Planning has given us the ugly environments it was intended to prevent

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I heartily recommend this intelligent piece on rural planning and development by Charles Moore in the Daily Telegraph. His paper have been running a campaign against the British government's proposals to ease the planning system, on which countless South East of England NIMBYs ('Not in my back yard') and BANANAs ('Build absolutely nothing anywhere near anybody') have vented their spleen in its letters columns, complaining that the whole of the Cotswolds are going to be covered by factories and wind turbines.

Moore points out that the government aims merely to devolve, imply and liberalise the planning system – which, he believes, is essential for the rural life that the 'Disgusted, Tunbridge Wells' campaigners want to preserve. After all, the charming rural farmsteads and mills, like that at Flatford painted by John Constable, were, paradoxically, the industrial development of the time that gave us our rural environment. The mineral wells around Tunbridge are what caused the prosperous and pretty town to – I can't think of a better word – spring up. The people who built these commercial enterprises had to live in them or near them, and generally speaking they built wisely, practically and beautifully. That is the origin of the countryside that people love.

Now, of course, we have instead the socialist principle of planning. As Moore points out, modern planners would probably reject the idyllic Flatford Mill as an unwarranted industrial intrusion into the landscape. People complain about ugly, squashed-in housing developments around towns and villages, but these are brought about because of the planning system. Large companies buy up vast acreages because they know the planning system is slow, bureaucratic and fickle, which means that land prices are driven up, and the price of land that is approved for development rises even more spectacularly. Planning has in fact given us the ugly environments that it was intended to prevent. We need instead for our development to grow organically, as they did in the past when they created the rural environment that campaigners want to preserve.

Irreplaceable Jobs

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Virtually no Chief Executive has been as vital to the success of his company – and to its share price – as Apple’s CEO, Steve Jobs. Due to recurring serious illness, he has recently resigned as Chief Executive; his effective departure is a massive loss to Apple which he founded in the 1970s. 

Following his return in 1996, Apple has thrived, due in part to the staggering success of iPhones, iPads and iPods, notwithstanding selling over 60 million computers since 1997. tOnly recently, Apple became the most valuable company globally, a status that oil giant, Exxon, has now regained. Significantly, too, Apple’s market value lies far ahead of Microsoft, whose Bill Gates is the only realistic competitor to Jobs as the sector’s leading light.

Increasingly, Jobs is being regarded as one of the great entrepreneurs in history. His business philosophy is based on the intricate design of electronic appliances that millions of consumers covet. Who would have thought, perhaps a decade ago, that iPhones would become a global phenomenon, especially amongst young people? Indeed, history may rate Jobs alongside such legendary names as the peerless Thomas Edison, arguably the world’s first professional inventor; Henry Ford, the father of mass production; and leisure’s Walt Disney. 

Apple has thrived on the back of entrepreneurship, brilliant design and identifying consumer trends with a ruthless zeal. Its success has not been driven by endless subsidies that so many western nations offer across various industries: the UK chemicals sector is a particularly egregious example. Apple has thrived in a generally open market. As such, along with Microsoft, Apple has created a vast number of jobs in recent years, both in the US and throughout Europe.

As the media eulogises Steve Jobs on his retirement from day-to-day management, remember that the open market commercial environment, in which Apple has prospered, is key to its success.  

Will they ban salt?

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Should the government micromanage the contents of food? This is the key question when alarmist statements, such as this morning’s ‘Excessive Salt in Bread’ are splashed all over the news.

There are two ways of approaching this issue. Either you leave individuals free to decide for themselves what they buy or don’t buy; or you let the government decide what’s on the shelves. The first you can achieve by information and labelling; the second by state diktat. For cigarettes and alcohol there has been a clear move towards the second option of state coercion.

Let’s take salt. I’m not going to dispute the science on this. Salt is probably not very healthy. Though our defences should start to go up when we hear statements being qualified with the lawyery ‘may’ (damage your health). Or when The Telegraph headline shouts that ‘Some loaves are as salty as seawater’, when in fact, not a single one of the 294 investigated breads was. Less than 1 % of the loaves contained more than half the salt of seawater.

The Consensus Action on Salt and Health was set up by well-connected experts to expound the view that salt is bad, and to encourage us to do something about it. Nothing wrong with people who have a bee in their bonnet about an issue to try to convince the public – we believe in free speech. But the situation changes when their views are imposed upon all of us by law. On their website, they list as their main achievements that they convinced the Department of Health to commit to salt reduction; and they encouraged the Food Standards’ Agency to pick up salt as one of their key campaigns. In other words: the taxpayers are now funding the CASH views on salt.

Today it’s salt; tomorrow it may be sugar, maltesers, coffee, or meat – all of which may be very harmful if taken in excess. A small group may become obsessed about a specific food product, start campaigning, and succeed in turning its views…into laws! Will we soon have to buy a pot of salt from behind the counter, by the gramme? Will we see black labels with two inch letters shouting ‘SALT KILLS’ ?

Choosing for state coercion instead of trusting the free choice of individuals reflects a particular view of humanity: that we, individuals, are not intelligent enough to make our own decisions; and that we need to be protected against ourselves. In this world, the scientists and the politicians become the shepherds, and we the sheep (that is: the lesser beings or animals). Here at the ASI we still believe that people are humans: that is, individuals who know what is in our own interest and who can make their own decisions.

By all means, allow the CASH to convince us that salt is bad and that we should be careful. If they succeed, the manufacturers will have an interest in labelling clearly what’s in the food. Food with less salt will sell better.

Drowning in debt

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The Bank of International Settlements has released an interesting new piece of research: The real effects of debt by Cecchetti, Mohanty, and Zampolli. Essentially, the paper shows that once debt rises beyond a certain level, it becomes a drag on economic growth (and increases likelihood and severity of financial crises). If you want to check out their data and economic modelling, you can download the whole paper here.

Their findings apply to household, corporate and public (i.e. government) debt. Government debt becomes a drag on growth at between 80 and 100% of GDP. Corporate debt becomes a drag on growth once it rises above 90% of GDP. Household debt becomes a drag on growth beyond 85% of GDP. The bad news is the UK already exceeds all these debt thresholds: our household debt is 106% of GDP, our corporate debt is 126% of GDP, and our government debt is 89% of GDP.

Here’s how household, corporate and government debt have risen as a percentage of GDP since 1980:

And here’s what has happened to total, combined debt in the UK since 1980 (it now stands at 322% of GDP):

Unfortunately, it gets worse:

A clear implication of these results is that the debt problems facing advanced economies are even worse than we thought. Given the benefits that governments have promised to their populations, ageing will sharply raise public debt to much higher levels in the next few decades. At the same time, ageing may reduce future growth and may also raise interest rates, further undermining debt sustainability. So, as public debt rises and populations age, growth will fall. As growth falls, debt rises even more, reinforcing the downward impact on an already low growth rate. The only possible conclusion is that advanced countries with high debt must act quickly and decisively to address their looming fiscal problems. The longer they wait, the bigger the negative impact will be on growth, and the harder it will be to adjust.

A previous paper (PDF) by the Bank of International Settlements projected the UK’s government debt forward to 2040, assuming current policies are maintained. On the graph below, the red line is the baseline scenario, the green line shows what would happen with a small gradual adjustment (a fiscal consolidation of 1% of GDP each year from 2012), and the blue line shows what would happen with a small gradual adjustment in which age-related spending was held constant (as a percentage of GDP).

Note that on the baseline scenario, government debt exceeds 500% of GDP. That would mean the government spending more than a quarter of the UK’s GDP servicing its debts. In reality, we would be forced into default long before debt reached such a level.

It all makes for pretty grim reading, doesn’t it? The simple fact is that Britain, like most Western economies, is living on borrowed time. In the medium term, only a genuinely radical re-evaluation of the scope and scale of the state can avert disaster. Look around Westminster, Washington or Brussels right now though, and all you will see is lots of heads buried in the sand.

Without profit, Free Schools won't help the poor

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The Guardian reports today that most of the first Free Schools approved by the government are in affluent, middle-class catchment areas:

Research shows that the 10-minute commuting area around the first wave of free schools is dominated by middle-class households, appearing to undermine coalition claims that they are empowering working class families. The areas have 57% of better-off, educated and professional households compared with the English average of 42.8%. There are also a higher-than-average proportion of Asian homeowners in the free school catchment areas – 5.3% – compared with 1% in England as a whole. Just 29.1% are categorised as "hard-pressed" or of "moderate means", compared with 36.9% for the country.

Well, what did you expect? Setting up a Free School isn't easy, and it takes a lot of time and dedication. Who's surprised that it's mostly fairly wealthy parents who have the time and energy to bother?

As long as there's no reason for people with a comparative advantage in this sort of thing to set up Free Schools for people who can't, this trend will continue. That's a bad thing – the people who need better schools most are poor people, who have few enough chances in life as it is. Free Schools, with more local control and independence from the state, would be a great option for lots of struggling kids. The programme is a good one – if only the option was there for more of the people who most need it.

So, what can we do to encourage people to set up Free Schools in poor parts of the country? Create incentives for them to do so: allow the management firms to make a profit on the schools they're running. We published a paper last year arguing just this. Profit doesn't affect outcomes for children, but it would be rocket fuel for the Free Schools programme. If people are serious about improving school choice for poor children, they need to get serious about harnessing the power of profit.

Update: The report's author, James Croft, has weighed in in the comments section:

It's widely held that business-led educational ventures maximise profit at the expense of pupil outcomes. This is one of those myths that has arisen because of misleading (and often politically motivated) press coverage of occasional instances of things going wrong blown out of all proportion. The truth is that in contrast to other ownership models proprietorial school businesses, whether directly accountable to their owners or to shareholders, are tightly managed and rarely engage in the sort of profiteering that compromises quality for short-term gain. They know their markets and they are keenly aware of the expectations of their customers.

My study found that of the 489 proprietorial schools operating in England in 2010, 87 educate their pupils for less than the ‘revenue only’ maintenance figure of £5,320 (33 of which by £1,000 or more), at the same time apparently able to make a modest profit. A further 71 were doing so for less than the combined revenue and capital figure of £6,240. In addition, according to a third benchmark, allowing for total fee remissions of up to 10 per cent,154 a further 41 were found to be educating their pupils on fees less than £6,864, on a comparable basis to that of schools in the state-maintained sector. This represents 41% of all proprietorial schools. As a group they outperformed equivalent trust schools on key teaching and learning related criteria by a significant margin (on all criteria for those inspected by Ofsted, and 3/5 for ISI). There is widespread evidence of generous bursary provision for the disadvantaged too - something I hope to be able to detail more fully in a forthcoming study.

Bang goes the theory that for-profits are interested in only one thing.

A Swiss miss on taxes

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Question: What are the greatest threats to individual liberties, and hence prosperity? Answer: Government-protected monopolies and cartels. And government cartels are the worst. OPEC hasn't been good for consumers – when governments get together it's usually to rip off their citizens.

The Anglo-Swiss Tax Agreement threatens to create another government cartel. This is a very dangerous precedent. There’ll soon be no corner of the world where the assets of British citizens are safe from the tentacles of HMRC.

Natural tax competition incentivises governments to keep taxes as low, and hence individuals as free, as possible. If tax rates exceed those citizens are willing to tolerate, then increased evasion, avoidance and emigration will drive taxes down. Emigration is a key point here. Giving people a way out of an oppressive tax regime keeps governments accountable, and puts some ceiling on taxes. Competition works.

Furthermore, tax competition protects the world’s capital flows from government hands and disperses capital amongst enterprising individuals who – when all is said and done – grow the economy, create jobs and increase tax revenues. Taxing capital gains is a form of double-taxation, and is a direct tax on investment. We need more investment right now, not less.

Once the agreement is implemented, enterprising individuals will emigrate further away from Britain and just move their assets elsewhere. 34% of capital squirreled away in Swiss accounts looks attractive, especially when £125bn apparently awaits taxation. But the fact is that Switzerland only starts handing over the cash by 2013, by which time many will have already transferred his or her money to Singapore. It’s an anti-growth, unenforceable agreement. What is the point?

Taking the Austrian medicine

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As more data trickle in, it is becoming pretty obvious that bad weather and a royal wedding are not enough to explain the UK's poor growth record. The problems are more profound. Specifically, the UK economy is highly dependent on consumption – government and household spending – and neither of those is looking very clever right now.

Government spending has of course hardly fallen in real terms so far, but after years of rapid rises, even a slowdown is enough to give everyone the jitters. As for households, those with savings (by and large the biggest spenders) are earning almost nothing on their deposits, and are cutting back. Sure, those with mortgages may be paying less interest, but they are still gloomy too because they know that their money-making house-price spiral has come to an end. The near-collapse of the banks gave householders a shock, and now they are fully aware (at last) that they have been borrowing too much. So they are simply cutting back and trying to reduce their indebtedness. Unfortunately, they have been hit by higher taxes such as the VAT increase, which means they have to cut back even further to make a dent on their debt.

Richard Jeffrey of Cazenove Capital thinks that quantitative easing in the UK and US has not helped, because it has fuelled rises in raw material and energy costs which again have added to household costs, and forced them to cut back their other spending even faster. And looking at that trend, it is no wonder that surveys are showing high levels of pessimism in the business sector. Customers just aren't spending, which in turn means that business has less money coming in to put into investment, which in turn means that their capacity to boost future productivity and growth is diminished.

Look on the bright side, though. As the Austrian School of economists remind us, a downturn follows a credit binge just as surely as a hangover follows an alcohol binge. A hair of the quantitative easing dog might make you feel better for a time, but makes the eventual hangover worse. Eventually, though, your body and your economy recover. You just have to nurse your head and see the process through. With calls for more quantitative easing being rebuffed, it looks like the US and UK authorities have decided to take the Austrian medicine rather than reach for the bottle again.

Do libertarians apologise for autocracy?

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An article claiming that libertarians support autocracy has made ripples online. In this article, Sam Bowman rebuts that article and argues that its author fundamentally misunderstands – and misrepresents – his topic.

Michael Lind has a long post on Salon.com on “Why Libertarians Apologise for Autocracy”. The piece is rather long, and has been getting some attention online. In my view it is a rather bad piece. In this post I want to reply to some of the most important claims that it makes. His post is a little incoherent, so forgive me if my reply doesn’t work well as a standalone piece. I encourage readers to take a look at Lind's piece before reading this.

Lind’s thesis is that libertarian objectives are incompatible with the democratic system of governance that most people value. This is a valid argument, and indeed one that has been made by some libertarians. Where Lind gets it wrong is in his seemingly-wilful misreading of key libertarian thinkers (like Mises and Hayek) and his shallow understanding of the libertarian movement in general.

Lind opens by quoting Ludwig von Mises’s Liberalism. This book, written in 1929, contains a discussion of fascism in which Mises appears to praise this system. Lind quotes Mises:

It cannot be denied that Fascism and similar movements aimed at the establishment of dictatorships are full of the best intentions and that their intervention has for the moment saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.

It's a pity that Lind’s article links to the Amazon page for Liberalism, rather than the free download from Mises.org. If he had linked to the full version, the meaning of this strange statement would have become clear. Cato at Liberty have the full quote: [Continue reading...]

Throwing fuel on the banking bonfire

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I'm very skeptical of UK government plans to 'ring fence' or separate out the retail arms of the banks from their investment arms.

In the first place, if banks are broken up by politicians and regulators, you can be sure it will be a mess. They will be broken up in ways that simply don't work, and UK bank business will leach abroad.

Second, retail bankers need investment returns, and investment bankers need savers' cash. If you try to split them, they will do their darnedest to keep that symbiosis going. The only split that might work would be if the investment and retail banks were completely separate institutions, separately owned and capitalised.

Third, if you did split out the retail banks, it becomes 100% certain that if one of them failed, they would be bailed out by the taxpayer – which is part of the whole ring fencing deal. And 100% certain that such bailouts would be needed.

Of course, the argument is that retail banking is all safe, traditional, Captain Mainwairing stuff, so retail-only banks would never need a bailout anyway. Hence the calls to split them. However, given the certainty that the government would bail them out to protect retail customers, the new retail-only banks would have every incentive to behave riskily, generating big returns for their savers and offering borrowers fantastic mortgage deals.

You may think that the regulators would stop such risky behaviour in a sector that is supposed to be low-risk. Forget it. If there is one certainty to come out of the 2007/8 crisis, it is that regulators are useless. There was plenty of regulation in place, but it wasn't enforced, or it proved counterproductive.

The only thing that will make banking safer is competition. There is no proper competition in banking today because banks have to be huge in order to afford the costs of all that useless regulation. To boost competition, and to overcome the too-big-to-fail problem, the answer is not to break up the banks but to make the banks' reserve requirements more onerous, the larger they are. The sector would then naturally become less concentrated, and competition would do the regulators' job. It might even split, sensibly, of its own volition. Job done.

Organs for sale

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Once in a while an idea comes along that's so crazy it just might work. A week ago I wrote a blog about the rise in tuition fees and the perceived necessity of a university education. But let's for a second consider that, having looked at all my options, I decide a university degree is the right path for me but I'm still concerned about the costs. Well one academic might just have the solution I'm looking for – I could pay off my debts by selling a kidney.

Whilst the topic of financially incentivising organ donation is a divisive one, with many people concerned with the huge potential for exploitation, selling parts of oneself is not as extreme as you might think. It is, of course, a rarity to hear of someone selling a kidney to buy an iPad. Yet selling plasma, hair and even semen has been the practice of many cash-strapped students in the US and other countries. It's easy to see why paid donation is a popular option; donors give away renewable resources or "spare parts" to a good cause whilst receiving a valuable source of income. Perhaps there is a realistic scope for opening up organ and general bodily donations to a private market.

According to donation statistics, as of January 2011, 6,741 people are waiting for a kidney on the transplant list, a scary figure considering only 2,520 kidney transplants took place in 2010 and over 1,000 will die waiting for an organ to become available. Many people argue that legalising a market in transplant organs will undermine the current altruistic donor programme. Professor John Harris of Manchester University makes a good point, arguing that "being paid doesn't nullify altruism – doctors aren't less caring because they are paid. With the current system, everyone gets paid except for the donor."

Aside from increasing the number of potential living organ donors a legal market would dissuade so called "transplant tourists" who resort to travelling abroad to purchase organs of questionable health on the black market. Potential savings for the NHS are also a considerable factor. In the case of kidney disease particularly, even a substantial pay-out of around £25,000 for a transplanted kidney would pay for itself in eighteen months, due to the expense of dialysis treatment for suffers.

Setting up a private market for organs does run the risk of exploiting those most in need of cash, meaning proposals for a paid system would need to be carefully considered. But, at a time where NHS costs are sky-rocketing and the need for organ and blood donation is increasing, incentivising donation is an absolute necessity. Whilst the altruist in me likes to think I would donate a kidney to someone in dire need of one, the chance to pay off my student loans whilst doing so might just be the deal-maker.