Well done to The Guardian for joining the dots here

It is, of course, possible that we’re all being mugged by the retailers and supermarkets. In the absence of sufficient market competition that’s actually what we’d expect in fact, for capitalists are greedy for profit. That’s why we like markets. It’s also possible that the retailing business has intensive competition meaning that vast pressure is being put upon those suppliers and retailers to deliver the lowest possible prices to us, the consumers. Either story is possible but it’s really most unlikely that both are true. So, well done to The Guardian here:

The competition regulator is to scrutinise allegations that UK supermarkets have duped shoppers out of hundreds of millions of pounds through misleading pricing tactics.

Which? has lodged the first ever super-complaint against the grocery sector after compiling a dossier of “dodgy multi-buys, shrinking products and baffling sales offers” and sending it to the Competition and Markets Authority.

That’s a version of the first story. That there’s insufficient competition, we cannot take our trade elsewhere and so we’re being rooked by the capitalists.

Meanwhile, new research suggests that more than 1,400 suppliers to Britain’s supermarkets are facing collapse as the cut-throat price war takes its toll on the industry.

The number of food and beverage makers in significant financial distress has nearly doubled to 1,414 in the last year, according to insolvency practitioner Begbies Traynor.

That’s a version of the second story, that there’s intensive competition to the benefit of us consumers. And it is entirely contradictory to the tale of the first story.

We really cannot have both happening in he same market at the same time. But according to The Guardian we do because both examples are from the same article. Without their being able to connect the dots between the two that show that one or other of the stories must be wrong.

We might be at the right level of smoking regulation

Usually the costs of something rise as you do or have more of it, while its benefits fall. So unless the cost of the first unit is already very high or the benefits of the first unit are already very low there is some amount greater than zero that it is optimal to have or do.

This is true for an individual and for a society. The first car you have massively changes your life. The second one adds pleasure, variety, and a good deal of practicality in some situations, but it’s much less useful than the first. Nearly no one has three cars to themselves because the benefits are vanishingly small and the cost is rising for storage, upkeep reasons.

The first few million cars in a society the size of the UK are amazingly useful, the next million go to people who don’t need them as much but do add to congestion, pollution and so on. The forty-millionth or sixty-millionth car starts taking up way more space than it’s worth.

Well as the title suggests I think it’s possible we might be approaching (or already have gone past) this point when it comes to smoking regulation. I wrote before about how plain packaging was probably a mirage (incidentally I learned today that the UK would drop three whole places, from 2nd to 5th on the GIPC’s index of intellectual property rights protections if it passed it; though many of this blog’s readers probably wouldn’t mind that).

We may have needed very activist laws in the past because it really is quite difficult to inform people about anything really, and smoking is dangerous in important ways such that if you don’t understand the decision you’re taking you really could make your life a lot worse. But nowadays people may well even overestimate the costs and people are thus taking the right decisions to maximise social utility. It isn’t a question of externalities because smokers actually cost the state less by dying earlier (a bad thing!)

This isn’t just a musing. A new paper in the Journal of Cost-Benefit Analysis (“Retrospective and Prospective Cost-Benefit Analysis of US Anti-Smoking Policies” (pdf) by Lawrence Jin, Donald S. Kenkel, Feng Liu & Hua Wang) says roughly the same.

We use a dynamic population model to make counterfactual simulations of smoking prevalence rates and cigarette demand over time. In our retrospective BCA (Benefit-Cost Analysis) the simulation results imply that the overall impact of antismoking policies from 1964 – 2010 is to reduce total cigarette consumption by 28 percent.

At a discount rate of 3 percent the 1964-present value of the consumer benefits from anti-smoking policies through 2010 is estimated to be $573 billion ($2010). Although we are unable to develop a hard estimate of the policies’ costs, we discuss evidence that suggests the consumer benefits substantially outweigh the costs.

We then turn to a prospective BCA of future anti-smoking FDA regulations. At a discount rate of 3 percent the 2010-present value of the consumer benefits 30 years into the future from a simulated FDA tobacco regulation is estimated to be $100 billion. However, the nature of potential FDA tobacco regulations suggests that they might impose additional costs on consumers that make it less clear that the net benefits of the regulations will be positive.

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Especially cool is the chart of a rational level of cigarette smoking, based on the benefits to the smoker of fulfilling their preferences vs the costs of frustrating their preferences for better health and a longer life.

I’m not saying that this research is conclusive. One paper is one paper. But I think it’s getting to the point where further cigarette regulation is becoming intrusive and costly without necessarily producing large benefits to its purported targets. We should consider if we’ve maybe hit the cigarette regulation sweet spot.

Who rules Britain: how much of our law comes from Brussels?

Business for Britain was right, on 2nd March, to question the proportion of our laws that comes from Brussels. Nigel Farage says it is 78%, Nick Clegg 7% and the House of Commons Library 13.2% but that is also an understatement due to the Library’s omission of no less than 49,699 EU Regulations, during the same 21 years to 2014. EU Regulations are not approved by Parliament and thereby escape the Library’s attention. From that, Business for Britain concluded that 65.7% of our legislation comes from Brussels.

The figures, in fact, get murkier because the Library also seems to have omitted up to 2,000 statutory instruments a year, which would offset most of the swing. SIs are the UK equivalents of EU regulations: both are secondary or “delegated” legislation and cover a broad range of rules from laws in the full sense to temporary road closures. SIs can even be used to repeal primary legislation.

The proportion from Brussels is really beside the point, namely the total number of rules both from Brussels and Whitehall. Governments claim they will staunch the flow but little is done. Surely by now we must have enough laws?

Curiously, so far as business regulation is concerned, Whitehall is the bigger offender. In 1972 we signed up to a Common Market. That is the one bit of the EU we all like and let us hope that, and not much else, survives the EU renegotiation. A single market must have a single set of rules governing that market. You cannot have a single market if everyone makes their own. The market-maker is the EU and it is no more a loss of sovereignty to conform to their rules than, say, playing by the club’s rules when one joins a poker club. Sovereignty is being able to opt out.

Business, like poker, is competitive so it is crazy to add ones own rules, hobbling one’s own business, to those required by the club. Telling the others at the table that you will never raise on, say, two pairs, stacks the odds against you. For this reason, counter-intuitively, it would be best if 100% of business regulation came from Brussels.

If a regulation is needed in the UK then we should ensure Brussels adopts it for the rest of the single market. If the others think it is unnecessary, we should think again. Rather than dreaming up its own business regulations, Whitehall should be staunching the 4,000 a year flow from Brussels and ensure that what does get through will deliver the open, fair and competitive single market we need.

Not only can we ditch all UK business regulations not required by the EU, but, with all that new free time at their disposal, our civil servants can be out and about in the capitals of Europe developing best practice, closer working relationships and, in consequence the simplest and best set of rules. In this game, fewer is better as anyone who witnessed the FSA contribution to the banking crisis can testify. Indeed, they will not need desk space in Whitehall, probably the most expensive in Europe, any longer.

There is little truth in widespread view that we must accept EU legislation without demur, beyond fine tuning directive-based legislation a bit. The European Scrutiny Committee of MPs “assesses the legal/political importance of EU documents, deciding which are debated, monitoring the activities of UK Ministers in the Council and keeping developments in the EU under review.” In other words, it is supposed to be briefed with EU Regulations in draft and seek to amend those not in the UK interest. How often does it do that? Hardly ever is probably a generous estimate. When that doughty EU fighter, Sir William Cash, became chairman, some of us hoped for action, but no, he was overcome by the same torpor as overwhelmed his predecessors.

In short, Business for Britain are right to complaint about the excess of regulation from Brussels but we should complain even louder about the excess from Whitehall and Parliament’s spineless defence of British business.

Why we shouldn’t clamp down on zero-hour contracts

The Office for National Statistics has revealed that 697,000 people (about 2.26% of employees) are on zero-hours contracts in their main job, up more than 100,000 on a year ago. Such contracts make life uncertain for the employees concerned, who may not know from week to week, or even from day to day, whether they have paying work. Some 33% of those on zero-hours contracts say they would like to work more.

So should we be clamping down on zero-hours contracts? No, we should not.

First, it is absolutely correct that zero-hours contracts have become far more common in the last two or three years. They hovered at about 0.5% for most of the period since 2000. They rose in use quite slowly between 2005 and 2012, then shot up to just under 2% in 2013 and to that 2.26% figure in 2014.

However, the unemployment rate has also come down in the last two or three years as well. In 2011 it stood at over 8%. Now it is less than 6%, and seemingly headed steadily down. Even though zero-hours contracts represent only a very small part of the labour force, it seems reasonable to argue that the two trends are related. The economic outlook is brighter, but is still uncertain; businesses remain unsure about the future, unsure about their markets, unsure of how much they should invest, unsure of how many workers they can justify taking on. A bust-up in the eurozone, for example, or a general election that delivers an unfavourable or unworkable government. might change the outlook completely for many UK businesses. So the only way that they can rationally expand their production, and be ready if things really do boom, it so cut their employment risk. Hence zero-hours contracts.

Remember too that even though the ONS talks about people’s ‘main’ job, they might not be the only income earners in a household. The same is true of those on the minimum wage: many of them will be secondary earners. In fact, 34% of those on zero-hours contracts are aged 16-24 and half of those are in full time education. To them, a minimum wage job or a zero-hours contract, while frustrating, is not a disaster, and the extra income, however low or intermittent, is welcome.

Critics – you know who – say that the government has allowed a ‘low-pay culture’ to go ‘unchecked’. So what would be their solution? Ban zero-hours contracts? Raise the minimum wage yet further? The inevitable result would be that employers would no longer be willing to take the risk of employing so many people. And first to go would be young people, with fewer skills and less understanding of workplace culture than more experienced employees, and secondary earners, often women. There would be fewer ‘starter’ jobs through which young and unskilled people could gain experience, more young people trapped in benefits, and a rise in unemployment more generally.

What will do in zero-hours contracts, of course, is continuing economic growth. As unemployment falls, businesses will find it harder to attract employees, and workers and potential workers can become more choosy about the jobs they take. Zero-hours contracts will once again become a very small part of the employment market. Growth, employment, greater security. Job done, and not a politician in sight.

The Lord’s Digital Agenda

On Tuesday the House of Lords Select Committee on Digital Skills released the 144-page report ‘Make or Break: The UK’s Digital Future’. It’s a typical government report, calling for ‘immediate and extensive action’ in something or other — and in this case, unifying government’s current, disjointed digital initiatives with the launch of a grand ‘Digital Agenda’. (This masterplan includes such fabulous ideas as the middle-aged men in central government ‘future-proofing our young people’ through things like bolting-on a digital element to all apprenticeship schemes.)

One of the report’s most newsworthy findings was London’s poor broadband speed, comparative to other European capitals. In a ranking of their average download speed London came 26th — nestled between Warsaw & Minsk —whilst the likes of Bucharest, Paris and Stockholm topped the chart. London also came 38th in a rating of the UK’s cities’ speeds (although it’s worth noting that Bolton, the UK’s fastest city, would make the European capital ranking’s Top 10). The Lord’s report is also concerned with the persistence of internet ‘not spots’ in urban areas, universal internet coverage and the rollout of superfast broadband. In response, it calls on the government to classify the internet as a utility service, with the desirable goal of universal online access.

It goes without saying how vital digital connectivity is to the modern economy, as well as the importance of staying internationally competitive. However, a new, centrally-dictated ‘Digital Agenda’ is probably quite an ineffectual and expensive way of boosting the digital economy.

Despite the House of Lords’ fears about the speed of superfast broadband rollout, coverage has increased from 55-60% of the UK in 2013, to 70-75% in 2014. And, whilst the report holds up Cape Town as an example of a city providing universal broadband, this won’t be ready until 2030. In the time it takes for the state to roll out the chosen digital infrastructure, it may already be out of date. Whilst many are still choosing between regular or fibre optic broadband,  landline-free 4G home broadband is the latest offering to hit London. At the same time, eyes are already on  5G, and the new capabilities it can bring.

Treating the internet as a public utility is also problematic from a free-market standpoint. Doing so could, for example, lead to calls for more government involvement in the deployment and update of internet infrastructure. However, a study by the Mercatus Centre looked at American municipal government investment in broadband networks across 80 cities, and found that for the billions of dollars of public money spent, there was little community or economic benefit.

It’s also the type of thinking which has led to America’s ‘Net Neutrality’ debate, where, on the behest of Obama, the Federal Communications Commission has proposed to regulate internet service providers as ‘common carriers’, and in doing so, subject the net to a 20th century public utility law originally devised to deal with the telephone monopoly. Ostensibly designed to protect consumers from the creation of ‘anti-competitive’ internet fast lanes for big content producers, Net Neutrality legislation threatens not only the speed, price and quality of internet provision, but the autonomy of ISPs and investment at the core of the net.

Whilst the Lord’s proposed ‘Digital Agenda’ might seem far-removed from such heavy-handed state activity, a government who considers it their duty to take online and ‘digitally educate’ every single citizen risks heading down an increasingly interventionist and expensive path.