The end of local authority libraries
Local-authority-run public libraries are going the way of launderettes and video stores. Technology has swamped them, and they haven't responded to the changing pattern of demand. We still have 4,145 public libraries in the UK, about fifteen times as many as we had in the 1920s, despite the fact that more and more of us access our reading material (and even our phone books, newspapers, dictionaries and encyclopaedias) in digital form, that over 84% of households have internet access (76% of us access the web every day) and pretty much all schools have and use the internet.
Bookshops have responded to these changes, bringing in cafe-style environments and organising events and book clubs that bring people into the shop, where they might just browse around and buy something. Libraries like to say they are doing this sort of thing, but it is half-hearted. Birmingham says its new library will only do events that are self-funding, for example: no concept of using events to bring more people in. That dearth of thinking is why Birmingham has discovered that the £10m-a-year cost of running its £188m spanking-new library (which of course won lots of architecture prizes) is unaffordable, given all the other urgent demands on the city's budget.
It will always be like this. Local authorities have to provide life-saving services, social care, transport, roads, schools, you name it – libraries are always going to be something of a luxury, particularly when 70% of the borrowings are fiction, and much of the rest are about cookery, DIY and cars. Local authorities know this is not a debate about 'public education' but about free entertainment for largely elderly and middle-class users.
LSSI, a company founded by librarians, which works with 78 communities in the US, reckons it can cut the UK libraries budget by 35%, increase opening hours, raise the number of library users, and still spend ten times more on books. Frankly, it is about time we put libraries out to commercial tender. Let us specify what they are actually there for – not something that up to now there has been any public debate about – and the outputs we want, and then invite private, voluntary and charitable groups to make an offer. You can be sure of two things. Firstly, they would not build £188m white elephants, but would create libraries near to shops, schools and other places that people find local and convenient. And secondly, that the entire business would be revolutionised in short order, leading to everything that libraries are supposed to be there for being do cheaper and better.
Pay as you protest?
Libertarians generally subscribe to several maxims. Here are two: 1) That everyone has the right to express their views, providing their expressions are within the law.
2) That it’s a good thing when people feel the effects of the social costs they impose on others.
A recent debate on Radio 2 – about street demonstrators possibly having to pay to protest after police look to refuse to close roads for them to demonstrate – pits these two maxims against each other. However misjudged I find the views of groups like "The Campaign Against Climate Change", "The People’s Assembly Against Austerity", "Global Justice Now", and "Friends of the Earth", there is clearly a case here of the immovable object of people's freedom to protest coming smack bang against the irresistible force of valuable resources being exhausted by the presence of these demonstrators on our streets, in this case in the shape of exhausted police resources, blocked roads, temporary traffic regulations and potential disturbances of the peace.
On the one hand I suggest libertarians wouldn’t want a situation where people’s right and ability to protest was predicated on their ability to pay. But on the other I would prefer protesters to feel the costs of their actions. So while I am all for defending people's prerogative in being able to demonstrate against actions they dislike - when those actions come at a social cost to others, some are arguing that it is not particularly unreasonable that they should pick up the bill for these negative externalities imposed on others.
It may not be unreasonable, but I don't think it should be desired either. The state chooses to have a police presence at a demonstration (it is compulsory to notify the police of any planned demonstration), not the demonstrators. A very risk averse state apparatus operates under the ethos that modern life is safe but expensive. Any restrictions of this kind on the ability of people to protest legally is bound to restrict freedom of expression, and at the same time increase the likelihood of people protesting illegally - and that is not likely to make organised demonstrations any cheaper or safer.
The problem with the bank levy and other Pigou taxes
This is both extremely disappointing and also par for the course:
The Liberal Democrats plan to hit the UK banking industry with an additional £1bn tax bill, which the party says will help eliminate the country’s deficit.
The supplementary charge will be in addition to the existing bank levy, which is on track to raise £8bn in this parliament, said Danny Alexander, the Liberal Democrat chief secretary to the Treasury.
The annual levy on banks, which was introduced in 2010, currently brings in around £2.5bn a year. Mr Alexander’s proposals are expected to take that up to £3.5bn a year.
The point is that the bank levy is a Pigou tax. There's an externality in the market which is not being included in prices. The tax is there to make sure that that externality is included in prices.
The externality is that the "too big to fail" banks receive, as they are too big for the government to allow them to fail, implicit deposit insurance over and above that on offer through the normal regulatory schemes to all deposit taking institutions. This means that they can finance themselves at lower than free market rates and it's the taxpayer that picks up the risk.
The solution, as we noted and praised when the levy was introduced, is to charge an insurance premium on those deposits that are insured in this manner. And that's how it does work: it's only on the deposits of the too big to fail banks, it's only on those deposits which are not insured through other schemes and it takes account of the riskiness of a run in said deposits (thus long term bond finance pays a lower rate than at sight deposits). That's all how it should be.
And the point about Pigou taxes is that it doesn't matter what happens to the revenue. Sure, it's nice to have 'n'all that, but the point is to correct the market, not to raise revenue.
Thus the idea that the rate should be changed in order to increase the revenue raised is nonsense. It's violating the very point and rationale for having the levy in the first place.
It's also entirely par for the course. No politician can see a potential revenue source without wanting to bathe in it. And that, sadly, is the problem with Pigou taxes. They're economically efficient, rational and make the world a better place. Until we come to the politicians who implement them when, over time, they will inevitably lose their original justification and simply become another method of gouging someone or other so as to bribe the electorate.
What's economically efficient, rational and making the world a better place when a Minister's seat is at risk at a looming election, eh?
For growth we want good institutions—democracy is irrelevant
It is eternally surprising to me that people keep doing studies of whether democracy affects growth using the same cross-country data but their regular findings—that institutions and the rule of law matter but democracy doesn't—are less of a surprise. The latest, "Democracy and Growth: A Dynamic Panel Data Study" (pdf) is from Jeffry Jacob, of Bethel University and Thomas Osang of Southern Methodist University:
In this paper we investigate the idea whether democracy can have a direct effect on economic growth. We use a system GMM framework that allows us to model the dynamic aspects of the growth process and control for the endogenous nature of many explanatory variables. In contrast to the growth effects of institutions, regime stability, openness and macro-economic policy variables, we find that measures of democracy matter little, if at all, for the economic growth process.
They look at a full 160 countries over 50 years, building on a large existing literature, which includes (my own picks, not theirs):
- Acemoglu et al. (2008) found that once you control for 'country fixed effects' (i.e. systematic and apparently intractable differences between countries) there is no link between the level of democracy in a country and its income. This is because democracies tend to (not necessarily coincidentally) have other good characteristics.
- Cervellati et al. (2004) found that never-colonies benefited from democracy whereas countries that had once been colonies did worse if they were democratic.
- Barro (1996) found that democracy was slightly negative for growth once you account for variables like the rule of law, small governments, free markets and human capital (i.e. skills, education and cognitive ability)
- Lehmann-Hasemeyer et al. (2014) found that democratising Saxony between 1896 and 1909 destroyed lots of stock market wealth in anticipation of worse laws
- Mulligan et al (2004) found that democracies and non-democracies choose very similar policies
That the evidence suggests democracies and non-democracies perform about the same might be surprising given the state of public ignorance. In Sam's words "the public is ignorant about politics and lacks even the basic facts that it would need to make sound judgments about political issues."
But at the same time, as people get more knowledgeable they get more dogmatic. Experts know a lot, but they gather evidence that fits their existing ideology; ideologies both help us understand the world and blinker us in some ways.
Perhaps democratic ignorance and expert narrow-mindedness roughly balance out—or perhaps representative democracies and non-democracies both choose similar sorts of people to rule anyway.
Either way, the evidence seems to suggest that insofar as we can help countries to develop, the key institutions we should be supporting are markets, property rights and the rule of law, and considerably less significance should be accorded to democratisation.
Logical Fallacies: 14. Shifting the burden of proof
https://www.youtube.com/watch?v=WnKNcbYTlPo
In this, the latest in his Logical Fallacies series, Madsen Pirie looks at 'shifting the burden of proof'.
You can pre-order the new edition of Dr. Madsen Pirie's How to Win Every Argument here
A Labour Party policy we look forward to
In the interests of being fair handed, for recall that we are not a party political organisation, here is a Labour Party policy just announced that we thoroughly look forward to:
He added: “David Cameron’s ideological selloff has ended a public sector service which has delivered over £1bn to the Treasury, kept fares down, had record passenger satisfaction and engaged the workforce with unparalleled success. “It is clear that when it comes to transport, people have a straight choice – the status quo or Labour’s better plan. Labour will start the process of legislating in the first 100 days of a new parliament to allow a public sector operator to be able to take on lines and challenge the private sector on a genuinely level playing field.”
We have no problem with public sector organisations applying to run anything at all. Nor with capitalists, cooperatives or Uncle Tom Cobbleigh. Our desire is that there should be that level playing field so that the best people for the job do the providing. And we're just overjoyed at the idea that there might be competition between forms of organisation just as much as there might be between individual examples of the same type of organisation.
So, yes, we fully support this.
However, in the same story:
Stagecoach has pledged to invest about £140m to deliver what it calls “an improved service and a more personalised travel experience for customers”, and is scheduled to pay £3.3bn in premiums to the government.
That capitalists are pledging to give the government £3.3 billion over 8 years, the public sector organisation gave the government £1 billion over 5. So this is actually going to be a level playing field is it? That the privatisation would have gone ahead anyway as the capitalists are quite obviously offering the better deal?
Good, excellent, glad we've got that sorted then.
Economic Nonsense: 16. Government should own and run vital industries such as transport and energy
This is laughably untrue. Where governments own and run industries, whether 'vital' or not, they pursue political rather than economic objectives. In the case of things such as transport and energy, they will be tempted to keep prices below economic levels to gain electoral popularity, or at least to avoid unpopularity. Such industries will tend to be under-capitalized, since capital expenditure is less visible to the public than are transfer payments such as pensions and welfare. Governments cannot spend the same money on both, and the former attracts less support than the latter. This under-capitalization threatens future supplies. In the case of transport it means that there will probably not be enough infrastructure built to meet future demand. In the case of energy it poses the threat of future power cuts.
If the state owns and runs transport and energy, those industries will be more prone to strike action. Unions behave more cautiously with private firms because they do not want to risk the firms closing or going bankrupt. This does not happen in the public sector, so the unions have more clout. For the same reason state industries will also tend to be over-manned. This is not mere theory. All of these things actually happened in state-owned industries in Britain, including transport and energy. Train services were unreliable and equipment was shoddy and outdated. In the energy sector there were blackouts.
Although we use the term "public ownership," the public cannot exercise any of the rights of ownership as they do when things are privately owned. Instead it is politicians and bureaucrats who decide priorities, rather than businesses trying to anticipate and cater for public demand. When people talk of the need for the state to run 'vital' industries, we do well to remember that few are more vital than the food industry. One can imagine what it might be like if the state controlled the supplies, determined what should be produced, and only sold through state-owned outlets. We don't have to imagine this. It happened in Soviet Russia and was characterized by shortages, low quality produce, and interminable queues at state shops.
Ending the BBC licence fee
Why should households pay a levy to support broadcasters, even if they have no television? Or even if they have a television but rarely use it? It's a broadcasting poll tax, which will impose the biggest burden on the poorest households, like the one-parent families who, already, account for the bulk of the prosecutions for non-payment.
And what's the logic of it anyway? That we need broadcasters, and the licence fee is no longer a realistic way to pay for them? Firstly, you can question the extent to which we need broadcasters. Many of us live quite happily without needing daily doses of Call the Midwife, Death in Paradise, Casualty or for that matter Premier League football: why should we subsidise those who can't? Politicians might reckon that Question Time and Newsnight are essential 'public service broadcasting', but precious few of the rest of us would mourn their passing.
Broadcasters are by no means the only people to argue that they are producing a product essential to our lives or culture, but for which it is hard to get people to pay. Newspapers are saying exactly the same: they feed us news, analysis and opinion, but we are buying fewer and fewer of their dead-tree products, picking it all up free online instead. Should we have a levy on households so that Rupert Murdoch can continue to serve us up his vital product? No, definitely not. It is up to those industries to find market ways to charge for what they produce – through advertising, for example, or through subscription mechanisms.
The BBC should do the same. Technology is pretty nifty these days, in ways it wasn't when the BBC was created in the 1930s. For folk who pride themselves on their creativity, developing a subscription service, from which non-payers can be excluded, should not be too far beyond their wit. Or even using advertising and sponsorship, as so many other perfectly reputable broadcasters do.
If the BBC did not exist, we certainly would not invent it. Today it looks rather like a bloated fixed-line network monopoly in an age of mobile phones. A lumbering dinosaur in an age of fleet-footed niche producers. So why force households to keep subsidising this sad throwback?
Ed Miliband proposes double taxation of incomes
This is a woefully bad policy proposal from Ed Miliband:
The Labour leader pledged to cut tuition fees from £9,000 a year to £6,000 from September 2016.
It will apply to students mid-way through their courses, meaning a student in their first year of university today will pay less in their third and fourth years.
The programme will be funded by a £2.9 billion raid on middle class pensioners, and by making graduates earning over £42,000 pay a higher rate of interest on their loans.
We've struggled for a number of decades to encourage people to save for their own old age. The current debates are surrounded by plaintive cries of how we're going to pay for all of that care that the elderly are going to need in the future. So then someone proposes to reduce the amount people save for the future by taxing it more?
Come along now, it's not April 1st yet.
Pensions experts have criticised proposals from the Labour leader Ed Miliband to cut the tax-free amount Britons can contribute to their pensions in order to fund a reduction in tuition fees to £6,000 a year.
Mr Miliband said that he would cut the lifetime limit on tax-free pension savings from £1.25m to £1m, and reduce the tax-free sum saved per year from £40,000 to £30,000 a year, if he wins the general election.
For savers earning more than £150,000 a year, Mr Miliband proposed cutting the pension tax relief from 45pc, the same rate they would pay on earnings, down to the basic income tax rate of 20pc. The Labour leader said these measures would raise £2.7bn to fund the pledge on tuition fees.
But the real problem is not that it's a deeply stupid idea. It's that it's a deeply unfair one.
There is in fact no such thing as "tax relief" upon pensions savings. What there is is "tax deferral". Your pension contributions come from your gross income, before tax. Your investment gains within the pensions wrapper are tax free at the time they are made. But the income you derive from your pension pot pays income tax just like any other income. You do not therefore get "relief" from the taxation, you get deferral of it.
Which is, of course, why that tax "relief" has to be at whatever the marginal income tax rate on income is. Because, and yes this is obviously so, those who do manage to save up to that limit are going to be enjoying pensions that pay one or other of the higher rates of tax. But they will have had that "relief" only at the standard rate.
They are, therefore, paying income tax twice on that same income, once when earned and saved for a pension and again when drawn down as a pension.
It's deeply stupid to dissuade people from saving for their own old ages. But it's grossly unfair to insist that the same income pays income tax twice.
All of us here have our own ideas about party politics but as an organisation we are not, and resolutely so, party political. But of the ideas thought up to gain support at this coming election for one or other political party we'd award this our coveted "worst we've seen yet" prize. Admittedly, we've not yet read the Green Manifesto but seriously, double income tax for those who save for their own pensions?
Absurd.
The amazingly stupid way the government subsidises renewables
We've been complaining about this for a number of years now. In fact, we've been complaining about it ever since Ed Miliband lit upon this policy. The manner in which the government subsidises renewable energy projects is, quite frankly, insane:
Two offshore and 15 onshore wind farms have won subsidy contracts in the Government’s first competitive green energy auction, significantly undercutting the prices that have been handed to other projects.The results of the auction suggest consumers may be paying hundreds of millions of pounds a year too much on their energy bills because ministers previously allocated subsidies without competition, providing much higher returns to investors, critics said.
More generous subsidy schemes should now be reined in and excess subsidies clawed back, they added.
In total on Thursday ministers gave the go-ahead to 27 green energy projects, with estimated lifetime subsidy costs totalling £4bn.
Energy companies were forced to bid against each other in “reverse auctions” with the cheapest proposed projects in each category being awarded subsidies.
There's part of the insanity. For a decade and more they have not been insisting upon competitive bids. Instead, they've drawn up standards for certain technologies and then agreed a level of subsidy. That's madness.
But sadly, it gets worse. They are offering different levels of subsidy for different technologies. As we've long said that's where it tips over into insanity.
Start from where the government actually is: climate change is happening, we're causing it and we've got to do something about it. That something obviously being reducing emissions by having renewable power supplies. So, what's the best way of doing this? A series of committees deciding who gets to be the lucky recipient of a cheque? Different amounts of subsidy for different ways of achieving the same aim, reducing emissions by x tonnes?
No, of course not. The correct way to do it is to set just the one price (perhaps a subsidy, perhaps a carbon tax) and then see which technology can best achieve that goal, that reduction in emissions. If, for example, solar can meet the target better than wind then wind should have no subsidy and solar all of it. If onshore wind is better than offshore then no subsidy to offshore, all to onshore.
For we don't in fact want to have just competition among providers of one technology. We want to have competition among all providers of all potential technologies so as to find out which one solves the problem best.
Whatever one thinks about climate change itself the way that the government has been splashing around our money is simply mad. Yes, under both Labour and the Coalition.