How Governments harm trade

The following paper, entitled "How Governments Harm Trade" (see link at the bottom), is a paper in which I explain the principle behind why in most cases the free market works best when governments do not interfere in the prices society engenders by the laws of supply and demand. Those prices, I will argue, reflect human choices played out on a day to day basis, and are the soundest bottom-up basis on which economies are organised, not the top-down organisations that politicians impose on us.

The free market is the aggregation of billions of choices, wants, needs and desires going on in the world at any one time, all in the form of mutually beneficial transactions. Naturally, as you'd expect, such a system is far too complex and dynamical to be mapped to a set of simple ordinances and decrees, and that is the basis on which so many regulations are frequently problematical to the agents involved in trade.

I will show how value is created in every societal transaction for both agents by the combination of consumer surplus and producer surplus. Consumer surplus is the difference between what the consumer pays and what he would have been willing to pay, and producer surplus is the difference between what producers are willing and able to supply a good for and the price they actually receive. I also explain how the mutual value attained by both agents in those free exchanges is much closer to an optimal outcome than when politicians impose their will on the transactions.

As this paper will also show, the main regulations one ought to be opposed to are ones that artificially interfere with prices and the information-carrying signals they exhibit. Two examples are price floors and price ceilings. A price ceiling is a form of legislation by the government that says the price of x must not go above their ceiling price. A price floor is a form of legislation by the government that says the price of x must not go below their floor price. I will show how both these legislations negatively interfere in the market process, and how frequently both parties (buyers and sellers, employers and employees, landlords and tenants) are made worse off by these price controls.

On the issue of when it is good or bad for the state to be involved in the free market, I use quite a simple and obvious formula. It is this: the state should only involve itself in our transactions when there is a net benefit to society from this involvement. That is, when the benefits of doing so outweigh the costs.

When stated like that, I would think it is hard to find a sane person who disagrees with that proposition. The odd thing about society, however, is that it is full of people who would find little trouble agreeing with the idea in its above propositional form, but who quite comfortably hold numerous beliefs that depart from the above logic. It is this societal anomaly that will be unpacked.

To read the full paper click here.

China’s Incipient LFTR

You wouldn’t know it from reading most papers, but the last five years have accommodated noteworthy developments in the chronically underreported world of next generation nuclear research. It is unfortunate that nuclear tends only to get airtime when journalists deign to dispense dismissive, undergraduate analysis, obligatorily set in the ‘wake’ of Fukushima and aimed at a caricature of the industry. The impression one gets from the nuclear landscape is actually one of careful optimism, an optimism built upon the sight of many bright lights on the next-gen horizon. The Liquid Fluoride Thorium Reactor (pronounced ‘lifter’ in acronymic form) is one of those bright lights, one that China is chasing, and one that Britain would do well to pay more attention to.

The LFTR is a type of Molten Salt Reactor: Molten Salt Reactors are Generation IV nuclear fission reactors that use molten salt as either the primary reactor coolant or as the fuel itself; they trace their origin to a series of experiments directed by Alvin Weinberg at Oak Ridge National Laboratory in the ‘50s and ‘60s. The LFTR is differentiated from other variants of the MSR by the fact that it runs on thorium rather than uranium, thorium being an element that is fertile rather than fissile, and which will transmute to fissile uranium-233 upon exposure to neutrons. Weinberg’s research was fruitful and instructive, and illuminated many solutions to the complex mechanical problems that are raised by the use of a liquid fuel, but Nixon nonetheless terminated research in ’69 (some say because of the unsuitability of thorium to the manufacture of nuclear weapons, though this claim is questionable). After enduring a long purgatory, MSR technology has experienced something of a renaissance in recent years: dust-cloaked Oak Ridge dossiers, long dormant in office drawers, are being re-examined by pioneering start-ups. The MSR movement gained considerable momentum in 2011 when the Chinese Academy of Sciences publicised its intention to commercialise a thorium-based MSR in 20 years (it is also developing non-thorium MSRs and solid fuel thorium reactors). The Shanghai Institute of Applied Physics has since employed 700 nuclear engineers in this service: a 10MW pilot LFTR is expected to be operationalised in 2025, with a 100MW version set to follow in 2035. Given that China theoretically has enough thorium to satisfy its energy needs for the next 20,000 years, this seems a sage application of resources.

Of course China still has much to do, there are obstacles to overcome and commercialisation will not be viable until the late 2020s, but it has nonetheless taken the plunge, undoubtedly motivated by considerable hypothetical advantages over conventional Pressure Water Reactors. According to Flibe Energy, headed by nuclear scientist Kirk Sorensen, thorium is so energy dense that 6600 tonnes of it could replace the ‘combined 5.3 billion tonnes of coal, 31.1 billion barrels of oil, 2.92 trillion cubic meters of natural gas, and 65,000 tonnes of uranium that the world consumes annually’. It is approximately 3X more abundant in the Earth’s crust than uranium, and significant quantities have already been extracted as the by-products of existing mining operations. Most compellingly, the energy output of a LFTR, per metric ton of thorium ore, is estimated to be 200X greater than the output of a Light Water Reactor (a type of PWR).

In addition to the advantages conferred by the use of thorium as a fuel, the design of the LFTR also delivers a host of benefits: the core, blanket, and primary cooling salt loops are all engineered to function at near atmospheric pressure and absent of water or steam, thus precluding the possibility of a Fukushima-style pressurised release. For this reason, the containment vessel also needn’t be much larger than the reactor itself, thereby alleviating construction costs and times. Crucially, liquid fuel is self-regulating: in the event of an increase in operating temperature the ‘thermal expansion of the liquid fuel and the moderator vessel containing it reduces the reactivity of the core’ (i.e. the more reactive the core becomes, the more the liquid fuel acts to reduce reactivity). Even some chaotic event, like an interruption in the supply of electricity to the plant, could be safely negotiated: a freeze plug, cooled by an electric fan, is installed in the base of the core vessel; if the supply of electricity to the plant is disturbed, the fan ceases to rotate and ‘the plug melts’, thus allowing the liquid fuel in the core to be safely evacuated into a ‘subcritical geometry’ inside of a catch basin (a subcritical geometry is an environment in which neutron losses exceed neutron production and the liquid fuel departs from a state of criticality, or self-sustaining fission).

China has been trailblazing in the world of next-gen nuclear for five years now: the fact that they are so aggressively chasing LFTR technology should excite our curiosity. The combination of ‘simpler fuel handling, smaller components, markedly lower fuel costs and significantly higher energy efficiency’ raise the prospects of attracting capital, and with the price of LFTR-generated electricity estimated to be 25% lower than the price of electricity generated by conventional nuclear power plants, the public would likely also be receptive. The government should engage Moltex Energy, a London-based company that has been a pioneer of Generation IV MSR technology, in an intellectual partnership to explore the mechanics, advantages, and disadvantages of a home-grown LFTR project. Given how mutually beneficial the collaboration between Oak Ridge National Laboratory and the Shanghai Institute of Applied Physics has been, the potential for a Sino-British partnership is real. Circumstances are auspicious: a little enterprise is now required. 

We said that this women in sport things was just a Gizza' Job matter

Back a couple of weeks we puzzled over a report about women in sport and the gender pay gap there. The report was written by the sort of women who might end up as sports administrators if there were to be more women sports adminstrators. The recommendation was that there should be more women sports adminstrators. We did not think this exactly surprising, all too many of these reports are really "Gizza' Job" applications.

But we are surprised at the speed with which matters are moving:

The governing bodies of half of the UK’s most successful sports were on Monday night facing millions of pounds in cuts unless they move to ensure women make up at least 30 per cent of their boards by the end of the financial year.

Note that the insistence is not that womens' sport is treated equally, nor that similar amounts of money must be spent across the gender divide.

The demand is simply that more of the sort of women who sit on boards should be paid to sit on sports boards.

Sport England, the Government-appointed funding body which has invested almost half a billion pounds in grass-roots sport since London 2012, told The Telegraph it was ready to take punitive action if necessary.

Chief executive Jennie Price said: “I’m very confident that the relationship to funding is a real one, and that if people don’t comply with the code, that is going to be a very real risk.

“We need a real willingness and a really credible plan of action to do this. So, we accept that it can’t all be done in five minutes but it needs to be done as fast as we can do it and it needs to be properly and actively pursued and accepted as the right thing to do.”

Most remunerative for that certain type of woman no doubt.

We would rather wish that the sort of people who infest bureaucracies spend more time serving the consumers rather than attempting to get a well paid job infesting a bureaucracy. But then that they never do is why we want to reduce bureaucracy, isn't it?

To critique neoliberalism it helps to understand neoliberalism

Danny Boyle, he of the NEF* and such associated centres of economic illiteracy, has a new book out telling us all that neoliberalism is responsible for all the modern world's ills. We here being proud neoliberals rather take issue with it being responsible for the ills of course. The most striking economic fact of the past 40 years is the decline in absolute poverty around the world and we're really very sure indeed that that is a result of this neoliberal globalisation stuff that we believe in.

We prepared to discuss whether absolutely and totally everything about neoliberalism is just shiny perfect (Yes!) but we do rather object to people missing its crowning glory.

However, that's not the only mistake being made by Boyle. Take this for example:

Even more seriously, Friedman argued that monopoly didn’t matter, and – if it did happen – it was the fault of the government for over-regulating.

No, really, just no. A contestable monopoly doesn't matter that much, for sure, and government regulation can most certainly create monopolies. but to have St. Milt arguing that monopoly power doesn't matter is to butcher reality.

We also get this:

The first error led to the great heresy of neoliberalism, that corporations should be treated like human beings in legal terms.

Which is a category error. Because the very point of having something called a "corporation" is to create a legal form that can then be treated as a person. If we didn't want to create a legal person then we wouldn't need to have the legal form we call a corporation.

The basic point about the law is that you must be a "person" in order to partake of that law. My dog is not a legal person although I am, as the person being kept by it, responsible legally for its actions. If it bites someone, poops on their lawn, nicks their sausages, then they can come after me. I am not responsible for the actions of my cat in the same manner - the law usefully distinguishes between animals that might possibly be controlled and those that cannot be.

But the law is also quite clear that neither the dog nor the cat can be a litigant, sign a contract, be held responsible for their actions themselves. Simply because they are not people.

Only people are people. Which causes a problem when we have an economic organisation. We do think that an economic organisation should be able to sign contracts. More importantly, we think that an economic organisation should be answerable for its actions in a court room. That is, we want to be able to sue them. For this to be possible an economic organisation must be a person.

We then distinguish between natural persons, that's you and me and other peeps, and legal persons, that's companies and charities and governments and football clubs and the police and.....they must all be persons of some form simply because if they're not then they're not organisations governed by the law.

Because the law applies to people. 

This does not then mean that legal persons and natural persons must have the same rights. Assisted suicide of a company is called helping out in bankruptcy proceedings, assisted suicide of a natural person is a crime. That Citizen's United case in the US was not about whether corporations or organisations are people. It's about whether free speech rights and political speech apply to legal persons as they do to natural persons.

Which rights that natural people have which should also apply to legal persons is a very interesting discussion. But the idea that corporations should be legal people is absolutely nothing at all to do with neoliberalism. It's simply the cornerstone of the legal system. Creating a person subject to the law, with rights under the law, is the entire and whole point of having something called a "corporation" in the first place.

And if Boyle's going to get such basic matters wrong then we don't need to spend that much time on his other effusions, do we?

*They say it stands for new economics foundation, we say, along with Giles Wilkes, that it means not economics frankly

You go spend your own money matey

It's Nobel week so of course we have someone complaining about all of this:

If Dr. Paine, who passed away in June, had been a physicist, chemist or cell biologist, such a fundamental, broadly applicable and hugely influential paradigm would probably have put him in contention for a Nobel Prize. But Paine was an ecologist, so he had no shot at the prestige, power and wealth that the Nobels bestow. The same can be said for the world’s top geologists, oceanographers, meteorologists, climatologists, crop scientists, botanists, entomologists and practitioners of many other fields.

So the story goes at least, Alfred's wife ran away with a mathematician which is why there is no Nobel for Mathematics. And? It's Alfred's money, to be spent as he wished. and it's not that difficult to substitute. The Fields Medal is considered rather grander in fact.

But our correspondent wants those other sciences to be recognised too.The first computerized weather model was produced only in the 1950s, and climate science has grown exponentially since the danger of global warming was first recognized some 60 years ago. Discoveries in those fields are increasingly critical for addressing today’s most pressing problems, from conservation of endangered species to earthquake and hurricane prediction. And yet the Nobel Foundation has taken no meaningful steps to recognize them. Forests and oceans are essential to making the planet hospitable, yet there is no scientific Nobel that a forest or ocean researcher could remotely dream of winning. Nor is there a Nobel for science education or outreach.

There are no Nobels for these things because Alfie didn't want there to be. and it really is his money being spent here. The solution is therefore for you to raise the money for an institute your own prize. And the eminence of the prize will come not from the name you give it but the reputation of those first few hundred you give it to. It is their reflection which later recipients glory in.

But then we get:

In 2009, 10 prominent scientists and engineers, including a Nobel laureate,wrote an open letter asking the foundation to recognize more areas of science. They pointed out that a similar evolution was recognized with the 1968 establishment of a Nobel-caliber prize in economics, defusing the counterargument that the foundation was constrained by Nobel’s will.

Ah, no, that's to misunderstand what happened. The Foundation is still constrained by the will. The Riksbank bunged them $30 million odd (about right for a $ million a year prize in perpetuity plus admin expenses) to set up the Econ Nobel. And if our complainant were to raise a similar sort of sum we've no doubt they would at least listen politely.

Or, as we might put it, if you want a prize for a certain science or sectors of science then spend your own money matey.

The perils of industrial farming

The Guardian is running a series by Felicity Lawrence about how we're all mugs for going for this industrial farming thing. If only we actually counted up things properly we'd find that near peasant, organic, agriculture would be much better than this pesticide laden monoculture.

This ignores the fact that we have a method of adding up all the costs. The price system. That's actually what it does for us - measures all the costs of something. And given that the organic stuff costs more then we've got to assume, at least as a starting point, that the organic method costs more.

However, we are wrong - at least so we are told - because: 

Research has found that over a short period yields per hectare for individual crops are greater in intense agricultural systems. But over a longer period, and when you look at total farm output, more mixed and diverse farming produces more.

We are referred to this report as proof of the contention:

Agroecological systems also tend to be more labour-intensive, especially during their launch period, and spread labour more evenly throughout the year, allowing for full-time employment of farm labourers. 

So we must use more human labour, more resources then. And one of the problems with peasant agriculture is that the people doing it have to live as peasants - exactly what our gg grandparents fled and we thankfully have escaped. The aim of this being:

Industrial agriculture and shifting consumer habits have helped to facilitate the emergence of mass food retailing, characterized by the abundance of relatively cheap highly-processed foods, and the year-round availability of a wide variety of foods. In many countries, consumers have become accustomed to spending less on food. For example, food now accounts for as little as 11.4% of US household expenditure. In parallel, consumers have become increasingly disconnected (physically and emotionally) from food production. 

We should rather be more emotionally connected with our food by paying more for it. Because, as above, the price system does in fact work. We get higher prices because non-industrial farming requires greater inputs and thus costs more.

At which point it's obvious that industrial farming is the more efficient method. Their own report insisting that we should stop using that system contains the very proof that it is more efficient. Industrial farming produces cheaper food at the cost of less human labour. Why on Earth would we want to move to a system which requires greater inputs, more people labouring in the mud, to provide us with more expensive food?

Answers on a cluebat to any of your Green friends please. Or, if you should be so unfortunate as to know any, people at The Guardian.

If women are more reliant upon social security doesn't that mean the system is biased in favour of women?

The guardian has one of those usual rants about how, really and candidly I tell you, we have to destroy capitalism in order to reach true gender parity. OK, well, just add that to he list of reasons why we've got to destroy capitalism we suppose. However, there's one line in there which has an odd implication:

Rather, women are more likely to be reliant on social security and insecure work, and thus end up hit hardest by austerity measures.

If a reduction in government redistribution disproportionately hits women then doesn't that mean that the current structure of government redistribution is skewed in favour of women?  

We can't actually see how that cannot be true. Sure, the social security system doesn't actually work upon gender lines. We don't say "you're a man have less money". We do say that if you're taking care of dependants then you can have more money. And it does generally turn out that women do more of the taking care of dependants than men do.

At which point we can say that the society seems to have some sort of bias in it. But if we look specifically at the social security, of the redistribution, system, then that initial statement cannot be taken as evidence of bias against women but in favour of them.

If reducing government spending disproportionately hits women then the current system, before reduction, must disproportionately benefit women. Given that first statement how could it be otherwise? 

There's a point at which we've got to give these people the Anglo Saxon Wave

Given the anecdotal link with Welsh archers at Agincourt we might call it the Celtic Wave, but most today will associate it with Churchill's cheeky transformation into the V for Victory sign. Or, that general two finger wave at people who have simply lost the plot and who need to be told to travel. And we are rather getting to the point where we need to be deploying this sign language in a serious manner to our rulers:

Restaurants, cafés and pubs will be named and shamed unless they make food portions smaller or less sweet, the government has said.

Chains such as Pizza Express, Starbucks, McDonald’s and Gourmet Burger Kitchen have been told to “step up” by cutting sugar from food and reducing the size of desserts, cakes and croissants. Calorie-reduction targets for fatty, savoury foods will also be set.

Jeremy Hunt, the health secretary, told a private meeting of more than 100 food companies yesterday that “going out to eat is no longer a treat” because it is so common. Takeaways and sandwich shops would therefore be expected to take the same action as supermarkets and food manufacturers in tackling Britain’s obesity problem, he said.

As we have pointed out innumerable times we are not all fatty lardbuckets because we eat more than our forefathers. We are so because we expend less energy than they did - this we know because we know that we ingest fewer calories than they did.

Further, there is no reasonable excuse for government intervention here. That usual excuse of the cost to the NHS of obesity is nonsense. People whose arteries pop or clog as a result of being 10 stone overweight save the rest of us money by consuming health care for many fewer decades than the slimmer among us. As is true of smokers and boozers by the way.

Finally, of course, there is the point which we consider to be important. It's no damn business of the government's what we decide to consume.

The only solution to this is to just generally ignore them. And if their hectoring becomes to shrill we recommend that Anglo Saxon Wave. Rather more vituperation from the rude mechanicals is what the prigs and prodnoses deserve - and who knows, perhaps enough of it will shut them up.

One part of the Swedish model we firmly reject

We have noted a number of times around here that the Swedish model is not quite what people think it is. The economy as a whole is more vehemently free market than our own for example. We don't share the taste for a high tax, high redistribution society but there's still no doubt that, along with that greater insistence upon economic freedom, it's a place that works.

However, there is one aspect of that model under discussion which we adamantly oppose:

Sweden’s government on Wednesday proposed the reintroduction of compulsory military service, as the country continues to rebuild its national defenses amid rising tension around the Baltic Sea.

Absolutely not, not under any circumstances. And yes, for some of us at least, we do mean any circumstances - WWII did not justify conscription.

At one level it's simply a violation of that good ol' specialisation and division of labour. There are those 20 year olds who like and are good at controlled violence. Where we need controlled violence then we should be using those talents, not simply dragging anyone in off the streets.

But at a much more important level it is simply slavery. Slavery to the desires of the state rather than to some individual Massuh to be sure, but slavery all the same. And no, slavery does not have any place in our modern society, we're all better than that.

If Sweden cannot get enough volunteers in the current circumstances then they should be offering more money to those who do join up. And if the taxpayers aren't willing to bear that burden then they won't get defended, will they?

No, Uber doesn't increase congestion

I'm a big of fan of Uber. As I've written elsewhere, Uber should be encouraged not over-regulated. It might even be saving lives.

It's becoming increasingly clear that Uber's very noisy opponents aren't persuading anyone when they argue that Uber's a threat to public safety. As a result, they're changing tactics.

Earlier this year, cabbie union the Licensed Taxi Drivers Association (LTDA) blamed record levels of congestion in London on Uber and called for a cap on the number of private hire drivers on the road.

But, according to a new study from Arizona State University the LTDA's fears about congestion are completely unfounded. In fact, the study found that ridesharing services like Uber actually decrease total congestion.

By looking at cities where Uber entered at different times, the researchers were able to identify changes in congestion due to Uber and control for general economy-wide increases in car use and the like. 

So why were the LTDA so wrong about Uber and congestion? Well, it seems obvious that increasing demand for private hire cars will mean more cars on the road and more people getting stuck in traffic. The study's authors offer a few reasons why this isn't necessarily the case.

First, recent data suggests that Ubers tend to have higher occupancy levels than traditional cabbies. Think of innovations like UberPool where multiple users who otherwise don't know each other are brought together in the same cab for cheaper fares. 

Second, because Uber iss so cheap many people are giving up on driving altogether. So Uber is displacing the number of cars on the road not adding to them.

Third, Uber's much criticised (but not by economists) Surge Pricing system encourages people to delay peak time trips and make journeys at less congested times. As the authors say "Since the price of ride sharing in peak hours can surge quite high, riders who are price sensitive and flexible in their schedule may delay the travel time or choose to use public transit instead."

Finally, Uber is just straight-up more efficient than traditional cabs. Research from Cramer and Krueger found that Ubers spend much more time on the streets with a fare paying passenger in the back. That means they'll cause much less traffic while searching for fares.

Of course, if the LTDA really cared about reducing congestion (opposed to just wanting a stick to bash Uber with) they'd call for pricing roads at market rates (like we've done for years) and doing the same with parking.