Time for a human rights review?

The Times law report (15th July) concerned a Muslim school-age immigrant, granted asylum in France, who had come to the UK instead on the grounds that she was not permitted to wear the burka in French schools. She claimed that to be a human right and therefore the Home Secretary was wrong in seeking her return to France. The rights and wrongs of human rights and clothing indicating religion are not my concern.  The issue here is the extent to which foreigners are entitled to legal representation to fight their cases at UK taxpayers’ expense.  Some lawyers claim that justice has no price but can that really be so?

In this case, Mr Justice Hickinbottom refused a judicial review of the Home Secretary’s decision.  On 24th June, the Court of Appeal, being the Master of the Rolls and two other Lord Justices, resoundingly supported the earlier judgment.  The appellant needed to show that there was a “flagrant violation” of the European Convention on Human Rights.  In this case, there was no violation at all, never mind flagrant.

Although the report does not say so, it is hard to believe that this school-age asylum seeker had the funds to cover the original hearing, still less the appeal. Perhaps we will be paying for a further appeal to the European Court of Human Rights itself even though the ECHR has already ruled several times that France is entitled to ban the burka in schools so long as it does not do so in general.  Other forms of education are available, e.g. distance learning.

Some will feel that an asylum seeker is lucky to be accepted at all and such acceptance should not entitle them, free of charge, to the full panoply of rights built up and paid for by the citizens.  Obviously as time goes by and they integrate, so their rights should build up but not immediately and certainly not before they have gained admission.

One solution would be to require asylum seekers as part of their acceptance to sign, with legal advice, a binding agreement that they are not entitled to legal aid until assimilated into the country as defined by learning the language to conversational level, paying UK taxes for, say, five years and not being found guilty of a crime normally punishable by a prison sentence.

Some will say that the last is both unfair and inefficient.  In effect they would be deemed guilty before being judged and self-defence by someone without the language would clog up the courts.  But the present system lands the UK taxpayer with the not inconsiderable cost of prison followed by a failure to expel them, as we legally can, because deportation is appealed and the Home Office is overwhelmed by cases.  The UK taxpayer funds not only the legal costs of asylum seekers’ “rights” but all the associated civil service, police and imprisonment costs.

Time for a review?

Mariana Mazzucato's extremely strange economics


Mariana Mazzucato's got another installment of her rather strange economics in the paper. This is the follow on from the insistence that government funds all innovation. Here's she's decrying the rise of "finance" and how it doesn't actually develop the economy and thus, well, and thus politicians should do it all for us I think. One interesting little thought is that she doesn't seem to have understood Piketty:

Indeed, the origins of the financial crisis and the massive and disproportionate growth of the financial sector originated in the 1970s, as finance became increasingly de-linked from the real economy.

It's also true that Piketty doesn't really understand his own data either. Yes, there has been a rise in the wealth to GDP ratio and yes, it did start in the 70s. For the US and UK this was a rise of about 150% of GDP. And yes, this has almost all been in financial assets. So we can indeed say that finance has risen in importance as a part of the economy.

But what has also happened is that pensions savings have risen by 150% of GDP over this same time period. That is, that the rise of finance seems very closely correlated with the baby boomers saving for their retirements.

It's difficult to see this as a problem really.

Then there's this entirely bizarre point she makes:

In the attempt to "rebalance" economies away from speculative finance towards the real economy, there have been proposals to reform finance so that it helps to fuel more innovation. Various measures have been tried to help those few small and medium enterprises willing to go after difficult high-risk investments, the backbone of innovation. Yet these reforms have been inadequate, slow and incomplete, with the proportion of profits from quick trades in the financial sector, rather than long-run investments, rising not falling. And one of the key tools for long-termism, the financial transaction tax, has still not been applied.

She seems not to have read the EU's own report on the FTT (which I wrote about here). The EU itself states that the introduction of an FTT will reduce investment in business, so much so that the economy will actually shrink compared to where it would be without the FTT. So Mazzucato is apparently recommending a course of action, in order to increase investment, which we know will actually reduce investment.

It's an odd policy world she inhabits, isn't it?

The rest of it is just that we should have a Public Investment Bank and everything will be sweet. Which, given the things that politicians like to invest in (Olympics, HS2, Concorde, write your own list) is a very sweet but most misguided hope.


Rising demand hits static supply: what shall we do?


So here's a little puzzler. Imagine that we had some good or service that was in limited supply. And that then demand for that good or service rose. What could or should we do to deal with  this problem? For obviously some of those who desire that good or service are going to be disappointed given that we cannot increase supply. The obvious logical answer is that we should increase the price of that good or service. This will, in the way that rising prices tend to do, reduce demand for that good or service. Further, we also know that that limited supply will go to those who value it the most: we working this out by concluding that those willing to pay a higher price are those who do value something more highly.

Then we get the Mail:

What a rip off! Hotel room prices in Glasgow soar 158 PER CENT to up to £448 a night as city prepares to host Commonwealth Games

A night in a hotel will now cost an average of £344 for the Games period A year ago prices were on average of £78 per room The most expensive night - Sunday 27 July - will cost an average of £448

That's the house magazine of the angrier part of Middle England complaining about the solution to that difficult problem that, well, when a sporting event is going on more people want to stay in a city which has, in the short term at least, a static supply of hotel rooms.

No wonder we all have problems getting economically rational political policies put in place, eh?

Len McCluskey is not entirely correct about the NHS and TTIP


According to Len McCluskey the upcoming Transatlantic Trade and Investment Partnership is going to mean the end of the NHS. As one might expect from such a source he's slightly, umm, shading, the reality of what is going on here.

Now Cameron is set on giving these US investors new powers to sue any future UK government if it makes changes to health policy that might stop the dollars rolling in.

The deal will mean that American investors will be able to haul any UK government that tries to reverse privatisation to a tribunal – the “investor state dispute settlement” that would operate outside the law of this land. These tribunals will have the power to award billions in damages and compensation for lost profits and the loss of projected future profits, with no right of appeal. Yes, that is right – no right of appeal.

In short, the British public would face massive costs to bring NHS services back into public hands, making it nigh on impossible.

What is actually happening here is two things. The first being that the investor dispute system under the TTIP is arbitration rather than court action in the state in question. This is for the fairly obvious reason that the disputes will be between the government of the country and the investors and the government of a country controls (well, D'oh!) the legislature of that country and therefore what the law is. And as we've seen that's a very dangerous place for investors to be in. Those who lent money to Greece in Greek law bonds found themselves having a 70% haircut imposed after the Greek Government (and legislature) changed the collective action clauses (what portion of a bond issue must agree to changes in those bonds) after the bonds had been issued and paid for. Those who lent money to the same government but in English law bonds got paid out in full. Because the Greek Government didn't have the power to change English law in that manner.

We might not think that that could happen in our own dear courts in England and Wales. But this is a deal that includes the entire EU and as we've seen this has happened in the past couple of years here in the EU. So what is being offered is legal certainty to investors, that certainty being ensured by insisting that governments cannot change the rules of the game after the whistle has blown. All of which seems fair enough.

As to the second part, what this actually means, it just means that governments must adhere to whatever contracts they sign with foreign investors. If the contract says that it can be cancelled with no compensation to be paid then it can be cancelled with no compensation to be paid. If the contract says that compensation must be paid upon cancellation then compensation (whatever a government might do to change the law later) must be paid.

In this it is very similar to current law on such things as nationalisations for example. Any government is allowed, under international law, to nationalise anything that it might wish to. The UK Government could, if Red Ed were elected to power, simply decide to nationalise all private sector providers of health care and or health care services. Nothing at all to prevent them doing so: but under current law they would have to pay a fair market price for those assets. Under the new TTIP system they would also have to pay a fair market price for them.

The only people who could possibly complain about this would be those who would like to nationalise things without fair market price compensation: you know, thieves.

The whole TTIP system is simply a method by which governments can be forced to stand by the contracts they have signed with people not employed by those governments deciding whether they have or not. Which, given the power that governments do have to confiscate things from people, all seems entirely fair and just.

Steel tariffs to save a few jobs doesn't work if steel tariffs cost more jobs elsewhere


The Obama Administration has decided to impost steel tariffs over in the US. This is because, horrors, foreign companies were willing to sell steel to US consumers at prices they wanted to pay. The argument is that this will save jobs in the steel industry. And quite possibly it will: On Friday the Commerce Department imposed duties on hundreds of millions of dollars in annual trade with South Korea and eight other countries, including India, Vietnam, Turkey and Taiwan. As punishment for allegedly dumping steel into the U.S. market at unfair low prices, South Korea's exporters will face tariffs of about 10% to 16%, while smaller players from other countries face rates up to 118%.

As we all know, if some foreign wallah turns up offering you a deal, even if that deal has been funded by gouging foreign taxpayers, the correct answer is to say "Thank you , may I have some more?" But such is the power of the steel unions in the US that the authorities have caved and made steel more expensive for all Americans to please that one interest group.

If only people remembered a bit more of history, eh? Bush also imposed steel tariffs and the effects were:

The Consuming Industries Trade Action Coalition (CITAC) Foundation requested a formal examination of the impact of higher steel costs on American steel-consuming industries,1 and in particular, a quantification of employment losses at those companies. This study employed straight-forward and widelyaccepted regression analysis using a variety of price and employment data to maximize the reliability of the results.2 We found that: • 200,000 Americans lost their jobs to higher steel prices during 2002. These lost jobs represent approximately $4 billion in lost wages from February to November 2002.3 • One out of four (50,000) of these job losses occurred in the metal manufacturing, machinery and equipment and transportation equipment and parts sectors. • Job losses escalated steadily over 2002, peaking in November (at 202,000 jobs), and slightly declining to 197,000 jobs in December.4 • More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).

That's not exactly an impartial report, this is true. But losing more jobs as a result of tariffs than there are in the entire industry you're supposedly protecting doesn't sound like a very good idea really.

Probably better to have let the steel industry shed a few jobs, offer retraining to those affected and allow the rest of the economy to expand off that cheap steel being subsidised, if subsidies there really were, by Johnny Foreigner.

Sadly, Ed Davey still doesn't understand carbon cap and trade systems


This is something of a pity of course, for not only is he the politician in charge of this area he's also been in charge of it for some years now. You'd rather hope that someone would have clued him into how cap and trade systems work by now but apparently not. Perhaps people have tried and he's not able to grasp it? The problem is that Davey seems to think that a low price for a pollution permit is a bad thing: that because pollution is bad therefore a high price for the right to pollute would be better. This is, of course, the reverse of what is actually true:

The EU cap-and-trade system is the world's largest. By putting a price on every metric ton of carbon emitted and allowing companies to trade allowances, the system enables carbon-reduction targets to be met at the least cost.

But the market currently has a surplus of about 2 billion emission allowances, equivalent to a year’s supply. As a result, carbon prices are at an unhealthy low. So what has gone wrong, and what can we do about it?

Some believe that a weak carbon price benefits business and the economy, but it does not. It undermines the low-carbon investment we need now to meet long-term targets. Ambitious emissions-reduction targets are here to stay, so delaying low-carbon investments just pushes the cost of achieving them later down the line and risks increasing it. It also means losing out on the potential growth and jobs that come with such investments.


There is no surplus of permits: there's exactly the same number of permits that there were when the politicians set up the system. That many of them are going unused does not mean that pollution is not being reduced: it means that reducing pollution was easier than the politicians thought it was going to be when they set the number of permits. And a low permit price does not mean that people are not working to reduce emissions: it means that it's far cheaper to reduce emissions than we all thought it was going to be.

Davey's simply got the wrong end of the stick here about what prices are telling us. If we were to have a carbon tax then yes, it would be the price which would be what limits emissions. The higher the tax the more emissions would be limited. But prices work the other way around in a cap and trade system. The limit on emissions is the number of permits. Price tells us not how many emissions will be limited but how easy or difficult it is to meet the permit cap. We would all very much prefer emissions permits to cost €0.01 per thousand tonnes CO2 than any thing higher. For it would indicate that reducing emissions is a great deal cheaper than anyone thought it would be.

Aren't we lucky that people attempting to plan our lives can't grasp even the most basic points about how to plan said lives?

Should central banks do emergency lending?


A barnstorming new paper from the Richmond Fed, written by its President Jeffrey Lacker and staff economist Renee Haltom, argues that the Federal Reserve has drifted into doing too much credit policy to the detriment of its traditional goal of overall macroeconomic stabilisation.

In its 100-year history, many of the Federal Reserve’s actions in the nameof financial stability have come through emergency lending once financial crises are underway. It is not obvious that the Fed should be involved in emergency lending, however, since expectations of such lending can increase the likelihood of crises. Arguments in favor of this role often misread history. Instead, history and experience suggest that the Fed’s balance sheet activities should be restricted to the conduct of monetary policy.

The first step in their case is attacking the idea that the Fed was created to be a lender to specific troubled institutions or sectors:

Congress created the Fed to “furnish an elastic currency.”...In other words, the Fed was created to achieve what can be best described as monetary stability. The Fed was designed to smoothly accommodate swings in currency demand, thereby dampening seasonal interest rate movements. The Fed’s design also was intended to eliminate bank panics by assuring the public that solvent banks would be able to satisfy mass requests to convert one monetary instrument (deposits) into another (currency). Preventing bank panics would solve a monetary instability problem.The Fed’s original monetary function is distinct from credit allocation, which is when policymakers choose certain firms or markets to receive credit over others.

They go on to explain further the difference between monetary policy (providing overall nominal stability; making sure that shocks to money demand do not lead to macroeconomic instability & recessions) and credit policy (choosing specific firms to receive support and funds—effectively a form of microeconomic central planning):

Monetary policy consists of the central bank’s actions that expand or contract its monetary liabilities. By contrast, a central bank’s actions constitute credit policy if they alter the composition of its portfolio—by lending, for example—without affecting the outstanding amount of monetary liabilities. To be sure, lending directly to a firm can accomplish both. But in the Fed’s modern monetary policy procedures, the banking system reserves that result from Fed lending are automatically drained through off setting open market operations to avoid driving the federal funds rate below target.

The lending is, thus, effec-tively “sterilized,” and the Fed can be thought of as selling Treasury securities and lending the proceeds to the borrower, an action that is functionally equivalent to fiscal policy.

They go on to explain why Walter Bagehot provides "scant support" for the creditist approach to crisis management, while the facts of the Great Depression do not fit with the creditist story.

Finally, they note that even if there are inherent instabilities in the financial system—something far from proven—many of these are made substantially worse by central bank intervention in credit markets.

Financial institutions don’t have to fund themselves with short-term, demand-able debt. If they choose to, they can include provisions to make contracts more resilient, reducing the incentive for runs. Many of these safeguards already exist: contracts often include limits on risk-taking, liquidity requirements, overcollateralization, and other mechanisms.

Moreover, contractual provisions can explicitly limit investors’ abilities to flee suddenly, for example, by requiring advance notice of withdrawals or allowing borrowers to restrict investor liquidations. Indeed, many financial entities outside the banking sector, such as hedge funds, avoided financial stress by adopting such measures prior to the crisis.Yet, leading up to the crisis, many financial institutions chose funding structures that left them vulnerable to sudden mass withdrawals. Why?

Arguably, precedents established by the government convinced market participants of an implicit government commitment to provide backstop liquidity. Since the 1970s, the government has rescued increasingly large fi nancial institutions and markets in distress. This encourages large, interconnected fi nancial fi rms to take greater risks, including the choice of more fragile and often more profi table funding structures. For example, larger financial firms relied to a greater extent on the short-term credit markets that ended up receiving government support during the crisis. This is the well-known “too big to fail” problem.

I apologise for the length of the quotation, but the paper really is excellent. Do read the whole thing.

Why prostitution should be safe, legal and, well not rare actually


We're all well aware of the way in which various feminists are insisting that prostitution should be made illegal in the UK. (A note for non-Brits, prostitution itself is legal in the UK, various activities around it, pimping, running a brothel, soliciting are not.) Two major counter arguments occur:

Most governments in the world including the United States prohibit prostitution. Given these types of laws rarely change and are fairly uniform across regions, our knowledge about the impact of decriminalizing sex work is largely conjectural. We exploit the fact that a Rhode Island District Court judge unexpectedly decriminalized indoor prostitution in 2003 to provide the first causal estimates of the impact of decriminalization on the composition of the sex market, rape offenses, and sexually transmitted infection outcomes. Not surprisingly, we find that decriminalization increased the size of the indoor market. However, we also find that decriminalization caused both forcible rape offenses and gonorrhea incidence to decline for the overall population. Our synthetic control model finds 824 fewer reported rape offenses (31 percent decrease) and 1,035 fewer cases of female gonorrhea (39 percent decrease) from 2004 to 2009.

If decriminalisation reduces rape and clap cases then we should probably assume that those who would criminalise it are pro-clap and pro-rape. So there's certainly an empirical argument against criminalisation.

There's also a good theoretical argument which is that what on Earth is the definition of an adult if it isn't someone who gets to decide what to do with their own gonads? So as long as everything is confined to consenting adults then renting out body parts is and should be no different from lending them out for fun or for free. That is, if consenting adults are, by law, allowed to have sex with any, and any combination of, other consenting adults it is absurd to distinguish between paid events of such activity and unpaid events of such activity.

Not that either argument is going to convince the more militant feminists but fortunately we all get to vote on their suggestions, don't we?

Why we're very much richer than the GDP numbers tell us we are


We're continually told that GDP isn't actually all that good at measuring how well off we really are. It doesn't measure the costs of pollution, it covers only market activity, it doesn't look at the distribution of wealth or income and so on. All of those things are true. But it's also true that GDP measures grossly underestimate how well of we all are collectively as well. The reason is contained in that chart above.  Because GDP is only measuring matters at that equilibrium price.

That means that the producer surplus, the profits, gross margins, what have you, are included in GDP. But that consumer surplus is not.

An example of what is meant here. Your humble author lives in rural Portugal where the mains water supply comes from the City. The pricing system is sensible, possibly even rational, for a drought prone area. There's a low and fixed cost, some €20 a month, for a basic water supply. This covers the usuals for the average household, drinking, washing, cleaning, bathing, but no more. If you want to use more water, say to fill a pool, one must pay extra. And one pays more per unit of water the more one uses. Try to irrigate a substantial garden and that will costs hundreds of euros a month (and we certainly check for leaks now given that a jammed toilet cistern led to a €300 bill).

However, what are we really prepared to pay for water? We've lived in places where the tap water was not, at least not to those immune to various bugs, actually potable. At such times we were absolutely delighted to pay, say, €1 a litre for the 4 litres a day that a couple of adults might get through. Bathing water from the tap but drinking water from the bottle.

So we'd be perfectly happy, if no other method were available, to pay €120 a month for just our drinking water. Well, perhaps not happy, but we'd do it: and the important thing here is that we're now being charged €20 and getting all our bathing, washing etc water for free.

We have a consumer surplus of €100 a month,at least, something that is vastly greater than the €20 a month that is recorded in the GDP figures, and that €100 isn't appearing anywhere at all in the national accounts. As far as the usual measures of wealth and or income, even of living standards, we're just not noting that number at all.

It's very difficult to actually prove this following statement because no one can accurately measure that consumer surplus. The amount that people would be willing to pay if they had to but which they do not because of that equilibrium price. For if it could be worked out accurately, and who would pay the extra would be, then firms would be doing their darndest to charge those different amounts and thus turn the consumer surplus into producer surplus. In rather the manner that VW sells essentially the same car under the Skoda, VW, Audi, Porsche and even Bentley brands. Tart it up, slap a different badge on it and see if you can get someone to pay more for it: product differentiation to attempt to capture some of that consumer surplus. But it's arguable that that consumer surplus is, across the economy, many times the actual recorded GDP, as it is in the worked out example of water supply.

One more point about the very modern world. We're getting a lot of things for free these days, things that we used to have to pay for. That equilibrium price, that market price, is therefore falling, so therefore so is the contribution to GDP of those things that are becoming free. Music streaming, messaging, information search and so on. But the consumer surplus of these things is just as vast, if not perhaps greater, than that water example.

So yes, GDP isn't a very good method of judging how well off we are. For we've now got the absurd fact that as the consumer surplus grows with free things, we're actually recording lower GDP at the same time. We're all getting richer but the numbers say we're getting poorer.


You can't save the NHS money by giving lardbuckets gastric bands


Apologies that we have to return to one of our treasured themes here at the ASI. But once again we are seeing the fallacy that reducing the number of fat lardbuckets will save the NHS money. It won't we're afraid, it just won't:

The National Institute for Health and Care Excellence (Nice) has just announced that it is considering lowering the BMI threshold for people with newly diagnosed type 2 diabetes for assessment and referral for bariatric (stomach-reducing) surgery. If this goes ahead, it could mean more than 800,000 additional people qualifying for possible gastric bands or similar treatments.

Perhaps some people out there right now are gearing up to the standard reaction, along the lines of: "Lazy, unmotivated lardarses getting mollycoddled by the state after they've stuffed their faces and not exercised. Why should the state pay for that?"

No mention of how losing weight (and avoiding maladies) through such surgery could save the NHS millions and therefore be classed as relatively cost-effective.

The problem with this saving the NHS money argument is that it is simply untrue. For obesity (and we do mean obesity here, not simply being overweight or a bit tubby) kills people younger than they would otherwise have been likely to die. And in a health care system where all medical expenses are picked up by the same organisation a longer life leads to greater total expenditure. This is well known and has been proven:

The actual numbers for lifetime from 20 years old medical costs were:

The lifetime costs were in Euros:

Healthy: 281,000

Obese: 250,000

Smokers: 220,000

This does not, of course, mean that the NHS should not fund gastric bands. We generally think that then purpose of said NHS is to aid us all in living longer and healthier lives so if that's the appropriate treatment to lead to that desirable outcome then that's just fine. But we can't bolster our argument in favour of the procedure by insisting that it will save money. It won't: if it works it will cost more, not less, over time.

It is this specific argument, the cost saving one, that is fallacious, not all and every argument about gastric bands or, indeed, the NHS itself.