Apply now for the 2016/17 John Blundell Studentships

Applications for this year's John Blundell Studentships are now open. These are grants for students starting or continuing postgraduate research at a UK university in the 2016/17 academic year, who have themselves made a tangible contribution to the classical liberal movement and whose work will help to further the cause of classical liberalism around the world.

Full details are here. Applications close at midnight on Saturday June 18th, 2016. 

Was the tulip bubble really a bubble?

I'm a bubble sceptic. Pretty much every time I see someone claim something is a bubble, I disagree. To begin with, the model is sketchy. You only need a decent amount of rational money to drive out the irrational money—and in practice people just don't make money beating the market.

On top of that, most of the instances people claim as examples are dubious. I don't think the tech bubble was a bubble. I don't think the housing bubble is a bubble. I think that a lot of departures from the efficient markets hypothesis are driven by legitimate factors.

But even I thought that some examples in history were "true bubbles"—though I hadn't researched them. Well it turns out that even the south sea 'bubble' and the tulip 'bubble' may not have been bubbles—at least according to a book reviewed for the Journal of Political Economy by John Cochrane in 2001 (pdf). This is because prices were not prices in regular terms, and often represented options, or derivatives, or effectively bets.

1. Tulip speculation used futures contracts, which were illegal. The threat of being excluded from trading was sufficient to get people to pay for small losses, but buyers of futures contracts could and did default on large losses, with backing by the courts.
2. Buyers paid only one-twentieth of each contract price up to a maximum of 3 guilders.
3. The main evidence for a bubble in the classic stories consists of very high prices paid for specific rare bulbs in the winter of 1637, prices hundreds or thousands of times higher than prices for those bulbs years or decades later. (There are no price data immediately after the crash.) Garber documents that other rare tulip varieties continued to command high prices long after the mania, even to the present day, and that "bulb prices decline fast: it is their nature." The first bulb captures the present value of its offspring. Prices then decline rapidly as the supply expands, and newer varieties still are introduced.
4. There was a fundamental shock: "In France, it became fashionable for women to array quantities of fresh tulips at the tops of their gowns. Wealthy men competed to present the most exotic flowers to eligible women, thereby driving up the demand for rare flowers. Munting (1696, 911) claims that at the time of the speculation a single flower of a particular broken tulip was sold for 1000 guilders in Paris. This was a final demand price for a consumption good and not the [speculative] asset price of the bulb."
5. The myth tells of a large inflow of foreign money, lending to speculate in tulips, and economic distress after the crash. There is no evidence for these parts of the story, especially (and most importantly) the last. Shares in the Dutch East India Company rose from 229 in March 1636 to 412 in 1639. 

The whole paper is extremely readable, and reaffirms my belief that just-so stories of irrationality and 'behavioural' behaviour are very often untrue in equilibrium.

David Cameron made much of the Queen’s Speech being the agenda for a ‘Progressive, One-Nation Conservative Government’. But what does that mean?

 

Political ‘progressivism’ is a difficult concept to pin down. It began around the end of the nineteenth century, and advocated the application of ‘scientific’ principles to social affairs. Scientific method had produced great improvements in our understanding of the physical world, leading to rapid material progress. The progressive insisted that this physical progress was vital to the improvement of the human condition. And they further believed that the ‘scientific’ management of society would advance social and economic progress still further.

Progressive Conservatism tries to introduce such interventionist ideas (expressed largely in income redistribution and economic planning) into the paternalist but otherwise anti-interventionist Conservative mainstream. This by itself is a difficult balancing act. And authors from Adam Smith through Ludwig von Mises to F A Hayek have highlighted the unintended consequences of interventionism, noting the limits of our ability to understand society and make it do what we want. So Progressive Conservatism is both a tricky and potentially forlorn approach.

‘One Nation Conservatism’ is easier to pin down. It goes back to Benjamin Disraeli, whom David Cameron has cited as his favourite Conservative leader. Disraeli coined it round about 1845 as a warning against Britain becoming two ‘nations’ – rich and poor. Based on the idea that society was organic and that the different classes had social obligations to each other – particularly that the upper classes had an obligation to those below – it was a brilliant PR move. It at once suggested to the working classes that they could rely on Conservative paternalism, and that Disraeli’s Liberal opponents were selfish individuals who did not regard themselves as having any such obligation.

By the end of the nineteenth century, the Conservative Party had become more free-market and less interventionist, but after the depression era of the 1930s, and particularly after the Conservatives’ defeat by the radical postwar Atlee government, the One Nation phrase began to be used much more; so much so that people talked of a ‘postwar consensus’ between Labour and Conservative political movements. And more recently, after Margaret Thatcher’s more free-market policies were replaced by the dominant centralism of Tony Blair, the phrase has come back as the Prime Minister’s new watchword.

There is, however, a difference between these modern usages and Disraeli’s. Both agree that the rich have a duty to the poor. Disraeli regarded this a largely a duty of individuals to individuals. Given the expansion of government today, it has instead come to mean a duty of taxpayers to beneficiaries. Disraeli’s idea, that the better off should willingly be generous and honourable to others and ensure their equal treatment under the law, has morphed into the idea that the better off should be forced to pay higher taxes for the benefit of others, which of course treats people very differently under the law. It replaces the idea of an organic society that prompts natural interpersonal obligations, with the idea of a politically designed society whose leaders impose political and financial obligations on particular groups (of their choosing), to support (in ways of their choosing) other groups (of their choosing). Indeed, even to use Disraeli’s phrase (or even ‘Progressive’ and ‘Conservative’) for this seems to stretch the language beyond endurance.

If the NHS is so good then we should be spending less than everyone else

If the NHS is so good then we should be spending less than everyone else

Reason rather flies out the window when discussing the NHS, that Wonder of the World that it is. Yet we do rathre insist that we must retain that very reason when discussing it. For if the structure of the NHS, that idea of not just government financing but direct government provision of health care, is so good and wondrous then we should be spending less upon it than everyone else:

A lousy, stupid, no good, bad, law is being proposed

A lousy, stupid, no good, bad, law is being proposed

Worse than that, a lousy, stupid, no good, bad, law is being proposed to solve something that is not in fact a problem. Yes, the political classes have managed to get their knickers in a twist over people, spontaneously and on their own, allocating something to people who value it the most.  They want to ban ticket scalping, or as we might put it, they want to stop people disposing of their own private property in whatever manner they desire

This isn't just the point of politics, but of economics too

Noreena Hertz being appointed as an economic editor has rather surprised some. But it's also led to this very good description of the purpose of politics:

Yet the traditional Tory and the modern Leftist nihilist have something important in common: both thought the point of politics was different from this. That was why the Tory thought everything was going to pot when democracy was expanding, and why the leftist nihilist thinks everything has gone to pot now when democracy has long been in place. Neither understood the purpose of politics as the facilitation of people going about their everyday business, making things, making money and making love. They thought the point of politics was to overthrow and oppose the natural products of orderly, peaceful life. That was why the Tory feared it and that is why the leftist nihilist sees it as having failed.

We entirely agree with that central thought: the purpose of politics is to enable people in what people wish to do. And we would extend it too: that's also the purpose of economics, the study of it and the management of the economy that results.

We're not trying and should not be trying to make people do whatever. We should be solely and only enabling people to do whatever it is that they wish. If it turns out that people would rather take higher incomes as more leisure rather than greater amounts of goods and services then so be it, ever rising GDP be damned. Further, if some people would work 30 hours a week and others 50 then leave them to it: it's their life and their choice.

In fact, this is the entire point of the liberal world order: to maximise the ability of people, individually and en masse, to maximise their utility in whatever manner enters their pretty little heads. The whole idea is to facilitate, not manage nor direct.

The European Single Market created Donald Trump and Bernie Sanders

Apparently so: that's the latest news from one of the more interesting corners of academia. That the rise of politicians like Donald Trump and Bernie Sanders, the populists, is linked to the European Union's Single Market. No, really:

In recent research with Michèle Lamont at Harvard University and Elyas Bakhtiari at Boston University, my coauthors and I link the success of Trump’s kind of politics to the worldwide adoption of neoliberal economic policies.

Neoliberal policies are government measures that shift control from the state to the market. Examples are the privatization of health care, the gig economy and the deregulation of the energy market. Our research describes how like the U.S., European countries rolled out many such neoliberal policies in the 1990s and 2000s.

The figure below describes this trend for Eastern and Western Europe from 1990 to 2010. Values on the vertical axis are scores on the Chinn-Ito index of capital account openness, which are a commonly used measure of neoliberalism. The chart shows the growth of neoliberal market reforms across Europe. The trend started in the West, but Eastern Europe is catching up.

They then go on to show that everyone's getting much more beastly to immigrants, Muslims and other outsiders and there we have it. Neoliberalism is to blame. No, really, that is their logic:

Citizens’ diminishing solidarity with the poor, the rise of anti-immigrant sentiments and the growing populist vote are different aspects of social exclusion. We link these to the adoption of neoliberal policies across Europe.

And pretty silly logic it is too. Because quite obviously the largest influence on that Chinn-Ito measure is the EU's single market over those years with a close runner up being Eastern Europe's recovery from half a century of idiot autarkic socialism. Thus we can indeed say, using this logic, that the EU is responsible for the rise in populist politics and racism. QED.

Except of course it's ludicrous to use a measurement of how open the capital account is in this manner: when the entire point of the whole political structure has been to insist that the capital account must be entirely open.

It's even worse to then go on and claim that this is related to mistrust of outsiders. For there might be other reasons for such mistrust of course: like, umm, perhaps there's been many millions more foreigners to interact with over this period?

No, we are not convinced by this product of academia at all. And the more we look at what academia is producing of this type then the less we think that more education is going to be the solution to anything quite frankly. Unless it's as a place to keep those who cannot think off the streets. A useful purpose of course, but we do think this could probably be achieved at less cost in some other manner.

Did we actually knock all those asylums down?

 

Can he fix it? Yes he Khan

The new Mayor of London Sadiq Khan has a tough job on his hands. Though London is thriving, the capital faces some serious headwinds. I explored some of these in a series of articles for Forbes.

As I wrote for Forbes

Ask any young Londoner who wasn’t born with a silver spoon in their mouth about the biggest challenge of living in London, and the reply will be near unanimous: the cost of housing. A growing population, constrained by a greenbelt with insufficient new builds has pushed prices, wallets and purses to breaking point. Many young people have no prospect of getting on the housing ladder.

Khan vowed not to build on London’s greenbelt in the election campaign, but hopefully this was just political posturing to nullify Zac Goldsmith’s green credentials. At least 50,000 houses need to be built each year for the next decade just to meet demand, but Khan has so far only prioritised redeveloping brownfield sites. Though we might be able to squeeze 365,720 new homes out of brownfield land within the Greater London Authority area, it would be difficult, expensive and take up to 10-15 years to repurpose for housing. However, as analysis from Centre for Cities has shown, more than 430,000 homes could be built at suburban densities, close to train stations and on just 2 per cent of London’s greenbelt. But it’s not just housing. We also need more commercial property. The rising cost of business rents is depressing enterprise, investment and growth.

Besides building, Khan needs to continue Boris Johnson’s work of ensuring London’s public transport is fit for purpose. It might cost a lot of money, but given that all private capital has been crowded out of the sector, all we can do is throw money at the problem until someone comes up with a better idea of idea. Khan’s idea of freezing Londoners’ fares isn’t top of the list.

In his role as representing Britain’s largest city, Khan should also lobby central government hard. Immigration policies and the inability to access the right talent are critical issues for entrepreneurs and start-ups. Pat Saini of Penningtons calls for the introduction of a Third Party Sponsorship (TPS) visa, which would “allow overarching entities such as accelerators, incubators and venture capital firms to sponsor migrants on behalf of companies in which they have invested or for whom they are providing services/resources and to bring the necessary skills to the UK for the benefit of that company.” We suggested something similar for entrepreneurs in our report Made in the UK.

Khan might not have the charisma of Boris, but if he gets stuck into the nitty gritty of policy he could go one better than having a bike named after him – he could make London the best city in the world to live and work.

How might Britain change by 2050?

Scott Sumner notes that the USA's demographic profile in 2060, which some people on the right are worried about, looks quite a bit like Texas's profile today:

Neoreactionaries seem to think the America of 2060 will be a particularly inhospitable place for white people. And yet white folks are moving to Texas in droves. Indeed the only other state that comes close (in terms of absolute population growth) is Florida, which also has lots of blacks and Hispanics (but not very many Asians). The Texas economy is also highly successful. Even during the oil bust, people continue to move to Texas and its population continues to grow rapidly, up by nearly a half million (almost 2%) in the most recent year (mid-2014 to mid-2015). The unemployment rate is only 4.2%, close to the 4.0% considered optimal by Bernie Sanders. And this was accomplished despite the hemorrhaging of oil jobs.

In the UK, some people are worried about the number of Muslims. Pew Research reckons that by 2050 about 11% of the population will be Muslim, which is about double what it is today. London is about 13% Muslim, and it's among the best cities in the world. There isn't any major civil unrest, though Tower Hamlets (which is 30% Muslim) has had some pretty serious problems with its politics.

Those Muslims aren't evenly distributed around the country, though: about 40% of England's Muslims live in London and the others are mostly in cities like Bradford, Birmingham and Luton. Perhaps if London's Muslim share of population doubled it would be quite a bit different to how it is now, which people might not want.

This is mostly driven by birth rates, not by immigration – there isn't actually a large amount of permanent Muslim immigration to the UK anymore. It seems like people concerned about this should want more, not less, immigration from places like Eastern Europe.