Time for the EEA Option

So it’s a Leave. Now that we’re getting out the challenge will be to get the best deal possible. I think that is, by a longshot, the EEA Option – membership of the Single Market without membership of the European Union. Our full case for the EEA Option is here, but here are some quick points worth mentioning:

  1. Markets are tanking in large part because of the uncertainty about what comes next. A quick and explicit commitment to the EEA Option would calm them and probably undo a lot of the damage that’s been done. It would tell them that (a) there is a plan, (b) that plan is probably politically acceptable to the EU and (c) there is no immediate short-term economic shock to worry about. 
  2. The EEA Option takes much of the risk out of leaving. Brexit means a huge change to the way Britain will be governed, including the prospect of rebooting the country’s political culture altogether, as well as forging better links with the rest of the world in the form of free trade agreements and perhaps even setting up a common travel area with the other Anglosphere countries like Australia and Canada. But a lot of that opportunity could be lost if economic fears dominate the first few years of independence. EEA gives us breathing room to make Brexit a slow, safe process — not a risky, sudden event. We need a strong economy to get the other changes we want.
  3. The referendum was about one question only: whether we stay or leave the EU. It’s tempting to treat Vote Leave like a political party whose pre-referendum promises must now be implemented like a party manifesto after a general election. No: Parliament is still supreme except for the question that the British people voted for, and provided we Leave the EU Parliament is still what should and will decide what course we should take in the years ahead.
  4. Nevertheless, cutting immigration was not voters’ only concern. A Lord Ashcroft poll of 12,369 voters found that only one third (33%) of Leave voters ranked controlling immigration as their top reason for leaving – that is, 17% of all voters – compared to 49% who said it was “the principle that decisions about the UK should be taken in the UK”. 
  5. For many Leave voters it was about having control over immigration, not necessarily reducing numbers. Article 112 of the EEA Agreement allows EEA states to take unilateral action to restrict freedom of movement in the event of “serious economic, societal or environmental difficulties”. This may be enough control to satisfy a majority of the British public, if it was the trade-off for economic stability in other respects. Those people who believe that voters will feel betrayed if immigration does not sharply fall should consider how betrayed those same voters will feel if we have a recession after being promised repeatedly that this was not a risk.
  6. Voters may be surprisingly open to the EEA Option. We commissioned a YouGov poll recently that asked voters whether they would support the EEA Option even if it meant adopting some EU law and keeping freedom of movement, as Norway does. By a two-to-one margin (54% to 25%) they said that they would either strongly support or tend to support this choice. And yes, a single poll needs to be taken with a giant pinch of salt, but it is still indicative that the public wants economic security above all else.

For the EEA Option to be viable we’ll need support from across the political spectrum, and from both Remainers and Leavers alike. In particular, liberals of every stripe should embrace this route’s pragmatism and commitment to maintaining deep trading links between Britain and the EU. 

The EEA Option can unite Britain. To avoid the same kind of polarisation that followed the Scottish referendum, the next government will have to try and find a deal that satisfies more than just the 52% of leave voters. We need a deal that will calm the people who are anxious about the future today and feel as if half the country is against what they believe in. That should be the one that keeps Britain open, trading, prosperous, and free.

Today is Cost of Government Day, but the bill's on you

Today is Cost of Government Day, but the bill's on you

Hooray! It's Cost of Government Day. Or maybe there isn't cause for cheer. Because unlike its flashier, happier sister Tax Freedom Day, Cost of Government Day isn't the first day of anything, but the last day of something. It's the day when government spending gives way to private spending. Let me explain.

Imagine that we spent an equal amount of our net national income each day: one three-hundred-and-sixty-fifth of the total every 24 hours. Imagine further that instead of splitting spending among all its different targets as and when you need the goods and services you're buying, the government did all of the spending until it had finished. Then, afterward, all spending is private spending. Friday June 24th—today—is the last day where spending is done by the government and from tomorrow—Saturday June 25th—all spending is private.

Jobs are a cost, not a benefit

We don't quite share the general love of birdchoppers found in certain sections of today's society but we're entirely aware of the various cases for more renewable energy and so on. We can even come up with some interestingly true justifications for such renewables ourselves - certain hydropower projects are rather cheaper and better than spewing coal dust all over the countryside for example. And yet we would still insist that jobs are a cost of doing something, not a benefit, as not everyone in this debate seems to have realised:

A SUBSEA cable to export Scottish wind power to Norway will cost the country jobs and investment, the head of a renewables firm has claimed.

Regulator Ofgem has approved a licence for the construction of a 400-mile underwater power cable linking Scotland and Norway.

The £1.3 billion project will see wind power generated in Scotland sent to Eidfjord in Norway, with hydro energy from that country received in Boddam, Aberdeenshire.

Developers hope the link will be operational by 2022 with connections eventually developed to Iceland.

However, Rod Wood, managing director of Community Windpower, claims Westminster policy means “Scotland will lose out” on jobs and income because of the project – by buying in renewables from overseas instead of supporting the growth of the homegrown sector.

The basic plan seems sensible enough. Send the excess variable windpower from Scotland off to Norway where they will use it to pump water up behind dams. When there's a dearth of windpower in Scotland then the water can be let out again and the electricity delivered to Scotland. Sounds entirely reasonable to us, it's largely the way that the Danes are making their grid work.

But our environmental hero here is insisting that this is not good enough. Rather than using the most efficient method of gaining renewable power he is insisting that instead a more expensive method should be chosen. We know that it will be more expensive - because jobs are an expense, we've actually got to pay people to do these things.

This is a direct argument that the people of Scotland should be poorer. As such of course it's a very bad argument.

That line between public health and Puritanism

We're not quite sure whether we should be saying there's only a fine line between public health pronouncements and Puritanism or no line at all. Can't quite weigh up the linguistic distinctions:

E-cigarettes should be banned from public places like bars and restaurants because of the risks of "passive vaping," medics say.

Senior doctors said that allowing people to vape openly normalises the habit, and could encourage children to take it up.

But public health officials immediately rejected the idea – saying it could be damaging as it might deter smokers from switching to e-cigarettes.

Speaking at the British Medical Association’s annual meeting in Belfast, Dr Iain Kennedy, a consultant in public health from Glasgow, called for a ban, warning that there is no evidence of the long-term safety of the habit.

Dr Iain Kennedy, a consultant in public health, from Glasgow, said: “It is a myth that there is no such thing as passive vaping.”

He said there was clear evidence that non-vapers living in households with vapers had higher levels of exposure to nicotine.

“There are new potential risks, and we don’t yet know the level of those risks,” he said.

Well, actually, we do know rather a lot about such risks. Nicotine, as per nicotine itself, isn't all that much of a danger to human beings. This is why such things a nicotine patches are widely available. Because there's not much danger to anyone from them. Smoking on the other hand we know is dangerous. It being the lighting of the stuff and sucking in the smoke which makes it so.

Absolutely any evaluation of the two practices is thus going to come down one the side of not just allowing but encouraging, possibly even subsidising, people to vape not smoke. That is, if we are to judge on public health grounds rather than those of Puritanism.

You know, that worry that someone, somewhere, might be enjoying themselves?


Actually Angus, Millions of Americans aren't living on $2 a day

Nobel Prize Winners seem to have a habit of making bizarre claims that make you question whether they were really brilliant in the first place. Take Nobel Prize Winning Chemist Kary Mullis: after picking up a big cheque in Sweden, he went on to claim that HIV and AIDS weren't linked and that OJ Simpson was innocent. Or Nobel Prize Winning Physicist Brain Josephson who believes that psychokinesis is real and that water has 'memory'.

In a similar vein (although somewhat less severe), Nobel Prize Winning Economist Angus Deaton has written an essay attacking a view he dubs "Cosmopolitan Prioritarianism". Described by him as "an ethical rule that says we should think of everyone in the world in the same way, no matter where they live, and then focus help where it helps the most."

Most Cosmopolitan Prioritarians (of which I'd class myself, as well as my colleagues Sam Bowman and Ben Southwood), tend to be big fans of globalisation and free trade. While free trade benefits both developed and developing countries, it also reduces wages in places like Port Talbot, that are wealthy compared to India or Ghana but not by UK standards. But this is worth it for the truly breathtaking declines in extreme poverty in poor countries.

Now it's not unusual for an economist to bash globalisation, indeed since David Autor's paper on the effect of Chinese Imports on US labour markets, it's become the 'trendy' thing to do.

But, Angus Deaton goes further a makes a truly bizarre claim.

But several million Americans – black, white, and Hispanic – now live in households with per capita income of less than $2 a day, essentially the same standard that the World Bank uses to define destitution-level poverty in India or Africa. Finding shelter in the United States on that income is so difficult that $2-a-day poverty is almost certainly much worse in the US than $2-a-day poverty in India or Africa.

Citing research by Edin and Shaefer, here Deaton implies that there several million Americans who have substantially worse lives than Sub-Saharan Africans living in extreme poverty. This just doesn't pass the smell test.

Indeed, the ASI's own Tim Worstall already dealt with this rather misleading statistic back in September 2015.

They use an odd definition of income. One that doesn’t include all income in fact. They look only at cash income. But the US spends $500 billion a year on things like Medicaid and other health care services for poor people. That’s obviously got to be part of poor peoples’ incomes as well then. And then there’s Section 8 housing vouchers which pay for habitation for many poor people. This is also excluded. In their most restrictive version of income they don’t even include Food Stamps.
So what they’re really measuring is the cash incomes of the poorest people without accounting for pretty much all the things that are done to increase the total incomes (such total income being equal to consumption possibilities of course) of those poor people.
And that’s where their large rise in this form of poverty comes from. They are, as above, measuring only the cash income of poor people, including cash from welfare. But this system was deliberately changed in the 1990s to reduce the amount of cash welfare people got and increase the amount of in kind welfare (ie, Section 8, EITC, SNAP and so on) that people got.

But that's not all, there's even more reasons to doubt this zombie stat. First, the survey Edin and Shaefer use to compile their data systematically underestimates the benefits received by poor Americans.

Second, a whole bunch of people list their income as $0 in the survey, which given that it's nigh-on impossible to live on $0 worth of resources, suggests that there are serious measurement errors.

Indeed, when the Brookings Institute put the numbers under scrutiny, they found that virtually no Americans were living on under $2 a day.

It's certainly true that many Americans are struggling so far, and we probably do more to compensate those who've gained less from globalisation (perhaps with a Negative Income Tax). But when Deaton says "perhaps it is not so clear that the greatest needs are on the other side of the world." He's simply wrong.

A reminder of the circularity of most politics

The political compass is, as we all know, circular, not a left right spectrum. Go too far out into the craziness of the so called "far right" and one ends up spouting the same nonsenses that the "far left" promulgate. One of us once had rather some fun comparing and contrasting the economic suggestions of Colin Hines ("progressive protectionism"), formerly economic adviser to Greenpeace, with the economic proposals of the BNP. The point being that there was a lot of comparing to do, both wanted an autarkic economy without much interaction with those beastly foreigners and trade, and not all that much to contrast.

This morning gives us another lovely example of this:

Swedish far-right go bananas with call for foreign food ban

Yes, of course, it's a ludicrous idea.

The Smålandsposten newspaper reported that the draft budget included the demand that “organically produced products are desirable but the most important thing is that food is locally produced, that is to say, Swedish”.

This is indeed bananas as it comes from the far right. When it comes from the left and far left it is called being a locavore. Something that local councils are already urged to write into their contracts, there's charities pushing the idea and no doubt there's a government grant or two pushing it too.

Go too far right and you end up spouting the same nonsense as the left. All of which is amusing of course but when Natalie Bennett says we should all eat local she gets on the radio and TV. Odd how the policy is sanctified by who spouts it really.


What glory that China is to eat less meat in future

There is a dancin' an' a singin' as China announces that the country will eat less meat in the future. At least that's what we would think is happening from the reports of this matter this morning

The Chinese government has outlined a plan to reduce its citizens’ meat consumption by 50%, in a move that climate campaigners hope will provide major heft in the effort to avoid runaway global warming.

New dietary guidelines drawn up by China’s health ministry recommend that the nation’s 1.3 billion population should consume between 40g to 75g of meat per person each day. The measures, released once every 10 years, are designed to improve public health but could also provide a significant cut to greenhouse gas emissions.

About which we might say two things. The first being that the Chinese government has not laid out any such plans. What has happened is that the usual health wowsers have released a report saying that they think it might be a good idea if China's meat eaters didn't eat quite so much as they are projected to.

This is not so much a plan as a pious exhortation, akin to our own wowsers telling us that we should drink less or consume less salt. Something which we all take with a pinch of that latter as we all continue on with our lives as we wish.

The second is that of course this is not how to deal with climate change, attempting to monitor the rice bowls of 1.3 billion people. Yes, we know, we get endless stick for our insistence that assuming that there is a problem here then the solution is a carbon tax. But this is a good example of why it is the solution to that problem if the problem does indeed exist.

We want to have just the one intervention, just the one lever jammed into the sprogs of the economy. Not some myriad of plans and hopes and interventions few of which will work anyway. Change the price of emissions and we change the price of everything produced by making emissions. And thus the price of pork, or beef, in China becomes the correct price to optimise human utility in the face of climate change. As does, from that same one and single intervention, the price of using coal or solar for electricity production, the transport of green beans from Kenya or not, the use of a car or a bicycle to get to the pub and absolutely every other possible or potential intervention that anyone might want to make into the economy. 

We are, normally, most hesitant to talk about interventions into those markets - externalities, whether positive or negative are one of the known exceptions to the general rule of leave well alone. Copyrights and patents are a useful intervention to solve the externality of the public goods nature of invention and innovation. A carbon tax is the best intervention to deal with the negative externality of emissions, assuming that such are indeed such.

On the very reasonable indeed grounds that the Chinese government releasing dietary guidelines about meat consumption isn't going to have much effect in a country rising up out of peasant destitution for the first time in human history. While changing the price will.

If anything needs to be done about climate change it is a carbon tax. Whether is a different question but those who insist that something must be but who do not insist upon the only efficient or sensible method of doing it are just not being serious.

The monetary policy origins of the Eurozone crisis

The typical view blames the Eurozone crisis on excessive debt, worsened by austerity. Some members like Greece built up far too much private and public debt before the crisis, the narrative runs, and they were unable to cushion its blow on the macroeconomy, since without control of their own currency, fiscal easing would make the debt problem worse in the short run.

I think the typical view is wrong. I think that certain Eurozone countries (again, Greece stands out) did have terrible economic policy regimes running up to the crisis, but that these were only tenuously linked to mass unemployment, repeated solvency crises, huge bailouts and years upon years of misery. I think that most of the debt crisis was driven by poor macroeconomic management by the European Central Bank, which held policy excessively tight.

There are casual ways of showing this. Consider, for example, how the ECB took far longer than the Bank of England and the Federal Reserve to buy assets and thus expand the money supply through Quantitative Easing.

In a free market, economic shocks lead to a higher demand to hold safe assets like currency, and free banks accommodate this by printing. Neither the BoE nor the Fed did enough to accommodate this market thirst, but they did print a lot of money, and ameliorate the problem somewhat. It took the ECB years to follow suit.

A new Mercatus paper by David Beckworth (pdf), one of my favourite economists, backs this simple analysis up with a more rigorous narrative analysis.

Although evidence exists of a relationship between (a) the debt buildup and austerity measures and (b) economic growth during the crisis, that same evidence, on closer examination, points to Eurozone countries’ common monetary policy as the real culprit behind the area’s sharp decline in economic activity. In particular, it seems that the European Central Bank’s tightening of monetary policy in 2008 and again in 2010–2011 not only caused two recessions but also sparked the sovereign debt crisis—and gave teeth to the austerity programs.

Beckworth goes on to propose a new rules-based monetary regime centred around a stable nominal GDP growth path. Not coincidentally, we here at the ASI favour such a scheme as the closest approximation of what would go on if we had a purely free market, and indeed a step in that direction.

The strangest complaint we've seen this week

That the economics of the music business have changed in recent years is something that we all know and is also obvious. That it is generally the live show which feeds musicians these days rather than sales of recorded stuff has become the stuff of cliche. Yet we do think it odd, strange even, that this should become a matter for complaint.

As things stand, could people at least stop pretending that it’s tickety-boo that artists have been forced on to a gigging treadmill just to make money? Part of me wonders whether this Marie Antoinette-ish “they can make money playing live” public insouciance is because people don’t want to deal with the fact that they’ve colluded in this disaster, by either not paying for their music, or paying peanuts. These people need to realise that, for myriad reasons, musicians scrabbling together a living mainly from constant gigging can’t remain a viable long-term option. Also that if they’re not careful, before too long, they’re going to end up with the music scene they deserve.

That the country is absolutely jam packed with people who will turn up for free and play to an audience of the proverbial two men and a dog is one reason why music doesn't pay all that well - in that sense it's rather like other forms of showing off like acting. Or even writing journalism. But leave that aside. 

The underlying claim here is that musicians should be able to make a living by not playing music. Which strikes us as a most odd contention. Ditch diggers make their living by digging ditches. Journalists by putting words in order, think tankers by thinking. None of us or you expect to be paid for not doing our jobs, the ones we freely elected to do.

Quite why musicians should earn for not musicing is one of those mysteries. Should dancers be paid for not dancing? Pilots for not piloting?

Questions in The Observer we can answer

This might be from a letter to The Observer but still, it's one of those rhetorical questions that deserve an answer. That answer being that there is no "we" which directs what all in the society may do. This is a rather more important point that simply the usual rejection of what these particular fools state - it is a very much more general description of what makes the bedrock of a free society:

GM crops yield no benefits

The central pillars of your editorial on genetically modified crops – that there is consensus over the safety of GM and that such a consensus would mean the arguments were over – are flawed. (“Europe can no longer turn its back on the benefits of genetically modified crops”).

There is nothing like the level of scientific consensus over genetically modified organisms as there is on climate change. Rather than giving GMOs a clean bill of health, the US National Academy of Sciences reveals that there is still a lot that we don’t know. And hundreds of scientists worldwide have signed a document refuting this “consensus”. Commercial GM farming has caused what the report identified as “major agricultural problems”.

GM crops have failed to provide any obvious benefits for the environment or the millions of small farmers who produce the majority of the world’s food. As the NAS report confirms, they don’t increase crop yields. So the real question is: why do we continue to pursue this now outdated technology, when there are more innovative, fairer and greener ways of producing our food?
Clare Oxborrow Friends of the Earth
Vicki Hird War on Want
Liz O’Neill GM Freeze
Peter Melchett Soil Association

The Soil Association is, as we all know, the trade union for organic farmers, so to see them opposing GM is not a surprise. The others are a little more mystifying in their distaste.

But let us, just for the sake of argument here, accept their factual points being made, that GM doesn't benefit anyone very much (although we cannot resist pointing out that the reason they don't benefit small farmers is because they don't use them). That's not actually the point at all.

Rather, we have absolutely no evidence whatsoever that the use of GM is harmful to anyone, more importantly we have precisely zero evidence that such is harmful to anyone not making the decision to plant or grow GM. At which point the argument about whether to allow or not allow the use of GM is over.

For in a free society the only possible justification for the banning of something, the prevention of something, is that the use or doing of it causes harm to someone not actually doing the using or the doing. Sure, smoking, drug use, they can and do harm users. But as they only harm users there is no argument to ban them.

Perhaps, as asserted, there's no very great use to GM crops (we disagree, but see above the just for the sake of argument) but that they cause no harm means they must be permitted.

For there is no "we" planning society and what all of us 7 billion must do. There's just us 7 billion trying to rub along together and that's best done by all of us doing as we wish, the only things we ban being those which prevent others from doing so, as they wish.

Something that causes no harm is to be allowed, by definition. Just as Lord Melchett is free to grow the fodder for his organic beef herd as he wishes so is everyone else to be accorded the same freedom. Even if M'Lord Melchett disagrees.