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.

Property rights and the wealth of nations

The International Property Rights Index, compiled by the Property Rights Alliance (based in Washington DC) and 92 partner think-tanks around the world, contains some interesting stuff. Finland tops the index, followed by Norway, New Zealand, Luxembourg and Singapore. At the bottom is (you guessed it) Myanmar, Bangladesh, Angola, Haiti and Venezuela. Indeed, the figures suggest a very strong and significant correlation (0.822) between a robust property rights system and GDP per capita. Countries in the top quintile of property rights scores have an average per capita income some 24 times higher than those in the bottom quintile. There is a positive but weaker correlation between property rights and economic growth, and property rights and foreign investment.

Interesting too is the result that the countries with the greatest gender equality, in terms of access to property rights, are again the richest, with Finland, Norway, New Zealand, Luxembourg, Sweden, Japan, Switzerland, Canada and the Netherlands topping the ratings. The countries with least gender equality feature many of the poorest, namely Bangladesh, Myanmar, Yemen, Libya, Angola and Nigeria.

So do countries have better property rights because they are rich, or do they get rich because their have better property rights? The remarkable decline of countries that have tried various brands of communism might give us a clue.

Among humans opposites don't attract

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We don't think this is particularly surprising but it's nice to see confirmation:

The theory that opposites attract is a myth, scientists have found, after discovering that people are only attracted to those who hold the same views and values as themselves. In a finding hailed as a ‘paradigm shift’ for the understanding of relationships, researchers found that like-minded people will be drawn together but keep their distance from those who do not adhere to their beliefs.

This is not of course a paradigm shift, it's something obvious in the very art of our society. When opposites do attract then people write long stories about it: Romeo and Juliet and the subsequent retellings, West Side Story and Grease come to mind. And it's worth noting that that first comes to a somewhat sticky end (and we would also note that whether history works as tragedy and then farce stories definitely seem to move from tragic to musical to, well, farce).

However, rather than just advice on finding an inamorata this has significant implications for social mobility. For this is what leads to assortative mating, something which has been rather changing in our society in recent decades and also something which maintains social at least, if not economic, class divisions.

It has long been true that the aristos tend to marry aristos, the bourgeoisie the bourgeoisie, the proletarians the proletarians. Whether one thinks this good or bad it simply has been. However, it was also largely true that people married into one earner households. This somewhat limited income inequality when measured by household.

The situation is now rather different. People are marrying later and picking their mate from those they know at that sort of age. This means that we now tend to have lawyers marrying lawyers, professionals professionals, workers workers and so on. And most of us end up in two earner households: perhaps with a gap for the arrival of children but the majority of women do indeed work. This is leading to rather greater income stratification when we measure by household. For we end up with two professional income households, two middle income households, two worker income households and of course, down there at the bottom, single income households and none.

We entirely agree that there have also been other reasons for increasing income inequality: greater returns to education and globalisation for example. But at least some part of that increased inequality has come from the change in who we generally marry. Like has always attracted like: but rather more than used to be of this country it's less cultural or class like and now more economic like which is doing so. That's going to increase economic stratification.

There's also absolutely nothing at all any society with any pretensions to freedom or liberty can do about this. Not that we would want to but there's definitely those out there who would abjure any inequality stemming from any reason at all. We're not going to allow the State to interfere in that most personal of decisions, who we're to snore with for the next 50 years, nor can there be any justification at all for taxation on the basis of that choice (there's good reason why taxation is at the level of the individual, not the household). For this cause of inequality at least there is absolutely nothing at all that can or will be done.

We don't mind this at all, our political philosophy is based upon chacun a son gout anyway. But everyone else is just going to have to put up with it too.

The problem with Thomas Piketty

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Perhaps more accurately, we should say one of the problems with the work of Thomas Piketty. As Brad Delong points out, the central contention is as follows: Hotshot French economist Thomas Piketty, of the Paris School of Economics, looked at the major democracies with North Atlantic coastlines over the past couple of centuries. He saw five striking facts:

First, ownership of private wealth—with its power to command resources, dictate where and how people would work, and shape politics—was always highly concentrated. Second, 150 years—six generations—ago, the ratio of a country’s total private wealth to its total annual income was about six. Third, 50 years—two generations—ago, that capital-income ratio was about three. Fourth, over the past two generations that capital-income ratio has been rising rapidly.

At first sight this is indeed a problem. The capital of our economy is what we produce our income from. If the capital to income ratio falls then that means we are using the capital more efficiently. If it rises, obviously and equally so, the economy as a whole is becoming less efficient at turning assets into income. However, we need to break this out into more than just "capital".

Using the work of Saez and Zucman we can see that at least on this side of the Atlantic the great capital concentration of the late 19th century was in the value of agricultural land. As the Americas, then the Ukraine, opened up this value fell precipitately. Thus the destruction of the great aristocratic landed fortunes.

The privately held value of financial instruments hasn't really changed all that much over the time period: and that's the bit we usually concern ourselves with when we talk about wealth concentration.

In more recent decades the two components of wealth that have risen again are private land holdings, and that is principally domestic housing and private pensions savings. Again, that privately held value of financial assets, outside those pensions, hasn't really risen nor has it become more concentrated.

So, yes, we've had a rise in the capital to GDP ratio. That part that is house price rises, well, we've had our say about that a number of times. It's the restriction on planning permissions which has driven up the value of land you may build upon. This is inefficient and we have suggested, again a number of times, that we should do something about it. Like destroy the system which artificially restricts, and thus drives up, the price of those permissions.

As to the private pensions this is actually something of a success story. Immediately post WWII someone retiring at 65 could and did expect perhaps 3 to 5 years in retirement before death. Nowadays the equivalent number is 15-20 and it's still rising. Fortunately we did also have a system of pension savings provision which has largely paid for this. That's an inefficiency in the capital to income ratio we can live with: because if we didn't have it then there would be many old people with no income to live upon.

Given that Piketty's observed facts are so easy to explain we don't really need to take much notice of his further worries. None of the above justifies a wealth tax, worries over the creation of a permanent haute bourgeoisie or any of those other fashionable concerns. Fix the planning system and celebrate pensions and we're done.