The wrong type of subsidy

We've pointed out a number of times here that the basic policy about climate change is simply wrong. Given that everyone has got so excited about the subject that something is going to be done we have been pointing out that what should be done is the least damaging and most effective thing. A simple carbon tax, revenue neutral by preference. Instead, as a result of Ed Miliband's misunderstandings of how the universe works, we've ended up with a ludicrous subsidy system. Which continues to get worse:

In October 2013 the Government agreed a deal with the French state-owned energy giant to guarantee it a price of £92.50, index-linked to inflation, for every megawatt-hour of electricity the £18bn nuclear plant would produce over a 35 year period.

The difference between the wholesale price of power and the guaranteed price would be "topped up" through subsidies, paid for through a levy on UK energy bills. 

At the time the deal was signed, power price projections had implied a lifetime cost to consumers of £6.1bn for the subsidies, the NAO said.

As of March this year, that had more than quadrupled to £29.7bn due to significant cuts to official power price forecasts.

We should tax the bad thing, not subsidise a possibly good thing. But if we are to have subsidies then it should be just the one subsidy rate.

Instead of different subsidy rates for nuclear, solar, tidal, offshore and onshore wind and so on and on we want to have just the one single rate. Any and every technology which meets that rate without emissions gets it, any that doesn't thus doesn't get built. It's only in that manner that we end up getting the most efficient method of dealing with the problem built.

Instead Ministers have, over the years, fallen prey to the idea that they can plan this instead of admitting that the actual solution is to harness market forces and technological advance to deal with it.

Become an ASI gap-year student this year (and get paid!)

Backpacking around South-East Asia is great, but do you know what's more fun? 

That's right, spending 4 - 9 months in the ASI office with all of your favourite libertarians!

It's that time of year again: the ASI is looking for two new employees, to start in September 2016.

As last year, the crucial requirements are that you:

• Are on a gap year; you must be 18-20
• Are open-minded, inquisitive, friendly, intellectually curious, eager to learn and interested in policy
• Know and have an opinion on the ASI's perspective and what it does
• Have a broadly liberal perspective on the world

Does that sound like you? If it does, you've passed the first hurdle. Congratulations! You're one step closer to potentially becoming the latest ASI intern. 

Your duties will include:

• Organising lunches and dinners
• Keeping the database up-to-date
• Managing the blog
• Reviewing and editing ASI publications
• Selling ASI merchandise
• Doing secretarial work for the directors
• Logging RSVPs for events
• Meeting a wide range of interesting & important people
• Learning about social & political science
• Socialising with the staff
• Carrying out self-directed research
• Writing blog posts
• Setting up and cleaning up after events
• Mailing out publications to subscribers

And, of course, having fun! 

Previous interns have gone on to work with the Adam Smith Institute, including the ASI’s current Deputy Director, Sam Bowman, and Head of Digital Policy, Charlotte Bowyer, who was a Gap Year intern in 2009-10.

The role pays the National Minimum Wage. All applicants will interview with President Madsen Pirie and Deputy Director Sam Bowman at the Adam Smith Institute offices in Westminster during the summer.

Please send a CV and cover letter of around 500 words to gapyear@adamsmith.org by Wednesday 20th July 2016. 

Is there some method by which this could have been predicted?

We don'rt think that this was a desired outcome:

Elderly people are quietly being denied support by councils struggling to cope with funding cuts and rising carer bills fuelled by the National Living Wage, new analysis shows.

The flagship Government policy, which came into effect in April and guarantees £7.20 an hour for those aged 25 and over, has left English councils searching for an extra £600 million, according to the Association of Directors of Adult Social Services (ADASS).

Overall, local authorities need an extra £1.1bn just to maintain the level of care they provided last year, the ADASS report reveals.

Actually, we think there is a method that could have been used to predict this. That basic part of economics on the introductory page of every book everywhere - supply and demand.

Except in the very strange circumstances that something is a Giffen Good, and labour is not one, when the price of something rises people will attempt to economise on their purchases of that thing.

Raise the wages being paid to carers and the people who are paying for carers will hire fewer of them.

Yes, yes, we know that George Osborne said this wouldn't happen and we all know that we can trust George. Except reality has different ideas it seems. 

We're all fatty lardbuckets because we're eating less

That the population is generally getting fatter is true. That we might be facing an obesity epidemic is at least possible. But what we'd like to know is why is this happening? And the answer is that we're all becoming fatty lardbuckets because we are eating less. Unfortunately, we're not eating less than our decline in calories expended would suggest: 

Surprisingly, we find that total calories purchased have declined substantially over the last three decades. We distinguish two periods: 1980-2007, when food prices were falling; and after the Great Recession (2008-2013), when food prices increased worldwide and real incomes fell for many people. Table 1 shows the continuous decline in mean calorie levels regardless of food price changes. In the paper we show that this decline is not just occurring at the mean, but also across the distribution.

As Chris Snowdon over at the IEA has been manfully pointing out for a couple of years now it just isn't true that we are all eating more. We're simply not. As Snowdon has also pointed out the average UK diet now contains fewer calories than the WWII rationing one considered sparse leading to dangerous weight loss.

Thus public policy about why obesity is rising is simply based upon the wrong premise. It's not Big Sugar, nor Big Food, nor fats nor whatevers. Quite simply we expend fewer calories than our forefathers did and yet our calorie consumption has not fallen to meet that. Thus we are getting fatter.

And it is a simple truth about this world that if you want to try and solve some problem then you do have to analyse correctly why there is a problem in the first place. Which just ain't being done at present. Thus all the proposed solutions are wrong.

The sad, sorry state of the Conservative Party

Leadership elections, much like Presidential primaries, are usually a great opportunity to showcase the ideological variety hidden beneath the veneer of party unity. Asides from entertainment, this is valuable as it allows differences to be expressed, battles to be fought, and new consensuses to be developed. 

The Parliamentary Conservative Party decided to buck this trend, even before the contest ground to an unceremonious halt when Andrea Leadsom, the last obstacle to Theresa May’s coronation, pulled out. Superficially, there was a significant divide between the candidates: May (and Stephen Crabb) supported remaining in the EU, Leadsom supported leaving (as did Michael Gove and Liam Fox). Likewise, May seems to support retaining a greater level of access to the EU’s Single Market than Leadsom, who prioritised curtailing migration to a greater degree.

However, along with the other candidates, May views ending free movement of labour into the UK as enough of a priority to compromise access to the Single Market. In the best-case scenario, this would amount to the EU conceding the loss of freedom of movement in exchange for the UK losing certain benefits. Most worrying is the risk this poses for financial services. In particular there is a significant threat to passporting rights, which allow global financial institutions based in the UK to ‘passport’ into the rest of the EU. 

This is terrible policy. Immigration is beneficial to the UK economy: it increases output, does not increase unemployment, offsets an ageing population, and does not create a burden on the welfare state. And, even if it were detrimental, reducing it would not be a price worth paying for compromising finance.

Admittedly, you would be forgiven (though not necessarily correct) for thinking that maintaining freedom of movement was politically impossible in post-Brexit Britain. The problem is that this stance reflects a more general perspective and outlook that looks set to dominate and define the Conservatives: nationalism, authoritarianism, and populism are trumping economics, markets, and trade. 

May, the purported establishment-continuity candidate and ‘safe pair of hands’, exemplifies this by taking the most hard-line and wrongheaded attitude towards EU citizens currently residing in the UK. She also has a particularly ugly record of vindictive anti-migrant policies as Home Secretary. 

The problem goes beyond migration. May is perhaps best known for her devotion to the surveillance state, and was instrumental in perhaps the worst piece of drugs legislation to have ever been written. Crabb, the other ‘moderate’ candidate, is associated with a church that claims it can ‘cure’ homosexuality and has a very poor voting record on social issues.

Libertarian support for Leadsom was misguided. She supported much of the current government’s most authoritarian agendas, and consistently opposed more liberal legislation. Furthermore, pro-business rhetoric aside, her enthusiastic championing of curbing migration suggests her consideration of business and financial issues is limited. The same is true of May, who has also started spouting vapid anti-business populism.

Simply put, free market libertarianism and internationally inclined liberal-conservatism have been marginalised and neutered. The worrying implication is that this is no longer a party of either Thatcherite Whigs or of anti-utopian Tories, but increasingly one of populist, nativist anti-intellectuals. 

It may seem odd to find anything positive in the Labour Party’s recent bout of self-destruction. However, given the increasingly apparent political realignment (away from ‘left-right’ and towards ‘open-closed’) it is probably healthy that Labour is likely to split into an internationalist left-liberal party and an anti-globalisation neo-socialist movement. 

What is missing from all these perspectives is uncompromised support for free markets, free trade, and economic globalisation: in other words, the right’s contribution to ‘open’ politics. This is supposed to be at least one of the functions of the Conservative Party. And without this, the chances of pursuing an intelligent post-Brexit option, whether that is EEA membership or something more radical, look increasingly diminished.

Designing economic solutions is fine but we want the chaotic serendipity of undirected markets too

A piece in the New York Times from a designer. Bemoaning the manner in which all those little start ups aren't using design in their process of trying to solve economic problems. Par for the course from a designer, that more people should use design. As with hydraulic engineers wanting to see the economy as a hydraulic project and so on - we all view things through our own professional competences. 

She is also correct in part - we would like to use conscious design at times in order to work out what to do about certain economic problems. No, this isn't the same as the idiot idea of trying to plan the whole economy. But say we've a problem - pollution or emissions, possibly the existence of real destitution in our country. Yes, we should think about this and design solutions. In order there, Pigou Taxes and a bit of income redistribution perhaps. 

However, even given that it is wrong to decry the seemingly silliness of the undirected, undesigned, innovation going on:

Perhaps the main reason these frivolous products and services frustrate me is because of their creators’ insistence that changing lives for the better is their reason for being. To wit, the venture capitalist Marc Andreessen, who has invested in companies like Airbnb and Twitter but also in services such as LikeALittle (which started out as a flirting tool among college students) and Soylent (a sort of SlimFast concoction for tech geeks), tweeted last week: “The perpetually missing headline: ‘Capitalism worked okay again today and most people in the world got a little better off.’ ”

This is to completely miss what is going on here. To miss the value of what those undirected efforts gain us.

We start with the basic assumption that human desires and wants are unlimited. Further, that we have scarce resources available to sate them. Technology is, in one way of thinking about it all, the method by which we transform resources into sating those desires and wants. So, when technology changes we can sate more of them.

However, we don't know which. We don't know which in two senses. We don't know which on the list of unsolved desires humans would like to have solved next - we don't know utility functions. We also don't know which desires the technology can be used to solve. We must therefore experiment - and that is what that entirely undirected market activity is really doing.

Exploring the newly available technological space in order to see which desire or want can be sated and which people want to have sated.

A service that delivers a new toothbrush head to your mailbox every three months.

A service that delivers your beer right to your door.

An app that analyzes the quality of your French kissing.

A “smart” button and zipper that alerts you if your fly is down.

An app with speaker that plays music from within a mother’s vaginal walls to her unborn baby.

A sensor placed in your child’s diaper that sends you an alert when the diaper needs changing.

None of those look civilisation changing we'll agree although some do at least look fun. The derivative innovation of a new way to deliver a porno sound track could work.....

Someone has obviously already done Uber for Plumbers but what about Teenagers 'R' Us? The instant dispatch of a spotty youth to any young couple feeling frisky - to berate them as to why they don't understand anything and why all hate them. Should increase contraceptive usage, that one. 

Or to be serious - we face uncertainty here. Not just risk but proper uncertainty, we just don't know and cannot know. What can newly be done and what would people like to have done? Thus we need that chaos of the undirected market efforts to explore this new technological space. Design is just fine when we know what we want to do and are just figuring out how to do it. But design isn't enough.

Nice try Shirley but we don't think so, no, really.....

An interesting attempt at negating the Brexit referendum here from Shirley Williams:

Over the next two years, the consequences of our departure from the EU will become clear. Two things are crucial. First, we must see the committed involvement of those representing all sides of the debate in the UK, in the renegotiation of our relationship with the EU. Second, all parties represented in parliament should take part in a committee to oversee the negotiations.

Parties that supported staying in must be part of this committee including Labour, the SNP, the Lib Dems and the Greens, as well as the pro-Remain element of the Conservative party. Consensus has to be reached before any deal is struck and any proposed deal must be approved by the committee before it is submitted to the government.

An all-party approach is essential if the country is to be drawn together again. The result of the referendum was very close and a new round of battles could irreparably split the country even to the point where the UK might fall part. This would be a terrible price to pay for the referendum outcome.

As is well known the majority of the House of Commons is against the very idea of leaving the EU in the first place. Putting that group in charge of the negotiations is therefore not wise - for what would be negotiated would be something that was leaving in name only. 

It could be possible, in theory, to have the negotiations done by those who actually won the referendum. But that would mean bringing in all those Leave people and, horror of horrors, parts of Ukip, which is something that bien pensant thinking just isn't going to do, is it? 

All in all we'd say this is a nice attempt to nullify the referendum but not one that we should fall for.

Brexit allows us to make food markedly cheaper

As we've pointed out before leaving the European Union allows us to sort out, properly sort out, farming in this country. Sorting out means, in this context, disassembling the entire system of support and subsidy that so ensares the activity. To us disassembling means simply abolishing the lot of it, the New Zealand option.

We're told by farming interests that the system as it is is part of the pursuit of a cheap food policy. This, of course, is not true:

At the same time, the EU’s agricultural products receive much higher protection than any other sort of goods: most dairy imports, for instance, attract a tariff of more than 50 per cent. This insidious regime survives because of the political power of French farmers. The rest of the EU would happily wind it down, but farmers are central to France’s identity. They vote as a block and no president dare ignore them.

Brexit will enable us to get rid of this nonsense and let our farmers compete in world markets just like our manufacturers, and farmers in sensible countries such as New Zealand and Australia already do. The vast majority of British people will benefit. That’s not just because the money that now goes into farmers’ pockets can go into the NHS instead, but also because Britons will pay lower food prices. According to a report by the Institute of Economic Affairs, food prices in the EU are 17 per cent above world market prices as a result of the CAP. Freer trade will also be good for farmers in developing countries.

A 17% fall in food prices is not a prize to be sniffed at. And why not simply buy the best produce in the world, whoever makes it, at the finest prices?

This is part and parcel of the very much larger point about Brexit that we all really must get our minds around. How Britain fares in the future depends not on our membership or not of the EU. Rather, on what we do with the freedom to decide our own path that we now have. And that path should include not doing a lot of the things which the EU has previously been insisting upon. Farm subsidies are only part of the story.... 

Sajid Javid is doing these trade agreements the wrong way

Obviously, it's most fun to see countries lining up to discuss trade agreements for the post-Brexit period. A bit of a turn up for the books after we'd been told that no one would ever trade with us again and we would be left bereft on our rainy little island.

However, we do think this is being done the wrong way:

The Business Secretary begins a round the world tour of Britain’s key trading partners today , as he flies to India with a view to forging new links across the globe after the EU referendum.

Sajid Javid will land in Delhi to begin preliminary trade talks with the world’s second most populous market, meeting with finance and industry ministers to outline what a future trading relationship between the two markets might look like.

We do not in fact want to have trade treaties nor bilateral agreements. Nor do we want to negotiate terms and conditions with people. For as we all know the only logical trade stance to have is one of unconditional and unilateral free trade. The whole aim of the game is to gain access to those lovely things that foreigners can make better or cheaper than we can. This is obviously something entirely under out control, we can simply not place barriers in the way of our getting those things.  Thus that is what we should be doing.

Britain's future trade treaty, and it is "a" not a "series of", is thus very simple:

1) We will have no tariffs or quotas on any imports. Imports will be subject to exactly the same regulation as domestic production.

2) You can do what you like.

3) Profit!

There's somewhere between 192 countries and 250 or so legal jurisdictions out there. Given modern communications systems it shouldn't be difficult to get that signed off by all of them by Monday fortnight. And the joy of unilateral free trade is that it doesn't matter whether they all sign on or even that none of them do. We will still be gaining all the benefit of free trade ourselves simply by sticking to those rules ourselves.

As Patrick Minford has been pointing out, at length, for a decade now.

A welcome and overdue change in the welfare state

We rather like reading The Guardian's letters page. It's a useful insight into whatever it is that the deluded are worrying about and thus a guide to what we don't have to care about. Alternatively, we find it useful to look at what is being complained about and that it is so is likely to lead us to considering it a very fine idea indeed. As with this about market rents on social housing:

So the high-earning techies of San Francisco are forcing up rents and pushing low earners out of their homes and their city (Report, 2 July)? Well, it’s about to happen here, and it will be government-induced. From next year, London council tenants with households earning £40k or more will be subject to market rates, having to pay an additional 15p in rent per week for every pound of income above £40k (£31k outside London). Some face rent increases of 350%. Tenancies will be fixed at a maximum of 10 years,

That all strikes us as a very good idea. We've no problem with the concept of a general whip around to house those who are incapable of housing themselves. There always will be those unable to deal with the vicissitudes of a free market economy and we're not averse to those sharp edges being blunted a little. We might argue about the methods used to do this but the general principle itself isn't one we argue too much about. Quite apart from anything else we know that it's going to happen so best to acknowledge that and steer matters in the least damaging direction.

But that's not what the British policy of social housing did. Yes, you only qualified for it by dint of needing it. But once you had qualified once then you had a lifetime tenancy at below market rates - at times those tenancies were inheritable. And we just never did understand why needing a subsidy at one point in your life then meant that the rest of us would be subsidising you for the rest of your life and beyond. 

Yes, obviously there are possible problems with the taper here, with the impact of the change in marginal tax and benefit withdrawal rates. and yet the basic move makes total sense to us. When you're down we chip in to aid, not least because we're aware that we at some point might also be down. But once matters are sorted out that subsidy should also disappear. Which is what is happening - a darn good idea we feel.