Don't fear the trade bill

We do admit we find this all rather amusing. We've all been shouted at for months now that the transatlantic trade deal (and various others under discussion) will allow such evils as tobacco companies suing if they are deprived of their intellectual property as a result of plain packaging. Thus we must reject said trade deals. And then this happens:

One such measure is the introduction of plain cigarette packaging – a policy that David Cameron’s successful spinmeister and tobacco lobbyist, Lynton Crosby, thankfully failed to block. But now the tobacco companies are fighting back, suing the government for up to £11bn on the basis that it would constitute “deprivation of a highly valuable intellectual property”.

This is an absurd example of how the law values property over people. Our government is democratically elected. Yes, that rightly means there have to be checks and balances, and policies must abide by the existing framework of the law. But if the law enables tobacco companies to extort £11bn from the government – money, ironically enough, that could be used to treat people suffering from tobacco-related illnesses – then the law is wrong. If the law does not value people’s lives and wellbeing over the rights of tobacco companies to make profit from cancer sticks, then the law is morally bankrupt.

This privileging of corporate interests over democracy is only going to get worse. The Transatlantic Trade and Investment Partnership – a treaty being hammered out between the EU and the US with woefully little scrutiny – could grant companies the same legal rights as nation states, enabling them to sue elected governments in secret courts to block policies that dent future profits. And sure enough – using a similar treaty – Philip Morris sued the Australian government for the same policy. It used the same tactic against Uruguay’s government for enlarging health warnings on cigarette packages.

How it is going to get worse if these provisions are already in domestic law?

At which point we can point out the two important points here.

The first is that the law, rightly, contains provisions on such things as eminent domain, just as it contains provisions of rights to property. The government can indeed confiscate property on the grounds of greater national need. It can force you to proffer up your house for the building of a railway line. It can force you to give up your business to the government. That is, nationalisation is entirely legal under both domestic and international law. However, that right to property part also means that the government must pay full market value for that property that it is taking (and the Americans have it even more anchored in their law as "a taking").

This is of course as it should be. If the value of that railway line, that nationalisation, even that imposition of plain packaging, is sufficiently large in the national interest then there must be, from the value added by the scheme to make it sufficiently large in the national interest, enough to compensate the original values of the properties. Moving an asset from a lower to a higher valued use is the very defintion of wealth creation after all: so, if we are indeed adding that value then some can be used to compensate.

This argument also works in reverse: if there is not the value being added to compensate those original owners at that original price then the scheme is not in fact value adding. If that plot of land as a place for a house is worth £200,000, but it's only worth £20,000 as part of a railway line then that railway line is not value adding: it is value subtracting, thus something that makes us poorer.

So too with plain packaging. We've no idea whether the £11 billion is a realistic number or not: but we do insist that if plain packaging is in fact value adding then it must be possible to compensate those having their property confiscated to reach that goal. Otherwise, if the value isn't there, then the scheme itself is not value adding. If that's true, then why are we doing it?

Which is one of the values, over and above the civil liberty of secure property rights, why such a legal position is so useful. It insists that those who talk up the value of a scheme actually have to prove, by providing the cold hard cash, the value of that scheme.

The second point is about those tribunals and so on. Given that these rights already appear in UK domestic law there's nothing to fear from our signing a treaty that also includes them. It would be like our signing a treaty that insists that murder is a crime. Yes, we agree, so why not sign?

However, there are places out there not so blessed with a largely honest and largely reasonable legal system. And treaties are always reciprocal: what we agree to domestically the other side is also agreeing to in their domestic arena. So, the real value of the treaty (ies) is that it extends those rights which we have, as Britons, to those who have the unfortunate circumstance of not being Britons. And quite why this is a bad idea escapes us.

What excellent news about British social mobility

This isn't the way that anyone intends we should read this ONS report of course but it is also a true and valid way of reading it.

Almost a third of the UK population experienced income poverty in at least one year between 2010 and 2013, official data shows.

The figures, published by the Office for National Statistics (ONS) on Wednesday, show that approximately 19.3 million people had a disposable income of below 60% of the national median at some point during the four-year period.

Word. And the actual ONS figures:

In 2013, the UK persistent poverty rate was less than half the overall poverty rate of 15.9%. By comparison, in many other EU countries, the persistently poor make up a higher proportion of those in poverty.

Since 2008 (the first year for which comparable EU longitudinal data are available), the UK has consistently had a persistent poverty rate lower than the EU average.

Almost a third (33%) of the UK population experienced poverty in at least one year between 2010 and 2013, equivalent to approximately 19.3 million people. In contrast, across the EU as a whole, a quarter (25%) of people were in poverty at least once during that period, with a larger proportion of people in the UK experiencing poverty at least once over those 4 years than in many other EU countries.

Worth noting one point: this is relative poverty. So, it's against median income. Further, it's against median income in each country. So we are not, not at all, stating that people in Britain have a lower living standard than those in, say, Romania.

Note first that that persistent poverty is half the average rate. That's pretty good, don't we think? And note also something else. Britain has greater variability in poverty. Variability in income is also known as economic mobility (or as the phrase has become these days, social mobility). For us to have more people who slip into poverty for a time, but not have more people in poverty overall, means also that more Britons must rise up out of poverty. That is, we really do have greater social mobility.

We doubt very much that anyone else will make this point.

Discrimination and the free market: hardly a piece of cake

We read this week that a judge has ruled that a Christian-run bakery discriminated against a gay customer by refusing to make a cake with a pro-gay marriage slogan. I’m uncomfortable with this particular legislation. Some people have been claiming that such a ruling is a victory for anti-discrimination proponents. The irony seems lost on them – that there is still discrimination going on – it’s just that in this case the discrimination is against the Christian couple running the cake shop. The Christian couple’s view on homosexuality isn't one I share, but I defend their right to choose to run their business according to their own religious beliefs and values, and in this case the State should do likewise.

Disapproving customers are free to walk away and shop elsewhere. They are even free to share their disapproval on social media and encourage others to join them in shopping elsewhere. Such responses are powerful in business, because they put pressure on socially undesirable behaviour, and they penalise discriminatory business owners with lost custom, diminished profits, and in extreme cases, bankruptcy.

Any law that makes it illegal to run a business according to your religious beliefs is a law that infringes on the liberties of the business owners in a way that is, in my view, socially undesirable. Saying that, however, doesn’t mean I think all anti-discrimination laws are undesirable - far from it. They just need to be applied more prudently.

As always, society involves tension between a) accommodating people's right to hold views and beliefs, and b) protecting others from unwanted discrimination. It is probably socially desirable for a racist café owner who wants to put a 'No Blacks' sign on his door to be forced not to discriminate. But at the other end of the spectrum it is also socially desirable for another café owner to be allowed to discriminate against under 65s by offering a pensioner discount on Wednesdays and Thursdays. In this case, I prefer the café owner's right to introduce pensioner discounts over any societal claims that under 65s are being discriminated against.

The question the cake shop case elicits is where on that spectrum do religious views sit? I think people's religious views should not be legislated against in business such that their freedoms are encroached upon in ways that are unacceptable. It's quite clear to me that if the choice is between a) forcing a businessperson to make/sell a good they do not wish to, or b) compelling a dissatisfied customer to use another business, it's a no-brainer that society should prefer the latter. A law that effectively wants to commandeer someone's bodies and cake-making facilities is to me far more repugnant than the offence these Christian bakers are supposed to have committed.

One final point: the market does a very good job of weeding out discrimination. Suppose racist Jim opened up a shop in 1960s apartheid South Africa but wouldn't serve any of the majority blacks - he obviously shoots himself in the foot because his restricts his trade options to a minority few and excludes the majority of potential customers.

In short, in a free market it pays not to unfairly discriminate, because whether on large scale or a small one you're going to limit your potential custom. The more socially undesirable your discrimination, or the more people your discrimination negatively impacts, the worse it will be for you. It is no coincidence that the time at which humans started to trade was also the time that we started to become more civilised and improved our methods of co-existence.

To be able to trade in any age, and in particular, the modern age, you need to be able to think of others; firstly, by coming up with something (goods, services, entertainment) that others want; and secondly, by being honest, ethical, friendly, and developing a good reputation for your business. Far from being a vortex of selfish, uncaring and unethical behaviour, free markets necessitate qualities that make trade conducive, with your success dependent (in most cases) on your being a reputable person who welcomes all and treats everyone well.

An interesting and important question for Nick Stern

We're willing to go along with the concept here but can we please have an actual number?

With oil prices currently at a low level, now would be the ideal time to introduce levies that remove the implicit subsidy for pollution from petrol and diesel. The revenue from these levies could more than compensate the poorer members of the community for the price increases, give a boost to research and innovation, and contribute to the cleaner and more attractive investments that we need.

We know, we're rather keener on Pigou Taxes than many others are. But, following the IMF report on subsidies to the energy sector (please note, it wasn't an IMF paper, it was a paper by people at the IMF. It's not purely about fossil fuels, it's about the energy system. And it does depend on the idea that the tax system should be hugely regressive in order to reach its totals about how much tax should be raised by consumption. For example, it argues that the lower rate of VAT for domestic fuel is a subsidy. And you can think of it that way if you like. But two points: that subsidy also applies to renewables and can you imagine the furore from the usual suspects if we argued that to save the planet we must charge 20% on domestic fuel?) we have the above from Lord Stern. And the obvious question is, well, how much?

For there's a very important point about Pigou Taxes. The entire logical case for them, the justification, is that there is one just and righteous rate at which that tax should be levied. Add up the costs of all of the externalities and that is that tax rate. You cannot, not if you are being intellectually consistent, march around shouting "more". You must, in each circumstance, calculate what the rate is.

So, some 80% of the cost of petrol these days is tax. Is that enough? For example, Stern's $80 per tonne translates into a righteous carbon tax of 11 p on a litre of petrol. Ken Clarke introduced the fuel duty escalator to "meet our Rio committments". Which we take to be a synonym for a carbon tax. That escalator has added 23p or so to a litre of petrol. So, purely on the carbon emissions basis we are already paying too much in the UK.

This newer calculation tells us that there's more. Air pollution and so on. OK, that's fine, so, what's the number? What's the righteous Pigou Tax for that? They also say that a significant portion of the costs of petrol is congestion, accident damage etc. That's not something that can be attributed to the fuel: if we were all driving electric cars those things would still be there. That's a cost attributable to the transport system, not the fuel. And by far the largest part of the costs they attribute to this sector is the idea that consumer purchases should be taxed in order to raise revenue. And that if the tax is less than the amount they declare is correct, then that's a subsidy. But no one can say that UK petrol isn't paying tax. So that's out too.

So, in our calculation of what the correct petrol tax is in the UK we've got those two things. Carbon emissions, which are already being overpaid for, then pollution costs. So, what's the number, what should be the tax? And as above, "more" isn't a serious answer.

We have a very strong suspicion here. The reason we're not told what the number is is because that correct, just and righteous, number is actually lower than we're all being charged currently. Which is why Stern, the IMF and everyone else doesn't actually calculate it. Of course, we're willing to change our minds if they would calculate it and also let us see their workings....

Madsen Pirie writes for the Times on EU subsidy of rapeseed

Madsen has a piece in today's Times (paywall). He links the yellow fields of rapeseed that are making hay fever sufferers sneeze and wheeze to EU subsidies. After the Canadians bred a low acid version of rapeseed in the 1970s, the EU originally subsidized the seeds and the planting of it, not the actual crop. Then it went on to subsidize it for making bio-diesel, because it wanted a renewable energy source. So our green fields have been overtaken by a lurid yellow that many people dislike, and hay fever sufferers dash to the chemist's in large numbers.

By careful breeding, Canadian scientists produced a low acid version. Rapeseed was transformed, and spread rapidly across Britain, changing the look of the spring landscape with its lurid yellow flowers. Its UK production soared from about 1,000 tonnes in 1970 to more than two million tonnes in just a few years.

It was not the crop itself that made it a farmers’ favourite but the EU subsidy paid to those who planted it. The EU paid cash not for the crop that resulted but to fund the seeds and planting. It was a bonanza for landowners.

Read the full article here (paywall).

Against the idea of a 100% inheritance tax

There are arguments in favour of a 100% inheritance tax. For example, we could look to John Rawls and the argument from behind the veil of ignorance. If we didn't know where we would arrive in that lucky sperm club lottery wouldn't we prefer a society in which starting points were equal? So, tax inheritances at 100% and then distribute that wealth as a starting grant perhaps. However, the idea does seem to fail on two points. The first is that while it's true that we can't take it with us, therefore this could be seen as a "fair" tax, that people will fight, struggle and even lie to be able to provide an inheritance to their children does rather militate against the idea that people do see it as a fair tax. Peoples' actions do seem at odds with that particular result of that particular blend of moral reasoning.

But much more importantly we've evidence that such a system is not efficient. For we've had societies that did effectively have 100% inheritance taxes: and those societies failed precisely because they did.

Both Mamluk Egypt and the Ottoman Empire worked on the basis that whatever was accumulated during the lifetime of the elite (with the Mamluks, generals, with the Ottomans, Pashas) in the way of property, businesses, land and so on, was theirs for life and only for life. When they popped off those estates, however grand or vast they were, were distributed to the next generation of generals and pashas. With the Mamluks the children of the generals were, as they had not been recruited as military slaves from the steppes, specifically barred from even attempting to join that next generation of the elite.

This led to a certain short termism in how such properties were managed: having reached the top there would be, at most, a couple of decades to enjoy the wealth. Nothing could be passed down to the next generation. Thus, don't invest in anything, simply extract. Societies in which we do have 100% inheritance taxes therefore seem to become extractive ones, not investing ones. With all of the obvious connotations for the living standards of the subsequent generations. To say nothing of the current living standards of the peasantry being extracted from.

Whatever the philosophy here we have tried it as a species and it really just doesn't seem to work.

The immigrant's pledge

I wonder if would-be immigrants to this country might find a readier acceptance if they were to undertake a voluntary pledge similar to this one.  I think most would readily do so.

"I am grateful that you have allowed me into your country to seek a better life.

I promise in return that I will respect your culture and your customs and I will learn your language.  I know that your ancestors fought for centuries to establish freedom of speech and I will support that freedom.  I promise that I will respect the right of others to seek to improve their lives, without regard to their sex or sexuality. 

I will do my utmost to be a good citizen.  I will do my best not to be a drain on your resources, but to make a positive contribution to your economy and to your essential public services through the work that I do and the taxes that I pay.

I will respect your laws and I will respect my fellow citizens and do what I can to prevent harm coming to anyone.

I will try to live my life in such a way that I will be a credit to my new country, so that those who allowed me to come here and contribute to its future will be glad that they did so."

An odd theory but it's ours and we like it

As a result of a conversation going on elsewhere an odd little theory but as it is ours we rather like it. So, why is it that foreign state owned companies are able to run things rather well in Britain (trains, water, electricity, whatever) while when the same companies were British state owned they were appalling? It's almost as if only the British state is appalling at running things. To which we would say yes: the British state is appalling at running commercial enterprises in Britain. As if the French state in France, the German in Germany and so on. There's a tad of hyperbole there but here's the reason why.

Politicians running something (the definition of course of the state running anything) are going to run it with an eye to politics. The art of getting elected is, of course, to build a large enough coalition to get elected. This does mean pandering to various constituencies: the workforce of that state run business, the unions, the capitalists (for a different flavoured coalition) and so on. That concern over getting elected rather outpaces the single minded focus upon efficiency (and if you're cynical about capitalism, that efficiency can be in extracting profit,) that the private sector at least strives to through competition.

It's not so much that know nothing politicians inevitably screw up whatever they do. It's that the incentives for a politician running something are different given that he's got both the organisation itself to think about and all of those electoral pressures.

But that same organisation, when freed from those political concerns, might be reasonably efficient at doing whatever. So, for example, French politicians don't give a rat's ar....well, no, this is a family blog, ...don't care one whit about the political heft of British unions. In a manner that British politicians very much do. The same is true on the other side of the political ledger. Which way the media plutocrats instruct the populace to vote doesn't matter a darn for a politician in a different media market, in a different language. And no one at all has won or lost a French election on the performance of the 7.15 from Brighton to Waterloo.

The end result of this, we admit slightly odd, argument is that the British state would be just fine running the French railways, as the French state owned companies seem not bad at running portions of the British ones. Simply because being outside the political jurisdiction that elects the politicians at the top the politicians don't have those conflicted incentives and can thus allow the companies simply to run as companies, not as political arms of the state.

Or as we might also put it: by being outside the political jurisdiction that owns them allows state companies to simply be competitive companies.

The paradox of opportunity cost

It does get a little tiresome to be told, yet again, that too much choice is bad for us. Because of course we've been told this before: it's the cry of every bureaucracy everywhere, don't worry about what you're being given just accept what we're willing to offer you. It's also deeply rooted in basic economics, in the concept of opportunity cost:

Once, when I was suffering a fit of depression, I walked into a supermarket to buy a packet of washing powder. Confronted by a shelf full of different possibilities, I stood there for 15 minutes staring at them, then walked out without buying any washing powder at all.

I still feel echoes of that sensation of helplessness. If I just want to buy one item but discover that if I buy three of the items I will save myself half the item price, I find myself assailed by choice paralysis.

OK, depression can be serious but other than that, seriously? Modern society's gone wrong because we have a choice of washing powders?

The solution apparently is:

So how should one react to complexity? Schwartz suggests we should limit choice, not extend it. If you are shopping for food, go to supermarkets that are priced simply with a limited range, such as Aldi and Lidl. Recognise and accept complexity – which means accepting that you can never be sure that you’ve made the right choice.

Above all, don’t fall for the old trope of only wanting “the best”. Schwartz calls such people “maximisers” – people who are never happy, because they have expectations that can never be met, since in a world of complexity and unlimited choice there is always a better option. Be a “satisficer” instead – people who are happy to say “that’s good enough”, or “it’ll do”.

Well, quite. Maximisation of utility is an interesting concept to be pursued through economic models but out here in the real world we all in fact satisfice. Even if you just want to put it down to the tautologous maximisation of utility by not having to pay too much attention to details of choice.

However, to opportunity cost. The true cost of anything is what we must give up in order to have that thing. So, the real cost of this mortgage is the not having a mortgage, the not having that other type of mortgage. The true cost of jam with toast is not having Marmite with toast and so on and on. So, as the choices available to us rise then the opportunity cost of any one of them rises. And thus, yes, it really is true, more choice makes us unhappier.

To which, of course, the usual answer from the usual quarter is that we should have less choice and thus we'll be happier. But that's not quite how it works. For consider this.

There's long been a difference between male and female happiness rates. Women, in general, have always reported higher satisfaction rates than men. In recent decades that gap has been closing. No, men aren't becoming happier. Women are becoming less so, closing that gap. And what has been the great societal change over those decades that this has been happening? Quite: the life choices of women have expanded massively over that time, those of men not so much.

Do we think that such an increase in female unhappiness (or, rather a decrease in reported levels of happiness) is a reason to turn back the feminism clock? No, we most certainly don't, do we? And therefore nor is the unhappiness caused by having to choose one washing powder a reason to restrict the choice of washing powders.

There's very few who would publicly argue that a modern relationship should be based on "good enough" or "that'll do" despite the fact that near all of us are descended from generations of such relationships. Given that then why should we restrict what we may put on our toast?

Ring fencing banks

Apparently “City leaders” are now “in secret talks with Treasury on weakening the ‘ring-fence’ scheme after fears global lenders will abandon Britain” (Sunday Times, 17^th May).  This has been precipitated by the threatened departure from these shores of HSBC.  The only surprising thing about this news is that it has taken so long. My blog on the topic in December 2012 concluded “It is truly astonishing that this [Vickers] Commission should choose to focus its entire attention on the area that matters least [ring-fencing the banks’ retail activities].  The consequence of adopting their suggestions, as Vickers himself seems to be pointing out, can only be that we will hobble our own financial sector at great cost to the economy and the British taxpayer.”

The Treasury has to this day claimed that the public were demanding ring-fencing but that is nonsense.  Hardly anyone understands what it involves.  Invite the general public to sign a ring-fencing petition and see how many sign up.  The only reason they might is because the big banks do not like it.  Those few denizens of the City and Westminster who do understand what it involves fall into two camps: fantasists and realists.

The fantasists believe that investment bankers brought down their retail siblings and that, in turn, created the 2008 crash.  Actually it was caused by the retail sector giving mortgages, largely under US government instruction, to poor people who could not pay their debts.  Much the same happened in the UK: remember those building societies which turned themselves into retail banks?  They went to the wall first.

The realists know that however the regulators write the rules, those working for the same global corporation will find ways of cooperating.  That is what global corporations do.  Chinese walls are not even paper thin.

One, rather more practical, option was completely to separate retail from wholesale as the US used to do. That was abandoned by the Vickers Commission for good reasons.

The new government has better things to do with its time and attention than fiddle around with this, starting with resolving a deal with the EU.  There is zero chance that the rest of the EU is going to ring-fence their banks.  The Treasury should announce that, to be consistent with other EU banks, the whole topic will be postponed until after the EU referendum.