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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Letter to The Times: Justifications for HS2 have failed to convince

Written by ASI Staff | Monday 17 March 2014

Dr Madsen Pirie and Dr Eamonn Butler, President and Director of the Adam Smith Institute, co-signed a letter to the Times, calling for "a comprehensive review of the UK’s transport priorities, and where, if at all, HS2 fits with this.

"Sir, There are few more iconic images of the recent storms and the flooding which devastated so many thousands of lives than the Great Western Line at Dawlish collapsing into the sea, cutting off the main rail route to the South West of England.

"This underlines the stark choice in determining priorities for investment in Britain’s transport network — between investment in increasing resilience, developing regional transport connections and relieving the plight of the thousands forced to stand on trains each day, or ploughing ahead with a London-centric high-speed line with a dreadful business case which connects just four cities.

"Successive justifications for HS2 have failed to convince, so its supporters are asserting that the West Coast Mainline is full to capacity and HS2 is needed to relieve it. Yet Network Rail’s latest figures show that intercity trains are running at just 52 per cent full into Euston station at peak times, and that Euston is one of London’s least busy termini.

"With the Treasury predicting that HS2 will cost £73 billion — £1,500 for each adult in Britain — as well as causing huge environmental damage, it is clear that the time has come for a comprehensive review of the UK’s transport priorities, and where, if at all, HS2 fits with this."

Hilary Wharf, HS2 Action Alliance; 
Baroness Bakewell; 
Natalie Bennett, Green Party; 
Sir Keith Bright, ex London Regional Transport; 
Dr Eamonn Butler, Adam Smith Institute
Nigel Farage, UKIP; 
Sir Christopher Foster, Network Rail; 
Jonathan Isaby, TaxPayers’ Alliance; 
Denise Jeffery, Wakefield Council; 
India Knight; 
Ruth Lea, Arbuthnot Banking Group; 
Dr Madsen Pirie, Adam Smith Institute
Mary Portas; 
John Prideaux, Intercity and British Rail; 
Roger Salmon, ex Rail Franchising; 
Alexei Sayle; 
Chris Stokes; ex Strategic Rail Authority; 
Martin Tett, Bucks County Council; 
Sir Andrew Watson, CPRE Warks; 
Sir Barney White-Spunner, Countryside Alliance; 
Baroness Wilkins; 
Paul Wilkinson, The Wildlife Trust

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Motorways, pubs and nannies

Written by Dr. Eamonn Butler | Tuesday 21 January 2014

A new pub has opened in Beaconsfield, Buckinghamshire. That's news in itself, given that around 1200 pubs closed down last year, thanks (or no thanks) to the weight of retail and employment regulation that makes pubs so darn expensive to run.

But the Hope & Champion is of doubt interest, because it is in the Extra Motorway Service Area at Junction 2 of the M40. So the people who go there are almost certain to get there by car. So naturally there have been plenty of critics complaining that this initiative sends out all the wrong signals about drinking and driving.

Well, pubs in the UK are licensed, precisely because we know the potential problems that can go with alcohol consumption. But the fact is that the local police did not object to the licence, nor did the local authority. And the local paper is giving the new pub splash coverage. So local people don't think there's a problem here.

The real problem is the message that the critics send out, yet again – that the political class in Britain thinks the adult population of their country are completely incapable of making their own choices, and that their lives have to be micro-managed for them. This pub, like most others these days, is basically a restaurant that also serves alcohol. It opens at four in the morning and starts selling alcohol at nine - though apart from one stalwart getting stuck into a pint for the cameras, most people there this morning were getting stuck into nothing more life-threatening than a Full English Breakfast. And if a group of people want to stop off the M40 for lunch or dinner, why should the passengers be denied the pleasure of a small sherry just so that drivers are 'kept away from temptation'?

Weatherspoons, the pub owners, are a responsible chain. Their menus carry Drink Aware slogans and information. Their staff do not serve people who have already had enough. People know that there are legal limits on drinking and driving - and they know that even drinking below the legal limit can slow down your reactions. So most drivers who visit the pub, alone or with a group, would probably not have alcohol anyway, and their passengers would probably not want them to.

So as the police and local authority figure, there's no problem. The only problem is all those people who deem it their business to treat us like children.

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Planning and living costs

Written by Dr. Eamonn Butler | Thursday 16 January 2014

Interesting piece in about Britain's antiquated planning policies. Public opinion on them seems to be changing, driven largely by rising price houses. People figure that maybe it's time to build more houses. That was, of course, the conclusion reached by Kate Barker's study on housing a decade or more ago.

And planning restrictions impose other costs too. Not just our homes but our shops and other facilities become more squashed and crowded, and food and other essentials become more expensive – planning rules mean they have to be transported long distances, and planning delays put up suppliers' costs.

And yet, says the American author, England and Wales are less crowded than Ohio, with its rolling hills and famland. Only 9.6% of England and Wales is urban, compared to 10.8% of Ohio.

An average house in the UK cost about three times the median income in the 1990s. In the London green belt it is now seven times that. Our houses are now 30% smaller than they were in the 1920s, before the planning laws; with the obvious exception of Hong Kong, our new homes are some of the smallest in the world - 'rabbit hutch homes' as Communities Secretary Eric Pickles described them. It is indeed time to have this debate.

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Blame the planning system for flood damage

Written by Whig | Friday 10 January 2014

Much of the coverage over recent winter flooding in the UK has focussed on immediate issues. The Prime Minister was given a grilling in Yalding over failures to restore power supplies. This neatly demonstrates our loss of the principle of subsidiarity - the PM is not, and should not, be responsible for power supplies, they are both beneath and outside his purview. If we expect our politicians to control such matters, they will, invariably with unintended and deleterious consequences. Such is the creeping collectivism evident in our society, it is no wonder we have such an over-mighty state.

Some debate has centred around whether flood defences are sufficient or whether future funding will be reduce - much of this is simply political point-scoring. Again, there is the question of whether the state should be responsible for such issues - if we worry about the state delivering insufficient supply, surely this is an argument for private supply? Further, how can we discern whether the state is, actually, over-supplying flood defences? Without a price mechanism in operation, there is no means to tell.

Subsequently, the debate seems to have shifted over to whether the floods are related to climate change. Without adopting any stance on climate change, it is 'bad science' to link such particular weather event to the phenomenon. Environment Secretary Owen Patterson has been castigated by the left-wing press for 'climate scepticism' - in reality his position of moderate, evidence-based scepticism (in the philosophical sense) seems far more reasonable than the PM's comments.

In reality, the floods demonstrate something quite different - the failure of planning policy. The problems have been caused not by the flooding itself, which is actually pretty common in winter, but increased levels of building in floodplains leading to - surprise, surprise - increased flooding. To quote the Chair of the Flood Protection Association '“It is absolutely barking mad to build on a flood plain when there are so many other places that could be built on.”

Why, therefore, is development taking place in such unsuitable locations? Step forward our old nemesis Planning Policy. Instead of allowing a sensible, functional market in land planning, which would factor in such costs and mitigate against such illogical development. Instead, the bureaucratic and public choice factors inherent in collectivised control of land use lead to such suboptimal outcomes - not only do we have grossly insufficient new housing we also have it poorly situated. Moreover, such policy further imposes costs - flooded voters demand flood defences, funded out of additional the tax system and with all the deadweight costs associated with bureaucratic management. This is a typical feature of most interventions - they create additional costs and unintended consequences.

What this does tell us about climate change is that government policy is a poor way to deal with its effects, but also may well worsen them. Central planning creates suboptimal choices and inflexibility. Dynamic phenomena such as environmental demand adaptability, entrepreurialism and efficient allocation of resources. Political and bureaucratic choices offer none of these. 

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Why India desperately needs the supermarkets

Written by Tim Worstall | Friday 20 December 2013

The Economist carries a story showing why India desperately needs the supermarkets. The example is all about a staple of Indian cooking, the red onion:

The journey of an onion from Mr Devkar’s field to the end customer in Mumbai takes only a few days but is enough to make you weep. There are some underlying reasons why prices have risen—higher rural wages have pushed up farmers’ costs. But the system is horribly fiddly. Farms are tiny with no economies of scale. The supply chain involves up to five middlemen. The onion is loaded, sorted or repacked at least four times. Wastage rates, either from damage or weight loss as onions dry out, are a third or more. Because India has no modern food-processing industry, low-quality onions that could be turned into paste or sauces are thrown away. Retail prices are about double what farmers receive, although the lack of any standard grading of size or quality makes comparisons hard. The system is volatile as well as inefficient. Traders who buy onions from farmers may hoard them, but for the supply chain as a whole far too little inventory is stored. As a result small variations in demand and supply are amplified and cause violent swings in price. In the first week of December 2013 prices fell again. It is easy to see how heavy investment by supermarket chains and big food-producers—whether Indian or foreign—could make a difference. They would cut out layers from the supply chain, build modern storage facilities and probably prod farmers to consolidate their plots.

The impoprtance of this story is not limited to India either. Here in the UK we hjave the usual suspects shouting about supermarkets and how they destroy the high street. But that's not actually the importance of the system at all. Whether the goods are sold from two 500 sq yeard shops or one 1,000 doesn't particularly matter. It's the entire logistics chain behind the system that does.

We also get told stories about the pernicious effects of how much food we waste as consumers: sometimes we're told that this is because the supermarkets make it too cheap for us to buy. But the other side of the absence of them and their logistics chains is that wastage described above. Indeed, other reports have put the amount of food that rots in inefficient supply systems in poor countries at 50% or more of all food grown.

We have and India needs the supermarkets not because of the shops but because of all the things they do to get the food into the shops.

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There's a much simpler way to solve this housing shortage thing you know

Written by Tim Worstall | Sunday 24 November 2013

I'm always amused to see our rulers tying themselves into ever greater knots to avoid having to admit that the problem they're trying to solve is in fact just terribly simple to deal with. The latest is this idea that those who cannot afford a house should have a free building plot given to them by the State:

Young people who cannot afford to buy a home should be given land by the state so they can construct their own houses, the planning minister has suggested. Nick Boles said it would be a way of reaching out to a generation of young Britons who want to be “given the opportunity to get on and help themselves”. Instead of renting or applying for council housing, young people should be able to “put themselves on the list for self-build,” he said.

What we really have here is an admission that it isn't the cost of building a house which is the problem. It's the scarcity value of the planning permission to be able to build on a certain plot that is. It's most certainly not the cost of land itself: even in SE England this is rarely above £10,000 an acre and you can get five or six houses on that. It's not the cost of the land nor is it the cost of building a house (£120k or so for a nice three bedder). It's that chitty from the State that allows you to marry the two together that makes housing unaffordable where people desire to live.

As, of course, is being admitted here by the suggestion that a solution is to give people one of those chitties for free.

Which is a very complicated and in some senses appallingly stupid way of trying to solve the problem. For I'm deeply unsure that the country actually needs more houses put up by self-building bodgers. Nor does it need the local commissars being able to gift a couple of hundred thousand pounds to favourites by controlling the allocation of those chitties.

Why not, instead, simple reduce the scarcity value of those chitties by issuing more of them? We get to the same end point, housing becomes the cost of building plus the cost of the underlying land. No artificial pumping up of the price at all through "planned" scarcity.

We've even a blueprint for you, Land Economy by Mischa Balen.

But there's a much more basic point here too. When the original problem is government screwing things up the solution is not yet more levels of complexity but rather vying to get the government to stop screwing things up. In this case housing is expensive because government doesn't let people build houses where people would like to live. Why not get government stop doing that and the rest of us can then get on with our lives?

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We need competition in transport, not grand projects

Written by Dr. Eamonn Butler | Monday 09 September 2013

I've just done a Spectator podcast - online end of the week - on airport competition with Gatwick CEO Stewart Wingate and Margot James, member of the No 10 Parliamentary Advisory board. Let's face it, we need more airport capacity much more than we need a high-speed train that gets you to Manchester half an hour earlier. The Transport Department forecasts that demand will double, from 219m passengers per year, to 480m in 2015. We don't need one new runway, we need a whole slew of them, with extra capacity to encourage real competition.

Boris Island? I love it—big, shiny, high speed connections an all that—but at £96bn-odd and a 30-year planning and construction period, it seems a bit of a non-starter. The Houses of Parliament were built 150 years ago, and came in three times over budget and 27 years late, and that is about the norm for state-run infrastructure projects. So think more £300bn and 90 years. After all, it took nine years just to build a new terminal at Heathrow, not even a new runway.

How I wish that the Thatcher government had listened to us in our paper Airports For Sale back int the early 80s. Then, the state quango, British Airports Authority, ran all six major UK airports, three round London and three in Scotland. But no, they privatized BAA as a unit because it was easier. Since then, all the talk, and action, has been about building up Heathrow as a 'hub'. Typical monopolist talk – we need the biggest, the flagship facility. Nothing about customers being best served by competition. But now, in the last few years, with the (inevitable) forced break-up of BAA plc, we do have competition, and it is wonderful, if you are an air passenger, to see the individual airports vying for your business. Like trying to speed up queues in customs and immigration, and getting rail links to their airports that actually take account of the fact that you might have some luggage. And indeed, competing for the next runway.

Sir Howard Davies, who is reviewing all the options, has so far identified fifty different choices. Let's hope he realises that the most cost-effective solutions are the ones that focus on what customers, not politicians and airport planners, want. Use the market. Only about 7% or UK airline passengers are interlining, so let the airlines with that sort of traffic pay to go to the biggest hub, heathrow. Otherwise, develop capacity with new runways at Gatwick, City, Luton and you name it. As I say if only we'd had competition when ASI suggested it, passengers would have a much better experience than they get today.

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Medieval peasants really did not work only 150 days a year

Written by Tim Worstall | Tuesday 03 September 2013

One of the things that irks my choler, yanks my goat if you like, is this idea that the medieval peasant led a life of incredible leisure, had to work vastly less than we poor saps ground down under capitalism have to. It's entirely nonsense of course:

Plowing and harvesting were backbreaking toil, but the peasant enjoyed anywhere from eight weeks to half the year off. The Church, mindful of how to keep a population from rebelling, enforced frequent mandatory holidays. Weddings, wakes and births might mean a week off quaffing ale to celebrate, and when wandering jugglers or sporting events came to town, the peasant expected time off for entertainment. There were labor-free Sundays, and when the plowing and harvesting seasons were over, the peasant got time to rest, too. In fact, economist Juliet Shor found that during periods of particularly high wages, such as 14th-century England, peasants might put in no more than 150 days a year.

What Shor (and others, for there are others who make the same claim) has done is looked at the labour service expected of the villein and then claimed that this was the amount of work they had to do. Nonsense: this work on the lord's demesne was the rent payable for the peasant's own land to farm. Something which rather added to his workload of course, that farming his own land.

We might also point to the amount of household labour that had to be performed. Yarn had to be spun, cloth to be weaved. Cooking was over open fires: and that firewood had to be collected. Bread baked and so on and on. There was a recent report (rather exagerrated but still) which claimed that in the 1930s it took 65 hours of human labour a week to run a household. Today it takes 3. Things were worse back in medieval days.

And finally there's the obvious point that these villeins and churls were animal owning peasant farmers. And people who own animals just don't get 70 days off a year, you don't manage to go off and get pissed for a week and then expect to have live animals when you come back.

What has been done here is to mistake work in the market economy for all the work being done. As a vast amount of a peasant's work is not in that market economy (that's why they're peasants and why they're poor) then they've decided not to include that back breaking labour done inside the household as labour.

As to why this is all being trotted out:

As for the modern American worker? After a year on the job, she gets an average of eight vacation days annually.

The US is the only leading nation that does not have legislation as to how much paid vacation time an employee must get. There is thus a move to make such a law. Thus these rather tired misunderstandings of medieval lafe being trotted out, to aid in making that case.

But there's one more surprise here. If you look again at their argument it is that everyone does indeed get paid vacation in the US even though there isn't a law insisting that they must. Therefore, because everyone gets it already we must have a law. Why not, you know, just leave everyone to get on with it themselves?

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Help to Buy scheme will worsen Britain's housing crisis, says new Adam Smith Institute paper

Written by Anonymous | Monday 02 September 2013

Today we've launched a new briefing paper on Help to Buy, the government's scheme to increase home ownership. Unfortunately it seems more likely to inflate the housing bubble even more and risk taxpayer money in the process. Here's our press release:

Help to Buy scheme will worsen Britain's housing crisis, says new Adam Smith Institute paper

  • The government’s Help to Buy scheme will drive up house prices by increasing demand for but not supply of housing – it will not improve overall access
  • Help to Buy risks taxpayers’ money with no guarantee of a return
  • By subsidising homebuyers and introducing the possibility of socialising lender losses, Help to Buy risks recreating the perverse incentives that led to the 2000s-era US housing bubble

The government’s Help to Buy scheme, which offers government-backed equity loans to house buyers and mortgage guarantees to banks, will distort the housing market, risk taxpayers’ money with no promise of a return, and introduce into the UK housing market the same perverse incentives that led to the US subprime mortgage crisis, argues a new paper by the Adam Smith Institute, released today (Monday, September 2nd).

The report, Burning Down the House (available to download here), argues that without measures to increase supply by liberalising planning laws, the Help to Buy scheme will simply drive up house prices, making housing no more accessible overall. Indeed, users of Help to Buy benefit at the expense of those who fail to use the subsidy scheme; the policy is like putting a platform under the buyer while also raising the bottom rung on the housing ladder.

If already badly-off people are less likely to access the scheme, it could have a particularly hard effect on the poor, the report says, a group who already lose out badly—the UK's extreme restrictions on housing supply have been calculated to add 3.5 percentage points to the GINI coefficient measure of inequality.

According to the report, a preferred alternative would be liberalising a hostile regulatory environment which inhibits the construction of additional housing supply—allowing houses to be built in more places, and slashing regulation on doing so. According to official statistics, only about 10% of the UK is built on, and of that the biggest fraction is gardens. If we want to control runaway house prices and give first-timers a chance to get on the ladder, we need to allow more houses to be built.

"It is crazy for the government to stoke demand even more without addressing supply and claim that this will help the housing market," said the Institute's Research Director Sam Bowman. "Making taxpayer-subsidised handouts to homebuyers will only drive further house prices up, risking a bubble, improving access for a select few but making housing even more unaffordable for most people."

"On the other hand, radical liberalisation of the planning system has the potential to drive massive economic growth, drastically reduce housing costs for the badly-off, and give millions more a chance to own property of their own. "

"Deregulation is a way of addressing the housing supply shortage while avoiding recourse to public fiscal intervention,” commented Preston Byrne, the Institute’s Legal Fellow. "If the Government is serious about finding a long-term solution to the housing crisis, it's time to take a hard look in the mirror and examine the role existing planning regimes – both local and national – play in regulating and inhibiting new housing construction.”

This paper is available to download here.

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The HS2 argument is getting very confused

Written by Tim Worstall | Wednesday 28 August 2013

Various people seem to have various ideas about the merits or not of the high speed railway line to the North, HS2. Three little comments that stand out from the crowd for me:

Britain's construction and engineering industries need a more stable pipeline of work if they are to stay "right at the top of their game" following major works such as the Olympics, the boss of Crossrail has warned. Andrew Wolstenholme, who is overseeing the £14.8bn rail project across London, has laid down the gauntlet to ministers, claiming a "lack of continuity" is endangering the country’s competitiveness and threatening to push up prices. "If you see where UK infrastructure is right now…the reputation we are gaining to deliver on time, on cost and of high quality is building,” said Mr Wolstenholme. “UK plc is right at the top of its game in delivering these major works." But he added: "What we need to do is find ways to bring the pipeline forward… so that the industry is presented with a continuous pipeline of these major projects."

Nothing surprising about that. Man who makes his living doing infrastructure projects thinks that lots of infrastructure projects is a very good thing. I could be convinced that lots of opportunities to scribble on the internet would be a very good thing I'm sure.

The Institute of Directors (IoD) has urged ministers to abandon the "grand folly" of the £50bn HS2 high-speed rail project, saying little more than a quarter of its members believe it will prove value for money. The IoD's head, Simon Walker, said the business case for the line linking London with Birmingham, Manchester and Leeds over the next 20 years "simply is not there".

Also not a surprise there. That business case for the project has been looking pretty ropey for some years now. And then there's this:

I want the schoolchildren of the North-west to be captivated and inspired to take up careers in construction and engineering, and for the students at universities in Liverpool, Manchester, Leeds, Sheffield and Birmingham, to have the opportunity to choose where they work once they graduate. HS2 is a 20-year programme that could transform the skills base of the country. We lament how few young people go into engineering and science. Today more than a quarter of our science, technology, engineering and maths graduates go on to take non-engineering jobs. The project will be beacon for any young person looking to the future and deciding what to study. Through building HS2 we have a golden opportunity to expand greatly an engineering skills base that for years we thought could ebb away entirely.

Building lots of railways will encourage lots of people into studying how to build railways. And I can see that as a valid and unsurprising argument as well.

But when we put all three of the points together we get something rather different. We should build lots of these infrastructure projects because we're getting better at doing so, even though hte projects themselves are of no value, in order that we will encourage the next generation to train as people who can build infrastructure projects.

At which point presumably we'd have to continue subsidising infrastructure problems that aren't worth building in order to keep these newly minted engineers employed. Becasue, you know, we're really rather good at building things that don't make sense to build.

It's really not the most convincing of arguments when taken in the round, in the whole, is it? Indeed, I rather get the feeling that we'd all be made richer by people training to make and build the goods and services that are worth more than their production cost rather than those that are worth less.

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