But what if subsidies to pharmacies should be cut?

Much rhubarb, rhubarb being chuntered as the government considers cutting the amount of subsidy going to pharmacies. We have, of course, the usual suspects in the form of those currently getting the subsidies complaining that they might not do so in the future: 

More than 1,600 pharmacies in rural areas face closure because they will not benefit from a promised government financial package, leaked documents indicate.

Ministers are expected to unveil a large cut in the annual subsidy for community chemists in the next few days.

The cuts have proved highly controversial, with a record 2.2 million people – one in 30 of the population of Britain – signing a petition against them.

This is the essential problem with political subsidies to favoured groups. The problem coming in two forms. That the government is considering spending £170 million less on these subsidies is a very minor matter for almost all of us. Two or three quid a year out of our total tax bill is not something most of us will go to the barricades for. But the recipients of this cash are intensely interested in seeing it continue to pour in. This concentrated interest and dispersed disinterest is the political explanation for why such favouritism continues.

The other flavour of this problem is that where market forces are operating then these changes occur gradually. Technology changes say, as technology always does. Perhaps Uber has made getting to a chemist cheaper, perhaps Deliveroo means that the housebound don't need to get to a chemist. The specific changes aren't the point - but that there always are changes is. And in markets the marginal supplier fades away and the marginal suppliers fade away gradually over time. This is how we adapt to technological change. But when we've these politically favoured subsidies we must make a positive effort to change the system. This is of course harder - and also means that we've got to wait until it's a large problem before we do. Thus ensuring that the concentrated interest opposing change is larger.

All of which means that we do in fact have to continually revisit such schemes in the light of other changes in the economy and technology. We must, if you like, careen the ship of state more than just occasionally.

And the specific change here doesn't seem to onerous: 

“Pharmacies that are a mile or more from another pharmacy will be automatically eligible” for average payments worth between £8,500 and £19,500 each, it says.

The scheme is likely to cost £12 million a year, rising to £27 million in 2017-18. Chemists which do not meet the criteria will not qualify for the grant money.

Society is rather more mobile than it was in the past. And now we're asking that people travel no more than a mile to their state supported pharmacist - this is the implication of only one pharmacist per mile getting the subsidy - to gain access to their state subsidised drugs? In order to save some perhaps £140 million, £150 million a year? 

It really doesn't sound like the sort of onerous condition that one in thirty of the population should be protesting about, does it? Rather more just a little necessary scraping off of the odd barnacle really.

We'd better get fracking then, hadn't we?

Apparently this process of leaving the European Union is going to leave us all at the risk of freezing in the next cold winter. We do not think that this is a reasonable description of likely events if we're to be honest about it:

A hard Brexit deal with the European Union could leave the UK vulnerable to a gas crisis, MPs have warned.

In a report, the Commons’ Energy and Climate Change Committee said Britain was “heavily reliant on Europe” for imports of gas and electricity.

The EU is expected to agree a “solidarity principle” between member states, which essentially means they would help one another in event of a shortage of supply or major price increases.

The MPs warned that if the UK was excluded from this pact the Government “must urgently investigate alternative back-up arrangements”.

The North of England appears to be floating on a veritable ocean of natural gas. The oceans are dotted with LNG cargoes sniffing hopefully for some hint of a home.

The European Union has a bureaucratic committee willing to allocate natural gas to favoured recipients in a time of dearth.

At which point we really do have to remind everyone of the best manner of achieving security of supply. Which is to have multiple suppliers of whatever it is from multiple geographic (and political perhaps) areas. Rather than have one centralised bureaucracy making allocation decisions.

Thus the correct decision here, Brexit or no Brexit, would be to develop those alternative supplies - we should get fracking therefore. After all, as that report into the effects of Cuadrilla's test drillings pointed out - just the extra gas found by the one test well could lower European gas prices by 4%. We might well find ourselves sweetly enquiring of said bureaucratic committee whether we might help out with their shortness of supply?

As we've been saying the solution is to blow up the Town and Country Planning Acts

Britain does not have any shortage of land upon which houses could be built. Britain does have a shortage of land upon which houses are allowed to be built. The solution to ever rising prices for land upon which houses may be allowed to be built is therefore to allow more land to have houses built upon it.

But this is not just a matter of house prices. The problem is sufficiently severe that it is distorting the capital allocation process, even what income is available and who is getting it. We're all aware of Piketty's point that capital is both becoming a higher multiple of GDP and also that capital income is becoming a larger share of national income.

These are the same problem in fact. For the rise in capital income, the rise in capital compared to GDP, is almost entirely a function of the rise in the price of land which may be built upon. As a new paper points out:

This investigation reveals three things about the rise in the US housing capital income share in recent decades. First, it has occurred due to an increasing share of income accruing to owner-occupiers through imputed rent. Second, it is concentrated in states that are constrained in terms of new housing supply. Finally, it is closely associated with the long-run decline in real interest rates and inflation.

My results suggest that the ‘rise of housing’ is intimately linked to the same factors that underpin ‘secular stagnation’ (Summers 2014) – that is, the gradual decline in real (and nominal) interest rates since the 1980s has contributed to a gradual run-up in housing prices, and led to household wealth and income being increasingly concentrated in the hands of landowners. This in turn may have implications for intergenerational inequality, given that the home is a key mechanism through which wealth and income are transferred across generations.

The paper does indeed note that this is not restricted to the US - it is happening wherever there are those restrictions on land being built upon. It is almost entirely about imputed rent to owner occupiers - the cries about it being the finance capitalists who are getting more of the money are simply not true.

The answer is also obvious. Do away with the constraints upon building land and all of these problems solve themselves.

That is, as we've been saying for some time now, we should blow up the Town and Country Planning Acts.

Donald Tusk makes things remarkably easy for us here

We can't help feeling that the federasts aren't quite getting their negotiating stance right here. For they think they're making us face up to the full horrors of Brexit. We instead find that they're making the decision easier:  

The UK faces the stark choice of either a hard Brexit or no Brexit, the president of the European council has said – the first time he has taken such a clear line on the likely outcome of the UK’s exit talks.

Just hours after the foreign secretary, Boris Johnson, had told a committee of MPs he was confident Britain could strike a better trade deal with the EU after Brexit,Donald Tusk used a speech in Brussels to scotch the idea that Britain can “have its cake and eat it”.

Speaking to an audience of policymakers in Brussels on Thursday, Tusk – who chairs EU leaders’ summits – said it was useless to speculate about a soft Brexit, in which the UK remained a member of the single market. “The only real alternative to a hard Brexit is no Brexit, even if today hardly anyone believes in such a possibility.”

There is much prattling about whether we can do a "soft" Brexit, can maintain certain privileges or not. But if we really do face just this binary choice, of a clean break or no break at all then that choice is very simple indeed, isn't it? 

We've even had a referendum to confirm it. We definitely and definitively want a break of some form. The only one on offer is that clean break - so a clean break it will be.

It really is that simple, isn't it?

A summary departure

Scraps about soft and hard Brexit smack of punch-ups between cartoon-strip antagonists more or less keen on the referendum outcome . But this masks a more subtle distinction between judgements about risk. Let us put the best face on the arguments for a gradual, possibly staged departure from the EU, including those on this site led by my good friend, Sam Bowman. These are

• a summary departure would hurt industry and finance; 
• our relations with the EU are too complex for a rapid departure ;
• Northern Ireland, Scotland and the 48% would be mollified by a halfway house.

Unfortunately, however, I fear this halfway house is a pipe-dream. Brussels can’t offer a better deal on sovereignty, the number one objective of Leavers, as any concession would be demanded by other countries. And the EEA doesn’t give border security, the Leavers’ second objective, no matter how we may feel personally. In this light, the highest priority for the government becomes reducing the level of Brexit insecurity all round.

• In the nature of things, industry and finance adjust to new conditions but both run the risk of freezing (eg hiring and investment decisions) in the face of prolonged uncertainty. 
• The European s themselves will welcome being let off prolonged Brexit negotiation so they can turn to their many other problems.
• A definitive outcome offers a similar balance of benefits to Northern Ireland, Scotland and the 48%. 

HMG can achieve this with a childishly simple negotiating position – a no-fault quickie divorce, by way of time-limited offers of the status quo ante

• on goods, or failing which unilateral zero tariffs (subject to reservations for antidumping etc). The latter would make it imperative upon Brussels to reciprocate. If it were bonkers enough to fail to do so, the EU would break up as its leading members would not tolerate losing their single largest external trading partner; and
• on services, failing which reciprocity, reminding (eg) the Quai d'Orsay of the benefits of access to the UK’s service markets for AXA, BNP, EDF, RATP and Veolia.

plus a couple of financial offers

• a one-time only sum (in the billions) for the UK’s share of the net of pension obligations etc less tangible assets; and
• a periodical sum (in the tens or low hundreds of millions) for Erasmus and other such motherhood and apple pie. 

The time-limited aspect of HMG’s offer should be sustained by a clause in the Great Repeal Bill empowering HMG to exercise its rights under the Vienna Convention on Treaties to bring negotiations to a summary conclusion for lack of a serious intent to negotiate by the other side. As this would leave the financial offers unaccepted, HMG would throw in payment to an escrow lodged with the BIS or the like.

HMG should be briefing international firms (American banks, the big Anglo-Dutch players, French, German and Dutch state-owned transport outfits, French quoted government contractors, Japanese carmakers etc) to the effect that if they value their operations in the UK, it is up to them to lobby the EU to respond positively. So too European exporters to the UK. Overall, however, HMG would be after an abbreviated negotiating period to minimise uncertainty and bring on dealings with third parties.

Miles Saltiel has just published a collection of thirty-odd blogs circulated to insiders during and after the referendum campaign, as “The Brexit Blogs” a Kindle e-book.

The Sunday Times' bizarre witch hunt against Airbnb

Over the past month or so, Airbnb have been the victim of a rather bizarre witch hunt led by The Sunday Times.

First, back in mid-September they accused Airbnb of engaging in underhand lobbying tactics – "Airbnb’s underhand lobbying tactics exposed - The Times, September 17". The headline sounds worrying certainly, but if you read past it, you'll notice this underhanded lobbying consists of inviting Airbnb hosts to an evening of free food and drink asking them to list a few good experiences they've had using the website. At some point in the future, they might even ask their hosts to let a few politicians know that they quite enjoy having the right to use their private property as they wish, and tell would-be regulators to get lost. It's hardly cash for questions.

Now they've gone after them again. This Sunday they published an investigation claiming "widespread abuse of planning laws by Airbnb users, allowing them to take properties out of the already squeezed housing market and turn them into money-making holiday rentals." 

Now, obviously we should enforce all of our laws consistently and predictably. But many of these rules shouldn't be on the books in the first place. They say:

"For anyone planning a trip to London, the Airbnb website offers a striking range of furnished flats, spare rooms and, in at least one case in the north London suburb of Golders Green, a converted garden shed.

Last week The Sunday Times visited the studio-shed and nine other holiday rentals in the same property listed on Airbnb. The shed, deemed unsuitable for accommodation by the local council, was on the market for £50 a night."

Now, if this shed was unsafe and unpleasant, the host would likely get a bad rating and while £50 a night is relatively cheap for London there are certainly other options for would-be travellers. What I suspect has actually gone on is that the host has built something perfectly liveable, but not bothered to get the requisite sign-off from the council. Rather than crackdown on the host, we should follow the lead of Sweden where small houses (no bigger than 15sq m) can be built without planning permission.

So we're left with two supposed "problems". First, that Airbnbs are taking housing stock off the market making housing more unaffordable. And second, that Airbnb guests are somewhat more unpleasant to live next to than regular residents. Fortunately, neither hypothesised problem survives contact with reality.

First, Airbnb hardly makes up enough of the London housing stock to have a noticeable impact. As the article points out "all the listings on the site account for less than 0.7% of the housing stock in greater London." Of course, for this to reduce the supply of "affordable" housing it would require that in the absence of Airbnb, that most hosts would instead put their place out on the market as long-term lets, something that's far from guaranteed.

Of course, high rents aren't caused by a small fraction of homeowners renting their properties out. Rather they're caused by a planning policy that prioritises protecting intensive farmland  over homes for the rest of us. Research from Christian Hilber at the LSE suggests that if the most regulated region in the UK (South-East) was deregulated to level of the least regulated region (North-East) then house prices would 25% lower. 

Jim Pagels in a witty Medium post, points out the intellectual bankruptcy of blaming Airbnb for high housing costs.

Here’s a thought exercise: Imagine the U.S. had very restrictive laws regarding smartphone production. If a new Apple factory wanted to produce more iPhones, each phone would have to go through a long, onerous, and costly approval process by the local government and regulatory agencies. In addition, nearby established phone factories or incumbent phone owners in many areas could successfully pressure the local government to prohibit the new factory from producing phones. Because of these burdens, the supply of phones rises only very slowly (far less than the growth in phone demand), and many people have to go about sharing a phone with family or friends or diverting huge portions of their monthly budget to owning/renting a scarce phone.

In this alternative phone regulation reality, the criticism that “some tiny portion of phones are used for leisure like social media and games rather than important things like work or talking to your family!” as a major cause the phone shortage and high prices would seem obviously wrongheaded.

Quite.

The Sunday Times' other objection is that Airbnbs (as opposed to long-term lets) impose additional costs (noise mainly) on nearby residents. This is what we economists call a negative externality. An extra cost borne by a third party that's not priced in to the trade taking place. But it's not clear that one exists here.

The excellent Michael Lewyn at the excellent Market Urbanism blog looks at the data and finds this argument wanting. One way to test whether something causes a negative externality are its effects on nearby property prices. For example, if a coal plant opened next-door to an apartment block, flats in that block would probably sharply fall in value. He tests the claim that commercial uses (as opposed residential uses) lower nearby property values by using a proxy for mixed-use areas (Walkscore) and found that high Walkscores correlated with high property values. If Airbnbs imposed costs on others then you'd expect areas with bars, restaurants and hotels in walking distance to have lower property values.*

The Sunday Times should switch targets. Instead of Airbnb they should shift their focus to the outdated planning laws that mean so many spend 50% of their income on rent.

*On Twitter, The Guardian's Alex Hern objects to this line of reasoning. Pointing out that hotels might better contain negative externalities than Airbnbs. Perhaps, he's right that not all commercial uses are equal.

Thankfully, for the sake of my argument, Michael Lewyn has a second test of whether Airbnbs impose costs. He finds that areas with a higher number of Airbnbs experience faster price growth than the citywide (LA in this case) average.

Obviously, it's going to be hard to untangle cause and effect here. So perhaps a better solution is for local authorities to better police noise complaints. Adequate punishments for excessive noise should deter hosts from taking noisy guests in.

Sorry Mr. Gummer but this is what it is all about

It appears that not all have got the message about Brexit. It's not just that we're leaving the European Union, it's that it is now possible to reject an entire style and philosophy of government. On opportunity that we should grasp with both hands, of course.

This specific set of regulations is neither here nor there really:

It was one of the stranger battlegrounds of the Brexit debate: thecontroversy over the EU’s plans to save energy by banning high-powered toasters and kettles.

But now the Committee on Climate Change has poured cold water on Brexiteers’ hopes that leaving the EU would see Britain carry on using power-guzzling appliances with abandon.

In a report on the implications of Brexit, the Government’s official climate advisers warned that retaining weaker energy efficiency standards for consumer goods in the UK would jeopardise emissions-reduction plans and be bad for consumers and manufacturers alike.

That committee being where John Gummer retired into his obscurity of course. Whether a few bansturbators manage to pleasure themselves by banning high power kettles or not is very little to do with the fate of the nation. But it is a sign,  a signal, of a style of government.

That style being one where we, the people, are to be managed as our betters in the bureaucracy insist we should be. A world in which we are not adults who can make up our own minds, manage decisions for and by ourselves, but one in which we not only have to be told what to do we must be forced to do so.

Lord Deben, the chairman of the CCC and a strong supporter of remaining in the EU, suggested that even if the UK ditched EU efficiency standards, consumers might find themselves with no option but to buy more efficient products anyway, since international manufacturers might not make separate high-powered products for the UK market. 

Excellent so we don't need the regulations anyway, do we?

We have actually already been told that these sorts of regulations are not the way to deal with climate change. The Stern Review actually told us this. Don't try to micromanage and regulate - change just the one thing, the price of carbon with a carbon tax and let the market do the rest. So even in terms of climate change this is the wrong thing to do.

But it's the wrong thing in terms of governance too. A nation of adults can decide for itself whether they want quick coffee or slow tea. Brexit gives us the opportunity to return to being such a society - we should take it.

Neoliberalism is a force for good, says Madsen Pirie in today's Telegraph

Neoliberalism is a force for good in the world, President of the Adam Smith Institute Madsen Pirie argued in the Telegraph this morning. His article noted:

Although the term "neoliberal" is meant as an insult, it need not be. It stands in contrast to the Marxist position of Labour, and the illiberal, protectionist and sometimes xenophobic attitude set against it. Neoliberalism is a viable third alternative.

Neoliberals regard most people as best equipped to make their own decisions about life, and should not be subject to the arbitrary will of other people. They see markets as the most efficient and humane way to allocate resources and to let people determine their priorities. They welcome the fact that the global spread of market economies has lifted billions out of poverty and deprivation and has improved living standards as never before in human history.

Sometimes names become bywords for unpleasantness – it happened to Boycott and Quisling, and might yet happen to Corbyn. But sometimes insults become commonplace descriptions. "Tory" once referred to Irish bandits, but the party now embraces the name, and the same could work for neoliberalism. The Adam Smith Institute has just taken the first step by calling itself a neoliberal, free-market think-tank.

British childcare isn't working

Rather disturbing numbers from the OECD here:

Childcare costs in Britain are by far the highest in the Western world, an international study has found.

Couples spend more than a third of their income on nurseries and childminders in the UK – more than three times the cost in France and Germany.

A full-time nursery place for a child under two costs £222 a week, up by a third in six years. It means working mothers now have to spend £11,300 a year on average on childcare, and up to £15,700 in London.

Leave aside the sounds of various axes being ground and consider the detail of the OECD numbers. These are a little old but will still be about right.

The UK is just behind the Nordics on the public spending on childcare. There's nothing either right or wrong about that - it's a policy choice. Should child care be largely privately funded or publicly? 

For example, we hear often enough that British rail fares are the most expensive in Europe, the world, the universe, whatever. And the reason is that taxpayer support for fares is lowest here. It's simply a policy choice.

But here comes the problem. British child care is also very high on the list for private costs. The Nordics, with their high public payments, are all at the very low end for private costs. Those places which are alongside us in having high private costs have low public costs.

We have, somehow, managed to create a system which has both high private costs and also high public costs. Which is absurd of course. It means that we've simply got the whole system wrong.

Ourselves we think this goes back to the Blair/Brown days when ever more regulation about who can provide childcare and how was loaded onto the system. But we're willing to listen to other explanations - for a system which manages to be expensive both ways is obviously one we want and need to change.

Coming out as neoliberals

You may have spotted that we’ve recently decided to start calling ourselves free market ‘neoliberals’, instead of libertarians. Nothing has changed about what we believe about the world, or the approach we take to making it better. But after thinking about it and discussing it among ourselves we decided that this was a clearer label for what we already believe and do.

Madsen's "Looking at the world through neo-liberal eyes" is an excellent primer on what we mean by this. I've had a stab at something similar, too. For us, the word neoliberal means that we’re:

1. Pro-markets
2. Pro-property rights
3. Pro-growth
4. Individualistic
5. Empirical and open-minded
6. Globalist in outlook
7. Optimistic about the future
8. Focused on changing the world for the better

These are, of course, what we’ve always been. We promote low, simple taxes because we want economic growth and to give people more power over their money, so it is individuals and not the state that choose where their income goes. We promote competition in healthcare, education, utilities and other public services because we want those things to be better through a process of experimentation and individual choice. We promote globalisation and a liberal immigration system because we want to raise the living standards of people around the world through trade and investment. 

Adopting the word ‘neoliberal’, then, is not a change of policy but a recognition that other labels do not describe what we’ve always been quite as well. We're not closing the door on libertarians, Objectivists, anarcho-capitalists, Whigs, free marketeers, conservatives, voluntarists, agorists or liberals - these are our friends and allies, and we welcome all to speak at our events, but these are not the words that most accurately describe us.

Why not ‘libertarian’, which we've used before? In the UK the word libertarian has a rather rigid meaning - someone who is opposed to all but the tiniest night watchman state in every case. In the US this isn’t the case. There, the word is more of an umbrella term for small state liberals who nonetheless might favour things like school vouchers or a Negative Income Tax as an end goal for policy, not just a stepping-stone to eventually abolishing all government altogether. But in the UK, I think it's confusing to many people to describe anything short of almost total abolition of the state as 'libertarian'.

Rightly or wrongly, many people in the UK are confused or annoyed when self-described libertarians such as us favour some measure of government, built on market-based lines. But we don’t care about ideological purity, we care about making the world better using experimentation and evidence. ‘Neoliberal’, like classical liberal but unlike libertarian, implies that we’re not all-or-nothing absolutists.

So why not ‘classical liberal’? We think that the world is better now than it ever has been, and that markets and property rights are to thank for that. The ‘Washington Consensus’ policies that advise developing world governments to get their spending and taxes under control and focus on opening markets up to competition and investment are in large part to thank for this. The massive reductions in poverty across the developing world and rise in wealth in places like China and India are thanks to the neoliberal order of sound government and free trade, and we want to defend that.

The classical liberal heroes we admire - Adam Smith, of course, but also people like John Stuart Mill and David Hume - are the progenitors of this order, but our policy programme is updated for the modern world. You might say that neoliberals are classical liberals with smartphones, internet access and frequent flier miles.

And then, of course, is the fact that ‘neoliberal’ is already in use today, but almost exclusively as a slur. For a large number of people (mostly on the left), neoliberalism describes the modern world order and the fact that nobody self-describes as a neoliberal is proof that nobody is willing to defend that order. Well, not any more. 

The words Tory, suffragette and Whig all began as insults but were adopted and reappropriated by the people they were used against. We intend to do the same with neoliberalism. The modern world is where it is thanks to markets and property rights, and we’re thankful for that. But with sensible policies it could be even better. And that’s where we neoliberals come in.