The Human Rights Act as a constitution of liberty

Guy Herbert, best known as the general secretary of NO2ID but writing in a personal capacity, defends the Human Rights act as necessary as a bulwark against the state when so many of the traditional defences have been eroded.

I am here to defend the Human Rights Act. It is not an idealistic defence but a pragmatic defence, rooted in historical context. Should classical liberals support the Human Rights Act against repeal? Do we need it? My answer is yes.

Our reactions to phrases become readily conditioned. And so it has been with "human rights". Let us remember for a moment that the full title of the agreement that is under siege here is the Convention for the Protection of Human Rights and Fundamental Freedoms. If it were called the Fundamental Freedoms Act would it be as easy to undermine?

Sad to say human rights do have a bad name, and they have that bad name for good reasons. Their strongest proponents often do the most harm to their reputation - not because of the legal content of what they say, but of their approach to the law.

This comes in two forms which sometimes overlap: the rarer is soft revolutionism from the far left—human rights as a transitional demand. This makes human rights a movement more than a doctrine—a means to control the terms of any political debate.

More common is a not entirely conscious belief that human rights and the Human Rights Act in particular embody the truth, the whole truth and nothing but the truth of how states should treat people. It's a sort of human-rights fundamentalism, a desire for revealed wisdom in which "but that is contrary to Art 6" is a morally conclusive statement.

It' s bound up with humanism, and instantiates the felt values of the bien pensant left. There’s a parallel here with common US attitudes to their constitution, treated as Holy Writ, though those are found more on the right than the left.

I fear that in particular the venerable National Council for Civil Liberties, now Liberty, has become something like the Church of the Human Rights Act. All its activity (most of it still valuable) is now predicated on the overriding importance and superordinate moral power of the Human Rights Act – taken to be proof that the social assumptions of the liberal left are correct.

There are also those for which the Act was a crowning achievement of Tony Blair, showing how the Labour party in government was committed to the freedom of the people, unlike the brutish Thatcher and Major regimes. These last need not detain us long, though their tribal pique may well spur some Conservative opponents.

The enemies of the Act have a point in their disdain for its claque. But they go rather further than that, and repudiate the law itself. Moreover most reject not just the domestic law (such as it is) but the underlying convention, of which Britain has been part since 1950. The Act for them is merely an enabler for the unwelcome jurisprudence of Strasbourg to get into English law (Scots law not much considered). A British Bill of Rights they say will stop all such civilian nonsense.

What's wrong with it, do they say?

They say it is foreign.

They say the wrong people have rights.

They say we need ‘a better balance between rights and responsibilities’.

They say it is concerned with trivia - or with too many things - and gets in the way of common sense.

They say it allows 'activist judges' to make law.

They say it tramples on the sovereignty of parliament.

Most interestingly for my argument, they say that Britain doesn't need it because of our own much deeper constitutional freedoms.

I have my own complaints against the Act and the convention that it embodies.

Neither is really strong enough in its protection of the individual from the state. The Act doesn’t do some things one might hope from the point of view of rule of law: it does not clearly override other legislation, let alone strike down incompatible law; it doesn’t make Strasbourg an appeal court within our system or its decisions directly applicable here.

It does, on the other hand, extend the scope of human rights actions way beyond bodies exercising state power to all those dealing with the public—and thereby hands some new power to the state, allowing human rights to be used as a sword as well as a shield. [i]

The Convention is too riddled with state get-outs “necessary in a democratic society” - which have given rise to the canting doctrine of proportionality that riddles all the legal discussion of human rights questions. And it fails to mention some critical liberties directly at all (which would matter less if that did not mean the Church of Human Rights has now forgotten them).

It's fairly feeble.

But it is something. I'd argue that we need to strengthen and clarify the application of the Human Rights Act.  What are we to make, as believers in a liberal rule of law, of those who want to dispose of it?

Other commentators have said that Conservative plans (such as they are) are "legally illiterate". That may be so. But such commentators are inevitably communicant members of the Church, preaching to the choir.  To the right, press and public alike that just sounds like technical waffle, covering special interest. Technical problems can be fixed, usually. My differences stem from first principles.

Foreign? So what?

A good thing is a good thing, and a bad one a bad one, wherever it comes from. Hatred of the Eurpean Court of Human Rights does seem to be tied up in some people's minds with dislike of the EU and a sense of nationalist resentment of international institutions generally. But I say, take institutions on their merits. Nationalism is unprincipled and lights arbitrarily what it calls familiar - and calls 'foreign' what it doesn't like. Actually, Great British institutions, from the royal family to fish and chips, often turn out to have foreign origins when you look closely.

The wrong people have rights?

If that is your objection you have missed the point of rights, which is the defence of the individual in the face of attack. If you can strip someone of defences by declaring they are a wrong'un, then none of us is safe.

A balance of rights and responsibilities?

That is if anything worse. It misunderstands what freedom is: not a privilege to be granted on condition of good behaviour, but something that can only be taken away - if at all - on condition.

Against common sense?

This is a variant of "the wrong people have rights". It says some have the privilege to prejudge what is important and to subordinate some people's priorities to others.

Judges making law?

Well I trust the same people will be discarding that Great British gift to the world, the common law system. The extrastatutory decisions of such 'activist judges as Sir Edward Coke and Lord Mansfield', had no business interpreting parliament or precedent. Let's while we are at it chuck out the Appeal Court and House of Lords judgments that found ministers' or officials' behaviour unreasonable. "Activist" in this context is just a boo-word. Judges decide the cases brought before them - what else does one expect them to do? If they make decisions you don't like, then challenge the reasoning and distinguish your case. Otherwise tough.

Trampling on sovereignty? I should bloody well hope so!

The whole point of a constitution, of rule of law, is to constrain absolutism. And absolutism what is meant by sovereignty here—be in no doubt about it. The complaint is that parliament—or the state speaking through parliament—ought to be able to do anything at all, however destructive of individual liberties.

With the greatest respect... no, with no respect at all - I don't agree.  “Absolutism begins at home”, is not a motto any liberal should support.

**

Look for a minute at the context of our (Britain and other Western European countries’) drafting and adopting of the convention: the point of doing so. This is something both its acolytes and enemies neglect. It didn't come from nowhere. It was, as constituting documents usually are, an attempt to define and stabilise an order already won by violent struggle. In the specific case, this was the allied victory in the Second World War, and the aftermath. The contents of the convention are direct reaction to the abuses of the totalitarian states of middle of the 20th century.

Argumentum ad Hitlerum has a poor record, but it is unavoidable here. One can go through every article (I won't - I leave it as an excercise for the reader) of the convention, and see the shadow of the lawless Nazi regime and its abuses. And further in the background, but still in the picture, Joe Stalin, who was still alive and a dominant figure in the world as it was drafted. The high contracting parties were ostentatiously saying: 'we're not fascists, Nazis nor Marxist-Leninists'.

Let's not resist the cheap shot that that Nazis would have had no truck with the Human Rights Act. They would have hated it not only because it specifically tailored to spite them, but because it represented rootless cosmopolitanism not Volkisch values; because the asocial should not have rights; because your rights should in any case depend on your contribution to the Fatherland; and because nothing should stand in the way of the supreme Will to Power.

In 1950, Britain may have been less in need of reassurance that it was not a totalitarian state than many of the other signatories. But the most interesting claim of the critics is that because Britain is intrinsically a free country, this is still the case. At best this is romantic nonsense. Even in the ‘50s the British state was bulking up hugely. It was then we saw the beginning of the widespread use of judicial review as a means - from British common law - of restraining the arbitrary official power that before the war Lord Justice Hewart had called "The New Despotism". [ii] "We" supported the ECHR then not merely to rebuke Uncle Joe but because we had seen how fragile liberty was in dozens of civilized European States.

Sixty years later, the interest of states everywhere in the detail of the lives of their citizens has bloated.

Britain is no longer obviously a free country. In which support for liberty on behalf of our fellow citizens and our representatives can be taken for granted. We have reached a state of mind in which "the government should do something" is a first reaction to the most factitious scandal. In which an absolute majority can be found in an opinion poll to be in favour of banning the almost certainly harmless activity of vaping in public places. [iii]

And though a liberal is hard put It is not even in the same sense a representative democracy.

And it has accelerated. British state is certainly not the (domestically) limited creature it was in 1950 - it has far more power than it had in 1997. Technology gives the state more information, and with it more conviction of Whitehall's omniscience. And the machinery of legislation has changed, too. Parliament has less influence. Much legislation passes as "framework legislation" giving powers in very broad terms to be filled in by regulations. More is very broadly drafted, leaving it in the discretion of police and other enforcers who will be prosecuted when many are technically guilty. And all of it is hustled through timetabled legislation. Six guillotines under the decade of the aforementioned Thatcher regime were a scandal to her opponents. Everything since Blair has been guillotined and knived. [iv]

Yet opponents of the fairly feeble Human Rights Act are not proposing to weaken the executive branch, just the law that stands in its way. A ravenous Whitehall beast will have a little less chain, and disproportionately more power, and it is presented as reverting to an earlier constitutional age. This is at best deluded: like suggesting you can book Concorde to New York next Tuesday. At worst the delusion is a perverse rejection of all we know about political institutions. It is a conceit that totalitarian power is fine, because it will be wielded solely by sympathetic thoughtful people like Mr Grayling, who will use it as the public wishes. And the public is always right.

Hayek wrote in The Constitution of Liberty of the development of the understanding of rule of law and the concept of a Rechtsstaat:

In most countries of the European Continent two hundred years of absolute government had, by the middle of the 18th century, destroyed the traditions of liberty... the main impetus for a revival came from across the Channel. But as the new movement grew it encountered a situation different from that which existed in America at the time or which had existed in England a hundred years earlier. 

The new factor was the powerful centralized administrative machinery which absolutism had built, a body of professional administrators who had become the main rulers of the people. This bureaucracy concerned itself much more with the welfare and needs of the people than the limited government of the Anglo-Saxon world either could or was expected to do. [v]

In the last 100 years Britain has developed an absolutist government. And the fading of the culture of liberty and the growth of institutional power has intensified that. The state has become more absolutist in the nearly 20 years since the Act was passed. We may not want the Human Rights Act. But we do need it. It is not sufficient; the moral certainty of its fans may be irritating; but we do need it.

———

[i]s 6(3)(b) says that a "public authority" includes "any person certain of whose functions are functions of a public nature"… this has been interpreted to create duties for business-owners, for example.

[ii] See Lord Hewart,The New Despotism (London: Ernest Benn Limited, 1929)

[iii] http://yougov.co.uk/news/2014/10/21/ban-e-cigarettes-indoors-say-public/

[iv] How it is held to “work” is set out by the present government, here: http://www.publications.parliament.uk/pa/cm201213/cmselect/cmproced/writev/programming/m99.pdf

[v] FA Hayek The Constitution of Liberty(London: Routledge & Keegan Paul, 1960) Ch.13

We need a Negative Income Tax, not a Living Wage

The new Living Wage rate was announced today. I’ve written a bit about the Living Wage already. If it’s private, it’s probably not a big deal, although it could still lead to unemployment. I suspect it’s done by big firms that don’t have many low-skilled workers as a PR move but I quite like PR moves that involve paying low skilled people more. And I worry that people will generalize from those big firms to assume that the whole market could bear a mandatory Living Wage, which is almost certainly untrue and would be very harmful to many of the people it’s supposed to help. What’s more interesting is the problem of low pay in general. Even though unemployment has fallen a lot in recent years in the UK, real wages have barely risen at all. Even as wages do begin to rise on average, it’s possible that wages for low skilled workers may not as jobs for them are outsourced to cheaper countries. The ASI has proposed raising the personal allowance (including National Insurance threshold) to the minimum wage rate, but this doesn’t do much good for part-time workers or currently-unemployed people who would earn below the minimum wage if we scrapped that, as I think we should.

So low pay may be a problem without any clear solution, for which most popular ‘solutions’ don’t actually work.

But there may be a fix that does work – a Negative Income Tax or a Basic Income. As I’ve written before these are actually very similar even though one is almost exclusively supported by right-wingers and the other almost exclusively by left-wingers. As ever in politics, we’re speaking different languages.

A Negative Income Tax is a form of income top-up that only looks at an individual’s income, not whether they are in work or not, and tops that income up automatically if they are earning less than a given amount. The extra money is withdrawn at a tapered rate, so that for every pound you earn from work, you lose (say) fifty pence in top-up, ensuring that workers always have a clear incentive to demand higher wages, and that work always pays more than joblessness for unemployed people.

This would replace lots of existing working age benefits, including Jobseekers’ Allowance, council tax relief, the Employment and Support Allowance and tax credits. You could probably implement a decent one without increasing total expenditure. The exact rates can be determined by running trials across the country.

A Negative Income Tax like this would almost certainly be a boon to people on low pay, and would avoid most of the problems that minimum wages and current welfare schemes face.

Indeed the main objection may simply be that it is redistributive. That’s where I break with many of my fellow libertarians – I want free markets because they make poor people’s lives better, and I am OK with redistribution if it’s done in a market-friendly way that makes poor people’s lives better too. If this sounds surprising, remember that this puts me in the same boat as Milton Friedman (who campaigned for a Negative Income Tax) and FA Hayek, and indeed in the same utilitarian philosophical camp as Ludwig von Mises.

I suspect low pay will continue to be a problem for many years, maybe becoming even worse as automation renders some people permanently unemployable. It is necessary but not sufficient to simply rebut other people's bad ideas.

In the Negative Income Tax we have a policy that can actually go a big way to solving the problem, and hopefully replace some of the harmful policies we have right now. Rhetorically, I think we free marketeers need more positive solutions to policy problems, and if we could get over our squeamishness about endorsing certain forms of 'good' redistribution, we may be able to surprise people into listening to and maybe even agreeing with us. If low pay is indeed the long-term problem that it seems to be, the Negative Income Tax’s time may finally have come.

A blagger's guide to the US midterm elections

Tomorrow's midterm federal elections in the United States will determine the political landscape of President Obama's final two years in office, and even though he's not up for re-election, his policies 'are on the ballot'. Here’s a quick breakdown of the game-changing races, the political mood across the swing states, and what to look for on Tuesday night.

Currently

As President Barack Obama resides over the White House, the legislative branch is operated by a divided Congress, with the Republicans in control of the House of Representatives (233/199 with John Boehner as Majority Leader) and the Democrats in control of the Senate (55/45 with Harry Reid as Majority Leader).

On Tuesday

The House of Representatives will remain firmly controlled by the Republican Party, whose historic sweep to victory in 2010 took 63 seats away from the Democratic Party. Even if the Democrats managed to win all 26 swing-elections this year, enough seats securely lean GOP to give the Republicans a comfortable majority (218+ seats).

It also appears the GOP will retain the majority of Governorships, though a few key races–like Governor Scott Walker’s (R) highly contested race in Wisconsin–threaten to throw GOP darlings out of office, who otherwise would be strong presidential candidates in 2016.

The real toss-up tomorrow will be which party controls the Senate for the next two years. And looking at the polls, it’s the Republican’s election to lose.

The Breakdown

Republicans have to gain 6 seats in the Senate to have a clear majority - if they take 5 and leave the Senate 50 / 50, Vice President Joe Biden gets the tie-breaking vote, meaning Democrats would retain control of the Senate regardless of any other race won.

Currently, the GOP is set to pick up three ‘easy’ seats in West Virginia, South Dakota and Montana: traditionally red states on the state and national level; not to mention areas where President Barack Obama lost badly in 2012.

That leaves the GOP in need of three more wins in the swing states, of which there are roughly 7 or 8, depending on your source: Alaska, Colorado (leans GOP), Georgia, Iowa, Kansas, Louisiana, New Hampshire, North Carolina.

The Republican advantage

The GOP has small, built-in advantages to any mid-term election, though this year is looking even better for the party than usual. Unlike the House, where each elected representative is up for re-election every two years, Senate seats are elected every six years on a rotating basis. This year, it just so happens that more Democrat-held seats are up for re-election, and they’re up for election in areas that aren’t considered ‘safe seats’ or ‘strongholds’.

It’s also the case that significantly less people show up at the voting polls for mid-term elections than for presidential elections (roughly 37.8% in 2010, compared 56.8% and 53.6% in 2008 and 2012); and those who do show up tend to lean Republican.

Interesting race to note: Kansas and 'The Establishment'

“Why Kansas Senate race could decide everything” –No pressure, but the traditionally red state that should be a safe seat for GOP candidates has been upset by Democrat-mascarading-as-Independent Greg Orman, who is running against establishment GOP candidate Pat Roberts.

Orman is, for all intensive purposes, a left-wing candidate (left-wing enough for Kansas Democrats, at least, who pulled their candidate off the ballot to give Orman a better shot at the seat). He’s shown commitment to Obamacare and campaign finance reform, and hasn’t ruled out caucusing with Reid and the Democrats, even as an Independent, to give them the 51-majority-mark to retain control of the Senate.

But as opposed as Kansas voters are to Orman's policies, they're potentially more offended by Robert's status as a 'Washington insider'. This rebellion is not just a trend in Kansas, but rising up across the entire country, as the majority of Americans now claim they don't trust the Federal Government. The Tea Party movement capitalised on this sentiment in 2010, and even 2012, but has done little to convince Kansas voters that Roberts isn't part of the structural problem.

Interesting race to note: Colorado and the 'War on Women(?)'

Colorado’s Senate race between Cory Gardner (R) and Mark Udall (D) was thought to be a swing race until very recently, when polls started indicating that the race was leaning red.

Traditionally a semi-swing state, with strong recent ties to the Democratic Party (Colorado voted for President Obama in 2008 and 2012), all signs indicate that it is not necessary the Democratic Party’s platform, but rather their political tactics, that have put left-leaning voters into the opposition’s camp.

Mark Udall (nicknamed Mark Uterus by journalists) used and abused the ‘war on women’ rhetoric to the point where it has become a joke, not just in Colorado, but throughout the entire country.

And unlike 2010/2012 elections, when it was politically popular and beneficial to use the phrase, Colorado Democrats are watching it backfire, as the gender-voting gap (for women, not for men) shrinks between Gardner and Udall.

It’s important to note the tide isn’t simply turning because of Democrat error. The GOP has finally gotten some sense on the issue, and Gardener has been campaigning to make birth control over-the-counter, non-prescription drug. A politically smart tactic on multiple levels: not only does it relieve fear that he is an anti-reproductive rights candidate, but making birth control over-the-counter is a step past what Democrats can offer women; Obamacare relies on birth control being provided via insurance policies.

If Udall loses tomorrow night, the Democrats would be unwise to see it as any kind of fluke. The ‘war on women’ has always been based on inaccuracies and lacked substance or evidence, and may not continue to sway voters as it once did.

Why is the Senate a game-changer?

Who controls the Senate for the next two years will not only have a deep impact on the end of Obama's presidency, also on the 2016 elections, when several prominent Senators will be looking to claim both the Democrat and GOP nomination.

Over the past four years, Harry Reid's policy of obstruction has stopped major legislation from being voted on in the Senate, protecting Democrats and the President from having to state their opinions publicly (by casting their vote or being put in the situation to veto legislation). If Republicans take control of the Senate, new Majority Leader Mitch McConnell (R) will most certainly hold the Senate to votes on legislation from the House; come 2016, ambitious Senators will be running on their voting records, not just their political promises.

Early signs on Tuesday night

If North Carolina and New Hampshire, which are thought to be leaning ever-so-slightly blue, come out early for the GOP candidates, we are probably looking at a sweep across the board, with a strong majority of GOP reps taking the Senate.

Likewise, if Montana, South Dakota, and West Virginia–all leaning red–turn out to be tight races with close vote counts, the GOP could be looking at a long night of close races and very possibly a crushing defeat.

If neither scenario plays out, anything goes. There's no doubt that the GOP will be taking seats away from Democrats on Tuesday night–but if they fall short of 6, even by 1, it's at least two more years Harry Reid and political gridlock, Not to mention an even tougher hill to climb come next fall. As if Capitol Hill weren't elevated enough.

The horrible, horrible, error in the IPCC's latest report

Oh dearie me, this is something of an error at the heart of the IPCC's latest report into the perils of climate change. And it all stems from a thoroughly incomplete look at the economic models about what might happen. Here's what they say:

Without additional efforts to reduce GHG emissions beyond those in place today, global emission growth is expected to persist driven by growth in global population and economic activities (Figure 3.1) (high confidence). Global GHG emissions under most scenarios without additional mitigation (baseline scenarios) are between about 75 GtCO2eq/yr and almost 140 GtCO2eq/yr in 210016, which is approximately between the 2100 emission levels in the RCP 6.0 and RCP 8.5 pathways (Figure 3.2)17. Baseline scenarios exceed 450 parts per million (ppm) CO2eq by 2030 and reach CO2eq concentration levels between about 750 ppm CO2eq and more than 1300 ppm CO2eq by 2100. Global mean surface temperature increases in 2100 range from about 3.7°C to 4.8 °C above the average for 1850-1900 for a median climate response. They range from 2.5 °C to 7.8 °C when including climate uncertainty (5th to 95th percentile range)18.

It's important to understand something here. "Additional efforts" does not mean that we simply install more solar panels (just as an example) for price, ethical or market reasons. It means that policy is changed so that more solar panels (again, just as an example) are installed. It means that we've got to change the incentives under which people operate, through legislation or regulation, in order to get people to change their behaviour.

This has been true right from the start of the worries about climate change: business as usual forecasts of emissions look at varying levels of wealth, population and technology and assume that all of those various scenarios could happen without government intervention. "Mitigation", like "effort" here, means intervention to reduce emissions below some or any of those business as usual scenarios.

And here's the problem with the assumption they're making about future emissions. Absolutely no one (no one sane at least) believes that we're ever going to get anywhere near the levels they've just assumed above. As Matt Ridley has put it:

The IPCC commissioned four different models of what might happen to the world economy, society and technology in the 21st century and what each would mean for the climate, given a certain assumption about the atmosphere’s “sensitivity” to carbon dioxide. Three of the models show a moderate, slow and mild warming, the hottest of which leaves the planet just 2 degrees Centigrade warmer than today in 2081-2100. The coolest comes out just 0.8 degrees warmer.

Now two degrees is the threshold at which warming starts to turn dangerous, according to the scientific consensus. That is to say, in three of the four scenarios considered by the IPCC, by the time my children’s children are elderly, the earth will still not have experienced any harmful warming, let alone catastrophe.

But what about the fourth scenario? This is known as RCP8.5, and it produces 3.5 degrees of warming in 2081-2100. Curious to know what assumptions lay behind this model, I decided to look up the original papers describing the creation of this scenario. Frankly, I was gobsmacked. It is a world that is very, very implausible.

For a start, this is a world of “continuously increasing global population” so that there are 12 billion on the planet. This is more than a billion more than the United Nations expects, and flies in the face of the fact that the world population growth rate has been falling for 50 years and is on course to reach zero – i.e., stable population – in around 2070. More people mean more emissions.

Second, the world is assumed in the RCP8.5 scenario to be burning an astonishing 10 times as much coal as today, producing 50% of its primary energy from coal, compared with about 30% today. Indeed, because oil is assumed to have become scarce, a lot of liquid fuel would then be derived from coal. Nuclear and renewable technologies contribute little, because of a “slow pace of innovation” and hence “fossil fuel technologies continue to dominate the primary energy portfolio over the entire time horizon of the RCP8.5 scenario.” Energy efficiency has improved very little.

These are highly unlikely assumptions.

They're not just highly unlikely assumptions: they're near insane ones.

What has actually been done is to take current emissions levels (actually, from a few years ago) and then draw a straight line inference about what will happen if they carry on growing as they have been. Completely ignoring the fact that we've already done a great deal to change what's likely to happen in the future. After all, as we keep being told, solar PV is now just about cost competitive with coal and will be cheaper in only a few short years (by 2020 is a serious and sober prediction). At which point why on earth would people start to use more coal than we do today? For a higher portion of our energy desires?

That simply doesn't make any sense whatsoever. And that brings us to that distinction between "effort" and market processes. If solar PV does become cheaper than coal (as is obvious it will) then it becomes a market process to install it. No "effort" in the sense of government action is required.

Another way to make this same point is that the IPCC is completely ignoring all of the work that we've already done to try to beat climate change. They're not taking account of the fall in the costs of renewables and therefore not including the obvious fact that more renewables are going to be installed in coming years. Whatever governments do or propose. The same can be said for LED light bulbs (not quite right yet but they very soon will be) and myriad other technologies that have been developed in recent years.

It's a basic and obvious piece of logic that if we see that we've got a problem ahead of us we should, when we consider what we should do about it, take into effect the results of the things that we've already done to solve said problem. And it's this that the IPCC is not doing. They are predicting future emissions without taking account of the technologies we've already developed which will reduce emissions. They are thus arguing that there's too much still to do.

It's a horrible, horrible, mistake.

Why you might not want to lend your money to the government

The decision to call in part of the War Loan leads to this remarkable figure from FT Alphaville:

The Treasury highlighted that “the nation has paid £1.26bn in total interest on these bonds since 1927″.

They sound awful. But in fact the Treasury has been a hands-down winner from the bonds. It issued them in 1927 in exchange for a bunch of maturing First World War bonds it couldn’t easily repay (Winston Churchill was struggling to cope with his disastrous decision to return to the gold standard at the pre-war rate, and the economy was crumbling as a result). Since then inflation has annualised at 4.77 per cent a year, well above the coupon of 4 per cent.

The result has been that in real terms, HM Treasury sold its “Consols” for £100 each, and is buying them back for £1.82 each. The government definitely got the better side of this bargain.

That's the effect of inflation over the long term. Anyone who had £10,000 in those in 1927 would have been considered a rich and wealthy man (a house was perhaps £250 in those days) and today that amount is below the level of savings at which you can still receive certain poverty related benefits. So lending one's money to the government, the same government that can decide what the inflation rate is going to be, might not be the most sensible thing one can ever do.

At which point we can only express surprise at those who tell us today that bonds are how we should all be saving for our pensions. If this is the effect of inflation upon bonds then why on earth would we want to do that? We want, obviously, something that captures some part of the increasing wealth of the society, meaning equities or possibly property. But there really are people out there insisting that pensions savings must be done in bonds, even in gilts. And sadly, one of them was Chancellor at one point: as when Gordon Brown changed the rules about how pension funds could invest.

History tells us that's really not a very sensible way to be doing things despite how convenient it might be to the government.

We would rather expect the children with degrees of people with degrees to earn more than the children with degrees of people without degrees

A finding that people who have degrees, and who are the children of people who had degrees, earn more than people with degrees but who are the children of people without degrees, seems to be worrying some people. We rather think that it's a likely, obvious even, outcome of how the country has developed over the decades.

British men earn more if they have a parent who went to university, a study has found.

In contrast, men born to lowly educated parents earn 20 per cent less that those with the same qualifications but from a better background.

Researchers at the Institute of Education, part of the University of London, said it proved the wage inequality could be transmitted from one generation to the next.

They studied the salaries and backgrounds of 40,000 men between 25 and 59 across 24 countries, including Britain.

Think through what happened to higher education in the past. From 1950 to 1980 or so it really was only the bright (some 10% of the age cohort) and the rich who went to university. The poor and bright could indeed get there through the grammar school system. After that the floodgates were opened and we now have some 50% of the age cohort going into higher education. We might not immediately think that that should imply a wage premium to those in the current workforce as a result of their parents having a university education but look again. We do know that inheritance is inheritable (it couldn't have risen up out of the primordial slime it it were not) and it's really not a surprise to anyone at all that in the UK wealth and social status are in part also inheritable.

So what we're seeing is that the children of the rich and or bright have higher incomes than the children of the not rich and not bright. And put that way it's not really all that surprising, is it? Whether we want it to be this way is entirely another matter, but it's not actually surprising.

Deflation in the Eurozone is not good deflation

ASI Senior Fellow Anthony J. Evans has a very good new piece on the Cobden Centre blog. First he notes how Austrian economists have been able to say interesting things about deflation that others have missed:

As inflation rates continue to fall across the Eurozone one might expect Austrian economists to rejoice. After all, inflation reduces our purchasing power and acts as a hidden form of taxation. Failure to control inflation caused some of the greatest social and political disturbances of the twentieth century, and attempts to centrally plan the monetary system are destined to failure. George Selgin’s “Less than Zero” is the seminal account of how deflation can be beneficial, and why central banks should be willing to tolerate it.

But he goes on to point out that this 'good deflation' is typified by rising real incomes, as it has come through productivity improvements. If we don't see rising real incomes, then we're not seeing good deflation. If we are seeing bad deflation then we risk sustained recession and depression, as inflexible wages are forced to bear the burden of adjustment:

Austrians are loathe to advocate monetary activism and for good reason. But the goal of monetary policy is not inactivism, but neutrality. The issue comes down to the costs of adjustment. If aggregate demand remains at 1% then people will adjust their expectations, prices will adjust, and output will return to normal. During the Great Depression Hayek advocated this path, even though he recognised that prices take time to adjust, and whilst they do so unemployment would rise. His reasoning was that increasing the load on price adjustments will increase their flexibility. In a time of chronic wage and price inflexibility it was a moment to bust the unions. However he later came round to the idea that those costs were too high. The collateral damage of using a downturn to put more emphasis on nominal wage adjustments was unfair. For the mass unemployed, nominal wage rigidities isn’t their fault. So instead of placing the burden on wage adjustments, central banks have the option of maintaining a certain level of total income. This avoids the necessity of a nominal wage adjustment, in part because inflation allows real wages to adjust.

The whole piece is very good, and consonant with what I have been trying to say since the third dip of the ongoing Eurozone crisis.

Small steps towards a much better world

Changing policy, ideology, popular opinion, media narratives and so on can be very hard. Changing social norms and culture is even more difficult. Thus, when a small technological innovation comes along that can substantially improve things, even in a small area, it really lifts my heart as it seems 'easy' and 'free'. A recent example is the introduction of tablet computers to Florida restaurant inspections (according to a new paper in The RAND Journal of Economics). Getting rid of corruption, making people more conscientious and diligent and designing incentive systems that improve things are all very hard, and that's why we at the ASI often make the case for tried and true robust mechanisms. But the paper, from authors Ginger Zhe Jin and Jungmin Lee found that this tiny change made a sizeable difference:

In this article, we show that a small innovation in inspection technology can make substantial differences in inspection outcomes. For restaurant hygiene inspections, the state of Florida has introduced a handheld electronic device, the portable digital assistant (PDA), which reminds inspectors of about 1,000 potential violations that may be checked for. Using inspection records from July 2003 to June 2009, we find that the adoption of PDA led to 11% more detected violations and subsequently, restaurants may have gradually increased their compliance efforts. We also find that PDA use is significantly correlated with a reduction in restaurant-related foodborne disease outbreaks.

Enjoy a chart of the finding below, and a full pdf of the working paper here.

Isn't this an interesting little finding about drugs?

Isn't this an interesting little assertion from one of the government's own reports?

Decriminalising drugs would have little effect on the number of people abusing illegal substances, a highly controversial Home Office report has said. ... The report – which sources said had caused “panic” within the Home Office – said: “There are indications that decriminalisation can reduce the burden on criminal justice systems.

“It is not clear that decriminalisation has an impact on levels of drug use.

"The disparity in drug use trends and criminal justice statistics between countries with similar approaches, and the lack of any clear correlation between the ‘toughness’ of an approach and levels of drug use demonstrates the complexity of the issue."

The point being, and this can be readily verified by anyone with even the most modest experience of social life in Britain, that all those who want to consume drugs are currently easily able to find the drugs they wish to consume. Meaning that the illegality isn't particularly affecting the availability of supply. Thus decriminalisation seems like a good idea as it's not going to lead to half the population toking itself into a stupor.

However, that decriminalisation isn't enough as we've mentioned around here before. For the major danger of drugs comes not from they themselves, but from the fact that purity and concentration are, given that they are illegal products, entirely unknown to the user. Overdosing is thus depressingly commonplace, as are all sorts of diseases and illnesses from the admixtures. Thus we need to be thinking very seriously about legalisation: not just decriminalisation of small amounts for personal use but the legalisation of supply and production. For that is how we would get brands, reliant upon their quality and consistency, and also get a transparent supply network that can be checked for quality.

It's not just the criminality of taking drugs that is causing our current problems, it's the illegality of supply as well.

What Robert Peston gets wrong about QE

I don't usually read Robert Peston, now the BBC's economics editor, but I came across this piece he wrote for their website on the end of the ongoing US quantitative easing (QE) programme. Here he makes the case, overall, that even though QE did not cause hyperinflation (yet!) it could still prove 'toxic' because it 'inflates the price of assets beyond what could be justified by the underlying strength of the economy'. Basically every line of the piece includes something that I could dispute, but I will try and focus on the most important issues. The first problem is that Peston takes a hardline 'creditist' view that not only is QE mainly supposed to help the economy through raising debt/lending, but by raising it in specific, centrally-planned areas (e.g. housing). When we find that QE barely affected lending, it seems to Peston that it failed. But QE does not raise lending to raise economic activity—QE raises economic activity through other channels, which may lead to more lending depending on the preferences of firms and households.

In his 2013 paper 'Was there ever a bank lending channel?' Nobel prizewinner Eugene Fama puts paid to this view. He points out that financial firms hold portfolios of real assets based on their preferences and their guesses about the future. QE can only change these preferences and guesses indirectly, by changing nominal or real variables in the economy. For example, extra QE might reduce the chance of a financial collapse, making riskier assets less unattractive. But when central banks buy bonds investors find themselves holding portfolios not exactly in line with their preferences and they 'rebalance' towards holding the balance of assets they want: cash, equities, bonds, gilts and so on. This is predicted by our basic expected-profit-maximising model and reliably seen in the empirical data too. It's good because it implies that monetary policy can work towards neutrality.

This doesn't mean Peston is right to be sceptical about the benefits of QE. QE has worked—according to a recent Bank of England paper buying gilts worth 1% of GDP led to .16% extra real GDP and .3% extra inflation in the UK (2009-2013), with even better results for the USA. The point is that it works through other channels—principally by convincing markets that the central bank is serious about trying to achieve its inflation target or even go above its inflation target when times are particularly hard. This is not an isolated result.

The second issue is that Peston claims QE isn't money creation:

Because what has been really striking about QE is that it was popularly dubbed as money creation, but it hasn't really been that. If it had been proper money creation, with cash going into the pockets of people or the coffers of businesses, it might have sparked serious and substantial increases in economic activity, which would have led to much bigger investment in real productive capital. And in those circumstances, the underlying growth rate of the UK and US economies might have increased meaningfully.

But in today's economy, especially in the UK and Europe, money creation is much more about how much commercial banks lend than how many bonds are bought from investors by central banks. The connection between QE and either the supply of bank credit or the demand for bank credit is tenuous.

That is not to say there is no connection. But the evidence of the UK, for example, is that £375bn of quantitative easing did nothing to stop banks shrinking their balance sheets: banks had a too-powerful incentive to shrink and strengthen themselves after the great crash of 2008; businesses and consumers were too fed up to borrow, even with the stimulus of cheap credit.

This is extremely misleading and confused. He suggests that printing cash and handing it out would boost the 'underlying' growth rate, which is nonsense—the 'underlying' growth rate is driven by supply-side factors. He claims that money creation is identical with credit creation, when they are separate things, and he has already pointed out that creating money doesn't always lead to more credit. We have already seen how credit is not the way QE affects growth, despite what economic journalists like Peston seem to unendingly tell us. Indeed, it seems quite clear that the great recession caused the credit crunch, rather than the other way round.

His ending few paragraphs are yet stranger:

But the fundamental problem with QE is that the money created by central banks leaked out all over the place, and ended up having all sorts of unexpected and unwanted effects. When launched it was billed as a big, bold and imaginative way of restarting the global economy after the 2008 crash. It probably helped prevent the Great Recession being deeper and longer. But by inflating the price of assets beyond what could be justified by the underlying strength of the economy, it may sown the seeds of the next great markets disaster.

It's not clear at all why Peston thinks that QE would inflate asset prices beyond what could be justified. I've written at length about this before. The money a trader gets from selling a gilt to the Bank of England is completely fungible with all their other money. There is no reason to expect they will put this money in an envelope and save it for a special occasion. They try and hold the same portfolio of assets as they did before. Through various channels (including equity prices -> investment) QE raises inflation and real GDP and surprise surprise these are exactly the things that asset prices should care about.