Why we've finally joined Google+

We've set up an Adam Smith Institute page on Google+, and — more importantly — a Google+ community for libertarians and classical liberals (and fellow-travellers) to share and discuss ideas and articles they find interesting.

To be honest, I've always been pretty sceptical about Google+. Though I think the functionality is superior to Facebook, it's not better enough to entice people to use it instead. And we have so many fans on Facebook and Twitter that I've always been wary about splitting the audience too much.

So why the change of heart? Two reasons. One, we've wanted to set up a forum for liberty-minded people in the UK to talk about things online for a while. Message boards are unwieldy, and the other social media sites aren't very good at allowing people other than page managers or prominent Tweeters to start discussions that go out to larger audiences. Google+'s communities are remarkably bottom-up: if you want to start a conversation about something in the group, you can.

The second reason is the thing I'm most excited about. Google+'s Hangouts functionality is superb. Hangouts allow us to broadcast live video conversations between up to eight users, with chat contributions from anyone else who wants to take part. The Real Asset Company has done this to great effect. I'm hoping that, if there's enough interest, we can start doing regular online conversations with all sorts of people who it wouldn't be easy to bring to events at the Institute, broadcasting to all the people who can't make it to those events.

If there's anyone you think we should ask to 'Hangout' with, let me know in the comments and we'll see what we can do. In the meantime, join the Google+ community and let's try to get the ball rolling.


The desperate horrors of wealth inequality

Yes, we've another bunch of bedwetters and handwringers telling us how appalling it is that Britain is so unequal. This time it's about wealth inequality. It's just absolutely terrible about how unequal it all is. Here at The Guardian, at the "Inequality Briefing" site and I'm afraid that it's actually out and out nonsense. Entire tripe. Their information comes from this ONS paper and I'm afraid that they've not understood the caveats that accompany that research as well as making one other entirely silly mistake.

This is, in fact, all very reminiscent of the Hills Report that I shouted about some time ago.

The first and simplest mistake they make is that they forget that wealth changes sigificantly over the lifecycle. Indeed, what with things like university fees we rather expect people to have significant negative wealth for some years of their life. Certainly we expect that to be the general experience, that for some years people will have debts larger than their financial (but not their newly enhanced human capital wealth) wealth. It's also missing the other end of the life cycle part. 30 to 35 years after that period of negative wealth if all has gone well in that career in earlobe tattooing then we'd expect you to have paid off your mortgage and built up a nice little nest egg to finance your pension in your golden years. We really don't expect the newly graduated arts student to have either of those things. But we would rather hope that someone on the cusp of retirement would.

And that is in fact the major reason for the wealth imbalance. In those ONS figures we see that the total wealth they're talking about is around £10 trillion: of which £3.5 trillion is property and £4.7 trillion private pension plans. Financial and physical wealth are around a £ trillion each. I'm very much unconvinced that inequality of wealth across age is something to get worried about. Indeed, I think it not just normal but desirable. Another way to put this is the thought that people paying off their mortgages and saving for a pension just isn't something to bring the rabble out onto the streets.

The second problem is that they're committing what has been named (although not by me I hasten to add) Worstall's Fallacy. They are looking at this distribution of wealth before the various things that we do to reduce the inequality of the distribution of wealth. They do not count the State pension as wealth: even though it is very much an inflation proofed annuity just like the one you buy with your private pension pot. They count the house that you own but not the subsidised lifetime tenancies available in the council and social sector. That the NHS will treat you whenever you fall ill (OK, perhaps 4 weeks afterwards but....) is also a form of wealth, so is the social insurance that the State offers. In short, we've a welfare state and that is a source of wealth.

Whether that welfare state actually has the value that it costs to provide is another matter of course: but it is most certainly wealth: otherwise, why in hell does anyone support providing it?

In short, Inequality Briefing has ignored the most basic reason why wealth inequality is as it is: that people pay off mortgages and save for their pensions. And not only that they've looked at only the raw figures, without noting what is done to reduce wealth inequality.

This deserves an F minus. Go back and do it again and do it properly this time.

A new governing paradigm—maximising national wealth

How should governments decide on policy? One answer is that policy should follow a particular ideology, such as libertarianism or socialism. Another answer—direct democracy—is that policies should be arrayed in front of the populace at large so they can pick. Another is that the people at large should choose people who vote on policies from options selected by a third group of people—roughly the Westminster system. Absolute monarchy would give a family and their descendants control of policy. But an under-considered method of choosing policy is via markets.

Here I don't mean getting rid of social democracy and having most or all goods provided by the market; instead I mean choosing policies—whether free market or interventionist, right- or left-wing—with respect to the result of a hypothetical prediction market, specifically, one looking at some measure of national wealth.

Why wealth? Well what we really want to do is make people have better lives—increase their well-being. But measuring well-being directly is controversial and difficult. The two leading theories of well-being are that well-being consists in happiness/pleasure and that well-being consists in satisfying one's desires or preferences. We know wealth makes people happier, particularly when they are poor, but even when they are already well-off, and we know more wealth means more ability to satisfy most different preferences.

Thankfully, both measures (like the official ONS statistic) and proxies (like the total market capitalisation of, FTSE All-Share firms, which make up 98% of total business wealth) of wealth are fairly widely available. Of course, these happen after the fact—so while we could easily judge past governments by their effects on these metrics, we couldn't judge current policy proposals. But that needn't hold us back! We already have markets in future RPI inflation in the UK (and CPI inflation in the US), called TIPS spreads. These take the price differential between RPI-linked and regular gilts or T-bills to work out what the market expects inflation will turn out to be. We know this because if it didn't represent the market opinion, then traders could buy and sell bonds to achieve a higher expected return (i.e. take arbitrage opportunities).

Even a simple, TIPS-like market in national wealth would help us rationally guide policy. It's not exactly clear whether central banks check TIPS markets, but if they did, the markets would give them advance guidance on whether their policy would help them hit their target level of inflation, based on reactions to policy changes, suggestive speeches, and explicit forward guidance like the Carney or Evans rules. In the same way, important policies would shift the wealth markets, and governments could use that as evidence for doubling down on wealth creating policies and for getting out of wealth-destroying moves.

However there are important distinctions between the Bank of England's role in stabilising the nominal side of the economy, and the government's role in making policy that makes it likely that lots of real wealth is generated. The best nominal policies, like NGDPLT, focus on stabilising, or ensuring the stable growth of, some nominal variable. The optimal result is extremely reliable stable growth. But that's not what we want in real wealth. When it comes to real wealth, the more the better. That a policy boosted the markets' expectations of national wealth by 10% in five years would not prove it was an optimal, or even good policy, if there was an alternative that could boost wealth by 50%.

So when it comes to national wealth we need conditional prediction markets. We need markets that tell us what would happen if we implemented a given policy. The specifics of implementing these sorts of markets become quite complex and difficult, as we do not want to restrict the policy choice too much, but it may also not be practicable to open up a gilt market for every permutation of every major political idea. But if we could start conditional prediction markets up, we'd have a range of policy options with very interesting and suggestive evidence of what is best for the country's social welfare.

I think there are some persuasive objections to the results of these markets, and—further—to running policy in any rigidly-linked way to these markets. But I also think they can all be plausibly dealt with, and I will attempt to do so in a blog post tomorrow.

Making the wrong argument about supermarket cashiers

Farhad Manjoo makes a valiant attempt to insist that supermarket cashiers aren't going to be out of a job any time soon. So what's with all those self-checkout things then?

In a recent research paper called "Dancing With Robots," the economists Frank Levy and Richard Murnane point out that computers replace human workers only when machines meet two key conditions. First, the information necessary to carry out the task must be put in a form that computers can understand, and second, the job must be routine enough that it can be expressed in a series of rules. Supermarket checkout machines meet the second of these conditions, but they fail on the first.

They lack proper information to do the job a human would do. To put it another way: They can't tell shiitakes from Shinola. Instead of identifying your produce, the machine asks you, the customer, to type in a code for every leafy green in your cart. Many times you'll have to look up the code in an on-screen directory. If a human checker asked you to remind him what that bunch of the oblong yellow fruit in your basket was, you'd ask to see his boss. This deficiency extends far beyond the checkout lane.

All of this is entirely true and also very near irrelevant. Because employers are not in fact looking at the best way of doing something. They're looking at the most productive way of doing something.

And most productive depends, in this case at least, on two things. What are the costs of the different ways of doing the check out and, much more importantly, who is bearing those costs?

Let's imagine that the machines cost the supermarket less than the cashiers. That certainly sounds about right: technology has marched on and those systems, I would guess, would be cheaper than several years wages for enough cashiers to cover all of the shifts. Therefore the supermarket is going to be installing more machines. And it doesn't actually matter to the supermarket if the machines aren't as "good" as cashiers.

For here "good" is a function of how much time it takes to complete the task. And by getting us to line up at the machines the supermarket has made that time a cost that it isn't carrying. Instead, it's us the customers who are carrying that cost. It's an externality to the sums the supermarket does, is not included in hte numbers they face. The machines may well be a worse deal for us, the consumers, but a better one for the supermarket, the producer. All of which means they're going to keep installing those machines because their incentives are to do so.

What they're really doing with the limitations on political party funding

There is, as we all know, a move afoot to try and ban the spending of large sums of private money on the pursuit of politicas. Specfically, on the donation of large sums of money to a political party. We will then be forced to cough up for the poltroons through our tax bills rather than in a voluntary manner by our donations. This, in itself, is good enough reason to condemn the proposals.

But Don Boudreaux points out what makes it all very much worse. It isn't just about making, say, Labour less beholden to the unions. It's about creating a cartel:

If executives for profitable and established companies such as Apple and Wal-Mart persuaded Congress to cap the amounts that banks, venture capitalists, rich uncles, and other financiers may invest in private firms, including upstarts, this restriction would be widely seen as an anti-competitive and unjust scheme to stymie economic competition. New rivals would be disproportionately bridled in acquiring the means – money – to buy the inputs necessary for competing successfully against incumbent firms.

This is what is being proposed here in the UK. Instead of people deciding they might want to give some money to a politician or political party they'd like to support the money will be doled out from the State. One the basis of previous election support, obviously. Meaning that there's a very large barrier put in place against the rise of a new political party.

It is, quite simply, the creation of a cartel.

One other point that Boudreaux alludes to. Let's say your a staunch Labour guy and you're outraged by the way that the Big Business money flows to the Tories. The way to stop this is to change the incentives for Big Business. Strip the government, the State, of the ability to create rent seeking opportunities and no business would ever bother to buy a politician. For the politician wouldn't be able to create that super-profit for the business in return.

Or as I would put the solution. Don't stop people from buying politics, stop them from being interested in purchasing politics.

ASI launches The Entrepreneurs Network

Today, sees the launch of The Entrepreneurs Network – a new think tank supported by the Adam Smith Institute. The Entrepreneurs Network is a think tank designed to bring entrepreneurs to the forefront of political discourse and help make Britain the best place to start a business.

The Entrepreneurs Network will produce research outlining the benefits of easing unnecessary burdens upon enterprise; host high-profile events to bridge the gap between the aspirations of the entrepreneurial community and policy makers; and represent and champion entrepreneurs, making the case for a more entrepreneurial society.

The best way to stay in tough with what The Entrepreneurs Network is doing is to sig up to the fortnightly Entrepreneurs Bulletin. This will give you:

  • A digest of the latest government proposals and how they could impact your business;
  • An update of what is going on in entrepreneurial communities across the country;
  • The chance to share your views on entrepreneurship;
  • Invitations to Network events;
  • Opportunities to represent your business and the Network in the media.

Please visit the website to find out more, sign up for the bulletin and contact us with your thoughts on this new think tank.

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It really is all obvious or trivial except

There's a story about economics, that it's all trivial or obvious except....the except being Ricardo on trade. The point was made when a mathematician asked an economist whether there was anything in economics that was not trivial or obvious. As opposed to, as in mathematics, attempting to unlock the secrets of the universe of course.

I was reminded of this when reading about Sam Johnson and his writing of his dictionary recently. I came across this quote:

Yes, Sir, no man is a hypocrite in his pleasures.

This is of course exactly the same as the idea of revealed preferences and the Good Doctor was a couple of centuries ahead of the economists in pointing it out.

The point of revealed preferences being of course that you shouldn't take as being true what people say or write: watch what they actually do in order to understand their desires. The implications of this are important, even if the point, once made, is entirely obvious. We should not, for example, take votes in elections as being particlarly indicative of anything very much other than that there's no other good way of getting rid of the last lot of poltroons who attempted to govern us. That the new lot's manifesto made some promise or other on reducing drinking, say, does not mean that everyone wants all hte pubs shut. For millions of people do indeed go to pubs every day which is a much better guide to their desires than whatever happened in the voting booth.

Similarly public opinion, polls, surveys, while they might be interesting they're in no manner as good a guide to desires as watching what people actually do.

As to economics being trivial or obvious, yes, much of it is indeed so. To an extent we can think of it as the codification and exploration of those trivial and obvious points that can be made about humans: an exploration of the implications if you like. Except, of course, for Ricardo on trade which is why it's so troubling that so many people don't understand it. The real message of that is that if we all do what we're least bad at and then swap around the resultant production then we'll all be better off than any other way of organising the universe.

Talking about controlling conflict minerals

I was having a chat this past week with a senior bod in a charity that is trying to do something about conflict minerals. These are the ones where child slaves are sent out to dig up the ores which the armed militias then greatly profit from. Something I'm sure we'd all like to see stopped.

During the course of that hour long chat (I'll use no names, so no pack drill) it became apparent this senior bod, indeed the group of NGOs pushing for new EU regulation along the lines of the US's Dodd Frank rules, had not the slightest clue about how the world works. I'll grant you they knew where the exploitation was taking place but other than that pretty much bupkiss.

"So, this proposal of yours, how much will it cost?"

"We've not done a cost analysis of it".

"What will be the value of the benefits of your proposal?"

"We have not done a benefits costing."

This is, please recall, a group that is campaigning to change the law for 500 million people. And they don't know how much what they are campaigning for will cost, what the benefit will be, not even whether the benefit will be greater than the cost and that thus there will be a net addition to human happiness or utility.

That's bad enough but then I found myself very much through the looking glass. Their proposal is that everyone (yes, all individuals and all companies, those who first introduce a product onto the EU market) must be legally responsible for the entire supply chain of the ingredients in what they are selling. They seem not to get that no one at all knows how to make any particular product. They'd not even heard of I Pencil. No one person, no one company, knows how to make a pencil: or a smartphone, a computer, nor almost any piece of modern day gizmoidery. So how in heck can anyone track down the entire supply chain for doing this? Let alone agree to be legally responsible for the entirety of it?

They are quite literally insisting that if I ship in a box of Chinese pencil sharpeners to sell on e-Bay (of the soon to be popular "Hello Rover!" brand) then I am legally responsible for ensuring that the steel making the blade was not made from conflict mineral tungsten. Which means tracking back through any number of Chinese companies not just to a steel mill but to the ferro-alloy producer before that and interrogating him as to where he got his ammonium paratungstate from. Which means going further back to the plant that made that from the original ore. And I've got to do that again with the screw that keeps the blade in place.

These people are of course mad. For the entire point and purpose of a market economy is that I cannot know all of that and it is the markets that ensure that I don't need to. I can just look at the prices to see where I'm going to get my gear from. I am entirely blind as to what happens two or four steps down the line from me: the point being that the system simply cannot work any other way. Full supply chain analysis, of the sort they are insisting that everyone should do, entirely negates that value of a market economy for us. We're back to being GOSPLAN and look how well that system worked.

Chart of the week: Eurozone bank deposits recover slightly

Summary: Drain on bank deposits in periphery easing

What the chart shows: The chart shows deposits held by ‘other general government/other EA residents’ relative to the situation in January 2012 and January 2013

Why is the chart important: Bank deposits are the key component of broad money. The crises in the periphery countries was accompanied by substantial drains of deposits as households and companies moved money out of (distrusted) local banks, either to hold as cash or – more likely – to deposit in (trusted) banks in core euro area countries. But this also meant a drastic fall in broad money, in turn crippling banks further. As the euro area situation has stabilised and conditions have improved, however, marginally, this process has begun to reverse. In Greece, Spain and Ireland, bank deposits are now increasing. This does not mean that there is a strong and durable recovery on. But it does show improved confidence and gives some hope that the bottom may have been reached.

Making the US Govt shutdown seem worse than it is

It's always the same, any bureaucracy under attack will cut the most obvious, public and desired of its services when the budget is under attack. It's never the paper shufflers who are asked to cut back but the library hours that are reduced. Or the parks are closed rather than the diversity advisers getting it in the neck. So it is with this latest shutdown of the US Govt.

NATIONAL PARKS: National parks have been closed to new visitors, and park roads, concessions and other facilities are now being closed. Overnight visitors have been given two days to depart. This will mean a loss of 750,000 daily visitors and an economic loss to gateway communities of as much as $30 million for each day parks are shut, according to the non-profit National Parks Conservation Association.

That might all seem logical enough. The non-essential bits of the government are being closed down and while parks are nice they're not really essential. Except that's not what they actually mean by "concessions". This is what they do mean:

The US Forest Service, under pressure apparently from the White House, has reversed both its historical precedent as well as its position yesterday and will close over 1000 public parks and campgrounds that are operated by private companies without using one dime of public money. Why does the fact that our landlord the US Forest Service is going on an unpaid vacation mean that tenants of theirs have to close up shop too? We have no idea.

A concession is where a private company operates the park, the Forest Service being merely the landlord. And as you might expect, the money flows from the concessionaire to the Forest Service, not the other way around.

So, in order to make the government shutdown more painful to the populace the US Government is cutting its own revenue by insisting that private businesses which pay it rent must close down.

I can never remember whether we're supposed to flog bureaucrats before or after we hang them.