You've got to pay the market price not just whine about nationalism

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To the economist the definition of rent seeking is rather wide. It's really the attempt to secure a privilege in some manner, a way to corner something, free from that awful competition of the market. It being, of course, that awful competition of the market which reduces profits, thus seeking that protection leads to increased profits flowing to those who achieve the protection. Our example today is French vignerons.

As an official sponsor of France's Tour de France, there might seem worse choices than a wine named Bicicleta. But its discreet "Made in Chile" label has struck a sour note with French winemakers, who are threatening to block the three-week bicycle race unless it is replaced with a home-grown beverage.

One amusement to note:

The sponsorship contract has been in place for the last two years, with Bicicleta wine promoted in Britain at the opening stages of the 2014 Tour, and in Holland and Belgium last year during stages in those countries.

But Languedoc-Roussillon winemakers said they had only very recently become aware of the deal.

Light may have a certain speed, news travels rather more variably. And there's good reason why the French regard this region in the same manner we do darkest Dorset or the nether regions of Norfolk. Somewhat rural might be the polite way to put it.

But to the claim:

“It is unacceptable to allow the Tour de France organisers to promote a wine from Chile," the Young Farmers group (JA) said on its website. "They should be supporting only French produce."

The Tour is an entirely commercial operation, the sponsorship an entirely commercial matter. What the wine makers are insisting is that, on those grounds of produce nationalism, foreigners should be banned from such contracts meaning that locals can get them at cheaper prices. That is, this is rent seeking on nationalist grounds.

And, as with all other forms and types of rent seeking, there is only one correct answer: on yer bike sunshine.

Obsession with migration undermined serious reform of Europe

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David Cameron’s renegotiation of Britain’s relationship with the European Union is not widely regarded as a resounding success. The ‘red card’ system allowing a 55% majority of national parliaments to scupper EU legislation, may, never be used as it is unlikely that a measure that gets through the legislative process would provoke such inter-state opposition. The Commission’s commitment to ‘try’ to reduce red tape could translate into little to no actual results. Freeing Britain from the commitment to ever-closer union and the official recognition that currencies other than the Euro exist may be merely symbolic.

The greatest ire-magnet has been the ‘diluted’ migration proposals agreed by Cameron and Donald Tusk. To the chagrin of opponents of ‘mass migration’, the proposals to limit in-work and child benefits for new migrants falls far short of the desire to ‘regain control of our borders’.

This was inevitable. For many Eurosceptics uncontrolled migration is the issue with the EU. Although demonstrably false, the perception that migrants ‘steal jobs’ and live off benefits are articles of faith. Equally, free movement of labour is so essential to the EU’s purpose and ideological priorities that the euro-elite would never grant any serious curtailment of migration between Member States.

Had migration not been the main emphasis of renegotiation, much more could have been achieved. Rather than quibbling over benefits, forcing Europe to confront its two-tiered reality should have been the primary focus of reform. Although the measures do not go far enough, weakening the commitment to ever-closer union, and even marginally restricting the quixotic euro-project’s ability to dominate EU policy, is a step in the right direction.

Whilst greater political integration has always been a feature of the European project, the EU’s real purpose and success has been the development of a single market where labour and capital move freely. For many Member States, and from an economic perspective, it is the latter that is the real attraction of the EU. Federalism and the Euro need not define the Union. Britain should be established as the leading voice for a looser, wider, trading bloc, which could be institutionally protected as existing in tandem with an increasingly politically integrated Eurozone.

Obsession with migration, and the perception that Britain is hostile to Europe, has directly undermined greater progress. In particular, countries such as Hungary, Slovakia, and Poland, who should be allies in reform, have mostly been on the other side of the negotiation table. Denmark, Ireland, the Netherlands, and Croatia, are sympathetic to a Single Market that is both deeper and less regulated, but have been wary of Britain’s apparently antagonistic approach.

Not only has Cameron secured weaker reforms than he may have done, Britain’s position in Europe will remain less central than it could be. Rather than being an essential counter-balance to quasi-hegemonic Germany, protectionist France, and integration-infatuated Belgium, Britain is at risk of having exhausted its political capital on insufficient reform.

The EU: A View from Florida

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The EU is already a Federal State in all but name. It has a Parliament, embassies, the right to speak for all the component states and to over-rule those that fail to fall in line. It cannot give the UK the right to be different because then all the other member states would want to be different too and there would be no EU. The difference between the EU and the USA, and maybe the only difference of importance, is that the USA has a constitution defining the matters for the federal government – all others being left to member states. That constitution is stoutly defended by their Supreme Court, notably by Antonin Scalia who died this month. The EU has treaties but no constitution. The treaties, notably Maastricht and Lisbon, say that matters that do not have to be decided by the EU as a whole, should be left to member states (“subsidiarity”) but Brussels has blocked any attempt to define either EU or subsidiary matters or to limit its own area of responsibility. The European Court of Justice, per contra to the US, routinely promotes centrism over subsidiarity. If Brussels decides to determine the right size for strawberries in Sweden, it can and does do so.

“Subsidiarity” is derived from the German word and came to prominence in European discussions of the US constitution in the 19th century. Strangely, the German Federal Republic has no constitution and maybe that’s why the EU has none either. German law rests on the “Basic Law” devised in 1949 by the Western Allied occupying powers, which is similar to a constitution in many ways, but was seen as a stop-gap until Germany could be re-united. In essence, the EU has neither constitution nor the practice of subsidiarity nor the defence of subsidiarity because Germany sees no need for these things. Power, to be effective, should, in this Weltanschauung, be centralised. No one gets more annoyed than Berlin when the Greeks, or whoever, step out of line on migrants or economic matters.

The lack of recognition of subsidiarity renders the EU unfit for purpose and ultimately it will founder. That was the windmill against which Cameron was tilting and it is no surprise he got nothing but a broken lance for his pains. But that is not the issue. One can take the view that the Germans are going to win on penalties anyway, and join them. Or that we have the political players talented and strong enough to exploit the EU’s weaknesses.

Or, and this is my favourite, play the “Irish Bluff”, i.e. vote to leave now and then vote in the second referendum to accept a better deal.

Apple vs the FBI: Why Tim Cook is right

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Nice to see someone in business taking a principled stance on a basic issue of individual liberty. Apple boss Tim Cook is standing up against US government officials' attempts to ride roughshod over the public's right to privacy. Apple is opposing the US Department of Justice in at least ten cases. The FBI wants them to help to hack the iPhones of known or suspected criminals, while the DoJ wants Apple to create a 'master key' on its devices so that such hacking can become routine.

Apple has been fighting a legal (and PR) battle over the iPhone of Syed Farook, who gunned down 14 people in San Bernadino three months ago. The FBI argue that the information on Farook's phone may help prevent another such act of terrorism. Cook argues that the very real dangers of compromising Apple encryption – which could expose people to criminal, as well as government, assaults on their data – outweigh the possibility that something "might be there".

The US government's efforts to enable themselves to conveniently hack whosoever they deem fit start, as usual, with cases like this. Nearly everyone would say that murdering swine like Farook should have no secrets from the police, especially if other lives might be at risk. But even universal agreement does not necessarily make it right.

Once such a principle is conceded, there is no obvious limit to the assault on justice. Exactly what crime does someone have to commit – or merely be suspected of – before the police can legitimately hack their data? Once the power is there, it will elide into wider and wider use – as the many abuses of 'anti-terrorism' legislation in the UK and 'racketeering' laws in the US demonstrate all too clearly. Quicker than you think, anyone's data will be up for grabs. And public officials are not angels: would you really trust some junior police officer to preserve the confidence of your personal data?

And it is another invitation for government officials to go on a fishing trip. If our data can be hacked because some junior government officer declares that there is a 'suspicion' that we are up no no good, what judge would resist the application, and which of us would be safe from random searching?

Tim Cook declares that there are things that are difficult, and things that are right, and he figures that his stand against the authorities' demand to access personal data, even of utter scumbags, is both. He is right.

As we've been saying, it's all about land prices

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Or as we've been saying in rather more detail: the price of housing in Britain is really about the price of the chitty that allows you to build a house on a certain piece of land. For there's no real other reason that housing should not be at about the cost of building a house. As this builder is showing:

The company uses figures from the annual survey of hours and income to work out where it can build, and has identified other parts of the UK where it could construct affordable two-bedroom semis for couples. Across the north of England it thinks it can build homes affordable to those on a household income of just £23,000, and going further south, including Kent, believes it can sell to those earning £27,000. Harrison says this would require a different approach, possibly involving local authorities selling the land at a lower price but keeping some equity in the houses.

The actual build cost of a two bed semi is in the £80k range, that for a larger 3 bedder perhaps £100k. So, why isn't it possible for people to build to that price in the South? And ifthey were, why aren't we inundated with firms looking to make the 75% margins that would come from doing so?

The answer being that we've an idiot planning system which determinedly, purposefully, with malice aforethought, refuses to licence land for building houses upon anywhere near people would like to have a house to live in.

We're not going to solve the housing problem until we solve this problem. The correct answer being to tear up the Town and Country Planning Acts and go back to what prevailed the last time the private sector managed to house Britain, a free for all. The thing being that we really did learn this lesson last century: markets work and planning doesn't. The Soviet Union's economy collapsed into rubble because they tried to plan the whole economy. The parts of our economy which don't work are those subject to that very same mistake of planning.

In praise of profiteering on vaccine prices

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The scandale du jour seems to be that people are raising the price of something that is in short supply. Quite what anyone is supposed to do other than that is not detailed but it's definitely a scandal:

Private clinics have been accused of “cashing in” on the increased demand for meningitis vaccinations by charging up to £750 for a child’s treatment. This is more than 12 times the cost of the same three-dose course on the NHS, which is around £60.

Parliament are expected to discuss reversing a controversial decision to limit the meningitis B vaccine to babies under nine months after MPs acknowledged that a record-breaking online petition had to be "taken seriously".

The petition, which has been signed by more than 800,000 people maing it the most signed in parliamentary history, calls for all children under the age of 11 to be given the vaccine.

Vaccination is of course a good thing in general: it's one of the great advances in public health of the past few centuries, ensuring that ever fewer of us die of the common childhood diseases. It also leads to that public good of herd immunity which is a very good reason indeed for there to be state intervention and possibly state subsidy. That is, after all, one of the major reasons for having government, to gain those public goods which we cannot gain in any other manner.

Sadly, meningitis vaccines tend not to produce herd immunity but that's a slightly different matter. Dependent upon the sub-type it is possible to be personally protected and yet still carry and possibly infect.

Yet this is simply wrong:

Sue Davie, head of the charity Meningitis Now, told The Daily Mail: "It would clearly be wrong for anyone to profiteer from this situation. This vaccine should not only be available to those who can afford it."

Ian Liddell-Grainger, a member of the All Party Parliamentary Group for Child Health and Vaccine Preventable Diseases, said: "For clinics to profiteer on something which is affecting people's health and lives is disgraceful.

"People's lives are being played with. To charge £250 a dose really is disgusting. I will bring this up in Parliament if I can."

Because that isn't the situation at all. Those wise people at NICE and elsewhere in the health service have done their best to look at the costs and benefits of this particular vaccine. It's part of the regular childhood set now. And that part is entirely unaffected:

Due to unexpected global demand for Bexsero during 2015, we are experiencing supply constraints during the first half of this year.

Although vaccination through the NHS childhood programme has been prioritised and is unaffected, we have unfortunately had to ask private clinics temporarily to not start new courses of vaccination.

Children who have already started their course of the vaccine privately should still be able receive their follow up doses.

So, where it is considered medically appropriate this vaccine is available in the usual manner, through the NHS. For others who desire this vaccine there is a shortage of supply. There is, quite literally, nothing at all that can be done to increase this supply in the short term. In the medium term there will be increased supply.

What then should anyone be doing to allocate that very limited (in fact, the drug company itself is indicating no further supply at all to the private market)? Who, where and how, should be making the decision as to who gets that limited supply and who does not?

Note again, all the actions to increase supply are already happening. Even a Manhattan Project style program isn't going to increase that supply before the summer.

Clearly, what should be happening is what is already happening. Supply to those with medical priority, the 9 month old babies, is already both prioritised and ensured. The remaining supply is being allocated to those who value it most: as it should be, on the basis of price. There is no other sensible manner of doing this.

Just what is the solution that anyone else would offer?

You can't just hand wave the Living Wage away with higher productivity

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This is a drum which one of us has been banging for some time now. You cannot just wave away the effects on unemployment of the Living Wage by muttering about productivity. Increased productivity is using less labour.

Nida Broughton at the SMF says:

If businesses can increase productivity there is less likely to be a risk of higher unemployment as a result of the introduction of the National Living Wage.

This is true only in a very particular sense. In other senses, increasing productivitymeans raising unemployment.

As Chris Dillow goes on to point out, productivity is the amount of output we get from a particular input of labour. Or, of course, it's possible to reduce the amount of labour and get the same output. Thus the problem if people say that business can simply deal with higher imposed wages if only they increase productivity.

If it takes us currently the labour of 10 people to make 100 hamburgers an hour, and we raise wages and thus effort is made to raise productivity, perhaps through automation or by the manager buying a whip, we then have 5 people making 100 hamburgers an hour. Or perhaps we have 10 people making 200. We have now raised productivity and sure, the late nite eatery can now afford its higher wage bill.

But note what else has happened. We are either using half the labour we used to in order to produce the same number of comestibles, or we are using half the number we would have used to make the larger amount.

Thus the argument that productivity increases will take care of higher wages is not an answer to the insistence that higher imposed wages will cause the use of less labour. Far from being a rejection of the point it's just an explanation of that very same point, the reason why it will happen.

Of course British farmers would be better off outside the EU

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We find this a slightly puzzling question to ask: whether British farmers would be better off inside or outside the EU? Because the answer is entirely obvious:

Would British farmers be better off in or out of the EU? Environment department ministers are at odds over whether a Brexit would be good for farmers, who receive roughly £2.5-3bn a year in EU subsidies

The answer is obvious not because it's the EU, nor because of free trade or anything else like that. It's obvious because of the form the subsidies take.

Currently farm subsidies are pretty much entirely an area based payment. Have one acre, get x, have 1,000 acres, get 1,000x. Not entirely but close enough, that's the system.

What does David Ricardo tell us about a rise in rent? It gets very quickly capitalised into the value of the land itself. And of course an annual payment, unconnected with anything very much other than the area of land owned is equal to a rise in rent. So, all that the current subsidy scheme does is push up the price of farming land. Which is lovely for those who already own it and wish to sell. But of course it just increases the capital requirements for those who wish to enter the field, or who wish to expand their operations. The end result is more capital, or more borrowings and thus interest, and at very best the farmers are back where they started before the subsidy scheme was set up.

All the current subsidy process does is raise the cost of the major input into farming, the land itself. It's a ludicrous system of subsidy. And farmers and everyone else would be better off if the system simply did not exist.

That leaving would enable us to abolish that system, although of course the usual political cravenness in the face of the farmers means that we probably wouldn't, which would be a good idea.

This is not to take a view on Brexit specifically: it's only that the current system of farming subsidies is simply ludicrous and anything at all that would allow is to get out of it would be both useful and sensible.

People still aren't understanding climate change

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What's worse, it's the people insistent that they know all about climate change who are getting it wrong at a basic logical level. As ever here, we'll start from the idea that the IPCC is correct, that we've a problem, we're causing it and we should do something. Even then these people are still wrong.

In a comprehensive new study published in the journal Nature Climate Change, researchers propose a limit to future greenhouse gas emissions--or carbon budget--of 590-1240 billion tons of carbon dioxide from 2015 onwards, as the most appropriate estimate for keeping warming to below 2°C, a temperature target which aims to avoid the most dangerous impacts of climate change.

The study finds that the available budget is on the low end of the spectrum compared to previous estimates--which ranged from 590 to 2390 billion tons of carbon dioxide for the same time period--lending further urgency to the need to address climate change.

This is simply the wrong way to be calculating things. For once we've accepted the IPCC (sure, many don't, but for the sake of argument here we are) then we move over into economics. And economics is about costs and benefits. This is the very point that the Stern Review addresses, also the associated works of William Nordhaus, Richard Tol and so on.

The calculation is: how much damage will be caused? What will it cost to avoid that damage? The amount of work and effort we should put into avoiding that damage cannot, on any logical grounds, be more than the damage we avoid by doing that work and effort. To do so would be to make us all, and the future, poorer to no good reason. Thus all of our conversations have to be about the costs of doing whatever it is.

And that's when we get into problems with the sort of calculations above. Because quite obviously it costs more to change things quickly than it does to do so slowly. Partly because it takes time to develop new technologies, partly because there's a capital cycle to deal with. It's hugely cheaper to replace emitting technologies when we're going to replace them anyway than it is to insist on closing down assets now and replacing them. What's a cheaper way of introducing electric cars? Insisting everyone junk their current ones today or insisting that they get an electric one when the current one falls apart?

Quite.

The problem with insisting that we've got to do everything faster is that it means that we've got to do everything in a more expensive manner. And thus, logically, that we should actually be averting fewer emissions over time rather than more. Because we are doing it in that more expensive manner.

All of the economists who look at this economic problem keep insisting that we should not have a temperature nor emissions target. We should and must have a cost target. So why is it that the rest of the world keeps charging up this wrong path?

A defence of sweatshops

Sweatshops are certainly controversial. We often hear that it is wrong for us to wear clothes made by people working in terrible conditions, who get paid very minimally. Last year, the Institute welcomed Professor Ben Powell from Texas, who explained why this popular view was mistaken. And now, in this short video clip, my friend and Cato Institute Senior Fellow Johan Norberg explains how sweatshops have actually reduced poverty in Bangladesh and Cambodia.