The Pin Factory Blog

The use and ownership of land has been perhaps the most important question facing societies going right back into antiquity. Arguably the biggest story in human history is the settlement of particularly fertile regions by previously nomadic people, and their attempt to protect the land they cultivate from still-itinerant tribes and those who want to settle the same patch. It lies at the heart of many armed conflicts: even today, conflicts such as Dafur are, at heart, battles between the pastoral and agricultural peoples of that region.

The private ownership of land is hugely beneficial, as it has been conclusively shown that private ownership is the only way of guaranteeing either resilience, sustainability and efficient land-use. This was the core of Garrett Hardin's seminal article The Tragedy of the Commons, published in Science in 1968 (interestingly, in a peer-reviewed natural science journal rather than an economics journal). It is also the subject of the work of the late Nobel laureate Elinor Ostrum, whose Hayek Lecture (delivered shortly before her death) will be published by the IEA in the autumn. Basically, if "everybody" owns something (e.g. fisheries), nobody husbands the resource and it is not used optimally; if we look to government to regulate this (e.g. again with fisheries) the results are invariably driven by political objectives, which rarely if ever align with sustainability.

On the specifics of land - and indeed all questions of "sustainability" - there is too often considered to be a trade-off between the present and future generations, with the future always presented as the victims of current greed. In fact, future generations are invariably better off than past generations, so to sacrifice the current for the future is doubly unjust. It is the temporal equivalent of denying improved living standards to the Third World because it might hurt citizens in the First World (in chronological terms, the 2010s are the Third World of the C21st).

The other advantage with a proper market in land is that it ensures that the choice of land for development is optimal - which means that it incorporates the desires of all concerned parties. To take the example of converting farms into housing, it is extremely unlikely that in a free market, an efficient and productive farm would be closed and converted into housing. Rather, it would be the marginal farms - those barely getting by, making a loss or surviving only on subsidies - that would be converted. This would not affect food security (which anyway is better addressed in the UK by opening up international trade and looking to improve yields) – it  might even free up capital which an enthusiastic farmer could invest in a new, more productive farm elsewhere. It would improve biodiversity, however, because farms are extremely bad environmentally – what I describe elsewhere as a " man-made monoculture of dubious environmental merit, that is for the most part closed to the public". The average back garden has more diverse plant and animal life than the average farmer's field.

Ultimately, land underlies everything, and not just literally. In the next couple of weeks, the IEA will publish a monograph on road privatisation, but (the authors frankly admit) road markets require entrepreneurs to be able to build new roads. Present planning laws make this very difficult. All parties agree that more homes need to be built in Britain, but planning laws are the major impediment to this. Food prices are too high in Britain because we have substantially less retail space than our continental neighbours, again as a result of planning laws. New school capacity, new hospitals, new airports… land, land, land.

Until we repeal our planning laws and free land owners and local communities to make informed choices about land-use, with the costs and benefits accruing to the owners and decision-makers, present and future prosperity will be a hostage of an ill-conceived nationalisation of land use that took place 65 years ago.

The government’s proposals to reform Britain’s planning laws have been a welcome island of deregulation in a sea of disappointment.

Both coalition partners went into the 2010 election promising a bonfire of regulation; they created a Reducing Regulation Cabinet Committee and a system of deregulation called “One in, One out”, which has been running since 1 October 2010, yet by February 2011 the Better Regulation minister was admitting in the Commons that not much had actually happened.

But the Draft National Planning Policy Framework is genuinely a step in the right direction. It reduces planning policy from an eye-watering 1,000 pages to a perfectly accessible 65 pages. This is no small matter: irrespective of the content of any regulatory framework, a thousand pages is beyond the ability of anybody to read, comprehend and apply, unless they are a professional with the time and resources to devote to the task. 52 pages, by comparison, is easily managed by an amateur who needs to understand what the national planning rules are – which includes very large numbers of people, including very possibly you, if you or one of your neighbours decides they want to build an extension or develop a piece of land.

Predictably, therefore, it has been met by howls of terror from the usual suspects. Members of parliament’s Communities and Local Government Committee have called on the government to remove the proposed presumption in favour of sustainable development, even though this is in fact already enshrined in existing planning guidelines.

The National Trust persuaded 230,000 people to sign a petition which read

"I believe that the planning system should balance future prosperity with the needs of people and places - therefore I support the National Trust's calls on the Government to stop and rethink its planning reforms."

This is wrong. Both prosperity and places are subsets of “the needs of people”; people need both prosperity, and places to live and work. And while the National Trust may “believe that the town and country planning system, as a whole, has served the country well”, this flies in the face of all the evidence.

Sadly, the government has shown a remarkable propensity to U-turn. On issues including forestry privatisation, dedicated funding for school sports, the health and social care bill and increasing the sentence discount for guilty pleas, it has almost appeared as though Messers Cameron and Clegg have been turning using the hand-break.

In fact, they should go further. While the Draft National Planning Policy Framework is mercifully brief, it fails to address the real problems resulting from our socialist planning system: the impossibility that planners can gather and process the necessary information, which is dispersed among the population and entirely subjective; the skewed incentives that encourage planners to empire-build and elected representatives to serve existing and localised interests rather than future and more diffuse ones; and the fact that there is no mechanism for compensating those negatively affected by development, which means that NIMBYism is not only commonplace but is entirely rational.

Rather than revising the National Planning Policy Framework, the Government needs to revoke the Town and Country Planning Acts, denationalise development rights and create a system whereby individuals are able to trade the bundles of property rights that they hold, including both rights to develop and rights to enjoy amenity. This would encourage the efficient use of land, compensate those impacted by negative externalities, and enable society to properly determine which sites should be protected and which should be developed.

It would be a radical reform, but if this government really wants to reduce regulatory burdens, stimulate business, build more houses and improve the lot of the poorest in our society, it may very well be the most effective reform it could make. And in these straightened times, it would cost virtually nothing.

On Sunday, Eamonn reviewed Tom Palmer's new book, The Morality of Capitalism. Summarising one chapter, Dr. Butler explained that

The Chinese economist Mao Yushi [presents] an interesting paradox. If we were all completely benevolent – looking out for the interests of other people rather than ourselves – we would have just as much conflict as capitalism is said to give us. We would be fighting shopkeepers to charge us more and reduce their quality. The arguments would be just as red in tooth and claw, but the incentives would all be to reduce value rather than to create and increase it, as capitalism does.

Perhaps. But managing conflicting priorities is not the only reason that we need a capitalist system; nor does the existence of a conflict in a community motivated by other-interest suffice to justify capitalism. A deeper understanding of the role of markets is required. As Samuel Brittan noted 13 years ago,

An economic system has at least five functions

1. co-ordinate the activity of millions of individuals, households and firms;
2. obtain information about people’s desires, tastes and preferences;
3. decide which productive techniques to use;
4. promote new ideas, tastes and activities which people would not have thought of without entrepreneurial initiative;
5. create incentives for people to act on such information.

Only the fifth, incentive, function of markets could be abandoned in a community of saints. The others would still be required for the saints to know how best to serve their fellows.

And as Friedrich Hayek taught us, the role of markets is to co-ordinate the vast and diffuse knowledge that is scattered in the minds of multitudes of economic actors. In Dr. Mark Pennington's synopsis:

Even in a world of perfect altruism, therefore, public-spirited planners could not obtain the information to engage in a process of conscious social planning owing to the cognitive limits of the human mind. In the market economy, by contrast, each entrepreneurial decision actively creates new knowledge... As the behaviour of the successful is emulated, more knowledge is produced and spreads throughout the market in a snowballing process, the results of which could never have been given to a group of minds attempting to simulate this process [deliberately]...

Rather than focussing on people’s motives for economic action, those who look to make the world a better place would be better placed focussing on results. What market-based systems offer us is not a more, or less, moral world but one that enables us to maximise the wellbeing of participants, both through providing the right incentives to economic actors and through maximising the efficient allocation of productive resources. To put it in the vernacular of philosophers, it may not be deontologically more moral, but it is more moral teleologically.

To close with a thought from Adam Smith:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Capitalists are frequently accused of being mercenary, in the sense that they are fixated on accumulating the greatest amount of wealth at the expense of other important issues. Their critics like to present themselves, in comparison, as focused on less tawdry, more important matters: happiness; social justice; public welfare.

Yet if once looks at the writings of anti-capitalists, they do seem to spend a lot of time talking about money.

Let us take one particular family of anti-capitalist: the egalitarian. Egalitarians believe that equality is an end in itself, or at the very least it is a means to a better end. We frequently hear the egalitarian mantra that “equal societies have more social cohesion, more solidarity, and less stress; they offer their citizens more public goods, more social support, and more social capital; and they satisfy humans’ evolved preference for fairness” (to which egalitarians add plenty of other nice things, as well – notably that “more equal societies are happier”). As a consequence, they advocate policies that seek to actively promote equality; to ‘narrow the gap between the richest and the poorest.’

Others might question the validity of the statements, and/or the wisdom of the policy ambition. Fewer ask the question “why the obsession with money?”

This question occurred to me this morning as I was thinking about the Wilt Chamberlain example (that’s what happens when you miss a night’s sleep!). The Wilt Chamberlain case is Robert Nozick’s classic demolition of “distributional justice” – the idea that certain distributions of wealth are fair, morally right or desirable (it does not matter whether that distribution is equality or if “shares vary in accordance with some dimension you treasure”). Put simply, he asks what happens to one’s notion of distributional justice if individuals choose to change the distribution? In this instance, what happens if large number of individuals choose to part with some of their share in return for the opportunity to watch Wilt Chamberlain wow them with some amazing feats of basketball?

Nozick’s point is twofold. Firstly, distributional justice is intrinsically unsustainable, because those pesky humans inherently inject a degree of entropy into the system: they will redistribute the money through free exchange, quickly wrecking any pattern of distributional justice. Nozick suggests that this new distribution must be equally just, because it is brought about by the voluntary action of individuals who began in a state of perfect distributional justice (after all “what was it for if not to do something with?”).

As a consequence, egalitarianism requires continual interventions “to stop people from transferring resources...” (or rather, to rectify the results of those transfers). Clearly, this undermines the incentives that money serves to transmit: Wilt might rather pursue his other hobby if not paid to shoot hoops. This is Nozick’s second point – probably the more important one for libertarians (and for liberals who also see themselves as egalitarians): egalitarianism is completely incompatible with freedom. The guardian of distributional justice must constantly intervene to thwart free exchange among individuals.

So far, so good, Robert. However (unless I’ve forgotten something since reading Anarchy, State and Utopia), Nozick overlooks another feature of the egalitarian mindset: the egalitarian is utterly fixated on money.

Let’s examine the Wilt Chamberlain a bit more. The fans clearly value the sight of Wilt dribbling more than they value the cost of the ticket; Wilt clearly values the resulting millions more than he values baiting the Black Panthers. What matters in society is one’s ability to satisfy one’s ends, not the amount of cash one has under the mattress. Therefore an equal society is surely one where everybody’s ends are equally satisfied. If Wilt and his fans are equally happy, society is equal even as Wilt amasses his millions. If Wilt and his fans are compelled to have the same amount of money, and as a result Wilt’s fans feel deprived of good basketball while Wilt gets to accompany the President to an important funeral, society is unequal even if Wilt and his fans have a similar bank balance.

Nozick isn’t completely oblivious to this: he asks “Why might somebody work overtime in a society in which needs are satisfied?” and answers “Perhaps because they care about things other than needs.” The libertarian, clearly, understands that there are things more important than money. The odd thing is that the egalitarians do not. For them, it is the distribution of wealth that is the essential criterion; it is the relative amount of money that people have that decides whether a society is just or not.

As such, it really is the egalitarians that are obsessed with money. For the rest of us, there are much more important things in life.

Some people might actually benefit from the nanny state, but who decides what is in people’s interests and whether individuals can be coerced will forever separate libertarians from paternalists.

Paternalism, or (as it is now called, in a strange shift of gender and status) “the nanny state”, has always had its defenders amongst the elite. After all, it is the elite who define what is good; what is virtuous. It is little surprise that they would seek to defend their mores, even to the point of crushing the individual freedoms of others.

Over time, this has taken many forms. Most Greek city-states confined women to the household and reserved the public space for males; for three centuries, any sign of deviating from religious orthodoxy in the Kingdom of Spain was investigated by the Inquisition; sodomy is illegal in around 70 countries.

These were not mere acts of cruelty; on the contrary, they are promoted for the supposed good of both society and those directly affected. The Greeks wanted to preserve women’s honour; the inquisition sought to save heretics from eternal damnation; those who ban homosexuality consider it to be a moral corruption and also harmful to the participants. [Continue reading]

The ban on smoking in private public places has been much-criticised by freedom-loving liberals, who argue that it should be the decision of the property owner whether smoking may occur in his or her establishment. The debate around genuinely “public” places is more complex, but the general argument goes to the very heart of the definition of a free society, and raises the hoary old chestnut of positive verses negative liberty: whether one person’s freedom to smoke is an assault on another’s liberty.

Still, at least smoking is a choice. Imagine a society where the government banned natural bodily functions for the same reasons that ours has banned smoking.

Or, if your imagination fails you, why not visit one!

Malawi, it seems, may have accidentally banned farting in public.

The Local Courts Bill, to be introduced next week, contains a clause that reads "Any person who vitiates the atmosphere in any place so as to make it noxious to the public to the health of persons in general dwelling or carrying on business in the neighbourhood or passing along a public way shall be guilty of a misdemeanour."

Now, Solicitor General Anthony Kamanga insists that "fouling the air" refers to pollution and that this is purely an environmental protection provision. "How any reasonable or sensible person can construe the provision to criminalising farting in public is beyond me," he said.

However, the unreasonable and foolish person to whom he is alluding is none other than his cabinet colleague, Justice Minister George Chaponda, a trained lawyer who argues that the new bill would criminalise flatulence. After all, he explained on Capital Radio, “"Would you be happy to see people farting anyhow?".

Frankly, I’d be utterly shocked to see people farting, and none too happy to discern it through either of the more usual senses. However, the question of whether it should therefore be prohibited is rather a different matter. There are many things that are unpleasant, from smoking through halitosis to profane language. In a free society, the response should not be coercive. In a free society, the response might be to move away from the source of the offence; to ask the offender to desist; to apply peer-group pressure (an appalled demand to know “Who farted?!” can cause a great deal of embarrassment to the offender); or to ask the owner of the establishment to adjudicate (for example, by calling the restaurateur and asking him or her to decide).

Banning activity so as to promote "public decency", as Mr. Chaponda would seek to do, or prioritising one person’s freedom over another’s, as does the smoking ban, is an attack on the freedom both of the person whose action is criminalised and the owner of the property in which that action takes place (who should be free to decide what is permissible in his or her establishment). In the case of a natural bodily function, it is also a clear case of discrimination: many people – notably but not solely the elderly (and vegetarians) – are unable to control this particularly habit.

It is unclear at the time of writing whether Mr. Chaponda or Mr. Kamanga will be successful in defining the meaning of this clause of the Local Courts Bill. But one thing is for sure: the result will cause rumblings in Malawian society for some time to come.

One of the best things about the return of the Conservatives to government is that it helps us understand what they really stand for, rather than what they claim to stand for.

For example, it is a one of the great ironies of modern political history that both the Conservatives and Labour claim that the Conservatives are a free market party, when they are, of course, nothing of the sort.

Take Jeremy Hunt’s announcement last week that he wants to create a new TV network that would support local television in its infancy. Media companies would be invited to tender for the channel, but it would be subsidised with free spectrum and funded by advertising in an attempt to make local TV commercially viable from the start.

This is a classic example of paternalistic intervention: “seed funding” to “pump prime” an industry. “Free spectrum” actually means that valuable bandwidth will be given away to a cherished company rather than being sold to the highest bidder for the benefit of the nation (or at least the government). The taxpayer is to be mulct further courtesy of the BBC, which has pledged to finance some of the upfront capital costs. This makes sense for the BBC, of course, which not only wants to cosy up to Mr. Hunt but also might help it destroy the local newspaper and radio companies currently battling to survive.

[Continue reading]

It was launched on 11 February 1987 at a price of 125p and trading closed last week for the last time with shares at around 293p. So, was British Airways a good investment?

Hardly! Since 1987 we have had 116 per cent inflation. This means that 125p in 1987 is the equivalent of 270p today; or, to put it another way, yesterday’s share price of 293p was worth less than 136p in 1987. So a near quarter of a century would have yielded a real return on your investment of just 8.5 per cent.

By comparison, had one forgotten that one had the money and left it in a current account paying a nugatory interest rate of 0.35%, one would have done just as well.

Actually, that is a little unfair. It ignores the dividends that BA has paid out over 24 years. And it also ignores the fact that most people did not sit on their shares for a quarter of a century. Those who sold on 16 May 1997, when the shares hit 760p, did rather well. Had they instead hung on for another six years, they might have sold at a sorry 86p on 12 March 2003.

Economic theory suggests that shares should be fairly stable in value as long as a company’s profits are also stable. The share price should be based on the discounted value of projected future profits, so if a firm makes exactly the same profit every year (in proportion to the capital invested) then the share price should remain the same. BA’s share price fluctuated as its profits did: the peak came after pre-tax profits reached £640m, while the trough followed the slump in profits to £135m.

But the general trend of share prices defies simple economic theory. On average, share prices have trebled over the past quarter century – that is to say, the FTSE 100 has risen from around 2000 to around 6000, almost twice as fast as inflation. Had profits risen substantially over that period (relative to investment) then this would explain the change, but the rise in profits has not been enough to explain the different.

Shares are assets, and assets tend to soak up expansions of the money supply more readily than consumer prices. However, not all assets are the same. British Airways has overall been a poor performer. One may speculate on the reasons – militant unions and competition from low cost airlines come to mind – but ultimately the problem is that BA has not managed to move with the times; it has been shackled by its past. One can only guess whether its merger with Iberia will liberate it from the straight jacket of the past, but considering that Iberia is the former Spanish national airline, itself only privatised in 2001, it doesn’t look good.

“All dog owners in England and Wales would have to insure against their pet attacking someone, under Labour proposals to tackle dangerous breeds,” reports BBC Online, referring to what must be the silliest piece of pre-election policy-making since the Cones Hotline.

Apparently, Each week, more than 100 people are admitted to hospital as a result of attacks by dogs, and there has been a rise in levels of dog fighting and illegal ownership, particularly by gangs who are using dangerous dogs as status symbols.

As usual, Labour’s response is to penalise everybody. The responsible drinker is taxed, or forced to pay over the market rate for alcohol as a result of minimum pricing, because some drink too heavily; the responsible investor is obliged to guarantee the losses of those who are more careless; and now the responsible dog owner, who has chosen a mild-mannered and playful breed, is to be forced to insure their dog simply because another owner has chosen a more violent breed and then trained it to fight, or mistreated it so that it is ill-tempered and stressed.

It is a sign of extremely bad law-making that, rather than target criminal activity, the legislator seeks to make the wider community compensate for the bad behaviour of a few. It smacks of collective punishment: somebody from your village breaks the law, so your whole village is burnt to the ground. In this case, other people are dog-fighting, therefore you must pay.

In fact, it is even worse than that, because one may rest assured that the people most likely to own a dangerous dog are those least likely to insure it. Hundreds of thousands of people do not insure their cars, after all. Does the government really think that somebody who is prepared to break the law with respect to dealing Crack Cocaine is going to care whether he is legally obliged to insure his dog?

In fact, it is questionable whether people should be forced to insure themselves at all. Enforced insurance makes no difference to most people – not even victims. If a person is legally culpable for the harm inflicted to another (as a driver or as a dog owner), then the courts will require them to pay compensation whether they have insurance or not. Indeed, if less responsible people don’t have insurance they are more likely to be wary of incurring the costs. The only people who really benefit from enforced insurance are the insurance industry, which will get 7.3 million new customers as a result of this legislation.

But maybe I am downplaying a genuine danger. Maybe all dogs are potentially vicious, and even now I may be harbouring a potential killer in my house. I’d better run home and make sure she isn’t dangerous!

“Senator Jim Bunning’s name is mud these days in Washington,” reports The Irish Times. “Twelve times [last week]... the Senate... attempted to pass a $10 billion emergency, one-month extension of unemployment benefits, healthcare insurance for the unemployed, Medicare funding for the elderly, satellite television for rural America and highway projects. Twelve times, the senator from Kentucky has invoked a unanimity requirement for emergency Bills to block passage.”

While the Washington Post suggests that Senator Bunning is insane, Democrats accuse Bunning of being a typical, obstructive Republican and others speculate that it is all driven by personal animus, the senator himself argues that he is, in his small way, trying to limit America’s ballooning budget deficit. “We cannot keep adding to the debt,” he said. “It’s over $14 trillion and going up fast.” What is more, CNN reports that Bunning “had offered to release his hold on the bill if the Democrat-controlled Senate agreed to pay for the extension using, for example, unspent money from the $787 billion economic stimulus law or closing a tax hoophole (sic.).” Hardly unreasonable, one might think.

The story becomes even more interesting if one looks into the details of the $10 billion bill. It is not all about Medicare and unemployment benefit. Even the Irish Times includes among the list of moral issues “satellite television for rural America” – hardly a life-and-death matter and one that might better be funded by providers and views. BBC Online provides a some more examples of the goodies that were to be paid for by an additional $10 billion of public borrowing: a major bridge connecting Washington DC to the state where many of the senators live; a roundabout in the Virgin Islands; and a new entrance for a national park in California. Does anybody smell riders, here?

What this bill highlights is the mentality of politicians who see it as their job to spend other people’s money. Blind to Bastiat’s dictum that in economics what matters is that which is not seen as much as that which is seen, the senators believe that by building roundabouts in the colonies and bridges linking their homes to their places of work, and by taking the opportunity of the worst recession in a lifetime to spruce up the entrance to Sequoia National Park, they will revitalise the US economy. This is unlikely. Government spending is demonstrably less efficient than private spending (indeed, some argue that it destroys more wealth than it creates). What is more, the very last thing that America needs is a big pile more pork to shove in senatorial barrels.

Eventually the senator capitulated, of course. But even the means of his capitulation highlighted the absurdity of interventionist politics. By proposing an amendment to the bill, he guaranteed that the bill itself would go to a vote, ending his one-man filibuster. And what was that amendment? That the $10 billion package of temporary extensions be offset with the end of a lucrative tax credit for paper companies on a wood by-product. His amendment fell, receiving just 43 votes. So let us be clear: what Senator Bunning’s defeat achieved was not medical aid for the elderly, or unemployment for the needy. His defeat enabled the Government to borrow $10 billion dollars to pay paper manufacturers for producing something they can’t help but make anyway.