Facebook and free markets

There is at least the beginning of an advertising boycott of Facebook as certain companies more attuned to current fashions complain about some of what Facebook allows to be posted upon the site.

Good, this is how it should be.

Facebook has said it will start to label potentially harmful posts that it leaves up because of their news value.

The more hands-on approach comes as the social media firm is under pressure to improve how it moderates the content on its platform, including posts by US President Donald Trump.

More than 90 advertisers have joined a boycott of the site.

Consumer goods giant Unilever on Friday added its name to the list, citing a "polarized election period" in the US.

The maker of Dove soap and Ben & Jerry's ice cream said it would halt Twitter, Facebook and Instagram advertising in the US "at least" through 2020.

"Continuing to advertise on these platforms at this time would not add value to people and society," it said. "We will revisit our current position if necessary."

Now, whether the folks at Unilever are doing right by their shareholders by doing this is another matter. But of course those shareholders that don’t want that done with their money can sell and invest elsewhere.

Facebook is, of course, one of those dual facing (no, not two faced) companies as analysed by Jean Tirole. They are trying to please both the users of the site and also the advertisers upon it - there is a balancing act here. So, how to judge the perfection of the balance reached?

Advertisers have the absolute right not to spend their money there. The impetus for not doing so presumably being that those they are advertising to will change their purchasing habits if they do or they don’t. Those who post to Facebook will equally decide to do so or not dependent upon the restrictions upon their doing so. The end state will be emergent from the interplay of those different processes.

That is, by leaving matters to those market processes we’ll end up with the correct balance. The conclusion therefore being that we can leave well alone and watch them get on with it - legal measures, regulation, are not required.

It’s worth noting what that end state will be too. The restrictions on the posting of “hate” material may or may not end up as being what we or you specifically would desire. But it will be the balance of what the couple of billion people who actually use Facebook do. Which is rather what the aim is, isn’t it? That people, by their individual behaviour, contribute to how the world ends up - you know, markets make good enough?

Can't we all be Keynesian about this?

Much to our surprise we find ourselves agreeing - if only on the one specific - with Larry Elliott at The Guardian:

In the long term, an economic rethink and reboot is needed. In the short run, the response has to be to protect as many jobs as possible. There are plenty of options: targeting the furlough at vulnerable sectors; allowing all companies to furlough part-time staff for longer; cutting employers’ national insurance contributions. Otherwise, the current euphoria will quickly fade in the grimmest of winters.

That specific being the cutting of employers’ national insurance. As Keynes himself said:

[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times. (July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.

It’s not necessary to buy the whole Keynes for this to make sense. Deficit financing or not there’s still value here. Employers’ national insurance is taxing people for employing staff. In the long term of course it is incident upon wages but in the short upon employers. The concern is that there is a wave of unemployment coming. If you tax something you get less of it. So, stop taxing employment if we wish to reduce the amount of employment we’re about to lose.

The worse anyone thinks this is going to get the more they should be arguing for employers’ NI to be reduced to zero for the duration.

Simple, logical, effective, no wonder it’s so rarely discussed as a political solution.

Carbon dividends are the answer

“People say economists don't agree on anything”, muses Dr. Erik Brynjolfsson, “but here's one thing we do agree on: carbon dividends”. Dr. Brynjolfsson’s statement came in response to a plan that was signed by more than 3,500 economists, the largest number of economists to endorse any policy of any kind in all of U.S. history. This included 27 Nobel Prize winners and all 4 living past federal reserve chairs (again, record breaking numbers.)

Plans of this ilk offer to implement a tax on carbon that gradually climbs up over time. The problem with many of these sorts of taxes is that they are often regressive, and aggressively so. Energy providers will let their consumers shoulder the burden, with higher prices needed to cover for their losses. This creates feelings of resentment, opening the door for populist demagogues to swoop in and “save the day”.

Never fear. This flaw is easily fixable. No one will feel the need to rally through the streets dressed as traffic wardens if the government were to give back to him or her the revenue amounted by the tax. People won’t complain about soaring higher energy bills if their pay check is soaring at a proportional rate.  

How, then, should this money be handed out in a manner that bypasses the law of unintended consequences? A Universal Basic Income, perhaps. Or, better yet, a Milton Freidman-style Negative Income Tax (as I have advocated in past writing).

Carbon dividends aren’t magic bullets, but they may well be the free world’s best way to appease the likes of Greta Thunberg whilst not sacrificing the economic framework that, quite literally, gave her the vaccine-filled, polio-free childhood that the despicable globalist elite supposedly stole from her.

Amos Wollen is the winner of the under-18 category in our Young Writer on Liberty 2020 competition.

Perhaps the Committee on Climate Change could make up its mind?

The Committee on Climate Change has decided to favour us with its thoughts on how we do indeed deal with climate change. In the process they’ve illustrated why the Stern Review insisted we do not plan for this, rather, we set the market up with the correct incentives then see what emerges. Just as the one example we offer you this:

Energy networks must be strengthened for the net-zero energy transformation in order to support electrification of transport and heating. Government has the regulatory tools to bring forward private sector investment. New hydrogen and carbon capture and storage (CCS) infrastructure will provide a route to establishing new low-carbon British industries.

We have not elided anything from that quote. That is actually what they say. The problem with it being that in the third sentence they entirely contradict the first. For hydrogen - one of us has done substantial work on hydrogen to power cars - is an alternative to electrification. Hydrogen can be burnt, for example, producing both heat and cooking. It can also be used as the equivalent of a battery in storing power. It can be used to power transport as well, there are a number of different possible fuel cell technologies out there.

The Stern Review really did say that we should not be using planning to try to deal with this problem. Simply because planning ends up in foolishness like the above. Instead, set the incentives and leave the market to do the heavy lifting - as Hayek pointed out, that entire economy out there is the only calculating engine we’ve got capable of working at the required level of complexity.

What really irritates is the number of people who will use the Stern Review as proof that something must be done but then gaily go off to ignore what the Stern Review insists what must not be done.

How improving information can reduce environmental overconsumption

Pollution, emissions and climate change are externalities resulting largely from consumers’ overconsumption of a good at a given price level. The lack of private responsibility associated with these external effects leads many to believe the only way for consumption to fall is through heavy handed government intervention, detrimentally impacting individual liberty and freedom.

Yet with the rise of environmentally conscious consumers, it would appear that people are internalising the externalities created by overconsumption.

Rising awareness may come from an increase in media attention and discussion of environmental issues on the world stage such as the increase in articles on climate issues, concern from leaders at the UN and the popularity of Greta Thurnberg. This creates a narrative which can have tangible impacts on the real economy, as evidenced by work done by Robert Schiller.

How does this change in narrative link to consumer markets? Whilst the environment may in many cases be ownerless, the choices made by consumers on how to treat it are made with individual agency and carry personal responsibility. In the same way that those who litter are shunned, developing environmental consciousness may lead to ecological consumption becoming a ‘social act’ providing people with an intrinsic motivation to make ecologically sound choices.

This idea builds upon Conspicuous Consumption proposed by Thorstein Veblen where the motive for consumption is based on exerting economic power to gain social influence and respect. Despite differing motives, both theories provide an external pressure for consumers to consider environmental effects of their consumption.

So, with society, firms and the media already moving in this direction, what policy can ensure this environmental consumption is effective as well as ethical?

Currently the ecological impact of a good is often poorly communicated, with no clear indication of what goes into the production of a given good. Creating a simple metric of environmental impact of consumption (e.g. through total CO2 resulting from production) would signal ecological effects to consumers allowing for more informed consumption choices.

In a way, this policy borrows aspects of behavioural economics and creates an additional factor for consumers to consider, which from societal pressure, they are likely to take seriously.

Thus by pioneering this metric, the UK seeks to take a more rational perspective in this increasingly environmentally conscious world.

Tim Edwards is the winner of the 18-21 category in our Young Writer on Liberty 2020 competition.

How excellent, the rough sleeping problem is solved

The rough sleeping problem was largely solved during the lockdown by putting all those sleeping on the streets into the empty rooms of closed hotels. Now that everything is opening up again a different solution is required:

An extra £85m has been announced by the Treasury to provide emergency accommodation for 5,400 rough sleepers who have been placed in hotels in England for the duration of the pandemic, avoiding them having to return to the streets when the hotels reopen to the public this summer.

The extra money will allow councils to rehouse rough sleepers in student accommodation and to find alternative spaces elsewhere until more permanent housing is found.

Dame Louise Casey, the chair of the Covid-19 rough sleeping taskforce, said she was extremely relieved the extra money had been allocated, allowing charities and councils longer to work to find long-term housing for those rough sleepers who have been staying in Ibis, Holiday Inn and Travelodge hotels at the government’s expense since the end of March.

“This will make sure that local authorities and others don’t have to put people back out on the street. I think it would be, frankly, inhuman – because we’ve given people a taste of life off the street and a taste of life where you get your health looked after. The last think we want is for anyone to go back,” she said. The funding meant she could “guarantee” that nobody would have to leave to return to a life on the streets.

Securing the funding had “taken a little bit longer than I would have liked”, Casey said. “But now we can assure people that nobody goes back.”

How excellent, well, that’s another problem we can tick off the list as being entirely and completely solved then.

Super. All the dirges about how appalling a society we are because someone sleeps in a cardboard box are now historical.

Except:

although inevitably some people might make a choice to return to rough sleeping.

This being the point we’ve been making for years now about rough sleeping. It’s not actually a housing problem in the first place. Therefore it’s not one solved by the provision of housing. It is a problem about significant mental illness and varied addiction problems meaning the solutions have to be about those, not housing. Not that this will stop the dirges.

We need bonds….just not the polyethylene kind

The micro-bead ban. The plastic bag tax. The plastic straw ban. Restriction after restriction is being levied, all in an unsuccessful attempt to eliminate the polymer that has become public enemy number one: plastic.

The problem of plastic pollution is compounding at a rapid rate, with 8 million tons of plastic entering the ocean annually. It can’t be ameliorated by policies centred on negative incentives, as these are unable to change consumer or investor behaviour in the long term. More often than not, employing negative incentives results in a fragmented, piecemeal approach, where select plastic items are taxed: barely enough to make a dent in The Great Garbage Patch. We need to look instead to policies that promote positive action, not curb negative behaviours.

One such policy is the adaptation of the green bond model to establish tax-exempt private green bonds. These would fund projects tackling plastic pollution that have a pre-certified impact. This would not only attract large investors but small scale investors too, as there would be potential for higher, tax-free returns with less risk. Apart from boosting funding, this would create an atmosphere that enables engagement with climate issues in a positive manner, encouraging the uptake of more environmentally-friendly behaviours, without the need for negative reinforcement.

The sustainability bonds market was worth $10.3 billion in 2017, growing to an impressive $18 billion in the space of just a year, demonstrating its enormous potential. However, the power of current green bonds is not being effectively harnessed in the fight against plastic pollution, with only 4% explicitly funding waste reduction.

This may be because, whilst useful investment vehicles, green bonds on the market today present numerous concerns: unpredictable returns, uncertainty surrounding the quantitative impact of the projects being funded and transparency generally, all of which dissuade investors. Tax-exempt private green bonds would fund pre-certified projects meaning that transparency and predictable returns would be guaranteed, thus removing the main obstacle preventing investment.

Moreover, such bonds could enable small-scale solutions to gain traction by eliminating one of the key barriers to growth in such technologically intensive fields: the cost of capital. Decreasing the cost of capital would increase production and cut the cost of the innovation, spurring further investment and creating a sustainable cycle of growth, benefiting both economy and environment. It is evident that tax-free green bonds are the only shackles capable of restraining this polymer, public enemy number one.

Simran Lakhotia is the runner-up of the under-18 category in our Young Writer on Liberty 2020 competition.

Fairtrade And The Rainforest Alliance

We’ve pointed out over the years that we’re not particularly in favour of the varied fair trade schemes out there. We do indeed want the poor out there to get richer and insist that it is free markets and capitalism that achieve that worthy, even noble, aim. On the other hand consumers gain utility from thinking they’re doing something useful so that makes them richer, as their voluntary spending on such schemes shows, so why not?

The gripping hand argument for us is that Fairtrade, specifically, encourages the perpetuation of smallholder farming. Or, as we would put it, the sentencing of people to an eternity of peasantry.

With that background though we are supportive of this move:

KitKat has severed its ties with Fairtrade, despite the organisation behind the scheme warning that thousands of farmers would be hit by the move. The boss of Fairtrade said Nestle’s decision to cut its 10-year association with the non-profit organisation was “profoundly disappointing”.

The Swiss-owned food giant said it would now source its cocoa for KitKat bars from farms on Rainforest Alliance terms instead of those working with Fairtrade accreditation.

For those not au fait with the squabbling between groupuscules the differences are explained here and here.

The major benefit of such schemes is in the egos of those doing the purchasing. We do indeed insist that increasing the consumer surplus is a good thing and so the increase in competition is to be welcomed. Those who prefer to acquire that aura of zealous morality through their purchases may now do so in at least two different ways. They are made better off by the choice. Why wouldn’t we support that?

Markets do, after all, work.

Having targets requires having the right targets

We are told that Black Britons makeup only 1.5% of those in the top positions of power. We are further told that this is disgraceful and something must be done. We might start doing something by beginning to count properly.

UK employers have been told to take “urgent action” to support workers from ethnic minorities, after a survey found the number of black professionals in leadership roles has barely moved since 2014.

Business in the Community, the group founded by the Prince of Wales to support responsible business, said black people held just 1.5% of the 3.7m leadership positions across the UK’s public and private sectors in 2019, compared with 1.4% in 2014.

We tend to prefer - not insist upon, just prefer - the French habit here. They refuse, adamantly, to count the ethnicity of the population at all. To be a French citizen is to be a French citizen and that’s all there is to it. On the grounds that it is being a citizen of France that confers the rights and privileges so that’s all that should be counted. In our case a sort of Britannicus ergo sum.

This is terribly out of step with our times of course so we should progress to the current demands. The point being, and one we’ve made before, that measuring against the total population is not the correct comparator. For it should not be a surprise that those leadership positions are rather hogged by those in a certain age group. Despite certain election manifestos we do not install teenagers to political power for example. Nor, again despite certain behavioural evidence, are companies run by toddlers.

The claim is that the Black British population is some 3.3% of us all therefore that should be the percentage in those positions of power. This is not so. For that black population trends considerably younger than the population as a whole. As ONS points out here and here. The Black African portion of the population is now larger than the Afro Caribbean too:

1.9 million people (3.3%) were from Black ethnic groups, with just under 1 million of those identifying with the Black African ethnic group (1.8%), and 0.6 million with the Black Caribbean ethnic group (1.1%)

And:

the percentage of the population from a Black African background doubled from 0.9% in 2001 to 1.8% in 2011

And:

the Black African group had a younger age profile than the Black Caribbean group, partly due to different immigration patterns – the first large wave of immigrants from the Caribbean was in the 1950s and 1960s, and most of their children were aged 40 to 55 years at the 2011 Census (accounting for nearly 30% of this ethnic group); the more recent immigration of Black Africans explains why 29% of people in this ethnic group were aged 25 to 39 years at the Census

We are indeed of the view that the initial claim about targets is wrong in and of itself. But even putting that aside if we are to have targets then they do need to be based on a certain acceptance of reality. The younger among us are not currently in positions of power and authority in our society? That’s a rather feather and fall over finding, isn’t it?

Any and every measurement of the population that does not take into account age cohorts and demographics is going to be wrong. Therefore, if we are to measure these things we’d better start taking account of age cohorts, hadn’t we?

It’s a Funny Old Way to Run the Country

Few people think the government has made a good fist of managing the country through the pandemic.  We should not blame them because even the best of governments are poor managers partly because they confuse governing with managing. The word “govern” originates from being the helmsman, someone who sets the overall direction, rules or controls the ship (of state). The managers are the others who get things done. In modern terms, government sets the rules (laws and statutory instruments), deals with other states, recruits and equips the armed forces and, through taxation, pays for whatever democracy thinks the state should provide. Management is quite another matter; there has not been anyone with significant management experience in the Cabinet for over 25 years. The last two were Geoffrey Robinson, outed for lending money to Peter Mandelson in 1998, and Michael Heseltine who fell out with Margaret Thatcher in 1986.

According to the UK government listing “Departments, agencies and public bodies”, downloaded 20th June 2020, the PM has 23 Ministerial Departments reporting directly to him as well as a further 20 Non-Ministerial Departments who you might expect to report to ministers but seem not to. Those departments harbour about 370 Executive Agencies, Non-Departmental Public Bodies (NDPBs), Tribunals, Public Corporations and other quangos. According to the listing, the numbers mysteriously grow to about (do not expect precision from the Cabinet Office) 400 when they are listed alphabetically.  For someone recovering from Covid, that number of direct reports, not to mention Mr Cummings, is a bit tough.

Government should focus on governing and get out of management. Amongst the 370 NDPBs and whatnot, are 17 museums and a dozen parks and gardens, all good things but do they govern us? Public corporations, like the BBC and the Bank of England, are a step in the right direction.  The shareholder is the state but government does not interfere in day to day operations. Arguably the best thing Gordon Brown ever did was to step away from interfering in the Bank of England.  Amongst the 400 Executive Agencies and NDPBs, quite a few should be public corporations, notably NHS England which would do an even better job if it was given the chance to do so.

The interesting question is who should be the shareholder in UK public corporations if it is not the government? The Royal Parks, unlike the 17 English parks above, are owned by the Crown Estate but the responsibility of the Department of Culture, Media and Sport and yet not managed by them nor a NDPB because they form an independent charity.

Adult social care had a bad pandemic because it is chronically poorly funded; that is because no one is in charge. Local government is directly responsible for adult social care but lacks the funds. The Care Quality Commission, which usually checks hospitals, monitors it without regard to funding issues.  One might imagine that the central funding comes from the Department of Health and Social Care but that is not so; the Ministry of Housing and Funny Walks provides the moolah and also, clearly being expert in the matter, directions on how it should be spent.

Confusion still reigns over devolution. Downing Street pandemic briefings sought to convey that the messages were UK-wide even though health is constitutionally devolved.  The listing of Whitehall public bodies noted above contained 35 Scotland, Wales and Northern Ireland NDPBs. And MPs from those nations can still vote in the Westminster parliament on purely English matters.

Parliament itself could use some streamlining. In 2011, parliament recognised the inequity of constituency sizes (the biggest have twice the number of voters of the smallest) and voted to reduce the number of MPs from 650 by 8%.  Scotland and Wales are, ironically in view of devolution, over-represented and would reduce by 10% and 18% respectively compared with 6% in England.  France and Germany have 50% more voters per constituency than the UK so an 8% shrinkage, you might think, is modest.  MPs however share turkeys’ dislike of Christmas and managed to postpone the necessary boundary changes first to 2018 and then sine die.

One also might expect a little more enthusiasm for reducing the numbers in the House of Lords, currently 778. It is the only upper chamber in the world which exceeds the lower chamber in number. The average age is 70; the oldest is 95. 26 of them are Lords Spiritual of the Church of England – tough cheese if you belong to another nation or faith. 26 is more than twice the number of Christ’s disciples and three times the proportion of the UK population attending C of E churches. The House of Lords Reform Act 2014 was truly radical: it allowed those who did not turn up to lapse their membership.

Many people believe the UK has no written constitution but that is not the case.  It was written, by Lewis Carroll, in the 19th century but, Britain being an old country, no one can remember where we put it.

Joking aside, government, and the PM especially, really does need to focus on governing, streamline today’s incoherent structure, farm out public corporations and step away from management. How can that be done? Certainly not with another Royal Commission led by an elderly judge.  Lawyers are responsible for most of this mess and the least likely people to get us out of it. Far more important is political consensus: we must not have this changing every election.  Maybe the party leaders should meet for a good lunch, when social distancing allows, to hack out a rough solution. Sir Humphrey should take the minutes but otherwise remaining silent.  I’ll pay for the lunch.