In praise of supermarkets

There's a certain sector of the chatterati that likes to slag off supermarkets. It's quite appalling how they ship food all over the place, how it's all the same bringly good quality. They set up out of town, the nasties, and thus drain the life out of the high street. We should all go back to patronising our local butcher and baker and sear never to have anything to do with a corporate behemoth ever again.

What these people don't seem to grasp is that there's a reason that we have supermarkets. And no, it's not because we all save time by going shopping in great big lumps rather than continually. Rather, it's because only in such a large and capital rich system can we have an efficient logisitics chain. And it's that logistics chain which is the real value to us all:

It hoped foreign supermarkets like Tesco and Walmart would come in and revolutionise India's backward agricultural sector. Forty per cent of all Indian produce rots on clunky bullock carts and rough baked roads before reaching the market. When they arrive, farmers get a tiny fraction on the retail price as as they pass through at least five agents, each taking their cut. Of the eighty rupees per kilo they were selling for last week, the farmer's share was just eight. India needs new smooth roads, cold-chain storage and modern transport logistics to replace sweaty bullock carts, and direct sales from farmer to retailer to stabilise prices, increase farm incomes and reduce food inflation - one of the country's most politically sensitive issues.

There have been other reports which make a very similar point. In the poor world, and one of the reasons these places are poor is because of this lack, some 50% of food rots somewhere between field and plate. In the rich world there is also waste, yes, but it's more that we consumers buy too much which we then don't eat. And let's be honest about it, having too much food in our fridges is a very much better outcome than having not enough food in the house. And that is the difference between having the supermarkets and not having them. Those logistics chains might mean that we ourselves are so inundated with food that we waste some portion of it. But that's a much better result than not having enough food to be able to waste it.

Stupid, stupid, people

The question for today: are we actually ruled by fools?

Half a million households in flood-prone neighbourhoods will see annual insurance bills rise by up to one third, even after they have been subsidised by policyholders across the country. Ministers have reached a new deal with insurance firms they claim will protect hundreds of thousands of people whose homes are at risk of severe water damage, and who struggle to afford insurance on the open market. When the new scheme was first announced in June, householders were promised that there would be no increase in bills in general. But an analysis of the new plan, conducted by government officials and independent experts, has found that every home insurance policy holder in Britain faces increased bills.

Yes, it appears that we are ruled by fools.

There is no sensible argument that supports the idea that I, living one hundred metres above the flood plain, should subsidise the flood insurance of someone dim enough to live actually on the flood plain. Their tootsies are going to get wet every few years, mine are not. This is because they have decided to live where there is a risk of flooding and I have decided to live where there is not.

We want insurance costs to act as an incentive. Young drivers pay more in insurance that those mature in years like myself: those young drivers are more likely to have an accident and cost the insurers money. Convicted arsonists are quite likely charged more for their fire insurance: we want people at higher risk of flooding to pay higher premiums for flood insurance. Mainly to stop people being so damn stupid as to build houses where there is a high risk of flooding.

What is it about this extremely simple idea that seems to have beeen missed by those who claim the right to dispose of 50% of everything that the country collectively produces? And perhaps more to hte point why do we allow them to take 50% of everything when they're quite clearly off their collective rocker?

This is about where we tell the government to *!$% off isn't it? Right off?

All will know that I am a very peaceful, calm and contented sort of chap. So it is with a certain sense of betraying that peaceful persona that I now need to tell you that I've entirely blown my top. It's not that the specific design of mobile phones that we are allowed to purchase or not legally is all that much of a concern to liberty and freedom. Rather, it's the entirely insufferable assumptions behind this mooted ban on certain models:

UK officials are considering banning the sale of small mobile phones designed to resemble car key fobs. A government spokesman told the BBC that it was discussing the issue with the National Trading Standards Board and the Serious Organised Crime Agency. In the meantime the NTSB has asked retailers to stop selling the products.

It is an offence to have a mobile phone in a prison. So yes, I can understand that the prison authorities aren't all that happy with the idea that easily concealable mobile phones are available out here in the free world for they might be so concealed and thus smuggled into the prisons where to have one is an offence. But that is where it should end: with the prison authorities being unhappy that they've now got to check people more intensively (and invasively) to ensure that these phones are not so smuggled. Even the thought that we should all be denied a fun little trinket because the prison authorities cannot stop smuggling is an outrage. An outrage that certainly I think that people should be fired for having even dared utter.

For this is entirely the point of this whole prison thing: it's not just that they inside them are not free it's that we outside them are indeed free. Free and at liberty to purchase any damn fool model of mobile phone, gadetry or tchotchke that our little hearts might desire. And it's most certainly not the job of those policing that dividing line between free and unfree to deprive us on the outside of our freedoms in order to make their lives easier.

I'm sure it's an offence to be out of your cell after locking up time too: but we've not got the bureaucrats roaming the country insisting that all of us go to bed at 9 pm do we? We are not denied cake because files can be hidden in it.

This attempt should be greeted with a very British flick of two fingers at whichever and whatever employee of the State you happen to meet next.

The only saving grace is that these fools are still ignorant of the Streisand Effect. The tech publications and boards are full of people who have only just found out about these mobiles and are buying them by the bucketful. And by morning there won't be a family member or associate of a prisoner who also doesn't know about them.

Quite the best story about tax ever

A quite delightful little story about tax and taxation. You might recall that a while back an IT contractor stole the list of banks account owners from a Swiss bank. And then sold it to the German government who used it to chase those naughty tax avoiders for the money they had avoided/evaded.

We might call this a victory for law and order or we might call this part of it such a victory. For the Swiss have now jailed the man for three years because what he did was indeed theft.

But the part that makes this such a wonderful story is this:

The 54-year-old German-born man appearing before the Swiss criminal court in a striped polo shirt and jeans, said that he had intended to use the bulk of a 1.1 million euro ($1.47 million) reward to pay off taxes he owed in Germany.

At which point I think we can all agree that tax rates in Germany are much too high. For look what happens: people are driven to theft just to be able to pay those taxes.

Update: I'm told by a trustde source that the reason he owes the tax is because he was on the list that he himself handed over. Which is really icing on it, isn't it?

Have we deregulated or not?

Louis Zingales celebrates the economic growth that came from the deregulation of the American economy:

The battle for deregulation has achieved many of its main objectives. Deregulation was a cry of freedom that most Americans supported back when Chicago banks couldn’t open branches in southern Illinois—let alone in other states; when a truck had to obtain a permit to transport merchandise across state borders; and when a government agency decided the prices of commercial flights.

The thing is, I'm not entirely certain that we really have deregulated the economy. We've certainly deregulated part of it, both here and over The Pond. But at the same time we've introduced much heavier regulation in other parts of the economy.

My favourite and oft used example of this is the taxi hailing part of the Uber app for smartphones. It really is just an electronic method of hailing a cab: and it is taking them 12 to 18 months to introduce it into each US city they want to serve. The extant taxis are well protected by the various taxi commissions. And I've had a recent grumble here about environmental regulation of new manufacturing making much the same point. Or another little piece of personal experience: Germany, from Jan 1 this year, now regulates the clearing up of old mine and slag piles to the same standards as the opening of new mines. Tidying up a few thousand tonnes of rock lying in a field now faces the same bureaucracy as blasting a shaft to extract millions of tonnes. One more example: it's generally accepted that no one will ever build a new copper smelter in the US. The regulations surrounding doing so are so strict that it would never be economic: regulations that the extant plants are grandfathered into.

My impression is that we have deregulated some things: largely, industries that are or were already extant. But we've increased regulation in the area of trying to do new things. Starting a business these days faces, I am sure, more regulation than in the past. And the problem with this is that while doing extant things better is a nice boost to the standard of living the real long term growth in the economy comes from doing entirely new things. Something which itself really comes from new entrants into the marketplace rather than extant companies changing their ways.

So while we have indeed deregulated and privatised and made the world a bettrer and richer place I'm not entirely sure that we've done enough. For at the same time as we were doing that we've also been regulating new activity more heavily. Which for the long term health of the economy and living standards might not be all that wise an idea.

The real reason we like immigration so much

Martha Gill has a good piece on immigration on the Telegraph Blogs site today, pointing out the simple fact that people often forget: the main reason immigration is such a good thing is that it's really, really good for immigrants.

Sure, immigrants make the rich countries they arrive at richer and subsidise those countries' welfare states, but people in rich countries have a lot already. It's people coming from places like Somalia and Sierra Leone that have the most to gain from being able to work in the UK.

Michael Clemens's study, "Trillion dollar bills on the sidewalk", looks at estimates of the global GDP gains that would come from open borders. The gains range between 67% and 122%, depending on how many people actually migrated. Those benefits would overwhelmingly accrue to the world's poorest people, and that's a good thing.

Gill's piece is directed at the left, which is fair enough given that most defenders of immigration are on the left. But no side owns cosmopolitanism. Almost everyone has heard the slogan "trade, not aid" from people on the political right. They (correctly) see international trade as a much better way to improve the lives of people in poor countries than development aid. They want free trade because it works for poor people around the world, not just because it would also happen to make us a little bit richer.

It doesn't seem out of the question that the same kind of altruism might eventually spread to the right's view of immigration. That might seem unlikely, but the political right was once a bastion of protectionism, and that changed.

Fundamentally, immigration restrictions are laws that ban firms from employing certain people and landlords from renting or selling their property to certain people. What's right-wing about that?

Facepalm

It worries me sometimes, the things people say:

You know that domestic oil-and-gas boom that’s been sweeping the country for the past few years, turning places like Williston, N.D., into Sin City? Well, the party’s winding down — or maybe it was never that ragin’ in the first place. Oil and gas shale assets, possibly overvalued to begin with, are plunging in price thanks to an oversaturated market and wells whose production hasn’t always lived up to expectations.

The first and most obvious contradiction here is how we can have an oversaturated market and also production that hasn't lived up to expectations. One rather precludes the other really.

But a much greater worry is that they're assuming that a falling price for oil and gas assets is a bad thing. When of course the reality is entirely the opposite: it's just absolutely great. An oversupplied market leading to falling prices for the productive assets means that, well, it means that the market is being oversupplied. Which in turn must mean that consumers are getting their fuel more cheaply: very much the point of the exercise, that we can make things cheaper for consumers.

It's also true that if our new technology, applied to these new assets, led to a rise in the price of those assets then we thought that we would need lots of those assets to apply the technology to. A falling price shows that we now realise that we need fewer assets to supply market demand. That is, that fracking is even more successful and wondrous than we at first thought. Which really isn't a sign that the party's over. Rather, given that consumer welfare is our concern, it's a sign that it's only going to get better.

Comment of the week

The point is that people who contract cancer or heart disease, (which are largely diseases of old age), suffer less than people who suffer the effects of malnutrition and poverty.

From the perspective of our prosperous and comfortable lives in the developed world, pollution-induced diseases seems like a terrible affliction. And they are, relatively speaking.

But from the perspective of somebody living in the developing world, the diseases associated with poverty are even worse, and that is the thing that environmentalists living their comfortable lives in the developed world never seem to get.

However bad you think industry is, the alternative is worse. Despite all those pollutants, when a country industrialises it's life expectancy and general healthiness climbs. That's why the global population increased. And when people without it get the chance to industrialise, they grasp it enthusiastically. We in the developed world have forgotten what pre-industrial poverty was like - thank heavens! - and have a tendency to romanticise it.

As it happens, the biggest health risks from pollution are in the form of water-borne disease - cured by the industrial production and distribution of clean water - and indoor smoke from wood/dung cooking fires - cured by the industrial production and distribution of cheap energy as electricity or gas. Are all the people who contract lung diseases from indoor smoke supposed to just shut up and suffer for the good of the environment?

We need to prioritise our resources on tackling the most pressing problems first, with the best benefit/cost ratio, and then move down the list once those are solved. I agree that we need to do something about the dimwitted claim that we "put profits before people". Trade and markets are about people - they are the way we collectively work together to solve other people's problems, they are about efficiently allocating our limited time and talents to addressing the problems people find most important, and "profit" is simply a statement that the benefit achieved doing something should be worth more than the effort put in. "Profit" is actually a "people" concept - it's opposite is "waste" and is anti-people. 'Waste' is about expending the resources that could have quietly helped a hundred on a (usually more obvious or media-friendly) handful. It is about what is seen and what is not seen. But it is a difficult point to get across.

- Nullius in Verba, commenting on "The environmental Kuznets Curve is alive and well in China"

But this is the basic problem with government doing things

Philip Johnston has an interesting piece here. It's interesting both because it's perceptive and also almost willfully blind at the same time. Which is pretty good when the two are on precisely the same subject.

What do the following have in common: the poll tax, the Exchange Rate Mechanism, Individual Learning Accounts, the Assets Recovery Agency, the Child Support Agency, the NHS patient data system, ID cards, HS2 and Universal Credit? They were all policies to which ministers stubbornly stuck despite warnings that they would fail – until they did, whereupon they were either abandoned or salvaged only at vast cost to the taxpayer.

This is obviously true: and something all too rarely stated. That the problem usually isn't with the things that government tries to do it's with the things that government won't stop doing. So that's the perceptive part: but then there's the unperceptive part. Johnston goes on to wonder is this is something peculiar to the British political system. Or whether our political class is particularly blind to the warnings of experts (another name for which is poeple who actually know what they're doing). And the reason that that is unperceptive is that it's nothing at all specific to the British system.

It's a general failure of attempts to use politics to do things rather than markets. Just for the avoidance of doubt here I should point out that some things really do need to be done by politics. But the problem with doing so is that there is no kill switch.

It takes great effort to get government to do anything. And that great effort comes from the intertia of the system: meaning that it takes great effort to get something started and an equal amount of effort to get something stopped. This is in contrast to the market where yes, it takes great effort to get something working. But the system does contain that kill switch: bankruptcy. If something's not working then it doesn't take great effort to stop it. It just runs out of money and stops.

And that, I am afraid, is one of the reasons why politics is a bad way to get things done. Simply because they won't stop doing things even when it's obvious that they are the wrong things to be doing.

This is really an extraordinarily bad idea

A very seriously bad idea in fact. The point being made is that spending tax money does lovely things. Which indeed it can do. Therefore we shouldn't worry about how we raise the tax money, nor study the costs of doing so, because spending it all is so lovely.

Economists usually think of taxation as inefficient. This column argues that the anti-tax rhetoric evident in much lay discussion of public policy draws considerable support from the prevalent negative language of professional economic discourse. Optimal income taxation doesn’t have to employ the pejorative concepts of inefficiency, deadweight loss and distortion; and this column argues that it is high time for economists to discard them and make analysis of taxation and public spending distortion-free.

This is entirely tosh of course. For it is indeed true that we can do wonderful things with the spending of tax money. I think vaccination is just great, as with a criminal justice system, only one national defence system and so on. But in order to be able to reach that decision I have to look at the benefits of the spending of the tax money as against the costs of having raised that tax money.

And this is where the first level of talking about deadweight costs comes in. A reasonable rule of thumb is that raising £1 of tax means that there's 20 pence worth of economic activity that doesn't happen. At the sort of marginal rates we have now, more like 30-35 pence. Which is fine at times: I think the herd immunity that comes from near universal vaccination (as we can see from when it doesn't happen as with measles these last few years) is worth 135% of the money that is spent on it. The benefits are larger than the deadweight costs that is.

But I also would point to areas of public spending where this test is not passed. I don't, just as my standard example, think that diversity advisers are worth 135% of the money spent on them. I don't think they're worth 2% of it but that's another matter. But they're, to my mind of course, not worth the loss of those deadweight costs: they thus make us poorer in aggreagate, not richer, and making us poorer really isn't the aim of the whole game. Please do note that while there are people who will disagree with me on the value of diversity advisers pretty much everyone has some area of tax funded expenditure that doesn't pass this simple test. Usually, those in favour of the advisers would be against something I'm in favour of, say, Trident.

So that's the first part of why we don't want to ignore deadweight costs: it's the only method we've really got of deciding whether it's worth doing something out of tax revenues or not.

The second is of course that different taxes have different deadweight costs. So, how can we possibly design a tax system for efficiency if we don't look at the efficiency of the different taxes? Sure, there's equity to consider as well: consumption taxes are more efficient than income taxes and one can certainly argue that they're more inequitable. But if we stop measuring these things then how on earth can we come to a rational decision about which we prefer?

So I'm afraid that I really do think this is a very bad idea indeed.

I also have my suspicions about what is driving the idea too. The writer would like higher taxes so that government can "do more". And he'd much prefer that no one started to come up with pesky little arguments about why government might not be the best method to get more done. An easy way of doing that is simply to forbid any discussion about the way in which governent and taxation might not be all that efficient....