well, isn’t it unfair on us? We’ve got to stump up $84,000 a treatment and poor people pay a groat a pill. True, but why is this unfair? Aren’t we rich people supposed to be tendering to the ill and sick of the world?

Further, this isn’t particularly to do with the way that the patent system works. Imagine that all health care research was done by the state instead. It would still be us rich world people paying for all of that research from our taxes, wouldn’t it? On the simple grounds that poor people don’t have incomes to pay tax upon to fund medical research. So whatever the structure is the end result will be the same. We rich people will pay to get the drugs designed and through the approval process. The poor will then get them. Whether we pay in advance in taxation or later through the price of the patented drug doesn’t make much difference, does it?

And yes, for all that the NHS is The Wonder of the World and all the rest, we in the UK are indeed rich world people and that’s why we’re being charged this arm and a leg for this drug. And, given that we pay for the NHS through taxation it really makes absolutely no damn difference at all, what the patent or research structure is?