Milton Friedman – a birthday tribute

Milton Friedman was born on July 31st 1912.  He was one of the two most influential economists of the 20th Century, the other being John Maynard Keynes, and he promoted monetarism as an alternative to Keynesian orthodoxy.  His economic scholarship was unimpeachable, and won him the award of the Nobel Memorial Prize in Economics in 1976.

He was no less influential in promoting free market economics as an alternative to the once fashionable mixed economy consensus that prevailed in the post-war era.  He did this at a popular, as well as at a scholarly, level, with a series of articles in Newsweek and other popular journals.  He was an excellent communicator, able to explain complex ideas in simple, easily understood language.  His “Capitalism and Freedom” remains a classic to this day, still relevant, still persuasive.

His TV series, “Free to Choose,” together with the book he co-authored with his wife Rose, were immensely popular, and were hugely influential in gaining popular support for the economics of free enterprise, choice and incentives, and a widespread skepticism of government intervention.

He pioneered many ideas that eventually gained traction, including an end to military conscription in the US, floating exchange rates, and school choice amongst many others.  His monetarist views influenced the Federal Reserve’s response to the 2008 financial crisis.

He was a supporter of the Adam Smith Institute and took a keen interest in its work in translating sound economic ideas into viable policy options.  He addressed ASI meetings, and regularly chatted with its members at meetings of the Mont Pelerin Society, which he continued to attend until his death in 2006.  He went out of his way to help others, to support student groups and to lend his wisdom and advice to free market organizations.  He even acted as my referee when I applied to Cambridge, with a hand-written note endorsing me.

He was engaging, personable and likeable, nearly always with a smile on his face and a twinkle in his eye as he corrected economic nonsense from his opponents.  Happy birthday, Milton; we miss you.

Opposing environment-friendly rice with higher yields

The MIT Technology Review reports that scientists have produced a genetically modified rice strain that emits far less methane than traditional varieties.  It emits one thirtieth as much in summer and half as much in winter.  It does this because a single gene from barley has been inserted to make the plant yield 43% more grain per plant, so less carbon goes into the roots and the soil to be converted by microbes into methane.

Despite its enhanced yield and lower greenhouse gas emission, it is estimated that it could be 10-20 years before it becomes available to farmers.  This is because scientists will have to use traditional breeding methods to produce a rice that is scientifically the same, including the same gene.  As Chuanxin Sun, the report’s senior author, puts it: 

“Right now of course it’s a GMO issue, and we cannot deliver this variety directly to farmers. We have to use traditional breeding methods and breed the new, society-acceptable variety for farmers.”

It is thanks to completely unwarranted scare stories from environmental groups that progress in genetic modification has been held back.  Millions of children have suffered blindness or death because of opposition to ‘golden rice’ modified to biosynthesize beta-carotene, a precursor of vitamin A, to combat a shortage of dietary vitamin A in some areas.

Millions more live at precarious subsistence levels because they are denied access to GM crops with enhanced yield or greater saline or drought resistance.  Innumerable field tests have failed to show adverse effects on humans, yet many in the environmental lobby campaign for all GMOs to be rejected.  They do not hesitate to trample down experimental crops planted with the support of democratically elected governments.

Many of the NGOs will undoubtedly oppose the new rice, despite its hugely increased yield and smaller environmental footprint.  Scare stories are what they do, and they keep the subscriptions and donations rolling in.

Nudging people to do what they want to do

Not all of us in the Adam Smith Institute agree on everything all the time.  Life would be duller if we did.  One topic that divides some of us is the notion of ‘nudge.’  Thaler and Sunstein wrote a book under that name in 2008, describing ways of “changing the choice architecture” so that people find it easier to do what they want to do, but fail, perhaps because of inertia, to follow through upon.

Two thirds approve in polls of organ donation after death, but less than 30% were completing the form.  The US driver’s licence application gave applicants the choice, and they had to choose yes or no.  The number volunteering as organ donors shot up to the two-thirds who approved of it.  The choice to volunteer had been made easier.  Other countries have followed suit with similar results.  Some add a third option: “I do not wish to make a choice at this time.”

The BBC news magazine’s Home Editor, Mark Easton, has described some successes by the No. 10 Behavioural Insights team, colloquially known as the Nudge Unit.  They boosted job applications by unemployed people by personalizing the invitation.  A simple request to turn up for potential jobs at a supermarket saw 11% come forward.  When the person’s name was added to the request (“Hi, Sam…”), it rose to 15%.  When the JobCentre adviser signed it at the bottom (“Good luck, Michael.”) the proportion turning up rose to 27%.

The team managed to boost black and ethnic minority (BME) applications to become police officers by adding the words “Congratulations! ” and telling applicants they had been “selected to participate in the next stage of the assessment process.”  It added “What is it about being a police officer that means the most to you and your community?”

Whereas previously the situational judgement test had been successfully completed by 60% of white applicants but only 40% of BME candidates, the revised wording saw the BME percentage rise to more than match the success rate of white applicants.

Some in the ASI are suspicious of this approach, partly because it involves a decision about what should be nudged, meaning about behaviour that should be encouraged, and partly from a fear that the technique could easily be abused to promote behaviour that people don’t want to do.  These should certainly be watched, but if the technique uses polling to ascertain what people would like to do but find difficult, then it can be helpful.

The technique has been used to help people pay their tax arrears more promptly, and to encourage people to put more aside into their pension funds.  Many countries are now adopting these techniques, and the Nudge Unit sells its services to other governments.  Whatever else can be said, to libertarians ‘nudge’ is better than compulsion.

A Budget of wasted opportunity

Tory MPs cheered wildly as Chancellor George Osborne unveiled his budget proposals, and Iain Duncan Smith punched the air in delight as the government committed itself to a “living wage” by 2020.  Yet more dispassionate observers watching from afar sighed in disappointment as the Chancellor took not one of the opportunities he had to reshape the economic and political landscape.

It was a very political budget, and it did not need to be.  Five years before an election, the Chancellor could have left his mark by improving the way in which Britain is governed and taxed.  He could have given the country an economic budget to transform its future, but instead he decided to score political points.

If circumstances limited his scope for action now, he could at least have laid down markers for the future basis of a sound economy attractive to investment and promising raised living standards.  Cutting Corporation tax first to 19% then to 18% is good, but he could have announced his intention to later lower it to the Irish level of 12.5%.  That would have sent a clear signal to investors.

The Chancellor made modest changes to tax thresholds, raising the starting level for the basic 20% rate to £10,600 – well below the minimum wage.  What he could and should have done was to simplify the tax system by having only two rates, 40% and 20%, and cutting out many exemptions.  

His lifting of the minimum wage to £7.20 per hour next year and £9.00 by 2020 used the language of the left’s “living wage,” for a political coup, but the reality will be lost jobs for low earners, 60,000 of them according to the IFS.  Osborne’s calculation is that those in minimum wage jobs will thank him, whereas those who now fail to enter minimum wage jobs will not tag him as the author of their misfortune.

Raising the threshold for the death tax (IHT) on housing to £1m for a couple looks good, but will put more pressure on house prices.  It should have applied to all assets to avoid sucking money into housing, and the level should have been £2m. 

The Chancellor could have helped millions by ending stamp duty on shares.  This would have given pension funds a boost, and increased the capital available to firms to expand and create jobs.  

Instead Mr Osborne’s budget plans to raise an additional £9bn in tax revenues by 2020, making this a clear tax-increasing budget.  He could have proposed a tax-cutting, tax-simplifying, spending-cutting budget.  Instead he raised taxes and played politics.  He wasted the opportunity, and there may not be another.

Heraclitus v. Parmenides – Flux v. Stasis

I gave the opening lecture at Freedom Week at Sidney Sussex College in Cambridge last week.  My theme was “Flux versus Stasis,” and I contrasted the views of Parmenides and Heraclitus, two of the Presocratic philosophers.  Parmenides took the view that nothing changes in reality; only our senses convey the appearance of change.  Heraclitus, by contrast, thought that everything changes all the time, and that “we step and do not step into the same river,” for new waters flow ever about us.

I divided the world between those who seek permanence (the stasis of Parmenides) and those who embrace change (the flux of Heraclitus).  Those who prefer stasis resist change and innovation, and try to keep society following traditional practices, using social pressures and, if necessary, the force of law to sustain conventional norms.  They include people who resist technological change and the changes it brings to employment, as well as those who urge subsidies and tariffs to sustain domestic markets against foreign competitors.

Those who accept that change happens and try to adapt to its flux follow Heraclitus.  Their societies allow experiment and innovation, even knowing that some will be upset by the disturbance they bring to traditional ways.  They allow markets to pulse and flow, reacting to inputs, and adapting to and coping with those changes.  

Stasis societies value order and tend to entrust government to maintain their status quo.  Flux societies value new ideas and look for progress toward their citizens’ goals.  It is the flux societies, the ones ready to embrace change and develop its positive aspects, which are most friendly to liberty and the right of people to pursue self-referring goals unimpeded by arbitrary restrictions imposed by others.

The full text of my lecture can be seen here.