Yogi Berra the economist
It's for those who follow American rounders to tell us how important he was to that game, and of course Yogi Berra was famous for his sayings:
He was particularly noted for his fractured relationship with the English language, and Yogi Berraisms were eagerly sought after by collectors. Famous examples included: “It ain’t over till it’s over”; “This is like déjà vu all over again”; “When you come to a fork in the road, take it”; “Baseball is 90 per cent mental, the other half is physical”; and “Always go to other people’s funerals, otherwise they won’t go to yours”.
We, however, would like to point to his skill as an economist. Contained here in this phrase:
Nobody goes there anymore. It's too crowded.
It can, of course, be read just as it is. And yet the second possible reading manages to describe such large amounts of the world. Hipsters, Veblen Goods, conspicuous consumption, why trendy restaurants and nightclubs have their moment in the Sun then die, even why popular beat combos have cycles of popularity.
Nobody important (or "famous", or "cool", or "fashionable") goes there any more. It's too crowded.
To distill pretty much the entire post-subsistence human economy into one short phrase. Now there's an achievement to aspire to, eh?
Addressing the real problem of social mobility in education
Social mobility is a desirable aspect of a modern society and it can be broadly defined as the ability of individuals from underprivileged backgrounds to climb the socioeconomic ladder. Education is both an important and necessary determinant of future earnings[1]. If we are to tackle social immobility, then we must have an education system that is inclusive and not divisive. That being said, it is a problem that the UK cannot seem to solve.
A commonly accepted measurement of social mobility is to compare the academic performance of children eligible for Free School Meals (FSM) with their ineligible counterparts, throughout the duration of their school career.
Let us first look at the attainment gap[2], which reveals a telling story:
Percentage achieving ‘Level 4’ in English and Maths at KS2, age 11
Percentage achieving ‘A* to C’ in English and Maths at GCSE, age 16
Percentage achieving 2+ A-levels, age 19
Across 3 age groups, improvements in social mobility in terms of educational attainment over the past 10 years have been limited – if present at all. Even in light of the slightest signs of improvement, it would take decades to reach parity – and even this is uncertain amidst the unnerving cycle of politics. However regardless of political persuasion, it is difficult to argue against the fundamental fact that a premium for economically advantaged children exists., or in other words, a handicap on the underprivileged.
The difference amongst political commentators arises from the way in which we wish to tackle this problem.
A leftist approach on two fronts
Do nothing - Sweden is a better society to be lower class in[3]
The American Dream is a mere illusion and we should learn from the Swedish. Our futures are determined by our surnames and those of aristocratic descent are destined for a life of luxury. For those of us that are born into less privileged families, we need to accept our fate and it is the moral duty of the state to protect us from the Five Giant Evils[4].
A National Education Service[5]
Enter Jeremy Corbyn. As we have a lifelong healthcare service in the NHS, it is only right that we have one for education: the NES. By modelling the NES on the same building blocks that founded the NHS, we should “invest in learning from cradle to grave”. This will provide the opportunity for anyone throughout their lives to learn new skills or retrain.
Dismantling one argument at a time
We should indeed protect the most vulnerable in society, but following a Nordic-style system of state protection could well prove counterintuitive and lead to an upward debt spiral, burdening generations ahead. Transitioning into a vastly different model is costly and time-consuming, with no guarantee of success. Whilst unequal distribution of goods is a natural product of capitalism, we can still limit its impact. But trying to mitigate the consequences of failed mobility means we lose sight of the real problem at hand. By doing this, we create more problems for ourselves in the form of state-dependency and so forth.
Indeed, education is a right and not a privilege, which is why it should always remain free in one form or another. However, the NES is one step too far, and Corbyn’s proposition of an NHS-style education system is a dangerous one, given that healthcare costs spiralled from the get-go (and in fact exponentially) up until recent measures were implemented to curb this trend.
In times when our government should be austere, such a policy would reverse the progress we have made over the past 5 years. Corbyn’s utopian vision of the NES is ultimately unsustainable and it could very well do more harm than good without yielding noticeable improvements in social mobility.
A call for structural reform
Our struggle is not financial, and therefore money will not solve the problem of failed mobility. Instead, it is structural and lies within the system itself. From an anecdotal perspective, grammar schools are a great vehicle to climb the socioeconomic ladder – but not in its current form. It is true that often the advocates of grammar schools are those who themselves have benefitted from such experiences, and there is overwhelming evidence to suggest that such an opportunity for upward mobility is not widespread enough. That is not to say that grammar schools are per se bad for social mobility, but rather their current system of selection is fundamentally flawed and is in drastic need of change.
Hadow’s The Education of the Adolescent (1926)[6] formed the principle of primary and secondary school segregation at age 11. On this premise and with the introduction of the tripartite system of education, grammar school entry was determined on the basis of 11-plus performances. Of the remaining grammar schools in the country, selection is still being conducted in similar fashion. The problem with this method is that the age of 11 is arbitrary, out-dated and untested to any sophisticated academic standard. In any case, the age is merely a historical accident more than anything else, yet this issue is often very little discussed.
Rigorous academic research needs to be undertaken to find a fair age to test children’s true, underlying intellectual maturity. In fact, evidence finds that choosing an incorrect age can be detrimental to a child’s development and in doing so inhibit the ability for the underprivileged to climb the social ladder. Research additionally finds that failing the 11-plus, for many, has proven to be psychologically scarring by limiting self-confidence. As a result, many do not dedicate themselves as much to education to avoid remembering previous failures. This characteristic can be detrimental to professional development in the working world, thereby placing a lifelong glass ceiling on career trajectory.[7]
The consequence of selecting an incorrect age makes hiring tutors for entrance exams an attractive investment for the middle and upper classes. This means that in addition to academic research on intellectual maturity, there is also a need to tutor-proof entrance exams, otherwise there will become – as there is to some degree today – a culture of testing on the basis of wealth over intelligence. By levelling the playing field, only then can education become merit-based.
Steps forward
We have discussed a variety of evidence which suggests that there is a need to modify our current education system and in particular we must introduce a fairer way of testing children on the basis of merit and not wealth. In our current system, the underprivileged are subject to an unfair and unmeritocratic method of selection. Statistics show the extent to which this is true, with students of grammar schools being less likely to be eligible for Free School Meals than those in non-selective schools. The Sutton Trust found that less than 3% of grammar school students were eligible, which is meagre compared to the non-grammar average of 18%.
Only once these criteria are satisfied will grammar schools be a true vehicle for social mobility and in doing so the educational attainment handicap of underprivileged children can be reduced. The answer is reform.
We have justified the existence of grammar schools and what they can have the potential to achieve if executed correctly. If things stay as they are, though, those who are unsuccessful in grammar school selection are left behind in comprehensive schools, destined for academic underachievement. This is driven by a combination of the psychological scarring aforementioned and the low quality of teaching standards in comprehensive schools.
“A free economy and strong communities honour the dignity of every person, rewarding effort with justice, promoting upward mobility, and building solidarity among citizens.”
-Paul Ryan, US politician
In order to achieve this and contrary to what Corbyn and many others believe, the education sector needs to move away from the hands of the state. The introduction of academy schools under firstly New Labour and furthered by the Tory-Lib Dem coalition was a step in the right direction. By taking schools out of local authority red tape regulations, schools were given a greater degree of autonomy leading to improvements in teaching standards. This is because free choice over teacher pay structures means that good teachers are rewarded adequately. Not only this, but also the greater funding from central government and private institutions can be invested into providing the best facilities. Autonomy over one’s curriculum additionally allows for a flexible learning process – one that is conducive to innovative teaching techniques and allows for more creative thinking amongst students.
Consequently, academies improve the quality of a school. Our current government can go further by converting more struggling schools into academies in areas of local deprivation. This is a simple method to reduce the premium, as there is evidence to suggest a positive correlation between poorer students attending poorly performing schools. Indeed, research has shown that academies have shown positive effects on social mobility[9]. Since the Education Act of 2010, most academies have been ‘converters’, whereby previously successful schools have become autonomous. Given that these schools are located disproportionately in rich regions, much more needs to be done to support the conversion of underperforming schools into the alternative ‘sponsored’ academies.
If less advantaged children remain unable to make the most of our education system, there is no way of achieving a socially mobile society. Urgent action is needed to curb the trend and it is important that the poorest in society receive a good and just education, as a means to escape poverty and improve their living standards.
Scientific research suggests that a child’s brain development is most malleable when youngest, which implies that changes need to be made at a primary level too to lift the performance of state-funded schools to that of private ones. Whilst primary schools have been given the opportunity to convert to academies, this has not been widespread enough for one reason or another, as seen below.
What’s worse is that even with the lack of primary academies, the trend of underperforming schools not being converted proportionally to sponsored academies is again prevalent at primary level. The number of converters far exceeds the number of sponsored academies at both primary and secondary level (as seen in the table above previously).
Lessons from Iceland
We can learn of lot from the Icelandic model of education, where the level of social mobility, as measured by the influence of parental socioeconomic background on a child’s secondary education, is the highest of all OECD countries (country code ISL).
We look to why this may be the case and pay particular attention to the Icelandic education system below:
Academic separation is not undertaken until 16 and in doing so a level playing field is created. ‘Compulsory’ schooling from 6 to 16 ensures that each student has gone through the same educational experience. In fact, most of the Scandinavian countries follow this type of education system, which is perhaps why they fare so well. Whilst greater mobility may be the case because of the high levels of educational spending, its structure is also something that stands out as different to the UK’s and something that is worth considering.
As mentioned, the first major difference is that academic separation starts at the age of 16.
Secondly, even though Iceland’s education spending as a percentage of GDP is in line with other Nordic countries, which have previously been higher than average, what makes Iceland so mobile is its special focus on pre-primary and primary schooling. This type of schooling is an integral part of child development, as we have previously established.
It is not the case that Iceland’s educational spending is extreme, given that its average expenditure per student per year at $9180 is lower than the OECD average of $9487[9]. Even more interestingly, Iceland spends a lot more on pre-primary and primary schooling than secondary and tertiary schooling and this is reflected upon in the table below.
This has resulted in lower than average class sizes in infancy years, where in 2011 Iceland had the lowest student-to-teacher ratio throughout OECD countries in pre-primary and primary schools at 6:1 and 10:1 respectively. As a comparison, the UK average public primary school class has 26 students – 5 higher than the OECD average. Coupled with the fact that British primary school teachers work for fewer hours than average, there is a great deal that has to change in the current primary education structure to ensure that children in the most important period of development are receiving enough individual attention.
Source: 2010, OECD (Argentina, China, Indonesia) and UNESCO Institute for Statistics, World Education Indicators programme
As such, Corbyn’s NES plans are unfounded and unsustainable. Given the UK’s circumstances, a spending increase can only be justified if spent on primary schooling. The UK averages higher education expenditure across primary, secondary and tertiary schooling than the OECD average, much of which was fuelled by New Labour. Despite this, the annual spend per pre-primary student is only $6493 compared to the average of $6670. A better approach would be to shift spending from secondary and tertiary schools to pre-primary and primary. Disregarding the lack of spending in pre-primary schooling for a moment, the lack of teaching hours and overcrowded classrooms makes it all the more necessary that the education sector drives for efficiency gains through privatisation.
There is no quick-fix solution to social immobility, but with fundamental structural reform in our education system, long-overdue progress can be made.
Sources cited
[1] http://www.bls.gov/emp/ep_chart_001.htm
[3] http://www.theguardian.com/commentisfree/2015/feb/04/social-mobility-equality-class-society
[4] http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/19_07_05_beveridge.pdf
[6] http://www.educationengland.org.uk/documents/hadow1926/
[9] http://www.oecd.org/edu/Iceland-EAG2014-Country-Note.pdf
As ever, the problem with Richard Murphy is that he has no knowledge of the subject under discussion
This is just a lovely example of what's so wrong with the various pronouncements of Richard Murphy, the confused soul behind Corbynomics:
And this opens up the space for him to suggest a wealth tax, in his imaginary budget. “It was inconceivable in the past. But as a result of the work that the Tax Justice Network has done opening up the world’s secrecy jurisdictions, now if people move their assets offshore, we can find them again.” He has other specific proposals – a tax to replace national insurance, which was designed around jobs that don’t exist any more, and “we would need to explore new taxes for the 21st century, which are largely untried. A progressive consumption tax, so people with very few transactions would have very low tax. We have to discourage conspicuous consumption, which is eating up our planet.”
He's just entirely unaware of all the other stuff that people have been thinking about economics and tax. The progressive consumption tax for example: it's generally thought of as a very good idea indeed. But not because it would reduce consumption, as he seems to assume. Rather, because it would make the future richer: that is, it would over time encourage more consumption.
The essential insight behind it is that investment increases the future size of the economy, consumption might provide that short term boost to demand, but investment is what really grows economies. And we also know that if you tax something then you get less of it: thus the progressive consumption tax aims to not tax investment, capital, or the returns to either.
What really happens is that anyones' savings end up inside a giant ISA or IRA style vehicle. Any additions to savings are not taxed in any manner. Any returns to such savings or investments that are reinvested are not taxed. Any income which is consumed, or any drawing down of savings which is then consumed (or, obviously, returns to capital which are then consumed) are taxed in much the same manner that income tax works now, at rising, progressive, rates.
The observant will note that this is not compatible with a wealth tax. Even the half awake will note that the effect of such a system is to not tax wealth. In fact, the entire point is to not tax wealth, but to allow it to roll up while invested so as to increase the wealth and income of the future society: and thus to increase the consumption opportunities of that future.
And this is the basic problem with all of Murphy's ideas. Other people too have thought about these various points and problems. And Murphy's entirely unaware, startlingly ignorant in fact, of the evidence found, logic used and conclusions reached by those others. Turning on the free money tree of Peoples' QE is monetisation of government spending and we know how that turns out. Capital allowances are in the tax system for good reason: because we tax businesses on their profits, not their turnover. A certain amount of both tax avoidance and tax evasion are going to be there simply because a society without either will have no liberty. And the point and purpose of a progressive consumption tax is so that we do not tax wealth, rather than that we do: and it is to make the future richer, encouraging more future consumption too.
It is this that really grates. Not just that we disagree with Murphy's assumptions and between dislike and abhor his suggestions, but that he proceeds without noting that tens of thousands of very clever people have ploughed these same furrows over the centuries. And he's simply flat out ignorant of the truths they have uncovered.
Recent books in the ASI's pile
The ASI receives more books than it can get round to giving a full review of, but here are some particular interesting recent ones you might want to check out.
- Imaginary Cities by Darran Anderson
Describing itself as a work of 'creative non-fiction' it's a wide-ranging thesis on the city. Get it if you love their wonderful twitter account.
- The Routledge Handbook of International Education and Development by Simon McGrath & Qing Gu (eds)
Probably one to look at in the library, given the price, this handbook seems to be the most authoritative work from practitioners and experts in the area; a more scholarly take on The Beautiful Tree.
- The Moral Case for Fossil Fuels by Alex Epstein
I'm really glad this book exists.
- Free Market Fairness by John Tomasi
Tyler Cowen says this is 'one of the very best philosophical treatments of libertarian thought, ever' and what can I add to that?
- The Long Process of Development: Building Markets and States in Pre-industrial England, Spain and their Colonies by Jerry F. Hough & Robin Grier
The list of reviews on the back is very impressive: Dani Rodrik, Mike Munger, Lant Pritchett, Tyler Cowen, and the topic is hugely interesting.
Some ideas do take a long time to be discovered, don't they?
Owen Paterson is telling us all about a lovely new idea:
For the past 50 years the environmental movement has been in thrall to a simple, powerful and utterly wrong idea: that the best way to save the planet is to curtail human activity, whether in the form of breeding, building, burning or business. Anybody who suggests a different strategy – that economic activity is not just compatible with environmental benefits, but vital to creating and improving them – has been howled down.
But that is changing, and a new idea is gaining ground, under the term “Ecomodernism”. The key idea behind Ecomodernism is that the more technology human beings adopt, the more they can decouple from dependence on the natural environment and live lives that are prosperous but green. The great Green Blob that dominates the public and NGO sector, whose reactionary tendencies I referred to when I left office as Environment Secretary last year, still refuses to recognise this.
That phrase, Great Green Blob, needs a bit of work before it's going to become a propagandistic rallying cry we think. And while we obviously agree with the basic thought, given that we've said as much ourselves repeatedly, we're not quite sure it's a new idea. Not just because we've said it before, but because it's in the very foundational document of the whole global warming movement. That document being the special Report on Emissions Scenarios, the economic models that tell us how many people there will be, at what level of wealth, using what technologies, thus giving us the emissions levels that can be fed into those computer models.
And here is what the SRES says about a richer, higher tech, world:
In the A1 scenario family, demographic and economic trends are closely linked, as affluence is correlated with long life and small families (low mortality and low fertility). Global population grows to some nine billion by 2050 and declines to about seven billion by 2100. Average age increases, with the needs of retired people met mainly through their accumulated savings in private pension systems.
The global economy expands at an average annual rate of about 3% to 2100, reaching around US$550 trillion (all dollar amounts herein are expressed in 1990 dollars, unless stated otherwise). This is approximately the same as average global growth since 1850, although the conditions that lead to this global growth in productivity and per capita incomes in the scenario are unparalleled in history. Global average income per capita reaches about US$21,000 by 2050. While the high average level of income per capita contributes to a great improvement in the overall health and social conditions of the majority of people, this world is not necessarily devoid of problems. In particular, many communities could face some of the problems of social exclusion encountered in the wealthiest countries during the 20 th century, and in many places income growth could produce increased pressure on the global commons.
Energy and mineral resources are abundant in this scenario family because of rapid technical progress, which both reduces the resources needed to produce a given level of output and increases the economically recoverable reserves. Final energy intensity (energy use per unit of GDP) decreases at an average annual rate of 1.3%. Environmental amenities are valued and rapid technological progress "frees" natural resources currently devoted to provision of human needs for other purposes. The concept of environmental quality changes in this storyline from the current emphasis on "conservation" of nature to active "management" of natural and environmental services, which increases ecologic resilience.
A richer world is a greener world: exactly what Paterson is saying. But this isn't anything new at all, the SRES is a quarter century old. It is also, as above, the document that feeds into the whole IPCC process. It's not just that this is a possibility, this is an assumption that has been made before we ever started worrying about Flipper boiling alongside that last ice floe.
To our mind this is the most important part of it. If one abandons this assumption that this richer world will be that greener world then one must abandon all of the research that is based upon this assumption. Which means, really it does mean, each and every piece and part of the current global warming hypothesis. Because that entire edifice has indeed been built upon this assumption: the other economic models, for example the A2 one upon which the Stern Review is based, show that a less rich world is also a less green one.
And what's really lovely about these models is that if we follow the B2 path, less globalisation, more localisation, much slower economic growth, essentially the Green manifesto, then the outcome is even worse. And these are not some rogue models: they are the very assumptions that the entire structure is built upon.
How'd'ye like them apples?
The housing crisis has a simple solution: build, baby, build
Over at the IB Times I've written about the government's housing targets (not worth the paper they're written on, basically), and why we want to concrete over the green belt – well, at least some of it:
By freeing up green belt land the supply of housing could grow enough to let prices fall considerably. All of this would actually require very little green belt land to be built on – less than 1.5% of it would give us the space we'd need to build an extra 1.4 million new homes. We could build one million homes around London on just 3.7% of the capital's green belt.Could the private sector do it? It already has – during the 1930s housing boom, private construction rose from 133,000 houses per year in 1934-45 to 279,000, in just one year – and these houses were affordable. If you come, they will built it.
The cost of extra infrastructure could be more than covered by capturing "planning gain", with the government buying green belt land, reclassifying it and selling it at the market rate to the private sector, keeping the gains for itself.
Trimming the edges of the green belt would suffice, but I'd like to go further. Much of the countryside is worth protecting, but much of the green belt itself is not. It doesn't provide amenity to anyone who doesn't live there already, it's bad for the environment, and it makes housing cripplingly expensive.
Read the whole thing. I've tried to make it as comprehensive as possible, as a useful 'cut out and keep' piece to send to people who haven't thought about how easily we could solve the housing crisis.
At last, now we know what's too expensive for renewable energy
An interesting article in The Guardian insisting that the Swansea tidal barrage should be junked. Not that they quite put it that way but that is what their argument means. What they're actually saying, these Green glitterati, is that the Hinkley C reactor should not go ahead:
So how do the operators, the French company EDF, expect Hinkley C – even if it can be built – to be economically viable? By extracting from the government a price guarantee of £92.50 per megawatt hour for the electricity it produces, index-linked for 35 years.This is simply astronomical. It is more than twice the current wholesale price of electricity, and more than the government is now paying for solar power, whose costs are expected to fall greatly during the lifetime of the nuclear plant. Against current prices, the government’s guarantee represents a subsidy of over £1 billion a year.
OK, let's accept that that is too expensive. And that the usual argument, that prototypes always cost more doesn't really work here:
EDF argues that, as it learns from experience elsewhere, the cost of construction will come down. But the problem with the design is that these plants have to be built almost entirely on site, so each power station is, in effect, a one-off. The costs of technology fall when modular construction is possible: turning out identical units in a factory.
Fine, let us, as usual, accept their arguments at face value and then consider the implications of this. For example, Swansea:
Mandarins from the Department of Energy and Climate Change (DECC) and the Treasury are poring over the details before deciding whether it should be funded though a ‘contract for difference’ scheme.
The cost of lagoon power – a predicted £168 per MW/hour – is considerably higher than for offshore wind, or the £92.50 for nuclear.
If £92.50 is too high then £168 is definitely too high, isn't it? Thus, based upon the impeccable logic presented to us by Mssrs. Lynas, Monbiot and Goodall, the Swansea Barrage scheme is a dead duck, isn't it?
We look forward to these fine gentlemen making their opposition clear in due course. For, as they say:
Yes, we are still pro-renewables. But not at any price.
Putting the brakes on railway nationalisation
The new Labour Party leader Jeremy Corbyn wants to re-nationalise the railways? It is a political totem for the Left, of course. But is there an economic case too? The main economic argument made for nationalisation is that private providers have to make a profit, so a private service is necessarily more expensive. But this is untrue. Where there is competition, the need to make a profit is what drives improvement by pushing private providers to deliver better services cheaper. If they do not keep improving, they will lose business their competitors. In the case of rail, that means other companies who would be delighted to win franchises off them.
Remember too that investing in a service that has to keep improving in order to keep its customers is expensive. Investors quite reasonably expect a profit in return for giving up and risking their capital in such an enterprise. If the government did not generate the same profit, it would, in reality, be subsidising the industry – at taxpayers' expense. So there really is little or no 'saving' to be made.
Another argument is that a nation-wide service would reap economies of scale. But remember that there are diseconomies of scale too: large state industries are notoriously hard to manage. And any supposed economies would soon be eclipsed by inefficiencies when there are no competitors to keep the provider on its toes.
The old British Rail, of course, did not make profits at all; indeed, it made a large annual loss. It was inefficient and vastly overstaffed, and yet survived. As with other nationalised industries, the problem was that decisions were made politically.
In the first place, a nationalised industry has to compete for investment with other government departments and services. Spending decisions owe more to the political necessities of the moment (like elections) than long-term investment strategy. Second, politicians fear that cutting staff costs causes them political problems, while cuts in capital investment are barely noticed: the service just gets slowly less reliable. Third, the lack of competition in a nationalised service gives huge strike-threat power to the staff yet leaves service users with no power take their custom elsewhere. And the lack of competition means that there is no pressure to change, to adapt to customer needs, stay up to date, modernise and cut costs.
Even where, for practical reasons, competition is limited (as in railways), the public is better served by an independent regulator scrutinising private providers than a nationalised industry responsible only to ministers and Parliament. The independent regulator can fearlessly point out when things are not up to standard. The minister, being responsible for the provision of the service, will never admit to failures. And independent regulators can become highly expert on every aspect of the sector they regulate – transient ministers with many other responsibilities cannot.
Competition, of course, is the best regulator, and much can be done to improve competition in most industries that have been privatised, including railways. Competition opens each and every part of the service provision up to scrutiny – and potential replacement – by others.
Prior to 1992, just a couple of years before the rail industry was privatised, British Rail did not even bother to keep punctuality figures. Is there a more eloquent statement of the dismal nature of nationalisation?
Better information makes drugs markets work better: so why not legalise them to make them work even better?
Over at Quartz there's a fascinating piece where the economist meets the pot dealer. And the two discuss how the dark net, the use of Tor and illicit drugs markets on it, improve the markets for drugs. Now, of course, it's entirely possible to insist that drugs are fer' the devil and we should simply stamp it all out. And given that no human society yet has managed to do that that's probably not going to be successful. That idea also doesn't address our own belief that consenting adults should be allowed to ingest what consenting adults wish to ingest: it is, after all, their own body doing the ownership and we're all pretty sure these days that no one, not even the state, owns the body of a consenting adult other than that consenting adult. Given those two, it is therefore interesting to see what happens when dealers need to stand by their product and reputation is important:
The root cause of this market inefficiency is information asymmetry. You don’t know how good an illegal drug is until you consume it, and you can’t turn to the law to enforce agreements, return a substandard product, or complain to your dealer if he tries to rob you. That prevents price discovery and risk compensation, key features of a well-functioning market.
What makes the dark web a game-changer is that it has those features. Suppliers have detailed reviews on their product, the market is competitive, and people can shop around easily. Aspiring sellers struggle to get a foothold without a history of good reviews; sometimes they offer special deals and an easy exchange policy in return for good reviews. And the markets are global, so it’s possible to see prices in other countries. All this produces a well-behaved price distribution like the one you’d find in any functional, legal market.
Assuming that those are all features that we'd like to have where consenting adults do as consenting adults do, that's a good argument for the legalisation, not just the decriminalisation, of drugs. For while these illegal markets do work by reputation, just as brands do for many consumer items (and in exactly the same manner too) it is of course better to have such promises baked up by the usual resources of the civil law.
as above, some part of the opposition to the taking of drugs is simply this idea that people shouldn't. Which is a projection of personal desires onto the lives of other which we do not think has a part of a liberal society. Once that is over come then we want the provision of whatever it is to be as efficient and simple, with the greatest consumer protections, as possible. And given the way that these illegal markets are developing, we can see how they would continue to develop if legal. Towards being markets much like those for toothpaste and canned soup. Reliant upon reputation, delivery, quality, rather than who has the most and most violent thugs to control a particular territory.
We find it difficult to imagine why anyone would be against such beneficial developments quite frankly.
New ASI Paper: "Utility Gains: Assessing the Record of Britain’s Privatized Utilities"
A new Adam Smith Institute paper, “Utility Gains: Assessing the Record of Britain’s Privatized Utilities” assesses the various utility sales of telecoms, gas, water and electricity companies during the 1980's and 1990's and looks at how government, shareholders and customers fared since the privatisation process. The paper argues that the following benefits occurred for each stakeholder:
For the government – various general benefits accrued, such as a pronounced surge in investment. It benefited financially, both from one-off sales proceeds and from ongoing sizeable Corporation Tax receipts.
For shareholders, like pension funds, have generally done very well, with many privatizations – particularly the 12 RECs – heavily outperforming the FTSE 100. Privatized water stocks, too, have powered ahead. There are a few notable exceptions to this, such as Railtrack, British Energy and British Telecom.
For utility customers the financial benefits have been less tangible – in a period of massively rising wholesale prices there has been little to pass on. But investment has been much higher and much-needed improvements in customer service have been developed. Telecoms prices have actually fallen materially, while domestic gas, water and electricity prices have all risen sharply in real terms. However, domestic energy prices have risen mainly due to much higher wholesale gas costs – not because of private sector ownership.
The paper finds investment in utilities is now much higher than before privatization, especially in the electricity distribution and water sectors. In the latter case, substantial real price increases have helped finance this investment which had been woefully inadequate prior to privatization in 1989. Over the 25-year period, roughly £110 billion has been invested in the water sector, with the overwhelming majority of this sum being spent by the ten privatized water companies. Currently, over £4 billion per year is being invested.
The paper argues that the privatisation of utilities also created an innovation spike, specifically in the telecoms sector. Privatising British Telecom in 1984, it argues, created a new industry as the staid former Post Office subsidiary started to participate in an international marketplace, in which mobile telephony was developing at a rapid pace. Within a few years, Vodafone had become the pioneer of mobile telephony to such an extent that, by 1999, it had become the fourth most valuable company in history within just two decades of its founding. Had British Telecom remained state-owned, it is probable that the broadband rollout would have been delayed even further.
Click here to read the full press release.
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