Regulation kills people

Of course it's also true that an entire absence of regulation will kill people too. The trick thus is to get the level of regulation correct. This is something that does not, to put it mildly, always happen:

Tens of thousands of cancer patients are being denied life-extending drugs because of EU bureaucracy, experts have warned. 

Trial results presented at the world’s largest cancer conference, in Chicago, showed palbociclib almost doubled the amount of time that the disease was stalled.

On average, the terminally ill women were able to fend off the diseasefor an extra 10 months.

Almost 30,000 women in the United States have been able to access the drug since March, after the Food and Drug Administration (FDA) fast-tracked approval of the drug in just six months.

But the groundbreaking treatment is being denied to British patients because European regulators work far more slowly.  

They're taking an extra year or two to read the papers and have a few gabfests. However, much as we love an opportunity to bash the EU and all who sail in her this isn't something specific to that organisation. Rather, it's about scale, the level of regulation.

Yes, obviously, it's more efficient to have just the one body that approves drugs: we might suggest the FDA in fact. But if that won't hold then sure, better to have just the one for Europe rather than 28. However, as we all really should know there are diseconomies of scale as well as economies.

And the major contributor to diseconomies of scale is that the organisation itself simply becomes too remote from any form of incentivisation by or on behalf of consumers. Imagine we had a properly "independent" drug regulator for the UK. OK, it's independent: but it would still be amenable to generalised pressure. Why is it taking you two years longer than the US to approve a drug? 

You can actually visualise the sweating bureaucrat mumbling to one or another committee of the Commons on this. But once we push this up another level or two that accountability simply vanishes. Who either can or will scream at them on our behalf? 

And that's rather the problem with this style of regulation. We end up with no way of ensuring they pull their thumbs out: and people thus die as a result.

The year of the insurrectionists

This is very much the year of the outsider, and the year in which the establishment machine politicians are rejected by angry voters.  Donald Trump is a complete outsider, yet in a series of bruising battles that make up US primaries, he has seen off every single establishment party-machine politician ranged against him.  Now there is only one more left against him, and that is Hillary Clinton whom he now faces in November. 

She is almost the embodiment of machine politics, and has the misfortune to face a populist outsider in a year when conventional politicians are mistrusted.  Furthermore, she is tainted as well as mistrusted, with enough doubts about her probity to dampen her support.  The chances must be very high that come November, Donald Trump will be elected the 45th President of the United States.

His popularity extends across normal party lines, and while he is despised and derided by liberal elites, he touches raw nerves among working Americans who feel they've been left behind or left out, and that economic advance has passed them by.  It is a mark of his skill that a multi-billionaire is seen by low-paid Americans as someone likely to represent their interests.
 
Hillary Clinton's double-digit poll lead has faded into nothing, and Trump is showing well in the working-class swing states he must carry to take the presidency.  It looks increasing likely that blue-collar Democrats will plump for the rough and ready, hard-talking, hard-dealing businessman rather than for the smooth and manicured professional politician who opposes him.

It is on an international scale that the insurrectionists have made inroads.  Trump has astutely tapped into a mood that has swept across Europe.  As a reaction to the way conventional parties handled the Financial Crisis and the economic slowdown that followed, people have turned to outsiders.  In Greece and Spain these new parties have become a force to be reckoned with.  The populist Freedom Party candidate, Nobert Hofer, lost the Austrian presidential election by a whisker.  It is a sign of the times that people, discontented by establishments, are looking outside the box.  It could be argued that this mood was behind the upset that saw Jeremy Corbyn elected as Labour leader instead of more conventional mainstream candidates.  That same anti-establishment mood might well see UK referendum voters overturn conventional thinking with an insurrectionist Brexit vote.

Trump has tapped into similar discontents in America.  Against a polished Republican politician, Hillary linton could have positioned herself as champion of the underdog, but there is no way she can take that position against Donald Trump.  He is already there, voicing their concerns, speaking up for their values, promising to meet their aspirations.  Although people in Europe, as well as in the liberal media of America's East and West coasts, mock Trump for his lack of polish and preparation, the same is not true of heartland America, and commentators who assumed Clinton would coast home against an opponent they see only as a buffoon, might well wake up with a sinking feeling on Wednesday November 9th when it will all be over and Trump sets about preparing his transition team.

Although the prospect scares some people, they can take comfort from the fact that Trump has no party.  He will have no majority behind him in either the House of Representatives or the Senate. To get anything through he will need to bargain and strike deals, to compromise and to moderate. Clinton, by contrast, would probably have had a Democrat majority in the House to back her and strong support in the Senate.

Trump is nowhere nearly as bad as he has been painted, which is just as well because he is a fact of life that we are all going to have to grow used to and learn to live with.  He is probably going to win the presidency.

Why Britain’s company law is not fit for purpose

The closure of British Home Stores shows not only how badly managed the company has been. It shows how Britain’s company law is not fit for purpose.

Founded in 1928, the company was one of Britain’s longest-established high-street department-store brands. But it has ended up with a £571m pension deficit, all its 163 stores will close and 11,000 jobs will go. Sure, the high street is unforgiving? But how can such a giant be brought so low?

Step forward Sir Philip Green and Dominic Chappell, particularly Green, the high-profile businessman so regularly pictured with supermodel Kate Moss on his chubby arm aboard his superyacht. Green and other investors took more than £580m in dividends, rent and interest payments during his tenure at BHS; Chappell’s Retail Acquisitions consortium was paid millions in fees and salaries. Meanwhile, Green did not close BHS’s defined-benefit pension system (as most other large and small companies have done, following Gordon Brown’s disastrous change in the regulations while he was Chancellor). What on earth was he thinking? Was he thinking about the future at all?

It’s a bad advertisement for capitalism, right enough, when the reality is that most businesspeople scrimp, save, mortgage their homes and watch every penny to help their companies grow. 

But it’s an even worse advertisement for all the UK (and, dare I say it – EU) regulation around business governance. Designed to keep businesses transparent and well run, our company law now has the opposite effect. It has tried to substitute official rules for shareholders. And shareholders are the best regulators – after all, it is their business, and their money at risk. 

Sadly, UK and EU politicians did not appreciate this regulatory role of shareholders (though the rising volume of shares held by corporatist-minded pension funds did not help either). Shareholders were seen as merely money-takers; their power was curbed and the powers of boards and executives grew – with everyone being told that’s fine, because there were so many rules to control them.

It is not a new problem. Philosopher and corporate law expert Dr Elaine Sternberg pointed it out in the ASI report Competition in Corporate Control as long ago as 2003. Let shareholders run their businesses as they want, she argued. If some mess up – paying too high salaries, say, or giving executives too much control – nobody is likely to do that again. Competition in corporate control is self-regulating: good systems crowd out the bad. But our regulatory system, substituting top-down rules for market-driven competition, kills that self-regulating process.

It really is time for a bonfire of controls. At least then when we see CEOs sipping G&Ts on their £100m superyachts, we could be confident that deeply interested and farsighted share owners figured they are worth it.

If corporations have all this power then where the heck is it?

Peter Walker points out that there's a certain problem for those who would claim that corporations have some vast amount of market power which they use to lord it over the rest of us. If this were true then we wouldn't see corporate disasters:

Part of the idea here is that large corporations have power over markets and their consumers. When "corporate power" get mentioned I sure people think of companies like Microsoft, Google, Coca-Cola, Pepsi, and McDonald’s etc and the control these firms are said to have over their sectors of the economy. One aspect of this power is the control these corporations are claimed to have over their consumers, but if these "powerful" firms produce spectacular failures, then perhaps consumers are not as docile as some would suggest and we overestimate the extent of said corporate "power".

The latest example might be Microsoft's entirely dismal failure with Nokia. And it really has been an absurd failure as this rather hopeful email details:

Microsoft and Nokia created opportunity for companies in need of ICT professionals
1,000 ICT professionals available in Tampere, Finland, for any industry

Recent news about the Nokia and Microsoft layoffs are good news for those in need of experienced and international ICT professionals. The City of Tampere, Tampere Region Economic Development Agency Tredea and Invest in Finland (Finpro) address this unique opportunity with #Tampere4ICT campaign to attract foreign investments.

Microsoft Mobile and Nokia (Alcatel-Lucent) will release highly experienced technology professionals in the Tampere Region, Finland. There will soon be around 1,000 ICT professionals available, with experience of 10-20 years and with ability to build new, innovative solutions for any industry. Especially companies looking to set up product development, and willing to move fast, there is now a unique opportunity to acquire fully functioning product creation teams to develop advanced connected products.

They bought the company, played around with it for a couple of years and are now effectively closing the whole thing down. That simply wouldn't have happened to a corporation that was wielding great market power. And the explanation for why it did happen is simply that no more than some trivial fraction of us consumers were willing to use Windows for Phone. We beat one of the largest corporations on the planet and all their tens of billions of expenditure just by saying "Nah, think I'll have that one over there instead, ta very much." 

The notion of great corporate power over us consumers doesn't really stand up to close examination.

Write the law around what people already do not what some bureaucrat thinks they ought to be doing

We're very taken by this quote featured at Cafe Hayek:

How formal and informal rules interrelate substantially determines transaction costs in society.  I call this proposition the interaction thesis.  If formal rules are in harmony with informal rules, the incentives they create will tend to reinforce each other.  A harmonious interaction of formal and informal rules reduces the transaction costs of maintaining and protecting the rules of the social game and frees resources for the production of wealth.  When formal rules conflict with informal rules, however, their respective incentives will tend to raise the transaction costs of maintaining and enforcing the prevailing institutions and therefore to reduce the production of wealth in the community.

The specific point being made is about the transition away from Soviet stupidity in Eastern Europe. But we think it can be applied to that difference between the Common Law and the more centralised and bureaucratic Roman Law idea. Yes, sure, the difference has blurred over the centuries and the distinction is less important than it once was. And yet in these days of EU directives and regulations we think it still worth making the point.

The system as a whole will work very much better if the law is simply the codification of what people already largely do. Rather than the imposition of what some bureaucrat thinks people ought to do and against those already established patterns of behaviour.

And do note the importance of transactions costs here: they are purely deadweight costs, costs which diminish our collective wealth by their very existence. Reducing them is a prime aim of whatever legal and or institutional arrangements we make.

This is distinct from our general desire for there to be less law, less direction from the centre. Whatever direction there is needs to go with the grain of the extant society, not against it.

Why Keynesians are wrong

The most prominent theory in macroeconomics is New Keynesianism. One of the most striking and unique predictions that New Keynesianism makes is that when the economy is in a recession, everything gets flipped upside down. Specifically, when interest rates are at the zero lower bound and the economy is stuck in a liquidity trap, most of the things that would usually improve economic outcomes actually worsen them.

The NK model predicts that supply-side loosenings, like lifting employment regulations, cutting taxes or liberalising immigration laws, will actually make things worse in a recession, as will interventions that increase price flexibility. However, this prediction—familiar from Paul Krugman's NYT columns since 2007—seems to have been strongly challenged in a batch of recent papers.

The first is "Supply-Side Policies in the Depression: Evidence from France", by Jérémie Cohen-Setton, Joshua K. Hausman, and Johannes F. Wieland. It, as the title suggests, looks at data in from the great depression in France, one of the areas that suffered it from the longest, due to the obsessive desire of the Bank of France never to sever the currency's link with gold. The Keynesian model would predict that devaluation and leaving gold were the only game in town, but in fact the negative supply-side shocks that happened at the same time depressed activity, even in a deep slump.

The effects of supply-side policies in depressed economies are controversial. We shed light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. We present time-series and cross-sectional evidence that these supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a medium scale, multi-sector model calibrated to match our cross-sectional estimates. We conclude that the new Keynesian model is a poor guide to the effects of supply-side shocks in depressed economies.

The second is "Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data", by Julio Garín, Robert Lester, and Eric Sims. It looks at more extensive data on productivity. The Keynesian model predicts worse productivity improvements from supply shocks that occur in slumps but the data finds quite the opposite result.

The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. However, in line with the predictions of the basic model, positive productivity shocks have a stronger negative effect on inflation at the ZLB.

The third, "What Was Bad for General Motors Was Bad for America: The Automobile Industry and the 1937/38 Recession" by Joshua K. Hausman, tackles the question less directly, finding that shocks that impacted the car industry, even if they weren't aggregate, demand-side shocks, nevertheless had large impacts on overall output and income.

I think the New Keynesian model is wrong about a lot of things. It seems that the impact of supply-side moves in a recession is yet another prediction it gets wrong.

This is a referendum on the EU, not the single market

Today three opinion polls - from YouGov, ICM and TNS - are all putting Leave in the lead. Those are on top of other very recent surveys suggesting a shift in Leave’s direction.

That has obvious significance and it is causing reverberations in the Remain camp.

Taking a step back for a moment to last week, on Tuesday we saw the Telegraph’s Ambrose Evans-Pritchard coming out in favour of the Flexcit plan by Dr Richard North, and my own ASI paper called “The Case for the EEA Option” that borrows from the North plan.

That article prompted leading Remain thinker Charles Grant of the Centre for European Reform to agree that using the EEA as a transition point was indeed a viable exit option - to my knowledge, the first Remainer to do so. Grant also agreed that parliamentary arithmetic very much favoured this option and, further, that top Vote Leave MPs would be able to support such a manoeuvre after a Leave vote.

Now this morning, the BBC’s James Landale has reported that Remain MPs are indeed saying that while they would have to deliver a Leave proposition after a Leave vote, they would not support leaving the single market (the European Economic Area), which is separate to the EU.

There are two ways to view this. Firstly that they are genuinely concerned about leaving the single market more than leaving the EU. That would make perfect sense as so many of their objections to leaving the EU are actually objections to leaving the single market. But secondly that they are making mischief for the Vote Leave campaign that has nailed its colours so firmly to the border control mast.

I suspect it is the first but with a helpful side-effect (to the Remain camp) of the second.

And of course the other paradoxical side-effect is that it derisks the economics of Leave and makes Leave more attractive to wavering voters.

Sure enough, Dominic Cummings for Vote Leave responded by suggesting that MPs were saying they would ignore a Leave result. Yet that is exactly what they are not saying. Rather that “Leave only means leaving EU membership”. The BBC report made it very clear:

One minister said: ‘This is not fantasy. This is a huge probability. The longer we move away from the referendum, the more the economic pressures will grow to keep some links with the single market.’

Another said: ‘We would accept the mandate of the people to leave the EU.’

Indeed they would. Because in the event of a Leave vote, the precise question on the referendum ballot will matter. A lot.

It's truly amazing what some people will complain about

We find ourselves rather gasping in amazement at this particular complaint:

The shale bonanza has also brought environmental headaches and raised concerns about whether the companies have disadvantaged poor people by drilling wells in low-income areas and exposing them to dust and traffic as well as air and water pollution.

In a letter last month, the Center for Coalfield Justice, the Pennsylvania chapter of the Sierra Club and the Clean Air Council asked the state’s Office of Environmental Justice to give the public more say in the permitting of wells. The groups believe the industry may be choosing drilling sites that disproportionately affect low-income and minority residents.

We positively want people to go and drill in low income areas.

Think it through for a moment. Fracking requires the use of land. Not so much the land that is actually being fracked, it's possible to drill for several miles underground. But there must be somewhere to put the rig itself, a pad for it. That is a cost to the process of course. We would thus expect people who are doing this efficiently to place such rigs and such pads where land is cheap in order to gain access to the desired underground reserves.

Low income people tend to live where land is cheap. Thus rigs will preferentially be where people are low, not high, income.

Imagine, for a moment, that we were to frack underneath London (no, we won't, the geology is entirely wrong). Would we place our rig in Mayfair in order to access that gas under central London? Or in Vauxhall? 

Quite. The complaint is that people are being sensible. Which really is a stunning thing to complain about, isn't it?

How excellent! Off you go then

Apparently that difficult problem of what we should do about the British economy has been cracked. All doubt resolved, we've now got a plan. To which our answer is great, how excellent!

What we need is “bulldozer money”: long-term investment in housing, infrastructure, energy, healthcare and transport. Investing in real assets creating real jobs, and delivering an economic multiplier effect over the long-term, where every £1 invested in infrastructure generates £3 of economic activity.  

One quibble, healthcare spending is not investment, that's current spending. But it is good to have a plan, isn't it?

 This £100bn could be used far more productively elsewhere. Instead, we should focus on the “G’s”. Green, clean, cheap energy from solar, wind and other renewables – technological advances in wind power, fusion, photovoltaic cells and batteries will drive costs relentlessly down. A Great Northern railway programme would ease travel and improve commerce from Liverpool to Manchester, Sheffield, Leeds and on to Newcastle. And Gatwick, where a new runway could be started by 2019.  

Super. So, what we'd like to have happen therefore is to get some of those people who know how to evaluate potential investments involved. Do such projects actually have a positive net present value, are they actually going to make us richer? That's the sort of thing that investment managers do for us. Which is useful because the man with the plan is an investment manager:

Nigel Wilson is the chief executive of Legal & General

Which is just absolutely great. He's got the skills and the network and the staff to undertake the task of what to invest in. He's also got a considerable pot of money to do it with. And we can be very sure that he's only actually going to invest in things that will make money, will add value, rather then splurge it around for political reasons.

That is, we, as in we collectively, don't need to do anything at all. All of the resources and incentives to make us all richer are already aligned in this one figure. If he can't find plans that will make money then he won't do them, if he can he will. 

So, Nigel, your plan, how excellent! Off you go then.

The oddity of closing the Tiger Temple

That we'd like the tiger to survive as a species is true: magnificent beings that they are. Which is why it's so odd that the authorities are closing down that Thai temple which breeds and keeps tigers:

Forty dead tiger cubs have been found in a freezer at a Thai Buddhist temple accused of wildlife trafficking and animal abuse.

Police and wildlife officials started an operation on Monday to remove all the living tigers at the Tiger Temple.

Pictures from journalists at the scene posted to social media showed the 40 cubs lined up on the floor.

The site in Kanchanaburi is a popular tourist attraction but has been closed to the public since the raid.

Finding newborn cubs on the site is pretty good evidence that they were not in fact wildlife trafficking, but wildlife creating. Which is, if saving the tiger is one of the things you desire to happen one of the things which you would thus hope someone would be doing.

Further, the way to save the tiger is to make having tigers more economically valuable to people than not having tigers. Thus creating potions from tigers is the way to save them.

Thus closing down a place which breeds tigers in order to make potions is simply most odd.

It's as if people haven't noted one of the salient facts about our world: there's a lot more cows around than nature alone would provide because we eat them, because they are economically valuable to us. Want more tigers? Make them more valuable.